# Herring Bancorp, Inc. C.C. Burgess And C. Campbell Burgess v. John Mikkelsen, Acting Solely in His Capacity as Trustee of the John Mikkelsen Trust > Court of Criminal Appeals of Texas · November 20, 2015 URL: https://www.frixlaw.com/law-library/cases/4063951 ## Case - **Court:** Court of Criminal Appeals of Texas - **Decided:** November 20, 2015 - **Precedential status:** Published - **Opinion:** Opinion - **Cited by:** 0 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/4063951 ## Opinion text ACCEPTED 07-15-00327-CV SEVENTH COURT OF APPEALS AMARILLO, TEXAS 11/20/2015 4:55:24 PM Vivian Long, Clerk No. 07-15-00327-CV FILED IN IN THE COURT OF APPEALS FOR THE 7th COURT OF APPEALS AMARILLO, TEXAS SEVENTH DISTRICT OF TEXAS AT AMARILLO 11/20/2015 4:55:24 PM VIVIAN LONG CLERK HERRING BANCORP, INC.; C.C. BURGESS; and C. CAMPBELL BURGESS, Appellants/Cross-Appellees, v. JOHN MIKKELSEN, acting solely in his capacity as Trustee of the John Mikkelsen Trust, Appellee/Cross-Appellant. On Appeal from the 46th Judicial District Court Wilbarger County, Texas, Trial Court Cause No. 24,955 Honorable Dan Mike Bird, Presiding BRIEF OF CROSS-APPELLANT Lee F. Christie State Bar No. 042317100 lfchristie@popehardwicke.com Michael L. Atchley State Bar No. 01397600 matchley@popehardwicke.com POPE, HARDWICKE, CHRISTIE, SCHELL, KELLY & RAY, L.L.P. 500 W. 7th Street, Suite 600 Fort Worth, Texas 76102 817.332.3245—Telephone 817.877.4781—Telecopier ORAL ARGUMENT REQUESTED IDENTITY OF PARTIES AND COUNSEL Cross-Appellant/Appellee/Plaintiff: John Mikkelsen, acting solely in his capacity as Trustee of the John Mikkelsen Trust Counsel for Cross-Appellant/Appellee/Plaintiff: Lee F. Christie State Bar No. 042317100 lfchristie@popehardwicke.com Michael L. Atchley State Bar No. 01397600 matchley@popehardwicke.com POPE, HARDWICKE, CHRISTIE, SCHELL, KELLY & RAY, L.L.P. 500 W. 7th Street, Suite 600 Fort Worth, Texas 76102 817.332.3245—Telephone 817.877.4781—Telecopier Trial and Appellate Counsel Brief of Cross-Appellant Page i IDENTITY OF PARTIES AND COUNSEL (cont.) Appellants/Cross-Appellees/Defendants: Herring Bancorp, Inc. C.C. Burgess C. Campbell Burgess Counsel for Appellants/Cross- Appellees/Defendants: Cornell D. Curtis Thomas S. Leatherbury State Bar No. 24007069 State Bar No. 12095275 vernonlaw@sbcglobal.net tleatherbury@velaw.com CORNELL D. CURTIS, P.C. Manuel G. Berrelez 1716 Main Street State Bar No. 24057760 Vernon, Texas 76834 mberrelez@velaw.com 940.552.9100—Telephone Stephen S. Gilstrap 940.552.2655—Telecopier State Bar No. 24078563 Trial and Appellate Counsel sgilstrap@velaw.com VINSON & ELKINS, LLP Tim Newsom 2001 Ross Avenue, Suite 3700 State Bar No. 00784677 Dallas, Texas 75201 tim@lovell-law.net 214.220.7700—Telephone John H. Lovell 214.999.7792—Telecopier State Bar No. 12609300 Appellate Counsel john@lovell-law.net LOVELL, LOVELL, NEWSOM & ISERN, L.L.P. 112 West 8th Avenue, Suite 1000 Amarillo, Texas 79101-2314 806.373.1515—Telephone 806.379.7176—Telecopier Trial Counsel Brief of Cross-Appellant Page ii TABLE OF CONTENTS Page IDENTITY OF PARTIES AND COUNSEL ..........................................................i INDEX OF AUTHORITIES ................................................................................... v STATEMENT OF THE CASE ............................................................................. vii STATEMENT REGARDING ORAL ARGUMENT ........................................ viii TABLE OF ABBREVIATIONS ............................................................................ ix ISSUES PRESENTED ..............................................................................................x STATEMENT OF FACTS ....................................................................................... 1 SUMMARY OF THE ARGUMENT .................................................................... 19 ARGUMENT AND AUTHORITIES .................................................................. 20 ISSUE 1: The trial court excluded Mikkelsen’s evidence of Appellants’ noncompliance with regulatory requirements and failure to inform the Internal Revenue Service and regulators that the supposed Subchapter “S” conversion was compromised as two classes of stock continue to exist. Was this error? ......................................................... 20 ISSUE 2: The trial court denied Mikkelsen’s Motion to Compel the discovery of net worth information. Was this error? ........................................................................ 24 CONCLUSION ...................................................................................................... 26 PRAYER .................................................................................................................. 27 Brief of Cross-Appellant Page iii SIGNATURE OF COUNSEL ............................................................................... 28 CERTIFICATE OF COMPLIANCE .................................................................... 29 CERTIFICATE OF SERVICE ............................................................................... 29 INDEX TO APPENDIX TO BRIEF OF CROSS-APPELLANT ....................... 30 Brief of Cross-Appellant Page iv INDEX OF AUTHORITIES Cases Page Alamo Nat’l Bank v. Kraus, 616 S.W.2d 908 (Tex. 1981)................................................................. 22, 26 BMW of N. Am. v. Gore, 517 U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996) ............................ 22 Ford Motor Co. v. Castillo, 279 S.W.3d 656 (Tex. 2009)....................................................................... 25 Gharda USA, Inc. v. Control Solutions, Inc., 464 S.W.3d 338 (Tex. 2015)....................................................................... 21 In re Arpin America Moving Systems, LLC, 416 S.W.3d 927 (Tex. App.―Dallas 2013, orig. proceeding) ............... 25 In re Jacobs, 300 S.W.3d 35 (Tex. App.―Houston [14th Dist.] 2009, orig. proceeding) .................. 25 Lunsford v. Morris, 746 S.W.2d 471 (Tex. 1988)....................................................................... 25 McElroy v. Fitts, 876 S.W.2d 190 (Tex. App.―El Paso 1994, writ dism’d) ...................... 27 State v. Central Expressway Sign Assocs., 302 S.W.3d 866 (Tex. 2009)....................................................................... 21 State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003) ............................ 22 Tex. Mut. Ins. Co. Navarez, 312 S.W.3d 94 (Tex. App.―Dallas 2010, pet. denied) .......................... 25 Brief of Cross-Appellant Page v Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299 (Tex. 2006)....................................................................... 22 Vernon v. Perrien, 390 S.W.3d 47 (Tex. App.―El Paso 2012, pet. denied) ......................... 23 Rules and Statutes Tex. Civ. Prac. & Rem. Code § 41.011 .............................................................. 22 Tex. R. App. P. 9.4 ............................................................................................... 29 Tex. R. App. P. 39 ...............................................................................................viii Brief of Cross-Appellant Page vi STATEMENT OF THE CASE Nature of the Case: This is an appeal following a jury trial. Plaintiff/Cross-Appellant Mikkelsen filed suit contending that Appellants’ invalid stock redemption constituted a breach of Herring’s Articles of Incorporation and therefore a breach of contract. Mikkelsen also brought claims for declaratory judgment, enforcement of inspection rights, breach of fiduciary duty, civil conspiracy, and unlawful oppression of a minority shareholder. [1 CR 5-17; 2 CR 153-161] [App. 45-57; 58-66] Trial Court: The 46th Judicial District Court, Wilbarger County, Texas, Cause No. 24,955; the Honorable Dan Mike Bird, presiding. Trial Court’s Disposition: The trial court entered a Final Judgment on June 16, 2015 incorporating a prior partial summary judgment as well as the jury’s verdict [2 CR 334; App. 1]. The trial court denied Appellants’ Motion for Judgment Notwithstanding the Verdict and Motion for New Trial on August 19, 2015. [2 CR 409- 410]. Brief of Cross-Appellant Page vii STATEMENT REGARDING ORAL ARGUMENT Pursuant to Texas Rule of Appellate Procedure 39, Cross-Appellant Mikkelsen requests oral argument. This Court’s decision will be significantly aided by oral argument because the appeal involves a somewhat complex set of facts and procedural history. Brief of Cross-Appellant Page viii TABLE OF ABBREVIATIONS Mikkelsen: Appellee/Cross-Appellant/Plaintiff John Mikkelsen Herring: Appellant/Cross-Appellee/Defendant Herring Bancorp, Inc. CR: Clerk’s Record RR: Reporter’s Record App: Appendix Brief of Cross-Appellant Page ix ISSUES PRESENTED ISSUE 1: The trial court excluded Mikkelsen’s evidence of Appellants’ noncompliance with regulatory requirements and failure to inform the Internal Revenue Service and regulators that the supposed Subchapter “S” conversion was compromised as two classes of stock continue to exist. Was this error? ISSUE 2: The trial court denied Mikkelsen’s Motion to Compel the discovery of net worth information. Was this error? Brief of Cross-Appellant Page x STATEMENT OF FACTS This case involves the purported redemption of shares of Herring’s preferred stock. Herring is a bank holding company that owns Herring Bank. Mikkelsen was previously Chairman of the Board of Directors for Herring and the Bank, but he was ousted from these roles in the 1990s when the Burgess family took control of both. Mikkelsen later inherited some shares of Herring preferred stock from his mother and was later assigned preferred shares by his brother Mallory Mikkelsen. When the Burgess family decided to convert Herring to a Subchapter “S” corporation ― meaning that it could no longer have preferred stock ― they concocted a scheme to permit all of the preferred shareholders except Mikkelsen (that is, the Burgess family and their friends) to trade their preferred stock for common stock. Mikkelsen alone was commanded to sell his preferred shares back to Herring for par value. Mikkelsen’s suit centers on his contention that this unequal treatment of the preferred shares (permitting the exchange of some but then “redeeming” Mikkelsen’s) violated the company’s Articles of Incorporation and was void. Brief of Cross-Appellant Page 1 Mikkelsen, as Trustee of the John Mikkelsen Trust, owns 300 shares of preferred stock in Herring.1 His chief complaint in this case is that Herring violated its Articles of Incorporation because it permitted all of Herring’s preferred stock except his to be exchanged for common stock, and that his shares were singled out for “redemption,” meaning that he was commanded to sell them back to the company for par value. Mikkelsen filed this suit in the trial court, making claims for (1) breach of contract, for violating the Articles of Incorporation, (2) a declaratory judgment that the redemption was void and that Mikkelsen continues to be a preferred shareholder, (3) a declaratory judgment that Mikkelsen has the right to inspect the company’s books and records, and (4) breach of fiduciary duty, oppression of a minority shareholder, and conspiracy, as Mikkelsen contends that the redemption scheme was the work of the Burgess family aimed at singling him out and divesting him of any interest in Herring. Mikkelsen’s involvement with Herring Bank began in 1969, when he was elected to its Board of Directors.2 Mikkelsen’s 1 8 RR 47-48. 2 8 RR 21. Brief of Cross-Appellant Page 2 grandfather-in-law was involved with the Bank when it was chartered in 1903.3 Mikkelsen became Vice-Chairman of the Board in 1978, and was elected Chairman of the Board in 1982.4 Herring Bancorp ― the holding company that is a party to this case ― was formed in 1984.5 Herring Bancorp owns Herring Bank.6 Mikkelsen served as Chairman of the Board of the Bank from 1982 until 1997, and served as Chairman of the Board of Herring Bancorp from the time it was formed in 1984 until 1992.7 Appellant C.C. Burgess bought stock in Herring Bank in about 1972, and was elected to the Board of Directors in about 1973.8 C.C. Burgess continues to serve on Herring Bancorp’s Board of Directors as its Chairman.9 He is also Chairman of the Board of Directors of the Bank.10 3 8 RR 18-19. 4 8 RR 22. 5 8 RR 23. 6 9 RR 16. 7 8 RR 27-28. 8 8 RR 27. 9 Id.; 9 RR 16 10 9 RR 16-17. Brief of Cross-Appellant Page 3 Campbell Burgess is the son of C.C. Burgess.11 He has served as Chief Executive Officer and Vice-Chairman of Herring Bancorp.12 He has also served as Vice-Chairman of the Bank.13 C.C. Burgess gained an executive capacity with Herring in the 1990s, when the Burgess family acquired additional stock in the company and took control of it.14 From that time forward, the Burgess family, or trusts created for their benefit, have owned and controlled a majority of Herring’s stock, and they have been in control of the Bank and the holding company for all of that time.15 Members of the Burgess family now comprise the entire Herring Board of Directors, except for one seat, which is held by a long-time friend of Campbell Burgess.16 When the Burgess family took control of the Bank in 1992, they elected themselves to enough positions to take over the Board of Directors, and they decided to oust Mikkelsen from his leadership 11 9 RR 95-96. 12 9 RR 17. 13 Id. 14 9 RR 18. 15 9 RR 18, 21. 16 9 RR 21, 75-76. Brief of Cross-Appellant Page 4 role.17 One of the other shareholders, along with the local County Attorney, brought a quo warranto proceeding, contending in essence that the Burgesses had not been properly elected to their positions.18 That litigation was resolved in June or July 1992, by an agreement under which, among other things, Mikkelsen and his family sold essentially all of their shares in the holding company (all except for 180 shares, which were sold back to the company in 1998), and Mikkelsen was provided a five-year contract to stay on as Chairman and Chief Executive Officer until December 31, 1997.19 After this, Mikkelsen was out of the Bank and the Burgesses were in complete control.20 The only Mikkelsen to retain any interest in the company after that time was Mikkelsen’s mother, who had 300 shares of Herring’s preferred stock (i.e., stock that has a specific par value and earns a certain percentage dividend, but has no voting rights).21 There were about 17,000 total shares of Herring preferred stock outstanding.22 17 8 RR 36-37; 9 RR 20-21. 18 8 RR 34-35. 19 8 RR 35-36. 20 8 RR 36-37. 21 8 RR 37. 22 Id. Brief of Cross-Appellant Page 5 Mikkelsen’s mother died in 2005, at which time Mikkelsen (as Trustee of the John Mikkelsen Trust) inherited 150 of the preferred shares and his brother Mallory inherited the other 150 shares.23 Mallory later assigned his 150 shares to Mikkelsen (as Trustee of the John Mikkelsen Trust).24 The Burgesses decided in 2006 to convert Herring from a Subchapter “C” corporation to a Subchapter “S” corporation.25 This was allegedly desired mainly to take advantage of the fact that Subchapter “S” corporations are not taxed at the corporate level as Subchapter “C” corporations are. Rather, Subchapter “S” corporations are taxed more like partnerships; dividends are paid to the shareholders, who pay taxes on that income, but the company itself is not generally subject to income taxation.26 Mikkelsen initially expressed to C.C. Burgess that he was not opposed to the conversion.27 23 8 RR 46-47. 24 8 RR 48-49. 25 8 RR 55-56, 59; 10 RR 88-89. 26 8 RR 56. 27 8 RR 59-60. Brief of Cross-Appellant Page 6 To convert a corporation from Subchapter “C” to Subchapter “S,” the company needs the consent of all shareholders,28 must maintain no more than one class of stock,29 and must have no more than 100 shareholders.30 As the company had preferred shares outstanding, Herring would have to redeem those shares or convert them to common stock.31 Herring’s preferred stock had been issued under specific authority in the company’s Articles of Incorporation. The Articles also set forth a specific, required procedure for redeeming the shares: 5. Redemption. a. Preferred Stock. The Corporation, at the option of the Board of Directors, may at any time redeem the whole, or from time to time redeem any part, of the Preferred Stock outstanding by paying in cash therefor the sum of $95 per share, plus all dividends declared but unpaid thereon . . . . *** Should only a part of the outstanding Preferred Stock be redeemed, the redemption will be effected by lot or pro rata, as prescribed by the Board of Directors.32 28 10 RR 110-111. 29 8 RR 61; 9 RR 25. 30 9 RR 29-30. 31 8 RR 61. 32 12 RR PX-2 (App. 84) (emphasis added). Brief of Cross-Appellant Page 7 The Articles of Incorporation are clear on this: if the company wishes to redeem any preferred shares, it must either (1) redeem all of them, (2) redeem some by lot [drawing], or (3) redeem some of them by redeeming pro rata from each shareholder.33 Instead of following the Articles, the Burgesses decided on a different scheme that resulted in bracketing and forcing out only the Mikkelsen shares. C.C. Burgess and one other Board member labeled themselves a two-person “committee” that concocted “criteria” for permitting a preferred shareholder to “convert” their shares for common stock in the company rather than to have the shares redeemed. In essence, the Burgess “committee” decided that a preferred shareholder would be entitled to convert preferred shares to common stock if (1) the preferred shareholder had a banking relationship with Herring Bank, and (2) upon conversion, the shareholder would hold at least 50 shares of common stock; any other preferred shares (i.e., 33 8 RR 93. Brief of Cross-Appellant Page 8 Mikkelsen’s) would be redeemed.34 There is no authority in the Articles of Incorporation for such a set of “criteria” to determine which preferred shares to redeem, and there is no authority in the Articles for an “exchange” or “conversion” of preferred shares. At the time this conversion scheme was created, there were 11 preferred shareholders, who together held a collective 17,147 preferred shares.35 Those shareholders were (1) C.C. Burgess – 7882 shares ; (2) Janie Slemp Burgess (C.C. Burgess’s wife36) – 576 shares; (3) Margo Colquitt Burgess (C.C. Burgess’s former daughter-in-law37) – 1053 shares; (4) Harriet Burgess Myers (C.C. Burgess’s sister38) – 660 shares; (5) Monarch Trust Co. (a trust company owned by the Burgess family39) – 96 shares; (6) Kelly & Susan Couch Living Trust (Susan Couch was a board member40) – 2940 shares; (7) Sharon Haney Browning (cousin of board member Couch41) – 1470 shares; (8) Susan 34 8 RR 192; 9 RR 96-97. 35 9 RR 100-104; 12 RR PX-25 (App. 93). 36 8 RR 31; 9 RR 100. 37 9 RR 101. 38 9 RR 101. 39 9 RR 100. 40 9 RR 101. 41 9 RR 100-101. Brief of Cross-Appellant Page 9 Spiller Culbertson (relative of board member Couch42) – 1470 shares; (9) Vernon Parts, Inc. (a company owned by Jim Pennington43) – 1000 shares; (10) Mikkelsen – 150 shares; (11) Mallory Mikkelsen – 150 shares.44 As the preferred shares had a set par value of $95 per share, Herring would have had to pay over $1,600,000.00 to redeem all 17,147 preferred shares ($95 x 17,147).45 The company obviously wished to avoid such an expenditure, which is undoubtedly part of the reason the Burgesses concocted the conversion scheme. To convert the preferred shares to common stock, the company calculated an exchange value based on the par value of the preferred shares ($95 per share) and the book value of the common stock.46 The book value of the common stock at that time was $698.10,47 meaning that the conversion rate was about 7.34 preferred shares for one share of common stock (698.10 / 95).48 42 9 RR 101. 43 9 RR 203. 44 12 RR PX-25 (App. 93). 45 9 RR 61. 46 9 RR 30-31. 47 10 RR 153. 48 Id.; 13 RR DX- 12 (App. 94). Brief of Cross-Appellant Page 10 The conversion rate resulted in a calculation that the preferred shareholders, if they converted to common stock, would receive these numbers of common shares: (1) C.C. Burgess - 1072 shares; (2) Janie Slemp Burgess – 78 shares; (3) Margo Colquitt Burgess – 143 shares; (4) Harriet Burgess Myers – 89 shares; (5) Monarch Trust Co. – 13 shares; (6) Kelly & Susan Couch Living Trust – 400 shares; (7) Sharon Haney Browning – 200 shares; (8) Susan Spiller Culbertson– 200 shares; (9) Vernon Parts, Inc. – 136 shares; (10) Mikkelsen – 20 shares; (11) Mallory Mikkelsen – 20 shares.49 C.C. Burgess’s “criteria” for permitting conversion ― specifically, the criterion denying conversion for anyone who would not have at least 50 shares of common stock ― cut out only the Mikkelsen shares. Monarch Trust Co. (the Burgess family company) already had other shares of common stock, so it would have over 400 total shares after conversion.50 Corporations cannot own stock in a Subchapter “S” corporation, but the company assisted Monarch, and Vernon Parts, 49 10 RR 153; 13 RR DX- 12 (App. 94). 50 9 RR 53. Brief of Cross-Appellant Page 11 Inc., to change the ownership of their shares so that they could then be converted to common stock.51 The Burgesses offered no similar assistance to Mikkelsen. Rather, the 50-share criterion cut only the Mikkelsens out of the chance to convert to common stock (as they would have had about 40 shares instead of the concocted 50-share requirement). There was no legitimate reason for the 50-share requirement; C.C. Burgess testified that it was just a number he and the other member of his two-person “committee” invented.52 Though Board committees were required by the company’s Bylaws to keep minutes, this “committee” kept no minutes.53 Obviously, the Burgesses wanted to rid themselves of Mikkelsen. He was the person they had already forced out of the Bank once, and they did not want him involved any longer. Even though he had expressed general initial agreement with the conversion to Subchapter “S” status, they were concerned that he might ultimately 51 9 RR 203. 52 9 RR 57. 53 9 RR 49-50. Brief of Cross-Appellant Page 12 oppose the idea, thus depriving the Burgesses of the unanimity required for conversion.54 The only stated reason the Burgesses had for implementing any criteria is that they wanted to limit the number of stockholders so that they would not ultimately run afoul of the maximum of 100 shareholders.55 But the company would have had far fewer than 100 shareholders, and with the generational exception (under which lineal relatives generally do not count against the 100-shareholder limit), the company was nowhere close to the maximum number.56 There is no evidence supporting the notion that ridding the company of Mikkelsen and only Mikkelsen would translate to any significant difference vis-à-vis the 100-shareholder maximum. C.C. Burgess initially told Mikkelsen that all preferred shares would be redeemed and/or exchanged into common stock.57 However, on September 22, 2006, Burgess sent Mikkelsen a letter informing him that “[s]ince the conversion factor [for preferred and non-voting common shares] will result in you and Mallory having 54 10 RR 110. 55 9 RR 27. 56 9 RR 30; 8 RR 77-78. 57 8 RR 61. Brief of Cross-Appellant Page 13 only 19 shares of common stock each, we will be sending you and Mallory a letter expressing the Bank’s intent to call your preferred stock.”58 As this letter reflects, Mikkelsen and his brother were being singled out for “special” treatment in the form of deprivation of their preferred shares. Although the other preferred shareholders were given the opportunity to convert their shares to common stock,59 the Mikkelsens were sent a “Notice of Redemption” informing them that their shares would be redeemed: This letter is to notify you that the board of directors (the “Board”) of Herring Bancorp, Inc. (the “Company”) has called for the redemption (the “Redemption”) of your outstanding shares of Preferred Stock (the “Preferred Stock”) of the Company on November 20, 2006. *** As a result of this process, the Board appointed a committee to recommend the criteria for determining which Preferred Stock shareholders would be offered to exchange their shares for the Company’s common stock (the “Common Stock”), the nonvoting Common Stock-Series A (the “Common Stock- Series A”), or to have their shares redeemed. The Board’s criteria for making this 58 8 RR 69; 12 RR PX- 9. 59 12 RR PX-18. Brief of Cross-Appellant Page 14 determination included whether the Preferred Stock shareholder had a banking relationship with Herring Bank (the “Bank”), and whether they would own at least 50 shares of Common Stock upon the conversion. If these criteria were met, the Board offered the Preferred Stock shareholders the option to exchange their shares for the Common Stock. If the Preferred Stock shareholder did not meet these criteria, the Board determined the Preferred Stock shareholders would be redeemed. *** From our conversations with you and the Board’s determination regarding our classes of stock, your Preferred Stock will be redeemed.60 Clearly, Defendants’ own “Notice of Redemption” draws a distinction among the preferred shareholders and admits that only some of the preferred shares were being redeemed for cash. The Notice of Redemption also makes it clear that the procedure for determining which of the preferred shares would be redeemed for cash did not involve a drawing by lot or pro rata as mandated by the Articles; instead, all but the Mikkelsen shares were “exchanged” for common stock. Mikkelsen did not surrender the 300 shares as demanded, but instead pleaded with Burgess and Herring’s attorneys to permit him to 60 12 RR PX-13 (App. 90); 8 RR 80-81. Brief of Cross-Appellant Page 15 convert the preferred shares to common stock, and reminded them that the partial redemption violated the Articles of Incorporation.61 Mikkelsen’s requests were ignored, so he filed the underlying lawsuit in 2008.62 Procedural History In the court below, Mikkelsen asserted claims for (1) breach of contract, (2) a declaration that the redemption was void and that he continues to hold 300 shares of Herring’s preferred stock, (3) a declaration that he has the right to inspect the company’s books and records, and (4) breach of fiduciary duty, unlawful oppression of a minority shareholder, and conspiracy.63 Well before the case went to jury trial, the trial court granted a partial summary judgment in favor of Mikkelsen on his breach of contract claim and declaratory judgment claims.64 Specifically, the trial court found and concluded as a matter of law that (1) the purported redemption of Mikkelsen’s preferred shares was undertaken in violation of the company’s Articles of Incorporation and 61 8 RR 76; 8 RR 116-127. 62 8 RR 127. 63 1 CR 5-17 (App. 45-57); 2 CR 153-161 (App. 58-66). 64 1 CR 306-307 (App. 4-5). Brief of Cross-Appellant Page 16 is void, and (2) Mikkelsen is, and continues to be, the holder of 300 shares of Herring’s preferred stock, and has all the rights appurtenant thereto, including the right to inspect the company’s books and records.65 During the trial, the trial court did not permit Mikkelsen to introduce evidence of regulatory difficulties concerning the Burgesses and the Office of the Comptroller of the Currency and the FDIC.66 Specifically, by way of an offer of proof, Mikkelsen offered evidence that an order such as the trial court’s order granting Mikkelsen’s Motion for Partial Summary Judgment invokes a duty on the part of the Bank’s management to disclose the order to the IRS and regulators.67 There was no such disclosure, and no disclosure on Herring’s FDIC call reports.68 Additionally, Mikkelsen offered evidence of Herring’s failure to comply with requirements of the Office of the Comptroller of the Currency (the regulatory authority governing national banks), that the bank surrendered its OCC charter 65 Id. 66 6 RR 10-14; 8 RR 142-144. 67 8 RR 220-221 68 8 RR 221-246; 12 RR PX-45, 46, 47, 52, 53 (App. 95-115), 54 (App. 116-141); 13 RR DX-31, 41-46. Brief of Cross-Appellant Page 17 and became a state bank, and that the FDIC essentially ordered Campbell Burgess to cease his leadership role with the Bank.69 The trial court refused to admit this evidence, even though Mikkelsen urged that the evidence was critical in showing a pattern of improper conduct. The trial court also prevented Mikkelsen from introducing evidence as to the net worth of the Appellants, and in fact precluded Mikkelsen from being able to conduct discovery of the Appellants’ net worth.70 At the conclusion of the trial, the jury found that Mikkelsen was entitled to recover attorney’s fees in the amount of $127,442.00 through trial, with additional amounts for appeals; found that C.C. Burgess engaged in oppressive conduct toward Mikkelsen; found that Campbell Burgess engaged in oppressive conduct toward Mikkelsen; found that Mikkelsen was entitled to recover damages in the amount of $23,314.80 for lost dividend income; found that C.C. Burgess did not act with malice; found that Campbell Burgess did not act with malice; 69 8 RR 237-238; 12 RR PX-53-54 (App. 105-115; 116-141); 10 RR 216-232. 70 1st Supp CR 86-93 (App. 37-43; 44). Brief of Cross-Appellant Page 18 did not find any exemplary damages; found that C.C. Burgess breached fiduciary duties owed to Mikkelsen; found that Campbell Burgess did not breach fiduciary duties owed to Mikkelsen; and found no conspiracy.71 The trial court entered a Final Judgment incorporating the jury’s verdict and the prior order on Mikkelsen’s Motion for Partial Summary Judgment.72 SUMMARY OF THE ARGUMENT Although Mikkelsen was largely successful in the trial court, he was prevented from introducing evidence that was central to his effort to obtain exemplary damages. The trial court erred by excluding evidence of Appellants’ pattern of wrongdoing, which was crucial to showing malice and other factors weighing on whether to award exemplary damages and in what amount. The trial court also erred by denying Mikkelsen’s Motion to Compel discovery of Appellants’ net worth, which precluded Mikkelsen from developing and introducing 71 2 CR 228-258 (App. 6-36) 72 2 CR 334 (App. 1-3). Brief of Cross-Appellant Page 19 the evidence of net worth that is also essential to his claim for exemplary damages. ARGUMENT AND AUTHORITIES ISSUE 1: The trial court excluded Mikkelsen’s evidence of Appellants’ noncompliance with regulatory requirements and failure to inform the Internal Revenue Service and regulators that the supposed Subchapter “S” conversion was compromised as two classes of stock continue to exist. Was this error? At trial, Mikkelsen offered evidence relating to regulatory problems encountered by Appellants, as well as Appellants’ failure to report to regulators that the summary judgment order had been entered. As the summary judgment order found that Mikkelsen continued to own preferred shares in Herring, Herring had more than one class of shareholders and its Subchapter “S” conversion was void or at least in jeopardy. It is a critical omission for Appellants not to bring this information to the attention of the IRS and the appropriate regulators. Mikkelsen needed to present evidence of these matters to show a continuing course of dishonest behavior. This evidence would have assisted the jury in determining whether malice was present and in determining whether to award exemplary damages. Lacking this Brief of Cross-Appellant Page 20 critical evidence, the jury found in favor of Appellants on both of these issues. A trial court’s decision to admit or exclude evidence is reviewed under an abuse of discretion standard. Gharda USA, Inc. v. Control Solutions, Inc., 464 S.W.3d 338, 347 (Tex. 2015). Reversal is appropriate if the error is harmful; that is, if it probably caused the rendition of an improper judgment. State v. Central Expressway Sign Assocs., 302 S.W.3d 866, 870 (Tex. 2009). This Court should consider the entire record in determining whether the evidentiary ruling was harmful. Id. Mikkelsen need not show that “but for” the exclusion of the evidence a different judgment would have resulted. Rather, the error was harmful if the excluded evidence was crucial to a key issue. Id. Here, the excluded evidence was crucial to the jury’s ability to analyze whether to award exemplary damages and in what amount. In making this determination, a jury is to consider (1) the nature of the wrong, (2) the character of the conduct, (3) the degree of the wrongdoer’s culpability, (4) the situation and sensibilities of the parties concerned, (5) the extent to which the conduct offends a public sense of justice and propriety, and (6) the defendant’s net worth. Brief of Cross-Appellant Page 21 Alamo Nat’l Bank v. Kraus, 616 S.W.2d 908, 910 (Tex. 1981); Tex. Civ. Prac. & Rem. Code § 41.011. The trial court instructed the jury to consider the Kraus factors in this case,73 but the jury was lacking crucial evidence pertaining to the character of the conduct, the degree of culpability, the situation and sensibilities of the parties, and a public sense of justice and propriety. A factor in determining an award of exemplary damages is whether the harm involved repeated acts or isolated incidents. Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 318 (Tex. 2006), citing State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 419, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003). A recidivist is generally more reprehensible, and may be punished more severely, than a one-time offender. Id. at 309 n. 48, citing BMW of N. Am. v. Gore, 517 U.S. 559, 577, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996). Mikkelsen was denied an opportunity to demonstrate the Appellants’ recidivism to the jury. Although the Kraus factors generally relate to the amount of exemplary damages, they are important here as to liability because the “malice” that would justify an award of exemplary damages may be 73 2 CR 249-250 (App. 27-28). Brief of Cross-Appellant Page 22 shown by direct or circumstantial evidence. See Vernon v. Perrien, 390 S.W.3d 47, 62 (Tex. App.―El Paso 2012, pet. denied). Mikkelsen attempted to introduce evidence that the FDIC essentially ordered the removal of Campbell Burgess from the Bank because, among other things, he “engaged or participated in unsafe or unsound banking practices, committed or engaged in acts, omissions, or practices which constitute breaches of his fiduciary duty to the Bank, and/or violated law or regulation; that the Bank suffered financial loss and [Campbell Burgess] received financial gain or other benefit as a result of such practices . . . and that such practices . . . demonstrate [Campbell Burgess’s] personal dishonesty or willful or continuing disregard for the safety or soundness of the Bank.”74 Mikkelsen also attempted to introduce evidence of an agreement between the Bank and the Office of the Comptroller of the Currency under which the Bank was required to undertake a series of actions to remedy deficiencies in the Bank’s operations and that, instead of 74 12 RR PX-54 (App. 116); 8 RR 239-243, 245-246; 10 RR 217-218; 222; 225-232. Brief of Cross-Appellant Page 23 complying, the Bank forfeited its decades-old national charter and became a state bank.75 Mikkelsen also attempted to introduce evidence of the Appellants’ failure to notify the Internal Revenue Service and the FDIC of the potential existence of two classes of stock, after the trial court had ordered that Mikkelsen continued to own preferred shares.76 If this crucial evidence had been admitted, the jury probably would have concluded that C.C. Burgess and Campbell Burgess acted with malice, and that their recidivism, their degree of culpability, and a public sense of justice and propriety justified an award of exemplary damages. The trial court erred in refusing to admit this evidence, and the error was harmful in that it probably resulted in an improper judgment on the issue of exemplary damages. ISSUE 2: The trial court denied Mikkelsen’s Motion to Compel the discovery of net worth information. Was this error? Mikkelsen was also prevented from introducing evidence of the Appellants’ net worth and, in fact, was not permitted to conduct 75 12 RR PX-53 (App. 95); 8 RR 235-239, 245-246; 10 RR 217-218; 222; 225-232. 76 8 RR 220-228; 232-235; 10 RR 216-232. Brief of Cross-Appellant Page 24 discovery on the issue. The trial court denied Mikkelsen’s Motion to Compel discovery of the Appellants’ net worth.77 A trial court’s discovery order is reviewed for abuse of discretion. Tex. Mut. Ins. Co. v. Navarez, 312 S.W.3d 94, 103 (Tex. App.―Dallas 2010, pet. denied). A trial court abuses its discretion when it denies discovery going to the heart of a party’s case or when the denial compromises a party’s ability to present a viable defense. Ford Motor Co. v. Castillo, 279 S.W.3d 656, 663 (Tex. 2009). A defendant’s net worth is relevant in a suit involving exemplary damages. Lunsford v. Morris, 746 S.W.2d 471, 473 (Tex. 1988). Under the law applicable to this case, a plaintiff who is seeking to recover exemplary damages is entitled to discovery of the defendants’ net worth, and is not required to make a prima facie showing of likely recovery before conducting such discovery. In re Arpin America Moving Systems, LLC, 416 S.W.3d 927, 929 (Tex. App.―Dallas 2013, orig. proceeding); In re Jacobs, 300 S.W.3d 35, 40-41 (Tex. App.―Houston [14th Dist.] 2009, orig. proceeding). 77 1st Supp. CR 86-93 (App. 37-43; 44) Brief of Cross-Appellant Page 25 Here, the Appellants’ net worth is crucial evidence that Mikkelsen needed in order to present his case for exemplary damages. Mikkelsen’s pleadings request an award of exemplary damages.78 The jury was instructed to consider net worth as one of the Kraus factors,79 but heard no evidence on the subject because the trial court did not permit Mikkelsen to develop it. The order denying Mikkelsen’s Motion to Compel discovery of net worth information was an abuse of discretion that prevented Mikkelsen from developing crucial evidence going to the heart of his case for exemplary damages. This denial probably resulted in an improper judgment, and it should be reversed and a new trial ordered on the issue of exemplary damages. CONCLUSION While Mikkelsen succeeded on most of his claims, the trial court erred by denying him the opportunity to demonstrate Appellants’ dishonest recidivism and net worth. This error prevented Mikkelsen from presenting evidence that was crucial to his claim for exemplary damages. If the evidence had been admitted, the jury probably would 78 2 CR 160 (App. 65). 79 2 CR 249-250 (App. 27-28). Brief of Cross-Appellant Page 26 have awarded Mikkelsen exemplary damages. The trial court’s judgment should be reversed to the extent it fails to award exemplary damages to Mikkelsen, the trial court’s order denying Mikkelsen’s motion to compel discovery of net-worth information should be reversed, Mikkelsen should be permitted to conduct net-worth discovery, and the Court should order a new trial on the issue of malice and exemplary damages to the extent permitted, or at a minimum grant Mikkelsen this relief if the case is otherwise remanded to the trial court.80 PRAYER Mikkelsen respectfully requests the Court to reverse the Final Judgment to the extent it fails to award exemplary damages to Mikkelsen, to render judgment that Mikkelsen is entitled to recover exemplary damages or to order a new trial on this issue, to order a new trial on the issue of the amount of exemplary damages to be awarded, to reverse the trial court’s Order denying Mikkelsen’s 80There is authority for remanding a case for a new trial on the issue of exemplary damages. See McElroy v. Fitts, 876 S.W.2d 190, 199 (Tex. App.―El Paso 1994, writ dism’d). However, should the Court determine such relief to be inappropriate, Mikkelsen alternatively seeks remand on these issues if the case is otherwise remanded. Brief of Cross-Appellant Page 27 Motion to Compel discovery of net-worth information, to instruct the trial court to order the discovery of such information, and to grant Mikkelsen all other relief he is entitled to receive. Alternatively, Mikkelsen seeks this relief in the event the case is otherwise remanded to the trial court. Respectfully submitted, __/s/ Michael L. Atchley________ Lee F. Christie State Bar No. 042317100 hray@popehardwicke.com Michael L. Atchley State Bar No. 01397600 matchley@popehardwicke.com Pope, Hardwicke, Christie, Schell, Kelly & Ray, L.L.P. 500 W. 7th Street, Suite 600 Fort Worth, Texas 76102 817.332.3245—Telephone 817.877.4781—Telecopier ATTORNEYS FOR CROSS-APPELLANT Brief of Cross-Appellant Page 28 CERTIFICATE OF COMPLIANCE 1. This brief complies with the type-volume limitations of Texas Rule of Appellate Procedure 9.4(i)(2)(B) because it contains 5,358 words, excluding the parts of the brief exempted by Texas Rule of Appellate Procedure 9.4(i)(1). 2. This brief complies with the typeface requirements of Texas Rule of Appellate Procedure 9.4(e) because this brief has been prepared in a proportionally spaced typeface using “Microsoft Word 2010” in 14-point “Book Antiqua” style font (12-point for footnotes). /s/ Michael L. Atchley Michael L. Atchley CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing document is being forwarded to all counsel of record via electronic filing on November 20, 2015, as follows: Thomas S. Leatherbury Cornell D. Curtis State Bar No. 12095275 State Bar No. 24007069 tleatherbury@velaw.com vernonlaw@sbcglobal.net Manuel G. Berrelez CORNELL D. CURTIS, P.C. State Bar No. 24057760 1716 Main Street mberrelez@velaw.com Vernon, Texas 76834 Stephen S. Gilstrap State Bar No. 24078563 sgilstrap@velaw.com VINSON & ELKINS, LLP 2001 Ross Avenue, Suite 3700 Dallas, Texas 75201 /s/ Michael L. Atchley Michael L. Atchley Brief of Cross-Appellant Page 29 No. 07-15-00327-CV IN THE COURT OF APPEALS FOR THE SEVENTH DISTRICT OF TEXAS AT AMARILLO HERRING BANCORP, INC.; C.C. BURGESS; and C. CAMPBELL BURGESS, Appellants/Cross-Appellees, v. JOHN MIKKELSEN, acting solely in his capacity as Trustee of the John Mikkelsen Trust, Appellee/Cross-Appellant. On Appeal from the 46th Judicial District Court Wilbarger County, Texas, Trial Court Cause No. 24,955 Honorable Dan Mike Bird, Presiding INDEX TO APPENDIX TO BRIEF OF CROSS-APPELLANT Document Pages Final Judgment (2 CR 335-336)................................................................ 1-3 Order on Motion for Partial Summary Judgment (2 CR 306-307) ..... 4-5 Jury Charge (2 CR 228-258) ................................................................... 6-36 Plaintiff’s Motion to Compel (1st Supp. CR 86-92) ........................... 37-43 Order Denying Plaintiff’s Motion to Compel (1st Supp. CR 93) ........ 44 Brief of Cross-Appellant Page 30 Document Pages Plaintiff’s Original Petition (1 CR 5-17) .............................................. 45-57 Plaintiff’s First Amended Original Petition (2 CR 153-161) ............ 58-66 Herring Articles of Incorporation (12 RR PX-2) ................................ 67-89 Notice of Redemption (12 RR PX-13) .................................................. 90-92 List of Preferred Shareholders (12 RR PX-25) .......................................... 93 Shareholder List Showing Conversion Rate (13 RR DX-12) .................. 94 Herring Agreement with the OCC (12 RR PX-53) .......................... 95-115 FDIC Order Regarding Campbell Burgess (12 RR PX-54) ........... 116-141 Brief of Cross-Appellant Page 31 334334334334334 C.AUSE CAUSE NO. 24,955 24.955 Sy _ ____ _ _ _ _ _ _ __ Oc~:_.iy JOHN MIKKELSEN, MIKK ELSEN. IN TH E DISTRICT COURT [N THE T'rust ee acting solely in his capacity as Trustee of the John M.ikkelsen t\Aikke1sen Trust, 'rrust Plaintiff. Plaintiff: v. WI LBARG ER COUNTY. WILBARGER COUNTY TEXAS HERRING IIERRlNG BA.i."i"CORP, BANCORP, INC.;INC; c.c. BURGESS; C.C. BURGESS, and C. CAMPBELL. CAMPBELl. BURGESS, BURGESS. Defendants. 46TH 46TI-I JUDICIAL DISTRICT FINAL FIN AL .JUDGMENT ,JUDG MENT On January 30, 2015, calls~ came on to be heard, and John 1 20 [5 , this cause vlikkelscn., Mikkel sen, acting solely in his capacity as Trustee of the John Mikkelsen Trust, Plaintiff. Plaintiff, appeared in person and by att:orney Pf11/11 h7 Appendix p. 10 CHARGE TO THE JURY PAGES5 OF 30 PAGE 232 233233233233233 DEFINITIONS AND INSTRUCTIONS You are instructed that when words are used in the Questions in a sense which varies from the meaning commonly understood, you will be given in this Charge a proper legal definition which you are bound to accept in the place of any other definition or meaning. In answering the Questions you shall give the following terms the following meanings: 1. The term "preponderance of the evidence" means the greater weight of credible evidence presented in this case. If you do not find that a preponderance of the evidence supports a no." A preponderance of the evidence is not measured by the number "yes" answer, then answer " no," of witnesses or by the number of documents admitted in evidence. For a fact to be proved by a preponderance of the evidence, you must find fi nd that the fact is more likely true than not true. A fact fac t may be established by direct evidence or by circumstantial evidence, or both. A fact is established by direct evidence when proved by documentary evidence or by witnesses who saw the act done or heard the words spoken. spoken . A fact is established by circumstantial evidence when it may be fairly and reasonably inferred from other facts proved. 2. A fact may be established by direct evidence or by circumstantial evidence or both. A fact is established by direct evidence when proved by documentary evidence or by witnesses who saw the act done or heard the words spoken. A fact is established by circumstantial evidence when it may be fairly and reasonably inferred from other facts proved. 3. "Mikkelsen" means Plaintiff John Mikkelsen, Mikkel sen, acting solely in his capacity as Trustee of the John Mikkelsen Trust and his agents, attorneys, and representatives acting in the course and scope of their agency or employment. CHARGE TO THE JURY PAGE 6 OF30 OF 30 Appendix p. 11 233 234234234234234 4. "Herring Bancorp" Bancocp" means Herring Bancorp, Inc., and its agents, attorneys, employees, officers, directors, and representatives acting in the course and scope oftheir agency or employment. 5. "C.C. Burgess" means c.c. C.C. Burgess and his agents, attorneys, and representatives acting in the course and scope of their agency or employment. 6. "Campbell Burgess" means C. Campbell Burgess and his agents, attorneys, and representatives acting in the course and scope of their agency or employment. 7. The "Articles oflncorporation" ofIncorporation" means and refers to the Articles oflncorporation ofIncorporation of Herring (Plaintiff's (Plaintiff s Exhibit "2"). INSTRUCTION REGARDING BREACH OF ARTICLES OF INCORPORATION You are instructed that the Court has previously determined, as a matter of law, that Defendant Herring failed to comply with the Articles of Incorporation of Herring Bancorp when it purported to involuntarily redeem Mikkelsen's preferred shares in 2006. However, this failure to comply with the Articles of Incorporation, standing alone, is not sufficient to constitute minority oppression or breach of fiduciary duty. CHARGE TO THE JURY PAGE70F30 PAGE 70F 30 Appendix p. 12 234 235235235235235 OUESTION NO I: QUESTION What is a reasonable fee for the necessary services of Mikkelsen's attorney in connection with the failure of Herring Bancorp to comply with the Articles of Incorporation? In answering this Question, Question. you are to consider the attorney's fees and expenses incurred and reasonably anticipated to be incurred by Mikkelsen in enforcing his rights in this action and any appeal thereof. In determining the amount of attorney's fees and expenses, you are to consider the following: • the time and labor involved, the novelty and difficulty of the questions involved, involved. and the skill required to perform the legal services properly; • the likelihood that the acceptance of the particular employment will preclude other employment by the lawyer; • the fee customarily charged in the locality for similar legal services; • the amount involved and the results obtained; • the time limitations imposed by the client or the circumstances; • the nature and length of the professional relationship with the client; • the experience, reputation, and ability of the lawyer or lawyers performing the services; and • whether the fe. feee is fixed or contingent on results obtained or uncertainty of collection before the legal services have been rendered. CHARGE TO THE JURY PAGE 8 OF 30 PAGE80F30 Appendix p. 13 235 236236236236236 Answer with an amount for each of the following: a. For preparation in the trial court. Ij ANSWER: /a 'Z La Z t/f~ ~o tit$. d() b. b. For representation through appeal to the Court of Appeals. ANSWER: _-1-.J.Ja.='f~/_..6?/lJ~,~112'------------ ANSWER: _-bJ4'J.;~,--",41fb",-,-,. 112"'---_ __ _ __ __ __ c. For representation at the petition for review stage in the Supreme Court of Texas. ANSWER: _-'-;;-';~'-'8P"-",,,-,.Illl""---_ _ _ _ _ _ _ _ _ __ d. d. For representation at the merits briefing stage in the Supreme Court of Texas. ANSWER: _~~~~4.~~~U~~.uqb~_ _ ____________________ e. For representation through oral argument and the completion of proceedings in the Supreme Court of Texas. ANSWER: /P.I l~tl /p, POt? . If? ti'() CHARGE TO THE JURY PAGE 9 OF 30 PAGE90F30 Appendix p. 14 236 237237237237237 OUESTION NO. QUESTION NO.2: 2: Do you find that C. C. Burgess engaged in oppressive conduct toward Mikkelsen? "Oppressive conduct" means burdensome, harsh, harsh. or wrongful conduct; a lack ofprobity and fair dealing in the company's affairs to the prej prejudice udice of some members; members; or a visible departure from the standards of fair dealing and a violation of fair play on which each shareholder is entitled to rely. It also means unfair treatment of minority shareholders by the directors or those in control the corporation. Answer "yes" or "no." Answer: ~..._a6'..___ _ _ _ __ Answer: -----= -~~'l}9Ai",-------- CHARGE TO THE JURY PAGE 100F30 10 OF 30 Appendix p. 15 237 238238238238238 OUESTION NO.3: QUESTION NO. 3: Do you find that Campbell Burgess engaged in oppressive conduct toward Mikkelsen? "Oppressive conduct" means burdensome, harsh, or wrongful conduct; a lack of probity and fair dealing in the company's affairs to the prejudice of some members; or a visible departure from the standards of fair dealing and a violation of affair fair play on which each shareholder is entitled to rely. affair It also means unfair treatment of minority shareholders by the directors or those in control of the corporation. corporation. ''yes" or "no." Answer "'yes" Answer: -"""""?'"l"t...41"'-------- --'9'1' "' Answer: _______ --'j'Vlill""-- - - - -_- CHARGE TO THE JURY PAGE 17 OF 30 Appendix p. 22 244 245245245245245 QUESTION NO. I10: 0: Do you find that Campbell Burgess used his personal control ofHerring Bancshares to breach fiduciary duties owed to Mikkelsen? In connection cormection with the foregoing question, question. you are instructed that a majority shareholder of a corporation owes fiduciary duties to a minority shareholder and to show compliance with those duties must show he acted fairly and equitably, in the utmost good faith with the most scrupulous honesty, fully and fairly disclosing all important information to a minority shareholder such as Mikkelsen. Answer "yes" or "no." Answer: />h NfA CHARGE TO THE JURY PAGE 18 OF 30 Appendix p. 23 245 246246246246246 -f1 y 1~ T yrvz "'? ~.,~e.d Arv.5 w-er e.J \Iy \rYe.., e-5 r /"I'/ -fer-# 9 "/ -p-# "I !{) I() q, n ~~ qn5W"U' ¢:!=:-/( ¢:f:-/( I d~r-,;rCV/15'~-:;t;/f ~ ~ d"'-~_5'~"#(! ~~ QUESTION NO. 11: What sum of money, money. if any, if paid now in cash, would fairly and reasonably compensate Mikkelsen for his damages, if any, that proximately resulted from such breaches of fiduciary duties, if any you have found? if Consider the following elements of damages, if any, and none other: The lost dividend income on Mikkelsen's preferred shares from November 21, 2006 until January 26, 2015. Answer in dollars and cents. 0.. .:.00,,---_ Answer: $$,-~----- --=:0-,- IJO _ __ CHARGE TO THE JURY PAGE 19 OF 30 Appendix p. 24 246 247247247247247 QUESTION NO. 12: Answer the following question only if you unanimously answered "yes" to Question No. ii: . . 7 f Otherwise, do not answer the following question. To answer "Yes" to the following question, your answer must be unanimous. You may answer "No" to the following question only upon a vote often of ten or more jurors. Otherwise, you must not answer the following question. Do you find by clear and convincing evidence that the harm to Mikkelsen resulted from malice? "Clear and convincing evidence" means the measure or degree of proof that produces a firm belief or conviction of the truth of the allegations sought to be established. "Malice" means a specific intent by C.C. Burgess to cause substantial injury or harm hann to Mikkelsen. Answer "yes" or "no." Answer: ___._ -1.I1~6 1.'J-".6____ _ _ _ __ _ CHARGE TO THE JURY PAGE 200F 20 OF 30 Appendix p. 25 247 248248248248248 OUESTIONNO. OUESTION NO. 13: Answer the following question only ifyou unanimously answered "yes" to Question No. 10. 1O. Otherwise, do not answer the following question. To answer "Yes" to the following question, your answer must be unanimous. You may answer "No" to the following question only upon a vote of ten or more jurors. Otherwise, you must often not answer the following question. Do you find by clear and convincing evidence that the harm to Mikkelsen resulted from malice? "Clear and convincing evidence" means the measure or degree of proofthat produces a firm belief or conviction of the truth of the allegations sought to be established. " Malice" means a specific intent by Campbell Burgess to cause substantial injury or harm "Malice" hann to Mikkelsen. Answer "yes" or "no." Answer: _ _ _ _ _ _ __ CHARGE TO THE JURY PAGE21OF30 PAGE 21 OF 30 Appendix p. 26 248 249249249249249 QUESTION OUESTION NO. 14: Answer the following question only ifyou unanimously answered "yes" to Question No. 12. You must unanimously agree on the amount of any award of exemplary damages. cfany damages. What sum ofmoney, if any, paid now in cash, should be assessed against C. C. Burgess and awarded to Mikkelsen as exemplary damages, if any, for the conduct found in response to Question ifany. 9? "Exemplary damages" means an amount that you may in your discretion award as a penalty or by way of punishment. Factors to be considered in awarding exemplary damages, if any, any. are-- a. The nature of the wrong. b. The character of the conduct involved. c. The degree of culpability of C. C. Burgess. d. The situation and sensibilities of the parties concerned. d. e. The extent to which such conduct offends a public sense of justice and propriety. f. The net worth of C. C. Burgess. Answer in dollars and cents, if any. any. Answer: $,_ __ _ __ __ CHARGE TO THE JURY JVR Y PAGE 22 OF 30 Appendix p. 27 249 250250250250250 QUESTION OUESTION NO. 15: 15: Answer the following question only if you unanimously answered "yes" to Question No. 13. You must unanimously agree on the amount of any award of exemplary damages. money. if any, paid now in cash, should be assessed against Campbell Burgess What sum of money, any, for the conduct found in response to and awarded to Mikkelsen as exemplary damages, if any. O? Question 110? "Exemplary damages" means an amount that you may in your discretion award as a penalty or by way of punishment. Factors to be considered in awarding exemplary damages, if ifany, any, are- a. The nature of the wrong. b. The character of the conduct involved. involved. c. The degree of culpability of Campbell Burgess. d. The situation and sensibilities of the parties concerned. e. The extent to which such conduct offends a public sense of justice and propriety. propriety. f. The net worth of Campbell Burgess. Answer in dollars and cents, if any. Answer: $,_ _ _ _ __ _ CHARGE TO THE JURY PAGE 23 OF 30 PAGE23 Appendix p. 28 250 251251251251251 QUESTION NO. 16: 16: Answer the following Question only only if you have answered "yes" 9. ''yes" to Questions 2 or 9. C . C. Burgess part of a conspiracy to wrongfully deprive Mikkelsen of his Was C. hi s preferred 8ancorp? shares in Herring Bancorp? To be part of a conspiracy. conspiracy, C. C. Burgess and another person or persons must have had knowledge of. co urse of action that resulted in of, agreed to, and intended a common objective or course damages to Mikkelsen. One or more persons involved in the conspiracy must have performed perfonned some act or acts to further the conspiracy. Answer "yes" ''yes" or "no." " no ." Answer: Answer: -~AA'---"~'--------- _--L ",~,,--_______ ./,·/ . CHARGE TO THE JURY PAGE 24 OF 30 Appendix p. 29 251 252252252252252 QUESTION NO. 17: Answer the following Question only if you had answered "yes" to Questions 3 or 10. Was Campbell Burgess part of a conspiracy to wrongfully deprive Mikkelsen of his preferred shares in Herring Bancorp? To be part of a conspiracy, conspiracy. Campbell Burgess and another person or persons must have had knowledge of, agreed to, and intended a common objective or course of action that resulted in damages to Mikkelsen. One or more persons involved in the conspiracy must have performed some act or acts to further the conspiracy. Answer "yes" or "no." Answer: Answer: IJa l}tJ TQ THE JURY CHARGE TO PAGE 25 OF 30 Appendix p. 30 252 253253253253253 OUESTION QUESTION NO. 18: NO. 18: What sum of money, if any, if paid now in cash, would fairly and reasonably compensate Mikkelsen for his damages, if any, that were proximately caused by such conspiracy? Consider the following elements of damages, if any. any, and none other: The lost dividend income on Mikkelsen's preferred shares from November 21, 2 1, 2006 until January 26, 2015. Answer in dollars and cents. Answer: $_ _ _ __ _ _ Answer: - - -- - - - CHARGE TO THE JURY PAGE 26 OF 30 PAGE260F30 Appendix p. 31 253 254254254254254 OUESTION 19: QUESTION NO. 19: ta Question No. Answer the following question only if you unanimously answered "yes" to No. 16. Otherwise, do not answer the following question. question. To answer "Yes" to the following question, your answer must be unanimous. You may answer "No" to the following question only upon a vote often of ten or more jurors. Otherwise, you must not answer the following question. yOll find by clear and convincing evidence that the harm to Mikkelsen resulted from Do you malice? "Clear and convincing evidence" means the measure or degree ofproofthat produces a firm frrm beUefor belief or conviction of the truth of the allegations sought to be established. ""Malice" C.C. Burgess to cause substantial injury or hann Malice" means a specific intent by C.C. harm to Mikkelsen. Answer "yes" or "no." Answer: _ _ __ _ __ _ CHARGE TO THE JURY PAGE 27 OF 30 Appendix p. 32 254 255255255255255 OUESTION NO. 20: QUESTION Answer the following question only ifyou unanimously answered "yes" to Question No. 17. "yesUta Otherwise, do not answer the following question. To answer "Yes" to the following question, your answer must be unanimous. You may often answer "No" to the following question only upon a vote of ten or more jurors. Otherwise, you must not answer the following question. Do you find by clear and convincing evidence that the harm to Mikkelsen resulted from malice? "Clear and convincing evidence" means the measure or degree ofproofthat produces a firm belief or conviction of the truth of the allegations sought to be established established.. "Malice" means a specific intent by Campbell Burgess to cause substantial injury or harm to Mikkelsen. Answer "yes" or " no." no. " Answer: _ _ _ _ _ _ __ CHARGE TO THE JURY PAGE 28 OF30 OF 30 Appendix p. 33 255 256256256256256 QUESTION NO. 21: Answer the following question only ifyou unanimously answered "yes" to Question No. 19. "yes"la You must unanimously agree on the amount of any award of exemplary damages. What sum of money, if any, paid now in cash, should be assessed against C. C. Burgess and if any, for the conduct found in response to Question awarded to Mikkelsen as exemplary damages, ifany, 16? "Exemplary damages" means an amount that you may in your discretion award as a penalty or by way of punishment. Factors to be considered in awarding exemplary damages, if ifany, any, are-- a. The nature of the wrong. wrong. b. b. The character of afthe the conduct involved. c. The degree of culpability of ofC. C. C. Burgess. d. d. The situation and sensibilities of the parties concerned. e. The extent to which such conduct offends a public sense of justice and propriety. f. The net worth of C. C. Burgess. Answer in dollars and cents, if any. any. Answer: $,_ _ _ __ _ __ CHARGE TO THE JURY PAGE 29 OF 30 PAGE290F30 Appendix p. 34 256 257257257257257 OUESTION NO. 22: QUESTION Answer the following question only if you unanimously answered "yes" to Question No. 20. You must unanimously agree on the amount of any award of exemplary damages. money. if any, paid now in cash, should be assessed against Campbell Burgess What sum ofmoney, and awarded to Mikkelsen as exemplary damages, if any, for the conduct found in response to Question 17? 17? "Exemplary damages" means an amount that you may in your discretion award as a penalty or by way of punishment. Factors to be considered in awarding exemplary damages, if any, are- a. The nature of the wrong. b. The character of the conduct involved. c. The degree of culpability of Campbell Burgess. d. The situation and sensibilities of the parties concerned. e. The extent to which such conduct offends a public sense of justice and propriety. f. The net worth of Campbell Burgess. Answer in dollars and cents. cents, if any. Answer: $_ _ _ _ _ _ __ CHARGE TO THE JURY PAGE 30 OF 30 Appendix p. 35 257 258258258258258 JUROR CERTIFICATE We, the jury, jul)'. havef answered the above and foregoing questions as herein indicated, and herewith return same into court as our verdict. (To be signed by the presiding juror if unanimous.) '/ ~~~did75&n/ -PRES G JUROR (To be signed by those rendering the verdict if not unanimous.) ifnot Appendix p. 36 258 FILED The~day of D ~ 20 ll4- -\' The..B_day U:.20 4- At \h,· ~ o'clock_A_M: t>- 1l <> o'clock~M: o'clock Brenda Peterson CAUSE NO. 24,955 By~~Crr:;;;L~ .~\....) Deputy JOHN MIKKELSEN, § fN IN THE DISTRICT DfSTRICT COURT acting solely in his capacity as Trustee § of the John Mikkelsen Trust, § § Plaintiff, § § v. § WILBARGER COUNTY, TEXAS WILBARGERCOUNTY, § HERRING BANCORP, INC.; § C.c. BURGESS; and C.C. § C. CAMPBELL BURGESS, § § Defendants. § 46TH JUDICIAL JUDfCIAL DISTRICT DfSTRICT PLAINTIFF'S MOTION TO COMPEL TO THE HONORABLE DAN MIKE BIRD, DISTRICT DfSTRICT JUDGE: COMES ·NOW NOW John Mikkelsen, acting solely in his capacity as Trustee of the John Mikkelse~ Mikkelsen Trust~ Trust, Plaintiff, and respectfully files this Motion to Compel, and for such would show:· show: I. Overview . ... ·.Pl~intiff •Plaintiff reluctantly files this Motion to require the production of highly relevant . documents regarding Defendants' net worth, as expressly authorized by Texas law. II. Net Worth Documents On May 21, 2014, Plaintiff served his Third Request for Production of Documents to Defendants, to which Defendants responded on June 20, 2014. The requests (and Defendants' identical boilerplate boileri)Iate objections) were the following: PLAINTIFF'S MOTION TO COMPEL Page 1 Appendix p. 37 86 REQUEST FOR PRODUCTION NO. l: 1: .. ·. All finandal financial statements provided by C. C. Burgess to any person within the past five (5) years. OBJECTION: Defendants object to this request to the extent that the documents sought are neither relevant nor material to any issue to be decided by the trier of fact nor are the documents sought reasonably calculated to lead to the discovery of admissible evidence. TEX. R. C1v.CIV. P. 192.J(a). 192.3(a). Defendants further object to the extent that the documents sought are proprietary in nature and confidential and are not otherwise subject to disclosure and/or discovery. In addition, Defendants object to the extent that unless and until Plaintiff obtains a fact finding from the trier of fact which would entitle Plaintiff to offer and/or introduce evidence of such matters. Defendants state that any obligation on the part of Defendants to respond to and/or produce documents in connection with this request prior to such a fact finding from the trier of fact is premature, unnecessary and an unreasonable invasion of Ddendants are entitled ·to Defendants' proprietary and/or privacy rights. Defendants to and hereby move for a Protective Order so as to eliminate and/or minimize unnecessary harassment and/or invasion of Defendants' property rights with respect to the -I. .- Plaintiff be.awarded be awarded his reasonable and necessary att9mey's attorney's foes fees incurred in filing this Motion, and for general relief. Respectfully submitted, HARD WICKE, CHRISTIE, SCHELL, POPE, HARDWICKE, KELLY & RAY, L.L.P. Lee F. Christie State Bar No. 04237100 · Jj_£}1ris!j_~0J12opehardwicke.com ]j.-~\\1(I[Km 10-2014 Net Wonh.doc~ Coml'c110-2014 Wonh.doc'{ PLAINTIFF'S MOTION TO COMPEL Page 7 Appendix p. 43 92 01/09/2015 12:58 .. 8178774781 POPE HARDWICKE PAGE 05/05 CAUSE NO. 24,955 JOHN MIKKELSEN, ~ · § 46 tH DISTRICT COURT IN THE 46m acting solely in his capacity as Trustee § of the John Mikkelsen Trust, ' I § §"§ Plaintift7Counter-Defendant, PlaintifflCounter-Defendant, § § v. § IN AND FOR § HER.RING HERRING BANCORP, INC.; BANCORP,INC.; § C.C. BURGESS; and § C. CAMPBELL BURGESSt BURGESS, § § Defendants/Count~-Plaimiffs. DefendantsiCountt'l'-Plaimiffs. § WILBARGER COUNTY, TEXAS ORDER DENYING PLAINTIFF'S MOTION TO COMPEL 12th day of November, 2014, came on for hearing Plaintiff's Motion to Compel filed On the 12'" filed. herein on October 23, 2014. The Court, having duly considered the Motion, the response of Defendants, and the arguments of counsel, finds that the Plaintiff's Motion should be DENIED. IT IS SO ORDERED. SIGNED on the 20· 2.'0 day of )BJ)uery, January, 2015. HO~D~# HO~Db::if#7 4~ 46'" District Court Judge The~D-d~'~!~2·0;~' At I :l .. '-\, \) O'clocke_M: o'clock _ _ . Br~nda Peterson· • lerk Dis!. Court Wilbarger Co. '. P:\Mildc.elaen\Pieadin8B\Ordcr Dmyin1 P:\Mikke19eRIPleldil\gll\Ordu Dmyinll Pfs Pre Mo!ion Motion 10 to Compel.doc Compfll.doc Sy ~ . ,Deputy \ j ·ORDlJI ·ORDER SOLOP,\.G.E SOI,.OP"'C£ Appendix p. 44 93 55 Cause No. -,'J-",4-..!.L'q-'-"''' £'''J' ' '----_ __ JOHN MIKKELSEN, acting solely in § IN THE DISTRICT COURT ZGOO 20 I(): 23J bis capacity as Trustee of the his § ZGOB AUG 2 Q A IQ: 2 John Mikkelsen Trust, § § Plaintiff, § § v. § WILBARGER COUNTY, TEXAS § HERRING BANCORP, INC.; § c.c. C.c. BURGESS; and § C. CAMPBELL BURGESS, § § Defendants. § 46TH JUDICIAL DISTRICT PLAINTIFF'S ORIGINAL PETITION John Mikkelsen, acting solely in his capacity as Trustee of the John Mikkelsen Trust ("Plaintiff' or "Mikkelsen"), complains of Herring Bancorp, Inc., C.C. C.C. Burgess and C. Campbell Burgess, and for cause of action shows as follows: I. DISCOVERY CONTROL PLAN I. 1. Plaintiff intends to conduct discovery under a Level 3 Discovery Control Plan, as provided by Rule 190.3 of the Texas Rules of Civil Procedure. H. II. PARTIES 2. Plaintiff John Mikkelsen is a resident of ofWilbarger Wilbarger County, Texas. 3. Defendant Herring Bancorp, Inc. is a Texas corporation with its principal place of business in Texas. It may be served with process by serving its registered agent, Sandra K. Webb, at 2201 Civic Circle, Amarillo, Texas 79109. PLAINTIFF'S PLAINTifF' S ORIGINAL PETITION PAGE II Appendix p. 45 5 66 4. Defendant C.C. Burgess is an individual Texas resident. He may be served with process at his usual place of business, 2201 Civic Circle, Amarillo, Texas 79109, or wherever else he may be found. 5. Defendant C. Campbell Burgess is an individual Texas resident. He may be served with process at his usual place of business, 2201 220 I Civic Circle, Amarillo, Texas 79109, or wherever else he may be found. found. III. VENUE AND JURISDICTION 6. The Court has personal jurisdiction of all parties because they are all Texas residents. 7. The Court has subject-matter jurisdiction of this case because the amount in controversy exceeds the Court's minimum jurisdictional limit and because it is an action by aa trustee concerning a trust. 8. Venue is proper in Wilbarger County because all or a substantial part of the events giving rise to Plaintiffs claims occurred in this county. Specifically, Defendants took the actions described below against Plaintiff in Wilbarger County; the Will through which the stock at issue in this case was acquired was probated in Wilbarger County; and the stock certificates at issue in this case are located in Wilbarger County. Further, because this is an action by a Trustee who resides or has resided in Wilbarger County within the four-year period preceding the date this action is filed, filed, and because the situs of administration of the Trust is maintained in Wilbarger County, venue is mandatory in this County under Chapter 115 of the Texas Property Code. PLAINTIFF'S ORIGINAL PETIT PETITION ION PAGE2 PAGE 2 Appendix p. 46 6 77 IV. BACKGROUND FACTS 9. This lawsuit arises from a course of action undertaken by, or at the direction of, Herring Bancorp, Inc. ("Herring"), C.C. C.C. Burgess and C. Campbell Burgess Herrring's Chairman and C. Campbell Burgess (collectively, "Burgess"). C.C. Burgess is Heming's has been its chief executive officer. Herring is the holding company for Herring Bank (the "Bank"), which has several branches in Amarillo and Vernon, Texas. Texas. 10. Mikkelsen and his wife's family have been associated with Herring Bank since its inception in 1903. Mikkelsen himself was associated with the Bank for more than 30 years, and served as Chairman of the Board for 13 I3 years, from 1985 to 1998. He succeeded his father-in-law, M.K. Berry, who was Chairman from 1939 to 1985 and was President of the Bank from about 1937 until about 1974. M.K. Berry's Berry' s father was W.D. W.o. Berry, who was one of the Bank's founding shareholders in 1903 and who served as Chairman of the Board from about 1921 until about 193 1939. 9. II . 11. Among his many ties to the Bank, Mikkelsen owns 300 shares of Herring Bancorp' s preferred stock, including 150 shares acquired through his mother's Will and Bancorp's 150 shares assigned to him by his brother, Mallory Mikkelsen. 12. Burgess and members of his family have undertaken a course of conduct intended to eliminate the Mikkelsen family from further involvement in Herring or the Bank, and in doing so have violated (among other things) Herring's Articles of Incorporation. PLAINTIFF'S ORIGINAL PETITION PUINTIFF'SORIGINAL PAGE3 PACE 3 Appendix p. 47 7 88 13. As part of the Burgesses' plan, they decided to try to force Mikkelsen to surrender his preferred stock through an elaborate reorganization whereby Herring was supposedly converted from a C Corporation to an S Corporation and whereby certain, selected shares of preferred stock (i.e., Mikkelsen's shares) were purportedly redeemed. C.c. Burgess tried to justify C.C. justifY the selective redemption by claiming that, since the company was converting to an S Corporation, it was only permitted to have one class of stock and no more than I100 shareholders. Therefore, according to C.C. Burgess, many of the 00 shareholders. preferred shareholders were permitted to have their preferred shares redeemed and exchanged for common stock, but the company elected not to give Mikkelsen that option and instead decided instead to redeem redeem his shares for cash. 14. C.C. Burgess (purportedly on behalf of Herring) sent Mikkelsen a "Notice C.C. of Redemption" on or about October 31, 31 , 2006 (a copy of which is attached as Exhibit "A"), which states in pertinent part: This letter is intended to notify notifY you that the board of directors (the "Board") of Herring Bancorp, Inc. (the "Company") has called for the redemption (the "Redemption") of your outstanding shares of Preferred Stock (the "Preferred Stock") of the Company on November 20, 2006 2006.. ••• *** As a result of this process, the Board appointed a committee to recommend the criteria for determining which Preferred Stock shareholders would be offered to exchange their shares for the Company's common stock (the "Common Stock"), the nonvoting Common Stock-Series A (the "Common Stock- Series A"), or to have their shares redeemed. redeemed. The Board's criteria for making this determination included whether the Preferred Stock shareholder had a banking relationship with Herring Bank (the "Bank"), and whether they would own at conversion. If least 50 shares of Common Stock upon the conversion. these criteria were met, the Board offered the Preferred Stock PLAINTIFF'S ORIGINAL ORIC INAL PETITION PAGE4 Appendix p. 48 8 99 shareholders the option to exchange their shares for the Common Stock. If the Preferred Stock shareholders did not meet these criteria, the Board determined the Preferred Stock shareholders would be redeemed. redeemed . ••• *** From our conversations with you and the Board's determination regarding our classes of stock, your Preferred detennination Stock will be redeemed. redeemed. 15. Thus, Defendants' own Notice of Redemption draws a distinction among the preferred shareholders and admits that only some of the preferred shares were being redeemed for cash. Defendants also admit in the Notice of Redemption that the procedure detennining which of the preferred shares to redeem for cash did not involve a for determining drawing by lot or any pro rata redemption. 16. The redemption process Defendants undertook, as explained in their own Notice of Redemption, violates the procedure required by Herring's Articles of Incorporation: Incorporation: 5. Redemption. a. Preferred Stock. The Corporation, at the option of the Board of Directors, may at any time redeem the whole, or from time to time redeem any part, of the Preferred Stock outstanding by paying cash therefor the sum of $95 per share, plus all dividends declared but unpaid thereon .... . . .. ••• *** Should only a part of the outstanding Preferred Stock be redeemed, the redemption will be effected by lot or pro rata, as prescribed by the Board of Directors. 17. Since only some shares of the company's preferred stock were redeemed, and since the purported redemption was not effected by lot or pro rata, the procedure PLAINTIFF' PLAINTIFF'SS ORIGINAL PETITION PAGES Appendix p. 49 9 1010 violated the plain language of Herring's Articles of Incorporation, a copy of the relevant portions of which is attached hereto as Exhibit ""B." B." 18. Because of the invalidity of the redemption procedure, Mikkelsen declined the Defendants' offer of redemption. Defendants did not have the authority to redeem shares in violation of the company's Articles, and the purported redemption is therefore void. 19. Notwithstanding the fact that the purported redemption is void, Mikkelsen has not received dividends on his preferred shares, has been denied access to the company's books and records, and has generally been treated as if he is no longer a shareholder. v. V. CAUSES OF ACTION COUNT ONE BREACH OF CONTRACT 20. The Articles of Incorporation of Herring constitute a contract between Herring and its shareholders. As a preferred shareholder of Herring at all relevant times, Plaintiff is entitled to the benefits of that contract. The acts and omissions of Defendants afthat as described hereinabove constitute a breach of that contract, entitling Plaintiff to recover all of his damage and loss proximately resulting therefrom. 21. Plaintiff further seeks recovery of his reasonable and necessary attorney's fees for breach of contract pursuant to Chapter 38 of the Texas Civil Practice and Remedies Code. PLAINTIFF'S ORIGINAL PETITION PAGE6 Appendix p. 50 10 1111 COUNT Two TWO RIGHTS INSPECTION RIGHTS 22. Mikkelsen further sues Defendants for their wrongful violation of his statutory rights of inspection under TEX. Bus. CORP. ACT Art. Art. 2.44(C), which provides a corporate shareholder with a statutory right to inspect and make extracts from corporate records. records. Mikkelsen seeks an appropriate order, including, if jf necessary, a writ of mandamus, compelling Defendants to provide access to and copies of Herring's corporate records. COUNT THREE BREACH OF FIDUCIARY DUTY, CIVIL CONSPIRACY, AND UNLAWFUL OPPRESSION OF MINORITY SHAREHOLDER 23. Mikkelsen further sues Defendants for the fraudulent and disloyal acts they have directed toward him. Defendants violated the plain terms of Herring's Articles of Incorporation, breached their fiduciary duties, and misrepresented facts by attempting to selectively redeem Mikkelsen's preferred shares in a manner not authorized by the company' s Articles of Incorporation, without notice to all the preferred shareholders, and company's without notice that the company's board of directors and its secret committee were engaged in an insider transaction. transaction. Defendants breached their fiduciary duties when they voted on and conducted the purported redemption through secret meetings with hidden procedures. 24. Defendants also made material false representations to Mikkelsen concerning the attempted selective redemption, the motives and procedures of the secret PUENTIH'S PLACNTIFF'S ORIGINAL PETITION PAGE7 PAGE 7 Appendix p. 51 11 1212 committee that authorized and conducted the purported redemption, and the self-dealing and differing treatment within the class of preferred shareholders. 25. The foregoing course of action was part of a general pattern of oppression of Mikkelsen as a minority shareholder, and clearly the product of a civil conspiracy between and among Herring and Burgess to accomplish an illegal result, the deprivation or impairment of Mikkelsen's vested property rights, and the violation of Herring's Articles of Incorporation. Plaintiff has been damaged by this conduct, and hereby sues to recover those damages. 26. 26. Mikkelsen's damages include, at a minimum, the dividends due to him as a preferred shareholder since October 31, 2006, his attorney's fees and expenses required to be incurred as a result of Defendants' improper conduct; and capital gains taxes if the alleged redemptions are required to be reported as such. PRAYER WHEREFORE, PREMISES CONSIDERED, Mikkelsen respectfully respe:ctfully requests the Court to cite Defendants to appear and answer and, on final trial, trial , award Mikkelsen relief against Defendants, jointly and severally, as follows: (I) An appropriate order compelling Defendants to immediately provide Plaintiff with the right to inspect all requested records of Herring; (2) Actual damages; (3) Punitive and exemplary damages for breach of fiduciary duties, oppression, and civil conspiracy as pled above; above; (4) Attorney's fees and court costs; (5) Prejudgment interest and post-judgment interest at the highest lawful rates; PLAINTIFF'S ORIGINAL PETITION PAGES Appendix p. 52 12 1313 (6) (6) All writs and processes necessary to effectuate the relief requested; and Attorney's fees and costs of court; and (7) All other relief Plaintiff Mikkelsen is entitled to receive. Respectfully submitted, POPE, HARDWICKE, CH CH~~~J SCHELL, KELLY & RAY~, RAY, ,,.'-'jIM Chairman of the Boani Boord Notice of Redemption 2201 Civic Circle, Suite 1001 Amarillo, TX 79109 October 31, 31 , 2006 P. 0. O. Box Box 9900 Amarillo, TX 79105-5900 Dear Preferred Stock Shareholder: (806) 373-3921 Phone (806) 372-8230 Fax This letter is to notify you that the board of directors (the "Board,,) "Board") ccburgess@)rerringbank.com ccburgess@jrerringbank.com of Herring Bancorp, Inc. (the "Company") has called for the redemption (the "Redemption") of your outstanding shares of Preferred Stock (the Stock") of the Company on November 20, 2006. "Preferred Stock,,) As you know on July 26, 2006, our Board approved taking the necessary acts for the Company to become an "S "s corporation" under the amended. In order to become eligible Internal Revenue Code of 1986, as amended. to make the Subchapter S election, the Company is only allowed to have one class of outstanding capital stock, and voting rights between shares of stock are disregarded for determining whether a company has more than one class of stock. At the current time, the Company has a number of outstanding classes of stock, which include your Preferred Stock shares, as welJ as Class A Nonvoting Common Stock, Class A-Series 2 Nonvoting well Common Stock, and Class B Nonvoting Common Stock (collectively, the Shares"). Therefore, we must currently consolidate our "Nonvoting Shares"). Nonvoting Shares into one class. The Class A Nonvoting Common Stock and the Class B Nonvoting Common Stock will be allowed to exchange their shares for Common Stock-Series A, and the Class A-Series 2 Nonvoting Common Stock will be converted into a subordinated debenture. As a result of this process, the Board appointed a committee to recommend the criteria for determining which Preferred Stock shareholders would be offered to exchange their shares for the Company's «Common Stock"), the nonvoting Common Stock- common stock (the "Common Series A (the "Common Stock-Series A,,) An) or to have their shares redeemed. The Board's criteria for making this determination included whether the Preferred Stock shareholder had a banking relationship with Batik (the "Bank"), and whether they would own at least 50 Herring Bank Stoc:k upon the conversion. If these criteria were met, shares of Common Stock the Board offered the Preferred Stock shareholders the option to exchange Stoc:k. If the Preferred Stock shareholder did their shares for the Common Stock. not meet these criteria, the Board determined the Preferred Stock shareholders would be redeemed. Additionally, if the Preferred Stock shareholder did not have a banking relationship with the Bank, we would offer them the option of either exchanging their shares for the nonvoting Common Stock-Series A or having their shares redeemed. From our Appendix p. 54 14 1515 conversations with you and the Board's determinations regarding our classes of stock, your Preferred Stock will be redeemed. The Redemption will take place after 5:00 p.m. on November 20, 2006 (the "Redemption Date"). The price to be paid for each share of Preferred Stock will be $95.00 per share, plus an amount equal to all dividends accrued and unpaid thereon, whether or not declared, pro rata to the date fixed for the redemption (the "Redemptive Price"). As a result of the Redemption, the Company will pay you $95.00, in cash, for the shares of Preferred Stock you hold that will be redeemed. redeemed Prior to or at the open of business after 5:00 p.m. on November 20, 20. 2006, the Company will deposit with Herring Banlc, Bank, Amarillo, Texas (hereinafter the "Transfer Agent"), as aa trust fund, an amount necessary to pay the aggregate Redemptive Price, together with irrevocable instructions and authority to the Transfer Agent to pay, on or after the Redemption Date, the Redemptive Price to the holders of the Preferred Stock upon the Transfer Agent's receipt of the duly surrendered certificates representing their Preferred Stock. As a result of the Company' s deposit of funds with the Transfer Agent, you will cease to be a holder of shares of Preferred Stock as of the Redemption Date and will only be entitled to the receipt of the Redemptive Price. In order to receive the Redemptive Price, you should deliver to the Transfer Agent the following: (i) a duly executed Letter of Transmittal, a copy of which is enclosed herewith, and (ii) the stock certificate(s) representing your shares of Preferred Stock. The address of the Transfer Agent is Herring Bank, P.O. Box 9900, Amarillo, Texas 79105. The telephone number of the Transfer Agent is (806) 355-0153. Please follow carefully the Instructions to the Letter of Transmittal when completing it. Assuming Asswning the Transfer Agent receives the applicable docwnents documents from you prior to the Redemption Date (and asswning assuming there is no problem with these documents), the Transfer Agent will hold them in escrow for you until the Redemption Date, at which time you willwin receive payment for your shares. The Company will pay the Redemptive Price by check of same day funds. Please refer to the Letter of Transmittal ce-rtificates provided herewith for further instructions on how to surrender certificates and receive delivery of the Redemptive Price. You may obtain additional copies of the Letter of Transmittal from the C-0mpany. Company. Also, if any of your Preferred Stock certificates have been lost, stolen or misplaced, or if any of your shares are pledged or encumbered, you will need to make additional arrangements in order to receive the Redemptive Price for your shares. Please contact the Transfer Agent for further details. Appendix p. 55 15 1616 Preferred Stock Shareholder October 31, 3 I, 2006 Page 3 Assuming that the Transfer Agent has received these documents from you on or before 5:00 p.m. on November 20, 2006 (and that there are no problems with your documents), documents). you will be able to receive payment for your yow shares on the Redemption Date. Date. You may pick up your check on the Re.demption Redemption Date at 220 I Civic Circle, Amarillo, Texas during regular business hours. Herring Bank, 2201 If you will not be available to pick up your check in person at that time, please contact the Transfer Agent so that you can arrange an alternate method of delivery of the Redemptive Price for your Preferred Stock. If you do not pick up your check on the Redemption Date or contact the Transfer Agent to make other arrangements, the Transfer Agent will mail your check to you at the close of business on the Redemption Date. If your documents are not in order so that your check is not available on the Redemption Date, your check will be mailed to you as soon as possible after your documents are received and approved. Please remember that the Redemption of your Preferred Stock may be a taxable transaction for federal income tax purposes. pwposes. There also may be state, local or foreign income or other tax consequences to the Redemption. You should consult your own tax advisor to determine detennine the precise tax consequences of this transaction. transaction. If [f you should have any questions in connection with any aspect of this letter, please feel free to call C.C. Burgess at (806) 373-3921. 373-3921 . Very truly yours, HERRING BANCORP, INC. e~~ ~~~ C.C. C. C. Burgess Chairman of the Board Appendix p. 56 16 1717 forth above are not completely earned through to che set fonh the new company will not nor be considered consIdered a hqutdation hqUidation for the purposes of the liqUidation llqutdatton preferences set fonh above. 5. Redemption: Redemptjon: a. Preferred Stock. The Corporation, Corporauon. at the option of the Board of Directors, lime redeem the whole, or from ume may at any ume time to time redeem any part. part, of the Preferred Stock outstanding by paymg in cash therefor the sum of $95 per share. outstandmg share, plus all d1v1dends diVidends declared but unpaid thereon as provided in unpard thiS An1cle In this ArtIcle Four to and mcludmg the date of redemption, hereinafter referred to as the "redempuve pnce, " and by giving -redempuve price," gIVing to each Preferred Stock SlOck shareholder of record at that Preferred Stock shareholder's last known address. as shown on the CorporatIOn, at least 20. records of the Corporation. 20, but not more than 50.50, days' prior pnor nouce personally or m wmmg, by mail, In wrmng, mall , postage prepaid, prepaId, statmg stating the class or series or part of the class or senes of shares to be redeemed and the date dale and plan of redemption. redemption, the redemptive pnce.pnce, and the place where the shareholder can obtam payment of the redemptive price on surrender of their respeclIve share certificates, hereinafter called the "redemption respecuve "redemptIOn notice. nottce."" Should only a part of (I the outstanding Preferred Stock be redeemed, redeemed , the redemption will be effected by lot or pro rata, rata, [l as preSCribed prescribed by the Board of Directors. On or after the date fixed for redemption. redemptton, each holder (I redemptlon will surrender his of shares called for redemption hiS or her certificate for the shares to the Corporation at the place designated deSignated m In the redemption nouce and Will will thereupon be entitled to receIve receive payment of the redemptive price. Should less than all the shares represented by any surrendered certificate be redeemed, a new certificate for the unredeemed shares will be issued. ISSUed. If the redemption notice 1s IS duly given and if suffiCient sufficient funds are available on the date fixed for • 1 redemption, then, redempuon, then , whether or not the certificates ev1dencmg surrendered, all nghts with eVidencing the shares to be redeemed are With respect to the shares will terminate termmate on the date fixed for redemption, redemption. o , (, except for the nght of the holders to receive the redempuon redemption price. price, without mterest, Interest, on surrender :l of their certificate If, on or pnor to any date fixed for redemption of Preferred Stock as herein herem provided prOVided , the Corporation deposits with any bank or trust company in m Texas or any bank or trust company Umted States duly appoint m the United app0lntmg acting mg and act mg as transfer agent for the Corporation as a trust suffiCient fund, a sum sufficient to redeem. redeem, on the date thereof. the shares called for fixed for redemption thereof, redemption, with mevocable Irrevocable instructions IOstructlons and authority to the bank or trust company to publish the nouce notice of redemption thereof, or to complete the pubhcatton publication 1f If theretofore commenced. and to pay, on and after afrer the date fixed for redemption or prior thereto, the redemptive price of the shares to their respective holders on surrender of their share certificates, certtficates, then from and after the date of the deposit, deposit , even though that date may be pnor prior to the date fixed for redemption, the WIll be deemed to be redeemed; shares so called will redeemed ; and d1v1dends diVidends on those [hose shares will cease to accrue after the date fixed for redemptlon depOSit Will redemption The deposit w1JI be deemed to consurute constitute full deposll, the shares will payment of the shares to their holders; and from and after the date of the deposrt, be deemed co ro be no longer outstandmg; and the holders thereof will WIll cease to [0 be shareholders wllh respect to the shares and will wnh Will have no rights nghts with respect thereto, except the nght to receive bank. or trust company payment of the redempttve from the bank redemptIve pnce price of the shares, WIthout Interest, without interest, [heIr certtficares on surrender of their certIficates l, i!2640Zl. \IPS 226402.3 . llP5 Appendix p. 57 17 153153153153153 FILED The \\u\..., day of ':J~~ °'-d PAGE9 Appendix p. 66 161 I"lum ': t .t!rthe ,I TaxUS ARTICLES OF INCORPORATION CEC19~3 OF HERRING BANCORP, INC. Clerk E Corporto.tionB SeetioP I, the undersigned natural person of the age of eighteen (I8) years or more, acting 8S an incorporator of a corporation (hereinafter called the t1Corporation") under the Texas Business Corporation Act, do hereby adopt the following Articles of IncorporatIOn for the Corporation: ARTICLE ONE: NAME The name of the Corporation is Herring Bancorp, Inc. ARTICLE TWO: DURATION The Corporation's perioo of duration is perpetual. ARTICLE THREE: PURPOSE The purpose or purposes for which the Corporation is organized are: (a) To act as 8. bank holding company; (b) To transact any and all lawful business for which corporations may be incorporated under the Texas Business Corporation Act; (c) To do each and every thing necessary, suitable, or proper for the accomplishment of any of thc purposes or for the attainment of anyone or more of the objects herein enumerated or which at any time appear conducive to or expedient for the protcction or benefit of the Corpora liolt. The foregoing clauses shall be construed as powers as well as objects and . purposes, and the matter expressed in each clause shall, unless herein otherwis"e expressly prOVided, be in nowise limited by reference to or inference from the terms of any other cls.use, but shall be regarded as independent objects, purposes and powers, and shall not be construed to limit or restrict in any manner the meaning of the general terms or the general powers of the Corporation. ARTICLE FOUR: STOCK " The Corporation is authorized to Issue two classes of shares to be designated respectively "prcferredR and "common.'1 The total number of shares which the Corporation is authorized to issue is 125,QOO shares. The number of Appendix p. 67 HERR 000075 " preferred shares authorIZed 15 25,000 shares, and the par value of each such share is $95.00. The number of common shares authorized is 100,000 shares, and the par value of each such share is $20.00. (a) The holders of the preferred shares shall be entitled to receive dividends, out of any funds legally available therefor, at the rate of ten percent (10.096) per annum of the par value thereof, and no more, payable in cash semi-annually, or at such intervals as the Board of Directors may from time to tIme determine. Such dividends shall accrue from the date of issuance of the respective preferred shares and shall be deemed to accrue from day to day whether or not earned or declared. Such dividends shall be payable before any dividends shall be paid, declared, or set apart for the common shares, and shall be cumulative so that If for any dIvidend period such dividends on the outstanding preferred shares at the rate of ten percent (10.096) per annum of the par value thereof are not paid or declared and set apart therefor, the deficiency shall be fully paid or declared and set apart for payment, without interest, before any distribution, by dividend or otherwise, shall be paid on, declared, or set apart for the common shares. (b) On any voluntary or involuntary liqUidation of the Corporation, the holders of the preferred shares shall receive an amount equal to the par value of such shares plus any diVIdends declared and unpaid thereon, and no more, before any amount shall be paid to the holders of the common shares. If the assets of the Corporation should be insufficient to permit payment to the preferred share- holders of their full preferential amounts as hereIn provided, then such assets shall be distributed ratably among the outstanding preferred shares. Subject to such preferential rights, the holders of the common shares shall receive, ratably, all remaining assets of the Corporation. A consolidation or merger of the Corporation with or into any other corporation or a sale of all or substantially all of the assets of the Corporation shaD not be deemed a liquidation, dissolution, or winding up of the Corporatlon within the meaning of this paragraph. (c) The Corporation, at the option of the Board of Directors, may at any time redeem the whole, or from time to time redeem any part, of the preferred Shares outstanding by paying in cash therefor the sum of $95.00 per share, plus all diVIdends declared but unpaid thereon as provided in this Article Pour to and Including the date of redemption, heremafter referred to as the "redemptive price,1t and by giving to each preferred shareholder of record at his last known address, as shown on the recordS of the Corporation, at least twenty (20), but not more than fifty (50), days' prIor notice personally or in writing, by mail, postage prepaid, stating the class or series or part of the class or series of shares to be redeemed and 2 Appendix p. 68 HERR 000076 the date and plan of redemption, the redemptive price, and the place where the shareholders may obtain payment of the redemp- tive price on surrender of their respective share cerbficates, hereinafter called the "redemption notice.IT Should only a part of the outstanding preferred shares be. redeemed, such redemption shall be effected by lot, or pro rata, as prescribed by the BOard of Directors. On or after the date fixed for redemption, each holder of shares called for redemption shall surrender his certirlcate for such shares to the Corporation at the place designated in the redemption notice and shall thereupon be entitled to receive payment of the redemptive price. Should less than all the shares represented by any surrendered certificate be redeemed, a new certificate for the unredeemed shares shall be issued. If the redemption notice IS duly given and if sufficient funds are available therefor on the date fixed for redemption, then, whether or not the . certificateS evidencIng the shares to be redeemed are surrendered, all rights with respect to such shares shall terminate on the date fixed for redemption, except for the right of the holders to receive the redemption price, without interest, on surrender of their certificate therefor. (d) If, on or prior to any date fixed for redemption of preferred shares as herein provided, the Corporation depoSIts with any bank or trust company in Texas, or any bank or trust company in the United States duly appointing and acting as transfer agent for the Cor- porabon, as a trust fund, a sum sufficient to redeem, on the date fixed for redemption thereof, the shares called for redemption, with irrevocable instructions and authority to the bank or trust company to publish the notice of redemption thereof, or to complete such publication if theretofore commenced, and to pay, on and after the date fixed for redemption or prior thereto, the redemptive price of the shares to their respectlve holders on surrender of their share certificates, then from and after the date of the deposit, even though such date may be prior to the date fixed for redemption, the shares so called shall be deemed to be redeemed and diVldends on those shares shall cease to accrue atter the date fixed for redemption. The deposit shall be deemed to constitute full payment of the shares to their holders and from and after the date of the deposit, the shares shall be deemed to be no longer outstanding, and the holders thereof shall cease to be shareholders with respect to such shares and sllall have no rights with respect thereto, except the right to receIve from the bank or trust company payment of the redemptive price of the shares, without interest, on surrender of their certificates therefor. (e) Shares redeemed by the Corporation shall be restored to the status of authorized but unissued shares of the Corporation. (f) Except where otherwise provided in these Articles of Incorporation or by law, the holders of the common shares Shall have the 3 Appendix p. 69 HERR 000077 '. exclusive voting rights and powers, including the exclusive right to notice of shareholders' meetings. ARTICLE FIVE: PREBMPTIVE RIGHTS DBNmD No holder of any shares of common stock or preferred stock shall have any preemptive or preferential right to receive, purchase, or subscribe to (a) any Wlissued or treasury shares of any class of stock (whether now or hereafter authorized) of the Corporation, (b) any obligations, evidences of indebtedness, or other securities of the Corporation convertible Into or exchangeable for, or carrying or accompanied by any rights to receIve, purchaSe, or subscribe to, any such unissued or treasury shares, (c) any right of subscription to or rIght to receive, or any warrant or option for the purchase of, any of the foregoing securities, or (d) any other securities that may be issued or sold by the Corporation. ARTICLE SIX: COMMENCING BUSINESS The Corporation wDl not commence business untn It has received con- sideration for the Issuance of its shares amoWltfng to One Thousand Dollars ($1,000.00) in value and consisting of money, labor done, or property actually received. ARTICLE SEVEN: CUMULATIVE VOTING Cumulative voting for the election of directors is prohibited. ARTICLE EIGHT: VOTING Except where otherwise provided in these Articles of Incorporation or the bylaws of the Corporation, the holders of the common stock shall have the exclUSIve voting rights and powers, Including the exclwnve right to notice of shareholders' meetings. ARTICLE NINE: ADOPTION OP BnA WS The Board of Directors of the Corporation shall adopt the initial bylaws of the Corporation and may thereafter alter, amend, or repeal the bylaws of the Corporation or may adopt new bylaws, subject to the shareholders' concurrent right to alter, amend, or repeal the bylaws or to adopt new bylaws. The shareholders may provide that any or all bylaws altered, amended, repealed, or adopted by the shareholders shall not be altered, amended, reenacted, or repealed by the Board of Directors of the Corporation. 4 Appendix p. 70 HERR 000078 " '. ARTICLE TEN: INTERESTED PARTIES A contract or transaction between the Corporation and any other Person (as used herein the term nperson" means an indiVIdual, firm, trust, partnership, joint venture" association, corporation, political Subdivision or instrumentality, or other entity) shall not be affected or invalidated by the fact that (a) any director, officer, or security holder of the Corporation is also a party to, or has a direct or indirect interest in, such contract or transaction; or (b) any director, officer, or security holder of the Corporation is in any way connected with such other Person or with any of its officers or directors. Every person who may become a director of the Corporation is hereby relieved from any liability that might otherwise exist from contracting with the Corporation for the benefit of himself or of any Person in which he has any interest, whether or not the interested director's presence at a meeting or his vote, or votes were necessary to obligate the Corporation m such transaction, if such interest shall have been disclosed to, or known to, the Corporation's directors or Shareholders who shall have approved such transaction. ARTICLE ELEVEN: INDEMNIFICATION Section A. The Corporation shall indemnify any person who was or is a party or is threatened with being made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (all such actions" suits, and proceedings and accompanying modi- fiers being comprehended by the term "Proceeding") (excluding actions by, or in the right of, the Corp~ration), by reason of the tact that he Is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another Person. Such indemnification may be made only against those expenses (including attorneys' fees), judgments, f'mes, and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding if' (i) he is successful on the merits or otherwise; or (n) he acted in the transaction which is the subject of' the Proceeding m good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Corporatlon, and, with respect to any cnminal Proceeding, he had no reasonable cause to believe his, conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, convicbon, or upon a plea ot nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good' faith and in a manner which he reasonably believed to be in or not opposed to the best mterest of the Corporation, nor, with respect to any criminal Proceeding, that he had reasonable cause to believe that his conduct was unlawful. Section B. The Corporation shall indemnify any person who was or is a party or is threatened with being made a party to a Proceeding by or in the right of the Corporation by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another Person. Such indemnification may be made against expenses (mc1uding attorneys' fees) actually and reasonably 5 Appendix p. 71 HERR 000079 incurred by such person in connection with the defense 01' settlement of such Proceeding if (1) he is successful on the merits or otherwise; or (ti) he acted in the transaction which IS the subject ot the Proceeding in good faith and in a manner he reasonably belieVed to be in or not opposed to the best interest of the Corporation. However, no indemnification may be made in respect of any claim, issue, or matter in relation to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation. Notwithstanding the foregoing exception, indemnification may be made to the extent that the court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liabllity but in view of all the circumstances of the case, such person is fairly and reasonably entItled to indemnification for such expenses as the court of appropriate jurISdiction shall deem proper. Section C. Any indemnification tmder Section A or Section B of thIS Article (other than one ordered by a court) may be made by the Corporation only upon a determInation that indemnification of such person is proper In the circumstances because he has met the applicable standard of conduct set forth in such Section. Such determination shall be made by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such Proceeding; or, If such a quorum is not obtainable (or, even if obtainable, if a quorum of disinterested directors so directs), by Independent legal counsel in a written opinion, or by the Shareholders of the Corporation; or through such procedures as shall be authorized in the bylaws of the Corporation. Section D. Bxpenses incurred in defending a civil or criminal Proceeding may be paid by the Corporation in advance of the final disposition of such Proceeding as authorized by the Board of DIrectors or other appropriate body or party in the manner provided in Section C of thlS Article only when the Corporation has received an tmdertaldng by or on behalf of the person who is to receive such payment to repay such amount unless it shall ultlmately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article. Section B. In determining whether the standard of conduct set forth in Section A or Section B has been met, It may be determined that a person has met the standard as to some matters but not as to others, and the amount of indemnification may be accordingly prorated. Section P. The indemnification provided by Sections A through E shall not be exclusive of any other rights to which a person may be entitled by law, bylaw, agreement, vote of shareholders, or otherwise. Section G. The Indemnification provIded by Sections A through B shall inure to the heirs, executors, and administrators of any person entitled to indemnification under this Arbcle. Section H. The Corporation may purchase and maintain inSW'allce on any person who is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of 6 Appendix p. 72 HERR 000080 '. another Person agamst any liability incurred by him in any such position or arising out of his status as such, whether or not the Corporation would have' the power to indemnify him. against such liabUity under Sections A through E. ARTICLE TWELVE: REPURCHASE OP STOCK The Corporation Is authorized to purchase, directly or indU'ectly, its own shares to the extent of the aggregate of the unrestricted capital surplus and unrestricted reduction surplus available therefor, without submitting such pur- chase to a vote of the shareholders of the Corporation. ARTICLE THIRTEEN: AUTHORITY TO BORROW The Board of Directors is expressly authorized, without the consent of the stockholders, except so far as such consent is herein or by law provided, to issue .and sell or otherwise dispose of, for any purpose, the Corporation's bonds, debentures, notes or other securities or obligations, upon such terms and for such consideration as the Board of Directors shall deem advisable and to authorize and cause to be executed mortgages, pledges, charges and liens upon aU or part or the real and personal property rights, interest and franchise of the Corpor- ation, including contract rights, whether at the time owned or thereafter acquired. ARTICLE FOURTEEN: INITIAL OFFICE AND AGENT The address of the inItial registered office ot the Corporation is 1900 Pease Street, Vemon, Texas, and the name of its initial registered agent at such address is H. W. Dozler. ARTICLE FIFTEEN: INlTlAL DmECTORS The number of directors constituting the initial Board of Directors of the Corporation is five and the names and addresses of the persons who are to serve as directors until the first annual meeting of shareholders, or untn their respective successors are elected and qualified, are: NAME ADDRESS Robert Belew 2603 Mansard Street Vernon, Texas '16384 C.O.Burgess Suite 1000 Amarillo National Bank Bldg. Amarillo, Texas 79101 B. W. Dozier 1102 Bfllcrest Drive Vernon, Texas 76384 7 Appendix p. 73 HERR 000081 NAME ADDRESS Curtis D. Johnson 2230 Hllltop Vernon, Texas 76384 John Mikkelsen 2801 Gordon Street Vernon,Texas 76384 ARTICLE SIXTEEN: INCORPORATOR The name and address of the incorporator is: NAME ADDRESS Tonia T. Kittelson 4700 InterPirst Two Dallas, Texas 75270 IN WITNESS WHBREOF, I have executed this document as of the /l,d.- day of3FC&~e~ ,1983. -- . ~~v:~~~ Tonia T. Kittelson STATE OF TEXAS S S COUNTY OF DALLAS S I. , a Notary Public, hereby certify that on this I..Ia:!!! day 1983, personally appeared before me Tonia T. Kittelson, who, being t duly sworn by me, declared that he is the person who signed the foregoing document as incorporator and that the statements contained therein are true. JENAY K GOEBa., Notary Pllbllo In and for the Srate of Texas My commission aplres Feb 19, 1988 . - "- - ~ - - _#' 8 ----- ...... Appendix p. 74 HERR 000082 . . t• ~ f ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF HERRING BANCORP. INC. Pursuant to the provisions of Article 4.04 of the Texas Business Corporation Act, the undersigned corporation adopts the following Article of Amendment to its Articles of Incorporatio~m ARTICLE ONE Int'" Off", of t~ Srmtarv of srllfp nf rant The name of the corporation is Herring BaDcorp. Inc. NOV ~ ARTICLE TWO 091GQO The following amendment to the Articles of IncorporatiPJmas.fIN adopted by the shareholders of the corporation on January 19, 1988: To Limit Director's Liability To Shareholders. The amendment is an addition to the original Article of Incorporation and the full text of the provision added reads as follows: ARTICLE SEVENTEEN: DIRECTOR'S LIABILITY TO SHAREHOLDERS To the fullest extend not prohibited by law, a director of this corporation shall not be liable to the corporation or its shareholders for monetary damages for an act or omission in the director's capacity 8S a director, except that this article does not eliminate or limit the liability of a director for: 1. a breach of a director's duty of loyalty to the corporation or its shareholders or members; 2. an act or omission not in good faith or that involves intentional misconduct or a knowing violation of the law; 3. a trans.cttoQ from which a director received an t.prop.~ benefit. whether or Dot the benefit re8ul ted from an action taken within the scope of the director's office; . 4-. an-- act or omission-- for which th.--liability of- a---- director is expressly provided for by statute; or S. act related to an unlawful stock repurchase or payment of a dividend. ARTICLE THREE The number of shares of the corporation outstanding at the time of the adoption was 39,074; and the number of shares entitled to vote on the amendment was 39,074. Appendix p. 75 .... ~ n 0 9 ~ 6 n I ~ ~ 2 ARTICLE FOUR The number of shares that voted for the amendment was 32,115; and the number of the shares that voted against the amendment as o. Dated: November 7, 1988. ATTEST: L1 . HERRING BANCORP, INC. '-~IL-- ERCE, !ecretary BY~~~~~~ a. . ' Chairman of the Board L/J Appendix p. 76 '" .. ARTICLES OF' AMENDMENT 3'F ~ StD of'R1c18 ot1t1e TO ARTICLES O:F INCORPORATION lAY 081998 OF' HERRING BANCORP, INC. Corporallanl eecaon Pursuant to the proviSIOns of Article 4 04 of the Texas Busmess Corporation Act, the underS1gned COIpOrabon adopts the foDowmg Articles ofAmendment to Its Articles oflncorporanon ABTICI,t; ONE The name of the corporation is Herring Bancorp. Inc ARDCLITWO The foDowing amendment to the Arttc1es of Incorporatlon was adopted by the shareholders of the corporation on February 17: 1998 ArtIcle Four -Stock {} The amendment IS an amendment to the ongmal Arbeles of Incorporation Article Four and n the fWI text of the amendment reads as follows fl 2 ') ARneLS FOUR See Exlulnt «It!' attadled hereto and Incorporated herem as af COPied R verbatim Ii • ARTICLI TBREI: 1 o The foDowmg amendment to the Articles ofIncorporatJon was adopted by the shareholders b 1 of the corporatlon on February 17, 1998 Article Eight Voting The amendment IS an amendment to the orip Arttcles oflncorporatlon Article Eight and the fun text of the amendment reads as follows ARTICLE EIGIIT See Exhibit"At. attached hereto and mcorporated herem as If copied verbatim AB1]CL1 roD The foUowina amendment to the Articles oflncorporatton wu adopted by the shareholders of the corporation on February 17, 1998 Article Fourteen RegIstered Agent The amendment IS an amendment to the onsmal Arbclea oflncorporation Article Fourteen and the full text of the amendment reads as foUows ARTICLE FOURTEEN See Exhibit «A!' attached hereto and incorporated herem as if COPied verbatim Appendix p. 77 ... - J ARTICLE FJYE The foUowing amendment to tho Arttcles oflncolJ'Oratlon was adopted by the shareholders ofthe corporation on Febnwy 17. 1998 Article Eighteen Stock restrictions The amendment IS an addrtIon to the ongina! ArtIcles oflncorporatlon and the fuJl text of the prOVJS1on added reads as follows ARTICLE EIGHTEEN See Exhibtt" j(' attached hereto and mcorporated herein as if COPied verbatun ARTICLE SIX The number ofshares oftile corporation outstanding at the tune of the adoption was 32,781, and the number of shares entitled to vote on the amendment was 32,781 [) AB'DCI.E SEVEN o[} The number of shares that voted fur the IIIIICOdmem wu 31,266, and the number of the shares that voted 8pJnst me amendment was 0 "58 Dated Apnl23. 1998 li • 1 ATIEST n . l~dJ~ • DONNA STRlBLlNG. Seer b ? '- Appendix p. 78 HERRING BANCORP, INC. CORPORATE RESOLUTION I. DONNA STRIBLING, Secretary of HERRING BANCORP, INC , do hereby certlty that I am keeper of the records and the nunutes ot the proeeedJngs at the shareholders of SlId Corporation, and that on the 17th day of February. 1998, there was held a meetmg of the shareholders of SlId CorpOration, which was duly caDed and held an accordance With law and the bylaws ofthe Corponmon, and at winch a quorum of the shareholders was present, at said meeting the follOWIng action was duly and legally taken RESOLVED that the shareholders of Herring Bancorp, Inc do hereby authonze the amendment the Arucles of Incorporation of S81d corporanon, speaficaJly Arbcles 4, 8, 14 and 18, copies ofwJuch are attached hereto and Incorporated herein RESOLVED that the shareholders of Hemng Bancorp, [00 do hereby authonze the o amendment of tile Articles of AssociatJon ofHemng National Bank. copy of which IS attached hereto (} and incorporated herem (J "( Passed and approved at ~: 3V o'clock ~ m on February 17, 1998 J . fa. IN WITNESS WHEREOF, I have hereunto set my hand as Sf%dUY ofsasd C~oratIOn, and have attacbed hereto the oftictaJ seal of said Corporatlon, thtS~Hly of _¥= ' 1998 .i " l'I . 04~~ DONNA STRIBLiNG b ~ Secretary Appendix p. 79 RESOLVED. THAT ARfICLE FOUR OF THE AImCLES OF INCORPORATION OF HERRING BAN CORp, INC. BE AMENDED TO READ AS FOLLOWS: ARTICLE row -srocK 1. Classes: The aggregate number of Shares that the Corporation is authorized to Issue IS 625,000, divided mto four classes. The designation of each class IS as foUows: 1. Class A Nonvonng Common Stock. COnslstlng of 250,000 Shares, no par value, h. Class B Nonvoting Common Stock, consisting of 250,000 Shares, no par value; 111. Class C VOllng Common Stock, conslStmg of 100.000 Shares. $20 par value; IV. Preferred Stock, consistmg of 2S,OOO Shares. $95 par value. The nature and extent of the preferences, nghts. privileges, and restnctlons granled to or Imposed on the holders of the respective classes of stock are as follows: .. 1. General: a Class A NonyotJng Common Stock- The holders of the Class A Nonvoting Common Stock will haw no \IOtmg rights or powers. The Class A Nonvotmg Common StDfk will be lSsued from time to time In sene! The Board of DIrectors IS authorlZed to fix. or alter the deSignations, preferences, rights (other than vonng nghts) and quahficatlons. and hmltauons or restncttons of the Class A Nonvoting Common Stock. This Includes. Without hmJ1atJon of the generality of the p.rIYIoP. . . . . divided ~~ dividend IItIeS, and liClllldatlon preferences of any wholly uuissueid Series. ------- b;- - Class B NonyotltlJ Common-- SIock. •The- holders---of- the CI~ B- NolWOtlDg-- Common Stock wdl have no voting rigbts or powen. The Class B Nonvoting Common Stock Will be Issued from time to time in series. Each series itsued by the Board of Directors will relate to a -Prollc Center- of the CarporatlOl1 or a subsidiary of the Corporation, as determllled from time to tlme by the Corporation's Boat4 of Direccon. 111 eacb senes, the only persons who will be ehgible to purchase the shafes of luch aenes will be employees, dil"CtOrs and advisory dueclOrs of the npro6t CenterM to which the series relate. Tho Board of Directors JS authorized to fix or alter the deSignations, preferences, rIghts (other than voung nghts) and quahfications, and hmltations or restnCl10ns of the Class B Nonvoung Common Stock. 'ibIS includes, wltbout 12Z64DZ3.WP5 Appendix p. 80 .. hm113tlon of the generahty of the PICYlOUS sentence. dividend nghts, dlV1C:lend rates, and lIquidation preferenc [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/4063951. Public record. Not legal advice.