As filed with the Securities and Exchange Commission on December 16, 1999
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 FEDERAL OF OLATHE BANCORP, INC.
(Name of Small Business Issuer in Its Charter )
Kansas 6712 (To be applied for)
(State or Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Code Identification No.)
Organization) Number)
100 East Park Street
Olathe, Kansas 66061
(913) 782-0026
(Address and Telephone Number of Principal Executive Offices)
100 East Park Street
Olathe, Kansas 66061
(Address of Principal Place of Business or Intended Principal Place of Business)
Mitch Ashlock
100 East Park Street
Olathe, Kansas
(913) 782-0026
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Robert I. Lipsher, Esq.
Luse Lehman Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
Approximate date of proposed sale to the public: As soon as practicable after
this registration statement becomes effective.
If this Form is filed to register additional shares for an offering pursuant to
Rule 462(b) under the Securities Act please 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 the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Amount to be maximum maximum
Title of each class of registered offering price aggregate Amount of
securities to be registered per share offering price registration fee
(1)
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per share 859,625 shares $10.00 $8,596,250 $2,390
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(1) Estimated solely for the purpose 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 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 Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
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PROSPECTUS
First Federal Of Olathe Bancorp, Inc.
(Proposed holding company for First Federal Savings
and Loan Association of Olathe)
Up to 747,500 Shares of Common Stock
First Federal Savings and Loan Association of Olathe is converting from
the mutual to the stock form of organization. As part of this conversion, First
Federal of Olathe Bancorp, Inc. is offering its shares of common stock. First
Federal will become a subsidiary of First Federal of Olathe Bancorp, Inc., a
Kansas corporation we recently formed.
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TERMS OF THE OFFERING
We are offering a minimum of 552,500 shares and a maximum of 747,500
shares. The maximum can be increased by up to 15% to 859,625 shares with
regulatory approval.
Per Share Total
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o Purchase price:
minimum to maximum,
as adjusted.................. $10.00 $5,525,000 to $8,596,250
o Estimated offering expenses,
including underwriting
discounts and commissions:
minimum to maximum,
as adjusted.................. $0.91 to $0.58 $500,000
o Estimated net proceeds:
minimum to maximum,
as adjusted.................. $9.09 to $9.42 $5,025,000 to $8,096,250
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Please refer to "Risk Factors" beginning on page __ of this document.
An investment in the common stock is subject to various risks, including
possible loss of principal.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any state securities commission has approved or disapproved of
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The shares of common stock offered hereby are not savings accounts or
deposits and are not insured by the Federal Deposit Insurance Corporation or any
other government agency.
We have applied to quote the common stock on the Over-the-Counter
Electronic Bulletin Board under the symbol "_____." The underwriter, Trident
Securities, Inc., will use its best efforts to assist First Federal of Olathe
Bancorp in selling at least the minimum number of shares but does not guarantee
that this number will be sold. Trident Securities is not obligated to purchase
any shares of common stock in the offering. Trident Securities intends to make a
market in the common stock.
We have granted depositors and borrowers of First Federal as of certain
dates the right to purchase our stock before we sell any shares to the general
public. If you wish to exercise this right, we must receive your order no later
than 12:00 noon, central time, on March __, 2000. We will offer any remaining
shares in a community offering to persons who do not have these priority rights.
We may terminate the community offering at any time without notice. We will
place funds we receive for stock purchases in a separate savings account at
First Federal, and we will pay interest at our passbook rate on those funds for
the period the funds are held until we complete or terminate the offering.
For assistance, please contact the stock information center at____________.
Trident Securities, Inc.
The date of this Prospectus is February ___, 2000
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TABLE OF CONTENTS
Questions and Answers about the Stock Offering............................ 1
Summary ................................................................. 3
Risk Factors.............................................................. 6
Selected Financial Data................................................... 10
Proposed Management Purchases............................................. 12
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 13
Market for Common Stock................................................... 14
Historical and Pro Forma Regulatory Capital Compliance.................... 14
Capitalization............................................................ 16
Pro Forma Data............................................................ 17
First Federal Savings and Loan Association of Olathe
Statements of Income and Comprehensive Income.................... 22
Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 23
Business of First Federal of Olathe Bancorp, Inc.......................... 33
Business of First Federal................................................. 33
Regulation................................................................ 47
Taxation ................................................................. 52
Management................................................................ 53
The Conversion............................................................ 60
Restrictions on Acquisitions of Stock and
Related Takeover Defensive Provisions............................ 72
Description of Capital Stock.............................................. 76
Legal and Tax Matters..................................................... 78
Experts ................................................................. 78
Where Can You Find More Information....................................... 78
Index to Financial Statements.............................................F-1
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[Insert Map]
iii
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QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
The following are frequently asked questions. You should read this
entire prospectus, including the "Risk Factors" beginning on page __ and "The
Conversion" beginning on page __, for more information.
Q. HOW MANY SHARES OF STOCK ARE BEING OFFERED, AND AT WHAT PRICE?
A. We are offering for sale up to 747,500 shares of common stock at a
subscription price of $10.00 per share. We must sell at least 552,500
shares. If the appraised market value of the common stock changes due to
market or financial conditions, then, without notice to you, we may be
required to sell up to 859,625 shares.
Q. WHAT PARTICULAR FACTORS SHOULD I CONSIDER WHEN DECIDING WHETHER TO PURCHASE
THE STOCK?
A. There are many important factors for you to consider before making an
investment decision. Therefore, you should read this entire prospectus
before making your investment decision.
Q. WILL DIVIDENDS BE PAID ON THE STOCK?
A. We intend to pay semi-annual cash dividends on the common stock at an
initial rate of $.40 per share per annum. We expect to begin paying
dividends at the end of fiscal 2000. However, there can be no assurance
that dividends will be paid or continue in the future.
Q. WILL I BE ABLE TO SELL MY STOCK AFTER I PURCHASE IT?
A. We anticipate having our stock quoted on the Over-the-Counter Electronic
Bulletin Board under the symbol "______." However, we expect the market for
our stock will be limited. There can be no assurance that someone will want
to buy your shares or that you will be able to sell them for more money
than you originally paid. There may also be a wide spread between the bid
and asked price for our stock.
Q. WILL MY STOCK BE COVERED BY DEPOSIT INSURANCE OR GUARANTEED BY ANY
GOVERNMENT AGENCY?
A. No. Unlike insured deposit accounts at First Federal, our stock will not be
insured or guaranteed by the Federal Deposit Insurance Corporation, or
FDIC, or any other government agency.
Q. WHEN IS THE DEADLINE TO SUBSCRIBE FOR STOCK?
A. We must receive a properly signed order form with the required payment on
or before 12:00 noon, central time, on March __, 2000, the subscription
offering expiration date.
Q. CAN THE OFFERING BE EXTENDED?
A. If we do not receive sufficient orders, we can extend the offering beyond
March ___, 2000. We must complete any offering to general members of the
public within 45 days after the close of the subscription offering, unless
we receive regulatory approval to further extend the offering. No single
extension can exceed 45 days, and the extensions may not go beyond March
__, 2002.
Q. HOW DO I PURCHASE THE STOCK?
A. First, you should read this prospectus carefully. Then, complete and return
the enclosed stock order and certification form, together with your
payment. Subscription orders may be delivered in person to our office
during regular banking hours, or by mail in the enclosed envelope marked
STOCK ORDER RETURN. Subscription orders received after the subscription
offering expiration date may be held for participation in any community
offering. If the stock offering is not completed by May __, 2000 and is not
extended, then all funds will be returned promptly with interest, and all
withdrawal authorizations will be cancelled.
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Q. CAN I CHANGE MY MIND AFTER I PLACE AN ORDER TO SUBSCRIBE FOR STOCK?
A. No. After we receive your order form and payment, you may not cancel or
modify your order. However, if we extend the offering beyond May __, 2000,
you will be able to change or cancel your order. If you cancel your order,
you will receive a prompt refund plus interest.
Q. HOW CAN I PAY FOR THE STOCK?
A. You have three options: (1) pay cash if it is delivered to us in person;
(2) send us a check or money order; or (3) authorize a withdrawal from your
deposit account at First Federal including a certificate of deposit,
without any penalty for early withdrawal. No wire transfers will be
accepted. Please do not send cash in the mail.
Q. WILL I RECEIVE INTEREST ON MY SUBSCRIPTION PAYMENT?
A. Subscriptions payments will be placed in an interest-bearing deposit
account at First Federal, and will earn interest at our passbook rate.
Depositors who elect to pay by withdrawal will continue to receive interest
on their accounts until the funds are withdrawn.
Q. WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES OF STOCK TO FILL ALL ORDERS?
A. If there is an oversubscription, then you may not receive any or all of the
shares you want to purchase.
Q. WHO CAN HELP ANSWER ANY OTHER QUESTIONS I MAY HAVE ABOUT THE STOCK
OFFERING?
A. For answers to other questions we encourage you to read this prospectus in
its entirety. Questions may also be directed to our Stock Information
Center at ______________ Monday through Friday, between the hours of _____
a.m. and ______ p.m.
To ensure that each person receives a prospectus at least 48 hours
prior to the expiration date of March __, 2000 in accordance with federal law,
no prospectus will be mailed any later than five days prior to March __, 2000 or
hand delivered any later than two days prior to March __, 2000.
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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 financial statements of First Federal.
First Federal of Olathe Bancorp, Inc.
We formed First Federal of Olathe Bancorp in December 1999 as a Kansas
corporation. First Federal of Olathe Bancorp will be the holding company for
First Federal following the conversion. First Federal of Olathe Bancorp is not
an operating company and has not engaged in any significant business to date.
Our executive office is located at 100 East Park Street, Olathe, Kansas 66061,
and our telephone number is (913) 782-0026.
First Federal Savings and Loan Association of Olathe
Founded in 1923, we are a community and customer oriented federally
chartered savings association located in Olathe, Kansas. We emphasize personal
service for our customers, and believe that our ability to make prompt responses
to customer needs and inquiries is an important element in attracting business.
Our business consists principally of attracting deposits from the
general public and using those funds to originate fixed-rate, one- to
four-family residential mortgage loans with terms of 15 years or less. We also
invest in various investment securities. Our profitability depends primarily on
our net interest income, which is the difference between the income we receive
on our loans and other assets and our cost of funds, which consists of the
interest we pay on deposits and borrowings. At September 30, 1999, we had total
assets of $46.2 million, deposits of $35.2 million and total equity of $9.0
million.
Going forward, we intend to expand and diversify our lending programs
to include longer-term fixed-rate residential mortgage loans with terms of up to
25 years, and commercial real estate loans. Additionally, we may implement a
program to purchase adjustable rate loans, on a limited basis, and we may hire
additional staff to expand our lending efforts.
Our Conversion to Stock Form
The conversion is a series of transactions by which we will convert
from our current status as a mutual savings association to a stock savings
association. Following the conversion, we will retain our current name "First
Federal Savings and Loan Association of Olathe," but we will be a subsidiary of
First Federal of Olathe Bancorp. As a stock savings association, we intend to
continue to follow our same business strategies, and we will be subject to the
regulation and supervision of the Office of Thrift Supervision, the Federal
Deposit Insurance Corporation and the Securities and Exchange Commission.
As part of the conversion, we are offering between $5,525,000 and
$7,475,000 of First Federal of Olathe Bancorp common stock. The purchase price
will be $10.00 per share. All investors will pay the same price per share in the
offering. Subject to regulatory approval, we may increase the amount of stock to
be sold to $8,596,250 without any further notice to you if market or financial
conditions change before we complete the conversion.
With the holding company structure, we will be able to plan and develop
long-term growth opportunities and to access the capital markets more easily in
the future. The offering will increase our capital and the amount of funds
available to us for lending and investment. This will give us greater
flexibility to diversify operations and expand the products and services we
offer, if we choose to do so. In addition, we will be able to compensate our
directors, officers and employees in the form of stock.
How We Determined the Offering Range
The offering range is based on an independent appraisal of our pro
forma market value following the conversion by RP Financial, LC., a firm
experienced in appraisals of savings institutions. The pro forma market value is
our estimated market value assuming the sale of shares in this offering. RP
Financial has estimated that in its opinion as of December 10, 1999, the value
was between $5,525,000 and $7,475,000, with a midpoint of $6,500,000. The
appraisal was based in part upon our financial condition and operations and the
effect of the additional capital we will raise from the sale of common stock in
this offering.
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Subject to regulatory approval, we may increase the amount of common
stock offered by up to 15%. Accordingly, at the minimum of the offering range,
we are offering 552,500 shares, and at the maximum, as adjusted, of the offering
range we are offering 859,625 shares. The appraisal will be updated before we
complete the conversion. If the pro forma market value of the common stock at
that time is either below $5,525,000 or above $8,596,250, we will notify you,
and you will have the opportunity to modify or cancel your order. See "The
Conversion--Stock Pricing and Number of Shares to be Issued" for a description
of the factors and assumptions used in determining the stock price and offering
range.
Two measures investors use to analyze a financial institution stock are
the ratio of the offering price to the issuer's book value and the ratio of the
offering price to the issuer's annual net income. RP Financial considered these
ratios, among other factors, in preparing its appraisal. Book value is the same
as total equity, and represents the difference between the issuer's assets and
liabilities. The ratio of the offering price to First Federal of Olathe
Bancorp's pro forma book value ranges from 41.31% to 53.48%, and the offering
price represents between 5.7 and 8.2 times First Federal of Olathe Bancorp's pro
forma annualized earnings for the nine months ended September 30, 1999. The
ratio of the offering price to First Federal of Olathe Bancorp's pro forma book
value ranges from 42.81% to 55.07%, and the offering price represents between
5.8 and 8.5 times First Federal of Olathe Bancorp's pro forma earnings for the
year ended December 31, 1998. See "Pro Forma Data" for a description of the
assumptions we used in making these calculations.
The peer group selected by RP Financial had a price to book ratio of
83.91% and traded at 12.91 times the last 12 months earnings, which are higher
than our ratios on a pro forma basis. Our independent appraiser determined that
our value should be lower than the ratios for the peer group would suggest. RP
Financial reached this conclusion based on several factors, including our
smaller asset size and pro forma market capitalization relative to the peer
group, the probability that our operating expenses will increase as a public
company, the anticipated absence of an active market for our stock and because
several other recently converted institutions are still trading below their
initial offering prices.
The independent appraisal does not indicate market value. Do not assume
or expect that First Federal's discounted valuation as indicated above means
that the common stock will trade at or above the $10.00 purchase price after the
conversion.
Use of Proceeds from the Sale of Our Common Stock
First Federal of Olathe Bancorp will use 50% of the net offering
proceeds to buy all of the common stock of First Federal and will retain the
remaining net proceeds for general business purposes. These purposes may include
investment in securities, paying cash dividends or repurchasing shares of its
common stock. First Federal will use the funds it receives for general business
purposes, including originating loans and purchasing securities.
First Federal of Olathe Bancorp will also loan an amount equal to 8% of
the total dollar value of the stock to be issued in the conversion to the
employee stock ownership plan to fund its purchase of common stock in the
conversion.
First Federal of Olathe Bancorp and First Federal may also use the
proceeds of the offering to expand and diversify their businesses, although they
do not have any specific contracts, understandings or arrangements for the
acquisition of other financial service companies or their assets.
The Amount of Stock You May Purchase
The minimum purchase is 25 shares. No individual, or individuals
through a single account, may purchase more than $100,000 of stock. If any of
the following persons purchase stock, then their purchases when combined with
your purchases cannot exceed $200,000:
o relatives living in your house
o companies, trusts or other entities in which you have an interest
or hold a position
o other persons who may be acting together with you
We may decrease or increase the maximum purchase limitation without notifying
you.
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How We Will Prioritize Orders If We Receive Orders for More Shares Than Are
Available for Sale
You might not receive any or all of the shares you order. If we receive
orders for more shares than are available, we will allocate stock to the
following persons or groups in order of priority:
o ELIGIBLE ACCOUNT HOLDERS - Our depositors with a balance of at
least $50 at the close of business on June 30, 1998. Any
remaining shares will be offered to:
o OUR TAX QUALIFIED EMPLOYEE PLANS. Any remaining shares will be
offered to:
o SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS - Our depositors with a
balance of at least $50 at the close of business on December 31,
1999. Any remaining shares will be offered to:
o OTHER MEMBERS - Our depositors at the close of business on
January __, 2000 and our borrowers as of January __, 2000 who
continue to be borrowers as of January __, 2000. Any remaining
shares will be offered to:
o OUR DIRECTORS, OFFICERS AND EMPLOYEES - These individuals may
also be entitled to purchase stock in the above categories.
If the above persons do not subscribe for all of the shares offered, we
will offer the remaining shares to the general public, giving preference to
persons who reside in Johnson County, Kansas.
Your Subscription Rights Are Not Transferable
You may not assign or sell your subscription rights. Any transfer of
subscription rights is prohibited by law. If you exercise subscription rights,
you will be required to certify that you are purchasing shares solely for your
own account and that you have no agreement or understanding regarding the sale
or transfer of shares. We intend to pursue any and all legal and equitable
remedies if we learn of the transfer of any subscription rights. We will reject
orders that we determine to involve the transfer of subscription rights.
Benefits to Management from the Offering
Our full-time employees will benefit from the offering through our
employee stock ownership plan. This plan will buy shares of stock with a portion
of the proceeds of the offering and then allocate the stock to employees over a
period of time, at no cost to the employees. You can find more information about
our employee stock ownership plan by reading the section of this document
entitled "Management - Benefit Plans - Employee Stock Ownership Plan and Trust."
Following the conversion, we also intend to implement a recognition and
retention plan and a stock option plan, which will benefit our officers and
directors. These two plans will not be implemented unless we receive stockholder
approval of the plans at least six months after the conversion. If our
recognition and retention plan is approved by stockholders, our officers and
directors will be awarded shares of common stock at no cost to them. If our
stock option plan is approved by stockholders, stock options will be granted at
no cost to directors and officers, but such persons will be required to pay the
applicable exercise price at the time of exercise in order to receive the shares
of common stock.
The following table summarizes the benefits that directors, officers
and employees may receive from the conversion at the midpoint of the offering
range:
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Value of Shares
Individuals Eligible % of Based on Midpoint
Plan to Receive Awards Shares Sold of Offering Range
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Employee stock ownership plan All employees 8% $520,000
Recognition and retention plan Directors and officers 4%(1) $260,000
Stock option plan Directors and officers 10% (2)
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(1) In the event we initially implement the recognition and retention plan more
than 12 months after the conversion, the recognition and retention plan may
authorize the award of up to 5% of the shares issued in the conversion.
(2) Stock options will be granted with a per share exercise price at least
equal to the market price of our common stock on the date of grant. The
value of a stock option will depend upon increases, if any, in the price of
our stock during the life of the stock option.
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When combined with the proposed stock purchases by our directors and
officers, the above plans may give our directors and officers effective voting
control following the conversion. See "Risk Factors - Our Directors and Officers
May Have Effective Voting Control."
We intend to enter into a three-year employment agreement with Mitch
Ashlock, the President and Chief Executive Officer of First Federal. The
agreement provides that Mr. Ashlock would receive severance payments equal to
three times the annual rate of base salary at termination of employment plus the
highest annual cash bonus paid to him during the prior three years if First
Federal of Olathe Bancorp is acquired and he loses his job in the acquisition or
if he loses his job upon the occurrence of certain other events. If severance
was required to be paid in 2000 after completion of the conversion, Mr. Ashlock
would receive severance payments of approximately $270,000.
RISK FACTORS
In addition to the other information in this document, you should
consider carefully the following risk factors in deciding whether to purchase
our common stock.
Higher Interest Rates Would Hurt Our Profitability
Our ability to earn a profit depends on our net interest income, which
is the difference between the interest income we earn on our interest-earning
assets, such as mortgage loans, and the interest expense we pay on our
interest-bearing liabilities, such as deposits and borrowings. Our profitability
depends on our ability to manage our assets and liabilities during periods of
changing interest rates.
We have sought to maximize our net interest income by emphasizing
investment in higher-yielding fixed-rate mortgage loans. Management believes
that the higher yields available from such investments offset the increased
exposure to interest rate fluctuations associated with investments in such
assets. We have sought to manage our exposure to interest rate volatility by
increasing the maturity of our liabilities as market conditions allow, by
maintaining high capital levels and by emphasizing the origination of fixed-rate
mortgage loans with terms of 15 years or less. Notwithstanding these steps, our
cumulative one-year interest rate sensitivity gap as a percentage of total
assets was a negative 39.19% at September 30, 1999, a relatively high level.
Based on this negative gap, during a period of declining interest rates, our
interest-earning assets could be expected to reprice at a slower rate than our
interest-earning liabilities, which would have a positive effect on net interest
income. Conversely, in a period of rising interest rates, the yields on our
assets could be expected to increase at a slower pace than the cost of our
interest-bearing liabilities, thereby negatively affecting net interest income.
Thus, a sustained increase in market interest rates could adversely
affect our earnings. Because all of our loans have fixed interest rates, our net
interest income could be significantly adversely affected when the rates we pay
on deposits and borrowings are increasing. In addition, the market value of our
fixed-rate assets would decline if interest rates increase.
We Anticipate a Low Return on Our Equity and Increased Non-interest Expenses
Net income divided by equity, known as "return on equity," is a ratio
many investors use to compare the performance of a financial institution to its
peers. We expect our return on equity to decrease as compared to our performance
in recent years until we are able to increase our balance sheet by adding loans,
thereby increasing net interest income. Our return on equity will be reduced by
increased equity from the conversion and increased expenses due to the costs of
being a public company, added expenses associated with our employee stock
ownership plan, and, later on, our recognition and retention plan. Our expenses
will also increase if we hire additional staff following the conversion. We may
hire an additional employee to expand our lending efforts.
We Rely on One Key Officer
Our only executive officer is Mitch Ashlock, the President and Chief
Executive Officer. The loss of Mitch Ashlock would have an adverse effect on us,
especially since we currently only have three employees. We intend to enter into
a three-year employment agreement with Mr. Ashlock, but we do not intend to
obtain a key- man life insurance policy on him.
We May Not Be Successful in Diversifying and Expanding Our Lending Activities
Our business plan adopted in connection with the conversion transaction
contemplates an expansion of our lending activities to include fixed-rate
residential mortgage loans with terms of up to 25 years and commercial real
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estate loans. We cannot assure you that we will be able to market these
additional loan products successfully and profitably. Additionally, commercial
real estate loans involve a greater risk of loss than loans secured by one- to
four- family residential real estate.
We Intend to Remain Independent
Since we intend to remain an independent financial institution, it is
unlikely that we will be acquired in the foreseeable future. Accordingly, you
should not purchase our common stock with any expectation that a takeover
premium will be paid to you in the near term.
There Is Strong Competition Within Johnson County
We conduct most of our business in Johnson County, Kansas. Competition
in the banking and financial services industry in Johnson County is intense. Our
profitability depends in large part upon our continued ability to successfully
compete. We compete in Johnson County with commercial banks, savings
institutions, credit unions, finance companies, mutual funds, insurance
companies, and brokerage and investment banking firms. Many of these competitors
have substantially greater resources and lending limits than we do and offer
certain services that we do not or cannot provide. This strong competition may
limit First Federal's ability to grow in the future.
Our Stock Value May Suffer from Our Ability to Impede Potential Takeovers
Provisions in our corporate documents and in Kansas corporate law, as
well as certain federal regulations, may make it difficult and expensive to
pursue a tender offer, change in control or attempt a takeover that our board of
directors opposes. As a result, you may not have an opportunity to participate
in such a transaction, and the trading price of our stock may not rise to the
level of other institutions that are more vulnerable to hostile takeovers.
Anti-takeover provisions include:
o restrictions on acquiring more than 10% of our common stock and
limitations on voting rights
o the election of members of the board of directors to three-year
terms
o the absence of cumulative voting by stockholders in the election
of directors
o provisions governing nominations of directors by stockholders
o provisions governing the submission of stockholder proposals
o provisions restricting special meetings of stockholders
o our ability to issue preferred stock and additional shares of
common stock without stockholder approval
o super-majority voting provisions for the approval of certain
business combinations
o super-majority voting provisions to remove directors without
cause or to amend our corporate documents
These provisions also will make it more difficult for an outsider to remove our
current board of directors or management. See "Restrictions on Acquisition of
First Federal of Olathe Bancorp and First Federal" for a description of
anti-takeover provisions in our corporate documents and under Kansas law and
federal regulations.
Our Directors and Officers May Have Effective Voting Control
Our employee stock ownership plan and recognition and retention plan
will give control of 12% of our stock to our directors, officers and employees
at no cost to them, assuming the recognition and retention plan is subsequently
approved by stockholders. In addition, our directors and officers intend to
purchase 41,500 shares in the conversion, or 7.51% at the minimum and 5.55% at
the maximum of the offering.
The above benefit plans and purchases will give our directors and
officers control of approximately 19.51% to 17.55% of our stock. Holders of 20%
of our stock can block the removal of directors without cause, the approval of
certain business combinations, or amendments to our articles of incorporation.
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If stockholders subsequently approve our proposed stock option plan,
our directors, officers and employees may be granted options to purchase up to
10% of our stock. These options will generally be for 10 years, with a per share
exercise price equal to the market price of our stock on the date of grant.
Directors, officers and employees will benefit if the stock price increases
after the date of grant, and they may be able to exercise their options at
prices that are less than the market price on the date of exercise.
Our Employee Stock Benefit Plans Will Increase Our Costs
We anticipate that our employee stock ownership plan will purchase 8%
of the common stock issued in the conversion, with funds borrowed from First
Federal of Olathe Bancorp. The cost of acquiring the employee stock ownership
plan shares will be between $442,000 at the minimum of the offering range and
$687,700 at the adjusted maximum of the offering range. We will record annual
employee stock ownership plan expenses in an amount equal to the fair value of
shares committed to be released to employees. If shares of common stock
appreciate in value over time, compensation expense relating to the employee
stock ownership plan would increase. We also intend to submit a recognition and
retention plan to our stockholders for approval at least six months after
completion of the conversion. Our officers and directors could be awarded, at no
cost to them, under the recognition and retention plan up to an aggregate of 4%
of the shares issued in the conversion, restricted as to transfer in accordance
with the terms of the plan. In the event we implement the recognition and
retention plan more than 12 months after the conversion, the recognition and
retention plan may authorize the award of up to 5% of the shares issued in the
conversion. Assuming the shares of common stock to be awarded under the plan
cost the same as the purchase price in the conversion, the reduction to
stockholders' equity from the plan would be between $221,000 and $343,850 if 4%
of the shares issued in the conversion were awarded. See "Pro Forma Data " for a
discussion of the increased benefit costs we will incur after the conversion and
how these costs could decrease our return on equity.
Our Employment Agreement May Discourage Takeovers
The employment agreement that we intend to enter into with the
President and Chief Executive Officer of First Federal provides for cash
severance payments if the executive is terminated following a change in control
of First Federal. If a change in control occurs in 2000, the aggregate value of
the cash severance benefits payable to the President and Chief Executive Officer
under the agreement would have been approximately $270,000. This estimate does
not take into account future salary adjustments or bonus payments. This
arrangement could have the effect of increasing the costs of acquiring First
Federal thereby discouraging future attempts to take over First Federal.
Our Employee Stock Benefit Plans May Be Dilutive
If the conversion is completed and stockholders subsequently approve a
recognition and retention plan and a stock option plan, we will issue stock to
our officers and directors through these plans. We currently intend to fund
these plans with shares repurchased in the secondary market. However, if the
shares for the recognition and retention plan are issued from our authorized but
unissued stock, your ownership percentage could be diluted by approximately
3.8%, assuming issuance of an amount equal to 4% of the shares issued in the
conversion, and the trading price of our stock may be reduced. Your ownership
percentage would also decrease by approximately 9.1% if all potential stock
options are exercised. See "Pro Forma Data" for data on the dilutive effect of
the recognition and retention plan and "Management--Benefit Plans" for a
description of the plans. These plans will also involve additional expense.
Possible Increase in the Offering Range Would Be Dilutive
We can increase the maximum of the offering range by up to 15% to
reflect changes in market or financial conditions or to fill the order of our
employee stock ownership plan. An increase in the offering will decrease our net
income per share and our stockholders' equity per share. This would also
increase the purchase price per share as a percentage of pro forma stockholders'
equity per share and net income per share.
Our Valuation Is Not Indicative of the Future Price of Our Common Stock
We cannot assure you that if you purchase common stock in the offering
you will later be able to sell it at or above the purchase price in the
offering. The final aggregate purchase price of the common stock in the
conversion will be based upon an independent appraisal. The appraisal is not
intended, and should not be construed, as a recommendation of any kind as to the
advisability of purchasing shares of common stock. The valuation is based on
estimates and projections of a number of matters, all of which are subject to
change from
8
<PAGE>
time to time. See "The Conversion--Stock Pricing and Number of Shares to be
Issued" for the factors considered by RP Financial in determining the appraisal.
Our Stock Price May Decline
The shares of common stock offered by this document are not savings
accounts or deposits, are not insured or guaranteed by the Federal Deposit
Insurance Corporation, the Savings Association Insurance Fund or any other
governmental agency, and involve investment risk, including the possible loss of
principal.
Due to possible continued market volatility and to other factors,
including certain risk factors discussed in this document, we cannot assure you
that, following the conversion, the trading price of our common stock will be at
or above the initial per share offering price. Publicly traded stocks, including
stocks of financial institutions, have recently experienced substantial market
price volatility. These market fluctuations may be unrelated to the operating
performance of particular companies whose shares are traded. In several cases,
common stock issued by recently converted financial institutions has traded at a
price that is below the price at which such shares were sold in the initial
offerings of those companies. The purchase price of our common stock in the
offering is based on the independent appraisal by RP Financial. After our shares
begin trading, the trading price of our common stock will be determined by the
marketplace, and may be influenced by many factors, including prevailing
interest rates, investor perceptions and general industry and economic
conditions.
Limited Market for Our Common Stock
We expect our stock to be quoted on the Over-the-Counter Electronic
Bulletin Board. However, it is unlikely that an active and liquid trading market
for our stock will develop, due to the small size of the offering and the small
number of stockholders we expect to have. There may be a wide spread between the
bid and asked price for our common stock after the conversion. You should
consider the potentially long-term nature of an investment in our common stock.
Exercise of Subscription Rights May Be Taxable
If the Internal Revenue Service determines that your subscription
rights have ascertainable value, you could be taxed as a result of your exercise
of those rights in an amount equal to their value. RP Financial has given us
their opinion that the subscription rights granted to eligible members in the
conversion have no value.
However, this opinion is not binding on the Internal Revenue Service.
Our Operations Are Subject to Regulatory and Legislative Changes
We are subject to extensive government regulation, supervision and
examination. The regulatory authorities have extensive discretion in connection
with their supervisory and enforcement activities. Any change in regulation,
whether by the Office of Thrift Supervision, the FDIC or the U.S. Congress,
could have a significant impact on us and our operations.
The U.S. Congress has enacted and the President has recently signed
legislation intended to modernize the financial services industry. The
legislation provides for greater affiliations by commercial bank holding
companies with financial companies such as securities and insurance companies.
Under the legislation, newly formed unitary savings and loan holding companies
will not have the broad powers formerly available to unitary savings and loan
holding companies. First Federal of Olathe Bancorp will be a unitary savings and
loan holding company after the conversion. Certain unitary savings and loan
holding companies would be grandfathered under the proposed legislation;
however, First Federal of Olathe Bancorp will not qualify for the
grandfathering. Consequently, we will be restricted in terms of activities in
which we may engage to a greater extent than previously existing unitary savings
and loan holding companies. For example, we would not be permitted to engage in
commercial activities whereas a grandfathered unitary holding company would have
such authority.
9
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial and other data of First Federal does
not purport to be complete and is qualified in its entirety by reference to the
more detailed financial information contained elsewhere herein. You should read
the Financial Statements and related notes contained at the end of this
prospectus. Set forth below are selected consolidated financial and other data
of First Federal at and for the periods indicated. Financial data as of
September 30, 1999 and for the nine months ended September 30, 1999 and 1998 are
unaudited. In the opinion of management, all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation have been included.
The results of operations and other data for the nine months ended September 30,
1999 are not necessarily indicative of the results of operations that may be
expected for the fiscal year ending December 31, 1999.
At At December 31,
September 30, --------------------
1999 1998 1997
---- ---- ----
(In Thousands)
Selected Financial Condition Data:
Total assets ............................ $46,245 $44,649 $33,048
Loans receivable, net ................... 31,371 28,978 25,742
Investment securities:
Held to maturity ..................... 11,000 9,000 3,910
Available for sale ................... 684 847 552
FHLB stock .............................. 303 289 307
Deposits ................................ 35,221 34,701 25,139
FHLB advances ........................... 1,000 1,000 --
Total equity ............................ 9,009 8,542 7,597
Nine Months Years Ended
Ended September 30, December 31,
-------------------- ------------------
1999 1998 1998 1997
---- ---- ---- ----
(In Thousands)
Selected Operations Data:
Total interest income ............. $ 2,655 $ 2,301 $ 3,091 $ 2,718
Total interest expense ............ 1,461 1,172 1,653 1,337
------- ------- ------- -------
Net interest income ............ 1,194 1,129 1,438 1,381
Provision for loan losses ......... 150 -- -- --
------- ------- ------- -------
Net interest income after
provision for loan losses ........ 1,044 1,129 1,438 1,381
Fees and service charges .......... 16 17 20 7
------- ------- ------- -------
Total non-interest income ......... 16 17 20 7
Total non-interest expense ........ 194 180 248 263
------- ------- ------- -------
Income before income taxes ........ 866 966 1,210 1,125
Income tax provision .............. 300 354 443 398
------- ------- ------- -------
Net income ........................ 566 612 767 727
Unrealized gain(loss) on
investment securities
available for sale, net
of deferred tax expense .......... (99) 61 177 114
------- ------- ------- -------
Comprehensive income .............. $ 467 $ 673 $ 944 $ 841
======= ======= ======= =======
10
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Years Ended December 31,
------------------- ------------------------
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income
to average total assets)(1) ........... 1.63% 2.11% 1.91% 2.17%
Return on equity (ratio of net income
to average equity)(1) ................. 8.52 10.22 9.45 10.04
Interest rate spread information:
Average during period ................ 2.66 2.93 2.62 3.09
End of period ........................ 2.43 2.68 2.50 3.13
Net interest margin(2) .................. 3.60 4.01 3.68 4.24
Ratio of operating expense to average
total assets ........................... 0.56 0.62 0.62 0.79
Ratio of average interest-earning
assets to average interest-bearing
liabilities ............................ 121.32 125.94 125.05 127.67
Asset Quality Ratios:
Non-performing assets to total assets
at end of period ....................... 0.29 0.24 0.24 0.28
Allowance for loan losses to
non-performing loans ................... 130.60 23.58 23.58 26.88
Allowance for loan losses to
loans receivable, net .................. 0.56 0.09 0.09 0.10
Capital Ratios
Equity to total assets at
end of period .......................... 19.48 18.62 19.13 22.99
Average equity to average assets ........ 19.18 20.67 20.17 21.65
Other Data:
Number of full-service offices .......... 1 1 1 1
</TABLE>
- --------
(1) Ratios for the nine month periods have been annualized.
(2) Net interest income divided by average interest earning assets.
11
<PAGE>
PROPOSED MANAGEMENT PURCHASES
The following table sets forth, for each of First Federal of Olathe
Bancorp's directors and executive officers and their associates, and for all of
the directors and executive officers as a group, the proposed purchases of
common stock, assuming sufficient shares are available to satisfy their
subscriptions. The amounts include shares that may be purchased through
individual retirement accounts.
<TABLE>
<CAPTION>
Anticipated Anticipated
Number of Shares Dollar Amount Percent
Name and Title to be Purchased to be Purchased of Shares(1)
-------------- --------------- --------------- ------------
<S> <C> <C> <C>
Mitch Ashlock, President............ 10,000 $100,000 1.54%
Chief Executive Officer
and Director
Donald K. Ashlock,.................. 10,000 100,000 1.54
Chairman of the Board
John M. Bowen ...................... 10,000 100,000 1.54
Director
Carl R. Palmer...................... 10,000 100,000 1.54
Director
Marvin Eugene Wollen................ 1,500 15,000 0.23
Director
------ ------- ----
All directors and
executive officers as a group
(5 persons)........................ 41,500 $415,000 6.38%
====== ======== =====
</TABLE>
- ---------
(1) Based upon the midpoint of the offering range.
In addition, the ESOP currently intends to purchase 8% of the common
stock issued in the conversion for the benefit of officers and employees. Stock
options and stock grants may also be granted in the future to directors,
officers and employees upon the receipt of stockholder approval of First Federal
of Olathe Bancorp's proposed stock benefit plans. See "Management--Benefit
Plans" for a description of these plans.
USE OF PROCEEDS
Although the actual net proceeds from the sale of our common stock
cannot be determined until the conversion is completed, it is presently
anticipated that the net proceeds from the sale of the common stock will be
between $4.4 million and $6.1 million, or $7.1 million assuming an increase in
the offering range by 15%. See "Pro Forma Data" and "The Conversion--Stock
Pricing and Number of Shares to be Issued" as to the assumptions used to arrive
at such amounts.
First Federal of Olathe Bancorp will purchase all of the capital stock
of First Federal to be issued in the conversion in exchange for 50% of the net
proceeds of the stock offering. Receipt of 50% of the net proceeds will increase
First Federal's capital and will support the expansion of First Federal's
existing business activities. First Federal will use these funds for general
business purposes, including, loan originations and investment in U.S.
government and federal agency securities.
First Federal of Olathe Bancorp intends to loan the employee stock
ownership plan the amount necessary to acquire an amount of shares equal to 8%
of the shares issued in the conversion. The loan to the ESOP will be $442,000
and $598,000 at the minimum and maximum of the offering range. The ESOP will
distribute the shares it purchases to our employees as the loan is repaid over
an estimated 20 years. See "Management--Stock Benefit Plans--Employee Stock
Ownership Plan."
The net proceeds we use to purchase the capital stock of First Federal
will be used by First Federal for general corporate purposes, including
increased lending activities. On a short-term basis, First Federal may purchase
investment and mortgage-backed securities. The net proceeds received by First
Federal will further strengthen First Federal's capital position, which already
exceeds all regulatory requirements. After the conversion, First Federal's
tangible capital ratio will be 21.97%, based upon the midpoint of the offering
range. As a result, First Federal will continue to be a well-capitalized
institution.
We may initially use the remaining net proceeds retained by us to
invest in U.S. Government and federal agency securities of various maturities,
deposits in either the FHLB of Topeka or other financial institutions,
12
<PAGE>
mortgage-backed securities issued by U.S. Government agencies and
government-sponsored enterprises, or a combination of these items. The net
proceeds retained by us may ultimately be used to:
o support First Federal's lending activities
o support the future expansion of operations through establishment
of branch offices or other customer facilities, expansion into
other lending markets or diversification into other banking
related businesses, although no such transactions are
specifically being considered at this time
o pay regular or special cash dividends, repurchase the common
stock or pay returns of capital
Applicable conversion regulations require us to sell common stock in
the conversion in an amount equal to our estimated pro forma market value, as
determined by an independent appraisal. See "The Conversion - Stock Pricing and
Number of Shares to be Issued." As a result, we may be required to sell more
shares in the conversion than we may otherwise desire. To the extent we have
excess capital upon completion of the conversion, we intend to consider stock
repurchases, dividends and tax-free returns of capital to the extent permitted
by the Office of Thrift Supervision and deemed appropriate by the board of
directors. A return of capital is similar to a cash dividend, except for tax
purposes it is an adjustment to your tax basis rather than income to you. We
have committed to the OTS that we will not take any action toward paying a
tax-free return of capital during the first year after we complete the
conversion.
Stock repurchases will be considered by our Board of Directors after we
complete the conversion based upon then existing facts and circumstances, as
well as applicable statutory and regulatory requirements. Such facts and
circumstances may include but not be limited to the following:
o market and economic factors such as the price at which the stock
is trading in the market, the volume of trading, the
attractiveness of other investment alternatives in terms of the
rate of return and risk involved in the investment, the ability
to increase the book value and/or earnings per share of the
remaining outstanding shares, and an improvement in our return on
equity
o the avoidance of dilution to stockholders by not having to issue
additional shares to cover the exercise of stock options or to
fund employee stock benefit plans
o any other circumstances in which repurchases would be in the best
interests of First Federal of Olathe Bancorp and our stockholders
No stock will be repurchased by us unless First Federal continues to
exceed all applicable regulatory requirements after the repurchases. The payment
of dividends or repurchase of stock will be prohibited if First Federal's net
worth would be reduced below the amount required for the liquidation account to
be established for the benefit of eligible account holders and supplemental
eligible account holders. As of the date of this prospectus, the initial balance
of the liquidation account would be approximately $9.0 million. See "Dividend
Policy," "The Conversion--Effects of Conversion to Stock Form on Depositors and
Borrowers of First Federal--Liquidation Rights" and "--Restrictions on
Transferability."
We will be a unitary savings and loan holding company which, under
recently adopted legislation, would generally be restricted as to the types of
business activities in which we may engage. See "Regulation--Savings and Loan
Holding Company Regulation" for a description of certain regulations applicable
to us.
Our net proceeds may vary because total expenses of the conversion may
be more or less than those estimated. The net proceeds will also vary if the
number of shares to be issued in the conversion is adjusted to reflect a change
in the estimated pro forma market value of First Federal. Payments for shares
made through withdrawals from existing deposit accounts at First Federal will
not result in the receipt of new funds for investment by First Federal but will
result in a reduction of First Federal's interest expense and liabilities as
funds are transferred from interest-bearing certificates or other deposit
accounts.
DIVIDEND POLICY
After we complete the conversion, our Board of Directors will have the
authority to declare dividends on the common stock, subject to statutory and
regulatory requirements. We intend to pay semi-annual cash dividends on the
common stock at an initial rate of $.40 per share per annum, representing 4% of
the purchase price, commencing at the end of fiscal 2000. However, the rate of
such dividends and the initial or continued payment thereof will depend upon a
number of factors, including the amount of net proceeds retained by us in the
13
<PAGE>
conversion, investment opportunities available to us, capital requirements, our
financial condition and results of operations, tax considerations, statutory and
regulatory limitations, and general economic conditions. No assurances can be
given that any dividends will be paid or that, if paid, will not be reduced or
eliminated in future periods. Special cash dividends, stock dividends or
tax-free returns of capital may be paid in addition to, or in lieu of, regular
cash dividends. However, we have committed to the OTS that we will not take any
action toward paying a tax-free return of capital during the first year after we
complete the conversion.
Dividends from us may eventually depend, in part, upon receipt of
dividends from First Federal, because First Federal of Olathe Bancorp initially
will have no source of income other than dividends from First Federal, earnings
from the investment of proceeds from the sale of common stock retained by us,
and interest payments with respect to our loan to the ESOP. An OTS regulation
imposes limitations on "capital distributions" by savings institutions,
including cash dividends to a parent holding company. Under new regulations
effective April 1, 1999, First Federal would have been permitted to make a
capital distribution to First Federal of Olathe Bancorp of up to approximately
$1.7 million as of April 1, 1999.
Any payment of dividends by First Federal to First Federal of Olathe
Bancorp which would be deemed to be drawn out of First Federal's bad debt
reserves would require a payment of taxes at the then-current tax rate by First
Federal on the amount of earnings deemed to be removed from the reserves for
such distribution. First Federal does not intend to make any distribution to
First Federal of Olathe Bancorp that would create such a federal tax liability.
See "Taxation."
Unlike First Federal, we are not subject to the above regulatory
restrictions on the payment of dividends to our stockholders, although the
source of such dividends may eventually depend, in part, upon dividends from
First Federal in addition to the net proceeds retained by us and earnings on
those proceeds. We are, however, subject to the requirements of Kansas law,
which generally permits the payment of dividends out of surplus, or if there is
no surplus, out of a company's net profits for the then current or the preceding
fiscal year.
MARKET FOR COMMON STOCK
Because this is our initial public offering, there is no market for our
common stock at this time. After we complete the offering, we anticipate that
our common stock will be traded and quoted on the Over-the-Counter Electronic
Bulletin Board under the symbol "_____." Trident Securities has indicated its
intention to make a market in our common stock.
Making a market may include the solicitation of potential buyers and
sellers in order to match buy and sell orders. However, Trident Securities will
not be subject to any obligation with respect to such efforts. The development
of a liquid public market depends upon the existence of willing buyers and
sellers, the presence of which is not within our control or of any market maker.
It is unlikely that an active and liquid trading market for the common stock
will develop due to the relatively small size of the offering and the small
number of stockholders expected following the conversion. In addition, there may
be a wide spread between the bid and ask price for our common stock after the
conversion. Under such circumstances, you should not view the common stock as a
short-term investment. Furthermore, there can be no assurance that you will be
able to sell your shares at or above the purchase price.
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
At September 30, 1999, First Federal exceeded all of its regulatory
capital requirements. The table on the following page sets forth First Federal's
historical capital under generally accepted accounting principles ("GAAP") and
regulatory capital at September 30, 1999 and the pro forma capital of First
Federal after giving effect to the conversion, based upon the sale of the number
of shares shown in the table. The pro forma capital amounts reflect the receipt
by First Federal of 50% of the net conversion proceeds, minus the amounts to be
loaned to our employee stock ownership plan and to be contributed to our
proposed recognition and retention plan. The pro forma risk- based capital
amounts assume the investment of the net proceeds received by First Federal in
assets which have a risk-weight of 20% under applicable regulations, as if such
net proceeds had been received and so applied at September 30, 1999.
14
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Based Upon Sale of
--------------------------------------------------------------------------
552,500 Shares 650,000 Shares 747,500 Shares
(Minimum of Estimated (Midpoint of Estimated (Maximum of Estimated
Historical Valuation Range) Valuation Range) Valuation Range)
---------------------- --------------------- ------------------------- ------------------------
Amount Percent(1) Amount(2) Percent(1) (Amount(2) Percent(1)(2) Amount(2) Percent(1)(2)
------ ---------- --------- ---------- --------- ------------- --------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital under generally
accepted accounting principles 9,009 19.48% $10,859 22.37% $11,229 22.92% $11,600 23.46%
======== ======= ======= ======== ======= ======== ======= ========
Tangible capital(2)............. $ 8,594 18.49% $10,444 21.41% $10,814 21.97% $11,185 22.52%
Tangible capital requirement.... 697 1.50 732 1.50 738 1.50 745 1.50
-------- ------- ------- ------- ------- -------- ------- --------
Excess.......................... $ 7,897 16.99% $ 9,712 19.91% $10,076 20.47% $10,439 21.02%
======== ======= ======= ======= ======= ======== ======= ========
Core capital(2)................. $ 8,594 18.49% $10,444 21.41% $10,814 21.97% $11,185 22.52%
Core capital requirement(3)..... 1,394 3.00 1,463 3.00 1,477 3.00 1,490 3.00
-------- ------- ------- ------- ------- -------- ------- --------
Excess........................ $ 7,200 15.49% $ 8,980 18.41% 9,337 18.97% $ 9,694 19.52%
======== ======= ======= ======= ======= ======== ======= ========
Risk-based capital(2)(4)........ $ 8,769 46.65% $10,619 55.15% $10,989 56.81% $11,360 58.45%
Risk-based capital
requirement(5)................. 1,503 8.00 1,539 8.00 1,547 8.00 1,554 8.00
-------- ------- ------- ------- ------- -------- ------- --------
Excess........................ $ 7,266 38.66% $ 9,079 47.16% $ 9,442 48.81% $ 9,806 50.46%
======== ======= ======= ======= ======= ======== ======= ========
</TABLE>
Pro Forma Based Upon Sale of
----------------------------
859,625 Shares
(15% Above the
Maximum of Estimated
Valuation Range)
-----------------------
Amount(2) Percent(1)
--------- ----------
(Dollars in Thousands)
Capital under generally
accepted accounting principles $ 12,026 24.08%
======== ========
Tangible capital(2)............ $ 11,611 23.14%
Tangible capital requirement... 753 1.50
-------- --------
Excess......................... $ 10,858 21.64%
======== ========
Core capital(2)................ $ 11,611 23.14%
Core capital requirement(3).... 1,506 3.00
-------- --------
Excess....................... $ 10,105 20.14%
======== ========
Risk-based capital(2)(4)....... $ 11,786 60.33%
Risk-based capital
requirement(5)................ 1,562 8.00
-------- --------
Excess....................... $ 10,224 52.33%
======== ========
- ------------
(1) Tangible and core capital levels are shown as a percentage of total
adjusted assets; risk-based capital levels are shown as a percentage of
risk-weighted assets.
(2) For purposes of calculating regulatory capital, the valuation allowance
applicable to investment securities in accordance with Statement of
Financial Accounting Standards No. 115 has been excluded from capital. This
amounted to $414,726 at September 30, 1999.
(3) The current Office of Thrift Supervision core capital requirement for
savings associations is 3% of total adjusted assets. The Office of Thrift
Supervision has proposed core capital requirements which would require a
core capital ratio of 3% of total adjusted assets for thrifts that receive
the highest supervisory rating for safety and soundness and a core capital
ratio of 4% to 5% for all other thrifts.
(4) Includes $175,000 of general valuation allowances which qualify as
supplementary capital. See "Regulation--Federal Regulation of Savings
Associations--Capital Requirements."
(5) The OTS utilizes a net market value methodology to measure the interest
rate risk exposure of savings associations. Effective March 31, 1996,
institutions with more than normal interest rate risk, as defined by OTS
regulations, are required to make a deduction from capital equal to 50% of
its interest rate risk exposure multiplied by the present value of its
assets. Based upon this methodology, at September 30, 1999, the latest date
for which such information is available, First Federal's interest rate risk
exposure to a 200 basis point increase in interest rates was considered
"normal" under this regulation. In any event, since First Federal has
assets of less than $300 million and a total risk-based capital ratio in
excess of 12%, it is exempt from this requirement unless the OTS determines
otherwise. See "Regulation--Federal Regulation of Savings
Associations--Capital Requirements."
15
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of First
Federal at September 30, 1999, and our pro forma consolidated capitalization
after giving effect to the conversion, based upon the sale of the number of
shares shown below and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
First Federal of Olathe Bancorp - Pro Forma
Based Upon Sale at $10.00 Per Share
----------------------------------------------------
552,500 650,000 747,500 859,625
Shares Shares Shares Shares(1)
First Federal (Minimum of (Midpoint of (Maximum of (15% above
- Historical Offering Offering Offering Maximum of
Capitalization Range) Range) Range) Offering Range)
-------------- ------ ------ ------ ---------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2) ................................................... $ 35,221 $ 35,221 $ 35,221 $ 35,221 $ 35,221
FHLB Advances ................................................. 1,000 1,000 1,000 1,000 1,000
-------- -------- -------- -------- --------
Total deposits and FHLB advances .............................. $ 36,221 $ 36,221 $ 36,221 $ 36,221 $ 36,221
======== ======== ======== ======== ========
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; none to be issued .............................. $ -- $ -- $ -- $ -- $ --
Common stock, $.01 par value, 4,000,000 shares
authorized; shares to be issued as reflected(3) ............ -- 6 7 7 9
Additional paid-in capital(3) ................................. -- 5,019 5,994 6,986 8,088
Retained earnings(4) .......................................... 8,594 8,594 8,594 8,594 8,594
Net unrealized gain on securities available for sale .......... 415 415 415 415 415
Less:
Common stock acquired by our ESOP(5) ....................... -- (442) (520) (598) (688)
Common stock to be acquired by our
recognition and retention plan(6) .......................... -- (221) (260) (299) (344)
-------- -------- -------- -------- --------
Total equity .................................................. $ 9,009 $ 13,371 $ 14,229 $ 15,087 $ 16,074
======== ======== ======== ======== ========
</TABLE>
- -----------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the offering range of up to 15% to
reflect changes in market and financial conditions before we complete the
conversion or to fill the order of the ESOP.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) The sum of the par value and additional paid-in capital accounts equals the
net conversion proceeds. No effect has been given to the issuance of
additional shares of common stock pursuant to our proposed stock option
plan. We intend to adopt a stock option plan and to submit such plan to
stockholders at a meeting of stockholders to be held at least six months
following completion of the conversion. If the plan is approved by
stockholders, an amount equal to 10% of the shares of common stock sold in
the conversion will be reserved for issuance under such plan. See "Pro
Forma Data" and "Management - Benefit Plans - Stock Option Plan."
(4) The retained earnings of First Federal will be substantially restricted
after the conversion. See "The Conversion--Effects of Conversion to Stock
Form on Depositors and Borrowers of First Federal--Liquidation Rights."
(5) Assumes that 8% of the common stock will be purchased by our employee stock
ownership plan. The common stock acquired by the ESOP is reflected as a
reduction of stockholders' equity. Assumes the funds used to acquire the
ESOP shares will be borrowed from First Federal of Olathe Bancorp. See Note
1 to the table set forth under "Pro Forma Data" and "Management - Benefit
Plans - Employee Stock Ownership Plan and Trust."
(6) Gives effect to the recognition and retention plan which we expect to adopt
after the conversion and present to stockholders for approval at a meeting
of stockholders to be held at least six months after we complete the
conversion. No shares will be purchased by the recognition and retention
plan in the conversion, and such plan cannot purchase any shares until
stockholder approval has been obtained. If the recognition and retention
plan is approved by our stockholders within 12 months after the conversion,
the plan intends to acquire an amount of common stock equal to 4% of the
shares of common stock issued in the conversion, or 22,100, 26,000, 29,900
and 34,385 shares at the minimum, midpoint, maximum and 15% above the
maximum of the offering range, respectively. The table assumes that
stockholder approval has been obtained and that such shares are purchased
in the open market at $10.00 per share. The common stock so acquired by the
recognition and retention plan is reflected as a reduction in stockholders'
equity. If the shares are purchased at prices higher or lower than the
initial purchase price of $10.00 per share, such purchases would have a
greater or lesser impact, respectively, on stockholders' equity. If the
recognition and retention plan purchases authorized but unissued shares
from First Federal of Olathe Bancorp, such issuance would dilute the voting
interests of existing stockholders by approximately 3.8%. If the
recognition and retention plan is implemented more than 12 months after the
conversion, the plan may authorize the award of up to 5% of the shares
issued in the conversion. See "Pro Forma Data" and "Management--Benefit
Plans--Recognition and Retention Plan."
16
<PAGE>
PRO FORMA DATA
We cannot determine the actual net proceeds from the sale of our common
stock until the conversion is completed. However, net proceeds are currently
estimated to be between $5.025 million and $6.975 million (or $8.096 million in
the event the offering range is increased by 15%) based upon the following
assumptions: (1) all shares of common stock will be sold in the subscription
offering; and (2) total expenses, including the marketing fees to be paid to
Trident Securities, will be $500,000. Actual expenses may vary from those
estimated.
We calculated pro forma net income and stockholders' equity for the
nine months ended September 30, 1999 and the year ended December 31, 1998 as if
the common stock to be issued in the offering had been sold at the beginning of
the respective periods. The table assumes that the net proceeds had been
invested at 5.18% for the nine months ended September 30, 1999 and 4.52% for the
year ended December 31, 1998, which represent the yield on the one-year U.S.
Treasury Bill as of the respective dates. The calculations have been based on
the one year Treasury rate, as opposed to the arithmetic average of First
Federal's average yield on all interest-earning assets and average rate paid on
deposits, as contemplated by OTS regulations, because First Federal will
initially invest the proceeds in shorter term assets at a lower yield, although
it will seek to more efficiently invest the proceeds over time. The effect of
withdrawals from deposit accounts for the purchase of common stock has not been
reflected. We assumed a combined effective federal and state income tax rate of
35% for the nine months ended September 30, 1999 and the year ended December 31,
1998, resulting in an after-tax yield of 3.37% for the nine months ended
September 30, 1999 and 2.94% for the year ended December 31, 1998. We calculated
historical and pro forma per share amounts by dividing historical and pro forma
amounts by the indicated number of shares of common stock, as adjusted to give
effect to the shares purchased by the ESOP with respect to the net income per
share calculations. See Notes 2 and 4 to the Pro Forma Data tables. No effect
has been given in the pro forma stockholders' equity calculations for the
assumed earnings on the net proceeds. As discussed under "Use of Proceeds,"
First Federal of Olathe Bancorp intends to retain 50% of the net conversion
proceeds.
The following pro forma information may not be representative of the
financial effects of the conversion at the date on which the conversion actually
occurs and should not be taken as indicative of future results of operations.
Pro forma stockholders' equity represents the difference between the stated
amount of our assets and liabilities computed in accordance with generally
accepted accounting principles. The pro forma stockholders' equity is not
intended to represent the fair market value of the common stock and may be
different than amounts that would be available for distribution to stockholders
in the event of liquidation. We did not reflect in the table the possible
issuance of additional shares equal to 10% of the common stock to be reserved
for future issuance pursuant to our proposed stock option plan, nor does book
value give any effect to the liquidation account to be established for the
benefit of eligible account holders and supplemental eligible account holders or
to First Federal's bad debt reserve. See "Management-- Benefit Plans" and "The
Conversion--Effects of Conversion to Stock Form on Depositors and Borrowers of
First Federal--Liquidation Rights." The table does give effect to the
recognition and retention plan, which we expect to adopt following the
conversion and present together with the stock option plan to stockholders for
approval no earlier than six months following the conversion. If the recognition
and retention plan is approved by stockholders within 12 months after the
conversion, the recognition and retention plan intends to acquire an amount of
common stock equal to 4% of the shares of common stock issued in the conversion,
either through open market purchases, if permissible, or from authorized but
unissued shares of common stock. The table assumes that stockholder approval has
been obtained and that the shares acquired by the recognition and retention plan
are purchased in the open market at $10.00 per share. There can be no assurance
that stockholder approval of the recognition and retention plan will be
obtained, that the shares will be purchased in the open market or that the
purchase price will be $10.00 per share. In addition, if the recognition and
retention plan is implemented more than 12 months after the conversion, the plan
may authorize the award of up to 5% of the shares issued in the conversion.
The tables on the following pages summarize historical consolidated
data of First Federal and pro forma data of First Federal of Olathe Bancorp at
or for the dates and periods indicated based on the assumptions set forth above
and in the table and should not be used as a basis for projection of the market
value of the common stock following the conversion.
17
<PAGE>
<TABLE>
<CAPTION>
At and For the Nine Months Ended September 30, 1999
----------------------------------------------------------------------
552,500 650,000 747,500 859,625
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share (15%
(Minimum (Midpoint (Maximum above Maximum
of Range) of Range) of Range) of Range)(8)
--------- --------- --------- ------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds ............................. $ 5,525 $ 6,500 $ 7,475 $ 8,596
Less offering expenses ..................... (500) (500) (500) (500)
--------- --------- --------- ---------
Estimated net conversion proceeds .......... 5,025 6,000 6,975 8,096
Less ESOP adjustment ....................... (442) (520) (598) (688)
Less recognition and retention
plan adjustment ........................... (221) (260) (299) (344)
--------- --------- --------- ---------
Estimated adjusted net proceeds(1) ......... $ 4,362 $ 5,220 $ 6,078 $ 7,065
========= ========= ========= =========
Net income:
Historical .............................. $ 566 $ 566 $ 566 $ 566
Pro forma adjustments:
Income on adjusted net proceeds(1) .... 110 132 154 179
ESOP(2) ............................... (11) (13) (14) (17)
Recognition and retention plan(3) ..... (22) (26) (29) (34)
--------- --------- --------- ---------
Pro forma ............................... $ 644 $ 660 $ 676 $ 694
========= ========= ========= =========
Net income per share(4):
Historical .............................. $ 1.15 $ 0.98 $ 0.85 $ 0.74
Pro forma adjustments:
Income on adjusted net proceeds(1) .... 0.22 0.23 0.23 0.23
ESOP(2) ............................... (0.02) (0.02) (0.02) (0.02)
Recognition and retention plan(3) ..... (0.04) (0.04) (0.04) (0.04)
--------- --------- --------- ---------
Pro forma basic and diluted per share ...... $ 1.31 $ 1.15 $ 1.02 $ 0.91
========= ========= ========= =========
Pro forma basic P/E ratio(4) ............... 5.73x 6.52x 7.35x 8.24x
========= ========= ========= =========
Number of shares used in calculating
net income per share(4):
Basic and diluted EPS ................... 491,173 577,850 664,528 764,207
========= ========= ========= =========
Stockholders' equity:
Historical .............................. $ 9,009 $ 9,009 $ 9,009 $ 9,009
Estimated net conversion proceeds ....... 5,025 6,000 6,975 8,096
Less ESOP adjustment(2) ................. (442) (520) (598) (688)
Less recognition and retention plan
adjustment(3) .......................... (221) (260) (299) (344)
--------- --------- --------- ---------
Pro forma stockholders' equity(5)(6) .... $ 13,371 $ 14,229 $ 15,087 $ 16,074
========= ========= ========= =========
Stockholders' equity per share(7):
Historical .............................. $ 16.31 $ 13.86 $ 12.05 $ 10.48
Estimated net conversion proceeds ....... 9.10 9.23 9.33 9.42
Less ESOP adjustment(2) ................. (0.80) (0.80) (0.80) (0.80)
Less recognition and retention plan
adjustment(3) .......................... (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma stockholders' equity
per share(3)(5)(6) ........................ $ 24.21 $ 21.89 $ 20.18 $ 18.70
========= ========= ========= =========
Pro forma price to book ratio(7) ........... 41.31% 45.68% 49.55% 53.48%
========= ========= ========= =========
Number of shares used in equity
per share calculations(7) ................. 552,500 650,000 747,500 859,625
========= ========= ========= =========
</TABLE>
- ---------
(footnotes begin on next page)
18
<PAGE>
<TABLE>
<CAPTION>
At and For the Year Ended December 31, 1998
---------------------------------------------------------------------
552,500 650,000 747,500 859,625
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share (15%
(Minimum (Midpoint (Maximum above Maximum
of Range) of Range) of Range) of Range)(8)
--------- --------- --------- ------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds ............................. $ 5,525 $ 6,500 $ 7,475 $ 8,596
Less offering expenses ..................... (500) (500) (500) (500)
--------- --------- --------- ---------
Estimated net conversion
proceeds .................................. 5,025 6,000 6,975 8,096
Less ESOP adjustment ....................... (442) (520) (598) (688)
Less recognition and retention
plan adjustment ........................... (221) (260) (299) (344)
--------- --------- --------- ---------
Estimated adjusted net proceeds(1) ......... $ 4,362 $ 5,220 $ 6,078 $ 7,065
========= ========= ========= =========
Net income:
Historical .............................. $ 767 $ 767 $ 767 $ 767
Pro forma adjustments:
Income on adjusted net
proceeds(1) .......................... 128 153 179 208
ESOP(2) ............................... (14) (17) (19) (22)
Recognition and retention
plan(3) .............................. (29) (34) (39) (45)
--------- --------- --------- ---------
Pro forma ............................... $ 852 $ 869 $ 888 $ 908
========= ========= ========= =========
Net income per share(4):
Historical .............................. $ 1.56 $ 1.32 $ 1.15 $ 1.00
Pro forma adjustments:
Income on adjusted net proceeds(1) .... 0.26 0.26 0.27 0.27
ESOP(2) ............................... (0.03) (0.03) (0.03) (0.03)
Recognition and retention plan(3) ..... (0.06) (0.06) (0.06) (0.06)
--------- --------- --------- ---------
Pro forma basic and diluted per share ...... $ 1.73 $ 1.49 $ 1.33 $ 1.18
========= ========= ========= =========
Pro forma basic P/E ratio(4) ............... 5.78x 6.71x 7.52x 8.47x
========= ========= ========= =========
Number of shares used in calculating
net income per share(4):
Basic and diluted EPS ................... 492,830 579,800 666,770 766,786
========= ========= ========= =========
Stockholders' equity:
Historical .............................. $ 8,542 $ 8,542 $ 8,542 $ 8,542
Estimated net conversion proceeds ....... 5,025 6,000 6,975 8,096
Less ESOP adjustment(2) ................. (442) (520) (598) (688)
Less recognition and retention
plan adjustment(3) ..................... (221) (260) (299) (344)
--------- --------- --------- ---------
Pro forma stockholders'
equity(5)(6) ........................... $ 12,904 $ 13,762 $ 14,620 $ 15,607
========= ========= ========= =========
Stockholders' equity per share(7):
Historical .............................. $ 15.46 $ 13.14 $ 11.43 $ 9.94
Estimated net conversion proceeds ....... 9.10 9.23 9.33 9.42
Less ESOP adjustment(2) ................. (0.80) (0.80) (0.80) (0.80)
Less recognition and retention
plan adjustment(3) ..................... (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma stockholders' equity
per share(3)(5)(6) ........................ $ 23.36 $ 21.17 $ 19.56 $ 18.16
========= ========= ========= =========
Pro forma price to book ratio(7) ........... 42.81% 47.24% 51.12% 55.07%
========= ========= ========= =========
Number of shares used in equity
per share calculations(7) ................. 552,500 650,000 747,500 859,625
========= ========= ========= =========
</TABLE>
- -----------
(1) Estimated adjusted net proceeds consist of the estimated net conversion
proceeds, minus (i) the proceeds attributable to the purchase by our ESOP
and (ii) the value of the shares to be purchased by our recognition and
retention plan after the conversion, subject to stockholder approval, at an
assumed purchase price of $10.00 per share.
(2) We assumed that 8% of the shares of common stock issued in the conversion
will be purchased by our ESOP. We also assumed that the funds used to
acquire such shares will be borrowed by the ESOP from First Federal of
Olathe Bancorp. We intend to make quarterly contributions to our ESOP over
approximately a 20-year period in an amount at least equal to the principal
and interest requirement of the debt. The pro forma net income assumes (a)
that the loan to the ESOP is payable over 20 years, with the ESOP shares
having an average fair value of $10.00 per share in accordance with SOP
93-6, entitled "Employers' Accounting for Employee Stock Ownership Plans,"
of the AICPA, (b) that the loan to the ESOP bears a fixed interest rate of
8.50%, (c) that the ESOP expense for the period is equivalent to the
principal payment for the period and was made at the end of the period; (d)
that 2,210, 2,600, 2,990 and 3,439 shares were committed to be released
19
<PAGE>
with respect to the year ended December 31, 1998, and that 1,658, 1,950,
2,243 and 2,579 shares were committed to be released with respect to the
nine months ended September 30, 1999, in each case at the minimum,
midpoint, maximum and 15% above the maximum of the offering range,
respectively; (e) in accordance with SOP 93-6 entitled "Employers'
Accounting for Employee Stock Ownership Plans," only the ESOP shares
committed to be released during the period were considered outstanding for
purposes of the net income per share calculations; and (f) the effective
tax rate was 35% for the period. See "Risk Factors--Our Employee Stock
Benefit Plans Will Increase Our Costs" and "Management--Benefit Plans--
Employee Stock Ownership Plan and Trust."
(3) We assumed that the recognition and retention plan purchases 22,100,
26,000, 29,900 and 34,385 shares at the minimum, midpoint, maximum and 15%
above the maximum of the offering range, assuming that: (a) stockholder
approval of the recognition and retention plan is received; (b) the shares
were acquired by the recognition and retention plan at the beginning of the
period presented in open market purchases at $10.00 per share; (c) the
amortized expense for the year ended December 31, 1998 was 20% of the
amount contributed and the amortized expense for the nine months ended
September 30, 1999 was 15% of the amount contributed; and (d) the effective
tax rate applicable to such employee compensation expense was 35% in each
period. Statement of Financial Accounting Standards ("SFAS") No. 128
requires that unvested shares under the recognition and retention plan be
excluded from the basic net income per share calculation and included in
the diluted net income per share calculation only if they are dilutive
under the treasury stock method. We assumed that 20% and 15% of the
recognition and retention plan shares vested at the beginning of the year
ended December 31, 1998 and the nine months ended September 30, 1999,
respectively. If the recognition and retention plan purchases authorized
but unissued shares instead of making open market purchases, then (a) the
voting interests of existing stockholders would be diluted by approximately
3.9%, (b) the pro forma net income per share for the year ended December
31, 1998 would be $1.69, $1.48, $1.32 and $1.19, and pro forma
stockholders' equity per share at December 31, 1998 would be $22.84,
$20.74, $19.19 and $17.84, in each case at the minimum, midpoint, maximum
and 15% above the maximum of the offering range, respectively, and (c) the
pro forma net income per share for the nine months ended September 30, 1999
would be $1.25, $1.10, $.98 and $.88, and pro forma stockholders' equity
per share at September 30, 1999 would be $23.65, $21.43, $19.79 and $18.36,
in each case at the minimum, midpoint, maximum and 15% above the maximum of
the offering range, respectively. See "Management--Benefit
Plans--Recognition and Retention Plan."
(4) Basic net income per share calculations are determined by (a) starting with
the number of shares assumed to be sold in the conversion, (b) in
accordance with SOP 93-6, subtracting the ESOP shares which have not been
committed for release, and (c) in accordance with SFAS No. 128, subtracting
the recognition and retention plan shares which have not vested. The
unvested recognition and retention plan shares were deemed to be for future
services and not dilutive under the treasury stock method.
Set forth below is a reconciliation of the number of shares used in
making the net income per share calculations for the year ended December 31,
1998:
<TABLE>
<CAPTION>
Maximum,
Minimum Midpoint Maximum as Adjusted
------- -------- ------- -----------
<S> <C> <C> <C> <C>
Total shares issued....................... 552,500 650,000 747,500 859,625
Less shares sold to ESOP.................. (44,200) (52,000) (59,800) (68,770)
Less recognition and retention
plan shares........................... (22,100) (26,000) (29,900) (34,385)
Subtotal............................... 486,200 572,000 657,800 756,470
Plus ESOP shares assumed committed
to be released......................... 2,210 2,600 2,990 3,439
Plus recognition and retention plan
shares assumed vested.................. 4,420 5,200 5,980 6,877
Number of shares used in calculating
basic and diluted net income
per share.............................. 492,830 579,800 666,770 766,786
</TABLE>
20
<PAGE>
Set forth below is a reconciliation of the number of shares used in
making the net income per share calculations for the nine months ended September
30, 1999:
<TABLE>
<CAPTION>
Maximum,
Minimum Midpoint Maximum as Adjusted
------- -------- ------- -----------
<S> <C> <C> <C> <C>
Total shares issued....................... 552,500 650,000 747,500 859,625
Less shares sold to ESOP.................. (44,200) (52,000) (58,800) (68,770)
Less recognition and retention
plan shares........................... (22,100) (26,000) (29,000) (34,385)
Subtotal............................... 486,200 572,000 657,800 756,470
Plus ESOP shares assumed committed
to be released......................... 1,658 1,950 2,243 2,579
Plus recognition and retention plan
shares assumed vested.................. 3,315 3,900 4,485 5,158
Number of shares used in calculating
basic and diluted net income
per share.............................. 491,173 577,850 664,528 764,207
</TABLE>
- ----------
(5) We did not give any effect to the issuance of additional shares of common
stock pursuant to our proposed stock option plan, which we expect to adopt
after the conversion and present to stockholders for approval at a meeting
of stockholders to be held at least six months after we complete the
conversion. If the stock option plan is approved by stockholders, an amount
equal to 10% of the common stock issued in the conversion, or 55,250,
65,000, 74,750 and 85,963 shares at the minimum, midpoint, maximum and 15%
above the maximum of the offering range, respectively, will be reserved for
future issuance upon the exercise of options to be granted under the stock
option plan. The issuance of authorized but previously unissued shares of
common stock pursuant to the exercise of options under such plan would
dilute existing stockholders' interests. Assuming stockholder approval of
the plan, that all the options were exercised at the beginning of the
period at an exercise price of $10.00 per share, and that the shares to
fund the recognition and retention plan are acquired through open market
purchases at $10.00 per share, (a) pro forma net income per share for the
year ended December 31, 1998 would be $1.58, $1.38, $1.23 and $1.09, and
(b) pro forma stockholders' equity per share at December 31, 1998 would be
$22.14, $20.16, $18.69 and $17.41, in each case at the minimum, midpoint,
maximum and 15% above the maximum of the offering range, respectively.
Assuming stockholder approval of the plan, that all the options were
exercised at the beginning of the period at an exercise price of $10.00 per
share, and that the shares to fund the recognition and retention plan are
acquired through open market purchases at $10.00 per share, (a) pro forma
net income per share for the nine months ended September 30, 1999 would be
$1.20, $1.05, $0.94 and $0.84, and (b) pro forma stockholders' equity per
share at September 30, 1999 would be $22.91, $20.81, $19.26 and $17.91, in
each case at the minimum, midpoint, maximum and 15% above the maximum of
the offering range, respectively.
(6) The retained earnings of First Federal will be substantially restricted
after the conversion. See "Dividend Policy" and "The Conversion--Effects of
Conversion to Stock Form on Depositors and Borrowers of First
Federal--Liquidation Rights."
(7) Based on the number of shares sold in the conversion.
(8) Assumes an increase in the number of shares due to a 15% increase in the
maximum of the offering range to reflect changes in market and financial
conditions before we complete the conversion or to fill the order of the
ESOP.
21
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
The following Statements of Income and Comprehensive Income of First
Federal for the fiscal years ended December 31, 1998 and 1997 have been audited
by Taylor, Perky & Parker, L.L.C., independent certified public accountants,
whose report thereon appears elsewhere in this prospectus. The Statements of
Income and Comprehensive Income for the nine months ended September 30, 1999 and
1998 are unaudited and have been prepared in accordance with the requirements
for a presentation of interim financial statements and are in accordance with
generally accepted accounting principles. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, that are necessary for
a fair presentation of the interim periods, have been reflected. The results of
operations for the nine months ended September 30, 1999 are not necessarily
indicative of the results of operations that may be expected for the fiscal year
ending December 31, 1999. These Statements should be read in conjunction with
the Financial Statements of First Federal and Notes thereto included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
------------------------ --------------------------
1999 1998 1998 1997
---- ---- ---- ----
(Unaudited)
Interest and Dividend Income:
<S> <C> <C> <C> <C>
Loans receivable............................... $1,967,812 $1,775,330 $2,394,515 $2,178,540
Investment securities.......................... 687,139 525,504 696,006 539,557
---------- --------- ---------- ----------
Total Interest and Dividend Income........... 2,654,951 2,300,834 3,090,521 2,718,097
---------- --------- ---------- ----------
Interest Expense:
Deposits....................................... 1,418,024 1,133,967 1,600,362 1,336,689
Federal Home Loan Bank advances................ 42,932 37,900 52,368 --
---------- --------- ---------- ----------
Total Interest Expense....................... 1,460,956 1,171,867 1,652,730 1,336,689
---------- --------- ---------- ----------
Net Interest and Dividend Income
Before Provision for Loan Losses............... 1,193,995 1,128,967 1,437,791 1,381,408
Provision for loan losses.................... 150,000 -- -- --
---------- --------- ---------- ----------
Net Interest and Dividend Income
after Provisions for Loan Losses............ 1,043,995 1,128,967 1,437,791 1,381,408
---------- --------- ---------- ----------
Non-Interest Income:
Service charges and other fees................. 15,808 17,319 19,513 7,331
---------- --------- ---------- ----------
Non-Interest Expense:
Salaries and related payroll expenses.......... 83,461 82,358 100,411 96,790
Federal insurance premiums..................... 19,047 15,135 44,693 41,352
Occupancy of premises.......................... 19,502 15,799 21,229 23,353
Office supplies and related expenses........... 11,741 11,238 17,391 18,828
Other general and administrative............... 60,710 55,059 64,495 83,171
---------- --------- ---------- ----------
Total Non-Interest Expense................... 194,461 179,587 248,219 263,494
---------- --------- ---------- ----------
Income Before Income Taxes........................ 865,342 966,699 1,209,085 1,125,245
Income Tax Provision.............................. 299,828 354,509 442,259 398,561
---------- --------- ---------- ----------
Net Income.................................... 565,514 612,190 766,826 726,684
Other Comprehensive Income (Loss):
Unrealized gain (loss) on investment
securities available for sale, net of
deferred tax expense......................... (98,147) 60,664 177,552 113,929
---------- ---------- ---------- ---------
Comprehensive Income......................... $ 467,367 $ 672,854 $ 944,378 $ 840,613
========== ========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
First Federal of Olathe Bancorp has been formed as part of the
conversion and, accordingly, has no results of operations. First Federal's net
income is primarily dependent on its net interest income, which is the
difference between interest income earned on its mortgage loans and investment
securities and its cost of funds consisting of interest paid on deposits and
borrowings. First Federal's net income also is affected to a lesser extent by
the amount of non-interest income, including income from fees and service
charges, and non-interest expense such as employee compensation and benefits,
deposit insurance premiums, occupancy and administration costs, and income
taxes. Earnings of First Federal also are affected significantly by general
economic and competitive conditions, particularly changes in market interest
rates, government policies and actions of regulatory authorities, which are
beyond the control of First Federal. The information contained in this section
should be read in conjunction with the Financial Statements, the accompanying
notes to financial statements and the other sections contained in this
prospectus.
Forward-Looking Statements
This prospectus contains forward-looking statements which are based on
assumptions and describe future plans, strategies and expectations of First
Federal of Olathe Bancorp and First Federal. These forward-looking statements
are generally identified by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar words. First Federal's ability
to predict results or the actual effect of future plans or strategies is
uncertain. Factors which could have a material adverse effect on First Federal's
operations include, but are not limited to, changes in interest rates, general
economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality or composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in First Federal's market area and accounting principles and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and you should not rely too much on these statements.
Business Strategy
First Federal's current business strategy is to operate as a
well-capitalized, profitable, and independent community-oriented savings and
loan dedicated to providing quality customer service. Generally, First Federal
has sought to implement this strategy by emphasizing deposits as its primary
source of funds and maintaining a substantial part of its assets in
locally-originated residential first mortgage loans and in liquid investment
securities. Specifically, First Federal's business strategy incorporates the
following elements: (1) operating as a community- oriented financial
institution, dedicated to serving the needs of First Federal's customers; (2)
emphasizing investment in one- to four-family residential mortgage loans; (3)
maintaining asset quality; (4) controlling operating expenses; (5) maintaining
capital in excess of regulatory requirements; and (6) maintaining a strong
deposit base.
Highlights of First Federal's business strategy are as follows:
Community-Oriented Institution; Continuity of Management. First Federal
is committed to meeting the financial needs of its customers in Johnson County,
Kansas, the county in which it operates. First Federal concentrates on
originating 15-year mortgage loans and believes it is able to provide such
service on a personalized and efficient basis. Management believes First Federal
can more effectively service its customers than many of its non-locally
headquartered competitors because of its ability to quickly and effectively
provide senior management responses to customer needs and inquiries. First
Federal's ability to provide this service is enhanced by the stability of its
management. Since 1927, First Federal has been served by only three managing
officers, all members of the Ashlock family: Donald M. Ashlock served from 1927
to 1967; his son, Donald K. Ashlock, the current chairman of the board, served
from 1967 to 1995; and Donald K. Ashlock's son, Mitch Ashlock, has served from
1995 to the present.
Emphasizing Traditional One-to-Four Family Residential Real Estate
Lending. Historically, First Federal has emphasized one-to-four family
residential lending within First Federal's primary market area. As of September
30, 1999, 100% of First Federal's total loan portfolio consisted of one- to
four- family residential real estate loans. Although the yields on residential
mortgage loans are often less than the yields on consumer loans and commercial
real estate loans, First Federal intends to continue to emphasize one- to four-
family lending
23
<PAGE>
because of its expertise with such lending, and the relatively low delinquency
rates on one- to four- family mortgage loans as compared to other loans.
Asset Quality. Management believes that First Federal's high asset
quality is a result of its conservative underwriting standards. First Federal's
emphasis on traditional residential mortgage loans with 80% loan-to-value
limitations has resulted in minimal problem assets. At September 30, 1999 and
December 31, 1998, First Federal's ratio of nonperforming assets to total assets
was .29% and .24%, respectively.
Controlling Operating Expense. First Federal has managed to control
non-interest expense by limiting the overall number of its employees, and
carefully managing operating expenses. In addition, First Federal maintains a
low occupancy expense by operating out of one building. First Federal's
non-interest expense as a percentage of average total assets was .56% and .62%
for the nine months ended September 30, 1999 and the year ended December 31,
1998, respectively. However, as a result of the conversion, management
anticipates an increase in non-interest expenses associated with First Federal's
status as a public company, resulting from increased administrative expenses,
including various filing fees, and legal, accounting and other professional
expenses, as well as increased compensation expenses associated with the new
stock benefit plans and possible additions to First Federal's staff.
Capital Strength. First Federal's policy has always been to protect the
safety and soundness of First Federal through conservative risk management,
sound operations and a strong capital position. First Federal's total equity at
September 30, 1999 totaled $9.0 million, and its ratio of equity to total assets
was 19.5%.
Strong Retail Deposit Base. Historically, First Federal has experienced
a relatively strong retail deposit base drawn from one office located in
downtown Olathe, Kansas. At September 30, 1999, approximately 15.4% of First
Federal's deposit base of $35.2 million consisted of savings accounts and money
market deposit accounts. At September 30, 1999, 84.6%, or $29.8 million, of
First Federal's deposit base consisted of certificates of deposit ranging in
maturity from 6 months to 60 months. First Federal does not currently accept
brokered deposits. However, in 1998 and early 1999, First Federal supplemented
its local deposits with brokered deposits from outside its market area to raise
funds during a period of strong loan demand.
First Federal does not intend to change its business materially after
the conversion. However, in order to offer more product variety to its customers
and potential customers, First Federal intends to explore offering fixed-rate
residential mortgage loans with terms of up to 25 years, commercial real estate
loans with fixed-rates and, to a lesser extent, loans secured by deposit
accounts. First Federal also intends to explore adjustable rate lending through
the purchase of one- to four- family adjustable rate loans on a limited basis,
provided such loans are secured by local properties and are serviced by the
originator of the loan or a third party. First Federal may hire an additional
employee to support the expanded lending activities of the converted
institution. Implementation of these planned new loan programs will be gradual
so that personnel can be trained adequately and the necessary underwriting and
delivery systems can be implemented.
Financial Condition
Total assets increased $1.6 million, or 3.6%, to $46.2 million at
September 30, 1999, from $44.6 million at December 31, 1998. This increase was
primarily the result of an increase of $2.4 million in mortgage loans and an
increase of $2.0 million in securities held to maturity, offset by a decrease of
$2.8 million in cash and cash equivalents. Total assets increased $11.6 million,
or 35.2%, to $44.6 million at December 31, 1998 from $33.0 million at December
31, 1997. This increase was primarily the result of an increase of $3.2 million
in mortgage loans, an increase of $5.1 million in securities held to maturity
and an increase of $2.9 million in total cash and cash equivalents. These
increases reflected First Federal's decision to pursue opportunities for growth
during recent time periods.
Mortgage loans increased $2.4 million, or 8.3%, to $31.4 million at
September 30, 1999, from $29.0 million at December 31, 1998. Mortgage loans
increased $3.3 million, or 12.8%, to $29.0 million at December 31, 1998 from
$25.7 million at December 31, 1997. The increase during each of these periods
reflect First Federal's controlled growth strategy, including taking advantage
of the strong housing market in First Federal's market area.
Securities held to maturity increased $2.0 million, or 22.2%, to $11.0
million at September 30, 1999 from $9.0 million at December 31, 1998. Securities
held to maturity increased $5.1 million or 130.8%, to $9.0 million at December
31, 1998 from $3.9 million at December 31, 1997, reflecting the purchase of
federal agency debt securities. The increase in securities was primarily
attributable to First Federal's acceptance of brokered deposits in 1998 and
early 1999 which led to an increase in funds which could not immediately be
invested into
24
<PAGE>
loans. Over time, a portion of the deposits was invested into loans, however, a
significant portion was invested in securities with maturities of five to 15
years.
Deposits increased $520,000, or 1.5%, to $35.2 million at September 30,
1999 from $34.7 million at December 31, 1998. Deposits increased $9.6 million,
or 38.2%, to $34.7 million at December 31, 1998 from $25.1 million at December
31, 1997. The increases in deposits resulted primarily from First Federal's
practice in 1998 and early 1999 of accepting brokered deposits.
First Federal obtained $1.0 million of FHLB advances during the year
ended December 31, 1998. These advances were used to fund First Federal's growth
during the year.
Total equity increased $467,000, or 5.9%, to $9.0 million at September
30, 1999 from $8.5 million at December 31, 1998, due primarily to First
Federal's net income during the nine months ended September 30, 1999.
Analysis of Net Interest Income
Net interest income represents the difference between interest earned
on interest-earning assets and interest paid on interest-bearing liabilities.
Net interest income depends on the volume of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields as well as the total dollar amount of interest expense on average
interest-bearing liabilities and the resultant rates. No tax-equivalent
adjustments were made. All average balances are monthly average balances. First
Federal's management does not believe the use of monthly balances instead of
daily balances results in a material difference in the information presented.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------
At September 30, 1999 1999 1998
-------------------- ----------------------------- --------------------------------
Average Interest Average Interest
Outstanding Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Rate Balance Paid Rate(1) Balance Paid Rate(1)
------- ---- ------- ---- ------- ------- ---- -------
(Dollars in Thousands)
Interest-Earning Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable............. $ 31,371 8.20% $ 30,423 $ 1,975 8.66% $ 27,454 $ 1,779 8.64%
Investment securities........ 11,000 6.81 9,889 506 6.82 5,542 332 7.99
FHLB stock................... 303 6.60 287 15 6.97 314 18 7.63
Interest-earning deposits.... 2,400 6.76 3,644 159 5.82 4,233 172 5.42
-------- ---- -------- ------- ---- -------- -------- ----
Total interest-earning
assets..................... 45,074 44,243 2,655 8.00 37,544 2,301 8.17
Other non-interest earning
assets........................ 1,171 1,900 1,086
-------- -------- --------
Total assets................ $ 46,245 $ 46,143 $ 38,630
======== ======== ========
Interest-Bearing Liabilities:
Savings deposits............. $ 3,214 3.00 $ 3,285 74 3.00 $ 3,099 69 2.97
Money market accounts........ 2,213 3.00 2,325 52 2.98 2,419 55 3.03
Certificate accounts......... 29,794 5.87 29,857 1,292 5.77 23,403 1,010 5.75
FHLB advances................ 1,000 5.66 1,000 43 5.73 889 38 5.70
-------- ---- -------- -------- ---- -------- -------- ----
Total interest-bearing
liabilities................... 36,221 36,468 1,461 5.34 29,810 1,172 5.24
Non-interest-bearing
liabilities................... 1,015 826 836
Equity......................... 9,009 8,849 7,984
-------- -------- --------
Total liabilities and equity $46,245 $ 46,143 $ 38,630
======== ======== ========
Net interest income............ $ 1,194 $ 1,129
======== ========
Net interest rate spread..... 2.66% 2.93%
==== ====
Net earning assets............. $ 8,853 $ 7,775 $ 7,733
======== ======== ========
Net yield on average interest
-earning assets.............. 3.60% 4.01%
==== ====
Average interest-earning assets
to average interest-bearing
liabilities.................. 124.44% 121.37% 125.94%
====== ====== ======
</TABLE>
- -------------
(1) Nine month yield/rates are annualized.
25
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1998 1997
------------------------------- -------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ----
Interest-Earning Assets:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable.............................. $ 27,784 $ 2,395 8.62% $ 24,967 $ 2,178 8.72%
Investment securities......................... 6,323 11,409 6.47 5,397 415 7.69
FHLB Stock.................................... 311 23 7.41 295 21 7.12
Interest-earning deposits..................... 4,642 261 5.62 1,900 98 5.16
-------- -------- ---- -------- -------- -------
Total interest-earning assets............... 39,059 3,088 7.91 32,559 2,712 8.33
Other non-interest earning assets................ 1,179 890
-------- --------
Total assets.................................. $ 40,238 $ 33,449
======== ========
Interest-Bearing Liabilities:
Savings deposits.............................. $ 3,207 96 2.99 $ 2,241 66 2.94
Money market accounts......................... 2,397 72 3.00 2,673 80 2.99
Certificates accounts......................... 24,715 1,432 5.79 20,588 1,190 5.78
FHLB advances................................. 917 52 5.67 -- -- --
-------- -------- ---- -------- -------- ----
Total interest-bearing liabilities............. 31,236 1,652 5.29 25,502 1,336 5.24
Non-interest-bearing liabilities................. 888 706
Equity........................................... 8,114 7,241
-------- --------
Total liabilities and equity................... $ 40,238 $ 33,449
======== ========
Net interest income............................ $ 1,436 $ 1,376
======== ========
Net interest rate spread...................... 2.62% 3.09%
==== ====
Net earning assets............................ $ 7,823 $ 7,057
======== ========
Net yield on average interest
-earning assets............................. 3.68% 4.23%
==== ====
Average interest-earning assets
to average interest-bearing liabilities..... 125.05% 127.67%
====== ======
</TABLE>
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
outstanding balances and that due to the changes in interest rates. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to changes in volume (i.e.,
changes in volume multiplied by old rate) and changes in rate (i.e., changes in
rate multiplied by old volume). For purposes of this table, changes attributable
to both rate and volume, which cannot be segregated, have been allocated
proportionately to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Nine Months Ended September 30, Years Ended December 31,
1999 vs. 1998 1998 vs. 1997
------------------------------- --------------------------------
Increase/(Decrease) Increase/(Decrease)
Due To Total Due To Total
------------------ Increase/ ------------------ Increase/
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(In Thousands)
Interest-earning assets
<S> <C> <C> <C> <C> <C> <C>
Loans receivable....................... $ 192 $ 4 $ 196 $ 246 $ (29) $ 217
FHLB stock............................. (2) (1) (3) 1 1 2
Investment securities.................. 260 (86) 174 71 (77) (6)
Interest-earning deposits.............. (24) 11 (13) 141 22 163
------ ------ ------ ------ ------ ------
Total interest-earning assets........ $ 426 $ (72) $ 354 $ 459 $ (83) $ 376
====== ====== ====== ====== ====== ======
Interest-bearing liabilities:
Savings deposits....................... $ 4 $ 1 $ 5 $ 28 $ 2 $ 30
Money market........................... (2) (1) (3) (8) -- (8)
Certificate accounts................... 278 4 282 239 3 242
FHLB advances.......................... 5 -- 5 52 -- 52
------ ------ ------ ------ ------ ------
Total interest-bearing liabilities... $ 285 $ 4 $ 289 $ 311 $ 5 $ 316
====== ======= ====== ====== ======= ======
Net interest income....................... $ 65 $ 60
====== ======
</TABLE>
Comparison of Operating Results for the Nine Months Ended September 30, 1999 and
1998
Performance Summary. Comprehensive income decreased $206,000 from
$673,000 for the nine months ended September 30, 1998, to $467,000 for the nine
months ended September 30, 1999. The decrease was due primarily to a decrease of
$159,000 in unrealized gain on available for sale securities. Net income
decreased $46,000 for the nine months ended September 30, 1999, as compared to
the nine months ended September 30, 1998.
26
<PAGE>
Net Income. Net income for the nine months ended September 30, 1999,
decreased by $46,000, or 7.5%, to $566,000 from $612,000 for the nine months
ended September 30, 1998. The decrease reflected the combined effects of a
$65,000 increase in net interest income offset by a $15,000 increase in
non-interest expense and an increase of $150,000 in the provision for loan
losses for the 1999 period compared to the 1998 period. There was a $55,000
decrease in income taxes for the 1999 period compared to the 1998 period. For
the nine months ended September 30, 1999 and 1998, the returns on average assets
were 1.63% and 2.11%, respectively, while the returns on average equity were
8.52% and 10.22%, respectively.
Net Interest Income. For the nine months ended September 30, 1999, net
interest income increased by $65,000, or 5.9%, to $1.2 million from $1.1 million
for the nine months ended September 30, 1999. The increase reflected an increase
of $354,000 in interest income to $2.7 million for the 1999 period from $2.3
million for the 1998 period, which more than offset an increase of $289,000 in
interest expense to $1.5 million for the 1999 period from $1.2 million for the
1998 period. The increase in interest income reflected increased average
balances of loans receivable and investment securities. The increase in interest
expense reflected increased balances of certificate accounts.
For the nine months ended September 30, 1999, the average yield on
interest-earning assets was 8.00% compared to 8.17% for the nine months ended
September 30, 1998. The average cost of interest-bearing liabilities was 5.34%
for the nine months ended September 30, 1999, compared to 5.24% for the nine
months ended September 30, 1998. The average balance of interest-earning assets
increased by $6.7 million to $44.2 million for the nine months ended September
30, 1999, from $37.5 million for the nine months ended September 30, 1998. The
average balance of interest-bearing liabilities increased by $6.7 million to
$36.5 million for the nine months ended September 30, 1999, from $29.8 million
for the same period ended September 30, 1998.
First Federal's average interest rate spread was 2.66% for the nine
months ended September 30, 1999, compared to 2.93% for the nine months ended
September 30, 1998. The average net interest margin was 3.60% for the nine
months ended September 30, 1999, compared to 4.01% for the nine months ended
September 30, 1998.
Provision for Loan Losses. For the nine months ended September 30,
1999, the provision for loan losses increased to $150,000 from none recorded for
the nine months ended September 30, 1998. First Federal's loans receivable has
increased significantly in the last several years. First Federal examined its
market area, the increase in the size of its loan portfolio, the components of
its loan portfolio, including loans on non-owner- occupied properties,
statistical data for the financial institutions industry generally, and
concluded that the allowance for loan losses should be increased. The increase
results in First Federal's allowance for loan losses totaling .56% of total
loans. Management will continue to monitor its allowance for loan losses and
make future additions to the allowance through the provision for loan losses as
economic conditions and First Federal's performance dictate. Although First
Federal maintains its allowance for loan losses at a level which it considers to
be adequate to provide for potential losses, there can be no assurance that
future losses will not exceed estimated amounts or that additional provisions
for loan losses will not be required in future periods.
Non-Interest Income. Non-interest income decreased to $16,000 for the
nine months ended September 30, 1999 from $17,000 for the nine months ended
September 30, 1998.
Non-Interest Expense. Non-interest expense increased by $14,000 to
$194,000 for the nine months ended September 30, 1999, from $180,000 for the
nine months ended September 30, 1998, reflecting small increases in various
components of non-interest expense.
Income Taxes. Income taxes decreased by $55,000 to $300,000 for the
nine months ended September 30, 1999, from $355,000 for the nine months ended
September 30, 1998. The effective tax rates were 34.7% and 36.7%for the nine
months ended September 30, 1999 and 1998, respectively.
Comparison of Operating Results for the Fiscal Years Ended December 31, 1998 and
1997
Performance Summary. Comprehensive income increased by $104,000 from
$840,000 for the year ended December 31, 1997, to $944,000 for the year ended
December 31, 1998. The increase was a result of an increase of $64,000 in
unrealized gain on available for sale securities and an increase of $40,000 in
net income for the year ended December 31, 1998, as compared to the year ended
December 31, 1997.
Net Income. Net income for the year ended December 31, 1998, increased
by $40,000, or 5.5%, to $767,000 from $727,000 for the year ended December 31,
1997. The increase was primarily due to an increase in net interest income of
$56,000, or 4.1% from $1.4 million for the year ended December 31, 1997, to $1.4
million
27
<PAGE>
for the year ended December 31, 1998. Non-interest expenses also decreased
$15,000 from $263,000 for the year ended December 31, 1997, to $248,000 for the
year ended December 31, 1998. These improvements were partially offset by an
increase in income tax expense of $43,000 from $399,000 for the year ended
December 31, 1997, to $442,000 for the year ended December 31, 1998.
Net Interest Income. For the year ended December 31, 1998, net interest
income increased by $56,000, or 4.0%, to $1.4 million from $1.4 million for
fiscal 1997. The increase included an increase of $372,000 in interest income to
$3.1 million in fiscal 1999 from $2.7 million in fiscal 1998, which more than
offset an increase of $316,000 in interest expense to $1.7 million in fiscal
1999 from $1.3 million in fiscal 1998. The increase in interest income reflected
an increase in the balance of loans receivable due to favorable economic
conditions and increased demand for single-family homes in Johnson County,
Kansas and an increase in the balance of other interest-earning assets,
comprised of interest carrying deposits with the FHLB of Topeka. Interest
expense increased primarily as a result of increased borrowings to meet loan
demand and an increase in certificate balances and rates. Net interest income
increased primarily as a result of the increase in the average balance of
interest-earning assets in fiscal 1998, as compared to the increase in the
average balance of interest-bearing liabilities.
For the year ended December 31, 1998, the average yield on
interest-earning assets was 7.91% compared to 8.33% for fiscal 1997. The average
cost of interest-bearing liabilities was 5.29% for the year ended December 31,
1998, an increase of 5 basis points from 5.24% for fiscal 1997. The average
balance of interest-earning assets increased by $6.5 million to $39.1 million
for the year ended December 31, 1998, compared to $32.6 million for fiscal 1997.
During this same period, the average balance of interest-bearing liabilities
increased by $5.7 million to $31.2 million for the year ended December 31, 1998,
from $25.5 million for fiscal 1997.
Due to higher funding costs, the average interest rate spread was 2.62%
for the year ended December 31, 1998, compared to 3.09% in fiscal 1997. The
average net interest margin was 3.68% for the year ended December 31, 1998,
compared to 4.23% for the year ended December 31, 1997.
Non-Interest Income. Non-interest income increased to $19,000 in fiscal
1998 from $7,000 in fiscal 1997 due to higher service charges and other fees.
Non-Interest Expense. Non-interest expense decreased by $15,000 to
$248,000 for the year ended December 31, 1998, from $263,000 for the year ended
December 31, 1997. The decrease reflected a decrease in other miscellaneous
expenses.
Income Taxes. Income taxes increased $43,000 to $442,000 for the year
ended December 31, 1998, from $399,000 for the year ended December 31, 1997. The
effective tax rates were 36.6% and 35.4% for the years ended December 31, 1998
and 1997, respectively.
Asset/Liability Management and Market Risk
Savings institutions such as First Federal are subject to interest rate
risk to the extent their interest-bearing liabilities, consisting primarily of
deposit accounts and FHLB advances, mature or reprice more rapidly, or on a
different basis, than their interest-earning assets, consisting predominantly of
15-year fixed rate real estate loans and investments held for investment and
liquidity purposes. Having interest-bearing liabilities that mature or reprice
more frequently on average than assets may be beneficial in times of declining
interest rates, although such an asset/liability structure may result in
declining net interest earnings during periods of rising interest rates.
Conversely, having interest-earning assets that mature or reprice more
frequently on average than liabilities may be beneficial in times of rising
interest rates, although this asset/liability structure may result in declining
net interest earnings during periods of falling interest rates.
28
<PAGE>
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at September 30, 1999, which are
expected to reprice or mature in each of the future time periods shown. Except
for deposits, which are classified as repricing in the "within 1 year" category,
the amounts of assets and liabilities shown which reprice or mature during a
particular period were determined in accordance with the earlier of term to
repricing or the contractual terms of the asset or liability.
<TABLE>
<CAPTION>
Amounts Maturing or Repricing at September 30, 1999
--------------------------------------------------------------
Within Over
1 Year 1-3 Years 3-5 Years 5-15 Years 15 Years Total
--------- --------- --------- ---------- -------- -----
(Dollars in Thousands)
Interest-Earning Assets:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable............................. $ 10 $ 534 $ 620 $29,656 $ 551(1) $31,371
Investment securities........................ -- -- -- 11,000 -- 11,000
FHLB stock................................... 303 -- -- -- -- 303
Interest-earning deposits.................... 2,400 -- -- -- -- 2,400
------- ------- ------- ------- ------- -------
Total interest-earning assets............... $ 2,713 $ 534 $ 620 $40,656 $ 551 $45,074
======= ======= ======= ======= ======= =======
Interest-Bearing Liabilities:
Savings deposits............................. $ 3,214 $ -- $ -- $ -- $ -- $ 3,214
Money market accounts........................ 2,213 -- -- -- -- 2,213
Certificate accounts......................... 14,602 9,170 5,922 100 -- 29,794
FHLB advances................................ 1,000 -- -- -- -- 1,000
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities.......... $21,029 $ 9,170 $ 5,922 $ 100 $ -- $36,221
======= ======= ======= ======= ======= =======
Interest sensitivity gap....................... $(18,316) $(8,636) $(5,302) $40,556 $ 551 $ 8,853
======== ======= ======= ======= ======= =======
Cumulative interest sensitivity gap............ $(18,316) $(26,952) $(32,254) $ 8,302 $ 8,853 $17,706
======== ======== ======== ======= ======= =======
Ratio of interest-earning assets to
interest-bearing liabilities.................. 12.90% 5.82% 10.47% 40656.28% N.A. 124.44%
Ratio of cumulative gap to total assets........ (39.61)% (58.28)% (69.75)% 17.95% 19.14% 38.29%
</TABLE>
- ----------
(1) Includes $473,000 of 15-year loans originated in September 1999 with a
final payment due on October 1, 2014. Also includes one loan with a balance
of $78,000, which, by special approval of First Federal's Board of
Directors, was modified from a 15-year term to a 25- year term upon the
request of a long time customer in view of special circumstances.
Net Portfolio Value. First Federal monitors and evaluates the potential
impact of interest rate changes upon the market value of First Federal's
portfolio equity on a quarterly basis, in an attempt to ensure that interest
rate risk is maintained within limits established by the Board of Directors.
First Federal uses the quarterly reports from the OTS which show the impact of
changing interest rates on First Federal's net portfolio value ("NPV"). NPV is
the difference between incoming and outgoing discounted cash flows from assets,
liabilities, and off- balance sheet contracts. An institution has greater than
"normal" interest rate risk if it would suffer a loss of NPV exceeding 2.0% of
the estimated market value of its assets in the event of a 200 basis point
increase or decrease in interest rates. A resulting change in NPV of more than
2% of the estimated market value of an institution's assets will require the
institution to deduct from its risk-based capital 50% of that excess change, if
and when a rule adopted by the OTS takes effect. Under the rule, an institution
with greater than "normal" interest rate risk will be subject to a deduction of
its interest rate risk component from total capital for purposes of calculating
the risk- based capital requirement. However, the OTS has indicated that no
institutions will be required to deduct capital for interest rate risk until
further notice. Because a 200 basis point increase in interest rates would have
resulted in First Federal's NPV declining by more than 2% of the estimated
market value of First Federal's assets as of September 30, 1999, First Federal
would have been subject to a capital deduction as of September 30, 1999 if the
regulation had been effective as of such date.
29
<PAGE>
The following table presents First Federal's NPV as of September 30,
1999, as calculated by the OTS, based on information provided to the OTS by
First Federal.
<TABLE>
<CAPTION>
Net Portfolio Equity
--------------------------------------------
Changes in Amount of Percent NPV as a % of Basis
Interest Rates Estimated Change Change Portfolio Value Point
(basis points) NPV NPV in NPV of Assets Change
-------------- --- --- ------ --------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
300 $ 7,710 $ (3,314) (30)% 17.82% (518)bp
200 8,845 (2,179) (20) 19.72 (328)
100 9,984 (1,040) (9) 21.50 (150)
0 11,024 -- -- 23.00 --
-100 11,915 891 8 24.17 117
-200 12,826 1,802 16 25.30 230
-300 13,857 2,833 26 26.53 353
</TABLE>
Although the OTS has informed First Federal that it is not subject to
the interest rate risk component discussed above, First Federal is still subject
to interest rate risk and, as can be seen above, rising interest rates will
reduce First Federal's NPV. The OTS has the authority to require otherwise
exempt institutions to comply with the rule concerning interest rate risk.
Certain shortcomings are inherent in the method of analysis presented
in both the computation of NPV and in the analysis presented in the prior table
setting forth the maturing and repricing of interest-earning assets and
interest-bearing liabilities. Although certain assets and liabilities may have
similar maturities or periods within which they will reprice, they may react
differently to changes in market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in the table.
All of First Federal's loan portfolio at September 30, 1999 have fixed
interest rates. First Federal's fixed-rate loans help its profitability if
interest rates are stable or declining, since these loans have yields that
exceed its cost of funds. However, if interest rates increase, First Federal
would have to pay more on its deposits and new borrowings, which would adversely
affect First Federal's interest rate spread.
First Federal's Board of Directors has formulated asset/liability
management policies designed to promote long-term profitability while managing
interest rate risk. These policies are designed to reduce the impact of changes
in interest rates on First Federal's net interest income by achieving a more
favorable match between the maturity or repricing dates of its interest-earning
assets and interest-bearing liabilities. First Federal has sought to maintain a
strong base of less interest-sensitive and lower-costing deposits in the form of
money market accounts and savings accounts, and emphasizing 18-month to 60-month
maturity certificates of deposit.
Liquidity and Capital Resources
First Federal's primary sources of funds are deposits, FHLB advances,
repayments on loans, the maturity of investment securities, and interest income.
Although maturity and scheduled amortization of loans are relatively predictable
sources of funds, deposit flows and prepayments on loans are influenced
significantly by general interest rates, economic conditions, and competition.
The primary investing activity of First Federal is the origination of
loans to be held for investment. For the nine months ended September 30, 1999,
and the fiscal year ended December 31, 1998, First Federal originated loans for
portfolio in the amount of $10.6 million and $11.8 million, respectively. For
the nine months ended September 30, 1999, and the fiscal year ended December 31,
1998, these activities were funded primarily by principal repayments of $7.9
million and $8.4 million, respectively, and a net increase in deposits of
$520,000 and $9.6 million, respectively.
First Federal is required to maintain minimum levels of liquid assets
under the OTS regulations. Savings institutions are required to maintain an
average daily balance of liquid assets (including cash, certain time deposits,
and specified U.S. Government, state, or federal agency obligations) of not less
than 4.0% of its average daily balance of net withdrawal accounts plus
short-term borrowings. It is First Federal's policy to maintain its liquidity
portfolio in excess of regulatory requirements.
30
<PAGE>
First Federal's most liquid assets are cash and cash equivalents, which
include overnight deposits at First National Bank of Olathe and the FHLB of
Topeka. The levels of these assets are dependent on First Federal's operating,
financing, lending, and investment activities during any given period. At
September 30, 1999 and at December 31, 1998, cash and cash equivalents were $2.5
million and $5.2 million, respectively. The decrease in cash and cash
equivalents at September 30, 1999, compared to December 31, 1998, resulted
primarily from the use of cash to fund loans. The principal component of cash
provided during the nine months ended September 30, 1999, and the fiscal year
ended December 31, 1998, was the proceeds from loan repayments, deposit
activity, and investment maturities.
Liquidity management for First Federal is both an ongoing and long-term
function of First Federal's asset/liability management strategy. Excess funds
generally are invested in overnight deposits at the FHLB of Topeka and the First
National Bank of Olathe. Should First Federal require funds beyond its ability
to generate them internally, additional sources of funds are available through
FHLB advances. First Federal would pledge its FHLB stock or certain other assets
as collateral for such advances. For the nine months ended September 30, 1999,
First Federal had an average balance of $1.0 million in FHLB advances.
At September 30, 1999, First Federal had outstanding loan commitments
of $477,000 and did not have any undisbursed loans in process. First Federal
anticipates it will have sufficient funds available to meet its current loan
commitments, including loan applications received and in process prior to the
issuance of firm commitments. Certificates of deposit which are scheduled to
mature in one year or less at September 30, 1999, were $14.6 million. Management
believes that a significant portion of such deposits will remain with First
Federal.
Following consummation of the conversion, First Federal of Olathe
Bancorp initially will have no business other than holding the capital stock of
First Federal and the investment of the net proceeds from the conversion.
Management believes the net proceeds will provide sufficient funds for First
Federal of Olathe Bancorp's operations.
Under federal law, First Federal is required to meet certain tangible,
core and risk based capital requirements. For information regarding First
Federal's regulatory capital compliance, see "Pro Forma Regulatory Capital" and
"Regulation--Regulatory Capital Requirements."
Impact of Inflation and Changing Prices
The financial statements and notes thereto presented in this prospectus
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollar amounts
without considering the changes in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
cost of First Federal's operations. Unlike industrial companies, nearly all of
the assets and liabilities of First Federal are monetary in nature. As a result,
interest rates have a greater impact on First Federal's performance than do the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or to the same extent as the price of goods and services.
Impact of New Accounting Standards
Reporting Comprehensive Income. In June 1997, the Financial Accounting
Standards Board, or FASB, issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). This Statement requires
entities presenting a complete set of financial statements to include details of
comprehensive income that arise in the reporting period. Comprehensive income
consists of net income or loss for the current period and other comprehensive
income consisting of revenue, expenses, gains and losses that bypass the income
statement and are reported directly in a separate component of equity. Other
comprehensive income includes, for example, unrealized gains and losses on
certain investment securities, minimum pension liability adjustments, and
foreign currency items. SFAS No. 130 requires that components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. At September 30, 1999, First Federal's
other comprehensive income consisted of unrealized gains on securities
classified as available for sale. This Statement is effective for fiscal years
beginning after December 15, 1997, and requires restatement of prior period
financial statements presented for comparative purposes.
Disclosures about Segments of an Enterprise and Related Information. In
June 1997, the FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information ("SFAS No.
131"). This Statement changes the current practice for reporting segment
information under SFAS No. 14, "Financial Reporting for Segments of an
Enterprise." Public entities are required to report financial and descriptive
information about their reportable operating segments. An operating segment is a
31
<PAGE>
component of an entity for which financial information is developed and
evaluated by the entity's chief operating decision maker to assess performance
and to make decisions about resource allocation. Disclosures about operating
segments should generally be based on the information used internally. This
Statement is effective for financial statements for periods beginning after
December 15, 1997. On adoption, comparative information for earlier years is to
be restated. Based on current operations, First Federal does not believe
adoption of this Statement will have any impact on its public financial
reporting.
Employers' Disclosures about Pensions and Other Postretirement
Benefits. In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," which standardizes the disclosure requirements for
pensions and other post-retirement benefits, requires additional information on
changes in the benefit obligations and fair values of plan assets that will
facilitate financial analysis, and eliminates certain disclosures that the FASB
no longer considers as useful as when they were issued. This statement suggests
combined formats for presentation of pension and other post-retirement benefit
disclosures. This statement is effective for fiscal years beginning after
December 15, 1997.
Accounting for Derivative Instruments and Hedging Activities. In June
1998, the FASB issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This Statement
requires that all derivatives be recognized at fair value as either assets or
liabilities on the balance sheet. If certain conditions are met, a derivative
may be specifically designated as a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, a
hedge of the exposure to variable cash flows of a forecasted transaction, or a
hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security or a
foreign- currency-denominated forecasted transaction. The accounting for changes
in fair value of a derivative depends on the intended use of the derivative and
the resulting designation. This Statement generally provides for matching the
timing of a gain or loss recognition on the hedging instrument with the
recognition of the changes in the fair value of the hedged asset or liability
that are attributable to the hedged risk or the earnings effect of the hedged
forecasted transaction. This Statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999, with earlier application encouraged.
Retroactive application to prior periods is prohibited. First Federal does not
use derivative instruments and therefore the adoption of the Statement is not
expected to have a material impact on the financial statements of First Federal
of Olathe Bancorp.
32
<PAGE>
BUSINESS OF FIRST FEDERAL OF OLATHE BANCORP, INC.
First Federal of Olathe Bancorp is a Kansas corporation organized in
December 1999 by First Federal for the purpose of becoming a unitary savings and
loan holding company of First Federal. We will purchase all of the capital stock
of First Federal to be issued in the conversion in exchange for 50% of the net
conversion proceeds and will retain the remaining 50% of the net proceeds as our
initial capitalization. Immediately following the conversion, our only
significant assets will be the capital stock of First Federal, our loan to the
ESOP, and the remainder of the net conversion proceeds retained by us. The
business and management of First Federal of Olathe Bancorp will initially
primarily consist of the business and management of First Federal.
BUSINESS OF FIRST FEDERAL
General. First Federal was founded in 1923 as a state-chartered mutual
savings association under the name Central Building and Loan Association. In
1934, First Federal converted to a federal mutual savings association charter
and adopted its current name. First Federal is regulated by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation. First Federal's
deposits have been federally insured since 1934 and are currently insured by the
Federal Deposit Insurance Corporation under the Savings Association Insurance
Fund. First Federal has been a member of the Federal Home Loan Bank System since
1933.
First Federal operates as a traditional savings association,
specializing in one-to four- family residential mortgage lending and savings
deposits. First Federal's business consists primarily of attracting retail
deposits from the general public and using those funds to originate real estate
loans. First Federal holds its loans for long-term investment purposes. First
Federal also invests in various investment securities. See "--Lending
Activities."
Lending Activities
General. At September 30, 1999, First Federal's net loan portfolio
totaled $31.4 million, representing approximately 68.0% of First Federal's $46.2
million of total assets at that date. The principal lending activity of First
Federal is the origination of fixed-rate, one- to four-family residential loans
with terms of up to 15 years. At December 31, 1997 and 1998 and at September 30,
1999 First Federal's loan portfolio consisted exclusively of first mortgage,
one- to four-family residential loans. Although First Federal's lending policies
permit the origination of commercial real estate loans, multi-family loans and
loans secured by deposit accounts, First Federal's loan portfolio has not
included any of such loans in recent years. First Federal also occasionally
originates construction/permanent loans to individuals for the construction and
permanent financing of one- to four-family dwellings, although First Federal has
originated very few construction/permanent loans in recent years. First Federal
retains in its portfolio all loans that it originates.
After the conversion, First Federal plans to implement a program for
offering longer-term, fixed-rate residential mortgage loans with terms of up to
25 years, and fixed-rate commercial real estate loans. First Federal also
intends to explore adjustable rate lending through the purchase of adjustable
rate loans on a limited basis. To a lesser extent, First Federal also intends to
originate loans secured by deposit accounts.
The types of loans that First Federal may originate are subject to
federal and state laws and regulations. Interest rates charged by First Federal
on loans are affected principally by the demand for such loans and the supply of
money available for lending purposes and the rates offered by its competitors.
These factors are, in turn, affected by general and economic conditions, the
monetary policy of the federal government, including the Federal Reserve Board,
legislative and tax policies, and governmental budgetary matters.
Under OTS regulations, a thrift institution's loans-to-one borrower
limit is generally limited to the greater of 15% of unimpaired capital and
surplus or $500,000. See "Regulation--Federal Regulation of Savings
Associations." At September 30, 1999, First Federal's limit on loans-to-one
borrower was $1.3 million. At that date, First Federal's largest amount of loans
to one borrower, including the borrower's related interests, was $1.3 million
and consisted of 23 residential mortgage loans secured by non-owner occupied,
investor-owned homes. These loans were performing according to their original
terms at September 30, 1999.
33
<PAGE>
Loan Portfolio Composition. The following table shows the composition
of First Federal's loan portfolio by type of loan at the dates indicated. First
Federal's loan portfolio is composed solely of loans with fixed rates of
interest.
<TABLE>
<CAPTION>
At September 30, At December 31,
--------------------- -----------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
Amount Percent Amount Percent Amount Percent
--------- ------- --------- ------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family..................... $ 31,867 100.00% $ 29,262(1) 100.00% $ 25,949 100.00%
--------- ------- --------- ------- --------- -------
Total real estate loans................. 31,867 100.00% 29,262 100.00% 25,949 100.00%
--------- ======= --------- ======= --------- =======
Less:
Loans in process........................ -- -- --
Deferred fees and discounts............. 321 259 182
Allowance for losses.................... 175 25 25
--------- --------- ---------
Total loans receivable, net............. $ 31,371 $ 28,978 $ 25,742
========= ========= =========
</TABLE>
- -------------
(1) Includes construction/permanent loan in the amount of $31,000.
One- to Four-Family Mortgage Loans. First Federal's primary lending
activity is the origination of first mortgage loans secured by one- to
four-family residential property located in First Federal's market area. A
portion of the one- to four-family mortgage loans originated by First Federal
are secured by investor-owned, nonowner occupied residences. Loans are generated
through First Federal's existing customers and referrals, real estate brokers
and other marketing efforts. First Federal generally has limited its real estate
loan originations to the financing of properties located within its market area
and has not made out-of-state loans. At September 30, 1999, First Federal had
$31.9 million, or 100% of its loan portfolio, invested in mortgage loans secured
by one- to four-family residences.
First Federal's residential mortgage loans have terms of up to 15
years. First Federal has originated only fixed-rate residential loans. First
Federal has no current plans to originate adjustable rate mortgages. However,
following the conversion, First Federal may explore adjustable rate lending
through the purchase of adjustable rate loans on a limited basis. All of the
loans made by First Federal are retained in its portfolio for long-term
investment. First Federal has not sold loans in the secondary mortgage market,
and First Federal's loans generally are not underwritten for resale in the
secondary mortgage market. First Federal's fixed-rate mortgage loans amortize
monthly with principal and interest due each month. Residential real estate
loans often remain outstanding for significantly shorter periods than their
contractual terms because borrowers may refinance or prepay loans at their
option.
Under First Federal's real estate lending policy, a title insurance
policy must be obtained for each real estate loan. First Federal also requires
fire and extended coverage casualty insurance, in order to protect the
properties securing its real estate loans. Borrowers must also obtain flood
insurance policies when the property is in a flood hazard area. First Federal
requires borrowers to advance funds to an escrow account for the payment of real
estate taxes but does not require escrowed funds for hazard insurance premiums
provided other proof of an effective hazard insurance policy is provided to
First Federal. First Federal generally makes loans up to a maximum amount of
$125,000, subject to exceptions by the Board of Directors. In recent years, as a
result of increasing property values, the Board has granted frequent waivers
from this maximum loan amount. Following the conversion, First Federal intends
to increase its maximum loan amount to $175,000, subject to further exceptions
at the discretion of the Board of Directors.
First Federal's residential mortgage loans customarily include
due-on-sale clauses, which are provisions giving First Federal the right to
declare a loan immediately due and payable in the event, among other things,
that the borrower sells or otherwise disposes of the underlying real property
serving as security for the loan. Due-on-sale clauses are a means of increasing
the interest rate on First Federal's mortgage portfolio during periods of rising
interest rates.
Regulations limit the amount that a savings association may lend
relative to the appraised value of the real estate securing the loan, as
determined by an appraisal at the time of loan origination. Such regulations
generally permit a maximum loan-to-value ratio of 95% for residential property
and 90% for all other real estate loans.
34
<PAGE>
First Federal's lending policies, however, generally limit the maximum loan to
value ratio to 80% of the lesser of the appraised value or the purchase price of
the property securing the loan.
First Federal originates mortgage loans secured by non-owner-occupied
residential properties. At September 30, 1999, such loans totaled $11.5 million,
or 35.9% of First Federal's loan portfolio. Most of these loans are made to
investors and are secured by one- to four-family rental properties. These loans
are made on the same general terms as loans secured by owner-occupied
properties, including loan-to-value ratios of up to 80% and terms of up to 15
years. However, First Federal generally charges higher interest rates on
investor loans.
When underwriting residential real estate loans, First Federal reviews
and verifies each loan applicant's employment, income and credit history and, if
applicable, First Federal's experience with the borrower. First Federal's policy
is to obtain credit reports and financial statements on all borrowers and
guarantors, and to verify references. Properties securing real estate loans are
appraised by First Federal-approved independent appraisers. Appraisals are
subsequently reviewed by the First Federal's Board. Management believes that
stability of income, past credit history and adequacy of the proposed security
are integral parts in the underwriting process. Written appraisals are always
required on real estate property offered to secure an applicant's loan.
Currently, First Federal does not offer fixed-rate loans with terms
greater than 15 years or adjustable-rate residential mortgage loans. After the
conversion, First Federal plans to implement a program for offering longer term
fixed-rate mortgage loans, with terms of up to 25 years. First Federal also
plans to explore the purchase of adjustable rate loans, provided such loans are
secured by local properties and are serviced by the originator of the loan or a
third party. First Federal does not currently plan to originate adjustable rate
loans, although it may determine to do so in the future.
Residential Construction Loans. On a very limited basis, First Federal
originates residential construction loans to individuals for the construction
and permanent financing of their personal residence. Such loans are generally
made to individuals with whom First Federal has a pre-existing customer
relationship. First Federal's originations of construction/permanent loans have
been minimal during recent years. Construction loans to individuals are made on
the same general terms as First Federal's one- to four-family mortgage loans,
but provide for the payment of interest only during the construction phase,
which is usually six months. At the end of the construction phase, the loan
converts to a permanent mortgage loan.
Prior to making a commitment to fund a construction loan, First Federal
requires an appraisal of the property by an independent appraiser. First Federal
also reviews and inspects each project prior to disbursement of funds during the
term of the construction loan. Loan proceeds are disbursed after inspection of
the project based on percentage of completion.
Multi-Family and Commercial Real Estate Lending. In the past, First
Federal on infrequent occasions has originated loans secured by commercial real
estate. During recent years, however, First Federal's loan portfolio has not
included any such loans. First Federal plans to implement a program for offering
fixed-rate, commercial real estate loans following the conversion.
Historically, any multi-family and commercial real estate loans
originated by First Federal have been made on the same general terms as one- to
four-family loans, including fixed rates of interest, but with terms to maturity
and amortization schedules of up to 10 years, and in amounts up to 50% of the
lesser of the appraised value of the property or the sales price.
Consumer Loans. Historically, First Federal's consumer lending
activities have been limited to deposit account loans. At September 30, 1999, no
consumer loans were outstanding. First Federal does not expect to become an
active consumer lender, although it does expect to place some additional
emphasis on making deposit account loans following the conversion.
First Federal offers loans secured by savings deposits at First
Federal. Generally, these loans are made at an interest rate that is 2% above
the account rate for up to 100% of the account balance and for a term through
the next semi-annual earnings date of June 30 or December 31.
First Federal does not originate second mortgage or home equity loans,
but does make loans to existing borrowers for the purpose of home improvement.
These home improvement loans typically involve a modification to First Federal's
first mortgage. These loans are generally limited to 80% or less of the
appraised value of the property securing the loan based either upon the old
appraisal of the property or, if appropriate, a new appraisal of the property.
These loans are originated as fixed-rate loans and generally have maximum terms
of 15 years. First Federal also makes "additional advance" loans, which are
advances up to the amount of the original first mortgage
35
<PAGE>
and which must be repaid prior to the original loan maturity. Because First
Federal's additional advance loans and loans for the purpose of home
improvements are secured by a first mortgage, rather than a second mortgage,
First Federal classifies these loans as one- to four-family residential loans.
Loan Origination and Other Fees. In addition to interest earned on
loans, First Federal receives loan origination fees or "points" for originating
loans. Loan points are a percentage of the principal amount of the mortgage loan
and are charged to the borrower in connection with the origination of the loan.
First Federal generally charges loan origination fees equal to 2% of the loan
amount.
In accordance with Statement of Financial Accounting Standards No. 91,
which deals with the accounting for non-refundable fees and costs associated
with originating or acquiring loans, First Federal's loan origination fees and
certain related direct loan origination costs are offset, and the resulting net
amount is deferred and amortized as interest income over the contractual life of
the related loans as an adjustment to the yield of such loans. At September 30,
1999, First Federal had $321,000 of deferred costs which will be amortized using
the interest method.
Loan Maturity Schedule. The following schedule illustrates the
contractual maturity and weighted average rates of First Federal's total loan
portfolio at December 31, 1998. The schedule does not reflect the effects of
scheduled payments, possible prepayments or enforcement of due-on-sale clauses.
One- to Four-
Family
--------------------
Weighted
Average
Amount Rate
--------- ---------
(Dollars In Thousands)
Due During Years Ending December 31,
- ------------------------------------
1999................................................. $ 3 7.50%
2000................................................. 30 9.26
2001................................................. 159 9.49
2002 and 2003........................................ 748 8.78
2004 to 2008......................................... 4,508 8.29
2009 to 2023......................................... 26,419 8.16
--------- ---------
Total........................................... $ 31,867 8.40%
========= =========
The total amount of loans due after December 31, 1999 which have
predetermined interest rates is $31.9 million, while no loans due after such
date had floating or adjustable interest rates.
Scheduled contractual maturities of loans do not necessarily reflect
the actual expected term of First Federal's portfolio. The average life of
mortgage loans is substantially less than their average contractual terms
because of prepayments. The average life of mortgage loans tends to increase
when current mortgage loans rates are higher than rates on existing mortgage
loans and, conversely, decrease when rates on existing mortgage loans are lower
than current mortgage loan rates, due to refinancing of fixed-rate loans at
lower rates. Under the latter circumstance, the weighted average yield on loans
decreases as higher yielding loans are repaid or refinanced at lower rates.
Origination of Loans. The lending activities of First Federal are
subject to the written underwriting standards and loan origination procedures
established by First Federal's board of directors and management. Loan
originations are obtained through a variety of sources, including referrals from
existing customers and real estate brokers. Written loan applications are taken
by First Federal's staff, and Mitch Ashlock, First Federal's President and Chief
Executive Officer, supervises the procurement of credit reports, appraisals and
other documentation involved with a loan. Property valuations are performed by
independent outside appraisers approved by First Federal's Board of Directors.
First Federal's loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. All loans are approved by First
Federal's Board of Directors.
First Federal holds all loans for long-term investment purposes. First
Federal has not purchased any loans but may determine to do so in the future. In
particular, as noted above, First Federal intends to pursue the purchase of
adjustable rate residential loans, provided such loans are secured by local
properties and are serviced by the originator of the loan or a third party.
36
<PAGE>
The following table shows total loans originated and repaid during the
periods indicated. No loans were purchased or sold during the periods shown.
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
---------------------- ---------------------
1999 1998 1998 1997
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Originations by Type:
Fixed rate:
Real estate - one- to four-family...... $ 10,565 $ 8,807 $ 11,760 $ 7,138
-------- --------- --------- ---------
Total fixed-rate................ 10,565 8,807 11,760 7,138
-------- --------- --------- ---------
Adjustable Rate.......................... -- -- -- --
Total loans originated.......... 10,565 8,807 11,760 7,138
-------- --------- --------- ---------
Total loans purchased.................... -- -- -- --
Sales and Repayments:
Total loans sold................ -- -- -- --
Principal repayments................... 7,929 5,743 8,443 6,320
-------- --------- --------- ---------
Total reductions................ 7,929 5,743 8,443 6,320
Increase (decrease) in other items,
net (1)................................. (549) (424) (77) (23)
-------- --------- --------- ---------
Net increase (decrease)......... $ 2,087 $ 2,640 $ 3,240 $ 795
======== ========= ========= =========
</TABLE>
- ---------------
(1) Other items, net include the effects relating to loans in process, deferred
loan origination fees or costs, escrow funds held and the allowance for
loan losses.
Loan Commitments. First Federal issues commitments for mortgage loans
conditioned upon the occurrence of certain events. Commitments are made in
writing on specified terms and conditions and are honored for up to 180 days
from approval. At September 30, 1999, First Federal had loan commitments
totaling $477,000. See Note N of the Notes to Financial Statements included in
the back of this prospectus.
Asset Quality. All loan payments are due on the first day of each
month. When a borrower fails to make a required loan payment, First Federal
attempts to cure the deficiency by contacting the borrower and seeking the
payment. A late notice is mailed on the 16th day of the month and a second late
notice is mailed on the 23rd day of the month. In most cases, deficiencies are
cured promptly. If a delinquency continues beyond the 27th day of the month,
additional contact is made either through additional notices or other means and
First Federal will attempt to work out a payment schedule. While First Federal
generally prefers to work with borrowers to resolve the problems, First Federal
will institute foreclosure or other proceedings, as necessary, to minimize any
potential loss.
First Federal's Board of Directors is informed monthly of the amounts
of loans delinquent more than 30 days, all loans in foreclosure and all
foreclosed and repossessed property owned by First Federal.
Loans are placed on non-accrual status when the collection of principal
and/or interest becomes doubtful. When a loan is placed on non-accrual status,
previously accrued but unpaid interest is deducted from interest income.
Real estate acquired by First Federal as a result of foreclosure or by
deed-in-lieu of foreclosure and loans deemed to be in-substance foreclosed under
generally accepted accounting principles are classified as real estate owned
until sold. First Federal had no real estate owned at December 31, 1997 or 1998,
or September 30, 1999.
37
<PAGE>
Delinquent Loans. The following table sets forth information concerning
delinquent loans at September 30, 1999, in dollar amount and as a percentage of
First Federal's total loan portfolio. The dollar amounts shown equal the total
outstanding principal balances of the related loans, rather than the actual
payment amounts which are past due. At September 30, 1999, First Federal had no
consumer loans, construction loans or land loans which were delinquent 30 or
more days.
<TABLE>
<CAPTION>
Loans Delinquent For:
-------------------------------------------------------
60-89 Days 90 Days and Over Total Delinquent Loans
-------------------------- -------------------------- --------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------- ------- --------- ------- ------- --------- ------- ------- --------
(Dollars in Thousands)
Real Estate:
<S> <C> <C> <C> <C> <C> <C>
One- to four-family ....... 5 $ 168 0.53% 1 $ 134 0.41% 6 $ 302 0.95%
Multi-family .............. -- -- -- -- -- -- -- -- --
Commercial ................ -- -- -- -- -- -- -- -- --
Construction or............ -- -- -- -- -- -- -- -- --
development .............. -- -- -- -- -- -- -- -- --
Consumer .................... -- -- -- -- -- -- -- -- --
---- ------- ---- ----- ------- ---- ----- ------- ----
Total .................. 5 $ 168 0.53% 1 $ 134 0.41% 6 $ 302 0.95%
==== ======= ==== ===== ======= ==== ===== ======= ====
</TABLE>
Non-Performing Assets. The following table sets forth information
regarding non-performing loans and real estate owned by First Federal at the
dates indicated. As of the dates indicated, First Federal had no material
restructured loans within the meaning of SFAS No. 15.
At
September 30, At December 31,
------------- ----------------
1999 1998 1997
---- ---- ----
(Dollars in Thousands)
Non-accruing loans: ...................... $ -- $ -- $ --
Accruing loans delinquent
more than 90 days:
One- to four-family .................... 134 106 93
---- ---- ----
Total ............................... 134 106 93
---- ---- ----
Foreclosed assets: ....................... -- -- --
---- ---- ----
Total non-performing assets .............. $134 $106 $ 93
==== ==== ====
Total as a percentage of
total assets ............................ 0.29% 0.24% 0.28%
==== ==== ====
For the year ended December 31, 1998 and for the nine months ended
September 30, 1999, First Federal had no non-accruing loans, and therefor had no
gross interest income which would have been recorded had non-accruing loans been
current in accordance with their original terms. There was no interest income on
such loans for the year ended December 31, 1998, and for the nine months ended
September 30, 1999, respectively.
The $134,000 of accruing loans delinquent more than 90 days at
September 30, 1999, consisted of a single one- to four-family residential loan.
Other Loans of Concern. In addition to the non-performing loans set
forth in the tables above, as of September 30, 1999, there were no loans
classified by First Federal with respect to which known information about the
possible credit problems of the borrowers or the cash flows of the security
properties have caused management to have some doubts as to the ability of the
borrowers to comply with present loan repayment terms and which may result in
the future inclusion of such items in the non-performing asset categories.
Classified Assets. Federal regulations require that each insured
savings institution classify its assets on a regular basis. In addition, in
connection with examinations of insured institutions, federal examiners have
authority to identify problem assets and, if appropriate, classify them. There
are three classifications for problem assets: "substandard," "doubtful" and
"loss." Substandard assets have one or more defined weaknesses and are
38
<PAGE>
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a higher
possibility of loss. An asset classified loss is considered uncollectible and of
such little value that continuance as an asset of the institution is not
warranted. Another category designated "special mention" also must be
established and maintained for assets which do not currently expose an insured
institution to a sufficient degree of risk to warrant classification as
substandard, doubtful or loss. Assets classified as substandard or doubtful
require the institution to establish general allowances for loan losses. If an
asset or portion thereof is classified loss, the insured institution must either
establish specific allowances for loan losses in the amount of 100% of the
portion of the asset classified loss, or charge-off such amount. General loss
allowances established to cover possible losses related to assets classified
substandard or doubtful may be included in determining an institution's
regulatory capital, while specific valuation allowances for loan losses do not
qualify as regulatory capital. Federal examiners may disagree with an insured
institution's classifications and amounts reserved.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for 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 an insured institution 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. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the regulatory authorities, who may order the establishment
of additional general or specific loss allowances.
In connection with the filing of its periodic reports with the OTS and
in accordance with its classification of assets policy, First Federal reviews
loans in its portfolio monthly to determine whether such assets require
classification in accordance with applicable regulations. On the basis of
management's review of its assets, at September 30, 1999, First Federal had no
classified assets.
Allowance for Loan Losses. In originating loans, First Federal
recognizes that losses will be experienced and that the risk of loss will vary
with, among other things, the type of loan being made, the creditworthiness of
the borrower over the term of the loan, general economic conditions and, in the
case of a secured loan, the quality of the security for the loan. The allowance
method is used in providing for loan losses. Accordingly, all loan losses are
charged to the allowance and all recoveries are credited to it. The allowance
for loan losses is established through a provision for loan losses charged to
operations. The provision for loan losses is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specified impaired
loans, and economic conditions.
At September 30, 1999, First Federal had an allowance for loan losses
of $175,000. Although management believes that it uses the best information
available to establish the allowance for loan losses, future adjustments to the
allowance for loan losses may be necessary and results of operations could be
significantly and adversely affected if circumstances differ substantially from
the assumptions used in making the determinations. Furthermore, while First
Federal believes it has established its existing allowance for loan losses in
accordance with generally accepted accounting principles, there can be no
assurance that regulators, in reviewing First Federal's loan portfolio, will not
request First Federal to increase significantly its allowance for loan losses.
In addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that substantial increases will not be necessary
should the quality of any loans deteriorate as a result of the factors discussed
above. Any material increase in the allowance for loan losses may adversely
affect First Federal's financial condition and results of operations.
First Federal significantly increased its allowance for loan losses
during the nine months ended September 30, 1999 by incurring a $150,000
provision for loan losses, compared to no provision for 1998 and 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Comparison of Operating Results for the Nine Months Ended September
30, 1999 and 1998 - Provision for Loan Losses" for a discussion of the increase
during the nine months ended September 30, 1999. While management believes that
it determines the size of the allowance based on the best information available
at the time, the allowance will need to be adjusted as circumstances change and
assumptions are updated. Future adjustments to the allowance could significantly
affect net income.
39
<PAGE>
The following table sets forth the allocation for loan losses by
category for the periods indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------
At September 30, 1999 1998 1997
--------------------------- --------------------------- ---------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- -------- --------- -------- -------- --------- -------- --------
(Dollars in Thousands)
--------- -------- -------- --------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family......... $ 175 $ 31,371 100.00% $ 25 $ 28,978 100.00% $ 25 $ 25,742 100.00%
Unallocated................. -- -- -- -- -- -- -- -- --
--------- -------- -------- --------- -------- -------- --------- -------- --------
Total.................. $ 175 $ 31,371 100.00% $ 25 $ 28,978 100.00% $ 25 $ 25,742 100.00%
========= ======== ======== ========= ======== ======== ========= ======== ========
</TABLE>
The following table sets forth information with respect to First
Federal's allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Years Ended
Ended September 30, December 31,
------------------- -------------------
1999 1998 1998 1997
--------- --------- --------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period.................. $ 25 $ 25 $ 25 $ 25
Charge-offs..................................... -- -- -- --
Recoveries...................................... -- -- -- --
Net charge-offs................................. -- -- -- --
Additions charged to operations................. 150 -- -- --
--------- --------- --------- ---------
Balance at end of period........................ $ 175 $ 25 $ 25 $ 25
========= ========= ========= =========
Ratio of net charge-offs during the period to
average loans outstanding during the period... N/A N/A N/A N/A
========= ========= ========= =========
Ratio of net charge-offs during the period to
average non-performing assets.................. N/A N/A N/A N/A
========= ========= ========= =========
Ratio of allowance for loan losses to loans
receivable, net, at end of period.............. .56% .09% .09% .10%
========= ========= ========= =========
Ratio of allowance for loan losses to
non-performing assets at end of period........ 130.60% 23.58% 23.58% 26.88%
========= ========= ========= =========
</TABLE>
40
<PAGE>
Investment Activities
First Federal is permitted under federal law to invest in various types
of liquid assets, including U.S. Government obligations, securities of various
federal agencies and of state and municipal governments, deposits at the Federal
Home Loan Bank of Topeka, certificates of deposit of federally insured
institutions, certain bankers' acceptances and federal funds. Within certain
regulatory limits, First Federal may also invest a portion of its assets in
commercial paper and corporate debt securities. Savings institutions like First
Federal are also required to maintain an investment in FHLB stock. First Federal
is required under federal regulations to maintain a minimum amount of liquid
assets. At September 30, 1999, First Federal's liquidity ratio (liquid assets as
a percentage of net withdrawable savings deposits and current borrowings) was
39.5%. See "Regulation" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," requires that investments be
categorized as "held to maturity," "trading securities" or "available for sale,"
based on management's intent as to the ultimate disposition of each security.
Statement of Financial Accounting Standards No. 115 allows debt securities to be
classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." These securities are reported at fair value, and
unrealized gains and losses on the securities would be included in earnings.
First Federal does not currently use or maintain a trading account. Debt and
equity securities not classified as either "held to maturity" or "trading
securities" are classified as "available for sale." These securities are
reported at fair value, and unrealized gains and losses on the securities are
excluded from earnings and reported, net of deferred taxes, as a separate
component of equity.
All of First Federal's investment securities carry market risk insofar
as increases in market rates of interest may cause a decrease in their market
value. They also carry prepayment risk insofar as they may be called prior to
maturity in times of low market interest rates, so that First Federal may have
to invest the funds at a lower interest rate. First Federal's investment policy
does not permit engaging directly in hedging activities or purchasing high risk
mortgage derivative products. Investments are made based on certain
considerations, which include the interest rate, yield, settlement date and
maturity of the investment, First Federal's liquidity position, and anticipated
cash needs and sources. The effect that the proposed investment would have on
First Federal's credit and interest rate risk and risk-based capital is also
considered. First Federal purchases investment securities to provide necessary
liquidity for day-to-day operations. First Federal also purchases investment
securities when investable funds exceed loan demand.
Generally, the investment policy of First Federal, as established by
the Board of Directors, is to invest funds among various categories of
investments and maturities based upon First Federal's liquidity needs,
asset/liability management policies, investment quality, marketability and
performance objectives.
Mortgage-backed Securities. First Federal has the legal authority to
invest in mortgage-backed securities to supplement residential loan production,
and First Federal's investment policy as adopted by the Board permits
investments in certain mortgage backed securities. In recent years, however,
First Federal has chosen not to purchase any mortgage backed securities.
Other Investments. At September 30, 1999, First Federal's investment
securities consisted of U.S. government/federal agency securities, FHLB stock,
Freddie Mac stock and other interest-earning assets. All of the U.S.
government/federal agency securities are held to maturity. The Freddie Mac stock
is accounted for as available for sale. The U.S. government/federal agency
securities consisted primarily of U.S. Treasury bonds, Fannie Mae, Freddie Mac
bonds and Federal Home Loan Bank bonds, with fixed rates of interest.
41
<PAGE>
The following table sets forth the composition of First Federal's
investment securities, net of premiums and discounts, at the dates indicated.
<TABLE>
<CAPTION>
At September 30, At December 31,
------------------- ------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
Book % of Book % of Book % of
Value Total Value Total Value Total
--------- ------- --------- ------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities held to maturity:
U.S. government/federal Agency securities. $ 11,000 76.46% $ 9,000 59.07% $ 3,910 56.10%
Investment securities available for sale:
Freddie Mac stock......................... 684 4.75 847 5.56 552 7.91
FHLB stock.................................. 303 2.10 289 1.89 307 4.41
--------- ------- --------- ------- --------- -------
Total investment securities
and FHLB stock........................ 11,987 83.32 10,136 66.53 4,769 68.43
--------- ------- --------- ------- --------- -------
Average remaining life of
investment securities (1)................. 11yrs 11yrs 10yrs
Other interest-earning assets:
Interest-bearing deposits with banks...... 2,400 16.68 5,100 33.47 2,200 31.57
--------- ------- --------- ------- --------- -------
Total.................................. $ 14,387 100.00% $ 15,236 100.00% $ 6,969 100.00%
========= ======= ========= ======= ========= =======
</TABLE>
- ---------
(1) Average remaining life is subject to call provisions on all U.S.
government/federal agency securities and excludes available-for-sale securities.
Investment Portfolio Maturities. The following table sets forth the
scheduled maturities, carrying values, market values and average yields for
First Federal's investment securities excluding FHLB stock at September 30,
1999.
<TABLE>
<CAPTION>
At September 30, 1999
-------------------------------------------------------------------
Less
Than 1 1 to 5 5 to 10 Over 10 Total Investment
Year Years Years Years Securities
--------- -------- --------- --------- --------------------
Book Book Book Book Book Market
Value Value Value Value Value Value
--------- -------- --------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. government/federal agency securities......$ -- $ -- $ 5,500 $ 5,500 $ 11,000 $ 10,561
Freddie Mac stock (1).......................... 684 -- -- -- 684 684
FHLB Stock..................................... 303 -- -- -- 303 303
--------- -------- --------- --------- --------- ---------
Total investment securities ...................$ 987 $ -- $ 5,500 $ 5,500 $ 11,987 $ 11,548
========= ======== ========= ========= ========= =========
Weighted average yield......................... -- -- 6.46% 7.16% 6.81%
</TABLE>
- ---------
(1) Consists of available-for-sale securities and FHLB stock excluded from
average yield calculation
Sources of Funds
General. Deposits are the primary source of First Federal's funds for
lending and other investment purposes. In addition to deposits, First Federal
derives funds primarily from principal and interest payments on loans. Loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows are significantly influenced by general interest rates and money market
conditions. Borrowings may also be used on a short- term basis to compensate for
reductions in the availability of funds from other sources and may be used on a
longer-term basis for general business purposes.
Deposits. First Federal's deposits are attracted principally from
within its primary market area. Deposit account terms vary, with the principal
differences being the minimum balance required, the time periods the funds must
remain on deposit and the interest rate.
42
<PAGE>
First Federal's deposits are obtained primarily from residents of its
primary market area. First Federal is not currently using brokers to obtain
deposits. However, in 1998 and early 1999, First Federal accepted brokered
certificates of deposit from out-of-state sources for the purpose of raising
funds during a period of strong loan demand. At September 30, 1999, First
Federal had approximately $6.1 million of brokered certificates of deposit.
First Federal's deposit products include passbook accounts, money
market accounts and term certificate accounts. Interest rates paid, maturity
terms, service fees and withdrawal penalties are established by First Federal on
a periodic basis. Management determines the rates and terms based on rates paid
by competitors, First Federal's needs for funds or liquidity, growth goals and
federal and state regulations.
Savings Portfolio. The following table sets forth the dollar amount of
savings deposits in the various types of deposit programs offered by First
Federal as of the dates indicated.
<TABLE>
<CAPTION>
At December 31,
At September 30, --------------------------------------
1999 1998 1997
----------------- ----------------- --------------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ----------
(Dollars in Thousands)
Transactions and Savings Deposits:
<S> <C> <C> <C> <C> <C> <C>
Passbook Accounts.................................. $ 3,214 9.13% $ 3,349 9.65% $ 2,546 10.13 %
Money Market Accounts.............................. 2,213 6.28 2,241 6.46 2,517 10.01
-------- ------- -------- ------- -------- --------
Total Non-Certificates............................. 5,427 15.41 5,590 16.11 5,063 20.14
-------- ------- -------- ------- -------- -------
Certificates:
4.00 - 5.99%..................................... 20,009 56.81 18,913 54.50 13,831 55.02
6.00 - 7.99%..................................... 9,785 27.78 10,198 29.39 6,245 24.84
-------- ------- -------- ------- -------- -------
Total Certificates................................. 29,794 84.59 29,111 83.89 20,076 79.86
-------- ------- -------- ------- -------- -------
Total Deposits..................................... $ 35,221 100.00% $ 34,701 100.00% $ 25,139 100.00%
======== ======= ======== ======= ======== =======
</TABLE>
Deposit Activity. The following table sets forth the deposit activities
of First Federal for the periods indicated:
Nine Months Ended Years Ended
September 30, December 31,
------------------- -------------------
1999 1998 1998 1997
-------- -------- -------- --------
(Dollars in Thousands)
Opening balance.................. $ 34,701 $ 25,139 $ 25,139 $ 26,935
Deposits......................... 8,733 10,045 13,644 7,045
Withdrawals...................... (8,213) (1,223) (4,082) (8,841)
-------- -------- -------- --------
Ending balance................... $ 35,221 $ 33,961 $ 34,701 $ 25,139
======== ======== ======== ========
Net increase (decrease).......... $ 520 $ 8,822 $ 9,562 $ (1,796)
======== ======== ======== ========
Percent increase (decrease)...... 1.50% 35.09% 38.04% (6.67)%
======== ======== ======== ========
43
<PAGE>
Time Deposit Maturity Schedule. The following table shows rate and
maturity information for First Federal's certificates of deposit as of September
30, 1999.
<TABLE>
<CAPTION>
4.00- 6.00- Percent
5.99% 7.99% Total of Total
--------- -------- --------- -------
(Dollars in Thousands)
--------- -------- --------- -------
Certificate accounts maturing in quarter ending:
<S> <C> <C> <C> <C>
December 31, 1999................................. $ 3,070 $ 101 $ 3,171 10.64%
March 31, 2000.................................... 3,680 61 3,741 12.56
June 30, 2000..................................... 1,180 434 1,614 5.42
September 30, 2000................................ 1,143 4,932 6,075 20.39
December 31, 2000................................. 1,743 693 2,436 8.18
March 31, 2001.................................... 4,432 -- 4,432 14.88
June 30, 2001..................................... 1,018 -- 1,018 3.42
September 30, 2001................................ 568 -- 568 1.91
December 31, 2001................................. 88 -- 88 0.3
March 31, 2002.................................... 453 -- 453 1.52
June 30, 2002..................................... -- 96 96 0.32
September 30, 2002................................ -- 81 81 0.27
Thereafter ....................................... 2,634 3,387 6,021 20.21
--------- -------- -------- -------
Total ......................................... $ 20,009 $ 9,785 $ 29,794 100.00%
========= ======== ======== =======
Percent of Total............................... 67.16% 32.84 % 100.00 % 0.00%
========= ======== ========= =======
</TABLE>
The following table indicates the amount of First Federal's jumbo
certificates of deposit and other certificates of deposit by time remaining
until maturity as of September 30, 1999.
<TABLE>
<CAPTION>
Maturity
------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over 12
or Less Months Months Months Total
---------- -------- --------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000....... $ 2,162 $ 3,341 $ 5,346 $ 11,412 $ 22,261
Certificates of deposit of $100,000 or more...... 1,010 400 2,343 3,780 7,533
---------- -------- --------- --------- --------
Total certificates of deposit.................... $ 3,172 $ 3,741 $ 7,689 $ 15,192 $ 29,794
========== ======== ========= ========= ========
</TABLE>
44
<PAGE>
Borrowings. First Federal may obtain advances from the FHLB of Topeka
upon the security of the common stock it owns in that bank and certain of its
residential mortgage loans and mortgage-backed securities, provided certain
standards related to creditworthiness have been met. These advances are made
pursuant to several credit programs, each of which has its own interest rate and
range of maturities. FHLB advances are generally available to meet seasonal and
other withdrawals of deposit accounts and to permit increased lending. See
"Regulation - First Federal - Federal Home Loan Bank System."
As of September 30, 1999, First Federal had available credit lines of
$5.0 million from the FHLB of Topeka. First Federal had $1.0 million of FHLB
advances outstanding at September 30, 1999.
The following table sets forth the maximum month-end balance and
average balance of FHLB advances, for the periods indicated.
Nine Months
Ended Years Ended
September 30, December 31,
--------------- ---------------
1999 1998 1998 1997
------ ------ ------ ------
(In Thousands)
Maximum Balance:
FHLB advances..................... $1,000 $1,000 $1,000 $ --
Average Balance:
FHLB advances..................... 1,000 889 917 --
The following table sets forth certain information as to First
Federal's FHLB advance at the dates indicated.
At
At December 31,
September 30, ---------------
1999 1998 1997
------------- ------ ------
(Dollars In Thousands)
FHLB advances.................................... $ 1,000 $ 1,000 --
Weighted average interest rate of FHLB advances.. 5.74% 5.74% N/A
Employees
At September 30, 1999, First Federal had a total of three full-time and
no part-time employees. First Federal's employees are not represented by any
collective bargaining group. Management considers its employee relations to be
good.
Properties
At September 30, 1999, First Federal conducted its business from its
headquarters and sole office located at 100 East Park, Olathe, Kansas. First
Federal's main office is leased, with the lease term expiring in 2004. The
estimated net book value of First Federal's leasehold improvements, and
furniture and equipment at September 30, 1999 was approximately $21,000.
First Federal believes that its current facilities are adequate to meet
the present needs of First Federal and its holding company. However, if First
Federal determines to expand its staff, First Federal may need to obtain new
facilities or expand its existing facility.
Legal Proceedings
First Federal is involved, from time to time, as plaintiff or defendant
in various legal actions arising in the normal course of their businesses. As of
September 30, 1999, First Federal was not involved in any legal proceedings.
45
<PAGE>
Service Corporation Activities
As a federally chartered savings association, First Federal is
permitted by OTS regulations to invest up to 2% of its assets in the stock of,
or loans to, service corporation subsidiaries. First Federal may invest an
additional 1% of its assets in service corporations where such additional funds
are used for inner-city or community development purposes and up to 50% of its
total capital in conforming loans to service corporations in which it owns more
than 10% of the capital stock. In addition to investments in service
corporations, federal associations are permitted to invest an unlimited amount
in operating subsidiaries engaged solely in activities in which a federal
association may engage. At September 30, 1999, First Federal had no
subsidiaries.
First Federal's Market Area
First Federal considers its primary market area to consist of Johnson
County, Kansas, with a concentration of business activity in the city of Olathe,
which is the county seat, and the immediate surrounding area. Johnson County is
part of the Kansas City metropolitan statistical area. Olathe and the
surrounding areas have experienced increases in population as the Kansas City
outer suburbs have expanded. Since 1990, Johnson County has experienced
significant increases in population. The Johnson County population has increased
from approximately 355,000 in 1990 to approximately 439,000 in 1999,
representing an annual population growth rate of 2.3%.
Estimated per capita annual income for 1999 was over $29,000 for
Johnson County, 57 percent more than the Kansas state average and 44 percent
more than the national average. Median household income levels showed similar
trends, as Johnson County reported income that was 50 and 39 percent above the
state-wide and national averages. Employment in Johnson County is generally
diversified, including employment in services, wholesale and retail trade and
government.
Competition
First Federal faces significant competition both in attracting deposits
and in making loans. Its most direct competition for deposits has come
historically from commercial banks, credit unions and other savings institutions
located in its primary market area, including many large financial institutions
which have greater financial and marketing resources available to them. In
addition, First Federal faces significant competition for investors' funds from
short-term money market securities, mutual funds and other corporate and
government securities. First Federal does not rely upon any individual group or
entity for a material portion of its deposits. First Federal's ability to
attract and retain deposits depends on its ability to generally provide a rate
of return, liquidity and risk comparable to that offered by competing investment
opportunities.
First Federal's competition for real estate loans comes principally
from mortgage banking companies, commercial banks, other savings institutions
and credit unions. First Federal competes for loan originations primarily
through the interest rates and loan fees it charges, and the efficiency and
quality of services it provides borrowers. Factors which affect competition
include general and local economic conditions, current interest rate levels and
volatility in the mortgage markets. Competition may increase as a result of the
continuing reduction of restrictions on the interstate operations of financial
institutions and the anticipated slowing of refinancing activity.
46
<PAGE>
REGULATION
General
First Federal is regulated, examined and supervised by the OTS, as its
chartering agency, and the FDIC, as the insurer of its deposits. The activities
of federal savings institutions are governed by the Home Owners' Loan Act, as
amended and, in certain respects, the Federal Deposit Insurance Act and the
regulations issued by the OTS and the FDIC to implement these statutes. These
laws and regulations delineate the nature and extent of the activities in which
federal savings associations may engage. Lending activities and other
investments must comply with various statutory and regulatory capital
requirements. In addition, First Federal's relationship with its depositors and
borrowers is also regulated to a great extent, especially in matters such as the
ownership of deposit accounts and the form and content of First Federal's
mortgage documents. First Federal must file reports with the OTS and the FDIC
concerning its 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. There are periodic
examinations by the OTS and the FDIC to review First Federal's compliance with
various regulatory requirements. 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 policies, whether by the
OTS, the FDIC or Congress, could have a material adverse impact on First Federal
and its operations.
Federal Regulation of Savings Associations
Office of Thrift Supervision. The OTS is an office in the Department of
the Treasury. It generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
Federal Home Loan Bank System. The Federal Home Loan Bank System,
consisting of 12 banks, is under the jurisdiction of the Federal Housing Finance
Board. First Federal, as a member of the Federal Home Loan Bank of Topeka, is
required to acquire and hold shares of capital stock in the Federal Home Loan
Bank of Topeka in an amount equal to the greater of 1.0% of the aggregate
outstanding principal amount of residential mortgage loans, home purchase
contracts and similar obligations at the beginning of each year, or 1/20 of its
borrowings from the Federal Home Loan Bank of Topeka. First Federal is in
compliance with this requirement with an investment in Federal Home Loan Bank of
Topeka stock of $303,000 at September 30, 1999. Among other benefits, the
Federal Home Loan Bank of Topeka provides a central credit facility primarily
for member institutions.
Federal Deposit Insurance Corporation. The FDIC is an independent
federal agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate insurance
funds: the Bank Insurance Fund and the Savings Association Insurance Fund. As
insurer of First Federal's deposits, the FDIC has examination, supervisory and
enforcement authority over First Federal.
First Federal's accounts are insured by the Savings Association
Insurance Fund to the maximum extent permitted by law. First Federal pays
deposit insurance premiums based on a risk-based assessment system established
by the FDIC. Under applicable regulations, institutions are assigned to one of
three capital groups that are based solely on the level of an institution's
capital -- "well capitalized," "adequately capitalized," and "undercapitalized"
- -- which are defined in the same manner as the regulations establishing the
prompt corrective action system, as discussed below. These three groups are then
divided into three subgroups which reflect varying levels of supervisory
concern, from those which are considered to be healthy to those which are
considered to be of substantial supervisory concern. The matrix so created
results in nine assessment risk classifications, with rates that until September
30, 1996 ranged from 0.23% for well capitalized, financially sound institutions
with only a few minor weaknesses to 0.31% for undercapitalized institutions that
pose a substantial risk of loss to the Savings Association Insurance Fund unless
effective corrective action is taken.
Under the Deposit Insurance Funds Act, which was enacted on September
30, 1996, the FDIC imposed a special assessment on each depository institution
with Savings Association Insurance Fund-assessable deposits which resulted in
the Savings Association Insurance Fund achieving its designated reserve ratio.
As a result, the FDIC reduced the assessment schedule for Savings Association
Insurance Fund members, effective January 1, 1997, to a range of 0% to 0.27%,
with most institutions, including First Federal, paying 0%. This assessment
schedule is the same as that for the Bank Insurance Fund, which reached its
designated reserve ratio in 1995. In addition, since January 1, 1997, Savings
Association Insurance Fund members are charged an assessment of
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.065% of Savings Association Insurance Fund-assessable deposits to pay interest
on the obligations issued by the Financing Corporation in the 1980s to help fund
the thrift industry cleanup. Bank Insurance Fund-assessable deposits will be
charged an assessment to help pay interest on the Financing Corporation bonds at
a rate of approximately .013% until the earlier of December 31, 1999 or the date
upon which the last savings association ceases to exist, after which time the
assessment will be the same for all insured deposits.
The Deposit Insurance Funds Act also contemplates the development of a
common charter for all federally chartered depository institutions and the
abolition of separate charters for national banks and federal savings
associations. It is not known what form the common charter may take and what
effect, if any, the adoption of a new charter would have on the operation of
First Federal.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend deposit
insurance temporarily during the hearing process for the permanent termination
of insurance, if the institution has no tangible capital. If insurance of
accounts is terminated, the accounts at the institution at the time of
termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of First Federal.
Liquidity Requirements. Under OTS regulations, each savings institution
is required to maintain an average daily balance of liquid assets, such as cash,
certain time deposits and savings accounts, bankers' acceptances, and specified
U.S. Government, state or federal agency obligations and certain other
investments, equal to a monthly average of not less than a specified percentage
of its net withdrawable accounts plus short-term borrowings. The current
percentage is 4%. Monetary penalties may be imposed for failure to meet
liquidity requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Prompt Corrective Action. Each federal banking agency is required to
implement a system of prompt corrective action for institutions that it
regulates. The federal banking agencies have promulgated substantially similar
regulations to implement this system of prompt corrective action. Under the
regulations, an institution shall be deemed to be "well capitalized" if it has a
total risk-based capital ratio of 10.0% or more, has a Tier I risk-based capital
ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is not required
to meet and maintain a specific capital level for any capital
measure;"adequately capitalized" if it has a total risk-based capital ratio of
8.0% or more, has a Tier I risk-based capital ratio of 4.0% or more, has a
leverage ratio of 4.0% or more, or 3.0% under certain circumstances, and does
not meet the definition of "well capitalized"; "undercapitalized" if it has a
total risk-based capital ratio that is less than 8.0%, has a Tier I risk-based
capital ratio that is less than 4.0% or has a leverage ratio that is less than
4.0%, or 3.0% under certain circumstances; "significantly undercapitalized" if
it has a total risk-based capital ratio that is less than 6.0%, has a Tier I
risk-based capital ratio that is less than 3.0% or has a leverage ratio that is
less than 3.0%; and "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.
An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall face various mandatory and discretionary
restrictions on its operations.
At September 30, 1999, First Federal was categorized as "well
capitalized"under the prompt corrective action regulations.
Standards for Safety and Soundness. The federal banking regulatory
agencies have adopted regulatory guidelines for all insured depository
institutions relating to internal controls, information systems and internal
audit systems; loan documentation; credit underwriting; interest rate risk
exposure; asset growth; asset quality; earnings; and compensation, fees and
benefits. The guidelines outline the safety and soundness standards that the
federal
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banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the OTS determines that First
Federal fails to meet any standard prescribed by the guidelines, it may require
First Federal to submit to the agency an acceptable plan to achieve compliance
with the standard. OTS regulations establish deadlines for the submission and
review of safety and soundness compliance plans.
Qualified Thrift Lender Test. All savings associations are required to
meet a qualified thrift lender test to avoid certain restrictions on their
operations. A savings institution that fails to become or remain a qualified
thrift lender shall either convert to a national bank charter or face the
following restrictions on its operations. These restrictions are: the
association may not make any new investment or engage in activities that would
not be permissible for national banks; the association may not establish any new
branch office where a national bank located in the savings institution's home
state would not be able to establish a branch office; the association shall be
ineligible to obtain new advances from any Federal Home Loan Bank; and the
payment of dividends by the association shall be under the rules regarding the
statutory and regulatory dividend restrictions applicable to national banks.
Also, beginning three years after the date on which the savings institution
ceases to be a qualified thrift lender, the savings institution would be
prohibited from retaining any investment or engaging in any activity not
permissible for a national bank and would be required to repay any outstanding
advances to any Federal Home Loan Bank. In addition, within one year of the date
on which a savings association controlled by a company ceases to be a qualified
thrift lender, the company must register as a bank holding company and follow
the rules applicable to bank holding companies. A savings institution may
requalify as a qualified thrift lender if it thereafter complies with the test.
Currently, the qualified thrift lender test requires that either an
institution qualify as a domestic building and loan association under the
Internal Revenue Code or that 65% of an institution's "portfolio assets" consist
of certain housing and consumer-related assets on a monthly average basis in
nine out of every 12 months. Assets that qualify without limit for inclusion as
part of the 65% requirement are loans made to purchase, refinance, construct,
improve or repair domestic residential housing and manufactured housing; home
equity loans; mortgage-backed securities where the mortgages are secured by
domestic residential housing or manufactured housing; Federal Home Loan Bank
stock; direct or indirect obligations of the FDIC; and loans for educational
purposes, loans to small businesses and loans made through credit cards. In
addition, the following assets, among others, may be included in meeting the
test based on an overall limit of 20% of the savings institution's portfolio
assets: 50% of residential mortgage loans originated and sold within 90 days of
origination; 100% of consumer loans; and stock issued by Freddie Mac or Fannie
Mae. Portfolio assets consist of total assets minus the sum of goodwill and
other intangible assets, property used by the savings institution to conduct its
business, and liquid assets up to 20% of the institution's total assets. At
September 30, 1999, First Federal was in compliance with the qualified thrift
lender test.
Capital Requirements. Federal regulations require a savings association
must satisfy three minimum capital requirements: core capital, tangible capital
and risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital is
defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less any intangible assets, except for
certain qualifying intangible assets; certain mortgage servicing rights; and
equity and debt investments in subsidiaries that are not"includable
subsidiaries," which is defined as subsidiaries engaged solely inactivities not
impermissible for a national bank, engaged in activities impermissible for a
national bank but only as an agent for its customers, or engaged solely in
mortgage-banking activities. In calculating adjusted total assets, adjustments
are made to total assets to give effect to the exclusion of certain assets from
capital and to account appropriately for the investments in and assets of both
includable and non-includable subsidiaries. Institutions that fail to meet the
core capital requirement would be required to file with the OTS a capital plan
that details the steps they will take to reach compliance. In addition, the
OTS's prompt corrective action regulation provides that a savings institution
that has a leverage ratio of less than 4%, or 3% in the case of institutions
receiving the highest CAMELS examination rating, will be deemed to be
"undercapitalized" and may face certain restrictions. See "--Federal Regulation
of Savings Associations--Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less
than 1.5% of First Federal's adjusted total assets. "Tangible capital" is
defined, generally, as core capital minus any "intangible assets" other than
purchased mortgage servicing rights. Each savings institution must maintain
total risk-based capital equal to at least 8% of risk-weighted assets. Total
risk-based capital consists of the sum of core and supplementary capital,
provided that supplementary capital cannot exceed core capital, as previously
defined. Supplementary capital includes permanent capital instruments such as
cumulative perpetual preferred stock, perpetual subordinated debt and mandatory
convertible subordinated debt, maturing capital instruments such as subordinated
debt,
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intermediate-term preferred stock and mandatory convertible subordinated debt,
based on an amortization schedule, and general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not included
for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans, including multi-family mortgage loans, are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans a
reassigned a 100% risk weight, as are non qualifying residential mortgage loans
and that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor from 0% to 100% assigned to that category.
These products are then totaled to arrive at total risk-weighted assets.
Off-balance sheet items are included in risk-weighted assets by converting them
to an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would face a deduction from total capital
for purposes of calculating their risk-based capital requirements. A savings
association's interest rate risk is measured by the decline in the net portfolio
value of its assets, or the difference between incoming and outgoing discounted
cash flows from assets, liabilities and off-balance sheet contracts, that would
result from a hypothetical 200 basis point increase or decrease in market
interest rates divided by the estimated economic value of the association's
assets, as calculated in accordance with guidelines of the OTS. A savings
association whose measured interest rate risk exposure exceeds 2% must deduct an
interest rate risk component in calculating its total capital under the
risk-based capital rule. The interest rate risk component is an amount equal to
one-half of the difference between the institution's measured interest rate risk
and 2%, multiplied by the estimated economic value of the association's assets.
That dollar amount is deducted from an association's total capital in
calculating compliance with its risk-based capital requirement. Under the rule,
there is a two quarter lag between the reporting date of an institution's
financial data and the effective date for the new capital requirement based on
that data. A savings association with assets of less than $300 million and
risk-based capital ratios in excess of 12% is exempt from the interest rate risk
component, unless the OTS determines otherwise. The rule also provides that the
OTS may waive or defer an association's interest rate risk component on a
case-by-case basis. Under certain circumstances, a savings association may
request an adjustment to its interest rate risk component if it believes that
the calculated interest rate risk component, as calculated by the OTS,
overstates its interest rate risk exposure. In addition, certain
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest rate risk component in lieu
of the amount as calculated by the OTS. The OTS has postponed the date that the
component will first be deducted from an institution's total capital.
See "Historical And Pro Forma Regulatory Capital Compliance" for a
table that sets forth in terms of dollars and percentages the tangible, core and
risk-based capital requirements, First Federal's historical amounts and
percentages at September 30, 1999 and pro forma amounts and percentages based
upon the stated assumptions.
Capital Distributions. OTS regulations govern capital distributions by
savings institutions, which include cash dividends, stock repurchases and other
transactions charged to the capital account of a savings institution to make
capital distributions. Under new regulations effective April 1, 1999, a savings
institution must file an application for OTS approval of the capital
distribution if either (1) the total capital distributions for the applicable
calendar year exceed the sum of the institution's net income for that year to
date plus the institution's retained net income for the preceding two years, (2)
the institution would not be at least adequately capitalized following the
distribution, (3) the distribution would violate any applicable statute,
regulation, agreement or OTS-imposed condition, or (4) the institution is not
eligible for expedited treatment of its filings. If an application is not
required to be filed, savings institutions which are a subsidiary of a holding
company, as well as certain other institutions, must still file a notice with
the OTS at least 30 days before the board of directors declares a dividend or
approves a capital distribution.
Loans to One Borrower. Savings institutions are generally required to
follow the national bank limit on loans to one borrower. Generally, this limit
is 15% of its unimpaired capital and surplus, plus an additional 10% of
unimpaired capital and surplus, if the loan is secured by readily marketable
collateral, which is defined to include certain financial instruments and
bullion. The OTS by regulation has amended the loans to one borrower rule to
permit savings associations meeting certain requirements, including capital
requirements, to extend loans to one borrower in additional amounts under
circumstances limited essentially to loans to develop or complete residential
housing units. See "Business of First Federal--Lending Activities" for further
information.
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Activities of Associations and Their Subsidiaries. A savings
association may establish operating subsidiaries to engage in any activity that
the savings association may conduct directly and may establish service
corporation subsidiaries to engage in certain pre-approved activities or, with
approval of the OTS, other activities reasonably related to the activities of
financial institutions. When a savings association establishes or acquires a
subsidiary or elects to conduct any new activity through a subsidiary that the
association controls, the savings association must notify the FDIC and the OTS
30 days in advance and provide the information each agency may, by regulation,
require. Savings associations also must conduct the activities of subsidiaries
in accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices. Based upon that determination, the
FDIC or the OTS has the authority to order the savings association to divest
itself of control of the subsidiary. The FDIC also may determine by regulation
or order that any specific activity poses a serious threat to the Savings
Association Insurance Fund. If so, it may require that no Savings Association
Insurance Fund member engage in that activity directly.
Transactions with Affiliates. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act relative to transactions with
affiliates in the same manner and to the same extent as if the savings
association were a Federal Reserve member bank. A savings and loan holding
company, its subsidiaries and any other company under common control are
considered affiliates of the subsidiary savings association under the Home
Owners Loan Act. Generally, Sections 23A and 23B limit the extent to which the
insured association or its subsidiaries may engage in certain covered
transactions with an affiliate to an amount equal to 10% of the institution's
capital and surplus and place an aggregate limit on all transactions with
affiliates to an amount equal to 20% of capital and surplus, and require that
all transactions be on terms substantially the same, or at least as favorable to
the institution or subsidiary, as those provided to a non-affiliate. The
term"covered transaction" includes the making of loans, the purchase of assets,
the issuance of a guarantee and similar types of transactions.
Any loan or extension of credit by First Federal to an affiliate must
be secured by collateral in accordance with Section 23A.
Three additional rules apply to savings associations. First, a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies. Second, a savings association may not purchase or invest insecurities
issued by an affiliate, other than securities of a subsidiary. Third, the OTS
may, for reasons of safety and soundness, impose more stringent restrictions on
savings associations but may not exempt transactions from or otherwise abridge
Section 23A or 23B. Exemptions from Section 23A or 23B may be granted only by
the Federal Reserve, as is currently the case with respect to all FDIC-insured
banks.
First Federal's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by those persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder. Among other things, these regulations require that
loans be made on terms and conditions substantially the same as those offered to
unaffiliated individuals and not involve more than the normal risk of repayment.
Regulation O also places individual and aggregate limits on the amount of loans
First Federal may make to those persons based, in part, on First Federal's
capital position, and requires certain board approval procedures to be followed.
The OTS regulations, with certain minor variances, apply Regulation O to savings
institutions.
Community Reinvestment Act. Savings associations are required to follow
the provisions of the Community Reinvestment Act of 1977, which requires the
appropriate federal bank regulatory agency, in connection with its regular
examination of a savings association, to assess the savings association's record
in meeting the credit needs of the community serviced by the savings
associations, including low and moderate income neighborhoods. The regulatory
agency's assessment of the savings association's record is made available to the
public. Further, an assessment is required of any savings associations which has
applied, among other things, to establish a new branch office that will accept
deposits, relocate an existing office or merge or consolidate with, or acquire
the assets or assume the liabilities of, a federally regulated financial
institution. First Federal received a "satisfactory" rating as a result of its
most recent examination.
Savings and Loan Holding Company Regulations
Holding Company Acquisitions. Federal law and regulation generally
prohibit a savings and loan holding company, without prior OTS approval, from
acquiring more than 5% of the voting stock of any other savings association or
savings and loan holding company or controlling the assets thereof. They also
prohibit, among other
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things, any director or officer of a savings and loan holding company, or any
individual who owns or controls more than 25% of the voting shares of First
Federal of Olathe Bancorp, Inc., from acquiring control of any savings
association not a subsidiary of a savings and loan holding company, unless the
acquisition is approved by the OTS.
Holding Company Activities. First Federal of Olathe Bancorp will be a
unitary savings and loan holding company under federal law because First Federal
will be its only insured subsidiary immediately after the conversion. Formerly,
a unitary savings and loan holding company was not restricted as to the types of
business activities in which it could engage, provided that its subsidiary
savings association continued to be a qualified thrift lender. Recent
legislation, however, restricts unitary saving and loan holding companies not
existing or applied for before May 4, 1999 to activities permissible for a
financial holding company as defined under the legislation, including insurance
and securities activities, and those permitted for a multiple savings and loan
holding company as described below. Upon any non-supervisory acquisition by
First Federal of Olathe Bancorp of another savings association as a separate
subsidiary, First Federal of Olathe Bancorp would become a multiple savings and
loan holding company and would have extensive limitations on the types of
business activities in which it could engage. The Home Owner's Loan Act limits
the activities of a multiple savings and loan holding company and its non-
insured institution subsidiaries primarily to activities permissible for the
bank holding companies under Section 4(c)(8) of the Bank Holding Company Act,
provided the prior approval of the Office of Thrift Supervision is obtained, and
to other activities authorized by Office of Thrift Supervision regulation.
Multiple savings and loan holding companies are generally prohibited from
acquiring or retaining more than 5% of a non-subsidiary company engaged in
activities other than those permitted by the Home Owners. Loan Act.
The activities authorized by the Federal Reserve Board as permissible
for bank holding companies also must be approved by the OTS prior to being
engaged in by a multiple savings and loan holding company.
Qualified Thrift Lender Test. Federal law provides that any savings and
loan holding company that controls a savings association that fails the
qualified thrift lender test, as explained under "--Federal Regulation of
Savings Associations--Qualified Thrift Lender Test," must, within one year after
the date on which the association ceases to be a qualified thrift lender,
register as and be deemed a bank holding company under all applicable laws and
regulations.
TAXATION
Federal Taxation
General. First Federal of Olathe Bancorp and First Federal will report
their income using the accrual method of accounting and will be taxed under
federal income tax laws in the same manner as other corporations with some
exceptions, including particularly First Federal's reserve for bad debts
discussed below. First Federal of Olathe Bancorp's and First Federal's tax year
will end on December 31 of each year. The following discussion of tax matters is
intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to First Federal or First Federal of
Olathe Bancorp.
Bad Debt Reserve. Historically, savings institutions such as First
Federal which met certain definitional tests primarily related to their assets
and the nature of their business were permitted to establish a reserve for bad
debts and to make annual additions thereto, which may have been deducted in
arriving at their taxable income. First Federal's deductions with respect to
"qualifying real property loans," which are generally loans secured by certain
interest in real property, were computed using an amount based on First
Federal's actual loss experience, or a percentage equal to 8% of First Federal's
taxable income, computed with certain modifications and reduced by the amount of
any permitted additions to the non-qualifying reserve. Due to First Federal's
loss experience, First Federal generally recognized a bad debt deduction equal
to 8% of taxable income.
The thrift bad debt rules were revised by Congress in 1996. The new
rules eliminated the 8% of taxable income method for deducting additions to the
tax bad debt reserves for all thrifts for tax years beginning after December 31,
1995. These rules also required that all institutions recapture all or a portion
of their bad debt reserves added since the base year, defined as the last
taxable year beginning before January 1, 1988. First Federal has no post-1987
reserves that would be recaptured. For taxable years beginning after December31,
1995, First Federal's bad debt deduction will be determined under the experience
method using a formula based on actual bad debt experience over a period of
years. The unrecaptured base year reserves will not be recaptured as long as the
institution continues to carry on the business of banking. In addition, the
balance of the pre-1988 bad debt reserves continue to be treated under the
provisions of present law referred to below that require recapture in the case
of certain excess distributions to shareholders.
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Distributions. To the extent that First Federal makes "nondividend
distributions" to First Federal of Olathe Bancorp, the distributions will be
considered to result in distributions from the balance of its bad debt reserve
as of December 31, 1987, or a lesser amount if First Federal's loan portfolio
decreased since December 31, 1987, and then from the supplemental reserve for
losses on loans. An amount based on the supplemental reserve for loan losses
will be included in First Federal's taxable income. Nondividend distributions
include distributions in excess of First Federal's current and accumulated
earnings and profits, distributions in redemption of stock and distributions in
partial or complete liquidation. However, dividends paid out of First Federal's
current or accumulated earnings and profits, as calculated for federal income
tax purposes, will not be considered to result in a distribution from First
Federal's bad debt reserve. The amount of additional taxable income created from
an excess distribution is an amount that, when reduced by the tax attributable
to the income, is equal to the amount of the distribution. Thus, if, after the
conversion, First Federal makes a "nondividend distribution," then approximately
one and one-half times the amount based on the supplemental reserve for loan
losses would be includable in gross income for federal income tax purposes,
assuming a 34% corporate federal income tax rate. See "Regulation" and "Dividend
Policy" for limits on the payment of dividends by First Federal. First Federal
does not intend to pay dividends that would result in a recapture of any portion
of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Internal Revenue Code imposes a
taxon alternative minimum taxable income at a rate of 20%. 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 is
treated as a preference item for purposes of computing the alternative minimum
taxable income. In addition, only 90% of alternative minimum taxable income can
be offset by net operating loss carry-overs. Alternative minimum taxable income
is increased by an amount equal to 75% of the amount by which First Federal's
adjusted current earnings exceeds its alternative minimum taxable income
determined without regard to this preference and prior to reduction for net
operating losses. For taxable years beginning after December 31, 1986, and
before January 1, 1996, an environmental tax of 0.12% of the excess of
alternative minimum taxable income (with certain modification) over $2.0 million
is imposed on corporations, including First Federal, whether or not an
alternative minimum tax is paid.
Dividends-Received Deduction. First Federal of Olathe Bancorp may
exclude from its income 100% of dividends received from First Federal as a
member of the same affiliated group of corporations. The corporate
dividends-received deduction is generally 70% in the case of dividends received
from unaffiliated corporations with which First Federal of Olathe Bancorp and
First Federal will not file a consolidated tax return, except that if First
Federal of Olathe Bancorp or First Federal owns more than 20% of the stock of a
corporation distributing a dividend, then 80% of any dividends received may be
deducted.
Audits. The IRS has not audited First Federal's federal income tax
returns for the past five years.
Kansas Taxation
First Federal files Kansas income tax returns. The State of Kansas also
imposes a privilege tax on savings institutions. Savings institutions are
presently taxed at a rate of up to 4.5% of net income, which is calculated based
on federal taxable income, subject to certain adjustments.
First Federal's state tax returns have not been audited by the State of
Kansas during the past five years.
MANAGEMENT
Directors and Executive Officer of First Federal of Olathe Bancorp
The Board of Directors of First Federal of Olathe Bancorp currently
consists of five members, each of whom is also a director of First Federal. See
"--Directors of First Federal." Each Director of First Federal of Olathe Bancorp
has served as such since First Federal of Olathe Bancorp's incorporation in
December 1999. Directors of First Federal of Olathe Bancorp will serve
three-year staggered terms so that approximately one-third of the directors will
be elected at each annual meeting of stockholders. The terms of the current
directors of First Federal of Olathe Bancorp are the same as their terms as
directors of First Federal. First Federal of Olathe Bancorp intends to pay
directors a fee of $4,800 per annum, payable on a monthly basis. See "-Directors
of First Federal."
The executive officer of First Federal of Olathe Bancorp, who held his
present position since December 1999, is elected annually and holds office until
his respective successor has been elected and qualified or until death,
resignation or removal by the Board of Directors. The executive officer of First
Federal of Olathe Bancorp, is set forth below.
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Name Title
- ---- -----
Mitch Ashlock President, Chief Executive Officer, Chief Financial
Officer and Director
It is not anticipated that the executive officer of First Federal of
Olathe Bancorp will receive any remuneration in his capacity as executive
officer of the holding company. For information regarding compensation of
directors and executive officers of First Federal, see "- Meetings of the Board
of Directors and Committees of First Federal," "-Compensation of the Board of
Directors of First Federal" and "- Executive Compensation."
Committees of First Federal of Olathe Bancorp
First Federal of Olathe Bancorp formed standing Audit, Nominating and
Compensation Committees in connection with its organization in December 1999.
The holding company was not incorporated in fiscal 1998 and therefore the
committees did not meet during that fiscal year.
The Audit Committee will review audit reports and related matters to
ensure effective compliance with regulations and internal policies and
procedures. This committee also will act on the recommendation by management of
an accounting firm to perform the holding company's annual audit and acts as a
liaison between the auditors and the Board. The current members of this
committee are Directors Donald K. Ashlock, Palmer and Wollen.
The Nominating Committee will meet annually in order to nominate
candidates for membership on the Board of Directors. This committee is comprised
of the Board members who are not up for election.
The Compensation Committee will establish the holding company's
compensation policies and review compensation matters. The current members of
this Committee are Directors Donald K. Ashlock, Bowen and Palmer.
Indemnification
The Kansas General Corporation 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 Federal of Olathe Bancorp require indemnification of
directors, officers, employees or agents of First Federal of Olathe Bancorp to
the full extent permissible under Kansas law.
In addition, the Articles of Incorporation and Kansas law also provide
that the holding company may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the holding company or
another corporation or entity against any expense, liability or loss, whether or
not the holding company has the power to indemnify such person against such
expense, liability or loss under Kansas law. The holding company intends to
obtain such insurance.
Directors of First Federal
Prior to the conversion, the direction and control of First Federal, as
a mutual savings institution, had been vested in its Board of Directors. Upon
conversion of First Federal to stock form, each of the directors of First
Federal will continue to serve as a director of the converted association. The
Board of Directors of First Federal currently consists of five directors. The
directors are divided into three classes. Approximately one-third of the
directors are elected at each annual meeting of stockholders. Because First
Federal of Olathe Bancorp will own all of the issued and outstanding shares of
capital stock of the converted association after the conversion, directors of
the holding company will elect the directors of First Federal.
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The following table sets forth certain information regarding the
directors of First Federal and the holding company:
<TABLE>
<CAPTION>
Director Term
Name Position(s) Held with First Federal Age(1) Since Expires
- ---- ----------------------------------- ----- ------- -------
<S> <C> <C> <C> <C>
Mitch Ashlock(2) President, Chief Executive Officer 42 1995 2001
and Director
Donald K. Ashlock(2) Chairman of the Board 72 1952 2002
John M. Bowen Director 66 1973 2000
Carl R. Palmer Director 63 1982 2000
Marvin Eugene Wollen Director 67 1986 2002
</TABLE>
- ---------
(1) At September 30, 1999.
(2) Mitch Ashlock is the son of Donald K. Ashlock.
The business experience of each director is set forth below. All
directors have held their present position for at least the past five years,
except as otherwise indicated.
Mitch Ashlock. Mr. Ashlock has been employed by First Federal since
1992. He served as Vice President form 1992 to 1995, and was appointed President
and Chief Executive Officer in 1995.
Donald K. Ashlock. Mr. Ashlock served as President and Chief Executive
Officer of First Federal from 1982 until his retirement in 1995. He originally
joined First Federal in 1952.
John M. Bowen. Mr. Bowen is the owner and managing officer of John M.
Bowen & Associates, a court reporting company, located in Olathe, Kansas and
Kansas City, Missouri.
Carl R. Palmer. Mr. Palmer is the owner of Carl Palmer Realty, a real
estate sales firm located in Olathe, Kansas.
Marvin Eugene Wollen. Mr. Wollen is an optometrist practicing in
Olathe, Kansas.
Meetings of the Board of Directors and Committees of First Federal
The Board of Directors met 12 times during the year ended December 31,
1998. During fiscal 1998, no director of First Federal attended fewer than 75%
of the aggregate of the total number of Board meetings and the total number of
meetings held by the committees of the Board of Directors on which he served.
The Board of Directors of First Federal does not have a separate
Nominating Committee. The full Board of Directors acts as the Nominating
Committee, except for directors who are up for election at the upcoming meeting.
The Board of Directors of First Federal has established an Audit
Committee. The Audit Committee reviews First Federal's financial statements,
supervises the internal audit and engages the external auditor. The Audit
Committee consists of directors Donald K. Ashlock, Palmer and Wollen. The Audit
Committee met two times during the year ended December 31, 1998.
Compensation of the Board of Directors of First Federal
During fiscal 1998, all directors of First Federal, other than the
Chairman of the Board, received a fee of $200 per meeting attended. The Chairman
of the Board received a fee of $740 per month plus $200 per meeting attended.
During fiscal 1999, First Federal increased the fees payable to directors to
$250 per meeting attended. For a discussion of additional benefits that may be
received by directors following the conversion, see "--Benefit Plans--Stock
Option Plan" and "--Recognition and Retention Plan."
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Executive Compensation
The following table sets forth information concerning the compensation
paid or granted to First Federal's Chief Executive Officer. No other executive
officer of First Federal had aggregate compensation in excess of $100,000 in
fiscal 1998.
Annual Compensation(1)
-------------------------------
Other
Annual All Other
Name and Principal Fiscal Compensation Compensation
Position Year(1) Salary($) Bonus($) ($) ($)
- ------------------------ ------ -------- ------- ------------ ------------
Mitch Ashlock, President, 1998 $61,000 $20,000 $ 2,400(2) $--
Chief Executive Officer
and Director
- ---------
(1) In accordance with the revised rules on executive officer and director
compensation disclosure adopted by the SEC, Summary Compensation
information is excluded for the fiscal years ended December 31, 1996
and 1997, as First Federal was not a public company during such
periods.
(2) Consists of director's fees of $2,400. Does not include the aggregate
amount of other personal benefits, which did not exceed 10% of the
total salary and bonus reported.
Benefit Plans
General. First Federal currently provides health care benefits,
including medical, prescription and dental, subject to certain deductibles and
copayments by employees, and group life insurance to its full time employees.
Employment Agreement. First Federal intends to enter into an employment
agreement with Mr. Ashlock which will provide for a term of 36 months. On each
anniversary date, the agreement may be extended for an additional 12 months, so
that the remaining term shall be 36 months. If the agreement is not renewed, the
agreement will expire 36 months following the anniversary date. The current
annual base salary for Mr. Ashlock is $64,000. The base salary may be increased
but not decreased. In addition to the base salary, the agreement provides for,
among other things, participation in other employee and fringe benefits
applicable to executive personnel. The agreement provides for termination by
First Federal for cause at any time. In the event First Federal terminates the
executive's employment for reasons other than for cause, or in the event of the
executive's resignation from First Federal upon (1) failure to re-elect the
executive to his current offices, (2) a material change in the executive's
functions, duties or responsibilities, or relocation of his principal place of
employment by more than 30 miles, (3) liquidation or dissolution of First
Federal, (4) a breach of the agreement by First Federal, or (5) on the effective
date of or following a change in control (as defined in the agreement) during
the term of the agreement, the executive, or in the event of death, his
beneficiary would be entitled to severance pay in an amount equal to three times
the annual rate of base salary at the time of termination, plus the highest
annual cash bonus paid to him during the prior three years. First Federal would
also continue the executive's life, health, dental and disability coverage for
the remaining unexpired term of the agreement. In the event the payments to the
executive would include an "excess parachute payment" as defined in the Internal
Revenue Code, the payments would be reduced in order to avoid having an excess
parachute payment.
The executive's employment may be terminated upon his attainment of age
65. Upon Mr. Ashlock's retirement, he will be entitled to all benefits available
to him under any retirement or other benefit plan maintained by First Federal.
In the event of the executive's disability for a period of six months, First
Federal may terminate the agreement provided that First Federal will be
obligated to pay the executive his base salary for the remaining term of the
agreement or one year, whichever is longer, reduced by any benefits paid to the
executive pursuant to any disability insurance policy or similar arrangement
maintained by First Federal. In the event of the executive's death, First
Federal will pay his base salary to his named beneficiaries for one year
following his death, and will also continue medical, dental, and other benefits
to his family for one year.
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The employment agreement provides that, following termination of
employment, the executive will not compete with First Federal for a period of
one year, provided, however, that in the event of a termination in connection
with a change in control within the meaning of certain federal laws, the
noncompete provisions will not apply.
Defined Benefit Pension Plan. First Federal maintains the Financial
Institutions Retirement Fund, which is a qualified, tax-exempt defined benefit
plan ("Retirement Plan"). All employees age 21 or older who have worked at First
Federal for a period of one year are eligible for membership in the Plan;
however, only employees that have been credited with 1,000 or more hours of
service with First Federal during the year are eligible to accrue benefits under
the Retirement Plan. First Federal annually contributes an amount to the
Retirement Plan, if necessary, to satisfy the actuarially determined minimum
funding requirements in accordance with the Employee Retirement Income Security
Act.
The regular form of all retirement benefits is guaranteed for the life
of the retiree. An optional form of benefit may be selected. These optional
forms include various joint and survivor annuity form. Benefits payable upon
death may be made in a lump sum, installments, or a lifetime annuity. For a
married participant, the normal form of benefit is a joint and survivor annuity
where, upon the participant's death, the participant's spouse is entitled to
receive a benefit equal to 50% of that paid during the participant's lifetime.
The normal retirement benefit payable at age 65 is an amount equal to
3% of a participant's high 3-year average salary, defined as income reportable
on Form W-2, multiplied by each year of credited service under the Retirement
Plan. A reduced benefit may be payable at or after age 45 and before normal
retirement age after completion of five years of service. If an employee
continues in employment after age 65 or defers commencement of his or her
retirement benefit, his or her retirement benefit will be increased by .8% for
each month of deferment, or 9.6% per year with a maximum increase of 48%. In
addition to the retirement benefit, a retiree will receive an annual retirement
allowance at the end of the calendar year in which he or she attains age 66, and
at the end of each succeeding year equal to 2% times the annual retirement
benefit multiplied by the number of years after retirement. For the plan year
ended June 30, 1999, First Federal was not required to make a contribution to
the Retirement Plan.
The following table indicates the annual retirement benefit that would
be payable under the Retirement Plan upon retirement at age 65 in calendar year
1999, expressed in the form of a single life annuity for the average salary and
benefit service classifications specified below.
<TABLE>
<CAPTION>
Highest Three-Year Years of Service and Benefit Payable at Retirement
Average -------------------------------------------------------------------------------
Compensation 15 20 25 30 35 40
------------ -------- -------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $22,500 $30,000 $ 37,500 $ 45,000 $ 50,000 $ 50,000
$ 75,000 33,750 45,000 56,250 67,500 75,000 75,000
$ 100,000 45,000 60,000 75,000 90,000 100,000 100,000
$ 125,000 56,250 75,000 93,750 112,500 125,000 125,000
$ 150,000 67,500 90,000 112,500 130,000(1) 130,000(1) 130,000(1)
</TABLE>
- ----------
(1) Benefits are limited by tax laws which limit, in 1999, the maximum
annual benefit payable under a defined benefit pension plan to the
lesser of (i) $130,000, or (ii) 100% of the participant's average
compensation for his high 3 years
As of December 31, 1999, Mr. Mitch Ashlock had 6 years of credited
service under the plan.
Employee Stock Ownership Plan and Trust. First Federal intends to
implement the ESOP in connection with the conversion. Employees with at least
one year of employment with First Federal and who have attained age 21 are
eligible to participate. As part of the conversion, the ESOP intends to borrow
funds from First Federal of Olathe Bancorp and use those funds to purchase a
number of shares equal to up to 8.0% of the common stock to be issued in the
conversion. Collateral for the loan will be the common stock purchased by the
ESOP. The loan will be repaid principally from First Federal's discretionary
contributions to the ESOP over a period of not less than 20 years provided,
however that the loan documents will permit repayment over a period of up to 30
years but provide no penalty for prepayments. It is anticipated that the
interest rate for the loan will be a floating rate equal to the prime rate.
Shares purchased by the ESOP will be held in a suspense account for allocation
among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account
in an amount proportional to the repayment of the ESOP loan will be allocated
among ESOP participants on the basis of compensation in the year of allocation.
Participants in the ESOP will receive credit for up to two years of service
prior to the effective date of the ESOP. A participant vests in his ESOP benefit
at the rate of 20% per year of service so that a participant is 100% vested in
his benefits after five years or upon normal retirement as defined in the ESOP,
early retirement,
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<PAGE>
disability or death of the participant. A participant who terminates employment
for reasons other than death, retirement, or disability prior to five years of
credited service will forfeit his benefits under the ESOP. Benefits will be
payable in the form of common stock and/or cash upon death, retirement, early
retirement, disability or separation from service. First Federal's contributions
to the ESOP are discretionary, subject to the loan terms and tax law limits,
and, therefore, benefits payable under the ESOP cannot be estimated. Pursuant to
SOP 93-6, First Federal is required to record compensation expense in an amount
equal to the fair market value of the shares released from the suspense account.
In connection with the establishment of the ESOP, First Federal will
establish a committee of nonemployee directors to administer the ESOP. First
Federal will appoint an independent financial institution to serve as trustee of
the ESOP. The ESOP trustee, subject to its fiduciary duty, must vote all
allocated shares held in the ESOP in accordance with the instructions of
participating employees. Under the ESOP, nondirected shares, and shares held in
the suspense account, will be voted in a manner calculated to most accurately
reflect the instructions it has received from participants regarding the
allocated stock so long as such vote is in accordance with the provisions of
ERISA.
Stock Option Plan. First Federal of Olathe Bancorp intends to implement
a stock option plan for directors, officers and employees of the holding company
and First Federal after the conversion. Applicable regulations prohibit the
holding company from implementing this plan until six months after the
conversion and, if implemented within the first twelve months after the
conversion, require that approval of the holders of a majority of the
outstanding shares of the holding company be obtained.
First Federal of Olathe Bancorp expects to adopt a stock option plan
that will authorize a committee of non-employee directors or the full board of
the holding company to grant options to purchase up to 10% of the shares issued
in the stock offering over a period of 10 years. The committee will decide which
directors, officers and employees will receive options and what the terms of
those options will be. Generally, no stock option will permit its recipient to
purchase shares at a price that is less than the fair market value of a share on
the date the option is granted, and no option will have a term that is longer
than 10 years. If the holding company implements a stock option plan before the
first anniversary of the conversion, applicable regulations will require that
the holding company:
o Limit the total number of shares that are optioned to outside
directors to 30% of the shares authorized for the plan.
o Limit the number of shares that are optioned to any one
outside director to 5% of the shares authorized for the plan
and the number of shares that are optioned to any officer or
employee to 25% of the shares that are authorized for the
plan.
o Not permit the options to become vested at a more rapid rate
than 20% per year beginning on the first anniversary of
stockholder approval of the plan.
o Not permit accelerated vesting for any reason other than death
or disability.
After the first anniversary of the conversion, the holding company may amend the
plan to change or remove these restrictions. If the holding company adopts a
stock option plan within one year after the conversion, the holding company
expects to amend the plan later to remove these restrictions and to provide for
accelerated vesting in cases of retirement and/or a change of control.
The holding company may obtain the shares needed for this plan by
issuing additional shares or through stock repurchases. The holding company's
ability to engage in stock repurchases may be restricted by Office of Thrift
Supervision regulations that prohibit it from repurchasing its common stock in
the first three years following the conversion, unless the holding company
receives the prior approval of the Office of Thrift Supervision.
The holding company expects the stock option plan will permit the
committee to grant either incentive stock options that qualify for special
federal income tax treatment or non-qualified stock options that do not qualify
for special treatment. Incentive stock options may be granted only to employees
of the holding company and First Federal and will not create federal income tax
consequences when they are granted. If they are exercised during employment or
within three months after termination of employment, the exercise will not
create federal income tax consequences either. When the shares acquired on
exercise of an incentive stock option are resold, the seller must pay federal
income taxes on the amount by which the sales price exceeds the purchase price.
This amount will be taxed at capital gains rates if the sale occurs at least two
years after the option was granted and at least one year after the option was
exercised. Otherwise, it is taxed as ordinary income.
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Non-qualified stock options may be granted to either employees or
non-employees such as directors, consultants and other service providers. Except
in limited circumstances, incentive stock options that are exercised more than
three months after termination of employment are treated as non-qualified stock
options. Non-qualified stock options will not create federal income tax
consequences when they are granted. When they are exercised, federal income
taxes must be paid on the amount by which the fair market value of the shares
acquired by exercising the option exceeds the exercise price. When the shares
acquired on exercise of a non-qualified stock option are resold, the seller must
pay federal income taxes on the amount by which the sales price exceeds the
purchase price plus the amount included in ordinary income when the option was
exercised. This amount will be taxed at capital gains rates, which will vary
depending upon the time that has elapsed since the exercise of the option.
When a non-qualified stock option is exercised, First Federal of Olathe
Bancorp may be allowed a federal income tax deduction for the same amount that
the option holder includes in his or her ordinary income. This amount may be the
same as the related compensation expense or it may be different. When an
incentive stock option is exercised, there is no tax deduction unless the shares
acquired are resold sooner than two years after the option was granted or one
year after the option was exercised.
Recognition and Retention Plan. First Federal of Olathe Bancorp intends
to implement a recognition and retention plan for the directors, officers and
employees of First Federal and the holding company after the conversion.
Applicable regulations prohibit First Federal of Olathe Bancorp from
implementing this plan until six months after the conversion and, if implemented
within the first twelve months after the conversion, require that the holding
company first obtain the approval of the holders of a majority of its
outstanding shares.
The holding company expects to adopt a recognition and retention plan
that will authorize a committee of non-employee directors or the full board of
the holding company to make restricted stock awards of up to 4% of the shares
issued in the stock offering. In the event the holding company initially
implements the recognition and retention plan more than 12 months after the
conversion, the recognition and retention plan may authorize the committee to
award up to 5% of the shares issued in the stock offering. The committee will
decide which directors, officers and employees will receive restricted stock and
what the terms of those awards will be. The holding company may obtain the
shares needed for this plan by issuing additional shares or through stock
repurchases. If the holding company implements a recognition and retention plan
before the first anniversary of the conversion, applicable regulations will
require that the holding company:
o Limit the total number of shares that are awarded to outside
directors to 30% of the shares authorized for the plan.
o Limit the number of shares that are awarded to any one outside
director to 5% of the shares authorized for the plan and the
number of shares that are awarded to any officer or employee
to 25% of the shares that are authorized for the plan.
o Not permit the awards to become vested at a more rapid rate
than 20% per year beginning on the first anniversary of
stockholder approval of the plan.
o Not permit accelerated vesting for any reason other than death
or disability.
After the first anniversary of the conversion, the holding company may amend the
plan to change or remove these restrictions. If the holding company adopts a
recognition and retention plan within one year after the conversion, the holding
company expects to amend the plan later to remove these restrictions and to
provide for accelerated vesting in cases of retirement and change of control.
Restricted stock awards under this plan may feature employment
restrictions that require continued employment for a period of time for the
award to be vested. Awards are not vested unless the specified employment
restrictions are met. However, pending vesting, the award recipient may have
voting and dividend rights. When an award becomes vested, the recipient must
include the current fair market value of the vested shares in his income for
federal income tax purposes. First Federal and the holding company will be
allowed a federal income tax deduction in the same amount. First Federal and the
holding company will have to recognize a compensation expense for accounting
purposes ratably over the vesting period.
Indebtedness of Management
In the ordinary course of business, First Federal makes loans available
to its directors, officers and employees. Such loans are made in the ordinary
course of business on the same terms, including interest rates and
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<PAGE>
collateral, as comparable loans to other borrowers. It is the belief of
management that these loans neither involve more than the normal risk of
collectibility nor present other unfavorable features. At September 30, 1999,
First Federal had four loans outstanding to directors and executive officers of
First Federal, or members of their immediate families. These loans totaled
approximately $169,000, or 1.9%, of First Federal's total equity at September
30, 1999.
THE CONVERSION
The Board of Directors of First Federal and the OTS have approved the
Plan of Conversion, subject to approval by the members of First Federal entitled
to vote on the matter and the satisfaction of certain other conditions. OTS
approval, however, is not a recommendation or endorsement of the Plan. Certain
terms used in the following summary are defined in the Plan of Conversion, a
copy of which may be obtained by contacting First Federal.
General
On October 13, 1999, the Board of Directors unanimously adopted the
Plan, subject to approval by the OTS and the members of First Federal. Pursuant
to the Plan, First Federal is to be converted from a federal mutual savings
association to a federal stock savings association, with the concurrent
formation of a holding company. The OTS has approved the Plan, subject to its
approval by the affirmative vote of the members of First Federal holding not
less than a majority of the total number of votes eligible to be cast at a
Special Meeting called for that purpose to be held on March __, 2000.
The conversion will be accomplished through amendment of First
Federal's federal mutual charter to authorize the issuance of capital stock, at
which time First Federal will become a wholly owned subsidiary of the holding
company. The conversion will be accounted for as a pooling of interests.
The plan of conversion provides generally that: First Federal will
convert from a federally chartered mutual savings association to a federally
chartered stock savings association; the common stock will be offered by First
Federal of Olathe Bancorp in the subscription offering to persons having
subscription rights; if necessary, shares of common stock not subscribed for in
the subscription offering will be offered in a community offering to certain
members of the general public, with preference given to natural persons and
trusts of natural persons residing in Johnson County, Kansas, and then to
certain members of the general public in a syndicated community offering through
a syndicate of registered broker-dealers under selected dealers agreements; and
First Federal of Olathe Bancorp will purchase all of the capital stock of First
Federal to be issued in the conversion. The conversion will be completed only
upon the sale of at least $5,525,000 of common stock to be issued under the plan
of conversion.
As part of the conversion, First Federal of Olathe Bancorp is making a
subscription offering of its common stock to holders of subscription rights in
the following order of priority. First, depositors of First Federal with $50.00
or more on deposit as of June 30, 1998. Second, First Federal's employee stock
ownership plan. Third, depositors of First Federal with $50.00 or more on
deposit as of December 31, 1999. Fourth, depositors of First Federal as of
January __, 2000 and borrowers of First Federal with loans outstanding as of
January __, 2000 which continue to be outstanding as of January __, 2000.
Finally, officers, directors and employees of First Federal.
Shares of common stock not subscribed for in the subscription offering
may be offered for sale in the community offering. The community offering, if
one is held, is expected to begin immediately after the expiration of the
subscription offering, but may begin at any time during the subscription
offering. Shares of common stock not sold in the subscription and community
offerings may be offered in the syndicated community offering. Regulations
require that the community and syndicated community offerings be completed
within 45 days after completion of the fully extended subscription offering
unless extended by First Federal or First Federal of Olathe Bancorp with the
approval of the regulatory authorities. If the syndicated community offering is
determined not to be feasible, the Board of Directors of First Federal will
consult with the regulatory authorities to determine an appropriate alternative
method for selling the unsubscribed shares of common stock. The plan of
conversion provides that the conversion must be completed within 24 months after
the date of the approval of the plan of conversion by the members of First
Federal.
No sales of common stock may be completed, either in the subscription
offering, direct community offering or syndicated community offering unless the
plan of conversion is approved by the members of First Federal.
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The completion of the offering, however, depends on market conditions
and other factors beyond First Federal's control. No assurance can be given as
to the length of time after approval of the plan of conversion at the special
meeting that will be required to complete the community or syndicated community
offerings or other sale of the common stock.
Orders for shares of common stock will not be filled until at least
552,500 shares of common stock have been subscribed for or sold and the Office
of Thrift Supervision approves the final valuation and the conversion closes. If
the conversion is not completed within 45 days after the last day of the fully
extended subscription offering and the Office of Thrift Supervision consents to
an extension of time to complete the conversion, subscribers will be given the
right to increase, decrease or rescind their subscriptions. Unless an
affirmative indication is received from subscribers that they wish to continue
to subscribe for shares, the funds will be returned promptly, together with
accrued interest at First Federal's passbook rate from the date payment is
received until the funds are returned to the subscriber. If the period is not
extended, or, in any event, if the conversion is not completed, all withdrawal
authorizations will be terminated and all funds held will be promptly returned
together with accrued interest at First Federal's passbook rate from the date
payment is received until the conversion is terminated.
Purposes of Conversion
The Board of Directors and management believe that the conversion is in
the best interests of First Federal, its members and the communities it serves.
First Federal's Board of Directors has formed First Federal of Olathe Bancorp to
serve as a holding company, with First Federal as its subsidiary, after the
conversion. By converting to the stock form of organization, First Federal of
Olathe Bancorp and First Federal will be structured in the form used by holding
companies of commercial banks, most business entities and by a growing number of
savings institutions. Management of First Federal believes that the conversion
offers a number of advantages which will be important to the future growth and
performance of First Federal. The capital raised in the conversion is intended
to support First Federal's current lending and investment activities and may
also support possible future expansion and diversification of operations,
although there are no current specific plans, arrangements or understandings,
written or oral, regarding any expansion or diversification. The conversion is
also expected to afford First Federal's management, members and others the
opportunity to become stockholders of First Federal of Olathe Bancorp and
participate more directly in, and contribute to, any future growth of First
Federal of Olathe Bancorp and First Federal. The conversion will also enable
First Federal of Olathe Bancorp and First Federal to raise additional capital in
the public equity or debt markets should the need arise, although there are no
current specific plans, arrangements or understandings, written or oral,
regarding any financing activities. First Federal, as a mutual savings and loan
association, does not have the authority to issue capital stock or debt
instruments, other than by accepting deposits.
Effects of Conversion to Stock Form on Depositors and Borrowers of First Federal
Voting Rights. Upon conversion, neither deposit account holders nor
borrowers will have voting rights in First Federal or First Federal of Olathe
Bancorp and will therefore not be able to elect directors of either entity or to
control their affairs. These rights are currently accorded to deposit account
holders and certain borrowers with regard to First Federal. Subsequent to
conversion, voting rights will be vested exclusively in First Federal of Olathe
Bancorp as the sole stockholder of First Federal. Voting rights as to First
Federal of Olathe Bancorp will be held exclusively by its stockholders. Each
purchaser of First Federal of Olathe Bancorp common stock shall be entitled to
vote on any matters to be considered by First Federal of Olathe Bancorp
stockholders. A stockholder will be entitled to one vote for each share of
common stock owned, subject to certain limitations applicable to holders of 10%
or more of the shares of the common stock. See "Restrictions on Acquisitions of
Stock and Related Takeover Defensive Provisions." First Federal of Olathe
Bancorp intends to supply each stockholder with quarterly and annual reports and
proxy statements.
Deposit Accounts and Loans. The terms of First Federal's deposit
accounts, the balances of the individual accounts and the existing FDIC
insurance coverage will not be affected by the conversion. Furthermore, the
conversion will not affect the loan accounts, the balances of these accounts, or
the obligations of the borrowers under their individual contractual arrangements
with First Federal.
Tax Effects. First Federal has received an opinion from Luse Lehman
Gorman Pomerenk & Schick, P.C. with regard to federal income taxation, and an
opinion of Taylor, Perky & Parker, L.L.C., with regard to Kansas taxation, to
the effect that the adoption and implementation of the plan of conversion set
forth herein will not be taxable for federal or Kansas tax purposes to First
Federal or First Federal of Olathe Bancorp. See "- Income Tax Consequences."
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Liquidation Rights. First Federal has no plan to liquidate either
before or after the conversion. However, if there should ever be a complete
liquidation, either before or after conversion, deposit account holders would
receive the protection of insurance by the FDIC up to applicable limits. Subject
thereto, liquidation rights before and after conversion would be as follows:
Liquidation Rights in Present Mutual Association. In addition to the
protection of FDIC insurance up to applicable limits, in the event of a complete
liquidation each holder of a deposit account in First Federal in its present
mutual form would receive his pro rata share of any assets of First Federal
remaining after payment of claims of all creditors, including the claims of all
depositors in the amount of the withdrawal value of their accounts. Each
depositor's pro rata share of the remaining assets, would be in the same
proportion as the balance in his or her deposit account to the aggregate balance
in all deposit accounts in First Federal at the time of liquidation.
Liquidation Rights in Proposed Converted Association. After conversion
each deposit account holder, in the event of a complete liquidation, would have
a claim of the same general priority as the claims of all other general
creditors of First Federal in addition to the protection of FDIC insurance up to
applicable limits. Except as described below, the deposit account holder's claim
would be solely in the amount of the balance in his or her deposit account plus
accrued interest and the holder would have no interest in the value of First
Federal above that amount.
The plan of conversion provides that there shall be established, upon
the completion of the conversion, a special "liquidation account" for the
benefit of eligible account holders and supplemental eligible account holders in
an amount equal to the net worth of First Federal as of the date of its latest
consolidated statement of financial condition contained in the final prospectus
relating to the conversion. Each eligible account holder and supplemental
eligible account holder would have an initial interest in the liquidation
account for each qualifying deposit account held in First Federal on the
qualifying date. An eligible account holder's or supplemental eligible account
holder's interest as to each deposit account would be in the same proportion as
the balance in his or her account on the applicable eligibility date, was to the
aggregate balance in all qualifying deposit accounts on such date. For accounts
in existence on both dates, separate subaccounts shall be determined on the
basis of the qualifying deposits in the accounts on the record dates. However,
if an eligible account holder or supplemental eligible account holder should
reduce the amount in the qualifying deposit account on any annual closing date
of First Federal to a level less than the lowest amount in such account on the
applicable eligibility date, and on any subsequent closing date, then the
account holder's interest in this special liquidation account would be reduced
by an amount proportionate to any such reduction, and the account holder's
interest would cease to exist if such qualifying deposit account were closed.
The interest in the special liquidation account would never be
increased despite any increase in the balance of the account holders' related
accounts after conversion.
Any assets remaining after the above liquidation rights of eligible
account holders and supplemental eligible account holders were satisfied would
be distributed to the holding company as the sole stockholder of First Federal.
No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transaction, whether First
Federal, or another federally-insured institution is the surviving institution,
is deemed to be a complete liquidation for purposes of distribution of the
liquidation account. In any such transaction, the liquidation account would be
assumed by the surviving institution. The OTS has stated that the consummation
of a transaction of the type described in the preceding sentence in which the
surviving entity is not a federally-insured institution would be reviewed on a
case-by-case basis to determine whether the transaction should constitute a
"complete liquidation" requiring distribution of any then remaining balance in
the liquidation account.
Common Stock. For information as to the characteristics of the common
stock to be issued under the plan of conversion, see "Dividends" and
"Description of Capital Stock." Common stock issued under the plan of conversion
cannot, and will not, be insured by the FDIC or any other government agency.
First Federal will continue, immediately after completion of the
conversion, to provide its services to depositors and borrowers pursuant to its
existing policies and will maintain the existing management and employees of
First Federal. Other than for payment of expenses incident to the conversion, no
assets of First Federal will be distributed in the conversion. First Federal
will continue to be a member of the FHLB System, and its deposit accounts will
continue to be insured by the FDIC. The affairs of First Federal will continue
to be directed by the existing Board of Directors and management.
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Offering of Common Stock
Under the plan of conversion, up to 7,475,000 shares of First Federal
of Olathe Bancorp common stock will be offered for sale, subject to certain
restrictions described below through a subscription and community offering.
Subscription Offering. The subscription offering will expire at 12:00
noon, central time, on March ___, 2000 unless extended by First Federal and
First Federal of Olathe Bancorp. Regulations of the OTS require that all shares
to be offered in the conversion be sold within a period ending not more than 45
days after the expiration date of the subscription offering or such longer
period as may be approved by the OTS or, despite approval of the plan of
conversion by members, the conversion will not be effected. This period expires
on May ___, 2000, unless extended with the approval of the OTS. If the
conversion is not completed by May ___, 2000, all subscribers will have the
right to modify or rescind their subscriptions and to have their subscription
funds returned promptly with interest. In the event of such an extension, all
subscribers will be notified in writing of the time period within which
subscribers must notify First Federal of their intention to maintain, modify or
rescind their subscriptions. If the subscriber rescinds or does not respond in
any manner to First Federal's notice, the funds submitted will be refunded to
the subscriber with interest at 3.0%, First Federal's current passbook rate per
annum, and/or the subscriber's withdrawal authorizations will be terminated. In
the event that the conversion is not effected, all funds submitted and not
previously refunded pursuant to the subscription and community offering will be
promptly refunded to subscribers with interest at 3.0%, and all withdrawal
authorizations will be terminated.
Subscription Rights. Under the plan of conversion, nontransferable
subscription rights to purchase the common stock have been issued to persons and
entities entitled to purchase the common stock in the subscription offering. The
amount of the common stock which these parties may purchase will depend on the
availability of the common stock for purchase under the categories described in
the plan of conversion. Subscription priorities have been established for the
allocation of stock to the extent that the common stock is available. These
priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or
more on deposit at First Federal as of June 30, 1998 will receive
nontransferable subscription rights to subscribe for up to the greater of
$100,000 of common stock, one-tenth of one percent of the total offering of
common stock or 15 times the product, rounded down to the next whole number,
obtained by multiplying the total number of shares of common stock to be issued
by a fraction of which the numerator is the amount of qualifying deposit of the
eligible account holder and the denominator is the total amount of qualifying
deposits of all eligible account holders. If the exercise of subscription rights
in this category results in an oversubscription, shares of common stock will be
allocated among subscribing eligible account holders so as to permit each one,
to the extent possible, to purchase a number of shares sufficient to make the
person's total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. Thereafter, unallocated shares will be
allocated proportionately, based on the amount of their respective qualifying
deposits as compared to total qualifying deposits of all subscribing eligible
account holders. Subscription rights received by officers and directors in this
category based on their increased deposits in First Federal in the one year
period preceding June 30, 1998 are subordinated to the subscription rights of
other eligible account holders.
Category 2: Employee Stock Ownership Plan. The plan of conversion
provides that tax qualified employee plans of First Federal, such as the
employee stock ownership plan, shall receive nontransferable subscription rights
to purchase up to 10% of the shares of common stock issued in the conversion.
The employee stock ownership plan intends to purchase 8% of the shares of common
stock issued in the conversion. In the event the number of shares offered in the
conversion is increased above the maximum of the valuation range, the plan shall
have a priority right to purchase any shares exceeding that amount up to 8% of
the common stock. If the plan's subscription is not filled in its entirety, the
employee stock ownership plan may purchase shares in the open market or may
purchase shares directly from the holding company.
Category 3: Supplemental Eligible Account Holders. To the extent that
there are sufficient shares remaining after satisfaction of subscriptions by
eligible account holders and the employee stock ownership plan, each depositor
with $50.00 or more on deposit as of December 31, 1999 will receive
nontransferable subscription rights to subscribe for up to the greater of
$100,000 of common stock, one-tenth of one percent of the total offering of
common stock or 15 times the product, rounded down to the next whole number,
obtained by multiplying the total number of shares of common stock to be issued
by a fraction of which the numerator is the amount of qualifying deposits of the
supplemental eligible account holder and the denominator is the total amount of
qualifying deposits of all supplemental eligible account holders. If the
exercise of subscription rights in this category results in an oversubscription,
shares of common stock will be allocated among subscribing supplemental
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eligible account holders so as to permit each supplemental eligible account
holder, to the extent possible, to purchase a number of shares sufficient to
make his or her total allocation equal 100 shares or the number of shares
actually subscribed for, whichever is less. Thereafter, unallocated shares will
be allocated among subscribing supplemental eligible account holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all subscribing supplemental eligible
account holders.
Category 4: Other Members. Each depositor of First Federal as of
January __, 2000 and each borrower with a loan outstanding on January __, 2000
which continues to be outstanding as of January __, 2000 will receive
nontransferable subscription rights to purchase up to the greater of $100,000 of
common stock or one-tenth of one percent of the total offering of common stock,
in the conversion to the extent shares are available following subscriptions by
eligible account holders, First Federal's employee stock ownership plan and
supplemental eligible account holders. If there is an oversubscription in this
category, the available shares will be allocated proportionately based on the
amount of the other members number of votes as compared to the total number of
votes of all subscribing other members.
Category 5: Officers, Directors and Employees. Each officer, director
and employee of First Federal will receive nontransferable subscription rights,
to purchase up to a maximum of $100,000 of common stock to the extent that
shares are available after satisfying the subscriptions of eligible subscribers
in preference Categories 1, 2, 3 and 4. In the event of an oversubscription, the
available shares will be allocated pro rata among all subscribers in this
category.
Subscription rights are nontransferable. Persons selling or otherwise
transferring their rights to subscribe for common stock in the subscription
offering or subscribing for common stock on behalf of another person may forfeit
those rights and may face possible further sanctions and penalties imposed by
the Office of Thrift Supervision or another agency of the U.S. Government. Each
person exercising subscription rights will be required to certify that he or she
is purchasing shares solely for his or her own account and that he or she has no
agreement or understanding with any other person for the sale or transfer of the
shares. Once tendered, subscription orders cannot be revoked without the consent
of First Federal and First Federal of Olathe Bancorp.
First Federal and First Federal of Olathe Bancorp 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 pursuant to the plan of
conversion reside. However, no shares will be offered or sold under the plan of
conversion to any such person who resides in a foreign country or resides in a
state of the United States in which a small number of persons otherwise eligible
to subscribe for shares under the plan of conversion reside or as to which First
Federal and First Federal of Olathe Bancorp determine that compliance with the
securities laws of such state would be impracticable for reasons of cost or
otherwise, including, but not limited to, a requirement that First Federal or
First Federal of Olathe Bancorp or any of their officers, directors or employees
register, under the securities laws of such state, as a broker, dealer, salesman
or agent. No payments will be made in lieu of the granting of subscription
rights to any such person.
Community Offering. To the extent that shares are available for
purchase, First Federal of Olathe Bancorp and First Federal have determined to
offer shares pursuant to the plan to certain members of the general public to
whom First Federal of Olathe Bancorp delivers a copy of this prospectus and a
stock order form in the community offering, with preference given to natural
persons residing in Johnson County, Kansas. Such persons, together with
associates of and persons acting in concert with such persons, may purchase up
to $100,000 of common stock. The community offering, if any, may begin during
the subscription offering, and may terminate at any time without notice, but may
not terminate later than May ___, 2000, unless extended with the approval of the
OTS. The opportunity to subscribe for shares of common stock in the community
offering category is subject to the right of First Federal of Olathe Bancorp and
First Federal, in their sole discretion, to accept or reject any such orders in
whole or in part either at the time of receipt of an order or as soon as
practicable thereafter.
If there are not sufficient shares available to fill orders in the
community offering, such stock will be allocated first to each natural person
residing in Johnson County whose order is accepted by First Federal, in an
amount equal to the lesser of 1,000 shares or the number of shares subscribed
for by each such subscriber residing in Johnson County, if possible. Thereafter,
unallocated shares will be allocated among the subscribers residing in Johnson
County, whose orders remain unsatisfied in the same proportion that the unfilled
subscription of each bears to the total unfilled subscriptions of all
subscribers residing in Johnson County whose subscription remains unsatisfied.
If there are any shares remaining, shares will be allocated to other members of
the general public who subscribe in the community offering applying the same
allocation described above for subscribers residing in Johnson County.
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Syndicated Community Offering. All shares of common stock not purchased
in the subscription and community offerings, if any, may be offered for sale to
the general public in a syndicated community offering through a syndicate of
registered broker-dealers to be formed and managed by Trident Securities. First
Federal of Olathe Bancorp and First Federal expect to market any shares which
remain unsubscribed after the subscription and community offerings through a
syndicated community offering. First Federal of Olathe Bancorp and First Federal
have the right to reject orders in whole or part in their sole discretion in the
syndicated community offering. Neither Trident Securities nor any registered
broker-dealer shall have any obligation to take or purchase any shares of common
stock in the syndicated community offering; however, Trident Securities has
agreed to use its best efforts in the sale of shares in the syndicated community
offering.
The price at which common stock is sold in the syndicated community
offering will be the same price as in the subscription and community offerings.
Subject to overall purchase limitations, no person will be permitted to
subscribe in the syndicated community offering for more than $100,000 or 10,000
shares of common stock.
Trident Securities may enter into agreements with selected dealers to
assist in the sale of the shares in the syndicated community offering. No orders
may be placed or filled by or for a selected dealer during the subscription
offering. After the close of the subscription offering, Trident Securities will
instruct selected dealers as to the number of shares to be allocated to each
selected dealer. Only after the close of the subscription offering and upon
allocation of shares to selected dealers may selected dealers take orders from
their customers. During the subscription and community offerings, selected
dealers may only solicit indications of interest from their customers to place
orders with First Federal of Olathe Bancorp as of a certain order date for the
purchase of shares of common stock. When and if Trident Securities and First
Federal of Olathe Bancorp believe that enough indications of interest and orders
have not been received in the subscription and community offerings to consummate
the conversion, Trident Securities will request, as of the order date, selected
dealers to submit orders to purchase shares for which they have previously
received indications of interest from their customers. Selected dealers will
send confirmations of the orders to such customers on the next business day
after the order date. Selected dealers will debit the accounts of their
customers on the settlement date which date will be three business days from the
order date. Customers who authorize selected dealers to debit their brokerage
accounts are required to have the funds for payment in their account on but not
before the settlement date. On the settlement date, selected dealers will remit
funds to the account established by First Federal for each selected dealer. Each
customer's funds so forwarded to First Federal, along with all other accounts
held in the same title, will be insured by the FDIC up to $100,000 in accordance
with applicable FDIC regulations. After payment has been received by First
Federal from selected dealers, funds will earn interest at First Federal's
passbook rate until the consummation or termination of the conversion. Funds
will be promptly returned, with interest, in the event the conversion is not
consummated as described above.
The syndicated community offering will terminate no more than 45 days
following the subscription expiration date, unless extended by First Federal of
Olathe Bancorp and First Federal with the approval of the OTS.
Limitations on Purchase of Shares. The plan also provides for certain
additional limitations to be placed upon the purchase of shares in the
conversion. Specifically, no person, other than First Federal's employee stock
ownership plan, by himself or herself or with an associate, and no group of
persons acting in concert, may subscribe for or purchase more than $200,000 of
common stock offered in the conversion. Officers and directors and their
associates may not purchase, in the aggregate, more than 35% of the shares to be
sold in the conversion. For purposes of the plan, the members of the Board of
Directors are not deemed to be acting in concert solely by reason of their Board
membership. Moreover, any shares attributable to the officers and directors and
their associates, but held by a tax-qualified employee plan other than that
portion of a plan which is self-directed, shall not be included in calculating
the number of shares which may be purchased under the limitations in this
paragraph. Shares purchased by employees who are not officers or directors of
First Federal, or their associates, are not subject to this limitation. The term
"associate" is used above to indicate any of the following relationships with a
person:
o any corporation or organization, other than First Federal of
Olathe Bancorp or First Federal or a majority-owned subsidiary
of First Federal of Olathe Bancorp or First Federal, of which
a person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class
of equity security;
o 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; and
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o 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 First Federal of Olathe Bancorp or
First Federal or any subsidiary of First Federal of Olathe
Bancorp or First Federal.
The Boards of Directors of First Federal of Olathe Bancorp and First
Federal may, in their sole discretion, decrease the maximum purchase limitation
referred to above or increase the maximum purchase limitation up to 9.99% of the
shares being offered in the conversion, provided that orders for shares
exceeding 5.0% of the shares being offered in the conversion shall not exceed,
in the aggregate, 10% of the shares being offered in the conversion. Requests to
purchase additional shares of First Federal of Olathe Bancorp common stock under
this provision will be allocated by the Boards of Directors on a pro rata basis
giving priority in accordance with the priority rights set forth above.
Depending upon market and financial conditions, and subject to certain
regulatory limitations, the Boards of Directors of First Federal of Olathe
Bancorp and First Federal, with the approval of the OTS and without further
approval of the members, may increase or decrease any of the above purchase
limitations at any time. To the extent that shares are available, each
subscriber must subscribe for a minimum of 25 shares. In computing the number of
shares to be allocated, all numbers will be rounded down to the next whole
number.
Common stock purchased in the conversion will be freely transferable
except for shares purchased by executive officers and directors of First Federal
or First Federal of Olathe Bancorp and except as described below. See "-
Restrictions on Transferability." In addition, under National Association of
Securities Dealers, Inc. ("NASD") guidelines, members of the NASD and their
associates are subject to certain restrictions on transfer of securities
purchased in accordance with subscription rights and to certain reporting
requirements upon purchase of such securities.
Marketing Arrangements
First Federal of Olathe Bancorp and First Federal have engaged Trident
Securities as a financial advisor and marketing agent in connection with the
offering of the common stock, and Trident Securities has agreed to use its best
efforts to solicit subscriptions and purchase orders for shares of common stock
in the offerings. Trident Securities is a member of the NASD and an
SEC-registered broker-dealer. Trident Securities will assist First Federal in
the conversion by acting as marketing advisor with respect to the subscription
offering and will represent First Federal as placement agent on a best efforts
basis in the sale of the common stock in the community offering if one is held;
conduction training sessions with directors, officers and employees of First
Federal regarding the conversion process; and assisting in the establishment and
supervision of First Federal's stock information center and, with management's
input, will train First Federal's staff to record properly and tabulate orders
for the purchase of common stock and to respond appropriately to customer
inquiries.
Based upon negotiations between Trident Securities and First Federal
concerning fee structure, Trident Securities will receive a fee of $97,500. In
the event that a selected dealers agreement is entered into in connection with a
syndicated community offering, First Federal will pay a fee to be determined to
such selected dealers, for shares sold by an NASD member firm pursuant to a
selected dealers agreement. Fees to Trident Securities and to any other
broker-dealer may be deemed to be underwriting fees, and Trident Securities and
such broker-dealers may be deemed to be underwriters. Trident Securities will
also be reimbursed for its reasonable out of pocket expenses in an amount not to
exceed $11,000 and reasonable legal fees not to exceed $26,500 without the prior
approval of First Federal. Trident Securities has been paid $5,000 as an advance
against these expenses. First Federal of Olathe Bancorp and First Federal have
agreed to indemnify Trident Securities for reasonable costs and expenses in
connection with certain claims or liabilities, including certain liabilities
under the Securities Act.
Description of Sales Activities
Directors and executive officers of First Federal of Olathe Bancorp and
First Federal, may to a limited extent and subject to applicable state law,
participate in the solicitation of offers to purchase common stock. Other
employees of First Federal may participate in the subscription and community
offering in administrative capacities, providing clerical work in effecting a
sales transaction or answering questions of a potential purchaser provided that
the content of the employee's responses is limited to information contained in
the prospectus or other offering document. Other questions of prospective
purchasers will be directed to registered representatives of Trident Securities.
Such other employees have been instructed not to solicit offers to purchase
common stock or provide advice regarding the purchase of common stock. Sales of
common stock by directors, executive officers and registered representatives
will be made from the stock information center. First Federal of Olathe Bancorp
will rely on Rule 3a4-1 under the Exchange Act, and sales of common stock will
be conducted within the requirements
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of Rule 3a4-1, so as to permit officers, directors and employees to participate
in the sale of common stock except in some states where only registered
broker-dealers may sell. No officer, director or employee of First Federal of
Olathe Bancorp or First Federal will be compensated in connection with his
participation by the payment of commissions or other remuneration based either
directly or indirectly on the transactions in the common stock.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities of a thrift institution sold in connection with its conversion must
be based on an appraised aggregate market value of the institution as converted,
as determined by an independent valuation. RP Financial, which is experienced in
the valuation and appraisal of business entities, including thrift institutions
involved in the conversion process, was retained by First Federal to prepare an
appraisal of the estimated pro forma market value of the common stock.
RP Financial will receive a fee of $20,000 for its appraisal and
assistance in preparation of First Federal's business plan plus reasonable
out-of-pocket expenses. First Federal of Olathe Bancorp has agreed to indemnify
RP Financial, under certain circumstances against liabilities and expenses,
including legal fees, arising out of, related to, or based upon the conversion.
RP Financial has prepared an appraisal of the estimated pro forma
market value of First Federal of Olathe Bancorp and First Federal as converted
taking into account the formation of First Federal of Olathe Bancorp as the
holding company for First Federal. For its analysis, RP Financial undertook
substantial investigations to learn about First Federal's business and
operations. Management supplied financial information, including annual
financial statements, information on the composition of assets and liabilities,
and other financial schedules. In addition to this information, RP Financial
reviewed First Federal's Form AC Application for Approval of Conversion and
First Federal of Olathe Bancorp's Form SB-2 Registration Statement. Furthermore,
RP Financial visited First Federal's facilities and had discussions with First
Federal's management and its special conversion legal counsel, Luse Lehman
Gorman Pomerenk & Schick, P.C. No detailed individual analysis of the separate
components of First Federal of Olathe Bancorp's or First Federal's assets and
liabilities was performed in connection with the evaluation.
In estimating the pro forma market value of First Federal of Olathe
Bancorp and First Federal as converted, as required by applicable regulatory
guidelines, RP Financial's analysis utilized three selected valuation
procedures, the Price/Book method, the Price/Earnings method, and the
Price/Assets method, all of which are described in its report. RP Financial
placed the greatest emphasis on the Price/Earnings and the Price/Book methods in
estimating pro forma market value. In applying these procedures, RP Financial
reviewed, among other factors, the economic make-up of First Federal's primary
market area, First Federal's financial performance and condition in relation to
publicly traded institutions that RP Financial deemed comparable to First
Federal, the specific terms of the offering of First Federal of Olathe Bancorp's
common stock, the pro forma impact of the additional capital raised in the
conversion, conditions of securities markets in general, and the market for
thrift institution common stock in particular. RP Financial's analysis provides
an approximation of the pro forma market value of First Federal of Olathe
Bancorp and First Federal as converted based on the valuation methods applied
and the assumptions outlined in its report. Included in its report were certain
assumptions as to the pro forma earnings of First Federal of Olathe Bancorp
after the conversion that were utilized in determining the appraised value.
These assumptions included estimated expenses and an assumed after-tax rate of
return on the net conversion proceeds as described under "Pro Forma Data,"
purchases by the employee stock ownership plan of 8% of the common stock issued
in the conversion and purchases in the open market by the recognition and
retention plan of a number of shares equal to 4% of the common stock issued in
the conversion at the $10.00 purchase price. See "Pro Forma Data" for additional
information concerning these assumptions. The use of different assumptions may
yield different results.
On the basis of the foregoing, RP Financial has advised First Federal
of Olathe Bancorp and First Federal that, in its opinion, as of December 10,
1999, the aggregate estimated pro forma market value of First Federal of Olathe
Bancorp and First Federal, as converted was within the valuation range of
$5,525,000 to $7,475,000 with a midpoint of $6,500,000. After reviewing the
methodology and the assumptions used by RP Financial in the preparation of the
appraisal, the Board of Directors established the estimated valuation range
which is equal to the valuation range of $5,525,000 to $7,475,000 with a
midpoint of $6,500,000. Assuming that the shares are sold at $10.00 per share in
the conversion, the estimated number of shares would be between 552,500 and
747,500 with a midpoint of 650,000. The purchase price of $10.00 was determined
by discussion among the Boards of Directors of First Federal and First Federal
of Olathe Bancorp and Trident Securities, taking into account, among other
factors, the requirement under Office of Thrift Supervision regulations that the
common stock be offered in a manner that will achieve the widest distribution of
the stock, and desired liquidity in the common stock subsequent to the
conversion. Since the outcome of the offering relates in large measure to market
conditions at the time of
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sale, it is not possible to determine the exact number of shares that will be
issued by First Federal of Olathe Bancorp at this time. The estimated valuation
range may be amended, with the approval of the Office of Thrift Supervision, if
necessitated by developments following the date of the appraisal in, among other
things, market conditions, the financial condition or operating results of First
Federal, regulatory guidelines or national or local economic conditions.
RP Financial's appraisal report is filed as an exhibit to the
registration statement that First Federal of Olathe Bancorp has filed with the
Securities and Exchange Commission. See "Where You Can Find More Information."
If, upon completion of the subscription offering, at least the minimum
number of shares are subscribed for, RP Financial, after taking into account
factors similar to those involved in its prior appraisal, will determine its
estimate of the pro forma market value of First Federal of Olathe Bancorp and
First Federal as converted, as of the close of the subscription offering.
No sale of the shares will take place unless prior thereto RP Financial
confirms to the Office of Thrift Supervision that, to the best of RP Financial's
knowledge and judgment, nothing of a material nature has occurred that would
cause it to conclude that the actual total purchase price on an aggregate basis
was incompatible with its estimate of the total pro forma market value of First
Federal of Olathe Bancorp and First Federal as converted at the time of the
sale. If, however, the facts do not justify that statement, the offering or
other sale may be canceled, a new estimated valuation range and price per share
set and new subscription, direct community and syndicated community offerings
held. Under circumstances, subscribers would have the right to modify or rescind
their subscriptions and to have their subscription funds returned promptly with
interest and holds on funds authorized for withdrawal from deposit accounts
would be released or reduced.
Depending upon market and financial conditions, the number of shares
issued may be more than 859,625 shares or less than 552,500 shares. If the total
amount of shares issued is less than 552,500 or more than 859,625 (15% above the
maximum of the estimated valuation range), for aggregate gross proceeds of less
than $5,525,000 or more than $8,596,250, subscription funds will be returned
promptly with interest to each subscriber unless he indicates otherwise. If RP
Financial establishes a new valuation range, it must be approved by the Office
of Thrift Supervision.
If purchasers cannot be found for an insignificant residue of
unsubscribed shares from the general public, other purchase arrangements will be
made by the Boards of Directors of First Federal and First Federal of Olathe
Bancorp, if possible. Other purchase arrangements must be approved by the Office
of Thrift Supervision and may provide for purchases for investment purposes by
directors, officers, their associates and other persons in excess of the
limitations provided in the plan of conversion and in excess of the proposed
director purchases discussed earlier, although no purchases are currently
intended. If other purchase arrangements cannot be made, the plan of conversion
will terminate.
In formulating its appraisal, RP Financial relied upon the
truthfulness, accuracy and completeness of all documents First Federal furnished
to it. RP Financial also considered financial and other information from
regulatory agencies, other financial institutions, and other public sources, as
appropriate. While RP Financial believes this information to be reliable, RP
Financial does not guarantee the accuracy or completeness of the information and
did not independently verify the financial statements and other data provided by
First Federal and First Federal of Olathe Bancorp or independently value the
assets or liabilities of First Federal of Olathe Bancorp and First Federal. The
appraisal by RP Financial is not intended to be, and must not be interpreted as,
a recommendation of any kind as to the advisability of voting to approve the
plan of conversion or of purchasing shares of common stock. Moreover, because
the appraisal is necessarily based on many factors which change from time to
time, there is no assurance that persons who purchase shares in the conversion
will later be able to sell shares thereafter at prices at or above the purchase
price.
Procedure for Purchasing Shares in the Subscription and Community Offerings
To purchase shares in the subscription offering, an executed order form
with the required full payment for each share subscribed for, or with
appropriate authorization indicated on the stock order form for withdrawal of
full payment from the subscriber's deposit account with First Federal, must be
received by First Federal by 12:00 noon, central time, on March ___, 2000. Order
forms that are not received by that time or are executed defectively or are
received without full payment or without appropriate withdrawal instructions
will not be accepted. First Federal of Olathe Bancorp and First Federal have the
right to waive or permit the correction of incomplete or improperly executed
order forms, but do not represent that they will do so. Under the plan of
conversion, the interpretation by First Federal of Olathe Bancorp and First
Federal of the terms and conditions of
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the plan of conversion and of the order form will be final. In order to purchase
shares in the direct community offering, the order form, accompanied by the
required payment for each share subscribed for, must be received by First
Federal prior to the time the direct community offering terminates, which may be
on or at any time subsequent to the expiration date. Once received, an executed
order form may not be modified, amended or rescinded without the consent of
First Federal unless the conversion has not been completed within 45 days after
the end of the subscription offering, unless extended.
In order to ensure that persons with subscription rights are properly
identified as to their stock purchase priorities, they must list all accounts on
the order form giving all names in each account, the account number and the
approximate account balance as of the appropriate eligibility date. Failure to
list an account could result in fewer shares allocated if there is an
oversubscription than if all accounts had been disclosed.
Full payment for subscriptions may be made in cash if delivered in
person at First Federal's stock information center; by check, bank draft, or
money order; or by authorization of withdrawal from deposit accounts maintained
with First Federal. Appropriate means by which withdrawals may be authorized are
provided on the order form. No wire transfers will be accepted. Interest will be
paid on payments made by cash, check, bank draft or money order at First
Federal's passbook rate from the date payment is received at the stock
information center until the completion or termination of the conversion. If
payment is made by authorization of withdrawal from deposit accounts, the funds
authorized to be withdrawn from a deposit account will continue to accrue
interest at the contractual rates until completion or termination of the
conversion, unless the certificate matures after the date of receipt of the
order form but prior to closing, in which case funds will earn interest at the
passbook rate from the date of maturity until the conversion is completed or
terminated, but a hold will be placed on the funds, making them unavailable to
the depositor until completion or termination of the conversion. When the
conversion is completed, the funds received in the offering will be used to
purchase the shares of common stock ordered. The shares of common stock issued
in the conversion cannot and will not be insured by the Federal Deposit
Insurance Corporation or any other government agency. If the conversion is not
consummated for any reason, all funds submitted will be promptly refunded with
interest as described above.
If a subscriber authorizes First Federal to withdraw the amount of the
aggregate purchase price from his or her deposit account, First Federal will do
so as of the effective date of conversion, though the account must contain the
full amount necessary for payment at the time the subscription order is
received. First Federal will waive any applicable penalties for early withdrawal
from certificate accounts. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time that the
funds actually are transferred under the authorization the certificate will be
canceled at the time of the withdrawal, without penalty, and the remaining
balance will earn interest at First Federal's passbook rate.
The employee stock ownership plan will not be required to pay for the
shares subscribed for at the time it subscribes, but rather may pay for shares
of common stock subscribed for at the $10.00 purchase price after the
conversion, provided that there is in force from the time of its subscription
until that time, a loan commitment from an unrelated financial institution or
First Federal of Olathe Bancorp to lend to the employee stock ownership plan, at
that time, the aggregate purchase price of the shares for which it subscribed.
Individual retirement accounts maintained in First Federal do not
permit investment in the common stock. A depositor interested in using his or
her Individual Retirement Account funds to purchase common stock must do so
through a self-directed individual retirement account. Since First Federal does
not offer those accounts, it will allow a depositor to make a trustee-to-trustee
transfer of the individual retirement account funds to a trustee offering a
self-directed individual retirement account program with the agreement that the
funds will be used to purchase First Federal of Olathe Bancorp's common stock in
the offering. There will be no early withdrawal or Internal Revenue Service
interest penalties for transfers. The new trustee would hold the common stock in
a self- directed account in the same manner as First Federal now holds the
depositor's Individual Retirement Account funds. An annual administrative fee
may be payable to the new trustee. Depositors interested in using funds in an
individual retirement account at First Federal to purchase common stock should
contact the stock information center as soon as possible so that the necessary
forms may be forwarded for execution and returned before the subscription
offering ends. In addition, federal laws and regulations require that officers,
directors and 10% shareholders who use self- directed individual retirement
account funds to purchase shares of common stock in the subscription offering,
make purchases for the exclusive benefit of individual retirement accounts.
Certificates representing shares of common stock purchased, and any
refund due, will be mailed to purchasers at the address as may be specified in
properly completed order forms or to the last address of the persons appearing
on the records of First Federal as soon as practicable following the sale of all
shares of common stock. Any certificates returned as undeliverable will be
disposed of in accordance with applicable law. Purchasers may not be able to
sell the shares of common stock which they purchased until certificates for
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the common stock are available and delivered to them, even though trading of the
common stock may have begun.
To ensure that each purchaser receives a prospectus at least 48 hours
prior to the expiration date, on March ___, 2000, in accordance with Rule 15c2-8
under the Securities Exchange Act of 1934, as amended, no prospectus will be
mailed any later than five days prior to that date or hand delivered any later
than two days prior to that date. Execution of the order form will confirm
receipt or delivery in accordance with Rule 15c2-8. Order forms will only be
distributed with a prospectus. First Federal will accept for processing only
orders submitted on original order forms. First Federal is not obligated to
accept orders submitted on photocopied or telecopied order forms. Orders cannot
and will not be accepted without the execution of the certification appearing on
the reverse side of the order form.
Risk of Delayed Offering
In the event that all shares of the common stock are not sold in the
subscription offering and concurrent community offering, First Federal and First
Federal of Olathe Bancorp may extend the community offering for a period of up
to 45 days from the date of the termination of the subscription offering.
Further extensions are subject to OTS approval and may be granted for successive
periods, but not beyond 24 months from the date of the special meeting.
A material delay in the completion of the sale of all unsubscribed
shares in the community offering may result in a significant increase in the
costs in completing the conversion. Significant changes in First Federal's
operations and financial condition, the aggregate market value of the shares to
be issued in the conversion and general market conditions may occur during such
material delay. In the event the conversion is not consummated within 24 months
after the date of the special meeting, First Federal would charge accrued
conversion costs to then current period operations.
Approval, Interpretation, Amendment and Termination
All interpretations of the plan of conversion, as well as the
completeness and validity of order forms, will be made by First Federal and
First Federal of Olathe Bancorp and will be final, subject to the authority of
the OTS and the requirements of applicable law. The plan of conversion provides
that, if deemed necessary or desirable by the Boards of Directors of First
Federal and First Federal of Olathe Bancorp, the plan of conversion may be
substantively amended by the Boards of Directors of First Federal and First
Federal of Olathe Bancorp, as a result of comments from regulatory authorities
or otherwise, at any time but only with the concurrence of the OTS. Moreover, if
the plan of conversion is amended, subscriptions which have been received prior
to such amendment will not be refunded if such amendment is not material to the
transaction or otherwise required by the OTS.
The plan of conversion will terminate if the sale of all shares is not
completed within 24 months after the date of the special meeting. The plan of
conversion may be terminated by the Board of Directors of First Federal with the
concurrence of the OTS at any time. A specific resolution approved by a
two-thirds vote of the Board of Directors would be required to terminate the
plan of conversion prior to the end of such 24-month period.
Restrictions on Repurchase of Stock
Under OTS regulations, OTS-regulated savings associations and their
holding companies may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except if an offer made to all of its stockholders to repurchase the
common stock on a pro rata basis, approved by the OTS or the repurchase of
qualifying shares of a director. Furthermore, repurchases of any common stock
are prohibited if the effect thereof would cause the association's regulatory
capital to be reduced below the amount required for the liquidation account or
the regulatory capital requirements imposed by the OTS. Repurchases are
generally prohibited during the first year following conversion. Upon ten days'
written notice to the OTS, and if the OTS does not object, an institution may
make open market repurchases of its outstanding common stock during years two
and three following the conversion, provided that certain regulatory conditions
are met and that the repurchase would not adversely affect the financial
condition of the institution. Any repurchases of common stock by First Federal
of Olathe Bancorp must meet these regulatory restrictions unless the OTS would
provide otherwise.
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Restrictions on Transferability
The subscription rights described in this prospectus are
non-transferable and shall be awarded to eligible persons without payment. Prior
to the completion of the conversion, federal regulations prohibit any person
from transferring or entering into any agreement or understanding to transfer
the legal or beneficial ownership of the subscription rights issued under the
plan or the shares of common stock to be issued upon their exercise. Persons
violating such prohibition may lose their right to purchase stock in the
conversion and may be subject to sanctions by the OTS. Each person exercising
subscription rights will be required to certify that a purchase of common stock
is solely for the purchaser's own account and that there is no agreement or
understanding regarding the sale or transfer of such shares. First Federal and
First Federal of Olathe Bancorp will pursue any and all legal and equitable
remedies in the event they become aware of the transfer of subscription rights
and will not honor orders known by them to involve the transfer of such rights.
Shares of common stock purchased in the offering by directors and
officers of First Federal of Olathe Bancorp may not be sold for a period of one
year following the conversion, except upon the death of the stockholder or in
any exchange of the common stock in connection with a merger or acquisition of
First Federal of Olathe Bancorp. Shares of common stock received by directors or
officers through the employee stock ownership plan or the recognition and
retention plan or upon exercise of options issued under the stock option plan or
purchased subsequent to the conversion are free of this restriction.
Accordingly, shares of common stock issued by First Federal of Olathe Bancorp to
directors and officers shall bear a legend giving appropriate notice of the
restriction and, in addition, First Federal of Olathe Bancorp will give
appropriate instructions to the transfer agent for First Federal of Olathe
Bancorp's common stock with respect to the restriction on transfers. Any shares
issued to directors and officers as a stock dividend, stock split or otherwise
with respect to restricted common stock shall also be restricted.
Purchases of outstanding shares of common stock of First Federal of
Olathe Bancorp by directors, executive officers, or any person who was an
executive officer or director of First Federal after adoption of the plan of
conversion, and their associates during the three-year period following the
conversion may be made only through a broker or dealer registered with the SEC,
except with the prior written approval of the OTS. This restriction does not
apply, however, to negotiated transactions involving more than 1% of First
Federal of Olathe Bancorp's outstanding common stock or to the purchase of stock
under the stock option plan.
First Federal of Olathe Bancorp has filed with the SEC a registration
statement under the Securities Act of 1933, as amended, for the registration of
the common stock to be issued in the conversion. The registration under the
Securities Act of shares of the common stock to be issued in the conversion does
not cover the resale of the shares. Shares of common stock purchased by persons
who are not affiliates of First Federal of Olathe Bancorp may be resold without
registration. Shares purchased by an affiliate of First Federal of Olathe
Bancorp will have resale restrictions under Rule 144 of the Securities Act. If
First Federal of Olathe Bancorp meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate of First
Federal of Olathe Bancorp who complies with the other conditions of Rule 144,
including those that require the affiliate's sale to be aggregated with those of
certain other persons, would be able to sell in the public market, without
registration, a number of shares not to exceed, in any three-month period, the
greater of 1% of the outstanding shares of First Federal of Olathe Bancorp or
the average weekly volume of trading in the shares during the preceding four
calendar weeks. Provision may be made in the future by First Federal of Olathe
Bancorp to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
Under guidelines of the NASD, members of the NASD and their associates
face certain restrictions on the transfer of securities purchased in accordance
with subscription rights and to certain reporting requirements upon purchase of
the securities.
Income Tax Consequences
Consummation of the conversion is expressly conditioned upon prior
receipt by First Federal of either a ruling from the Internal Revenue Service or
an opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. with respect to federal
taxation, and a ruling of the Kansas taxation authorities or an opinion with
respect to Kansas taxation, to the effect that consummation of the conversion
will not be taxable to the converted association or First Federal of Olathe
Bancorp.
Luse Lehman Gorman Pomerenk & Schick, P.C. has issued an opinion with
respect to the proposed conversion of First Federal to the effect that:
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1. the conversion of First Federal from mutual to stock form will
qualify as a reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code, and no gain or loss will be recognized
by First Federal in either its mutual form or its stock form
by reason of the proposed conversion;
2. no gain or loss will be recognized by First Federal upon the
receipt of money from First Federal of Olathe Bancorp for
stock of First Federal; and no gain or loss will be recognized
by First Federal of Olathe Bancorp upon the receipt of money
for common stock of First Federal of Olathe Bancorp;
3. no gain or loss will be recognized by eligible account holders
and supplemental eligible account holders of First Federal
upon the issuance to them of withdrawable deposit accounts in
First Federal in its stock form plus an interest in the
liquidation account of First Federal in exchange for their
deposit accounts in First Federal in its mutual form;
4. assuming the non-transferable subscription rights to purchase
common stock have no value, the tax basis of an account
holder's deposit accounts in First Federal in its stock form
will be the same as the basis of the account holder's deposit
accounts in First Federal in its mutual form;
5. assuming the non-transferable subscription rights to purchase
common stock have no value, the tax basis of each eligible
account holder's and supplemental eligible account holder's
interest in the liquidation account will be zero;
6. the basis of First Federal of Olathe Bancorp common stock to
its shareholders will be the purchase price thereof and a
shareholder's holding period for First Federal of Olathe
Bancorp common stock acquired through the exercise of
subscription rights shall begin on the date of consummation of
the conversion;
The opinion from Luse Lehman Gorman Pomerenk & Schick, P.C. is based,
among other things, on certain assumptions, including the assumptions that the
exercise price of the subscription rights to purchase First Federal of Olathe
Bancorp common stock will be approximately equal to the fair market value of
that stock at the time of the completion of the proposed conversion. First
Federal of Olathe Bancorp and First Federal have received a letter issued by RP
Financial stating that pursuant to RP Financial's valuation, RP Financial is of
the belief that subscription rights issued in connection with the conversion
will have no value. The letter of RP Financial and the federal and state tax
opinions, respectively, referred to herein are filed as exhibits to the
Registration Statement. See "Where You Can Find More Information."
If it is subsequently established that the subscription rights received
by such persons have an ascertainable fair market value, then, in such event,
the subscription rights will be taxable to the recipient in the amount of their
fair market value. In this regard, the subscription rights may be taxed
partially or entirely at ordinary income tax rates.
With respect to Kansas taxation, First Federal has received an opinion
from Taylor, Perky & Parker, L.L.C. to the effect that, assuming the conversion
does not result in any federal taxable income, gain or loss to First Federal in
its mutual or stock form, First Federal of Olathe Bancorp, the account holders,
borrowers, officers, directors and employees and tax-qualified employee plans of
First Federal, the conversion should not result in any Kansas income tax
liability to such entities or persons.
Unlike a private letter ruling, the opinions of Luse Lehman Gorman
Pomerenk & Schick, P.C. and Taylor, Perky & Parker, L.L.C., as well as the RP
Financial Letter, 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.
RESTRICTIONS ON ACQUISITIONS OF STOCK AND
RELATED TAKEOVER DEFENSIVE PROVISIONS
Although the Boards of Directors of First Federal and First Federal of
Olathe Bancorp are not aware of any effort that might be made to obtain control
of First Federal of Olathe Bancorp after conversion, the Boards of Directors, as
discussed below, believe that it is appropriate to include certain provisions as
part of First Federal of Olathe Bancorp's articles of incorporation to protect
the interests of First Federal of Olathe Bancorp and its stockholders from
takeovers which the Board of Directors of First Federal of Olathe Bancorp might
conclude are
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not in the best interests of First Federal, First Federal of Olathe Bancorp or
First Federal of Olathe Bancorp's stockholders.
The following discussion is a general summary of the material
provisions of First Federal of Olathe Bancorp's articles of incorporation and
bylaws and certain other regulatory provisions which may be deemed to have an
"anti-takeover" effect. The following description of certain of these provisions
is necessarily general and, with respect to provisions contained in First
Federal of Olathe Bancorp's articles of incorporation and bylaws and First
Federal's proposed stock charter and bylaws, reference should be made in each
case to the document in question, each of which is part of First Federal's
application to the OTS and First Federal of Olathe Bancorp's Registration
Statement filed with the SEC. See "Where You Can Find Additional Information."
Provisions of First Federal of Olathe Bancorp's Articles of Incorporation and
Bylaws
Directors. Certain provisions of First Federal of Olathe Bancorp's
articles of incorporation and bylaws will impede changes in majority control of
the Board of Directors. First Federal of Olathe Bancorp's articles of
incorporation provides that the Board of Directors of First Federal of Olathe
Bancorp will be divided into three classes, with directors in each class elected
for three-year staggered terms. Thus, it would take two annual elections to
replace a majority of First Federal of Olathe Bancorp's Board. First Federal of
Olathe Bancorp's articles of incorporation provides that the size of the Board
of Directors may be increased or decreased only by a majority vote of the Board.
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, shall be
filled for the remainder of the unexpired term by a majority vote of the
directors then in office. Finally, the articles and 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 eligible
to vote.
Restrictions on Call of Special Meetings. The articles of incorporation
of First Federal of Olathe Bancorp provide that a special meeting of
stockholders may be called only by a majority of the board of directors, or by a
committee of the board of directors which is authorized to call such meetings.
Stockholders are not authorized to call a special meeting.
Absence of Cumulative Voting. First Federal of Olathe Bancorp's
articles of incorporation provide that there shall be no cumulative voting
rights in the election of directors.
Authorized Shares. The articles of incorporation authorize the issuance
of 4,000,000 shares of common stock and 1,000,000 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 First Federal of Olathe
Bancorp'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 First Federal of Olathe
Bancorp. 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. The Board of Directors has no
present plans or understandings for the issuance of any preferred stock but it
may issue any preferred stock on terms which the Board deems to be in the best
interests of First Federal of Olathe Bancorp and its stockholders.
Limitations on Voting Rights. The articles of incorporation of First
Federal of Olathe Bancorp 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 the
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
First Federal of Olathe Bancorp 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 to disregard for
voting purposes and require divestiture of the amount of
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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 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 First Federal of
Olathe Bancorp further provide that this provision limiting voting rights may
only be amended upon the vote of 80% of the outstanding shares of voting stock.
Evaluation of Offers. The articles of incorporation further provide
that the board of directors of First Federal of Olathe Bancorp, when evaluating
any offer to (1) make a tender or exchange offer for any equity security of
First Federal of Olathe Bancorp, (2) merge or consolidate First Federal of
Olathe Bancorp with another corporation or entity, or (3) purchase or otherwise
acquire all or substantially all of the properties and assets of First Federal
of Olathe Bancorp, may, in connection with the exercise of its judgment in
determining what is in the best interest of First Federal of Olathe Bancorp and
its stockholders, give due consideration to all relevant factors. These factors
include, without limitation, the social and economic effect of acceptance of
such offer on First Federal of Olathe Bancorp's present and future customers and
employees and those of its subsidiaries; on the communities in which First
Federal of Olathe Bancorp and its subsidiaries operate or are located; on the
ability of First Federal of Olathe Bancorp to fulfill its corporate objectives
as a financial institution holding company; and on the ability of its subsidiary
financial institution to fulfill the objectives of a federally insured financial
institution under applicable statutes and regulations. The articles of
incorporation of First Federal of Olathe Bancorp also authorize the Board of
Directors to take certain actions to encourage a person to negotiate for a
change of control of First Federal of Olathe Bancorp or to oppose such a
transaction deemed undesirable by the Board of Directors including the adoption
of so-called shareholder rights plans. By having these standards and provisions
in the certificate of incorporation of First Federal of Olathe Bancorp, the
Board of Directors may be in a stronger position to oppose such a transaction if
the Board concludes that the transaction would not be in the best interest of
First Federal of Olathe Bancorp, even if the price offered is significantly
greater than the then market price of any equity security of First Federal of
Olathe Bancorp.
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 First Federal of Olathe Bancorp.
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 First Federal of Olathe Bancorp entitled
to vote generally in an election of directors.
Amendment to Articles of Incorporation and Bylaws. Amendments to First
Federal of Olathe Bancorp's articles of incorporation must be approved by First
Federal of Olathe Bancorp's Board of Directors and also by a majority of the
outstanding shares of First Federal of Olathe Bancorp's voting stock; provided,
however, that approval by at least 80% of the outstanding voting stock is
generally required for certain provisions, including provisions relating to
number, classification, election and removal of directors, amendment of bylaws,
call of special stockholder meetings, criteria for evaluating certain offers,
offers to acquire and acquisitions of control, director liability, certain
business combinations, power of indemnification, and amendments to provisions
relating to the foregoing in the certificate of incorporation.
The bylaws may be amended by the affirmative vote of the total number
of directors of First Federal of Olathe Bancorp or the affirmative vote of at
least 80% of the outstanding shares of First Federal of Olathe Bancorp entitled
to vote in the election of directors, cast at a meeting called for that purpose.
Purpose and Takeover Defensive Effects of First Federal of Olathe
Bancorp's Articles of Incorporation and Bylaws. The Board of Directors of First
Federal believes that the provisions described above are prudent and will reduce
First Federal of Olathe Bancorp's vulnerability to takeover attempts and certain
other transactions which have not been negotiated with and approved by its Board
of Directors. These provisions will also assist First Federal in the orderly
deployment of the conversion proceeds into productive assets during the initial
period after the conversion. The Board of Directors believes these provisions
are in the best interest of First Federal and of First Federal of Olathe Bancorp
and its stockholders. In the judgment of the Board of Directors, First Federal
of Olathe Bancorp's Board will be in the best position to determine the true
value of First Federal of Olathe Bancorp and to negotiate more effectively for
what may be in the best interests of its stockholders. Accordingly,
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the Board of Directors believes that it is in the best interests of First
Federal of Olathe Bancorp and its stockholders to encourage potential acquirer
to negotiate directly with the Board of Directors of First Federal of Olathe
Bancorp and that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at prices reflective of the true value of First
Federal of Olathe Bancorp and which is in the best interests of all
stockholders.
Attempts to take over financial institutions and their holding
companies have become increasingly common. Takeover attempts which have not been
negotiated with and approved by the Board of Directors present to stockholders
the risk of a takeover on terms which may be less favorable than might otherwise
be available. A transaction which is negotiated and approved by the Board of
Directors, on the other hand, can be carefully planned and undertaken at an
opportune time in order to obtain maximum value for First Federal of Olathe
Bancorp and its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of First Federal of Olathe Bancorp's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above
then-current market prices, such offers are sometimes made for less than all of
the outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous or retaining their investment in an enterprise
which is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive First
Federal of Olathe Bancorp's remaining stockholders of the benefits of certain
protective provisions of the Exchange Act, if the number of beneficial owners
becomes less than the 300 required for Exchange Act registration.
Potential Anti-Takeover Effects. Despite the belief of First Federal
and First Federal of Olathe Bancorp as to the benefits to stockholders of these
provisions of First Federal of Olathe Bancorp's articles of incorporation and
bylaws, these provisions may also have the effect of discouraging a future
takeover attempt which would not be approved by First Federal of Olathe
Bancorp's Board, but pursuant to which stockholders may receive a substantial
premium for their shares over then-current market prices. As a result,
stockholders who might desire to participate in such a transaction may not have
any opportunity to do so. Such provisions will also render the removal of First
Federal of Olathe Bancorp's Board of Directors and of management more difficult.
The Boards of Directors of First Federal and First Federal of Olathe Bancorp,
however, have concluded that the potential benefits outweigh the possible
disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the conversion, First Federal of Olathe Bancorp may adopt
additional provisions to its articles of incorporation regarding the acquisition
of its equity securities that would be permitted to a Kansas corporation. First
Federal of Olathe Bancorp and First Federal do not presently intend to propose
the adoption of further restrictions on the acquisition of First Federal of
Olathe Bancorp's equity securities.
Other Restrictions on Acquisitions of Stock
Kansas Anti-Takeover Statute. The State of Kansas has enacted
legislation which provides that subject to certain exceptions a publicly held
Kansas corporation may not engage in any business combination with an
"interested stockholder" for three years after such stockholder became an
interested stockholder, unless, among other things, the interested stockholder
acquired at least 85% of the corporation's voting stock in the transaction that
resulted in the stockholder becoming an interested stockholder. This legislation
generally defines "interested stockholder" as any person or entity that owns 15%
or more of the corporation's voting stock. The term "business combination" is
defined broadly to cover a wide range of corporate transactions, including
mergers, sales of assets, issuances of stock, transactions with subsidiaries and
the receipt of disproportionate financial benefits. Under certain circumstances,
either the board of directors or both the board and two-thirds of the
stockholders other than the acquirer may approve a given business combination
and thereby exempt the corporation from the operation of the statute.
However, these statutory provisions do not apply to Kansas corporations
with fewer than 2,000 stockholders or which do not have voting stock listed on a
national exchange or listed for quotation with a registered national securities
association. First Federal of Olathe Bancorp has applied to have the common
stock quoted and traded on the Over-the-Counter Electronic Bulletin Board.
75
<PAGE>
Federal Regulation. 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, this regulation prohibits any person, without
the prior approval of the OTS, from acquiring or making an offer, if opposed by
the institution, 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 law provides that no company "directly or indirectly or acting
in concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings and loan
association at any time without the prior approval of the OTS. "Acting in
concert" is defined very broadly. In addition, federal regulations require that,
prior to obtaining control of a savings and loan association, a person, other
than a company, must give 60 days' prior notice to the OTS and have received no
OTS objection to such acquisition of control. Any company that acquires such
control becomes a "savings and loan holding company" subject to registration,
examination and regulation as a savings and loan holding company. Under federal
law, as well as the regulations referred to below, the term "savings and loan
association" includes state and federally chartered institutions whose accounts
are insured by the Savings Association Insurance Fund and federally chartered
savings banks whose accounts are insured by the FDIC's Bank Insurance Fund and
holding companies thereof.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings and
loan association's directors, or a determination by the OTS that the acquirer
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 any class of a savings and loan association's voting stock, if
the acquirer also is subject to any one of eight "control factors," constitutes
a rebuttable determination of control under the regulations. Such control
factors include the acquirer being one of the two largest stockholders. 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 and
loan association's stock 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.
DESCRIPTION OF CAPITAL STOCK
Holding Company Capital Stock
The 5,000,000 shares of capital stock authorized by First Federal of
Olathe Bancorp's articles of incorporation are divided into two classes,
consisting of 4,000,000 shares of common stock, $.01 par value, and 1,000,000
shares of serial preferred stock, $.01 par value. First Federal of Olathe
Bancorp currently expects to issue between 552,500 and 747,500 shares of common
stock in the conversion. The aggregate par value of the issued shares will
constitute the capital account of First Federal of Olathe Bancorp on a
consolidated basis. The balance of the purchase price of common stock, less
expenses of conversion, will be reflected as paid-in capital on a consolidated
basis. See "Capitalization." Upon payment of the purchase price for the common
stock, in accordance with the plan, all such stock will be duly authorized,
fully paid, validly issued and nonassessable.
Each share of the common stock will have the same relative rights and
will be identical in all respects with each other share of the common stock. The
common stock of First Federal of Olathe Bancorp will represent non-withdrawable
capital, will not be of an insurable type and will not be insured by the FDIC.
Under Kansas law, the holders of the common stock will possess
exclusive voting power in First Federal of Olathe Bancorp. Each stockholder will
be entitled to one vote for each share held on all matters voted upon by
stockholders, subject to the limitation discussed under "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions - Provisions of
First Federal of Olathe Bancorp's Articles of Incorporation and Bylaws
Limitation on Voting Rights." Stockholders will not be permitted to cumulate
their votes in the election of
76
<PAGE>
directors of First Federal of Olathe Bancorp. If First Federal of Olathe Bancorp
issues preferred stock subsequent to the conversion, holders of the preferred
stock may also possess voting powers.
Liquidation or Dissolution. In the unlikely event of the liquidation or
dissolution of First Federal of Olathe Bancorp, the holders of the common stock
will be entitled to receive, after payment or provision for payment of all debts
and liabilities of First Federal of Olathe Bancorp, including all deposits in
First Federal and accrued interest thereon, and after distribution of the
liquidation account established upon conversion for the benefit of eligible
account holders and supplemental eligible account holders, all assets of First
Federal of Olathe Bancorp available for distribution. See "The Conversion -
Effects of Conversion to Stock Form on Depositors and Borrowers of First
Federal." If preferred stock is issued subsequent to the conversion, the holders
thereof may have a priority over the holders of common stock in the event of
liquidation or dissolution.
No Preemptive Rights. Holders of the common stock will not be entitled
to preemptive rights with respect to any shares which may be issued. The common
stock will not be subject to call for redemption, and, upon receipt by First
Federal of Olathe Bancorp of the full purchase price therefor, each share of the
common stock will be fully paid and nonassessable.
Preferred Stock. After conversion, the Board of Directors of First
Federal of Olathe Bancorp will be authorized to issue preferred stock 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. Preferred
stock may rank prior to the common stock as to dividend rights, liquidation
preferences, or both, and may have full or limited voting rights. The holders of
preferred stock will be entitled to vote as a separate class or series under
certain circumstances, regardless of any other voting rights which such holders
may have.
Except as discussed herein, First Federal of Olathe Bancorp has no
present plans for the issuance of the additional authorized shares of common
stock or for the issuance of any shares of preferred stock. In the future, the
authorized but unissued and unreserved shares of common stock will be available
for general corporate purposes including but not limited to possible issuance as
stock dividends or stock splits, in future mergers or acquisitions, under a cash
dividend reinvestment and stock purchase plan, in a future underwritten or other
public offering or under an employee stock ownership plan, stock option or
recognition and retention plan. The authorized but unissued shares of preferred
stock will similarly be available for issuance in future mergers or
acquisitions, in a future underwritten public offering or private placement or
for other general corporate purposes. Except as described above or as otherwise
required to approve the transaction in which the additional authorized shares of
common stock or authorized shares of preferred stock would be issued, no
stockholder approval will be required for the issuance of these shares.
Accordingly, the Board of Directors of First Federal of Olathe Bancorp, without
stockholder approval, can issue preferred stock with voting and conversion
rights which could adversely affect the voting power of the holders of common
stock.
Restrictions on Acquisitions. See "Restrictions on Acquisitions of
Stock and Related Takeover Defensive Provisions" for a description of certain
provisions of First Federal of Olathe Bancorp's articles of incorporation and
bylaws which may affect the ability of First Federal of Olathe Bancorp's
stockholders to participate in certain transactions relating to acquisitions of
control of First Federal of Olathe Bancorp.
Dividends. Upon consummation of the formation of First Federal of
Olathe Bancorp, First Federal of Olathe Bancorp's only asset will be First
Federal's common stock. Although it is anticipated that First Federal of Olathe
Bancorp will retain approximately 50% of the net proceeds in the conversion,
dividends from First Federal will be an important source of income for First
Federal of Olathe Bancorp. Should First Federal elect to retain its income, the
ability of First Federal of Olathe Bancorp to pay dividends to its own
shareholders may be adversely affected. Furthermore, if at any time in the
future First Federal of Olathe Bancorp owns less than 80% of the outstanding
stock of First Federal, certain tax benefits under the Code as to inter-company
distributions will not be fully available to First Federal of Olathe Bancorp and
it will be required to pay federal income tax on a portion of the dividends
received from First Federal, thereby reducing the amount of income available for
distribution to the shareholders of First Federal of Olathe Bancorp. For further
information concerning the ability of First Federal to pay dividends to First
Federal of Olathe Bancorp, see "Dividends."
77
<PAGE>
LEGAL AND TAX MATTERS
The legality of the common stock and the federal income tax
consequences of the conversion will be passed upon for First Federal and First
Federal of Olathe Bancorp by the firm of Luse Lehman Gorman Pomerenk & Schick,
P.C., Washington, D.C. The Kansas state income tax consequences of the
conversion will be passed upon for First Federal and First Federal of Olathe
Bancorp by Taylor, Perky & Parker, L.L.C., Overland Park, Kansas. Luse Lehman
Gorman Pomerenk & Schick, P.C. and Taylor, Perky & Parker, L.L.C. have consented
to the references herein to their opinions. Certain legal matters regarding the
conversion will be passed upon for Trident Securities by Muldoon Murphy &
Faucette LLP, Washington, D.C.
EXPERTS
The Financial Statements of First Federal as of December 31, 1998 and
1997, and for the fiscal years ended December 31, 1998 and 1997 have been
included in this prospectus in reliance on the report of Taylor, Perky & Parker,
L.L.C., certified public accountants, appearing elsewhere herein, and upon the
authority of that firm as experts in accounting and auditing.
RP Financial has consented to the publication herein of the summary of
its report to First Federal and First Federal of Olathe Bancorp setting forth
its opinion as to the estimated pro forma market value of the common stock upon
conversion and its letter with respect to subscription rights.
WHERE CAN YOU FIND MORE INFORMATION
First Federal of Olathe Bancorp has filed with the SEC a registration
statement under the Securities Act, with respect to the common stock offered
hereby. As permitted by the rules and regulations of the SEC, this prospectus
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, NW, Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates.
The registration statement also is available through the SEC's world wide web
site on the internet at http://www.sec.gov. The statements contained herein as
to the contents of any contract or other document filed as an exhibit to the
registration statement are, of necessity, brief descriptions thereof and are not
necessarily complete but do contain all material information regarding such
documents; each such statement is qualified by reference to such contract or
document.
First Federal has filed an Application for Conversion with the OTS with
respect to the conversion. Pursuant to the rules and regulations of the OTS,
this prospectus omits certain information contained in that Application. The
Application may be examined at the principal offices of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552 and at the Midwest Regional Office of the OTS
located at 122 W. John Carpenter Freeway, Suite 600, Irving, Texas 75039.
In connection with the conversion, First Federal of Olathe Bancorp will
register the common stock with the SEC under Section 12(g) of the Exchange Act;
and, upon such registration, First Federal of Olathe Bancorp and the holders of
its common stock will become subject to the proxy solicitation rules, reporting
requirements and restrictions on stock purchases and sales by directors,
officers and greater than 10% stockholders, the annual and periodic reporting
and certain other requirements of the Exchange Act. Under the plan, First
Federal of Olathe Bancorp has undertaken that it will not terminate such
registration for a period of at least three years following the conversion.
A copy of the articles of incorporation and bylaws of First Federal of
Olathe Bancorp are available without charge from First Federal.
78
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report ............................................. F-2
Statements of Financial Condition as of September 30, 1999 (unaudited)
and December 31, 1998 and 1997 ......................................... F-3
Statements of Income and Comprehensive Income for the
nine months ended September 30, 1999 and 1998 (unaudited)
and December 31, 1998 and 1997 ......................................... 22
Statements of Equity for the nine months ended September 30, 1999
(unaudited) and December 31, 1998 and 1997 ............................. F-4
Statements of Cash Flows for the nine months ended September 30, 1999
and 1998 (unaudited) and December 31, 1998 and 1997 .................... F-5
Notes to Financial Statements ............................................ F-7
########
All schedules are omitted because the required information is not
applicable or is included in the Financial Statements and related Notes.
All financial statements of First Federal of Olathe Bancorp have been
omitted because First Federal of Olathe Bancorp has not issued any stock, has no
assets or liabilities, and has not conducted any business other than that of an
organizational nature.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
First Federal Savings and Loan
Association of Olathe
Olathe, Kansas
We have audited the accompanying statements of financial condition of First
Federal Savings and Loan Association of Olathe as of December 31, 1998 and 1997,
and the related statements of income and comprehensive income, equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Association's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Federal Savings and
Loan Association of Olathe as of December 31, 1998 and 1997, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As more fully described in "Note B - Revisions to Previously Issued
Financial Statements," subsequent to the issuance of the Association's 1998 and
1997 financial statements and our report thereon dated February 8, 1999, we
became aware of certain restatements that were made to the 1998 and 1997
financial statements. These restatements included a change in the Association's
method of amortizing loan origination fees and disclosures related to "available
for sale" securities in the equity section as prescribed by Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
October 22, 1999
/s/ Taylor, Perky & Parker
- ------------------------------
F-2
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
------------- -------------------------
1999 1998 1997
------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and non-interest earning deposits ................. $ 55,748 $ 112,508 $ 66,590
Overnight deposits at Federal Home Loan Bank ........... 2,400,000 5,100,000 2,200,000
----------- ----------- -----------
Total Cash and Cash Equivalents .................... 2,455,748 5,212,508 2,266,590
Securities held-to-maturity, at cost ..................... 11,000,000 9,000,000 3,909,622
Available for sale securities ............................ 683,904 847,482 551,562
Federal Home Loan Bank stock, at cost .................... 302,600 288,700 307,400
Loans receivable, net .................................... 31,371,245 28,978,023 25,741,621
Accrued interest receivable .............................. 401,111 301,158 264,316
Equipment, net of accumulated depreciation ............... 21,100 20,695 640
Other assets ............................................. 9,234 -- 6,250
----------- ----------- -----------
Total Assets ....................................... $46,244,942 $44,648,566 $33,048,001
=========== =========== ===========
LIABILITIES AND EQUITY
Deposits ................................................. $35,221,437 $34,701,287 $25,139,748
Advance payments from borrowers for taxes and insurance .. 379,685 20,414 24,280
Interest payable on deposits ............................. 398,591 55,122 38,159
Advances from the Federal Home Loan Bank ................. 1,000,000 1,000,000 --
Accrued expenses ......................................... 131,473 89,613 47,480
Deferred income taxes payable ............................ 59,709 220,180 132,302
Income taxes payable ..................................... 44,830 20,100 68,560
----------- ----------- -----------
Total Liabilities .................................. 37,235,725 36,106,716 25,450,529
Commitments and contingencies ............................ -- -- --
Equity:
Retained earnings ...................................... 8,594,491 8,028,977 7,262,151
Accumulated other comprehensive income ................. 414,726 512,873 335,321
----------- ----------- -----------
Total Equity ....................................... 9,009,217 8,541,850 7,597,472
----------- ----------- -----------
Total Liabilities and Equity ....................... $46,244,942 $44,648,566 $33,048,001
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
Other Comprehensive
Income (Loss):
Unrealized Gain
on Securities
Retained Available for Sale,
Earnings Net of Income Taxes Total Equity
---------- ------------------- ------------
<S> <C> <C> <C>
Balance, December 31, 1996 (Restated) ............. $6,535,467 $221,392 $6,756,859
Net income for the year ended December 31, 1997 ... 726,684 -- 726,684
Other comprehensive income:
Change in unrealized gain on available for sale
securities, net of income taxes ............... -- 113,929 113,929
---------- -------- ----------
Balance, December 31, 1997 ........................ 7,262,151 335,321 7,597,472
Net income for the year ended December 31, 1998 ... 766,826 -- 766,826
Other comprehensive income:
Change in unrealized gain on available for sale
securities, net of income taxes ............... -- 177,552 177,552
---------- -------- ----------
Balance, December 31, 1998 ........................ 8,028,977 512,873 8,541,850
Net income for the nine months ended
September 30, 1999 (unaudited) .................. 565,514 -- 565,514
Other comprehensive (loss):
Change in unrealized gain on available for sale
securities, net of income taxes (unaudited) ... -- (98,147) (98,147)
---------- -------- ----------
Balance, September 30, 1999 (unaudited) ........... $8,594,491 $414,726 $9,009,217
========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30, Years Ended December 31,
------------------------------- --------------------------
1999 1998 1998 1997
------------- ------------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Mortgage loan interest received .......................... $ 1,893,729 $ 1,745,486 $ 2,378,809 $ 2,182,351
Investment interest and dividends received ............... 661,269 501,621 674,870 549,508
Other fees ............................................... 15,808 17,319 19,513 7,331
----------- ----------- ----------- -----------
2,570,806 2,264,426 3,073,192 2,739,190
Interest paid ............................................ 1,117,487 843,754 1,635,767 1,339,741
Salaries and other administrative expenses ............... 158,125 108,718 195,676 266,686
Income taxes paid ........................................ 317,053 390,137 521,209 338,932
----------- ----------- ----------- -----------
1,592,665 1,342,609 2,352,652 1,945,359
----------- ----------- ----------- -----------
Net cash provided (used) by operating activities ....... 978,141 921,817 720,540 793,831
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of U.S. Government and agency securities ........ (3,000,000) (4,400,000) (10,300,000) (5,909,622)
Maturity of U.S. Government and agency securities ........ 1,000,000 2,509,622 5,209,622 7,700,000
Net increase in mortgage loans ........................... (2,237,036) (2,639,914) (3,240,268) (795,438)
(Purchase) redemption of FHLB stock ...................... (13,900) (17,400) 18,700 (21,100)
Purchase of property and equipment ....................... (4,115) (24,215) (24,215) --
----------- ----------- ----------- -----------
Net cash provided (used) by investing activities ....... (4,255,051) (4,571,907) (8,336,161) 973,840
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits ................................... 520,150 8,821,098 9,561,539 (1,795,571)
Proceeds from FHLB advances .............................. -- 1,000,000 1,000,000 --
----------- ----------- ----------- -----------
Net cash provided (used) by financing activities ....... 520,150 9,821,098 10,561,539 (1,795,571)
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ... (2,756,760) 6,171,008 2,945,918 (27,900)
Cash and cash equivalents at beginning of period ........... 5,212,508 2,266,590 2,266,590 2,294,490
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period ................. $ 2,455,748 $ 8,437,598 $ 5,212,508 $ 2,266,590
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
RECONCILIATION OF NET INCOME TO NET CASH
FLOWS FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
Nine Months Ended September 30, Years Ended December 31,
------------------------------- ------------------------
1999 1998 1998 1997
------------- ------------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Net income ................................................. $ 565,514 $ 612,190 $ 766,826 $ 726,684
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ........................................... 3,710 2,921 4,160 7,686
Provision for loan losses .............................. 150,000 -- -- --
Deferred income taxes .................................. (41,955) (22,868) (30,490) (8,931)
(Increase) decrease in accrued interest receivable ..... (99,953) (53,727) (36,842) (19,387)
(Increase) decrease in other assets .................... (9,234) 7,886 6,250 26,766
Increase (decrease) in income taxes payable ............ 24,730 (12,760) (48,460) 68,560
Increase (decrease) in accrued interest payable ........ 343,469 328,113 16,963 (3,052)
Increase (decrease) in accrued expenses ................ 41,860 60,062 42,133 (4,495)
---------- ---------- ---------- ----------
Net cash provided by operating activities ............ $ 978,141 $ 921,817 $ 720,540 $ 793,831
========== ========== ========== ==========
</TABLE>
F-6
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Nature of Operations
--------------------
The Association was incorporated in December 1923 and provides financial
services to individual and corporate customers through its office in Olathe,
Kansas. The Association's primary source of revenue is one-to-four family
dwelling loans. The Association's lending activity is concentrated within a
small geographic area in Kansas.
2. Unaudited Interim Financial Statements
--------------------------------------
The financial statements and related notes as of September 30, 1999 and for the
nine months ended September 30, 1999 and 1998 are unaudited. All adjustments,
consisting of only normal recurring adjustments, which in the opinion of
management are necessary for fair presentation of the financial information,
have been made.
3. Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
4. Investment Securities
---------------------
Investment in debt securities that the Association has the positive intent and
ability to hold to maturity are classified as held-to-maturity securities and
reported at amortized cost. These securities include U.S. Treasury notes and
securities of the Federal Home Loan Bank, all backed by the full faith and
credit of the United States Government, and securities of the Federal Home Loan
Mortgage Corporation and Federal National Mortgage Association. The securities
are carried at cost unless there is a permanent impairment of value, at which
time the securities are valued at market. Held-to-maturity debt securities are
carried at cost, adjusted for amortization of premium and accretion of discounts
using methods approximating the interest method. Debt and equity securities that
are bought and held principally for the purpose of selling them in the near term
are classified as trading securities and reported at fair value, with unrealized
holding gains and losses included in earnings. The Association does not hold
these types of securities at this time. Debt and equity securities not
classified as trading securities or as held-to-maturity securities are
classified as available for sale securities and reported at fair value, with
unrealized holding gains or losses, net of applicable deferred income taxes,
reported in a separate component of retained earnings.
F-7
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5. Loan Fees
---------
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment net of a prepayment
factor over the contractual term of the related loans using the interest method.
6. Depreciation
------------
Equipment is stated at cost, net of accumulated depreciation. Depreciation is
provided for in amounts sufficient to relate the costs of depreciable assets to
operations over their estimated service lives.
7. Cash Equivalents
----------------
For purposes of the statement of cash flows, cash equivalents include time
deposits and all highly liquid debt instruments with original maturities of less
than three months.
8. Loans Receivable
----------------
Loans receivable consist solely of conventional first mortgage loans for
permanent one-to-four family dwellings. It is the policy of the Association to
limit mortgages to 80 percent of the appraised value of the mortgaged property.
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, economic conditions and other risks inherent in the portfolio.
9. Gains and Losses
----------------
Gains and losses on the sale of investment securities are determined using the
specific identification method.
F-8
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE B -- REVISIONS TO PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Office of Thrift Supervision (OTS) issued a report dated November 1998 that
prescribed that associations defer loan origination fees, net of the related
cost, and adjust the yield on the loans issued using the "interest method."
Although the difference between the "interest method" and the method used by the
Association was not material, the Association decided to come into compliance
with these new regulations and restated the 1998 and 1997 financial statements
to comply with the OTS pronouncement. The cumulative effect of this restatement,
net of taxes, was a $155,202 decrease to retained earnings as of December 31,
1998, and reductions in net income of $45,732 and $13,397 for 1998 and 1997,
respectively.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
SFAS No. 130 requires that all items that are components of "comprehensive
income" be reported in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income is defined as the
"change in equity of a business enterprise during a period from transactions and
other events and circumstances from non owner sources. It includes all changes
in equity during a period except those resulting from investments by owners and
distributor or owners." This SFAS requires companies to (a) classify items of
other comprehensive income by their nature in the financial statements and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings in the equity section of a statement of financial position.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997 and
requires reclassification of prior periods presented. As the requirements of
SFAS No. 130 are disclosure related, its implementation had no impact on the
Association's financial condition or results of operations. The Association has
reclassified the unrealized gain (loss) on available for sale securities, which
are considered "other comprehensive income," to be included in the Statement of
Retained Earnings and in comprehensive income on the Statement of Income and
Comprehensive Income.
NOTE C -- RELATED PARTY TRANSACTIONS
In the normal course of business, the Association has made loans to its
directors, officers, and their related business interests. In the opinion of
management, related party loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more than the
normal risk of collectibility. The aggregate dollar amount of loans outstanding
to directors, officers and their related business interests totaled
approximately $169,000 at September 30, 1999 and $208,000 and $175,000 at
December 31, 1998 and 1997, respectively.
F-9
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- LOANS RECEIVABLE
Loans at September 30, 1999 and December 31, 1998 and 1997 are summarized as
follows:
December 31,
September 30, -------------------------
1999 1998 1997
------------- ----------- -----------
(unaudited)
Loans receivable:
One-to-four family ................ $31,867,496 $29,261,165 $25,949,070
Less:
Deferred loan fees, net ........... 321,251 258,142 182,449
Allowance for loan losses ......... 175,000 25,000 25,000
----------- ----------- -----------
Total loans receivable, net ..... $31,371,245 $28,978,023 $25,741,621
=========== =========== ===========
NOTE E -- AVAILABLE FOR SALE SECURITIES
The cost and market value of the available for sale securities as reclassified
are summarized as follows:
September 30, 1999 (unaudited)
--------------------------------------------
Gross Unrealized
------------------- Market
Cost Gains Losses Value
------- -------- ------ --------
Common Stock .................... $10,960 $672,944 $ -- $683,904
======= ======== ====== ========
December 31, 1998
--------------------------------------------
Gross Unrealized
------------------- Market
Cost Gains Losses Value
------- -------- ------ --------
Common Stock .................... $10,960 $836,522 $ -- $847,482
======= ======== ====== ========
December 31, 1997
--------------------------------------------
Gross Unrealized
------------------- Market
Cost Gains Losses Value
------- -------- ------ --------
Common Stock .................... $10,960 $540,602 $ -- $551,562
======= ======== ====== ========
F-10
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE F -- HELD-TO-MATURITY SECURITIES
The amortized cost and market value of investments in debt securities are as
follows:
September 30, 1999
(unaudited)
--------------------------------------
Amortized Unrealized Market
Cost (Losses) Value
----------- ---------- -----------
U.S. Government and agency securities .. $11,000,000 $(438,780) $10,561,220
----------- --------- -----------
$11,000,000 $(438,780) $10,561,220
=========== ========= ===========
Due in less than one year .............. $ -- $ -- $ --
After one through five years ........... -- -- --
After five through ten years ........... 5,500,000 (198,780) 5,301,220
After ten years ........................ 5,500,000 (240,000) 5,260,000
----------- --------- -----------
$11,000,000 $(438,780) $10,561,220
=========== ========= ===========
December 31, 1998
--------------------------------------
Amortized Unrealized Market
Cost Gains Value
----------- ---------- -----------
U.S. Government and agency securities .. $ 9,000,000 $ 6,335 $ 9,006,335
----------- --------- -----------
$ 9,000,000 $ 6,335 $ 9,006,335
=========== ========= ===========
Due in less than one year .............. $ -- $ -- $ --
After one through five years ........... -- -- --
After five through ten years ........... 6,500,000 4,230 6,504,230
After ten years ........................ 2,500,000 2,105 2,502,105
----------- --------- -----------
$ 9,000,000 $ 6,335 $ 9,006,335
=========== ========= ===========
December 31, 1997
--------------------------------------
Amortized Unrealized Market
Cost Gains Value
----------- ---------- -----------
U.S. Government and agency securities .. $ 3,909,622 $ 15,678 $ 3,925,300
----------- --------- -----------
$ 3,909,622 $ 15,678 $ 3,925,300
=========== ========= ===========
Due in less than one year .............. $ -- $ -- $ --
After one through five years ........... -- -- --
After five through ten years ........... 3,500,000 17,980 3,517,980
After ten years ........................ 409,622 (2,302) 407,320
----------- --------- -----------
$ 3,909,622 $ 15,678 $ 3,925,300
=========== ========= ===========
F-11
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE G -- DEPOSITS
An analysis of deposit account balances, by interest rate, is as follows:
September 30, 1999
(unaudited)
-----------------------------------------------------------------
Interest 18 to 60 Mo. 6 Mo. Money Savings
Rate C.D.'s C.D.'s Market Accounts Total
- ------------- ------------ ---------- ---------- ---------- -----------
3%-3.99% .... $ -- $ -- $2,213,048 $3,214,757 $ 5,427,805
4%-4.99% .... 100,000 1,680,981 -- -- 1,780,981
5%-5.99% .... 17,021,254 1,231,213 -- -- 18,252,567
6%-6.99% .... 9,760,084 -- -- -- 9,760,084
----------- ---------- ---------- ---------- -----------
Totals .... $26,881,438 $2,912,194 $2,213,048 $3,214,757 $35,221,437
=========== ========== ========== ========== ===========
December 31, 1998
-----------------------------------------------------------------
Interest 18 to 60 Mo. 6 Mo. Money Savings
Rate C.D.'s C.D.'s Market Accounts Total
- ------------- ------------ ---------- ---------- ---------- -----------
3%-3.99% .... $ -- $ -- $2,240,937 $3,349,020 $ 5,589,957
4%-4.99% .... -- -- -- -- --
5%-5.99% .... 16,249,700 2,663,230 -- -- 18,912,930
6%-6.99% .... 10,198,400 -- -- -- 10,198,400
----------- ---------- ---------- ---------- -----------
Totals .... $26,448,100 $2,663,230 $2,240,937 $3,349,020 $34,701,287
=========== ========== ========== ========== ===========
December 31, 1997
-----------------------------------------------------------------
Interest 18 to 60 Mo. 6 Mo. Money Savings
Rate C.D.'s C.D.'s Market Accounts Total
- ------------- ------------ ---------- ---------- ---------- -----------
3%-3.99% .... $ -- $ -- $2,517,568 $2,545,897 $ 5,063,465
4%-4.99% .... -- -- -- -- --
5%-5.99% .... 13,654,234 176,295 -- -- 13,830,529
6%-6.99% .... 6,023,336 222,418 -- -- 6,245,754
----------- ---------- ---------- ---------- -----------
Totals .... $19,677,570 $ 398,713 $2,517,568 $2,545,897 $25,139,748
=========== ========== ========== ========== ===========
F-12
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE G -- DEPOSITS (CONTINUED)
At September 30, 1999, scheduled maturities of certificates of deposit are as
follows:
1999 ............................ $ 3,171,437
2000 ............................ 13,915,745
2001 ............................ 6,104,965
2002 ............................ 6,601,485
-----------
$29,793,632
===========
The aggregate amount of time deposit accounts exceeding $100,000 at September
30, 1999, December 31, 1998 and 1997 amounted to $7,532,517, $5,771,000 and
$3,036,000, respectively.
NOTE H -- ADVANCES FROM FEDERAL HOME LOAN BANK (FHLB)
The Association is required to purchase stock in the FHLB. Such stock may be
redeemed at par but is not readily marketable. The Association had stock of
$302,600 at September 30, 1999 and $288,700 and $307,400 at December 31, 1998
and 1997, respectively.
The Association had $1,000,000 in outstanding advances at a fixed interest rate
of 5.74% from the FHLB at September 30, 1999 and December 31, 1998,
respectively. The advances have a maturity date of February 2, 2001 and are
collateralized by the FHLB stock. There were no outstanding advances at December
31, 1997.
NOTE I -- LEASE COMMITMENTS
Rent expense under a long-term operating lease for office space amounted to
$10,608 for the nine months ended September 30, 1999, and $13,607 and $14,145
for the years ended December 31, 1998 and 1997, respectively. The Association
renewed this lease on August 1, 1999 and is obligated under the terms of this
lease through July 31, 2004. Future lease obligations under this agreement are
as follows:
Year Obligation
---- ----------
2000 .............................. $14,538
2001 .............................. 14,538
2002 .............................. 14,538
2003 .............................. 14,538
2004 .............................. 8,480
F-13
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE J -- RETIREMENT PLAN
The Association participates in a noncontributory group pension plan for the
savings and loan industry. This defined benefit plan covers all full-time
employees. There was no pension expense for the nine months ended September 30,
1999 and for the years ended December 31, 1998 and 1997, since the plan was
fully funded in accordance with the maximum funding standards of ERISA. Because
this is a multiple-employer pension plan, the actuarial present value of plan
benefits is not determinable. The net assets of the fund available for benefits
at June 30, 1999, the most recent information available, amounted to
$1,850,200,000.
NOTE K -- REGULATORY MATTERS
The Association is subject to various regulatory capital requirements by its
primary federal regulator, the Office of Thrift and Supervision (OTS). Under the
regulatory capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Association must meet specific capital guidelines that
involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Failure to meet minimum regulatory capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Association's financial
statements. The Association's capital amounts and classification under the
prompt corrective action guidelines are also subject to qualitative judgments by
regulatory agencies about components, risk weightings, and other factors.
Regulatory quantitative measures to ensure capital adequacy require the
Association to maintain minimum amounts and ratios of: total and risk-based
capital and Tier 1 Capital to risk-weighted assets (as defined in the
regulations), and Tier 1 Capital and Tangible Capital to adjusted total assets
(as defined).
As of the most recent notification from federal regulators, the Association was
categorized as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Association must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as disclosed in the table below. There are no conditions or events since the
notification that management believes would change the Association's category.
F-14
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE K -- REGULATORY MATTERS (CONTINUED)
The following table sets forth regulatory capital ratios for the Association.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under the Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------- ------------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
September 30, 1999: (unaudited)
Total Risk-Based Capital greater than greater than greater than greater than
(to Risk-Weighted Assets) .... $8,769 46.65% or equal to $1,503 or equal to 8.0% or equal to $1,879 or equal to 10.0%
Tier 1 Capital greater than greater than greater than greater than
(to Risk-Weighted Assets) .... $8,594 45.72% or equal to $ 751 or equal to 4.0% or equal to $1,127 or equal to 6.0%
Tier 1 Capital greater than greater than greater than greater than
(to Adjusted Total Assets) ... $8,594 18.49% or equal to $1,858 or equal to 4.0% or equal to $2,322 or equal to 5.0%
Tangible Capital greater than greater than
(to Adjusted Total Assets) ... $8,594 18.49% or equal to $ 697 or equal to 1.5% N/A N/A
December 31, 1998:
Total Risk-Based Capital greater than greater than greater than greater than
(to Risk-Weighted Assets) .... $8,054 44.28% or equal to $1,455 or equal to 8.0% or equal to $1,819 or equal to 10.0%
Tier 1 Capital greater than greater than greater than greater than
(to Risk-Weighted Assets) .... $8,029 44.14% or equal to $ 727 or equal to 4.0% or equal to $1,091 or equal to 6.0%
Tier 1 Capital greater than greater than greater than greater than
(to Adjusted Total Assets) ... $8,029 17.97% or equal to $1,786 or equal to 4.0% or equal to $2,233 or equal to 5.0%
Tangible Capital greater than greater than
(to Adjusted Total Assets) ... $8,029 17.97% or equal to $ 670 or equal to 1.5% N/A N/A
December 31, 1997:
Total Risk-Based Capital greater than greater than greater than greater than
(to Risk-Weighted Assets) .... $7,287 50.85% or equal to $1,146 or equal to 8.0% or equal to $1,432 or equal to 10.0%
Tier 1 Capital greater than greater than greater than greater than
(to Risk-Weighted Assets) .... $7,262 50.68% or equal to $ 429 or equal to 3.0% or equal to $ 859 or equal to 6.0%
Tier 1 Capital greater than greater than greater than greater than
(to Adjusted Total Assets) ... $7,262 21.97% or equal to $ 992 or equal to 3.0% or equal to $1,652 or equal to 5.0%
Tangible Capital greater than greater than
(to Adjusted Total Assets) ... $7,262 21.97% or equal to $ 495 or equal to 1.5% N/A N/A
</TABLE>
F-15
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- INCOME TAXES
The differences between the provision for income taxes and the amount computed
by applying the statutory federal income tax rate of 34% to income before income
taxes were as follows for the following periods:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
-------------------- --------------------
1999 1998 1998 1997
-------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C>
Income tax at federal statutory rate ........... $294,216 $328,678 $411,089 $382,583
State income tax, net of federal tax benefit ... 36,500 43,700 54,000 68,706
Other .......................................... (30,888) (17,869) (22,830) (52,728)
-------- -------- -------- --------
Provision for income taxes ..................... $299,828 $354,509 $442,259 $398,561
======== ======== ======== ========
Effective tax rate ............................. 34.65% 36.67% 36.57% 35.41%
===== ===== ===== =====
</TABLE>
The tax effects of existing temporary differences that give rise to significant
positions of deferred tax assets and deferred tax liabilities are as follows:
September 30, December 31,
------------- ----------------------
1999 1998 1997
------------- --------- ---------
(unaudited)
Deferred tax assets
- -------------------
Deferred loan origination fees ....... $ 128,509 $ 103,469 $ 72,979
Allowance for loan losses ............ 70,000 -- --
Deferred tax liabilities
- ------------------------
Unrealized gain on available for
sale securities .................... (258,218) (323,649) (205,281)
--------- --------- ---------
Net deferred tax liability ....... $ (59,709) $(220,180) $(132,302)
========= ========= =========
NOTE M -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair value amounts have been determined by the Association using
available market information and a selection from a variety of valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair value. Accordingly, the
estimates presented are not necessarily indicative of the amount the Association
could realize in a current market exchange. The use of different market
assumptions and estimation methodologies may have a material effect on the
estimated fair value amounts.
F-16
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE M -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair value of the Association's financial instruments are as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------------------- -----------------------------------------------------
1999 (unaudited) 1998 1997
------------------------- ------------------------- -------------------------
Carrying Estimated Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value Value Fair Value
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents ................. $ 2,455,748 $ 2,455,748 $ 5,212,508 $ 5,212,508 $ 2,266,590 $ 2,266,590
Investment securities ..................... 11,683,904 11,245,124 9,847,482 9,853,817 4,461,184 4,476,862
Capital Stock of Federal Home Loan Bank ... 302,600 302,600 288,700 288,700 307,400 307,400
Loans receivable .......................... 31,371,245 31,876,674 28,978,023 29,692,496 25,741,621 26,250,426
Liabilities:
Deposits .................................. 35,221,437 35,432,562 34,701,287 35,008,904 25,139,748 25,150,585
Advances from Federal Home Loan Bank ...... 1,000,000 1,000,000 1,000,000 1,000,000 -- --
</TABLE>
The following methods and assumptions were used to estimate the fair value of
the financial instruments:
Cash and Cash Equivalents -- The carrying amounts of cash and cash equivalents
are reasonable estimates of their fair value.
Investment Securities -- Estimated fair values of investment securities are
based on quoted market prices where available. If quoted market prices are not
available, fair values are estimated using quoted market prices for similar
instruments.
Capital Stock of Federal Home Loan Bank -- The carrying value of capital stock
of Federal Home Loan Bank approximates its fair value.
Loans Receivable -- Fair values are estimated for portfolios with similar
financial characteristics. Future cash flows of these loans are discounted using
the current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
Deposits -- The estimated fair value of demand deposits and savings accounts is
the amount payable on demand at the reporting date. The estimated fair value of
fixed-maturity certificates of deposit is estimated by discounting the future
cash flows using the rates currently offered for deposits of similar remaining
maturities.
Advances from Federal Home Loan Bank -- The estimated fair value of advances
from Federal Home Loan Bank is determined by discounting the future cash flows
of existing advances using rates currently available on advances from Federal
Home Loan Bank having similar characteristics.
F-17
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE N -- COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Association has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements.
At December 31, 1998 and 1997, the Association had outstanding commitments to
originate fixed rate mortgages of $1,276,000 and $1,325,000, respectively, and
$477,000 at September 30, 1999.
NOTE O -- YEAR 2000 COMPLIANCE REVIEW
Subsequent to December 31, 1998, the Association completed a compliance
examination conducted by the Office of Thrift Supervision for Year 2000
compliance.
NOTE P -- PLAN OF CONVERSION
On October 13, 1999, 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 its
members. The Plan, which includes formation of a holding company to own all of
the outstanding stock of the Association, is subject to approval by the Office
of Thrift Supervision (OTS) and includes the filing of a registration statement
with the Securities and Exchange Commission.
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. 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.
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.
NOTE Q -- NEW ACCOUNTING STANDARDS
Reporting Comprehensive Income. In June 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS No. 130). This Statement requires
entities presenting a
F-18
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE Q -- NEW ACCOUNTING STANDARDS (CONTINUED)
complete set of financial statements to include details of comprehensive income
that arise in the reporting period. Comprehensive income consists of net income
or loss for the current period, other comprehensive income consists of revenue,
expenses, gains, and losses that bypass the income statement and are reported
directly in a separate component of equity. "Other comprehensive income"
includes, for example, unrealized gains and losses on certain investment
securities, minimum pension liability adjustments, and foreign currency items.
SFAS No. 130 requires that components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. At September 30, 1999, the Savings and Loan's other
comprehensive income consisted of unrealized gains on securities classified as
available for sale. This Statement is effective for fiscal years beginning after
December 15, 1997, and requires restatement of prior period financial statements
presented for comparative purposes.
Disclosures about Segments of an Enterprise and Related Information. In June
1997, the FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS No.
131). This Statement changes the current practice for reporting segment
information under SFAS No. 14, "Financial Reporting for Segments of an
Enterprise." Public entities are required to report financial and descriptive
information about their reportable operating segments. An operating segment is a
component of an entity for which financial information is developed and
evaluated by the entity's chief operating decision maker to assess performance
and to make decisions about resource allocation. Disclosures about operating
segments should generally be based on the information used internally. This
Statement is effective for financial statements for periods beginning after
December 15, 1997. On adoption, comparative information for earlier years is to
be restated. Based on current operations, the Savings and Loan does not believe
adoption of this Statement will have any impact on its public financial
reporting.
Employers' Disclosures about Pensions and Other Postretirement Benefits. In
February 1998, the FASB issued Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits,"
which standardizes the disclosure requirements for pensions and other
post-retirement benefits, requires additional information on changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that the FASB no longer
considers as useful as when they were issued. This statement suggests combined
formats for presentation of pension and other post-retirement benefit
disclosures. This statement is effective for fiscal years beginning after
December 15, 1997.
Accounting for Derivative Instruments and Hedging Activities. In June 1998, the
FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement requires that all
derivatives be recognized
F-19
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE Q -- NEW ACCOUNTING STANDARDS(CONTINUED)
at fair value as either assets or liabilities on the balance sheet. If certain
conditions are met, a derivative may be specifically designated as (a) a hedge
of the exposure to changes in the fair value of a recognized asset or liability
or an unrecognized firm commitment (b) a hedge of the exposure to variable cash
flows of a forecasted transaction, or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available for sale security or a foreign-currency-denominated
forecasted transaction. The accounting for changes in fair value of a derivative
depends on the intended use of the derivative and the resulting designation.
This Statement generally provides for matching the timing of a gain or loss
recognition on the hedging instrument with the recognition of (a) the changes in
the fair value of the hedged asset or liability that are attributable to the
hedged risk or (b) the earnings effect of the hedged forecasted transaction.
This Statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999, with earlier application encouraged. Retroactive
application to prior periods is prohibited. The Savings and Loan does not use
derivative instruments and therefore the adoption of the Statement is not
expected to have a material impact on the financial statements of the Savings
and Loan.
F-20
<PAGE>
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information that is different.
If the laws of your state or other jurisdiction prohibit us from offering our
common stock to you, then this prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any of our common stock. Neither the
delivery of this prospectus nor any sale hereunder shall imply that there has
been no change in our affairs since any of the dates as of which information is
furnished herein since the dare hereof.
Our Table of Contents
is located on the inside of the
front cover page of this document.
Until _________, 2000 or 90 days after commencement of the syndicated
community offering, if any, whichever is later, all dealers effecting
transactions in our common stock 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 any unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
747,500 Shares
(Anticipated Maximum)
(Subject to Increase to Up to 859,625 Shares)
First Federal of Olathe Bancorp, Inc.
(Proposed Holding Company for
First Federal Savings and Loan
Association of Olathe)
COMMON STOCK
---------------------
PROSPECTUS
---------------------
Trident Securities, Inc.
February ___, 2000
- --------------------------------------------------------------------------------
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers of First Federal Savings
Association of Olathe
Generally, federal regulations define areas for indemnity coverage for federal
savings associations, as follows:
(a) Any person against whom any action is brought by reason of the fact
that such person is or was a director or officer of the savings association
shall be indemnified by the savings association for:
(i) Reasonable costs and expenses, including reasonable attorneys'
fees, actually paid or incurred by such person in connection with
proceedings related to the defense or settlement of such action;
(ii) Any amount for which such person becomes liable by reason of any
judgment in such action;
(iii) Reasonable costs and expenses, including reasonable attorneys'
fees, actually paid or incurred in any action to enforce his rights under
this section, if the person attains a final judgment in favor of such
person in such enforcement action.
(b) Indemnification provided for in subparagraph (a) shall be made to
such officer or director only if the requirements of this subsection are met:
(i) The savings association shall make the indemnification provided by
subparagraph (a) in connection with any such action which results in a
final judgment on the merits in favor of such officer or director.
(ii) The savings association shall make the indemnification provided
by subparagraph (a) in case of settlement of such action, final judgment
against such director or officer or final judgment in favor of such
director or officer other than on the merits except in relation to matters
as to which he shall be adjudged to be liable for negligence or misconduct
in the performance of duty, only if a majority of the directors of the
savings association determines that such a director or officer was acting
in good faith within what he was reasonably entitled to believe under the
circumstances was the scope of his employment or authority and for a
purpose which he was reasonably entitled to believe under the circumstances
was in the best interest of the savings association or its members.
(c) As used in this paragraph:
(i) "Action" means any action, suit or other judicial or
administrative proceeding, or threatened proceeding, whether civil,
criminal, or otherwise, including any appeal or other proceeding for
review;
(ii) "Court" includes, without limitation, any court to which or in
which any appeal or any proceeding for review is brought;
(iii) "Final Judgment" means a judgment, decree, or order which is
appealable and as to which the period for appeal has expired and no appeal
has been taken;
(iv) "Settlement" includes the entry of a judgment by consent or by
confession or upon a plea of guilty or of nolo contendere.
<PAGE>
Indemnification of Directors and Officers of First Federal of Olathe Bancorp,
Inc.
Article XVIII of First Federal of Olathe Bancorp, Inc.'s (the
"Corporation") Articles of Incorporation sets forth circumstances under which
directors, officers, employees and agents of the Corporation may be insured or
indemnified against liability which they may incur in their capacities as such.
ARTICLE XVIII
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.
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,
<PAGE>
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.
F. To the extent that a person named in Subsection A of this Article
XVIII has been successful on the merits or otherwise in defense 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
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
<PAGE>
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.
Item 25. Other Expenses of Issuance and Distribution
Amount
------
* Legal Fees and Expenses...................................... $105,000
* EDGAR expenses............................................... 20,000
* Printing, Postage and Mailing................................ 50,000
* Appraisal and Business Plan Fees and Expenses................ 27,500
* Accounting Fees and Expenses................................. 95,000
* Blue Sky Filing Fees and Expenses
(including counsel fees)................................... 10,000
Conversion Agent and Proxy Solicitation Fees................. 7,500
** Marketing Agent Fees and Expenses............................ 108,500
* Marketing Agent Counsel Fees................................. 26,500
* Filing Fees (OTS and SEC).................................... 13,000
* Other Expenses............................................... 37,000
--------
* Total ....................................................... $500,000
========
- -----------
* Estimated
** First Federal of Olathe Bancorp, Inc. has retained Trident Securities, Inc.
("Trident Securities") to assist in the sale of common stock on a best
efforts basis in the Offerings. Trident Securities will receive fees of
$97,500, exclusive of estimated expenses of $11,000.
<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:
(a) List of Exhibits
1.1 Engagement Letter between First Federal Savings and Loan Association of
Olathe and Trident Securities, Inc.
1.2 Form of Agency Agreement among First Federal of Olathe Bancorp, Inc., First
Federal Savings and Loan Association of Olathe and Trident Securities, Inc.
*
2 Plan of Conversion
3.1 Articles of Incorporation of First Federal of Olathe Bancorp, Inc.
3.2 Bylaws of First Federal of Olathe Bancorp, Inc.
3.3 Federal Stock Charter of First Federal Savings and Loan Association of
Olathe
3.4 Bylaws of First Federal Savings and Loan Association of Olathe
4 Form of Common Stock Certificate of First Federal of Olathe Bancorp, Inc.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick regarding legality of
securities being registered
8.1 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick
8.2 State Tax Opinion of Taylor, Perky & Parker, L.L.C.
8.3 Opinion of RP Financial LC. with respect to Subscription Rights
10.1 Form of Employment Agreement for Mitch Ashlock
10.2 Form of Employee Stock Ownership Plan
21 Subsidiaries of Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick (contained in Opinions
included on Exhibits 5 and 8.1)
23.2 Consent of Taylor, Perky & Parker, L.L.C.
23.3 Consent of RP Financial, LC
24 Power of Attorney (set forth on signature page)
27.1 EDGAR Financial Data Schedule
99.1 Appraisal Agreements between First Federal Savings and Loan Association of
Olathe and RP Financial, LC
99.2 Appraisal Report of RP Financial, LC (Filed under separate cover)**
<PAGE>
99.3 Marketing Materials
99.4 Order and Acknowledgment Form*
- -----------
* To be filed supplementally or by amendment.
** Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) 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;
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth 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
duration from the low or high and of the estimated maximum offering range
may be reflected in the 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 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, 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) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the
closing specified in the Underwriting Agreement certificates in such
documentation and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 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
questions whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, 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 the city of Olathe,
State of Kansas on December 15, 1999.
FIRST FEDERAL OF OLATHE BANCORP, INC.
By: /s/ Mitch Ashlock
----------------------------------------
Mitch Ashlock
President, Chief Executive Officer
and Director
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of First Federal of Olathe
Bancorp, Inc. (the "Company") hereby severally constitute and appoint Mitch
Ashlock as our true and lawful attorney and agent, to do any and all things in
our names in the capacities indicated below which said Mitch Ashlock may deem
necessary or advisable to enable the Company to comply with the Securities Act
of 1933, 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 the Company's Common Stock, including specifically,
but not limited to, power and authority to sign for 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 approve, ratify and
confirm all that said Mitch Ashlock shall do or cause to be done by virtue
thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates stated.
Signatures Title Date
---------- ----- ----
/s/ Mitch Ashlock President, Chief Executive December 15, 1999
- ---------------------- Officer and Director (Principal
Mitch Ashlock Executive, Accounting and
Financial Officer)
/s/ Donald K. Ashlock Chairman of the Board December 15, 1999
- ---------------------
Donald K. Ashlock
/s/ John M. Bowen Director December 15, 1999
- ---------------------
John M. Bowen
/s/ Carl R. Palmer Director December 15, 1999
- ---------------------
Carl R. Palmer
/s/ Marvin E. Wollen Director December 15, 1999
- ---------------------
Marvin E. Wollen
<PAGE>
As filed with the Securities and Exchange Commission on December 16, 1999
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
EXHIBITS
TO
REGISTRATION STATEMENT
ON
FORM SB-2
------------------------------------
First Federal of Olathe Bancorp, Inc.
Olathe, Kansas
<PAGE>
EXHIBIT INDEX
1.1 Engagement Letter between First Federal Savings and Loan Association of
Olathe and Trident Securities, Inc.
1.2 Form of Agency Agreement among First Federal of Olathe Bancorp, Inc., First
Federal Savings and Loan Association of Olathe and Trident Securities, Inc.
*
2 Plan of Conversion
3.1 Articles of Incorporation of First Federal of Olathe Bancorp, Inc.
3.2 Bylaws of First Federal of Olathe Bancorp, Inc.
3.3 Federal Stock Charter of First Federal Savings and Loan Association of
Olathe
3.4 Bylaws of First Federal Savings and Loan Association of Olathe
4 Form of Common Stock Certificate of First Federal of Olathe Bancorp, Inc.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick regarding legality of
securities being registered
8.1 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick
8.2 State Tax Opinion of Taylor, Perky & Parker, L.L.C.
8.3 Opinion of RP Financial, LC. with respect to Subscription Rights
10.1 Form of Employment Agreement for Mtich Ashlock
10.2 Form of Employee Stock Ownership Plan
21 Subsidiaries of Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick (contained in Opinions
included on Exhibits 5 and 8.1)
23.2 Consent of Taylor, Perky & Parker, L.L.C.
23.3 Consent of RP Financial, LC.
24 Power of Attorney (set forth on signature page)
27.1 EDGAR Financial Data Schedule
99.1 Appraisal Agreements between First Federal Savings and Loan Association of
Olathe and RP Financial, LC.
99.2 Appraisal Report of RP Financial, LC.(Filed on separate cover)**
99.3 Marketing Materials
99.4 Order and Acknowledgment Form*
- --------------
* To be filed supplementally or by amendment.
** Filed pursuant to Rule 202 of Regulation S-T.
[TRIDENT SECURITIES LETTERHEAD]
November 9, 1999
Board of Directors
First Federal Savings and Loan Association of Olathe
100 East Park
Olathe, Kansas 66051
RE: Conversion Stock Marketing and Proxy Solicitation Services
----------------------------------------------------------
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Securities, together with its successors and assigns, ("Trident") and First
Federal Savings and Loan Association of Olathe, Kansas, together with its
successors and assigns, (the "Association") concerning our investment
Association services in connection with the conversion of the Association from a
mutual to a capital stock form of organization. The undersigned consent to the
assignment of Trident Securities' rights and obligations hereunder to McDonald
Investments Inc.
Trident is prepared to assist the Association in connection with the offering of
its shares of common stock during the subscription offering and community
offering as such terms are defined in the Association's Plan of Conversion. The
specific terms of the services contemplated hereunder shall be set forth in a
definitive sales agency agreement (the "Agreement") between Trident and the
Association to be executed on the date the offering circular/prospectus is
declared effective by the appropriate regulatory authorities. The price of the
shares during the subscription offering and community offering will be the price
established by the Association's Board of Directors, based upon an independent
appraisal as approved by the appropriate regulatory authorities, provided such
price is mutually acceptable to Trident and the Association.
In connection with the subscription offering and community offering, Trident
will act as financial advisor and exercise its best efforts to assist the
Association in the sale of its common stock during the subscription offering and
community offering. Additionally, Trident may enter into agreements with other
National Association of Securities Dealers, Inc., ("NASD") member firms to act
as selected dealers, assisting in the sale of the common stock. Trident and the
Association will determine the selected dealers to assist the Association during
the community offering. At the appropriate time, Trident in conjunction with its
counsel, will conduct an examination of the relevant documents and records of
the Association as Trident deems necessary and appropriate. The Association will
make all documents, records and other information deemed necessary by Trident or
its counsel available to them upon request.
For its services hereunder, Trident will receive the following compensation and
reimbursement from the Association:
<PAGE>
Board of Directors
November 9, 1999
Page 2
1. A management fee in the amount of $97,500.
2. The foregoing fees and commissions are to be payable to Trident
at closing as defined in the Agreement to be entered into between
the Association and Trident.
3. Trident shall be reimbursed for allocable expenses incurred by
them, not to exceed $11,000 and legal fees not to exceed $26,500,
whether or not the Agreement is consummated. The Association will
forward to Trident a check in the amount of $5,000 as an advance
payment to defray the allocable expenses of Trident.
It further is understood that the Association will pay all other expenses of the
conversion including but not limited to its attorneys' fees, NASD filing fees,
and filing and registration fees and fees of either Trident's attorneys or the
attorneys relating to any required state securities law filings, telephone
charges, air freight, rental equipment, supplies, transfer agent charges, fees
relating to auditing and accounting and costs of printing all documents
necessary in connection with the foregoing.
For purposes of Trident's obligation to file certain documents and to make
certain representations to the NASD in connection with the conversion, the
Association warrants that: (a) the Association has not privately placed any
securities within the last 18 months; (b) there have been no material dealings
within the last 12 months between the Association and any NASD member or any
person related to or associated with any such member; (c) none of the officers
or directors of the Association has any affiliation with the NASD; (d) except as
contemplated by this engagement letter with Trident, the Association has no
financial or management consulting contracts outstanding with any other person;
(e) the Association has not granted Trident a right of first refusal with
respect to the underwriting of any future offering of the Association stock; and
(f) there has been no intermediary between Trident and the Association in
connection with the public offering of the Association's shares, and no person
is being compensated in any manner for providing such service.
The Association agrees to indemnify and hold harmless Trident and each person,
if any, who controls the firm against all losses, claims, damages or
liabilities, joint or several and all legal or other expenses reasonably
incurred by them in connection with the investigation or defense thereof
(collectively, "Losses"), to which they may become subject under securities laws
or under the common law, that arise out of or are based upon the conversion or
the engagement hereunder ofTrident except to the extent such losses are the
result of the gross negligence or willful misconduct of Trident. If the
foregoing indemnification is unavailable for any reason, the Association agrees
to contribute to such Losses in the proportion that its financial interest in
the conversion bears to that of the indemnified parties. If the agreement is
entered into with respect the common stock to be issued in the conversion, the
Agreement will provide for indemnification, which will be in addition to any
rights that Trident or any other indemnified party may have at common law or
otherwise. The indemnification provision of this paragraph will be superseded by
the indemnification provisions of the
<PAGE>
Board of Directors
November 9, 1999
Page 3
Agreement entered into by the Association and Trident.
This letter is merely a statement of intent and is not a binding legal agreement
except as to paragraph (3) above with regard to the obligation to reimburse
Trident for allocable expenses to be incurred prior to the execution of the
Agreement and the indemnity described in the preceding paragraph. While Trident
and the Association agree in principle to the contents hereof and propose to
proceed promptly, and in good faith, to work out the arrangements with respect
to the proposed offering, any legal obligations between Trident and the
Association shall be only as set forth in a duly executed Agreement. Such
Agreement shall be in form and content satisfactory to Trident and the
Association, as well as their counsel, and Trident's obligations thereunder
shall be subject to, among other things, there being in Trident's opinion no
material adverse change in the condition or obligations of the Association or no
market conditions which might render the sale of the shares by the Association
hereby contemplated inadvisable.
Please acknowledge your agreement to the foregoing by signing below and
returning to Trident one copy of this letter, along with the advance payment of
$5,000. This proposal is open for your acceptance for a period of thirty (30)
days from the date hereof.
Yours very truly,
TRIDENT SECURITIES, A Division Of
McDonald Investments, Inc.
By: /s/ Andy Hitt
----------------------------
John Andrew Hitt
Senior Vice President
Agreed and accepted to this 16th day
of November 1999
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
By: /s/ Mitch Ashlock
----------------------
Mitch Ashlock
President and CEO
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OLATHE, KANSAS
PLAN OF CONVERSION
From Mutual to Stock Form of Organization
I. GENERAL
On October 13, 1999, the Board of Directors of First Federal Savings
and Loan Association (the "Association") adopted a Plan of Conversion whereby
the Association would convert from a federal mutual savings institution to a
federal stock savings institution pursuant to the Rules and Regulations of the
OTS. The Plan includes, as part of the conversion, the concurrent formation of a
holding company. The new holding company is proposed to be chartered as a Kansas
corporation under the name "First Federal of Olathe Bancorp, Inc." The Plan
provides that non-transferable subscription rights to purchase Holding Company
Conversion Stock will be offered first to Eligible Account Holders of record as
of the Eligibility Record Date, then to the Association's Tax-Qualified Employee
Plans, then to Supplemental Eligible Account Holders of record as of the
Supplemental Eligibility Record Date, then to Other Members, and then to
directors, officers and employees. Concurrently with, at any time during, or
promptly after the Subscription Offering, and on a lowest priority basis, an
opportunity to subscribe may also be offered to the general public in a Direct
Community Offering. The price of the Holding Company Conversion Stock will be
based upon an independent appraisal of the Association and will reflect its
estimated pro forma market value, as converted. It is the desire of the Board of
Directors of the Association to attract new capital to the Association in order
to increase its capital, support future savings growth and increase the amount
of funds available for residential and other mortgage lending. The Converted
Association is also expected to benefit from its management and other personnel
having a stock ownership in its business, since stock ownership is viewed as an
effective performance incentive and a means of attracting, retaining and
compensating management and other personnel. No change will be made in the Board
of Directors or management as a result of the Conversion.
II. DEFINITIONS
Acting in Concert: The term "acting in concert" shall have the same
meaning given it in ss.574.2(c) of the Rules and Regulations of the OTS.
Actual Subscription Price: The price per share, determined as provided
in Section V of the Plan, at which Holding Company Conversion Stock will be sold
in the Subscription Offering.
Affiliate: An "affiliate" of, or a Person "affiliated" with, a
specified Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with,
the Person specified.
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Associate: The term "associate," when used to indicate a relationship
with any Person, means (i) any corporation or organization (other than the
Holding Company, the Association or a majority-owned subsidiary of the Holding
Company) of which such Person is an officer or partner or is, directly or
indirectly, the beneficial owner of ten 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, 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 Holding Company or the Association or any
subsidiary of the Holding Company; provided, however, that any Tax-Qualified or
Non-Tax- Qualified Employee Plan shall not be deemed to be an associate of any
director or officer of the Holding Company or the Association, to the extent
provided in Section V hereof.
Association: First Federal Savings and Loan Association, or such other
name as the institution may adopt.
Conversion: Change of the Association's charter and bylaws to federal
stock charter and bylaws; sale by the Holding Company of Holding Company
Conversion Stock; and issuance and sale by the Converted Association of
Converted Association Common Stock to the Holding Company, all as provided for
in the Plan.
Converted Association: The federally chartered stock savings
institution resulting from the Conversion of the Association in accordance with
the Plan.
Deposit Account: Any withdrawable account or deposit in excess of $50
in the Association.
Direct Community Offering: The offering to the general public of any
unsubscribed shares which may be effected as provided in Section V hereof.
Eligibility Record Date: The close of business on June 30, 1998.
Eligible Account Holder: Any Person holding a Qualifying Deposit in the
Association on the Eligibility Record Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Holding Company: First Federal of Olathe Bancorp, Inc., a Kansas
corporation, which upon completion of the Conversion will own all of the
outstanding common stock of the Converted Association.
Holding Company Conversion Stock: Shares of common stock, par value
$.01 per share, to be issued and sold by the Holding Company as a part of the
Conversion; provided, however, that for purposes of calculating Subscription
Rights and maximum purchase limitations under the Plan, references to the number
of shares of Holding Company Conversion Stock shall refer to the number of
shares offered in the Subscription Offering.
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Market Maker: A dealer (i.e., any Person who engages directly or
indirectly as agent, broker or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system; or (ii) furnishes bona fide competitive bid and offer quotations on
request; and (iii) is ready, willing, and able to effect transactions in
reasonable quantities at his quoted prices with other brokers or dealers.
Maximum Subscription Price: The price per share of Holding Company
Conversion Stock to be paid initially by subscribers in the Subscription
Offering.
Member: Any Person or entity that qualifies as a member of the
Association pursuant to its charter and bylaws.
Non-Tax-Qualified Employee Plan: Any defined benefit plan or defined
contribution plan of the Association or the Holding Company, such as an employee
stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which
with its related trust does not meet the requirements to be "qualified" under
Section 401 of the Internal Revenue Code.
OTS: Office of Thrift Supervision, Department of the Treasury.
Officer: An executive officer of the Holding Company or the
Association, including the Chairman of the Board, President, Executive Vice
Presidents, Senior Vice Presidents in charge of principal business functions,
Secretary and Treasurer.
Order Forms: Forms to be used in the Subscription Offering to exercise
Subscription Rights.
Other Members: Members of the Association, other than Eligible Account
Holders, Tax- Qualified Employee Plans or Supplemental Eligible Account Holders,
as of the Voting Record Date.
Person: An individual, a corporation, a partnership, an association, a
joint-stock company, a trust, any unincorporated organization, or a government
or political subdivision thereof.
Plan: This Plan of Conversion of the Association, including any
amendment approved as provided in this Plan.
Public Offering: The offering for sale by the Underwriters to the
general public of any shares of Holding Company Conversion Stock not subscribed
for in the Subscription Offering or the Direct Community Offering.
Public Offering Price: The price per share at which any unsubscribed
shares of Holding Company Conversion Stock are initially offered for sale in the
Public Offering.
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Qualifying Deposit: The aggregate balance of each Deposit Account of an
Eligible Account Holder as of the Eligibility Record Date or of a Supplemental
Eligible Account Holder as of the Supplemental Eligibility Record Date.
SAIF: Savings Association Insurance Fund.
SEC: Securities and Exchange Commission.
Special Meeting: The Special Meeting of Members called for the purpose
of considering and voting upon the Plan of Conversion.
Subscription Offering: The offering of shares of Holding Company
Conversion Stock for subscription and purchase pursuant to Section V of the
Plan.
Subscription Rights: Non-transferable, non-negotiable, personal rights
of the Association's Eligible Account Holders, Tax-Qualified Employee Plans,
Supplemental Eligible Account Holders, Other Members, and directors, Officers
and employees to subscribe for shares of Holding Company Conversion Stock in the
Subscription Offering.
Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding approval of the Plan by the OTS.
Supplemental Eligible Account Holder: Any person holding a Qualifying
Deposit in the Association (other than an officer or director and their
associates) on the Supplemental Eligibility Record Date.
Tax-Qualified Employee Plans: Any defined benefit plan or defined
contribution plan of the Association or the Holding Company, 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.
Underwriters: The investment banking firm or firms agreeing to purchase
Holding Company Conversion Stock in order to offer and sell such Holding Company
Conversion Stock in the Public Offering.
Voting Record Date: The date set by the Board of Directors in
accordance with federal regulations for determining Members eligible to vote at
the Special Meeting.
III. STEPS PRIOR TO SUBMISSION OF PLAN OF CONVERSION TO THE MEMBERS
FOR APPROVAL
Prior to submission of the Plan of Conversion to its Members for
approval, the Association must receive from the OTS approval of the Application
for Approval of Conversion to convert to the federal stock form of organization.
The following steps must be taken prior to such regulatory approval:
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A. The Board of Directors shall adopt the Plan by not less than a
two-thirds vote.
B. The Association shall notify its Members of the adoption of the
Plan by publishing a statement in a newspaper having a general circulation
in each community in which the Association maintains an office.
C. Copies of the Plan adopted by the Board of Directors shall be made
available for inspection at each office of the Association.
D. The Association will promptly cause an Application for Approval of
Conversion on Form AC to be prepared and filed with the OTS, an Application
on Form H-(e)1 (or other applicable form) to be prepared and filed with the
OTS and a Registration Statement on Form S-1 (or other applicable form) to
be prepared and filed with the SEC.
E. Upon receipt of notice from the OTS to do so, the Association shall
notify its Members that it has filed the Application for Approval of
Conversion by posting notice in each of its offices and by publishing
notice in a newspaper having general circulation in each community in which
the Association maintains an office.
IV. CONVERSION PROCEDURE
Following approval of the application by the OTS, the Plan will be
submitted to a vote of the Members at the Special Meeting. If the Plan is
approved by Members holding a majority of the total number of votes entitled to
be cast at the Special Meeting, the Association will take all other necessary
steps pursuant to applicable laws and regulations to convert to a federal stock
savings institution as part of a concurrent holding company formation pursuant
to the terms of the Plan.
The Holding Company Conversion Stock will be offered for sale in the
Subscription Offering at the Maximum Subscription Price to Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
Other Members and directors, Officers and employees of the Association, prior to
or within 45 days after the date of the Special Meeting. The Association may,
either concurrently with, at any time during, or promptly after the Subscription
Offering, also offer the Holding Company Conversion Stock to and accept
subscriptions from other Persons in a Direct Community Offering; provided that
the Association's Eligible Account Holders, Tax-Qualified Employee Plans,
Supplemental Eligible Account Holders, Other Members and directors, Officers and
employees shall have the priority rights to subscribe for Holding Company
Conversion Stock set forth in Section V of this Plan. However, the Holding
Company and the Association may delay commencing the Subscription Offering
beyond such 45 day period in the event there exist unforeseen material adverse
market or financial conditions. If the Subscription Offering commences prior to
the Special Meeting, subscriptions will be accepted subject to the approval of
the Plan at the Special Meeting.
The period for the Subscription Offering and Direct Community Offering
will be not less than 20 days nor more than 45 days unless extended by the
Association. Upon completion of the
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Subscription Offering and the Direct Community Offering, if any, any
unsubscribed shares of Holding Company Conversion Stock will, if feasible, be
sold to the Underwriters for resale to the general public in the Public
Offering. If for any reason the Public Offering of all shares not sold in the
Subscription Offering and Direct Community Offering cannot be effected, the
Holding Company and the Association will use their best efforts to obtain other
purchasers, subject to OTS approval. Completion of the sale of all shares of
Holding Company Conversion Stock not sold in the Subscription Offering and
Direct 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 Association with the approval of the OTS. The Holding Company
and the Association may jointly seek one or more extensions of such 45 day
period if necessary to complete the sale of all shares of Holding Company
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. Completion of the sale of all shares of Holding Company
Conversion Stock is required within 24 months after the date of the Special
Meeting.
V. STOCK OFFERING
A. Total Number of Shares and Purchase Price of Conversion Stock
The total number of shares of Holding Company Conversion Stock to be
issued and sold in the Conversion will be determined jointly by the Boards of
Directors of the Holding Company and the Association prior to the commencement
of the Subscription Offering, subject to adjustment if necessitated by market or
financial conditions prior to consummation of the Conversion. The total number
of shares of Holding Company Conversion Stock shall also be subject to increase
in connection with any oversubscriptions in the Subscription Offering or Direct
Community Offering.
The aggregate price for which all shares of Holding Company Conversion
Stock will be sold will be based on an independent appraisal of the estimated
total pro forma market value of the Holding Company and the Converted
Association. Such appraisal shall be performed in accordance with OTS guidelines
and will be updated as appropriate under or required by applicable regulations.
The appraisal will be made by an independent investment banking or
financial consulting firm experienced in the area of thrift institution
appraisals. The appraisal will include, among other things, an analysis of the
historical and pro forma operating results and net worth of the Converted
Association and a comparison of the Holding Company, the Converted Association
and the Conversion Stock with comparable thrift institutions and holding
companies and their respective outstanding capital stocks.
Based upon the independent appraisal, the Boards of Directors of the
Holding Company and the Association will jointly fix the Maximum Subscription
Price.
If, following completion of the Subscription Offering and Direct
Community Offering, a Public Offering is effected, the Actual Subscription Price
for each share of Holding Company
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Conversion Stock will be the same as the Public Offering Price at which
unsubscribed shares of Holding Company Conversion Stock are initially offered
for sale by the Underwriters in the Public Offering. The Public Offering Price
will be a price negotiated by the Holding Company and the Association with the
Underwriters, not in excess of the Maximum Subscription Price. The price paid by
the Underwriters for each unsubscribed share will be the Public Offering Price
less a negotiated underwriting discount.
If, upon completion of the Subscription Offering and Direct Community
Offering, all of the Holding Company Conversion Stock is subscribed for or only
a limited number of shares remain unsubscribed for, or if a Public Offering
otherwise cannot be effected, the Actual Subscription Price for each share of
Holding Company Conversion Stock will be determined by dividing the estimated
appraised aggregate pro forma market value of the Holding Company and the
Converted Association, based on the independent appraisal as updated upon
completion of the Subscription Offering or other sale of all of the Holding
Company Conversion Stock, by the total number of shares of Holding Company
Conversion Stock to be issued and sold by the Holding Company upon Conversion.
Such appraisal will then be expressed in terms of a specific aggregate dollar
amount rather than as a range.
B. Subscription Rights
Non-transferable Subscription Rights to purchase shares will be issued
without payment therefor to Eligible Account Holders, Tax-Qualified Employee
Plans, Supplemental Eligible Account Holders, Other Members and directors,
Officers and employees of the Association as set forth below.
1. Preference Category No. 1: Eligible Account Holders
Each Eligible Account Holder shall receive non-transferable
Subscription Rights to subscribe for shares of Holding Company
Conversion Stock in an amount equal to the greater of $100,000,
one-tenth of one percent (.10%) of the total offering of shares, or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of common 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 qualifying deposits of all Eligible Account Holders in
the converting Association in each case on the Eligibility Record
Date. If sufficient shares are not available, shares shall be
allocated first to permit each subscribing Eligible Account Holder to
purchase to the extent possible 100 shares, and thereafter among each
subscribing Eligible Account Holder pro rata in the same proportion
that his Qualifying Deposit bears to the total Qualifying Deposits of
all subscribing Eligible Account Holders whose subscriptions remain
unsatisfied.
Non-transferable Subscription Rights to purchase Holding Company
Conversion Stock received by directors and Officers of the Association
and their Associates, based on their increased deposits in the
Association in the one year period preceding the Eligibility
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Record Date, shall be subordinated to all other subscriptions
involving the exercise of non-transferable Subscription Rights of
Eligible Account Holders.
2. Preference Category No. 2: Tax-Qualified Employee Plans
Each Tax-Qualified Employee Plan shall be entitled to receive
non-transferable Subscription Rights to purchase up to 10% of the
shares of Holding Company Conversion Stock, provided that singly or in
the aggregate such plans (other than that portion of such plans which
is self-directed) shall not purchase more than 10% of the shares of
the Holding Company Conversion Stock. Subscription Rights received
pursuant to this Category shall be subordinated to all rights received
by Eligible Account Holders to purchase shares pursuant to Category
No. 1; provided, however, that notwithstanding any other provision of
this Plan to the contrary, the Tax-Qualified Employee Plans shall have
a first priority Subscription Right to the extent that the total
number of shares of Holding Company Conversion Stock sold in the
Conversion exceeds the maximum of the appraisal range as set forth in
the subscription prospectus.
3. Preference Category No. 3: Supplemental Eligible Account
Holders
Each Supplemental Eligible Account Holder shall receive
non-transferable Subscription Rights to subscribe for shares of
Holding Company Conversion Stock in an amount equal to the greater of
$100,000, one-tenth of one percent (.10%) of the total offering of
shares, or 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of common
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 qualifying deposits of all
Supplemental Eligible Account Holders in the converting Association in
each case on the Supplemental Eligibility Record Date.
Subscription Rights received pursuant to this category shall be
subordinated to all Subscription Rights received by Eligible Account
Holders and Tax-Qualified Employee Plans pursuant to Category Nos. 1
and 2 above.
Any non-transferable Subscription Rights to purchase shares
received by an Eligible Account Holder in accordance with Category No.
1 shall reduce to the extent thereof the Subscription Rights to be
distributed to such person pursuant to this Category.
In the event of an oversubscription for shares under the
provisions of this subparagraph, the shares available shall be
allocated first to permit each subscribing Supplemental Eligible
Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his total allocation (including the number of
shares, if any, allocated in accordance with Category No. 1) equal to
100 shares, and thereafter among each subscribing Supplemental
Eligible Account Holder pro rata in the same proportion that his
Qualifying Deposit bears to the total Qualifying Deposits of all
subscribing Supplemental Eligible Account Holders whose subscriptions
remain unsatisfied.
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4. Preference Category No. 4: Other Members
Each Other Member shall receive non-transferable Subscription
Rights to subscribe for shares of Holding Company Conversion Stock
remaining after satisfying the subscriptions provided for under
Category Nos. 1 through 3 above, subject to the following conditions:
a. Each Other Member shall be entitled to subscribe for an
amount of shares equal to the greater of $100,000 or one-tenth of
one percent (.10%) of the total offering of shares of common
stock in the Conversion, to the extent that Holding Company
Conversion Stock is available.
b. In the event of an oversubscription for shares under the
provisions of this subparagraph, the shares available shall be
allocated among the subscribing Other Members pro rata in the
same proportion that his number of votes on the Voting Record
Date bears to the total number of votes on the Voting Record Date
of all subscribing Other Members on such date. Such number of
votes shall be determined based on the Association's mutual
charter and bylaws in effect on the date of approval by members
of this Plan of Conversion.
5. Preference Category No. 5: Directors, Officers and Employees
Each director, Officer and employee of the Association as of the
date of the commencement of the Subscription Offering shall be
entitled to receive non-transferable Subscription Rights to purchase
shares of the Holding Company Conversion Stock to the extent that
shares are available after satisfying subscriptions under Category
Nos. 1 through 4 above. The shares which may be purchased under this
Category are subject to the following conditions:
a. The total number of shares which may be purchased under
this Category may not exceed 25% of the number of shares of
Holding Company Conversion Stock.
b. The maximum amount of shares which may be purchased under
this Category by any Person is $100,000 of Holding Company
Conversion Stock. In the event of an oversubscription for shares
under the provisions of this subparagraph, the shares available
shall be allocated pro rata among all subscribers in this
Category.
C. Public Offering and Direct Community Offering
1. Any shares of Holding Company Conversion Stock not subscribed
for in the Subscription Offering may be offered for sale in a Direct
Community Offering. This will involve an offering of all unsubscribed
shares directly to the general public with a preference to those
natural persons residing in the counties in which the Association
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maintains its offices. The Direct Community Offering, if any, shall be
for a period of not less than 20 days nor more than 45 days unless
extended by the Holding Company and the Association, and shall
commence concurrently with, during or promptly after the Subscription
Offering. The purchase price per share to the general public in a
Direct Community Offering shall be the same as the Actual Subscription
Price. The Holding Company and the Association may use an investment
banking firm or firms on a best efforts basis to sell the unsubscribed
shares in the Subscription and Direct Community Offering. The Holding
Company and the Association may pay a commission or other fee to such
investment banking firm or firms as to the shares sold by such firm or
firms in the Subscription and Direct Community Offering and may also
reimburse such firm or firms for expenses incurred in connection with
the sale. The Holding Company Conversion Stock will be offered and
sold in the Direct Community Offering, in accordance with OTS
regulations, so as to achieve the widest distribution of the Holding
Company Conversion Stock. No person, by himself or herself, or with an
Associate or group of Persons acting in concert, may subscribe for or
purchase more than $100,000 of Holding Company Conversion Stock
offered in the Direct Community Offering. Further, the Association may
limit total subscriptions under this Section V.C.1 so as to assure
that the number of shares available for the Public Offering may be up
to a specified percentage of the number of shares of Holding Company
Conversion Stock. Finally, the Association may reserve shares offered
in the Community Offering for sales to institutional investors.
In the event of an oversubscription for shares in the Community
Offering, shares may be allocated (to the extent shares remain
available) first to cover any reservation of shares for a public
offering or institutional orders, next to cover orders of natural
persons residing in the counties in which the Association maintains
its offices, then to cover the orders of any other person subscribing
for shares in the Community Offering so that each such person may
receive 1,000 shares, and thereafter, on a pro rata basis to such
persons based on the amount of their respective subscriptions.
The Association and the Holding Company, in their sole
discretion, may reject subscriptions, in whole or in part, received
from any Person under this Section V.C.
2. Any shares of Holding Company Conversion Stock not sold in the
Subscription Offering or in the Direct Community Offering, if any,
shall then be sold to the Underwriters for resale to the general
public at the Public Offering Price in the Public Offering. It is
expected that the Public Offering will commence as soon as practicable
after termination of the Subscription Offering and the Direct
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 IV hereof. The
Public Offering Price and the underwriting discount shall be
determined as provided in Section V.A hereof and set forth in the
underwriting agreement between the Holding Company, the Association
and the Underwriters. Such underwriting agreement shall be filed with
the OTS and the SEC.
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3. If for any reason a Public Offering of unsubscribed shares of
Holding Company Conversion Stock cannot be effected and any shares
remain unsold after the Subscription Offering and the Direct Community
Offering, if any, the Boards of Directors of the Holding Company and
the Association will seek to make other arrangements for the sale of
the remaining shares. Such other arrangements will be subject to the
approval of the OTS and to compliance with applicable securities laws.
D. Additional Limitations Upon Purchases of Shares of Holding
Company Conversion Stock
The following additional limitations shall be imposed on all purchases
of Holding Company Conversion Stock in the Conversion:
1. No Person, by himself or herself, or with an Associate or
group of Persons acting in concert, may subscribe for or purchase in
the Conversion a number of shares of Holding Company Conversion Stock
which exceeds $200,000 of the Holding Company Conversion Stock offered
in the Conversion. For purposes of this paragraph, an Associate of a
Person does not include a Tax-Qualified or Non-Tax Qualified Employee
Plan in which the person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity. Moreover, for
purposes of this paragraph, shares held by one or more Tax-Qualified
or Non-Tax Qualified Employee Plans attributed to a Person shall not
be aggregated with shares purchased directly by or otherwise
attributable to that Person.
2. Directors and Officers and their Associates may not purchase
in all categories in the Conversion an aggregate of more than 35% of
the Holding Company Conversion Stock. For purposes of this paragraph,
an Associate of a Person does not include any Tax- Qualified Employee
Plan. Moreover, any shares attributable to the Officers and directors
and their Associates, but held by one or more Tax-Qualified Employee
Plans shall not be included in calculating the number of shares which
may be purchased under the limitation in this paragraph.
3. The minimum number of shares of Holding Company Conversion
Stock that may be purchased by any Person in the Conversion is 25
shares, provided sufficient shares are available.
4. The Boards of Directors of the Holding Company and the
Association may, in their sole discretion, increase the maximum
purchase limitation referred to in subparagraph 1. herein up to 9.99%,
provided that orders for shares exceeding 5% of the shares being
offered in the Subscription Offering shall not exceed, in the
aggregate, 10% of the shares being offered in the Subscription
Offering. Requests to purchase additional shares of Holding Company
Conversion Stock under this provision will be allocated by the Boards
of Directors on a pro rata basis giving priority in accordance with
the priority rights set forth in this Section V.
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Depending upon market and financial conditions, the Boards of Directors
of the Holding Company and the Association, with the approval of the OTS and
without further approval of the Members, may increase or decrease any of the
above purchase limitations.
For purposes of this Section V, the directors of the Holding Company
and the Association shall not be deemed to be Associates or a group acting in
concert solely as a result of their serving in such capacities.
Each Person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the above purchase
limitations.
E. Restrictions and Other Characteristics of Holding Company
Conversion Stock Being Sold
1. Transferability. Holding Company Conversion Stock purchased by
Persons other than directors and Officers of the Holding Company or
the Association will be transferable without restriction. Shares
purchased by directors or Officers shall not be sold or otherwise
disposed of for value for a period of one year from the date of
Conversion, except for any disposition of such shares (i) following
the death of the original purchaser, or (ii) resulting from an
exchange of securities in a merger or acquisition approved by the
applicable regulatory authorities. Any transfers that could result in
a change of control of the Association or the Holding Company or
result in the ownership by any Person or group acting in concert of
more than 10% of any class of the Association's or the Holding
Company's equity securities are subject to the prior approval of the
OTS.
The certificates representing shares of Holding Company
Conversion Stock issued to directors and Officers shall bear a legend
giving appropriate notice of the one year holding period restriction.
Appropriate instructions shall be given to the transfer agent for such
stock with respect to the applicable restrictions relating to the
transfer of restricted stock. Any shares of common stock of the
Holding Company subsequently issued as a stock dividend, stock split,
or otherwise, with respect to any such restricted stock, shall be
subject to the same holding period restrictions for Holding Company or
Association directors and Officers as may be then applicable to such
restricted stock.
No director or Officer of the Holding Company or of the
Association, or Associate of such a director or Officer, shall
purchase any outstanding shares of capital stock of the Holding
Company for a period of three years following the Conversion without
the prior written approval of the OTS, except through a broker or
dealer registered with the SEC or in a "negotiated transaction"
involving more than one percent of the then-outstanding shares of
common stock of the Holding Company. 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
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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.
2. Repurchase and Dividend Rights. For a period of three years
following Conversion, the Converted Association shall not repurchase
any shares of its capital stock, except in the case of an offer to
repurchase on a pro rata basis made to all holders of capital stock of
the Converted Association. Any such offer shall be subject to the
prior approval of the OTS. A repurchase of qualifying shares of a
director shall not be deemed to be a repurchase for purposes of this
Section V.E.2.
Present regulations also provide that the Converted Association
may not declare or pay a cash dividend on or repurchase any of its
stock (i) if the result thereof would be to reduce the regulatory
capital of the Converted Association below the amount required for the
liquidation account to be established pursuant to Section XII hereof,
and (ii) except in compliance with requirements of Section 563.134 of
the Rules and Regulations of the OTS.
The above limitations are subject to Section 563b.3 (g)(3) of the
Rules and Regulations of the OTS, which generally provides that the
Converted Association may repurchase its capital stock provided (i) no
repurchases occur within one year following conversion, (ii)
repurchases during the second and third year after conversion are part
of an open market stock repurchase program that does not allow for a
repurchase of more than 5% of the Association's outstanding capital
stock during a twelve-month period without OTS approval, (iii) the
repurchases do not cause the Association to become undercapitalized,
and (iv) the Association provides notice to the OTS at least 10 days
prior to the commencement of a repurchase program and the OTS does not
object. In addition, the above limitations shall not preclude payments
of dividends or repurchases of capital stock by the Converted
Association as otherwise permitted by the OTS.
3. Voting Rights. After Conversion, holders of deposit accounts
will not have voting rights in the Association or the Holding Company.
Exclusive voting rights as to the Association will be vested in the
Holding Company, as the sole stockholder of the Association. Voting
rights as to the Holding Company will be held exclusively by its
stockholders.
F. Exercise of Subscription Rights; Order Forms
1. If the Subscription Offering occurs concurrently with the
solicitation of proxies for the Special Meeting, the subscription
prospectus and Order Form may be sent to each Eligible Account Holder,
Tax-Qualified Employee Plan, Supplemental Eligible Account Holder,
Other Member, and director, Officer and employee at their last known
address as shown on the records of the Association. However, the
Association may, and if the Subscription Offering commences after the
Special Meeting the Association shall, furnish a subscription
prospectus and Order Form only to Eligible Account Holders,
Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
Other Members, and directors, Officers and employees who have returned
to the Association by a specified date prior to
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the commencement of the Subscription Offering a post card or other
written communication requesting a subscription prospectus and Order
Form. In such event, the Association shall provide a postage-paid post
card for this purpose and make appropriate disclosure in its proxy
statement for the solicitation of proxies to be voted at the Special
Meeting and/or letter sent in lieu of the proxy statement to those
Eligible Account Holders, Tax-Qualified Employee Plans or Supplemental
Eligible Account Holders who are not Members on the Voting Record
Date.
2. Each Order Form will be preceded or accompanied by a
subscription prospectus describing the Holding Company and the
Converted Association and the shares of Holding Company Conversion
Stock being offered for subscription and containing all other
information required by the OTS or the SEC or necessary to enable
Persons to make informed investment decisions regarding the purchase
of Holding Company Conversion Stock.
3. The Order Forms (or accompanying instructions) used for the
Subscription Offering will contain, among other things, the following:
(i) A clear and intelligible explanation of the Subscription
Rights granted under the Plan to Eligible Account Holders,
Tax-Qualified Employee Plans, Supplemental Eligible Account
Holders, Other Members, and directors, Officers and employees;
(ii) A specified expiration date by which Order Forms must
be returned to and actually received by the Association or its
representative for purposes of exercising Subscription Rights,
which date will be not less than 20 days after the Order Forms
are mailed by the Association;
(iii) The Maximum Subscription Price to be paid for each
share subscribed for when the Order Form is returned;
(iv) A statement that 25 shares is the minimum number of
shares of Holding Company Conversion Stock that may be subscribed
for under the Plan;
(v) A specifically designated blank space for indicating the
number of shares being subscribed for;
(vi) A set of detailed instructions as to how to complete
the Order Form including a statement as to the available
alternative methods of payment for the shares being subscribed
for;
(vii) Specifically designated blank spaces for dating and
signing the Order Form;
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(viii) An acknowledgment that the subscriber has received
the subscription prospectus;
(ix) A statement of the consequences of failing to properly
complete and return the Order Form, including a statement that
the Subscription Rights will expire on the expiration date
specified on the Order Form unless such expiration date is
extended by the Holding Company and the Association, and that the
Subscription Rights may be exercised only by delivering the Order
Form, properly completed and executed, to the Association or its
representative by the expiration date, together with required
payment of the Maximum Subscription Price for all shares of
Holding Company Conversion Stock subscribed for;
(x) A statement that the Subscription Rights are
non-transferable and that all shares of Holding Company
Conversion Stock subscribed for upon exercise of Subscription
Rights must be purchased on behalf of the Person exercising the
Subscription Rights for his own account; and
(xi) A statement that, after receipt by the Association or
its representative, a subscription may not be modified, withdrawn
or canceled without the consent of the Association.
G. Method of Payment
Payment for all shares of Holding Company Conversion Stock subscribed
for, computed on the basis of the Maximum Subscription Price, must accompany all
completed Order Forms. Payment may be made in cash (if presented in Person), by
check, or, if the subscriber has a Deposit Account in the Association (including
a certificate of deposit), the subscriber may authorize the Association to
charge the subscriber's account.
If a subscriber authorizes the Association to charge his or her
account, the funds will continue to earn interest, but may not be used by the
subscriber until all Holding Company Conversion Stock has been sold or the Plan
of Conversion is terminated, whichever is earlier. The Association will allow
subscribers to purchase shares by withdrawing funds from certificate accounts
without the assessment of early withdrawal penalties with the exception of
prepaid interest in the form of promotional gifts. In the case of early
withdrawal of only a portion of such account, the certificate evidencing such
account shall be canceled if the remaining balance of the account is less than
the applicable minimum balance requirement, in which event the remaining balance
will earn interest at the passbook rate. This waiver of the early withdrawal
penalty is applicable only to withdrawals made in connection with the purchase
of Holding Company Conversion Stock under the Plan of Conversion. Interest will
also be paid, at not less than the then-current passbook rate, on all orders
paid in cash, by check or money order, from the date payment is received until
consummation of the Conversion. Payments made in cash, by check or money order
will be placed by the Association in an escrow or other account established
specifically for this purpose.
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In the event of an unfilled amount of any subscription order, the
Converted Association will make an appropriate refund or cancel an appropriate
portion of the related withdrawal authorization, after consummation of the
Conversion, including any difference between the Maximum Subscription Price and
the Actual Subscription Price (unless subscribers are afforded the right to
apply such difference to the purchase of additional whole shares). If for any
reason the Conversion is not consummated, purchasers will have refunded to them
all payments made and all withdrawal authorizations will be canceled in the case
of subscription payments authorized from accounts at the Association.
If any Tax-Qualified Employee Plans or Non-Tax-Qualified Employee Plans
subscribe for shares during the Subscription Offering, such plans will not be
required to pay for the shares subscribed for at the time they subscribe, but
may pay for such shares of Holding Company Conversion Stock subscribed for upon
consummation of the Conversion. In the event that, after the completion of the
Subscription Offering, the amount of shares to be issued is increased above the
maximum of the appraisal range included in the Prospectus, the Tax Qualified and
Non-Tax Qualified Employee Plans shall be entitled to increase their
subscriptions by a percentage equal to the percentage increase in the amount of
shares to be issued above the maximum of the appraisal range provided that such
subscriptions shall continue to be subject to applicable purchase limits and
stock allocation procedures.
H. Undelivered, Defective or Late Order Forms; Insufficient Payment
The Boards of Directors of the Holding Company and the Association
shall have the absolute right, in their sole discretion, to reject any Order
Form, including but not limited to, any Order Forms which (i) are not delivered
or are returned by the United States Postal Service (or the addressee cannot be
located); (ii) are not received back by the Association or its representative,
or are received after the termination date specified thereon; (iii) are
defectively completed or executed; (iv) are not accompanied by the total
required payment for the shares of Holding Company Conversion Stock subscribed
for (including cases in which the subscribers' Deposit Accounts or certificate
accounts are insufficient to cover the authorized withdrawal for the required
payment); or (v) are submitted by or on behalf of a Person whose representations
the Boards of Directors of the Holding Company and the Association believe to be
false or who they otherwise believe, either alone or acting in concert with
others, is violating, evading or circumventing, or intends to violate, evade or
circumvent, the terms and conditions of this Plan. In such event, the
Subscription Rights of the Person to whom such rights have been granted will not
be honored and will be treated as though such Person failed to return the
completed Order Form within the time period specified therein. The Association
may, but will not be required to, waive any irregularity relating to any Order
Form or require submission of corrected Order Forms or the remittance of full
payment for subscribed shares by such date as the Association may specify. The
interpretation of the Holding Company and the Association of the terms and
conditions of this Plan and of the proper completion of the Order Form will be
final, subject to the authority of the OTS.
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I. Member in Non-Qualified States or in Foreign Countries
The Holding Company and the Association will make reasonable efforts to
comply with the securities laws of all states in the United States in which
Persons entitled to subscribe for Holding Company Conversion Stock pursuant to
the Plan reside. However, no shares will be offered or sold under the Plan of
Conversion to any such Person who (1) resides in a foreign country or (2)
resides in a state of the United States in which a small number of Persons
otherwise eligible to subscribe for shares under the Plan of Conversion reside
or as to which the Holding Company and the Association determine that compliance
with the securities laws of such state would be impracticable for reasons of
cost or otherwise, including, but not limited to, a requirement that the Holding
Company or the Association or any of their officers, directors or employees
register, under the securities laws of such state, as a broker, dealer, salesman
or agent. No payments will be made in lieu of the granting of Subscription
Rights to any such Person.
VI. FEDERAL STOCK CHARTER AND BYLAWS
A. As part of the Conversion, the Association will take all appropriate
steps to amend its charter to read in the form of federal stock savings
institution charter as prescribed by the OTS. A copy of the proposed stock
charter is available upon request. By their approval of the Plan, the Members of
the Association will thereby approve and adopt such charter.
B. The Association will also take appropriate steps to amend its bylaws
to read in the form prescribed by the OTS for a federal stock savings
institution. A copy of the proposed federal stock bylaws is available upon
request.
C. The effective date of the adoption of the Association's federal
stock charter and bylaws shall be the date of the issuance and sale of the
Holding Company Conversion Stock as specified by the OTS.
VII. HOLDING COMPANY CERTIFICATE OF INCORPORATION
A copy of the proposed certificate of incorporation of the Holding
Company will be made available from the Association upon request.
VIII. DIRECTORS OF THE CONVERTED ASSOCIATION
Each Person serving as a member of the Board of Directors of the
Association at the time of the Conversion will thereupon become a director of
the Converted Association.
IX. STOCK OPTION AND INCENTIVE PLAN AND RECOGNITION AND RETENTION PLAN
In order to provide an incentive for directors, Officers and employees
of the Holding Company and its subsidiaries (including the Association), the
Board of Directors of the Holding
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Company intends to adopt, subject to shareholder approval, a stock option and
incentive plan and a recognition and retention plan as soon as permitted by
applicable regulation.
X. CONTRIBUTIONS TO TAX-QUALIFIED EMPLOYEE PLANS
The Converted Association and the Holding Company may in their
discretion make scheduled contributions to any Tax-Qualified Employee Plans,
provided that any such contributions which are for the acquisition of Holding
Company Conversion Stock, or the repayment of debt incurred for such an
acquisition, do not cause the Converted Association to fail to meet its
regulatory capital requirements.
XI. SECURITIES REGISTRATION AND MARKET MAKING
Promptly following the Conversion, the Holding Company will register
its stock with the SEC pursuant to the Exchange Act. In connection with the
registration, the Holding Company will undertake not to deregister such stock,
without the approval of the OTS, for a period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
two or more market makers to establish and maintain a market for its common
stock promptly following Conversion. The Holding Company will also use its best
efforts to cause its common stock to be quoted on the National Association of
Securities Dealers, Inc. Automated Quotations System or to be listed on a
national or regional securities exchange.
XII. STATUS OF SAVINGS ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION
Each Deposit Account holder shall retain, without payment, a
withdrawable Deposit Account or Accounts in the Converted Association, equal in
amount to the withdrawable value of such account holder's Deposit Account or
Accounts prior to Conversion. All Deposit Accounts will continue to be insured
by the Federal Deposit Insurance Corporation up to the applicable limits of
insurance coverage, and shall be subject to the same terms and conditions
(except as to voting and liquidation rights) as such Deposit Account in the
Association at the time of the Conversion. All loans shall retain the same
status after Conversion as these loans had prior to Conversion.
XIII. LIQUIDATION ACCOUNT
For purposes of granting to Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain Deposit Accounts at the
Converted Association a priority in the event of a complete liquidation of the
Converted Association, the Converted Association will, at the time of
Conversion, establish a liquidation account in an amount equal to the net worth
of the Association as shown on its latest statement of financial condition
contained in the final offering circular used in connection with the Conversion.
The creation and maintenance of the liquidation account will not operate to
restrict the use or application of any of the regulatory capital accounts
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of the Converted Association; provided, however, that such regulatory capital
accounts will not be voluntarily reduced below the required dollar amount of the
liquidation account. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to the Deposit Account held, have a related
inchoate interest in a portion of the liquidation account balance ("subaccount
balance").
The initial subaccount balance of a Deposit 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 of
which the numerator is the amount of the Qualifying Deposit in the Deposit
Account on the Eligibility Record Date or the Supplemental Eligibility Record
Date and the denominator is the total amount of the Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders on such
record dates in the Association. Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.
If the deposit balance in any Deposit Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the record date is less than the lesser of (i)
the deposit balance in such Deposit 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 (ii) the amount of the Qualifying
Deposit in such Deposit Account on the Eligibility Record Date or Supplemental
Eligibility Record Date, the subaccount balance shall be reduced in an amount
proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any increase in the deposit balance of the related Deposit
Account. If all funds in such Deposit Account are withdrawn, the related
subaccount balance shall be reduced to zero.
In the event of a complete liquidation of the Association (and only in
such event), each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then-current adjusted subaccount
balances for Deposit Accounts then held before any liquidation distribution may
be made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Deposit Accounts and other liabilities, or similar transactions
with another institution the accounts of which are insured by the Federal
Deposit Insurance Corporation, shall be considered to be a complete liquidation.
In such transactions, the liquidation account shall be assumed by the surviving
institution.
XIV. RESTRICTIONS ON ACQUISITION OF CONVERTED ASSOCIATION
Regulations of the OTS limit acquisitions, and offers to acquire,
direct or indirect beneficial ownership of more than 10% of any class of an
equity security of the Converted Association or the Holding Company. In
addition, consistent with the regulations of the OTS, the charter of the
Converted Association shall provide that for a period of five years following
completion of the Conversion: (i) no Person (i.e., no individual, group acting
in concert, corporation, partnership, association, joint stock company, trust,
or unincorporated organization
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or similar company, syndicate, or any other group formed for the purpose of
acquiring, holding or disposing of securities of an insured institution) shall
directly or indirectly offer to acquire or acquire beneficial ownership of more
than 10% of any class of the Association's equity securities. Shares
beneficially owned in violation of this charter provision 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 the shareholders for a
vote. This limitation shall not apply to any offer to acquire or acquisition of
beneficial ownership of more than 10% of the common stock of the Association by
a corporation whose ownership is or will be substantially the same as the
ownership of the Association, provided that the offer or acquisition is made
more than one year following the date of completion of the Conversion; (ii)
shareholders shall not be permitted to cumulate their votes for elections of
directors; and (iii) special meetings of the shareholders relating to changes in
control or amendment of the charter may only be called by the Board of
Directors.
XV. AMENDMENT OR TERMINATION OF PLAN
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the respective Boards of Directors of the Holding Company and the
Association. After submission of the Plan and proxy materials to the Members,
the Plan may be amended by a two-thirds vote of the respective Boards of
Directors of the Holding Company and the Association only with the concurrence
of the OTS. Any amendments to the Plan made after approval by the Members with
the concurrence of the OTS shall not necessitate further approval by the Members
unless otherwise required.
The Plan may be terminated by a two-thirds vote of the Association's
Board of Directors at any time prior to the Special Meeting of Members, and at
any time following such Special Meeting with the concurrence of the OTS. In its
discretion, the Board of Directors of the Association may modify or terminate
the Plan upon the order or with the approval of the OTS and without further
approval by Members. The Plan shall terminate if the sale of all shares of
Conversion Stock is not completed within 24 months of the date of the Special
Meeting. A specific resolution approved by a majority of the Board of Directors
of the Association is required in order for the Association to terminate the
Plan prior to the end of such 24 month period.
XVI. EXPENSES OF THE CONVERSION
The Holding Company and the Association shall use their best efforts to
assure that expenses incurred by them in connection with the Conversion shall be
reasonable.
XVII. TAX RULING
Consummation of the Conversion is expressly conditioned upon prior
receipt of either a ruling of the United States Internal Revenue Service or an
opinion of tax counsel with respect to federal taxation, and either a ruling of
the Kansas taxation authorities or an opinion of tax counsel or other tax
advisor with respect to Kansas taxation, to the effect that consummation of the
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transactions contemplated herein will not be taxable to the Holding Company or
the Association.
XVIII. EXTENSION OF CREDIT FOR PURCHASE OF STOCK
The Association may not knowingly loan funds or otherwise extend credit
to any Person to purchase in the Conversion shares of Holding Company Conversion
Stock.
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ARTICLES OF INCORPORATION
OF
FIRST FEDERAL OF OLATHE BANCORP, INC.
ARTICLE I
Name
The name of the corporation is First Federal Olathe
of Bancorp, Inc. (herein the "Corporation").
ARTICLE II
Registered Office
The address of the Corporation's registered office in the State of
Kansas is 100 East Park Street, Johnson County, Olathe, Kansas 66061. The name
of the Corporation's registered agent at such address is Mr. Mitch Ashlock,
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
---- ---------------
Mitch Ashlock 100 East Park Street
Olathe, Kansas 66061
ARTICLE VI
Capital Stock
The aggregate number of shares of all classes of capital stock which
the Corporation has authority to issue is 5,000,000 shares of which 4,000,000
are to be shares of common stock, $0.01 par value per share, and of which
1,000,000 are to be shares of serial preferred stock, $0.01 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 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
<PAGE>
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 and if
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
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
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<PAGE>
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.
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
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<PAGE>
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
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,
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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.
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
------- -------- ---------
John M. Bowen Mitch Ashlock Donald K. Ashlock
Carl R. Palmer Marvin Eugene Wollen
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
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provisions of this Article XII shall not apply with respect to the director or
directors elected by such holders of preferred stock.
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 Federal Savings and Loan Association of Olathe 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 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;
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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, a group acting in
concert, a 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.
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
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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;
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,
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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 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.
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.
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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.
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
market value of the common stock shall mean the fair market value on 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.
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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
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.
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.
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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.
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
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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.
F. To the extent that a person named in Subsection A of this Article
XVIII has been successful on the merits or otherwise in defense 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
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agreements with its officers, directors, employees and agents for the purpose of
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.
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
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(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).
15
BYLAWS
OF
FIRST FEDERAL OF OLATHE BANCORP, INC.
ARTICLE I
Principal Office
The home office of First Federal of Olathe Bancorp, Inc. (the
"Company") shall be at 100 East Park Street, in the City of Olathe, Johnson
County, 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 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.
<PAGE>
In order that the Company may determine the 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.
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 Company 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 Company 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
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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 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
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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 90
days prior to the date of the meeting; provided however, that in the event that
less than 100 days' notice or prior disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the 10th day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made. 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. To be timely, the stockholder's
notice shall be delivered to, or mailed and received at, the principal office of
the Company not less than 90 days prior to the date of the meeting; provided,
however, that in the event that less than 100 days' notice or prior disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. 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.
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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 five 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 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.
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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.
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
Company, 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.
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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 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 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.
7
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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.
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.
8
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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.
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.
9
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
FEDERAL STOCK CHARTER
Section 1. Corporate Title. The full corporate title of the savings
association is First Federal Savings and Loan Association of Olathe (the
"Association").
Section 2. Office. The home office shall be located in the City of
Olathe, Johnson County, State of Kansas.
Section 3. Duration. The duration of the Association is perpetual.
Section 4. Purpose and Powers. The purpose of the Association is to
pursue any or all of the lawful objectives of a Federal savings association
chartered under Section 5 of the Home Owners' Loan Act and to exercise all of
the express, implied, and incidental powers conferred thereby and by all acts
amendatory thereof and supplemental thereto, subject to the Constitution and
laws of the United States as they are now in effect, or as they may hereafter be
amended, and subject to all lawful and applicable rules, regulations, and orders
of the Office of Thrift Supervision (the "Office").
Section 5. Capital Stock. The total number of shares of all classes of
the capital stock which the Association has authority to issue is 5,000,000 of
which 4,000,000 shares shall be common stock, par value $0.01 per share, and of
which 1,000,000 shares shall be serial preferred stock. The shares may be issued
from time to time as authorized by the board of directors without the approval
of its shareholders except as otherwise provided in this Section 5 or to the
extent that such approval is required by governing law, rule, or regulation. The
consideration for the issuance of the shares shall be paid in full before their
issuance and shall not be less than the par or stated value. Neither promissory
notes nor future services shall constitute payment or part payment for the
issuance of shares of the Association. The consideration for the shares shall be
cash, tangible or intangible property (to the extent direct investment in such
property would be permitted to the Association), labor or services actually
performed for the Association, or any combination of the foregoing. In the
absence of actual fraud in the transaction, the value of such property, labor,
or services, as determined by the board of directors of the Association, 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, that part
of the retained earnings of the Association that is transferred to common stock
or paid-in capital accounts upon the issuance of shares as a stock dividend
shall be deemed to be the consideration for their issuance.
Except for shares issued in the initial organization of the Association
or in connection with the conversion of the Association from the mutual to the
stock form of capitalization, no shares of capital stock (including shares
issuable upon conversion, exchange, or exercise of other securities) shall be
issued, directly or indirectly, to officers, directors, or controlling persons
of the Association other than as part of a general public offering or as
qualifying shares to a director, unless their issuance or the plan under which
they would be issued has been approved by a majority of the total votes eligible
to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, and their
shall be no cumulation of votes for the election of directors. Provided, that
this restriction on voting separately by class or series shall not apply:
<PAGE>
(i) To any provision which would authorize the holders of
preferred stock, voting as a class or series, to elect some
members of the board of directors, less than a majority
thereof, in the event of default in the payment of dividends
on any class or series of preferred stock;
(ii) To any provision which would require the holders of
preferred stock, voting as a class or series, to approve the
merger or consolidation of the Association with another
corporation or the sale, lease, or conveyance (other than by
mortgage or pledge) of properties or business in exchange
for securities of a corporation other than the Association
if the preferred stock is exchanged for securities of such
other corporation: Provided, that no provision may require
such approval for transactions undertaken with the
assistance or pursuant to the direction of the Office or the
Federal Deposit Insurance Corporation;
(iii) To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth
in this Section 5 (or in any supplementary sections hereto),
including any amendment which would create or enlarge any
class or series ranking prior thereto in rights and
preferences. An amendment which increases the number of
authorized shares of any class or series of capital stock,
or substitutes the surviving Association in a merger or
consolidation for the Association, shall not be considered
to be such an adverse change.
A description of the different classes and series of the Association's
capital stock and a statement of the designations, and the relative rights,
preferences and limitations of the shares of each class of and series of capital
stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of 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 holder, except as to the
cumulation of votes for the election of directors, unless the charter otherwise
provides that there shall be no such cumulative voting.
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 payment of dividends, the full amount of
dividends and of sinking fund, 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.
In the event of any liquidation, dissolution, or winding up of the
Association, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind, the
assets of the Association available for distribution remaining after: (i)
payment or provision for payment of the Association's debts and liabilities;
(ii) distributions or provision for distributions in settlement of its
liquidation account; and (iii) distributions or provisions for distributions to
holders of any class or series of stock having preference over the common stock
in the liquidation, dissolution, or winding up of the Association. Each share of
common stock shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
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<PAGE>
B. Preferred Stock. The Association may provide in supplementary
sections to its charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into and issued
in series, with each series separately designated so as to distinguish the
shares thereof from the shares of all other series and classes. The terms of
each series shall be set forth in a supplementary section to the charter. All
shares of the same class shall be identical, except as to the following relative
rights and preferences, as to which there may be variations between different
series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate 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(s), the payment
date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of
such series;
(d) Whether the shares of such series shall be redeemable and,
if so, the price(s) at which, and the terms and conditions
on which, such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution,
or winding up of the Association;
(f) Whether the shares of such series shall be entitled to the
benefit 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(s) at which such shares may be redeemed
or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes of
stock of the Association and, if so, the conversion price(s)
or the rate(s) 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;
(h) The price or other consideration for which the shares of
such series shall be issued; and
(i) 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 rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock into
series and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
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<PAGE>
Prior to the issuance of any preferred shares of a series established
by a supplementary charter section adopted by the board of directors, the
Association shall file with the Secretary to the Office a dated copy of that
supplementary section of this charter establishing and designating the series
and fixing and determining the relative rights and preferences thereof.
Section 6. Preemptive Rights. Holders of the capital stock of the
Association shall not be entitled to preemptive rights with respect to any
shares of the Association which may be issued.
Section 7. Directors. The Association shall be under the direction of a
board of directors. The authorized number of directors, as stated in the
Association's bylaws, shall not be fewer than five nor more than fifteen except
when a greater or lesser number is approved by the Director of the Office, or
his or her delegate.
Section 8. Liquidation Account. Pursuant to the requirements of the
Office's regulations (12 C.F.R. Subchapter D), the Association shall establish
and maintain a liquidation account for the benefit of its savings account
holders as of June 30, 1998 and December 31, 1999 ("eligible savers"). In the
event of a complete liquidation of the Association, it shall comply with such
regulations with respect to the amount and the priorities on liquidation of each
of the savings association's eligible saver's inchoate interest in the
liquidation account, to the extent it is still in existence; provided, that an
eligible saver's inchoate interest in the liquidation account shall not entitle
such eligible saver to any voting rights at meetings of the savings
association's shareholders.
Section 9. Certain Provisions Applicable for Five Years.
Notwithstanding anything contained in the Association's charter or bylaws to the
contrary, for a period of five years from the effective date of this Charter,
the following provisions shall apply:
A. Beneficial Ownership Limitation. No person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10
percent of the any class of an equity security of the Association. This
limitation shall not apply to a transaction in which the Association forms a
holding company without change in the respective beneficial ownership interests
of its stockholders other than pursuant to the exercise of any dissenter and
appraisal rights, the purchase of shares by underwriters in connection with a
public offering, or the purchase of shares by a tax-qualified employee stock
benefit plan which is exempt from the approval requirements under Section
574.3(c)(l)(vi) of the Office's regulations.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10% shall be considered
"excess shares" and 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
matters submitted to the stockholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) 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 the
equity securities of the Association.
(2) The term "offer" includes every offer to buy or otherwise 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.
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<PAGE>
(3) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) 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 arrangements,
whether written or otherwise.
B. Call for Special Meetings. Special meetings of stockholders relating
to changes in control of the Association or amendments to its charter shall be
called only upon direction of the board of directors.
Section 10. Amendment of Charter. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the board of directors of the
Association, approved by the shareholders of a majority of the votes eligible to
be cast at a legal meeting, unless a higher vote is otherwise required, and
approved or preapproved by the Office.
5
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FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
ATTEST: _____________________________________
Kenda Camp
Corporate Secretary
BY: _____________________________________
Mitch Ashlock
President and Chief Executive Officer
OFFICE OF THRIFT SUPERVISION
ATTEST: _________________________________________
Secretary of Office of Thrift Supervision
BY: _________________________________________
Director of Office of Thrift Supervision
Effective Date: _________________________
6
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
BYLAWS
ARTICLE I - Home Office
The home office of First Federal Savings and Loan Association of Olathe
(the "Association") shall be at 100 East Park Street in the City of Olathe, in
Johnson County, in the State of Kansas.
ARTICLE II - Shareholders
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the Association or at such
other convenient place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the
Association for the election of directors and for the transaction of any other
business of the Association shall be held annually within 150 days after the end
of the Association's fiscal year, on the Wednesday following the third week in
April of each calendar year, if not a legal holiday, and if a legal holiday,
then on the next day following which is not a legal holiday, at 4:30 p.m., or at
such other date and time within such 150-day period as the board of directors
may determine.
Section 3. Special Meetings. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision (the "Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Association entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Association addressed to the
chairman of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by the Office or these bylaws or the board of
directors adopts another written procedure for the conduct of meetings. The
board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, date,
and hour of the meeting and the purpose(s) for which the meeting is called shall
be delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the Association as of the record date prescribed in Section
6 of this Article II with postage prepaid. When any shareholders' meeting,
either annual or special, is adjourned for 30 days or more, 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 less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
<PAGE>
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
Section 7. Voting List. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Association shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each. This
list of shareholders shall be kept on file at the home office of the Association
and shall be subject to inspection by any shareholder of record or the
shareholder's agent at any time during usual business hours for a period of 20
days prior to such meeting. Such list also shall be produced and kept open at
the time and place of the meeting and shall be subject to inspection by any
shareholder of record or the shareholder's agent during the entire time of the
meeting. The original stock transfer book shall constitute prima facie evidence
of the shareholders entitled to examine such list or transfer books or to vote
at any meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures described in ss. 552.6(d) of the Office's
regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the
Association entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of the
outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
The shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdraw of enough shareholders
to constitute less than a quorum. If a quorum is present the affirmative vote of
the majority of the shares represented at the meeting and entitled to vote on
the subject matter shall be the act of the shareholders, unless the vote of a
greater number of shareholders voting together or voting by classes is required
by law or the charter. Directors, however, are elected by a plurality of the
votes cast at an election of directors.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
vote in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Proxies may be given telephonically or
electronically as long as the holder uses a procedure for verifying the identity
of the shareholder. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Association to the contrary, at any meeting of shareholders of
the Association any one or more of such shareholders may cast in person or by
proxy, all votes to which such ownership is entitled. In the event an attempt is
made to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes
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to which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares of Certain Holders. Shares standing in the
name of another corporation may be voted by any 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 or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares held in trust or an IRA or Keogh Account, however may be voted by the
Association if no other instructions are received. Shares standing in the name
of a receiver may be voted by such receiver, and shares held by or under the
control of a receiver may be voted by such receiver without the transfer into
his or her 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 shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Association 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
Association, 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. Cumulative Voting. Stockholders may not cumulate their
votes for election of directors.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. 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
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and 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 rights 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 shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the nominees for election as directors.
Except in the case of a nominee substituted as a result of the death or other
incapacity of a management nominee, the nominating committee shall deliver
written
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nominations to the secretary at least 20 days prior to the date of the annual
meeting. Upon delivery, such nominations shall be posted in a conspicuous place
in each office of the Association. No nominations for directors except those
made by the nominating committee shall be voted upon at the annual meeting
unless other nominations by shareholders are made in writing and delivered to
the secretary of the Association at least five days prior to the date of the
annual meeting. Upon delivery, such nominations shall be posted in a conspicuous
place in each office of the Association. Ballots bearing the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
Section 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the
Association at least five days prior to the date of the annual meeting, and all
business so stated, proposed, and filed shall be considered at the annual
meeting; but no other proposal shall be acted upon at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless stated in writing and filed with the
secretary at least five days before the meeting, such proposal shall be laid
over for action at an adjourned, special or annual meeting of the shareholders
taking place 30 days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors, and committees; but in connection with such reports, no new
business shall be acted upon at such annual meeting unless stated and filed as
herein provided.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - Board of Directors
Section 1. General Powers. The business and affairs of the Association
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of
five 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 and qualified. One class shall be
elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of
directors shall be held without notice other than this bylaw immediately
following the annual meeting of shareholders. The board of directors may
provide, by resolution, the time and place for the holding of additional regular
meetings without notice other than such resolution. Directors may participate in
a meeting by means of a conference telephone or similar communications device
through which all persons participating can hear each other at the same time.
Participation by such means shall constitute presence in person for all
purposes.
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Section 4. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the Association's normal
lending territory, 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. Such participation
shall constitute presence in person for all purposes.
Section 5. Notice. Written notice of any special meeting shall be given
to each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when 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 mail so addressed, with postage
prepaid if mailed, or when delivered to the telegraph company if sent by
telegram or when the Association receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the secretary. 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 of waiver of notice of such meeting.
Section 6. Quorum. A majority of the number of directors fixed by
Section 2 of this 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 5 of this Article III.
Section 7. 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 board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 8. 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.
Section 9. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the Association
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president. More than three consecutive absences from regular
meetings of the board of directors, unless excused by resolution of the board of
directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
Section 10. Vacancies. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve only until the next election of
directors by the shareholders. Any directorship to be filled by reason of an
increase in the number of directors may
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be filled by election by the board of directors for a term of office continuing
only until the next election of directors by the shareholders.
Section 11. Compensation. Directors, as such, may receive a stated
salary 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
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
attendance at committee meetings as the board of directors may determine.
Section 12. Presumption of Assent. A director of the Association who is
present at a meeting of the board of directors at which action on any
Association matter is taken shall be presumed to have assented to the action
taken unless his or her dissent or abstention shall be entered in the minutes of
the meeting or unless he or she 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
Association within five days after the date a copy of the minutes of the meeting
is received. Such right to dissent shall not apply to a director who voted in
favor of such action.
Section 13. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to elect
one or more directors by the provisions of the charter or supplemental sections
thereto, the provisions of this section shall apply, in respect to the removal
of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
ARTICLE IV - Executive And Other Committees
Section 1. Appointment. The board of directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the Association; or recommending to the shareholders a plan
of merger, consolidation, or conversion; the sale, lease, or other disposition
of all or substantially all of the property and assets of the Association
otherwise than in the usual and regular course of its business; a voluntary
dissolution of the Association; a revocation of any of the foregoing; or the
approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
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Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted
to be taken by the executive committee 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 members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the Association. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Association and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - Officers
Section 1. Positions. The officers of the Association shall be a
president, one or more vice presidents, a secretary, and a treasurer or
comptroller, each of whom shall be elected by the board of directors. The board
of directors also may designate the chairman of the board as an officer. The
offices of the secretary and treasurer or comptroller may be held by the same
person and a vice president also may be either the secretary or the treasurer or
comptroller. The board of directors may designate one or more vice presidents as
executive vice president or senior vice president. The board of directors also
may elect or authorize the appointment of such other officers as the business of
the Association 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.
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<PAGE>
Section 2. Election and Term of Office. The officers of the Association
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. 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 has been duly elected
and qualified or until the officer's death, resignation, or removal in the
manner hereinafter provided. Election or appointment of an officer, employee, or
agent shall not of itself create contractual rights. The board of directors may
authorize the Association to enter into an employment contract with any officer
in accordance with regulations of the Office; 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 board of
directors whenever in its judgment the best interests of the Association will be
served thereby, but such removal, other than for cause, shall be without
prejudice to any contractual 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.
ARTICLE VI - Contracts, Loans, Checks, and Deposits
Section 1. Contracts. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee or agent of the Association to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Association. Such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
Association 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 Association shall be signed by one or more officers, employees, or
agents of the Association in such manner as shall from time to time be
determined by the board of directors.
Section 4. Deposits. All funds of the Association not otherwise
employed shall be deposited from time to time to the credit of the Association
in any duly authorized depositories as the board of directors may select.
ARTICLE VII - Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the Association shall be in such form as shall be determined by
the board of directors and approved by the Office. Such certificates shall be
signed by the chief executive officer or by any other officer of the Association
authorized by the board of directors, attested by the secretary or an assistant
secretary, and
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<PAGE>
sealed with the corporate seal or a facsimile thereof. The signatures of such
officers upon a certificate may be facsimiles if the certificate is manually
signed on behalf of a transfer agent or a registrar other than the Association
itself or one of its employees. Each certificate for shares of capital stock
shall be consecutively numbered or otherwise identified. The name and address of
the person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Association. All
certificates surrendered to the Association for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares has been surrendered and cancelled, except that in the case of
a lost or destroyed certificate, a new certificate may be issued upon such terms
and indemnity to the Association as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
the Association shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Association. 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 Association shall be deemed by the Association
to be the owner for all purposes.
ARTICLE VIII - Fiscal Year
The fiscal year of the Association shall end on the last day of
December of each year. The appointment of such accountants shall be subject to
annual ratification by the shareholders.
ARTICLE IX - Dividends
Subject to the terms of the Association's charter and the regulations
and orders of the Office, the board of directors may, from time to time,
declare, and the Association may pay, dividends on its outstanding shares of
capital stock.
ARTICLE X - Corporate Seal
The board of directors shall provide an Association seal which shall be
two concentric circles between which shall be the name of the Association. The
year of incorporation or an emblem may appear in the center.
ARTICLE XI - Amendments
These bylaws may be amended in a manner consistent with regulations of
the Office and shall be effective after: (i) approval of the amendment by a
majority vote of the authorized board of directors, or by a majority vote of the
votes cast by the shareholders of the Association at any legal meeting, and (ii)
receipt of any applicable regulatory approval. When an association fails to meet
its quorum requirements, solely due to vacancies on the board, then the
affirmative vote of a majority of the sitting board will be required to amend
the bylaws.
9
[FORM OF STOCK CERTIFICATE]
INCORPORATED UNDER THE LAWS OF THE STATE OF KANSAS
FIRST FEDERAL OF OLATHE BANCORP, INC.
OLATHE, KANSAS
$0.01 par value common stock--fully paid and non assessable
This certifies that _____________________________ is the owner of __________
shares of the common stock of First Federal of Olathe Bancorp, Inc. (the
"Corporation"), a Kansas corporation.
The shares evidenced by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, in person or
by his duly authorized attorney or legal representative, upon surrender of this
certificate properly endorsed. This Certificate in not valid until countersigned
and registered by the Corporation's transfer agent and registrar. This security
is not a deposit or savings account and is not federally insured or guaranteed.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed
by the facsimile signatures of its duly authorized officers and has caused its
seal to be affixed hereto.
DATED:____________________
______________________________ __________________________
Secretary (SEAL) President
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
The shares evidenced by this Certificate are subject to a limitation
contained in the Articles of Incorporation of First Federal of Olathe Bancorp,
Inc. (the "Corporation") to the effect that 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 shares held in excess of the Limit. The
Limit shall not be applicable to an acquisition of Common Stock by an employee
stock purchase plan or other employee benefit plan of the Corporation or any of
its subsidiaries.
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 voting powers, designations,
preferences, and relative, participating, optional, or other special rights of
the shares of such series, and 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
on any matter. The Articles of Incorporation requires the affirmative vote of
the holders of not less than 80% of the voting stock of the Corporation, voting
together as a single class, to approve certain business combinations and other
transactions and to amend certain provisions of the Articles of Incorporation.
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:
TEN COM - as tenants in common UNIF GIFT MIN ACT - _____Custodian_______
(Cust) (Minor)
TEN ENT - as tenants by the entireties
Under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right
of survivorship and not as _________________________________
tenants in common (State)
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 NUMBER OR OTHER IDENTIFYING NUMBER
________________________________________________________________________________
(please print or typewrite name and address including
postal 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 shares on the books of
the within named corporation with full power of substitution in the premises.
Dated, _____________________________
In the presence of Signature:
_____________________________________ ________________________________
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
(202) 274-2020
December 15, 1999
The Board of Directors
First Federal Savings and Loan Association of Olathe
100 East Park Street
Olathe, Kansas 66061
Re: First Federal of Olathe Bancorp, Inc.
Common Stock Par Value $ 0.01 Per Share
---------------------------------------
Gentlemen:
You have requested the opinion of this firm as to certain matters in
connection with the offer and sale (the "Offering") of First Federal of Olathe
Bancorp, Inc. (the "Company") Common Stock, par value $0.01 per share ("Common
Stock"). We have reviewed the Company's Articles of Incorporation, Registration
Statement on Form SB-2 ("Form SB-2"), as well as applicable statutes and
regulations governing the Company and the offer and sale of the Common Stock.
We are of the opinion that upon the declaration of effectiveness of the
Form SB-2 and sale of the Common Stock in accordance with the discussion set for
tin the Form SB-2, the Common Stock, when sold, will be legally issued, fully
paid and non-assessable.
This Opinion has been prepared for the use of the Company in connection
with its Registration Statement on Form SB-2, and we hereby consent to the
filing of this Opinion as an exhibit to such registration statement and to our
firm being referenced under the caption "Legal and Tax Matters."
Very truly yours,
LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
/s/ Robert I. Lipsher
--------------------------
By: Robert I. Lipsher
FORM OF FEDERAL TAX OPINION OF COUNSEL
___________, 2000
Board of Directors
First Federal Savings and Loan Association of Olathe
100 East Park Street
Olathe, Kansas 66061
Re: Federal Income Tax Consequences Relating to Conversion of the
Association from a Federal Mutual Savings and Loan Association to
a Federal Stock Savings and Loan Association and the Acquisition
of the Stock Institution's Stock by a Stock Holding Company
-----------------------------------------------------------------
Gentlemen:
In accordance with your request, set forth herein is the opinion of
this firm relating to the federal income tax consequences of the proposed
conversion of First Federal Savings and Loan Association of Olathe (the
"Association") from a federal mutual savings and loan association to a federal
stock savings and loan association (the "Stock Association"), and the
acquisition of the Stock Association's capital stock by First Federal of Olathe
Bancorp, Inc. (the "Holding Company"), pursuant to the plan of conversion
adopted by the Board of Directors on October 13, 1999 (the "Plan of
Conversion"). The proposed transaction is described in the Prospectus and the
Plan of Conversion, and the tax consequences of the proposed transaction will be
as set fort in the section of this letter entitled "OPINION"
For purposes of this opinion, we have examined such documents and
questions of law as we have considered necessary or appropriate.
In issuing our opinion, we have assumed that the Plan of Conversion has
been duly and validly authorized and has been approved and adopted by the board
of directors of the Association at a meeting duly called and held; that the
Association will comply with the terms and conditions of the Plan of Conversion,
and that the various representations and warranties which are provided to us are
accurate, complete, true and correct. Accordingly, we express no opinion
concerning the effect, if any, of variations from the foregoing. We specifically
express no opinion concerning tax matters relating to the Plan of Conversion
under state and local tax laws and under Federal income tax laws except on the
basis of the documents and assumptions described above. Terms used herein but
not defined herein, whether capitalized or not, shall have the same meaning as
set forth in the Plan of Conversion.
For purposes of this opinion, we are also relying on the
representations provided to us by the Association as described in the Affidavit
of the Association's President and Chief Executive Officer as attached hereto
and incorporated herein.
<PAGE>
Board of Directors
First Federal Savings and Loan Association of Olathe
____________, 2000
Page 2
In issuing the opinion set forth below, we have relied solely on
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"); existing and proposed Treasury Regulations (the "Regulations")
thereunder; current administrative rulings, notices and procedures; and court
decisions. Such laws, regulations, administrative rulings, notices and
procedures and court decisions are subject to change at any time. Any such
change could affect the continuing validity of the opinions set forth below.
This opinion is as of the date hereof, and we disclaim any obligation to advise
you of any change in any matter considered herein after the date hereof.
The Association, with its headquarters in Olathe, Kansas is a
federally-chartered mutual savings and loan association. As a mutual savings and
loan association, the Association has never been authorized to issue stock.
Instead, the proprietary interest in the reserves and undivided profits of the
Association belong to the deposit account holders of the Association,
hereinafter sometimes referred to as "depositors." A depositor of the
Association has a right to share, pro rate, with respect to the withdrawal value
of his respective Deposit Account in any liquidation proceeds distributed in the
event the Association is ever liquidated. In addition, a depositor of the
Association is entitled to interest in his account balance as fixed and paid by
the Association.
In order to provide organizational and economic strength to the
Association, the Board of Directors has adopted the plan of Conversion whereby
the Association will convert itself into a federally-chartered stock savings
bank, the stock of which will be held entirely by the Holding Company. The
Holding Company will acquire the stock of the Stock Association by purchase, in
exchange for a portion of the proceeds from the Conversion. The Holding Company
will apply to the Office of Thrift Supervision ("OTS") to retain up to 50% of
the proceeds received from the Conversion. The aggregate sales price of the
Conversion Stock will be based on an independent appraiser's valuation of the
estimated pro forma market value of the Holding Company and the Stock
Association. The Conversion and sale of the Conversion Stock will be subject to
the applicable regulatory approval and the approval by the affirmative vote of a
majority of the Members of the Association.
The Association 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 Stock
Association for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their deposit accounts at the
Stock Association. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to his Deposit Account, hold a related
inchoate interest in a portion of the liquidation account balance, in relation
to his Deposit Account balance on the Eligibility Record Date and/or
Supplemental Eligibility Record Date or to such balance as it may be
subsequently reduced, as provided in the Plan of Conversion.
In the unlikely event of a complete liquidation of the Stock
Association (and only in such event), following all liquidation payments to
creditors (including those to account holders to the extent of their deposit
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 Deposit
Accounts then held, before any liquidation distribution may be made to any
holders of the Stock Association's capital stock. No merger, consolidation,
purchase of bulk assets with assumption of Savings Accounts and other
<PAGE>
Board of Directors
First Federal Savings and Loan Association of Olathe
____________, 2000
Page 3
liabilities, or similar transaction with a Federal Deposit Insurance Corporation
("FDIC") institution, in which the Stock Association 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.
Following the Conversion, voting rights in the Stock Association will
rest exclusively with the shareholder of stock in the Stock Association, which
will be the Holding Company. Voting rights in the Holding Company will rest
exclusively with the holders of its capital stock. The Conversion will not
interrupt the business of the Association, and its business will continue as
usual under the Stock Association. Each depositor will retain a withdrawable
savings account or accounts equal in dollar amount to, and on the same terms and
conditions as, the withdrawable account or accounts at the time of the
Conversion except to the extent funds or deposits are used to pay for Holding
Company Conversion Stock. All loans of the Association will remain unchanged and
retain their same characteristics in the Stock Association after the Conversion.
Following the Conversion, the Stock Association will continue to engage in the
same business as the Association immediately prior to the Conversion, and the
Stock Association will continue to have its savings accounts insured by the
Federal Deposit Insurance Corporation up to applicable limits.
Immediately prior to the Conversion, the Association will have a
positive net worth determined in accordance with generally accepted accounting
principles.
LIMITATIONS ON OPINION
Our opinions expressed herein are based upon current provisions of the
Internal Revenue Code of 1986, as amended ("Code") including applicable
regulations thereunder and current judicial and administrative authority. Any
future amendments to the Code or applicable regulations, or new judicial
decisions or administrative interpretations, any of which could be retroactive
in effect, could cause us to modify our opinion. No opinion is expressed herein
with regard to the federal, state or city tax consequences of the Conversion
under any section of the Code except if and to the extent specifically
addressed.
OPINION
Based on the foregoing, and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed Conversion:
1. The conversion of the Association from mutual to stock form will
qualify as a reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code, and no gain or loss will be recognized by
the Association in either its mutual form or its stock form by
reason of the proposed conversion.
2. No gain or loss will be recognized by the Association upon the
receipt of money from Holding Company for stock of the Stock
Association; and no gain or loss will
<PAGE>
Board of Directors
First Federal Savings and Loan Association of Olathe
____________, 2000
Page 4
be recognized by the Holding Company upon the receipt of money
for common stock of the Holding Company. (Code Section 1032(a)).
3. No gain or loss will be recognized by Eligible Account Holders
and Supplemental Eligible Account Holders of the Association upon
the issuance to them of withdrawable deposit accounts in the
Stock Association plus an interest in the liquidation account of
Stock Association in exchange for their deposit accounts in the
Association in its mutual form. (Code Section 354(a)).
4. Assuming the non-transferable subscription rights to purchase
common stock have no value, the tax basis of an account holder's
deposit accounts in the Stock Association will be the same as the
basis of the account holder's deposit accounts in the Association
in its mutual form.
5. Assuming the non-transferable subscription rights to purchase
common stock have no value, the tax basis of each Eligible
Account Holder's and Supplemental Eligible Account Holder's
interest in the liquidation account will be zero.
6. The basis of the Holding Company common stock to its shareholders
will be the purchase price thereof and a shareholder's holding
period for Holding Company common stock acquired through the
exercise of subscription rights shall begin on the date of
consummation of the Conversion. (Code Sections 1012 and 1223(6)).
CONSENT
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form SB-2 ("Registration Statement") of the Holding
Company filed with the Securities and Exchange Commission with respect to the
Conversion and as an exhibit to the Application for Conversion on Form AC ("Form
AC") of the Association filed with the OTS with respect to the Conversion. We
also hereby consent to the references to this firm in the prospectus which is a
part of both the Registration Statement and the Form AC.
USE OF OPINION
This opinion is rendered solely for the benefit of the Holding Company
and the Association in connection with the proposed transactions described
herein and is not to be relied upon or used for any other purpose without our
prior written consent.
Very truly yours,
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation
[TAYLOR, PERKY AND PARKER, L.L.C. LETTERHEAD]
December 15, 1999
Board of Directors
First Federal of Olathe Bancorp, Inc.
First Federal Savings and Loan Association of Olathe
100 East Park
Olathe, Kansas 66061
Board Members:
You have requested our opinion regarding certain Kansas tax
consequences to First Federal Savings and Loan Association of Olathe (the
"Association") and its depositors under the laws of the State or 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 association (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 October 13, 1999, as amended (the "Plan")
The Association's special counsel, Luse, Lehman, Gorman, Pomerenk &
Schick, P.C., Washington, D.C., is providing 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 Sec. 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
December 15, 1999
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 imediate1y, 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 prospectus contained in the Form AC, Form SB-2 and related
documents related to this opinion.
Sincerely,
/s/ Taylor, Perky & Parker
----------------------------------
Taylor, Perky & Parker, L.L.C.
[RP FINANCIAL, LC. LETTERHEAD]
December 15, 1999
Board of Directors
First Federal Savings and Loan Association of Olathe
100 East Park Street
Olathe, Kansas 66061
Re: Plan of Conversion: Subscription Rights
First Federal Savings and Loan Association of Olathe
----------------------------------------------------
Gentlemen:
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 Federal Savings and Loan Association of Olathe, ("First
Federal" or the "Association") whereby the Association will convert from a
federally chartered mutual savings association to a federally chartered stock
savings association and issue all of the Association's outstanding capital stock
to First Federal of Olathe Bancorp, Inc. (the "Holding Company").
Simultaneously, the Holding Company will issue shares of common stock.
We understand that in accordance with the Plan of Conversion,
subscription rights to purchase shares of common stock in the Holding Company
are to be issued to: (1) Eligible Account Holders; (2) the Employee Stock
Ownership Plan; (3) Supplemental Eligible Account Holders; (4) Other Members;
and, (5) Officers, Directors and Employees. Based solely upon our observation
that the subscription rights will be available to such parties without cost,
will be legally non-transferable and of short duration, and will afford such
parties the right only to purchase shares of common stock at the same price as
will be paid by members of the general public in the community offering, but
without undertaking any independent investigation of state or federal law or the
position of the Internal Revenue Service with respect to this issue, we are of
the belief that, as a factual matter:
(1) the subscription rights will have no ascertainable market value;
and,
(2) the price at which the subscription rights are exercisable will
not be more or less than the pro forma market value of the shares
upon issuance.
Changes in the local and national economy, the legislative and
regulatory environment, the stock market, interest rates, and other external
forces (such as natural disasters or significant world events) may occur from
time to time, often with great unpredictability and may materially impact the
value of thrift stocks as a whole or the Holding Company's value alone.
Accordingly, no assurance can be given that persons who subscribe to shares of
common stock in the subscription offering will thereafter be able to buy or sell
such shares at the same price paid in the subscription offering.
Sincerely,
/s/ RP Financial, LC.
---------------------------
RP FINANCIAL, LC.
________________________________________________________________________________
WASHINGTON HEADQUARTERS
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
FORM OF
FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF OLATHE
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the ____ day of _____________,
2000 by and between First Federal Savings & Loan Association of Olathe (the
"Association"), a federally-chartered stock savings association, with its
principal administrative office at 100 East Park Street, Olathe, Kansas 66061
and Mitch Ashlock (the "Executive"). Any reference to "Company" herein shall
mean First Federal of Olathe Bancorp, Inc., a Kansas-chartered corporation, or
any successor thereto.
WHEREAS, the Association wishes to assure itself of the continued
services of Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Association on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES
During the period of his employment hereunder, Executive agrees to
serve as President and Chief Executive Officer of the Association and the
Company. During said period, Executive also agrees to serve, if elected, as an
officer and director of any subsidiary or affiliate of the Association. Failure
to reelect Executive as President and Chief Executive Officer without the
consent of the Executive during the term of this Agreement shall constitute a
breach of this Agreement.
2. TERMS AND DUTIES
(a) The period of Executive's employment under this Agreement shall
begin as of the date first above written and shall continue for thirty-six (36)
full calendar months thereafter. Commencing on the date of the organizational
meeting following the Company's annual meeting of stockholders (the "Anniversary
Date") and continuing at each Anniversary Date thereafter, the Agreement shall
renew for an additional year such that the remaining term shall be approximately
three (3) years unless written notice is provided to Executive at least ten (10)
days and not more than thirty (30) days prior to any such Anniversary Date, that
his employment shall cease at the end of thirty-six (36) months following such
Anniversary Date. Prior to each notice period for non-renewal, the disinterested
members of the Board of Directors of the Association ("Board") will conduct a
comprehensive performance evaluation and review of the Executive for purposes of
determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods
of absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall
<PAGE>
faithfully perform his duties hereunder including activities and services
related to the organization, operation and management of the Association.
3. COMPENSATION AND REIMBURSEMENT
(a) The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Section 2(b). The
Association shall pay Executive as compensation a salary of not less than
$___________ per year ("Base Salary"). Such Base Salary shall be payable
bi-weekly. During the period of this Agreement, Executive's Base Salary shall be
reviewed at least annually; the first such review will be made no later than
January 31 of each year during the term of this Agreement and shall be effective
from the first day of said month through the end of the calendar year. Such
review shall be conducted by a Committee designated by the Board, and the Board
may increase, but not decrease, Executive's Base Salary (any increase in Base
Salary shall become the "Base Salary" for purposes of this Agreement). In
addition to the Base Salary provided in this Section 3(a), the Association shall
provide Executive at no cost to Executive with all such other benefits as are
provided uniformly to permanent full-time employees of the Association.
(b) The Association will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Association will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would adversely affect Executive's rights or
benefits thereunder. Without limiting the generality of the foregoing provisions
of this Subsection (b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans including but not limited to,
retirement plans, supplemental retirement plans, pension plans, profit-sharing
plans, health-and-accident plans, medical coverage or any other employee benefit
plan or arrangement made available by the Association in the future to its
senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Executive will be entitled to incentive compensation and
bonuses as provided in any plan of the Association in which Executive is
eligible to participate (and he shall be entitled to a pro rata distribution
under any incentive compensation or bonus plan as to any year in which a
termination of employment occurs, other than termination for Cause). Nothing
paid to the Executive under any such plan or arrangement will be deemed to be in
lieu of other compensation to which the Executive is entitled under this
Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3, the Association shall pay or reimburse Executive for all
reasonable travel and other reasonable expenses incurred by Executive performing
his obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
2
<PAGE>
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Sections 7 and 14.
(a) The provisions of this Section shall apply upon the occurrence of
an Event of Termination (as herein defined) during the Executive's term of
employment under this Agreement. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following:
(i) the termination by the Association or the Company of Executive's
full-time employment hereunder for any reason other than (A) Disability or
Retirement, as defined in Section 5 below, or (B) Termination for Cause as
defined in Section 6 hereof; or
(ii) Executive's resignation from the Association's employ, upon any
(A) failure to elect or reelect or to appoint or reappoint
Executive as President and Chief Executive Officer,
(B) material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position
to become one of lesser responsibility, importance, or scope from
the position and attributes thereof described in Section 1,
above,
(C) liquidation or dissolution of the Association or Company
other than liquidations or dissolutions that are caused by
reorganizations that do not affect the status of Executive, or
(D) breach of this Agreement by the Association.
Upon the occurrence of any event described in clauses (ii) (A), (B), (C)or (D),
above, Executive shall have the right to elect to terminate his employment under
this Agreement by resignation upon sixty (60) days prior written notice given
within a reasonable period of time not to exceed four calendar months after the
initial event giving rise to said right to elect. Notwithstanding the preceding
sentence, in the event of a continuing breach of this Agreement by the
Association, the Executive, after giving due notice within the prescribed time
frame of an initial event specified above, shall not waive any of his rights
solely under this Agreement and this Section 4 by virtue of the fact that
Executive has submitted his resignation but has remained in the employment of
the Association and is engaged in good faith discussions to resolve any
occurrence of an event described in clauses (A), (B), (C) or (D) above.
(iii) Executive's voluntary resignation from the Association's employ
on the effective date of, or at any time following, a Change in Control during
the term of this Agreement. For these purposes, a Change in Control of the
Association or the Company shall mean a change in control
3
<PAGE>
of a nature that: (i) would be required to be reported in response to Item 1(a)
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) results in a Change in Control of the Association or the Company within
the meaning of the Home Owners Loan Act, as amended, and applicable rules and
regulations promulgated thereunder, as in effect at the time of the Change in
Control (collectively, the "HOLA"); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (a) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or more of
the combined voting power of Company's outstanding securities except for any
securities purchased by the Association's employee stock ownership plan or
trust; or (b) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Company's stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (b), considered
as though he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Association or the Company or similar transaction in which the
Association or Company is not the surviving institution occurs; or (d) a proxy
statement soliciting proxies from stockholders of the Company, by someone other
than the current management of the Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Company or similar
transaction with one or more corporations or financial institutions, and as a
result such proxy solicitation a plan of reorganization, merger consolidation or
similar transaction involving the Company is approved by the requisite vote of
the Company's stockholders; or (e) a tender offer is made for 25% or more of the
voting securities of the Company and the shareholders owning beneficially or of
record 25% or more of the outstanding securities of the Company have tendered or
offered to sell their shares pursuant to such tender offer and such tendered
shares have been accepted by the tender offeror.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 7, the Association shall pay Executive, or,
in the event of his subsequent death, his beneficiary or beneficiaries, or his
estate, as the case may be, as severance pay or liquidated damages, or both, a
sum equal to three (3) times the sum of (i) Base Salary and (ii) the highest
rate of bonus awarded to the Executive during the prior three years. At the
election of the Executive, which election is to be made on an annual basis
during the month of January, and which election is irrevocable for the year in
which made and upon the occurrence of an Event of Termination, any payments
shall be made in a lump sum or paid bi-weekly during the remaining term of this
Agreement following the Executive's termination. In the event that no election
is made, payment to the Executive will be made on a bi-weekly basis during the
remaining term of this Agreement. Such payments shall not be reduced in the
event the Executive obtains other employment following termination of
employment.
(c) Upon the occurrence of an Event of Termination, the Association
will cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage
4
<PAGE>
maintained by the Association for Executive prior to his termination. Such
coverage shall continue for 36 months from the Date of Termination.
(d) Notwithstanding the preceding paragraphs of this Section 4, in the
event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits")
would be deemed to include an "excess parachute payment"
under Section 280G of the Code or any successor thereto, and
(ii) if such Termination Benefits were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar
($1.00) less than an amount equal to the total amount of
payments permissible under Section 280G of the Code or any
successor thereto,
then the Termination Benefits to be paid to Executive shall
be so reduced so as to be a Non-Triggering Amount.
5. TERMINATION UPON RETIREMENT, DISABILITY OR DEATH
For purposes of this Agreement, termination by the Association of the
Executive based on "Retirement" shall mean termination upon attainment of age
65, or such later age as consented to by the Board. Upon termination of
Executive upon Retirement, Executive shall be entitled to all benefits under any
retirement plan of the Association and other plans to which Executive is a
party.
In the event Executive is unable to perform his duties under this
Agreement on a full-time basis for a period of six (6) consecutive months by
reason of illness or other physical or mental disability, the Employer may
terminate this Agreement, provided that the Employer shall continue to be
obligated to pay the Executive his Base Salary for the remaining term of the
Agreement, or one year, whichever is the longer period of time, and provided
further that any amounts actually paid to Executive pursuant to any disability
insurance or other similar such program which the Employer has provided or may
provide on behalf of its employees or pursuant to any workman's or social
security disability program shall reduce the compensation to be paid to the
Executive pursuant to this paragraph.
In the event of Executive's death during the term of the Agreement, his
estate, legal representatives or named beneficiaries (as directed by Executive
in writing) shall be paid Executive's Base Salary as defined in Paragraph 3(a)
at the rate in effect at the time Executive's death for a period of one (1) year
from the date of the Executive's death, and the Employers will continue to
provide medical, dental, family and other benefits normally provided for an
Executive's family for one (1) year after the Executive's death.
5
<PAGE>
6. TERMINATION FOR CAUSE
The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, willful misconduct, any 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 this Agreement. In determining incompetence, the acts or omissions
shall be measured against standards generally prevailing in the savings
institutions industry. For purposes of this para graph, no act or failure to act
on the part of Executive shall be considered "willful" unless done, or omitted
to be done, by the Executive not in good faith and without reasonable belief
that the Execu tive's action or omission was in the best interest of the
Association. Notwithstanding the foregoing, Executive shall not be deemed to
have been Terminated for Cause unless and until there shall have been delivered
to him a copy of a resolution duly adopted by the affirmative vote of not less
than three-fourths of the members of the Board at a meeting of the Board called
and held for that purpose (after reasonable notice to Executive and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the particulars thereof
in detail. The Executive shall not have the right to receive compensation or
other benefits for any period after Termination for Cause. Any stock options
granted to Executive under any stock option plan of the Association, the Company
or any subsidiary or affiliate thereof, shall become null and void effective
upon Executive's receipt of Notice of Termination for Cause pursuant to Section
7 hereof, and shall not be exercisable by Executive at any time subsequent to
such Termination for Cause.
7. NOTICE
(a) Any purported termination by the Association or by Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the voluntary
termination by the Executive in which case the Date of Termination shall be the
date specified in the Notice, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written agreement of the
parties, by a binding arbitration
6
<PAGE>
award, or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal having expired and no appeal having been
perfected) and provided further that the Date of Termination shall be extended
by a notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Association
will continue to pay Executive his full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue Executive as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement,
provided such dispute is resolved within the term of this Agreement. If such
dispute is not resolved within the term of the Agreement, the Association shall
not be obligated, upon final resolution of such dispute, to pay Executive
compensation and other payments accruing beyond the term of the Agreement.
Amounts paid under this Section shall be offset against or reduce any other
amounts due under this Agreement.
8. POST-TERMINATION OBLIGATIONS
(a) All payments and benefits to Executive under this Agreement shall
be subject to Executive's compliance with paragraph (b) of this Section 8 during
the term of this Agreement and for one (1) full year after the expiration or
termination hereof.
(b) Executive shall, upon reasonable notice, furnish such information
and assistance to the Association as may reasonably be required by the
Association in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
9. NON-COMPETITION
(a) Upon any termination of Executive's employment hereunder, other
than a termination, (whether voluntary or involuntary) in connection with a
Change in Control, as a result of which the Association is paying Executive
benefits under Section 4 of this Agreement, Executive agrees not to compete with
the Association and/or the Company for a period of one (1) year following such
termination within twenty-five (25) miles of any existing branch of the
Association or any subsidiary of the Company or within twenty-five (25) miles of
any office for which the Association, the Company or a bank subsidiary of the
Company has filed an application for regulatory approval to establish an office,
determined as of the effective date of such termination, except as agreed to
pursuant to a resolution duly adopted by the Board. Executive agrees that during
such period and within said area, cities, towns and counties, Executive shall
not work for or advise, consult or otherwise serve with, directly or indirectly,
any entity whose business materially competes with the depository, lending or
other business activities of the Association and/or the Company. The parties
hereto, recognizing that irreparable injury will result to the Association
and/or the Company, its business and property in the event of Executive's breach
of this Subsection 9(a) agree that in the event of any such breach by Executive,
the Association and/or the Company will be entitled, in addition to any other
remedies and damages available, to an injunction to restrain the violation
hereof by Executive, Executive's partners, agents, servants, employers,
employees and all persons acting for or with Executive. Executive represents and
admits that Executive's experience and
7
<PAGE>
capabilities are such that Executive can obtain employment in a business engaged
in other lines and/or of a different nature than the Association and/or the
Company, and that the enforcement of a remedy by way of injunction will not
prevent Executive from earning a livelihood. Nothing herein will be construed as
prohibiting the Association and/or the Company from pursuing any other remedies
available to the Association and/or the Company for such breach or threatened
breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Association and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Association. Executive will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Association or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever (except for such disclosure as may be required to
be provided to any federal banking agency with jurisdiction over the Association
or Executive). Notwithstanding the foregoing, Executive may disclose any
knowledge of banking, financial and/or economic principles, concepts or ideas
which are not solely and exclusively derived from the business plans and
activities of the Association, and Executive may disclose any information
regarding the Association or the Company which is otherwise publicly available.
In the event of a breach or threatened breach by the Executive of the provisions
of this Section 9, the Association will be entitled to an injunction restraining
Executive from disclosing, in whole or in part, the knowledge of the past,
present, planned or considered business activities of the Association or
affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Association from pursuing any other remedies available to the
Association for such breach or threatened breach, including the recovery of
damages from Executive.
10. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Association. The Company, however,
guarantees payment and provision of all amounts and benefits due hereunder to
Executive and, if such amounts and benefits due from the Association are not
timely paid or provided by the Association, such amounts and benefits shall be
paid or provided by the Company.
11. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Association or
any predecessor of the Association and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
8
<PAGE>
12. REQUIRED PROVISIONS
(a) The Association may terminate the Executive's employment at any
time. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as defined in Section 2(c)
hereinabove.
(b) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Association's affairs by a
notice served under Section 8(e)(3) (12 USC ss.1818(e)(3)) or 8(g) (12 USC
ss.1818(g)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, the Association's
obligations under this contract 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 in its discretion (i) pay the Executive all or
part of the compensation withheld while their contract obligations were
suspended and (ii) reinstate (in whole or in part) any of the obligations which
were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e) (12 USC ss.1818(e)) or 8(g) (12 USC ss.1818(g)) of the
Federal Deposit Insurance Act, as amended by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, all obligations of the Association under
this contract shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(d) If the Association is in default as defined in Section 3(x) (12 USC
ss.1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, all obligations of
the Association under this contract shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the contracting
parties.
(e) All obligations of the Association under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the Association, (i) by the Federal
Deposit Insurance Corporation ("FDIC"), at the time the FDIC enters into an
agreement to provide assistance to or on behalf of the Association under the
authority contained in Section 13(c) (12 USC ss.1823(c)) of the Federal Deposit
Insurance Act, as amended by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989; or (ii) when the Association is determined by the FDIC
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.
13. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Association and their respective successors and assigns.
9
<PAGE>
14. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Kansas but
only to the extent not superseded by federal law.
18. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the Association, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
19. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Association, provided
10
<PAGE>
that the dispute or interpretation has been settled by Executive and the
Association or resolved in the Executive's favor.
20. INDEMNIFICATION
The Association shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
his heirs, executors and administrators) to the fullest extent permitted under
federal law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the
Association (whether or not he continues to be a director or officer at the time
of incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements (such settlements must be approved by the
Board of Directors of the Association). If such action, suit or proceeding is
brought against Executive in his capacity as an officer or director of the
Association, however, such indemnification shall not extend to matters as to
which Executive is finally adjudged to be liable for willful misconduct in the
performance of his duties.
21. SUCCESSOR TO THE ASSOCIATION
The Association shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association or the Company,
expressly and unconditionally to assume and agree to perform the Association's
obligations under this Agreement, in the same manner and to the same extent that
the Association would be required to perform if no such succession or assignment
had taken place.
[Remainder of Page Intentionally Blank]
11
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the Association and the Company have caused this
Agreement to be executed and their seals to be affixed hereunto by their duly
authorized officers, and Executives have signed this Agreement, on the day and
date first above written.
ATTEST: FIRST FEDERAL SAVINGS & LOAN
ASSOCIATION OF OLATHE
_____________________ By: __________________________________
ATTEST: FIRST FEDERAL OF OLATHE BANCORP, INC.
______________________ By: ___________________________________
WITNESS: EXECUTIVE:
_______________________ By: ___________________________________
12
FORM OF
FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF OLATHE
EMPLOYEE STOCK OWNERSHIP PLAN
(adopted effective January 1, 2000)
<PAGE>
FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF OLATHE
EMPLOYEE STOCK OWNERSHIP PLAN
This Employee Stock Ownership Plan, executed on the ___th day of
____________, 2000, by First Federal Savings & Loan Association of Olathe, a
federal stock savings association (the "Association"),
W I T N E S S E T H T H A T
WHEREAS, the board of directors of the Association has resolved to
adopt an employee stock ownership plan for eligible employees in accordance with
the terms and conditions presented to the directors;
NOW, THEREFORE, the Association hereby adopts the following Plan
setting forth the terms and conditions pertaining to contributions by the
Employer and the payment of benefits to Participants and Beneficiaries.
IN WITNESS WHEREOF, the Association has adopted this Plan and caused
this instrument to be executed by its duly authorized officers as of the above
date.
ATTEST:
____________________________ By: ___________________________
Secretary President
<PAGE>
C 0 N T E N T S
Page No.
--------
Section 1. Plan Identity..................................................-1-
1.1 Name.....................................................-1-
1.2 Purpose..................................................-1-
1.3 Effective Date...........................................-1-
1.4 Fiscal Period............................................-1-
1.5 Single Plan for All Employers............................-1-
1.6 Interpretation of Provisions.............................-1-
Section 2. Definitions....................................................-1-
Section 3. Eligibility for Participation............................-7-
3.1 Initial Eligibility......................................-7-
3.2 Definition of Eligibility Year...........................-7-
3.3 Terminated Employees.....................................-7-
3.4 Certain Employees Ineligible.............................-7-
3.5 Participation and Reparticipation........................-7-
3.6 Omission of Eligible Employee............................-8-
3.7 Inclusion of Ineligible Employee.........................-8-
Section 4. Contributions and Credits................................-8-
4.1 Discretionary Contributions..............................-8-
4.2 Contributions for Stock Obligations......................-8-
4.3 Definitions Related to Contributions.....................-9-
4.4 Conditions as to Contributions...........................-9-
Section 5. Limitations on Contributions and Allocations.............-9-
5.1 Limitation on Annual Additions...........................-9-
5.2 Coordinated Limitation With Other Plans.................-11-
5.3 Effect of Limitations...................................-11-
5.4 Limitations as to Certain Participants..................-12-
Section 6. Trust Fund and Its Investment...........................-12-
6.1 Creation of Trust Fund..................................-12-
6.2 Stock Fund and Investment Fund..........................-12-
6.3 Acquisition of Stock....................................-12-
6.4 Participants' Option to Diversify.......................-13-
Section 7. Voting Rights and Dividends on Stock....................-14-
7.1 Voting and Tendering of Stock...........................-14-
7.2 Dividends on Stock......................................-15-
(i)
<PAGE>
Page No.
--------
Section 8. Adjustments to Accounts................................-15-
8.1 Adjustments for Transactions...........................-15-
8.2 Valuation of Investment Fund...........................-15-
8.3 Adjustments for Investment Experience..................-16-
Section 9. Vesting of Participants' Interests.....................-16-
9.1 Deferred Vesting in Accounts...........................-16-
9.2 Computation of Vesting Years...........................-16-
9.3 Full Vesting Upon Certain Events.......................-17-
9.4 Full Vesting Upon Plan Termination.....................-18-
9.5 Forfeiture, Repayment, and Restoral....................-18-
9.6 Accounting for Forfeitures.............................-18-
9.7 Vesting and Nonforfeitability..........................-18-
Section 10. Payment of Benefits....................................-18-
10.1 Benefits for Participants..............................-18-
10.2 Time for Distribution..................................-19-
10.3 Marital Status.........................................-20-
10.4 Delay in Benefit Determination.........................-20-
10.5 Accounting for Benefit Payments........................-21-
10.6 Options to Receive and Sell Stock......................-21-
10.7 Restrictions on Disposition of Stock...................-22-
10.8 Continuing Loan Provisions; Creations of
Protections and Rights...............................-22-
10.9 Direct Rollover of Eligible Distribution...............-22-
10.10 Waiver of 30 Day Period After Notice of
Distribution.........................................-23-
Section 11. Rules Governing Benefit Claims and
Review of Appeals....................................-23-
11.1 Claim for Benefits.....................................-23-
11.2 Notification by Committee..............................-23-
11.3 Claims Review Procedure................................-23-
Section 12. The Committee and Its Functions........................-24-
12.1 Authority of Committee.................................-24-
12.2 Identity of Committee..................................-24-
12.3 Duties of Committee....................................-24-
12.4 Valuation of Stock.....................................-25-
12.5 Compliance with ERISA..................................-25-
12.6 Action by Committee....................................-25-
12.7 Execution of Documents.................................-25-
12.8 Adoption of Rules......................................-25-
12.9 Responsibilities to Participants.......................-25-
12.10 Alternative Payees in Event of Incapacity..............-25-
12.11 Indemnification by Employers...........................-26-
12.12 Nonparticipation by Interested Member..................-26-
(ii)
<PAGE>
Page No.
--------
Section 13. Adoption, Amendment, or Termination of
the Plan.............................................-26-
13.1 Adoption of Plan by Other Employers....................-26-
13.2 Plan Adoption Subject to Qualification.................-26-
13.3 Right to Amend or Terminate............................-26-
Section 14. Miscellaneous Provisions...............................-27-
14.1 Plan Creates No Employment Rights......................-27-
14.2 Nonassignability of Benefits...........................-27-
14.3 Limit of Employer Liability............................-27-
14.4 Treatment of Expenses..................................-27-
14.5 Number and Gender......................................-27-
14.6 Nondiversion of Assets.................................-27-
14.7 Separability of Provisions.............................-27-
14.8 Service of Process.....................................-28-
14.9 Governing State Law....................................-28-
14.10 Employer Contributions Conditioned on
Deductibility........................................-28-
14.11 Unclaimed Accounts.....................................-28-
14.12 Qualified Domestic Relations Order.....................-28-
Section 15. Top-Heavy Provisions...................................-29-
15.1 Top-Heavy Plan.........................................-29-
15.2 Super Top-Heavy Plan...................................-29-
15.3 Definitions............................................-30-
15.4 Top-Heavy Rules of Application.........................-31-
15.5 Top-Heavy Ratio........................................-32-
15.6 Minimum Contributions..................................-32-
15.7 Minimum Vesting........................................-33-
15.8 Top-Heavy Provisions Control in Top-Heavy Plan.........-33-
(iii)
<PAGE>
FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF OLATHE
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. Plan Identity.
1.1 Name. The name of this Plan is "First Federal Savings & Loan
Association of Olathe Employee Stock Ownership Plan."
1.2 Purpose. The purpose of this Plan is to describe the terms and
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 Effective Date. The Effective Date of this Plan is _______, 2000.
1.4 Fiscal Period. This Plan shall be operated on the basis of a
January 1 to December 31 fiscal year for the purpose of keeping the Plan's books
and records and distributing or filing any reports or returns required by law.
1.5 Single Plan for All Employers. This Plan shall be treated as a
single plan with respect to all participating Employers for the purpose of
crediting contributions and forfeitures and distributing benefits, determining
whether there has been any termination of Service, and applying the limitations
set forth in Section 5.
1.6 Interpretation of Provisions. The Employers intend this Plan and
the Trust to be a qualified stock bonus plan under Section 401(a) of the Code
and an employee stock ownership plan within the meaning of Section 407(d)(6) of
ERISA and Section 4975(e)(7) of the Code. The Plan is intended to have its
assets invested primarily in qualifying employer securities of one or more
Employers within the meaning of Section 407(d)(3) of ERISA, and to satisfy any
requirement under ERISA or the Code applicable to such a plan.
Accordingly, the Plan and Trust Agreement shall be interpreted and
applied in a manner consistent with this intent and shall be administered at all
times and in all respects in a nondiscriminatory manner.
Section 2. Definitions.
The following capitalized words and phrases shall have the meanings
specified when used in this Plan and in the Trust Agreement, unless the context
clearly indicates otherwise:
"Account" means a Participant's interest in the assets accumulated
under this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
"Active Participant" means any Employee who has satisfied the
eligibility requirements of Section 3 and who qualifies as an Active Participant
for a particular Plan Year under Section 4.3.
-1-
<PAGE>
"Association" means First Federal Savings & Loan Association of Olathe
and any entity which succeeds to the business of First Federal Savings & Loan
Association of Olathe and adopts this Plan as its own pursuant to Section 13.2.
"Beneficiary" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated Beneficiaries
shall die before the Participant dies or shall die before all benefits have been
paid, the Participant's Beneficiary shall be his surviving Spouse, if any, or
his estate if he is not survived by a Spouse. The Committee may rely upon the
advice of the Participant's executor or administrator as to the identity of the
Participant's Spouse.
"Break in Service" means any Plan Year, or, for the initial eligibility
computation period under Section 3.2, the 12-consecutive month period beginning
on the first day of which an Employee has an Hour of Service, in which an
Employee has 500 or fewer Hours of Service. Solely for this purpose, an Employee
shall be considered employed for his normal hours of paid employment during a
Recognized Absence (said Employee shall not be credited with more than 501 Hours
of Service to avoid a Break in Service), unless he does not resume his Service
at the end of the Recognized Absence. Further, if an Employee is absent for any
period beginning on or after January 1, 1985, (i) by reason of the Employee's
pregnancy, (ii) by reason of the birth of the Employee's child, (iii) by reason
of the placement of a child with the Employee in connection with the Employee's
adoption of the child, or (iv) for purposes of caring for such child for a
period beginning immediately after such birth or placement, the Employee shall
be credited with the Hours of Service which would normally have been credited
but for such absence, up to a maximum of 501 Hours of Service.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee responsible for the administration of
this Plan in accordance with Section 12.
"Company" means First Federal of Olathe Bancorp, Inc., the stock
holding company of Association.
"Disability" means only a disability which renders the Participant
totally unable, as a result of bodily or mental disease or injury, to perform
any duties for an Employer for which he is reasonably fitted, which disability
is expected to be permanent or of long and indefinite duration. However, this
term shall not include any disability directly or indirectly resulting from or
related to habitual drunkenness or addiction to narcotics, a criminal act or
attempt, service in the armed forces of any country, an act of war, declared or
undeclared, any injury or disease occurring while compensation to the
Participant is suspended, or any injury which is intentionally self-inflicted.
Further, this term shall apply only if (i) the Participant is sufficiently
disabled to qualify for the payment of disability benefits under the federal
Social Security Act or Veterans Disability Act, or (ii) the Participant's
disability is certified by a physician selected by the Committee. Unless the
Participant is sufficiently disabled to qualify for disability benefits under
the federal Social Security Act or Veterans Disability Act, the Committee may
require the Participant to be appropriately examined from time to time by one or
more physicians chosen by the Committee, and no Participant who refuses to be
examined shall be treated as having a Disability. In any event, the Committee's
good faith decision as to whether a Participant's Service has been terminated by
Disability shall be final and conclusive.
-2-
<PAGE>
"Early Retirement" means retirement on or after a Participant's
attainment of age 55 and the completion of fifteen years of employment with an
Employer. If the Participant terminates employment before satisfying the age
requirement, but has satisfied the employment requirement, the Participant will
be entitled to elect early retirement upon satisfaction of the age requirement.
"Effective Date" means ______________, 2000.
"Employee" means any individual who is or has been employed or
self-employed by an Employer. "Employee" also means an individual employed by a
leasing organization who, pursuant to an agreement between an Employer and the
leasing organization, has performed services for the Employer and any related
persons (within the meaning of Section 414(n)(6) of the Code) on a substantially
full-time basis for more than one year, if such services are performed under the
primary direction or control of the Employer. However, such a "leased employee"
shall not be considered an Employee if (i) he participates in a money purchase
pension plan sponsored by the leasing organization which provides for immediate
participation, immediate full vesting, and an annual contribution of at least 10
percent of the Employee's 415 Compensation, and (ii) leased employees do not
constitute more than 20 percent of the Employer's total work force (including
leased employees, but excluding Highly Paid Employees and any other Employees
who have not performed services for the Employer on a substantially full-time
basis for at least one year).
"Employer" means the Association or any affiliate within the purview of
section 414(b), (c) or (m) and 415(h) of the Code, any other corporation,
partnership, or proprietorship which adopts this Plan with the Association's
consent pursuant to Section 13.1, and any entity which succeeds to the business
of any Employer and adopts the Plan pursuant to Section 13.2.
"Entry Date" means the Effective Date of the Plan and each January 1
and July 1 of each Plan Year after the Effective Date.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L.
93-406, as amended).
"415 Compensation"
(a) shall mean wages, as defined in Code Section 3401(a) for
purposes of income tax withholding at the source.
(b) Any elective deferral as defined in Code Section 402(g)(3)
(any Employer contributions made on behalf of a Participant to the
extent not includible in gross income and any Employer contributions
to purchase an annuity contract under Code Section 403(b) under a
salary reduction agreement) and any amount which is contributed or
deferred by the Employer at the election of the Participant and which
is not includible in gross income of the Participant by reason of Code
Section 125 (Cafeteria Plan) shall also be included in the definition
of 415 Compensation.
(c) 415 Compensation in excess of $160,000 (as indexed) shall be
disregarded for all Participants. For purposes of this sub-section,
the $160,000 limit shall be referred to as the "applicable limit" for
the Plan Year in question. The $160,000 limit shall be adjusted for
increases in the cost of living in accordance with Section
401(a)(17)(B) of the Code, effective for the Plan
-3-
<PAGE>
Year which begins within the applicable calendar year. For purposes of
the applicable limit, 415 Compensation shall be prorated over short
Plan Years.
"Highly Paid Employee" for any Plan Year means an Employee who, during
either of that or the immediately preceding Plan Year was at any time a five
percent owner of the Employer (as defined in Code Section 416(i)(1)) or, during
the immediately preceding Plan Year, had 415 Compensation exceeding $80,000 and
was among the most highly compensated one-fifth of all Employees. For this
purpose:
(a) "415 Compensation" shall include any amount which is
excludable from the Employee's gross income for tax purposes pursuant
to Sections 125, 402(a)(8), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated
one-fifth of all Employees" shall be determined by taking into account
all individuals working for all related Employer entities described in
the definition of "Service", but excluding any individual who has not
completed six months of Service, who normally works fewer than 17-1/2
hours per week or in fewer than six months per year, who has not
reached age 21, whose employment is covered by a collective bargaining
agreement, or who is a nonresident alien who receives no earned income
from United States sources.
"Hours of Service" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to be
paid for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly
paid or is entitled to be paid for a period of vacation, holidays,
illness, disability, lay-off, jury duty, temporary military duty, or
leave of absence is an Hour of Service. However, except as otherwise
specifically provided, no more than 501 Hours of Service shall be
credited for any single continuous period which an Employee performs
no duties. No more than 501 Hours of Service will be credited under
this paragraph for any single continuous period (whether or not such
period occurs in a single computation period). Further, no Hours of
Service shall be credited on account of payments made solely under a
plan maintained to comply with worker's compensation, unemployment
compensation, or disability insurance laws, or to reimburse an
Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of
damages) is either awarded or agreed to by an Employer is an Hour of
Service. However, no more than 501 Hours of Service shall be credited
for any single continuous period during which an Employee would not
have performed any duties. The same Hours of Service will not be
credited both under paragraph (a) or (b) as the case may be, and under
this paragraph (c). These hours will be credited to the employee for
the computation period or periods to which the award or agreement
pertains rather than the computation period in which the award
agreement or payment is made.
(d) Hours of Service shall be credited in any one period only
under one of the foregoing paragraphs (a), (b) and (c); an Employee
may not get double credit for the same period.
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(e) If an Employer finds it impractical to count the actual Hours
of Service for any class or group of non-hourly Employees, each
Employee in that class or group shall be credited with 45 Hours of
Service for each weekly pay period in which he has at least one Hour
of Service. However, an Employee shall be credited only for his normal
working hours during a paid absence.
(f) Hours of Service to be credited on account of a payment to an
Employee (including back pay) shall be recorded in the period of
Service for which the payment was made. If the period overlaps two or
more Plan Years, the Hours of Service credit shall be allocated in
proportion to the respective portions of the period included in the
several Plan Years. However, in the case of periods of 31 days or
less, the Administrator may apply a uniform policy of crediting the
Hours of Service to either the first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be
counted as required by Section 2530.200b-2(b) and (c) of the
Department of Labor's regulations under Title I of ERISA.
"Investment Fund" means that portion of the Trust Fund consisting of
assets other than Stock. Notwithstanding the above, assets from the Investment
Fund may be used to purchase Stock in the open market or otherwise, or used to
pay on the Stock Obligation, and shares so purchased will be allocated to a
Participant's Stock Fund.
"Normal Retirement" means retirement on or after the Participant's
Normal Retirement Date.
"Normal Retirement Date" means the date on which a Participant attains
age 65 and completes five years of Service.
"Participant" means any Employee who is participating in the Plan, or
who has previously participated in the Plan and still has a balance credited to
his Account.
"Plan Year" means the twelve month period commencing January 1 and
ending December 31, 1998 and each period of 12 consecutive months beginning on
January 1 of each succeeding year.
"Recognized Absence" means a period for which --
(a) an Employer grants an Employee a leave of absence for a
limited period, but only if an Employer grants such leave on a
nondiscriminatory basis; or
(b) an Employee is temporarily laid off by an Employer because of
a change in business conditions; or
(c) an Employee is on active military duty, but only to the
extent that his employment rights are protected by the Military
Selective Service Act of 1967 (38 U.S.C. Sec. 2021).
"Service" means an Employee's period(s) of employment or
self-employment with an Employer, excluding for initial eligibility purposes any
period in which the individual was a nonresident alien and did not receive from
an Employer any earned income which constituted income from sources within the
United States. An Employee's Service shall include any Service which constitutes
Service with a predecessor Employer within the meaning of Section 414(a) of the
Code. An Employee's Service shall also include any Service with an entity which
is not an Employer, but only either (i) for a period after 1975 in which
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the other entity is a member of a controlled group of corporations or is under
common control with other trades and businesses within the meaning of Section
414(b) or 414(c) of the Code, and a member of the controlled group or one of the
trades and businesses is an Employer, (ii) for a period after 1979 in which the
other entity is a member of an affiliated service group within the meaning of
Section 414(m) of the Code, and a member of the affiliated service group is an
Employer, or (iii) all Employers aggregated with the Employer under Section
414(o) of the Code (but not until the Proposed Regulations under Section 414(o)
become effective). Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to qualified military
service will be provided in accordance with Section 414(u) of the Code.
"Spouse" means the individual, if any, to whom a Participant is
lawfully married on the date benefit payments to the Participant are to begin,
or on the date of the Participant's death, if earlier. A former Spouse shall be
treated as the Spouse or surviving Spouse to the extent provided under a
qualified domestic relations order as described in section 414(p) of the Code.
"Stock" means shares of the Company's voting common stock or preferred
stock meeting the requirements of Section 409(e)(3) of the Code issued by an
Employer which is a member of the same controlled group of corporations within
the meaning of Code Section 414(b).
"Stock Fund" means that portion of the Trust Fund consisting of Stock.
"Stock Obligation" means an indebtedness arising from any extension of
credit to the Plan or the Trust which satisfies the requirements set forth in
Section 6.3 and which was obtained for any or all of the following purposes:
(i) to acquire qualifying Employer securities as defined in
Treasury Regulations ss. 54.4975-12
(ii) to repay such Stock Obligation; or
(iii) to repay a prior exempt loan.
"Trust" or "Trust Fund" means the trust fund created under this Plan.
"Trust Agreement" means the agreement between the Association and the
Trustee concerning the Trust Fund. If any assets of the Trust Fund are held in a
co-mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that
co-mingled trust fund. With respect to the allocation of investment
responsibility for the assets of the Trust Fund, the provisions of Article II of
the Trust Agreement are incorporated herein by reference.
"Trustee" means one or more corporate persons or individuals selected
from time to time by the Association to serve as trustee or co-trustees of the
Trust Fund.
"Unallocated Stock Fund" means that portion of the Stock Fund
consisting of the Plan's holding of Stock which have been acquired in exchange
for one or more Stock obligations and which have not yet been allocated to the
Participant's Accounts in accordance with Section 4.2
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"Valuation Date" means the last day of the Plan Year and each other
date as of which the Committee shall determine the investment experience of the
Investment Fund and adjust the Participants' Accounts accordingly.
"Valuation Period" means the period following a Valuation Date and
ending with the next Valuation Date.
"Vesting Year" means a unit of Service credited to a Participant
pursuant to Section 9.2 for purposes of determining his vested interest in his
Account.
Section 3. Eligibility for Participation.
3.1 Initial Eligibility. An Employee shall enter the Plan as of the
Entry Date coincident with or next following the later of the following dates:
(a) the last day of the Employee's first Eligibility Year, and
(b) the Employee's 21st birthday. However, if an Employee is not
in active Service with an Employer on the date he would otherwise
first enter the Plan, his entry shall be deferred until the next day
he is in Service.
3.2 Definition of Eligibility Year. An "Eligibility Year" means an
applicable eligibility period (as defined below) in which the Employee has
completed 1,000 Hours of Service for the Employer. For this purpose:
(a) an Employee's first "eligibility period" is the
12-consecutive month period beginning on the first day on which he has
an Hour of Service, and
(b) his subsequent eligibility periods will be 12-consecutive
month periods beginning on each January 1 after that first day of
Service.
3.3 Terminated Employees. No Employee shall have any interest or rights
under this Plan if he is never in active Service with an Employer on or after
the Effective Date.
3.4 Certain Employees Ineligible. No Employee shall participate in the
Plan while his Service is covered by a collective bargaining agreement between
an Employer and the Employee's collective bargaining representative if (i)
retirement benefits have been the subject of good faith bargaining between the
Employer and the representative and (ii) the collective bargaining agreement
does not provide for the Employee's participation in the Plan.
3.5 Participation and Reparticipation. Subject to the satisfaction of
the foregoing requirements, an Employee shall participate in the Plan during
each period of his Service from the date on which he first becomes eligible
until his termination. For this purpose, an Employee who returns before five (5)
consecutive Breaks in Service who previously satisfied the initial eligibility
requirements or who returns after five (5) consecutive one year Breaks in
Service with a vested Account balance in the Plan shall re-enter the Plan as of
the date of his return to Service with an Employer.
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3.6 Omission of Eligible Employee. If, in any Plan Year, any Employee
who should be included as a Participant in the Plan is erroneously omitted and
discovery of such omission is not made until after a contribution by his
Employer for the year has been made, the Employer shall make a subsequent
contribution with respect to the omitted Employee in the amount which the said
Employer would have contributed shall be made regardless of whether or not it is
deductible in whole or in part in any taxable year under applicable provisions
of the Code.
3.7 Inclusion of Ineligible Employee. If, in any Plan Year, any person
who should not have been included as a Participant in the Plan is erroneously
included and discovery of such incorrect inclusion is not made until after a
contribution for the year has been made, the Employer shall not be entitled to
recover the contribution made with respect to the ineligible person regardless
of whether or not a deduction is allowable with respect to the ineligible person
shall constitute a forfeiture for the Plan Year in which the discovery is made.
Section 4. Contributions and Credits.
4.1 Discretionary Contributions. The Employer shall from time to time
contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. The Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employer's
contributions and available forfeitures for a Plan Year shall be credited as of
the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of 415 Compensation.
4.2 Contributions for Stock Obligations. If the Trustee, upon
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employer may contribute for each Plan Year an amount sufficient to
cover all payments of principal and interest as they come due under the terms of
the Stock Obligation. If there is more than one Stock Obligation, the Employer
shall designate the one to which any contribution is to be applied. Investment
earnings realized on Employer contributions and any dividends paid by the
Employer on Stock held in the Unallocated Stock Account, shall be applied to the
Stock Obligation related to that Stock, subject to Section 7.2.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii) the
sum of (i) above, and the remaining principal and interest payments required (or
projected to be required on the basis of the interest rate in effect at the end
of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments
of interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
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4.3 Definitions Related to Contributions. For the purposes of this
Plan, the following terms have the meanings specified:
"Active Participant" means a Participant who has satisfied the
eligibility requirements under Section 3 and who has at least 1000 Hours of
Service during the current Plan Year. However, a Participant shall not qualify
as an Active Participant unless (i) he is in active Service with an Employer as
of the last day of the Plan Year, or (ii) he is on a Recognized Absence as of
that date, or (iii) his Service terminated during the Plan Year by reason of
Disability, death, Early or Normal Retirement.
In the event a Plan Year is a period of less than 12 months for any
reason, then 415 Compensation for the short period shall not exceed the pro rata
portion of this limit created by multiplying a fraction which is the number of
months in the short period divided by twelve times the annual compensation
limit.
4.4 Conditions as to Contributions. Employers' contributions shall in
all events be subject to the limitations set forth in Section 5. Contributions
may be made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be reduced
to take account of any adverse investment experience within the Trust Fund in
order that the balance credited to each Participant's Account is not less that
it would have been if the contribution had never been made.
Section 5. Limitations on Contributions and Allocations.
5.1 Limitation on Annual Additions. Notwithstanding anything herein to
the contrary, allocation of Employer contributions for any Plan Year shall be
subject to the following:
5.1-1 If allocation of Employer contributions in accordance with
Section 4.1 will result in an allocation of more than one-third the
total contributions for a Plan Year to the Accounts of Highly Paid
Employees, then allocation of such amount shall be adjusted so that
such excess will not occur.
5.1-2 After adjustment, if any, required by the preceding
paragraph, the annual additions during any Plan Year to any
Participant's Account under this and any other defined contribution
plans maintained by the Employer or an affiliate (within the purview
of Section 414(b), (c) and (m) and Section 415(h) of the Code, which
affiliate shall be deemed the Employer for this purpose) shall not
exceed the lesser of $30,000 (or such other dollar amount which
results from cost-of-living adjustments under Section 415(d) of the
Code) or "25 percent of the Participant's 415 Compensation for such
limitation year." In the event that annual additions exceed the
aforesaid limitations, they shall be reduced in the following
priority:
(i) If the Participant is covered by the Plan at the end of the
Plan Year, any excess amount at the end of the Plan Year that cannot
be allocated to the Participant's Account shall be
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used to reduce the employer contribution for such Participant in the
next limitation year and any succeeding limitation years if necessary.
(ii) If the Participant is not covered by the Plan at the end of
the Plan Year, the excess amount will be held unallocated in a
suspense account. The suspense account will be applied to reduce
future Employer contributions for all remaining Participants in the
next limitation year and each succeeding limitation year if necessary.
(iii)If a suspense account is in existence at any time during a
limitation year, it will not participate in any allocation of
investment gains and losses. All amounts held in suspense accounts
must be allocated to Participant's Accounts before any contributions
may be made to the Plan for the limitation year.
(iv) If a suspense account exists at the time of Plan
termination, amounts held in the suspense account that cannot be
allocated shall revert to the Employer.
5.1-3 For purposes of this Section 5.1 and the following Section
5.2, the "annual addition" to a Participant's Accounts means the sum
of (i) Employer contributions, (ii) Employee contributions, if any,
and (iii) forfeitures. Annual additions to a defined contribution plan
also include amounts allocated, after March 31, 1984, to an individual
medical account, as defined in Section 415(l)(2) of the Internal
Revenue Code, which is part of a pension or annuity plan maintained by
the Employer, amounts derived from contributions paid or accrued after
December 31, 1985, in taxable years ending after such date, which are
attributable to post-retirement medical benefits allocated to the
separate account of a Key Employee under a welfare benefit fund, as
defined in Section 419A(d) of the Internal Revenue Code, maintained by
the Employer. For these purposes, annual additions to a defined
contribution plan shall not include the allocation of the excess
amounts remaining in the Unallocated Stock Fund subsequent to a sale
of stock from such fund in accordance with a transaction described in
Section 8.1 of the Plan. The $30,000 limitations referred to shall,
for each limitation year ending after 1988, be automatically adjusted
to the new dollar limitations determined by the Commissioner of
Internal Revenue for the calendar year beginning in that limitation
year.
5.1-4 Notwithstanding the foregoing, if no more than one-third of
the Employer contributions to the Plan for a year which are deductible
under Section 404(a)(9) of the Code are allocated to Highly Paid
Employees (within the meaning of Section 414(q) of the Internal
Revenue Code), the limitations imposed herein shall not apply to:
(i) forfeitures of Employer securities (within the meaning of
Section 409 of the Code) under the Plan if such securities were
acquired with the proceeds of a loan described in Section 404(a)(9)(A)
of the Code), or
(ii) Employer contributions to the Plan which are deductible
under Section 404(a)(9)(B) and charged against a Participant's
Account.
5.1-5 If the Employer contributes amounts, on behalf of Employees
covered by this Plan, to other "defined contribution plans" as defined
in Section 3(34) of ERISA, the limitation on annual additions provided
in this Section shall be applied to annual additions in the aggregate
to this Plan
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and to such other plans. Reduction of annual additions, where
required, shall be accomplished first by reductions under such other
plan pursuant to the directions of the named Fiduciary for
administration of such other plans or under priorities, if any,
established under the terms of such other plans and then by allocating
any remaining excess for this Plan in the manner and priority set out
above with respect to this Plan.
5.1-6 A limitation year shall mean each 12 consecutive month
period beginning each January 1.
5.2 Coordinated Limitation With Other Plans. Aside from the limitation
prescribed by Section 5.1 with respect to the annual addition to a Participant's
Accounts for any single limitation year, if a Participant has ever participated
in one or more defined benefit plans maintained by an Employer or an affiliate,
then the accrued benefit shall be limited so that the sum of his defined plan
fraction and his defined contribution plan fraction does not exceed one. For
this purpose:
5.2-1 A Participant's defined contribution plan fraction with
respect to a Plan Year shall be a fraction, (i) the numerator of which
is the sum of the annual additions to his Accounts through the current
year, and (ii) the denominator of which is the sum of the lesser of
the following amounts -A- and -B- determined for the current
limitation year and each prior limitation year of Service with an
Employer: -A- is 1.25 times the dollar limit in effect for the year
under Section 415(c)(1)(A) of the Code, or 1.0 times such dollar
limitation if the Plan is super top-heavy, and -B- is 35 percent of
the Participant's 415 Compensation for such year. Further, if the
Participant participated in any related defined contribution plan in
any years beginning before 1976, any excess of the sum of the actual
annual additions to the Participant's Accounts for those years over
the maximum annual additions which could have been made in accordance
with Section 5.1 shall be ignored, and voluntary contributions by the
Participant during those years shall be taken into account as to each
such year only to the extent that his average annual voluntary
contribution in those years exceeded 10 percent of his average annual
415 Compensation in those years.
5.2-2 A Participant's defined benefit plan fraction with respect
to a limitation year shall be a fraction, (i) the numerator of which
is his projected annual benefit payable at normal retirement under the
Employers' defined benefit plans, and (ii) the denominator of which is
the lesser of (a) 1.25 times $90,000, or 1.0 times such dollar
limitation if the Plan is super top-heavy, and (b) 1.4 times the
Participant's average 415 Compensation during his highest-paid three
consecutive limitation years.
5.3 Effect of Limitations. The Committee shall take whatever action may
be necessary from time to time to assure compliance with the limitations set
forth in Section 5.1 and 5.2. Specifically, the Committee shall see that each
Employer restrict its contributions for any Plan Year to an amount which, taking
into account the amount of available forfeitures, may be completely allocated to
the Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
corrected in accordance with Section 5.1-2 of the Plan.
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5.4 Limitations as to Certain Participants. Aside from the limitations
set forth in Section 5.1 and 5.2, if the Plan acquires any Stock in a
transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that none of such Stock, and no other assets in lieu of such Stock,
are allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns
(taking into account the attribution rules under Section 318(a) of the Code,
without regard to the exception for employee plan trusts in Section
318(a)(2)(B)(i) more than 25 percent of any class of stock of a corporation
which issued the Stock acquired by the Plan, or another corporation within the
same controlled group, as defined in Section 409(l)(4) of the Code (any such
class of stock hereafter called a "Related Class"). For this purpose, a
Participant who owns more than 25 percent of any Related Class at any time
within the one year preceding the Plan's purchase of the Stock shall be subject
to the restriction as to all allocations of the Stock, but any other Participant
shall be subject to the restriction only as to allocations which occur at a time
when he owns more than 25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder
claiming the benefit of Section 1042 and any other Participant who is related to
such a shareholder within the meaning of Section 267(b) of the Code, during the
period beginning on the date of sale and ending on the later of (1) the date
that is ten years after the date of sale, or (2) the date of the Plan allocation
attributable to the final payment of acquisition indebtedness incurred in
connection with the sale.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
Section 6. Trust Fund and Its Investment.
6.1 Creation of Trust Fund. All amounts received under the Plan from
Employers and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement between the Association and the Trustee.
The benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Association, any other Employer, its board of
directors or trustees, its stockholders, its officers, its employees, the
Committee, and the Trustee shall be liable for payment of any benefit under this
Plan except from the Trust Fund.
6.2 Stock Fund and Investment Fund. The Trust Fund held by the Trustee
shall be divided into the Stock Fund, consisting entirely of Stock, and the
Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee. The Trustee shall have full
responsibility for the investment of the Investment Fund, except to the extent
such responsibility may be delegated from time to time to one or more investment
managers pursuant to Section 2.2 of the Trust Agreement, or to the extent the
Committee directs the Trustee to purchase Stock with the assets in the
Investment Fund.
6.3 Acquisition of Stock. From time to time the Committee may, in its
sole discretion, direct the Trustee to acquire Stock from the issuing Employer
or from shareholders, including shareholders who
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are or have been Employees, Participants, or fiduciaries with respect to the
Plan. The Trustee shall pay for such Stock no more than its fair market value,
which shall be determined conclusively by the Committee pursuant to Section
12.4. The Committee may direct the Trustee to finance the acquisition of Stock
by incurring or assuming indebtedness to the seller or another party which
indebtedness shall be called a "Stock Obligation". The term "Stock Obligation"
shall refer to a loan made to the Plan by a disqualified person within the
meaning of Section 4975(e)(2) of the Code, or a loan to the Plan which is
guaranteed by a disqualified person. A Stock Obligation includes a direct loan
of cash, a purchase-money transaction, and an assumption of an obligation of a
tax-qualified employee stock ownership plan under Section 4975(e)(7) of the Code
("ESOP"). For these purposes, the term "guarantee" shall include an unsecured
guarantee and the use of assets of a disqualified person as collateral for a
loan, even though the use of assets may not be a guarantee under applicable
state law. An amendment of a Stock Obligation in order to qualify as an "exempt
loan" is not a refinancing of the Stock Obligation or the making of another
Stock Obligation. The term "exempt loan" refers to a loan that satisfies the
provisions of this paragraph. A "non-exempt loan" fails to satisfy this
paragraph. Any Stock Obligation shall be subject to the following conditions and
limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall not
be payable on demand except in the event of default, and shall bear a
reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the
Stock Obligation, or the Stock previously pledged in connection with a
prior Stock Obligation which is being repaid with the proceeds of the
current Stock Obligation. No other assets of the Plan and Trust may be
used as collateral for a Stock Obligation, and no creditor under a
Stock Obligation shall have any right or recourse to any Plan and
Trust assets other than Stock remaining subject to a collateral
pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must
provide for the release of pledged Stock in connection with payments
on the Stock obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock
Obligation shall be made by the Trustee only from Employer cash
contributions designated for such payments, from earnings on such
contributions, and from cash dividends received on Stock, in the last
case, however, subject to the further requirements of Section 7.2.
6.3-5 In the event of default of a Stock Obligation, the value of
Plan assets transferred in satisfaction of the Stock Obligation must
not exceed the amount of the default. If the lender is a disqualified
person within the meaning of Section 4975 of the Code, a Stock
Obligation must provide for a transfer of Plan assets upon default
only upon and to the extent of the failure of the Plan to meet the
payment schedule of said Stock Obligation. For purposes of this
paragraph, the making of a guarantee does not make a person a lender.
6.4 Participants' Option to Diversify. The Committee shall provide for
a procedure under which each Participant may, during the qualified election
period, elect to "diversify" a portion of the Employer Stock allocated to his
Account, as provided in Section 401(a)(28)(B) of the Code. An election to
diversity must be made on the prescribed form and filed with the Committee
within the period specified herein. For each of the first five (5) Plan years in
the qualified election period, the Participant may elect
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to diversify an amount which does not exceed 25% of the number of shares
allocated to his Account since the inception of the Plan, less all shares with
respect to which an election under this Section has already been made. For the
last year of the qualified election period, the Participant may elect to have up
to 50 percent of the value of his Account committed to other investments, less
all shares with respect to which an election under this Section has already been
made. The term "qualified election period" shall mean the six (6) Plan Year
period beginning with the first Plan Year in which a Participant has both
attained age 55 and completed 10 years of participation in the Plan. A
Participant's election to diversify his Account may be made within each year of
the qualified election period and shall continue for the 90-day period
immediately following the last day of each year in the qualified election
period. Once a Participant makes such election, the Plan must complete
diversification in accordance with such election within 90 days after the end of
the period during which the election could be made for the Plan Year. In the
discretion of the Committee, the Plan may satisfy the diversification
requirement by any of the following methods:
6.4-1 The Plan may distribute all or part of the amount subject
to the diversification election.
6.4-2 The Plan may offer the Participant at least three other
distinct investment options, if available under the Plan. The other
investment options shall satisfy the requirements of Regulations under
Section 404(c) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
6.4-3 The Plan may transfer the portion of the Participant's
Account subject to the diversification election to another qualified
defined contribution plan of the Employer that offers at least three
investment options satisfying the requirements of the Regulations
under Section 404(c) of ERISA.
Section 7. Voting Rights and Dividends on Stock.
7.1 Voting and Tendering of Stock. The Trustee generally shall vote all
shares of Stock held under the Plan in accordance with the written instructions
of the Committee. However, if any Employer has registration-type class of
securities within the meaning of Section 409(e)(4) of the Code, or if a matter
submitted to the holders of the Stock involves a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, or sale of
substantially all assets of an entity, then (i) the shares of Stock which have
been allocated to Participants' Accounts shall be voted by the Trustee in
accordance with the Participants' written instructions, and (ii) the Trustee
shall vote any unallocated Stock and allocated Stock for which it has received
no voting instructions in the same proportions as it votes the allocated Stock
for which it has received instructions from Participants; provided, however,
that if an exempt loan, as defined in Section 4975(d) of the Code, is
outstanding and the Plan is in default on such exempt loan, as default is
defined in the loan documents, then to the extent that such loan documents
require the lender to exercise voting rights with respect to the unallocated
shares, the loan documents will prevail. In the event no shares of Stock have
been allocated to Participants' Accounts at the time Stock is to be voted and
any exempt loan which may be outstanding is not in default, each Participant
shall be deemed to have one share of Stock allocated to his or her Account for
the sole purpose of providing the Trustee with voting instructions.
Notwithstanding any provision hereunder to the contrary, all
unallocated shares of Stock must be voted by the Trustee in a manner determined
by the Trustee to be for the exclusive benefit of the Participants and
Beneficiaries. Whenever such voting rights are to be exercised, the Employers
shall
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provide the Trustee, in a timely manner, with the same notices and other
materials as are provided to other holders of the Stock, which the Trustee shall
distribute to the Participants. The Participants shall be provided with adequate
opportunity to deliver their instructions to the Trustee regarding the voting of
Stock allocated to their Accounts. The instructions of the Participants' with
respect to the voting of allocated shares hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered by
the Trustee in the same manner as set forth above with respect to the
voting of Stock. Notwithstanding any provision hereunder to the
contrary, Stock must be tendered by the Trustee in a manner determined
by the Trustee to be for the exclusive benefit of the Participants and
Beneficiaries.
7.2 Dividends on Stock. Dividends on Stock which are received by the
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Employer paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Stock Fund Account balance (iii) be distributed to the Participants within 90
days of the close of the Plan Year in which paid in proportion with the
Participants' Stock Fund Account balance or (iv) be used to make payments on the
Stock Obligation. If dividends on Stock allocated to a Participant's Account are
used to repay the Stock Obligation, Stock with a fair market value equal to the
dividends so used must be allocated to such Participant's Account in lieu of the
dividends. Dividends on Stock held in the Unallocated Stock Fund which are
received by the Trustee in the form of cash shall be allocated to Participants'
Investment Fund Accounts (pro rata based on the Participant's Account balance in
relation to all Participants' Account balances) and shall be applied as soon as
practicable to payments of principal and interest under the Stock Obligation
incurred with the purchase of the Stock.
Section 8. Adjustments to Accounts.
8.1 Adjustments for Transactions. An Employer contribution pursuant to
Section 4.1 shall be credited to the Participants' Accounts as of the last day
of the Plan Year for which it is contributed, in accordance with Section 4.1.
Stock released from the Unallocated Stock Fund upon the Trust's repayment of a
Stock Obligation pursuant to Section 4.2 shall be credited to the Participants'
Accounts as of the last day of the Plan Year in which the repayment occurred,
pro rata based on the cash applied from such Participant's Account relative to
the cash applied from all Participants' Accounts. Any excess amounts remaining
from the use of proceeds of a sale of Stock from the Unallocated Stock Fund to
repay a Stock Obligation shall be allocated as earnings of the Plan as of the
last day of the Plan Year in which the repayment occurred among the
Participants' Accounts in proportion to the opening balance in each Account. Any
benefit which is paid to a Participant or Beneficiary pursuant to Section 10
shall be charged to the Participant's Account as of the first day of the
Valuation Period in which it is paid. Any forfeiture or restoral shall be
charged or credited to the Participant's Account as of the first day of the
Valuation Period in which the forfeiture or restoral occurs pursuant to Section
9.6.
8.2 Valuation of Investment Fund. As of each Valuation Date, the
Trustee shall prepare a balance sheet of the Investment Fund, recording each
asset (including any contribution receivable from an Employer) and liability at
its fair market value. Any liability with respect to short positions or options
and any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire
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income of the Investment Fund, including realized and unrealized capital gains
and losses, net of any expenses to be charged to the general Investment Fund and
excluding any contributions by the Employer. The determination of gain or loss
shall be consistent with the balance sheets of the Investment Fund for the
current and preceding Valuation Dates.
8.3 Adjustments for Investment Experience. Any net gain or loss of the
Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account. Any cash
dividends received on Stock credited to Participant's Accounts shall be
allocated as of the last day of the Valuation Period among the Participants'
Accounts based on the opening balance in each Participant's Stock Fund Account.
Section 9. Vesting of Participants' Interests.
9.1 Deferred Vesting in Accounts. A Participant's vested interest in
his Account shall be based on his Vesting Years in accordance with the following
Table, subject to the balance of this Section 9:
Vesting Percentage of
Years Interest Vested
----- ---------------
1 20%
2 40%
3 60%
4 80%
5 or more 100%
9.2 Computation of Vesting Years. For purposes of this Plan, a "Vesting
Year" means generally a Plan Year in which an Employee has at least 1,000 Hours
of Service, beginning with the first Plan Year in which the Employee has
completed an Hour of Service with the Employer, and including Service with other
Employers as provided in the definition of "Service". Notwithstanding the above,
an Employee who was employed with First Federal Savings & Loan Association of
Olathe, a federal mutual savings association (the "Mutual Association") which is
the predecessor to the Association, shall receive credit for vesting purposes
for up to two (2) years of continuous employment (calculated on the basis of
Plan Years but prior to the Effective Date of the Plan) with the Mutual
Association in which such Employee completed 1,000 Hours of Service (such years
shall also be referred to as "Vesting Years"). However, a Participant's Vesting
Years shall be computed subject to the following conditions and qualifications:
9.2-1 A Participant's Vesting Years shall not include any Service
prior to the date on which an Employee attains age 18.
9.2-2 A Participant's vested interest in his Account accumulated
before five (5) consecutive Breaks in Service shall be determined
without regard to any Service after such five consecutive Breaks in
Service. Further, if a Participant has five (5) consecutive Breaks in
Service before his interest in his Account has become vested to some
extent, pre-Break years of Service shall not be required to be taken
into account for purposes of determining his post-Break vested
percentage.
9.2-3 In the case of a Participant who has 5 or more consecutive
1-year Breaks in Service, the Participant's pre-Break Service will
count in vesting of the Employer-derived post- break accrued benefit
only if either:
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(i) such Participant has any nonforfeitable interest in the
accrued benefit attributable to Employer contributions at
the time of separation from Service, or
(ii) upon returning to Service the number of consecutive 1-year
Breaks in Service is less than the number of years of
Service.
9.2-4 Unless otherwise specifically excluded, a Participant's
Vesting Years shall include any period of active military duty to the
extent required by the Military Selective Service Act of 1967 (38
U.S.C. Section 2021).
9.2-5 If any amendment changes the vesting schedule, including an
automatic change to or from a top-heavy vesting schedule, any
Participant with three (3) or more Vesting Years may, by filing a
written request with the Employer, elect to have his vested percentage
computed under the vesting schedule in effect prior to the amendment.
The election period must begin not later than the later of sixty (60)
days after the amendment is adopted, the amendment becomes effective,
or the Participant is issued written notice of the amendment by the
Employer or the Committee.
9.3 Full Vesting Upon Certain Events.
9.3-1 Notwithstanding Section 9.1, a Participant's interest in
his Account shall fully vest on the Participant's Normal Retirement
Date. The Participant's interest shall also fully vest in the event
that his Service is terminated by Early Retirement, Disability or by
death.
9.3-2 The Participant's interest in his Account shall also fully
vest in the event of a "Change in Control" of the Association, or the
Company. For these purposes, "Change in Control" shall mean an event
of a nature that; (i) would be required to be reported in response to
Item 1a of the current report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act'); or (ii) results in a Change in Control
of the Association or the Company within the meaning of the Bank
Holding Company Act of 1956, as amended, and applicable rules and
regulations promulgated thereunder as in effect at the time of the
Change in Control (collectively, the BHCA"); or (iii) without
limitation such a Change in Control shall be deemed to have occurred
at such time as (a) any "Person' (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Association or the Company
representing 25% or more of the Association's or the Company's
outstanding securities except for any securities of the Association
purchased by the Company in connection with the conversion of the
Association to the stock form and any securities purchased by the
Association's employee stock ownership plan and trust; or (b)
individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided, however, that this sub-section (b) shall
not apply if the Incumbent Board is replaced by the appointment by a
Federal banking agency of a conservator or receiver for the
Association and, provided further that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of
at least two-thirds of the directors comprising the Incumbent Board or
whose nomination for election by the Company's stockholders was
approved by the same Nominating Committee serving under an Incumbent
Board, shall be, for purposes of this clause (b), considered as though
he were a member of the Incumbent Board; or (c) a reorganization,
merger, consolidation, sale of all or substantially all the assets of
the Association or the Company, or similar transaction in which the
Association or Company is not the surviving institution occurs.
9.3-3 Upon a Change in Control described in 9.3-2, the Plan shall
be terminated and the Plan Administrator shall direct the Trustee to
sell a sufficient amount of Stock from the Unallocated Stock Fund to
repay any outstanding Stock Obligation in full. The proceeds
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of such sale shall be used to repay such Stock Obligation. After
repayment of the Stock Obligation, all remaining shares in the
Unallocated Stock Fund (or the proceeds thereof, if applicable) shall
be treated as earnings and shall be allocated in accordance with the
requirements of Section 8.1.
9.4 Full Vesting Upon Plan Termination. Notwithstanding Section 9.1, a
Participant's interest in his Account shall fully vest upon termination of this
Plan or upon the permanent and complete discontinuance of contributions by his
Employer. In the event of a partial termination, the interest of each affected
Participant shall fully vest with respect to that part of the Plan which is
terminated.
9.5 Forfeiture, Repayment, and Restoral. If a Participant's Service
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a distribution
of his entire vested interest pursuant to Section 10.1, or (ii) incurs five (5)
consecutive one year Breaks in Service. If a Participant's Service terminates
prior to having any portion of his Account become vested, such Participant shall
be deemed to have received a distribution of his vested interest as of the
Valuation Date next following his termination of Service.
If a Participant who has received his entire vested interest returns to
Service before he has five (5) consecutive Breaks in Service, he may repay to
the Trustee an amount equal to the distribution. The Participant may repay such
amount at any time within five years after he has returned to Service. The
amount shall be credited to his Account at the time it is repaid; an additional
amount equal to that portion of his Account which was previously forfeited shall
be restored to his Account at the same time from other Employees' forfeitures
and, if such forfeitures are insufficient, from a special contribution by his
Employer for that year. A Participant who was deemed to have received a
distribution of his vested interest in the Plan shall have his Account restored
as of the first day on which he performs an Hour of Service after his return.
9.6 Accounting for Forfeitures. If a portion of a Participant's Account
is forfeited, Stock allocated to said Participant's Account shall be forfeited
only after other assets are forfeited. If interests in more than one class of
Stock have been allocated to a Participant's Account, the Participant must be
treated as forfeiting the same proportion of each class of Stock. A forfeiture
shall be charged to the Participant's Account as of the first day of the first
Valuation Period in which the forfeiture becomes certain pursuant to Section
9.5. Except as otherwise provided in that Section, a forfeiture shall be added
to the contributions of the terminated Participant's Employer which are to be
credited to other Participants pursuant to Section 4.1 as of the last day of the
Plan Year in which the forfeiture becomes certain.
9.7 Vesting and Nonforfeitability. A Participant's interest in his
Account which has become vested shall be nonforfeitable for any reason.
Section 10. Payment of Benefits.
10.1 Benefits for Participants. For a Participant whose Service ends
for any reason, distribution will be made to or for the benefit of the
Participant or, in the case of the Participant's death, his Beneficiary, by
either, or a combination of the following methods:
10.1.1 By payment in a lump sum, in accordance with Section 10.2;
or
10.1.2 By payment in a series of substantially equal annual
installments over a period not to exceed five (5) years, provided the
maximum period over which the distribution of a Participant's Account
may be made shall be extended by 1 year, up to five (5) additional
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years, for each $145,000 (or fraction thereof) by which such
Participant's Account balance exceeds $725,000 (the aforementioned
figures are subject to cost-of-living adjustments prescribed by the
Secretary of the Treasury pursuant to Section 409(o)(2) of the Code).
The Participant shall elect the manner in which his vested
Account balance will be distributed to him. If a Participant so
desires, he may direct how his benefits are to be paid to his
Beneficiary. If a deceased Participant did not file a direction with
the Committee, the Participant's benefits shall be distributed to his
Beneficiary in a lump sum. Notwithstanding any provision to the
contrary, if the value of a Participant's vested Account balance at
the time of any distribution, does not equal or exceed $5,000, then
such Participant's vested Account shall be distributed in a lump sum
within 60 days after the end of the Plan Year in which employment
terminates. If the value of a Participant's vested Account balance is,
or has ever been, in excess of $5,000, then his benefits shall not be
paid prior to the later of the time he has attained Normal Retirement
or age 62 unless he elects an early payment date in a written election
filed with the Committee. A Participant may modify such an election at
any time, provided any new benefit payment date is at least 30 days
after a modified election is delivered to the Committee. Failure of a
Participant to consent to a distribution prior to the later of Normal
Retirement or age 62 shall be deemed to be an election to defer
commencement of payment of any benefit under this section.
10.2 Time for Distribution.
10.2.1 If the Participant and, if applicable, with the consent of
the Participant's spouse, elects the distribution of the Participant's
Account balance in the Plan, distribution shall commence as soon as
practicable following his termination of Service, but no later than
one year after the close of the Plan Year:
(i) in which the Participant separates from service by reason of
attainment of Normal Retirement Age under the Plan,
Disability, or death; or
(ii) which is the fifth Plan Year following the year in which the
Participant resigns or is dismissed, unless he is reemployed
before such date.
10.2.2 Unless the Participant elects otherwise, the distribution
of the balance of a Participant's Account shall commence not later
than the 60th day after the latest of the close of the Plan Year in
which -
(i) the Participant attains the age of 65;
(ii) occurs the tenth anniversary of the year in which the
Participant commenced participation in the Plan; or
(iii) the Participant terminates his Service with the
Employer.
10.2.3 Notwithstanding anything to the contrary, (1) with respect
to a 5-percent owner (as defined in Code Section 416), distribution of
a Participant's Account shall commence (whether or not he remains in
the employ of the Employer) not later than the April 1 of the calendar
year next following the calendar year in which the Participant attains
age 70- 1/2, and (2) with respect
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to all other Participants, payment of a Participant's benefit will
commence not later than April 1 of the calendar year following the
calendar year in which the Participant attains age 70-1/2, or, if
later, the year in which the Participant retires. A Participant's
benefit from that portion of his Account committed to the Investment
Fund shall be calculated on the basis of the most recent Valuation
Date before the date of payment.
10.2.4 Distribution of a Participant's Account balance after his
death shall comply with the following requirements:
(i) If a Participant dies before his distributions have
commenced, distribution of his Account to his Beneficiary
shall commence not later than one year after the end of the
Plan Year in which the Participant died, however, if the
Participant's Beneficiary is his surviving Spouse,
distributions may commence on the date on which the
Participant would have attained age 70-1/2. In either case,
distributions shall be completed within five years after the
they commence.
(ii) If the Participant dies after distribution has commenced
pursuant to Section 10.1.2 but before his entire interest in
the Plan has been distributed to him, then the remaining
portion of that interest shall, in accordance with Section
401(a)(9) of the Code, be distributed at least as rapidly as
under the method of distribution being used under Section
10.1.2 at the date of his death.
(iii) If a married Participant dies before his benefit payments
begin, then unless he has specifically elected otherwise the
Committee shall cause the balance in his Account to be paid
to his Spouse. No election by a married Participant of a
different Beneficiary shall be valid unless the election is
accompanied by the Spouse's written consent, which (i) must
acknowledge the effect of the election, (ii) must explicitly
provide either that the designated Beneficiary may not
subsequently be changed by the Participant without the
Spouse's further consent, or that it may be changed without
such consent, and (iii) must be witnessed by the Committee,
its representative, or a notary public. (This requirement
shall not apply if the Participant establishes to the
Committee's satisfaction that the Spouse may not be
located.)
10.3 Marital Status. The Committee shall from time to time take
whatever steps it deems appropriate to keep informed of each Participant's
marital status. Each Employer shall provide the Committee with the most reliable
information in the Employer's possession regarding its Participants' marital
status, and the Committee may, in its discretion, require a notarized affidavit
from any Participant as to his marital status. The Committee, the Plan, the
Trustee, and the Employers shall be fully protected and discharged from any
liability to the extent of any benefit payments made as a result of the
Committee's good faith and reasonable reliance upon information obtained from a
Participant and his Employer as to his marital status.
10.4 Delay in Benefit Determination. If the Committee is unable to
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
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10.5 Accounting for Benefit Payments. Any benefit payment shall be
charged to the Participant's Account as of the first day of the Valuation Period
in which the payment is made.
10.6 Options to Receive and Sell Stock. Unless ownership of virtually
all Stock is restricted to active Employees and qualified retirement plans for
the benefit of Employees pursuant to the certificates of incorporation or
by-laws of the Employers issuing Stock, a terminated Participant or the
Beneficiary of a deceased Participant may instruct the Committee to distribute
the Participant's entire vested interest in his Account in the form of Stock. In
that event, the Committee shall apply the Participant's vested interest in the
Investment Fund to purchase sufficient Stock from the Stock Fund or from any
owner of Stock to make the required distribution. In all other cases, the
Participant's vested interest in the Stock Fund shall be distributed in shares
of Stock, and his vested interest in the Investment Fund shall be distributed in
cash.
Any Participant who receives Stock pursuant to Section 10.1, and any
person who has received Stock from the Plan or from such a Participant by reason
of the Participant's death or incompetency, by reason of divorce or separation
from the Participant, or by reason of a rollover contribution described in
Section 402(a)(5) of the Code, shall have the right to require the Employer
which issued the Stock to purchase the Stock for its current fair market value
(hereinafter referred to as the "put right"). The put right shall be exercisable
by written notice to the Committee during the first 60 days after the Stock is
distributed by the Plan, and, if not exercised in that period, during the first
60 days in the following Plan Year after the Committee has communicated to the
Participant its determination as to the Stock's current fair market value.
However, the put right shall not apply to the extent that the Stock, at the time
the put right would otherwise be exercisable, may be sold on an established
market in accordance with federal and state securities laws and regulations.
Similarly, the put option shall not apply with respect to the portion of a
Participant's Account which the Employee elected to have reinvested under Code
Section 401(a)(28)(B). If the put right is exercised, the Trustee may, if so
directed by the Committee in its sole discretion, assume the Employer's rights
and obligations with respect to purchasing the Stock. Notwithstanding anything
herein to the contrary, in the case of a plan established by a Association (as
defined in Code Section 581), the put option shall not apply if prohibited by a
federal or state law and Participants are entitled to elect their benefits be
distributed in cash.
If a Participant elects to receive his distribution in the form of a
lump sum pursuant to Section 10.1.1 of the Plan, the Employer or the Trustee, as
the case may be, may elect to pay for the Stock in equal periodic installments,
not less frequently than annually, over a period not longer than five years from
the day after the put right is exercised, with adequate security and interest at
a reasonable rate on the unpaid balance, all such terms to be set forth in a
promissory note delivered to the seller with normal terms as to acceleration
upon any uncured default.
If a Participant elects to receive his distribution in the form of an
installment payment pursuant to Section 10.1.2 of the Plan, the Employer or the
Trustee, as the case may be, shall pay for the Stock distributed in the
installment distribution over a period which shall not exceed 30 days after the
exercise of the put right.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right shall be nonterminable.
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The put right for Stock acquired through a Stock Obligation shall continue with
respect to such Stock after the Stock Obligation is repaid or the Plan ceases to
be an employee stock ownership plan.
10.7 Restrictions on Disposition of Stock. Except in the case of Stock
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(a)(5) of the Code, shall, prior to any
sale or other transfer of the Stock to any other person, first offer the Stock
to the issuing Employer and to the Plan at the greater of (i) its current fair
market value, or (ii) the purchase price offered in good faith by an independent
third party purchaser. This restriction shall apply to any transfer, whether
voluntary, involuntary, or by operation of law, and whether for consideration or
gratuitous. Either the Employer or the Trustee may accept the offer within 14
days after it is delivered. Any Stock distributed by the Plan shall bear a
conspicuous legend describing the right of first refusal under this Section
10.7, as well as any other restrictions upon the transfer of the Stock imposed
by federal and state securities laws and regulations.
10.8 Continuing Loan Provisions; Creations of Protections and Rights.
Except as otherwise provided in Sections 10.6 and 10.7 and this Section, no
shares of Employer Stock held or distributed by the Trustee may be subject to a
put, call or other option, or buy-sell arrangement. The provisions of this
Section shall continue to by applicable to such Stock even if the Plan ceases to
be an employee stock ownership plan under Section 4975(e)(7) of the Code.
10.9 Direct Rollover of Eligible Distribution. A Participant or
distributee may elect, at the time and in the manner prescribed by the Trustee
or the Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the Participant or
distributee in a direct rollover.
10.9-1 An "eligible rollover" is any distribution that does not
include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint lives
(or joint life expectancies) of the Participant and the Participant's
Beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Code
Section 401(a)(9); and the portion of any distribution that is not
included in gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer securities).
10.9-2 An "eligible retirement plan" is an individual retirement
account described in Code Section 401(a), an individual retirement
annuity described in Code Section 408(b), an annuity plan described in
Code Section 403(a), or a qualified trust described in Code Section
401(a), that accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the
surviving Spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
10.9-3 A "direct rollover" is a payment by the Plan to the
eligible retirement plan specified by the distributee.
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10.9-4 The term "distributee" shall refer to a deceased
Participant's Spouse or a Participant's former Spouse who is the
alternate payee under a qualified domestic relations order, as defined
in Code Section 414(p).
10.10 Waiver of 30 Day Period After Notice of Distribution. If a
distribution is one to which Sections 401(a)(11) and 417 of the Code do not
apply, such distribution may commence less than 30 days after the notice
required under Section 4.11(a)-11(c) of the Income Tax Regulations is given,
provided that:
(i) the Trustee or Administrative Committee, as applicable,
clearly informs the Participant that the Participant has a
right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular option), and
(ii) the Participant, after receiving the notice, affirmatively
elects a distribution.
Section 11. Rules Governing Benefit Claims and Review of Appeals.
11.1 Claim for Benefits. Any Participant or Beneficiary who qualifies
for the payment of benefits shall file a claim for his benefits with the
Committee on a form provided by the Committee. The claim, including any election
of an alternative benefit form, shall be filed at least 30 days before the date
on which the benefits are to begin. If a Participant or Beneficiary fails to
file a claim by the day before the date on which benefits become payable, he
shall be presumed to have filed a claim for payment for the Participant's
benefits in the standard form prescribed by Sections 10.1 or 10.2
11.2 Notification by Committee. Within 90 days after receiving a claim
for benefits (or within 180 days, if special circumstances require an extension
of time and written notice of the extension is given to the Participant or
Beneficiary within 90 days after receiving the claim for benefits), the
Committee shall notify the Participant or Beneficiary whether the claim has been
approved or denied. If the Committee denies a claim in any respect, the
Committee shall set forth in a written notice to the Participant or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on
which the denial is based;
(iii) a description of any additional material or information
which could be submitted by the Participant or Beneficiary
to support his claim, with an explanation of the relevance
of such information; and
(iv) an explanation of the claims review procedures set forth in
Section 11.3.
11.3 Claims Review Procedure. Within 60 days after a Participant or
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination. In
connection with his appeal the Participant or Beneficiary or his representative
may inspect or purchase copies of pertinent documents and records to the extent
not inconsistent with other Participants' and
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<PAGE>
Beneficiaries' rights of privacy. Within 60 days after receiving a notice of
appeal from a prior determination (or within 120 days, if special circumstances
require an extension of time and written notice of the extension is given to the
Participant or Beneficiary and his representative within 60 days after receiving
the notice of appeal), the Committee shall furnish to the Participant or
Beneficiary and his representative, if any, a written statement of the
Committee's final decision with respect to his claim, including the reasons for
such decision and the particular Plan provisions upon which it is based.
Section 12. The Committee and Its Functions.
12.1 Authority of Committee. The Committee shall be the "plan
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Association, the Employers, or the Trustee
under the Plan and Trust Agreement, (ii) delegated in writing to other persons
by the Association, the Employers, the Committee, or the Trustee, or (iii)
allocated to other parties by operation of law. The Committee shall have
exclusive responsibility regarding decisions concerning the payment of benefits
under the Plan. The Committee shall have no investment responsibility with
respect to the Investment Fund except to the extent, if any, specifically
provided in the Trust Agreement. In the discharge of its duties, the Committee
may employ accountants, actuaries, legal counsel, and other agents (who also may
be employed by an Employer or the Trustee in the same or some other capacity)
and may pay their reasonable expenses and compensation.
12.2 Identity of Committee. The Committee shall consists of three or
more individuals selected by the Association. Any individual, including a
director, trustee, shareholder, officer, or Employee of an Employer, shall be
eligible to serve as a member of the Committee. The Association shall have the
power to remove any individual serving on the Committee at any time without
cause upon 10 days written notice, and any individual may resign from the
Committee at any time upon 10 days written notice to the Association. The
Association shall notify the Trustee of any change in membership of the
Committee.
12.3 Duties of Committee. The Committee shall keep whatever records may
be necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Association. The Committee shall furnish to
the Trustee whatever information may be necessary to properly administer the
Trust. The Committee shall see to the filing with the appropriate government
agencies of all reports and returns required of the plan Committee under ERISA
and other laws.
Further, the Committee shall have exclusive responsibility and
authority with respect to the Plan's holdings of Stock and shall direct the
Trustee in all respects regarding the purchase, retention, sale, exchange, and
pledge of Stock and the creation and satisfaction of Stock Obligations. The
Committee shall at all times act consistently with the Association's long-term
intention that the Plan, as an employee stock ownership plan, be invested
primarily in Stock. Subject to the direction of the Board as to the application
of Employer contributions to Stock Obligations, and subject to the provisions of
Sections 6.4 and 10.6 as to Participants' rights under certain circumstances to
have their Accounts invested in Stock or in assets other than Stock, the
Committee shall determine in its sole discretion the extent to which assets of
the Trust shall be used to repay Stock Obligations, to purchase Stock, or to
invest in other assets to be selected by the Trustee or an investment manager.
No provision of the Plan relating to the allocation or vesting of any interests
in the Stock Fund or the Investment Fund shall restrict the Committee from
changing any holdings of the Trust, whether the changes involve an increase or a
decrease in the Stock or other assets credited
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to Participants' Accounts. In determining the proper extent of the Trust's
investment in Stock, the Committee shall be authorized to employ investment
counsel, legal counsel, appraisers, and other agents to pay their reasonable
expenses and compensation.
12.4 Valuation of Stock. If the valuation of any Stock is not
established by reported trading on a generally recognized public market, the
valuation of such Stock shall be determined by an independent appraiser. For
purposes of the preceding sentence, the term "independent appraiser" means any
appraiser meeting requirements similar to the requirements of the regulations
prescribed under Section 170(a)(1) of the Code.
12.5 Compliance with ERISA. The Committee shall perform all acts
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.
12.6 Action by Committee. All actions of the Committee shall be
governed by the affirmative vote of a number of members which is a majority of
the total number of members currently appointed, including vacancies. The
members of the Committee may meet informally and may take any action without
meeting as a group.
12.7 Execution of Documents. Any instrument executed by the Committee
shall be signed by any member or employee of the Committee.
12.8 Adoption of Rules. The Committee shall adopt such rules and
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 Responsibilities to Participants. The Committee shall determine
which Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may decide in its sole discretion to
permit modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the individuals
concerned.
12.10 Alternative Payees in Event of Incapacity. If the Committee finds
at any time that an individual qualifying for benefits under this Plan is a
minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, or a custodian for him
under the Uniform Gifts to Minors Act, or, in the case of an incompetent, to his
spouse, or his legal guardian, the payments to be used for the individual's
benefit. The Committee and the Trustee shall not be obligated to inquire as to
the actual use of the funds by the person receiving them under this Section
12.10, and any such payment shall completely discharge the obligations of the
Plan, the Trustee, the Committee, and the Employers to the extent of the
payment.
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<PAGE>
12.11 Indemnification by Employers. Except as separately agreed in
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employer, jointly and severally, to the
fullest extent permitted by ERISA, and subject to and conditioned upon
compliance with 12 C.F.R. Section 545.121, to the extent applicable, against any
and all costs, damages, expenses, and liabilities reasonably incurred by or
imposed upon it or him in connection with any claim made against it or him or in
which it or he may be involved by reason of its or his being, or having been,
the Committee, or a member or employee of the Committee, to the extent such
amounts are not paid by insurance.
12.12 Nonparticipation by Interested Member. Any member of the
Committee who also is a Participant in the Plan shall take no part in any
determination specifically relating to his own participation or benefits, unless
his abstention would leave the Committee incapable of acting on the matter.
Section 13. Adoption, Amendment, or Termination of the Plan.
13.1 Adoption of Plan by Other Employers. With the consent of the
Association, any entity may become a participating Employer under the Plan by
(i) taking such action as shall be necessary to adopt the Plan, (ii) becoming a
party to the Trust Agreement establishing the Trust Fund, and (iii) executing
and delivering such instruments and taking such other action as may be necessary
or desirable to put the Plan into effect with respect to the entity's Employees.
13.2 Plan Adoption Subject to Qualification. Notwithstanding any other
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers may deduct currently for federal income tax purposes
their contributions to the Trust and so that the Participants may exclude the
contributions from their gross income and recognize income only when they
receive benefits. In the event that this Plan is held by the Internal Revenue
Service not to qualify initially under Section 401(a), the Plan may be amended
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure qualification under Section 401(a). If this Plan is held by the
Internal Revenue Service not to qualify initially under Section 401(a) either as
originally adopted or as amended, each Employer's contributions to the Trust
under this Plan (including any earnings thereon) shall be returned to it and
this Plan shall be terminated. In the event that this Plan is amended after its
initial qualification and the Plan as amended is held by the Internal Revenue
Service not to qualify under Section 401(a), the amendment may be modified
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure approval of the amendment under Section 401(a).
13.3 Right to Amend or Terminate. The Association intends to continue
this Plan as a permanent program. However, each participating Employer
separately reserves the right to suspend, supersede, or terminate the Plan at
any time and for any reason, as it applies to that Employer's Employees, and the
Association reserves the right to amend, suspend, supersede, merge, consolidate,
or terminate the Plan at any time and for any reason, as it applies to the
Employees of each Employer. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall (i) reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, (ii) reduce or restrict,
either directly or indirectly, the benefit provided any Participant prior to the
amendment, or (iii) divert any portion of the Trust Fund to purposes other than
the exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan. Moreover, there shall not be any
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<PAGE>
transfer of assets to a successor plan or merger or consolidation with another
plan unless, in the event of the termination of the successor plan or the
surviving plan immediately following such transfer, merger, or consolidation,
each participant or beneficiary would be entitled to a benefit equal to or
greater than the benefit he would have been entitled to if the plan in which he
was previously a participant or beneficiary had terminated immediately prior to
such transfer, merger, or consolidation. Following a termination of this Plan by
the Association, the Trustee shall continue to administer the Trust and pay
benefits in accordance with the Plan as amended from time to time and the
Committee's instructions.
Section 14. Miscellaneous Provisions.
14.1 Plan Creates No Employment Rights. Nothing in this Plan shall be
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 Nonassignability of Benefits. No assignment, pledge, or other
anticipation of benefits from the Plan will be permitted or recognized by the
Employer, the Committee, or the Trustee. Moreover, benefits from the Plan shall
not be subject to attachment, garnishment, or other legal process for debts or
liabilities of any Participant or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or former spouse, child or other dependent of a Participant pursuant to
a state domestic relations or community property law, unless the judgment,
decree, or order is determined by the Committee to be a qualified domestic
relations order within the meaning of Section 414(p) of the Code, as more fully
set forth in Section 14.2 hereof.
14.3 Limit of Employer Liability. The liability of the Employer with
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 Treatment of Expenses. All expenses incurred by the Committee and
the Trustee in connection with administering this Plan and Trust Fund shall be
paid by the Trustee from the Trust Fund to the extent the expenses have not been
paid or assumed by the Employer or by the Trustee.
14.5 Number and Gender. Any use of the singular shall be interpreted to
include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 Nondiversion of Assets. Except as provided in Sections 5.3 and
13.3, under no circumstances shall any portion of the Trust Fund be diverted to
or used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 Separability of Provisions. If any provision of this Plan is held
to be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
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<PAGE>
14.8 Service of Process. The agent for the service of process upon the
Plan shall be the president of the Association, or such other person as may be
designated from time to time by the Association.
14.9 Governing State Law. This Plan shall be interpreted in accordance
with the laws of the State of Kansas to the extent those laws are applicable
under the provisions of ERISA.
14.10 Employer Contributions Conditioned on Deductibility. Employer
Contributions to the Plan are conditioned on deductibility under Code Section
404. In the event that the Internal Revenue Service shall determine that all or
any portion of an Employer Contribution is not deductible under that Section,
the nondeductible portion shall be returned to the Employer within one year of
the disallowance of the deduction.
14.11 Unclaimed Accounts. Neither the Employer nor the Trustees shall
be under any obligation to search for, or ascertain the whereabouts of, any
Participant or Beneficiary. The Employer or the Trustees, by certified or
registered mail addressed to his last known address of record with the Employer,
shall notify any Participant or Beneficiary that he is entitled to a
distribution under this Plan, and the notice shall quote the provisions of this
Section. If the Participant or Beneficiary fails to claim his benefits or make
his whereabouts known in writing to the Employer or the Trustees within seven
(7) calendar years after the date of notification, the benefits of the
Participant or Beneficiary under the Plan will be disposed of as follows:
(a) If the whereabouts of the Participant is unknown but the
whereabouts of the Participant's Beneficiary is known to the Trustees,
distribution will be made to the Beneficiary.
(b) If the whereabouts of the Participant and his Beneficiary are
unknown to the Trustees, the Plan will forfeit the benefit, provided
that the benefit is subject to a claim for reinstatement if the
Participant or Beneficiary make a claim for the forfeited benefit.
Any payment made pursuant to the power herein conferred upon the
Trustees shall operate as a complete discharge of all obligations of the
Trustees, to the extent of the distributions so made.
14.12 Qualified Domestic Relations Order. Section 14.2 shall not apply
to a "qualified domestic relations order" defined in Code Section 414(p), and
such other domestic relations orders permitted to be so treated under the
provisions of the Retirement Equity Act of 1984. Further, to the extent provided
under a "qualified domestic relations order", a former Spouse of a Participant
shall be treated as the Spouse or surviving Spouse for all purposes under the
Plan.
In the case of any domestic relations order received by the Plan:
(a) The Employer or the Plan Committee shall promptly notify the
Participant and any other alternate payee of the receipt of such order
and the Plan's procedures for determining the qualified status of
domestic relations orders, and
(b) Within a reasonable period after receipt of such order, the
Employer or the Plan Committee shall determine whether such order is a
qualified domestic relations order and notify the Participant and each
alternate payee of such determination. The Employer or the Plan
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<PAGE>
Committee shall establish reasonable procedures to determine the
qualified status of domestic relations orders and to administer
distributions under such qualified orders.
During any period in which the issue of whether a domestic relations
order is a qualified domestic relations order is being determined (by the
Employer or Plan Committee, by a court of competent jurisdiction, or otherwise),
the Employer or the Plan Committee shall segregate in a separate account in the
Plan or in an escrow account the amounts which would have been payable to the
alternate payee during such period if the order had been determined to be a
qualified domestic relations order. If within eighteen (18) months the order (or
modification thereof) is determined to be a qualified domestic relations order,
the Employer or the Plan Committee shall pay the segregated amounts (plus any
interest thereon) to the person or persons entitled thereto. If within eighteen
(18) months it is determined that the order is not a qualified domestic
relations order, or the issue as to whether such order is a qualified domestic
relations order is not resolved, then the Employer or the Plan Committee shall
pay the segregated amounts (plus any interest thereon) to the person or persons
who would have been entitled to such amounts if there had been no order. Any
determination that an order is a qualified domestic relations order which is
made after the close of the eighteen (18) month period shall be applied
prospectively only. The term "alternate payee" means any Spouse, former Spouse,
child or other dependent of a Participant who is recognized by a domestic
relations order as having a right to receive all, or a portion of, the benefit
payable under a Plan with respect to such Participant.
Section 15. Top-Heavy Provisions.
15.1 Top-Heavy Plan. For any Plan Year beginning after December 31,
1983, this Plan is top-heavy if any of the following conditions exist:
(a) If the top-heavy ratio for this Plan exceeds sixty percent
(60%) and this Plan is not part of any required aggregation group or
permissive aggregation group;
(b) If this Plan is a part of a required aggregation group (but
is not part of a permissive aggregation group) and the aggregate
top-heavy ratio for the group of Plans exceeds sixty percent (60%); or
(c) If this Plan is a part of a required aggregation group and
part of a permissive aggregation group and the aggregate top-heavy
ratio for the permissive aggregation group exceeds sixty percent
(60%).
15.2 Super Top-Heavy Plan For any Plan Year beginning after December
31, 1983, this Plan will be a super top-heavy Plan if any of the following
conditions exist:
(a) If the top-heavy ratio for this Plan exceeds ninety percent
(90%) and this Plan is not part of any required aggregation group or
permissive aggregation group.
(b) If this Plan is a part of a required aggregation group (but
is not part of a permissive aggregation group) and the aggregate
top-heavy ratio for the group of Plans exceeds ninety percent (90%),
or
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(c) If this Plan is a part of a required aggregation group and
part of a permissive aggregation group and the aggregate top-heavy
ratio for the permissive aggregation group exceeds ninety percent
(90%).
15.3 Definitions.
In making this determination, the Committee shall use the following definitions
and principles:
15.3-1 The "Determination Date", with respect to the first Plan
Year of any plan, means the last day of that Plan Year, and with
respect to each subsequent Plan Year, means the last day of the
preceding Plan Year. If any other plan has a Determination Date which
differs from this Plan's Determination Date, the top-heaviness of this
Plan shall be determined on the basis of the other plan's
Determination Date falling within the same calendar years as this
Plan's Determination Date.
15.3-2 A "Key Employee", with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
Determination Date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having 415
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning
the largest interests in the Employer having 415 Compensation greater
than the limit then in effect under Section 415(c)(1)(A), (iii) an
owner of more than five percent of the outstanding equity interest or
the outstanding voting interest in any Employer, or (iv) an owner of
more than one percent of the outstanding equity interest or the
outstanding voting interest in an Employer whose annual compensation
exceeds $150,000. For purposes of determining whether an Employee is a
Key Employee, annual compensation means compensation as defined in
Section 415(c)(3) of the Code, but including amounts contributed by
the Employee pursuant to a salary reduction agreement which are
excludable from the Employee's gross income under Section 125, Section
402(e)(3), Section 402(H)(1)(B) or Section 403(b) of the Code. The
Beneficiary of a Key Employee shall also be considered a Key Employee.
15.3-3 A "Non-key Employee" means an Employee who at any time
during the five years ending on the top-heavy Determination Date for
the Plan Year has received compensation from an Employer and who has
never been a Key Employee, and the Beneficiary of any such Employee.
15.3-4 A "required aggregation group" includes (a) each
qualified Plan of the Employer in which at least one Key Employee
participates in the Plan Year containing the Determination Date and any
of the four (4) preceding Plan Years, and (b) any other qualified Plan
of the Employer which enables a Plan described in (a) to meet the
requirements of Code Sections 401(a)(4) and 410. For purposes of the
preceding sentence, a qualified Plan of the Employer includes a
terminated Plan maintained by the Employer within the five (5) year
period ending on the Determination Date. In the case of a required
aggregation group, each Plan in the group will be considered a
top-heavy Plan if the required aggregation group is a top-heavy group.
No Plan in the required aggregation group will be considered a
top-heavy Plan if the required aggregation group is not a top-heavy
group. All Employers aggregated under Code Sections 414(b), (c) or (m)
or (o) (but only after the Code Section 414(o) regulations become
effective) are considered a single Employer.
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<PAGE>
15.3-5 A "permissive aggregation group" includes the required
aggregation group of Plans plus any other qualified Plan(s) of the
Employer that are not required to be aggregated but which, when
considered as a group with the required aggregation group, satisfy the
requirements of Code Sections 401(a)(4) and 410 and are comparable to
the Plans in the required aggregation group. No Plan in the permissive
aggregation group will be considered a top-heavy Plan if the
permissive aggregation group is not a top-heavy group. Only a Plan
that is part of the required aggregation group will be considered a
top-heavy Plan if the permissive aggregation group is top-heavy.
15.4 Top-Heavy Rules of Application.
For purposes of determining the value of Account balances and the
present value of accrued benefits the following provisions shall apply:
15.4-1 The value of Account balances and the present value of
accrued benefits will be determined as of the most recent Valuation
Date that falls within or ends with the twelve (12) month period
ending on the Determination Date.
15.4-2 For purposes of testing whether this Plan is top-heavy,
the present value of an individual's accrued benefits and an
individual's Account balances is counted only once each year.
15.4-3 The Account balances and accrued benefits of a Participant
who is not presently a Key Employee but who was a Key Employee in a
Plan Year beginning on or after January 1, 1984 will be disregarded.
15.4-4 For years beginning after December 31, 1984, Employer
contributions attributable to a salary reduction or similar
arrangement will be taken into account.
15.4-5 When aggregating Plans, the value of Account balances and
accrued benefits will be calculated with reference to the
Determination Dates that fall within the same calendar year.
15.4-6 The present value of the accrued benefits or the amount of
the Account balances of an Employee shall be increased by the
aggregate distributions made to such Employee from a Plan of the
Employer. No distribution, however, made from the Plan to an
individual (other than the Beneficiary of a deceased Employee who was
an Employee within the five (5) year period ending on the
Determination Date) who has not been an Employee at any time during
the five (5) year period ending on the Determination Date shall be
taken into account in determining whether the Plan is top-heavy. Also,
any amounts recontributed by an Employee upon becoming a Participant
in the Plan shall no longer be counted as a distribution under this
paragraph.
15.4-7 The present value of the accrued benefits or the amount of
the Account balances of an Employee shall be increased by the
aggregate distributions made to such Employee from a terminated Plan
of the Employer, provided that such Plan (if not terminated) would
have been required to be included in the aggregation group.
15.4-8 Accrued benefits and Account balances of an individual
shall not be taken into account for purposes of determining the
top-heavy ratios if the individual has performed no services for the
Employer during the five (5) year period ending on the applicable
Determination
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<PAGE>
Date. Compensation for purposes of this subparagraph shall not include
any payments made to an individual by the Employer pursuant to a
qualified or non-qualified deferred compensation plan.
15.4-9 The present value of the accrued benefits or the amount of
the Account balances of any Employee participating in this Plan shall
not include any rollover contributions or other transfers voluntarily
initiated by the Employee except as described below. If this Plan
transfers or rolls over funds to another Plan in a transaction
voluntarily initiated by the Employee after December 31, 1983, then
this Plan shall count the distribution for purposes of determining
Account balances or the present value of accrued benefits. A transfer
incident to a merger or consolidation of two or more Plans of the
Employer (including Plans of related Employers treated as a single
Employer under Code Section 414), or a transfer or rollover between
Plans of the Employer, shall not be considered as voluntarily
initiated by the Employee.
15.5 Top-Heavy Ratio.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer has never
maintained any defined benefit plans which have covered or could cover a
Participant in this Plan, the top-heavy ratio is a fraction, the numerator of
which is the sum of the Account balances of all Key Employees as of the
Determination Date, and the denominator of which is the sum of the Account
balances of all Employees as of the Determination Date. Both the numerator and
denominator of the top-heavy ratio shall be increased to reflect any
contribution which is due but unpaid as of the Determination Date.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer maintains or
has maintained one (1) or more defined benefit plans which have covered or could
cover a Participant in this Plan, the top-heavy ratio is a fraction, the
numerator of which is the sum of Account balances under the defined contribution
plans for all Key Employees and the present value of accrued benefits under the
defined benefit plans for all Key Employees, and the denominator of which is the
sum of the Account balances under the defined contribution plans for all
Employees and the present value of accrued benefits under the defined benefit
plans for all Employees.
For these purposes, the accrued benefit of a Participant other than a
Key Employee in a defined benefit plan shall be determined under (a) the method,
if any, that uniformly applies for accrual purposes under all defined benefit
plans maintained by the Employer, or (b) if there is no such method, as if such
benefit accrued not more rapidly than the slowest accrual rate permitted under
the fractional rule of Section 411(b)(1)(C).
15.6 Minimum Contributions. For any Top-Heavy Year, each Employer shall
make a special contribution on behalf of each Participant to the extent that the
total allocations to his Account pursuant to Section 4 is less than the lesser
of:
(i) three percent of his 415 Compensation for that year, or
(ii) the highest ratio of such allocation to 415 Compensation
received by any Key Employee for that year. For purposes of
the special contribution of this Section 15.2, a Key
Employee's 415 Compensation shall include amounts the Key
Employee elected to defer under a qualified 401(k)
arrangement. Such a special contribution shall be made on
behalf of each
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Participant who is employed by an Employer on the last day
of the Plan Year, regardless of the number of his Hours of
Service, and shall be allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key
Employee is a Participant in both this Plan and a defined benefit plan included
in the plan aggregation group which is top heavy, the sum of the Employer
contributions and forfeitures allocated to the Account of each such Non-key
Employee shall be equal to at least five percent (5%) of such Non-key Employee's
415 Compensation for that year.
15.7 Minimum Vesting. For any Plan Year in which this Plan is
Top-Heavy, a Participant's vested interest in his Account shall be based on the
following "top-heavy table":
Vesting Percentage of
Years Interest Vested
----- ---------------
Fewer than 3 years 0%
3 or more 100%
15.8 Top-Heavy Provisions Control in Top-Heavy Plan. In the event this Plan
becomes top-heavy and a conflict arises between the top-heavy provisions herein
set forth and the remaining provisions set forth in this Plan, the top-heavy
provisions shall control.
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SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21
The following is the subsidiary of First Federal of Olathe Bancorp,
Inc. following the Conversion.
Name Ownership
- ---- ---------
First Federal Savings and Loan Association of Olathe 100% Owned
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form SB-2 and the
Application for Conversion of our report dated October 22, 1999, relating to the
financial statements of First Federal Savings and Loan Association of Olathe,
and to the reference to our Firm under the caption "Experts" in the Prospectus.
/s/ Taylor, Perky & Parker
- --------------------------
Overland Park, Kansas
December 15, 1999
RP FINANCIAL, LC.
- --------------------------------------------
Financial Services Industry Consultants
December 15, 1999
Board of Directors
First Federal Savings and Loan Association of Olathe
100 East Park Street
Olathe, Kansas 66061
Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Conversion of First Federal Savings and Loan Association of Olathe, Olathe,
Kansas, and any amendments thereto, and in the Form SB-2 Registration Statement
and any amendments thereto for First Federal of Olathe Bancorp, Inc. We also
hereby consent to the inclusion of, summary of and references to our Appraisal
Report and our statement concerning subscription rights in such filings
including the Prospectus of First Federal of Olathe Bancorp, Inc.
Sincerely,
/s/ RP Financial, LC.
----------------------------
RP FINANCIAL, LC.
________________________________________________________________________________
WASHINGTON HEADQUARTERS
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998
<CASH> 56 113
<INT-BEARING-DEPOSITS> 2,400 5,100
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 684 847
<INVESTMENTS-CARRYING> 11,000 9,000
<INVESTMENTS-MARKET> 10,561 9,006
<LOANS> 31,546 29,003
<ALLOWANCE> 175 25
<TOTAL-ASSETS> 46,245 44,649
<DEPOSITS> 35,221 34,701
<SHORT-TERM> 1,000 1,000
<LIABILITIES-OTHER> 1,015 406
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 9,009 8,542
<TOTAL-LIABILITIES-AND-EQUITY> 46,245 44,649
<INTEREST-LOAN> 1,968 2,395
<INTEREST-INVEST> 527 435
<INTEREST-OTHER> 160 261
<INTEREST-TOTAL> 2,655 3,091
<INTEREST-DEPOSIT> 1,418 1,600
<INTEREST-EXPENSE> 1,461 1,653
<INTEREST-INCOME-NET> 1,194 1,438
<LOAN-LOSSES> 150 0
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 178 228
<INCOME-PRETAX> 865 1,209
<INCOME-PRE-EXTRAORDINARY> 565 767
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 565 767
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 8.00 7.91
<LOANS-NON> 0 0
<LOANS-PAST> 134 106
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 25 25
<CHARGE-OFFS> 150 0
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 175 25
<ALLOWANCE-DOMESTIC> 175 25
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
RP FINANCIAL, LC.
- -------------------------------------------
Financial Services Industry Consultants
October 13, 1999
Board of Directors
First Federal Savings and Loan Association of Olathe
100 East Park
Olathe, Kansas 66061-3463
Dear Members of the Board:
This letter sets forth the agreement between First Federal Savings and
Loan Association of Olathe, Kansas ("First Federal" or the "Association"), and
RP Financial, LC. ("RP Financial") for the independent appraisal services
pertaining to the mutual-to-stock conversion transaction, whereby the
Association will become a wholly-owned subsidiary of a stock holding company.
The specific appraisal services to be rendered by RP Financial are described
below. These appraisal services will be managed by one of RP Financial's
Managing Directors.
Description of Conversion Appraisal Services
Prior to preparing the valuation report, RP Financial will conduct a
financial due diligence, including on-site interviews of senior management and
reviews of financial and other documents and records, to gain insight into the
Association's operations, financial condition, profitability, market area, risks
and various internal and external factors which impact the pro forma market
value of the Association. RP Financial will prepare a written detailed valuation
report of the Association which will be fully consistent with applicable
regulatory guidelines and standard pro forma valuation practices. The appraisal
report will include an in-depth analysis of the Association's financial
condition and operating results, as well as an assessment of the Association's
interest rate risk, credit risk and liquidity risk. The appraisal report will
describe the Association's business strategies, market area, prospects for the
future and the intended use of proceeds both in the short term and over the
longer term. A peer group analysis relative to publicly-traded savings
institutions will be conducted for the purpose of determining appropriate
valuation adjustments relative to the group. We will review pertinent sections
of the applications and conversion documents to obtain necessary data and
information for the appraisal, including the impact of key deal elements on the
appraised value, such as dividend policy, use of proceeds and reinvestment rate,
tax rate, conversion expenses and characteristics of stock plans. The appraisal
report will conclude with a midpoint pro forma value which will establish the
range of value. The appraisal report may be periodically updated throughout the
conversion process if appropriate, and there will be at least one updated
valuation prepared at the time of the closing of the conversion.
________________________________________________________________________________
WASHINGTON HEADQUARTERS
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
<PAGE>
Board of Directors
October 13, 1999
Page 2
RP Financial agrees to deliver the valuation appraisal and subsequent
updates, in writing, to the Association at the above address in conjunction with
the filing of the regulatory application. Subsequent updates will be filed
promptly as certain events occur which would warrant the preparation and filing
of such valuation updates. Further, RP Financial agrees to perform such other
services as are necessary or required in connection with the regulatory review
of the appraisal and respond to the regulatory comments, if any, regarding the
valuation appraisal and subsequent updates.
Fee Structure and Payment Schedule
First Federal agrees to pay RP Financial a fixed fee of $17,500 for
these appraisal services, plus reimbursable expenses. Payment of these fees
shall be made according to the following schedule:
o $5,000 upon execution of the letter of agreement engaging RP
Financial's appraisal services;
o $10,000 upon delivery of the completed original appraisal report;
and
o $2,500 upon completion of the conversion to cover all subsequent
valuation updates that may be required, provided that the
transaction is not delayed for reasons described below.
The Association will reimburse RP Financial for out-of-pocket expenses
incurred in preparation of the valuation. Such out-of-pocket expenses will
likely include travel, printing, telephone, facsimile, shipping, computer and
data services. RP Financial will agree to limit reimbursable expenses in
connection with this engagement and in connection with the preparation of a
regulatory business plan as described in the accompanying letter, subject to
written authorization from the Association to exceed such level.
In the event First Federal shall, for any reason, discontinue the
proposed conversion prior to delivery of the completed documents set forth above
and payment of the respective progress payment fees, First Federal agrees to
compensate RP Financial according to RP Financial's standard billing rates for
consulting services based on accumulated and verifiable time expenses, not to
exceed the respective fee caps noted above, after giving full credit to the
initial retainer fee. RP Financial's standard billing rates range from $75 per
hour for research associates to $250 per hour for managing directors.
If during the course of the proposed transaction, unforeseen events
occur so as to materially change the nature or the work content of the services
described in this contract, the terms of said contract shall be subject to
renegotiation by First Federal and RP Financial. Such unforeseen events shall
include, but not be limited to, major changes in
<PAGE>
Board of Directors
October 13, 1999
Page 3
the conversion regulations, appraisal guidelines or processing procedures as
they relate to appraisals, major changes in management or procedures, operating
policies or philosophies, and excessive delays or suspension of processing of
conversion applications by the regulators such that completion of the
transaction requires the preparation by RP Financial of a new appraisal or
financial projections.
Representations and Warranties
First Federal and RP Financial agree to the following:
1. The Association agrees to make available or to supply to RP
Financial such information with respect to its business and financial
condition as RP Financial may reasonably request in order to provide the
aforesaid valuation. Such information heretofore or hereafter supplied or
made available to RP Financial shall include: annual financial statements,
periodic regulatory filings and material agreements, debt instruments, off
balance sheet assets or liabilities, commitments and contingencies,
unrealized gains or losses and corporate books and records. All information
provided by the Association to RP Financial shall remain strictly
confidential (unless such information is otherwise made available to the
public), and if the conversion are not consummated or the services of RP
Financial are terminated hereunder, RP Financial shall upon request
promptly return to the Association the original and any copies of such
information.
2. The Association hereby represents and warrants to RP Financial that
any information provided to RP Financial does not and will not, to the best
of the Association's knowledge, at the times it is provided to RP
Financial, contain any untrue statement of a material fact or fail to state
a material fact necessary to make the statements therein not false or
misleading in light of the circumstances under which they were made.
3. (a) The Association agrees that it will indemnify and hold harmless
RP Financial, any affiliates of RP Financial, the respective directors,
officers, agents and employees of RP Financial or their successors and
assigns who act for or on behalf of RP Financial in connection with the
services called for under this agreement (hereinafter referred to as "RP
Financial"), from and against any and all losses, claims, damages and
liabilities (including, but not limited to, all losses and expenses in
connection with claims under the federal securities laws) attributable to
(i) any untrue statement or alleged untrue statement of a material fact
contained in the financial statements or other information furnished or
otherwise provided by the Association to RP Financial, either orally or in
writing; (ii) the omission or alleged omission of a material fact from the
financial statements or other information furnished or otherwise made
available by the Association to RP Financial; or (iii) any action or
omission to act by the Association, or the Association's respective
officers, Directors, employees or agents which action or omission is
willful or negligent. The Association will be under no obligation to
indemnify RP Financial hereunder if a court determines that RP Financial
was negligent or acted in bad faith with respect to any actions or
omissions of RP Financial related to a matter for which indemnification is
sought hereunder. Any time devoted by employees of RP Financial to
situations for which indemnification is provided hereunder, shall be an
indemnifiable cost payable by the Association at the normal hourly
professional rate chargeable by such employee.
<PAGE>
Board of Directors
October 13, 1999
Page 4
(b) RP Financial shall give written notice to the Association of such
claim or facts within thirty days of the assertion of any claim or
discovery of material facts upon which RP Financial intends to base a claim
for indemnification hereunder. In the event the Association elects, within
ten business days of the receipt of the original notice thereof, to contest
such claim by written notice to RP Financial, RP Financial will be entitled
to be paid any amounts payable by the Association hereunder within five
days after the final determination of such contest either by written
acknowledgement of the Association or a final judgment (including all
appeals therefrom) of a court of competent jurisdiction. If the Association
does not so elect, RP Financial shall be paid promptly and in any event
within thirty days after receipt by the Association of the notice of the
claim.
(c) The Association shall pay for or reimburse the reasonable
expenses, including attorneys' fees, incurred by RP Financial in advance of
the final disposition of any proceeding within thirty days of the receipt
of such request if RP Financial furnishes the Association: (1) a written
statement of RP Financial's good faith belief that it is entitled to
indemnification hereunder; and (2) a written undertaking to repay the
advance if it ultimately is determined in a final adjudication of such
proceeding that it or he is not entitled to such indemnification. The
Association may assume the defense of any claim (as to which notice is
given in accordance with 3(b)) with counsel reasonably satisfactory to RP
Financial, and after notice from the Association to RP Financial of its
election to assume the defense thereof, the Association will not be liable
to RP Financial for any legal or other expenses subsequently incurred by RP
Financial (other than reasonable costs of investigation and assistance in
discovery and document production matters). Notwithstanding the foregoing,
RP Financial shall have the right to employ their own counsel in any action
or proceeding if RP Financial shall have concluded that a conflict of
interest exists between the Association and RP Financial which would
materially impact the effective representation of RP Financial. In the
event that RP Financial concludes that a conflict of interest exists, RP
Financial shall have the right to select counsel reasonably satisfactory to
the Association which will represent RP Financial in any such action or
proceeding and the Association shall reimburse RP Financial for the
reasonable legal fees and expenses of such counsel and other expenses
reasonably incurred by RP Financial. In no event shall the Association be
liable for the fees and expenses of more than one counsel, separate from
its own counsel, for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same allegations or circumstances. The Association will
not be liable under the foregoing indemnification provision in respect of
any compromise or settlement of any action or proceeding made without its
consent, which consent shall not be unreasonably withheld.
(d) In the event the Association does not pay any indemnified loss or
make advance reimbursements of expenses in accordance with the terms of
this agreement, RP Financial shall have all remedies available at law or in
equity to enforce such obligation.
It is understood that, in connection with RP Financial's
above-mentioned engagement, RP Financial may also be engaged to act for the
Association in one or more additional capacities, and that the terms of the
original engagement may be incorporated by reference in one or more separate
agreements. The provisions of Paragraph 3 herein shall apply to the original
engagement,
<PAGE>
Board of Directors
October 13, 1999
Page 5
any such additional engagement, any modification of the original engagement or
such additional engagement and shall remain in full force and effect following
the completion or termination of RP Financial's engagement(s). This agreement
constitutes the entire understanding of the Association and RP Financial
concerning the subject matter addressed herein, and such contract shall be
governed and construed in accordance with the laws of the State of Kansas. This
agreement may not be modified, supplemented or amended except by written
agreement executed by both parties.
First Federal and RP Financial are not affiliated, and neither First
Federal nor RP Financial has an economic interest in, or is held in common with,
the other and has not derived a significant portion of its gross revenues,
receipts or net income for any period from transactions with the other.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as
indicated below and returning to RP Financial a signed copy of this letter,
together with the initial retainer fee of $5,000.
Sincerely,
/s/ William E. Pommerening
-------------------------------
William E. Pommerening
CEO and Managing Director
Agreed To and Accepted By: Mitch Ashlock Mitch Ashlock
------------------------------
President and Chief Executive Officer
Upon Authorization by the Board of
Directors For: First Federal Savings and Loan Association
of Olathe, Kansas
Date Executed: October 25, 1999
--------------------
First Federal Of Olathe Bancorp, Inc.
Proposed Holding Company for
First Federal Savings and Loan Association of Olathe
Olathe, Kansas
Proposed Marketing Materials
12/8/99
Prepared by: John Andrew Hitt
Trident Securities
<PAGE>
Marketing Materials
First Federal of Olathe Bancorp
Olathe, Kansas
Table of Contents
I. Press Releases
A. Explanation
B. Schedule
C. Distribution List
D. Press Release Examples
II. Advertisements
A. Explanation
B. Schedule
C. Advertisement Examples
III. Question and Answer Brochure
IV. Individual Letters and Community Meeting Invitations
V. Counter Cards and Lobby Posters
A. Explanation
B. Quantity
VI. Proxy Reminder
A. Explanation
B. Example
VII. Subscription Rights Notice
A. Explanation
B. Example
<PAGE>
I. Press Releases
A. Explanation
In an effort to assure that all customers receive prompt accurate
information in a simultaneous manner, Trident advises First Federal to
forward press releases to area newspapers, radio stations, etc. at
various points during the conversion process.
Only press releases approved by Conversion Counsel and the OTS will be
forwarded for publication in any manner.
B. Schedule
1. OTS Approval of Conversion
2. Close of Stock Offering
<PAGE>
C. Distribution List
National Distribution List
National Thrift News Wall Street Journal
212 West 35th Street World Financial Center
13th Floor 200 Liberty
New York, New York 10001 New York, NY 10004
Richard Chang
American Banker SNL Securities
- --------------- --------------
One State Street Plaza Post Office Box 2124
New York, New York 10004 Charlottesville, Virginia 22902
Michael Weinstein
Barrons Investors Business Daily
Dow Jones & Savings Bank 12655 Beatrice Street
Barrons Statistical Information Post Office Box 661750
200 Burnett Road Los Angeles, California 90066
Chicopee, Massachusetts 01020
New York Times
229 West 43rd Street
New York, NY 10036
<PAGE>
Local Media List
Newspaper
Akron Beacon Journal Times Reporter
Akron, Kansas New Philadelphia, Kansas
(330) 996-3700 (330) 364-5577
(330) 376-9235 (fax) (330) 364-8449 (fax)
Radio
WJER Radio WTUZ Radio
New Philadelphia, Kansas New Philadelphia, Kansas
(330) 343-7755 (330) 339-2222
(330) 364-4538 (fax) (330) 339-5930 (fax)
WBTC Radio
Uhrichsville, Kansas
(740) 922-2700
(740) 922-2702 (fax)
<PAGE>
D. Press Release Examples
PRESS RELEASE FOR IMMEDIATE RELEASE
For More Information Contact:
Mitch Ashlock, President and CEO
(913) 782-0026
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
CONVERSION TO STOCK FORM APPROVED
Olathe, Kansas (______, 2000) - Mitch Ashlock, President and CEO of
First Federal Savings and Loan Association of Olathe ("First Federal"), Olathe,
Kansas announced today that First Federal has received approval from the Office
of Thrift Supervision to convert from a federally-chartered mutual savings bank
to a federally-chartered stock savings bank. In connection with the Conversion,
First Federal has formed a holding company, First Federal Of Olathe Bancorp,
Inc. ("First Federal of Olathe Bancorp"), to hold all of its outstanding capital
stock.
First Federal of Olathe Bancorp is offering up to _______ shares of its
common stock, subject to adjustment, at a price of $10.00 per share. Certain
account holders and borrowers of First Federal will have an opportunity to
subscribe for stock in a Subscription Offering that closes at 12:00 noon on
___________. Shares that are not subscribed for during the Subscription Offering
may be offered subsequently to the general public in a Direct Community
Offering, with first preference given to natural persons and trusts of natural
persons residing in ________ County, Kansas. The Subscription Offering, and the
Community Offering, if conducted, will be managed by Trident Securities of
Raleigh, North Carolina. Copies of the Prospectus relating to the offerings and
describing the Plan of Conversion will be mailed on or about __________.
As a result of the Conversion, First Federal will be structured in the
stock form and will be a wholly-owned subsidiary of First Federal of Olathe
Bancorp. According to Mr. Ashlock, "Our day to day operations will not change as
a result of the Conversion and deposits will continue to be insured by the FDIC
up to the applicable legal limits."
Customers with questions concerning the stock offering should call
First Federal's Stock Information Center at ___________________, or visit First
Federal's main office.
<PAGE>
PRESS RELEASE #2 FOR IMMEDIATE RELEASE
For More Information Contact:
Mitch Ashlock, President and CEO
(913) 782-0026
FIRST FEDERAL OF OLATHE BANCORP, INC. COMPLETES INITIAL PUBLIC OFFERING
Olathe, Kansas - (_______, 2000) Mitch Ashlock, President and CEO of
First Federal Savings and Loan Association of Olathe ("First Federal"),
announced today that First Federal Of Olathe Bancorp, Inc. ("First Federal of
Olathe Bancorp") the proposed holding company for First Federal, has completed
its initial stock offering in connection with First Federal's conversion from a
mutual to a stock organization. A total of _______ shares were sold at the price
of $10.00 per share.
On ________________, First Federal's Plan of Conversion was approved by
its voting members at a special meeting.
Mr. Ashlock said that the officers and boards of directors of First
Federal of Olathe Bancorp and First Federal wished to express their thanks for
the response to the stock offering and that First Federal looks forward to
serving the needs of its customers and new stockholders as a community-based
stock institution. The stock will commence trading on _____________ on the OTC
Electronic Bulletin Board under the symbol "____".
Trident Securities of Raleigh, North Carolina managed the stock offering.
<PAGE>
II. Advertisements
A. Explanation
The intended use of the attached advertisement "A" is to notify First
Federal's customers and members of the local community that the
conversion offering is underway.
The intended use of advertisement "B" is to remind First Federal's
customers of the closing date of the Subscription Offering.
B. Media Schedule
1. Advertisement A - To be run immediately following OTS approval and
possibly run weekly for the first three weeks.
2. Advertisement B - To be run during the last week of the subscription
offering.
Trident may feel it is necessary to run more ads in order to remind
customers of the close of The Subscription Offering, and the Community
Offering, if conducted.
Alternatively, Trident may, depending upon the response from the
customer base, choose to run fewer ads or no ads at all.
These ads will run in the local newspapers.
The ad size will be as shown or smaller.
<PAGE>
This is neither an offer to sell nor a solicitation of an offer to buy the
stock of First Federal of Olathe Bancorp. The offer is made only through the
prospectus. There shall be no offer in any state where such offer
or solicitation of an offer to buy First Federal of Olathe Bancorp stock would
be unlawful. The shares of First Federal of Olathe Bancorp common stock are
not deposits or savings accounts and will not be insured by the FDIC
or any other governmental agency.
New Issue ________________, 2000
_______ Shares
These shares are being offered pursuant
to the Plan of Conversion whereby
First Federal Savings and Loan Association of Olathe
Olathe, Kansas, will convert from a
federally-chartered mutual savings bank to a
federally-chartered stock savings bank
and become a wholly owned subsidiary of
First Federal Of Olathe Bancorp, Inc.
Common Stock
---------------
Price $10.00 Per Share
---------------
Trident Securities
For a copy of the prospectus call _____________.
<PAGE>
Advertisement (B)
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
_________, 2000 IS THE DEADLINE TO
SUBSCRIBE FOR STOCK OF FIRST FEDERAL OF OLATHE BANCORP
Customers of First Federal Savings and Loan Association of Olathe
have the opportunity to invest in First Federal by subscribing
for common stock in its proposed holding company.
FIRST FEDERAL OF OLATHE BANCORP
A Prospectus relating to these securities is
available at our Stock Information Center located
at our main office. The telephone number for the
Stock Information Center is _____________.
This is neither an offer to sell nor a solicitation of an offer to buy the
stock of First Federal of Olathe Bancorp. The offer is made only through the
prospectus. There shall be no offer in any state where such offer
or solicitation of an offer to buy First Federal of Olathe Bancorp stock would
be unlawful. The shares of First Federal of Olathe Bancorp common stock are
not deposits or savings accounts and will not be insured by the FDIC
or any other governmental agency.
<PAGE>
III. Question and Answer Brochure
A. Explanation
The Question and Answer brochure is an essential marketing piece in any
conversion. It serves two purposes: a) to answer specifically some of
the most commonly asked questions; and b) to highlight in brochure form
the intended stock purchases of First Federal's officers and directors
shown in the Prospectus. Although most of the answers are taken
verbatim from the Prospectus, it saves the individual from searching
for the answer to a simple question.
B. Method of Distribution
There are four primary methods of distribution of the Question and
Answer brochure. However, regardless of the method the brochures must
always be accompanied by a Prospectus.
1. A Question and Answer brochure is sent out in the initial mailing
to all members of First Federal.
2. Question and Answer brochures are available in First Federal's
Stock Information Center.
3. Question and Answer brochures are sent out in a standard
information packet to all interested investors who phone the
Stock Information Center requesting information.
<PAGE>
PROPOSED OFFICER AND DIRECTOR PURCHASES
Total Shares Aggregate Price of Percent of Shares
Name and Position Purchased Shares Purchased Issued*
- ----------------- ------------ ------------------- -----------------
* Based on the issuance of 510,000 shares at the midpoint of the Estimated
Valuation Range
<PAGE>
QUESTIONS AND ANSWERS
REGARDING
THE PLAN OF CONVERSION
On ________________ the Board of Directors of First Federal Savings and Loan
Association of Olathe ("First Federal") unanimously adopted the Plan of
Conversion, pursuant to which First Federal will convert from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank (the "Conversion"). In addition, all of First Federal's outstanding capital
stock will be issued to First Federal Of Olathe Bancorp, Inc. ("First Federal of
Olathe Bancorp"), which First Federal organized to be its holding company.
This brochure is provided to answer general questions you might have about the
Conversion. Following the Conversion, First Federal will continue to provide
financial services to its depositors, borrowers and other customers as it has in
the past and will operate with its existing management and employees. The
Conversion will not affect the terms, balances, interest rates or existing
federal insurance coverage on First Federal's deposits or the terms or
conditions of any loans to existing borrowers under their individual contract
arrangements with First Federal.
For complete information regarding the Conversion, see both the Prospectus and
the Proxy Statement dated ___________. Copies of each of the Prospectus and the
Proxy Statement may be obtained by calling the Stock Information Center at
_____________.
This is neither an offer to sell nor a solicitation of an offer to buy
the stock of First Federal of Olathe Bancorp. The offer is made only through the
prospectus. There shall be no offer in any state where such offer or
solicitation of an offer to buy First Federal of Olathe Bancorp stock would be
unlawful. The shares of First Federal of Olathe Bancorp common stock are not
deposits or savings accounts and will not be insured by the FDIC or any other
governmental agency.
<PAGE>
QUESTIONS AND ANSWERS
First Federal of Olathe Bancorp
(the proposed holding company for
First Federal)
MUTUAL TO STOCK CONVERSION
1. Q. What is a "Conversion"?
A. Conversion is a change in the legal form of organization.
First Federal currently operates as a federally-chartered
mutual savings bank with no stockholders. Through the
Conversion, First Federal will become a federally-chartered
stock savings bank, and the stock of its holding company,
First Federal of Olathe Bancorp, will be held by those
individuals who purchase stock in the Subscription and
Community Offerings or in the open market following the
Offerings.
2. Q. Why is First Federal converting?
A. First Federal, as a mutual savings bank, does not have
stockholders and has no authority to issue capital stock. By
converting to the stock form of organization, First Federal
will be structured in the form used by commercial banks,
most business entities and a growing number of savings
institutions. The Conversion will be important to the future
growth and performance of First Federal by providing a
larger capital base from which First Federal may operate,
the ability to attract and retain qualified management
through stock-based employee benefit plans, enhanced ability
to diversify into other financial services related
activities and expanded ability to render services to the
public.
The Board of Directors and management of First Federal
believe that the stock form of organization is preferable to
the mutual form of organization for a financial institution.
In fact, there has been a significant decline in the number
of mutual thrifts from over 12,500 mutual institutions at
their height in the late 1920's to fewer than 800 mutual
thrifts today.
First Federal believes that converting to the stock form of
organization will allow First Federal to more effectively
compete with local community banks, thrifts, and with
statewide and regional banks, which are in stock form. First
Federal believes that by combining its existing quality
service and products with a local ownership base, First
Federal's customers and community members who become
stockholders will be inclined to do more business with First
Federal.
Furthermore, because First Federal competes with local and
regional banks not only for customers, but also for
employees, it believes that the stock form of organization
will better afford First Federal the opportunity to attract
and retain employees, management and directors through
various stock benefit plans which are not available to
mutual savings institutions.
<PAGE>
3. Q. Is the Conversion beneficial to the communities that First
Federal serves?
A. Management believes that the structure of the Subscription
and Community Offerings is in the best interest of the
communities that First Federal serves because following the
Conversion it is anticipated that a significant portion of
the Common Stock will be owned by local residents desiring
to share in the ownership of a local community financial
institution. Management desires that a significant portion
of the shares of common stock sold in the Offerings will be
sold to residents of ___________ County, Kansas.
4. Q. What effect will the Conversion have on deposit accounts and
loans?
A. Terms and balances of accounts in First Federal and interest
rates paid on such accounts will not be affected by the
Conversion. Insurable accounts will continue to be insured
by the Federal Deposit Insurance Corporation ("FDIC") up to
the maximum amount permitted by law. The Conversion also
will not affect the terms or conditions of any loans to
existing borrowers or the rights and obligations of these
borrowers under their individual contractual arrangements
with First Federal.
5. Q. Will the Conversion cause any changes in First Federal's
personnel?
A. No. Both before and after the Conversion, First Federal's
business of accepting deposits, making loans and providing
financial services will continue without interruption with
the same board of directors, management and staff.
6. Q. What approvals must be received before the Conversion becomes
effective?
A. First, the Board of Directors of First Federal must adopt
the Plan of Conversion, which occurred on ______________.
Second, the Office of Thrift Supervision must approve the
applications required to effect the Conversion. These
approvals have been obtained. Third, the Plan of Conversion
must be approved by a majority of all votes eligible to be
cast by First Federal's voting members. A Special Meeting of
voting members will be held on ______________ to consider
and vote upon the Plan of Conversion.
FIRST FEDERAL OF OLATHE BANCORP, INC.
7. Q. What is a holding company?
A. A holding company is a business entity that owns another
entity. Concurrent with the Conversion, First Federal will
become a subsidiary of First Federal of Olathe Bancorp, a
holding company First Federal formed to hold all of its
outstanding capital stock.
8. Q. If I decide to buy stock in this offering, will I own stock in
First Federal of Olathe Bancorp or First Federal?
A. You will own stock in First Federal of Olathe Bancorp.
However, First Federal of Olathe Bancorp, as a holding
company, will own all of the outstanding capital stock of
First Federal.
<PAGE>
9. Q. Why did the Board of Directors form First Federal of Olathe
Bancorp?
A. The Board of Directors believes that the Conversion of First
Federal and the formation of First Federal of Olathe Bancorp
will result in a stronger financial institution with the
ability to provide additional flexibility to diversify First
Federal's business activities.
ABOUT BECOMING A STOCKHOLDER
10. Q. What are the Subscription and Community Offerings?
A. Under the Plan of Conversion, First Federal of Olathe
Bancorp is offering shares of stock in the Subscription
Offering, to certain current and former customers of First
Federal and to First Federal's Employee Stock Ownership Plan
("ESOP"). Shares which are not subscribed for in the
Subscription Offering, if any, may be offered to the general
public in a Community Offering with preference given to
natural persons and their trusts who are permanent residents
of _____________ County, Kansas. These Offerings are
consistent with the board's objective of First Federal being
a locally owned financial institution. The Subscription
Offering, and the Community Offering, if conducted, are
being managed by Trident Securities. It is anticipated that
any shares not subscribed for in either the Subscription or
Community Offerings may be offered for sale in a Syndicated
Community Offering, an offering held on a best efforts basis
by a selling group of broker-dealers.
11. Q. Must I pay a commission to buy stock in conjunction with the
Subscription Offering or Community Offering?
A. No. You will not pay a commission to buy the stock if the
stock is subscribed for in the Subscription Offering, or the
Community Offering, if conducted.
12. Q. How many shares of First Federal of Olathe Bancorp common
stock will be issued in the Conversion?
A. It is currently expected that between 552,500 shares and
_______ shares of common stock will be sold at a price of
$10.00 per share. Under certain circumstances the number of
shares may be increased to 859,625.
13. Q. How was the dollar size of the offering determined?
A. The aggregate price of the common stock was determined by RP
Financial., an independent appraisal firm specializing in
the thrift industry, and was approved by the Office of
Thrift Supervision. The dollar size of the offering is based
on the pro forma market value of First Federal and First
Federal of Olathe Bancorp, as determined by the independent
evaluation.
14. Q. Who is entitled to subscribe for stock in the Conversion?
A. The shares of First Federal of Olathe Bancorp to be issued
in the Conversion are being offered in the Subscription
Offering to the following categories in order of priority:
(i) depositors whose accounts in First Federal total $50.00
or more as of
<PAGE>
June 30, 1998, (ii) First Federal's ESOP, (iii) depositors
with $50.00 or more on deposit at First Federal as of
December 31, 1999, but not otherwise eligible in the first
two priority categories, and (iv) depositors of First
Federal as of ______, 1999, and borrowers as of ________,
1999 whose loans continued to be outstanding as of _______,
1999, but who are not otherwise eligible in the first three
priority categories. All of which is subject to the
priorities and purchase limitations set forth in the Plan of
Conversion. Common Stock not subscribed for in the
Subscription Offering may be offered in the Community
Offering to certain members of the general public, with
preference given to natural persons and trusts of natural
persons residing in _____________ County, Kansas. Shares not
subscribed for in the Subscription, or the Community
Offerings, if any, may be offered to the general public in a
Syndicated Community Offering.
15. Q. Are the subscription rights transferable?
A. No. Subscription rights granted to First Federal's
depositors and borrowers in the Conversion are not
transferable. Persons violating such prohibition, directly
or indirectly, may lose their right to subscribe for stock
in the Conversion and be subject to other possible
sanctions. It is the responsibility of each subscriber who
is a depositor and/or borrower to list completely all
account numbers for qualifying savings accounts or loans as
of the qualifying date on the stock order form.
16. Q. What are the minimum and maximum numbers of shares that I can
subscribe for in the Conversion?
A. The minimum stock purchase is 25 shares or $250.00. The
maximum purchase in the Conversion by any person or person
exercising rights through one account other than the ESOP,
is 10,000 shares or $100,000.00. The maximum purchase for
any person, related persons or persons acting together is
20,000 shares or $200,000.00.
17. Q. Will the Board of Directors and management of First Federal
subscribe for stock in First Federal of Olathe Bancorp?
A. Directors and executive officers of First Federal are
expected to subscribe for 79,000 shares. The directors and
executive officers will pay the same $10.00 per share price
as all other persons who order stock in the Subscription or
Community Offerings.
18. Q. How do I subscribe for shares of stock?
A. To subscribe for shares of stock in the Subscription
Offering, you should send or deliver an original stock order
form together with full payment (or appropriate instructions
for withdrawal from permitted deposit accounts as described
below) to First Federal in the postage-paid envelope
provided. The stock order form and payment or withdrawal
authorization instructions must be received prior to the
close of the Subscription Offering, which will terminate at
12:00 noon, Central Time, on _______, 2000, unless extended.
Payment for shares may be made by check, money order or
account withdrawal. Subscribers who have deposit
<PAGE>
accounts with First Federal may include instructions on the
stock order form requesting withdrawal from such deposit
account(s) to subscribe for shares of First Federal of
Olathe Bancorp. Withdrawals from certificates of deposit may
be made without incurring an early withdrawal penalty.
If shares remain available for sale after the expiration of
the Subscription Offering, they may be offered in the
Community Offering, which may commence at any time after the
commencement of the Subscription Offering and may terminate
at any time without notice, but may not terminate later than
______, 2000. Persons who wish to order stock in the
Community Offering should return their stock order form as
soon as possible after the Community Offering begins.
Members of the general public should contact the Stock
Information Center at _____________ for additional
information before submitting an order in the Community
Offering.
19. Q. May I use funds in a retirement account to subscribe for
stock?
A. Yes. If you are interested in using funds held in your
retirement account at First Federal, you will need to
transfer those funds to a self-directed brokerage IRA with
the broker of your choice. This process may be done without
an early withdrawal penalty and generally without a negative
tax consequence to your retirement account. Due to the
additional paperwork involved; however, IRA transfers often
require several days to complete. Therefore, the process
should be initiated as soon as possible to have the
self-directed IRA in place to subscribe for the stock before
the offering closes on ______, 2000. First Federal will not
be responsible for delays caused by third party brokerage
firms which could result in IRA stock orders not meeting the
_______, 2000 deadline. For additional information or names
of local brokers offering this option, call the Stock
Information Center at _____________.
20. Q. Will I receive interest on funds I submit for a stock
subscription?
A. Yes. First Federal will pay interest at its passbook savings
account rate from the date the funds are received until
completion of the stock offering or termination of the
Conversion. All funds authorized for withdrawal from deposit
accounts with First Federal will continue to earn interest
at the contractual rate until the date of the completion of
the Conversion.
21. Q. May I obtain a loan from First Federal to pay for shares
subscribed for in the Conversion?
A. No. Federal regulations prohibit First Federal from making
loans for this purpose. However, federal regulations do not
prohibit you from obtaining a loan from another source for
the purpose of subscribing for stock in the Conversion.
22. Q. If I buy stock in the Conversion, how would I go about buying
additional shares or selling shares in the aftermarket?
A. You would contact a stock broker to buy or sell shares.
However, as a newly organized company, First Federal of
Olathe Bancorp has never issued capital
<PAGE>
stock, and consequently there is no established market for
its Common Stock at this time. First Federal of Olathe
Bancorp has requested that Trident Securities make a market
for the Common Stock through the OTC Electronic Bulletin
Board. However, it is unlikely that an active trading market
for the Common Stock will develop, and there can be no
assurance that the shares of Common Stock being offered in
the Conversion can be resold at or above the $10.00 purchase
price.
23. Q. What is First Federal of Olathe Bancorp's dividend policy?
A. After we complete the conversion, our Board of Directors
will have the authority to declare dividends on the common
stock, subject to statutory and regulatory requirements. We
intend to pay semi-annual cash dividends on the common stock
at an initial rate of $0.40 per share per annum
(representing 4.0% of the purchase price), commencing at the
end of fiscal 2000. However, the rate of such dividends and
the initial or continued payment thereof will depend upon a
number of factors, including the amount of net proceeds
retained by us in the conversion, investment opportunities
available to us, capital requirements, our financial
condition and results of operations, tax considerations,
statutory and regulatory limitations, and general economic
conditions. No assurances can be given that any dividends
will be paid or that, if paid, will not be reduced or
eliminated in future periods. Special cash dividends, stock
dividends or tax-free returns of capital may be paid in
addition to, or in lieu of, regular cash dividends. However,
we have committed to the OTS that we will not take any
action toward paying a tax-free return of capital during the
first year after we complete the conversion.
24. Q. Will the FDIC insure the shares of First Federal of Olathe
Bancorp?
A. No. The shares of First Federal of Olathe Bancorp are not
savings deposits or savings accounts and are not insured by
the FDIC or any other government agency.
25. Q. If I subscribe for shares and later change my mind, will I be
able to get a refund or modify my order?
A. No. Your order cannot be canceled, withdrawn or modified
once it has been received by First Federal without the
consent of First Federal.
ABOUT VOTING "FOR" THE PLAN OF CONVERSION
26. Q. Who is eligible to vote at the Special Meeting of Members to
be held to consider the Plan of Conversion?
A. You are eligible to vote at the Special Meeting of Members
to be held on ______, 2000 if you were a depositor or
borrower of First Federal at the close of business on
______, 2000, and continue as such until the Special
Meeting. If you were a member on ______, 2000, you should
have received a proxy statement and a proxy card with which
to vote.
27. Q. How many votes do I have?
<PAGE>
A. Each account holder is entitled to one vote for each $100,
or fraction thereof, on deposit in such account(s) as of
_____, 2000. Each borrower member is entitled to cast one
vote in addition to the number of votes, if any, he or she
is entitled to cast as an account holder. No member may cast
more than 1,000 votes. These voting criteria are established
by law under First Federal's charter.
28. Q. If I vote "against" the Plan of Conversion and it is approved,
will I be prohibited from buying stock during the Subscription
Offering?
A. No. Voting against the Plan of Conversion in no way
restricts you from purchasing First Federal of Olathe
Bancorp stock.
29. Q. Did the Board of Directors of First Federal unanimously adopt
the Plan of Conversion?
A. Yes. First Federal's Board of Directors unanimously adopted
the Plan of Conversion and recommends that all members vote
"FOR" approval of such Plan.
30. Q. What happens if First Federal does not get enough votes to
approve the Plan of Conversion?
A. The Conversion would not take place, and First Federal would
remain a mutual savings bank.
31. Q. As a qualifying depositor or borrower of First Federal, am I
required to vote?
A. No. However, failure to return your proxy card or otherwise
vote will have the same effect as a vote AGAINST the Plan of
Conversion.
32. Q. What is a Proxy Card?
A. A proxy card gives you the ability to vote without attending
the Special Meeting in person. If you received more than one
informational packet, then you should vote the proxy cards
in all packets. Your proxy card(s) is (are) located in the
window sleeve of your informational packet(s).
You may attend the meeting and vote, even if you have
returned your proxy card, if you choose to do so. However,
if you are unable to attend, you still are represented by
proxy. Previously executed proxies, other than those proxies
sent pursuant to the Conversion, will not be used to vote
for approval of the Plan of Conversion, even if the
respective members do not execute another proxy or attend
the Special Meeting and vote in person.
33. Q. How can I get further information concerning the stock
offering?
A. You may call the Stock Information Center at
_____________ for further information or to request a
copy of the Prospectus, a stock order form, a proxy
statement or a proxy card.
This is neither an offer to sell nor a solicitation of an
offer to buy the stock of First Federal of Olathe Bancorp. The
offer is made only through the prospectus. There shall be no
<PAGE>
offer in any state where such offer or solicitation of an offer
to buy First Federal of Olathe Bancorp stock would be unlawful.
The shares of First Federal of Olathe Bancorp common stock are
not deposits or savings accounts and will not be insured by the
FDIC or any other governmental agency.
IV. Individual Letters and Community Meeting Invitations
A. Explanation
In order to educate the public about the stock offering, Trident suggests
holding community meetings in various locations. In an effort to target a group
of interested investors, Trident requests that each Director of First Federal
submit a list of people that he or she would like to invite to a community
meeting.
B. Method of Distribution of Invitations and Prospect Letters
Each Director submits his or her list of prospects. Invitations are sent to each
Director's prospects through the mail. All invitations are preceded by a
Prospectus and all attendees are given a Prospectus at the meeting. Letters will
be sent all attendees to thank them for their attendance and to remind them of
closing dates.
C. Examples enclosed.
<PAGE>
(Trident Letterhead)
February __, 2000
To Members and Friends of First Federal Savings and Loan Association of Olathe:
Trident Securities, a member of the National Association of Securities
Dealers, Inc., is assisting First Federal Savings and Loan Association of Olathe
("First Federal") in its Conversion from a federally-chartered mutual savings
bank to a federally-chartered stock savings bank, whereby First Federal will
operate as a wholly-owned subsidiary of First Federal Of Olathe Bancorp, Inc.
("First Federal of Olathe Bancorp").
At the request of First Federal, we are enclosing materials explaining
the subscription offering process and your right to subscribe for common shares
of First Federal of Olathe Bancorp. Please read the enclosed offering materials
carefully before subscribing for stock.
If you have any questions, please call the Stock Information Center at
_____________.
Sincerely,
TRIDENT SECURITIES
This is neither an offer to sell nor a solicitation of an offer to buy the
stock of First Federal of Olathe Bancorp. The offer is made only through the
prospectus. There shall be no offer in any state where such offer
or solicitation of an offer to buy First Federal of Olathe Bancorp stock would
be unlawful. The shares of First Federal of Olathe Bancorp common stock are
not deposits or savings accounts and will not be insured by the FDIC
or any other governmental agency.
<PAGE>
(First Federal Letterhead)
____________, 2000
Dear Valued Customer:
First Federal Savings and Loan Association of Olathe ("First Federal")
is pleased to announce that it has received regulatory approval to proceed with
its plan to convert to a federally-chartered stock savings bank. This stock
conversion is the most significant event in the history of First Federal in that
it allows customers, community members, directors and employees an opportunity
to own stock in First Federal Of Olathe Bancorp, Inc. ("First Federal of Olathe
Bancorp"), the proposed holding company for First Federal.
We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage deposits at First
Federal, or the terms or conditions of any loans to existing borrowers under
their individual contract arrangements with First Federal. Let us also assure
you that the Conversion will not result in any changes in the management,
personnel or the Board of Directors of First Federal.
As one of our valued members, you have the opportunity to invest in
First Federal's future by subscribing for stock in First Federal of Olathe
Bancorp during the Subscription Offering, without paying a sales commission. If
you decide to exercise your rights to subscribe for shares, you must return the
properly completed stock order form together with full payment for the
subscribed shares to be received by First Federal no later than 12:00 noon.
Central Time on ______, 2000.
The Plan of Conversion will be voted on at a Special Meeting of members
to be held on _____, 2000. Your Board of Directors urges you to vote "FOR" First
Federal's Plan of Conversion on the enclosed proxy card. A vote in favor of the
Plan does not obligate you to subscribe for stock. Please sign and return your
proxy card promptly; your vote is important to us.
We have also enclosed a Prospectus and Proxy Statement which fully the
describes First Federal, its management, Board of Directors, business and the
Plan of Conversion. Please review it carefully before you vote or invest. For
your convenience we have established a Stock Information Center. If you have any
questions, please call the Stock Information Center collect at _____________.
We look forward to continuing to provide quality financial services to
you.
Sincerely,
Mitch Ashlock
President and CEO
This is neither an offer to sell nor a solicitation of an offer to buy the
stock of First Federal of Olathe Bancorp. The offer is made only through the
prospectus. There shall be no offer in any state where such offer
or solicitation of an offer to buy First Federal of Olathe Bancorp stock would
be unlawful. The shares of First Federal of Olathe Bancorp common stock are
not deposits or savings accounts and will not be insured by the FDIC
or any other governmental agency.
<PAGE>
(First Federal Letterhead)
____________, 2000
Dear Interested Investor:
First Federal Savings and Loan Association of Olathe ("First Federal")
is pleased to announce that it has received regulatory approval to proceed with
its plan to convert to a federally-chartered stock savings bank. This stock
conversion is the most significant event in the history of First Federal in that
it allows customers, community members, directors and employees an opportunity
to own stock in First Federal Of Olathe Bancorp, Inc. ("First Federal of Olathe
Bancorp"), the proposed holding company for First Federal.
We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage on First Federal
deposits, or the terms or conditions of any loans to existing borrowers under
their individual contract arrangements with First Federal. Let us also assure
you that the Conversion will not result in any changes in the management,
personnel or the Board of Directors of First Federal.
Enclosed is a Prospectus fully describing First Federal, its
management, Board of Director, business and Plan of Conversion. Please review it
carefully before you make an investment decision. If you decide to invest,
please return to First Federal a properly completed stock order form together
with full payment for shares at your earliest convenience but not later than
12:00 noon Central Time on _______, 2000. For your convenience we have
established a Stock Information Center. If you have any questions, please call
the Stock Information Center collect at _____________.
We look forward to continuing to provide quality financial services to
you.
Sincerely,
Mitch Ashlock
President and CEO
This is neither an offer to sell nor a solicitation of an offer to buy the
stock of First Federal of Olathe Bancorp. The offer is made only through the
prospectus. There shall be no offer in any state where such offer
or solicitation of an offer to buy First Federal of Olathe Bancorp stock would
be unlawful. The shares of First Federal of Olathe Bancorp common stock are
not deposits or savings accounts and will not be insured by the FDIC
or any other governmental agency.
<PAGE>
(First Federal Letterhead)
____________, 2000
Dear Friend:
First Federal Savings and Loan Association of Olathe ("First Federal")
is pleased to announce that it has received regulatory approval to proceed with
its plan to convert to a federally-chartered stock savings bank. This stock
conversion is the most significant event in the history of First Federal in that
it allows customers, community members, directors and employees an opportunity
to own stock in First Federal Of Olathe Bancorp, Inc. ("First Federal of Olathe
Bancorp"), the proposed holding company for First Federal.
We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage on First Federal
deposits, or the terms or conditions of any loans to existing borrowers under
their individual contract arrangements with First Federal. Let us also assure
you that the Conversion will not result in any changes in the management,
personnel or the Board of Directors of First Federal.
Our records indicate that you were a depositor of First Federal on June
30, 1998 or December 31, 1999, but that you were not a member on January __,
2000. Therefore, under applicable law, you are entitled to subscribe for Common
Stock in First Federal of Olathe Bancorp's Subscription Offering. Orders
submitted by you and others in the Subscription Offering are contingent upon the
current members' approval of the Plan of Conversion at a special meeting of
members to be held on March __, 2000 and upon receipt of all required regulatory
approvals.
If you decide to exercise your rights to subscribe for stock, you must
return the properly completed stock order form together with full payment for
the subscribed shares so that it is received by First Federal not later than
12:00 noon. Central Time on _____, 2000.
Enclosed is a Prospectus that fully describes First Federal, its
management, Board of Directors, business and Plan of Conversion. Please review
it carefully before you invest. For your convenience we have established a Stock
Information Center. If you have any questions, please call the Stock Information
Center collect at _____________.
We look forward to continuing to provide quality financial services to
you.
Sincerely,
Mitch Ashlock
President and CEO
This is neither an offer to sell nor a solicitation of an offer to buy the
stock of First Federal of Olathe Bancorp. The offer is made only through the
prospectus. There shall be no offer in any state where such offer
or solicitation of an offer to buy First Federal of Olathe Bancorp stock would
be unlawful. The shares of First Federal of Olathe Bancorp common stock are
not deposits or savings accounts and will not be insured by the FDIC
or any other governmental agency.
<PAGE>
* Final Reminder Letter *
_________, 1999
&salutation&firstname&lastname&
&address&
&city&, &state& &zip&
Dear &prefername&:
I am writing to remind you that the deadline for subscribing for stock
in First Federal of Olathe Bancorp is quickly approaching. I hope you will join
me in becoming a charter stockholder in one of Kansas's newest publicly owned
financial institutions.
The deadline for becoming a charter stockholder is 12:00 Noon, Central
Time, on _____, 2000. If you have any questions, please call our Stock
Information Center at _____________.
Once again, I look forward to having you join me as a charter
stockholder in First Federal of Olathe Bancorp.
Sincerely,
Mitch Ashlock
President and CEO
This is neither an offer to sell nor a solicitation of an offer to buy the
stock of First Federal of Olathe Bancorp. The offer is made only through the
prospectus. There shall be no offer in any state where such offer
or solicitation of an offer to buy First Federal of Olathe Bancorp stock would
be unlawful. The shares of First Federal of Olathe Bancorp common stock are
not deposits or savings accounts and will not be insured by the FDIC
or any other governmental agency.
<PAGE>
The Directors and Officers
of
First Federal Savings and Loan Association of Olathe
cordially invite you to attend a brief
presentation regarding the stock offering of
First Federal of Olathe Bancorp, our proposed holding
company.
Please join us at the
--------------
---------------------
---------------------------
------------
for refreshments
YOU MUST RESPOND BY ____________ TO RESERVE A SEAT
R.S.V.P. _____________
V. Counter Cards and Lobby Posters
<PAGE>
A. Explanation
Counter cards and lobby posters serve two purposes: (1) As a notice to
First Federal's customers and members of the local community that the
stock sale is underway and (2) to remind the customers of the end of
the Subscription Offering. Many people often forget the deadline for
subscribing and therefore we suggest the use of these simple reminders.
B. Quantity
Approximately 2 - 3 Counter cards will be used at teller windows and on
customer service representatives' desk. Approximately 1 - 2 Lobby
posters will be used at First Federal's office.
C. Example
D. Size
The counter card will be approximately 8 1/2" x 11". The lobby poster
will be approximately 16" x 20".
<PAGE>
C.
POSTER OR COUNTER CARD
"TAKE STOCK IN OUR FUTURE"
"FIRST FEDERAL OF OLATHE BANCORP
STOCK OFFERING MATERIALS
AVAILABLE HERE"
"DEADLINE TO SUBSCRIBE FOR STOCK IS ______, 2000."
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
<PAGE>
VII. Proxy Reminder
A. Explanation
A proxy reminder is used when the majority of votes needed to adopt the
Plan of Conversion is still outstanding. The proxy reminder is mailed
to those "target vote" depositors who have not previously returned
their signed proxy.
The target vote depositors are determined by the conversion agent.
B. Example
C. Size
Proxy reminder is approximately 8 1/2" x 11".
<PAGE>
B. Example
- ----------------------------------------------------
P R O X Y R E M I N D E R
First Federal Savings and Loan Association of Olathe
YOUR VOTE ON OUR STOCK CONVERSION PLAN HAS NOT BEEN RECEIVED.
YOUR VOTE IS VERY IMPORTANT, PARTICULARLY SINCE FAILURE TO VOTE IS EQUIVALENT TO
VOTING AGAINST THE PLAN OF CONVERSION.
VOTING FOR THE PLAN OF CONVERSION WILL NOT AFFECT THE INSURANCE OF YOUR
ACCOUNTS. DEPOSIT ACCOUNTS WILL CONTINUE TO BE FEDERALLY INSURED UP TO THE
APPLICABLE LIMITS.
YOU MAY SUBSCRIBE FOR STOCK IF YOU WISH, BUT VOTING DOES NOT OBLIGATE YOU TO BUY
STOCK.
PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL, OR
DELIVER, THE PROXY CARD TO FIRST FEDERAL TODAY.
PLEASE VOTE ALL PROXY CARDS RECEIVED.
WE RECOMMEND THAT YOU VOTE TO APPROVE THE PLAN OF CONVERSION. THANK YOU.
THE BOARD OF DIRECTORS AND MANAGEMENT OF
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
- -----------------------------------------------------------------
IF YOU RECENTLY MAILED THE PROXY,
PLEASE ACCEPT OUR THANKS AND DISREGARD THIS REQUEST
FOR FURTHER INFORMATION CALL _____________.
This is neither an offer to sell nor a solicitation of an offer to buy the
stock of First Federal of Olathe Bancorp. The offer is made only through the
prospectus. There shall be no offer in any state where such offer
or solicitation of an offer to buy First Federal of Olathe Bancorp stock would
be unlawful. The shares of First Federal of Olathe Bancorp common stock are
not deposits or savings accounts and will not be insured by the FDIC
or any other governmental agency.
<PAGE>
VII. Subscription Rights Special Notice
A. Explanation
In an effort to educate depositors and/or borrowers of First Federal
about their subscription rights and the possible violation or transfer
of subscription rights which could occur, each member and friend will
receive a special one-page notice. The notice should be printed on a
colored paper and will contain language from the Prospectus that
discusses the transfer of subscription rights.
A. Example enclosed
<PAGE>
Subscription Rights
Special Notice
Any transfer of, or attempt to transfer, a subscription right to any
other person is illegal and subject to civil fines and/or penalties and even
criminal fines and/or penalties. First Federal Savings and Loan Association of
Olathe intends to prosecute vigorously any transfer of, or attempt to transfer,
subscription rights that come to its attention.
If you are contacted by anyone offering to give you money to buy stock in
exchange for transferring the stock to them later, share in any way proceeds
upon the sale of the stock, or transfer your subscription rights in any other
way, please call us immediately at _____________.
