As filed with the Securities and Exchange Commission on March 17, 1998
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
First Kansas Financial Corporation
----------------------------------
(Name of Small Business Issuer in Its Charter)
Kansas 6035 48-1198888
- --------------------------------- ----------------- -------------------
(State or Other Jurisdiction (Primary SIC No.) (I.R.S. Employer
of Incorporation or Organization) Identification No.)
600 Main Street, Osawatomie, Kansas 66064
(913) 755-3033
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(Address and Telephone Number of Principal Executive Offices and
Principal Place of Business)
Mr. Larry V. Bailey
President and Chief Executive Officer
First Kansas Financial Corporation
600 Main Street, Osawatomie, Kansas 66064
(913) 755-3033
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(Name, Address and Telephone Number of Agent for Service)
Please send copies of all communications to:
John J. Spidi, Esq.
Jean A. Milner, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
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(c) 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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Title of Each Proposed Maximum Proposed
Class of Securities Amount to Offering Price Maximum Aggregate Amount of
To Be Registered be Registered Per Unit Offering Price(1) Registration Fee
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Common Stock,
<S> <C> <C> <C> <C>
$.10 Par Value $1,553,938 $10.00 $15,539,380 $4,584.12
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
Up to 1,553,938 Shares of Common Stock
FIRST KANSAS FINANCIAL CORPORATION
(Proposed Holding Company for First Kansas Federal Savings Bank)
600 Main Street
Osawatomie, Kansas 66064
(913) 755-3033
================================================================================
First Kansas Federal Savings Association is converting from the mutual
to the stock form of organization. As part of the conversion, First Kansas
Federal Savings Association will become a wholly owned subsidiary of First
Kansas Financial Corporation and will change its name to First Kansas Federal
Savings Bank. First Kansas Financial Corporation was formed in February 1998 and
upon consummation of the conversion will own all of the shares of First Kansas
Federal Savings Bank. The common stock of First Kansas Financial Corporation is
being offered for sale to the public in accordance with a plan of conversion.
The plan of conversion must be approved by the Office of Thrift Supervision and
by a majority of the votes eligible to be cast by members of First Kansas
Federal Savings Association. No common stock will be sold if First Kansas
Federal Savings Association does not receive these approvals or if First Kansas
Financial Corporation does not receive orders for at least the minimum number of
shares.
================================================================================
TERMS OF OFFERING
An independent appraiser has estimated the market value of the
converted First Kansas Federal Savings Bank to be between $9,987,500 and
$13,512,500 which establishes the number of shares to be offered. Subject to
Office of Thrift Supervision approval, up to 1,553,938 shares, an additional 15%
above the maximum number of shares, may be offered. Based on these estimates, we
are making the following offering of shares of common stock:
<TABLE>
<CAPTION>
<S> <C> <C>
o Price Per Share: $10.00
o Number of Shares
Minimum/Maximum/Maximum, as adjusted: 998,750 to 1,351,250 to 1,553,938
o Underwriting Commissions and Expenses
Minimum/Maximum/Maximum, as adjusted: $104,000 to $120,000 to $120,000
o Net Proceeds to First Kansas Financial Corporation
Minimum/Maximum/Maximum, as adjusted: $9,538,000 to $13,013,000 to $15,039,000
o Net Proceeds per Share
Minimum/Maximum/Maximum, as adjusted: $9.55 to $9.63 to $9.69
</TABLE>
Please refer to Risk Factors beginning on page 9 of this document.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any state securities regulator has approved or disapproved
these securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
For information on how to subscribe, call the Stock Information Center
at (913) -
CAPITAL RESOURCES, INC.
__________, 1998
<PAGE>
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TABLE OF CONTENTS
Page
----
Questions and Answers About the Stock Offering............................ 1
Summary................................................................... 3
Selected Financial and Other Data......................................... 6
Risk Factors.............................................................. 9
Proposed Purchases by Directors and Officers.............................. 12
Use of Proceeds........................................................... 13
Dividends................................................................. 13
Market for the Common Stock............................................... 14
Capitalization............................................................ 15
Pro Forma Data............................................................ 16
Historical and Pro Forma Capital Compliance............................... 21
The Conversion............................................................ 22
Consolidated Statements of Earnings ...................................... 34
Management's Discussion and Analysis ..................................... 35
Business of First Kansas Financial Corporation............................ 44
Business of First Kansas Federal Savings Association...................... 44
Regulation................................................................ 61
Taxation.................................................................. 66
Management of First Kansas Financial Corporation.......................... 68
Management of First Kansas Federal Savings Association.................... 68
Restrictions on Acquisitions of First Kansas Financial Corporation........ 74
Description of Capital Stock.............................................. 77
Indemnification of Officers and Directors................................. 78
Legal and Tax Matters..................................................... 78
Experts................................................................... 79
Registration Requirements................................................. 79
Where You Can Find Additional Information................................. 79
Index to Consolidated Financial Statements ................................ 80
This document contains forward-looking statements which involve risks
and uncertainties. First Kansas Financial Corporation's actual results may
differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors" beginning on page ____ of this
document.
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<PAGE>
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QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q: What is the purpose of the offering?
A: The purpose of the offering is to raise capital and change our
corporate form of organization. The offering gives you the chance to
become a stockholder of our newly formed holding company, First Kansas
Financial Corporation. Stockholders will share indirectly in our future
as a federal stock savings bank. The stock offering will increase our
capital and funds for lending and investment activities. As a stock
savings institution operating through a holding company structure, we
will have greater flexibility for investments.
Q: How do I purchase the stock?
A: You must complete and return the stock order form to us (no copies will
be accepted) together with your payment, on or before 12:00 noon,
__________, __________, 1998. If we do not receive sufficient orders by
that time, the offering may be extended until ________ ____, 1998.
Q: How much stock may I purchase?
A: The minimum purchase is 25 shares or $250. The maximum purchase is
15,000 shares (or $150,000) for any individual person or persons
ordering through a single account. No person, related person or persons
acting together, may purchase in total more than 20,000 shares (or
$200,000). We may decrease or increase the maximum purchase limitation
without notifying you. In the event that the offering is
oversubscribed, there will not be enough shares to fill all orders.
Q: What happens if there are not enough shares to fill all orders?
A: You might not receive any or all of the shares you want to purchase. If
there is an oversubscription in the subscription offering, the stock
will be offered in the following priorities:
o Priority 1 - Persons who had a deposit account with us of at
least $50.00 on September 30, 1996.
o Priority 2 - Tax Qualified Employee Plans (the employee stock
ownership plan of First Kansas Federal Savings Bank).
o Priority 3 - Persons who had a deposit account of at least
$50.00 with us on March 31, 1998.
o Priority 4 - Other persons entitled to vote on the approval of
the conversion.
If the above persons do not subscribe for all of the shares, the remaining
shares may be offered, with the help of Capital Resources, Inc., in a community
offering. In the event of a community offering, we will give a preference to
natural persons who reside in Miami, Bourbon, Mitchell and Phillips counties,
Kansas. In a syndicated community offering, we would offer any remaining shares
to the general public through a group of brokers/dealers organized by Capital
Resources, Inc. We have the right to reject any stock order in the community
offering or syndicated community offering.
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1
<PAGE>
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Q: What particular factors should I consider when deciding whether to buy
the stock?
A: Although the common stock will likely be listed on the Nasdaq SmallCap
Market, an active and liquid market for the stock may not develop and,
even if developed, may not be maintained. This may make it difficult
for you to resell the shares you purchase. Also, before you decide to
purchase stock, you should read this prospectus, including the "Risk
Factors" section on pages ____-____.
Q: As a depositor or borrower member of First Kansas Federal Savings
Association, what will happen if I do not purchase any stock?
A: You presently have voting rights since we are in the mutual form;
however, once we convert, voting rights will be held only by the
stockholders. You are not required to purchase stock. Your deposit
accounts, certificate accounts and any loans you may have with us will
not be affected.
Q: Who can help answer any other questions I may have about the stock
offering?
A: In order to make an informed investment decision, you should read this
entire document. In addition, if you have any questions you should
contact:
Stock Information Center
First Kansas Financial Corporation
600 Main Street
Osawatomie, Kansas 66064
(913) ____-____
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2
<PAGE>
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SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read this entire document carefully, including
the financial statements and the notes to the financial statements of First
Kansas Federal Savings Association. References in this document to "we", "us",
and "our" refer to First Kansas Federal Savings Association either in its
present form or as a stock savings bank following the conversion, after which
our name will change to First Kansas Federal Savings Bank. In certain instances
where appropriate, "we", "us", or "our" refers collectively to First Kansas
Financial Corporation and First Kansas Federal Savings Association. References
in this document to the "Company" refer to First Kansas Financial Corporation.
The Companies
First Kansas Financial Corporation
600 Main Street
Osawatomie, Kansas 66064
(913) 755-3033
First Kansas Financial Corporation is not an operating company and has
not engaged in any significant business to date. It was formed in February 1998
as a Kansas-chartered corporation to be the holding company for First Kansas
Federal Savings Bank. The holding company structure will provide greater
flexibility in terms of operations, expansion and diversification. See page
- ----------.
First Kansas Federal Savings Association
600 Main Street
Osawatomie, Kansas 66064
(913) 755-3033
First Kansas Federal Savings Association was originally chartered in
1899 under the name "The Consolidated Building and Loan Association" and
commenced operations that same year. In 1938 we became a member of the Federal
Home Loan Bank System, obtained a federal charter and changed our name to "First
Federal Savings and Loan Association of Osawatomie." In 1983, we changed our
name to "First Kansas Federal Savings Association." We are a community and
customer oriented federal mutual savings association with six branch offices
located in Miami, Bourbon, Mitchell and Phillips counties. We provide financial
services to individuals, families and small businesses. Historically, we have
emphasized residential mortgage lending, primarily originating one- to
four-family mortgage loans. At December 31, 1997, we had total assets of $95.7
million, deposits of $85.7 million, and total equity of $6.6 million. See pages
________ to ________.
The Stock Offering
We are offering between 998,750 and 1,351,250 shares of common stock at
$10.00 per share. We may increase the offering to 1,553,938 shares without
further notice to you. We would do this for two reasons: changes in our
financial condition or market conditions that occur before we complete the
conversion; or to fill the order from our employee stock ownership plan. Any
increase over 1,351,250 shares would require the approval of the Office of
Thrift Supervision (the "OTS"). If we do increase the size of the offering
within these limits, you may not change or cancel any stock order previously
delivered to us.
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3
<PAGE>
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Stock Purchases
The shares of common stock will be offered on the basis of priorities.
If you are a depositor or borrower member, you will receive subscription rights
to purchase the shares. The shares will be offered first to persons with
subscription rights in a subscription offering, and any remaining shares may be
offered in a community offering or syndicated community offering. See pages
________ to _______.
Subscription Rights
You may not sell or assign your subscription rights. Any transfer of
subscription rights is prohibited by law.
The Offering Range and Determination of the Price Per Share
The offering range is based on an independent appraisal of the
estimated market value of the common stock by Capital Resources Group, Inc., an
appraisal firm experienced in appraisals of savings institutions, which is
affiliated with Capital Resources, Inc. Capital Resources Group, Inc. has
estimated that in its opinion as of March 6, 1998, the estimated valuation range
of the common stock was between $9,987,500 and $13,512,500 (with a mid-point of
$11,750,000). The estimated valuation range of the shares is our estimated
market value after giving effect to the sale of shares in this offering.
The appraisal was based in part upon our financial condition and
operations and the effect of the additional capital we will raise in this
offering. The $10.00 price per share was determined by our board of directors.
It is the price most commonly used in stock offerings involving conversions of
mutual savings institutions. The independent appraisal will be updated before we
complete the conversion. If the estimated valuation range of the common stock is
either below $9,987,500 or above $15,539,380, you will be notified and will have
the opportunity to modify or cancel your order. See pages ________ to
__________.
Termination of the Offering
The subscription offering will terminate at __:__ _.m., Osawatomie,
Kansas Time, on ________ ____, 1998. The community offering or syndicated
community offering, if any, may terminate at any time without notice, but no
later than ________ ____, 1998, without approval by the OTS.
Benefits to Management from the Offering
Our employees will participate in the offering through individual
purchases and through purchases of stock by our employee stock ownership plan,
which is a type of retirement plan. We also intend to implement a restricted
stock plan and a stock option plan, which may benefit the President and other
officers and directors. If we adopt the restricted stock plan, our officers and
directors will be awarded stock at no cost to them. The restricted stock plan
and stock option plan may not be adopted until after the conversion and are
subject to stockholder approval and compliance with OTS regulations.
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4
<PAGE>
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Use of the Proceeds Raised from the Sale of Common Stock
The funds we receive from the sale of our stock to the Company will
increase our capital for future lending and investment and will be used to
improve our facilities and enhance the services we offer. See page __________.
Dividends
First Kansas Financial Corporation does not initially expect to pay
dividends. We may, however, in the future establish a dividend policy. See page
__________.
Market for the Common Stock
We have received conditional approval to have the common stock quoted
on the Nasdaq SmallCap Market under the symbol "____". Notwithstanding this
approval, an active and liquid trading market may not develop or be maintained.
Investors should have a long-term investment intent. Persons purchasing shares
may not be able to sell their shares when they desire or sell them at a price
equal to or above $10.00. Capital Resources, Inc. is expected to make a market
in the common stock. Capital Resources, Inc. will, however, not be subject to
any obligation with respect to such efforts. See page __________.
Important Risks in Owning First Kansas Financial Corporation's Common Stock
Before you decide to purchase stock in the offering, you should read
the "Risk Factors" section on pages __ -________ of this document.
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5
<PAGE>
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SELECTED FINANCIAL AND OTHER DATA
We are providing the following summary financial information about us
for your benefit. This information is derived from our audited financial
statements. The following information is only a summary and you should read it
in conjunction with our financial statements and notes beginning on page F-1.
Selected Financial Data
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- ------------- -------------- ------------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets................................................ $95,655 $101,245 $91,192 $90,325 $93,192
Cash and cash equivalents............................. 4,600 4,222 2,305 2,395 1,037
Loans receivable, net(1).............................. 46,563 42,827 30,755 29,705 33,651
Investment securities, held-to-maturity............... 3,852 2,800 4,341 5,409 5,548
Mortgage-backed securities, held-to-maturity.......... 20,937 24,861 26,059 47,436 49,775
Mortgage-backed securities, available-for-
sale................................................ 16,833 23,723 25,315 2,748 --
Loans held for sale................................... -- -- 76 90 699
Deposits.............................................. 85,651 83,723 82,489 84,098 87,389
FHLB borrowings....................................... 2,550 11,350 1,900 -- --
Equity................................................ 6,610 5,795 5,952 5,655 5,155
Number of:
Deposit accounts...................................... 15,411 14,740 14,227 11,697 12,353
Full service offices.................................. 6 6 6 6 6
</TABLE>
- -----------------------------
(1) Loans receivable, net is comprised of total loans less allowance for
loan losses, deferred loan fees and the undisbursed portion of loans in
process.
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6
<PAGE>
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Summary of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- -------- --------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest income........................ $6,907 $6,556 $6,106 $5,886 $6,541
Interest expense....................... 6,895 6,543 3,668 3,267 3,629
----- ----- ----- ----- -----
Net interest income.................. 2,656 2,528 2,438 2,619 2,912
Provision for loan losses.............. 35 -- 1 2 23
----- ----- ----- ----- -----
Net interest income after
provision for loan losses.......... 2,621 2,528 2,437 2,617 2,889
Noninterest income..................... 852 710 462 387 542
----- ----- ----- ----- -----
Subtotal............................. 3,473 3,238 2,899 3,004 3,431
Noninterest expense(1)................. 2,352 2,952 2,294 2,084 2,023
----- ----- ----- ----- -----
Earnings before income taxes........... 1,121 286 605 920 1,408
Income tax expense..................... 449 115 242 346 530
----- ----- ----- ----- -----
Net income .......................... $ 672 $ 171 $ 363 $ 574 $ 878
====== ===== ===== ===== =====
</TABLE>
- ---------------------
(1) Noninterest expense for the year ended December 31, 1996 included a
one-time deposit insurance special assessment of $545,000 to
recapitalize the Savings Association Insurance Fund of the FDIC.
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7
<PAGE>
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Key Operating Ratios
<TABLE>
<CAPTION>
At or For the Years Ended
December 31,
--------------------------
1997 1996(5)
--------- ---------
<S> <C> <C>
Performance ratios:
Return on total assets(1)......................................... 0.67% 0.18%
Return on total equity(2)......................................... 10.78 2.85
Interest rate spread.............................................. 2.52 2.44
Net interest margin(3)............................................ 2.75 2.70
Ratio of noninterest expense to average total assets.............. 2.34 3.03
Ratio of average interest-earning assets to average
interest-bearing liabilities.................................... 105.18 106.13
Ratio of net interest income after provision for loan
losses, to total noninterest expense............................ 111.95 86.04
Asset quality ratios:
Non-performing assets to total assets at end of period(4)......... 0.08 0.02
Non-performing loans to total loans............................... 0.17 0.04
Allowance for loan losses to non-performing loans................. 226.58 858.82
Allowance for loan losses to loans receivable, net................ 0.38 0.34
Net charge-offs during the period to average loans
outstanding during the period................................... -- 0.01
Capital ratios:
Equity to assets at period end.................................... 6.91 5.72
Ratio of average equity to average assets......................... 6.21 6.15
</TABLE>
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(1) Ratio of net earnings to average total assets.
(2) Ratio of net earnings to average total equity.
(3) Net interest income as a percentage of average interest-earning assets.
(4) Non-performing assets include non-accrual loans, foreclosed real estate
and other repossessed assets.
(5) For 1996, return on total assets, return on total equity and the ratio
of noninterest expense to average total assets, excluding the effect of
the special assessment to recapitalize the SAIF (see footnote 1 on page
7), were .51%, 8.31% and 2.47%, respectively.
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8
<PAGE>
RISK FACTORS
In addition to the other information in this document, you should
consider carefully the following risk factors in evaluating an investment in our
common stock.
Intent to Remain Independent
We have operated as an independent community savings institution since
1899. It is our intention to continue to operate as an independent community
institution following the conversion. Accordingly, you are urged not to
subscribe for shares of our common stock if you anticipate a quick sale of our
institution. See "Business of First Kansas Financial Corporation."
Potential Impact of Changes in Interest Rates and the Current Interest Rate
Environment
Our ability to make a profit largely depends on our net interest
income. Net interest income is the difference between what we earn on our
interest-earning assets (such as mortgage loans and investment securities) and
what we pay on our interest-bearing liabilities (such as deposits and
borrowings). Most of our mortgage loans have rates of interest which are
adjustable and are generally originated with terms of up to 30 years, while our
deposit accounts have significantly shorter terms to maturity. During the first
year of an adjustable-rate loan, we usually offer an introductory rate that is
below market, which may result in lower interest income during this time. Some
of our interest-earning assets have fixed-rates of interest and have longer
effective maturities than our interest-bearing liabilities, which results in the
yield on our interest-earning assets generally adjusting more slowly to changes
in interest rates than the cost of our interest-bearing liabilities. As a
result, our net interest income will be adversely affected by material and
prolonged increases in interest rates. In addition, rising interest rates may
result in a lack of customer demand for loans, which would adversely affect our
earnings. See "Management's Discussion and Analysis -- Asset/Liability
Management."
Changes in interest rates can also affect the average life of loans and
mortgage-backed securities. Historically a reduction in interest rates has
resulted in increased prepayments of loans and mortgage-backed securities, as
borrowers refinanced their mortgages in order to reduce their borrowing cost.
Under these circumstances, we are subject to reinvestment risk to the extent
that we are not able to reinvest such prepayments at rates which are comparable
to the rates on the prepaid loans or securities.
Decreased Return on Average Equity and Increased Expenses Immediately After
Conversion
As a result of the conversion, our equity will increase substantially.
Our expenses will increase because of the costs associated with our employee
stock ownership plan, restricted stock plan, and the costs of being a public
company. We also expect expenses to increase because of planned improvements to
our facilities and equipment. In addition, we are building a new office to
replace our existing Paola branch office. This, we anticipate, will be completed
in June 1998. The cost of this new facility, including the land, will be
approximately $1.1 million, although this amount will be partially offset by
funds received from the sale of the existing Paola branch office. We do not know
if we will receive sufficient other income to offset these additional costs.
Because of the increases in our equity and expenses, our return on equity may
decrease as compared to our performance in previous years. A lower return on
equity could limit the trading price potential of the common stock. Moreover, we
initially intend to invest the net proceeds in short-term investments which
generally have lower yields than residential mortgage loans. For 1997 our return
on total equity was 10.78%. See "Use of Proceeds."
9
<PAGE>
Lack of Active Market for Common Stock
We have received conditional approval to have the common stock quoted
on the Nasdaq SmallCap Market under the symbol "____." A condition for quotation
on Nasdaq is that at least three market makers make, or agree to make, a market
in the stock. We will encourage and assist at least three market makers to make
a market in the common stock. Capital Resources, Inc. has indicated its intent
to make a market in the common stock upon completion of the Offering. It is,
however, under no obligation to do so, nor if it begins to do so, is it under
any obligation to continue to make a market in the stock.
An active trading market may not develop or be maintained. If an active
market does not develop, you may not be able to sell your shares promptly or
sell your shares at a price equal to or above the price you paid for them. See
"Market for the Common Stock."
Fluctuations in Stockholders' Equity
Changes in interest rates also can affect the value of the Company's
investment and mortgage-backed securities and the ability to realize gains from
the sale of those assets which are included as available-for-sale. Generally,
the value of fixed-rate instruments fluctuate inversely with changes in interest
rates. Increases in interest rates generally result in decreases in the carrying
value of interest-earning assets which are classified as available-for-sale,
which would adversely affect the Company's results of operations if sold by the
Company, or the Company's stockholders' equity if retained by the Company as a
result of Statement of Financial Accounting Standards No. 115.
The market value and the amortized cost of the mortgage-backed
securities available-for-sale portfolio was $16.8 million and $17.3 million,
respectively, at December 31, 1997. Debt and equity securities which are
classified as "available-for-sale" are carried at fair value. Unrealized gains
and losses, net of income tax effect, are recorded as a separate component of
stockholders' equity and are excluded from income. As a result, if market rates
should increase in the future, then the market value of the Company's securities
available-for-sale is likely to decease, which will have an adverse effect upon
the Company's stockholders' equity, and conversely, a decrease in interest rates
will likely cause an increase in the Company's stockholders' equity.
Anti-Takeover Provisions and Statutory Provisions That Could Discourage Hostile
Acquisitions of Control
Provisions in the Company's articles of incorporation and bylaws, the
general corporation code of Kansas, and certain federal regulations may make it
difficult for someone to pursue a tender offer, change in control or takeover
attempt which is opposed by our management and board of directors. These
provisions include: restrictions on the acquisition of the Company's equity
securities and limitations on voting rights; the classification of the terms of
the members of the board of directors; certain provisions relating to meetings
of stockholders; denial of cumulative voting to stockholders in the election of
directors; the ability to issue preferred stock and additional shares of common
stock without shareholder approval; and supermajority provisions for the
approval of certain business combinations. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also render the removal of the current board of
directors or management of the Company more difficult. In addition, the effect
of these provisions could be to limit the trading price potential of our stock.
See "Restrictions on Acquisition of First Kansas Financial Corporation."
10
<PAGE>
Possible Voting Control by Directors and Officers
Based upon the midpoint of the estimated valuation range, our officers
and directors intend to purchase approximately 7.57% of the common stock offered
in the conversion. These purchases together with the purchase of shares by our
employee stock ownership plan, as well as the potential acquisition of common
stock through the stock option plan and restricted stock plan, together with the
votes of a few supporters, could make it difficult for a stockholder to obtain
majority support for stockholder proposals which are opposed by our management
and board of directors. In addition, the voting of those shares could block the
approval of transactions (i.e., business combinations and amendments to our
articles of incorporation and bylaws) requiring the approval of 80% of the
stockholders under the Company's articles of incorporation. See "Proposed
Purchases by Directors and Officers," "Management of First Kansas Federal
Savings Association -- Executive Compensation," "Description of Capital Stock,"
and "Restrictions on Acquisition of First Kansas Financial Corporation"
Possible Dilutive Effect of Restricted Stock Plan and Stock Options
Upon completion of the conversion, shareholders will be asked to
approve the restricted stock plan and stock option plan. If approved, we will
issue stock and options to purchase stock to our officers and directors through
these plans. If the shares for the restricted stock plan and stock options are
issued from our authorized but unissued stock, your voting interests may be
diluted by up to approximately 12.3% and the trading price of our stock may be
potentially limited. See "Pro Forma Data," "Management of First Kansas Federal
Savings Association -- Proposed Future Stock Benefit Plans," and "-- Restricted
Stock Plan."
Financial Institution Regulation and Future of the Thrift Industry
We are subject to extensive regulation, supervision, and examination by
the OTS and the Federal Deposit Insurance Corporation (the "FDIC"). Bills have
been introduced in Congress that could consolidate the OTS with the Office of
the Comptroller of the Currency ("OCC") and require the Bank to adopt a
commercial bank charter. If we become a commercial bank, our investment
authority and the ability of the Company to engage in diversified activities may
be limited, which could adversely affect our value and profitability. See
"Regulation."
Restrictions on Repurchase of Shares
Generally, during the first year following the conversion, the Company
may not repurchase its shares. During each of the second and third years
following the conversion, the Company may repurchase up to 5% of its outstanding
shares. During those periods, even if we believe that additional repurchases
would be a good use of funds, we would not be able to do so without first
obtaining OTS approval. There is no assurance that OTS approval would be given.
See "The Conversion -- Restrictions on Repurchase of Shares."
Possible Year 2000 Computer Problems
A great deal of information has been disseminated about the widespread
computer problems that may arise in the year 2000. 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. Rapid
and accurate data processing is essential
11
<PAGE>
to the operation of the Association. Data processing is also essential to most
other financial institutions and many other companies.
All our material data processing that could be affected by this problem
is provided by a third party service bureau. The service bureau used by the
Association has advised us that it expects to resolve this potential problem by
the third quarter of 1998, and to begin testing the system in the fourth
quarter. However, if the service bureau is unable to resolve this potential
problem in time, the Association would likely experience significant data
processing delays, mistakes or failures. These delays, mistakes or failures
could have a significant adverse impact on the financial condition and results
of operation of the Association.
PROPOSED PURCHASES BY DIRECTORS AND OFFICERS
The following table sets forth the approximate purchases of common
stock by each director and executive officer and their associates in the
conversion. Shares purchased by officers and directors in the conversion may not
be sold for at least one year. The table assumes that 1,175,000 shares (the
midpoint of the estimated valuation range) of the common stock will be sold at
$10.00 per share and that sufficient shares will be available to satisfy
subscriptions in all categories.
<TABLE>
<CAPTION>
Aggregate
Total Price of Percent
Shares Shares of Shares
Name Position Purchased(1) Purchased(1) Sold(1)
---- -------- ------------ ------------ -------
<S> <C> <C> <C> <C>
J. Darcy Domoney Chairman 4,000 $ 40,000 0.34%
James E. Breckenridge Director 10,000 100,000 0.85
William R. Butler, Jr. Director 5,000 50,000 0.43
Roger L. Coltrin Director 20,000 200,000 1.70
Donald V. Meyer Director 20,000 200,000 1.70
Larry V. Bailey Director, President,
CEO and CFO 20,000 200,000 1.70
Daniel G. Droste Senior Vice President &
Treasurer 5,000 50,000 0.43
Galen E. Graham Senior Vice President &
Secretary 5,000 50,000 0.43
------ ------- ----
89,000 $890,000 7.57%
====== ======= ====
</TABLE>
- --------------------------
(1) Does not include shares purchased by the employee stock ownership plan (the
"ESOP"). The numbers in this column have been rounded and may not add to
match the total.
12
<PAGE>
USE OF PROCEEDS
The Company will contribute half of the net proceeds from the offering
to the Association. A portion of the net proceeds to be retained by the Company
will be loaned to our employee stock ownership plan to fund its purchase of 8%
of the shares sold in the conversion. Initially, the balance of the net proceeds
retained by the Company will be invested in short-term investments. The net
proceeds may also serve as a source of funds for the payment of dividends to
stockholders or for the repurchase of the shares. A portion of the net proceeds
may also be used to fund the purchase of 4% of the shares for a restricted stock
plan (the "RSP") which is anticipated to be adopted following the conversion.
See "Pro Forma Data."
The funds contributed to the Association by the Company will be used
for general corporate purposes including: (i) originating and purchasing loans,
(ii) investment in U.S. Government and federal agency securities, (iii)
investment in mortgage-backed securities, or (iv) repaying FHLB advances.
Initially we intend to invest the net proceeds in short-term investments until
we can deploy the proceeds into higher yielding assets. The funds added to our
capital will also strengthen our capital position. Although there are no such
current plans, the net proceeds may later be used to diversify activities. We
will use a portion of the funds to improve our facilities and equipment.
The net proceeds may vary because the total expenses of the conversion
may be more or less than those estimated. We expect our estimated expenses to
range from $104,000 to $120,000 (even if the maximum of the estimated valuation
range is increased to up to $15,539,380). Our estimated net proceeds will range
from $9,538,000 to $13,013,000 (or up to $15,039,000 in the event the maximum of
the estimated valuation range is increased to $15,539,380). See "Pro Forma
Data." The net proceeds will also vary if expenses are different or if the
number of shares to be issued in the conversion is adjusted to reflect a change
in our estimated valuation range. Payments for shares made through withdrawals
from existing deposit accounts with us will not result in the receipt of new
funds for investment by us but will result in a reduction of our liabilities and
interest expense as funds are transferred from interest-bearing certificates or
accounts.
DIVIDENDS
Upon conversion, the Company's board of directors will have the
authority to declare dividends on the shares, subject to statutory and
regulatory requirements. Initially, the Company does not expect to pay cash
dividends. Any future declarations of dividends by the board of directors will
depend upon a number of factors, including: (i) the amount of the net proceeds
retained by the Company in the conversion, (ii) investment opportunities
available, (iii) capital requirements, (iv) regulatory limitations, (v) results
of operations and financial condition, (vi) tax considerations, and (vii)
general economic conditions. Upon review of such considerations, the board may
authorize future dividends if it deems such payment appropriate and in
compliance with applicable law and regulation. For a period of one year
following the completion of the conversion, we do not intend to pay any
extraordinary dividends that would be treated for tax purposes as a return of
capital or take any actions to pursue or propose such dividends. In addition,
there can be no assurance that regular or special dividends will be paid, or, if
paid, will continue to be paid. See "Historical and Pro Forma Capital
Compliance", "The Conversion -- Effects of Conversion to Stock Form on
Depositors and Borrowers of First Kansas Federal Savings Association --
Liquidation Account" and "Regulation -- Dividend and Other Capital Distribution
Limitations."
13
<PAGE>
The Company is not subject to OTS regulatory restrictions on the
payment of dividends to its stockholders although the source of such dividends
will be dependent in part upon the receipt of dividends from the Association.
The Company is subject, however, to the requirements of Kansas law, which
generally requires that dividends be declared and paid out of a company's
surplus, or if there is no surplus, out of the company's net profits for the
fiscal year in which the dividend is declared or the preceding fiscal year.
In addition to the foregoing, the portion of our earnings which has
been appropriated for bad debt reserves and deducted for federal income tax
purposes cannot be used by us to pay cash dividends to the Company without the
payment of federal income taxes by us at the then current income tax rate on the
amount deemed distributed, which would include the amount of any federal income
taxes attributable to the distribution. See "Taxation -- Federal Taxation" and
Note 11 to our financial statements. The Association does not contemplate any
distribution that would result in a recapture of the bad debt reserve or
otherwise create federal tax liabilities.
MARKET FOR THE COMMON STOCK
As a newly organized corporation, the Company has never issued capital
stock, and consequently there is no established market for the common stock. The
Company has received conditional approval to have the common stock quoted on the
Nasdaq SmallCap Market under the symbol "__________". Capital Resources, Inc. is
expected to make a market in the common stock. Making a market may include the
solicitation of potential buyers and sellers in order to match, buy and sell
orders. Capital Resources, Inc., however, will not be subject to any obligation
with respect to such efforts. If the common stock cannot be quoted and traded on
the Nasdaq SmallCap Market, it is expected that the transactions in the common
stock will be reported on the over-the-counter market with quotations available
through the OTC Bulletin Board.
The development of an active trading market depends on the existence of
willing buyers and sellers. An active trading market in our common stock may not
develop or be maintained. You could have difficulty disposing of your shares and
so you should not view the shares as a short-term investment. You may not be
able to sell your shares at a price equal to or above the price you paid for the
shares.
14
<PAGE>
CAPITALIZATION
The following table presents, as of December 31, 1997, our historical
capitalization and the consolidated capitalization of the Company after giving
effect to the conversion and the other assumptions set forth below and under
"Pro Forma Data," based upon the sale of shares at the minimum, midpoint,
maximum, and 15% above the maximum of the EVR at a price of $10.00 per share.
<TABLE>
<CAPTION>
Pro Forma Consolidated Capitalization
Based on the Sale of (2)(3)
-------------------------------------------------------------
Historical
Capitalization
at December 31, 998,750 1,175,000 1,351,250 1,553,938
1997 Shares Shares Shares Shares
------ ------------ ------------- -------------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(1) .................................. $85,861 $85,861 $85,861 $85,861 $85,861
Borrowed funds................................ 2,550 2,550 2,550 2,550 2,550
------- ------- ------ ------ ------
Total deposits and borrowed funds........... $88,411 $88,411 $88,411 $88,411 $88,411
====== ====== ====== ====== ======
Stockholders' equity:
Preferred stock, $.10 per share, 2,000,000
shares authorized; none to be issued....... $ -- $ -- $ -- $ -- $ --
Common stock, $.10 par value, 8,000,000
shares authorized; total shares to be
issued as reflected........................ -- 100 118 135 155
Additional paid-in capital.................... -- 9,438 11,157 12,878 14,884
Retained earnings, substantially restricted. 6,935 6,935 6,935 6,935 6,935
Net unrealized gains (losses) on
available-for-sale securities............. (325) (325) (325) (325) (325)
------ ------ ------ ------ ------
Total equity(4)............................. 6,610 16,148 17,885 19,623 21,649
Less:
Common stock acquired by ESOP............... -- (799) (940) (1,081) (1,243)
Common stock acquired by RSP................ -- (400) (470) (541) (622)
------- ------- ------- ------- -------
Total stockholders' equity $ 6,610 $14,949 $16,475 $18,001 $19,784
====== ====== ====== ====== ======
as a % of total assets...................... 6.91% 14.37% 15.61% 16.82% 18.18%
==== ===== ===== ===== =====
</TABLE>
- ---------------------
(1) Excludes accrued interest payable on deposits. Withdrawals from savings
accounts for the purchase of stock have not been reflected in these
adjustments. Any withdrawals will reduce pro forma capitalization by the
amount of such withdrawals.
(2) Does not reflect the increase in the number of shares of common stock after
the conversion in the event of implementation of the Option Plan or RSP.
See "Management of First Kansas Federal Savings Association - Proposed
Future Stock Benefit Plans -- Stock Option Plan" and "-- Restricted Stock
Plan."
(3) Assumes that 8% and 4% of the shares issued in the conversion will be
purchased by the ESOP and RSP, respectively. No shares will be purchased by
the RSP in the conversion. It is assumed on a pro forma basis that the RSP
will be adopted by the board of directors, approved by stockholders of the
Company, and approved by the OTS. It is assumed that the RSP will purchase
common stock at $10.00 per share in the open market within one year of the
conversion in order to give an indication of its effect on capitalization.
The pro forma presentation does not show the impact of: (a) results of
operations after the conversion, (b) changing market prices of shares of
common stock after the conversion, or (c) a smaller than 4% purchase by the
RSP. Assumes that the funds used to acquire the ESOP shares will be
borrowed from the Company for a ten year term at the prime rate as
published in The Wall Street Journal. For an estimate of the impact of the
ESOP on earnings, see "Pro Forma Data." The Association intends to make
contributions to the ESOP sufficient to service and ultimately retire its
debt. The amount to be acquired by the ESOP and RSP is reflected as a
reduction from stockholders' equity. The issuance of authorized but
unissued shares for the RSP in an amount equal to 4% of the outstanding
shares of common stock will have the effect of diluting existing
stockholders' interests by 3.8%. There can be no assurance that stockholder
approval of the RSP will be obtained. See "Management of First Kansas
Federal Savings Association - Proposed Future Stock Benefit Plans -
Restricted Stock Plan."
(4) Includes retained earnings and unrealized gains and losses on
available-for-sale securities, net of taxes. The equity of the Association
will be substantially restricted after the conversion. See "Dividends,"
"Regulation - Dividends and Other Capital Distribution Limitations," "The
Conversion - Effects of conversion to Stock Form on Depositors and
Borrowers of First Kansas Federal Savings Association - Liquidation
Account" and Note 16 to the Financial Statements.
15
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the common stock cannot be
determined until the conversion is completed. However, investable net proceeds
are currently estimated to be between $8.3 million and $13.2 million at the
minimum and maximum, as adjusted, of the estimated valuation range (the "EVR"),
based upon the following assumptions: (i) 8% of the shares will be sold to the
ESOP and 7.57% shares will be sold to executive officers and their associates;
(ii) Capital Resources, Inc. will receive a fee of (a) 1.25% of the aggregate
dollar amount of common stock sold in the conversion to investors who reside in
Kansas and in those counties of Missouri contiguous to Kansas (excluding the
sale of shares to the ESOP, executive officers, directors and their associates),
and (b) 1.05% of the aggregate dollar amount of common stock sold in the
conversion to investors who reside outside the areas described in (a) (iii) no
shares will be sold in a syndicated community offering; (iv) other conversion
expenses, excluding the sales fees paid to Capital Resources, Inc., will be
$380,000; and (v) 4% of the shares will be sold to the RSP. In addition, because
management of the Association presently intends to adopt the RSP within the
first year following the conversion, a purchase by the RSP in the conversion has
been included with the pro forma data to give an indication of the effect of a
4% purchase by the RSP, at a $10.00 per share purchase price in the market, even
though the RSP does not currently exist and is prohibited by OTS regulation from
purchasing shares in the conversion. The pro forma presentation does not show
the effect of: (a) results of operations after the conversion, (b) changing
market prices of the shares after the conversion, (c) less than a 4% purchase by
the RSP, or (d) dilutive effects of newly issued shares under the restricted
stock plan and the stock option plan (see footnotes 2 and 3).
The following table sets forth our historical net earnings and equity
prior to the conversion and the pro forma consolidated net earnings and
stockholders' equity of the Company following the conversion. Unaudited pro
forma consolidated net earnings and equity have been calculated for the fiscal
year ended December 31, 1997 as if the common stock to be issued in the
conversion had been sold at January 1, 1997 and the estimated net proceeds had
been invested at 5.50%, which was approximately equal to the one-year U.S.
Treasury bill rate at December 31, 1997. The one-year U.S. Treasury bill rate,
rather than an arithmetic average of the average yield on interest-earning
assets and average rate paid on deposits, has been used to estimate income on
net proceeds because it is believed that the one-year U.S. Treasury bill rate is
a more accurate estimate of the rate that would be obtained on an investment of
net proceeds from the offering. In calculating pro forma income, an effective
state and federal income tax rate of 40.0% has been assumed, resulting in an
after tax yield of 3.30% for the fiscal year ended December 31, 1997.
Withdrawals from deposit accounts for the purchase of shares are not reflected
in the pro forma adjustments. The computations are based upon the assumptions
that 998,750 shares (minimum of EVR), 1,175,000 shares (midpoint of EVR),
1,351,250 shares (maximum of EVR) or 1,553,938 shares (maximum, as adjusted, of
the EVR) are sold at a price of $10.00 per share. As discussed under "Use of
Proceeds," a portion of the net proceeds that the Company will receive will be
loaned to the ESOP to fund its anticipated purchase of 8% of shares issued in
the conversion. It is assumed that the yield on the net proceeds of the
conversion retained by the Company will be the same as the yield on the net
proceeds of the conversion transferred to us. Historical and pro forma per share
amounts have been calculated by dividing historical and pro forma amounts by the
indicated number of shares. Per share amounts have been computed as if the
shares had been outstanding at the beginning of the periods or at the dates
shown, but without any adjustment of per share historical or pro forma
stockholders' equity to reflect the earnings on the estimated net proceeds.
16
<PAGE>
The stockholders' equity information is not intended to represent the
fair market value of the shares, or the current value of our assets or
liabilities, or the amounts, if any, that would be available for distribution to
stockholders in the event of liquidation. For additional information regarding
the liquidation account, see "The Conversion -- Certain Effects of the
Conversion to Stock Form on Depositors and Borrowers of First Kansas Federal
Savings Association -- Liquidation Account" and Note 16 to the Financial
Statements. The pro forma income derived from the assumptions set forth above
should not be considered indicative of the actual results of our operations for
any period. Such pro forma data may be materially affected by a change in the
price per share or number of shares to be issued in the conversion and by other
factors. For information regarding investment of the proceeds see "Use of
Proceeds" and "The Conversion -- Stock Pricing" and "-- Change in Number of
Shares to be Issued in the Conversion."
17
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1997
------------------------------------------------------------------------
998,750 1,175,000 1,351,250 1,553,938
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds........................................... $9,988 $11,750 $13,513 $15,539
Less estimated offering expenses......................... (450) (475) (500) (500)
------ ------ ------- -------
Estimated net proceeds................................. 9,538 11,275 13,013 15,039
Less: ESOP funded by the Company....................... 799 940 1,081 1,243
RSP funded by the Company............................... 400 470 541 622
------ ------ ------- -------
Estimated investable net proceeds: $8,339 $9,865 $11,391 $13,174
===== ===== ====== ======
Net income:
Historical net income.................................. $672 $672 $672 $672
Pro forma earnings on investable net proceeds.......... 276 326 376 436
Pro forma ESOP adjustment(1)........................... (48) (56) (65) (75)
Pro forma RSPs adjustment(2)........................... (48) (56) (65) (75)
--- --- --- ---
Total................................................... $851 $886 $918 $957
=== === === ===
Net income per share - basic and diluted:(4)
Historical net income per share........................ $ 0.72 $ 0.62 $ 0.54 $ 0.47
Pro forma earnings on net proceeds..................... 0.30 0.30 0.30 0.30
Pro forma ESOP adjustment(1)........................... (0.05) (0.05) (0.05) (0.05)
Pro forma RSP adjustment(2)............................ (0.05) (0.05) (0.05) (0.05)
----- ----- ----- -----
Total(3)................................................ $0.92 $0.82 $0.74 $0.67
==== ==== ==== ====
Ratio of offering price to pro forma earnings per
share(3)................................................. 10.87x 12.20x 13.51x 14.93x
===== ===== ===== =====
Stockholders' equity:(4)
Historical............................................. $6,610 $ 6,610 $ 6,610 $ 6,610
Estimated net proceeds................................. 9,538 11,275 13,013 15,039
Less: Common stock acquired by ESOP(1)................. (799) (940) (1,081) (1,243)
Common stock acquired by RSP(2)......................... (400) (470) (541) (622)
------ ------- ------- -------
Total................................................... $14,949 $16,475 $18,001 $19,784
====== ====== ====== ======
Stockholders' equity (book value) per share:(4)
Historical............................................. $ 6.62 $ 5.62 $ 4.89 $ 4.25
Estimated net proceeds................................. 9.55 9.60 9.63 9.68
Less: Common stock acquired by ESOP(1)................. (0.80) (0.80) (0.80) (0.80)
Common stock acquired by RSP(2)......................... (0.40) (0.40) (0.40) (0.40)
----- ----- ----- -----
Total................................................... $14.97 $14.02 $13.32 $12.73
===== ===== ===== =====
Offering price as percentage of pro forma
stockholders' equity per share(5)........................ 66.80% 71.33% 75.08% 78.55%
===== ===== ===== =====
</TABLE>
(Footnotes on following page)
18
<PAGE>
- ----------------------------
(1) Assumes 8% of the shares sold in the conversion are purchased by the ESOP,
and that the funds used to purchase such shares are borrowed from the
Company. The approximate amount expected to be borrowed by the ESOP is not
reflected as a liability but is reflected as a reduction of capital. We
intend to make annual contributions to the ESOP over a ten year period in
an amount at least equal to the principal and interest requirement of the
debt. The pro forma net income assumes: (i) that 3,995, 4,700, 5,405 and
6,216 shares at the minimum, mid-point, maximum and maximum, as adjusted of
the EVR, were committed to be released during the year ended December 31,
1997 at an average fair value of $10.00 per share in accordance with
Statement of Position (SOP) 93-6 of the American Institute of Certified
Public Accountants ("AICPA"); (ii) the effective tax rate was 40.0% for
such period; and (iii) only the ESOP shares committed to be released were
considered outstanding for purposes of the per share net earnings. The pro
forma stockholders' equity per share calculation assumes all ESOP shares
were outstanding, regardless of whether such shares would have been
released. Because the Company will be providing the ESOP loan, only
principal payments on the ESOP loan are reflected as employee compensation
and benefits expense. As a result, to the extent the value of the shares
appreciates over time, compensation expense related to the ESOP will
increase. For purposes of the preceding tables, it was assumed that a
ratable portion of the ESOP shares purchased in the conversion were
committed to be released during the period ended December 31, 1997. See
Note 5 below. If it is assumed that all of the ESOP shares were included in
the calculation of earnings per share for the period ended at December 31,
1997, earnings per share would have been $.85, $.75, $.68, and $.62,
respectively, based on the sale of shares at the minimum, midpoint, maximum
and the maximum, as adjusted, of the EVR. See "Management of First Kansas
Federal Savings Association -- Other Benefits -- Employee Stock Ownership
Plan."
(2) Assumes the purchase by the RSP of 39,950, 47,000, 54,050 and 62,157 shares
at the minimum, mid-point, maximum, and maximum, as adjusted of the EVR.
The assumption in the pro forma calculation is that (i) shares were
purchased by the Company following the conversion, (ii) the purchase price
for the shares purchased by the RSP was equal to the purchase price of
$10.00 per share and (iii) 20% of the amount contributed was an amortized
expense during such period. Such amount does not reflect possible increases
or decreases in the value of such stock relative to the Purchase Price. As
we accrue compensation expense to reflect the five year vesting period of
such shares pursuant to the RSP, the charge against capital will be reduced
accordingly. Implementation of the RSP within one year of conversion would
be subject to regulatory review and stockholder approval at a meeting of
our stockholders to be held no earlier than six months after the
conversion. If the shares to be purchased by the RSP are assumed at January
1, 1997 to be newly issued shares purchased from the Company by the RSP at
the Purchase Price, at the minimum, midpoint, maximum and maximum, as
adjusted, of the EVR, pro forma stockholders' equity per share would have
been $14.78, $13.87, $13.19 and $12.63, respectively, and pro forma
earnings per share would have been $.90, $.80, $.72 and $.65 for the year
ended December 31, 1997. If the RSP is funded from newly issued shares,
stockholders' voting interests could be diluted by up to approximately
3.8%. See "Management of First Kansas Federal Savings Association --
Proposed Future Stock Benefit Plans -- Restricted Stock Plan."
(3) Pro forma net income per share calculations include the number of shares
assumed to be sold in the conversion and, in accordance with SOP 93-6,
exclude ESOP shares which would not have been released during the period.
Accordingly, 75,905, 89,300, 102,695 and 118,099 shares have been
subtracted from the shares assumed to be sold at the minimum, mid-point,
maximum, and maximum, as adjusted, of the EVR, respectively, and 922,845,
1,085,700, 1,248,555 and 1,435,839 shares are assumed to be outstanding at
the minimum, mid-point, maximum, and maximum, as adjusted of the EVR. See
Note 1 above.
(4) Assumes that following the consummation of the conversion, the Company will
adopt the Option Plan, which if implemented within one year of conversion
would be subject to regulatory review and board of director and stockholder
approval, and that such plan would be considered and voted upon at a
meeting of the Company stockholders to be held no earlier than six months
after the conversion. Under the Option Plan, employees and directors could
be granted options to purchase an aggregate amount of shares equal to 10%
of the shares issued in the conversion at an exercise price equal to the
market price of the shares
19
<PAGE>
on the date of grant. In the event the shares issued under the Option Plan
were newly issued rather than purchased in the open market, the voting
interests of existing stockholders could be diluted by up to approximately
9.1%. At the minimum, midpoint, maximum and the maximum, as adjusted, of
the EVR, if all shares under the Option Plan were newly issued at the
beginning of the respective periods and the exercise price for the option
shares were equal to the Purchase Price, the number of outstanding shares
would increase to 1,098,625, 1,292,500, 1,486,375 and 1,709,332,
respectively, pro forma stockholders' equity per share would have been
$14.52, $13.66, $13.02 and $12.48, respectively and pro forma earnings per
share would have been $.86, $.77, $.70 and $.63, respectively.
(5) Pro forma stockholders' equity information is not intended to represent the
fair market value of the shares, the current value of our assets or
liabilities or the amounts, if any, that would be available for
distribution to stockholders in the event of liquidation. Such pro forma
data may be materially affected by a change in the number of shares to be
sold in the conversion and by other factors.
20
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents our historical and pro forma capital
position relative to our capital requirements as of December 31, 1997. For a
discussion of the assumptions underlying the pro forma capital calculations
presented below, see "Use of Proceeds," "Capitalization" and "Pro Forma Data."
The definitions of the terms used in the table are those provided in the capital
regulations issued by the OTS. For a discussion of the capital standards
applicable to us, see "Regulation -- Savings Institution Regulation --
Regulatory Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma(1)
--------------------------------------------------------------------------------
$9,987,500 $11,750,000 $13,512,500 $15,539,380
Minimum Midpoint Maximum Maximum, as adjusted
------------------- ------------------- ------------------- --------------------
Percentage Percentage Percentage Percentage Percentage
of of of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2)
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital................... $6,610 6.91% $10,180 10.18% $10,837 10.75% $11,494 11.31% $12,264 11.96%
===== ==== ====== ===== ====== ===== ====== ===== ====== =====
Tangible capital(3)............ $6,280 6.58% $9,850 9.87% $10,507 10.45% $11,164 11.02% $11,934 11.67%
Tangible capital requirement... 1,431 1.50 1,496 1.50 1,508 1.50 1,520 1.50 1,534 1.50
----- ---- ----- ---- ------ ----- ------ ----- ------ -----
Excess......................... $4,849 5.08% $ 8,354 8.37% $ 8,999 8.95% $ 9,644 9.52% $10,400 10.17%
===== ==== ====== ==== ====== ===== ====== ===== ====== =====
Core capital(3)................ $6,280 6.58% $9,850 9.87% $10,507 10.45% $11,164 11.02% $11,934 11.67%
Core capital requirement(4).... 2,861 3.00 2,993 3.00 3,016 3.00 3,040 3.00 3,068 3.00
----- ---- ----- ---- ------ ----- ------ ----- ------ -----
Excess......................... $3,419 3.58% $6,857 6.87% $ 7,491 7.45% $ 8,124 8.02% $ 8,866 8.67%
===== ==== ===== ==== ====== ===== ====== ===== ====== =====
Total risk-based capital(4).... $6,443 18.39% $10,013 27.88% $10,670 29.58% $11,327 31.26% $12,097 33.22%
Risk-based capital requirement. 2,803 8.00 2,873 8.00 2,886 8.00 2,898 8.00 2,913 8.00
----- ----- ------ ----- ------ ----- ------ ----- ------ -----
Excess......................... $3,640 10.39% $ 7,140 19.88% $ 7,784 21.58% $ 8,429 23.26% $ 9,134 25.22%
===== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
- --------------------
(1) Institutions must value available-for-sale debt securities at amortized
cost, rather than at fair value, for purposes of calculating regulatory
capital. Institutions are still required to comply with SFAS No. 115 for
financial reporting purposes. The pro forma data has been adjusted to
reflect reductions in our capital that would result from an assumed 8%
purchase by the ESOP and 4% purchase by the RSP as of December 31, 1997. It
is assumed that the Company will retain 50% of net proceeds from the
offering. See "Use of Proceeds."
(2) GAAP, adjusted, or risk-weighted assets as appropriate.
(3) The unrealized loss on securities available-for-sale of $325,000 has been
added back to GAAP Capital to arrive at our Tangible and Core Capital.
(4) Our Risk-Based Capital includes our Tangible Capital plus $163,000 of our
allowance for loan losses. Our risk-weighted assets as of December 31, 1997
totalled approximately $35.0 million. Net proceeds available for investment
by us are assumed to be invested in interest earning assets that have a
20.0% risk-weighting.
21
<PAGE>
THE CONVERSION
Our board of directors and the OTS have approved the Plan subject to
approval by our members, and subject to the satisfaction of certain other
conditions imposed by the OTS in its approval. OTS approval, however, does not
constitute a recommendation or endorsement of the Plan.
General
On December 16, 1997, our board of directors adopted a Plan of
Conversion, pursuant to which we will convert from a federally chartered mutual
savings association to a federally chartered stock savings bank and become a
wholly owned subsidiary of the Company. The conversion will include adoption of
the proposed Federal Stock charter and Bylaws which will authorize the issuance
of capital stock by us. Under the Plan, our capital stock is being sold to the
Company and the common stock of the Company is being offered to our eligible
depositors and other members and then to the public. The conversion will be
accounted for at historical cost in a manner similar to a pooling of interests.
The OTS has approved the Company's application to become a savings and loan
holding company and to acquire all of our common stock to be issued in the
conversion.
The shares are first being offered in a subscription offering to
holders of subscription rights. To the extent shares of common stock remain
available after the subscription offering, shares of common stock may be offered
in a community offering on a best efforts basis through Capital Resources, Inc.
in such a manner as to promote a wide distribution of the shares. The community
offering, if any, may commence anytime subsequent to the commencement of the
subscription offering. Shares not subscribed for in the subscription and
community offerings may be offered for sale by the Company on a best efforts
basis in a syndicated community offering conducted by Capital Resources, Inc. We
have the right, in our sole discretion, to accept or reject, in whole or in
part, any orders to purchase shares of the common stock received in the
community and syndicated community offerings. See "-- Community Offering."
Shares of common stock in an amount equal to our pro forma market value
as a stock savings institution must be sold in order for the conversion to
become effective. The community offering or syndicated community offering must
be completed within 45 days after the last day of the subscription offering
period unless such period is extended by us with the approval of the OTS. The
Plan provides that the conversion must be completed within 24 months after the
date of the approval of the Plan by our members.
In the event that we are unable to complete the sale of common stock
and effect the conversion within 45 days after the end of the subscription
offering, we may request an extension of the period by the OTS. No assurance can
be given that the extension would be granted if requested. Due to the volatile
nature of market conditions, no assurances can be given that our valuation would
not substantially change during any such extension. If the EVR of the shares
must be amended, no assurance can be given that such amended EVR would be
approved by the OTS. Therefore, it is possible that if the conversion cannot be
completed within the requisite period, we may not be permitted to complete the
conversion. A substantial delay caused by an extension of the period may also
significantly increase the expense of the conversion. No sales of the shares may
be completed in the offering unless the Plan is approved by our members.
The completion of the offering is subject to market conditions and
other factors beyond our control. No assurance can be given as to the length of
time following approval of the Plan at the meeting of our members that will be
required to complete the sale of shares being offered in the conversion. If
22
<PAGE>
delays are experienced, significant changes may occur in our estimated pro forma
market value upon conversion together with corresponding changes in the offering
price and the net proceeds to be realized by us from the sale of the shares. In
the event the conversion is terminated, we will charge all conversion expenses
against current income and any funds collected by us in the offering will be
promptly returned, with interest, to each potential investor.
Effects of Conversion to Stock Form on Depositors and Borrowers of First Kansas
Federal Savings Association
Voting Rights. Currently in our mutual form, our depositor and certain
borrower members have voting rights and may vote for the election of directors.
Following the conversion, all voting rights will be held solely by stockholders.
Savings Accounts and Loans. The balances, terms and FDIC insurance
coverage of savings accounts will not be affected by the conversion.
Furthermore, the amounts and terms of loans and obligations of the borrowers
under their individual contractual arrangements with us will not be affected by
the conversion.
Tax Effects. We have received an opinion from our counsel, Malizia,
Spidi, Sloane & Fisch, P.C. on the federal tax consequences of the conversion.
The opinion has been filed as an exhibit to the registration statement of which
this Prospectus is a part and covers those federal tax matters that are material
to the transaction. The opinion provides, in part, that: (i) the conversion will
qualify as a reorganization under Section 368(a)(1)(F) of the Code, and no gain
or loss will be recognized by us by reason of the proposed conversion; (ii) no
gain or loss will be recognized by us upon the receipt of money from the Company
for our stock, and no gain or loss will be recognized by the Company upon the
receipt of money for the shares; (iii) our assets will have the same basis
before and after the conversion; (iv) the holding period of our assets will
include the period during which the assets were held by us in our mutual form;
(v) no gain or loss will be recognized by the Eligible Account Holders,
Supplemental Eligible Account Holders, and Other Members upon the issuance to
them of withdrawable savings accounts in us in the stock form in the same dollar
amount as their savings accounts in us in the mutual form plus an interest in
our liquidation account in the stock form in exchange for their savings accounts
in us in the mutual form; (vi) provided that the amount to be paid for the
shares pursuant to the subscription rights is equal to the fair market value of
such shares, no gain or loss will be recognized by Eligible Account Holders,
Supplemental Eligible Account Holders, and Other Members under the Plan upon the
distribution to them of nontransferable subscription rights; (vii) the basis of
each account holder's savings accounts after the conversion will be the same as
the basis of his savings accounts prior to the conversion, decreased by the fair
market value of the nontransferable subscription rights received and increased
by the amount, if any, of gain recognized on the exchange; (viii) the basis of
each account holder's interest in the liquidation account will be zero; (ix) the
holding period of the common stock acquired through the exercise of subscription
rights shall begin on the date on which the subscription rights are exercised;
(x) we will succeed to and take into account our earnings and profits or deficit
in earnings and profits as of the date of conversion; (xi) immediately after
conversion, we will succeed to the bad debt reserve accounts previously held by
us, and the bad debt reserves will have the same character in our hands after
conversion as if no distribution or transfer had occurred; and (xii) the
creation of the liquidation account will have no effect on our taxable income.
The opinion from Malizia, Spidi, Sloane & Fisch, P.C. is based in part
on the assumption that the exercise price of the subscription rights will be
approximately equal to the fair market value of those shares at the time of the
completion of the proposed conversion. We have received an opinion of Capital
Resources Group, Inc. which, based on certain assumptions, concludes that the
subscription rights to be
23
<PAGE>
received by Eligible Account Holders and other eligible subscribers do not have
any economic value at the time of distribution or at the time the subscription
rights are exercised. Such opinion is based on the fact that such rights are:
(i) acquired by the recipients without payment therefor, (ii) non-transferable,
(iii) of short duration, and (iv) afford the recipients the right only to
purchase shares at a price equal to their estimated fair market value, which
will be the same price at which shares for which no subscription right is
received in the subscription offering will be offered in a public offering. If
the subscription rights granted to Eligible Account Holders or other eligible
subscribers are deemed to have an ascertainable value, receipt of such rights
would be taxable only to those Eligible Account Holders or other eligible
subscribers who exercise the subscription rights in an amount equal to such
value (either as a capital gain or ordinary income), and we could recognize gain
on such distribution.
We are also subject to Kansas income taxes and have received an opinion
from Winkler, Lee, Tetwiler, Domoney & Schultz that the conversion will be
treated for Kansas state tax purposes similar to the conversion's treatment for
federal tax purposes. The opinion has been filed as an exhibit to the
registration statement to which this Prospectus is a part and covers those state
tax matters that are material to the transaction.
Unlike a private letter ruling, the opinions of Malizia, Spidi, Sloane
& Fisch, P.C., Winkler, Lee, Tetwiler, Domoney & Schultz and Capital Resources
Group, Inc. have no binding effect or official status, and no assurance can be
given that the conclusions reached in any of those opinions would be sustained
by a court if contested by the IRS or the Kansas tax authorities. Eligible
Account Holders, Supplemental Eligible Account Holders, and Other Members are
encouraged to consult with their own tax advisers as to the tax consequences in
the event the subscription rights are deemed to have an ascertainable value.
Liquidation Account. In the unlikely event of our complete liquidation
in our present mutual form, each depositor is entitled to equal distribution of
any of our assets, pro rata according to the value of his/her accounts,
remaining after payment of claims of all creditors (including the claims of all
depositors to the withdrawal value of their accounts). Each depositor's pro rata
share of such remaining assets would be in the same proportion as the value of
his/her deposit accounts was to the total value of all deposit accounts held by
us at the time of liquidation.
Upon a complete liquidation after the conversion, each depositor would
have a claim, as a creditor, of the same general priority as the claims of all
of our other general creditors. Therefore, except as described below, a
depositor's claim would be solely in the amount of the balance in his deposit
account plus accrued interest. A depositor would not have an interest in the
residual value of our assets above that amount, if any.
The Plan provides for the establishment, upon the completion of the
conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders. Each Eligible Account
Holder and Supplemental Eligible Account Holder, if he continues to maintain his
deposit account with us, would be entitled upon our complete liquidation after
conversion, to an interest in the liquidation account prior to any payment to
stockholders. Each Eligible Account Holder would have an initial interest in
such liquidation account for each deposit account held in us on the qualifying
date, September 30, 1996. Each Supplemental Eligible Account Holder would have a
similar interest as of the qualifying date, March 31, 1998. The interest as to
each deposit account would be in the same proportion of the total liquidation
account as the balance of the deposit account on the qualifying dates was to the
aggregate balance in all the deposit accounts of Eligible Account Holders and
Supplemental Eligible Account Holders on such qualifying dates. However, if the
amount in the deposit account on any annual closing date (December 31) is less
than the amount in such account on the
24
<PAGE>
respective qualifying dates, then the interest in this special liquidation
account would be reduced at that time by an amount proportionate to any such
reduction, and the interest would cease to exist if such deposit account was
closed. The interest in the special liquidation account will never be increased
despite any increase in the related deposit account after the respective
qualifying dates.
No merger, consolidation, purchase of bulk assets with assumptions of
savings accounts and other liabilities, or similar transactions with another
insured institution in which transaction we in our converted form are not the
surviving institution shall be considered a complete liquidation. In such
transactions, the liquidation account shall be assumed by the surviving
institution.
Subscription Rights and the Subscription Offering
Non-transferable subscription rights to purchase shares of the common
stock have been granted to persons and entities entitled to purchase shares in
the subscription offering under the Plan. If the community offering or
syndicated community offering, as described below, extends beyond 45 days
following the completion of the subscription offering, subscribers will be
resolicited. Subscription priorities have been established for the allocation of
stock to the extent that more shares are subscribed for than are to be issued in
the conversion subject to the purchase limitations set forth in the Plan and as
described below under "-- Limitations on Purchases of Shares." The following
priorities have been established:
Category 1: Eligible Account Holders (First Priority). Eligible Account
Holders are persons who had a deposit account of at least $50 with us on
September 30, 1996. Each Eligible Account Holder will receive non-transferable
subscription rights on a priority basis to purchase that number of shares of
common stock which is equal to the greater of 15,000 shares ($150,000), or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares to be issued by a fraction of which the
numerator is the amount of the qualifying deposit of the Eligible Account Holder
and the denominator is the total amount of qualifying deposits of all Eligible
Account Holders (subject to the maximum purchase limitation). If there is an
oversubscription in this category, shares shall be allocated among subscribing
Eligible Account Holders so as to permit each such account holder, to the extent
possible, to purchase the lesser of 100 shares or the total amount of his
subscription. Any shares not so allocated shall be allocated among the
subscribing Eligible Account Holders on an equitable basis, related to the
amounts of their respective qualifying deposits as compared to the total
qualifying deposits of all subscribing Eligible Account Holders. Only a
person(s) with a qualifying deposit as of the eligibility record date (or a
successor entity or estate) shall receive subscription rights in this category.
Any Person(s) added to a Savings Account after the Eligibility Record Date is
not an Eligible Account Holder. Subscription rights received by officers and
directors in this category based on their increased deposits with us in the
one-year period preceding September 30, 1996, are subordinated to the
subscription rights of other Eligible Account Holders. See "-- Limitations on
Purchases and Transfer of Shares."
Category 2: Tax-Qualified Employee Benefit Plans (Second Priority). Our
tax-qualified employee benefit plans ("Employee Plans") have been granted
subscription rights to purchase up to 8% of the total shares issued in the
conversion. The ESOP is an Employee Plan.
The right of Employee Plans to subscribe for shares is subordinate to
the right of the Eligible Account Holders to subscribe for shares. However, in
the event the offering results in the issuance of shares above the maximum of
the EVR (i.e., more than 1,351,250 shares), the Employee Plans have a priority
right to fill their subscription (the ESOP, the only Employee Plan, currently
intends to purchase up to 8% of the common stock issued in the conversion). The
Employee Plans may, however, determine
25
<PAGE>
to purchase some or all of the shares covered by their subscriptions after the
conversion in the open market or, if approved by the OTS, out of authorized but
unissued shares in the event of an oversubscription.
Category 3: Supplemental Eligible Account Holders (Third Priority). Supplemental
Eligible Account Holders are persons who had a deposit account of at least $50
with us on March 31, 1998. Each Supplemental Eligible Account Holder who is not
an Eligible Account Holder will receive non-transferable subscription rights to
purchase that number of shares which is equal to the greater of 15,000 shares
($150,000), or 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares to be issued by a fraction of
which the numerator is the amount of the qualifying deposit of the Supplemental
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Supplemental Eligible Account Holders (subject to the maximum
purchase limitation). If the allocation made in this paragraph results in an
oversubscription, shares shall be allocated among subscribing Supplemental
Eligible Account Holders so as to permit each such account holder, to the extent
possible, to purchase the lesser of 100 shares or the total amount of his
subscription. Any shares not so allocated shall be allocated among the
subscribing Supplemental Eligible Account Holders on an equitable basis, related
to the amounts of their respective qualifying deposits as compared to the total
qualifying deposits of all subscribing Supplemental Eligible Account Holders.
See "-- Limitations on Purchases and Transfer of Shares."
The rights of Supplemental Eligible Account Holders to subscribe for
shares is subordinate to the rights of the Eligible Account Holders and Employee
Plans to subscribe for shares.
Category 4: Other Members (Fourth Priority). Other Members are persons who have
a deposit account of at least $50 on the voting record date of our special
meeting and borrowers as of the voting record date of our special meeting. Each
Other Member who is not an Eligible Account Holder or Supplemental Eligible
Account Holder, will receive non-transferable subscription rights to purchase up
to 15,000 shares ($150,000) to the extent such shares are available following
subscriptions by Eligible Account Holders, Employee Plans, and Supplemental
Eligible Account Holders. In the event there are not enough shares to fill the
orders of the Other Members, the subscriptions of the Other Members will be
allocated so that each subscribing Other Member will be entitled to purchase the
lesser of 100 shares or the number of shares ordered. Any remaining shares will
be allocated among Other Members whose subscriptions remain unsatisfied on a 100
share (or whatever lesser amount is available) per order basis until all orders
have been filled on the remaining shares have been allocated. See "--
Limitations on Purchases and Transfer of Shares."
Members in Non-Qualified States. We will make reasonable efforts to
comply with the securities laws of all states in the United States in which
persons entitled to subscribe for the shares pursuant to the Plan reside.
However, no person will be offered or allowed to purchase any shares under the
Plan if he resides in a foreign country or in a state with respect to which any
of the following apply: (i) a small number of persons otherwise eligible to
subscribe for shares under the Plan reside in that state or foreign country;
(ii) the granting of subscription rights or offer or sale of shares of common
stock to those persons would require either us or our employees to register
under the securities laws of that state or foreign country as a broker or
dealer, or to register or otherwise qualify our securities for sale in that
state or foreign country; or (iii) such registration or qualification would be
impracticable for reasons of cost or otherwise. No payments will be made in lieu
of the granting of subscription rights to any person.
Restrictions on Transfer of Subscription Rights and Shares. Persons are
prohibited from transferring or entering into any agreement or understanding to
transfer the legal or beneficial ownership of their subscription rights.
Subscription rights may be exercised only by the person to whom they are
26
<PAGE>
granted and only for his or her account. Each person subscribing for shares will
be required to certify that he/she is purchasing shares solely for his/her own
account and has not entered into an agreement or understanding regarding the
sale or transfer of those shares. The regulations also prohibit any person from
offering or making an announcement of an offer or intent to make an offer to
purchase subscription rights or shares of common stock prior to the completion
of the conversion.
We will pursue any and all legal and equitable remedies in the event we
become aware of the transfer of subscription rights and will not honor orders
believed by us to involve the transfer of subscription rights or which appear to
us to present other irregularities.
Expiration Date. The Subscription Offering will expire at ____:____
p.m., Osawatomie, Kansas Time, on ________ ____, 1998 (Expiration Date).
Subscription rights will become void if not exercised prior to the Expiration
Date.
Community Offering
To the extent that shares remain available and subject to market
conditions at or near the completion of the subscription offering, we may offer
shares in a community offering, with a preference to natural persons who reside
in Miami, Bourbon, Mitchell and Phillips counties, Kansas, on a best-efforts
basis through Capital Resources, Inc. in such a manner as to promote a wide
distribution of the common stock. Any orders received in connection with the
community offering, if any, will receive a lower priority than orders properly
made in the subscription offering by persons exercising Subscription Rights.
Common stock sold in the community offering will be sold at the same price as
all shares in the subscription offering. We have the right to reject any orders
in the community offering.
No person ordering through a single account will be permitted to
purchase more than 15,000 shares or $150,000 of common stock in the community
offering. In addition, no person, related person or persons acting together, may
purchase in all categories more than 20,000 shares or $200,000 of stock sold in
the conversion. To order common stock in connection with the community offering,
if held, an executed stock order and account withdrawal authorization (if
applicable) must be received prior to the termination of the community offering.
Promptly upon receipt of available funds, together with a properly executed
stock order and account withdrawal authorization, if applicable, and
certification, Capital Resources, Inc. will forward funds for any order in a
community offering to the Bank to be deposited in a subscription escrow account.
The date by which orders must be received in the community offering
("community offering Expiration Date") will be set by us at the time of
commencement of the community offering; provided however, if the offering is
extended beyond ________ ____, 1998, each subscriber will have the opportunity
to maintain, modify, or rescind his order. In such event, all funds received in
the community offering will be promptly returned with interest unless the
subscriber affirmatively indicates otherwise.
If an order in the community offering is accepted, promptly after the
completion of the conversion, a certificate for the appropriate amount of shares
will be forwarded to Capital Resources, Inc. as nominee for the beneficial
owner. In the event that an order is not accepted in the community offering or
the conversion is not consummated, we will promptly refund with interest the
funds received to Capital Resources, Inc. which will then return the funds to
the purchaser's account. If the appraisal of the estimated market value of the
Association and the Company is less than $9,987,500 or more than $15,539,380,
each subscriber will have the right to modify or rescind his order. The Plan
also permits Capital Resources, Inc. to conduct a syndicated community offering,
but this is not expected to occur. If a syndicated community offering does
occur, it will occur on a best-efforts basis through Capital
27
<PAGE>
Resources, Inc. on terms negotiated prior to commencement of the syndicated
community offering and, therefore, Capital Resources, Inc. will not be committed
to purchase any shares.
Ordering and Receiving Shares
Use of Order Forms. Rights to subscribe for stock in the subscription
offering or to purchase stock in the community offering (if any) may only be
exercised by completing an original order form. Persons ordering shares in the
subscription offering must deliver by mail or in person a properly completed and
executed original order form to us prior to the Expiration Date. Order forms
must be accompanied by full payment for all shares ordered. See "-- Payment for
Shares." Subscription rights under the Plan will expire on the Expiration Date,
whether or not we have been able to locate each person entitled to subscription
rights. Once submitted, subscription orders cannot be revoked without our
consent unless the conversion is not completed within 45 days of the Expiration
Date.
In the event an order form (i) is not delivered and is returned to us
by the United States Postal Service or we are unable to locate the addressee,
(ii) is not received or is received after the Expiration Date, (iii) is
defectively completed or executed, or (iv) is not accompanied by full payment
for the shares subscribed for (including instances where a savings account or
certificate balance from which withdrawal is authorized is insufficient to fund
the amount of such required payment), the subscription rights for the person to
whom such rights have been granted will lapse as though that person failed to
return the completed order form within the time period specified. We may, but
will not be required to, waive any irregularity on any order form or require the
submission of corrected order forms or the remittance of full payment for
subscribed shares by such date as we specify. The waiver of an irregularity on
an order form in no way obligates us to waive any other irregularity on that or
on any other order form. Waivers will be considered on a case by case basis.
Photocopies of order forms, payments from private third parties, or electronic
transfers of funds will not be accepted. Our interpretation of the terms and
conditions of the Plan and of the acceptability of the order forms will be
final. We have the right to investigate any irregularity on any order form.
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery in accordance with Rule l5c2-8. Order
forms will only be distributed with a prospectus.
Payment for Shares. Payment for shares of common stock may be made (i)
in cash, if delivered in person, (ii) by check or money order, or (iii) by
authorization of withdrawal from savings accounts (including certificates of
deposit) maintained with us. Appropriate means by which such withdrawals may be
authorized are provided in the order form. Once such a withdrawal has been
authorized, no portion of the designated withdrawal amount may be used by the
subscriber for any purpose other than to purchase the shares. Where payment has
been authorized to be made through withdrawal from a savings account, the sum
authorized for withdrawal will continue to earn interest at the contract rate
until the conversion has been completed or terminated. Interest penalties for
early withdrawal applicable to certificate accounts will not apply to
withdrawals authorized for the purchase of shares; however, if a partial
withdrawal results in a certificate account with a balance less than the
applicable minimum balance requirement, the certificate evidencing the remaining
balance will earn interest at the passbook savings account rate subsequent to
the withdrawal. Payments made in cash or by check or money order, will be placed
in a segregated savings account and interest will be paid by us at our passbook
savings account rate from the date payment is received until the conversion is
completed or terminated. An executed order form, once received by us, may not be
modified, amended, or rescinded without our consent,
28
<PAGE>
unless the conversion is not completed within 45 days after the conclusion of
the subscription offering, in which event subscribers may be given an
opportunity to increase, decrease, or rescind their order. In the event that the
conversion is not consummated, all funds submitted pursuant to the offering will
be refunded promptly with interest.
Owners of self-directed IRAs may use the assets of such IRAs to
purchase shares in the offering, provided that such IRAs are not maintained on
deposit with us. Persons with IRAs maintained with us must have their accounts
transferred to an unaffiliated institution or broker to purchase shares in the
offering. The Stock Information Center can assist you in transferring your
self-directed IRA. Because of the paperwork involved, persons owning IRAs with
us who wish to use their IRA account to purchase stock in the offering, must
contact the Stock Information Center no later than ________ ____, 1998.
The ESOP may subscribe for shares by submitting its order form along
with evidence of a loan commitment from a financial institution or the Company
for the purchase of the shares during the subscription offering and by making
payment for shares on the date of completion of the conversion.
Federal regulations prohibit us from lending funds or extending credit
to any person to purchase shares in the conversion.
Delivery of Stock Certificates. Certificates representing shares of
common stock issued in the conversion will be mailed to the person(s) at the
address noted on the order form, as soon as practicable following consummation
of the conversion. Any certificates returned as undeliverable will be held until
properly claimed or otherwise disposed. Persons ordering shares might not be
able to sell their shares until they receive their stock certificates.
Plan of Distribution
Materials for the offering have been distributed to eligible
subscribers by mail. Additional copies are available at our Stock Information
Center. Our officers may be available to answer questions about the conversion.
Responses to questions about us will be limited to the information contained in
this document. Officers will not be authorized to render investment advice. All
subscribers for the shares being offered will be instructed to send payment
directly to us. The funds will be held in a segregated special escrow account
and will not be released until the closing of the conversion or its termination.
Marketing Arrangements
We have engaged Capital Resources, Inc. as our financial advisor in
connection with the offering. Capital Resources, Inc. has agreed to exercise its
best efforts to assist us in the sale of the shares in the offering. Capital
Resources, Inc. will receive a fee of (a) 1.25% of the aggregate dollar amount
of common stock sold in the offerings to investors who reside in Kansas and
those counties of Missouri contiguous to Kansas (excluding shares sold to our
directors, executive officers and their associates, and to the ESOP); and (b)
1.05% of the aggregate dollar amount of common stock sold in the offerings to
investors who reside outside the areas described in (a). We will also reimburse
Capital Resources, Inc. for its out-of-pocket expenses (up to $20,000) and legal
expenses (up to $25,000). Also, we have agreed to indemnify Capital Resources,
Inc. for reasonable costs and expenses in connection with certain claims or
liabilities which might be asserted against Capital Resources, Inc. This
indemnification covers the investigation, preparation of defense and defense of
any action, proceeding or claim relating to, among other things,
misrepresentation or breach of warranty of the written agreement between Capital
Resources, Inc. and the Association or the omission or alleged omission of a
material fact required to be stated or necessary in order to make disclosure in
the prospectus and related documents not misleading.
29
<PAGE>
We will negotiate the fees and reimbursement of expenses for Capital Resources,
Inc. before we begin any syndicated community offering.
The shares will be offered principally by the distribution of this
document and through activities conducted at the Stock Information Center. The
Stock Information Center is expected to operate during our normal business hours
throughout the offering. A registered representative employed by Capital
Resources, Inc. will be working at, and supervising the operation of, the Stock
Information Center. Capital Resources, Inc. will assist us in responding to
questions regarding the conversion and the offering and processing order forms.
Our personnel will be present in the Stock Information Center to assist Capital
Resources, Inc. with clerical matters and to answer questions related solely to
our business.
Stock Pricing
We have retained Capital Resources Group, Inc., an independent
consulting and appraisal firm, which is experienced in the evaluation and
appraisal of business entities, including savings institutions involved in the
conversion process to prepare an appraisal of our estimated market value.
Capital Resources Group, Inc. will receive fees of $15,000 for preparing the
appraisal and $5,000 for its assistance in connection with the preparation of a
business plan and also will be reimbursed reasonable out-of-pocket expenses. We
have agreed to indemnify Capital Resources Group, Inc. under certain
circumstances against liabilities and expenses arising out of or based on any
misstatement or untrue statement of a material fact contained in the information
we supplied to Capital Resources Group, Inc.
Capital Resources Group, Inc. has prepared the appraisal in reliance
upon the information contained herein, including the financial statements. The
appraisal contains an analysis of a number of factors including, but not limited
to, our financial condition and operating trends, the competitive environment
within which we operate, operating trends of certain savings institutions and
savings and loan holding companies, relevant economic conditions, both
nationally and in the State of Kansas which affect the operations of savings
institutions, and stock market values of certain savings institutions. In
addition, Capital Resources Group, Inc. has advised us that it has considered
the effect of the additional capital raised by the sale of the shares on our
estimated aggregate pro forma market value.
On the basis of the above, Capital Resources Group, Inc. has
determined, in its opinion, that as of March 6, 1998, our estimated market value
was $11,750,000. OTS regulations require, however, that the appraiser establish
a range of value for the stock to allow for fluctuations in the aggregate value
of the stock due to changing market conditions and other factors. Accordingly,
Capital Resources Group, Inc. has established a range of value from $9,987,500
to $13,512,500 for the offering, the EVR. The EVR will be updated prior to
consummation of the conversion and the EVR may increase to $15,539,380 without
resolicitation of subscriptions.
The board of directors has reviewed the independent appraisal,
including the stated methodology of the independent appraiser and the
assumptions used in the preparation of the independent appraisal. The board of
directors is relying upon the expertise, experience and independence of the
appraiser and is not qualified to determine the appropriateness of the
assumptions.
In order for stock sales to take place Capital Resources Group, Inc.
must confirm to the OTS that, to the best of Capital Resources Group, Inc.'s
knowledge and judgment, nothing of a material nature has occurred which would
cause Capital Resources Group, Inc. to conclude that the Purchase Price on an
aggregate basis was incompatible with Capital Resources Group, Inc.'s estimate
of our pro forma market value in converted form at the time of the sale. If,
however, facts do not justify such a statement, an amended EVR may be
established.
30
<PAGE>
The appraisal is not a recommendation of any kind as to the
advisability of purchasing these shares. In preparing the appraisal, Capital
Resources Group, Inc. has relied upon and assumed the accuracy and completeness
of financial and statistical information provided by us. Capital Resources
Group, Inc. did not independently verify the financial statements and other
information provided by us, nor did Capital Resources Group, Inc. independently
value our assets and liabilities. The appraisal considers us only as a going
concern and it should not be viewed as our liquidation value. Moreover, because
the appraisal is based upon estimates and projections of a number of matters
which are subject to change, the market price of the common stock could decline
below $10.00. Capital Resources Group, Inc. is affiliated with Capital
Resources, Inc.
Change in Number of Shares to be Issued in the Conversion
Depending on market and financial conditions at the time of the
completion of the offerings, we may significantly increase or decrease the
number of shares to be issued in the conversion. In the event of an increase in
the valuation, we may increase the total number of shares to be issued in the
conversion. An increase in the total number of shares to be issued in the
conversion would decrease a subscriber's percentage ownership interest and the
pro forma net worth (book value) per share and increase the pro forma net income
and net worth (book value) on an aggregate basis. In the event of a material
reduction in the valuation, we may decrease the number of shares to be issued to
reflect the reduced valuation. A decrease in the number of shares to be issued
in the conversion would increase a subscriber's percentage ownership interest
and the pro forma net worth (book value) per share and decrease pro forma net
income and net worth on an aggregate basis.
Persons ordering shares will not be permitted to modify or cancel their
orders unless the change in the number of shares to be issued in the conversion
results in an offering which is either less than $9,987,500 or more than
$15,539,380. Persons who did not subscribe for shares will not have the
opportunity to do so.
Limitations on Purchases and Transfer of Shares
The Plan provides for certain additional purchase limitations. The
minimum purchase is 25 shares and the maximum purchase for any individual person
or persons ordering through a single account, is 15,000 shares. In addition, no
person or persons ordering through a single account, together with their
associates, or group of persons acting together, may purchase more than 20,000
shares. However, the Employee Plans may purchase up to 8% of the shares sold.
The OTS regulations governing the conversion provide that officers and directors
and their associates may not purchase, in the aggregate, more than 33% of the
shares issued pursuant to the conversion.
Depending on market conditions and the results of the offering, the
board of directors may, if the OTS agrees, increase or decrease any of the
purchase limitations without the approval of our members and without
resoliciting subscribers. If the maximum purchase limitation is increased,
persons who ordered the maximum amount will be given the first opportunity to
increase their orders. In doing so the preference categories in the offerings
will be followed.
In the event of an increase in the total number of shares offered in
the conversion due to an increase in the EVR of up to 15% (the "Adjusted
Maximum"), the additional shares will be allocated in the following order of
priority: (i) to fill the Employee Plans' subscription of up to 8% of the
Adjusted Maximum number of shares (the ESOP currently intends to subscribe for
8%); (ii) in the event that there is an oversubscription by Eligible Account
Holders, to fill unfulfilled subscriptions of Eligible Account Holders; (iii) in
the event that there is an oversubscription by Supplemental Eligible Account
Holders,
31
<PAGE>
to fill unfulfilled subscriptions to Supplemental Eligible Account Holders; (iv)
in the event that there is an oversubscription by Other Members, to fill
unfulfilled subscriptions of Other Members; and (v) to fill unfulfilled
subscriptions in the community offering to the extent possible.
The term "associate" of a person means (i) any corporation or
organization (other than us or a majority-owned subsidiary of ours) of which
such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities, (ii) any
trust or other estate in which such person has a substantial beneficial interest
or as to which such person serves as director or in a similar fiduciary capacity
(excluding tax-qualified employee stock benefit plans), and (iii) any relative
or spouse of such person or any relative of such spouse, who has the same home
as such person or who is one of our directors or officers, or a director or
officer of any of our subsidiaries. For example, a corporation of which a person
serves as an officer would be an associate of that person, and therefore all
shares purchased by that corporation would be included with the number of shares
which that person individually could purchase under the above limitations.
The term "officer" may include our chairman of the board, president,
vice presidents in charge of principal business functions, Secretary and
Treasurer and any other person performing similar functions. All references
herein to an officer have the same meaning as used for an officer in the Plan.
To order shares in the conversion, persons must certify that their
purchase does not conflict with the purchase limitations. In the event that the
purchase limitations are exceeded by any person (including any associate or
group of persons affiliated or otherwise acting in concert with such persons),
we will have the right to purchase from that person at $10.00 per share all
shares acquired by that person in excess of the purchase limitations. If the
excess shares have been sold by that person, we may recover the profit from the
sale of the shares by that person. We may assign our right either to purchase
the excess shares or to recover the profits from their sale.
Shares of common stock purchased pursuant to the conversion will be
freely transferable, except for shares purchased by our directors and officers.
For certain restrictions on the shares purchased by directors and officers, see
"-- Restrictions on Sales and Purchases of Shares by Directors and Officers." In
addition, under guidelines of the NASD, members of the NASD and their associates
are subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of such securities.
Restrictions on Repurchase of Shares
Generally, during the first year following the conversion, the Company
may not repurchase its shares and during each of the second and third years
following the conversion, the Company may repurchase up to five percent of the
outstanding shares provided they are purchased in open-market transactions.
Repurchases must not cause us to become undercapitalized and at least 10 days
prior notice of the repurchase must be provided to the OTS. The OTS may
disapprove a repurchase program upon a determination that (1) the repurchase
program would adversely affect our financial condition, (2) the information
submitted is insufficient upon which to base a conclusion as to whether the
financial condition would be adversely affected, or (3) a valid business purpose
was not demonstrated. However, the OTS may grant special permission to
repurchase shares after six months following the conversion and to repurchase
more than five percent during each of the second and third years. In addition,
SEC rules also govern the method, time, price, and number of shares of common
stock that may be repurchased by the Company and affiliated purchasers. If, in
the future, the rules and regulations regarding the repurchase of stock are
liberalized, the Company may utilize the rules and regulations then in effect.
32
<PAGE>
Restrictions on Sales and Purchases of Shares by Directors and Officers
Shares purchased by directors and officers of the Company may not be
sold for one year following the conversion, except in the event of the death of
the director or officer. Any shares issued to directors and officers as a stock
dividend, stock split, or otherwise with respect to restricted stock shall be
subject to the same restrictions.
For three years following the conversion, directors and officers may
purchase shares only through a registered broker or dealer. Exceptions are
available only if the OTS has approved the purchase or the purchase is an arm's
length transaction and involves more than one percent of the outstanding shares.
Interpretation and Amendment of the Plan
We have the authority to interpret and amend the Plan. Our
interpretations are final. Amendments to the Plan after the receipt of member
approval will not need further member approval unless required by the OTS.
Conditions and Termination
Completion of the conversion requires (i) the approval of the Plan by
the affirmative vote of not less than a majority of the total number of votes
eligible to be cast by our members, and (ii) completion of the sale of shares
within 24 months following approval of the Plan by our members. If these
conditions are not satisfied, the Plan will be terminated and we will continue
our business in the mutual form of organization. We may terminate the Plan at
any time prior to the meeting of members to vote on the Plan or at any time
thereafter with the approval of the OTS.
Other
All statements made in this document are hereby qualified by the
contents of the Plan of Conversion, the material terms of which are set forth
herein. The Plan of Conversion is attached to the proxy statement mailed to
certain depositors and borrowers. Copies of the Plan are available from us and
should be consulted for further information. Adoption of the Plan by our members
authorizes us to interpret, amend or terminate the Plan.
33
<PAGE>
First Kansas Federal Savings Association
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
=======================================================================================================================
Years ended December 31, 1997 and 1996
- -----------------------------------------------------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Loans $3,604,210 2,835,916
Investment securities 163,480 201,719
Mortgage-backed securities 2,865,950 3,339,132
Interest-bearing deposits 215,620 128,739
Dividends on FHLB stock 45,846 38,070
- -----------------------------------------------------------------------------------------------------------------------
Total interest income 6,895,106 6,543,576
Interest expense:
Deposits (note 8) 3,778,165 3,724,057
Borrowings 461,135 291,953
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 2,655,806 2,527,566
Provision for loan losses (note 5) 35,000 -
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,620,806 2,527,566
- -----------------------------------------------------------------------------------------------------------------------
Noninterest income:
Deposit account service fees 587,347 488,799
Gain on sales of loans 66,997 133,388
Gain (loss) on sales of mortgage-backed securities (note 4) 55,217 (4,057)
Gain on sale of real estate held for development (note 7) 35,189 -
Other 107,069 91,626
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest income 851,819 709,756
- -----------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Compensation and benefits (note 12) 1,138,777 1,088,511
Occupancy and equipment 360,582 355,558
Federal deposit insurance premiums and assessments (note 14) 42,653 734,972
Data processing 341,341 312,553
Amortization of premium on deposits assumed 60,935 60,935
Advertising 128,813 143,846
Other 278,501 255,225
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest expense 2,351,602 2,951,600
- -----------------------------------------------------------------------------------------------------------------------
Earnings before income tax expense 1,121,023 285,722
Income tax expense (note 11) 449,000 115,000
- -----------------------------------------------------------------------------------------------------------------------
Net earnings $ 672,023 170,722
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's discussion and analysis is intended to assist you in
understanding our financial condition and results of operations. The information
in this section should also be read with our Financial Statements and Notes to
the Financial Statements included elsewhere in this document.
General
The Company has recently been formed and, accordingly, has no results
of operations. The following discussion relates only to our financial condition
and results of operations. Please refer to our Pro Forma Data discussion on page
__ to see the potential effects of the offering on our financial statements.
Our results of operations depend primarily on net interest income,
which is determined by (i) the difference between rates of interest we earn on
our interest-earning assets and the rates we pay on interest-bearing liabilities
(interest rate spread), and (ii) the relative amounts of interest-earning assets
and interest-bearing liabilities. Our results of operations are also affected by
noninterest income, including, income from customer deposit account service
charges, gains on sales of loans, gains and losses from the sale of investments
and mortgage-backed securities and noninterest expense, including, primarily,
compensation and employee benefits, federal deposit insurance premiums, office
occupancy cost, and data processing cost. Our results of operations are also
affected significantly by general and economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities, all of which are beyond our control.
Asset/Liability Management
Our assets and liabilities may be analyzed by examining the extent to
which they are interest rate sensitive and by monitoring the expected effects of
interest rate changes on our net portfolio value.
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If our assets
mature or reprice more quickly or to a greater extent than our liabilities, our
net portfolio value and net interest income would tend to increase during
periods of rising interest rates but decrease during periods of falling interest
rates. Conversely, if our assets mature or reprice more slowly or to a lesser
extent than our liabilities, our net portfolio value and net interest income
would tend to decrease during periods of rising interest rates but increase
during periods of falling interest rates. Our policy has been to address the
interest rate risk inherent in the historical savings institution business of
originating long-term loans funded by short-term deposits by maintaining
sufficient liquid assets for material and prolonged changes in interest rates.
We originate fixed- and adjustable-rate real estate loans which
approximated 95% of our loan portfolio at December 31, 1997. To manage the
interest rate risk on this type of loan portfolio, we emphasize the origination
of adjustable-rate loans and sell a portion of our fixed-rate mortgage loans. At
December 31, 1997, adjustable-rate mortgage loans totalled $33.3 million or
70.9% of our total loan portfolio. We also maintain a portfolio of liquid assets
which includes investment securities and mortgage-backed securities. As an
asset/liability management tool, we may use alternative sources of funding if
deposit pricing in our local market area is not acceptable. Maintaining liquid
assets tends to reduce potential net income because liquid assets usually
provide a lower yield than other interest-earning assets.
35
<PAGE>
Net Portfolio Value
In order to encourage savings associations to reduce their interest
rate risk, the OTS adopted a rule incorporating an interest rate risk ("IRR")
component into the risk-based capital rules. The IRR component is a dollar
amount that will be deducted from total capital for the purpose of calculating
an institution's risk-based capital requirement and is measured in terms of the
sensitivity of its net portfolio value ("NPV") to changes in interest rates. NPV
is the difference between incoming and outgoing discounted cash flows from
assets, liabilities, and off-balance sheet contracts. An institution's IRR is
measured as the change to its NPV as a result of a hypothetical 200 basis point
("bp") change in market interest rates. A resulting change in NPV of more than
2% of the estimated present value of total assets ("PV") will require the
institution to deduct from its capital 50% of that excess change. The rules
provide that the OTS will calculate the IRR component quarterly for each
institution. Based on our asset size and risk-based capital, we have been
informed by the OTS that we are exempt from this rule. Nevertheless, the
following table presents our NPV at December 31, 1997, as calculated by the OTS,
based on quarterly information voluntarily provided by us to the OTS.
Percent Change in Net Portfolio Value
-------------------------------------
Changes
in Market
Interest Rates NPV Ratio(1) % Change in NPV
-------------- ------------ ---------------
(basis points)
+400 2.19% -79%
+300 4.64% -53%
+200 6.53% -32%
+100 8.07% -14%
0 9.23%
-100 10.05% +11%
-200 10.41% +16%
-300 10.98% +24%
-400 11.67% +33%
- -------------------
(1) Calculated as the estimated NPV divided by present value of total assets.
Management believes these calculations indicate that we would be deemed
to have a more than normal level of interest rate risk under applicable
regulatory capital requirements based on the current level of regulatory
capital.
Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, prepayments and deposit run-offs and should not be relied upon
as indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar
maturities or periods of repricing, they may react at different times and in
different degrees to changes in market rates of interest. The
36
<PAGE>
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while rates on other types of
assets and liabilities may lag behind changes in market interest rates. In the
event of a change in interest rates, prepayments and early withdrawal levels
could deviate significantly from those assumed in making the calculations set
forth above. Additionally, an increased credit risk may result as many borrowers
may be unable to service their debt in the event of an interest rate increase.
Our board of directors reviews our asset and liability policies on an
annual basis. The board of directors meets quarterly to review interest rate
risk and trends, as well as liquidity and capital ratios and requirements.
Management administers the policies and determinations of the board of directors
with respect to our asset and liability goals and strategies. We expect that our
asset and liability policies and strategies will continue as described so long
as competitive and regulatory conditions in the financial institution industry
and market interest rates continue as they have in recent years.
Financial Condition
Total assets decreased $5.6 million or 5.5% to $95.7 million at
December 31, 1997 from $101.2 million at December 31, 1996. The decrease was
primarily attributable to a $6.9 million decrease in our mortgage-backed
securities available-for-sale and a $3.9 million decrease in our mortgage-backed
securities held-to-maturity, partially offset by a $3.7 million increase in our
net loan portfolio and a $1 million increase in our investment securities
held-to-maturity. Our total liabilities decreased $6.4 million or 6.7%, to $89.0
million at December 31, 1997 from $95.4 million at December 31, 1996. The
decrease was primarily attributable to a $8.8 million decrease in our borrowings
from the FHLB, partially offset by a $1.9 million increase in deposits.
Management's efforts to increase the loan portfolio during 1997 resulted in the
average balance of loans increasing by approximately $10 million. That loan
growth was funded with proceeds from the sales and maturities of investment and
mortgage-backed securities. In addition, such proceeds were used to repay FHLB
advances.
37
<PAGE>
Average Balance Sheet
The following table sets forth a summary of average balances of assets
and liabilities as well as average yield and rate information. Average balances
are based upon month-end balances, however, we do not believe the use of
month-end balances differs significantly from an average based upon daily
balances. There has been no tax equivalent adjustments made to yields.
<TABLE>
<CAPTION>
At December 31, Year Ended December 31,
---------------------- ---------------------------------------------------------------
1997 1997 1996
---------------------- ----------------------------- ---------------------------------
Average Interest Average Interest
Outstanding Yield/ Outstanding Earned Yield Outstanding Earned/ Yield/
Balance Rate Balance /Paid Rate Balance Paid Rate
------------ ------- ---------- ------- ------- -------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)......................... $46,563 7.83% $ 45,491 $3,604 7.92% $35,156 $2,836 8.07%
Investment securities....................... 3,852 7.26 3,147 163 5.19 2,966 202 6.80
Mortgage-backed securities.................. 37,770 6.33 43,554 2,866 6.58 51,891 3,339 6.43
Interest-bearing deposits................... 3,400 5.98 3,586 216 6.01 2,924 129 4.40
FHLB stock.................................. 661 8.05 635 46 7.25 594 38 6.39
------- ---- ------- ------ ------ ------- ------ ------
Total interest-earning assets(1) 92,246 7.13 96,413 $6,895 7.15 93,531 $6,543 7.00
---- ----- ------ ----- ------
Noninterest-earning assets.................... 3,409 4,024 3,874
------ ------- ------
Total assets............................. $95,655 $100,437 $97,405
====== ======= ======
Interest-bearing liabilities:
NOW and investment deposits................. 22,308 2.55% $ 22,324 567 2.54% $21,454 574 2.68%
Savings and certificate accounts............ 63,343 5.34 61,589 3,214 5.22 61,251 3,150 5.14
FHLB borrowings............................. 2,550 6.71 7,748 461 5.95 5,420 292 5.39
------ ---- ------- ------- ------ ------ ------ ------
Total interest-bearing liabilities....... 88,201 4.67 91,660 $4,242 4.63 88,126 $4,016 4.56
---- ----- ------ ----- ------
Noninterest-bearing liabilities:.............. 844 2,542 3,287
------- ------- -------
Total liabilities........................... 89,045 94,202 91,413
------ ------- ------
Equity........................................ 6,610 6,235 $ 5,992
------ ------- ------
Total liabilities and equity............. $95,655 $100,437 $97,405
====== ======= ======
Net interest income........................... $2,653 $2,527
===== =====
Net interest rate spread(2)................... 2.45% 2.52% 2.44%
==== ====== ======
Net earning assets............................ $ 4,045 $ 4,752 $5,404
====== ======= =====
Net yield on interest-earning assets(3)....... 2.75% 2.70%
====== ======
Average interest-earning assets to average
interest-bearing liabilities................ 105.18% 106.13%
====== ======
</TABLE>
- ------------------
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loan loss reserves.
(2) Net interest rate spread represents the difference between the average rate
on interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
38
<PAGE>
The table below sets forth certain information regarding changes in our
interest income and interest expense for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1997 vs. 1996
----------------------------------------------------------
Increase/(Decrease)
Due to
----------------------------------------------------------
Rate/
Volume Rate Volume Total
------ ---- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)................................ $ 834 $ (51) $ (15) $ 768
Investment securities.............................. 12 (48) (3) (38)
Mortgage-backed securities......................... (536) 76 (12) (473)
Interest-bearing deposits.......................... 29 47 11 87
FHLB stock......................................... 3 5 -- 8
----- --- --- -----
Total interest-earning assets................... 341 29 (19) 352
---- --- ----- ----
Interest-bearing liabilities:
NOW and money market deposits...................... 23 (29) (1) (7)
Savings and certificate accounts................... 17 46 -- 64
FHLB borrowings.................................... 125 30 13 169
---- --- --- ----
Total interest-bearing liabilities.............. 166 48 12 226
---- --- --- ----
Increase (decrease) in net interest income........... $ 175 $ (19) $ (31) $ 126
==== ==== ==== ====
</TABLE>
39
<PAGE>
Results of Operations for the Years Ended December 31, 1997 and 1996
Net Income. Our net income increased $501,000 for the year ended
December 31, 1997, to $672,000 from $171,000 for the year ended December 31,
1996. This increase was primarily attributable to a $128,000 increase in our net
interest income, a $142,000 increase in our noninterest income and a $600,000
decrease in our noninterest expense offset by a $35,000 increase in our
provision for loan losses and a $334,000 increase in our income tax expense due
to the increase in income before taxes.
Net Interest Income. Net interest income is the most significant
component of our income from operations. Net interest income is the difference
between interest we receive on our interest-earning assets, primarily loans,
investment and mortgage-backed securities and interest we pay on our
interest-bearing liabilities, primarily deposits. Net interest income depends on
the volume of and rates earned on interest-earning assets and the volume of and
rates paid on interest-bearing liabilities.
Our net interest income increased $128,000, or 5.0%, to $2,668,000 for
the year ended December 31, 1997, as compared to the same period in 1996. The
increase was primarily due to the growth in our average interest-earning assets
to $96.4 million in 1997 from $93.5 million in 1996 and growth in our interest
rate spread of 2.52% in 1997 compared to 2.44% in 1996.
The increase in our average interest-earning assets of $2.9 million
reflects increases of $10.3 million in our balance of average loans and $884,000
in our other interest-earning assets, partially offset by a decrease of $8.3
million in our mortgage-backed securities. The increase in our interest-earning
assets was funded by the increase in average interest-bearing liabilities.
Our interest rate spread and net yield on interest-earning assets
increased for the year ended December 31, 1997 compared to the same period in
1996 primarily due to an increase in average yield on our interest-earning
assets of 7.15% in 1997 compared to 7.00% in 1996, partially offset by an
increase in our average yield on interest-bearing deposits of 4.63% in 1997
compared to 4.56% in 1996. The increase in our average yield on interest-earning
assets was due to the sale of lower yielding mortgage-backed securities and loan
growth during 1997.
The increase in our average interest-bearing liabilities of $3.5
million reflects increases of $870,000 in our average interest-bearing demand
deposits, $338,000 in average savings and certificates of deposit and $2.3
million in average FHLB borrowings. The increase in our average FHLB borrowings
reflects the funding of the loan growth.
Provision for Loan Losses. Our provision for loan losses was $35,000 in
1997. We made no provision in 1996. The increase in the provision in 1997 was
the result of a $2.9 million increase in our one- to four-family real estate
loans and the credit risk associated with the increased loan volume.
Historically, we have emphasized our loss experience over other factors
in establishing the provision for loan losses. We review the allowance for loan
losses in relation to (i) our past loan loss experience, (ii) known and inherent
risks in our portfolio, (iii) adverse situations that may affect the borrower's
ability to repay, (iv) the estimated value of any underlying collateral, and (v)
current economic conditions. Management believes the allowance for loan losses
is at a level that is adequate to provide for estimated losses. However, there
can be no assurance that further additions will not be made to the allowance and
that such losses will not exceed the estimated amount. See "Business of First
Kansas Federal Savings Association -- Nonperforming and Problem Assets --
Allowance for Loan Losses."
40
<PAGE>
Noninterest Income. Our noninterest income increased $142,000 or 20.3%
from $698,000 in 1996 to $840,000 in 1997. This increase in our noninterest
income was due to increases of $98,000 in our deposit account service fees,
$59,000 in our gain on sales of mortgage-backed securities, and $51,000 in our
other noninterest income accounts, partially offset by a $66,000 decrease in our
gain on sales of real estate loans. Deposit account fees increased during 1997
due to a higher number of accounts.
Noninterest Expense. Our noninterest expense decreased $600,000 or
20.3% from $3.0 million in 1996 to $2.4 million in 1997. The decrease in our
noninterest expense was due to a $692,000 decrease in our federal deposit
insurance premiums, offset by increases of $50,000 in our compensation and
benefits and $42,000 in our other noninterest expense accounts which was
partially attributable to increases in the processing costs related to the
growth in the number of transaction accounts. The decrease in our federal
deposit insurance premiums was due to a $545,000 one-time special assessment
levied in 1996 to recapitalize the SAIF, which did not recur in 1997. Following
the one-time special assessment, the FDIC insurance premiums decreased,
resulting in lower noninterest expense.
As a result of the conversion, our noninterest expense may increase due
to costs associated with our employee stock ownership plan, restricted stock
plan, if implemented, and the costs of being a public company. However, we
expect any such increase to be offset by increased interest income resulting
from investment of the proceeds from the conversion.
Income Tax Expense. Our income tax expense increased $334,000 from
$115,000 in 1996 to $449,000 in 1997. This increase in income tax expense is due
to the increase in our pretax income of $835,000 from $286,000 in 1996 to $1.1
million in 1997. Our effective tax rate was 40.0% and 40.2% for the years ended
December 31, 1997 and 1996, respectively.
Liquidity and Capital Resources
We are required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which varies from time to time depending
upon economic conditions and deposit flows, is based upon a percentage of our
deposits and short-term borrowings. The required ratio currently is 4.0% and our
regulatory liquidity ratio average was 5.68% and 5.82% at December 31, 1997 and
1996, respectively.
Our primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investment securities and
interest-bearing deposits with other banks, advances from the FHLB of Topeka,
and funds provided from operations. While scheduled repayments of loans and
mortgage-backed securities and maturities of investment securities are
predictable sources of funds, deposit flows, and loan prepayments are greatly
influenced by the general level of interest rates, economic conditions and
competition. We use our liquidity resources principally to fund existing and
future loan commitments, maturing certificates of deposit and demand deposit
withdrawals, to invest in other interest-earning assets, to maintain liquidity,
and meet operating expenses.
Net cash provided by our operating activities (the cash effects of
transactions that enter into our determination of net income e.g., non-cash
items, amortization and depreciation, provision for loan losses) for the year
ended December 31, 1997 was $1.1 million as compared to $195,000 for the year
ended December 31, 1996. The increase was primarily due to a $501,000 increase
in our net income, $603,000 increase in our income taxes payable, $77,000
increase in our prepaid expenses $35,000 increase in provision for loan losses
offset by increases of $35,000 in our gain on real estate held for development,
$59,000 in our gain on sale of mortgage-backed securities and decrease of
$66,000 in our gain on sales of loans.
41
<PAGE>
Net cash provided by our investing activities (i.e., cash receipts,
primarily from our investment securities and mortgage-backed securities
portfolios and our loan portfolio) for the year ended December 31, 1997 totaled
$6.2 million, an increase of $15.0 million from December 31, 1996. The increase
was primarily attributable to funding net loan growth of $3.7 million in 1997 as
compared to $12.0 million in 1996. The increase was also affected by paydowns
and maturities of investment and mortgage-backed securities of $6.4 million in
1997 as compared to $9.3 million and proceeds from sales of mortgage-backed
securities of $4.7 million in 1997 as compared to $3.3 million in 1996, as well
as purchases of investment and mortgage-backed securities of $1.0 million in
1997 as compared to $8.7 million in 1996.
Net cash used in our financing activities (i.e., cash receipts
primarily from net increases in deposits and net decreases in FHLB advances) for
1997 totaled $6.9 million, a decrease of $17.4 million from December 31, 1996.
The decrease was primarily attributable to repayments of FHLB advances of $8.8
million in 1997 as compared to proceeds advanced from the FHLB of $9.5 million
in 1996.
Recent Accounting Pronouncements
FASB Statement on Reporting Comprehensive Income. In June 1997, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 130. SFAS No. 130 will require the Association
to classify items of other comprehensive income by their nature in the financial
statements and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the statement of equity. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997.
FASB Statement on Earnings Per Share. In March 1997, FASB issued SFAS
No. 128. The Statement establishes standards for computing and presenting
earnings per share and applies to entities with publicly held common stock or
potential common stock. This Statement simplifies the standards for computing
earnings per share previously found in Accounting Principles Board ("APB")
Opinion No. 15, Earnings per Share ("EPS"), and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. This statement
supersedes Opinion 15 and AICPA Accounting Interpretation 1-102 of Opinion 15.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. SFAS No. 128 will be adopted
by us in the initial period after December 15, 1997.
FASB Statement on Disclosure of Information about Capital Structure. In
February 1997, the FASB issued SFAS No. 129. The Statement incorporates the
disclosure requirements of APB Opinion No. 15, Earnings per Share, and makes
them applicable to all public and nonpublic entities that have issued securities
addressed by the Statement. APB Opinion No. 15 requires disclosure of
descriptive information about securities that is not necessarily related to the
computation of earnings per share. This statement continues the previous
requirements to disclose certain information about an entity's capital structure
found in APB Opinions No. 10, Omnibus Opinion- 1966, and No. 15, Earnings per
Share, and FASB Statement No. 47, Disclosure of Long-Term Obligations, for
entities that were subject to the requirements of those standards. This
Statement eliminates the exemption of nonpublic entities from
42
<PAGE>
certain disclosure requirements of Opinion 15 as provided by FASB Statement No.
21, Suspension of the Reporting of Earnings per Share and Segment Information by
Nonpublic Enterprises. It supersedes specific disclosure requirements of
Opinions 10 and 15 and Statement 47 and consolidates them in this Statement for
ease of retrieval and for greater visibility to nonpublic entities. The
Statement is effective for financial statements for periods ending after
December 15, 1997. SFAS No. 129 will be adopted by us in the initial period
after December 15, 1997.
FASB Statement of on Accounting for Stock-Based Compensation. In
October 1995, the FASB issued SFAS No. 123. SFAS No. 123 defines a "fair value
based method" of accounting for an employee stock option whereby compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period. FASB has encouraged all entities to adopt
the fair value based method, however, it will allow entities to continue the use
of the "intrinsic value based method" prescribed by APB Opinion No. 25. Under
the intrinsic value based method, compensation cost is the excess of the market
price of the stock at the grant date over the amount an employee must pay to
acquire the stock. However, most stock option plans have no intrinsic value at
the grant date and, as such, no compensation cost is recognized under APB
Opinion No. 25. Entities electing to continue use of the accounting treatment of
APB Opinion No. 25 must make certain pro forma disclosures as if the fair value
based method had been applied. The accounting requirements of SFAS No. 123 are
effective for transactions entered into in fiscal years beginning after December
15, 1995. Pro forma disclosures must include the effects of all awards granted
in fiscal years beginning after December 15, 1994. We expect to use the
"intrinsic value based method" as prescribed by APB Opinion No. 25.
43
<PAGE>
BUSINESS OF FIRST KANSAS FINANCIAL CORPORATION
The Company is not an operating company and has not engaged in any
significant business to date. It was formed in February 1998 as a
Kansas-chartered corporation to be the holding company for First Kansas Federal
Savings Bank. The holding company structure and retention of proceeds will
facilitate: (i) diversification into non-banking activities, (ii) acquisitions
of other financial institutions, such as savings institutions, (iii) expansion
within existing and into new market areas and (iv) stock repurchases without
adverse tax consequences. There are no present plans regarding diversification,
acquisitions, expansion or repurchases.
Since the Company will own only one savings association, it generally
will not be restricted in the types of business activities in which it may
engage, provided that we retain a specified amount of our assets in
housing-related investments. The Company initially will not conduct any active
business and does not intend to employ any persons other than officers but will
utilize our support staff from time to time.
The office of the Company is located at 600 Main Street, Osawatomie,
Kansas. The telephone number is (913) 755-3033.
BUSINESS OF FIRST KANSAS FEDERAL SAVINGS ASSOCIATION
First Kansas Federal Savings Association was originally chartered in
1899 as "The Consolidated Building and Loan Association" and commenced
operations that same year. In 1938, we became a member of the Federal Home Loan
Bank System, obtained a federal charter and changed our name to "First Federal
Savings and Loan Association of Osawatomie." In 1983, we changed our name to
"First Kansas Federal Savings Association." We are a community and customer
oriented federal mutual savings association with six branch offices located in
Miami, Bourbon, Mitchell and Phillips counties. We provide financial services to
individuals, families and small businesses. Historically, we have emphasized
residential mortgage lending, primarily originating one- to four-family mortgage
loans. At December 31, 1997, we had total assets of $95.7 million, deposits of
$85.7 million, and total equity of $6.6 million.
The Association opened its first branch in 1964 in Paola and its second
branch in 1974 in Louisburg. In 1981, we opened the branch at Fort Scott in an
attempt to diversify geographically. This office proved very successful in
generating deposits and by 1982 our asset size was $54 million. In November
1982, we continued our expansion plans by acquiring the liabilities of North
Kansas Savings Association, an insolvent institution which was in receivership
with the Federal Savings and Loan Insurance Corporation. With this acquisition,
we added the Beloit and Phillipsburg offices and our asset size grew to $85
million.
The principal sources of funds for our activities are deposits,
payments on loans and borrowings from the FHLB of Topeka. Funds are used
principally for the origination of adjustable-rate mortgage loans, but also for
the origination of fixed-rate mortgage loans, secured by first mortgages on one-
to four-family residences located in our local communities, and for the purchase
of investment securities. One- to four-family mortgage loans totalled $42.9
million, or 91.3% of our total loans receivable portfolio at December 31, 1997.
Our principal sources of revenue are interest received on loans and on
investments and our principal expense is interest paid on deposits.
44
<PAGE>
Market Area
Each of the Association's six offices is located in a small city
ranging in population from 2,000 to 8,000. Each area boasts a healthy, stable
economy with a low unemployment rate. Our main office is located in Osawatomie,
which together with the Paola and Louisburg branch offices, are bedroom
communities of Kansas City. Within 30 miles of Kansas City, businesses in these
areas promise to benefit from the southward spread of this growing metropolitan
area. Osawatomie, Paola and Louisburg fall within Miami County.
Our other branch offices are located in Fort Scott, Beloit and
Phillipsburg, which, respectively, fall within Bourbon, Mitchell, and Phillips
counties. Fort Scott has a diversified economic base of light industry and
agriculture. The Beloit and Phillipsburg economies of north central Kansas are
based primarily on agriculture and related industries.
Lending Activities
Most of our loans are mortgage loans which are secured by one- to
four-family residences. We also make multi-family, commercial, land and
construction loans, as well as consumer and commercial loans. Most of the loans
we originate have rates of interest which are adjustable ("adjustable-rate"). We
also originate fixed-rate mortgage ("fixed") loans.
The following table sets forth information concerning the types of
loans held by us.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------
1997 1996
-------------------------- -------------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Type of Loans:
Mortgage loans:
One- to four-family.............................. $42,853 91.29% $39,482 91.51%
Multi-family..................................... 1,045 2.23 1,062 2.46
Commercial....................................... 534 1.14 575 1.33
Land............................................. 141 0.30 78 0.18
Construction..................................... 126 0.27 130 0.30
------- ------- ------- -------
Total mortgage loans........................... 44,700 95.23 41,327 95.78
------ ------ ------ ------
Consumer loans..................................... 1,728 3.68 1,421 3.29
Commercial loans................................... 513 1.09 399 0.93
------ ------ ------ ------
Total loan portfolio........................... 46,941 100.00% 43,146 100.00%
------ ======= ------ =======
Less:
Loans in process................................. 81 61
Deferred fees and discounts...................... 118 112
Allowance for loan losses........................ 179 146
------- -------
Total loans receivable, net.................... $46,563 $42,827
====== ======
</TABLE>
45
<PAGE>
The following table sets forth the estimated maturity of our loan
portfolio at December 31, 1997. The table does not include the effects of
possible prepayments or scheduled principal repayments. All mortgage loans are
shown as maturing based on the date of the last payment required by the loan
agreement.
<TABLE>
<CAPTION>
Mortgage Commercial Consumer Total
Loans(1) Loans Loans Loans
-------- ----- ----- -----
(In thousands)
<S> <C> <C> <C> <C>
Amounts due:
Within 1 year................... $ 123 $ 2 $ 289 $ 414
Over 1 to 5 years............... 1,394 206 1,344 2,944
Over 5 years.................... 43,183 305 95 43,583
------ --- ------ ------
Total amount due.............. $44,700 $513 $1,728 $46,941
====== === ===== ======
</TABLE>
- ----------------
(1) Includes construction loans.
The following table sets forth the dollar amount of all loans due after
December 31, 1998, which have pre-determined interest rates and which have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed-rates Adjustable-rates Total
----------- ---------------- -----
(In thousands)
<S> <C> <C> <C>
Mortgage loans:
One- to four-family............................... $11,158 $31,572 $42,730
Multi-family...................................... -- 1,045 1,045
Commercial........................................ 145 390 535
Land.............................................. -- 141 141
Construction...................................... 94 32 126
------- ------- -------
Total mortgage loans............................ 11,397 33,180 44,577
------ ------ ------
Consumer loans...................................... 1,439 -- 1,439
Commercial loans.................................... 511 -- 511
------- -------- -------
Total loan portfolio............................ $13,347 $33,180 $46,527
====== ====== ======
</TABLE>
46
<PAGE>
The following information contains information concerning changes in
the amount of loans held by us.
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Total net loans receivable at beginning of period............. $42,827 $30,755
Loans originated:
Mortgage
One- to four-family....................................... 10,110 10,648
Land...................................................... 111 18
Consumer loans.............................................. 1,695 1,242
Commercial loans............................................ 525 423
------ ------
Total loans originated...................................... 12,441 12,331
Loans purchased:
One- to four-family......................................... 2,878 11,701
Loans sold.................................................... (3,384) (5,600)
Principal repayments.......................................... (8,140) (6,396)
Decrease (increase) in other items, net....................... (59) 36
------ ------
Net increase (decrease) in loans receivable................. 3,736 12,072
------ ------
Net loans, end of period...................................... $46,563 $42,827
====== ======
</TABLE>
Mortgage Loans:
One- to Four-Family Residential Loans. Our primary lending activity
consists of originating and purchasing one- to four-family residential mortgage
loans secured by property located in our market areas. About two-thirds of our
loan portfolio is comprised of adjustable-rate mortgage ("ARM") loans which we
retain for our portfolio. The remainder consists of fixed-rate loans which we
originate either to resell in the secondary market or to retain in our
portfolio, depending on the yield on the loan and on our asset/liability
management objectives. Residential real estate loans often remain outstanding
for significantly shorter periods than their contractual terms because borrowers
may refinance or repay loans at their option.
The interest rate on our ARM loans is based on an index plus a stated
margin. We usually offer discounted initial interest rates on ARM loans.
Borrowers qualify for the ARM loan at the initial interest rate. However, ARM
loan borrowers are, for loan approval, required to meet lower income-to-debt
ratios than those required for fixed-rate loans. ARM loans provide for periodic
interest rate adjustments upward or downward of up to 1% per adjustment. The
interest rate may not increase more than 5% over the life of the loan. Our ARM
loans typically reprice annually, after the initial adjustment period of one
year, three years or five years, with most loans having terms to maturity of 30
years. ARM loans are offered to all applicants; however, in a relatively low
interest rate environment, borrowers may prefer a fixed-rate to ARM loans.
Consumer preference in our market area for ARM loans has recently been weak.
47
<PAGE>
Our fixed-rate loans generally have terms of 15 or 30 years with
principal and interest payments calculated using up to a 30-year amortization
period. Loans originated with a loan-to-value ratio in excess of 80% require
private mortgage insurance. The maximum loan-to-value ratio on mortgage loans
secured by non-owner occupied properties generally is limited to 80%. We conform
our loans to the standards that are used in the mortgage industry allowing our
loans to be readily sold in the secondary market. We do not currently retain
servicing rights to those loans sold in the secondary market.
ARM loans decrease the risk associated with changes in interest rates
by periodically repricing, but involve other risks because as interest rates
increase, the underlying payments by the borrower increase, thus increasing the
potential for default by the borrower. At the same time, the marketability of
the underlying collateral may be adversely affected by higher interest rates.
Upward adjustment of the contractual interest rate is also limited by the
maximum periodic and lifetime interest rate adjustment permitted by the loan
documents, and, therefore is potentially limited in effectiveness during periods
of rapidly rising interest rates.
Mortgage loans originated and held by us generally include due-on-sale
clauses. This gives us the right to deem the loan immediately due and payable in
the event the borrower transfers ownership of the property securing the mortgage
loan without our consent.
Multi-Family and Commercial Loans. Multi-family and commercial loans
generally have a loan-to-value ratio of 80% or less. These loans do not have
terms greater than 30 years. Our multi-family loans are secured by multiple
six-plex and four-plex units. Commercial real estate loans are secured by office
buildings, churches and other commercial properties.
Multi-family and commercial real estate lending entails significant
additional risks compared to residential property lending. These loans typically
involve large loan balances to single borrowers or groups of related borrowers.
The repayment of these loans typically is dependent on the successful operation
of the real estate project securing the loan. These risks can be significantly
affected by supply and demand conditions in the market for office and retail
space and may also be subject to adverse conditions in the economy. To minimize
these risks, we generally limit this type of lending to our market area and to
borrowers who are otherwise well known to us. Most construction loans convert to
permanent loans with us after 6 months.
Residential Construction Loans. We make residential construction
loans/permanent loans on one- to four-family residential property to the
individuals who will be the owners and occupants upon completion of
construction. Only interest payments are required during construction and these
are to be paid from the borrower's own funds. These loans are underwritten using
the same criteria as applied in the underwriting of one- to four-family mortgage
loans. The maximum loan-to-value ratio is 80%. Upon completion of construction,
regular principal and interest payments commence.
Land Loans. We also make land loans which are secured by raw land in
our market area, to be used for agriculture or residential construction. At
December 31, 1997, land loans totalled $141,000 or 0.30% of our total loan
portfolio.
Consumer Loans:
We offer consumer loans in order to provide a wider range of financial
services to our customers and because these loans provide higher interest rates
and shorter terms than many of our other loans. Consumer loans totalled $1.7
million or 3.7% of our total loans at December 31, 1997. Our consumer loans
consist primarily of direct automobile loans.
48
<PAGE>
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
assets that depreciate rapidly. Repossessed collateral for a defaulted consumer
loan may not be sufficient for repayment of the outstanding loan, and the
remaining deficiency may not be collectible.
Commercial Loans:
Our commercial loan portfolio is comprised of loans to several local
businesses, and at December 31, 1997 represented $513,000, or 1.1% of our total
loan portfolio.
Loan Approval Authority and Underwriting. Our loan committee, which is
comprised of Larry V. Bailey, Daniel G. Droste and Galen E. Graham, approves all
loans. The loan committee has authority to approve loans in any category up to
$400,000. Loan requests above this amount must be approved by the board of
directors.
Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered. Income and certain other information is
verified. If necessary, additional financial information may be requested. An
appraisal or other estimate of value of the real estate intended to be used as
security for the proposed loan is obtained. Appraisals are processed by
independent fee appraisers. Private mortgage insurance will also be required in
certain instances.
Construction/permanent loans are made on individual properties. Funds
advanced during the construction phase are held in a loans-in-process account
and disbursed at various stages of completion, following physical inspection of
the construction by a loan officer or appraiser.
Either title insurance or a title opinion is generally required on all
real estate loans. Borrowers also must obtain fire and casualty insurance. Flood
insurance is also required on loans secured by property which is located in a
flood zone.
Loan Commitments. Written commitments are given to prospective
borrowers on all approved real estate loans. Generally, the commitment requires
acceptance within 60 days of the loan application. Loan commitments in excess of
this period may be issued upon payment of a non-refundable fee or upon agreement
on an interest rate float, allowing us to adjust the interest rate on the loan.
At December 31, 1997, commitments to cover originations of mortgage loans
totalled $143,000. We believe that virtually all of our commitments will be
funded.
Loans to One Borrower. The maximum amount of loans which we may make to
any one borrower may not exceed the greater of $500,000 or 15% of our unimpaired
capital and unimpaired surplus. We may lend an additional 10% of our unimpaired
capital and unimpaired surplus if the loan is fully secured by readily
marketable collateral. Our maximum loan to one borrower limit was $900,000 at
December 31, 1997. At December 31, 1997, the aggregate loans of our five largest
borrowers have outstanding balances of between $304,953 and $1,045,431. The
latter amount is made up of three loans, each of which was in existence before
the loan to one borrower limits were imposed in 1989. All of these loans were
performing in accordance with their terms.
Nonperforming and Problem Assets
Loan Delinquencies. When a mortgage loan becomes 16 days past due, a
notice of nonpayment is sent to the borrower. After the loan becomes 22 days
past due, another notice of nonpayment, accompanied by a personal letter, is
sent to the borrower. If the loan continues in a delinquent status for
49
<PAGE>
90 days past due and no repayment plan is in effect, foreclosure proceedings
will be initiated. The borrower will be notified when foreclosure is commenced.
Loans are reviewed on a monthly basis and are placed on a non-accrual
status when, in our opinion, the collection of additional interest is doubtful.
Interest accrued and unpaid at the time a loan is placed on nonaccrual status is
charged against interest income. Subsequent interest payments, if any, are
either applied to the outstanding principal balance or recorded as interest
income, depending on the assessment of the ultimate collectibility of the loan.
Nonperforming Assets. The following table sets forth information
regarding nonaccrual loans and real estate owned, as of the dates indicated. For
the year ended December 31, 1997, interest income that would have been recorded
on loans accounted for on a nonaccrual basis under the original terms of such
loans was immaterial.
<TABLE>
<CAPTION>
At December 31,
-------------------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Loans accounted for on a non-accrual basis:
One- to four-family.................................. $ 75 $ 6
Consumer............................................. 4 11
----- -----
Total ............................................. 79 17
----- -----
Accruing loans delinquent 90 days or more:
One- to four-family.................................. -- --
Consumer............................................. -- --
----- -----
Total.............................................. -- --
----- -----
Total non-performing loans....................... 79 17
----- -----
Foreclosed assets:
One- to four-family.................................. -- --
Consumer............................................. -- --
----- -----
Total.............................................. -- --
----- -----
Total non-performing assets............................ $ 79 $ 17
===== =====
Total non-performing loans as a
percentage of net loans.............................. 0.17% 0.04%
==== ====
Total non-performing assets as a
percentage of total assets........................... 0.08% 0.02%
==== ====
</TABLE>
Classified Assets. OTS regulations provide for a classification system
for problem assets of savings associations which covers all problem assets.
Under this classification system, problem assets of savings institutions such as
ours are classified as "substandard," "doubtful," or "loss." An asset is
considered substandard if it is inadequately protected by the current net worth
and paying capacity of the borrower or of the collateral pledged, if any.
Substandard assets include those characterized by the "distinct possibility"
that the savings institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as doubtful have all of the weaknesses inherent
in those classified substandard, with the added characteristic that the
weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as loss are those considered "uncollectible" and
of such little value that
50
<PAGE>
their continuance as assets without the establishment of a specific loss reserve
is not warranted. Assets may be designated "special mention" because of
potential weakness that do not currently warrant classification in one of the
aforementioned categories.
When a savings association classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings association classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. A savings association's determination as to the classification
of its assets and the amount of its valuation allowances is subject to review by
the OTS, which may order the establishment of additional general or specific
loss allowances. A portion of general loss allowances established to cover
possible losses related to assets classified as substandard or doubtful may be
included in determining a savings association's regulatory capital. Specific
valuation allowances for loan losses generally do not qualify as regulatory
capital.
At December 31, 1997, we had loans classified as special mention,
substandard, doubtful and loss as follows:
At
December 31,
1997
-------------
(In thousands)
Special mention............................. $ --
Substandard................................. 123
Doubtful assets............................. 6
Loss assets................................. 5
----
Total.................................. $ 134
====
Allowances for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the losses that may be incurred
in our loan portfolio. The evaluation, including a review of all loans on which
full collectibility of interest and principal may not be reasonably assured,
considers: (i) our past loan loss experience, (ii) known and inherent risks in
our portfolio, (iii) adverse situations that may affect the borrower's ability
to repay, (iv) the estimated value of any underlying collateral, and (v) current
economic conditions.
We monitor our allowance for loan losses and make additions to the
allowance as economic conditions dictate. Although we maintain our allowance for
loan losses at a level that we consider adequate for the inherent risk of loss
in our loan portfolio, future losses could exceed estimated amounts and
additional provisions for loan losses could be required. In addition, our
determination as to the amount of allowance for loan losses is subject to review
by the OTS, as part of its examination process. After a review of the
information available, the OTS might require the establishment of an additional
allowance.
51
<PAGE>
The following table illustrates the allocation of the allowance for
loan losses for each category of loans. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict our use of the allowance to absorb losses in other loan
categories.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------
1997 1996
----------------------------------------- -----------------------------------------
Percent of Percent of
Loans in Loans in
Each Each
Category Category
to Total to Total
Amount Loans Amount Loans
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans.............................
One- to four-family...................... $137 91.29% $115 91.51%
Multi-family............................. -- 2.23 -- 2.46
Commercial............................... -- 1.14 -- 1.33
Land..................................... -- 0.30 -- 0.18
Construction............................. -- 0.27 -- 0.30
Consumer................................... 42 3.68 31 3.29
Commercial................................. -- 1.09 -- 0.93
---- ------ ---- ------
Total allowance....................... $179 100.00% $146 100.00%
=== ====== === ======
</TABLE>
The following table sets forth information with respect to our
allowance for loan losses at the dates and for the periods indicated:
<TABLE>
<CAPTION>
At December 31,
-----------------------------
1997 1996
-------- ---------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period....................... $ 146 $ 148
------- -------
Charge-offs:
One- to four-family................................ -- --
Consumer........................................... (5) (6)
------- ------
(5) (6)
------- ------
Recoveries:
One- to four-family................................ -- --
Consumer .......................................... 3 4
-------- -------
3 4
-------- -------
Net charge-offs...................................... (2) (2)
Provision for loan losses............................ 35 --
------- -------
Balance at end of period............................. $ 179 $ 146
======= ======
Allowance for loan losses to total
non-performing loans at end of period.............. 226.58% 858.82%
====== ======
Allowance for loan losses to net loans at
end of period...................................... 0.38% 0.34%
======= =======
</TABLE>
52
<PAGE>
Investment Activities
Investment Securities. We are required under federal regulations to
maintain a minimum amount of liquid assets which may be invested in specified
short-term securities and certain other investments. See "Regulation -- Savings
Institution Regulation -- Federal Home Loan Bank System" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." The level of liquid assets varies depending
upon several factors, including: (i) the yields on investment alternatives, (ii)
our judgment as to the attractiveness of the yields then available in relation
to other opportunities, (iii) expectation of future yield levels, (iv)
asset/liability management, and (v) our projections as to the short-term demand
for funds to be used in loan origination and other activities. We classify our
investment securities as "available-for-sale" or "held-to-maturity" in
accordance with SFAS No. 115. At December 31, 1997, our investment portfolio
policy permitted investments in instruments such as: (i) U.S. Treasury
obligations, (ii) U.S. federal agency or federally sponsored agency obligations,
(iii) local municipal obligations, (iv) mortgage-backed securities, (v) banker's
acceptances, (vi) certificates of deposit, (vii) federal funds, including FHLB
overnight and term deposits (up to six months), (viii) collateralized automobile
receivables, and (ix) investment grade corporate bonds, commercial paper and
mortgage derivative products. See "-- Mortgage-Backed Securities." The board of
directors may authorize additional investments.
Our investment securities "available-for-sale" and "held-to-maturity"
portfolios at December 31, 1997, did not contain securities of any issuer with
an aggregate book value in excess of 10% of our equity, excluding those issued
by the United States government agencies.
Mortgage-Backed Securities. To supplement lending activities, we have
invested in residential mortgage-backed securities and collateralized mortgage
obligations ("CMOs"). Mortgage-backed securities can serve as collateral for
borrowings and, through repayments, as a source of liquidity. Mortgage-backed
securities represent a participation interest in a pool of single-family or
other type of mortgages. Principal and interest payments are passed from the
mortgage originators, through intermediaries (generally quasi-governmental
agencies) that pool and repackage the participation interests in the form of
securities, to investors such as us. The quasi-governmental agencies guarantee
the payment of principal and interest to investors and include the Federal Home
Loan Mortgage Corporation ("FHLMC"), the Government National Mortgage
Association ("GNMA"), and Federal National Mortgage Association ("FNMA").
At December 31, 1997, our mortgaged-backed securities portfolio
classified as "available-for-sale" totalled $16.8 million, and our
mortgage-backed securities portfolio classified as "held-to-maturity" totalled
$20.9 million. Each security was issued by GNMA, FHLMC or FNMA. Expected
maturities will differ from contractual maturities due to scheduled repayments
and because borrowers may have the right to call or prepay obligations with or
without prepayment penalties.
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or
adjustable-rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through certificates.
The interest rate risk characteristics of the underlying pool of mortgages
(i.e., fixed-rate or adjustable-rate) and the prepayment risk, are passed on to
the certificate holder. The life of a mortgage-backed pass-through security is
equal to the life of the underlying mortgages. Mortgage-backed securities issued
by FHLMC and GNMA make up a majority of the pass-through certificates market.
53
<PAGE>
CMOs have been developed in response to investor concerns regarding the
uncertainty of cash flows associated with the prepayment option of the
underlying mortgagor. A CMO can be collateralized directly by mortgages, but
more often is collateralized by mortgage-backed securities issued or guaranteed
by the GNMA, FNMA or the FHLMC and held in trust for CMO investors. In contrast
to mortgage-backed securities in which the cash flow is received pro rata by all
security holders, the cash flow from the mortgage loans underlying a CMO is
segmented and paid in accordance with a predetermined priority to investors
holding various CMO tranches. Different classes of bonds are created, each with
its own stated maturity, estimated average life, coupon rate, and prepayment
characteristics. Notwithstanding the importance of the CMO structure to an
evaluation of timing and amount of cash flow, it is essential to understand the
coupon rates on the mortgages underlying the CMO to assess the prepayment
sensitivity of the CMO tranches. Most of the CMOs owned by us are government
agency guaranteed. A few of the CMOs consist of small private issues
collateralized by mortgage loans and include extra credit enhancements
sufficient to earn the highest credit ratings from independent rating agencies.
At December 31, 1997, our CMO portfolio classified as "available-for-sale" had a
carrying value of $13.9 million, and our CMO portfolio classified as
"held-to-maturity" had a carrying value of $17.7 million.
Investment Portfolio. The following table sets forth the carrying value
of our investments. See Notes 2, 3 and 4 to our financial statements elsewhere
in this document.
<TABLE>
<CAPTION>
At December 31,
------------------------------
1997 1996
--------- --------
(In thousands)
<S> <C> <C>
Investments held-to-maturity:
U.S. agency securities................................... $ 3,852 $ 2,800
Mortgage-backed securities held-to-maturity.............. 20,937 24,861
Mortgage-backed securities available-for-sale............ 16,833 23,723
Interest-bearing deposits................................ 3,400 3,300
FHLB stock............................................... 661 615
------- -------
Total investments .................................... $45,683 $55,299
====== ======
</TABLE>
54
<PAGE>
The following table sets forth certain information regarding scheduled
maturities, carrying values, approximate fair values, and weighted average
yields for our investments at December 31, 1997 by contractual maturity. The
following table does not take into consideration the effects of scheduled
repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
Total
One Year or Less One to Five Years Five to Ten Years More than Ten Years Investment Securities
------------------ ------------------- ------------------ ----------------- --------------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investments:
U.S. Agency securities...... $ 800 5.31% $2,000 6.05% $ -- --% $ 1,052 8.05% $ 3,852 7.26% $ 3,952
Mortgage-backed securities.. -- -- -- -- 4,722 6.33 33,048 6.34 37,770 6.33 37,728
Interest-bearing deposits... 3,400 5.98 -- -- -- -- -- -- 3,400 5.98 3,400
FHLB stock.................. -- -- -- -- -- -- 661 8.05 661 8.05 661
-------- ------ ------ ------ ------ ------ ------ ---- ------- ---- ------
Total investments........ $4,200 5.85% $2,000 6.05% $4,722 6.33% $34,761 6.42% $45,683 6.41% $45,741
===== ====== ===== ==== ===== ==== ====== ==== ====== ==== ======
</TABLE>
55
<PAGE>
Sources of Funds
Deposits are our major external source of funds for lending and other
investment purposes. Funds are also derived from the receipt of payments on
loans and prepayment of loans and maturities of investment securities and
mortgage-backed securities and, to a much lesser extent, borrowings and
operations. Scheduled loan principal repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and market conditions.
Deposits. Consumer and commercial deposits are attracted principally
from within our primary market area through the offering of a selection of
deposit instruments including checking accounts, regular savings accounts, money
market accounts, and term certificate accounts. IRA accounts are also offered.
Deposit account terms vary according to the minimum balance required, the time
period the funds must remain on deposit, and the interest rate.
The interest rates paid by us on deposits are set weekly at the
direction of our senior management. Interest rates are determined based on our
liquidity requirements, interest rates paid by our competitors, and our growth
goals and applicable regulatory restrictions and requirements.
Regular savings, money market demand and NOW accounts constituted $29.4
million, or 34.31%, of our deposit portfolio at December 31, 1997. Certificates
of deposit constituted $56.3 million or 65.69% of the deposit portfolio of which
$3.1 million or 3.62% of the deposit portfolio were certificates of deposit with
balances of $100,000 or more. Such deposits are offered at negotiated rates.
As of December 31, 1997, we had no brokered deposits.
56
<PAGE>
At December 31, 1997, our deposits were represented by the various
types of savings programs described below.
<TABLE>
<CAPTION>
Interest Minimum Percentage of
Category Term Rate(1) Amount Balance Total Deposits
- -------- ---- ------- ------ ------- --------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Transactions and Savings:
NOW accounts None 2.51% $ 50 $ 9,573 11.18%
Passbook accounts None 2.84 50 7,080 8.27
Money market demand accounts None 3.04 50 10,807 12.62
Noninterest-bearing accounts None -- 50 1,928 2.25
------ ------
Total non-certificates 29,388 34.31
------ ------
Certificates of Deposit:
Fixed Term, Fixed-rate 1-6 months 5.14 500 4,955 5.78
Fixed Term, Fixed-rate 7-12 months 5.64 500 22,889 26.72
Fixed Term, Fixed-rate 13-24 months 5.56 500 11,249 13.13
Fixed Term, Fixed-rate 25-36 months 5.91 500 10,628 12.41
Fixed Term, Fixed-rate 37-60 months 5.76 500 4,704 5.49
Fixed Term, Fixed-rate 61-84 months 5.94 500 1,354 1.58
Fixed Term, Fixed-rate 85-120 months 6.96 500 484 0.57
------- ------
Total certificates of deposit 56,263 65.69
------ ------
Total deposits $85,651 100.00%
====== ======
</TABLE>
- ----------------------
(1) Indicates weighted average interest rate at December 31, 1997.
The following table sets forth our time deposits classified by interest
rate at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------
1997 1996
-------- ---------
(In thousands)
<S> <C> <C>
3.00-3.99%.............................................................. $ 11 $ 639
4.00-4.99%.............................................................. 1,216 3,880
5.00-5.99%.............................................................. 44,991 43,005
6.00-6.99%.............................................................. 9,816 7,343
7.00% and over.......................................................... 229 273
------- -------
Total............................................................... $56,263 $55,140
====== ======
</TABLE>
57
<PAGE>
The following table sets forth the time deposits in the Association
classified by interest rate as of the dates indicated.
<TABLE>
<CAPTION>
Amount Due
------------------------------------------------------------------------------------------------------
One to Two to Over
Interest Rate One Year Two Years Three Years Three Years Total
- ------------- ------------------ ---------------------- ----------------------- ---------------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
3.00 - 3.99%......... $ 11 $ -- $ -- $ -- $ 11
4.00 - 4.99%......... 1,124 92 -- -- 1,216
5.00 - 5.99%......... 36,110 5,836 2,202 843 44,991
6.00 - 6.99%......... 3,507 2,100 2,780 1,429 9,816
7.00% and over....... 109 99 4 17 229
------- ------ ------ ------ -------
Total........... $40,861 $8,127 $4,986 $2,289 $56,263
====== ===== ===== ===== ======
</TABLE>
The following table indicates the amount of our certificates of
deposits of $100,000 or more by time remaining until maturity as of December 31,
1997.
Certificates
Maturity Period of Deposits
--------------- -----------
(In thousands)
Within three months............... $ 882
Three through six months.......... 606
Six through twelve months......... 1,276
Over twelve months................ 340
-----
$3,104
======
58
<PAGE>
Borrowings. Advances (borrowings) may be obtained from the FHLB of
Topeka to supplement our supply of lendable funds. Advances from the FHLB of
Topeka are typically secured by a pledge of our stock in the FHLB of Topeka, a
portion of our first mortgage loans and other assets. Each FHLB credit program
has its own interest rate (which may be fixed or adjustable) and range of
maturities. We may borrow up to $69.6 million from the FHLB of Topeka. If the
need arises, we may also access the Federal Reserve Bank discount window to
supplement our supply of lendable funds and to meet deposit withdrawal
requirements. At December 31, 1997, borrowings from the FHLB of Topeka totalled
$2.6 million ($1.9 million of which were short-term borrowings maturing on May
15, 1998). We had no other borrowings outstanding. At December 31, 1996, FHLB
advances were $11.4 million.
The following table sets forth the terms of our short-term FHLB
advances.
<TABLE>
<CAPTION>
At or for the period ended
-----------------------------------------------
December 31, 1997 December 31, 1996
----------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Balance at year end............................ $2,550 $11,350
Average balance outstanding
during the period............................ 7,748 5,420
Maximum amount outstanding
at any month-end during
the period................................... 10,350 11,350
Weighted average interest rate
during the period............................ 6.71% 6.51%
</TABLE>
Competition
Competition for deposits comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions,
finance companies, and multi-state regional banks in our market areas.
Competition for funds also includes a number of insurance products sold by local
agents and investment products such as mutual funds and other securities sold by
local and regional brokers. Loan competition varies depending upon market
conditions and comes from commercial banks, thrift institutions, credit unions
and mortgage bankers.
59
<PAGE>
Properties
We own four of our six offices and lease two of them. The net book
value of this real property at December 31, 1997, was $476,000. Our total
investment in office equipment had a net book value of $155,000 at December 31,
1997.
<TABLE>
<CAPTION>
Year Net Book Value Of
Leased or Year Leased Lease Real Property at
Location Owned or Acquired Expires December 31, 1997
---------------- ----- ------------ ------- ------------------
<S> <C> <C> <C> <C>
MAIN OFFICE:
600 Main Street Owned 1974 N/A $198,000
Osawatomie, Kansas 66064
BRANCH OFFICES:
29 West Wea Owned 1964 N/A $60,000
Paola, Kansas 66071
2205 South Main Owned 1981 N/A $161,000
Fort Scott, Kansas 66701
100 West Amity Owned 1974 N/A $55,000
Louisburg, Kansas 66053
125 North Mill Leased 1984 2002 $2,000
Beloit, Kansas 67420
762 4th Street Leased 1984 1998 --
Phillipsburg, Kansas 67661
</TABLE>
We are in the process of building a new office in Paola. It will be
located at 1310 Baptiste Drive, Paola, Kansas 66071. This office is expected to
be completed in June 1998 and will, including the land, cost approximately $1.1
million. At December 31, 1997, capitalized construction and land costs totalled
$359,000. After we move into the new facility, we will sell the existing Paola
office.
Personnel
At December 31, 1997 we had 31 full-time employees and 7 part-time
employees. None of our employees are represented by a collective bargaining
group. We believe that our relationship with our employees is good.
Subsidiary Activity
The Association is permitted to invest up to 2% of its assets in the
capital stock of, or loans to, subsidiary corporations. An additional investment
of 1% of assets is permitted when the additional investment is utilized
primarily for community development purposes. Pursuant to these limitations, as
of December 31, 1997, we were authorized to invest up to approximately $1.9
million in the stock of, or loans to, service corporations (based upon the 2%
limitation). The Association has one wholly-owned
60
<PAGE>
service corporation, First Enterprises, Inc. ("FEI"). In recent years, FEI has
been primarily utilized as an agency for the sale of credit life insurance,
mortgage life insurance and certain fixed- and variable-rate annuities. However,
in August 1995, we purchased for development through FEI an 8.3 acre tract of
land in Paola, known as Baptiste Commons, as seven commercial sites, one of
which would be a proposed site for a new office building replacing the existing
Paola facility. Our investment in this real estate development project will
continue to decline as the remaining lots are sold. At December 31, 1997, the
total investment in this real estate was $355,000.
Legal Proceedings
We are, from time to time, a party to legal proceedings arising in the
ordinary course of our business, including legal proceedings to enforce our
rights against borrowers. We are not a party to any legal proceedings which are
expected to have a material adverse effect on our financial statements.
REGULATION
Set forth below is a brief description of certain laws which relate to
us. The description is not complete and is qualified in its entirety by
references to applicable laws and regulation.
Holding Company Regulation
General. The Company will be required to register and file reports with
the OTS and will be subject to regulation and examination by the OTS. In
addition, the OTS will have enforcement authority over the Company and any
non-savings institution subsidiaries. This will permit the OTS to restrict or
prohibit activities that it determines to be a serious risk to us. This
regulation is intended primarily for the protection of our depositors and not
for the benefit of you, as stockholders of the Company.
QTL Test. Since the Company will only own one savings institution, it
will be able to diversify its operations into activities not related to banking,
but only so long as we satisfy the QTL test. If the Company controls more than
one savings institution, it would lose the ability to diversify its operations
into nonbanking related activities, unless such other savings institutions each
also qualify as a QTL or were acquired in a supervised acquisition. See "--
Savings Institution Regulation -- Qualified Thrift Lender Test. "
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured savings institution. No
person may acquire control of a federally insured savings institution without
providing at least 60 days written notice to the OTS and giving the OTS an
opportunity to disapprove the proposed acquisition.
Savings Institution Regulation
General. As a federally chartered, SAIF-insured savings institution, we
are subject to extensive regulation by the OTS and the FDIC. Our lending
activities and other investments must comply with various federal and state
statutory and regulatory requirements. We are also subject to certain reserve
requirements promulgated by the Board of Governors of the Federal Reserve System
("Federal Reserve").
The OTS, in conjunction with the FDIC, regularly examines us and
prepares reports for the consideration of our board of directors on any
deficiencies that the OTS finds in our operations. Our relationship with our
depositors and borrowers is also regulated to a great extent by federal and
state law,
61
<PAGE>
especially in such matters as the ownership of savings accounts and the form and
content of our mortgage documents.
We must file reports with the OTS and the FDIC concerning our
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other financial institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in regulations, whether by the OTS, the FDIC or any other
government agency, could have a material adverse impact on our operations.
Insurance of Deposit Accounts. The FDIC is authorized to establish
separate annual assessment rates for deposit insurance for members of the BIF
and the SAIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such assessment rates if
such target level has been met. The FDIC has established a risk-based assessment
system for both SAIF and BIF members. Under this system, assessments are set
within a range, based on the risk the institution poses to its deposit insurance
fund. This risk level is determined based on the institution's capital level and
the FDIC's level of supervisory concern about the institution.
Because a significant portion of the assessments paid into the SAIF by
savings institutions were used to pay the cost of prior savings institution
failures, the reserves of the SAIF were below the level required by law. The BIF
had, however, met its required reserve level during the third calendar quarter
of 1995. As a result, deposit insurance premiums for deposits insured by the BIF
were substantially less than premiums for deposits such as ours which are
insured by the SAIF. Legislation to capitalize the SAIF and to eliminate the
significant premium disparity between the BIF and the SAIF became effective
September 30, 1996. The recapitalization plan provided for a special assessment
equal to $.657 per $100 of SAIF deposits held at March 31, 1995, in order to
increase SAIF reserves to the level required by law. Certain BIF institutions
holding SAIF-insured deposits were required to pay a lower special assessment.
Based on our deposits at March 31, 1995, we paid a pre-tax special assessment of
$544,797.
The recapitalization plan also provides that the cost of prior failures
which were funded through the issuance of Fico Bonds (bonds issued to fund the
cost of savings institution failures in prior years) will be shared by members
of both the SAIF and the BIF. This will increase BIF assessments for healthy
banks to approximately $.013 per $100 of deposits in 1997. SAIF assessments for
healthy savings institutions in 1997 will be approximately $.064 per $100 in
deposits and may be reduced, but not below the level set for healthy BIF
institutions.
The FDIC has lowered the rates on assessments paid to the SAIF and
widened the spread of those rates. The FDIC's action established a base
assessment schedule for the SAIF with rates ranging from 4 to 31 basis points,
and an adjusted assessment schedule that reduces these rates by 4 basis points.
As a result, the effective SAIF rates range from 0 to 27 to basis points as of
October 1, 1996. In addition, the FDIC's final rule prescribed a special interim
schedule of rates ranging from 18 to 27 basis points for SAIF-member savings
institutions for the last quarter of calendar 1996, to reflect the assessments
paid to the Financing Corp. (Fico Bonds). Finally, the FDIC's action established
a procedure for making limited adjustments to the base assessment rates by
rulemaking without notice and comment, for both the SAIF and the BIF.
62
<PAGE>
The recapitalization plan also provides for the merger of the SAIF and
BIF effective January 1, 1999, assuming there are no savings institutions under
federal law. Under separate proposed legislation, Congress is considering the
elimination of the federal thrift charter and elimination of the separate
federal regulation of thrifts. As a result, we might have to convert to a
different financial institution charter and be regulated under federal law as a
bank, including being subject to the more restrictive activity limitations
imposed on national banks. We cannot predict the impact of our conversion to, or
regulation as, a bank until the legislation requiring such change is enacted.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets. Our capital ratios are set forth under "Historical and Pro Forma Capital
Compliance."
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
The risk-based capital standards of the OTS generally require savings
institutions with more than a "normal" level of interest rate risk to maintain
additional total capital. An institution's interest rate risk will be measured
in terms of the sensitivity of its "net portfolio value" to changes in interest
rates. Net portfolio value is defined, generally, as the present value of
expected cash inflows from existing assets and off-balance sheet contracts less
the present value of expected cash outflows from existing liabilities. A savings
institution will be considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an immediate 200 basis
point increase or decrease in market interest rates (whichever results in the
greater decline) is less than two percent of the current estimated economic
value of its assets. An institution with a greater than normal interest rate
risk will be required to deduct from total capital, for purposes of calculating
its risk-based capital requirement, an amount (the "interest rate risk
component") equal to one-half the difference between the institution's measured
interest rate risk and the normal level of interest rate risk, multiplied by the
economic value of its total assets.
The OTS calculates the sensitivity of an institution's net portfolio
value with data submitted by the institution and the interest rate risk
measurement model adopted by the OTS. The amount of the interest rate risk
component, if any, to be deducted from an institution's total capital will be
based on the institution's Thrift Financial Report filed two quarters earlier.
Savings institutions with less than $300 million in assets and a risk-based
capital ratio above 12% are generally exempt from filing the interest rate risk
schedule with their Thrift Financial Reports. However, the OTS may require any
exempt
63
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institution that it determines may have a high level of interest rate risk
exposure to file such schedule on a quarterly basis and may be subject to an
additional capital requirement based upon its level of interest rate risk as
compared to its peers. Although the rule is not yet in effect, due to our net
size and risk-based capital level, we are exempt from the interest rate risk
component.
Dividend and Other Capital Distribution Limitations. OTS regulations
require us to give the OTS 30 days advance notice of any proposed declaration of
dividends to the Company, and the OTS has the authority under its supervisory
powers to prohibit the payment of dividends by us to the Company. In addition,
we may not declare or pay a cash dividend on our capital stock if the effect
would be to reduce our regulatory capital below the amount required for the
liquidation account to be established at the time of the conversion. See "The
Conversion -- Effects of Conversion to Stock Form on Depositors and Borrowers of
First Kansas Federal Savings Association -- Liquidation Account."
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to stockholders of another institution in
a cash-out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory notice. As of
September 30, 1997, we qualified as a Tier 1 institution.
In January 1998, the OTS proposed amendments to its current regulations
with respect to capital distributions by savings associations. Under the
proposed regulation, savings associations that would remain at least adequately
capitalized following the capital distribution, and that meet other specified
requirements, would not be required to file a notice or application for capital
distributions (such as cash dividends) declared below specified amounts. Under
the proposed regulation, savings associations which are eligible for expedited
treatment under current OTS regulations are not required to file a notice or an
application with the OTS if (i) the savings association would remain at least
adequately capitalized following the capital distribution and (ii) the amount of
the capital distribution does not exceed an amount equal to the savings
association's net income for that year to date, plus the savings association's
retained net income for the previous two years. Thus, under the proposed
regulation, only undistributed net income for the prior two years may be
distributed in addition to the current year's undistributed net income without
the filing of an application with the OTS. Savings associations which do not
qualify for expedited treatment or which desire to make a capital distribution
in excess of the specified amount, must file an application with, and obtain the
approval of, the OTS prior to making the capital distribution. Under certain
other circumstances, savings associations will be required to file a notice with
OTS prior to making the capital distribution. The OTS proposed limitations on
capital distributions are similar to the limitations imposed upon national
banks. The Association is unable to predict whether or when the proposed
regulation will become effective.
In the event our capital falls below our fully phased-in requirement or
the OTS notifies us that we are in need of more than normal supervision, we
would become a Tier 2 or Tier 3 institution and as a result, our ability to make
capital distributions could be restricted. Tier 2 institutions, which are
institutions that before and after the proposed distribution meet their current
minimum capital requirements, may only make capital distributions of up to 75 %
of net income over the most recent four
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quarter period. Tier 3 institutions, which are institutions that do not meet
current minimum capital requirements and propose to make any capital
distribution, and Tier 2 institutions that propose to make a capital
distribution in excess of the noted safe harbor level, must obtain OTS approval
prior to making such distribution. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice. The OTS has proposed rules relaxing
certain approval and notice requirements for well-capitalized institutions.
A savings institution is prohibited from making a capital distribution
if, after making the distribution, the savings institution would be
undercapitalized (i.e., not meet any one of its minimum regulatory capital
requirements). Further, a savings institution cannot distribute regulatory
capital that is needed for its liquidation account.
Qualified Thrift Lender Test. Savings institutions must meet a
qualified thrift lender ("QTL") test. If we maintain an appropriate level of
qualified thrift investments ("QTIs") (primarily residential mortgages and
related investments, including certain mortgage-related securities) and
otherwise qualify as a QTL, we will continue to enjoy full borrowing privileges
from the FHLB of Topeka. The required percentage of QTIs is 65% of portfolio
assets (defined as all assets minus intangible assets, property used by the
institution in conducting its business and liquid assets equal to 10% of total
assets). Certain assets are subject to a percentage limitation of 20% of
portfolio assets. In addition, savings institutions may include shares of stock
of the FHLBs, FNMA, and FHLMC as QTIs. Compliance with the QTL test is
determined on a monthly basis in nine out of every 12 months. As of December 31,
1997, we were in compliance with our QTL requirement with approximately 93% of
our assets invested in QTIs.
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings institution or its
subsidiaries and its affiliates be on terms as favorable to the savings
institution as comparable transactions with non-affiliates. In addition, certain
of these transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the savings institution. Within
certain limits, affiliates are permitted to receive more favorable loan terms
than non-affiliates. Our affiliates include the Company and any company which
would be under common control with us. In addition, a savings institution may
not extend credit to any affiliate engaged in activities not permissible for a
bank holding company or acquire the securities of any affiliate that is not a
subsidiary. The OTS has the discretion to treat subsidiaries of savings
institution as affiliates on a case-by-case basis.
Liquidity Requirements. All savings institutions are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At December 31, 1997, our required liquid
asset ratio was 4%. Our average liquid asset ratio at December 31, 1997 was
5.68%. Monetary penalties may be imposed upon institutions for violations of
liquidity requirements.
Federal Home Loan Bank System. We are a member of the FHLB of Topeka,
which is one of 12 regional FHLBs. Each FHLB serves as a reserve or central bank
for its members within its assigned region. It is funded primarily from funds
deposited by savings institutions and proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board of
directors of the FHLB.
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As a member, we are required to purchase and maintain stock in the FHLB
of Topeka in an amount equal to at least 1% of our aggregate unpaid residential
mortgage loans, home purchase contracts or similar obligations at the beginning
of each year. At December 31, 1997, we had $661,000 in FHLB stock, at cost,
which was in compliance with this requirement. The FHLB imposes various
limitations on advances such as limiting the amount of certain types of real
estate related collateral to 30% of a member's capital and limiting total
advances to a member.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future.
Federal Reserve. The Federal Reserve requires all depository
institutions to maintain non-interest-bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve may be used to
satisfy the liquidity requirements that are imposed by the OTS. At December 31,
1997, our reserve met the minimum level required by the Federal Reserve.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System. We had no borrowings from the Federal Reserve System at
December 31, 1997.
TAXATION
Federal Taxation
We are subject to the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), in the same general manner as other corporations.
Generally, thrifts with $500 million of assets or less may still use the
experience method in determining additions to bad debt reserves, which is also
available to small banks. Larger thrifts must use the specific charge off method
regarding bad debts. Any reserve amounts added to our bad debt reserve after
1987 will be recaptured into our taxable income over a six year period beginning
in 1996. A thrift may delay recapturing into income its post-1987 bad debt
reserves for an additional two years if it meets a residential lending test.
This recapture will not have a material impact on us.
Under the experience method, the bad debt deduction may be based on (i)
a six-year moving average of actual losses on qualifying and non-qualifying
loans, or (ii) a fill-up to the institution's base year reserve amount, which is
the tax bad debt reserve determined as of December 31, 1987.
If a savings institution's qualifying assets (generally, loans secured
by residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
institution may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period, which is
immediately accruable for financial reporting purposes. As of December 31, 1997,
at least 60% of our assets were qualifying assets as defined in the Code. No
assurance can be given that we will meet the 60% test for subsequent taxable
years.
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Earnings appropriated to our bad debt reserve and claimed as a tax
deduction including our supplemental reserves for losses will not be available
for the payment of cash dividends or for distribution to you, our stockholders
(including distributions made on dissolution or liquidation), unless we include
the amount in income. Distributable amounts may be reduced by any amount deemed
necessary to pay the resulting federal income tax. As of December 31, 1997, we
had $718,000 of accumulated earnings, representing our base year tax reserve,
for which federal income taxes have not been provided. If such amount is used
for any purpose other than bad debt losses, including a dividend distribution or
a distribution in liquidation, it will be subject to federal income tax at the
then current rate.
The Code imposes an alternative minimum tax ("AMT") on a corporation's
alternative minimum taxable income ("AMTI") at a rate of 20%. AMTI is increased
by certain preference items, including the excess of the tax bad debt reserve
deduction using the percentage of taxable income method over the deduction that
would have been allowable under the experience method. Only 90% of AMTI can be
offset by net operating loss carryovers of which we currently have none. AMTI is
also adjusted by determining the tax treatment of certain items in a manner that
negates the deferral of income resulting from the regular tax treatment of those
items. Thus, our AMTI is increased by an amount equal to 75 % of the amount by
which our adjusted current earnings exceeds our AMTI (determined without regard
to this adjustment and prior to reduction for net operating losses). In
addition, for taxable years beginning after December 31, 1986 and before January
1, 1996, an environmental tax of 0.12% of the excess of AMTI (with certain
modifications) over $2 million is imposed on corporations, including us, whether
or not an AMT is paid. For tax years beginning in 1998 a corporation that has
had average annual gross receipts of $5 million or less over its 1995, 1996 and
1997 tax years will be a "small corporation." Once the corporation is recognized
as a small corporation it will be exempt from the AMT for so long as its average
annual gross receipts for the prior 3 year period does not exceed $7,500,000.
The Company will be recognized as a small corporation.
The Company may exclude from its income 100% of dividends received from
us as a member of the same affiliated group of corporations. A 70% dividends
received deduction generally applies with respect to dividends received from
corporations that are not members of such affiliated group, except that an 80%
dividends received deduction applies if the Company owns more than 20% of the
stock of a corporation paying a dividend.
Our federal income tax returns have not been audited by the IRS during
the past ten years.
State Taxation
The Association files Kansas income tax returns. For Kansas income tax
purposes, savings institutions are presently taxed at a rate of up to 6.5% of
net income, which is calculated based on federal taxable income, subject to
certain adjustments. The State of Kansas also imposes franchise and privilege
taxes on savings institutions which, in the case of First Kansas, do not
constitute significant tax items.
Our state tax returns have not been audited by the State of Kansas
during the past ten years.
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MANAGEMENT OF FIRST KANSAS FINANCIAL CORPORATION
Our board of directors consists of the same individuals who serve as
directors of our subsidiary, First Kansas Federal Savings Association. Our
articles of incorporation and bylaws require that directors be divided into
three classes, as nearly equal in number as possible. Each class of directors
serves for a three-year period, with approximately one-third of the directors
elected each year. Our officers will be elected annually by the board and serve
at the board's discretion. See "Management of First Kansas Federal Savings
Association."
MANAGEMENT OF FIRST KANSAS FEDERAL SAVINGS ASSOCIATION
Directors and Executive Officers
Our board of directors is composed of six members each of whom serves
for a term of three years, with approximately one-third of the directors elected
each year. Our current charter and bylaws and our proposed stock charter and
bylaws require that directors be divided into three classes, as nearly equal in
number as possible. Our officers are elected annually by our board and serve at
the board's discretion.
The following table sets forth information with respect to our
directors and executive officers, all of whom will continue to serve in the same
capacities after the conversion.
<TABLE>
<CAPTION>
Age at Current
December 31, Director Term
Name 1997 Position Since Expires(1)
- ---- ---- -------- -------- -------
<S> <C> <C> <C> <C>
J. Darcy Domoney 44 Chairman 1995 2001
James E. Breckenridge 50 Director 1977 2000
William R. Butler, Jr. 68 Director 1977 2000
Roger L. Coltrin 58 Director 1996 2000
Donald V. Meyer 52 Director 1989 1999
Larry V. Bailey 55 Director, President, 1989 1999
CEO and CFO
Daniel G. Droste 40 Senior Vice President N/A N/A
& Treasurer
Galen E. Graham 58 Senior Vice President N/A N/A
& Secretary
</TABLE>
- -----------------------
(1) The terms for directors of the Company are the same as those of First
Kansas Federal Savings Association. A director whose term expires
during the year would serve until the next annual meeting that would
typically occur in April of the following year.
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The business experience for the past five years of each of the
directors and executive officers is as follows:
J. Darcy Domoney has served the Association as a director since 1995
and as chairman since January 1997. Mr. Domoney is a partner in the law firm of
Winkler, Lee, Tetwiler, Domoney & Schultz. He is a member of the Paola Rotary
Club and is on the Rotary District Youth Exchange Committee.
James E. Breckenridge has been a director of the Association since
1977. Since January 1997 Mr. Breckenridge has been employed by Thorn Industries,
an appliance, electronics and furniture store. He is also an independent
insurance salesperson for Morris and Associate Insurance. Until January 1996,
Mr. Breckenridge was President and majority stockholder of Breck's Inc., a men's
clothing store.
William R. Butler, Jr. has been a member of the Board of Directors of
the Association since 1977. He has been actively involved in the local
community, having owned and operated several retail businesses in Osawatomie.
Mr. Butler has served as an Osawatomie City Councilman and presently serves as a
Miami County Commissioner. Mr. Butler is a member of the Osawatomie Chamber of
Commerce, a member of the Miami County Crimestoppers, and serves as a director
of the Miami County Economic Development Corp.
Roger L. Coltrin served the Association as an advisory director since
1989. In January 1996 he became a voting director. Mr. Coltrin is the manager of
the Runyan Funeral Home and until 1997 was a majority stockholder in this
business. He is a member of the Past Mayors Council, the High School Site
Committee and the local Lions Clubs. Mr. Coltrin is also a member of the
Louisburg Chamber of Commerce.
Donald V. Meyer has been a director of the board since 1989 and was
chairman of the board for four years. He is a dentist with a solo practice in
Paola.
Larry V. Bailey has served the Association since 1989 as President and
Chief Executive Officer ("CEO"). He is also Chief Financial Officer ("CFO") of
the Association and a member of the Board of Directors. Mr. Bailey was a
director of the Osawatomie Chamber of Commerce, is the treasurer of both the
local Lions Club and the Miami County Economic Development Corporation, and he
is a director of Osawatomie's "Christmas in October."
Daniel G. Droste is a Senior Vice President and the Treasurer of the
Association. He has been employed with us since 1979. Mr. Droste is also the
Treasurer and Webelos Den Leader for Cub Scout Pack 3100 and a member of the
Paola Sunrise Lions Club. He is also currently the Chairman of the Holy Trinity
Church Building Committee and Co-Chairman of the Holy Trinity Church Development
Team. He has also over the past several years been an active participant in the
"Christmas in October" program.
Galen E. Graham has served as an executive officer of the Association
since 1970. He is a Senior Vice President and the Secretary of the Association.
Meetings and Committees of the Board of Directors
The board of directors conducts its business through meetings of the
board and through activities of its committees. During the year ended December
31, 1997, the board of directors held 12 regular meetings and no special
meetings. No director attended fewer than 75% of the total meetings of the board
of directors and committees on which such director served during this time
period.
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Director Compensation
Each director is paid monthly. Total aggregate fees paid to the
directors for the year ended December 31, 1997 were $40,800. Since January 1,
1998, each director (including the chairman of the board) has been paid a
monthly fee of $1,000.
Executive Compensation
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by our chief executive officer at
December 31, 1997. No other employee earned in excess of $100,000 for the year
ended December 31, 1997.
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------------
Other Annual All Other
Name and Principal Position Salary Bonus Compensation Compensation
- --------------------------- ------ ----- ------------ ------------
<S> <C> <C> <C> <C>
Larry V. Bailey
Director, President, CEO, & CFO $120,000 $15,000 (1) $11,845(2)
</TABLE>
- ------------------------
(1) Other annual compensation does not equal the lesser of $50,000 or 10% of
the total of individual's annual salary and bonus.
(2) Includes Association matching contributions of $3,167 under the 401(k) Plan
and Association contributions of $8,678 made pursuant to the Profit Sharing
Plan. No benefits accrued under the Association's Supplemental Executive
Retirement Plan during the year ended December 31, 1997.
Employment Agreement. We have entered into an employment agreement with
our President, Larry V. Bailey. Mr. Bailey's base salary under the employment
agreement is $120,000. The employment agreement has a term of three years. The
agreement is terminable by us for "just cause" as defined in the agreement. If
we terminate Mr. Bailey without just cause, he will be entitled to a
continuation of his salary from the date of termination through the remaining
term of the agreement but in no event for a period of less than twenty-four
months. The employment agreement contains a provision stating that in the event
of the termination of employment in connection with any change in control of us,
Mr. Bailey will be paid a lump sum amount equal to 2.99 times his five year
average annual taxable cash compensation. If such payments had been made under
the agreement as of December 31, 1997, such payments would have equaled
approximately $347,209. The aggregate payments that would have been made to Mr.
Bailey would be an expense to us, thereby reducing our net income and our
capital by that amount. The agreement may be renewed annually by our board of
directors upon a determination of satisfactory performance within the board's
sole discretion. If Mr. Bailey shall become disabled during the term of the
agreement, he shall continue to receive payment of 100% of the base salary for a
period of 12 months and 60% of such base salary for the remaining term of such
agreement. Such payments shall be reduced by any other benefit payments made
under other disability programs in effect for our employees.
Supplemental Executive Retirement Plan. We have implemented a
supplemental executive retirement plan ("SERP") for the benefit of our
President, Mr. Bailey. The SERP will provide Mr. Bailey with a supplemental
retirement benefit in addition to benefits under the Pension Plan and the
proposed ESOP. Under the SERP, Mr. Bailey's retirement pension will be
supplemented by the crediting of an additional 15 years of service, provided
that he retires after attainment of age 58. Therefore the SERP will provide a
retirement benefit equal to 30% of final average earnings at retirement after
age 65,
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in addition to the projected benefit of 36% of final average earnings under the
Pension Plan (Pension Plan benefits are calculated based upon 2% times years of
service times Final Average Earnings). Benefits payable under the Pension Plan
will be reduced for retirement prior to age 65 based upon fewer years of
service. Additionally, the SERP will reduce the pension reduction for retirement
prior to age 65 from 3% per year to 2% per year. Payments under the SERP are
accrued for financial reporting purposes during the period of employment. The
SERP is unfunded. All benefits payable under the SERP would be paid from our
current assets. There are no tax consequences to either participant or us
related to the SERP prior to payment of benefits. Upon receipt of payment of
benefits, the participant will recognize taxable ordinary income in the amount
of such payments received and we will be entitled to recognize a tax-deductible
compensation expense at that time.
Employee Stock Ownership Plan. We have established an employee stock
ownership plan, the ESOP, for the exclusive benefit of participating employees
of ours, to be implemented upon the completion of the conversion. Participating
employees are employees who have completed one year of service with us or our
subsidiary and have attained the age of 21. An application for a letter of
determination as to the tax-qualified status of the ESOP will be submitted to
the IRS. Although no assurances can be given, we expect that the ESOP will
receive a favorable letter of determination from the IRS.
The ESOP is to be funded by contributions made by us in cash or common
stock. Benefits may be paid either in shares of the common stock or in cash. In
accordance with the Plan, the ESOP may borrow funds with which to acquire up to
8% of the common stock to be issued in the conversion. The ESOP intends to
borrow funds from the Company. The loan is expected to be for a term of ten
years at an annual interest rate equal to the prime rate as published in The
Wall Street Journal. Presently it is anticipated that the ESOP will purchase up
to 8% of the common stock to be issued in the offering (i.e., 940,000 shares,
based on the midpoint of the EVR). The loan will be secured by the shares
purchased and earnings of ESOP assets. Shares purchased with such loan proceeds
will be held in a suspense account for allocation among participants as the loan
is repaid. We anticipate contributing approximately $9,400 annually (based on a
$94,000 purchase) to the ESOP to meet principal obligations under the ESOP loan,
as proposed. It is anticipated that all such contributions will be
tax-deductible. This loan is expected to be fully repaid in approximately 10
years.
Shares sold above the maximum of the EVR (i.e., more than 1,351,250
shares) may be sold to the ESOP before satisfying remaining unfilled orders of
Eligible Account Holders to fill the ESOP's subscription or the ESOP may
purchase some or all of the shares covered by its subscription after the
conversion in the open market.
Contributions to the ESOP and shares released from the suspense account
will be allocated among participants on the basis of total compensation. All
participants must be employed at least 1,000 hours in a plan year, or have
terminated employment following death, disability or retirement, in order to
receive an allocation. Participant benefits become vested in plan allocations
following five years of service. Employment prior to the adoption of the ESOP
shall be credited for the purposes of vesting. Vesting will be accelerated upon
retirement, death, disability, change in control of the Company, or termination
of the ESOP. Forfeitures will be reallocated to participants on the same basis
as other contributions in the plan year. Benefits may be payable in the form of
a lump sum upon retirement, death, disability or separation from service. Our
contributions to the ESOP are discretionary and may cause a reduction in other
forms of compensation. Therefore, benefits payable under the ESOP cannot be
estimated.
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The board of directors has appointed non-employee directors to the ESOP
Committee to administer the ESOP and to serve as the initial ESOP Trustees. The
board of directors or the ESOP Committee may instruct the ESOP Trustees
regarding investments of funds contributed to the ESOP. The ESOP Trustees must
vote all allocated shares held in the ESOP in accordance with the instructions
of the participating employees. Unallocated shares and allocated shares for
which no timely direction is received will be voted by the ESOP Trustees as
directed by the board of directors or the ESOP Committee, subject to the
Trustees' fiduciary duties.
Proposed Future Stock Benefit Plans
Stock Option Plan. The boards of directors intend to adopt a stock
option plan (the Option Plan) following the conversion, subject to approval by
the Company's stockholders, at a stockholders' meeting to be held no sooner than
six months after the conversion. The Option Plan would be in compliance with the
OTS regulations in effect. See "-- Restrictions on Stock Benefit Plans." If the
Option Plan is implemented within one year after the conversion, in accordance
with OTS regulations, a number of shares equal to 10% of the aggregate shares of
common stock to be issued in the offering (i.e., 117,500 shares based upon the
sale of 1,175,000 shares at the midpoint of the EVR) would be reserved for
issuance by the Company upon exercise of stock options to be granted to our
officers, directors and employees from time to time under the Option Plan. The
purpose of the Option Plan would be to provide additional performance and
retention incentives to certain officers, directors and employees by
facilitating their purchase of a stock interest in the Company. Under the OTS
regulations, the Option Plan, would provide for a term of 10 years, after which
no awards could be made, unless earlier terminated by the board of directors
pursuant to the Option Plan and the options would vest over a five year period
(i.e., 20% per year), beginning one year after the date of grant of the option.
Options would be granted based upon several factors, including seniority, job
duties and responsibilities, job performance, our financial performance and a
comparison of awards given by other savings institutions converting from mutual
to stock form.
The Company would receive no monetary consideration for the granting of
stock options under the Option Plan. It would receive the option price for each
share issued to optionees upon the exercise of such options. Shares issued as a
result of the exercise of options will be either authorized but unissued shares
or shares purchased in the open market by the Company. However, no purchases in
the open market will be made that would violate applicable regulations
restricting purchases by the Company. The exercise of options and payment for
the shares received would contribute to the equity of the Company.
If the Option Plan is implemented more than one year after the
conversion, the Option Plan will comply with OTS regulations and policies that
are applicable at such time.
Restricted Stock Plan. The board of directors intends to adopt the RSP
following the conversion, the objective of which is to enable us to retain
personnel and directors of experience and ability in key positions of
responsibility. The Company expects to hold a stockholders' meeting no sooner
than six months after the conversion in order for stockholders to vote to
approve the RSP. If the RSP is implemented within one year after the conversion,
in accordance with applicable OTS regulations, the shares granted under the RSP
will be in the form of restricted stock vesting over a five year period (i.e.,
20% per year) beginning one year after the date of grant of the award.
Compensation expense in the amount of the fair market value of the common stock
granted will be recognized pro rata over the years during which the shares are
payable. Until they have vested, such shares may not be sold, pledged or
otherwise disposed of and are required to be held in escrow. Any shares not so
allocated would be voted by the RSP Trustees. The RSP will be implemented in
accordance with applicable OTS regulations. See "-- Restrictions on Stock
Benefit Plans." Awards would be granted based upon a number
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of factors, including seniority, job duties and responsibilities, job
performance, our performance and a comparison of awards given by other
institutions converting from mutual to stock form. The RSP would be managed by a
committee of non-employee directors (the "RSP Trustees"). The RSP Trustees would
have the responsibility to invest all funds contributed by us to the trust
created for the RSP (the "RSP Trust").
We expect to contribute sufficient to the RSP so that the RSP Trust can
purchase, in the aggregate, up to 4% of the amount of common stock that is sold
in the conversion. The shares purchased by the RSP would be authorized but
unissued shares or would be purchased in the open market. In the event the
market price of the common stock is greater than $10 per share, our contribution
of funds will be increased. Likewise, in the event the market price is lower
than $10 per share, our contribution will be decreased. In recognition of their
prior and expected services to us and the Company, as the case may be, the
officers, other employees and directors responsible for implementation of the
policies adopted by the board of directors and our profitable operation will,
without cost to them, be awarded stock under the RSP. Based upon the sale of
1,175,000 shares of common stock in the offering at the midpoint of the EVR, the
RSP Trust is expected to purchase up to 47,000 shares of common stock.
If the RSP is implemented more than one year after the conversion, the
RSP will comply with such OTS regulations and policies that are applicable at
such time.
Restrictions on Stock Benefit Plans. OTS regulations provide that in
the event stock option or management and/or employee stock benefit plans are
implemented within one year from the date of conversion, such plans must comply
with the following restrictions: (1) the plans must be fully disclosed in the
prospectus, (2) for stock option plans, the total number of shares for which
options may be granted may not exceed 10% of the shares issued in the
conversion, (3) for restricted stock plans, the shares may not exceed 3% of the
shares issued in the conversion (4% for institutions with 10% or greater
tangible capital), (4) the aggregate amount of stock purchased by the ESOP in
the conversion may not exceed 10% (8% for well-capitalized institutions
utilizing a 4% restricted stock plan), (5) no individual employee may receive
more than 25% of the available awards under the option plan or the restricted
stock plans, (6) directors who are not employees may not receive more than 5%
individually or 30% in the aggregate of the awards under any plan, (7) all plans
must be approved by a majority of the total votes eligible to be cast at any
duly called meeting of the Company's stockholders held no earlier than six
months following the conversion, (8) for stock option plans, the exercise price
must be at least equal to the market price of the stock at the time of grant,
(9) for restricted stock plans, no stock issued in a conversion may be used to
fund the plan, (10) neither stock option awards nor restricted stock awards may
vest earlier than 20% as of one year after the date of stockholder approval and
20% per year thereafter, and vesting may be accelerated only in the case of
disability or death (or if not inconsistent with applicable OTS regulations in
effect at such time, in the event of a change in control), (11) the proxy
material must clearly state that the OTS in no way endorses or approves of the
plans, and (12) prior to implementing the plans, all plans must be submitted to
the Regional Director of the OTS within five days after stockholder approval
with a certification that the plans approved by the stockholders are the same
plans that were filed with and disclosed in the proxy materials relating to the
meeting at which stockholder approval was received.
Certain Related Transactions. We grant loans to our officers, directors
and employees. These loans are made in the ordinary course of business and upon
the same terms, including collateral, as those prevailing at the time for
comparable transactions and do not involve more than the normal risk of
collectibility or present any other unfavorable features, except that for
consumer loans we charge an interest rate that is 2% below the stated rate and
we waive the loan processing fees. In addition, for loans to officers, directors
and employees on their principal residence, we offer a one year adjustable-rate
loan
73
<PAGE>
at the higher of the Association's cost of funds plus 1% or the applicable
federal rate. Loans to officers and directors and their affiliates amounted to
$374,576, or 5.67% of our total equity, at December 31, 1997. Assuming the
conversion had occurred at December 31, 1997 with the issuance of 1,175,000
shares, these loans would have totalled approximately 2.27% of pro forma
consolidated stockholders' equity.
RESTRICTIONS ON ACQUISITION OF FIRST KANSAS FINANCIAL CORPORATION
While the board of directors is not aware of any effort that might be
made to obtain control of the Company after conversion, the board of directors
believes that it is appropriate to include certain provisions as part of the
Company's articles of incorporation to protect the interests of the Company and
its stockholders from hostile takeovers ("anti-takeover" provisions) which the
board of directors might conclude are not in the best interests of us or our
stockholders. These provisions may have the effect of discouraging a future
takeover attempt which is not approved by the board of directors but which
individual stockholders may deem to be in their best interests or in which
stockholders may receive a substantial premium for their shares over the current
market prices. As a result, stockholders who might desire to participate in such
a transaction may not have an opportunity to do so. Such provisions will also
render the removal of the current board of directors or management of the
Company more difficult.
The following discussion is a general summary of the material
provisions of the articles of incorporation, bylaws, and certain other
regulatory provisions of the Company, which may be deemed to have such an
anti-takeover effect. The description of these provisions is necessarily general
and reference should be made in each case to the articles of incorporation and
bylaws of the Company which are filed as exhibits to the registration statement
of which this prospectus is a part. See "Where You Can Find Additional
Information" as to how to obtain a copy of these documents.
Provisions of the Company Articles of Incorporation and Bylaws
Limitations on Voting Rights. The articles of incorporation of the
Company provide that after completion of the conversion, in no event shall any
record owner of any outstanding equity security which is beneficially owned,
directly or indirectly, by a person who beneficially owns in excess of 10% of
any class of equity security outstanding (the "Limit"), be entitled or permitted
to any vote in respect of the shares held in excess of the Limit. In addition,
for a period of five years from the completion of our conversion, no person may
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than 10% of any class of an equity security of the Company without the
approval of the Board of Directors.
The impact of these provisions on the submission of a proxy on behalf
of a beneficial holder of more than 10% of the common stock is (1) to disregard
for voting purposes and require divestiture of the amount of stock held in
excess of 10% (if within five years of the conversion more than 10% of the
common stock is beneficially owned by a person) and (2) limit the vote on common
stock held by the beneficial owner to 10% or possibly reduce the amount that may
be voted below the 10% level (if more than 10% of the common stock is
beneficially owned by a person more than five years after the conversion).
Unless the grantor of a revocable proxy is an affiliate or an associate of such
a 10% holder or there is an arrangement, agreement or understanding with such a
10% holder, these provisions would not restrict the ability of such a 10% holder
of revocable proxies to exercise revocable proxies for which the 10% holder is
neither a beneficial nor record owner. A person is a beneficial owner of a
security if he has the power to vote or direct the voting of all or part of the
voting rights of the security, or has the power to dispose of or direct the
disposition of the security. The articles of incorporation of the
74
<PAGE>
Company further provide that this provision limiting voting rights may only be
amended upon the vote of 80% of the outstanding shares of voting stock.
Election of Directors. Certain provisions of the Company's articles of
incorporation and bylaws will impede changes in majority control of the board of
directors. The Company's articles of incorporation provide that the board of
directors of the Company will be divided into three staggered classes, with
directors in each class elected for three-year terms. Thus, it would take two
annual elections to replace a majority of the Company's board. The Company's
articles of incorporation provide that the size of the board of directors may be
increased or decreased only if approved by a vote of two-thirds of the whole
board of directors. The bylaws also provide that any vacancy occurring in the
board of directors, including a vacancy created by an increase in the number of
directors, may be filled only by the board of directors, acting by a majority
vote of the directors then in office and any directors so chosen shall hold
office until the next succeeding annual election of directors. Finally, the
articles of incorporation and the bylaws impose certain notice and information
requirements in connection with the nomination by stockholders of candidates for
election to the board of directors or the proposal by stockholders of business
to be acted upon at an annual meeting of stockholders.
The articles of incorporation provide that a director may only be
removed for cause by the affirmative vote of at least 80% of the shares of the
Company entitled to vote generally in an election of directors cast at a meeting
of stockholders called for that purpose.
Restrictions on Call of Special Meetings. The articles of incorporation
of the Company provide that a special meeting of stockholders may be called only
pursuant to a resolution adopted by a majority of the board of directors, or by
a committee of the board of directors which is authorized to call such meetings.
Absence of Cumulative Voting. The Company's articles of incorporation
provide that stockholders may not cumulate their votes in the election of
directors.
Authorized Shares. The articles of incorporation authorize the issuance
of 8,000,000 shares of common stock and 2,000,000 shares of preferred stock. The
shares of common stock and preferred stock were authorized in an amount greater
than that to be issued in the conversion to provide the Company's board of
directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and the
exercise of stock options. However, these additional authorized shares may also
be used by the board of directors consistent with its fiduciary duty to deter
future attempts to gain control of the Company. The board of directors also has
sole authority to determine the terms of any one or more series of preferred
stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of preferred stock,
the board has the power, to the extent consistent with its fiduciary duty, to
issue a series of preferred stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
Procedures for Certain Business Combinations. The articles of
incorporation require that unless certain fair price provisions are met,
business combinations must be approved by the affirmative vote of the holders of
not less than 80% of the outstanding stock of the Company. Exceptions to this
requirement may occur if two-thirds of the members of the board of directors,
who are continuing directors, has previously approved the business transaction.
Any amendment to this provision requires the affirmative vote of at least 80% of
the shares of the Company entitled to vote generally in an election of
directors.
75
<PAGE>
Amendment to Articles of Incorporation and Bylaws. Amendments to the
Company's articles of incorporation must be approved by the Company's board of
directors and also by a majority of the outstanding shares of the Company's
voting stock, provided, however, that approval by at least 80% of the
outstanding voting stock is generally required for certain provisions (i.e.,
provisions relating to restrictions on the acquisition and voting of greater
than 10% of the common stock; number, classification, election and removal of
directors; amendment of bylaws; call of special stockholder meetings; director
liability; certain business combinations; power of indemnification; and
amendments to provisions relating to the foregoing in the articles of
incorporation).
The bylaws may be amended by a majority vote of the board of directors
or the affirmative vote of the holders of at least 80% of the outstanding shares
of the Company entitled to vote in the election of directors, cast at a meeting
called for that purpose.
Benefit Plans. In addition to the provisions of the Company's articles
of incorporation and bylaws described above, certain benefit plans of ours
adopted in connection with the conversion contain provisions which also may
discourage hostile takeover attempts which the boards of directors might
conclude are not in the best interests of us or our stockholders. For a
description of the benefit plans and the provisions of such plans relating to
changes in control, see "Management of First Kansas Federal Savings Association
- -- Proposed Future Stock Benefit Plans."
Regulatory Restrictions. A federal regulation prohibits any person
prior to the completion of a conversion from transferring, or entering into any
agreement or understanding to transfer, the legal or beneficial ownership of the
subscription rights issued under a plan of conversion or the stock to be issued
upon their exercise. This regulation also prohibits any person prior to the
completion of a conversion from offering, or making an announcement of an offer
or intent to make an offer, to purchase such subscription rights or stock. For
three years following conversion, OTS regulations prohibit any person, without
the prior approval of the OTS, from acquiring or making an offer to acquire more
than 10% of the stock of any converted savings institution if such person is, or
after consummation of such acquisition would be, the beneficial owner of more
than 10% of such stock. In the event that any person, directly or indirectly,
violates this regulation, the securities beneficially owned by such person in
excess of 10% shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matter
submitted to a vote of stockholders.
Federal regulations require that, prior to obtaining control of an
insured institution, a person, other than a company, must give 60 days notice to
the OTS and have received no OTS objection to such acquisition of control, and a
company must apply for and receive OTS approval of the acquisition. Control,
involves a 25% voting stock test, control in any manner of the election of a
majority of the institution's directors, or a determination by the OTS that the
acquiror has the power to direct, or directly or indirectly to exercise a
controlling influence over, the management or policies of the institution.
Acquisition of more than 10% of an institution's voting stock, if the acquiror
also is subject to any one of either "control factors," constitutes a rebuttable
determination of control under the regulations. The determination of control may
be rebutted by submission to the OTS, prior to the acquisition of stock or the
occurrence of any other circumstances giving rise to such determination, of a
statement setting forth facts and circumstances which would support a finding
that no control relationship will exist and containing certain undertakings. The
regulations provide that persons or companies which acquire beneficial ownership
exceeding 10% or more of any class of a savings association's stock after the
effective date of the regulations must file with the OTS a certification that
the holder is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable.
76
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 8,000,000 shares of common stock,
$0.10 par value per share, and 2,000,000 shares of serial preferred stock, $0.10
par value per share. The Company currently expects to issue up to 1,351,250
shares of common stock in the conversion. The Company does not intend to issue
any shares of serial preferred stock in the conversion, nor are there any
present plans to issue such preferred stock following the conversion. The
aggregate par value of the issued shares will constitute the capital account of
the Company. The balance of the purchase price will be recorded for accounting
purposes as additional paid-in capital. See "Capitalization." The capital stock
of the Company will represent nonwithdrawable capital and will not be insured by
us, the FDIC, or any other governmental agency.
Common Stock
Voting Rights. Each share of the common stock will have the same
relative rights and will be identical in all respects with every other share of
the common stock. The holders of the common stock will possess exclusive voting
rights in the Company, except to the extent that shares of serial preferred
stock issued in the future may have voting rights, if any. Each holder of the
common stock will be entitled to only one vote for each share held of record on
all matters submitted to a vote of holders of the common stock and will not be
permitted to cumulate their votes in the election of the Company's directors.
Liquidation. In the unlikely event of the complete liquidation or
dissolution of the Company, the holders of the common stock will be entitled to
receive all assets of the Company available for distribution in cash or in kind,
after payment or provision for payment of (i) all debts and liabilities of the
Company; (ii) any accrued dividend claims; and (iii) liquidation preferences of
any serial preferred stock which may be issued in the future.
Restrictions on Acquisition of the common stock. See "Restrictions on
Acquisition of First Kansas Financial Corporation" for a discussion of the
limitations on acquisition of shares of the common stock.
Other Characteristics. Holders of the common stock will not have
preemptive rights with respect to any additional shares of the common stock
which may be issued. Therefore, the board of directors may sell shares of
capital stock of the Company without first offering such shares to existing
stockholders of the Company. The common stock is not subject to call for
redemption, and the outstanding shares of common stock when issued and upon
receipt by the Company of the full purchase price therefor will be fully paid
and non-assessable.
Issuance of Additional Shares. Except in the offering and possibly
pursuant to the RSP or Option Plan, the Company has no present plans, proposals,
arrangements or understandings to issue additional authorized shares of the
common stock. In the future, the authorized but unissued and unreserved shares
of the common stock will be available for general corporate purposes, including,
but not limited to, possible issuance: (i) as stock dividends; (ii) in
connection with mergers or acquisitions; (iii) under a cash dividend
reinvestment or stock purchase plan; (iv) in a public or private offering; or
(v) under employee benefit plans. See "Risk Factors -- Possible Dilutive Effect
of RSP and Stock Options" and "Pro Forma Data." Normally no stockholder approval
would be required for the issuance of these shares, except as described herein
or as otherwise required to approve a transaction in which additional authorized
shares of the common stock are to be issued.
77
<PAGE>
For additional information, see "Dividends," "Regulation" and
"Taxation" with respect to restrictions on the payment of cash dividends; "The
conversion -- Restrictions on Sales and Purchases of Shares by Directors and
Officers" relating to certain restrictions on the transferability of shares
purchased by directors and officers; and "Restrictions on Acquisitions of First
Kansas Financial Corporation" for information regarding restrictions on
acquiring common stock of the Company.
Serial Preferred Stock
None of the 2,000,000 authorized shares of serial preferred stock of
the Company will be issued in the conversion. After the conversion is completed,
the board of directors of the Company will be authorized to issue serial
preferred stock and to fix and state voting powers, designations, preferences or
other special rights of such shares and the qualifications, limitations and
restrictions thereof, subject to regulatory approval but without stockholder
approval. If and when issued, the serial preferred stock is likely to rank prior
to the common stock as to dividend rights, liquidation preferences, or both, and
may have full or limited voting rights. The board of directors, without
stockholder approval, can issue serial preferred stock with voting and
conversion rights which could adversely affect the voting power of the holders
of the common stock. The board of directors has no present intention to issue
any of the serial preferred stock.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act, and is therefore,
unenforceable.
Section 17-6305 of the Kansas General Corporation Code (the "Code")
describes those circumstances under which directors, officers, employees and
agents may be insured or indemnified against liability which they may incur in
their capacities as such. The Company's Articles of Incorporation (the
"Articles") require indemnification of directors, officers, employees or agents
of the Company to the full extent permissible under Kansas law.
The Company may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee, or agent of the Company or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such, whether or not the Company would have the power to indemnify such person
against such liability under the provisions of the Code or of the Articles.
LEGAL AND TAX MATTERS
The legality of the common stock has been passed upon for us by
Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C. Certain legal matters for
Capital Resources, Inc. may be passed upon by Silver, Freedman & Taff, L.L.P.,
Washington, DC. The federal income tax consequences of the conversion have been
passed upon for us by Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C. The
Kansas income tax consequences of the conversion have been passed upon for us by
Winkler, Lee, Tetwiler, Domoney & Schultz, Paola, Kansas.
78
<PAGE>
EXPERTS
The financial statements of First Kansas Federal Savings Association as
of and for the years ended December 31, 1997 and 1996, appearing in this
document have been audited by KPMG Peat Marwick, independent certified public
accountants, as set forth in their report which appears elsewhere in this
document, and is included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
Capital Resources Group, Inc. is affiliated with Capital Resources,
Inc. Capital Resources Group, Inc. has consented to the publication herein of a
summary of its letters to First Kansas Federal Savings Association setting forth
its opinion as to our estimated pro forma market value in converted form and its
opinion setting forth the value of subscription rights. It has also consented to
the use of its name and statements with respect to it appearing in this
document.
REGISTRATION REQUIREMENTS
The common stock of the Company is registered pursuant to Section 12(g)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company will be subject to the information, proxy solicitation, insider trading
restrictions, tender offer rules, periodic reporting and other requirements of
the SEC under the Exchange Act. The Company may not deregister the common stock
under the Exchange Act for a period of at least three years following the
conversion.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and must file reports and other information with the SEC.
The Company has filed with the SEC a registration statement on Form
SB-2 under the Securities Act of 1933, as amended, with respect to the common
stock offered in this document. As permitted by the rules and regulations of the
SEC, this document does not contain all the information set forth in the
registration statement. Such information can be examined without charge at the
public reference facilities of the SEC located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of such material can be obtained from the SEC
at prescribed rates. The SEC also maintains an internet address ("Web site")
that contains reports, proxy and information statements and other information
regarding registrants, including the Company, that file electronically with the
SEC. The address for this Web site is "http://www.sec.gov". The statements
contained in this document as to the contents of any contract or other document
filed as an exhibit to the Form SB-2 are, of necessity, brief descriptions and
are not necessarily complete; each such statement is qualified by reference to
such contract or document.
First Kansas Federal Savings Association has filed an Application for
conversion with the OTS with respect to the conversion. Pursuant to the rules
and regulations of the OTS, this document omits certain information contained in
that Application. The Application may be examined at the principal office of the
OTS at 1700 G Street, N.W., Washington, D.C. 20552 and at the Midwest Regional
Office of the OTS, 122 W. John Carpenter Freeway, Suite 600, Irving, Texas
75039.
A copy of the Articles of Incorporation and the Bylaws of the Company
are available without charge from the Company.
79
<PAGE>
First Kansas Federal Savings Association
Index to Consolidated Financial Statements
Page
----
Independent Auditors' Report............................................... F-1
Consolidated Balance Sheets................................................ F-2
Consolidated Statements of Earnings........................................ 34
Consolidated Statements of Equity.......................................... F-3
Consolidated Statements of Cash Flows...................................... F-4
Notes to Consolidated Financial Statements................................. F-6
All schedules are omitted because the required information is either not
applicable or is included in the consolidated financial statements or related
notes.
Separate financial statements for the Company have not been included since it
will not engage in material transactions until after the conversion. The
Company, which has been inactive to date, has no significant assets,
liabilities, revenues, expenses or contingent liabilities.
80
<PAGE>
Independent Auditors' Report
The Board of Directors
First Kansas Federal Savings Association:
We have audited the accompanying consolidated balance sheets of First Kansas
Federal Savings Association and subsidiary (the Association) as of December
31, 1997 and 1996 and the related consolidated statements of earnings, equity
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Association's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Kansas Federal Savings Association and subsidiary as of December 31, 1997 and
1996 and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
February 18, 1998
F-1
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Assets 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents (note 2) $ 4,599,876 4,222,017
Investment securities held-to-maturity (estimated fair value of
$3,952,000 and $2,778,000 in 1997 and 1996, respectively) (note 3) 3,852,265 2,800,000
Mortgage-backed securities available-for-sale (amortized cost of
$17,325,000 and $24,432,000 in 1997 and 1996, respectively) (note 4) 16,833,160 23,722,685
Mortgage-backed securities held-to-maturity (estimated fair value of
$20,895,000 and $24,626,000 in 1997 and 1996, respectively) (note 4) 20,936,644 24,861,361
Loans receivable, net (note 5) 46,563,162 42,827,236
Accrued interest receivable:
Investment and mortgage-backed securities 244,173 306,976
Loans receivable 246,088 221,221
Stock in Federal Home Loan Bank (FHLB) of Topeka, at cost 660,900 615,200
Premises and equipment, net (note 6) 989,772 686,926
Real estate held for development (note 7) 354,840 553,712
Premium on deposits assumed, net of accumulated amortization of
$912,263 and $851,328, respectively (note 8) 299,600 360,535
Prepaid expenses and other assets 74,621 27,826
Income tax receivable - 39,629
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $ 95,655,101 101,245,324
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities and Equity
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities:
Deposits (note 9) $ 85,650,836 83,722,941
Advances from borrowers for property taxes and insurance 128,400 141,906
Accrued interest payable 86,931 65,392
Borrowings from FHLB of Topeka (note 10) 2,550,000 11,350,000
Income taxes payable:
Current 403,404 -
Deferred (note 11) 160,000 86,800
Accrued expenses and other liabilities 65,189 83,440
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 89,044,760 95,450,479
- ----------------------------------------------------------------------------------------------------------------------------
Equity:
Retained earnings (notes 11 and 13) 6,935,102 6,263,079
Unrealized loss on available-for-sale securities, net of tax (324,761) (468,234)
- ----------------------------------------------------------------------------------------------------------------------------
Total equity 6,610,341 5,794,845
Commitments (note 5)
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $ 95,655,101 101,245,324
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Equity
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Net
unrealized
loss on
available-
Retained for-sale
earnings securities Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1995 $ 6,092,357 (140,354) 5,952,003
Net earnings 170,722 - 170,722
Change in unrealized loss on available-for-sale securities, net - (327,880) (327,880)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 6,263,079 (468,234) 5,794,845
Net earnings 672,023 - 672,023
Change in unrealized loss on available-for-sale securities, net - 143,473 143,473
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $ 6,935,102 (324,761) 6,610,341
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Cash Flows
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 672,023 170,722
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Provision for loan losses 35,000 -
Depreciation 110,324 109,530
Amortization of premium on deposits assumed 60,935 60,935
FHLB stock dividends (45,700) (37,900)
Amortization of deferred hedging loss - 495
Amortization of loan fees (35,354) (29,684)
Accretion of discounts and amortization of premiums on
investment and mortgage-backed securities, net (36,627) (556)
Deferred income taxes (700) (18,304)
Loss on sale of real estate owned - 780
Gain on sale of real estate held for development (35,189) -
Gain on sales of loans, net (66,997) (133,388)
(Gain) loss on sales of mortgage-backed securities available-for-sale (55,217) 4,057
Proceeds from sales of loans 3,451,382 5,809,376
Origination of loans for sale (3,384,385) (5,600,254)
Changes in assets and liabilities:
Accrued interest receivable 37,936 (7,828)
Prepaid expenses and other assets (46,795) 30,141
Accrued interest payable 21,539 (6,280)
Accrued expenses and other liabilities (18,251) 3,085
Current income taxes payable/receivable 443,033 (159,705)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,106,957 195,222
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Increase in loans, net (3,735,572) (12,020,022)
Maturities of investment securities held-to-maturity - 3,540,580
Paydowns and maturities of mortgage-backed securities available-for-sale 2,503,348 1,842,156
Paydowns and maturities of mortgage-backed securities held-to-maturity 3,932,676 3,886,851
Purchases of investment securities held-to-maturity (1,031,481) (2,000,000)
Purchases of mortgage-backed securities available-for-sale - (2,005,793)
Purchases of mortgage-backed securities held-to-maturity - (4,689,871)
Proceeds from sales of mortgage-backed securities available-for-sale 4,666,651 3,255,278
Proceeds from sale of real estate owned - 11,944
Acquisition and development of real estate held for development (98,721) (553,712)
Proceeds from sale of real estate held for development 214,450 -
Additions of premises and equipment, net (294,838) (65,895)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities $ 6,156,513 (8,798,484)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
F-4
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits $ 1,927,895 1,233,564
Proceeds from borrowings from FHLB - 9,450,000
Repayment of borrowings from FHLB (8,800,000) -
Net increase (decrease) in advances from borrowers for taxes
and insurance (13,506) (163,031)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (6,885,611) 10,520,533
- ---------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents 377,859 1,917,271
Cash and cash equivalents at beginning of year 4,222,017 2,304,746
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 4,599,876 4,222,017
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ 116,000 249,000
- ---------------------------------------------------------------------------------------------------------------------------
Cash paid during the year for interest $ 4,217,761 4,022,290
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of noncash investing and financing activities:
Conversion of real estate owned to loans $ - 22,950
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of First
Kansas Federal Savings Association (the Association) and its
wholly-owned subsidiary, First Enterprises, Inc. Intercompany balances
and transactions have been eliminated. The Association is principally
engaged in single family home lending in the state of Kansas. The
Association also makes consumer and commercial loans depending on the
demand and management's assessment of the quality of such loans.
(b) Cash Equivalents
Cash equivalents consist of interest-bearing deposits in the Federal
Home Loan Bank (FHLB) of Topeka and other financial institutions with an
original maturity of three months or less.
(c) Investment Securities
The Association accounts for its investment securities in accordance
with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
Accordingly, investments are classified as held-to-maturity, which are
carried at amortized cost, or available-for-sale, which are carried at
fair value with unrealized gains and losses excluded from earnings and
reported in a separate component of equity, net of related income taxes.
Amortization and accretion of premiums and discounts are computed using
the interest method over the estimated life of the related security and
are recorded as an adjustment of interest income. Gains and losses on
sales are calculated using the specific identification method.
(d) Loans
The Association determines at the time of origination whether mortgage
loans will be held for the Association's portfolio or sold in the
secondary market. Loans originated and intended for sale in the
secondary market are recorded at the lower of aggregate cost or
estimated market value. Fees received on such loans are deferred and
recognized in income as part of the gain or loss on sale.
Loan origination, commitment and related fees and certain direct
origination costs related to loans for the Association's portfolio are
deferred. The deferred fees and costs are amortized as an adjustment of
yield over the contractual term of the individual loans using the
interest method.
(e) Mortgage Banking Activities
At December 31, 1997 and 1996, the Association was servicing loans for
others amounting to $1,435,000 and $1,858,000, respectively. Loan
servicing fees include servicing fees from investors and certain charges
collected from borrowers, such as late payment fees, which are recorded
when received. The amount of escrow balances held for borrowers at
December 31, 1997 and 1996 was insignificant.
(Continued)
F-6
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Originated servicing rights are not recorded as assets of the
Association. SFAS No. 122, Accounting for Mortgage Servicing Rights, as
amended by SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, requires that
originated servicing rights be valued and recorded as assets when the
loan is originated and subsequently amortized as a component of
servicing cost over the expected life of the loan. The Association
adopted the provisions of SFAS No. 122 and SFAS No. 125 on January 1,
1996 and January 1, 1997, respectively. Because the Association did not
retain any servicing rights on loans originated and sold during 1997 and
1996, SFAS Nos. 122 and 125 had no effect on the Association's financial
statements.
(f) Provisions for Losses on Loans and Interest Receivable
Provisions for losses on loans receivable are based upon management's
estimate of the amount required to maintain an adequate allowance for
losses, relative to the risks in the loan portfolio. This estimate is
based on reviews of the loan portfolio, including assessment of the
estimated net realizable value of the related underlying collateral, and
consideration of historical loss experience, current economic conditions
and such other factors which, in the opinion of management, deserve
current recognition. Loans are charged-off when the probability of loss
is established, taking into consideration such factors as the borrower's
financial condition, underlying collateral and guarantees. Loans are
also subject to periodic examination by regulatory agencies. Such
agencies may require charge-offs or additions to the allowance based
upon their judgments about information available at the time of their
examination.
Accrual of interest income on loans is discontinued for those loans with
interest more than ninety days delinquent or sooner if management
believes collectibility of the interest is not probable. Management's
assessment of collectibility is primarily based on a comparison of the
estimated value of underlying collateral to the related loan and accrued
interest receivable balances. Such interest, if ultimately collected, is
recognized as income in the period of recovery.
A loan is considered impaired when it is probable the Association will
be unable to collect all amounts due - both principal and interest -
according to the contractual terms of the loan agreement. When measuring
impairment, the expected future cash flows of an impaired loan are
discounted at the loan's effective interest rate. Impairment may also be
measured by reference to an observable market price, if one exists, or
the fair value of the collateral for a collateral-dependent loan.
Regardless of the historical measurement method used, the Association
measures impairment based on the fair value of the collateral when it
determines foreclosure is probable. Additionally, impairment of a
restructured loan is measured by discounting the total expected future
cash flows at the loan's effective rate of interest as stated in the
original loan agreement.
The Association applies the methods described above to multifamily real
estate loans, commercial real estate loans and restructured loans.
Smaller balance, homogeneous loans, including one-to-four-family
residential and construction loans and consumer loans, are collectively
evaluated for impairment.
(g) Real Estate Owned and Held for Development
Real estate properties acquired through foreclosure are initially
recorded at the lower of cost or estimated fair value, less selling
costs, at the date of foreclosure. Costs relating to development and
improvement of property are capitalized, whereas holding costs are
expensed when incurred. Valuations are periodically performed by
management and an allowance for losses is established by a charge to
operations if the carrying value of a property exceeds its estimated
fair value, less selling costs.
(Continued)
F-7
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Real estate held for development consists of a parcel of land and
improvements zoned for commercial development. Such development is
carried at cost which is less than the estimated market value. Direct
costs, including interest, are capitalized as property costs during the
development period. Gains on sales are recognized by allocating costs to
parcels sold using the relative fair value method.
(h) Stock in Federal Home Loan Bank of Topeka
The Association is a member of the FHLB system. As a member, the
Association is required to purchase and hold stock in the FHLB of Topeka
in an amount equal to the greater of (a) 1% of unpaid residential loans,
(b) 5% of outstanding FHLB advances, or (c) .3% of total assets. FHLB
stock is carried at cost in the accompanying consolidated balance
sheets.
(i) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using both straight-line and accelerated
methods over the estimated useful lives of the assets, which range from
three to thirty-five years. Major replacements and betterments are
capitalized while normal maintenance and repairs are charged to expense
when incurred. Gains or losses on dispositions are reflected in current
operations.
(j) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
income tax bases. The effect on deferred tax assets and liabilities of a
change in tax rate is recognized in income in the period that includes
the enactment date.
(k) Use of Estimates
Management of the Association has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
(l) New Accounting Pronouncements
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, was effective for all transfers and
servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996. This statement provides accounting
and reporting standards for transfers and servicing of financial assets
and extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are
secured borrowings.
Under the financial-components approach, after a transfer of financial
assets, an entity recognizes all financial and servicing assets it
controls and liabilities it has incurred and derecognizes financial
assets it no longer controls and liabilities that have been
extinguished. The financial-components approach focuses on the assets
and liabilities that exist after the transfer. Many of these assets and
liabilities are components of financial assets that existed prior to the
transfer. If a transfer does not meet the criteria for a sale, the
transfer is accounted for as a secured borrowing with pledge of
collateral. The adoption of this statement did not have a material
effect on the Association's financial statements.
(Continued)
F-8
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
SFAS No. 127, Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125, deferred the effective date for transfers and
servicing of financial assets and extinguishments of liabilities related
to secured borrowings, repurchase agreements and similar instruments
occurring after December 31, 1996 to those occurring after December 31,
1997. Management believes adoption of SFAS No. 127 will not have a
material effect on the Association's financial position or results of
operations, nor will adoption require additional capital resources.
The Financial Accounting Standards Board (FASB) issued SFAS No. 130,
Reporting Comprehensive Income, in June 1997. SFAS No. 130 will require
the Association to classify items of other comprehensive income by their
nature in the financial statements and display the accumulated balance
of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the statement of
equity. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997.
(2) Cash and Cash Equivalents
A comparative summary of cash and cash equivalents follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash on hand $ 650,567 411,038
Deposits at other financial institutions 549,309 510,979
Overnight FHLB deposits 3,400,000 3,300,000
- ---------------------------------------------------------------------------------------------------------------------------
$ 4,599,876 4,222,017
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) Investment Securities
A summary of investment securities held-to-maturity and information
relating to amortized cost, approximate fair values and unrealized gains
(losses) at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
1997 cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. government and agency obligations
maturing within one year $ 800,000 - (636) 799,364
U. S. government and agency obligations
maturing after one year but within five years 2,000,000 - (3,616) 1,996,384
U. S. government and agency obligations
maturing after ten years 1,052,265 103,985 - 1,156,250
- ---------------------------------------------------------------------------------------------------------------------------
$ 3,852,265 103,985 (4,252) 3,951,998
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
F-9
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
1996 cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. government and agency obligations
maturing after one year but within five years $ 2,800,000 - (22,125) 2,777,875
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no sales of investment securities during 1997 or 1996.
(4) Mortgage-backed Securities
A summary of mortgage-backed securities and information relating to
amortized cost, approximate fair values and unrealized gains (losses) at
December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
1997 cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
Government agency mortgage-backed securities:
Federal Home Loan Mortgage
Corporation (FHLMC) $ 331,351 386 (73) 331,664
Federal National Mortgage
Association (FNMA) 552,214 22,542 - 574,756
Government National Mortgage
Association (GNMA) 1,927,358 59,754 - 1,987,112
Collateralized mortgage obligations 14,514,422 35,263 (610,057) 13,939,628
- ---------------------------------------------------------------------------------------------------------------------------
$ 17,325,345 117,945 (610,130) 16,833,160
- ---------------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
Government agency mortgage-backed securities:
FHLMC $ 161,414 4,994 - 166,408
FNMA 2,543,231 38,744 (1,876) 2,580,099
GNMA 499,918 42,946 - 542,864
Collateralized mortgage obligations 17,732,081 23,072 (149,852) 17,605,301
- ---------------------------------------------------------------------------------------------------------------------------
$ 20,936,644 109,756 (151,728) 20,894,672
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
F-10
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
1996 cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
Government agency mortgage-backed securities:
FHLMC $ 2,101,135 2,059 (3,552) 2,099,642
FNMA 3,218,673 46,017 (3,417) 3,261,273
GNMA 2,275,199 47,291 - 2,322,490
Collateralized mortgage obligations 16,837,236 32,309 (830,265) 16,039,280
- ---------------------------------------------------------------------------------------------------------------------------
$ 24,432,243 127,676 (837,234) 23,722,685
- ---------------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
Government agency mortgage-backed securities:
FHLMC $ 222,808 7,423 - 230,231
FNMA 3,150,805 20,880 (16,507) 3,155,178
GNMA 576,612 43,732 - 620,344
Collateralized mortgage obligations 20,911,136 20,056 (311,313) 20,619,879
- ---------------------------------------------------------------------------------------------------------------------------
$ 24,861,361 92,091 (327,820) 24,625,632
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Association's portfolio of government agency mortgage-backed
securities and collateralized mortgage obligations consists primarily of
first and second tranche securities with expected maturities of three to
five years and adjustable rate mortgage pools. At December 31, 1997, the
government agency mortgage-backed securities had a carrying value of
$6,098,000 and consisted of approximately $3,204,000 of fixed rate
securities and $2,894,000 of variable rate securities. The
collateralized mortgage obligations had a carrying value of $31,672,000
and consisted of approximately $18,209,000 of fixed rate securities and
$13,463,000 of variable rate securities.
The proceeds from sales of government agency mortgage-backed securities
during 1997 were $4,666,651. Gross gains of $55,217 were realized on
those sales. The proceeds from sales of investment securities during
1996 were $3,255,278. Gross gains of $34,367 and gross losses of $38,424
were realized on those sales.
At December 31, 1997 and 1996, government agency mortgage-backed
securities with a carrying value of approximately $2,550,000 and
$2,075,000, respectively, were pledged to secure public funds on
deposit.
(Continued)
F-11
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(5) Loans Receivable
Loans receivable consist of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans:
One-to-four-family $ 42,852,979 39,481,525
Multifamily 1,045,432 1,062,433
Commercial 534,591 574,490
Land 140,977 78,314
Construction 126,336 130,000
- ---------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 44,700,315 41,326,762
Consumer loans 1,727,771 1,420,993
Commercial loans 513,161 398,538
- ---------------------------------------------------------------------------------------------------------------------------
Total 46,941,247 43,146,293
Less:
Unearned discounts and deferred fees 118,144 111,771
Allowance for loan losses 178,641 146,261
Undisbursed portion of loans in process 81,300 61,025
- ---------------------------------------------------------------------------------------------------------------------------
Total, net $ 46,563,162 42,827,236
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Association evaluates each customer's creditworthiness on a
case-by-case basis. Residential loans with a loan-to-value ratio
exceeding 80% are required to have private mortgage insurance. The
Association's primary lending area is in the state of Kansas.
The weighted average annual interest rates on mortgage loans
approximated 7.69% and 7.86% at December 31, 1997 and 1996. Adjustable
rate loans have interest rate adjustment limitations and are generally
indexed to the national average cost of funds. Future market factors may
affect the correlation of the interest rate adjustment with the rates
the Association pays on the short-term deposits that have been primarily
utilized to fund these loans.
At December 31, 1997, the Association had outstanding commitments to
originate mortgage loans aggregating approximately $143,000. Of these
commitments, substantially all were variable rate commitments. The
Association also had approximately $411,000 in commitments to purchase
loans at December 31, 1997.
(Continued)
F-12
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Loans made to directors and executive officers of the Association
approximated $375,000 and $345,000 at December 31, 1997 and 1996,
respectively. Such loans were made in the ordinary course of business.
Changes in such loans for 1997 are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Balance at January 1, 1997 $ 345,000
Additions 217,000
Amounts collected (187,000)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ 375,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
A summary of the activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 146,261 147,763
Provision 35,000 -
Charge-offs (5,353) (5,580)
Recoveries 2,733 4,078
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 178,641 146,261
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Loans delinquent ninety days or more at December 31, 1997 and 1996
aggregated $79,540 and $17,076, respectively. Impaired loans are
considered insignificant at December 31, 1997 and 1996.
(6) Premises and Equipment
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 217,341 99,009
Buildings and improvements 1,077,013 1,060,391
Construction-in-progress 240,770 -
Furniture and equipment 765,559 741,886
- ---------------------------------------------------------------------------------------------------------------------------
Total 2,300,683 1,901,286
Less accumulated depreciation 1,310,911 1,214,360
- ---------------------------------------------------------------------------------------------------------------------------
Total 989,772 686,926
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
F-13
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(7) Real Estate Held for Development
The Association's subsidiary acquired a parcel of land in 1996 in Paola,
Kansas for the purpose of development and sale. Total cost incurred
through December 31, 1997, including capitalized interest of $37,117,
aggregated $652,433. During 1997, one lot with an allocated cost of
$118,332 was transferred to the Association for the purpose of building
a new branch facility. Additionally, two lots with allocated cost
aggregating $179,261 were sold during 1997, resulting in gains on those
sales totaling $35,189.
(8) Premium on Deposits Assumed
In accordance with the FSLIC Transfer Agreement dated November 19, 1982,
the Association assumed certain deposits of the former North Kansas
Savings Association, paying a premium on deposits assumed of $1,211,863.
The Association is amortizing the premium over twenty years on the
straight-line method.
(9) Deposits
The rates at which the Association paid interest on deposits and related
balances are summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996
----------------------- ----------------------
Percent Percent
Amount of total Amount of total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NOW accounts:
Noninterest $ 1,927,638 2% $ 1,521,091 2%
Regular - 2.00% - 2.99% 9,572,700 11 8,368,879 10
Money market - 3.00% - 3.50% 10,807,542 13 11,812,108 14
- ---------------------------------------------------------------------------------------------------------------------------
22,307,880 26 21,702,078 26
- ---------------------------------------------------------------------------------------------------------------------------
Passbook accounts:
Passbook - 3.00% 7,079,938 8 6,880,950 8
- ---------------------------------------------------------------------------------------------------------------------------
Certificate accounts:
0.00% - 3.99% 10,580 - 639,253 1
4.00% - 4.99% 1,216,479 1 3,880,075 5
5.00% - 5.99% 44,990,758 53 43,004,782 51
6.00% - 6.99% 9,816,069 12 7,342,652 9
7.00% - 10.99% 229,132 - 273,151 -
- ---------------------------------------------------------------------------------------------------------------------------
56,263,018 66 55,139,913 66
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 85,650,836 100% 83,722,941 100%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
F-14
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The weighted average interest rates on deposits approximated 4.66%
and 4.56% at December 31, 1997 and 1996, respectively.
Scheduled maturities of certificate accounts at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year Amount
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1998 $ 40,860,559
1999 8,127,111
2000 4,986,255
2001 818,505
2002 1,150,238
Thereafter 320,350
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 56,263,018
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
A summary of interest expense is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Passbook and certificate accounts $ 3,213,876 3,150,181
NOW 564,289 573,876
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 3,778,165 3,724,057
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certificates of deposit in amounts greater than $100,000 amounted to
$3,104,000 and $3,045,000 at December 31, 1997 and 1996, respectively.
(Continued)
F-15
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(10) Borrowings from Federal Home Loan Bank of Topeka
Borrowings outstanding from the FHLB of Topeka at December 31, 1997
totaled $2,550,000 with interest rates ranging from 6.2% to 6.9%,
including individual advances and $1,900,000 borrowed under a $8,000,000
line of credit with an interest rate of 6.9% at December 31, 1997.
Borrowings at December 31, 1996 totaled $11,350,000 with interest rates
ranging from 5.7% to 7.2%. Maturities of borrowings outstanding at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year ending
December 31, Amount
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
1998 $ 1,900,000
1999 -
2000 -
2001 -
2002 650,000
- ---------------------------------------------------------------------------------------------------------------------------
$ 2,550,000
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average rate at December 31, 1997 6.71%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
FHLB borrowings are secured by all unpledged single and multifamily
first mortgage loans, mortgage-backed securities, United States
government and agency obligations, interest-bearing deposits in other
financial institutions, stock in FHLB and FHLB overnight deposits.
(11) Income Taxes
The components of income tax expense from operations are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Federal State Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1997:
Current $ 384,600 65,100 449,700
Deferred (600) (100) (700)
- ---------------------------------------------------------------------------------------------------------------------------
$ 384,000 65,000 449,000
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996:
Current $ 117,304 16,000 133,304
Deferred (15,122) (3,182) (18,304)
- ---------------------------------------------------------------------------------------------------------------------------
$ 102,182 12,818 115,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
F-16
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The reasons for the differences between the effective tax rates and the
expected federal income tax rate of 34% are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Percentage
of earnings
before
income taxes
--------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Expected federal income tax rate 34.0% 34.0
State taxes, net of federal tax benefit 3.8 3.7
Other, net 2.3 2.5
- ---------------------------------------------------------------------------------------------------------------------------
Effective income tax rate 40.1% 40.2
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Temporary differences which give rise to a significant portion of
deferred tax assets and liabilities at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized loss on available-for-sale securities $ 167,343 241,243
Loan origination fees 12,000 17,000
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax asset 179,343 258,243
- ---------------------------------------------------------------------------------------------------------------------------
Premises and equipment (88,000) (94,500)
FHLB dividends (109,000) (93,500)
Allowance for loan losses (108,000) (118,300)
State taxes (34,000) (35,900)
Other, net (343) (2,843)
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax liability (339,343) (345,043)
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ (160,000) (86,800)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
There was no valuation allowance required for deferred tax assets at
December 31, 1997 or 1996. Management believes that it is more likely
than not that the results of future operations will generate sufficient
taxable income to realize the deferred tax assets.
(Continued)
F-17
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Prior to 1996, the Association was allowed to deduct the greater of an
experience method bad debt deduction based on actual charge-offs or a
statutory bad debt deduction based on a percentage (8%) of taxable
income before such deduction. For income tax purposes, the Association
used the experience methods in 1996 and 1997. Under the Small Business
Job Projection Act (the Act) of 1996, the allowable deduction under the
percentage of taxable income method was terminated for tax years
beginning after 1995 and will not be available to the Association for
future years. The Act also provides that federal income tax bad debt
reserves accumulated since 1988 (the base year reserve) must be
recaptured and included in taxable income over a six-year inclusion
period beginning 1998. Included in the deferred income tax liability at
December 31, 1997 is $168,000 for this recapture.
Retained earnings at December 31, 1997 and 1996 includes approximately
$718,000 for which no provision for federal income tax has been made.
This amount represents allocations of income to bad debt deductions in
years prior to 1988 for tax purposes only. Reduction of amounts
allocated for purposes other than tax bad debt losses will create income
for tax purposes only, which will be subject to the then current
corporate income tax rate.
(12) Benefit Plans
The Association participates in a multiemployer, noncontributory defined
benefit pension plan which covers all employees who have met eligibility
requirements. Pension costs associated with the plan amounted to $2,609
and $2,559 for the years ended December 31, 1997 and 1996, respectively.
The Association has a defined contribution plan that covers
substantially all employees. Employees may contribute up to 15% of their
salary, subject to limitations under the Internal Revenue Code, and the
Association matches 50% of the employee's contribution, up to 6% of
compensation. The Association's expense under the plan for 1997 and 1996
was $22,764 and $24,241, respectively. In addition, the Association made
discretionary contributions to the plan of $54,500 and $42,000 for the
years ended December 31, 1997 and 1996, respectively.
In December 1997, the Association implemented a supplemental executive
retirement plan ("SERP") for the benefit of the Association's president
which will provide enhanced benefits at retirement. Accruals under the
SERP will commence in 1998.
(13) Regulatory Capital Requirements
The Financial Institution Reform, Recovery and Enforcement Act of 1989
(FIRREA) and the capital regulations of the OTS promulgated thereunder
require institutions to have a minimum regulatory tangible capital equal
to 1.5% of total assets, a minimum 3% leverage capital ratio and a
minimum 8% risk-based capital ratio. These capital standards set forth
in the capital regulations must generally be no less stringent than the
capital standards applicable to national banks. FIRREA also specifies
the required ratio of housing-related assets in order to qualify as a
savings institution.
(Continued)
F-18
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) established additional capital requirements which require
regulatory action against depository institutions in one of the
undercapitalized categories defined in implementing regulations.
Institutions such as the Association, which are defined as well
capitalized, must generally have a leverage (core) capital ratio of at
least 5%, a Tier I risk-based capital ratio of at least 6% and a total
risk-based capital ratio of at least 10%. FDICIA also provides for
increased supervision by federal regulatory agencies, increased
reporting requirements for insured depository institutions and other
changes in the legal and regulatory environment for such institutions.
The Association met all regulatory capital requirements at December 31,
1997 and 1996. The Association's actual and required capital amounts and
ratios as of December 31, 1997 were as follows:
<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>
Tangible capital (to tangible assets) $ 6,280,000 6.6% $ 1,431,000 1.5% $ - - %
Tier I leverage (core) capital (to adjusted
tangible assets) 6,280,000 6.6 2,861,000 3.0 4,769,000 5.0
Risk-based capital (to risk-weighted assets) 6,443,000 18.4 2,803,000 8.0 3,504,000 10.0
Tier I leverage risk-based capital (to risk-
weighted assets) 6,280,000 17.9 - - 2,102,000 6.0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(14) Federal Deposit Insurance Premiums
The deposits of the Association are presently insured by the Savings
Association Insurance Fund (SAIF), which together with the Bank
Insurance Fund (BIF), are the two insurance funds administered by the
FDIC. In the third quarter of 1995, the FDIC lowered the premium
schedule for BIF-insured institutions in anticipation of the BIF
achieving its statutory reserve ratio. Legislation enacted on September
30, 1996, provided for a one-time special assessment of .657% of the
Association's SAIF-insured deposits at March 31, 1995. The purpose of
the assessment was to bring the SAIF to its statutory reserve ratio.
Based on the above formula, the Association's SAIF-assessment of
$544,797 was recorded in the 1996 consolidated statement of earnings.
(15) Financial Instruments With Off-balance Sheet Risk and Concentrations of
Credit Risk
The Association is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet customer financing
needs. These financial instruments consist principally of commitments to
extend credit. The Association uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments. The Association's exposure to credit loss in the event of
nonperformance by the other party is represented by the contractual
amount of those instruments. The Association does not generally require
collateral or other security on unfunded loan commitments until such
time that loans are funded.
(Continued)
F-19
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In addition to financial instruments with off-balance sheet risk, the
Association is exposed to varying risks associated with concentrations
of credit relating primarily to lending activities in specific
geographic areas. The Association's primary lending area consists of the
state of Kansas and substantially all of the Association's loans are to
residents of or secured by properties located in its principal lending
area. Accordingly, the ultimate collectibility of the Association's loan
portfolio is dependent upon market conditions in that area. This
geographic concentration is considered in management's establishment of
the allowance for loan losses.
The Association grants mortgage and consumer loans to customers
primarily throughout its target market of the state of Kansas. Although
the Association has a diversified loan portfolio, a substantial portion
of the borrower's ability to honor their contracts is dependent upon the
general economic condition of the target market.
(16) Plan of Conversion
On December 16, 1997, the Association's Board of Directors approved a
plan (Plan) to convert from a federally chartered mutual savings
association to a federally chartered stock savings association, subject
to approval by the Association's members. The Plan, which includes
formation of a holding company, is subject to approval by the OTS and
includes the filing of a registration statement with the Securities and
Exchange Commission. As of December 31, 1997, the Association had
incurred approximately $30,000 of costs related to this conversion which
is included in other assets. If the conversion is ultimately successful,
actual conversion costs will be accounted for as a reduction in gross
proceeds. If the conversion is unsuccessful, the conversion costs will
be expensed.
The Plan calls for the common stock of the holding company to be offered
to various parties in a subscription offering at a price based on an
independent appraisal of the Association. It is anticipated that any
shares not purchased in the subscription offering will be offered in a
community offering.
At the time of conversion, the Association will establish a liquidation
account in an amount equal to its retained earnings as reflected in the
latest statement of financial condition used in the final conversion
prospectus. The liquidation account will be maintained for the benefit
of eligible account holders who continue to maintain their deposit
accounts in the Association after conversion. In the event of a complete
liquidation of the Association, and only in such an event, eligible
depositors who continue to maintain accounts shall be entitled to
receive a distribution from the liquidation account before any
liquidation may be made with respect to common stock. The Association
may not declare or pay a cash dividend if the effect thereof would cause
its net worth to be reduced below either the amount required for the
liquidation account discussed below or the regulatory capital
requirements imposed by the OTS.
(17) Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, and
SFAS No. 119, Disclosure About Derivative Financial Instruments and Fair
Value of Financial Instruments, require that the Association disclose
estimated fair values for its financial instruments, both assets and
liabilities recognized and not recognized in the consolidated financial
statements. Fair value estimates have been made as of December 31, 1997
based on then current economic conditions, risk characteristics of the
various financial instruments and other subjective factors.
(Continued)
F-20
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable
to estimate that value:
Cash and Cash Equivalents
The carrying amounts approximate fair value because of the short
maturity of these instruments.
Investment and Mortgage-backed Securities
The fair values of investment securities are estimated based on
published bid prices or bid quotations received from securities dealers.
Loans Receivable
The fair values of loans receivable are estimated using the option-based
approach. Cash flows consist of scheduled principal, interest and
prepaid principal. Loans with similar characteristics were aggregated
for purposes of these calculations.
Accrued Interest
The carrying amount of accrued interest is assumed to be its carrying
value because of the short-term nature of these items.
Stock of FHLB
The carrying amount of such stock is estimated to approximate fair
value.
Deposits
The fair values of deposits with no stated maturity are deemed to be
equivalent to amounts payable on demand. The fair values of certificates
of deposit are estimated based on the static discounted cash flow
approach using rates currently offered for deposits of similar remaining
maturities.
Borrowings from FHLB of Topeka
The fair values of FHLB advances are estimated based on discounted
values of contractual cash flows using the rates currently available to
the Association on advances of similar remaining maturities.
(Continued)
F-21
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The approximate carrying value and estimated fair value of the
Association's financial instruments are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 1997
------------------------------------
Carrying value Fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash and interest-bearing deposits in other financial institutions $ 4,600,000 4,600,000
Investment securities 3,852,000 3,952,000
Mortgage-backed securities 37,770,000 37,728,000
Loans receivable 46,563,000 47,171,000
Accrued interest receivable 490,000 490,000
Stock in FHLB 661,000 661,000
Financial liabilities:
Deposits 85,651,000 85,628,000
FHLB borrowings 2,550,000 2,550,000
Accrued interest payable on deposits 87,000 87,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------
Carrying value Fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash and interest-bearing deposits in other financial institutions $ 4,222,000 4,222,000
Investment securities 51,384,000 51,126,000
Loans receivable 42,827,000 43,103,000
Accrued interest receivable 528,000 528,000
Stock in FHLB 615,000 615,000
Financial liabilities:
Deposits 83,723,000 83,644,000
FHLB borrowings 11,350,000 11,350,000
Accrued interest payable on deposits 65,000 65,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instruments. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Association's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Association's financial instruments,
fair value estimates are based on judgments regarding future loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates. Fair value
estimates are based on existing balance sheet financial instruments
without attempting to estimate the value of anticipated future business
and the value of assets and liabilities that are not considered
financial instruments.
F-22
<PAGE>
You should rely only on the information contained in this document or that to
which we have referred you. We have not authorized anyone to provide you with
information that is different.This document does not constitute an offer to
sell, or the solicitation of an offer to buy, any of the securities offered
hereby to any person in any jurisdiction in which such offer or solicitation
would be unlawful. The affairs of First Kansas Federal Savings Association or
First Kansas Financial Corporation may change after the date of this prospectus.
Delivery of this document and the sales of shares made hereunder does not mean
otherwise.
First Kansas Financial Corporation
Up to 1,553,938 Shares
(Anticipated Maximum)
Common Stock
------------------
PROSPECTUS
------------------
CAPITAL RESOURCES, INC.
Dated ____ __, 1998
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
Until the later of _______ __, 1998, or 90 days after
commencement of the offering of common stock, all dealers that
buy, sell or trade these securities, whether or not participating in
this distribution, may be required to deliver a prospectus. This
is in addition to the obligation of dealers to deliver a prospectus
when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors.
Section 17-6305 of the Kansas General Corporation Code (the "Code")
describes those circumstances under which directors, officers, employees and
agents may be insured or indemnified against liability which they may incur in
their capacities as such.
The Articles of Incorporation of First Kansas Financial Corporation
(the "Articles") attached as Exhibit 3(i) hereto, require indemnification of
directors, officers, employees or agents of the Company to the full extent
permissible under Kansas law.
First Kansas Financial Corporation ("the Company") may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Company would
have the power to indemnify such person against such liability under the
provisions of the Code or of the Articles.
Item 25. Other Expenses of Issuance and Distribution
* Legal Fees ......................................... $ 85,000
* Printing and postage................................ 41,000
* Appraisal/Business Plan............................. 26,000
* Accounting fees..................................... 100,000
* Data processing/Conversion agent.................... 17,500
* SEC Registration Fee................................ 4,584
* OTS Filing Fees..................................... 8,400
* NASD Filing Fees.................................... 20,000
* Blue sky filing fees................................ 5,000
* Underwriting fees................................... 120,000
* Underwriter's expenses, including legal fees........ 45,000
* Miscellaneous expenses.............................. 27,516
-------
* TOTAL............................................... $500,000
=======
- -----------------
* Estimated at the mid-point of the offering range.
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits:
The exhibits filed as part of this Registration Statement are
as follows:
<TABLE>
<CAPTION>
<S> <C>
1 Form of Sales Agency Agreement with Capital Resources, Inc.
2 Plan of Conversion
3(i) Articles of Incorporation of First Kansas Financial Corporation
3(ii) Bylaws of First Kansas Financial Corporation
4 Specimen Stock Certificate of First Kansas Financial Corporation
5.1 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of securities registered
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 State Tax Opinion of Winkler, Lee, Tetwiler, Domoney & Schultz
8.3 Opinion of Capital Resources Group, Inc. as to the value of subscription rights
10.1 Employment Agreement between First Kansas Federal Savings Association and Larry V. Bailey
10.2 Employment Agreement between First Kansas Federal Savings Association and Daniel G. Droste
10.3 Employment Agreement between First Kansas Federal Savings Association and Galen E. Graham
10.4 First Kansas Federal Savings Association Supplemental Retirement Plan for the Benefit of Larry V. Bailey
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (contained in its opinions filed as Exhibits 5.1
and 8.1)
23.2 Consent of KPMG Peat Marwick
23.3 Consent of Capital Resources Group, Inc.
23.4 Consent of Winkler, Lee, Tetwiler, Domoney & Schultz (contained in its opinion filed as Exhibit
8.2)
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule**
99.1 Stock Order Form
99.2 Marketing Materials*
</TABLE>
---------------
* To be filed by amendment
** Electronic filing only
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933 ("Securities Act");
(ii) Reflect in the prospectus any facts or events which
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the
<PAGE>
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
small business issuer 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 whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in
Osawatomie, Kansas, on March 16, 1998.
FIRST KANSAS FINANCIAL CORPORATION
By: /s/Larry V. Bailey
-----------------------------------------
Larry V. Bailey
President and Chief Executive Officer
(Duly Authorized Representative)
We the undersigned directors and officers of First Kansas Financial
Corporation do hereby severally constitute and appoint Larry V. Bailey our true
and lawful attorney and agent, to do any and all things and acts in our names in
the capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said Larry V. Bailey may deem
necessary or advisable to enable First Kansas Financial Corporation to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with the
registration statement on Form SB-2 relating to the offering of First Kansas
Financial Corporation common stock, including specifically, but not limited to,
power and authority to sign for us or any of us, in our names in the capacities
indicated below, the registration statement and any and all amendments
(including post-effective amendments) thereto; and we hereby ratify and confirm
all that Larry V. Bailey shall do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed below by the following
persons in the capacities indicated as of March 16, 1998.
<TABLE>
<CAPTION>
<S> <C>
/s/J. Darcy Domoney /s/Larry V. Bailey
- ---------------------------------- -----------------------------------------------------------
J. Darcy Domoney Larry V. Bailey
Chairman of the Board and Director President, Chief Executive Officer, Chief Financial Officer
and Director
(Principal Executive and Financial Officer)
/s/James E. Breckenridge /s/James J. Casaert
- ---------------------------------- -----------------------------------------------------------
James E. Breckenridge James J. Casaert
Director Vice President
(Principal Accounting Officer)
/s/William R. Butler, Jr.
- ----------------------------------
William R. Butler, Jr.
Director
/s/Roger L. Coltrin
- ----------------------------------
Roger L. Coltrin
Director
/s/Donald V. Meyer
- ----------------------------------
Donald V. Meyer
Director
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on March 17, 1998
Registration No. 333-_______
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
First Kansas Financial Corporation
----------------------------------
(Name of Small Business Issuer in Its Charter)
Kansas 6035 48-1198888
- --------------------------------- ----------------- ------------------------
(State or Other Jurisdiction (Primary SIC No.) (I.R.S. Employer
of Incorporation or Organization) Identification No.)
600 Main Street, Osawatomie, Kansas 66064
(913) 755-3033
----------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices and
Principal Place of Business)
Mr. Larry V. Bailey
President and Chief Executive Officer
First Kansas Financial Corporation
600 Main Street, Osawatomie, Kansas 66064
(913) 755-3033
---------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)
Please send copies of all communications to:
John J. Spidi, Esq.
Jean A. Milner, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
<PAGE>
INDEX TO EXHIBITS TO FORM SB-2
Exhibit
The exhibits filed as part of this Registration Statement are
as follows:
<TABLE>
<CAPTION>
<S> <C>
1 Form of Sales Agency Agreement with Capital Resources, Inc.
2 Plan of Conversion
3(i) Articles of Incorporation of First Kansas Financial Corporation
3(ii) Bylaws of First Kansas Financial Corporation
4 Specimen Stock Certificate of First Kansas Financial Corporation
5.1 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of securities
registered
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 State Tax Opinion of Winkler, Lee, Tetwiler, Domoney & Schultz
8.3 Opinion of Capital Resources Group, Inc. as to the value of subscription rights
10.1 Employment Agreement between First Kansas Federal Savings Association and Larry V. Bailey
10.2 Employment Agreement between First Kansas Federal Savings Association and Daniel G. Droste
10.3 Employment Agreement between First Kansas Federal Savings Association and Galen E. Graham
10.4 First Kansas Federal Savings Association Supplemental Retirement Plan for the Benefit of Larry V. Bailey
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (contained in its opinions filed
as Exhibits 5.1 and 8.1)
23.2 Consent of KPMG Peat Marwick
23.3 Consent of Capital Resources Group, Inc.
23.4 Consent of Winkler, Lee, Tetwiler, Domoney & Schultz
(contained in its opinion filed as Exhibit 8.2)
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule**
99.1 Stock Order Form
99.2 Marketing Materials*
</TABLE>
-----------
* To be filed by amendment
** Electronic filing only
EXHIBIT 1
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION
(a Kansas corporation)
Up to 1,351,250 Shares1/
COMMON STOCK
($.01 Par Value)
Subscription Price $10.00 Per Share
AGENCY AGREEMENT
[_________ __], 1998
Capital Resources, Inc.
1211 Connecticut Avenue, N.W.
Suite 200
Washington, DC 20036
Ladies and Gentlemen:
First Kansas Financial Corporation, a Kansas corporation (the "Company")
and First Kansas Federal Savings Bank, a federally chartered mutual savings
association (the "Association"), with its deposit accounts insured by the
Savings Association Insurance Fund ("SAIF") administered by the Federal Deposit
Insurance Corporation ("FDIC"), hereby confirm their respective obligations in
this agency agreement (the "Agreement") with Capital Resources, Inc. ("Capital
Resources") as follows:
SECTION 1. The Offering. The Association, in accordance with its plan of
conversion adopted by the Board of Directors of the Association (the "Plan"),
intends to be converted from a federally chartered mutual savings association to
a federally chartered stock savings bank and will sell all of its issued and
outstanding common stock to the Company. The Company will offer and sell its
common stock (the "Common Stock") in a subscription offering (the "Subscription
Offering") to (1) depositors of the Association with account balances of at
least $50 as of September 30, 1996 ("Eligible Account Holders"), (2) the
Association's tax-qualified employee benefit plans ("Employee Plans"), (3)
depositors of the Association with account balances of $50 or more as of March
31, 1998 ("Supplemental Eligible Account Holders"), and (4) certain other
depositors with account balance of at least $50 on the voting record date of the
special meeting of the Association who are not Eligible or Supplemental Eligible
Account Holders (the "Voting
- --------
1/ Subject to increase to 1,553,938 shares.
1
<PAGE>
Record Date") (all such parties being referred to in the aggregate as "Other
Members"), pursuant to rights to subscribe for up to 1,351,250 shares (subject
to increase to 1,553,938 shares) of Common Stock (the "Shares"). Subject to the
prior subscription rights of the parties listed above, the Association may offer
for sale in a direct community offering (the "Community Offering" and when
referred to together with the Subscription Offering, the "Subscription and
Community Offering"), the Shares not so subscribed for or ordered in the
Subscription Offering to members of the general public, with a preference to
natural persons residing in Miami, Bourben, Mitchell and Phillips Counties,
Kansas ("Other Subscribers") (all such offerees being referred to in the
aggregate as "Eligible Offerees"). Shares not sold in the Community Offering may
be sold to certain members of the general public on a best-efforts basis by a
selling group of broker-dealers organized and managed by Capital Resources (the
"Syndicated Community Offering," together with the Subscription and Community
Offerings, are referred to as the "Offerings"). It is acknowledged that the
purchase of Shares in the Offerings is subject to maximum and minimum purchase
limitations as described in the Plan and that the Company may reject, in whole
or in part, any subscriptions received in the Community and Syndicated
Offerings. Collectively, these transactions are referred to herein as the
"Conversion".
The Company and the Association desire to retain Capital Resources to
assist the Company with its sale of the Shares in the Offerings. By and through
this Agreement, the Company and the Association confirm the retention of Capital
Resources to assist the Company during the Offerings.
In accordance with Title 12, Part 563b of the Code of Federal Regulations
(the "Conversion Regulations"), the Association has filed with the Office of
Thrift Supervision (the "OTS") an Application for Approval of Conversion on Form
AC (the "Conversion Application"), including the prospectus relating to the
Offerings, and has filed such amendments thereto, if any, as may have been
required by the OTS. The Conversion Application has been approved and the
related prospectus has been authorized for use by the OTS. The prospectus, as
amended, on file with the OTS at the time the OTS approves the Conversion
Application is hereinafter called the "Prospectus" except that if any prospectus
is filed by the Association pursuant to the Conversion Regulations differing
from the prospectus on file at the time the Conversion Application was initially
approved, the term "Prospectus" shall refer to the prospectus filed from and
after the time said prospectus is filed with or mailed to the OTS for filing.
Copies of the Prospectus have been delivered or are being delivered to Capital
Resources concurrently with the execution of this Agreement or promptly
thereafter. The Company has filed an application (the "Holding Company
Application") with the OTS to become a registered savings and loan holding
company under the Home Owners' Loan Act, as amended (12 U.S.C. ss. 1467a)
("HOLA").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-[_____]) (the
"Registration Statement") containing a prospectus (containing the same
information as the Prospectus) relating to the Offerings for the registration of
the Shares under the Securities Act of 1933, as amended, (the "1933 Act"), and
has filed such amendments thereto, if any, and such amended prospectuses as
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may have been required to the date hereof (containing the same information as
the Prospectus and amendments thereto, if any). The prospectus, as amended, on
file with the Commission at the time the Registration Statement initially
becomes effective is hereinafter called the "Prospectus", except that if the
prospectus filed by the Company pursuant to Rule 424(b) of the rules and
regulations of the Commission under the 1933 Act (17 C.F.R. Section 230.100 et.
seq.) (the "1933 Act Regulations") or filed as part of an amendment to the
effective Registration Statement differs from the prospectus on file at the time
the Registration Statement initially becomes effective, the term "Prospectus"
shall refer to the prospectus filed pursuant to Rule 424(b) or filed as part of
an amendment to the effective Registration Statement from and after the time
said prospectus is filed with or mailed to the Commission for filing. If the
Prospectus is not filed pursuant to Rule 424(b) or filed as part of an amendment
to the effective Registration Statement, the term "Prospectus" shall refer to
the Prospectus filed with the OTS pursuant to Section 563b.5(e)(3) of the
Conversion Regulations.
SECTION 2. Retention of Capital Resources; Compensation; Sale and
Delivery of the Shares. Subject to the terms and conditions herein set forth,
the Company and the Association hereby appoint Capital Resources as their agent
to utilize its best efforts in advising and assisting the Company and the
Association with the Company's sale of the Shares in the Offerings.
On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, Capital
Resources accepts such appointment and agrees to consult with and advise the
Company and the Association as to the matters set forth in Exhibit A attached
hereto. It is acknowledged by the Company and the Association that Capital
Resources shall not be required to purchase any Shares and shall not be
obligated to take any action which is inconsistent with all applicable laws,
regulations, decisions or orders. If requested by the Company or the
Association, Capital Resources may also assemble and manage a selling group of
broker dealers which are members of the National Association of Securities
Dealers, Inc. (the "NASD") to participate in the solicitation of purchase orders
for Shares under a selected dealers' agreement ("Selected Dealers' Agreement").
The obligations of Capital Resources pursuant to this Agreement shall
terminate upon the completion or termination or abandonment of the Plan by the
Company or the Association or upon termination of the Subscription and Community
Offering and the Syndicated Community Offering, if any, or if the terms of the
Conversion are substantially amended so as to materially and adversely change
the role of Capital Resources, but in no event later than December 18, 1998 (the
"End Date"). All fees due to Capital Resources but unpaid will be payable to
Capital Resources in next day funds at the earlier of the Closing Date (as
hereinafter defined) or the End Date. In the event the Subscription and
Community Offering or the Syndicated Community Offering is extended beyond the
End Date, the Company, the Association and Capital Resources may mutually agree
to renew this Agreement under mutually acceptable terms.
In the event the Company is unable to sell a minimum of 998,750 Shares
within the period herein provided, this Agreement shall terminate, and the
Company shall refund to any persons
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who have subscribed for any of the Shares, the full amount which it may have
received from them plus accrued interest as set forth in the Prospectus; and
none of the parties to this Agreement shall have any obligation to the other
parties hereunder, except as set forth in this Section 2 and in Sections 6, 8
and 9 hereof.
If all conditions precedent to the consummation of the Conversion,
including, without limitation, the sale of all Shares required by the Plan to be
sold, are satisfied, the Company agrees to issue or have issued the Shares sold
in the Offerings and to release for delivery certificates for such Shares on the
Closing Date (as hereinafter defined) against payment to the Company by any
means authorized by the Plan provided, however, that no certificates shall be
released for such shares until the conditions specified in Section 7 hereof
shall have been complied with to the reasonable satisfaction of Capital
Resources and its counsel. The release of Shares against payment therefor shall
be made on a date and at a time and place acceptable to the Company, the
Association and Capital Resources. The date upon which the Company shall release
or deliver the Shares sold in the Offerings, in accordance with the terms
hereof, is herein called the "Closing Date."
Capital Resources shall receive the following compensation for its
services hereunder:
(a) (i) a marketing fee payable upon the close of the Conversion in the amount
of (1.25%) of the aggregate dollar amount of all Shares sold in the
Offerings, excluding purchases by the Association's directors, officers,
employees, their immediate family members, employee stock ownership plans
and Association benefit plans, to investors who reside in the State of
Kansas and counties of Missouri contiguous to Kansas; (ii) 1.05% of the
aggregate dollar amount of stock sold in the Subscription and Community
Offering, excluding purchases by directors, officers, employees, their
immediate family members and employee stock ownership and benefit plans, to
investors who reside outside the areas described in (i). The marketing fees
shall not, however, exceed $120,000. Progress payments totaling $[______]
have previously been paid for consulting work performed prior to the
Offering.
(b) Capital Resources shall be reimbursed for all out-of-pocket expenses,
including, but not limited to, legal fees, travel, communications and
postage, incurred by it whether or not the Conversion is successfully
completed. Reimbursement for Capital Resources' legal fees shall not exceed
$25,000, excluding applicable NASD filing fees and expenses related
thereto, and excluding fees and expenses, including legal fees, relating to
state securities or blue sky laws and regulations. Reimbursement for other
reimbursable expenses (exclusive of legal fees) shall not exceed $20,000,
without the prior approval of the Association and the Holding Company.
Capital Resources shall be reimbursed promptly for such expenses upon
receipt by the Company or the Association of a monthly itemized bill
summarizing such expenses since the date of the last bill, if any, to the
date of the current bill. To the extent not previously paid, full payment
of Capital Resources' expenses shall be made in next day funds on the
Closing Date provided that the Company or the Association shall have
received an itemized bill summarizing any unreimbursed expenses at least
two (2) days before the
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Closing Date or on such later date if the Company or the Association shall
have received an itemized bill summarizing any unreimbursed expenses at
least two (2) days before such date or, if the offering is not completed
and is abandoned or terminated for any reason, within five (5) days of
receipt of the Company or the Association of a reasonable accounting from
Capital Resources of its expenses.
(c) In the event other broker-dealers are assembled and managed by Capital
Resources under a selling syndicate to participate in the Community
Offering pursuant to the Selected Dealers' Agreement attached as Exhibit B
hereto or assisting brokers participate in the Offerings, the Company and
the Association will be responsible for the payment of selected dealers'
and brokers' commissions to such participating brokers or firms up to a
maximum of four percent (4.0%) of the aggregate dollar amount of Shares
sold by such selected dealers and four percent (4.0%) of the aggregate
dollar amount of stock sold by assisting brokers in the Offerings. Capital
Resources fees are limited to those stated in subparagraph (a) above and
all other brokers will be paid fees based upon the capacity in which they
are acting in the particular stock sale.
SECTION 3. Prospectus; Subscription and Community Offering. The Shares
are to be initially offered in the Subscription Offering and Community Offering
(if any) at the Purchase Price as set forth on the cover page of the Prospectus.
SECTION 4. Representations and Warranties. The Company and the
Association (the term "Association" used in the Agreement shall include the
Association and its subsidiary, first Enterprises, Inc., the "Subsidiary,"
except where the context otherwise implies) jointly and severally represent and
warrant to Capital Resources as follows:
(a) The Registration Statement was declared effective by the Commission on
[______ __], 1998. At the time the Registration Statement, including the
Prospectus contained therein, became effective, the Registration Statement
complied in all material respects with the requirements of the 1933 Act and
the 1933 Act regulations and the Registration Statement, any preliminary or
final Prospectus, any Blue Sky Application or any Sales Information (as
such terms are defined previously herein or in Section 8 hereof) authorized
by the Company or the Association for use in connection with the
Subscription Offering did not contain an untrue statement of a material
fact or omit to state a 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, and at the time any Rule 424(b)
Prospectus or Prospectus filed as part of an amendment to an effective
Registration Statement was filed with or mailed to the Commission for
filing and at the Closing Date referred to in Section 2, the Registration
Statement, any preliminary or final Prospectus, any Blue Sky Application or
any Sales Information (as such terms are defined previously herein or in
Section 8 hereof) authorized by the Company or the Association for use in
connection with the Subscription Offering will not contain an untrue
statement of a material fact or (except as to the Blue Sky Application)
omit to state a material fact necessary in order to make the statements
therein, in the light
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<PAGE>
of the circumstances under which they were made, not misleading, provided,
however, that the representations and warranties in this Section 4(a) shall
not apply to statements in or omissions from such Registration Statement,
Prospectus or Sales Information made in reliance upon and in conformity
with information furnished in writing to the Company or the Association by
Capital Resources expressly regarding Capital Resources for use in the
Prospectus, including the information under the caption "The Conversion -
Marketing Arrangements" and shall not apply to statements in or omissions
from any Blue Sky Application or Sales Information made in reliance upon
and in conformity with written information furnished to the Company or the
Association by Capital Resources, expressly regarding Capital Resources.
(b) The Conversion Application, including the Prospectus, was approved by the
OTS on [________ __], 1998. At the time of the approval of the Conversion
Application, including the Prospectus (including any amendment or
supplement thereto), by the OTS and at all times subsequent thereto until
the Closing Date, the Conversion Application, including the Prospectus,
complied or will comply in all material respects with the Conversion
Regulations and any other rules and regulations of the OTS. At the time of
OTS approval of the Conversion Application (including any amendment or
supplement thereto and at all times subsequent thereto) until the Closing
Date, the Conversion Application, including the Prospectus (including any
amendment or supplement thereto), did not include 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, in light of the
circumstances under which they were made, not misleading, provided,
however, that representations or warranties in this -------- -------
Section 4(b) shall not apply to statements or omissions made in reliance
upon and in conformity with written information furnished to the
Association by Capital Resources expressly regarding Capital Resources for
use in the Prospectus contained in the Conversion Application, including
the information under the caption "The Conversion--Marketing Arrangements"
and shall not apply to statements in or omissions from any Blue Sky
Application or Sales Information made in reliance upon and in conformity
with written information furnished to the Company or the Association by
Capital Resources, expressly regarding Capital Resources.
(c) The Company has filed with the OTS the Holding Company Application and will
have received, as of the Closing Date, approval of its acquisition of the
Association from the OTS.
(d) No order has been issued by the OTS, the Commission, the FDIC (hereinafter
any reference to the FDIC shall include the SAIF), or to the best knowledge
of the Company and the Association, any other state or federal regulatory
authority preventing or suspending the use of the Prospectus and no action
by or before any such government entity to revoke any approval,
authorization or order of effectiveness related to the Conversion is to the
best knowledge of the Company or the Association, pending or threatened.
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(e) At the Closing Date referred to in Section 2, the Plan will have been
adopted by the Board of Directors of the Company and the Association, the
Company and the Association will have completed all conditions precedent to
the Conversion and the offer and sale of the Shares will have been
conducted in all material respects in accordance with the Plan, the
Conversion Regulations (except to the extent waived by the OTS) and all
other applicable laws, regulations, decisions and orders, including all
terms, conditions, requirements and provisions precedent to the Conversion
imposed upon the Company or the Association by the OTS (except with respect
to the filing of certain post-sale, post-Conversion reports, and documents
in compliance with the 1933 Act Regulations or the OTS's resolutions or
letters of approval), the Commission or any other regulatory authority and
in the manner described in the Prospectus. At the Closing Date, to the
knowledge of the Company or the Association, no person will have sought to
obtain review of the final action of the OTS in approving the Plan or in
approving the Conversion or the Company's application to acquire all of the
capital stock and control of the Association pursuant to the HOLA or any
other statute or regulation.
(f) The Association is now a duly organized and validly existing federally
chartered savings association in mutual form of organization and upon the
Conversion will become a duly organized and validly existing federally
chartered savings association in the capital stock form of organization, in
both instances duly authorized to conduct its business and own its property
as described in the Registration Statement; the Company and the Association
have obtained all material licenses, permits and other governmental
authorizations currently required for the conduct of their respective
businesses except those which individually or in the aggregate would not
materially adversely affect the financial condition of the Company and the
Association, taken as a whole; all such licenses, permits and the
governmental authorizations are in full force and effect, and the Company
and the Association are in all material respects complying with all laws,
rules, regulations and orders applicable to the operation of their
businesses; and the Association is existing and in good standing under the
laws of the United States and is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which its
ownership of property or leasing of properties or the conduct of its
business requires such qualification, unless the failure to be so qualified
in one or more of such jurisdictions would not have a material adverse
effect on the financial condition, business, operations or income of the
Association. The Association does not own equity securities or any equity
interest in any other business enterprise except as described in the
Prospectus. Upon the completion of the Conversion pursuant to the Plan, (i)
the Association will be converted to a federally chartered stock savings
association; (ii) all of the authorized and outstanding capital stock of
the Association will be owned by the Company and (iii) the Company will
have no direct subsidiaries other than the Association. The Conversion will
have been effected in all material respects in accordance with all
applicable statutes, regulations, decisions and orders; and, except with
respect to the filing of certain post-sale, post-conversion reports, and
documents in compliance with the 1933 Act Regulations or the OTS's
resolutions or letters of approval, all terms, conditions, requirements and
provisions with respect to the Conversion imposed by the OTS and the
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<PAGE>
FDIC, if any, will have been complied with by the Company and the
Association in all material respects or appropriate waivers will have been
obtained and all material notice and waiting periods will have been
satisfied, waived or elapsed.
(g) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Kansas with
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus, and the Company is qualified to do business as a foreign
corporation in each jurisdiction in which the conduct of its business
requires such qualification, except where the failure to so qualify would
not have a material adverse effect on the financial condition, business
affairs, operations or income of the Company.
(h) The Association is a member in good standing of the Federal Home Loan Bank
of Topeka ("FHLB-Topeka"); and the deposit accounts of the Association are
insured by the FDIC up to the applicable limits. Upon consummation of the
Conversion, the liquidation account for the benefit of Eligible Account
Holders will be duly established in accordance with the requirements of the
Conversion Regulations.
(i) The Company and the Association have good and marketable title to all
assets material to the business of the Company and the Association and to
those assets described in the Registration Statement and Prospectus as
owned by them, free and clear of all liens, charges, encumbrances or
restrictions, except such as are described in the Registration Statement
and Prospectus or are not materially significant in relation to the
business of the Company and the Association taken as a whole; and all of
the leases and subleases material to the business of the Company and the
Association under which the Company or the Association hold properties,
including those described in the Registration Statement, are in full force
and effect.
(j) The Association has received an opinion of its counsel, Malizia, Spidi,
Sloane & Fisch, P.C., with respect to the federal income tax consequences
of the Conversion, and an opinion of Winkler, Lee, Tetwiler, Domoney &
Schultz with respect to the Kansas income tax consequences of the
Conversion as described in the Registration Statement and the Prospectus;
and the facts and representations upon which such opinions are based are
truthful, accurate and complete, and neither the Company nor the
Association will take any action inconsistent therewith.
(k) The Company and the Association have all such power, authority,
authorizations, approvals and orders as may be required to enter into this
Agreement, to carry out the provisions and conditions hereof and to issue
and sell (i) the capital stock of the Association to the Company and (ii)
the Shares to be sold by the Company as provided herein and as described in
the Prospectus. The consummation of the Conversion, the execution, delivery
and performance of this Agreement and the consummation of the transactions
herein contemplated have been duly and validly authorized by all necessary
corporate action on the part of the Company and
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the Association and this Agreement has been validly executed and delivered
by the Company and the Association and is the valid, legal and binding
agreement of the Company and the Association enforceable in accordance with
its terms (except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws relating
to or affecting the enforcement of creditors' rights generally or the
rights of creditors of savings associations or savings and loan holding
companies, the accounts of whose subsidiaries are insured by the FDIC or by
general equity principles regardless of whether such enforceability is
considered in a proceeding in equity or at law, and except to the extent,
if any, that the provisions of Sections 8 and 9 hereof may be limited by
federal or state securities laws or unenforceable as against public
policy).
(l) Neither the Company nor the Association are in violation of any directive
which has been delivered to the Association or of which the management of
the Company or the Association has actual knowledge from the OTS, the FDIC,
the Commission or any other agency to make any change in the method of
conducting their businesses so as to comply in all material respects with
all applicable statutes and regulations (including, without limitation,
regulations, decisions, directives and orders of the OTS, the FDIC and the
Commission) and except as set forth in the Registration Statement and the
Prospectus, there is no suit or proceeding or, to the knowledge of the
Company or the Association, charge, investigation or action before or by
any court, regulatory authority or governmental agency or body, pending or,
to the knowledge of the Company or the Association, threatened, which might
materially and adversely affect the Conversion, the performance of this
Agreement or the consummation of the transactions contemplated in the Plan
and as described in the Registration Statement or which might result in any
material adverse change in the financial condition, earnings, capital,
properties or business affairs of the Company or the Association or which
would materially affect their properties and assets.
(m) The financial statements which are included in the Registration Statement
and which are part of the Prospectus fairly present the financial
condition, results of operations, retained earnings and cash flows of the
Association at the respective dates thereof and for the respective periods
covered thereby and comply as to form in all material respects with the
applicable accounting requirements of Title 12 of the Code of Federal
Regulations and generally accepted accounting principles ("GAAP")
(including those requiring the recording of certain assets at their current
market value). Such financial statements have been prepared in accordance
with GAAP consistently applied through the periods involved and present
fairly in all material respects the information required to be stated
therein and are consistent with the most recent financial statements and
other reports filed by the Association with the OTS and the FDIC, except
that accounting principles employed in such filings conform to requirements
of such authorities and not necessarily to GAAP. The other financial,
statistical and pro forma information and related notes included in the
Prospectus present fairly the information shown therein on a basis
consistent with the audited financial statements of the Association
included in the Prospectus, and as to the pro forma
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adjustments, the adjustments made therein have been properly applied on
the basis described therein.
(n) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as may otherwise be
stated therein: (i) there has not been any material adverse change in the
financial condition of the Company or the Association considered as one
enterprise, or in the earnings, capital, properties or business affairs of
the Company or the Association whether or not arising in the ordinary
course of business, (ii) there has not been any material increase in the
long term debt of the Association or in loans past due 90 days or more or
real estate acquired by foreclosure, by deed-in-lieu of foreclosure or
deemed in-substance foreclosure or any material decrease in surplus and
reserves or total assets of the Association, nor has the Company or the
Association issued any securities or incurred any liability or obligation
for borrowing other than in the ordinary course of business; (iii) there
have not been any material transactions entered into by the Company or the
Association, except with respect to those transactions entered into in the
ordinary course of business; and (iv) there has been no material legal
proceeding or employee grievance initiated against the Association or the
Company; (v) there has been no material change in management of the
Association or the Company; (vi) the capitalization, liabilities, assets,
properties and business of the Company and the Association conform in all
material respects to the descriptions thereof contained in the Prospectus;
and (vii) neither the Company nor the Association has any material
contingent liabilities, contingent or otherwise, except as set forth in the
Prospectus.
(o) As of the date hereof and as of the Closing Date, neither the Company nor
the Association is in violation of its certificate of incorporation,
charter or bylaws (and the Association will not be in violation of its
charter or bylaws in capital stock form as of the Closing Date) or in
default in the performance or observance of any material obligation,
agreement, covenant, or condition contained in any contract, lease, loan
agreement, indenture or other instrument to which it is a party or by which
it, or any of its property may be bound which would result in a material
adverse effect on the financial condition, earnings, capital, properties or
business affairs of the Company or the Association on a consolidated basis
or which would materially affect their properties or assets. The
consummation of the transactions herein contemplated will not (i) conflict
with or constitute a breach of, or default under, the certificate of
incorporation, charter and bylaws of the Company or the charter or bylaws
of the Association (in either mutual or capital stock form); (ii) conflict
with or constitute a breach of any material contract, lease or other
instrument to which the Company or the Association has a beneficial
interest, or any applicable law, rule, regulation or order which would
result in a material adverse change in the financial condition, and results
of operations, of the Company or the Association on a consolidated basis;
(iii) violate any authorization, approval, judgment, decree, order,
statute, rule or regulation applicable to the Company or the Association
which would result in a material adverse change in the financial condition
and results of operations, of the Company or the Association on a
consolidated basis, or (iv) with the exception of the Liquidation Account
established in the Conversion,
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result in the creation of any material lien, charge or encumbrance upon
any property of the Company or the Association.
(p) No default exists, and no event has occurred which with notice or lapse of
time, or both, would constitute a default on the part of the Company or the
Association, in the due performance and observance of any term, covenant or
condition of any contract, lease, indenture, mortgage, deed of trust, note,
bank loan or credit agreement or any other instrument or agreement to which
the Company or the Association is a party or by which any of them or any of
their property is bound or affected except such defaults which would not
have a material adverse effect on the financial condition or results of
operations of the Company and the Association on a consolidated basis; such
agreements are in full force and effect; and no other party to any such
agreements has instituted or, to the best knowledge of the Company or the
Association, threatened any action or proceeding wherein the Company or the
Association would or might be alleged to be in default thereunder, under
circumstances where such action or proceeding, if determined adversely to
the Company or the Association, would have a material adverse effect on the
Company and the Association, taken as a whole.
(q) Subsequent to the date the Registration Statement is declared effective by
the Commission and prior to the Closing Date, except as otherwise may be
indicated or contemplated therein, neither the Company nor the Association
will have: (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, except borrowings
from the same or similar sources indicated in the Prospectus in the
ordinary course of its business, or (ii) entered into any transaction which
is material in light of the business and properties of the Company and the
Association, taken as a whole, excluding origination, purchase and sale of
loans in the ordinary course of its business.
(r) Upon consummation of the Conversion, the authorized, issued and outstanding
equity capital of the Company will be as set forth in the Registration
Statement under the caption "Capitalization," and no shares of Common Stock
have been or will be issued and outstanding prior to the Closing Date
referred to in Section 2; the Shares will have been duly and validly
authorized for issuance and, when issued and delivered by the Company
pursuant to the Plan against payment of the consideration calculated as set
forth in the Plan and in the Prospectus, will be duly and validly issued
and fully paid and non-assessable; the issuance of the Shares will not
violate any preemptive rights; and the terms and provisions of the Shares
will conform in all material respects to the description thereof contained
in the Registration Statement and the Prospectus. Upon the issuance of the
Shares, good title to the Shares will be transferred from the Company to
the purchasers thereof against payment therefor, subject to such claims as
may be asserted against the purchasers thereof by third-party claimants.
(s) No approval of any regulatory or supervisory or other public authority is
required in connection with the execution and delivery of this Agreement or
the issuance of the Shares,
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except for the approval of the OTS, the Commission and any necessary
qualification or registration under the securities or blue sky laws of the
various states in which the Shares are to be offered and as may be required
under the regulations of the NASD and the National Association of
Securities Dealers Automated Quotation System ("NASDAQ").
(t) KPMG Peat Marwick LLP which has issued a report as to the financial
statements of the Association included in the Registration Statement, have
advised the Company and the Association in writing that they are with
respect to the Company and the Association independent public accountants
within the meaning of the Code of Professional Ethics of the American
Institute of Certified Public Accountants and Title 12 of the Code of
Federal Regulations, Section 571.2(c)(3) and the 1933 Act and the 1933 Act
Regulations.
(u) The Company and the Association have timely filed all required federal and
state tax returns, have paid all taxes that have become due and payable in
respect of such returns, have made adequate reserves for similar future tax
liabilities and no deficiency has been asserted with respect thereto by any
taxing authority.
(v) The records of account holders, depositors, borrowers and other members of
the Association delivered to Capital Resources by the Association or its
agent for use during the Conversion are reliable and accurate. Capital
Resources shall have no liability to any person for the accuracy,
reliability and completeness of the records of the deposit account holders,
borrowers and other members of the Association or for any denial or
reduction of a subscription to purchase Common Stock as a result of any
allocation pursuant to the Plan or otherwise based upon such records.
(w) Appropriate arrangements have been made for placing the funds received from
subscriptions for Shares in special interest-bearing accounts with the
Association until all Shares are sold and paid for, with provision for
refund to the purchasers in the event that the Conversion is not completed
for whatever reason or for delivery to the Association if all Shares are
sold.
(x) The Company and the Association are in compliance in all material respects
with the applicable financial record keeping and reporting requirements of
the Currency and Foreign Transactions Reporting Act of 1970, as amended,
and the regulations and rules thereunder.
(y) Neither the Company, the Association nor to the knowledge of the Company
and the Association, employees of the Company or the Association have made
any payment of funds of the Association as a loan to any person for the
purchase of the Shares excluding any loan to any Employee Plan for the
purchase of the Shares or made any other payment of funds prohibited by
law, and no funds have been set aside to be used for any payment prohibited
by law.
(z) Prior to the Conversion, the Association was not authorized to issue shares
of capital stock and neither the Company nor the Association has: (i)
issued any securities within the last
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18 months (except for notes to evidence other bank loans and reverse
repurchase agreements and with respect to the Company, except for shares
issued in connection with the initial capitalization of the Company); (ii)
had any material dealings within the 12 months prior to the date hereof
with any member of the NASD, or any person related to or associated with
such member, other than discussions and meetings relating to the proposed
Offerings and routine purchases and sales of U.S. government and agency and
other securities; (iii) entered into a financial or management consulting
agreement except as contemplated hereunder; and (iv) engaged any
intermediary between Capital Resources and the Company and the Association
in connection with the offering of Common Stock, and no person is being
compensated in any manner for such service.
(aa) To the best knowledge of the Company and the Association, both are in
compliance with all laws, rules, regulations relating to environmental
protection, and neither the Company nor the Association has been notified
or is otherwise aware that either of them is potentially liable, or is
considered potentially liable, under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or any
similar state law. To the best knowledge of the Company and the
Association, no action, suits, regulatory investigations or other
proceedings pending, or to the best knowledge of the Company and the
Association, threatened against the Company or the Association relating to
environmental protection, nor does the Company or the Association have any
reason to believe any such proceedings may be brought against either of
them. To the best knowledge of the Company and the Association, no
disposal, release or discharge of hazardous or toxic substances, pollutants
or contaminants, including petroleum and gas products, as any of such terms
may be defined under federal, state or local law, has occurred on, in, at
or about any of the facilities or properties of the Company or the
Association.
(bb) The Company and the Association have not relied upon Capital Resources or
its legal counsel or other advisors for any legal, tax or accounting advice
in connection with the Conversion.
(cc) The representations and warranties made in this Agreement will be true and
correct as of the date hereof and as of the Closing Date.
Any certificates signed by an officer of the Company or the Association
and delivered to Capital Resources or its counsel that refer to this Agreement
shall be deemed to be a representation and warranty by the Company or the
Association to Capital Resources as to the matters covered thereby with the same
effect as if such representation and warranty were set forth herein.
Section 4.1. Capital Resources represents and warrants to the Company and
the Association as follows:
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(a) Capital Resources is a corporation and is validly existing in good standing
under the laws of the District of Columbia with full power and authority to
provide the services to be furnished to the Company and the Association
hereunder.
(b) The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
all necessary action on the part of Capital Resources, and this Agreement
has been duly and validly executed and delivered by Capital Resources and
is the legal, valid and binding agreement of Capital Resources, enforceable
in accordance with its terms (except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the enforceability of creditors' rights generally, or by
general equity principles, regardless of whether such enforceability is
considered a proceeding in equity or at law, and except to the extent, if
any, that the provisions of Sections 8 and 9 hereof may be unenforceable as
against public policy).
(c) Each of Capital Resources and its employees, agents and representatives who
shall perform any of the services hereunder shall be duly authorized and
empowered, and shall have all licenses, approvals and permits necessary, to
perform such services and Capital Resources is a registered selling agent
in the jurisdictions listed in Exhibit C and will remain registered in
those jurisdictions listed in Exhibit C in which the Company is relying on
such registration for the sale of the Shares, until the Conversion is
consummated or terminated.
(d) The execution and delivery of this Agreement by Capital Resources, the
consummation of the transactions contemplated hereby and compliance with
the terms and provisions hereof will not conflict with, or result in a
material breach of, any of the terms, provisions or conditions of, or
constitute a material default (or event which with notice or lapse of time
or both would constitute a default) under, the certificate of incorporation
or bylaws of Capital Resources or any material agreement, indenture or
other instrument to which Capital Resources is a party or by which its
property is bound, or law or regulation by which Capital Resources is
bound.
(e) Capital Resources is registered as a broker-dealer with the SEC and the
NASD.
(f) Except as set forth in Exhibit D hereto, there is not now pending, nor to
Capital Resources' knowledge, threatened against Capital Resources any
action or proceeding before the Commission, the NASD, any state securities
commission or any state or federal court concerning Capital Resources'
activities as a broker-dealer, which would materially adversely affect
Capital Resources' ability to perform its obligations under the Agreement.
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SECTION 5. Covenants. The Company and the Association hereby jointly
and severally covenant with Capital Resources as follows:
(a) The Company has filed the Registration Statement with the Commission. The
Company will not, at any time before the Registration Statement is declared
effective by the Commission, file any amendment or supplement to such
Registration Statement without providing Capital Resources and its counsel
an opportunity to review such amendment or supplement or file any amendment
or supplement to which amendment or supplement Capital Resources or its
counsel shall reasonably object.
(b) The Association has filed the Conversion Application with the OTS. The
Association will not, at any time after the Conversion Application is
approved by the OTS, file any amendment or supplement to such Conversion
Application without providing Capital Resources and its counsel an
opportunity to review such amendment or supplement or file any amendment or
supplement to which amendment or supplement Capital Resources or its
counsel shall reasonable object.
(c) The Company will not, at any time before the Holding Company Application is
approved by the OTS, file any amendment or supplement to such Holding
Company Application without providing Capital Resources and its counsel an
opportunity to review the nonconfidential portions of such amendment or
supplement or file any amendment or supplement to which amendment or
supplement Capital Resources or its counsel shall reasonably object.
(d) The Company and the Association will use their best efforts to cause any
post-effective amendment to the Registration Statement to be declared
effective by the Commission and any post-effective amendment to the
Conversion Application to be approved by the OTS and will immediately upon
receipt of any information concerning the events listed below notify
Capital Resources and promptly confirm the notice in writing: (i) when the
Registration Statement, as amended has become effective; (ii) when the
Conversion Application, as amended, has been approved by the OTS; (iii) of
the receipt of any comments from the Commission, the OTS, the FDIC or any
other governmental entity with respect to the Conversion or the
transactions contemplated by this Agreement; (iv) of the request by the
Commission, the OTS or the FDIC or any other governmental entity for any
amendment or supplement to the Registration Statement or for additional
information; (v) of the issuance by the Commission, the OTS, the FDIC or
any other governmental entity of any order or other action suspending the
Offerings or the use of the Registration Statement or the Prospectus or any
other filing of the Company and the Association under the Conversion
Regulations or other applicable law, or the threat of any such action; (vi)
the issuance by the Commission, the OTS or the FDIC, or any state authority
of any stop order suspending the effectiveness of the Registration
Statement or of the initiation or threat of initiation or threat of any
proceedings for that purpose; or (vii) of the occurrence of any event
mentioned in paragraph (g) below. The Company and the Association will make
every reasonable effort
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to prevent the issuance by the Commission, the OTS or the FDIC, or any
state authority of any such order and, if any such order shall at any time
be issued, to obtain the lifting thereof at the earliest possible time.
(e) The Company and the Association will deliver to Capital Resources and to
its counsel two conformed copies of each of the following documents, with
all exhibits: the Conversion Application and the Holding Company
Application, as originally filed and of each amendment or supplement
thereto, and the Registration Statement, as originally filed and each
amendment thereto. In addition, the Association will also deliver to
Capital Resources such number of copies of the foregoing documents, as
amended or supplemented, to counsel for Capital Resources as may be
required for any NASD and blue sky filings.
(f) The Company will furnish to Capital Resources, from time to time during the
period when the Prospectus (or any later prospectus related to this
offering) is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of such
prospectus (as amended or supplemented) as Capital Resources may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act or
the respective applicable rules and regulations of the Commission
thereunder. The Company authorizes Capital Resources to use the Prospectus
(as amended or supplemented, if amended or supplemented) for any lawful
manner in connection with the sale of the Shares by Capital Resources.
(g) The Company and the Association will comply in all material respects with
any and all terms, conditions, requirements and provisions with respect to
the Conversion and the transactions contemplated thereby imposed by the
Commission, by applicable State law, and by the 1933 Act, the 1933 Act
regulations, the 1934 Act and the rules and regulations of the Commission
promulgated under such statutes, to be complied with prior to or subsequent
to the Closing Date and when the Prospectus is required to be delivered;
the Company and the Association will comply in all material respects, at
their own expense, with all requirements imposed upon them by the
Commission, by applicable state law, and by the 1933 Act Regulations, the
1934 Act and the rules and regulations of the Commission promulgated under
such statutes, including, without limitation, Rule 1Ob-6 under the 1934
Act, in each case as from time to time in force, so far as necessary to
permit the continuance of sales or dealing in shares of Common Stock during
such period in accordance with the provisions hereof and the Prospectus.
(h) If, at any time during the period when the Prospectus relating to the
Shares is required to be delivered, any event relating to or affecting the
Company or the Association shall occur, as a result of which it is
necessary or appropriate, in the reasonable opinion of counsel for the
Company and the Association or in the reasonable opinion of Capital
Resources' counsel, to amend or supplement the Registration Statement or
Prospectus in order to make the Registration Statement or Prospectus not
misleading in light of the circumstances existing at the time it is
delivered to a purchaser, the Company and the Association will, at their
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expense, forthwith prepare, file with the Commission and the OTS and
furnish to Capital Resources a reasonable number of copies of an amendment
or amendments of, or a supplement or supplements to, the Registration
Statement or Prospectus (in form and substance reasonably satisfactory to
Capital Resources and its counsel after a reasonable time for review) which
will amend or supplement the Registration Statement or Prospectus so that
as amended or supplemented it will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances existing at the time,
not misleading. For the purpose of this Agreement, the Company and the
Association each will timely furnish to Capital Resources such information
with respect to itself as Capital Resources may from time to time request.
(i) The Company and the Association will comply in all material respects with
any and all terms, conditions, requirements and provisions with respect to
the Conversion and the transactions contemplated thereby imposed by the
OTS, the FDIC or the Conversion Regulations, to be complied with prior to
or subsequent to the Closing Date. During the periods prior to the Closing
Date and when the Prospectus is required to be delivered, the Company and
the Association will comply, at their own expense, with all requirements
imposed by the OTS, the FDIC or the Conversion Regulations, in each case as
from time to time in force, in accordance with the provisions hereof and
the Prospectus.
(j) The Company and the Association will take all necessary actions, in
cooperation with Capital Resources, and furnish to whomever Capital
Resources may reasonably direct such information as may be required to
qualify or register the Shares for offering and sale by the Company or to
exempt such Shares from registration, or to register the Company as a
broker-dealers or agents or to exempt such persons from such registration
under the applicable securities or blue sky laws of such jurisdictions in
which the Shares are required under the Conversion Regulations to be sold
or as Capital Resources and the Company and the Association may reasonably
agree upon; provided, however, that the Company shall not be obligated to
file any general consent to service of process or to qualify to do business
in any jurisdiction in which it is not so qualified. In each jurisdiction
where any of the Shares shall have been qualified or registered as above
provided, the Company will make and file such statements and reports in
each fiscal period as are or may be required by the laws of such
jurisdiction.
(k) The liquidation account for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders will be duly established and
maintained in accordance with the requirements of the OTS, and such
Eligible Account Holders who continue to maintain their savings accounts in
the Association will have an inchoate interest in their pro rata portion of
the liquidation account which shall have a priority superior to that of the
holders of shares of Common Stock in the event of a complete liquidation of
the Association.
(l) The Company and the Association will not sell or issue, contract to sell or
otherwise dispose of, for a period of 90 days after the date hereof,
without Capital Resources prior written
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consent, any shares of Common Stock other than in connection with any
plan or arrangement described in the Prospectus.
(m) The Company shall register its Common Stock with the Commission under
Section 12(g) of the 1934 Act, concurrent with the stock offering pursuant
to the Plan and shall request that such registration be effective upon
completion of the Conversion. The Company shall maintain the effectiveness
of such registration for not less than three (3) years or such shorter
period as permitted by the OTS.
(n) During the period during which the Common Stock is registered under the
1934 Act or for three years from the date hereof, whichever period is
greater, the Company will furnish to its stockholders as soon as
practicable after the end of each fiscal year an annual report (including a
consolidated balance sheet and statements of consolidated income,
stockholders' equity and cash flow statement of the Company and its
subsidiaries as at the end of and for such year, certified by independent
public accountants in accordance with Regulation S-X under the 1933 Act).
(o) During the period of three years from the date hereof, the Company will
furnish to Capital Resources upon its request therefore: (i) as soon as
available, a copy of each report of the Company furnished to or filed with
the Commission under the 1934 Act or any national securities exchange or
system on which any class of securities of the Association is listed or
quoted (including, but not limited to, reports on Form 10-K, 10-Q and 8-K
and all proxy statements and annual reports to stockholders), a copy of
each report of the Company mailed to its stockholders or filed with the
Commission or the OTS or any other supervisory or regulatory authority or
any national securities exchange or system on which any class of securities
of the Company is listed or quoted, each press release and material news
items and additional documents and information with respect to the Company
or the Association as Capital Resources may reasonably request, and (ii)
from time to time, such other publicly available information concerning the
Association as Capital Resources may reasonably request.
(p) The Company and the Association will use the net proceeds from the sale of
the Shares substantially in the manner set forth in the Prospectus under
the caption "Use of Proceeds."
(q) Other than as permitted by the Conversion Regulations, the 1933 Act, the
1933 Act Regulations, the laws of any state in which the Shares are
qualified for sale, neither the Company nor the Association will distribute
any prospectus, prospectus supplement, if any, or other offering material
in connection with the offer and sale of the Shares.
(r) The Company will make generally available to its security holders as soon
as practicable, but not later than 90 days after the close of the period
thereby, an earnings statement (in form consistent with the provisions of
Rule 158 under the 1933 Act) covering a twelve month
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period beginning not later than the first day of the Company's fiscal
quarter next following the effective date (as defined in said Rule 158)
of the Registration Statement.
(s) The Company will file with the Commission such reports on Form SR as may be
required pursuant to Rule 463 under the 1933 Act.
(t) The Company will use its best efforts to obtain approval for and maintain
quotation of the Shares on the NASDAQ system effective on or prior to the
Closing Date.
(u) The Association will maintain appropriate arrangements for depositing all
funds received from persons mailing subscriptions for or orders to purchase
Shares in the Subscription Offering on an interest bearing basis at the
rate described in the Prospectus until the Closing Date and satisfaction of
all conditions precedent to the release of the Association's obligation to
refund payments received from persons subscribing for or ordering Shares in
the Subscription Offering in accordance with the Plan as described in the
Prospectus or until refunds of such funds have been made to the persons
entitled thereto or withdrawal authorizations canceled in accordance with
the Plan and as described in the Prospectus. The Association will maintain
such records of all funds received to permit the funds of each subscriber
to be separately insured by the FDIC (to the maximum extent allowable) and
to enable the Association to make the appropriate refunds of such funds in
the event that such refunds are required to be made in accordance with the
Plan and as described in the Prospectus.
(v) The Company will register as a savings and loan holding company under the
HOLA within 90 days of the acquisition of the Association.
(w) The Company and the Association will take such actions and furnish such
information as are reasonably requested by Capital Resources in order for
Capital Resources to ensure compliance with the NASD "Interpretation on
Free Riding and Withholding."
(x) The Company and its subsidiaries will conduct their businesses in
compliance in all material respects with all applicable federal and state
laws, rules, regulations, decisions, directives and orders including, all
decisions, directives and orders of the Commission, the OTS and the FDIC.
(y) The Association will not amend the Plan of Conversion without Capital
Resources' prior written consent in any manner that, in the reasonable
opinion of Capital Resources, would materially and adversely affect the
sale of the Shares or the terms of this Agreement.
(z) The Company and the Association will use all reasonable efforts to comply
with, or, to the extent within their control, cause to be complied with,
the conditions precedent to the several obligations of Capital Resources
specified in Section 7 hereof.
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(aa) In the event of an oversubscription the Company shall provide Capital
Resources with any information necessary to assist Capital Resources in
allocating the Shares in such event and such information shall be accurate
and reliable.
(bb) The Company shall not deliver the Shares until it has satisfied or, to the
extent within its control, caused to be satisfied each and every condition
set forth in Section 7 hereof, unless such condition is waived in writing
by Capital Resources.
(cc) The Company shall advise Capital Resources in writing of all relationships
or facts which would render persons subscribing or ordering Shares during
the conversion "Associates" or "acting in concert" within the meaning of
the Conversion Regulations, and shall further advise Capital Resources on
appropriate limitations on the purchase of Shares by such persons imposed
by the Conversion Regulations, and such information shall be accurate and
reliable in all material respects.
Section 5.1 Capital Resources hereby covenants with the Company and the
Association that:
(a) Funds received by Capital Resources, if any, to purchase the Shares will be
handled in accordance with Rule 15c-2 under the 1934 Act; and
(b) During the period when the Prospectus is used, Capital Resources will
comply, in all material respects and at its own expense, with all
requirements imposed upon it by the OTS and, to the extent applicable, by
the 1933 Act and the 1934 Act and the rules and regulations promulgated
thereunder and state blue sky laws and regulations applicable to Capital
Resources. Capital Resources will distribute any Prospectus or offering
material in connection with the offering and sale of the Shares only in
accordance with the OTS Regulations and the requirements of the 1933 Act
and the rules and regulations promulgated thereunder;
(c) Capital Resources shall use its best efforts to secure for the Company
market-making and on-going research commitments from at least two NASD
firms;
(d) In discharging its obligations under this Agreement, Capital Resources will
comply in all material respects with all laws and regulations applicable to
it.
SECTION 6. Payment of Expenses. Whether or not the Conversion is
completed or the sale of the Shares by the Company is consummated, the Company
and the Association jointly and severally agree to pay or reimburse Capital
Resources for (to the extent that such expenses have been reasonably incurred by
Capital Resources) (a) all filing fees and expenses incurred in connection with
the qualification or registration of the Shares for offer and sale by the
Company under the securities or blue sky laws of any jurisdictions Capital
Resources, the Company and the Association may agree upon pursuant to subsection
(i) of Section 5 above, including counsel fees
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paid or incurred by the Company, the Association or Capital Resources in
connection with such qualification or registration or exemption from
qualification or registration; (b) all filing fees in connection with all
filings with the NASD; (c) any stock issue or transfer taxes which may be
payable with respect to the sale of the Shares; (d) reasonable and necessary
expenses of the Conversion, including but not limited to attorneys' fees (which
fees are not to exceed $25,000), transfer agent, registrar and other agent
charges, fees relating to auditing and accounting or other advisors and costs of
printing all documents necessary in connection with the Conversion
(reimbursement for other expenses shall not exceed $20,000); and, (e) in
addition, if the Company is unable to sell a minimum of 998,750 Shares, or the
Conversion is otherwise abandoned or terminated, the Association shall reimburse
Capital Resources in accordance with Section 2 hereof.
SECTION 7. Conditions to Capital Resources' Obligations, Capital
Resources' obligations hereunder, as to the Shares to be delivered at the
Closing Date, are subject to the condition that all representations and
warranties and other statements of the Company and the Association herein are,
at and as of the commencement of the Subscription Offering and at and as of the
Closing Date, true and correct in all material respects, the condition that the
Company and the Association shall have performed in all material respects all of
their obligations hereunder to be performed on or before such dates, and to the
following further conditions:
(a) At the Closing Date, the Company and the Association will have completed
the conditions precedent to, and shall have conducted the Conversion in all
material respects in accordance with the Plan, the Conversion Regulations
and all other applicable laws, regulations, decisions and orders, including
all terms, conditions, requirements and provisions precedent to the
Conversion imposed upon them by the OTS.
(b) The Registration Statement shall have been declared effective by the
Commission and the Conversion Application approved by the OTS not later
than 5:30 p.m. on the date of this Agreement, or with Capital Resources'
consent at a later time and date; and at the Closing Date no stop order or
other action suspending the effectiveness of the Registration Statement
shall have been issued under the 1933 Act or proceedings therefore
initiated or threatened by the Commission, or any state authority and no
order or other action suspending the authorization of the Prospectus or the
consummation of the Conversion shall have been issued or proceedings
therefore initiated or threatened by the Commission, the OTS, the FDIC or
any state authority.
(c) At the Closing Date Capital Resources shall have received:
(1) The opinion, dated as of the Closing Date addressed to Capital
Resources and for its benefit, of Malizia, Spidi, Sloane & Fisch,
P.C., special counsel for the Company with respect to federal law,
dated the Closing Date, addressed to Capital Resources and in form
and substance to the effect that:
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(i) The Company has been incorporated and is validly existing as
a corporation in good standing under the laws of the State
of Kansas.
(ii) The Company has corporate power and authority to own, lease
and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus;
and the Company is qualified to do business as a foreign
corporation in any jurisdiction in which the conduct of its
business requires such qualification, except where the
failure to so qualify would not have a material adverse
effect on the business of the Company and the Association
taken as a whole.
(iii)The Association is now organized and a validly existing
federally chartered savings association in the mutual form
of organization and upon the Conversion will become a duly
organized and validly existing federally chartered savings
Association in the capital stock form of organization, in
both instances duly authorized to conduct its business and
own its property as described in the Registration Statement
and Prospectus; and the Association is validly existing
under the laws of the United States and is duly qualified as
a foreign corporation to transact business in each
jurisdiction in which its ownership of property or leasing
of property or the conduct of its ownership of property or
leasing of property or the conduct of its business requires
such qualification, unless the failure to be so qualified in
one or more of such jurisdictions would not have a material
adverse effect on the financial condition or income of the
Association. The Subsidiary is incorporated and validly
existing corporation in good standing with full corporate
authority to own its property and conduct its business as
described in the Prospectus and the activities of the
Subsidiary insofar as they are material to the operations
and financial condition of the Association are permitted by
the rules and regulations of the OTS and the FDIC, and all
of the outstanding stock of the Subsidiary has been legally
authorized and is validly issued, fully paid and
non-assessable, and such stock is owned directly by the
Association.
(iv) The Association is a member of the FHLB-Topeka, and the
deposit accounts of the Association are insured by the FDIC
up to the maximum amount allowed under law and no
proceedings for the termination or revocation of such
insurance are pending or, to such counsel's knowledge,
threatened; the description of the liquidation account as
set forth in the Registration Statement and the Prospectus
under the caption "The Conversion -- Effects of Conversion
to Stock Form on Depositors and Borrowers of First Kansas
Federal Savings Association" has been reviewed by such
counsel and is accurate in all material respects.
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(v) Upon consummation of the Conversion, the authorized, issued
and outstanding capital stock of the Company will be as set
forth in the Registration Statement and Prospectus under the
caption "Capitalization," and no shares of Common Stock have
been issued prior to the Closing Date; at the time of the
Conversion, the Shares subscribed for pursuant to the
Offerings will have been duly and validly authorized for
issuance, and when issued and delivered by the Company
pursuant to the Plan against payment of the consideration
calculated as set forth in the Plan, will be duly and
validly issued and fully paid and non-assessable; and the
issuance of the Shares is not subject to preemptive rights
and the terms and provisions of the Shares conform in all
material respects to the description thereof contained in
the Prospectus. To such counsel's knowledge, upon the
issuance of the Shares, the Shares will be transferred free
and clear of any material lien, claim, security contract or
other encumbrance or other debt in title, from the Company
to the purchasers thereof against payment therefor, subject
to such claims as may be asserted against the purchasers
thereof by third- party claimants.
(vi) The issuance and sale of the capital stock of the
Association to the Company have been duly and validly
authorized by all necessary corporate action on the part of
the Company and the Association and, upon payment therefore
in accordance with the terms of the Plan will be duly and
validly issued and fully paid and non-assessable and will be
owned of record by the Company and to such counsel's
knowledge, beneficially owned by the Company.
(vii)The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have
been duly validly authorized by all necessary action on the
part of the Company and the Association; and this Agreement
is a valid and binding obligation of the Company and the
Association, enforceable in accordance with its terms
(except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting the enforceability of creditors'
rights generally or the rights of creditors of federally
chartered savings and loan holding companies, the accounts
of whose subsidiaries are insured by the FDIC and subject,
as to the enforcement of remedies, including the remedy of
specific performances and injunctive and other forms of
equitable relief which may be subject to certain equitable
defenses and to the discretion of the court before which any
proceedings may be brought, to general principles of equity
regardless of whether the enforceability is considered in a
proceeding at law or in equity, and except as the
obligations of the Association and the Company under the
indemnification and contribution provisions of Section 8 and
9 of the Agreement may be limited by Federal or State
securities laws, or unenforceable as against public policy.)
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(viii) The Conversion Application as filed with the OTS has been
approved by the OTS and the Prospectus was authorized for
use by the OTS. The OTS has issued its order of approval of
acquisition of the Association by the Company pursuant to
HOLA, and the purchase by the Company of all of the
outstanding capital stock of the Association has been
authorized by the OTS and no action has been taken, or to
such counsel's knowledge, is pending or threatened to revoke
any such authorization or approval.
(ix) The Registration Statement is effective under the 1933 Act
and to such counsel's knowledge, no stop order suspending
the effectiveness has been issued under the 1933 Act or
proceedings therefor initiated or to such counsel's
knowledge threatened by the Commission.
(x) The Plan has been duly adopted by the required vote of the
Directors of the Company and the Association and members of
the Association.
(xi) Subject to the satisfaction of the conditions to the OTS'
approval of the Conversion and the Company's application to
acquire the Association, no further approval, registration,
authorization, consent or other order of any regulatory
agency, public board or body is required in connection with
the execution and delivery of this Agreement, the issuance
of the Shares and the consummation of the Conversion, except
as may be required under the securities or Blue Sky laws of
various jurisdictions and as may be required under the
regulations of the NASD and the NASDAQ System.
(xii)At the time the Registration Statement became effective,
(i) the Registration Statement (and any amendment or
supplement thereto) (other than the financial statements and
other financial and statistical data and stock valuation
information included therein, as to which no opinion need be
rendered), complied as to form in all materials respects
with the requirements of the 1933 Act and the 1933 Act
Regulations and (ii) the Prospectus (other than the
financial statements and other financial and statistical
data and stock valuation information included therein, as to
which no opinion need be rendered) complied as to form in
all material respects with the requirements of the 1933 Act,
and the 1933 Act Regulations. To such counsel's knowledge,
no order has been issued by the OTS or any state authority
to suspend the Offering or the use of the Prospectus, and no
action for such purposes has been instituted or, to such
counsel's knowledge threatened by the OTS or any state
authority. To such counsel's knowledge, no person has sought
to obtain regulatory or judicial review of the final action
of the OTS approving the Plan, the Conversion Application,
the Holding Company Application or the Prospectus.
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(xiii) The terms and provisions of the Shares of the Company
conform in all material respects to the description thereof
contained in the Registration Statement and the Prospectus,
and the form of certificate used to evidence the Shares is
in due and proper form and complies with Kansas law
applicable thereto.
(xiv)To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened which are
required to be disclosed in the Registration Statement and
the Prospectus, other than those disclosed therein, provided
that, for this purpose, any litigation or governmental
proceeding is not considered to be "threatened" unless the
potential litigant or governmental authority has manifested
to the management of the Company or the Association, a
present intention to initiate such litigation or proceeding.
(xv) To such counsel's knowledge, there are no contracts,
indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to in
the Conversion Application, the Registration Statement or
the Prospectus or required to be filed as exhibits thereto
other than those described or referred to therein or filed
as exhibits thereto. The description in the Conversion
Application, the Registration Statement and the Prospectus
of such documents and exhibits is accurate and fairly
describes the information required.
(xvi)The Plan complies in all material respects with all
applicable laws, rules, regulations, published OTS bulletins
or legal opinions including, but not limited to, the
Conversion Regulations (except as waived in writing by the
OTS).
(xvii) To such counsel's knowledge, the Company, the Association
and the Subsidiary have obtained all material licenses,
permits and other governmental authorizations currently
required for the conduct of their respective businesses,
except where the failure to have such licenses, permits or
authorizations would not have a material adverse effect on
the business, operations, financial condition or income of
the Company, the Association and the Subsidiary, taken as a
whole and all such material licenses, permits and other
governmental authorizations are in full force and effect,
and each of the Company and the Association is in all
material respects complying therewith, except where failure
to comply would not have a material adverse effect on the
financial condition of the Company and the Association taken
as a whole.
(xviii) Neither the Company, the Association nor the Subsidiary
is in violation of its certificate of incorporation or its
charter, respectively, or in contravention of its bylaws
(and the Association will not be in violation of its federal
stock charter or bylaws upon consummation of the Conversion)
or, to such counsel's knowledge, in default or violation of
any obligation, agreement, covenant or condition contained
in any contract, indenture, mortgage, loan agreement, note,
25
<PAGE>
lease or other instrument to which it is a party or by
which it or its property may be bound, except for such
defaults or violations which would not have a material
adverse impact on the financial condition or results of
operations of the Company and the Association taken as a
whole. The execution and delivery of this Agreement by the
Company and the Association, the occurrence of the
obligations herein set forth and the consummation of the
transactions contemplated herein have been duly authorized
by all necessary corporate action of the Company and the
Association and, to such counsel's knowledge, will not
materially conflict with or constitute a material breach
of, or default under, or result in the creation or
imposition of any material lien, charge or encumbrance upon
any property or assets of the Company or the Association
pursuant to any material contract, indenture, mortgage,
loan agreement, note, lease or other instrument to which
the Company or the Association is a party of by which any
of them may be bound, or to which any of the property or
assets of the Company or the Association is subject; and
such action will not result in any violation of the
provisions of the certificate of incorporation or bylaws of
the Company or the charter and bylaws of the Association or
material violation of any application law, act, regulation
or order or court order, writ, injunction or decree.
(xix)The Company's certificate of incorporation and bylaw comply
with the laws of the State of Kansas and the Association's
charter and bylaws in mutual form and, upon the completion
of the Conversion, in stock form, comply in all respects
with the laws of the United States.
(xx) To such counsel's knowledge, the Company and the Association
are not in violation of any directive from the OTS or the
FDIC to make any material change in the method of conducting
their business.
(xxi)The information in the Registration Statement and
Prospectus under the captions "Taxation," "Regulation,"
"Restrictions on Acquisitions of First Kansas Financial
Corporation", to the extent that it constitutes matters of
law, summaries of legal matters, documents or proceedings,
or legal conclusions, have been reviewed by such counsel and
is correct in all material respects (except as to the
financial statements and other financial and statistical
data and stock valuation information included therein as to
which such counsel need express no opinion).
(xxii) At the time the Conversion Application, including the
Prospectus contained therein, was approved, the Conversion
Application (as amended or supplemented, if so amended or
supplemented) and the Prospectus complied as to form in all
material respects with the rules and regulations of the OTS
and federal law (other than the financial statements and
other financial and statistical
26
<PAGE>
data and stock valuation information included therein, as
to which no opinion need be rendered); to such counsel's
knowledge, all material documents and exhibits required to
be filed with the Conversion Application (as amended or
supplemented, if so amended or supplemented) have been so
filed. The description in the Conversion Application and
Registration Statement and the Prospectus of such documents
and exhibits is accurate and fairly presents the
information required to be shown.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than
the United States provide the opinion of other counsel of good
standing (providing that Malizia, Spidi, Sloane & Fisch, P.C.
states that Capital Resources and their counsel are justified in
relying upon such specified opinion) or shall provide such opinion
separately and (B) as to matters of fact on certificates of
responsible officers of the Company and the Association and public
officials, provided copies of any such opinion(s) or certificates
are delivered pursuant hereto or to Capital Resources together with
the opinion to be rendered hereunder by special counsel to the
Company and the Association. In rendering such opinion, Malizia,
Spidi, Sloane & Fisch, P.C. shall state in its opinion that the
phrase "to such counsel's knowledge" used in such opinion refers to
the actual knowledge of the attorneys within such firm who have
given substantive attention to the Company and the Association
during the course of their representation of the Company and the
Association in connection with the transactions contemplated by the
Agreement and does not (a) include constructive notice of matters
or information or (b) except for such counsel's conversations with
certain officers of the Company and the Association and review of
the documents referred to therein, imply that such counsel has
undertaken any independent investigation (i) with any persons
outside of such firm or (ii) as to the accuracy or completeness of
any factual representation, information or other matter made or
furnished in connection with the transactions contemplated by the
Agreement and that such counsel does not know of any fact or
circumstance contradicting the statement that follows "to such
counsel's knowledge" and does not imply that they know the
statement to be correct or have any basis (other than the documents
referred to therein and such conversations) for that statement.
Such counsel may assume that any agreement is the valid and binding
obligation of any parties to such agreement other than the Company
and the Association.
(2) The letter of Malizia, Spidi, Sloane & Fisch, P.C., counsel for the
Company and the Association addressed to Capital Resources, dated
the Closing Date, in form and substance to the effect that:
In addition, such counsel shall state that during the
preparation of the Registration Statement and Prospectus, it
participated in conferences with certain officers of and other
representatives of the Association and the
27
<PAGE>
Company, counsel to Capital Resources, representatives of the
independent public accountants for the Association and the
Company and representatives of Capital Resources at which the
contents of the Conversion Application, Registration Statement
and the Prospectus and related matters were discussed and,
although we are not passing upon and do not assume the
responsibility for the accuracy, completeness or fairness of
the statements contained in the Conversion Application,
Registration Statement and Prospectus, on the basis of the
foregoing, without independent verification (relying as to
materiality as to factual matters on certificates of officers
and other factual representations by the Association and the
Company), nothing has come to its attention that caused it to
believe that the Registration Statement at the time it was
declared effective by the SEC or the Prospectus as of its date
and as of the Closing Date contained or contains any untrue
statement of a material fact or omitted 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 (it being understood that such
counsel expresses no comment or opinion with respect to the
financial statements, schedules and other financial,
statistical or stock valuation data included, or statistical
methodology employed or information with respect to Capital
Resources contained under the caption "The Conversion --
Marketing Arrangements" in the Registration Statement or
Prospectus).
(3) The favorable opinion, dated as of the Closing Date, of Silver,
Freedman & Taff, L.L.P., Capital Resources' counsel, with respect
to such matters of federal law as Capital Resources may reasonably
require. Such opinion may rely upon the opinions of counsel to the
Company and the Association, and as to matters of fact, upon
certificates of officers and directors of the Company and the
Association and certificates of public officials delivered pursuant
hereto or as such counsel shall reasonably request.
(d) At the Closing Date, counsel to Capital Resources shall have been furnished
with such documents and opinions as they may reasonably require for the
purpose of enabling them to pass upon the sale of the Shares as herein
contemplated and related proceedings or in order to evidence the occurrence
or completeness of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained.
(e) At the Closing Date, Capital Resources shall receive a certificate of the
Chief Executive Officer and the Chief Financial Officer of the Company and
of the Chief Executive Officer and Chief Financial Officer of the
Association, dated as of such Closing Date, to the effect that: (i) they
have carefully examined the Prospectus and, in their opinion, at the time
the Prospectus became authorized for final use, the Prospectus did not
contain an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; (ii) since the
date the Prospectus became authorized for final use, no event has
28
<PAGE>
occurred which should have been set forth in an amendment or supplement to
the Prospectus which has not been so set forth, including specifically, but
without limitation, any material adverse change in the financial condition,
earnings, capital, properties, or business affairs of the Company or the
Association and, the conditions set forth in this Section 7 have been
satisfied; (iii) since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has been no
material adverse change in the financial condition, earnings, capital,
properties or business affairs of the Company or the Association,
independently, or of the Company and the Association considered as one
enterprise, whether or not arising in the ordinary course of business; (iv)
the representations and warranties in Section 4 are true and correct with
the same force and effect as though expressly made at and as of the Closing
Date; (v) the Company and the Association have complied with all material
agreements and satisfied in all material respects at or prior to the
Closing Date and will in all material respects comply with all obligations
to be satisfied by it after Conversion; (vi) no order suspending the
effectiveness of the Registration Statement has been initiated by the
Commission or, to the knowledge of the Company or Association, or
threatened by the Commission or initiated or threatened by any State
authority; (vii) no order suspending the Offerings, the Conversion, the
acquisition of all of the shares of the Association by the Company or the
effectiveness of the Prospectus has been issued and to the knowledge of the
Company of the Association, no proceedings for that purpose have been
initiated or threatened by the OTS, the Commission, the FDIC, or any state
authority and (viii) to the knowledge of the Company or the Association, no
person has sought to obtain review of the final action of the OTS approving
the Plan.
(f) Prior to and at the Closing Date: (i) in the reasonable opinion of Capital
Resources, there shall have been no material adverse change in the
financial condition, earnings or the business affairs of the Company or the
Association independently, or of the Company or the Association considered
as one enterprise, from that as of the latest dates as of which such
condition is set forth in the Prospectus, except as referred to therein;
(ii) there shall have been no material transaction entered into by the
Company or the Association, considered as one enterprise from the latest
date as of which the financial condition of the Company or the Association
is set forth in the Prospectus other than transactions referred to or
contemplated therein or transactions in the ordinary course of business;
(iii) the Company or the Association shall not have received from the OTS
or the FDIC any direction (oral or written) to make any material change in
the method of conducting their businesses with which they have not complied
in all material respects (which direction, if any, shall have been
disclosed to Capital Resources) or which materially and adversely would
affect the business affairs, operations or financial condition or income of
the Company and the Association, taken as a whole; (iv) neither the Company
nor the Association shall have been in default (nor shall an event have
occurred which, with notice or lapse of time or both, would constitute a
default) under any provision of an agreement or instrument relating to any
material outstanding indebtedness; (v) no action, suit or proceedings, at
law or in equity or before or by any federal or state commission, board or
other administrative agency, shall be pending or, to the knowledge of the
Company or the Association threatened against the Company or
29
<PAGE>
the Association or affecting any of their properties wherein an unfavorable
decision, ruling or finding would reasonably be expected to have a material
and adverse effect on the business, operations, financial condition or
income of the Company or the Association, taken as a whole; and (vi) the
Shares have been qualified or registered for offering and sale under the
securities or blue sky laws of the jurisdictions as Capital Resources shall
have requested and as agreed to by the Company and the Association.
(g) Concurrently with the execution of this Agreement, Capital Resources shall
receive a letter from KPMG Peat Marwick LLP dated the date hereof and
addressed to Capital Resources: (i) confirming that KPMG Peat Marwick LLP
is a firm of independent public accountants within the meaning of the 1933
Act and the 1933 Act Regulations and Title 12 of Code of Federal
Regulations and stating in effect that in its opinion the consolidated
financial statements of the Association for the year ended December 31,
1997, as are included in the Prospectus and covered by its opinion included
therein, comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the applicable published rules
and regulations thereunder and Part 563c and 563g.7(b) of Title 12 of the
Code of Federal Regulations and generally accepted accounting principles;
(ii) stating in effect that, on the basis of certain agreed upon procedures
(but not an audit in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim
consolidated financial statements of the Association prepared by the
Association, a reading of the minutes of the meetings of the Board of
Directors and members of the Association and inquiries with officers of the
Association responsible for financial and accounting matters, nothing came
to their attention which caused them to believe that: (A) the unaudited
consolidated financial statements included in the Prospectus (and any later
unaudited consolidated financial statements, condensed interim financial
statements or capsule information set forth in an amendment or supplement
to the Prospectus or any additional prospectus, if any) fail to comply as
to form in all material respects with the applicable accounting
requirements of the 1933 Act and the related published rules and
regulations of the Commission thereunder and the rules and regulations of
the OTS and FDIC under Title 12 of the Code of Federal Regulations and
generally accepted accounting principles; (B) such unaudited consolidated
financial statements included in the Prospectus (and any later unaudited
financial statements, condensed interim financial statements or capsule
information set forth in an amendment or supplement to the Prospectus or
any additional prospectus, if any) are not in conformity with generally
accepted accounting principles applied on a basis substantially consistent
with that of the audited consolidated financial statements included in the
Prospectus; or (C) during the period from the date of the latest unaudited
consolidated financial statements included in the Prospectus to a specified
date not more than five business days prior to the date hereof, there was
any increase in borrowings by the Company or the Association (except as
disclosed in such letter); or (D) there was any decrease in equity or in
net assets of the Association at a specified date not more than five
business days prior to the date hereof as compared with amounts shown in
the latest unaudited consolidated statement of condition included in the
Prospectus or there was any decrease in net income or net interest income
of the Association for the number of
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<PAGE>
full months commencing immediately after the period covered by the latest
unaudited income statement included in the Prospectus and ended on the
latest month end prior to the date of the Prospectus or in such letter as
compared to the corresponding period in the preceding year (except as
disclosed in such letter); and (iii) stating that, in addition to the audit
referred to in their opinions included in the Prospectus and the
performance of the procedures referred to in clause (ii) of the subsection
(g), they have compared with the general accounting records of the
Association, as applicable, which are subject to the internal controls of
the Association, as applicable, accounting system and other data prepared
by the Association, as applicable, directly from such accounting records,
to the extent specified in such letter, the amounts and percentages set
forth in the Prospectus; and they have found such amounts and percentages
to be in material agreement therewith (subject to rounding).
(h) At the Closing Date, Capital Resources shall receive a letter from KPMG
Peat Marwick LLP dated the Closing Date, addressed to Capital Resources,
confirming the statements made by its letter delivered by them pursuant to
subsection (g) of this Section 7, the "specified date" referred to in
clause (ii)(C) thereof to be a date specified in such letter, which shall
not be more than five business days prior to the Closing Date, the
"specified date" in clause (ii)(D) to be the specified dates in such letter
which shall not be more than five business days prior to the Closing Date,
and the end of the period specified in clause (ii)(D) to be the latest
month end prior to the date of such letter.
(i) At the Closing Date, Capital Resources shall receive a letter from Capital
Resources Group, Inc. ("CRG"), dated the date thereof and addressed to
counsel for Capital Resources, stating that their opinion of the pro forma
market value of the outstanding shares of the capital stock of the
Association expressed in their Appraisal of [_______ __], 1998 and as most
recently updated, remains in effect.
(j) The Company and the Association shall not have sustained since the date of
the latest audited consolidated financial statements included in the
Registration Statement and Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in the
Registration Statement and Prospectus, and since the respective dates as of
which information is given in the Registration Statement and Prospectus,
there shall not have been any change in the consolidated long-term debt of
the Company or the Association other than debt incurred in relation to the
purchase of Shares by the Company's or the Association's Tax-Qualified
Employee Plans or debt incurred in the ordinary course of business or any
change in the management, financial position, retained earnings or results
of operations of the Company or the Association, otherwise than as set
forth or contemplated in the Registration Statement and Prospectus, the
effect of which, in any such case described above, is in Capital Resources'
reasonable judgment sufficiently material and adverse as to make it
impracticable or inadvisable to proceed with the Offerings or the delivery
of the Shares on the terms and in the manner contemplated in the
Prospectus.
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<PAGE>
(k) At or prior to the Closing Date, Capital Resources shall receive (i) a copy
of the letters from the OTS authorizing the use of the Prospectus, the
proxy materials and authorizing the conversion, (ii) a copy of the order
from the Commission declaring the Registration Statement effective, (iii) a
copy of a certificate from the OTS evidencing the existence of the
Association, (iv) a copy of the certificate of the FDIC evidencing
insurance of accounts of the Association, (v) letter from FHLB-Topeka
evidencing the Association's membership in the FHLB, (vi) a certificate of
good standing from the Secretary of State of Kansas a evidencing the good
standing of the Company and the Subsidiary, (vii) a copy of the letter from
the OTS approving the Company's holding company application and (viii) such
other certificates and documents reasonably requested by Capital Resources
or its counsel.
(l) As soon as available after the Closing Date, Capital Resources shall
receive a copy of the Association's stock charter certified by the OTS.
(m) At the date of any amendment or supplement to the Prospectus and the date
of any additional prospectus, Capital Resources shall receive a letter from
KPMG Peat Marwick LLP dated the date of such amendment, supplement or
additional prospectus confirming the statements made by them in the letter
delivered by them pursuant to subsection (g) of this Section 7, the
"specified date" referred to in clause (ii)(C) thereof to be a date
specified in such letter, which shall not be more than five business days
before the date of such letter, the "specified date" in clause (ii)(D) to
be the specified date in such letter which shall not be more than five
business days prior to the date of such letter, and the end of the period
specified in clause (ii)(D) to be the latest month end prior to the date of
such letter. In addition, any such letter shall contain such additional
information comparable to that provided pursuant to clause (iii) of
subsection (g) of this Section 7 to the extent additional financial
information is included in any amendment, supplement or additional
prospectus.
(n) Subsequent to the date hereof, there shall not have occurred any of the
following: (i) a suspension or limitation in trading in securities
generally on the New York Stock Exchange or American Stock Exchange or in
the over-the-counter market, or quotations halted generally on the NASDAQ
System, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices for securities have been required by either of
such exchanges or the NASD or by order of the Commission or any other
governmental authority; (ii) a general moratorium on the operations of
commercial banks or federal savings associations or general moratorium on
the withdrawal of deposits from commercial banks, federal savings banks or
savings banks in New York declared by either federal or state authorities;
(iii) the engagement by the United States in hostilities which have
resulted in the declaration, on or after the date hereof, of a national
emergency or war; or (iv) a material decline in the price of equity or debt
securities if the effect of such hostilities or decline, in Capital
Resources' reasonable judgment, makes it impracticable or inadvisable to
proceed with the Offerings or the delivery of the Shares on the terms and
in the manner contemplated in the Registration Statement and the
Prospectus.
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All such opinions, certifications, letters and documents shall be in
compliance with the provisions hereof only if they are, in the reasonable
opinion of Capital Resources and its counsel, satisfactory to Capital Resources
and its counsel. Any certificates signed by an officer or director of the
Company or the Association and delivered to Capital Resources or its counsel
shall be deemed a representation and warranty by the Company or the Association
to Capital Resources as to the statements made therein.
If any of the conditions specified in this Section shall not have been
fulfilled when and as required by this Agreement, this Agreement and all of
Capital Resources obligations hereunder may be canceled by Capital Resources by
notifying the Association of such cancellation in writing or by telegram at any
time at or prior to the Closing Date, and any such cancellation shall be without
liability of any party to any other party except as otherwise provided in
Sections 2, 6, 8 and 9 hereof. Notwithstanding the above, if this Agreement is
canceled pursuant to this paragraph, the Company and the Association jointly and
severally agree to reimburse Capital Resources for all out-of-pocket expenses
(including without limitation the fees and expenses of Capital Resources'
counsel) reasonably incurred by Capital Resources and Capital Resources counsel
at its normal rates, in connection with the preparation of the Conversion
Application and the Prospectus, and in contemplation of the proposed
Subscription Offering to the extent provided for in Sections 2 and 6 hereof.
SECTION 8. Indemnification.
(a) The Company agrees to indemnify and hold harmless Capital Resources, its
officers, directors, agents, servants and employees and each person, if
any, who controls Capital Resources within the meaning of Section 15 of the
1933 Act or Section 20(a) of the 1934 Act, against any and all losses,
liabilities, claims, lawsuits, judgements, damages, costs or expenses
whatsoever (including but not limited to settlement expenses), joint or
several, that Capital Resources or any of them may suffer or to which
Capital Resources and any such persons may become subject under all
applicable federal and state laws or otherwise, and to reimburse promptly
Capital Resources and any such persons upon written demand for any expenses
(including but not limited to reasonable fees and disbursements of counsel)
incurred by Capital Resources or any of them in connection with
investigating, preparing or defending any actions, proceedings or claims
(whether commenced or threatened) to the extent such losses, liabilities,
claims, lawsuits, judgements, damages, costs or expenses (i) arise out of
or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment or
supplement thereto), preliminary or final Prospectus (or any amendment or
supplement thereto), the Conversion Application (or any amendment or
supplement thereto) or other instrument or document of the Company or the
Association or based upon written information supplied by the Company or
the Association filed in any state or jurisdiction to register or qualify
any or all of the Shares or the subscription rights applicable thereto or
to claim an exemption therefrom, or provided to any state or jurisdiction
to register the Company as a broker-dealer or certain of its officers,
directors and employees as broker-dealers or agents or to claim an
exemption
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therefrom, under the securities laws thereof (collectively, the "Blue Sky
Application"), or any application or other document, advertisement, oral
statement, or communication ("Sales Information") prepared, made or
executed by or furnished by or on behalf of the Company or the Association
with their consent or based upon any material oral misstatements made by
the Company, the Association or their respective officers, directors and
employees; (ii) arise out of or based upon the omission or alleged omission
to state in any of the foregoing documents or information, a 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;
(iii) arise from any theory of liability whatsoever (regardless of whether
such theory of liability sounds in equity or law, tort or contract, or
arise under a statute or the common law) relating to or arising from or
based upon the Registration Statement (or any amendment or supplement
thereto), preliminary or final Prospectus (or any amendment or supplement
thereto), the Conversion Application (or any amendment or supplement
thereto) or any Blue Sky Application or Sales Information or other
documentation distributed in connection with the Conversion or the
transactions contemplated thereby; or (iv) arise from or relate to the act
or omission, or alleged act or omission of the Company or the Association,
which act or omission would constitute a breach of any representation or
warranty made by the Company or the Association under Section 4 hereof or
would constitute a breach of any covenant made by the Association under
Section 5 hereof; provided, however, that no indemnification is required
under this paragraph (a) to the extent such losses, liabilities, claims,
lawsuits, judgements, damages, costs or expenses arise out of or are based
upon any untrue material statements or alleged untrue material statements
in, or material omission or alleged material omission from, the
Registration Statement (or any amendment or supplement thereto),
preliminary or final Prospectus (or any amendment or supplement thereto),
the Conversion Application (or any amendment or supplement thereto), any
Blue Sky Application or Sales Information or other documentation
distributed in connection with the Conversion made in reliance upon and in
conformity with information furnished in writing to the Company or the
Association by Capital Resources regarding Capital Resources for inclusion
in the prospectus under the caption, "The Conversion -- Marketing
Arrangements" or arise out of material oral misstatements made by Capital
Resources, which are not based on information contained in the Registration
Statement or final Prospectus (or any amendment or supplement thereto), the
Conversion Application, any Blue Sky Application or Sales Information
distributed in connection with the Conversion.
(b) Capital Resources agrees to indemnify and hold harmless the Company and the
Association, their directors and officers and each person, if any, who
controls the Company or the Association within the meaning of Section 15 of
the 1933 Act or Section 20(a) of the 1934 Act against any and all losses,
liabilities, claims, lawsuits, judgements, damages, costs or expenses
whatsoever, (including but not limited to settlement expenses) joint or
several which they, or any of them, may suffer or to which they, or any of
them, may become subject under all applicable federal and state laws or
otherwise, and to promptly reimburse the Company, the Association and any
such persons upon written demand for any expenses (including fees and
disbursements of counsel) incurred by them, or any of them, in
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connection with investigating, preparing or defending any actions,
proceedings or claims (whether commenced or threatened) to the extent such
losses, liabilities, claims, lawsuits, judgements, damages, costs or
expenses arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment of supplement thereto), the preliminary or final
Prospectus (or any amendment or supplement thereto), the Conversion
Application (or any amendment or supplement thereto), any Blue Sky
Application or Sales Information or are based upon the omission or alleged
omission to state in any of the foregoing documents a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, provided, however, that Capital Resources obligations under
this Section 8(b) shall exist only if and only to the extent that such
untrue statement or alleged untrue statement was made in, or such material
fact or alleged material fact was omitted from, the Registration Statement
(or any amendment or supplement thereto), or the preliminary or final
Prospectus (or any amendment or supplement thereto) the Conversion
Application (or any amendment or supplement thereto), any Blue Sky
Application or Sales Information in reliance upon and in conformity with
information furnished in writing to the Company or the Association by
Capital Resources regarding Capital Resources, for inclusion in the
prospectus under the caption "The Conversion -- Marketing Arrangements" or
to the extent that Capital Resources is adjudged by a court of competent
jurisdiction to have caused such losses, liabilities, claims, lawsuits,
judgements, damages, costs or expenses through a material oral misstatement
made by Capital Resources, not based on information contained in the
Registration Statement or final Prospectus (or any amendment or supplement
thereto), the Conversion Application, any Blue Sky Application or Sales
Information distributed in connection with the Conversion.
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity
may be sought hereunder, but failure to so notify an indemnifying party
shall not relieve it from any liability which it may have on account of
this Section 8 or otherwise. An indemnifying party may participate at its
own expense in the defense of such action. In addition, if it so elects
within a reasonable time after receipt of such notice, an indemnifying
party, jointly with any other indemnifying parties receiving such notice,
may assume defense of such action with counsel chosen by it and approved by
the indemnified parties that are defendants in such action, unless such
indemnified parties reasonably object to such assumption on the ground that
there may be legal defenses available to them that are different from or in
addition to those available to such indemnifying party. If an indemnifying
party assumes the defense of such action, the indemnifying parties shall
not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action, proceeding or
claim, other than reasonable costs of investigation. In no event shall the
indemnifying parties be liable for the fees and expenses of more than one
separate firm of attorneys (and any special counsel that said firm may
retain) for each indemnified party in connection with any one
35
<PAGE>
action, proceeding or claim or separate but similar or related actions,
proceedings or claims in the same jurisdiction arising out of the same
general allegations or circumstances.
(d) The agreements contained in this Section 8 and in Section 9 hereof and the
representations and warranties of the Company and the Association set forth
in this Agreement shall remain operative and in full force and effect
regardless of: (i) any investigation made by or on behalf of Capital
Resources or its officers, directors or controlling persons, agents or
employees or by or on behalf of the Company or the Association or any
officers, directors or controlling persons, agents or employees of the
Company or the Association; (ii) delivery of and payment hereunder for the
Shares; or (iii) any termination of this Agreement.
(e) To the extent applicable, this Section 8 is subject to and limited by the
provisions of Section 23A of the Federal Reserve Act.
SECTION 9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 8 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Company and Capital Resources, the Company and
Capital Resources shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of any action, suit or
proceeding of any claims asserted, but after deducting any contribution received
by the Company or Capital Resources from persons other than the other party
thereto, who may also be liable for contribution) in such proportion so that
Capital Resources is responsible for that portion represented by the percentage
that the fees paid to Capital Resources pursuant to Section 2 of this Agreement
(not including expenses) bears to the gross proceeds received by the Company
from the sale of the Shares in the Offerings and the Company shall be
responsible for the balance. If, however, the allocation provided above is not
permitted by applicable law or if the indemnified party failed to give the
notice required under Section 8 above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative fault of the
Company on the one hand and Capital Resources on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions, proceedings or claims in respect thereof), but also the
relative benefits received by the Company and the Association on the one hand
and Capital Resources on the other from the offering, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Association on the one hand and Capital Resources on the other shall be
deemed to be in the same proportion as the total gross proceeds from the
Offerings (before deducting expenses) received by the Company bear to the total
fees (not including expenses) received by Capital Resources. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company and/or
the Association on the one hand or Capital Resources on the other and the
parties' relative intent, good faith, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
Capital Resources agree that it would
36
<PAGE>
not be just and equitable if contribution pursuant to this Section 9 were
determined by pro-rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in this
Section 9. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or action, proceedings or claims in
respect thereof) referred to above in this Section 9 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action, proceeding or claim.
It is expressly agreed that Capital Resources shall not be liable for any loss,
liability, claim, damage or expense or be required to contribute any amount
which in the aggregate exceeds the amount paid (excluding reimbursable expenses)
to Capital Resources under this Agreement. It is understood that the
above-stated limitation on Capital Resources' liability is essential to Capital
Resources and that Capital Resources would not have entered into this Agreement
if such limitation had not been agreed to by the parties to this Agreement. No
person found guilty of any fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not found guilty of such fraudulent misrepresentation. The obligations
of the Company under this Section 9 and under Section 8 shall be in addition to
any liability which the Company may otherwise have. For purposes of this Section
9, each of Capital Resources' and the Company's officers and directors and each
person, if any, who controls Capital Resources or the Company within the meaning
of the 1933 Act and the 1934 Act shall have the same respective rights to
contribution as Capital Resources or the Company. Any party entitled to
contribution, promptly after receipt of notice of commencement of any action,
suit, claim or proceeding against such party in respect of which a claim for
contribution may be made against another party under this Section 9, will notify
such party from whom contribution may be sought, but the omission to so notify
such party shall not relieve the party from whom contribution may be sought from
any other obligation it may have hereunder or otherwise than under this Section
9. To the extent applicable, this Section 9 is subject to and limited by the
provisions of Section 23A of the Federal Reserve Act.
SECTION 10. Survival of Agreements, Representations and Indemnities. The
respective indemnities of the Company and Capital Resources and the
representations and warranties and other statements of the Company and the
Association set forth in or made pursuant to this Agreement shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of Capital Resources, the
Company, the Association or any indemnified person referred to in Section 8
hereof, and shall survive the issuance of the Shares, and any legal
representative, successor or assign of Capital Resources, the Association, and
any such indemnified person shall be entitled to the benefit of the respective
agreements, indemnities, warranties and representations.
SECTION 11. Termination. Capital Resources or the Company and the
Association may terminate this Agreement by giving the notice indicated below in
this Section at any time after this Agreement becomes effective as follows:
(a) In the event the Company fails to sell 998,750 Shares within the period
specified, and in accordance with the provisions of the Plan or as required
by the Conversion Regulations and
37
<PAGE>
applicable law, this Agreement shall terminate upon refund by the
Association to each person who has subscribed for or ordered any of the
Shares the full amount which it may have received from such person,
together with interest as provided in the Prospectus, and no party to this
Agreement shall have any obligation to the other hereunder, except for
payment by the Association and/or the Company as set forth in Sections 2,
6, 8 and 9 hereof.
(b) This Agreement may be terminated by Capital Resources, with respect to
Capital Resources obligations hereunder by notifying the Company at any
time at or prior to the Closing Date, if any of the conditions specified in
Section 7 hereof shall not have been fulfilled when and as required by this
Agreement.
This Agreement may also be terminated by the Company and the Association
in the event of a breach of the representations and warranties provided
by Capital Resources in Section 4.
If either Capital Resources or the Company and the Association elects to
terminate this Agreement as provided in this section, the other party
shall be notified as provided in Section 12 hereof, promptly by
terminating party by telephone or telegram, confirmed by letter.
SECTION 12. Notices. All communications hereunder, except as herein
otherwise specifically provided, shall be mailed in writing and if sent to
Capital Resources shall be mailed, delivered or telegraphed and confirmed to
Capital Resources, Inc., 1211 Connecticut Avenue, NW, Suite 200, Washington,
D.C. 20036, Attention: David Rochester (with a copy to Silver, Freedman & Taff,
L.L.P., Attention: Martin L. Meyrowitz, P.C.) and, if sent to the Association,
shall be mailed, delivered or telegraphed and confirmed to the Association at
600 Main Street, Osawatomie, Kansas 66064, Attention: Larry V. Bailey,
President, (with a copy to Malizia, Spidi, Sloane & Fisch, P.C., Suite 700 East,
1301 K Street, NW, Washington, D.C. 20005 Attention: John J. Spidi, Esq.).
SECTION 13. Parties. The Company and the Association shall be entitled to
act and rely on any request, notice, consent, waiver or agreement purportedly
given on behalf of Capital Resources when the same shall have been given by the
undersigned. Capital Resources shall be entitled to act and rely on any request,
notice, consent, waiver or agreement purportedly given on behalf of the Company
and the Association, when the same shall have been given by the undersigned or
any other officer of the Company or the Association. This Agreement shall inure
solely to the benefit of, and shall be binding upon, Capital Resources and the
Company, the Association and the controlling persons referred to in Section 8
hereof, and their respective successors, legal representatives and assigns, and
no other person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Agreement or any
provision herein contained.
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SECTION 14. Closing. The closing for the sale of the Shares shall take
place on the Closing Date at the offices of Malizia, Spidi, Sloane & Fisch,
P.C., Suite 700 East, 1301 K Street, NW, Washington, DC 20005, or such other
location as mutually agreed upon by Capital Resources, the Company and the
Association. At the closing, the Company or the Association shall deliver to
Capital Resources in next day funds the commissions, fees and expenses due and
owing to Capital Resources as set forth in Sections 2 and 6 hereof and the
opinions and certificates required hereby and other documents deemed reasonably
necessary by Capital Resources shall be executed and delivered to effect the
sale of the Shares as contemplated hereby and pursuant to the terms of the
Prospectus.
SECTION 15. Partial Invalidity. In the event that any term, provision or
covenant herein or the application thereof to any circumstances or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of said term, provision or covenant to any other circumstance or
situation shall not be affected thereby, and each term, provision or covenant
herein shall be valid and enforceable to the full extent permitted by law.
SECTION 16. Construction. This Agreement shall be construed in
accordance with the laws of the State of Kansas.
SECTION 17. Counterparts. This Agreement may be executed in separate
counterparts, each of which so executed and delivered shall be an original, but
all of which together shall constitute but one and the same instrument.
Time shall be of the essence of this Agreement.
39
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If the foregoing correctly sets forth the arrangement among the Company
and the Association and Capital Resources, please indicate acceptance thereof in
the space provided below for that purpose, whereupon this letter and Capital
Resources acceptance shall constitute a binding agreement.
Very truly yours,
FIRST KANSAS FEDERAL FIRST KANSAS FINANCIAL
SAVINGS BANK CORPORATION
By: By:
---------------------------------- ----------------------------------
Larry V. Bailey Larry V. Bailey
President, Chief Executive Officer President, Chief Executive Officer
and Chief Financial Officer and Chief Financial Officer
Accepted as of the date first above written.
CAPITAL RESOURCES, INC.
By:
----------------------------------
40
EXHIBIT 2
<PAGE>
PLAN OF CONVERSION
Adopted on
December 16, 1997
By the Board of Directors of
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION
OSAWATOMIE, KANSAS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Introduction..................................................................................... 1
2. Definitions...................................................................................... 2
3. Procedure for Conversion......................................................................... 5
4. Holding Company Applications and Approvals....................................................... 6
5. Sale of Conversion Stock......................................................................... 6
6. Number of Shares and Purchase Price of Conversion Stock.......................................... 7
7. Purchase by the Holding Company of the Stock of the Institution.................................. 8
8. Subscription Rights of Eligible Account Holders (First Priority)................................. 8
9. Subscription Rights of Employee Plans (Second Priority).......................................... 9
10. Subscription Rights of Supplemental Eligible Account Holders (Third Priority).................... 9
11. Subscription Rights of Other Members (Fourth Priority)........................................... 10
12. Community Offering............................................................................... 10
13. Syndicated Community Offering.................................................................... 11
14. Limitation on Purchases.......................................................................... 12
15. Payment for Conversion Stock..................................................................... 13
16. Manner of Exercising Subscription Rights Through Order Forms..................................... 14
17. Undelivered, Defective or Late Order Forms or Insufficient Payment............................... 15
18. Restrictions on Resale or Subsequent Disposition................................................. 16
19. Voting Rights of Stockholders.................................................................... 16
20. Establishment of Liquidation Account............................................................. 17
21. Transfer of Savings Accounts..................................................................... 17
22. Restrictions on Acquisition of the Institution and Holding Company............................... 18
23. Payment of Dividends and Repurchases of Stock.................................................... 18
24. Amendment of Plan................................................................................ 19
25. Charter and Bylaws............................................................................... 19
26. Consummation of Conversion....................................................................... 19
27. Registration and Marketing....................................................................... 19
28. Residents of Foreign Countries and Certain States................................................ 19
29. Expenses of Conversion........................................................................... 20
30. Conditions to Conversion......................................................................... 20
31. Interpretation................................................................................... 20
</TABLE>
<PAGE>
PLAN OF CONVERSION
FOR
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION
OSAWATOMIE, KANSAS
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of First
Kansas Federal Savings Association, Osawatomie, Kansas ("INSTITUTION") into a
federal capital stock savings institution. The Board of Directors of the
INSTITUTION currently contemplates that all of the stock of the INSTITUTION
shall be held by another corporation (the "Holding Company"). The purpose of
this conversion is to enable the INSTITUTION to increase its equity capital base
and will result in an increase in the INSTITUTION's capital available to support
growth and for expansion of its facilities, possible acquisitions of other
financial institutions, possible diversification into other related financial
services activities and further enhance the INSTITUTION's ability to render
services to the public and compete with other financial institutions. The use of
the Holding Company would also provide greater organizational flexibility.
Shares of capital stock of the INSTITUTION will be sold to the Holding Company
and the Holding Company will offer the Conversion Stock upon the terms and
conditions set forth herein to Eligible Account Holders, the tax-qualified
employee stock benefit plans (the "Employee Plans") established by the
INSTITUTION or the Holding Company, which may be funded by the Holding Company,
Supplemental Eligible Account Holders, and Other Members in the respective
priorities set forth in this Plan. Any shares of Conversion Stock not subscribed
for by the foregoing classes of persons will be offered for sale to certain
members of the public either directly by the INSTITUTION and the Holding Company
through a Community Offering or a Syndicated Community Offering or in a Public
Offering. In the event that the INSTITUTION decides not to utilize the Holding
Company in the conversion, Conversion Stock of the INSTITUTION, in lieu of the
Holding Company, will be sold as set forth above and in the respective
priorities set forth in this Plan. In addition to the foregoing, the INSTITUTION
and the Holding Company intend to implement stock option plans and other stock
benefit plans at the time of or subsequent to the conversion and may provide
employment or severance agreements to certain management employees and certain
other benefits to the directors, officers and employees of the INSTITUTION as
described in the prospectus for the Conversion Stock.
This Plan, which has been unanimously approved by the Board of
Directors of the INSTITUTION, must also be approved by the affirmative vote of a
majority of the total number of votes entitled to be cast by Voting Members of
the INSTITUTION at a special meeting to be called for that purpose. Prior to the
submission of this Plan to the Voting Members for consideration, the Plan must
be approved by the Office of Thrift Supervision (the "OTS").
Upon conversion, each Account Holder having a Savings Account at the
INSTITUTION prior to conversion will continue to have a Savings Account, without
payment therefor, in the same amount and subject to the same terms and
conditions (except for voting and liquidation rights) as in effect prior to the
conversion. After conversion, the INSTITUTION will succeed to all the rights,
interests, duties and obligations of the INSTITUTION before conversion,
including but not limited to all rights and interests of the INSTITUTION in and
to its assets and properties, whether real, personal or mixed. The INSTITUTION
will continue to be a member of the Federal Home Loan Bank System and all its
insured savings deposits will continue to be insured by the Federal Deposit
Insurance Corporation (the "FDIC") to the extent provided by applicable law.
1
<PAGE>
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - The term Account Holder means any Person holding a
Savings Account in the INSTITUTION.
Acting in Concert - The Term "Acting in Concert" means (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise; or
(iii) a person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company who is also acting in concert with that other party, except that any
tax-qualified employee stock benefit plan will not be deemed to be acting in
concert with its trustee or a person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the plan will be aggregated.
Associate - The term Associate when used to indicate a relationship
with any person, means (i) any corporation or organization (other than the
INSTITUTION or a majority-owned subsidiary of the INSTITUTION) of which such
person is an officer or partner or is, directly or indirectly, the beneficial
owner of 10 percent or more of any class of equity securities, (ii) any trust or
other estate in which such person has a substantial beneficial interest or as to
which such person serves as trustee or in a similar fiduciary capacity except
that for the purposes of Sections 8 and 14 hereof, the term "Associate" does not
include any Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified
Employee Stock Benefit Plan in which a person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity, and except
that, for purposes of aggregating total shares that may be held by Officers and
Directors the term "Associate" does not include any Tax-Qualified Employee Stock
Benefit Plan, and (iii) any relative or spouse of such person, or any relative
of such spouse, who has the same home as such person or who is a Director or
Officer of the INSTITUTION or the Holding Company, or any of its parents or
subsidiaries.
Community Offering - The term Community Offering means the offering for
sale to certain members of the general public directly by the Holding Company,
of any shares not subscribed for in the Subscription Offering.
Conversion Stock - The term Conversion Stock means the $.10 par value
common stock offered and issued by the Holding Company upon conversion.
Director - The term Director means a member of the Board of Directors
of the INSTITUTION and, where applicable, a member of the Board of Directors of
the Holding Company.
Eligible Account Holder - The term Eligible Account Holder means any
person holding a Qualifying Deposit at the INSTITUTION on the Eligibility Record
Date. Only the name(s) of the Person(s) listed on the account as of the
Eligibility Record Date (or a successor entity or estate) shall be an Eligible
Account Holder. Any Person or Persons added to a Qualifying Deposit after the
Eligibility Record Date shall not be an Eligible Account Holder.
Eligibility Record Date - The term Eligibility Record Date means the
date for determining Eligible Account Holders in the INSTITUTION and is the
close of business on September 30, 1996.
2
<PAGE>
Employees - The term Employees means all Persons who are employed by
the INSTITUTION.
Employee Plans - The term Employee Plans means the Tax-Qualified
Employee Stock Benefit Plans, including the Employee Stock Ownership Plan,
approved by the Board of Directors of the INSTITUTION.
Estimated Valuation Range. The term Estimated Valuation Range means the
range of the estimated pro forma market value of the Conversion Stock as
determined by the Independent Appraiser prior to the Subscription Offering and
as it may be amended from time to time thereafter.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
Holding Company - The term Holding Company means the corporation formed
for the purpose of acquiring all of the shares of capital stock of the
INSTITUTION to be issued upon its conversion to stock form unless the Holding
Company form of organization is not utilized. Shares of common stock of the
Holding Company will be issued in the conversion to Participants and others in a
Subscription, Community, Syndicated Community or underwritten firm commitment
public offering, or through a combination thereof.
Independent Appraiser - The term Independent Appraiser means an
appraiser retained by the INSTITUTION to prepare an appraisal of the pro forma
market value of the Conversion Stock.
Institution - The term INSTITUTION means First Kansas Federal Savings
Association, Osawatomie, Kansas.
Local Community - The term local community means the incorporated
cities and the counties in which the INSTITUTION has offices.
Member - The term Member means any Person or entity who qualifies as a
member of the INSTITUTION pursuant to its charter and bylaws.
OTS - The term OTS means Office of Thrift Supervision of the Department
of the Treasury.
Officer - The term Officer means an executive officer of the
INSTITUTION and may include the Chairman of the Board, Chief Executive Officer,
President, Senior Vice Presidents, Vice Presidents in charge of principal
business functions, Secretary and Treasurer and any Person performing functions
similar to those performed by the foregoing persons.
Order Form - The term Order Form means any form together with attached
cover letter, sent by the INSTITUTION to any Person containing among other
things a description of the alternatives available to such Person under the Plan
and by which any such Person may make elections regarding subscriptions for
Conversion Stock in the Subscription and Community Offerings.
Other Member - The term Other Member means any person, who is a Member
of the INSTITUTION (other than Eligible Account Holders or Supplemental Eligible
Account Holders) at the close of business on the voting record date.
Participants - The term Participants means the Eligible Account
Holders, Employee Plans, Supplemental Eligible Account Holders and Other
Members.
3
<PAGE>
Person - The term Person means an individual, a corporation, a
partnership, an association, a joint-stock company, a trust (including
Individual Retirement Accounts and KEOGH Accounts), any unincorporated
organization, a government or political subdivision thereof or any other entity.
Plan - The term Plan means this Plan of Conversion of the INSTITUTION
as it exists on the date hereof and as it may hereafter be amended in accordance
with its terms.
Public Offering - The term Public Offering means the offering for sale
through the Underwriter to the general public of any shares of Conversion Stock
not subscribed for in the Subscription Offering or Community Offering.
Purchase Order - The term Purchase Order means any form together with
attached cover letter, sent by the Underwriter to any Person containing among
other things a description of the alternatives available to such Person under
the Plan and by which any such Person may make elections regarding subscriptions
for Conversion Stock in the Public Offering or Syndicated Community Offering.
Purchase Price - The term Purchase Price means the per share price at
which the Conversion Stock will be sold in accordance with the terms hereof.
Qualifying Deposit - The term Qualifying Deposit means the balance of
each Savings Account of $50 or more in the INSTITUTION at the close of business
on the Eligibility Record Date or Supplemental Eligibility Record Date. Savings
Accounts with total deposit balances of less than $50 shall not constitute a
Qualifying Deposit. Pursuant to the authority contained in 12 C.F.R.
ss.563b.3(e)(1), the term Qualifying Deposit also includes demand accounts as
defined in 12 C.F.R. ss.561.16(a) of $50 or more in the INSTITUTION at the close
of business on the Eligibility Record Date or Supplemental Eligibility Record
Date.
SEC - The term SEC refers to the Securities and Exchange Commission.
Savings Account - The term Savings Account includes savings accounts as
defined in Section 561.42 of the Rules and Regulations of the OTS and includes
certificates of deposit.
Special Meeting of Members - The term Special Meeting of Members means
the special meeting and any adjournments thereof held to consider and vote upon
this Plan.
Subscription Offering - The term Subscription Offering means the
offering of Conversion Stock for purchase through Order Forms to Participants.
Supplemental Eligibility Record Date - The term Supplemental
Eligibility Record Date means the close of business on the last day of the
calendar quarter preceding the approval of the Plan by the OTS.
Supplemental Eligible Account Holder - The term Supplemental Eligible
Account Holder means a holder of a Qualifying Deposit in the INSTITUTION (other
than an officer or trustee or their Associates) at the close of business on the
Supplemental Eligibility Record Date.
Syndicated Community Offering - The term Syndicated Community Offering
means the offering of Conversion Stock following the Subscription, Community or
Public Offerings through a syndicate of broker-dealers.
4
<PAGE>
Tax-Qualified Employee Stock Benefit Plan - The term Tax-Qualified
Employee Stock Benefit Plan means any defined benefit plan or defined
contribution plan, such as an employee stock ownership plan, stock bonus plan,
profit-sharing plan or other plan, which, with its related trust, meets the
requirements to be "qualified" under Section 401 of the Internal Revenue Code.
Underwriter - The term Underwriter means the investment banking firm or
firms through which the Conversion Stock will be offered and sold in the
Community or Public Offering.
Voting Members - The term Voting Members means those persons qualifying
as voting members of the INSTITUTION pursuant to its charter and bylaws.
Voting Record Date - The term Voting Record Date means the date fixed
by the Directors in accordance with OTS regulations for determining eligibility
to vote at the Special Meeting of Members.
3. PROCEDURE FOR CONVERSION
After approval of the Plan by the Board of Directors of the
INSTITUTION, the Plan shall be submitted together with all other requisite
material to the OTS for its approval. Notice of the adoption of the Plan by the
Board of Directors of the INSTITUTION will be published in a newspaper having
general circulation in each community in which an office of the INSTITUTION is
located and copies of the Plan will be made available at each office of the
INSTITUTION for inspection by the Members. Upon filing the application with the
OTS, the INSTITUTION also will cause to be published a notice of the filing with
the OTS of an application to convert in accordance with the provisions of the
Plan. Following approval by the OTS, the Plan will be submitted to a vote of the
Voting Members at a Special Meeting of Members called for that purpose. Upon
approval of the Plan by a majority of the total outstanding votes of the Voting
Members, the INSTITUTION will take all other necessary steps pursuant to
applicable laws and regulations to convert the INSTITUTION to stock form. The
conversion must be completed within 24 months of the approval of the Plan by the
Voting Members, unless a longer time period is permitted by governing laws and
regulations.
The period for the Subscription Offering and Community Offering, if
any, will be not less than 20 days nor more than 45 days unless extended by the
INSTITUTION. Upon completion of the Subscription Offering and the Community
Offering, if any, any unsubscribed shares of Conversion Stock will, if feasible,
be sold through the Underwriter to the general public in the Public Offering
and/or Syndicated Community Offering. If for any reason the Public Offering
and/or Syndicated Community Offering of all shares not sold in the Subscription
Offering and Community Offering cannot be effected, the Holding Company and the
INSTITUTION will use their best efforts to obtain other purchasers, subject to
OTS approval. Completion of the sale of all shares of Conversion Stock not sold
in the Subscription Offering and Community Offering is required within 45 days
after termination of the Subscription Offering, subject to extension of such
45-day period by the Holding Company and the INSTITUTION with the approval of
the OTS. The Holding Company and the INSTITUTION may jointly seek one or more
extensions of such 45-day period if necessary to complete the sale of all shares
of Conversion Stock. In connection with such extensions, subscribers and other
purchasers will be permitted to increase, decrease or rescind their
subscriptions or purchase orders to the extent required by the OTS in approving
the extensions.
The Board of Directors of the INSTITUTION intends to take all necessary
steps to form the Holding Company including the filing of an Application on Form
H-(e)1 or H-(e)1-S, if available to the Holding Company, with the OTS. Upon
conversion, the INSTITUTION will issue its capital stock to
5
<PAGE>
the Holding Company and the Holding Company will issue and sell the Conversion
Stock in accordance with this Plan.
The Board of Directors of the INSTITUTION may determine for any reason
at any time prior to the issuance of the Conversion Stock not to utilize a
holding company form of organization in the Conversion, in which case, the
Holding Company's registration statement on Form SB-2 will be withdrawn from the
SEC, the INSTITUTION will take all steps necessary to complete the conversion
from the mutual to the stock form of organization, including filing any
necessary documents with the OTS and will issue and sell the Conversion Stock in
accordance with this Plan. In such event, any subscriptions or orders received
for Conversion Stock of the Holding Company shall be deemed to be subscriptions
or orders for Conversion Stock of the INSTITUTION without any further action by
the INSTITUTION or the subscribers for the Conversion Stock. Any references to
the Holding Company in this Plan shall mean the INSTITUTION in the event the
Holding Company is eliminated in Conversion.
The Conversion Stock will not be insured by the FDIC. The INSTITUTION
will not knowingly lend funds or otherwise extend credit to any Person to
purchase shares of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application on Form H-(e)1 or an H-(e)1-S, if
available to the Holding Company, to be filed with the OTS and a Registration
Statement on Form SB-2 to be filed with the SEC. The INSTITUTION shall be a
wholly owned subsidiary of the Holding Company.
5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans, Supplemental Eligible
Account Holders and Other Members in the respective priorities set forth in
Sections 8 through 11 of this Plan. The Subscription Offering may be commenced
as early as the mailing of the Proxy Statement for the Special Meeting of
Members and must be commenced in time to complete the conversion within the time
period specified in Section 3.
Any shares of Conversion Stock not subscribed for in the Subscription
Offering will be offered for sale in the Community Offering as provided in
Section 12 of this Plan and may be offered in a Syndicated Community Offering or
sold through the Underwriter to the public in a Public Offering, as provided in
Section 13, if necessary and feasible. The Subscription Offering may be
commenced prior to the Special Meeting of Members and, in that event, the
Community Offering, if any, may also be commenced prior to the Special Meeting
of Members. The offer and sale of Conversion Stock, prior to the Special Meeting
of Members shall, however, be conditioned upon approval of the Plan by the
Voting Members.
Shares of Conversion Stock may be sold in a Syndicated Community
Offering, or in a Public Offering, as provided in Section 13 of this Plan in a
manner that will achieve the widest distribution of the Conversion Stock as
determined by the INSTITUTION. In the event of a Syndicated Community Offering,
or Public Offering, the sale of all Conversion Stock subscribed for will be
consummated only if all unsubscribed for Conversion Stock is sold.
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The INSTITUTION may elect to pay fees on either a fixed fee or
commission basis or combination thereof to an investment banking firm which
assists it in the sale of the Conversion Stock in the offerings.
The INSTITUTION may also elect to offer to pay fees on a per share
basis to brokers who assist Persons in determining to purchase shares in the
offerings.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to
be issued and offered for sale will be determined by the Boards of Directors of
the INSTITUTION and the Holding Company, immediately prior to the commencement
of the Subscription Offering, subject to adjustment thereafter if necessitated
by a change in the appraisal due to changes in market or financial conditions,
with the approval of the OTS, if necessary.
All shares sold in the conversion will be sold at a uniform price per
share referred to in this Plan as the Purchase Price. The aggregate Purchase
Price for all shares of Conversion Stock will not be inconsistent with the
estimated consolidated pro forma market value of the INSTITUTION. The estimated
consolidated pro forma market value of the INSTITUTION will be determined for
such purpose by the Independent Appraiser. Prior to the commencement of the
Subscription Offering, an Estimated Valuation Range will be established, which
range will vary within 15% above to 15% below the midpoint of such range. The
number of shares of Conversion Stock to be issued and/or the Purchase Price per
share may be increased or decreased by the INSTITUTION. In the event that the
aggregate Purchase Price of the Conversion Stock is below the minimum of the
Estimated Valuation Range, or materially above the maximum of the Estimated
Valuation Range, resolicitation of subscribers may be required, provided that up
to a 15% increase above the maximum of the Estimated Valuation Range will not be
deemed material so as to require a resolicitation. Any such resolicitation shall
be effected in such manner and within such time as the INSTITUTION shall
establish, with the approval of the OTS, if required. Up to a 15% increase in
the number of shares to be issued which is supported by an appropriate change in
the estimated pro forma market value of the INSTITUTION or in order to fill the
order by the Employee Plans will not be deemed to be material so as to require a
resolicitation of subscriptions.
Based upon the independent valuation as updated prior to the
consummation of the Subscription and Community Offerings, the Boards of
Directors of the INSTITUTION and the Holding Company will fix the Purchase
Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the INSTITUTION and Holding Company and to the OTS that, to the best
knowledge of the Independent Appraiser, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause the
Independent Appraiser to conclude that the aggregate value of the Conversion
Stock sold at the Purchase Price is incompatible with its estimate of the
aggregate consolidated pro forma market value of the INSTITUTION. If such
confirmation is not received, the INSTITUTION may cancel the Subscription and
Community Offerings, the Syndicated Community Offering and/or the Public
Offering, reopen or hold new Subscription and Community Offerings, Syndicated
Community Offering and/or the Public Offering to take such other action as the
OTS may permit.
The Conversion Stock to be issued in the Conversion shall be fully paid
and nonassessable.
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7. PURCHASE BY THE HOLDING COMPANY OF THE STOCK OF THE INSTITUTION
Upon the consummation of the sale of all of the Conversion Stock, the
Holding Company will purchase from the INSTITUTION all of the capital stock of
the INSTITUTION to be issued by the INSTITUTION in the conversion in exchange
for the Conversion proceeds that are not permitted to be retained by the Holding
Company.
The Holding Company will apply to the OTS to retain up to 50% of the
proceeds of the Conversion. Assuming the Holding Company is not eliminated, a
lesser percentage may be acceptable.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights to subscribe for shares of Conversion Stock
equal to the greater of: (i) the maximum established for the Community Offering;
(ii) one-tenth of one percent of the Conversion Stock offered; or (iii) 15 times
the product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock offered by a fraction of which the
numerator is the amount of the Qualifying Deposit of such Eligible Account
Holder and the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders but in no event greater than the maximum purchase
limitation specified in Section 14 hereof. All such purchases are subject to the
maximum and minimum purchase limitations specified in Section 14 and are
exclusive of an increase in the total number of shares issued due to an increase
in the maximum of the Estimated Valuation Range of up to 15%. Only Persons with
Qualifying Deposits as of the Eligibility Record Date (or a successor entity or
estate) shall receive subscription rights. Any Person or Persons added to a
Qualifying Deposit after the Eligibility Record Date shall not be an Eligible
Account Holder.
B. In the event that Eligible Account Holders exercise Subscription
Rights for a number of shares of Conversion Stock in excess of the total number
of such shares eligible for subscription, the shares of Conversion Stock shall
be allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account Holder. Any shares remaining after that allocation will
be allocated among the subscribing Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that the amount of the Qualifying Deposit
of each Eligible Account Holder whose subscription remains unsatisfied bears to
the total amount of the Qualifying Deposits of all Eligible Account Holders
whose subscriptions remain unsatisfied. If the amount so allocated exceeds the
amount subscribed for by any one or more Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
C. Subscription rights as Eligible Account Holders received by
Directors and Officers and their Associates which are based on deposits made by
such persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
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9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)
Subject to the availability of sufficient shares after filling
subscription orders of Eligible Account Holders under Section 8, the Employee
Plans shall receive without payment nontransferable subscription rights to
purchase in the Subscription Offering the number of shares of Conversion Stock
requested by such Plans, subject to the purchase limitations set forth in
Section 14.
The Employee Plans shall not be deemed to be associates or affiliates
of or Persons Acting in Concert with any Director or Officer of the Holding
Company or the INSTITUTION.
10. SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY)
A. In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the Application filed prior to OTS
approval, then, and only in that event, each Supplemental Eligible Account
Holder shall receive, without payment, nontransferable subscription rights
entitling such Supplemental Eligible Account Holder to purchase that number of
shares of Conversion Stock which is equal to the greater of: (i) the maximum
purchase limitation established for the Community Offering; (ii) one-tenth of 1%
of the Conversion Stock Offered; and (iii) or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction of which the numerator is the amount
of the Qualifying Deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the Qualifying Deposits of all Supplemental
Eligible Account Holders. All such purchases are subject to the maximum and
minimum purchase limitations in Section 14 and are exclusive of an increase in
the total number of shares issued due to an increase in the maximum of the
Estimated Valuation Range of up to 15%.
B. Subscription rights received pursuant to this Category shall be
subordinated to the subscription rights received by Eligible Account Holders and
by the Employee Plans.
C. Any subscription rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Section 8 shall reduce
to the extent thereof the subscription rights to be distributed pursuant to this
Section.
D. In the event of an oversubscription for shares of Conversion Stock
pursuant to this Section, shares of Conversion Stock shall be allocated among
the subscribing Supplemental Eligible Account Holders as follows:
(1) Shares of Conversion Stock shall be
allocated so as to permit each such Supplemental
Eligible Account Holder, to the extent possible, to
purchase a number of shares of Conversion Stock
sufficient to make his total allocation (including
the number of shares of Conversion Stock, if any,
allocated in accordance with Section 8) equal to 100
shares of Conversion Stock or the total amount of his
subscription, whichever is less.
(2) Any shares of Conversion Stock not
allocated in accordance with subparagraph (1) above
shall be allocated among the subscribing Supplemental
Eligible Account Holders on an equitable basis,
related to the amounts of their respective Qualifying
Deposits as compared to the total Qualifying Deposits
of all subscribing Supplemental Eligible Account
Holders.
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11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, nontransferable
subscription rights to subscribe for shares of Conversion Stock in an amount
equal to the greater of the maximum purchase limitation established for the
Community Offering or one-tenth of one percent of the Conversion Stock offered,
subject to the maximum and minimum purchase limitations specified in Section 14
and exclusive of an increase in the total number of shares issued due to an
increase in the maximum of the Estimated Valuation Range of up to 15%, which
will be allocated only after first allocating to Eligible Account Holders, the
Employee Plans and Supplemental Eligible Account Holders all shares of
Conversion Stock subscribed for pursuant to Sections 8, 9 and 10 above.
B. In the event that such Other Members subscribe for a number of
shares of Conversion Stock which, when added to the shares of Conversion Stock
subscribed for by the Eligible Account Holders, the Employee Plans and the
Supplemental Eligible Account Holders is in excess of the total number of shares
of Conversion Stock being issued, the subscriptions of such Other Members will
be allocated among the subscribing Other Members so as to permit each
subscribing Other Member, to the extent possible, to purchase a number of shares
sufficient to make his total allocation of Conversion Stock equal to the lesser
of 100 shares or the number of shares subscribed for by the Other Member. Any
shares remaining will be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied on a 100 shares (or whatever lesser amount is
available) per order basis until all orders have been filled or the remaining
shares have been allocated.
12. COMMUNITY OFFERING
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, shares
remaining unsubscribed may be made available for purchase in the Community
Offering to certain members of the general public. The maximum number of shares
of Conversion Stock, which may be subscribed for in the Community Offering, if
any, by any Person shall not exceed such number of shares of Conversion Stock as
shall equal $150,000 divided by the Purchase Price, subject to the maximum and
minimum purchase limitations specified in Section 14. The shares may be made
available in the Community Offering, if any, through a direct community
marketing program which may provide for utilization of a broker, dealer,
consultant or investment banking firm, experienced and expert in the sale of
savings institution securities. In the Community Offering, if any, shares will
be available for purchase by the general public with preference given to natural
persons residing in the Local Community. Subject to these preferences, the
INSTITUTION shall make distribution of the Conversion Stock to be sold in the
Community Offering in such a manner as to promote the widest distribution of
Conversion Stock.
If Persons in the Community Offering, whose orders would otherwise be
accepted, subscribe for more shares than are available for purchase, the shares
available to them will be allocated among persons submitting orders in the
Community Offering in an equitable manner as determined by the Board of
Directors. The INSTITUTION may establish all terms and conditions of such offer.
The Community Offering, if any, may commence simultaneously with,
during or subsequent to the completion of the Subscription Offering and if
commenced simultaneously with or during the Subscription Offering the Community
Offering may be limited to those Persons who are eligible to subscribe for stock
in the Community Offering. If commenced, the Community Offering must be
completed within 45 days after the completion of the Subscription Offering
unless otherwise extended by the OTS.
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The INSTITUTION and the Holding Company, in their absolute discretion,
reserve the right to reject any or all orders in whole or in part which are
received in the Community Offering, at the time of receipt or as soon as
practicable following the completion of the Community Offering.
Any shares of Conversion Stock not sold in the Subscription Offering or
in the Community Offering, if any, may then be sold through the Underwriter to
the general public at the Purchase Price in the Public Offering, subject to such
terms, conditions and procedures as may be determined by the Boards of Directors
of the INSTITUTION and the Holding Company, in a manner that will achieve the
widest distribution of the Conversion Stock and subject to the right of the
INSTITUTION and the Holding Company, in their absolute discretion, to accept or
reject in whole or in part all subscriptions in the Public Offering. In the
Public Offering, if any, any person together with any Associate or group of
persons Acting in Concert may purchase up to the maximum purchase limitation
established for the Syndicated Community Offering, subject to the maximum and
minimum purchase limitations specified in Section 14 and exclusive of an
increase in the total number of shares issued due to an increase in the maximum
of the Estimated Valuation Range of up to 15%. Shares purchased by any Person
together with any Associate or group of persons Acting in Concert pursuant to
Section 12 shall be counted toward meeting the maximum purchase limitation
specified for this Section. Provided that the Subscription Offering has
commenced, the INSTITUTION may commence the Public Offering at any time after
the mailing to the Members of the Proxy Statement to be used in connection with
the Special Meeting of Members, provided that the completion of the offer and
sale of the Conversion Stock shall be conditioned upon the approval of this Plan
by the Voting Members. It is expected that the Public Offering, if any, will
commence just prior to, or as soon as practicable after, the termination of the
Subscription Offering and the Community Offering, if any. The Public Offering
shall be completed within 45 days after the termination of the Subscription
Offering, unless such period is extended as provided in Section 3, above.
If for any reason a Public Offering of shares of Conversion Stock not
sold in the Subscription Offering and Community Offering, if any, cannot be
effected, other purchase arrangements will be made for the sale of unsubscribed
shares by the INSTITUTION, if possible. Such other purchase arrangements will be
subject to the approval of the OTS.
13. SYNDICATED COMMUNITY OFFERING AND PUBLIC OFFERING
Shares of Conversion Stock not subscribed for in the Subscription
Offering and Community Offering, if any, or the Public Offering, if any, may be
sold in a Syndicated Community Offering, subject to such terms, conditions and
procedures as may be determined by the Boards of Directors of the INSTITUTION
and the Holding Company, in a manner that will achieve the widest distribution
of the Conversion Stock and subject to the right of the INSTITUTION and the
Holding Company, in their absolute discretion, to accept or reject in whole or
in part all subscriptions in the Syndicated Community Offering. In the
Syndicated Community Offering, any Person may purchase up to the maximum
purchase limitation established for the Community Offering, subject to the
maximum and minimum purchase limitations specified in Section 14 and exclusive
of an increase in the total number of shares issued due to an increase in the
maximum of the Estimated Valuation Range of up to 15%. Shares purchased by any
Person together with any Associate or group of persons Acting in Concert
pursuant to Section 12 shall be counted toward meeting the maximum purchase
limitation specified for this Section. Provided that the Subscription Offering
has commenced, the INSTITUTION may commence the Syndicated Community Offering at
any time after the mailing to the Members of the Proxy Statement to be used in
connection with the Special Meeting of Members, provided that the completion of
the offer and sale of the Conversion Stock shall be conditioned upon the
approval of this Plan by the Voting Members. If the Syndicated Community
Offering is not sooner commenced pursuant to the provisions of the preceding
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sentence, the Syndicated Community Offering will be commenced as soon as
practicable following the date upon which the Subscription and Community
Offerings terminate.
14. LIMITATION ON PURCHASES
The following limitations shall apply to all purchases of shares of
Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be
purchased in the conversion by any Person (or persons through a single account)
shall not exceed such number of shares as shall equal $150,000 divided by the
Purchase Price.
B. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the conversion by any Person
(or persons through a single account) or Participant together with any Associate
or group of persons Acting in Concert shall not exceed such number of shares as
shall equal $200,000 divided by the Purchase Price per share, except for
Employee Plans, which in the aggregate may subscribe for up to 10% of the
Conversion Stock issued. In accordance with Section 31 of the Plan, the Board of
Directors shall have the authority to determine whether persons are Acting in
Concert or otherwise are in compliance with the Plan's limitations on purchases.
C. The maximum number of shares of Conversion Stock which may be
purchased in all categories in the conversion by Officers and Directors of the
INSTITUTION and their Associates in the aggregate shall not exceed 33% of the
total number of shares of Conversion Stock issued.
D. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the conversion to the extent those shares are
available; provided, however, that the minimum number of shares requirement will
not apply if the number of shares of Conversion Stock purchased times the price
per share exceeds $500.
E. The Employee Plans shall not be deemed to be associates or
affiliates of, or Persons Acting in Concert with, any Director or Officer of the
Holding Company or the Institution.
If the number of shares of Conversion Stock otherwise allocable
pursuant to Sections 8 through 13, inclusive, to any Person or that Person's
Associates would be in excess of the maximum number of shares permitted as set
forth above, the number of shares of Conversion Stock allocated to each such
person shall be reduced to the lowest limitation applicable to that Person, and
then the number of shares allocated to each group consisting of a Person and
that Person's Associates shall be reduced so that the aggregate allocation to
that Person and his or her Associates complies with the above maximums, and such
maximum number of shares shall be reallocated among that Person and his or her
Associates as they may agree, or in the absence of an agreement, in proportion
to the shares subscribed by each (after first applying the maximums applicable
to each Person, separately).
Depending upon market or financial conditions, the Board of Directors
of the INSTITUTION and the Holding Company, without further approval of the
Members, may decrease or increase the purchase limitations in this Plan,
provided that the maximum purchase limitations may not be increased to a
percentage in excess of 5%. Notwithstanding the foregoing, the maximum purchase
limitation may be increased up to 9.99% provided that orders for Conversion
Stock exceeding 5% of the shares being offered shall not exceed, in the
aggregate, 10% of the total offering. If the INSTITUTION and the Holding Company
increase the maximum purchase limitations, the INSTITUTION and the Holding
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Company are only required to resolicit Persons who subscribed for the maximum
purchase amount and may, in the sole discretion of the INSTITUTION and the
Holding Company, resolicit certain other large subscribers. For purposes of this
Section 14, the Directors of the INSTITUTION and the Holding Company shall not
be deemed to be Associates or a group affiliated with each other or otherwise
Acting in Concert solely as a result of their being Directors of the INSTITUTION
or the Holding Company.
In the event of an increase in the total number of shares offered in
the conversion due to an increase in the maximum of the Estimated Valuation
Range of up to 15% (the "Adjusted Maximum") the additional shares will be used
in the following order of priority: (i) to fill the Employees Plan's
subscription to up to 10% of the Adjusted Maximum; (ii) in the event that there
is an oversubscription at the Eligible Account Holder level, to fill unfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum
according to Section 8, with preference given to Purchasers eligible to
subscribe for Conversion Stock in the Community Offering; (iii) in the event
that there is an oversubscription at the Supplemental Eligible Account Holder
level, to fill unfilled subscriptions of Supplemental Eligible Account Holders
exclusive of the Adjusted Maximum according to Section 10, with preference given
to Purchasers eligible to subscribe for Conversion Stock in the Community
Offering; (iv) in the event that there is an oversubscription at the Other
Member level, to fill unfilled subscriptions of Other Members exclusive of the
Adjusted Maximum in accordance with Section 11, with preference given to
Purchasers eligible to subscribe for Conversion Stock in the Community Offering;
and (v) to fill unfilled Subscriptions in the Community Offering exclusive of
the Adjusted Maximum, with preference given to Purchasers eligible to subscribe
for Conversion Stock in the Community Offering.
Each Person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
For a period of three years following the conversion, no Officer,
Director or their Associates shall purchase, without the prior written approval
of the OTS, any outstanding shares of common stock of the Holding Company,
except from a broker-dealer registered with the SEC. This provision shall not
apply to negotiated transactions involving more than one percent of the
outstanding shares of common stock of the Holding Company, the exercise of any
options pursuant to a stock option plan or purchases of common stock of the
Holding Company, made by or held by any Tax-Qualified Employee Stock Benefit
Plan or Non-Tax Qualified Employee Stock Benefit Plan of the INSTITUTION or the
Holding Company (including the Employee Plans) which may be attributable to any
Officer or Director. As used herein, the term "negotiated transaction" means a
transaction in which the securities are offered and the terms and arrangements
relating to any sale are arrived at through direct communications between the
seller or any person acting on its behalf and the purchaser or his investment
representative. The term "investment representative" shall mean a professional
investment advisor acting as agent for the purchaser and independent of the
seller and not acting on behalf of the seller in connection with the
transaction.
15. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community, Syndicated Community and Public Offerings must be delivered in full
to the INSTITUTION, together with a properly completed and executed Order Form,
or Purchase Order in the case of the Syndicated Community or Public Offering, on
or prior to the expiration date specified on the Order Form or Purchase Order,
as the case may be, unless such date is extended by the INSTITUTION; provided,
however, that if the Employee Plans subscribes for shares during the
Subscription Offering, the Employee Plan will not be required to pay for the
shares at the time they subscribe but rather may pay for such shares of
Conversion Stock upon consummation of the Conversion. The INSTITUTION may make
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scheduled discretionary contributions to an Employee Plan provided such
contributions do not cause the INSTITUTION to fail to meet its regulatory
capital requirement.
Notwithstanding the foregoing, the INSTITUTION and the Holding Company
shall have the right, in their sole discretion, to permit institutional
investors to submit contractually irrevocable orders in the Community or
Syndicated Community Offering and to thereafter submit payment for the
Conversion Stock for which they are subscribing in the Community or Syndicated
Community Offering at any time prior to the completion of the Conversion.
Payment for Conversion Stock subscribed for shall be made either in
cash (if delivered in person), check or money order. Alternatively, subscribers
in the Subscription and Community Offerings may pay for the shares subscribed
for by authorizing the INSTITUTION on the Order Form or Purchase Order to make a
withdrawal from the subscriber's Savings Account at the INSTITUTION in an amount
equal to the purchase price of such shares. Such authorized withdrawal, whether
from a savings passbook or certificate account, shall be without penalty as to
premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirement, the certificate shall be canceled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the subscriber's
Savings Account but may not be used by the subscriber until the Conversion Stock
has been sold or the 45-day period (or such longer period as may be approved by
the OTS) following the Subscription Offering has expired, whichever occurs
first. Thereafter, the withdrawal will be given effect only to the extent
necessary to satisfy the subscription (to the extent it can be filled) at the
Purchase Price per share. Interest will continue to be earned on any amounts
authorized for withdrawal until such withdrawal is given effect. Interest will
be paid by the INSTITUTION at not less than the passbook annual rate on payments
for Conversion Stock received in cash or by money order or check. Such interest
will be paid from the date payment is received by the INSTITUTION until
consummation or termination of the conversion. If for any reason the conversion
is not consummated, all payments made by subscribers in the Subscription,
Community, Syndicated Community and Public Offerings will be refunded to them
with interest. In case of amounts authorized for withdrawal from Savings
Accounts, refunds will be made by canceling the authorization for withdrawal.
The INSTITUTION is prohibited by regulation from knowingly making any
loans or granting any lines of credit for the purchase of stock in the
conversion and, therefore, will not do so.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding
Company and INSTITUTION has been declared effective by the OTS and the SEC,
Order Forms will be distributed to the Participants at their last known
addresses appearing on the records of the INSTITUTION for the purpose of
subscribing to shares of Conversion Stock in the Subscription Offering and will
be made available for use in the Community Offering. Notwithstanding the
foregoing, the INSTITUTION may elect to send Order Forms only to those Persons
who request them after such notice as is approved by the OTS and is adequate to
apprise the Participants of the pendency of the Subscription Offering has been
given. Such notice may be included with the proxy statement for the Special
Meeting of Members and may also be included in a notice of the pendency of the
conversion and the Special Meeting of Members sent to all Eligible Account
Holders in accordance with regulations of the OTS.
Each Order Form or Purchase Order will be preceded or accompanied by
the Prospectus (if a holding company form of organization is utilized) or the
Offering Circular (if the holding company form of organization is not utilized)
describing the Holding Company (if utilized), the INSTITUTION, the
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Conversion Stock and the Subscription, Community, Syndicated Community and
Public Offerings. Each Order Form and Purchase Order will contain, among other
things, the following:
A. A specified date by which all Order Forms and Purchase Orders must
be received by the INSTITUTION, which date shall be not less than twenty (20),
nor more than forty-five (45) days, following the date on which the Order Forms
are mailed by the INSTITUTION, and which date will constitute the termination of
the Subscription Offering;
B. The purchase price per share for shares of Conversion Stock to be
sold in the Subscription, Community, Syndicated Community and Public Offerings;
C. A description of the minimum and maximum number of shares of
Conversion Stock which may be subscribed for pursuant to the exercise of
Subscription Rights or otherwise purchased in the Community, Syndicated
Community or Public Offerings;
D. Instructions as to how the recipient of the Order Form or Purchase
Order is to indicate thereon the number of shares of Conversion Stock for which
such person elects to subscribe and the available alternative methods of payment
therefor;
E. An acknowledgment that the recipient of the Order Form or Purchase
Order has received a final copy of the Prospectus or Offering Circular, as the
case may be, prior to execution of the Order Form or Purchase Order;
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form or Purchase Order, together with cash (if
delivered in person), check or money order in the full amount of the purchase
price as specified in the Order Form for the shares of Conversion Stock for
which the recipient elects to subscribe in the Subscription Offering (or by
authorizing on the Order Form that the INSTITUTION withdraw said amount from the
subscriber's Savings Account at the INSTITUTION) to the INSTITUTION; and
G. A statement to the effect that the executed Order Form or Purchase
Order, once received by the INSTITUTION, may not be modified or amended by the
subscriber without the consent of the INSTITUTION.
Notwithstanding the above, the INSTITUTION and the Holding Company
reserve the right in their sole discretion to accept or reject orders received
on photocopied or facsimile order forms or whose payment is to be made by wire
transfer.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms or Purchase Orders (a) are not delivered and
are returned to the INSTITUTION by the United States Postal Service or the
INSTITUTION is unable to locate the addressee, (b) are not received back by the
INSTITUTION or are received by the INSTITUTION after the expiration date
specified thereon, (c) are defectively filled out or executed, (d) are not
accompanied by the full required payment, or, in the case of institutional
investors in the Community or Syndicated Community Offering, by delivering
irrevocable orders together with a legally binding commitment to pay in cash,
check, money order or wire transfer the full amount of the purchase price prior
to 48 hours before the completion of the conversion for the shares of Conversion
Stock subscribed for (including cases in which savings accounts from which
withdrawals are authorized are insufficient to cover the
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<PAGE>
amount of the required payment), or (e) are not mailed pursuant to a "no mail"
order placed in effect by the account holder, the subscription rights of the
person to whom such rights have been granted will lapse as though such person
failed to return the completed Order Form within the time period specified
thereon; provided, however, that the INSTITUTION may, but will not be required
to, waive any immaterial irregularity on any Order Form or Purchase Order or
require the submission of corrected Order Forms or Purchase Orders or the
remittance of full payment for subscribed shares by such date as the INSTITUTION
may specify. The interpretation of the INSTITUTION of terms and conditions of
the Plan and of the Order Forms or Purchase Orders will be final, subject to the
authority of the OTS.
18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased by Directors or Officers of
the INSTITUTION or the Holding Company in the conversion shall be subject to the
restriction that, except as provided in Section 18B, below, or as may be
approved by the OTS, no interest in such shares may be sold or otherwise
disposed of for value for a period of one (1) year following the date of
purchase.
B. The restriction on disposition of shares of Conversion Stock set
forth in Section 18A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the INSTITUTION or the Holding Company, which has been
approved by the OTS; and
(ii) Any disposition of such shares following the death of the
person to whom such shares were initially sold under the terms of the Plan.
C. With respect to all shares of Conversion Stock subject to
restrictions on resale or subsequent disposition, each of the following
provisions shall apply;
(i) Each certificate representing shares restricted within the
meaning of Section 18A, above, shall bear a legend prominently stamped on its
face giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent
for the Holding Company not to recognize or effect any transfer of any
certificate or record of ownership of any such shares in violation of the
restriction on transfer; and
(iii) Any shares of capital stock of the Holding Company
issued with respect to a stock dividend, stock split, or otherwise with respect
to ownership of outstanding shares of Conversion Stock subject to the
restriction on transfer hereunder shall be subject to the same restriction as is
applicable to such Conversion Stock.
19. VOTING RIGHTS OF STOCKHOLDERS
Upon conversion, the holders of the capital stock of the INSTITUTION
shall have the exclusive voting rights with respect to the INSTITUTION as
specified in its charter. The holders of the common stock of the Holding Company
shall have the exclusive voting rights with respect to the Holding Company.
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20. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The INSTITUTION shall establish at the time of conversion a liquidation
account in an amount equal to its net worth as of the latest practicable date
prior to conversion. The liquidation account will be maintained by the
INSTITUTION for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their Savings Accounts at the
INSTITUTION. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to his Savings Account, hold a related inchoate
interest in a portion of the liquidation account balance, in relation to his
Savings Account balance at the Eligibility Record Date and Supplemental
Eligibility Record Date or to such balance as it may be subsequently reduced, as
hereinafter provided.
In the unlikely event of a complete liquidation of the INSTITUTION (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their Savings Accounts) each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the liquidation account, in the amount
of the then adjusted subaccount balance for his Savings Account then held,
before any liquidation distribution may be made to any holders of the
INSTITUTION's capital stock. No merger, consolidation, purchase of bulk assets
with assumption of Savings Accounts and other liabilities, or similar
transactions with an FDIC institution, in which the INSTITUTION is not the
surviving institution, shall be deemed to be a complete liquidation for this
purpose. In such transactions, the liquidation account shall be assumed by the
surviving institution.
The initial subaccount balance for a Savings Account held by an
Eligible Account Holder or Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction, the numerator of which is the amount of such Eligible Account Holder's
and Supplemental Eligible Account Holder's Qualifying Deposit and the
denominator of which is the total amount of all Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders in the
INSTITUTION. Such initial subaccount balance shall not be increased, but shall
be subject to downward adjustment as described below.
If, at the close of business on any annual closing date, commencing on
or after the effective date of conversion, the deposit balance in the Savings
Account of an Eligible Account Holder or Supplemental Eligible Account Holder is
less than the lesser of (i) the balance in the Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, as applicable, or (ii) the amount
of the Qualifying Deposit in such Savings Account, the subaccount balance of
such Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
such downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any subsequent increase in the deposit balance of the
related Savings Account. If any such Savings Account is closed, the related
subaccount shall be reduced to zero.
The creation and maintenance of the liquidation account shall not
operate to restrict the use or application of any of the net worth accounts of
the INSTITUTION.
21. TRANSFER OF SAVINGS ACCOUNTS
Each person holding a Savings Account at the INSTITUTION at the time of
conversion shall retain an identical Savings Account at the INSTITUTION
following conversion in the same amount and subject to the same terms and
conditions (except as to voting and liquidation rights).
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22. RESTRICTIONS ON ACQUISITION OF THE INSTITUTION AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of three years from
the date of consummation of conversion, no Person, other than the Holding
Company, shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of an equity security of the INSTITUTION
without the prior written consent of the OTS.
B.1. The charter of the INSTITUTION contains a provision stipulating
that no person, except the Holding Company, for a period of five years following
the date of conversion shall directly or indirectly offer to acquire or acquire
the beneficial ownership of more than 10% of any class of an equity security of
the INSTITUTION, without the prior written approval of the OTS. In addition,
such charter may also provide that for a period of five years following the
conversion, shares beneficially owned in violation of the above-described
charter provision shall not be entitled to vote and shall not be voted by any
person or counted as voting stock in connection with any matter submitted to
stockholders for a vote. In addition, special meetings of the stockholders
relating to changes in control or amendment of the charter may only be called by
the Board of Directors, and shareholders shall not be permitted to cumulate
their votes for the election of directors.
B.2. The Certificate of Incorporation of the Holding Company may
contain a provision stipulating that in no event shall any record owner of any
outstanding shares of the Holding Company's common stock who beneficially owns
in excess of 10% of such outstanding shares be entitled or permitted to any vote
in respect to any shares held in excess of 10%. In addition, the Certificate of
Incorporation and Bylaws of the Holding Company may provide for staggered terms
of the directors, noncumulative voting for directors, limitations on the calling
of special meetings, a fair price provision for certain business combinations
and certain notice requirements.
C. For the purposes of this Section 22, B.1.:
(i) The term "person" includes an individual, a group acting
in concert, a corporation, a partnership, an association, a joint stock company,
a trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition,
whether effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable
subscription rights issued pursuant to a plan of conversion as well as a
"security" as defined in 15 U.S.C. ss.78c(a)(10).
23. PAYMENT OF DIVIDENDS AND REPURCHASES OF STOCK
The INSTITUTION shall not declare or pay a cash dividend on, or
repurchase any of, its capital stock if the effect thereof would cause its
regulatory capital to be reduced below (i) the amount required for the
Liquidation Account or (ii) the federal regulatory capital requirement in
Section 567.2 of the Rules and Regulations of the OTS. Otherwise, the
INSTITUTION or the Holding Company may declare
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dividends, repurchase capital stock or make capital distributions in accordance
with applicable law and regulations.
24. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended
at any time prior to solicitation of proxies from Members to vote on the Plan by
a two-thirds vote of the INSTITUTION's Board of Directors, and at any time
thereafter by such vote of such Board of Directors with the concurrence of the
OTS. Any amendment to the Plan made after approval by the Members with the
approval of the OTS shall not necessitate further approval by the Members unless
otherwise required by the OTS. The Plan may be terminated by majority vote of
the INSTITUTION's Board of Directors at any time prior to the Special Meeting of
Members to vote on the Plan, and at any time thereafter with the concurrence of
the OTS.
By adoption of the Plan, the Members of the INSTITUTION authorize the
Board of Directors to amend or terminate the Plan under the circumstances set
forth in this Section.
25. CHARTER AND BYLAWS
By voting to adopt the Plan, members of the INSTITUTION will be voting
to adopt a charter and bylaws to read in the form of charter and bylaws for a
federally chartered stock institution. The effective date of the INSTITUTION's
amended charter and bylaws shall be the date of issuance and sale of the
Conversion Stock as specified by the OTS.
26. CONSUMMATION OF CONVERSION
The conversion of the INSTITUTION shall be deemed to take place and be
effective upon the completion of all requisite organizational procedures for
obtaining the federal stock charter for the INSTITUTION and sale of all
Conversion Stock.
27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
Holding Company will register the securities issued in connection with the
conversion pursuant to the Securities Exchange Act of 1934 and will not
deregister such securities for a period of at least three years thereafter,
except that the maintenance of registration for three years requirement may be
fulfilled by any successor to the Holding Company. In addition, the Holding
Company will use its best efforts to encourage and assist a market-maker to
establish and maintain a market for the Conversion Stock and to list those
securities on a national or regional securities exchange or the NASDAQ System.
28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The INSTITUTION will make reasonable efforts to comply with the
securities laws of all States in the United States in which Persons entitled to
subscribe for shares of Conversion Stock pursuant to the Plan reside. However,
no such Person will be issued subscription rights or be permitted to purchase
shares of Conversion Stock in the Subscription Offering if such Person resides
in a foreign country or in a state of the United States with respect to which
any of the following apply: (i) a small number of Persons otherwise eligible to
subscribe for shares under the Plan reside in such state; (ii) the issuance of
subscription rights or the offer or sale of shares of Conversion Stock to such
Persons would require the INSTITUTION or the Holding Company, as the case may
be, under the securities laws of such state, to
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register as a broker, dealer, salesman or agent or to register or otherwise
qualify its securities for sale in such state; or (iii) such registration or
qualification would be impracticable for reasons of cost or otherwise.
29. EXPENSES OF CONVERSION
The INSTITUTION shall use its best efforts to assure that expenses
incurred by it in connection with the conversion shall be reasonable.
30. CONDITIONS TO CONVERSION
The conversion of the INSTITUTION pursuant to this Plan is expressly
conditioned upon the following:
(a) Prior receipt by the INSTITUTION of rulings of the United States
Internal Revenue Service and the State of Kansas taxing authorities, or opinions
of counsel, substantially to the effect that the conversion will not result in
any adverse federal or state tax consequences to Eligible Account Holders or the
INSTITUTION and the Holding Company before or after the conversion;
(b) The sale of all of the Conversion Stock offered in the conversion;
and
(c) The completion of the conversion within the time period specified
in Section 3 of this Plan.
31. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the
INSTITUTION shall be final, subject to the authority of the OTS.
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EXHIBIT 3.(i)
<PAGE>
ARTICLES OF INCORPORATION
OF
FIRST KANSAS FINANCIAL CORPORATION
ARTICLE I
Name
The name of the corporation is First Kansas Financial Corporation
(herein the "Corporation").
ARTICLE II
Registered Office
The address of the Corporation's registered office in the State of
Kansas is 600 Main Street, Osawatomie, County of Miami, Kansas 66064. The name
of the Corporation's registered agent at such address is Mr. Larry V. Bailey,
President and Chief Executive Officer of the Corporation.
ARTICLE III
Powers
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Kansas General
Corporation Code.
ARTICLE IV
Term
The Corporation is to have perpetual existence.
ARTICLE V
Incorporator
The name and mailing address of the incorporator is as follows:
Name Mailing Address
---- ---------------
Larry V. Bailey 600 Main Street
Osawatomie, Kansas 66064
ARTICLE VI
Capital Stock
The aggregate number of shares of all classes of capital stock which
the Corporation has authority to issue is 10,000,000 shares of which 8,000,000
are to be shares of common stock, $0.10 par value per share, and of which
2,000,000 are to be shares of serial preferred stock, $0.10 par value per share.
The shares may be issued by the Corporation without the approval of stockholders
except as otherwise provided in this Article VI or the rules of a national
securities exchange, if applicable. The consideration for the issuance of the
shares shall be paid to or received by the Corporation in full before their
issuance
<PAGE>
and shall not be less than the par value per share. The consideration for the
issuance of the shares shall be cash, services rendered, personal property
(tangible or intangible), real property, leases of real property or any
combination of the foregoing. In the absence of actual fraud in the transaction,
the judgment of the board of directors as to the value of such consideration
shall be conclusive. Upon payment of such consideration such shares shall be
deemed to be fully paid and nonassessable. In the case of a stock dividend, the
part of the surplus of the Corporation which is transferred to stated capital
upon the issuance of shares as a stock dividend shall be deemed to be the
consideration for their issuance.
A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and series (if
any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
A. Common Stock. Except as provided in these Articles, the holders of
the common stock shall exclusively possess all voting power. Each holder of
shares of common stock shall be entitled to one vote for each share held by such
holders.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and sinking fund or retirement fund or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock, and on any class
or series of stock entitled to participate therewith as to dividends, out of any
assets legally available for the payment of dividends, but only when as declared
by the board of directors of the Corporation.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class having preference
over the common stock in any event, the full preferential amounts to which they
are respectively entitled, the holders of the common stock and of any class or
series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets shall be entitled, after payment or provision for payment
of all debts and liabilities of the Corporation, to receive the remaining assets
of the Corporation available for distribution, in cash or in kind.
Each share of common stock shall have the same relative powers,
preferences and rights as, and shall be identical in all respects to, all the
other shares of common stock of the Corporation.
B. Serial Preferred Stock. Except as provided in these Articles, the
board of directors of the Corporation is authorized, by resolution or
resolutions from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the powers, designations,
preferences, and relative, participating, optional, or other special rights of
the shares of such series, and the qualifications, limitations, or restrictions
thereof, including, but not limited to determination of any of the following:
1. the distinctive serial designation and the number of shares
constituting such series; and
2. the dividend rates or the amount of dividends to be paid on
the shares of such series, whether dividends shall be cumulative and,
if so, from which date or dates, the payment date or dates for
dividends, and the participating or other special rights, if any, with
respect to dividends; and
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3. the voting powers, full or limited, if any, of the shares
of such series; and
4. whether the shares of such series shall be redeemable and,
if so, the price or prices at which, and the terms and conditions upon
which such shares may be redeemed; and
5. the amount or amounts payable upon the shares of such
series in the event of voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation; and
6. whether the shares of such series shall be entitled to the
benefits of a sinking or retirement fund to be applied to the purchase
or redemption of such shares, and, if so entitled, the amount of such
fund and the manner of its application, including the price or prices
at which such shares may be redeemed or purchased through the
application of such funds; and
7. whether the shares of such series shall be convertible
into, or exchangeable for, shares of any other class or classes or any
other series of the same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, the conversion
price or prices, or the rate or rates of exchange, and the adjustments
thereof, if any, at which such conversion or exchange may be made, and
any other terms and conditions of such conversion or exchange; and
8. the subscription or purchase price and form of
consideration for which the shares of such series shall be issued; and
9. whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of
serial preferred stock and whether such shares may be reissued as
shares of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative powers, preferences and rights as, and shall be identical in all
respects to, all the other shares of the Corporation of the same series.
ARTICLE VII
Preemptive Rights
No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series, or any
unissued bonds, certificates of indebtedness, debentures, or other securities
convertible into or exchangeable for stock of any class or series or carrying
any right to purchase stock of any class or series; but any such unissued stock,
bonds, certificates of indebtedness, debentures, or other securities convertible
into or exchangeable for stock or carrying any right to purchase stock may be
issued pursuant to resolution of the board of directors of the Corporation to
such persons, firms, corporations, or associations, whether or not holders
thereof, and upon such terms as may be deemed advisable by the board of
directors in the exercise of its sole discretion.
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ARTICLE VIII
Repurchase of Shares
The Corporation may from time to time, pursuant to authorization by the
board of directors of the Corporation and without action by the stockholders,
purchase or otherwise acquire shares of any class, bonds, debentures, notes,
scrip, warrants, obligations, evidences of indebtedness, or other securities of
the Corporation in such manner, upon such terms, and in such amounts as the
board of directors shall determine; subject, however, to such limitations or
restrictions, if any, as are contained in the express terms of any class of
shares of the Corporation outstanding at the time of the purchase or acquisition
in question or as are imposed by law or regulation.
ARTICLE IX
Meetings of Stockholders; Cumulative Voting; Proxies
A. Notwithstanding any other provision of these Articles or of the
Bylaws of the Corporation, no action required to be taken or which may be taken
at any annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
B. Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by a majority of the board of
directors of the Corporation, or by a committee of the board of directors which
has been duly designated by the board of directors and whose powers and
authorities, as provided in a resolution of the board of directors or in the
Bylaws of the Corporation, include the power and authority to call such
meetings, but such special meetings may not be called by any other person or
persons.
C. Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by proxy, but no such proxy
shall be voted or acted upon after three (3) years from its date, unless the
proxy provides for a longer period. Without limiting the manner in which a
stockholder may authorize another person or persons to act for him as proxy, the
following shall constitute a valid means by which a stockholder may grant such
authority.
1. A stockholder may execute a writing authorizing another
person or persons to act for him as proxy. Execution may be
accomplished by the stockholder or his authorized officer, director,
employee or agent signing such writing or causing his or her signature
to be affixed to such writing by any reasonable means including, but
not limited to, facsimile signature.
2. A stockholder may authorize another person or persons to
act for him as proxy by transmitting or authorizing the transmission of
a facsimile telecommunication, telegram, cablegram, or other means of
electronic transmission to the person who will be the holder of the
proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be
the holder of the proxy to receive such transmission, provided that any
such facsimile telecommunication, telegram, cablegram or other means of
electronic transmission, must either set forth or be submitted with
information from which it can be determined that the facsimile
telecommunication, telegram, cablegram, or other electronic
transmission was authorized by the stockholder. If it is determined
that such facsimile telecommunications, telegrams, cablegrams, or other
electronic transmission are valid, the
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<PAGE>
inspectors or, if there are no inspectors, such other persons making
that determination shall specify the information upon which they
relied.
3. Any copy, facsimile telecommunication, or other reliable
reproduction of the writing or transmission created pursuant to this
section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile
telecommunication, or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
D. There shall be no cumulative voting by stockholders of any class or
series in the election of directors of the Corporation.
E. Meetings of stockholders may be held within or without the State of
Kansas, as the Bylaws of the Corporation may provide.
ARTICLE X
Notice for Nominations and Proposals
Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
ARTICLE XI
Directors
A. Number; Vacancies. The number of directors of the Corporation shall
be such number, not less than 3 nor more than 15 (exclusive of directors, if
any, to be elected by holders of Preferred Stock of the Corporation, voting
separately as a class), as shall be provided from time to time in or in
accordance with the Bylaws of the Corporation, provided that no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director, and provided further that no action shall be taken to
decrease or increase the number of directors from time to time unless at least
two-thirds of the directors then in office shall concur in said action.
B. Classified Board. The board of directors of the Corporation shall be
divided into three classes of directors which shall be designated Class I, Class
II, and Class III. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. Such classes
shall be as nearly equal in number as the then total number of directors
constituting the entire board of directors shall permit, with the terms of
office of all members of one class expiring each year. At the first annual
meeting of stockholders the terms of office of directors in Class I shall
expire. The terms of office of the directors in Class II shall expire at the
second annual meeting of stockholders, and the terms of office of directors in
Class III shall expire at the third annual meeting of stockholders. At each
annual meeting held after the initial classification and election, directors
shall be chosen for a full three-year term, to succeed those whose terms expire.
A director whose term shall expire at any annual meeting shall continue to serve
until such time as his successor shall have been duly elected and shall have
qualified unless his position on the board of directors shall have been
abolished by action taken to reduce the size of the board of directors prior to
said meeting.
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Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the immediately
preceding paragraph. The board of directors shall designate, by the name of the
incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing, no
decrease in the number of directors shall have the effect of shortening the term
of any incumbent director. Should the number of directors of the Corporation be
increased, the additional directorships shall be allocated among classes as
appropriate so that the number of directors in each class is as specified in the
immediately preceding paragraph.
C. Initial Board of Directors. The initial board of directors shall
consist of the following individuals divided into the following classes pursuant
to Subsection B. of this Article XI.
Class I Class II Class III
- ------- -------- ---------
Donald V. Meyer James E. Breckenridge J. Darcy Domoney
Larry V. Bailey William R. Butler, Jr.
Roger L. Coltrin
D. Voting as a Class in the Election of Directors. Whenever the holders
of any one or more series of preferred stock of the Corporation shall have the
right, voting separately as a class, to elect one or more directors of the
Corporation, the board of directors shall consist of said directors so elected
in addition to the number of directors fixed as provided above in this Article
XI. Notwithstanding the foregoing, and except as otherwise may be required by
law, whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the terms of the director or directors
elected by such holders shall expire at the next succeeding annual meeting of
stockholders.
ARTICLE XII
Removal of Directors
Notwithstanding any other provision of these Articles or the Bylaws of
the Corporation, no member of the board of directors of the Corporation may be
removed except for cause, and then only by the affirmative vote of at least 80%
of the outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the stockholders called for that purpose.
Notwithstanding the foregoing, whenever the holders of any one or more series of
preferred stock of the Corporation shall have the right, voting separately as a
class, to elect one or more directors of the Corporation, the preceding
provisions of this Article XII shall not apply with respect to the director or
directors elected by such holders of preferred stock.
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ARTICLE XIII
Certain Limitations on Voting Rights
A. Notwithstanding any other provision of these Articles, in no event
shall any record owner of any outstanding Common Stock which is beneficially
owned, directly or indirectly, by a person who, as of any record date for the
determination of stockholders entitled to vote on any matter, beneficially owns
in excess of 10% of the then-outstanding shares of Common Stock (the "Limit"),
be entitled, or permitted to any vote in respect of the shares held in excess of
the Limit. The number of votes which may be cast by any record owner by virtue
of the provisions hereof in respect of Common Stock beneficially owned by such
person owning shares in excess of the Limit shall be a number equal to the total
number of votes which a single record owner of all Common Stock owned by such
person would be entitled to cast, multiplied by a fraction, the numerator of
which is the number of shares of such class or series which are both
beneficially owned by such person and owned of record by such record owner and
the denominator of which is the total number of shares of Common Stock
beneficially owned by such Person owning shares in excess of the Limit.
Further, for a period of five years from the completion of the
conversion of First Kansas Federal Savings Association from mutual to stock
form, no Person shall directly or indirectly Offer to acquire or acquire the
beneficial ownership of more than 10% of any class of any equity security of the
Corporation.
B. The following definitions shall apply to this Article XIII.
1. "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on the date of filing of these
Articles.
2. "Beneficial Ownership" (including "Beneficially Owned")
shall be determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934 (or any successor
rule or statutory provision), or, if said Rule 13d-3 shall be rescinded
and there shall be no successor rule or provision thereto, pursuant to
said Rule 13d-3 as in effect on the date of filing of these Articles;
provided, however, that a Person shall, in any event, also be deemed
the "beneficial owner" of any Common Stock:
(a) which such Person or any of its Affiliates owns,
directly or indirectly; or
(b) which such Person or any of its Affiliates has
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding (but shall not be
deemed to be the Beneficial Owner of any voting shares solely
by reason of an agreement, contract, or other arrangement with
this Corporation to effect any transaction which is described
in any one or more of Sections 1 through 5 of Section A of
Article XIV) or upon the exercise of conversion rights,
exchange rights, warrants, or options or otherwise, or (ii)
sole or shared voting or investment power with respect thereto
pursuant to any agreement, arrangement, understanding,
relationship or otherwise (but shall not be deemed to be the
Beneficial Owner of any voting shares solely by reason of a
revocable proxy granted for a particular meeting of
stockholders, pursuant to a public solicitation
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of proxies for such meeting, with respect to shares of which
neither such Person nor any such Affiliate is otherwise deemed
the Beneficial Owner); or
(c) which are owned directly or indirectly, by any
other Person with which such first mentioned Person or any of
its Affiliates acts as a partnership, limited partnership,
syndicate or other group pursuant to any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock of
this Corporation;
and provided further, however, that (1) no director or officer of this
Corporation (or any Affiliate of any such director or officer) shall, solely by
reason of any or all of such directors or officers acting in their capacities as
such, be deemed, for any purposes hereof, to Beneficially Own any Common Stock
Beneficially Owned by any other such director or officer (or any Affiliate
thereof), and (2) neither any employee stock ownership or similar plan of this
Corporation or any subsidiary of this Corporation, nor any trustee with respect
thereto or any Affiliate of such trustee (solely by reason of such capacity of
such trustee), shall be deemed, for any purposes hereof, to Beneficially Own any
Common Stock held under any such plan. For purposes of computing the percentage
Beneficial Ownership of Common Stock of a Person, the outstanding Common Stock
shall include shares deemed owned by such Person through application of this
subsection but shall not include any other Common Stock which may be issuable by
this Corporation pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise. For all other purposes, the
outstanding Common Stock shall include only Common Stock then outstanding and
shall not include any Common Stock which may be issuable by this Corporation
pursuant to any agreement, or upon the exercise of conversion rights, warrants
or options, or otherwise.
3. The term "Offer" shall mean every written offer to buy or
acquire, solicitation of an offer to sell, tender offer or request or invitation
for tender of, a security or interest in a security for value; provided that the
term "Offer" shall not include (i) inquiries directed solely to the management
of the Corporation and not intended to be communicated to stockholders which are
designed to elicit an indication of management's receptivity to the basic
structure of a potential acquisition with respect to the amount of cash and/or
securities, manner of acquisition and formula for determining price, or (ii)
non-binding expressions of understanding or letters of intent with the
management of the Corporation regarding the basic structure of a potential
acquisition with respect to the amount of cash and/or securities, manner of
acquisition and formula for determining price.
4. A "Person" shall mean any individual, firm, corporation, or
other entity.
C. The board of directors shall have the power to construe and apply
the provisions of this Article XIII and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (i) the number of shares of Common Stock Beneficially Owned by
any Person, (ii) whether a Person is an Affiliate of another, (iii) whether a
Person has an agreement, arrangement, or understanding with another as to the
matters referred to in the definition of Beneficial Ownership, (iv) the
application of any other definition or operative provision of the section to the
given facts, or (v) any other matter relating to the applicability or effect of
this Article XIII.
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D. The board of directors shall have the right to demand that any
Person who is reasonably believed to Beneficially Own Common Stock in excess of
the Limit (or holders of record of Common Stock Beneficially Owned by any Person
in excess of the Limit) supply the Corporation with complete information as to
(i) the record owner(s) of all shares Beneficially Owned by such Person who is
reasonably believed to own shares in excess of the Limit and (ii) any other
factual matter relating to the applicability or effect of this Article XIII as
may reasonably be requested of such Person.
E. Except as otherwise provided by law or expressly provided in this
Article XIII, the presence in person or by proxy of the holders of record of
shares of capital stock of the Corporation entitling the holders thereof to cast
a majority of the votes (after giving effect, if required, to the provisions of
this Article XIII) entitled to be cast by the holders of shares of capital stock
of the Corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in these Articles of Incorporation to a
majority or other proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any requirement for
stockholder consent or approval shall be deemed to refer to such majority or
other proportion of the votes (or the holders thereof) then entitled to be cast
in respect of such capital stock.
F. The provisions of this Article XIII shall not be applicable to any
tax-qualified defined benefit plan or defined contribution plan of the
Corporation or its subsidiaries or to the Offer to acquire or the acquisition of
more than 10% of any class of equity security of the Corporation if such
acquisition has been approved by a majority of the Continuing Directors, as
defined in Article XIV of these Articles. Any constructions, applications, or
determinations made by the Continuing Directors pursuant to this Article XIII in
good faith and on the basis of such information and assistance as was then
reasonably available for such purpose shall be conclusive and binding upon the
Corporation and its stockholders.
G. In the event any provision (or portion thereof) of this Article XIII
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Article XIII shall remain in
full force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of this Corporation and its stockholders that
each such remaining provision (or portion thereof) of this Article XIII remain,
to the fullest extent permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
ARTICLE XIV
Approval of Business Combinations
A. General Requirement. The affirmative vote of the holders of not less than
eighty percent (80%) of the outstanding shares of "Voting Stock" (as hereinafter
defined) shall be required for the approval or authorization of any "Business
Combination," as defined and set forth below:
1. Any merger, reorganization, or consolidation of the
Corporation or any of its "Affiliates" (as defined in Subsection B of
Article XIII of these Articles) with or into any Interested Shareholder
(as hereinafter defined);
2. Any sale, lease, exchange, mortgage, pledge, transfer, or
other disposition (in one transaction or in a series of related
transactions) of all or a "Substantial Part" (as hereinafter defined)
of the assets of the Corporation or any of its Affiliates to any
Interested Shareholder;
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3. Any sale, lease, exchange, or other transfer (in one
transaction or in a series of related transactions) by any Interested
Shareholder to the Corporation or any of the Corporation's Affiliates
of any assets, cash, or securities in exchange for shares of Voting
Stock (or of shares of stock of any of the Corporation's Affiliates
entitled to vote in the election of directors of such Affiliate or
securities convertible into or exchangeable for shares of Voting Stock
or such stock of an Affiliate, or options, warrants, or rights to
purchase shares of Voting Stock or such stock of an Affiliate);
4. The adoption at any time when there exists any Interested
Shareholder of any plan or proposal for the liquidation or dissolution
of the Corporation; and
5. Any reclassification of securities (including any reverse
stock split), recapitalization, or other transaction at any time when
there exists any Interested Shareholder if such reclassification,
recapitalization, or other transaction would result in a decrease in
the number of holders of the outstanding shares of Voting Stock.
The affirmative vote required by this Article XIV shall be in addition
to the vote of the holders of any class or series of stock of the Corporation
otherwise required by law, by any other Article of these Articles, as amended,
by any resolution of the board of directors providing for the issuance of a
class or series of stock, or by any agreement between the Corporation and any
national securities exchange.
B. Certain Definitions. For the purposes of this Article XIV:
1. The term "Interested Shareholder" shall mean and include
any individual, corporation, partnership, or other person or entity
which, together with its "Affiliates" and "Associates" (as defined at
Rule 12b-2 under the Securities Exchange Act of 1934, as amended),
"beneficially owns" (as hereinafter defined) in the aggregate ten
percent (10%) or more of the outstanding shares of Voting Stock, and
any Affiliate or Associate of any such individual, corporation,
partnership, or other person or entity.
2. The term "Substantial Part" shall mean more than
twenty-five percent (25%) of the fair market value of the total assets
of the Corporation, as of the end of its most recent fiscal quarter
ending prior to the time the determination is being made.
3. The term "Voting Stock" shall mean the stock of the
Corporation entitled to vote in the election of directors.
4. Any corporation, partnership, person, or entity will be
deemed to be a "Beneficial Owner" of or to own beneficially any share
or shares of stock of the Corporation: (a) which it owns directly,
whether or not of record; or (b) which it has the right to acquire
(whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement or arrangement or
understanding or upon exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or which it has the right to vote
pursuant to any agreement, arrangement, or understanding; or (c) which
are owned directly or indirectly (including shares
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deemed to be owned through application of clause (b) above) by any
Affiliate or Associate; or (d) which are owned directly or indirectly
(including shares deemed to be owned through application of clause (b)
above) by any other corporation, person, or entity with which it or any
of its Affiliates or Associates have any agreement or arrangement or
understanding for the purpose of acquiring, holding, voting, or
disposing of Voting Stock.
For the purpose only of determining the percentage of the
outstanding shares of Voting Stock which any corporation, partnership,
person, or other entity beneficially owns, directly or indirectly, the
outstanding shares of Voting Stock will be deemed to include any shares
of Voting Stock which such corporation, partnership, person or other
entity beneficially owns pursuant to the foregoing provisions of this
subsection (whether or not such shares of Voting Stock are in fact
issued or outstanding), but shall not include any other shares of
Voting Stock which may be issuable either immediately or at some future
date pursuant to any agreement, arrangement, or understanding or upon
exercise of conversion rights, exchange rights, warrants, options, or
otherwise.
C. Exceptions. The provisions of this Article XIV shall not apply to a
Business Combination that is approved by two-thirds of those members of the
board of directors who were directors prior to the time when the Interested
Shareholder became a Interested Shareholder (the "Continuing Directors"). The
provisions of this Article XIV also shall not apply to a Business Combination
which (a) does not change any shareholder's percentage ownership in the shares
of stock entitled to vote in the election of directors of any successor of the
Corporation from the percentage of the shares of Voting Stock owned by such
shareholder; (b) provides for the provisions of this Article XIV, without any
amendment, change, alteration, or deletion, to apply to any successor to the
Corporation; and (c) does not transfer all or a Substantial Part of the
Corporation's assets other than to a wholly-owned subsidiary of the Corporation.
D. Additional Provisions. Nothing contained in this Article XIV, shall
be construed to relieve a Interested Shareholder from any fiduciary obligation
imposed by law. In addition, nothing contained in this Article XIV shall prevent
any shareholders of the Corporation from objecting to any Business Combination
and from demanding any appraisal rights which may be available to such
Interested Shareholder.
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ARTICLE XV
Fair Price Requirements
A. General Requirement. No "Business Combination" (as defined in
Article XIV) shall be effected unless all of the following conditions, to the
extent applicable, are fulfilled.
1. The ratio of (a) the aggregate amount of the cash and the
fair market value of the other consideration to be received per share
by the holders of the common stock of the Corporation in the Business
Combination to (b) the "Market Price" (as hereinafter defined) of the
common stock of the Corporation immediately prior to the announcement
of the Business Combination or the solicitation of the holders of the
common stock of the Corporation regarding the Business Combination,
whichever is first, shall be at least as great as the ratio of (x) the
highest price per share previously paid by the "Interested Shareholder"
(as hereinafter defined) (whether before or after it became a
Interested Shareholder) for any of the shares of common stock of the
Corporation at any time Beneficially Owned, directly, or indirectly, by
the Interested Shareholder to (y) the Market Price of the common stock
of the Corporation on the trading date immediately prior to the
earliest date on which the Interested Shareholder (whether before or
after it became a Interested Shareholder) purchased any shares of
common stock of the Corporation during the two year period prior to the
date on which the Interested Shareholder acquired the shares of common
stock of the Corporation at any time owned by it for which it paid the
highest price per share (or, if the Interested Shareholder did not
purchase any shares of common stock of the Corporation during the two
year period, the Market Price of the common stock of the Corporation on
the date of two years prior to the date on which the Interested
Shareholder acquired the shares of common stock of the Corporation at
any time owned by it for which it paid the highest price per share).
2. The aggregate amount of the cash and the fair market value
of the other consideration to be received per share by the holders of
the common stock of the Corporation in the Business Combination shall
be not less than the highest price per share previously paid by the
Interested Shareholder (whether before or after it became a Interested
Shareholder) for any of the shares of common stock of the Corporation
at any time Beneficially Owned, directly or indirectly, by the
Interested Shareholder.
3. The consideration to be received by the holders of the
common stock of the Corporation in the Business Combination shall be in
the same form and of the same kind as the consideration paid by the
Interested Shareholder in acquiring the majority of the shares of
common stock of the Corporation already Beneficially Owned, directly or
indirectly, by the Interested Shareholder.
The conditions imposed by this Article XV shall be in addition to all
other conditions (including, without limitation, the vote of the holders of any
class or series of stock of the Corporation) otherwise imposed by law, by any
other Article of these Articles, by any resolution of the board of directors
providing for the issuance of a class or series of stock, or by any agreement
between the Corporation and any national securities exchange.
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B. Certain Definitions. For the purpose of this Article XV, the
definitions of "Business Combination," "Interested Shareholder," "Substantial
Part," "Voting Stock," and "Beneficial Owner" set forth in Article XIV will
apply to this Article XV.
The "Market Price" of the common stock of the Corporation shall be the
mean between the high "bid" and the low "asked" prices of the common stock in
the over-the-counter market on the day on which such value is to be determined
or, if no shares were traded on such date, on the next preceding day on which
such shares were traded, as reported by the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") or other national quotation
service. If the common stock of the Corporation is not regularly traded in the
over-the-counter market but is registered on a national securities exchange or
traded in the national over-the-counter market, the market value of the common
stock shall mean the closing price of the common stock on such national
securities exchange or market on the day on which such value is to be determined
or, if no shares were traded on such day, on the next preceding day on which
shares were traded, as reported by National Quotation Bureau, Incorporated or
other national quotation service. If no such quotations are available, the fair
market value of the date in question of a share of such stock as determined by
the board of directors in good faith; and in the case of property other than
cash or stock, the fair market value of such property other than cash or stock,
the fair market value of such property on the date in question as determined by
the board of directors in good faith.
C. Exceptions. The provisions of this Article XV shall not apply to a
Business Combination which was approved by two-thirds of those members of the
board of directors of the Corporation who were directors prior to the time when
the Interested Shareholder became a Interested Shareholder. The provisions of
which this Article XV also shall not apply to a Business Combination which (a)
does not change any shareholder's percentage ownership in the shares of stock
entitled to vote in the election of directors of any successor of the
Corporation from the percentage of the shares of Voting Stock Beneficially Owned
by such shareholder; (b) provides for the provisions of this Article XV, without
any amendment, change alteration, or deletion, to apply to any successor to the
Corporation; and (c) does not transfer all or a Substantial Part of the
Corporation's assets other than to a wholly-owned subsidiary of the Corporation;
provided, however, that nothing contained in this Article XV shall permit the
Corporation to issue any of its shares of Voting Stock or to transfer any of its
assets to a wholly-owned subsidiary of the Corporation if such issuance of
shares of Voting Stock or transfer of assets is part of a plan to transfer such
shares of Voting Stock or assets to a Interested Shareholder.
D. Additional Provisions. Nothing contained in this Article XV shall be
construed to relieve a Interested Shareholder from any fiduciary obligation
imposed by law. In addition, nothing contained in this Article XV shall prevent
any shareholders of the Corporation from objecting to any Business Combination
and from demanding any appraisal rights which may be available to such
shareholders.
E. Notwithstanding Article XX or any other provisions of these Articles
or the Bylaws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, these Articles or the Bylaws of the
Corporation), the affirmative vote of the holders of at least 80% of the
outstanding shares entitled to vote thereon (and, if any class or series is
entitled to vote thereon separately, the affirmative vote of the holders of at
least 80% of the outstanding shares of each such class or series) shall be
required to amend or repeal or adopt any provisions inconsistent with this
Article XV.
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ARTICLE XVI
Evaluation of Offers
The board of directors of the Corporation, when evaluating any offer to
(A) make a tender or exchange offer for any equity security of the Corporation,
(B) merge or consolidate the Corporation with another corporation or entity, or
(C) purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, the social and economic effect of acceptance of such offer: on the
Corporation's present and future customers and employees and those of its
subsidiaries; on the communities in which the Corporation and its subsidiaries
operate or are located; on the ability of the Corporation to fulfill its
corporate objectives as a financial institution holding company; and on the
ability of its subsidiary financial institution(s) to fulfill the objectives of
a federally insured financial institution under applicable statutes and
regulations.
ARTICLE XVII
Elimination of Directors' Liability
Directors of the Corporation shall have no liability to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this Article XVII shall not eliminate liability of a
director (i) for any breach of the director's duty of loyalty to the
Corporation, (ii) for acts or omissions which involve intentional misconduct or
a knowing violation of law, (iii) for the unlawful payment of dividends or
unlawful stock purchase or redemption, or (iv) for any transaction from which a
director derived an improper personal benefit. If the Kansas General Corporation
Code is amended after the effective date of these Articles to further eliminate
or limit the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Kansas General Corporation Code, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE XVIII
Indemnification
A. Persons. The Corporation shall indemnify, to the extent provided
in Subsection B, D, or F of this Article XVIII:
1. any person who is or was a director, officer, or employee
of the Corporation; and
2. any person who serves or served at the Corporation's
request as a director, officer, employee, partner, or trustee of
another corporation, partnership, joint venture, trust, or other
enterprise.
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B. Extent -- Derivative Suits. In case of a threatened, pending or
completed action or suit by or in the right of the Corporation against a person
named in Subsection A of this Article XVIII by reason of the person holding a
position named in Subsection A of this Article XVIII, the Corporation shall
indemnify the person if the person satisfies the standard in Subsection C of
this Article XVIII, for expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of the action or suit.
C. Standard -- Derivative Suits. In case of a threatened, pending, or
completed action or suit by or in the right of the Corporation, a person named
in Subsection A of this Article XVIII shall be indemnified only if:
1. the person acted in good faith in the transaction which is
the subject of the suit or action; and if
2. the person acted in a manner the person reasonably believed
to be in, or not opposed to, the best interest of the Corporation,
including, but not limited to, the taking of any and all actions in
connection with the Corporation's response to any tender offer or any
offer or proposal of another party to engage in a Business Combination
(as defined in Article XIV of these Articles) not approved by the board
of directors. However, the person shall not be indemnified in respect
of any claim, issue, or matter as to which the person has been adjudged
liable to the Corporation unless (and only to the extent that) the
court in which the suit or action was brought shall determine, upon
application, that despite the adjudication of liability but in view of
all the circumstances, the person is fairly and reasonably entitled to
indemnity for such expenses as the court shall deem proper.
D. Extent -- Nonderivative Suits. In case of a threatened, pending, or
completed suit, action, or proceeding (whether civil, criminal, administrative,
or investigative), other than a suit by or in the right of the Corporation,
together hereafter referred to as a nonderivative suit, against a person named
in Subsection A of this Article XVIII by reason of the person holding a position
named in Subsection A of this Article XVIII, the Corporation shall indemnify the
person if the person satisfies the standard in Subsection E of this Article
XVIII, for amounts actually and reasonably incurred by the person in connection
with the defense or settlement of the nonderivative suit, including, but not
limited to (i) expenses (including attorneys' fees), (ii) amounts paid in
settlement, (iii) judgments, and (iv) fines.
E. Standard -- Nonderivative Suits. In case of a nonderivative suit, a
person named in Subsection A of this Article XVIII shall be indemnified only if:
1. the person acted in good faith; and if
2. the person acted in a manner the person reasonably believed
to be in, or not opposed to, the best interests of the Corporation,
including, but not limited to, the taking of any and all actions in
connection with the Corporation's response to any tender offer or any
offer or proposal of another party to engage in a Business Combination
(as defined in Article XIV of these Articles) not approved by the board
of directors and, with respect to any criminal action or proceeding,
the person had no reasonable cause to believe the person's conduct was
unlawful. The termination of a nonderivative suit by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent shall not, in itself, create a presumption that the person
failed to satisfy the standard of this Subsection E.
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F. To the extent that a person named in Subsection A of this Article
XVIII has been successful on the merits or otherwise in defence of any action,
suit or proceeding, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses actually and reasonably incurred by
such person in connection therewith, including attorneys fees.
G. Determination That Standard Has Been Met. A determination that the
standard of Subsection C or E of this Article XVIII has been satisfied may be
made by a court, or, except as stated in Subsection C.2 of this Article XVIII
(second sentence), the determination may be made by:
1. the board of directors by a majority vote of directors of
the Corporation who were not parties to the action, suit, or
proceeding, even though less than a quorum; or
2. independent legal counsel (appointed by a majority of the
disinterested directors of the Corporation, whether or not a quorum) in
a written opinion; or
3. the stockholders of the Corporation.
H. Proration. Anyone making a determination under Subsection G of this
Article XVIII may determine that a person has met the standard as to some
matters but not as to others, and may reasonably prorate amounts to be
indemnified.
I. Advance Payment. The Corporation may pay in advance any expenses of
directors and officers (including attorneys' fees) which may become subject to
indemnification under Subsections A through H of this Article XVIII if the
person receiving the payment undertakes in writing to repay the same if it is
ultimately determined that the person is not entitled to indemnification by the
Corporation under Subsections A through H of this Article XVIII. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
J. Nonexclusive. The indemnification and advancement of expenses
provided by Subsections A through I of this Article XVIII or otherwise granted
pursuant to Kansas law shall not be exclusive of any other rights to which a
person may be entitled by law, bylaw, agreement, vote of stockholders, or
disinterested directors, or otherwise.
K. Continuation. The indemnification and advance payment provided by
Subsections A through I of this Article XVIII shall continue as to a person who
has ceased to hold a position named in Subsection A of this Article XVIII and
shall inure to the person's heirs, executors, and administrators.
L. Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who holds or who has held any position named in Subsection
A of this Article XVIII, against any liability asserted against the person and
incurred by the person in any such position, or arising out of the person's
status as such, whether or not the Corporation would have power to indemnify the
person against such liability under Subsections A through I of this Article
XVIII.
M. Security Fund; Indemnity Agreements. By action of the board of
directors (notwithstanding their interest in the transaction), the Corporation
may create and fund a trust fund or fund of any nature, and may enter into
agreements with its officers, directors, employees and agents for the purpose of
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securing or insuring in any manner its obligation to indemnify or advance
expenses provided for in this Article XVIII.
N. Modification. The duties of the Corporation to indemnify and to
advance expenses to any person as provided in this Article XVIII shall be in the
nature of a contract between the Corporation and each such person, and no
amendment or repeal of any provision of this Article XVIII, and no amendment or
termination of any trust or other fund created pursuant to Article XVIII M
hereof, shall alter to the detriment of such person the right of such person to
the advancement of expenses or indemnification related to a claim based on an
act or failure to act which took place prior to such amendment, repeal or
termination.
O. Proceedings Initiated by Indemnified Persons. Notwithstanding any
other provision in this Article XVIII, the Corporation shall not indemnify a
director, officer, employee or agent for any liability incurred in an action,
suit or proceeding initiated by (which shall not be deemed to include
counter-claims or affirmative defenses) or participated in as an intervenor or
amicus curiae by the person seeking indemnification unless such initiation of or
participation in the action, suit or proceeding is authorized, either before or
after its commencement, by the affirmative vote of a majority of the directors
then in office.
P. Savings Clause. If this Article XVIII or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee, and
agent of the Corporation as to costs, charges, and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, including an action by or in the right of the Corporation to the
full extent permitted by any applicable portion of this Article XVIII that shall
not have been invalidated and to the full extent permitted by applicable law.
If Kansas law is amended to permit further indemnification of the
directors, officers, employees, and agents of the Corporation, then the
Corporation shall indemnify such persons to the fullest extent permitted by
Kansas law, as so amended. Any repeal or modification of this Article XVIII by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director, officer, employee or agent existing at the time of
such repeal or modification.
ARTICLE XIX
Amendment of Bylaws of the Corporation
In furtherance and not in limitation of the powers conferred by
statute, a majority of the board of directors of the Corporation is expressly
authorized to make, repeal, alter, amend, and rescind the Bylaws of the
Corporation. Notwithstanding any other provision of these Articles or the Bylaws
of the Corporation (and notwithstanding the fact that some lesser percentage may
be specified by law), the Bylaws of the Corporation shall not be made, repealed,
altered, amended, or rescinded by the stockholders of the Corporation except by
the vote of the holders of not less than 80% of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
adoption, repeal, alteration, amendment, or rescission is included in the notice
of such meeting), or, as set forth above, by the board of directors.
17
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ARTICLE XX
Amendment of Articles of Incorporation
The Corporation reserves the right to repeal, alter, amend, or rescind
any provision contained in these Articles in the manner now or hereafter
prescribed by law, and all rights conferred on stockholders herein are granted
subject to this reservation. Notwithstanding the foregoing, the provisions set
forth in Articles IX, X, XI, XII, XIII, XIV, XV, XVI, XVII, XVIII, XIX, and this
Article XX of these Articles may not be repealed, altered, amended, or rescinded
in any respect unless the same is approved by the affirmative vote of the
holders of not less than 80% of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (considered
for this purpose as a single class) cast at a meeting of the stockholders called
for that purpose (provided that notice of such proposed adoption, repeal,
alteration, amendment, or rescission is included in the notice of such meeting).
18
Exhibit 3.(ii)
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BYLAWS
OF
FIRST KANSAS FINANCIAL CORPORATION
ARTICLE I
Principal Office
The home office of First Kansas Financial Corporation (the "Company")
shall be at 600 Main Street, in the City of Osawatomie, County of Miami, in the
State of Kansas or at such other place within or without the State of Kansas as
the board of directors shall from time to time determine. The Company may also
have offices at such other places within or without the State of Kansas as the
board of directors shall from time to time determine.
ARTICLE II
Stockholders
SECTION 1. Place of Meetings. All annual and special meetings of
stockholders shall be held at the principal office of the Company or at such
other place within or without the State of Kansas as the board of directors may
determine and as designated in the notice of such meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders of the Company
for the election of directors and for the transaction of such other business as
may properly come before the meeting shall be held annually at such date and
time as the board of directors may determine.
SECTION 3. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the rules and procedures established by the board
of directors. The board of directors shall designate, when present, any director
or the president to preside at such meetings.
SECTION 4. Notice of Meetings. Written notice stating the place, date,
and hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be mailed by the secretary or
the officer performing such duties, not less than ten days nor more than sixty
days before the meeting to each stockholder of record entitled to vote at such
meeting. If mailed, notice shall be deemed to be delivered when deposited in the
United States mail, addressed to the stockholder at the address as it appears on
the stock transfer books or records of the Company as of the record date
prescribed in Section 5 of this Article II, with postage thereon prepaid. If a
stockholder is present at a meeting, or in writing waives notice thereof before
or after the meeting, notice of the meeting to such stockholder shall be
unnecessary. When any stockholders' meeting, either annual or special, is
adjourned for more than thirty days, or if after the adjournment a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting shall
be given as in the case of an original meeting. It shall not be necessary to
give any notice of the time and place of any meeting adjourned for thirty days
or less or of the business to be transacted at such adjourned meeting, other
than an announcement at the meeting at which such adjournment is taken.
SECTION 5. Fixing of Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders, or
any adjournment thereof, the board of directors shall fix in advance a date as
the record date for any such determination of stockholders. Such date in any
case shall be not more than sixty days nor less than ten days prior to the date
on which the particular action, requiring such determination of stockholders, is
to be taken. If no record date is fixed by the board of directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the date next preceding the day on which the meeting is held. When a
determination of stockholders entitled to vote at any meeting of
<PAGE>
stockholders has been made as provided in this section, such determination shall
apply to any adjournment thereof; provided, however, that the board of directors
may fix a new record date for the adjourned meeting.
In order that the Corporation may determine the other distribution or
allotment of any rights or the stockholders entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the board of directors may fix a record date, which
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the date on which the
board of directors adopts the resolution relating thereto.
SECTION 6. Voting Lists. The officer or agent having charge of the
stock transfer books for shares of the Company shall make, at least ten days
before each meeting of stockholders, a complete record of the stockholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each.
The record, for a period of ten days before such meeting, shall be kept on file
at the principal office of the Company, and shall be subject to inspection by
any stockholder for any purpose germane to the meeting at any time during usual
business hours. Such record shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any stockholder
for any purpose germane to the meeting during the whole time of the meeting. The
original stock transfer books shall be the only evidence as to who are the
stockholders entitled to examine such record or transfer books or to vote at any
meeting of stockholders.
SECTION 7. Quorum. A majority of the outstanding shares of the Company
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding shares
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time, subject to the notice requirements of
Section 4 of this Article II. At such adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. The stockholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
SECTION 8. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed by the stockholder in the manner provided by the Articles
of Incorporation. Proxies solicited on behalf of the management shall be voted
as directed by the stockholder or, in the absence of such direction, as
determined by a majority of the board of directors or by a majority of a
committee of the board of directors, whose members will be designated from time
to time by the board of directors, and which committee will have been delegated
the power and authority to act on behalf of the board of directors. No proxy
shall be valid after three (3) years from the date of its execution unless
otherwise provided in the proxy.
SECTION 9. Voting. At each election for directors every stockholder
entitled to vote at such election shall be entitled to one vote for each share
of stock held. Directors shall be elected by a plurality of votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Unless otherwise provided in the Articles of
Incorporation, by statute, or by these Bylaws, in matters other than the
election of directors, a majority of the shares present in person or represented
by proxy at a lawful meeting and entitled to vote on the subject matter, shall
be sufficient to pass on a transaction or matter.
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SECTION 10. Voting of Shares in the Name of Two or More Persons. Where
shares are held jointly or as tenants in common by two or more persons as
fiduciaries or otherwise, if only one or more of such persons is present in
person or by proxy, all of the shares standing in the names of such persons
shall be deemed to be represented for the purpose of determining a quorum and
the Corporation shall accept as the vote of all such shares the votes cast by
him or a majority of them and if in any case such persons are equally divided
upon the manner of voting the shares held by them, the vote of such shares shall
be divided equally among such persons, without prejudice to the rights of such
joint owners or the beneficial owners thereof among themselves, except that, if
there shall have been filed with the Secretary of the Corporation a copy,
certified by an attorney-at-law to be correct, of the relevant portions of the
agreements under which such shares are held or the instrument by which the trust
or estate was created or the decree of court appointing them, or of a decree of
court directing the voting of such shares, the persons specified as having such
voting power in the latest such document so filed, and only such persons, shall
be entitled to vote such shares but only in accordance therewith.
SECTION 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by an officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy. Shares standing in the name of a receiver may be voted by such receiver
without the transfer thereof into his name if authority to do so is contained in
an appropriate order of the court or other public authority by which such
receiver was appointed. A stockholder whose shares are pledged shall be entitled
to vote such shares until the shares have been transferred into the name of the
pledgee or nominee, and thereafter the pledgee or nominee shall be entitled to
vote the shares so transferred.
Neither treasury shares of its own stock held by the Company,
nor shares held by another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation are held by the
Company, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
SECTION 12. Inspectors of Election. In advance of any meeting of
stockholders, the board of directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one or three. If
the board of directors so appoints either one or three inspectors, that
appointment shall not be altered at the meeting. If inspectors of election are
not so appointed, the chairman of the board of directors or the president may
make such appointment at the meeting. In case any person appointed as inspector
fails to appear or fails or refuses to act, the vacancy may be filled by
appointment by the board of directors in advance of the meeting or at the
meeting by the chairman of the meeting or the president.
Unless otherwise prescribed by applicable law, the duties of
such inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares of stock represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining the result; and such acts as may
be proper to conduct the election or vote with fairness to all stockholders.
SECTION 13. Nominating Committee. The board of directors, or a
committee of the board of directors delegated such power and authority by the
board of directors, shall act as a nominating committee for selecting the
management nominees for election as directors. Except in the case of a
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nominee substituted as a result of the death or other incapacity of a management
nominee, the nominating committee shall deliver written nominations to the
secretary at least twenty days prior to the date of the annual meeting. Provided
such committee makes such nominations, no nominations for directors except those
made by the nominating committee shall be voted upon at the annual meeting
unless other nominations by stockholders are made in writing and delivered to
the secretary of the Company in accordance with the provisions of Article II,
Section 14 of these Bylaws.
SECTION 14. Notice for Nominations and Proposals. Nominations of
candidates for election as directors at any annual meeting of stockholders may
be made (a) by, or at the direction of, a majority of the board of directors or
a committee thereof in accordance with Section 13 of these Bylaws or (b) by any
stockholder entitled to vote at such annual meeting. Only persons nominated in
accordance with the procedures set forth in this Section 14 shall be eligible
for election as directors at an annual meeting. Ballots bearing the names of all
the persons who have been nominated for election as directors at an annual
meeting in accordance with the procedures set forth in this Section 14 shall be
provided for use at the annual meeting.
Nominations, other than those made in accordance with Section 13 of
these Bylaws, shall be made pursuant to timely notice in writing to the
Secretary of the Company as set forth in this Section 14. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal office of the Company not less than 60 days prior to the anniversary
date of the immediately preceding annual meeting of stockholders of the Company;
provided, however, that with respect to the first scheduled annual meeting,
notice by the stockholder must be so delivered or received no later than the
close of business on the tenth day following the day on which notice of the date
of the scheduled meeting must be delivered or received no later than the close
of business on the fifth day preceding the date of the meeting. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a director and as to the
stockholder giving the notice (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of Company stock which are
Beneficially Owned (as defined in Article XIII of the Articles of Incorporation)
by such person on the date of such stockholder notice, and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies with respect to nominees for election as directors,
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including, but not limited to, information required to be
disclosed by Items 4, 5, 6 and 7 of Schedule 14A to be filed with the Securities
and Exchange Commission (or any successors of such items or schedule or, if no
successor to such items exists, then in accordance with these items as they
existed upon the date of the adoption of these Bylaws); and (b) as to the
stockholder giving the notice (i) the name and address, as they appear on the
Company's books, of such stockholder and any other stockholders known by such
stockholder to be supporting such nominees and (ii) the class and number of
shares of Company stock which are Beneficially Owned by such stockholder on the
date of such stockholder notice and, to the extent known, by any other
stockholders known by such stockholder to be supporting such nominees on the
date of such stockholder notice. At the request of the board of directors, any
person nominated by, or at the direction of, the Board for election as a
director at an annual meeting shall furnish to the Secretary of the Company that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee.
Proposals, other than those made by or at the direction of the board of
directors, shall be made pursuant to timely notice in writing to the Secretary
of the Company as set forth in this Section 14. For stockholder proposals to be
included in the Company's proxy materials, the stockholder must comply with all
the timing and informational requirements of Rule 14a-8 of the Exchange Act (or
any successor regulation or, if no successor regulation exists, then in
accordance with the regulation as it existed upon
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the date of the adoption of these Bylaws). With respect to stockholder proposals
to be considered at the annual meeting of stockholders but not included in the
Company's proxy materials, the stockholder's notice shall be delivered to, or
mailed and received at, the principal office of the Company not less than 60
days prior to the anniversary date of the immediately preceding annual meeting
of stockholders of the Company. Such stockholder's notice shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the proposal desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Company's books, of the stockholder
proposing such business and, to the extent known, any other stockholders known
by such stockholder to be supporting such proposal, (c) the class and number of
shares of the Company stock which are Beneficially Owned by the stockholder on
the date of such stockholder notice and, to the extent known, by any other
stockholders known by such stockholder to be supporting such proposal on the
date of such stockholder notice, and (d) any financial interest of the
stockholder in such proposal (other than interests which all stockholders would
have).
The board of directors may reject any nomination by a stockholder or
stockholder proposal not timely made in accordance with the requirements of this
Section 14. If the board of directors, or a designated committee thereof,
determines that the information provided in a stockholder's notice does not
satisfy the informational requirements of this Section 14 in any respect, the
Secretary of the Company shall notify such stockholder of the deficiency in the
notice. The stockholder shall have an opportunity to cure the deficiency by
providing additional information to the Secretary within such period of time,
not to exceed five days from the date such deficiency notice is given to the
stockholder, as the board of directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the board of
directors or such committee reasonably determines that the additional
information provided by the stockholder, together with information previously
provided, does not satisfy the requirements of this Section 14 in any respect,
then the board of directors may reject such stockholder's nomination or
proposal. The Secretary of the Company shall notify a stockholder in writing
whether such stockholder's nomination or proposal has been made in accordance
with the time and informational requirements of this Section 14. Notwithstanding
the procedures set forth in this paragraph, if neither the board of directors
nor such committee makes a determination as to the validity of any nominations
or proposals by a stockholder, the presiding officer of the annual meeting shall
determine and declare at the annual meeting whether the nomination or proposal
was made in accordance with the terms of this Section 14. If the presiding
officer determines that a nomination or proposal was made in accordance with the
terms of this Section 14, the presiding officer shall so declare at the annual
meeting and ballots shall be provided for use at the meeting with respect to
such nominee or proposal. If the presiding officer determines that a nomination
or proposal was not made in accordance with the terms of this Section 14, the
presiding shall so declare at the annual meeting and the defective nomination or
proposal shall be disregarded.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and affairs of the Company
shall be under the direction of its board of directors. The board of directors
shall annually elect a president from among its members and may also elect a
chairman of the board from among its members. The board of directors shall
designate, when present, any director or the president to preside at its
meetings.
SECTION 2. Number, Term, and Election. The board of directors shall
initially consist of six (6) members and shall be divided into three classes as
nearly equal in number as possible. The members of each class shall be elected
for a term of three years and until their successors are elected or qualified.
The board of directors shall be classified in accordance with the provisions of
the Company's Articles
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<PAGE>
of Incorporation. The number of directors may at any time be increased or
decreased by a vote of a majority of the board of directors, provided that no
decrease shall have the effect of shortening the term of any incumbent director,
except as provided in Section 11 hereunder. Notwithstanding anything to the
contrary contained in these Bylaws, the number of directors may not be less than
three, nor more than fifteen.
SECTION 3. Place of Meetings. All annual and special meetings of the
board of directors shall be held at the principal office of the Company or at
such other place within or without the State of Kansas as the board of directors
may determine and as designated in the notice of such meeting, if necessary.
SECTION 4. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this Bylaw at such time and
date as the board of directors may determine.
SECTION 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the president, the chairman of the board
of directors, or by a majority of the directors. The persons authorized to call
special meetings of the board of directors may fix any place within or without
the State of Kansas as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other.
SECTION 6. Notice. Written notice of any special meeting shall be given
to each director at least two days previous thereto delivered personally or by
telegram or at least five days previous thereto delivered by mail at the address
at which the director is most likely to be reached. Such notice shall be deemed
to be delivered when deposited in the United States mail so addressed, with
postage thereon prepaid if mailed or when delivered to the telegraph company if
sent by telegram. Any director may waive notice of any meeting by a writing
filed with the secretary before, during, or after the meeting. The attendance of
a director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the board of directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 7. Quorum. A majority of the number of directors fixed by
Section 2 of Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of Article III.
SECTION 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the entire
board of directors, unless a greater number is prescribed by these Bylaws, the
Articles of Incorporation, or the laws of Kansas.
SECTION 9. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors, and if such consents are filed with the minutes
of the meeting concerned.
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SECTION 10. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the principal office of the Company
addressed to the president. Unless otherwise specified herein such resignation
shall take effect upon receipt thereof by the president.
SECTION 11. Vacancies. Vacancies in the board of directors of the
Corporation, however caused, and newly created directorships shall be filled by
a majority vote of the directors then in office, whether or not a quorum, and
any director so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of the class to which the director has
been chosen expires and when the director's successor is elected and qualified.
SECTION 12. Removal of Directors. Any director or the entire board of
directors may be removed for cause and then only in accordance with the
provisions of the Company's Articles of Incorporation.
SECTION 13. Compensation. Directors, as such, may receive a stated fee
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
actual attendance at committee meetings as the board of directors may determine.
Nothing herein shall be construed to preclude any director from serving the
Company in any other capacity and receiving remuneration therefor.
SECTION 14. Presumption of Assent. A director of the Company who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
the director's dissent or abstention shall be entered in the minutes of the
meeting or unless the director shall file a written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the secretary of the Company
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who votes in favor of such action.
SECTION 15. Action of Directors by Communications Equipment. Any action
which may be taken at a meeting of directors, or of a committee thereof, may be
taken by means of a conference telephone or similar communications equipment by
means of which persons participating in the meeting can hear each other at the
same time. Participation in a meeting pursuant to this subsection shall
constitute presence in person at the meeting.
ARTICLE IV
Committees of the Board of Directors
The board of directors may, by resolution passed by a simple majority
of a quorum, designate one or more committees, as they may determine to be
necessary or appropriate for the conduct of the business of the Company, and may
prescribe the duties, constitution, and procedures thereof. Each committee shall
consist of one or more directors of the Company. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee.
The board of directors shall have power, by the affirmative vote of a
majority of the authorized number of directors, at any time to change the
members of, to fill vacancies in, and to discharge any committee of the board.
Any member of any such committee may resign at any time by giving notice
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to the Company provided, however, that notice to the board of directors, the
chief executive officer, the chairman of such committee, or the secretary shall
be deemed to constitute notice to the Company. Such resignation shall take
effect upon receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective. Any member of any such committee may be removed
at any time, either with or without cause, by the affirmative vote of a majority
of the authorized number of directors at any meeting of the board called for
that purpose.
ARTICLE V
Officers
SECTION 1. Positions. The officers of the Company may include a chief
executive officer, president, one or more vice presidents, a secretary, or a
treasurer, each of whom shall be elected by the board of directors. The offices
of the secretary and treasurer may be held by the same person and a vice
president may also be either the secretary or the treasurer. The board of
directors may designate one or more vice presidents as executive vice president
or senior vice president. The board of directors may also elect or authorize the
appointment of such other officers as the business of the Company may require.
The officers shall have such authority and perform such duties as the board of
directors may from time to time authorize or determine. In the absence of action
by the board of directors, the officers shall have such powers and duties as
generally pertain to their respective offices.
SECTION 2. Election and Term of Office. The officers of the Company
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of the stockholders. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as possible. Each officer shall hold office until a successor
shall have been duly elected and qualified, until death or resignation, or until
removal in the manner hereinafter provided. Election or appointment of an
officer, employee, or agent shall not of itself create contract rights. The
board of directors may authorize the Company to enter into an employment
contract with any officer in accordance with state law; but no such contract
shall impair the right of the board of directors to remove any officer at any
time in accordance with Section 3 of this Article V.
SECTION 3. Removal. Any officer may be removed by the vote of the
majority of the board of directors whenever, in its judgment, the best interests
of the Company will be served thereby, but such removal, other than for cause,
shall be without prejudice to the contract rights, if any, of the person so
removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors and no officer shall be
prevented from receiving such salary by reason of the fact that the officer is
also a director of the Company.
ARTICLE VI
Contracts, Loans, Checks and Deposits
SECTION 1. Contracts. To the extent permitted by applicable law, and
except as otherwise prescribed by the Company's Articles of Incorporation or
these Bylaws with respect to certificates for
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shares, the board of directors may authorize any officer, employee, or agent of
the Company to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Company. Such authority may be general or
confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the Company
and no evidence of indebtedness shall be issued in its name unless authorized by
the board of directors. Such authority may be general or confined to specific
instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Company shall be signed by one or more officers, employees, or
agents of the Company in such manner as shall from time to time be determined by
resolution of the board of directors.
SECTION 4. Deposits. All funds of the Company not otherwise employed
shall be deposited from time to time to the credit of the Company in any of its
duly authorized depositories as the board of directors may select.
ARTICLE VII
Certificates for Shares and Their Transfer
SECTION 1. Certificates for Shares. The shares of the Company shall be
represented by certificates signed by the president or a vice president and by
the treasurer or by the secretary of the Company, and may be sealed with the
seal of the Company or a facsimile thereof. Any or all of the signatures upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent, or registered by a registrar, other than the Company itself or an
employee of the Company. If any officer who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be such
officer before the certificate is issued, it may be issued by the Company with
the same effect as if the person were such officer at the date of its issue.
SECTION 2. Form of Share Certificates. All certificates representing
shares issued by the Company shall set forth upon the face or back that the
Company will furnish to any stockholder upon request and without charge a full
statement of the designations, preferences, limitations, and relative rights of
the shares of each class authorized to be issued, the variations in the relative
rights and preferences between the shares of each such series so far as the same
have been fixed and determined, and the authority of the board of directors to
fix and determine the relative rights and preferences of subsequent series.
Each certificate representing shares shall state upon the face thereof:
that the Company is organized under the laws of the State of Kansas; the name of
the person to whom issued; the number and class of shares; the date of issue;
the designation of the series, if any, which such certificate represents; and
the par value of each share represented by such certificate, or a statement that
the shares are without par value. Other matters in regard to the form of the
certificates shall be determined by the board of directors.
SECTION 3. Payment for Shares. No certificate shall be issued for any
share until such share is paid in full.
SECTION 4. Form of Payment for Shares. The consideration for the
issuance of shares shall be paid in accordance with the provisions of Kansas
law.
-9-
<PAGE>
SECTION 5. Transfer of Shares. Transfer of shares of capital stock of
the Company shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record thereof or by such person's
legal representative, who shall furnish proper evidence of such authority, or by
the person's attorney thereunto authorized by power of attorney duly executed
and filed with the Company. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name shares
of capital stock stand on the books of the Company shall be deemed by the
Company to be the owner thereof for all purposes.
SECTION 6. Stock Ledger. The stock ledger of the Company shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 6 of Article II, or the books of the
Company, or to vote in person or by proxy at any meeting of stockholders.
SECTION 7. Lost Certificates. The board of directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Company alleged to have been lost, stolen, or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or the owner's legal representative, to give the Company a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Company with respect to the certificate alleged to have been lost,
stolen, or destroyed.
SECTION 8. Beneficial Owners. The Company shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not the Company shall have express or
other notice thereof, except as otherwise provided by law.
ARTICLE VIII
Fiscal Year; Annual Audit
The fiscal year of the Company shall end on the last day of December of
each year. The Company shall be subject to an annual audit as of the end of its
fiscal year by independent public accountants appointed by and responsible to
the board of directors.
ARTICLE IX
Dividends
Subject to the provisions of the Articles of Incorporation and
applicable law, the board of directors may, at any regular or special meeting,
declare dividends on the Company's outstanding capital stock. Dividends may be
paid in cash, in property, or in the Company's own stock.
-10-
<PAGE>
ARTICLE X
Books and Records
The Corporation shall keep correct and complete books and records of
account and shall keep minutes and proceedings of meetings of its stockholders
and Board of Directors. Any books, records and minutes may be in written form or
any other form capable of being converted into written form within a reasonable
time.
ARTICLE XI
Corporate Seal
The corporate seal of the Company shall be in such form as the board of
directors shall prescribe.
ARTICLE XII
Amendments
The Bylaws may be altered, amended, or repealed or new Bylaws may be
adopted in the manner set forth in the Articles of Incorporation.
0232kans\bylaws.hc
-11-
EXHIBIT 4
<PAGE>
================================================================================
CERTIFICATE No. [LOGO] COMMON STOCK
PAR VALUE $0.10
SHARES
INCORPORATED UNDER THE
LAWS OF THE STATE OF KANSAS SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CUSIP No. ________________
CERTIFIES
THAT
IS THE
OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $0.10 PER SHARE, OF
FIRST KANSAS FINANCIAL CORPORATION
The shares represented by this certificate are transferable only on the
stock transfer books of the Corporation by the holder of record hereof, or by
his duly authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Articles of Incorporation of the Corporation and any amendments thereto (copies
of which are on file with the Secretary of the Corporation), and to all of these
provisions the holder by acceptance hereof, assents.
In Witness Whereof, First Kansas Financial Corporation has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused its facsimile corporate seal to be hereunto affixed.
DATED:
____________________________ _______________________________
PRESIDENT SECRETARY
SEAL
Incorporated 1998
================================================================================
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION
The Board of Directors of the Corporation is authorized by resolution
or resolutions, from time to time adopted, to provide for the issuance of serial
preferred stock, $0.10 par value per share, in series and to fix and state the
voting powers, designations, preferences and relative, participating, optional,
or other special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. The Corporation will
furnish to any shareholder upon request and without charge a full description of
each class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively
voted in the election of directors of the Corporation. The affirmative vote of
the holders of at least 80% of each class or series of the voting stock of the
Corporation, voting separately for each class or series entitled to vote
separately and together as a single class for all classes or series not entitled
to vote separately, shall be required to approve certain business combinations
and other transactions, pursuant to the Articles of Incorporation or to amend
certain provisions of the Articles of Incorporation. In addition, persons
beneficially owning, directly or indirectly, in excess of 10% of the then
outstanding shares of the Common Stock of the Corporation (the "Limit"), will
not be entitled or permitted to vote such shares in excess of the Limit and may
have their voting rights reduced below the Limit.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TEN COM - as tenants in common UNIF TRANS MIN ACT -_______________Custodian_______________
(Cus) (Minor)
TEN ENT - as tenants by the entireties
under Uniform Transfers to Minors
JT TEN - as joint tenants with right of
survivorship and not as tenants Act ___________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED ________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________ Shares of the
Common Stock represented by the within Certificate and do hereby irrevocably
constitute and appoint
________________________________________________________________________________
Attorney to transfer the said Stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated ________________________
___________________________________
NOTICE: The signature to this assignment must correspond with the name
as written upon the face of the Certificate in every particular, without
alteration or enlargement or any change whatever.
THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED
OR GUARANTEED
EXHIBIT 5.1
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
March 16, 1998
Board of Directors
First Kansas Federal Savings Association
600 Main Street
Osawatomie, Kansas 66064
Re: Registration Statement Under the Securities Act of 1933
Ladies and Gentlemen:
This opinion is rendered in connection with the Registration Statement
on Form SB-2 to be filed with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the offer and sale of up to 1,553,938 shares
of common stock, par value $0.10 per share (the "Common Stock"), of First Kansas
Financial Corporation (the "Company"), including shares to be issued to certain
employee benefit plans of the Company and its subsidiary. The Common Stock is
proposed to be issued pursuant to the Plan of Conversion (the "Plan") of First
Kansas Federal Savings Association (the "Association") in connection with the
Association's conversion from the mutual to the stock form of organization and
reorganization into a wholly-owned subsidiary of the Company (the "Conversion").
As special counsel to the Association and the Company, we have reviewed the
corporate proceedings relating to the Plan and the Conversion and such other
legal matters as we have deemed appropriate for the purpose of rendering this
opinion.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
issued in accordance with the terms of the Plan against full payment therefor,
be validly issued, fully paid, and non-assessable shares of Common Stock of the
Company.
We assume no obligation to advise you of changes that may hereafter be
brought to our attention.
<PAGE>
Board of Directors
March 16, 1998
Page Two
We hereby consent to the use of this opinion and to the reference to
our firm appearing in the Company's Prospectus under the headings "The
Conversion - Effects of Conversion to Stock Form on Depositors and Borrowers of
First Kansas Federal Savings Association--Tax Effects" and "Legal and Tax
Matters." We also consent to any references to our legal opinion referred to
under the aforementioned headings in the Prospectus.
Very truly yours,
/s/Malizia, Spidi, Sloane & Fisch, P.C.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
EXHIBIT 8.1
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
WRITER's DIRECT DIAL NUMBER
March 13, 1998
Board of Directors
First Kansas Federal Savings Association
600 Main Street
Osawatomie, Kansas 66064
Re: Federal Income Tax Opinion Relating to the Proposed Conversion of
First Kansas Federal Savings Association from a
Federally-Chartered Mutual Savings Association to a
Federally-Chartered Stock Savings Bank Pursuant to Section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended
-----------------------------------------------------------------
Members of the Board:
In accordance with your request, set forth hereinbelow is the opinion
of this firm relating to certain federal income tax consequences of the proposed
conversion (the "Conversion") of First Kansas Federal Savings Association (the
"Association") from a federally-chartered mutual savings association to a
federally-chartered capital stock savings bank (the "Stock Bank"), and formation
of a parent holding company (the "Holding Company") which will simultaneously
acquire all of the outstanding stock of Stock Bank. As proposed, the Conversion
will be implemented pursuant to Section 368(a)(1)(F) of the Internal Revenue
Code of 1986, as amended (the "Code").
We have examined such corporate records, certificates and other
documents as we have considered necessary or appropriate for this opinion. In
such examination, we have accepted, and have not independently verified, the
authenticity of all original documents, the accuracy of all copies, and the
genuineness of all signatures. Further, the capitalized terms which are used in
this opinion and are not expressly defined herein shall have the meaning
ascribed to them in the Bank's Plan of Conversion adopted on December 16, 1997,
as amended (the "Plan of Conversion").
STATEMENT OF FACTS
------------------
Based solely upon our review of such documents, and upon such
information as the Association has provided to us (which we have not attempted
to verify in any respect), and in reliance upon such documents and information,
we understand the relevant facts with respect to the Conversion to be as
follows:
<PAGE>
Board of Directors
First Kansas Federal Savings Association
March 13, 1998
Page 2
The Association is a federally-chartered mutual savings association. As
a mutual savings association, the Association has no authorized capital stock.
Instead, the Association, in mutual form, has a unique equity structure. A
savings depositor of the Association is entitled to interest income on his or
her account balance as declared and paid by the Association. A savings depositor
has no right to a distribution of any earnings of the Association, but rather
these amounts become retained earnings of the Association. However, a savings
depositor has a right to share pro rata, with respect to the withdrawal value of
his or her respective savings account, in any liquidation proceeds distributed
in the event the Association is ever liquidated. Voting rights in the
Association are held by its members. Each member is entitled to cast one vote
for each $100 or a fraction thereof of the withdrawal value of the member's
account and each borrower member is entitled to one vote. Each member shall have
a maximum of 1,000 votes. All of the interests held by a savings depositor in
the Association cease when such depositor closes his or her account(s) with the
Association.
The Board of Directors of the Association has decided that in order to
promote the growth and expansion of the Association through the raising of
additional capital, it would be advantageous for the Association to: (i) convert
from a federally-chartered mutual savings association to a federally-chartered
capital stock savings bank, and (ii) arrange for the Holding Company to
simultaneously acquire all of the Stock Bank's stock. The Association's Board of
Directors has determined that in order to provide greater flexibility in future
operations of the Association, including diversification of business
opportunities and acquisition, it is advantageous to have the Stock Bank's stock
held by the Holding Company. Pursuant to the Plan of Conversion, the
Association's certificate of incorporation to operate as a mutual savings bank
will be amended and a new certificate of incorporation will be acquired to allow
it to continue its operations in the form of a federally-chartered capital stock
savings bank. The Plan of Conversion provides for the conversion of the
Association from mutual-to-stock form, and an appraisal of the pro forma market
value of the stock of the Stock Bank, which will be owned solely by the Holding
Company. The Plan of Conversion must be approved by the Office of Thrift
Supervision ("OTS"), and by an affirmative vote of at least a majority of the
total votes eligible to be cast at a special meeting of the Association's
members called to vote on the Plan of Conversion.
The Holding Company is being formed under the laws of the State of
Kansas for the purpose of the proposed transaction described herein, to engage
in business as a savings and loan holding company and to hold all of the stock
of the Stock Bank. The Holding Company will issue shares of its voting common
stock ("Holding Company Stock") upon completion of the Conversion, as described
below, to persons purchasing such shares through a Subscription Offering and to
the general public in a Public Offering.
Following appropriate regulatory approval, the Plan of Conversion
provides for the issuance of shares of Holding Company Stock to eligible
depositors and borrowers of the
<PAGE>
Board of Directors
First Kansas Federal Savings Association
March 13, 1998
Page 3
Association and others as described below and set forth in the Plan of
Conversion. The aggregate purchase price at which all shares of Holding Company
Stock will be offered and sold pursuant to the Plan of Conversion will be equal
to the estimated pro forma market value of the Association at the time of the
Conversion as held as a subsidiary of the Holding Company. The estimated pro
forma market value will be determined by an independent appraiser. Pursuant to
the Plan of Conversion, all such shares of Holding Company Stock will be issued
and sold at a uniform price per share. The Conversion and the sale of newly
issued shares of the Stock Association's stock to the Holding Company will be
deemed effective concurrently with the closing of the sale of Holding Company
Stock.
As required by OTS regulations, shares of Holding Company Stock will be
offered pursuant to non-transferable subscription rights on the basis of
preference categories. All shares must be sold and to the extent that Holding
Company Stock is available, no subscriber will be allowed to purchase less than
25 shares of Holding Company Stock, provided that the aggregate purchase price
does not exceed $500. The Association has established various preference
categories under which shares of Holding Company Stock may be purchased and a
public offering category for the sale of shares not purchased under the
preference categories. If the third preference category is determined to be
inappropriate to the Conversion, then there will only be three preference
categories consisting of the first, second, and fourth preference categories set
forth below, and all references herein to Supplemental Eligible Account Holder
and the Supplemental Eligibility Record Date shall not be applicable to the
subject transaction.
The first preference category is reserved for the Association's
Eligible Account Holders. The Plan of Conversion defines "Eligible Account
Holder" as any person holding a Qualifying Deposit. The Plan of Conversion
defines "Qualifying Deposit" as the aggregate balance of all savings accounts of
an Eligible Account Holder in the Association at the close of business on
September 30, 1996, which is at least equal to $50.00. If a savings account
holder of the Association qualifies as an Eligible Account Holder, he or she
will receive, without payment, non-transferable subscription rights to purchase
Holding Company Stock. The number of shares that each Eligible Account Holder
may subscribe to is equal to the greater of (a) the maximum purchase limitation
established for the Public Offering; (b) one tenth of one percent of the total
offering of shares; or (c) fifteen times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of Holding
Company Stock to be issued by a fraction of which the numerator is the amount of
the Qualifying Deposit of the Eligible Account Holder and the denominator is the
total amount of the Qualifying Deposits of all Eligible Account Holders. If
there is an oversubscription, shares will be allocated among subscribing
Eligible Account Holders so as to permit each account holder, to the extent
possible, to purchase a number of shares sufficient to make his or her total
allocation equal to 100 shares. Any shares not then allocated shall be allocated
among the subscribing Eligible Account Holders on an equitable basis, related to
the amounts of their respective deposits as compared to the total deposits of
Eligible Account Holders on the Eligibility Record Date. Non-transferable
<PAGE>
Board of Directors
First Kansas Federal Savings Association
March 13, 1998
Page 4
subscription rights to purchase Holding Company Stock received by officers and
directors of the Association and their associates based on their increased
deposits in the Association in the one year period preceding the Eligibility
Record Date shall be subordinated to all other subscriptions involving the
exercise of nontransferable subscription rights to purchase shares of Holding
Company Stock under the first preference category.
The second preference category is reserved for tax-qualified employee
stock benefit plans of the Stock Bank. The Plan of Conversion defines "tax
qualified employee stock benefit plans" as any defined benefit plan or defined
contribution plan, such as an employee stock ownership plan, stock bonus plan,
profit-sharing plan or other plan, which, with its related trust meets the
requirements to be "qualified" under Section 401 of the Code. Under the Plan of
Conversion, the Stock Bank's tax-qualified employee stock benefit plans may
subscribe for up to 10% of the shares of Holding Company Stock to be offered in
the Conversion.
The third preference category is reserved for the Association's
Supplemental Eligible Account Holders. The Plan of Conversion defines
"Supplemental Eligible Account Holder" as any person (other than officers or
directors of the Association and their associates) holding a deposit in the
Association on the last day of the calendar quarter preceding the approval of
the Plan of Conversion by the OTS ("Supplemental Eligibility Record Date"). This
third preference category will only be used in the event that the Eligibility
Record Date is more than 15 months prior to the date of the latest amendment to
the Application for Approval of Conversion on Form AC filed prior to approval by
the OTS. The third preference category provides that each Supplemental Eligible
Account Holder will receive, without payment, nontransferable subscription
rights to purchase Holding Company Stock to the extent that such shares of
Holding Company Stock are available after satisfying subscriptions for shares in
the first and second preference categories above. The number of shares to which
a Supplemental Eligible Account Holder may subscribe to is the greater of (a)
the maximum purchase limitation established for the Community Offering; (b)
one-tenth of one percent of the total offering of shares; or (c) fifteen times
the product (rounded down to the next whole number) obtained by multiplying the
total number of the shares of Holding Company Stock to be issued by a fraction
of which the numerator is the amount of the deposit of the Supplemental Eligible
Account Holder and the denominator is the total amount of the deposits of all
Supplemental Eligible Account Holders on the Supplemental Eligibility Record
Date. Subscription rights received pursuant to the third preference category
shall be subordinated to all rights under the first and second preference
categories. Non-transferable subscription rights to be received by a
Supplemental Eligible Account Holder in the third preference category shall be
reduced by the subscription rights received by such account holder as an
Eligible Account Holder under the first and second preference categories. In the
event of an oversubscription, shares will be allocated so as to enable each
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his total allocation, including shares
previously allocated in the first and second preference categories, equal to 100
shares or the total amount of his subscription,
<PAGE>
Board of Directors
First Kansas Federal Savings Association
March 13, 1998
Page 5
whichever is less. Any shares not then allocated shall be allocated among the
subscribing Supplemental Eligible Account Holders on an equitable basis related
to the amount of their respective deposits as compared to the total deposits of
Supplemental Eligible Account Holders on the Supplemental Eligibility Record
Date.
If there is no oversubscription of the Holding Company Stock in the
first, second, and third preference categories, the fourth preference category
becomes operable. In the fourth preference category, members of the Association
entitled to vote at the special meeting of members to approve the Plan of
Conversion who are not Eligible Account Holders or Supplemental Eligible Account
Holders ("Other Members") will receive, without payment, non-transferable
subscription rights entitling them to purchase Holding Company Stock. Other
Members shall each receive subscription rights to purchase up to the maximum
purchase limitation established for the Public Offering or one-tenth of one
percent of the total offering of shares, to the extent that Holding Company
Stock is available. In the event of an oversubscription by Other Members,
Holding Company Stock will be allocated pro rata according to the number of
shares subscribed for by each Other Member.
The Plan of Conversion further provides for limitations upon purchases
of Holding Company Stock. Specifically, any person by himself or herself or with
an associate or a group of persons acting in concert may subscribe for not more
than $200,000 of Holding Company Stock offered pursuant to the Plan of
Conversion, except that Tax-Qualified Employee Stock Benefit Plans may purchase
up to 10% of the total shares of Holding Company Stock issued. Subject to any
required regulatory approval and the requirements of applicable laws and
regulations, the Association may increase or decrease any of the purchase
limitations set forth herein at any time. The Board of Directors of the
Association may, in its sole discretion, increase the maximum purchase
limitation up to 5.0%. Requests to purchase additional shares of Holding Company
Stock under this provision will be allocated by the Board of Directors on a pro
rata basis giving priority in accordance with the priority rights set forth in
the Plan of Conversion. Officers and directors of the Association and their
associates may not purchase in the aggregate more than 33% of the Holding
Company Stock issued pursuant to the Conversion. Directors of the Association
will not be deemed associates or a group acting in concert solely as a result of
their membership on the board of directors of the Association. All of the shares
of Holding Company Stock purchased by officers and directors will be subject to
certain restrictions on sale for a period of one year.
The Plan of Conversion provides that no person will be issued any
subscription rights or be permitted to purchase any Holding Company Stock if
such person resides in a foreign country or in a state of the United States with
respect to which all of the following apply: (a) a small number of persons
otherwise eligible to subscribe for shares under the Plan of Conversion reside
in such state; (b) the issuance of subscription rights or the offer or sale of
the Holding Company Stock in such state, would require the Association or the
Holding Company under the securities
<PAGE>
Board of Directors
First Kansas Federal Savings Association
March 13, 1998
Page 6
law of such state to register as a broker or dealer or to register or otherwise
qualify its securities for sale in such state; and (c) such registration or
qualification would be impracticable for reasons of cost or otherwise.
The Plan of Conversion also provides for the establishment of a
Liquidation Account by Stock Bank for the benefit of all Eligible Account
Holders and Supplemental Eligible Account Holders (if applicable). The
Liquidation Account will be equal in amount to the net worth of Association as
of the time of the Conversion. The establishment of the Liquidation Account will
not operate to restrict the use or application of any of the net worth accounts
of the Stock Bank, except that the Stock Bank will not declare or pay cash
dividends on or repurchase any of its stock if the result thereof would be to
reduce its net worth below the amount required to maintain the Liquidation
Account. The Liquidation Account will be for the benefit of the Association's
Eligible Account Holders and Supplemental Eligible Account Holders who maintain
accounts in the Association at the time of the Conversion. All such account
holders, including those not entitled to subscription rights for reasons of
foreign or out-of-state residency (as described above), will have an interest in
the Liquidation Account. The interest an Eligible Account Holder and
Supplemental Eligible Account Holder will have a right to receive, in the event
of a complete liquidation of the Stock Bank, is a distribution from the
Liquidation Account in the amount of the then current adjusted subaccount
balances for savings accounts then held, which will be made prior to any
liquidation distribution with respect to the capital stock of the Stock
Association.
The initial subaccount balance for a savings account held by an
Eligible Account Holder and/or Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the Liquidation Account by a
fraction of which the numerator is the amount of the qualifying deposit in the
savings account, and the denominator is the total amount of qualifying deposits
of all Eligible Account Holders and Supplemental Eligible Account Holders in the
Stock Association. The initial subaccount balance will never be increased, but
may be decreased if the deposit balance in any qualifying savings account of any
Eligible Account Holder or any savings account of any Supplemental Eligible
Account Holder on any annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, whichever is applicable, is less
than the lesser of (1) the deposit balance in the savings account at the close
of business on any other annual closing date subsequent to the Eligibility
Record Date or the Supplemental Eligibility Record Date, or (2) the amount of
the qualifying deposit in such savings account. In such event, the subaccount
balance for the savings account will be adjusted by reducing each subaccount
balance in an amount proportionate to the reduction in the savings account
balance. Once decreased, the Plan of Conversion provides that the subaccount
balance will never be subsequently increased, and if the savings account of an
Eligible Account Holder or Supplemental Eligible Account Holder is closed, the
related subaccount balance in the Liquidation Account will be reduced to zero.
<PAGE>
Board of Directors
First Kansas Federal Savings Association
March 13, 1998
Page 7
The net proceeds from the sale of the shares of Holding Company Stock
will become the permanent capital of Holding Company, and the Holding Company
will in turn purchase 100% of the stock issued by Stock Bank, in exchange for up
to 50% of the Holding Company's stock offering net proceeds or such other
percentage as is approved by the Board of Directors with the concurrence of the
OTS.
Following the Conversion, voting rights in Stock Bank will rest
exclusively in the Holding Company. Voting rights in the Holding Company will
rest exclusively in the stockholders of the Holding Company. The Conversion will
not interrupt the business of the Association, and its business will continue as
usual under the Stock Bank. Each depositor will retain a withdrawable savings
account or accounts equal in amount to the withdrawable account or accounts at
the time of the Conversion. Mortgage loans of the Association will remain
unchanged and retain their same characteristics in the Stock Bank after the
Conversion. The Stock Bank will continue membership in the Federal Home Loan
Bank System, and will remain subject to the regulatory authority of the OTS.
Deposits in Stock Bank will continue to be insured by the Savings Association
Insurance Fund administered by the Federal Deposit Insurance Corporation up to
applicable limits of insurance coverage.
Immediately prior to the Conversion, the Association will have a
positive net worth in accordance with generally accepted accounting principles.
The savings account holders of the Association will pay expenses of the
Conversion solely attributable to them, if any. Further, the Association will
pay its own expenses of the Conversion and will not pay any expenses solely
attributable to the Association's savings account holders or to the purchasers
of Holding Company Stock.
REPRESENTATIONS BY MANAGEMENT
-----------------------------
In connection with the Conversion, the following statements,
representations and declarations have been made to us by management of the
Association:
1. The Conversion will be implemented in accordance with the terms of
the Plan of Conversion and all conditions precedent contained in the Plan of
Conversion shall be performed prior to the consummation of the Conversion.
2. The fair market value of the withdrawable savings accounts plus
interests in the Liquidation Account to be constructively received under the
Plan of Conversion will in each instance be equal to the fair market value of
each savings account of the Association plus the interest in the residual equity
of the Association surrendered in exchange therefor. All proprietary rights in
the Association form an integral part of the withdrawable savings accounts being
surrendered in the Conversion.
<PAGE>
Board of Directors
First Kansas Federal Savings Association
March 13, 1998
Page 8
3. The Holding Company and the Stock Bank each have no plan or
intention to redeem or otherwise acquire any of the Holding Company Stock issued
in the proposed transaction.
4. To the best of the knowledge of the management of the Association,
there is not now nor will there be at the time of the Conversion, any plan or
intention, on the part of the depositors in the Association to withdraw their
deposits following the Conversion. Deposits withdrawn immediately prior to or
immediately subsequent to the Conversion (other than maturing deposits) are
considered in making these assumptions.
5. Immediately following the consummation of the proposed transaction,
the Stock Association will possess the same assets and liabilities as the
Association held immediately prior to the proposed transaction, plus
substantially all of the net proceeds from the sale of its stock to the Holding
Company (except for assets used to pay expenses in the Conversion). Assets used
to pay expenses of the Conversion (without reference to the expenses of the
Subscription Offering and the Public Offering) and all distributions (except for
regular normal interest payments made by the Association immediately preceding
the transaction) will in the aggregate constitute less than one percent (1%) of
the assets of the Association, net of liabilities associated with such assets,
and will be paid by the Association and the Holding Company from the proceeds of
the Subscription Offering and Public Offering.
6. Following the Conversion, Stock Bank will continue to engage in its
business in substantially the same manner as engaged in by the Association prior
to the Conversion. The Stock Bank has no plan or intention to sell or otherwise
dispose of any of its assets, except in the ordinary course of business.
7. No cash or property will be given to any member of the Association
in lieu of subscription rights or an interest in the Liquidation Account of the
Stock Bank.
8. None of the compensation to be received by any deposit account
holder-employees of the Association or the Holding Company will be separate
consideration for, or allocable to, any of their deposits in the Association. No
interest in the Liquidation Account of the Stock Bank will be received by any
deposit account holder-employees as separate consideration for, or will
otherwise be allocable to, any employment agreement, and the compensation paid
to each deposit account holder-employee, during the twelve month period
preceding or subsequent to the Conversion, will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services. No shares of Holding Company Stock will be
issued to or purchased by any deposit account holder-employee of the Association
or the Holding Company at a discount or as compensation in the Conversion.
<PAGE>
Board of Directors
First Kansas Federal Savings Association
March 13, 1998
Page 9
9. The aggregate fair market value of the Qualifying Deposits held by
Eligible Account Holders or Supplemental Eligible Account Holders (if
applicable) as of the close of business on the Eligibility Record Date or
Supplemental Eligibility Record Date (if applicable) entitled to interests in
the Liquidation Account to be established by Stock Bank equalled or exceeded 99%
of the aggregate fair market value of all savings accounts (including those
accounts of less than $50.00) in the Association as of the close of business on
such date.
10. There is no plan or intention for the Stock Bank to be liquidated
or merged with another corporation following the consummation of the Conversion.
11. For taxable years prior to January 1, 1996, the Association
utilized the reserve method of accounting for bad debts in accordance with
Section 593 of the Code. Pursuant to the Small Business Job Protection Act of
1996, which was signed by the President on August 20, 1996, the Stock Bank will
utilize a reserve for bad debts in accordance with Section 585 of the Code
(following the Conversion).
12. The Association and the Stock Bank are corporations within the
meaning of Section 7701(a)(3) of the Code.
13. The Holding Company has no plan or intention to sell or otherwise
dispose of the stock of the Stock Bank received by it in the proposed
transaction.
14. Both the Stock Bank and the Holding Company have no plan or
intention, either currently or at the time of the Conversion, to issue
additional shares of common stock following the proposed transaction, other than
shares that may be issued to employees or directors pursuant to certain stock
option and stock incentive plans or that may be issued to employee benefit
plans.
15. If all of the net proceeds from the sale of Holding Company Stock
had been contributed by the Holding Company to the Stock Bank in exchange for
common stock of the Stock Bank in the Conversion, as opposed to the Holding
Company retaining a portion of such net proceeds ("retained proceeds"), and if
the Stock Bank immediately thereafter made a distribution of the retained
proceeds to the Holding Company, the Stock Bank would have sufficient current
and accumulated earnings and profits for tax purposes such that the distribution
would not result in the recapture of any portion of the bad debt reserves of the
Stock Bank under Section 593(e) of the Code.
16. At the time of the proposed transaction, the fair market value of
the assets of the Association on a going concern basis (including intangibles)
will equal or exceed the amount of its liabilities plus the amount of liability
to which such assets are subject. The Association will have a positive
regulatory net worth at the time of the Conversion.
<PAGE>
Board of Directors
First Kansas Federal Savings Association
March 13, 1998
Page 10
17. The Association is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. The
proposed transaction does not involve a receivership, foreclosure, or similar
proceeding before a federal or state agency involving a financial institution to
which Section 585 or 593 of the Code applies.
18. The Association's savings depositors will pay expenses of the
Conversion solely attributable to them, if any. The Holding Company, the Stock
Bank, and the Association will pay their own expenses of the Conversion and will
not pay any expenses solely attributable to the savings depositors or to the
Holding Company stockholders.
19. The liabilities of the Association assumed by the Stock Bank plus
the liabilities, if any, to which the transferred assets are subject were
incurred by the Association in the ordinary course of its business and are
associated with the assets transferred.
20. There will be no purchase price advantage for the Association's
deposit account holders who purchase Holding Company Stock in the Conversion.
21. Neither the Association nor the Stock Bank is an investment company
as defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
22. No creditors of the Association have taken any steps to enforce
their claims against the Association by instituting bankruptcy or other legal
proceedings, in either a court or appropriate regulatory agency, that would
eliminate the proprietary interests of the members of the Association prior to
the Conversion.
23. The proposed transaction does not involve the payment to the Stock
Bank or the Association of financial assistance from federal agencies within the
meaning of Notice 89-102, 1989-40 C.B. 1.
24. The Eligible Account Holders' and Supplemental Eligible Account
Holders' proprietary interest in the Association arise solely by virtue of the
fact that they are account holders in the Association.
25. At the time of the Conversion, the Association will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire an equity interest in the
Holding Company or the Stock Bank.
26. The Stock Bank has no plan or intention to sell or otherwise
dispose of any of the assets of the Association acquired in the transaction
(except for dispositions, including deposit withdrawals, made in the ordinary
course of business).
<PAGE>
Board of Directors
First Kansas Federal Savings Association
March 13, 1998
Page 11
27. On a per share basis, the purchase price of the Holding Company
Stock in the Conversion will be equal to the fair market value of such stock at
the time of the completion of the proposed transaction.
28. The Association has received or will receive an opinion from
Capital Resources Group, Inc. ("Appraiser's Opinion"), which concludes that
subscription rights to be received by Eligible Account Holders, Supplemental
Eligible Account Holders, and other eligible subscribers do not have any
ascertainable fair market value, because they are acquired by the recipients
without cost, are non-transferable, exist for such a short duration, and merely
afford the recipients a right only to purchase Holding Company Stock at a price
equal to its estimated fair market value, which will be the same price used in
the Public Offering for unsubscribed shares of Holding Company Stock.
29. The Association will not have any net operating losses, capital
loss carryovers, or built-in losses at the time of the Conversion.
OPINION OF COUNSEL
------------------
Based solely upon the foregoing information and our analysis and
examination of current applicable federal income tax laws, rulings, regulations,
judicial precedents, and the Appraiser's Opinion, and provided the Conversion is
undertaken in accordance with the above assumptions, we render the following
opinion of counsel:
1. The change in the form of operation of the Association from a
federally chartered mutual savings bank to a federally chartered capital stock
savings bank, as described above, will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Code, and no gain or loss will be
recognized to either the Association or to the Stock Bank as a result of such
Conversion. (See Rev. Rul. 80-105, 1980-1 C.B. 78). The Association and the
Stock Bank will each be a party to a reorganization within the meaning of
Section 368(b) of the Code. (Rev. Rul. 72-206, 1972-1 C.B. 104).
2. No gain or loss will be recognized by the Stock Bank on the receipt
of money in exchange for shares of Stock Bank stock. (Section 1032(a) of the
Code).
3. The Holding Company will recognize no gain or loss upon its receipt
of money in exchange for shares of Holding Company Stock. (Section 1032(a) of
the Code).
4. The assets of the Association will have the same basis in the hands
of the Stock Association as in the hands of the Association immediately prior to
the Conversion. (Section 362(b) of the Code).
<PAGE>
Board of Directors
First Kansas Federal Savings Association
March 13, 1998
Page 12
5. The holding period of the assets of the Association to be received
by the Stock Association will include the period during which the assets were
held by the Association prior to the Conversion. (Section 1223(2) of the Code).
6. Depositors will realize gain, if any, upon the issuance to them of
(i) withdrawable deposit accounts of the Stock Bank, (ii) subscription rights in
connection with the Conversion, and/or (iii) interests in the Liquidation
Account of the Stock Bank. Any gain resulting therefrom will be recognized, but
only in an amount not in excess of the fair market value of the Liquidation
Accounts and/or subscription rights received. The Liquidation Accounts will have
nominal, if any, fair market value. Based solely on the accuracy of the
conclusion reached in the Appraiser's Opinion, and our reliance on such opinion,
that the subscription rights have no value at the time of distribution or
exercise, no gain or loss will be required to be recognized by depositors upon
receipt or distribution of subscription rights. (Section 1001 of the Code).
See Paulsen v. Commissioner, 469 U.S. 131, 139 (1985).
Likewise, based solely on the accuracy of the aforesaid conclusion
reached in the Appraiser's Opinion, and our reliance thereon, we give the
following opinions: (a) no taxable income will be recognized by the borrowers,
directors, officers, and employees of the Association upon distribution to them
of subscription rights or upon the exercise or lapse of the subscription rights
to acquire Holding Company Stock at fair market value; (b) no taxable income
will be realized by the depositors of the Association as a result of the
exercise or lapse of the subscription rights to purchase Holding Company Stock
at fair market value (Rev. Rul. 56-572, 1956-2 C.B. 182); and (c) no taxable
income will be realized by the Association, the Stock Bank, or the Holding
Company on the issuance or distribution of subscription rights to depositors of
the Association to purchase shares of Holding Company Stock at fair market value
(Section 311 of the Code).
Notwithstanding the Appraiser's Opinion, if the subscription rights are
subsequently found to have a fair market value greater than zero, income may be
recognized by various recipients of the subscription rights (in certain cases,
whether or not the rights are exercised) and the Holding Company and/or the
Stock Bank may be taxable on the distribution of the subscription rights.
(Section 311 of the Code). In this regard, the subscription rights may be taxed
partially or entirely at ordinary income tax rates.
7. The basis of the savings accounts in the Stock Bank received by the
account holders of the Association will be the same as the basis of their
savings accounts in the Association surrendered in exchange therefor (Section
358(a)(1)). The basis of the interests in the Liquidation Account of the Stock
Bank received by the Eligible Account Holders and Supplemental Eligible Account
Holders will be zero, that being the cost of such property. (Paulsen v.
Commissioner, 469 U.S. 131, 139 (1985)). The basis of the non-transferable
subscription rights will be zero, provided that such subscription rights are not
deemed to have
<PAGE>
Board of Directors
First Kansas Federal Savings Association
March 13, 1998
Page 13
a fair market value and that the subscription price of such stock issuable upon
exercise of such rights is equal to the fair market value of such stock. The
basis of the Holding Company Stock to its stockholders will be purchase price
thereof, increased by the basis, if any, of the subscription rights exercised
(Section 1012 of the Code). The holding period of Holding Company Stock will
commence upon the effective date of exercise of the subscription rights (Section
1223(6) of the Code). The holding period for the Holding Company Stock purchased
pursuant to the direct community offering, public offering or under other
purchase arrangements will commence on the date following the date on which such
stock is purchased. (Rev. Rul. 70- 598, 1970-2 C.B. 168).
8. The part of the taxable year of the Association before the
Conversion and the part of the taxable year of the Stock Bank after the
Conversion will constitute a single taxable year of the Stock Bank. (See Rev.
Rul. 57-276, 1957-1 C.B. 126). Consequently, the Association will not be
required to file a federal income tax return for any portion of such taxable
year (Section 1.381(b)-1(a)(2) of the Treasury Regulations).
9. As provided by Section 381(c)(2) of the Code and Section
1.381(c)(2)-1 of the Treasury Regulations, the Stock Bank will succeed to and
take into account the earnings and profits or deficit in earnings and profits of
the Association as of the date or dates of transfer.
10. Pursuant to the provisions of Section 381(c)(4) of the Code and
Section 1.381(c)(4)-1(a)(1)(ii) of the Treasury Regulations, the Stock Bank will
succeed to and take into account, immediately after the reorganization, those
accounts of the Association which represent bad debt reserves in respect of
which the Association has taken a bad debt deduction for taxable years ending on
or before the date of the reorganization. The bad debt reserves will not be
required to be restored to the gross income of either the Association or the
Stock Bank for the taxable year of the reorganization, and such bad debt
reserves will have the same character in the hands of the Stock Association as
they would have had in the hands of the Association if no distribution or
transfer had occurred. No opinion is being expressed as to whether the bad debt
reserves will be required to be restored to the gross income of either the
Association or the Stock Bank for the taxable year of the reorganization.
11. Regardless of book entries made for the creation of the Liquidation
Account, the Conversion, as described above, will not diminish the accumulated
earnings and profits of the Stock Bank available for the subsequent distribution
of dividends within the meaning of Section 316 of the Code. (Section 1.312-11(b)
and (c) of the Treasury Regulations).
12. For purposes of Section 381 of the Code, the Stock Bank will be
treated the same as the Association would have been had there been no
reorganization. Accordingly, the taxable year of the Association will not end on
the effective date of the proposed transaction merely because of the transfer of
assets of the Association to the Stock Bank and the tax attributes of
<PAGE>
Board of Directors
First Kansas Federal Savings Association
March 13, 1998
Page 14
the Association enumerated in Section 381(c) will be taken into account by the
Stock Bank as if there had been no reorganization (Section 1.381(b)-1(a)(2)) of
the Treasury Regulations).
No opinion is expressed as to the tax treatment of the Conversion under
the provisions of any of the other sections of the Code and Treasury Regulations
which may also be applicable thereto, or under federal law, or to the tax
treatment of any conditions existing at the time of, or effects resulting from,
the transactions which are not specifically covered by the items set forth
above. Notwithstanding any reference to Section 381 above, no opinion is
expressed or intended to be expressed herein as to the effect, if any, of this
transaction on the continued existence of, the carryover or carryback of, or the
limitation on, any net operating losses of the Association or its successor, the
Stock Bank, under the Code.
We hereby consent to the filing of this opinion as an exhibit to the
Application for Conversion on Form AC of the Association filed with the OTS, the
Application H-(e)(1)-S of the Holding Company filed with the OTS, and the
Registration Statement on Form SB-2 of the Holding Company filed under the
Securities Act of 1933, as amended, and to the reference of our firm in the
prospectus related to this opinion.
Very truly yours,
/s/ Malizia, Spidi, Sloane & Fisch
------------------------------------
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
EXHIBIT 8.2
LAW OFFICES OF
WINKLER, LEE, TETWILER, DOMONEY & SCHULTZ
133 SOUTH PEARL
P.O. BOX 333
PAOLA, KANSAS 66071-0333
913-294-2339
FAX 913-294-5702
WENDELL D. WINKLER EMAIL:[email protected] GARRETT WINKLER
EDWIN A. LEE (RETIRED) (1891-1970)
LEE H. TETWILER L. PERRY BISHOP
J. DARCY DOMONEY (1907-1984)
SHEILA M. SCHULTZ
March 16, 1998
Board of Directors
First Kansas Federal Savings Association
600 Main Street
Osawatomie, Kansas 66064
Board Members:
You have requested our opinion regarding certain Kansas tax
consequences to First Kansas Federal Savings Association (the "Association") and
its depositors under the laws of the State of Kansas of the proposed conversion
(the "Conversion"), under which the Association will be changed from a
federally-chartered mutual savings association to a federally-chartered capital
stock savings bank (the "Stock Bank"), a parent holding company will be formed
and incorporated in Kansas (the "Holding Company") to acquire all of the
outstanding stock of the Stock Bank (the "Acquisition"), and the stock of the
Holding Company will be offered to the public (the "Offering"), pursuant to a
Plan of Conversion adopted by the Board of Directors of the Bank on December 16,
1997, as amended (the "Plan").
The Association's special counsel, Malizia, Spidi, Sloane & Fisch,
P.C., has previously provided the Association an opinion regarding certain
federal income tax consequences of the Conversion, the Acquisition, and the
Offering (the "Federal Tax Opinion"). Based upon the facts stated in the Federal
Tax Opinion, including certain representations of the Association, the Federal
Tax Opinion concludes, among other things, that the Conversion qualifies as a
tax-free reorganization under ss. 368(a)(1)(F) of the Internal Revenue Code of
1986, as amended ("Code"), and that the Association, the Stock Bank, and the
Holding Company and the depositors of the Association will not recognize income,
gain, or loss for federal income tax purposes upon the implementation of the
Conversion, the Acquisition, and the Offering.
Based upon the facts and circumstances attendant to the Conversion as
detailed in the Plan, and the provisions of the Code and the Federal Tax Opinion
rendered, it is our opinion that the laws of the State of Kansas will, for
income tax purposes, treat the Conversion transaction as detailed in the Plan in
an identical manner as it is treated by the Internal Revenue Service for income
tax purposes, and that under such state law no adverse income tax consequences
will be incurred by either the Association or its account holders as a result of
the implementation of the Plan.
<PAGE>
Board of Directors
First Kansas Federal Savings Association
Page 2
The opinion herein expressed specifically does not include, without
limitation by the specification thereof, an opinion with respect to any
franchise tax or capital stock taxes which might result from the implementation
of the Plan.
Our opinion is based on the facts and conditions as stated herein,
whether directly or by reference to the Federal Tax Opinion. If any of the facts
and conditions are not entirely complete or accurate, it is imperative that we
be informed immediately, as the inaccuracy or incompleteness could have a
material effect on our conclusions. In rendering our opinion, we are relying
upon the relevant provisions of the Code, the laws of the State of Kansas, as
amended, the regulations and rules thereunder and judicial and administrative
interpretations thereof, which are subject to change or modification by
subsequent legislative, regulatory, administrative, or judicial decisions. Any
such changes could also have an effect on the validity of our opinion. We
undertake no responsibility to update or supplement our opinion. Our opinion is
not binding on the Internal Revenue Service or the State of Kansas, nor can any
assurance be given that any of the foregoing parties will not take a contrary
position or that our opinion will be upheld if challenged by such parties.
Finally, we hereby consent to the filing of this opinion as an exhibit
to the Application for Conversion on Form AC ("Form AC") or similar filings of
the Association filed with the Office of Thrift Supervision, the filing of this
opinion as an exhibit to the Application H-(e)(1)S of the Holding Company to be
filed with the Office of Thrift Supervision, and the filing of this opinion as
an exhibit to the Holding Company's Registration Statement on Form SB-2 ("Form
SB-2") to be filed with the Securities and Exchange Commission, and to reference
to our firm in the offering circular contained in the Form AC, Form SB-2 and
related documents related to this opinion.
Sincerely,
WINKLER, LEE, TETWILER,
DOMONEY & SCHULTZ
/s/J. Darcy Domoney
-------------------------------------
By: J. Darcy Domoney
EXHIBIT 8.3
<PAGE>
Capital Resources Group, Inc.
1211 Connecticut Ave., N.W. - Suite 200 - Washington, DC 20036
- Tel(202) 466-5685 - Fax(202) 466-5695
March 16, 1998
Board of Directors
First Kansas Federal Savings Association
600 Main Street
Osawatomie, Kansas 66064
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion adopted by the Board of
Directors of First Kansas Federal Savings Association ("Association") on
December 16, 1997.
It is our understanding that, pursuant to Office of Thrift Supervision
regulations, subscription rights are non-transferable. Persons violating such
prohibition may lose their right to purchase stock in the Conversion and be
subject to other possible sanctions.
Because the Subscription Rights to purchase shares of common stock in
the Association to be issued to the Association's employee stock benefit plans,
depositors of the Association, and to other members of the Association will be
acquired by such recipients without cost, will be non-transferable and of short
duration, and will afford the recipients the right only to purchase shares of
common stock at the same price as will be paid by members of the general public
in a Community Offering, we beleive that:
(1) the Subscription Rights will have no ascertainable fair market
value and,
(2) the price at which the Subscription Rights are exercisable will
not be more or less than the fair market value of the shares on
the date of the exercise.
Very truly yours,
CAPITAL RESOURCES GROUP, INC.
/s/Capital Resources Group, Inc.
--------------------------------
EXHIBIT 10.1
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into this 16 th day of December 1997,
("Effective Date") by and between First Kansas Federal Savings Association (the
"Association") and Larry V. Bailey (the "Executive").
WITNESSETH
WHEREAS, the Executive has heretofore been employed by the Association
as the President and is experienced in all phases of the business of the
Association; and
WHEREAS, the Association desires to be ensured of the Executive's
continued active participation in the business of the Association; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Association and in consideration of the Executive's agreeing to remain in
the employ of the Association, the parties desire to specify the continuing
employment relationship between the Association and the Executive;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Employment. The Association hereby employs the Executive in the
capacity of President. The Executive hereby accepts said employment and agrees
to render such administrative and management services to the Association and to
any to-be-formed parent holding company ("Parent") as are currently rendered and
as are customarily performed by persons situated in a similar executive
capacity. The Executive shall promote the business of the Association and
Parent. The Executive's other duties shall be such as the Board of Directors for
the Association (the "Board of Directors" or "Board") may from time to time
reasonably direct, including normal duties as an officer of the Association.
2. Term of Employment. The term of employment of Executive under this
Agreement shall be for the period commencing on the Effective Date and ending
thirty-six (36) months thereafter ("Term"). Additionally, on, or before, each
annual anniversary date from the Effective Date, the Term of employment under
this Agreement shall be extended for up to an additional period beyond the then
effective expiration date upon a determination and resolution of the Board of
Directors that the performance of the Executive has met the requirements and
standards of the Board, and that the Term of such Agreement shall be extended.
References herein to the Term of this Agreement shall refer both to the initial
term and successive terms.
<PAGE>
3. Compensation, Benefits and Expenses.
(a) Base Salary. The Association shall compensate and pay the
Executive during the Term of this Agreement a minimum base salary at the rate of
$120,000.00 per annum ("Base Salary"), payable in cash not less frequently than
bi-weekly; provided, that the rate of such salary shall be reviewed by the Board
of Directors not less often than annually, and the Executive shall be entitled
to receive increases at such percentages or in such amounts as determined by the
Board of Directors. The base salary may not be decreased without the Executive's
express written consent.
(b) Discretionary Bonus. The Executive shall be entitled to
participate in an equitable manner with all other senior management employees of
the Association in discretionary bonuses that may be authorized and declared by
the Board of Directors to its senior management executives from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive's right to participate in such discretionary bonuses when and
as declared by the Board.
(c) Participation in Benefit and Retirement Plans. The Executive
shall be entitled to participate in and receive the benefits of any plan of the
Association which may be or may become applicable to senior management relating
to pension or other retirement benefit plans, profit-sharing, stock options or
incentive plans, or other plans, benefits and privileges given to employees and
executives of the Association, to the extent commensurate with his then duties
and responsibilities, as fixed by the Board of Directors of the Association.
(d) Participation in Medical Plans and Insurance Policies. The
Executive shall be entitled to participate in and receive the benefits of any
plan or policy of the Association which may be or may become applicable to
senior management relating to life insurance, short and long term disability,
medical, dental, eye-care, prescription drugs or medical reimbursement plans.
Additionally, Executive's dependent family shall be eligible to participate in
medical and dental insurance plans sponsored by the Savings Association or
Parent with the cost of such premiums paid by the Savings Association.
(e) Vacations and Sick Leave. The Executive shall be entitled to
paid annual vacation leave in accordance with the policies as established from
time to time by the Board of Directors, which shall in no event be less than
four weeks per annum. The Executive shall also be entitled to an annual sick
leave benefit as established by the Board for senior management employees of the
Association. The Executive shall not be entitled to receive any additional
compensation from the Association for failure to take a vacation or sick leave,
nor shall he be able to accumulate unused vacation or sick leave from one year
to the next, except to the extent authorized by the Board of Directors.
(f) Expenses. The Association shall reimburse the Executive or
otherwise provide for or pay for all reasonable expenses incurred by the
Executive in furtherance of, or in connection with the business of the
Association, including, but not by way of limitation,
2
<PAGE>
automobile and traveling expenses, and all reasonable entertainment expenses,
subject to such reasonable documentation and other limitations as may be
established by the Board of Directors of the Association. If such expenses are
paid in the first instance by the Executive, the Association shall reimburse the
Executive therefor. The Association will maintain a semi-luxury class automobile
for the use of the Executive; such automobile shall be replaced every two years
within the discretion of the Executive.
(g) Changes in Benefits. The Association shall not make any
changes in such plans, benefits or privileges previously described in Section
3(c), (d) and (e) which would adversely affect the Executive's rights or
benefits thereunder, unless such change occurs pursuant to a program applicable
to all executive officers of the Association and does not result in a
proportionately greater adverse change in the rights of, or benefits to, the
Executive as compared with any other executive officer of the Association.
Nothing paid to Executive under any plan or arrangement presently in effect or
made available in the future shall be deemed to be in lieu of the salary payable
to Executive pursuant to Section 3(a) hereof.
4. Loyalty; Noncompetition.
(a) The Executive shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of the
Executive's employment under this Agreement, the Executive shall not engage in
any business or activity contrary to the business affairs or interests of the
Association or Parent.
(b) Nothing contained in this Section 4 shall be deemed to
prevent or limit the right of Executive to invest in the capital stock or other
securities of any business dissimilar from that of the Association or Parent,
or, solely as a passive or minority investor, in any business.
5. Standards. During the term of this Agreement, the Executive shall
perform his duties in accordance with such reasonable standards expected of
executives with comparable positions in comparable organizations and as may be
established from time to time by the Board of Directors.
6. Termination and Termination Pay. The Executive's employment under
this Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Executive during the term of this Agreement,
in which event the Executive's estate shall be entitled to receive the
compensation due the Executive through the last day of the calendar month in
which Executive's death shall have occurred.
(b) The Board of Directors may terminate the Executive's
employment at any time, but any termination by the Board of Directors other than
termination for Just Cause, shall not prejudice the Executive's right to
compensation or other benefits under the Agreement. The Executive shall have no
right to receive compensation or other benefits for any period after
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termination for Just Cause. The Board may within its sole discretion, acting in
good faith, terminate the Executive for Just Cause and shall notify such
Executive accordingly. Termination for "Just Cause" shall include termination
because of the Executive's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of the Agreement.
(c) Except as provided pursuant to Section 9 hereof, in the event
Executive's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Association shall be obligated to continue to
pay the Executive the salary provided pursuant to Section 3(a) herein, up to the
date of termination of the remaining Term of this Agreement, but in no event for
a period of less than twenty-four months, and the cost of Executive obtaining
all health, life, disability, and other benefits which the Executive would be
eligible to participate in through such date based upon the benefit levels
substantially equal to those being provided Executive at the date of termination
of employment.
(d) The voluntary termination by the Executive during the term of
this Agreement with the delivery of no less than 60 days written notice to the
Board of Directors, other than pursuant to Section 9(b), in which case the
Executive shall be entitled to receive only the compensation, vested rights, and
all employee benefits up to the date of such termination.
7. Regulatory Exclusions.
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)),
the Association's obligations under the Agreement shall be suspended as of the
date of service, unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Association may within its discretion (i) pay the
Executive all or part of the compensation withheld while its contract
obligations were suspended and (ii) reinstate any of its obligations which were
suspended.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Association under this
Agreement shall terminate, as of the effective date of the order, but the vested
rights of the parties shall not be affected.
(c) If the Association is in default (as defined in Section 3(x)(1) of
FDIA) all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the
contracting parties.
(d) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the
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Association: (i) by the Director of the Office of Thrift Supervision ("Director
of OTS"), or his or her designee, at the time that the Federal Deposit Insurance
Corporation ("FDIC") enters into an agreement to provide assistance to or on
behalf of the Association under the authority contained in Section 13(c) of
FDIA; or (ii) by the Director of the OTS, or his or her designee, at the time
that the Director of the OTS, or his or her designee approves a supervisory
merger to resolve problems related to operation of the Association or when the
Association is determined by the Director of the OTS to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(e) Notwithstanding anything herein to the contrary, any payments made
to the Executive pursuant to the Agreement, or otherwise, shall be subject to
and conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
8. Disability. If the Executive shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Executive shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 65% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Executive during such period
under the provisions of disability insurance coverage in effect for Association
employees. Thereafter, Executive shall be eligible to receive benefits provided
by the Association under the provisions of disability insurance coverage in
effect for Association employees. Upon returning to active full-time employment,
the Executive's full compensation as set forth in this Agreement shall be
reinstated as of the date of commencement of such activities. In the event that
the Executive returns to active employment on other than a full-time basis, then
his compensation (as set forth in Section 3(a) of this Agreement) shall be
reduced in proportion to the time spent in said employment, or as shall
otherwise be agreed to by the parties.
9. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the
event of the involuntary termination of Executive's employment during the term
of this Agreement following any Change in Control of the Association or Parent,
or within 24 months thereafter of such Change in Control, absent Just Cause,
Executive shall be paid an amount equal to the product of 2.99 times the
Executive's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") and regulations promulgated
thereunder. Said sum shall be paid in one (1) installment within thirty (30)
days of such termination of employment, and such payments shall be in lieu of
any other future payments which the Executive would be otherwise entitled to
receive to receive under Section 6 of this Agreement. Additionally, Executive
shall be paid for the costs associated with maintaining coverage under the
Savings Association's medical and dental insurance reimbursement plans similar
to that in effect on the date of termination of employment for a period of one
year thereafter.
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Notwithstanding the forgoing, all sums payable hereunder shall be reduced in
such manner and to such extent so that no such payments made hereunder when
aggregated with all other payments to be made to the Executive by the
Association or the Parent shall be deemed an "excess parachute payment" in
accordance with Section 280G of the Code and be subject to the excise tax
provided at Section 4999(a) of the Code. The term "Change in Control" shall
refer to (i) the control of voting proxies whether related to stockholders or
mutual members by any person, other than the Board of Directors of the Savings
Association, to direct more than 25% of the outstanding votes of the Savings
Association, the control of the election of a majority of the Savings
Association's directors, or the exercise of a controlling influence over the
management or policies of the Savings Association by any person or by persons
acting as a group within the meaning of Section 13(d) of the Exchange Act, (ii)
an event whereby the OTS, FDIC or any other department, agency or quasi-agency
of the federal government cause or bring about, without the consent of the
Savings Association, a change in the corporate structure or organization of the
Savings Association; (iii) an event whereby the OTS, FDIC or any other agency or
quasi-agency of the federal government cause or bring about, without the consent
of the Savings Association, a taxation or involuntary distribution of retained
earnings or proceeds from the sale of securities to depositors, borrowers, any
government agency or organization or civic or charitable organization; or (iv) a
merger or other business combination between the Savings Association and another
corporate entity whereby the Savings Association is not the surviving entity. In
the event that the Savings Association shall convert in the future from
mutual-to-stock form, the term "Change in Control" shall also refer to: (i) the
sale of all, or a material portion, of the assets of the Savings Association or
the Parent; (ii) the merger or recapitalization of the Savings Association or
the Parent whereby the Savings Association or the Parent is not the surviving
entity; (iii) a change in control of the Savings Association or the Parent, as
otherwise defined or determined by the Office of Thrift Supervision or
regulations promulgated by it; or (iv) the acquisition, directly or indirectly,
of the beneficial ownership (within the meaning of that term as it is used in
Section 13(d) of the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder) of twenty-five percent (25%) or more of the
outstanding voting securities of the Savings Association or the Parent by any
person, trust, entity or group. The term "person" means an individual other than
the Executive, or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Executive may voluntarily terminate his employment during the term of
this Agreement following a Change in Control of the Association or Parent, or
within twenty-four months following such Change in Contriol, and Executive shall
thereupon be entitled to receive the payment described in Section 9(a) of this
Agreement, upon the occurrence, or within 120 days thereafter, of any of the
following events, which have not been consented to in advance by the Executive
in writing: (i) if Executive would be required to move his personal residence or
perform his principal executive functions more than thirty-five (35) miles from
the Executive's primary office as of the signing of this Agreement; (ii) if in
the organizational structure of the Association, Executive would be required to
report to a person or persons other than the Board of Directors of the
Association; (iii) if the Association should fail to maintain Executive's base
compensation in effect as of the date of the Change in Control and the existing
employee benefits
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plans, including material fringe benefit, stock option and retirement plans;
(iv) if Executive would be assigned duties and responsibilities other than those
normally associated with his position as referenced at Section 1, herein; (v) if
Executive's responsibilities or authority have in any way been materially
diminished or reduced; or (vi) if Executive would not be reelected to the Board
of Directors of the Association.
10. Withholding. All payments required to be made by the Association
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Association may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
11. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Association or Parent which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Association or
Parent.
(b) Since the Association is contracting for the unique and
personal skills of the Executive, the Executive shall be precluded from
assigning or delegating his rights or duties hereunder without first obtaining
the written consent of the Association.
12. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Association to sign on
its behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of Kansas.
14. Nature of Obligations. Nothing contained herein shall create or
require the Association to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Executive acquires a right
to receive benefits from the Association hereunder, such right shall be no
greater than the right of any unsecured general creditor of the Association.
15. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or
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enforceability of the other provisions of this Agreement, which shall remain in
full force and effect.
17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Association,
and judgment upon the award rendered may be entered in any court having
jurisdiction thereof, except to the extent that the parties may otherwise reach
a mutual settlement of such issue. Further, the settlement of the dispute to be
approved by the Board of the Association may include a provision for the
reimbursement by the Association to the Executive for all reasonable costs and
expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, or the Board of the Association or the Parent may
authorize such reimbursement of such reasonable costs and expenses by separate
action upon a written action and determination of the Board following settlement
of the dispute. Such reimbursement shall be paid within ten (10) days of
Executive furnishing to the Association or Parent evidence, which may be in the
form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by Executive.
18. Confidential Information. The Executive acknowledges that during his
or her employment he or she will learn and have access to confidential
information regarding the Savings Association and the Parent and its customers
and businesses ("Confidential Information"). The Executive agrees and covenants
not to disclose or use for his or her own benefit, or the benefit of any other
person or entity, any such Confidential Information, unless or until the Savings
Association or tthe Parent consents to such disclosure or use or such
information becomes common knowledge in the industry or is otherwise legally in
the public domain. The Executive shall not knowingly disclose or reveal to any
unauthorized person any Confidential Information relating to the Savings
Association, the Parent, or any subsidiaries or affiliates, or to any of the
businesses operated by them, and the Executive confirms that such information
constitutes the exclusive property of the Savings Association and the Parent.
The Executive shall not otherwise knowingly act or conduct himself (a) to the
material detriment of the Savings Association or the Parent, or its
subsidiaries, or affiliates, or (b) in a manner which is inimical or contrary to
the interests of the Savings Association or the Parent. Executive acknowledges
and agrees that the existence of this Agreement and its terms and conditions
constitutes Confidential Information of the Savings Association, and the
Executive agrees not to disclose the Agreement or its contents without the prior
written consent of the Savings Association. Notwithstanding the foregoing, the
Savings Association reserves the right in its sole discretion to make disclosure
of this Agreement as it deems necessary or appropriate in compliance with its
regulatory reporting requirements. Notwithstanding anything herein to the
contrary, failure by the Executive to comply with the provisions of this Section
may result in the immediate termination of the Agreement within the sole
discretion of the Savings Association, disciplinary action against the Executive
taken by the Savings Association, including but not limited to the termination
of employment of the Executive for breach of the Agreement and the provisions of
this Section, and other remedies that may be available in law or in equity.
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19. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
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EXHIBIT 10.2
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into this 16 th day of December 1997,
("Effective Date") by and between First Kansas Federal Savings Association (the
"Association") and Daniel G. Droste (the "Executive").
WITNESSETH
WHEREAS, the Executive has heretofore been employed by the Association
as the Senior Vice President and Treasurer and is experienced in all phases of
the business of the Association; and
WHEREAS, the Association desires to be ensured of the Executive's
continued active participation in the business of the Association; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Association and in consideration of the Executive's agreeing to remain in
the employ of the Association, the parties desire to specify the continuing
employment relationship between the Association and the Executive;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Employment. The Association hereby employs the Executive in the
capacity of Senior Vice President and Treasurer. The Executive hereby accepts
said employment and agrees to render such administrative and management services
to the Association and to any to-be- formed parent holding company ("Parent") as
are currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Executive shall promote the business of the
Association and Parent. The Executive's other duties shall be such as the Board
of Directors for the Association (the "Board of Directors" or "Board") may from
time to time reasonably direct, including normal duties as an officer of the
Association.
2. Term of Employment. The term of employment of Executive under this
Agreement shall be for the period commencing on the Effective Date and ending
thirty-six (36) months thereafter ("Term"). Additionally, on, or before, each
annual anniversary date from the Effective Date, the Term of employment under
this Agreement shall be extended for up to an additional period beyond the then
effective expiration date upon a determination and resolution of the Board of
Directors that the performance of the Executive has met the requirements and
standards of the Board, and that the Term of such Agreement shall be extended.
References herein to the Term of this Agreement shall refer both to the initial
term and successive terms.
<PAGE>
3. Compensation, Benefits and Expenses.
(a) Base Salary. The Association shall compensate and pay the
Executive during the Term of this Agreement a minimum base salary at the rate of
$62,400.00 per annum ("Base Salary"), payable in cash not less frequently than
bi-weekly; provided, that the rate of such salary shall be reviewed by the Board
of Directors not less often than annually, and the Executive shall be entitled
to receive increases at such percentages or in such amounts as determined by the
Board of Directors. The base salary may not be decreased without the Executive's
express written consent.
(b) Discretionary Bonus. The Executive shall be entitled to
participate in an equitable manner with all other senior management employees of
the Association in discretionary bonuses that may be authorized and declared by
the Board of Directors to its senior management executives from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive's right to participate in such discretionary bonuses when and
as declared by the Board.
(c) Participation in Benefit and Retirement Plans. The Executive
shall be entitled to participate in and receive the benefits of any plan of the
Association which may be or may become applicable to senior management relating
to pension or other retirement benefit plans, profit-sharing, stock options or
incentive plans, or other plans, benefits and privileges given to employees and
executives of the Association, to the extent commensurate with his then duties
and responsibilities, as fixed by the Board of Directors of the Association.
(d) Participation in Medical Plans and Insurance Policies. The
Executive shall be entitled to participate in and receive the benefits of any
plan or policy of the Association which may be or may become applicable to
senior management relating to life insurance, short and long term disability,
medical, dental, eye-care, prescription drugs or medical reimbursement plans.
Additionally, Executive's dependent family shall be eligible to participate in
medical and dental insurance plans sponsored by the Savings Association or
Parent with the cost of such premiums paid by the Savings Association.
(e) Vacations and Sick Leave. The Executive shall be entitled to
paid annual vacation leave in accordance with the policies as established from
time to time by the Board of Directors, which shall in no event be less than
four weeks per annum. The Executive shall also be entitled to an annual sick
leave benefit as established by the Board for senior management employees of the
Association. The Executive shall not be entitled to receive any additional
compensation from the Association for failure to take a vacation or sick leave,
nor shall he be able to accumulate unused vacation or sick leave from one year
to the next, except to the extent authorized by the Board of Directors.
(f) Expenses. The Association shall reimburse the Executive or
otherwise provide for or pay for all reasonable expenses incurred by the
Executive in furtherance of, or in connection with the business of the
Association, including, but not by way of limitation,
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automobile and traveling expenses, and all reasonable entertainment expenses,
subject to such reasonable documentation and other limitations as may be
established by the Board of Directors of the Association. If such expenses are
paid in the first instance by the Executive, the Association shall reimburse the
Executive therefor.
(g) Changes in Benefits. The Association shall not make any
changes in such plans, benefits or privileges previously described in Section
3(c), (d) and (e) which would adversely affect the Executive's rights or
benefits thereunder, unless such change occurs pursuant to a program applicable
to all executive officers of the Association and does not result in a
proportionately greater adverse change in the rights of, or benefits to, the
Executive as compared with any other executive officer of the Association.
Nothing paid to Executive under any plan or arrangement presently in effect or
made available in the future shall be deemed to be in lieu of the salary payable
to Executive pursuant to Section 3(a) hereof.
4. Loyalty; Noncompetition.
(a) The Executive shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of the
Executive's employment under this Agreement, the Executive shall not engage in
any business or activity contrary to the business affairs or interests of the
Association or Parent.
(b) Nothing contained in this Section 4 shall be deemed to
prevent or limit the right of Executive to invest in the capital stock or other
securities of any business dissimilar from that of the Association or Parent,
or, solely as a passive or minority investor, in any business.
5. Standards. During the term of this Agreement, the Executive shall
perform his duties in accordance with such reasonable standards expected of
executives with comparable positions in comparable organizations and as may be
established from time to time by the Board of Directors.
6. Termination and Termination Pay. The Executive's employment under
this Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Executive during the term of this Agreement,
in which event the Executive's estate shall be entitled to receive the
compensation due the Executive through the last day of the calendar month in
which Executive's death shall have occurred.
(b) The Board of Directors may terminate the Executive's
employment at any time, but any termination by the Board of Directors other than
termination for Just Cause, shall not prejudice the Executive's right to
compensation or other benefits under the Agreement. The Executive shall have no
right to receive compensation or other benefits for any period after termination
for Just Cause. The Board may within its sole discretion, acting in good faith,
terminate the Executive for Just Cause and shall notify such Executive
accordingly. Termination
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for "Just Cause" shall include termination because of the Executive's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of the Agreement.
(c) Except as provided pursuant to Section 9 hereof, in the event
Executive's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Association shall be obligated to continue to
pay the Executive the salary provided pursuant to Section 3(a) herein, up to the
date of termination of the remaining Term of this Agreement, but in no event for
a period of less than twenty-four months, and the cost of Executive obtaining
all health, life, disability, and other benefits which the Executive would be
eligible to participate in through such date based upon the benefit levels
substantially equal to those being provided Executive at the date of termination
of employment.
(d) The voluntary termination by the Executive during the term of
this Agreement with the delivery of no less than 60 days written notice to the
Board of Directors, other than pursuant to Section 9(b), in which case the
Executive shall be entitled to receive only the compensation, vested rights, and
all employee benefits up to the date of such termination.
7. Regulatory Exclusions.
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)),
the Association's obligations under the Agreement shall be suspended as of the
date of service, unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Association may within its discretion (i) pay the
Executive all or part of the compensation withheld while its contract
obligations were suspended and (ii) reinstate any of its obligations which were
suspended.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Association under this
Agreement shall terminate, as of the effective date of the order, but the vested
rights of the parties shall not be affected.
(c) If the Association is in default (as defined in Section 3(x)(1) of
FDIA) all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the
contracting parties.
(d) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Association: (i) by the Director of the Office of
Thrift Supervision ("Director of OTS"), or his or her designee, at the time that
the Federal Deposit Insurance Corporation ("FDIC") enters into
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an agreement to provide assistance to or on behalf of the Association under the
authority contained in Section 13(c) of FDIA; or (ii) by the Director of the
OTS, or his or her designee, at the time that the Director of the OTS, or his or
her designee approves a supervisory merger to resolve problems related to
operation of the Association or when the Association is determined by the
Director of the OTS to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such action.
(e) Notwithstanding anything herein to the contrary, any payments made
to the Executive pursuant to the Agreement, or otherwise, shall be subject to
and conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
8. Disability. If the Executive shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Executive shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 65% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Executive during such period
under the provisions of disability insurance coverage in effect for Association
employees. Thereafter, Executive shall be eligible to receive benefits provided
by the Association under the provisions of disability insurance coverage in
effect for Association employees. Upon returning to active full-time employment,
the Executive's full compensation as set forth in this Agreement shall be
reinstated as of the date of commencement of such activities. In the event that
the Executive returns to active employment on other than a full-time basis, then
his compensation (as set forth in Section 3(a) of this Agreement) shall be
reduced in proportion to the time spent in said employment, or as shall
otherwise be agreed to by the parties.
9. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the
event of the involuntary termination of Executive's employment during the term
of this Agreement following any Change in Control of the Association or Parent,
or within 24 months thereafter of such Change in Control, absent Just Cause,
Executive shall be paid an amount equal to the product of 2.99 times the
Executive's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") and regulations promulgated
thereunder. Said sum shall be paid in one (1) installment within thirty (30)
days of such termination of employment, and such payments shall be in lieu of
any other future payments which the Executive would be otherwise entitled to
receive to receive under Section 6 of this Agreement. Additionally, Executive
shall be paid for the costs associated with maintaining coverage under the
Savings Association's medical and dental insurance reimbursement plans similar
to that in effect on the date of termination of employment for a period of one
year thereafter. Notwithstanding the forgoing, all sums payable hereunder shall
be reduced in such manner and to such extent so that no such payments made
hereunder when aggregated with all other
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payments to be made to the Executive by the Association or the Parent shall be
deemed an "excess parachute payment" in accordance with Section 280G of the Code
and be subject to the excise tax provided at Section 4999(a) of the Code. The
term "Change in Control" shall refer to (i) the control of voting proxies
whether related to stockholders or mutual members by any person, other than the
Board of Directors of the Savings Association, to direct more than 25% of the
outstanding votes of the Savings Association, the control of the election of a
majority of the Savings Association's directors, or the exercise of a
controlling influence over the management or policies of the Savings Association
by any person or by persons acting as a group within the meaning of Section
13(d) of the Exchange Act, (ii) an event whereby the OTS, FDIC or any other
department, agency or quasi-agency of the federal government cause or bring
about, without the consent of the Savings Association, a change in the corporate
structure or organization of the Savings Association; (iii) an event whereby the
OTS, FDIC or any other agency or quasi-agency of the federal government cause or
bring about, without the consent of the Savings Association, a taxation or
involuntary distribution of retained earnings or proceeds from the sale of
securities to depositors, borrowers, any government agency or organization or
civic or charitable organization; or (iv) a merger or other business combination
between the Savings Association and another corporate entity whereby the Savings
Association is not the surviving entity. In the event that the Savings
Association shall convert in the future from mutual-to-stock form, the term
"Change in Control" shall also refer to: (i) the sale of all, or a material
portion, of the assets of the Savings Association or the Parent; (ii) the merger
or recapitalization of the Savings Association or the Parent whereby the Savings
Association or the Parent is not the surviving entity; (iii) a change in control
of the Savings Association or the Parent, as otherwise defined or determined by
the Office of Thrift Supervision or regulations promulgated by it; or (iv) the
acquisition, directly or indirectly, of the beneficial ownership (within the
meaning of that term as it is used in Section 13(d) of the Securities Exchange
Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five
percent (25%) or more of the outstanding voting securities of the Savings
Association or the Parent by any person, trust, entity or group. The term
"person" means an individual other than the Executive, or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Executive may voluntarily terminate his employment during the term of
this Agreement following a Change in Control of the Association or Parent, or
within twenty-four months following such Change in Contriol, and Executive shall
thereupon be entitled to receive the payment described in Section 9(a) of this
Agreement, upon the occurrence, or within 120 days thereafter, of any of the
following events, which have not been consented to in advance by the Executive
in writing: (i) if Executive would be required to move his personal residence or
perform his principal executive functions more than thirty-five (35) miles from
the Executive's primary office as of the signing of this Agreement; (ii) if in
the organizational structure of the Association, Executive would be required to
report to a person or persons other than the President of the Association; (iii)
if the Association should fail to maintain Executive's base compensation in
effect as of the date of the Change in Control and the existing employee
benefits plans, including material fringe benefit, stock option and retirement
plans; (iv) if Executive would be assigned duties and responsibilities other
than those normally associated with his
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position as referenced at Section 1, herein; or (v) if Executive's
responsibilities or authority have in any way been materially diminished or
reduced.
10. Withholding. All payments required to be made by the Association
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Association may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
11. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Association or Parent which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Association or
Parent.
(b) Since the Association is contracting for the unique and
personal skills of the Executive, the Executive shall be precluded from
assigning or delegating his rights or duties hereunder without first obtaining
the written consent of the Association.
12. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Association to sign on
its behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of Kansas.
14. Nature of Obligations. Nothing contained herein shall create or
require the Association to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Executive acquires a right
to receive benefits from the Association hereunder, such right shall be no
greater than the right of any unsecured general creditor of the Association.
15. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
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<PAGE>
17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Association,
and judgment upon the award rendered may be entered in any court having
jurisdiction thereof, except to the extent that the parties may otherwise reach
a mutual settlement of such issue. Further, the settlement of the dispute to be
approved by the Board of the Association may include a provision for the
reimbursement by the Association to the Executive for all reasonable costs and
expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, or the Board of the Association or the Parent may
authorize such reimbursement of such reasonable costs and expenses by separate
action upon a written action and determination of the Board following settlement
of the dispute. Such reimbursement shall be paid within ten (10) days of
Executive furnishing to the Association or Parent evidence, which may be in the
form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by Executive.
18. Confidential Information. The Executive acknowledges that during his
or her employment he or she will learn and have access to confidential
information regarding the Savings Association and the Parent and its customers
and businesses ("Confidential Information"). The Executive agrees and covenants
not to disclose or use for his or her own benefit, or the benefit of any other
person or entity, any such Confidential Information, unless or until the Savings
Association or tthe Parent consents to such disclosure or use or such
information becomes common knowledge in the industry or is otherwise legally in
the public domain. The Executive shall not knowingly disclose or reveal to any
unauthorized person any Confidential Information relating to the Savings
Association, the Parent, or any subsidiaries or affiliates, or to any of the
businesses operated by them, and the Executive confirms that such information
constitutes the exclusive property of the Savings Association and the Parent.
The Executive shall not otherwise knowingly act or conduct himself (a) to the
material detriment of the Savings Association or the Parent, or its
subsidiaries, or affiliates, or (b) in a manner which is inimical or contrary to
the interests of the Savings Association or the Parent. Executive acknowledges
and agrees that the existence of this Agreement and its terms and conditions
constitutes Confidential Information of the Savings Association, and the
Executive agrees not to disclose the Agreement or its contents without the prior
written consent of the Savings Association. Notwithstanding the foregoing, the
Savings Association reserves the right in its sole discretion to make disclosure
of this Agreement as it deems necessary or appropriate in compliance with its
regulatory reporting requirements. Notwithstanding anything herein to the
contrary, failure by the Executive to comply with the provisions of this Section
may result in the immediate termination of the Agreement within the sole
discretion of the Savings Association, disciplinary action against the Executive
taken by the Savings Association, including but not limited to the termination
of employment of the Executive for breach of the Agreement and the provisions of
this Section, and other remedies that may be available in law or in equity.
19. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
8
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into this 16 th day of December 1997,
("Effective Date") by and between First Kansas Federal Savings Association (the
"Association") and Galen E. Graham (the "Executive").
WITNESSETH
WHEREAS, the Executive has heretofore been employed by the Association
as the Senior Vice President and Secretary and is experienced in all phases of
the business of the Association; and
WHEREAS, the Association desires to be ensured of the Executive's
continued active participation in the business of the Association; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Association and in consideration of the Executive's agreeing to remain in
the employ of the Association, the parties desire to specify the continuing
employment relationship between the Association and the Executive;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Employment. The Association hereby employs the Executive in the
capacity of Senior Vice President and Secretary. The Executive hereby accepts
said employment and agrees to render such administrative and management services
to the Association and to any to-be- formed parent holding company ("Parent") as
are currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Executive shall promote the business of the
Association and Parent. The Executive's other duties shall be such as the Board
of Directors for the Association (the "Board of Directors" or "Board") may from
time to time reasonably direct, including normal duties as an officer of the
Association.
2. Term of Employment. The term of employment of Executive under this
Agreement shall be for the period commencing on the Effective Date and ending
thirty-six (36) months thereafter ("Term"). Additionally, on, or before, each
annual anniversary date from the Effective Date, the Term of employment under
this Agreement shall be extended for up to an additional period beyond the then
effective expiration date upon a determination and resolution of the Board of
Directors that the performance of the Executive has met the requirements and
standards of the Board, and that the Term of such Agreement shall be extended.
References herein to the Term of this Agreement shall refer both to the initial
term and successive terms.
<PAGE>
3. Compensation, Benefits and Expenses.
(a) Base Salary. The Association shall compensate and pay the
Executive during the Term of this Agreement a minimum base salary at the rate of
$47,250.00 per annum ("Base Salary"), payable in cash not less frequently than
bi-weekly; provided, that the rate of such salary shall be reviewed by the Board
of Directors not less often than annually, and the Executive shall be entitled
to receive increases at such percentages or in such amounts as determined by the
Board of Directors. The base salary may not be decreased without the Executive's
express written consent.
(b) Discretionary Bonus. The Executive shall be entitled to
participate in an equitable manner with all other senior management employees of
the Association in discretionary bonuses that may be authorized and declared by
the Board of Directors to its senior management executives from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive's right to participate in such discretionary bonuses when and
as declared by the Board.
(c) Participation in Benefit and Retirement Plans. The Executive
shall be entitled to participate in and receive the benefits of any plan of the
Association which may be or may become applicable to senior management relating
to pension or other retirement benefit plans, profit-sharing, stock options or
incentive plans, or other plans, benefits and privileges given to employees and
executives of the Association, to the extent commensurate with his then duties
and responsibilities, as fixed by the Board of Directors of the Association.
(d) Participation in Medical Plans and Insurance Policies. The
Executive shall be entitled to participate in and receive the benefits of any
plan or policy of the Association which may be or may become applicable to
senior management relating to life insurance, short and long term disability,
medical, dental, eye-care, prescription drugs or medical reimbursement plans.
Additionally, Executive's dependent family shall be eligible to participate in
medical and dental insurance plans sponsored by the Savings Association or
Parent with the cost of such premiums paid by the Savings Association.
(e) Vacations and Sick Leave. The Executive shall be entitled to
paid annual vacation leave in accordance with the policies as established from
time to time by the Board of Directors, which shall in no event be less than
four weeks per annum. The Executive shall also be entitled to an annual sick
leave benefit as established by the Board for senior management employees of the
Association. The Executive shall not be entitled to receive any additional
compensation from the Association for failure to take a vacation or sick leave,
nor shall he be able to accumulate unused vacation or sick leave from one year
to the next, except to the extent authorized by the Board of Directors.
(f) Expenses. The Association shall reimburse the Executive or
otherwise provide for or pay for all reasonable expenses incurred by the
Executive in furtherance of, or in connection with the business of the
Association, including, but not by way of limitation,
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<PAGE>
automobile and traveling expenses, and all reasonable entertainment expenses,
subject to such reasonable documentation and other limitations as may be
established by the Board of Directors of the Association. If such expenses are
paid in the first instance by the Executive, the Association shall reimburse the
Executive therefor.
(g) Changes in Benefits. The Association shall not make any
changes in such plans, benefits or privileges previously described in Section
3(c), (d) and (e) which would adversely affect the Executive's rights or
benefits thereunder, unless such change occurs pursuant to a program applicable
to all executive officers of the Association and does not result in a
proportionately greater adverse change in the rights of, or benefits to, the
Executive as compared with any other executive officer of the Association.
Nothing paid to Executive under any plan or arrangement presently in effect or
made available in the future shall be deemed to be in lieu of the salary payable
to Executive pursuant to Section 3(a) hereof.
4. Loyalty; Noncompetition.
(a) The Executive shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of the
Executive's employment under this Agreement, the Executive shall not engage in
any business or activity contrary to the business affairs or interests of the
Association or Parent.
(b) Nothing contained in this Section 4 shall be deemed to
prevent or limit the right of Executive to invest in the capital stock or other
securities of any business dissimilar from that of the Association or Parent,
or, solely as a passive or minority investor, in any business.
5. Standards. During the term of this Agreement, the Executive shall
perform his duties in accordance with such reasonable standards expected of
executives with comparable positions in comparable organizations and as may be
established from time to time by the Board of Directors.
6. Termination and Termination Pay. The Executive's employment under
this Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Executive during the term of this Agreement,
in which event the Executive's estate shall be entitled to receive the
compensation due the Executive through the last day of the calendar month in
which Executive's death shall have occurred.
(b) The Board of Directors may terminate the Executive's
employment at any time, but any termination by the Board of Directors other than
termination for Just Cause, shall not prejudice the Executive's right to
compensation or other benefits under the Agreement. The Executive shall have no
right to receive compensation or other benefits for any period after termination
for Just Cause. The Board may within its sole discretion, acting in good faith,
terminate the Executive for Just Cause and shall notify such Executive
accordingly. Termination
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<PAGE>
for "Just Cause" shall include termination because of the Executive's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of the Agreement.
(c) Except as provided pursuant to Section 9 hereof, in the event
Executive's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Association shall be obligated to continue to
pay the Executive the salary provided pursuant to Section 3(a) herein, up to the
date of termination of the remaining Term of this Agreement, but in no event for
a period of less than twenty-four months, and the cost of Executive obtaining
all health, life, disability, and other benefits which the Executive would be
eligible to participate in through such date based upon the benefit levels
substantially equal to those being provided Executive at the date of termination
of employment.
(d) The voluntary termination by the Executive during the term of
this Agreement with the delivery of no less than 60 days written notice to the
Board of Directors, other than pursuant to Section 9(b), in which case the
Executive shall be entitled to receive only the compensation, vested rights, and
all employee benefits up to the date of such termination.
7. Regulatory Exclusions.
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)),
the Association's obligations under the Agreement shall be suspended as of the
date of service, unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Association may within its discretion (i) pay the
Executive all or part of the compensation withheld while its contract
obligations were suspended and (ii) reinstate any of its obligations which were
suspended.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Association under this
Agreement shall terminate, as of the effective date of the order, but the vested
rights of the parties shall not be affected.
(c) If the Association is in default (as defined in Section 3(x)(1) of
FDIA) all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the
contracting parties.
(d) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Association: (i) by the Director of the Office of
Thrift Supervision ("Director of OTS"), or his or her designee, at the time that
the Federal Deposit Insurance Corporation ("FDIC") enters into
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an agreement to provide assistance to or on behalf of the Association under the
authority contained in Section 13(c) of FDIA; or (ii) by the Director of the
OTS, or his or her designee, at the time that the Director of the OTS, or his or
her designee approves a supervisory merger to resolve problems related to
operation of the Association or when the Association is determined by the
Director of the OTS to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such action.
(e) Notwithstanding anything herein to the contrary, any payments made
to the Executive pursuant to the Agreement, or otherwise, shall be subject to
and conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
8. Disability. If the Executive shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Executive shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 65% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Executive during such period
under the provisions of disability insurance coverage in effect for Association
employees. Thereafter, Executive shall be eligible to receive benefits provided
by the Association under the provisions of disability insurance coverage in
effect for Association employees. Upon returning to active full-time employment,
the Executive's full compensation as set forth in this Agreement shall be
reinstated as of the date of commencement of such activities. In the event that
the Executive returns to active employment on other than a full-time basis, then
his compensation (as set forth in Section 3(a) of this Agreement) shall be
reduced in proportion to the time spent in said employment, or as shall
otherwise be agreed to by the parties.
9. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the
event of the involuntary termination of Executive's employment during the term
of this Agreement following any Change in Control of the Association or Parent,
or within 24 months thereafter of such Change in Control, absent Just Cause,
Executive shall be paid an amount equal to the product of 2.99 times the
Executive's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") and regulations promulgated
thereunder. Said sum shall be paid in one (1) installment within thirty (30)
days of such termination of employment, and such payments shall be in lieu of
any other future payments which the Executive would be otherwise entitled to
receive to receive under Section 6 of this Agreement. Additionally, Executive
shall be paid for the costs associated with maintaining coverage under the
Savings Association's medical and dental insurance reimbursement plans similar
to that in effect on the date of termination of employment for a period of one
year thereafter. Notwithstanding the forgoing, all sums payable hereunder shall
be reduced in such manner and to such extent so that no such payments made
hereunder when aggregated with all other
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<PAGE>
payments to be made to the Executive by the Association or the Parent shall be
deemed an "excess parachute payment" in accordance with Section 280G of the Code
and be subject to the excise tax provided at Section 4999(a) of the Code. The
term "Change in Control" shall refer to (i) the control of voting proxies
whether related to stockholders or mutual members by any person, other than the
Board of Directors of the Savings Association, to direct more than 25% of the
outstanding votes of the Savings Association, the control of the election of a
majority of the Savings Association's directors, or the exercise of a
controlling influence over the management or policies of the Savings Association
by any person or by persons acting as a group within the meaning of Section
13(d) of the Exchange Act, (ii) an event whereby the OTS, FDIC or any other
department, agency or quasi-agency of the federal government cause or bring
about, without the consent of the Savings Association, a change in the corporate
structure or organization of the Savings Association; (iii) an event whereby the
OTS, FDIC or any other agency or quasi-agency of the federal government cause or
bring about, without the consent of the Savings Association, a taxation or
involuntary distribution of retained earnings or proceeds from the sale of
securities to depositors, borrowers, any government agency or organization or
civic or charitable organization; or (iv) a merger or other business combination
between the Savings Association and another corporate entity whereby the Savings
Association is not the surviving entity. In the event that the Savings
Association shall convert in the future from mutual-to-stock form, the term
"Change in Control" shall also refer to: (i) the sale of all, or a material
portion, of the assets of the Savings Association or the Parent; (ii) the merger
or recapitalization of the Savings Association or the Parent whereby the Savings
Association or the Parent is not the surviving entity; (iii) a change in control
of the Savings Association or the Parent, as otherwise defined or determined by
the Office of Thrift Supervision or regulations promulgated by it; or (iv) the
acquisition, directly or indirectly, of the beneficial ownership (within the
meaning of that term as it is used in Section 13(d) of the Securities Exchange
Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five
percent (25%) or more of the outstanding voting securities of the Savings
Association or the Parent by any person, trust, entity or group. The term
"person" means an individual other than the Executive, or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Executive may voluntarily terminate his employment during the term of
this Agreement following a Change in Control of the Association or Parent, or
within twenty-four months following such Change in Contriol, and Executive shall
thereupon be entitled to receive the payment described in Section 9(a) of this
Agreement, upon the occurrence, or within 120 days thereafter, of any of the
following events, which have not been consented to in advance by the Executive
in writing: (i) if Executive would be required to move his personal residence or
perform his principal executive functions more than thirty-five (35) miles from
the Executive's primary office as of the signing of this Agreement; (ii) if in
the organizational structure of the Association, Executive would be required to
report to a person or persons other than the President of the Association; (iii)
if the Association should fail to maintain Executive's base compensation in
effect as of the date of the Change in Control and the existing employee
benefits plans, including material fringe benefit, stock option and retirement
plans; (iv) if Executive would be assigned duties and responsibilities other
than those normally associated with his
6
<PAGE>
position as referenced at Section 1, herein; or (v) if Executive's
responsibilities or authority have in any way been materially diminished or
reduced.
10. Withholding. All payments required to be made by the Association
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Association may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
11. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Association or Parent which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Association or
Parent.
(b) Since the Association is contracting for the unique and
personal skills of the Executive, the Executive shall be precluded from
assigning or delegating his rights or duties hereunder without first obtaining
the written consent of the Association.
12. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Association to sign on
its behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of Kansas.
14. Nature of Obligations. Nothing contained herein shall create or
require the Association to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Executive acquires a right
to receive benefits from the Association hereunder, such right shall be no
greater than the right of any unsecured general creditor of the Association.
15. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
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<PAGE>
17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Association,
and judgment upon the award rendered may be entered in any court having
jurisdiction thereof, except to the extent that the parties may otherwise reach
a mutual settlement of such issue. Further, the settlement of the dispute to be
approved by the Board of the Association may include a provision for the
reimbursement by the Association to the Executive for all reasonable costs and
expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, or the Board of the Association or the Parent may
authorize such reimbursement of such reasonable costs and expenses by separate
action upon a written action and determination of the Board following settlement
of the dispute. Such reimbursement shall be paid within ten (10) days of
Executive furnishing to the Association or Parent evidence, which may be in the
form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by Executive.
18. Confidential Information. The Executive acknowledges that during his
or her employment he or she will learn and have access to confidential
information regarding the Savings Association and the Parent and its customers
and businesses ("Confidential Information"). The Executive agrees and covenants
not to disclose or use for his or her own benefit, or the benefit of any other
person or entity, any such Confidential Information, unless or until the Savings
Association or tthe Parent consents to such disclosure or use or such
information becomes common knowledge in the industry or is otherwise legally in
the public domain. The Executive shall not knowingly disclose or reveal to any
unauthorized person any Confidential Information relating to the Savings
Association, the Parent, or any subsidiaries or affiliates, or to any of the
businesses operated by them, and the Executive confirms that such information
constitutes the exclusive property of the Savings Association and the Parent.
The Executive shall not otherwise knowingly act or conduct himself (a) to the
material detriment of the Savings Association or the Parent, or its
subsidiaries, or affiliates, or (b) in a manner which is inimical or contrary to
the interests of the Savings Association or the Parent. Executive acknowledges
and agrees that the existence of this Agreement and its terms and conditions
constitutes Confidential Information of the Savings Association, and the
Executive agrees not to disclose the Agreement or its contents without the prior
written consent of the Savings Association. Notwithstanding the foregoing, the
Savings Association reserves the right in its sole discretion to make disclosure
of this Agreement as it deems necessary or appropriate in compliance with its
regulatory reporting requirements. Notwithstanding anything herein to the
contrary, failure by the Executive to comply with the provisions of this Section
may result in the immediate termination of the Agreement within the sole
discretion of the Savings Association, disciplinary action against the Executive
taken by the Savings Association, including but not limited to the termination
of employment of the Executive for breach of the Agreement and the provisions of
this Section, and other remedies that may be available in law or in equity.
19. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
8
EXHIBIT 10.4
<PAGE>
FIRST KANSAS FEDERAL SAVINGS ASSOCIATION
SUPPLEMENTAL RETIREMENT PLAN
FOR THE BENEFIT OF LARRY V. BAILEY
WHEREAS, First Kansas Federal Savings Association ("Association")
wishes to reward the years of prior service provided by Larry V. Bailey,
President ("Participant") and to continue to retain and to motivate his
performance and dedication to the Association and its Board of Directors, and
WHEREAS, it is deemed advisable and in the best interests of the
Association to offer such Participant with additional financial incentives in
the form of deferred compensation to encourage such continued employment service
to the Association, and whereas an analysis of the retirement plan of the
Association indicates that such Participant would receive a significant
reduction in his retirement benefits in the event that his employment with the
Association terminates prior to attainment of age 65, whether voluntarily or as
part of a sale or merger of the Association;
NOW THEREFORE, BE IT RESOLVED that the First Kansas Federal Savings
Association Supplemental Retirement Plan for the Benefit of Larry V. Bailey
("Plan"), be adopted and implemented effective December 16, 1997, as follows:
ARTICLE I
DEFINITIONS
The following words and phrases as used herein shall, for the purpose
of this Plan and any subsequent amendment thereof, have the following meanings
unless a different meaning is plainly required by the content, as follows:
1.1 "Association" or "Savings Association" means First Kansas Federal
Savings Association, Osawatomie, Kansas, or any successor thereto.
1.2 "Beneficiary" shall mean the Participant's surviving spouse, if
any. If there shall be no surviving spouse, then all benefits payable in
accordance with the Plan shall cease as of the Participant's death.
1.3 "Board" means the Board of Directors of the Association, as
constituted from time to time and successors thereto.
1.4 "Change in Control" means : (i) the ownership, holding, or power to
vote more than 25% of the Savings Association's (or any parent holding
company's) outstanding voting stock by any person; (ii) the control of the
election of a majority of the Savings Association's (or its parent holding
company's) directors; or (iii) the exercise of a controlling influence over the
management or policies of the Savings Association by any person or by persons
acting as a group within the meaning of Section 13(d) of the Exchange Act.
Change in Control shall also
<PAGE>
mean: (i) the sale of all, or a material portion, of the assets of the Savings
Association; (ii) the merger or recapitalization of the Savings Association or
any merger or recapitalization whereby the Savings Association is not the
surviving entity; (iii) a change in control of the Savings Association, as
otherwise defined or determined by the applicable federal banking regulator
having supervisory jurisdiction over the Savings Association, or regulations
promulgated by it; or (iv) the acquisition, directly or indirectly, of the
beneficial ownership (within the meaning of that term as it is used in Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder)
of twenty-five percent (25%) or more of the outstanding voting securities of the
Savings Association by any person, trust, entity or group. This limitation shall
not apply to the purchase of shares by underwriters in connection with a public
offering of the Savings Association stock (or its parent holding company's
stock), or the purchase of shares of up to twenty-five percent (25%) of any
class of securities of the Savings Association by a tax-qualified employee stock
benefit plan. The term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to whether a change
in control has occurred shall be conclusive and binding. However, a change in
control shall not be deemed to have occurred as a result of a holding company
reorganization of the Savings Association and simultaneous acquisition of more
than 50% of the Savings Association's stock (following the Savings Association's
conversion to stock form) by a parent savings and loan holding company or bank
holding company.
1.5 "Committee" means the Board or the administrative committee as
appointed by the Board pursuant to Section 8.11 herein.
1.6 "Director" means a member of the Board of the Association.
1.7 "Disability" (total and permanent disability) means a mental or
physical disability which prevents the Participant from performing the normal
duties of his position with the Association. Such disability must have prevented
the Participant from performing his duties for at least six months, and a
physician satisfactory to both the Participant and the Association must certify
that the Participant is disabled from performing his normal duties with the
Association.
1.8 "Effective Date" means December 16, 1997.
1.9 "Participant" means Larry V. Bailey, President of the Association.
Such participation shall continue as long as such Participant fulfills all
requirements for participation subject to the right of termination, amendment
and modification of the Plan hereinafter set forth.
1.10 "Pension Plan" means the tax-qualified defined benefit plan
sponsored by the Association for the benefit of the Association's employees in
effect as of the Effective Date. All terms and definitions not otherwise defined
in the Plan shall be defined as set forth in the Pension Plan.
2
<PAGE>
1.11 "Plan" means the First Kansas Federal Savings Association
Supplemental Retirement Plan for the Benefit of Larry V. Bailey, as herein set
forth, as may be amended from time to time.
1.12 "Retirement Date" means the first day of the calendar month
following attainment of age 58 of the Participant or thereafter whereby the
Participant retires as an employee of the Association.
1.13 "Service" means all years of service as an employee of the
Association and all predecessor and successor entities. Years of service need
not be continuous. All years of service prior to the Effective Date shall be
recognized for benefits determination.
1.14 "Trust" shall mean any trust agreement entered into on behalf of
the Plan by the Association for the purpose of holding assets of the Association
in order to promote the efficient administration of the Plan.
ARTICLE II
BENEFITS
2.1 Retirement. Upon a Participant's termination from service as an
employee of the Association on or after the Retirement Date, the Association
shall pay to the participant a benefit in an amount approved by the Board and
set forth herein at Article II, Section 2.4, commencing on the first business
day of the calendar month commencing on or after the Retirement Date. Except as
provided at Article II, Section 2.2, 2.3 and 2.5 herein, upon a Participant's
termination from service as an employee of the Association prior to the
Retirement Date, the Association shall have no financial obligations to the
Participant under the Plan.
2.2 Disability. In the event of the Disability of the Participant, the
Participant will be entitled to a benefit equal to 100% of the amount specified
at Article II, Section 2.4, payable on the first day of the month following
certification of such Disability based upon actual years of service completed as
of such date and without regard to any other provisions herein to the contrary.
Upon Disability, such benefits payable shall be determined based upon actual
years of service, provided that such Participant shall be presumed to have
attained not less than age 58 as of such date of Disability.
2.3 Change in Control. All benefits payable, or that would become
payable if the Participant were to retire prior to such Change in Control, shall
remain payable thereafter. Upon termination of service following a Change in
Control, all benefits shall be deemed payable immediately in accordance with
Article II, Section 2.4; provided that if the Participant is not yet age 58 as
of such date of termination of service, such Participant shall nevertheless be
deemed to be not less than age 58 as of the date of such termination. Further,
that in order to calculate benefits payable hereunder, actual Years of Service
for benefits calculation purposes following
3
<PAGE>
a Change in Control shall include all years of service remaining under any
employment agreement between the Participant and the Association. Upon a Change
in Control, all future benefits payable pursuant to Sections 2.1, 2.2, 2.3, and
2.5 of the Plan, shall at the election of the Participant be made in a lump sum
payment equal to the present value of all future benefits payable to such
Participant. The interest rate in effect for a two year U.S. Treasury Note on
the date of the lump sum payment shall be used for purposes of calculating the
present value of amounts payable in accordance with Section 2.4.
2.4 Benefit Payments. The Participant shall be eligible to receive
benefit payments under the Plan in accordance with the benefits formula and
calculations provided under the Pension Plan, except as modified in accordance
with the provisions of Article II of the Plan, reduced by actual benefits
payments received under the Pension Plan, as follows:
a. Upon retirement by the Participant on or after attainment of age 58,
all retirement benefits due to the Participant under the Plan shall be
calculated based upon the actual number of Years of Service determined for
purposes of benefits accrual credited under the Pension Plan plus an additional
credit of fifteen (15) Years of Service.
b. The Participant shall be eligible to receive the retirement benefits
provided for under the Plan and the Pension Plan; provided that the Early
Retirement Reduction Factor based upon the number of years that the
Participant's Early Retirement Date precedes the Participants Normal Retirement
Date shall be based on the schedule contained hereinafter in lieu of such 3% per
year reduction factor set forth under the Pension Plan, as follows:
Retirement Age Adjusted Early Retirement Reduction Factor
-------------- ------------------------------------------
65 100%
64 98%
63 96%
62 94%
61 92%
60 90%
59 88%
58 86%
c. Benefits payable hereunder are exclusive of any benefits received
under the Federal Social Security Act or any income tax liabilities of the
Participant or Beneficiary.
d. Except as otherwise specified to the contrary herein, benefits
payable hereunder shall be paid in the same manner and at the same frequency as
benefits payable under the Pension Plan.
4
<PAGE>
2.5 Benefit Payments Following Death. A Participant receiving benefits
in accordance with Article II, Sections 2.1, 2.2 or 2.3 shall, upon death,
continue to have the balance of any such payments due be paid to the
Participant's Beneficiary for the remainder of the payments due as specified at
Section 2.4.
2.6 Notice of Retirement. A Participant electing to retire in
accordance with the Plan shall deliver written notice ("Notice") to the Board
not less than ninety (90) days prior to the actual Retirement Date. A
Participant who terminates service upon death, Disability, or a Change in
Control shall not be required to deliver such Notice in order to be entitled to
receive benefits under the Plan.
2.7 Alternative Forms Of Benefit Payment. The Committee may at any time
distribute the benefits payable with respect to all future benefits payable
pursuant to Sections 2.1, 2.2, 2.3, and 2.5 of the Plan, in a lump sum payment
equal to the present value of all future benefits payable to such Participant.
The interest rate in effect for a 2 year U.S. Treasury Note on the date of the
lump sum payment shall be used for purposes of calculating the present value of
amounts payable in accordance with Section 2.4.
ARTICLE III
INSURANCE
3.1 Ownership of Insurance. The Association, in its sole discretion,
may elect to purchase one or more life insurance policies on the lives of
Participants in order to provide funds to the Association to pay part or all of
the benefits accrued under this Plan. All rights and incidents of ownership in
any life insurance policy that the Association may purchase insuring the life of
the Participant (including any right to proceeds payable thereunder) shall
belong exclusively to the Association or its designated Trust, and neither the
Participant, nor any beneficiary or other person claiming under or through him
shall have any rights, title or interest in or to any such insurance policy. The
Participant shall not have any power to transfer, assign, hypothecate or
otherwise encumber in advance any of the benefits payable thereunder, nor shall
any benefits be subject to seizure for the benefit of any debts or judgments, or
be transferable by operation of law in the event of bankruptcy, insolvency or
otherwise. Any life insurance policy purchased pursuant hereto and any proceeds
payable thereunder shall remain subject to the claims of the Association's
general creditors.
3.2 Physical Examination. As a condition of becoming or remaining
covered under this Plan, the Participant, as may be requested by the Association
from time to time shall take a physical examination by a physician approved by
an insurance carrier. The cost of the examination shall not be borne by the
Participant. The report of such examination shall be transmitted directly from
the physician to the insurance carrier designated by the Association to
establish certain costs associated with obtaining insurance coverages as may be
deemed necessary
5
<PAGE>
under this Plan. Such examination shall remain confidential among the
Participant, the physician and the insurance carrier and shall not be made
available to the Association in any form or manner.
3.3 Death of Participant. Upon the death of the Participant, the
proceeds derived from any such insurance policy held by the Association or any
related Trust, if any, shall be paid to the Association or its designated Trust.
ARTICLE IV
TRUST / NON-FUNDED STATUS
4.1 Trust. Except as may be specifically provided, nothing contained in
this Plan and no action taken pursuant to the provisions of this Plan shall
create or be construed to create a trust of any kind, or a fiduciary
relationship between the Association and the Participant or any other person.
Any funds which may be invested under the provisions of this Plan shall continue
for all purposes to be a part of the general funds of the Association. No person
other than the Association shall by virtue of the provisions of this Plan have
any interest in such funds. The Association shall not be under any obligation to
use such funds solely to provide benefits hereunder, and no representations have
been made to a Participant that such funds can or will be used only to provide
benefits hereunder. To the extent that any person acquires a right to receive
payments from the Association under the Plan, such rights shall be no greater
than the right of any unsecured general creditor of the Association.
In order to facilitate the accumulation of funds necessary to meet the
costs of the Association under this Plan (including the provision of funds
necessary to pay premiums with respect to any life insurance policies purchase
pursuant to Article III above and to pay benefits to the extent that the cash
value and/or proceeds of any such policies are not adequate to make payments to
a Participant or his beneficiary as and when the same are due under the Plan),
the Association may enter into a Trust Agreement. The Association, in its
discretion, may elect to place any life insurance policies purchased pursuant to
Article III above into the Trust. In addition, such sums shall be placed in said
Trust as may from time to time be approved by the Board of Directors, in its
sole discretion. To the extent that the assets of said Trust and/or the proceeds
of any life insurance policy purchased pursuant to Article III are not
sufficient to pay benefits accrued under this Plan, such payments shall be made
from the general assets of the Association.
ARTICLE V
VESTING
5.1 Vesting. All benefits under this Plan are deemed non-vested and
forfeitable prior to the Retirement Date. All benefits payable hereunder shall
be deemed 100% earned and non- forfeitable by the Participant and his
Beneficiary as of the Retirement Date. Notwithstanding the
6
<PAGE>
foregoing, all benefits payable hereunder shall be deemed 100% earned and
non-forfeitable by the Participant and his Beneficiary upon the death or the
Disability of the Participant, or upon termination of employment following a
Change in Control of the Association. No benefits shall be deemed payable
hereunder for any time period prior to termination of employment prior to the
Retirement Date, except in the event of death, Disability or termination of
employment following a Change in Control of the Association, in which case such
benefits shall be immediately payable as of such date of termination of
employment.
ARTICLE VI
TERMINATION
6.1 Termination. All rights of the Participant hereunder shall
terminate immediately upon the Participant ceasing to be in the active service
of the Association prior to the time that the benefits payable under the Plan
shall be deemed to be 100% earned and non-forfeitable. A leave of absence
approved by the Board shall not constitute a cessation of service within the
meaning of this paragraph, within the sole discretion of the Committee.
ARTICLE VII
FORFEITURE OR SUSPENSION OF BENEFITS
7.1 Forfeiture or Suspension of Benefits. Notwithstanding any other
provision of this Plan to the contrary, benefits shall be forfeited or suspended
during any period of paid service with the Association following the
commencement of benefit payments, within the sole discretion of the Committee.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Other Benefits. Nothing in this Plan shall diminish or impair the
Participant's eligibility, participation or benefit entitlement under any other
benefit, insurance or compensation plan or agreement of the Association now or
hereinafter in effect.
8.2 No Effect on Employment. This Plan shall not be deemed to give any
Participant or other person in the employ or service of the Association any
right to be retained in the employment or service of the Association, or to
interfere with the right of the Association to terminate any Participant or such
other person at any time and to treat him without regard to the effect which
such treatment mights have upon him as a Participant in this Plan.
8.3 Legally Binding. The rights, privileges, benefits and obligations
under this Plan are intended to be legal obligations of the Association and
binding upon the Association, its successors and assigns.
7
<PAGE>
8.4 Modification. The Association, by action of the Board, reserves the
exclusive right to amend, modify, or terminate this Plan. Any such termination,
modification or amendment shall not terminate or diminish any rights or benefits
accrued by any Participant prior thereto. The Association shall give thirty (30)
days' notice in writing to any Participant prior to the effective date of any
such amendment, modification or termination of this Plan. Notwithstanding the
foregoing, in no event shall such benefits payable to a Participant under the
Plan be reduced below those provided for in Section 2.4 herein. In the event
that the Plan benefits payable under Section 2.4 of the Plan are reduced or the
Plan is terminated, a Participant shall be immediately 100% vested in all
benefits calculated in accordance with Section 2.4 as of the date of such Plan
amendment or Plan termination without regard to such Plan amendment or Plan
termination.
8.5 Arbitration. Any controversy or claim arising out of or relating to
any contract or the breach thereof shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
with such arbitration hearing to be held at the offices of the American
Arbitration Association ("AAA") unless otherwise mutually agreed to by the
Participant and the Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
8.6 Limitation. No rights of any Participant are assignable by any
Participant, in whole or in part, either by voluntary or involuntary act or by
operation of law. Rights of Participants hereunder are not subject to
anticipation, alienation, sale, transfer, assignment, pledge, hypothecation,
encumbrance or garnishment by creditors of the Participant or a Beneficiary.
Such rights are not subject to the debts, contracts, liabilities, engagements,
or torts of any Participant or his Beneficiary. No Participant shall have any
right under this Plan or any Trust referred to in Article IV or against any
assets held or acquired pursuant thereto other than the rights of a general,
unsecured creditor of the Association pursuant to the unsecured promise of the
Association to pay the benefits accrued hereunder in accordance with the terms
of this Plan. The Association has no obligation under this Plan to fund or
otherwise secure its obligations to render payments hereunder to Participants.
No Participant shall have any voice in the use, disposition, or investment of
any asset acquired or set aside by the Association to provide benefits under
this Plan.
8.7 ERISA and IRC Disclaimer. It is intended that the Plan be neither
an "employee welfare benefit plan" nor an "employee pension benefit plan" for
purposes of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Further, it is intended that the Plan will not cause the interest of
a Participant under the Plan to be includable in the gross income of such
Participant or a Beneficiary prior to the actual receipt of a payment under the
Plan for purposes of the Internal Revenue Code of 1986, as amended ("IRC"). No
representation is made to any Participant to the effect that any insurance
policies purchased by the Association or assets of any Trust established
pursuant to this Plan will be used solely to provide benefits under this Plan or
in any way shall constitute security for the payment of such benefits. Benefits
payable under this Plan are not in any way limited to or governed by the
proceeds of any such insurance policies or the assets of any such Trust. No
Participant in the
8
<PAGE>
Plan has any preferred claim against the proceeds of any such insurance policies
or the assets of any such Trust.
8.8 Conduct of Participants. Notwithstanding anything contained to the
contrary, no payment of any then unpaid benefits shall be made and all rights
under the Plan payable to a Participant, or any other person, to receive
payments thereof shall be forfeited if the Participant shall engage in any
activity or conduct which in the opinion the Board of the Association is
inimical to the best interests of the Association.
8.9 Incompetency. If the Association shall find that any person to whom
any payment is payable under the Plan is deemed unable to care for his personal
affairs because of illness or accident, or is a minor, any payment due (unless a
prior claim therefor shall have been made by a duly appointed guardian,
committee or other legal representative) may be paid to the spouse, a child, a
parent, or a brother or sister, or to any person deemed by the Association to
have incurred expense for such person otherwise entitled to payment, in such
manner and proportions as the Committee, in its sole discretion, may determine.
Any such payments shall constitute a complete discharge of the liabilities of
the Association under the Plan.
8.10 Construction. The Committee shall have full power and authority to
interpret, construe and administer this Plan and the Committee's interpretations
and construction thereof, and actions thereunder, shall be binding and
conclusive on all persons for all purposes. Directors of the Association and
members of the Committee shall not be liable to any person for any action taken
or omitted in connection with the interpretation and administration of this Plan
unless attributable to his own willful, gross misconduct or intentional lack of
good faith.
8.11 Plan Administration. The Board of the Association shall administer
the Plan; provided, however, that the Board may appoint an administrative
committee ("Committee") to provide administrative services or perform duties
required by this Plan. The Committee shall have only the authority granted to it
by the Board.
8.12 Governing Law. This Plan shall be construed in accordance with and
governed by the laws of the State of Kansas, except to the extent that Federal
law shall be deemed to apply. No payments of benefits shall be made hereunder if
the Board of the Association, or counsel retained thereby, shall determine that
such payments shall be in violation of applicable regulations, or likely result
in imposition of regulatory action, by the Office of Thrift Supervision, the
Federal Deposit Insurance Corporation or other appropriate banking regulatory
agencies.
8.13 Regulatory Matters.
(a) The Participant or Beneficiary shall have no right to receive
compensation or other benefits in accordance with the Plan for any period after
termination of service for Just Cause. Termination for "Just Cause" shall
include termination because of the Participant's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit,
9
<PAGE>
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of the Plan.
(b) Notwithstanding anything herein to the contrary, any payments made
to a Participant or Beneficiary pursuant to the Plan shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
8.14 Successors and Assigns. The Plan shall be binding upon any
successor or successors of the Association, and unless clearly inapplicable,
reference herein to the Association shall be deemed to include any successor or
successors of the Association.
8.15 Sole Agreement. The Plan expresses, embodies, and supersedes all
previous agreements, understandings, and commitments, whether written or oral,
between the Association and any Participants and Beneficiaries hereto with
respect to the subject matter hereof.
10
EXHIBIT 23.2
<PAGE>
ACCOUNTANTS' CONSENT
Board of Directors
First Kansas Federal Savings Association:
We consent to the use in this Registration Statement of First
Kansas Financial Corporation Form SB-2 and the Application for
Conversion on Form AC of our report dated February 18, 1998, on the
consolidated financial statements of First Kansas Federal Savings
Association and Subsidiary as of December 31, 1997 and 1996, and
for the fiscal years ended December 31, 1997 and 1996, and to the
references to our firm under the heading "Experts" in the related
prospectus.
/s/KPMG Peat Marwick LLP
- ------------------------
Kansas City, Missouri
March 16, 1998
EXHIBIT 23.3
<PAGE>
Capital Resources Group, Inc.
1211 Connecticut Ave., N.W. - Suite 200 - Washington, DC 20036
- Tel(202) 466-5685 - Fax(202) 466-5695
March 16, 1998
Board of Directors
First Kansas Federal Savings Association
600 Main Street
Osawatomie, Kansas 66064
Dear Board Members:
We hereby consent to the use of our firm's name, Capital
Resources Group, Inc. ("CRG") in the Application for Approval of
Conversion filed by First Kansas Federal Savings Association for
permission to convert to a capital stock savings bank and
references to the Conversion Valuation Appraisal Report ("Report")
and the valuation of First Kansas Federal Savings Association
provided by CRG. We also consent to the use of our firm's name and
references to our Report in the Form SB-2 Registration Statement
filed by First Kansas Financial Corporation.
Very truly yours,
/s/Michael B. Seiler
-----------------------------------
Michael B. Seiler
Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
FINANCIAL STATEMENTS IN THE PROSPECTUS WHICH FORMS PART OF FORM SB-2 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,600
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,833
<INVESTMENTS-CARRYING> 24,789
<INVESTMENTS-MARKET> 24,847
<LOANS> 46,385
<ALLOWANCE> 179
<TOTAL-ASSETS> 95,655
<DEPOSITS> 85,650
<SHORT-TERM> 1,900
<LIABILITIES-OTHER> 844
<LONG-TERM> 650
0
0
<COMMON> 0
<OTHER-SE> 6,610
<TOTAL-LIABILITIES-AND-EQUITY> 95,655
<INTEREST-LOAN> 3,604
<INTEREST-INVEST> 3,029
<INTEREST-OTHER> 261
<INTEREST-TOTAL> 6,895
<INTEREST-DEPOSIT> 3,778
<INTEREST-EXPENSE> 461
<INTEREST-INCOME-NET> 2,666
<LOAN-LOSSES> 35
<SECURITIES-GAINS> 55
<EXPENSE-OTHER> 2,352
<INCOME-PRETAX> 1,121
<INCOME-PRE-EXTRAORDINARY> 1,121
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 672
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.75
<LOANS-NON> 79
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 146
<CHARGE-OFFS> 5
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 179
<ALLOWANCE-DOMESTIC> 179
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT 99.1
<PAGE>
-----------------------
Stock Offering Expires
Time
____________, 1998
-----------------------
Stock Center
First Kansas Financial Corporation
(Holding Company for First Kansas FSA)
STOCK ORDER FORM
- --------------------------------------------------------------------------------
Number of Shares
- --------------------------------------------------------------------------------
Number of Shares Purchase Price Total Payment Due
- -------------------- ------------------------
X $10.00
- -------------------- ------------------------
The minimum number of shares that may be subscribed for is __ and the maximum
number is ______ shares per individual or per account. The limit for any person
together with their associates or persons acting in concert in the Conversion is
______ shares. Management has the discretion to increase or decrease the
purchase limit within regulations. Orders of $25,000 or more must be paid by
First Kansas FSA account withdrawals, certified funds, cashier's check or money
order.
- --------------------------------------------------------------------------------
Method of Payment
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
|_| Enclosed is a check or money order made payable to Do not mail cash. Please take cash payment in
First Kansas FSA for $________ person to any First Kansas FSA office.
|_| I authorize First Kansas FSA to withdraw the indicated amounts from the following First Kansas FSA
accounts, and understand that the amounts will not otherwise be available for withdrawal.
</TABLE>
Account Number Amount
- -----------------------------
$ To withdraw from an account with check
- ----------------------------- writing privileges, please write a check. (Call
$ the Stock Center for IRA transactions.)
- -----------------------------
$ There will be no penalty for early withdrawals
- ----------------------------- of funds used to order stock.
$
- -----------------------------
- --------------------------------------------------------------------------------
Purchaser Information
- --------------------------------------------------------------------------------
|_| Check here if you are a director, officer or employee of First Kansas FSA or
a member of their immediate families.
|_| Check here if you were a depositor on ____, 199_, ____, 199_, or ____, 199_.
If you check this box, please enter all your account information for each
of these dates on reverse side: (If you need additional space, please
attach a separate sheet.)
|_| I am not acting in concert with any other persons purchasing stock in
the Conversion nor are any of my associates purchasing stock.
|_| I am acting in concert with the following purchasers and/or the following
purchasers are my associates: ____________, ____________, ____________.
- --------------------------------------------------------------------------------
Stock Registration
- --------------------------------------------------------------------------------
Please review the guidelines on the back of this form. Print the name(s) in
which you want the stock registered and the mailing address for the
registration. Names must appear exactly as on your account at First Kansas FSA
if you are subscribing as an Eligible Account Holder, Supplemental Account
Holder or Other Member.
SUBSCRIPTION RIGHTS ARE NOT TRANSFERABLE.
- -----------------------------------------
Form of ownership: Please check one.
<TABLE>
<CAPTION>
<S> <C> <C>
o Individual o Tenants in common o Uniform Transfers to Minors Act
o Joint Tenants o Corporation or partnership o Uniform Gifts to Minors Act
o Other _________________ o Fiduciary ________________________
please specify adoption date
</TABLE>
- --------------------------------------------------------------------------------
Name Social Security or Tax I.D. No.
- --------------------------------------------------------------------------------
Name Evening Telephone
- --------------------------------------------------------------------------------
Street Address Daytime Telephone
- --------------------------------------------------------------------------------
City State Zip County of Residence
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NASD Affiliation
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Please read the NASD Affiliation section on the reverse NASD member or person associated with an NASD member has a beneficial
side of this form: Check if applicable and initial where interest. In accordance with the conditions for an exception from the
indicated with *. interpretation, I agree (I) not to sell, transfer or hypothecate this
stock for a period of 90 days following issuance and (ii) to report
o Check here if you are a member of the NASD or a this subscription in writing to the applicable NASD member I am
person associated with an NASD member or a partner associated with within one day of payment of the stock.
with a securities brokerage firm or a member of *_______________________________________(Initial)
the immediate family of any such person to whose
support such person contributes directly or
indirectly or if you have an account in which an
</TABLE>
- --------------------------------------------------------------------------------
Acknowledgements
- --------------------------------------------------------------------------------
To purchase stock in the Subscription Offering, this fully completed Stock Order
Form must be actually received by First Kansas FSA no later than_________,
Central Time on _______, 1998 unless extended, otherwise this Stock Order Form
and all subscription rights will be void. Completed Stock Order Forms, together
with the required payment or withdrawal authorization and signed Certification,
may be delivered to First Kansas FSA or may be mailed to the ___________
indicated on the enclosed business reply envelope. All rights exercisable
hereunder are not transferable and shares purchased upon exercise of such rights
must be purchased for the account of the person exercising such rights. The
undersigned certifies that this stock order is for my account only and there is
no agreement or understanding regarding the transfer of my subscription rights
or any further sales or transfer of these shares.
It us understood that this Stock Order Form will be accepted in accordance with,
and subject to, the terms and conditions of the Plan of Conversion of First
Kansas FSA described in the accompanying __________, receipt of which is hereby
acknowledged at least 48 hours prior to delivery of this Stock Order Form to
First Kansas FSA. If the minimum shares cannot be sold, all orders will be
canceled and funds received as payment will be returned promptly.
The undersigned agrees that after receipt by First Kansas Financial Corporation,
this Stock Order Form may not be modified, withdrawn or canceled (unless the
Conversion is not completed by________, 1998) and if First Kansas FSA has been
given authorization to withdraw a specified amount from deposit accounts at
First Kansas FSA as payment shares, the amount authorized for withdrawal shall
not otherwise be available for withdrawal by the undersigned. I ACKNOWLEDGE THAT
THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT INSURED OR GUARANTEED BY
THE SAIF, THE FDIC OR THE FEDERAL GOVERNMENT.
Under penalty of perjury, I certify that the Social Security or Tax ID Number on
this Stock Order Form is true, correct and complete and that I am not subject to
back-up withholding.
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Sign Below (You must also read and sign the Certification on the reverse side to
purchase stock).
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Sign and date the form. When purchasing as a
custodian, corporate officer, etc., include
your full title. An additional signature is ===========================================================
required only when payment is by withdrawal
from an account that requires more than one
signature to withdraw funds. YOUR ORDER WILL BE X__________________________________________________________
FILLED IN ACCORDANCE WITH THE PROVISIONS OF THE Authorized Signature Title (if applicable) Date
PROSPECTUS. THIS ORDER IS NOT VALID IF NOT SIGNED
ON THE FRONT AND BACK.
If you need help completing this form, you may X__________________________________________________________
call the Stock Center at ( ) _________ Authorized Signature Title (if applicable) Date
____________________________________________________============================================================
x
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Names(s) on Accounts Account Number Names(s) on Accounts Account Number
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GUIDELINES FOR REGISTERING STOCK
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For reasons of clarity and standardization, the stock transfer industry has
developed uniform stock ownership registrations which we will use in issuing
your stock certificate. Common ownership registrations are explained below. If
you have any questions about how your First Kansas Financial Corporation stock
should be registered, see your legal advisor.
To ensure correct registration, please follow the instructions for the
ownership you select:
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<S> <C> <C>
GENERAL INSTRUCTIONS: o Include the first name, middle initial, and last name of each person listed. Avoid the use of an
initial in place of the first name.
o Do not use titles such as ("Mr.," "Mrs.," "Dr.," etc.)
o Omit words that do not affect ownership rights such as "special account" "personal property,"
etc.
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INDIVIDUAL: Instructions: Print the first name, middle initial, and last name of the person in whose name the
stock is to be registered. You may not list beneficiaries for this ownership.
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JOINT TENANTS: Joint Tenancy with Right of Survivorship identifies two or more persons as owners of the stock.
Upon the death of one of the owners, ownership automatically passes to the surviving tenant(s).
Instructions: Print the first name, middle initial, and last name of each joint tenant. You may not
list beneficiaries for this ownership.
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TENANTS IN COMMON: Tenants in Common identifies two or more persons as owners of the stock. Upon the death of one
co-tenant, ownership of the stock passes to the heirs of the deceased co-tenant and the surviving co-
tenant(s).
Instructions: Print the first name, middle initial, and last name of each co-tenant. You may not list
beneficiaries for this ownership.
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FIDUCIARIES: Generally, fiduciary relationships (such as Conservatorship, Legal Trust, Guardianship, etc.) are
established under a form of trust agreement or are pursuant to a court order. Without a legal
document establishing a fiduciary relationship, your stock may not be registered in a fiduciary
capacity.
Instructions: On the first "NAME" line, print the first name, middle initial, and last name of the
fiduciary if the fiduciary is an individual. If the fiduciary is a corporation, list the corporate title on
the first "NAME" line. Following the name, print the fiduciary "title" such as conservator, personal
representative, etc.
On the second "NAME" line, print either the name of the maker, donor or testator or the name of
the beneficiary. Following the name, indicate the type of legal document establishing the fiduciary
relationship (agreement, court order, etc.)
In the blank above "Adoption Date," fill in the date of the document governing the relationship.
The date of the document need not be provided for a trust created by a will.
EXAMPLE OF A FIDUCIARY REGISTRATION:
John D. Smith Trustee for Tom A. Smith Under Agreement Dated 6/6/74.
PLEASE NOTE THAT "TOTTEN TRUST" AND "PAYABLE ON DEATH" OWNERSHIPS MAY
NOT BE USED IN REGISTERING STOCK.
For example, stock cannot be registered as "John Doe Trustee for Jane Doe" or "John Doe Payable
on Death to Jane Doe."
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UNIFORM GIFTS TO For Kansas residents and residents of many states, stock may be held in the name of
MINORS ACT/UNIFORM a custodian for the benefit of a minor under the Uniform Transfers to Minors Act. For
TRANSFERS TO MINORS: residents of some other states, stock may be held in a similar type of ownership under the Uniform
Gifts to Minors Act of the individual states. For either ownership, the minor is the actual owner of
the stock with the adult custodian being responsible for the investment until the minor reaches legal
age.
Instructions: If you are a Kansas resident and wish to register stock in this ownership, check
"Uniform Transfers to Minors Act." For other states, see your legal advisor if you are unsure about
the correct registration of your stock.
On the first "NAME" line, print the first name, middle initial, and last name of the custodian with
the abbreviation "CUST" after the name.
Print the first name, middle initial, and last name of the minor on the second "NAME" line.
Only one custodian and one minor may be designated.
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NASD AFFILIATION: Please refer to the NASD AFFILIATION statement on the face of this form. If applicable, initial
where indicated and check the box. The National Association of Securities Dealers, Inc.
Interpretation With Respect to Free-Riding and Withholding (the "Interpretation") restricts the sale
of a "hot issue" (securities that trade at a premium in the aftermarket) to NASD members, persons
associated with NASD members (i.e., an owner, director, officer, partner, employee or agent of a
NASD member) and certain members of their families. Such persons are requested to indicate that
they will comply with certain conditions required for an exemption from the restrictions.
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CERTIFICATION: I/WE ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR AN ACCOUNT
AND IS NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY FIRST KANSAS
FSA OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that this security is federally insured or guaranteed, or is as safe as an insured
deposit, I/we should call the Office of Thrift Supervision Regional Director, ________ Regional
Office, at ( ) ________.
I/We further certify that before purchasing the common stock, par value $0.10 per share, of First
Kansas Financial Corporation, I/we received a _____ that contains disclosure concerning the nature
of the security being offered and describes the risks involved in the investment, including, among
other (1)___________; (2) ____________; (3) ___________; (4)_________; (5)__________ ; (6)
__________; (7)_____________; (8)______________; (9) ___________; (10)__________ ; (11)
__________________; (12)________________; (13)_____________; (14)_____________ ; and
(15)_________________. See "Risk Factors" on pages __ through __ of the __________.
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SIGNATURE: ____________________ SIGNATURE: _________________________
PRINT NAME ____________________ PRINT NAME:_________________________
SIGNATURE: ____________________ SIGNATURE: _________________________
PRINT NAME:_____________________ PRINT NAME:_________________________
