As filed with the Securities and Exchange Commission on February 3, 2000
Registration No. 333-92929
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO THE
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: [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
======================================================================================================================
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(2)
======================================================================================================================
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) The registration fee was paid on December 16, 1999, upon the initial filing
of the Registration Statement.
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.
================================================================================
<PAGE>
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 Savings 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
--------- -----
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
================================================================================
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 "OLTH." Trident Securities, a
Division of McDonald Investments, 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 Savings 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 Savings, 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(913) 397-6737.
Trident Securities, a Division of McDonald Investments, Inc.
The date of this Prospectus is February ___, 2000
<PAGE>
TABLE OF CONTENTS
Questions and Answers about the Stock Offering............................ 1
Summary ................................................................. 3
Risk Factors.............................................................. 6
Selected Financial Data................................................... 10
Recent Developments ...................................................... 12
Proposed Management Purchases............................................. 16
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 18
Market for Common Stock................................................... 18
Historical and Pro Forma Regulatory Capital Compliance.................... 19
Capitalization............................................................ 21
Pro Forma Data............................................................ 22
First Federal Savings and Loan Association of Olathe
Statements of Income and Comprehensive Income.................... 27
Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 28
Business of First Federal of Olathe Bancorp, Inc.......................... 39
Business of First Federal................................................. 39
Regulation................................................................ 53
Taxation ................................................................. 58
Management................................................................ 59
The Conversion............................................................ 66
Restrictions on Acquisitions of Stock and
Related Takeover Defensive Provisions............................ 79
Description of Capital Stock.............................................. 83
Legal and Tax Matters..................................................... 84
Experts ................................................................. 84
Where Can You Find More Information....................................... 84
Index to Financial Statements.............................................F-1
ii
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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 "OLTH." 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 Savings, 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.
<PAGE>
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 Savings 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 Savings, 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 (913) 397-6737 Monday through Friday, between the hours of 8:30
a.m. and 5:00 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.
2
<PAGE>
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
Savings.
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 Savings 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. 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.
3
<PAGE>
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 Savings' 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 Savings 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 Savings 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 Savings 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.
4
<PAGE>
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 31, 2000 and our borrowers as of January 19, 2000 who
continue to be borrowers as of January 31, 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:
<TABLE>
<CAPTION>
Value of Shares
Individuals Eligible % of Based on Midpoint
Plan to Receive Awards Shares Sold of Offering Range
---- ----------------- ----------- -----------------
<S> <C> <C> <C>
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)
</TABLE>
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(1) In the event we initially implement the recognition and retention plan
within 12 months after the conversion, OTS regulations would limit the plan
to no more than 4% of the shares sold in the conversion. The 4% limitation
would not apply if we implement the plan more than 12 months after 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.
5
<PAGE>
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 - Expected Voting Control by
Management and Employees Could Enable Insiders to Prevent a Merger That May
Provide That Shareholders Receive a Premium for Their Shares."
We intend to enter into a three-year employment agreement with Mitch
Ashlock, the President and Chief Executive Officer of First Federal Savings. 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 $236,000.
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 39.61% at September 30, 1999, a relatively high level.
Based on our 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.
After the conversion, we intend to offer residential mortgage loans with terms
of up to 25 years, which may increase our interest rate risk.
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. We may hire
additional staff to expand our lending efforts and, to the extent that we do,
our expenses will increase.
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
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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. If the recognition and retention plan is implemented within 12
months after the conversion, our officers and directors could be awarded, at no
cost to them, 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 would not be subject to an OTS
regulation limiting the plan to no more than 4% 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.
Loss of Key Officer Could Hurt First Federal Savings' Operations
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
estate loans. We also may implement a program to purchase adjustable rate 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.
Management Will Have Substantial Discretion Over Investment of the Offering
Proceeds and May Make Investments With Which You May Disagree
The net offering proceeds from the conversion transaction are estimated
to range from $5.0 million to $8.1 million. We intend to use these funds for
general business purposes, giving management substantial discretion over their
investment. You may disagree with investments that management makes. See "Use of
Proceeds" for further discussion.
Strong Competition Within Johnson County May Limit Our Growth and Profitability
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 Savings' 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
7
<PAGE>
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
Stock and Related Takeover Defensive Provisions" for a description of
anti-takeover provisions in our corporate documents and under Kansas law and
federal regulations.
Expected Voting Control by Management and Employees Could Enable Insiders to
Prevent a Merger That May Provide That Shareholders Receive a Premium for Their
Shares
The shares of common stock that our directors and officers intend to
purchase in the conversion, when combined with the shares that may be awarded to
participants under our employee stock ownership plan and other stock benefit
plans, could result in management and employees controlling a significant
percentage of our common stock. If these individuals were to act together, they
could have significant influence over the outcome of any stockholder vote. This
voting power may discourage takeover attempts you might like to see happen. In
addition, the total voting power of management and employees could reach in
excess of 20% of our outstanding stock. That level would enable management and
employees as a group to defeat any stockholder matter that requires an 80% vote,
such as removal of directors, approval of certain business combinations
with interested shareholders and amendment to our articles of incorporation.
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.
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 Savings provides for cash
severance payments if the executive is terminated following a change in control
of First Federal Savings. 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 $236,000.
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 Savings thereby discouraging future attempts to take
over First Federal Savings.
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.
8
<PAGE>
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 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 May Lower Market Price
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. As a result, you may not be able to
sell all of your shares on short notice, and the sale of a large number of
shares could lower the market price. There may also 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.
9
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial and other data of First Federal
Savings 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 Savings 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 ........................ 2.48 2.70 2.50 3.13
Net interest margin(2) .................. 3.60 4.01 3.68 4.23
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>
RECENT DEVELOPMENTS
Set forth below are selected financial and other data of First Federal Savings
at and for the periods indicated. Information at December 31, 1999 and for the
three and twelve months ended December 31, 1999 and for the three months ended
December 31, 1998 is unaudited. In the opinion of management, all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
have been included. The following selected financial and other data does not
purport to be complete and is qualified in its entirety by reference to the more
detailed financial information contained elsewhere herein.
AT AT
December 31, December 31,
1999 1998
--------- -------
(In Thousands)
SELECTED FINANCIAL CONDITION DATA:
Total assets.................................. $ 46,612 $ 44,649
Loans receivable, net......................... 31,472 28,978
Investment securities:
Held to maturity........................... 11,000 9,000
Available for sale......................... 619 847
FHLB stock.................................... 308 289
Deposits...................................... 36,203 34,701
FHLB advances................................. 1,000 1,000
Total equity.................................. 9,169 8,542
<TABLE>
<CAPTION>
Three Months Years Ended
Ended December 31, December 31,
---------------------- -----------------
1999 1998 1998 1997
--------- --------- --------- -------
(In Thousands)
<S> <C> <C> <C> <C>
Selected Operations Data:
Total interest income..................................... $ 885 $ 790 $ 3,540 $ 3,091
Total interest expense.................................... 484 481 1,945 1,653
-------- -------- ------- --------
Net interest income.................................... 401 309 1,595 1,438
Provision for loan losses................................. -- -- 150 --
-------- -------- ------- --------
Net interest income after provision for loan losses 401 309 1,445 1,438
Fees and service charges.................................. 4 3 20 20
-------- -------- ------- --------
Total non-interest income................................. 4 3 20 20
Total non-interest expense................................ 112 68 306 248
-------- -------- ------- --------
Income before income taxes................................ 293 244 1,159 1,210
Income tax provision...................................... 91 89 391 443
-------- -------- ------- --------
Net income................................................ 202 155 768 767
Unrealized gain(loss) on investment securities available
for sale, net of deferred tax expense................... (42) 116 (141) 177
-------- -------- ------- --------
Comprehensive income...................................... $ 160 $ 271 $ 627 $ 944
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Three Months Years Ended
Ended December 31, December 31,
---------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- -------
<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) ..................................... 1.74% 1.38% 1.66% 1.91%
Return on equity (ratio of net income to average
equity)(1) ........................................... 8.82 7.30 8.60 9.45
Interest rate spread information:
Average during period.................................. 2.58 1.80 2.64 2.62
End of period.......................................... 2.72 1.82 2.69 2.50
Net interest margin(2).................................... 3.58 2.82 3.59 3.68
Ratio of operating expense to average total assets ....... 0.96 0.60 0.66 0.62
Ratio of average interest-earning assets to average
interest-bearing liabilities........................... 123.19 123.31 121.46 125.05
Asset Quality Ratios:
Non-performing assets to total assets at end of period ... 0.29 0.24 0.29 0.24
Allowance for loan losses to non-performing loans ........ 130.60 23.58 130.60 23.58
Allowance for loan losses to loans receivable, net ....... 0.55 0.09 0.55 0.09
Capital Ratios
Equity to total assets at end of period................... 19.67 19.13 19.67 19.13
Average equity to average assets.......................... 19.71 18.84 19.31 20.17
Other Data:
Number of full-service offices............................ 1 1 1 1
- ------------------------
(1) Ratios for the three month periods have been annualized.
(2) Net interest income divided by average interest earning assets
</TABLE>
13
<PAGE>
Management's Discussion and Analysis of Recent Developments
Comparison of Financial Condition At December 31, 1999 and December 31, 1998
Total assets increased $2.0 million, or 4.5%, to $46.6 million at
December 31, 1999 from $44.6 million at December 31, 1998, due primarily to
increases of $2.5 million in net loans receivable, $2.0 million in securities
held-to-maturity, $119,000 in accrued interest receivable, and $146,000 in other
assets offset by a decrease of $2.6 million in cash and cash equivalents and a
$229,000 decrease in available for sale securities. Total liabilities increased
$1.3 million, or 0.6%, to $37.4 million at December 31, 1999 from $36.1 million
at December 31, 1998, due primarily to an increase in deposits of $1.5 million
netted with a decrease of $151,000 in deferred income taxes payable. Equity
increased $627,000 to $9.2 million at December 31, 1999 from $8.5 million at
December 31, 1998, due primarily to an increase in net income of $767,000 offset
by a decrease of $141,000 in other comprehensive income net of deferred income
taxes.
At December 31, 1999, First Federal Savings continued to exceed all
regulatory capital requirements with tangible capital of $9.2 million or 19.54%
of adjusted total assets; Tier 1 capital of $9.2 million or 19.54% of adjusted
total assets; and risk-based capital of $9.3 million or 47.79% of risk-weighted
assets.
Comparison of Operating Results for the Three Months Ended December 31, 1999 and
1998
Performance Summary. Comprehensive income decreased $111,000 to
$160,000 for the three months ended December 31, 1999, as compared to $271,000
for the three months ended December 31, 1998. The decrease was due primarily to
a decrease of $158,000 in unrealized gain on available for sale securities
offset by an increase in net income of $47,000 as compared to the same period in
1998,
Net Income. Net income for the three months ended December 31, 1999 was
$202,000 compared to $155,000 for the same period in 1998. The $47,000 increase
in net income during the period was primarily due to a $92,000 increase in net
interest income offset by a $44,000 increase in non-interest expense, and a
$2,000 increase in income taxes.
Net Interest Income, The $92,000 increase in net interest income was
primarily the result of an increase in the average interest rate spread during
the three month period ended December 31, 1999 when compared to the same period
in 1998. The average interest rate spread during the three months ended December
31, 1999 was 2.58% compared to 1.80% during the same period in 1998.
Interest income for the three months ended December 31, 1999 increased
by $95,000 from the same period in 1998. This resulted from an increase in
average interest-earning assets of $1.0 million and an increase of 68 basis
points in rates paid on interest-earning assets.
Interest expense for the three months ended December 31, 1999 increased
$3,000 compared to the same period in 1998. Average interest-bearing deposits
increased $869,000; however, rates on interest-bearing deposits adjusted
downward 10 basis points.
Non-Interest Income. Non-interest income increased $1,000 to $4,000 for
the three months ended December 31, 1999 compared to the same period in 1998.
Non-Interest Expense. Non-interest expense increased $44,000 for the
three months ended December 31, 1999 as compared to the same period in 1998.
Personnel costs increased $19,000 for the three months ended December 31, 1999
compared to the same period in 1998, primarily resulting from bonuses. Other
operating expense increased $24,000 for the three months ended December 31, 1999
compared to the same period in 1998.
Income Taxes. The $2,000 increase in income taxes for the three months
ended December 31, 1999 as compared to the same period in 1998 was due to an
increase of $49,000 in pre-tax income for the comparable periods offset by a
reduced effective tax rate for the final quarter.
Comparison of Operating Results for the Twelve Months Ended December 31, 1999
and 1998
Performance Summary. Comprehensive income decreased $318,000 to
$627,000 for the year ended December 31, 1999 as compared to $944,000 for the
year ended December 31, 1998. The decrease was due primarily to a decrease of
$319,000 in unrealized gain on available for sale securities offset by an
increase in net income of $1,000 as compared to the same period in 1998.
14
<PAGE>
Net Income. Net income for the year ended December 31, 1999 increased
by $1,000, or 0. 1 %, to $768,000 from $767,000 for the year ended December 31,
1998. The increase was primarily due to the combined effects of a $157,000
increase in net interest income and a $52,000 decrease in income tax expense,
which more than offset a $150,000 increase in the provision for loan losses and
a $58,000 increase in noninterest expense. For the years ended December 31, 1999
and 1998, the returns on average assets were 1.66% and 1.91%, respectively,
while the returns on average equity were 8.60% and 9.45%, respectively.
Net Interest Income. For the year ended December 31, 1999 net interest
income increased by $157,000, or 10.9%, to $1.6 million from $1.4 million for
the year ended December 31, 1998. The increase reflected an increase of $449,000
in interest income to $3.5 million from $3.1 million, which more than offset an
increase of $292,000 in interest expense to $1.9 million from $1.6 million.
First Federal Savings' average interest rate spread was 2.64% for the year
ended December 31, 1999 compared to 2.62% for the year ended December 31, 1998.
The average net interest margin was 3.59% for the year ended December 31, 1999
compared to 3.68% for the year ended December 31, 1998.
Provision for Loan Losses. During the year ended December 31, 1999,
First Federal Savings charged $150,000 against earnings as a provision for loan
losses compared to no provision for the year ended December 31, 1998. The charge
resulted in an allowance for loan losses of $175,000, or 0.55% of loans
receivable, net at December 31, 1999, compared to $25,000, or 0.09% of loans
receivable, net at December 31, 1998. The increase in the provision for loan
losses for the 1999 period results from a review of the loan portfolio,
consideration of past loan loss experience, current economic conditions and
other factors. 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."
Non-Interest Income. For the year ended December 31, 1999, non-interest
income did not change from the year ended December 31, 1998,
Non-Interest Expense. Non-interest expense increased by $58,000 to
$306,000 for the year ended December 31, 1999 from $248,000 for the year ended
December 31, 1998. Salaries and related payroll expenses including medical
insurance increased $20,000 to $120,000 for the year ended December 31, 1999
from $100,000 for the year ended December 31, 1998 due primarily to normal pay
raises and increased bonuses. Other expense increased $29,000 to $94,000 for the
year ended December 31, 1999, from $65,000 for the year ended December 31, 1998,
due to increases in professional fees and the OTS general assessment.
Income Taxes. Income taxes decreased by $50,000 to $391,000 for the
year ended December 31, 1999 from $443,000 for the year ended December 31, 1998.
The effective tax rates were 33.8% and 36.6% for the years ended December 31,
1999 and 1998, respectively.
Year 2000 Issues
Prior to December 31, 1999, First Federal Savings established and
implemented a plan to address the year 2000 ("Y2K") issue. The Y2K issue centers
on the potential inability of computer systems to recognize the year 2000. First
Federal Savings has not experienced any computer problems associated with the
change to the year 2000.
15
<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 6.39%
====== ======== =====
</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
The following table presents the estimated net proceeds of the
offering, the amount to be retained by First Federal of Olathe Bancorp, the
amount to be contributed to First Federal Savings, and the amount of First
Federal of Olathe Bancorp's loan to the employee stock ownership plan. See "Pro
Forma Data" for the assumptions used to arrive at these amounts.
<TABLE>
<CAPTION>
552,500 650,000 747,500 859,625
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
Per Per Per Per
Share Share Share Share
-------------- ------------- ------------- -------------
(In Thousands)
<S> <C> <C> <C> <C>
Gross proceeds........................................ $ 5,525 $ 6,500 $ 7,475 $ 8,596
Less: estimated offering expenses..................... (500) (500) (500) (500)
Net proceeds.......................................... $ 5,025 $ 6,000 $ 6,975 $ 8,596
Amount to be contributed to First
Federal Savings....................................... $ 2,513 $ 3,000 $ 3,488 $ 4,048
Amount of loan to employee stock
ownership plan....................................... $ 442 $ 520 $ 598 $ 688
Net amount to be retained by First $ 2,070 $ 2,480 $ 2,889 $ 3,360
Federal of Olathe Bancorp.............................
</TABLE>
16
<PAGE>
First Federal of Olathe Bancorp will purchase all of the capital stock
of First Federal Savings 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 Savings' capital and will support the expansion of First
Federal Savings' existing business activities. First Federal Savings 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
Savings will be used by First Federal Savings for general corporate purposes,
including increased lending activities. On a short-term basis, First Federal
Savings may purchase investment and mortgage-backed securities. The net proceeds
received by First Federal Savings will further strengthen First Federal Savings'
capital position, which already exceeds all regulatory requirements. After the
conversion, First Federal Savings' tangible capital ratio will be 21.97%, based
upon the midpoint of the offering range. As a result, First Federal Savings 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,
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 Savings' 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 Savings
continues to exceed all applicable regulatory requirements after the
repurchases. The payment of dividends or repurchase of stock will be prohibited
if First Federal Savings' 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
Savings--Liquidation Rights" and "--Restrictions on Transferability."
17
<PAGE>
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 Savings. Payments for
shares made through withdrawals from existing deposit accounts at First Federal
Savings will not result in the receipt of new funds for investment by First
Federal Savings but will result in a reduction of First Federal Savings'
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
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 Savings, because First Federal of Olathe Bancorp
initially will have no source of income other than dividends from First Federal
Savings, 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 Savings 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 Savings to First Federal of
Olathe Bancorp which would be deemed to be drawn out of First Federal Savings'
bad debt reserves would require a payment of taxes at the then-current tax rate
by First Federal Savings on the amount of earnings deemed to be removed from the
reserves for such distribution. First Federal Savings 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 Savings, 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 Savings 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 "OLTH." 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.
18
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
At September 30, 1999, First Federal Savings exceeded all of its
regulatory capital requirements. The table on the following page sets forth
First Federal Savings' historical capital under generally accepted accounting
principles ("GAAP") and regulatory capital at September 30, 1999 and the pro
forma capital of First Federal Savings 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 Savings 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 Savings 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.
19
<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 Savings' 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 Savings 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."
20
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of First
Federal Savings 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 Savings will be substantially
restricted after the conversion. See "The Conversion--Effects of Conversion
to Stock Form on Depositors and Borrowers of First Federal Savings
--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,
it is expected the plan would 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 would not be subject to OTS regulations limiting the
plan to no more than 4% of the shares of common stock issued in the
conversion. See "Pro Forma Data" and "Management--Benefit
Plans--Recognition and Retention Plan."
21
<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 Savings' average yield on all interest-earning assets and average rate
paid on deposits, as contemplated by OTS regulations, because First Federal
Savings 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 Savings' bad debt reserve. See "Management--Benefit Plans" and
"The Conversion--Effects of Conversion to Stock Form on Depositors and Borrowers
of First Federal Savings--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, it is expected the recognition and retention plan would 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 would no be subject to OTS regulations limiting the plan to
no more than 4% of the shares issued in the conversion.
The tables on the following pages summarize historical consolidated
data of First Federal Savings 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.
22
<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)
23
<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 an 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
24
<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>
25
<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) (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......................... 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 Savings 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 Savings--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.
26
<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 Savings 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 Savings
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 55,057 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.
27
<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
Savings' 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 Savings' 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 Savings 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 Savings. 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 Savings. These forward-looking
statements are generally identified by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," or similar words. First Federal
Savings' 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 Savings' 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 Savings' 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 Savings' 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
Savings 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 Savings' business strategy incorporates
the following elements: (1) operating as a community-oriented financial
institution, dedicated to serving the needs of First Federal Savings' 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 Savings' business strategy are as follows:
Community-Oriented Institution; Continuity of Management. First Federal
Savings is committed to meeting the financial needs of its customers in Johnson
County, Kansas, the county in which it operates. First Federal Savings
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 Savings 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 Savings' ability to provide this service is enhanced by the
stability of its management. Since 1927, First Federal Savings 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 Savings has emphasized the origination of
fixed-rate one-to-four family residential mortgage loans within First Federal
Savings' primary market area. As of September 30, 1999, 100% of First Federal
Savings' 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 Savings
28
<PAGE>
intends to continue to emphasize one- to four- family lending 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.
First Federal Savings retains in its portfolio all loans that it
originates. Because these loans have fixed-interest rates and terms to maturity
of up to 15 years, First Federal Savings had a one-year interest rate
sensitivity gap of negative 39.61% as of September 30, 1999. First Federal
Savings seeks to control its exposure to interest rate volatility by increasing
the maturity of liabilities as market conditions allow and by maintaining high
levels of capital.
Asset Quality. Management believes that First Federal Savings' high
asset quality is a result of its conservative underwriting standards. First
Federal Savings' 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 Savings' ratio of nonperforming
assets to total assets was .29% and .24%, respectively.
Controlling Operating Expense. First Federal Savings has managed to
control non-interest expense by limiting the overall number of its employees,
and carefully managing operating expenses. In addition, First Federal Savings
maintains a low occupancy expense by operating out of one building. First
Federal Savings' 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 Savings' 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 Savings' staff.
Capital Strength. First Federal Savings' policy has always been to
protect the safety and soundness of First Federal Savings through conservative
risk management, sound operations and a strong capital position. First Federal
Savings' 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 Savings 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 Savings' 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 Savings' deposit base consisted of certificates
of deposit ranging in maturity from 6 months to 60 months. First Federal Savings
does not currently accept brokered deposits. However, in 1998 and early 1999,
First Federal Savings supplemented its local deposits with brokered deposits
from outside its market area to raise funds during a period of strong loan
demand.
First Federal Savings 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 Savings plans to implement a
program for 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 Savings 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 Savings may hire additional staff 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 Savings' 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 $3.2 million, or 12.6%, to $28.9 million at December 31, 1998 from
$25.7 million at December 31, 1997. The increase during each of these periods
reflect
29
<PAGE>
First Federal Savings' controlled growth strategy, including taking advantage of
the strong housing market in First Federal Savings' 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 Savings' acceptance of brokered deposits in 1998
and early 1999 which led to an increase in funds which could not immediately be
invested into 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
Savings' practice in 1998 and early 1999 of accepting brokered deposits.
Interest payable on deposits increased $344,000 to $399,000 at
September 30, 1999 from $55,000 at December 31, 1998. The increase in interest
payable on deposits is primarily due to First Federal Savings' policy of paying
interest on its deposits on June 30 and December 31 of each year.
First Federal Savings obtained $1.0 million of FHLB advances during the
year ended December 31, 1998. These advances were used to fund First Federal
Savings' growth during the year.
Total equity increased $467,000, or 5.5%, to $9.0 million at September
30, 1999 from $8.5 million at December 31, 1998, due primarily to First Federal
Savings' 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.
30
<PAGE>
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 Savings' 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(2) Balance Paid Rate(2)
------- ---- ------- ---- ------- ------- ---- -------
(Dollars in Thousands)
Interest-Earning Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable(1).......... $ 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) Calculated net of loan fees, loans in progress and loan loss reserves.
Nonaccruing loans would be included in the average loan amounts, although
First Federal Savings has not had any nonaccruing loans during recent
periods.
(2) Nine month yield/rates are annualized.
31
<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(1)........................... $ 27,784 $ 2,395 8.62% $ 24,967 $ 2,178 8.72%
Investment securities......................... 6,323 406 6.42 5,397 415 7.69
FHLB Stock.................................... 311 29 9.34 295 27 9.15
Interest-earning deposits..................... 4,642 261 5.62 1,900 98 5.16
-------- -------- ---- -------- -------- -------
Total interest-earning assets............... 39,059 3,091 7.91 32,559 2,718 8.35
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............................ $ 1,439 $ 1,382
======== ========
Net interest rate spread...................... 2.62% 3.11%
==== ====
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>
(1) Calculated net of loan fees, loans in progress and loan loss reserves.
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 (80) (9)
Interest-earning deposits.............. (24) 11 (13) 141 22 163
------ ------ ------ ------ ------ ------
Total interest-earning assets........ $ 426 $ (72) $ 354 $ 459 $ (83) $ 373
====== ====== ====== ====== ====== ======
Interest-bearing liabilities:
Savings deposits....................... $ 4 $ 1 $ 5 $ 28 $ 2 $ 30
Money market........................... (2) (1) (3) (8) -- (8)
Certificate accounts................... 278 4 282 239 2 241
FHLB advances.......................... 5 -- 5 52 -- 52
------ ------ ------ ------ ------ ------
Total interest-bearing liabilities... $ 285 $ 4 $ 289 $ 311 $ 4 $ 315
====== ======= ====== ====== ======= ======
Net interest income....................... $ 65 $ 58
====== ======
</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.
32
<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 Savings' 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. The provision for loan losses was $150,000
for the nine months ended September 30, 1999 compared to none for the nine
months ended September 30, 1998. The increase in the provision for loan losses
reflects management's assessment of the losses inherent in the loan portfolio.
At September 30, 1999 and 1998, the allowance for loan losses was $175,000 and
$25,000, respectively, which represented .56% of total loans at September 30,
1999 as compared to .09% of total loans at September 30 1998. The allowance for
loan losses at September 30, 1999 represented 130.60% of non-performing loans
compared to 23.58% of non-performing loans at September 30, 1998.
In assessing the inherent risk in First Federal Savings' portfolio at
September 30, 1999, management 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 generally, and concluded that the losses should be increased.
Generally, management considered, among other things, the following matters:
First Federal Savings' total loan portfolio increased from $29.2 million at
December 31, 1998 to $31.9 million at September 30, 1999; its loans on non-owner
occupied properties increased from $9.9 million to $11.4 million at those dates;
and its biggest concentration of loans to one borrower, which were secured by
non-owner-occupied properties, increased from $922,000 to $1.3 million at those
dates. First Federal Savings also reviewed statistical data for the financial
institutions industry which indicated that a peer group of small thrift
institutions located in Kansas and elsewhere in the Midwest had on average loan
loss allowances ranging from .50% to .65% of total loans. Management also took
into consideration that First Federal Savings' loan portfolio includes a greater
number of loans to borrowers that are not depositors or known on a personal
basis by management. In assessing the inherent risks in its loan portfolio,
management determined it was prudent to increase its allowance for loan losses
to provide for the increased inherent risk of a loan portfolio to a clientele
that is not as well known by management. Historical net charge-offs are not
necessarily indicative of the amount of net charge-offs that First Federal
Savings will realize as it continues to evolve and grow. First Federal Savings'
management assesses the adequacy of allowance for loan losses based on the known
inherent risks in the loan portfolio and management's continuing analysis of the
quality of the loan portfolio. While management believes that, based on the
information currently available, First Federal Savings' allowance for loan
losses is sufficient to cover probable losses inherent in its loan portfolio at
this time, no assurance can be given that First Federal Savings' level of
allowance for loan losses will be sufficient to cover loan losses incurred by
First Federal Savings or that future adjustments to the allowance for loan
losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the and current level of the allowance for loan losses. Management may
increase its level of allowance for loan losses as a percentage of its total
loans and nonperforming loans if the level of non-owner occupied, commercial,
consumer lending or loan purchases as a percentage of its total loan portfolio
increases. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review First Federal Savings' allowance
for loan losses. These agencies may require First Federal Savings to provide
additions to the allowance based on judgments different than management. See
"Business of First Federal-Lending Activities-Allowance for Loan Losses".
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.
33
<PAGE>
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 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.
Provision for Loan Losses. During the fiscal years ended December 31,
1998 and December 31, 1997, First Federal Savings did not make a provision for
loan losses. The absence of a provision for loan losses during these periods
reflected management's overall assessment that the inherent risks in First
Federal Savings' loan portfolio had not increased from the previous year.
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
Qualitative Analysis. Savings institutions such as First Federal
Savings 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
34
<PAGE>
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.
Quantitative Analysis. 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 savings deposits and money-market
accounts, 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 $ 8,853
======== ======== ======== ======= ======= =======
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% 19.14%
</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 Savings' 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.
First Federal Savings' one year sensitivity gap as a percentage of
total interest-earning assets at September 30, 1999 was a negative 39.61%. This
is primarily attributable to the loans in its portfolio having fixed rates of
interest and terms of up to 15 years. Subject to market conditions, First
Federal Savings has sought to control its interest rate risk by emphasizing
longer-term certificates of deposit. In 1998 and early 1999, First Federal
Savings accepted brokered deposits from out-of-state sources. At September 30,
1999, First Federal Savings had approximately $6.1 million of brokered
certificates of deposits. If an unusually high amount of certificates of deposit
are withdrawn upon maturity, First Federal Savings would attempt to replace
those funds by increasing its FHLB advances or promoting other longer-term
deposits. If market conditions do not allow First Federal Savings to replace the
maturing certificates of deposit with new accounts with similar maturities, then
First Federal Savings' interest rate gap position could increase.
Net Portfolio Value. First Federal Savings monitors and evaluates the
potential impact of interest rate changes upon the market value of First Federal
Savings' 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 Savings uses the quarterly reports from the OTS which
show the impact of changing interest rates on First Federal Savings' 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 Savings' NPV
declining by more than 2% of the estimated market value of First Federal
Savings' assets as of September 30, 1999, First Federal Savings would have been
subject to a capital deduction as of September 30, 1999 if the regulation had
been effective as of such date.
35
<PAGE>
The following table presents First Federal Savings' NPV as of September
30, 1999, as calculated by the OTS, based on information provided to the OTS by
First Federal Savings.
<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 Savings that it is not
subject to the interest rate risk component discussed above, First Federal
Savings is still subject to interest rate risk and, as can be seen above, rising
interest rates will reduce First Federal Savings' 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 Savings' loan portfolio at September 30, 1999 have
fixed interest rates. First Federal Savings' 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 Savings would have to pay more on its deposits and new borrowings, which
would adversely affect First Federal Savings' interest rate spread.
First Federal Savings' 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 Savings' 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 Savings 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 Savings' 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 Savings 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
Savings 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.
36
<PAGE>
First Federal Savings 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 Savings' policy to maintain its
liquidity portfolio in excess of regulatory requirements.
First Federal Savings' 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 Savings' 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 Savings is both an ongoing and
long-term function of First Federal Savings' 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 Savings
require funds beyond its ability to generate them internally, additional sources
of funds are available through FHLB advances. First Federal Savings would pledge
its FHLB stock or certain other assets as collateral for such advances. For the
nine months ended September 30, 1999, First Federal Savings had an average
balance of $1.0 million in FHLB advances.
At September 30, 1999, First Federal Savings had outstanding loan
commitments of $477,000 and did not have any undisbursed loans in process. First
Federal Savings 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 Savings.
Following consummation of the conversion, First Federal of Olathe
Bancorp initially will have no business other than holding the capital stock of
First Federal Savings 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 Savings is required to meet certain
tangible, core and risk based capital requirements. For information regarding
First Federal Savings' 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 Savings' operations. Unlike industrial companies, nearly
all of the assets and liabilities of First Federal Savings are monetary in
nature. As a result, interest rates have a greater impact on First Federal
Savings' 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
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
37
<PAGE>
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 Savings 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.
Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise.
In October 1998, the FASB issued Statement of Financial Accounting Standards No.
134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise." This Statement requires that after the securitization of mortgage
loans held for sale, an entity in mortgage banking activities classify the
resulting mortgage-backed securities or other retained interest based on its
ability and intent to sell or hold those investments. This Statement conforms
the subsequent accounting for securities retained after the securitization of
mortgage loans by a mortgage banking enterprise with the subsequent accounting
for securities retained after the securitization of other types of assets by a
nonmortgage banking enterprise. This Statement will be effective for the first
fiscal quarter beginning after December 15, 1998 with earlier application
encouraged. First Federal Savings does not have mortgage-backed securities and
therefore the adoption of the Statement is not expected to have a material
impact on its public financial reporting.
38
<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 Savings for the purpose of becoming a savings and
loan holding company of First Federal Savings. We will purchase all of the
capital stock of First Federal Savings 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 Savings, 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 Savings.
BUSINESS OF FIRST FEDERAL
General. First Federal Savings was founded in 1923 as a state-chartered
mutual savings association under the name Central Building and Loan Association.
In 1934, First Federal Savings converted to a federal mutual savings association
charter and adopted its current name. First Federal Savings is regulated by the
Office of Thrift Supervision and the Federal Deposit Insurance Corporation.
First Federal Savings' 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 Savings has been a member of the
Federal Home Loan Bank System since 1933.
First Federal Savings operates as a traditional savings association,
specializing in one-to four- family residential mortgage lending and savings
deposits. First Federal Savings' business consists primarily of attracting
retail deposits from the general public and using those funds to originate real
estate loans. First Federal Savings holds its loans for long-term investment
purposes. First Federal Savings also invests in various investment securities.
See "--Lending Activities."
Lending Activities
General. At September 30, 1999, First Federal Savings' net loan
portfolio totaled $31.4 million, representing approximately 68.0% of First
Federal Savings' $46.2 million of total assets at that date. The principal
lending activity of First Federal Savings 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 Savings' loan portfolio
consisted exclusively of first mortgage, one- to four-family residential loans.
Although First Federal Savings' lending policies permit the origination of
commercial real estate loans, multi-family loans and loans secured by deposit
accounts, First Federal Savings' loan portfolio has not included any of such
loans in recent years. First Federal Savings also occasionally originates
construction/permanent loans to individuals for the construction and permanent
financing of one- to four-family dwellings, although First Federal Savings has
originated very few construction/permanent loans in recent years. First Federal
Savings retains in its portfolio all loans that it originates.
After the conversion, First Federal Savings 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 for
retention in its portfolio. First Federal Savings also intends to explore
adjustable rate lending through the purchase of adjustable rate loans on a
limited basis. To a lesser extent, First Federal Savings also intends to
originate loans secured by deposit accounts. First Federal Savings may hire
additional staff to expand its lending activities.
The types of loans that First Federal Savings may originate are subject
to federal and state laws and regulations. Interest rates charged by First
Federal Savings 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 Savings' limit on
loans-to-one borrower was $1.3 million. At that date, First Federal Savings'
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.
39
<PAGE>
Loan Portfolio Composition. The following table shows the composition
of First Federal Savings' loan portfolio by type of loan at the dates indicated.
First Federal Savings' 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 Savings' primary
lending activity is the origination of first mortgage loans secured by one- to
four-family residential property located in First Federal Savings' market area.
A portion of the one- to four-family mortgage loans originated by First Federal
Savings are secured by investor-owned, non-owner occupied residences. Loans are
generated through First Federal Savings' existing customers and referrals, real
estate brokers and other marketing efforts. First Federal Savings 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 Savings had $31.9 million, or 100% of its loan portfolio,
invested in mortgage loans secured by one- to four-family residences.
First Federal Savings' residential mortgage loans have terms of up to
15 years. First Federal Savings has originated only fixed-rate residential
loans. First Federal Savings has no current plans to originate adjustable rate
mortgages. However, following the conversion, First Federal Savings intends to
explore adjustable rate lending through the purchase of adjustable rate loans on
a limited basis. All of the loans made by First Federal Savings are retained in
its portfolio for long-term investment. First Federal Savings has not sold loans
in the secondary mortgage market, and First Federal Savings' loans generally are
not underwritten for resale in the secondary mortgage market. First Federal
Savings' 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 Savings' real estate lending policy, a title
insurance policy must be obtained for each real estate loan. First Federal
Savings 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 Savings 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 Savings. First Federal Savings 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 Savings intends to increase its maximum loan
amount to $175,000, subject to further exceptions at the discretion of the Board
of Directors.
First Federal Savings' residential mortgage loans customarily include
due-on-sale clauses, which are provisions giving First Federal Savings 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 Savings' 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.
40
<PAGE>
First Federal Savings' 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 Savings 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 Savings' 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 Savings generally
charges higher interest rates on investor loans.
When underwriting residential real estate loans, First Federal Savings
reviews and verifies each loan applicant's employment, income and credit history
and, if applicable, First Federal Savings' experience with the borrower. First
Federal Savings' 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 Savings' 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 Savings does not offer fixed-rate loans with
terms greater than 15 years or adjustable-rate residential mortgage loans. After
the conversion, First Federal Savings plans to implement a program for offering
longer term fixed-rate mortgage loans, with terms of up to 25 years. First
Federal Savings also intends 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 Savings 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
Savings 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 Savings has a pre-existing
customer relationship. First Federal Savings' 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
Savings' 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
Savings requires an appraisal of the property by an independent appraiser. First
Federal Savings 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 Savings on infrequent occasions has originated loans secured by
commercial real estate. During recent years, however, First Federal Savings'
loan portfolio has not included any such loans. First Federal Savings 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 Savings 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 Savings' consumer lending
activities have been limited to deposit account loans. At September 30, 1999, no
consumer loans were outstanding. First Federal Savings 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 Savings offers loans secured by savings deposits at First
Federal Savings. 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 Savings 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 Savings' 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
41
<PAGE>
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
Savings also makes "additional advance" loans, which are advances up to the
amount of the original first mortgage and which must be repaid prior to the
original loan maturity. Because First Federal Savings' additional advance loans
and loans for the purpose of home improvements are secured by a first mortgage,
rather than a second mortgage, First Federal Savings classifies these loans as
one- to four-family residential loans.
Loan Origination and Other Fees. In addition to interest earned on
loans, First Federal Savings 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 Savings 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 Savings' 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 Savings 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 Savings' total
loan portfolio at September 30, 1999. 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 Savings' 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 Savings
are subject to the written underwriting standards and loan origination
procedures established by First Federal Savings' 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 Savings' staff, and Mitch Ashlock,
First Federal Savings' 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 Savings' Board of Directors. First Federal Savings'
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 Savings'
Board of Directors.
42
<PAGE>
First Federal Savings holds all loans for long-term investment
purposes. First Federal Savings has not purchased any loans but may determine to
do so in the future. In particular, as noted above, First Federal Savings
intends to explore 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.
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 Savings 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 Savings 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
Savings 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 Savings will attempt to work out a payment schedule. While First
Federal Savings generally prefers to work with borrowers to resolve the
problems, First Federal Savings will institute foreclosure or other proceedings,
as necessary, to minimize any potential loss.
First Federal Savings' 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 Savings.
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 Savings 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 Savings had no real
estate owned at December 31, 1997 or 1998, or September 30, 1999.
43
<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 Savings' 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
Savings 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 Savings at
the dates indicated. As of the dates indicated, First Federal Savings 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 Savings 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 Savings 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
44
<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 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 Savings
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 Savings
had no classified assets.
Allowance for Loan Losses. In originating loans, First Federal Savings
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 Savings 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 Savings 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 Savings' loan portfolio, will not request First Federal Savings 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 Savings' financial condition and results of operations.
First Federal Savings 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.
45
<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 Savings' 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>
46
<PAGE>
Investment Activities
First Federal Savings 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 Savings may also invest a
portion of its assets in commercial paper and corporate debt securities. Savings
institutions like First Federal Savings are also required to maintain an
investment in FHLB stock. First Federal Savings is required under federal
regulations to maintain a minimum amount of liquid assets. At September 30,
1999, First Federal Savings' 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 Savings 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 Savings' 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
Savings may have to invest the funds at a lower interest rate. First Federal
Savings' 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 Savings' liquidity
position, and anticipated cash needs and sources. The effect that the proposed
investment would have on First Federal Savings' credit and interest rate risk
and risk-based capital is also considered. First Federal Savings purchases
investment securities to provide necessary liquidity for day-to-day operations.
First Federal Savings also purchases investment securities when investable funds
exceed loan demand.
Generally, the investment policy of First Federal Savings, as
established by the Board of Directors, is to invest funds among various
categories of investments and maturities based upon First Federal Savings'
liquidity needs, asset/liability management policies, investment quality,
marketability and performance objectives.
Mortgage-backed Securities. First Federal Savings has the legal
authority to invest in mortgage-backed securities to supplement residential loan
production, and First Federal Savings' investment policy as adopted by the Board
permits investments in certain mortgage backed securities. In recent years,
however, First Federal Savings has chosen not to purchase any mortgage backed
securities.
Other Investments. At September 30, 1999, First Federal Savings'
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.
47
<PAGE>
The following table sets forth the composition of First Federal
Savings' 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 Savings' 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(1).................................. 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 Savings'
funds for lending and other investment purposes. In addition to deposits, First
Federal Savings 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 Savings' 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.
48
<PAGE>
First Federal Savings' deposits are obtained primarily from residents
of its primary market area. First Federal Savings is not currently using brokers
to obtain deposits. However, in 1998 and early 1999, First Federal Savings
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 Savings had approximately $6.1 million of brokered
certificates of deposit.
First Federal Savings' 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 Savings on a periodic basis. Management determines the rates and terms
based on rates paid by competitors, First Federal Savings' 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 Savings 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 Savings 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)%
======== ======== ======== ========
49
<PAGE>
Time Deposit Maturity Schedule. The following table shows rate and
maturity information for First Federal Savings' 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 0.30
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 Savings'
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>
50
<PAGE>
Borrowings. First Federal Savings 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 Savings - Federal Home Loan Bank System."
As of September 30, 1999, First Federal Savings had available credit
lines of $5.0 million from the FHLB of Topeka. First Federal Savings 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 Savings' 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 Savings had a total of three
full-time and no part-time employees. First Federal Savings' employees are not
represented by any collective bargaining group. Management considers its
employee relations to be good.
Properties
At September 30, 1999, First Federal Savings conducted its business
from its headquarters and sole office located at 100 East Park, Olathe, Kansas.
First Federal Savings' main office is leased, with the lease term expiring in
2004. The estimated net book value of First Federal Savings' leasehold
improvements, and furniture and equipment at September 30, 1999 was
approximately $21,000.
First Federal Savings believes that its current facilities are adequate
to meet the present needs of First Federal Savings and its holding company.
However, if First Federal Savings determines to expand its staff, First Federal
Savings may need to obtain new facilities or expand its existing facility.
Legal Proceedings
First Federal Savings 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 Savings was not involved in
any legal proceedings.
51
<PAGE>
Service Corporation Activities
As a federally chartered savings association, First Federal Savings 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 Savings 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 Savings had no
subsidiaries.
First Federal Savings' Market Area
First Federal Savings 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 Savings 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 Savings faces significant competition for investors'
funds from short-term money market securities, mutual funds and other corporate
and government securities. First Federal Savings does not rely upon any
individual group or entity for a material portion of its deposits. First Federal
Savings' 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 Savings' competition for real estate loans comes
principally from mortgage banking companies, commercial banks, other savings
institutions and credit unions. First Federal Savings 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.
52
<PAGE>
REGULATION
General
First Federal Savings 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 Savings' 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 Savings' mortgage documents. First Federal Savings 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 Savings' 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 Savings 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 Savings is a member of the Federal Home Loan Bank of
Topeka. First Federal Savings holds 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 Savings
holds 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 Savings' deposits, the FDIC has examination,
supervisory and enforcement authority over First Federal Savings.
First Federal Savings' accounts are insured by the Savings Association
Insurance Fund to the maximum extent permitted by law. First Federal Savings
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 Savings, 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
53
<PAGE>
of .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 Savings.
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 Savings.
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 Savings 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
54
<PAGE>
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the OTS determines that First
Federal Savings fails to meet any standard prescribed by the guidelines, it may
require First Federal Savings 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 Savings 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 Savings' 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,
55
<PAGE>
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 Savings' 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 Savings 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 Savings' 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 Savings may make to those persons based, in
part, on First Federal Savings' 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 Savings received a "satisfactory" rating as a result
of its most recent examination.
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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 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
Savings 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. In view of the holding company's size and
business plan, the Board of Directors of First Federal of Olathe Bancorp does
not believe that the recent legislation will have a material impact on the
holding company. 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 Savings 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 Savings' reserve for bad debts
discussed below. First Federal of Olathe Bancorp's and First Federal Savings'
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 Savings or First
Federal of Olathe Bancorp.
Bad Debt Reserve. Historically, savings institutions such as First
Federal Savings 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 Savings' 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 Savings' actual loss experience, or a percentage equal to 8% of
First Federal Savings' taxable income, computed with certain modifications and
reduced by the amount of any permitted additions to the non-qualifying reserve.
Due to First Federal Savings' loss experience, First Federal Savings 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
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reserves added since the base year, defined as the last taxable year beginning
before January 1, 1988. First Federal Savings has no post-1987 reserves that
would be recaptured. For taxable years beginning after December31, 1995, First
Federal Savings' 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.
Distributions. To the extent that First Federal Savings 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 Savings' 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 Savings'
taxable income. Nondividend distributions include distributions in excess of
First Federal Savings' 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 Savings' 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 Savings'
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 Savings 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
Savings. First Federal Savings 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
Savings' 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 Savings, 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 Savings 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 Savings will not file a consolidated tax return, except that if
First Federal of Olathe Bancorp or First Federal Savings 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 Savings' federal income
tax returns for the past five years.
Kansas Taxation
First Federal Savings 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. If
First Federal of Olathe Bancorp generates any taxable income, it could be taxed
up to the maximum Kansas corporate rate of 7.35%.
First Federal Savings' state tax returns have not been audited by the
State of Kansas during the past five years.
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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
Savings. See "--Directors of First Federal Savings." 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 Savings. 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 Savings."
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.
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 Savings, see "- Meetings of
the Board of Directors and Committees of First Federal Savings," "-Compensation
of the Board of Directors of First Federal Savings" 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.
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Directors of First Federal Savings
Prior to the conversion, the direction and control of First Federal
Savings, as a mutual savings institution, had been vested in its Board of
Directors. Upon conversion of First Federal Savings to stock form, each of the
directors of First Federal Savings will continue to serve as a director of the
converted association. The Board of Directors of First Federal Savings 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 Savings.
The following table sets forth certain information regarding the
directors of First Federal Savings 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 Savings
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 Savings from 1982 until his retirement in 1995. He
originally joined First Federal Savings 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 Savings
The Board of Directors met 12 times during the year ended December 31,
1998. During fiscal 1998, no director of First Federal Savings 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 Savings 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 Savings has established an
Audit Committee. The Audit Committee reviews First Federal Savings' 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.
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Compensation of the Board of Directors of First Federal Savings
During fiscal 1998, all directors of First Federal Savings, 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 Savings 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."
Executive Compensation
The following table sets forth information concerning the compensation
paid or granted to First Federal Savings' Chief Executive Officer. No other
executive officer of First Federal Savings 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 Savings 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 Savings 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 Savings 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 $65,747. 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 Savings for cause at any time. In the event
First Federal Savings terminates the executive's employment for reasons other
than for cause, or in the event of the executive's resignation from First
Federal Savings 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 Savings, (4) a
breach of the agreement by First Federal Savings, 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 approximately $236,000
if termination occurs in 2000. First Federal Savings 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.
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The executive's employment may be terminated upon his attainment of age
65 or such later age as may be required by law or consented to by the board of
directors. 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 Savings. In the event of the executive's disability for a period of six
months, First Federal Savings may terminate the agreement provided that First
Federal Savings 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 Savings. In the event of the
executive's death, First Federal Savings 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.
The employment agreement provides that, following termination of
employment, the executive will not compete with First Federal Savings 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 Savings 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 Savings 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 Savings during the year are eligible to
accrue benefits under the Retirement Plan. First Federal Savings 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 Savings 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 Savings intends
to implement the ESOP in connection with the conversion. Employees with at least
one year of employment with First Federal Savings 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 Savings'
discretionary contributions to the
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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, 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 Savings' 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 Savings 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 Savings
will establish a committee of nonemployee directors to administer the ESOP.
First Federal Savings will appoint an independent financial institution or its
outside directors 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 Savings 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.
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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 Savings 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.
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 Savings 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.
In the event the recognition and retention plan is implemented within
12 months after the conversion, the holding company expects that the plan 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 will not be subject to an OTS regulation limiting
the plan to no more than 4% of the shares issued in the conversion. 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.
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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 Savings and the holding company will
be allowed a federal income tax deduction in the same amount. First Federal
Savings 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 Savings 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
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 Savings had four loans outstanding to directors and executive
officers of First Federal Savings, or members of their immediate families. These
loans totaled approximately $169,000, or 1.9%, of First Federal Savings' total
equity at September 30, 1999.
THE CONVERSION
The Board of Directors of First Federal Savings and the OTS have
approved the Plan of Conversion, subject to approval by the members of First
Federal Savings 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
Savings.
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 Savings.
Pursuant to the Plan, First Federal Savings 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
Savings 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
Savings' federal mutual charter to authorize the issuance of capital stock, at
which time First Federal Savings 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 Savings
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 Savings 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 Savings with
$50.00 or more on deposit as of June 30, 1998. Second, First Federal Savings'
employee stock ownership plan. Third, depositors of First Federal Savings with
$50.00 or more on deposit as of December 31, 1999. Fourth, depositors of First
Federal Savings as of January 31, 2000 and borrowers of First Federal Savings
with loans outstanding as of January 19, 2000 which continue to be outstanding
as of January 31, 2000. Finally, officers, directors and employees of First
Federal Savings.
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.
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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 Savings 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 Savings 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 Savings.
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 Savings.
The completion of the offering, however, depends on market conditions
and other factors beyond First Federal Savings' 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 Savings' 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 Savings' 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 Savings, its members and the communities it
serves. First Federal Savings' Board of Directors has formed First Federal of
Olathe Bancorp to serve as a holding company, with First Federal Savings as its
subsidiary, after the conversion. By converting to the stock form of
organization, First Federal of Olathe Bancorp and First Federal Savings 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 Savings believes that the conversion offers a number of advantages
which will be important to the future growth and performance of First Federal
Savings. The capital raised in the conversion is intended to support First
Federal Savings' 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 Savings' 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 Savings. The conversion will also enable First Federal
of Olathe Bancorp and First Federal Savings 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 Savings, 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
Savings
Voting Rights. Upon conversion, neither deposit account holders nor
borrowers will have voting rights in First Federal Savings 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
Savings. Subsequent to conversion, voting rights will be vested exclusively in
First Federal of Olathe Bancorp as the sole stockholder of First Federal
Savings. 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
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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 Savings' 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 Savings.
Tax Effects. First Federal Savings 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 Savings or First Federal of Olathe Bancorp. See "-
Income Tax Consequences."
Liquidation Rights. First Federal Savings 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 Savings in its
present mutual form would receive his pro rata share of any assets of First
Federal Savings 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 Savings 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 Savings 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 Savings 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 Savings 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
Savings 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 Savings 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
Savings.
No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transaction, whether First
Federal Savings, 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
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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 Savings 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 Savings. Other than for payment of expenses incident to the
conversion, no assets of First Federal Savings will be distributed in the
conversion. First Federal Savings 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 Savings will continue to be directed by the existing
Board of Directors and management.
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 Savings
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 Savings of their intention to maintain,
modify or rescind their subscriptions. If the subscriber rescinds or does not
respond in any manner to First Federal Savings' notice, the funds submitted will
be refunded to the subscriber with interest at 3.0%, First Federal Savings'
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 Savings 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 among the remaining subscribing eligible account holders whose
subscriptions remain unfilled in the proportion that the amounts of their
respective qualifying deposits bear to the total amount of qualifying deposits
of all remaining eligible account holders whose subscriptions remain unfilled;
however, no fractional shares shall be issued. If the amount so allocated
exceeds the amount subscribed for by any one or more eligible account holders,
the excess shall be reallocated, one or more times as necessary, among those
eligible account holders whose subscriptions are still not fully satisfied on
the same principle until all available shares have been allocated or all
subscriptions satisfied. Subscription rights received by officers and directors
in this category based on their increased deposits in First
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Federal Savings 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 Savings, 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 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 Savings as
of January 31, 2000 and each borrower with a loan outstanding on January 19,
2000 which continues to be outstanding as of January 31, 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 Savings' 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 Savings 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 Savings and First Federal of Olathe Bancorp.
First Federal Savings 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 Savings 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 Savings 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.
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Community Offering. Any shares of common stock which remain
unsubscribed for in the subscription offering will be offered by First Federal
of Olathe Bancorp in a community offering to members of the general public to
whom First Federal of Olathe Bancorp delivers a copy of this prospectus and a
stock order form , 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 be concurrent with, during or promptly after 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. Subject to any required regulatory approvals, First Federal of Olathe
Bancorp will determine the advisability of a community offering, the
commencement and termination dates of any such offering, and the methods of
finding potential purchasers in such offering, in its discretion based upon
market conditions. 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 Savings, 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 Savings, 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.
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 Savings 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 Savings 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 Savings for each selected
dealer. Each customer's funds so forwarded to First Federal Savings, 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 Savings from selected dealers, funds will earn
interest at First Federal Savings' 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.
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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 Savings 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 Savings' 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 Savings, 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 Savings or a majority-owned
subsidiary of First Federal of Olathe Bancorp or First Federal
Savings, 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
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
Savings or any subsidiary of First Federal of Olathe Bancorp or
First Federal Savings.
The Boards of Directors of First Federal of Olathe Bancorp and First
Federal Savings 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 Savings, 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
Savings 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 Savings 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
Savings in the conversion by acting as marketing advisor with respect to the
subscription offering and will represent First Federal Savings 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 Savings regarding the conversion process; and
assisting in the establishment and supervision of First Federal Savings' stock
information center and, with management's input, will train First Federal
Savings' staff to record properly and tabulate orders for the purchase of common
stock and to respond appropriately to customer inquiries.
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Based upon negotiations between Trident Securities and First Federal
Savings 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 Savings 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 Savings. Trident
Securities has been paid $5,000 as an advance against these expenses. First
Federal of Olathe Bancorp and First Federal Savings 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 Savings, 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 Savings 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 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 Savings 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 Savings 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 Savings' 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 Savings as
converted taking into account the formation of First Federal of Olathe Bancorp
as the holding company for First Federal Savings. For its analysis, RP Financial
undertook substantial investigations to learn about First Federal Savings'
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 Savings' 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 Savings' facilities
and had discussions with First Federal Savings' 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 Savings' 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 Savings 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 Savings'
primary market area, First Federal Savings' financial performance and condition
in relation to publicly traded institutions that RP Financial deemed comparable
to First
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Federal Savings, 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 Savings 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 Savings 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 Savings, 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 Savings 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 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 Savings, 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 Savings 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 Savings 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 Savings 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
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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 Savings
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 Savings and First Federal of Olathe Bancorp or
independently value the assets or liabilities of First Federal of Olathe Bancorp
and First Federal Savings. 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 Savings,
must be received by First Federal Savings 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 Savings 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 Savings of the terms and conditions of 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 Savings
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 Savings 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 Savings' stock information center; by check, bank draft,
or money order; or by authorization of withdrawal from deposit accounts
maintained with First Federal Savings. 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 Savings' 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 Savings to withdraw the amount
of the aggregate purchase price from his or her deposit account, First Federal
Savings 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 Savings 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 Savings' passbook
rate.
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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 Savings 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
Savings 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 Savings 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
Savings 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 Savings 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 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 Savings will accept for processing
only orders submitted on original order forms. First Federal Savings 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 Savings
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
Savings' 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 Savings
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 Savings
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 Savings and First Federal of Olathe Bancorp, the plan of
conversion may be substantively amended by the Boards of Directors of First
Federal Savings and First Federal of Olathe Bancorp, as a result of comments
from regulatory authorities or otherwise, at any time but only with the
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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 Savings
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.
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
Savings 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 Savings 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
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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 Savings 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 Savings to the effect that:
1. the conversion of First Federal Savings 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 Savings 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 Savings upon
the receipt of money from First Federal of Olathe Bancorp for
stock of First Federal Savings; 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
Savings upon the issuance to them of withdrawable deposit
accounts in First Federal Savings in its stock form plus an
interest in the liquidation account of First Federal Savings in
exchange for their deposit accounts in First Federal Savings 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 Savings in its stock form will
be the same as the basis of the account holder's deposit accounts
in First Federal Savings 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 Savings 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."
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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 Savings 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 Savings 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 Savings , 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 Savings 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 not in the best interests of First Federal
Savings , 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 Savings' 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
Savings' 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.
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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 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.
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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 Savings 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
Savings 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 Savings 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, 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
Savings 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 Savings and
First Federal of Olathe Bancorp, however, have concluded that the potential
benefits outweigh the possible disadvantages.
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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 Savings 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.
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.
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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 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 Savings 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
Savings." 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.
83
<PAGE>
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 Savings of Olathe Bancorp's only asset will be
First Federal Savings 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 Savings will be an important source
of income for First Federal of Olathe Bancorp. Should First Federal Savings
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 Savings, 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 Savings, 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 Savings to pay dividends to First Federal of Olathe Bancorp, see
"Dividends."
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 Savings 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 Savings 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 Savings 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 Savings 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 Savings 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.
84
<PAGE>
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 Savings.
85
<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 years ended December 31, 1998 and 1997 ............................. 27
Statements of Equity for the nine months ended September 30, 1999
(unaudited) and years ended December 31, 1998 and 1997 ................. F-4
Statements of Cash Flows for the nine months ended September 30, 1999
and 1998 (unaudited) and years ended 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, Inc. have been
omitted because First Federal of Olathe Bancorp, Inc. 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>
[Letterhead of Taylor Perky & Parker, LLC]
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.
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 (Loss)
on Securities
Retained Available for Sale,
Earnings Net of Income Taxes Total Equity
---------- ------------------- ------------
<S> <C> <C> <C>
Balance, December 31, 1996 ........................ $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 (loss) 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 by operating activities .............. 978,141 921,817 720,540 793,831
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of held-to-maturity securities .................. (3,000,000) (4,400,000) (10,300,000) (5,909,622)
Maturity of held-to-maturity 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, BEGINNING OF PERIOD ............. 5,212,508 2,266,590 2,266,590 2,294,490
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, 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 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 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. Held-to-maturity debt securities that the
Association has the positive intent and ability to hold to maturity 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. 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. If a decline in fair
value is judged to be other than temporary, the cost basis of the individual
security shall be written down to fair value as a new cost basis and the amount
of the write-down shall be included in 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 using the double declining method over the estimated useful life (five
years) of the respective assets.
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 -- 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 $293,000 at September 30, 1999 and $208,000 and $175,000 at
December 31, 1998 and 1997, respectively.
NOTE C -- 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
=========== =========== ===========
The following table sets forth information with respect to the Association's
allowance for loan losses for the periods indicated.
Nine Months Ended Years Ended
September 30, December 31,
------------------ -----------------
1999 1998 1997
------------------ ------- -------
(unaudited)
Balance, beginning of period .......... $ 25,000 $25,000 $25,000
Provision for loan losses ............. 150,000 -- --
-------- ------- -------
Balance, end of period ................ $175,000 $25,000 $25,000
======== ======= =======
Ratio of allowance for loan loss to
ending loans receivable, net ........ .56% .09% .10%
F-9
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- AVAILABLE FOR SALE SECURITIES
The cost and market value of the available for sale securities 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 E -- 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
----------- ---------- -----------
Securities of the Federal Home Loan Bank .. $ 4,500,000 $(122,330) $ 4,377,670
Securities of the Federal Mortgage Corp. .. 6,000,000 (286,870) 5,713,130
Securities of the Federal Nat'l. Mtg. Assn. 500,000 (29,580) 470,420
----------- --------- -----------
$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
----------- ---------- -----------
Securities of the Federal Home Loan Bank .. $ 3,500,000 $ (3,590) $ 3,496,410
Securities of the Federal Mortgage Corp. .. 5,000,000 3,450 5,003,450
Securities of the Federal Nat'l. Mtg. Assn. 500,000 6,475 506,475
----------- --------- -----------
$ 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
----------- ---------- -----------
Securities of the Federal Home Loan Bank .. $ 2,909,622 $ 10,988 $ 2,920,610
Securities of the Federal Mortgage Corp. .. 1,000,000 4,690 1,004,690
----------- --------- -----------
$ 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 F -- 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% .... 16,995,979 1,231,213 -- -- 18,227,192
6%-6.99% .... 9,785,440 -- -- -- 9,785,440
----------- ---------- ---------- ---------- -----------
Totals .... $26,881,419 $2,912,194 $2,213,048 $3,214,757 $35,221,418
=========== ========== ========== ========== ===========
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 F -- DEPOSITS (CONTINUED)
Scheduled maturities of certificates of deposit at September 30, 1999, are as
follows:
1999 ............................ $ 3,171,437
2000 ............................ 13,865,747
2001 ............................ 6,104,965
2002 and thereafter ............. 6,651,483
-----------
$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. Deposits in excess of $100,000 are not insured by the
Federal Deposit Insurance Corporation.
The components of interest expense on deposits are as follows:
Nine Months Ended Years Ended
September 30, December 30,
----------------------- -----------------------
1999 1998 1998 1997
---------- ---------- ---------- ----------
Certificates of Deposit ..... $1,291,477 $1,010,526 $1,432,084 $1,190,267
Money Market ................ 52,301 54,670 72,558 80,214
Savings Accounts ............ 74,246 68,771 95,720 66,208
---------- ---------- ---------- ----------
$1,418,024 $1,133,967 $1,600,362 $1,336,689
========== ========== ========== ==========
NOTE G -- 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 H -- LINE OF CREDIT
At December 31, 1999, the Association had a $5,000,000 unused line of credit
with the FHLB to be drawn upon as needed, with interest at the Federal Funds
rate plus 15 basis points.
F-13
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE I -- LEASE COMMITMENTS
Rent expense under a long-term operating lease for office space amounted to
$10,608 and $10,205 for the nine months ended September 30, 1999 and 1998, 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
-------
$66,632
=======
NOTE J -- RETIREMENT PLAN
Statement of Financial Accounting Standards No. 87, "Employer's Accounting for
Pensions", requires entities to disclose a description of the multi-employer
plan and the amount of cost recognized during the period. 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 were
no contributions to the plan 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 and separate data is not available. 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.
F-14
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE K -- REGULATORY MATTERS (CONTINUED)
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.
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
</TABLE>
F-15
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE K -- REGULATORY MATTERS (CONTINUED)
A reconciliation of generally accepted accounting principles ("GAAP") capital to
regulatory capital is presented in the following table as of September 30, 1999:
Tangible Core Total
Capital Capital Capital
-------- ------- -------
(in Thousands)
GAAP capital ............................. $9,009 $9,009 $9,009
Other comprehensive income ............... (415) (415) (415)
Regulatory general valuation ............. -- -- 175
------ ------ ------
Regulatory capital ....................... $8,594 $8,594 $8,769
====== ====== ======
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
Over (under) accrual of federal
and state income taxes ....................... 11,067 4,999 7,660 (43,797)
Deferred income tax (benefit) .................. (41,955) (22,868) (30,490) (8,931)
-------- -------- -------- --------
Provision for income taxes ..................... $299,828 $354,509 $442,259 $398,561
======== ======== ======== ========
Effective tax rate ............................. 34.65% 36.67% 36.57% 35.41%
===== ===== ===== =====
</TABLE>
F-16
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- INCOME TAXES (CONTINUED)
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.
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>
F-17
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE M -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
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. At September 30, 1999, the interest rates on the
outstanding commitments ranged from 7.75% to 9.00%.
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.
F-18
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
No conversion costs have been incurred as of September 30, 1999.
F-19
<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, A Division of McDonald
Investments, 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 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.
*** Previously filed
<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 February 2, 2000.
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 February 2, 2000
- ---------------------- Officer and Director (Principal
Mitch Ashlock Executive, Accounting and
Financial Officer)
/s/ Donald K. Ashlock Chairman of the Board February 2, 2000
- ---------------------
Donald K. Ashlock
/s/ John M. Bowen Director February 2, 2000
- ---------------------
John M. Bowen
/s/ Carl R. Palmer Director February 2, 2000
- ---------------------
Carl R. Palmer
/s/ Marvin E. Wollen Director February 2, 2000
- ---------------------
Marvin E. Wollen
<PAGE>
As filed with the Securities and Exchange Commission on February 3, 2000
Registration No. 333-92929
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
EXHIBITS
TO
PRE-EFFECTIVE AMENDMENT NO. 1
TO THE
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 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.
*** Previously filed
FIRST FEDERAL OF OLATHE BANCORP, INC.
552,500 TO 747,500 SHARES
(AS MAY BE INCREASED TO 859,625 SHARES)
COMMON STOCK
($.01 PAR VALUE PER SHARE)
PURCHASE PRICE: $10.00 PER SHARE
SALES AGENCY AGREEMENT
Trident Securities, Inc.
4601 Six Forks Road, Suite 400
Raleigh, North Carolina 27609
Dear Sirs:
First Federal of Olathe Bancorp, Inc., a Kansas corporation
("Company"), and First Federal Savings and Loan Association of Olathe, a
federally chartered and insured savings and loan association ("Association," in
mutual or stock form as the context may require), hereby confirm, as of February
__, 2000, their respective agreements with Trident Securities, Inc. together
with its successors and assigns as contemplated in Section 13 hereof
(collectively, "Trident"), a broker-dealer registered with the Securities and
Exchange Commission ("Commission") and a member of the National Association of
Securities Dealers, Inc. ("NASD"), as follows:
1. Introduction. The Association intends to convert from a federally
chartered mutual savings and loan association to a federally chartered capital
stock savings and loan association as a wholly owned subsidiary of the Company
(together with the Offerings, as defined below, the issuance of shares of common
stock of the Association to the Company and the incorporation of the Company,
the "Conversion") pursuant to a plan of conversion adopted by the Association's
Board of Directors on October 13, 1999 [AND AMENDED ON ____________] ("Plan").
In accordance with the Plan, the Company is offering shares of its common stock,
$.01 par value per share ("Common Stock"), pursuant to nontransferable
subscription rights in a subscription offering ("Subscription Offering") to
certain depositors and borrowers of the Association and to the Association's
tax- qualified employee benefit plans (i.e., the Association's Employee Stock
Ownership Plan ("ESOP")). Any shares of the Common Stock not sold in the
Subscription Offering are being offered to the general public in a Community
Offering ("Community Offering"), with preference given to natural persons who
are permanent residents of Johnson County, Kansas ("Local Community") (the
Subscription and Community Offerings are sometimes referred to collectively as
the "Subscription and Community Offering"), subject to the right of the Company
and the Association, in their absolute discretion, to reject orders in the
Community Offering in whole or in part. It is anticipated that shares of Common
Stock not subscribed for in the Subscription and Community Offering (if any)
will be offered to certain members of the general public on a best efforts basis
by a selling
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 2
group of broker dealers to be formed and managed by Trident in a syndicated
offering ("Syndicated Community Offering") (the Subscription and Community
Offering and the Syndicated Community Offering are referred to collectively as
the "Offerings"). In the Subscription Offering (and the Community Offering and
the Syndicated Community Offering, if applicable), the Company is offering
between 552,500 and 747,500 shares of Common Stock ("Shares"), with the
possibility of offering up to 859,625 shares without a resolicitation of
subscribers, as contemplated by Part 563b of Title 12 of the Code of Federal
Regulations. Except for the ESOP, no person may purchase shares with an
aggregate purchase price of more than $100,000 and no person or entity, together
with associates of and persons acting in concert with such person or other
entity, may purchase more than $200,000 of Common Stock.
Trident has advised the Company and the Association that it will
utilize its best efforts to assist the Company with the sale of the Shares in
the Offerings. Prior to the execution of this Agreement, the Company has
delivered to Trident the prospectus dated February __, 1999 (as hereinafter
defined) and all supplements thereto, if any, to be used in the Offerings have
also been delivered to Trident (or if after the date of this Agreement, will be
promptly delivered to Trident). Such prospectus contains information with
respect to the Company, the Association and the Shares.
2. Representations and Warranties.
------------------------------
(a) The Company and the Association jointly and severally
represent and warrant to Trident that:
(i) The Company has filed with the Commission a
registration statement, including exhibits and an amendment or
amendments thereto, on Form SB-2 (No. 333-______), including a
prospectus relating to the Offerings, for the registration of
the Shares under the Securities Act of 1933, as amended
("Act"). Such registration statement has become effective
under the Act and no stop order has been issued with respect
thereto and no proceedings therefor have been initiated or, to
the Company's best knowledge, threatened by the Commission.
Except as the context may otherwise require, such registration
statement, as amended or supplemented, on file with the
Commission at the time the registration statement became
effective, including the prospectus, financial statements,
schedules, exhibits and all other documents filed as part
thereof, as amended and supplemented, is herein called the
"Registration Statement," and the prospectus, as amended or
supplemented, on file with the Commission at the time the
Registration Statement became effective is herein called the
"Prospectus," except that if the prospectus filed by the
Company with the Commission pursuant to Rule 424(b) of the
general rules and regulations of the Commission under the Act
("SEC Regulations") differs from the form of prospectus on
file at the time the Registration Statement became effective,
the term
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 3
"Prospectus" shall refer to the Rule 424(b) prospectus from
and after the time it is filed with the Commission and shall
include any amendments or supplements thereto from and after
their dates of effectiveness or use, respectively. If any
Shares remain unsubscribed following completion of the
Subscription Offering and, if any, the Community Offering, the
Company (i) will, if required by SEC Regulations, promptly
file with the Commission a post-effective amendment to such
Registration Statement relating to the results of the
Subscription Offering and, if any, the Community Offering, any
additional information with respect to the proposed plan of
distribution and any revised pricing information or (ii) if no
such post-effective amendment is required, will file with the
Commission a prospectus or prospectus supplement containing
information relating to the results of the Subscription and
the Community Offerings and pricing information pursuant to
Rule 424(c) of the SEC Regulations, in either case in a form
reasonably acceptable to the Company and Trident.
(ii) The Association has filed an Application for
Approval of Conversion on Form AC, including exhibits (as
amended or supplemented, the "Form AC" and together with the
Form H-(e)1-S referred to below, the "Conversion Application")
with the Office of Thrift Supervision ("Office") under the
Home Owners' Loan Act, as amended ("HOLA") and the enforceable
rules and regulations, including published policies and
actions, of the Office thereunder ("OTS Regulations"), which
has been approved by the Office; the Prospectus and the proxy
statement for the solicitation of proxies from members of the
Association for the special meeting to approve the Plan
("Proxy Statement") included as part of the Form AC have been
approved for use by the Office. No order has been issued by
the Office preventing or suspending the use of the Prospectus
or the Proxy Statement; and no action by or before the Office
revoking such approvals is pending or, to the Association's
best knowledge, threatened. The Company has filed with the
Office the Company's application on Form H-e(1)-S under the
savings and loan holding company provisions of the HOLA and
the OTS Regulations, which has been conditionally approved.
(iii) At the date of the Prospectus and at all times
subsequent thereto through and including the Closing Date (as
hereinafter defined) (i) the Registration Statement and the
Prospectus (as amended or supplemented, if amended or
supplemented) complied and will comply as to form in all
material respects with the Act and the SEC Regulations, (ii)
the Registration Statement (as amended or supplemented, if
amended or supplemented) did not contain an untrue statement
of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading, and (iii) the Prospectus (as amended
or supplemented, if amended or supplemented) did not contain
any untrue statement of a material fact or omit to state any
material fact required to be stated
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 4
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not
misleading. Representations or warranties in this subsection
shall not apply to statements or omissions made in reliance
upon and in conformity with written information about Trident
furnished to the Company or the Association by or on behalf of
Trident expressly for use in the Registration Statement or
Prospectus.
(iv) The Company is duly incorporated as a Kansas
corporation and the Association is duly organized as a mutual
savings and loan association under the laws of the United
States, and each of them is validly existing and in good
standing under the laws of the jurisdiction of its
organization with full power and authority to own its property
and conduct its business as described in the Prospectus; the
Association is a member of the Federal Home Loan Bank of
Topeka; and the deposit accounts of the Association are
insured by the Savings Association Insurance Fund ("SAIF")
administered by the Federal Deposit Insurance Corporation
("FDIC") up to the applicable limits. Neither the Company nor
the Association is required to be qualified to do business as
a foreign corporation in any jurisdiction where non-
qualification would have a material adverse effect on the
Company and the Association, taken as a whole. The Association
does not own equity securities of or an equity interest in any
business enterprise, except as described in the Prospectus.
Upon amendment of the Association's charter and bylaws as
provided in the OTS Regulations and completion of the sale by
the Company of the Shares as contemplated by the Prospectus
and the Plan, (i) the Association will convert to a federally
chartered capital stock savings and loan association with full
power and authority to own its property and conduct its
business as described in the Prospectus, (ii) all of the
authorized and outstanding capital stock of the Association
will be owned of record and beneficially by the Company, and
(iii) the Company will have no direct subsidiaries other than
the Association.
(v) The Association has good and marketable title to
all assets material to its business and to those assets
described in the Prospectus as owned by it, free and clear of
all liens, charges, encumbrances or restrictions, except as
described in the Prospectus and except as would not in the
aggregate have a material adverse effect on the Association;
and all of the leases and subleases material to the operations
or financial condition of the Association, under which it
holds properties, including those described in the Prospectus,
are in full force and effect as described therein.
(vi) The Association has obtained all licenses,
permits and other governmental authorizations currently
required for the conduct of its business, all such licenses,
permits and other governmental authorizations are in full
force and effect and the Association is in all material
respects complying therewith, except
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 5
where the failure to hold or comply with such licenses,
permits or governmental authorizations would not have a
material adverse effect on the Company and the Association,
taken as a whole.
(vii) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary
corporate action on the part of each of the Company and the
Association, and this Agreement has been validly executed and
delivered by, and is a valid and binding obligation of, each
of the Company and the Association, enforceable in accordance
with its terms (except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, reorganization
or similar laws relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of
savings and loan holding companies the accounts of whose
subsidiary are insured by the FDIC or by general equity
principles, regardless of whether such enforceability is
considered in a proceeding in equity or at law, and except to
the extent that the provisions of Sections 8 and 9 hereof may
be unenforceable as against public policy or pursuant to
Section 23A of the Federal Reserve Act, 12 U.S.C. Section 371c
("Section 23A")).
(viii) There is no litigation or governmental
proceeding pending or, to the best knowledge of the Company or
the Association, threatened against or involving the Company,
the Association, or any of their respective assets which
individually or in the aggregate would reasonably be expected
to have a material adverse effect on the condition (financial
or otherwise), results of operations assets or properties of
the Company and the Association, taken as a whole.
(ix) The Company and the Association have received
the opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.,
counsel to the Company and the Association, with respect to
federal income tax consequences of the Conversion, to the
effect that the Conversion will constitute a tax-free
reorganization under the Internal Revenue Code of 1986, as
amended; the Company and the Association have received the
opinion of Taylor, Perky & Parker, L.L.C. with respect to the
Kansas tax consequences of the Conversion, to the effect that
the Conversion will not be a taxable transaction for the
Association or the Company under the laws of Kansas; and the
facts and representations upon which such entities relied upon
in rendering their respective opinion are accurate and
complete.
(x) Each of the Company and the Association has all
such corporate power, authority, authorizations, approvals and
orders as may be required to enter into this Agreement and to
carry out the provisions and conditions hereof, subject to the
limitations set forth herein and subject to the satisfaction
of certain conditions
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 6
imposed by the Office in connection with its approvals of the
Form AC and the Application H-(e)1-S, and except as may be
required under the "blue sky" laws of various jurisdictions,
and in the case of the Company, as of the Closing Date, will
have such approvals and orders to issue and sell the Shares to
be sold by the Company as provided herein, and in the case of
the Association, as of the Closing Date, will have such
approvals and orders to issue and sell the shares of its
common stock to be sold to the Company as provided in the
Plan, subject to the issuance of an amended charter in the
form required for federally chartered capital stock savings
and loan associations ("Stock Charter"), the form of which
Stock Charter has been filed with the Form AC and approved by
the Office.
(xi) Neither the Company nor the Association is in
violation of any rule or regulation of the Office or the FDIC
that could reasonably be expected to result in any enforcement
action against the Company, the Association, or their officers
or directors that would have a material adverse effect on the
condition (financial or otherwise), results of operations,
businesses, assets or properties of the Company and the
Association, taken as a whole.
(xii) The financial statements and the related notes
or schedules which are included in the Registration Statement
and are part of the Prospectus fairly present the financial
condition, income, retained earnings and cash flows of the
Association at the respective dates thereof and for the
respective periods covered thereby and comply as to form in
all material respects with the applicable accounting
requirements of the SEC Regulations and the applicable
accounting regulations of the Office. Such financial
statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout
the periods involved, except as set forth therein, and such
financial statements are in all material respects consistent
with financial statements and other reports filed by the
Association with supervisory and regulatory authorities except
as such generally accepted accounting principles may otherwise
require. The tables in the Prospectus accurately present the
information purported to be shown thereby at the respective
dates thereof and for the respective periods therein.
(xiii) There has been no material change in the
financial condition, results of operations or business,
including assets and properties, of the Company and the
Association, taken as a whole, since the latest date as of
which such condition is set forth in the Prospectus, except as
set forth therein; and the capitalization, assets, properties
and business of each of the Company and the Association
conform to the descriptions thereof contained in the
Prospectus. Neither the Company nor the Association has any
material liabilities of any kind, contingent or otherwise,
except as set forth in the Prospectus.
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 7
(xiv) There has been no breach or default (or the
occurrence of any event which, with notice or lapse of time or
both, would constitute a default) under, or creation or
imposition of any lien, charge or other encumbrance upon any
of the properties or assets of the Company or the Association
pursuant to any of the terms, provisions or conditions of, any
agreement, contract, indenture, bond, debenture, note,
instrument or obligation to which the Company or the
Association is a party or by which any of them or any of their
respective assets or properties may be bound or is subject, or
violation of any governmental license or permit or any
enforceable published law, administrative regulation or order
or court order, writ, injunction or decree, which breach,
default, encumbrance or violation would have a material
adverse effect on the condition (financial or otherwise),
results of operations, businesses, assets or properties of the
Company and the Association, taken as a whole; all agreements
which are material to the financial condition, results of
operations or business, assets or properties of the Company or
the Association are in full force and effect, and no party to
any such agreement has instituted or, to the best knowledge of
the Company or the Association, threatened any action or
proceeding wherein the Company or the Association would be
alleged to be in default thereunder.
(xv) Neither the Company nor the Association is in
violation of its respective articles of incorporation, charter
or bylaws. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby by
the Company and the Association do not conflict with or result
in a breach of the respective articles of incorporation,
charter or bylaws of the Company or the Association (in either
mutual or stock form) or constitute a material breach of or
default (or an event which, with notice or lapse of time or
both, would constitute a default) under, give rise to any
right of termination, cancellation or acceleration contained
in, or result in the creation or imposition of any lien,
charge or other encumbrance upon any of the properties or
assets of the Company or the Association pursuant to any of
the terms, provisions or conditions of, any material
agreement, contract, indenture, bond, debenture, note,
instrument or obligation to which the Company or the
Association is a party or violate any governmental license or
permit or any enforceable published law, administrative
regulation or order or court order, writ, injunction or decree
(subject to the satisfaction of certain conditions imposed by
the Office in connection with its approval of the Conversion
Application), which breach, default, encumbrance or violation
would have a material adverse effect on the Company and the
Association, taken as a whole.
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 8
(xvi) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus and prior to the Closing Date, except as otherwise
may be indicated or contemplated therein, neither the Company
nor the Association has issued any securities which will
remain issued and outstanding at the Closing Date or incurred
any liability or obligation, direct or contingent, or borrowed
money, except liabilities, obligations or borrowings in the
ordinary course of business, or entered into any other
transaction not in the ordinary course of business and
consistent with prior practices, which is material in light of
the business of the Company and the Association, taken as a
whole.
(xvii) Upon consummation of the Conversion, the
authorized, issued and outstanding equity capital of the
Company shall be within the range set forth in the Prospectus
under the caption "Capitalization," and no capital stock of
the Company shall be outstanding immediately prior to the
Closing Date; the issuance and the sale of the Shares have
been duly authorized by all necessary corporate action of the
Company and the Association and approved by the Office and,
when issued and paid for in accordance with the terms of the
Plan, shall be validly issued, fully paid and nonassessable
and shall conform to the description thereof contained in the
Prospectus; the issuance of the Shares is not subject to
preemptive rights, except as set forth in the Prospectus; and
good title to the Shares will be transferred by the Company to
the purchasers thereof upon issuance thereof against payment
therefor, free and clear of all claims, encumbrances, security
interests and liens against the Company whatsoever. The
certificates representing the Shares will conform in all
material respects with the requirements of applicable laws and
regulations. The issuance and sale of the capital stock of the
Association to the Company has been duly authorized by all
necessary corporate action of the Association and the Company
and has been approved by the Office (subject to the
satisfaction of various conditions imposed by the Office in
connection with its approval of the Conversion Application),
and such capital stock, when issued in accordance with the
terms of the Plan, will be fully paid and nonassessable and
will conform to the description thereof contained in the
Prospectus.
(xviii) No approval of any regulatory or supervisory
or other public authority is required of the Company or the
Association in connection with the execution and delivery of
this Agreement or the issuance of the Shares, except for the
declaration of effectiveness of any required post-effective
amendment by the Commission and approval thereof by the Office
and approval of the Company's Application H-(e)1-S, the
issuance of the Stock Charter by the Office and as may be
required under the "blue sky" laws of various jurisdictions.
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 9
(xix) All contracts and other documents required to
be filed as exhibits to the Registration Statement or the
Conversion Application have been filed with the Commission or
the Office, as the case may be.
(xx) Taylor, Perky & Parker, L.L.C., which has
audited the financial statements of the Association at
December 31, 1998 and 1997 and for the years ended December
31, 1998 and 1997 included in the Prospectus, is an
independent public accountant with respect to the Company and
the Association within the meaning of the Code of Professional
Ethics of the American Institute of Certified Public
Accountants and Title 12 of the Code of Federal Regulations,
Section 571.2(c)(3).
(xxi) For the past five years, or in the case of the
Company, such lesser period corresponding to the Company's
existence, the Company and the Association have timely filed
all required federal, state and local tax returns, and no
deficiency has been asserted with respect to such returns by
any taxing authorities, and the Company and the Association
have paid all taxes that have become due and, to the best of
their knowledge, have made adequate reserves for known future
tax liabilities, except where any failure to make such
filings, payments and reserves, or the assertion of such a
deficiency, would not have a material adverse effect on the
Company and the Association, taken as a whole.
(xxii) All of the loans represented as assets of the
Association on the most recent statement of financial
condition of the Association included in the Prospectus meet
or are exempt from all requirements of federal, state or local
law pertaining to lending, including without limitation truth
in lending (including the requirements of Regulation Z and 12
C.F.R. Part 226 and Section 563.99), real estate settlement
procedures, consumer credit protection, equal credit
opportunity and all disclosure laws applicable to such loans,
except for violations which, if asserted, would not have a
material adverse effect on the Company and the Association,
taken as a whole.
(xxiii) To the best knowledge of the Company and the
Association, the records of account holders, depositors and
other members of the Association delivered to Trident by the
Association or its agent for use during the Conversion are
reliable and accurate.
(xxiv) Neither the Company nor the Association nor,
to the best knowledge of the Company and the Association, the
employees of the Company or the Association, has made any
payment of funds of the Company or the Association prohibited
by law, and no funds of the Company or the Association have
been set aside to be used for any payment prohibited by law.
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 10
(xxv) To the best knowledge of the Company and the
Association, the Company and the Association are in compliance
with all laws, rules and regulations relating to the
discharge, storage, handling and disposal of hazardous or
toxic substances, pollutants or contaminants and neither the
Company nor the Association believes that the Company and
Association is subject to liability under the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, as amended, or any similar law, except for violations
which, if asserted, would not have a material adverse effect
on the Company and the Association, taken as a whole. There
are no actions, suits, regulatory investigations or other
proceedings pending or, to the best knowledge of the Company
or the Association, threatened against the Company or the
Association relating to the discharge, storage, handling and
disposal of hazardous or toxic substances, pollutants or
contaminants. To the best knowledge of the Company and the
Association, no disposal, release or discharge of hazardous or
toxic substances, pollutants or contaminants, including
petroleum and gas products, as any of such terms may be
defined under federal, state or local law, has been caused by
the Company or the Association or, to the best knowledge of
the Company or the Association, has occurred on, in or at any
of the facilities or properties of the Company or the
Association, except such disposal, release or discharge which
would not have a material adverse effect on the Company and
the Association, taken as a whole.
(b) Trident represents and warrants to the Company and the
Association that:
(i) Trident is registered as a broker-dealer with the
Commission and a member of the NASD, and is in good standing
with the Commission and the NASD.
(ii) Trident is validly existing as a corporation in
good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to
provide the services to be furnished to the Company and the
Association hereunder.
(iii) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary action
on the part of Trident, and this Agreement is a legal, valid
and binding obligation of Trident, enforceable in accordance
with its terms (except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, reorganization
or similar laws relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of
registered broker-dealers accounts of whom may be protected by
the Securities Investor Protection Corporation or by general
equity principles, regardless of whether such enforceability
is considered in a proceeding in equity or at law, and except
to the extent that the provisions of Sections 8 and 9 hereof
may be unenforceable as against public policy).
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 11
(iv) Each of Trident, and to Trident's best
knowledge, its employees, agents and representatives who shall
perform any of the services required hereunder to be performed
by Trident shall be duly authorized and shall have all
licenses, approvals and permits necessary to perform such
services, and Trident is a registered selling agent in the
jurisdictions listed in Exhibit A hereto and will remain
registered in such jurisdictions in which the Company is
relying on such registration for the sale of the Shares, until
the Conversion is consummated or terminated.
(v) The execution and delivery of this Agreement by
Trident, the fulfillment of the terms set forth herein and the
consummation of the transactions contemplated hereby shall not
violate or conflict with the corporate charter or bylaws of
Trident or violate, conflict with or constitute a breach of,
or default (or an event which, with notice or lapse of time,
or both, would constitute a default) under, any material
agreement, indenture or other instrument by which Trident is
bound or under any governmental license or permit or any law,
administrative regulation, authorization, approval or order or
court decree, injunction or order, except for such violations,
conflicts, breaches or defaults that would not have a material
adverse effect on Trident.
(vi) All funds received by Trident to purchase the
Common Stock will be handled in accordance with Rule 15c2-4
under the Securities Exchange Act of 1934, as amended
("Exchange Act").
(vii) There is not now pending or, to Trident's best
knowledge, threatened against Trident any action or proceeding
before the Commission, the NASD, any state securities
commission or any state or federal court concerning Trident's
activities as a broker-dealer.
3. Employment of Trident; Sale and Delivery of the Shares. On the basis
of the representations and warranties herein contained, but subject to the terms
and conditions herein set forth, the Company and the Association hereby employ
Trident as their agent to utilize its best efforts in assisting the Company with
the sale of the Shares by the Company in the Offerings. The employment of
Trident hereunder shall terminate (a) forty-five (45) days after the Offerings
close, unless the Company and the Association, with the approval of the Office,
are permitted to extend such period of time, or (b) upon consummation of the
Conversion, whichever date shall first occur.
If the Company is unable to sell a minimum of 552,500 Shares of Common
Stock (or such lesser amount as the Office may permit) within the period herein
provided, this Agreement shall terminate, and the Company and the Association
shall refund promptly to any person who has subscribed for any of the Shares,
the full amount which it may have received from them, together with interest as
provided in the Prospectus, and no party to this Agreement shall have any
obligation
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 12
to the other party hereunder, except as set forth in Sections 6, 8(a) and 9
hereof. Appropriate arrangements for placing the funds received from
subscriptions for Shares in a special interest- bearing account with the
Association until all Shares are sold and paid for were made prior to the
commencement of the Subscription and Community Offering, with provision for
prompt refund to the purchasers as set forth above, or for delivery to the
Company if all Shares are sold.
If all conditions precedent to the consummation of the Conversion are
satisfied, including the sale of all Shares required by the Plan to be sold, the
Company agrees to issue or have issued such Shares and to release for delivery
certificates to subscribers thereof for such Shares on the Closing Date against
payment to the Company by any means authorized pursuant to the Prospectus, at
the principal office of the Company or at such other place as shall be agreed
upon between the parties hereto. The date upon which Trident is paid the
compensation due hereunder is herein called the "Closing Date."
Trident agrees either (a) upon receipt of an executed order form of a
subscriber to forward the aggregate offering price of the Common Stock ordered
on or before twelve noon on the next business day following receipt or execution
of an order form by Trident to the Association for deposit in a segregated
account or (b) to solicit indications of interest in which event (i) Trident
will subsequently contact any potential subscriber indicating interest to
confirm the interest and give instructions to execute and return an order form
or to receive authorization to execute the order form on the subscriber's
behalf, (ii) Trident will mail acknowledgments of receipt of orders to each
subscriber confirming interest on the business day following such confirmation,
(iii) Trident will debit accounts of such subscribers on the third business day
("debit date") following receipt of the confirmation referred to in (i), and
(iv) Trident will forward completed order forms together with such funds to the
Association on or before twelve noon on the next business day following the
debit date for deposit in a segregated account. Trident acknowledges that if the
procedure in (b) is adopted, subscribers' funds are not required to be in their
accounts until the debit date.
In addition to the expenses specified in Section 6 hereof, Trident
shall receive the following compensation for its services hereunder and
reimbursement of expenses:
(a) (i) a management fee of ninety-seven thousand five
hundred dollars ($97,500); and (ii) if applicable,
for any stock sold in the Syndicated Community
Offering by other NASD member firms under selected
dealer's agreements, the commission shall not exceed
a fee to be agreed upon jointly by Trident and the
Association to reflect market requirements at the
time of a stock allocation in the Syndicated
Community Offering. All such fees are to be payable
in same-day funds to Trident on the Closing Date.
(b) Trident shall be reimbursed for reasonable allocable
expenses, including but not limited to travel,
communications, legal fees and expenses and postage,
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 13
incurred by it whether or not the Offerings are
successfully completed; provided, however, that
neither the Company nor the Association shall pay or
reimburse Trident for any of the foregoing expenses
accrued after Trident shall have notified the Company
or the Association of its election to terminate this
Agreement pursuant to Section 11 hereof or after such
time as the Company or the Association shall have
given notice in accordance with Section 12 hereof
that Trident is in breach of this Agreement.
Trident's reimbursable out of pocket expenses will
not exceed $37,500, including legal fees. Full
payment to defray Trident's reimbursable expenses
shall be made in next-day funds on the Closing Date
or, if the Conversion is not completed and is
terminated for any reason, within ten (10) business
days of receipt by the Company of a written request
from Trident for reimbursement of its expenses.
Trident acknowledges receipt of $5,000 advance
payment from the Association which shall be credited
against the total reimbursement due Trident
hereunder.
(c) Notwithstanding the limitations on reimbursement of
Trident for allocable expenses provided in the
immediately preceding paragraph (b), in the event
that a resolicitation or other event causes the
Offerings to be extended beyond their original
expiration date, Trident shall be reimbursed for its
allocable expenses incurred during such extended
period, provided that the allowance for allocable
expenses provided for in the immediately preceding
paragraph (b) above have been exhausted and subject
to the following: such reimbursement shall be in
amount equal to the product obtained by dividing
$5,000 (original reimbursable out-of-pocket expenses,
excluding legal fees) by the total number of days of
the unextended Subscription Offering (calculated from
the date of the Prospectus to the intended close of
the Subscription Offering as stated in the
Prospectus) and multiplying such product by the
number of days of the extension (that number of days
from the date of the supplemental prospectus used in
the extended Subscription Offering to the closing of
the extension of the Subscription Offering described
in such supplemental prospectus).
The Company shall pay any stock issue and transfer taxes which may be
payable with respect to the sale of the Shares. The Company and the Association
shall also pay all expenses of the Conversion incurred by them or on their prior
approval including but not limited to their attorneys' fees, NASD filing fees,
and attorneys' fees relating to any required state securities laws research and
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 Conversion.
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 14
4. Offering. Subject to the provisions of Section 7 hereof, Trident is
assisting the Company on a best efforts basis in offering a minimum of 552,500
and a maximum of 747,500 Shares, with the possibility of offering up to 859,625
Shares (except as the Office may permit to be decreased or increased) in the
Subscription and Community Offerings, and if necessary, the Syndicated Community
Offering. The Shares are to be offered to the public at the price set forth on
the cover page of the Prospectus and the first page of this Agreement.
5. Further Agreements. The Company and the Association (including the
Subsidiary in each instance where the Association is referenced, unless clearly
inapplicable) jointly and severally covenant and agree that:
(a) The Company shall deliver to Trident, from time to time,
such number of copies of the Prospectus as Trident reasonably may
request. The Company authorizes Trident to use the Prospectus in any
lawful manner in connection with the offer and sale of the Shares.
(b) The Company will notify Trident or its counsel immediately
upon discovery, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement becomes
effective or any supplement to the Prospectus has been filed, (ii) of
the issuance by the Commission of any stop order relating to the
Registration Statement or of the initiation or the threat of any
proceedings for that purpose, (iii) of the receipt of any notice with
respect to the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, and (iv) of the receipt of any
comments from the staff of the Commission relating to the Registration
Statement. If the Commission enters a stop order relating to the
Registration Statement at any time, the Company will make every
reasonable effort to obtain the lifting of such order at the earliest
possible time.
(c) During the time when the Prospectus is required to be
delivered under the Act, the Company will comply with all requirements
imposed upon it by the Act, as now in effect and hereafter amended, and
by the SEC Regulations and the OTS Regulations, as from time to time in
force, so far as necessary to permit the continuance of offers and
sales of or dealings in the Shares in accordance with the provisions
hereof and the Prospectus. If, during the period when the Prospectus is
required to be delivered in connection with the offer and sale of the
Shares, any event relating to or affecting the Company or the
Association shall occur as a result of which it is necessary, in the
opinion of counsel for Trident, with concurrence of counsel of the
Company, to amend or supplement the Prospectus in order to make the
Prospectus not false or misleading as to a material fact in light of
the circumstances existing at the time it is delivered to a purchaser
of the Shares, the Company shall prepare and furnish to Trident
promptly a reasonable number of copies of an amendment or amendments or
of a supplement or supplements to the Prospectus (in form and substance
satisfactory to counsel for Trident) which shall amend or supplement
the Prospectus so that,
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 15
as amended or supplemented, the Prospectus shall not contain an untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances
existing at the time the Prospectus is delivered to a purchaser of the
Shares, not misleading. The Company will not file or use any amendment
or supplement to the Registration Statement or the Prospectus of which
Trident has not first been furnished a copy or to which Trident shall
reasonably object after having been furnished such copy. For the
purposes of this subsection the Company and the Association shall
furnish such information with respect to themselves as Trident from
time to time may reasonably request.
(d) The Company has taken or will take all necessary action as
may be required to qualify or register the Shares for offer and sale by
the Company under the securities or blue sky laws of such jurisdictions
as Trident and either the Company or its counsel may agree upon;
provided, however, that the Company shall not be obligated to qualify
as a foreign corporation to do business under the laws of any such
jurisdiction. In each jurisdiction where such qualification or
registration shall be effected, the Company, unless Trident agrees that
such action is not necessary or advisable in connection with the
distribution of the Shares, shall file and make such statements or
reports as are, or reasonably may be, required by the laws of such
jurisdiction.
(e) Appropriate entries will be made in the financial records
of the Association sufficient to establish a liquidation account for
the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders in accordance with the requirements of the Office.
(f) The Company will file a registration statement for the
Common Stock under Section 12(g) of the Exchange Act prior to
completion of the Conversion pursuant to the Plan and shall request
that such registration statement be effective upon completion of the
Conversion. The Company shall maintain the effectiveness of such
registration for a minimum period of three years or for such shorter
period as may be required by applicable law.
(g) The Company will make generally available to its security
holders as soon as practicable, but not later than 90 days after the
close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 of the SEC Regulations)
covering a twelve-month period beginning not later than the first day
of the Company's fiscal quarter next following the effective date (as
defined in said Rule 158) of the Registration Statement.
(h) For a period of three (3) years from the date of this
Agreement (unless the Common Stock shall have been deregistered under
the Exchange Act), the Company will furnish to Trident, as soon as
publicly available after the end of each fiscal year, a copy of
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 16
its annual report to shareholders for such year; and the Company will
furnish to Trident (i) as soon as publicly available, a copy of each
report or definitive proxy statement of the Company filed with the
Commission under the Exchange Act or mailed to shareholders, and (ii)
from time to time, such other public information concerning the Company
as Trident may reasonably request.
(i) The Company shall use the net proceeds from the sale of
the Shares consistently with the manner set forth in the Prospectus.
(j) The Company shall not deliver the Shares until each and
every condition set forth in Section 7 hereof has been satisfied,
unless such condition is waived in writing by Trident.
(k) The Company shall advise Trident, if necessary, as to the
allocation of deposits, in the case of Eligible Account Holders and
Supplemental Eligible Account Holders, and votes, in the case of Other
Members (as defined in the Plan), and of the Shares in the event of an
oversubscription and shall provide Trident final instructions as to the
allocation of the Shares ("Allocation Instructions") and such
information shall be accurate and reliable. Trident shall be entitled
to rely on such instructions and shall have no liability in respect of
its reliance thereon, including without limitation, no liability for or
related to any denial or grant of a subscription in whole or in part,
except for such liability contemplated under Section 8(b) of this
Agreement.
(l) The Company and the Association will take such actions and
furnish such information as are reasonably requested by Trident in
order for Trident to ensure compliance with the NASD's "Interpretation
Relating to Free-Riding and Withholding."
(m) At the Closing Date, the Company and the Association will
have completed the conditions precedent to, and shall have conducted
the Conversion in all material respects in accordance with, the Plan,
the OTS Regulations and all other applicable laws, regulations,
published decisions and orders, including all terms, conditions,
requirements and provisions precedent to the Conversion imposed by the
Office, or appropriate waivers shall have been obtained.
6. Payment of Expenses. Whether or not the Conversion is consummated,
the Company and the Association shall pay or reimburse Trident for (a) all
filing fees paid or incurred by Trident in connection with all filings with the
NASD with respect to the Subscription and Community Offerings and, (b) in
addition, if the Company is unable to sell a minimum of 552,500 Shares of Common
Stock or such lesser amount as the Office may permit or the Conversion is
otherwise terminated, the Company and the Association shall reimburse Trident
for allocable expenses incurred by Trident relating to the offering of the
Shares as provided in Section 3 hereof; provided, however,
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 17
that neither the Company nor the Association shall pay or reimburse Trident for
any of the foregoing expenses accrued after Trident shall have notified the
Company or the Association of its election to terminate this Agreement pursuant
to Section 11 hereof or after such time as the Company or the Association shall
have given notice in accordance with Section 12 hereof that Trident is in breach
of this Agreement.
7. Conditions of Trident's Obligations. Except as may be waived by
Trident, the obligations of Trident as provided herein shall be subject to the
accuracy of the representations and warranties contained in Section 2 hereof as
of the date hereof and as of the Closing Date, to the performance by the Company
and the Association of their obligations hereunder and to the following
conditions:
(a) At the Closing Date, Trident shall receive the favorable
opinion of Luse Lehman Gorman Pomerenk & Schick, P.C., counsel for the
Company and the Association, dated the Closing Date, addressed to
Trident, in form and substance satisfactory to Trident and to the
effect that:
(i) The Company is a corporation in existence under
the laws of the State of Kansas, and the Association is a
mutual savings and loan association in existence under the
laws of the Untied States, each having the corporate power to
execute, deliver and perform its respective obligations under
this Agreement and to carry on its business as now conducted
and as described in the Prospectus;
(ii) The Association is a member of the Federal Home
Loan Bank of Topeka, and the deposit accounts of the
Association are insured by the SAIF up to the applicable legal
limits;
(iii) The activities of the Association as described
in the Prospectus are permitted under federal and Kansas law;
(iv) The Plan complies with, and, to the best
knowledge of such counsel, the Conversion has been effected in
all material respects in accordance with, the HOLA and the OTS
Regulations; to the best knowledge of such counsel, all of the
terms, conditions, requirements and provisions with respect to
the Plan and the Conversion imposed by the Office, except with
respect to the filing or submission of certain required
post-Conversion reports by the Company or the Association,
have been complied with by the Company and the Association in
all material respects; and, to the best knowledge of such
counsel, no person has sought to obtain regulatory or judicial
review of the final action of the Office in approving the
Plan;
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 18
(v) The Company has authorized capital stock as set
forth in the Registration Statement and the Prospectus;
(vi) The Company has authorized the issuance and sale
of the Shares by all necessary corporate action; the Shares,
upon receipt of payment and issuance in accordance with the
terms of the Plan, will be validly issued, fully paid,
nonassessable and, except as disclosed in the Prospectus, free
of preemptive rights; and purchasers of the Shares from the
Company, upon issuance thereof against payment therefor, will
acquire such Shares free and clear of all claims,
encumbrances, security interests and liens created by the
Company;
(vii) The form of certificate used to evidence the
Shares is in proper form and complies in all material respects
with the applicable requirements of Kansas law and the
regulations of the Office;
(viii) The Association has authorized the sale of its
capital stock to the Company by all necessary corporate
action, which sale has been approved by the Office, and such
capital stock, upon receipt of payment and issuance in
accordance with the terms of the Plan and the Prospectus, will
be validly issued, fully paid and nonassessable and owned of
record and beneficially by the Company;
(ix) Subject to the satisfaction of the conditions to
the Office's approval of the Conversion Application and the
issuance by the Office of the Association's Stock Charter, no
consent, approval, authorization or other action by, or filing
or registration with, any governmental agency is required to
be obtained or made by the Company or the Association for the
execution and delivery of this Agreement, the issuance of the
Shares and the consummation of the Conversion;
(x) The Company and the Association have authorized
the execution, delivery and performance of this Agreement by
all necessary corporate action;
(xi) The Plan has been duly adopted by the requisite
vote of the Board of Directors of the Association and by the
requisite vote of the Board of Directors of the Company; and
the Plan has been approved by the requisite vote of the
eligible voting members of the Association at a duly called
meeting;
(xii) The statements in the Prospectus under the
captions "Dividend Policy," "Regulation," "Taxation,"
"Description of Capital Stock," and "Restrictions on
Acquisitions of Stock and Related Takeover Defensive
Provisions" insofar as they are, or refer to, statements of
law or legal conclusions (excluding financial data included
therein or omitted therefrom, as to which an opinion need not
be expressed),
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 19
have been prepared or reviewed by such counsel and are
accurate in all material respects;
(xiii) The Conversion Application, the Registration
Statement, the Prospectus and the Proxy Statement, in each
case as amended or supplemented, comply as to form in all
material respects with the requirements of the Act, the SEC
Regulations, the HOLA and the OTS Regulations, as the case may
be (except as to information with respect to Trident included
therein and financial statements, notes to financial
statements, financial tables and other financial and
statistical data, including the appraisal, included therein or
omitted therefrom, as to which no opinion need be expressed);
to the best of such counsel's knowledge, all documents and
exhibits required to be filed with the Conversion Application
and the Registration Statement have been so filed and the
descriptions in the Conversion Application and the
Registration Statement of such documents and exhibits are
accurate in all material respects;
(xiv) The Form AC has been approved by the Office,
and the Prospectus and the Proxy Statement have been
authorized for use by the Office; the Registration Statement
and any post-effective amendment thereto has been declared
effective by the Commission; no proceedings are pending by or
before the Commission or the Office seeking to revoke or
rescind the orders declaring the Registration Statement
effective or approving the Conversion Application or, to the
best of such counsel's knowledge, are contemplated or
threatened (provided that for this purpose such counsel need
not regard any litigation or governmental procedure to be
"threatened" unless the potential litigant or government
authority has manifested to the management of the Company or
the Association, or to such counsel, a present intention to
initiate such litigation or proceeding);
(xv) The execution and delivery of this Agreement,
and the consummation of the Conversion by the Company and the
Association, do not violate any provision of the Articles of
Incorporation, Charter or Bylaws of the Company or the
Association, do not violate or constitute a breach of or
default under any contract, agreement or instrument described
in the Prospectus, and, to the best knowledge of such counsel,
do not violate any applicable law, regulation or any judgment
or order of any government, governmental instrumentality or
court that is binding on the Company or the Association or any
of its assets, properties or operations;
(xvi) To the best knowledge of such counsel, the
Company and the Association have obtained all licenses,
permits and other governmental authorizations currently
required for the conduct of its respective business as such
business is described in the Prospectus, all such licenses,
permits and other
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 20
governmental authorizations are in full force and effect and
the Company and the Association are in all material respects
complying therewith, except where the failure to hold such
licenses, permits or governmental authorizations or the
failure to so comply would not have a material adverse effect
on the Company and the Association, taken as a whole;
(xvii) To the best of such counsel's knowledge, there
is no action, suit proceedings, inquiry or investigation
before or by any court or governmental agency or body, now
pending or threatened, against either the Company, the
Association or the Subsidiary;
(xviii) This agreement has been duly executed and
delivered by the Company and the Association and is
enforceable against the Association and the Company;
(xix) To the best of such counsel's knowledge, the
execution and delivery of this Agreement and the consummation
of the Conversion by the Company and the Association do not
constitute a breach of or default (or an event which, with
notice or lapse of time or both, would constitute a default)
under, give rise to any right of termination, cancellation or
acceleration contained in, or result in the creation or
imposition of any lien, charge or other encumbrance upon any
of the properties or assets of the Company or the Association
pursuant to any of the terms, provisions or conditions of, any
agreement, contract, indenture, bond, debenture, note,
instrument or obligation to which the Company or the
Association is a party or violate any governmental license or
permit or any enforceable published law, administrative
regulation or order or court order, writ, injunction or decree
(except as may be required under the Kansas "blue sky" laws as
to which no opinion need be expressed), which breach, default,
encumbrance or violation would have a material adverse effect
on the Company and the Association, taken as a whole; and
(xx) To the best knowledge of such counsel, there has
been no material breach of any provision of the Company's or
the Association's respective articles of incorporation,
charter or bylaws or breach or default (or the occurrence of
any event which, with notice or lapse of time or both, would
constitute a default) under any agreement, contract,
indenture, debenture, bond, note, instrument or obligation to
which the Company or the Association is a party or by which
any of them or any of their respective assets or properties
may be bound, or any governmental license or permit, or a
violation of any enforceable published law, administrative
regulation or order, or court order, writ, injunction or
decree which breach, default, encumbrance or violation would
have a material adverse effect on the Company and the
Association, taken as a whole.
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 21
In rendering such opinion, such counsel may rely as to matters of fact
on certificates of officers and directors of the Company and the Association and
certificates of public officials delivered pursuant to this Agreement. Such
counsel may assume that any agreement is the valid and binding obligation of any
parties to such agreement other than the Company and the Association. Such
opinion may be governed by, and interpreted in accordance with, the Legal
Opinion Accord ("Accord") of the ABA Section of Business Law (1991), and, as a
consequence, such opinion may be rendered subject to the qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord. Further, references in such opinion
to such counsel's "knowledge" may be limited to "actual knowledge" as defined in
the Accord (or knowledge based on certificates). In addition, the "General
Qualifications" set forth in the Accord and other customary assumptions and
limitations may apply to such opinion. Such opinion may be limited to present
statutes, regulations and judicial interpretations and to facts as they
presently exist; in rendering such opinion, such counsel need assume no
obligation to revise or supplement them should the present laws be changed by
legislative or regulatory action, judicial decision or otherwise; and such
counsels need express no view, opinion or belief with respect to whether any
proposed or pending legislation, if enacted, or any regulations or any policy
statements issued by any regulatory agency, whether or not promulgated pursuant
to any such legislation, would affect the validity of the execution and delivery
by the Company and the Association of this Agreement or the issuance of the
Shares.
(b) At the Closing Date, Trident shall receive the letter of
Luse Lehman Gorman Pomerenk & Schick, P.C., special counsel for the
Company and the Association, dated the Closing Date, addressed to
Trident, in form and substance satisfactory to Trident and to the
effect that: based on such counsel's participation in conferences with
representatives of the Company, the Association, the independent
appraiser, the independent certified public accountants, Trident and
its counsel, review of documents and understanding of applicable law
(including the requirements of Form SB-2 and the character of the
Registration Statement contemplated thereby) and the experience such
counsel has gained in its practice under the Act, nothing has come to
such counsel's attention that would lead it to believe that the
Registration Statement, as amended (except as to information in respect
of Trident contained therein and except as to the appraisal, financial
statements, notes to financial statements, financial tables and other
financial and statistical data contained therein or omitted therefrom,
as to which such counsel need express no comment), at the time it
became effective contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements made therein not misleading, or that
the Prospectus, as amended or supplemented (except as to information in
respect of Trident contained therein and except as to the appraisal,
financial statements, notes to financial statements, financial tables
and other financial and statistical data contained therein or omitted
therefrom as to which such counsel need express no comment), at the
time the Prospectus was filed with the Commission under Rule 424(b),
and at the Closing Date, contained any untrue statement of a material
fact or omitted to state a material
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 22
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (in making
this statement such counsel may state that it has not undertaken to
verify independently the information in the Registration Statement or
Prospectus and, therefore, does not assume any responsibility for the
accuracy or completeness thereof).
(c) Counsel for Trident shall have been furnished such
documents as they reasonably may require for the purpose of enabling
them to review or pass upon the matters required by Trident, and for
the purpose of evidencing the accuracy, completeness or satisfaction of
any of the representations, warranties or conditions contained in this
Agreement, including but not limited to, resolutions of the Board of
Directors of the Company and the Association regarding the
authorization, execution and delivery of this Agreement and the
transactions contemplated by the Plan and this Agreement.
(d) Prior to and at the Closing Date, in the reasonable
opinion of Trident, (i) there shall have been no material change in the
condition (financial or otherwise), business or results of operations
of the Company and the Association, taken as a whole, since the latest
date as of which information is set forth in the Prospectus, except as
referred to therein; (ii) there shall have been no transaction entered
into by the Company or the Association after the latest date as of
which the financial condition of the Company or the Association is set
forth in the Prospectus other than transactions referred to or
contemplated therein, transactions in the ordinary course of business,
and transactions which are not material to the Company and the
Association, taken as a whole; (iii) neither the Company nor the
Association shall have received from the Office or the Commission any
direction (oral or written) to make any change in the method of
conducting their respective businesses which is material to the
business of the Company and the Association, taken as a whole, with
which they have not complied; (iv) no action, suit or proceeding, at
law or in equity or before or by any federal or state commission, board
or other administrative agency, shall be pending or threatened against
the Company or the Association or affecting any of their respective
assets, wherein an unfavorable decision, ruling or finding would have a
material adverse effect on the Company and the Association, taken as a
whole; and (v) the Shares shall have been qualified or registered for
offering and sale by the Company under the "blue sky" laws of such
jurisdictions as Trident and the Company shall have agreed upon.
(e) At the Closing Date, Trident shall receive a certificate
of the principal executive officer and the principal financial officer
of each of the Company and the Association, dated the Closing Date, to
the effect that: (i) they have examined the Prospectus and, at the time
the Registration Statement was declared effective by the Commission and
at the time the Prospectus was authorized by the Office for use, the
Prospectus did not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 23
made, not misleading with respect to the Company or the Association;
(ii) since the date the Registration Statement was declared effective
by the Commission and since the date the Prospectus became authorized
by the Office for use, no event has occurred which should have been set
forth in an amendment or supplement to the Prospectus which has not
been so set forth, including specifically, but without limitation, any
material change in the business, condition (financial or otherwise) or
results of operations of the Company or the Association, and the
conditions set forth in clauses (ii) through (v) inclusive of
subsection (d) of this Section 7 have been satisfied; (iii) no order
has been issued by the Commission or the Office to suspend the Offering
or the effectiveness of the Prospectus, and no action for such purposes
has been instituted or, to the best knowledge of such officers,
threatened by the Commission or the Office; (iv) to the best knowledge
of such officers, no person has sought to obtain review of the final
actions of the Office and division approving the Plan; and (v) all of
the representations and warranties contained in Section 2 of this
Agreement are true and correct, with the same force and effect as
though expressly made on the Closing Date.
(f) At the Closing Date, Trident shall receive, among other
documents, (i) copies of the letters from the Office authorizing the
use of the Prospectus and the Proxy Statement and the approval of the
Conversion Application (ii) a copy of the order of the Commission
declaring the Registration Statement effective; (iii) a copy of the
letter from the Office evidencing the corporate existence of the
Association; (iv) a copy of the letter from the appropriate Kansas
authority evidencing the incorporation (and, if generally available
from such authority, good standing) of the Company; (v) a copy of the
Company's articles of incorporation certified by the appropriate Kansas
governmental authority; (vi) a copy of the letter from the Office
approving the Association's Stock Charter; (vii) copy of the
certificate from the FDIC certifying to the insured status by the
Association; and (viii) copy of the letter to FHLB of Topeka evidencing
the Association's membership therein.
(g) As soon as available after the Closing Date, Trident shall
receive a certified copy of the Association's Stock Charter as executed
by the Office.
(h) Concurrently with the execution of this Agreement, Trident
acknowledges receipt of a letter from Taylor, Perky & Parker, L.L.C.,
independent certified public accountants, addressed to Trident, the
Company and the Association, in substance and form satisfactory to
Trident, with respect to the financial statements of the Association
and other financial information contained in the Prospectus.
(i) At the Closing Date, Trident shall receive a letter in
form and substance satisfactory to Trident from Taylor, Perky & Parker,
L.L.C., independent certified public accountants, dated the Closing
Date and addressed to Trident, the Company and the Association,
confirming the statements made by them in the letter delivered by them
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 24
pursuant to the preceding subsection as of a specified date not more
than five (5) business days prior to the Closing Date.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are, in the reasonable
opinion of Trident and its counsel, satisfactory to Trident. Any certificates
signed by an officer or director of the Company or the Association prepared for
Trident's reliance and delivered to Trident or to counsel for Trident shall be
deemed a representation and warranty by the Company and the Association to
Trident as to the statements made therein. If any condition to Trident's
obligations hereunder to be fulfilled prior to or at the Closing Date is not so
fulfilled, Trident may terminate this Agreement or, if Trident so elects, may
waive any such conditions which have not been fulfilled, or may extend the time
of their fulfillment. If Trident terminates this Agreement as aforesaid, the
Company and the Association shall reimburse Trident for its expenses as provided
in Section 3(b) hereof.
8. Indemnification.
(a) The Company and the Association jointly and severally
agree to indemnify and hold harmless Trident, its officers, directors,
employees and agents and each person, if any, who controls Trident
within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against any and all loss, liability, claim, damage and
expense whatsoever and shall further promptly reimburse such persons
for any legal or other expenses reasonably incurred by each or any of
them in investigating, preparing to defend or defending against any
such action, proceeding or claim (whether commenced or threatened)
arising out of or based upon (i) any misrepresentation by the Company
or the Association in this Agreement or any breach of warranty by the
Company or the Association with respect to this Agreement or arising
out of or based upon any untrue or alleged untrue statement of a
material fact or the omission or alleged omission of a material fact
required to be stated or necessary to make not misleading any
statements contained in (A) the Registration Statement or the
Prospectus or (B) any application (including the Form AC and the Form
H-(e)1-S) or other document or communication (in this Section 8
collectively called "Application") prepared or executed by or on behalf
of the Company or the Association or based upon information furnished
by or on behalf of the Company or the Association, whether or not filed
in any jurisdiction, to effect the Conversion or qualify the Shares
under the securities laws thereof or filed with the Office or
Commission, unless such statement or omission was made in reliance upon
and in conformity with information furnished to the Company or the
Association with respect to Trident by or on behalf of Trident
expressly for use in the Prospectus or any amendment or supplement
thereof or in any Application, as the case may be, or (ii) the
participation by Trident in the Conversion; provided, however, that
this indemnification agreement will not apply to any loss, liability,
claim, damage or expense found in a final judgment by a court of
competent jurisdiction to have resulted primarily from the bad faith,
willful misconduct or gross negligence of Trident or any other party
who may otherwise be entitled to
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 25
indemnification pursuant to this Section 8(a). This indemnity shall be
in addition to any liability the Company and the Association may
otherwise have to Trident.
(b) The Company shall indemnify and hold harmless Trident, its
officers, directors, employees and agents and each person, if any, who
controls Trident within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act for any liability whatsoever arising out of
(i) the Allocation Instructions or (ii) any records of account holders,
depositors, borrowers and other members of the Association delivered to
Trident by the Association or its agents for use during the Conversion;
provided, however, that this indemnification agreement will not apply
to any loss, liability, claim, damage or expense found in a final
judgment by a court of competent jurisdiction to have resulted
principally and directly from the bad faith, willful misconduct or
gross negligence of Trident or any other party who may otherwise be
entitled to indemnification pursuant to this Section 8(b). This
indemnity shall be in addition to any liability the Company and the
Association may otherwise have to Trident.
(c) Trident agrees to indemnify and hold harmless the Company
and the Association, their officers, directors and employees and each
person, if any, who controls the Company and the Association within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
to the same extent as the foregoing indemnity from the Company and the
Association to Trident, but only with respect to (i) statements or
omissions, if any, made in the Prospectus or any amendment or
supplement thereof, in any Application or to a purchaser of the Shares
in reliance upon, and in conformity with, written information furnished
to the Company or the Association with respect to Trident by Trident
expressly for use in the Prospectus or in any Application; (ii) any
misrepresentation by Trident in Section 2(b) of this Agreement; or
(iii) any liability of the Company or the Association which is found in
a final judgment by a court of competent jurisdiction (not subject to
further appeal) to have resulted principally and directly from gross
negligence, bad faith or willful misconduct of Trident.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party
of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under this Section 8. In
case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, jointly with the other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 26
will not be liable to such indemnified party under this Section 8 for
any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than the reasonable
cost of investigation except as otherwise provided herein. In the event
the indemnifying party elects to assume the defense of any such action
and retain counsel acceptable to the indemnified party, the indemnified
party may retain additional counsel, but shall bear the fees and
expenses of such counsel unless (i) the indemnifying party shall have
specifically authorized the indemnified party to retain such counsel or
(ii) the parties to such suit include such indemnifying party and the
indemnified party, and such indemnified party shall have been advised
by counsel that one or more material legal defenses may be available to
the indemnified party which may not be available to the indemnifying
party, in which case the indemnifying party shall not be entitled to
assume the defense of such suit notwithstanding the indemnifying
party's obligation to bear the fees and expenses of such counsel. An
indemnifying party against whom indemnity may be sought shall not be
liable to indemnify an indemnified party under this Section 8 if any
settlement of any such action is effected without such indemnifying
party's consent. To the extent required by law, this Section 8 is
subject to and limited by the provisions of Section 23A.
9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 8 above is for any reason held to be unavailable to Trident, the Company
and/or the Association other than in accordance with its terms, the Company or
the Association and Trident shall contribute to the aggregate losses,
liabilities, claims, damages, and expenses of the nature contemplated by said
indemnity agreement incurred by the Company or the Association and Trident (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Association, on the one hand, and Trident, on the other
hand, from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above, but also the relative fault of the Company or the Association, on the one
hand, and Trident, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Association, on the one hand, and
Trident, on the other hand, shall be deemed to be in the same proportion as the
total net proceeds from the Conversion received by the Company and the
Association bear to the total fees and expenses received by Trident under this
Agreement. The relative fault of the Company or the Association, on the one
hand, and Trident, on the other hand, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Association or by Trident and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 27
The Company and the Association and Trident agree that it would not be
just and equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by the indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, Trident shall not be required
to contribute any amount in excess of the amount by which fees owed Trident
pursuant to this Agreement exceeds the amount of any damages which Trident has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. To the extent required by law, this Section 9 is subject to
and limited by the provisions of Section 23A.
10. Survival of Agreements, Representations and Indemnities. The
respective indemnities of the Company and the Association and Trident and the
representations and warranties of the Company and the Association and of Trident
set forth in or made pursuant to this Agreement shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of Trident or the Company or the Association
or any controlling person or indemnified party referred to in Section 8 hereof,
and shall survive any termination or consummation of this Agreement and/or the
issuance of the Shares, and any legal representative of Trident, the Company,
the Association and any such controlling persons shall be entitled to the
benefit of the respective agreements, indemnities, warranties and
representations.
11. Termination. Trident may terminate this Agreement by giving the
notice indicated below in this Section at any time after this Agreement becomes
effective as follows:
(a) If any domestic or international event or act or
occurrence has materially disrupted the United States securities
markets such as to make it, in Trident's reasonable opinion,
impracticable to proceed with the offering of the Shares; or if trading
on the New York Stock Exchange shall have suspended; or if the United
States shall have become involved in a war or major hostilities; or if
a general banking moratorium has been declared by a state or federal
authority which has material effect on the Association or the
Conversion; or if a moratorium in foreign exchange trading by major
international banks or persons has been declared; or if there shall
have been a material change in the capitalization, financial condition
or business of the Company, or if the Association shall have sustained
a material or substantial loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act, whether
or not said loss shall have been insured; or if there shall have been a
material change in the condition, financial or otherwise, or prospects
of the Company or the Association.
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 28
(b) If Trident elects to terminate this Agreement as provided
in this Section, the Company and the Association shall be notified
promptly by Trident by telephone or telegram, confirmed by letter.
(c) If this Agreement is terminated by Trident for any of the
reasons set forth in subsection (a) above, and to fulfill their
obligations, if any, pursuant to Sections 3, 6, 8(a) and 9 of this
Agreement and upon demand, the Company and the Association shall pay
Trident the full amount so owing thereunder.
(d) The Association may terminate the Conversion in accordance
with the terms of the Plan. Such termination shall be without liability
to any party, except that the Company and the Association shall be
required to fulfill their obligations pursuant to Sections 3(b), 3(c),
6, 8(a) and 9 of this Agreement.
12. Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and if sent to Trident shall be
mailed, delivered or faxed and confirmed to Trident Securities, Inc., 4601 Six
Forks Road, Suite 400, Raleigh, North Carolina 27609, Attention: Mr. John Andrew
Hitt (with a copy to Muldoon, Murphy & Faucette LLP, 5101 Wisconsin Avenue,
N.W., Washington, DC 20016, Attention: Paul M. Aguggia, Esquire) and if sent to
the Company or the Association, shall be mailed, delivered or telegraphed and
confirmed to First Federal Savings and Loan Association of Olathe, 100 East
Park, Olathe, Kansas 66051, Attention: Mich Ashlock, President of the Company
and the Association (with a copy to Luse Lehman Gorman Pomerenk & Schick, P.C.,
5335 Wisconsin Avenue, N.W., Suite 400, Washington, D.C. 20015, (Attention:
Robert Lipsher, Esquire).
13. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, Trident, the Company, the Association and the controlling
and other persons referred to in Section 8 hereof, and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained. The
undersigned consent to the assignment of rights and obligations of Trident
Securities, Inc. hereunder to McDonald Investments Inc.
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 29
14. Construction. This Agreement shall be governed by and construed in
accordance with the substantive laws of North Carolina regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
15. Counterparts and Definitions. This Agreement may be executed in
separate counterparts, each of which when so executed and delivered shall be an
original, but all of which together shall constitute but one and the same
instrument. Any initially capitalized terms not defined herein shall have the
meanings ascribed thereto in the Prospectus.
* * *
[Signature page follows]
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 30
Please acknowledge your agreement to the foregoing as of the date above
written by signing below and returning to the Company one copy of this letter.
FIRST FEDERAL OF OLATHE FIRST FEDERAL SAVINGS AND LOAN
BANCORP, INC. ASSOCIATION OF OLATHE
By: By:
----------------------------------- ----------------------------
Mitch Ashlock Mitch Ashlock
President President
Agreed to and accepted:
TRIDENT SECURITIES, INC.
By:-----------------------------------
John Andrew Hitt
Senior Vice President
<PAGE>
Trident Securities, Inc.
February __, 2000
Page 31
Exhibit A
Trident Securities, Inc. IS a registered selling agent in the jurisdictions
listed below:
Alabama Montana
Alaska Nebraska
Arizona Nevada
Arkansas New Hampshire
California New Jersey
Colorado New Mexico
Connecticut New York
Delaware North Carolina
District of Columbia North Dakota (Trident Securities, Inc. only, no agents)
Florida Ohio
Georgia Oklahoma
Idaho Oregon
Illinois Pennsylvania
Indiana Rhode Island
Iowa South Carolina
Kansas Tennessee
Kentucky Texas
Louisiana Utah
Maine Vermont
Maryland Virginia
Massachusetts Washington
Michigan West Virginia
Minnesota Wisconsin
Mississippi Wyoming
Missouri
Trident Securities, Inc. is NOT a registered selling agent in the jurisdictions
listed below:
Hawaii
South Dakota
February 2, 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.
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
<PAGE>
Board of Directors
First Federal Savings and Loan Association of Olathe
February 2, 2000
Page 2
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
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
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Board of Directors
First Federal Savings and Loan Association of Olathe
February 2, 2000
Page 3
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 be recognized by the
Holding Company upon the receipt of money for common stock of
the Holding Company. (Code Section 1032(a)).
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Board of Directors
First Federal Savings and Loan Association of Olathe
February 2, 2000
Page 4
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 for the benefit of the Holding Company, the
Association and purchasers of the Holding Company Conversion Stock in the
Conversion and is not to be relied upon or used for any other purpose without
our prior written consent.
Very truly yours,
/s/LUSE LEHMAN GORMAN POMERENK & SCHICK
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation
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, unless the Employment
Period has been previously terminated, the Board shall, at least 60 days prior
to each such Anniversary Date, 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
meeting. The Board shall give the Executive notice of its decision whether or
not to extend the Employment Period at least 60 days prior to the Anniversary
Date, and if such notice is that the Employment Period shall not be extended (a
"Non-Renewal Notice"), the Employment Period shall not be extended. In such
case, the Agreement shall terminate in accordance with its terms at the end of
thirty-six (36) months following such Anniversary Date.
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(b) During the Employment Period, except for periods of absence
occasioned by illness, reasonable vacation periods, and reasonable leaves of
absence, Executive shall 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
$65,747 per year ("Base Salary"). Such Base Salary shall be payable bi-weekly.
During the Employment Period, 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.
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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) a relocation of Executive's principal place of employment
by more than 30 miles from its location at the effective date
of this Agreement.
(D) 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
(E) 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), (D), or (E) above.
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(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 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 299% of the Executive's "base amount" of compensation, as defined
in Section 280G(b)(3) of the Internal Revenue Code ("Code"). 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 monthly 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 monthly basis during the remaining term of this
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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 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 may be required by law or 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
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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.
6. TERMINATION FOR CAUSE
The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, incompetence, 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 paragraph, 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 with out reasonable
belief that the Executive's action or omission was in the best interest of the
Associa tion. 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 a majority of the disinterested 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. For these purposes, reasonable notice shall be deemed to have been
provided if delivered in person or by registered mail, telegram, or courier to
the principal residence of the Executive no less than five (5) business days
prior to such Board meeting. Notwithstanding the above, the Board shall have the
right to place Executive on paid administrative leave until the Board meeting at
which Termination for Cause is determined, if to do so would be in the best
interest of the Association. If in the good faith opinion of the Board, the
Executive is guilty of conduct justifying Termination for Cause, a Notice of
Termination shall be issued to Executive in accordance with Section 7 hereof.
The Executive shall not have the right to receive compensation or other benefits
for any period after Termination for Cause, except in the event that a dispute
concerning the Termination for Cause is resolved in favor of the Executive, in
accordance with Section 7(c). 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,
except in the event that a dispute concerning the Termination for Cause is
resolved in favor of the Executive, in accordance with Section 7(c) hereof.
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
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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. Notice of Termination may be
delivered, in person, by registered mail, telegram or courier to the principal
administrative office of the Association, in the case of Notice given by the
Executive, and in the case of Notice of Termination of the Executive, to the
Executive's principal place of residence within 72 hours of the determination of
termination.
(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, may be immediate
if, in the sole discretion of the Board of Directors, immediate termination is
in the best interest of the Association).
(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 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,
except in the case of voluntary termination by the Executive or Termination for
Cause, 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, until
the dispute is finally resolved in accordance with this Agreement, provided such
dispute is resolved within the term of this Agreement. In the event of
Termination for Cause, no compensation shall be paid to the Executive during the
pendency of any dispute, provided, however, that in the event such dispute is
finally determined (by mutual written agreement of the parties, binding
arbitration or final judgement, order or decree of a court of competent
jurisdiction) in favor of the Executive, the Executive shall be entitled to all
compensation previously withheld (including Base Salary, incentive compensation,
stock options, and contributions to qualified and nonqualifed benefit plans) and
reimbursement for any insurance coverage purchased by the Executive to replace
coverage previously provided by the Association pursuant to the terms of this
Agreement. If such dispute is not resolved within the term of this 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
this Agreement. Amounts paid under this Section shall be offset against or
reduce any other amounts due under this Agreement.
8. POST-TERMINATION OBLIGATIONS
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(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 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 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
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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.
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,
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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) by the FDIC at the time the FDIC approves a
statutory merger related to the operation of the Association or 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.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
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.
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.
10
<PAGE>
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.
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 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
11
<PAGE>
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]
12
<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:
- ----------------------------------- --------------------------------------
13
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
February 1, 2000
RP FINANCIAL, LC.
- --------------------------------------------
Financial Services Industry Consultants
February 1, 2000
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>
Please detach here before mailing your completed
Stock Order Form and Certification
- --------------------------------------------------------------------------------
First Federal of Olathe Bancorp, Inc.
Stock Order Form
-------------------------------------------------------------
First Federal Savings and Loan Association of Olathe Expiration Date
100 East Park St. for Stock Order Forms
Olathe, KS 66061 12:00 Noon, Central Time
(913) 397-6737 March ___, 2000
- --------------------------------------------------------------------------------
IMPORTANT--PLEASE NOTE: A properly completed original stock order form must be
used to subscribe for common stock. Faxes or copies of this form will not be
accepted. Please read the Stock Ownership Guide and Stock Order Form
instructions as you complete this Form.
- --------------------------------------------------------------------------------
(1) Number of Shares Subscription Price (2) Total Payment Due
- -------------------- ---------------------
X $10.00 = $
- -------------------- ---------------------
- --------------------------------------------------------------------------------
(3) Employee/Officer/Director/Trustee Information
[ ] Check here if you are a director, officer, or employee of First
Federal Savings or First Federal of Olathe Bancorp, Inc. or a member
of such person's immediate family.
- --------------------------------------------------------------------------------
(4) Method of Payment/Check
--------------
Enclosed is a check, bank draft or money order made payable
to First Federal of Olathe Bancorp, Inc. in the amount of: --------------
- --------------------------------------------------------------------------------
(5) Method of Payment/Withdrawal
The undersigned authorizes withdrawal from the following account(s) at First
Federal Savings. There is no penalty for early withdrawal for purposes of
this payment.
----------------------------------------------------------------------
Account Number(s) Withdrawal Amount(s)
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Total Withdrawal Amount
----------------------------
In order to subscribe for shares with an individual retirement account ("IRA")
at First Federal Savings, you must contact the Stock Information Center at
(913) 397-6737 before March 15, 2000.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
(6) Purchaser Information
a. [ ] Eligible Account Holder -- Check here if you were a depositor of at
least $50.00 at First Federal Savings on June 30, 1998. Enter
information below for all deposit accounts that you had at First
Federal Savings on June 30, 1998.
b. [ ] Supplemental Eligible Account Holder -- Check here if you were a
depositor of at least $50.00 at First Federal Savings on December 31,
1999 but are not an Eligible Account Holder. Enter information below
for all deposit accounts that you had at First Federal Savings on
December 31, 1999.
c. [ ] Other Members -- Check here if you were a depositor of at least
$50.00 at First Federal Savings on January 31, 2000 or a borrower
with a loan outstanding on January 19, 2000 which continues to
be outstanding on January 31, 2000.
d. [ ] Non-customer resident of Johnson County
------------------------------
o These account numbers correspond to the
preprinted registration in the top left
hand corner of this stock order form.
------------------------------
o These may not be all of your qualifying accounts.
o You must list any account numbers from other stock order forms you have
received in the mail and any other accounts that you have or have had at
First Federal Savings.
o If you do not list all of your accounts, you may not receive all of the
shares that you are eligible for.
------------------------------------------------------------------------
Account Title (Names on Accounts) Account Number(s)
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(7) Stock Registration/Form of Stock Ownership
[ ] Individual [ ] Individual Retirement Account (IRA)
[ ] Joint Tenants [ ] Corporation or Partnership
[ ] Tenants in Common [ ] Uniform Transfers to Minors Act
[ ] Fiduciary (Under Agreement [ ] Other _____________________________
Dated ____________, 19___) ___________________________________
- --------------------------------------------------------------------------------
(8) Name(s) in which stock is to be registered
(please print clearly) Social Security # or Tax ID
- -------------------------------------------------- ---------------------------
- -------------------------------------------------- ---------------------------
Name(s) continued Phone
- -------------------------------------------------- ---------------------------
- -------------------------------------------------- ---------------------------
Street Address City State Zip Code
- -------------------------------- --------------- ----------- -------------
- -------------------------------- --------------- ----------- -------------
- --------------------------------------------------------------------------------
(9) NASD Affiliation
[ ] Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member
of the immediate family of any such person to whose support such person
contributes, directly or indirectly, or the holder of an account in which
an NASD member or person associated with an NASD member has a beneficial
interest. To comply with conditions under which an exemption from the
NASD's Interpretation With Respect to Free-Riding and Withholding is
available, you agree, if you have checked the NASD affiliation box: (i) not
to sell, transfer or hypothecate the stock for a period of 90 days
following issuance, and (ii) to report this subscription in writing to the
applicable NASD member within one day of payment therefor.
- --------------------------------------------------------------------------------
<PAGE>
(10) Associate -- Acting in Concert
[ ] Check here, and complete the reverse side of this Stock Order Form, if you
or any associates (as defined on the reverse side of this Stock OrderForm)
or persons acting in concert with you have submitted other offers for
shares in the Subscription Offering and/or the Community Offering.
- --------------------------------------------------------------------------------
(11) Acknowledgement
To be effective this fully completed Stock Order Form must be actually received
by First Federal Savings, no later than 12:00 Noon, Central Time on March ___,
2000, unless extended, otherwise this Stock Order Form and all subscription
rights will be void. Completed Stock Order Forms, together with the required
payment or withdrawal authorization, may be delivered to First Federal Savings
or may be mailed to the Post Office Box indicated on the enclosed business reply
envelope. All rights exercisable hereunder are not transferable and shares
purchased upon exercise of such rights must be purchased for the account or that
person exercising such rights.
It is understood that this Stock Order Form will be accepted in accordance with,
and subject to, the terms and conditions of the Plan of Conversion ("Plan") of
First Federal Savings and First Federal of Olathe Bancorp, Inc. described in the
accompanying Prospectus.
The undersigned agrees that after receipt by First Federal Savings, this Stock
Order Form may not be modified, withdrawn or cancelled (unless the offering is
not completed within 45 days after the completion of the Subscription Offering)
without First Federal of Savings' consent, and if authorization to withdraw from
deposit accounts at First Federal Savings has been given as payment for shares,
the amount authorized for withdrawal shall not otherwise be available for
withdrawal by the undersigned.
Under penalty of perjury I certify that the Social Security or Tax ID Number and
the other information provided under Item 8 of this Stock Order Form are true,
correct and complete, that I am not subject to backup withholding, that I am
purchasing for my own account and that there is no agreement or understanding
regarding the transfer of my subscription rights or the sale or transfer to
these shares.
Applicable regulations prohibit any person from transferring or entering into
any agreement directly or indirectly to transfer, the legal or beneficial
ownership of subscription rights or the underlying securities to the account of
another. First Federal Savings and First Federal of Olathe Bancorp, Inc. may
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 such transfer. I acknowledge that the shares offered are not a
savings or deposit account and are not insured by the Savings Association
Insurance Fund, the Bank Insurance Fund, the Federal Deposit Insurance
Corporation, the Depositor's Insurance Fund or any other government agency, may
lose value, including principal invested, and are not guaranteed by First
Federal Savings or First Federal of Olathe Bancorp, Inc.
A VALID STOCK ORDER FORM MUST BE SIGNED AND DATED TWICE BELOW AND ON THE FORM OF
CERTIFICATION ON THE REVERSE HEREOF.
Signature Date Signature Date OFFICE USE
- ---------------------------- ---------------------------- -------------
Date Received
- ---------------------------- ----------------------------
SIGNED FORM OF CERTIFICATION MUST ACCOMPANY ALL STOCK ORDER ------- -------
FORMS (SEE REVERSE SIDE) Batch # Order #
- --------------------------------------------------------------------------------
<PAGE>
Please detach here before mailing your completed
Stock Order Form and Certification
- --------------------------------------------------------------------------------
Item (6) a, b, c -- (continued)
------------------------------------------------------------------------
Account Title (Names on Accounts) Account Number(s)
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
Account Title (Names on Accounts) Account Number(s)
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
Item (10) -- (continued)
List below all other orders submitted by you or your Associates (as defined) or
by persons acting in concert with you.
------------------------------------------------------------------------
Names listed on other Number of
Stock Order Forms Shares Ordered
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
"Associate" is defined as: (i) any corporation or organization (other than First
Federal Savings, the Company or a majority-owned subsidiary of any thereof) of
which such person is a director, officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of equity
securities; (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity; (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 First Federal Savings, the Company or any sibsidiary of
the Company or any affiliate thereof; and (iv) any person acting in concert with
any of the persons or entities specified in clauses (i) through (iii) above;
provided, however, that any tax qualified or non-taxqualified Employee Plan
shall not be deemed to be an associate of any director, trustee or officer of
the Company or First Federal Savings.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
A valid stock order form must be signed and dated below
and on the front of this form.
FORM OF CERTIFICATION
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE ("COMMON
STOCK"), OF FIRST FEDERAL OF OLATHE BANCORP, INC. (THE "COMPANY"), THE PROPOSED
HOLDING COMPANY FOR FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE ("FIRST
FEDERAL SAVINGS"), ARE NOT GUARANTEED BY THE COMPANY, FIRST FEDERAL SAVINGS,
FIRST FEDERAL OF OLATHE BANCORP, INC., THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL
AGENCY. THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS
OF PRINCIPLE PRINCIPAL INVESTED.
If anyone asserts that this security is insured or guaranteed, or is as safe as
an insured deposit, I should call the First Federal Savings Stock Information
Center at (913) 397-6737.
I further certify that, before purchasing the shares of Common Stock of the
Company, I received a copy of the Prospectus dated February ___, 2000 which
discloses the nature of the shares of Common Stock being offered thereby, and
describes the following risks involved in an investment in the Common Stock
under the heading "Risk Factors" beginning on page ___ of the Prospectus:
1. Higher Interest Rates Would Hurt Our Profitability p. 6
2. We Anticipate a Low Return on Our Equity and Increased Non-Interest
Expense p. 6
3. Our Employee Stock Benefit Plans Will Increase Our Costs p. 7
4. Loss of Key Officers Could Hurt First Federal Savings' Operations p. 7
5. We May Not Be Successful in Diversifying and Expanding Our Lending
Activities p. 7
6. Management Will Have Substantial Discretion Over Investment of the
Offering Proceeds and May Make Investments with which You May Disagree p. 7
7. Strong Competition Within Johnson County May Limit Our Growth and
Profitability p. 7
8. Our Stock May Suffer from Our Ability to Impede Potential Takeovers p. 7
9. Expected Voting Control by Management and Employees Could Enable
Insiders to Prevent a Merger That May Provide That Shareholders
Receive a Premium for Their Shares p. 8
10. We Intend to Remain Independent p. 8
11. Our Employment Agreement May Discourage Takeovers p. 8
12. Our Employee Stock Benefit Plans May Be Dilutive p. 8
13. Possible Increase in the Offering Range Would Be Dilutive p. 8
14. Our Valuation Is Not Indicative of the Future Price of Our Common
Stock p. 9
15. Our Stock Price May Decline p. 9
16. Limited Market for Our Common Stock May Lower Market Price p. 9
17. Exercise of Subscription Rights May Be Taxable p. 9
Signature Date Signature Date
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
Name (Please Print) Name (Please Print)
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
- --------------------------------------------------------------------------------
