<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1997
REGISTRATION NO. 333-28563
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GOLD BANC CORPORATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
KANSAS 6712 48-1008593
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
11301 NALL AVENUE
LEAWOOD, KANSAS 66211
(913) 451-8050
(ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL W. GULLION
11301 NALL AVENUE
LEAWOOD, KANSAS 66211
(913) 451-8050
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
STEVEN F. CARMAN, ESQ. MIKE RYAN, ESQ.
BLACKWELL SANDERS MATHENY WEARY & RYAN, CONDRY & RYAN, L.L.C.
LOMBARDI LLP 509 COURT
TWO PERSHING SQUARE CLAY CENTER, KANSAS 67432
2300 MAIN, SUITE 1100 (913) 632-5666
KANSAS CITY, MISSOURI 64108 FAX: (913) 632-6534
(816) 983-8153
FAX: (816) 983-9153
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this registration statement is declared
effective and all other conditions to the Merger (as defined herein) have been
satisfied or waived.
----------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
GOLD BANC CORPORATION, INC.
CROSS REFERENCE SHEET FOR PROSPECTUS/PROXY STATEMENT
<TABLE>
<CAPTION>
FORM S-4
REGISTRATION STATEMENT ITEM LOCATION IN PROSPECTUS/PROXY STATEMENT
----------------------------- --------------------------------------
<C> <S> <C>
1. Forepart of Registration
Statement and Outside
Front Cover Page of
Prospectus................ Facing page, Cross Reference Sheet; Cover
Page of Prospectus/Proxy Statement.
2. Inside Front and Outside
Back Cover Pages of
Prospectus................ Available Information; Table of Contents.
3. Risk Factors, Ratio of
Earnings to Fixed Charges
and Other Information..... Risk Factors; Summary.
4. Terms of the Transaction.. Summary; The Merger.
5. Pro Forma Financial
Information............... Pro Forma Unaudited Consolidated Financial
Statements.
6. Material Contracts with
the Company Being
Acquired.................. The Merger.
7. Additional Information
Required for Reoffering by
Persons and Parties Deemed
to be Underwriters........ Not Applicable.
8. Interests of Named Experts
and Counsel............... Not Applicable.
9. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities............... Not Applicable.
10. Information with Respect
to S-3 Registrants........ Not Applicable.
11. Incorporation of Certain
Information by Reference.. Not Applicable.
12. Information with Respect
to S-2 or S-3
Registrants............... Not Applicable.
13. Incorporation of Certain
Information by Reference.. Not Applicable.
14. Information with Respect
to Registrants Other Than
S-3 or S-2 Registrants.... Pro Forma and Selected Financial Data;
Business of the Company; Change in
Accountants; Price Range of the Company
Common Stock; Management's Discussion and
Analysis of Financial Condition and Results
of Operations of the Company; Financial
Statements.
15. Information with Respect
to S-3 Companies.......... Not Applicable.
16. Information with Respect
to S-2 or S-3 Companies... Not Applicable.
17. Information with Respect
to Companies Other than S-
2 or S-3 Companies........ Summary; The Companies; Management's
Discussion and Analysis of Consolidated
Financial Condition and Results of
Operations; Financial Statements.
18. Information if Proxies,
Consents or Authorizations
Are to Be Solicited....... Peoples Special Meeting; Securities
Ownership of Peoples Common Stock;
Executive Compensation; Management of the
Company; The Merger; Rights of Dissenting
Stockholders.
19. Information if Proxies,
Consents or Authorizations
Are Not to Be Solicited or
in an Exchange Offer...... Not Applicable.
</TABLE>
<PAGE>
[LOGO]
, 1997
Dear Peoples Bancshares, Inc. Stockholder:
You are cordially invited to attend the special meeting of Stockholders of
Peoples Bancshares, Inc. ("Peoples") which will be held at , on
, , 1997, commencing at p.m., local time. At this important
meeting, holders of common stock of Peoples will be asked to consider and vote
on a proposal relating to the merger of Peoples with and into Gold Banc
Acquisition Corporation, Inc., a wholly-owned subsidiary of Gold Banc
Corporation, Inc.
This merger is subject to certain required regulatory approvals and other
conditions. The merger will be consummated shortly after the necessary
regulatory approvals are obtained and other conditions to the merger are
satisfied or waived. Under Kansas law, holders of common stock of Peoples have
dissenters' rights of appraisal with respect to the merger.
The enclosed Prospectus/Proxy Statement describes the terms of the
transaction in more detail. You should review the Prospectus/Proxy Statement
carefully. Your board of directors has carefully reviewed and considered the
terms and conditions of the transaction and believes that it is fair and in
the best interests of Peoples and its shareholders and unanimously recommends
that shareholders vote "for" the proposal.
A majority vote of all outstanding shares of Peoples common stock is
required to approve the transaction. To ensure your shares will be represented
at the meeting, whether or not you plan to attend, I urge you to promptly
sign, date and mail your proxy in the enclosed self-addressed envelope, which
requires no postage. You may cancel your proxy by attending the meeting and
voting in person.
Sincerely,
Kyle Bauer
Chairman of the Board of Directors
<PAGE>
[LOGO]
PEOPLES BANCSHARES, INC.
To the Stockholders of Peoples Bancshares, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the stockholders of Peoples
Bancshares, Inc. ("Peoples") will be held at , on , 1997,
commencing at p.m., local time (the "Special Meeting"). At the Special
Meeting, stockholders will be asked to consider and vote upon the following
matter, which is more fully described in the accompanying Prospectus/Proxy
Statement:
A proposal to approve the Agreement and Plan of Reorganization, dated
as of April 14, 1997 (the "Agreement"), by and among Gold Banc
Corporation, Inc., Gold Banc Acquisition Corporation, Inc., and Peoples
Bancshares, Inc., a copy of which is attached as Annex A to the
accompanying Prospectus/Proxy Statement. Pursuant to the Agreement,
Peoples will be merged with and into Gold Banc Acquisition Corporation,
Inc.
Holders of Peoples common stock of record at the close of business on ,
1997, will be entitled to notice of and to vote at the Special Meeting or any
adjournment or postponement thereof. Approval of the Agreement, which is a
condition to the consummation of the transactions contemplated by the
Agreement, requires the affirmative vote of the holders of a majority of the
outstanding shares of Peoples common stock. Pursuant to K.S.A. (S) 17-6712,
Kansas law provides that Peoples stockholders are entitled to dissenters'
rights.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE AGREEMENT.
By Order of the Board of Directors
James H. Schulze
Corporate Secretary
Clay Center, Kansas
, 1997
<PAGE>
Prospectus of
Gold Banc Corporation, Inc.
880,952 Common Shares of
$1.00 Par Value
----------------
Proxy Statement of
Peoples Bancshares, Inc.
----------------
This Prospectus/Proxy Statement relates to the issuance of up to 880,952
shares of $1.00 par value common stock (the "Company Common Stock") of Gold
Banc Corporation, Inc. (the "Company"), in exchange for shares of $100.00 par
value common stock (the "Peoples Common Stock") of Peoples Bancshares, Inc.
("Peoples") in the merger described herein, pursuant to which Peoples will be
merged into Gold Banc Acquisition Corporation, Inc. ("Sub"), a wholly-owned
subsidiary of the Company (the "Merger").
This Prospectus/Proxy Statement is also a proxy statement furnished at the
direction of the Board of Directors of Peoples in connection with the
solicitation of proxies from its stockholders to be voted at a special meeting
of stockholders of Peoples to be held on , 1997, and at any adjournment
thereof, for the purpose of considering and voting upon approval of the
agreement described herein.
STOCKHOLDERS OF PEOPLES SHOULD CAREFULLY CONSIDER THE INFORMATION UNDER "RISK
FACTORS" BEGINNING ON PAGE 10.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
The date of this Prospectus/Proxy Statement is , 1997, and it is first
being mailed on or about , 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information can be inspected and
copied at the offices of the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549; Room 1400, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Commission maintains an Internet web site that contains reports, proxy and
information statements and other information regarding issuers who file
electronically with the Commission. The address of that site is
http://www.sec.gov.
The Company has filed a Registration Statement on Form S-4 with the SEC with
respect to the Company Common Stock to be issued in connection with the
Merger. This Prospectus/Proxy Statement (the "Prospectus") does not contain
all the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the SEC. The
Registration Statement and any amendments thereto, including exhibits filed as
a part thereof, are available at the SEC for inspection and copying as set
forth above.
----------------
No person is authorized to give any information or to make any
representation not contained in this Prospectus, and, if given or made, such
information or representation should not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell, or
solicitation of an offer to purchase, the securities offered by this
Prospectus, or the solicitation of a proxy, in any jurisdiction, to or from
any person to whom it is unlawful to make such offer, solicitation of an offer
or proxy solicitation in such jurisdiction. Neither the delivery of this
Prospectus nor any distribution of the securities pursuant to this Prospectus
shall, under any circumstances, create an implication that there has been no
change in the information set forth herein since the date of this Prospectus.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...................................................... 2
SUMMARY.................................................................... 5
The Companies............................................................ 5
Peoples Special Meeting.................................................. 5
The Merger............................................................... 5
Stock Certificates; Dividend Withholding................................. 6
Conditions to the Merger................................................. 6
Recommendation of the Board of Directors................................. 6
Dissenters' Rights of Appraisal.......................................... 6
Accounting Treatment..................................................... 6
Federal Income Tax Consequences.......................................... 7
Comparative Stock Prices................................................. 7
Comparative Per Share Data............................................... 8
Pro Forma and Selected Financial Data.................................... 9
RISK FACTORS............................................................... 10
Key Personnel............................................................ 10
Control of the Company by Mr. Gullion.................................... 10
Anti-Takeover Measures................................................... 10
Limited Trading History.................................................. 10
THE COMPANIES.............................................................. 11
PEOPLES SPECIAL MEETING.................................................... 12
Purpose of the Special Meeting........................................... 12
Solicitation and Revocation of Proxies................................... 12
Voting of Proxies, Persons Entitled to Vote, and Vote Required........... 12
THE MERGER................................................................. 13
General.................................................................. 13
Conversion of Peoples Common Stock....................................... 13
Exchange of Stock Certificates........................................... 13
Fractional Shares........................................................ 13
Background of Negotiations............................................... 14
Reasons for the Merger................................................... 14
Operations and Management After the Merger............................... 14
Conditions to the Merger................................................. 15
Conduct of Business Pending the Merger................................... 15
No Solicitation.......................................................... 15
Waiver and Amendment..................................................... 15
Possible Termination of the Merger....................................... 16
Effective Time........................................................... 16
Federal Securities Laws Consequences..................................... 16
Rights of Dissenting Stockholders........................................ 16
Transactions Between the Company and Peoples............................. 17
Accounting Treatment..................................................... 17
FEDERAL INCOME TAX CONSEQUENCES............................................ 18
BUSINESS OF THE COMPANY.................................................... 19
Community Banking Strategy............................................... 19
Operating Strategy....................................................... 19
Growth Strategy.......................................................... 20
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Lending Activities..................................................... 21
Loan Origination and Processing........................................ 23
Mortgage Banking Division Operations................................... 23
Investment Portfolio................................................... 23
Deposits and Borrowings................................................ 24
Competition............................................................ 24
Employees.............................................................. 24
Stock Offering......................................................... 24
Property of the Company................................................ 25
Legal Proceedings Involving the Company................................ 25
SUPERVISION AND REGULATION OF THE COMPANY................................ 26
MANAGEMENT OF THE COMPANY................................................ 31
EXECUTIVE COMPENSATION OF THE COMPANY.................................... 33
SECURITY OWNERSHIP OF THE COMPANY COMMON STOCK........................... 35
CHANGE IN ACCOUNTANTS.................................................... 36
SECURITY OWNERSHIP OF PEOPLES COMMON STOCK............................... 37
DESCRIPTION OF THE COMPANY SECURITIES.................................... 38
DIFFERENCES IN RIGHTS OF STOCKHOLDERS.................................... 40
General................................................................ 40
Number of Directors and Term........................................... 40
Removal of Directors................................................... 40
Preemptive Rights...................................................... 40
Special Meetings....................................................... 40
Amendment of Articles of Incorporations................................ 40
Amendment of Bylaws.................................................... 41
Notice of Stockholder Proposals; Nominations of Directors.............. 41
PRICE RANGE OF THE COMPANY COMMON STOCK AND UNREGISTERED SALES OF EQUITY
SECURITIES OF THE COMPANY............................................... 41
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.......... 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF THE COMPANY............................................ 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF PEOPLES................................................ 63
LEGAL OPINION............................................................ 69
EXPERTS.................................................................. 69
Independent Public Accountants for Gold Banc Corporation, Inc.......... 69
Independent Public Accountants for Peoples Bancshares, Inc............. 69
STOCKHOLDER PROPOSALS.................................................... 69
INDEX TO FINANCIAL STATEMENTS OF PEOPLES................................. F-1
INDEX TO FINANCIAL STATEMENTS OF THE COMPANY............................. F-21
EXHIBITS
Annex A--Copy of Agreement
Annex B--Rights of Stockholders Dissenting from the Proposed Merger
</TABLE>
4
<PAGE>
SUMMARY
The following is a brief summary of certain information in this
Prospectus/Proxy Statement (the "Prospectus"). This summary is not intended to
be complete and it is qualified in all respects by the information appearing
elsewhere, the Annexes hereto and the documents referred to herein.
THE COMPANIES
Gold Banc Corporation, Inc. (the "Company") is a Kansas corporation organized
on December 5, 1985 and is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended. The Company, through its ownership of
its banking subsidiaries (the "Company Banks"), is engaged in a general
commercial banking business, and its primary source of earnings is derived from
income generated by the Company Banks. As of December 31, 1996, the Company had
total assets of $305 million, total loans of $203 million, total deposits of
$256 million, and stockholders' equity of $30 million. The Company and the
Company Banks employ 116 persons on a full-time equivalent basis. The principal
executive offices of the Company are located at 11301 Nall Avenue, Leawood,
Kansas 66211 (telephone number (913) 451-8050).
Peoples Bancshares, Inc. ("Peoples") is a registered bank holding company
headquartered in Clay Center, Kansas. Peoples owns all of the issued and
outstanding common stock of Peoples National Bank (the "Bank"), a national bank
located in Clay Center, Kansas. The total assets of Peoples on a consolidated
basis, as of December 31, 1996, were approximately $72 million and net income
for the year ended December 31, 1996, was approximately $727,000. The principal
executive offices of Peoples are at 509 Court, Clay Center, Kansas 67432
(telephone number (913) 632-3171).
Gold Banc Acquisition Corporation, Inc. ("Sub") is a wholly owned subsidiary
of the Company. Pursuant to the Agreement and Plan of Reorganization among the
Company, Peoples, and Sub dated April 14, 1997 (the "Agreement"), Peoples will
be merged into Sub (the "Merger"). The principal executive offices of Sub are
located at 11301 Nall Avenue, Leawood, Kansas 66211 (telephone number (913)
451-8050).
PEOPLES SPECIAL MEETING
A special meeting of the stockholders of Peoples will be held at 509 Court in
Clay Center, Kansas on , , 1997, at p.m., local time (the "Peoples
Special Meeting"), for the purpose of approving the Agreement.
Only holders of record of Peoples common stock, par value $100.00 per share
("Peoples Common Stock") at the close of business on , 1997, will be
entitled to notice of and to vote at the Peoples Special Meeting. At the
Peoples Special Meeting, each holder of Peoples Common Stock will be entitled
to one vote for each share held, and the affirmative vote of a majority of the
outstanding shares of Peoples Common Stock is required to approve the
Agreement. Abstentions and failures to vote will have the same effect as votes
cast against approval of the Agreement. On , 1997, directors and executive
officers of Peoples beneficially owned approximately % of the outstanding
shares of Peoples Common Stock. All directors of Peoples owning Peoples Common
Stock have indicated they intend to vote in favor of the Agreement.
THE MERGER
The Company, Sub and Peoples have entered into the Agreement, a copy of which
is attached hereto as Annex A, pursuant to which Peoples will be merged with
and into Sub, which will be the surviving corporation. As more fully set forth
below, the Agreement provides, generally, that each of the shares of Peoples
Common Stock outstanding immediately prior to the Effective Time (as defined in
the Agreement) of the Merger will be
5
<PAGE>
converted into the right to receive shares of the Company common stock, par
value $1.00 per share (the "Company Common Stock").
The Agreement provisions are intended to maintain the value of the Company
Common Stock to be received in the Merger despite fluctuations in the Company
Common Stock price. The conversion ratio (the number of shares of the Company
Common Stock issuable for a share of Peoples Common Stock) varies so that the
value of the Company Common Stock issuable in the Merger is maintained at
approximately $365 per share of Peoples Common Stock. See "THE MERGER--
Conversion of Peoples Common Stock."
Fractional shares of the Company Common Stock will not be issued in
connection with the Merger. Holders of Peoples Common Stock otherwise entitled
to a fractional share will be paid the value of the fractional share in cash.
STOCK CERTIFICATES; DIVIDEND WITHHOLDING
Stockholders of Peoples other than those Peoples stockholders who perfect
their dissenters' rights of appraisal, must surrender to the Company the
certificates for their shares of Peoples Common Stock, and inform the Company
of their federal taxpayer identification number, before receiving a certificate
for the number of shares of the Company Common Stock to which such stockholders
are entitled. Until a Peoples stockholder surrenders the certificates for his
Peoples Common Stock and informs the Company of his or her federal taxpayer
identification number, the Company may withhold the payment of any or all
dividends otherwise payable to such stockholder as a stockholder of the
Company. See "THE MERGER--Exchange of Stock Certificates."
CONDITIONS TO THE MERGER
The Merger is subject to certain conditions, including approval of the
Agreement by the stockholders of Peoples and by appropriate state and federal
banking authorities. Applications will be filed with appropriate state and
federal banking authorities seeking their approval of the Merger. See "THE
MERGER--Conditions to the Merger."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of Peoples believes that the Merger is in the best
interests of Peoples and its stockholders and unanimously recommends that
stockholders vote FOR the approval of the Agreement. See "THE MERGER--Reasons
for the Merger."
DISSENTERS' RIGHTS OF APPRAISAL
Holders of Peoples Common Stock who are opposed to the Merger have the right
to dissent from the Merger in accordance with Section 17-6712 of the Kansas
General Corporation Code ("KGCC"), which provides that a stockholder shall be
entitled to receive the fair value of his shares as of the day prior to the day
on which the Merger is approved by the other stockholders if such stockholder:
(1) delivers a written demand for appraisal of such shares to Peoples prior to
the vote on the Agreement at the Peoples Special Meeting; (2) does not vote in
favor of the Merger; and (3) makes written demand for payment of the fair value
of his shares within twenty (20) days after receiving notice that the Merger
became effective. See "THE MERGER--Rights of Dissenting Stockholders."
ACCOUNTING TREATMENT
The Merger will be treated by the Company as a pooling of interests for
accounting purposes.
6
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a reorganization under Section 368(a)(1)
of the Internal Revenue Code of 1986, as amended (the "Code"). Payne & Jones,
Chartered will deliver as a condition of closing of the Merger an opinion,
based upon certain customary assumptions and representations, that, for Federal
income tax purposes, no gain or loss will be recognized by the Peoples
stockholders as a result of the Merger to the extent they receive the Company
Common Stock solely in exchange for their Peoples Common Stock. With respect to
Peoples Common Stock exchanged for cash as the result of the exercise of
dissenters' rights, the exchange will be treated as a sale, and normal
recognition and gain and loss treatment will apply. For a more complete
description of the federal income tax consequences, see "FEDERAL INCOME TAX
CONSEQUENCES."
COMPARATIVE STOCK PRICES
Shares of the Company Common Stock are listed on the NASDAQ Stock Market,
Inc. ("NASDAQ"), National Market System. The last sale price of the Company
Common Stock as reported on NASDAQ on April 11, 1997 (the last trading day
preceding the execution of the Agreement, which was also the date preceding the
announcement of the execution of the Agreement), was $11.125. The last sale
price for the Company Common Stock as reported by NASDAQ on , 1997 (the
most recent date for which it was practicable to obtain market price data prior
to the printing of this Prospectus), was $ .
As of , 1997, there were twenty holders of record of Peoples Common
Stock. There is no established trading market for the shares of Peoples Common
Stock and management is aware of no arm's length sales of Peoples Common Stock
since formation of Peoples.
7
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth per share data of the Company and Peoples on
both an historical basis and on a pro forma basis for the Company. This table
should be read in conjunction with the historical consolidated financial
statements and notes thereto for the Company incorporated herein by reference,
and for Peoples contained herein. Pro forma combined and equivalent pro forma
per share data for Peoples reflect the combined results of the Company and
Peoples presented as though they were one company for all periods shown. The
pro forma amounts do not include any adjustments for estimated operating
efficiencies or revenue enhancements resulting from the Merger.
The following pro forma and equivalent pro forma information set forth in
this document is based on the estimated exchange ratio of 32.8731 shares of the
Company Common Stock for each share of Peoples Common Stock, which is the
exchange ratio that would have applied had the Effective Time been April 14,
1997. The actual exchange ratio depends on the Company Common Stock price for a
specified period prior to the closing. See "THE MERGER--Conversion of Peoples
Common Stock."
<TABLE>
<CAPTION>
HISTORICAL EQUIVALENT
------------------- PRO FORMA
THE COMPANY PEOPLES PRO FORMA PEOPLES
----------- ------- --------- ----------
<S> <C> <C> <C> <C>
Net income per common share:
Year ended:
December 31, 1996.................. $ .60 $ 28.67 $ .67 $ 22.18
December 31, 1995.................. .34 20.27 .42 13.82
Three months ended:
March 31, 1997 (unaudited)......... $ .14 $ 7.20 .15 5.03
March 31, 1996 (unaudited)......... .18 2.98 .15 4.97
Cash Dividends paid per share:
Year ended:
December 31, 1996.................. $0.00 $ 0.00 -- --
December 31, 1995.................. 0.00 0.00 -- --
Three months ended:
March 31, 1997 (unaudited)......... $0.00 $ 0.00 -- --
March 31, 1996 (unaudited)......... 0.00 0.00 -- --
Book value per common share at:
December 31, 1996.................. $7.01 $166.61 $6.69 $220.07
December 31, 1995.................. 5.63 141.62 5.26 173.01
March 31, 1997 (unaudited)......... 7.12 168.81 6.80 223.82
March 31, 1996 (unaudited)......... 7.01 140.24 5.17 169.85
</TABLE>
8
<PAGE>
ACQUISITION AGREEMENT
On July 3, 1997, the Company entered into an Agreement and Plan of
Reorganization with Farmers Bancshares of Oberlin, Inc., a one bank bank
holding company located in Oberlin, Kansas ("Farmers"), pursuant to which
Farmers will be merged into a wholly-owned subsidiary of the Company. Farmers
stockholders will receive in the aggregate (i) $1,964,625 in cash, and (ii) 7.5
shares of Company Common Stock for each share of stock of Farmers, other than
the 5,600 shares held by the Farmer's ESOP. The Farmer's ESOP will only receive
cash for the Farmer's shares that it holds. There are 42,100 outstanding shares
of Farmers' stock. The Farmers' merger is subject to certain conditions,
including approval by the stockholders of Farmers and appropriate state and
federal banking authorities. The Farmers' merger will be treated by the Company
as a purchase for accounting purposes. As of June 1, 1997, there were six
stockholders of Farmers.
Farmers is a registered one-bank holding company that owns 100% of Farmers
National Bank. As of December 31, 1996, Farmers National Bank had total assets
of $56 million, total loans of $27 million, total deposits of $48 million and
stockholder's equity of $6.73 million. The bank's loan mix as of December 31,
1996 consisted of approximately 47% agricultural, 16% commercial and industrial
loans, 31% real estate loans, and 6% consumer and other loans. The bank owned
by Farmers employs approximately 22 full-time equivalent persons.
9
<PAGE>
RISK FACTORS
KEY PERSONNEL
Continued profitability of the Company after the Merger will be dependent on
the retention of a limited number of key persons, including Michael W.
Gullion, the Chairman, President and Chief Executive Officer of the Company,
and Keith E. Bouchey, the Executive Vice President, Secretary, Treasurer and
Chief Financial Officer of the Company. There will likely be a difficult
transition period if the Company lost the services of either or both men. In
recognition of this risk, the Company owns and is the beneficiary of an
insurance policy on the life of Mr. Gullion providing death benefits of $1.5
million and has entered into employment agreements with Mr. Gullion and Mr.
Bouchey. The Company also places great value on the experience of presidents
of the Company Banks and the branches of the Company Banks and on their
relationships with the communities served by the Company Banks. The loss of
these key persons, or the loss of the president of the Bank, could negatively
impact the affected banking locations. There is no assurance the Company will
be able to retain its current key personnel or attract additional qualified
key persons as needed. See "MANAGEMENT OF THE COMPANY."
CONTROL OF THE COMPANY BY MR. GULLION
Following completion of the Merger, and assuming the issuance of 833,333
shares in the Merger, Mr. Michael Gullion will directly own 6.83% of the
outstanding stock of the Company, and through certain agreements will have the
right to vote an additional 11.5% of the Company Common Stock, for a total
voting power of 18.33% of the Company Common Stock. As a result, Mr. Gullion
will be in a position to control the management policy and conduct of the
business of the Company following the Merger. See "SECURITY OWNERSHIP OF THE
COMPANY COMMON STOCK."
ANTI-TAKEOVER MEASURES
The Company has adopted certain provisions in its Amended and Restated
Articles of Incorporation and Restated Bylaws that may be considered as having
the effect of discouraging attempts to take over control of the Company. In
addition, the employment agreements of Mr. Gullion and Mr. Bouchey may require
the Company to make certain cash payments to them following a change in
control of the Company. Such provisions may benefit the Company's stockholders
if a takeover were attempted with a view to impose a merger, a sale of all or
substantially any part of the assets of the Company, or a similar transaction
that may not be in the best interests of all of the stockholders. On the other
hand, the anti-takeover provisions could adversely affect stockholders of the
Company by discouraging takeovers that are structured in a way that would be
favorable to the interests of the stockholders. See "DESCRIPTION OF
SECURITIES."
LIMITED TRADING HISTORY
The Company's Common Stock has been listed on the NASDAQ National Market
since November 1996. Prior to that time there was no public market for the
Company Common Stock. There is no assurance that the Company Common Stock will
experience in the future the trading performance experienced since November
1996. Public markets such as that on which the Company Common Stock is traded
from time to time experience price and volume volatility. These fluctuations
may be unrelated to the operating performance of particular companies whose
shares are traded on such markets. The market price could be subject to
significant fluctuations in response to the Company's operating results, the
results of its competitors, government regulations, litigation, and other
factors.
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THE COMPANIES
THE COMPANY
The Company is a Kansas corporation organized on December 5, 1985 and is a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended. The Company, through its ownership of the Company Banks, is engaged
in a general commercial banking business, and its primary source of earnings
is derived from income generated by the Company Banks. As of December 31,
1996, the Company had total assets of $305 million, total loans of $203
million, total deposits of $256 million, and stockholders' equity of $30
million. The Company and the Company Banks employ 116 persons on a full-time
equivalent basis.
THE COMPANY BANKS
Exchange Bank. Exchange National Bank ("Exchange Bank") has four locations
and is chartered in Marysville, Kansas. The two Marysville locations
("Exchange Bank--Marysville") as of December 31, 1996, ranked second in terms
of deposits among the eight other banks and two other lending institutions in
Marshall County, Kansas. Exchange Bank--Marysville's loan mix as of December
31, 1996 consisted of approximately 28% agricultural loans, 35% commercial and
industrial loans, 27% residential real estate loans, and 10% consumer and
other loans. As of December 31, 1996, Exchange Bank--Marysville had assets of
approximately $76 million. The Marysville facilities employ 27 full-time
equivalent persons and, through its predecessors, have served the Marshall
County community since 1870.
Since April 1992 and October 1995, Exchange Bank has been operating branches
in Shawnee and Leawood, Kansas, respectively. These branches are located in
Johnson County, the rapidly developing suburbs southwest of Kansas City,
Missouri. On April 10, 1997, Exchange Bank filed an application to establish a
new branch location in western Shawnee, Kansas. The branch is expected to be
open for business in the second quarter of 1998. The two Johnson County,
Kansas branches of Exchange Bank had a loan mix as of December 31, 1996 of 39%
commercial, 18% commercial real estate, 25% real estate construction, 11%
residential real estate and 7% consumer and other loans including agriculture-
related. As of December 31, 1996, these branches combined had $86 million in
assets and employed 28 full-time equivalent persons. The Company's management
believes the expansion in Johnson County will further enhance the Company's
growth opportunities while diversifying its overall loan portfolio.
Provident Bank. Provident Bank, f.s.b. ("Provident Bank") a federally
chartered savings and loan, competes with 10 banks, 4 savings and loans and 11
credit unions in the city of St. Joseph, Missouri, and for the year ended
December 31, 1996 was the leading home lender, based on mortgage volume, for
home purchases in St. Joseph. Approximately 52% of the Bank's loan portfolio
as of December 31, 1996 consisted of residential home loans, 34% commercial
real estate loans, 6% industrial loans, 4% loans held for sale and 4% consumer
and other loans. As of December 31, 1996, Provident Bank had assets of
approximately $79 million. The Bank employs a total of 35 persons on a full-
time equivalent basis and relies primarily on the deposits of the St. Joseph
area for its funds. Provident Bank was acquired by the Company in March, 1994.
Provident Bank had assets of $58 million at that time. A portion of the
purchase price was financed through the sale by the Company of a bank located
in Coldwater, Kansas that had assets of $23 million. Provident Bank was
established in 1889 and has been serving the St. Joseph community for 107
years.
Citizens. Citizens State Bank and Trust Company ("Citizens") has two
locations in the town of Seneca, Kansas. As of December 31, 1996, Citizens was
the largest in terms of deposits among the 10 bank locations serving Nemaha
County, Kansas. As of December 31, 1996 approximately 29% of the loans
generated by the Bank were related to the agricultural sector, including farm
real estate, agricultural production and agricultural industrial and
approximately 30% of its loans were residential home loans and the remainder
are commercial, consumer and other loans. As of December 31, 1996, the Bank
had assets of approximately $57 million. The Bank has 20 full-time equivalent
employees and relies primarily on consumer, commercial and local government
deposits for funds. Citizens has served the Nemaha County community for 103
years.
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PEOPLES
Peoples is a registered bank holding company headquartered in Clay Center,
Kansas. Peoples owns all of the issued and outstanding common stock of the
Bank, a national bank located in Clay Center, Kansas. The total assets of
Peoples on a consolidated basis, as of December 31, 1996, were approximately
$72 million and net income for the year ended December 31, 1996, was
approximately $727,000.
SUB
Sub is a wholly owned subsidiary of the Company. Pursuant to the Agreement
Peoples will be merged into Sub.
PEOPLES SPECIAL MEETING
PURPOSE OF THE SPECIAL MEETING
The purpose of the Peoples Special Meeting is to consider and vote upon a
proposal to approve the Agreement which provides, among other things, for the
merger of Peoples with and into Sub and in which Sub will be the surviving
corporation. Stockholders of Peoples will receive shares of the Company Common
Stock in the Merger.
SOLICITATION AND REVOCATION OF PROXIES
This Prospectus is being furnished to the stockholders of Peoples in
connection with the solicitation of proxies by the Board of Directors of
Peoples for use at the Peoples Special Meeting to be held at p.m., local
time, on , 1997, at and at any adjournment or adjournments
thereof. Any proxy given does not affect the right to vote in person at the
Peoples Special Meeting and may be revoked at any time before it is exercised
by delivery of a later dated proxy or by notifying the Secretary of Peoples,
James H. Schulze, in person or in writing of an intention to revoke a proxy.
The cost of solicitation of proxies for the Peoples Special Meeting will be
borne by Peoples. In addition to solicitation by mail, Peoples may cause
proxies to be solicited personally or by telephone or telegram by Peoples's
regular employees.
VOTING OF PROXIES, PERSONS ENTITLED TO VOTE, AND VOTE REQUIRED
All shares represented by a proxy given pursuant to this solicitation will
be voted as specified thereon at the Peoples Special Meeting. If no
specification is given, such shares will be voted in favor of the proposal to
approve the Agreement. The Board of Directors of Peoples is not aware of any
other business to be presented at the Peoples Special Meeting. Should any such
other business be presented at the Peoples Special Meeting, the person or
persons named in the proxy will vote the same in accordance with their
judgment.
The affirmative vote of the holders of at least a majority of the
outstanding shares of Peoples Common Stock is required to approve the
Agreement. Only holders of Peoples Common Stock of record as of the close of
business on , 1997, are entitled to vote at the Peoples Special Meeting.
At the close of business on that date, 25,350 shares of Peoples Common Stock
were outstanding. Holders of shares of Peoples Common Stock are entitled to
one vote for each share held on the record date.
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THE MERGER
GENERAL
The Agreement and certain related matters are summarized below. This summary
does not purport to be a complete statement of the terms and conditions of the
Merger and is qualified in its entirety by reference to the Agreement attached
as Annex A to this Prospectus and incorporated herein by reference.
At the Effective Time, Peoples will merge with and into Sub, the separate
corporate existence of Peoples will cease and Sub will survive and continue to
exist as a wholly-owned subsidiary of the Company. The Agreement has been
structured so that the aggregate value of the Company Common Stock to be
issued to Peoples stockholders in the Merger will equal $9,250,000. The per
share value paid in the Company Common Stock to the stockholders of Peoples
will be approximately $365 per share of Peoples Common Stock.
CONVERSION OF PEOPLES COMMON STOCK
At the Effective Time, automatically by virtue of the Merger and without any
action on the part of any party or stockholder, each share of Peoples Common
Stock (excluding (i) shares held by Peoples or by the Company or any of their
subsidiaries, in each case other than in a fiduciary capacity and (ii) any
shares with respect to which dissenters' rights are being exercised) issued
and outstanding immediately prior to the Effective Time will be converted into
that number of shares of the Company Common Stock equal to approximately $365
divided by the Average Company Price (defined below). Had the Effective Time
occurred on , 1997, the most recent date for which it was practicable to
obtain market price data prior to printing this Prospectus, each share of
Peoples Common Stock would have been converted into shares of the Company
Common Stock. You may obtain updated information regarding the exchange ratio
by calling the Secretary of Peoples, James H. Schulze, at (913) 632-3171. The
Average Company Price means the average of the closing sales prices of the
Company Common Stock as reported by the NASDAQ National Market System
("NASDAQ") on each of the ten (10) consecutive trading days preceding the
third trading day prior to the Effective Time. It is a condition to the
Company's obligation to consummate the Merger that the Average Company Price
be at least $10.50. Assuming this condition is not waived by the Company, the
maximum number of shares that could be issued in the Merger is 880,952.
EXCHANGE OF STOCK CERTIFICATES
At the Effective Time, certificates evidencing shares of Peoples Common
Stock to be exchanged for shares of the Company Common Stock will be deemed
for all corporate purposes, other than the payment of dividends and other
distributions on such stock, to evidence ownership of such shares of the
Company Common Stock. As soon as practicable after the Effective Time, the
Company or its agent, as the exchange agent, will send a notice and
transmittal form to each record holder of certificates for Peoples Common
Stock advising such holder of the procedures for surrendering Peoples
certificates to the Company or its agent in exchange for a certificate for the
number of whole shares of the Company Common Stock and a check for the cash
amount (if any) to which such holder is entitled. The shares of the Company
Common Stock will be deemed to have been issued at the Effective Time.
Promptly following the surrender of the Peoples certificates, the Company or
its agent will deliver to the surrendering Peoples stockholders certificates
evidencing whole shares of the Company Common Stock and a check for the cash
amount of any fractional interest, (See "--Fractional Shares") all in
accordance with the notice and transmittal form. Holders of Peoples Common
Stock will be entitled to dividends, without interest, that may be declared
and payable to holders of record of the Company Common Stock after the
Effective Time; provided, however, that any such dividends will be remitted to
each Peoples stockholder entitled thereto, without interest, at the time that
such certificates representing shares of Peoples Common Stock are surrendered
for exchange, subject to any applicable abandoned property, escheat or similar
law.
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FRACTIONAL SHARES
Neither certificates nor scrip representing fractional shares of the Company
Common Stock will be issued, but in lieu thereof, each holder of shares of
Peoples Common Stock who would otherwise have been entitled to a fraction of a
share of the Company Common Stock will be paid the cash value of such fraction
determined by multiplying such fraction by the Average Company Price.
BACKGROUND OF NEGOTIATIONS
Late in the fall of 1996, the Board of Directors of Peoples instructed
management to begin discussions with a number of banks to secure a replacement
loan for the loan Peoples had executed with Boatmen's Bank in May 1994.
Management entered into discussions with five banks, including the Company.
On February 20, 1997, Mr. Jim Fawcett, the President of Peoples, contacted
Mr. Keith Bouchey, Chief Financial Officer of the Company, about obtaining a
loan for Peoples. During the course of the meeting, Mr. Bouchey suggested that
they meet again to discuss a possible business combination.
On March 12, 1997, Mr. Fawcett met with the executive management of the
Company and discussed financial terms of a business combination proposed by
the Company. On March 13, 1997, Mr. Michael Gullion, Chief Executive Officer
of the Company, and Mr. Bouchey presented to the Peoples Board of Directors a
formal expression of interest letter. On March 20, 1997, executives of the
Company met with Mr. Fawcett and two outside directors to further negotiate
the proposed transaction. On April 9, 1997, executives of the Company made an
oral presentation to the full Peoples Board of Directors. After satisfying
themselves that the business plan of the Company was consistent with all of
their objectives for Peoples and its stockholders, the Peoples Board
authorized the execution of the Agreement.
REASONS FOR THE MERGER
Peoples. The Peoples Board believes that the terms of the Agreement are fair
to, and in the best interests of, Peoples and its stockholders. In considering
the terms and conditions of the Agreement, the Peoples Board considered a
number of factors. They did not assign any relative or specific weights to the
factors considered. The material factors considered were:
The Financial Terms and Structure of the Merger. The Peoples Board is of
the view that, based on historical and anticipated trading ranges for the
Company Common Stock, the value of the consideration to be received by
Peoples stockholders represents a fair multiple of Peoples' per share book
value and earnings. This conclusion is based on the information available
to the Peoples Board about the consideration received by similar companies
in similar transactions. The number and similarity of such transactions
provided adequate grounds for more than one meaningful comparison.
Additionally, the Board recognized that the shares of the Company Common
Stock are listed for trading on the NASDAQ National Market System and
provide a liquid investment as compared to shares of Peoples Common Stock.
The Peoples Board also considered that the Merger would qualify as a tax-
free reorganization under the Internal Revenue Code of 1986, as amended
(the "Code"). See "FEDERAL INCOME TAX CONSEQUENCES."
The Non-Financial Terms of the Merger. The Peoples Board considered the
social and economic effect on the employees, depositors and customers of,
and others dealing with, the Bank and on the community in which the Bank
operates. They concluded that because of its large menu of banking and
banking related products, strong management, transaction experience and
history of operating acquired banking locations as community banks, the
Company would be an excellent successor to the existing Bank owners.
The Company. In approving the Agreement, management of the Company
considered the price, financial condition of the Bank, projected synergies the
Company anticipates will result from the Merger and the compatibility of the
businesses of the two banking organizations. The management of the Company
concluded that the Merger is consistent with its strategy to acquire community
banks with strong existing management located in county seat towns.
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THE PEOPLES BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT PEOPLES
STOCKHOLDERS VOTE FOR APPROVAL OF THE AGREEMENT.
OPERATIONS AND MANAGEMENT AFTER THE MERGER
At the Effective Time, the separate corporate existence of Peoples will
terminate and all of the assets and liabilities of Peoples will become assets
and liabilities of Sub. It is expected that the Bank will remain as a separate
community bank with a local board of directors and management with local
decision making power. The Bank will receive assistance in bringing new
methods and systems to the Bank. The Company also expects to enhance the net
interest margin and non-interest income of the Bank by expanding the products
and services offered.
The Company will analyze the Bank's operations for potential efficiencies.
The Company anticipates achieving operating cost savings through the proposed
consolidation and the elimination of redundant costs, which the Company
expects to take twelve to eighteen months. While there can be no assurances
that operating cost savings will be realized or in what fiscal period the
savings will actually be recorded, plans are currently being developed to
realize operating cost savings. It is expected that the annualized level of
operating cost savings achieved will be realized unevenly throughout the
period of consolidation, with the majority of any savings realized in the
latter part of the period of consolidation. The extent to which operating cost
savings will be achieved depends, among other things, on the regulatory
environment and economic conditions, and may be affected by unanticipated
changes in business activities, inflation and operating costs.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the fulfillment of certain
conditions set forth in the Agreement, including the following:
(a) Approval of the Agreement by the holders of a majority of all the
outstanding shares of Peoples Common Stock;
(b) The accuracy of representations of the Company, Sub and Peoples made
in the Agreement and the performance of their respective obligations
thereunder;
(c) The absence of a material adverse event since April 14, 1997,
effecting the financial condition, properties, assets, liabilities, rights,
business or prospects of either the Company or Peoples;
(d) The receipt by the Company, Peoples and the Bank of an opinion from
Payne & Jones, Chartered relating to certain tax matters;
(e) The receipt by the Company of an opinion from Ryan, Condry & Ryan,
L.L.C. as to certain corporate matters regarding Peoples and the Bank;
(f) The receipt by the Company of an opinion from an accounting firm that
the Merger will qualify for pooling of interests accounting treatment;
(g) The receipt of necessary regulatory approvals;
(h) A minimum tangible net worth and minimum loan loss reserve of the
Bank; and
(i) The Average Company Price shall not be less than $10.50.
If conditions (d) or (f) are not satisfied, shareholders of Peoples will be
resolicited.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Agreement, Peoples has agreed to carry on its business in
the usual, regular and ordinary course in substantially the same manner as
conducted prior to the execution of the Agreement.
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NO SOLICITATION
The Agreement provides that, unless and until the Merger has been
terminated, Peoples will not solicit or encourage or, subject to the fiduciary
duties of their directors as advised by counsel, hold discussions or
negotiations with, or provide information to, any person in connection with
any proposal from any person relating to the transaction of all or a
substantial portion of the business, assets or stock of Peoples. Peoples is
required to promptly advise the Company of the receipt of, and the substance
of, any such proposal or inquiry.
WAIVER AND AMENDMENT
Prior to or at the Effective Time, any provision of the Agreement,
including, without limitation, the conditions to consummation of the Merger,
may be (i) waived, to the extent permitted under law, in writing by the party
which is entitled to the benefits thereof; or (ii) amended at any time by
written agreement of the parties, whether before or after approval of the
Agreement by the stockholders of Peoples; provided, however, that after any
such approval, no such amendment or modification shall alter the amount or
change the form of the consideration or alter or change any of the terms of
the Agreement if such alteration or change would adversely affect the holders
of Peoples Common Stock. It is anticipated that a condition to consummate the
Merger would be waived only in those circumstances where the Board of
Directors of the Company, Sub, or Peoples, as the case may be, deems such
waiver to be in the best interests of such company and its stockholders.
POSSIBLE TERMINATION OF THE MERGER
The Agreement may be terminated by either party if the Merger has not been
consummated by August 31, 1997.
EFFECTIVE TIME
It is presently anticipated that the effective time of the Merger will occur
in the third quarter of 1997, but no assurance can be given to that effect.
FEDERAL SECURITIES LAWS CONSEQUENCES
The shares of the Company to be issued pursuant to the Merger have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"). The provisions of Rule 145 under the Securities Act allow such shares
to be sold without restriction by stockholders of Peoples who are not deemed
to be "affiliates" (as that term is defined in the rules under the Securities
Act) of Peoples and who do not become affiliates of the Company. The shares of
the Company to be issued to affiliates of Peoples may be resold only pursuant
to an effective registration statement, pursuant to Rule 145 under the
Securities Act, or in transactions otherwise exempt from registration under
the Securities Act. The Company will not be obligated and does not intend to
register its shares under the Securities Act for resale by stockholders who
are affiliates.
RIGHTS OF DISSENTING STOCKHOLDERS
In order to have dissenters' rights, a holder of Peoples Common Stock must
not vote his or her shares in favor of the Agreement or deliver an unmarked,
but signed proxy. If the Merger is approved, holders of shares of Peoples
Common Stock will possess the right to seek appraisal of their shares pursuant
to Section 17-6712 of the KGCC ("Section 17-6712").
THE FOLLOWING IS A SUMMARY OF THE PROVISIONS OF SECTION 17-6712 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH SECTION, A
COPY OF WHICH IS ATTACHED TO THIS PROSPECTUS AS ANNEX B. THE FAILURE TO COMPLY
WITH THE PROVISIONS OF SECTION 17-6712 MAY RESULT IN A TERMINATION OR LOSS OF
APPRAISAL RIGHTS THEREUNDER.
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A holder of record of shares of Peoples Common Stock who elects to exercise
appraisal rights under Section 17-6712 must deliver a written objection to the
Agreement to Peoples prior to the vote on the Agreement by the holders of
Peoples Common Stock at the Peoples Special Meeting to be held on , 1997.
Any such objection should be sent to Peoples at 509 Court, P.O. Box 205, Clay
Center, Kansas 67432, Attention: James H. Schulze.
Within 10 days after the Effective Date, Sub, as the surviving corporation
in the Merger, will give written notice to each former holder of shares of
Peoples Common Stock who has complied with the written notice requirement that
the Merger has become effective and that dissenters' rights are available for
any or all of such holder's shares in connection therewith. Within 20 days
after the date of the mailing of the notice, such holder must demand in
writing to Sub the payment of the fair value of such holder's shares of
Peoples Common Stock. Any such demand should be sent to Sub at 11301 Nall
Avenue, Leawood, Kansas 66211, Attention: Keith E. Bouchey. Within 30 days
after the expiration of the 20 day period, Sub shall pay to such holder the
value of such holder's shares, exclusive of any element of value arising from
the expectation or accomplishment of the Merger.
If Sub and a dissenting stockholder fail to agree upon the fair value of the
Peoples Common Stock, within four months after the Effective Time of the
Merger, but not thereafter, either Sub or any stockholder entitled to
dissenters' rights under Section 17-6712 may file a petition in the District
Court of Kansas demanding a determination of the value of the stock of all
stockholders entitled to appraisal. Inasmuch as Sub has no obligation to file
such a petition, the failure of a stockholder to do so within the period
specified could nullify such stockholder's previous written demand for
appraisal.
If a petition for appraisal described above is timely filed by a
stockholder, Sub is obligated to provide the stockholder with a verified list
of all stockholders who have demanded appraisal. After notice to such
stockholders, the court is empowered to conduct a hearing upon the petition,
to determine those stockholders entitled to appraisal and to determine the
"fair value" of the shares held by them as of the date on which the Merger is
consummated, which under the KGCC would be determined exclusive of any element
of value arising from accomplishment or expectation of the Merger.
When the "fair value" is so determined, the court will direct the payment by
Sub of such value, with interest thereon if the court so determines, to the
stockholders entitled to receive the same, upon surrender to Sub by such
stockholders of the certificates representing their shares of Peoples Common
Stock to Sub at the address specified above. Upon application of Sub or any
stockholder entitled to participate in the appraisal proceeding, the court may
in its discretion permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of those
other stockholders entitled to an appraisal who have complied with the above
conditions.
TRANSACTIONS BETWEEN THE COMPANY AND PEOPLES
No shares of Peoples Common Stock are presently owned by the Company or by
any of its subsidiaries or principals, or by trustees for the benefit of the
Company or any of its subsidiaries, stockholders or employees as a class or by
an escrow arrangement instituted by the Company. On April 16, 1997, the
Company loaned to Peoples $2,825,000 under a term note due April 20, 1998. The
note is secured by the stock of Peoples and bears interest at 8.00% per annum.
ACCOUNTING TREATMENT
It is intended that the Merger will qualify as a pooling of interests for
accounting and financial reporting purposes. Under this method of accounting,
the consolidated assets and liabilities of Peoples will be included in the
consolidated financial statements of the Company at their previously recorded
amounts and the consolidated net income of Peoples will be included in the net
income of the Company.
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon the provisions of the Code, the
applicable regulations thereunder, judicial authority, current administrative
rulings and practice as of the date hereof and the opinion to be provided by
Payne & Jones, Chartered. The opinion of Payne & Jones, Chartered will be
based upon certain assumptions and representations by the management of each
of Peoples and the Company and by certain holders of the outstanding Peoples
Common Stock. A ruling from the Internal Revenue Service concerning the tax
consequences of the Merger will not be requested. The following discussion
does not address the federal income tax consequences to special classes of
taxpayers including, without limitation, foreign corporations, tax exempt
entities and persons who acquired their Peoples Common Stock pursuant to the
exercise of an employee option or otherwise as compensation.
The Merger will constitute a reorganization within the meaning of Section
368(a)(1)(A) (as amplified by Section 368(a)(2)(D)) of the Code. Consequently:
1. Stockholders of Peoples will not recognize gain or loss upon the
receipt of the Company Common Stock in exchange for their shares of Peoples
Common Stock.
2. The basis of the Company Common Stock received by stockholders of
Peoples in the Merger will equal the basis of their stock exchanged.
3. The tax holding period of the Company Common Stock received by
stockholders of Peoples in the Merger will include the holding period of
their stock exchanged.
4. Cash paid to holders of shares of Peoples who dissent from the Merger
and cash paid to holders of shares of Peoples in lieu of fractional shares
will be treated as proceeds of sales on which gain or loss will be
recognized.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. EACH PEOPLES STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE AND LOCAL AND OTHER TAX
LAWS.
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BUSINESS OF THE COMPANY
COMMUNITY BANKING STRATEGY
The Company serves the needs and caters to the economic strengths of the
local communities in which the Company Banks are located. Through the Company
Banks and their employees, the Company strives to provide a high level of
personal and professional customer service. Employee participation in
community affairs is encouraged in order to build long-term banking
relationships with established businesses and individual customers in these
market areas.
The Company believes its Marysville and Seneca locations, together with the
other communities in their respective counties that comprise their market
area, provide a stable base of relatively low-cost deposits compared to larger
metropolitan markets with larger competitors. Although Provident Bank is
located in a city of over 70,000 residents, it is the Company's experience
that the demographics of St. Joseph, Missouri, as a county seat, are generally
comparable to those of Seneca and Marysville, Kansas. The Company believes
that, through good management, community banks such as Exchange Bank and
Citizens can maximize earnings by attracting relatively low cost core deposits
and investing those funds in loans and other high yielding investments, while
maintaining risk at an acceptable level.
Recently the Company has applied its community banking strategy to two
affluent communities in the rapidly developing Johnson County suburbs
southwest of Kansas City. The Company believes the recent wave of regional
bank transactions of local banks in those suburban communities, and the
subsequent conversion of some of those acquired banks to branch locations, has
alienated the customers of those locations. This has created an opportunity
for the Company to attract and retain as loan customers those owner-operated
businesses that require flexibility and responsiveness in lending decisions
and desire a more personal banking relationship. The success of this strategy
is reflected in the Company's growth and ability to attract significant levels
of non-interest bearing deposits in the suburban communities of Leawood and
Shawnee, Kansas. The expansion into suburban Johnson County communities also
has allowed Exchange Bank and Citizens to diversify their predominantly
agriculturally-related loan portfolio into commercial and residential real
estate loans. In addition, the Company has taken advantage of the relatively
stable deposit base and low cost of funds in Marysville and Seneca, Kansas,
where there is a relatively low commercial loan demand, and has deployed those
funds in the suburban communities of Leawood and Shawnee, Kansas, where
commercial loan demand is greater.
OPERATING STRATEGY
The Company's operating strategy is to provide in each market that it
operates a full range of financial products and services to small and medium-
sized businesses and to consumers. The Company emphasizes personal
relationships with customers, involvement in local community activities and
responsive lending decisions. The Company strives to maintain responsive
community banking offices with local decision makers, allowing senior
management at each banking location, within certain limitations, to make its
own credit and pricing decisions and retaining at each Company Bank a local
identity and board of directors. The Company's goals include long-term
customer relationships, a high quality of service and responsiveness to
specific customer needs. The principal elements of the Company's operating
strategy are:
Maintain Market Position in Existing Market Areas. Each Company Bank is a
leader in an aspect of the market in which it competes. The Company has
invested in facilities and personnel and has emphasized customer service in
order to maintain and enhance its market position in these areas.
Emphasize Personalized Customer Service and Community Involvement. The
Company believes that, in most of its market areas, customer loyalty and
service are the most important competitive factors. The Company Banks have
experienced low turnover in their management and lending staffs, enabling them
to provide continuity of service by the same staff members, leading to long-
term customer relationships, high quality service and quick response to
customer needs. The Company Banks' management and other employees participate
actively in a wide variety of community activities and organizations in order
to develop and maintain customer
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relationships. The Company Banks seek to recruit the best available banking
talent to deliver the quality of personal banking services required to meet
customer expectations and to permit the Company to meet its goals for long-
term profitable growth.
Capitalize on Changing Market Conditions. The Company's management
continually monitors economic developments in its market areas in order to
tailor its operations to the evolving strengths and needs of the local
communities. For example, Exchange Bank has opened branch locations in the
high growth areas of Shawnee and Leawood, Kansas to fill the void of community
banks that management believes has been created by the recent transaction
activity of regional banking institutions and to deploy excess low-cost funds
derived from its rural northeastern Kansas market.
Centralize and Streamline Operations to Achieve Economies. While each of the
Company Banks presently operates autonomously, the Company, in order to
minimize duplication of functions, is centralizing certain management and
administrative functions, including data processing, human resources and
regulatory administration, that can better and more efficiently be performed
by the Company. Such centralization will help to reduce operating expenses and
enable the Company Bank personnel to focus on customer service and community
involvement. The Company believes it has acquired the personnel necessary to
make implementation of these operating efficiencies possible. The Company
intends to centralize payroll, medical benefits, regulatory administration and
data processing during 1997.
Because of the high costs associated with Provident Bank's mortgage banking
division, the Company began to significantly streamline these operations in
the third quarter of 1996. The Company believes substantial improvements can
be made to both expenses and income of the division through implementation of
the following plan: (i) replacement of labor with technology; (ii) a reduction
in the number of loan underwriters that participate in mortgage banking
operations; (iii) retaining the servicing rights for loans sold; (iv)
undertaking its own loan underwriting; and (v) creating arrangements pursuant
to which Provident Bank would finance developers and builders in the
transaction of property for, and the development and construction of,
residential communities, and also would provide the residential real estate
loans to the ultimate consumers in those communities. Provident Bank hired an
Executive Vice President whose job function includes implementation of the
foregoing plan. As part of the restructuring, the Company began in the third
quarter of 1996 to streamline its Johnson County mortgage banking operations
by reducing significantly the personnel in the Johnson County mortgage
origination office and eliminating certain support positions in the Provident
Bank office in St. Joseph.
GROWTH STRATEGY
Transactions. Management believes that the Company is well positioned to
acquire and profitably operate community banks because of its experience in
operating community banks, its ability to provide centralized management
assistance to those banks and its access to capital. Additionally, other than
FHLB borrowings matched against specific loans, the Company has no long-term
indebtedness. Therefore, a substantial portion of future earnings can be
retained to pursue this growth strategy.
Management of the Company believes there are owners of community banks who
may be willing to sell their banks in the future for, among other reasons,
stockholder liquidity, to diversify their own investment portfolios, lack of
family successor operators and the difficulty of compliance with bank
regulations. In addition, management believes there are individual community
bank owners in the targeted regions who are interested in selling their banks
to an organization that has a strong capital base and management that has
demonstrated a commitment to maintaining local bank identity. The Company's
goal is to acquire banks with strong existing management such that the
Company's strategies can be implemented while retaining the individual
identity of the banks through the continuation of the existing management,
boards of directors and bank charters.
The Company is generally targeting dominant, profitable community banks in
county seat towns of 2,000 persons or more. Market factors to be considered by
the Company include the size and long-term viability of the community and
market area served by the target bank, the dominance of the transaction target
in the market and
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the proximity of other banks owned by the Company. Generally, the bank target
must be among the top three financial institutions in its market in terms of
deposit share. Financial criteria include historical performance, comparison
to peers in terms of key operating performance and capital ratios, loan asset
quality, operating procedures and deposit structure. Also of significant
financial importance is the investment required for, and opportunity costs of,
the transaction. Non-financial considerations in evaluating an transaction
prospect include the quality of the target's management and the demand on the
Company resources to integrate the target institution.
Because of the large number of county seat towns and banks and its
familiarity with the market place, the Company's transaction focus is the
Midwest and primarily in the States of Kansas and Missouri. Kansas is
perceived by management to be the Company's best market for bank transactions
because only recently have state banking laws permitted the large regional
banking institutions based in Missouri to conduct branching activities in the
State of Kansas.
Internal Growth. The recent wave of regional bank transactions of community
banks in the Midwest has created what management of the Company perceives to
be a void in the community banking market. It is management's belief that it
has been the practice of regional banking institutions to convert the banks
they acquire into branches of the acquiring institution. Management of the
Company believes this practice detracts from the delivery of quality
personalized services to the existing customer base of those branches. The
Company entered the Kansas City suburban community market by acquiring the
deposits of a failed thrift in Shawnee, Kansas in 1992. Exchange Bank has
acquired a tract of land for the development of another branch location in a
rapidly developing part of Shawnee, Kansas that presently has few other
lending institutions in the immediate area. In October 1995, Exchange Bank
further expanded its presence in the suburban Johnson County communities of
Kansas City by opening a branch location in Leawood, Kansas, another rapidly
growing residential and small business community. Management of the Company
believes its branching activities are distinguished from those of regional
banking institutions by the high degree of autonomy given each branch
location.
The Company's expansion activity also has allowed Exchange Bank to diversify
its loan portfolio, which was previously dominated by loans related to the
agricultural industry. Further, the loan demand in these suburban Johnson
County communities, due to heavy residential and small business development,
is greater than that experienced in the market areas served by Citizens and
Exchange Bank--Marysville. The difference in the deposit characteristics,
which are more stable in Seneca and Marysville, and borrowing characteristics
between the communities has allowed the Company to deploy excess low-cost
deposit funds derived from Citizens and Exchange Bank's Marysville locations
into loans in the growing Kansas City metropolitan communities of Shawnee and
Leawood, Kansas.
The Company expects it will continue to expand in the suburban Johnson
County communities west of Kansas City through growth in the assets and loan
portfolios of existing branches and to a limited extent through additional
branching activities.
LENDING ACTIVITIES
General. The Company strives to provide in each market area it serves a full
range of financial products and services to small and medium-sized businesses
and to consumers. The Company targets owner-operated businesses and emphasizes
the use of Small Business Administration and Farmers Home Administration
lending. The Company Banks participate in credits originated within the
organization but generally do not participate in loans from non-affiliated
lenders. Each Company Bank has an established loan committee which has
authority to approve credits, within established guidelines, of up to
$200,000. Concentrations in excess of $200,000 must be approved by an
executive loan committee comprised of the Chief Executive Officer and the Vice
President of the Company and the local Bank's president and senior lending
officer. When lending to an entity, the Company generally obtains a guaranty
from the principals of the entity. The loan mix within the individual the
Company Banks is subject to the discretion of the Bank board of directors and
the demands of the local marketplace.
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Residential loans are priced consistently with the secondary market, and
commercial and consumer loans generally are issued at or above the prime rate.
The Company has no potential negative amortization loans. The following is a
brief description of each major category of the Company's lending activity.
Real Estate Lending. Commercial, residential and agricultural real estate
loans represent the largest class of loans of the Company. As of December 31,
1996, real estate loans totaled $130.3 million or 64.3% of all loans. One to
four family residential loans at December 31, 1996 made up approximately 44.4%
of real estate loans, followed by commercial 25.9%, construction 21.0%,
agricultural 7.0%, and loans held for sale 1.7%. Generally, residential loans
are written on a variable rate basis with terms of five years or less and
amortized over either 15 or 30 years. The Company retains in its portfolio
some adjustable rate mortgages having an adjustment period of five years or
less. Agricultural and commercial real estate loans are amortized over 15 or
20 years. The Company also generates long-term fixed rate residential real
estate loans which it sells in the secondary market. The Company takes a
security interest in the real estate. Commercial real estate, construction and
agricultural real estate loans are generally limited, by policy, to 80% of the
appraised value of the property. Commercial real estate and agricultural real
estate loans also are supported by an analysis demonstrating the borrower's
ability to repay. Residential loans that exceed 80% of the appraised value of
the real estate generally are required, by policy, to be supported by private
mortgage insurance, although on occasion the Company will retain non-
conforming residential loans to known customers at premium pricing.
Commercial Lending. Loans in this category principally include loans to
service, retail, wholesale and light manufacturing businesses, including
agricultural service businesses. Commercial loans are made based on the
financial strength and repayment ability of the borrower, as well as the
collateral securing the loans. As of December 31, 1996, commercial loans
represented the second largest class of loans at $48.4 million, or 23.9% of
total loans. The Company targets owner-operated businesses as its customers
and makes lending decisions based upon a cash flow analysis of the borrower as
well as the accounts receivable, inventory and equipment of the borrower.
Accounts receivable loans and loans for inventory purchases are generally of a
one-year renewable term and those for equipment generally have a term of seven
years or less. The Company generally takes a blanket security interest in all
assets of the borrower. Equipment loans are generally limited to 75% of the
cost or appraised value of the equipment. Inventory loans are limited to 50%
of the value of the inventory, and accounts receivable loans are limited to
75% of a pre-determined eligible base. Each of the Company Banks is approved
to make loans under the Small Business Administration program.
Agricultural Lending. The Company provides short-term credit for operating
loans and intermediate-term loans for farm product, livestock and machinery
purchases and other agricultural improvements. Agricultural loans were $11.7
million as of December 31, 1996, or 5.8% of total loans. Farm product loans
have generally a one-year term and machinery and equipment and breeding
livestock loans generally have five to seven-year terms. Extension of credit
is based upon the ability to repay, as well as the existence of federal
guarantees and crop insurance coverage. Farmers Home Administration guarantees
are pursued wherever possible. Exchange Bank and Citizens hold "Preferred
Lender Status" from the Farmers Home Administration, a guarantee program
similar to the Small Business Administration, that minimizes the credit
exposure of the Company Banks through partial transfer of the credit risk to
the federal government. Preferred Lender Status expedites the processing of
loan applications. These loans are generally secured by a blanket lien on
livestock, equipment, feed, hay, grain and growing crops. Equipment and
breeding livestock loans are limited to 75% of appraised value.
Consumer and Other Lending. Loans classified as consumer and other loans
include automobile, credit card, boat, home improvement and home equity loans,
the latter two secured principally through second mortgages. The Company
generally takes a purchase money security interest in goods for which it
provides the original financing. The terms of the loans range from one to five
years, depending upon the use of the proceeds, and range from 75% to 90% of
the value of the collateral. The majority of these loans are installment loans
with fixed interest rates. As of December 31, 1996, consumer and other loans
amounted to $12.2 million, or 6.0% of total loans. The Company implemented a
credit card program in late 1994 and targeted the Company Banks' existing
customer base as potential consumers. As of December 31, 1996, the Company had
issued 1,900 cards having an aggregate outstanding balance of $1.4 million in
credit card receivables. The Company has not marketed credit cards to persons
other than existing customers.
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LOAN ORIGINATION AND PROCESSING
Loan originations are derived from a number of sources. Residential loan
originations result from real estate broker referrals, mortgage loan brokers,
direct solicitation by the Company Banks' loan officers, present savers and
borrowers, builders, attorneys, walk-in customers and, in some instances,
other lenders. Residential loan applications, whether originated through the
Company Banks or through mortgage brokers, are underwritten and closed based
on the same standards, which generally meet FNMA underwriting guidelines.
Consumer and commercial real estate loan originations emanate from many of the
same sources. The legal lending limit of each of the Company Banks was
approximately $1.8 million, $670,000 and $740,000 for Exchange Bank, Citizens
and Provident Bank, respectively, as of December 31, 1996.
The loan underwriting procedures followed by the Company Banks conform to
regulatory specifications and are designed to assess both the borrower's
ability to make principal and interest payments and the value of any assets or
property serving as collateral for the loan. Generally, as part of the
process, a loan officer meets with each applicant to obtain the appropriate
employment and financial information as well as any other required loan
information. The Company Bank then obtains reports with respect to the
borrower's credit record, and orders and reviews an appraisal of any
collateral for the loan (prepared for the Company Bank through an independent
appraiser). The loan information supplied by the borrower is independently
verified.
Loan applicants are notified promptly of the decision of the Company Bank by
telephone and a letter. If the loan is approved, the commitment letter
specifies the terms and conditions of the proposed loan including the amount
of the loan, interest rate, amortization term, a brief description of the
required collateral, and required insurance coverage. Prior to closing any
long-term loan, the borrower must provide proof of fire and casualty insurance
on the property serving as collateral, and such insurance must be maintained
during the full term of the loan. Title insurance is required on loans
collateralized by real property. Interest rates on committed loans are
normally locked in at the time of application or for a 30 to 45-day period.
MORTGAGE BANKING DIVISION OPERATIONS
The mortgage banking division of Provident Bank is engaged in the business
of originating and selling principally first-lien mortgages secured by single
family residences. Loans originated through Provident Bank's mortgage banking
division were $83.1 million and $83.3 million in 1996 and 1995, respectively.
The mortgage banking division's principal sources of revenue consist of loan
origination fees and gain or loss on the sale of mortgage loans. Mortgage
loans are originated primarily in St. Joseph, Missouri, Johnson County, Kansas
and throughout the metropolitan Kansas City area. Loans usually are purchased
by Provident Bank for investment pending resale into the secondary market.
Loans usually are sold to investment banking firms and other investors as
whole loans.
Mortgage loans are originated primarily through loan originators and from
referrals from real estate brokers, builders, developers and prior customers.
The origination of a loan from the date of initial application to a loan
closing normally takes three to eight weeks. It involves processing the
borrower's loan application, evaluating the borrower's credit and other
qualifications consistent with underwriting criteria established by private
institutional investors and insuring or guaranteeing agencies, obtaining
investor approvals, property appraisals, and title insurance, arranging for
hazard insurance and handling various other matters customarily associated
with the closing of a residential loan. For this service, the division
typically collects an origination fee of one percent of the principal amount
of the loan. Costs that are incurred in originating mortgage loans include:
overhead, origination commissions paid to the originators, certain out-of-
pocket costs and, in some cases, commitment fees where the loans are made
subject to a purchase commitment from wholesale lenders, private investors or
other intermediaries. In the third quarter of 1996, Provident Bank
substantially reduced the resources committed to its mortgage banking
operations.
INVESTMENT PORTFOLIO
The Company Banks' investment portfolio is used to meet the Company Banks'
liquidity needs while endeavoring to maximize investment income. Additionally,
management augments the quality of the loan
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portfolio by maintaining a high quality investment portfolio oriented toward
U.S. government and U.S. government agency securities. The portfolio is
comprised of U.S. Treasury securities, U.S. government agency instruments and
a modest amount of investment grade obligations of state and political
subdivisions. In managing its interest rate exposure, the Company also invests
in mortgage-backed securities and collateralized mortgage obligations. Federal
funds sold and certificates of deposit are additional investments that are not
classified as investment securities. Investment securities were $66.7 million,
or 21.9% of total assets, at December 31, 1996.
DEPOSITS AND BORROWINGS
Deposits are the major source of the Company Banks' funds for lending and
other investment purposes. In addition to deposits, including local public
fund deposits and demand deposits of commercial customers, the Company Banks
derive funds from loan principal repayments, maturing investments, Federal
Funds borrowings from commercial banks, borrowings from the Federal Reserve
Bank of Kansas City and the Federal Home Loan Bank ("FHLB") and from
repurchase agreements. Loan repayments and maturing investments are a
relatively stable source of funds, while deposit inflows are significantly
influenced by general interest rates and money market conditions. Borrowings
may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources. They also may be used on a long-term
basis for funding specific loan transactions and for general business
purposes.
The Company Banks offer a variety of accounts for depositors designed to
attract both short-term and long-term deposits. These accounts include
certificates of deposit savings accounts, money market accounts, checking and
individual retirement accounts. Deposit accounts generally earn interest at
rates established by management based on competitive market factors and
management's desire to increase or decrease certain types or maturities of
deposits. The Company has not sought brokered deposits and does not intend to
do so in the future.
COMPETITION
The deregulation of the banking industry, the widespread enactment of state
laws permitting multi-bank holding companies, and the availability of
nationwide interstate banking has created a highly competitive environment for
financial services providers, particularly for institutions in suburban areas,
such as Exchange Bank's Shawnee and Leawood branches. These branches compete
with other commercial banks, savings and loan associations, credit unions,
finance companies, mutual funds, insurance companies, brokerage and investment
banking companies and other financial intermediaries. Some of these
competitors have substantially greater resources and lending limits and may
offer certain services that these branches do not currently provide. In
addition, some of the non-bank competitors are not subject to the same
extensive federal regulations that govern these branches.
Management believes the Company Banks have generally been able to compete
successfully in their respective communities because of the Company's emphasis
on local control and the autonomy of Company Bank management, allowing the
Company Banks to meet what is perceived to be the preference of community
residents and businesses to deal with "local" banks. While management believes
the Company Banks will continue to compete successfully in their communities,
there is no assurance future competition will not adversely affect the Company
Banks' earnings.
EMPLOYEES
The Company maintains a corporate staff of 6 persons. At December 31, 1996,
the Company Banks had 116 full-time equivalent employees. None of the
employees of the Company or the Company Banks are covered by a collective
bargaining agreement. The Company and the Company Banks believe their employee
relations are good.
STOCK OFFERING
On November 22, 1996, the Company completed an underwritten initial public
offering of 2,000,000 shares of its common stock. The closing with respect to
an additional 300,000 shares was completed on December 19,
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1996 following the exercise of the underwriters' over-allotment option. The
net proceeds of the sale, after deducting expenses of the offering, were
approximately $18.1 million. The proceeds were used to retire approximately
$6.6 million in short-term debt and to make a $3.0 million working capital
contribution to Exchange Bank. The remaining capital of approximately $8.5
million was invested in short-term investment grade securities pending use in
the Company's growth strategy and for general corporate purposes.
PROPERTY OF THE COMPANY
The Company or the Company Banks own each of the banking facilities
described below. The Company believes each of the facilities is in good
condition, adequately covered by insurance and sufficient to meet the needs at
that location for the foreseeable future. Each of the facilities described
below has an automated teller machine.
Exchange Bank has two banking locations in Marysville, Kansas. The property
at 823 Broadway is a one-story 8,800 square foot building with four teller
windows and was remodeled in 1995. The property at 1016 Broadway is a two-
story 4,684 square foot building built in 1985 with three teller windows and a
two-lane drive up.
Exchange Bank's banking location at 13425 Shawnee Mission Parkway, Shawnee,
Kansas, with 3,400 square feet, three teller windows and a four-lane drive up
was remodeled in 1995. Exchange Bank's Leawood branch located at 11301 Nall
Avenue opened in the third quarter of 1996 and features four teller windows, a
four-lane drive up and encompasses 25,000 square feet, sixty percent of which
Exchange Bank leases to third parties.
Citizens has two banking locations in Seneca, Kansas. The property at 502
Main Street is a one-story 4,840 square foot building with three teller
windows and seven offices and was remodeled in 1994. The property at Highway
36 and 6th Street is a one-story 3,388 square foot building with three teller
windows and a two-lane drive up.
Provident Bank has a banking location in a 29,500 square foot two-story
building located at 4305 Frederick Boulevard, St. Joseph, Missouri that has
four teller windows and a three-lane drive up. The building was remodeled in
1996 and the second floor is leased to third parties.
Exchange Bank has also acquired vacant property located just off the exit at
Midland Drive from Interstate 435 in Shawnee, Kansas, upon which it expects to
build a two story 22,000 square foot branch location with five teller windows
and a two-lane drive up. The new Shawnee bank location is expected to be
completed in the middle of 1998 and have approximately 11,000 square feet of
lease space.
LEGAL PROCEEDINGS INVOLVING THE COMPANY
On April 28, 1997 Exchange Bank was named a defendant in the case captioned,
Anderson, et al. v. Olathe Bank, et al., Case No. 97 C 5574 in the District
Court of Johnson County, Kansas. The plaintiffs allege that they invested in
entities owned and controlled by individuals subject to claims by the Attorney
General of the State of Kansas alleging consumer protection violations. The
plaintiffs allege the defendants were contacted by the plaintiff's and
allegedly provided false information, engaged in a joint effort to mislead,
and were negligent with respect to references sought by the plaintiffs.
Plaintiffs further allege that they relied to their detriment on those
representations in deciding to invest. The claim is brought on behalf of a
class of over 2,400 persons who claim to have invested $15,000 or more each.
There is no allegation that specifies the amount of damages plaintiffs contend
that they sustained. Exchange Bank has denied any liability and is vigorously
contesting the allegations made against it. The Company is not yet in a
position to determine whether the expenses and losses, if any, in connection
with this action will be material.
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SUPERVISION AND REGULATION OF THE COMPANY
THE COMPANY
The Company is a bank holding company within the meaning of Bank Holding
Company Act of 1956, as amended (the "BHCA") and the Savings & Loan Holding
Company Act, as amended (the "SLHCA").
The BHCA. Under the BHCA, the Company is subject to periodic examination by
the Board of Governors of the Federal Reserve and is required to file periodic
reports of its operations and such additional information as the Federal
Reserve may require. The Company's and the Company Banks' activities are
limited to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries, or engaging in any other activity
the Federal Reserve determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. Some of the
activities the Federal Reserve has determined by regulation to be proper
incidents to the business of banking include making or servicing loans and
certain types of leases, engaging in certain insurance and discount brokerage
activities, performing certain data processing services, acting in certain
circumstances as a fiduciary or investment or financial advisor, owning
savings associations, and making investments in certain corporations or
projects designed primarily to promote community welfare.
With certain limited exceptions, the BHCA requires every bank holding
company to obtain the prior approval of the Federal Reserve before (i)
acquiring substantially all of the assets of any bank, (ii) acquiring direct
or indirect ownership or control of any voting shares of any bank if after
such transaction it would own or control more than 5% of the voting shares of
such bank (unless it already owns or controls the majority of such shares), or
(iii) merging or consolidating with another bank holding company.
In addition, and subject to certain exceptions, the BHCA and the federal
Change in Bank Control Act, together with the regulations thereunder, require
Federal Reserve approval (or, depending on the circumstances, no notice of
disapproval) prior to any person or company acquiring "control" of a bank
holding company, such as the Company. Control is conclusively presumed to
exist if any individual or company acquires 25% or more of any class of voting
securities of the bank holding company. With respect to corporations with
securities registered under the Securities Exchange Act of 1934, such as the
Company, control will be rebuttably presumed to exist if a person acquires at
least 10% of any class of voting securities of the corporation.
In accordance with Federal Reserve policy, the Company is expected to act as
a source of financial strength for and commit resources to support the Company
Banks. Under the BHCA, the Federal Reserve may require a bank holding company
to terminate any activity or relinquish control of a non-bank subsidiary
(other than a non-bank subsidiary of a bank) upon the Federal Reserve Board's
determination that such activity or control constitutes a serious risk to the
financial soundness or stability of any subsidiary depository institution of
the bank holding company. Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to divest itself of
any bank or non-bank subsidiary if the agency determines that divestiture may
aid the depository institution's financial condition. The Company currently
does not have any subsidiaries other than the Company Banks.
The SLHCA. Under the SLHCA, the Company is regulated by the Office of Thrift
Supervision (the "OTS"). Generally, there are no limitations on activities of
a savings and loan holding company provided the Company holds only one savings
association which is a Qualified Thrift Lender ("QTL"), as is the case with
the Company. As a unitary savings and loan holding company, the Company is
registered and files reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over
the Company and its non-savings association subsidiaries, which also permits
the OTS to restrict or prohibit activities that are determined to be a serious
risk to the subsidiary savings association. The OTS has broad investigative
powers to determine whether provisions under the SLHCA are complied with by
the Company. If the OTS discovers violations, it may seek an injunction to
enjoin the acts which violate the laws or regulations or may order the Company
or its subsidiaries to terminate activities or terminate control or ownership
of a subsidiary if the OTS reasonably believes continuation of such activity,
ownership or control by the savings and
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loan holding company poses a serious risk to financial safety, soundness or
stability of the savings association held by the Company.
Generally, a savings and loan holding company must get prior written
approval from the director of the OTS to acquire control of a savings
association, to acquire another savings association or savings and loan
holding company by merger, consolidation or purchase of assets, or to acquire
or retain more than 5% of the voting shares of a savings association or a
savings and loan holding company which is not a subsidiary. The savings and
loan holding company may not acquire control of an uninsured institution or
retain control for more than one year from the date control was acquired,
unless extended by the director of the OTS for a period not to exceed three
years.
If the Company were to acquire control of another savings association as a
separate subsidiary, it would become a multiple savings and loan holding
company, and the activities of the Company and any of its subsidiaries would
become subject to additional restrictions unless such other association
qualified as a QTL and was acquired in a supervisory transaction.
If Provident Bank fails the QTL test, the Company must obtain the approval
of the OTS prior to continuing after such failure, directly or through its
other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries.
THE COMPANY BANKS
Exchange Bank. Exchange Bank operates as a national banking association
incorporated under the laws of the United States and is subject to examination
by the Office of the Comptroller of the Currency (the "OCC"). Deposits in
Exchange Bank are insured by the Federal Deposit Insurance Corporation (the
"FDIC") up to a maximum amount (generally $100,000 per depositor, subject to
aggregation rules). The OCC and the FDIC regulate or monitor all areas of
Exchange Bank's operations, including security devices and procedures,
adequacy of capitalization and loss reserves, loans, investments, borrowings,
deposits, mergers, issuances of securities, payment of dividends, interest
rate risk management, establishment of branches, corporate reorganizations,
maintenance of books and records, and adequacy of staff training to carry on
safe lending and deposit gathering practices. The OCC requires Exchange Bank
to maintain certain capital ratios and imposes limitations on its aggregate
investment in real estate, bank premises, and furniture and fixtures. Exchange
Bank is currently required by the OCC to prepare quarterly reports on its
financial condition and to conduct an annual audit of its financial affairs in
compliance with minimum standards and procedures prescribed by the OCC.
Citizens. Citizens operates under a Kansas state bank charter and is subject
to regulation by the Kansas Banking Department and the FDIC. The Kansas
Banking Department and FDIC regulate or monitor all areas of Citizen's
operations, including capital requirements, issuance of stock, declaration of
dividends, interest rates, deposits, record keeping, establishment of
branches, transactions, mergers, loans, investments, borrowing, security
devices and procedures and employee responsibility and conduct. The Kansas
Banking Department places limitations on activities of Citizens including the
issuance of capital notes or debentures and the holding of real estate and
personal property and requires Citizens to maintain a certain ratio of
reserves against deposits. The Kansas Banking Department requires Citizens to
file a report annually showing receipts and disbursements of the bank, in
addition to any periodic report requested. Citizens is examined by the Kansas
Banking Department at least once every 18 months and at any other time deemed
necessary. The FDIC insures deposits held in Citizens up to a maximum amount,
which is generally $100,000 per depositor.
Provident Bank. Provident Bank operates as a federal savings bank and
provides full savings bank services. As a savings institution, Provident Bank
is subject to regulation by the OTS. The OTS regulates or monitors all areas
of Provident Bank's operations, including capital requirements, loans,
investments, establishment of branch offices, mergers, conversions,
dissolutions, transactions, borrowing, management, record keeping, security
devices and procedures and offerings of securities. The OTS requires Provident
Bank to file annual current reports in compliance with OTS procedures, as well
as periodic reports upon the request of the
27
<PAGE>
director of OTS. Provident Bank must also prepare a statement of condition
report showing the savings association's assets, liabilities and capital at
the end of each fiscal year. The OTS may require an independent audit of
financial statements by a qualified independent public accountant when needed
for safety and soundness purposes. With some exceptions, an appraisal by a
state certified or licensed appraiser is required for all real estate related
financial transactions.
All savings associations, including Provident Bank, are required to meet the
QTL test to avoid certain restrictions on their operations. This test requires
a savings association to have at least 65% of its portfolio assets (as defined
by regulation) in qualified thrift investments on a monthly average for nine
out of every 12 months on a rolling basis. Such assets primarily consist of
residential housing related loans and investments.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If such an association has not yet requalified or converted to a national
bank, its new investments and activities are limited to those permissible for
both a savings association and a national bank, and it is limited to national
bank branching rights in its home state. In addition, the association is
immediately ineligible to receive any new FHLB borrowings and is subject to
national bank limits for payment of dividends. If such association has not
requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in repayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies.
Provident Bank is a member of the Savings Association Insurance Fund
("SAIF"), which is administered by the FDIC. As insurer, the FDIC imposes
deposit insurance premiums and is authorized to conduct examinations of and to
require reporting by FDIC-insured institutions. It also may prohibit any FDIC-
insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious risk to the FDIC. The FDIC also has the
authority to initiate enforcement actions against savings associations, after
giving the OTS an opportunity to take such action, and may terminate the
deposit insurance if it determines that the institution has engaged in unsafe
or unsound practices, or is in an unsafe or unsound condition.
PAYMENT OF DIVIDENDS
Exchange Bank is subject to the dividend restrictions set forth by the OCC.
Under such restrictions, Exchange Bank may not, without prior approval of the
OCC, declare dividends in excess of the sum of the current year's earnings (as
defined) plus the retained earnings (as defined) from the prior two years.
Provident Bank, as a Tier 1 savings institution, is limited in its payment of
dividends during a calendar year to the higher of 100% of the current year
earnings during the calendar year plus the amount that would reduce by one-
half its surplus capital ratio at the beginning of the calendar year, or 75%
of its current earnings over the most recent four-quarter period. Provident
Bank is required to obtain OTS approval for dividends exceeding the preceding
amount. There are no specific regulatory restrictions on the ability of
Citizens to pay dividends. In addition, under the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), a FDIC-insured depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or in the event it is undercapitalized.
If, in the opinion of the applicable federal bank regulatory authority, a
depository institution or holding company is engaged in or is about to engage
in an unsafe or unsound practice (which, depending on the financial condition
of the depository institution or holding company, could include the payment of
dividends), such authority may require, after notice and hearing (except in
the case of an emergency proceeding where there is no notice or hearing), that
such institution or holding company cease and desist from such practice. The
federal banking agencies have indicated that paying dividends that deplete a
depository institution's or holding company's capital base to an inadequate
level would be such an unsafe and unsound banking practice. Moreover, the
Federal Reserve and the FDIC have issued policy statements providing that bank
holding companies and insured depository institutions generally should only
pay dividends out of current operating earnings.
28
<PAGE>
TRANSACTIONS WITH AFFILIATES AND INSIDERS
The Company Banks are subject to Section 23A of the Federal Reserve Act,
which places limits on the amount of loans or extensions of credit to, or
investments in, or certain other transactions with, affiliates, including the
Company. In addition, limits are placed on the amount of advances to third
parties collateralized by the securities or obligations of affiliates. Most of
these loans and certain other transactions must be secured in prescribed
amounts. The Company Banks are also subject to Section 23B of the Federal
Reserve Act, which, among other things, prohibits an institution from engaging
in transactions with certain affiliates unless the transactions are on terms
substantially the same, or at least as favorable to such institution or its
subsidiaries, as those prevailing at the time for comparable transactions with
non-affiliated companies. The Company Banks are subject to restrictions on
extensions of credit to executive officers, directors, certain principal
stockholders, and their related interests. Such extensions of credit (i) must
be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
third parties and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.
BRANCHING
National bank branches are required by the National Bank Act to adhere to
branch banking laws applicable to state banks in the states in which they are
located. Under federal legislation, effective June 1, 1997, a bank may merge
or consolidate across state lines, unless, prior to May 31, 1997, either of
the states involved elects to prohibit such mergers or consolidations. Prior
to the effective date of this legislation, a bank may merge or consolidate
across state lines only if both of the states involved elect to "opt-in" early
to the provisions of the legislation. States may also authorize banks from
other states to engage in branching across state lines de novo and by
transaction of branches without acquiring a whole banking institution.
Missouri has enacted legislation authorizing interstate branching within
thirty miles of its state borders and placing a minimum age requirement of
five years on acquired institutions. Missouri has not chosen to opt-in early
to the provisions of the new federal law. The Kansas legislature recently
failed to take action with regard to the above-referenced federal legislation.
State law in Missouri permits branching anywhere in the state. Statewide
branching is also allowed in Kansas.
COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their jurisdiction, the Federal
Reserve, the FDIC, the OCC and the OTS evaluate the record of such financial
institutions in meeting the credit needs of their local communities, including
low and moderate income neighborhoods, consistent with the safe and sound
operation of those institutions. These factors are also considered in
evaluating mergers, transactions and applications to open a branch or
facility.
OTHER REGULATIONS
Interest and certain other charges collected or contracted for by the
Company Banks are subject to state usury laws and certain federal laws
concerning interest rates. The Company Banks' loan operations are also subject
to certain federal laws applicable to credit transactions, such as the federal
Truth-In-Lending Act governing disclosures of credit terms to consumer
borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial
institutions to provide information to enable the public and public officials
to determine whether a financial institution is fulfilling its obligation to
help meet the housing needs of the community it serves, the Equal Credit
Opportunity Act prohibiting discrimination on the basis of race, creed or
other prohibited factors in extending credit, the Fair Credit Reporting Act of
1978 governing the use and provision of information to credit reporting
agencies, the Fair Debt Collection Act governing the manner in which consumer
debts may be collected by collection agencies, and the rules and regulations
of the various federal agencies charged with the responsibility of
implementing such federal laws. The deposit operations of the Company Banks
also are subject to the Right to Financial Privacy Act, which imposes a duty
to maintain confidentiality of consumer financial records and prescribes
procedures for complying with administrative subpoenas of financial records,
and the Electronic Funds Transfer Act and Regulation E issued by the Federal
Reserve Board to implement that act, which govern automatic deposits to and
withdrawals from deposit accounts and customers' rights and liabilities
arising from the use of automated teller machines and other electronic banking
services.
29
<PAGE>
REGULATORY CAPITAL REQUIREMENTS
Federal regulations establish minimum requirements for the capital adequacy
of depository institutions. The regulators may establish higher minimum
requirements if, for example, a bank has previously received special attention
or has a high susceptibility to interest rate risk. The Company Banks with
capital ratios below the required minimum are subject to certain
administrative actions, including prompt corrective action, the termination of
deposit insurance upon notice and hearing, or a temporary suspension of
insurance without a hearing.
The federal risk-based capital guidelines for banks require a ratio of Tier
1, or core capital, to total risk-weighted assets of 4% and a ratio of total
capital to total risk-weighted assets of 8%. The leveraged capital guidelines
require that banks maintain Tier 1 capital of no less than 5% of total
adjusted assets, except in the case of certain highly rated banks for which
the minimum leverage ratio is 3% of total adjusted assets. OTS capital
regulations require savings institutions to meet three capital standards: (1)
tangible capital equal to 1.5% of total adjusted assets, (2) a leverage ratio
(core capital to total adjusted assets) of at least 3% and (3) a risk-based
capital requirement equal to at least 8% of total risk-weighted assets.
Federal regulations applicable to financial institutions define five capital
levels: well capitalized, adequately capitalized, undercapitalized, severely
undercapitalized and critically undercapitalized. An institution is critically
undercapitalized if it has a tangible equity to total assets ratio that is
equal to or less than 2%. An institution is well capitalized if it has a total
risk-based capital ratio (total capital to risk-weighted assets) of 10% or
greater, has a Tier 1 risk-based capital ratio (Tier 1 capital to risk-
weighted assets) of 6% or greater, has a leveraged ratio (Tier 1 capital to
total adjusted assets) of 5% or greater, and is not subject to an order,
written agreement, capital directive, or prompt corrective action directive to
meet and maintain a specific capital level for any capital measure. Under the
regulations, each of the Company Banks is at least adequately capitalized at
December 31, 1996.
The FDICIA requires federal banking regulators to take "prompt corrective
action" with respect to capital-deficient institutions. In addition to
requiring the submission of a capital restoration plan, FDICIA contains broad
restrictions on certain activities of undercapitalized institutions involving
asset growth, transactions, branch establishment, and expansion into new lines
of business. With certain exceptions, an insured depository institution is
prohibited from making capital distributions, including dividends, and is
prohibited from paying management fees to control persons if the institution
would be undercapitalized after any such distribution or payment.
As an institution's capital decreases, the powers of the federal regulators
become greater. A significantly undercapitalized institution is subject to
mandated capital raising activities, restrictions on interest rates paid and
transactions with affiliates, removal of management, and other restrictions.
The regulators have very limited discretion in dealing with a critically
undercapitalized institution and are virtually required to appoint a receiver
or conservator if the capital deficiency is not corrected promptly.
30
<PAGE>
MANAGEMENT OF THE COMPANY
The directors and executive officers of the Company and certain senior
officers of the Company are as set forth below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
---- --- ----------------------------
<S> <C> <C>
Michael W. Gullion.... 42 Mr. Gullion has served as Chairman of the Board of
Directors, President and Chief Executive Officer of
the Company since inception of the Company. Mr.
Gullion is the son-in-law of William Wallman.
Keith E. Bouchey...... 46 Mr. Bouchey was elected to the Board of Directors of
the Company on May 30, 1996. He has served as the
Executive Vice President, Chief Financial Officer
and Corporate Secretary of the Company since joining
the Company in November 1995. Prior to joining the
Company, Mr. Bouchey had been, since August 1977, a
principal of GRA, Thompson, White & Company, P.C., a
regional bank accounting and consulting firm, where
he served on the executive committee and as the
managing director of the firm's regulatory services
practice.
William F. Wright..... 54 Mr. Wright was elected as a director of the Company
on May 30, 1996. Mr. Wright has served as the
Chairman of the Board and the Chief Executive
Officer of Amcon Corporation, a wholesale
distributor of beer and wine, since 1978.
D. Michael Browne..... 44 Mr. Browne has served as a director of the Company
since November 1989. He has been the Chairman and
Chief Executive Officer of Mike Browne International
LTD, a direct marketing advertising agency, since
1987.
William Wallman....... 73 Mr. Wallman was elected to the Board of Directors of
the Company in November 1989. For more than five
years Mr. Wallman has been the President and owner
of Wallman Chrysler-Plymouth, Inc., a car dealership
located in Beatrice, Nebraska. Mr. Wallman is the
father-in-law of Mr. Gullion.
</TABLE>
In addition to the members of the Board of Directors set forth above, Allen
D. Petersen serves in an advisory capacity to the Board of Directors with the
privilege of attending and participating in meetings, but without the power to
vote on proposals considered by the Board of Directors. Mr. Petersen serves at
the discretion of the entire Board of Directors. For more than five years Mr.
Petersen has been the Chairman and Chief Executive Officer of American Tool
Companies located in Chicago, Illinois.
31
<PAGE>
Information Concerning Senior Officers
The following table describes the persons who are the senior officers of the
Company Banks.
<TABLE>
<CAPTION>
NAME AGE
---- ---
<S> <C> <C>
Marc J. Degenhardt.... 35 Mr. Degenhardt has served as President of Exchange
Bank since September 1996. Prior to his appointment
as President, Mr. Degenhardt was the Executive Vice
President of Exchange Bank, a position he held since
1991. He was Senior Vice President of Exchange Bank
of Schmidt and Koester immediately prior to its
participation in the merger which formed Exchange
Bank in November 1991.
Richard B. Erwin...... 50 Mr. Erwin joined Citizens in 1982 and has served as
the President of that bank since June 1988.
John R. Wray.......... 53 Mr. Wray has served as the President and Chief
Financial Officer of Provident Bank since April
1996. He served as Vice Chairman of Provident Bank
from October 1995 to March 1996. Prior to his
affiliation with the Company, Mr. Wray was the
President of St. Joseph Banking Center, First Bank
of Missouri where he had served since December 1993
and the President and Chief Executive Officer of the
Bank of St. Joseph from October 1987 through
December 1993.
John C. Waters........ 51 Mr. Waters has served as the Executive Vice
President of the Exchange Bank--Shawnee branch
location since February 1995. He was Vice Chairman
of the Board of Mark Twain Bank of Kansas from 1993
through February 1995. Mr. Waters was the President
of First National Bank, Shawnee, Kansas from 1986
through 1993.
Charles N. Van Zante.. 50 Mr. Van Zante has served as the Executive Vice
President of the Exchange Bank--Leawood branch
location since June 1996. Prior to that time, Mr.
Van Zante was involved in the commercial lending and
administrative activities at the Mercantile Bank
organization in Kansas, and at the Mid-American Bank
from 1989 until its transaction by Mercantile Bank.
Earlier, he served as President and Chief Executive
Officer of United Missouri Bank South for seven
years.
John R. Price......... 39 Mr. Price has served as a Vice President of the
Company and Senior Vice President of Exchange Bank
since November 1992. Prior to joining the Company,
Mr. Price was employed by the Farmers Home
Administration division of the United States
Department of Agriculture, where he served as the
Kansas State Director since November 1989.
</TABLE>
32
<PAGE>
EXECUTIVE COMPENSATION OF THE COMPANY
The table below sets forth information concerning the annual and long-term
compensation paid to the Chief Executive Officer and all other employees of
the Company whose compensation exceeded $100,000 during the last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND -------------------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1)
------------------ ---- ---------- --------- ------------------
<S> <C> <C> <C> <C>
Michael W. Gullion.............. 1996 $ 186,000 $ 165,000 $15,923
President and Chief Executive 1995 $ 156,000 $ 165,000 $ 9,587
Officer 1994 $ 150,000 $ 150,000 $ 4,670
Keith E. Bouchey................ 1996(2) $ 156,000 -0- $ 3,933
Executive Vice President, Chief
Financial Officer and Corporate
Secretary
</TABLE>
- --------
(1) Consists of contributions to the Company's Employee Stock Ownership Plan,
personal use of Company-owned automobile, and country club membership
dues.
(2) Mr. Bouchey became an executive officer of the Company in November 1995.
EMPLOYMENT CONTRACTS
Messrs. Gullion and Bouchey (the "Executives") have entered into employment
agreements with the Company (each an "Agreement"). The terms of the Agreements
are three years (automatically renewed on the anniversary date of the
Agreements unless either party gives notice of its intention not to renew) and
provide that Mr. Gullion will be the Chairman, Chief Executive Officer and
President and Mr. Bouchey will be Executive Vice President, Chief Financial
Officer and Corporate Secretary of the Company. Throughout the employment
period, each of the Executives will be nominated by the Board of Directors for
directorships and the base compensation of the Executives and their
opportunity to earn incentive compensation will be at least as great as in
existence prior to the effectiveness of the Agreements. An Executive may be
terminated for "cause" only (as defined in the Agreement). An Executive may
terminate the Agreement for "good reason" which is defined as a material
breach of the Agreement by the Company. The death or disability of an
Executive automatically terminates the Agreement.
If the Company terminates the Agreement for cause or the Executive
terminates without good reason, neither the Company nor the Executive has any
further obligations to the other. If the Company terminates an Executive
without cause (as defined in the Agreement), an Executive terminates for good
reason (as defined in the Agreement), or a Change in Control (as defined
below) of the Company occurs, the Company is obligated to pay the Executive
three times the present value of the Executive's long and short-term
compensation in place immediately prior to the termination or Change in
Control, provided that such benefits cannot exceed an amount that would be
subject to federal excise taxes.
A Change in Control of the Company will be deemed to occur upon (i) the
hostile replacement of at least the majority of the Board of Directors, (ii) a
person acquiring 25% or more of the shares or voting power of the stock of the
Company, provided such person is not an existing director or Executive or
relative of such a person or does not acquire such shares or voting rights
pursuant to an agreement to which the Executive is a party, or as a result of
the transaction does not become the largest stockholder of the Company, (iii)
a merger or sale of substantially all of the assets of the Company or (iv) the
occurrence of any other event the Board of Directors determines to be a Change
in Control.
33
<PAGE>
COMPENSATION OF DIRECTORS
Non-employee directors of the Company in 1997 will receive $5,000 and $500
per meeting for serving on the Board of Directors. In addition, the Company
reimburses directors for expenses incurred in connection with attendance at
meetings of the Board of Directors and committees thereof. Employees of the
Company receive no additional compensation for serving as a director.
TRANSACTIONS WITH DIRECTORS AND OFFICERS
Certain of the officers, directors and principal stockholders of the Company
and its subsidiary banks, and members of their immediate families and
businesses in which these individuals hold controlling interests, are
customers of the Company Banks and it is anticipated such parties will
continue to be customers of the Company Banks in the future. Credit
transactions with these parties are subject to review by each bank's Board of
Directors. All outstanding loans and extensions of credit by the Company Banks
to these parties were made in the ordinary course of business on substantially
the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with other persons, and, in the
opinion of management, did not and do not involve more than the normal risk of
collectability or present other features unfavorable to the Company Banks. The
aggregate balance of loans and advances under existing lines of credit to
these parties was $6.0 million and $4.0 million at December 31, 1996 and 1995,
respectively.
34
<PAGE>
SECURITY OWNERSHIP OF THE COMPANY COMMON STOCK
The following table sets forth information as of February 28, 1997,
concerning the shares of the Company Common Stock beneficially owned by (i)
each person known by the Company to be the beneficial owner of 5% or more of
the Company Common Stock, (ii) each of the directors of the Company, and (iii)
all directors and senior officers of the Company as a group. Unless otherwise
indicated, the named beneficial owner has sole voting and investment power
over the shares listed.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------------------ ------------------ --------------------
<S> <C> <C>
Michael W. Gullion(1).................. 941,181 21.89%
11301 Nall Avenue
Leawood, Kansas 66221
Betty J. Dam(2)........................ 262,974 6.12%
1506 Calhoun
Marysville, Kansas 66508
William Wallman(3)..................... 214,901 5.00%
538 W. Mary
Beatrice, Nebraska 68310
Allen D. Petersen(3)................... 171,828 4.00%
1220 W. County Line Road
Barrington Hills, Illinois 60010
William F. Wright(3)................... 171,826 4.00%
1431 Stratford Court
Del Mar, California 92014
Keith E. Bouchey(4).................... 29,058 *
11301 Nall Avenue
Leawood, Kansas 66211
D. Michael Browne...................... 27,753 *
6450 Campbell Drive
Lincoln, Nebraska 68510
Directors and senior officers as a 1,079,261 25.10%
group (11 persons) (5)................
</TABLE>
- --------
* Less than 1%.
(1) Includes 558,555 shares for which Mr. Wallman, Mr. Petersen or Mr. Wright
are the record owners and that are subject to the terms of an agreement
granting Mr. Gullion voting control over such shares. Also includes 31,888
shares held by the Gold Banc Corporation Inc. Employee Stock Ownership
Plan and Trust that are not allocated to individual accounts and over
which Mr. Gullion, as Plan Administrator, has voting control.
(2) Includes the 179,516 shares owned by B.J. Dam Investment Company over
which Ms. Dam claims beneficial ownership and 38,350 shares held in the
Betty J. Dam Trust #1.
(3) Subject to the terms of an agreement granting Mr. Gullion voting control
over such shares.
(4) Includes 23,338 shares held in the name of Holyrood Bancshares, Inc. Mr.
Bouchey is a director, officer and stockholder of Holyrood Bancshares,
Inc. Also includes 720 shares owned by children of Mr. Bouchey. Mr.
Bouchey disclaims beneficial ownership of 120 shares owned by his adult
daughter.
(5) Subsequent to February 28, 1997, the Compensation Committee of the Board
of Directors awarded options for a total of 70,500 shares to senior
officers and directors of the Company. The Equity Compensation Plan,
pursuant to which these options were awarded, prohibits exercise of the
options until October 7, 1997. Accordingly, the shares subject to such
options are not included in this table.
35
<PAGE>
Mr. Gullion has entered into an agreement with Mr. Wallman pursuant to which
Mr. Wallman has granted to Mr. Gullion an irrevocable proxy to vote all shares
of the Company Common Stock (other than any director qualifying shares) owned
or subsequently acquired by Mr. Wallman. The agreement also grants to Mr.
Gullion: (i) a 180-day first right of refusal in the event Mr. Wallman
receives a bona fide offer from a third party to purchase some or all of the
shares of the Company Common Stock held by Mr. Wallman or certain permitted
transferees to whom Mr. Wallman may transfer shares; and (ii) in the event Mr.
Wallman dies, a 180-day option to purchase some or all of the shares of the
Company Common Stock held by Mr. Wallman or certain permitted transferees to
whom Mr. Wallman may transfer shares. This agreement terminates on the earlier
to occur of: (i) the date Mr. Gullion ceases to be President, Chairman and/or
Chief Executive Officer of the Company; or (ii) six months after Mr. Wallman's
death.
Mr. Gullion has also entered into an agreement with Mr. Wright and Mr.
Petersen pursuant to which Mr. Wright and Mr. Petersen have granted to Mr.
Gullion an irrevocable proxy to vote all shares of the Company Common Stock
owned or subsequently acquired by Mr. Wright or Mr. Petersen. Such proxy
continues until the earlier of: (i) the death of Mr. Gullion; (ii) the date
Mr. Gullion ceases to be President, Chairman and/or Chief Executive Officer of
the Company; or (iii) termination of the agreement as described below. The
agreement grants to Mr. Gullion a 90 day first right of refusal in the event
either Mr. Wright or Mr. Petersen receives a bona fide offer from a third
party to purchase, or proposes to sell on the public market, some or all of
the shares of the Company Common Stock held by such individual or by certain
permitted transferees to whom such individual may transfer shares. The
agreement also grants to Mr. Wright and Mr. Petersen a 90 day first right of
refusal in the event Mr. Gullion receives a bona fide offer from a third party
to purchase, or proposes to sell on the public market, some or all of the
shares of the Company Common Stock held by Mr. Gullion or certain permitted
transferees to whom Mr. Gullion may transfer shares. The agreement terminates
in 2006.
CHANGE IN ACCOUNTANTS
In November 1995, the Company retained Keith E. Bouchey, a principal of GRA
Thompson, White & Company, P.C. ("GRA Thompson") to serve as its Executive
Vice President, Chief Financial Officer and Corporate Secretary. At the time
of his employment by the Company, GRA Thompson served as the Company's
independent certified public accountants. In view of the Securities and
Exchange Commission's rules dealing with the independence of accountants, the
Board of Directors of the Company retained KPMG Peat Marwick LLP to serve as
the Company's new independent certified public accountants on April 29, 1996.
There were and are no disagreements with GRA Thompson on any matter of
accounting principles or practice, financial statement disclosure, or auditing
scope and procedure and GRA Thompson's reports on any of the Company's
financial statements have not contained an adverse opinion or disclaimer of
opinion or been qualified as to uncertainty, audit scope or accounting
principles.
36
<PAGE>
SECURITY OWNERSHIP OF PEOPLES COMMON STOCK
The following information pertains to Peoples Common Stock beneficially
owned, directly or indirectly, by each director and executive officer, by all
directors and executive officers of Peoples as a group and by each person
known to Peoples to own beneficially more than 5% of Peoples Common Stock as
of April 29, 1997. Except as noted below, beneficial owners have sole voting
and investment power.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------------------ ------------------ --------------------
<S> <C> <C>
Mary E. Anderson....................... 1,500 5.9%
6334 Ridge View Drive
Ozawkie, Kansas 66070
Kyle C. Bauer.......................... 800 3.2%
1072 23rd Road
Morganville, Kansas 67468
James P. Fawcett....................... 1,726 6.8%
1422 Fifth Street
Clay Center, Kansas 67432
Roy E. Jennings........................ 1,200 4.7%
825 Arthur Street
Clay Center, Kansas 67432
D. E. McIntosh, Jr. ................... 1,702 6.7%
P.O. Box 74
Clay Center, Kansas 67432
William F. McIntosh.................... 1,993 7.9%
522 Lane Street
Clay Center, Kansas 67432
Scott N. Patterson..................... 2,000 7.9%
422 Lincoln Avenue
Clay Center, Kansas 67432
Michael W. Ryan........................ 1,250 4.9%
P.O. Box 2054
Clay Center, Kansas 67432
Tim W. Ryan............................ 1,250 4.9%
P.O. Box 205
Clay Center, Kansas 67432
James H. Schulze....................... 1,650 6.5%
628 Blunt Street
Clay Center, Kansas 67432
C. C. Scripter......................... 2,000 7.9%
P.O. Box 2
Clay Center, Kansas 67432
All Directors and Executive Officers as
a group............................... 9,876 39.0%
</TABLE>
37
<PAGE>
DESCRIPTION OF THE COMPANY SECURITIES
COMMON STOCK
The Company has authorized 25,000,000 shares of the Company Common Stock.
The holders of the Company Common Stock are entitled to receive dividends when
and as declared by the Board of Directors out of funds legally available
therefor. Upon dissolution of the Company, the holders of the Company Common
Stock are entitled to share pro rata in the Company's net assets after payment
or provision for payment of all debts and liabilities of the Company and after
provisions for any class of preferred stock or other senior security which may
be issued by the Company.
The holders of the Company Common Stock are entitled to one vote per share
on all matters submitted to a vote of the stockholders and may not cumulate
their votes for the election of directors. Thus, the holders of a majority of
the shares of the Company Common Stock have the power to elect all the
directors. Subject to the voting rights of the holders of preferred stock, if
any, the exclusive voting power for all purposes is vested in the holders of
the Company Common Stock. Each share of the Company Common Stock is entitled
to participate on a pro rata basis in dividends and other distribution to
holders of the Company Common Stock. There are no redemption, sinking fund,
conversion or preemptive rights with respect to shares of Common Stock. The
transfer agent and the registrar for the Company Common Stock is American
Stock Transfer & Trust Company. As of February 28, 1997, there were 4,300,000
shares of the Company Common Stock issued and outstanding held by
approximately 1,600 stockholders of record. All shares of the Company Common
Stock currently outstanding are, and the shares offered hereby, when issued,
will be, fully paid and nonassessable.
PREFERRED STOCK
The Company has authorized 25,000,000 shares of preferred stock. There are
no shares of preferred stock currently outstanding. The Company has the
authority, exercisable by its Board of Directors and without stockholder
approval, to issue, in one or more series, shares of preferred stock from time
to time and in such series and with such preferences, limitations and relative
rights as maybe determined by the Board of Directors for such purposes and for
such consideration as it may deem advisable. Accordingly, the Board of
Directors, without stockholder approval, may authorize the issuance of one or
more series of preferred stock with terms (including terms with respect to
redemption, sinking fund, dividend, liquidation, preemptive, conversion and
voting rights and preferences) that could adversely affect the voting power
and other rights of holders of the Company Common Stock.
The creation and issuance of any series of preferred stock and the relative
rights, designations and preferences of such series, if and when established,
will depend upon, among other things, the future capital needs of the Company,
then existing market conditions and other factors that, in the judgment of the
Board of Directors might warrant the issuance of preferred stock. Preferred
stock may have the effect of discouraging an attempt, through transaction of a
substantial number of shares of the Company Common Stock, to acquire control
of the effects of the preferred stock may deny stockholders the receipt of a
premium on their Company Common Stock and may also depress the market price of
the Company Common Stock. As of the date of this Prospectus, the Company has
no arrangements, undertakings or plans with respect to the issuance of
preferred stock.
RESTRICTIONS ON CHANGES IN CONTROL
Certain provisions of the KGCC, the Amended and Restated Articles of
Incorporation (the "the Company Articles") and the Restated Bylaws of the
Company could make more difficult the transaction of the Company by means of a
tender offer, a proxy contest or otherwise or the removal of incumbent
officers and directors. These provisions are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of the Company to first negotiate
with the Company. The Company believes that the benefits of increased
protection of the Company's potential ability to negotiate with the proponent
of an unfriendly or unsolicited proposal to acquire or restructure the Company
outweigh the disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals could result in an improvement of their
terms.
38
<PAGE>
The Company is subject to the provisions of Section 17-12,100 et. seq. of
the KGCC (the "Business Combination Statute"). In general, the Business
Combination Statute prohibits a publicly held Kansas corporation from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date that the person became an interested stockholder
unless (with certain exceptions) the business combination or the transaction
in which the person became an interested stockholder is approved in a
prescribed manner. Generally, a "business combination" includes a merger,
asset sale, stock sale, or other transaction resulting in a financial benefit
to the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior,
did own) 15% or more of the corporation's outstanding voting stock. This
provision may have the effect of delaying, deferring or preventing a change in
control of the Company without further action by the interested stockholder.
The Company is also subject to the provisions of Section 17-1286 et seq. of
the KGCC (the "Control Share Statute"). In general, the Control Share Statute
provides that shares of a Kansas corporation acquired in a "control share
transaction" have no voting rights except to the extent approved by a vote of
a majority of the votes entitled to be case on the matter, excluding shares of
stock owned by the acquirer or by officers or directors who are employees of
the corporation. A control share transaction means, subject to certain
exceptions, the transaction of beneficial ownership of voting shares of stock
which, if aggregated with all other shares of stock which then have voting
rights and are beneficially owned by such a person, would entitle the acquirer
to exercise voting power in electing directors within one of the following
ranges of voting power: (a) 20% or more but less than 33 1/3%; (b) 33 1/3% or
more but less than a majority; or (c) a majority of all voting power. The
transaction of shares of stock in addition to shares an acquiring person is
entitled to vote as a result of having previously obtained stockholder
approval does not constitute a control share transaction unless, as a result
of such transaction, the voting power of the shares beneficially owned by the
acquirer would exceed the range in respect of which voting rights had
previously been granted. A number of other transactions of shares are not
deemed to constitute control share transactions, including good faith gifts,
transfers pursuant to wills, purchases pursuant to an issuance by the
corporation and certain mergers involving the corporation.
If voting rights are not approved at a meeting of stockholders or if the
acquiring person does not deliver an acquiring person statement as permitted
by statute, then, subject to certain conditions and limitations, the
corporation may redeem at market value any and all of the shares acquired in
the control share transaction. If voting rights for such shares are restored
at a stockholders' meeting and the acquirer becomes entitled to vote a
majority of the shares entitled to vote, stockholders who properly objected to
the control share transaction may exercise appraisal rights and receive, in
exchange for their stock, the fair value of such stock. The fair value of the
stock as determined for purposes of such appraisal rights may not be less than
the highest price per share paid in the control share transaction.
The Company Articles require that the Board of Directors consist of three
classes with staggered three-year terms. The number of directors in each class
must be as nearly equal as possible. Thus, only one class of directors will be
elected at each annual meeting of stockholders of the Company, with the other
classes continuing for the remainder of their respective three-year terms. The
classification of the Board of Directors makes it more difficult for the
Company existing stockholders to replace quickly the majority of the Board of
Directors as well as for another party to obtain control of the Company by
replacing the majority of the Board of Directors. Since the Board of Directors
has the power to retain and discharge officers of the Company, these
provisions also make it more difficult for existing stockholders or another
party to effect quickly a change in management.
The Company Articles provide stockholder action can be taken only at an
annual or a special meeting of stockholders and cannot be taken by written
consent. The Company Bylaws provide special meetings of stockholders can be
called only by a majority of the Board of Directors, the Chief Executive
Officer, or 55% or more of the stockholders. Moreover, the business permitted
to be conducted at any special meeting of stockholders will be limited to the
business for which the meeting was called. The Company Bylaws set forth an
advance notice procedure with regard to the nomination, other than by or at
the direction of the Board of Directors, of candidates for election as
directors and with regard to business to be brought before an annual
39
<PAGE>
meeting of stockholders of the Company. Stockholders will not be permitted to
fill vacancies on the Board of Directors caused by resignation or newly
created directorships.
The Company Articles and the Company Bylaws contain provisions requiring the
affirmative vote of the holders of at least two-thirds of the voting stock of
the Company to amend many of the foregoing provisions.
DIFFERENCES IN RIGHTS OF STOCKHOLDERS
GENERAL
Peoples is incorporated in the State of Kansas. Peoples stockholders, whose
rights are currently governed by Kansas law (including the KGCC), the Peoples
Articles of Incorporation (the "Peoples Articles") and the Peoples bylaws (the
"Peoples Bylaws"), will, upon consummation of the Merger, become stockholders
of the Company. After such time, their rights will continue to be governed by
Kansas law; however, they will be subject to the provisions of the Company
Articles and the Company Bylaws.
Material differences that may affect the rights and interests of
stockholders of Peoples are set forth below. This summary is not intended to
be an exhaustive description of the provisions discussed. It is qualified in
its entirety by reference to the Peoples Articles, the Peoples Bylaws, the
Company Articles and the Company Bylaws.
NUMBER OF DIRECTORS AND TERM
Under the Peoples Bylaws, the Peoples Board consists of at least four, but
not more than twelve directors, each of whom serve a term of one year. Under
the Company Bylaws, the Company Board consists of at least three, but not more
than fifteen directors. Currently, the Company Board consists of five
directors. The Company Bylaws provide that directors are elected to a three
year term. The Company Articles of Incorporation and the Company Bylaws
provide for a staggered Board of Directors comprised of three classes as
nearly equal in size as practicable. Each class holds office until the third
annual meeting for election of directors following the election of such class.
REMOVAL OF DIRECTORS
The Peoples Articles and Peoples Bylaws are silent as to the removal of
directors. Under the KGCC, directors may be removed by stockholders with or
without cause; provided, however, if less than the entire Peoples Board is to
be removed, no one of the directors may be removed if the votes cast against
removal would be sufficient to elect the director if then cumulatively voted
at an election of the entire Peoples Board. The Company Articles provide that
any director or the entire board of directors may only be removed for "cause",
as defined in the Company Articles.
PREEMPTIVE RIGHTS
Holders of Peoples Common Stock have preemptive rights for new issues of
Peoples Common Stock within the class of stock owned by them. Holders of the
Company Common Stock do not have preemptive rights.
SPECIAL MEETINGS
The Peoples Bylaws provide that stockholders may call special meetings as
permitted in accordance with the KGCC. Under the KGCC, only the board of
directors may call a special meeting. The Company Bylaws provide that special
meetings of the Company stockholders may only be called by the chief executive
officer, the Company Board, or the written request of the holders of fifty-
five percent of the outstanding shares.
AMENDMENT OF ARTICLES OF INCORPORATIONS
Under the KGCC, the Peoples Articles may be amended upon a resolution of the
Peoples Board proposing the amendment and its submission to the Peoples
stockholders for their approval by the majority of the shares of Peoples
Common Stock entitled to vote.
40
<PAGE>
The Company Articles provide that certain provisions of the Company Articles
may not be repealed or amended without the affirmative vote of holders of at
least two-thirds of the outstanding shares of voting stock. Company
stockholders holding a majority of the Company Common Stock may otherwise
amend, alter, change or repeal any provision of the Company Articles.
AMENDMENT OF BYLAWS
The Peoples Bylaws provide that the stockholders may make, alter, amend or
repeal their bylaws by a majority vote. The Peoples Board of Directors may
also amend the Peoples Bylaws, except as to any provision the stockholders
specifically provide may not be amended by the Board of Directors. The Company
Articles authorize the Company Board to make, alter and repeal bylaws, subject
to the rights of stockholders at any regular or special meeting to alter or
repeal bylaws made by the Company Board. Stockholders of the Company may make,
alter, amend or repeal the Company Bylaws by a majority vote, except that the
amendment of certain provisions requires a two-thirds vote.
NOTICE OF STOCKHOLDER PROPOSALS; NOMINATIONS OF DIRECTORS
The Peoples Bylaws do not contain special requirements for providing advance
notice of the introduction by stockholders of business to be transacted at
stockholder meetings.
The Company Bylaws provide that any stockholder who intends to bring a
matter before the annual meeting of stockholders must deliver written notice
of such stockholder's intent to the Secretary of the Company. Such notice must
be received by the Secretary not later than 120 days prior to the day
corresponding to the date on which the Company released its proxy statement in
connection with the previous years annual meeting. Such written notice must
set forth (i) a brief description of the proposal and the reasons for it, (ii)
the name and address of the stockholder, (iii) the class and number of shares
of capital stock of the Company beneficially owned by the stockholder, (iv)
any arrangement between such stockholder and any other person in connection
with the proposal and any material interest of the stockholder in the proposed
business described in the notice, (v) a representation that such stockholder
will appear in person or proxy at the annual meeting and (vi) if such business
is a nomination for director, each nomination sought to be made, together with
a description of the qualifications and business or professional experience of
each proposed nominee and disclosing the information about him or her that is
required by the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder, to be disclosed in the proxy materials for the meeting
involved as if he or she were a nominee of the corporation for election as one
of its directors.
PRICE RANGE OF THE COMPANY COMMON STOCK AND
UNREGISTERED SALES OF EQUITY SECURITIES OF THE COMPANY
The Company Common Stock has been traded on the Nasdaq National Market tier
of The Nasdaq Stock Market under the symbol "GLDB" since November 19, 1996.
Prior to that date, there was no trading market for the Company's common
stock. The high and low bid prices for the Company's common stock for the
period November 19, 1996 through April 30, 1997 is set forth below. The
Company made no unregistered sales of equity securities during that time
period.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ------ ------
<S> <C> <C>
Fourth Quarter 1996......................................... 9 1/4 8 3/8
First Quarter 1997.......................................... 11 7/8 8 1/2
April 1 to April 30, 1997................................... 12 11 7/8
</TABLE>
As of April 30, 1997, there were approximately 1,600 holders of the
Company's common stock, including brokers holding shares as nominees or in
street name, but excluding those for which they hold such shares.
41
<PAGE>
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma financial information combines the
historical consolidated balance sheets and statements of income of the Company
and Peoples, including their respective subsidiaries, after giving effect to
the Merger. The unaudited pro forma combined balance sheet at March 31, 1997
gives effect to the Merger as if it had occurred at March 31, 1997. The
unaudited pro forma combined statements of income for each of the years in the
two year period ended December 31, 1996 and the three-month periods ended
March 31, 1997 and March 31, 1996, give effect to the Merger as if it had
occurred at January 1, 1995. These statements are prepared on the basis of
accounting for the Merger as a pooling of interests and are based on the
assumptions set forth in the notes thereto.
42
<PAGE>
PRO FORMA UNAUDITED CONSOLIDATING BALANCE SHEET
MARCH 31, 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
PEOPLES -------------- THE COMPANY
THE COMPANY CONSOLIDATED DR CR CONSOLIDATED
----------- ------------ ----- ----- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks................. $ 5,774 1,927 7,701
Interest-bearing
deposits.............. 8,352 10 8,362
Held-to-maturity
securities............ 25 76 101
Available-for-sale
securities............ 64,486 32,453 96,939
Other securities....... 2,090 242 2,332
Federal funds sold and
securities purchased
under agreement to
resell................ 2,450 0 2,450
Loans, net............. 210,217 33,482 243,699
Bank premises and fixed
assets................ 12,137 732 12,869
Accrued interest and
other assets.......... 4,413 1,107 5,520
Goodwill............... 470 1,145 1,615
-------- ------ -------
Total Assets........ $310,414 71,174 381,588
-------- ------ -------
LIABILITIES
Deposits............... $257,707 59,338 317,045
Other borrowings....... 18,469 4,162 22,631
Notes payable.......... 1,819 2,790 4,609
Accrued interest and
other liabilities..... 1,809 605 2,414
Other liabilities...... 0 0 0
-------- ------ -------
Total Liabilities... $279,804 66,895 346,699
CAPITAL
Common stock........... $ 4,300 2,535 2,535(1) 833(1) 5,133
Additional paid-in
capital............... 16,768 0 1,702(1) 18,470
Undivided profits...... 10,030 1,778 11,808
Unrealized gains
(losses) on available
for sale securities... (488) (34) (522)
-------- ------ -------
Total equity
capital............. 30,610 4,279 34,889
-------- ------ -------
Total liabilities and
equity capital...... $310,414 71,174 381,588
======== ====== =======
</TABLE>
- --------
(1) To reflect the Merger accounted for using the pooling of interests method.
Exchange ratio used is approximately 32.87 shares of Company Common Stock
for each share of Peoples Common Stock.
43
<PAGE>
The following pro forma financial information has been prepared from, and
should be read in conjunction with, the historical consolidated financial
statements and related notes thereto of the Company and Peoples included
herein. The following information is not necessarily indicative of the
financial position or operating results that would have occurred had the
Merger been consummated on the date, or at the beginning of the periods, for
which the Merger is being given effect nor is it necessarily indicative of
future operating results or financial position.
PRO FORMA UNAUDITED CONSOLIDATING STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
PEOPLES ----------- PRO FORMA
THE COMPANY CONSOLIDATED DR CR THE COMPANY
----------- ------------ ----- ----- -----------
<S> <C> <C> <C> <C> <C>
Interest Income:
Loans, including fees...... $ 4,757 762 5,519
Investments................ 1,001 538 1,539
Other...................... 63 -- 63
--------- ------ ---------
5,821 1,300 7,121
--------- ------ ---------
Interest expense:
Deposits................... 2,827 583 3,410
Other...................... 225 87 312
--------- ------ ---------
3,052 670 3,722
--------- ------ ---------
Net interest income........ 2,769 630 3,399
--------- ------ ---------
Provision for loan losses.... 105 -- 105
--------- ------ ---------
Net interest income after
provision for loan losses... 2,664 630 3,294
--------- ------ ---------
Other income:
Service charges............ 161 92 253
Gain on sale of mortgage
loans..................... 117 -- 117
Gain/Loss on sale of
securities................ (13) 1 (12)
Other...................... 81 2 83
--------- ------ ---------
346 95 441
--------- ------ ---------
Other expense:
Salaries and employee
benefits.................. 1,129 262 1,391
Occupancy expense.......... 417 76 493
Federal deposit insurance
premiums.................. 26 2 28
Other...................... 512 146 658
--------- ------ ---------
2,084 486 2,570
--------- ------ ---------
Earnings before income
taxes..................... 926 239 1,165
--------- ------ ---------
Income tax expense
(benefit)................... 323 57 380
--------- ------ ---------
Net Earnings................. $ 603 182 785
========= ====== =========
Earnings per share........... $ .14 7.20 .15
Weighted average shares out-
standing.................... 4,300,000 25,350 5,133,333
</TABLE>
44
<PAGE>
PRO FORMA UNAUDITED CONSOLIDATING STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
THE PEOPLES ELIMINATIONS THE
COMPANY CONSOLIDATED DR CR COMPANY
--------- ------------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees......... $ 3,843 696 4,539
Investments................... 1,194 552 1,746
Other......................... 1 3 4
--------- ------ ---------
5,038 1,251 6,289
--------- ------ ---------
Interest expense:
Deposits...................... 2,653 610 3,263
Other......................... 334 91 425
--------- ------ ---------
2,987 701 3,688
--------- ------ ---------
Net interest income........... 2,051 550 2,601
--------- ------ ---------
Provision for loan losses....... 30 55 85
--------- ------ ---------
Net interest income after
provision for loan losses.... 2,021 495 2,516
--------- ------ ---------
Other income:
Service fees.................. 150 77 227
Gain on sale of mortgage
loans........................ 353 -- 353
Gain/Loss on sale of
securities................... -- 1 1
Other......................... 119 6 125
--------- ------ ---------
622 84 706
--------- ------ ---------
Other expense:
Salaries and employee
benefits..................... 1,255 234 1,489
Occupancy expense............. 341 72 413
Federal deposit insurance
premiums..................... 49 1 50
Other......................... 448 141 589
--------- ------ ---------
2,093 448 2,541
--------- ------ ---------
Earnings before income taxes.. 550 131 681
--------- ------ ---------
Income tax expenses............. 197 55 252
--------- ------ ---------
Net Earnings.................... $ 353 76 429
========= ====== =========
Earnings per share.............. $ .18 $ 2.98 $ .15
Weighted average shares
outstanding.................... 2,003,616 25,350 2,836,949
</TABLE>
45
<PAGE>
PRO FORMA CONSOLIDATING STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
THE PEOPLES ----------- THE
COMPANY CONSOLIDATED DR CR COMPANY
--------- ------------ ----- ----- ---------
<S> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees......... $ 16,923 2,873 19,796
Investments................... 3,939 2,206 6,145
Other......................... 454 4 458
--------- ------ ---------
21,316 5,083 26,399
--------- ------ ---------
Interest expense:
Deposits...................... 10,932 2,408 13,340
Other......................... 1,328 397 1,725
--------- ------ ---------
12,260 2,805 15,065
--------- ------ ---------
Net interest income........... 9,056 2,278 11,334
--------- ------ ---------
Provision for loan losses....... 120 (145) (25)
--------- ------ ---------
Net interest income after
provision for loan losses.... 8,936 2,423 11,359
--------- ------ ---------
Other income:
Service fees.................. 659 364 1,023
Gain on sale of mortgage
loans........................ 1,128 -- 1,128
Gain/Loss on sale of
securities................... (38) 28 (10)
Other......................... 657 44 701
--------- ------ ---------
2,406 436 2,842
--------- ------ ---------
Other expense:
Salaries and employee
benefits..................... 5,097 966 6,063
Occupancy expense............. 1,375 300 1,675
Federal deposit insurance
premiums..................... 549 2 551
Other......................... 2,195 573 2,768
--------- ------ ---------
9,216 1,841 11,057
--------- ------ ---------
Earnings before income taxes.. 2,126 1,018 3,144
--------- ------ ---------
Income tax expenses (benefit)... 775 291 1,066
--------- ------ ---------
Net Earnings.................... $ 1,351 727 2,078
========= ====== =========
Earnings per share.............. $ .60 28.67 .67
Weighted average shares
outstanding.................... 2,246,552 25,350 3,079,885
</TABLE>
46
<PAGE>
PRO FORMA CONSOLIDATING STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
THE PEOPLES ----------- THE
COMPANY CONSOLIDATED DR CR COMPANY
--------- ------------ ----- ----- ---------
<S> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees......... $14,486 2,768 17,254
Investments................... 3,760 2,232 5,992
Other......................... 185 10 195
--------- ------ ---------
18,431 5,010 23,441
--------- ------ ---------
Interest expense:
Deposits...................... 8,804 2,453 11,257
Other......................... 1,241 396 1,637
--------- ------ ---------
10,045 2,849 12,894
--------- ------ ---------
Net interest income........... 8,386 2,161 10,547
--------- ------ ---------
Provision for loan losses....... 1,284 50 1,334
--------- ------ ---------
Net interest income after
provision for loan losses.... 7,102 2,111 9,213
--------- ------ ---------
Other income:
Service fees.................. 650 349 999
Gain on sale of mortgage
loans........................ 1,058 -- 1,058
Gain/Loss on sale of securi-
ties......................... (84) (8) (92)
Other......................... 314 36 350
--------- ------ ---------
1,938 377 2,315
--------- ------ ---------
Other expense:
Salaries and employee bene-
fits......................... 4,438 901 5,339
Occupancy expense............. 1,137 307 1,444
Federal deposit insurance pre-
miums........................ 332 68 400
Other......................... 2,094 513 2,607
--------- ------ ---------
8,001 1,789 9,790
--------- ------ ---------
Earnings before income taxes.. 1,039 699 1,738
--------- ------ ---------
Income tax expense (benefit).... 335 185 520
--------- ------ ---------
Net earnings.................... $ 704 514 1,218
========= ====== =========
Earnings per share.............. $ .34 20.27 .42
Weighted average shares out-
standing....................... 2,063,415 25,350 2,896,748
</TABLE>
47
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND
1995
GENERAL
The Company's principal asset is its ownership of the Company Banks.
Accordingly, the Company's net income is dependent upon the combined results
of operations of the Company Banks. Each Company Bank conducts a commercial
and consumer banking business that consists of attracting deposits from the
general public and redeploying those funds to earning assets. Each Company
Bank's profitability depends primarily on net interest income, which is the
difference between interest income generated from interest-earning assets,
primarily consisting of loans and investments, and interest expense incurred
on interest-bearing liabilities, primarily consisting of customer deposits and
borrowed funds.
Net interest income is affected by the balances of interest-earning assets
and interest-bearing liabilities and each Company Bank's interest rate spread,
which is the difference between the average yield earned on its interest-
earning assets and the average rate paid on its interest-bearing liabilities.
The interest rate spread is impacted by, among other factors, changes in
interest rates, deposit flows and loan demand.
The Company's profitability is also affected by the level of non-interest
income of the Company Banks and non-interest expense of the Company and the
Company Banks. Non-interest income consists primarily of loan fees, service
fees, other fees and income from the gain on the sale of loans and investment
securities. Non-interest expense consists of compensation and benefits,
occupancy related expenses, deposit insurance premiums, expenses of opening
branch offices and other operating expenses. The Company's profitability is
further impacted by the Company's effective tax rate, the Company Banks'
provision for loan losses, and various extraordinary items.
SIGNIFICANT EVENTS
Investment Portfolio
In the first quarter of 1995, the Company restructured its investment
portfolio to shift the maturity of its portfolio to a shorter term. Included
in this restructuring were the sale of bonds resulting in significant losses
included in other income.
Allowances for Loan Losses
In 1995, management of the Company set a goal to achieve an allowance for
loan loss to loans ratio of approximately 1.4%. This goal was based upon
several factors, including the changing loan mix and the portfolio growth
resulting from the expansion into suburban Kansas City and the observation
that the ratio of approximately 1.4% was consistent with the level maintained
by banks that are similar to the Company Banks both in size and market served.
In 1995, the Company made significant additions to its allowance for loan
losses in order to meet this goal. The additions had a significant negative
impact on earnings for 1995. In the future, management expects to maintain its
allowance, as a percentage of total loans, in a range consistent with
historical reserves, which has varied between 1.15% and 1.65%.
Insurance Assessment
Certain savings deposits of two of the Company Bank's subsidiaries are
insured by the Savings Association Insurance Fund ("SAIF"), with the remaining
deposits of the Company Banks insured by the Bank Insurance Fund ("BIF"). Both
SAIF and BIF have had a designated reserve ratio of 1.25%. On September 30,
1996, the President signed into law the Deposit Insurance Fund Act of 1996
("DIFA"). DIFA directed the FDIC to impose a special assessment on SAIF-
assessable deposits insured as of March 31, 1995. The one-time expense for the
Company, incurred in 1996, totaled $389,100 ($240,000 net after tax). In
addition to this special one-time assessment, the premiums for BIF deposits
were increased to 1.29 basis points per $100 of deposits and for SAIF
48
<PAGE>
deposits were decreased to 6.44 basis points per $100 of deposits. The new
premiums, which took effect January 1, 1997, and continue through December 31,
1999, will result, based on the Company's current deposit base, in a decrease
in future FDIC insurance premiums for the Company.
Stock Offering
On November 22, 1996, the Company completed an initial public offering of
2,000,000 shares of its common stock. The closing with respect to an
additional 300,000 shares was completed on December 19, 1996, following the
exercise of the underwriters' over-allotment option. The net proceeds of the
sale, after deducting expenses of the offering, were approximately $18.1
million. The proceeds were used to retire approximately $6.6 million in short-
term debt and to make a $3 million capital contribution to one of the
Company's banking subsidiaries. The remaining capital of approximately $8.5
million was invested in short-term grade securities pending use for the
Company's growth strategy and general corporate purposes.
RESULTS OF OPERATIONS
Comparison of Years Ended December 31, 1996 and 1995
The Company's net income was $1,351,000 for the year ended December 31,
1996, compared to net income of $704,000 for the year ended December 31, 1995,
yielding an annualized return on average assets ("ROA") of .49% for the year
ended December 31, 1996, compared to .30% for the year ended December 31,
1995. Return on average common stockholders' equity ("ROE") for 1996 and 1995
was 9.11% and 6.09%, respectively. Without the one-time SAIF assessment, net
income would have been $1.59 million, ROA would have been .58% and ROE would
have been 10.73%.
Total assets were $304.6 million at December 31, 1996, an increase of $40.7
million or 15.4% from $263.9 million at December 31, 1995. Total average
assets were $276.1 million for the year ended December 31, 1996, compared to
$232.4 million for the year ended December 31, 1995. Average interest-earning
assets were $255.0 million for the year ended December 31, 1996, and $215.6
million for 1995. Assets increased primarily because of the opening of
Exchange Bank's Leawood, Kansas location and growth at its Shawnee, Kansas
location.
The Company's loans totaled $200.1 million and $161.4 million, net, as of
December 31, 1996 and 1995, respectively. The increase in total loans of $38.6
million during 1996 compared to 1995 was funded through increases in deposits
of $29.3 million and federal funds purchased of $5.0 million. The allowance
for loan losses decreased to $2.5 million at December 31, 1996, from $2.7
million at December 31, 1995. This represented 1.25% and 1.65% of total loans
as of December 31, 1996 and 1995, respectively.
Net Interest Income
Net interest income is interest earned on interest-earning assets less
interest accrued on interest-bearing liabilities. Interest-earning assets are
categorized as loans, investment securities and other earning assets, which
include Federal Funds sold and certificates of deposit issued from other
financial institutions. Interest-bearing liabilities are categorized as
customer deposits, time and savings deposits and other borrowings including
Federal Funds borrowed, short-term borrowings and long-term debt.
Average total earning assets increased $39.4 million or 18.3% at December
31, 1996, compared to December 31, 1995. The increase is primarily the result
of the opening of Exchange Bank's office in Leawood, Kansas in the fourth
quarter of 1995 as well as the continued growth in loans at Shawnee. Total
interest income for the year ended December 31, 1996, was $21.3 million, a
$2.9 million or 15.7% increase over 1995.
Average total interest-bearing liabilities increased by $36.9 million or
17.9% during 1996, primarily due to increased volume of time deposits
originated by Exchange Bank in connection with the opening of its Leawood
location. Total interest expense for 1996 was 22.1% higher than in 1995 as a
result of the increases in interest-bearing liabilities and interest rates.
49
<PAGE>
Net interest income was $9.1 million for the year ended December 31, 1996,
compared to $8.4 million for 1995, an increase of 8.0%. This growth was
constrained by an increase in interest expense resulting from offering above-
market rates on time deposits to promote the opening of Exchange Bank's
Leawood location.
The increase in investment securities and other earning assets, which
consist primarily of U.S. government and agency securities, for the year ended
December 31, 1996, is the result of investment of unapplied proceeds from the
stock offering in the fourth quarter of 1996.
The following table presents the Company's average balances, interest earned
or accrued, and the related yields and rates on major categories of the
Company's interest-earning assets and interest-bearing liabilities for the
periods indicated:
COMPARATIVE AVERAGE BALANCES, YIELDS AND RATES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995
------------------------- -------------------------
AVERAGE AVERAGE
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID
-------- -------- ------- -------- -------- -------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans, net (1).............. $176,584 $16,923 9.58% $149,578 $14,486 9.68%
Investment securities-
taxable.................... 64,201 3,742 5.83 54,289 3,303 6.08
Investment securities-
nontaxable (2)............. 3,856 197 7.73 5,144 260 6.78
Other earning assets........ 10,402 454 4.36 6,601 382 5.79
-------- ------- ---- -------- ------- ----
Total earning assets...... 255,043 21,316 8.40 215,612 18,431 8.59
------- ---- ------- ----
Non-interest-earning
assets..................... 21,084 16,750
-------- --------
Total assets.............. $276,127 $232,362
======== ========
Liabilities and Stockholders'
Equity:
Savings deposits and
interest-bearing checking.. $ 66,957 $ 2,604 3.89% $ 55,819 $ 1,726 3.09%
Time deposits............... 153,785 8,328 5.42 129,543 7,078 5.46
Short-term borrowings....... 14,637 829 5.66 11,677 639 5.47
Borrowings.................. 7,840 499 6.36 9,300 602 6.47
-------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities.............. 243,219 12,260 5.04 206,339 10,045 4.87
Non-interest-bearing
liabilities................ 18,085 14,463
Stockholders' equity........ 14,823 11,560
-------- --------
Total liabilities and
stockholders' equity..... $276,127 $232,362
======== ========
Net interest income (3)....... $ 9,056 $ 8,386
======= =======
Net interest spread........... 3.36% 3.72%
==== ====
Net interest margin (4)....... 3.59% 3.93%
==== ====
</TABLE>
- --------
(1) Non-accruing loans are included in the computation of average balance.
(2) Yield is adjusted for the tax effect of tax exempt securities. The tax
effects in 1996 and 1995 were $101 and $89, respectively. The combined
marginal rate used was 34%.
(3) The Company includes loan fees in interest income. Such fees totaled
$807,000 and $623,000 in 1996 and 1995, respectively.
(4) The net yield on average earning assets is the net interest income divided
by average interest-earning assets.
50
<PAGE>
The following table presents the components of changes in the Company's net
interest income as attributed to volume and rate on a tax-equivalent basis.
The net change attributable to the combined impact of volume and rate has been
solely allocated to the change in rate.
RATE/VOLUME INTEREST ANALYSIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 COMPARED TO 1995 1995 COMPARED TO 1994
---------------------------- ----------------------------
AVERAGE TOTAL AVERAGE TOTAL
VOLUME RATE CHANGES VOLUME RATE CHANGES
-------- -------- -------- -------- -------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans (1)............. $ 2,615 $ (178) $ 2,437 2,533 1,228 3,761
Investment securi-
ties................. 530 (154) 376 (1,078) 256 (822)
Other earning assets.. 234 (162) 72 76 67 143
-------- ------- -------- -------- ------- -------
Total interest in-
come............... 3,379 (494) 2,885 1,531 1,551 3,082
Interest expense:
Savings deposits and
interest-bearing
checking............. 344 534 878 (143) 182 39
Time deposits......... 1,325 (75) 1,250 567 1,409 1,976
Short-term
borrowings........... 162 28 190 100 147 247
Long-term borrowings.. (94) (9) (103) (59) 83 24
-------- ------- -------- -------- ------- -------
Total interest ex-
pense.............. 1,736 479 2,215 465 1,821 2,286
Increase (decrease) in
net interest income.... $ 1,642 $ (972) $ 670 1,066 (270) 796
======== ======= ======== ======== ======= =======
</TABLE>
- --------
(1) The Company includes loan fees in interest income. Such fees totaled
$807,000 and $623,000 in 1996 and 1995, respectively.
Provision for Loan Losses
In 1995, the Company substantially increased its allowance for loan losses
based upon an analysis of several factors, including the changing loan mix and
portfolio growth resulting from the expansion into suburban Kansas City. Based
on its future business and lending plans, and depending upon specific facts
and circumstances with respect to certain loans and general economic
conditions, management expects to maintain its allowance, as a percentage of
total loans, at levels consistent with that as of December 31, 1996.
Non-Interest Income
Non-interest income for the year ended December 31, 1996, was $2.4 million,
an increase of 24.2% from 1995. The increase is primarily a result of
increased service fees, gains on sales of assets in the second half of 1996
and the gain on the sale of loans in the first half of 1996. The Company
incurs periodic gains and losses in connection with the sale of securities to
meet its liquidity needs and in anticipation of changes in interest rates. See
"--Investment Portfolio."
The following table presents the components of the Company's non-interest
income for the periods indicated:
NON-INTEREST INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
----------- -----------
DOLLARS IN THOUSANDS
<S> <C> <C>
Service charges on deposit accounts................. $ 659 $ 495
Gain on sale of loans............................... 1,128 1,058
Loss on sale of securities.......................... (38) (84)
Insurance premium income............................ 22 58
Fiduciary income.................................... 173 125
Other non-interest income........................... 462 286
----------- -----------
Total non-interest income........................... $ 2,406 $ 1,938
=========== ===========
Non-interest income as a percentage of average total
assets............................................. 1.16% 0.83%
=========== ===========
</TABLE>
51
<PAGE>
In the third quarter of 1996, Provident Bank substantially altered the
manner in which it conducts its mortgage banking business. The changes include
a substantial reduction in personnel that is expected to decrease the
Company's non-interest income from the sale of loans.
Non-Interest Expense
Non-interest expense increased by $1.2 million for the year ended December
31, 1996. This increase was primarily due to the addition of employees at the
newly opened Leawood location and Provident Bank's mortgage loan production
office and also was affected by annual increases in salaries and employee
benefits and the addition of two executive positions at the Company. Net
occupancy expense increased due to remodeling projects that were completed in
Shawnee and St. Joseph, and because Exchange Bank's new Leawood location was
not open in the first half of 1995. As a percentage of average assets, non-
interest expense was 3.34% and 3.44% as of December 31, 1996 and 1995,
respectively.
The following table presents the components of non-interest expense for the
periods indicated:
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
----------- -----------
DOLLARS IN THOUSANDS
<S> <C> <C>
Salaries and employee benefits........................ $ 5,097 $ 4,438
Net occupancy expense................................. 1,166 980
Deposit insurance expense............................. 549 332
Professional services................................. 433 467
Data processing expense............................... 274 202
Supplies.............................................. 251 206
Telephone............................................. 159 137
Postage............................................... 151 143
Advertising/promotion................................. 409 252
Other................................................. 727 844
----------- -----------
Total non-interest expense.......................... $ 9,216 $ 8,001
=========== ===========
Efficiency ratio...................................... 80.40% 77.50%
</TABLE>
In the third quarter of 1996, Provident Bank substantially altered the
manner in which it conducts its mortgage banking business. The changes include
a substantial reduction in personnel that is expected to decrease the
Company's salaries and employee benefits and occupancy expenses.
Income Tax Expense
Income tax expense for the years ended December 31, 1996, and December 31,
1995, was $775,000 and $335,000, respectively. The effective tax rates for
those periods were 36.5% and 32.3%, respectively. The effective tax rates
differed from the expected rate of 34% primarily because of state taxes offset
by the effect of tax exempt interest on municipal securities.
Asset/Liability Management
Asset liability management refers to management's efforts to minimize
fluctuations in net interest income caused by interest rate changes. This is
accomplished by managing the repricing of interest rate sensitive interest-
earning assets and interest-bearing liabilities. An interest rate sensitive
balance sheet item is one that is able to reprice quickly, through maturity or
otherwise. Controlling the maturity or repricing of an institution's
liabilities and assets in order to minimize interest rate risk is commonly
referred to as gap management. Close matching of the repricing of assets and
liabilities will normally result in little change in net interest income when
interest
52
<PAGE>
rates change. A mismatched gap position will normally result in changes in net
interest income as interest rates change.
Along with internal gap management reports, the Company and the Company
Banks' use an external asset/liability modeling service to analyze each the
Company Banks' current gap position. The system simulates the Company Banks'
asset and liability base and projects future earnings results under several
interest rate assumptions. The Company strives to maintain an aggregate gap
position such that changes in interest rates within ranges determined by
management to be reasonable will not effect net interest income by more than
five percent in any twelve-month period.
The following table sets forth the maturities of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1996.
INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
TERM TO REPRICING
-----------------------------------------------------
4 MONTHS
0 TO 3 TO
MONTHS 12 MONTHS OVER 1 TO 5 YEARS OVER 5 YEARS TOTAL
-------- --------- ----------------- ------------ --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans................. $ 78,105 $ 54,066 $58,353 $12,106 $202,630
Investment securi-
ties................. 7,687 12,085 32,443 14,437 66,652
Other interest-bearing
assets............... 15,032 -- -- -- 15,032
-------- -------- ------- ------- --------
Total interest-earn-
ing assets......... 100,824 66,151 90,796 26,543 284,314
Interest-bearing liabil-
ities:
Savings deposits and
interest-bearing
checking............. 76,253 -- -- -- 76,253
Time deposits......... 41,789 69,435 45,765 137 157,126
Short-term
borrowings........... 14,120 251 679 -- 15,050
Long-term borrowings.. 108 254 1,034 482 1,878
-------- -------- ------- ------- --------
Total interest-bear-
ing liabilities.... 132,270 69,940 47,478 619 250,307
Interest sensitivity
gap.................... (31,446) (3,789) 43,318 25,924 34,007
Cumulative gap.......... (31,446) (35,235) 8,083 34,007
Cumulative ratio of in-
terest-earning assets
to interest-bearing li-
abilities.............. 76.23% 94.58% 103.24% 113.59%
Ratio of cumulative gap
to interest-earning as-
sets................... (31.19%) (21.10%) 3.14% 11.96%
</TABLE>
The cumulative gap value indicated above for the zero to three month and the
four to twelve month periods indicates that a rise in interest rates would
have a negative effect on net interest income. The Company has the ability to
reprice the rates on savings deposits and interest bearing checking.
Historically the rates on these deposits have not been repriced when rates
have had small movements. The cumulative gap for one year and greater shows
that the Company is positioned so that an increase in interest rates will have
a positive effect on interest income.
FINANCIAL CONDITION
Lending Activities
Real Estate Loans. Real estate loans represent the largest class of loans of
the Company. The Company categorizes real estate loans as follows:
i) Commercial. Commercial real estate loans increased from December 31,
1995, to December 31, 1996, due primarily to increased lending activity in
the Johnson County suburbs southwest of Kansas City.
ii) Construction. Construction lending consists primarily of single
family construction in Johnson County, Kansas. the Company has experienced
steady growth in the suburban Kansas City market place. The December 31,
1996 balance reflects continued, although seasonal, growth in the Johnson
County market.
53
<PAGE>
iii) 1 to 4 Family Residential. Loans in this category consist primarily
of owner-occupied residential loans. Since December 31, 1995, the mix of
loans has begun to shift from fixed rate loans to variable rate products.
The Company has elected to portfolio selected variable rate real estate
loans, which has resulted in the loan growth in this category.
iv) Agricultural. This category consists of loans secured by agricultural
real estate. The demand for agricultural real estate loans has remained
flat due to an historically low turnover of farm property.
v) Held for Sale. Loans held for sale represent residential loans
intended to be sold to secondary market investors and in the process of
being delivered.
Commercial Loans. Loans in this category include loans to service, retail,
wholesale and light manufacturing businesses, including agricultural service
businesses. Commercial loans increased $9.7 million or 25.1% from December 31,
1995, to December 31, 1996. This loan growth is attributable to Exchange
Bank's expanding business development in Shawnee, Kansas and the opening of
Exchange Bank's location in Leawood, Kansas. Provident Bank has also increased
its commercial loan portfolio.
Consumer and Other Loans. Loans classified as consumer and other loans
include automobile, residential, other personal loans and credit card loans.
The majority of these loans are installment loans with fixed interest rates.
The balance in consumer and other loans at December 31, 1996, approximated the
December 31, 1995 balance of $12.5 million. The Company issues credit cards to
its existing customers and at December 31, 1996, there were no balances on
such cards past due more than 30 days.
Agricultural Loans. Agricultural loans are typically made to farmers, small
corporate farms and feed and grain dealers. Agricultural loans were $11.7
million as of December 31, 1996, or 5.8% of total loans. Agricultural loan
demand declined in 1996 as a result of depressed livestock prices and high
grain prices that reduced the demand for livestock purchases. Additionally,
favorable grain production in the Company Banks' regions coupled with higher
commodity prices have allowed agricultural producers to improve their cash
positions, reducing the need for borrowed funds.
The following table presents the balance of each major category of the
Company's loans at the dates indicated.
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------
1996 1995
-------------- --------------
AMOUNT % AMOUNT %
-------- ----- -------- -----
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C>
Commercial...................................... $ 48,413 23.89% $ 38,715 23.58%
Real Estate Construction........................ 27,413 13.53 24,398 14.86
Real Estate..................................... 100,707 49.70 71,690 43.66
Loans held for sale............................. 2,182 1.08 6,665 4.06
Consumer and Other.............................. 12,247 6.04 12,538 7.64
Agricultural.................................... 11,668 5.76 11,029 6.72
-------- ----- -------- -----
Total loans..................................... 202,630 100% 164,185 100%
Less allowance for loan losses.................. 2,534 2,715
-------- --------
Total........................................... $200,096 $161,470
======== ========
</TABLE>
54
<PAGE>
The following table sets forth the maturities of portfolio loans outstanding
at December 31, 1996.
LOAN REPRICING SCHEDULE
<TABLE>
<CAPTION>
DUE AFTER
DUE IN FOUR MONTHS DUE AFTER
THREE MONTHS BUT BEFORE ONE YEAR BUT DUE AFTER
OR LESS ONE YEAR BEFORE 5 YEARS 5 YEARS TOTAL
------------ ----------- -------------- --------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C>
Loan category:
Commercial............ $25,461 $16,145 $ 6,440 $ 367 $ 48,413
Real Estate Construc-
tion................. 21,624 5,716 73 -- 27,413
Real Estate........... 19,524 23,791 46,174 11,218 100,707
Loans Held for Sale... 2,182 -- -- -- 2,182
Agricultural.......... 5,733 4,913 664 358 11,668
Consumer and other.... 3,581 3,501 5,002 163 12,247
------- ------- ------- ------- --------
Total loans......... $78,105 $54,066 $58,353 $12,106 $202,630
======= ======= ======= ======= ========
</TABLE>
Asset Quality
The Company follows regulatory guidelines in placing loans on a nonaccrual
basis and places loans with doubtful principal repayment on a nonaccrual
basis, whether current or past due. The Company considers non-performing
assets to include all nonaccrual loans, other loans past due 90 days or more
as to principal and interest (with the exception of those loans which in
management's opinion are well collateralized or exhibit other characteristics
suggesting they are collectable), restructured loans defined as troubled debt
restructuring under Statement of Financial Accounting Standards No. 15 (SFAS
15), impaired loans as defined by SFAS No. 114 and other real estate owned
("OREO"). The Company does not return a loan to accrual status until it is
brought current with respect to both principal and interest and future
principal payments are no longer in doubt. When a loan is placed on nonaccrual
status, any previously accrued and uncollected interest is reversed.
Non-performing loans as of December 31, 1996, were down from December 31,
1995, as the result of the collection and/or restructuring of certain notes.
The Company has no restructured loans as defined under SFAS 15. The Company
recorded interest income on nonaccrual loans in the amounts of $23,000 and
$172,000 in 1996 and 1995, respectively. The Company would have recorded
additional interest in the amounts of $23,000 and $27,000 in 1996 and 1995,
respectively if nonaccrual loans had been current during those periods.
Non-performing assets are summarized in the following table:
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1996 1995
---------- -----------
DOLLARS IN THOUSANDS
<S> <C> <C>
Loans:
Loans 90 days or more past due but still accruing... $ -- $ 2
Nonaccrual loans...................................... 319 1,739
--------- -----------
Non-performing loans................................ 319 1,741
OREO.................................................. 70 149
--------- -----------
Non-performing assets............................... $389 $ 1,890
========= ===========
Non-performing loans as a percentage of total loans... .16% 1.06%
Non-performing assets as a percentage of total as-
sets................................................. .13% .72%
Non-performing assets as a percentage of total loans
and OREO............................................. .19% 1.16%
</TABLE>
55
<PAGE>
ALLOWANCE FOR LOAN LOSSES
In 1995, the Company determined, based on the changing loan mix and
portfolio growth resulting from the expansion into suburban Kansas City and an
analysis of the loan loss reserves of banks similar to the Company Banks both
in size and market served, that an allowance for loan losses of approximately
1.4% of loans was an appropriate reserve for the Company at that time. As the
result of loan growth and loan charge-offs, by fourth quarter 1995, the
Company's allowance had been reduced to 1.15% of loans. In anticipation of
further loan growth in its new Johnson County market and in response to the
normal review of non-performing loans, the Company made an additional
provision for loan losses and, as a result, exceeded the targeted allowance.
Loan growth, and to a lesser extent, charge-offs in 1996 reduced the allowance
to approximately that reported at December 31, 1996, without a need for
significant additional provisions. The allowance as a percentage of total
loans at December 31, 1996 (1.25%) is consistent with the Company's goal. In
the future, the Company expects that its loan loss reserve will be in a range
consistent with historical ratios, which have varied from 1.15% to 1.65% of
loans.
The success of a bank depends to a significant extent upon the quality of
its assets, particularly loans. In the case of the Company, this is
highlighted by the fact that as of December 31, 1996, net loans represented
approximately 65% of its total assets. In originating loans, there is a
substantial likelihood that credit losses will be experienced. The risk of
loss will vary with, among other things, general economic conditions, the type
of loan being made, the creditworthiness of the borrower over the term of the
loan and, in the case of a collateralized loan, the quality of the collateral
for the loan. Management maintains an allowance for loan losses based on,
among other things, industry standards, management's experience, historical
experience, an evaluation of economic conditions, and regular reviews of
delinquencies and loan portfolio quality. Based upon such factors, management
makes various assumptions and judgments about the ultimate collectability of
the loan portfolio and provides an allowance for potential loan losses based
upon a percentage of the outstanding balances and for specific loans when
their ultimate collectability is considered questionable. Since certain
lending activities involve greater risks, the percentage applied to specific
loan types may vary.
The Company actively manages its past due and non-performing loans in each
subsidiary bank in an effort to minimize credit losses and monitor asset
quality to maintain an adequate loan loss allowance. Although management
believes that its allowance for loan losses is adequate for each bank and
collectively, there can be no assurance that the allowance will prove
sufficient to cover future loan losses. Further, although management uses the
best informative available to make determinations with respect to the
allowance for loan losses, future adjustments may be necessary if economic
conditions differ substantially from the assumptions used or adverse
developments arise with respect to the organization's non-performing or
performing loans. Accordingly, there can be no assurance that the allowance
for loan losses will be adequate to cover loan losses or that significant
increases to the allowance will not be required in the future if economic
conditions should worsen. Material additions to the allowance for loan losses
would result in a decrease of the Company's net income and capital and could
result in the inability to pay dividends, among other adverse consequences.
The allowance for loan losses on December 31, 1996 totaled $2.5 million, a
slight decrease over December 31, 1995 resulting from charge-offs of $328,000,
recoveries of $27,000 and provisions of $120,000. The allowance for loan
losses totaled $2.7 million as of December 31, 1995. The allowance increased
during 1995 by $668,000 which resulted from a combination of additional
provisions of $1.3 million and net charge-offs of $616,000.
56
<PAGE>
The following table sets forth activity in the Company's allowance for loan
losses during the periods indicated:
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
----------- -----------
DOLLARS IN THOUSANDS
<S> <C> <C>
Total net loans outstanding at the end of period..... $ 200,096 $ 161,470
=========== ===========
Average net loans outstanding during the period...... $ 176,584 $ 149,578
=========== ===========
Allowance for loan losses, beginning of period....... $ 2,715 $ 2,047
Charge-Offs:
Real estate
Construction..................................... 24 --
1 to 4 family residential........................ 2 12
Commercial......................................... 215 538
Consumer and other................................. 21 46
Agricultural....................................... 66 75
----------- -----------
Total charge-offs................................ 328 671
----------- -----------
Recoveries of loans previously charged off:
Real estate
Construction..................................... 11 --
1 to 4 family residential........................ 3 --
Commercial......................................... 2 9
Consumer and other................................. 5 3
Agricultural....................................... 6 43
----------- -----------
Total recoveries................................. 27 55
----------- -----------
Net charge-offs...................................... 301 616
Provision charged to operations...................... 120 1,284
----------- -----------
Allowance for loan losses, end of period............. $ 2,534 $ 2,715
=========== ===========
Ratios:
Net charge-offs to average loans outstanding......... 0.17% 0.41%
Allowance for loan losses to loans, end of period.... 1.25% 1.65%
Allowance for loan losses to non-performing assets... 794.36% 155.94%
</TABLE>
Investment Activities
The Company's investment portfolio serves three important functions: first,
it enables the adjustment of the balance sheet's sensitivity to changes in
interest rate movements; second, it provides an outlet for investing excess
funds; and third, it provides liquidity. The investment portfolio is
structured to maximize the return on invested funds within conservative risk
guidelines.
The portfolio is comprised of U.S. Treasury securities, U.S. government
agency obligations, state municipal obligations, Federal Reserve Bank stock,
FNMA stock, and FHLB stock. The U.S. government agency obligations include
Federal Home Loan Mortgage Corporation ("FHLMC"), FNMA notes and mortgage
backed securities, FHLB notes and Government National Mortgage Association
("GNMA") mortgage-backed securities. The portfolio includes approximately $9.5
million of standard collateralized mortgage obligations, all of which are
rated AA or better. Federal Funds sold are not classified as investment
securities.
The investment portfolio decreased $723,000 or 1.07% during the year ended
December 31, 1996, primarily due to a strong loan demand. The increase since
December 31, 1995, was a result of deposit growth from Exchange Bank's new
Leawood branch. A portion of those deposits were invested in U.S. Treasury and
U.S. government agencies obligations.
57
<PAGE>
The composition of the investment portfolio as of December 31, 1996, was 36%
U.S. Treasury notes, 18% U.S. government obligations, 37% mortgage backed
securities, 6% state and municipal securities and 3% other securities. The
comparable distribution for December 31, 1995, was 31% U.S. Treasury notes,
21% U.S. government obligations, 39% mortgage-backed securities, 6% state and
municipal securities, and 3% other securities. The estimated maturity of the
investment portfolio on December 31, 1996, was two years and five months. The
average balance of the investment portfolio as of December 31, 1996,
represented 27% of average earning assets as compared to 28% on December 31,
1995. No change in investment strategy was made during 1996.
The Company periodically changes its balance sheet strategy to accommodate a
new interest rate environment when, in management's opinion, economic and
policy signals indicate a changing trend in interest rates. Accordingly, in
the first half of 1995 the Company sold bonds in anticipation of an increase
in interest rates. Although management believes its action benefited the
Company, the securities sales resulted in an immediate loss of $409,000.
The following table sets forth the composition of the Company's investment
portfolio at the dates indicated:
INVESTMENT SECURITIES PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1996 1995
---------- ----------
DOLLARS IN THOUSANDS
<S> <C> <C>
Securities held to maturity: (1)
U.S. Treasury and other U.S. agencies and corpora-
tions................................................. $ -- $ --
Obligations of states and political subdivisions....... 25 25
Mortgage-backed securities............................. -- --
---------- ----------
Total................................................ $ 25 $ 25
---------- ----------
Securities available for Sale: (2)
U.S. Treasury and other U.S. agencies and corpora-
tions................................................. $ 35,930 $ 34,865
Obligations of states and political subdivisions....... 3,799 4,008
Mortgage-backed securities............................. 24,822 26,422
Other (3).............................................. 2,706 2,055
---------- ----------
Total................................................ $ 66,627 $ 67,350
========== ==========
</TABLE>
- -------
(1) Securities held to maturity are carried on the Company's books at
amortized cost.
(2) Securities available for sale are carried on the Company's books at fair
value.
(3) Includes FHLB stock Federal Reserve stock and FNMA stock.
Deposit Activities
Deposits are the major source of the Company Banks' funds for lending and
other investment purposes. In addition to deposits, the Company Banks derive
funds from interest payments, loan principal payments, loan and security
sales, and funds from operations. Scheduled loan repayments are a relatively
stable source of funds, while deposit inflows are significantly influenced by
general interest rates and money market conditions. The Company Banks may use
borrowings on a short-term basis if necessary to compensate for reductions in
the availability of other sources of funds, or borrowings may be used on a
longer term basis for general business purposes.
Deposits are attracted principally from within the Company Banks' primary
market area through the offering of a broad variety of deposit instruments,
including checking accounts, money market accounts, savings accounts,
certificates of deposit (including jumbo certificates in denominations of
$100,000 or more), and retirement savings plans. The Company Banks have not
aggressively attempted to obtain large denomination, high interest-bearing
certificates except to address a particular funding need.
Maturity terms, service fees and withdrawal penalties are established by the
Company Banks on a periodic basis. The determination of rates and terms is
predicated on funds transaction and liquidity requirements, rates paid by
competitors, growth goals and federal regulations.
58
<PAGE>
The growth in deposits is primarily the result of the Company's new
locations in Shawnee and Leawood, Kansas. During 1996, the Company experienced
an increase in savings, NOW and time accounts with balances of less than
$100,000. The non-interest-bearing account balance as of December 31, 1996,
showed a $3.3 million or 18% increase from the balance as of December 31,
1995. The average balance increased accordingly $4.1 million or 30% as a
result of growth at the Company's Shawnee and Leawood, Kansas locations.
The following table sets forth a summary of maturities in the investment
portfolio at December 31, 1996:
MATURITY SCHEDULE OF SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
AT MARKET VALUE
AT DECEMBER 31, 1996
---------------------------------------------------------------------------------------
ONE YEAR OVER ONE YEAR OVER 5 YEARS
OR LESS THROUGH 5 YEARS THROUGH 10 YEARS OVER 10 YEARS TOTAL
---------------- ---------------- ------------------- --------------- ----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- -------- ------- -------- --------- --------- ------ -------- ------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. agencies and
corporations.......... $14,465 5.65% $21,465 5.49% $ -- -- $-- -- $35,930 5.55%
Obligations of states
and political
subdivisions.......... 712 8.38% 2,989 7.58% 98 6.81% -- -- 3,799 7.71%
Mortgage-backed
securities............ -- -- 19,854 5.83% 4,607 6.33% 361 7.40% 24,822 5.95%
Other.................. 2,076 6.51% -- -- -- -- -- -- 2,076 6.51%
------- ==== ------- ==== --------- ======= ---- ==== ------- ----
Total................. $17,253 $44,308 $ 4,705 $361 $66,627 5.85%
======= ======= ========= ==== ======= ====
</TABLE>
The following table sets forth the average balances and weighted average
rates for the Company's categories of deposits at the dates indicated.
AVERAGE DEPOSIT BALANCES AND RATES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995
------------------------- -------------------------
% OF % OF
AVERAGE AVERAGE TOTAL AVERAGE AVERAGE TOTAL
BALANCE RATE DEPOSITS BALANCE RATE DEPOSITS
-------- ------- -------- -------- ------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Non-interest checking...... $ 17,850 0.00% 7.5% $ 13,733 0.00% 7%
Savings deposits and inter-
est-bearing checking...... 66,957 3.89% 28.0% 55,189 3.09% 28%
Certificates of deposit.... 153,785 5.42% 64.5% 129,543 5.46% 65%
-------- ==== ---- -------- ==== ---
Total..................... $238,592 100% $199,095 100%
======== ==== ======== ===
</TABLE>
The Company does not have a concentration of deposits from any one source,
the loss of which would have a material adverse effect on its business.
Management believes that substantially all the Company Banks' depositors are
residents in their respective primary market area.
59
<PAGE>
The following table sets forth a summary of the deposits of the Company at
the dates indicated:
DEPOSIT COMPOSITION
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Non-interest-bearing................................... $ 22,277 $ 18,934
Interest-bearing:
Savings and NOW accounts............................. 76,253 55,134
Time accounts less than $100,000..................... 123,977 127,239
Time accounts greater than $100,000.................. 33,149 25,074
-------- --------
Total deposits..................................... $255,656 $226,381
======== ========
</TABLE>
The following table summarizes at December 31, 1996, the Company's
certificates of deposit of $100,000 or more by time remaining until maturity:
<TABLE>
<CAPTION>
CERTIFICATES OF DEPOSIT
$100,000 OR GREATER
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Maturity Period:
Less than three months.......................... $17,427
Over three months through six months............ 7,091
Over six months through twelve months........... 5,297
Over twelve months.............................. 3,334
-------
Total......................................... $33,149
=======
</TABLE>
The Company has no other time deposits in excess of $100,000.
Capital and Liquidity
The following represent key ratios of the Company for the periods indicated:
<TABLE>
<CAPTION>
DEC. 31, 1996 DEC. 31, 1995
------------- -------------
<S> <C> <C>
Return on average assets...................... 0.49% 0.30%
Return on average equity...................... 9.11% 6.09%
Equity to assets ratio........................ 5.37% 4.98%
Dividend payout ratio(1)...................... 0.00% 0.00%
</TABLE>
- --------
(1) On April 16, 1997, the Company declared a $.03 per share dividend payable
to shareholders of record as of May 15, 1997.
Transaction Indebtedness. The Company had a credit facility it used to
finance prior transactions. The balance drawn under the facility was $7
million as of December 31, 1995. The Company used proceeds from the Offering
to retire its outstanding obligations of $6.6 million under the facility on
November 22, 1996.
Sources of Liquidity. Liquidity defines the ability of the Company and the
Company Banks to generate funds to support asset growth, satisfy other
disbursement needs, meet deposit withdrawals and other fund reductions,
maintain reserve requirements and otherwise operate on an ongoing basis. The
immediate liquidity needs of the Company Banks are met primarily by federal
funds sold, short-term investments, deposits and the generally predictable
cash flow (primarily repayments) from each Bank's assets. Intermediate term
liquidity is provided by the Company Banks' investment portfolios. The Company
Banks also have established a credit facility with the FHLB under which the
Company Banks are eligible for short or advances secured by real estate loans
or mortgage-related investments. The Company's liquidity needs and funding are
provided through non-affiliated bank borrowing, cash dividends and tax
payments from its subsidiary banks. As of December 31, 1996, the Company had
established a pre-approved $10.0 million line of credit with a non-affiliated
correspondent bank.
60
<PAGE>
Capital. The Company and the Company Banks actively monitor their compliance
with regulatory capital requirements. The elements of capital adequacy
standards include strict definitions of core capital and total assets, which
include off-balance sheet items such as commitments to extend credit. Under
the risk-based capital method of capital measurement, the ratio computed is
dependent on the amount and composition of assets recorded on the balance
sheet and the amount and composition of off-balance sheet items, in addition
to the level of capital. Historically, the Company Banks have increased core
capital through the retention of earnings or capital infusions. Each Bank's
ability to incur additional indebtedness or to issue or pay dividends on
common or preferred stock may be limited by regulatory policies and the terms
of the outstanding securities.
Impact of Inflation and Changing Prices
The primary impact of inflation on the operations of the Company is
reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant impact on the performance of a financial institution than do the
effects of changes in the general rate of inflation and changes in prices.
Interest rate changes do not necessarily move in the same direction or have
the same magnitude as changes in the prices of goods and services.
Accounting and Financial Reporting
The Financial and Accounting Standards Board (the "FASB") issued Statement
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" in June 1996 and Statement 127 "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125" in December
1996. These statements provide accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. The Company will adopt these statements as required in 1997 and
1998. The adoption is not expected to have a significant impact on its
financial condition or results of operation.
61
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
AS OF AND FOR THE QUARTERS ENDED MARCH 31, 1997 AND 1996
OVERVIEW
The Company's net income was $603,000 for the three months ended March 31,
1997, compared to net income of $353,000 for the three months ended March 31,
1996, yielding an annualized return on average assets ("ROA") of .79% for the
quarter ended March 31, 1997, compared to 0.54% for the quarter ended March
31, 1996. Return on average common stockholders' equity ("ROE") for the three
month periods ended March 31, 1997 and 1996 was 7.86% and 12.30%,
respectively. The primary reason for the earnings increase for the first
quarter of 1997 over 1996 was greater interest income through an improved net
interest margin coupled with greater loan volume.
FINANCIAL CONDITION
Total assets were $310.4 million at March 31, 1997, an increase of $5.8
million from December 31, 1996. Total average assets were $304.0 million for
the quarter ended March 31, 1997, compared to $260.6 million for the quarter
ended March 31, 1996. Average interest-earning assets were $280.7 million for
the three months ended March 31, 1997 and $241.8 million for the three months
ended March 31, 1996. Assets increased during the quarter due to loan growth
during the quarter of $10.1 million primarily at Exchange Bank's Leawood and
Shawnee, Kansas locations.
The increase in net loans from December 31, 1996 to March 31, 1997 was
funded through increases in deposits of $2.1 million, short-term borrowings of
$3.4 million and draws an existing cash reserves of $4.7 million. The
allowance for loan losses increased to $2.6 million at March 31, 1997 from
$2.5 million at December 31, 1996. The allowance represented 1.22% and 1.25%
of total loans as of March 31, 1997 and December 31, 1996, respectively.
RESULTS OF OPERATIONS
Net Interest Income
Total interest income for the quarter ended March 31, 1997 was $5.8 million,
a 15.5% increase over the three months ended March 31, 1996. Average total
earning assets increased $38.9 million or 16.1% at March 31, 1997, compared to
March 31, 1996. The increase is primarily the result of the opening of
Exchange Bank's branch facility in Leawood, Kansas in the fourth quarter of
1995 as well as the continued growth in loans at the Shawnee branch.
Total interest expense for the first quarter of 1997 was 2.2% higher than in
the first quarter of 1996 as a result of the increases in interest-bearing
liabilities and interest rates. Average total interest-bearing liabilities
increased by $19.5 million or 8.4% during the first quarter of 1997 compared
to the first quarter of 1996, primarily due to the increased volume of time
deposits originated by Exchange Bank in connection with the opening of its
Leawood location and the continued growth of its Shawnee location.
Net interest income was $2.8 million for the three months ended March 31,
1997, compared to $2.1 million for the same period in 1996, an increase of
35.0%. This increase is attributable to significantly greater loan volumes
primarily originated from Exchange Bank's Leawood and Shawnee, Kansas branches
and a net interest margin for the period of 3.98% compared with 3.43% for the
same period in 1996.
Provisions for Loan Losses
The provision for loan losses for the three months ended March 31, 1997, was
$105,000, an increase of $75,000, or 250% from the $30,000 provision during
the comparable 1996 period. This increase reflects the Company's objective of
maintaining adequate reserve levels in recognition of significant loan growth.
The allowance represented 1.22% and 1.25% of total loans as of March 31, 1997
and March 31, 1996, respectively.
62
<PAGE>
Non-Interest Income
Non-interest income for the three months ended March 31, 1997, was $346,000,
a decrease of 44.4% from the same period in 1996. The decrease is primarily a
result of reduced gains on sales of mortgage loans at Provident Bank, which is
consistent with the Company's plan to reduce its reliance on secondary market
mortgage lending.
Non-Interest Expense
Non-interest expense decreased slightly by $9,000 for the three months ended
March 31, 1997, as compared to the same period in 1996. This decrease was
primarily due to a 10% reduction in salaries and benefits expenses. In the
third quarter of 1996, Provident Bank substantially altered the manner in
which it conducts its mortgage banking business. The changes include a
substantial reduction in personnel that decreased the Company's salaries and
employee benefits expenses. Net occupancy expense increased due to
depreciation, property taxes and utility costs associated with Exchange Bank's
new Leawood branch. The Company's overall efficiency ratio showed its third
consecutive quarter of improvement, ending the first quarter of 1997 at 66.9%,
compared to 78.3% for the first quarter of 1996.
Income Tax Expense
Income tax expense for the three months ended March 31, 1997 and March 31,
1996 was $323,500 and $197,000, respectively. The effective tax rates for
those periods were 34.9% and 35.8%, respectively.
CAPITAL AND LIQUIDITY
At March 31, 1997, the Company's Tier 1 risk-based capital, total risk-based
capital and leverage ratios were 14.5%, 15.8% and 10.1%, respectively,
compared to minimum required levels of 4%, 8% and 4%, respectively (subject to
change and the discretion of regulatory authorities to impose higher standards
in individual cases). At March 31, 1997, the Company had risk-weighted assets
of $212.5 million. On April 30, 1997, the Company's Board of Directors
declared a quarterly dividend for the first quarter of 1997 in the amount of
$.03 per common share. The Company's Board of Directors expects for the
forseeable future to consider declaration of a comparable dividend at each of
its quarterly meetings.
The Company had approximately $8.4 million in cash and short-term investment
grade securities at March 31, 1997 remaining from its initial public offering
completed in the fourth quarter of 1996. Those proceeds are expected to be
used to finance the Company's growth strategy and for general corporate
purposes. The Company established a line of credit in the amount of $10.0
million with a correspondent bank during the first quarter of 1997. No amounts
had been drawn under the line as of March 31, 1997.
ACCOUNTING AND FINANCIAL REPORTING
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" which revises the calculation and presentation
provisions of Accounting Principles Board Opinion 15 and related
interpretations. Statement No. 128 is effective for the Company's fiscal year
ending December 31, 1997. Retroactive application will be required. The
Company believes the adoption of Statement No. 128 will not have a significant
effect on its reported earnings per share.
63
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PEOPLES
The following discussion of financial condition and results of operations
should be read in conjunction with the consolidated financial statements of
Peoples Bancshares, Inc. and subsidiary (Peoples) and the notes thereto, which
are included elsewhere in this prospectus.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
1996
General
Peoples' consolidated net earnings totaled approximately $182,000 for the
first three months of 1997 compared with approximately $76,000 for the same
period of 1996. Earnings before income taxes were approximately $240,000
during the first three months of 1997 compared to approximately $131,000 for
the same period of 1996. The primary reason for this increase of approximately
$109,000 or 83.2%, is attributed to an increase of approximately $80,000 in
net interest margin, a $55,000 decrease in the provision for loan losses and
an approximate $11,000 increase in other income offset to some degree by an
approximate $38,000 increase in other expenses.
Net Interest Margin
Total interest income increased by approximately $50,000 or 4.0% for the
first three months of 1997, compared to the same period of 1996. Interest
income on loans increased approximately $66,000 as a result of Peoples'
efforts during 1996 to expand its real estate and consumer loan portfolios.
Interest income on securities decreased by approximately $15,000 as funds
available from maturing securities have been used to meet loan demand needs
(rather than being reinvested).
Total interest expense decreased by approximately $31,000 or 4.4% as a
result of decreased deposits and reductions in Peoples' note payable. Total
deposits decreased by approximately $1,580,000 during the three months ended
March 31, 1997. Average total deposits during this period were approximately
$58,875,000 compared to approximately $60,868,000 during the first three
months of 1996, representing a decrease of approximately $1,993,000 or 3.3%.
As a result of the changes described above, the net interest margin
increased by approximately $80,000 or 14.6% for the first three months of 1997
as compared to the same period in 1996.
Provision for Loan Losses
The provision for loan losses was $55,000 for the first three months of 1996
compared to $0 during the same period in 1997. No provision was deemed
necessary during 1997 as Peoples believed the allowance for loan losses was
adequately funded. The $55,000 provision recorded during the first quarter of
1996 was later reversed as the Bank realized recoveries on loans which
exceeded charge-offs by approximately $55,000, during calendar year 1996.
During April 1997, the Bank received approximately $308,000 as a recovery on a
loan charged-off in 1991, thus increasing the allowance for loan losses.
Other Income
Other income increased by approximately $11,000 or 12.7% for the first three
months of 1997 compared with the same period of 1996, primarily as a result of
increased service charges and fee income.
Other Expense
Other expense increased by approximately $38,000 or 8.4% for the first three
months of 1997 compared with the same period of 1996, primarily due to an
increase in salaries and benefits expense of approximately $28,000.
Income Tax Expense
Peoples recognized income tax expense of approximately $57,000 during the
first three months of 1997 compared to approximately $55,000 for the first
three months of 1996. The effective tax rates were 23.9% and 42.3% for the
three month periods ended March 31, 1997 and 1996, respectively. The tax
provisions recorded
64
<PAGE>
during the three months ended March 31, 1997 were significantly lower than they
might otherwise have been due to the Bank's formation of an investment
subsidiary and the shift of approximately $1,500,000 from taxable securities to
non-taxable municipal securities. The investment subsidiary, established in
April 1996, held approximately $21,000,000 of the Bank's approximate
$32,000,000 investment portfolio at March 31, 1997. Substantially all of the
income earned on securities held by the investment subsidiary (approximately
$310,000 during the three months ended March 31, 1997) is not subject to Kansas
privilege tax. As a result, Peoples recorded virtually no state tax expense
during the first quarter of 1997 compared to approximately $14,000 recorded
during the first quarter of 1996. The tax provisions recorded during the three
months ended March 31, 1996 included an additional $12,000 to make up a
perceived deficiency in the Bank's deferred income tax reserves.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
General
Peoples' consolidated net income totaled approximately $727,000 in 1996
compared to approximately $514,000 in 1995, representing an increase of
approximately $213,000. This increase is attributable to a $195,000 decrease in
the provision for loan losses, an increase of approximately $117,000 in the net
interest margin, an approximate $59,000 increase in other income, an
approximate $51,000 increase in other expenses and an increase of approximately
$107,000 in income tax expense.
Net Interest Margin
Total interest income increased by approximately $72,000 or 1.4% in 1996
compared to 1995. Interest income on loans increased approximately $105,000
while interest income on investments and other decreased approximately $33,000.
Interest expense on deposits decreased approximately $45,000 due to an overall
decrease in the rates paid on interest bearing deposits. As a result of these
changes, the net interest margin increased by approximately $117,000 or 5.4%
over 1995.
During 1996, increased deposits of approximately $1,577,000 or 2.7% and
Federal funds purchased of $1,675,000 provided the primary sources of funds for
the overall increase in gross loans of approximately $4,352,000 as Peoples
expanded its real estate and consumer loan portfolios. Other sources of funds
were provided: (1) through the receipt of $500,000 during January 1996 in
connection with the settlement of a receivable related to the December 31, 1995
maturity of an investment security, and (2) 1997 net earnings of approximately
$727,000.
Proceeds from the maturities and sales of available-for-sale securities were
directed away from mortgage-backed securities and toward U.S. Treasury, Federal
agency and municipal securities. As a result, the total funds invested in
securities remained relatively unchanged while the overall yield on those
securities was somewhat lower.
65
<PAGE>
The following table presents Peoples' average balances, interest earned or
accrued, and the related yields and rates on major categories of Peoples'
interest-earning assets and interest-bearing liabilities for the periods
indicated:
COMPARATIVE AVERAGE BALANCES, YIELDS AND RATES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995
----------------------- -----------------------
AVERAGE AVERAGE
RATE RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans net(1)................. $29,822 $2,873 9.63% $28,134 $ 2,768 9.84%
Investment securities--tax-
able........................ 28,777 1,895 6.59 30,240 1,963 6.49
Investment securities--non-
taxable(2).................. 6,071 311 7.68 5,217 269 7.74
Other earning assets......... 83 4 4.82 206 10 4.85
------- ------ ---- ------- ------- ----
Total interest-earning as-
sets...................... 64,753 5,083 8.09 63,797 5,010 8.06
------- ------ ---- ------- ------- ----
Noninterest-earning assets..... 4,663 4,637
------- -------
Total assets............... $69,416 $68,434
======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing liabilities:
Savings deposits and inter-
est-bearing
checking.................... $19,339 $ 500 2.59% $19,311 $ 589 3.05%
Time deposits................ 34,831 1,908 5.48 34,909 1,865 5.34
Short-term borrowings........ 5,186 335 6.46 5,003 318 6.36
Long-term borrowings......... 1,081 62 5.74 1,236 78 6.31
------- ------ ---- ------- ------- ----
Total interest-bearing lia-
bilities.................. 60,437 2,805 4.64 60,459 2,850 4.71
------- ------ ---- ------- ------- ----
Noninterest-bearing liabili-
ties.......................... 5,232 4,825
Stockholders' equity........... 3,747 3,150
------- -------
Total liabilities and
stockholders' equity...... $69,416 $68,434
======= =======
Net interest income(3)......... $2,278 $ 2,160
====== =======
Interest rate spread........... 3.45% 3.35%
==== ====
Net earning assets(4).......... 3.76% 3.60%
==== ====
</TABLE>
- --------
(1) Non-accruing loans are included in the computation of average balance.
(2) Yield is adjusted for the tax effect of tax exempt securities. The tax
effects in 1996 and 1995 were $155 and $135, respectively. The marginal tax
rate used was 34%.
(3) Peoples' includes loan fees in interest income. Such fees totaled $44,000
and $33,000 in 1996 and 1995, respectively.
(4) The net yield on average earning assets is the net interest income divided
by average interest-earning assets.
66
<PAGE>
The following table presents the components of changes in Peoples' net
interest income as attributed to volume and rate on a tax-equivalent basis. The
net change attributable to the combined impact of volume and rate has been
solely allocated to the change in rate.
RATE/VOLUME INTEREST ANALYSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, 1996 COMPARED
TO 1995
--------------------
TOTAL
VOLUME RATE CHANGES
------ ---- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
INTEREST INCOME:
Loans(1).......................................... $166 $(61) $105
Investment securities............................. (41) 15 (26)
Other earning assets.............................. (6) -- (6)
---- ---- ----
Total interest income........................... 119 (46) 73
---- ---- ----
INTEREST EXPENSE:
Savings deposits and interest-bearing checking.... 1 (90) (89)
Time deposits..................................... (4) 47 43
Short-term borrowings............................. 12 5 17
Long-term borrowings.............................. (10) (6) (16)
---- ---- ----
Total interest expense.......................... (1) (44) (45)
Increase (decrease) in net interest income.......... $120 $ (2) $118
==== ==== ====
</TABLE>
- --------
(1) Peoples' includes loan fees in interest income. Such fees totaled $44,000
and $33,000 in 1996 and 1995, respectively.
Provision for Loan Losses
During 1996, Peoples recorded a negative provision for loan losses of
$145,000 compared to a (positive) provision of $50,000 in 1995. The 1996
negative provision was recorded primarily as a result of a significant recovery
experienced during 1996 on a loan which had been charged-off by the Bank prior
to its acquisition by Peoples in May 1994. Management believed such a negative
provision was reasonable given the level of the allowance for loan losses which
stood at approximately $447,000 at December 1996, or 1.3% of gross loans.
Other Income
Other income increased approximately $59,000 or 15.6% in 1996 compared to
1995. This increase is primarily attributed to net gains on the sale of
available-for-sale securities of approximately $28,000 compared to net losses
on similar sales of approximately $8,000 during 1995. In addition, income from
service fees increased approximately $15,000 or 4.2% during 1996 as compared to
1995.
Other Expense
Other expense increased approximately $51,000 or 2.8% in 1996 compared to
1995. This increase is primarily attributable to increases in salaries and
benefits of approximately $66,000, increased public relations expenses of
approximately $46,000 and increased other expenses of approximately $39,000.
These increases were offset by decreases in deposit insurance premiums of
approximately $66,000 and legal and professional fees of approximately $32,000.
Income Tax Expense
Peoples recognized income tax expense of approximately $291,000 in 1996
versus approximately $185,000 in 1995. The effective tax rates were 28.6% and
26.4% for 1996 and 1995, respectively.
67
<PAGE>
FINANCIAL CONDITION
Following are key financial and operating ratios for Peoples for all periods
reported:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
--------------- -----------------
3/31/97 3/31/96 12/31/96 12/31/95
------- ------- -------- --------
<S> <C> <C> <C> <C>
Return on average assets................... 1.02% 0.44% 1.05% 0.75%
Return on average equity................... 17.16% 8.47% 19.40% 16.32%
Average equity to average assets........... 5.96% 5.18% 5.40% 4.60%
Dividend payout ratio...................... 0.00% 0.00% 0.00% 0.00%
</TABLE>
Peoples continues to strengthen its financial position as reflected in its
increasing ratio of stockholders' equity to total assets. All net earnings have
been retained since Peoples acquired its subsidiary, The Peoples National Bank,
in May 1994. As a result, Peoples' stockholders' equity as a percentage of
total assets has increased from approximately 4.0% at December 31, 1994 to 5.2%
at December 31, 1995, 5.8% at December 31, 1996 and 6.0% at March 31, 1997.
Total deposits increased by approximately $1,577,000 during 1996 while
decreasing by approximately the same amount during the three months ended March
31, 1997.
Net loans increased from approximately $28,820,000 at December 31, 1995 to
approximately $33,262,000 at December 31, 1996 and approximately $33,482,000 at
March 31, 1997. The resulting loan to deposit ratios at the above referenced
dates were approximately 49%, 55% and 56%, respectively. This increase is a
result of Peoples' efforts to increase the real estate and consumer sectors of
its loan portfolio.
Liquidity and Capital Resources
Liquidity risk is managed by Peoples through the composition of its assets
and liabilities in an effort to efficiently meet the borrowing needs and
withdrawal requirements of its customers.
Cash and cash equivalents include cash, due from banks and Federal funds
sold. The primary sources of Peoples' liquidity are cash and cash equivalents
and investment securities with short term maturities. Peoples believes its
process of asset/liability management allows adequate reaction time for trends
in the marketplace as they occur, minimizing the negative impact of such trends
on the net interest margin.
As of March 31, 1997, Peoples had cash and cash equivalents of approximately
$1,937,000 and investment securities maturing in less than one year of
approximately $4,509,000. These amounts represent approximately 9% of Peoples'
total assets at March 31, 1997 and provide Peoples with sufficient resources to
handle unforeseen deposit outflows and loan requirements.
Peoples' cash and cash equivalents increased approximately $410,000 during
the three month period ended March 31, 1997. Net cash provided by operating
activities aggregated $340,000. Net cash provided by investing activities for
this period approximated $1,303,000, primarily as a result of net investment
maturities and sales of approximately $1,523,000 offset by an increase in net
loans of approximately $220,000. Net cash used in financing activities
approximated $1,233,000 for this time period as a result of a decrease in
deposits of approximately $1,578,000 and reductions in Peoples' note payable
and repurchase agreements of approximately $225,000 and $305,000, respectively,
offset to some extent by an increase in Federal funds purchased of $875,000.
As previously indicated, stockholders' equity represented 6.0% of total
assets at March 31, 1997. Risk-based capital and leverage ratios of the
subsidiary bank at December 31, 1996 exceeded levels considered necessary to be
classified as a "well-capitalized" institution by regulatory banking
authorities.
Effects of Economic Conditions
Peoples' consolidated financial statements have been prepared in accordance
with generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
consideration for changes in the relative purchasing power of money over time
due to inflation.
68
<PAGE>
The assets and liabilities of Peoples are primarily monetary and interest
rates have a greater impact on Peoples' performance than do the effects of
inflation.
The local economy of the Clay County area is heavily dependent on agriculture
and related businesses.
LOAN PORTFOLIO--TYPES OF LOANS
The following table presents the amount of loans outstanding at the dates
indicated, according to loan category (in thousands):
<TABLE>
<CAPTION>
3/31/97 12/31/96 12/31/95
------- -------- --------
<S> <C> <C> <C>
Real Estate
Construction and land development................ $ 1,605 $ 1,259 $ 137
------- ------- -------
Secured by farmland.............................. 4,250 4,449 4,371
Secured by 1-4 family............................ 6,340 6,144 5,282
Secured by multi-family.......................... 36 18 34
Secured by non-farm, non-residential............. 3,713 3,672 2,145
------- ------- -------
Total mortgage loans........................... 14,339 14,283 11,832
------- ------- -------
Total real estate loans........................ 15,944 15,542 11,969
------- ------- -------
Commercial & Industrial............................ 4,599 4,111 4,303
Agricultural....................................... 9,001 9,635 9,429
Consumer........................................... 3,892 3,942 3,123
Other.............................................. 485 479 533
------- ------- -------
Total loans.................................... 33,921 33,709 29,357
Less allowance for loan losses................... (439) (447) (537)
------- ------- -------
Net loans.......................................... $33,482 $33,262 $28,820
======= ======= =======
</TABLE>
Real estate
This category consists primarily of residential and farmland loans for
properties located in Clay County, Kansas. These loans aggregated approximately
$15,944,000, $15,542,000 and $11,969,000 at March 31, 1997 and December 31,
1996 and 1995, respectively. The increase in this category of loans in 1997 and
1996 is the result of Peoples' strategy to expand its real estate lending.
Peoples has experienced relatively few charge-offs related to this category of
loans in recent years.
Commercial and Industrial
Commercial and industrial loans are comprised primarily of loans to customers
in the Clay County trade area and are dependent, to a large extent, on the
agricultural sector. Past loan charge-offs experienced in prior years have been
larger in this area of the portfolio, reflecting the risk inherent to these
types of loans. Consistent with management's emphasis on relationship banking,
most borrowing customers also maintain deposit accounts and utilize other
banking services. Management believes the inherent risks of commercial and
industrial loans to be relatively low, given their conservative underwriting
standards and collateral margins.
Consumer
The consumer loan portfolio consists of both secured and unsecured loans to
individuals for various personal reasons such as automobile financing, home
improvements, educational and recreational purposes. Net charge-offs of
consumer loans have been relatively low for the past several years. Management
believes the inherent risks associated with these loans to be relatively low
and that net charge-offs on these loans will continue to be below industry
averages, due to conservative underwriting standards and sufficient collateral
margins.
69
<PAGE>
ALLOWANCE FOR LOAN LOSSES
Management has established an allowance for loan losses which reduces the
total loans outstanding by an estimate of potential loan losses, plus an excess
margin for potential future uncertainties. Loans deemed uncollectible are
charged against and reduce the allowance. Provisions for loan losses are
expensed against current income. The provision replenishes the allowance for
loan losses and maintains the allowance at acceptable levels based upon the
judgment of management. The allowance for loan losses is based upon current
economic conditions, risks in the loan portfolio, historical loan loss
experience and other factors which, in management's opinion, deserve current
recognition. The following table presents a rollforward of the allowance for
loan losses at the dates indicated (in thousands):
<TABLE>
<CAPTION>
3/31/97 3/31/96 12/31/96 12/31/95
------- ------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period............ $ 447 $ 537 $ 537 $ 621
----- ----- ----- -----
Loans charged-off:
Real estate........................... -- -- -- --
Commercial & industrial............... (13) (87) (121) (189)
Consumer & other...................... (10) (5) (51) (43)
----- ----- ----- -----
Total charge-offs................... (23) (92) (172) (232)
Recoveries:
Real estate........................... 1 1 104 57
Commercial & industrial............... 1 1 108 16
Consumer & other...................... 13 7 15 25
----- ----- ----- -----
Total recoveries.................... 15 9 227 98
Net (charge-offs) recoveries.............. (8) (83) 55 (134)
Provision for loan losses................. -- 55 (145) 50
----- ----- ----- -----
Balance at end of period............ $ 439 $ 509 $ 447 $ 537
===== ===== ===== =====
Ratio of net recoveries (charge-offs) dur-
ing the period to average loans outstand-
ing during the period.................... (0.02%) (0.28%) 0.18% (0.47%)
</TABLE>
As of December 31, 1996 and 1995, the allowance for loan losses was allocated
to Peoples' loan categories as follows:
<TABLE>
<CAPTION>
12/31/96 12/31/95
----------------------- -----------------------
PERCENT OF TOTAL PERCENT OF TOTAL
LOANS IN EACH LOANS IN EACH
AMOUNT CATEGORY TO AMOUNT CATEGORY TO
------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Real estate................... $223 46% $255 41%
Commercial & industrial and
agricultural................. 136 41 115 47
Consumer & other.............. 88 13 167 12
---- --- ---- ---
$447 100% $537 100%
==== === ==== ===
</TABLE>
NON-PERFORMING LOANS
The following table presents the amount of non-performing loans outstanding
at the dates indicated, by category (in thousands):
<TABLE>
<CAPTION>
3/31/97 12/31/96 12/31/95
------- -------- --------
<S> <C> <C> <C>
Non-accrual loans..................................... $-- $-- $ 23
Loans 90 days past due and still accruing............. -- 5 2
Restructured loans.................................... -- -- --
---- ---- ----
Total non-performing loans.......................... $-- $ 5 $ 25
==== ==== ====
</TABLE>
70
<PAGE>
Management reviews Peoples' loan portfolio continuously for problem loans.
During the ordinary course of business, management becomes aware of borrowers
that may not be able to meet contractual requirements of loan agreements. Such
loans are placed under close supervision, with consideration given to placing
the loan on a non-accrual status. Management then determines the need for
additions to the allowance for loan loss or, if appropriate, partial or full
charge-off. Depending upon the circumstances, certain of these loans are from
time to time renegotiated. Those loans on which management does not expect to
collect interest in the normal course of business, or which are 90 days or more
past due as to principal or interest, are placed on nonaccrual status. After a
loan is placed on nonaccrual status, any interest previously accrued but not
yet collected is reversed against current income. Interest is included in
income subsequent to the date the loan is placed on nonaccrual status on a cash
basis so long as management is satisfied there is no impairment of the book
value of the loan. The loan is returned to accrual status only when the
borrower has brought all past due principal and interest payments current, and
in the opinion of management, the borrower has demonstrated the ability to make
future payments of principal and interest as scheduled.
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES AS OF MARCH
31, 1997
The following table sets forth scheduled maturities of the loan portfolio as
of March 31, 1997 (in thousands):
<TABLE>
<CAPTION>
ONE YEAR OR LESS ONE TO FIVE YEARS OVER FIVE YEARS TOTAL
---------------- ----------------- --------------- -------
<S> <C> <C> <C> <C>
Real Estate
Construction and land
development.......... $ 1,601 $ 4 $ -- $ 1,605
------- ------- ------ -------
Secured by farmland... 888 1,122 2,240 4,250
Secured by 1-4
family............... 644 1,861 3,835 6,340
Secured by multi-
family............... 6 17 13 36
Secured by non-farm,
non-residential...... 1,118 1,599 996 3,713
------- ------- ------ -------
Total mortgage
loans............ 2,656 4,599 7,084 14,339
------- ------- ------ -------
Total real estate
loans............ 4,257 4,603 7,084 15,944
Commercial & Industri-
al..................... 3,071 1,294 234 4,599
Agricultural............ 6,863 2,100 38 9,001
Consumer................ 1,887 1,998 7 3,892
Other................... 82 195 208 485
------- ------- ------ -------
Total loans....... $16,160 $10,190 $7,571 $33,921
======= ======= ====== =======
</TABLE>
As of March 31, 1997, Peoples' loans with maturities greater than one year
included approximately $8,817,000 in fixed rate loans and approximately
$8,944,000 in floating or adjustable rate loans.
Interest Rate Risk
Asset and liability management encompasses both interest rate risk and
liquidity management. Peoples' net interest margin can be vulnerable to wide
fluctuations arising from a change in the general level of interest rates which
may affect the yield on interest earning assets differently than the cost of
the interest bearing liabilities. Peoples monitors its assets and liability mix
in an effort to maintain a consistent earnings performance through control of
interest rate risk.
Below is a "static gap" schedule for Peoples as of March 31, 1997 (in
thousands). This is just one of several tools which may be used to measure and
manage interest rate sensitivity. Earning assets and interest bearing
liabilities are presented below within selected time intervals based on their
repricing and maturity characteristics. In this view, the sensitivity position
is perfectly matched when an equal amount of assets and liabilities reprice
during any given period. Excess assets or liabilities repricing in a given time
period result in the "Interest Sensitivity Gap" shown at the bottom of the
schedule. A positive gap indicates more assets than liabilities will reprice in
that time period, while a negative gap indicates more liabilities than assets
will reprice.
71
<PAGE>
REPRICING AND INTEREST RATE SENSITIVITY AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
0-3 4-12 1-5 OVER
MONTHS MONTHS YEARS 5 YEARS TOTAL
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Loans.............................. $ 5,854 $11,623 $ 9,414 $ 7,030 $33,921
Taxable investment securities...... 3,968 9,284 7,500 4,806 25,558
Non-taxable investment securities.. 541 1,204 3,773 1,644 7,162
Interest bearing deposits.......... 10 -- -- -- 10
-------- ------- ------- ------- -------
Total interest earning assets.... 10,373 22,111 20,687 13,480 66,651
-------- ------- ------- ------- -------
Interest bearing liabilities:
Interest bearing demand and sav-
ings.............................. 20,217 -- -- -- 20,217
Time & C.D.'s < $100,000........... 4,668 12,350 10,001 -- 27,019
Time & C.D.'s > $100,000........... 4,472 1,548 1,150 -- 7,170
Note payable....................... 2,790 -- -- -- 2,790
Securities sold under agreements to
repurchase........................ 192 683 737 -- 1,612
Federal funds purchased............ 2,550 -- -- -- 2,550
-------- ------- ------- ------- -------
Total interest bearing liabili-
ties............................ 34,889 14,581 11,888 -- 61,358
-------- ------- ------- ------- -------
Interest sensitivity GAP............. $(24,516) $ 7,530 $ 8,799 $13,480 $ 5,293
======== ======= ======= ======= =======
</TABLE>
The schedule indicates Peoples is liability sensitive in the 0-3 month period
and is asset sensitive in all other periods. This means that during the 0-3
month period, interest bearing liabilities are repricing faster than earning
assets, thereby improving net interest income when rates are declining and
reducing net interest income when rates are rising. While the "static gap" is a
widely used measure of interest sensitivity, it is not, in management's
opinion, the only indicator of Peoples' sensitivity position.
LEGAL OPINION
The legality of the Company Common Stock offered hereby will be passed upon
by Blackwell Sanders Matheny Weary & Lombardi LLP.
EXPERTS
INDEPENDENT PUBLIC ACCOUNTANTS FOR GOLD BANC CORPORATION, INC.
The consolidated financial statements of the Company and subsidiaries as of
and for the years ended December 31, 1996 and 1995 have been included herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, and upon the authority of said firm as experts in auditing and
accounting.
INDEPENDENT PUBLIC ACCOUNTANTS FOR PEOPLES BANCSHARES, INC.
The consolidated financial statements of Peoples as of and for the years
ended December 31, 1996 and 1995 have been included herein in reliance upon the
report of GRA, Thompson, White & Co., P.C., independent certified public
accountants, and upon the authority of said firm as experts in auditing and
accounting.
STOCKHOLDER PROPOSALS
If the Merger is consummated, stockholders of Peoples will become
stockholders of the Company at the Effective Time. The Company stockholders may
submit to the Company proposals for formal consideration at the 1998 annual
meeting of the Company's stockholders and inclusion in the Company's proxy
statement for such meetings. All such proposals to be considered for inclusion
in the Company's proxy statement for the 1998 annual meeting must be received
in writing by the Corporate Secretary at Gold Banc Corporation, Inc. by
November 25, 1997.
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
<TABLE>
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets at December 31, 1996 and 1995................ F-3
Consolidated Statements of Earnings for the Years Ended December 31, 1996
and 1995................................................................ F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996 and 1995.............................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996 and 1995........................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Consolidated Balance Sheet at March 31, 1997 (Unaudited)................. F-17
Consolidated Statements of Earnings for the Three Months Ended March 31,
1997 and 1996 (Unaudited)............................................... F-18
Consolidated Statements of Cash Flows for the Three Months Ended March
31, 1997 and 1996 (Unaudited)........................................... F-19
Notes to Unaudited Consolidated Financial Statements..................... F-20
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Peoples Bancshares, Inc.
Clay Center, Kansas
We have audited the accompanying consolidated balance sheets of Peoples
Bancshares, Inc. and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Peoples
Bancshares, Inc. and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Gra, Thompson, White & Co., P.C.
Merriam, Kansas
May 23, 1997
F-2
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks................................ $ 1,514,949 $ 1,778,302
Interest bearing deposits.............................. 11,372 12,670
----------- -----------
Total cash and cash equivalents.................... 1,526,321 1,790,972
----------- -----------
Held-to-maturity securities............................ 76,824 73,705
Available-for-sale securities.......................... 34,173,623 34,374,383
Restricted equity securities........................... 190,200 190,200
Other.................................................. 52,050 52,050
----------- -----------
Total investment securities........................ 34,492,697 34,690,338
----------- -----------
Loans receivable, net.................................. 33,261,959 28,820,408
Goodwill............................................... 1,168,818 1,263,587
Premises and equipment................................. 768,562 858,952
Accrued interest receivable............................ 976,776 963,672
Other assets........................................... 224,824 692,652
----------- -----------
$72,419,957 $69,080,581
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits............................................. $60,916,650 $59,339,544
Note payable......................................... 3,015,000 3,400,000
Securities sold under agreement to repurchase........ 1,916,458 2,103,853
Federal funds purchased.............................. 1,675,000 --
Deferred tax liability............................... 171,016 135,567
Accrued interest payable............................. 307,525 317,652
Other liabilities.................................... 194,740 193,888
----------- -----------
Total liabilities.................................. 68,196,389 65,490,504
----------- -----------
Commitments and contingencies
Stockholders' equity
Common stock, $100 par value; 1,000,000 shares
authorized, 25,350 shares issued and outstanding.... 2,535,000 2,535,000
Retained earnings.................................... 1,595,870 869,065
Net unrealized gain on available-for-sale
securities.......................................... 92,698 186,012
----------- -----------
Total stockholders' equity......................... 4,223,568 3,590,077
----------- -----------
$72,419,957 $69,080,581
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-3
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Interest income
Loans, including fees................................ $2,872,954 $2,767,497
Investments 2,206,208 2,232,404
Other................................................ 3,493 10,258
---------- ----------
5,082,655 5,010,159
---------- ----------
Interest expense
Deposits............................................. 2,408,406 2,453,424
Other borrowings..................................... 396,667 396,124
---------- ----------
2,805,073 2,849,548
---------- ----------
Net interest income................................ 2,277,582 2,160,611
Provision for loan losses.............................. (145,000) 50,000
---------- ----------
Net interest income after provision for loan
losses............................................ 2,422,582 2,110,611
---------- ----------
Other income
Service fees......................................... 364,033 349,429
Net securities gains (losses)........................ 28,176 (7,721)
Loss on sale of other assets......................... -- (4,460)
Other................................................ 44,385 40,257
---------- ----------
436,594 377,505
---------- ----------
Other expenses
Salaries and employee benefits....................... 966,463 900,862
Occupancy............................................ 299,862 307,208
Stationery, supplies and postage..................... 107,900 104,390
Amortization......................................... 94,769 91,762
Public relations..................................... 86,138 40,342
Legal and professional............................... 67,192 99,464
Federal deposit insurance premium.................... 2,000 67,631
Other................................................ 216,772 177,993
---------- ----------
1,841,096 1,789,652
---------- ----------
Earnings before income taxes....................... 1,018,080 698,464
Income tax expense..................................... 291,275 184,541
---------- ----------
Net earnings........................................... $ 726,805 $ 513,923
========== ==========
Earnings per share..................................... $ 28.67 $ 20.27
========== ==========
Weighted average common shares outstanding............. 25,350 25,350
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS) ON
COMMON RETAINED AVAILABLE-FOR-
STOCK EARNINGS SALE SECURITIES TOTAL
---------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994....................... $2,535,000 $ 355,142 $(147,643) $2,742,499
Net earnings.............. -- 513,923 -- 513,923
Net change................ -- -- 333,655 333,655
---------- ---------- --------- ----------
BALANCE AT DECEMBER 31,
1995....................... 2,535,000 869,065 186,012 3,590,077
Net earnings.............. -- 726,805 -- 726,805
Net change................ -- -- (93,314) (93,314)
---------- ---------- --------- ----------
BALANCE AT DECEMBER 31,
1996....................... $2,535,000 $1,595,870 $ 92,698 $4,223,568
========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings..................................... $ 726,805 $ 513,923
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses...................... (145,000) 50,000
Net (gains) losses on sales of available-for-
sale securities............................... (28,176) 7,721
Amortization of securities' premiums, net of
discount accretion............................ 85,158 11,552
Depreciation and amortization expense.......... 159,649 157,727
Amortization of goodwill....................... 94,769 91,762
Losses on sales of other assets................ -- 4,460
Change in:
Accrued interest receivable.................. (13,104) 12,185
Other assets................................. 459,943 (31,454)
Accrued interest payable..................... (10,127) 56,580
Other liabilities............................ 852 (30,322)
Deferred tax liability....................... 75,232 (39,514)
Income tax benefit........................... -- 150,050
------------ ------------
Net cash provided by operating activities.. 1,406,001 954,670
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans receivable originated, net of principal
collections..................................... (4,523,872) 359,928
Proceeds from maturities of held-to-maturity
securities...................................... 73,000 3,746,292
Proceeds from sales of available-for-sale
securities...................................... 7,011,539 1,573,592
Proceeds from maturities of available for-sale
securities...................................... $ 9,189,675 $ 7,840,007
Purchases of held-to-maturity securities......... (77,824) (1,644,748)
Purchases of available-for-sale securities....... (16,188,827) (10,649,144)
Net additions to premises and equipment.......... (61,375) (449,308)
Recoveries of loans previously charged off....... 227,321 91,946
------------ ------------
Net cash (used) provided by investing
activities................................ (4,350,363) 868,565
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in non-interest bearing and interest
bearing demand and savings accounts............. 1,116,534 (1,602,758)
Net change in time deposits...................... 460,572 1,476,639
Decrease in note payable......................... (385,000) (346,000)
(Decrease) increase in repurchase agreements..... (187,395) 87,803
Increase (decrease) in Federal funds purchased... 1,675,000 (1,000,000)
------------ ------------
Net cash provided (used) by financing
activities................................ 2,679,711 (1,384,316)
------------ ------------
(Decrease) increase in cash and cash
equivalents............................... (264,651) 438,919
Cash and cash equivalents, beginning of period..... 1,790,972 1,352,053
------------ ------------
Cash and cash equivalents, end of period........... $ 1,526,321 $ 1,790,972
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest......... $ 2,815,200 $ 2,792,968
============ ============
Cash paid during the period for income taxes..... $ 209,309 $ 91,250
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
ACTIVITIES
Transfer of held-to-maturity securities to
available-for-sale at amortized cost, net....... $ -- $ 16,839,238
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Peoples Bancshares, Inc. and
subsidiary are in accordance with generally accepted accounting principles and
conform to general practices within the banking industry. The more significant
of the principles used in preparing the consolidated financial statements are
briefly described below.
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of Peoples
Bancshares, Inc. (Peoples) and its wholly-owned subsidiary, The Peoples
National Bank, Clay Center, Kansas (Bank). Included within the accounts of the
Bank are the accounts of the Bank's wholly-owned subsidiary, Peoples
Investment Subsidiary, Inc. All significant intercompany transactions have
been eliminated.
Peoples was formed in 1994 in connection with its acquisition of the Bank.
New capital of $2,535,000 was raised through the issuance of 25,350 shares of
$100 par value common stock and $3,925,000 was borrowed from a correspondent
bank to finance Peoples' purchase of 100% of the issued and outstanding common
stock of the Bank. In accounting for the purchase (at a price of approximately
$6,339,000), goodwill of approximately $1,376,000 was recorded.
Nature of Operations
The Bank operates under a national bank charter and provides full banking
services, excluding trust services. Peoples is subject to regulation by the
Federal Reserve Bank of Kansas City (FRB). The Bank is subject to regulation
by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit
Insurance Corporation (FDIC). The area served by The Peoples National Bank is
Clay County, Kansas.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Securities
Peoples accounts for investment securities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities, which requires that investments be
classified in three categories and accounted for as follows: held-to-maturity
securities reported at amortized cost; trading securities reported at fair
value with unrealized gains and losses included in earnings; and available-
for-sale securities reported at fair value with unrealized gains and losses
shown as a separate component of stockholders' equity.
Restricted equity securities consist of stock in the Federal Reserve Bank
and are reported at cost which approximates the estimated fair value.
Other securities represent investment in nonmarketable equity securities and
are reported at cost.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to interest income. Interest and dividend
income is recognized when earned. Realized gains and losses on sales of
available-for-sale securities are determined and included in income using the
specific identification method for determining the cost of securities sold.
Loans Receivable
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
F-7
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On January 1, 1995, SFAS No. 114, Accounting by Creditors for Impairment of
a Loan, and SFAS No. 118, Accounting by Creditors for Impairment of Loan-
Income Recognition and Disclosure, became effective. SFAS No. 114 requires
that impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. SFAS No. 118 amends SFAS No. 114 to allow a creditor to
use existing methods for recognizing interest income on an impaired loan if
those methods are more conservative than methods required by SFAS No. 114.
Interest income on installment loans is recognized over the terms of the
loans by the interest method. Interest income on all other loans is credited
to operations based on the principal amount outstanding. The accrual of
interest on impaired loans is discontinued when, in management's opinion, the
borrower may be unable to meet payments as they become due. When interest
accrual is discontinued, all unpaid accrued interest is reversed. Interest
income is subsequently recognized only to the extent cash payments are
received.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes the collectibility of the principal is
unlikely. The allowance is an amount management believes will be adequate to
absorb probable losses on existing loans that may become uncollectible, based
on evaluations of the collectibility of loans and prior loan loss experience.
The evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of
specific problem loans, and current economic conditions and trends that may
affect the borrowers' ability to pay.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-
line and accelerated methods based on the estimated useful lives of the
related assets.
Goodwill
The excess cost over fair value of the subsidiary Bank acquired in May 1994
is being amortized on a straight-line basis over a 15 year period.
Income Taxes
Provisions for income taxes are based on taxes payable or refundable for the
current year (after exclusion of non-taxable income such as interest on state
and municipal securities) and deferred taxes on temporary differences between
the amount of taxable and pretax financial income and between the tax bases of
assets and liabilities and their reported amounts in the financial statements.
Deferred tax assets and liabilities are included in the financial statements
at currently enacted income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be realized or settled as
prescribed in SFAS No. 109, Accounting for Income Taxes. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Peoples and its subsidiary file a consolidated Federal income tax return.
The parent company is reimbursed from its subsidiary for any current income
tax benefits derived.
F-8
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, Peoples considers
cash on hand and amounts due from banks to be cash and cash equivalents.
Earnings Per Share
Earnings per share have been computed based upon the average number of
common shares outstanding during each year.
2. RESTRICTED CASH BALANCES
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank or as cash on hand. As of December 31, 1996, this reserve
requirement was approximately $411,000.
3. INVESTMENT SECURITIES
The amortized cost and estimated fair value of investments were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Held-to-Maturity at December
31, 1996
U.S. Treasury and agency
securities................ $ 76,824 $ -- $ (43) $ 76,781
=========== ======== ======== ===========
Available-for-Sale at
December 31, 1996
U.S. Treasury and agency
securities................ $14,478,760 $ 41,348 $(26,243) $14,493,865
Obligations of states and
political subdivisions.... 7,025,565 77,429 (29,654) 7,073,340
Mortgage-backed
securities................ 12,086,197 114,516 (36,829) 12,163,884
Equity securities.......... 435,403 7,131 -- 442,534
----------- -------- -------- -----------
$34,025,925 $240,424 $(92,726) $34,173,623
=========== ======== ======== ===========
Held-to-Maturity at December
31, 1995
U.S. Treasury and agency
securities................ $ 73,705 $ 76 $ -- $ 73,781
=========== ======== ======== ===========
Available-for-Sale at
December 31, 1995
U.S. Treasury and agency
securities................ $18,525,777 $139,380 $ (4,665) $18,660,492
Obligations of states and
political subdivisions.... 5,582,040 75,599 (13,901) 5,643,738
Mortgage-backed
securities................ 9,550,369 77,586 (22,987) 9,604,968
Equity securities.......... 435,403 29,782 -- 465,185
----------- -------- -------- -----------
$34,093,589 $322,347 $(41,553) $34,374,383
=========== ======== ======== ===========
</TABLE>
During December 1995, investment securities with a carrying amount of
approximately $16,839,000 and fair value of approximately $16,984,000 were
transferred from held-to-maturity to available-for-sale with the unrealized
gain of approximately $145,000 being included with the unrealized gains on
securities that continue to be classified as available-for-sale. These
transfers were made as part of a one-time reassessment of the appropriateness
of the classifications of all securities as allowed by generally accepted
accounting principles.
Gross realized gains and gross realized losses on sales of available-for-
sale securities were approximately $40,000 and $12,000, respectively for 1996
and approximately $5,000 and $13,000, respectively for 1995.
F-9
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated fair value of debt securities at December
31, 1996, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
------------------- -----------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less........ $ -- $ -- $ 4,400,407 $ 4,412,421
Due after one year through five
years......................... 76,824 76,781 8,653,069 8,684,560
Due after five years through
ten years..................... -- -- 6,937,072 6,958,164
Due after ten years............ -- -- 1,513,777 1,512,060
------- ------- ----------- -----------
76,824 76,781 21,504,325 21,567,205
Mortgage-backed securities..... -- -- 12,086,197 12,163,884
Equity securities.............. -- -- 435,403 442,534
------- ------- ----------- -----------
$76,824 $76,781 $34,025,925 $34,173,623
======= ======= =========== ===========
</TABLE>
At December 31, 1996 and 1995, investment securities with fair values of
approximately $12,731,000 and $11,856,000, respectively, were pledged to
secure public deposits and for other purposes.
4. LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Real estate........................................ $15,541,773 $11,969,363
Commercial......................................... 4,111,082 4,302,980
Agricultural....................................... 9,634,913 9,428,859
Consumer........................................... 3,942,261 3,122,884
Other.............................................. 478,807 533,185
----------- -----------
33,708,836 29,357,271
Allowance for loan losses.......................... (446,877) (536,863)
----------- -----------
$33,261,959 $28,820,408
=========== ===========
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Balance, beginning of year............................. $ 536,863 $ 620,591
Provision for loan losses.............................. (145,000) 50,000
Recoveries, net of charge-offs......................... 55,014 (133,728)
--------- ---------
Balance, end of year................................... $ 446,877 $ 536,863
========= =========
</TABLE>
Impaired loans are considered insignificant at December 31, 1996 and 1995.
Nonaccrual loans approximated $23,000 at December 31, 1995. Interest income
recognized on impaired loans during 1996 and 1995 was not significant.
F-10
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land, buildings and improvements..................... $ 514,804 $ 505,830
Furniture, fixtures and equipment.................... 604,564 556,344
---------- ----------
1,119,368 1,062,174
Accumulated depreciation and amortization............ (350,806) (203,222)
---------- ----------
$ 768,562 $ 858,952
========== ==========
</TABLE>
During 1995, the Bank's building was remodeled at total costs approximating
$300,000. A construction company owned by a member of the Bank's Board of
Directors served as the general contractor. The contract was on a cost-plus 15%
basis resulting in a total of approximately $260,000. These costs are included
in land, buildings and improvements. The additional $40,000 of costs were
incurred for the purchase of furniture, fixtures and equipment.
6. DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Demand
Noninterest-bearing................................ $ 4,816,201 $ 5,493,318
----------- -----------
Interest-bearing
NOW................................................ 11,243,755 10,141,454
Money market....................................... 5,719,376 5,056,703
----------- -----------
16,963,131 15,198,157
----------- -----------
21,779,332 20,691,475
Savings.............................................. 2,799,486 2,770,809
Time................................................. 36,337,832 35,877,260
----------- -----------
$60,916,650 $59,339,544
=========== ===========
</TABLE>
Time deposits include certificates of deposit of $100,000 and over totaling
approximately $8,580,000 and $8,126,000 at December 31, 1996 and 1995,
respectively.
At December 31, 1996, the approximate scheduled maturities of certificates of
deposit are as follows:
<TABLE>
<S> <C>
1997............................. $24,160,225
1998............................. 6,730,245
1999............................. 3,052,402
2000............................. 1,241,390
2001 and thereafter.............. 1,153,570
-----------
$36,337,832
===========
</TABLE>
F-11
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. NOTE PAYABLE
The note payable has a maturity date of April 1, 1997, bears a fixed
interest rate of 6.60% and is secured by all 10,000 shares of the Bank's
outstanding common stock. Subsequent to December 31, 1996, this note payable
was refinanced with Exchange National Bank, a subsidiary of Gold Banc
Corporation, Inc. with whom Peoples entered into an "Agreement and Plan of
Reorganization" (see Note 15). This note is due April 20, 1998, bears a fixed
interest rate of 8.0% and is secured by the Bank's 10,000 shares of
outstanding common stock.
8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The weighted average interest rate on repurchase agreements was 5.96% and
5.81% at December 31, 1996 and 1995, respectively. The maturities ranged from
one month to five years at December 31, 1996 and 1995. At December 31, 1996
and 1995, the agreements were secured by investment securities with carrying
and estimated fair values of approximately $2,508,000 and $2,789,000,
respectively. Average balances outstanding during 1996 and 1995 were
approximately $2,045,000 and $2,377,000, respectively. The maximum outstanding
month-end balances during 1996 and 1995 were approximately $2,286,000 and
$2,613,000, respectively.
9. INCOME TAXES
Income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Current income tax expense................................. $215,726 $163,380
Deferred income tax expense (benefit)...................... 75,549 21,161
-------- --------
$291,275 $184,541
======== ========
</TABLE>
The provision for Federal income tax expense differs from that computed by
applying the Federal statutory rate of 34% as indicated in the following
analysis:
<TABLE>
<CAPTION>
1996 1995
-------------- ---------------
AMOUNT % AMOUNT %
-------- ---- -------- -----
<S> <C> <C> <C> <C>
Expected Federal income tax expense....... $346,147 34.0 $237,478 34.0
Municipal and disallowed interest......... (89,420) (8.8) (77,860) (11.2)
State taxes, net of Federal income tax
benefit.................................. 13,160 1.3 32,483 4.7
Other, net................................ 21,388 2.1 (7,560) (1.1)
-------- ---- -------- -----
$291,275 28.6 $184,541 26.4
======== ==== ======== =====
</TABLE>
The tax effects of each type of significant item that gave rise to deferred
taxes at December 31, 1996 and 1995 were:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net unrealized (gain) loss on available-for-sale
securities............................................ $ 55,000 $ 95,100
Allowance for loan losses.............................. 62,374 6,984
Unaccreted discount.................................... 12,573 43,732
Goodwill............................................... 14,168 15,316
Other.................................................. 26,901 (25,565)
-------- --------
Net deferred tax liability (asset)..................... $171,016 $135,567
======== ========
</TABLE>
F-12
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. PROFIT SHARING AND SAVINGS PLANS
The Bank has a profit sharing plan covering all full-time employees who
satisfy the age and length of service requirements. The Bank's contributions
to the plan are discretionary and are determined annually by the Board of
Directors. The Bank's contributions were $32,000 and $31,000 for the years
ended December 31, 1996 and 1995, respectively.
In addition, the Bank has established a pre-tax savings plan under Section
401(k) of the Internal Revenue Code. Under the plan, eligible employees are
able to contribute up to the lesser of 15% of their compensation or $7,000.
The Bank matches 50% of all employees' contributions up to 5% of their annual
salary. The Bank's contributions were approximately $15,000 and $14,000 for
the years ended December 31, 1996 and 1995.
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Financial instruments which represent off-balance sheet credit risk consist
of open commitments to extend credit. Open commitments to extend credit
amounted to approximately $2,907,000 at December 31, 1996. Such agreements
require the Bank to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses. Since many of the commitments
are expected to expire without being fully drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained (if deemed necessary by the Bank upon extension
of credit) is based on management's credit evaluation of the customer.
Collateral held varies, but may include real property, accounts receivable,
inventory and property, plant and equipment.
12. CONCENTRATION OF CREDIT RISK
The Bank grants commercial, residential and rental real estate loans to
customers in the Clay County, Kansas area. Although the Bank has a diversified
loan portfolio, a substantial portion of the Bank's debtors' ability to honor
their contracts is dependent upon the agricultural and real estate economic
sectors. Collateral normally consists of real property.
At December 31, 1996, the Bank's cash and due from banks included commercial
bank deposit accounts aggregating approximately $426,000 in excess of the FDIC
insured limit of $100,000 per institution.
13. RELATED PARTY MATTERS
The Bank makes loans and loan commitments to employees, officers, directors
and stockholders in the normal course of business under substantially the same
terms as it does to others. An analysis of the activity with respect to such
loans and loan commitments is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Balance, beginning of year......................... $ 1,110,998 $ 1,018,862
New loans and loan commitments..................... 2,683,971 1,252,142
Repayments and expirations......................... (1,798,546) (1,160,006)
----------- -----------
Balance, end of year............................... $ 1,996,423 $ 1,110,998
=========== ===========
</TABLE>
Deposit balances of officers, directors and principal shareholders
aggregated approximately $1,580,000 and $1,492,000 at December 31, 1996 and
1995, respectively.
F-13
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. REGULATORY MATTERS
The Bank, as a national bank, is subject to the dividend restrictions as set
forth by the OCC. Under such restrictions, the Bank may not, without the prior
approval of the OCC, declare dividends in excess of the sum of the current
year's earnings (as defined) plus the retained earnings (as defined) from the
prior two years.
The Bank is also subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of
the Bank's assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1996,
that the Bank meets all capital adequacy requirements to which it is subject.
As of March 31, 1996, the most recent notification from the OCC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
-------------------- -------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------------- ----- -------------- ----- -------------- -----
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk
Weighted Assets):.... $6,336 15.9% $3,183 8.0% $3,979 10.0%
Tier I Capital (to
Risk Weighted
Assets):............. $5,889 14.8% $1,592 4.0% $2,387 6.0%
Tier I Capital (to
Average Assets):..... $5,889 8.5% $2,781 4.0% $3,476 5.0%
</TABLE>
15. PENDING TRANSACTION
Effective April 14, 1997, Peoples adopted a resolution to enter into an
"Agreement and Plan of Reorganization" with Gold Banc Corporation, Inc. (Gold
Banc). The reorganization agreement calls for Peoples to exchange all of its
$100 par value common stock for shares of Gold Banc's $1 par value common
stock. Gold Banc will issue shares of their stock valued at $9,250,000 on the
closing date. The reorganization agreement includes various conditions which,
among other things, impose certain limitations on Peoples and the Bank related
to dividends or distributions to stockholders, lending activities and
investment decisions. The reorganization is contingent upon approval of
various regulatory agencies. If approved, the reorganization is expected to be
consummated in the third quarter of 1997.
F-14
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. SUBSEQUENT EVENT
In April 1997, the Bank received approximately $308,000 as a recovery on a
loan charged-off in 1991, thus increasing the allowance for loan losses.
17. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
Following is condensed financial information of Peoples as of and for the
years ended December 31, 1996 and 1995 (in thousands):
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
ASSETS
Cash and interest bearing deposits............................ $ 9 $ 7
Held-to-maturity security..................................... 77 74
Investment in subsidiary...................................... 7,151 6,896
Other......................................................... 41 57
------ ------
$7,278 $7,034
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Note Payable.................................................. $3,015 $3,400
Other......................................................... 40 44
Stockholders' equity.......................................... 4,223 3,590
------ ------
$7,278 $7,034
====== ======
</TABLE>
CONDENSED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Dividends from subsidiary....................................... $548 $539
Interest income................................................. 5 4
Interest expense................................................ (217) (239)
Other expense................................................... (28) (29)
---- ----
Income before equity in undistributed earnings of subsidiary.... 308 275
Equity in undistributed earnings of subsidiary.................. 348 149
---- ----
Earnings before income tax.................................... 656 424
Income tax benefit.............................................. 71 90
---- ----
Net earnings................................................ $727 $514
==== ====
</TABLE>
F-15
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Cash flows from operating activities:
Dividends received from subsidiary........................... $ 548 $ 539
Interest paid................................................ (221) (244)
Other........................................................ 65 99
----- -----
Net cash provided by operating activities.................. 392 394
----- -----
Cash flows from investing activities:
Net change in held-to-maturity securities.................... (5) (75)
----- -----
Net cash used in investing activities...................... (5) (75)
----- -----
Cash flows from financing activities:
Principal payments on note payable........................... (385) (346)
----- -----
Net cash used in financing activities...................... (385) (346)
----- -----
Net increase (decrease) in cash............................ 2 (27)
Cash at beginning of year...................................... 7 34
----- -----
Cash at end of year............................................ $ 9 $ 7
===== =====
</TABLE>
The primary source of funds available to Peoples is the payment of dividends
by the Bank. As discussed in Note 14, the Bank's ability to declare and pay
dividends is subject to certain restrictions set forth by the OCC.
F-16
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Cash and due from banks........................................... $ 1,926,981
Interest bearing deposits......................................... 9,722
-----------
Total cash and cash equivalents............................... 1,936,703
-----------
Held-to-maturity securities....................................... 76,471
Available-for-sale securities..................................... 32,452,731
Restricted equity securities...................................... 190,200
Other............................................................. 52,050
-----------
Total investment securities................................... 32,771,452
-----------
Loans receivable, net............................................. 33,481,602
Goodwill.......................................................... 1,145,126
Premises and equipment............................................ 731,989
Accrued interest receivable....................................... 900,969
Other assets...................................................... 206,327
-----------
$71,174,168
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities.......................................................
Deposits........................................................ $59,338,152
Note payable.................................................... 2,790,000
Securities sold under agreement to repurchase................... 1,611,587
Federal funds purchased......................................... 2,550,000
Deferred tax liability.......................................... 106,707
Accrued interest payable........................................ 287,491
Other liabilities............................................... 211,011
-----------
Total liabilities............................................. 66,894,948
-----------
Commitments and contingencies.....................................
Stockholders' equity..............................................
Common stock, $100 par value; 1,000,000 shares authorized,
25,350 shares issued and outstanding........................... 2,535,000
Retained earnings............................................... 1,778,325
Net unrealized loss on available-for-sale securities............ (34,105)
-----------
Total stockholders' equity.................................... 4,279,220
-----------
$71,174,168
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-17
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Interest income
Loans, including fees................................... $ 762,215 $ 695,546
Investments............................................. 537,944 552,531
Other................................................... 155 2,738
---------- ----------
1,300,314 1,250,815
---------- ----------
Interest expense
Deposits................................................ 583,486 609,882
Other borrowings........................................ 87,012 91,471
---------- ----------
670,498 701,353
---------- ----------
Net interest income................................... 629,816 549,462
Provision for loan losses................................. -- 55,000
---------- ----------
Net interest income after provision for loan losses... 629,816 494,462
---------- ----------
Other income
Service fees............................................ 92,125 77,302
Net securities gains.................................... 983 428
Other................................................... 2,136 6,791
---------- ----------
95,244 84,521
---------- ----------
Other expenses
Salaries and employee benefits.......................... 262,158 233,830
Occupancy............................................... 76,295 72,486
Stationery, supplies and postage........................ 24,038 28,317
Amortization............................................ 23,692 23,692
Public relations........................................ 16,861 9,717
Legal and professional.................................. 16,532 20,819
Federal deposit insurance premium....................... 1,691 500
Other................................................... 64,180 58,544
---------- ----------
485,447 447,905
---------- ----------
Earnings before income taxes.......................... 239,613 131,078
Income tax expense........................................ 57,158 55,468
---------- ----------
Net earnings.............................................. $ 182,455 $ 75,610
========== ==========
Earnings per share........................................ $ 7.20 $ 2.98
========== ==========
Average common shares outstanding......................... 25,350 25,350
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-18
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net earnings....................................... $ 182,455 $ 75,610
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses........................ -- 55,000
Net gains on sales of available-for-sale
securities...................................... (983) (428)
Amortization of securities' premiums, net of
discount accretion.............................. 18,347 14,558
Depreciation and amortization expense............ 38,661 37,164
Amortization of goodwill......................... 23,692 23,692
Change in:
Accrued interest receivable.................... 75,807 (7,791)
Other assets................................... 16,409 506,568
Accrued interest payable....................... (20,034) (6,176)
Other liabilities.............................. 16,271 7,910
Deferred tax liability......................... (10,309) 21,834
----------- -----------
Net cash provided (used) by operating
activities.................................. 340,316 727,941
----------- -----------
Cash flows from investing activities
Loans receivable originated, net of principal
collections....................................... (235,273) (544,834)
Proceeds from sales of available-for-sale
securities........................................ 3,564,337 1,543,139
Proceeds from maturities of available-for-sale
securities........................................ 1,588,985 1,981,247
Purchases of available-for-sale securities......... (3,630,244) (4,595,805)
Net additions to premises and equipment............ -- (3,101)
Recoveries of loans previously charged off......... 15,630 9,283
----------- -----------
Net cash provided (used) by investing
activities.................................. 1,303,435 (1,610,071)
----------- -----------
Cash flows from financing activities
Net change in non-interest bearing and interest
bearing demand and savings accounts............... 460,860 384,526
Net change in time deposits........................ (2,039,358) (1,351,184)
Decrease in note payable........................... (225,000) (50,000)
(Decrease) increase in repurchase agreements....... (304,871) 66,271
Increase in Federal funds purchased................ 875,000 1,125,000
----------- -----------
Net cash (used) provided by financing
activities.................................. (1,233,369) 174,613
----------- -----------
Increase (decrease) in cash and cash
equivalents................................. 410,382 (707,517)
Cash and cash equivalents, beginning of period....... 1,526,321 1,790,972
----------- -----------
Cash and cash equivalents, end of period............. $ 1,936,703 $ 1,083,455
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest........... $ 690,532 $ 707,529
=========== ===========
Cash paid during the period for income taxes....... $ 80,451 $ 45,964
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-19
<PAGE>
PEOPLES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The accompanying consolidated financial statements include the accounts of
Peoples Bancshares, Inc. (Peoples) and its wholly-owned subsidiary, The
Peoples National Bank, Clay Center, Kansas (Bank). Included within the
accounts of the Bank are the accounts of the Bank's wholly-owned subsidiary,
Peoples Investment Subsidiary, Inc. All significant intercompany accounts and
transactions have been eliminated.
The unaudited consolidated balance sheet as of March 31, 1997 and the
related unaudited consolidated statements of earnings and cash flows for the
three months ended March 31, 1997 and 1996 have been prepared in a manner
consistent with Peoples' annual consolidated financial statements. Management
believes that all adjustments (all of which are normal and recurring in
nature) have been reported to the best of its knowledge and that the unaudited
financial information fairly presents the consolidated financial condition and
results of operations and cash flows of Peoples and its subsidiary in
accordance with generally accepted accounting principles.
2. ALLOWANCE FOR LOAN LOSSES
The following is a summary of the allowance for loan losses for the three
months ended March 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance, January 1............................................... $447 $537
Provision for loan losses........................................ -- 55
Charge-offs, net of recoveries................................... (8) (83)
---- ----
Balance, March 31................................................ $439 $509
==== ====
</TABLE>
In April 1997, the Bank received approximately $308,000 as a recovery on a
loan charged-off in 1991, thus increasing the allowance for loan losses.
3. EARNINGS PER COMMON SHARE
Earnings per common share data is based on the weighted average number of
common shares outstanding during the interim periods.
F-20
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF THE COMPANY
<TABLE>
<S> <C>
Consolidated Balance Sheet at March 31, 1997 (Unaudited)................. F-22
Consolidated Statements of Earnings for the Three Months ended March 31,
1997 and 1996 (Unaudited)............................................... F-23
Consolidated Statements of Cash Flows for the Three Months ended March
31, 1997 and 1996 (Unaudited)........................................... F-24
Consolidated Statements of Stockholders' Equity for the Three Months
ended March 31, 1997 and 1996 (Unaudited)...............................
Notes to Consolidated Financial Statements............................... F-25
Independent Auditors' Report............................................. F-26
Consolidated Balance Sheets at December 31, 1996 and 1995................ F-27
Consolidated Statements of Earnings for the Years Ended December 31, 1996
and 1995................................................................ F-28
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996 and 1995........................................................... F-29
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996 and 1995.............................................. F-30
Notes to Consolidated Financial Statements............................... F-31
</TABLE>
F-21
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(UNAUDITED)
<S> <C>
ASSETS
Cash and due from banks............................................ $ 9,774
Federal funds sold and interest-bearing deposits................... 6,802
--------
Total cash and cash equivalents................................ 16,576
--------
Investment Securities:
Held-to-maturity securities...................................... 25
Available-for-sale securities.................................... 64,486
Other............................................................ 2,090
--------
Total investment securities.................................... 66,601
--------
Loans, net......................................................... 210,217
Premises and equipment, net........................................ 12,137
Deferred taxes..................................................... 688
Accrued interest and other assets.................................. 4,195
--------
Total Assets................................................... $310,414
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits......................................................... $257,707
Securities sold under agreements to repurchase................... 17,969
Federal funds purchased, debt and other borrowings............... 2,319
Accrued interest and other liabilities........................... 1,809
--------
Total liabilities.............................................. 279,804
--------
Stockholders' equity:
Preferred stock, 7,500,000 shares authorized, no shares issued... --
Common stock, $1.00 par value, 7,500,000 shares authorized,
4,300,000 shares issued and outstanding......................... 4,300
Additional paid-in capital....................................... 16,768
Retained earnings................................................ 10,306
Unrealized loss on available-for-sale securities, net............ (488)
Unearned compensation............................................ (276)
--------
Total stockholders' equity..................................... 30,610
--------
$310,414
========
</TABLE>
F-22
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
Interest Income:
Loans, including fees.......................... $ 4,757 $ 3,843
Investments securities......................... 1,001 1,194
Other.......................................... 63 1
--------- ---------
5,821 5,038
Interest expense:
Deposits....................................... 2,827 2,653
Borrowings and Other........................... 225 334
--------- ---------
3,052 2,987
--------- ---------
Net interest income.......................... 2,769 2,051
Provision for loan losses........................ 105 30
--------- ---------
Net interest income after provision for loan
losses...................................... 2,664 2,021
--------- ---------
Other income:
Service fees................................... 161 150
Net gains on sale of mortgage loans............ 117 353
Net securities losses.......................... (13) --
Net loss on sale of other assets............... (1) --
Other.......................................... 82 119
--------- ---------
Other expense:
Salaries and employee benefits................. 1,129 1,255
Net occupancy expense.......................... 417 341
Federal deposit insurance premiums............. 26 49
Other.......................................... 512 448
--------- ---------
2,084 2,093
--------- ---------
Earnings before income taxes................. 926 550
Income taxes..................................... 323 197
--------- ---------
Net earnings................................. $ 603 $ 353
========= =========
Earnings per share (Note 2)...................... $ .14 $ .18
========= =========
Weighted average common shares outstanding....... 4,300,000 2,003,616
========= =========
</TABLE>
F-23
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings............................................. $ 603 $ 353
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses.............................. 105 30
Net losses on sales of available-for-sale securities... 13 --
Depreciation and amortization, net of accretion........ 233 (90)
Loss on sale of assets, net............................ 1 154
Net decrease in mortgage loans held for sale........... 1,046 1,031
Other changes:
Accrued interested receivable and other assets....... (516) (1,712)
Accrued interest payable and other liabilities....... 149 443
-------- --------
Net cash provided by operating activities.......... 1,634 209
-------- --------
Cash flows from investing activities:
Net increase in loans.................................... (11,271) (1,140)
Principal collections and proceeds from sales and
maturities of available-for-sale securities............. 5,750 6,409
Purchases of available-for-sale securities............... (5,926) (18,230)
Net additions to premises and equipment.................. (374) (537)
Proceeds from sale of other assets....................... 80 59
-------- --------
Net cash used in investing activities.............. (11,741) (13,439)
-------- --------
Cash flows from investing activities:
Increase in deposits..................................... 2,051 462
Net increase (decrease) in short-term borrowings......... 3,420 (2,892)
Principal payments on debt............................... (59) (439)
Purchase of treasury stock............................... -- (196)
Proceeds from sale of common stock....................... -- 65
-------- --------
Net cash provided (used) by financing activities... 5,412 (3,000)
Decrease in cash and cash equivalents.............. (4,695) (16,230)
Cash and cash equivalents, beginning of year............... 21,271 23,223
-------- --------
Cash and cash equivalents, end of quarter.................. $ 16,576 $ 6,993
======== ========
</TABLE>
F-24
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION.
The accompanying consolidated financial statements have been prepared in
accordance with the instructions for Form 10-QSB. The consolidated financial
statements should be read in conjunction with the audited financial statements
included in the Company's 1996 Annual Report on Form 10-KSB.
The consolidated financial statements include the accounts of the Company's
subsidiaries, Exchange National Bank, Citizens State Bank, and Provident Bank,
f.s.b. (the "Banks"). All significant intercompany balances and transactions
have been eliminated.
The consolidated financial statements as of March 31, 1997, and for the
three months ended March 31, 1997 and 1996 are unaudited but include all
adjustments (consisting only of normal recurring adjustments) which the
Company considers necessary for a fair presentation of its financial position
and results of operations for those periods. The Consolidated Statements of
Earnings for the three months ended March 31, 1997 are not necessarily
indicative of the results that will be achieved for the entire year.
2. EARNINGS PER COMMON SHARE.
Earnings per common share are based upon the weighted average number of
common shares outstanding during the periods.
3. SUBSEQUENT EVENTS.
On April 7, 1997, the Company granted options to certain officers of the
Company to purchase a total of 70,500 shares of the Company's common stock at
the fair market value of the Company's stock on that date.
On April 30, 1997 the Company declared a quarterly dividend in the amount of
$.03 per share.
On April 28, 1997 Exchange Bank was named a defendant in the case captioned,
Anderson, et al. v. Olathe Bank, et al., Case No. 97 C 5574 in the District
Court of Johnson County, Kansas. The plaintiffs allege that they invested in
entities owned and controlled by individuals subject to claims by the Attorney
General of the State of Kansas alleging consumer protection violations. The
plaintiffs allege the defendants were contacted by the plaintiff's and
allegedly provided false information, engaged in a joint effort to mislead,
and were negligent with respect to references sought by the plaintiffs.
Plaintiffs further allege that they relied to their detriment on those
representations in deciding to invest. The claim is brought on behalf of a
class of over 2,400 persons who claim to have invested $15,000 or more each.
There is no allegation that specifies the amount of damages plaintiffs contend
that they sustained. Exchange Bank has denied any liability and is vigorously
contesting the allegations made against it. The Company is not yet in a
position to determine whether the expenses and losses, if any, in connection
with this action will be material.
4. NEW ACCOUNTING PRONOUNCEMENT.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" which revises the calculation and presentation
provisions of Accounting Principles Board Opinion 15 and related
interpretations. Statement No. 128 is effective for the Company's fiscal year
ending December 31, 1997. Retroactive application will be required. The
Company believes the adoption of Statement No. 128 will not have a significant
effect on its reported earnings per share.
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Gold Banc Corporation, Inc.:
We have audited the accompanying consolidated balance sheets of Gold Banc
Corporation, Inc. and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of earnings, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Gold Banc
Corporation, Inc. and subsidiaries as of December 31, 1996 and 1995 and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Kansas City, Missouri
February 7, 1997
F-26
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 12,380 8,281
Federal funds sold and interest-bearing deposits............ 8,891 14,942
-------- -------
Total cash and cash equivalents......................... 21,271 23,223
-------- -------
Investment securities (note 2):
Held-to-maturity.......................................... 25 25
Available-for-sale........................................ 64,551 65,295
Other..................................................... 2,076 2,055
-------- -------
Total investment securities............................. 66,652 67,375
-------- -------
Mortgage loans held for sale, net........................... 2,182 6,665
Loans, net (note 3)......................................... 197,914 154,805
Premises and equipment, net (note 4)........................ 11,977 7,328
Deferred taxes (note 9)..................................... 678 872
Accrued interest and other assets........................... 3,935 3,689
-------- -------
$304,609 263,957
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 5)......................................... $255,656 226,381
Securities sold under agreements to repurchase (note 6)... 10,050 15,638
Federal funds purchased, long-term debt and other
borrowings (note 7)...................................... 6,878 8,992
Accrued interest and other liabilities.................... 1,884 1,624
-------- -------
Total liabilities....................................... 274,468 252,635
-------- -------
Stockholders' equity (notes 9 and 12):
Preferred stock, 7,500,000 shares authorized, no shares
issued................................................... -- --
Preferred stock, Class B $1,000 par value, 1,000 shares
authorized, 65 shares issued at December 31, 1995........ -- 65
Common stock, $1 par value, 7,500,000 shares authorized;
4,300,000 and 2,000,000 shares issued and outstanding at
December 31, 1996 and 1995, respectively................. 4,300 2,000
Additional paid-in capital................................ 16,768 1,015
Retained earnings......................................... 9,704 8,353
Unrealized loss on available-for-sale securities, net..... (355) (111)
Unearned compensation (note 9)............................ (276) --
-------- -------
Total stockholders' equity.............................. 30,141 11,322
Commitments and contingent liabilities (note 9)............. -- --
-------- -------
$304,609 263,957
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Interest income:
Loans, including fees..... $ 16,923 14,486
Investment securities..... 3,939 3,760
Other..................... 454 185
---------- ---------
21,316 18,431
---------- ---------
Interest expense:
Deposits.................. 10,932 8,804
Borrowings and other...... 1,328 1,241
---------- ---------
12,260 10,045
---------- ---------
Net interest income..... 9,056 8,386
Provision for loan losses
(note 3)................... 120 1,284
---------- ---------
Net interest income
after provision for
loan losses............ 8,936 7,102
---------- ---------
Other income:
Service fees.............. 659 650
Net gains on sale of
mortgage loans........... 1,128 1,058
Net securities losses..... (38) (84)
Gain on sale of other
assets................... 297 18
Other..................... 360 296
---------- ---------
2,406 1,938
---------- ---------
Other expense:
Salaries and employee
benefits................. 5,097 4,438
Net occupancy expense..... 1,375 1,137
Federal deposit insurance
premiums (note 5)........ 549 332
Other..................... 2,195 2,094
---------- ---------
9,216 8,001
---------- ---------
Earnings before income
taxes.................. 2,126 1,039
Income taxes (note 8)....... 775 335
---------- ---------
Net earnings............ 1,351 704
========== =========
Earnings per share.......... $ 0.60 0.34
========== =========
Weighted average common
shares outstanding......... 2,246,552 2,063,415
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings............................................... $ 1,351 704
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Provision for loan losses................................ 120 1,284
Net losses on sales of available-for-sale securities..... 38 84
Amortization of investment securities' premiums, net of
accretion............................................... 69 92
Depreciation and amortization............................ 549 512
Gain on sale of assets, net.............................. (335) (22)
Net (increase) decrease in mortgage loans held for sale.. 4,483 (4,879)
Other changes:
Accrued interest receivable and other assets........... (514) (502)
Accrued interest payable and other liabilities......... 260 255
------- -------
Net cash provided by (used in) operating activities.. 6,021 (2,472)
------- -------
Cash flows from investing activities:
Net increase in loans.................................... (43,214) (21,728)
Principal collections and proceeds from maturities of
held-to-maturity securities............................. -- 609
Principal collections and proceeds from sales and
maturities of available-for-sale securities............. 27,183 29,535
Purchases of available-for-sale securities............... (26,938) (28,152)
Purchases of other securities............................ (21) --
Net additions to premises and equipment.................. (5,190) (2,866)
Proceeds from sale of other assets....................... 922 269
------- -------
Net cash used in investing activities................ (47,258) (22,333)
------- -------
Cash flows from financing activities:
Increase in deposits..................................... 29,275 39,951
Net increase (decrease) in short-term borrowings......... (588) 1,312
Proceeds from long-term debt............................. -- 500
Principal payments on long-term debt..................... (7,390) (595)
Purchase of treasury stock............................... (134) (1,095)
Proceeds from issuance of common stock, net of costs..... 18,122 350
Proceeds from sale of treasury stock......................... -- 263
------- -------
Net cash provided by financing activities............ 39,285 40,686
------- -------
Increase (decrease) in cash and cash equivalents..... (1,952) 15,881
Cash and cash equivalents, beginning of year................. 23,223 7,342
------- -------
Cash and cash equivalents, end of year....................... $21,271 23,223
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest................... $12,112 9,740
======= =======
Cash paid during the year for income taxes............... $ 776 1,165
======= =======
Supplemental schedule of noncash investing activities:
Loans transferred to other real estate owned............. $ 741 94
======= =======
Transfer of held-to-maturity investment securities to
available-for-sale...................................... $ -- 26,129
======= =======
Supplemental schedule of noncash financing activities:
Common stock subscribed.................................... $ -- 50
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ADDITIONAL ON SECURITIES
PREFERRED COMMON PAID-IN RETAINED AVAILABLE-FOR- UNEARNED TREASURY
STOCK STOCK CAPITAL EARNINGS SALE, NET COMPENSATION STOCK TOTAL
--------- ------ ---------- -------- -------------- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... $100 2,042 1,405 7,649 (1,197) -- (35) 9,964
Purchase of 117,756
shares of common
stock.................. -- -- -- -- -- -- (1,095) (1,095)
Issuance of 53,346
shares of common
stock.................. -- 53 347 -- -- -- -- 400
Sale of 23,339 shares of
common stock........... -- -- (25) -- -- -- 288 263
Retirement of 35 shares
of Class B preferred
stock.................. (35) -- -- -- -- -- 35 --
Retirement of 94,416
shares of common
stock.................. -- (95) (712) -- -- -- 807 --
Change in unrealized
gain of securities
available for sale..... -- -- -- -- 1,086 -- -- 1,086
Net earnings............ -- -- -- 704 -- -- -- 704
---- ----- ------ ----- ------ ---- ------ ------
Balance at December 31,
1995................... 65 2,000 1,015 8,353 (111) -- -- 11,322
Conversion of 65 shares
of preferred stock into
14,048 shares of common
stock.................. (65) 14 51 -- -- -- -- --
Redemption and
retirement of 105.5
shares of common
stock.................. -- (14) (120) -- -- -- -- (134)
Issuance of 2,300,000
shares of common stock,
net of issuance costs
of $1,942,000.......... -- 2,300 15,822 -- -- -- -- 18,122
Purchase of shares of
common stock for the
employee stock
ownership plan......... -- -- -- -- -- (276) -- (276)
Change in unrealized
loss of securities
available-for-sale..... -- -- -- -- (244) -- -- (244)
Net earnings............ -- -- -- 1,351 -- -- -- 1,351
---- ----- ------ ----- ------ ---- ------ ------
Balance at December 31,
1996................... $ -- 4,300 16,768 9,704 (355) (276) -- 30,141
==== ===== ====== ===== ====== ==== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Gold Banc
Corporation, Inc. and its subsidiaries, Exchange National Bank, Marysville,
Kansas, Citizens State Bank and Trust Company, Seneca, Kansas and Provident
Bank, f.s.b., St. Joseph, Missouri, collectively referred to as the Company.
All significant intercompany transactions have been eliminated.
Nature of Operations
The Company is a multibank holding company that owns and operates banks
located in northeastern Kansas and northwestern Missouri. The banks are
community banks that provide a full range of commercial and consumer banking
services primarily to small and medium-sized communities and the surrounding
market areas, and most recently, to suburban Kansas City.
Initial Public Offering
Effective November 19, 1996, the Company completed an initial public
offering selling 2,000,000 shares of its common stock at $8.75 per share.
Subsequently, the Company's underwriter exercised its over-allotment option
and on December 19, 1996, the Company sold an additional 300,000 shares at
$8.75 per share. Total expenses, including underwriter's discounts, aggregated
$1,942,000. The Company is considered by the Securities and Exchange
Commission (SEC) as a small business enterprise and, accordingly, files SEC-
related items as such. The Company's shares are registered on the NASDAQ under
the symbol GLDB.
Estimates
The preparation of the consolidated financial statements, in conformity with
generally accepted accounting principles, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investment Securities
The Company classifies investment securities as either available-for-sale or
held-to-maturity. Held-to-maturity securities are those which the Company has
the positive intent and ability to hold to maturity. All other securities are
classified as available-for-sale.
Held-to-maturity securities are recorded at amortized cost. Available-for-
sale securities are recorded at fair value. Unrealized holding gains and
losses, net of related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of
stockholders' equity until realized.
A decline in the market value of any security below cost that is deemed
other than temporary is charged to income, resulting in the establishment of a
new cost basis for the security.
Premiums and discounts are amortized or accredited over the life of the
related security as an adjustment to interest income. Dividend and interest
income is recognized when earned. Realized gains and losses upon disposition
of available-for-sale securities are included in income using the specific
identification method for determining the cost of the securities sold.
F-31
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Mortgage Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of aggregate cost or estimated fair value. Fees received
on such loans are deferred and recognized in income as part of the gain or
loss on sale. Net unrealized losses are recognized through a valuation
allowance by charges to income.
The Company adopted the Financial Accounting Standards Board's Statement of
Financial Accounting Standard (SFAS) No. 122, "Accounting for Mortgage
Servicing Rights," on January 1, 1996. This statement requires that the value
of retained mortgage servicing rights related to loans originated and sold
after January 1, 1996 be capitalized as an asset, thereby increasing the gain
on sale of the loan by the amount of the asset. The adoption of this standard
did not have a material impact on the Company.
Loans
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Interest income on loans is accrued and credited to operations based on the
principal amount outstanding. The accrual of interest on impaired loans is
discontinued when, in management's opinion, the borrower may be unable to meet
payments as they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Interest income is subsequently recognized only
to the extent cash payments are received. Significant loan and commitment fee
income and related costs are deferred and amortized in relationship to the
respective loan or commitment.
Allowance for Loan Losses
Provisions for losses on loans receivable are based upon management's
estimate of the amount required to maintain an adequate allowance for losses,
relative to the risk in the loan portfolio. This estimate is based on reviews
of the loan portfolio, including assessment of the estimated net realizable
value of the related underlying collateral, and upon consideration of past
loss experience, current economic conditions and such other factors which, in
the opinion of management, deserve current recognition. Amounts are charged
off as soon as probability of loss is established, taking into consideration
such factors as the borrower's financial condition, underlying collateral and
guarantees. Loans are also subject to periodic examination by regulatory
agencies. Such agencies may require charge-offs or additions to the allowance
based upon their judgments about information available at the time of their
examination.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-
line and accelerated methods based on the estimated useful lives of the
related assets.
Goodwill
The excess cost over fair value of assets acquired of consolidated
subsidiaries is being amortized on a straight-line basis over periods of ten
to twenty-five years.
F-32
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and are measured using enacted tax rates expected to
apply to taxable income in the years in which those differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
for subsequent changes in tax rates is recognized in the period that includes
the tax rate change.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash equivalents
include cash on hand, amounts due from banks, federal funds sold and interest-
bearing deposits.
Earnings Per Share
Earnings per share is based upon the weighted average shares outstanding
during the periods presented.
(2) INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair
value of investment securities by major security type at December 31, 1996 and
1995 are as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
1996 COST GAINS LOSSES VALUE
---- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Held-to-maturity:
Obligations of states and
political subdivisions........ $ 25 -- -- 25
======= === ==== ======
Available-for-sale:
U.S. treasury and agency
securities.................... $36,107 17 (194) 35,930
Obligations of states and
political subdivisions........ 3,759 44 (4) 3,799
Mortgage-backed securities..... 25,253 -- (431) 24,822
------- --- ---- ------
Total........................ $65,119 61 (629) 64,551
======= === ==== ======
<CAPTION>
1995
----
<S> <C> <C> <C> <C>
Held-to-maturity:
Obligations of states and
political subdivisions........ $ 25 -- -- 25
======= === ==== ======
Available-for-sale:
U.S. treasury and agency
securities.................... $34,918 129 (182) 34,865
Obligations of states and
political subdivisions........ 3,936 75 (3) 4,008
Mortgage-backed securities..... 26,619 2 (199) 26,422
------- --- ---- ------
Total........................ $65,473 206 (384) 65,295
======= === ==== ======
</TABLE>
F-33
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated fair value of debt securities at December
31, 1996, by contractual maturity, are shown below (in thousands). Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
-------------------- --------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Due in one year or less.......... $-- -- 15,160 15,178
Due after one year through five
years........................... 25 25 24,606 24,453
Due after five years through ten
years........................... -- -- 100 98
Mortgage-backed securities....... -- -- 25,253 24,822
---- --- ------ ------
Total.......................... $ 25 25 65,119 64,551
==== === ====== ======
</TABLE>
Other securities at December 31, 1996 and 1995 consist primarily of stock in
the Federal Reserve Bank and Federal Home Loan Bank. Amortized cost of such
investments approximates their fair value. At December 31, 1996, investment
securities with fair values of approximately $45,064,000 were pledged to
secure public deposits and for other purposes.
(3) LOANS
Loans are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Real estate--mortgage..................................... $100,707 71,690
Real estate--construction................................. 27,413 24,398
Commercial................................................ 48,413 38,715
Agricultural.............................................. 11,668 11,029
Consumer.................................................. 9,085 8,387
Other..................................................... 3,162 3,301
-------- -------
200,448 157,520
Allowance for loan losses................................. (2,534) (2,715)
-------- -------
$197,914 154,805
======== =======
</TABLE>
At December 31, 1996, the Company serviced loans of approximately
$29,000,000 for investors. Service fee income of approximately $82,000 and
$90,000, respectively, related to these portfolios is included in service fee
income in the consolidated statements of earnings for the years ended December
31, 1996 and 1995. During 1996, loans were sold without servicing retained
and, accordingly, the impact of SFAS No. 122 was insignificant.
Loans made to directors and officers of the Company approximated $5,990,000
and $3,960,000 at December 31, 1996 and 1995. Such loans were made in the
ordinary course of business on normal credit terms, including interest rate
and collateralization.
Impaired loans are considered insignificant at December 31, 1996 and 1995.
Nonaccrual loans approximated $319,000 and $1,739,000 at December 31, 1996 and
1995. The interest income not recognized on these loans was approximately
$23,000 and $27,000 in 1996 and 1995.
F-34
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) LOANS (CONTINUED)
Activity in the allowance for loan losses during the years ended December 31,
1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Balance at beginning of year................................. $2,715 $2,047
Provision for loan losses.................................... 120 1,284
Loan charge-offs............................................. (328) (671)
Loan recoveries.............................................. 27 55
------ ------
Balance at end of year....................................... $2,534 $2,715
====== ======
</TABLE>
(4) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -----
<S> <C> <C>
Land......................................................... $ 2,280 1,418
Buildings and leasehold improvements......................... 4,955 4,470
Construction in progress..................................... 3,522 509
Furniture, fixtures and equipment............................ 3,536 2,756
Automobiles.................................................. 146 198
------- -----
14,439 9,351
Accumulated depreciation and amortization.................... 2,462 2,023
------- -----
$11,977 7,328
======= =====
</TABLE>
Depreciation expense aggregating $525,000 and $433,000 for the years ended
December 31, 1996 and 1995, respectively, has been included in net occupancy
expense in the accompanying consolidated statements of earnings.
(5) DEPOSITS
Deposits are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Demand:
Noninterest bearing....................................... $ 22,277 18,934
-------- -------
Interest-bearing:
NOW..................................................... 7,579 6,598
Advantage............................................... 11,477 10,119
Super NOW............................................... 14,916 9,963
Money market............................................ 31,951 17,287
-------- -------
65,923 43,967
-------- -------
Total demand.......................................... 88,200 62,901
Savings..................................................... 10,330 11,166
Time........................................................ 157,126 152,314
-------- -------
$255,656 226,381
======== =======
</TABLE>
F-35
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) DEPOSITS (CONTINUED)
Time deposits include certificates of deposit of $100,000 and over, totaling
approximately $33,149,000 and $25,074,000 at December 31, 1996 and 1995,
respectively.
Principal maturities of time deposits at December 31, 1996 are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1997.............................. $110,224
1998.............................. 31,779
1999.............................. 7,628
2000.............................. 4,366
2001.............................. 2,992
Thereafter........................ 137
--------
$157,126
========
</TABLE>
During 1996, the Federal Deposit Insurance Corporation imposed a one-time
special assessment on Savings Association Insurance Fund (SAIF) assessable
deposits. The assessment on the Company's SAIF deposits was $389,000 and is
included in federal deposit insurance premiums in the accompanying
consolidated statements of earnings.
(6) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Information concerning securities sold under agreements to repurchase is as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Average monthly balance during the year.................... $ 5,780 5,937
Average interest rate during the year...................... 5.29% 5.39
Maximum month-end balance during the year.................. $19,522 15,638
</TABLE>
At December 31, 1996, such agreements were secured by investment and
mortgage-backed securities. Pledged securities are maintained by a safekeeping
agent under the control of the Company.
(7) FEDERAL FUNDS PURCHASED, DEBT AND OTHER BORROWINGS
Federal funds purchased fluctuate daily based on the liquidity needs of the
Company. As of December 31, 1996, federal funds purchased of $5,000,000 had an
interest rate of 7.0% and a one-day maturity.
Following is a summary of borrowings at December 31, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Note payable to bank, interest at 6.0%..................... $ -- 7,000
Note payable of Gold Banc Corporation, Inc. Employee Stock
Ownership Plan, interest at Boatmen's corporate base rate,
(8.25% at December 31, 1996) secured by 31,888 shares of
the Company stock (see note 9)............................ 276 --
Federal Home Loan Bank (FHLB) borrowings by a subsidiary
bank bearing weighted average fixed interest rates of
5.48% and 6.02% at December 31, 1996 and 1995,
respectively, secured by qualifying one-to-four family
mortgage loans............................................ 1,602 1,992
------- ------
$ 1,878 8,992
======= ======
</TABLE>
F-36
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) FEDERAL FUNDS PURCHASED, DEBT AND OTHER BORROWINGS (CONTINUED)
At December 31, 1996, the Company had a $10,000,000 committed line of credit
with a correspondent bank with no advances outstanding.
Principal maturities on borrowings are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1997.................................. $ 362
1998.................................. 362
1999.................................. 292
2000.................................. 252
2001.................................. 128
Thereafter............................ 482
------
$1,878
======
</TABLE>
None of the Company's borrowings have any related compensating balance
requirements which restrict the usage of the Company assets. However,
regulations of the Federal Reserve System require reserves to be maintained by
all banking institutions according to the types and amounts of certain deposit
liabilities. These requirements restrict usage of a portion of the amounts
shown as consolidated "cash and due from banks" from everyday usage in
operation of the banks. The minimum reserve requirements for the subsidiary
banks at December 31, 1996 approximated $984,000.
(8) INCOME TAXES
Income tax expense (benefit) related to operations for 1996 and 1995 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1996:
Federal............................................. $271 359 630
State............................................... 142 3 145
---- ---- ---
$413 362 775
==== ==== ===
1995:
Federal............................................. $581 (450) 131
State............................................... 214 (10) 204
---- ---- ---
$795 (460) 335
==== ==== ===
</TABLE>
F-37
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995 are presented below (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses.................................... $ 396 758
Unrealized losses on available-for-sale securities, net...... 235 67
State taxes.................................................. 488 320
Other........................................................ 150 141
------ -----
Total deferred tax assets.................................. 1,269 1,286
------ -----
Deferred tax liabilities:
FHLB stock dividends......................................... 125 125
Premises and equipment....................................... 427 206
Other........................................................ 39 83
------ -----
Total deferred tax liabilities............................. 591 414
------ -----
Net deferred tax asset..................................... $ 678 872
====== =====
</TABLE>
A valuation allowance for deferred tax assets was not necessary at December
31, 1996 and 1995.
A reconciliation of expected income tax expense based on the statutory rate
of 34% to actual tax expense for 1996 and 1995 is summarized as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Expected federal income tax expense........... $723 34.0% $353 34.0%
Municipal interest............................ (58) (2.7) (76) (7.3)
State taxes, net of federal tax benefit....... 142 6.6 135 13.0
Other, net.................................... (32) (1.4) (77) (7.4)
---- ---- ---- ----
$775 36.5% $335 32.3%
==== ==== ==== ====
</TABLE>
(9) EMPLOYEE BENEFIT PLANS
On January 1, 1986, the Company established the Gold Banc Corporation, Inc.
Employee Stock Ownership Plan (ESOP) to acquire shares of the Company common
stock for the benefit of all eligible employees. The amount of annual
contributions from the Company, if any, is determined by the Board of
Directors. Contributions were approximately $78,000 and $75,000 for the years
ended December 31, 1996 and 1995, respectively. The ESOP, which is
noncontributory, covers substantially all employees of the corporation.
During 1996, the ESOP borrowed $275,800 from an unaffiliated bank to
purchase 31,888 shares of common stock from a stockholder of the Company (see
note 7). The ESOP will repay the loan with contributions received from the
Company. Accordingly, the Company has recorded the obligation with an off-
setting amount of unearned compensation included in stockholders' equity in
the accompanying 1996 consolidated balance sheet.
In 1995, the Company established a 401(k) savings plan for the benefit of
all eligible employees. The Company does not match employee contributions. The
401(k) plan covers substantially all employees of the corporation.
F-38
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company's Board of Directors and stockholders have approved the adoption
of the 1996 Equity Compensation Plan (the Plan). Under the terms of the Plan,
the Company can grant stock options, stock appreciation rights, restricted
stock, performance units or performance shares. Options granted under the Plan
will carry an exercise price equal to or greater than the fair market value at
the date of grant, and generally expire ten years after grant. The Company has
reserved 250,000 shares of common stock for issuance under the Plan. No
options have been granted to date.
(10) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Financial instruments, which represent off-balance sheet credit risk,
consist of open commitments to extend credit, irrevocable letters of credit
and loans sold with recourse. Open commitments to extend credit and
irrevocable letters of credit amounted to approximately $36,900,000 at
December 31, 1996. Such agreements require the Company to lend to a customer
as long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses. Since many of the commitments are expected to expire without being
fully drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained
(if deemed necessary by the Company upon extension of credit) is based on
management's credit evaluation of the customer. Collateral held varies, but
may include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
The Company processes residential home mortgage loans for sale in the
secondary market. In conjunction with the sale of such loans, the Company has
entered into agreements with the purchasers of the loans, setting forth
certain provisions. Among those provisions is the right of the purchaser to
return the loans to the Company in the event the borrower defaults within a
stated period. This period ranges among the various purchasers from between
one to twelve months. Loans sold with recourse amounted to approximately
$6,021,000 and $26,511,000 at December 31, 1996 and 1995, respectively. The
Company's exposure to credit loss in the event of default by the borrower and
the return of the loan by the purchaser is represented by the difference in
the amount of the loan and the recovery value of the underlying collateral.
F-39
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair value of financial
instruments are made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company and its subsidiaries using
available market information and valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Company and its
subsidiaries could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material impact
on the estimated fair value amounts.
The estimated fair value of the Company's financial instruments is as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Investment securities.............. $ 66,652 66,652 67,376 67,376
======== ======= ======= =======
Mortgage loans held for sale....... $ 2,182 2,182 6,665 6,765
======== ======= ======= =======
Loans.............................. $197,914 197,802 154,805 155,573
======== ======= ======= =======
Deposits........................... $255,656 255,463 226,380 226,290
======== ======= ======= =======
Securities sold under agreements to
repurchase........................ $ 10,050 10,050 15,638 15,638
======== ======= ======= =======
Federal funds purchased and other
short-term borrowings............. $ 5,000 5,000 -- --
======== ======= ======= =======
Long-term debt..................... $ 1,878 1,877 8,992 8,786
======== ======= ======= =======
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Investment Securities--Various methods and assumptions were used to estimate
fair value of the investment securities. For investment securities, excluding
other securities, fair values are based on quoted market prices or dealer
quotes. If a quoted market price is not available, fair value is estimated
using quoted prices for similar securities. The carrying value of other
securities approximates fair values.
Loans Held for Sale--The fair value of loans held for sale equals the
contractual sales price agreed upon with third-party investors.
Loans--For certain homogenous categories of loans, such as some Small
Business Administration guaranteed loans, student loans, residential
mortgages, consumer loans and commercial loans, fair value is estimated using
quoted market prices for similar loans or securities backed by similar loans,
adjusted for differences in loan characteristics. The fair value of other
types of loans is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
Deposits--The fair value of demand deposits, savings accounts and money
market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated by
discounting the future cash flows using the rates currently offered for
deposits of similar remaining maturities.
F-40
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Debt--The fair value of debt is estimated using discounted cash flow
analyses based on the Company's and subsidiaries' current incremental
borrowing rates for similar types of borrowing arrangements.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase--
For federal funds purchased and securities sold under agreements to
repurchase, the current carrying amount is a reasonable estimate of fair
value.
Commitments to Extend Credit and Irrevocable Letters of Credit--The fair
value of commitments is estimated using the fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the customers. For fixed-rate
loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The estimated fair value of
letters of credit is based on the fees currently charged for similar
agreements. These instruments were determined to have no positive or negative
market value adjustments and are not listed in the following table.
Loans Sold with Recourse--The fair value of loans sold with recourse is
limited to the contractual amount of the loans required to be repurchased.
Loans currently under the recourse provision have been sold to investors
within the last twelve months. Because the recourse provisions have not yet
expired, it is impractical to determine the fair value; however, it is not
believed they would have a material market value adjustment.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1996 and 1995. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for
purposes of the consolidated financial statements since that date and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
(12) CAPITAL ADEQUACY
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiaries to maintain minimum amounts and
ratios (set forth in the table below on a consolidated basis, dollars in
thousands) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets and of Tier I capital to average assets. Management
believes, as of December 31, 1996, that the Company meets all capital adequacy
requirements to which it is subject.
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------- ------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- --------- --------
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1996:
Total risk-based capital
(to risk-weighted
assets): .............. $30,496 14.92% $16,350 8.00% $ 20,438 10.00%
Tier I capital (to risk-
weighted assets): ..... 29,987 14.68 8,175 4.00 12,263 6.00
Tier I capital (to
average assets): ...... 29,987 10.97 10,930 4.00 13,663 5.00
At December 31, 1995:
Total risk-based capital
(to risk-weighted
assets): .............. 11,433 7.16 12,765 8.00 15,956 10.00
Tier I capital (to risk-
weighted assets): ..... 10,894 6.83 6,382 4.00 9,574 6.00
Tier I capital (to
average assets): ...... 10,894 4.62 9,400 4.00 11,800 5.00
</TABLE>
F-41
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
Following is condensed financial information of the Company as of and for
the years ended December 31, 1996 and 1995 (in thousands):
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
ASSETS
Cash........................................................ $ 53 103
Federal funds sold, securities purchased under agreements to
resell and interest-bearing deposits....................... 8,641 --
Loans, net.................................................. -- 852
Investment in subsidiaries.................................. 21,189 16,853
Other....................................................... 565 632
------- ------
Total assets.............................................. $30,448 18,440
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowed funds.............................................. $ 276 7,000
Other....................................................... 31 118
Stockholders' equity........................................ 30,141 11,322
------- ------
Total liabilities and stockholders' equity................ $30,448 18,440
======= ======
</TABLE>
CONDENSED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Dividends from subsidiaries................................. $ 500 1,770
Interest income............................................. 56 24
Other expense, net.......................................... 1,197 1,295
------ -----
Income before equity in undistributed earnings of
subsidiaries............................................. (641) 499
Increase (decrease) in undistributed equity of
subsidiaries............................................... 1,585 (237)
------ -----
Earnings before income taxes.............................. 944 262
Income tax benefit.......................................... 407 442
------ -----
Net earnings.............................................. $1,351 704
====== =====
</TABLE>
F-42
<PAGE>
GOLD BANC CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------- ----
<S> <C> <C>
Cash flows from operating
activities:
Net earnings.............. $ 1,351 704
(Increase) decrease in
undistributed equity of
subsidiary............... (1,585) 237
Other..................... 331 2
------- ----
Net cash provided by
operating activities... (97) 943
------- ----
Cash flows from investing
activities:
Net change in loans....... 501 (501)
Net additions to premises
and equipment............ 5 12
Capital contributions to
subsidiaries............. (3,000) --
------- ----
Net cash used in
investing activities... (2,494) (489)
------- ----
Cash flows from financing
activities:
Principal payments on
debt..................... (7,000) (145)
Purchase of treasury
stock.................... (134) (832)
Issuance of common stock.. 18,122 350
------- ----
Net cash provided by
(used in) financing
activities............. 10,988 (627)
------- ----
Net increase (decrease) in
cash..................... 8,591 (173)
Cash at beginning of year... 103 276
------- ----
Cash at end of year......... $ 8,694 103
======= ====
</TABLE>
The primary source of funds available to the Company is the payment of
dividends by the subsidiaries. Subject to maintaining certain minimum
regulatory capital requirements, regulations limit the amount of dividends
that may be paid without prior approval of the subsidiaries' regulatory
agencies. At December 31, 1996, the subsidiaries could pay dividends of
$3,320,000 without prior regulatory approval.
F-43
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") dated as of the
14th day of April, 1997, is made by and among GOLD BANC CORPORATION, INC., a
Kansas corporation ("Gold"), GOLD BANC ACQUISITION CORPORATION, INC., a Kansas
corporation ("Sub") and PEOPLES BANCSHARES, INC., a Kansas corporation
("Company").
WITNESSETH:
WHEREAS, the Boards of Directors of Gold, Sub and Company have approved and
deem it advisable and in the best interests of their respective companies and
shareholders that Gold and Company become affiliated through the merger of
Company with and into Sub in the manner hereinafter set forth (the "Merger" or
the "Company Merger"); and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereby agree as follows:
ARTICLE I
The Company Merger
1.1 The Company Merger. Upon the terms and subject to the conditions of this
Agreement at the Effective Time (as hereinafter defined), Company shall be
merged with and into Sub and the separate existence and corporate organization
of Company shall thereupon cease and Sub and Company shall thereupon be a
single corporation. Sub shall be the surviving corporation in the Merger and
the separate corporate existence of Sub shall continue unaffected and
unimpaired by the Merger.
1.2 Effective Time of the Company Merger. On the Closing Date (as
hereinafter defined), the proper officers of Company and Sub shall execute and
acknowledge appropriate certificates of merger that shall be filed with the
Kansas Secretary of State on the first business day following the Closing
Date, all in accordance with the Kansas General Corporation Code (the "KGCC").
The Merger shall become effective on the first day of the first calendar month
following the Closing Date (the "Effective Time"). The closing shall be on a
day (the "Closing Date") within forty-five (45) days following the
satisfaction or waiver, to the extent permitted hereunder, of the conditions
to the consummation of the Merger specified in Articles VII and VIII of this
Agreement at 10:00 a.m. at Gold Banc Corporation, 11301 Nall Avenue, Leawood,
Kansas, which day shall be specified by notice from Gold to Company (such
notice to be at least five (5) days in advance of such Closing Date).
1.3 The Articles of Incorporation. The Articles of Incorporation and By-Laws
of Sub as in effect immediately prior to the Effective Time shall be and
remain the Articles of Incorporation and By-Laws of the surviving corporation
from and after the Effective Time until amended as provided by law and the
officers and directors of Sub shall continue as the officers and directors of
the surviving corporation from and after the Effective Time.
1.4 Effect of Company Merger. Subject to Kansas law, at the Effective Time
(a) Sub shall possess all assets and property of every description, and every
interest therein, wherever located, and the rights, privileges, immunities,
powers, franchises, and authority, of a public as well as of a private nature,
of Company and all obligations belonging to or due each of Company and Sub
shall be vested in Sub without further act or deed;
A-1
<PAGE>
(b) title to any real estate or any interest therein vested in Company shall
not revert or in any way be impaired by reason of the Company Merger; (c) all
rights of creditors and all liens on any property of the Company shall be
preserved unimpaired; and (d) Sub shall be liable for all the obligations of
Company, and any claim existing, or action or proceeding pending, by or
against either of Company or Sub, may be prosecuted to judgment with the right
of appeal, as if the Company Merger had not taken place.
1.5 Further Assurances. If at any time after the Effective Time, Sub shall
consider it advisable that any further conveyances, agreements, documents,
instruments or assurances of law or any other actions or things are necessary
or desirable to vest, perfect, confirm, or record in Sub the title to any
property, rights, privileges, powers, or franchises of the Company, the Board
of Directors and officers of Sub shall, and will be authorized to, execute and
deliver in the name and on behalf of Sub or otherwise, any and all proper
conveyances, agreements, documents, instruments, and assurances of law and do
all things necessary or proper to vest, perfect, or confirm title to such
property, rights, privileges, powers and franchises in Sub, and otherwise to
carry out the provisions of this Agreement.
ARTICLE II
Provisions of Merger Transaction
2.1 Effect of Merger on Sub Stock. Each share of common stock, $1.00 par
value per share, of Sub ("Sub Common Stock") issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding at
the Effective Time, and shall be unaffected by the Company Merger.
2.2 Conversion of the Company Shares in the Company Merger. At the Effective
Time, by virtue of the Merger and without any action on the part of any holder
thereof:
(a) Each outstanding share of common stock, $100.00 par value per share of
the Company, including any and all shares which are held in the treasury of
the Company or held by the Company or any subsidiary of the Company other than
as trustee, fiduciary, nominee or some similar capacity ("Company Common
Stock") shall be canceled and retired and shall cease to exist from and after
the Effective Time, and no cash or other consideration shall be delivered in
exchange therefore;
(b) Each outstanding share of Company Common Stock, shall be converted into
that fraction of a share (rounded to the nearest 1/1000th of a share) of Gold
Common Stock, as defined in Section 3.6 below, equal to the quotient derived
from dividing the Common Per Share Amount by the average of the closing sales
prices of Gold Common Stock as reported by the National Association of
Securities Dealers Automated Quotation National Market System ("NASDAQ") on
each of the ten (10) consecutive trading days preceding the third trading day
prior to the Effective Time, (the "Average Gold Price").
(c) The "Common Per Share Amount" shall equal (i) $9,250,000.00 less any
amounts paid by Company, Bank or Investment (as hereinafter defined) with
respect to the expenses payable by the shareholders of Company pursuant to
Section 11.1 hereinafter, (ii) divided by 25,350.
2.3 Exchange of Certificates.
(a) Gold, on behalf of Sub, shall make available to Exchange National Bank,
which is hereby designated as exchange agent (the "Exchange Agent"), at and
after the Effective Time, such number of shares of Gold Common Stock as shall
be issuable to the holders of Company Common Stock in accordance with Section
2.2 hereof. As soon as practicable after the Closing Date, Gold on behalf of
the Exchange Agent shall mail to each holder of record of a certificate that
immediately prior to the Closing Date represented outstanding shares of
Company Common Stock (i) a form letter of transmittal and (ii) instructions
for effecting the surrender of certificates of Company Common Stock for
exchange into certificates of Gold Common Stock.
A-2
<PAGE>
(b) Notwithstanding any other provision herein, no fractional shares of Gold
Common Stock and no certificates or script therefor or other evidence of
ownership thereof will be issued. All fractional shares of Gold Common Stock
to which a holder of Company Common Stock would otherwise be entitled to under
Section 2.2 hereof shall be aggregated. If a fractional share results from
such aggregation, such shareholder shall be entitled, after the Effective Time
and upon the surrender of such shareholder's certificate or certificates
representing shares of Company Common Stock, to receive from the Exchange
Agent an amount in cash in lieu of such fractional share equal to the product
of such fraction and the Average Gold Price. Gold, on behalf of Sub, shall
make available to the Exchange Agent, as required from time to time, any cash
necessary for this purpose.
2.4 Closing of the Company Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of Company
Common Stock shall thereafter be made.
2.5 Dividends. No dividends or other distributions that are declared after
the Effective Time with respect to Gold Common Stock payable to holders of
record thereof after the Effective Time shall be paid to the Company
shareholders entitled to receive certificates representing Gold Common Stock
until such shareholders surrender their certificates. Upon such surrender,
there shall be paid to the shareholder in whose name the certificates
representing such Gold Common Stock shall be issued any dividends which shall
have become payable with respect to such Gold Common Stock between the
Effective Time and the time of such surrender, without interest. After such
surrender there shall also be paid to the shareholder in whose name the
certificates representing such Gold Common Stock shall be issued any dividend
on such Gold Common Stock that shall have (a) a record date subsequent to the
Effective Time and prior to such surrender and (b) a payment date after such
surrender, and such payment shall be made on such payment date. In no event
shall the shareholders entitled to receive such dividends be entitled to
receive interest on such dividends.
2.6 Shareholders' Approval. Company agrees to submit this Agreement and the
transactions contemplated hereby to its shareholders for approval to the
extent required and as provided by law and the Articles of Incorporation and
By-Laws of Company. A shareholders' meeting of Company shall be held and
Company shall use its reasonable best efforts to take all steps as shall be
required for said meeting to be held as soon as reasonably practicable after
the effective date of the Registration Statement (as defined in Section 10.1
hereof). Company and its Board of Directors shall recommend that the
shareholders of Company approve this Agreement and the transactions
contemplated hereby and shall use their reasonable best efforts to secure such
approval.
2.7 Dissenting Shares. Notwithstanding anything to the contrary contained in
this Agreement, to the extent appraisal rights are available to the Company's
shareholders pursuant to the KGCC, any shares held by a person who objects to
the Merger, whose shares were not entitled to vote or were not voted in favor
of the Merger and who complies with all of the provisions of the KGCC
concerning the rights of such person to dissent from the Merger and to require
appraisal of such person's shares and who has not withdrawn such objection or
waived such rights prior to the Closing Date ("Company Dissenting Shares")
shall not be converted pursuant to Section 2.2 but shall become the right to
receive such consideration as may be determined to be due to the holder of
such Company Dissenting Shares pursuant to the KGCC, including, if applicable,
any costs determined to be payable by Bank to the holders of the Company
Dissenting Shares pursuant to an order of the district court in accordance
with the KGCC. Notwithstanding the foregoing, as set forth hereinafter, the
obligation of Gold to close on this transaction is contingent upon the total
required cash payments due Company's shareholders totaling less than 5% of the
total consideration being provided by Gold to Company as consideration for
this merger.
2.8 Earnest Money Deposit. Concurrent with the execution hereof or as soon
as reasonably possible after the execution hereof, Sub shall deposit with
Exchange National Bank, Leawood, Kansas, as Escrow Agent (the "Escrow Agent")
the sum of $100,000.00 representing an Earnest Money Deposit (the "Earnest
Money Deposit"). Sub and the Company agree to execute an Escrow Agreement
containing terms and conditions reasonably acceptable to Escrow Agent, Sub and
the Company. In the event the transactions described herein close in
accordance with the terms hereof, then at the time of such closing, the
Earnest Money Deposit, and all
A-3
<PAGE>
interest earned thereon shall be returned to Sub. If this transaction does not
close as a result of the failure of any one or more of the conditions
precedent set forth in Article VII hereinafter, then the Earnest Money Deposit
and all interest thereon shall be returned to Sub. Likewise, if this
transaction does not close as a result of a breach by the Company of any of
its obligations hereunder, then in addition to all other rights and remedies,
the Sub may recover the Earnest Money Deposit. However, if the Company has
performed all of its obligations hereunder, is not in breach of any warranty
or representation herein contained, and all conditions precedent have been met
or waived in writing by Sub, but Gold and Sub fail to close this transaction,
then the Company shall be entitled to the Earnest Money Deposit and all
interest earned thereon as liquidated damages and not as a penalty. Forfeiture
of the Earnest Money Deposit to the Company shall be the Company's sole remedy
in the event Gold and Sub do not perform their obligations hereunder
notwithstanding the fact that the Company has complied with all of its
obligations hereunder and all conditions precedent have been met or waived in
writing by Sub. Sub and the Company shall evenly divide any expenses charged
by the Escrow Agent. The Company's share of such expenses shall be included in
the expenses they are obligated to pay under Section 11.1 hereinafter.
ARTICLE III
Representations and Warranties of Gold and Sub
Except as set forth on the Gold Disclosure Schedule attached hereto, Gold
and Sub, jointly and severally, hereby represent and warrant as follows:
3.1 Organization and Authority.
(a) Gold is a corporation duly organized, validly existing and in good
standing under the laws of the State of Kansas with the corporate power and
authority to own its properties and conduct its business as it is now being
conducted and is duly registered as a bank holding company under the
provisions of the Bank Company Act of 1956, as amended.
(b) Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Kansas. Sub has the corporate power to
enter into and perform this Agreement and the execution, delivery and
performance of this Agreement by Sub and the consummation by Sub of the
transactions contemplated hereby have been duly authorized by its Board of
Directors and by Gold as the sole shareholder of Sub.
3.2 Authority. Gold has all requisite corporate power and authority to enter
into this Agreement, and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement, and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Gold. This Agreement has been duly executed
and delivered by Gold, and assuming due execution and delivery by Company,
constitutes a valid and binding obligation of Gold, enforceable in accordance
with its terms subject to applicable conservatorship, receivership,
bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles
of equity (including without limitation specific performance), whether applied
in a court of law or a court of equity.
3.3 Shareholder Approval. The shareholders of Gold are not required to
approve this Agreement.
3.4 No Violations. Subject to approval by the appropriate regulatory
agencies, the execution, delivery and performance of this Agreement by Gold
and Sub do not, and the consummation of the transactions contemplated hereby
will not, constitute (i) a breach or violation of, or a default under, any
law, rule or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of Gold or any subsidiary or to
which Gold or any subsidiary (or any of their respective properties) is
subject, (ii) a breach or violation of, or a default under, the articles of
incorporation, charter or bylaws of Gold or any subsidiary of Gold or (iii) a
breach or violation of, or a default under (or an event which with due notice
or lapse of time or both would constitute a default under), or result in the
termination of, accelerate the performance required by, or result in the
termination of, accelerate the performance required by, or result in the
creation of any lien, pledge,
A-4
<PAGE>
security interest, charge or other encumbrance upon any of the properties or
assets of Gold under any of the terms, conditions or provisions of any note,
bond, indenture, deed of trust, loan agreement or other agreement, instrument
or obligation to which Gold is a party, or to which any of its respective
properties or assets may be bound or affected.
3.5 Consents. Except as disclosed herein, no filing or registration with, or
authorization, consent or approval of, any public body or authority is
necessary for the consummation by Gold of the Merger or the other transactions
contemplated by this Agreement.
3.6 Capital Stock of Gold. Gold has authorized capital stock consisting of
(a) 7,500,000 shares of common stock, $1.00 par value ("Gold Common Stock"),
of which 4,300,000 shares were issued and outstanding on March 31, 1997, and
(b) 7,500,000 shares of preferred stock for which no par value has as yet been
established and of which there are no shares issued and outstanding. All of
the issued and outstanding shares of Gold Common Stock are validly issued,
fully paid and non-assessable. Holders of Gold Common Stock do not have any
preemptive rights with respect to the issuance of additional authorized shares
of Gold Common Stock.
3.7 Government Regulation. Gold and its subsidiaries hold all material
licenses, certificates, permits, franchises and rights from all appropriate
federal, state or other public authorities necessary for the lawful conduct of
their respective businesses and ownership of their respective properties. Gold
and its subsidiaries have substantially complied with all material federal,
state and local statutes, regulations, ordinances or rules applicable to the
ownership of their respective properties or the conduct of their respective
businesses.
3.8 Financial Statements. The consolidated balance sheets of Gold as of
December 31, 1996, the consolidated statement of earnings for the year ended
December 31, 1996, and all related schedules and notes to the foregoing, all
of which have been delivered to Company, have been certified by KPMG Peat
Marwick LLP, independent certified public accountants. All of the foregoing
financial statements have been prepared in accordance with generally accepted
accounting principles and practices which were applied on a consistent basis,
are correct and complete and fairly and accurately present the financial
position, results of operation and changes of financial position of Gold as of
their respective dates and for the periods indicated. From December 31, 1996
until the date hereof, there has been no material adverse change in the
financial condition, properties or assets of Gold.
3.9 SEC Reports. Gold's Report on Form 10-KSB for year ended December 31,
1996, filed with the Securities and Exchange Commission and all subsequent
reports and proxy statements filed by Gold thereafter pursuant to Section
13(a) or 14(a) of the Securities Exchange Act of 1934 do not and will not
contain a misstatement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading as of the time the document was filed. Since the filing of such
Report on Form 10-KSB, no other report, proxy statement, or other document has
been required to be filed by Gold pursuant to Section 13(a) or 14(a) of the
Securities Exchange Act of 1934 which has not been filed. Gold has delivered
to Company the Form 10-KSB for the fiscal year ended December 31, 1996.
3.10 Status of Gold Common Stock to be Issued. The shares of Gold Common
Stock into which the Company Common Stock are to be exchanged or converted
pursuant to this Agreement will be, when delivered as specified in this
Agreement, validly authorized and issued, fully paid and non-assessable, and
registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, or any successor federal statute and the
rules and regulations promulgated thereunder, all as the same shall be in
effect at the time (the "Securities Act").
3.11 Legal Proceedings. There are as of the date hereof no actions, suits,
claims, demands or other proceedings or investigations, either judicial or
administrative, pending or, to the knowledge of Gold, threatened against or
affecting the properties, assets, rights or business of Gold or the right to
carry on or conduct its business, nor are there to the knowledge of Gold any
grounds therefor, which, if adversely determined, would
A-5
<PAGE>
have a Material Adverse Effect on the business, operations, properties or
financial condition of Gold. There are as of the date hereof no actions,
suits, claims, demands or other proceedings or investigations, either judicial
or administrative, pending or, to the knowledge of Gold, threatened which will
or could prevent or interfere with the consummation of the transactions
contemplated by this Agreement.
3.12 Taxes. Gold and Sub have timely filed all tax returns required to be
filed by them, and have timely paid and discharged any Taxes due in connection
with all such tax returns. To the best knowledge of Gold, the liability for
taxes set forth on each such tax return adequately reflects the Taxes due with
respect to such returns. Neither the Internal Revenue Service nor any other
taxing authority is now asserting, either through audits, administrative
proceedings, court proceedings or otherwise any deficiency or claim for
additional Taxes against Gold or Sub. Neither Gold nor Sub has granted any
waiver of any statute of limitations with respect to, or any extension of a
period for the assessments of, any tax. There are no tax liens on any of the
assets of Gold or Sub.
3.13 Defaults. Neither Gold nor any of its subsidiaries is in material
breach or material default under any agreement or commitment to which Gold or
any of its subsidiaries is a party, or under any loan agreement, note,
security agreement, guarantee or other document pursuant to or in connection
with Gold's or any of its subsidiaries' extension of credit; and, to their
knowledge, there has not occurred any event which, after the giving of notice,
the lapse of time or otherwise, would constitute any such default under, or
result in any such breach of, any such agreement, commitment or extension of
credit.
3.14 Information Supplied. None of the information supplied or to be
supplied by Gold and Sub for inclusion or incorporation by reference in (a)
the Registration Statement (as defined in Section 11.1) will, at the time the
Registration Statement is filed with the Securities and Exchange Commission
(the "SEC") and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.
3.15 Absence of Adverse Agreements. Neither Gold nor Sub is a party to any
agreement or instrument or any judgment, order or decree or any rule or
regulation of any court or other governmental agency or authority which
materially and adversely affects or in the future may have a Material Adverse
Effect on the financial condition, results or operations, assets, business or
prospects of Gold or Sub, taken as a whole.
3.16 Broker's Fees. Neither Gold nor Sub nor any of their respective
officers or directors has employed any broker or finder or incurred any
liability for any broker's fees, commissions or finder's fees in connection
with any of the transactions contemplated by this Agreement.
ARTICLE IV
Representations and Warranties of Company
Except as set forth on the Company Disclosure Schedule attached hereto,
Company hereby represents and warrants to each of Gold and Sub as follows:
4.1 Organization and Good Standing.
(a) Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Kansas with the corporate power and
authority to own its properties and conduct its business as it is now being
conducted and is duly registered as a bank holding company under the Bank
Company Act of 1956, as amended. The conduct of Company's business and the
ownership of its properties do not require Company to qualify as a foreign
corporation in any jurisdiction except where the failure to be so qualified
individually or in the aggregate would not materially and adversely affect the
business, operations, properties or financial condition of Company and its
subsidiary.
(b) Company has one subsidiary: Peoples National Bank, Clay Center, Kansas
("Bank"), which is a national banking association duly organized, validly
existing and in good standing under the laws of the United
A-6
<PAGE>
States of America with the corporate power and authority to carry on its
business as it is now being conducted. Bank has one subsidiary: Peoples
Investment Subsidiary, Inc. ("Investment") which is a corporation duly
organized, validly existing and in good standing under the laws of Kansas with
the corporate power and authority to carry on its business as it is now being
conducted. Bank and Investment are each duly qualified to do business in each
jurisdiction in which they own or leases real property or in which the conduct
of their business requires such qualification except where the failure to be
so qualified individually or in the aggregate would not materially and
adversely affect the business, operations, properties or financial condition
of Company, Bank and/or Investment.
4.2 Authority. Company has all requisite corporate power and authority to
enter into this Agreement, and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement, and the consummation of
the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Company. This Agreement has been
duly executed and delivered by Company, and assuming due execution and
delivery by Gold, constitutes a valid and binding obligation of Company,
enforceable in accordance with its terms subject to applicable
conservatorship, receivership, bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity (including without limitation
specific performance), whether applied in a court of law or a court of equity.
4.3 Shareholder Approval. The Board of Directors of Company has directed or
will direct, that this Agreement and the transactions contemplated hereby be
submitted to the Company's shareholders for approval at a meeting of such
shareholders and, except for adoption of this Agreement by the requisite vote
of the Company's shareholders, no other shareholder action is necessary to
approve this Agreement and to consummate the transactions contemplated hereby.
The Board of Directors will recommend that the shareholders approve the
transactions contemplated hereby subject to its fiduciary duties. No approval
of a number of outstanding shares of Company, Bank or Investment greater than
that required by the relevant statutory provisions is required for approval of
this Agreement and the consummation of the transactions contemplated hereby.
Approval of this Agreement by the shareholders shall also constitute the
acceptance by the shareholders of the indemnification obligation imposed upon
them under Section 9.5 hereinafter.
4.4 No Violations. Subject to approval by the appropriate regulatory
agencies, the execution, delivery and performance of this Agreement by Company
do not, and the consummation of the transactions contemplated hereby will not,
constitute (i) a breach or violation of, or a default under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license, or
agreement, indenture or instrument of Company, Bank or Investment or to which
Company, Bank or Investment (or any of their respective properties) is
subject, (ii) a breach or violation of, or a default under, the articles of
incorporation, charter or bylaws of Company, Bank or Investment or (iii) a
breach or violation of, or a default under (or an event which with due notice
or lapse of time or both would constitute a default under), or result in the
termination of, accelerate the performance required by, or result in the
termination of, accelerate the performance required by, or result in the
creation of any lien, pledge, security interest, charge or other encumbrance
upon any of the properties or assets of Company, Bank or Investment under any
of the terms, conditions or provisions of any note, bond, indenture, deed of
trust, loan agreement or other agreement, instrument or obligation to which
the Company, Bank or Investment is a party, or to which any of their
respective properties or assets may be bound or affected.
4.5 Consents. Except as disclosed herein, no filing or registration with, or
authorization, consent or approval of, any public body or authority is
necessary for the consummation by Company of the Merger or the other
transactions contemplated by this Agreement.
4.6 Capitalization. Company has authorized capital stock consisting of
1,000,000 shares of common stock, par value $100.00 per share, of which 25,350
shares are issued and outstanding. All of the issued and outstanding shares of
Company Common Stock are validly issued, fully paid and non-assessable. There
are no outstanding warrants, options, subscriptions, contracts, rights or
other agreements or commitments obligating Company to issue or sell any
additional shares of Company Common Stock nor are there outstanding any
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securities, debts, obligations or rights which are convertible into or
exchangeable for shares of Company Common Stock or Preferred Stock. The
authorized capital stock of Bank consists of 10,000 shares of common stock,
$100.00 par value per share, ("Bank Stock") of which 10,000 shares have been
duly and validly issued, are fully paid, and all of which are owned directly
by Company free and clear of all liens, encumbrances, equities or claims.
There are no outstanding warrants, options, subscriptions, contracts, rights
or other arrangements or commitments obligating Company, Bank or Investment to
issue or sell any additional shares of Bank's capital stock nor are there
outstanding any securities, debts, obligations or rights which are convertible
into or exchangeable for shares of capital stock or any other equity security
of Bank. The authorized capital stock of Investment consists of 100 shares of
common stock, $100.00 par value per share ("Investment Stock") of which 100
shares have been duly and validly issued, are fully paid, all of which are
owned by Bank. There are no outstanding warrants, options, subscriptions,
contracts, rights or other arrangements or commitments obligating Company,
Bank or Investment to issue or sell any additional shares of Investment's
capital stock nor are there outstanding any securities, debts, obligations or
rights which are convertible into or exchangeable for shares of capital stock
or any other equity security of Investment.
4.7 Government Regulation. Company, Bank and Investment hold all material
licenses, certificates, permits, franchises and rights from all appropriate
federal, state or other public authorities necessary for the lawful conduct of
their respective businesses and ownership of their respective properties.
Company, Bank and Investment have substantially complied with all material
federal, state and local statutes, regulations, ordinances or rules applicable
to the ownership of their respective properties or the conduct of their
respective businesses.
4.8 Financial Statements. The Company has previously delivered to Gold and
Sub balance sheets for the Company as of March 31, 1997, December 31, 1996 and
December 31, 1995, the statements of earnings for the period ended March 31,
1997 and for the years ended December 31, 1996 and December 31, 1995, and all
related schedules and notes to the foregoing (collectively the "Company
Financial Statements"). Although such statements have not been certified as of
the date hereof by independent certified public accountants, the Company
Financial Statements have been prepared in accordance with generally accepted
accounting principles and practices which were applied on a consistent basis,
are correct and complete and fairly and accurately present the financial
position, results of operation and changes of financial position of Company as
of their respective dates and for the periods indicated. Company has no
material liabilities or obligations of a type which would be included in a
balance sheet prepared in accordance with generally accepted accounting
principles whether related to tax or non-tax matters, accrued or contingent,
due or not yet due, liquidated or unliquidated, or otherwise, except as and to
the extent disclosed or reflected in the balance sheet of Company as of
December 31, 1996, or incurred since December 31, 1996, in the ordinary course
of business. From December 31, 1996 until the date hereof, there has been no
material adverse change in the financial condition, properties, assets,
liabilities, rights or business of Company, Bank or Investment, or in the
relationship of Company, Bank or Investment with respect to its employees,
creditors, suppliers, distributors, customers or others with whom it has
business relationships.
The Company agrees that an independent certified public accountant selected
by it (but subject to approval by Gold and Sub) shall conduct an independent
audit sufficient to allow certification of the consolidated balance sheet of
the Company as of December 31, 1996 and the consolidated statement of earnings
for the year then ended. The Company is contributing to the expense of same in
accordance with the terms of Section 11.1 hereinafter. The Company agrees to
promptly select the independent certified public accountant so that such audit
can be completed as quickly as possible in order to facilitate completion of
the Registration Statement (as contemplated under Article X hereinafter) and
obtaining requisite regulatory approval.
4.9 Legal Proceedings. There are as of the date hereof no actions, suits,
claims, demands or other proceedings or investigations, either judicial or
administrative, pending or, to the knowledge of Company, threatened against or
affecting the properties, assets, rights or business of Company, Bank or
Investment or the right to carry on or conduct their respective businesses,
nor are there to the knowledge of Company any grounds therefor. There are as
of the date hereof no actions, suits, claims, demands or other proceedings or
investigations,
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either judicial or administrative, pending or, to the knowledge of Company,
threatened which will or could prevent or interfere with the consummation of
the transactions contemplated by this Agreement.
4.10 Title to Assets. Except for securities pledged to secure public funds
deposits or subject to customer repurchase agreements entered into in the
ordinary course of business, and leased property discussed below, Company,
Bank and Investment have good and marketable title to and possession of all of
their respective real and personal properties and assets, in each case free
and clear of any liens, restrictions, encumbrances, rights, title and
interests of others, except for other real estate owned and except as
reflected on their respective financial statements and except for the lien of
current taxes, covenants and restrictions of record, and other minor
imperfections of title not affecting marketability, which liens, covenants,
restrictions and imperfections do not materially affect the value of such
property and do not interfere with the use made of such property by Company,
Bank and Investment. The real and personal properties and assets held under
lease by Company, Bank and Investment are held by them under valid, subsisting
and enforceable leases with such exceptions as do not interfere with the use
made of such properties and assets by Company, Bank and Investment. No consent
is necessary under the terms of any such lease in connection with the
consummation of the transactions contemplated hereby.
4.11 Undisclosed Liabilities. As of the date hereof, neither Company, Bank
nor Investment have any debt, liability or obligation (whether accrued,
contingent, absolute or otherwise) known to any of such corporations of the
nature which would customarily be included in a corporate balance sheet or the
notes thereto prepared in accordance with generally accepted accounting
principles that is not reflected or reserved against in the Company Financial
Statements or was not incurred in the ordinary course of their business.
4.12 Taxes. The Company, Bank and Investment have timely filed all Tax
Returns required to be filed by them, and the Company, Bank and Investment
have timely paid and discharged all Taxes due in connection with or with
respect to the filing of such Tax Returns and have timely paid all other Taxes
as are due, except such as are being contested in good faith by appropriate
proceedings and with respect to which the Company is maintaining reserves
adequate for their payment. To the best knowledge of the Company, the
liability for Taxes set forth on each such Tax Return adequately reflects the
Taxes required to be reflected on such Tax Return. Neither the IRS nor any
other governmental entity or taxing authority or agency is now asserting,
either through audits, administrative proceedings, court proceedings or
otherwise, or, to the best of Company's knowledge, threatening to assert
against Company, Bank or Investment any deficiency or claim for additional
Taxes. Neither the Company, Bank nor Investment has granted any waiver of any
statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax. There are no tax liens or any assets of the Company,
Bank or Investment. Neither the Company, Bank nor Investment has received a
ruling or entered into an agreement with the Internal Revenue Service or any
other governmental entity or taxing authority or agency that would have a
Material Adverse Effect (as defined below) on the Company, Bank or Investment,
taken as a whole, after the Effective Time. For purposes of this Agreement,
"Material Adverse Effect" with respect to the Company, Bank or Investment
means an effect that: (1) is materially adverse to the business, financial
condition, results of operations or prospects of the Company, Bank or
Investment taken as a whole; (2) significantly and adversely affects the
ability of the Company, Bank or Investment to consummate the transactions
contemplated by this Agreement by the Closing Date or to perform their
material obligations under this Agreement; or (3) enables any persons to
prevent the consummation by the Closing Date of the transactions contemplated
by this Agreement. The accruals and reserves for taxes reflected in the
Company's Balance Sheet are adequate to cover all Taxes accruable by the
Company and its subsidiaries on a consolidated basis through the date thereof
(including Taxes being contested) in accordance with generally accepted
accounting principles. For purposes of this provision, "Tax" or "Taxes" shall
mean all taxes, charges, fees, levies and other governmental assessments and
impositions of any kind, payable to any federal, state, local or foreign
governmental entity or taxing authority or agency including, not by way of
limitation, all income, franchise, profits, gross receipts, estimated, ad
valorem, value added, sales, use, service, real or personal property, capital
stock, license, payroll, withholding, disability, employment, social security,
worker's compensation, unemployment compensation, utility, excise, severance,
production, occupation, transfer and gains taxes, as well as any interest,
penalties and additions to tax imposed
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with respect thereto. "Tax Returns" shall mean returns, reports and
information statements with respect to Taxes required to be filed with the
Internal Revenue Service or any other governmental entity or taxing authority
or agency, whether federal, state or local and whether domestic or foreign.
4.13 Contracts. Neither Company, Bank nor Investment is party to or bound by
any:
(a) employment contract or letter or other writing relating to employment;
(b) bonus, deferred compensation, savings, profit sharing, severance pay,
pension or retirement plan or arrangement;
(c) material lease or license with respect to any property, real or
personal, whether Company, Bank or Investment is landlord or tenant, licensor
or licensee, involving a liability or obligation of Company, Bank or
Investment as obligor in excess of $5,000 on an annual basis or over the life
of the lease or license.
(d) agreement, contract or indenture relating to the borrowing of money by
Company or any subsidiary, excluding deposit obligations, obligations under
certificates of deposit, letters of credit, items in the process of
collection, commitments to loan or discount, endorsements made for collection
and guarantees made in the ordinary course of business;
(e) agreement with any present or former officer, director or shareholder of
Company, Bank or Investment; or
(f) except as listed in the disclosure statement, other contract, agreement
or other commitment which is material to the business, operations, property,
prospects or assets or to the condition, financial or otherwise, of Company,
Bank or Investment or which involve a payment by Company, Bank or Investment
of more than $1,000 in one year over the life of such contract, agreement or
commitment.
4.14 Regulatory Reports; Examinations. Company, Bank and Investment have
timely filed all material reports, registrations and statements, together with
any amendments required to be made with respect thereto, with all governmental
or regulatory authorities, agencies, courts, commissions or other entity
("Governmental Entity") and have paid all fees and assessments due and payable
in connection therewith. Except for normal examinations conducted by a
Governmental Entity in the regular course of the business of Company, Bank and
Investment, no Governmental Entity has initiated any proceeding or, to the
best knowledge of Company, investigation into the business or operations of
Company, Bank or Investment. There is no unresolved material violation,
criticism, or exception by any Governmental Entity with respect to any report
or statement relating to any examinations of Company, Bank or Investment.
Company has provided or made available to Gold all reports of examinations
conducted by any Governmental Entity with respect to Company, Bank and/or
Investment, and all correspondence between Company, Bank and/or Investment and
any Governmental Entity during the preceding ten (10) years.
4.15 Conduct. From December 31, 1996 until the date hereof:
(a) There has been no material adverse change in the financial condition of,
or in the properties, assets, liabilities, rights or business, taken as a
whole, of Company, Bank or Investment or in the relationship of Company, Bank
or Investment with respect to their employees, creditors, suppliers,
distributors, customers or others with whom they have business relationships.
(b) The business affairs of Company, Bank and Investment have been conducted
and carried on only in their ordinary and regular course of business, and
Company, Bank and Investment have not incurred or become subject to any
liabilities or obligations other than those incurred in their ordinary course
of business, those incurred pursuant to existing contracts disclosed pursuant
to Section 4.14 and those incurred pursuant to commitments permitted hereby.
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(c) Neither Company, Bank nor Investment have entered into any employment
contract with any director, officer or salaried employee, paid any or made any
accrual or arrangement for payment of bonuses or special compensation of any
kind or any severance or termination pay to any of their officers, employees
or directors, increased the rate of compensation, if any, or instituted or
made any material increase in any officer's, employee's or director's welfare,
retirement or similar plan or arrangement, other than merit increases made in
accordance with past practices and procedures which have not exceeded the
greater of $3,000 or 5% on an annual basis for any one individual.
4.16 Compliance with ERISA. Neither Company, Bank nor Investment has
established, maintained or contributed at anytime during the five-year period
ending as of the Effective Time to any employee benefit plan (as defined in
Sections 3(3) or 3(37) of the Employment Retirement Income Security Act of
1974 ("ERISA")) or any other plan with respect to which any governmental
filings are required, except for the plans listed on Schedule 4.17
(collectively, the "Plans"). A true and accurate copy of each of the Plans,
any related trust agreements and each of the amendments thereto has been
provided to Gold together with (i) all determination letters received in
respect of any qualified plans, and (ii) all required reports and supporting
schedules filed with any government agency in respect of the Plans for the
three most recent years ending on or before the Effective Time. To Company's
knowledge as sponsor of the Plans, the Plans and each fiduciary (as defined in
Section 3(21) of ERISA) of the Plans are in compliance in all material
respects with all applicable requirements (including nondiscrimination
requirements in effect as of the Effective Time) of the Internal Revenue Code
of 1986 ("Code"), including, but not limited to, Sections 79, 105, 106, 125,
401, 501, and 4975 of the Code. For purposes of this Section 4.17,
noncompliance with the Code or ERISA is material of such noncompliance could
have a Material Adverse Effect on the condition of one or more of the Plans or
of Company, Bank or Investment, either as of the Effective Time or upon
discovery of the noncompliance. To Company's knowledge as sponsor of the
Plans, all required contributions to the Plans through the Effective Time have
been made. To Company's knowledge as sponsor of the Plans, Company, Bank and
Investment (each with respect to the Plans), as well as the Plans, have no
material current or threatened liability of any kind to any person, including
but not limited to any government agency, now or as of the Effective Time,
other than for the payment of benefits in the ordinary course.
4.17 Information Supplied. None of the information supplied or to be
supplied by Company for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement is filed
with the SEC and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (ii) the Proxy Statement will, at the date of mailing to
stockholders and at the times of the meetings of stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading, other than information supplied by Gold
or Sub.
4.18 Defaults. Neither Company, Bank nor Investment is in material breach or
material default known to either under any agreement or commitment to which
the Company, Bank or Investment is a party, or under any loan agreement, note,
security agreement, guarantee or other document pursuant to or in connection
with the Company's, Bank's or Investment's extension of credit; and to their
knowledge there has not occurred any event which, after the giving of notice,
the lapse time or otherwise, would constitute any such default under, or
result in any such breach of, any such agreement, commitment or extension of
credit.
4.19 Insurance. Complete and correct copies of all material policies of
fire, product or other liability, workers' compensation and other similar
forms of insurance owned or held by Company, Bank and Investment have been
delivered or made available to Gold. Subject to expirations and renewals of
insurance policies in the ordinary course of business, all such policies are
in full force and effect, all premiums with respect thereto covering all
periods up to and including the date as of which this representation is being
made have been paid (other than retrospective premiums which may be payable
with respect to worker's compensation insurance
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policies), and no notice of cancellation or termination has been received with
respect to any such policy. Such policies are and shall remain valid,
outstanding and enforceable policies, and will not be terminated prior to the
Effective Time. To the best knowledge of Company, the insurance policies to
which Company, Bank or Investment are parties are sufficient for compliance
with all material requirements of law and all material agreements to which
Company, Bank or Investment are parties and will be maintained by Company,
Bank and Investment until the Effective Time. Neither Company, Bank nor
Investment has been refused any insurance with respect to any material assets
or operations, nor has coverage been limited in any respect material to their
operations by any insurance carrier to which they have applied for any such
insurance or with which they have carried insurance during the last five (5)
years.
4.20 Absence of Adverse Agreements. Neither the Company, Bank nor Investment
is a party to any agreement or instrument or any judgment, order or decree or
any rule or regulation of any court or other governmental agency or authority
which materially and adversely affects or in the future may have a Material
Adverse Effect on the financial condition, results or operations, assets,
business or prospects of the Company, Bank or Investment, taken as a whole.
4.21 Internal Controls and Records. The Company, Bank and Investment
maintain books of account which accurately and validly reflect, in all
material respects, all loans, mortgages, collateral and other business
transactions and maintain accounting controls sufficient to ensure that all
such transactions are (a) in all material respects, executed in accordance
with its management's general or specific authorization, and pursuant to
Company's, Bank's and Investment's documented policies and procedures, and (b)
recorded in conformity with generally accepted accounting principles. Company
has furnished to Gold all of Company's, Bank's and Investment's written
internal policies and procedures which are identified on the Company's
Disclosure Schedule.
4.22 Loans. (a) Bank is not a party to any written or oral loan agreement,
note or borrowing arrangement which has been classified as "substandard",
"doubtful," "loss," "other loans especially mentioned" or any comparable
classifications by Company, Bank, Investment or banking regulators; (b)
neither Company, Bank nor Investment is a party to any written or oral loan
agreement, note, or borrowing arrangement, including any loan guaranty, with
any director or executive officer of Company, Bank or Investment, or any
person, corporation or enterprise controlling, controlled by or under common
control with any of the foregoing; (c) to the best knowledge of Company
neither Company, Bank nor Investment is a party to any written or oral loan
agreement, note or borrowing arrangement in violation of any law, regulation
or rule of any governmental authority.
4.23 Environmental Laws. The operations of Company, Bank and Investment
comply with all applicable past and present federal, state and local
environmental statutes and regulations and neither the condition of any
property owned by Company, Bank and/or Investment nor the operation of the
business of any of such three entities violates any applicable federal, state
or local environmental statute or regulation. None of the operations of
Company, Bank or Investment is subject to any judicial or administrative
proceeding alleging the violation of any federal, state or local environmental
health or safety statute or regulation nor is it the subject of any claim
alleging damages to health or property pursuant to which the Company, Bank or
Investment may be liable. None of the operations of nor any of the properties
owned by Company, Bank or Investment is the subject of any federal, state or
local investigation in evaluating whether any remedial action is needed to
respond to a release or threatened release of any hazardous waste or substance
from whatever source. No condition or event has occurred which, with notice or
the passage of time or both, would constitute a violation of any federal,
state or local environmental law and at no time has the Company, Bank or
Investment stored or used any pollutants, contaminants or hazardous or toxic
waste, substances or materials on or at any location owned by Company, Bank or
Investment. There are no underground storage tanks now or heretofore located
on any real property owned by Company, Bank or Investment. Neither Company,
Bank nor Investment has ever been notified by either a federal, state or local
governmental authority, or any private party, that Company, Bank or Investment
is a potentially responsible party for remedial costs spent addressing the
release, or threat of a release, of a hazardous substance and to the
environment pursuant to the Comprehensive Environmental Response, Compensation
or Liability Act, 42 U.S.C. (S)(S) 9601, et seq. or any corresponding state
law.
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Gold may obtain at its option expense on or prior to 120 days following the
date hereof an environmental audit of all properties and assets of Company,
Bank and Investment whether directly owned or classified as other real estate
owned. Such environmental audit shall constitute a part of the due diligence
process, should Gold choose to pursue it, and if Gold determines in its sole
discretion that such environmental audit has not been completed to its
reasonable satisfaction or reflects the potential of an environmental problem
with respect to any of the properties or assets of Company, Bank or
Investment, then Gold may deem the due diligence unsatisfactory and terminate
this Agreement under the terms of Section 9.1 hereinafter.
4.24 Broker's Fees. Neither Company, Bank nor Investment nor any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in
connection with any of the transactions contemplated by this Agreement.
4.25 Labor Matters. (a) To the best knowledge of Company, Company, Bank and
Investment are in compliance with all applicable laws respecting employment
and employment practices, terms and conditions of employment and wages and
hours, and are not engaged in any unfair labor practice; (b) there is no
unfair practice complaint against Company, Bank or Investment pending before
the National Labor Relations Board; (c) there is no labor strike, dispute,
slowdown, representation campaign or work stoppage actually pending or
threatened against or affecting Company, Bank or Investment; (d) no grievance
or arbitration proceeding arising out of or under collective bargaining
agreements is pending and no claim therefor has been asserted against Company,
Bank or Investment; and (e) neither Company, Bank nor Investment is
experiencing any material work stoppage.
4.26 Full Disclosure. No statement contained in any document, certificate,
or other writing furnished or to be furnished by or at the direction of
Company to Gold in, or pursuant to the provisions of, this Agreement contains
or shall contain any untrue statement of a material fact or omits or shall
omit to state any material fact necessary, in light of the circumstances under
which it was made, in order to make the statements herein or therein not
misleading.
ARTICLE V
Covenants of Company
5.1 Affirmative Covenants of the Company. Unless the prior written consent
of Gold shall have been obtained, and which consent will be given or denied
within 3 business days of receipt of written request for such consent, and
except as otherwise expressly contemplated herein, the Company shall and shall
cause Bank to (i) operate its business only in the usual, regular, and
ordinary course, (ii) preserve intact its business organization and assets and
maintain its rights and franchises; and (iii) take no action which would (a)
materially adversely affect the ability of any party to obtain any consents
required for the transactions contemplated hereby without imposition of a
condition or restriction which would prevent the transactions contemplated
hereby, including the Merger, from qualifying as a reorganization within the
meaning of Section 368(a) of the Code, or (b) materially adversely affect the
ability of any party to perform its covenants and agreements under this
Agreement.
5.2 Negative Covenants of the Company. Except as specifically permitted by
this Agreement, from the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement, the Company covenants and
agrees that it will not do or agree to commit to do, or permit Bank to do or
agree to commit to do, any of the following without the prior written consent
of Gold, which consent shall not be unreasonably withheld and which consent
will be given or denied within 3 business days of receipt of written request
for such consent:
(a) make any single loan (or series of loans to the same or related entities
or persons) or any commitment (verbal or written) for a loan (or series of
commitments to the same or related entities or persons) in an amount greater
than $250,000.00 other than renewals of existing loans or commitments to loan;
(b) purchase or invest in any securities, other than U.S. government
obligations or other securities backed by the full faith and credit of the
United States having a maturity of not more than two years from the date of
purchase;
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(c) amend or adopt any employee benefit plan, and will not grant any
increase in the rates of pay of their employees or any increase in the
compensation payable or to become payable, if any, to any director, officer,
employee or agent thereof, or contribute to any pension plan or otherwise
increase in any amount the benefits or compensation of any such directors,
officers or employees of Company, Bank or Investment under any pension plan or
other contract or commitment except for merit increases in accordance with
past practices;
(d) make any capital expenditure or enter into any material contract or
commitment (except loan commitments as permitted in Subparagraph (a) of this
Section 5.2); involving an obligation or commitment in excess of $5,000 or
engage in any transaction not in their usual and ordinary course of business
and consistent with past practices;
(e) declare or pay any dividend or make any other distribution in respect of
any capital stock of Company, Bank or Investment, split, combine or reclassify
any shares of its capital stock or, directly or indirectly, redeem, purchase
or otherwise acquire any share of the capital stock of the Company, Bank or
Investment;
(f) amend the Articles of Incorporation or By-Laws of each of the Company,
Bank or Investment or make any change in the authorized, issued or outstanding
capital stock (or any change in the par value thereof) of Company, Bank or
Investment;
(g) acquire or purchase any assets of or make any investment in any
financial institution other than the purchase of loans or participations
therein in the ordinary course of business, but subject to Section 5.2(a);
(h) enter into any new line of business;
(i) acquire or agree to acquire, by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire any assets, which would be material, individually or in the
aggregate, to Company, other than in connection with foreclosures, settlements
in lieu of foreclosure or troubled loan or debt restructuring in the ordinary
course of business consistent with prudent banking practices;
(j) take any action that is intended or may reasonably be expected to result
in any of its representations and warranties set forth in this Agreement being
or becoming untrue in any material respect, or in any of the conditions to the
Merger set forth in Article VII not being satisfied, or in a violation of any
provisions of this Agreement except, in every case, as may be required by
applicable law;
(k) change its methods of accounting except as required by changes in
generally accepted accounting principles ("GAAP") or regulatory accounting
principles as concurred to by the Company's independent auditors;
(l) other than activities in the ordinary course of business consistent with
prior practice, sell, lease, encumber, assign or otherwise dispose of, any of
its material assets in excess of $5,000.00, properties or other rights of
agreements;
(m) file any application to relocate or terminate the operations of any
banking office;
(n) make any equity investment or commitment to make such an investment in
real estate or in any real estate development project, other than in
connection with foreclosures, settlements in lieu of foreclosure or troubled
loan or debt restructuring in the ordinary course of business consistent with
prudent banking practices;
(o) create, renew, amend or terminate or give notice of a proposed renewal,
amendment or termination of, any material contract, agreement or lease for
goods, services or office space to which the Company, Bank or Investment is a
party or by which the Company, Bank or Investment or their respective
properties is bound; or
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(p) make any new loan or new extension of credit, or commit to make any such
loan or extension of credit, to any director or officer of the Company, Bank
or Investment without giving Gold three days' notice in advance of the
Company's, Bank's or Investment's approval of such loan or extension of credit
or commitment relating thereto.
5.3 Inspection. Between the date hereof and the Closing Date and upon
reasonable notice, and with the prior consent of James P. Fawcett, Gold and
its authorized representatives shall be permitted full access during all
business hours to all properties, books, records, contracts and documents of
Company Bank and Investment. The Company shall furnish to Gold and its
authorized representative all information with respect to the affairs of
Company, Bank and Investment as Gold may reasonably request.
5.4 Financial Statements and Call Reports. From and after to date thereof,
Company shall deliver to Gold monthly reports of condition and income
statements of Company, Bank and Investment and shall deliver to Gold copies of
the call reports for Bank as filed with any regulatory agency promptly after
such filing.
5.5 Right to Attend Meetings. Company, Bank and Investment shall allow a
representative of Gold to attend as an observer all meetings of the Board of
Directors of Company, Bank and Investment and all meetings of the committees
of each such board, including, without limitation, the audit and executive
committees thereof and any other meetings of Company, Bank or Investment
officials at which policy is being made. Company, Bank and Investment shall
give reasonable notice to Gold of any such meeting and, if known, the agenda
for or business to be discussed at such meeting. Company, Bank and Investment
shall provide to Gold all information provided to the directors on all such
boards and committees in connection with all such meetings or otherwise
provided to the directors and shall provide any other financial reports or
other analyses prepared for senior management of Company, Bank or Investment.
5.6. Data Processing. Company shall cooperate with Gold in taking those
planning actions necessary to be in a position to convert its data processing
procedures and formats to procedures and formats used by Gold, if any, as of
the Effective Time. Gold shall provide such assistance and consultation as
Company may reasonably require in such planning process.
5.7 No Solicitation. Neither Company, Bank nor Investment nor any affiliates
or associates of Company, Bank or Investment acting for or on behalf of
Company, Bank or Investment shall, directly or indirectly, make, encourage,
facilitate, solicit, assist or initiate any inquiry or proposal, or
participate in any negotiations with, or, subject to the provisos to this
sentence, provide any information to, any corporation, partnership, agent,
attorney, financial adviser, person, or other entity or group (other than (a)
Gold, Sub, an affiliate or associate of Gold or Sub or an officer, employee or
other authorized representative of Gold, Sub or such affiliate or associate or
(b) the Company's counsel, accountants and financial adviser solely for use in
connection with the transactions contemplated hereby) relating to any (i)
liquidation, dissolution, recapitalization, merger or consolidation of the
Company, Bank or Investment, (ii) outside the ordinary course of business,
sale of a significant amount of assets of the Company, Bank or Investment,
(iii) purchase or sale of shares of capital stock of the Company, Bank or
Investment, or (iv) any similar transactions involving Company, Bank or
Investment, other than the transactions contemplated by this Agreement;
provided, however, that the Company may provide information at the request of
a third party if the Board of Directors of the Company determines, in good
faith, that the exercise of its fiduciary duties to the Company's shareholders
under applicable law, as advised in writing by outside counsel reasonably
acceptable to Gold and Sub, requires it to take such action, and, provided
further, that Company may not, in any event, provide to such third party any
information which it has not provided to Gold and Sub. Company shall
immediately cease and cause to be terminated any and all such contacts and
negotiations with respect to any such transaction. Company shall immediately
inform Gold and Sub of any inquiry, proposal or request for information
(including the terms thereof and the person making such inquiry) which it may
receive in respect of such a transaction.
5.8 Regulatory Approvals. Subject to the terms and conditions of this
Agreement, Company agrees to use its reasonable best efforts to cooperate with
Gold in Gold's efforts to secure as expeditiously as practicable all the
necessary approvals, regulatory or otherwise, needed to consummate the
transactions contemplated herein.
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5.9 Information. Company shall provide such information and answer such
inquiries as Gold may reasonably request or make concerning the subject matter
of the representations and warranties of Company herein.
5.10 Tax-Free Reorganization Treatment. Company shall not intentionally take
or cause to be taken any action, whether before or after the Effective Time,
which would disqualify the Merger or the Exchange as a tax-free
"reorganization" within the meaning of Section 368(a) of the Code.
ARTICLE VI
Covenants of Gold and Sub
6.1 Regulatory Approvals. Subject to the terms and conditions of this
Agreement, Gold and Sub agree to use their reasonable best efforts to secure
as expeditiously as practicable all the necessary approvals, regulatory or
otherwise, needed to consummate the transactions contemplated herein and agree
to file applications relating to such approvals within sixty (60) days from
the date hereof. Gold and Sub shall provide to Company's counsel a copy of all
applications for such approvals and shall keep such counsel or the Company
advised of the status of the regulatory review process.
6.2 Information. Gold and Sub shall provide such information and answer such
inquiries, as the Company may reasonably request or make concerning the
subject matter of the representations and warranties of Gold and Sub herein.
6.3 Tax-Free Reorganization Treatment. Neither Gold nor Sub shall
intentionally take or cause to be taken any action, whether before or after
the Effective Time, which would disqualify the Merger or the Exchange as a
tax-free "reorganization" within the meaning of Section 368(a) of the Code.
6.4 Employee Benefits. Employees of Company, Bank or Investment shall be
eligible to participate in all Gold employee welfare benefit plans in
accordance with their terms, and for such purpose all service of such
employees with the Company, Bank and Investment shall be counted as service
with Gold.
ARTICLE VII
Conditions Precedent to Gold's Obligations
The obligations of Gold and Sub to consummate the transactions hereunder
shall be subject to the satisfaction on or before the Closing Date of all of
the following conditions, except such conditions as Gold or Sub may waive in
writing:
7.1 Representations, Warranties and Covenants. All representations and
warranties of Company contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date, except for changes
permitted by or contemplated by this Agreement and except to the extent that
any such representation or warranty is made solely as of a specified date.
Company shall have performed all agreements and covenants in all material
respects required by this Agreement to be performed on or prior to the Closing
Date and Gold shall have received a certificate signed by the Chief Executive
Officer of Company, dated the Closing Date, to the foregoing effect.
7.2 Material Actions; Debts or Defaults. On the Closing Date, there shall
not be: (i) except as set forth on the Company Disclosure Schedule, any
actions, suits, claims, demands or other proceedings or investigations, either
judicial or administration, pending or, to the knowledge of Company, Bank or
Investment, threatened against or affecting the properties, assets, rights or
business of Company, Bank or Investment or the right to carry on or conduct
their respective businesses; (ii) any debt, liability or obligation of
Company, Bank or Investment (whether accrued, contingent, absolute or
otherwise) required to be reflected in a corporate balance
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sheet or the notes thereto that is not reflected or reserved against in their
respective financial statements or was not incurred in ordinary course of
their respective businesses; or (iii) any material breach or material default
of Company, Bank or Investment under any agreement or commitment to which
either is a party, or under any loan agreement, note, security agreement,
guarantee or other document pursuant to or in connection with the Company's or
Bank's extension of credit.
7.3 Adverse Changes. There will have been no material adverse change in the
financial condition of, or in the properties, assets, liabilities, rights or
business, taken as a whole, of Company, Bank or Investment, and taking into
account for this purpose the proceeds of any applicable insurance.
7.4 Regulatory Authority Approval. Orders, consents and approvals in form
and substance reasonably satisfactory to Gold shall have been entered by or
obtained from the appropriate regulatory authorities authorizing consummation
of the transactions contemplated hereby pursuant to the provisions of the Bank
Holding Company Act and any other applicable federal or state banking
regulatory statute or rule and no such order, consent or approval shall be
conditioned or restricted in any manner which in the reasonable judgment of
Gold would materially adversely affect the operations of or be unduly
burdensome to Gold. In addition, all required regulatory approvals to permit
the acquisition of the Bank Business shall have been received and any
applicable waiting periods shall have been expired.
7.5 Litigation. At the Closing Date, there shall not be pending or
threatened litigation in any court or any proceeding by any governmental
commission, board or agency which Gold reasonably believes could reasonably
result in restraining, enjoining or prohibiting the consummation of this
Agreement.
7.6 Financial Measures. On the Closing Date, the tier 1 capital of Bank
shall be not less than $6,986,135.00 and the reserve for loan and lease loss
of Bank shall be not less than $439,328.00, all as determined on the basis of
the financial statements of Company and Bank as prepared in accordance with
applicable bank holding company and bank regulatory instructions. It is fully
understood all future earnings from March 31, 1997 forward including, but not
limited to, the GT loan recovery estimated at $315,000.00 shall accrue to the
retained earnings or reserves of the Bank, respectively, and shall not result
in an increase of any consideration payable by Gold or Sub hereunder.
7.7 Approval by Shareholders. The shareholders of Company, Bank and
Investment shall have duly approved and adopted this Agreement and the other
transactions contemplated hereby to the extent required by applicable
requirements of law and the Articles of Incorporation and By-Laws of Company,
Bank and Investment.
7.8 Tax Representations. Each shareholder of Company, Bank and Investment
owning more than 10% of the outstanding Company Common Stock or Bank Stock
shall have made those representations reasonably requested by counsel and
necessary to enable them to render the opinion described in Section 7.11
hereof.
7.9 Affiliate Agreements. Each person who is an "affiliate" (for purposes of
Rule 145 under the Securities Act and for pooling-of-interests accounting
treatment) of the Company, Bank and Investment at the time this Agreement is
submitted to approval of the stockholders of the Company, Bank and Investment
shall deliver to Gold a letter in substantially the form set forth in Exhibit
7.9.
7.10 Satisfactory Due Diligence. Representatives of Company, Bank and
Investment have cooperated with Gold, Sub and representatives of Gold and Sub
in conducting its due diligence in accordance with the terms of Section 5.3
above.
7.11 Federal Tax Opinion. Gold shall have received an opinion of Payne &
Jones, Chartered, counsel to Gold ("Gold's Counsel"), in form and substance
reasonably satisfactory to Gold, dated the Closing Date, the Merger will be
treated as a tax-free reorganization within the meaning of Section
368(a)(1)(A) of the Code.
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7.12 Opinion of Counsel. Gold shall have received an opinion of Ryan, Condry
& Ryan, L.L.C. ("Company's Counsel") dated the Closing Date in form and
substance reasonably satisfactory to Gold covering the matters set out in
Exhibit 7.12 hereto.
7.13 Qualification for Pooling of Interest Treatment. Gold shall have
received an opinion from an accounting firm reasonably acceptable to Gold that
this transaction will qualify for pooling of interest accounting treatment and
that all conditions applicable thereto (including limitation of cash
consideration paid by Gold hereunder and absence of any capital transactions
involving any parties hereto) have been met.
7.14 Average Gold Price. The Average Gold Price as determined under Section
2.2(b) shall not be less than $10.50 per share.
ARTICLE VIII
Conditions Precedent to Obligation
of Company, Bank and Investment
The obligations of Company, Bank and Investment to consummate the
transactions contemplated hereunder shall be subject to satisfaction on or
before the Closing Date of all of the following conditions, except such
conditions as Company, Bank and Investment may waive in writing:
8.1 Representations, Warranties and Covenants. All representations and
warranties of Gold contained in this Agreement shall be true in all material
respects on and as of the Closing Date, except to the extent that any such
representation or warranty is made solely as of a specified date, and Gold
shall have performed all agreements and covenants in all material respects
required by this Agreement to be performed on or prior to the Closing Date.
8.2 Regulatory Authority Approval. Orders, consents and approvals in form
and substance reasonably satisfactory to Company shall have been entered by or
obtained from the appropriate regulatory authorities authorizing consummation
of the transactions contemplated by this Agreement pursuant to the provisions
of the Bank Holding Company Act and any other applicable federal or state
banking regulatory statute or rule.
8.3 Litigation. There shall not be pending or threatened litigation in any
court or any proceeding by any governmental commission, board or agency which
Company believes could reasonably result in restraining, enjoining or
prohibiting the consummation of the transactions contemplated by this
Agreement.
8.4 Approval by Shareholders. The shareholders of Company, Bank and
Investment shall have duly approved and adopted this Agreement and the
transactions contemplated hereby to the extent required by applicable
requirements of law and the Articles of Incorporation and By-Laws of the
Company, Bank and Investment.
8.5 Adverse Changes. From the date of this Agreement to the Closing Date,
there will have been no material adverse change in the financial condition,
properties, assets, liabilities, rights, business or prospects of Gold.
ARTICLE IX
Termination of Agreement; Indemnification
9.1 Basis for Termination. This Agreement and the transactions contemplated
hereby may be terminated at any time prior to the Closing Date: (a) by mutual
consent in writing of the parties hereto; (b) by Gold upon written notice to
Company if any regulatory approval of the transactions contemplated under the
terms of this Agreement shall be denied or if any such regulatory approval
shall be conditioned or restricted in any manner
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which in the reasonable judgment of Gold would materially adversely affect the
operations of or would be unduly burdensome to Gold; (c) by Gold or Company if
the other party has materially breached this Agreement and has not cured such
breach within the earlier of (i) 30 days after the non-breaching party shall
have given notice to the breaching party of the existence of such breach or
(ii) the Closing Date; (d) by Gold or Company upon written notice to the other
of any other condition imposed for the benefit of such party that shall not
have been satisfied or waived prior to the Closing Date; or (e) by either Gold
or Company if the Closing Date shall not have occurred by August 31, 1997;
provided that the terminating party is not then in material breach of this
Agreement and provided further that such delay has not been caused by
regulatory action or inaction, whether by banking authorities, the Securities
and Exchange Commission, or otherwise, beyond the control of either party. As
used in this Section 9.1, actions contemplated as being taken by Gold or the
Company must be taken by their respective Board of Directors or the Executive
Committee of such Board.
9.2 Effect of Termination. In the event of termination of this Agreement for
any reason set forth in Section 9.1, other than a breach thereof, no party
hereto shall have any liability to the other of any nature whatsoever,
including any liability for loss, damages or expenses suffered or claimed to
be suffered by reason thereof. Further, in the event of termination of this
Agreement for any reason set forth in Section 9.1, the Earnest Money Deposit
and all interest thereon shall be returned to Sub.
In the event Gold and Sub have performed all of their obligations hereunder
and all conditions precedent to the obligation of Gold and Sub to close have
been met or waived in writing by Gold and Sub, but Company fails or otherwise
refuses to close, then Gold shall be entitled to enforce the terms hereof by
an action seeking specific performance. Such right is not exclusive and shall
not preclude Gold from also pursuing an action to recover any and all damages
resulting from the Company's default hereunder. All remedies available to Gold
hereunder or by law are cumulative.
9.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
merger by the stockholders of Company or Sub, but, after any such approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
9.4 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Board of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto and (c) waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party.
9.5 Indemnification by Company and its Shareholders. Subsequent to the
closing hereof, the Company and each of its shareholders jointly and severally
agree to indemnify and hold harmless Gold, Sub and the officers, shareholders
and directors of each such entity from and against and in respect of any and
all damages, losses, diminution of value, or expenses suffered or incurred by
any such party (whether as a result of third party claims [whether valid or
not], demands, suits, causes of action, proceedings, investigations, judgments
or liabilities or otherwise), including costs of investigation in defense and
reasonable attorneys' fees assessed, incurred or sustained by or against any
of them, with respect to or arising out of any breach of the representations,
warranties and/or covenants of the Company set forth herein and in any other
agreement or instrument executed by the Company in connection herewith. If
this merger is approved by a requisite number of shareholders of Company, then
each and every shareholder of Company shall be deemed to have agreed to this
indemnification whether or not such shareholder dissents to the terms of the
merger, subject to the limitation set forth in Section 9.7 hereinafter.
9.6 Indemnification by Gold. Gold agrees to indemnify, defend and hold
harmless Company and its shareholders from and against and in respect of any
and all damages, losses, diminution of value, or expenses
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suffered or incurred by Company (whether as a result of third party claims
[whether valid or not], demands, suits, causes of action, proceedings,
investigations, judgments, liabilities or otherwise), including costs of
investigation and defense and reasonable attorneys' fees assessed or incurred
or sustained by or against Company or its shareholders, with respect to or
arising out of any breach of the representations, warranties and covenants of
Gold and Sub set forth herein and in any other agreement or instrument
executed by Gold and/or Sub in connection herewith.
9.7 Limitations on Indemnification. Notwithstanding anything herein
contained to the contrary, no person shall be entitled to indemnification
under the provisions of this Agreement: (i) unless such party shall have given
written notice to the indemnifying party setting forth its claim for
indemnification in reasonable detail, and (b) to the extent that the aggregate
amount of all indemnification liability under Section 9.5 or Section 9.5, as
applicable, exceeds the sum of the total figure reflected in Clause (i) of
Section 2.2(c).
9.8 Procedure for Indemnification. If a party hereto becomes aware of an
event which gives rise to a claim for indemnification hereunder, such party
shall give the other party prompt notice of any such action, claim, liability,
assessment or notice of deficiency received by such party which might result
in any liability under this provision. To the extent Gold is giving such
notice, notice to Company shall be deemed sufficient to constitute notice to
all shareholders. By execution hereof, Company specifically agrees that it
shall assume all responsibility for communicating receipt of any such notice
to the shareholders of Company. Further, any party who may claim a right of
indemnification hereunder agrees to refrain from paying, settling or
compromising any such claim for which indemnification may be sought without
giving notice of same to the other party. If the other party wishes to contest
or defend such third party claim, then the party against whom the claim was
made shall be obligated to cooperate fully with such party in contesting and
preserving all rights with respect to such contest; provided, however, that if
the other party does not wish to challenge or contest such third party claim,
then the party against whom the claim was being made by settle same on terms
and conditions it deems to be the most favorable it can be obtained and then
inserting the indemnification claim against the other party hereto. When
giving a notice under this provision, a party may specify a time for a
response from the other party as to whether such other party wishes to contest
or defend such third party claim. Such deadline for response may be
established consistent with the facts and circumstances surrounding the
situation. Failure of the other party to respond within such time period shall
constitute such other party's decision not to contest or defend such claim. If
a party hereunder claims indemnification for a claim other than a third party
claim, the party seeking indemnification shall notify the indemnifying party
in writing of the basis for such claim setting forth the nature and amount of
the damages resulting from such claim. To the extent a party is deemed to have
ultimately been responsible for indemnification, then interest shall be deemed
to accrue on the unpaid amount of indemnification obligation (at the prime
rate of interest announced from time to time by Exchange National Bank, such
interest to be calculated based on the actual number of days elapsed from the
date each indemnification obligation becomes due and owing until paid in full
and based on 365 day year.
ARTICLE X
Securities Laws Matter
10.1 Registration Statement and Proxy Statement. Gold shall as soon as
practicable prepare and file a registration statement on Form S-4 to be filed
with the SEC pursuant to the Securities Act for the purpose of registering the
shares of Gold Common Stock to be issued in the Merger (the "Registration
Statement"). Company, Bank, Investment, Gold and Sub shall each provide
promptly to the other such information concerning their respective businesses,
financial conditions, and affairs as may be required or appropriate for
inclusion in the Registration Statement or the proxy statement to be used in
connection with the special stockholders' meetings of Company and to be called
for the purpose of considering and voting on the Merger (the "Proxy
Statement"). Company, Bank, Investment, Gold and Sub shall each cause their
counsel and auditors to cooperate with the other's counsel and auditors in the
preparation and filing of the Registration Statement and the Proxy Statement.
Gold shall not include in the Registration Statement any information
concerning Company, Bank or
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Investment to which Company, Bank or Investment shall reasonably and timely
object in writing. Gold, Sub, Company, Bank and Investment shall use their
reasonable best efforts to have the Registration Statement declared effective
under the Securities Act as soon as may be practicable and thereafter Company,
Bank and Investment shall distribute the Proxy Statement to their respective
stockholders in accordance with applicable laws not fewer than 20 business
days prior to the date on which this Agreement is to be submitted to their
respective stockholders for voting thereon. If necessary, in light of
developments occurring subsequent to the distribution of the Proxy Statement,
Company, Bank and Investment shall mail or otherwise furnish to their
respective shareholders such amendments to the Proxy Statement or supplements
to the Proxy Statement as may, in the reasonable opinion of Gold, Sub,
Company, Bank or Investment, be necessary so that the Proxy Statement, as so
amended or supplemented, will contain no untrue statement of any material fact
and will not omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or as may be necessary to comply with
applicable law. Gold and Sub shall not be required to maintain the
effectiveness of the Registration Statement after delivery of the Gold Common
Stock issued pursuant hereto for the purpose of resale of Gold Common Stock by
any person. For a period of at least three years from the Effective Time, Gold
shall make available "adequate current public information" within the meaning
of and as required by paragraph (c) of Rule 144 adopted pursuant to the
Securities Act.
10.2 State Securities Laws. The parties hereto shall cooperate in making any
filings required under the securities laws of any state in order either to
qualify or register the Gold Common Stock so it may be offered and sold
lawfully in such state in connection with the Merger or to obtain an exemption
from such qualification or registration.
10.3 Publication of Combined Financial Results. Gold will file with the
Securities and Exchange Commission a Periodic Report on Form 8-K containing
financial statements which include no less than 30 days of combined operations
of Gold and Company, ended on a normal closing date, as soon as practicable
after the Effective Time unless the first 30 day period of combined operations
is reflected in and ends on the normal closing date of an annual report on
Form 10-K or quarterly report on Form 10-Q.
ARTICLE XI
Miscellaneous
11.1 Expenses. Except as set forth herein, each party shall be responsible
for its own expenses in connection with this transaction. Specifically, each
party shall be responsible for its own legal and accounting fees and any
related costs or charges associates with the negotiation, execution and
consummation of this Agreement. However, notwithstanding anything herein
contained to the contrary, it is understood and agreed that the shareholders
of Company shall pay $25,000.00 of the total cost of (i) the certified audit
of the consolidated balance sheet of the Company as of December 31, 1996 and
the statement of income for the year then ended and (ii) the preparation and
filing of the Registration Statement and Proxy Statement referenced in Section
10.1 above. If any portion of this $25,000.00 obligation of the shareholders
of Company is paid by Company, Bank or Investment (or by Gold or Sub), then
such payment shall reduce the total in Clause (i) of Section 2.2(c)
hereinabove. Likewise, if either Gold, Sub, Company, Bank or Investment pays
any other expense payable by the shareholders of Company hereunder, then such
additional expense paid shall likewise reduce the figure appearing in Clause
(i) of Section 2.2(c). To the extent the figure in Clause (i) of Section
2.2(c) is reduced, the calculated Common Per Share Amount shall be reduced
accordingly.
11.2 Parties in Interest. This Agreement and the rights hereunder are not
assignable unless such assignment is consented to in writing by all parties
hereto. Except as otherwise expressly provided herein, all of the terms and
provisions of this Agreement shall be binding upon, shall inure to the benefit
of and shall be enforceable by the respective heirs, beneficiaries, personal
and legal representatives, successors and permitted assigns of the parties
hereto.
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11.3 Entire Agreement, Amendments, Waiver. This Agreement contains the
entire understanding of Gold, Sub and Company with respect to the Merger and
supersedes all prior agreements and understandings, whether written or oral,
between them with respect to the Merger contemplated herein. This Agreement
may be amended only by a written instrument duly executed by the parties or
their respective successors or permitted assigns. Any condition to a party's
obligation hereunder may be waived by such party in writing.
11.4 Notices. All notices, requests, demands or other communications
hereunder shall be in writing and shall be deemed to have been duly given when
personally delivered or transmitted by telefacsimile with a copy thereof
transmitted by a nationally recognized overnight delivery service or deposited
in the United States mail, certified or registered, return receipt requested,
postage prepaid, addressed to the parties at the following addresses or at
such other address as shall be given in like manner by any party to the other:
If to Company:
Mr. James P. Fawcett
Peoples Bancshares, Inc.
509 Court, P.O. Box 205
Clay Center, KS 67432
Telephone: (913) 632-3171
FAX: (913) 632-6329
with a copy to:
Ryan, Condry & Ryan, L.L.C.
509 Court
Clay Center, KS 67432
Telephone: (913) 632-5666
FAX: (913) 632-6534
If to Gold:
Mr. Michael W. Gullion
Gold Banc Corporation, Inc.
11301 Nall Avenue
Leawood, KS 66211
Telephone: (913) 451-8050
FAX: (913) 451-8004
with a copy to:
Thomas K. Jones
Payne & Jones, Chartered
P.O. Box 25625
Overland Park, KS 66225
Telephone: (913) 469-4100
FAX: (913) 469-8182
11.5 Law Governing. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Kansas.
11.6 Further Acts. Gold, Company and Sub agree to execute and deliver on or
before the Closing Date such other documents, certificates, agreements or
other writings and take such other actions as may be necessary or desirable in
order to consummate or implement expeditiously the transactions contemplated
by this Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
Gold Banc Corporation, Inc.
/s/ Michael W. Gullion
By __________________________________
NAME: MICHAEL W. GULLION
TITLE: PRESIDENT AND CHIEF
EXECUTIVE OFFICER
ATTEST:
/s/ Keith E. Bouchey
_____________________________________
SECRETARY
Gold Banc Acquisition Corporation,
Inc.
/s/ Michael W. Gullion
By __________________________________
NAME: MICHAEL W. GULLION
TITLE: PRESIDENT AND CHIEF
EXECUTIVE OFFICER
ATTEST:
/s/ Keith E. Bouchey
_____________________________________
SECRETARY
Peoples Bancshares, Inc.
/s/ Kyle C. Bauer
By __________________________________
NAME:
TITLE:
ATTEST:
/s/ James H. Schulze
_____________________________________
SECRETARY
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ANNEX B
K.S.A. (S) 17-6712. PAYMENT FOR STOCK OF STOCKHOLDER OBJECTING TO MERGER OR
CONSOLIDATION; DEFINITIONS; NOTICE TO OBJECTING STOCKHOLDERS; DEMAND FOR
PAYMENT; APPRAISAL AND DETERMINATION OF VALUE BY DISTRICT COURT, WHEN;
TAXATION OF COSTS; RIGHTS OF OBJECTING STOCKHOLDERS; STATUS OF STOCK; SECTION
INAPPLICABLE TO CERTAIN SHARES OF STOCK. (a) When used in this section, the
word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation.
(b) The corporation surviving or resulting from any merger or consolidation,
within 10 days after the effective date of the merger or consolidation, shall
notify each stockholder of any corporation of this state so merging or
consolidating who objected thereto in writing and whose shares either were not
entitled to vote or were not voted in favor of the merger or consolidation,
and who filed such written objection with the corporation before the taking of
the vote on the merger or consolidation, that the merger or consolidation has
become effective. If any such stockholder, within 20 days after the date of
mailing of the notice, shall demand in writing, from the corporation surviving
or resulting from the merger or consolidation, payment of the value of the
stockholder's stock, the surviving or resulting corporation shall pay to the
stockholder, within 30 days after the expiration of the period of 20 days, the
value of the stockholder's stock on the effective date of the merger or
consolidation, exclusive of any element of value arising from the expectation
or accomplishment of the merger or consolidation.
(c) If during a period of 30 days following the period of 20 days provided
for in subsection (b), the corporation and any such stockholder fail to agree
upon the value of such stock, any such stockholder, or the corporation
surviving or resulting from the merger or consolidation, may demand a
determination of the value of the stock of all such stockholders by an
appraiser or appraisers to be appointed by the district court, by filing a
petition with the court within four months after the expiration of the thirty-
day period.
(d) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the corporation, which shall file with the clerk of
such court, within 10 days after such service, a duly verified list containing
the names and addresses of all stockholders who have demanded payment for
their shares and with whom agreements as to the value of their shares have not
been reached by the corporation. If the petition shall be filed by the
corporation, the petition shall be accompanied by such duly verified list. The
clerk of the court shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the corporation
and to the stockholders shown upon the list at the addresses therein stated
and notice shall also be given by publishing a notice at least once, at least
one week before the day of the hearing, in a newspaper of general circulation
in the county in which the court is located. The court may direct such
additional publication of notice as it deems advisable. The forms of the
notices by mail and by publication shall be approved by the court.
(e) After the hearing on such petition the court shall determine the
stockholders who have complied with the provisions of this section and become
entitled to the valuation of and payment for their shares, and shall appoint
an appraiser or appraisers to determine such value. Any such appraiser may
examine any of the books and records of the corporation or corporations the
stock of which such appraiser is charged with the duty of valuing, and such
appraiser shall make a determination of the value of the shares upon such
investigation as seems proper to the appraiser. The appraiser or appraisers
shall also afford a reasonable opportunity to the parties interested to submit
to the appraiser or appraisers pertinent evidence on the value of the shares.
The appraiser or appraisers, also, shall have the powers and authority
conferred upon masters by K.S.A. 60-253 and amendments thereto.
(f) The appraiser or appraisers shall determine the value of the stock of
the stockholders adjudged by the court to be entitled to payment therefor and
shall file a report respecting such value in the office of the clerk of the
court, and notice of the filing of such report shall be given by the clerk of
the court to the parties in interest.
B-1
<PAGE>
Such report shall be subject to exceptions to be heard before the court both
upon the law and facts. The court by its decree shall determine the value of
the stock of the stockholders entitled to payment therefor and shall direct
the payment of such value, together with interest, if any, as hereinafter
provided, to the stockholders entitled thereto by the surviving or resulting
corporation. Upon payment of the judgment by the surviving or resulting
corporation, the clerk of the district court shall surrender to the
corporation the certificates of shares of stock held by the clerk pursuant to
subsection (g). The decree may be enforced as other judgments of the district
court may be enforced, whether such surviving or resulting corporation be a
corporation of this state or of any other state.
(g) At the time of appointing the appraiser or appraisers, the court shall
require the stockholders who hold certificated shares and who demanded payment
for their shares to submit their certificates of stock to the clerk of the
court, to be held by the clerk pending the appraisal proceedings. If any
stockholder fails to comply with such direction, the court shall dismiss the
proceedings as to such stockholder.
(h) The cost of any such appraisal, including a reasonable fee to and the
reasonable expenses of the appraiser, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to such appraisal or any of them as appears to be equitable,
except that the cost of giving the notice by publication and by registered or
certified mail hereinabove provided for shall be paid by the corporation. The
court, on application of any party in interest, shall determine the amount of
interest, if any, to be paid upon the value of the stock of the stockholders
entitled thereto.
(i) Any stockholder who has demanded payment of the stockholder's stock as
herein provided shall not thereafter be entitled to vote such stock for any
purpose or be entitled to the payment of dividends or other distribution on
the stock, except dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the merger or
consolidation, unless the appointment of an appraiser or appraisers shall not
be applied for within the time herein provided, or the proceeding be dismissed
as to such stockholder, or unless such stockholder with the written approval
of the corporation shall deliver to the corporation a written withdrawal of
the stockholder's objections to and an acceptance of the merger or
consolidation, in any of which cases the right of such stockholder to payment
for the stockholder's stock shall cease.
(j) The shares of the surviving or resulting corporation into which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
(k) This section shall not apply to the shares of any class or series of a
class of stock, which, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of stockholders at
which the agreement of merger or consolidation is to be acted on, were either
(1) registered on a national securities exchange, or (2) held of record by not
less than 2,000 stockholders, unless the articles of incorporation of the
corporation issuing such stock shall otherwise provide; nor shall this section
apply to any of the shares of stock of the constituent corporation surviving a
merger, if the merger did not require for its approval the vote of the
stockholders of the surviving corporation, as provided in subsection (f) of
K.S.A. 17-6701 and amendments thereto. This subsection shall not be applicable
to the holders of a class or series of a class of stock of a constituent
corporation if under the terms of a merger or consolidation pursuant to K.S.A.
17-6701 or 17-6702, and amendments thereto, such holders are required to
accept for such stock anything except (i) stock or stock and cash in lieu of
fractional shares of the corporation surviving or resulting from such merger
or consolidation, or (ii) stock or stock and cash in lieu of fractional shares
of any other corporation, which at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the meeting of
stockholders at which the agreement of merger or consolidation is to be acted
on, were either registered on a national securities exchange or held of record
by not less than 2,000 stockholders, or (iii) a combination of stock or stock
and cash in lieu of fractional shares as set forth in (i) and (ii) of this
subsection.
B-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company Articles and the Company Bylaws require it to indemnify its
directors and officers and advisory directors against liabilities, fines,
penalties, settlements, claims and reasonable expenses incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those capacities to the fullest extent permitted by the KGCC.
The KGCC permits a corporation to indemnify its present and former directors
and officers if ordered to do so by a court or after a determination by its
independent counsel, stockholders or a majority of its disinterested directors
that the person to be indemnified acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of
the corporation.
ITEM 21. EXHIBITS
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
2 Agreement and Plan of Reorganization dated the 14th day of April,
1997, among the Registrant, Sub and Peoples (included as Annex A to
the Prospectus).
3(a) Amended and Restated Articles of Incorporation of the Company*
3(a)(i) Certificate of Amendment to Restated Articles of Incorporation
3(b) Restated By-laws of the Company*
4 Form of Common Stock Certificate*
5 Opinion of Blackwell Sanders Matheny Weary & Lombardi L.C.***
8 Opinion of Payne & Jones, Chartered***
9(a) Proxy Agreement/Stockholder Agreement between Michael W. Gullion and
William Wallman, dated as of September 15, 1996*
9(b) Proxy Agreement/Stockholder Agreement between Michael W. Gullion and
William F. Wallman, dated as of September 15, 1996*
10(a) Employment Agreement between the Company and Michael W. Gullion*
10(b) Employment Agreement between the Company and Keith E. Bouchey*
10(c) Gold Banc Corporation, Inc. 1996 Equity Compensation Plan*
10(d) Form of Tax Sharing Agreements between the Company and the Banks*
10(e) Form of Federal Home Loan Bank Credit Agreement to which each of the
Banks is a party*
10(f) Agreement and Plan of Reorganization by and among the Registrant,
Gold Banc Acquisition Corporation, Inc. and Farmers Bancshares of
Oberlin, Inc.
16 Letter Regarding Change in Certifying Accountants*
21 List of Subsidiaries of the Company**
23(a) Consent of KPMG Peat Marwick LLP.
23(b) Consent of GRA, Thompson, White & Co., P.C.
23(c) Consent of Blackwell Sanders Matheny Weary & Lombardi L.C. (included
in Exhibit 5).***
24 Powers of Attorney (included in signature page to Registration
Statement).
</TABLE>
- --------
* Previously filed as an Exhibit to Registration Statement No. 333-12397 and
the same is incorporated herein by reference.
** Previously filed as an Exhibit to the Company's Annual Report on Form 10-
KSB for the year ended December 31, 1996 and the same is incorporated
herein by reference.
*** Previously filed with the initial filing of this registration statement.
II-1
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) That, for the purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of employee benefit plans annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(2) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(3) That, every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415 (section 230.415 of this chapter), will be
filed as part of an amendment of the registration statement and will not be
used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(4) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the Company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF LEAWOOD, KANSAS ON JULY
17, 1997.
Gold Banc Corporation, Inc.
(Registrant)
/s/ Michael W. Gullion
By: _________________________________
MICHAEL W. GULLION
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
/s/ Michael W. Gullion Chairman of the
- ------------------------------------- Board, President July 17, 1997
MICHAEL W. GULLION and Chief Executive
Officer (Principal
Executive Officer)
/s/ Keith E. Bouchey Director, Executive
- ------------------------------------- Vice President, July 17, 1997
KEITH E. BOUCHEY Chief Financial
Officer, Treasurer
and Corporate
Secretary
(Principal
Financial Officer
and Principal
Accounting Officer)
Director
/s/ William Wallman* July 17, 1997
- -------------------------------------
WILLIAM WALLMAN
Director
/s/ D. Michael Browne* July 17, 1997
- -------------------------------------
D. MICHAEL BROWNE
Director
/s/ William F. Wright* July 17, 1997
- -------------------------------------
WILLIAM F. WRIGHT
*By Keith E. Bouchey as
attorney-in-fact
II-3
<PAGE>
Exhibit 5
June 5, 1997
Gold Banc Corporation, Inc.
[Address]
Ladies and Gentlemen:
We have acted as counsel to Gold Banc Corporation, Inc., a Kansas
corporation ("the Company"), in connection with the transactions contemplated by
the Agreement and Plan of Reorganization, dated as of April 14, 1997 (the
"Agreement"), by and among the Company, Gold Banc Acquisition Corporation, Inc.
("Sub") and Peoples Bancshares, Inc. ("Peoples").
This opinion is being furnished in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the
"Securities Act").
Pursuant to the Agreement, Peoples will be merged with and into Sub, with
Sub being the surviving corporation (the "Merger"). In the Merger, the
outstanding shares of common stock, $100.00 par value of Peoples, other than
any shares owned by the Company, Sub or Peoples (which shares will be
canceled), will be exchanged for fully paid and nonassessable shares of common
stock, $1.00 par value, of the Company (the "Company Common Stock").
In connection with the transactions contemplated by the Agreement, the
Company will file with the Securities and Exchange Commission (the "Commission")
a Registration Statement on Form S-4 (the "Registration Statement") relating to
the registration under the Securities Act of the shares of the Company Common
Stock to be issued in the Merger.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Registration Statement, (ii) the Articles of Incorporation and By-laws
of the Company, as in effect on the date hereof, (iii) the Agreement and (iv)
certain resolutions of the Board of Directors of the Company relating to the
Merger. We have also examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the completeness and authenticity
of all documents submitted to
<PAGE>
us as originals, the conformity to original documents of all documents submitted
to us as certified or photostatic copies and the completeness and authenticity
of the originals of such latter documents. In making our examination of
documents executed by parties other than the Company, we have assumed that such
parties had the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents on such parties. As to any facts material to the opinion
expressed herein which were not independently established or verified, we have
relied upon oral or written statements and representations of officers and other
representations of the Company and others.
Members of our firm are admitted to the Bar in the State of Kansas, and we
do not express any opinion as to the laws of any other jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that the
shares of the Company Common Stock, when issued upon the consummation of the
Merger in accordance with the terms of the Agreement and as set forth in the
Registration Statement, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the reference to our firm under the
heading "LEGAL MATTERS" in the related Proxy Statement/Prospectus which forms a
part of the Registration Statement. In giving such consent we do not thereby
admit or imply that we are in the category of persons whose consent is required
under Section 7 of the Securities Act or the rules and regulations of the
Commission thereunder.
Very truly yours,
/s/ Blackwell Sanders Matheny Weary & Lombardi L.C.
<PAGE>
EXHIBIT 8
1997
Gold Banc Acquisition Corporation, Inc.
11301 Nall
Leawood, KS 66211
Attn.: Mr. Michael W. Gullion, President
RE: Agreement with Peoples Bancshares, Inc.
Dear Mr. Gullion:
We have acted as counsel to Gold Banc Acquisition Corporation, Inc. ("Gold Banc
Acquisition") and to Gold Banc Corporation, Inc. ("Gold") in connection with the
acquisition by Gold Banc Acquisition of all of the issued and outstanding shares
of stock of Peoples Bancshares, Inc. ("Peoples") under and pursuant to that
certain Agreement and Plan of Reorganization dated April 14, 1997 (the
"Agreement"). Pursuant to Section 7.11 of the Agreement, a condition precedent
to the obligation of Gold and Gold Banc Acquisition to close the transaction
described in the Agreement is that Gold shall have received an opinion of
counsel that the transaction described in the Agreement will be treated as a
tax-free reorganization under Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
In connection with this transaction, we have reviewed the following documents:
i. The Agreement.
ii. The Certificate of Merger dated ______________________,
1997 (the "Certificate of Merger") executed by authorized
representatives of Gold Banc Acquisition and Peoples.
iii. Minutes of certain meetings of the Board of Directors of
Gold, Gold Banc Acquisition and Peoples.
iv. Minutes of certain meetings of shareholders of Gold Banc
Acquisition and Peoples.
v. Articles of Incorporation and Bylaws of Gold.
vi. Articles of Incorporation and Bylaws of Gold Banc
Acquisition.
vii. Articles of Incorporation and Bylaws of Peoples.
We have also reviewed such other records and documents as we deem pertinent in
rendering the opinion described herein.
In rendering this opinion, we have made, with your consent and without
independent investigation on our part, the following assumptions:
<PAGE>
1. All documents executed by all parties to the Agreement have been duly
and properly authorized, executed, attested, delivered and accepted.
2. All documents submitted to us as copies conform to the original
documents, and all such originals are authentic.
3. There are no oral agreements or other written documents or course of
conduct which may modify the terms of the Agreement or the Certificate
of Merger.
4. Gold Banc Acquisition, as a result of the consummation of the
transaction described in the Agreement, will ultimately acquire
substantially all of the properties of Peoples.
5. There is no consideration being provided by Gold Banc Acquisition
pursuant to the Agreement other than stock of Gold (except for certain
cash payments required by the Agreement and subject to rights of
dissenting shareholders of Peoples pursuant to K.S.A. 17-6712). No
stock of Gold Banc Acquisition is being used as consideration for this
transaction.
6. All representations and warranties of all parties to the Agreement as
set forth therein are true, accurate and complete.
7. The Certificate of Merger will be filed on a timely basis with the
Kansas Secretary of State and recorded in the office of the Register
of Deeds of each county in which the registered office of Gold, Gold
Banc Acquisition and Peoples respectively is located.
8. The shareholders of Peoples have no preconceived plan or arrangement
to dispose of a significant percentage of the stock in Gold being
acquired pursuant to the transaction described in the Agreement.
9. Gold and Gold Banc Acquisition will continue Peoples' historic
business or will use a significant portion of Peoples' historic
business assets in continuing such business.
10. The primary motivation to Gold and Gold Banc Acquisition in
consummating this transaction is to acquire the business operations of
Peoples and not to avoid income tax.
11. There is no plan to immediately liquidate Gold Banc Acquisition after
the closing of the transaction described in the Agreement.
Based upon the foregoing and subject to the assumptions, qualifications and
limitations set forth herein, it is our opinion that the transaction described
in the Agreement will be treated as a tax-free reorganization as that term is
used in Section 368(a)(1)(A) of the Code. This opinion does not address any
issue applicable to carryover of tax attributes as governed by Section 381 of
the Code. Further, this opinion does not address additional requirements
imposed upon the parties to the Agreement to file documentation with federal
income tax returns in the year in which such transaction closes.
<PAGE>
The opinion expressed herein is restricted to matters governed by the laws of
the United States of America and the laws of the State of Kansas as they exist
as of the date of this letter. To the extent there is any change in the federal
income tax laws after this date, no opinion is expressed as to the impact of
such change on the tax treatment of the transaction described in the Agreement.
Further, to the extent the laws of the State of Kansas change after this date
with respect to the steps required to consummate a merger, this opinion does
not address the impact of such changes upon the income tax treatment of the
transaction described in the Agreement. We undertake no obligation or
responsibility to update or supplement this opinion in response to subsequent
changes in the law or any subsequent changes in the relevant factual
circumstances pertaining to the transaction described in the Agreement.
The opinion expressed herein is being delivered to you for your sole use and
benefit in connection with the transaction described in the Agreement. This
opinion may not be relied upon by any other person and may not be used in whole
or in part for any other purpose or delivered to any other person except with
the prior written consent of the undersigned.
Yours very truly,
Thomas K. Jones
for Payne & Jones, Chartered
<PAGE>
Exhibit 10(f)
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
This Agreement and Plan of Reorganization (the "Agreement") dated as of the
3rd day of July, 1997, is made by and among GOLD BANC CORPORATION, INC., a
Kansas corporation ("Gold"), GOLD BANC ACQUISITION CORPORATION, INC., a Kansas
corporation ("Sub") and PEOPLES BANCSHARES, INC., a Kansas corporation
("Company").
WITNESSETH:
WHEREAS, the Boards of Directors of Gold, Sub and Company have approved and
deem it advisable and in the best interests of their respective companies and
shareholders that Gold and Company become affiliated through the merger of
Company with and into Sub in the manner hereinafter set forth (the "Merger" or
the "Company Merger"); and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereby agree as follows:
ARTICLE I
THE COMPANY MERGER
------------------
1.1 The Company Merger. Upon the terms and subject to the conditions of
this Agreement at the Effective Time (as hereinafter defined), Company shall be
merged with and into Sub and the separate existence and corporate organization
of Company shall thereupon cease and Sub and Company shall thereupon be a single
corporation. Sub shall be the surviving corporation in the Merger and the
separate corporate existence of Sub shall continue unaffected and unimpaired by
the Merger.
1.2 Effective Time of the Company Merger. On the Closing Date (as
hereinafter defined), the proper officers of Company and Sub shall execute and
acknowledge appropriate certificates of merger that shall be filed with the
Kansas Secretary of State on the first business day following the Closing Date,
all in accordance with the Kansas General Corporation Code (the "KGCC"). The
Merger shall become effective on the first day of the first calendar month
following the Closing Date (the "Effective Time"). The closing shall be on a
day (the "Closing Date") within forty-five (45) days following the satisfaction
or waiver, to the extent permitted hereunder, of the conditions to the
consummation of the Merger specified in Articles VII and VIII of this Agreement
at 10:00 a.m. at Gold Banc Corporation, 11301 Nall
<PAGE>
Avenue, Leawood, Kansas, which day shall be specified by notice from Gold to
Company (such notice to be at least five (5) days in advance of such Closing
Date).
1.3 The Articles of Incorporation. The Articles of Incorporation and By-
Laws of Sub as in effect immediately prior to the Effective Time shall be and
remain the Articles of Incorporation and By-Laws of the surviving corporation
from and after the Effective Time until amended as provided by law and the
officers and directors of Sub shall continue as the officers and directors of
the surviving corporation from and after the Effective Time.
1.4 Effect of Company Merger. Subject to Kansas law, at the Effective
Time (a) Sub shall possess all assets and property of every description, and
every interest therein, wherever located, and the rights, privileges,
immunities, powers, franchises, and authority, of a public as well as of a
private nature, of Company and all obligations belonging to or due each of
Company and Sub shall be vested in Sub without further act or deed; (b) title to
any real estate or any interest therein vested in Company shall not revert or in
any way be impaired by reason of the Company Merger; (c) all rights of creditors
and all liens on any property of the Company shall be preserved unimpaired; and
(d) Sub shall be liable for all the obligations of Company, and any claim
existing, or action or proceeding pending, by or against either of Company or
Sub, may be prosecuted to judgment with the right of appeal, as if the Company
Merger had not taken place.
1.5 Further Assurances. If at any time after the Effective Time, Sub
shall consider it advisable that any further conveyances, agreements, documents,
instruments or assurances of law or any other actions or things are necessary or
desirable to vest, perfect, confirm, or record in Sub the title to any property,
rights, privileges, powers, or franchises of the Company, the Board of Directors
and officers of Sub shall, and will be authorized to, execute and deliver in the
name and on behalf of Sub or otherwise, any and all proper conveyances,
agreements, documents, instruments, and assurances of law and do all things
necessary or proper to vest, perfect, or confirm title to such property, rights,
privileges, powers and franchises in Sub, and otherwise to carry out the
provisions of this Agreement.
ARTICLE II
PROVISIONS OF MERGER TRANSACTION
--------------------------------
2.1 Effect of Merger on Sub Stock. Each share of common stock, $1.00 par
value per share, of Sub ("Sub Common Stock") issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding at the Effective
Time, and shall be unaffected by the Company Merger.
- 2 -
<PAGE>
2.2 Conversion of the Company Shares in the Company Merger. At the
Effective Time, by virtue of the Merger and without any action on the part of
any holder thereof:
(a) Each outstanding share of common stock, $100.00 par value per
share of the Company, including any and all shares which are held in the
treasury of the Company or held by the Company or any subsidiary of the Company
other than as trustee, fiduciary, nominee or some similar capacity ("Company
Common Stock") shall be canceled and retired and shall cease to exist from and
after the Effective Time, and no cash or other consideration shall be delivered
in exchange therefore;
(b) Each outstanding share of Company Common Stock, shall be
converted into that fraction of a share (rounded to the nearest 1/1000th of a
share) of Gold Common Stock, as defined in Section 3.6 below, equal to the
quotient derived from dividing the Common Per Share Amount by the average of the
closing sales prices of Gold Common Stock as reported by the National
Association of Securities Dealers Automated Quotation National Market System
("NASDAQ") on each of the ten (10) consecutive trading days preceding the third
trading day prior to the Effective Time, (the "Average Gold Price").
(c) The "Common Per Share Amount" shall equal (i) $9,250,000.00 less
any amounts paid by Company, Bank or Investment (as hereinafter defined) with
respect to the expenses payable by the shareholders of Company pursuant to
Section 11.1 hereinafter, (ii) divided by 25,350.
2.3 Exchange of Certificates.
(a) Gold, on behalf of Sub, shall make available to Exchange National
Bank, which is hereby designated as exchange agent (the "Exchange Agent"), at
and after the Effective Time, such number of shares of Gold Common Stock as
shall be issuable to the holders of Company Common Stock in accordance with
Section 2.2 hereof. As soon as practicable after the Closing Date, Gold on
behalf of the Exchange Agent shall mail to each holder of record of a
certificate that immediately prior to the Closing Date represented outstanding
shares of Company Common Stock (i) a form letter of transmittal and (ii)
instructions for effecting the surrender of certificates of Company Common Stock
for exchange into certificates of Gold Common Stock.
(b) Notwithstanding any other provision herein, no fractional shares
of Gold Common Stock and no certificates or script therefor or other evidence of
ownership thereof will be issued. All fractional shares of Gold Common Stock to
which a holder of Company Common Stock would otherwise be entitled to under
Section 2.2 hereof shall be aggregated. If a fractional share results from such
aggregation, such shareholder shall be entitled, after the Effective Time and
upon the surrender of such
- 3 -
<PAGE>
shareholder's certificate or certificates representing shares of Company Common
Stock, to receive from the Exchange Agent an amount in cash in lieu of such
fractional share equal to the product of such fraction and the Average Gold
Price. Gold, on behalf of Sub, shall make available to the Exchange Agent, as
required from time to time, any cash necessary for this purpose.
2.4 Closing of the Company Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of Company
Common Stock shall thereafter be made.
2.5 Dividends. No dividends or other distributions that are declared
after the Effective Time with respect to Gold Common Stock payable to holders of
record thereof after the Effective Time shall be paid to the Company
shareholders entitled to receive certificates representing Gold Common Stock
until such shareholders surrender their certificates. Upon such surrender,
there shall be paid to the shareholder in whose name the certificates
representing such Gold Common Stock shall be issued any dividends which shall
have become payable with respect to such Gold Common Stock between the Effective
Time and the time of such surrender, without interest. After such surrender
there shall also be paid to the shareholder in whose name the certificates
representing such Gold Common Stock shall be issued any dividend on such Gold
Common Stock that shall have (a) a record date subsequent to the Effective Time
and prior to such surrender and (b) a payment date after such surrender, and
such payment shall be made on such payment date. In no event shall the
shareholders entitled to receive such dividends be entitled to receive interest
on such dividends.
2.6 Shareholders' Approval. Company agrees to submit this Agreement and
the transactions contemplated hereby to its shareholders for approval to the
extent required and as provided by law and the Articles of Incorporation and By-
Laws of Company. A shareholders' meeting of Company shall be held and Company
shall use its reasonable best efforts to take all steps as shall be required for
said meeting to be held as soon as reasonably practicable after the effective
date of the Registration Statement (as defined in Section 10.1 hereof). Company
and its Board of Directors shall recommend that the shareholders of Company
approve this Agreement and the transactions contemplated hereby and shall use
their reasonable best efforts to secure such approval.
2.7 Dissenting Shares. Notwithstanding anything to the contrary contained
in this Agreement, to the extent appraisal rights are available to the Company's
shareholders pursuant to the KGCC, any shares held by a person who objects to
the Merger, whose shares were not entitled to vote or were not voted in favor of
the Merger and who complies with all of the provisions of the KGCC concerning
the rights of such person to dissent from the Merger and to require appraisal of
such person's shares and who
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has not withdrawn such objection or waived such rights prior to the Closing Date
("Company Dissenting Shares") shall not be converted pursuant to Section 2.2 but
shall become the right to receive such consideration as may be determined to be
due to the holder of such Company Dissenting Shares pursuant to the KGCC,
including, if applicable, any costs determined to be payable by Bank to the
holders of the Company Dissenting Shares pursuant to an order of the district
court in accordance with the KGCC. Notwithstanding the foregoing, as set forth
hereinafter, the obligation of Gold to close on this transaction is contingent
upon the total required cash payments due Company's shareholders totaling less
than 5% of the total consideration being provided by Gold to Company as
consideration for this merger.
2.8 Earnest Money Deposit. Concurrent with the execution hereof or as
soon as reasonably possible after the execution hereof, Sub shall deposit with
Exchange National Bank, Leawood, Kansas, as Escrow Agent (the "Escrow Agent")
the sum of $100,000.00 representing an Earnest Money Deposit (the "Earnest Money
Deposit"). Sub and the Company agree to execute an Escrow Agreement containing
terms and conditions reasonably acceptable to Escrow Agent, Sub and the Company.
In the event the transactions described herein close in accordance with the
terms hereof, then at the time of such closing, the Earnest Money Deposit, and
all interest earned thereon shall be returned to Sub. If this transaction does
not close as a result of the failure of any one or more of the conditions
precedent set forth in Article VII hereinafter, then the Earnest Money Deposit
and all interest thereon shall be returned to Sub. Likewise, if this
transaction does not close as a result of a breach by the Company of any of its
obligations hereunder, then in addition to all other rights and remedies, the
Sub may recover the Earnest Money Deposit. However, if the Company has
performed all of its obligations hereunder, is not in breach of any warranty or
representation herein contained, and all conditions precedent have been met or
waived in writing by Sub, but Gold and Sub fail to close this transaction, then
the Company shall be entitled to the Earnest Money Deposit and all interest
earned thereon as liquidated damages and not as a penalty. Forfeiture of the
Earnest Money Deposit to the Company shall be the Company's sole remedy in the
event Gold and Sub do not perform their obligations hereunder notwithstanding
the fact that the Company has complied with all of its obligations hereunder and
all conditions precedent have been met or waived in writing by Sub. Sub and the
Company shall evenly divide any expenses charged by the Escrow Agent. The
Company's share of such expenses shall be included in the expenses they are
obligated to pay under Section 11.1 hereinafter.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GOLD AND SUB
----------------------------------------------
Except as set forth on the Gold Disclosure Schedule attached hereto, Gold
and Sub, jointly and severally, hereby represent and warrant as follows:
3.1 Organization and Authority.
(a) Gold is a corporation duly organized, validly existing and in
good standing under the laws of the State of Kansas with the corporate power and
authority to own its properties and conduct its business as it is now being
conducted and is duly registered as a bank holding company under the provisions
of the Bank Company Act of 1956, as amended.
(b) Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Kansas. Sub has the corporate power to
enter into and perform this Agreement and the execution, delivery and
performance of this Agreement by Sub and the consummation by Sub of the
transactions contemplated hereby have been duly authorized by its Board of
Directors and by Gold as the sole shareholder of Sub.
3.2 Authority. Gold has all requisite corporate power and authority to
enter into this Agreement, and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement, and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Gold. This Agreement has been duly executed and
delivered by Gold, and assuming due execution and delivery by Company,
constitutes a valid and binding obligation of Gold, enforceable in accordance
with its terms subject to applicable conservatorship, receivership, bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity (including
without limitation specific performance), whether applied in a court of law or a
court of equity.
3.3 Shareholder Approval. The shareholders of Gold are not required to
approve this Agreement.
3.4 No Violations. Subject to approval by the appropriate regulatory
agencies, the execution, delivery and performance of this Agreement by Gold and
Sub do not, and the consummation of the transactions contemplated hereby will
not, constitute (i) a breach or violation of, or a default under, any law, rule
or regulation or any judgment, decree, order, governmental permit or license, or
agreement, indenture or instrument of Gold or any subsidiary or to which Gold or
any subsidiary (or any of their respective properties) is subject, (ii) a breach
or violation of, or a default under, the articles of incorporation, charter or
bylaws of Gold or any subsidiary of Gold or (iii) a breach or
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violation of, or a default under (or an event which with due notice or lapse of
time or both would constitute a default under), or result in the termination of,
accelerate the performance required by, or result in the termination of,
accelerate the performance required by, or result in the creation of any lien,
pledge, security interest, charge or other encumbrance upon any of the
properties or assets of Gold under any of the terms, conditions or provisions of
any note, bond, indenture, deed of trust, loan agreement or other agreement,
instrument or obligation to which Gold is a party, or to which any of its
respective properties or assets may be bound or affected.
3.5 Consents. Except as disclosed herein, no filing or registration with,
or authorization, consent or approval of, any public body or authority is
necessary for the consummation by Gold of the Merger or the other transactions
contemplated by this Agreement.
3.6 Capital Stock of Gold. Gold has authorized capital stock consisting
of (a) 7,500,000 shares of common stock, $1.00 par value ("Gold Common Stock"),
of which 4,300,000 shares were issued and outstanding on March 31, 1997, and (b)
7,500,000 shares of preferred stock for which no par value has as yet been
established and of which there are no shares issued and outstanding. All of the
issued and outstanding shares of Gold Common Stock are validly issued, fully
paid and non-assessable. Holders of Gold Common Stock do not have any
preemptive rights with respect to the issuance of additional authorized shares
of Gold Common Stock.
3.7 Government Regulation. Gold and its subsidiaries hold all material
licenses, certificates, permits, franchises and rights from all appropriate
federal, state or other public authorities necessary for the lawful conduct of
their respective businesses and ownership of their respective properties. Gold
and its subsidiaries have substantially complied with all material federal,
state and local statutes, regulations, ordinances or rules applicable to the
ownership of their respective properties or the conduct of their respective
businesses.
3.8 Financial Statements. The consolidated balance sheets of Gold as of
December 31, 1996, the consolidated statement of earnings for the year ended
December 31, 1996, and all related schedules and notes to the foregoing, all of
which have been delivered to Company, have been certified by KPMG Peat Marwick
LLP, independent certified public accountants. All of the foregoing financial
statements have been prepared in accordance with generally accepted accounting
principles and practices which were applied on a consistent basis, are correct
and complete and fairly and accurately present the financial position, results
of operation and changes of financial position of Gold as of their respective
dates and for the periods indicated. From December
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31, 1996 until the date hereof, there has been no material adverse change in the
financial condition, properties or assets of Gold.
3.9 SEC Reports. Gold's Report on Form 10-KSB for year ended December 31,
1996, filed with the Securities and Exchange Commission and all subsequent
reports and proxy statements filed by Gold thereafter pursuant to Section 13(a)
or 14(a) of the Securities Exchange Act of 1934 do not and will not contain a
misstatement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading as of
the time the document was filed. Since the filing of such Report on Form 10-
KSB, no other report, proxy statement, or other document has been required to be
filed by Gold pursuant to Section 13(a) or 14(a) of the Securities Exchange Act
of 1934 which has not been filed. Gold has delivered to Company the Form 10-KSB
for the fiscal year ended December 31, 1996.
3.10 Status of Gold Common Stock to be Issued. The shares of Gold Common
Stock into which the Company Common Stock are to be exchanged or converted
pursuant to this Agreement will be, when delivered as specified in this
Agreement, validly authorized and issued, fully paid and non-assessable, and
registered pursuant to an effective registration statement under the Securities
Act of 1933, as amended, or any successor federal statute and the rules and
regulations promulgated thereunder, all as the same shall be in effect at the
time (the "Securities Act").
3.11 Legal Proceedings. There are as of the date hereof no actions, suits,
claims, demands or other proceedings or investigations, either judicial or
administrative, pending or, to the knowledge of Gold, threatened against or
affecting the properties, assets, rights or business of Gold or the right to
carry on or conduct its business, nor are there to the knowledge of Gold any
grounds therefor, which, if adversely determined, would have a Material Adverse
Effect on the business, operations, properties or financial condition of Gold.
There are as of the date hereof no actions, suits, claims, demands or other
proceedings or investigations, either judicial or administrative, pending or, to
the knowledge of Gold, threatened which will or could prevent or interfere with
the consummation of the transactions contemplated by this Agreement.
3.12 Taxes. Gold and Sub have timely filed all tax returns required to be
filed by them, and have timely paid and discharged any Taxes due in connection
with all such tax returns. To the best knowledge of Gold, the liability for
taxes set forth on each such tax return adequately reflects the Taxes due with
respect to such returns. Neither the Internal Revenue Service nor any other
taxing authority is now asserting, either through audits, administrative
proceedings, court proceedings or otherwise any deficiency or claim for
additional Taxes against Gold or Sub.
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Neither Gold nor Sub has granted any waiver of any statute of limitations with
respect to, or any extension of a period for the assessments of, any tax. There
are no tax liens on any of the assets of Gold or Sub.
3.13 Defaults. Neither Gold nor any of its subsidiaries is in material
breach or material default under any agreement or commitment to which Gold or
any of its subsidiaries is a party, or under any loan agreement, note, security
agreement, guarantee or other document pursuant to or in connection with Gold's
or any of its subsidiaries' extension of credit; and, to their knowledge, there
has not occurred any event which, after the giving of notice, the lapse of time
or otherwise, would constitute any such default under, or result in any such
breach of, any such agreement, commitment or extension of credit.
3.14 Information Supplied. None of the information supplied or to be
supplied by Gold and Sub for inclusion or incorporation by reference in (a) the
Registration Statement (as defined in Section 11.1) will, at the time the
Registration Statement is filed with the Securities and Exchange Commission (the
"SEC") and at the time it becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading.
3.15 Absence of Adverse Agreements. Neither Gold nor Sub is a party to any
agreement or instrument or any judgment, order or decree or any rule or
regulation of any court or other governmental agency or authority which
materially and adversely affects or in the future may have a Material Adverse
Effect on the financial condition, results or operations, assets, business or
prospects of Gold or Sub, taken as a whole.
3.16 Broker's Fees. Neither Gold nor Sub nor any of their respective
officers or directors has employed any broker or finder or incurred any
liability for any broker's fees, commissions or finder's fees in connection with
any of the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY
-----------------------------------------
Except as set forth on the Company Disclosure Schedule attached hereto,
Company hereby represents and warrants to each of Gold and Sub as follows:
4.1 Organization and Good Standing.
(a) Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Kansas with the corporate power and
authority to own its properties and conduct its business as it is now being
conducted and is duly registered as a bank holding company under the Bank
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Company Act of 1956, as amended. The conduct of Company's business and the
ownership of its properties do not require Company to qualify as a foreign
corporation in any jurisdiction except where the failure to be so qualified
individually or in the aggregate would not materially and adversely affect the
business, operations, properties or financial condition of Company and its
subsidiary.
(b) Company has one subsidiary: Peoples National Bank, Clay Center,
Kansas ("Bank"), which is a national banking association duly organized, validly
existing and in good standing under the laws of the United States of America
with the corporate power and authority to carry on its business as it is now
being conducted. Bank has one subsidiary: Peoples Investment Subsidiary, Inc.
("Investment") which is a corporation duly organized, validly existing and in
good standing under the laws of Kansas with the corporate power and authority to
carry on its business as it is now being conducted. Bank and Investment are
each duly qualified to do business in each jurisdiction in which they own or
leases real property or in which the conduct of their business requires such
qualification except where the failure to be so qualified individually or in the
aggregate would not materially and adversely affect the business, operations,
properties or financial condition of Company, Bank and/or Investment.
4.2 Authority. Company has all requisite corporate power and authority to
enter into this Agreement, and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement, and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Company. This Agreement has been duly executed
and delivered by Company, and assuming due execution and delivery by Gold,
constitutes a valid and binding obligation of Company, enforceable in accordance
with its terms subject to applicable conservatorship, receivership, bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity (including
without limitation specific performance), whether applied in a court of law or a
court of equity.
4.3 Shareholder Approval. The Board of Directors of Company has directed
or will direct, that this Agreement and the transactions contemplated hereby be
submitted to the Company's shareholders for approval at a meeting of such
shareholders and, except for adoption of this Agreement by the requisite vote of
the Company's shareholders, no other shareholder action is necessary to approve
this Agreement and to consummate the transactions contemplated hereby. The
Board of Directors will recommend that the shareholders approve the transactions
contemplated hereby subject to its fiduciary duties. No approval of a number of
outstanding shares of Company, Bank or Investment greater than that required by
the relevant statutory provisions
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is required for approval of this Agreement and the consummation of the
transactions contemplated hereby. Approval of this Agreement by the shareholders
shall also constitute the acceptance by the shareholders of the indemnification
obligation imposed upon them under Section 9.5 hereinafter.
4.4 No Violations. Subject to approval by the appropriate regulatory
agencies, the execution, delivery and performance of this Agreement by Company
do not, and the consummation of the transactions contemplated hereby will not,
constitute (i) a breach or violation of, or a default under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license, or
agreement, indenture or instrument of Company, Bank or Investment or to which
Company, Bank or Investment (or any of their respective properties) is subject,
(ii) a breach or violation of, or a default under, the articles of
incorporation, charter or bylaws of Company, Bank or Investment or (iii) a
breach or violation of, or a default under (or an event which with due notice or
lapse of time or both would constitute a default under), or result in the
termination of, accelerate the performance required by, or result in the
termination of, accelerate the performance required by, or result in the
creation of any lien, pledge, security interest, charge or other encumbrance
upon any of the properties or assets of Company, Bank or Investment under any of
the terms, conditions or provisions of any note, bond, indenture, deed of trust,
loan agreement or other agreement, instrument or obligation to which the
Company, Bank or Investment is a party, or to which any of their respective
properties or assets may be bound or affected.
4.5 Consents. Except as disclosed herein, no filing or registration with,
or authorization, consent or approval of, any public body or authority is
necessary for the consummation by Company of the Merger or the other
transactions contemplated by this Agreement.
4.6 Capitalization. Company has authorized capital stock consisting of
1,000,000 shares of common stock, par value $100.00 per share, of which 25,350
shares are issued and outstanding. All of the issued and outstanding shares of
Company Common Stock are validly issued, fully paid and non-assessable. There
are no outstanding warrants, options, subscriptions, contracts, rights or other
agreements or commitments obligating Company to issue or sell any additional
shares of Company Common Stock nor are there outstanding any securities, debts,
obligations or rights which are convertible into or exchangeable for shares of
Company Common Stock or Preferred Stock. The authorized capital stock of Bank
consists of 10,000 shares of common stock, $100.00 par value per share, ("Bank
Stock") of which 10,000 shares have been duly and validly issued, are fully
paid, and all of which are owned directly by Company free and clear of all
liens, encumbrances, equities or claims. There are no outstanding warrants,
options, subscriptions, contracts, rights or other arrangements or commitments
obligating Company, Bank or Investment to issue or
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sell any additional shares of Bank's capital stock nor are there outstanding any
securities, debts, obligations or rights which are convertible into or
exchangeable for shares of capital stock or any other equity security of Bank.
The authorized capital stock of Investment consists of 100 shares of common
stock, $100.00 par value per share ("Investment Stock") of which 100 shares have
been duly and validly issued, are fully paid, all of which are owned by Bank.
There are no outstanding warrants, options, subscriptions, contracts, rights or
other arrangements or commitments obligating Company, Bank or Investment to
issue or sell any additional shares of Investment's capital stock nor are there
outstanding any securities, debts, obligations or rights which are convertible
into or exchangeable for shares of capital stock or any other equity security of
Investment.
4.7 Government Regulation. Company, Bank and Investment hold all material
licenses, certificates, permits, franchises and rights from all appropriate
federal, state or other public authorities necessary for the lawful conduct of
their respective businesses and ownership of their respective properties.
Company, Bank and Investment have substantially complied with all material
federal, state and local statutes, regulations, ordinances or rules applicable
to the ownership of their respective properties or the conduct of their
respective businesses.
4.8 Financial Statements. The Company has previously delivered to Gold
and Sub balance sheets for the Company as of March 31, 1997, December 31, 1996
and December 31, 1995, the statements of earnings for the period ended March 31,
1997 and for the years ended December 31, 1996 and December 31, 1995, and all
related schedules and notes to the foregoing (collectively the "Company
Financial Statements"). Although such statements have not been certified as of
the date hereof by independent certified public accountants, the Company
Financial Statements have been prepared in accordance with generally accepted
accounting principles and practices which were applied on a consistent basis,
are correct and complete and fairly and accurately present the financial
position, results of operation and changes of financial position of Company as
of their respective dates and for the periods indicated. Company has no
material liabilities or obligations of a type which would be included in a
balance sheet prepared in accordance with generally accepted accounting
principles whether related to tax or non-tax matters, accrued or contingent, due
or not yet due, liquidated or unliquidated, or otherwise, except as and to the
extent disclosed or reflected in the balance sheet of Company as of December 31,
1996, or incurred since December 31, 1996, in the ordinary course of business.
From December 31, 1996 until the date hereof, there has been no material adverse
change in the financial condition, properties, assets, liabilities, rights or
business of Company, Bank or Investment, or in the relationship of Company, Bank
or Investment with respect to its employees, creditors, suppliers, distributors,
customers or others with whom it has business
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relationships.
The Company agrees that an independent certified public accountant selected
by it (but subject to approval by Gold and Sub) shall conduct an independent
audit sufficient to allow certification of the consolidated balance sheet of the
Company as of December 31, 1996 and the consolidated statement of earnings for
the year then ended. The Company is contributing to the expense of same in
accordance with the terms of Section 11.1 hereinafter. The Company agrees to
promptly select the independent certified public accountant so that such audit
can be completed as quickly as possible in order to facilitate completion of the
Registration Statement (as contemplated under Article X hereinafter) and
obtaining requisite regulatory approval.
4.9 Legal Proceedings. There are as of the date hereof no actions, suits,
claims, demands or other proceedings or investigations, either judicial or
administrative, pending or, to the knowledge of Company, threatened against or
affecting the properties, assets, rights or business of Company, Bank or
Investment or the right to carry on or conduct their respective businesses, nor
are there to the knowledge of Company any grounds therefor. There are as of the
date hereof no actions, suits, claims, demands or other proceedings or
investigations, either judicial or administrative, pending or, to the knowledge
of Company, threatened which will or could prevent or interfere with the
consummation of the transactions contemplated by this Agreement.
4.10 Title to Assets. Except for securities pledged to secure public
funds deposits or subject to customer repurchase agreements entered into in the
ordinary course of business, and leased property discussed below, Company, Bank
and Investment have good and marketable title to and possession of all of their
respective real and personal properties and assets, in each case free and clear
of any liens, restrictions, encumbrances, rights, title and interests of others,
except for other real estate owned and except as reflected on their respective
financial statements and except for the lien of current taxes, covenants and
restrictions of record, and other minor imperfections of title not affecting
marketability, which liens, covenants, restrictions and imperfections do not
materially affect the value of such property and do not interfere with the use
made of such property by Company, Bank and Investment. The real and personal
properties and assets held under lease by Company, Bank and Investment are held
by them under valid, subsisting and enforceable leases with such exceptions as
do not interfere with the use made of such properties and assets by Company,
Bank and Investment. No consent is necessary under the terms of any such lease
in connection with the consummation of the transactions contemplated hereby.
4.11 Undisclosed Liabilities. As of the date hereof,
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neither Company, Bank nor Investment have any debt, liability or obligation
(whether accrued, contingent, absolute or otherwise) known to any of such
corporations of the nature which would customarily be included in a corporate
balance sheet or the notes thereto prepared in accordance with generally
accepted accounting principles that is not reflected or reserved against in the
Company Financial Statements or was not incurred in the ordinary course of their
business.
4.12 Taxes. The Company, Bank and Investment have timely filed all Tax
Returns required to be filed by them, and the Company, Bank and Investment have
timely paid and discharged all Taxes due in connection with or with respect to
the filing of such Tax Returns and have timely paid all other Taxes as are due,
except such as are being contested in good faith by appropriate proceedings and
with respect to which the Company is maintaining reserves adequate for their
payment. To the best knowledge of the Company, the liability for Taxes set
forth on each such Tax Return adequately reflects the Taxes required to be
reflected on such Tax Return. Neither the IRS nor any other governmental entity
or taxing authority or agency is now asserting, either through audits,
administrative proceedings, court proceedings or otherwise, or, to the best of
Company's knowledge, threatening to assert against Company, Bank or Investment
any deficiency or claim for additional Taxes. Neither the Company, Bank nor
Investment has granted any waiver of any statute of limitations with respect to,
or any extension of a period for the assessment of, any Tax. There are no tax
liens or any assets of the Company, Bank or Investment. Neither the Company,
Bank nor Investment has received a ruling or entered into an agreement with the
Internal Revenue Service or any other governmental entity or taxing authority or
agency that would have a Material Adverse Effect (as defined below) on the
Company, Bank or Investment, taken as a whole, after the Effective Time. For
purposes of this Agreement, "Material Adverse Effect" with respect to the
Company, Bank or Investment means an effect that: (1) is materially adverse to
the business, financial condition, results of operations or prospects of the
Company, Bank or Investment taken as a whole; (2) significantly and adversely
affects the ability of the Company, Bank or Investment to consummate the
transactions contemplated by this Agreement by the Closing Date or to perform
their material obligations under this Agreement; or (3) enables any persons to
prevent the consummation by the Closing Date of the transactions contemplated by
this Agreement. The accruals and reserves for taxes reflected in the Company's
Balance Sheet are adequate to cover all Taxes accruable by the Company and its
subsidiaries on a consolidated basis through the date thereof (including Taxes
being contested) in accordance with generally accepted accounting principles.
For purposes of this provision, "Tax" or "Taxes" shall mean all taxes, charges,
fees, levies and other governmental assessments and impositions of any kind,
payable to any federal, state, local or foreign governmental entity or taxing
authority or agency including, not by way of limitation, all income, franchise,
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profits, gross receipts, estimated, ad valorem, value added, sales, use,
service, real or personal property, capital stock, license, payroll,
withholding, disability, employment, social security, worker's compensation,
unemployment compensation, utility, excise, severance, production, occupation,
transfer and gains taxes, as well as any interest, penalties and additions to
tax imposed with respect thereto. "Tax Returns" shall mean returns, reports and
information statements with respect to Taxes required to be filed with the
Internal Revenue Service or any other governmental entity or taxing authority or
agency, whether federal, state or local and whether domestic or foreign.
4.13 Contracts. Neither Company, Bank nor Investment is party to or bound
by any:
(a) employment contract or letter or other writing relating to
employment;
(b) bonus, deferred compensation, savings, profit sharing, severance
pay, pension or retirement plan or arrangement;
(c) material lease or license with respect to any property, real or
personal, whether Company, Bank or Investment is landlord or tenant, licensor or
licensee, involving a liability or obligation of Company, Bank or Investment as
obligor in excess of $5,000 on an annual basis or over the life of the lease or
license.
(d) agreement, contract or indenture relating to the borrowing of
money by Company or any subsidiary, excluding deposit obligations, obligations
under certificates of deposit, letters of credit, items in the process of
collection, commitments to loan or discount, endorsements made for collection
and guarantees made in the ordinary course of business;
(e) agreement with any present or former officer, director or
shareholder of Company, Bank or Investment; or
(f) except as listed in the disclosure statement, other contract,
agreement or other commitment which is material to the business, operations,
property, prospects or assets or to the condition, financial or otherwise, of
Company, Bank or Investment or which involve a payment by Company, Bank or
Investment of more than $1,000 in one year over the life of such contract,
agreement or commitment.
4.14 Regulatory Reports; Examinations. Company, Bank and Investment have
timely filed all material reports, registrations and statements, together with
any amendments required to be made with respect thereto, with all governmental
or regulatory authorities, agencies, courts, commissions or other entity
("Governmental Entity") and have paid all fees and assessments due and payable
in connection therewith. Except for normal
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examinations conducted by a Governmental Entity in the regular course of the
business of Company, Bank and Investment, no Governmental Entity has initiated
any proceeding or, to the best knowledge of Company, investigation into the
business or operations of Company, Bank or Investment. There is no unresolved
material violation, criticism, or exception by any Governmental Entity with
respect to any report or statement relating to any examinations of Company, Bank
or Investment. Company has provided or made available to Gold all reports of
examinations conducted by any Governmental Entity with respect to Company, Bank
and/or Investment, and all correspondence between Company, Bank and/or
Investment and any Governmental Entity during the preceding ten (10) years.
4.15 Conduct. From December 31, 1996 until the date hereof:
(a) There has been no material adverse change in the financial
condition of, or in the properties, assets, liabilities, rights or business,
taken as a whole, of Company, Bank or Investment or in the relationship of
Company, Bank or Investment with respect to their employees, creditors,
suppliers, distributors, customers or others with whom they have business
relationships.
(b) The business affairs of Company, Bank and Investment have been
conducted and carried on only in their ordinary and regular course of business,
and Company, Bank and Investment have not incurred or become subject to any
liabilities or obligations other than those incurred in their ordinary course of
business, those incurred pursuant to existing contracts disclosed pursuant to
Section 4.14 and those incurred pursuant to commitments permitted hereby.
(c) Neither Company, Bank nor Investment have entered into any
employment contract with any director, officer or salaried employee, paid any or
made any accrual or arrangement for payment of bonuses or special compensation
of any kind or any severance or termination pay to any of their officers,
employees or directors, increased the rate of compensation, if any, or
instituted or made any material increase in any officer's, employee's or
director's welfare, retirement or similar plan or arrangement, other than merit
increases made in accordance with past practices and procedures which have not
exceeded the greater of $3,000 or 5% on an annual basis for any one individual.
4.16 Compliance with ERISA. Neither Company, Bank nor Investment has
established, maintained or contributed at anytime during the five-year period
ending as of the Effective Time to any employee benefit plan (as defined in
Sections 3(3) or 3(37) of the Employment Retirement Income Security Act of 1974
("ERISA")) or any other plan with respect to which any governmental filings are
required, except for the plans listed on Schedule 4.17 (collectively, the
"Plans"). A true and accurate
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copy of each of the Plans, any related trust agreements and each of the
amendments thereto has been provided to Gold together with (i) all determination
letters received in respect of any qualified plans, and (ii) all required
reports and supporting schedules filed with any government agency in respect of
the Plans for the three most recent years ending on or before the Effective
Time. To Company's knowledge as sponsor of the Plans, the Plans and each
fiduciary (as defined in Section 3(21) of ERISA) of the Plans are in compliance
in all material respects with all applicable requirements (including
nondiscrimination requirements in effect as of the Effective Time) of the
Internal Revenue Code of 1986 ("Code"), including, but not limited to, Sections
79, 105, 106, 125, 401, 501, and 4975 of the Code. For purposes of this Section
4.17, noncompliance with the Code or ERISA is material of such noncompliance
could have a Material Adverse Effect on the condition of one or more of the
Plans or of Company, Bank or Investment, either as of the Effective Time or upon
discovery of the noncompliance. To Company's knowledge as sponsor of the Plans,
all required contributions to the Plans through the Effective Time have been
made. To Company's knowledge as sponsor of the Plans, Company, Bank and
Investment (each with respect to the Plans), as well as the Plans, have no
material current or threatened liability of any kind to any person, including
but not limited to any government agency, now or as of the Effective Time, other
than for the payment of benefits in the ordinary course.
4.17 Information Supplied. None of the information supplied or to be
supplied by Company for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement is filed
with the SEC and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (ii) the Proxy Statement will, at the date of mailing to
stockholders and at the times of the meetings of stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, other than information supplied by Gold or Sub.
4.18 Defaults. Neither Company, Bank nor Investment is in material breach
or material default known to either under any agreement or commitment to which
the Company, Bank or Investment is a party, or under any loan agreement, note,
security agreement, guarantee or other document pursuant to or in connection
with the Company's, Bank's or Investment's extension of credit; and to their
knowledge there has not occurred any event which, after the giving of notice,
the lapse time or otherwise, would constitute any such default under, or result
in any such breach of, any such agreement, commitment or extension
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of credit.
4.19 Insurance. Complete and correct copies of all material policies of
fire, product or other liability, workers' compensation and other similar forms
of insurance owned or held by Company, Bank and Investment have been delivered
or made available to Gold. Subject to expirations and renewals of insurance
policies in the ordinary course of business, all such policies are in full force
and effect, all premiums with respect thereto covering all periods up to and
including the date as of which this representation is being made have been paid
(other than retrospective premiums which may be payable with respect to worker's
compensation insurance policies), and no notice of cancellation or termination
has been received with respect to any such policy. Such policies are and shall
remain valid, outstanding and enforceable policies, and will not be terminated
prior to the Effective Time. To the best knowledge of Company, the insurance
policies to which Company, Bank or Investment are parties are sufficient for
compliance with all material requirements of law and all material agreements to
which Company, Bank or Investment are parties and will be maintained by Company,
Bank and Investment until the Effective Time. Neither Company, Bank nor
Investment has been refused any insurance with respect to any material assets or
operations, nor has coverage been limited in any respect material to their
operations by any insurance carrier to which they have applied for any such
insurance or with which they have carried insurance during the last five (5)
years.
4.20 Absence of Adverse Agreements. Neither the Company, Bank nor
Investment is a party to any agreement or instrument or any judgment, order or
decree or any rule or regulation of any court or other governmental agency or
authority which materially and adversely affects or in the future may have a
Material Adverse Effect on the financial condition, results or operations,
assets, business or prospects of the Company, Bank or Investment, taken as a
whole.
4.21 Internal Controls and Records. The Company, Bank and Investment
maintain books of account which accurately and validly reflect, in all material
respects, all loans, mortgages, collateral and other business transactions and
maintain accounting controls sufficient to ensure that all such transactions are
(a) in all material respects, executed in accordance with its management's
general or specific authorization, and pursuant to Company's, Bank's and
Investment's documented policies and procedures, and (b) recorded in conformity
with generally accepted accounting principles. Company has furnished to Gold all
of Company's, Bank's and Investment's written internal policies and procedures
which are identified on the Company's Disclosure Schedule.
4.22 Loans. (a) Bank is not a party to any written or oral loan agreement,
note or borrowing arrangement which has been
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classified as "substandard", "doubtful," "loss," "other loans especially
mentioned" or any comparable classifications by Company, Bank, Investment or
banking regulators; (b) neither Company, Bank nor Investment is a party to any
written or oral loan agreement, note, or borrowing arrangement, including any
loan guaranty, with any director or executive officer of Company, Bank or
Investment, or any person, corporation or enterprise controlling, controlled by
or under common control with any of the foregoing; (c) to the best knowledge of
Company neither Company, Bank nor Investment is a party to any written or oral
loan agreement, note or borrowing arrangement in violation of any law,
regulation or rule of any governmental authority.
4.23 Environmental Laws. The operations of Company, Bank and Investment
comply with all applicable past and present federal, state and local
environmental statutes and regulations and neither the condition of any property
owned by Company, Bank and/or Investment nor the operation of the business of
any of such three entities violates any applicable federal, state or local
environmental statute or regulation. None of the operations of Company, Bank or
Investment is subject to any judicial or administrative proceeding alleging the
violation of any federal, state or local environmental health or safety statute
or regulation nor is it the subject of any claim alleging damages to health or
property pursuant to which the Company, Bank or Investment may be liable. None
of the operations of nor any of the properties owned by Company, Bank or
Investment is the subject of any federal, state or local investigation in
evaluating whether any remedial action is needed to respond to a release or
threatened release of any hazardous waste or substance from whatever source. No
condition or event has occurred which, with notice or the passage of time or
both, would constitute a violation of any federal, state or local environmental
law and at no time has the Company, Bank or Investment stored or used any
pollutants, contaminants or hazardous or toxic waste, substances or materials on
or at any location owned by Company, Bank or Investment. There are no
underground storage tanks now or heretofore located on any real property owned
by Company, Bank or Investment. Neither Company, Bank nor Investment has ever
been notified by either a federal, state or local governmental authority, or any
private party, that Company, Bank or Investment is a potentially responsible
party for remedial costs spent addressing the release, or threat of a release,
of a hazardous substance and to the environment pursuant to the Comprehensive
Environmental Response, Compensation or Liability Act, 42 U.S.C. (S)(S) 9601, et
seq. or any corresponding state law.
Gold may obtain at its option expense on or prior to 120 days following the
date hereof an environmental audit of all properties and assets of Company, Bank
and Investment whether directly owned or classified as other real estate owned.
Such environmental audit shall constitute a part of the due diligence process,
should Gold choose to pursue it, and if Gold determines in its sole discretion
that such environmental audit has not been
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completed to its reasonable satisfaction or reflects the potential of an
environmental problem with respect to any of the properties or assets of
Company, Bank or Investment, then Gold may deem the due diligence unsatisfactory
and terminate this Agreement under the terms of Section 9.1 hereinafter.
4.24 Broker's Fees. Neither Company, Bank nor Investment nor any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with any of the transactions contemplated by this Agreement.
4.25 Labor Matters. (a) To the best knowledge of Company, Company, Bank
and Investment are in compliance with all applicable laws respecting employment
and employment practices, terms and conditions of employment and wages and
hours, and are not engaged in any unfair labor practice; (b) there is no unfair
practice complaint against Company, Bank or Investment pending before the
National Labor Relations Board; (c) there is no labor strike, dispute, slowdown,
representation campaign or work stoppage actually pending or threatened against
or affecting Company, Bank or Investment; (d) no grievance or arbitration
proceeding arising out of or under collective bargaining agreements is pending
and no claim therefor has been asserted against Company, Bank or Investment; and
(e) neither Company, Bank nor Investment is experiencing any material work
stoppage.
4.26 Full Disclosure. No statement contained in any document, certificate,
or other writing furnished or to be furnished by or at the direction of Company
to Gold in, or pursuant to the provisions of, this Agreement contains or shall
contain any untrue statement of a material fact or omits or shall omit to state
any material fact necessary, in light of the circumstances under which it was
made, in order to make the statements herein or therein not misleading.
ARTICLE V
COVENANTS OF COMPANY
--------------------
5.1 Affirmative Covenants of the Company. Unless the prior written consent
of Gold shall have been obtained, and which consent will be given or denied
within 3 business days of receipt of written request for such consent, and
except as otherwise expressly contemplated herein, the Company shall and shall
cause Bank to (i) operate its business only in the usual, regular, and ordinary
course, (ii) preserve intact its business organization and assets and maintain
its rights and franchises; and (iii) take no action which would (a) materially
adversely affect the ability of any party to obtain any consents required for
the transactions contemplated hereby without imposition of a condition or
restriction which would prevent the transactions contemplated hereby, including
the Merger, from qualifying as a reorganization within the meaning of Section
368(a) of the Code, or (b) materially adversely affect the ability of any party
to perform
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<PAGE>
its covenants and agreements under this Agreement.
5.2 Negative Covenants of the Company. Except as specifically permitted by
this Agreement, from the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement, the Company covenants and
agrees that it will not do or agree to commit to do, or permit Bank to do or
agree to commit to do, any of the following without the prior written consent of
Gold, which consent shall not be unreasonably withheld and which consent will be
given or denied within 3 business days of receipt of written request for such
consent:
(a) make any single loan (or series of loans to the same or related
entities or persons) or any commitment (verbal or written) for a loan (or series
of commitments to the same or related entities or persons) in an amount greater
than $250,000.00 other than renewals of existing loans or commitments to loan;
(b) purchase or invest in any securities, other than U.S. government
obligations or other securities backed by the full faith and credit of the
United States having a maturity of not more than two years from the date of
purchase;
(c) amend or adopt any employee benefit plan, and will not grant any
increase in the rates of pay of their employees or any increase in the
compensation payable or to become payable, if any, to any director, officer,
employee or agent thereof, or contribute to any pension plan or otherwise
increase in any amount the benefits or compensation of any such directors,
officers or employees of Company, Bank or Investment under any pension plan or
other contract or commitment except for merit increases in accordance with past
practices;
(d) make any capital expenditure or enter into any material contract
or commitment (except loan commitments as permitted in Subparagraph (a) of this
Section 5.2); involving an obligation or commitment in excess of $5,000 or
engage in any transaction not in their usual and ordinary course of business and
consistent with past practices;
(e) declare or pay any dividend or make any other distribution in
respect of any capital stock of Company, Bank or Investment, split, combine or
reclassify any shares of its capital stock or, directly or indirectly, redeem,
purchase or otherwise acquire any share of the capital stock of the Company,
Bank or Investment;
(f) amend the Articles of Incorporation or By-Laws of each of the
Company, Bank or Investment or make any change in the authorized, issued or
outstanding capital stock (or any change in the par value thereof) of Company,
Bank or Investment;
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<PAGE>
(g) acquire or purchase any assets of or make any investment in any
financial institution other than the purchase of loans or participations therein
in the ordinary course of business, but subject to Section 5.2(a);
(h) enter into any new line of business;
(i) acquire or agree to acquire, by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire any assets, which would be material, individually or in the aggregate,
to Company, other than in connection with foreclosures, settlements in lieu of
foreclosure or troubled loan or debt restructuring in the ordinary course of
business consistent with prudent banking practices;
(j) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect, or in any of the conditions to
the Merger set forth in Article VII not being satisfied, or in a violation of
any provisions of this Agreement except, in every case, as may be required by
applicable law;
(k) change its methods of accounting except as required by changes in
generally accepted accounting principles ("GAAP") or regulatory accounting
principles as concurred to by the Company's independent auditors;
(l) other than activities in the ordinary course of business
consistent with prior practice, sell, lease, encumber, assign or otherwise
dispose of, any of its material assets in excess of $5,000.00, properties or
other rights of agreements;
(m) file any application to relocate or terminate the operations of
any banking office;
(n) make any equity investment or commitment to make such an
investment in real estate or in any real estate development project, other than
in connection with foreclosures, settlements in lieu of foreclosure or troubled
loan or debt restructuring in the ordinary course of business consistent with
prudent banking practices;
(o) create, renew, amend or terminate or give notice of a proposed
renewal, amendment or termination of, any material contract, agreement or lease
for goods, services or office space to which the Company, Bank or Investment is
a party or by which the Company, Bank or Investment or their respective
properties is bound; or
(p) make any new loan or new extension of credit, or
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<PAGE>
commit to make any such loan or extension of credit, to any director or officer
of the Company, Bank or Investment without giving Gold three days' notice in
advance of the Company's, Bank's or Investment's approval of such loan or
extension of credit or commitment relating thereto.
5.3 Inspection. Between the date hereof and the Closing Date and upon
reasonable notice, and with the prior consent of James P. Fawcett, Gold and its
authorized representatives shall be permitted full access during all business
hours to all properties, books, records, contracts and documents of Company Bank
and Investment. The Company shall furnish to Gold and its authorized
representative all information with respect to the affairs of Company, Bank and
Investment as Gold may reasonably request.
5.4 Financial Statements and Call Reports. From and after to date thereof,
Company shall deliver to Gold monthly reports of condition and income statements
of Company, Bank and Investment and shall deliver to Gold copies of the call
reports for Bank as filed with any regulatory agency promptly after such filing.
5.5 Right to Attend Meetings. Company, Bank and Investment shall allow a
representative of Gold to attend as an observer all meetings of the Board of
Directors of Company, Bank and Investment and all meetings of the committees of
each such board, including, without limitation, the audit and executive
committees thereof and any other meetings of Company, Bank or Investment
officials at which policy is being made. Company, Bank and Investment shall give
reasonable notice to Gold of any such meeting and, if known, the agenda for or
business to be discussed at such meeting. Company, Bank and Investment shall
provide to Gold all information provided to the directors on all such boards and
committees in connection with all such meetings or otherwise provided to the
directors and shall provide any other financial reports or other analyses
prepared for senior management of Company, Bank or Investment.
5.6. Data Processing. Company shall cooperate with Gold in taking those
planning actions necessary to be in a position to convert its data processing
procedures and formats to procedures and formats used by Gold, if any, as of the
Effective Time. Gold shall provide such assistance and consultation as Company
may reasonably require in such planning process.
5.7 No Solicitation. Neither Company, Bank nor Investment nor any
affiliates or associates of Company, Bank or Investment acting for or on behalf
of Company, Bank or Investment shall, directly or indirectly, make, encourage,
facilitate, solicit, assist or initiate any inquiry or proposal, or participate
in any negotiations with, or, subject to the provisos to this sentence, provide
any information to, any corporation, partnership, agent, attorney, financial
adviser, person, or other entity or group (other than (a) Gold, Sub, an
affiliate or associate of Gold or
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Sub or an officer, employee or other authorized representative of Gold, Sub or
such affiliate or associate or (b) the Company's counsel, accountants and
financial adviser solely for use in connection with the transactions
contemplated hereby) relating to any (i) liquidation, dissolution,
recapitalization, merger or consolidation of the Company, Bank or Investment,
(ii) outside the ordinary course of business, sale of a significant amount of
assets of the Company, Bank or Investment, (iii) purchase or sale of shares of
capital stock of the Company, Bank or Investment, or (iv) any similar
transactions involving Company, Bank or Investment, other than the transactions
contemplated by this Agreement; provided, however, that the Company may provide
information at the request of a third party if the Board of Directors of the
Company determines, in good faith, that the exercise of its fiduciary duties to
the Company's shareholders under applicable law, as advised in writing by
outside counsel reasonably acceptable to Gold and Sub, requires it to take such
action, and, provided further, that Company may not, in any event, provide to
such third party any information which it has not provided to Gold and Sub.
Company shall immediately cease and cause to be terminated any and all such
contacts and negotiations with respect to any such transaction. Company shall
immediately inform Gold and Sub of any inquiry, proposal or request for
information (including the terms thereof and the person making such inquiry)
which it may receive in respect of such a transaction.
5.8 Regulatory Approvals. Subject to the terms and conditions of this
Agreement, Company agrees to use its reasonable best efforts to cooperate with
Gold in Gold's efforts to secure as expeditiously as practicable all the
necessary approvals, regulatory or otherwise, needed to consummate the
transactions contemplated herein.
5.9 Information. Company shall provide such information and answer such
inquiries as Gold may reasonably request or make concerning the subject matter
of the representations and warranties of Company herein.
5.10 Tax-Free Reorganization Treatment. Company shall not intentionally
take or cause to be taken any action, whether before or after the Effective
Time, which would disqualify the Merger or the Exchange as a tax-free
"reorganization" within the meaning of Section 368(a) of the Code.
ARTICLE VI
COVENANTS OF GOLD AND SUB
-------------------------
6.1 Regulatory Approvals. Subject to the terms and conditions of this
Agreement, Gold and Sub agree to use their reasonable best efforts to secure as
expeditiously as practicable all the necessary approvals, regulatory or
otherwise, needed to consummate the transactions contemplated herein and agree
to file applications relating to such approvals within sixty (60) days
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from the date hereof. Gold and Sub shall provide to Company's counsel a copy of
all applications for such approvals and shall keep such counsel or the Company
advised of the status of the regulatory review process.
6.2 Information. Gold and Sub shall provide such information and answer
such inquiries, as the Company may reasonably request or make concerning the
subject matter of the representations and warranties of Gold and Sub herein.
6.3 Tax-Free Reorganization Treatment. Neither Gold nor Sub shall
intentionally take or cause to be taken any action, whether before or after the
Effective Time, which would disqualify the Merger or the Exchange as a tax-free
"reorganization" within the meaning of Section 368(a) of the Code.
6.4 Employee Benefits. Employees of Company, Bank or Investment shall be
eligible to participate in all Gold employee welfare benefit plans in accordance
with their terms, and for such purpose all service of such employees with the
Company, Bank and Investment shall be counted as service with Gold.
ARTICLE VII
CONDITIONS PRECEDENT TO GOLD'S OBLIGATIONS
------------------------------------------
The obligations of Gold and Sub to consummate the transactions hereunder
shall be subject to the satisfaction on or before the Closing Date of all of the
following conditions, except such conditions as Gold or Sub may waive in
writing:
7.1 Representations, Warranties and Covenants. All representations and
warranties of Company contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date, except for changes
permitted by or contemplated by this Agreement and except to the extent that any
such representation or warranty is made solely as of a specified date. Company
shall have performed all agreements and covenants in all material respects
required by this Agreement to be performed on or prior to the Closing Date and
Gold shall have received a certificate signed by the Chief Executive Officer of
Company, dated the Closing Date, to the foregoing effect.
7.2 Material Actions; Debts or Defaults. On the Closing Date, there shall
not be: (i) except as set forth on the Company Disclosure Schedule, any actions,
suits, claims, demands or other proceedings or investigations, either judicial
or administration, pending or, to the knowledge of Company, Bank or Investment,
threatened against or affecting the properties, assets, rights or business of
Company, Bank or Investment or the right to carry on or conduct their respective
businesses; (ii) any debt, liability or obligation of Company, Bank or
Investment (whether accrued, contingent, absolute or otherwise) required to be
reflected in a corporate balance sheet or the notes thereto that is not
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<PAGE>
reflected or reserved against in their respective financial statements or was
not incurred in ordinary course of their respective businesses; or (iii) any
material breach or material default of Company, Bank or Investment under any
agreement or commitment to which either is a party, or under any loan agreement,
note, security agreement, guarantee or other document pursuant to or in
connection with the Company's or Bank's extension of credit.
7.3 Adverse Changes. There will have been no material adverse change in
the financial condition of, or in the properties, assets, liabilities, rights or
business, taken as a whole, of Company, Bank or Investment, and taking into
account for this purpose the proceeds of any applicable insurance.
7.4 Regulatory Authority Approval. Orders, consents and approvals in form
and substance reasonably satisfactory to Gold shall have been entered by or
obtained from the appropriate regulatory authorities authorizing consummation of
the transactions contemplated hereby pursuant to the provisions of the Bank
Holding Company Act and any other applicable federal or state banking regulatory
statute or rule and no such order, consent or approval shall be conditioned or
restricted in any manner which in the reasonable judgment of Gold would
materially adversely affect the operations of or be unduly burdensome to Gold.
In addition, all required regulatory approvals to permit the acquisition of the
Bank Business shall have been received and any applicable waiting periods shall
have been expired.
7.5 Litigation. At the Closing Date, there shall not be pending or
threatened litigation in any court or any proceeding by any governmental
commission, board or agency which Gold reasonably believes could reasonably
result in restraining, enjoining or prohibiting the consummation of this
Agreement.
7.6 Financial Measures. On the Closing Date, the tier 1 capital of Bank
shall be not less than $6,986,135.00 and the reserve for loan and lease loss of
Bank shall be not less than $439,328.00, all as determined on the basis of the
financial statements of Company and Bank as prepared in accordance with
applicable bank holding company and bank regulatory instructions. It is fully
understood all future earnings from March 31, 1997 forward including, but not
limited to, the GT loan recovery estimated at $315,000.00 shall accrue to the
retained earnings or reserves of the Bank, respectively, and shall not result in
an increase of any consideration payable by Gold or Sub hereunder.
7.7 Approval by Shareholders. The shareholders of Company, Bank and
Investment shall have duly approved and adopted this Agreement and the other
transactions contemplated hereby to the extent required by applicable
requirements of law and the Articles of Incorporation and By-Laws of Company,
Bank and Investment.
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7.8 Tax Representations. Each shareholder of Company, Bank and Investment
owning more than 10% of the outstanding Company Common Stock or Bank Stock shall
have made those representations reasonably requested by counsel and necessary to
enable them to render the opinion described in Section 7.11 hereof.
7.9 Affiliate Agreements. Each person who is an "affiliate" (for purposes
of Rule 145 under the Securities Act and for pooling-of-interests accounting
treatment) of the Company, Bank and Investment at the time this Agreement is
submitted to approval of the stockholders of the Company, Bank and Investment
shall deliver to Gold a letter in substantially the form set forth in Exhibit
7.9.
7.10 Satisfactory Due Diligence. Representatives of Company, Bank and
Investment have cooperated with Gold, Sub and representatives of Gold and Sub in
conducting its due diligence in accordance with the terms of Section 5.3 above.
7.11 Federal Tax Opinion. Gold shall have received an opinion of Payne &
Jones, Chartered, counsel to Gold ("Gold's Counsel"), in form and substance
reasonably satisfactory to Gold, dated the Closing Date, the Merger will be
treated as a tax-free reorganization within the meaning of Section 368(a)(1)(A)
of the Code.
7.12 Opinion of Counsel. Gold shall have received an opinion of Ryan,
Condry & Ryan, L.L.C. ("Company's Counsel") dated the Closing Date in form and
substance reasonably satisfactory to Gold covering the matters set out in
Exhibit 7.12 hereto.
7.13 Qualification for Pooling of Interest Treatment. Gold shall have
received an opinion from an accounting firm reasonably acceptable to Gold that
this transaction will qualify for pooling of interest accounting treatment and
that all conditions applicable thereto (including limitation of cash
consideration paid by Gold hereunder and absence of any capital transactions
involving any parties hereto) have been met.
7.14 Average Gold Price. The Average Gold Price as determined under
Section 2.2(b) shall not be less than $10.50 per share.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATION
----------------------------------
OF COMPANY, BANK AND INVESTMENT
-------------------------------
The obligations of Company, Bank and Investment to consummate the
transactions contemplated hereunder shall be subject to satisfaction on or
before the Closing Date of all of the following conditions, except such
conditions as Company, Bank and Investment may waive in writing:
8.1 Representations, Warranties and Covenants. All representations and
warranties of Gold contained in this Agreement
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shall be true in all material respects on and as of the Closing Date, except to
the extent that any such representation or warranty is made solely as of a
specified date, and Gold shall have performed all agreements and covenants in
all material respects required by this Agreement to be performed on or prior to
the Closing Date.
8.2 Regulatory Authority Approval. Orders, consents and approvals in form
and substance reasonably satisfactory to Company shall have been entered by or
obtained from the appropriate regulatory authorities authorizing consummation of
the transactions contemplated by this Agreement pursuant to the provisions of
the Bank Holding Company Act and any other applicable federal or state banking
regulatory statute or rule.
8.3 Litigation. There shall not be pending or threatened litigation in any
court or any proceeding by any governmental commission, board or agency which
Company believes could reasonably result in restraining, enjoining or
prohibiting the consummation of the transactions contemplated by this Agreement.
8.4 Approval by Shareholders. The shareholders of Company, Bank and
Investment shall have duly approved and adopted this Agreement and the
transactions contemplated hereby to the extent required by applicable
requirements of law and the Articles of Incorporation and By-Laws of the
Company, Bank and Investment.
8.5 Adverse Changes. From the date of this Agreement to the Closing Date,
there will have been no material adverse change in the financial condition,
properties, assets, liabilities, rights, business or prospects of Gold.
ARTICLE IX
TERMINATION OF AGREEMENT; INDEMNIFICATION
-----------------------------------------
9.1 Basis for Termination. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to the Closing Date: (a)
by mutual consent in writing of the parties hereto; (b) by Gold upon written
notice to Company if any regulatory approval of the transactions contemplated
under the terms of this Agreement shall be denied or if any such regulatory
approval shall be conditioned or restricted in any manner which in the
reasonable judgment of Gold would materially adversely affect the operations of
or would be unduly burdensome to Gold; (c) by Gold or Company if the other party
has materially breached this Agreement and has not cured such breach within the
earlier of (i) 30 days after the non-breaching party shall have given notice to
the breaching party of the existence of such breach or (ii) the Closing Date;
(d) by Gold or Company upon written notice to the other of any other condition
imposed for the benefit of such party that shall not have been satisfied or
waived prior to the Closing Date; or (e) by either Gold or Company if the
Closing Date shall not have occurred by August 31, 1997; provided that the
terminating party is not then in material
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breach of this Agreement and provided further that such delay has not been
caused by regulatory action or inaction, whether by banking authorities, the
Securities and Exchange Commission, or otherwise, beyond the control of either
party. As used in this Section 9.1, actions contemplated as being taken by Gold
or the Company must be taken by their respective Board of Directors or the
Executive Committee of such Board.
9.2 Effect of Termination. In the event of termination of this Agreement
for any reason set forth in Section 9.1, other than a breach thereof, no party
hereto shall have any liability to the other of any nature whatsoever, including
any liability for loss, damages or expenses suffered or claimed to be suffered
by reason thereof. Further, in the event of termination of this Agreement for
any reason set forth in Section 9.1, the Earnest Money Deposit and all interest
thereon shall be returned to Sub.
In the event Gold and Sub have performed all of their obligations hereunder
and all conditions precedent to the obligation of Gold and Sub to close have
been met or waived in writing by Gold and Sub, but Company fails or otherwise
refuses to close, then Gold shall be entitled to enforce the terms hereof by an
action seeking specific performance. Such right is not exclusive and sh
or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the merger
by the stockholders of Company or Sub, but, after any such approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
9.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
9.5 Indemnification by Company and its Shareholders. Subsequent to the
closing hereof, the Company and each of its
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shareholders jointly and severally agree to indemnify and hold harmless Gold,
Sub and the officers, shareholders and directors of each such entity from and
against and in respect of any and all damages, losses, diminution of value, or
expenses suffered or incurred by any such party (whether as a result of third
party claims [whether valid or not], demands, suits, causes of action,
proceedings, investigations, judgments or liabilities or otherwise), including
costs of investigation in defense and reasonable attorneys' fees assessed,
incurred or sustained by or against any of them, with respect to or arising out
of any breach of the representations, warranties and/or covenants of the Company
set forth herein and in any other agreement or instrument executed by the
Company in connection herewith. If this merger is approved by a requisite number
of shareholders of Company, then each and every shareholder of Company shall be
deemed to have agreed to this indemnification whether or not such shareholder
dissents to the terms of the merger, subject to the limitation set forth in
Section 9.7 hereinafter.
9.6 Indemnification by Gold. Gold agrees to indemnify, defend and hold
harmless Company and its shareholders from and against and in respect of any and
all damages, losses, diminution of value, or expenses suffered or incurred by
Company (whether as a result of third party claims [whether valid or not],
demands, suits, causes of action, proceedings, investigations, judgments,
liabilities or otherwise), including costs of investigation and defense and
reasonable attorneys' fees assessed or incurred or sustained by or against
Company or its shareholders, with respect to or arising out of any breach of the
representations, warranties and covenants of Gold and Sub set forth herein and
in any other agreement or instrument executed by Gold and/or Sub in connection
herewith.
9.7 Limitations on Indemnification. Notwithstanding anything herein
contained to the contrary, no person shall be entitled to indemnification under
the provisions of this Agreement: (i) unless such party shall have given written
notice to the indemnifying party setting forth its claim for indemnification in
reasonable detail, and (b) to the extent that the aggregate amount of all
indemnification liability under Section 9.5 or Section 9.5, as applicable,
exceeds the sum of the total figure reflected in Clause (i) of Section 2.2(c).
9.8 Procedure for Indemnification. If a party hereto becomes aware of an
event which gives rise to a claim for indemnification hereunder, such party
shall give the other party prompt notice of any such action, claim, liability,
assessment or notice of deficiency received by such party which might result in
any liability under this provision. To the extent Gold is giving such notice,
notice to Company shall be deemed sufficient to constitute notice to all
shareholders. By execution hereof, Company specifically agrees that it shall
assume all responsibility for communicating receipt of any such notice to the
shareholders of Company. Further, any party who may claim a
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<PAGE>
right of indemnification hereunder agrees to refrain from paying, settling or
compromising any such claim for which indemnification may be sought without
giving notice of same to the other party. If the other party wishes to contest
or defend such third party claim, then the party against whom the claim was made
shall be obligated to cooperate fully with such party in contesting and
preserving all rights with respect to such contest; provided, however, that if
the other party does not wish to challenge or contest such third party claim,
then the party against whom the claim was being made by settle same on terms and
conditions it deems to be the most favorable it can be obtained and then
inserting the indemnification claim against the other party hereto. When giving
a notice under this provision, a party may specify a time for a response from
the other party as to whether such other party wishes to contest or defend such
third party claim. Such deadline for response may be established consistent with
the facts and circumstances surrounding the situation. Failure of the other
party to respond within such time period shall constitute such other party's
decision not to contest or defend such claim. If a party hereunder claims
indemnification for a claim other than a third party claim, the party seeking
indemnification shall notify the indemnifying party in writing of the basis for
such claim setting forth the nature and amount of the damages resulting from
such claim. To the extent a party is deemed to have ultimately been responsible
for indemnification, then interest shall be deemed to accrue on the unpaid
amount of indemnification obligation (at the prime rate of interest announced
from time to time by Exchange National Bank, such interest to be calculated
based on the actual number of days elapsed from the date each indemnification
obligation becomes due and owing until paid in full and based on 365 day year.
ARTICLE X
SECURITIES LAWS MATTER
----------------------
10.1 Registration Statement and Proxy Statement. Gold shall as soon as
practicable prepare and file a registration statement on Form S-4 to be filed
with the SEC pursuant to the Securities Act for the purpose of registering the
shares of Gold Common Stock to be issued in the Merger (the "Registration
Statement"). Company, Bank, Investment, Gold and Sub shall each provide promptly
to the other such information concerning their respective businesses, financial
conditions, and affairs as may be required or appropriate for inclusion in the
Registration Statement or the proxy statement to be used in connection with the
special stockholders' meetings of Company and to be called for the purpose of
considering and voting on the Merger (the "Proxy Statement"). Company, Bank,
Investment, Gold and Sub shall each cause their counsel and auditors to
cooperate with the other's counsel and auditors in the preparation and filing of
the Registration Statement and the Proxy Statement. Gold shall not include in
the Registration Statement any information concerning Company, Bank or
Investment to which Company, Bank or Investment shall reasonably and timely
object in writing. Gold, Sub,
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<PAGE>
Company, Bank and Investment shall use their reasonable best efforts to have the
Registration Statement declared effective under the Securities Act as soon as
may be practicable and thereafter Company, Bank and Investment shall distribute
the Proxy Statement to their respective stockholders in accordance with
applicable laws not fewer than 20 business days prior to the date on which this
Agreement is to be submitted to their respective stockholders for voting
thereon. If necessary, in light of developments occurring subsequent to the
distribution of the Proxy Statement, Company, Bank and Investment shall mail or
otherwise furnish to their respective shareholders such amendments to the Proxy
Statement or supplements to the Proxy Statement as may, in the reasonable
opinion of Gold, Sub, Company, Bank or Investment, be necessary so that the
Proxy Statement, as so amended or supplemented, will contain no untrue statement
of any material fact and will not omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or as may be necessary
to comply with applicable law. Gold and Sub shall not be required to maintain
the effectiveness of the Registration Statement after delivery of the Gold
Common Stock issued pursuant hereto for the purpose of resale of Gold Common
Stock by any person. For a period of at least three years from the Effective
Time, Gold shall make available "adequate current public information" within the
meaning of and as required by paragraph (c) of Rule 144 adopted pursuant to the
Securities Act.
10.2 State Securities Laws. The parties hereto shall cooperate in making
any filings required under the securities laws of any state in order either to
qualify or register the Gold Common Stock so it may be offered and sold lawfully
in such state in connection with the Merger or to obtain an exemption from such
qualification or registration.
10.3 Publication of Combined Financial Results. Gold will file with the
Securities and Exchange Commission a Periodic Report on Form 8-K containing
financial statements which include no less than 30 days of combined operations
of Gold and Company, ended on a normal closing date, as soon as practicable
after the Effective Time unless the first 30 day period of combined operations
is reflected in and ends on the normal closing date of an annual report on Form
10-K or quarterly report on Form 10-Q.
ARTICLE XI
MISCELLANEOUS
-------------
11.1 Expenses. Except as set forth herein, each party shall be responsible
for its own expenses in connection with this transaction. Specifically, each
party shall be responsible for its own legal and accounting fees and any related
costs or charges associates with the negotiation, execution and consummation of
this Agreement. However, notwithstanding anything herein contained to the
contrary, it is understood and
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<PAGE>
agreed that the shareholders of Company shall pay $25,000.00 of the total cost
of (i) the certified audit of the consolidated balance sheet of the Company as
of December 31, 1996 and the statement of income for the year then ended and
(ii) the preparation and filing of the Registration Statement and Proxy
Statement referenced in Section 10.1 above. If any portion of this $25,000.00
obligation of the shareholders of Company is paid by Company, Bank or Investment
(or by Gold or Sub), then such payment shall reduce the total in Clause (i) of
Section 2.2(c) hereinabove. Likewise, if either Gold, Sub, Company, Bank or
Investment pays any other expense payable by the shareholders of Company
hereunder, then such additional expense paid shall likewise reduce the figure
appearing in Clause (i) of Section 2.2(c). To the extent the figure in Clause
(i) of Section 2.2(c) is reduced, the calculated Common Per Share Amount shall
be reduced accordingly.
11.2 Parties in Interest. This Agreement and the rights hereunder are not
assignable unless such assignment is consented to in writing by all parties
hereto. Except as otherwise expressly provided herein, all of the terms and
provisions of this Agreement shall be binding upon, shall inure to the benefit
of and shall be enforceable by the respective heirs, beneficiaries, personal and
legal representatives, successors and permitted assigns of the parties hereto.
11.3 Entire Agreement, Amendments, Waiver. This Agreement contains the
entire understanding of Gold, Sub and Company with respect to the Merger and
supersedes all prior agreements and understandings, whether written or oral,
between them with respect to the Merger contemplated herein. This Agreement may
be amended only by a written instrument duly executed by the parties or their
respective successors or permitted assigns. Any condition to a party's
obligation hereunder may be waived by such party in writing.
11.4 Notices. All notices, requests, demands or other communications
hereunder shall be in writing and shall be deemed to have been duly given when
personally delivered or transmitted by telefacsimile with a copy thereof
transmitted by a nationally recognized overnight delivery service or deposited
in the United States mail, certified or registered, return receipt requested,
postage prepaid, addressed to the parties at the following addresses or at such
other address as shall be given in like manner by any party to the other:
If to Company: Mr. James P. Fawcett
Peoples Bancshares, Inc.
509 Court, P.O. Box 205
Clay Center, KS 67432
Telephone: (913) 632-3171
FAX: (913) 632-6329
with a copy to: Ryan, Condry & Ryan, L.L.C.
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<PAGE>
509 Court
Clay Center, KS 67432
Telephone: (913) 632-5666
FAX: (913) 632-6534
If to Gold: Mr. Michael W. Gullion
Gold Banc Corporation, Inc.
11301 Nall Avenue
Leawood, KS 66211
Telephone: (913) 451-8050
FAX: (913) 451-8004
with a copy to: Thomas K. Jones
Payne & Jones, Chartered
P.O. Box 25625
Overland Park, KS 66225
Telephone: (913) 469-4100
FAX: (913) 469-8182
11.5 Law Governing. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Kansas.
11.6 Further Acts. Gold, Company and Sub agree to execute and deliver on
or before the Closing Date such other documents, certificates, agreements or
other writings and take such other actions as may be necessary or desirable in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
GOLD BANC CORPORATION, INC.
By/s/ Michael W. Gullion
-----------------------------
Name: Michael W. Gullion
Title: President and Chief
Executive Officer
ATTEST:
/s/ Keith E. Bouchey
- --------------------------
Secretary
GOLD BANC ACQUISITION CORPORATION,
INC.
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<PAGE>
By /s/ Michael W. Gullion
-----------------------------
Name: Michael W. Gullion
Title: President and Chief
Executive Officer
ATTEST:
/s/ Keith E. Bouchey
- -------------------------
Secretary
PEOPLES BANCSHARES, INC.
By /s/ James P. Fawcett
-----------------------------
Name: James P. Fawcett
Title: President
ATTEST:
/s/ James H. Schulze
- -------------------------
Secretary
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<PAGE>
EXHIBIT 23(A)
ACCOUNTANTS' CONSENT
Board of Directors
Gold Banc Corporation, Inc.:
We consent to the use of our report on the consolidated financial statements
of Gold Banc Corporation, Inc. as of and for the years ended December 31, 1996
and 1995 included herein and to the reference to our firm under the heading
"Experts" in Amendment No. 1 to Registration Statement No. 333-28563.
KPMG Peat Marwick LLP
Kansas City, Missouri
July 18, 1997
<PAGE>
EXHIBIT 23(B)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use of our report on the financial statements of
Peoples Bancshares, Inc. and Subsidiary included in Amendment No. 1 to Form S-4
Registration Statement and to the reference to our Firm under the caption
"Experts" in the Prospectus.
GRA, Thompson, White & Co., P.C.
July 18, 1997
Merriam, Kansas
