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As Filed with the Securities and Exchange Commission on February 2, 1999
REGISTRATION NO. 333-70807
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_____________________________
AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________________
HIBERNIA CORPORATION
(Exact name of registrant as specified in its charter)
===============================================================================
LOUISIANA 6711 72-0724532
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
313 CARONDELET STREET
NEW ORLEANS, LOUISIANA 70130
(504) 533-5332
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
__________________________
GARY L. RYAN
SENIOR VICE PRESIDENT AND CORPORATE COUNSEL
HIBERNIA CORPORATION
313 CARONDELET STREET
NEW ORLEANS, LOUISIANA 70130
(504) 533-5560
(Name, address, including zip code, and telephone number, including area code of
agent for service)
__________________________
COPIES TO:
MARK A. FULLMER, ESQ. RICHARD E. BROPHY, JR., ESQ.
LOCKE LIDDELL & SAPP, LLP NAMAN, HOWELL, SMITH & LEE
601 POYDRAS STREET, SUITE 2400 700 TEXAS CENTER
NEW ORLEANS, LOUISIANA 70130 9TH & WASHINGTON
(504) 558-5148 WACO, TEXAS 76701
(254) 754-6331
__________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as practicable after this registration statement is declared
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_] ______________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] ______________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same.
[_] ______________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT WILL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT WILL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF MARTEX BANCSHARES, INC. TO BE HELD
MARCH 5, 1999
You are hereby notified that a Special Meeting of shareholders of MarTex
Bancshares, Inc. will be held at the main office of First Service Bank, 400
South Alamo, Marshall, Texas, 75670, on March 5, 1999 at 2:30 p.m.. The
following matters will be considered and voted upon at this meeting:
1. A proposal to approve the Amended and Restated Agreement and Plan of
Merger effective as of June 29, 1998, between MarTex Bancshares, Inc.
and Hibernia Corporation. The Plan of Merger provides that MarTex will
be merged into Hibernia Corporation, and Hibernia Corporation will
survive the merger. As a result of the merger, each outstanding share of
MarTex common stock that you own will be converted into shares of
Hibernia Corporation common stock. The accompanying proxy
statement/prospectus describes the number of shares of Hibernia common
stock that will be exchanged for each share of MarTex common stock as a
result of the merger.
2. A proposal to approve the merger between MarTex and Hibernia
Corporation.
3. A proposal to approve the issuance of shares of MarTex common stock
under stock grant agreements to F. Wayne McWhorter and George E.
Meisenheimer, each of whom is an officer and director of MarTex.
4. Such other business as may be properly brought before the meeting or at
any and all adjournments or postponements thereof.
Each shareholder who is the owner of record of MarTex common stock at the
close of business on February 1, 1999 is entitled to receive notice of and to
vote on the matters presented at the Special Meeting. You are cordially invited
to attend the Special Meeting in person; however, whether or not you plan to
attend, we urge you to complete, date and sign the accompanying proxy card and
return it promptly in the enclosed postage prepaid envelope.
By Order of the Board of Directors
By: /s/ George E. Fitts
--------------------
Marshall, Texas George E. Fitts
February 2, 1999 Secretary
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING.
<PAGE>
MARTEX BANCSHARES, INC. HIBERNIA CORPORATION
PROXY STATEMENT PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS 3,450,000 SHARES OF CLASS A COMMON STOCK
The Board of Directors of MarTex Bancshares, Inc. has unanimously approved a
merger of MarTex into Hibernia Corporation. In the merger, you will receive
Hibernia common stock. The number of shares of Hibernia common stock that you
will receive is based on the number of shares of MarTex common stock outstanding
on the date of the merger and the price of Hibernia common stock on that date.
MarTex therefore does not know the exact number of shares of Hibernia common
stock that you will receive for a MarTex share. The proxy statement/prospectus
includes estimates of a range of the number of shares of Hibernia common stock
that you might receive if certain assumptions are met.
On January 29, 1999, the closing price of Hibernia common stock on the New
York Stock Exchange was $16.75. The price, however, will fluctuate between now
and the merger.
At the special meeting, you will consider and vote on the merger agreement and
the merger. THE MERGER AGREEMENT AND THE MERGER CANNOT BE APPROVED UNLESS
HOLDERS OF TWO-THIRDS OF THE MARTEX COMMON STOCK APPROVE THEM. THE BOARD OF
DIRECTORS OF MARTEX BELIEVES THE MERGER IS IN THE BEST INTERESTS OF MARTEX
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE THE MERGER
AGREEMENT AND THE MERGER. No vote of Hibernia shareholders is required to
approve the merger agreement and the merger.
At the special meeting, you also will consider and vote on the issuance of
shares of MarTex common stock to F. Wayne McWhorter and George E. Meisenheimer,
each of whom is an officer and director of MarTex, under their stock grant
agreements. THE MARTEX COMMON STOCK CANNOT BE ISSUED TO MR. MCWHORTER AND MR.
MEISENHEIMER UNLESS HOLDERS OF SEVENTY-FIVE PERCENT OF MARTEX COMMON STOCK VOTE
TO APPROVE THE ISSUANCE OF THE STOCK. MR. MCWHORTER AND MR. MEISENHEIMER'S
SHARES WILL NOT BE COUNTED IN THIS VOTE. THE BOARD OF DIRECTORS OF MARTEX
BELIEVES THAT ISSUANCE OF SHARES OF MARTEX COMMON STOCK TO MR. MCWHORTER AND MR.
MEISENHEIMER UNDER THE STOCK GRANT AGREEMENTS IS APPROPRIATE AND RECOMMENDS THAT
YOU APPROVE THE ISSUANCE OF THOSE SHARES.
The date, time and place of the meeting are:
March 5, 1999; 2:30 p.m.
Main Office of First Service Bank
400 South Alamo
Marshall, Texas
This proxy statement/prospectus provides you with detailed information
about the merger and the issuance of shares of MarTex common stock to Mr.
McWhorter and Mr. Meisenheimer. We encourage you to read this document
carefully. You also can obtain other information about Hibernia from documents
filed with the Securities and Exchange Commission.
Whether or not you plan to attend the meeting, if you are a holder of
MarTex common stock please take the time to vote by completing and mailing the
enclosed proxy card to us. IF YOU FAIL TO RETURN YOUR CARD OR VOTE IN PERSON,
THE EFFECT WILL BE A VOTE AGAINST THE APPROVAL OF THE MERGER AGREEMENT, THE
MERGER AND THE ISSUANCE OF SHARES OF MARTEX COMMON STOCK TO MR. MCWHORTER AND
MR. MEISENHEIMER UNDER THE STOCK GRANT AGREEMENTS. YOU MAY REVOKE YOUR PROXY BY
WRITING TO MARTEX'S SECRETARY AT ANY TIME BEFORE THE MEETING OR BY ATTENDING THE
MEETING AND VOTING IN PERSON.
ON BEHALF OF THE BOARD OF DIRECTORS OF MARTEX, WE URGE YOU TO VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT, THE MERGER AND THE ISSUANCE OF SHARES OF
MARTEX COMMON STOCK TO MR. MCWHORTER AND MR. MEISENHEIMER UNDER THE STOCK GRANT
AGREEMENTS.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the Hibernia common stock to be issued in the merger or
determined if the proxy statement/prospectus is accurate or adequate.
This proxy statement/prospectus is dated February 2, 1999, and will be mailed
to shareholders of MarTex on February 4, 1999.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
SUMMARY........................................................................... 1
EXCHANGE RATE OF HIBERNIA COMMON STOCK FOR EACH MARTEX SHARE................. 1
NO FEDERAL INCOME TAX ON SHARES RECEIVED IN MERGER........................... 1
MARTEX BOARD RECOMMENDS SHAREHOLDER APPROVAL................................. 1
EXCHANGE RATE FAIR TO SHAREHOLDERS ACCORDING TO INVESTMENT BANK.............. 2
ISSUANCE OF MARTEX STOCK UNDER STOCK GRANT AGREEMENTS........................ 2
MARTEX BOARD RECOMMENDS SHAREHOLDER APPROVAL OF ISSUANCE
OF MARTEX COMMON STOCK....................................................... 2
MEETING TO BE HELD MARCH 5, 1999............................................. 2
THE COMPANIES................................................................ 2
THE MERGER................................................................... 3
MARTEX SHAREHOLDER VOTE REQUIRED............................................. 3
RECORD DATE SET AT FEBRUARY 1, 1999; ONE VOTE PER SHARE OF MARTEX STOCK...... 3
MONETARY BENEFITS TO MANAGEMENT IN THE MERGER................................ 3
CONDITIONS THAT MUST BE SATISFIED FOR THE MERGER TO OCCUR.................... 4
TERMINATION AND AMENDMENT OF THE MERGER AGREEMENT............................ 4
HIBERNIA TO USE POOLING-OF-INTEREST ACCOUNTING TREATMENT..................... 5
TEXAS APPRAISAL RIGHTS....................................................... 5
SHARE PRICE INFORMATION...................................................... 5
LISTING OF HIBERNIA STOCK.................................................... 5
THE PARTIES TO THE MERGER......................................................... 6
INTRODUCTION................................................................. 6
HIBERNIA CORPORATION......................................................... 6
SELECTED FINANCIAL DATA...................................................... 7
SELECTED FINANCIAL DATA OF HIBERNIA.......................................... 7
MARTEX BANCSHARES, INC....................................................... 9
SELECTED FINANCIAL DATA OF MARTEX............................................ 9
PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION (UNAUDITED)................ 12
COMPARATIVE PER SHARE INFORMATION (UNAUDITED)................................ 14
MEETING INFORMATION............................................................... 16
INTRODUCTION................................................................. 16
SOLICITATION AND REVOCATION OF PROXIES....................................... 16
QUORUM AND VOTE REQUIRED..................................................... 16
RECOMMENDATION............................................................... 17
PROPOSED MERGER................................................................... 17
GENERAL...................................................................... 17
BACKGROUND OF AND REASONS FOR THE MERGER..................................... 18
TERMS OF THE MERGER.......................................................... 19
OPINION OF FINANCIAL ADVISOR TO MARTEX....................................... 19
CLOSING DATE AND EFFECTIVE DATE OF THE MERGER................................ 23
EMPLOYEE BENEFITS............................................................ 24
SURRENDER AND EXCHANGE OF STOCK CERTIFICATES................................. 24
EXPENSES..................................................................... 25
REPRESENTATIONS AND WARRANTIES............................................... 25
CONDITIONS TO THE MERGER; WAIVER............................................. 25
REGULATORY AND OTHER APPROVALS............................................... 26
BUSINESS PENDING THE MERGER.................................................. 26
TERMINATION.................................................................. 27
MANAGEMENT AND OPERATIONS AFTER THE MERGER................................... 27
CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS............................ 28
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................... 31
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MATERIAL TAX CONSEQUENCES.................................................... 32
RESALE OF HIBERNIA COMMON STOCK.............................................. 33
RIGHTS OF DISSENTING SHAREHOLDERS............................................ 33
ACCOUNTING TREATMENT......................................................... 35
STOCK GRANT AGREEMENTS............................................................ 35
CERTAIN REGULATORY CONSIDERATIONS................................................. 38
GENERAL...................................................................... 38
PAYMENT OF DIVIDENDS......................................................... 39
RESTRICTIONS ON EXTENSIONS OF CREDIT......................................... 39
PRO FORMA FINANCIAL INFORMATION................................................... 40
CERTAIN INFORMATION CONCERNING MARTEX............................................. 49
DESCRIPTION OF BUSINESS...................................................... 49
SUPERVISION AND REGULATION................................................... 49
COMPETITION.................................................................. 50
EMPLOYEES.................................................................... 50
PROPERTIES................................................................... 50
LEGAL PROCEEDINGS............................................................ 51
MARKET PRICES AND DIVIDENDS.................................................. 51
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT.................. 51
MARTEX FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997 (Unaudited)...................................... 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF MARTEX FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997............................ 61
MARTEX FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND DECEMBER 31, 1996 (Audited)............................ 69
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF MARTEX FOR
THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1996............................................................ 96
RELATIONSHIP WITH INDEPENDENT AUDITORS............................................ 104
VALIDITY OF SHARES................................................................ 104
EXPERTS........................................................................... 104
AVAILABLE INFORMATION............................................................. 104
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................... 105
APPENDICES........................................................................ 107
APPENDIX A AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER................ 107
APPENDIX B FAIRNESS OPINION OF ALEX. SHESHUNOFF & CO. INVESTMENT BANKING.... 131
APPENDIX C CERTAIN PROVISIONS OF STATE LAW
RELATING TO RIGHTS OF DISSENTERS' SHAREHOLDERS................... 133
APPENDIX D TAX OPINION OF ERNST & YOUNG LLP................................. 137
APPENDIX E STOCK GRANT AGREEMENTS AND AMENDMENTS............................ 138
</TABLE>
<PAGE>
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger and the issuance of shares of MarTex
common stock to Mr. McWhorter and Mr. Meisenheimer under the stock grant
agreements and for a more detailed description of the legal terms of the merger,
you should read carefully this entire document and the documents to which we
refer you. See " AVAILABLE INFORMATION" on page 104.
EXCHANGE RATE OF HIBERNIA COMMON STOCK FOR EACH MARTEX SHARE (PAGE 19)
If the merger is completed, you will receive Hibernia common stock in exchange
for your MarTex common stock. Hibernia will issue a total of 3,450,000 shares
of its common stock in the merger. The number of shares of Hibernia common
stock that you will receive is based on the outstanding number of shares of
MarTex common stock on the date of the merger and the price of Hibernia common
stock. The number of outstanding shares of MarTex will likely increase between
now and the date of the merger. Also, the price of Hibernia common stock will
fluctuate between now and the date of the merger. As a result, MarTex cannot
determine at this time the exact number of shares of Hibernia common stock that
you will receive in the merger. Based on certain assumptions by MarTex,
however, MarTex believes that you will receive the following number of shares of
Hibernia common stock for each MarTex share based on the following closing
prices of Hibernia common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
PRICE OF OF HIBERNIA COMMON STOCK
HIBERNIA COMMON STOCK RECEIVED FOR A MARTEX SHARE
--------------------- ---------------------------
<S> <C>
$15.00 0.253436619
$16.00 0.251441085
$17.00 0.249038297
$18.00 0.246876405
</TABLE>
Hibernia will calculate on the date of the merger the exact number of shares
of Hibernia common stock that you will receive in the merger. You will receive
cash instead of a fractional share.
On January 29, 1999, the closing price of Hibernia common stock on the New
York Stock Exchange was $16.75. After the merger, MarTex shareholders will own
less than 3% of Hibernia common stock.
NO FEDERAL INCOME TAX ON SHARES RECEIVED IN MERGER (PAGE 32)
MarTex shareholders generally will not recognize gain or loss for federal
income tax purposes for shares of MarTex common stock they receive in the
merger. Ernst & Young LLP, independent auditors for Hibernia, has issued an
opinion to this effect, which we have included as Appendix D to this proxy
statement/prospectus. MarTex shareholders will be taxed on cash received
instead of any fractional share. TAX MATTERS ARE COMPLICATED, AND TAX RESULTS
MAY VARY AMONG SHAREHOLDERS. WE URGE YOU TO CONTACT YOUR OWN TAX ADVISOR TO
UNDERSTAND FULLY HOW THE MERGER WILL AFFECT YOU.
MARTEX BOARD RECOMMENDS SHAREHOLDER APPROVAL (PAGE 18)
THE BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST INTEREST OF
MARTEX SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
1
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EXCHANGE RATE FAIR TO SHAREHOLDERS ACCORDING TO INVESTMENT BANK (PAGE 19)
Alex. Sheshunoff & Co. Investment Banking has given an opinion to the Board of
Directors of MarTex that, as of February 1, 1999, the exchange rate in the
merger is fair, from a financial point of view, to the shareholders of MarTex.
The full text of this opinion is attached as Appendix B to this proxy
statement/prospectus. We encourage you to read the opinion carefully. Alex.
Sheshunoff & Co. will be paid a fee based on the value of the Hibernia common
stock received by MarTex shareholders in the merger.
ISSUANCE OF MARTEX STOCK UNDER STOCK GRANT AGREEMENTS (PAGE 35)
In March, 1996, MarTex entered into stock grant agreements with F. Wayne
McWhorter, Chief Executive Officer and a Director of MarTex, and George E.
Meisenheimer, President and a Director of MarTex. The stock grant agreements
provide the terms of employment of Mr. McWhorter and Mr. Meisenheimer with
MarTex and provide for the issuance of shares of MarTex common stock to Mr.
McWhorter and Mr. Meisenheimer upon the change in control of MarTex that will
result in the merger. To obtain favorable income tax treatment for MarTex, Mr.
McWhorter and Mr. Meisenheimer when the Hibernia common stock is issued after
the merger, the shareholders must approve the issuance of MarTex common stock to
Mr. McWhorter and Mr. Meisenheimer under the stock grant agreements.
MARTEX BOARD RECOMMENDS SHAREHOLDER APPROVAL OF ISSUANCE
OF MARTEX COMMON STOCK (PAGE 35)
THE BOARD OF DIRECTORS OF MARTEX BELIEVES THAT ISSUANCE OF THE SHARES OF
MARTEX COMMON STOCK TO MR. MCWHORTER AND MR. MEISENHEIMER UNDER THE STOCK GRANT
AGREEMENTS IS APPROPRIATE AND RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER.
MEETING TO BE HELD MARCH 5, 1999 (PAGE 16)
MarTex will hold the special shareholders' meeting at 2:30 P.M. on Friday,
March 5, 1999, at the main office of First Service Bank, 400 South Alamo,
Marshall, Texas. At the meeting you will vote on the merger agreement, the
merger and the issuance of shares of MarTex common stock to Mr. McWhorter and
Mr. Meisenheimer under the stock grant agreements and conduct any other business
that properly arises.
THE COMPANIES (PAGES 6 AND 9)
HIBERNIA CORPORATION
313 Carondelet Street
New Orleans, Louisiana 70130
(504) 533-3333
Hibernia Corporation is a bank holding company with more than $13.2 billion in
assets. As of September 30, 1998, Hibernia Corporation was ranked, on the basis
of total assets, as the largest bank holding company headquartered in Louisiana.
MARTEX BANSHARES, INC.
2615 East End Boulevard South
Marshall, Texas 75670
(903) 938-9949
MarTex Bancshares, Inc. is the holding company for First Service Bank, which
has nine branch offices in the Marshall, Texas area. As of September 30, 1998,
MarTex Bancshares, Inc. had total assets of $319 million.
2
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THE MERGER (PAGE 17)
We have attached the Amended and Restated Agreement and Plan of Merger as
Appendix A to this proxy statement/prospectus. We encourage you to read that
agreement, as it is the legal document that governs the merger.
MARTEX SHAREHOLDER VOTE REQUIRED (PAGES 16 AND 17)
Approval of the merger agreement and the merger requires the affirmative vote
of the holders of more than two-thirds of the outstanding shares of MarTex
common stock. Approval of the issuance of shares of MarTex common stock to Mr.
McWhorter and Mr. Meisenheimer under the stock grant agreements requires the
affirmative vote of the holders of more than 75% of the outstanding shares of
MarTex common stock. Shares of MarTex common stock owned by Mr. McWhorter and
Mr. Meisenheimer will not be counted in the vote on the issuance to them of
shares of MarTex common stock. Your failure to vote will have the effect of a
vote against approval of the merger agreement, the merger and the issuance of
shares of MarTex common stock to Mr. McWhorter and Mr. Meisenheimer. Directors
and executive officers of MarTex beneficially owning 8,730,442 shares of MarTex
common stock, or approximately 73.5% of the outstanding shares of MarTex common
stock, have agreed to vote their stock in favor of the merger agreement and the
merger. Directors and executive officers of MarTex beneficially owning
8,505,813 shares of MarTex common stock, or approximately 73.3% of the
outstanding shares of MarTex common stock entitled to vote, have agreed to vote
their shares in favor of the issuance of shares of MarTex common stock to Mr.
McWhorter and Mr. Meisenheimer under the stock grant agreements.
If we obtain shareholder approval of the merger agreement and the merger, we
currently expect to complete the merger in early March, 1999.
Brokers who hold shares of MarTex common stock as nominees will not have
authority to vote such shares with respect to the merger agreement, the merger
and the issuance of shares of MarTex common stock to Mr. McWhorter and Mr.
Meisenheimer unless shareholders provide voting instructions.
The merger does not require approval of Hibernia's shareholders.
RECORD DATE SET AT FEBRUARY 1, 1999; ONE VOTE PER SHARE OF MARTEX STOCK (PAGES
16 AND 17)
If you owned shares of MarTex common stock at the close of business on
February 1, 1999, you are entitled to notice of and to vote on the merger
agreement, the merger, issuance of shares of MarTex common stock to Mr.
McWhorter and Mr. Meisenheimer under the stock grant agreements and any other
matters considered at the meeting.
On February 1, 1999, there were 11,848,338 shares of MarTex common stock
outstanding. You will have one vote at the meeting for each share of MarTex
common stock you owned on February 1, 1999.
MONETARY BENEFITS TO MANAGEMENT IN THE MERGER (PAGE 31)
When considering the recommendation of the MarTex Board, you should be aware
that the MarTex directors and officers have interests in the merger that differ
from the interests of other MarTex shareholders. Officers of MarTex who remain
employed by Hibernia after the merger will continue to receive a salary and
employee benefits.
The merger agreement provides for the indemnification of officers, directors
and employees of MarTex for specified liabilities up to specified aggregate
limitations.
If you approve the issuance of shares of MarTex common stock to Mr. McWhorter
and Mr. Meisenheimer under the stock grant agreements, they will receive those
shares prior to the merger.
3
<PAGE>
If Hibernia does not continue to employ Mr. McWhorter after the date of the
merger Mr. McWhorter will be entitled to be paid a severance payment in an
amount equal to two times his annual base salary in effect as of the date of the
termination of his employment.
Hibernia intends to enter into an employment agreement with Mr. Meisenheimer.
The agreement will have a term of three years, will provide for a salary, bonus
and stock grants, and will be on terms mutually acceptable to Hibernia and Mr.
Meisenheimer.
CONDITIONS THAT MUST BE SATISFIED FOR THE MERGER TO OCCUR (PAGES 25 AND 26)
The following conditions must be met for us to complete the merger:
. approval of the merger agreement and the merger by MarTex shareholders;
. regulatory approvals must be obtained, particularly the approval of the
Office of the Comptroller of the Currency, which was obtained on December 15,
1998;
. receipt of an opinion concerning the tax consequences of the merger;
. the continuing effectiveness of the registration statement filed with the
SEC;
. the absence of legal restraints that prevent the completion of the merger;
. the representations and warranties set forth in the merger agreement must be
accurate on the date of the merger;
. the Hibernia common stock to be issued in the merger must be approved for
listing on the New York Stock Exchange;
. the merger must qualify for pooling-of-interests accounting treatment;
. Hibernia shall have received affidavits from the directors of MarTex
regarding the stock grant agreements;
. Hibernia shall have received releases and indemnity agreements from Mr.
McWhorter and Mr. Meisenheimer regarding the stock grant agreements;
. Hibernia shall have received an opinion from counsel for Mr. McWhorter and
Mr. Meisenheimer regarding the enforceability of their releases;
. favorable opinions of counsel must be obtained; and
. receipt by MarTex of an opinion of Alex. Sheshunoff & Co. that the exchange
rate in the merger is fair, from a financial point of view, to MarTex
shareholders within five days of the date of the merger.
TERMINATION AND AMENDMENT OF THE MERGER AGREEMENT (PAGES 27 AND 28)
We can agree at any time to terminate the merger agreement without
completing the merger. Either company may terminate the merger agreement in the
following circumstances:
. if the other company breaches its covenants, representations or warranties in
the merger agreement and the breach (1) reflects a material adverse change in
the breaching company and can't be timely cured, (2) results in a material
increase in the cost of the non-breaching party's performance of the merger
agreement or (3) results in a material decrease in the number of shares of
Hibernia common stock to be received by MarTex's shareholders;
. any application for any required federal or state regulatory approval is
denied, and the time for all appeals has expired;
. the MarTex shareholders fail to approve the merger agreement and the merger
at the meeting; or
. the merger is not completed by March 31, 1999, or any condition to the
merger cannot be satisfied by that date and will not be waived by the party
entitled to waive it.
4
<PAGE>
Hibernia can also terminate the merger agreement in the following
circumstances:
. if the holders of more than 10% of the outstanding stock exercise statutory
rights of dissent and appraisal;
. if after March 31, 1998, a material adverse change occurs in the financial
condition, results of operations, business or prospects of MarTex or First
Service Bank;
. if it does not timely receive releases and indemnification agreements from
Mr. McWhorter and Mr. Meisenheimer, affidavits from the directors of MarTex
relative to shares of MarTex stock to be issued to Mr. McWhorter and Mr.
Meisenheimer under the stock grant agreements and a legal opinion from
counsel for Mr. McWhorter and Mr. Meisenheimer regarding the enforceability
of their releases; or
. if it shall determine in good faith that the merger does not qualify as a
pooling-of-interest for accounting purposes.
MarTex can also terminate the merger agreement in the following
circumstances:
. if after March 31, 1998, a material adverse change occurs in the financial
condition, results of operations, business or prospects of Hibernia
Corporation or Hibernia National Bank; or
. if MarTex does not receive an updated opinion of Alex. Sheshunoff & Co. dated
within five days of the closing of the merger to the effect that the exchange
rate in the merger is fair, from a financial point of view, to the MarTex
shareholders.
HIBERNIA TO USE POOLING-OF-INTEREST ACCOUNTING TREATMENT (PAGE 35)
Hibernia will account for the merger as a pooling-of-interest. This will
enhance future earnings by avoiding the creation of goodwill relating to the
merger and enable Hibernia to avoid charges against future earnings resulting
from amortizing goodwill. This accounting method also means that after the
merger, Hibernia will report financial results as if MarTex always had been
combined with Hibernia.
TEXAS APPRAISAL RIGHTS (PAGE 33)
Under Texas law, you have the right to an appraisal of your shares in
connection with the merger.
SHARE PRICE INFORMATION
Hibernia common stock is listed on the New York Stock Exchange. On June
28, 1998, the last full trading day before public announcement of the proposed
merger, Hibernia common stock closed at $20.375 per share. On January 29, 1999,
Hibernia common stock closed at $16.75.
There is no established public trading market for MarTex common stock.
LISTING OF HIBERNIA STOCK
Hibernia will list the shares of its common stock to be issued in the
merger on the New York Stock Exchange.
5
<PAGE>
THE PARTIES TO THE MERGER
INTRODUCTION
Hibernia Corporation ("Hibernia") and MarTex Bancshares, Inc. ("MarTex")
are parties to the Amended and Restated Agreement and Plan of Merger effective
as of June 29, 1998 (the "Agreement" or the "Merger Agreement"). The Agreement
provides that MarTex will be merged into Hibernia (the "Merger") and Hibernia
will survive the Merger.
HIBERNIA CORPORATION
Hibernia is a Louisiana corporation registered under the Bank Holding
Company Act of 1956, as amended. As of September 30, 1998, Hibernia had total
consolidated assets of approximately $13.2 billion and shareholders' equity of
approximately $1.3 billion. As of that time, Hibernia was ranked, on the basis
of total assets, as the largest bank holding company headquartered in Louisiana.
As of September 30, 1998, Hibernia had two banking subsidiaries: Hibernia
National Bank ("HNB") and Hibernia National Bank of Texas ("HNBT"). HNB
provides retail and commercial banking services through approximately 203
banking offices throughout Louisiana. HNBT provides retail and commercial
banking services through approximately 25 banking offices in 12 Texas counties.
As of September 30, 1998, HNB was the largest bank headquartered in Louisiana.
Effective January 1, 1999, HNBT was merged into HNB which survived the merger.
HNB will carry on the business previously conducted by HNBT.
From time to time, Hibernia investigates and holds discussions and
negotiations in connection with possible mergers or similar transactions with
other financial institutions. On July 1, 1998, Hibernia completed its merger
with Peoples Holding Corporation, the holding company of Peoples Bank & Trust
Company headquartered in Minden, Louisiana.
In addition to MarTex, Hibernia has entered into a definitive merger agreement
to acquire First Guaranty Bank headquartered in Hammond, Louisiana. As of
September 30, 1998, First Guaranty Bank had total consolidated assets of $249
million and shareholders equity of $19.1 million. The completion of the pending
transaction with First Guaranty Bank is subject to certain conditions similar to
the conditions to the merger of MarTex into Hibernia. If the conditions to the
pending transaction with First Guaranty Bank are satisfied, the merger between
Hibernia and First Guaranty Bank may be completed before or after the completion
of the Merger. Shareholders of MarTex will not have the right to vote on this
or any other pending merger transaction.
On December 1, 1998, Hibernia announced that it has entered into an agreement
to acquire four branches in Texas from Chase Manhattan Corp. for $87 million.
Hibernia will acquire $452 million in deposits and will take over $1.3 billion
in managed assets which include money in trust or personal asset accounts. The
acquisition of the branches is subject to regulatory approval and is expected to
close in the first quarter of 1999. Shareholders of MarTex will not have the
right to vote on this acquisition or any similar transaction. Hibernia expects
to pursue other possible acquisition opportunities and intends to continue to
pursue such opportunities in the near future. Any transactions may be entered
into before or after the Merger. The terms of any future transactions cannot be
predicted at this time. Also, future transactions would be subject to
regulatory approval and the approval of shareholders of the acquired institution
if required by law.
On January 13, 1999, Hibernia reported net income for the year ended December
31, 1998 of $178.6 million, or $1.12 per share of Hibernia Class A Common Stock
("Hibernia common stock"), up 23% from net income of $144.8 million, or $.90 per
share of Hibernia common stock, for the year ended
6
<PAGE>
December 31, 1997. Return on assets improved to 1.39% in 1998 from 1.29 % in
1997, and return on common equity improved to 14.80% in 1998 from 13.36 in 1997.
Hibernia also reported that total deposits at December 31, 1998 were $10.6
billion, up 8% from $9.8 billion a year earlier, and that total loans reached
$10.0 billion at December 31, 1998, up 21% from $8.3 billion at December 31,
1997.
The principal executive offices of Hibernia are located at 313 Carondelet
Street, New Orleans, Louisiana 70130, and its telephone number is (504) 533-
3333. For additional information concerning the business and financial condition
of Hibernia, please refer to Hibernia's reports incorporated herein by
reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
SELECTED FINANCIAL DATA
The closing market price per share of Hibernia common stock on the New York
Stock Exchange ("NYSE") on June 28, 1998 was $20.375. That day was the business
day prior to Hibernia's and MarTex's announcement of their proposed Merger. The
parties do not know what the market price of Hibernia common stock will be on
the Closing Date.
SELECTED FINANCIAL DATA OF HIBERNIA
The following table sets forth certain consolidated financial information for
Hibernia. This information is based on the consolidated financial statements
and related notes of Hibernia contained in its Annual Report on Form 10-K for
the year ended December 31, 1997, after giving effect for mergers with Northwest
Bancshares of Louisiana, Inc., ArgentBank and Firstshares of Texas, Inc.,
completed in the first quarter of 1998, and Peoples Holding Corporation,
completed in the third quarter of 1998, each of which were accounted for as
pooling of interests, and its Quarterly Report on Form 10-Q for September 30,
1998. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
7
<PAGE>
<TABLE>
<CAPTION>
HIBERNIA CORPORATION
SELECTED FINANCIAL INFORMATION
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------------
Unaudited ($ in thousands, except per share amounts)
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income .................. $ 482,036 $ 422,269 $ 371,360 $ 348,714 $ 343,898
Income from continuing operations .... 144,796 127,893 146,206 117,072 87,667
Per common share:
Income from continuing operations . 0.90 0.83 0.96 0.76 0.57
Income from continuing operations -
assuming dilution ............... 0.89 0.82 0.95 0.76 0.57
Cash dividends .................... 0.33 0.29 0.25 0.19 0.03
Book value ........................ 7.15 6.41 5.93 4.92 4.60
SELECTED PERIOD-END BALANCES
Debt ................................. 506,548 57,192 36,744 23,461 42,614
Total assets ......................... 12,388,184 10,730,936 9,017,639 8,502,277 8,306,930
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HIBERNIA CORPORATION
SELECTED FINANCIAL INFORMATION
9 Months Ended September 30
- --------------------------------------------------------------------------------
Unaudited ($ in thousands, except per share amounts)
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Net interest income .................. $ 393,123 $ 357,292
Income from continuing operations .... 130,714 111,293
Per common share:
Income from continuing operations . 0.82 0.69
Income from continuing operations -
assuming dilution ............... 0.80 0.68
Cash dividends .................... 0.27 0.24
Book value ........................ 7.85 7.00
SELECTED PERIOD-END BALANCES
Debt ................................. 705,898 109,793
Total assets ......................... 13,272,848 11,540,878
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
MARTEX BANCSHARES, INC.
MarTex is a Texas corporation and a registered bank holding company under the
Bank Holding Company Act of 1956, as amended, which owns all of the issued and
outstanding shares of stock of First Service Bank (the "Bank") whose main office
is in Marshall, Texas. As of September 30, 1998 MarTex had total consolidated
assets of $319 million and shareholders' equity of $26.4 million. The Bank is a
state banking association having one office in Gladewater, one in Chireno, one
in Elysian Fields, one in Mineola, two in Lindale, one in Pittsburg, and two
offices in Marshall, Texas, for a total of nine offices. The Bank engages in
retail and commercial banking services, including taking deposits and extending
secured and unsecured credit.
The principal offices of MarTex are located at 2615 East End Boulevard South,
Marshall, Texas 75670 and its telephone number is (903) 938-9949. For
additional information concerning the business of MarTex and its financial
condition, see "CERTAIN INFORMATION CONCERNING MARTEX", "MARTEX FINANCIAL
STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)",
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF MARTEX FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997",
"MARTEX FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996" AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF MARTEX FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND DECEMBER
31, 1996".
SELECTED FINANCIAL DATA OF MARTEX
The following selected financial information of MarTex with respect to each
year in the three-year period ended December 31, 1997 and the nine-month periods
ended September 30, 1998 and 1997 has been derived from the financial statements
of MarTex. The information set forth below should be read in conjunction with
MarTex's financial statements, the notes thereto, and MarTex's Management's
Discussion and Analysis of Financial Condition and Results of Operations
elsewhere in this proxy statement/prospectus.
9
<PAGE>
<TABLE>
<CAPTION>
MARTEX BANCSHARES, INC.
SELECTED FINANCIAL INFORMATION
(Unaudited)
Year Ended December 31 9 Months Ended September 30
- -------------------------------------------------------------------------------------------------------------------
($ in thousands, except per share amounts) 1997 1996 1995 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income .................. $ 12,044 $ 8,590 $ 7,971 $ 9,088 $ 8,979
Income from continuing operations .... 3,099 2,186 2,198 2,255 2,075
Per common share:
Income from continuing operations . 0.26 0.18 0.24 0.19 0.18
Income from continuing operations -
assuming dilution ............... 0.26 0.18 0.24 0.19 0.18
Cash dividends .................... 0.04 0.03 0.04 0.03 0.03
Book value ........................ 2.05 1.79 1.58 2.23 1.96
SELECTED PERIOD-END BALANCES
Debt ................................. 1,014 2,563 - 831 1,197
Total assets ......................... 315,855 284,278 158,773 319,066 292,165
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
MARTEX BANCSHARES, INC.
QUARTERLY INCOME RESULTS
- ------------------------------------------------------------------------------------------
Unaudited ($ in thousands, except per share amounts)
- ------------------------------------------------------------------------------------------
3/31/98 6/30/98 9/30/98
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income ....... $6,028 $6,066 $5,990
Net interest income.... 2,955 3,058 3,075
Net income ............ 665 755 835
Net income per share... 0.06 0.06 0.07
- ------------------------------------------------------------------------------------------
3/31/97 6/30/97 9/30/97 12/31/97
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income ....... $5,486 $5,564 $5,682 $5,914
Net interest income.... 2,976 2,969 3,034 3,065
Net income ............ 711 667 697 1,024
Net income per share... 0.06 0.06 0.06 0.09
- ------------------------------------------------------------------------------------------
3/31/96 6/30/96 9/30/96 12/31/96
- ------------------------------------------------------------------------------------------
Interest income ....... $3,354 $3,500 $3,558 $4,208
Net interest income.... 2,001 2,128 2,087 2,374
Net income ............ 554 483 534 615
Net income per share... 0.06 0.05 0.06 0.05
</TABLE>
11
<PAGE>
PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth certain unaudited pro forma combined selected
financial information for Hibernia, after giving effect for the mergers with
Northwest Bancshares of Louisiana, Inc. ("Northwest"), ArgentBank ("Argent") and
Firstshares of Texas, Inc. ("Firstshares"), completed in the first quarter of
1998, and Peoples Holding Corporation ("Peoples") completed in the third quarter
of 1998, as discussed in Note A to the Pro Forma Combined Income Statements, and
MarTex Bancshares, Inc. The pro forma information, which reflects the Merger
and the completed mergers with Northwest, Argent, Firstshares and Peoples using
the pooling-of-interests method of accounting, is presented for information
purposes only. The results shown here are not necessarily indicative of the
actual results that might have occurred had the mergers been completed at the
beginning of the periods presented. Also, this information is not necessarily
indicative of results that might be achieved in the future if the Merger is
completed. See "PRO FORMA FINANCIAL INFORMATION" contained elsewhere herein.
12
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA HIBERNIA CORPORATION*
PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION
Year Ended December 31 9 Months Ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
Unaudited ($ in thousands, except per share amounts) 1997 1996 1995 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income .................. $ 494,080 $ 430,859 $ 379,331 $ 402,211 $ 366,271
Income from continuing operations .... 147,895 130,079 148,404 132,969 113,368
Per common share:
Income from continuing operations . 0.90 0.82 0.95 0.81 0.69
Income from continuing operations -
assuming dilution ............... 0.89 0.82 0.95 0.80 0.68
Cash dividends .................... 0.33 0.29 0.25 0.27 0.24
Book value ........................ 7.15 6.41 5.89 7.86 6.99
SELECTED PERIOD-END BALANCES
Debt ................................. 507,562 59,755 36,744 706,729 110,990
Total assets ......................... 12,704,039 11,015,214 9,176,435 13,591,914 11,833,043
- ----------------
* Includes Hibernia Corporation and MarTex Bancshares, Inc.
</TABLE>
13
<PAGE>
COMPARATIVE PER SHARE INFORMATION (UNAUDITED)
The following table sets forth for Hibernia common stock and MarTex common
stock certain unaudited pro forma combined and unaudited pro forma equivalent
per share financial information for the nine-months periods ended September 30,
1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995.
Information under the column titled "Hibernia Corporation" is based on
Hibernia's Annual Report on Form 10-K for the year ended December 31, 1997 after
giving effect for mergers with Northwest, Argent and Firstshares, completed in
the first quarter of 1998, and Peoples completed in the third quarter of 1998,
each of which were accounted for as poolings of interests, and Hibernia's
Quarterly Report on Form 10-Q for the nine-month period ended September 30,
1998. Information under the column titled "MarTex Bancshares, 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 MarTex contained elsewhere in this proxy
statement/prospectus.
Information under the column entitled "Pro Forma Hibernia Corporation (with
MarTex Bancshares, 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 completed mergers with Northwest, Argent,
Firstshares and Peoples, is presented for informational purposes only and should
not be construed as indicative of the actual operations that would have occurred
had the Merger been completed 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 22,078,237 shares of
Hibernia common stock for all of the outstanding shares of Northwest common
stock, Argent common stock, Firstshares common stock and Peoples common stock
and 3,450,000 shares of Hibernia common stock for all outstanding shares of
MarTex common stock.
The information under the column entitled "MarTex Bancshares, Inc. Pro Forma
Equivalent" is derived by multiplying the amounts contained in the column titled
"Pro Forma Hibernia Corporation (with MarTex Bancshares, Inc.)" by 0.24904 (the
Exchange Rate for purposes of this pro forma presentation).
14
<PAGE>
<TABLE>
<CAPTION>
HIBERNIA CORPORATION AND MARTEX BANCSHARES, INC.
COMPARATIVE PER SHAREE INFORMATION
- -------------------------------------------------------------------------------------------------------------------
Unaudited
PRO FORMA
HIBERNIA MARTEX
CORPORATION BANCSHARES, INC.
HIBERNIA MARTEX (WITH MARTEX PRO FORMA
CORPORATION BANCSHARES, INC. BANCSHARES, INC.) EQUIVALENT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Common Share:
Income from continuing operations:
For the nine months ended
September 30,
1998 $ 0.82 $ 0.19 $ 0.81 $ 0.20
1997 0.69 0.18 0.69 0.17
For the year ended
December 31,
1997 $ 0.90 $ 0.26 $ 0.90 $ 0.22
1996 0.83 0.18 0.82 0.20
1995 0.96 0.24 0.95 0.24
Income from continuing operations -
assuming dilution:
For the nine months ended
September 30,
1998 $ 0.80 $ 0.19 $ 0.80 $ 0.20
1997 0.68 0.18 0.68 0.17
For the year ended December 31,
1997 $ 0.89 $ 0.26 $ 0.89 $ 0.22
1996 0.82 0.18 0.82 0.20
1995 0.95 0.24 0.95 0.24
Cash dividends:
For the nine months ended
September 30,
1998 $ 0.27 $ 0.03 $ 0.27 $ 0.07
1997 0.24 0.03 0.24 0.06
For the year ended December 31,
1997 $ 0.33 $ 0.04 $ 0.33 $ 0.08
1996 0.29 0.03 0.29 0.07
1995 0.25 0.04 0.25 0.06
Book Value:
At September 30, 1998 $ 7.85 $ 2.23 $ 7.86 $ 1.96
At December 31, 1997 7.15 2.05 7.15 1.78
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
MEETING INFORMATION
INTRODUCTION
You have received this proxy statement/prospectus because the MarTex Board
is soliciting your proxy for the special meeting of shareholders of MarTex (the
"Special Meeting") to be held at 2:30 P.M., local time, on March 5, 1999 at the
main office of First Service Bank, 400 South Alamo, Marshall, Texas. Each copy
of this proxy statement/prospectus mailed to holders of MarTex common stock is
accompanied by a proxy card for use at the Special Meeting and at any
adjournment of the Special Meeting. Only holders of record of MarTex common
stock at the close of business on February 1, 1999 (the "Record Date") are
entitled to notice of and to vote at the Special Meeting. At the Special
Meeting, you will consider and vote upon the Agreement, the Merger and the
issuance of shares of MarTex common stock to Mr. McWhorter and Mr. Meisenheimer
under the stock grant agreements between Mr. McWhorter and MarTex and Mr.
Meisenheimer and MarTex (collectively, the "Stock Grant Agreements"). Any other
matters that are properly brought before the Special Meeting or any adjournment
of the Meeting will also be voted upon.
PLEASE COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED, POSTAGE-PAID ENVELOPE.
SOLICITATION AND REVOCATION OF PROXIES
If you have delivered a proxy for the Meeting, you may revoke it any time
before it is voted by attending the Special Meeting and voting in person. You
may also give notice in writing to the Secretary of MarTex prior to the date of
the Special Meeting that you are revoking your proxy. Finally, you may submit a
signed proxy card bearing a date later than your initial proxy, and if it is
received before the Special Meeting, the later-dated proxy will be voted. Proxy
cards received at or prior to the Special Meeting and not subsequently revoked
will be voted as directed. If instructions are not given, executed proxy cards
will be voted FOR approval of the Agreement, the Merger and the issuance of
shares of MarTex common stock to Mr. McWhorter and Mr. Meisenheimer under the
Stock Grant Agreements. If any other matters are properly presented at the
Special Meeting for consideration, the persons named in the proxy card will have
discretionary authority to vote on those matters. The MarTex Board is not aware
of any matter to be presented at the Special Meeting other than the proposal to
approve the Merger, the Agreement and the issuance of shares of MarTex common
stock to Mr. McWhorter and Mr. Meisenheimer under the Stock Grant Agreements.
The cost of soliciting proxies from MarTex's shareholders will be borne by
MarTex, except that Hibernia will bear all expenses incurred in printing this
proxy statement/prospectus. The 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 MarTex. If these individuals solicit votes
in that manner, they will not receive additional compensation for doing so.
MARTEX 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
COMPLETED.
QUORUM AND VOTE REQUIRED
A majority of the outstanding shares of MarTex common stock constitutes a
quorum for purposes of the Special Meeting. The affirmative vote of the holders
of two-thirds of the issued and outstanding shares of MarTex common stock is
required to approve the Merger and the affirmative vote of seventy-five percent
of the issued and outstanding shares of MarTex common stock is required to
approve the issuance of shares of MarTex common stock pursuant to the Stock
Grant Agreements. Shares of MarTex
16
<PAGE>
common stock actually or constructively owned by Mr. McWhorter and Mr.
Meisenheimer will not be counted in the vote to approve the issuance of shares
of MarTex common stock to them under the Stock Grant Agreements. Votes may be
cast in person or by proxy for the Special Meeting. Shareholders of record as of
the close of business on the Record Date are entitled to notice of the Special
Meeting and to vote at the Meeting. As of the Record Date, there were 11,848,338
shares of MarTex common stock outstanding and entitled to vote at the Special
Meeting. You are entitled to one vote at the Special Meeting for each share of
MarTex common stock that you owned on the Record Date.
An abstention will be considered present for quorum purposes, but will have
the same effect as a vote against the proposals 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.
As of the Record Date, the directors and executive officers of MarTex
beneficially owned a total of 8,730,442 shares of MarTex common stock, or
approximately 73.5% of the outstanding shares of MarTex common stock. These
individuals have agreed to vote their stock in favor of the Merger and the
Agreement. However, if the fairness opinion (the "Fairness Opinion") of Alex.
Sheshunoff & Co. Investment Banking, the financial advisor of MarTex, is
withdrawn or if any of these individuals are legally required to abstain from
voting or to vote against the Merger and the related Agreement in the opinion of
their counsel, they are not required to vote in favor of the Merger. The
directors and executive officers of MarTex, other than Mr. McWhorter and Mr.
Meisenheimer, beneficially owning 8,505,813 shares of MarTex common stock as the
Record Date, or 73.3% of the issued and outstanding shares of MarTex common
stock entitled to vote, also have agreed to vote their stock in favor of the
issuance of shares of MarTex common stock pursuant to the Stock Grant
Agreements.
RECOMMENDATION
The Board of Directors of MarTex has approved the Agreement and believes
the Merger is in the best interests of MarTex and its shareholders. The Board
of Directors also believes that approval of the issuance of shares of MarTex
common stock pursuant to the Stock Grant Agreements is appropriate. The MarTex
Board recommends that holders of MarTex common stock vote FOR approval of the
Agreement, the Merger and the issuance of shares of MarTex common stock to Mr.
McWhorter and Mr. Meisenheimer under the Stock Grant Agreements. In making its
recommendation to shareholders regarding approval of the Agreement and the
Merger, the MarTex Board considered, among other things, the Fairness Opinion,
which concludes that the number of shares of Hibernia common stock to be
exchanged for each share of MarTex common stock (the "Merger Consideration") as
a result of the Merger is fair, from a financial point of view, to the
shareholders of MarTex. 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 is not intended to include each aspect of
the Merger, but rather contains only the significant terms of the Merger. This
discussion 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. We urge you to read the Agreement carefully and in its
entirety.
GENERAL
If the holders of MarTex common stock approve the Agreement and the Merger
and the other conditions to the consummation of the Merger are satisfied, MarTex
will be merged with and into Hibernia. At that time, the separate existence of
MarTex will cease. Immediately after the merger of MarTex into Hibernia, the
Bank will be merged into HNB. At that time, the separate existence of the Bank
will cease. As soon as
17
<PAGE>
practicable following the date of the completion of the merger, the operations
previously conducted by the Bank will be conducted under the name of HNB. See
"PROPOSED MERGER--Management and Operations after the Merger".
Hibernia will exchange shares of Hibernia common stock, plus cash instead of
any fractional share, for each outstanding share of MarTex 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. See
"Terms of the Merger", below, for a discussion of the number of shares of
Hibernia common stock to be exchanged for each share of MarTex common stock in
the Merger (the "Exchange Rate").
BACKGROUND OF AND REASONS FOR THE MERGER
Background. In November, 1997, the Board of MarTex concluded that it should
explore the potential sale of MarTex or the potential merger of MarTex with
another financial institution. The Board engaged Alex. Sheshunoff & Co.
Investment Banking (the "Advisor") to assist in locating potential parties
interested in acquiring MarTex and evaluating expressions of interest and
proposals from such parties. The result of this process was the negotiation and
execution of the Agreement on June 29, 1998, which was amended and restated
effective as of the same date.
Reasons for the Merger. The terms of the Agreement, including the Exchange
Rate, are the result of arms-length negotiations between Hibernia and MarTex and
their respective representatives. MarTex's Board of Directors believes that the
Merger is fair and in the best interests of its shareholders. In reaching that
decision, the MarTex Board consulted with its financial and other advisors, as
well as with MarTex's management, and considered a number of factors, including,
but not limited to, the following:
. the financial condition and results of operations of, and prospects for, each
of Hibernia and MarTex;
. the financial terms of the Merger, including the amount and type of the
merger consideration to be received by MarTex's shareholders under the
Agreement;
. the Hibernia common stock to be received by holders of MarTex common stock in
the merger will be listed for trading on the New York Stock Exchange ("NYSE")
and will provide liquidity that is unavailable to holders of MarTex common
stock, for which an active trading market does not exist;
. potential for increased dividends on Hibernia common stock compared to MarTex
Common stock;
. the Agreement will allow holders of MarTex common stock to become
shareholders of Hibernia, an institution which was, as of September 30, 1998,
the largest bank holding company headquartered in Louisiana;
. the consideration to be received by MarTex shareholders in relation to MarTex
earnings and book value;
. the MarTex Board believes that changes in the regulatory environment will
result in MarTex 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;
. the Merger is expected to qualify as a tax-free reorganization so that the
holders of MarTex common stock will not recognize any gain in the
transaction; and
. the opinion received from the Advisor that the number of shares of Hibernia
common stock to be exchanged for each share of MarTex common stock and the
cash to be paid to MarTex shareholders who will receive cash instead of a
fractional share (the "Merger Consideration") was fair to such shareholders
from a financial point of view as of the date of such opinion.
The MarTex Board did not assign any specific or relative weight to the
foregoing factors in its considerations. The MarTex Board believes that the
Agreement and the Merger will provide significant value to all MarTex
shareholders.
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Based on the foregoing, the MarTex Board has unanimously approved the
Agreement and the Merger, believes that the Agreement and the Merger are in the
best interests of MarTex's shareholders, and recommends that all holders of
MarTex common stock vote "FOR" the approval of the Agreement and the Merger.
TERMS OF THE MERGER
If the holders of MarTex common stock approve the Agreement and the Merger and
the other conditions to the completion of the Merger are satisfied, the Merger
will be completed on the date that the parties choose to record the Agreement in
the States of Texas and Louisiana (the "Effective Date"). (See "PROPOSED MERGER
- --Representations and Warranties; Conditions to the Merger; Waiver" for a
discussion of the other conditions to completing the Merger.)
The Agreement provides that Hibernia will issue to the holders of MarTex
common stock, other than holders who exercise and perfect dissenters' rights
under Texas law, a maximum of 3,450,000 shares of Hibernia common stock. If the
Department of Justice, for antitrust reasons, requires Hibernia after the
completion of the Merger to divest a portion of the loans and deposits it
acquires from MarTex by virtue of the Merger, the Agreement provides a formula
to reduce the number of shares of Hibernia common stock to be issued in the
Merger to reflect the economic consequences of the divestiture to Hibernia. In
December, 1998, the Department of Justice advised the Office of the Comptroller
of the Currency ("OCC") that the Department of Justice did not have any anti-
trust concerns with respect to the Merger. As a result, Hibernia will not have
to divest any loans or deposits. Consequently, the number of shares of Hibernia
common stock that will be exchanged for each share of MarTex common stock will
be determined by dividing 3,450,000 by the number of shares of MarTex common
stock outstanding on the Effective Date. MarTex shareholders who would
otherwise receive a fraction of a share of Hibernia common stock will receive
cash instead of that fractional share.
DURING THE PERIOD BETWEEN THE DATE OF THIS PROXY STATEMENT/PROSPECTUS AND THE
EFFECTIVE DATE, THE NUMBER OF OUTSTANDING SHARES OF MARTEX COMMON STOCK WILL
INCREASE. ALSO, THE PRICE OF HIBERNIA COMMON STOCK WILL FLUCTUATE FROM NOW
UNTIL THE DATE OF THE CLOSING OF THE MERGER (THE "CLOSING DATE"). AS A RESULT,
MARTEX CANNOT DETERMINE tHE EXACT NUMBER OF SHARES OF HIBERNIA COMMON STOCK THAT
WILL BE ISSUED TO MARTEX SHAREHOLDERS IN EXCHANGE FOR EACH SHARE OF MARTEX
COMMON STOCK. ON THE EFFECTIVE DATE, HIBERNIA WILL CALCULATE THE EXACT NUMBER
OF SHARES OF HIBERNIA COMMON STOCK THAT WILL BE EXCHANGED FOR EACH SHARE OF
MARTEX COMMON STOCK. A CHART REFLECTING THE NUMBER OF SHARES OF HIBERNIA COMMON
STOCK TO BE EXCHANGED FOR A MARTEX SHARE ASSUMING A RANGE OF PRICES OF HIBERNIA
COMMON STOCK AND BASED ON A NUMBER OF ASSUMPTIONS BY MARTEX IS SET FORTH UNDER
THE CAPTION "STOCK GRANT AGREEMENTS."
On the Closing Date each outstanding share of MarTex common stock, other than
shares held by shareholders who exercise and perfect dissenters' rights, will
automatically convert to the number of shares of Hibernia common stock described
herein. Shareholders who held MarTex common stock will automatically be
entitled to all of the rights and privileges afforded to holders of Hibernia
common stock at that time. However, the exchange of MarTex stock certificates
for certificates representing Hibernia common stock will occur after the Closing
Date.
YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO MARTEX OR HIBERNIA AT THIS
TIME. IF THE MERGER IS COMPLETED, YOU WILL RECEIVE INSTRUCTIONS REGARDING THE
EXCHANGE OF YOUR CERTIFICATES OF MARTEX COMMON STOCK FOR HIBERNIA STOCK.
OPINION OF FINANCIAL ADVISOR TO MARTEX
MarTex retained the Advisor to provide its opinion of the fairness from a
financial viewpoint, of the Merger Consideration to be received by the
stockholders of MarTex in connection with the Merger with
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Hibernia. As part of its investment banking business, the Advisor is regularly
engaged in the valuation of securities in connection with mergers and
acquisitions and valuations for estate, corporate and other purposes. The MarTex
Board of Directors retained the Advisor based upon its experience as a financial
advisor in mergers and acquisitions of financial institutions and its knowledge
of financial institutions. On June 29, 1998, the Advisor rendered its oral
opinion that, as of such date, the Merger Consideration was fair, from a
financial point of view, to MarTex shareholders. The Advisor rendered its
written Fairness Opinion as of January 19, 1999 and its updated Fairness Opinion
as of February 1, 1999.
The full text of the Fairness Opinion which sets forth, among other things,
assumptions made, procedures followed, matters considered, and limitations on
the review undertaken, is attached as Appendix B to this Proxy
Statement/Prospectus. MarTex shareholders are urged to read the Advisor's
Fairness Opinion carefully and in its entirety. The Fairness Opinion is
addressed to the MarTex Board, and does not constitute a recommendation to any
MarTex shareholder as to how such shareholder should vote at the MarTex Special
Meeting.
In connection with the Fairness Opinion, the Advisor:
1. reviewed the Merger Agreement;
2. reviewed certain publicly available financial statements and regulatory
information concerning Hibernia and MarTex, respectively;
3. reviewed certain internal financial statements and other financial and
operating data of MarTex provided to the Advisor by MarTex's management;
4. reviewed the reported market prices and trading activity for Hibernia
Common Stock;
5. discussed the past and current operations, financial condition, and future
prospects of MarTex with its executive management;
6. compared MarTex and Hibernia from a financial point of view with certain
other banking companies that the Advisor deemed to be relevant;
7. compared the financial performance of Hibernia and the market prices and
trading activity of Hibernia's Common Stock with that of certain other
indices of publicly traded equity securities;
8. reviewed the financial terms, to the extent publicly available, of certain
comparable merger transactions in the Southwestern United States and in
Texas and;
9. performed such other analyses and reviews as the Advisor deemed
appropriate.
In connection with its review, the Advisor relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it or
made publicly available, and the Advisor did not assume any responsibility for
independent verification of such information. The Advisor assumed that internal
confidential financial projections provided by MarTex were reasonably prepared
reflecting the best currently available estimates and judgments of the future
financial performance of MarTex and did not independently verify the validity of
such assumptions. The Advisor did not make any independent evaluation or
appraisal of the assets or liabilities of MarTex, nor was the Advisor furnished
with any such appraisals. The Advisor did not examine any individual loan files
of MarTex. The Advisor is not an expert in the evaluation of loan portfolios
for the purposes of assessing the adequacy of the allowance for losses with
respect thereto and has assumed that such allowance is, in the aggregate,
adequate to cover such losses.
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With respect to Hibernia, the Advisor relied solely upon publicly available
data regarding Hibernia's financial condition and performance. The Advisor did
not meet with or discuss this publicly available information with the management
of Hibernia. The Advisor did not conduct any independent evaluation or
appraisal of the assets, liabilities or business prospects of Hibernia, was not
furnished with any evaluations or appraisals, and did not review any individual
credit files of Hibernia.
The Fairness Opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to the Advisor as
of January 29, 1999.
In rendering the Fairness Opinion, the Advisor performed a variety of
financial analyses. The preparation of an opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances.
Consequently, the Fairness Opinion is not readily susceptible to partial
analysis of summary description. Moreover, the evaluation of fairness, from a
financial point of view, of the Merger Consideration is to some extent
subjective, based on the experience and judgment of the Advisor, and not merely
the result of mathematical analysis of financial data. Accordingly,
notwithstanding the separate factors summarized below, the Advisor believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, could create an incomplete view of the evaluation process
underlying its opinion. The ranges of valuations resulting from any particular
analysis described below should not be taken to be the Advisor's view of the
actual value of MarTex.
In performing its analyses, the Advisor made numerous assumptions with respect
to industry performance, business and economic conditions and other matters,
many of which are beyond the control of MarTex. The analyses performed by the
Advisor are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses, nor
are they appraisals. In addition, the Advisor's analyses should not be viewed
as determinative of the opinions of the MarTex Board and management with respect
to the value of MarTex.
The following is a summary of the analyses performed by the Advisor in
connection with its opinion updated as of February 1, 1999. The following
discussion contains financial information concerning MarTex and Hibernia as of
September 30, 1998 and market information as of January 29, 1999.
ANALYSIS OF SELECTED TRANSACTIONS. The Advisor performed an analysis of
premiums paid in selected pending or recently completed acquisitions of banking
organizations in Texas and in the Southwestern United States with comparable
characteristics to the Merger. Two sets of comparable transactions were
analyzed to ensure a thorough comparison.
The first set of comparable transactions consisted of a group of comparable
transactions based upon the geographical market area of Texas for which pricing
data was available. These comparable transactions consisted of four (4) mergers
and acquisitions of banks located in Texas with assets between $150 million and
$750 million which sold for stock between October 1, 1997 and January 29, 1999.
The analysis yielded multiples of the purchase price in these transactions
relative to:
1. Last 12 months earnings ranging from 14.6 times to 20.6 times with an
average of 17.4 times and a median of 17.2 times (compared with the
implied multiples in the Merger of 17.6 times last 12 months earnings
as of September 30, 1998 for MarTex);
2. Total assets ranging between 21.9% and 23.2% with an average of 22.7%
and a median of 22.8% (compared with the implied multiples in the
Merger of 18.1% of September 30, 1998 total assets for MarTex); and
3. Total deposits ranging from 23.9% to 25.8% with an average of 25.3% and
a median of 25.7% (compared with the implied multiples in the Merger of
20.0% of deposits as of September 30, 1998 for MarTex).
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The second set of comparable transactions consisted of a group of
comparable transactions based upon the profitability, asset size and
geographical market area of MarTex for which pricing data is available. These
comparable transactions specifically consisted of seven (7) mergers and
acquisitions of banks in the Southwest with total assets between $150 million
and $750 million and which sold for stock between January 1, 1998 and January
29, 1999. The analysis yielded multiples of the purchase price in these
transactions relative to:
1. Book value ranging from 2.08 times to 3.29 times with an average of
2.64 times and a median of 2.55 times (compared with the multiples
implied in the Merger of 2.19 times September 30, 1998 book value for
MarTex);
2. Last 12 months earnings ranging from 9.4 times to 26.6 times with an
average of 19.1 times and a median of 19.4 times (compared with the
multiples implied in the Merger of 17.6 times last 12 months earnings
as of September 30, 1998 for MarTex);
3. Total assets ranging between 20.2% and 32.2% with an average of 25.8%
and a median of 24.2% (compared with the multiples implied in the
Merger of 18.1% of September 30, 1998 total assets for MarTex); and
4. Total deposits ranging from 23.2% to 38.1% with an average of 29.5% and
a median of 26.8% (compared with the multiples implied in the Merger of
20.0% of deposits as of September 30, 1998 for MarTex).
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis, the Advisor
estimated the present value of the future after-tax cash flow streams that
MarTex could produce through the year 2003, under various circumstances,
assuming that it performed in accordance with the earnings/return projections of
management.
The Advisor estimated the terminal value for MarTex at the end of 2003 by
applying multiples of earnings ranging from 10 times to 21 times to the final
period projected earnings. The Advisor then discounted the annual cash flow
streams (defined as all earnings in excess of that required to maintain a
tangible equity to asset ratio of 7.0%) and the terminal value using discount
rates ranging from 13% to 17%. The discount range was chosen to reflect
different assumptions regarding the required rates of return of MarTex and the
inherent risk surrounding the underlying projections. This discounted cash flow
analysis indicated a range of $26,448,000 to $55,414,000, compared to the value
of the Merger Consideration for MarTex of $57,787,500 as of January 29, 1999.
The Advisor also performed a cash flow analysis using an estimated terminal
value for MarTex at the end of 2003 by applying multiples of book value ranging
from 1.20 times to 2.60 times to the final period projected equity. The Advisor
then discounted the annual cash flow streams (defined as all earnings in excess
of that required to maintain a tangible equity to asset ratio of 7.0%) and the
terminal value using discount rates ranging from 13% to 17%. The discount range
was chosen to reflect different assumptions regarding the required rates of
return of MarTex and the inherent risk surrounding the underlying projections.
This discounted cash flow analysis indicated a range of $23,485,000 to
$48,950,000, compared to the value of the Merger Consideration for MarTex of
$57,787,500 as of January 29, 1999.
COMPARABLE COMPANY ANALYSIS. The Advisor compared selected stock market results
of Hibernia to the publicly available corresponding data of other composites
which the Advisor deemed to be relevant, including SNL Securities, L.P.'s (i)
index of all publicly traded banks and (ii) the SNL index of banks in the
Southeast Region and the S&P 500. Although Hibernia's Common Stock price has
exhibited some recent weakness relative to the selected indices, this weakness
in itself is not material to the fairness from a financial point of view of the
Merger Consideration to be received by MarTex shareholders as of the date
hereof.
No company or transaction used in the comparable company and comparable
transaction analyses is identical to MarTex, Hibernia or the Merger.
Accordingly, an analysis of the results of the
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foregoing necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of MarTex and Hibernia
and other factors that could affect the public trading value of the companies to
which they are being compared. Mathematical analysis (such as determining the
average or median) is not in itself a meaningful method of using comparable
transaction data or comparable company data.
Pursuant to an engagement letter dated January 20, 1998, between MarTex and
the Advisor, MarTex agreed to pay the Advisor a fee based on the consideration
received by MarTex as a result of the Merger according to the following
schedule:
Consideration up to $60 million .75%
Next $1 million 2.00%
Next $1 million 3.00%
Next $1 million 4.00%
Next $1 million 5.00%
Next $1 million 6.00%
Amount over $65 million 10.00%
MarTex also agreed to indemnify and hold harmless the Advisor and its
officers and employees against certain liabilities in connection with its
services under the engagement letter, except for liabilities resulting from the
negligence, violation of law or regulation or bad faith of the Advisor or any
matter for which the Advisor may have strict liability.
The Fairness Opinion is directed only to the question of whether the Merger
Consideration is fair and equitable from a financial perspective and does not
constitute a recommendation to any MarTex shareholder to vote in favor of the
Merger. No limitations were imposed on the Advisor regarding the scope of its
investigation or otherwise by MarTex.
Based on the results of the various analyses described above, the Advisor
concluded that the Merger Consideration to be received by the MarTex
shareholders pursuant to the Merger is fair, from a financial point of view, to
the shareholders of MarTex.
CLOSING DATE AND EFFECTIVE DATE OF THE MERGER
The Agreement provides for a Closing Date on (A) the first business day
after the last to occur of (1) the date that falls 15 days after regulatory
approval of the Merger or (2) the date that falls five days after the Special
Meeting or (B) such other date within 60 days of the date determined in
accordance with the formula in clause (A). The parties will choose an Effective
Date on which the Merger will be effective. It is expected that the Effective
Date will occur shortly after the Closing Date. The parties currently anticipate
an Effective Date of March 8, 1999.
The necessary shareholder approvals may not be obtained. Other conditions
precedent to the Merger also may not be satisfied. These conditions are not all
within the control of Hibernia and/or MarTex, and the parties cannot assure you
that they will be obtained.
Hibernia and MarTex anticipate that all conditions to completing the Merger
will be satisfied so that the Merger can be completed by March 8, 1999.
However, delays in the consummation of the Merger could occur.
The Board of Directors of either Hibernia or MarTex may terminate the
Agreement if the Merger is not completed by March 31, 1999 or any condition to
completing the Merger cannot be satisfied by March 31, 1999 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."
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EMPLOYEE BENEFITS
Former employees of MarTex who become employed by Hibernia or its subsidiaries
as of the Effective Date will be entitled to the same employee benefits as those
offered by Hibernia and HNB to their employees. However, employees of MarTex
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 MarTex's employees full credit for their years of
service, for both eligibility and vesting, with MarTex for purposes of
Hibernia's 401(k) plan and its Employee Stock Ownership Plan. If, however,
Hibernia decides that it cannot merge any benefit plan of MarTex into a
comparable benefit plan of Hibernia or HNB without creating material potential
liability for Hibernia's or HNB's plans, then Hibernia may freeze the existing
benefit plan of MarTex and prohibit participation by former employees of MarTex
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 MarTex plan in question.
SURRENDER AND EXCHANGE OF STOCK CERTIFICATES
Chase Mellon Shareholder Services will act as exchange agent (the "Exchange
Agent") for purposes of the exchange of MarTex common stock for Hibernia Stock.
Shortly after the Effective Date, a letter of transmittal will be mailed to all
non-dissenting shareholders of MarTex. This letter of transmittal will include
instructions for the exchange of their MarTex common stock certificates for
certificates representing Hibernia common stock. Each certificate representing
MarTex 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, regardless when they are actually exchanged.
MARTEX SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL AND INSTRUCTIONS.
When the Exchange Agent receives certificates for MarTex common stock,
together with a properly completed letter of transmittal, it will issue and mail
to each holder of MarTex common stock who surrendered those items a certificate
representing the number of shares of Hibernia common stock to which such holder
is entitled. If the holder would otherwise be entitled to receive a fraction
of a share of Hibernia common stock, the Exchange Agent will mail the holder a
check representing cash paid instead of the fractional share.
Holders of record of MarTex common stock on the Effective Date will be
entitled to vote at any meeting of Hibernia shareholders if the record date for
the Hibernia meeting is after the Effective Date of the Merger. In that case,
holders of MarTex common stock would be able to vote the number of shares of
Hibernia common stock into which their MarTex common stock has been converted
regardless of whether they have surrendered their stock certificates. DIVIDENDS
OR OTHER DISTRIBUTIONS PAYABLE AFTER THE EFFECTIVE DATE ON HIBERNIA COMMON STOCK
WILL BE PAID ONLY AFTER YOU SURRENDER YOUR CERTIFICATES FOR MARTEX COMMON STOCK.
When you surrender your MarTex common stock certificate for exchange, the
Exchange Agent will send to you all undelivered dividends and other
distributions on your Hibernia Stock. You will not receive interest on those
distributions for any period during which Hibernia holds them awaiting the
exchange of your MarTex common stock. Also, taxes may be deducted from those
distributions.
If you cannot locate your MarTex common stock certificate(s), please contact
F. Wayne McWhorter or Debbie Fowler prior to the Special Meeting. MarTex will
issue new certificates to shareholders who have misplaced their certificates
only if (a) the shareholders sign an affidavit certifying that the certificates
cannot be located, and (b) shareholders agree to indemnify MarTex and Hibernia
against any claim that may be made against either of them by the owner of the
lost certificate(s). MarTex or Hibernia may require a shareholder to post a
bond in an amount sufficient to support the shareholder's indemnification
obligation. IF YOU HAVE MISPLACED YOUR STOCK CERTIFICATES OR IF YOU HOLD
CERTIFICATES IN NAMES OTHER THAN YOUR OWN,
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WE ENCOURAGE YOU TO RESOLVE THOSE MATTERS BEFORE THE EFFECTIVE DATE OF THE
MERGER. THIS WILL HELP TO AVOID DELAYS IN EXCHANGING YOUR MARTEX COMMON STOCK.
EXPENSES
Hibernia will pay all expenses of printing and distributing this proxy
statement/prospectus. The parties otherwise will pay all of their own expenses
related to negotiating and completing the Merger.
REPRESENTATIONS AND WARRANTIES
MarTex and Hibernia have made a number of representations and warranties to
each other as part of the Agreement. MarTex's representations and warranties
relate to, among other things:
. its organization and authority to enter into the Agreement,
. its capitalization, properties, and financial statements,
. pending and threatened litigation against MarTex, and
. MarTex contractual obligations and contingent liabilities.
MarTex's representations and warranties are generally contained in Section 7 of
the Merger Agreement.
Hibernia's representations and warranties relate to, among other things:
. its organization and authority to enter into the Agreement,
. its capitalization,
. its financial statements and
. its public reports.
Hibernia's representations and warranties are generally contained in Section 8
of the Merger Agreement.
The representations and warranties of the parties generally will not survive
the Effective Date. Consequently, the parties' only recourse in the event of a
breach of a representation or warranty by the other party is to re-negotiate the
Merger or to terminate the Agreement. Once the Merger is completed, the parties
will have no basis for litigation against each other based on the Agreement.
CONDITIONS TO THE MERGER; WAIVER
The Agreement contains a number of conditions to completing the Merger. The
conditions must either be met or waived, if waivable, in order for the Merger to
occur. The conditions to completing the Merger include, among other things:
. the Agreement and Merger must be approved by MarTex shareholders;
. necessary regulatory approvals must be obtained, particularly the approval
of the OCC which was obtained on December 15, 1998;
. Ernst & Young LLP must issue its opinion (the "Tax Opinion") regarding the
tax consequences of the Merger;
. the registration statement filed with the SEC must become effective under
the Securities Act and there may not be a stop order suspending its
effectiveness;
. there may not be an order, decree or injunction enjoining or prohibiting
completion of the Merger;
. the representations and warranties set forth in the Agreement must be
accurate as of the Closing Date;
. the Hibernia common stock to be issued in the Merger must be approved for
listing on the NYSE;
. the Merger must qualify for pooling-of-interests accounting treatment;
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. Hibernia shall have received affidavits from the directors of MarTex
regarding the Stock Grant Agreements;
. Hibernia shall have received releases and indemnity agreements from Mr.
McWhorter and Mr. Meisenheimer regarding the Stock Grant Agreements;
. Hibernia shall have received an opinion from counsel for Mr. McWhorter and
Mr. Meisenheimer regarding the enforceability of their releases;
. certain opinions of counsel must be received by the parties; and
. MarTex must have received an updated Fairness Opinion within five days of
the scheduled mailing of this proxy statement/prospectus and within five
days of the Closing Date.
Most of the conditions to completing the Merger may be waived at any time by
the party for whose benefit they were created. Regulatory and shareholder
approvals may not be waived, however. Also, the Agreement may be amended or
supplemented at any time by written agreement of the parties. Nevertheless, no
waiver, amendment or supplement executed after the Agreement has been approved
by you may reduce the Exchange Rate. Also, any material change in the terms of
the Merger after the Special Meeting would require another special meeting of
MarTex shareholders where the you would vote on whether to proceed with the
Agreement and the Merger in light of the material changes in the terms of the
Merger.
REGULATORY AND OTHER APPROVALS
Hibernia is a registered bank holding company and is regulated by the Federal
Reserve Board. Although the Federal Reserve Board usually approves mergers
involving bank holding companies such as Hibernia and MarTex, Hibernia has
chosen to avail itself of a provision in the federal banking law whereby
approval of the Merger will not be required by the Federal Reserve Board if the
OCC approves the merger of the Bank with and into HNB.
HNB, as a national bank, is regulated by the OCC. The Merger of the Bank with
and into HNB must be approved by the OCC before it may be completed. On
December 15, 1998, the OCC approved the merger of the Bank with and into HNB.
The 15-day period during which the Department of Justice may object to the
Merger on antitrust grounds has expired.
The exchange of shares of Hibernia common stock for MarTex Stock in the Merger
has been registered with the SEC. The transaction will not be registered in any
state due an exemption from state regulation.
BUSINESS PENDING THE MERGER
The Agreement requires MarTex to continue to operate its business in the
ordinary course pending the Merger. Among other things, MarTex may not, without
Hibernia's consent:
. create or issue any additional shares of capital stock or any options or
other rights to purchase or acquire shares of capital stock, except for
shares of stock issued pursuant to terms of options, warrants and stock
grant agreements in existence on June 29, 1998;
. enter into employment contracts with directors, officers or employees or
otherwise agree to increase the compensation of such persons, except in
accordance with existing agreements or past practices in the preceding
three years;
. pay or agree to pay any bonus to directors, officers or employees, except
in accordance with existing agreements or past practices in the preceding
three years, and further except that MarTex may pay to employees bonuses
that have been accrued through the Closing Date as long as the amounts of
such accruals and bonus payments are in accordance with past practices
during the preceding three years;
. enter into or substantially modify, except as may be required by applicable
law, any employee benefits plans;
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. amend its Articles of Incorporation or Bylaws;
. establish or add additional automatic teller machines or branch or other
banking offices, other than those referred to in the Agreement;
. make any capital expenditures in excess of $200,000 in connection with the
completion of MarTex's branch location at Hide-A-Way Lake or any capital
expenditures in excess of $50,000, excluding those capital expenditures for
the branch location in Hide-A-Way Lake;
. merge with any other company or bank or liquidate or otherwise dispose of
its assets, provided that the officers and directors of MarTex may take
action that, in the opinion of counsel for MarTex, is required by
applicable law or is required to fulfill the fiduciary duties of MarTex
officers and directors;
. acquire another company or bank, except in connection with foreclosures of
bona fide loan transactions; or
. in the case of MarTex, 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 MarTex common
stock, other than in a fiduciary capacity.
MarTex may not solicit bids or other transactions that would result in a merger
of MarTex with an entity other than Hibernia except in certain very limited
circumstances.
TERMINATION
Either party may terminate the Agreement prior to the Effective Date for
reasons set forth in the Agreement. A party may terminate the Agreement even
after the Agreement and the Merger is approved by you. These reasons include,
among others:
. a breach by the other party (1) of any covenant, 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
cannot be or is not cured within 60 days after written notice of such
breach is given to the party committing the breach or (2) 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 parties performance of the
Agreement or a material decrease in the consideration to be received by
MarTex's shareholders;
. any application for any required federal or state regulatory approval is
denied, and the time for all appeals of the denial has expired;
. the holders of MarTex common stock fail to approve the Merger at the
Special Meeting;
. by Hibernia, if Hibernia does not timely receive releases and
indemnification agreements on specified matters from Mr. McWhorter and Mr.
Meisenheimer, affidavits from the directors of MarTex relative to shares of
stock to be issued to Mr. McWhorter and Mr. Meisenheimer under the Stock
Grant Agreements and a legal opinion from counsel for Mr. McWhorter and Mr.
Meisenheimer regarding the enforceability of their releases;
. the Merger is not consummated by March 31, 1999 or any condition to the
Merger cannot be satisfied by that date and will not be waived by the party
entitled to waive it.
. at any time by the mutual consent of the parties;
. by Hibernia, if the holders of more than 10% of the outstanding MarTex
Stock exercise statutory rights of dissent and appraisal;
. by MarTex, if after March 31, 1998 a material adverse change occurs in the
financial condition, results of operations, business or prospects of
Hibernia or HNB, excluding changes in laws or regulations affecting banking
institutions generally;
. by Hibernia, if after March 31, 1998 a material adverse change occurs in
the financial condition, results of operations, business or prospects of
MarTex or the Bank, excluding changes in laws or regulations affecting
banking institutions generally;
. by Hibernia, if it shall determine in good faith that the Merger does not
qualify as a pooling-of-interests for accounting purposes; or
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. by MarTex, if MarTex does not receive an updated Fairness Opinion 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.
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
HNB and HNBT have filed an application with the OCC to merge HNBT into HNB.
This merger was approved by the OCC. Effective as of January 1, 1999, HNBT was
merged into HNB, HNBT ceased to exist after the merger and the business of HNBT
is now carried on by HNB.
If the conditions to the Merger are met or waived, MarTex will be merged with
and into Hibernia on the Effective Date. At that time, MarTex will cease to
exist as a separate company. Immediately after the Merger, the Bank will be
merged with and into HNB. At that time, the Bank will cease to exist as a
separate company. HNB will continue to operate as a wholly-owned subsidiary of
Hibernia after the Merger and will offer banking services similar to those
offered prior to the Merger.
The Boards of Directors of Hibernia and HNB will not change as a result of the
Merger. If you would like more information about the directors of Hibernia, you
may request a copy of Hibernia's Annual Report to Shareholders for 1997 and/or
its proxy statement for its 1998 annual meeting of shareholders. Both of these
documents are incorporated herein by reference. See "AVAILABLE INFORMATION."
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
If the Merger is completed, all holders of MarTex common stock, other than
those who exercise and perfect dissenters' rights, will become shareholders of
Hibernia. Your rights as shareholders will then be governed by Hibernia's
Articles of Incorporation and Bylaws and the laws of the State of Louisiana
rather than MarTex's Articles of Incorporation and Bylaws and the laws of the
State of Texas. The following is a summary of the significant differences
between the rights of MarTex shareholders and Hibernia shareholders not
described elsewhere in this proxy statement/prospectus.
Stock. The total number of shares of all classes of stock which Hibernia has
authority to issue is four hundred million. Three hundred million shares are
designated as Class A Common Stock of no par value and one hundred million
shares are 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. The total number of shares of all classes of stock which MarTex has
authority to issue is one hundred million five hundred thousand. One hundred
million shares are designated common stock, $0.01 par value per share, and five
hundred thousand shares are designated preferred stock, $4.13 per share par
value.
Liquidity of Stock. Except to the extent that liquidity exists under the
agreement (the "Put Option") among Quinton B. Carlile, Kenneth A. Carlile and
Steve B. Carlile (the "Carlile Shareholders"), on the one hand, and former
shareholders of Heritage Texas Group, Inc. ("Heritage") specified in the Put
Option, on the other hand, and agreements (the "Parallel Exit Agreements")
signed by the Carlile Shareholders in connection with MarTex's acquisition of
the banks or bank holding companies specified in the Parallel Exit Agreements,
there currently is no ready market for the shares of MarTex 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
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registered under applicable securities laws and may therefore be freely resold
by persons who are not "affiliates" of MarTex or Hibernia. See "Resale of
Hibernia common stock." The Hibernia common stock also 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.
The Carlile Shareholders entered into the Put Option when it acquired
Heritage. Generally, the Put Option allows any former shareholder of Heritage
and specified permitted transferees to require the Carlile Shareholders to buy
their MarTex common stock for $2.6433 per share, subject to adjustment in the
event of stock dividends or similar transactions. The Put Option may be
exercised during the period beginning on December 13, 1998 and ending on
December 12, 1999 upon 60 days prior notice to the Carlile Shareholders. The
Carlile Shareholders are obligated to buy such stock in the proportions set
forth below:
Quinton B. Carlile 32.03%
Kenneth Q. Carlile 32.60%
Steve B. Carlile 35.37%
The rights of the former Heritage shareholders under the Put Option terminate
on the first to occur of: (1) the date on which the former Heritage
shareholders receive an offer to sell or exchange their MarTex common stock for
cash or marketable securities having a value equal to or exceeding $2.6433 per
share; (2) the date on which the former Heritage shareholders sell or exchange
their MarTex common stock under the terms of the Parallel Exit Agreements
described below; (3) any merger or other transaction pursuant to which at least
85% of the MarTex common stock would be sold or exchanged at the same price per
share or for the same consideration; or (4) at midnight on December 12, 1999.
This discussion is not intended as a complete statement of the rights and
obligations set forth in the Put Option. Reference is made to a copy of the Put
Option which may be obtained by any MarTex shareholder upon request to MarTex.
The Merger will not be completed prior to December 13, 1998. Consequently,
the former Heritage shareholders may require the Carlile Shareholders to
purchase their MarTex common stock at $2.6433 per share by following the terms
of the Put Option. Former Heritage shareholders should evaluate whether they
would prefer to sell their MarTex common stock to the Carlile Shareholders for
$2.6433 per share or receive Hibernia common stock pursuant to the Merger. Each
former Heritage shareholder is encouraged to seek their own counsel and advice
with regard to this decision.
The Carlile Shareholders have executed Parallel Exit Agreements with respect
to MarTex common stock held by former shareholders of Security State Bank,
Elysian Fields, Texas, which was acquired by MarTex in March 1993, Mineola
Bancshares, Inc., Mineola, Texas, which was acquired by MarTex in March 1993,
Lindale National Bank, Lindale, Texas, which was acquired by MarTex in January
1995, and Heritage, which was acquired by MarTex on December 13, 1996. The
total number of shares of MarTex common stock subject to Parallel Exit
Agreements is estimated to be 4,278,982 shares, or 36% of the outstanding shares
of MarTex common stock.
In general, the Parallel Exit Agreements provide that if any of the Carlile
Shareholders or specified relatives of the Carlile Shareholders (collectively,
the "Carlile Group") intends to accept an offer to purchase his or their MarTex
common stock as a result of which the number of shares of MarTex common stock
owned by the Carlile Group after the sale is less than 50% of the MarTex common
stock owned by the Carlile Group prior to the sale, then each holder of MarTex
common stock issued pursuant to the mergers described above who is not a member
of the Carlile Group has a right to participate in the sale on the same terms
and conditions. The Parallel Exit Agreements terminate on the first to occur of
(1) the consummation of an underwritten public offering of MarTex's Common Stock
which results in aggregate net proceeds to MarTex of not less than $3,000,000,
including underwriting discounts and commissions, (2) the dissolution,
termination of existence or sale of all or substantially all of the assets of
MarTex or the merger or reorganization of MarTex in which MarTex is not the
surviving entity, (3) the date the Carlile Group owns 50% or less of the MarTex
common stock, or (4) December 31, 2022. The Parallel Exit Agreements do not
apply
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to specified transfers or sales made by members of the Carlile Group, including
(1) any pledge of MarTex common stock made by a member of the Carlile Group
pursuant to a bona fide loan transaction; (2) any transfer by a member of the
Carlile Group to any other member of the Carlile Group; (3) a partition,
transfer or sale of the community property interest in all or any part of the
MarTex common stock to the spouse of a member of the Carlile Group in connection
with the termination of a marital relationship; (4) any merger or other
transaction pursuant to which substantially all of the shares of MarTex common
stock would be sold or exchanged at the same price per share or for the same
consideration; and (5) any offer by an unrelated third party made pro rata to
all the holders of the MarTex common stock at the same price per share. This
discussion is not intended as a complete statement of the rights and obligations
created by the Parallel Exit Agreements. Reference is made to a copy of the
Parallel Exit Agreement, a copy of which may be obtained by any MarTex
Shareholder upon request to MarTex.
The Parallel Exit Agreements do not apply to the transfer of MarTex common
stock which will occur when the Merger is completed. Following completion of
the Merger, the Parallel Exit Agreements will terminate.
Directors' Qualifications. Hibernia maintains certain qualifications for its
directors:
. must be no more than 71 years old at the time they are elected (and must
retire at the annual meeting following their having reached that age),
. they must own at least $1,000 of Hibernia stock at the time they are first
elected as a director, and
. they may not be affiliated with any business competitor of Hibernia.
MarTex does not have any specific qualifications for its directors.
Removal of Directors. Shareholders of Hibernia may remove a director for 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. Directors of MarTex may be removed at any time, with or
without cause, at any meeting of the shareholders called expressly for that
purpose. The affirmative vote of a majority of the issued and outstanding shares
of MarTex entitled to vote on the matter is required to remove directors of
MarTex.
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. MarTex's Articles of Incorporation do not have similar
provisions; however, Texas law requires the affirmative vote of two-thirds of
the issued and outstanding shares entitled to vote unless any class or series of
shares is entitled to vote as a class, in which event, the proposed amendment
must be approved by the affirmative vote of the holders of at least two-thirds
of the issued and outstanding shares within each class or series of shares
entitled to vote as a class and at least two-thirds of the total issued and
outstanding of all shares entitled to vote.
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 Hibernia, 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. MarTex's 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. The Bylaws may also be altered, amended or repealed and new
Bylaws may be adopted by 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.
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
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required to call a special meeting of the shareholders. A special meeting of
shareholders of MarTex may be called at any time by the Chairman of the Board,
the President, the Chief Executive Officer, the Secretary, the Board of
Directors, or the holders of one-tenth or more of the shares entitled to vote at
the 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. MarTex's Bylaws do not contain a similar provision.
Vacancy on Board of Directors. Hibernia's Bylaws permit the Board to fill any
vacancy on the board, however created. MarTex's Bylaws allow the shareholders or
the Board to fill vacancies, provided, however that any vacancy resulting from
an increase in the size of the Board may be filled by the Board for a term of
office continuing only until the next election of one or more directors by the
shareholders and the Board may not fill more than two such directorships during
the period between any two successive meetings of shareholders.
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. A
merger of MarTex must be approved by the affirmative vote of at least two-thirds
of the issued and outstanding shares of MarTex common stock.
Dissenting Shareholder's Rights. Each MarTex shareholder who objects to the
Merger in accordance with the Texas Business Corporation Act ("TBCA") 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 that event, a shareholder who votes
against a merger would 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
In the Agreement, Hibernia has agreed to indemnify officers and directors of
MarTex for specified matters arising while they served as officers, directors of
MarTex to the same extent as they would have been indemnified under the Articles
of Incorporation and Bylaws of Hibernia in effect on the Effective Date.
Hibernia's aggregate liability for indemnification to those people is limited to
$10 million. Also, each officer and director eligible for such indemnification
must execute a joinder agreement in which he or she agrees to cooperate with
Hibernia in any litigation or proceeding giving rise to a claim of
indemnification.
Hibernia also has agreed to indemnify MarTex's officers, directors and certain
affiliates against liability under the Securities Act of 1933, as amended (the
"Securities Act"). In particular, Hibernia will provide indemnification if any
liability is based on an actual or alleged untrue statement of a material fact
or the actual or alleged omission of a material fact contained in this proxy
statement/prospectus. This indemnification does not apply to statements in the
registration statement on which Hibernia relied upon information furnished by
MarTex.
The executive officers of MarTex employed by Hibernia or HNB subsequent to the
Closing Date have interests in the Merger that are in addition to their
interests as shareholders of MarTex which include, among other interests,
continuation of employment and of certain employee benefits.
Mr. McWhorter and Mr. Meisenheimer will receive additional shares of MarTex
common stock pursuant to the Stock Grant Agreements as a result of the change in
control of MarTex effected by the Merger, assuming the MarTex shareholders
approve the issuance of such shares under the Stock Grant
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Agreements. The exact number of shares of MarTex common stock to be issued to
Mr. McWhorter and Mr. Meisenheimer will be calculated on the day immediately
preceding the Effective Date as provided in the Stock Grant Agreements. See
"STOCK GRANT AGREEMENTS."
If Hibernia does not continue to employ Mr. McWhorter after the Effective
Date, Mr. McWhorter will be entitled to be paid under his Stock Grant Agreement
a severance payment in an amount equal to two times his annual base salary in
effect as of the date of the termination of his employment.
Finally, Hibernia intends to enter into an employment agreement with Mr.
Meisenheimer. The agreement will have a term of three years, will provide for a
salary, bonus and stock grants and will be on terms mutually acceptable to
Hibernia and Mr. Meisenheimer.
MATERIAL TAX CONSEQUENCES
The following is a summary description of the material income tax consequences
of the Merger. It is not intended to be a complete description of the federal
income tax consequences of the Merger. Tax laws are complex, and your
individual circumstances may affect the tax consequences to you. In addition, we
have not included information about the tax consequences of the Merger under
state, local or other tax laws. We urge you to consult your own tax advisor
regarding the tax consequences of the Merger to you.
Receipt of the Tax Opinion is a condition to completion of the Merger. The
Tax Opinion is included as Appendix D to this proxy statement/prospectus. We
urge you to read the Tax Opinion and to discuss it with your tax and financial
advisors so that you will understand the tax consequences of the Merger to your
situation.
The Tax Opinion is based upon representations made by Hibernia and MarTex
about the terms of the Merger and certain other matters. Based upon the
accuracy of those representations and certain other matters described in the Tax
Opinion, it concludes that:
. the Merger will constitute a reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended (the "Code"), and
. MarTex's shareholders who exchange MarTex common stock for Hibernia common
stock in the Merger will not recognize gain or loss for federal income tax
purposes in that exchange to the extent they receive Hibernia common stock.
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, then:
. none of MarTex, Hibernia or HNB will recognize any gain or loss by reason
of the Merger;
. MarTex's shareholders will not recognize any gain or loss for federal
income tax purposes to the extent they receive Hibernia common stock in
exchange for MarTex common stock in the Merger;
. the tax basis in the Hibernia common stock received in the Merger will be
the same as the tax basis in the MarTex common stock surrendered in
exchange therefor; and
. the holding period, for federal income tax purposes, for Hibernia common
stock received in exchange for MarTex common stock will include the period
during which the shareholder held the MarTex common stock surrendered in
the exchange, as long as the MarTex common stock was held as a capital
asset at the Effective Date.
Tax laws are complex, and the tax consequences to you may be affected by
matters that are not discussed in the Tax Opinion. For these reasons, we
recommend that you consult your own tax advisor concerning the applicable
federal, state and local tax consequences of the Merger to you.
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RESALE OF HIBERNIA COMMON STOCK
The shares of Hibernia common stock that will be exchanged for MarTex common
stock in the Merger have been registered under the Securities Act. Those shares
must also be approved for listing, upon official notice of issuance, on the NYSE
as a condition to completing the Merger. Once those shares are listed on the
NYSE, shareholders who are not "affiliates" of MarTex may freely trade them. The
term "affiliate" generally means each person who was an executive officer,
director or a 10% shareholder of MarTex prior to the Merger.
Those shareholders who are deemed to be affiliates of MarTex may only sell
their Hibernia common stock as provided by Rule 145 of the Securities Act, or as
otherwise permitted under the Securities Act. Those shareholders 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 (unless
they are "affiliates" of Hibernia). If you are or may be an affiliate of
MarTex, you should carefully consider the resale restrictions imposed by Rule
145 before you attempt to transfer any shares of Hibernia common stock after the
Merger. In addition, shares of Hibernia common stock issued to affiliates of
MarTex in the Merger will not be transferable until financial results that
include at least 30 days of post-Merger combined operations of Hibernia and
MarTex have been published. This restriction is necessary in order to satisfy
certain requirements for pooling-of-interests accounting treatment.
MarTex must identify those persons who may be deemed to be affiliates. Also,
MarTex must use its best efforts to have each person it identifies as an
affiliate deliver to Hibernia a written agreement relating to the transfer
restrictions on their Hibernia common stock. In addition, Hibernia will place
stop transfer instructions with its transfer agent regarding Hibernia common
stock issued to affiliates of MarTex 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
IF YOU OBJECT TO THE MERGER AND DESIRE TO PERFECT DISSENTERS' RIGHTS, YOU WILL
LOSE THE RIGHT TO DISSENT FROM THE MERGER IF YOU DO NOT TAKE THE FOLLOWING STEPS
TIMELY. IF YOU LOSE YOUR RIGHT TO DISSENT, THE SHARES OF MARTEX COMMON STOCK
YOU OWN WILL BE CONVERTED INTO THE RIGHT TO RECEIVE HIBERNIA COMMON STOCK IN
ACCORDANCE WITH THE TERMS OF THE MERGER AGREEMENT.
Holders of shares of MarTex 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 completed, holders of shares of MarTex 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 MarTex common stock rather
than being required to accept the Merger Consideration. 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 TBCA, which are reproduced in full at Appendix C hereto. A
MARTEX 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 MarTex common stock who desire to dissent from the Merger
("Dissenting Shareholders") must file a written objection to the Merger with the
Secretary of MarTex, Mr. George E. Fitts, 2615 East End Boulevard South,
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 completed, each
shareholder who sent notice to MarTex as described above and who did not vote in
favor of the Merger will be deemed to have dissented from the Merger. 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.
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Hibernia will be liable for any payments to Dissenting Shareholders and will,
within 10 days of the Effective Date, notify the Dissenting Shareholders in
writing that the Merger has been completed. Each Dissenting Shareholder so
notified must, within 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: Russell S. Hoadley, Secretary, for payment of the fair value
of the Dissenting Shareholder's shares of MarTex 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 MarTex 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 10 day period will be
bound by the Merger and lose their rights to dissent. Within 20 days after
making a demand, the Dissenting Shareholder must submit certificates
representing his shares of MarTex 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 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 (1) stating that Hibernia accepts the amount claimed in the
demand letter and agrees to pay that amount, within 90 days after the Effective
Date, upon surrender of the relevant certificates of MarTex common stock duly
endorsed by the Dissenting Shareholder, or (2) containing Hibernia's written
estimate of the fair value of the shares of MarTex common stock together with an
offer to pay such amount within 90 days after the Effective Date if Hibernia
receives notice, within 60 days after the Effective Date, stating that the
Dissenting Shareholder agrees to accept that amount and upon surrender of the
relevant certificates of MarTex common stock duly endorsed by the Dissenting
Shareholder. In either case, the Dissenting Shareholder will cease to have any
ownership interest in Hibernia or MarTex following payment of the agreed value.
If the Dissenting Shareholder and Hibernia cannot agree on the fair value of
the shares within 60 days after the Effective Date, the Dissenting Shareholder
or Hibernia may, within 60 days of the expiration of the 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
MarTex 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 MarTex 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
MarTex 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
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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 MarTex 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 demand may be withdrawn after payment has been made or, unless
Hibernia will consent thereto, after the 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 MarTex
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 MarTex in exchange for his or her
MarTex common stock will generally be subject to state and federal income tax
and should be treated as having been received by the Dissenting 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 MarTex common stock.
ACCOUNTING TREATMENT
Hibernia intends to account for the Merger 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 MarTex common stock must be
exchanged for Hibernia common stock. Also, in order for the pooling-of-
interests accounting method to apply, "affiliates" of MarTex cannot sell,
transfer, pledge or otherwise alienate or encumber any shares of Hibernia common
stock received in the Merger until the results of at least 30 days of post-
Merger combined operations of MarTex and Hibernia have been published. Persons
believed by MarTex to be "affiliates" have agreed to comply with these
restrictions.
MarTex 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.
STOCK GRANT AGREEMENTS
On March 28, 1996, MarTex entered into Stock Grant Agreements with F. Wayne
McWhorter and George F. Meisenheimer. The Stock Grant Agreements specify the
terms of MarTex's employment of Mr. McWhorter and Mr. Meisenheimer and provide
generally for the issuance of MarTex Common Stock to Mr. McWhorter and Mr.
Meisenheimer (a "Change in Control Stock Grant") upon the occurrence of a
"Triggering Event". One of the Triggering Events is a change in ownership of
MarTex which is defined as any sale or exchange of stock, sale of assets, merger
or similar transaction which results in the Carlile Group not owning or
controlling a majority of the outstanding MarTex common stock (a "Change in
Ownership"). The completion of the Merger is a Triggering Event because it will
cause a Change in Ownership of MarTex.
35
<PAGE>
Section 280G of the Code regulates "excess parachute payments." This section
of the Code will disallow a deduction to MarTex for any portion of the shares of
MarTex common stock issued by reason of a Change in Ownership to Mr. McWhorter
and Mr. Meisenheimer which are characterized as "excess parachute payments."
Also, Section 4999 of the Code will impose a 20% nondeductible excise tax on Mr.
McWhorter and Mr. Meisenheimer for any portion of the Change in Control Stock
Grants characterized as "excess parachute payments."
Under the Code, the Change in Control Stock Grants, unless proven to be
reasonable compensation under the facts and circumstances of the grants, would
be "excess parachute payments" if the Change in Control Stock Grants (a) are in
the nature of compensation to Mr. McWhorter and Mr. Meisenheimer; (b) are
contingent on a change of control of MarTex; and (c) exceed three times the
average annual compensation paid to each of Mr. McWhorter and Mr. Meisenheimer
over the preceding five years.
Assuming the foregoing conditions are satisfied, the Change in Control Stock
Grants will be treated as "excess parachute payments" only to the extent the
present value of such Change in Control Stock Grants exceed the average annual
compensation over the preceding five years for the MarTex officers for the last
five years (the "MarTex Officers"). If the foregoing conditions are not
satisfied, the Change in Control Stock Grants are not deemed "parachute
payments" and consequently cannot be an "excess parachute payments."
The Change in Control Stock Grants are in the nature of compensation to Mr.
McWhorter and Mr. Meisenheimer. A Change in Ownership of MarTex will occur as a
result of the Merger and the Change in Control Stock Grants will likely exceed
three times the average annual compensation paid to the MarTex Officers over the
preceding five year period. Accordingly, MarTex has been advised by counsel
that, unless exempted in the manner described below or unless proven to be
reasonable compensation under the facts and circumstances of the grants, the
Change in Control Stock Grants may be parachute payments, a portion of which may
be "excess parachute payments."
Section 280G(b)(5) of the Code provides that no portion of the Change in
Control Stock Grants will be treated as a parachute payment if the Change in
Control Stock Grants are authorized by the vote of shareholders of MarTex owning
in excess of seventy-five percent of the issued and outstanding shares of MarTex
common stock; provided, however, that adequate disclosure concerning the Change
in Control Stock Grants is made to all such shareholders. The disclosure set
forth in this proxy statement/prospectus is intended as adequate disclosure to
all shareholders of all material facts concerning the Change in Control Stock
Grants. Because the Change in Ownership Stock Grant due to the Merger could
otherwise constitute a parachute payment, it is conditioned on shareholder
approval as described in this proxy statement/prospectus.
Each of Mr. McWhorter and Mr. Meisenheimer has entered into an amendment to
his Stock Grant Agreement, copies of which are included in Appendix E annexed
hereto. The amendments provide that each of Mr. McWhorter and Mr. Meisenheimer
has agreed to waive any right to receive shares of MarTex common stock by reason
of a Change in Ownership due to the Merger which either of them might have been
entitled to under the original terms of their respective Stock Grant Agreements.
The amendments further provide that each of Mr. McWhorter and Mr. Meisenheimer
will receive the shares of MarTex common stock pursuant to the Change in Control
Stock Grants if the shareholders of MarTex approve the issuance of those shares
upon a Change in Ownership of MarTex as a result of the Merger. Mr. McWhorter
and Mr. Meisenheimer, however, have not agreed to waive any right to a Stock
Grant that arises by virtue of other provisions of the Stock Grant Agreements,
including a Change in Ownership resulting from a transaction other than the
Merger.
The following table sets forth the number of shares of MarTex common stock to
be issued for each MarTex share to all MarTex shareholders and the number of
shares of Hibernia common stock to be issued to each of Mr. McWhorter and Mr.
Meisenheimer under the Stock Grant Agreements assuming that (1) MarTex
shareholders approve the issuance to Mr. McWhorter and Mr. Meisenheimer of
shares of MarTex common stock pursuant to the Stock Grant Agreements; (2) all
outstanding options and warrants held by directors and
36
<PAGE>
officers of MarTex have been exercised, an aggregate of 770,092 shares; (3) no
further dividends are paid on MarTex common stock prior to the Effective Date;
(4) the Effective Date of the Merger is January 31, 1999; and (5) the price of
Hibernia common stock on the day prior to the last business day prior to the
Effective Date is in the amount set forth below:
<TABLE>
<CAPTION>
Number of Shares of
Hibernia common stock Number of Shares of Number of Shares of
Price of to be exchanged for Hibernia common stock Hibernia common stock
Hibernia each share of to be issued to to be issued to
Common Stock MarTex common stock Mr. McWhorter Mr. Meisenheimer
- ------------------------ ------------------- --------------------- ---------------------
<S> <C> <C> <C>
$10.00 0.26832982400 51,785 5,178
$11.00 0.26497864800 90,309 9,031
$12.00 0.26174586500 127,471 12,747
$13.00 0.25848633100 164,941 16,494
$14.00 0.25575635300 196,323 19,632
$15.00 0.25343661900 222,990 22,299
$16.00 0.25144108500 245,929 24,593
$17.00 0.24903829700 273,550 27,355
$18.00 0.24687640500 298,402 29,840
$19.00 0.24497363800 320,276 32,028
$20.00 0.24328604600 339,675 33,968
</TABLE>
The proposed regulations under Section 280G of the Code provide that stock is
not counted as outstanding stock if the stock is actually owned or
constructively owned under Section 318(a) of the Code by or for a "disqualified
individual" who receives or is to receive a payment that would be a parachute
payment absent the requisite shareholder approval. It appears that Mr.
McWhorter and Mr. Meisenheimer are disqualified individuals, and that the Change
in Control Stock Grants could be considered parachute payments. Accordingly,
MarTex common stock actually or constructively owned by Mr. McWhorter and Mr.
Meisenheimer will not be considered outstanding for purposes of voting on the
Change in Control Stock Grant to Mr. McWhorter and Mr. Meisenheimer.
Approval of the Change in Control Stock Grants to the employees will require
the affirmative vote of in excess of seventy-five percent of the issued and
outstanding MarTex common stock, exclusive of the shares held, either directly
or indirectly under Section 318 of the Code, by Mr. McWhorter and Mr.
Meisenheimer. For this purpose, Mr. McWhorter will be considered to hold,
either directly or indirectly, 206,803 shares and Mr. Meisenheimer will be
considered to hold 59,826 shares. Consequently, the affirmative vote of in
excess of seventy-five percent of the remaining 11,610,169 shares, or 8,707,627
shares is required for approval of the Change in Control Stock Grants to Mr.
McWhorter and Mr. Meisenheimer. The vote on the Change in Control Stock Grants
is structured in this fashion because MarTex common stock held by or attributed
to Mr. McWhorter and Mr. Meisenheimer would not be considered outstanding with
respect to the Change in Control Stock Grants.
37
<PAGE>
For purposes of the shareholder vote discussed above, any MarTex shareholder
that is not an individual may exercise its vote through any person authorized by
the entity to vote such shares. However, if a substantial portion of the assets
of the entity consists of MarTex common stock, approval of the Change in Control
Stock Grants must be made by the persons who hold, immediately before
consummation of the Merger, in excess of seventy-five percent of the voting
power of the entity. Accordingly, if a shareholder is not an individual, then
such entity will be deemed to have represented to MarTex, by execution of the
Proxy or voting in person in favor of the Change in Control Stock Grants, either
that (1) the entity owns, directly or indirectly, 1% or less of MarTex common
stock by value or (2) the total value of MarTex common stock owned, directly or
indirectly, by the entity is less than one-third by value of the assets of the
entity, or (3) the entity's MarTex common stock is one-third or more of its
assets, but (a) the Change in Control Stock Grants have been approved by a
separate vote of the persons who hold, as of the Record Date, more than 75% of
the voting power of the entity, and (b) the entity's stock and the stock of any
member of an affiliated group of which the entity is a member is not readily
tradeable on an established securities market or otherwise. For purposes of the
approval by the persons holding the voting power of the entity in (a) above, the
normal voting rights of the entity shareholder determine which persons shall
vote.
The Employee Stock Ownership Plan with 401(k) provision of Texas Group, Inc.
(the "KSOP") owns 901,796 or 7.6%, of the outstanding MarTex common stock and
such ownership represents more than one-third of the assets of the KSOP.
Applicable law provides that generally the trustee of the KSOP (the "Trustee")
has the authority to vote the shares of MarTex common stock held by the KSOP.
With respect to any corporate matter, however, that involves the voting of
MarTex common stock as to the approval or disapproval of any corporate merger or
consolidation, recapitalization, reclassification, liquidation, dissolution or
similar transaction, each participant in the KSOP is entitled to direct the
Trustee as to the exercise of the voting rights attributable to the shares
allocated to such participant. Any allocated MarTex common stock with respect
to which voting instructions are not received from participants may not be voted
by the Trustee, and all MarTex common stock that is not then allocated is to be
voted in the manner determined by the Trustee.
As of the Record Date for the Special Meeting of MarTex shareholders at which
such shareholders shall vote upon the Stock Grants, all of the 901,796
outstanding shares of MarTex common stock held by the KSOP, will be allocated to
the accounts of participants. Therefore, because of the pass-through voting
rights of the individual participants with respect to the allocated shares, the
"entity shareholder rules" described above are not applicable to the KSOP.
Within a few days of the mailing of this proxy statement/prospectus and the
form of Proxy to MarTex shareholders, there shall be mailed to each participant
in the KSOP a copy of this proxy statement/prospectus, together with a form for
the participants in the KSOP to give instructions to the trustee as to the
voting of shares allocated to such participants in the KSOP. The trustee will
vote the allocated shares as instructed by the participants in the KSOP.
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
Hibernia is regulated and supervised by the Federal Reserve Board. Although
the Federal Reserve Board usually approves mergers involving bank holding
companies such as Hibernia and MarTex, Hibernia has chosen to avail itself of a
provision in the federal banking law whereby approval of the Merger will not be
required by the Federal Reserve Board if the OCC approves the merger of the Bank
with and into HNB. On December 15, 1998, the OCC approved the Merger of the
Bank with and into HNB. Bank holding companies also generally are prohibited
from engaging under the Bank Holding Company Act of 1956, as amended ("BHCA"),
in non-banking activities (with certain exceptions).
38
<PAGE>
Hibernia's national banking subsidiaries are regulated, supervised and
examined by the OCC. Hibernia's banking subsidiaries also are 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 made,
. restrictions on the interest that may be charged on loans, 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.
Commercial banks such as HNB also are affected by the Federal Reserve Board's
attempts to control the money supply and credit availability in order to
influence the economy.
PAYMENT OF DIVIDENDS
Hibernia derives substantially all of its income from the payment of dividends
by its banking subsidiaries. The ability of its banking subsidiaries to pay
dividends affects Hibernia's ability to pay dividends to its shareholders.
Various statutory restrictions apply to the ability of Hibernia's banking
subsidiaries to pay dividends to Hibernia. As of September 30, 1998,
Hibernia's banking subsidiaries had approximately $301 million plus retained
earnings through the dividend declaration date available to pay dividends to
Hibernia.
The OCC may prohibit a national bank from engaging in an unsafe or unsound
practice. Unsafe and unsound practices include, among other things, payment of
dividends if the payment of the dividend would deplete a bank's capital to an
inadequate level. HNB's ability to pay dividends in the future is influenced by
bank regulatory policies or agreements and by capital guidelines. The level of
this influence could increase in the future. Additional information on this
topic is available in some of the documents that are incorporated by reference
herein. See "AVAILABLE INFORMATION."
The Federal Reserve Board maintains a policy that requires bank holding
companies to serve as a source of strength for their subsidiary banks. In
furtherance of this policy, the Federal Reserve has stated that 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
Federal law restricts HNB's ability to
. extend credit to affiliates, including Hibernia,
. purchase assets of its affiliates,
. issue a guarantee, acceptance or letter of credit on behalf of its
affiliates, including an endorsement or standby letter of credit, or
. purchase or invest in the stock or securities of an affiliate or to take
that stock or securities as collateral for loans to any borrower.
Extensions of credit and issuances to affiliates generally must be secured by
eligible collateral. In addition, all such transactions with a single affiliate
are generally limited to 10% of HNB's capital and surplus and all such
transactions with affiliates may not exceed 20% of HNB'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
generally limited to 15% of HNB's capital and surplus.
39
<PAGE>
The limitations described above in this section apply to all national banks.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheet of Hibernia as of
September 30, 1998 and income statements of Hibernia for the nine month periods
ended September 30, 1998 and 1997 and years ended December 31, 1997, 1996 and
1995 give effect to the pending Merger with MarTex. The statements also assume
that the Merger is accounted for as a pooling of interests. The pro forma
combined balance sheet treats the Merger as if it occurred on September 30,
1998; the pro forma combined income statements treat the Merger as if it had
occurred on January 1, 1995.
The information at September 30, 1998 and for the nine-month periods ending
September 30, 1998 and 1997 in the column titled "Hibernia Corporation" is
summarized from the unaudited consolidated financial statements of Hibernia
contained in Hibernia's Quarterly Report on Form10-Q for the quarter ended
September 30, 1998.
The information for the years ended December 31, 1997, 1996 and 1995, 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, 1997. Information in the column titled
"Restated Hibernia Corporation" reflects the impact of the mergers with
Northwest, Argent and Firstshares during the first quarter of 1998 and Peoples
during the third quarter of 1998, each of which were accounted for as poolings
of interests.
The information contained in the column titled "MarTex Bancshares, Inc." is
based on the financial statements and related notes, and Management's Discussion
and Analysis of Financial Condition and Results of Operations, of MarTex
contained elsewhere in this proxy statement/prospectus. We encourage you to
read this column in conjunction with the other financial information about
MarTex contained in this proxy statement/prospectus.
The Pro Forma Financial Statements are presented for information purposes
only. The results shown in them are not necessarily indicative of the actual
results that might have occurred if the Merger had been completed on January 1,
1995. Also, they are not necessarily indicative of results that might be
achieved in the future if the Merger is completed.
PRO FORMA COMBINED BALANCE SHEET (Unaudited)
The following unaudited combined balance sheet combines the balance sheets of
Hibernia and MarTex as if the Merger had been effective on September 30, 1998.
You should read this balance sheet in conjunction with the financial statements
and related notes of Hibernia, which are contained in Hibernia's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998 and incorporated
herein by reference, and the September 30, 1998 financial statements and related
notes of MarTex, which are included elsewhere in this proxy
statement/prospectus.
40
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED BALANCE SHEET
Hibernia Corporation and Subsidiaries
September 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
PRO PRO FORMA
HIBERNIA MARTEX FORMA HIBERNIA
Unaudited ($ in thousands) CORPORATION BANCSHARES,INC. ADJUSTMENTS CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks ......................................... $ 530,821 $ 10,191 $ 541,012
Short-term investments .......................................... 210,641 18,675 229,316
Securities available for sale ................................... 2,530,805 92,386 2,623,191
Securities held to maturity ..................................... - - -
Loans, net of unearned income ................................... 9,594,693 185,987 9,780,680
Reserve for possible loan losses ............................ (127,005) (2,004) (129,009)
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net .............................................. 9,467,688 183,983 - 9,651,671
- ------------------------------------------------------------------------------------------------------------------------------------
Bank premises and equipment ..................................... 189,696 6,890 196,586
Customers' acceptance liability ................................. 498 - 498
Goodwill ........................................................ 140,446 2,565 143,011
Other intangibles assets ........................................ 35,915 175 36,090
Other assets .................................................... 166,338 4,201 170,539
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ............................................ $ 13,272,848 $ 319,066 $ 0 $13,591,914
====================================================================================================================================
LIABILITIES
Deposits:
Demand, noninterest-bearing ................................. $ 1,821,406 $ 37,670 $ 1,859,076
Interest-bearing ............................................ 8,098,667 251,391 8,350,058
- ------------------------------------------------------------------------------------------------------------------------------------
Total Deposits .......................................... 9,920,073 289,061 10,209,134
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings ........................................... 1,115,005 - 1,115,005
Liability on acceptances ........................................ 498 - 498
Other liabilities ............................................... 222,916 2,732 ($1,824) (A) 223,824
Debt ............................................................ 705,898 831 706,729
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES ....................................... 11,964,390 292,624 (1,824) 12,255,190
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred Stock ................................................. 100,000 - 100,000
Common Stock .................................................... 299,777 119 6,505 (A) 306,401
Surplus ......................................................... 404,450 15,335 (1,294) (A) 418,491
Retained earnings ............................................... 490,903 10,270 (3,387) (A) 497,786
Treasury stock .................................................. - - -
Unrealized gains (losses) on securities available for sale ...... 39,345 718 40,063
Unearned compensation ........................................... (26,017) - (26,017)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY .............................. 1,308,458 26,442 1,824 1,336,724
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............. $ 13,272,848 $ 319,066 $ 0 $13,591,914
====================================================================================================================================
- ----------------
See notes to Pro Forma Combined Balance Sheet.
</TABLE>
41
<PAGE>
HIBERNIA CORPORATION
NOTES TO PRO FORMA COMBINED BALANCE SHEET
September 30, 1998
A. Hibernia plans to issue 3,450,000 shares of Hibernia common stock, with an
aggregate market value at the date of the merger of $58,650,000 based on an
assumed market value of $17.00 per share, to effect the merger with MarTex.
The stated value of 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.
In connection with the change in control of MarTex, approximately
$5,211,000 of MarTex common stock will be issued to two executive officers
under an existing stock grant agreement.
PRO FORMA COMBINED INCOME STATEMENTS (Unaudited)
The following unaudited pro forma combined income statements for the nine
month periods ended September 30, 1998 and 1997 and the years ended December 31,
1997, 1996 and 1995 combine the income statements of Hibernia and MarTex as if
the Merger had occurred on January 1, 1995 and reflect the impact of the mergers
with Northwest, Argent and Firstshares, consummated in the first quarter of 1998
and Peoples consummated in the third quarter of 1998 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 Hibernia's consolidated
financial statements and notes contained in its Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998 and Annual Report on Form 10-K for the
year ended December 31, 1997, which are incorporated by reference into this
proxy statement/prospectus, and the financial statements and related notes for
the years ended December 31, 1997 and 1996 and the nine-month periods ended
September 30, 1998 and 1997 for MarTex contained elsewhere herein. The cost
associated with the Merger, estimated to be approximately $570,000, will be
accounted for as a current period expense when incurred.
42
<PAGE>
<TABLE>
<CAPTION>
HIBERNIA CORPORATION
PRO FORMA COMBINED INCOME STATEMENT
September 30, 1998
PRO FORMA
HIBERNIA MARTEX HIBERNIA
Unaudited ($ in thousands, except per share data) CORPORATION BANCSHARES,INC CORPORATION
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income
Interest and fees on loans ................... $ 574,991 $ 12,503 $ 587,494
Interest on securities available for sale .... 121,264 4,803 126,067
Interest on securities held to maturity ...... - - -
Interest on short-term investments ........... 11,934 778 12,712
- -----------------------------------------------------------------------------------------------------------------
Total interest income .................... 708,189 18,084 726,273
- -----------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits ......................... 258,763 8,923 267,686
Interest on short-term borrowings ............ 27,741 - 27,741
Interest on debt ............................. 28,562 73 28,635
- -----------------------------------------------------------------------------------------------------------------
Total interest expense ................... 315,066 8,996 324,062
- -----------------------------------------------------------------------------------------------------------------
Net interest income .............................. 393,123 9,088 402,211
Provision for possible loan losses ........... 17,000 238 17,238
- -----------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses ...................... 376,123 8,850 384,973
- -----------------------------------------------------------------------------------------------------------------
Noninterest income
Service charges on deposits .................. 62,585 1,232 63,817
Trust fees ................................... 12,499 - 12,499
Other service, collection and exchange charges 44,364 360 44,724
Other operating income ....................... 12,660 187 12,847
Securities gains (losses), net ............... 3,601 97 3,698
- -----------------------------------------------------------------------------------------------------------------
Total noninterest income ................. 135,709 1,876 137,585
- -----------------------------------------------------------------------------------------------------------------
Noninterest expense
Salaries and employee benefits ............... 155,131 3,723 158,854
Occupancy expense, net ....................... 26,142 536 26,678
Equipment expense ............................ 22,925 366 23,291
Data processing expense ...................... 20,769 593 21,362
Foreclosed property expense, net ............. (1,020) 69 (951)
Amortization of intangibles .................. 12,182 319 12,501
Other operating expense ...................... 76,342 1,723 78,065
- -----------------------------------------------------------------------------------------------------------------
Total noninterest expense ................ 312,471 7,329 319,800
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes ....................... 199,361 3,397 202,758
Income tax expense ............................... 68,647 1,142 69,789
- -----------------------------------------------------------------------------------------------------------------
Income from continuing operations ................ $ 130,714 $ 2,255 $ 132,969
=================================================================================================================
Income from continuing operations
applicable to common shareholders ............ $ 125,539 $ 2,255 $ 127,794
=================================================================================================================
Pro forma weighted average common shares ......... 153,813,647 3,450,000 157,263,647
=================================================================================================================
Pro forma weighted average common
shares - assuming dilution ................... 156,611,331 3,450,000 160,061,331
=================================================================================================================
Pro forma income per common share from
continuing operations (B)...................... $ 0.82 $ 0.81
=================================================================================================================
Pro forma income per common share from
continuing operations - assuming dilution .... $ 0.80 $ 0.80
=================================================================================================================
- --------------
See notes to Pro Forma Combined Income Statements.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
HIBERNIA CORPORATION
PRO FORMA COMBINED INCOME STATEMENT
September 30, 1997
PRO FORMA
HIBERNIA MARTEX HIBERNIA
Unaudited ($ in thousands, except per share data) CORPORATION BANCSHARES, INC. CORPORATION
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income
Interest and fees on loans ................... $ 475,609 $ 11,892 $ 487,501
Interest on securities available for sale .... 130,701 4,448 135,149
Interest on securities held to maturity ...... - - -
Interest on short-term investments ........... 12,364 392 12,756
- ------------------------------------------------------------------------------------------------------------------
Total interest income .................... 618,674 16,732 635,406
- ------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits ......................... 239,874 7,610 247,484
Interest on short-term borrowings ............ 19,632 - 19,632
Interest on debt ............................. 1,876 143 2,019
- ------------------------------------------------------------------------------------------------------------------
Total interest expense ................... 261,382 7,753 269,135
- ------------------------------------------------------------------------------------------------------------------
Net interest income .............................. 357,292 8,979 366,271
Provision for possible loan losses ........... 388 214 602
- ------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses ...................... 356,904 8,765 365,669
- ------------------------------------------------------------------------------------------------------------------
Noninterest income
Service charges on deposits .................. 57,410 1,331 58,741
Trust fees ................................... 11,480 - 11,480
Other service, collection and exchange charges 32,908 305 33,213
Other operating income ....................... 9,480 124 9,604
Securities gains (losses), net ............... 494 14 508
- ------------------------------------------------------------------------------------------------------------------
Total noninterest income ................. 111,772 1,774 113,546
- ------------------------------------------------------------------------------------------------------------------
Noninterest expense
Salaries and employee benefits ............... 146,595 3,612 150,207
Occupancy expense, net ....................... 25,463 487 25,950
Equipment expense ............................ 23,488 288 23,776
Data processing expense ...................... 18,533 526 19,059
Foreclosed property expense, net ............. (442) 58 (384)
Amortization of intangibles .................. 10,908 326 11,234
Other operating expense ...................... 74,152 1,938 76,090
- ------------------------------------------------------------------------------------------------------------------
Total noninterest expense ................ 298,697 7,235 305,932
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes ....................... 169,979 3,304 173,283
Income tax expense ............................... 58,686 1,229 59,915
- ------------------------------------------------------------------------------------------------------------------
Income from continuing operations ................ $ 111,293 $ 2,075 $ 113,368
==================================================================================================================
Income from continuing operations
applicable to common shareholders ............ $ 106,118 $ 2,075 $ 108,193
==================================================================================================================
Pro forma weighted average common shares ......... 152,769,711 3,450,000 156,219,711
==================================================================================================================
Pro forma weighted average common
shares - assuming dilution ................... 154,979,424 3,450,000 158,429,424
==================================================================================================================
Pro forma income per common share from
continuing operations (B)..................... $ 0.69 $ 0.69
==================================================================================================================
Pro forma income per common share from
continuing operations - assuming dilution .... $ 0.68 $ 0.68
==================================================================================================================
- --------------
See notes to Pro Forma Combined Income Statements.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
HIBERNIA CORPORATION
PRO FORMA COMBINED INCOME STATEMENT
December 31, 1997
(A)
RESTATED PRO FORMA
HIBERNIA HIBERNIA MARTEX HIBERNIA
Unaudited ($ in thousands, except per share data) CORPORATION CORPORATION BANCSHARES,INC. CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans ................... $ 594,775 $ 653,260 $ 16,038 $ 669,298
Interest on securities available for sale .... 141,391 171,667 6,036 177,703
Interest on securities held to maturity ...... - - - -
Interest on short-term investments ........... 13,916 17,131 572 17,703
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income .................... 750,082 842,058 22,646 864,704
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits ......................... 286,338 323,247 10,434 333,681
Interest on short-term borrowings ............ 30,402 31,189 - 31,189
Interest on debt ............................. 5,585 5,586 168 5,754
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense ................... 322,325 360,022 10,602 370,624
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income .............................. 427,757 482,036 12,044 494,080
Provision for possible loan losses ........... 620 3,148 285 3,433
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses ...................... 427,137 478,888 11,759 490,647
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest income
Service charges on deposits .................. 71,798 78,132 1,833 79,965
Trust fees ................................... 14,757 15,519 - 15,519
Other service, collection and exchange charges 43,008 44,348 414 44,762
Other operating income ....................... 13,150 13,273 158 13,431
Securities gains (losses), net ............... 2,718 2,725 14 2,739
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest income ................. 145,431 153,997 2,419 156,416
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest expense
Salaries and employee benefits ............... 181,097 203,044 4,674 207,718
Occupancy expense, net ....................... 30,823 33,956 735 34,691
Equipment expense ............................ 27,815 30,808 451 31,259
Data processing expense ...................... 22,952 26,181 710 26,891
Foreclosed property expense, net ............. (3,219) (3,235) 62 (3,173)
Amortization of intangibles .................. 13,747 14,593 441 15,034
Other operating expense ...................... 88,729 103,907 2,552 106,459
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense ................ 361,944 409,254 9,625 418,879
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes ....................... 210,624 223,631 4,553 228,184
Income tax expense ............................... 73,235 78,835 1,454 80,289
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations ................ $ 137,389 $ 144,796 $ 3,099 $ 147,895
====================================================================================================================================
Income from continuing operations
applicable to common shareholders ............ $ 130,489 $ 137,896 $ 3,099 $ 140,995
====================================================================================================================================
Pro forma weighted average common shares ......... 130,795,276 152,873,513 3,450,000 156,323,513
====================================================================================================================================
Pro forma weighted average common
shares - assuming dilution ................... 133,325,407 155,403,645 3,450,000 158,853,645
====================================================================================================================================
Pro forma income per common share from
continuing operations (B)..................... $ 1.00 $ 0.90 $ 0.90
====================================================================================================================================
Pro forma income per common share from
continuing operations - assuming dilution .... $ 0.98 $ 0.89 $ 0.89
====================================================================================================================================
- ----------------
See notes to Pro Forma Combined Income Statements.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
HIBERNIA CORPORATION
PRO FORMA COMBINED INCOME STATEMENT
December 31, 1996
(A)
RESTATED PRO FORMA
HIBERNIA HIBERNIA MARTEX HIBERNIA
Unaudited ($ in thousands, except per share data) CORPORATION CORPORATION BANCSHARES,INC. CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans ................... $ 487,918 $ 535,016 $ 11,643 $ 546,659
Interest on securities available for sale .... 142,457 173,601 2,710 176,311
Interest on securities held to maturity ...... - - - -
Interest on short-term investments ........... 11,065 13,481 267 13,748
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income .................... 641,440 722,098 14,620 736,718
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits ......................... 248,593 281,973 6,030 288,003
Interest on short-term borrowings ............ 15,288 15,887 - 15,887
Interest on debt ............................. 1,926 1,969 - 1,969
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense ................... 265,807 299,829 6,030 305,859
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income .............................. 375,633 422,269 8,590 430,859
Provision for possible loan losses ........... (12,417) (12,127) 240 (11,887)
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses ...................... 388,050 434,396 8,350 442,746
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest income
Service charges on deposits .................. 59,488 64,982 1,105 66,087
Trust fees ................................... 13,404 14,055 - 14,055
Other service, collection and exchange charges 34,647 35,688 253 35,941
Gain on sale of business lines ............... 517 517 - 517
Other operating income ....................... 9,794 10,611 81 10,692
Securities gains (losses), net ............... (5,306) (5,152) (48) (5,200)
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest income ................. 112,544 120,701 1,391 122,092
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest expense
Salaries and employee benefits ............... 164,774 181,138 3,147 184,285
Occupancy expense, net ....................... 27,531 30,244 449 30,693
Equipment expense ............................ 29,178 31,723 252 31,975
Data processing expense ...................... 20,711 22,813 560 23,373
Foreclosed property expense, net ............. (1,735) (1,786) 103 (1,683)
Amortization of intangibles .................. 7,441 7,791 252 8,043
Other operating expense ...................... 79,020 87,892 1,716 89,608
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense ................ 326,920 359,815 6,479 366,294
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes ....................... 173,674 195,282 3,262 198,544
Income tax expense ............................... 60,856 67,389 1,076 68,465
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations ................ $ 112,818 $ 127,893 $ 2,186 $ 130,079
====================================================================================================================================
Income from continuing operations
applicable to common shareholders ............ $ 111,078 $ 126,153 $ 2,186 $ 128,339
====================================================================================================================================
Pro forma weighted average common shares ......... 130,160,581 152,238,818 3,450,000 155,688,818
====================================================================================================================================
Pro forma income per common share
assuming dilution ............................ 131,658,685 153,736,922 3,450,000 157,186,922
====================================================================================================================================
Pro forma income per common share from
continuing operations (B)..................... $ 0.85 $ 0.83 $ 0.82
====================================================================================================================================
Pro forma income per common share from
continuing operations - assuming dilution .... $ 0.84 $ 0.82 $ 0.82
====================================================================================================================================
- ----------------
See notes to Pro Forma Combined Income Statements.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
HIBERNIA CORPORATION
PRO FORMA COMBINED INCOME STATEMENT
December 31, 1995
(A)
RESTATED PRO FORMA
HIBERNIA HIBERNIA MARTEX HIBERNIA
Unaudited ($ in thousands, except per share data) CORPORATION CORPORATION BANCSHARES,INC. CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans ................... $ 398,117 $ 437,025 $ 10,179 $ 447,204
Interest on securities available for sale .... 52,226 76,497 2,652 79,149
Interest on securities held to maturity ...... 117,110 123,470 - 123,470
Interest on short-term investments ........... 7,849 10,928 237 11,165
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income .................... 575,302 647,920 13,068 660,988
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits ......................... 231,349 260,281 4,976 265,257
Interest on short-term borrowings ............ 13,810 14,386 - 14,386
Interest on debt ............................. 1,827 1,893 121 2,014
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense ................... 246,986 276,560 5,097 281,657
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income .............................. 328,316 371,360 7,971 379,331
Provision for possible loan losses ........... 1,218 416 317 733
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses ...................... 327,098 370,944 7,654 378,598
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest income
Service charges on deposits .................. 50,074 54,475 997 55,472
Trust fees ................................... 12,506 13,105 - 13,105
Other service, collection and exchange charges 28,857 29,838 235 30,073
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 ....................... 8,503 9,066 494 9,560
Securities gains (losses), net ............... 227 958 123 1,081
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest income ................. 105,930 113,205 1,849 115,054
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest expense
Salaries and employee benefits ............... 139,465 154,568 2,905 157,473
Occupancy expense, net ....................... 26,955 29,495 334 29,829
Equipment expense ............................ 22,058 24,177 232 24,409
Data processing expense ...................... 19,731 21,409 392 21,801
Foreclosed property expense, net ............. (693) (892) 102 (790)
Amortization of intangibles .................. 3,709 3,807 259 4,066
Other operating expense ...................... 78,257 87,292 1,870 89,162
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense ................ 289,482 319,856 6,094 325,950
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes ....................... 143,546 164,293 3,409 167,702
Income tax expense ............................... 12,134 18,087 1,211 19,298
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations ................ $ 131,412 $ 146,206 $ 2,198 $ 148,404
====================================================================================================================================
Income from continuing operations
applicable to common shareholders ............ $ 131,412 $ 146,206 $ 2,198 $ 148,404
====================================================================================================================================
Pro forma weighted average common shares ......... 130,275,835 152,354,072 3,450,000 155,804,072
====================================================================================================================================
Pro forma weighted average common
shares - assuming dilution ................... 131,201,341 153,279,578 3,450,000 156,729,578
====================================================================================================================================
Pro forma income per common share from
continuing operations (B) .................... $ 1.01 $ 0.96 $ 0.95
====================================================================================================================================
Pro forma income per common share from
continuing operations - assuming dilution .... $ 1.00 $ 0.95 $ 0.95
====================================================================================================================================
- ----------------
See notes to Pro Forma Combined Income Statements.
</TABLE>
47
<PAGE>
HIBERNIA CORPORATION
NOTES TO PRO FORMA COMBINED INCOME STATEMENTS
A. During the first quarter of 1998, Hibernia Corporation completed mergers with
Northwest, Argent and Firstshares. During the third quarter of 1998, Hibernia
completed a merger with Peoples. Each of these mergers were accounted for as
poolings of interests. In the transaction with Northwest on January 1, 1998,
Hibernia issued 1,508,019 shares of Hibernia common stock with a market value
of $28,275,000. In the transaction with Argent on February 1, 1998, Hibernia
issued 13,317,236 shares of Hibernia common stock with a market value of
$247,534,000. In the transaction with Firstshares on March 15, 1998, Hibernia
issued 3,690,615 shares of Hibernia common stock with a market value of
$74,204,000. In the transaction with Peoples on July 1, 1998, Hibernia issued
3,562,367 shares of Hibernia common stock with a market value of $70,980,000.
B. Hibernia expects to achieve savings in the Merger by reducing operating
costs. Most of these savings will occur when certain operations of the two
companies are consolidated. The extent of any savings will depend, 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. There can be no assurance that any such savings
will be realized. The unaudited pro forma financial statements have not been
adjusted to reflect any anticipated cost savings.
48
<PAGE>
CERTAIN INFORMATION CONCERNING MARTEX
DESCRIPTION OF BUSINESS
MarTex is a bank holding company formed in 1984 as a business corporation
under the laws of the State of Texas for the purpose of acquiring the stock of
the Bank. MarTex is a registered bank holding company subject to regulation
under the BHCA. At September 30, 1998, MarTex had total consolidated assets of
$319 million, deposits of $289 million and shareholders' equity of $26.4
million. MarTex derives all of its consolidated revenue and income from the
Bank. MarTex's executive offices are located at 2615 East End Boulevard South,
Marshall, Texas 75670.
The Bank is a state banking association organized in 1935. The Bank
conducts a full service commercial banking business serving businesses,
individuals, industry, public and governmental organizations. The Bank has one
office in Gladewater, one in Chireno, one in Elysian Fields, one in Mineola, two
in Lindale, one in Pittsburg, and two offices in Marshall, Texas, for a total of
nine offices. All offices offer an array of banking services to individuals and
businesses, including demand accounts, NOW accounts, certificates of deposit,
money market accounts, savings, and individual retirement accounts, safe deposit
boxes, night depository, automated teller machines, and drive-in banking
services. The Bank's lending activities consist principally of real estate,
consumer and commercial loans. The Bank also provides depository and related
financial services to commercial, industrial, financial and governmental
customers. The Bank's deposits represent a cross-section of the area's economy,
and there is no material concentration of deposits from any single customer or
group of customers. No significant portion of the Bank's loans is concentrated
within a single industry or group of related industries. There are no material
seasonal factors that would have an adverse effect on MarTex or the Bank.
SUPERVISION AND REGULATION
As a bank holding company, MarTex is subject to the supervision of and
regulations adopted by the Federal Reserve Board pursuant to the BHCA. MarTex
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 MarTex and the
Bank. Under the BHCA, MarTex also is generally prohibited, with certain
exceptions, from engaging in non-banking activities or from engaging in certain
tie-in arrangements in connection with any extension of credit or provision of
any property or services.
The Bank is chartered under Texas law and is subject to the supervision and
regulation of, and are examined by, the Texas Department of Banking and the
FDIC. 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 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 Bank Insurance Fund assessment rate schedule twice a year without
seeking public comments first, but only within a range of five cents per $100
above or below the premium schedule adopted. Changes in the rate schedule
outside the five cent range above or below the current schedule will be made by
the FDIC Board of Directors only after a full rule making with opportunity for
public comment. The Bank pays a Savings Association Insurance Fund rate equal
to 0.0582% on approximately $77 million of deposits and a Bank Insurance Fund
rate equal to 0.01164 on approximately $210 million of
49
<PAGE>
deposits. Congress recently adopted, and the President signed into law, an act
requiring Bank Insurance Fund-insured institutions, such as the Bank, to pay a
portion of the interest due on bonds that were issued by the Financing
Corporation to help shore up the ailing Federal Savings and Loan Insurance
Corporation. The amount of Financing Corporation debt service to be paid by all
Bank Insurance Fund-insured institutions, in the aggregate, is approximately
$320,343,000 per year, or .0128 per $100.00 of domestic deposits, from 1997
until the year 2000 when the obligation of Bank Insurance Fund-insured
institutions increases to approximately $600,000,000 per year, or $.0240 per
$100.00 of domestic deposits, through the year 2019.
The operations of the Bank, and therefore MarTex, are 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's market area covers six east Texas counties including Harrison,
Gregg, Smith, Wood, Camp and Nacogdoches Counties. This area covers
approximately 3,835 square miles of land area and had an estimated 1997
population of 441,522 people encompassing 143,200 households. There are
approximately thirty-three banks, six savings and loan associations and ten
credit unions within the market area of the Bank. The Bank competes with these
local institutions and, especially as to larger accounts, with banks and bank
holding companies located outside of these counties.
A number of holding companies with greater resources than those of MarTex
have acquired banks or holding companies or established branches that operate in
the Bank's primary market areas and this process of consolidation is continuing.
MarTex's Board believes that the size of these institutions allows certain
economies of scale that permit their operation on a narrower profit margin than
that of the Bank. Competition among banks for loan customers is generally
governed by such factors as loan terms, including interest charges, restrictions
on borrowers and compensating balances, and other services offered by such
banks. The Bank competes with numerous other commercial banks, savings and loan
associations and credit unions for customer deposits, as well as with a broad
range of financial institutions in consumer and commercial lending activities.
In addition to thrift institutions, other businesses in the financial service
industry compete with the Bank for retail and commercial loan business.
Competition for loans and deposits is intense among financial institutions in
the Bank's respective market areas.
EMPLOYEES
The Bank had in the aggregate 154 equivalent full time employees as of
September 30, 1998. None of such employees are subject to a collective
bargaining agreement.
PROPERTIES
The main office of MarTex is located at 2615 East End Boulevard South,
Marshall, Texas and the Bank's main office is located at 400 S. Alamo in
Marshall, Texas. MarTex rents its office space of approximately 5,000 square
feet. Listed below is a summary description of the Bank's branch facilities:
50
<PAGE>
<TABLE>
<CAPTION>
Square Footage
Location of Facility Drive Thru Lanes ATMs
-------- -------------- ---------------- ----
<S> <C> <C> <C>
Marshall 15,390 5 1
Marshall Walmart 600 0 1
Gladewater 10,000 5 1
Elysian Fields 3,000 2 0
Chireno 5,000 1 0
Pittsburg 10,000 3 1
Lindale 5,320 3 1
Hideaway Lake 2,600 4 1
Mineola 5,000 3 1
</TABLE>
The Bank owns all of its facilities except the Marshall Walmart facility which
is leased. The lease for the Marshall Walmart facility provides that the lessor
may cancel the lease if the lessor does not consent to the change in control of
MarTex to be effected by the Merger.
LEGAL PROCEEDINGS
In the normal course of its business, MarTex from time to time is
involved in legal proceedings. Other than such legal proceedings incidental to
its business, MarTex's management is not aware of any pending or threatened
legal proceedings, which upon resolution, would have a material adverse effect
upon MarTex's financial condition or results of operations.
MARKET PRICES AND DIVIDENDS
There is no established public trading market for the MarTex common
stock. As of the Record Date, MarTex common stock was held by approximately 373
holders of record. MarTex has paid a cash dividend in each year from 1994
through 1998 at a rate per common share of $0.0292, $0.0363, $0.0305, $0.04 and
$0.04, respectively.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
Ownership of Principal Shareholders
The following table sets forth information concerning all persons
known to MarTex to be beneficial owners, directly or indirectly, of more than 5%
of the outstanding shares of MarTex common stock, MarTex's 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
<TABLE>
<CAPTION>
Name and Address of
Beneficial Owner Shares Owned Percent Owned (1)
------------------- ------------ -----------------
<S> <C> <C>
Steve B. Carlile 2,516,537 21.2%
Garden Oaks Drive
Marshall, Texas
Kenneth O. Carlile 2,337,074 19.7%
703 Bergstrom
Marshall, Texas
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Name and Address of
Beneficial Owner Shares Owned Percent Owned (1)
------------------- ------------ -----------------
<S> <C> <C>
Quinton B. Carlile 2,299,561 19.4%
707 Bergstrom
Marshall, Texas
Heritage Texas Group, Inc. 901,796 (2) 7.6%
Employee Stock Ownership Plan
P. O. Box 601
Pittsburg, Texas
James R. Whatley 1,664,461 (2) (3) 14%
814 Charlotte
Longview, Texas
Eugene L. Patterson, Jr. 901,796 (2) 7.6%
P. O. Box 619
Pittsburg, Texas
Rodney Bass 1,044,078 (2) (4) 8.8%
24 Willow
Pittsburg, Texas
</TABLE>
______________________________
(1) Assumes 11,876,796 shares of MarTex common stock are issued and
outstanding, unless otherwise indicated.
(2) Eugene Patterson, Rodney Bass and James Whatley serve as trustees for
the KSOP which is the record owner of 901,796 shares of MarTex common
stock. Messrs. Patterson, Bass and Whatley, in their respective
capacities as trustees of the KSOP, share with each other investment
power with respect to those shares of MarTex common stock and
therefore are deemed to beneficially own, under applicable regulations
of the Securities and Exchange Commission, the 901,796 shares of
MarTex common stock owned of record by the KSOP. With respect to the
voting power of the 901,796 shares of MarTex common stock owned of
record by the KSOP, the trustees will vote all shares of MarTex common
stock owned by the KSOP in accordance with instructions received by
the trustees from each participant in the KSOP with respect to the
shares of MarTex common stock allocated to such participant's KSOP
account.
(3) Includes 319,828 shares of MarTex common stock that Mr. Whatley has
the right to acquire under certain warrant agreements.
(4) See note (8) to the table under the caption "Ownership of Management".
____________________________
52
<PAGE>
Ownership of Management
The following table sets forth information concerning the shares of MarTex
common stock beneficially owned, directly or indirectly, by each director and
executive officer of MarTex, 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.
<TABLE>
<CAPTION>
Name and Address of
Beneficial Owner Shares Owned Percent Owned (1)
------------------- ------------ -----------------
<S> <C> <C>
Steve B. Carlile 2,516,537 21.2%
Garden Oaks
Marshall, Texas
Kenneth O. Carlile 2,337,074 19.7%
703 Bergstrom
Marshall, Texas
Quinton B. Carlile 2,299,561 19.4%
707 Bergstrom
Marshall, Texas
James R. Whatley 1,664,461 (2) 14%
814 Charlotte
Longview, Texas
Don Holcomb 277,784 (3) 2.3%
P. O. Box 469
Deberry, Texas
F. Wayne McWhorter 233,565 (4) 2.0%
906 Bergstrom
Marshall, Texas
George E. Fitts 118,464 1.0%
2503 Waubun
Marshall, Texas
Thomas D. McClenny 118,439 1.0%
Box 216
Mineola, Texas
R. Wayne Collins 113,265 1.0%
Box 330
Mineola, Texas
Jack Jackson 70,210 (5) *
11474 CR 494
Tyler, Texas
George F. Meisenheimer 71,251 (6) *
915 Scenic Loop
Marshall, Texas
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Name and Address of
Beneficial Owner Shares Owned Percent Owned (1)
------------------- ------------ -----------------
<S> <C> <C>
H. Barham Fulmer 61,950 (7) *
330 Hie-A-Way Lane
Lindale, Texas
James R. Cavender 23,359 *
232 Rusk
Pittsburg, Texas
Rodney Bass 1,044,078 (8) 8.8%
24 Willow
Pittsburg, Texas
Monte W. Robinson 11,956 *
9715 Windbrooke
Shreveport, Louisiana
Amanda B. Nickerson 8,812 *
Box 494
Pittsburg, Texas
C. Hugh Bowden 10,307 (9) *
Box 454
Gladewater, Texas
Wilson Godfrey 4,287 *
Box 922
Gladewater, Texas
R. E. Phillips 536 *
Box 511
Gladewater, Texas
All Directors and Executive
Officers, As A Group 10,084,100 (10) 81.8%
- -----------------------
</TABLE>
* Less than 1%.
(1) Assumes 11,876,796 shares of MarTex common stock issued and
outstanding, unless otherwise indicated.
(2) Includes 319,828 shares of MarTex common stock that Mr. Whatley has the
right to acquire under certain warrant agreements. See note (2) to the
table under the caption "Ownership of Principal Shareholders" for a
description of Mr. Whatley's role as a co-trustee of the KSOP.
(3) These shares are owned by Delta Construction, Inc., a corporation owned
by Mr. Holcomb, and Mr. Holcomb exercises sole voting and investment
power with respect to such shares.
(4) Includes 48,762 shares of MarTex common stock that Mr. McWhorter has
the right to acquire under certain option agreements and 1,900 shares
held by Mr. McWhorter's money purchase pension plan as to which Mr.
McWhorter exercises sole voting and investment power. Does not include
20,000 shares held by Mr. McWhorter's children, 2,000 shares
54
<PAGE>
held by Mr. McWhorter's wife or any shares Mr. McWhorter may receive
under the Stock Grant Agreements. See "STOCK GRANT AGREEMENTS".
(5) Does not include 1,187 shares held by Mr. Jackson's wife.
(6) Includes 31,425 shares that Mr. Meisenheimer has the right to acquire
under certain stock options; does not include 20,000 shares owned by
Mr. Meisenheimer's children or any shares to be issued under the Stock
Grant Agreements. See "STOCK GRANT AGREEMENTS".
(7) Includes 3,613 shares that Mr. Fulmer has the right to acquire under
certain stock options.
(8) Includes approximately 87,794 shares beneficially owned through the
KSOP as to which Mr. Bass exercises shared voting power and the trustee
of the KSOP exercises sole investment power and 43,998 shares that Mr.
Bass has the right to acquire under certain stock options. See note
(2) to the table under the caption "Ownership of Principal
Shareholders" for a description of Mr. Whatley's role as a co-trustee
of the KSOP.
(9) Includes 4,236 shares that Mr. Bowden has the right to acquire under
certain stock options.
(10) Includes 453,731 shares that the above directors and officers have the
right to acquire under stock options or agreements and 901,796 shares
of MarTex common stock owned of record by the KSOP. See note (2) to
the table under the caption "Ownership of Principal Shareholders."
____________________________
55
<PAGE>
MARTEX FINANCIAL STATEMENTS FOR
THE NINE-MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
56
<PAGE>
MarTex Bancshares, Inc. and Subsidary
Consolidated Statements of Financial Condition (Unaudited)
September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents ....................................... $ 10,190,631 $ 7,657,038
Federal funds sold .............................................. 13,334,441 3,600,259
Certificates of Deposit ......................................... 5,341,000 2,856,000
Securities available for sale, at fair value .................... 92,386,367 96,845,849
Loans receivable, net ........................................... 183,983,068 167,949,979
Accrued interest receivable ..................................... 2,334,339 2,316,597
Federal income taxes receivable ................................. 176,016 116,534
Premises and equipment, net ..................................... 6,889,720 6,286,242
Other real estate and repossessions, net ........................ 593,078 316,084
Deferred federal income taxes ................................... 183,497
Intangible assets, net .......................................... 2,740,062 3,174,087
Other ........................................................... 1,096,983 862,436
- -----------------------------------------------------------------------------------------------------------------
Total Assets ............................................... $ 319,065,705 $ 292,164,602
=================================================================================================================
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Demand ....................................................... $ 37,669,684 $ 32,764,491
Savings ...................................................... 13,400,042 13,577,363
Money market Accounts ........................................ 67,649,830 57,069,583
NOW accounts ................................................. 10,055,387 10,285,246
Time, $100,000 and over ...................................... 38,806,683 37,009,201
Other time deposits .......................................... 121,479,692 115,293,689
- -----------------------------------------------------------------------------------------------------------------
Total deposits ............................................. 289,061,318 265,999,573
Interest payable ................................................ 1,075,638 920,837
Note payable .................................................... 830,714 1,196,857
Accrued expenses and other liabilities .......................... 1,304,687 820,898
Deferred income taxes ........................................... 351,525 0
- -----------------------------------------------------------------------------------------------------------------
Total Liabilities .......................................... 3,562,564 2,938,592
Commitments and Contingent Liabilities
Shareholders' Equity
Common Stock .................................................... 118,751 118,222
Paid-in capital ................................................. 15,014,666 14,913,124
Paid-in capital -warrants ....................................... 320,311 320,311
Retained earnings ............................................... 10,270,000 7,465,414
Unrealized gain on securities available for sale, net of def. Tax 718,094 409,366
- -----------------------------------------------------------------------------------------------------------------
Total shareholders' equity ................................. 26,441,822 23,226,437
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity ...................... $ 319,065,705 $ 292,164,602
=================================================================================================================
</TABLE>
57
<PAGE>
MarTex Bancshares, Inc. and Subsidary
Consolidated Statements of Income (Unaudited)
For the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest Income
Loans .............................................. $ 12,502,991 $ 11,892,312
Federal funds sold ................................. 565,062 355,264
Investment securities:
Subject to federal income tax ................... 4,394,304 4,149,370
Exempt from federal income tax .................. 409,000 298,309
Certificates of deposit ............................ 212,304 37,251
- --------------------------------------------------------------------------------------------------
Total interest income ......................... 18,083,661 16,732,506
Interest Expense
Deposits ........................................... 8,922,698 7,610,023
Borrowed Funds ..................................... 73,166 143,383
- --------------------------------------------------------------------------------------------------
Total interest expense ........................ 8,995,864 7,753,406
Net Interest Income ................................ 9,087,797 8,979,100
Provision for loan losses .......................... 237,500 213,750
- --------------------------------------------------------------------------------------------------
Total interest income after loan loss provision 8,850,297 8,765,350
Other Income
Service charges on deposit accounts ................ 1,231,883 1,330,576
Other service charges, and fees .................... 546,334 429,677
Net realized gains (losses) on sales of securities . 97,149 13,792
- --------------------------------------------------------------------------------------------------
Total other income ............................ 1,875,366 1,774,045
Other Expense
Employee compensation .............................. 3,723,427 3,611,968
Occupancy .......................................... 901,720 774,860
Professional fees .................................. 73,294 179,093
Data processing .................................... 593,048 525,541
Insurance .......................................... 31,764 34,734
Losses and other expenses on ORE and repossessions . 68,612 58,468
Other .............................................. 1,937,426 2,050,520
- --------------------------------------------------------------------------------------------------
Total other expense ........................... 7,329,291 7,235,184
Income before income taxes ......................... 3,396,372 3,304,211
Provision for income taxes ......................... 1,141,768 1,229,255
- --------------------------------------------------------------------------------------------------
Net Income ......................................... $ 2,254,604 $ 2,074,956
==================================================================================================
</TABLE>
58
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Consolidated Statements of Shareholders' Equity (Unaudited)
For the Nine Months Ending September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock
Beginning balance .......................................... $ 118,465 $ 118,222
Issued for stock grant ..................................... 286
- ------------------------------------------------------------------------------------------------------------------
Ending balance ............................................. 118,751 118,222
- ------------------------------------------------------------------------------------------------------------------
Paid-in Capital
Beginning balance .......................................... 14,956,286 14,913,124
Issued for stock grant ..................................... 58,380
- ------------------------------------------------------------------------------------------------------------------
Ending balance ............................................. 15,014,666 14,913,124
- ------------------------------------------------------------------------------------------------------------------
Paid-in Warrants
Beginning balance .......................................... 320,311 320,311
- ------------------------------------------------------------------------------------------------------------------
Ending balance ............................................. 320,311 320,311
- ------------------------------------------------------------------------------------------------------------------
Retained Earnings
Beginning balance .......................................... 8,370,754 5,745,286
Cash dividends ............................................. 355,358 354,978
Net income ................................................. 2,254,604 2,075,106
- ------------------------------------------------------------------------------------------------------------------
Ending balance ............................................. 10,270,000 7,465,414
- ------------------------------------------------------------------------------------------------------------------
Unrealized Gain (Loss) on Securities Available
For Sale, Net of Deferred Income Taxes
Beginning balance .......................................... 519,685 15,731
Net change ................................................. 198,409 393,635
- ------------------------------------------------------------------------------------------------------------------
Ending balance ............................................. 718,094 409,366
- ------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity ................................. $ 26,441,822 $ 23,226,437
==================================================================================================================
</TABLE>
59
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
Note A: Basis of Presentation
The accompanying unaudited consolidated financial statements for
MarTex Bancshares, Inc. and Subsidiary (MarTex) have been prepared
in accordance with generally accepted 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, 1998 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1998. For
further information, refer to the consolidated financial statements
and footnotes thereto included in MarTex financial statements for
the year ended December 31, 1997 and 1996, contained elsewhere in
the Proxy Statement - Prospectus.
Note B: Merger Agreement
On June 29, 1998, MarTex and Hibernia Corporation (Hibernia)
entered into an Agreement and Plan of Merger pursuant to which
MarTex would merge with and into Hibernia. The Merger, to be
accounted for as a pooling of interests, will be affected with the
exchange of 3,450,000 shares of Hibernia Common Stock for all of
the outstanding shares of MarTex Common Stock. The Merger is
subject, among other things, to receipt of regulatory and
shareholder approval.
60
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF MARTEX FOR THE NINE-MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997
61
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
MARTEX BANCSHARES FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
The following discussion provides certain information concerning the
consolidated financial condition and results of operations of MarTex for the
nine months ended September 30, 1998 and 1997. The consolidated financial
position and results of operations of MarTex resulted primarily from operations
of the Bank. Management's discussion should be read in conjunction with the
Martex financial statements and accompanying notes presented elsewhere in this
Proxy Statement-Prospectus.
Overview
MarTex reported net income for the nine months ended September 30, 1998("1998")
of $2,254,604, an increase of 8.65% from net income of $2,074,956 for the nine
months ended September 30, 1997("1997"). Returns on average assets and average
equity for the first nine months of 1998 were 0.71% and 11.85% compared with
0.72% and 9.36% for the same period of 1997.
MarTex's total assets at September 30, 1998 were $319,065,705, an increase of
9.21% from September 30, 1997. Loans increased $15,742,627 from September 30,
1997 to September 30, 1998 due principally to internal growth. Total deposits at
September 30, 1998 of $289,061,318 were up 8.67% compared with September 30,
1997. This increase is attributed principally to the growth resulting from the
issuance of 7-month 7% certificates of deposit.
Results of Operations
Net Interest Income. Net interest income from loans and investments was
$9,087,797 for 1998, which represents a $108,697, or 1.21%, increase from 1997.
This increase was due to an increase in earning assets.
The following table sets forth certain information concerning the average
balances, interest income (on a fully tax equivalent basis), interest expense,
and average rates on MarTex's interest-earning assets and interest-bearing
liabilities for the nine month periods indicated.
<TABLE>
<CAPTION>
(Dollars in Thousands)
September 30,
-----------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------
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>
Earnings assets:
Loans (before
allowance for
loan losses) ..... $177,782 $12,503 9.35% $163,990 $11,892 9.64%
--------- ------- -------- -------
Investment
securities:
Taxable securities 93,240 4,394 6.27% 84,614 4,149 6.52%
Tax-exempt
securities ..... 11,391 409 7.24% 8,206 298 7.33%
-------- ------- -------- -------
Total investment
securities ..... 104,631 4,803 6.37% 92,820 4,447 6.59%
-------- ------- -------- -------
Federal funds sold
and interest-bearing
deposits ....... 18,275 777 5.66% 8,126 392 6.42%
-------- ------- -------- -------
Total earnings assets $300,689 $18,084 8.09% $264,937 $16,732 8.48%
======== ======= ======== =======
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
September 30,
--------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------
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>
Interest-bearing
liabilities:
Deposits ........... $293,713 $8,923 4.04% $260,091 $7,610 3.89%
Notes payable ...... 922 73 10.55% 1,880 143 10.14%
- -------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities ........ $294,635 $8,996 4.06% $261,971 $7,753 3.94%
======== ====== ======== ======
Net interest income .. $9,088 $8,979
====== ======
Net yield on
earnings assets .... 3.02% 3.39%
======= =======
</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 MarTex's 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 MarTex's loan portfolio. The amount of the provision is dependent
upon many factors, including management's 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 and their ability to repay the loan and the value and liquidity of
collateral.
MarTex's September 30, 1998, provision for loan losses of $237,500 was increased
by $23,750 from September 30, 1997. The allowance for loan losses of $2,004,028
was 1.08% of net loans outstanding at September 30, 1998. The allowance for loan
losses at September 30, 1997, was $2,294,490, or 1.35% of net loans outstanding.
Non-Interest Income. MarTex's non-interest income for 1998 increased 5.71% from
1997 due to increases in other service charges and fees.
Non-Interest Expense. Total non-interest expense for 1998 increased $94,107, or
1.30%, from 1997 due to additional employee and occupancy expenses resulting
from asset growth.
Income Taxes. MarTex's ratio of non-taxdeductible expense to total expense
before income taxes decreased from 1997 to 1998, resulting in a decrease in the
effective tax rate from 36.94% in 1997 to 32.75% in 1998.
Financial Condition
Total Assets. At September 30, 1998, total consolidated assets were
$319,065,705, an increase of $26,901,103, or 9.21% from September 30, 1997. This
increase in total assets is primarily due to an investable fund increase from
the 7-month, 7% certificates of deposit and public funds.
Investment Securities. MarTex adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments and Debt Securities"
("SFAS 115"), as of January 1, 1994. SFAS 115 addresses the accounting and
reporting for investments in equity securities that have readily determinable
fair value and for all investments in debt securities and requires
classification of securities as trading, available for sale, or held to
maturity. Management determines the classification of securities when they are
purchased. Securities which MarTex has the intent and ability to hold to
maturity are classified as held to maturity and are stated
63
<PAGE>
at cost, adjusted for amortization of premiums and accretion of discounts.
Securities which may be sold in response to interest rates, liquidity needs or
other factors are classified as available for sale. These securities are
reflected at fair value, and net unrealized gains or losses are reflected as a
separate component of shareholders' equity, net of income tax effects.
The composition of MarTex's investment portfolio directly reflects MarTex's
investment strategy of maximizing portfolio yields subject to risk and liquidity
considerations. The composition, amortized cost and estimated fair value of
investment securities at September 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Investment Securities
--------------------------------------------------------
Gross Unrealized
Amortized ---------------- Fair
Cost Gains Losses Value
--------------------------------------------------------
<S> <C> <C> <C> <C>
September 30, 1998:
Government and Agencies .. $26,106 $ 446 $ 26,552
Mortgage backed securities 52,993 418 (81) 53,330
Municipal bonds .......... 12,180 305 12,485
Other securities ......... 19 19
------- ------ ------ -------
Total .............. $91,298 $1,169 $ (81) $92,386
======= ====== ====== =======
September 30, 1997:
Government and Agencies .. $45,594 $ 215 $ (27) $45,782
Mortgage backed securities 41,492 440 (98) 41,834
Municipal bonds .......... 9,109 101 (11) 9,199
Other securities ......... 31 31
------- ------ ------ -------
Total .............. $96,226 $ 756 $(136) $96,846
======= ====== ====== =======
</TABLE>
The amortized cost and estimated fair value of securities available for sale at
September 30, 1998, by contractual maturities, are shown below. Actual
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call prepayment
penalties.
<TABLE>
<CAPTION>
(Dollars in Thousands)
Amortized Fair
Cost Value
------------------------------------
<S> <C> <C>
Due in one year or less ............... $16,746 $14,758
Due after one year through five years.. 37,493 37,939
Due after five years through ten years. 15,955 17,820
Due after ten years ................... 21,085 21,850
Securities with no maturity ........... 19 19
------- -------
Total ............................ $91,298 $92,386
======= =======
</TABLE>
Loans. MarTex engages in real estate lending through real estate mortgage and
construction lending, and commercial and consumer lending. The specific
underwriting criteria for each major loan category is outlined in detail in the
formal written loan policy and is approved by the Board of Directors. In
general, each loan is evaluated based on, among other things, character and
leverage capacity of the borrower, capital and investment in a particular
property, if applicable, cash flow, collateral, market conditions for the
borrower's business or project and prevailing economic trends and conditions.
The loan policies of the Bank, including the underwriting criteria for major
loan categories, are adjusted periodically with each change approved by the
Bank's Board of Directors. The Bank's Board of Directors weighs each new
criteria after considering the foregoing factors and in light of the overall
financial condition and performance of the Bank. The Bank's underwriting
criteria are routinely reviewed by management and external examiners consistent
with the Bank's policy and banking regulations.
64
<PAGE>
Major classifications of loans were as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
1998 1997
--------- ---------
<S> <C> <C>
Commercial ......................... $ 50,572 $ 49,074
Real Estate Construction ........... 1,761 5,235
Mortgage ........................... 116,686 94,999
Consumer Installment ............... 16,805 21,249
Credit Card ........................ 2,018 2,126
--------- ---------
187,842 172,683
Unearned income on installment loans (1,855) (2,439)
Allowance for loan losses .......... (2,004) (2,294)
Acquisition reserve ................ - -
--------- ---------
$ 183,983 $ 167,950
========= =========
</TABLE>
As of September 30, 1998 and 1997, MarTex had no major concentrations of its
loan portfolio to any one customer or in any one business or industry
classification. Total loans outstanding increased by $15,742,627 to $188,987,096
at September 30, 1998, compared to $170,244,469 at September 30, 1997. This loan
growth was primarily in the real estate area of loans secured by 1-4 family
residential properties.
The maturity schedule and rate structure of MarTex's loan portfolio has an
impact on MarTex's ability to meet its liquidity demands and respond favorably
to changes in interest rates. At September 30, 1998, approximately 39.61% of
MarTex's total loans were scheduled to mature or reprice within one year or
less. The following table provides information concerning loan portfolio
maturity, based on remaining scheduled repayments of principal.
(Dollars in Thousands)
<TABLE>
<CAPTION>
At September 30, 1998:
Maturity or Earliest Repricing
--------------------------------------------------
Over One
One Year Through Over Five
or Less Five Years Years Total
---------------------------------------------------
<S> <C> <C> <C> <C>
Closed-end loans secured by first liens on
1-4 family residential properties ........ $11,506 $27,350 $ 9,695 $ 48,551
All loans and leases excluding closed-end
loans secured by first liens on 1-4 family
residential properties ................... 62,156 63,801 11,479 137,436
------- ------- ------- --------
Total loans (net of unearned income) ....... $73,662 $91,151 $21,174 $185,987
======= ======= ======= ========
</TABLE>
Normally borrowers are expected to meet contractual terms. In some cases,
however, borrowers are permitted to renew obligations after appropriate review
of the credit quality and determination of the borrower's ability and
willingness to repay.
The data shown above is in a format which conforms with reports to the bank
regulatory agencies and has not been restated to reflect anticipated rollovers,
which management does not believe would materially affect the data presented.
Non-accrual, Past Due and Restructured Loans. Non-performing assets include
non-performing loans and foreclosed real estate held for sale. Non-performing
loans include loans classified as non-accrual or renegotiated to provide a
reduction or deferral of interest or principal and those past due 90 days or
more on which interest is still being accrued. It is the general policy of
MarTex to place loans on non-accrual status when, in the opinion of management,
there exists sufficient uncertainty as to the collectibility of the contractual
interest or principal or if the loan becomes 90 days delinquent, whichever comes
first. Placing a loan on a non-accrual status causes an immediate charge against
earnings for the interest which has been accrued but not yet collected on the
loan and eliminates future interest earnings with respect to that loan. Interest
on such loans is not recognized until all of the principal is collected or until
the loan is returned to a performing status. Interest income recognized on
non-accrual loans during the nine months ended September 30, 1998 and 1997, was
not significant.
65
<PAGE>
As of September 30, 1998, MarTex had non-performing assets totaling $2,317,270,
or approximately 1.24% of total loans and foreclosed property at such date
compared with $1,199,580, or approximately 0.70% at September 30, 1997.
Total non-performing loans at September 30, 1998 and 1997, were $1,642,198 and
$819,757, respectively.
MarTex's management is not aware of any loans classified for regulatory purposes
and excluded from the above table which represent or result from trends or
uncertainties that will materially impact future operating results, liquidity,
or capital resources, or represent material credits about which management is
aware of any information which causes doubts as to the ability of such borrowers
to comply with the loan repayment terms.
In May of 1993, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan," which was amended by Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure," issued in October of 1994. These statements require
that impaired loans be measured at the present value of expected cash flows
discounted at the loan's effective interest rate, or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. MarTex's adoption of these new standards did not
have a significant effect on the allowance for loan losses or MarTex's method of
income recognition for impaired loans.
Allowance for Loan Losses. MarTex charges to operating expense an amount
necessary to maintain the balance in the allowance for possible loan losses at a
level that is deemed to be adequate to absorb all expected loan losses.
Management determines the adequacy of its reserve and the amount of any
additional provision or negative provision for possible loan losses based on
many factors, including an 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 and their
ability to repay the loan and the value and liquidity of collateral. The amount
in the allowance for possible loan losses is reviewed by management on a monthly
basis to determine whether additional provisions should be made or whether
transfers from the allowance to earnings are justified. MarTex's Board of
Directors reviews the adequacy of the reserve on a quarterly basis.
The following table summarizes averages of loan balances, changes in the
allowance for possible loan losses arising from loans charged off and recoveries
on loans previously charged off, by category, and the provision for possible
loan losses charged to operating expense as of the dates and the periods
indicated.
<TABLE>
<CAPTION>
(Dollars in Thousands)
September 30,
---------------------------------------
1998 1997
---------------------------------------
<S> <C> <C>
Average total loans net of discounts ............ $ 185,987 $ 170,244
========= =========
Beginning balance ............................... $ 2,176 $ 2,422
Loans charged off:
Real estate ................................... (181) (89)
Commercial, financial and agricultural ........ (144) (216)
Installment ................................... (220) (187)
--------- ---------
Total charged off ....................... (545) (492)
--------- ---------
Recoveries:
Real estate ................................... - -
Commercial, financial and agricultural ........ 47 127
Installment ................................... 88 23
--------- ---------
Total recoveries ........................ 135 150
--------- ---------
Net loans charged off ........................... (410) (342)
Provision for loan losses ....................... 238 214
--------- ---------
Ending balance .................................. $ 2,004 $ 2,294
========= =========
Ratio of net charge-offs during period to average
loans outstanding ............................. 0.22% 0.20%
========== ==========
</TABLE>
66
<PAGE>
MarTex's allowance for possible loan losses at September 30, 1998 was
$2,004,028, which, in management's opinion, is adequate to cover possible losses
in its current loan portfolio. However, no assurance can be given that future
changes in economic conditions that might adversely affect MarTex's principal
market areas, borrowers, or collateral values, and other circumstances will not
result in increased losses in MarTex's loan portfolio in the future.
Deposits and Other Liabilities. MarTex's total deposits increased from
$265,999,573 at September 30, 1997, to $289,061,318 in 1998. The growth in
deposits is primarily the result of deposits acquired by offering a 7%, 7-month
certificate of deposit to potential customers who would bring additional
relationships to the Bank. The product was only offered for a limited time. The
following table summarizes the amounts of deposits for the periods indicated:
<TABLE>
<CAPTION>
(Dollars in Thousands)
September 30,
-----------------------------------
1998 1997
-----------------------------------
<S> <C> <C>
Non-interest-bearing demand deposits ..... $ 37,669 $ 32,765
Interest-bearing money market/NOW deposits 77,705 67,355
Savings deposits ......................... 13,400 13,577
Time deposits under $100,000 ............. 121,480 115,286
Time deposits $100,000 or more ........... 38,807 37,017
--------- --------
Total deposits ........................... $289,061 $266,000
========= ========
</TABLE>
MarTex had $830,714 and $1,196,857 in 1998 and 1997 respectively related to
acquisition debt to an unaffiliated bank.
Liquidity and Interest Rate Sensitivity Management. The primary functions of
asset and liability management are to assure adequate liquidity and to maintain
an appropriate balance between interest-earning assets and interest-bearing
liabilities. Liquidity represents the Bank's ability to meet the daily demand
for funds from its customers to pay maturing deposits, honor checks and drafts,
extend credit and meet other commitments. Management monitors liquidity
requirements as warranted by interest rate trends, changes in the economy,
changes in the scheduled maturities, and interest rate sensitivity of the
investment and loan portfolios as well as deposits. The Bank attempts to match
rate-sensitive assets and liabilities in order to minimize exposure from
fluctuations in interest rates and to enhance consistent growth of net interest
income through periods of changing interest rates.
The asset portion of the balance sheet provides liquidity primarily through cash
and due from Banks, loan principal repayments, and cash flows from investment
securities, federal funds sold and investment securities available for sale.
The liability portion of the balance sheet provides liquidity through the
various interest and non-interest-bearing deposit accounts, federal funds
purchased, securities sold under agreements to repurchase, and other short-term
borrowings. Long-standing relationships with many institutions have provided the
Bank with the opportunity to buy and sell federal funds on a daily basis.
The Bank's liquidity, which is monitored by an Asset-Liability Committee, is
deemed by management to be adequate.
Capital Resources. Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the following table) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes that the Bank meets
all the capital adequacy requirements to which it is subject, as of the nine
months ended September 30, 1998.
As of September 30, 1998, the most recent notification from the FDIC categorized
the Bank as well-capitalized under the regulatory framework for prompt
corrective action. To remain categorized as well-capitalized, the Bank must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table below. There are no conditions or events since that
notification that management believes have changed the Bank's category.
67
<PAGE>
The annualized return on average shareholders' equity was 11.85% for the first
nine months of 1998, as compared to 12.48% for the same period in 1997.
Shareholders' equity increased to $26.4 million at September 30, 1998, from
$23.2 million at September 30, 1997. Cash dividends declared by MarTex for the
nine months ended September 30, 1998 and 1997, totaled $0.0199 per share,
in each period. The following table illustrates the changes in shareholders'
equity for the nine months ended September 30, 1998, and September 30, 1997.
<TABLE>
<CAPTION>
(Dollars in Thousands)
September 30,
---------------------------------------
1998 1997
---------------------------------------
<S> <C> <C>
Beginning balance .......................... $ 24,286 $ 21,113
Net income ................................. 2,255 2,075
Cash dividends declared .................... (355) (355)
Additions due to stock grants .............. 59 -
Net unrealized gain/(loss) on AFS securities 197 393
========= ========
Ending balance ............................. $ 26,442 $ 23,226
========= ========
</TABLE>
The following table summarizes the risk-based capital ratios of MarTex for the
periods indicated. All three ratios for both periods are considered
well-capitalized by regulatory authorities.
<TABLE>
<CAPTION>
(Dollars in Thousands)
September 30,
------------------------------------
1998 1997
------------------------------------
<S> <C> <C>
Tier 1 capital ......... $ 22,984 $ 19,643
Total capital .......... 24,988 21,797
Risk-weighted assets ... 187,441 172,361
Adjusted total assets .. 320,886 289,245
Tier 1 capital ratio ... 12.26% 11.40%
(Regulatory minimum) (4.00%) (4.00%)
Total capital ratio .... 13.33% 12.65%
(Regulatory minimum) (8.00%) (8.00%)
Tier 1 leverage ratio .. 7.16% 6.79%
(Regulatory minimum) (4.00%) (4.00%)
</TABLE>
68
<PAGE>
MARTEX FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AUDITED)
69
<PAGE>
- --------------------------------------------------------------------------------
MarTex Bancshares, Inc.
and Subsidiary
Consolidated Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
70
<PAGE>
[LETTERHEAD OF SPROLES WOODARD L.L.P. APPEARS HERE]
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
MarTex Bancshares, Inc.
Marshall, Texas
We have audited the accompanying consolidated statements of financial condition
of MarTex Bancshares, Inc. and its subsidiary as of December 31, 1997 and 1996,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 MarTex Bancshares,
Inc. and its subsidiary as of December 31, 1997 and 1996, and the results of
their operations and their cash flows, for the years then ended, in conformity
with generally accepted accounting principles.
/s/ SPROLES WOODARD L.L.P.
Fort Worth, Texas
March 4, 1998
71
<PAGE>
<TABLE>
<CAPTION>
MarTex Bancshares, Inc. and Subsidiary
Consolidated Statements of Financial Condition
December 31, 1997 and 1996
- -------------------------------------------------------------------------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ...................................................... $ 10,439,734 $ 15,856,862
Federal funds sold ............................................................. 7,454,721 14,470,000
Certificates of deposit ........................................................ 3,054,000 200,000
Securities available for sale, at fair value (Note 2) .......................... 112,629,574 86,629,978
Loans receivable, net (Note 3) ................................................. 168,144,307 153,569,865
Accrued interest receivable .................................................... 2,592,518 2,256,883
Refundable federal income tax .................................................. 704,158 359,907
Premises and equipment, net (Note 4) ........................................... 6,335,714 5,884,893
Other real estate and repossessions, net of allowance
for losses of $90,104 in 1997 and $71,104 in 1996 ........................ 562,576 371,475
Deferred income taxes, net (Note 7) ............................................ 384,102
Intangible assets, net of accumulated amortization of
$1,034,661 in 1997 and $627,076 in 1996 .................................. 3,058,703 3,430,656
Other .......................................................................... 878,622 863,595
-------------- --------------
$ 315,854,627 $ 284,278,216
============== ==============
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
72
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
-------------- ---------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Demand ...................................................................... $ 37,181,694 $ 32,946,784
Savings ..................................................................... 12,139,488 14,121,536
Money market accounts ....................................................... 55,174,056 59,594,877
Now accounts ................................................................ 10,743,154 3,914,067
Time, $100,000 and over ..................................................... 45,005,882 37,477,946
Other time deposits ......................................................... 128,379,992 110,088,094
-------------- --------------
288,624,266 258,143,304
Interest payable ............................................................... 1,039,514 843,755
Note payable (Note 6) .......................................................... 1,013,936 2,563,000
Accrued expenses and other liabilities ......................................... 642,096 1,615,484
Deferred income taxes, net (Note 7) ............................................ 249,314
-------------- --------------
291,569,126 263,165,543
-------------- --------------
Commitments and Contingent Liabilities (Note 8)
Shareholders' Equity
Common stock (Note 12) ......................................................... 118,465 118,221
Paid-in capital ................................................................ 14,956,286 14,913,124
Paid-in capital - warrants (Note 13) ........................................... 320,311 320,311
Retained earnings .............................................................. 8,370,754 5,745,286
Unrealized gain on securities available for sale, net of deferred
income taxes of $267,716 in 1997 and $8,103 in 1996 .......................... 519,685 15,731
-------------- --------------
24,285,501 21,112,673
-------------- --------------
$ 315,854,627 $ 284,278,216
============== ==============
</TABLE>
- --------------------------------------------------------------------------------
73
<PAGE>
<TABLE>
<CAPTION>
MarTex Bancshares, Inc. and Subsidiary
Consolidated Statements of Income
For the Years Ended December 31, 1997 and 1996
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996
------------ -----------
<S> <C> <C>
Interest Income
Loans .......................................................................... $ 16,037,686 $ 11,643,310
Federal funds sold ............................................................. 486,638 266,834
Investment securities:
Subject to federal income tax .............................................. 5,583,270 2,472,935
Exempt from federal income tax ............................................. 452,712 236,556
Interest on certificates of deposit ............................................ 85,827
------------ ------------
22,646,133 14,619,635
------------ ------------
Interest Expense
Deposits ....................................................................... 10,433,899 6,029,534
Borrowed funds ................................................................. 168,270
------------ ------------
10,602,169 6,029,534
------------ ------------
Net Interest Income ............................................................ 12,043,964 8,590,101
Provision for loan losses ...................................................... (285,000) (240,000)
------------ ------------
11,758,964 8,350,101
------------ ------------
Other Income
Service charges on deposit accounts ............................................ 1,832,929 1,105,402
Other service charges, commissions and fees .................................... 572,080 333,960
Net realized gains (losses) on sales of securities.............................. 13,791 (48,277)
------------ ------------
2,418,800 1,391,085
------------ ------------
Other Expense
Employee compensation .......................................................... 4,674,326 3,147,308
Occupancy ...................................................................... 1,186,179 701,356
Professional fees .............................................................. 369,418 219,343
Data processing ................................................................ 709,483 559,708
Insurance ...................................................................... 134,521 62,122
Losses and other expenses on other real estate and repossessions................ 62,236 103,428
Other .......................................................................... 2,488,778 1,686,128
------------ ------------
9,624,941 6,479,393
------------ ------------
Income before income taxes ..................................................... 4,552,823 3,261,793
Provision for income taxes (Note 7) ............................................ 1,454,020 1,076,190
------------ ------------
Net Income ..................................................................... $ 3,098,803 $ 2,185,603
============ ============
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
74
<PAGE>
<TABLE>
<CAPTION>
MarTex Bancshares, Inc. and Subsidiary
Consolidated Statements of Shareholders' Equity
For the Years Ended December 31, 1997 and 1996
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Common Stock
Beginning balance .............................................................. $ 118,221 $ 89,958
Issued in merger with Heritage Texas Group, Inc. (Note 14)...................... 27,939
Issued for stock grant ......................................................... 244 324
------------ ------------
Ending balance ................................................................. 118,465 118,221
------------ ------------
Paid-in Capital
Beginning balance .............................................................. 14,913,124 9,976,124
Issued in merger with Heritage Texas Group, Inc. (Note 14)...................... 4,886,755
Issued for stock grant ......................................................... 43,162 50,245
------------ ------------
Ending balance ................................................................. 14,956,286 14,913,124
------------ ------------
Paid-in Capital - Warrants
Beginning balance .............................................................. 320,311
Issued in merger with Heritage Texas Group, Inc. (Note 14)...................... 320,311
------------ ------------
Ending balance ................................................................. 320,311 320,311
------------ ------------
Retained Earnings
Beginning balance .............................................................. 5,745,286 3,920,441
Cash dividends ................................................................. (473,335) (360,758)
Net income ..................................................................... 3,098,803 2,185,603
------------ ------------
Ending balance ................................................................. 8,370,754 5,745,286
------------ ------------
Unrealized Gain (Loss) on Securities Available
For Sale, Net of Deferred Income Taxes
Beginning balance .............................................................. 15,731 265,984
Net change ..................................................................... 503,954 (250,253)
------------ ------------
Ending balance ................................................................. 519,685 15,731
------------ ------------
Total Shareholders' Equity ..................................................... $ 24,285,501 $ 21,112,673
============ ============
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
MarTex Bancshares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996
- ---------------------------------------------------------------------------------------------------------------------
1997 1996
------------ -------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income ..................................................................... $ 3,098,803 $ 2,185,603
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .............................................. 908,357 523,729
Net premium amortization and discount accretion ............................ 225,145 57,914
Net realized (gains) losses on securities available for sale................ (13,791) 48,277
Gain on sale of fixed assets ............................................... (6,087) (9,065)
Loss on sale of other real estate .......................................... 206 44,214
Provision for credit losses ................................................ 285,000 240,000
Provision for losses on other real estate and repossessions................. 26,000 14,207
Deferred income tax provision .............................................. 373,803 144,974
Stock grant ................................................................ 43,406 50,570
Increase in:
Accrued interest receivable .............................................. (335,635) (204,966)
Refundable federal income tax ............................................ (344,251) (153,494)
Other assets ............................................................. (15,027) (135,604)
Increase (decrease) in:
Interest payable ......................................................... 195,759 148,430
Accrued expenses and other liabilities ................................... (973,388) (269,391)
------------ -------------
Net Cash Provided by Operating Activities ...................................... 3,468,300 2,685,398
------------ -------------
Cash Flows From Investing Activities
Net (increase) decrease in federal funds sold .................................. 7,015,279 (7,000,000)
Net increase in certificates of deposit ........................................ (2,854,000)
Net increase in loans made to customers ........................................ (15,317,896) (20,253,147)
Purchase of securities available for sale ...................................... (74,538,990) (35,013,471)
Proceeds from sale of securities available for sale ............................ 17,532,837 24,259,212
Proceeds from maturity of securities available for sale ........................ 31,558,770 11,670,000
Proceeds from maturity of securities held to maturity .......................... 2,667,979
Proceeds from sale of other real estate and repossessions ...................... 241,147 206,826
Cash and cash equivalents received in business acquisitions (Note 14) .......... 3,618,350
Capital expenditures ........................................................... (961,863) (530,108)
Proceeds from sale of equipment ................................................ 49,834 33,263
Increase in intangible assets .................................................. (69,109) (161,186)
------------ -------------
Net Cash Used in Investing Activities .......................................... (37,343,991) (20,502,282)
------------ -------------
- ---------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1997 1996
----------- ------------
<S> <C> <C>
Cash Flows From Financing Activities
Repayment of borrowed funds .................................................... $ (1,549,064) $ -
Net increase in non-interest bearing demand,
savings, money market, and Now account deposits ............................. 4,661,128 5,745,542
Net increase in time deposits .................................................. 25,819,834 22,121,011
Dividends paid ................................................................. (473,335) (360,758)
------------ -----------
Net Cash Provided by Financing Activities ...................................... 28,458,563 27,505,795
------------ -----------
Net Change in Cash and Cash Equivalents ........................................ (5,417,128) 9,688,911
Cash and cash equivalents - beginning of year .................................. 15,856,862 6,167,951
------------ -----------
Cash and Cash Equivalents - End of Year ........................................ $ 10,439,734 $ 15,856,862
============ ============
Supplemental Disclosures of Cash Flow Information
Noncash investing and financing activities:
Business acquisitions (Note 14):
Common stock issued ....................................................... $ - $ 4,914,694
Stock warrants issued ..................................................... 320,311
Loans settled through foreclosure ........................................... 471,538 253,405
Loans charged off, net of recoveries ........................................ 530,985 314,431
Loans made to facilitate sale of other real estate........................... 13,084 140,511
Net increase (decrease) in unrealized gain in investments ................... 763,567 (379,173)
Cash expenditures for:
Interest .................................................................... 10,406,410 5,881,104
Federal income taxes ........................................................ 1,424,468 1,291,123
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
77
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
1. Nature of Operations and Summary of Significant Accounting Policies
MarTex Bancshares, Inc. ("MarTex"), and its wholly owned subsidiary, First
Service Bank (the "Bank"), a chartered banking institution of the state of
Texas, provide depository and lending services to customers located primarily in
East Texas. The Bank has banking operations in Gladewater, Chireno, Elysian
Fields, Lindale, Marshall, Mineola, and Pittsburg, Texas.
Basis of Presentation
The accounting and reporting policies of MarTex Bancshares, Inc. (referred to
individually as "MarTex" or collectively, with its subsidiary, as the "Company")
conform to generally accepted accounting principles. The following is a summary
of the significant accounting policies:
Use of Estimates
The preparation of these consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported revenues and expenses during the reported period.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of MarTex and its
wholly owned subsidiary, First Service Bank. All significant intercompany
transactions have been eliminated in consolidation.
Investment Securities
Debt securities for which the Bank has the ability and positive intent to hold
to maturity are classified as held to maturity and carried at cost, adjusted for
amortization of premium and accretion of discounts using methods approximating
the interest method. All other marketable securities are classified as available
for sale and are carried at fair value. Unrealized holding gains and losses, net
of deferred income taxes, on securities available for sale are reported as a net
amount in a separate component of shareholders' equity until realized. Declines
in the fair value of individual held to maturity and available for sale
securities below their cost that are other than temporary result in write-downs
of the individual securities to their fair value. The related write-downs are
included in earnings as realized losses. The Bank does not maintain a trading
portfolio.
Gains and losses on the sale of securities available for sale are determined
using the specific-identification method.
Loans Receivable
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their unpaid
principal balances, less the allowance for loan losses and net deferred loan
fees and unearned discounts. Unearned discounts on installment loans are
recognized over the term of the loans using the interest method.
- --------------------------------------------------------------------------------
78
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of the deferred loan fees
is discontinued when a loan is placed on nonaccrual status.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest payments
received.
The allowance for loan losses is maintained at a level adequate to absorb
probable losses. Management determines the adequacy of the allowance based upon
reviews of individual loans, recent loss experience, current economic
conditions, the risk characteristics of the various categories of loans, and
other pertinent factors. Loans considered to be uncollectible are charged to the
allowance. Provisions for loan losses and recoveries on loans previously charged
off are added to the allowance. Because of uncertainties inherent in the
estimation process, management's estimate of the allowance for loan losses may
change in the near term. However, the amount of the change that is reasonably
possible cannot be estimated.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line basis over the estimated useful
lives of the assets.
Other Real Estate
Other real estate, acquired through partial or total satisfaction of loans, is
carried at the lower of cost or fair market value. Foreclosure losses are
recognized at the date of repossession, and any subsequent impairment of the
carrying value is recorded when indicated by periodic appraisals.
Intangible Assets
Goodwill represents the excess of cost over the fair value of net assets
received in business combinations and is being amortized primarily using the
sum-of-the-months-digits method, based on a 15 year amortization period. Costs
incurred in connection with the purchase of businesses are capitalized and
amortized using the straight-line method over 5 years.
Cash and Cash Equivalents
For the purpose of presentation in the Consolidated Statements of Cash Flows,
cash and cash equivalents are defined as cash on hand and amounts due from
banks. Cash equivalents are short-term, highly liquid investments that are
readily convertible to cash and have original maturities when acquired of three
months or less.
Income Taxes
MarTex and its subsidiary file a consolidated federal income tax return.
Provisions for income taxes are based on taxes payable or refundable for the
current year (after exclusion of nontaxable income,
- --------------------------------------------------------------------------------
79
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
such as interest on state and municipal securities) and deferred taxes on
temporary differences between the amount of taxable income and pretax financial
income, and between the tax bases of assets and liabilities and their reported
amounts in the financial statements. Deferred tax assets and liabilities are
included in the financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and liabilities are
expected to be realized or settled. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the provision for
income taxes.
Financial Instruments
All derivative financial instruments held or issued by the Bank are held or
issued for purposes other than trading. In the ordinary course of business the
Bank has entered into off-balance-sheet financial instruments consisting of
commitments to extend credit, commitments under credit card arrangements,
commercial letters of credit, and standby letters of credit. Such financial
instruments are recorded in the financial statements when they are funded or
related fees are incurred or received.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Investment securities: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
Loans receivable: For variable-rate loans that reprice frequently with no
significant change in credit risk, fair values are based on carrying amounts.
The fair values for other loans (for example, fixed rate commercial and real
estate loans) are estimated using discounted cash flow analysis, based on
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. Loan fair value estimates include judgments regarding
future expected loss experience and risk characteristics. The carrying amount of
accrued interest receivable approximates its fair value.
Deposits: The fair values disclosed for demand deposits (for example,
interest-bearing checking accounts and savings accounts) are, by definition,
equal to the amount payable on demand at the reporting date (that is, their
carrying amounts). The fair values for certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated contractual maturities
on such time deposits. The carrying amount of the accrued interest payable
approximates its fair value.
The carrying amounts reported in the Consolidated Statements of Financial
Condition for cash and cash equivalents, federal funds sold, accrued interest
receivable, interest payable, and accrued interest and other liabilities
approximate fair value because of the short maturity of those instruments.
- --------------------------------------------------------------------------------
80
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
2. Investment Securities
Investment securities have been classified in the Consolidated Statements of
Financial Condition according to management's intent. The carrying amount of
securities and their approximate fair values at December 31 were as follows:
<TABLE>
<CAPTION>
Securities Available for
Sale:
Amortized Gross Unrealized
-----------------------------
Cost Gains Losses Fair Value
------------ -------------- ------------- ------------
<S> <C> <C> <C> <C>
December 31, 1997:
Debt securities of U.S.
Government and agencies $ 48,185,767 $ 317,527 $ 31,591 $ 48,471,703
Mortgage backed securities . 51,948,941 468,534 119,060 52,298,415
Municipal and state bonds
(net of allowance for
loss of $84,649) ........ 11,676,914 237,376 85,385 11,828,905
Other securities ........... 30,551 30,551
------------ ------------ ------------ ------------
$111,842,173 $ 1,023,437 $ 236,036 $112,629,574
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Amortized Gross Unrealized
-----------------------------
Cost Gains Losses Fair Value
------------ -------------- ------------- ------------
<S> <C> <C> <C> <C>
December 31, 1996:
Debt securities of U.S.
Government and agencies .. $ 35,573,882 $ 117,223 $ (93,394) $ 35,597,711
Mortgage backed securities .... 41,252,718 273,859 (372,211) 41,154,366
Municipal and state bonds
(net of allowance for loss
of $107,149) ............. 9,415,444 211,295 (112,938) 9,513,801
Other securities .............. 364,100 364,100
------------ ------------ ------------ ------------
$ 86,606,144 $ 602,377 $ (578,543) $ 86,629,978
============ ============ ============ ============
</TABLE>
During 1996 and in connection with the merger with Heritage Texas Group, Inc.
("HTGI"), the Company transferred securities having a carrying value of
$5,652,984 from the held to maturity category to the available for sale status.
The unrealized gain at the date of transfer was not material.
Securities with a carrying value of about $49,229,000 at December 31, 1997, and
$35,382,000 at December 31, 1996, were pledged for certain public funds deposits
in excess of FDIC insurance coverage.
- --------------------------------------------------------------------------------
81
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
2. Investment Securities (continued)
Gross realized gains and losses on sales of securities available for sale were
as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Gross realized gains $ 53,986 $ 38,893
Gross realized losses (40,194) (87,170)
</TABLE>
The scheduled maturities of securities available for sale at December 31, 1997,
are as follows:
<TABLE>
<CAPTION>
Securities Available for Sale
--------------------------------
Amortized Cost Fair Value
--------------------------------
<S> <C> <C>
Amounts maturing in:
Less than one year ........ $ 5,578,069 $ 5,570,058
One to five years ......... 59,160,224 59,364,600
Five to ten years ......... 18,566,690 18,706,759
After ten years ........... 28,506,639 28,957,606
Securities with no maturity 30,551 30,551
------------ ------------
$111,842,173 $112,629,574
============ ============
</TABLE>
For the purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity groupings
based on the weighted-average contractual maturities of underlying collateral.
The mortgage-backed securities may mature earlier than their weighted-average
contractual maturities because of principal prepayments.
- --------------------------------------------------------------------------------
82
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
3. Loans Receivable
Major classifications of loans were as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Commercial ......................... $ 45,935,556 $ 47,432,802
Real estate construction ........... 4,508,560 4,436,407
Mortgage ........................... 100,131,861 83,802,397
Consumer installment ............... 20,114,021 20,922,197
Credit card ........................ 2,185,246 2,173,245
------------- -------------
172,875,244 158,767,048
Unearned income on installment loans (2,554,853) (2,666,115)
Allowance for loan losses .......... (2,176,084) (2,422,068)
Acquisition reserve ................ (109,000)
------------- -------------
$ 168,144,307 $ 153,569,865
============= =============
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Balance at beginning of year....... $ 2,422,068 $ 2,100,634
Allowance acquired in merger....... 395,865
Provision charged to earnings...... 285,000 240,000
Recoveries ........................ 180,958 117,503
Loans charged off ................. (711,942) (431,934)
----------- -----------
Balance at end of year ............ $ 2,176,084 $ 2,422,068
=========== ===========
</TABLE>
The total recorded investment in impaired loans, all of which had specific
allowances for losses, amounted to approximately $1,211,000 at December 31,
1997, and $940,000 at December 31, 1996. The average balance of these loans
amounted to approximately $1,111,000 during 1997 and $1,010,000 during 1996. The
aggregate allowance for loan losses related to these loans amounted to
approximately $358,000 at December 31, 1997, and $556,000 at December 31, 1996.
Interest income on impaired loans was recognized for receipt of cash payments of
about $92,000 during 1997, and about $63,000 in 1996.
Loans with a balance of about $428,000 in 1997, and $516,000 in 1996, have been
identified as restructured troubled debt. The reduced income, as a result of the
modified terms, does not have a material effect on these consolidated financial
statements.
The Bank has no commitments to loan additional funds to the borrowers of
impaired, nonaccrual or restructured loans.
- --------------------------------------------------------------------------------
83
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
4. Premises and Equipment
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
Estimated
Useful Lives 1997 1996
-------------- ----------- -----------
<S> <C> <C> <C>
Land ................... $ 481,566 $ 481,566
Buildings .............. 10 to 35 years 5,350,094 5,265,679
Furniture and fixtures . 5 to 12 years 2,984,995 2,222,732
Vehicles ............... 5 years 242,904 261,575
----------- -----------
9,059,559 8,231,552
Accumulated depreciation (2,723,845) (2,346,659)
----------- -----------
$ 6,335,714 $ 5,884,893
=========== ===========
</TABLE>
Depreciation amounted to $467,295 for 1997, and $272,118 for 1996.
5. Deposits
The aggregate amount of short-term jumbo CDs, each with a minimum denomination
of $100,000, was approximately $33,968,000 at December 31, 1997 and $10,695,000
at December 31, 1996.
At December 31, 1997, the scheduled maturities of CDs are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $ 92,055,622
1999 17,025,030
2000 34,763,218
2001 2,667,770
2002 and thereafter 26,874,234
------------
$173,385,874
============
</TABLE>
6. Credit Facilities
Federal Funds
The Bank has three lines of credit to purchase federal funds with commercial
banks, which will bear interest at the current federal funds rate. No amounts
were drawn on these lines of credit at December 31, 1997, or December 31, 1996.
The amounts and expiration of these lines of credit at December 31, 1997, are as
follows:
- --------------------------------------------------------------------------------
84
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
6. Credit Facilities (continued)
<TABLE>
<CAPTION>
<S> <C> <C>
Texas Independent Bank.... $10,000,000 Expires January 15, 1999
Bank One ................. 3,000,000 Expires November 1, 1998
Commercial National Bank.. 2,000,000 Expires May 31, 1998
</TABLE>
Note Payable
At December 31, 1997, the Company had a senior note payable to a commercial bank
for $1,013,786 ($2,563,000 at December 31, 1996). This note bears interest at
the Wall Street Journal base rate on corporate loans at large U.S. commercial
banks (8.5% at December 31, 1997 and 8.25% at December 31, 1996). Payments of
principal and accrued interest are due semi-annually. The note is collateralized
by the common stock of the Bank. During 1997 the Company accelerated its
repayment of the note.
At December 31, 1997, the scheduled maturities of the note payable are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 366,142
1999 366,142
2000 281,652
==========
$1,013,936
==========
</TABLE>
This note is subject to various financial and other covenants which have been
satisfied as of December 31, 1997.
7. Federal Income Taxes
The consolidated provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Current $1,080,217 $ 931,216
Deferred 373,803 144,974
---------- ----------
$1,454,020 $1,076,190
========== ==========
</TABLE>
Deferred income taxes result from temporary differences between financial and
taxable income. Temporary differences represent the cumulative taxable or
deductible amounts recorded in the financial statements in different years than
recognized in the tax returns.
- --------------------------------------------------------------------------------
85
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
7. Federal Income Taxes (continued)
The components of the net deferred income tax asset (liability) are:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax asset:
Reserve for loan loss .................. $ 404,496 $ 569,600
KSOP (Note 11) ......................... 80,190
Reserve for loss on other real estate .. 42,279 35,819
Municipal securities valuation allowance 16,867 22,576
Nonaccrual and foregone interest ....... 25,396 30,381
Other .................................. 22,561 86,018
--------- ---------
511,599 824,584
--------- ---------
Deferred tax liability:
Depreciation differences ............... (481,800) (432,379)
Net unrealized gains on securities
available for sale ................... (267,716) (8,103)
Other .................................. (11,397)
--------- ---------
(760,913) (440,482)
--------- ---------
Net deferred tax asset (liability) ........... $(249,314) $ 384,102
========= =========
</TABLE>
Management believes that the total deferred income tax asset will be fully
realized by future operating results. Accordingly, no valuation allowance has
been provided.
The effective tax rate was 32% in 1997 and 33% in 1996, as compared to an
overall statutory rate of 34%. The primary reasons for differences between these
rates are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Tax at statutory rate ...................... $ 1,547,960 $ 1,109,010
Tax effect of:
Nondeductible amortization of goodwill 96,892 85,548
Nontaxable municipal interest ........ (177,395) (77,311)
Other ................................ (13,437) (41,057)
----------- -----------
$ 1,454,020 $ 1,076,190
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
86
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
8. Financial Instruments
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business. These financial instruments include commitments to
extend credit, letters of credit, and credit card arrangements. Those
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the Consolidated Statements of
Financial Condition. The contract or notional amounts of those instruments
reflect the extent of the Bank's involvement in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit, standby
letters of credit, and financial guarantees written is represented by the
contractual notional amount of those instruments. The Bank uses the same credit
policies in making commitments and contractual obligations as it does for
on-balance-sheet instruments.
The approximate contract or notional amount of financial instruments whose
contract amounts represent credit risk are as follows at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Unused commitments to extend credit .... $16,237,000
Commercial and other letters of credit.. 661,000
Credit card arrangements ............... 4,858,000
</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 amount does not represent future
cash requirements. The Bank's experience has been that approximately 60% of loan
commitments are drawn upon by customers. While approximately 90% of commercial
letters of credit are utilized, a significant portion of such utilization is on
an immediate payment basis. The Bank applies the same credit policies in making
commitments as it does for on-balance-sheet instruments, mainly by evaluating
each customer's credit worthiness on an individual basis. The amount of
collateral obtained, if considered necessary upon extension of credit, is based
on management's credit evaluation of the borrower. Collateral held varies but
may include investments, inventories, property, plant and equipment and
income-producing commercial properties.
Letters of credit are conditional commitments issued by the Bank guaranteeing
payment on drafts drawn in accordance with the terms of the document. Commercial
letters of credit are used to facilitate trade or commerce, with the drafts
being drawn when the underlying transaction is consummated. The credit risk
involved in issuing letters of credit is essentially the same risk involved in
extending loan commitments to customers. The Bank uses the same credit policies
in making these conditional obligations as it does for on-balance-sheet
instruments. Collateral held for those commitments in which it is considered
necessary varies but may include inventories, investments and real estate.
- --------------------------------------------------------------------------------
87
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
8. Financial Instruments (continued)
The estimated fair values of the Bank's financial instruments were as follows
at:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------ -------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents .... $ 10,439,734 $ 10,439,734 $ 15,856,862 $ 15,856,862
Federal funds sold ........... 7,454,721 7,454,721 14,470,000 14,470,000
Securities available for sale. 112,629,574 112,629,574 86,629,978 86,629,978
Loans, net ................... 168,144,307 168,814,121 153,569,865 156,849,590
Accrued interest receivable .. 2,592,518 2,592,518 2,256,883 2,256,883
Financial liabilities:
Deposits ..................... 288,624,266 289,241,693 258,143,304 258,947,471
Interest payable ............. 1,039,514 1,039,514 843,755 843,755
Note payable ................. 1,013,936 1,013,936 2,563,000 2,563,000
Other ........................ 891,410 891,410 1,615,484 1,615,484
</TABLE>
The carrying amounts in the preceding table are included in the Consolidated
Statements of Financial Condition under the applicable captions.
A summary of the approximate notional amounts and estimated fair values of the
Bank's financial instruments with off-balance-sheet risk were as follows at:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------------------------------------------------
Notional Notional
Amount Fair Value Amount Fair Value
------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Unused commitments to
extend credit ......... $16,237,000 $16,300,000 $12,976,000 $13,253,000
Commercial and other letters
of credit ........... 661,000 661,000 448,000 448,000
Credit card arrangements ... 4,858,000 4,858,000 3,800,000 3,800,000
</TABLE>
9. Concentrations of Credit Risk
The Bank's real estate loans and loan commitments are primarily for properties
located in East Texas and the surrounding area. Approximately $31,000,000 of its
loans at December 31, 1997 involve borrowers in the motel industry. Repayment of
these loans is in part dependent upon the economic conditions in this region.
The Bank evaluates each customer's credit worthiness on an individual basis. The
Bank requires collateral on all real estate exposure, which consists primarily
of land, residential and income-producing properties. The Bank does not extend
credit to any single
- --------------------------------------------------------------------------------
88
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
9. Concentrations of Credit Risk (continued)
borrower or group of related borrowers in excess of their legal lending limit of
about $5,000,000 in 1997 and 1996.
The Bank's installment loans and related loan commitments are also primarily
located in East Texas and the surrounding area. Repayment of these loans is in
part dependent upon the regional economic conditions. The average balance of an
installment loan was about $5,000 at December 31, 1997 and 1996. Collateral
typically consists of automobiles and other equipment.
Investments in state and municipal securities also involve governmental entities
within the Company's market area.
Cash equivalents are financial instruments which potentially subject the Company
to concentrations of credit risk. The Company places its cash with
high-credit-quality financial institutions and periodically maintains deposits
in amounts which exceed FDIC insurance coverage. Management believes the risk of
incurring material losses related to this credit risk is remote.
10. Related Party Transactions
In the ordinary course of business, the Bank makes loans directly or indirectly
to its directors and officers. These loans are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons. Extensions of credit by the Bank
to directors and senior officers, including their affiliated interests,
approximated $8,021,000 at December 31, 1997, and $5,798,000 at December 31,
1996. Outstanding letters of credit to related parties approximated $325,000 at
December 31, 1997, and $300,000 at December 31, 1996.
11. Incentive Compensation Plans
Pension and Retirement Plan
The Bank has a 401(k) deferred compensation program covering most employees with
at least one year of service. Under the plan, the Bank may match up to 50% of
salary reduction contributions made by eligible employees, up to a maximum of 7%
of individual compensation. The Bank contributed $74,734 in 1997, and $66,076 in
1996, under this plan.
Stock Option Plan
The Company has stock option plans covering certain officers and employees.
Options granted vest immediately and expire six years after date of grant (five
years for grantees with the power to vote more than 10% of the voting power of
the Company at the date of grant).
- --------------------------------------------------------------------------------
89
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
11. Incentive Compensation Plans (continued)
Option activity under the plan was as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Options outstanding, beginning of year ..... 71,466 34,802
Options granted ($1.78 per share in 1997,
and $1.32 per share in 1996) ......... 16,070 36,664
------- -------
Options outstanding and exercisable (prices
ranging from $1.15 to $1.78 per share) 87,536 71,466
======= =======
Options available for grant, end of year ... 512,464 128,534
======= =======
</TABLE>
Currently, generally accepted accounting principles allow two alternative
methods of accounting for stock-based employee compensation plans: the intrinsic
value method, and the fair value method. The Company uses the intrinsic value
method, which resulted in no compensation costs being recognized in connection
with this plan. If the fair value method had been utilized, 1996 compensation
expense relating to this plan would have been about $7,000 in 1997 and $15,000
in 1996.
Stock Grant Agreements
During 1996, the Company entered into agreements with two of its officers that
provide for annual stock grants and final stock grants upon the occurrence of
defined triggering events (generally, retirement, termination, death, or a
defined change of ownership of the Company).
Annual stock grants are determined based upon the achievement of specified
levels of return on equity for the immediately preceding three years.
The final grants will be determined based upon varying percentages of the dollar
amount by which the defined fair market value as of the date of the triggering
event exceeds the dollar amount representing a return on investment of 15% per
annum, as of the date of the triggering event. The excess is referred to as a
dollar gain. The award is based upon a percentage of the dollar gain which
varies based on the level of return on investment achieved during the subject
period. The aggregate applicable percentages are as follows:
<TABLE>
<CAPTION>
Achieved Rate of Return Applicable Aggregate Percentage
- ---------------------------------- -------------------------------
<S> <C>
Greater than 15% and less than 17% 13.2%
Greater than 17% and less than 20% 16.5%
Greater than 20% and less than 25% 22.0%
Greater than 25% 27.5%
</TABLE>
For purposes of a final award, fair market value means (1) the total amount of
consideration to be received by Company shareholders for their capital stock if
the triggering event is a change of
- --------------------------------------------------------------------------------
90
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
11. Incentive Compensation Plans (continued)
ownership, or (2) the appraised value of all of the outstanding stock of the
Company if the triggering event is other than a defined change of ownership. The
total award as computed above is reduced by the value of Company stock
previously issued to the participant under annual stock grants.
The number of shares to be awarded is determined based upon the market value
share price of Company stock in the case of a final award and net book value per
share in the case of annual awards. The recipient may elect to receive cash
equal to one-third of the value of Company stock awarded under these agreements.
Compensation expense recognized under these agreements was $86,400 for 1997 and
$151,800 for 1996.
Executive Supplemental Income Agreements
As part of the merger with HTGI (see Note 14), certain previously existing
agreements with six former officers of HTGI were modified and restated. Under
the terms of the restated agreements ("ESI Agreements"), each of the officers
is, subject to certain defined limitations, provided defined pre-retirement
death, disability or retirement benefits. Generally the agreements provide that
a participant may receive benefits under only one of the three stated benefit
categories. All participants became full vested as of the date of the merger
(December 13, 1996). However, should a participant be discharged for just cause,
as defined in the agreement, all benefits of the subject participant are
forfeited.
The Company's obligation under these agreements is limited to cash flow from
certain insurance policies which, pursuant to these agreements, have been
transferred to a grantor trust, the First Heritage Bank, N.A. ESI Trust (the
"Trust"). The Trust agreement among other things provides the Trust shall become
irrevocable 30 days after receipt of a private letter ruling from the Internal
Revenue Service. Until the Trust becomes irrevocable, it is revocable by the
Company at any time. At all times during the continuance of the Trust, the Trust
principal and income are subject to claims of general creditors of the Company
should the Company become insolvent as defined by the Trust agreement. After the
Trust becomes irrevocable, except in the case of insolvency, the Company may
receive distributions from the Trust only to the extent that Trust assets exceed
the total of all future obligations under the ESI Agreements and other
administrative costs of the Trust.
The Company has no obligation for additional contributions to fund the ESI
Agreements. If the assets placed in trust are not adequate to provide the full
amount of ESI benefits, the agreements provide for a reduction in benefits to an
amount equal to the excess of Trust assets over liabilities of the Trust, if
any.
A summary of Company assets and liabilities relating to these agreements as of
December 31, 1997, is as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash surrender value of insurance policies placed in trust... $590,653
Present value of vested retirement benefits ................. 66,357
</TABLE>
- --------------------------------------------------------------------------------
91
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
11. Incentive Compensation Plans (continued)
During 1997 the excess of the increase in plan assets over the plan liability
was $19,014. This excess was recognized as a reduction of compensation expense.
Due to the timing of the HTGI merger, the Company recognized no income or
expense in connection with these agreements for 1996.
Heritage KSOP Plan
Prior to its merger with MarTex (see Note 14), HTGI sponsored a leveraged
Employee Stock Ownership Plan with a 401(k) provision (the "KSOP"). Pursuant to
the plan of merger, MarTex and HTGI amended the KSOP as of the merger date to
(1) suspend further entry of employees into the KSOP; (2) accelerate vesting for
all current participants; (3) allocate to participants employed on the closing
date all shares released from suspense (other than shares otherwise required to
be released) in an agreed upon fashion. In addition, MarTex shares replaced the
Heritage shares previously held by the KSOP; HTGI stipulated that unallocated
shares as of the closing date represented consideration to participants employed
as of that date for past services to HTGI; MarTex made an irrevocable commitment
to make such contributions to the KSOP required to discharge the unpaid balance
of the KSOP loan as of the closing date ($235,853); and MarTex and HTGI made an
irrevocable commitment to allocate the previously unallocated shares to
participants as described above.
For financial accounting purposes, MarTex accrued the required contribution of
$235,853 as part of the obligations assumed in connection with the merger. The
required contribution was made on January 3, 1997, and because of the accrual
resulted in no expense to MarTex for either 1996 or 1997. At December 31, 1997,
the KSOP held 901,796 shares of MarTex stock. This consisted of 885,985 shares
allocated to participants and 15,811 shares committed to be released.
12. Common Stock
The Company is currently authorized to issue 100,000,000 shares of $.01 par
value common stock. Shares issued and outstanding were 11,846,469 at December
31, 1997, and 11,822,146 at December 31, 1996.
Each share of the Company's common stock entitles the shareholder to one vote in
all corporate matters calling for a vote of shareholders. Each person owning a
share of the Company's common stock has the same rights, privileges and
preferences of any other person owning a share, and is entitled to share equally
upon liquidation of the Company. The holders of the Company's common stock do
not have the preemptive right to subscribe for additional shares in proportion
to the number of shares owned by the shareholders at the time any increase in
the issued common stock of the Company is authorized. The holders of the
Company's common stock do not have the right to cumulate their votes in the
election of directors.
- --------------------------------------------------------------------------------
92
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
12. Common Stock (continued)
The holders of the Company's common stock are entitled to dividends, when and if
declared by the Board of Directors of the Company. The Federal Reserve Board has
adopted a policy on one-bank holding company formations, which with certain
limited exceptions prohibits companies from paying dividends on their common
stock when its borrowed funds to equity ratio exceeds 30%.
13. Stock Warrants
As part of the merger with HTGI (see Note 14), the Company issued warrants to
certain former officers of HTGI to convert options of HTGI at the date of
merger. These warrants allow for the purchase of 544,111 shares of MarTex common
stock at exercise prices that range from $1.02 to $1.29 per share. Warrants for
344,283 shares expire in December 2003. The remaining warrants for 199,828
shares have no expiration date. The difference between exercise price and fair
market value amounted to $320,311 at the date of issue (December 13, 1996), and
is included in these financial statements as paid-in capital - warrants. In
addition, the Company issued warrants to a former officer of HTGI to purchase
120,000 shares of MarTex common stock at a purchase price equal to the fair
value per share of MarTex at the effective date of the merger ($1.77). These
warrants expire December 13, 2003.
14. Business Combinations
On December 13, 1996, the Company, in conjunction with its wholly owned
subsidiary, First Service Bank, completed its merger with Heritage Texas Group
Inc., ("HTGI"), a bank holding company, and its wholly owned subsidiary, First
Heritage Bank, National Association. The Company issued approximately 2,793,900
shares of MarTex common stock for the outstanding shares of HTGI. The
transaction was accounted for as a purchase. Accordingly, the assets and
liabilities of HTGI were recorded at fair value at the date of acquisition. The
purchase price of the acquisition consisted of:
MarTex common stock issued to HTGI shareholders ..... $4,914,694
Non-compete agreements with HTGI officers ........... 1,000,000
MarTex stock warrants issued to HTGI option holders.. 320,311
Acquisition costs incurred .......................... 161,186
----------
$6,396,191
==========
- --------------------------------------------------------------------------------
93
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
14. Business Combinations (continued)
The net purchase price was allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Assets acquired:
Cash and due from banks ........ $ 3,618,350
Federal funds sold ............. 4,970,000
Certificates of deposit ........ 200,000
Investments .................... 49,451,442
Loans and related items ........ 31,690,794
Bank premises and equipment .... 2,913,444
Accrued interest receivable .... 756,046
Other real estate .............. 15,000
Refundable federal income tax .. 206,413
Other assets ................... 632,335
Goodwill ....................... 2,168,639
------------
96,622,463
------------
Liabilities assumed:
Note payable ................... (2,563,000)
Deposits and other related items (86,705,378)
Interest payable ............... (214,664)
Deferred federal income tax .... (6,167)
Other liabilities .............. (737,063)
------------
(90,226,272)
------------
$ 6,396,191
============
</TABLE>
The financial statements include the operating results of HTGI from the date of
acquisition.
15. Regulatory Matters
The Bank is subject to various capital requirements administered by the federal
banking agencies. Failure to meet the minimum regulatory capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions
by regulators, that if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines involving quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
- --------------------------------------------------------------------------------
94
<PAGE>
MarTex Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
15. Regulatory Matters (continued)
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average
assets (as defined). Management believes that the Bank meets all the capital
adequacy requirements to which it is subject, as of December 31, 1997.
As of December 31, 1997, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well-capitalized under the
regulatory framework for prompt corrective action. To remain categorized as
well-capitalized, the Bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table below. There
are no conditions or events since that notification that management believes
have changed the Bank's category.
<TABLE>
<CAPTION>
To Be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- --------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ------- ---------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997: (greater than or equal to) (greater than or equal to)
Total Capital (to risk-weighted assets)
Consolidated .......................... $22,841,793 12.98% *$ 4,081,268 *8.00% N/A
Bank only ............................. 23,644,755 13.40% * 14,113,348 *8.00% *$17,641,686 *10.00%
Tier 1 Capital (to risk-weighted assets)
Consolidated .......................... 20,641,595 11.73% * 7,040,634 *4.00% N/A
Bank only ............................. 21,439,544 12.15% * 7,056,674 *4.00% *10,585,011 *6.00%
Tier 1 Capital (to adjusted total assets)
Consolidated .......................... 20,641,595 6.85% *12,057,000 *4.00% N/A
Bank only ............................. 21,439,544 7.11% *12,065,938 *4.00% *15,082,422 *5.00%
As of December 31, 1996:
Total Capital (to risk-weighted assets)
Consolidated .......................... 19,876,289 12.18% *13,055,651 *8.00% N/A
Bank only ............................. 22,391,229 13.61% *13,162.989 *8.00% *16,453,737 *10.00%
Tier 1 Capital (to risk-weighted assets)
Consolidated .......................... 17,971,502 11.01% * 6,527,825 *4.00% N/A
Bank only ............................. 20,334,512 12.36% * 6,581,495 *4.00% * 9,872,242 *6.00%
Tier 1 Capital (to adjusted total assets)
Consolidated .......................... 17,971,502 6.35% * 8,100,012 *4.00% N/A
Bank only ............................. 20,334,512 9.90% * 8,141,256 *4.00% *10,176,570 *5.00%
- ------------------------------------------------------------------------------------------------------------------------------------
* Greater than or equal to
</TABLE>
95
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF MARTEX FOR THE TWELVE-MONTHS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1996
96
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
MARTEX BANCSHARES FOR YEARS ENDED
DECEMBER 31, 1997 AND DECEMBER 31, 1996
The following discussion provides certain information concerning the financial
condition and results of operations of MarTex for years ended December 31, 1997
and 1996. The financial position and results of operations of MarTex resulted
primarily from operations at its banking subsidiary, the Bank. Management's
discussion should be read in conjunction with the MarTex financial statements
and accompanying notes presented elsewhere in this Proxy Statement-Prospectus.
Overview
MarTex reported net income for December 31, 1997 of $3,098,803, an increase of
41.78% from net income of $2,185,603 for 1996. Returns on average assets and
average equity for 1997 were 1.03% and 13.65% compared with 1.22% and 14.11% for
1996. The increase in net income for 1997 is principally attributed to the
acquisition of First Heritage Bank on December 13, 1996.
MarTex's total assets at December 31, 1997 were $315,854,627, an increase of
11.11% from December 31, 1996. Loans increased $14,574,442 from December 31,
1996 to December 31, 1997 due principally to internal growth. Total deposits at
December 31, 1997 of $288,624,266 were up 11.81% compared with December 31,
1996. This increase is attributed to internal growth.
Results of Operations
Net Interest Income. Net interest income for 1997 was $12,043,964, a $3,453,863,
or 40.21%, increase from 1996. This increase was due to the First Heritage Bank
acquisition.
The following table sets forth certain information concerning the average
balances, interest income (on a fully tax equivalent basis), interest expense,
and average rates on MarTex's interest-earning assets and interest-bearing
liabilities for the years indicated. (Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------
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>
Earnings assets:
Loans (before
allowance for
loan losses) ..... $165,821 $16,038 9.67% $118,673 $11,643 9.81%
- ------------------------------------------------------------------------------------------------
Investment
securities:
Taxable securities 88,958 5,583 6.28% 36,316 2,473 6.81%
Tax-exempt
securities ..... 10,671 453 6.43% 5,235 236 6.85%
- ------------------------------------------------------------------------------------------------
Total investment
securities ..... 99,629 6,036 6.29% 41,551 2,709 6.81%
- ------------------------------------------------------------------------------------------------
Federal funds sold
and interest-bearing
deposits ....... 12,589 572 4.54% 6,428 267 4.15%
- ------------------------------------------------------------------------------------------------
Total earnings assets $278,039 $22,646 8.23% $166,652 $14,619 8.85%
================================================================================================
</TABLE>
97
<PAGE>
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------
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>
Interest-bearing
liabilities:
Deposits ........... $273,384 $10,434 3.82% $162,468 $ 6,029 3.71%
Notes payable ...... 1,788 168 9.40% 126 - 0.00%
- ------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities ........ $275,172 $10,602 3.85% $162,594 $ 6,029 3.71%
================================================================================================
Net interest income .. $12,044 $ 8,590
================================================================================================
Net yield on
earnings assets .... 4.33% 5.15%
================================================================================================
</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 MarTex's 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 MarTex's loan portfolio. The amount of the provision is dependent
upon many factors, including management's 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 and their ability to repay the loan and the value and liquidity of
collateral.
MarTex's 1997 provision for loan losses of $285,000 was increased by $45,000
from 1996. The allowance for loan losses of $2,176,084 was 1.29% of net loans
outstanding at December 31, 1997. The allowance for loan losses at December 31,
1996, was $2,422,068, or 1.58% of net loans outstanding.
Non-Interest Income. MarTex's non-interest income for 1997 increased 73.88% from
1996 due to increases in service charges on deposit accounts from increased
activity associated with the First Heritage Bank acquisition.
Non-Interest Expense. Total non-interest expense for 1997 increased $3,145,548,
or 48.55%, from 1996 due to additional salaries and other expenses resulting
from the First Heritage Bank acquisition.
Income Taxes. MarTex's ratio of taxable income to total income before income
taxes decreased from 1996 to 1997, resulting in a decrease in the effective tax
rate from 33% in 1996 to 32% in 1997.
Financial Condition
Total Assets. At December 31, 1997, total consolidated assets were $315,854,627,
an increase of $31,576,411, or 11.11% from December 31, 1996. This increase in
total assets is due to internal growth.
Investment Securities. MarTex adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments and Debt Securities"
("SFAS 115"), as of January 1, 1994. SFAS 115 addresses the accounting and
reporting for investments in equity securities that have readily determinable
fair value and
98
<PAGE>
for all investments in debt securities and requires classification of securities
as trading, available for sale, or held to maturity. Management determines the
classification of securities when they are purchased. Securities which MarTex
has the intent and ability to hold to maturity are classified as held to
maturity and are stated at cost, adjusted for amortization of premiums and
accretion of discounts. Securities which may be sold in response to interest
rates, liquidity needs or other factors are classified as available for sale.
These securities are reflected at fair value, and net unrealized gains or losses
are reflected as a separate component of shareholders' equity, net of income tax
effects.
The composition of MarTex's investment portfolio directly reflects MarTex's
investment strategy of maximizing portfolio yields subject to risk and liquidity
considerations. The composition, amortized cost and estimated fair value of
investment securities at December 31, 1997 and 1996 were as follows:
(Dollars in Thousands)
<TABLE>
<CAPTION>
Investment Securities (AFS)
- --------------------------------------------------------------------------------
Gross Unrealized
Amortized ---------------- Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997:
Government and Agencies .. $ 48,186 $ 318 $ (32) $ 48,472
Mortgage backed securities 51,949 468 (119) 52,298
Municipal bonds .......... 11,677 237 (85) 11,829
Other securities ......... 31 31
- --------------------------------------------------------------------------------
Total .............. $111,843 $1,023 $(236) $112,630
================================================================================
December 31, 1996:
Government and Agencies .. $ 35,574 $ 117 $ (93) $ 35,598
Mortgage backed securities 41,253 274 (372) 41,154
Municipal bonds .......... 9,415 211 (113) 9,514
Other securities ......... 364 364
- --------------------------------------------------------------------------------
Total .............. $ 86,606 $ 602 $(578) $ 86,630
================================================================================
</TABLE>
The amortized cost and estimated fair value of available for sale securities at
December 31, 1997, by contractual maturities, are shown below. Actual maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call prepayment penalties.
(Dollars in Thousands)
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
- --------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less .............. $ 5,578 $ 5,570
Due after one year through five years 59,160 59,364
Due after five years through ten years 18,567 18,707
Due after ten years .................. 28,507 28,958
Securities with no maturity .......... 31 31
- --------------------------------------------------------------------------
Total ............................ $111,843 $112,630
==========================================================================
</TABLE>
Loans. MarTex engages in real estate lending through real estate mortgage and
construction lending, and commercial and consumer lending. The specific
underwriting criteria for each major loan category is outlined in detail in the
formal written loan policy and is approved by the Board of Directors. In
general, each loan is evaluated based on, among other things, character and
leverage capacity of the borrower, capital and investment in a particular
property, if applicable, cash flow, collateral, market conditions for the
borrower's business or project and prevailing economic trends and conditions.
The loan policies of the Bank, including the underwriting criteria for major
loan categories, are adjusted periodically with each change approved by the
Bank's Board of Directors. The Bank's Board of Directors weighs each new
criteria after considering the foregoing factors and in light of the overall
financial condition and performance of the Bank. The Bank's underwriting
criteria are routinely reviewed by management and external examiners consistent
with the Bank's policy and banking regulations.
99
<PAGE>
Major classifications of loans were as follows (Dollars in Thousands):
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Commercial ......................... $ 45,935 $ 47,433
Real Estate Construction ........... 4,509 4,436
Mortgage ........................... 100,132 83,802
Consumer Installment ............... 20,114 20,922
Credit Card ........................ 2,185 2,174
- ---------------------------------------------------------------------------
172,875 158,767
Unearned income on installment loans (2,555) (2,666)
Allowance for loan losses .......... (2,176) (2,422)
Acquisition reserve ................ - (109)
- ---------------------------------------------------------------------------
$ 168,144 $ 153,570
===========================================================================
</TABLE>
The maturity schedule and rate structure of MarTex's loan portfolio has an
impact on MarTex's ability to meet its liquidity demands and respond favorably
to changes in interest rates. At December 31, 1997, 38.90% of MarTex's total
loans were scheduled to mature or reprice within one year or less. The following
table provides information concerning loan portfolio maturity, based on
remaining scheduled repayments of principal. (Dollars in Thousands)
At December 31, 1997:
<TABLE>
<CAPTION>
Maturity or Earliest Repricing
- -------------------------------------------------------------------------------------------------------
Over One
One Year Through Over Five
or Less Five Years Years Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Closed-end loans secured by first liens on
1-4 family residential properties ........ $12,266 $24,458 $ 9,995 $ 46,719
All loans and leases excluding closed-end
loans secured by first liens on 1-4 family
residential properties ................... 53,823 57,676 12,102 123,601
- -------------------------------------------------------------------------------------------------------
Total loans (net of unearned income) ....... $66,089 $82,134 $22,097 $170,320
=======================================================================================================
</TABLE>
Normally borrowers are expected to meet contractual terms. In some cases,
however, borrowers are permitted to renew obligations after appropriate review
of the credit quality and determination of the borrower's ability and
willingness to repay.
The data shown above is in a format which conforms with reports to the bank
regulatory agencies and has not been restated to reflect anticipated rollovers,
which management does not believe would materially affect the data presented.
Non-accrual, Past Due and Restructured Loans. Non-performing assets include
non-performing loans and foreclosed real estate held for sale. Non-performing
loans include loans classified as non-accrual or renegotiated to provide a
reduction or deferral of interest or principal and those past due 90 days or
more on which interest is still being accrued. It is the general policy of
MarTex to place loans on non-accrual status when, in the opinion of management,
there exists sufficient uncertainty as to the collectibility of the contractual
interest or principal or if the loan becomes 90 days delinquent, whichever comes
first. Placing a loan on a non-accrual status causes an immediate charge against
earnings for the interest which has been accrued but not yet collected on the
loan and eliminates future interest earnings with respect to that loan. Interest
on such loans is not recognized until all of the principal is collected or until
the loan is returned to a performing status. Interest income recognized on
non-accrual loans during the periods ending December 31, 1997 and 1996, was not
significant.
The total recorded investment in impaired loans, all of which had specific
allowances for losses, amounted to approximately $1,211,000 at December 31,
1997, and $940,000 at December 31, 1996. The average balance of these loans
amounted to approximately $1,111,000 during 1997 and $1,010,000 during 1996. The
aggregate allowance for loan losses related to these loans amounted to
approximately $358,000 at December 31, 1997, and $556,000 at
100
<PAGE>
December 31, 1996. Interest income on impaired loans was recognized for receipt
of cash payments of about $92,000 during 1997, and about $63,000 in 1996.
In May of 1993, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan," which was amended by Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure," issued in October of 1994. These statements require
that impaired loans be measured at the present value of expected cash flows
discounted at the loan's effective interest rate, or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. MarTex's adoption of these new standards did not
have a significant effect on the allowance for loan losses or MarTex's method of
income recognition for impaired loans.
Allowance for Loan Losses. MarTex charges to operating expense an amount
necessary to maintain the balance in the allowance for possible loan losses at a
level that is deemed to be adequate to absorb all expected loan losses.
Management determines the adequacy of its reserve and the amount of any
additional provision or negative provision for possible loan losses based on
many factors, including an 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 and their
ability to repay the loan and the value and liquidity of collateral. The amount
in the allowance for possible loan losses is reviewed by management on a monthly
basis to determine whether additional provisions should be made or whether
transfers from the allowance to earnings are justified. MarTex's Board of
Directors reviews the adequacy of the reserve on a quarterly basis.
The following table summarizes averages of loan balances, changes in the
allowance for possible loan losses arising from loans charged off and recoveries
on loans previously charged off, by category, and the provision for possible
loan losses charged to operating expense as of the dates and the periods
indicated. (Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Average total loans net of discounts ............ $ 163,156 $ 130,036
=========================================================================================
Beginning balance ............................... $ 2,422 $ 2,101
Loans charged off:
Real estate ................................... (88) (10)
Commercial, financial and agricultural ........ (313) (150)
Installment ................................... (311) (272)
- -----------------------------------------------------------------------------------------
Total charged off ....................... (712) (432)
- -----------------------------------------------------------------------------------------
Recoveries:
Real estate ................................... - -
Commercial, financial and agricultural ........ 152 81
Installment ................................... 29 36
- -----------------------------------------------------------------------------------------
Total recoveries ........................ 181 117
- -----------------------------------------------------------------------------------------
Net loans charged off ........................... (531) (315)
Provision for loan losses ....................... 285 240
Allowance Acquired in Merger .................... $ 396
- -----------------------------------------------------------------------------------------
Ending balance .................................. $ 2,176 $ 2,422
=========================================================================================
Ratio of net charge-offs during period to average
loans outstanding ............................. 0.33% 0.24%
=========================================================================================
</TABLE>
MarTex's allowance for possible loan losses at December 31, 1997 was $2,176,084,
which, in management's opinion, is adequate to cover possible losses in its
current loan portfolio. However, no assurance can be given that future changes
in economic conditions that might adversely affect MarTex's principal market
areas, borrowers, or collateral values, and other circumstances will not result
in increased losses in MarTex's loan portfolio in the future.
101
<PAGE>
Deposits and Other Liabilities. MarTex's total deposits increased from
$258,143,304 at December 31, 1996, to $288,624,266 in 1997. The growth in
deposits is primarily the result of deposits acquired by offering a 7%, 7-month
certificate of deposit to potential customers who would bring additional
relationships to the Bank. The product was only offered for a limited time. The
following table summarizes the amounts of deposits for the periods indicated:
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Non-interest-bearing demand deposits ..... $ 37,182 $ 32,947
Interest-bearing money market/NOW deposits 65,917 63,509
Savings deposits ......................... 12,139 14,122
Time deposits under $100,000 ............. 128,380 110,088
Time deposits $100,000 or more ........... 45,006 37,478
- ------------------------------------------------------------------------------
Total deposits ........................... $288,624 $258,144
==============================================================================
</TABLE>
MarTex had $1,013,936 and $2,563,000 in 1997 and 1996 respectively related to
acquisition debt to an unaffiliated bank.
Liquidity and Interest Rate Sensitivity Management. The primary functions of
asset and liability management are to assure adequate liquidity and to maintain
an appropriate balance between interest-earning assets and interest-bearing
liabilities. Liquidity represents the Bank's ability to meet the daily demand
for funds from its customers to pay maturing deposits, honor checks and drafts,
extend credit and meet other commitments. Management monitors liquidity
requirements as warranted by interest rate trends, changes in the economy,
changes in the scheduled maturities, and interest rate sensitivity of the
investment and loan portfolios as well as deposits. The Bank attempts to match
rate-sensitive assets and liabilities in order to minimize exposure from
fluctuations in interest rates and to enhance consistent growth of net interest
income through periods of changing interest rates.
The asset portion of the balance sheet provides liquidity primarily through cash
and due from Banks, loan principal repayments, and cash flows from investment
securities, federal funds sold and investment securities available for sale.
The liability portion of the balance sheet provides liquidity through the
various interest and non-interest-bearing deposit accounts, federal funds
purchased, securities sold under agreements to repurchase, and other short-term
borrowings. Long-standing relationships with many institutions have provided the
bank with the opportunity to buy and sell federal funds on a daily basis.
The Bank's liquidity, which is monitored by an Asset-Liability Committee, is
deemed by management to be adequate.
Capital Resources. Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the following table) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes that the Bank meets
all the capital adequacy requirements to which it is subject, as of December 31,
1997.
As of December 31, 1997, the most recent notification from the FDIC categorized
the Bank as well-capitalized under the regulatory framework for prompt
corrective action. To remain categorized as well-capitalized, the Bank must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table below. There are no conditions or events since that
notification that management believes have changed the Bank's category.
The annualized return on average shareholders' equity was 13.65% for the year
end 1997, as compared to 14.11% for the same period in 1996. Shareholders'
equity increased to $24.3 million at December 31, 1997, from $21.1 million at
December 31, 1996. Cash dividends declared by MarTex for the year ended December
31, 1997, totaled $0.04 per share, compared to $0.04 for the same period of
1996.
102
<PAGE>
The following table illustrates the changes in shareholders' equity for
December 31, 1997, and December 31, 1996. (Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance .......................... $ 21,113 $ 14,253
Net income ................................. 3,099 2,186
Cash dividends declared .................... (473) (361)
Merger with Heritage Texas Group ........... - 5,235
Additions due to stock grants .............. 43 50
Net unrealized gain/(loss) on AFS securities 504 (250)
- -------------------------------------------------------------------------------
Ending balance ............................. $ 24,286 $ 21,113
==============================================================================
</TABLE>
The following table summarizes the risk-based capital ratios of MarTex
for the periods indicated. All three ratios for both periods are considered
well-capitalized by regulatory authorities. (Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Tier 1 capital ......... $ 20,642 $ 17,972
Total capital .......... 22,842 19,876
Risk-weighted assets ... 176,016 163,196
Adjusted total assets .. 301,337 283,016
Tier 1 capital ratio ... 11.73% 11.01%
(Regulatory minimum) (4.00%) (4.00%)
Total capital ratio .... 12.98% 12.18%
(Regulatory minimum) (8.00%) (8.00%)
Tier 1 leverage ratio .. 6.85% 6.35%
(Regulatory minimum) (4.00%) (4.00%)
=========================================================================
</TABLE>
103
<PAGE>
RELATIONSHIP WITH INDEPENDENT AUDITORS
Sproles Woodard, L.L.P., independent auditors, has continuously served as the
independent auditor for MarTex from 1990 through the present. A representative
of Sproles Woodard, L.L.P. is expected to be present at the Special Meeting.
This representative 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
Patricia C. Meringer, Senior Vice President and Corporate Counsel of Hibernia
has passed upon the validity of the shares to be issued by Hibernia in the
Merger. As of the date of this proxy statement/prospectus, Ms. Meringer
beneficially owned 22,830 shares of Hibernia common stock (including options to
purchase shares of Hibernia common stock that are currently exercisable).
EXPERTS
The consolidated financial statements of Hibernia Corporation
incorporated by reference in Hibernia Corporation's Annual Report (Form 10-K)
for the year ended December 31, 1997 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.
Sproles Woodard, L.L.P., independent certified public accountants,
have audited the consolidated financial statements of MarTex for the years ended
December 31, 1997 and 1996. Those financial statements are included in the
Proxy Statement of MarTex, which is referred to and made a part of this
Prospectus and Registration Statement, and have been included in reliance upon
the report of Sproles Woodard, L.L.P. appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
Hibernia is a public company and is required to file certain reports with the
SEC, such as annual reports (Form 10-K), quarterly reports (Form 10-Q) and
current reports (Form 8-K). You may review and copy these reports, proxy
statements and other information at the following places:
. the public reference room of the SEC at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 (copies may be made at prescribed rates),
. at the SEC's Regional Office located at 7 World Trade Center, Suite 1300,
New York, New York 10007
. at the SEC's Regional Office located 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511
. at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005.
You may obtain information on the operation of the public reference room by
calling the SEC at 1-800-SEC-0330. The SEC maintains a web site on the Internet
that contains reports, proxy and information statements and other information
about public companies. The address of that site is
104
<PAGE>
http://www.sec.gov.com. Certain recent reports filed with the SEC are also
available at Hibernia's web site at http:/www.hiberniabank.com. Hibernia's
Internet web site also includes news releases and product and service
information about Hibernia.
Hibernia has filed a registration statement on Form S-4 with the SEC that
registers the Hibernia common stock included in this prospectus. This proxy
statement/prospectus does not contain all of the information in the registration
statement. Please refer to the registration statement for further information
about Hibernia and the Hibernia common stock to be exchanged in the Merger.
Statements contained in this proxy statement/prospectus concerning the
provisions of certain documents included in the registration statement are not
necessarily complete. A complete copy of each document is filed as an exhibit to
the registration statement. You may obtain copies of all or any part of the
registration statement, including exhibits thereto, upon payment of the
prescribed fees, at the offices of the SEC and the NYSE listed above.
All information contained in this proxy statement/prospectus relating to
Hibernia and its subsidiaries has been supplied by Hibernia. All information
relating to MarTex and its subsidiaries has been supplied by MarTex.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Hibernia with the SEC are incorporated by
reference in this proxy statement/prospectus:
. its Annual Report on Form 10-K for the year ended December 31, 1997;
. its definitive Proxy Statement filed with the SEC on March 20, 1998 relating
to its 1998 Annual Meeting of Shareholders held on April 21, 1998 (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);
. the Description of Capital Stock included in its Current Report on Form 8-K
dated December 4, 1998;
. its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1998;
. its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1998;
. its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1998;
. a Current Report on Form 8-K dated January 12, 1998;
. a Current Report on Form 8-K dated March 4, 1998;
. a Current Report on Form 8-K dated July 27, 1998;
. a Current Report on Form 8-K dated August 26, 1998; and
. a Current Report on form 8-K dated December 9, 1998.
All documents filed by Hibernia with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, 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 from the date they are filed.
Statements made in this proxy statement/prospectus may be modified or superseded
by statements contained in a document incorporated or deemed to be incorporated
by reference. Any statement so modified or superseded will not be deemed to
constitute a part of this proxy statement/prospectus, except as so modified or
superseded.
This proxy statement/prospectus incorporates important business and financial
information about Hibernia that is not included in or delivered with this proxy
statement/prospectus. If you own MarTex common stock and would like a copy of
any of the information incorporated by reference in this proxy
statement/prospectus other than exhibits to such information (unless such
exhibits are specifically incorporated by reference into such information),
Hibernia will provide it to you without charge. If you would
105
<PAGE>
like to receive any of that information, please call or write to Hibernia
Corporation, 313 Carondelet Street, New Orleans, Louisiana 70130, Attention:
Assistant Secretary, Telephone (504) 533-3411. You should make your request
before February 25, 1999, in order to receive the information prior to the
Special Meeting.
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APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
OF
MARTEX BANCSHARES, INC. WITH AND INTO
HIBERNIA CORPORATION
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of January 19,
1999, to be effective as of June 29, 1998, (this "Agreement"), adopted and made
by and between MarTex Bancshares, Inc. ("MarTex") and Hibernia Corporation
("Hibernia").
MarTex is a corporation duly organized and existing under the laws of the
State of Texas and has its office at 2615 East End Boulevard South, 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
issued and outstanding shares of First Service Bank (the "Bank"). The presently
authorized capital stock of MarTex consists solely of 100,000,000 shares of
common stock of the par value of $0.01 each ("MarTex common stock") and 500,000
shares of preferred stock of the par value of $4.13 each. As of March 31, 1998,
11,846,469 shares of MarTex common stock had been issued and were outstanding,
and no shares of MarTex common stock were held in MarTex's treasury. As of
March 31, 1998, no shares of preferred stock had been issued by MarTex and no
such shares were outstanding. All outstanding shares of MarTex common stock
have been duly issued and are validly outstanding, fully paid and nonassessable.
The foregoing are the only voting securities of MarTex authorized, issued, or
outstanding. As of March 31, 1998, there were options to purchase 450,264 shares
of MarTex common stock outstanding, 319,828 shares issuable under a Warrant
Agreement dated 12/13/96, 28,618 shares of MarTex common stock earned but not
yet issued under the Stock Grant Agreements listed on Schedule 7.26 hereto and
additional shares of MarTex common stock to be issued pursuant to such Stock
Grant Agreements as a result of the consummation of the transactions
contemplated by this Agreement, and there are no other existing stock options,
warrants, calls, or commitments of any kind obligating MarTex 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 MarTex's capital stock has been issued in violation of
preemptive rights of shareholders. MarTex owns 100 percent of the outstanding
voting shares of the Bank, a banking corporation organized and existing under
the laws of the State of Texas. All of the issued and outstanding shares of
capital stock of the Bank are directly owned by MarTex. The Bank is (i) an
"insured bank" as defined in the Federal Deposit Insurance Act and applicable
regulations thereunder, and (ii) has been duly organized and is validly existing
as a state bank under the laws of the State of Texas, and has full authority to
conduct its business as and where currently conducted.
Hibernia is a corporation duly organized and existing 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
400,000,000 shares, consisting of 100,000,000 shares of preferred stock, no par
value, and 300,000,000 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 March 31, 1998, 2,000,000 shares of Hibernia's preferred stock
were issued and outstanding, 152,109,882 shares of Hibernia common stock were
outstanding, and no 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
Hibernia common stock and (in limited circumstances, the Hibernia Preferred
Stock) 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 share of its capital stock or any
other security of which it is or will be the issuer, except that Hibernia has
authorized or reserved 1,968,750 shares of Hibernia common stock for issuance
under its 1987 Stock Option Plan, pursuant to which options covering 1,377,579
shares of Hibernia common stock were
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outstanding as of the date hereof; 9,898,336 (as adjusted) shares of Hibernia
common stock for issuance under its 1992 Long-Term Incentive Plan, pursuant to
which options covering 7,507,271 shares of Hibernia common stock were
outstanding as of the date hereof; 1,000,000 shares of Hibernia common stock for
issuance under its 1993 Director Stock Option Plan, pursuant to which options
covering 275,000 shares of Hibernia common stock are outstanding on the date
hereof; 24 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. 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 organized and existing 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 organized and existing 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 are (i) an "insured banks" as defined
in the Federal Deposit Insurance Act and applicable regulations thereunder, and
(ii) have been duly organized and are validly existing as national banks under
the laws of the United States, and have full authority to conduct their
businesses as and where currently conducted.
The Boards of Directors of MarTex and Hibernia have duly approved this
Agreement and have authorized the execution hereof by MarTex's Chairman of the
Board, Chief Executive Officer or President and Hibernia's President and Chief
Executive Officer, respectively. MarTex 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 MarTex 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),
MarTex 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) Section 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").
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. MarTex common stock.
3.1. Conversion in Certain Circumstances. On the Effective Date and
subject to the provisions of Section 3.7 hereof,
(a) shares of MarTex common stock which are issued and outstanding
immediately prior to the Effective Date (including MarTex common stock issued
pursuant to the options, warrants or grant agreements listed on Schedule 6(b)
hereto) 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 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 TBCA), 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) shareholders who hold certificates which represent shares of MarTex
common stock outstanding immediately prior to the Effective Date (hereinafter
called "Old Certificates") shall cease to be,
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and shall have no rights as, shareholders of MarTex (except to convert their
MarTex common stock as set forth herein);
(c) each share of MarTex common stock held in the treasury of MarTex 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 MarTex 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 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,
and no such holder shall be entitled to dividends, voting rights or any other
right 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 MarTex 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 either certificates representing Hibernia common stock or cash,
if any. 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. Former shareholders of MarTex and any other
individuals or entities who or which are entitled to receive Hibernia common
stock as a result of the Merger will be able to vote after the Effective Date at
any meeting of Hibernia shareholders or pursuant to any written consent
procedure the number of whole shares of Hibernia common stock into which their
shares of MarTex common stock are converted, regardless of whether they have
exchanged their Old Certificates. In addition, in that event, whenever a
dividend is declared by Hibernia on the Hibernia common stock after the
Effective Date, the declaration 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. 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 MarTex shall not be entitled to receive any dividend on their
Hibernia common stock with respect to any period for which MarTex paid a
dividend prior to the Effective Date.
3.5. Maintenance of Stock Transfer Records; Cancellation of Old
Certificates. Prior to the Effective Date, MarTex shall continue to maintain its
stock transfer records and to transfer and replace stock certificates in
accordance with its existing policies and past practices with regard to such
transfers and replacements. On and after the Effective Date there shall be no
transfers on the stock transfer books of MarTex or Hibernia of the shares of
MarTex 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
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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 MarTex 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
MarTex 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 MarTex,
and otherwise to carry out the purposes of this Agreement.
3.7. Dissenters' Shares. Shares of MarTex 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 MarTex common stock, at
which time such shares shall be converted as provided in Section 3.1 hereof.
3.8. Exchange Rate.
(a) Except as otherwise provided in this Section 3.8 to the contrary, the
Exchange Rate (i.e. the number of shares of Hibernia common stock that will be
exchanged for each share of MarTex common stock) shall be the number that is
achieved by the following formula : 3,450,000 the number of shares of MarTex
common stock outstanding as of the Effective Date.
(b) (i) In the event that the Department of Justice requires or requests
that Hibernia or HNBT divest a portion of the assets and/or liabilities of the
Bank as a condition to its agreement not to object to the Merger, and the
Parties hereto agree to such divestiture and consummate the Merger, the Exchange
Rate shall be adjusted downward to reflect the divestiture as set forth below in
this Section 3.8(b).
(ii) In the event the aggregate amount of deposits to be divested is $5
million or less and the aggregate amount of loans to be divested is $2 million
or less, there shall be no adjustment in the Exchange Rate.
(iii) In the event the aggregate amount of deposits to be divested is
greater than $5 million or the aggregate amount of loans to be divested is
greater than $2 million, then the Exchange Rate shall be calculated in
accordance with the following steps:
. Step 1. If the aggregate amount of deposits to be divested is greater than
$5 million, then the number of shares to be issued by Hibernia in exchange
for the outstanding shares of MarTex shall be reduced by 9,284 for each $1
million of deposits to be divested in excess of $5 million, which reduction
shall be prorated for any amount less than $1 million to be divested. (If
not, then skip to Step 2.)
. Step 2. If the aggregate amount of loans to be divested is greater than $2
million, then the number of shares to be issued by Hibernia in exchange for
the outstanding shares of MarTex shall be reduced by 20,073 for each $1
million of loans to be divested in excess of $2 million, which reduction
shall be prorated for any amount less than $1 million to be divested.
. Step 3. The aggregate number of shares achieved by applying Steps 1 and 2
shall be added together and subtracted from 3,450,000 to obtain the
aggregate number of shares of Hibernia common stock that will be exchanged
for the shares of MarTex common stock outstanding.
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4. Articles of Incorporation; Bylaws. The Articles of Incorporation and
Bylaws 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 the employees of MarTex and the Bank immediately
prior to 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 MarTex 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 MarTex or the
Bank shall be deemed equivalent to having been employed for that same period by
Hibernia and/or its subsidiaries and provided further, however, that if Hibernia
determines in good faith that it cannot merge any benefit plan of MarTex into a
comparable benefit plan of Hibernia or HNB without creating material potential
liability for Hibernia's or HNB's plan, then Hibernia shall be entitled to
freeze the existing benefit plan of MarTex and prohibit participation by former
employees of MarTex in Hibernia's plan for the period of time required by
applicable law to ensure that Hibernia's and HNB's benefit plans are not deemed
to be successor plans of the MarTex plan in question.
6. Negative Covenants. From the date hereof until the Effective Date, or
until the termination of this Agreement, MarTex covenants and agrees that it
will not do, or agree to commit to do, and MarTex 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 MarTex (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 MarTex
common stock (other than in a fiduciary capacity).
(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, except for
shares issued pursuant to the terms of the stock options, warrants and stock
grant agreements listed on Schedule 6(b) hereto, as those options, warrants or
agreements were in effect on the date hereof, it being understood that no
modification of any of those instruments may be made without the express written
consent of Hibernia;
(c) enter into any employment contracts with, increase the rate of
compensation of, or pay or agree to pay any bonus 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; provided; however that bonuses that have been
accrued through the Closing Date may be paid to employees as long as the amounts
of such accruals and bonus payments are 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;
(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 or the Bank's Articles
of Incorporation or Bylaws, (iii) impose, or suffer the imposition, on any share
of stock held by MarTex in the Bank, of any material lien, charge, or
encumbrance, or permit any such lien to exist, (iv) establish or add any
automatic teller machines or branch or other banking offices in addition to
those
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listed on Schedule 6(e) hereto, (v) make any capital expenditures in
excess of $200,000 in connection with the completion of MarTex's branch location
at Hide-A-Way Lake (exit 552 on I-20) or any capital expenditures in excess of
$50,000 (excluding those capital expenditures for the branch location at Hide-A-
Way Lake), 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 MarTex's ability to perform its covenants and agreements
hereunder;
(f) except as permitted by Section 9.6 hereof and except with respect
to transactions contemplated hereby, merge with any other corporation or bank or
permit any other corporation or bank to merge into it or consolidate with any
other corporation or bank; acquire control over any other firm, bank,
corporation or organization or create any subsidiary (except in a fiduciary
capacity or in connection with foreclosures in bona fide loan transactions);
liquidate; or sell or dispose of any assets or acquire any assets, otherwise
than in the ordinary course of its business consistent with its past practice;
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 MarTex. MarTex (and not its
directors or officers in their personal capacities) hereby represents and
warrants as follows (and the parties hereto acknowledge and agree that any
matter disclosed on any schedule hereto shall be deemed to be included on any
other schedule hereto provided by the same party, whether or not the matter is
disclosed on any additional schedule):
7.1. Recitals. The facts set forth in the preamble to this Agreement
with respect to it are true and correct.
7.2. Organization and Qualification. Each of MarTex and the Bank is
a corporation or bank duly organized, validly existing, and, in the case of
MarTex, in good standing under, and, in the case of the Bank, holds a valid
certificate to transact the business of banking under, respectively, the laws of
the State of Texas and the laws of the United States; each of MarTex 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 MarTex has all requisite power and authority to execute and
deliver this Agreement and perform its obligations hereunder.
7.3. Ownership of Other Banks. MarTex 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 and
Pittsburgh Recovery, Inc., a wholly-owned subsidiary of the Bank. The presently
authorized capital stock of the Bank consists solely of 2,071,000 shares of
common stock of the par value of $1.00 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 MarTex, free
and clear of all liens, claims and encumbrances. The presently authorized
capital stock of Pittsburgh Recovery, Inc. consists solely of 1,000 shares of
common stock of the par value of $1.00 each, all of which shares of common stock
are outstanding. The outstanding shares of capital stock of Pittsburgh
Recovery, Inc. 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
the Bank, 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 MarTex's Board of
Directors, and, subject to the approval of this Agreement by its shareholders in
accordance with the applicable Texas law and the approval of the appropriate
regulatory authorities, all corporate acts and other proceedings required for
the due and valid authorization, execution, delivery and performance by MarTex
of this Agreement and the consummation of the Merger have been validly and
appropriately taken. Subject to such shareholder approval and to such
regulatory approvals as
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are required by law, this Agreement is a legal, valid and binding obligation of
MarTex, enforceable against MarTex 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 MarTex 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 MarTex or the Bank or to which MarTex 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 MarTex and the Bank taken as a whole or on the transactions
contemplated hereby, (ii) to the best of the knowledge of MarTex'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 MarTex or the Bank or to which MarTex or the Bank is subject,
or (iii) a breach or violation of, or a default under, the Articles of
Incorporation or Bylaws of MarTex 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. MarTex 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 "MarTex Financial Statements"): MarTex's Balance Sheets as of
March 31, 1998 and 1997 (unaudited); MarTex's Consolidated Balance Sheets as of
December 31, 1997 and 1996 (audited); MarTex's Consolidated Statements of
Income and Changes in Stockholders' Equity and Consolidated Statements of Cash
Flows for the years ended December 31, 1997 and 1996 (audited) and as of March
31, 1998 and 1997 (unaudited);. Each of the MarTex Financial Statements
(including the related notes) fairly presents the consolidated results of
operations of MarTex and the Bank for the respective periods covered thereby and
the consolidated financial condition of MarTex 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 GAAP consistently applied during the periods involved, except as
may be noted therein. Except as disclosed in the MarTex 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 Texas state banks generally) precluding MarTex 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 March 31, 1998, there has
been no event or condition of any character (whether actual, or to the knowledge
of MarTex or the Bank, threatened or contemplated) that has had or can
reasonably be anticipated to have, or that, if concluded or sustained adversely
to MarTex, would reasonably be anticipated to have, a material adverse effect on
the financial condition, results of operations, business or prospects of MarTex
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 MarTex that in the opinion of its
management is likely to have a material and adverse effect on the business,
results of operations or financial condition of MarTex and the Bank taken as a
whole, and, to the best of its knowledge, no such litigation, proceeding or
controversy has been threatened or is contemplated. Except as disclosed on
Schedule 7.8 hereto, no member of MarTex's 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.
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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 MarTex nor the Bank is bound by any material contract to be performed
after the date hereof that is not terminable by MarTex or the Bank without
penalty or liability on thirty days prior notice.
7.10. Brokers' or Finders' Fees. No agent, broker, investment
banker, investment or financial advisor or other person acting on behalf of
MarTex or the Bank or under their 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 except Alex. Sheshunoff &
Co., which has been engaged by MarTex in connection with the Merger.
Notwithstanding anything contained herein to the contrary, MarTex shall be
permitted to pay to Alex. Sheshunoff & Co. the fee required by its engagement
letter, a copy of which is attached hereto as Exhibit 7.10, relating to the
transaction contemplated by this Agreement, provided that, MarTex 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 MarTex 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 March 31, 1998, neither MarTex
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 MarTex 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 March 31, 1998, or from any action omitted to
be taken during such period that, to the knowledge of MarTex, 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 MarTex 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 March 31, 1998, neither MarTex nor the Bank has incurred or
paid any obligation or liability that would be material to MarTex 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 MarTex 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, 1995, and all returns filed
are complete and accurate to the best information and belief of their respective
managements; 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 MarTex or the Bank except as reserved
against in the MarTex Financial Statements. All taxes, interest, additions and
penalties due with respect to completed and settled examinations or concluded
litigation have been paid, and MarTex's reserves for bad debts at December 31,
1995, 1996 and 1997, 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 best knowledge and belief of its management,
each loan reflected as an asset of MarTex in the MarTex Financial Statements, as
of March 31, 1998, 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 MarTex, except as disclosed in writing to Hibernia on or prior to the
date hereof.
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7.16. Allowance for Loan Losses. To the best of MarTex's knowledge
and belief, allowances for possible loan losses shown on the balance sheets of
MarTex as of March 31, 1998 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 March 31, 1998, and each such allowance has been
established in accordance with GAAP.
7.17. Title to Assets; Adequate Insurance Coverage.
(a) As of March 31, 1998, MarTex or the Bank, as the case may be,
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 indefeasible
title to all real property and good and indefeasible title to all other material
properties and assets reflected in the MarTex 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 MarTex 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 March 31, 1998, 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; (vi)
securities pledged for interest rate swap, cap and floor contracts and (vii) as
set forth on Schedule 7.17. MarTex and the Bank own, or have valid leasehold
interests in, all material properties and assets, tangible or intangible, used
in the conduct of its business. Any real property and other material assets
held under lease by MarTex 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 such property by Hibernia in the manner presently being utilized
by the Bank or MarTex, except as set forth on Schedule 7.17.
(b) With respect to each lease of any real property or a material
amount of personal property to which MarTex or the Bank is a party, except for
financing leases in which MarTex 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)
except as set forth on Schedule 7.17, the Merger will not constitute a default
or a cause for termination or modification of such lease.
(c) Neither MarTex 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 and belief of its management, the policies of
fire, theft, liability and other insurance maintained with respect to the assets
or businesses of MarTex and the Bank provide adequate coverage against loss and
the fidelity bonds in effect as to which MarTex or the Bank is named insured
provide adequate coverage with respect to amounts, types and risks involved.
7.18. Employee Plans. To the best of MarTex's knowledge and belief,
it, the Bank, and 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 MarTex or the Bank:
(i) is 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
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(ii) has 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 is subject to no agreement
with any such governmental authority with respect to its assets or business.
7.19. Copies of Employee Plans. On or prior to the date hereof,
MarTex has provided 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 MarTex 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 MarTex 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. Prior to the date hereof, MarTex has made available
to Hibernia, for inspection pursuant to the terms of Section 9.5 hereof, the
minutes of meetings of MarTex's and the Bank' Board of Directors and all
committees thereof held during the period beginning March 31, 1993 and prior to
the date hereof, which minutes are complete and correct in all material respects
and fairly present the actions of such Boards and committees and accurately
reflect in all material respects the business condition and operations of MarTex
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 insurance) maintained by
MarTex or the Bank at the date hereof. Except as disclosed on Schedule 7.23
hereto, neither MarTex 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 MarTex 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 MarTex or the Bank.
7.24. Investments. Except for securities pledged for interest rate
swap, cap and floor contracts or pledged to secure public trust deposits and
except as set forth on Schedule 7.24, none of the investments reflected in the
MarTex Financial Statements under the heading "Investment Securities," and none
of the investments made by MarTex or the Bank since March 31, 1998, and none of
the assets reflected in the MarTex 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 MarTex or the Bank freely to
dispose of such investment at any time. With respect to all repurchase
agreements to which MarTex or the Bank is a party, MarTex 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.
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7.25. Environmental Matters. Except as set forth on Schedule 7.25,
neither MarTex nor the Bank nor, to the knowledge of MarTex 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 MarTex or the Bank or used by MarTex
or the Bank in their respective business ("MarTex Properties") used, generated,
treated, stored, or disposed of any hazardous waste, toxic substance, or similar
materials on, under, or about MarTex 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 MarTex 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
MarTex Properties.
7.26. Change in Control Contracts and Benefits. Attached as
Schedule 7.26 are true and correct copies of agreements with Wayne McWhorter and
George Meisenheimer regarding the issuance of shares of MarTex common stock upon
a change in control of MarTex. These are the only contracts or other
arrangements that provide for the grant of any benefit (including acceleration
of any benefit) or the making of any payment by MarTex or any successor of
MarTex, as a result of a change in control of similar transaction, to any
employee, officer or director of MarTex.
7.27. Year 2000 Compliance. MarTex has developed and implemented
portions of, and is in the process of implementing other portions of, a plan
designed to ensure that its computer and other mission critical systems will be
substantially Year 2000 compliant, and all material work and testing required to
be performed under that plan as of the date hereof have been performed.
7.28. No Trading Market. The shares of MarTex common stock are not
readily tradable on an "Established Securities Market" or otherwise. For
purposes of this Agreement, the term "Established Securities Market" shall mean
(i) a national securities exchange which is registered under section 6 of the
Securities Exchange Act of 1934, as amended, (ii) a foreign national securities
exchange which is officially recognized, sanctioned or supervised by any
governmental authority or (iii) any over-the-counter market with an interdealer
quotation system.
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. Hibernia is a corporation, and HNB
and HNBT are national banking associations, duly organized, validly existing and
in good standing under the laws of the State of Louisiana in the case of
Hibernia, and the United States of America, in the cases of HNB and HNBT. 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, HNB and HNBT are validly issued and outstanding,
fully paid and nonassessable (subject, in the cases of HNB and HNBT, to 12
U.S.C. Section 55) and all of such shares of HNB and HNBT 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.
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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 of the
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 Bylaws 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, 1997, its Quarterly
Report on Form 10-Q for the period ended March 31, 1998, and its proxy statement
for its 1998 annual meeting of shareholders, each in the form (including
exhibits) filed with the Securities and Exchange Commission (the "SEC") and its
quarterly report to shareholders for the period ended March 31, 1998
(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 MarTex on or before the date hereof.
Except as disclosed on Schedule 8.6 hereto or in the Hibernia Financial
Statements, including the notes thereto, there are no restrictions in any note,
indenture, agreement, statute or otherwise (except for statutes or regulations
applicable to Louisiana corporations or national banks generally) precluding
Hibernia or HNB or HNBT from paying dividends, in each case when, as and if
declared by its Board of Directors.
The Hibernia Reports (i) were prepared in accordance with the applicable
requirements of the Securities Act and/or Exchange Act, as the case may be, and
the applicable rules and regulations
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thereunder, and (ii) at the time they were filed did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances in which they were made, not misleading. All Current
Reports on Form 8-K and Quarterly Reports on Form 10-Q filed after the date
hereof and prior to the Effective Date will be prepared in accordance with the
applicable requirements of the Securities Act and/or Exchange Act, as the case
may be, and the applicable rules and regulations thereunder, and at the time
they are filed will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances in which
they were made, not misleading.
8.7. No Material Adverse Change. Since March 31, 1998, 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 or
HNB, excluding changes in laws or regulations that affect banking institutions
generally.
8.8. Year 2000 Compliance. Hibernia and HNBT have developed and have
implemented portions of, and are in the process of implementing other portions
of, a plan designed to ensure that their computer and other mission critical
systems will be substantially Year 2000 compliant, and all material work and
testing required to be performed under that plan as of the date hereof has been
performed.
8.9. Community Reinvestment Act Performance Evaluation. Hibernia has
delivered to MarTex prior to the execution of this Agreement a copy of the
Community Reinvestment Act Performance Evaluation presently in effect for HBNT
(the "CRA"). To the best of Hibernia's knowledge, Hibernia is unaware of any
facts or circumstances that are likely to cause any change in the CRA between
the date of this Agreement and the Effective Date which would have a material
and adverse effect on the ability to obtain regulatory approval of the
transactions contemplated by this Agreement or on the financial condition,
results of operations, business or prospects of Hibernia, HNB and HNBT taken as
a whole.
8.10. Sufficient Authorized Shares. Hibernia has, and as of the
Effective Date will have, a sufficient number of shares of Hibernia common stock
to issue the number of shares required by Section 3.8 hereof to be issued to the
holders of MarTex common stock upon the consummation of the transactions
contemplated by this Agreement.
9. Agreements and Covenants. Hibernia and MarTex each hereby agrees and
covenants to the other that:
9.1. Shareholder Approvals. This Agreement shall be submitted to MarTex's
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 (a) the issuance of shares
of MarTex common stock to each of F. Wayne McWhorter and George F. Meisenheimer
as a result of the Merger pursuant to Stock Grant Agreements dated March 28,
1996 between MarTex and each of Mr. McWhorter and Mr. Meisenheimer, as amended
(referred to herein individually as a "Stock Grant Agreement" and collectively
as the "Stock Grant Agreements"), and (b) this Agreement and the transactions
contemplated hereby.
9.2. Actions Necessary to Complete Merger. It shall use its best efforts
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
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and recommending that this Agreement be approved by its shareholders) and
cooperate fully with the other party hereto to that end, subject to the
provisions of Section 9.6 hereof.
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 MarTex relating to MarTex, (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
MarTex 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 in
advance, MarTex will not 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 MarTex so long as MarTex 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 MarTex 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 to), (A) upon reasonable notice, afford MarTex 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 MarTex and such representatives with such
financial and operating data and other information of any kind respecting its
business and properties as MarTex shall from time to time reasonably request to
perform such review, (B) furnish MarTex with copies of all reports filed by
Hibernia with the Securities and Exchange Commission ("SEC") throughout the
period after the date hereof prior to the Effective Date promptly after such
reports are so filed, and (C) promptly advise MarTex 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 MarTex to be acquired as a result of the Merger, MarTex shall
(and shall cause the Bank to), upon reasonable notice, afford Hibernia and its
officers, employees, counsel, accountants, and other authorized representatives
access, during normal business hours throughout the period prior to the
Effective Date, to all of its and the Bank' properties, books,
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contracts, commitments, loan files, litigation files, and records (including,
but not limited to, the minutes of the Boards of Directors of MarTex 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; provided, however, that neither MarTex nor the Bank shall
be required to disclose any information subject to the attorney-client, work
product or party communication privileges.
(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. Prohibited Negotiations. Prior to the Effective Date, neither MarTex
nor the Bank shall 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, MarTex or the
Bank or any business combination with MarTex or the Bank other than as
contemplated by this Agreement. MarTex shall instruct each officer, director,
agent, or affiliate of it or the Bank to refrain from doing any of the above,
and MarTex will notify Hibernia promptly if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated with, MarTex; provided, however, that
nothing contained in this section or in any other section of this Agreement
shall be deemed to prohibit any officer or director of MarTex or the Bank from
taking any action that, in the opinion of counsel to MarTex or the Bank, a copy
of which opinion shall be furnished to Hibernia upon its request, is required by
applicable law or is required to fulfill such director's or officer's fiduciary
duty.
9.7. Affiliates. Prior to the Closing Date (as defined in Section 14
hereof), MarTex shall deliver to Hibernia a letter identifying all persons whom
it believes to be "affiliates" of MarTex for purposes of Rule 145(c) or Rule 144
(as applicable) under the 1933 Act ("Affiliates"). MarTex 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 9.7
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 MarTex 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.
9.8. 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 the
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.
9.9. Accounting Treatment. It 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.
9.10. 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 at such time as consummation of the transactions
contemplated by this Agreement seems reasonably assured and in any event prior
to the Effective Date (unless this Agreement is terminated pursuant to Section
13 hereof), MarTex 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 MarTex
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 MarTex herein.
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9.11. Indemnification of Directors and Officers of MarTex 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 MarTex or the Bank or
served in a similar capacity at the request or on behalf of MarTex or the Bank,
including but not limited to, any person who acted as a trustee or administrator
of any employee benefit plan maintained by MarTex 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 MarTex, or the Bank to the same extent as he would have been indemnified
under the Articles of Incorporation and/or Bylaws 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 or HNB.
(c) The rights to indemnification granted by this subsection 9.11 are
subject to the following limitations: (i) the total aggregate indemnification to
be provided by Hibernia pursuant to subsection 9.11(a) shall not exceed, as to
all of the Indemnified Persons as a group, the sum of $10 million 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 9.11 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 9.11 hereto; (iii) amounts otherwise required
to be paid by Hibernia to an Indemnified Person pursuant to this subsection 9.11
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;
and (iv) the indemnification to be provided by Hibernia pursuant to subsection
9.11(a) shall not apply to any claims by F. Wayne McWhorter and/or George E.
Meisenheimer against an Indemnified Person based upon, arising in connection
with or in respect of or related to matters released by Mr. McWhorter and
Mr. Meisenheimer pursuant to the agreement in the form annexed hereto as
Exhibit 10(h).
(d) Hibernia agrees that the $10 million indemnification limit set
forth in paragraph (c) of this Section 9.11 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.
9.12. 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.
9.13. Agreements with Officers. MarTex will use its best efforts to obtain
an written agreement from the individual parties to the agreements listed on
Schedule 7.26 in substantially the form of Schedule 9.13 hereto.
9.14. Continuation of Year 2000 Compliance Efforts. MarTex and
Hibernia will continue their respective efforts to bring their respective
computer systems in compliance with Year 2000, to comply with their respective
existing plan for such compliance and to test the systems and the plans for
compliance from time to time in accordance with their respective plans for Year
2000 compliance.
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9.15. Stock Grant Agreements. The parties hereto acknowledge and
agree that the number of additional shares of MarTex common stock to be issued
to F. Wayne McWhorter and George F. Meisenheimer pursuant to the terms of the
Stock Grant Agreements identified on Schedule 7.26 hereto, as a result of the
Merger, assuming the fair market value of Hibernia common stock is $20 per
share, assuming no reduction in the Exchange Rate pursuant to Section 3.8(b) and
further assuming that the Merger was effective as of June 30, 1998, is 1,552,256
and 155,226 shares, respectively. Hibernia agrees that no W-2 will be issued or
filed with the Internal Revenue Service following the Merger with respect to the
shares of MarTex common stock issued to Mr. McWhorter and Mr. Meisenheimer
pursuant to those Stock Grant Agreements until the restrictions on sale by them
of their Hibernia common stock imposed pursuant to Accounting Series Release NO.
135 (and their agreement to abide thereby set forth in Exhibit 9.7 hereto) have
lapsed.
9.16. Cooperation on Transfers. Hibernia will use its reasonable
efforts to provide assistance to former shareholders of MarTex who desire after
the Effective Date to sell shares of Hibernia common stock received pursuant to
the Merger, including, without limitation, issuance of legal opinions to
Hibernia's transfer agent which are reasonably requested by the transfer agent
in connection with sales of Hibernia common stock under Rules 144 and 145(d)
under the Securities Act of 1933, as amended.
10. Permits, Consents and Approvals. As promptly as practicable after the
date hereof (or as otherwise provided below):
(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;
(c) MarTex shall endeavor to have its Affiliates execute a written
agreement in substantially the form of Exhibit 9.7 hereto; provided, however,
that MarTex shall have no such obligation prior to the receipt by the Board of
Directors of MarTex of the Fairness Opinion;
(d) MarTex shall endeavor to have each director of MarTex and/or the Bank
who is not an employee of MarTex and/or the Bank execute a Non-Competition
Agreement in substantially the form of Exhibit 10(d)-A hereto, and to have each
director of MarTex and/or the Bank who is an employee of MarTex and/or the Bank,
other than F. Wayne McWhorter, George F. Meisenheimer and Rodney Bass, execute a
Non-Competition Agreement in substantially the form of Exhibit 10(d)-B hereto;
and to have F. Wayne McWhorter, George F. Meisenheimer and Rodney Bass execute a
Lock-Up Agreement in substantially the form of Exhibit 10(d)-C hereto, provided,
however, that MarTex shall have no such obligation prior to the receipt by the
Board of Directors of MarTex of the Fairness Opinion;
(e) MarTex shall endeavor to have each of Mr. McWhorter and Mr.
Meisenheimer execute an agreement in substantially the form of Schedule 9.13
hereto;
(f) MarTex shall endeavor to have each of Mr. McWhorter and Mr.
Meisenheimer execute an amendment to their respective Stock Grant Agreement in
substantially the form of Exhibit 10(f) hereto prior to the special meeting of
MarTex shareholders to consider the Merger;
(g) MarTex shall endeavor to have each director of MarTex execute an
affidavit in substantially the form of Exhibit 10(g) hereto prior to the special
meeting of MarTex shareholders to consider the Merger; and
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(h) MarTex shall endeavor to have each of Mr. McWhorter and Mr.
Meisenheimer execute releases substantially in the form of Exhibit 10(h) hereto
and indemnity agreements substantially in the form of Exhibit 10(i) hereto prior
to the special meeting of MarTex shareholders to consider the Merger.
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 MarTex 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 MarTex 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 between Alex. Sheshunoff
& Co. Investment Bankers, as agent for MarTex, and Hibernia.
11.2. Hold Harmless. Hibernia will indemnify and hold harmless MarTex,
each of its directors and officers and each person, if any, who controls MarTex
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 pay or promptly 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 MarTex 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 MarTex and exercise and perfection of
dissenters' rights pursuant to Texas law by holders of MarTex common stock
holding in the aggregate no more than 10% of the MarTex common stock outstanding
on the Closing Date.
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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 MarTex 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. MarTex and its directors shall have
received an opinion, dated the Closing Date, of counsel for Hibernia, in form
and substance satisfactory to MarTex, as to such matters as MarTex may
reasonably request with respect to the transactions contemplated hereby.
12.6. Opinion of MarTex Counsel. Hibernia, its directors and its officers
who sign the Registration Statement shall have received an opinion, dated the
Closing Date, of Naman, Howell, Smith & Lee, a professional corporation, as
counsel for MarTex, in form and substance 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 MarTex. Each of the
representations, warranties, and agreements of MarTex 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 Chief Executive Officer and the President
of MarTex, dated the Closing Date, to such effect; MarTex 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. MarTex 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 MarTex shall have
received a certificate signed by the Chief Executive Officer and the Chief
Financial Officer of Hibernia, dated the Closing Date, to such effect; Hibernia
shall have furnished to MarTex such other certificates as MarTex 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 MarTex with such further documents or other materials as
MarTex 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 MarTex 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).
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12.10. Tax Opinion. Hibernia and the shareholders of MarTex shall have
received an opinion of a nationally recognized public accounting firm
satisfactory to MarTex, which opinion shall be satisfactory in form and
substance to Hibernia and MarTex, to the effect that 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, and that the exchange of
MarTex common stock to the extent exchanged for Hibernia common stock will not
give rise to gain or loss to the shareholders of MarTex with respect to such
exchange.
12.11. Listing on New York Stock Exchange. The shares of Hibernia common
stock issuable to the holders of MarTex 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. MarTex shall have received a letter from Alex.
Sheshunoff & Co. 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 the terms of the Merger are fair to its
shareholders from a financial point of view.
12.13. Amendments to Stock Grant Agreements. MarTex shall have received
from each of Mr. McWhorter and Mr. Meisenheimer prior to the date of the special
meeting of the MarTex shareholders to approve this Agreement and the Merger
amendments to their respective Stock Grant Agreements in substantially the form
of Exhibit 10(f) hereto.
12.14. Affidavits from MarTex Directors. Hibernia shall have received from
each director of MarTex an affidavit in substantially the form of Exhibit 10(g)
hereto.
12.15. Releases and Indemnity Agreements. MarTex shall receive from each
of Mr. McWhorter and Mr. Meisenheimer prior to the date of the special meeting
of the MarTex shareholders to approve this Agreement and the Merger releases
substantially in the form of Exhibit 10(h) hereto and indemnity agreements
substantially in the form of Exhibit 10(i) hereto.
12.16. Opinion of Counsel for Mr. McWhorter and Mr. Meisenheimer. Hibernia
shall have received an opinion, dated the Closing Date, of Bracewell &
Patterson, L.L.P., as counsel for Mr. McWhorter and Mr. Meisenheimer, in form
and substance satisfactory to Hibernia, which shall state that the releases
referred to in Section 12.15 above are enforceable against each of Mr. McWhorter
and Mr. Meisenheimer in accordance with their terms.
12.17. Assertion of Conditions. A failure to satisfy any of the
requirements set forth in Section 12.5, 12.8 or 12.12 shall only constitute
conditions to consummation of the Merger if asserted by MarTex and a failure to
satisfy any of the requirements set forth in Section 12.6, 12.7, 12.13, 12.14,
12.15 or 12.16 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
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a material increase in the cost of the non-breaching party's performance of this
Agreement or a material decrease in the consideration to be received by MarTex's
shareholders.
13.3. Passage of Time; Inability to Satisfy Conditions. By either party
hereto, in the event that (i) the Merger is not consummated by March 31, 1999,
or (ii) any condition to Closing cannot be satisfied by March 31, 1999 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 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 MarTex.
13.6. Dissenters. By Hibernia, if holders of more than 10 percent of the
outstanding MarTex common stock exercise statutory rights of dissent and
appraisal pursuant to Texas law.
13.7. Material Adverse Change. By MarTex, 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 under Certain
Circumstances. 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,
if and only if the Exchange Rate is determined in accordance with paragraph (a)
or (b) of Section 3.8 hereof.
13.9. Fairness Opinion. By MarTex, if it shall not have received an
updated fairness letter from Alex. Sheshunoff & Co. Investment Bankers 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 MarTex from a financial point of view.
13.10. Receipt of Certain Documents. By Hibernia, if (i) MarTex shall have
not timely received the amendments to the Stock Grant Agreements referred to in
Section 12.13 above, (ii) Hibernia shall not have timely received the affidavits
referred to in Section 12.14 above, (iii) Hibernia shall have not timely
received the releases and indemnity agreements referred to in Section 12.15
above or (iv) Hibernia shall have not timely received the legal opinion referred
to in Section 12.16 above.
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
date of the order of the Federal Reserve Board approving the Merger pursuant to
the Bank Holding Company Act; 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 (the "Secretary") 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 a certificate of merger
relating to the Merger (such date and time being referred to herein as the
"Effective Date").
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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, 9.11,
9.12, 9.16 and 11 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 MarTex who are the intended beneficiaries of such provisions.
15.3. The provisions of Section 11 and liabilities for a breach of the
provisions of Section 9.2 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 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 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 MarTex) 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 MarTex shall change the number
of shares of Hibernia common stock into which shares of MarTex 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 all fees, expenses and disbursements of its counsel and auditors,
provided that printing expenses and filing fees 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.
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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:
HNB
313 Carondelet Street
New Orleans, Louisiana 70130
Attention: Corporate Law Division
and a copy of all notices or other communications directed to MarTex shall be
sent to:
MarTex Bancshares, Inc.
2615 East End Boulevard South
Marshall, Texas 75670
Attention: Chief Executive Officer
With a copy to:
Richard E. Brophy, Jr., Esq.
Naman, Howell, Smith & Lee
9th & Washington
700 Texas Center
P.O. Box 1470
Waco, Texas 76703
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.
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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,
effective as of June 29, 1998.
Hibernia Corporation
By: /s/ Stephen A. Hansel
---------------------
Stephen A. Hansel
President and Chief Executive
Officer
Attest:
/s/ Patricia C. Meringer
------------------------------
Patricia C. Meringer
Secretary
MARTEX BANCSHARES, INC.
By: /s/ F. Wayne McWhorter
-----------------------
F. Wayne McWhorter
Attest:
/s/ George E. Fitts
-------------------------
George E. Fitts
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APPENDIX B
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
February 1, 1999
Board of Directors
MarTex Bancshares, Inc.
2615 East End Boulevard
Marshall, Texas 75670
Members of the Board:
You have requested us to update our oral opinion rendered on June 29, 1998
and our written opinion dated January 19, 1999, as to the fairness, from a
financial point of view, to the holders of the outstanding shares of common
stock of MarTex Bancshares, Inc. ("MarTex") of the Merger Consideration to be
received in the proposed merger between MarTex and Hibernia Corporation, New
Orleans, Louisiana, ("Hibernia"). In consideration of the Merger, Hibernia has
offered to exchange up to a maximum of 3,450,000 shares of its common stock (the
"Merger Consideration") for the outstanding shares of MarTex common stock. The
shares will be exchanged pursuant to an Amended and Restated Agreement and Plan
of Merger effective as of June 29, 1998 (the "Merger Agreement"). Pursuant to
the Merger Agreement, Hibernia shall cause MarTex to be merged with and into
Hibernia.
Alex Sheshunoff & Co. Investment Banking ("Sheshunoff") is regularly
engaged in the valuation of securities in connection with mergers and
acquisitions, private placements, and valuations for estate, corporate and other
purposes.
In connection with our opinion, we have, among other things:
1. Evaluated MarTex's consolidated results based upon a review of its
annual financial statements for the four-year period ending December 31, 1997
and of the interim internal financial statements for 1998 through September 30,
1998;
2. Reviewed Call Report information as of December 1997 and June 1998 for
MarTex;
3. Conducted conversations with executive management regarding recent and
projected financial performance of MarTex;
4. Compared MarTex's recent operating results with those of certain other
banks in the Southwest region of the United States which have recently been
acquired;
5. Compared MarTex's recent operating results with those of certain other
banks in Texas which have recently been acquired;
6. Compared the pricing multiples for MarTex in the Merger to those of
certain other banks in the Southwest region of the United States which have
recently been acquired;
7. Compared the pricing multiples for MarTex in the Merger to those of
certain other banks in Texas which have recently been acquired;
8. Analyzed the net present value of the after-tax cash flows MarTex could
produce through the year 2003, based on assumptions provided by management;
9. Performed an affordability analysis based on the projections of earnings
for the combined entity subsequent to the Merger;
10. Reviewed the historical stock price data and trading volume of Hibernia
common stock and the lack of any active market for the common stock of MarTex;
and
11. Performed such other analyses as we deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information provided to us by MarTex for the
purposes of this opinion. In addition,
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where appropriate, we have relied upon publicly available information that we
believe to be reliable, accurate and complete; however, we cannot guarantee the
reliability, accuracy or completeness of any such publicly available
information.
We have not made an independent evaluation of the assets or liabilities of
MarTex or Hibernia, nor have we been furnished with any such appraisals. We are
not experts in the evaluation of loan portfolios for the purposes of assessing
the adequacy of the allowance for loan and lease losses and have assumed that
such allowances for each of the companies are, in the aggregate, adequate to
cover such losses.
Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. Events occurring after the date hereof including, but not limited to a
divestiture, could materially affect the assumptions used in preparing this
opinion.
Our opinion is limited to the fairness, from a financial point of view, to
the holders of MarTex common stock. Moreover, this letter, and the opinion
expressed herein, does not constitute a recommendation to any shareholder as to
any approval of the Merger or the Merger Agreement. It is understood that this
letter is for the information of the Board of Directors of MarTex and may not be
used for any other purpose without our prior written consent.
Based on the foregoing and such other matters we have deemed relevant, it
is our opinion, as of the date hereof, that the Merger Consideration to be
received by the MarTex shareholders pursuant to the Merger is fair, from a
financial point of view, to the holders of MarTex common stock.
Very truly yours,
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
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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
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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.
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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
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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.
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APPENDIX D
TAX OPINION OF ERNST & YOUNG LLP
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[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
February 2, 1999
Hibernia Corporation
313 Carondelet Street
New Orleans, Louisiana 70130
Shareholders of MarTex Bancshares, Inc.
2615 East End Boulevard South
Marshall, Texas 75670
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 MarTex Bancshares, Inc. ("MarTex") with
and into Hibernia Corporation ("Hibernia") (the "MarTex Merger"), and the
proposed merger of First Service Bank ("Bank") with and into Hibernia National
Bank of Texas ("HNBT") (the "Bank Merger"). (Hereinafter, the MarTex 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 February 2, 1999 provided
by the respective managements of MarTex, Bank, Hibernia, and HNBT; the Agreement
and Plan of Merger made and entered into by and between MarTex and Hibernia as
of June 29, 1998 (the "Agreement"); 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 February 2, 1999
containing the Proxy Statement-Prospectus of MarTex and Hibernia dated February
2, 1999 ("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 MarTex shareholders
with respect thereto. We consent to such reference in the Prospectus under the
captions "Summary," "Proposed Merger; Conditions to the Merger; Waiver" and "--
Material Tax Consequences." We also
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[LOGO OF ERNST & YOUNG LLP APPEARS HERE]
Hibernia Corporation Page 2
Shareholders of MarTex Bancshares, Inc. February 2, 1999
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
MarTex 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, 1998, the authorized
capital stock of MarTex was 100,000,000 shares of common stock, of $0.01 par
value ("MarTex Common Stock") and 500,000 shares of preferred stock of $4.13 par
value ("MarTex Preferred Stock"). As of September 30, 1998, 11,875,087 shares of
MarTex Common Stock had been issued and were outstanding, and no shares of
MarTex Common Stock were held in MarTex's treasury. As of September 30, 1998, no
shares of MarTex Preferred Stock had been issued by MarTex and no such shares
were outstanding. The shares of MarTex Common Stock are held by approximately
373 shareholders. As of September 30, 1998, there were options to purchase
450,264 shares of MarTex Common Stock outstanding, 319,828 shares issuable under
a Warrant Agreement dated December 13, 1996, and additional shares of MarTex
Common Stock to be issued pursuant to the Stock Grant Agreements as a result of
the consummation of the Proposed Mergers.
Bank is principally engaged in the banking business. The presently authorized
capital stock of Bank is 2,071,000 shares of common stock, par value $1.00 per
share, all of which were issued and outstanding and held by MarTex as of the
date hereof (referred to as "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
400,000,000 shares, consisting of 100,000,000 shares of preferred stock, no par
value, and 300,000,000 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, 1998, 2,000,000 shares of Hibernia's preferred
stock were issued and outstanding, 156,133,824 shares of Hibernia Common Stock
were issued and outstanding, and no shares of Hibernia Common Stock were held in
Hibernia's treasury. As of September 30, 1998, Hibernia has the following
existing options, warrants, calls or commitments 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 options covering 1,229,500 shares of Hibernia Common
Stock outstanding as of September 30, 1998 under its 1987 Stock Option Plan;
8,182,980 (as adjusted) shares of Hibernia Common Stock for issuance under its
Long-Term Incentive Plan, pursuant to which options covering 7,162,576 shares of
Hibernia Common Stock were outstanding as of September 30, 1998; 912,500 shares
of Hibernia Common Stock for issuance under its 1993 Directors' Stock Option
Plan, pursuant to which options covering 335,000 shares of Hibernia Common Stock
are outstanding as of September 30, 1998; 24 shares of Hibernia Common Stock are
available for issuance pursuant to Hibernia's Dividend Reinvestment and Stock
Purchase Plan; and warrants covering 213,176
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[LOGO OF ERNST & YOUNG LLP APPEARS HERE]
Hibernia Corporation Page 3
Shareholders of MarTex Bancshares, Inc. February 2, 1999
shares of Hibernia Common Stock are outstanding. One transaction currently
pending, when consummated, will result in the issuance of no more than 4,022,000
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 was
funded through a loan from Hibernia National Bank ("HNB"). At September 30,
1998, 2,855,567 shares have been acquired. Hibernia Common Stock is traded on
the New York Stock Exchange. On October 22, 1998, the ESOP acquired 1,018,675
additional shares of Hibernia Common Stock, funded by a $15.0 million addition
to the borrowing from HNB.
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 MarTex Board of Directors
believes the shareholders of MarTex 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 MarTex
with and into Hibernia in accordance with the Louisiana Business
Corporation Law ("LBCL") and the Texas Business Corporation Act ("TBCA"),
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 MarTex Merger, Hibernia
will cause the Bank Merger to occur.
2. In the MarTex Merger, Hibernia will acquire all of the assets and assume
all of the liabilities of MarTex solely in exchange for Hibernia Common
Stock (except for cash for fractional shares and dissenters, if any). As a
result of the MarTex Merger, each share of the issued
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[LOGO OF ERNST & YOUNG LLP APPEARS HERE]
Hibernia Corporation Page 4
Shareholders of MarTex Bancshares, Inc. February 2, 1999
and outstanding MarTex 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 the number
that is agreed to by Hibernia and MarTex.
3. Holders of shares of MarTex Common Stock outstanding immediately prior to
the effective date of the MarTex Merger shall cease to be, and shall have
no rights as, shareholders of MarTex after the MarTex Merger.
4. 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.
5. In the MarTex Merger, no fractional shares will be issued. Each holder of
MarTex 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.
6. Shareholders of MarTex Common Stock, by following certain statutory
procedures, may exercise dissenter's rights entitling them to receive in
cash the value of their respective MarTex Common Stock in lieu of receiving
Hibernia Common Stock in the MarTex Merger.
REPRESENTATIONS
For purposes of our evaluation, we have received from the respective managements
of MarTex, Bank, Hibernia and HNBT, Statements of Facts and Representations,
dated February 2, 1999, 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 MarTex
Merger:
(a) The fair market value of the Hibernia Common Stock to be
received by each shareholder of MarTex Common Stock will be
approximately equal to the fair market value of the MarTex
Common Stock surrendered in the exchange.
(b) Prior to and in connection with the plan of reorganization,
neither MarTex nor a related person (as defined in Treas. Reg.
section 1.368-1(e)(3) determined without regard to Treas. Reg.
section 1.368-1(e)(3)(i)(A)) redeemed or
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otherwise acquired stock having a value of more than 50
percent of all of the stock of MarTex as of the same date, or
made an extraordinary distribution with respect to the stock
of MarTex.
(c) Hibernia will issue stock to the shareholders of MarTex having
a value, as of the date of the transaction, of at least 50
percent of all of the formerly outstanding stock of MarTex as
of the same date, taking into account any redemptions,
acquisitions, or extraordinary distributions made by MarTex.
Neither Hibernia nor a related person (as defined in Treas.
Reg. section 1.368-1(e)(3)) has any plan or intention, in
connection with the plan of reorganization, to redeem or
otherwise acquire stock of Hibernia issued in the transaction.
(d) Hibernia has no plan or intention to sell or otherwise dispose
of any of the assets of MarTex acquired in the transaction
except for dispositions made in the ordinary course of
business.
(e) Any liabilities of MarTex assumed by Hibernia and any
liabilities to which the transferred assets of MarTex are
subject were incurred by MarTex in the ordinary course of its
business.
(f) Following the transaction, Hibernia will continue,
substantially unchanged, the business of MarTex as operated,
prior to the Proposed Mergers, through MarTex'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, MarTex, and the shareholders of MarTex will pay
their respective expenses, if any, incurred in connection with
the transactions.
(h) There is no intercorporate indebtedness existing between
MarTex 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) MarTex 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 MarTex 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.
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(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 MarTex 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 MarTex shareholders in exchange for their shares of
MarTex Common Stock. The fractional share interests of each
holder of MarTex Common Stock will be aggregated,and no MarTex
shareholder will receive cash in an amount equal to or
greater than the value of one full share of Hibernia Common
Stock for its MarTex Common Stock.
(m) None of the compensation received by any shareholder-employees
of MarTex or its affiliates will be separate consideration
for, or allocable to, any of their shares of MarTex 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 Merger will qualify as a statutory merger under the LBCL
and the TBCA.
(o) The shareholders of MarTex (immediately before the proposed
transaction) receiving shares of Hibernia Common Stock will
not own (immediately after the proposed transaction) more than
50 percent of the fair market value of Hibernia Common Stock.
(p) The options, warrants, subordinated rights or other rights to
purchase MarTex Common Stock will be exercised in exchange for
shares of MarTex Common Stock prior to the Proposed Mergers
with the result that no options, warrants, subordinated rights
or other rights to purchase MarTex Common Stock will be
outstanding as of the date of the Proposed Mergers.
The following representations have been made in connection with the Bank Merger:
(aa) 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.
(bb) Prior to and in connection with the plan of reorganization,
neither Bank nor a related person (as defined in Treas. Reg
section 1.368-1(e)(3) determined
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without regard to Treas. Reg. section 1.368-1(e) (3)(i)(A))
redeemed or otherwise acquired stock having a value of more
than 50 percent of all of the stock of Bank as of the same
date, or made an extraordinary distribution with respect to
the stock of Bank.
(cc) Hibernia will constructively issue stock to the shareholder of
Bank having a value, as of the date of the transaction, of at
least 50 percent of all of the formerly outstanding stock of
Bank as of the same date, taking into account any redemptions,
acquisitions, or extraordinary distributions made by Bank.
Neither Hibernia nor a related person (as defined in Treas.
Reg. section 1.368-1(e)(3)) has any plan or intention, in
connection with the plan of reorganization, to redeem or
otherwise acquire stock of Hibernia constructively issued in
the transaction.
(dd) 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.
(ee) 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.
(ff) 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.
(gg) 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 or dispositions that may be required by the
Department of Justice to meet certain regulatory requirements.
The fair market value of these dispositions, if any, will not
exceed 20 percent of the fair market value of the gross assets
held by Bank immediately prior to the Bank Merger, and the
proceeds from any dispositions will be used in the business
of HNBT and will not be distributed to the shareholders of
Bank or HNBT. As Hibernia consummates other mergers in Texas,
it is likely that some or all of the merged banks will be
merged with and into HNBT. At this time, the discussion
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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 February 2, 1999. However, no Common Stock of HNBT
will be issued as consideration in any of the pending mergers.
(hh) 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.
(ii) 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.
(jj) 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.
(kk) 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.
(ll) No two parties to the Bank Merger are investment companies
as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(mm) 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.
(nn) 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.
(oo) 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
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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 MarTex with and into Hibernia, wherein Hibernia Common Stock is to be
exchanged for MarTex 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 (ss.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,
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(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).
The Internal Revenue Service (the "Service") has issued final and temporary
regulations (T.D. 8760 and T.D. 8761) providing rules for satisfying the
continuity of interest requirement. These regulations substantially liberalize
the historic rules, generally providing that continuity of interest is satisfied
if a substantial part of the value of the proprietary interest in the target
corporation is preserved in the reorganization. Generally, continuity of
interest is not preserved to the extent that the acquiring corporation acquires
target stock for consideration other than acquiring stock, or if, in connection
with the plan of reorganization, the acquiring stock is redeemed (or purchased
by a related party). In addition, continuity of interest is not preserved to the
extent that, prior to and in connection with the plan of reorganization, the
target (or a related party) acquires the stock with consideration other than
stock of the target, or makes an extraordinary distribution with respect to the
stock. Generally, a related party includes any member of the same affiliated
group (without regard to the exceptions in section 1504(b)) as the acquiring
corporation, or any other corporation where the purchase of the acquiring stock
by such corporation would result in the purchase being a redemption under
section 304(a)(2). Sales by the target shareholders of stock of the acquiror
received in the transaction to unrelated third parties occurring before or after
a reorganization are disregarded.
Based upon our understanding of the facts presented to us orally and as set
forth in the Statements of Facts and Representations dated February 2, 1999, the
MarTex Merger and the Bank Merger will satisfy the continuity of interest
requirement. The management of Hibernia has represented that all of the stock of
MarTex and Bank outstanding immediately prior to the merger will be exchanged
(actually or constructively) solely for stock of Hibernia. Hibernia has
represented further that neither Hibernia nor a related person (as defined in
Treas. Reg. Section 1.368-1(e)(3)) has any plan or intention, in connection with
the plan of reorganization, to (i) acquire a proprietary interest in MarTex or
Bank for consideration other than stock of Hibernia, or (ii) redeem any of the
stock issued in the transaction. In addition, the management of MarTex and Bank
have represented that neither MarTex, Bank, nor a related person (as defined in
Treas. Reg. Section 1.368-1(e)(3) determined without regard to Treas. Reg.
Section 1.368-1(e)(3)(i)(A)) has any plan or intention, prior to and in
connection with the plan of
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reorganization, to redeem, acquire, or make an extraordinary distribution with
respect to the stock of either entity.
In Revenue Ruling 68-526, 1968-2 C.B. 156, 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 MarTex shareholders in the MarTex
Merger is relevant in determining whether the continuity of interest requirement
is satisfied in 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)).
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. 98-3) 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), PLR 9510059 (March 10,
1995) and PLR 9743050 (July 31, 1997).
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.
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Section 1.368-1(d) of the Regulations (and as modified by T.D. 8760) 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. See also Section 1.368-1(d)(5),
Ex. (1).
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 MarTex Merger
because Hibernia through its wholly-owned subsidiary HNBT, will continue the
banking business indirectly conducted by MarTex.
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 Bank Merger, and because MarTex's shareholders will have already received
fair value for their shares, the shares of Bank Common Stock obtained by
Hibernia in the MarTex Merger shall be canceled without the actual issuance of
additional shares by Hibernia. (See the preceding discussion regarding Rev. Rul.
76-528). 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
MarTex 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 MarTex 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
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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 exchange described herein does not prevent
the Bank Merger from qualifying as a tax-free reorganization.
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 MarTex Common Stock who dissent, if any, 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,
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a shareholder owns no MarTex 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,
and the Bank Plan of Merger, it is our opinion that the following federal income
tax consequences will result:
In the merger of MarTex with and into Hibernia:
(1) Provided the proposed merger of MarTex with and into Hibernia qualifies
as a statutory merger under Louisiana and Texas law, the MarTex Merger
will be a reorganization within the meaning of Section 368(a)(1)(A) of
the Code. MarTex 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 MarTex 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 MarTex, 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 MarTex
assets in exchange for Hibernia Common Stock, cash for dissenters, if
any, and the assumption by Hibernia of the liabilities of MarTex
(Section 1032(a) of the Code).
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(4) The basis of the assets of MarTex in the hands of Hibernia will, in
each case, be the same as the basis of those assets in the hands of
MarTex immediately prior to the transaction (Section 362(b) of the
Code).
(5) The holding period of the assets of MarTex in the hands of Hibernia
will, in each case, include the period for which such assets were held
by MarTex (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 MarTex who receive solely
Hibernia Common Stock and cash for fractional shares in exchange for
their shares of MarTex 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 MarTex in exchange for
his or her MarTex 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 MarTex
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 MarTex 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 MarTex Common Stock in the transaction will include in
each instance, the period during which the MarTex 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
MarTex 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 MarTex as
of the date of transfer. Any deficit in the
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Shareholders of MarTex Bancshares, Inc. February 2, 1999
earnings and profits of MarTex 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) MarTex 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 MarTex Merger. (Section 381(b) of the Code).
In the merger of Bank with and into HNBT:
(14) 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.
(15) 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.)
(16) 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).
(17) 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.).
(18) 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).
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(19) 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.
(20) 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.)
(21) 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.)
(22) 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.)
(23) 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 (23) 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 for the shareholders of MarTex, Bank, and
HNBT. Our opinion has not been requested and none is expressed with regard to
the treatment of the exercise of MarTex options, warrants, subordinated rights
or other rights that will be exercised prior to the Proposed Mergers. 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 MarTex
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
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Shareholders of MarTex Bancshares, Inc. February 2, 1999
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 MarTex, 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
New Orleans, Louisiana
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APPENDIX E
STOCK GRANT AGREEMENTS AND AMENDMENTS
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STOCK GRANT AGREEMENT
This Stock Grant Agreement (the "Agreement") is entered into on March
28, 1996, by and between F. Wayne McWhorter, an individual ("McWhorter"), and
MarTex Bancshares, Inc., a Texas corporation and registered bank holding company
under the Bank Holding Company Act of 1956, as amended (the "Company"), upon the
following terms and conditions:
W I T N E S S E T H:
"WHEREAS, the Company desires to employ McWhorter and McWhorter desires to
be employed by the Company;
"WHEREAS, the Company and McWhorter desire to set forth in writing the
terms and conditions of their agreements and understanding;
"NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
herein contained, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending legally to
be bound, agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Applicable Percentage" means 6% with respect to annual stock
grants awarded on March 31, 1996, pursuant to Section 2(d) hereof, and 12% with
respect to annual stock grants awarded thereafter during the term of this
Agreement.
(b) "Beginning Stockholder's Equity" shall mean the actual
stockholder's equity of the Company as of January 1 of the first year of the
three year period for which the calculation is being done, plus the present
value as of such January 1, calculated using a discount factor of 15%, of
capital contributions made to the Company and increases in stockholders' equity
as a result of business acquisitions during the applicable three year period,
and minus the present value as of such January 1, calculated using a discount
factor of 15%, of all dividends paid by the Company during the applicable three
year period.
(c) "Carlile Group" shall mean as a group the Carlile Shareholders and
any person, firm or entity who or which is a Related Carlile.
(d) "Carlile Shareholders" shall mean Quintin B. Carlile, Kenneth Q.
Carlile and Steve B. Carlile.
(e) "Cause" is defined in Section 5(c) hereof.
(f) "Change of Ownership" means the sale or exchange of stock, sale of
assets, merger, reorganization or other similar transaction, the result of which
the Carlile Group does not own or control a majority of the outstanding voting
shares of capital stock of the Company.
(g) "Dollar Gain" shall mean the dollar amount by which the Fair Market
Value as of the Triggering Event exceeds the dollar amount which represents a
Return on Investment of 15% per annum, as of the date of the Triggering Event.
(h) "Fair Market Value" shall mean (i) the total value of the
consideration to be received by Company Shareholders for their capital stock of
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the Company if the Triggering Event is a Change of Ownership, or (ii) the value
of all of the outstanding stock of the Company based upon the assumption that
100% of the Company was being sold as determined by an independent appraiser
satisfactory to McWhorter and the Company, if the Triggering Event is any event
other than a Change of Ownership.
(i) "Good Reason" is defined in Section 5(d) hereof.
(j) "Present Value of Investment" means $5,010,000, plus the present
value as of January 1, 1991, calculated using a discount factor of 15%, of
capital contributions made to the Company and increases in stockholders' equity
as a result of business acquisitions after January 1, 1991, and prior to or
contemporaneously with the Triggering Event, minus the present value as of
January 1, 1991, calculated using a discount factor of 15%, of all dividends
paid by the Company after January 1, 1991, and prior to or contemporaneously
with the Triggering Event.
(k) "Related Carlile" shall mean the brothers and sisters (whether by
the whole or half blood), spouses, former spouses, ancestors and lineal
descendants of any Carlile Shareholder or any corporation, partnership, estate,
or trust a majority of which is owned individually or in the aggregate, directly
or indirectly, or beneficially, by the Carlile Shareholders or any of their
brothers and sisters (whether by the whole or half blood), spouses, former
spouses, ancestors or lineal descendants.
(l) "Return on Investment" means the annual return, expressed as a
percentage and compounded annually, on the Present Value of Investment.
(m) "Target Return on Equity" shall mean the annual percentage increase
in Beginning Stockholder's Equity set opposite each of the three year periods
set forth below:
Three Year Period Target Return Equity
----------------- --------------------
1993-95 15%
1994-96 15%
1995-97 13%
1996-98 13%
1997-99 13%
Each three year period thereafter 13%
(n) "Triggering Event" means the first to occur of (i) retirement of
McWhorter on or after age 55, (ii) termination of McWhorter's employment by the
Company pursuant to Section 5(b) hereof, (iii) termination of employment by
McWhorter pursuant to Section 5(d) hereof, (iv) death of McWhorter, (v) a Change
of Ownership, or (vi) a termination of McWhorter's employment in breach of this
Agreement.
(o) "Value Per Share" means (i) with respect to stock grants awarded
pursuant to Section 2(c) hereof, the Fair Market Value (less the liquidation
value of any stock of the Company entitled to a preference upon liquidation)
divided by the number of outstanding shares of Company Stock as of the
triggering Event (excluding share of Company Stock to be issued to McWhorter
pursuant to Section 2(c) hereof), (ii) with respect to the value of Company
Stock previously awarded which reduces the value of Company Stock to be awarded
pursuant to Section 2(c) hereof, the Fair Market Value (less the liquidation
value of any stock of the Company entitled to referenced upon liquidation)
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divided by the number of outstanding shares of Company Stock as of the date of
the Triggering Event (excluding shares of Company Stock to be issued to
McWhorter pursuant to Section 2(c) hereof), or (iii) with respect to stock grant
awarded pursuant to Section 2(d) hereof, the Year End Book Value (less the
liquidation value of any stock of the Company entitled to preference upon
liquidation) as of December 31 of the year ending just prior to the date shares
of Company Stock are to be issued to McWhorter pursuant to Section 2(d) hereof,
divided by the total number of issued and outstanding shares of Company Stock as
of the same date.
(p) "Year End Book Value" means the total stockholders' equity of the
Company as of the December 31 of the applicable year as reflected on the balance
sheet of the Company that has been audited by the Company's independent
certified public accountants.
(q) "Company Stock" means the common stock, $0.01 par value, of the
Company.
(r) Other capitalized terms shall have the meaning assigned to them in
this Agreement.
2. Compensation
(a) Salary. McWhorter agrees to continue his employment with the
Company, and the Company agrees to continue its employment of McWhorter on the
terms and conditions set forth below. Company shall pay McWhorter a base salary
of $10,000 per month payable in two installments on the first and fifteenth days
of each month, subject to all appropriate withholdings. This base salary may be
increased from time to time in accordance with normal business practices of the
Company. In addition, McWhorter shall be entitled to participate in the bonuses
awarded from time to time by the board of the Company in its sole discretion.
Base salary shall be deemed to include any and all salary received by McWhorter
from either the Company or any of its subsidiaries.
(b) Other Benefits. The Company shall maintain in full force and
effect, and McWhorter shall be entitled to continue to participate in all of its
employee benefit plans and arrangements in effect on the date hereof in which
McWhorter participates.
(c) Stock Grants. Upon the occurrence of a Triggering Event, McWhorter
shall be issued the number of shares of Company Stock calculated in accordance
with Schedule A attached hereto and incorporated herein by reference. The
Company Stock shall be issued to McWhorter as soon as practicable following the
Triggering Event, except that, when the Triggering Event is a Change of
Ownership, the Company Stock will be issued on the day prior to the date of the
Change of Ownership.
(d) Annual Stock Grants. On or before March 31 of each calendar year
during the term of this Agreement beginning March 31, 1996, the Company shall
issue to McWhorter the number of shares of Company Stock equal to (i) the
Applicable Percentage multiplied by (ii) the amount by which the Year End Book
Value as of the immediately preceding year-end exceeds what the book value as of
the immediately preceding year-end would have been if the Target Return on
Equity for the immediately three preceding years had been achieved, divided by
(iii) the Value Per Share; provided, however, that the maximum number of shares
of Company Stock for any one year shall not have a value based upon the Value
Par Share, in excess of $80,000.
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(e) Fractional Shares. Only the whole numbers of shares of Company
Stock calculated in accordance with Sections 2(c) or (d) above shall be issued.
No fractional shares shall be issued.
(f) Option to Take Portion of Stock in Cash. Notwithstanding Section
2(c) or (d) above, McWhorter may elect to receive, and the Company shall pay,
cash equal to one-third of the value of the Company Stock to which he is
entitled under Section 2(c) or 2(d) above, based upon the same Value Per Share
used to calculate the number of shares of Company Stock awarded to McWhorter,
subject to all appropriate withholdings. Such cash shall be paid at the same
time the Company Stock is issued.
(g) Right of First Refusal Agreement. Company Stock issued to McWhorter
pursuant to this Agreement shall be subject to the terms of a Right of First
Refusal Agreement executed contemporaneously with this Agreement.
3. Position and Duties of McWhorter. McWhorter is currently employed as
Chief Executive Officer of the Company and Chairman of the Board and Chief
Executive Officer of the Company's subsidiary bank, First Service Bank.
McWhorter shall hold a position of comparable responsibility throughout the term
of this Agreement. McWhorter shall perform such administrative and managerial
duties as are commonly discharged by persons in similar positions and such other
duties as may be determined by the Board of Directors of the Company.
McWhorter agrees during the term of his employment to devote
substantially all of his working time and his best efforts, skills and abilities
to the performance of his duties as stated in this Agreement and to the
furtherance of the Company's business; provided, however, that this shall not be
construed as preventing McWhorter from investing his personal assets in
businesses which do not compete with the Company or from spending reasonable
amounts of time managing such investments.
4. Term. The employment of McWhorter pursuant to this Agreement shall
commence on the date hereof and end on July 19, 2002, unless sooner terminated
as hereinafter provided.
5. Termination. McWhorter's employment hereunder may be terminated
without a breach of this Agreement only under the following circumstances:
(a) Death. McWhorter's employment hereunder shall terminate upon his
death.
(b) Disability. If, as a result of physical or mental illness,
McWhorter shall have been absent from his duties hereunder on a full-time basis
for the entire period of six (6) consecutive months, and within thirty (30) days
after written notice of termination is given (which may occur before or after
the end of such six month period) shall not have returned to the performance of
his duties hereunder on a full-time basis, the Company may terminate McWhorter's
employment hereunder.
(c) Cause. This Agreement shall immediately be terminated and neither
party shall have any obligations hereunder if McWhorter's employment is
terminated for "Cause." Termination for Cause shall arise when termination
results from (A) theft or dishonesty in the conduct of the Company's business,
(B) deliberate and continual refusal to perform employment duties on
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substantially a full-time basis, (C) deliberate and continual refusal to act in
accordance with any specific instructions of a majority of the Board of
Directors of the Company, or (D) deliberate misconduct which could be materially
damaging to the Company without reasonable good faith belief by McWhorter that
such conduct was in the best interest of the Company.
If McWhorter is advised that he is being terminated for Cause and
within fifteen (15) days thereafter submits to the Board of the Company a
written objection to such termination, this section will not be applicable
unless the Board of Directors of the Company at or before its next regularly
scheduled meeting determines by majority vote that McWhorter has been terminated
for Cause.
(d) Termination by McWhorter. McWhorter may terminate his employment
hereunder (i) for Good Reason or (ii) if his health should become impaired to an
extent that makes his continued performance of his duties hereunder hazardous to
his physical or mental health or his life, provided that McWhorter shall have
furnished the Company with a written statement from a qualified doctor to such
effect and provided, further, that, at the Company's request, McWhorter shall
submit to an examination by a doctor selected by the Company and such doctor
shall have concurred in the conclusion of McWhorter's doctor.
For purposes of this Agreement, "Good Reason" shall mean (A) a Change
of Ownership which results in (i) a decrease in the total amount of McWhorter's
base salary below its level in effect on the date of such Change of Ownership,
without McWhorter's consent, or (ii) a reduction in the importance of
McWhorter's job responsibilities without McWhorter's consent, with the
determination of whether a reduction in job responsibility has taken place to be
in the sole discretion of McWhorter or (iii) a geographical relocation of
McWhorter without his consent; (B) a failure by the Company to comply with any
material provision of this Agreement which has not been cured within ten (10)
days after notice of such noncompliance has been given by McWhorter to the
Company; or (C) any purported termination of McWhorter's employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
paragraph (e) hereof (and for purposes of this Agreement no such purported
termination shall be effective.)
(e) Notice of Termination. Any termination of McWhorter's employment by
the Company or by McWhorter (other than termination pursuant to subsection (a)
above) shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of McWhorter's employment under the
provision so indicated.
(f) Date of Termination. "Date of Termination" shall mean (i) if
McWhorter's employment is terminated by his death, the date of his death, (ii)
if McWhorter's employment is terminated pursuant to subsection (b) above, thirty
(30) days after Notice of Termination is given (provided that McWhorter shall
not have returned to the performance of his duties on a full-time basis during
such thirty (30) day period), (iii) if McWhorter's employment is terminated
pursuant to subsection (c) above, the date specified in the Notice of
Termination, and (iv) if McWhorter's employment is terminated for any other
reason, the date on which a Notice of Termination is given, provided that if
within thirty (30) days after any Notice of Termination is given the party
receiving such Notice of Termination notifies the other party that a dispute
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exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement of
the parties, by a binding and final arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
(g) Retention of Stock Previously Issued. If the employment of
McWhorter is terminated (i) by McWhorter for any reason other than as permitted
by Section 5(d) or by reason of McWhorter's death, or (ii) by the Company
pursuant to Section 5(c) hereof, then McWhorter shall not be entitled to be
issued any additional Company Stock pursuant to this Agreement. All Company
Stock previously issued to McWhorter pursuant to this Agreement may be retained
by McWhorter.
If the value of shares of Company Stock to be issued to McWhorter upon
the occurrence of a Triggering Event is less than the value of shares of Company
Stock previously issued to McWhorter pursuant to Section 2(d) hereof, plus any
cash paid to McWhorter in lieu of Company Stock, then McWhorter shall not be
entitled to any additional Company Stock or cash upon the occurrence of the
Triggering Event. McWhorter may retain the Company Stock and cash previously
issued to him pursuant to this Agreement.
6. Compensation upon Termination or During Disability.
(a) During any period that McWhorter fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness
("disability period"), McWhorter shall continue to receive his base salary at
the rate then in effect for such period until his employment is terminated
pursuant to Section 5(b) or 5(d) hereof, provided that payments so made to
McWhorter during the first 180 days of the disability period shall be reduced by
the sum of the amounts, if any, payable to McWhorter at or prior to the time of
any such payment under disability benefit plans of the Company and which were
not previously applied to reduce any such payment. McWhorter's year-end bonus
shall be paid in a pro rata amount to compensate McWhorter proportionately for
days worked prior to the beginning of his disability period. Notwithstanding
anything contained herein to the contrary, the Company may discontinue payment
of McWhorter's base salary following any disability period that has continued
for 180 consecutive days.
(b) If McWhorter's employment shall be terminated for Cause, the
Company shall have no further obligations to McWhorter under this Agreement.
McWhorter's base salary shall cease as of the date of delivery to him of a
Notice of Termination and, as provided in Section 5(g) above, McWhorter shall
not be entitled to be issued any additional company Stock pursuant to this
Agreement.
(c) If (A) in breach of this Agreement, the Company shall terminate
McWhorter's employment or (B) McWhorter shall terminate his employment for Good
Reason, then
(i) the company shall pay McWhorter his base salary through the Date
of Termination at the rate then in effect;
(ii) in lieu of any further salary payments to McWhorter for periods
subsequent to the Date of Termination, the Company shall pay to McWhorter an
amount equal to the product of (a) McWhorter's annual base salary in effect as
of the Date of Termination, multiplied by (b) the applicable multiplier set
forth below based upon the Date of Termination:
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Date of Termination Applicable Multiplier
- ------------------- ---------------------
On or prior to July 19, 1997 Four
After July 1, 1997, but on or prior
to July 19, 1998 Three
After July 1, 1998, but on or prior
to July 19, 1999 Two
After July 1, 1999 One
Such payment shall be made in a lump sum on or before the fifth day following
the Date of Termination;
(iii) If termination of McWhorter's employment arises out of a breach
by the Company of this Agreement, the Company shall pay all damages for any and
all loss of benefits to McWhorter under the Company's employee benefits plans
which McWhorter would have received if the Company had not breached this
Agreement and had McWhorter's employment continued for the full term provided in
Section 4 hereof, including any supplemental retirement income plan or
arrangement had his employment continued for the full term provided in Section 4
hereof at the rate of compensation specified herein.
(iv) The payment required to be made pursuant to this Section 6(c)
shall be in addition to any other payments or stock grants to which McWhorter is
entitled under other provisions of this Agreement.
7. Disputes.
In the event there is a dispute between the Company and McWhorter with
regard to the terms or provisions of this Agreement or the obligations created
hereby, the dispute shall be settled by arbitration as described in Section 15.
8. Non-Competition.
(a) If, upon the expiration of this Agreement or the termination of
McWhorter's employment, McWhorter receives all compensation and other
consideration to which he is entitled under this Agreement, then for three years
thereafter, McWhorter will not, without the prior written approval of the Board
of Directors of the Company, become an officer, employee, agent, partner, or
director of any business enterprise in substantial direct competition (as
defined below) with the Company. McWhorter acknowledges that the Company is
investing considerable resources and expecting a high level of performance from
McWhorter and that this restrictive covenant is necessary to protect the
legitimate business interest of the Company.
(b) For the purposes of this Section 8, a business enterprise with
which McWhorter becomes associated as an officer, employee, agent, partner, or
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director shall be considered in "substantial direct competition" with the
Company if it is engaged in the banking business in Eastern Texas.
(c) If McWhorter violates this restrictive covenant and the Company
brings an action for injunctive or other relief, the Company shall not, as a
result of the time involved in obtaining the relief, be deprived of the benefit
of the full period of the restrictive covenant. Accordingly, the restrictive
covenant shall be deemed to have the duration specified in subsection (a) above,
computed from the date the relief is granted but reduced by the time between the
period when the restriction began to run and the date of the first violation of
the covenant by McWhorter.
9. Confidentiality.
McWhorter acknowledges that, in and as a result of his employment
hereunder, he will be making use of, acquiring and/or adding to confidential
information of special and unique nature and value relating to such matters as
the Company's trade secrets, systems, procedures, manuals, confidential reports
and lists of customers, as well as the nature and type of banking products
and/or other services rendered by the Company, and the equipment and methods
used by the Company. As a material inducement to the Company to enter into this
Agreement, and to pay to McWhorter the compensation referred to in this
Agreement, McWhorter covenants and agrees that he shall not, at any time during
or following the term of his employment hereunder, directly or indirectly,
divulge or disclose, for any purpose whatsoever, any of such confidential
information which has been obtained by or disclosed to him as a result of his
employment by the Company. In the event of a breach or threatened breach by
McWhorter of any of the provisions of this Section 9, the Company, in addition
to and not in limitation of any other rights, remedies or damages available to
the Company at law or in equity, shall be entitled to a permanent injunction in
order to prevent or to restrain any such breach by McWhorter, or by McWhorter's
partners, agents, representatives, servants, employers, employees and/or any and
all persons directly or indirectly acting for or with him.
10. Successors: Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation, sale of assets or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to McWhorter, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle
McWhorter to compensation and other consideration from the Company in the same
amount and on the same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
agreement provided for in this Section 10 or which otherwise becomes bound by
all terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights of McWhorter hereunder shall inure to
the benefit of and be enforceable by McWhorter's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
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devisees and legatees. If McWhorter should die while any amounts would still be
payable to him hereunder if he had continued to live, all such amounts, unless
other wise provided herein, shall be paid in accordance with the terms of this
Agreement to McWhorter's devisee, legatee, or other designee or, if there be no
such designee, to McWhorter's estate.
11. Notice.
For the purposes of this Agreement, notices, demands and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to McWhorter: F. Wayne McWhorter
906 Bergstrom
Marshall, Texas 75670
If to the Company: MarTex Bancshares, Inc.
2615 East End Boulevard
Marshall, Texas 75670
Or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
12. Miscellaneous.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
McWhorter and an authorized representative of the Company. No waiver by either
party hereto at any time of any breach by the other hereto of, or compliance
with, and condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas.
13. Validity.
The invalidity or unenforceability of any provision or provisions of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
14. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
15. Arbitration.
ANY DISPUTE OR CONTROVERSY ARISING UNDER OR IN CONNECTION WITH THIS
AGREEMENT SHALL BE SETTLED EXCLUSIVELY BY ARBITRATION, CONDUCTED BEFORE A PANEL
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OF THREE ARBITRATORS, IN MARSHALL, TEXAS, IN ACCORDANCE WITH THE RULES OF THE
AMERICAN ARBITRATION ASSOCIATION THEN IN EFFECT. JUDGMENT MAY BE ENTERED ON THE
ARBITRATOR'S AWARD IN ANY COURT HAVING JURISDICTION; PROVIDED, HOWEVER, THAT THE
COMPANY SHALL BE ENTITLED TO SEEK A RESTRAINING ORDER OR INJUNCTION IN ANY COURT
OF COMPETENT JUDISDICTION TO PREVENT ANY CONTINUATION OF ANY VIOLATION OF
PARAGRAPH 8 HEREIN, AND MCWHORTER HEREBY CONSENTS THAT SUCH RESTSRAINING ORDER
OR INJUNCTION MAY BE GRANTED WITHOUT THE NECESSITY OF THE COMPANY POSTING ANY
BOND. THE ABRITRATIORS' FEE SHALL BE BORNE BY THE COMPANY.
16. Examples.
Attached hereto are examples of the calculation of the stock grant and
annual stock grants based upon the assumptions set forth on the attached
examples.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
"COMPANY"
MARTEX BANCSHARES, INC.
BY: [Signature appears here]
Title: ____________________________
"McWHORTER"
/s/ F. Wayne McWhorter
----------------------------------
F. Wayne McWhorter
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SCHEDULE A
CALCULATION OF STOCK GRANT
UNDER SECTION 2(c)
1. Portion of Dollar Gain equal to or greater
than the dollar amount that represents a
15% Return on Investment and less than
a 17% Return on Investment $________ x 12% = $_______
2. Portion of Dollar Gain equal to or greater than the dollar amount that
represents a 17% Return on Investment and less than the dollar amount
that represents a 20%
Return on Investment $________ x 15% = $_______
3. Portion of Dollar Gain equal to or greater than the dollar amount that
represents a 20% Return on Investment and less than the dollar amount
that represents a 25%
Return on Investment $________ x 20% = $_______
4. Portion of Dollar Gain equal to or greater than the dollar amount that
represents a
25% Return on Investment $________ x 25% = $_______
5. Determine the sum of Steps 1,2,3 and 4 $_______
6. Subtract from the amount determined under Step 5 the value of the
Company Stock, Based on the Value Per Share, previously Issued to
McWhorter pursuant to Section 2(d), and any cash paid to McWhorter in
lieu
of Company Stock $(_______)
7. Amount due McWhorter $________
8. Divide the amount determined under Step 7
by the Value Per Share _________
The result of Step 8 is the number of shares of Company Stock to be
issued to McWhorter pursuant to Section 2(c).
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MARTEX BANCSHARES, INC.
FINAL STOCK AWARDS AT VARIOUS PERFORMANCE LEVELS
Assumptions:
13.0% ROE 1996 Forward
1.25 x BV
Exhibit B
03/30/96
Wayne McWhorter
<TABLE>
<CAPTION>
STOCK AWARD COMPUTATION
---------------------------------------------------------
1995 1996 1997 1998 1999 2000 2001
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Target ROI Values @
15.0% ROI 13,794 15,551 17,539 19,788 22,334 25,215 28,479
17.0% ROI 15,036 17,246 19,789 22,715 26,083 29,960 34,427
20.0% ROI 17,065 20,075 23,626 27,814 32,757 38,592 45,482
25.0% 20,929 25,646 31,441 38,557 47,301 58,048 71,262
Investor's Ending Value: 17,398 19,245 21,275 23,564 26,100 28,908 32,018
ROI 20.46% 19.16% 18.22% 17.54% 17.01% 16.58% 17.99%
Dollar Gain:
*15.0% **17.0% ROI 1,242 1,695 2,250 2,927 3,749 3,693 3,539
*17.0% **20.0% ROI 2,029 1,999 1,486 849 17 0 0
*20.0% **25.0% ROI 333 0 0 0 0 0 0
*25.0% RO 0 0 0 0 0 0 0
Total Gain * 15% $3,604 $3,694 $3,736 $3,776 $3,766 $3,693 $3,539
CALCULATION OF SHARES EARNED:
12.0% of Gain * 15% **17% ROI $149 $203 $270 $351 $450 $443 $425
15.0% of Gain * 17% **20% ROI 304 300 223 127 3 0 0
20.0% of Gain * 20% **25% ROI 67 0 0 0 0 0 0
25.0% of Gain * 25% ROI 0 0 0 0 0 0 0
-------------------------------------------------------------
Total Award: $520 $503 $493 $479 $453 $443 $425
Less Previous Grants X BV Multiple:
Previous Grants: $69 $95 $138 $153 $169 $187 $207
X BV Multiple (1.25) $86 $119 $173 $191 $211 $234 $259
Value of Shares to be Awarded $434 $384 $320 $288 $242 $209 $166
</TABLE>
- ------------
* Greater than.
** Less than.
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MARTEX BANCSHARES, INC.
FINAL STOCK AWARDS AT VARIOUS PERFORMANCE LEVELS
Assumptions:
13.0% ROE 1996 Forward
1.25 x BV
Exhibit B
03/30/96
Wayne McWhorter
<TABLE>
<CAPTION>
PERFORMANCE ASSUMPTIONS
---------------------------------------------------------
1995 1996 1997 1998 1999 2000 2001
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning BV 12,124 13,987 15,491 17,158 19,004 21,049 23,313
Net Income 2,189 1,818 2,104 2,231 2,471 2,736 3,031
Div. Common (326) (314) (347) (385) (426) (472) (523)
Ending BV 13,987 15,491 17,158 19,004 21,049 23,313 25,821
-----------------------------------------------------------
Value of All Participants' Shares
Previously Granted: $69.0 $95.0 $138.0 $153.0 $169.0 $187.0 $207.0
Percent Dilution 0.49% 0.61% 0.80% 0.81% 0.80% 0.80% 0.80%
Diluted Investor BV 13,918 15,396 17,020 18,851 20,880 23,126 25,614
PV of Dividends (Adj. For Dilution) (135) (129) (125) (120) (116) (112)
PV of Initial Investment 6,858 6,723 6,594 6,469 6,349 6,233 6,121
</TABLE>
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MARTEX BANCSHARES, INC.
ROLLING 3-YEAR STOCK PLAN ($000's)
03/30/96
WAYNE McWHORTER
CALCULATION EXAMPLE:13.00% ROE from 1996 Forward
EXHIBIT B
<TABLE>
<CAPTION>
Measurement Periods
-------------------------------------------------------------
1993-95 1994-96 1995-97 1996-98 1997-99 1998-00 1999-01
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning BV $5,652 $8,412 $12,124 $13,987 $15,082 $16,705 $18,502
Plus: PV of Additional Investments $3,366 $2,044
Less: PV of Dividends ($579) ($644) ($736) ($767) ($850) ($942) ($1,043)
- ------------------------------------------------------------------------------------------------
PV of BV at end of Period: 8,439 9,812 11,388 13,220 14,232 15,763 17,459
- ----------------------------------------------------------------------------------------------
Ending Actual Book Value $13,987 $15,082 $16,705 $18,502 $20,492 $22,696 $25,137
Actual ROE 18.34% 15.41% 13.62% 11.86% 12.92% 12.92% 12.92%
Stock Award Calculation ($000's)
Target @:
15.0% ROE (1995 & 1996 Target) $12,835 $14,923
13.0% ROE (1997 - 2001 Target) $16,431 $19,075 $20,535 $22,744 $25,191
Stockholder Gain > Target $1,151.8 $159.3 $273.8 $0.0 $0.0 $0.0 $0.0
Total Value of Grant: ($000s)
Percent of Gain: 6.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%
Total Dollar Value: ($80,000 Max) $69.0 $19.0 $33.0 $0.0 $0.0 $0.0 $0.0
Total Value of Accumulated Grants $69.0 $95.0 $138.0 $153.0 $169.0 $187.0 $207.0
(Adjusted for BV Increase)
</TABLE>
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REFORMATION OF STOCK GRANT AGREEMENT
This Reformation of stock Grant Agreement is entered into December 22,
1998, by and between F. Wayne McWhorter, an individual ("McWhorter") and MarTex
Bancshares, Inc., a Texas corporation and registered bank holding company under
the Bank Holding Company Act of 1956, as amended (the "Company");
W I T N E S S E T H:
WHEREAS, the Company and McWhorter entered into a Stock Grant Agreement
dated March 28, 1996 (the "Grant Agreement");
WHEREAS, a mutual mistake which was made by the parties hereto with
regard to the number $5,010,000 in the definition of Present Value of Investment
in Section 1(j) of the Grant Agreement;
WHEREAS, the parties intended that this number reflect the actual
stockholders' equity times 1.2 of the Company as of January 1, 1991, which was
$3,150,373;
WHEREAS, the parties hereto desire to reform the Grant Agreement to
correct the mutual mistake and reflect the original intent of the parties;
NOW, THEREFORE, in consideration of the above recitals, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. The reference to $5,010,000 in Section 1(j) of the Grant Agreement is
hereby reformed to be $3,150,373;
2. This document is intended to correct a mutual mistake contained in
the Grant Agreement. Except as set forth herein, the Grant Agreement shall
continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
/s/ F. Wayne McWhorter
----------------------------
F. Wayne McWhorter
MARTEX BANCSHARES, INC.
By: [Signature appears here]
-------------------------
Title: Chairman of the Board
----------------------
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<PAGE>
AMENDMENT TO
STOCK GRANT AGREEMENT
This Amendment to Stock Grant Agreement is entered into on
January 14, 1999, by and between F. Wayne McWhorter, an individual ("McWhorter")
and MarTex Bancshares, Inc., a Texas corporation and registered bank holding
company under the Bank Holding Company Act of 1956, as amended (the "Company"),
upon the following terms and conditions:
W I T N E S S E T H:
WHEREAS, the Company has employed McWhorter; and
WHEREAS, the Company and McWhorter have previously entered into a Stock
Grant Agreement dated March 28, 1996; and
WHEREAS, the terms of the Stock Grant Agreement provide that in the
event of a "Change in Ownership", as therein defined, McWhorter shall be issued
the number of shares of Company stock calculated in accordance with Schedule A
attached to the Stock Grant Agreement; and
WHEREAS, the Company and Hibernia Corporation ("Hibernia") have entered
into an Amended and Restated Agreement and Plan of Merger of MarTex Bancshares,
Inc. with and into Hibernia Corporation (the "Merger"); and
WHEREAS, the Company and McWhorter desire to amend the Stock Grant
Agreement to condition McWhorter's right to a stock grant by reason of a "Change
in Ownership" (as defined in the Stock Grant Agreement) upon the Shareholders'
approval, in accordance with the terms hereof so as to assure that no portion of
any stock grant to McWhorter by reason of a Change in Ownership is a "parachute
payment" within the meaning of Section 280G(b)(2) of the Internal Revenue Code
of 1986 (the "Code");
NOW THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows:
Section 2(c) of the Stock Grant Agreement is amended by the addition of
the following provision:
"Provided further, that if the Triggering Event is a Change of
Ownership by reason of a Merger with Hibernia, no stock grant shall be made
under the provisions of this Section 2(c) unless, prior to such Merger with
Hibernia, the stock grant to McWhorter by reason of such Merger is approved by a
separate vote of the Shareholders holding, immediately before such Merger, more
than seventy-five percent (75%) of the voting power of all outstanding stock of
the Company in a manner that satisfies the requirements of Code Section
280G(b)(5)(B) and the regulations promulgated thereunder. In the event
Shareholder approval is not so obtained, McWhorter hereby waives any right to a
stock grant by reason of a Change of Ownership due to the Merger.
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<PAGE>
McWhorter expressly waives and relinquishes any right that he might
otherwise have to a stock grant by reason of a Change of Ownership due to the
Merger to which McWhorter had been entitled prior to adoption of this Amendment.
McWhorter is not, however, waiving any right to a stock grant by reason of any
other Triggering Event (including a Change of Ownership) other than the Merger.
IN WITNESS WHEREOF, the parties have executed this Amendment on the
date and year first above written.
"Company"
MARTEX BANCSHARES, INC.
By: /s/ Steve B. Carlile
--------------------------------
Title: Chairman
----------------------------
"McWhorter"
/s/ F. Wayne McWhorter
-----------------------------------
F. Wayne McWhorter
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<PAGE>
STOCK GRANT AGREEMENT
This Stock Grant Agreement (the "Agreement") is entered into on March
28, 1996, by and between George F. Meisenheimer, an individual ("Meisenheimer"),
and MarTex Bancshares, Inc., a Texas corporation and registered bank holding
company under the Bank Holding Company Act of 1956, as amended (the "Company"),
upon the following terms and conditions:
W I T N E S S E T H:
"WHEREAS, the Company desires to employ Meisenheimer and Meisenheimer
desires to be employed by the Company;
"WHEREAS, the Company and Meisenheimer desire to set forth in writing the
terms and conditions of their agreements and understanding;
"NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
herein contained, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending legally to
be bound, agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Applicable Percentage" means 6% with respect to annual stock
grants awarded on March 31, 1996, pursuant to Section 2(d) hereof, and 12% with
respect to annual stock grants awarded thereafter during the term of this
Agreement.
(b) "Beginning Stockholder's Equity" shall mean the actual
stockholder's equity of the Company as of January 1 of the first year of the
three year period for which the calculation is being done, plus the present
value as of such January 1, calculated using a discount factor of 15%, of
capital contributions made to the Company and increases in stockholders' equity
as a result of business acquisitions during the applicable three year period,
and minus the present value as of such January 1, calculated using a discount
factor of 15%, of all dividends paid by the Company during the applicable three
year period.
(c) "Carlile Group" shall mean as a group the Carlile Shareholders and
any person, firm or entity who or which is a Related Carlile.
(d) "Carlile Shareholders" shall mean Quintin B. Carlile, Kenneth Q.
Carlile and Steve B. Carlile.
(e) "Cause" is defined in Section 5(c) hereof.
(f) "Change of Ownership" means the sale or exchange of stock, sale of
assets, merger, reorganization or other similar transaction, the result of which
the Carlile Group does not own or control a majority of the outstanding voting
shares of capital stock of the Company.
(g) "Dollar Gain" shall mean the dollar amount by which the Fair Market
Value as of the Triggering Event exceeds the dollar amount which represents a
Return on Investment of 15% per annum, as of the date of the Triggering Event.
(h) "Fair Market Value" shall mean (i) the total value of the
consideration to be received by Company Shareholders for their capital stock of
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<PAGE>
the Company if the Triggering Event is a Change of Ownership, or (ii) the value
of all of the outstanding stock of the Company based upon the assumption that
100% of the Company was being sold as determined by an independent appraiser
satisfactory to Meisenheimer and the Company, if the Triggering Event is any
event other than a Change of Ownership.
(i) "Good Reason" is defined in Section 5(d) hereof.
(j) "Present Value of Investment" means $5,010,000, plus the present
value as of January 1, 1991, calculated using a discount factor of 15%, of
capital contributions made to the Company and increases in stockholders' equity
as a result of business acquisitions after January 1, 1991, and prior to or
contemporaneously with the Triggering Event, minus the present value as of
January 1, 1991, calculated using a discount factor of 15%, of all dividends
paid by the Company after January 1, 1991, and prior to or contemporaneously
with the Triggering Event.
(k) "Related Carlile" shall mean the brothers and sisters (whether by
the whole or half blood), spouses, former spouses, ancestors and lineal
descendants of any Carlile Shareholder or any corporation, partnership, estate,
or trust a majority of which is owned individually or in the aggregate, directly
or indirectly, or beneficially, by the Carlile Shareholders or any of their
brothers and sisters (whether by the whole or half blood), spouses, former
spouses, ancestors or lineal descendants.
(l) "Return on Investment" means the annual return, expressed as a
percentage and compounded annually, on the Present Value of Investment.
(m) "Target Return on Equity" shall mean the annual percentage increase
in Beginning Stockholder's Equity set opposite each of the three year periods
set forth below:
Three Year Period Target Return Equity
1993-95 15%
1994-96 15%
1995-97 13%
1996-98 13%
1997-99 13%
Each three year period thereafter 13%
(n) "Triggering Event" means the first to occur of (i) retirement of
Meisenheimer on or after age 55, (ii) termination of Meisenheimer's employment
by the Company pursuant to Section 5(b) hereof, (iii) termination of employment
by Meisenheimer pursuant to Section 5(d) hereof, (iv) death of Meisenheimer, (v)
a Change of Ownership, or (vi) a termination of Meisenheimer's employment in
breach of this Agreement.
(o) "Value Per Share" means (i) with respect to stock grants awarded
pursuant to Section 2(c) hereof, the Fair Market Value (less the liquidation
value of any stock of the Company entitled to a preference upon liquidation)
divided by the number of outstanding shares of Company Stock as of the
triggering Event (excluding share of Company Stock to be issued to Meisenheimer
pursuant to Section 2(c) hereof), (ii) with respect to the value of Company
Stock previously awarded which reduces the value of Company Stock to be awarded
pursuant to Section 2(c) hereof, the Fair Market Value (less the liquidation
value of any stock of the Company entitled to referenced upon liquidation)
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divided by the number of outstanding shares of Company Stock as of the date of
the Triggering Event (excluding shares of Company Stock to be issued to
Meisenheimer pursuant to Section 2(c) hereof), or (iii) with respect to stock
grant awarded pursuant to Section 2(d) hereof, the Year End Book Value (less the
liquidation value of any stock of the Company entitled to preference upon
liquidation) as of December 31 of the year ending just prior to the date shares
of Company Stock are to be issued to Meisenheimer pursuant to Section 2(d)
hereof, divided by the total number of issued and outstanding shares of Company
Stock as of the same date.
(p) "Year End Book Value" means the total stockholders' equity of the
Company as of the December 31 of the applicable year as reflected on the balance
sheet of the Company that has been audited by the Company's independent
certified public accountants.
(q) "Company Stock" means the common stock, $0.01 par value, of the
Company.
(r) Other capitalized terms shall have the meaning assigned to them in
this Agreement.
2. Compensation
(a) Salary. Meisenheimer agrees to continue his employment with the
Company, and the Company agrees to continue its employment of Meisenheimer on
the terms and conditions set forth below. Company shall pay Meisenheimer a base
salary of $7,500 per month payable in two installments on the first and
fifteenth days of each month, subject to all appropriate withholdings. This base
salary may be increased from time to time in accordance with normal business
practices of the Company. In addition, Meisenheimer shall be entitled to
participate in the bonuses awarded from time to time by the board of the Company
in its sole discretion. Base salary shall be deemed to include any and all
salary received by Meisenheimer from either the Company or any of its
subsidiaries.
(b) Other Benefits. The Company shall maintain in full force and
effect, and Meisenheimer shall be entitled to continue to participate in all of
its employee benefit plans and arrangements in effect on the date hereof in
which Meisenheimer participates.
(c) Stock Grants. Upon the occurrence of a Triggering Event,
Meisenheimer shall be issued the number of shares of Company Stock calculated in
accordance with Schedule A attached hereto and incorporated herein by reference.
The Company Stock shall be issued to Meisenheimer as soon as practicable
following the Triggering Event, except that, when the Triggering Event is a
Change of Ownership, the Company Stock will be issued on the day prior to the
date of the Change of Ownership.
(d) Annual Stock Grants. On or before March 31 of each calendar year
during the term of this Agreement beginning March 31, 1996, the Company shall
issue to Meisenheimer the number of shares of Company Stock equal to (i) the
Applicable Percentage multiplied by (ii) the amount by which the Year End Book
Value as of the immediately preceding year-end exceeds what the book value as of
the immediately preceding year-end would have been if the Target Return on
Equity for the immediately three preceding years had been achieved, divided by
(iii) the Value Per Share; provided, however, that the maximum number of shares
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<PAGE>
of Company Stock for any one year shall not have a value based upon the Value
Par Share, in excess of $8,000.
(e) Fractional Shares. Only the whole numbers of shares of Company
Stock calculated in accordance with Sections 2(c) or (d) above shall be issued.
No fractional shares shall be issued.
(f) Option to Take Portion of Stock in Cash. Notwithstanding Section
2(c) or (d) above, Meisenheimer may elect to receive, and the Company shall pay,
cash equal to one-third of the value of the Company Stock to which he is
entitled under Section 2(c) or 2(d) above, based upon the same Value Per Share
used to calculate the number of shares of Company Stock awarded to Meisenheimer,
subject to all appropriate withholdings. Such cash shall be paid at the same
time the Company Stock is issued.
(g) Right of First Refusal Agreement. Company Stock issued to
Meisenheimer pursuant to this Agreement shall be subject to the terms of a Right
of First Refusal Agreement executed contemporaneously with this Agreement.
3. Position and Duties of Meisenheimer. Meisenheimer is currently
employed as President of the Company's subsidiary bank, First Service Bank.
Meisenheimer shall hold a position of comparable responsibility throughout the
term of this Agreement. Meisenheimer shall perform such administrative and
managerial duties as are commonly discharged by persons in similar positions and
such other duties as may be determined by the Board of Directors of the Company.
Meisenheimer agrees during the term of his employment to devote
substantially all of his working time and his best efforts, skills and abilities
to the performance of his duties as stated in this Agreement and to the
furtherance of the Company's business; provided, however, that this shall not be
construed as preventing Meisenheimer from investing his personal assets in
businesses which do not compete with the Company or from spending reasonable
amounts of time managing such investments.
4. Term. The employment of Meisenheimer pursuant to this Agreement
shall commence on the date hereof and end on March 29, 2006, unless sooner
terminated as hereinafter provided.
5. Termination. Meisenheimer's employment hereunder may be terminated
without a breach of this Agreement only under the following circumstances:
(a) Death. Meisenheimer's employment hereunder shall terminate upon
his death.
(b) Disability. If, as a result of physical or mental illness,
Meisenheimer shall have been absent from his duties hereunder on a full-time
basis for the entire period of six (6) consecutive months, and within thirty
(30) days after written notice of termination is given (which may occur before
or after the end of such six month period) shall not have returned to the
performance of his duties hereunder on a full-time basis, the Company may
terminate Meisenheimer's employment hereunder.
(c) Cause. This Agreement shall immediately be terminated and neither
party shall have any obligations hereunder if Meisenheimer's employment is
terminated for "Cause." Termination for Cause shall arise when termination
results from (A) theft or dishonesty in the conduct of the Company's business,
(B) deliberate and continual refusal to perform employment duties on
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substantially a full-time basis, (C) deliberate and continual refusal to act in
accordance with any specific instructions of a majority of the Board of
Directors of the Company, or (D) deliberate misconduct which could be materially
damaging to the Company without reasonable good faith belief by Meisenheimer
that such conduct was in the best interest of the Company.
If Meisenheimer is advised that he is being terminated for Cause and
within fifteen (15) days thereafter submits to the Board of the Company a
written objection to such termination, this section will not be applicable
unless the Board of Directors of the Company at or before its next regularly
scheduled meeting determines by majority vote that Meisenheimer has been
terminated for Cause.
(d) Termination by Meisenheimer. Meisenheimer may terminate his
employment hereunder (i) for Good Reason or (ii) if his health should become
impaired to an extent that makes his continued performance of his duties
hereunder hazardous to his physical or mental health or his life, provided that
Meisenheimer shall have furnished the Company with a written statement from a
qualified doctor to such effect and provided, further, that, at the Company's
request, Meisenheimer shall submit to an examination by a doctor selected by the
Company and such doctor shall have concurred in the conclusion of Meisenheimer's
doctor.
For purposes of this Agreement, "Good Reason" shall mean (A) a Change
of Ownership which results in (i) a decrease in the total amount of
Meisenheimer's base salary below its level in effect on the date of such Change
of Ownership, without Meisenheimer's consent, or (ii) a reduction in the
importance of Meisenheimer's job responsibilities without Meisenheimer's
consent, with the determination of whether a reduction in job responsibility has
taken place to be in the sole discretion of Meisenheimer or (iii) a geographical
relocation of Meisenheimer without his consent; (B) a failure by the Company to
comply with any material provision of this Agreement which has not been cured
within ten (10) days after notice of such noncompliance has been given by
Meisenheimer to the Company; or (C) any purported termination of Meisenheimer's
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of paragraph (e) hereof (and for purposes of this Agreement no
such purported termination shall be effective.)
(e) Notice of Termination. Any termination of Meisenheimer's employment
by the Company or by Meisenheimer (other than termination pursuant to subsection
(a) above) shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Meisenheimer's
employment under the provision so indicated.
(f) Date of Termination. "Date of Termination" shall mean (i) if
Meisenheimer's employment is terminated by his death, the date of his death,
(ii) if Meisenheimer's employment is terminated pursuant to subsection (b)
above, thirty (30) days after Notice of Termination is given (provided that
Meisenheimer shall not have returned to the performance of his duties on a full-
time basis during such thirty (30) day period), (iii) if Meisenheimer's
employment is terminated pursuant to subsection (c) above, the date specified in
the Notice of Termination, and (iv) if Meisenheimer's employment is terminated
for any other reason, the date on which a Notice of Termination is given,
provided that if within thirty (30) days after any Notice of Termination is
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given the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding and final arbitration award or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected).
(g) Retention of Stock Previously Issued. If the employment of
Meisenheimer is terminated (i) by Meisenheimer for any reason other than as
permitted by Section 5(d) or by reason of Meishenheimer's death, or (ii) by the
Company pursuant to Section 5(c) hereof, then Meisenheimer shall not be entitled
to be issued any additional Company Stock pursuant to this Agreement. All
Company Stock previously issued to Meisenheimer pursuant to this Agreement may
be retained by Meisenheimer.
If the value of shares of Company Stock to be issued to Meisenheimer
upon the occurrence of a Triggering Event is less than the value of shares of
Company Stock previously issued to Meisenheimer pursuant to Section 2(d) hereof,
plus any cash paid to Meisenheimer in lieu of Company Stock, then Meisenheimer
shall not be entitled to any additional Company Stock or cash upon the
occurrence of the Triggering Event. Meisenheimer may retain the Company Stock
and cash previously issued to him pursuant to this Agreement.
6. Compensation upon Termination or During Disability.
(a) During any period that Meisenheimer fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness
("disability period"), Meisenheimer shall continue to receive his base salary at
the rate then in effect for such period until his employment is terminated
pursuant to Section 5(b) or 5(d) hereof, provided that payments so made to
Meisenheimer during the first 180 days of the disability period shall be reduced
by the sum of the amounts, if any, payable to Meisenheimer at or prior to the
time of any such payment under disability benefit plans of the Company and which
were not previously applied to reduce any such payment. Meisenheimer's year-end
bonus shall be paid in a pro rata amount to compensate Meisenheimer
proportionately for days worked prior to the beginning of his disability period.
Notwithstanding anything contained herein to the contrary, the Company may
discontinue payment of Meisenheimer's base salary following any disability
period that has continued for 180 consecutive days.
(b) If Meisenheimer's employment shall be terminated for Cause, the
Company shall have no further obligations to Meisenheimer under this Agreement.
Meisenheimer's base salary shall cease as of the date of delivery to him of a
Notice of Termination and, as provided in Section 5(g) above, Meisenheimer shall
not be entitled to be issued any additional company Stock pursuant to this
Agreement.
(c) If (A) in breach of this Agreement, the Company shall terminate
Meisenheimer's employment or (B) Meisenheimer shall terminate his employment for
Good Reason, then
(i) the company shall pay Meisenheimer his base salary through
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the Date of Termination at the rate then in effect;
(ii) in lieu of any further salary payments to Meisenheimer for
periods subsequent to the Date of Termination, the Company shall pay to
Meisenheimer an amount equal to the product of (a) Meisenheimer's annual
base salary in effect as of the Date of Termination, multiplied by (b) the
applicable multiplier set forth below based upon the Date of Termination:
Date of Termination Applicable Multiplier
On or prior to July 19, 1997 Four
After July 1, 1997, but on or prior
to July 19, 1998 Three
After July 1, 1998, but on or prior
to July 19, 1999 Two
After July 1, 1999 One
Such payment shall be made in a lump sum on or before the fifth day
following the Date of Termination;
(iii) If termination of Meisenheimer's employment arises out of a
breach by the Company of this Agreement, the Company shall pay all damages
for any and all loss of benefits to Meisenheimer under the Company's
employee benefits plans which Meisenheimer would have received if the
Company had not breached this Agreement and had Meisenheimer's employment
continued for the full term provided in Section 4 hereof, including any
supplemental retirement income plan or arrangement had his employment
continued for the full term provided in Section 4 hereof at the rate of
compensation specified herein.
(iv) The payment required to be made pursuant to this Section 6(c)
shall be in addition to any other payments or stock grants to which Meisenheimer
is entitled under other provisions of this Agreement.
7. Disputes.
In the event there is a dispute between the Company and Meisenheimer
with regard to the terms or provisions of this Agreement or the obligations
created hereby, the dispute shall be settled by arbitration as described in
Section 15.
8. Non-Competition.
(a) If, upon the expiration of this Agreement or the termination of
Meisenheimer's employment, Meisenheimer receives all compensation and other
consideration to which he is entitled under this Agreement, then for three years
thereafter, Meisenheimer will not, without the prior written approval of the
Board of Directors of the Company, become an officer, employee, agent, partner,
or director of any business enterprise in substantial direct competition (as
defined below) with the Company. Meisenheimer acknowledges that the Company is
investing considerable resources and expecting a high level of performance from
Meisenheimer and that this restrictive covenant is necessary to protect the
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legitimate business interest of the Company.
(b) For the purposes of this Section 8, a business enterprise with
which Meisenheimer becomes associated as an officer, employee, agent, partner,
or director shall be considered in "substantial direct competition" with the
Company if it is engaged in the banking business in Eastern Texas.
(c) If Meisenheimer violates this restrictive covenant and the Company
brings an action for injunctive or other relief, the Company shall not, as a
result of the time involved in obtaining the relief, be deprived of the benefit
of the full period of the restrictive covenant. Accordingly, the restrictive
covenant shall be deemed to have the duration specified in subsection (a) above,
computed from the date the relief is granted but reduced by the time between the
period when the restriction began to run and the date of the first violation of
the covenant by Meisenheimer.
9. Confidentiality.
Meisenheimer acknowledges that, in and as a result of his employment
hereunder, he will be making use of, acquiring and/or adding to confidential
information of special and unique nature and value relating to such matters as
the Company's trade secrets, systems, procedures, manuals, confidential reports
and lists of customers, as well as the nature and type of banking products
and/or other services rendered by the Company, and the equipment and methods
used by the Company. As a material inducement to the Company to enter into this
Agreement, and to pay to Meisenheimer the compensation referred to in this
Agreement, Meisenheimer covenants and agrees that he shall not, at any time
during or following the term of his employment hereunder, directly or
indirectly, divulge or disclose, for any purpose whatsoever, any of such
confidential information which has been obtained by or disclosed to him as a
result of his employment by the Company. In the event of a breach or threatened
breach by Meisenheimer of any of the provisions of this Section 9, the Company,
in addition to and not in limitation of any other rights, remedies or damages
available to the Company at law or in equity, shall be entitled to a permanent
injunction in order to prevent or to restrain any such breach by Meisenheimer,
or by Meisenheimer's partners, agents, representatives, servants, employers,
employees and/or any and all persons directly or indirectly acting for or with
him.
10. Successors: Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation, sale of assets or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to Meisenheimer, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle
Meisenheimer to compensation and other consideration from the Company in the
same amount and on the same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
agreement provided for in this Section 10 or which otherwise becomes bound by
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all terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights of Meisenheimer hereunder shall inure
to the benefit of and be enforceable by Meisenheimer's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Meisenheimer should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts,
unless other wise provided herein, shall be paid in accordance with the terms of
this Agreement to Meisenheimer's devisee, legatee, or other designee or, if
there be no such designee, to Meisenheimer's estate.
11. Notice.
For the purposes of this Agreement, notices, demands and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to Meisenheimer: George F. Meisenheimer
802 Willow
Gladewater, Texas 75647
If to the Company: MarTex Bancshares, Inc.
2615 East End Boulevard
Marshall, Texas 75670
Or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
12. Miscellaneous.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
Meisenheimer and an authorized representative of the Company. No waiver by
either party hereto at any time of any breach by the other hereto of, or
compliance with, and condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas.
13. Validity.
The invalidity or unenforceability of any provision or provisions of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
14. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
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15. Arbitration.
ANY DISPUTE OR CONTROVERSY ARISING UNDER OR IN CONNECTION WITH THIS
AGREEMENT SHALL BE SETTLED EXCLUSIVELY BY ARBITRATION, CONDUCTED BEFORE A PANEL
OF THREE ARBITRATORS, IN MARSHALL, TEXAS, IN ACCORDANCE WITH THE RULES OF THE
AMERICAN ARBITRATION ASSOCIATION THEN IN EFFECT. JUDGMENT MAY BE ENTERED ON THE
ARBITRATOR'S AWARD IN ANY COURT HAVING JURISDICTION; PROVIDED, HOWEVER, THAT THE
COMPANY SHALL BE ENTITLED TO SEEK A RESTRAINING ORDER OR INJUNCTION IN ANY COURT
OF COMPETENT JUDISDICTION TO PREVENT ANY CONTINUATION OF ANY VIOLATION OF
PARAGRAPH 8 HEREIN, AND MEISENHEIMER HEREBY CONSENTS THAT SUCH RESTSRAINING
ORDER OR INJUNCTION MAY BE GRANTED WITHOUT THE NECESSITY OF THE COMPANY POSTING
ANY BOND. THE ABRITRATIORS' FEE SHALL BE BORNE BY THE COMPANY.
16. Examples.
Attached hereto are examples of the calculation of the stock grant and
annual stock grants based upon the assumptions set forth on the attached
examples.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
"COMPANY"
MARTEX BANCSHARES, INC.
BY: [Signature appears here]
Title: ____________________________
"Meisenheimer"
/s/ George F. Meisenheimer
----------------------------------
George F. Meisenheimer
SCHEDULE A
CALCULATION OF STOCK GRANT
UNDER SECTION 2(c)
1. Portion of Dollar Gain equal to or greater
than the dollar amount that represents a
15% Return on Investment and less than
a 17% Return on Investment $________ x 1.2% = $_______
2. Portion of Dollar Gain equal to or greater than the dollar amount that
represents a 17% Return on Investment and less than the dollar amount
that represents a 20%
Return on Investment $________ x 1.5% = $_______
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3. Portion of Dollar Gain equal to or greater than the dollar amount that
represents a 20% Return on Investment and less than the dollar amount
that represents a 25%
Return on Investment $________ x 2.0% = $_______
4. Portion of Dollar Gain equal to or greater than the dollar amount that
represents a
25% Return on Investment $________ x 2.5% = $_______
5. Determine the sum of Steps 1,2,3 and 4 $_______
6. Subtract from the amount determined under Step 5 the value of the
Company Stock, Based on the Value Per Share, previously Issued to
Meisenheimer pursuant to Section 2(d), and any cash paid to
Meisenheimer in lieu
of Company Stock $(_______)
7. Amount due Meisenheimer $________
8. Divide the amount determined under Step 7
by the Value Per Share _________
The result of Step 8 is the number of shares of Company Stock to be issued
to Meisenheimer pursuant to Section 2(c).
<TABLE>
<CAPTION>
MARTEX BANCSHARES, INC.
Assumptions:
13.0% ROE 1996 Forward
1.25 x BV
FINAL STOCK AWARDS AT
VARIOUS PERFORMANCE LEVELS
Exhibit B
03/30/96
Wayne Meisenheimer
<S> <C> <C> <C> <C> <C> <C> <C>
STOCK AWARD COMPUTATION
1995 1996 1997 1998 1999 2000 2001
---------------------------------------------------------
Target ROI Values @
15.0% ROI 13,794 15,551 17,540 19,789 22,335 25,217 28,482
17.0% ROI 15,036 17,246 19,790 22,716 26,084 29,963 34,430
20.0% ROI 17,065 20,075 23,627 27,816 32,759 38,595 45,487
25.0% 20,929 25,646 31,442 38,558 47,304 58,053 71,269
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Investor's Ending Value: 17,389 19,233 21,257 23,545 26,079 28,884 31,991
ROI 20.45% 19.15% 18.20% 17.53% 17.00% 16.57% 17.98%
Dollar Gain:
*15.0% ** 17.0% ROI 1,242 1,695 2,250 2,927 3,744 3,667 3,509
*17.0% ** 20.0% ROI 2,029 1,987 1,467 829 0 0 0
*20.0% ** 25.0% ROI 324 0 0 0 0 0 0
*25.0% RO 0 0 0 0 0 0 0
Total Gain * 15% $3,695 $3,682 $3,717 $3,756 $3,744 $3,667 $3,509
CALCULATION OF SHARES EARNED:
1.2% of Gain * 15% ** 17% ROI $14.9 $20.3 $27.0 $35.1 $44.9 $44.0 $42.1
1.5% of Gain * 17% ** 20% ROI 30.4 29.8 22.0 12.4 0 0 0
2.0% of Gain * 20% ** 25% ROI 67 0 0 0 0 0 0
2.5% of Gain * 25% ROI 0 0 0 0 0 0 0
Total Award: $51.8 $50.1 $49.0 $47.6 $44.9 $44.0 $42.1
Less Previous Grants X BV Multiple:
Previous Grants: $6.9 $9.5 $13.8 $15.3 $16.9 $18.7 $20.7
X BV Multiple (1.3) $8.6 $11.9 $17.3 $19.1 $21.1 $23.4 $25.9
Value of Shares to be Awarded $43.2 $38.2 $31.7 $28.4 $23.8 $20.6 $16.2
</TABLE>
- ------------------
* Greater Than.
** Less Than.
MARTEX BANCSHARES, INC.
Assumptions:
13.0% ROE 1996 Forward
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1.25 x BV
FINAL STOCK AWARDS AT
VARIOUS PERFORMANCE LEVELS
Exhibit B
03/30/96
George F. Meisenheimer
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE ASSUMPTIONS
1995 1996 1997 1998 1999 2000 2001
---------------------------------------------------------
Beginning BV 12,124 13,987 15,491 17,158 19,004 21,049 23,313
Net Income 2,189 1,818 2,104 2,231 2,471 2,736 3,031
Div. Common (326) (314) (347) (385) (426) (472) (523)
Ending BV 13,987 15,491 17,158 19,004 21,049 23,313 25,821
Value of All Participants' Shares
Previously Granted: $76.0 $105.0 $162.1 $168.0 $186.0 $206.0 $228.0
Percent Dilution 0.54% 0.68% 0.89% 0.88% 0.88% 0.88% 0.88%
Diluted Investor BV 13,911 15,386 17,006 18,836 20,863 23,107 25,593
PV of Dividends (Adj. For Dilution) (135) (129) (125) (120) (116) (111)
PV of Initial Investment 6,858 6,723 6,594 6,469 6,349 6,233 6,122
</TABLE>
189
<PAGE>
<TABLE>
<CAPTION>
MARTEX BANCSHARES, INC.
ROLLING 3-YEAR STOCK PLAN ($000's)
CALCULATION EXAMPLE:13.00% ROE from 1996 Forward
03/30/96
George F. Meisenheimer
EXHIBIT B
<S> <C> <C> <C> <C> <C> <C> <C>
M e a s u r e m e n t P e r i o d s
1993-95 1994-96 1995-97 1996-98 1997-99 1998-00 1999-01
Beginning BV $5,652 $8,412 $12,124 $13,987 $15,082 $16,705 $18,502
Plus: PV of Additional Investments $3,366 $2,044
Less: PV of Dividends ($579) ($644) ($736) ($767) ($850) ($942) ($1,043)
- ------------------------------------------------------------------------------------------------------------
PV of BV at end of Period: 8,439 9,812 11,388 13,220 14,232 15,763 17,459
- ------------------------------------------------------------------------------------------------------------
Ending Actual Book Value $13,987 $15,082 $16,705 $18,502 $20,492 $22,696 $25,137
Actual ROE 18.34% 15.41% 13.62% 11.86% 12.92% 12.92% 12.92%
Stock Award Calculation ($000's)
Target @:
15.0% ROE (1995 & 1996 Target) $12,835 $14,923
13.0% ROE (1997 - 2001 Target) $16,431 $19,075 $20,535 $22,744 $25,191
Stockholder Gain > Target $1,151.8 $159.3 $273.8 $0.0 $0.0 $0.0 $0.0
Total Value of Grant: ($000s)
Percent of Gain: 0.6% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2%
Total Dollar Value: ($80,000 Max) $6.9 $1.9 $3.3 $0.0 $0.0 $0.0 $0.0
Total Value of Accumulated Grants $6.9 $9.5 $13.8 $15.3 $16.9 $18.7 $20.7
(Adjusted for BV Increase)
</TABLE>
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REFORMATION OF STOCK GRANT AGREEMENT
This Reformation of stock Grant Agreement is entered into December 22,
1998, by and between George F. Meisenheimer, an individual ("Meisenheimer") and
MarTex Bancshares, Inc., a Texas corporation and registered bank holding company
under the Bank Holding Company Act of 1956, as amended (the "Company");
W I T N E S S E T H:
WHEREAS, the Company and Meisenheimer entered into a Stock Grant
Agreement dated March 28, 1996 (the "Grant Agreement");
WHEREAS, a mutual mistake which was made by the parties hereto with
regard to the number $5,010,000 in the definition of Present Value of Investment
in Section 1(j) of the Grant Agreement;
WHEREAS, the parties intended that this number reflect the actual
stockholders' equity times 1.2 of the Company as of January 1, 1991, which was
$3,150,373;
WHEREAS, the parties hereto desire to reform the Grant Agreement to
correct the mutual mistake and reflect the original intent of the parties;
NOW, THEREFORE, in consideration of the above recitals, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. The reference to $5,010,000 in Section 1(j) of the Grant Agreement is
hereby reformed to be $3,150,373;
2. This document is intended to correct a mutual mistake contained in
the Grant Agreement. Except as set forth herein, the Grant Agreement shall
continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
/s/ George F. Meisenheimer
----------------------------
George F. Meisenheimer
MARTEX BANCSHARES, INC.
By: [Signature appears here]
-------------------------
Title: Chairman of the Board
----------------------
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AMENDMENT TO
STOCK GRANT AGREEMENT
This Amendment to Stock Grant Agreement is entered into on January 14,
1999, by and between George F. Meisenheimer, an individual ("Meisenheimer") and
MarTex Bancshares, Inc., a Texas corporation and registered bank holding company
under the Bank Holding Company Act of 1956, as amended (the "Company"), upon the
following terms and conditions:
W I T N E S S E T H:
WHEREAS, the Company has employed Meisenheimer; and
WHEREAS, the Company and Meisenheimer have previously entered into a
Stock Grant Agreement dated March 28, 1996; and
WHEREAS, the terms of the Stock Grant Agreement provide that in the
event of a "Change in Ownership", as therein defined, Meisenheimer shall be
issued the number of shares of Company stock calculated in accordance with
Schedule A attached to the Stock Grant Agreement; and
WHEREAS, the Company and Hibernia Corporation ("Hibernia") have entered
into an Amended and Restated Agreement and Plan of Merger of MarTex Bancshares,
Inc. with and into Hibernia Corporation (the "Merger"); and
WHEREAS, the Company and Meisenheimer desire to amend the Stock Grant
Agreement to condition Meisenheimer's right to a stock grant by reason of a
"Change in Ownership" (as defined in the Stock Grant Agreement) upon the
Shareholders' approval, in accordance with the terms hereof so as to assure that
no portion of any stock grant to Meisenheimer by reason of a Change in Ownership
is a "parachute payment" within the meaning of Section 280G(b)(2) of the
Internal Revenue Code of 1986 (the "Code");
NOW THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows:
Section 2(c) of the Stock Grant Agreement is amended by the addition of
the following provision:
"Provided further, that if the Triggering Event is a Change of
Ownership by reason of a Merger with Hibernia, no stock grant shall be made
under the provisions of this Section 2(c) unless, prior to such Merger with
Hibernia, the stock grant to Meisenheimer by reason of such Merger is approved
by a separate vote of the Shareholders holding, immediately before such Merger,
more than seventy-five percent (75%) of the voting power of all outstanding
stock of the Company in a manner that satisfies the requirements of Code Section
280G(b)(5)(B) and the regulations promulgated thereunder. In the event
Shareholder approval is not so obtained, Meisenheimer hereby waives any right to
a stock grant by reason of a Change of Ownership due to the Merger.
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Meisenheimer expressly waives and relinquishes any right that he might
otherwise have to a stock grant by reason of a Change of Ownership due to the
Merger to which Meisenheimer had been entitled prior to adoption of this
Amendment. Meisenheimer is not, however, waiving any right to a stock grant by
reason of any other Triggering Event (including a Change of Ownership) other
than the Merger.
IN WITNESS WHEREOF, the parties have executed this Amendment on the
date and year first above written.
"Company"
MARTEX BANCSHARES, INC.
By: /s/ STEVE B. CARLILE
------------------------------
Title: Chairman of the Board
---------------------------
"Meisenheimer"
/s/ George F. Meisenheimer
---------------------------------
George F. Meisenheimer
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Louisiana Business Corporation Law ("LBCL") contains two provisions that
directly affect the liability of officers and directors of Louisiana
corporations to the corporations and shareholders whom they serve. Section 83
permits Louisiana corporations to indemnify officers and directors, as well as
certain other individuals who act on behalf of such corporations. Sections 91
and 92 set forth the liability of officers and directors of Louisiana
corporations.
Section 91 of the LBCL provides that officers and directors of Louisiana
corporations are fiduciaries with respect to the corporation and its
shareholders and requires that they discharge the duties of their positions as
such in good faith and with the diligence, care, judgment and skill which
ordinarily prudent men would exercise under similar circumstances in like
positions. Section 91 specifically provides that it is not intended to derogate
from any indemnification permitted under Section 83, discussed below.
Section 92 of the LBCL limits the liability of officers and directors with
respect to certain matters, as well as imposes personal liability for certain
actions, such as the knowing issuance of shares in violation of the LBCL.
Paragraph E of Section 92 permits a director, in the performance of his duties,
to be fully protected from liability in relying in good faith on the records of
the corporation and upon such information, opinions, reports or statements
presented to the corporation, the board of directors, or any committee of the
board by any of the corporation's officers or employees, or by any committee of
the board of directors, or by any counsel, appraiser, engineer or independent or
certified public accountant selected with reasonable care by the board of
directors or any committee thereof or any officer having the authority to make
such a selection or by any other person as to matters the directors reasonably
believe are within such other person's professional or expert competence and
which person is selected with reasonable care by the board of directors or any
committee thereof or any officer having the authority to make such selection.
Section 83 of the LBCL permits a Louisiana corporation to indemnify any person
who is or was a party or is threatened to be made a party to any action, suit or
proceeding by reason of the fact that he or she was a director, officer,
employee or agent of the corporation, or was serving at the request of the
corporation in one of those capacities for another business. Such persons may
be indemnified against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such persons
in connection with any such action as long as the indemnified party acted in
good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation. With respect to criminal
actions or proceedings, the indemnified person must not only have acted in good
faith and in a manner believed to be in or not opposed to the best interest of
the corporation; he or she must also not have had any reasonable cause to
believe that his or her conduct was unlawful.
The LBCL treats suits by or in the right of the corporation, or derivative
suits, differently from other legal actions. Indemnification is not permitted
in a derivative action for any expenses if the individual seeking
indemnification is adjudged liable for negligence or misconduct in the
performance of his or her duty to the corporation unless specifically ordered by
the court. Otherwise, officers and directors may be indemnified in derivative
actions only with respect to expenses (including attorneys' fees) actually and
reasonably incurred in connection with the defense or settlement of the action.
Indemnification of officers and directors may only be made by the corporation
if the corporation has specifically authorized indemnification after determining
that the applicable standard of conduct has been met. This determination may be
made (i) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable or a quorum of disinterested directors so
directs, by independent legal counsel, or (iii) by the shareholders.
II-1
<PAGE>
Indemnification of officers and directors against reasonable expenses is
mandatory under Section 83 of the LBCL to the extent the officer or director is
successful on the merits or in the defense of any action or suit against him
giving rise to a claim of indemnification.
Louisiana corporations are permitted to advance the costs of defense to
officers and directors with respect to claims for which they may be indemnified
under Section 83 of the LBCL. In order to advance such costs, however, such
procedure must be approved by the board of directors by a majority of a quorum
consisting of disinterested directors. In addition, a corporation may only
advance defense costs if it has received an undertaking from the officer or
director to repay the amounts advanced unless it is ultimately determined that
he or she is entitled to be indemnified as otherwise authorized by Section 83.
Louisiana corporations are also specifically permitted to procure insurance on
behalf of officers and directors and former officers and directors for actions
taken in their capacities as such. Insurance coverage may be broader than the
limits of indemnification under Section 83. Also, the indemnification provided
for in Section 83 is not exclusive of any other rights to indemnification,
whether arising from contracts or otherwise.
Hibernia Corporation (the "Registrant") has adopted an indemnification
provision in its articles of incorporation that provides for indemnification of
officers and directors under the circumstances permitted by Louisiana law. The
Registrant's indemnification provision requires indemnification, except as
prohibited by law, of officers and directors of the Registrant or any of its
wholly-owned subsidiaries against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with any action, suit
or proceeding, whether civil or criminal, administrative or investigative
(including any action by or in the right of the Registrant) by reason of the
fact that the person served as an officer or director of the Registrant or one
of its subsidiaries. Officers and directors may only be indemnified against
expenses in cases brought by the officer or director against the Registrant if
the action is a claim for indemnification, the officer or director prevails in
the action, or indemnification is included in any settlement or is awarded by
the court. The indemnification provision further requires the Registrant to
advance defense costs to officers and directors in such suits and proceedings
upon receipt of an undertaking to repay such expenses unless it is ultimately
determined that the officer or director is entitled to indemnification as
authorized by the Article.
The Registrant's Articles of Incorporation further provide that no director or
officer of the Registrant will be personally liable to the Registrant or its
shareholders for monetary damages for breach of fiduciary duty as an officer or
director. This provision is limited to those circumstances in which such a
limitation of liability is permitted under applicable law and would not be
operative in any circumstances in which the law prohibits such an limitation.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)
EXHIBIT DESCRIPTION
2 Amended and Restated Agreement and Plan of Merger (included as
Appendix A to the proxy statement/prospectus)
3.1 Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998, filed with the Commission by the Registrant
(Commission File No. 0-7220) is hereby incorporated by reference
(Articles of Incorporation of the Registrant, as amended to date)
3.2 Exhibit 3.2 to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, filed with the Commission by the Registrant
(Commission File No. 0-7220) is hereby incorporated by reference
(By-Laws of the Registrant, as amended to date)
II-2
<PAGE>
5* Opinion of Patricia C. Meringer, Esq. re: legality of shares
8 Opinion of Ernst & Young LLP, certified public accountants,
regarding certain tax matters (included as Appendix D to the proxy
statement/prospectus)
10.13 Exhibit 10.13 to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1988, filed with the Commission by the Registrant
(Commission File No. 0-7220) is hereby incorporated by reference
(Deferred Compensation Plan for Outside Directors of Hibernia
Corporation and its Subsidiaries, as amended to date)
10.14 Exhibit 10.14 to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, filed with the Commission by the Registrant
(Commission File No. 0-7220) is hereby incorporated by reference
(Hibernia Corporation Executive Life Insurance Plan)
10.16 Exhibit 4.7 to the Registration Statement on Form S-8 filed with
the Commission by the Registrant (Registration No. 33-26871) is
hereby incorporated by reference (Hibernia Corporation 1987 Stock
Option Plan, as amended to date)
10.34 Exhibit C to the Registrant's definitive proxy statement dated
August 17, 1992 relating to its 1992 Annual Meeting of Shareholders
filed by the Registrant with the Commission is hereby incorporated
by reference (Long-Term Incentive Plan of Hibernia Corporation)
10.35 Exhibit A to the Registrant's definitive proxy statement dated March
23, 1993 relating to its 1993 Annual Meeting of Shareholders filed
by the Registrant with the Commission is hereby incorporated by
reference (1993 Director Stock Option Plan of Hibernia Corporation)
10.36 Exhibit 10.36 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 filed with the Commission
(Commission file no. 0-7220) is hereby incorporated by reference
(Employment agreement between Stephen A. Hansel and Hibernia
Corporation)
10.37 Exhibit 10.37 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 filed with the Commission
(Commission File No. 0-7220) is hereby incorporated by reference
(Employment Agreement between J. Herbert Boydstun and Hibernia
Corporation)
10.38 Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 filed with the Commission
(Commission File No. 0-7220) is hereby incorporated by reference
(Employment Agreement between E.R. "Bo" Campbell and Hibernia
Corporation)
10.39 Exhibit 10.39 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 filed with the Commission
(Commission File No. 0-7220) is hereby incorporated by reference
(Employment Agreement between B.D. Flurry and Hibernia Corporation)
II-3
<PAGE>
10.40 Exhibit 10.40 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 filed with the Commission
(Commission File No. 0-7220) is hereby incorporated by reference
(Split-Dollar Life Insurance Plan of Hibernia Corporation effective
as of July 1996)
10.41 Exhibit 10.41 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 filed with the Commission
(Commission File No. 0-7220) is hereby incorporated by reference
(Nonqualified Deferred Compensation Plan for Key Management
Employees of Hibernia Corporation effective as of July 1996)
10.42 Exhibit 10.42 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 filed with the Commission
(Commission File No. 0-7220) is hereby incorporated by reference
(Supplemental Stock Compensation Plan for Key Management Employees
effective as of July 1996)
10.43 Exhibit 10.43 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 filed with the Commission
(Commission No. 0-7220) is hereby incorporated by reference
(Nonqualified Target Benefit (Deferred Award) Plan of Hibernia
Corporation effective as of July 1996))
10.44 Exhibit 10.44 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 filed with the Commission
(Commission No. 0-7220) is hereby incorporated by reference (Form of
Change of Control Employment Agreement for Executive and Senior
Officers of the Registrant
10.45 Exhibit 10.45 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 filed with the Commission
(Commission No. 0-7220) is hereby incorporated by reference
(Employment Agreement between Randall A. Howard and Hibernia
Corporation)
13 Exhibit 13 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 filed with the Commission
(Commission File No. 0-7220) is hereby incorporated by reference
(1997 Annual Report to security holders of Hibernia Corporation).
21 Exhibit 21 to the Annual Report on Form 10-K of the Registrant for
the fiscal year ended December 31, 1996 filed with the Commission
(Commission File No. 0-7220) is hereby incorporated by reference
(Subsidiaries of the Registrant)
23(a)* Consent of Patricia C. Meringer, Esq. (included with Exhibit 5)
23(b)(i) Consent of Sproles Woodard, L.L.P.
(ii) Consent of Ernst & Young LLP
(iii) Consent of Alex. Sheshunoff & Co. Investment Banking
24* Powers of Attorney
II-4
<PAGE>
99* Form of Proxy of MarTex Bancshares, Inc.
- ------------------
* Previously filed
(b)
FINANCIAL STATEMENT SCHEDULES
N/A
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(i) to file, during any period in which offers or sales are being made
pursuant to this Registration Statement, a post-effective amendment to this
Registration Statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment hereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
and
(c) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(ii) that, for purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment will be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time will be deemed to be the initial bona
fide offering thereof;
(iii) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;
(iv) that, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement will be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time will be deemed to be the initial bona fide offering thereof;
(v) that prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to
information called for by the other Items of the applicable form;
(vi) that every prospectus (a) that is filed pursuant to the preceding
paragraph, or (b) that purports to meet the requirements of section 10(a)(3) of
the Act and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment will be deemed to be a new registration
II-5
<PAGE>
statement relating to the securities offered therein, and the offering of such
securities at that time will be deemed to be the initial bona fide offering
thereof;
(vii) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of Form S-4
within one business day of receipt of such request and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request; and
(viii) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
Orleans, State of Louisiana, on February 2, 1999.
HIBERNIA CORPORATION
By: /s/ Patricia C. Meringer
------------------------
Patricia C. Meringer
Corporate Counsel
Pursuant to the requirements of the Securities Act of 1933, this Amendment
Number 1 to the Registration Statement has been signed by the following persons
in the capacities indicated on February 2, 1999.
Signatures Title
- ---------- -----
*
_____________________________ Chairman of the Board
Robert H. Boh
*
_____________________________ President and Chief Executive
Stephen A. Hansel Officer and Director
*
_____________________________ Chief Financial Officer
Marsha M. Gassan
*
_____________________________ Chief Accounting Officer
Ron E. Samford, Jr.
*
_____________________________ Director
J. Herbert Boydstun
II-6
<PAGE>
*
_____________________________ Director
E. R. Campbell
*
_____________________________ Director
Richard W. Freeman, Jr.
*
_____________________________ Director
Dick H. Hearin
*
_____________________________ Director
Robert T. Holleman
*
_____________________________ Director
Elton R. King
*
_____________________________ Director
Sidney W. Lassen
*
_____________________________ Director
Donald J. Nalty
*
_____________________________ Director
Ray B. Nesbitt
*
_____________________________ Director
William C. O'Malley
*
_____________________________ Director
James R. Peltier
*
_____________________________ Director
Robert T. Ratcliff
*
_____________________________ Director
Janee M. Tucker
*
_____________________________ Director
Virginia Eason Weinmann
II-7
<PAGE>
*
_____________________________ Director
Robert E. Zetzmann
*By: /s/ Patricia C. Meringer
------------------------
Patricia C. Meringer
Attorney-in-Fact
II-8
<PAGE>
EXHIBIT INDEX
Exhibit Sequential Page
Number
------
23(b) (i) Consent of Sproles Woodard, L.L.P.
(ii) Consent of Ernst & Young LLP
(iii) Consent of Alex. Sheshunoff & Co. Investment Banking
<PAGE>
EXHIBIT 23(b)(i)
INDEPENDENT AUDITOR'S CONSENT
We consent to the use of our report dated March 4, 1998 related to the financial
statements of MarTex Bancshares, Inc. as of and for the years ended December 31,
1997 and 1996 included herein and to the reference to our firm under the heading
"Experts" in this Amendment No. 1 to Registration Statement (Form S-4) and
related Prospectus of Hibernia Corporation for the registration of shares of its
common stock to be issued in connection with the proposed merger of MarTex
Bancshares, Inc. with and into Hibernia Corporation.
/s/ SPROLES WOODARD, L.L.P.
Sproles Woodard, L.L.P.
Fort Worth, Texas
February 1, 1999
<PAGE>
EXHIBIT 23(b)(ii)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in this
Amendment No. 1 to Registration Statement (Form S-4) and related Prospectus of
Hibernia Corporation for the registration of 3,450,000 shares of its common
stock to be issued pursuant to its proposed merger with MarTex Bancshares, Inc.
and to the incorporation by reference therein of our report dated January 13,
1998, with respect to the consolidated financial statements of Hibernia
Corporation incorporated by reference in its Annual Report (Form 10-K) for the
year ended December 31, 1997, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
New Orleans, Louisiana
February 1, 1999
<PAGE>
EXHIBIT 23(b)(iii)
CONSENT OF ALEX. SHESHUNOFF & CO. INVESTMENT BANKING
We hereby consent to the incorporation by reference to this Amendment No. 1 to
the Registration Statement on Form S-4 of Hibernia Corporation of our opinion,
dated February 1, 1999 with respect to the merger of Hibernia Corporation and
MarTex Bancshares, Inc. and to our firm, respectively, included in the
Registration Statement No. 333-70807 of Hibernia Corporation and to the
inclusion of such opinion as an annex to the Amendment No. 1 to the Registration
Statement. By giving such consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder.
/s/ ALEX. SHESHUNOFF & CO. INVESTMENT BANKING
Alex. Sheshunoff & Co. Investment Banking
Austin, Texas
February 1, 1999
