<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1998
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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. MICHAEL W. LOCHMANN, ESQ.
BLACKWELL SANDERS PEPER MARTIN LLP STINSON, MAG & FIZZELL, P.C.
TWO PERSHING SQUARE 1201 WALNUT STREET, SUITE 2800
2300 MAIN, SUITE 1000 KANSAS CITY, MISSOURI 64106
KANSAS CITY, MISSOURI 64108 (816) 691-3208
(816) 983-8153 FAX: (816) 691-3495
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. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO TO BE OFFERING PRICE AGGREGATE REGISTRATION
BEREGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$1.00 per share........ 1,787,248 $5.94(1) $10,607,804(1) $3,076(1)
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(1) Pursuant to Rule 457(f)(2) under the Securities Act of 1933, and solely
for the purpose of calculating the registration fee, the proposed maximum
aggregate offering price represents the book value of the maximum amount
of common stock, $10.00 par value per share of First State Bancorp, Inc.,
estimated to be outstanding immediately prior to, and to be canceled in,
the Merger as of , 1998.
---------------
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.
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PROSPECTUS
1,787,248 COMMON SHARES OF
$1.00 PAR VALUE
GOLD BANC CORPORATION, INC.
----------------
PROXY STATEMENT OF
FIRST STATE BANCORP, INC.
----------------
This Prospectus/Proxy Statement relates to the issuance of up to 1,787,248
shares of $1.00 par value common stock (the "Company Common Stock") of Gold
Banc Corporation, Inc. (the "Company"), in exchange for shares of $10.00 par
value common stock (the "First State Bancorp Common Stock") of First State
Bancorp, Inc. ("First State Bancorp") in the merger described herein, pursuant
to which First State Bancorp will be merged into Gold Banc Acquisition
Corporation VII, 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 First State Bancorp in connection with
the solicitation of proxies from its stockholders to be voted at a special
meeting of stockholders of First State Bancorp to be held on , 1998,
and at any adjournment thereof, for the purpose of considering and voting upon
approval of the agreement described herein.
STOCKHOLDERS OF FIRST STATE BANCORP SHOULD CAREFULLY CONSIDER THE
INFORMATION UNDER "RISK FACTORS" BEGINNING ON PAGE 10.
Company Common Stock is listed for trading on the Nasdaq National Market
System ("NASDAQ") under the symbol "GLDB." On , 1998, the last
reported sale price of Company common stock on NASDAQ was $ .
----------------
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 , 1998, and it is
first being mailed on or about
, 1998.
<PAGE>
FIRST STATE BANCORP, INC.
, 1998
Dear First State Bancorp, Inc. Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
First State Bancorp, Inc. ("First State Bancorp") which will be held at
, Kansas, on , ,
1998, commencing at a.m., local time. At this important meeting, holders
of common stock of First State Bancorp will be asked to consider and vote on a
proposal relating to the merger of First State Bancorp with and into Gold Banc
Acquisition Corporation VII, 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 conditions to the
merger are satisfied or waived. Under Kansas law, holders of common stock of
First State Bancorp have dissenters' rights of appraisal if the merger is
completed.
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 First State Bancorp and its stockholders and unanimously
recommends that stockholders vote "FOR" the proposal.
The affirmative vote of a majority of the outstanding shares of First State
Bancorp 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,
-------------------------------
Vice President
<PAGE>
FIRST STATE BANCORP, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On , 1998
To the Stockholders of First State Bancorp, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the stockholders of First
State Bancorp, Inc. ("First State Bancorp") will be held at
Pittsburg, Kansas, on , 1998, commencing at a.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
May 19, 1998 (the "Agreement"), by and among Gold Banc Corporation, Inc.,
Gold Banc Acquisition Corporation VII, Inc., and First State Bancorp, a
copy of which is attached as Annex A to the accompanying Prospectus/Proxy
Statement.
Pursuant to the Agreement, First State Bancorp will be merged with and into
Gold Banc Acquisition Corporation VII, Inc. Holders of First State Bancorp
common stock of record at the close of business on , 1998, 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 a majority of the outstanding shares of First State
Bancorp common stock. Pursuant to K.S.A. (S) 17-6712, a copy of which is
attached as Annex B to the accompanying Prospectus/Proxy Statement, First
State Bancorp 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
-------------------------------------
Corporate Secretary
Pittsburg, Kansas
, 1998
<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
Securities and Exchange Commission (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 SEC maintains an Internet web site that
contains reports, proxy and information statements and other information
regarding issuers who file electronically with the SEC. 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.
----------------
INCORPORATION BY REFERENCE
This Prospectus incorporates documents by reference that are not presented
herein or delivered herewith. Copies of such documents relating to the
Company, and the exhibits to such documents, are available without charge to
each person to whom a copy of this Prospectus has been delivered upon written
or oral request of any such person, from Gold Banc Corporation, Inc., 11301
Nall Avenue, Leawood, Kansas 66211, Attention: Keith E. Bouchey, Telephone
Number: (913) 451-8050. In order to ensure timely delivery of the documents,
any request should be made by , 1998. Documents will be sent via
first class mail within one day upon receipt of a request.
The following documents filed by the Company with the SEC are hereby
incorporated by reference herein:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
(b) The Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1998.
(c) The Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1998.
(d) The description of the Company Common Stock set forth in the Form 8-
A12G Registration Statement as filed with the SEC on November 1, 1996.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the date of the First State Bancorp Special Meeting
shall be deemed to be incorporated by reference into this Prospectus from the
date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified, to constitute a part of this Prospectus.
----------------
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.
1
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................... 1
INCORPORATION BY REFERENCE................................................. 1
SUMMARY.................................................................... 5
The Companies............................................................ 5
First State Bancorp Special Meeting...................................... 5
The Merger............................................................... 6
Stock Certificates; Dividend Withholding................................. 6
Conditions to the Merger................................................. 6
Recommendation of the Board of Directors................................. 6
Dissenters' Rights of Appraisal.......................................... 6
Accounting Treatment..................................................... 7
Federal Income Tax Consequences.......................................... 7
Risk Factors............................................................. 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................................................... 10
Anti-Takeover Measures................................................... 10
Limited Trading History.................................................. 10
Year 2000 Risks.......................................................... 11
Integration of Acquired Banks and Businesses; Business Combinations...... 11
THE COMPANIES.............................................................. 11
The Company.............................................................. 11
The Company Subsidiaries................................................. 12
Brokerage Services....................................................... 12
Other Registrations...................................................... 13
Stock Split.............................................................. 13
Legal Proceedings........................................................ 13
First State Bancorp...................................................... 13
Sub...................................................................... 13
FIRST STATE BANCORP SPECIAL MEETING........................................ 14
Purpose of the Special Meeting........................................... 14
Solicitation and Revocation of Proxies................................... 14
Voting of Proxies, Persons Entitled to Vote, and Vote Required........... 14
THE MERGER................................................................. 14
General.................................................................. 14
Conversion of First State Bancorp Common Stock........................... 15
Exchange of Stock Certificates........................................... 15
Fractional Shares........................................................ 15
Background of Negotiations............................................... 15
Reasons for the Merger................................................... 17
Operations and Management After the Merger............................... 17
Conditions to the Merger................................................. 18
Conduct of Business Pending the Merger................................... 19
</TABLE>
2
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<TABLE>
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PAGE
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<S> <C>
No Solicitation......................................................... 19
Waiver and Amendment.................................................... 19
Termination of the Merger............................................... 19
Effective Time.......................................................... 19
Federal Securities Laws Consequences.................................... 20
Fees and Expenses of the Merger......................................... 20
Rights of Dissenting Stockholders....................................... 20
Transactions Between the Company and First State Bancorp................ 21
Accounting Treatment; Restrictions on Sales by Affiliates............... 21
FEDERAL INCOME TAX CONSEQUENCES........................................... 21
SECURITY OWNERSHIP OF FIRST STATE BANCORP COMMON STOCK.................... 22
FIRST STATE BANCORP COMMON STOCK PER SHARE PRICES AND DIVIDENDS........... 24
COMPARATIVE RIGHTS OF STOCKHOLDERS........................................ 24
General................................................................. 24
Number of Directors and Term............................................ 25
Removal of Directors.................................................... 25
Preemptive Rights....................................................... 25
Special Meetings........................................................ 25
Amendment of Articles of Incorporation.................................. 25
Action by Stockholders.................................................. 25
Amendment of Bylaws..................................................... 26
Stock Transfer Restrictions; Sale of Control............................ 26
Notice of Stockholder Proposals; Nominations of Directors............... 26
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS..................... 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF FIRST STATE BANCORP........................................ 35
RESULTS OF OPERATIONS..................................................... 35
General................................................................. 35
Net Interest Income..................................................... 35
Provision for Loan Losses............................................... 38
Noninterest Income...................................................... 39
Noninterest Expense..................................................... 39
Income Tax Expense...................................................... 39
Year 2000 Compliance.................................................... 39
FINANCIAL CONDITION....................................................... 40
Loan Portfolio Analysis................................................. 40
Allowance for Loan Losses............................................... 41
Risks Elements of Loan Portfolio........................................ 42
Investment Securities Portfolio Analysis................................ 43
Deposits................................................................ 44
Short-Term Borrowings................................................... 44
Liquidity and Capital Resources......................................... 45
Interest Rate Sensitivity............................................... 45
Capital Adequacy........................................................ 46
Impact of Recently Issued Accounting Standards.......................... 46
Effect of Economic Conditions........................................... 47
</TABLE>
3
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PAGE
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<S> <C>
LEGAL OPINION............................................................... 47
EXPERTS..................................................................... 47
Independent Public Accountants for the Company............................ 47
Independent Public Accountants for First State Bancorp.................... 47
STOCKHOLDER PROPOSALS....................................................... 48
FINANCIAL STATEMENTS OF FIRST STATE BANCORP, INC. AND SUBSIDIARY............ F-1
ANNEXES:
Annex A: Agreement And Plan Of Reorganization............................... A-1
Annex B: Kansas Statutes Annotated Section 17-6712.......................... B-1
</TABLE>
4
<PAGE>
SUMMARY
The following is a brief summary of certain information in this
Prospectus/Proxy Statement (the "Prospectus"). This summary is qualified in its
entirety by the more detailed information, including "Risk Factors," appearing
elsewhere in this Prospectus, the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's financial statements (including the notes thereto) appearing in
the Company's Form 10-K, which are incorporated by reference herein, and the
information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of First State Bancorp and First State
Bancorp's financial statements (including the notes thereto) appearing
elsewhere in this Prospectus.
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 subsidiaries (the "Company Subsidiaries"), is engaged primarily in a
general commercial banking business, and its primary source of earnings is
derived from income generated by the Company Subsidiaries. The Company also
provides brokerage services through a wholly-owned non-bank subsidiary that
operates as a broker-dealer in securities. As of December 31, 1997, the Company
had total assets of $514.6 million, total loans of $346.2 million, total
deposits of $419.1 million, and stockholders' equity of $41.7 million. The
Company and the Company Subsidiaries employ 268 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).
First State Bancorp, Inc. ("First State Bancorp") is a registered bank
holding company headquartered in Pittsburg, Kansas. First State Bancorp owns
all of the issued and outstanding common stock of First State Bank & Trust
Company (the "Bank"), a Kansas banking corporation also headquartered in
Pittsburg, Kansas. The total assets of First State Bancorp on a consolidated
basis, as of December 31, 1997 were approximately $106.3 million and net income
for the year ended December 31, 1997, was approximately $1,258,000. The
principal executive offices of First State Bancorp are located at 5th and
Broadway, Pittsburg, Kansas 66762 (telephone number (316) 231-2000).
Gold Banc Acquisition Corporation VII, Inc. ("Sub") is a wholly owned
subsidiary of the Company. Pursuant to the Agreement and Plan of Reorganization
among the Company, First State Bancorp, and Sub dated May 19, 1998 (the
"Agreement"), First State Bancorp 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).
FIRST STATE BANCORP SPECIAL MEETING
A special meeting of the stockholders of First State Bancorp will be held at
, Pittsburg, Kansas on , , 1998,
at a.m., local time (the "First State Bancorp Special Meeting"), for the
purpose of approving the Agreement.
Only holders of record of First State Bancorp common stock, par value $10.00
per share ("First State Bancorp Common Stock") at the close of business on
, 1998, will be entitled to notice of and to vote at the First State
Bancorp Special Meeting. At the First State Bancorp Special Meeting, each
holder of First State Bancorp Common Stock will be entitled to one vote for
each share held, and the affirmative vote of a majority of the outstanding
shares of First State Bancorp 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 July 31, 1998, directors and
executive officers of First State Bancorp beneficially owned approximately 55%
of
5
<PAGE>
the outstanding shares of First State Bancorp Common Stock. All directors of
First State Bancorp owning First State Bancorp Common Stock have indicated they
intend to vote in favor of the Agreement.
THE MERGER
The Company, Sub and First State Bancorp have entered into the Agreement, a
copy of which is attached hereto as Annex A and incorporated herein by
reference, pursuant to which First State Bancorp 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 First State
Bancorp Common Stock outstanding immediately prior to the Effective Time (as
defined in the Agreement) of the Merger will be exchanged for 19.6082 shares of
the Company common stock, par value $1.00 per share (the "Company Common
Stock"). See "The Merger--General; --Conversion of First State Bancorp Common
Stock."
Fractional shares of the Company Common Stock will not be issued in
connection with the Merger. Holders of First State Bancorp Common Stock
otherwise entitled to a fractional share will be paid the value of the
fractional share in cash. See "The Merger--Fractional Shares."
STOCK CERTIFICATES; DIVIDEND WITHHOLDING
Stockholders of First State Bancorp other than those First State Bancorp
stockholders who perfect their dissenters' rights of appraisal must surrender
to the Company the certificates for their shares of First State Bancorp Common
Stock, and inform the Company of their federal taxpayer identification number,
before receiving any cash or a certificate for the number of shares of the
Company Common Stock to which such stockholders are entitled. Until a First
State Bancorp stockholder surrenders the certificates for his or her First
State Bancorp 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 First State Bancorp and by appropriate state
and federal banking authorities. Applications seeking approval of the Merger
have been filed with and approved by appropriate state and federal banking
authorities. See "The Merger--Conditions to the Merger."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of First State Bancorp believes that the Merger is in
the best interests of First State Bancorp 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 First State Bancorp 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 (exclusive of any
element of value arising from the expectation or accomplishment of the Merger)
as of the day prior to the day on which the Merger is approved by the other
First State Bancorp stockholders if such stockholder: (1) delivers a written
demand for appraisal of such shares to First State Bancorp prior to the vote on
the Agreement at the First State Bancorp Special Meeting; (2) does not vote in
favor of the Merger; and (3) makes written demand for payment
6
<PAGE>
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
It is a condition to closing that the Merger qualify for pooling of interests
accounting treatment.
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, to the effect
that, for federal income tax purposes, no gain or loss will be recognized by
the First State Bancorp stockholders as a result of the Merger to the extent
they receive the Company Common Stock solely in exchange for their First State
Bancorp Common Stock. With respect to cash paid to the holders of First State
Bancorp Common Stock as the result of the exercise of dissenters' rights,
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."
RISK FACTORS
In determining whether to exchange First State Bancorp Common Stock for
Company Common Stock, the First State Bancorp stockholders should consider
carefully the information set forth under the caption "Risk Factors" and all
information contained in this Prospectus before making any decision to acquire
Company Common Stock. See "Risk Factors."
COMPARATIVE STOCK PRICES
Shares of the Company Common Stock are listed on the Nasdaq National Market
System ("NASDAQ"). The last sale price of the Company Common Stock as reported
on NASDAQ on May 18, 1998 (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 $33.625 (or $16.8125 adjusted for the 2 for 1 stock
split completed on May 18, 1998). The last sale price for the Company Common
Stock as reported by NASDAQ on , 1998 (the most recent date for which
it was practicable to obtain market price data prior to the printing of this
Prospectus), was $ .
As of July 31, 1998, there were forty-nine holders of record of First State
Bancorp Common Stock. There is no established trading market for the shares of
First State Bancorp Common Stock and management of First State Bancorp is aware
of only a limited number of transactions involving First State Bancorp Common
Stock. Based upon First State Bancorp management's review of its stock transfer
records, there were seven sales of First State Bancorp Common Stock between
January 1, 1996 and June 30, 1998.
Because the exchange ratio is fixed, a change in the market price of the
Company Common Stock before the Effective Time will affect the market value of
the Company Common Stock to be received in the Merger in exchange for the First
State Bancorp Common Stock. THERE CAN BE NO ASSURANCE AS TO THE MARKET PRICE OF
THE COMPANY COMMON STOCK AT ANY TIME BEFORE, AT OR AFTER THE EFFECTIVE TIME.
FIRST STATE BANCORP STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR COMPANY COMMON STOCK. THE COMPANY COMMON STOCK ISSUED IN CONNECTION WITH
THE MERGER WILL BE LISTED ON NASDAQ.
7
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COMPARATIVE PER SHARE DATA
The following table sets forth per share data on a historical basis of the
Company and First State Bancorp, on a pro forma basis for the Company, and on
an equivalent pro forma basis for First State Bancorp. This table should be
read in conjunction with the historical financial statements and notes thereto
for the Company incorporated herein by reference and for First State Bancorp
contained herein, as well as the pro forma consolidated financial statements of
the Company and First State Bancorp contained herein. See "Pro Forma Unaudited
Consolidated Financial Statements." Pro forma combined and equivalent pro forma
per share data reflect the combined results of the Company and First State
Bancorp presented as though they were one company for all periods shown.
Equivalent pro forma per share amounts are calculated by multiplying the pro
forma income per share (before non-recurring charges or credits directly
attributable to the Merger), pro forma book value per share, and the pro forma
dividends per share of the Company by the exchange ratio so that such per share
amounts are equated to the respective values for one share of First State
Bancorp. Pro forma and equivalent pro forma cash dividends paid per share
reflect the Company's cash dividends paid in the periods indicated. The pro
forma amounts do not include any adjustments for estimated operating
efficiencies or revenue enhancements resulting from the Merger. In addition to
the proposed Merger with First State Bancorp, the Company has recently closed
the acquisitions of Farmers State Bancshares of Sabetha, Inc., Northwest
Bancshares, Inc. and Tri-County Bancshares, Inc. Such recently closed
acquisitions are not included in the per share data presented below. See "The
Companies--Pending Acquisitions."
The following pro forma and equivalent pro forma information is based on the
Exchange Ratio of 19.6082 shares of Company Common Stock for each share of
First State Bancorp Common Stock. See "The Merger-- General; --Conversion of
First State Bancorp Common Stock."
<TABLE>
<CAPTION>
HISTORICAL EQUIVALENT
---------------------- PRO FORMA
FIRST STATE PRO FIRST
BANCORP FORMA STATE
COMPANY(1) COMMON COMPANY BANCORP
---------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Basic net income per common
share:
Twelve months ended:
December 31, 1997....... $0.39 $ 13.83 $0.43 $ 8.50
December 31, 1996....... 0.38 11.54 0.43 8.44
December 31, 1995....... 0.24 9.25 0.30 5.90
December 31, 1994....... 0.38 9.16 0.40 7.87
December 31, 1993....... 0.36 9.31 0.40 7.78
Six months ended:
June 30, 1998........... 0.24 7.27 0.26 5.04
June 30, 1997........... 0.18 7.29 0.21 4.20
Cash Dividends paid per
common share:
Twelve months ended:
December 31, 1997....... $0.05 $ 2.50 $0.06 $ 1.13
December 31, 1996....... 0.00 0.75 0.01 0.16
December 31, 1995....... 0.00 0.00 0.00 0.00
December 31, 1994....... 0.00 0.00 0.00 0.00
December 31, 1993....... 0.00 0.00 0.00 0.00
Six months ended:
June 30, 1998........... 0.04 2.00 0.04 0.87
June 30, 1997........... 0.01 1.00 0.02 0.38
Book value per common share
at:
December 31, 1997......... $4.12 $111.78 $4.36 $85.40
December 31, 1996......... 3.58 99.47 3.82 74.82
December 31, 1995......... 2.97 90.58 3.42 66.97
December 31, 1994......... 2.50 74.24 2.86 56.13
December 31, 1993......... 2.39 66.12 2.74 53.90
June 30, 1998............. 4.67 116.38 4.85 95.19
June 30, 1997............. 3.76 106.07 4.02 78.80
</TABLE>
- --------
(1) On May 18, 1998, the Company completed a 2 for 1 stock split. All per share
data presented above has been restated for the effect of the stock split.
8
<PAGE>
PRO FORMA AND SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
(UNAUDITED)
The following table presents for the Company and First State Bancorp on an
historical basis, selected consolidated financial data and unaudited pro forma
combined amounts reflecting the Merger. The pro forma amounts assume the Merger
had been effective during the periods presented. Pro forma per share amounts
assume an Exchange Ratio of 19.6082 shares of Company Common Stock for each
share of First State Bancorp Common Stock. See "The Merger--General; --
Conversion of First State Bancorp Common Stock." In addition to the proposed
Merger with First State Bancorp, the Company has recently closed the
acquisitions of Farmers State Bancshares of Sabetha, Inc., Northwest
Bancshares, Inc. and Tri-County Bancshares, Inc. Such recently closed
acquisitions are not included in the per share date presented below. See "The
Companies--Pending Acquisitions."
<TABLE>
<CAPTION>
SIX MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
----------------- --------------------------------------------
JUNE 30, JUNE 30,
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income and
other income:
Company................ $ 12,579 $ 8,160 $ 18,032 $ 14,186 $ 12,862 $ 8,977 $ 5,407
First State Bancorp.... 2,442 2,225 4,543 3,956 3,536 3,631 3,585
Pro Forma.............. 15,021 10,385 22,575 18,142 16,378 12,608 8,992
Net income:
Company................ $ 2,515 $ 1,772 $ 3,731 $ 2,078 $ 1,218 $ 1,749 $ 1,318
First State Bancorp.... 662 664 1,258 1,050 887 897 958
Pro Forma.............. 3,177 2,436 4,989 3,128 2,105 2,646 2,276
Basic net income per
common share:
Company(1)............. $ 0.24 $ 0.18 $ 0.39 $ 0.38 $ 0.24 $ 0.38 $ 0.36
First State Bancorp.... 7.27 7.29 13.83 11.54 9.25 9.16 9.31
Pro Forma.............. 0.26 0.21 0.43 0.43 0.30 0.40 0.40
Historical dividends
paid per common share:
Company(1)............. $ 0.04 $ 0.01 $ 0.05 $ 0.00 $ 0.00 $ 0.00 $ 0.00
First State Bancorp.... 2.00 1.00 2.50 $ 0.75 0.00 0.00 0.00
Pro Forma.............. 0.04 0.02 0.06 0.01 0.00 0.00 0.00
Total assets (end of
period):
Company................ $585,681 $395,691 $514,597 $376,858 $332,902 $290,515 $176,952
First State Bancorp.... 111,405 102,093 106,297 94,528 89,202 90,220 90,625
Pro Forma.............. 697,086 497,794 620,894 471,386 422,104 380,735 267,577
Long-term borrowings
(end of period):
Company(2)............. $ 45,069 $ 4,541 $ 32,086 $ 4,893 $ 12,392 $ 12,833 $ 4,987
First State Bancorp.... 2,532 1,141 649 0 0 0 0
Pro Forma.............. 47,601 5,682 32,735 4,893 12,392 12,833 4,987
Total stockholders'
equity (end of period):
Company................ $ 50,035 $ 36,049 $ 41,733 $ 34,340 $ 14,887 $ 12,746 $ 8,868
First State Bancorp.... 10,607 9,653 10,173 9,053 8,261 7,272 6,474
Pro Forma.............. 60,642 45,702 51,906 43,393 23,148 20,018 15,342
Book value per common
share (end of period):
Company(1)............. $ 4.67 $ 3.76 $ 4.12 $ 3.58 $ 2.97 $ 2.51 $ 2.41
First State Bancorp.... 116.38 106.07 111.78 99.47 90.58 74.24 66.12
Pro Forma.............. 4.85 4.02 4.36 3.82 3.42 2.86 2.74
</TABLE>
- --------
(1) On May 18, 1998, the Company completed a 2 for 1 stock split. All per share
data presented above has been restated for the effect of the stock split.
(2) The long term borrowings of the Company include $28.8 million of 8.75%
guaranteed preferred beneficial interests in the Company's junior
subordinated debentures issued on December 15, 1997.
9
<PAGE>
RISK FACTORS
Certain statements in the Summary and under captions "Risk Factors," "The
Merger--Reasons for the Merger; Operations and Management After the Merger" and
elsewhere in this Prospectus (including the documents incorporated by reference
herein) constitute "forwarding looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of the Company
or First State Bancorp to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, those discussed below.
In considering whether to approve the Merger, First State Bancorp
stockholders should consider, in addition to the other information in this
Prospectus, the matters described below.
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 and Chief Financial Officer
of the Company. There will likely be a difficult transition period if the
Company loses 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 Subsidiaries and the
branches of the Company Subsidiaries and on their relationships with the
communities served by the Company Subsidiaries. The loss of these key persons
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.
CONTROL OF THE COMPANY
Following completion of the Merger, Michael W. Gullion, the Chairman of the
Board, President and Chief Executive Officer of the Company, will directly own
5.16% of the outstanding stock of the Company. Through certain agreements Mr.
Gullion will have the right to vote an additional 9.00% of the Company Common
Stock, for a total voting power of 14.16% 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.
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 all 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.
LIMITED TRADING HISTORY
The Company Common Stock has been listed on NASDAQ 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
10
<PAGE>
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.
YEAR 2000 RISKS
Certain of the Company's older computer programs identify years with two
digits instead of four. This is likely to cause problems because the programs
may recognize the year 2000 as the year 1900. As with other financial
institutions, the Company engages in a significant amount of business and
reporting activity that depends on accurate date information, such as interest
and other calculations pertaining to loans, deposits, assets and investments.
As a result, Year 2000 problems could result in a system failure or
miscalculations that disrupt operations. The Company is taking steps to
implement permanent solutions during 1998, rather than waiting until potential
problems develop. A task force began work on identifying and assessing
potential issues in 1997, and the Company is currently evaluating hardware and
software solutions. Appropriate resources are being allocated for hardware
systems and software as needed at each of the Company Subsidiaries. The
Company expects to be fully Year 2000 compliant by late 1998, prior to any
anticipated impact on operating systems. Although the Company does not expect
Year 2000 issues to have a material adverse affect on its internal operations,
it is possible that Year 2000 issues could have a material adverse affect on
(i) the Company's service providers and their ability to service the Company;
and (ii) the Company's customers in their ability to continue to utilize the
Company's services. The cumulative effect of such problems, if they occur,
could have a material adverse effect on the Company and the value of the
Company Common Stock and its other securities.
INTEGRATION OF ACQUIRED BANKS AND BUSINESSES; BUSINESS COMBINATIONS
As part of its general strategy, the Company may, from time to time, acquire
community banks and other businesses that it believes provide a strategic fit
with its business. In fact, the Company has reviewed potential acquisition
candidates and has held preliminary discussions with a number of these
candidates. The acquisition of First State Bancorp and any other banks or
businesses will be accompanied by the risks commonly associated with
acquisitions. These risks include potential exposure to unknown liabilities of
acquired banks and businesses, the difficulty and expense of integrating the
operations and personnel of the banks or businesses, the potential disruption
to the business of the Company, the potential diversion of management time and
attention, the impairments of relationships with and the possible loss of key
employees and customers of the acquired banks or businesses, the incurrence of
amortization expenses if an acquisition is accounted for as a purchase and
dilution to the stockholders of the Company if the acquisition is made for
stock. The risks associated with the acquisition of First State Bancorp (as
well as other acquisitions) could have a material adverse effect on the
Company and the value of the Company Common Stock and its other securities.
See "The Companies--Pending Acquisitions."
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 Subsidiaries, is
engaged primarily in a general commercial banking business, and its primary
source of earnings is derived from income generated by the Company
Subsidiaries. As of December 31, 1997, the Company had total assets of $514.6
million, total loans of $346.2 million, total deposits of $419.1 million, and
stockholders' equity of $41.7 million. The Company and the Company
Subsidiaries employ 268 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).
11
<PAGE>
THE COMPANY SUBSIDIARIES
Exchange National Bank ("Exchange Bank"). Exchange Bank has four locations
and is headquartered in Marysville, Kansas. The Marysville location's loan
portfolio as of December 31, 1997 consisted primarily of agricultural,
commercial and industrial loans and residential real estate loans. 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. In
addition, Exchange Bank opened a new Shawnee branch on March 2, 1998. The
three Johnson County, Kansas branches of Exchange Bank's loan portfolio as of
December 31, 1997 consisted primarily of commercial, real estate construction
and residential real estate loans. As of December 31, 1997, Exchange Bank had
assets of $226.4 million.
Provident Bank f.s.b. ("Provident Bank"). Provident Bank, a federally
chartered savings and loan, has one location in the city of St. Joseph,
Missouri. Provident Bank's loan portfolio as of December 31, 1997 consisted
primarily of real estate loans. As of December 31, 1997, Provident Bank had
assets of $82.9 million.
Citizens State Bank ("Citizens"). Citizens has two locations in the town of
Seneca, Kansas. As of December 31, 1997 Citizens' loan portfolio consisted
primarily of the agricultural sector, including farm real estate, agricultural
production and agricultural industrial and residential home loans. As of
December 31, 1997, Citizens had assets of $57.3 million.
Peoples National Bank ("Peoples"). Peoples has one location in the town of
Clay Center, Kansas. Peoples was acquired by the Company on August 22, 1997.
As of December 31, 1997, Peoples' loan portfolio consisted primarily of real
estate and agricultural loans. As of December 31, 1997, Peoples had assets of
$71.0 million.
Farmers National Bank ("Farmers"). Farmers has two locations and is
headquartered in Oberlin, Kansas. Farmers was acquired by the Company on
October 1, 1997. As of December 31, 1997, Farmers' loan portfolio consisted
primarily of agricultural and real estate loans. As of December 31, 1997,
Farmers had assets of $53.6 million.
Farmers National in Alma ("Alma"). Alma has one location in the town of
Alma, Kansas. Alma was acquired by the Company on February 19, 1998. As of
December 31, 1997 Alma's loan portfolio consisted primarily of agricultural
and real estate loans. As of December 31, 1997, Alma had assets of $30.1
million.
Farmers State Bank of Sabetha ("Sabetha"). Sabetha has three locations in
the town of Sabetha, Kansas. The Company acquired Sabetha on July 9, 1998. As
of December 31, 1997, Sabetha's loan portfolio consisted primarily of
agriculture and real estate loans. Sabetha had assets of $41.9 million as of
December 31, 1997.
Peoples State Bank, Colby, Kansas ("Colby"). Colby has two locations and is
headquartered in the town of Colby, Kansas. The Company acquired Colby on
August 4, 1998. As of December 31, 1997, Colby's loan portfolio consisted
primarily of real estate and agricultural loans. As of December 31, 1997,
Colby had assets of $20.0 million.
Tri-County National Bank ("Tri-County"). Tri-County is headquartered in
Washington, Kansas, with locations in Concordia and Linn, Kansas. The Company
acquired Tri-County on August 17, 1998. As of December 31, 1997, Tri-County's
loan portfolio consisted primarily of agricultural, real estate and commercial
loans. As of December 31, 1997, Tri-County had assets of $43.7 million.
BROKERAGE SERVICES
The Company provides brokerage services through Midwest Capital Management,
Inc. ("Midwest Capital"), a wholly-owned nonbank subsidiary, which operates as
a broker-dealer in securities. Customers consist primarily of financial
institutions located throughout the United States, with concentration in the
Midwestern section of the United States. Midwest Capital manages a wide
variety of stock, bond and money
12
<PAGE>
market portfolios for clients that currently include a significant number of
commercial banks located primarily in Kansas, Missouri, Oklahoma, Nebraska and
Iowa, as well as trusts, pension plans, insurance companies, commercial
businesses, government entities, foundations and high net worth individuals.
Midwest Capital is registered with the National Association of Securities
Dealers as a broker/dealer and investment advisor.
OTHER REGISTRATIONS
On June 25, 1998, the Company filed a registration statement on Form S-4
with the SEC to register 210,409 shares of Company Common Stock issued in the
merger with Tri-County Bancshares, Inc. Such registration statement was
declared effective by the SEC on July 17, 1998.
STOCK SPLIT
The Company recently announced a 2 for 1 stock split in the form of a 100%
stock dividend distributed on May 18, 1998 to stockholders of record as of May
6, 1998. In addition, the Company declared a $.02 cash dividend on post-split
shares to stockholders of record as of August 21, 1998, payable on August 31,
1998. All share and per share information has been restated to reflect the
stock split.
LEGAL PROCEEDINGS
Exchange Bank, along with approximately twenty-four other persons and
entities including a number of depository institutions, is a named defendant
in a case filed in the United States District Count for the District of Kansas
on September 11, 1997 on behalf of a putative class of over 2,400 persons who
allegedly invested at least $14,900 each in entities known as Parade of Toys
and Bandero Cigar Company. The complaint alleges violations of the Racketeer
Influenced Corrupt Organizations ("RICO") statute (18 U.S.C. 1962(c)),
conspiracy to violate RICO, negligent misrepresentation, fraud, civil
conspiracy and negligence on the part of the defendants. The plaintiffs
contend that the defendants, including Exchange Bank, were listed in trade
reference sheets provided to plaintiffs by Parade of Toys and Bandero Cigar
Company and that the defendants made false and misleading representations on
which the plaintiffs relied to their detriment. In each count, the plaintiffs
have sought actual damages in an amount in excess of $75,000 each, treble
damages under RICO, and punitive damages. Exchange Bank denies liability and
is in the process of vigorously defending this claim.
A hearing was conducted on March 25, 1998, on the issue of class
certification. On June 17, 1998, the Magistrate issued a report and
recommendation that the Court rule against the plaintiff's motion for class
certification. The plaintiffs have filed objections and the recommendation
will be submitted to the trial judge for a determination of the motion.
FIRST STATE BANCORP
First State Bancorp is a registered bank holding company headquartered in
Pittsburg, Kansas. First State Bancorp owns all of the issued and outstanding
common stock of the Bank, a Kansas banking corporation also located in
Pittsburg. The total assets of First State Bancorp on a consolidated basis, as
of December 31, 1997 were approximately $106.3 million and net income for the
year ended December 31, 1997 was approximately $1,258,000. See "Financial
Statements of First State Bancorp, Inc. and Subsidiary." The principal
executive offices of First State Bancorp are located at 5th and Broadway,
Pittsburg, Kansas 66762 (telephone number (316) 231-2000).
SUB
Sub is a wholly owned subsidiary of the Company. Pursuant to the Agreement
First State Bancorp will be merged into Sub.
13
<PAGE>
FIRST STATE BANCORP SPECIAL MEETING
PURPOSE OF THE SPECIAL MEETING
The purpose of the First State Bancorp Special Meeting is to consider and
vote upon a proposal to approve the Agreement which provides, among other
things, for the merger of First State Bancorp with and into Sub and in which
Sub will be the surviving corporation. Stockholders of First State Bancorp will
receive 19.6082 shares of the Company Common Stock for each share of First
State Bancorp Common Stock exchanged in the Merger.
SOLICITATION AND REVOCATION OF PROXIES
This Prospectus is being furnished to the stockholders of First State Bancorp
in connection with the solicitation of proxies by the Board of Directors of
First State Bancorp for use at the First State Bancorp Special Meeting to be
held at a.m., local time, on , 1998 at
Pittsburg, Kansas and at any adjournment or adjournments thereof. Any proxy
given does not affect the right to vote in person at the First State Bancorp
Special Meeting and may be revoked at any time before it is exercised; there is
no formal method required for revocation. The cost of solicitation of proxies
for the First State Bancorp Special Meeting will be borne by First State
Bancorp. In addition to solicitation by mail, First State Bancorp may cause
proxies to be solicited personally or by telephone or facsimile by First State
Bancorp's 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 First State Bancorp 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 First State Bancorp is not
aware of any other business to be presented at the First State Bancorp Special
Meeting. Should any such other business be presented at the First State Bancorp
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 First State Bancorp Common Stock is required to approve the
Agreement. Only holders of First State Bancorp Common Stock of record as of the
close of business on , 1998 are entitled to vote at the First
State Bancorp Special Meeting. At the close of business on that date, 91,148
shares of First State Bancorp Common Stock were outstanding. Holders of shares
of First State Bancorp Common Stock are entitled to one vote for each share
held on the record date.
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, and made subject to, the more
complete information set forth in the Agreement attached as Annex A to this
Prospectus and incorporated herein by reference.
At the Effective Time, First State Bancorp will merge with and into Sub, the
separate corporate existence of First State Bancorp 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 First State Bancorp stockholders in the Merger will be
uncertain. Stockholders of First State Bancorp will receive 19.6082 shares of
Company Common Stock for each share of First State Bancorp Common Stock.
14
<PAGE>
CONVERSION OF FIRST STATE BANCORP 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 First State
Bancorp Common Stock (excluding (i) shares held by First State Bancorp or by
the Company or any of the Company 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 19.6082 shares of the Company Common
Stock.
EXCHANGE OF STOCK CERTIFICATES
At and after the Effective Time, the Company will make available to Exchange
Bank and to Advest, Inc. (the "Exchange Agents"), such number of shares of
Company Common Stock as shall be issuable to the holders of First State
Bancorp Common Stock. At the Effective Time, certificates evidencing shares of
First State Bancorp 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
Closing Date, the Company, on behalf of the Exchange Agents, will send a
notice and transmittal form to each record holder of certificates for First
State Bancorp Common Stock advising such holder of the procedures for
surrendering First State Bancorp certificates to the Company or its agent in
exchange for a certificate for the number of whole shares of the Company
Common Stock 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 First State Bancorp certificates, the
Company or its agent will deliver to the surrendering First State Bancorp
stockholders, or to a brokerage account established at Advest, Inc. for each
surrendering First State Bancorp stockholder, certificates evidencing whole
shares of the Company Common Stock all in accordance with the notice and
transmittal form. First State Bancorp stockholders will receive a check for
the cash amount of any fractional interests of the Company Common Stock which
would otherwise be issued in exchange for First State Bancorp Common Stock
surrendered. See "--Fractional Shares." Holders of First State Bancorp 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 First State Bancorp stockholder entitled thereto, without interest, at
the time that such certificates representing shares of First State Bancorp
Common Stock are surrendered for exchange, subject to any applicable abandoned
property, escheat or similar law.
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
First State Bancorp 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. The Average Company Price means the average of the closing sale prices
of the Company Common Stock as reported by NASDAQ on each of the ten (10)
consecutive trading days preceding the third trading day prior to the
Effective Time. The Company will make available to the Exchange Agents, as
required from time to time, any cash necessary for this purpose.
BACKGROUND OF NEGOTIATIONS
The Hagman family has owned directly or indirectly a majority of the
outstanding stock of First State Bancorp since 1992. Currently, William R.
Hagman, Jr., in his various capacities as voting trustee and co-trustee under
various Hagman family voting trusts and trust agreements, holds voting control
with respect to approximately 54% of the outstanding First State Bancorp
Common Stock. Under Kansas law, a simple majority of the outstanding First
State Bancorp Common Stock has the power to approve a merger.
In recent years, management has periodically received inquiries or
expressions of interest with respect to a possible acquisition of the Bank
from various entities; however, neither First State Bancorp nor the Bank
engaged any finder or broker. With the exception of the following, such
inquiries did not result in serious negotiations or in the exchange of
confidential information.
15
<PAGE>
On February 12, 1998, Commercial Federal Corporation entered into a
confidentiality agreement with William R. Hagman, Jr., acting individually and
in his various capacities as voting trustee and co-trustee under various
Hagman family voting trusts and trust agreements. Following the execution of
the confidentiality agreement, certain information was provided with respect
to the operations and financial condition of First State Bancorp and the Bank.
Commercial Federal Corporation did not make any offer or engage in any
negotiations for the acquisition of the Bank or First State Bancorp.
Mr. Hagman participated in discussions with the Company in early 1998
regarding a possible business combination. On February 17, 1998, the Company
entered into a confidentiality agreement with Mr. Hagman, acting individually
and in his various capacities as voting trustee and co-trustee. Following the
execution of the confidentiality agreement, certain information was provided
to the Company with respect to the operations and financial condition of First
State Bancorp and the Bank.
On March 10, 1998, the Company sent a letter to Mr. Hagman and the Board of
Directors of First State Bancorp expressing the Company's interest in
acquiring First State Bancorp. The letter proposed an exchange ratio of
approximately 8.63 shares of Company Common Stock for each outstanding share
of First State Bancorp Common Stock, which would result in a total price of
approximately $20,750,000 based upon the market price of the Company Common
Stock on the date of the proposal. That proposal was not acceptable to Mr.
Hagman, and no counter offer was made by Mr. Hagman.
During April 1998, management of the Company continued discussions with Mr.
Hagman about its possible acquisition of First State Bancorp. On April 24,
1998, representatives of the Company, Mr. Hagman and a representative of
Stinson, Mag & Fizzell, P.C. (outside legal counsel for First State Bancorp
and the Bank) ("Stinson Mag") met to discuss the possibility of such an
acquisition. At the meeting, representatives of the Company presented a
proposal which included a substantial increase in the consideration that would
be paid to the stockholders of First State Bancorp.
Mr. Hagman then began active negotiation of the price, terms, and structure
of the transaction with the Company. During these negotiations, Mr. Hagman
decided that it would probably be in the best interests of First State
Bancorp's stockholders to negotiate for a fixed exchange ratio rather than a
fixed price payable in stock, because it would allow the stockholders to
receive the benefits of any increase in market value of the Company Common
Stock that they would receive in the acquisition. A non-binding letter of
intent was drafted and was entered into as of April 28, 1998. The letter of
intent provided for a fixed exchange ratio of 10 shares of Company Common
Stock for each share of First State Bancorp Common Stock outstanding, which
would result in a total price of approximately $25,500,000 based upon the
market price of the Company Common Stock on the date of the letter of intent.
Following the execution of the letter of intent, the Company commenced its
due diligence investigation of First State Bancorp and the Bank, and the
Company and Mr. Hagman commenced negotiation of the Agreement. Also following
the execution of the letter of intent, the Company announced that a two-for-
one stock split of Company Common Stock would be effected on May 18, 1998. The
exchange ratio was adjusted to reflect both the effect of the stock split and
the results of the Company's due diligence investigation. First State
Bancorp's Board of Directors reviewed the form of the Agreement at a meeting
on May 19, 1998 and approved the Merger and the Agreement. Immediately
following the meeting of the First State Bancorp Board of Directors, the Board
of Directors of the Bank held a meeting at which a representative of the
Company made a formal presentation with respect to the proposed acquisition. A
representative of Stinson Mag was present at the May 19, 1998 meetings of the
Boards of Directors of First State Bancorp and the Bank. Although the Bank's
Board of Directors discussed the Company's proposal, it did not take formal
action with respect thereto since the Bank would not be a direct party to the
Agreement. The Company's Board of Directors approved a form of the Agreement
at a meeting held on April 29, 1998. The Agreement was executed on May 19,
1998. In June 1998, the Company and First State Bancorp delivered to each
other final disclosure schedules to the Agreement, which were accepted and
approved by both parties.
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<PAGE>
The Agreement provides that in the Merger, each outstanding share of First
State Bancorp Common Stock will be converted into 19.6082 shares of Company
Common Stock, which will result in a total price of approximately $30,830,028
based upon the market price of the Company Common Stock on the date of the
Agreement. The Agreement prohibits First State Bancorp and the Bank from paying
any dividends or making any distributions other than (i) quarterly cash
dividends in the amount of $1.00 per share, (ii) cash dividends in amounts
sufficient to cover reasonable out-of-pocket fees and expenses incurred by
First State Bancorp in connection with the consummation of the Merger and (iii)
if the Merger is not consummated in time to permit the stockholders of First
State Bancorp to receive any cash dividends declared and payable on the Company
Common Stock after September 30, 1998, with respect to the shares of the
Company Common Stock which they will receive pursuant to the Agreement, then
the Bank and First State Bancorp may declare and pay a cash dividend in an
aggregate amount equal to the amount of such dividends. The respective
obligations of First State Bancorp and the Company to consummate the Merger are
not conditioned upon the market performance of the Company Common Stock.
REASONS FOR THE MERGER
First State Bancorp. The First State Bancorp Board believes that the terms of
the Agreement are fair to, and in the best interests of, First State Bancorp
and its stockholders. In considering the terms and conditions of the Agreement,
the First State Bancorp 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 First State Bancorp
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 First State Bancorp stockholders represents a fair multiple of
First State Bancorp's per share book value and earnings. Additionally, the
Board recognized that the shares of the Company Common Stock are listed for
trading on NASDAQ and provide a liquid investment as compared to shares of
First State Bancorp Common Stock. The First State Bancorp 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 First State Bancorp 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 First State Bancorp
as the owner of the Bank. In addition, the First State Bancorp Board
considered that the Company has an operating policy and history of
retaining the names of financial institutions it has acquired, retaining a
local board of directors to govern such institutions, and maintaining a
local presence in the communities where such institutions are located.
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.
THE FIRST STATE BANCORP BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT FIRST
STATE BANCORP STOCKHOLDERS VOTE "FOR" APPROVAL OF THE AGREEMENT.
OPERATIONS AND MANAGEMENT AFTER THE MERGER
At the Effective Time, the separate corporate existence of First State
Bancorp will terminate and all of the assets and liabilities of First State
Bancorp will become assets and liabilities of Sub. The Articles of
Incorporation and Bylaws of Sub as in effect immediately prior to the Effective
Time shall be and remain the
17
<PAGE>
Articles of Incorporation and Bylaws of the surviving corporation from and
after the Effective Time until amended as provided by law. The officers and
directors of Sub will become the officers and directors of the surviving
corporation from and after the Effective Time. 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. 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. 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 First State Bancorp Common Stock;
(b) The accuracy of representations of the Company, Sub and First State
Bancorp made in the Agreement and the performance of their respective
obligations thereunder;
(c) The absence of a material adverse event since May 19, 1998, affecting
the financial condition, properties, assets, liabilities, rights or
business of the Company, First State Bancorp or the Bank;
(d) The absence on the closing date, except as previously disclosed, of
(1) any actions, suits, claims, demands or other proceedings or
investigations pending or threatened against or affecting the properties,
assets, rights or business of First State Bancorp or the Bank or the right
to carry on their respective businesses; (2) any debt, liability or
obligation of First State Bancorp or the Bank not reflected in their
financial statements or not occurred in the ordinary course of business;
and (3) any material breach or default of First State Bancorp or the Bank
under any agreement or commitment.
(e) The receipt by the Company, First State Bancorp and the Bank of an
opinion from Payne & Jones, Chartered relating to certain tax matters;
(f) The receipt by the Company of an opinion from Stinson Mag as to
certain corporate matters regarding First State Bancorp and the Bank;
(g) The receipt by First State Bancorp of an opinion from Payne & Jones,
Chartered as to certain corporate matters regarding the Company and Sub;
(h) The receipt by the Company of an opinion from an accounting firm that
the transaction will qualify for pooling-of-interest accounting treatment;
(i) The receipt of necessary regulatory approvals;
(j) A minimum capital of the Bank, minimum loan loss reserve of the Bank,
and minimum total indebtedness of First State Bancorp;
(k) The absence of any pending or threatened litigation that could
reasonably result in restraining, enjoining or prohibiting consummation of
the Merger; and
(l) The receipt by the Company of certain tax representations by greater
than 10% stockholders of First State Bancorp.
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<PAGE>
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Agreement, First State Bancorp and the Bank have agreed to
carry on their business in the usual, regular and ordinary course in
substantially the same manner as conducted prior to the execution of the
Agreement.
NO SOLICITATION
The Agreement provides that, unless and until the Merger has been terminated,
neither First State Bancorp nor the Bank will 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 transfer of all or
a substantial portion of the business, assets or stock of First State Bancorp
or the Bank. First State Bancorp 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 First State Bancorp; 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
First State Bancorp 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 First State Bancorp, as the case may
be, deems such waiver to be in the best interests of such company and its
stockholders.
TERMINATION OF THE MERGER
The Agreement and the Merger may be terminated at any time prior to the
closing date, provided that the terminating party is not then in material
breach of the Agreement, by:
(i) The mutual consents of the Boards of Directors of the Company, Sub
and First State Bancorp;
(ii) The Company, if any regulatory approval shall be denied or if any
such regulatory approval shall be conditioned or restricted in any manner
which would materially adversely affect the operations of or would be
unduly burdensome to the Company;
(iii) First State Bancorp or the Company if the other party has
materially breached the Agreement and has not cured such breach;
(iv) First State Bancorp or the 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
(v) First State Bancorp or the Company if the Merger has not been
consummated by December 31, 1998.
EFFECTIVE TIME
It is presently anticipated that the Effective Time of the Merger will occur
sometime in the third quarter of 1998, but no assurance can be given to that
effect.
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<PAGE>
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 First State Bancorp who are
not deemed to be "affiliates" (as that term is defined in the rules under the
Securities Act) of First State Bancorp and who do not become affiliates of the
Company. The shares of the Company to be issued to affiliates of First State
Bancorp 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.
FEES AND EXPENSES OF THE MERGER
Each party is responsible for its own expenses in connection with the
Merger; provided, however, that First State Bancorp will pay up to $50,000.00
of the total cost associated with (i) the certified audit of the financial
statements of First State Bancorp and (ii) the preparation and filing of the
Registration Statement and Prospectus.
RIGHTS OF DISSENTING STOCKHOLDERS
If the Merger is approved, holders of shares of First State Bancorp Common
Stock will possess the right to seek appraisal of their shares pursuant to
Section 17-6712 of the KGCC ("Section 17-6712"). In order to preserve
appraisal rights, a holder of First State Bancorp Common Stock must not vote
his or her shares in favor of the Agreement or deliver an unmarked, but signed
proxy.
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 OF A
STOCKHOLDER TO COMPLY WITH THE PROVISIONS OF SECTION 17-6712 MAY RESULT IN A
TERMINATION OR LOSS OF APPRAISAL RIGHTS THEREUNDER.
A holder of record of shares of First State Bancorp Common Stock who elects
to exercise appraisal rights under Section 17-6712 must deliver a written
objection to the Agreement to First State Bancorp prior to the vote on the
Agreement by the holders of First State Bancorp Common Stock at the First
State Bancorp Special Meeting to be held on , 1998. Any such
objection should be sent to First State Bancorp at 5th and Broadway,
Pittsburg, Kansas 66762, Attention: .
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
First State Bancorp 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 First State Bancorp 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
First State Bancorp 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.
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<PAGE>
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 First State
Bancorp 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 FIRST STATE BANCORP
No shares of First State Bancorp 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.
ACCOUNTING TREATMENT; RESTRICTIONS ON SALES BY AFFILIATES
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 First State Bancorp will be carried
forward to the consolidated financial statements of the Company at their
recorded amounts and the consolidated net income of First State Bancorp, if
material, will be included in the net income of the Company.
To ensure that the Merger will qualify as a pooling of interests, each
person who is an "affiliate" (as defined in Rule 144 adopted under the
Securities Act) of First State Bancorp at the time the Agreement is submitted
for the approval of First State Bancorp's stockholders will agree in writing
not to sell, pledge, transfer or otherwise dispose of, or reduce such
stockholder's risk relative to, any shares of the Company Common Stock until
financial results covering at least 30 days of combined operations of the
Company and First State Bancorp have been published. Pursuant to the
Agreement, the Company has agreed to publish such results in a timely manner.
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 First State Bancorp and the Company and by certain holders of the
outstanding First State Bancorp 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 First
State Bancorp Common Stock pursuant to the exercise of an employee option or
otherwise as compensation.
In the opinion of Payne & Jones, Chartered, the Merger will constitute a
reorganization within the meaning of Section 368(a)(1)(C) of the Code.
Consequently:
1. Stockholders of First State Bancorp will not recognize gain or loss
upon the receipt of the Company Common Stock in exchange for their shares
of First State Bancorp Common Stock.
2. The basis of the Company Common Stock received by stockholders of
First State Bancorp in the Merger will equal the basis of their stock
exchanged, adjusted for any gain or loss realized in the transaction.
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<PAGE>
3. The tax holding period of the Company Common Stock received by
stockholders of First State Bancorp in the Merger will include the holding
period of their stock exchanged.
4. Cash paid to holders of shares of First State Bancorp who dissent from
the Merger and to holders of shares of First State Bancorp 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 FIRST STATE BANCORP 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.
SECURITY OWNERSHIP OF FIRST STATE BANCORP COMMON STOCK
The following information pertains to First State Bancorp Common Stock
beneficially owned, directly or indirectly, as of July 31, 1998, by (i) each
director and executive officer of First State Bancorp, (ii) all directors and
executive officers as a group and (iii) each person known to First State
Bancorp to own beneficially 5% or more of the outstanding First State Bancorp
Common Stock. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities. Except as noted
below, beneficial owners have sole voting and investment power with respect to
all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
NAME OF DIRECTOR OR EXECUTIVE
OFFICER
OR NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
----------------------------- ------------------ ---------------------
<S> <C> <C>
William R. Hagman, Jr. (2)...... 49,343 54.14%
Drawer K
Pittsburg, KS 66762
Michael S. Mitchell (3)......... 14,578 15.99%
P.O. Box 753
Chanute, KS 66720
John R. Hagman (4).............. 11,100 12.18%
10832 Barton
Overland Park, KS 66210
First State Bank & Trust Company 6,357 6.97%
(5)............................
P.O. Box 709
Pittsburg, KS 66762
Terrance D. Towner (6).......... 5,881.2 6.45%
315 West Webster
Pittsburg, KS 66762
Patricia S. Terlip (7).......... 4,700 5.16%
602 West Leighton
Frontenac, KS 66763
Robert L. Terlip (8)............ 4,700 5.16%
602 West Leighton
Frontenac, KS 66763
Jack H. Overman (9)............. 850 *
Richard I. Redmond (10)......... 200 *
All Directors and Executive
Officers (five persons) as a
group.......................... 50,393 55.29%
</TABLE>
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- --------
*Less than one percent
(1) At the close of business on July 31, 1998, there were 91,148 shares of
First State Bancorp Common Stock outstanding.
(2) William R. Hagman, Jr. is a director of First State Bancorp. Includes (i)
100 shares held by H&H Investments, (ii) 38,143 shares held by Mr. Hagman
as Voting Trustee under a Voting Trust Agreement, dated November 18, 1997
(the "Voting Trust Agreement"), (iii) 6,000 shares held by Mr. Hagman as
Co-Trustee of the Hagman Family Irrevocable Trust Number One under Trust
Agreement dated May 13, 1994 and (iv) 5,100 shares held by Mr. Hagman as
Co-Trustee of the Hagman Family Irrevocable Trust No. Two under Trust
Agreement dated October 27, 1994. Mr. Hagman and his wife own H&H
Investments and share voting and investment power with respect to the
shares held by that company. Mr. Hagman has sole voting and investment
power with respect to the shares held pursuant to the Voting Trust
Agreement and has shared voting and investment power with respect to the
shares held in the two Irrevocable Trusts. The Voting Trust Agreement
will continue in effect until November 17, 2004 unless terminated prior
to such date as provided therein. Mr. Hagman, as Trustee under the Voting
Trust Agreement, has (i) power to vote the shares of First State Bancorp
Common Stock that are subject to the Voting Trust Agreement in accordance
with his best judgment, (ii) the right to negotiate and consummate the
sale or exchange of such shares as long as the consideration for such
sale or exchange is the same for each such share, and (iii) various other
powers generally conferred upon trustees.
(3) All 14,578 shares are held by Venture Holdings, Inc. ("Venture
Holdings"). Mr. Mitchell owns all of the outstanding Class B Common Stock
of Venture Holdings. Pursuant to Venture Holdings' Certificate of
Incorporation, the holders of Class B Common Stock have the right to cast
60% of the votes at each meeting of Venture Holdings' stockholders. Mr.
Mitchell and Terrance D. Towner (the owner of the remainder of the
outstanding Venture Holding stock) have agreed that Mr. Mitchell has sole
voting and investment power with respect to 60% of the shares of First
State Bancorp held by Venture Holdings. In addition, Mr. Mitchell, as
Trustee under the Michael S. Mitchell Declaration of Trust dated February
22, 1993, and Mr. Towner are parties to a Mutual Option Agreement, dated
February 22, 1993, pursuant to which Mr. Mitchell, as Trustee, has an
option to purchase Mr. Towner's Venture Holdings Stock at any time within
five days of Mr. Towner's receipt of written notice of exercise of the
option.
(4) Includes (i) 6,000 shares held by Mr. Hagman as Co-Trustee of the Hagman
Family Irrevocable Trust Number One under Trust Agreement dated May 13,
1994 and (ii) 5,100 shares held by Mr. Hagman as Co-Trustee of the Hagman
Family Irrevocable Trust Number Two under Trust Agreement dated October
27, 1994. Mr. Hagman has shared voting and investment power with respect
to such shares.
(5) Includes (i) 1,853 shares held by the Bank as Trustee of the Geno F.
Marchetti and Alba Marchetti Revocable Living Trust, (ii) 1,140 shares
held by the Bank as Trustee of the George K. Mackie, Jr. Testamentary
Trust "A" for the benefit of Mollie Mackie Wittman, (iii) 1,140 shares
held by the Bank as Trustee of the George K. Mackie, Jr. Testamentary
Trust "B" for the benefit of Meredith Roe, (iv) 934 shares held by the
Bank as Trustee of the Maxine Mackie Testamentary Trust "A" for the
benefit of Mollie Mackie Wittman, (v) 1,190 shares held by the Bank as
Trustee of the Maxine Mackie Testamentary Trust "B" for the benefit of
Meridith Roe and (vi) 100 shares held by the Bank as Custodian of the
Paul E. James, Sr. Self-Directed IRA.
(6) Includes 5,831.2 (or 40%) of the 14,578 shares held by Venture Holdings.
Mr. Towner owns all of the outstanding Class A Common Stock of Venture
Holdings. Pursuant to Venture Holdings' Certificate of Incorporation, the
holders of Class A Common Stock have the right to cast 40% of the votes
at each meeting of Venture Holdings' stockholders. Mr. Towner and Michael
S. Mitchell (the owner of the remainder of the outstanding Venture
Holdings stock) have agreed that Mr. Towner has sole voting and
investment power with respect to 40% of the shares of First State Bancorp
held by Venture Holdings.
(7) All shares are held jointly with Mrs. Terlip's husband, Robert L. Terlip.
Mrs. Terlip and Mr. Terlip share voting and investment power with respect
to such shares.
(8) All shares are held jointly with Mr. Terlip's wife, Patricia S. Terlip.
Mr. Terlip and Mrs. Terlip share voting and investment power with respect
to such shares.
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(9) Jack H. Overman is Vice President and a director of First State Bancorp.
All shares are held by Mr. Overman as trustee of the Jack H. Overman
Irrevocable Trust under Trust Agreement dated December 19, 1988. Mr.
Overman has voting and investment power with respect to such shares.
(10) Richard I. Redmond is a director of First State Bancorp. Includes 100
shares held by Mr. Redmond's wife, Sharon R. Redmond. Mrs. Redmond has
voting and investment power with respect to such shares, and Mr. Redmond
disclaims beneficial ownership of his wife's shares.
FIRST STATE BANCORP COMMON STOCK PER SHARE PRICES AND DIVIDENDS
Shares of the Company Common Stock are listed on NASDAQ. As of December 31,
1997, there were 49 holders of record of First State Bancorp Stock. There is
no established public trading market for the shares of First State Bancorp
Stock and management of First State Bancorp is aware of a limited number of
transactions involving First State Bancorp Common Stock. Based upon First
State Bancorp management's review of its stock transfer records, there were
seven sales of First State Bancorp Common Stock between January 1, 1996 and
June 30, 1998 at prices ranging from $25.00 to $103.70 per share.
First State Bancorp did not pay a cash dividend during the first quarter of
1996. Thereafter, First State Bancorp paid a cash dividend of $0.25 per share
during the second, third, and fourth quarters of 1996. In 1997, First State
Bancorp paid a cash dividend of $0.50 during the first, second, and third
quarters and paid a cash dividend of $1.00 per share during the fourth quarter
of that year. First State Bancorp continued to pay a cash dividend of $1.00
per share during both the first and second quarters of 1998.
COMPARATIVE RIGHTS OF STOCKHOLDERS
GENERAL
First State Bancorp is incorporated in the State of Kansas. First State
Bancorp stockholders, whose rights are currently governed by Kansas law
(including the KGCC), the First State Bancorp Articles of Incorporation (the
"First State Bancorp Articles") and the First State Bancorp Amended and
Restated Bylaws (the "First State Bancorp 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 Amended and Restated Articles of Incorporation
(the "Company Articles") and the Company Amended and Restated Bylaws (the
"Company Bylaws").
Material differences that may affect the rights and interests of
stockholders of First State Bancorp 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 First State Bancorp Articles,
the First State Bancorp Bylaws, the Company Articles and the Company Bylaws.
NUMBER OF DIRECTORS AND TERM
Under the First State Bancorp Bylaws, the First State Bancorp Board consists
of at least five, but not more than twenty-five directors until such number is
changed by the Board, each of whom serve a term of one year. Currently, there
is a vacancy on the First State Bancorp Board and the Board consists of four
directors. Under the Company Articles and the Company Bylaws, the Company
Board consists of at least three, but not more than fifteen directors.
Currently, the Company Board consists of six directors. The Company Bylaws
provide that directors are elected to a three year term. The Company Articles
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.
24
<PAGE>
REMOVAL OF DIRECTORS
Under the First State Bancorp Bylaws, directors may be removed by a majority
of the stockholders with or without cause. 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 First State Bancorp Common Stock have preemptive rights for new
issues of First State Bancorp Common Stock, securities exchangeable for or
convertible into shares of such stock, or instruments evidencing rights to
acquire shares of such stock. Holders of the Company Common Stock do not have
preemptive rights.
SPECIAL MEETINGS
The First State Bancorp Bylaws provide that the Chairman of the Board, the
President, the Secretary, the First State Bancorp Board, or one or more
stockholders holding not less than one-fifth of the voting power may call a
special meeting of the First State Bancorp stockholders. The Company Bylaws
provide that special meetings of the Company stockholders may only be called
by the chief executive officer, the Company Board, or upon the written request
of the holders of not less than fifty-five percent of the outstanding shares
of Company Common Stock.
AMENDMENT OF ARTICLES OF INCORPORATION
Under the KGCC, the First State Bancorp Articles may be amended upon a
resolution of the First State Bancorp Board proposing the amendment and its
submission to the First State Bancorp stockholders for their approval by the
majority of the shares of First State Bancorp Common Stock entitled to vote.
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.
ACTION BY STOCKHOLDERS
The First State Bancorp Bylaws permit any action that may be taken at a
meeting of the stockholders, to be taken without a meeting if authorized in
writing by all stockholders entitled to vote upon such action at the meeting.
The Company Articles provide that any action required or permitted to be taken
by the stockholders of the Company must be effected at a duly called annual or
special meeting and may not be effected by any consent in writing by such
stockholders.
AMENDMENT OF BYLAWS
The First State Bancorp Bylaws may be amended, repealed or new bylaws
adopted by: (i) the holders of a majority of the outstanding shares of First
State Bancorp Common Stock or (ii) by a majority of The First State Bancorp
Board, subject to certain rights of stockholders. 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. In addition, 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.
STOCK TRANSFER RESTRICTIONS; SALE OF CONTROL
The First State Bancorp Bylaws restrict the transferability of First State
Bancorp Common Stock, with the exception of certain permitted transfers
outlined in the First State Bancorp Bylaws. Before transferring any shares,
First State Bancorp stockholders must first offer to sell the shares on the
same proposed terms to First
25
<PAGE>
State Bancorp. After thirty days, any stock not purchased or redeemed by the
First State Bancorp must be offered, for an additional ten days, to the
remaining stockholders of First State Bancorp in proportion to their present
shareholdings. If the options granted are not exercised by First State Bancorp
or the stockholders, then the seller may proceed to offer the shares to any
third party at a price equal to or greater than the transfer price for a
period of thirty days. The First State Bancorp bylaws also provide that any
"control share transfer," as defined in the First State Bancorp Bylaws, will
not be recognized by the First State Bancorp for voting, dividends or any
other purpose unless all other stockholders are given the opportunity, for
thirty days, to "put" their shares to the proposed transferee on the same
terms.
The Company Bylaws do not restrict the transferability of the Company Common
Stock.
NOTICE OF STOCKHOLDER PROPOSALS; NOMINATIONS OF DIRECTORS
The First State Bancorp Bylaws do not require advance notice for 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.
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements assume a
business combination between the Company and First State Bancorp (in the form
of a merger) accounted for on a pooling of interests basis. The pro forma
combined balance sheets combine the Company's June 30, 1998, and December 31,
1997, consolidated balance sheets with First State Bancorp's June 30, 1998,
and December 31, 1997, consolidated balance sheets, respectively, giving
effect to the merger as if such transaction had occurred as of such dates. The
pro forma combined statements of income combine the Company's historical
consolidated statements of income for the unaudited six month periods ended
June 30, 1998 and 1997, and the three fiscal years ended December 31, 1997,
1996 and 1995, with the corresponding historical consolidated statements of
income of First State Bancorp for such periods, giving effect to the merger as
if such transaction had happened at the beginning of the respective periods.
The unaudited historical consolidated financial statement data of the
Company as of June 30, 1998, and for the six month periods ended June 30, 1998
and 1997, and the unaudited historical consolidated financial statement data
of First State Bancorp as of June 30, 1998, and for the six month periods
ended June 30, 1998 and 1997, have been prepared on the same basis as the
historical information derived from audited financial statements, and, in the
opinion of their respective managements, reflect all adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation of the
financial position and results of operation for such periods.
26
<PAGE>
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the actual operating results or financial
position of the combined entity that would have been achieved had the merger
been consummated at the dates presented, nor is it necessarily indicative of
the combined entity's future operating results or financial position. The
unaudited pro forma combined financial statements do not incorporate any
benefits from cost savings or synergies of operations of the combined entity
that may occur. The Company and First State Bancorp anticipate incurring
direct transaction costs and integration costs related to the merger. Such
anticipated costs are not reflected in the pro forma information.
The pro forma combined financial statements are based on the historical
consolidated financial statements of the Company and First State Bancorp and
the notes thereto, and should be read in conjunction with the financial
statements of the Company and First State Bancorp included elsewhere in this
document and incorporated by reference herein.
27
<PAGE>
GOLD BANC CORPORATION, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
GOLD BANC
GOLD BANC CORPORATION, INC.
CORPORATION, INC. FIRST STATE AND SUBSIDIARIES
AND SUBSIDIARIES BANCORP, INC. ADJUSTMENTS PRO FORMA
----------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents.......... $ 28,056 $ 4,276 $ 32,332
Available-for-sale
securities........... 117,186 38,339 155,525
Other securities...... 10,683 3,769 14,452
Loans, net............ 387,034 59,636 446,670
Other assets.......... 42,722 5,385 48,107
-------- -------- --------
$585,681 $111,405 $697,086
======== ======== ========
LIABILITIES
Deposits.............. $465,295 $ 93,072 $558,367
Other liabilities..... 70,351 7,726 78,077
-------- -------- --------
Total Liabilities... 535,646 100,798 636,444
-------- -------- --------
EQUITY CAPITAL
Common stock.......... 10,704 920 867 (1) 12,491
Additional paid-in
capital.............. 22,610 1,499 (867)(2) 23,216
(26)(3)
Undivided profits..... 16,745 8,015 24,760
Treasury stock........ (26) 26 (3) --
Accumulated other
comprehensive income. 212 199 411
Unearned compensation. (236) (236)
-------- -------- ----- --------
50,035 10,607 60,642
-------- -------- ----- --------
$585,681 $111,405 $ -- $697,086
======== ======== ===== ========
</TABLE>
- --------
(1) Adjustment to common stock to account for merger computed as follows:
<TABLE>
<S> <C>
Number of shares of First State Bancorp shares outstanding
prior to merger.............................................. 91
Exchange ratio of Gold Banc Corporation for First State
Bancorp...................................................... 19.6082
--------
Gold Banc Corporation shares to be issued ($1 par value)...... 1,787
Gold Banc Corporation shares outstanding prior to merger ($1
par value)................................................... 10,704
--------
Pro forma common stock........................................ $ 12,491
========
(2) Adjustment to additional paid-in capital to account for merger computed as
follows:
Historical capital:
Gold Banc Corporation common stock.......................... $ 10,704
First State Bancorp common stock............................ 920
Gold Banc Corporation additional paid-in capital............ 22,610
First State Bancorp additional paid-in capital.............. 1,499
First State Bancorp treasury stock.......................... (26)
--------
Total historical capital.................................. 35,707
Less: Pro forma common stock.................................. (12,491)
--------
Pro forma additional paid-in capital.......................... $ 23,216
========
</TABLE>
(3) Adjustment to eliminate First State Bancorp treasury stock.
28
<PAGE>
GOLD BANC CORPORATION, INC.
PRO FORMA COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
GOLD BANC
GOLD BANC CORPORATION, INC.
CORPORATION, INC. FIRST STATE AND SUBSIDIARIES
AND SUBSIDIARIES BANCORP, INC. PRO FORMA
----------------- ------------- -----------------
<S> <C> <C> <C>
Interest income
Loans, including fees...... $17,442 $2,849 $20,291
Investment securities...... 3,571 1,150 4,721
Other interest income...... 454 73 527
------- ------ -------
Total interest income.... 21,467 4,072 25,539
------- ------ -------
Interest expense
Deposits................... 9,925 1,948 11,873
Borrowings and other....... 1,962 79 2,041
------- ------ -------
Total interest expense... 11,887 2,027 13,914
------- ------ -------
Net interest income.......... 9,580 2,045 11,625
Provision for loan losses.... 594 160 754
------- ------ -------
Net interest income after
provision for loan losses... 8,986 1,885 10,871
------- ------ -------
Noninterest income
Service charges on
deposits.................. 664 172 836
Investment trading fees &
commissions............... 1,409 1,409
Net gains on sale of
mortgage loans............ 519 519
All other noninterest
income.................... 407 225 632
------- ------ -------
Total noninterest income. 2,999 397 3,396
------- ------ -------
Noninterest expense
Salaries and employee
benefits.................. 4,507 595 5,102
Net occupancy expense...... 1,176 87 1,263
Other noninterest expense.. 2,553 652 3,205
------- ------ -------
Total noninterest
expense................. 8,236 1,334 9,570
------- ------ -------
Income before income taxes... 3,749 948 4,697
Provision for income taxes... 1,234 286 1,520
------- ------ -------
Net income................... $ 2,515 $ 662 $ 3,177
======= ====== =======
Basic earnings per share..... $ 0.24 $ 7.26 $ 0.26
======= ====== =======
Diluted earnings per share... $ 0.24 $ 7.26 $ 0.26
======= ====== =======
</TABLE>
29
<PAGE>
GOLD BANC CORPORATION, INC.
PRO FORMA COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
GOLD BANC
GOLD BANC CORPORATION, INC.
CORPORATION, INC. FIRST STATE AND SUBSIDIARIES
AND SUBSIDIARIES BANCORP, INC. PRO FORMA
----------------- ------------- -----------------
<S> <C> <C> <C>
Interest income
Loans, including fees...... $11,462 $2,485 $13,947
Investment securities...... 2,826 1,093 3,919
Other interest income...... 244 49 293
------- ------ -------
Total interest income.... 14,532 3,627 18,159
------- ------ -------
Interest expense
Deposits................... 6,877 1,714 8,591
Borrowings and other....... 660 57 717
------- ------ -------
Total interest expense... 7,537 1,771 9,308
------- ------ -------
Net interest income.......... 6,995 1,856 8,851
Provision for loan losses.... 255 60 315
------- ------ -------
Net interest income after
provision for loan losses... 6,740 1,796 8,536
------- ------ -------
Noninterest income
Service charges on
deposits.................. 490 172 662
Net gains on sale of
mortgage loans............ 289 289
All other noninterest
income.................... 386 197 583
------- ------ -------
Total noninterest income. 1,165 369 1,534
------- ------ -------
Noninterest expense
Salaries and employee
benefits.................. 2,841 521 3,362
Net occupancy expense...... 934 99 1,033
Other noninterest expense.. 1,462 581 2,043
------- ------ -------
Total noninterest
expense................. 5,237 1,201 6,438
------- ------ -------
Income before income taxes... 2,668 964 3,632
Provision for income taxes... 896 300 1,196
------- ------ -------
Net income................... $ 1,772 $ 664 $ 2,436
======= ====== =======
Basic earnings per share..... $ 0.19 $ 7.29 $ 0.21
======= ====== =======
Diluted earnings per share... $ 0.19 $ 7.29 $ 0.21
======= ====== =======
</TABLE>
30
<PAGE>
GOLD BANC CORPORATION, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
GOLD BANC
GOLD BANC CORPORATION, INC.
CORPORATION, INC. FIRST STATE AND SUBSIDIARIES
AND SUBSIDIARIES BANCORP, INC. ADJUSTMENTS PRO FORMA
----------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents.......... $ 41,111 $ 4,747 $ 45,858
Available-for-sale
securities........... 100,500 36,671 137,171
Other securities...... 3,937 3,657 7,594
Loans, net............ 340,630 56,100 396,730
Other assets.......... 28,419 5,122 33,541
-------- -------- --------
$514,597 $106,297 $620,894
======== ======== ========
LIABILITIES
Deposits.............. $419,139 $ 1,561 $510,700
Other liabilities..... 53,725 4,563 58,288
-------- -------- --------
Total Liabilities... 472,864 96,124 568,988
-------- -------- --------
EQUITY CAPITAL
Common stock.......... 10,133 920 864 (1) 11,917
Additional paid-in
capital.............. 17,199 1,489 (864)(2) 17,794
(30)(3)
Undivided profits..... 14,605 7,535 22,140
Treasury Stock........ (30) 30 (3) --
Accumulated other
comprehensive income. 32 259 291
Unearned compensation. (236) (236)
-------- -------- ----- --------
41,733 10,173 -- 51,906
-------- -------- ----- --------
$514,597 $106,297 $ -- $620,894
======== ======== ===== ========
</TABLE>
- --------
(1) Adjustment to common stock to account for merger computed as follows:
<TABLE>
<S> <C>
Number of shares of First State Bancorp shares outstanding prior
to merger...................................................... 91
Exchange ratio of Gold Banc Corporation for First State Bancorp. 19.6082
-------
Gold Banc Corporation shares to be issued ($1 par value)........ 1,784
Gold Banc Corporation shares outstanding prior to merger ($1 par
value)......................................................... 10,133
-------
Pro forma common stock.......................................... $11,917
=======
</TABLE>
(2) Adjustment to additional paid-in capital to account for merger computed as
follows:
<TABLE>
<S> <C>
Historical capital:
Gold Banc Corporation common stock............................ $ 10,133
First State Bancorp common stock.............................. 920
Gold Banc Corporation additional paid-in capital.............. 17,199
First State Bancorp additional paid-in capital................ 1,489
First State Bancorp treasury stock............................ (30)
--------
Total historical capital.................................... 29,711
Less: Pro forma common stock.................................... (11,917)
--------
Pro forma additional paid-in capital............................ $ 17,794
========
</TABLE>
(3) Adjustment to eliminate First State Bancorp treasury stock.
31
<PAGE>
GOLD BANC CORPORATION, INC.
PRO FORMA COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
GOLD BANC
GOLD BANC CORPORATION, INC.
CORPORATION, INC. FIRST STATE AND SUBSIDIARIES
AND SUBSIDIARIES BANCORP, INC. PRO FORMA
----------------- ------------- -----------------
<S> <C> <C> <C>
Interest income
Loans, including fees...... $25,871 $5,174 $31,045
Investment securities...... 5,408 2,215 7,623
Other interest income...... 669 88 757
------- ------ -------
Total interest income.... 31,948 7,477 39,425
------- ------ -------
Interest expense
Deposits................... 15,160 3,543 18,703
Borrowings and other....... 1,532 139 1,671
------- ------ -------
Total interest expense... 16,692 3,682 20,374
------- ------ -------
Net interest income.......... 15,256 3,795 19,051
Provision for loan losses.... 865 120 985
------- ------ -------
Net interest income after
provision for loan losses... 14,391 3,675 18,066
------- ------ -------
Noninterest income
Service charges on
deposits.................. 1,060 349 1,409
Net gains on sale of
mortgage loans............ 679 679
All other noninterest
income.................... 1,037 399 1,436
------- ------ -------
Total noninterest income. 2,776 748 3,524
------- ------ -------
Noninterest expense
Salaries and employee
benefits.................. 6,244 1,147 7,391
Net occupancy expense...... 1,931 212 2,143
Other noninterest expense.. 3,373 1,262 4,635
------- ------ -------
Total noninterest
expense................. 11,548 2,621 14,169
------- ------ -------
Income before income taxes... 5,619 1,802 7,421
Provision for income taxes... 1,888 544 2,432
------- ------ -------
Net income................... $ 3,731 $1,258 $ 4,989
======= ====== =======
Basic earnings per share..... 0.39 $13.83 $ 0.43
======= ====== =======
Diluted earnings per share... $ 0.38 $13.83 $ 0.43
======= ====== =======
</TABLE>
32
<PAGE>
GOLD BANC CORPORATION, INC.
PRO FORMA COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
GOLD BANC
GOLD BANC CORPORATION, INC.
CORPORATION, INC. FIRST STATE AND SUBSIDIARIES
AND SUBSIDIARIES BANCORP, INC. PRO FORMA
----------------- ------------- -----------------
<S> <C> <C> <C>
Interest income
Loans, including fees...... $19,796 $4,853 $24,649
Investment securities...... 6,134 1,738 7,872
Other interest income...... 469 89 558
------- ------ -------
Total interest income.... 26,399 6,680 33,079
------- ------ -------
Interest expense
Deposits................... 13,340 3,197 16,537
Borrowings and other....... 1,725 137 1,862
------- ------ -------
Total interest expense... 15,065 3,334 18,399
------- ------ -------
Net interest income.......... 11,334 3,346 14,680
Provision (credit) for loan
losses...................... (25) 118 93
------- ------ -------
Net interest income after
provision for loan losses... 11,359 3,228 14,587
------- ------ -------
Noninterest income
Service charges on
deposits.................. 1,033 308 1,341
Net gains on sale of
mortgage loans............ 1,128 1,128
All other noninterest
income.................... 691 302 993
------- ------ -------
Total noninterest income. 2,852 610 3,462
------- ------ -------
Noninterest expense
Salaries and employee
benefits.................. 6,063 1,082 7,145
Net occupancy expense...... 1,675 178 1,853
Other noninterest expense.. 3,329 1,093 4,422
------- ------ -------
Total noninterest
expense................. 11,067 2,353 13,420
------- ------ -------
Income before income taxes... 3,144 1,485 4,629
Provision for income taxes... 1,066 435 1,501
------- ------ -------
Net income................... $ 2,078 $1,050 $ 3,128
======= ====== =======
Basic earnings per share..... $ 0.38 $11.54 $ 0.43
======= ====== =======
Diluted earnings per share... $ 0.38 $11.54 $ 0.43
======= ====== =======
</TABLE>
33
<PAGE>
GOLD BANC CORPORATION, INC.
PRO FORMA COMBINED INCOME STATEMENTS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
GOLD BANC
GOLD BANC CORPORATION, INC.
CORPORATION, INC. FIRST STATE AND SUBSIDIARIES
AND SUBSIDIARIES BANCORP, INC. PRO FORMA
----------------- ------------- -----------------
<S> <C> <C> <C>
Interest income
Loans, including fees...... $17,254 $4,613 $21,867
Investment securities...... 5,992 1,582 7,574
Other interest income...... 195 92 287
------- ------ -------
Total interest income.... 23,441 6,287 29,728
------- ------ -------
Interest expense
Deposits................... 11,257 3,064 14,321
Borrowings and other....... 1,637 182 1,819
------- ------ -------
Total interest expense... 12,894 3,246 16,140
------- ------ -------
Net interest income.......... 10,547 3,041 13,588
Provision for loan losses.... 1,334 60 1,394
------- ------ -------
Net interest income after
provision for loan losses... 9,213 2,981 12,194
------- ------ -------
Noninterest income
Service charges on
deposits.................. 999 234 1,233
Net gains on sale of
mortgage loans............ 1,058 1,058
All other noninterest
income.................... 258 262 520
------- ------ -------
Total noninterest income. 2,315 496 2,811
------- ------ -------
Noninterest expense
Salaries and employee
benefits.................. 5,339 1,030 6,369
Net occupancy expense...... 1,444 157 1,601
Other noninterest expense.. 3,007 1,103 4,110
------- ------ -------
Total noninterest
expense................. 9,790 2,290 12,080
------- ------ -------
Income before income taxes... 1,738 1,187 2,925
Provision for income taxes... 520 300 820
------- ------ -------
Net income................... $ 1,218 $ 887 $ 2,105
======= ====== =======
Basic earnings per share..... $ 0.24 $ 9.25 $ 0.30
======= ====== =======
Diluted earnings per share... $ 0.24 $ 9.25 $ 0.30
======= ====== =======
</TABLE>
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FIRST STATE BANCORP
The following discussion of financial condition and results of operations
should be read in conjunction with the consolidated financial statements of
First State Bancorp and the related notes. As used in the following
discussion, the term "First State Bancorp" refers to First State Bancorp, Inc.
and its subsidiary on a consolidated basis; and the term "Bank" refers to
First State Bank and Trust Company.
RESULTS OF OPERATIONS
GENERAL
First State Bancorp's net earnings for 1997 increased $208,000, or 19.8%, as
compared to 1996, primarily as a result of increases in net interest income
and noninterest income of $450,000 and $137,000, respectively, which was
partially offset by increases in the provision for income taxes and
noninterest expense of $109,000 and $267,000, respectively. Net earnings for
1996 increased $164,000, or 18.5%, as compared to 1995, primarily as a result
of increases in net interest income and noninterest income of $305,000 and
$115,000, respectively, which was partially offset by increases in the
provision for income taxes and noninterest expense of $135,000 and $64,000,
respectively. Net earnings for the six months ended June 30, 1998 decreased
$2,000, or 0.3%, as compared to the same period in 1997, primarily as a result
of increases in the provision for loan losses of $100,000 and noninterest
expense of $133,000, offset by increases in net interest income and
noninterest income of $188,000 and $29,000, respectively.
NET INTEREST INCOME
Net interest income, the primary source of earnings for First State Bancorp,
is the difference between interest income earned on loans and other earning
assets and interest paid on deposits and other interest bearing liabilities.
Earning assets include loans, investment securities and federal funds sold.
Interest bearing liabilities include interest-bearing deposits (NOW accounts,
MMDA, savings, and others), time deposits, federal funds purchased, Federal
Home Loan Bank advances and a note payable.
35
<PAGE>
The following table sets forth First State Bancorp's average balance of
assets, liabilities and stockholders' equity as well as the amount of interest
income or interest expense and the average rate for each category of interest
earning assets and interest bearing liabilities. Included in the average
balances are non-accruing loans. Loan fees are included in interest income.
Average balances are computed on a daily basis.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996
------------------------ -----------------------
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).............. $ 56,848 $5,174 9.10% $54,410 $4,853 8.92%
Investment securities--
taxable.................... 25,886 1,736 6.71 18,100 1,188 6.56
Investment securities--
nontaxable................. 9,455 487 5.15 10,949 556 5.08
Federal funds sold.......... 1,030 60 5.83 1,203 64 5.32
Interest-bearing deposits in
other financial
institutions & other....... 327 21 6.42 299 19 6.35
-------- ------ ---- ------- ------ ----
Total interest-earning
assets................... 93,546 7,478 7.99 84,961 6,680 7.86
------ ---- ------ ----
Noninterest-earning assets.... 8,199 7,970
-------- -------
Total assets.............. $101,745 $92,931
======== =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing liabilities
Savings deposits and
interest-bearing checking.. $ 31,990 $ 820 2.56% $28,635 $ 704 2.46%
Time deposits............... 49,674 2,723 5.48 46,404 2,494 5.37
Federal funds purchased..... 667 37 5.55 232 14 6.03
Borrowed funds.............. 1,241 103 8.30 1,381 123 8.90
-------- ------ ---- ------- ------ ----
Total interest-bearing
liabilities.............. 83,572 3,683 4.41 76,652 3,335 4.35
------ ---- ------ ----
Noninterest-bearing
liabilities.................. 8,560 7,622
Stockholders' equity.......... 9,613 8,657
-------- -------
Total liabilities and
stockholders' equity..... $101,745 $92,931
======== =======
Net interest income (2)....... $3,795 $3,345
====== ======
Interest rate spread.......... 3.58% 3.51%
==== ====
Net yield on interest-earning
assets (3)................... 4.06% 3.94%
==== ====
</TABLE>
- --------
(1) Non-accruing loans are included in the computation of average balances.
(2) First State Bancorp includes loan fees in interest income. Such fees
totaled $128,800 and $101,276 in 1997 and 1996, respectively.
(3) The net yield on interest-earning assets is the net interest income
divided by average interest-earning assets.
36
<PAGE>
The effect of changes in average balance and rate from the corresponding
prior period on interest income, interest expense and net interest income for
the year ended December 31, 1997 is set forth below. The effect of a change in
average balance has been determined by applying the average rate for the
earlier period to the change in the average balance for the later period, as
compared with the earlier period. The effect of a change in the average rate
has been determined by applying the average balance for the earlier period to
the change in the average rate for the later period, as compared with the
earlier period. The variances attributable to simultaneous balance and rate
changes have been allocated in proportion to the relationship of the dollar
amount of change in each category.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, 1997 COMPARED
TO 1996
--------------------
TOTAL
VOLUME RATE CHANGES
------ ---- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Interest income:
Loans (1).......................................... $222 $99 $321
Investment securities--taxable..................... 518 30 548
Investment securities--nontaxable.................. (77) 8 (69)
Federal funds sold................................. (10) 6 (4)
Interest bearing deposits in other financial
institutions...................................... 1 1 2
---- --- ----
Total interest income............................ 654 144 798
---- --- ----
Interest expense:
Savings deposits and interest-bearing checking..... 86 30 116
Time deposits...................................... 179 50 229
Federal funds purchased............................ 24 (1) 23
Borrowed funds (FHLB advances and note payable).... (25) 5 (20)
---- --- ----
Total interest expense........................... 264 84 348
---- --- ----
Increase in net interest income...................... $390 $60 $450
==== === ====
</TABLE>
- --------
(1) First State Bancorp includes loan fees in interest income. Such fees
totaled $128,800 and $101,276 for 1997 and 1996, respectively.
Interest Income. Total interest income increased $798,000, or 11.9%, in 1997
compared to 1996. Contributing to this increase was a $321,000, or 6.6%
increase in interest income from loans and a $477,000, or 26.1% increase in
interest income from investment securities and other interest earning assets.
These increases are primarily attributable to higher average balances as a
result of loan growth and purchases of investment securities.
Total interest income increased $393,000, or 6.3%, in 1996 compared to 1995.
Contributing to this increase was a $241,000, or 5.2% increase in interest
income from loans and a $153,000, or 9.1% increase in interest income on
investment securities and other interest earning assets. These increases are
primarily attributable to higher average balances as a result of loan growth
and purchases of investment securities as well as a slight increase in
interest rates.
Total interest income increased $445,000, or 12.3%, for the first six months
of 1998 compared to the same period of 1997. Contributing to this increase was
a $364,000, or 14.6% increase in interest income on loans and an $81,000, or
7.1% increase in interest income on investment securities and other interest
earning assets. These increases are primarily the result of higher average
balances due to loan growth and purchases of investment securities.
Interest Expense. Total interest expense increased by $348,000, or 10.4%, in
1997 compared to 1996. This increase is primarily attributable to a $345,000,
or 10.8% increase in interest expense on deposits paid by the
37
<PAGE>
Bank. Interest expense increased primarily due to higher average balances in
interest bearing deposits. As a result of these changes and the changes in
interest income in 1997, net interest margin increased $450,000, or 13.4%, in
1997 compared to 1996.
Total interest expense increased by $88,000, or 2.7%, in 1996 compared to
1995. This increase is primarily due to a $134,000, or 4.4% increase in
interest expense on deposits paid by the Bank which was partially offset by a
$45,000, or 24.8% decrease in interest expense on other borrowings. The
increase in interest expense on deposits occurred primarily due to higher
average balances in interest bearing deposits. The decrease in interest
expense on other borrowings decreased primarily due to lower average balances
in federal funds purchased, Federal Home Loan Bank advances and the note
payable. As a result of these changes and the changes in interest income in
1996, net interest margin increased $305,000, or 10.0%, in 1996 compared to
1995.
Total interest expense increased by $256,000, or 14.5%, for the first six
months of 1998 compared with the same period in 1997. This increase is
primarily attributable to a $235,000, or 13.7% increase in interest expense on
deposits paid by the Bank. Interest expense increased primarily due to higher
average balances in interest bearing deposits. As a result of the changes
described above and the changes in interest income for the first six months of
1998, net interest margin increased $188,000, or 10.1% for the first six
months of 1998.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents management's determination of the
amount necessary to be charged against the current period's earnings, in order
to maintain the allowance for loan losses at a level which is considered
adequate, in relation to the estimated risk inherent in the loan portfolio.
See "--Financial Condition--Allowance for Loan Losses." The provision for loan
losses was $120,000 in 1997 compared to $118,000 in 1996, and $160,000 for the
first six months of 1998 compared to $60,000 for the same period in 1997.
Actual net loan charge-offs for 1997, 1996 and the first six months of 1998
were $62,000, $63,000 and $85,000, respectively, or 0.11%, 0.12% and 0.27%
(annualized) of average total loans. The provision for loan losses for the
three months ended June 30, 1998 was $130,000 compared to $30,000 for the
three months ended June 30, 1997. This increase was due to the results of a
regular periodic examination of the Bank by the Federal Deposit Insurance
Corporation ("FDIC") in May 1998 which concluded that the Bank's loan loss
reserve was underfunded by at least $100,000. Most of the loans to which the
additional provision was attributed were already classified, but the FDIC
classified such loans more severely.
The following table presents an analysis of the First State Bancorp's loss
experience for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
PERIOD ENDED --------------
JUNE 30, 1998 1997 1996
------------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period............. $645 $ 587 $ 532
Loans charged-off:
Real estate loans--construction.......... -- 3 --
Real estate loans--mortgage.............. 5 6 30
Installment loans........................ 15 47 19
Commercial loans and other............... 65 7 16
---- ------ ------
Total charge-offs...................... 85 63 65
---- ------ ------
Recoveries
Real estate loans--construction.......... -- -- --
Real estate loans--mortgage.............. -- -- --
Installment loans........................ -- 1 2
Commercial loans and other............... -- -- --
---- ------ ------
Total recoveries....................... -- 1 2
---- ------ ------
Net charge-offs............................ 85 62 63
Provision for loan losses.................. 160 120 118
---- ------ ------
Balance at end of period................... $720 $ 645 $ 587
==== ====== ======
Ratio of net charge-offs during the period
to average loans outstanding during the
period.................................... 0.1% 0.1% 0.1%
</TABLE>
38
<PAGE>
The following table presents a breakdown of the allowance for loan losses
for the periods indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1997 1996
------------------ ------------------
PERCENT OF PERCENT OF
TOTAL LOANS TOTAL LOANS
IN EACH IN EACH
AMOUNT CATEGORY AMOUNT CATEGORY
------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate loans--construction.... $-- 5% $-- 5%
Real estate loans--mortgage........ 319 60 341 61
Installment loans.................. 127 21 58 22
Commercial loans and other......... 199 14 188 12
---- --- ---- ---
$645 100% $587 100%
==== === ==== ===
</TABLE>
NONINTEREST INCOME
Noninterest income increased $137,000, or 22.4%, in 1997 compared to 1996.
This increase is primarily attributable to (i) an increase in income from
fiduciary activities of $58,000 which resulted from growth in market value of
assets held in trust accounts at the Bank along with a slight increase in the
Trust Department's fee structure and (ii) an increase in service charges on
deposit accounts of $41,000 due to growth in deposits.
Noninterest income increased $115,000, or 23.3%, in 1996 compared to 1995.
This increase is primarily attributable to (i) an increase in income from
fiduciary activities of $39,000 due to growth in trust assets and (ii) an
increase in service charges on deposit accounts of $74,000 due to growth in
deposits.
Noninterest income increased by $29,000, or 8.0%, for the first six months
of 1998 compared to the same period of 1997. This increase is primarily
attributable to an increase in income from fiduciary activities of $16,000.
NONINTEREST EXPENSE
Noninterest expense increased $267,000, or 11.4%, in 1997 compared to 1996.
This increase is primarily attributable to (i) an increase in employee expense
of $64,000, (ii) an increase of $59,000 in equipment expense due to obtaining
new computer hardware and software and maintenance contracts related to these
purchases, (iii) an increase of $34,000 in occupancy expense due to branch
remodeling and (iv) an increase of $25,000 in advertising expense.
Noninterest expense increased $64,000, or 2.8%, in 1996 compared to 1995.
This increase is primarily attributable to (i) an increase in employee expense
of $52,000, (ii) an increase of $35,000 in equipment expense due to the
addition of an automated teller machine and a voice response system, (iii) an
increase of $15,000 in printing and supplies expense caused by a change in the
Bank's logo, (iv) an increase of $10,000 in advertising expense, (v) an
increase of $21,000 in occupancy expense and (vi) a $10,000 increase in legal
and professional fees. These increases were offset by a $91,000 decrease in
insurance expense due to a reduction in the Bank's FDIC assessment.
Noninterest expense increased by $133,000, or 11.1%, for the first six
months of 1998 compared with the same period of 1997 primarily due to (i) an
increase of $74,000 in employee expense, (ii) an increase of $23,000 in
depreciation on equipment, furniture and fixtures and (iii) an increase of
$34,000 in legal and professional fees.
INCOME TAX EXPENSE
First State Bancorp recognized income tax expense of $544,000, $435,000,
$300,000, $286,000 and $300,000 for 1997, 1996, 1995, and the first six months
of 1998 and 1997, respectively. The effective tax rates for these periods were
30.2%, 29.3%, 25.3%, 30.2% and 31.1%, respectively.
39
<PAGE>
YEAR 2000 COMPLIANCE
Rapid and accurate data processing is essential to the operation of First
State Bancorp and the Bank. Many computer programs that can only distinguish
the final two digits of the year entered (a common programming practice in
earlier years) are expected to read entries for the year 2000 as the year 1900
and compute payment, interest or delinquency based on the wrong date or are
expected to be unable to compute payment, interest or delinquency.
First State Bancorp and the Bank are actively addressing the Year 2000
issue. The Bank has appointed a Year 2000 committee and approved a Year 2000
Plan, including a testing plan for applicable hardware and software. The Bank
is currently finalizing a contingency plan. In addition, large borrowers and
large depositors have been contacted regarding Year 2000 issues in their own
companies, which could potentially indirectly affect First State Bancorp and
the Bank.
All of the material data processing of First State Bancorp and the Bank is
currently provided by a third party service bureau. Although currently not
Year 2000 compliant, the service bureau has advised the Bank that it will be
compliant prior to any interruption in service. First State Bancorp does not,
however, anticipate that First State Bancorp or the Bank will utilize its
existing service bureau when the Year 2000 occurs because the Company intends
to convert First State Bancorp's and the Bank's data processing to the
Company's data processing system following the consummation of the Merger.
FINANCIAL CONDITION
Following are key financial and operating ratios for First State Bancorp for
all periods reported:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30 DECEMBER 31,
------------- -------------
1998 1997 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Return on average assets...................... 1.22% 1.35% 1.25% 1.14%
Return on average equity...................... 12.74% 14.19% 13.09% 12.13%
Average equity to average assets.............. 9.55% 9.51% 9.57% 9.42%
Dividend payout ratio......................... 27.55% 13.72% 18.08% 6.50%
</TABLE>
LOAN PORTFOLIO ANALYSIS
Total net loans (after allowance for loan losses), including student loans
held for sale, on December 31, 1997 increased $5,198,000, or 9.6%, compared to
December 31, 1996, $1,163,000, or 2.2%, on December 31, 1996 compared to
December 31, 1995, and $6,065,000, or 10.9%, on June 30, 1998 compared to June
30, 1997.
The following table presents the amount of loans outstanding at the dates
indicated, according to loan category:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
% OF % OF
BALANCE TOTAL LOANS BALANCE TOTAL LOANS
------- ----------- ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate--construction........ $ 2,803 5% $ 2,591 5%
Real estate--mortgage............ 36,435 60 33,370 61
Installment...................... 12,602 21 12,355 22
Commercial and other............. 8,405 14 6,673 12
------- --- ------- ---
$60,245 100% $54,989 100%
======= === ======= ===
</TABLE>
40
<PAGE>
Real estate construction loans consist primarily of residential and
commercial construction loans for properties located in Pittsburg, Kansas and
surrounding communities. These loans aggregated approximately $3,986,000 and
$2,313,000 at June 30, 1998 and 1997, respectively. The increase in this
category of loans in 1998 is the result of continued market growth. First
State Bancorp has experienced very few charge-offs related to this category of
loans during the past two years.
Real estate mortgage loans, including 1-4 family, multi-family and
commercial real estate loans, are collateralized by properties that are
principally located in Pittsburg, Kansas and surrounding communities. These
loans aggregated approximately $40,241,000 and $35,096,000 at June 30, 1998
and 1997, respectively. First State Bancorp has experienced relatively few
charge-offs related to this category of loans during the past two years.
Commercial and industrial loans are comprised primarily of loans to
customers in the Pittsburg, Kansas trade area and are diversified from an
industry and customer standpoint, which helps to minimize risk. 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 the diversity of the portfolio and collateral margins.
The consumer loan portfolio (including student loans held for sale) consists
of both secured and unsecured loans to individuals for various personal
reasons such as automobile and mobile home financing, home improvements,
education and recreational purposes. 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 sufficient
collateral margins and the diversity of the portfolio.
The following table presents the maturities of certain loan categories at
December 31, 1997.
<TABLE>
<CAPTION>
ONE YEAR ONE TO OVER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate--construction......... $ 2,803 $ -- $ -- $ 2,803
Real estate--mortgage............. 13,420 20,260 2,755 36,435
Installment....................... 2,789 7,349 2,460 12,598
Commercial and other.............. 5,449 2,142 818 8,409
------- ------- ------ -------
$24,461 $29,751 $6,033 $60,245
======= ======= ====== =======
</TABLE>
The table below presents the interest rate sensitivity at December 31, 1997,
on loans due after one year in the following categories.
<TABLE>
<CAPTION>
FIXED ADJUSTABLE
INTEREST INTEREST
RATES RATES
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Real estate--construction............................. $ -- $ --
Real estate--mortgage................................. 22,128 887
Installment........................................... 6,014 3,795
Commercial and other.................................. 566 2,394
------- ------
Total............................................... $28,708 $7,076
======= ======
</TABLE>
First State Bancorp's loan portfolio is varied, although most of the loans
in First State Bancorp's portfolio have been made to borrowers in the
Pittsburg, Kansas area.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risk inherent in its loan
portfolio and the general economy. Such evaluation, which includes a review of
all loans on which full collectibility may not be reasonably assured,
considers among other matters,
41
<PAGE>
the estimated fair value of the underlying collateral, economic conditions,
historical loan loss experience, and other factors that warrant recognition in
providing for an adequate loan loss allowance. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Bank's allowance for loan losses and valuation of foreclosed assets
held for sale. Such agencies may require the Bank to recognize additions to
the allowance based on their judgments about information available to them at
the time of their examination.
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 uncollectable
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. See "--Results of Operations--Provision for Loan Losses."
RISKS ELEMENTS OF LOAN PORTFOLIO
Management reviews the First State Bancorp's 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 nonaccrual status. Management
then determines the need for additions to the allowance for loan loss or, if
appropriate, partial or full charge-off. Those loans on which management does
not expect to collect interest in the normal course of business are generally
placed on nonaccrual status. After a loan is placed on nonaccrual status,
interest income is recognized only on a cash basis so long as management is
satisfied there is not 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.
The following table presents the amount of non-performing loans outstanding
at the dates indicated by category:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
-------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Non-accrual loans..................... $ 55 $100 $ 43
Loans 90 days past due and still
accruing............................. 350 88 229
Restructured loans.................... 197 201 235
---- ---- ----
Total non-performing loans.......... $602 $389 $507
==== ==== ====
</TABLE>
Loans 90 days past due and still accruing increased to $350,000 at June 30,
1998 from $88,000 at December 31, 1997. This increase is attributable to two
commercial lines of credit. One line of credit was refinanced at another
financial institution subsequent to June 30, 1998. The other line of credit,
which related to a real estate development project, was brought current
subsequent to June 30, 1998. Loans that become 90 days or more delinquent are
reviewed by management of the Bank and placed on nonaccrual status when, in
management's opinion, the collectibility of the recorded amount is in doubt.
The amount of interest income on the above-referenced loans accounted for in
nonaccural status that would have been recorded was approximately $4,000 and
$1,000 for the years ended December 31, 1997 and 1996, respectively. Interest
income recognized on the above-referenced restructured loans was approximately
$14,000 each year for 1997 and 1996. Interest income under the original terms
of the loan would have approximately $19,000 each year for 1997 and 1996.
42
<PAGE>
The following table presents the book value of certain loans excluded from
the previous table but classified by the Bank, as of December 31, 1997, as
potential problem loans.
<TABLE>
<CAPTION>
BOOK VALUE
--------------
(IN THOUSANDS)
<S> <C>
Real estate--construction.................................. $ --
Real estate--mortgage...................................... 653
Installment................................................ 88
Commercial and other....................................... 380
------
$1,121
======
</TABLE>
INVESTMENT SECURITIES PORTFOLIO ANALYSIS
First State Bancorp invests a portion of its available funds in short-term
and long-term instruments, including federal funds sold and investment
securities. Investment securities include obligations of the U.S. Government
or its agencies, obligations of state and political subdivisions and debt
securities.
Federal funds sold are used primarily for daily cash management purposes.
First State Bancorp's investment securities portfolio is utilized to
collateralize certain of the Bank's line of credit and public fiduciary
deposits. It also provides liquidity through proceeds from scheduled
maturities. The majority of First State Bancorp's investment securities carry
fixed interest rates, and at December 31, 1997 and June 30, 1998, First State
Bancorp's investment portfolio reflected a net unrealized gain of
approximately $393,000 and $302,000, respectively.
The following table presents First State Bancorp's investments in certain
securities accounted for as available for sale ("AFS") on the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
U. S. Government, AFS.................................... $ -- $ 497
U. S. Agencies, AFS...................................... 23,430 17,597
Mortgage Backed Bonds, AFS............................... 3,803 1,599
Municipal Securities, AFS................................ 9,438 9,763
------- -------
Total Securities....................................... 36,671 29,456
Federal Funds Sold..................................... -- 2,800
------- -------
Total Investments...................................... $36,671 $32,256
======= =======
</TABLE>
The following table sets forth the amounts by book value and weighted
average yields, as of December 31, 1997, of each category of investments
listed in the preceding table maturing during certain time periods.
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
YEAR BUT YEARS BUT
WITHIN ONE WITHIN FIVE WITHIN TEN AFTER TEN
YEAR YEARS YEARS YEARS TOTAL
------------ ------------ ------------ ------------ -------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
U.S. Agencies.......... $3,958 7.12% $9,833 6.47% $9,639 6.79% $ -- -- $23,430 6.72%
Mortgaged backed bonds. 58 5.20% 993 6.56% 1,891 6.96% 861 6.89% 3,803 6.81%
Municipal Securities
(1)................... 1,075 7.24% 3,043 8.64% 3,711 8.20% 1,609 8.39% 9,438 8.25%
------- -----
$36,671 7.12%
======= =====
</TABLE>
- --------
(1) Interest on certain municipal securities within the portfolio is not
subject to federal tax. Yields have been calculated on a tax equivalent
basis.
43
<PAGE>
On December 31, 1997, First State Bancorp had no investments in the debt
securities of any issuer (excluding U.S. Government and U.S. Agencies and
corporations) with a book value of more than 10% of First State Bancorp's
stockholders' equity.
DEPOSITS
The Bank's deposit base is its primary source of funds. The Bank offers a
broad range of deposit products, including noninterest bearing demand
deposits, NOW accounts, savings deposits, individual retirement accounts and
certificates of deposit. Total deposits increased $8,431,000, or 10.1%, at
December 31, 1997, compared to December 31, 1996; $4,933,000, or 6.3% at
December 31, 1996, compared to December 31, 1995; and $5,760,000, or 6.5% at
June 30, 1998 compared to June 30, 1997.
At December 31, 1997, 8.3% of total deposits were in noninterest bearing
demand accounts, 35.7% in savings and interest bearing demand accounts and
56.0% in certificates of deposit.
The following table presents the average balances of and the average rate
paid on certain categories of deposits for the periods indicated.
<TABLE>
<CAPTION>
AVERAGE DEPOSIT BALANCES AND RATES
---------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1997 1996
------------------------- -------------------------
% OF % OF
AVERAGE AVERAGE TOTAL AVERAGE AVERAGE TOTAL
BALANCES RATE DEPOSITS BALANCES RATE DEPOSITS
-------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand................... $ 7,305 -- % 8% $ 6,433 -- % 8%
Interest-bearing demand... 17,698 2.37 20 14,873 2.46 18
Savings................... 14,292 2.68 16 13,762 2.08 17
Time deposits............. 49,674 5.48 56 46,404 5.37 57
------- --- ------- ---
Total................... $88,969 100% $81,472 100%
======= === ======= ===
</TABLE>
The following table presents the amount outstanding as of December 31, 1997,
of certificates of deposit in excess of $100,000 and the maturities thereof.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Maturity Period:
Less than three months........................... $ 518
Over three months through six months............. 3,762
Over six months through twelve months............ 1,380
Over twelve months............................... 2,237
------
Total CD's in excess of $100,000............... $7,897
======
</TABLE>
SHORT-TERM BORROWINGS
Short-term borrowings consist of federal funds purchased. These amounted to
$1,900,000 at December 31, 1997. First State Bancorp had no short-term
borrowings at December 31, 1996. The average rate on short-term borrowings was
5.55% and 6.03% for 1997 and 1996, respectively. The maximum amounts of short-
term borrowings outstanding at any month end during 1997 and 1996 were
$2,700,000 and $3,200,000, respectively. Information regarding the levels of
short-term borrowings for 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------ ------
(DOLLARS
IN THOUSANDS)
<S> <C> <C>
Balance at end of period.................................. $1,900 $ 0
Maximum outstanding during the period at any month end.... $2,700 $3,200
Average interest rate end of period....................... 6.00% 5.00%
Average outstanding during period......................... $ 667 $ 232
Average interest rate for the period...................... 5.55% 6.03%
</TABLE>
44
<PAGE>
The average amount outstanding was computed from daily averages and the
average interest rates for the period were computed by dividing the respective
interest expense by the average balance outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity risk is managed by First State Bancorp through the composition of
its assets and liabilities in an effort to meet efficiently 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
First State Bancorp's liquidity are cash and cash equivalents and investment
securities with short term maturities. First State Bancorp 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 June 30, 1998, First State Bancorp had cash and cash equivalents of
$4,276,000 and investment securities maturing in less than one year of
$2,319,000. These amounts represent approximately 5.9% of First State
Bancorp's total assets at June 30, 1998 and management of First State Bancorp
believes that they provide First State Bancorp with sufficient resources to
handle unforeseen deposit outflows and loan requirements.
First State Bancorp's cash and cash equivalents decreased $471,000 during
the six month period ended June 30, 1998. Net cash provided by operating
activities aggregated $464,000. Net cash used in investing activities for this
period approximated $5,631,000, primarily as a result of net loan
originations. Net cash provided by financing activities approximated
$4,696,000 for this time period primarily as a result of increased deposits of
$1,510,000, proceeds from Federal Home Loan Bank advances of $1,500,000 and an
increase in federal funds purchased of $2,100,000.
INTEREST RATE SENSITIVITY
Asset and liability management encompasses both interest rate risk and
liquidity management. First State Bancorp's 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. First State
Bancorp monitors its asset and liability mix in an effort to maintain a
consistent earnings performance through control of interest rate risk.
Below is the "static gap" table for First State Bancorp as of December 31,
1997. 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 table. 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.
The table indicates First State Bancorp is liability sensitive in the three
months or less period and the after three months through twelve months period
and is asset sensitive in all other periods. This means that during the three
months or less period and after three months through twelve months 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 First State Bancorp's sensitivity position.
45
<PAGE>
The following table indicates as of December 31, 1997 the time period in
which interest earning assets and interest bearing liabilities are scheduled
to mature or reprice in accordance with their contractual terms.
<TABLE>
<CAPTION>
AFTER AFTER
THREE THREE ONE
MONTHS THROUGH THROUGH AFTER
OR TWELVE FIVE FIVE
LESS MONTHS YEARS YEARS TOTAL
-------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Taxable investment
securities.................. $ 2,513 $ 1,503 $ 10,826 $12,391 $27,233
Non-taxable investment
securities.................. 350 725 3,043 5,320 9,438
Loans, net................... 8,595 15,866 29,751 6,033 60,245
Other assets................. 163 -- -- -- 163
-------- -------- -------- ------- -------
Total Assets............... $ 11,621 $ 18,094 $ 43,620 $23,744 $97,079
======== ======== ======== ======= =======
LIABILITIES:
Interest-bearing deposits
(NOW, MMDA, Savings and
Other)...................... $ 32,693 $ -- $ -- $ -- $32,693
Time deposits................ 12,612 19,884 16,781 2,023 51,300
Federal funds purchased...... 1,900 -- -- -- 1,900
Borrowed funds............... 667 58 377 178 1,280
-------- -------- -------- ------- -------
Total Liabilities.......... $ 47,872 $ 19,942 $ 17,158 $ 2,201 $87,173
======== ======== ======== ======= =======
Sensitivity gap.............. $(36,251) $ (1,848) $ 26,462 $21,543 $ 9,906
Gap as a percentage of
assets...................... (37.34)% (1.90)% 27.26% 22.18% 10.20%
Cumulative sensitivity gap... $(36,251) $(38,099) $(11,637) $ 9,906 N/A
Cumulative gap as a
percentage of assets........ (37.34)% (39.24)% 11.99% 10.20% N/A
Cumulative sensitivity ratio. 0.24 0.44 0.86 1.11 1.11
</TABLE>
An interest sensitivity table is not a complete picture of the possible
effect of interest rate changes on net interest income. First, changes in the
general level of interest rates will not affect all categories of assets and
liabilities equally or simultaneously. Second, the table represents a one-day
position; variations occur daily as First State Bancorp adjusts its interest
sensitivity throughout the year. Third, the repricing distribution of interest
sensitive assets may not be indicative of the liquidity of those assets.
Finally, since this table is based on contractual maturities, it does not
include required principal payments or estimates of early principal payments
on residential mortgages, installment loans and investment securities.
CAPITAL ADEQUACY
Stockholders' equity represented 9.5% of total assets at June 30, 1998.
Risk-based capital and leverage ratios of the Bank exceeded minimum
requirements of regulatory banking authorities.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) recently adopted Statement
of Financial Accounting Standards (SFAS), No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 125
was effective for transactions that occur after December 31, 1997, and imposes
new rules for determining when transfers of financial assets are accounted for
as sales versus when transfers are accounted for as borrowings. Management of
First State Bancorp believes that SFAS 125 does not have a material impact on
First State Bancorp's financial statements.
The FASB recently adopted SFAS 130, Reporting Comprehensive Income. This
Statement establishes standards for reporting and display of comprehensive
income and its components in a full set of financial
46
<PAGE>
statements. It does not address issues of recognition or measurement. During
the period ended June 30, 1998, First State Bancorp adopted the provisions of
SFAS 130, by reclassification adjustments of prior periods presented.
The FASB recently adopted SFAS 131, Disclosures about Segments of an
Enterprise and Related Information. This Statement establishes standards for
the way that public business enterprises report information about operating
segments. The Statement also establishes standards for related disclosures
about products and services, geographic areas and major customers. SFAS 131 is
effective for years beginning after December 15, 1997. SFAS 131, which First
State Bancorp will initially adopt for calendar year 1998, is not expected to
have a material impact on First State Bancorp's financial statements.
The FASB recently adopted SFAS 133, Accounting for Derivative Financial
Instruments and Hedging Activities. This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999, may be adopted early for periods beginning after issuance of the
Statement and may not be applied retroactively. First State Bancorp does not
expect to adopt SFAS 133 early. Management is currently unable to determine
whether the effects of adoption of SFAS 133 will have a material impact on
First State Bancorp's financial statements.
EFFECT OF ECONOMIC CONDITIONS
First State Bancorp's financial statements have been prepared in accordance
with generally accepted accounting principles, which required 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. The assets and liabilities of First State Bancorp
are primarily monetary and interest rates have a greater impact on First State
Bancorp's performance than does the effect of inflation. The local economy of
the Southeast Kansas area has experienced growth over the last several years.
The area has a good mix of retail, agricultural related and industrial
business.
LEGAL OPINION
The legality of the Company Common Stock offered hereby will be passed upon
by Blackwell Sanders Peper Martin LLP.
EXPERTS
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY
The consolidated financial statements of the Company as of December 31, 1997
and 1996 and for each of the years in the 3-year period ended December 31,
1997 incorporated by reference in the Annual Report on Form 10-K, which are
incorporated by reference in this Registration Statement, have been
incorporated herein in reliance upon the reports 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 FIRST STATE BANCORP
The consolidated financial statements of First State Bancorp as of December
31, 1997 and 1996 and for each of the years in the three-year period ended
December 31, 1997, have been included herein in reliance upon the report of
Baird Kurtz & Dobson, independent certified public accountants, appearing
elsewhere herein, such report given upon the authority of said firm as experts
in auditing and accounting.
47
<PAGE>
STOCKHOLDER PROPOSALS
If the Merger is consummated, stockholders of First State Bancorp will
become stockholders of the Company at the Effective Time. The Company
stockholders may submit to the Company proposals for formal consideration at
the 1999 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 1999 annual
meeting must be received in writing by the Corporate Secretary at Gold Banc
Corporation, Inc. by November 24, 1998.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF FIRST STATE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Accountant's Report............................................ F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Income.......................................... F-4
Consolidated Statements of Changes in Stockholder's Equity................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
First State Bancorp, Inc.
Pittsburg, Kansas
We have audited the accompanying consolidated balance sheets of FIRST STATE
BANCORP, INC. as of December 31, 1997 and 1996, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FIRST
STATE BANCORP, INC. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
BAIRD, KURTZ & DOBSON
Joplin, Missouri
February 6, 1998, except for Note 17
as to which the date is May 19, 1998
F-2
<PAGE>
FIRST STATE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30, -------------------------
ASSETS 1998 1997 1996
------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash and due from banks............... $ 4,232,172 $ 4,741,013 $ 2,957,695
Interest bearing deposits with banks.. 44,119 6,172 10,729
Federal funds sold.................... -- -- 2,800,000
------------ ------------ -----------
Cash and cash equivalents......... 4,276,291 4,747,185 5,768,424
Available-for-sale securities......... 38,338,639 36,671,001 29,455,823
Other investments..................... 603,740 156,616 56,177
Student loans held for sale........... 3,165,377 3,500,591 2,751,997
Loans................................. 59,636,333 56,099,607 51,649,955
Interest receivable................... 1,100,665 985,706 856,753
Premises and equipment, net........... 2,065,891 2,077,700 1,853,614
Excess of cost over fair value of net
assets acquired,
at amortized cost.................... 1,486,204 1,516,948 1,578,435
Other assets.......................... 731,422 541,315 557,242
------------ ------------ -----------
Total Assets...................... $111,404,562 $106,296,669 $94,528,420
============ ============ ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
LIABILITIES
Deposits
Non-interest bearing demand
deposits........................... $ 7,833,010 $ 7,568,236 $ 6,638,593
Interest bearing demand deposits.... 23,572,508 24,110,776 20,486,600
Savings deposits.................... 7,657,589 8,581,811 8,777,830
Time deposits....................... 54,008,728 5,300,456 47,227,632
------------ ------------ -----------
Total Deposits.................... 93,071,835 91,561,279 83,130,655
Federal funds purchased............... 4,000,000 1,900,000 --
Federal Home Loan Bank advances....... 2,101,430 648,572 --
Note payable.......................... 431,065 631,065 1,181,065
Accrued interest, taxes and other
expenses............................. 920,232 1,015,125 835,755
Deferred income taxes................. 272,560 376,637 327,949
------------ ------------ -----------
Total Liabilities................. 100,797,122 96,123,678 85,475,424
------------ ------------ -----------
STOCKHOLDERS' EQUITY
Common stock; $10 par value; 500,000
shares authorized; 92,008 shares
issued............................. 920,080 920,080 920,080
Additional paid-in capital.......... 1,499,203 1,488,884 1,488,884
Retained earnings................... 8,014,962 7,535,202 6,504,356
Accumulated other comprehensive
income - unrealized appreciation on
available-for-sale securities, net
of income taxes of $103,173 at June
30, 1998 and $133,996 and $88,071
at December 31, 1997 and 1996,
respectively....................... 198,995 258,825 169,676
Treasury stock, at cost - 860 shares
at June 30, 1998 and 1,000 shares
at December 31, 1997 and 1996...... (25,800) (30,000) (30,000)
------------ ------------ -----------
Total Stockholders' Equity........ 10,607,440 10,172,991 9,052,996
------------ ------------ -----------
Total Liabilities and
Stockholders' Equity............. $111,404,562 $106,296,669 $94,528,420
============ ============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
FIRST STATE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, DECEMBER 31,
------------------------ ------------------------ ---------------------------------
1998 1997 1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income
Loans.................. $1,459,958 $1,288,457 $2,848,869 $2,484,696 $5,174,394 $4,853,334 $4,612,713
Investment
securities--taxable... 456,580 467,179 886,657 842,174 1,728,363 1,181,383 948,481
Investment
securities--
nontaxable............ 136,690 126,318 263,088 251,246 486,511 556,490 633,746
Federal funds sold..... 10,484 3,133 50,284 35,175 59,877 63,585 72,116
Other investments...... 7,705 1,890 10,497 3,954 7,246 6,658 4,712
Deposits with other
banks................. 6,005 5,176 12,758 10,080 21,274 18,642 14,838
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Interest
Income.............. 2,077,422 1,892,153 4,072,153 3,627,325 7,477,665 6,680,092 6,286,606
---------- ---------- ---------- ---------- ---------- ---------- ----------
Interest expense
Deposits............... 981,620 879,734 1,948,223 1,713,683 3,542,977 3,197,399 3,063,554
Federal funds and
advances.............. 32,278 11,268 55,003 11,332 55,607 13,956 28,063
Note payable........... 10,429 22,451 23,711 45,541 83,670 123,212 154,418
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Interest
Expense............. 1,024,327 913,453 2,026,937 1,770,556 3,682,254 3,334,567 3,246,035
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income..... 1,053,095 978,700 2,045,216 1,856,769 3,795,411 3,345,525 3,040,571
Provision for loan
losses................. 130,000 30,000 160,000 60,000 120,000 118,000 60,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses............ 923,095 948,700 1,885,216 1,796,769 3,675,411 3,227,525 2,980,571
---------- ---------- ---------- ---------- ---------- ---------- ----------
Noninterest income
Income from fiduciary
activities............ 65,949 58,320 129,620 113,204 223,688 165,369 126,559
Service charges on
deposit accounts...... 90,820 89,943 172,263 172,112 348,924 307,925 234,136
Net realized gain
(loss) on sale of
available-for-sale
securities............ -- -- -- 2,600 11,851 11,105 (1,034)
Other income........... 47,568 39,370 95,256 79,948 163,154 126,460 135,955
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Noninterest
Income.............. 204,337 187,633 397,139 367,864 747,617 610,859 495,616
---------- ---------- ---------- ---------- ---------- ---------- ----------
Noninterest expense
Salaries and employee
benefits.............. 296,216 268,120 594,753 521,138 1,146,746 1,082,306 1,030,080
Advertising............ 21,990 21,493 53,423 45,100 104,582 80,022 70,032
Equipment.............. 77,552 62,811 144,846 117,614 262,658 203,317 168,796
Occupancy.............. 42,219 51,157 87,499 98,578 211,995 178,227 156,787
Legal and professional
fees.................. 43,683 17,438 74,342 40,212 83,319 81,285 71,248
Stationary and
supplies.............. 24,331 25,003 42,358 44,024 98,367 85,195 70,392
Data processing........ 32,030 28,939 64,431 57,622 115,483 101,281 97,239
Insurance.............. 8,182 7,379 13,601 14,883 31,836 25,025 115,706
Examinations and dues.. 21,592 22,648 43,540 41,582 88,705 82,450 81,163
Other operating
expenses.............. 108,193 119,838 215,680 220,440 476,724 434,139 428,082
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Noninterest
Expense............. 675,988 624,826 1,334,473 1,201,193 2,620,415 2,353,247 2,289,525
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 451,444 511,507 947,882 963,440 1,802,613 1,485,137 1,186,662
Provision for income
taxes.................. 135,284 159,103 285,964 299,708 544,247 434,767 299,916
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.............. 316,160 352,404 661,918 663,732 1,258,366 1,050,370 886,746
Other comprehensive
income
Unrealized
appreciation
(depreciation) on
available-for-sale
securities, net of
income taxes.......... (21,845) (127,061) (59,830) 27,203 89,149 (177,630) 449,187
---------- ---------- ---------- ---------- ---------- ---------- ----------
Comprehensive income.... $ 294,315 $ 225,343 $ 602,088 $ 690,935 $1,347,515 $ 872,740 $1,335,933
========== ========== ========== ========== ========== ========== ==========
Basic and diluted
earnings per share..... $ 3.47 $ 3.87 $ 7.27 $ 7.29 $ 13.83 $ 11.54 $ 9.25
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
FIRST STATE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME--
UNREALIZED
APPRECIATION
(DEPRECIATION)
ON AVAILABLE-
ADDITIONAL FOR-SALE
COMMON PAID-IN RETAINED SECURITIES, TREASURY
STOCK CAPITAL EARNINGS NET STOCK TOTAL
---------- ---------- ---------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1995................... $1,040,850 $1,880,625 $4,635,497 $(101,000) $(183,810) $ 7,272,162
Purchase and
retirement of 6,760
shares of common
stock................ (67,500) (279,201) -- -- -- (346,701)
Retirement of 5,127
shares of treasury
common stock......... (51,270) (102,540) -- -- 153,810 --
Net income............ -- -- 886,746 -- -- 886,746
Unrealized
appreciation on
available-for-sale
securities, net of
income taxes of
$231,399............. -- -- -- 449,187 -- 449,187
---------- ---------- ---------- --------- --------- -----------
BALANCE, DECEMBER 31,
1995................... 922,080 1,498,884 5,522,243 348,187 (30,000) 8,261,394
Purchase and
retirement of 200
shares of common
stock................ (2,000) (10,000) -- -- -- (12,000)
Net income............ -- -- 1,050,370 -- -- 1,050,370
Cash dividends
declared--$.75 per
share................ -- -- (68,257) -- -- (68,257)
Unrealized
depreciation on
available-for-sale
securities, net of
income tax credit of
$90,625.............. -- -- -- (178,511) -- (178,511)
---------- ---------- ---------- --------- --------- -----------
BALANCE, DECEMBER 31,
1996................... 920,080 1,488,884 6,504,356 169,676 (30,000) 9,052,996
Net income............ -- -- 1,258,366 -- -- 1,258,366
Cash dividends
declared--$2.50 per
share................ -- -- (227,520) -- -- (227,520)
Unrealized
appreciation on
available-for-sale
securities, net of
income taxes of
$45,925.............. -- -- -- 89,149 -- 89,149
---------- ---------- ---------- --------- --------- -----------
BALANCE, DECEMBER 31,
1997................... 920,080 1,488,884 7,535,202 258,825 (30,000) 10,172,991
Reissuance of 140
shares of treasury
stock (unaudited).... -- 10,319 -- -- 4,200 14,519
Net income
(unaudited).......... -- -- 661,918 -- -- 661,918
Cash dividends
declared--$2.00 per
share (unaudited).... -- -- (182,158) -- -- (182,158)
Unrealized
depreciation on
available-for-sale
securities, net of
income tax credit of
$30,823 (unaudited).. -- -- -- (59,830) -- (59,830)
---------- ---------- ---------- --------- --------- -----------
BALANCE, JUNE 30, 1998
(UNAUDITED)............ $ 920,080 $1,499,203 $8,014,962 $ 198,995 $ (25,800) $10,607,440
========== ========== ========== ========= ========= ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
FIRST STATE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------------- ----------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities
Net income............ $ 661,918 $ 663,732 $ 1,258,366 $ 1,050,370 $ 886,746
Items not requiring
(providing) cash
Depreciation and
amortization....... 158,705 133,258 279,528 242,423 220,896
Provision for loan
losses............. 160,000 60,000 120,000 118,000 60,000
Amortization of
premiums and
discounts on
securities......... (26,751) 30,083 46,853 89,905 112,486
Net realized (gain)
loss on available-
for-sale
securities......... -- (2,600) (11,851) (11,105) 1,034
Gain on sale of
loans.............. (13,516) (9,142) (17,310) (31,880) --
Deferred income
taxes.............. (64,254) 1,628 (6,900) (11,430) 15,775
Other............... -- -- -- (349) --
Changes in:
Interest receivable. (114,959) (234,758) (128,953) (67,378) (83,375)
Other assets........ (22,389) 21,256 82,836 109,310 164,141
Accrued interest,
taxes and other
expenses........... (274,578) 66,290 179,370 210,476 111,246
------------ ------------ ------------ ------------ ------------
Net cash provided
by operating
activities....... 464,176 728,747 1,801,939 1,698,342 1,488,949
------------ ------------ ------------ ------------ ------------
Cash flows from
investing activities
Net originations of
loans................ (4,765,379) (2,495,062) (7,098,328) (4,690,613) (3,422,149)
Proceeds from sales
of loans............. 1,377,122 98,991 1,727,283 3,411,824 3,863,615
Proceeds from sales
of available-for-
sale securities...... -- 187,600 1,984,569 306,613 998,966
Proceeds from
maturities of
available-for-sale
securities........... 14,700,473 4,536,544 14,419,595 8,293,965 9,847,651
Purchases of
available-for-sale
securities........... (16,432,013) (12,894,913) (23,518,607) (12,269,607) (13,851,195)
Proceeds from
maturities of held-
to-maturity
securities........... -- -- -- -- 4,405,027
Proceeds from sale of
other investments.... -- -- -- 8,330 --
Purchases of other
investments.......... (447,124) (69,500) (100,439) -- (5,889)
Proceeds from sale of
foreclosed assets.... 52,228 3,000 3,200 38,800 47,631
Purchase of premises
and equipment........ (116,152) (209,810) (442,127) (239,784) (166,803)
------------ ------------ ------------ ------------ ------------
Net cash provided
by (used in)
investing
activities....... (5,630,845) (10,843,150) (13,024,854) (5,140,472) 1,716,854
------------ ------------ ------------ ------------ ------------
Cash flows from
financing activities
Net increase
(decrease) in demand
and savings
deposits............. $ (1,197,715) $ 1,963,678 $ 4,357,800 $ 2,356,615 $ (3,148,937)
Net increase in
certificates of
deposit.............. 2,708,272 2,217,910 4,072,824 2,575,960 2,986,076
Dividends paid........ (182,158) (91,008) (227,520) (68,257) --
Proceeds from Federal
Home Loan Bank
advances............. 1,500,000 160,000 660,000 -- --
Repayment of Federal
Home Loan Bank
advances............. (47,142) -- (11,428) -- (2,000,000)
Proceeds from
issuance of note
payable.............. -- -- -- -- 263,000
Principal payments on
note payable......... (200,000) (200,000) (550,000) (400,000) (480,000)
Net increase in
federal funds
purchased............ 2,100,000 2,700,000 1,900,000 -- --
Purchase of common
stock for
retirement........... -- -- -- (12,000) (346,701)
Reissuance of
treasury stock....... 14,518 -- -- -- --
------------ ------------ ------------ ------------ ------------
Net cash provided
by (used in)
financing
activities....... 4,695,775 6,750,580 10,201,676 4,452,318 (2,726,562)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in
cash and cash
equivalents........... (470,894) (3,363,823) (1,012,239) 1,010,188 479,241
Cash and cash
equivalents, beginning
of period............. 4,747,185 5,768,424 5,768,424 4,758,236 4,278,995
------------ ------------ ------------ ------------ ------------
Cash and cash
equivalents, end of
period................ $ 4,276,291 $ 2,404,601 $ 4,747,185 $ 5,768,424 $ 4,758,236
============ ============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
FIRST STATE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Operations
First State Bancorp, Inc. ("FSBI" or the "Company") operates as a one bank
holding company. FSBI's business primarily consists of the business of First
State Bank and Trust Company (the "Bank"), which is primarily engaged in
providing a full range of banking services to individual and corporate
customers through its facilities in Pittsburg, Kansas. The Bank is subject to
competition from other financial institutions. The Company and the Bank are
also subject to regulation by certain federal and state agencies and undergo
periodic examinations by those regulatory authorities.
First State Bancorp, Inc. owned 100% of the Bank's outstanding capital stock
at June 30, 1998 and December 31, 1997 and 1996.
The consolidated financial statements as of June 30, 1998 and for the
periods ended June 30, 1998 and 1997 are unaudited, but in the opinion of
management, include all adjustments, consisting only of normal, recurring
items, necessary for fair presentation.
Use of 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.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowance for loan losses
and the valuation of foreclosed assets held for sale, management obtains
independent appraisals for significant properties.
Management believes that the allowances for losses on loans and valuation of
foreclosed assets held for sale are adequate. While management uses available
information to recognize losses on loans and foreclosed assets held for sale,
changes in economic conditions may necessitate revision of these estimates in
future years. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowances for
losses on loans and valuation of foreclosed assets held for sale. Such
agencies may require the Bank to recognize additional losses based on their
judgments of information available to them at the time of their examination.
Principles of Consolidation
The consolidated financial statements include the accounts of the First
State Bancorp, Inc. and its subsidiary, First State Bank and Trust Company.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
F-7
<PAGE>
FIRST STATE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reclassifications
Various items within the accompanying financial statements for previous
years have been reclassified to provide more comparative information. These
reclassifications had no effect on net earnings.
Cash Equivalents
The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents. At June 30, 1998 and December 31,
1997, the Company had no cash equivalents. At December 31, 1996, cash
equivalents consisted of federal funds sold.
Investments in Debt Securities
Available-for-sale securities, which include any security for which the
Company has no immediate plan to sell but which may be sold in the future, are
carried at fair value. Realized gains and losses, based on the amortized cost
of the specific security, are included in noninterest income. Unrealized gains
and losses are recorded, net of related income tax effects, in stockholder's
equity. Premiums and discounts are amortized and accreted, respectively, to
interest income using the level-yield method over the period to maturity.
Interest on investments in debt securities is included in income when
earned.
Student Loans Held for Sale
Student loans held for sale are carried at the lower of cost or fair value,
determined using an aggregate basis. Gains and losses resulting from sales of
student loans are recognized when the respective loans are sold to investors.
Gains and losses are determined by the difference between the selling price
and the carrying amount of the loans sold.
Loans
Loans 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.
Excess of Cost Over Fair Value of Purchased Subsidiary
The excess of purchase price over the net assets of First State Bank and
Trust Company at acquisition date is being amortized on a straight-line basis
over forty years.
Earnings Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
Earnings Per Share, in the period ended June 30, 1998, by reclassifying
earnings per share for all periods presented. This Statement replaces the
presentation of primary earnings per share with a presentation of basic
earnings per share. The Statement also requires dual presentation of basic and
diluted earnings per share by entities with complex capital structures and
requires a reconciliation of the numerators and denominators between the two
calculations.
F-8
<PAGE>
FIRST STATE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Earnings per share are based on the weighted average number of shares
outstanding during each period less the weighted average number of shares of
treasury stock. There were no common stock equivalents during any of the
periods. Weighted average shares outstanding were 91,148 and 91,008 for the
periods ended June 30, 1998 and 1997, and 91,008, 91,008 and 95,898 for the
years ended December 31, 1997, 1996 and 1995, respectively.
Allowance for Loan Losses
The allowance for loan losses is increased by provisions charged to
operating expenses and reduced by loans charged off, net of recoveries. The
allowance is maintained at a level considered adequate to provide for
potential loan losses, based on management's evaluation of the loan portfolio,
as well as on prevailing and anticipated economic conditions and historical
losses by loan category. General allowances have been established based upon
the aforementioned factors and allocated to the individual loan categories.
Allowances are accrued on specific loans evaluated for impairment for which
the basis of each loan, including accrued interest, exceeds the discounted
amount of expected future collections of interest and principal or,
alternatively, the fair value of loan collateral.
A loan is considered impaired when it is probable that the Bank will not
receive all amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more (nonaccrual loans) and
certain other loans identified by management. Loans which become 90 days or
more delinquent are reviewed by management and placed on nonaccrual status
when, in management's opinion, the collectibility of the recorded amount is in
doubt. Interest is recognized for nonaccrual loans only upon receipt, and only
after all principal amounts are current according to the terms of the
contract.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is charged to expense using the straight-line method over the
estimated useful lives of the assets.
Foreclosed Assets Held for Sale
Assets acquired by foreclosure or in settlement of debt and held for sale
are valued at fair value as of the date of foreclosure and a related valuation
allowance is provided for estimated costs to sell the assets. Management
estimates the value of foreclosed assets held for sale periodically and
increases the valuation allowance for any subsequent declines in estimated
fair value. Changes in the valuation allowance are charged or credited to
other operating expense.
Trust Department Assets
Property held by the Bank in a fiduciary or agency capacity for its
customers is not included in the balance sheet as such items are not assets of
the Bank.
Fee Income
Loan fees and costs are deferred and recognized over the life of the loan as
an adjustment of yield (interest income) using the interest method.
F-9
<PAGE>
FIRST STATE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
Deferred tax liabilities and assets are recognized for the tax effect of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax
assets if it is more likely than not that a deferred tax asset will not be
realized.
Advertising
The Company expenses advertising costs as they are incurred.
Impact of Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) recently adopted Statement
of Financial Accounting Standards (SFAS) No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 125 was
effective for transactions that occur after December 31, 1997, and imposes new
rules for determining when transfers of financial assets are accounted for as
sales versus when transfers are accounted for as borrowings. Management
believes that SFAS 125 does not have a material impact on the Company's
financial statements.
The FASB recently adopted SFAS 130, Reporting Comprehensive Income. This
Statement establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements. It does not
address issues of recognition or measurement. During the period ended June 30,
1998, the Company adopted the provisions of SFAS 130, by reclassification
adjustments of prior periods presented.
The FASB recently adopted SFAS 131, Disclosure about Segments of an
Enterprise and Related Information. This Statement establishes standards for
the way that public business enterprises report information about operating
segments. The Statement also establishes standards for related disclosures
about products and services, geographic areas and major customers. SFAS 131 is
effective for years beginning after December 15, 1997. SFAS 131, which the
Company will initially adopt for calendar year 1998, is not expected to have a
material impact on the Company's financial statements.
The FASB recently adopted SFAS 133, Accounting for Derivative Financial
Instruments and Hedging Activities. This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999, may be adopted early for periods beginning after issuance of the
Statement and may not be applied retroactively. The Company does not expect to
adopt SFAS 133 early. Management is currently unable to determine whether the
effects of adoption of SFAS 133 will have a material impact on the Company's
financial statements.
F-10
<PAGE>
FIRST STATE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: INVESTMENTS IN DEBT SECURITIES
The amortized cost and approximate fair value of available-for-sale
securities are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS (LOSSES) FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Government agencies... $21,795,914 $ 77,764 $ (25,672) $21,848,006
Mortgage-backed securities. 6,090,233 17,046 (13,581) 6,093,698
State and political
subdivisions.............. 10,150,324 262,903 (16,292) 10,396,935
----------- -------- --------- -----------
$38,036,471 $357,713 $ (55,545) $38,338,639
=========== ======== ========= ===========
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS (LOSSES) FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Government agencies... $23,325,952 $117,796 $ (13,791) $23,429,957
Mortgage-backed securities. 3,800,581 11,164 (8,950) 3,802,795
State and political
subdivisions.............. 9,151,647 290,365 (3,763) 9,438,249
----------- -------- --------- -----------
$36,278,180 $419,325 $ (26,504) $36,671,001
=========== ======== ========= ===========
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS (LOSSES) FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations.. $ 497,281 $ 0 $ (718) $ 496,563
U.S. Government agencies... 17,553,501 126,210 (82,919) 17,596,792
Mortgage-backed securities. 1,623,165 1,110 (24,985) 1,599,290
State and political
subdivisions.............. 9,524,792 259,386 (21,000) 9,763,178
----------- -------- --------- -----------
$29,198,739 $386,706 $(129,622) $29,455,823
=========== ======== ========= ===========
</TABLE>
Maturities of available-for-sale securities are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
----------------------- -----------------------
AMORTIZED APPROXIMATE AMORTIZED APPROXIMATE
COST FAIR VALUE COST FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
One year or less......... $ 2,318,882 $ 2,324,468 $ 5,018,613 $ 5,032,482
After one through five
years................... 15,628,568 15,729,686 12,744,555 12,876,311
After five through ten
years................... 11,883,628 12,058,141 13,170,400 13,350,599
After ten years.......... 2,115,160 2,132,646 1,544,031 1,608,814
Mortgage-backed
securities not due on a
single maturity date.... 6,090,233 6,093,698 3,800,581 3,802,795
----------- ----------- ----------- -----------
$38,036,471 $38,338,639 $36,278,180 $36,671,001
=========== =========== =========== ===========
</TABLE>
F-11
<PAGE>
FIRST STATE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Gross gains of $0, $2,600, $11,851 and $11,105 resulting from sales of
available-for-sale securities were realized for the six months ended June 30,
1998 and 1997 and the years ended December 31, 1997 and 1996, respectively.
Gross losses of $1,034 resulting from sales of available-for-sale securities
were realized for the year ended December 31, 1995.
The carrying value, which is also the market value, of securities pledged as
collateral to secure public and trust deposits and for other purposes amounted
to $15,895,246 at June 30, 1998 and $15,403,315 and $10,544,175 at December
31, 1997 and 1996, respectively.
At June 30, 1998 and December 31, 1997, available-for-sale securities with a
fair value of $12,051,246 and $11,829,000, respectively, were pledged as
collateral against Federal Home Loan Bank advances.
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Residential real estate.............. $32,043,613 $29,396,249 $27,546,008
Real estate construction............. 3,985,769 3,923,834 3,160,409
Commercial real estate............... 8,196,836 7,038,505 5,823,726
Commercial and agricultural.......... 8,567,166 8,405,280 6,673,201
Consumer and other................... 8,469,059 9,101,542 9,603,277
----------- ----------- -----------
Total loans...................... 61,262,443 57,865,410 52,806,621
----------- ----------- -----------
Less:
Unearned discount and fees......... 477 254 651
Undisbursed portion of construction
loans............................. 905,660 1,120,636 569,166
Allowance for loan losses.......... 719,973 644,913 586,849
----------- ----------- -----------
Net loans........................ $59,636,333 $56,099,607 $51,649,955
=========== =========== ===========
</TABLE>
At June 30, 1998 and December 31, 1997, mortgage loans totaling $33,881,000
and $18,610,000, respectively, were pledged as collateral against Federal Home
Loan Bank advances.
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, beginning of
period................. $644,913 $586,849 $586,849 $532,370 $542,540
Provision charged to
operating expenses..... 160,000 60,000 120,000 118,000 60,000
Loans charged off, net
of recoveries.......... (84,940) (29,077) (61,936) (63,521) (70,170)
-------- -------- -------- -------- --------
Balance, end of period.. $719,973 $617,772 $644,913 $586,849 $532,370
======== ======== ======== ======== ========
</TABLE>
F-12
<PAGE>
FIRST STATE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Impaired loans totaled approximately $1,193,000, $511,000 and $972,000 at
June 30, 1998, December 31, 1997 and 1996, respectively. An allowance for loan
losses of $199,000, $75,000 and $107,000 relates to these impaired loans at
June 30, 1998, December 31, 1997 and 1996, respectively.
Interest of approximately $60,000, $37,000, $39,000, $74,000, and $28,000
was recognized on average impaired loans of $852,000, $1,085,000, $742,000,
$635,000 and $334,000 for the six months ended June 30, 1998 and 1997 and the
years ended December 31, 1997, 1996 and 1995, respectively. Interest of
approximately $38,000, $33,000, $35,000, $49,000 and $25,000 was recognized on
impaired loans on a cash basis during the six months ended June 30, 1998 and
1997 and the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 4: PREMISES AND EQUIPMENT
Major classifications of premises and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Land.................................... $ 347,080 $ 347,080 $ 347,080
Building and improvements............... 1,790,568 1,790,568 1,636,389
Bank equipment.......................... 2,020,747 1,868,210 1,613,434
Construction in process................. -- 36,386 3,220
---------- ---------- ----------
4,158,395 4,042,244 3,600,123
Less accumulated depreciation........... 2,092,504 1,964,544 1,746,509
---------- ---------- ----------
$2,065,891 $2,077,700 $1,853,614
========== ========== ==========
</TABLE>
NOTE 5: TIME DEPOSITS
Interest bearing time deposits in denominations of $100,000 or more were
approximately $9,813,000, $7,897,000 and $8,797,000 on June 30, 1998, December
31, 1997 and 1996, respectively.
The scheduled maturities of certificates of deposits are as follows:
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, 31,
1998 1997
----------- -----------
<S> <C> <C>
One year or less................................. $20,207,894 $31,932,457
After one through two years...................... 16,049,952 5,801,001
After two through three years.................... 14,273,117 11,545,001
After three through four years................... 837,717 1,323,001
After four through five years.................... 1,038,371 401,001
After five years................................. 1,601,677 297,995
----------- -----------
$54,008,728 $51,300,456
=========== ===========
</TABLE>
F-13
<PAGE>
FIRST STATE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6: INCOME TAXES
The provision (credit) for income taxes consists of:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Taxes currently payable. $350,218 $298,080 $551,147 $446,197 $284,141
Deferred income taxes... (64,254) 1,628 (6,900) (11,430) 15,775
-------- -------- -------- -------- --------
$285,964 $299,708 $544,247 $434,767 $299,916
======== ======== ======== ======== ========
</TABLE>
The tax effects of temporary differences related to deferred taxes shown on
the balance sheets are:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses............. $ 190,621 $ 143,934 $ 124,266
Other................................. -- -- 3,870
--------- --------- ---------
190,621 143,934 128,136
--------- --------- ---------
Deferred tax liabilities:
Accumulated depreciation.............. (315,521) (331,131) (341,242)
Discount accretion.................... (10,949) (9,488) (7,986)
Available-for-sale securities......... (103,173) (133,996) (87,408)
Deferred loan fees.................... (19,449) (19,449) (19,449)
Other................................. (14,089) (17,507) --
--------- --------- ---------
(463,181) (511,571) (456,085)
--------- --------- ---------
Net deferred tax liability.............. $(272,560) $(367,637) $(327,949)
========= ========= =========
</TABLE>
A reconciliation of income tax expense at the statutory rate to the Company's
actual income tax expense is shown below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
------------------ -------------------------------
1998 1997 1997 1996 1995
-------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Computed at the
statutory rate (34%)... $322,280 $327,570 $ 612,888 $ 504,947 $ 403,465
Increase (decrease) in
taxes resulting from:
Tax-exempt municipal
interest............. (77,628) (73,688) (142,959) (163,612) (185,707)
Non-deductible
amortization......... 10,453 10,453 20,906 20,906 20,906
State privilege tax,
net of federal tax
benefits............. 31,758 41,856 84,071 70,827 56,909
Other, net............ (899) (6,483) (30,659) 1,699 4,343
-------- -------- --------- --------- ---------
Actual provision........ $285,964 $299,708 $ 544,247 $ 434,767 $ 299,916
======== ======== ========= ========= =========
</TABLE>
NOTE 7: NOTE PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------
1998 1997 1996
-------- -------- ----------
<S> <C> <C> <C>
Note to a commercial bank, interest at corporate
base rate adjusted daily not to exceed 9.50%, due
February 17, 1999 and secured by 50 shares of
Bank Stock....................................... $431,065 $631,065 $1,181,065
======== ======== ==========
</TABLE>
F-14
<PAGE>
FIRST STATE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8: REGULATORY MATTERS
The Bank is 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 and 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
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets (as
defined). Management believes that, as of June 30, 1998 and December 31, 1997,
the Bank meets all capital adequacy requirements to which it is subject.
As of June 30, 1998 and December 31, 1997, the most recent notification from
the Federal Deposit Insurance Corporation 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 Bank's category.
The Bank's actual capital amounts and ratios are also presented in the
table.
<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>
As of June 30, 1998:
Total Risk-Based $9,873,000 17.64% $4,477,000 >8.0% $5,597,000 >10.0%
Capital..............
(to Risk-Weighted
Assets)
Tier I Capital........ $9,153,000 16.35% $2,239,000 >4.0% $3,358,000 > 6.0%
(to Risk-Weighted
Assets)
Tier I Capital........ $9,153,000 8.28% $4,420,000 >4.0% $5,525,000 > 5.0%
(to Average Assets)
As of December 31, 1997:
Total Risk-Based $9,750,000 18.13% $4,302,000 >8.0% $5,378,000 >10.0%
Capital..............
(to Risk-Weighted
Assets)
Tier I Capital........ $9,106,000 16.90% $2,151,000 >4.0% $3,227,000 > 6.0%
(to Risk-Weighted
Assets)
Tier I Capital........ $9,106,000 8.90% $4,098,000 >4.0% $5,122,000 > 5.0%
(to Average Assets)
As of December 31, 1996:
Total Risk-Based $9,095,000 18.43% $3,947,000 >8.0% $4,934,000 >10.0%
Capital..............
(to Risk-Weighted
Assets)
Tier I Capital........ $8,508,000 17.20% $1,974,000 >4.0% $2,960,000 > 6.0%
(to Risk-Weighted
Assets)
Tier I Capital........ $8,508,000 9.20% $3,710,000 >4.0% $4,638,000 > 5.0%
(to Average Assets)
</TABLE>
The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior
F-15
<PAGE>
FIRST STATE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
regulatory approval. At June 30, 1998 and December 31, 1997, approximately
$5,114,000 and $5,065,000, respectively, of stockholders' equity was available
for dividend declaration without prior regulatory approval.
NOTE 9: TRANSACTIONS WITH RELATED PARTIES
As of June 30, 1998 and December 31, 1997 and 1996, the Bank had loans
outstanding to employees, officers, directors, principal stockholders and
companies with which the Bank's officers or directors are affiliated. Loans
outstanding to these individuals are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31,
JUNE 30, ----------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of the period..... $1,320,895 $1,583,772 $1,763,989
New loans, including existing loans
outstanding to new directors........ 1,135,856 313,592 785,991
Repayments........................... (306,235) (576,469) (966,208)
---------- ---------- ----------
Balance, end of the period........... $2,150,516 $1,320,895 $1,583,772
========== ========== ==========
</TABLE>
In management's opinion, such loans and other extensions of credit and
deposits were made in the ordinary course of business and were made on
substantially the same terms (including interest rates and collateral) as
those prevailing at the time for comparable transactions with other persons.
Further, in management's opinion, these loans did not involve more than normal
risk of collectibility or present other unfavorable features.
NOTE 10: PROFIT-SHARING PLAN
Substantially all full-time employees of the Bank are covered by a defined
contribution profit-sharing plan. Contributions to the plan are made at the
discretion of the Board of Directors. Amounts charged to expense were $26,949,
$24,965, $49,256, $54,911 and $50,301 for the six months ended June 30, 1998
and 1997, and the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 11. ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 DECEMBER 31,
--------------------- --------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Non-Cash Investing and
Financing Activities:
Sale and financing of
foreclosed assets.... $ 4,200 $ 9,500 $ 68,597 $ 37,900 $ 50,835
Real estate and
repossessed assets
acquired in
settlement of loans.. $ 28,114 $ 14,317 $ 132,389 $ 63,041 $ 150,195
Additional Cash Payment
Information:
Interest paid......... $2,156,410 $1,824,539 $3,568,204 $3,356,540 $3,120,335
Income taxes paid..... $ 538,514 $ 295,284 $ 574,213 $ 253,213 $ 305,734
</TABLE>
F-16
<PAGE>
FIRST STATE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12: FEDERAL HOME LOAN BANK STOCK
The Bank is a member of the Federal Home Loan Bank (FHLB) system. As a
member of this system, the Bank is required to maintain an investment in
capital stock of the FHLB in an amount equal to the greater of 1% of its
outstanding mortgage loans or .3% of its total assets. No ready market exists
for such stock and it has no quoted market value. The Bank held 3,367, 3,182
and 2,975 shares with a book value of $336,700, $318,200 and $297,500 at June
30, 1998, December 31, 1997 and 1996, respectively. FHLB stock is included in
other assets on the balance sheets. At June 30, 1998 and December 31, 1997,
all shares were pledged as collateral against FHLB advances.
NOTE 13: COMMITMENTS AND CREDIT RISK
Letters of credit are conditional commitments issued to guarantee the
performance of a customer to a third party. Those guarantees are primarily
issued to support public and private borrowing arrangements. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
Total outstanding letters of credit amounted to approximately $103,000,
$92,000 and $286,000 at June 30, 1998, December 31, 1997 and 1996,
respectively, with terms ranging from one to five years.
Lines of credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Lines of credit
generally have fixed expiration dates. Since a portion of the line may expire
without being drawn upon, the total unused lines do not necessarily represent
future cash requirements. Each customer's creditworthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed necessary,
upon extension of credit is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts receivable,
inventory, property and equipment, commercial real estate and residential real
estate. The same credit policies are used in granting lines of credit as those
for on-balance-sheet instruments.
At June 30, 1998 and December 31, 1997 and 1996, the Bank had granted unused
lines of credit to borrowers aggregating approximately $3,530,000, $3,019,000
and $1,607,000, respectively, for commercial lines and $2,149,000, $1,448,000
and $1,319,000, respectively, for open-end consumer lines.
Loan aggregating approximately $7,127,000 and $6,928,000 or 12% of the
portfolio at June 30, 1998 and December 31, 1997 are collateralized by
residential rental real estate.
NOTE 14: SIGNIFICANT ESTIMATES
Generally accepted accounting principles require disclosure of certain
significant estimates. Estimates related to the allowance for loan losses are
reflected in the footnote regarding loans (Note 3). Current vulnerabilities
due to certain concentrations of credit risk are discussed in the footnote on
commitments and credit risk (Note 13).
NOTE 15: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and Cash Equivalents
For these short-term instruments, the carrying amount approximates fair
value.
F-17
<PAGE>
FIRST STATE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Available-For-Sale Securities
Fair values for available-for-sale securities, which also are the amounts
recognized in the balance sheets, equal quoted market prices, if available. If
quoted market prices are not available, fair values are estimates based on
quoted market prices of similar securities.
Other Investments
For these short-term instruments, the carrying value approximates fair
value.
Student Loans Held for Sale
For these variable rate loans, the carrying amount approximates fair value.
Loans and Interest Receivable
The fair value 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. Loans with
similar characteristics were aggregated for purposes of the calculations. The
carrying amount of accrued interest approximates its fair value.
Deposits and Interest Payable
The fair value of demand deposits, savings accounts, NOW accounts, and
certain money market deposits is the amount payable on demand at the reporting
date (i.e., their carrying amount). The fair value of fixed-maturity time
deposits is estimated using a discounted cash flow calculation that applies
the rates currently offered for deposits of similar remaining maturities. The
carrying amount of accrued interest payable approximates its fair value.
Federal Funds Purchased
The fair value of federal funds purchased approximates their carrying value.
Federal Home Loan Bank Advances
Fair values for Federal Home Loan Bank advances are estimated using a
discounted cash flow calculation that applies the rates currently offered for
short-term borrowings of similar remaining maturities.
Note Payable
The fair value of this variable rate note payable approximates its carrying
value.
Commitments to Extend Credit, Letters of Credit and Lines 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 counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
letters of credit and lines of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate or otherwise settle
the obligations with the counterparties at the reporting date.
F-18
<PAGE>
FIRST STATE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents estimated fair values of the Company's
financial instruments. The fair values of certain of these instruments were
calculated by discounting expected cash flows, which method involves
significant judgments by management and uncertainties. Fair value is the
estimated amount at which financial assets or liabilities could be exchanged
in a current transaction between willing parties, other than in a forced or
liquidation sale. Because no market exists for certain of these financial
instruments and because management does not intend to sell these financial
instruments, the Company does not know whether the fair values shown below
represent values at which the respective financial instruments could be sold
individually or in the aggregate.
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash
equivalents........... $ 4,276,291 $ 4,276,291 $ 4,747,185 $ 4,747,185
Available-for-sale
securities............ 38,338,639 38,338,639 36,671,001 36,671,001
Other investments...... 603,740 603,740 156,616 156,616
Student loans held for
sale.................. 3,165,377 3,165,377 3,500,591 3,500,591
Interest receivable.... 1,100,665 1,100,665 985,706 985,706
Loans, net of allowance
for loan losses....... 59,636,333 59,747,324 56,099,607 56,427,000
Financial liabilities:
Non-interest bearing
demand deposits....... 7,833,010 7,833,010 7,568,236 7,568,236
Interest bearing demand
deposits and savings
deposits.............. 31,230,097 31,230,097 32,692,587 32,692,587
Certificates of
deposit............... 54,008,728 54,115,105 51,300,456 51,306,000
Interest payable....... 618,554 618,554 741,199 741,199
Federal funds
purchased............. 4,000,000 4,000,000 1,900,000 1,900,000
Federal Home Loan Bank
advances.............. 2,101,430 2,100,691 648,572 650,000
Note payable........... 431,065 431,065 631,065 631,065
Unrecognized financial
instruments:
Letters of credit...... -- -- -- --
Lines of credit........ -- -- -- --
</TABLE>
NOTE 16: PARENT COMPANY INFORMATION
The financial statements of First State Bancorp, Inc. (Parent) reflect its
investment in First State Bank and Trust Company (Bank) and its equity in the
Bank's distributed and undistributed net assets. The Parent has no other
significant assets, liabilities or operating activities. At June 30, 1998 and
December 31, 1997 and 1996, the equity in undistributed earnings of the Bank
was $9,352,349, $9,364,713 and $8,677,735, respectively. The Bank distributed
dividends to the Parent of $670,000, $382,500, $782,501, $427,752 and $705,500
during the six
F-19
<PAGE>
FIRST STATE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
months ended June 30, 1998 and 1997 and the years ended December 31, 1997,
1996 and 1995, respectively. The Bank may distribute dividends without
regulatory approval from undistributed earnings, subject to maintenance of
minimum capital requirements.
NOTE 17: MERGER AGREEMENT
On May 19, 1998 management of the Company, as authorized by the Board of
Directors, signed a merger agreement with Gold Banc Corporation, Inc., a
Kansas based multi-bank holding company with approximately $550 million in
total assets. The agreement formulates a transaction whereby all of the
outstanding stock of First State Bancorp, Inc. would be exchanged for shares
of Gold Banc Corporation, Inc. The merger is subject to regulatory and
stockholder approval and, if approved, is anticipated to occur in the fourth
quarter of 1998.
F-20
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") dated as of the
19th day of May 1998, is made by and among GOLD BANC CORPORATION, INC., a
Kansas corporation ("Gold"), GOLD BANC ACQUISITION CORPORATION VII, INC., a
Kansas corporation ("Sub") and FIRST STATE BANCORP, 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") occurring not less than two (2) and not more than
five (5) business days before the Effective Time and not later than forty-five
(45) days following the satisfaction or waiver, to the extent permitted
hereunder, of the last 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), or on such other date and at such other
place and time as the parties hereto may mutually agree.
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
A-1
<PAGE>
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 former
Board of Directors and officers of the Company shall, and will be authorized
to, execute and deliver in the name and on behalf of the Company 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. At the Effective Time, 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, 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 share of common stock, $10.00 par value per share of the Company
("Company Common Stock"), that is either authorized but unissued or held in
the treasury of the Company, if any, or held by the Company or any
subsidiary of the Company other than as trustee, fiduciary, nominee or some
similar capacity 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, of which Ninety-One
Thousand One Hundred Forty-Eight (91,148) are issued and outstanding (but
excepting Company Dissenting Shares as defined below) shall be converted
into 19.6082 shares (the "Exchange Ratio") of common stock, $1.00 par value
per share of Gold ("Gold Common Stock") with fractions of shares rounded to
the nearest 1/1000th of a share. The Exchange Ratio set forth in this
Section 2.2(b) has been calculated after giving effect to the 100% stock
dividend referenced in Section 3.6 hereinafter.
2.3 Exchange of Certificates.
(a) Gold, on behalf of Sub, shall make available to Exchange National Bank
and/or to Advest, Inc., which are hereby designated as exchange agents (the
"Exchange Agents"), 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 Agents, 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.
The Gold Common Stock into which the Company Common Stock is being converted
in accordance with Section 2.2(b) hereof may be delivered to a brokerage
account established at Advest, Inc. for each shareholder of the Company;
provided, however, that definitive stock certificates for shares of Gold
Common Stock will be issued by the Exchange Agents and delivered to each
Company shareholder that requests such certificates.
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 of the closing sales price of Gold Common
Stock as reported by the National Association of Securities Dealers Automated
Quotation National Marketing System on each of the ten consecutive trading
days immediately preceding the third trading day prior to the Effective Time
(the "Gold Stock 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 to the Exchange Agent their certificates
representing Company Common Stock. 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 and in accordance with Section 10.1 hereof. 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 of Company Common Stock held by
a person who objects to the Merger, whose shares of Company Common Stock 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 of
Company Common Stock 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 Sub or the Company 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 Adjustments. If at any time during the period between the date hereof
and the Effective Time, any change in the outstanding shares of Gold Common
Stock is effected by reason of any reclassification,
A-3
<PAGE>
recapitalization, stock split or combination, exchange or readjustment of
shares, or any stock dividend thereon with a record date during such period,
the Exchange Ratio shall be adjusted on a pro rata basis.
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 to the Company
and the Shareholders of the Company 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 Holding 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, delivery and performance of this Agreement, and the
consummation by Gold 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 against Gold 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 No Gold Shareholder Approval. The shareholders of Gold are not required
by law, the Articles of Incorporation or Bylaws of Gold, or any NASD rule or
regulation 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 of
Gold 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 creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the properties or assets of Gold or any subsidiary 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 or any subsidiary of Gold is a party, or to which any
of their respective properties or assets may be bound or affected.
3.5 Consents. Except for approvals of the appropriate regulatory agencies
and such filings and registrations as are required under federal and state
securities and Blue Sky laws, 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.
A-4
<PAGE>
3.6 Capital Stock of Gold. Gold has authorized capital stock consisting of
(a) 25,000,000 shares of common stock, $1.00 par value ("Gold Common Stock"),
of which 5,352,196 shares were issued and outstanding on March 31, 1998,
subject, however, to a 100% stock dividend for shareholders of record as of
May 6, 1998 with such stock split payable on May 18, 1998, (b) $28.75 Million
of 8.75% Junior Subordinated Deferrable Interest Debentures and (c) 25,000,000
shares of preferred stock, none of which are 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, 1997, the consolidated statement of earnings for the year ended
December 31, 1997, 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, together with the financial statements of Gold dated as
of March 31, 1998 and for the period then ending, have been prepared in
accordance with generally accepted accounting principles and practices which
were applied on a consistent basis, and present fairly in all material
respects the financial position, results of operation and changes of financial
position of Gold as of their respective dates and for the periods indicated.
From March 31, 1998 until the date hereof, there has been no material adverse
change in the financial condition, properties, assets, liabilities, business
or prospects of Gold.
3.9 SEC Reports. Gold's Report on Form 10-K for year ended December 31,
1997, 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-K, 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-K for the fiscal year ended December 31, 1997 and
unaudited financial statements for the quarter ended March 31, 1998.
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 any subsidiary
of Gold or the right to carry on or conduct their 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.
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3.12 Taxes. Gold and Sub have timely filed all federal, state and local 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 or any subsidiary
of Gold. 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 or any
subsidiary of Gold.
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. Gold will ensure that 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 10.1) 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, and (b) the Proxy Statement (as defined in
Section 10.1) will, at the date of mailing to stockholders and at the time of
the meetings of stockholders to be held in connection with the Merger, contain
any untrue statement of a material fact or omit to have stated a 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 Company.
3.15 Absence of Adverse Agreements. Neither Gold nor Sub nor any subsidiary
of Gold 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 or any subsidiary of Gold, 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 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
Holding 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.
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(b) Company has one subsidiary: First State Bank & Trust Company, Pittsburg,
Kansas ("Bank"), which is a Kansas banking corporation duly organized, validly
existing and in good standing under the laws of the State of Kansas, with the
corporate power and authority to carry on its business as it is now being
conducted. Bank is duly qualified to do business in each jurisdiction in which
the conduct of its 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 and/or Bank.
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 their fiduciary duties. The
approval of the majority of the outstanding shares of Company Common Stock
entitled to vote with respect to such matter is required for approval of this
Agreement and to consummate the transactions contemplated hereby. No approval
of a number of outstanding shares of Company greater than that required by the
relevant statutory provisions is required for approval of this Agreement and
the consummation of the transactions contemplated hereby.
4.4 No Violations. Except for the approvals of the appropriate regulatory
agencies and such filings and registrations as are required under federal and
state securities and Blue Sky laws, 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 or Bank or to which Company or Bank (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 or Bank 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
creation of any lien, pledge, security interest, charge or other encumbrance
upon any of the properties or assets of Company or Bank 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 or Bank is a party, or to which any of their respective properties or
assets may be bound or affected.
4.5 Consents. Except for the approvals of the appropriate regulatory
agencies and such filings and registrations as are required under federal and
state securities and Blue Sky laws, 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
100,000 shares of common stock, par value $10.00 per share, of which 91,148
shares are issued and outstanding, and 860 shares held as treasury stock. 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
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of Company Common Stock. The authorized capital stock of Bank consists of
100,000 shares of common stock, $10.00 par value per share ("Bank Stock"), of
which 100,000 shares have been duly and validly issued, are fully paid, and,
are owned directly by Company. Such shares are free and clear of all liens,
encumbrances, equities or claims save and except for a pledge of such shares
to secure the obligation of the Company to NationsBank of Kansas, the
outstanding principal balance of which is $531,065.00 as of the date hereof
(the "Bank Stock Loan"). There are no outstanding warrants, options,
subscriptions, contracts, rights or other arrangements or commitments
obligating Company or Bank 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.
4.7 Government Regulation. Company and Bank 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
and Bank 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, 1998, December 31, 1997 and
December 31, 1996, the statements of earnings for the period ended March 31,
1998 and for the years ended December 31, 1997 and December 31, 1996, the
balance sheet and statement of earnings for the Bank as of March 31, 1998 and
for the period then ending, 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 (except for the absence of notes thereto) in accordance with
generally accepted accounting principles and practices which were applied on a
consistent basis, and present fairly in all material respects the financial
position, results of operation and changes of financial position of Company or
the Bank, as applicable, 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 March 31, 1998, or incurred since March 31, 1998, in
the ordinary course of business. From March 31, 1998 until the date hereof,
there has been no material adverse change in the financial condition,
properties, assets, liabilities, rights or business of Company or Bank, or in
the relationship of Company and Bank with respect to its employees, creditors,
suppliers, distributors, customers or others with whom it has business
relationships.
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 or Bank or the
right to carry on or conduct their respective businesses, nor are there to the
knowledge of Company any grounds therefor, which, if adversely determined,
would in the aggregate materially adversely affect the business, operations,
properties or financial condition of Company or Bank. 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. The
Company agrees to advise Gold and Sub if at any time between the date hereof
and the Effective Time, any legal proceeding as described in this paragraph is
initiated or, to the knowledge of Company, threatened.
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 and
Bank 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
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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 and Bank. The real and
personal properties and assets held under lease by Company and Bank 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
and Bank. 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 nor
Bank 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 and Bank have timely filed all tax returns required
to be filed by them, and the Company and Bank 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 or Bank any deficiency or claim for
additional taxes. Neither the Company nor Bank 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 on any assets (excluding OREO
properties) of the Company or Bank. Neither the Company nor Bank 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 or Bank, taken as a
whole, after the Effective Time. For purposes of this Agreement, "Material
Adverse Effect" with respect to the Company or Bank means an effect that: (1)
is materially adverse to the business, financial condition, results of
operations or prospects of the Company or Bank taken as a whole; (2)
significantly and adversely affects the ability of the Company or Bank 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 Company agrees to provide
assistance in the preparation of income tax returns for the Company and Bank
from the commencement of the current fiscal year through the Effective Time
with such returns to be completed within ninety (90) days after the Effective
Time.
4.13 Contracts. Neither Company nor Bank is party to or bound by any:
(a) employment contract;
(b) bonus, deferred compensation, savings, profit sharing, severance pay,
pension or retirement plan or arrangement, except for the Plans referenced
in Section 4.16 hereof;
(c) material lease or license with respect to any property, real or
personal, whether Company or Bank is landlord or tenant, licensor or
licensee, involving a liability or obligation of Company or Bank as obligor
in excess of $5,000 on an annual basis;
(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 or Bank; or
(f) 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 or Bank or which involve a
payment by Company or Bank of more than $5,000 on an annual basis.
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4.14 Regulatory Reports; Examinations. Company and Bank 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 and Bank,
no Governmental Entity has initiated any proceeding or, to the best knowledge
of Company, investigation into the business or operations of Company or Bank.
To the best knowledge of Company, there is no unresolved material violation,
criticism, or exception by any Governmental Entity with respect to any written
report or statement relating to any examinations of Company or Bank. Company
has made available to Gold all reports of examinations conducted by any
Governmental Entity with respect to Company and/or Bank, during the preceding
three (3) years. Company will also make available to Gold and Sub any
subsequent reports of examination received from any Government Entity between
the date hereof and the Effective Time.
4.15 Conduct. From March 31, 1998 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 or Bank or in the relationship of Company or Bank with
respect to their employees, creditors, suppliers, distributors, customers
or others with whom they have business relationships.
(b) The business affairs of Company and Bank have been conducted and
carried on only in their ordinary and regular course of business, and
Company and Bank 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 included on the Disclosure
Schedule and those incurred pursuant to commitments permitted hereby.
(c) Neither Company nor Bank 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.
4.16 Compliance with ERISA. Neither Company nor Bank has established,
maintained or contributed at any time 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 the Company Disclosure Schedule (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 date hereof. 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 date hereof) 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 4.16, noncompliance with the Code or ERISA
is material if such noncompliance could have a Material Adverse Effect on the
condition of one or more of the Plans or of Company or Bank, 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
date hereof have been made. To Company's knowledge, Company and Bank (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, as of the date hereof, other than for the payment of
benefits in the ordinary course.
4.17 Defaults. Neither Company nor Bank is in material breach or material
default known to Company under any agreement or commitment to which the
Company or Bank is a party, or under any loan agreement,
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note, security agreement, guarantee or other document pursuant to or in
connection with the Company's or Bank's extension of credit; and to Company's
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.
4.18 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 and Bank 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 valid and enforceable policies. To the best knowledge of Company, the
insurance policies to which Company or Bank are parties are sufficient for
compliance with all material requirements of law and all material agreements
to which Company or Bank are parties and will be maintained by Company and
Bank until the Effective Time. Neither Company nor Bank 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.
4.19 Absence of Adverse Agreements. Neither the Company nor Bank 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 is reasonably likely to result in a
Material Adverse Effect on the financial condition, results or operations,
assets, business or prospects of the Company or Bank, taken as a whole.
4.20 Internal Controls and Records. The Company and Bank 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 (b) recorded in conformity with generally accepted
accounting principles.
4.21 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 or Bank or banking regulators, except as reflected
on a list previously provided to Gold and Sub during the due diligence period;
(b) neither Company nor Bank 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 or Bank, 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 nor Bank 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 and
which violation is reasonably likely to result in a Material Adverse Effect on
the Company or the Bank.
4.22 Environmental Laws. To the best knowledge of the Company: (i) the
operations of Company and Bank comply in all material respects with all
applicable past and present federal, state and local environmental statutes
and regulations and neither the condition of any property owned by Company or
Bank nor the operation of the business of any of such entities violates in all
material respects any applicable federal, state or local environmental statute
or regulation; (ii) none of the operations of Company or Bank 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 or Bank may be liable; (iii) none of the
operations of nor any of the properties owned by Company or Bank 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; (iv) no condition or event
has occurred which, with notice or the passage of time or both, would
constitute a
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violation of any federal, state or local environmental law and at no time has
the Company or Bank stored or used any pollutants, contaminants or hazardous
or toxic waste, substances or materials on or at any location owned by Company
or Bank; (v) there are no underground storage tanks now or heretofore located
on any real property owned by Company or Bank; (vi) neither Company nor Bank
has ever been notified by either a federal, state or local governmental
authority, or any private party, that Company or Bank 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 and expense on or prior to 120 days following
the date hereof an environmental audit of all properties and assets of Company
and Bank 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 reflects the potential of a material
environmental problem with respect to any of the properties or assets of
Company or Bank, then Gold may deem the due diligence unsatisfactory and
terminate this Agreement under the terms of Section 9.1 hereinafter.
4.23 Broker's Fees. Neither Company nor Bank 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.
4.24 Labor Matters. (a) To the best knowledge of Company, Company and Bank
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 labor
practice complaint against Company or Bank 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 or Bank; (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 or Bank; and (e)
neither Company nor Bank is experiencing any material work stoppage.
4.25. 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.
4.26 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)
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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; (iii) maintain as valid and enforceable all policies of
insurance as referenced in Section 4.18 herein, (iv) provide updates to Gold
and Sub with respect to those loans reflected on the list previously provided
to Gold and Sub as referenced in Section 4.21 herein and (v) take no action
which would (a) materially adversely affect the ability of any party to obtain
any consents required for the transactions contemplated hereby, (b) 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 (c) 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 $100,000.00 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 or 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 or Bank 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 or Bank, 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 or Bank;
provided, however, that (i) each of the Bank and the Company may declare
and pay quarterly cash dividends, in an amount equal to $1.00 per share,
consistent with past practices (with such dividends payable during the
first month following the end of each calendar quarter between the date
hereof and the Closing Date such that the dividends referenced in this
clause (i) are payable in the month of July for the quarter ending June 30,
1998, and in the month of October for the quarter ending September 30,
1998; provided, however, that if the Closing Date occurs on or before
September 30, 1998, then the Company and the Bank, on or before the Closing
Date, may declare and pay a dividend equal to $1.00 per share reduced by
the amount of any cash dividends [on a per share basis] to be received by
the shareholders of the Company on shares of Gold Common Stock which they
will receive pursuant hereto if the Closing Date has occurred prior to the
record date of a dividend declared by Gold during the quarter ending
September 30, 1998), (ii) if the transactions contemplated hereby are not
consummated in time to permit the shareholders of the Company to receive
any cash dividends declared and payable on the Gold Common Stock after
September 30, 1998, with respect to the shares of Gold Common Stock which
they will receive pursuant hereto (the aggregate dollar amount of such
dividends is referred to herein as the "Gold Equivalent Dividend"), then
the Bank and the Company may declare and pay a cash dividend in an amount
equal to the Gold Equivalent Dividend and (iii) the Bank may declare and
pay cash dividends in amounts sufficient to pay reasonable out-of-pocket
fees and expenses incurred by the Company (including, without limitation,
fees and expenses payable pursuant to Section 11.1
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hereof) in connection with the consummation of the transactions
contemplated hereby (the amounts referred to in (i), (ii) and (iii) herein
are collectively referred to herein as "Permitted Dividends").
(f) amend the Articles of Incorporation or By-Laws of either of the
Company or Bank or make any change in the authorized, issued or outstanding
capital stock (or any change in the par value thereof) of Company or Bank;
(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 or Bank, 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 in effect on the date hereof, except
as required by changes in generally accepted accounting principles ("GAAP")
or regulatory accounting principles as concurred with by the Company's
independent accountants;
(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 or properties;
(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 or Bank is a
party or by which the Company or Bank or their respective properties is
bound; or
(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
or Bank without giving Gold three days' notice in advance of the Company's
or Bank'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, Gold and its authorized representatives shall be permitted
full access during regular business hours to all properties, books, records,
contracts and documents of Company and Bank. The Company shall furnish to Gold
and its authorized representative all information with respect to the affairs
of Company and Bank as Gold may reasonably request.
5.4 Financial Statements and Call Reports. From and after the date hereof
through the Closing Date, Company shall deliver to Gold monthly reports of
condition and income statements of Bank 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 and Bank shall allow a representative
of Gold to attend as an observer all meetings of the Board of Directors of
Company and Bank 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 or Bank officials at which policy is being made.
Company and Bank shall give reasonable notice to Gold of any such meeting and,
if known, the agenda for or business to be discussed at such meeting.
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Company and Bank 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
or Bank.
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. Gold shall
provide such assistance and consultation as Company may reasonably require in
such planning process.
5.7 No Solicitation. Neither Company nor Bank nor any affiliates or
associates of Company nor Bank acting for or on behalf of Company or Bank
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 or Bank, (ii) outside
the ordinary course of business, sale of a significant amount of assets of the
Company or Bank, (iii) purchase or sale of shares of capital stock of the
Company or Bank, or (iv) any similar transactions involving Company or Bank,
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 as a tax free "reorganization" within the
meaning of Section 368(a) of the Code (subject to required recognition of gain
or loss with respect to cash paid pursuant hereto or to any holder of Company
Common Stock who dissents from the merger).
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 exercise best efforts to file applications relating to such approvals
within thirty (30) days from the date hereof or as soon thereafter as is
reasonably possible. 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.
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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 TaxFree 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 as a tax free
"reorganization" within the meaning of Section 368(a) of the Code.
6.4 Employee Benefits. Employees of Company or Bank 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 and Bank 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 an executive officer
of the 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 or Bank,
threatened against or affecting the properties, assets, rights or business of
Company or Bank or the right to carry on or conduct their respective
businesses; (ii) any debt, liability or obligation of Company or Bank known to
either (whether accrued, contingent, absolute or otherwise) required to be
reflected in a corporate balance 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 or Bank known to either 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, any of
which would have a Material Adverse Effect on the Company or Bank.
7.3 Adverse Changes. From the date hereof to the Closing Date, there 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 or Bank, 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.
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.
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7.6 Financial Measures. On the Closing Date, the capital of Bank shall be
not less than $9,435,005.00, the reserve for loan and lease loss of Bank shall
be not less than $671,555.00 and the total indebtedness of the Company shall
not exceed $531,065.00, all as determined on the basis of the March 31, 1998
financial statements of the Bank delivered to Gold. Subject to Section 5.2(e)
hereof, it is fully understood all future earnings from the date hereof
forward 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 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 ByLaws of Company.
7.8 Tax Representations. Each shareholder of Company owning more than 10% of
the outstanding Company Common 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 and Bank at the time this Agreement is submitted to
approval of the stockholders of the Company and Bank shall deliver to Gold a
letter in substantially the form set forth in Exhibit 7.9.
7.10 Satisfactory Due Diligence. Representatives of Company and Bank 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, stating that the
Merger will be treated as a tax-free reorganization within the meaning of
Section 368(a)(1)(C) of the Code, subject to required recognition of gain or
loss with respect to cash paid to holders of Company Common Stock who dissent
from the Merger.
7.12 Opinion of Counsel. Gold shall have received an opinion of Stinson, Mag
& Fizzell, P.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 any cash
consideration paid by Gold hereunder and absence of any capital transactions
involving any parties hereto) have been met.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATION OF COMPANY AND BANK
The obligations of Company 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 may waive
in writing:
8.1 Representations, Warranties and Covenants. All representations and
warranties of Gold and Sub 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, and Company shall have received a certificate signed by an executive
officer of Gold, dated the Closing Date, to the foregoing effect.
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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 shall have duly
approved and adopted this Agreement, the Merger and the transactions
contemplated hereby to the extent required by applicable requirements of law
and the Articles of Incorporation and ByLaws of the Company and Bank.
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.
8.6 Federal Tax Opinion. The Company shall have received, at Gold's expense,
an opinion of Gold's Counsel, addressed to the Company and its shareholders in
form and substance reasonably satisfactory to the Company and Company's
Counsel, dated the Closing Date, to the effect that the Merger will be a tax-
free reorganization under Section 368(a)(1)(C) of the Code and no gain or loss
will be recognized by the shareholders of the Company, except for recognition
of gain or loss with respect to cash paid to holders of Company Common Stock
who dissent from the Merger.
8.7 Opinion of Counsel. Company shall have received, at Gold's expense, an
opinion of Gold's Counsel, dated the Closing Date, in form and substance
reasonably satisfactory to Company, covering the matters set out in Exhibit
8.7 hereto.
8.8 Cash Dividend. The Board of Directors of the Company shall have declared
and the Company shall have paid the Permitted Dividends on Company Common
Stock authorized by Section 5.2(e) hereof.
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 nonbreaching 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 December 31, 1998, unless Gold and
Company agree in writing to extend such deadline; provided that the
terminating party is not then in material breach of this Agreement. 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.
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In the event Gold and Sub have performed all of their obligations hereunder
and all conditions precedent to the obligation of Company to close have been
met or waived in writing by Company, 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.
In the event Company has performed all of its obligations hereunder and all
conditions precedent to the obligations of Gold and Sub to close have been met
or waived in writing by Gold and Sub, but Gold and Sub fail or otherwise
refuse to close, then Company shall be entitled to enforce the terms hereof by
an action seeking specific performance. Such right is not exclusive and shall
not preclude Company from also pursuing an action to recover any and all
damages resulting from the default by Gold and Sub hereunder. All remedies
available to Company 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. The Company agrees 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, 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.
9.6 Indemnification by Gold. Gold agrees to indemnify, defend and hold
harmless Company and the Bank, and the shareholders, directors, officers,
employees, agents and representatives 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 Company (whether as a result of third party
claims, 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.
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, (ii) unless the total aggregate claims
for indemnification have exceeded $50,000.00 and (iii) to the extent that the
aggregate amount of all indemnification liability under Section 9.5 or Section
9.6, as applicable, exceeds the total value of consideration provided (as of
the Closing Date) by Gold and Sub under Section 2.2 in exchange for Company
Common Stock.
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,
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claim, liability, assessment or notice of deficiency received by such party
which might result in any liability under this provision. 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. 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 MATTERS
10.1 Registration Statement and Proxy Statement. Gold shall, at Gold's
expense (but subject to the terms of Section 11.1 hereinafter) 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, 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, 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 or Bank to which Company shall
reasonably and timely object in writing. Gold, Sub and Company 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
shall distribute the Proxy Statement to its 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 its stockholders for voting thereon. If
necessary, in light of developments occurring subsequent to the distribution
of the Proxy Statement, Company shall mail or otherwise furnish to its
shareholders such amendments to the Proxy Statement or supplements to the
Proxy Statement as may, in the reasonable opinion of Gold, Sub or Company, 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 two 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
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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 8K 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 10K or quarterly report on Form 10Q.
10.4 Affiliates. Certificates representing shares of Gold Common Stock
issued to "Affiliates" (as defined in Rules 145 and 405 adopted under the
Securities Act) of Company pursuant to this Agreement will be subject to stop
transfer orders (as reasonably required in connection with Rule 145) and will
bear a restrictive legend set out in the Affiliate Letter; provided, however,
that following publication of financial results covering at least thirty (30)
days of combined operations of Gold and the Company and upon receipt of an
opinion of counsel reasonably satisfactory to Gold that a proposed sale,
pledge, transfer or other disposition of a specified number of shares of Gold
Common Stock by an Affiliate will comply with or will be exempt from the
Securities Act, Gold shall, as promptly as practicable after receipt of the
stock certificates representing such Affiliate's Gold Common Stock (and in any
event within seven (7) business days after such receipt), direct the Transfer
Agent for the Gold Common Stock to remove the stock transfer order related
thereto and reissue a stock certificate evidencing such shares to the
Affiliate with such restrictive legend.
10.5 Indemnification. Gold agrees to indemnify and hold harmless Company and
its shareholders, directors, officers, employees, representatives and agents
from and against any and all claims, liabilities, damages and expenses
(including reasonable attorneys' fees), whether arising under federal or state
securities or Blue Sky laws or otherwise, which may be asserted against any of
them and which arise as a result of any alleged act or failure to act, or any
alleged statement or omission, of Gold done or made in connection with the
Merger, Registration Statement, Proxy Statement, or any other statement or
form filed or required to be filed with the SEC or any state securities
department or delivered or required to be delivered to the holders of Company
Common Stock except to the extent any such alleged act, failure to act,
statement or omission is a result of information provided by the Company.
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 their own legal and accounting fees and any
related costs or charges associated with the negotiation, execution and
consummation of this Agreement. However, notwithstanding anything herein
contained to the contrary, it is understood and agreed that the Company shall
pay up to an aggregate of $50,000.00 of the total cost of (i) the certified
audit of the consolidated balance sheet of the Company as of December 31, 1997
(if required) 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.
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
A-21
<PAGE>
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:
First State Bancorp, Inc.
5th and Broadway
Pittsburg, KS 66762
Telephone: (316) 231-2000
FAX: (316) 231-3974
with a copy to:
Mr. William R. Hagman, Jr.
224 Via Napoli
Naples, FL 34105
Telephone: (941) 234-6030
FAX: (941) 261-3568
and:
Michael W. Lochmann
Stinson, Mag & Fizzell, P.C.
1201 Walnut Street
Suite 2800
Kansas City, MO 64106
Telephone: (816) 842-8600
FAX: (816) 691-3495
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.
A-22
<PAGE>
11.7 Special Provision Regarding Disclosure Schedules. The parties hereto
acknowledge and agree that neither side has had time to prepare completed and
comprehensive drafts of the Company Disclosure Schedule or the Gold Disclosure
Schedule, but desire to proceed with the execution, delivery and announcement
of this Agreement. Therefore, the parties hereto covenant and agree that
within twenty-one (21) days after the date hereof, the Company will prepare
and deliver to Gold the Company Disclosure Schedule, and Gold will prepare and
deliver to Company the Gold Disclosure Schedule, each of which shall be deemed
to have been given on and prepared as of the date hereof. If for any reason,
Gold, in the exercise of its reasonable discretion, determines that the
Company Disclosure Schedule discloses a Material Adverse Change in the Company
of which Gold was not previously aware, or Company, in the exercise of its
reasonable discretion, determines that the Gold Disclosure Schedule discloses
a Material Adverse Change in Gold of which Company was not previously aware,
then notwithstanding any other provision of this Agreement, either Gold or
Company may immediately terminate this Agreement within seven (7) days after
receipt of such schedule, without any further liability to the other party
hereto. The provisions of this Section 11.7 shall supersede all other
provisions of this Agreement.
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
- -------------------------------------
Name: Keith E. Bouchey
Title: Secretary
Gold Banc Acquisition Corporation
VII, Inc.
/s/ Michael W. Gullion
By __________________________________
Name: Michael W. Gullion
Title: President and Chief
Executive Officer
Attest:
/s/ Keith E. Bouchey
- -------------------------------------
Name: Keith E. Bouchey
Title: Secretary
First State Bancorp, Inc.
/s/ Jack H. Overman
By __________________________________
Name: Jack H. Overman
Title: Vice President
A-23
<PAGE>
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 designated as a national
market system security on an interdealer quotation system by the national
association of securities dealers, inc., 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 of 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 19th day of May,
1998, among the Registrant, Sub and First State Bancorp (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 Bylaws of the Company*
4 Form of Common Stock Certificate*
5 Opinion of Blackwell Sanders Peper Martin LLP
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,
William F. Wright and Allen D. Petersen dated as of September 15,
1996*
9(c) Accession of The Lifeboat Foundation to the Proxy
Agreement/Stockholder Agreement among Michael W. Gullion, William
F. Wright, and Allen D. Petersen, dated May 28, 1997.***
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
Company Subsidiaries*
10(e) Form of Federal Home Loan Bank Credit Agreement to which each of
the Company's banking subsidiaries is a party*
10(f) Form of Junior Subordinated Indenture dated as of December 15,
1997 between the Company and Banker's Trust Company as
Trustee.***
10(g) Form of Trust Agreement dated as of December 15, 1997 between the
Company and Banker's Trust (Delaware) as Trustee.***
10(h) Form of Amended and Restated Trust Agreement among the Company,
Banker's Trust Company, as Property Trustee, Banker's Trust
(Delaware), as Delaware Trustee and various holders of Trust
Securities.***
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
10(i) Form of Guaranty Agreement between the Company, as Guarantor, and
Banker's Trust Company, as Trustee, dated as of December 15,
1997.***
21 List of Subsidiaries of the Company
23(a) Consent of KPMG Peat Marwick LLP.
23(b) Consent of Baird, Kurtz & Dobson.
23(c) Consent of Blackwell Sanders Peper Martin LLP (included in
Exhibit 5).
24 Powers of Attorney (included in signature page to Registration
Statement).
99(a) Form of Proxy of First State Bancorp, Inc.
</TABLE>
- --------
*Previously filed as an Exhibit to the Company's Registration Statement on
Form SB-2 No. 333-12377 and the same is incorporated herein by reference.
**Previously filed as an Exhibit to the Company's Registration Statement on
Form S-4 No. 333-28563 and the same is incorporated herein by reference.
***Previously filed as an Exhibit to the Company's Registration Statement on
Form SB-2 No. 333-39849 and the same is incorporated herein by reference.
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
II-2
<PAGE>
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-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF LEAWOOD, KANSAS ON
AUGUST 26, 1998.
GOLD BANC CORPORATION, INC.
(Registrant)
/s/ Michael W. Gullion
By___________________________________
Michael W. Gullion
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, THAT WE, THE UNDERSIGNED DIRECTORS OF GOLD
BANC CORPORATION, INC., HEREBY SEVERALLY CONSTITUTE MICHAEL W. GULLION AND
KEITH E. BOUCHEY, AND EACH OF THEM SINGLY, OUR TRUE AND LAWFUL ATTORNEYS WITH
FULL POWER TO THEM, AND EACH OF THEM SINGLY, TO SIGN FOR US AND IN OUR NAMES
IN THE CAPACITIES INDICATED BELOW, THE REGISTRATION STATEMENT FILED HEREWITH
AND ANY AND ALL AMENDMENTS TO SAID REGISTRATION STATEMENT, AND GENERALLY TO DO
ALL SUCH THINGS IN OUR NAMES AND IN OUR CAPACITIES AS DIRECTORS TO ENABLE GOLD
BANC CORPORATION, INC. TO COMPLY WITH THE PROVISIONS OF THE SECURITIES ACT OF
1933, AND ALL REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION, HEREBY
RATIFYING AND CONFIRMING OUR SIGNATURE AS THEY MAY BE SIGNED BY OUR SAID
ATTORNEYS, OR ANY OF THEM, TO SAID REGISTRATION STATEMENT AND ANY AND ALL
AMENDMENTS THERETO.
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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael W. Gullion Chairman of the Board, August 26, 1998
___________________________________ President and Chief
Michael W. Gullion Executive Officer
(Principal Executive
Officer)
/s/ Keith E. Bouchey Director, Executive Vice August 26, 1998
____________________________________ President, Chief Financial
Keith E. Bouchey Officer and Corporate
Secretary (Principal
Financial Officer)
/s/ Brian J. Ruisinger Treasurer and Controller August 26, 1998
____________________________________ (Principal Accounting
Brian J. Ruisinger Officer)
/s/ William Wallman Director August 26, 1998
____________________________________
William Wallman
/s/ D. Michael Browne Director August 26, 1998
____________________________________
D. Michael Browne
/s/ William F. Wright Director August 26, 1998
____________________________________
William F. Wright
/s/ Allen D. Petersen Director August 26, 1998
____________________________________
Allen D. Petersen
</TABLE>
II-4
<PAGE>
Exhibit 5
August 26, 1998
Gold Banc Corporation, Inc.
11301 Nall Avenue
Leawood, Kansas 66211
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 May 19, 1998 (the
"Agreement"), by and among the Company, Gold Banc Acquisition Corporation VII,
Inc. ("Sub") and First State Bancorp, Inc. ("First State Bancorp").
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, First State Bancorp will be merged with and into
Sub, with Sub being the surviving corporation (the "Merger"). In the Merger, the
outstanding shares of common stock, $10.00 par value of First State Bancorp,
other than any shares owned by the Company, Sub or First State Bancorp (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 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 Opinion" in the related Prospectus/Proxy Statement 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 Peper Martin LLP
<PAGE>
EXHIBIT 8
______ __, 1998
Gold Banc Acquisition Corporation, Inc.
11301 Nall
Leawood, KS 66211
Attn.: Mr. Michael W. Gullion, President
RE: Agreement with First State Bancorp, Inc.
Ladies and Gentlemen:
We have acted as counsel to Gold Banc Acquisition Corporation VII,
Inc. ("Gold Banc Acquisition VII") and to Gold Banc Corporation, Inc. ("Gold")
in connection with the acquisition by Gold Banc Acquisition VII of all of the
issued and outstanding shares of stock of First State Bancorp, Inc. ("First
State Bancorp") under and pursuant to that certain Agreement and Plan of
Reorganization dated May 19, 1998 (the "Agreement"). Pursuant to Section 7.11
of the Agreement, a condition precedent to the obligation of Gold and Gold Banc
Acquisition VII 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)(C) 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 proposed Certificate of Merger (the "Certificate of Merger") to be
executed by authorized representatives of Gold Banc Acquisition VII
and First State Bancorp.
iii Minutes of certain meetings of the Board of Directors of Gold, Gold
Banc Acquisition VII and First State Bancorp.
iv. Minutes of certain meetings of shareholders of Gold Banc Acquisition
VII and First State Bancorp.
v. Articles of Incorporation and Bylaws of Gold.
vi. Articles of Incorporation and Bylaws of Gold Banc Acquisition VII.
vii. Articles of Incorporation and Bylaws of First State Bancorp.
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 assumption:
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.
<PAGE>
4. Gold Banc Acquisition VII, as a result of the consummation of the
transaction described in the Agreement, will ultimately acquire
substantially all of the properties of First State Bancorp.
5. There is no consideration being provided by Gold Banc Acquisition VII
pursuant to the Agreement other than stock of Gold (subject to rights
of dissenting shareholders of First State Bancorp pursuant to K.S.A.
17-6712). No stock of Gold Banc Acquisition VII is being used as
consideration for this transaction. Gold Banc Acquisition VII is
assuming no liabilities of First State Bancorp except as set forth in
the Agreement.
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.
8. The shareholders of First State Bancorp 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 VII will continue First State Bancorp's
historic business or will use a significant portion of First State
Bancorp's historic business assets in continuing such business.
10. The primary motivation to Gold and Gold Banc Acquisition VII in
consummating this transaction is to acquire the business operations of
First State Bancorp and not to avoid income tax.
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 Sections 368(a)(1)(C) 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, nor does this opinion
address the issue of basis of any asset acquired by any party to the
transaction.
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.
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
2
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES OF THE COMPANY
Exchange National Bank
Citizens State Bank & Trust Co
Provident Bank f.s.b.
Peoples National Bank
Farmers National Bank (a subsidiary of Gold Banc Acquisition Corporation II,
Inc.)
First National Bank in Alma
Midwest Capital Management, Inc.
Gold Banc Financial Services, Inc. (a subsidiary of Exchange National Bank)
Citizens Investments, Inc. (a subsidiary of Citizens State Bank & Trust Co.)
Farmers State Bank, Sabetha
Gold Banc Acquisition Corporation II, Inc.
Farmers National Investments, Inc. (a subsidiary of Farmers National Bank)
FSB Financial Services, Inc. (a subsidiary of Farmers State Bank, Sabetha)
Tri-County National Bank (a subsidiary of Gold Banc Acquisition Corporation II,
Inc.)
Gold Banc Acquisition VI, Inc.
Peoples State Bank, Colby, Kansas
Gold Banc Acquisition VII, Inc.
<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, 1997,
1996 and 1995 included herein and to the reference to our firm under the heading
"Experts" in the Registration Statement filed for the planned merger with First
State Bancorp, Inc.
/s/ KPMG Peat Marwick LLP
Kansas City, Missouri
August 20, 1998
<PAGE>
Exhibit 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in the Registration Statement on Form S-4 of
Gold Banc Corporation, Inc. of our report dated February 6, 1998, except for
Note 17 as to which the date is May 19, 1998, with respect to First State
Bancorp, Inc.'s financial statements as of December 31, 1997 and 1996, and for
each of the years in the three-year period ended December 31, 1997. We also
consent to the reference to our firm under the heading "Experts" in the related
Prospectus.
/s/ Baird Kurtz & Dobson
Joplin, Missouri
August 26, 1998
<PAGE>
Exhibit 99(a)
PROXY/VOTING INSTRUCTION CARD [FRONT OF CARD]
FIRST STATE BANCORP, INC.
Common Stock
Proxy for Special Meeting of Stockholders to be held on __________, 1998
The undersigned hereby appoint _______________________ and ________________
and any one or more of them, with full power of substitution, as a proxy or
proxies to vote all shares of stock of the undersigned as specified below at the
special meeting of stockholders of First State Bancorp, Inc. to be held on
__________, 1998, and any adjournment or postponements thereof.
The Board of Directors Recommends a Vote FOR the Following Proposal:
Approval of the Agreement and Plan of Reorganization, among Gold Banc
Corporation, Inc., Gold Banc Acquisition Corporation VII, Inc. and First State
Bancorp, Inc.
FOR AGAINST
[_] [_]
Specify your choice by marking the appropriate box. If not otherwise specified,
this proxy will be voted for the approval of the Agreement and Plan of
Reorganization.
The named proxies may vote in their discretion upon such other business as
may properly come before the meeting, or any adjournments or postponements
thereof, including without limitation upon any proposal to postpone or adjourn
the Special Meeting.
, 1998
-----------------------------------------
SIGNATURE Date
, 1998
-----------------------------------------
TITLE (IF APPLICABLE) Date
, 1998
-----------------------------------------
SIGNATURE(S) IF HELD JOINTLY Date
, 1998
-----------------------------------------
SIGNATURE(S) IF HELD JOINTLY Date
Should any joint tenants be deceased please attach certified copy of the
death certificate or affidavit of death.
<PAGE>
[BACK OF CARD]
Please follow these steps to ensure that your proxy is properly executed and
returned in time to be counted:
1. Mark your vote for the proposal in one of the two boxes on the other side
of this card.
2. Please sign exactly as your name or names appear on your stock
certificate(s). Also enter the date. Joint owners should each sign
personally. When signing as attorney, executor, administrator, trustee or
guardian, or on behalf of a corporation or other entity, the full title as
such should be given.
3. Mail the completed card with signature in the enclosed reply envelope to:
First State Bancorp, Inc.
Attention: Corporate Secretary
5th and Broadway
Pittsburg, Kansas 66762
If you have any questions regarding completion of this proxy card, contact
_____________ at (316) 231-2000.
