<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.1)*
EAST TEXAS FINANCIAL SERVICES, INC.
- -------------------------------------------------------------------------------
(Name of Issuer)
COMMON STOCK
- -------------------------------------------------------------------------------
(Title of Class of Securities)
0-24848
- -------------------------------------------------------------------------------
(CUSIP Number)
Richard E. Brophy, Jr., Naman, Howell, Smith & Lee, P.C.,
P.O. Box 1470, Waco, TX 76703 (254) 755-4100
- -------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
August 24, 1999
- -------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check
the following box [ ].
NOTE: The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE> 2
AMENDMENT NO. 1
TO
SCHEDULE 13D
CUSIP NO. 0-24848
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
William Duncan Vaughan
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [X]
(b) [ ]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 25,000
BENEFICIALLY -----------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 0
PERSON -----------------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
25,000
----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
25,000
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.79%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE> 3
AMENDMENT NO. 1
TO
SCHEDULE 13D
CUSIP NO. 0-24848
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Earl DeLaine Bellamy
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [X]
(b) [ ]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 68,000
BENEFICIALLY ----------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 0
PERSON ----------------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
68,000
----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
68,000
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
4.88%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE> 4
AMENDMENT NO. 1
TO
SCHEDULE 13D
CUSIP NO. 0-24848
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Basim Mahmoud Jishi
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [X]
(b) [ ]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY ----------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 10,000
PERSON ----------------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
0
----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
10,000
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
10,000
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.72%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE> 5
AMENDMENT NO. 1
TO
SCHEDULE 13D
CUSIP NO. 0-24848
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Cynthia Sharp Jishi
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [X]
(b) [ ]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY ----------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 10,000
PERSON ----------------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
0
----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
10,000
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
10,000
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.72%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE> 6
AMENDMENT NO. 1
TO
SCHEDULE 13D
CUSIP NO. 0-24848
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Barbara H. Wilson, as Trustee of the Don G. Wilson Annuity Trust
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [X]
(b) [ ]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 14,550
BENEFICIALLY ----------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 0
PERSON ----------------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
14,550
----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
14,550
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.04%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE> 7
AMENDMENT NO. 1
TO
SCHEDULE 13D
CUSIP NO. 0-24848
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Don G. Wilson, as Trustee of the Barbara H. Wilson Annuity Trust
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [X]
(b) [ ]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 14,550
BENEFICIALLY ----------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 0
PERSON ----------------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
14,550
----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
14,550
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.04%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE> 8
AMENDMENT NO. 1
TO
SCHEDULE 13D
CUSIP NO. 0-24848
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
ETFS Acquisition Corp. (applied for)
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [X]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
N/A
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Texas
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY -----------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 0
PERSON -----------------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
0
-----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE> 9
AMENDMENT NO. 1
TO
SCHEDULE 13D
The Statement on Schedule 13D with respect to the shares of common
stock of East Texas Financial Services, Inc., a Delaware corporation, filed on
June 17, 1999 is amended as follows:
Item 4. Purpose of the Transaction.
Item 4. Is hereby amended by the addition of the following:
The Acquiring parties met with management of the Company in June 1999
to discuss the filing of the initial Schedule 13D and the concerns of the
Acquiring Parties with respect to the financial performance of the Company. In
July 1999 the Acquiring Parties requested a meeting with the Board of Directors
to discuss more specifically actions that might be taken to improve the
Company's financial performance. This request was rejected.
On July 27, 1999, William D. Vaughn delivered the letters attached
hereto as Exhibit B to James W. Fair, H.H. Richardson, Jr., Charles R. Halstead,
Jack W. Flock, Gerald W. Free, Jim M. Vaughn, M. Earl Davis and L. Lee Kidd, the
members of the Board of Directors of the Company, requesting a meeting to
discuss the Company's financial performance. This request was declined.
The Acquiring Parties have submitted a proposal (the "Proposal") to the
Board of Directors that the Company merge with ETFS Acquisition Co., a
corporation owned by the Acquiring Parties ("Purchaser"), in which shareholders
of the Company other than Purchaser would receive $16.00 per share. The Proposal
is attached as Exhibit C and is incorporated by reference.
If the Proposal is accepted, the Company will be owned by the Acquiring
Parties and it will cease to file reports with the Commission. Each shareholder
of the Company, other than Purchaser, will receive $16.00 per share in cash,
subject to the terms and conditions of definitive agreements providing for the
transactions contemplated by the Proposal.
By letter dated August, 23, 1999, attached hereto as Exhibit D, William
D. Vaughn has requested that the Company make available for inspection and
copying certain corporate records, including a list of shareholders and the
identity of beneficial owners of the Company's stock, all correspondence with
shareholders, a copy of the Company's Bylaws and copies of all minutes of the
meetings of the Board of Directors.
The Acquiring Parties intend to communicate the terms of the Proposal
to certain of the Company's shareholders by letter in the form attached hereto
as Exhibit E and to the press by means of a release in the form attached hereof
as Exhibit F.
The Acquiring Parties will continue to review the Company's condition
and possible methods by which the Acquiring Parties and, possibly, others may be
able to influence the Company's future course of action with the goal of
improving the Company's financial results and increasing stockholder value. The
Acquiring Parties reserve the right to (i) modify their present intentions and
formulate further plans or proposals and (ii) to increase or decrease their
respective holdings of Common Stock through open market purchases, privately
negotiated transactions or otherwise.
Item 7. Material to be Filed as Exhibits.
Exhibit B. Letters dated July 27, 1999 to members of the Board of
Directors.
<PAGE> 10
Exhibit C. Letter to the Board of Directors dated August 23, 1999.
Exhibit D. Demand for Shareholder list and other corporate documents
dated August 23, 1999.
Exhibit E. Form of Letter to Shareholders.
Exhibit F. Press Release
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: August 24, 1999.
/s/ William Duncan Vaughan
------------------------------------
William Duncan Vaughan
/s/ Earl DeLaine Bellamy
------------------------------------
Earl DeLaine Bellamy
/s/ Basim Mahmoud Jishi
------------------------------------
Basim Mahmoud Jishi
/s/ Cynthia Sharp Jishi
------------------------------------
Cynthia Sharp Jishi
/s/ Barbara H. Wilson
------------------------------------
Barbara H. Wilson, as Trustee of the
Don G. Wilson Annuity Trust
/s/ Don G. Wilson
------------------------------------
Don G. Wilson, as Trustee of the
Barbara H. Wilson Annuity Trust
ETFS Acquisition Corp.
By: /s/ William D. Vaughan
--------------------------------
William D. Vaughan, President
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
B Letters dated July 27, 1999 to members of the Board of
Directors.
C Letter to the Board of Directors dated August 23, 1999.
D Demand for Shareholder list and other corporate documents
dated August 23, 1999.
E Form of Letter to Shareholders.
F Press Release
</TABLE>
<PAGE> 1
WILLIAM D. VAUGHAN
3220 ABBOTT
PARIS, TEXAS 75460
(903) 785-0054 work (903) 785-9792 home (903) 785-6955 fax
July 27, 1999
Mr. James W. Fair
P.O. Box 689
Tyler, Texas 75701
Dear Mr. Fair:
As you know, I am a stockholder of East Texas Financial Services, Inc.
("ETFS"). I acquired stock in ETFS because, among other things, I believe
significant improvements can be made in the operating results of ETFS which
would significantly enhance stockholder value.
By way of background, I have spent most of my business career as a
community banker. My father and I owned control of State National Bank of
Wynnwood ("State National") until the spring of 1982. State National was a
locally owned and managed financial institution. From the summer of 1989 until
August of 1997, I was the president and chief executive officer of First
National Bank of Paris, and its parent bank holding company, Executive
Bancshares, Inc., which was owned primarily by a local group of investors. I am
a strong believer that there is still a niche for strong community banks in the
current banking environment. If you check my background, I believe you will find
that the banks in which I have been involved were conservatively run, had good
earnings, and good relations with their primary banking regulators. Dr. Earl
Bellamy was chairman of the board of First National Bank of Paris and Executive
Bancshares, Inc. Dr. Bellamy is a successful ophthalmologist who has practiced
in the Paris area since 1963. Dr. Bellamy and I worked closely together at First
National Bank of Paris and we share a common philosophy to community banking.
In 1996, First National Bank of Paris began exploring the possibility
of acquiring the branch of another institution in McKinney, Texas. Our strategy
in that case, as it has been in every opportunity we have explored, is that to
be successful in another banking market, local participation and ownership was
essential. In the case of the McKinney acquisition, we organized a new national
bank, sold shares in our holding company to local McKinney investors, and had
significant involvement of local McKinney residents on the board of directors
and management of the newly organized bank, Collin County National Bank. I tell
you all of this so that you will understand that our banking philosophy has
always been, and continues to be, that for a community bank to be successful,
local involvement in ownership and operations is essential.
<PAGE> 2
Mr. James W. Fair -2- July 27, 1999
According to the information I have reviewed, prior to converting from
a mutual to a stock association, the total assets of your institution were
approximately $118,000,000. In connection with the conversion, ETFS raised over
$11,000,000 in new capital. According to your financial statements as of March
31, 1999, the total assets of the institution were only $134,000,000, which
reflects only a nominal increase in total assets since 1995, taking into account
the additional capital that was raised in the conversion. The recent increase in
total assets is in part attributed to borrowings from the Federal Home Loan Bank
Board, rather than any real growth. Earnings for 1998 were less than earnings
from 1997. It appears from your March 31, 1999, quarterly report that earnings
for 1999 are even less than 1998. The earnings and growth of your institution
are historically disappointing and the trends do not seem to be improving.
We have asked your management for the opportunity to meet with the
board of directors to explore alternatives to improve the direction of your
institution. Consistent with our approach to community banking, we are
interested in some kind of arrangement which includes continued participation of
local investors. Based on discussions we have had with other stockholders of
ETFS, we believe there is significant dissatisfaction with the current
performance of the institution. It appears that the level of stockholder
dissatisfaction approaches at least fifty percent (50%) of the outstanding
shares. With this level of dissatisfaction, we believe there is a substantial
likelihood that changes in the control or direction of your financial
institution will occur in the near future.
We believe our approach to running a community bank may be one of the
better alternatives that you will face. At this point in time, we do not have
any specific proposal to make with regard to your institution. We have
intentionally not made any specific proposal because our strong preference has
been to begin a dialogue with the board of directors with the view toward
addressing our concerns and at the same time developing solutions that are
satisfactory to the existing board of directors. To pursue discussions with us
is entirely consistent with your fiduciary obligation to the institution and its
shareholders. Unfortunately, management of your institution has advised us that
the board of directors does not desire to have any further discussion with us.
In view of what appears to be an increasing level of stockholder
dissatisfaction, coupled with continued poor financial performance of your
institution, we believe this strategy on your part, as a member of the board of
directors of ETFS, is a mistake. We respectfully encourage you to reconsider.
We believe that the potential exists for a "win-win" solution to the
future of ETFS. This will only occur, however, if we begin an active dialogue to
address and resolve the major issues facing your institution. If you would like
to discuss this with me personally, I invite you to call me at 903-785-0054. I
would be delighted to discuss with you on an individual basis some of our
thoughts regarding your institution.
Very truly yours,
/s/ WILLIAM D. VAUGHAN
William D. Vaughan
<PAGE> 3
WILLIAM D. VAUGHAN
3220 ABBOTT
PARIS, TEXAS 75460
(903) 785-0054 work (903) 785-9792 home (903) 785-6955 fax
July 27, 1999
Mr. H.H. Richardson, Jr.
784 Fairmont Drive
Tyler, Texas 75701
Dear Mr. Richardson:
As you know, I am a stockholder of East Texas Financial Services, Inc.
("ETFS"). I acquired stock in ETFS because, among other things, I believe
significant improvements can be made in the operating results of ETFS which
would significantly enhance stockholder value.
By way of background, I have spent most of my business career as a
community banker. My father and I owned control of State National Bank of
Wynnwood ("State National") until the spring of 1982. State National was a
locally owned and managed financial institution. From the summer of 1989 until
August of 1997, I was the president and chief executive officer of First
National Bank of Paris, and its parent bank holding company, Executive
Bancshares, Inc., which was owned primarily by a local group of investors. I am
a strong believer that there is still a niche for strong community banks in the
current banking environment. If you check my background, I believe you will find
that the banks in which I have been involved were conservatively run, had good
earnings, and good relations with their primary banking regulators. Dr. Earl
Bellamy was chairman of the board of First National Bank of Paris and Executive
Bancshares, Inc. Dr. Bellamy is a successful ophthalmologist who has practiced
in the Paris area since 1963. Dr. Bellamy and I worked closely together at First
National Bank of Paris and we share a common philosophy to community banking.
In 1996, First National Bank of Paris began exploring the possibility
of acquiring the branch of another institution in McKinney, Texas. Our strategy
in that case, as it has been in every opportunity we have explored, is that to
be successful in another banking market, local participation and ownership was
essential. In the case of the McKinney acquisition, we organized a new national
bank, sold shares in our holding company to local McKinney investors, and had
significant involvement of local McKinney residents on the board of directors
and management of the newly organized bank, Collin County National Bank. I tell
you all of this so that you will understand that our banking philosophy has
always been, and continues to be, that for a community bank to be successful,
local involvement in ownership and operations is essential.
<PAGE> 4
Mr. H.H. Richardson, Jr. -2- July 27, 1999
According to the information I have reviewed, prior to converting from
a mutual to a stock association, the total assets of your institution were
approximately $118,000,000. In connection with the conversion, ETFS raised over
$11,000,000 in new capital. According to your financial statements as of March
31, 1999, the total assets of the institution were only $134,000,000, which
reflects only a nominal increase in total assets since 1995, taking into account
the additional capital that was raised in the conversion. The recent increase in
total assets is in part attributed to borrowings from the Federal Home Loan Bank
Board, rather than any real growth. Earnings for 1998 were less than earnings
from 1997. It appears from your March 31, 1999, quarterly report that earnings
for 1999 are even less than 1998. The earnings and growth of your institution
are historically disappointing and the trends do not seem to be improving.
We have asked your management for the opportunity to meet with the
board of directors to explore alternatives to improve the direction of your
institution. Consistent with our approach to community banking, we are
interested in some kind of arrangement which includes continued participation of
local investors. Based on discussions we have had with other stockholders of
ETFS, we believe there is significant dissatisfaction with the current
performance of the institution. It appears that the level of stockholder
dissatisfaction approaches at least fifty percent (50%) of the outstanding
shares. With this level of dissatisfaction, we believe there is a substantial
likelihood that changes in the control or direction of your financial
institution will occur in the near future.
We believe our approach to running a community bank may be one of the
better alternatives that you will face. At this point in time, we do not have
any specific proposal to make with regard to your institution. We have
intentionally not made any specific proposal because our strong preference has
been to begin a dialogue with the board of directors with the view toward
addressing our concerns and at the same time developing solutions that are
satisfactory to the existing board of directors. To pursue discussions with us
is entirely consistent with your fiduciary obligation to the institution and its
shareholders. Unfortunately, management of your institution has advised us that
the board of directors does not desire to have any further discussion with us.
In view of what appears to be an increasing level of stockholder
dissatisfaction, coupled with continued poor financial performance of your
institution, we believe this strategy on your part, as a member of the board of
directors of ETFS, is a mistake. We respectfully encourage you to reconsider.
We believe that the potential exists for a "win-win" solution to the
future of ETFS. This will only occur, however, if we begin an active dialogue to
address and resolve the major issues facing your institution. If you would like
to discuss this with me personally, I invite you to call me at 903-785-0054. I
would be delighted to discuss with you on an individual basis some of our
thoughts regarding your institution.
Very truly yours,
/s/ WILLIAM D. VAUGHAN
William D. Vaughan
<PAGE> 5
WILLIAM D. VAUGHAN
3220 ABBOTT
PARIS, TEXAS 75460
(903) 785-0054 work (903) 785-9792 home (903) 785-6955 fax
July 27, 1999
Mr. Charles R. Halstead
803 Ashford Court
Tyler, Texas 75703
Dear Mr. Halstead:
As you know, I am a stockholder of East Texas Financial Services, Inc.
("ETFS"). I acquired stock in ETFS because, among other things, I believe
significant improvements can be made in the operating results of ETFS which
would significantly enhance stockholder value.
By way of background, I have spent most of my business career as a
community banker. My father and I owned control of State National Bank of
Wynnwood ("State National") until the spring of 1982. State National was a
locally owned and managed financial institution. From the summer of 1989 until
August of 1997, I was the president and chief executive officer of First
National Bank of Paris, and its parent bank holding company, Executive
Bancshares, Inc., which was owned primarily by a local group of investors. I am
a strong believer that there is still a niche for strong community banks in the
current banking environment. If you check my background, I believe you will find
that the banks in which I have been involved were conservatively run, had good
earnings, and good relations with their primary banking regulators. Dr. Earl
Bellamy was chairman of the board of First National Bank of Paris and Executive
Bancshares, Inc. Dr. Bellamy is a successful ophthalmologist who has practiced
in the Paris area since 1963. Dr. Bellamy and I worked closely together at First
National Bank of Paris and we share a common philosophy to community banking.
In 1996, First National Bank of Paris began exploring the possibility
of acquiring the branch of another institution in McKinney, Texas. Our strategy
in that case, as it has been in every opportunity we have explored, is that to
be successful in another banking market, local participation and ownership was
essential. In the case of the McKinney acquisition, we organized a new national
bank, sold shares in our holding company to local McKinney investors, and had
significant involvement of local McKinney residents on the board of directors
and management of the newly organized bank, Collin County National Bank. I tell
you all of this so that you will understand that our banking philosophy has
always been, and continues to be, that for a community bank to be successful,
local involvement in ownership and operations is essential.
<PAGE> 6
Mr. Charles R. Halstead -2- July 27, 1999
According to the information I have reviewed, prior to converting from
a mutual to a stock association, the total assets of your institution were
approximately $118,000,000. In connection with the conversion, ETFS raised over
$11,000,000 in new capital. According to your financial statements as of March
31, 1999, the total assets of the institution were only $134,000,000, which
reflects only a nominal increase in total assets since 1995, taking into account
the additional capital that was raised in the conversion. The recent increase in
total assets is in part attributed to borrowings from the Federal Home Loan Bank
Board, rather than any real growth. Earnings for 1998 were less than earnings
from 1997. It appears from your March 31, 1999, quarterly report that earnings
for 1999 are even less than 1998. The earnings and growth of your institution
are historically disappointing and the trends do not seem to be improving.
We have asked your management for the opportunity to meet with the
board of directors to explore alternatives to improve the direction of your
institution. Consistent with our approach to community banking, we are
interested in some kind of arrangement which includes continued participation of
local investors. Based on discussions we have had with other stockholders of
ETFS, we believe there is significant dissatisfaction with the current
performance of the institution. It appears that the level of stockholder
dissatisfaction approaches at least fifty percent (50%) of the outstanding
shares. With this level of dissatisfaction, we believe there is a substantial
likelihood that changes in the control or direction of your financial
institution will occur in the near future.
We believe our approach to running a community bank may be one of the
better alternatives that you will face. At this point in time, we do not have
any specific proposal to make with regard to your institution. We have
intentionally not made any specific proposal because our strong preference has
been to begin a dialogue with the board of directors with the view toward
addressing our concerns and at the same time developing solutions that are
satisfactory to the existing board of directors. To pursue discussions with us
is entirely consistent with your fiduciary obligation to the institution and its
shareholders. Unfortunately, management of your institution has advised us that
the board of directors does not desire to have any further discussion with us.
In view of what appears to be an increasing level of stockholder
dissatisfaction, coupled with continued poor financial performance of your
institution, we believe this strategy on your part, as a member of the board of
directors of ETFS, is a mistake. We respectfully encourage you to reconsider.
We believe that the potential exists for a "win-win" solution to the
future of ETFS. This will only occur, however, if we begin an active dialogue to
address and resolve the major issues facing your institution. If you would like
to discuss this with me personally, I invite you to call me at 903-785-0054. I
would be delighted to discuss with you on an individual basis some of our
thoughts regarding your institution.
Very truly yours,
/s/ WILLIAM D. VAUGHAN
William D. Vaughan
<PAGE> 7
WILLIAM D. VAUGHAN
3220 ABBOTT
PARIS, TEXAS 75460
(903) 785-0054 work (903) 785-9792 home (903) 785-6955 fax
July 27, 1999
Mr. Jack W. Flock
2231 Old Bullard Road
Tyler, Texas 75701
Dear Mr. Flock:
As you know, I am a stockholder of East Texas Financial Services, Inc.
("ETFS"). I acquired stock in ETFS because, among other things, I believe
significant improvements can be made in the operating results of ETFS which
would significantly enhance stockholder value.
By way of background, I have spent most of my business career as a
community banker. My father and I owned control of State National Bank of
Wynnwood ("State National") until the spring of 1982. State National was a
locally owned and managed financial institution. From the summer of 1989 until
August of 1997, I was the president and chief executive officer of First
National Bank of Paris, and its parent bank holding company, Executive
Bancshares, Inc., which was owned primarily by a local group of investors. I am
a strong believer that there is still a niche for strong community banks in the
current banking environment. If you check my background, I believe you will find
that the banks in which I have been involved were conservatively run, had good
earnings, and good relations with their primary banking regulators. Dr. Earl
Bellamy was chairman of the board of First National Bank of Paris and Executive
Bancshares, Inc. Dr. Bellamy is a successful ophthalmologist who has practiced
in the Paris area since 1963. Dr. Bellamy and I worked closely together at First
National Bank of Paris and we share a common philosophy to community banking.
In 1996, First National Bank of Paris began exploring the possibility
of acquiring the branch of another institution in McKinney, Texas. Our strategy
in that case, as it has been in every opportunity we have explored, is that to
be successful in another banking market, local participation and ownership was
essential. In the case of the McKinney acquisition, we organized a new national
bank, sold shares in our holding company to local McKinney investors, and had
significant involvement of local McKinney residents on the board of directors
and management of the newly organized bank, Collin County National Bank. I tell
you all of this so that you will understand that our banking philosophy has
always been, and continues to be, that for a community bank to be successful,
local involvement in ownership and operations is essential.
<PAGE> 8
Mr. Jack W. Flock -2- July 27, 1999
According to the information I have reviewed, prior to converting from
a mutual to a stock association, the total assets of your institution were
approximately $118,000,000. In connection with the conversion, ETFS raised over
$11,000,000 in new capital. According to your financial statements as of March
31, 1999, the total assets of the institution were only $134,000,000, which
reflects only a nominal increase in total assets since 1995, taking into account
the additional capital that was raised in the conversion. The recent increase in
total assets is in part attributed to borrowings from the Federal Home Loan Bank
Board, rather than any real growth. Earnings for 1998 were less than earnings
from 1997. It appears from your March 31, 1999, quarterly report that earnings
for 1999 are even less than 1998. The earnings and growth of your institution
are historically disappointing and the trends do not seem to be improving.
We have asked your management for the opportunity to meet with the
board of directors to explore alternatives to improve the direction of your
institution. Consistent with our approach to community banking, we are
interested in some kind of arrangement which includes continued participation of
local investors. Based on discussions we have had with other stockholders of
ETFS, we believe there is significant dissatisfaction with the current
performance of the institution. It appears that the level of stockholder
dissatisfaction approaches at least fifty percent (50%) of the outstanding
shares. With this level of dissatisfaction, we believe there is a substantial
likelihood that changes in the control or direction of your financial
institution will occur in the near future.
We believe our approach to running a community bank may be one of the
better alternatives that you will face. At this point in time, we do not have
any specific proposal to make with regard to your institution. We have
intentionally not made any specific proposal because our strong preference has
been to begin a dialogue with the board of directors with the view toward
addressing our concerns and at the same time developing solutions that are
satisfactory to the existing board of directors. To pursue discussions with us
is entirely consistent with your fiduciary obligation to the institution and its
shareholders. Unfortunately, management of your institution has advised us that
the board of directors does not desire to have any further discussion with us.
In view of what appears to be an increasing level of stockholder
dissatisfaction, coupled with continued poor financial performance of your
institution, we believe this strategy on your part, as a member of the board of
directors of ETFS, is a mistake. We respectfully encourage you to reconsider.
We believe that the potential exists for a "win-win" solution to the
future of ETFS. This will only occur, however, if we begin an active dialogue to
address and resolve the major issues facing your institution. If you would like
to discuss this with me personally, I invite you to call me at 903-785-0054. I
would be delighted to discuss with you on an individual basis some of our
thoughts regarding your institution.
Very truly yours,
/s/ WILLIAM D. VAUGHAN
William D. Vaughan
<PAGE> 9
WILLIAM D. VAUGHAN
3220 ABBOTT
PARIS, TEXAS 75460
(903) 785-0054 work (903) 785-9792 home (903) 785-6955 fax
July 27, 1999
Mr. Gerald W. Free
806 Ashford Court
Tyler, Texas 75703
Dear Mr. Fair:
As you know, I am a stockholder of East Texas Financial Services, Inc.
("ETFS"). I acquired stock in ETFS because, among other things, I believe
significant improvements can be made in the operating results of ETFS which
would significantly enhance stockholder value.
By way of background, I have spent most of my business career as a
community banker. My father and I owned control of State National Bank of
Wynnwood ("State National") until the spring of 1982. State National was a
locally owned and managed financial institution. From the summer of 1989 until
August of 1997, I was the president and chief executive officer of First
National Bank of Paris, and its parent bank holding company, Executive
Bancshares, Inc., which was owned primarily by a local group of investors. I am
a strong believer that there is still a niche for strong community banks in the
current banking environment. If you check my background, I believe you will find
that the banks in which I have been involved were conservatively run, had good
earnings, and good relations with their primary banking regulators. Dr. Earl
Bellamy was chairman of the board of First National Bank of Paris and Executive
Bancshares, Inc. Dr. Bellamy is a successful ophthalmologist who has practiced
in the Paris area since 1963. Dr. Bellamy and I worked closely together at First
National Bank of Paris and we share a common philosophy to community banking.
In 1996, First National Bank of Paris began exploring the possibility
of acquiring the branch of another institution in McKinney, Texas. Our strategy
in that case, as it has been in every opportunity we have explored, is that to
be successful in another banking market, local participation and ownership was
essential. In the case of the McKinney acquisition, we organized a new national
bank, sold shares in our holding company to local McKinney investors, and had
significant involvement of local McKinney residents on the board of directors
and management of the newly organized bank, Collin County National Bank. I tell
you all of this so that you will understand that our banking philosophy has
always been, and continues to be, that for a community bank to be successful,
local involvement in ownership and operations is essential.
<PAGE> 10
Mr. Gerald W. Free -2- July 27, 1999
According to the information I have reviewed, prior to converting from
a mutual to a stock association, the total assets of your institution were
approximately $118,000,000. In connection with the conversion, ETFS raised over
$11,000,000 in new capital. According to your financial statements as of March
31, 1999, the total assets of the institution were only $134,000,000, which
reflects only a nominal increase in total assets since 1995, taking into account
the additional capital that was raised in the conversion. The recent increase in
total assets is in part attributed to borrowings from the Federal Home Loan Bank
Board, rather than any real growth. Earnings for 1998 were less than earnings
from 1997. It appears from your March 31, 1999, quarterly report that earnings
for 1999 are even less than 1998. The earnings and growth of your institution
are historically disappointing and the trends do not seem to be improving.
We have asked your management for the opportunity to meet with the
board of directors to explore alternatives to improve the direction of your
institution. Consistent with our approach to community banking, we are
interested in some kind of arrangement which includes continued participation of
local investors. Based on discussions we have had with other stockholders of
ETFS, we believe there is significant dissatisfaction with the current
performance of the institution. It appears that the level of stockholder
dissatisfaction approaches at least fifty percent (50%) of the outstanding
shares. With this level of dissatisfaction, we believe there is a substantial
likelihood that changes in the control or direction of your financial
institution will occur in the near future.
We believe our approach to running a community bank may be one of the
better alternatives that you will face. At this point in time, we do not have
any specific proposal to make with regard to your institution. We have
intentionally not made any specific proposal because our strong preference has
been to begin a dialogue with the board of directors with the view toward
addressing our concerns and at the same time developing solutions that are
satisfactory to the existing board of directors. To pursue discussions with us
is entirely consistent with your fiduciary obligation to the institution and its
shareholders. Unfortunately, management of your institution has advised us that
the board of directors does not desire to have any further discussion with us.
In view of what appears to be an increasing level of stockholder
dissatisfaction, coupled with continued poor financial performance of your
institution, we believe this strategy on your part, as a member of the board of
directors of ETFS, is a mistake. We respectfully encourage you to reconsider.
We believe that the potential exists for a "win-win" solution to the
future of ETFS. This will only occur, however, if we begin an active dialogue to
address and resolve the major issues facing your institution. If you would like
to discuss this with me personally, I invite you to call me at 903-785-0054. I
would be delighted to discuss with you on an individual basis some of our
thoughts regarding your institution.
Very truly yours,
/s/ WILLIAM D. VAUGHAN
William D. Vaughan
<PAGE> 11
WILLIAM D. VAUGHAN
3220 ABBOTT
PARIS, TEXAS 75460
(903) 785-0054 work (903) 785-9792 home (903) 785-6955 fax
July 27, 1999
Dr. Jim M. Vaughn
553 Park Heights Circle
Tyler, Texas 75701
Dear Dr. Vaughn:
As you know, I am a stockholder of East Texas Financial Services, Inc.
("ETFS"). I acquired stock in ETFS because, among other things, I believe
significant improvements can be made in the operating results of ETFS which
would significantly enhance stockholder value.
By way of background, I have spent most of my business career as a
community banker. My father and I owned control of State National Bank of
Wynnwood ("State National") until the spring of 1982. State National was a
locally owned and managed financial institution. From the summer of 1989 until
August of 1997, I was the president and chief executive officer of First
National Bank of Paris, and its parent bank holding company, Executive
Bancshares, Inc., which was owned primarily by a local group of investors. I am
a strong believer that there is still a niche for strong community banks in the
current banking environment. If you check my background, I believe you will find
that the banks in which I have been involved were conservatively run, had good
earnings, and good relations with their primary banking regulators. Dr. Earl
Bellamy was chairman of the board of First National Bank of Paris and Executive
Bancshares, Inc. Dr. Bellamy is a successful ophthalmologist who has practiced
in the Paris area since 1963. Dr. Bellamy and I worked closely together at First
National Bank of Paris and we share a common philosophy to community banking.
In 1996, First National Bank of Paris began exploring the possibility
of acquiring the branch of another institution in McKinney, Texas. Our strategy
in that case, as it has been in every opportunity we have explored, is that to
be successful in another banking market, local participation and ownership was
essential. In the case of the McKinney acquisition, we organized a new national
bank, sold shares in our holding company to local McKinney investors, and had
significant involvement of local McKinney residents on the board of directors
and management of the newly organized bank, Collin County National Bank. I tell
you all of this so that you will understand that our banking philosophy has
always been, and continues to be, that for a community bank to be successful,
local involvement in ownership and operations is essential.
<PAGE> 12
Dr. Jim M. Vaughn -2- July 27, 1999
According to the information I have reviewed, prior to converting from
a mutual to a stock association, the total assets of your institution were
approximately $118,000,000. In connection with the conversion, ETFS raised over
$11,000,000 in new capital. According to your financial statements as of March
31, 1999, the total assets of the institution were only $134,000,000, which
reflects only a nominal increase in total assets since 1995, taking into account
the additional capital that was raised in the conversion. The recent increase in
total assets is in part attributed to borrowings from the Federal Home Loan Bank
Board, rather than any real growth. Earnings for 1998 were less than earnings
from 1997. It appears from your March 31, 1999, quarterly report that earnings
for 1999 are even less than 1998. The earnings and growth of your institution
are historically disappointing and the trends do not seem to be improving.
We have asked your management for the opportunity to meet with the
board of directors to explore alternatives to improve the direction of your
institution. Consistent with our approach to community banking, we are
interested in some kind of arrangement which includes continued participation of
local investors. Based on discussions we have had with other stockholders of
ETFS, we believe there is significant dissatisfaction with the current
performance of the institution. It appears that the level of stockholder
dissatisfaction approaches at least fifty percent (50%) of the outstanding
shares. With this level of dissatisfaction, we believe there is a substantial
likelihood that changes in the control or direction of your financial
institution will occur in the near future.
We believe our approach to running a community bank may be one of the
better alternatives that you will face. At this point in time, we do not have
any specific proposal to make with regard to your institution. We have
intentionally not made any specific proposal because our strong preference has
been to begin a dialogue with the board of directors with the view toward
addressing our concerns and at the same time developing solutions that are
satisfactory to the existing board of directors. To pursue discussions with us
is entirely consistent with your fiduciary obligation to the institution and its
shareholders. Unfortunately, management of your institution has advised us that
the board of directors does not desire to have any further discussion with us.
In view of what appears to be an increasing level of stockholder
dissatisfaction, coupled with continued poor financial performance of your
institution, we believe this strategy on your part, as a member of the board of
directors of ETFS, is a mistake. We respectfully encourage you to reconsider.
We believe that the potential exists for a "win-win" solution to the
future of ETFS. This will only occur, however, if we begin an active dialogue to
address and resolve the major issues facing your institution. If you would like
to discuss this with me personally, I invite you to call me at 903-785-0054. I
would be delighted to discuss with you on an individual basis some of our
thoughts regarding your institution.
Very truly yours,
/s/ WILLIAM D. VAUGHAN
William D. Vaughan
<PAGE> 13
WILLIAM D. VAUGHAN
3220 ABBOTT
PARIS, TEXAS 75460
(903) 785-0054 work (903) 785-9792 home (903) 785-6955 fax
July 27, 1999
Mr. M. Earl Davis
4021 Ferry Avenue
Tyler, Texas 75701
Dear Mr. Davis:
As you know, I am a stockholder of East Texas Financial Services, Inc.
("ETFS"). I acquired stock in ETFS because, among other things, I believe
significant improvements can be made in the operating results of ETFS which
would significantly enhance stockholder value.
By way of background, I have spent most of my business career as a
community banker. My father and I owned control of State National Bank of
Wynnwood ("State National") until the spring of 1982. State National was a
locally owned and managed financial institution. From the summer of 1989 until
August of 1997, I was the president and chief executive officer of First
National Bank of Paris, and its parent bank holding company, Executive
Bancshares, Inc., which was owned primarily by a local group of investors. I am
a strong believer that there is still a niche for strong community banks in the
current banking environment. If you check my background, I believe you will find
that the banks in which I have been involved were conservatively run, had good
earnings, and good relations with their primary banking regulators. Dr. Earl
Bellamy was chairman of the board of First National Bank of Paris and Executive
Bancshares, Inc. Dr. Bellamy is a successful ophthalmologist who has practiced
in the Paris area since 1963. Dr. Bellamy and I worked closely together at First
National Bank of Paris and we share a common philosophy to community banking.
In 1996, First National Bank of Paris began exploring the possibility
of acquiring the branch of another institution in McKinney, Texas. Our strategy
in that case, as it has been in every opportunity we have explored, is that to
be successful in another banking market, local participation and ownership was
essential. In the case of the McKinney acquisition, we organized a new national
bank, sold shares in our holding company to local McKinney investors, and had
significant involvement of local McKinney residents on the board of directors
and management of the newly organized bank, Collin County National Bank. I tell
you all of this so that you will understand that our banking philosophy has
always been, and continues to be, that for a community bank to be successful,
local involvement in ownership and operations is essential.
<PAGE> 14
Mr. M. Earl Davis -2- July 27, 1999
According to the information I have reviewed, prior to converting from
a mutual to a stock association, the total assets of your institution were
approximately $118,000,000. In connection with the conversion, ETFS raised over
$11,000,000 in new capital. According to your financial statements as of March
31, 1999, the total assets of the institution were only $134,000,000, which
reflects only a nominal increase in total assets since 1995, taking into account
the additional capital that was raised in the conversion. The recent increase in
total assets is in part attributed to borrowings from the Federal Home Loan Bank
Board, rather than any real growth. Earnings for 1998 were less than earnings
from 1997. It appears from your March 31, 1999, quarterly report that earnings
for 1999 are even less than 1998. The earnings and growth of your institution
are historically disappointing and the trends do not seem to be improving.
We have asked your management for the opportunity to meet with the
board of directors to explore alternatives to improve the direction of your
institution. Consistent with our approach to community banking, we are
interested in some kind of arrangement which includes continued participation of
local investors. Based on discussions we have had with other stockholders of
ETFS, we believe there is significant dissatisfaction with the current
performance of the institution. It appears that the level of stockholder
dissatisfaction approaches at least fifty percent (50%) of the outstanding
shares. With this level of dissatisfaction, we believe there is a substantial
likelihood that changes in the control or direction of your financial
institution will occur in the near future.
We believe our approach to running a community bank may be one of the
better alternatives that you will face. At this point in time, we do not have
any specific proposal to make with regard to your institution. We have
intentionally not made any specific proposal because our strong preference has
been to begin a dialogue with the board of directors with the view toward
addressing our concerns and at the same time developing solutions that are
satisfactory to the existing board of directors. To pursue discussions with us
is entirely consistent with your fiduciary obligation to the institution and its
shareholders. Unfortunately, management of your institution has advised us that
the board of directors does not desire to have any further discussion with us.
In view of what appears to be an increasing level of stockholder
dissatisfaction, coupled with continued poor financial performance of your
institution, we believe this strategy on your part, as a member of the board of
directors of ETFS, is a mistake. We respectfully encourage you to reconsider.
We believe that the potential exists for a "win-win" solution to the
future of ETFS. This will only occur, however, if we begin an active dialogue to
address and resolve the major issues facing your institution. If you would like
to discuss this with me personally, I invite you to call me at 903-785-0054. I
would be delighted to discuss with you on an individual basis some of our
thoughts regarding your institution.
Very truly yours,
/s/ WILLIAM D. VAUGHAN
William D. Vaughan
<PAGE> 15
WILLIAM D. VAUGHAN
3220 ABBOTT
PARIS, TEXAS 75460
(903) 785-0054 work (903) 785-9792 home (903) 785-6955 fax
July 27, 1999
Mr. L. Lee Kidd
3720 Ferry Avenue
Tyler, Texas 75701
Dear Mr. Kidd:
As you know, I am a stockholder of East Texas Financial Services, Inc.
("ETFS"). I acquired stock in ETFS because, among other things, I believe
significant improvements can be made in the operating results of ETFS which
would significantly enhance stockholder value.
By way of background, I have spent most of my business career as a
community banker. My father and I owned control of State National Bank of
Wynnwood ("State National") until the spring of 1982. State National was a
locally owned and managed financial institution. From the summer of 1989 until
August of 1997, I was the president and chief executive officer of First
National Bank of Paris, and its parent bank holding company, Executive
Bancshares, Inc., which was owned primarily by a local group of investors. I am
a strong believer that there is still a niche for strong community banks in the
current banking environment. If you check my background, I believe you will find
that the banks in which I have been involved were conservatively run, had good
earnings, and good relations with their primary banking regulators. Dr. Earl
Bellamy was chairman of the board of First National Bank of Paris and Executive
Bancshares, Inc. Dr. Bellamy is a successful ophthalmologist who has practiced
in the Paris area since 1963. Dr. Bellamy and I worked closely together at First
National Bank of Paris and we share a common philosophy to community banking.
In 1996, First National Bank of Paris began exploring the possibility
of acquiring the branch of another institution in McKinney, Texas. Our strategy
in that case, as it has been in every opportunity we have explored, is that to
be successful in another banking market, local participation and ownership was
essential. In the case of the McKinney acquisition, we organized a new national
bank, sold shares in our holding company to local McKinney investors, and had
significant involvement of local McKinney residents on the board of directors
and management of the newly organized bank, Collin County National Bank. I tell
you all of this so that you will understand that our banking philosophy has
always been, and continues to be, that for a community bank to be successful,
local involvement in ownership and operations is essential.
<PAGE> 16
Mr. L. Lee Kidd -2- July 27, 1999
According to the information I have reviewed, prior to converting from
a mutual to a stock association, the total assets of your institution were
approximately $118,000,000. In connection with the conversion, ETFS raised over
$11,000,000 in new capital. According to your financial statements as of March
31, 1999, the total assets of the institution were only $134,000,000, which
reflects only a nominal increase in total assets since 1995, taking into account
the additional capital that was raised in the conversion. The recent increase in
total assets is in part attributed to borrowings from the Federal Home Loan Bank
Board, rather than any real growth. Earnings for 1998 were less than earnings
from 1997. It appears from your March 31, 1999, quarterly report that earnings
for 1999 are even less than 1998. The earnings and growth of your institution
are historically disappointing and the trends do not seem to be improving.
We have asked your management for the opportunity to meet with the
board of directors to explore alternatives to improve the direction of your
institution. Consistent with our approach to community banking, we are
interested in some kind of arrangement which includes continued participation of
local investors. Based on discussions we have had with other stockholders of
ETFS, we believe there is significant dissatisfaction with the current
performance of the institution. It appears that the level of stockholder
dissatisfaction approaches at least fifty percent (50%) of the outstanding
shares. With this level of dissatisfaction, we believe there is a substantial
likelihood that changes in the control or direction of your financial
institution will occur in the near future.
We believe our approach to running a community bank may be one of the
better alternatives that you will face. At this point in time, we do not have
any specific proposal to make with regard to your institution. We have
intentionally not made any specific proposal because our strong preference has
been to begin a dialogue with the board of directors with the view toward
addressing our concerns and at the same time developing solutions that are
satisfactory to the existing board of directors. To pursue discussions with us
is entirely consistent with your fiduciary obligation to the institution and its
shareholders. Unfortunately, management of your institution has advised us that
the board of directors does not desire to have any further discussion with us.
In view of what appears to be an increasing level of stockholder
dissatisfaction, coupled with continued poor financial performance of your
institution, we believe this strategy on your part, as a member of the board of
directors of ETFS, is a mistake. We respectfully encourage you to reconsider.
We believe that the potential exists for a "win-win" solution to the
future of ETFS. This will only occur, however, if we begin an active dialogue to
address and resolve the major issues facing your institution. If you would like
to discuss this with me personally, I invite you to call me at 903-785-0054. I
would be delighted to discuss with you on an individual basis some of our
thoughts regarding your institution.
Very truly yours,
/s/ WILLIAM D. VAUGHAN
William D. Vaughan
<PAGE> 1
EXHIBIT C
ETFS Acquisition Co.
201 Bonham
Paris, Texas 75641
August 23, 1999
Board of Directors
East Texas Financial Services, Inc.
1200 South Beckham
Tyler, Texas 75701
Gentlemen:
This letter sets forth the general terms of a proposal whereby ETFS Acquisition
Corp. (the "Purchaser") will acquire (the "Acquisition") all of the outstanding
capital stock of East Texas Financial Services, Inc. ("ETFS") for cash
consideration of $16 per share. We request that you meet with us and our
advisors at your earliest convenience to discuss this proposal.
If the proposed terms of this transaction are acceptable to you, we are prepared
to promptly begin a due diligence review as contemplated by paragraph 3 below
and to negotiate a definitive written agreement (the "Agreement") containing
customary terms, agreements, representations, warranties, indemnities and
conditions, which will be subject to the approval of Purchaser and the board of
directors and shareholders of ETFS.
1. Consideration. The consideration to be received by the shareholders of ETFS
is $16.00 per issued and outstanding share of common stock of ETFS, subject to
the satisfactory negotiation of the Agreement and completion of our due
diligence review and the other conditions stated below. The Acquisition will be
structured as a merger of ETFS and the Purchaser in which all shares of ETFS
Common Stock not owned by the Purchaser will be converted into the right to
receive cash.
2. Conditions. The Acquisition will be subject to such terms and conditions as
are contained in the Agreement, including without limitation the following:
(a) receipt of all applicable regulatory approvals, including, but not
limited to, approvals or confirmations from the appropriate state and
federal bank regulatory agencies with respect to of the
recapitalization of First Federal Savings ("First Federal");
(b) compliance with all applicable laws and regulations;
(c) the approval of the Acquisition by the board of directors and
shareholders of ETFS;
(d) satisfaction of any other necessary corporate action or requirements;
(e) the absence of any condition to regulatory approvals objectionable to
Purchaser;
(f) the absence of any material adverse change in the financial condition,
business operations, or prospects of First Federal that would render
the Acquisition inadvisable;
(g) there shall not be any extraordinary expenses paid by ETFS through the
date of closing; and
<PAGE> 2
(h) resolution of the obligations of ETFS under the existing employment
agreements with Gerald Free and Derrell Chapman on terms reasonably
satisfactory to Purchaser.
We have obtained assurance that the necessary financing for the Acquisition is
available to the Purchaser and we will provide the details of this financing to
you as we continue our discussions.
3. Due Diligence Review. Purchaser will review the financial condition of First
Federal prior to the execution of the Agreement for a period of time not to
exceed thirty (30) calendar days. ETFS agrees to provide Purchaser and its
employees and agents full access to the premises of First Federal and to all of
ETFS' books and records and to furnish such financial, operating, and other
information with respect to ETFS and First Federal as may be necessary to enable
Purchaser to conduct such review. Such review will be conducted in a manner that
will be the least disruptive to the daily operations of ETFS and First Federal,
and in a manner that will cause the least concern to its customers and
employees. All information which is not in the public domain will be maintained
on a confidential basis by Purchaser and its employees and agents unless and
until such information does not enter the public domain as a result of a breach
of this provision. Upon request by ETFS, all information and documents provided
to Purchaser shall be returned to ETFS.
4. Prohibited Negotiations. Between the date of the execution of this letter by
ETFS and Purchaser and the earlier to occur of (a) the execution of the
Agreement, (b) the date on which either party provides the other party with
written notice that negotiations regarding an Agreement are terminated, or (c)
the sixtieth (60th) calendar day after ETFS signs this letter, neither ETFS,
First Federal nor any of their respective employees or agents, shall negotiate
with any other party, or enter into any agreement, arrangement, or
understanding, regarding the sale or transfer of substantially all of the assets
or stock of ETFS or First Federal, the merger of ETFS or First Federal, or any
other business combination involving ETFS or First Federal without the prior
written approval of Purchaser. In addition, during such period, ETFS and First
Federal will not (a) negotiate or agree to issue shares of its capital stock or
options with respect to the purchase of its capital stock, or (b) enter into
negotiations which would result in a recapitalization or any other major
corporate change.
5. Nonbinding Nature of Letter of Intent. Notwithstanding any indication in this
letter of intent to the contrary, except for the terms and provisions of
paragraphs 3, 4, 5 and 6, the matters set forth herein represent only a
nonbinding summary of the discussions to date between the parties hereto with
respect to the proposed Acquisition outlined herein, and do not constitute a
binding agreement between the parties with respect to the proposed Acquisition
and are contingent on the negotiation, execution and delivery of the Agreement,
setting forth in detail the terms, provisions and conditions for the proposed
Acquisition. Except as expressly provided herein, neither ETFS nor Purchaser,
nor their respective directors, officers, employees or shareholders, will have
any liability or obligation with respect to the proposed Acquisition hereunder
or otherwise, unless and until the Agreement is executed and delivered by the
parties hereto. Consummation of the Acquisition is conditioned upon, among other
things, the due diligence review contemplated by paragraph 3 and the execution
of the Agreement.
6. Expenses. The parties hereto will each bear their own costs and expenses from
the date of this proposal through the consummation of the Acquisition including,
but not limited to, legal, accounting, brokerage, travel, telephone and other
expenses.
7. Acceptance. This letter of intent must be executed and delivered to Purchaser
by and authorized representative of ETFS on or before 5:00 p.m., local time,
September 7, 1999 (the "Termination Date"). If this letter of intent is not
executed by the Termination Date, then it shall be void and of no force and
effect.
<PAGE> 3
Please sign in the space below to indicate your agreement to this letter of
intent and return the extra copy of this letter to us.
Very truly yours,
/s/ WILLIAM D. VAUGHAN
William D. Vaughan,
on behalf of Purchaser
AGREED TO ON __________, 1999
EAST TEXAS FINANCIAL SERVICES, INC.
By:
-----------------------------------------
Gerald W. Free, President and
Chief Executive Officer
<PAGE> 1
EXHIBIT D
William D. Vaughan
201 Bonham
Paris, Texas 75641
August 23, 1999
East Texas Financial Services, Inc.
1200 South Beckman Avenue
Tyler, Texas 76701
Gentlemen:
I am the owner of 25,000 shares of common stock of East Texas Financial
Services, Inc. (the "Company"), held through my brokerage account at J.C.
Bradford & Co. Attached to this letter is written confirmation of my ownership
of these shares. In accordance with Section 220 of the Delaware General
Corporation Law, I hereby demand the right, during the usual hours for business,
to inspect and to make copies or extracts of the following records of the
Company:
1. A complete record or list of the Company's shareholders (the
"Shareholders") certified by the Company's transfer agents showing the name
and address of each shareholder and the number of shares registered in the
name of each such shareholder, as of August 1, 1999 (the "Requested Date").
2. All information in or which comes into the Company's possession or control
or which can reasonably be obtained from nominees of any central
certificate depository system concerning the number and identity of the
actual beneficial owners of the Company's stock, including all list
containing the names, address and number of shares of Common Stock
attributable to any participant in any employee stock ownership or other
employee benefit plan of the Company in which the decision whether to vote
shares of Common Stock held by such plan is made directly or indirectly,
individually or collectively, by the participants in the plan.
3. All information in, or which comes into, the Company's possession or
control or which can reasonably be obtained from brokers, dealers, banks,
clearing agencies or voting trustees relating to the names of the
non-objecting beneficial owners of the Company's stock (which information
with respect to brokers and dealers is readily available to the Company
under Rule 14b-1 of the Securities Exchange Act of 1934, as amended from
ADP Proxy Services.)
4. A correct and complete copy of the Bylaws of the Company and any and all
changes of any sort to the Bylaws of the Company hereafter made, including,
without limitation, any amendment to existing Bylaws, any adoption of new
Bylaws or deletions of existing Bylaws.
The purpose of this demand is to enable me to communicate with the Company's
shareholders regarding the following:
1. A proposal by ETFS Acquisition Corp. to merge with the Company.
2. Other actions intended to increase the value of the Company to its
shareholders.
<PAGE> 2
It is requested that the information identified above be made available on or
prior to September 3, 1999. Please immediately advise as to when and where the
items listed above will be available for review by me and representatives of my
legal counsel, Naman, Howell, Smith & Lee, P.C. and/or Bracewell & Patterson,
L.L.P.
Further correspondence on this matter should be directed to William D. Vaughan,
201 Bonham, Paris, Texas 75641, with copies directed to the attention of Richard
E. Brophy, Jr., Naman, Howell, Smith & Lee, P.C., Post Office Box 1470, Waco,
Texas 76703 and Michael W. Tankersley, Bracewell & Patterson, L.L.P., 500 N.
Akard, Suite 4000, Dallas, Texas 75201.
Very truly yours,
/s/ WILLIAM D. VAUGHAN
William D. Vaughan
STATE OF TEXAS )
)
COUNTY OF DALLAS )
SWORN TO AND SUBSCRIBED before me on this the 23rd day of August,
1999.
/s/ LISA M. SPARKS
-----------------------------------
Notary Public
Lisa M. Sparks
-----------------------------------
Printed Name
My Commission Expires:
7/23/01
- ----------------------------
<PAGE> 3
August 18, 1999
East Texas Financial Services, Inc.
Board of Directors
1200 South Beckham
Tyler, Texas 75701
Gentlemen:
This letter is to inform you that Mr. William D. Vaughan has an account with J.
C. Bradford & Co. which holds 25,000 shares of East Texas Financial Services,
Inc.
Sincerely,
/s/ JAMES E. BASHAW
James E. Bashaw
Partner/Branch Manager
In witness whereof, I, a Notary Public in and for said County and State have
here unto subscribed my name and affixed my seal of office.
/s/ SUSAN TAYLOR 8-18-99
- ------------------------------- --------------------------
Notary Public Date
Harris, Texas
- -------------------------------
County & State
<PAGE> 1
EXHIBIT E
William D. Vaughan
201 Bonham
Paris, Texas 75641
Re: East Texas Financial Services, Inc.
Dear Fellow Shareholder:
I am a shareholder of East Texas Services, Inc. (the "Company"). On June 17,
1999, I and several other shareholders filed a Schedule 13D with the SEC
indicating that we planned to consider a range of actions that would be directed
at improving the value of the Company for its shareholders. On August 24, 1999,
ETFS Acquisition Corp., a company we own, delivered a proposal to the Company
proposing a merger in which you and other shareholders of the Company would
receive cash of $16.00 for each share of Common Stock you own (the "Proposal").
The Proposal is attached as Exhibit A.
We believe that the Company has experienced unacceptably poor results in recent
years, and it does not appear that current management is likely to take action
to improve this. Two key measures of performance, return on assets and return on
equity, show that the Company is performing substantially below similar
institutions. According to a recent report available on MarketGuide.com, the
Company's return on assets for the most recent twelve months was 0.39%, compared
to 1.26% for the industry; the Company's return on equity for the same period
was 2.38%, compared to 14.5% for the industry. Over the past 9 months the
Company's net income has decreased by 34% compared to the prior year and
earnings per share for the nine months ended June 30, 1999 has fallen to $0.21
from $0.29 from the prior year, a decrease of 27.5%.
After looking at the situation, we concluded that a careful redirection of the
Company could, in time, improve its financial performance. Left alone, we
believe it is likely to continue to suffer disappointing operating results, and
will produce a depressed stock value for its shareholders. We have attempted to
engage management and the Board of Directors in a discussion of other
alternatives to increase shareholder value. They have rejected our most recent
request for a meeting to discuss our ideas, and I am doubtful they will on their
own adopt policies that will improve the Company's financial performance.
I have lived and worked as a community banker in East Texas for almost 20 years.
I live in Paris, Texas and was an owner and President of First National Bank of
Paris for a number of years. The other owners of ETFS Acquisition Corp. also
live and work in East Texas. It is our intention that the Company remain a
community based financial institution with strong roots in the Tyler area. We
would expect there to be continuing participation in the Company's oversight by
members of the Company's Board.
The current Board and management do not appear interested in listening to
shareholders. The Company's common stock no longer trades on NASDAQ. The
Company's financial results continue to decline. The Company's common stock
closed at $11 3/8 the day before we announced our interest in the Company by
filing a Schedule 13D. The stock has traded up since then, but we do not believe
current market prices will be sustained if our proposal is rejected by the
Company's Board of Directors. I believe the Proposal represents the best
opportunity the shareholders of the Company will have to realize the fair value
of their shares. I encourage you to communicate to the Board your response to
the Proposal and to the Company's recent financial results.
Very truly yours,
William D. Vaughan
<PAGE> 1
EXHIBIT F
PRESS RELEASE
FOR IMMEDIATE RELEASE
Contact: William D. Vaughan
903-785-0054
ETFS ACQUISITION CORP. PROPOSES A MERGER WITH
EAST TEXAS FINANCIAL SERVICES, INC.
PARIS, TEXAS, August 23, 1999 - ETFS Acquisition Corp.,("Acquisition") announced
today its proposal to acquire East Texas Financial Services, Inc. ("East
Texas"), through a merger in which shareholders of East Texas would receive
$16.00 per share in cash for each of their shares of Common Stock, representing
an aggregate value to the shareholders of East Texas, excluding shareholders of
Acquisition, of approximately $20 million. East Texas is the parent company of
First Federal Savings & Loan Association of Tyler, Texas.
Acquisition is owned by William D. Vaughan, Dr. Earl D. Bellamy, Dr. Basin M.
Jishi and Donald G. Wilson. They filed a Schedule 13D with the SEC in June 1999
disclosing that they together own approximately 9.8% of East Texas. They became
interested in East Texas because they believe significant improvements can be
made in its operating results. According to a recent report available on
MarketGuide.com, East Texas Financial Service's return on assets for the most
recent twelve months was 0.39%, compared to 1.26% for the industry; and East
Texas Financial Service's return on equity for the same period was 2.38%,
compared to 14.5% for the industry. Over the past 9 months East Texas Financial
Service's net income has decreased by 34% compared to the prior year and
earnings per share for the nine months ended June 30, 1999 has fallen to $0.21
from $0.29 from the prior year, a decrease of 27.5%.
William D. Vaughan has worked as a community banker in East Texas for almost 20
years most recently serving as President of First National Bank of Paris from
1989 to 1997. Mr. Vaughan stated: "Recent requests by our group to meet with
management and the board to discuss specific proposals and improve the financial
performance of East Texas have been refused. Left alone, I believe East Texas
is likely to continue to suffer disappointing operating results. We believe
this proposal represents an opportunity for the shareholders of East Texas to
realize the fair value of their shares and for East Texas to realize its
potential as a strong, community based financial institution." East Texas Common
Stock closed at 11 3/8 on June 16, 1999, the day prior to the filing of the
Schedule 13D by the owners of Acquisition disclosing their interest in
considering a range of alternative actions intended to increase the value of
East Texas to its shareholders.
The proposed transaction is subject to completion of a due diligence review,
agreement or definitive terms, regulatory approvals and approval by the Board of
Directors and shareholders of East Texas.
