Page 40 - Annual Report 2017

TEXAS GULF BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
December 31, 2016 and 2015

NOTE M TEXAS GULF BANCSHARES, INC. 2009 PHANTOM STOCK RIGHTS PLAN

During 2009, the Company adopted a Phantom Stock Rights Plan covering certain Bank
employees. The value of each right is defined under the Plan as the Award Value and is
determined by the Board of Directors to be the fair market value of each share of the
Company’s common stock at the time of the award. The rights generally vest over a five to
seven year period.

During 2015, The Company adopted an Amended and Restated Phantom Stock Rights Plan
covering Bank employees. The purpose of the Plan was to provide additional shares for the
company to issue and amend the participants the ability to exercise rights without
termination of employment. The value of each right is defined under the Plan as the Award
Value and is determined by the Board of Directors to be the fair market value of each share
of the Company’s common stock at the time of the award. The rights generally vest over a
five to seven year period.

At December 31, 2016 and 2015, the Company had rights for 26,500 and 23,500 shares
outstanding, respectively, with intrinsic values ranging from zero to $50.00 per share at
December 31, 2016 and from zero to $51.74 per share at December 31, 2015. At December
31, 2016 and 2015, the liability for future payments recorded is $321,000 and $318,070,
respectively.
NOTE N STOCK OPTION PLANS

In February 2008, the Board of Directors approved an employee incentive stock option plan
(the 2008 Plan). Under the 2008 Plan, options for 62,367 shares have been granted to
purchase common stock at prices ranging from $85.00 to $137.50 which were determined by
the plan administrators to be 100% of the fair market value of the stock at the grant date.
Generally, the options vest ratably over a five year or ten year period beginning at the grant
date. The options expire in ten years from the grant date. At December 31, 2016, 61,167
options remain outstanding and 56,667 are exercisable under the 2008 Plan.

During 2013, the shareholders of the Company approved an additional incentive stock option
plan (the 2013 Plan), under which, 20,000 shares of common stock may be awarded as stock
options. At December 31, 2016, options for 4,000 shares have been granted to purchase
common stock at prices ranging from $140.00 to $150.00 which was determined by the plan
administrators to be 100% of the fair market value of the stock at the grant date. Generally,
the options vest ratably over a five year or ten year period beginning at the grant date. The
options expire in ten years from the grant date. At December 31, 2016, 4,000 options are
outstanding and 846 are exercisable under the 2013 Plan.

There were no share options exercised during the year ended December 31, 2016. Cash
received in exercise of share options for year ended December 31, 2015 was $100,000.

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