As filed with the Securities and Exchange Commission on November 9, 1994
Registration No. 33-55797
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
to
FORM S-4
Registration Statement Under the Securities Act of 1933
FOURTH FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
KANSAS 48-0761683
(State or other jurisdiction (I.R.S. Employer Identi-
of incorporation) fication Number)
6021
(Primary Standard Industrial Classification Code Number)
100 North Broadway
Wichita, Kansas 67202
316/292-5339
(Address, Including ZIP Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
WILLIAM J. RAINEY
Fourth Financial Corporation
Post Office Box 4, 100 North Broadway
Wichita, Kansas 67201
316/292-5339
(Name, Address, Including ZIP Code, and Telephone Number,
Including Area Code, of Agent for Service)
COPIES TO:
BENJAMIN C. LANGEL DAVE M. MUCHNIKOFF, P.C.
Foulston & Siefkin Silver, Freedman & Taff
700 Fourth Financial Center 1100 New York Avenue, N. W.
Wichita, Kansas 67202 Washington, D. C. 20005-3934
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. ___
---------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
FOURTH FINANCIAL CORPORATION
Cross Reference Sheet
Required by Item 501(b) of Regulation S-K
Item in Location or Heading
Form S-4 Caption in Prospectus
- -------- ------- -----------------
1. Forepart of Registration State-
ment and Outside Front Cover Page
of Prospectus . . . . . . . . . . Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . . Inside Front Cover Page
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other Infor-
mation . . . . . . . . . . . . . . Summary
4. Terms of the Transaction . . . . . The Agreement and Proposed
Mergers
5. Pro Forma Financial Information . . Pro Forma Financial
Statements
6. Material Contacts with the Company
Being Acquired . . . . . . . . . . The Agreement and Proposed
Mergers -- Background and
Reasons for the Mergers;
Recommendation of the OSI
Board of Directors; --
Interests of Certain Persons
in the Mergers, --
Management after the Mergers
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be Underwriters . Not Applicable
8. Interests of Named Experts and
Counsel . . . . . . . . . . . . . Legal Matters; Experts; The
Agreement and Proposed
Mergers -- Opinion of
Financial Advisor to OSI
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . Not Applicable
10. Information with Respect to S-3
Registrants . . . . . . . . . . . Information Concerning
Fourth Financial; Financial
Statements and Related
Information
11. Incorporation of Certain Information
by Reference . . . . . . . . . . . Information Incorporated by
Reference
12. Information with Respect to S-2 or
S-3 Registrants . . . . . . . . . Not Applicable
13. Incorporation of Certain Information
by Reference . . . . . . . . . . . Not Applicable
14. Information with Respect to
Registrants Other Than S-3 or S-2
Registrants . . . . . . . . . . . Not Applicable
15. Information with Respect to S-3
Companies . . . . . . . . . . . . Not Applicable
16. Information with Respect to S-2
or S-3 Companies . . . . . . . . . Not Applicable
17. Information with Respect to Companies
Other than S-3 or S-2 Companies . . Selected Financial Data; The
Special Meeting; Information
Concerning OSI and
Stillwater Federal; Price
Range of and Dividends on
Fourth Stock and OSI Stock;
Information Incorporated by
Reference; Financial
Statements and Related
Information
18. Information if Proxies, Consents
or Authorizations are to be
Solicited . . . . . . . . . . . . . Cover Page; Summary; The
Special Meeting; Information
Incorporated by Reference;
The Agreement and Proposed
Mergers -- Interests of
Certain Persons in the
Mergers, -- Appraisal Rights
of Dissenting OSI
Stockholders, -- Expenses;
Deadline for Submission of
Fourth Financial and OSI
Stockholders' Proposals for
the Next Annual Meetings of
Stockholders
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange
Offer . . . . . . . . . . . . . . Not Applicable
Oklahoma Savings, Inc.
601 South Husband
Stillwater, Oklahoma 74074
November 14, 1994
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders
of Oklahoma Savings, Inc. ("OSI") to be held at the offices of OSI at 601
South Husband, Stillwater, Oklahoma, on December 15, 1994, at 10:00 a.m.,
Central Standard Time.
At the meeting, stockholders will be asked to approve and adopt an
Agreement and Plan of Reorganization, dated as of July 21, 1994 (the
"Agreement"), between OSI and Fourth Financial Corporation ("Fourth
Financial"), and a related Agreement of Merger between OSI and Fourth
Financial (as amended November 8, 1994, the "OSI Merger Agreement"). The
Agreement and the Merger Agreement provide for, among other things, the merger
of OSI into Fourth Financial (the "OSI Merger"), the merger of Stillwater
Federal Savings Bank ("Stillwater Federal") into BANK IV Oklahoma, National
Association, and the conversion of each share of common stock of OSI into the
right to receive 0.84 shares of common stock, par value $5 per share, of
Fourth Financial ("Fourth Stock").
The Board of Directors of OSI has carefully reviewed and considered the
terms and conditions of the Agreement and the OSI Merger Agreement. THE BOARD
OF DIRECTORS OF OSI HAS CONCLUDED THAT THE PROPOSED TRANSACTIONS ARE IN THE
BEST INTERESTS OF THE STOCKHOLDERS OF OSI AND RECOMMENDS THAT OSI STOCKHOLDERS
VOTE "FOR" THE AGREEMENT AND THE OSI MERGER AGREEMENT.
The accompanying Notice of Special Meeting of Stockholders and Proxy
Statement-Prospectus, the attached Form 10-K and Form 10-Q of Fourth
Financial, and the enclosed Form 10-Q of Fourth Financial for the quarter
ended September 30, 1994 contain a detailed description of these transactions
and other important information relating to Fourth Financial, OSI, Stillwater
Federal, and the combined companies. If the OSI Merger becomes effective,
stockholders will be instructed promptly as to the procedures to be followed
in exchanging their stock certificates for certificates of Fourth Stock.
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
We urge you to review the enclosed materials carefully and to date, sign,
and return to OSI the accompanying Proxy in the enclosed envelope as soon as
possible so that your shares will be represented at the Special Meeting.
Sending in your proxy now will not interfere with your rights to attend the
meeting or to vote your shares personally at the meeting if you wish to do so.
Sincerely,
/s/Calvin J. Anthony
Chairman of the Board
Oklahoma Savings, Inc.
601 South Husband
Stillwater, Oklahoma 74074
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held December 15, 1994
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Oklahoma
Savings, Inc., a Delaware corporation ("OSI"), will be held at the offices of
Stillwater Federal Savings Bank, 601 South Husband, Stillwater, Oklahoma on
December 15, 1994, at 10:00 a.m., Central Standard Time, for the following
purposes:
1. To approve and adopt an Agreement and Plan of Reorganization, dated
as of July 21, 1994 (as amended November 8, 1994, the "Agreement"), between
OSI and Fourth Financial Corporation, a Kansas corporation ("Fourth
Financial"), a related Agreement of Merger between OSI and Fourth Financial
(the "OSI Merger Agreement"), and the transactions contemplated by the
Agreement and the OSI Merger Agreement, all as more fully described below and
in the attached Proxy Statement-Prospectus; and
2. To transact any other business that may properly come before the
Special Meeting.
As more fully described in the Agreement and the attached Proxy Statement-
Prospectus, the Agreement and the OSI Merger Agreement, copies of which are
attached as Annex I to the attached Proxy Statement-Prospectus, provide for,
among other things, (i) the merger of OSI into Fourth Financial, and (ii) the
conversion of each of the then outstanding shares of common stock of OSI into
the right to receive 0.84 shares of common stock, par value $5 per share, of
Fourth Financial.
In order to approve the Agreement and the OSI Merger Agreement, the
affirmative vote of the holders of at least a majority of the issued and
outstanding common stock of OSI is required.
Only stockholders of record at the close of business on November 10, 1994, are
entitled to notice of and to vote at the meeting and any adjournments thereof.
Approval and adoption of the Agreement and the OSI Merger Agreement will give
stockholders who dissent from the OSI Merger Agreement and comply with the
provisions of Section 262 of the Delaware General Corporation Law the right to
obtain payment in cash of the value of the shares of OSI common stock held by
them, exclusive of any element of value arising from the expectation or
accomplishment of the merger.
Generally, in order to preserve dissenters' rights a stockholder must file a
written demand for appraisal of the shares of the stockholder with OSI on or
before the taking of the vote on the merger at the Special Meeting and not vote
in favor of the merger. See Annex II to the Proxy Statement-Prospectus for a
copy of Section 262 of the Delaware General Corporation Law.
TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO DATE, SIGN, AND
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE.
Sending in your proxy now will not interfere with your rights to attend the
meeting or to vote your shares personally at the meeting if you wish to do so.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of Directors
Stillwater, Oklahoma
November 14, 1994 /s/ Calvin J. Anthony
--------------------
Calvin J. Anthony
Chairman of the Board
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
PROSPECTUS
372,262 SHARES
FOURTH FINANCIAL CORPORATION
Common Stock, $5 Par Value
____________________
OKLAHOMA SAVINGS, INC.
PROXY STATEMENT
This Proxy Statement-Prospectus is being furnished in connection with the
solicitation of proxies by the Board of Directors of Oklahoma Savings, Inc., a
Delaware corporation ("OSI"), in connection with a Special Meeting of
Stockholders of OSI (the "Special Meeting") to be held on December 15, 1994, at
the offices of Stillwater Federal Savings Bank, 601 South Husband, Stillwater,
Oklahoma, and all adjournments or postponements thereof. The Special Meeting
will be held at 10:00 a.m. on such date.
At the Special Meeting, the stockholders of OSI will be asked to consider and
vote upon a proposal to approve and adopt an Agreement and Plan of
Reorganization, dated as of July 21, 1994, between Fourth Financial Corporation,
a Kansas corporation ("Fourth Financial"), and OSI (as amended November 8, 1994,
and as it may be further amended, supplemented, or otherwise modified from time
to time, the "Agreement"). The stockholders of OSI will also vote on a related
merger agreement (the "OSI Merger Agreement") pursuant to which OSI would be
merged into Fourth Financial (the "OSI Merger").
A copy of the Agreement as amended, with Exhibits "A" and "B", is attached to
this Proxy Statement-Prospectus as Annex I. A copy of the OSI Merger Agreement
is attached to the Agreement as Exhibit "B".
This Proxy Statement-Prospectus also pertains to the 372,262 shares of common
stock, par value $5 per share of Fourth Financial ("Fourth Stock"), expected to
be issued in connection with the OSI Merger.
Fourth Financial has filed a Registration Statement on Form S-4 (including all
exhibits and amendments thereto, the "Registration Statement") with the
Securities and Exchange Commission ("Commission") pursuant to the Securities Act
of 1933, as amended, covering the shares of Fourth Stock to be issued in
connection with the OSI Merger. This Proxy Statement-Prospectus constitutes both
the Proxy Statement of OSI relating to the solicitation of proxies for use at
the Special Meeting and the Fourth Financial Prospectus filed as part of the
Registration Statement. All information contained herein with respect to Fourth
Financial and its subsidiaries has been provided by Fourth Financial and all
information herein with respect to OSI and Stillwater Federal Savings Bank has
been provided by OSI. See "AVAILABLE INFORMATION".
This Proxy Statement-Prospectus is first being sent to stockholders of OSI on
or about November 14, 1994.
The last reported sale price of Fourth Stock as reported on the NASDAQ
National Market System on November 8, 1994, was $31 per share and the last
reported sale price of OSI Stock as reported on the NASDAQ System (Small-Cap
Issues) on November 4, 1994 (the date of the most recent reported trade) was
$24.50.
THE SHARES OF FOURTH FINANCIAL COMMON STOCK OFFERED HEREBY ARE NOT
SAVINGS ACCOUNTS, DEPOSITS, OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS
ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND, OR ANY OTHER GOVERNMENTAL AGENCY.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT-PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement-Prospectus is November 10, 1994.
No person is authorized to give any information or to make any representation
not contained in this Proxy Statement-Prospectus in connection with the matters
contained in this Proxy Statement-Prospectus, and, if given or made, such
information should not be relied upon. This Proxy Statement-Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the Fourth Stock
offered hereby. This Proxy Statement-Prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby, or the solicitation of a proxy, in any jurisdiction
to or from any person to or from whom it is unlawful to make such offer, or
solicitation of an offer, or proxy solicitation in such jurisdiction. Neither
the delivery of this Proxy Statement-Prospectus nor any distribution of the
securities offered pursuant to this Proxy Statement-Prospectus shall, under any
circumstances, create an implication that there has been no change in the
affairs of Fourth Financial or OSI since the date of this Proxy
Statement-Prospectus.
------------------
AVAILABLE INFORMATION
This Proxy Statement-Prospectus does not contain all of the information set
forth in the Registration Statement and exhibits thereto which Fourth Financial
or OSI have filed with the Commission under the Securities Act of 1933 and to
which reference is hereby made. Fourth Financial and OSI are each subject to
the informational requirements of the Securities Exchange Act of 1934 and, in
accordance therewith, each files reports, proxy statements, and other
information with the Commission. The Registration
Statement, including the exhibits thereto,
as well as such reports, proxy statements, and other information filed by Fourth
Financial and OSI can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 7
World Trade Center, Suite 1300, New York,
New York 10048 and at CitiCorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60621-2511 except that copies
of the exhibits may not be available at certain of the Regional Offices. Copies
of such material can be obtained by mail from the Public Reference Section of
the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST. COPIES OF THESE DOCUMENTS (NOT INCLUDING EXHIBITS TO SUCH DOCUMENTS
WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE) WILL BE PROVIDED WITHOUT
CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER,
TO WHOM A PROXY STATEMENT-PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST OF WILLIAM J. RAINEY,
SECRETARY, FOURTH FINANCIAL CORPORATION, P.O. BOX 4, 100 NORTH
BROADWAY, WICHITA, KANSAS 67201 (TELEPHONE
NUMBER 316-292-5339). IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY DECEMBER 8, 1994.
SUMMARY
The following is a brief summary of certain information with respect to matters
to be considered at the Special Meeting. This summary is necessarily incomplete
and is qualified in its entirety by the more detailed information and financial
statements and notes thereto appearing elsewhere in this Proxy
Statement-Prospectus and in the Annexes, the documents accompanying this Proxy
Statement-Prospectus hereto, and the documents referred to herein, to which
reference is made for a complete statement of the matters discussed below.
The Companies
Fourth Financial
Fourth Financial Corporation ("Fourth Financial"), a Kansas corporation, is
the largest bank holding company headquartered in Kansas, based on both assets
and deposits, and, at June 30, 1994, had total consolidated assets of $7.6
billion, total deposits of $5.7 billion, and stockholders' equity of $593.0
million. Fourth Financial, headquartered in Wichita, Kansas, offers a broad
range of bank and bank-related services through its subsidiaries, BANK IV
Kansas, National Association ("BANK IV Kansas") and BANK IV Oklahoma, National
Association ("BANK IV Oklahoma"). BANK IV Kansas is the largest bank in Kansas
and BANK IV Oklahoma is the second-largest bank in Oklahoma. Fourth Financial's
principal executive offices are located at 100 North Broadway, P.O. Box 4,
Wichita, Kansas 67201; its telephone number is (316) 292-5339. See "Information
Concerning Fourth Financial."
OSI
Oklahoma Savings, Inc. ("OSI") is a holding company incorporated under the
laws of the State of Delaware. Its principal asset is its subsidiary, Stillwater
Federal Savings Bank. At June 30, 1994, OSI had consolidated total assets of
$97.0 million, total deposits of $88.6 million, and stockholders' equity of $7.3
million. OSI's principal executive offices are located at 601 South Husband,
Stillwater, Oklahoma 74074. Its telephone number is (405) 372-5782. See
"Information Concerning OSI and Stillwater Federal."
Stillwater Federal
Stillwater Federal Savings Bank ("Stillwater Federal") is a federally-
chartered savings bank operating four offices serving seven counties in northern
Oklahoma. Stillwater Federal's principal executive offices are located at 601
South Husband, Stillwater, Oklahoma 74074. Its telephone number is (405) 372-
5782. See "Information Concerning OSI and Stillwater Federal."
The Special Meeting
Times, Date, and Place
The Special Meeting of Stockholders of OSI (the "Special Meeting") will be
held on December 15, 1994, at 10:00 a.m., Central Standard Time, at the offices
of Stillwater Federal at 601 South Husband, Stillwater, Oklahoma. See "The
Special Meeting".
Purpose of the Special Meeting
The Special Meeting has been called to consider and vote upon a proposal to
approve and adopt an Agreement and Plan of Reorganization, dated as of July 21,
1994 (as amended November 8, 1994, the "Agreement"), between OSI and Fourth
Financial and the related Agreement of Merger between OSI and Fourth Financial
(the "OSI Merger Agreement"), which provide for the merger of OSI into Fourth
Financial (the "OSI Merger") and the simultaneous merger of Stillwater Federal
into BANK IV Oklahoma (the "Bank Merger"). The OSI Merger and the Bank Merger
are sometimes collectively referred to in this Proxy Statement-Prospectus as the
"Mergers."
Vote Required for the OSI Merger
The affirmative vote of the holders of at least a majority of the
outstanding OSI common stock, par value $.01 per share ("OSI Stock"), is
required to approve the Agreement and the
OSI Merger Agreement. As of the date hereof,
directors and executive officers of OSI and their affiliates beneficially owned
an aggregate of 71,867 shares or 16.39% of the issued and outstanding OSI Stock.
No executive officer or director of Fourth Financial or any of their affiliates
beneficially owns any OSI Stock.
Appraisal Rights
The stockholders of OSI have the right under Delaware law to dissent from the
OSI Merger and have their shares of OSI Stock appraised and to receive cash
payment for the fair value of such shares provided that certain procedures are
followed by them. It is a condition of the OSI Merger that the total number of
shares held by dissenting stockholders will not exceed 5% of the shares of OSI
Stock issued and outstanding at the time the Mergers are consummated. See "The
Agreement and Proposed Mergers -- Appraisal Rights of Dissenting OSI
Stockholders".
The Mergers
Terms of the OSI Merger
The stockholders of OSI are being asked to approve and adopt the Agreement
which provides for Fourth Financial to acquire 100% of the issued and
outstanding capital stock of OSI in exchange for shares of Fourth Financial
common stock, par value $5.00 per share ("Fourth Stock"), to be issued in a
merger transaction in which OSI will be merged into Fourth (the "OSI Merger").
Subject to the terms, conditions, and procedures set forth in the Agreement,
each share of OSI Stock issued and outstanding immediately prior to the OSI
Merger will be converted into 0.84 share of Fourth Stock (the "Merger
Consideration"). Based on the $31 per share closing price of Fourth Stock
reported on the NASDAQ National Market System for November 8, 1994, the market
value of the Merger Consideration would be $26.04 per share of OSI Stock. The
market value of Fourth Stock to be received by holders of OSI Stock in the OSI
Merger, however, is subject to fluctuation. Fluctuations in the market price of
Fourth Stock will result in an increase or decrease in the value of the Merger
Consideration to be received by OSI shareholders in the OSI Merger. An increase
in the market value of Fourth Stock would increase the market value of the
Merger Consideration to be received in the Merger. A decrease in the market
value of Fourth Stock would have the opposite effect. See "The Agreement and
Proposed Mergers."
Terms of the Bank Merger
The Agreement also provides for the merger of Stillwater Federal into BANK
IV Oklahoma (the "Bank Merger") to occur simultaneously with the OSI Merger.
Each share of issued and outstanding capital stock of Stillwater Federal will be
exchanged in that merger for 0.002 share of capital stock of BANK IV Oklahoma,
all of which will be issued to Fourth Financial. OSI stockholders will not
receive any of the shares issued in the Bank Merger.
Certain Federal Income Tax Consequences
Deloitte & Touche LLP, OSI's independent accountants, has delivered its
opinion to the effect that, assuming the OSI Merger occurs in accordance with
the OSI Merger Agreement and conditioned on the accuracy of certain
representations made by Fourth Financial and OSI, the OSI Merger will constitute
a "reorganization" for federal income tax purposes and that, accordingly, no
gain or loss will be recognized by
OSI stockholders who exchange their shares of OSI
Stock solely for shares of Fourth Stock in the OSI Merger. However, the receipt
of cash in lieu of fractional shares or upon exercise of dissenters' rights may
give rise to taxable gain or loss. Each OSI stockholder is urged to consult his
own tax advisor to determine the specific tax consequences of the OSI Merger to
him, including the applicability of various state, local, and foreign tax laws.
See "The Agreement and Proposed Mergers -- Certain Federal Income Tax
Consequences."
Regulatory Approvals
The approvals of the Comptroller of the Currency ("OCC") and the Office of
Thrift Supervision of the United States Department of the Treasury ("OTS") are
both required in order to effect the Mergers. Applications for both such
approvals have been filed. OTS approval was obtained on October 14, 1994. A 15-
day statutory waiting period for antitrust review by the United States
Department of Justice follows OCC approval.
A community coalition based in Wichita, Kansas
has filed a protest with the OCC claiming that the application for approval of
the Bank Merger should be denied because the record of community service of BANK
IV Kansas in its Wichita market is allegedly unsatisfactory. BANK IV Kansas and
Fourth Financial have filed a response to the protest denying the coalition's
assertions. Fourth Financial expects that the OCC will approve the Bank
Merger.
Recommendation of Board of Directors of OSI
The Board of Directors of OSI has unanimously concluded that the OSI Merger
is in the best interests of the OSI stockholders and recommends that OSI
stockholders vote FOR approval of the Agreement and the OSI Merger Agreement.
All of the directors and executive officers of OSI, who beneficially own an
aggregate of 71,867 shares or approximately 16.39% of the issued and outstanding
OSI Stock at November 10, 1994, have indicated their intention to vote all of
their shares of OSI Stock in favor of the Agreement and the OSI Merger
Agreement. See "The Agreement and Proposed Mergers--Background and Reasons for
Merger; Recommendation of the OSI Board of Directors."
Opinion of Financial Advisor
The Board of Directors of OSI has received an opinion of Charles Webb &
Company, financial advisors, dated July 21, 1994, and confirmed on November 8,
1994 to the effect that the exchange ratio of 0.84 share of Fourth Stock for
each share of OSI Stock is fair to OSI's
stockholders from a financial point of view.
See "The Agreement and Proposed Mergers--Opinion of Financial Advisor to OSI."
A copy of the opinion of Charles Webb & Company is attached as Annex III to this
Proxy Statement-Prospectus.
Interests of Certain Persons in the Mergers
The Agreement provides for the following transactions to occur in connection
with the Mergers: Beth F. Buchanan will enter into an agreement with BANK IV
Oklahoma pursuant to which her existing employment agreement with Stillwater
Federal will be cancelled upon the payment to her of approximately $220,000;
each member of the Stillwater Federal board of directors will be invited to
become a member of a BANK IV Oklahoma "advisory board of directors"; subject to
the receipt of a favorable determination letter from the Internal Revenue
Service, OSI's employee stock ownership plan will be terminated as of the
Effective Time with the result that employees, including certain executive
officers of OSI will receive allocations of presently unallocated shares of OSI
Stock; and Fourth Financial will provide, for a three-year period, directors and
officers' liability insurance comparable to that maintained by OSI covering acts
or omissions occurring on or prior to the Effective Time. In addition,
directors and two executive officers of OSI
will receive payments with respect to options
to acquire OSI stock issued under OSI's stock option plan and all shares of
restricted OSI stock issued to them under OSI's Recognition and Retention Plan
will be vested at the Effective Time. See "The Agreement and Proposed Mergers--
Interests of Certain Persons in the Mergers."
Accounting Treatment
It is anticipated that the Mergers will be treated as a purchase of assets
for accounting and financial reporting purposes.
Fourth Financial Interim Earnings
For the nine months ended September 30, 1994, Fourth Financial reported
unaudited net income of $61.0 million or $2.01 per share (fully diluted) as
compared to unaudited net income of $56.7 million or $1.87 per share (fully
diluted) for the first nine months of 1993. Included in the 1993 net income was
$10.6 million or $.35 per share, attributable to the one-time cumulative effect
of a change in accounting principle relating to income taxes.
OSI Fiscal 1994 Earnings
For the fiscal year ended September 30, 1994, OSI's unaudited net income was
approximately $1.2 million or $2.86 per share, as compared to a net loss of
$21,611 in the 1993 fiscal year.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Fourth Financial Corporation
Six Months Ended Year Ended
June 30, December 31,
---------------- ---------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
(In thousands, except per share data)
(1) (1) (1) (1) (1) (1)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income. . . . . . . .$ 224,822 $ 217,248 $ 443,913 $ 438,888 $ 492,036 $ 482,193 $ 414,080
Net interest income. . . . . . 134,044 129,243 264,411 241,357 213,755 183,123 164,309
Provision for credit losses. . 275 6,121 6,965 21,358 43,926 49,527 28,326
Net income . . . . . . . . . . 39,343 39,961 77,292 65,200 33,163 9,204 21,393
Net income applicable to common
and common-equivalent shares. 35,843 36,461 70,292 59,249 33,163 9,204 21,393
Period-end assets. . . . . . . 7,645,532 7,010,967 6,886,063 6,712,696 5,790,555 5,899,188 4,783,022
Period-end long-term debt. . . 9,532 30,610 20,283 36,072 53,348 23,887 32,737
Per common share data:
Primary earnings per common share:
Before extraordinary items and
cumulative effect of change
in accounting principle . 1.33 .99 2.27 2.19 1.27 .23 .98
Extraordinary items and
cumulative effect of a change
in accounting principle . -- .40 .40 .10 .06 .17 --
Applicable to common and
common-equivalent shares. 1.33 1.39 2.67 2.29 1.33 .40 .98
Fully diluted earnings per
common share:
Before extraordinary items and
cumulative effect of change
in accounting principle . 1.29 .97 2.20 2.13 1.24 .23 .98
Extraordinary items and
cumulative effect of a change
in accounting principle . -- .35 .35 .08 .06 .17 --
Net income . . . . . . . . 1.29 1.32 2.55 2.21 1.30 .40 .98
Common dividend (2). . . . . .52 .48 .98 .88 .88 .88 .82
Book value at period-end . . 18.36 17.61 18.73 16.65 15.29 14.68 15.31
<FN>
- ---------------
(1) Notes 2 and 3 of the Notes to the Fourth Financial 1993 and 1992
Consolidated Financial Statements describe the business combinations and
deposit assumption transactions completed during 1993, 1992, and 1991.
Note 2 of the Notes to the Fourth Financial Consolidated Financial
Statements for the period ended June 30, 1994 describe the business
combinations consummated during 1994 through June 30, 1994. Prior year
financial statements have been restated to reflect poolings of interests
consummated through June 30, 1994. During 1990, Fourth Financial
assumed core deposits totaling $937.1 million and purchased loans
totaling $244.8 million.
(2) Historical dividends declared without adjustment for poolings of
interests.
</TABLE>
Market value of Fourth Stock
on day preceding announcement
of proposed merger
(April 19, 1994) . . . . . $27.25 per share
SELECTED FINANCIAL DATA (Cont'd.)
Oklahoma Savings, Inc.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
June 30, September 30,
------------------- -------------------------------------
1994 1993 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
(In thousands, except per share data)
(1) (1) (1) (1) (1) (1)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income. . . . . . . . 4,917 5,529 7,231 8,432 9,922 10,960 11,239
Net interest income. . . . . . 2,382 2,584 3,385 3,084 2,465 2,250 2,315
Provision for credit losses. . (260) 257 184 357 1,069 730 1,948
Net income (loss). . . . . . . 1,028 (363) (22) 1,175 (380) (564) (1,470)
Period-end assets. . . . . . . 96,981 98,107 96,930 101,195 105,785 116,600 123,813
Per common share data:
Earnings per common share
(since issuance). . . . . . 2.38 N/A .80 N/A N/A N/A N/A
Common dividend (since
issuance) . . . . . . . . . -- N/A -- N/A N/A N/A N/A
Book value at period-end . . 17.35 14.14 14.73 N/A N/A N/A N/A
<FN>
- ----------------
(1) In 1993, OSI was formed at the direction of Stillwater Federal for the purpose
of acquiring all of the outstanding common stock issued in the conversion of
Stillwater Federal to a stock savings bank. On June 28, 1993, OSI completed
a subscription and community offering of 409,975 shares of its common stock,
and concurrently acquired all of Stillwater Federal's outstanding common
stock. This transaction was accounted for using historical costs (similar to
a pooling of interests). The financial statements of OSI have been restated
to reflect the accounts and operations of Stillwater Federal.
</TABLE>
Market value of OSI Stock on
day preceding announcement
of proposed merger
(April 19, 1994) . . . . . . . $14.125 per share
COMPARATIVE PER SHARE DATA
APPLICABLE TO OSI SHAREHOLDERS
Pro Forma Fourth Financial, Recent Acquisitions, and OSI
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
---------------- -----------------------
June 30, 1994 1993
---------------- --------
<S> <C> <C>
Primary earnings before extraordinary
items and change in accounting principle:
Fourth Financial historical. . . . . $ 1.33 $ 2.27
Fourth Financial pro forma (1). . . . 1.36 2.33
OSI historical (2). . . . . . . . . . .95 .80
OSI pro forma (3) . . . . . . . . . . 1.14 1.96
Fully diluted earnings before extraordinary
items and change in accounting principle:
Fourth Financial historical. . . . . $ 1.29 $ 2.20
Fourth Financial pro forma (1). . . . 1.32 2.25
OSI historical (2). . . . . . . . . . .95 .80
OSI pro forma (3) . . . . . . . . . . 1.11 1.89
Common dividends:
Fourth Financial historical . . . . $ .52 $ .98
OSI historical (2). . . . . . . . . . -- --
Historical pro forma equivalent (4) . .44 .82
Book value per share of common stock:
Fourth Financial historical . . . . . $18.36 $ 18.73
Fourth Financial pro forma (1). . . . 18.51 18.76
OSI historical (2). . . . . . . . . . 17.35 14.73
OSI pro forma (3) . . . . . . . . . . 15.55 15.76
<FN>
__________________
(1) Pro forma data includes the combination of Fourth Financial, Equity Bank
for Savings, F.A. ("Equity"), Emprise Bank, National Association
("Emprise"), and OSI. See "Pro Forma Financial Statements."
(2) The historical financial statements of OSI have a fiscal year end of
September 30.
(3) Pro forma data multiplied by the .84 share of Fourth Stock expected to be
received for each share of OSI Stock.
(4) Fourth Financial historical dividends multiplied by the .84 share of
Fourth Stock expected to be received for each share of OSI Stock.
</TABLE>
COMPARATIVE PER SHARE DATA
APPLICABLE TO OSI SHAREHOLDERS
Pro Forma Fourth Financial, Recent Acquisitions, OSI, and Pending Acquisition
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
---------------- -----------------------
June 30, 1994 1993
---------------- --------
<S> <C> <C>
Primary earnings before extraordinary
items and change in accounting principle:
Fourth Financial historical. . . . . . . $ 1.33 $ 2.27
Fourth Financial pro forma (1) . . . . . 1.37 2.35
OSI historical (2) . . . . . . . . . . . .95 .80
OSI pro forma (3). . . . . . . . . . . . 1.15 1.97
Fully diluted earnings before extraordinary
items and change in accounting principle:
Fourth Financial historical. . . . . . . $ 1.29 $ 2.20
Fourth Financial pro forma (1) . . . . . 1.33 2.27
OSI historical (2) . . . . . . . . . . . .95 .80
OSI pro forma (3). . . . . . . . . . . . 1.12 1.92
Common dividends:
Fourth Financial historical . . . . . . $ .52 $ .98
OSI historical (2) . . . . . . . . . . . -- --
Historical pro forma equivalent (4). . . .44 .82
Book value per share of common stock:
Fourth Financial historical. . . . . . . $18.36 $ 18.73
Fourth Financial pro forma (1) . . . . . 18.44 18.68
OSI historical (2) . . . . . . . . . . . 17.35 14.73
OSI pro forma (3). . . . . . . . . . . . 15.49 15.69
<FN>
__________________
(1) Pro forma data includes the combination of Fourth Financial,
Emprise, Equity, OSI, and the pending
acquisitions of Blackwell Security Banchares, Inc. ("BSB")
and Standard Bancorporation, Inc.
("SBI"). See "Financial Statements and Related Information."
(2) The historical financial statements of OSI have a fiscal year of
September 30.
(3) Pro forma data multiplied by the .84 share of Fourth Stock expected
to be received for each share of OSI Stock.
(4) Fourth Financial historical dividends multiplied by the .84 share of
Fourth Stock expected to be received for each share of OSI Stock.
</TABLE>
THE SPECIAL MEETING
General
This Proxy Statement-Prospectus is being furnished to holders of OSI Stock
in connection with the solicitation of proxies by the OSI Board of Directors for
use at the Special Meeting to be held on December 15, 1994, and any adjournments
or postponements thereof. At the Special Meeting, the stockholders of OSI will
be asked to consider and vote upon the approval and adoption of the Agreement
and the OSI Merger Agreement and the transactions contemplated thereby, and to
transact such other business as may properly come before the Special Meeting or
any adjournments or postponements thereof.
Voting and Revocation of Proxies
Only OSI stockholders of record at the close of business on November 10,
1994, will be entitled to notice of or to vote at the Special Meeting or any
adjournments thereof. At the close of business on such date, there were 421,658
shares of common stock of OSI, par value $.01 per share outstanding.
As of November 10, 1994, there were approximately 212 record holders of OSI
Stock. The holders of OSI Stock are all entitled to one vote per share at the
Special Meeting.
The affirmative vote by the holders of at least a majority of the issued and
outstanding OSI Stock is required to approve the Agreement and the OSI Merger
Agreement. Approval and adoption of the Agreement and the OSI Merger Agreement
and the related transactions are being submitted as a single proposal at the
Special Meeting and may not be voted upon other than as a single proposal.
Shares represented by properly executed proxies will, unless such proxies
have been revoked, be voted at the Special Meeting in accordance with the
instructions indicated on such proxies. In the absence of instructions to the
contrary, such shares will be voted FOR approval and adoption of the Agreement
and the related OSI Merger Agreement, and in the discretion of the proxy holders
as to any other matter which may properly come before the Special Meeting. OSI
does not anticipate that any other matters will come before the Special Meeting.
One-third of the outstanding OSI Stock present in person or by proxy will
constitute a quorum for the transaction of business at the Special Meeting.
Proxies marked to abstain from voting will be treated as shares that are present
at the Special Meeting for purposes of determining the presence of a quorum for
the transaction of business at the Special Meeting, but broker non-votes (if
any), as described below, will not be counted.
A beneficial owner of stock held of record in street name has the right to
direct the street name holder how to vote such stock. In the absence of voting
directions by the beneficial owner with respect to routine matters only, street
name holders may exercise their own discretion in voting on such matters, so
that such stock is counted not only for quorum purposes, but also in determining
whether the matter received the requisite number of affirmative votes for
passage. If the beneficial owner of stock held in street name does not direct
the street name holder how to vote such stock, and the matter submitted to
stockholder vote is non-routine, such as approval of the Agreement, the street
name holder is not allowed to exercise its discretion and to vote the shares,
which inability is referred to as a "broker non-vote."
The proposal to approve the Agreement and the OSI Merger Agreement requires
the affirmative vote of the holders of a majority of the issued and outstanding
OSI Stock as of the record date. Therefore, failure to return a properly
executed proxy card or to vote in person at the Special Meeting, abstentions and
broker non-votes will have the practical effect of a vote against the Agreement
and the OSI Merger Agreement.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise at the Special Meeting by giving written notice of revocation, giving
a duly executed proxy bearing a later date to the Secretary of OSI, or revoking
the proxy and voting in person at the Special Meeting. Attendance at the
Special Meeting will not in and of itself constitute a revocation of a proxy.
THE AGREEMENT AND PROPOSED MERGERS
General
The descriptions of the Agreement and the Merger Agreements contained in this
Proxy Statement-Prospectus are qualified in their entirety by reference to such
agreements, the full texts of which are contained in Annex I to this Proxy
Statement-Prospectus and are incorporated herein by reference.
The Agreement and the OSI Merger Agreement have been approved by the Boards
of Directors of Fourth Financial and OSI. Although approval of the Agreement
and the OSI Merger Agreement by the stockholders of OSI is required, Fourth
Financial does not need to obtain approval of its stockholders to consummate
the Agreement and the OSI Merger Agreement.
The Agreement provides for the simultaneous mergers of OSI into Fourth
Financial and of Stillwater Federal into BANK IV Oklahoma. Upon consummation of
the two Mergers, OSI and Stillwater Federal will both cease to exist separately.
The time and date on which the Mergers will be consummated is referred to herein
and in the Agreement as the "Effective Time".
Background and Reasons for the Mergers; Recommendation of the OSI Board of
Directors
In March 1994, OSI received an unsolicited offer to negotiate a merger with
Fourth Financial on terms that the Board of Directors of OSI, in the exercise of
their fiduciary duties to shareholders, chose to pursue. Pursuant to the terms
of the letter approving OSI's acquisition of Stillwater Federal, on April 15,
1994, OSI requested, and subsequently received, permission from the Office of
Thrift Supervision (the "OTS"), to negotiate with Fourth Financial, to enter
into an agreement in principle, and to begin negotiations toward a definitive
agreement with Fourth Financial. A period of negotiations between OSI and Fourth
Financial followed, and on April 20, 1994, the companies jointly announced an
agreement in principle whereby OSI would be acquired by Fourth Financial and
merge with Fourth Financial. On July 21, 1994, the parties entered into the
Agreement. On November 8, 1994, the parties amended the Agreement to extend the
deadline for closing to February 28, 1995.
Following the Mergers, BANK IV Oklahoma will be able to offer Stillwater
Federal's customers a wide variety of lending programs, trust, international,
and mutual fund investment services
that Stillwater Federal does not offer currently.
Based on Fourth Financial's operations to date, management of OSI believes (but
can grant no assurance in the future) that shareholders will benefit from an
increased dividend payout, as well as the more liquid market for Fourth
Financial shares. After a long and studied
consideration of the above and other factors,
the Board of OSI unanimously concluded that it would be in the best interest of
the OSI shareholders to recommend approval of the Agreement and the OSI Merger
to its shareholders.
The Board of Directors of Fourth Financial approved the Agreement because it
believes the acquisition by Fourth Financial of a financial institution serving
the Stillwater, Oklahoma market is in the best interests of Fourth Financial and
its stockholders.
The Board of Directors of OSI has unanimously approved the Agreement and the
transactions contemplated thereby and recommends that OSI stockholders vote FOR
approval and adoption of the Agreement and the related OSI Merger Agreement.
Opinion of Financial Advisor to OSI
The Board of Directors of OSI retained Charles Webb & Company ("Webb") to
render a fairness opinion in connection with the OSI Merger. Webb has issued an
opinion dated July 21, 1994 and confirmed on November 8, 1994, that the OSI
Merger is fair, from a financial point of view, to the stockholders of OSI. The
opinion is included as Annex III to this Proxy Statement-Prospectus.
Webb is an investment advisory firm that is engaged, among other things, in
the evaluation of thrift institutions and their securities, the negotiation and
structuring of merger and acquisition transactions, and other financial advisory
matters for thrift institutions.
Under the terms of its agreement with OSI, Webb will be paid a fee of $40,000
for the issuance of a fairness opinion to OSI and its shareholders. OSI has
also agreed to indemnify Webb against certain liabilities under any applicable
federal or state law, including liabilities arising out of securities law.
In rendering its fairness opinion, Webb has relied, among other things, upon
its evaluation of financial and other information supplied to it by OSI,
Stillwater Federal, and Fourth Financial. Prior to execution of the Agreement,
Webb studied financial and other business data supplied by OSI and Stillwater
Federal, including audited financial statements for the years ended September
30, 1991, 1992, and 1993, and subsequent financial statements (unaudited) for
the quarters ended December 31, 1993, March 31, 1994, and June 30, 1994. In
addition, Webb analyzed proposals submitted by Fourth Financial, evaluated the
prices of OSI and Fourth Financial shares since the conversion of Stillwater
Federal in June 1993, reviewed the financial and stock market data of other
savings and loan companies and holding companies in Oklahoma and adjacent states
and the financial terms of other recent transactions involving mergers and
acquisitions of savings and loan associations. With particular regard to its
analysis of comparable transactions, Webb considered the nature and terms of ten
merger and acquisition transactions involving thrifts and thrift holding
companies which were pending or completed as of July 21, 1994. These
transactions involved publicly-traded thrift and thrift holding company
acquisition transactions which ranged in transaction value from approximately
$10 million to $25 million, compared to the
estimated transaction value of the OSI
transaction of $11.2 million upon the signing of the definitive agreement. Webb
selected ten acquisition transactions which they considered most closely
comparable to OSI. A comparison of the terms of the transactions involving
these ten companies indicated that
the consideration to be paid for OSI's common stock
was above the median level of the group as a multiple of price to book value,
151% as compared to 135% for the group (range: 105% to 183% for the group), and
as a multiple of price to earnings, the consideration was below the median, 9.3x
as compared to 13.6x for the group (range: 6.7x through 45.8x for the group).
In addition to the analysis of comparable merger and acquisition transactions
and the consideration of the audited financial statements of OSI and Stillwater
Federal for the fiscal years ended September 30, 1991, 1992, and 1993, Webb
discussed with the management and directors of OSI the outlook for the
companies, considered the regulatory environment
applicable to OSI and Stillwater Federal
and such other matters as it determined to be relevant to the fairness opinion
it has given.
Exchange Ratio
Upon consummation of the OSI Merger, all of the shares of OSI Stock
outstanding at the time the OSI Merger is effected will cease to exist, and each
share of OSI Stock will automatically be converted into the right to receive
0.84 share of Fourth Stock.
Interests of Certain Persons in the Mergers
In considering the recommendation of OSI's Board of Directors, OSI
stockholders should be aware that certain members of management of OSI and of
such Board have certain interests in the Mergers that are in addition to the
interests of stockholders generally and which may create potential conflicts of
interest.
Buchanan Employment Agreement. Beth F. Buchanan, President of OSI and
Stillwater Federal, is a party to an employment agreement dated January 1, 1994,
with Stillwater Federal that provides for her to be employed for a three-year
term, renewable annually, and for her to receive full payment of her
compensation for the unexpired portion of the
term of the agreement if her employment is
terminated other than for "cause" as defined in such agreement or if she resigns
as a result of a "loss of status," as defined in the agreement, or if her duties
are substantially reduced other than for "cause". The employment agreement also
provides that if her employment is terminated in connection with, or within 12
months of, a "change of control" of OSI or Stillwater Federal (such a "change of
control" will occur if the Mergers are effected), she is entitled to (i) a lump
sum payment equal to 299% of a base amount of compensation as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), and
(ii) continued payment of salary under her employment agreement. The Agreement
provides that, as a condition to Fourth Financial's obligation to effect the
Mergers, such employment agreement be replaced by an agreement between Ms.
Buchanan and BANK IV Oklahoma in which BANK IV Oklahoma will agree to pay her
the 299% of base compensation payment
to which she is entitled upon a change of
control in consideration of her agreeing to terminate her employment agreement.
Such payment will be approximately $220,000.It is anticipated that Ms. Buchanan,
whose 1994 annual compensation from Stillwater Federal will be approximately
$81,720, will be employed by BANK IV Oklahoma after the Effective Time in a
management capacity on an "at will basis" at an initial estimated base salary of
approximately $77,500 with an additional one-time payment of $7,500 upon her
commencing employment with BANK IV Oklahoma and will be provided an opportunity
to receive a bonus under BANK IV Oklahoma's standard bonus plan. Ms. Buchanan
will also receive an annual automobile allowance, the right to defer a portion
of her compensation under Fourth Financial's non-qualified deferred compensation
plan, a country club membership, and other employee benefits generally afforded
to officers of BANK IV Oklahoma of comparable employment grade.
Employee Stock Benefit Plans. Subject to obtaining a favorable ruling from
the Internal Revenue Service as to OSI's employee stock ownership plan's (the
"ESOP") existing and continuing tax-qualified status on or before June 30, 1995,
the Agreement provides that OSI's existing ESOP will be terminated as of the
Effective Time with all unallocated shares of Fourth Stock being allocated to
the existing participants in the ESOP and that the ESOP's assets, which will
consist primarily of 24,106 shares of Fourth Stock, will be distributed to the
participants in the ESOP at the Effective Time after repaying its existing
loan. If such letter is not received
by such date, the ESOP will be merged into an
existing savings and investment plan of Fourth if such merger would not
adversely affect Fourth Financial's plan
and in any event no unallocated shares will be
allocated to the current participants in the plan. If the favorable termination
letter is received by June 30, 1995 and the ESOP is terminated as of the
Effective Time, it is anticipated that Beth F. Buchanan, President and Chief
Executive Officer of OSI and Stillwater Federal, will receive approximately
2,274 shares of Fourth Stock upon such
distribution and that all executive officers and
directors of OSI as a group will receive an aggregate of 3,562 shares of Fourth
Stock from the ESOP. Of the shares of Fourth Stock that would be received by
Ms. Buchanan and the executive officers
and directors of OSI as a group, 1,805 and
2,790 shares, respectively, would be attributable to the allocation to such
persons of previously unallocated shares of OSI Stock as a result of the
Agreement.
The Agreement provides that all unexercised options that OSI has issued under
its 1993 Stock Option and Incentive Plan will either be exercised or terminated
and that all 10,045 shares of restricted stock issued under OSI's Recognition
and Retention Plan will be vested.
Beth F. Buchanan, President and Chief Executive
Officer of OSI and Stillwater Federal, holds options issued under such incentive
stock option plan to purchase 4,099 shares of OSI Stock, all executive officers
of OSI and Stillwater Federal (two persons) hold options to purchase an
aggregate of 6,149 shares of OSI Stock, and all
directors and executive officers of OSI and
Stillwater Federal as a group (7 persons) hold options to purchase an aggregate
of 16,803 shares. All of such options have an exercise price of $10.00 per
share. It is anticipated that all directors and executive officers of OSI and
Stillwater Federal will exercise all of their vested and unvested stock options
in connection with the OSI Merger. Beth F. Buchanan, President and Chief
Executive Officer of OSI and Stillwater Federal holds 2,460 shares of OSI
restricted stock, all executive officers of OSI and Stillwater Federal (2
persons) hold 3,075 shares of OSI restricted stock and all directors and
executive officers of OSI and Stillwater Federal as a group (7) persons hold
7,380 shares of OSI restricted stock, all of which will become vested at the
Effective Time. All shares of restricted stock and shares received upon the
exercise of stock options will be exchanged in the OSI Merger for the same
merger consideration as that received by all other OSI shareholders.
Continuation of Directors' and Officers' Liability Insurance. The Agreement
provides that Fourth Financial will provide directors' and officers' liability
insurance to the officers and directors of OSI and Stillwater Federal
comparable to that presently maintained by OSI. Such insurance coverage is to
be furnished for a three-year period commencing at the Effective Time.
Membership on Advisory Board of Directors of BANK IV Oklahoma. The Agreement
provides that the persons serving as directors of Stillwater Federal at the
Effective Time will be invited to be members of an "advisory board of directors"
of BANK IV Oklahoma to serve at the pleasure of BANK IV Oklahoma. Such persons,
who are not officially directors of BANK IV Oklahoma, serve in an advisory and
goodwill capacity in the various local markets in which BANK IV Oklahoma has
major branches. Local advisory directors of BANK IV Oklahoma currently receive
fees of $450 per meeting, with eight meetings anticipated each year.
Conditions to and Abandonment of the Mergers; Amendment
The respective obligations of Fourth Financial and OSI to effect the Mergers
are subject to the satisfaction and continuance in effect as of the Effective
Time of a number of conditions, among which are the following: (i) the
representations and warranties made by each party shall be true in all material
respects; (ii) the requisite approvals of the stockholders of OSI shall have
been obtained; (iii) all necessary
governmental approvals shall have been obtained;
(iv) absence of litigation or judicial decree or order preventing the Mergers;
(v) receipt of certain legal opinions and certificates; (vi) receipt of certain
agreements from "affiliates" of OSI concerning future sales of the Fourth Stock
to be received by them in the OSI Merger; (vii) the performance by the parties
of their respective covenants contained in the Agreement; (viii) Stillwater
Federal having a minimum net worth of at least $6,600,000, calculated in
accordance with generally accepted accounting principles including any
adjustment required by Financial Accounting
Standards ("FAS") No. 109 to properly record the
effect of income taxes, but excluding any adjustments required by FAS No. 115 to
adjust Stillwater Federal's available-for-sale investment securities portfolio
to market value and all accounting entries made in anticipation of the Mergers;
(ix) all of OSI's existing stock options being exercised or cancelled by receipt
of the Merger Consideration less the exercise price per share in accordance with
the agreements pursuant to which they were granted by the Effective Time; (x)
the holders of not more than 5% of the issued and outstanding OSI Stock having
validly exercised their rights as dissenting stockholders of OSI; (xi) Ms.
Buchanan executing the employment agreement with BANK IV Oklahoma described
elsewhere in this Proxy Statement-Prospectus; (xii) OSI having received the
"fairness opinion" described elsewhere in this Proxy Statement-Prospectus; and
(xiii) Fourth Financial having received satisfactory environmental reports on
Stillwater Federal's real properties indicating aggregate potential
environmental liabilities or clean-up costs would not exceed $150,000.
It is contemplated that all of the closing conditions will be satisfied prior
to consummation of the Mergers, but the Agreement specifically permits any party
to waive occurrence of any of such conditions other than those required by law,
such as obtaining stockholder and governmental approvals. No waiver of a
condition will be made that would be materially adverse to OSI stockholders.
Subject to applicable law, either before or after stockholder approval, the
Agreement may only be amended by written instrument executed by both parties.
Termination; Termination Fee
The Agreement may be terminated and the Mergers abandoned at any time prior
to the Effective Time, before or after approval of the Agreement by the
stockholders of OSI, either by mutual consent of the parties or by either Fourth
Financial or OSI in the event of a material breach of a covenant or
representation or warranty by the other which is not remedied within 30 days of
delivery of written notice thereof. The Agreement was amended on November 8,
1994 to provide that, unless extended by written agreement of the parties, the
Agreement will terminate automatically if the conditions to closing have not
occurred on or before February 28, 1995.
OSI has agreed not to initiate or solicit any offers or discussions or
negotiations with respect to any merger, consolidation, or other form of
business combination involving OSI or
Stillwater Federal, the sale of substantially all
of the assets of either of them, or the acquisition of the capital stock of
either of them by any potential acquiror by means of a tender offer or
otherwise, but such provision does not
prohibit the OSI Board of Directors from considering
and accepting (after affording Fourth Financial a reasonable opportunity to
discuss such offer directly with the Board of Directors of OSI and an
opportunity to match such offer) an offer that
has not been solicited by OSI or anyone acting
on its behalf that, in the opinion of OSI's legal counsel, the OSI Board of
Directors is obligated to consider in order to fulfill its fiduciary obligations
to OSI's stockholders. If, however, OSI terminates the Agreement in order to
accept any such offer, OSI is obligated to pay Fourth Financial $500,000 plus
all of Fourth Financial's documented out-of-pocket expenses reasonably incurred
by Fourth Financial and its subsidiaries in negotiating, preparing, executing,
and performing the Agreement and in preparing for the Mergers up to a maximum of
$300,000.
The Agreement and OSI Merger Agreement may also be terminated by either OSI
or Fourth Financial, if, without fault on the part of the party terminating the
Agreement, the OSI Merger Agreement is not approved by the OSI stockholders or
if there had been a denial of a required approval or the granting of a required
approval contingent upon compliance with terms reasonably deemed onerous by
Fourth Financial.
Effective Time
The Agreement provides that, unless otherwise agreed, the Effective Time will
be on a date no later than the last day of the month in which the last required
regulatory approval is received and the latest legally required waiting period
expires but not later than February 28, 1995. The parties have agreed to exert
their best efforts to cause the Effective Time to be on or before February 28,
1995. The closing could be delayed because of the pending protest filed with
the OCC by a community coalition described above in the Summary section of this
Proxy Statement-Prospectus.
Covenants
The Agreement contains certain covenants to which OSI and Fourth Financial
have agreed. Among those covenants are agreements that, without the prior
consent of Fourth Financial, neither Stillwater Federal nor OSI will: amend any
of its charter documents; issue any capital stock except upon exercise of OSI's
existing options; dispose of any of its assets other than in the usual course of
business; enter into any material contract not in the ordinary course of
business; or enter into any transaction or take any other action which would
constitute a breach of any of the representations, warranties, or covenants
contained in the Agreement. OSI has also agreed to conduct its and Stillwater
Federal's businesses in the ordinary course as previously conducted, to take all
necessary actions to assist in obtaining governmental approvals and to cause the
Mergers to be consummated in accordance with the Agreement, to cooperate with
Fourth Financial in obtaining title insurance policies, "Phase I" environmental
reports, and surveys covering certain of Stillwater Federal's real property, and
to exert its best efforts to cause all existing options to acquire OSI Stock to
be exercised or cancelled prior to the Effective Time. OSI has also agreed to
cause the federal stock charter of Stillwater Federal to be amended to delete,
effective the Effective Time, provisions prohibiting the beneficial ownership of
more than 10% of any class of Stillwater Federal's equity securities. In
addition to customary covenants by Fourth Financial that it will utilize its
best efforts to effect the Merger in accordance
with the terms and conditions of the
Agreement, Fourth Financial has expressly agreed that: all employees of OSI and
Stillwater Federal who become employees of BANK IV Oklahoma after the Effective
Time will receive substantially the same employee benefits that BANK IV Oklahoma
employees receive; Fourth Financial will honor its acquisition severance
schedule previously furnished to OSI with
respect to OSI's and Stillwater Federal's
employees who are terminated due to job eliminations within six months of the
Effective Time; neither Fourth Financial nor its subsidiaries will amend any of
their charter documents so as to materially adversely affect the rights of OSI
stockholders who become Fourth Financial stockholders pursuant to the OSI
Merger; and neither it nor its subsidiaries
will enter into any contract with another
party which will materially interfere with the consummation of the Agreement and
the OSI Merger Agreement.
Dividends
The Agreement provides that without the consent of Fourth Financial neither
OSI nor Stillwater Federal may declare or pay any cash dividends prior to the
Effective Time, except that if the Effective Time is subsequent to November 15,
1994 (as will be the case) OSI may declare and pay a quarterly cash dividend per
share of OSI Stock equal to the product of 0.84 multiplied by the per share
quarterly cash dividend declared by Fourth Financial on Fourth Stock prior to
the Effective Time. It is anticipated that a cash dividend of at least $0.218
per share will be declared by OSI to be paid prior to the Effective Time to OSI
stockholders.
Exchange of Certificates; Fractional Shares
As soon as practicable following the consummation of the OSI Merger, OSI
stockholders will be notified by Fourth Financial of the procedure to be
followed to exchange their stock certificates for certificates of Fourth Stock.
Until surrendered for exchange, each currently outstanding OSI stock
certificate will be deemed to represent the right to receive the Fourth Stock
into which such stock has been converted in the OSI Merger. No dividends or
other form of distribution declared by Fourth Financial will be paid to former
OSI stockholders until the OSI stock certificates are surrendered and exchanged
for Fourth Stock certificates. Upon surrender and exchange of OSI stock
certificates, there will be paid to the record holders of the Fourth Stock
certificates issued in exchange the amount, without interest thereon, of
dividends and other distributions, if any, which would otherwise have become
payable on or after the Effective Time with respect to the number of full shares
of Fourth Stock represented thereby.
No fractional shares of Fourth Stock will be issued in the OSI Merger. Each
person otherwise entitled to a fractional share will be paid the cash value for
such fractional share, without interest, based on the closing sales price for
Fourth Stock in the NASDAQ National Market System two trading days preceding the
Effective Time as reported in the Southwest Edition of The Wall Street Journal.
Management After the Mergers
The Agreement provides that the current officers and directors of Fourth
Financial will continue to be the officers and directors of Fourth Financial
after the Mergers. Information concerning the executive officers of Fourth
Financial is contained in Item 1 of the Form 10-K of Fourth Financial for the
year ended December 31, 1993 ("Fourth 10-K") under the caption "Executive
Officers of the Registrant" and information concerning the directors of Fourth
Financial is contained in the revised proxy statement for Fourth Financial's
annual meeting of stockholders held on April 21, 1994, under the caption
"Election of Directors", both of which descriptions are hereby incorporated by
reference.
Accounting Treatment
Fourth Financial anticipates that it will treat the Mergers as a purchase of
assets for accounting and financial reporting purposes.
Certain Federal Income Tax Consequences
The following discussion is a general summary of the material federal income
tax consequences of the OSI Merger to OSI stockholders and does not purport to
be a complete analysis or listing of all potential tax considerations or
consequences relevant to a decision whether to vote for the approval of the OSI
Merger. The discussion does not address all aspects of federal income taxation
that may be applicable to OSI stockholders subject to special federal income tax
treatment including (without limitation) foreign persons, insurance companies,
tax-exempt entities, retirement plans, dealers in securities, and persons who
acquired their OSI Stock pursuant to the exercise of employee stock options or
otherwise as compensation. The discussion addresses neither the effect of any
applicable state, local, or foreign tax laws, nor the effect of any federal tax
laws other than those pertaining to the federal income tax. In view of the
individual nature of federal income tax consequences, each OSI stockholder is
urged to consult his or her own tax advisor to determine the specific tax
consequences of the OSI Merger to him or her.
The discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), regulations and rulings now in effect or proposed thereunder, current
administrative rulings and practice, and judicial precedent, all of which are
subject to change. Any such change, which may or may not be retroactive, could
alter the tax consequences discussed herein. The discussion is also based on
certain assumptions and representations regarding the factual circumstances that
will exist at the Effective Time, including certain representations of Fourth
Financial, OSI, and certain stockholders of OSI. If any of these factual
assumptions or representations is inaccurate, the tax consequences of the OSI
Merger could differ from those described herein. The discussion assumes that
shares of OSI Stock are held as capital assets (within the meaning of Section
1221 of the Code).
Tax Opinion
- -----------
OSI has obtained the opinion of Deloitte & Touche LLP as follows:
Taxation of Shares Exchanged in the OSI Merger
1. The OSI Merger should qualify as a reorganization under Section
368(a)(1)(A) of the Code. Fourth and OSI should both be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
2. No gain or loss should be recognized by OSI shareholders upon the
exchange of their OSI Stock (including fractional share interests that
they might otherwise be entitled to receive) solely for Fourth Stock, by
reason of the application of Section 354(a)(1) of the Code.
3. The basis of Fourth Stock (including fractional share interests
that they might otherwise be entitled to receive) received by the
shareholders of OSI should be the same as the basis of the OSI Stock
exchanged therefor, by reason of the application of Section 358(a)(1) of
the Code.
4. The holding period of the Fourth Stock (including fractional
interests that they might otherwise be entitled to receive) received by
the OSI shareholders should include the holding period of the OSI Stock
surrendered in the exchange, provided the OSI Stock was held as a capital
asset on the date of the exchange, by reason of the application of Section
1223(1) of the Code.
Taxation of Cash Received in the OSI Merger
1. Cash received by a shareholder of OSI otherwise entitled to
receive a fractional share of Fourth Stock in exchange for his OSI Stock
should be treated as if the fractional shares were distributed as part of
the exchange and then were redeemed by Fourth Financial. These cash
payments should be treated as having been received as distributions in
full payment in exchange for the stock redeemed as provided in Section
302(a) of the Code. This receipt of cash should result in gain or loss
measured by the difference between the basis of such fractional share
interest and the cash received. Such gain or loss should be capital gain
or loss to the OSI shareholder, provided the OSI Stock was a capital asset
in such shareholder's hands and as such, should be subject to the
provisions and limitations of Subchapter P of Chapter 1 of the Code (Rev.
Rul. 66-365 and Rev. Proc. 77-41).
2. Where cash is received by a dissenting OSI shareholder, such cash
should be treated as received by the OSI shareholder as a distribution in
redemption of his stock, subject to the provisions and limitations of
Section 302 of the Code. This receipt of cash should result in gain or
loss measured by the difference between the basis of such stock and the
cash received. Such gain or loss should be capital gain or loss to the
OSI shareholder, provided the OSI Stock was a capital asset in such
shareholder's hands and as such, should be subject to the provisions and
limitations of Subchapter P of Chapter 1 of the Code.
Such opinion is subject to the conditions stated therein and relies on various
representations made by Fourth and OSI. Copies of the opinion are available,
without charge, to OSI stockholders upon written request to OSI. An opinion of
Deloitte & Touche LLP, unlike a private letter ruling from the Internal Revenue
Service (the "Service"), has no binding effect on the Service. The Service could
take a position contrary to Deloitte & Touche LLP's opinion and, if the matter
is litigated, a court may reach a decision contrary to the opinion. No ruling
from the Service with respect to any federal income tax consequences of the OSI
Merger has been or will be requested. Each OSI stockholder who contemplates
exercising dissenter's rights should consult his or her own tax advisor as to
the possibility that any payment to him or her will be treated as dividend
income.
Withholding
Under federal backup withholding rules, unless an exemption applies under the
applicable law and regulations, Fourth Financial or the exchange agent engaged
by it will be required to withhold 31% of all cash payments of $20 or more made
in exchange for fractional shares unless the OSI stockholder or other payee
provides his or her taxpayer identification number (social security number in
the case of an individual, employer identification number in the case of other
taxpayers) and certifies that such number is correct. Each OSI stockholder and,
if applicable, each other payee should complete and sign the Substitute W-9 form
that will be included as part of the letter of transmittal mailed to OSI
stockholders after the Effective Time so as to provide the information and
certification necessary to avoid backup withholding, unless an applicable
exemption exists and is proved in a manner satisfactory to Fourth Financial.
THE FOREGOING IS A GENERAL SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE OSI MERGER AND IS INCLUDED FOR GENERAL INFORMATION ONLY. THE FOREGOING
SUMMARY DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OF
EACH OSI STOCKHOLDER'S FEDERAL INCOME
TAX STATUS AND ATTRIBUTES. AS A RESULT, THE
FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING SUMMARY MAY NOT APPLY
TO EACH OSI STOCKHOLDER. EACH OSI STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER TAX
LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX LAWS.
Resales of Fourth Stock Issued in the OSI Merger; Affiliates
Shares of Fourth Stock received by persons who are deemed to be "affiliates",
as such term is defined in the rules of the Commission promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), of OSI prior to the
OSI Merger may be resold by them during the two years after the Effective Time
only in transactions permitted by the resale provisions of Rule 145 promulgated
under the Securities Act or as otherwise permitted under the Securities Act. The
Agreement provides that OSI will furnish Fourth Financial a list of its
affiliates and such persons are required to execute and deliver a written
agreement to the effect that they will not offer or sell shares of Fourth Stock
received in the OSI Merger in violation of the Securities Act or the rules and
regulations of the Commission promulgated thereunder.
All certificates evidencing Fourth Stock issued in the OSI Merger to
affiliates of OSI will bear a legend restricting transfer of such shares as
described above.
Expenses
Each party to the Agreement is to pay its own expenses incurred in connection
therewith and in connection with the consummation of the Mergers whether or not
the Mergers are effected. It is anticipated that OSI's expenses will be
approximately $180,000 including the $40,000 fee to be paid to Charles Webb &
Company, and that Fourth Financial's expenses will be approximately $125,000.
In addition to the solicitation of proxies by use of the mail, OSI may utilize
the services of its officers and directors, who will receive no additional
compensation, to solicit proxies personally and by telephone from stockholders.
The costs of preparing and mailing these proxy solicitation materials and other
costs attributable to the Special Meeting are to be borne by OSI regardless of
whether the Agreement and the OSI Merger Agreement are approved at the Special
Meeting.
Appraisal Rights of Dissenting OSI Stockholders
Set forth below is a discussion of appraisal rights generally available to
stockholders of Delaware corporations. A stockholder of OSI who desires to
dissent from the Agreement and the OSI Merger Agreement pursuant to Section 262
of the Delaware General Corporation Law and receive cash payment for his or her
shares must comply with each of the following conditions and requirements:
1. Such stockholder must deliver to OSI before the taking of the vote on
the Agreement and the OSI Merger Agreement a written demand for appraisal of
such stockholder's shares. Such demand should be delivered or mailed in time to
arrive before the vote at the Special Meeting to Oklahoma Savings, Inc., 601
South Husband, Stillwater, Oklahoma 74074, Attention: Vickie L. Nickels,
Secretary. Such a written demand must be made in addition to, and separate from,
any proxy or vote against adoption and approval of the Agreement. Neither a
proxy vote against, nor a vote at the meeting against, nor a failure to vote
for, nor abstaining from voting on
the Agreement and the OSI Merger Agreement will
constitute the required written demand. Unless a stockholder files the written
demand as provided above, he or she will not have any rights as a dissenting
stockholder.
2. Such stockholder must not vote by proxy or in person in favor of
adoption and approval of the Agreement and the OSI Merger Agreement. A
stockholder who executes and returns an unmarked proxy will have his or her
shares of OSI Stock voted in favor of the Agreement and the OSI Merger Agreement
and as a consequence thereof will be foreclosed from exercising any rights as a
dissenting stockholder. A stockholder who abstains from voting by marking a
proxy "Abstain" or by otherwise not voting will not thereby be foreclosed from
exercising dissenters' rights. The failure of a stockholder to vote at the OSI
Special Meeting will not constitute a waiver of his or her rights as a
dissenting stockholder.
Within ten days from the Effective Time, Fourth Financial must mail to any
stockholder who has complied with the two conditions described above (a
"Dissenting Stockholder") written notice that the OSI Merger has become
effective and include a copy of Section 262 of
the Delaware General Corporation Law. A
Dissenting Stockholder who desires to pursue his or her rights as a dissenting
stockholder then has 20 days from the date Fourth Financial mails such notice in
which to demand in writing from Fourth Financial payment of the value of his or
her stock.
Upon written request made within 120 days of the Effective Time, any
Dissenting Stockholder is entitled to receive from Fourth Financial a statement
setting forth the aggregate number of shares not voted in favor of the OSI
Merger and with respect to which demands for appraisal have been received and
the aggregate number of holders of such shares.
If, within 120 days following the Effective Time, Fourth Financial and any
Dissenting Stockholder fail to agree on the value of the stockholder's shares,
either Fourth Financial or any Dissenting Stockholder may file a petition with
the Delaware Court of Chancery for a determination by the court of the value of
the stock of all Dissenting Stockholders. All Dissenting Stockholders, whether
or not residents of the State of Delaware, would be parties to such action. If
such an action is commenced, Fourth Financial would be required to file a
verified list with the Register in Chancery in which the action is commenced
containing the names and addresses of all Dissenting Stockholders.
After notice of the hearing is both mailed and published, the court would
then hold a hearing to determine the stockholders who have perfected their
dissenters' rights and may require all such persons to submit their OSI stock
certificates to the Register in Chancery for notation thereon of the pendency of
the appraisal proceedings, and may dismiss the proceedings with respect to any
Dissenting Stockholder who fails to comply with that order. The court would
then, taking into account all relevant factors, determine the fair value of the
stock of all of the Dissenting Stockholders exclusive of any element of value
arising from the accomplishment or expectation of the merger, and order its
payment to the Dissenting Stockholders, together with interest, if any, by
Fourth Financial to the stockholders
entitled thereto. Interest, if awarded, may be
simple or compound as the court may direct. Court costs would be taxed upon the
parties as the court directs. Payment shall be made by Fourth Financial to the
Dissenting Stockholders upon the surrender to Fourth Financial of the
certificates representing such stock. The costs of the proceedings may be
assessed against the parties as the court deems equitable under the
circumstances. Upon application of any Dissenting Stockholder, the court may
order all or a portion of the expenses incurred by any Dissenting Stockholder in
connection with the appraisal proceedings, including, without limitation,
reasonable attorney's fees and the fees and expenses of experts, to be charged
pro rata against all of the shares entitled to an appraisal.
Any OSI stockholder who has duly demanded appraisal in compliance with
Section 262 of the Delaware General Corporation Law will not, after the
Effective Time, be entitled to vote for
any purpose the shares of OSI Stock subject to such
demand or to receive payment of dividends or other distributions with respect to
the shares held by such holder, except for dividends or distributions payable to
stockholders of record at a date prior to the Effective Time of the OSI Merger.
A demand for appraisal must be made by or for and in the name of the
stockholder of record, fully and correctly, as such stockholder's name appears
on the stockholder's stock certificates. Such demand cannot be made by the
beneficial owner if the stockholder does not also hold the shares of record. If
the stock is owned of record in a fiduciary capacity, such as by a trustee,
guardian, or custodian, such demand must be executed by the fiduciary. If the
stock is owned of record by more than one person, as in a joint tenancy or
tenancy in common, such demand must be executed by all joint owners. An
authorized agent, including an agent for two or more joint owners, may execute
the demand for appraisal for a stockholder of record; however, the agent must
identify the record owner and expressly disclose the fact that, in exercising
the demand, he or she is acting as agent for the record owner.
If so directed by the beneficial owner or owners, a record owner, such as a
broker, who holds stock as a nominee for others, may exercise the right of
appraisal with respect to the shares held for all or less than all beneficial
owners of shares held by the record owner. In such case, the written demand must
set forth the number of shares as to which appraisal is sought. If the number
of shares as to which appraisal is sought is not expressly mentioned, the demand
will be presumed to cover all shares of stock outstanding in the name of such
record owner. Persons whose shares are held by brokers or other nominees and who
desire to exercise dissenters' rights of appraisal should consider either (a)
arranging to have their shares transferred into their own names of record and
making the necessary written demand for appraisal or (b) arranging to have their
broker or other nominee, as the case may be, take all of the steps necessary to
comply with the applicable statute.
Stockholders who have elected to dissent are bound by their election unless
they withdraw their demand within 60 days after the Effective Time and may not
thereafter withdraw their election and receive Fourth Stock without the written
consent of Fourth Financial.
The foregoing discussion of dissenters' rights is a summary only and is
qualified in its entirety by reference to Annex II to this Proxy
Statement-Prospectus.
Comparative Rights of Stockholders
Although the Kansas General Corporation Code, under which Fourth Financial
is organized, is patterned closely after the Delaware General Corporation Law,
under which OSI is organized, the rights of the stockholders of OSI are
different from the rights of stockholders of Fourth Financial with respect to
several significant matters:
1. Cumulative voting is in effect in the election of Fourth Financial
directors. OSI does not have cumulative voting for election of directors.
Cumulative voting means that each stockholder is entitled, in voting for
directors, to as many votes as equals the number of shares of stock held by him
or her on the record date multiplied by the number of directors to be elected,
and such votes may all be cast for a single candidate or may be distributed
among several or all of the candidates as the stockholder sees fit.
2. The Certificate of Incorporation of OSI provides that, with certain
exceptions, the affirmative vote of the holders of at least 80% of OSI Stock
(not including shares held by the proposed seller) is required before OSI may
purchase any shares of any equity security issued by OSI from anyone owning 5%
or more of the outstanding OSI Stock. The organizational documents of Fourth
Financial have no such requirement.
3. The Certificate of Incorporation of OSI provides that the beneficial
owner of more than 10% of the outstanding OSI Stock may not vote any shares so
held in excess of the 10% limit. The organizational documents of Fourth
Financial have no such restriction.
The foregoing discussion of certain similarities and material differences
between the rights of OSI and Fourth Financial stockholders under their
respective charter documents and state laws is only a summary of certain
provisions and does not purport to be a complete description of such
similarities and differences, and is qualified
in its entirety by reference to the General
Corporation Law of Delaware, the General Corporation Code of Kansas, the common
law under such statutes, and the full texts of the Certificate of Incorporation
of OSI, the Restated Articles of Incorporation of Fourth Financial, the
respective Bylaws of OSI and Fourth Financial, and all amendments thereto.
PRO FORMA FINANCIAL STATEMENTS
FOURTH FINANCIAL CORPORATION,
AND OKLAHOMA SAVINGS, INC. (Pending Acquisition)
The following unaudited pro forma condensed consolidated statement
of condition as of June 30, 1994 combines (1) the amounts shown in the
historical consolidated statement of condition of Fourth Financial and
(2) the amounts shown in the historical consolidated statement of
condition of OSI, both as of June 30, 1994. The combination of OSI is
based on the purchase method of accounting. The pro forma condensed
consolidated statement of condition is not necessarily indicative of
the combined financial position as it may be in the future or as it
might have been had the acquisition been consummated on June 30, 1994.
The following notes describe the assumptions used in this pro forma
condensed consolidated statement of condition. This pro forma
condensed consolidated statement should be read in conjunction with the
other pro forma and historical financial statements and notes thereto
appearing elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CONDITION
June 30, 1994
(Unaudited)
(Dollars in thousands, except per share amounts)
Fourth Pro Forma
-------------------------
Financial OSI Adjustments Combined
----------- --------- ----------- ----------
ASSETS:
<S> <C> <C> <C> <C>
Cash and due from banks . . . . . . . . . . . . . . . . . $ 391,918 $ 5,755 $ -- $ 397,673
Interest-bearing deposits in other financial institutions. 1,829 1,089 -- 2,918
Investment securities. . . . . . . . . . . . . . . . . . . 3,275,160 17,226 (209) B 3,292,177
Trading account securities . . . . . . . . . . . . . . . . 1,833 -- -- 1,833
Federal funds sold and securities purchased
under agreements to resell. . . . . . . . . . . . . . . . 16,705 -- 239 A 16,944
Loans and leases . . . . . . . . . . . . . . . . . . . . . 3,620,509 71,635 -- 3,692,144
Allowance for credit losses. . . . . . . . . . . . . . . . (73,573) (840) -- (74,413)
---------- --------- -------- ----------
Net loans and leases . . . . . . . . . . . . . . . . . . 3,546,936 70,795 -- 3,617,731
Bank premises and equipment. . . . . . . . . . . . . . . . 155,425 946 -- 156,371
Income receivable and other assets . . . . . . . . . . . . 146,189 1,170 11,168 B 147,803
444 C
(11,168) C
Intangible assets, net . . . . . . . . . . . . . . . . . . 109,537 -- 4,046 C 113,583
---------- --------- -------- ----------
Total assets . . . . . . . . . . . . . . . . . . $7,645,532 $ 96,981 $ 4,520 $7,747,033
---------- --------- -------- ----------
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . $5,722,781 $ 89,074 $ -- $5,811,855
Other borrowings . . . . . . . . . . . . . . . . . . . . . 1,213,074 260 -- 1,213,334
Accrued interest, taxes, and other liabilities . . . . . . 107,148 359 929 C 108,436
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 9,532 -- -- 9,532
---------- --------- -------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . 7,052,535 89,693 929 7,143,157
---------- --------- -------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock. . . . . . . . . . . . . . . . . . . . . . 100,000 -- -- 100,000
Common stock . . . . . . . . . . . . . . . . . . . . . . . 136,010 4 78 B 136,088
(4) C
Capital surplus. . . . . . . . . . . . . . . . . . . . . . 106,540 3,720 239 A 107,576
1,036 B
(3,959) C
Retained earnings. . . . . . . . . . . . . . . . . . . . . 266,659 3,853 (3,853) B 266,659
Less: Stock option loans and ESOP loans. . . . . . . . (1,793) (289) -- (2,082)
Treasury stock . . . . . . . . . . . . . . . . . (10,054) -- 10,054 B --
Unrealized gains on available-for-sale securities. . . . . (4,365) -- -- (4,365)
---------- --------- -------- ----------
Total stockholders' equity . . . . . . . . . . . 592,997 7,288 3,591 603,876
---------- --------- -------- ----------
Total liabilities and stockholders' equity . . $7,645,532 $ 96,981 $ 4,520 $7,747,033
========== ========= ======== ==========
Book value per share of common stock . . . . . . . . . . . $18.36 $18.51
====== ======
Risk-based capital ratios:
Tier I (regulatory minimum 4%) . . . . . . . . . . . . 10.97% 10.93%
Total (regulatory minimum 8%). . . . . . . . . . . . . 12.22 12.18
Leverage capital ratio (regulatory minimum 3%) . . . . . . 7.00 7.00
</TABLE>
Pro forma adjustments and notes to the condensed consolidated
statement of condition are as follows (dollars in thousands):
(A) To record the exercise of options for 23,149 of OSI shares
pursuant to OSI's 1993 Stock Option and Incentive Plan.
(B) To record the issuance of 372,262 shares of Fourth Stock in
exchange for the 443,169 shares of OSI Stock estimated to be
outstanding at consummation. The 356,684 shares of Fourth
Stock held in treasury will be reissued in this transaction.
This transaction is to be accounted for as a purchase. For
purposes of the pro forma financial statements the Fourth
Stock was valued at $30 per share.
(C) To eliminate equity accounts and reflect the purchase method
of accounting:
Investment securities . . . . . . . . . . . . . . . 209
Income receivable and other assets. . . . . . . . . 444
Investment in subsidiary. . . . . . . . . . . . . . 11,168
Intangible assets (cost in excess of
net assets acquired) . . . . . . . . . . . . . . . 4,046
Accrued interest, taxes, and other liabilities. . . 929
The purchase price has been allocated to the identifiable assets
and liabilities acquired based upon the estimate of their fair
values with the excess allocated to cost in excess of net assets
acquired. As required by Statement of Financial Accounting
Standard No. 109 "Accounting for Income Taxes," deferred taxes
have been recorded for the difference between the tax basis and
book basis of the net assets at an effective rate of 39%.
Cost in excess of net assets acquired is being amortized on the
straight-line method over 20 years.
Pro forma book value per share of common stock is based on the
26,845,241 issued and outstanding shares of common stock of Fourth
Financial at June 30, 1994 and the 372,262 shares anticipated to be
issued in the pending OSI acquisition.
PRO FORMA FINANCIAL STATEMENTS
FOURTH FINANCIAL CORPORATION,
EQUITY BANK FOR SAVINGS, F.A., AND EMPRISE BANK, NATIONAL ASSOCIATION
(Recent Acquisitions), AND OKLAHOMA SAVINGS, INC. (Pending Acquisition)
The following unaudited pro forma condensed consolidated
statements of income for the six months ended June 30, 1994 and 1993
and for the year ended December 31, 1993, combine (1) the amounts shown
in the historical consolidated statements of income of Fourth
Financial, which have been restated for pooling-of-interest
transactions consummated prior to June 30, 1994, (2) the amounts shown
in the historical consolidated statements of income of Equity (acquired
May 26, 1994 and not presented separately herein), (3) the amounts
shown in the historical consolidated statements of income of Emprise
(acquired May 31, 1994 and not presented separately herein), and (4)
the amounts shown in the historical consolidated statements of income
of OSI. The historical financial statements of Fourth Financial,
Equity, and Emprise all reflect December 31 year ends. OSI's
historical financial statements reflect its September 30 fiscal year
end. The combinations of Equity, Emprise, and OSI are based on the
purchase method of accounting assuming, for pro forma purposes only,
the acquisitions had been consummated at January 1, 1993, and other
assumptions described in the following notes. The pro forma results
for the year ended December 31, 1993 are not necessarily indicative of
the results as they may be in the future. The pro forma results for
the six months ended June 30, 1994 and 1993 also are not necessarily
indicative of the results for a full year. The pro forma condensed
consolidated statements of income should be read in conjunction with
the other pro forma and historical financial statements and notes
thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Six Months Ended Year Ended
June 30, December 31,
-------------------------- ------------
1994 1993 1993
---------- ---------- ------------
Interest income:
<S> <C> <C> <C>
Interest and fees on loans . . . . . . . . . . . . . $152,634 $146,430 $298,580
Interest on short-term investments . . . . . . . . . 829 1,827 2,689
Interest and dividends on investment securities. . . 91,629 93,870 192,433
Interest and dividends on trading
account securities. . . . . . . . . . . . . . . . . 54 66 135
-------- -------- --------
Total interest income. . . . . . . . . . . . . . . 245,146 242,193 493,837
-------- -------- --------
Interest expense:
Interest on deposits . . . . . . . . . . . . . . . . 80,861 90,933 179,924
Interest on other borrowings . . . . . . . . . . . . 19,270 9,330 24,153
Interest on long-term debt . . . . . . . . . . . . . 692 1,283 2,273
-------- -------- --------
Total interest expense . . . . . . . . . . . . . . 100,823 101,546 206,350
-------- -------- --------
Net interest income. . . . . . . . . . . . . . . . . . 144,323 140,647 287,487
Provision for credit losses. . . . . . . . . . . . . . 938 7,270 9,251
-------- -------- --------
Net interest income after provision
for credit losses . . . . . . . . . . . . . . . . . . 143,385 133,377 278,236
Noninterest income . . . . . . . . . . . . . . . . . . 57,331 52,934 108,767
Noninterest expense. . . . . . . . . . . . . . . . . . 139,807 147,598 296,369
-------- -------- --------
Income before income taxes and cumulative
change in accounting principle. . . . . . . . . . . . 60,909 38,713 90,634
Income taxes . . . . . . . . . . . . . . . . . . . . . 20,559 9,064 21,885
-------- -------- --------
Income before minority interest
and cumulative change in
accounting principle. . . . . . . . . . . . . . . . . 40,350 29,649 68,749
Minority interest. . . . . . . . . . . . . . . . . . . -- -- (355)
-------- -------- --------
Income before cumulative change in
accounting principle. . . . . . . . . . . . . . . . . $ 40,350 $ 29,649 $ 68,394
======== ======== ========
Income before cumulative change in
accounting principle applicable
to common and common-equivalent shares. . . . . . . . $ 36,850 $ 26,149 $ 61,394
======== ======== ========
Earnings before cumulative change in
accounting principle per common share:
Primary. . . . . . . . . . . . . . . . . . . . . . . $1.36 $1.00 $2.33
===== ===== =====
Fully diluted. . . . . . . . . . . . . . . . . . . . $1.32 $ .98 $2.25
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Six Months Ended June 30, 1994
(Unaudited)
(In thousands, except per share amounts)
Equity
and Emprise
Fourth (Recent Pro Forma
-----------------------
Financial Acquisitions) OSI Adjustments Combined
----------- ------------- ------------ ----------- ----------
Interest income:
<S> <C> <C> <C> <C> <C> <C>
Interest and fees on loans . . . . . . . . $138,260 $13,165 $ 2,767 $ (687) A $ 152,634
(620) C
(251) D
Interest on short-term investments . . . . 623 417 107 1,609 B 829
(1,658) D
(127) F
(142) G
Interest and dividends on
investment securities . . . . . . . . . . 85,885 5,034 476 215 C 91,629
19 E
Interest and dividends on trading
account securities. . . . . . . . . . . . 54 -- -- -- 54
-------- ------- ------ -------- ----------
Total interest income. . . . . . . . . . 224,822 18,616 3,350 (1,642) 245,146
-------- ------- ------ -------- ----------
Interest expense:
Interest on deposits . . . . . . . . . . . 72,431 7,148 1,686 (404) C 80,861
Interest on other borrowings . . . . . . . 17,655 1,600 8 (1) A 19,270
(142) G
150 C
Interest on long-term debt . . . . . . . . 692 -- -- -- 692
-------- ------- ------ -------- ----------
Total interest expense . . . . . . . . . 90,778 8,748 1,694 (397) 100,823
-------- ------- ------ -------- ----------
Net interest income. . . . . . . . . . . . . 134,044 9,868 1,656 (1,245) 144,323
Provision for credit losses. . . . . . . . . 275 540 123 -- 938
-------- ------- ------ -------- ----------
Net interest income after provision
for credit losses . . . . . . . . . . . . . 133,769 9,328 1,533 (1,245) 143,385
Noninterest income . . . . . . . . . . . . . 50,962 7,910 259 (1,800) A 57,331
Noninterest expense. . . . . . . . . . . . . 124,891 12,798 1,200 662 A 139,807
155 C
101 E
-------- ------- ------ -------- ----------
Income before income taxes
and cumulative change in
accounting principle. . . . . . . . . . . . 59,840 4,440 592 (3,963) 60,909
Income taxes . . . . . . . . . . . . . . . . 20,497 535 187 (46) A 20,559
628 B
(458) C
(741) D
7 E
(50) F
-------- ------- ------ -------- ----------
Income before cumulative
change in accounting principle . . . . . . $ 39,343 $ 3,905 $ 405 $ (3,303) $ 40,350
======== ======= ====== ======== ==========
Income before cumulative
change in accounting principle
applicable to common and
common-equivalent shares . . . . . . . . . $ 35,843 $ 36,850
======== ========
Earnings before cumulative
change in accounting principle
per common share:
Primary . . . . . . . . . . . . . . . . . $1.33 $1.36
===== =====
Fully diluted . . . . . . . . . . . . . . $1.29 $1.32
===== =====
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Six Months Ended June 30, 1993
(Unaudited)
(In thousands, except per share amounts)
Equity
and Emprise
Fourth (Recent Pro Forma
-------------------------
Financial Acquisitions) OSI Adjustments Combined
----------- ------------- ------------ ----------- ----------
Interest income:
<S> <C> <C> <C> <C> <C> <C>
Interest and fees on loans . . . . . . . . $128,349 $17,426 $ 3,140 $ (243) D $ 146,430
(1,333) A
(909) C
Interest on short-term investments . . . . 1,479 398 94 (1,824) D 1,827
1,839 B
(159) F
Interest and dividends on
investment securities . . . . . . . . . . 87,354 5,745 467 282 C 93,870
22 E
Interest and dividends on trading
account securities. . . . . . . . . . . . 66 -- -- -- 66
-------- ------- ------- -------- ---------
Total interest income. . . . . . . . . . 217,248 23,569 3,701 (2,325) 242,193
-------- ------- ------- -------- ---------
Interest expense:
Interest on deposits . . . . . . . . . . . 79,990 9,515 2,025 (597) C 90,933
Interest on other borrowings . . . . . . . 6,732 2,449 -- (1) A 9,330
150 C
Interest on long-term debt . . . . . . . . 1,283 -- -- -- 1,283
-------- ------- ------- -------- ---------
Total interest expense . . . . . . . . . 88,005 11,964 2,025 (448) 101,546
-------- ------- ------- --------
Net interest income. . . . . . . . . . . . . 129,243 11,605 1,676 (1,877) 140,647
Provision for credit losses. . . . . . . . . 6,121 999 150 -- 7,270
-------- ------- ------- -------- ---------
Net interest income after
provision for credit losses . . . . . . . . 123,122 10,606 1,526 (1,877) 133,377
Noninterest income . . . . . . . . . . . . . 44,186 10,751 277 (2,280) A 52,934
Noninterest expense. . . . . . . . . . . . . 128,415 15,615 2,323 1,611 A 147,598
(467) C
101 E
-------- ------- ------- -------- ---------
Income before income taxes
and cumulative change in
accounting principle. . . . . . . . . . . . 38,893 5,742 (520) (5,402) 38,713
Income taxes . . . . . . . . . . . . . . . . 9,514 511 68 (318) A 9,064
717 B
(566) C
(809) D
9 E
(62) F
-------- ------- ------- -------- ---------
Income before cumulative
change in accounting principle. . . . . . . $ 29,379 $ 5,231 $ (588) $ (4,373) $ 29,649
======== ======= ======= ======== =========
Income before cumulative
change in accounting principle
applicable to common and
common-equivalent shares. . . . . . . . . . $ 25,879 $ 26,149
======== =========
Earnings before cumulative
change in accounting principle
per common share:
Primary. . . . . . . . . . . . . . . . . . $ .99 $1.00
===== =====
Fully diluted. . . . . . . . . . . . . . . $ .97 $ .98
===== =====
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1993
(Unaudited)
(In thousands, except per share amounts)
Equity
and Emprise
Fourth (Recent Pro Forma
------------------------
Financial Acquisitions) OSI Adjustments Combined
----------- ------------- ------------ ----------- ----------
Interest income:
<S> <C> <C> <C> <C> <C> <C>
Interest and fees on loans . . . . . . $262,866 $ 34,651 $ 6,108 $ (2,659) A $ 298,580
(1,855) C
(531) D
Interest on short-term investments . . 2,098 668 192 3,843 B 2,689
(3,778) D
(334) F
Interest and dividends on
investment securities . . . . . . . . 178,814 12,097 931 547 C 192,433
44 E
Interest and dividends on trading
account securities. . . . . . . . . . 135 -- -- -- 135
-------- -------- -------- -------- ----------
Total interest income. . . . . . . . 443,913 47,416 7,231 (4,723) 493,837
-------- -------- -------- -------- ----------
Interest expense:
Interest on deposits . . . . . . . . . 158,078 18,930 3,841 (925) C 179,924
Interest on other borrowings . . . . . 19,151 4,700 5 (3) A 24,153
300 C
Interest on long-term debt . . . . . . 2,273 -- -- -- 2,273
-------- -------- -------- -------- ----------
Total interest expense . . . . . . . 179,502 23,630 3,846 (628) 206,350
-------- -------- -------- -------- ----------
Net interest income. . . . . . . . . . . 264,411 23,786 3,385 (4,095) 287,487
Provision for credit losses. . . . . . . 6,965 2,102 184 -- 9,251
-------- -------- -------- -------- ----------
Net interest income after provision
for credit losses . . . . . . . . . . . 257,446 21,684 3,201 (4,095) 278,236
Noninterest income . . . . . . . . . . . 90,621 22,248 447 (4,549) A 108,767
Noninterest expense. . . . . . . . . . . 258,326 32,694 3,593 2,243 A 296,369
(689) C
202 E
-------- -------- -------- -------- ----------
Income before income taxes, minority
interest and cumulative change in
accounting principle. . . . . . . . . . 89,741 11,238 55 (10,400) 90,634
Income taxes . . . . . . . . . . . . . . 22,676 1,016 88 (361) A 21,885
1,499 B
(1,240) C
(1,680) D
17 E
(130) F
-------- -------- -------- -------- ----------
Income before minority interest
and cumulative change in
accounting principle. . . . . . . . . . 67,065 10,222 (33) (8,505) 68,749
Minority interest. . . . . . . . . . . . (355) -- -- -- (355)
-------- -------- -------- -------- ----------
Income before cumulative
change in accounting principle. . . . . $ 66,710 $ 10,222 $ (33) $ (8,505) $ 68,394
======== ======== ======== ======== ==========
Income before cumulative change in
accounting principle applicable
to common and common-
equivalent shares . . . . . . . . . . . $ 59,710 $ 61,394
======== ========
Earnings before cumulative change
in accounting principle per
common share:
Primary. . . . . . . . . . . . . . . . $2.27 $2.33
===== =====
Fully diluted. . . . . . . . . . . . . $2.20 $2.25
===== =====
</TABLE>
Pro forma adjustments and notes to the condensed consolidated statements
of income are as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
------------------- -------------
1994 1993 1993
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
(A) To reflect the effect of the sale of non-banking assets of
Equity to LSB Industries, Inc., its parent, at book value:
Interest and fees on loans and leases . . . . . . . . . . 687 1,333 2,659
Interest on other borrowings. . . . . . . . . . . . . . . 1 1 3
Non-interest income . . . . . . . . . . . . . . . . . . . 1,800 2,280 4,549
Non-interest expense. . . . . . . . . . . . . . . . . . . 662 1,611 2,243
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 46 318 361
(B) To reflect interest income earned on proceeds from the sale
of Equity's non-bank assets and the related income tax effects:
Interest on short-term investments. . . . . . . . . . . . 1,609 1,839 3,843
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 628 717 1,499
(C) To reflect adjustments resulting from the purchase
method of accounting for Equity and Emprise:
Interest and fees on loans and leases . . . . . . . . . . 620 909 1,855
Interest and dividends on investment securities . . . . . 215 282 547
Interest on deposits. . . . . . . . . . . . . . . . . . . 404 597 925
Interest on other borrowings. . . . . . . . . . . . . . . 150 150 300
Noninterest expense:
Purchased mortgage servicing rights amortization. . . . 69 84 152
Purchased credit card relationships amortization. . . . 554 719 1,393
Cost in excess of net assets acquired amortization. . . (486) (1,285) (2,282)
Net occupancy . . . . . . . . . . . . . . . . . . . . . 18 15 48
------ ------ ------
Total effect on noninterest expense . . . . . . . . . 155 (467) (689)
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 458 566 1,240
(D) To reflect the foregone interest income on short-term
investments converted to cash and used for the purchase of
Equity and Emprise, and the related income tax effects:
Interest and fees on loans and leases . . . . . . . . . . 251 243 531
Interest on short-term investments. . . . . . . . . . . . 1,658 1,824 3,778
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 741 809 1,680
(E) To reflect adjustments resulting from the purchase
method of accounting for OSI:
Interest and dividends on investment securities . . . . . 19 22 44
Noninterest expense (amortization of
cost in excess of net assets acquired). . . . . . . . . 101 101 202
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 7 9 17
(F) To reflect the foregone interest income on short-term
investments converted to cash and used to acquire treasury
stock for the purchase of OSI:
Interest on short-term investments. . . . . . . . . . . . 127 159 334
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 50 62 130
(G) To eliminate intercompany income/expense:
Interest on short-term investments/
Interest on other borrowings. . . . . . . . . . . . . . 142 -- --
</TABLE>
Pro forma earnings per common share are based on the following
weighted average number of shares outstanding:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
----------------------- -------------
1994 1993 1993
-------- -------- --------
<S> <C> <C> <C>
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . 27,092,591 26,227,501 26,341,345
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . 30,540,866 30,295,110 30,372,059
</TABLE>
Primary earnings per common share were computed by dividing income
applicable to common and common-equivalent shares by the weighted
average common and common-equivalent shares outstanding during the
period. Fully diluted earnings per common share were computed by
adjusting income before the cumulative change in accounting principle
for interest expense (net of income taxes) associated with convertible
debt. The adjusted income was then divided by the weighted average of
common and common-equivalent shares outstanding plus the number of
shares which would have been outstanding during the year had
convertible securities been converted in accordance with their
respective governing instruments. Note 17 to the Fourth Financial 1993
Consolidated Financial Statements more fully describes Fourth
Financial's common stock equivalents and convertible securities.
The adjustment of income for convertible debt interest expense (net
of income taxes) was as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
----------------------- --------------
1994 1993 1993
-------- -------- ---------
(In thousands)
<S> <C> <C> <C>
Interest expense adjustment . . . . . . . . . . . . . . . . -- 4 4
</TABLE>
INFORMATION CONCERNING FOURTH FINANCIAL
General
Fourth Financial is a bank holding company headquartered in Wichita, Kansas,
which offers a broad range of bank and bank-related services through its
subsidiaries, BANK IV Kansas and BANK IV Oklahoma. Fourth Financial is the
largest bank holding company headquartered in Kansas, based on both assets and
deposits. At June 30, 1994, Fourth Financial had total consolidated assets of
$7.6 billion, total deposits of $5.7 billion, and stockholders' equity of $593.0
million. Bank IV Kansas, whose predecessor was originally organized in 1887, is
the largest commercial bank in Kansas and, at December 31, 1993, had
approximately 11% of all insured deposits in Kansas. Bank IV Kansas, the only
major statewide bank in Kansas, has 88 offices in 36 communities. BANK IV
Oklahoma, the second-largest bank in Oklahoma, has 51 offices in 19 Oklahoma
communities.
Recent and Pending Acquisitions
Information about various recent and pending acquisitions is contained in
Item 1 of the Fourth 10-K under the caption "Pending Acquisitions" and in the
Quarterly Report of Fourth Financial on Form 10-Q for the quarter ended June 30,
1994 (the "Fourth 10-Q") in Note 2 to the Consolidated Financial Statements and
Item 5. The following discussion is intended to supplement the information
contained in the Fourth 10-K and the Fourth 10-Q.
On September 2, 1994, Fourth Financial entered into an agreement to acquire
the corporate parent of Standard Bank and Trust, Independence, Missouri in
exchange for an aggregate of approximately 315,000 shares of Fourth Stock.
Standard Bank had assets of approximately $80.6 million and deposits of
approximately $73.4 million at June 30, 1994. The proposed transaction is
subject to various conditions, among which are obtaining requisite governmental
and shareholder approvals. If the acquisition is consummated, Standard Bank
will be converted into a national bank called "BANK IV Missouri, National
Association."
Two potential acquisitions referred to in the Fourth 10-K have been
abandoned. On June 17, 1994, Fourth Financial and Great Southern Bancorp, Inc.
mutually terminated their agreement to merge. Fourth Financial is no longer
negotiating the acquisition of the automobile leasing company referred to in the
Fourth 10-K.
Fourth Financial is presently considering or participating in discussions
concerning additional acquisitions. However, as of the date of this Proxy
Statement-Prospectus, except for the pending transactions described above and in
the Fourth 10-Q, Fourth Financial had no binding commitments, agreements, or
understandings to acquire any additional financial institutions, but additional
acquisition agreements may be negotiated or entered into at any time.
Recently Enacted Federal Legislation
The recently enacted federal Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 contains various provisions that will increase the
ability of Fourth Financial and other bank holding companies to make interstate
acquisitions and to operate their subsidiary banks. Commencing on September 29,
1995, adequately capitalized and adequately managed bank holding companies will
be permitted to make acquisitions of banks located anywhere in the United States
without regard to the provisions of any state laws that may presently prohibit
such acquisitions. Interstate acquisitions will not be permitted, however, if
the potential acquiror would control more than ten percent of the insured
deposits in the United States or more than 30 percent of insured deposits in the
home state of the bank to be acquired or in any state in which such bank has a
branch. States may enact statutes increasing the 30 percent limit and may also
lower such limit if they do so on a non-discriminatory basis. States will also
be permitted to prohibit acquisitions of banks that have been established for
fewer than five years. The Board of Governors of the Federal Reserve System is
required to consider the applicant's record under the federal Community
Reinvestment Act in determining whether to approve an interstate banking
acquisition.
The new statute also permits, after June 1, 1997, interstate branch banking
in all states by adequately capitalized and adequately managed banks, but a
state may enact specific legislation
before June 1, 1997 prohibiting interstate branch
banking in that state, in which event banks headquartered in the state will not
be permitted to branch into other states. A state may also enact legislation
permitting non-discriminatory interstate branch banking in such state before
June 1, 1997. Applications for interstate branching authority will be subjected
to regulatory scrutiny of compliance with both federal and state community
reinvestment statutes with respect to all of the banks involved in the proposed
transaction.
Fourth Financial is unable to predict the effect, if any, of such new
legislation on it.
Additional Information
In order to help assure management stability, Fourth Financial entered into
change in control employment and severance agreements in October of 1994 with 18
executive officers of either Fourth Financial or one of its subsidiary banks.
Such officers include Darrell G. Knudson, Chairman of the Board of Fourth
Financial; K. Gordon Greer, Chairman of the Board of BANK IV Kansas; Edward F.
Keller, Chairman of the Board of BANK IV Oklahoma; Michael R. Ritchey,
President, Trusts & Investments of Fourth
Financial; and David L. Strohm, Treasurer of
Fourth Financial. The agreements provide that the officers will continue in the
employment of Fourth Financial following the commencement of a tender or
exchange offer or the execution of a merger
agreement which would result in a change in
control (as defined) of Fourth Financial until the transaction is either
completed or abandoned. In consideration of this commitment, these agreements
also provide for severance benefits in the event of either involuntary
termination of employment (other than by reason of death, disability, or for
cause, as defined) or termination of employment by the officer for good cause
(as defined) within two years following a change in control of Fourth Financial.
Upon any such termination of employment, in addition to compensation and
benefits already earned, the officer
will be entitled to receive: (a) a lump sum
severance payment equal to 1.5 times (two times in the cases of Mr. Knudson, Mr.
Greer, and Mr. Keller) the sum of such officer's highest base salary during the
12-month period preceding the change in control and his three-year average bonus
percentage multiplied by his target bonus then in effect, (b) continuation in
effect for 18 months (2 years in the case of Mr. Knudson, Mr. Greer, and Mr.
Keller) of all medical insurance, life insurance, and disability benefit plans
then in effect, (c) full vesting of all outstanding stock options and, at the
executive's option, purchase of options granted within the preceding six months,
(d) the present value of his enhanced benefit under Fourth Financial's
Supplemental Executive Retirement Plan with his age and credited service each
increased by 1.5 years (two years in the cases of Mr. Knudson, Mr. Greer, and
Mr. Keller), (e) the amount of all accrued vacation pay, and (f) the value of
any unvested employer contributions to
Fourth Financial's pension plan; provided,
however, that no such payment can exceed the amount deductible for income tax
purposes under the Internal Revenue Code. The agreements are for terms of two
years renewable annually on a year-to-year basis unless terminated by Fourth
Financial at least 90 days prior to the anniversary date, except they continue
in effect automatically for a period of 24 months following a change in control
of Fourth Financial. Fourth Financial estimates that, if a change in control
occurred as of September 30, 1994, the estimated aggregate amount payable under
these agreements if the employment of Messrs. Knudson, Greer, Keller, Ritchey,
and Strohm were terminated would be approximately $4,000,000.
Additional information concerning Fourth Financial's business, and
information concerning the principal holders of Fourth Stock, the directors and
executive officers of Fourth Financial, executive compensation, and certain
relationships and related transactions is contained in the Fourth 10-K and the
Fourth 10-Q, both of which are attached to this Proxy Statement-Prospectus. All
of such information is hereby incorporated into this Proxy Statement-Prospectus
by reference.
INFORMATION CONCERNING OSI AND STILLWATER FEDERAL
General
OSI is a Delaware corporation which was organized in 1993 by Stillwater
Federal Savings Bank ("Stillwater Federal") for the purpose of becoming a
savings and loan holding company. OSI owns
all of the outstanding stock of Stillwater
Federal issued on June 28, 1993, in connection with the completion of its
conversion from the mutual to the stock form of organization (the "Conversion").
OSI issued 409,975 shares of Common Stock at a price of $10.00 per share in the
Conversion. Stillwater Federal, OSI's only operating subsidiary, was initially
chartered in 1920 as "Stillwater Savings and Loan Association", an Oklahoma
state chartered savings and loan association. Stillwater Federal converted to a
federal mutual charter in 1993 and changed to its present name. All references
to OSI, unless otherwise indicated, at or before June 28, 1993 refer to
Stillwater Federal on a consolidated basis.
OSI and Stillwater Federal are subject to comprehensive regulation,
examination, and supervision by the Office of Thrift Supervision, Department of
the Treasury ("OTS") and by the Federal Deposit Insurance Corporation ("FDIC").
Stillwater Federal is a member of the Federal Home Loan Bank ("FHLB") System and
its deposits are backed by the full faith and credit of the United States
Government and are insured by the Savings Association Insurance Fund ("SAIF") to
the maximum extent permitted by the FDIC.
Stillwater Federal serves its primary market area, Payne, Logan and Noble
Counties, and portions of Creek, Garfield, Lincoln and Pawnee Counties,
Oklahoma, through its four retail banking offices.
At June 30, 1994, OSI had total assets
of $97.0 million, deposits of $88.6 million, and stockholder's equity of $7.3
million.
Like all savings institutions, Stillwater Federal's operations are materially
affected by general economic conditions, the monetary and fiscal policies of the
federal government and the policies of the various regulatory authorities,
including the OTS and the Federal Reserve Board. Its results of operations are
largely dependent upon its net interest income, which is the difference between
the interest it receives on its loan portfolio and its investment securities
portfolio and the interest it pays on its deposit accounts and borrowings. See
"Management's Discussion and Analysis of Financial Condition" and "Lending
Activities" for a discussion of the operations of OSI and Stillwater Federal.
The executive offices of OSI are located at 601 South Husband, Stillwater,
Oklahoma 74074, and its telephone number at that address is (405) 372-5782.
Employees
At June 30, 1994, Stillwater Federal employed 31 persons, including three
part-time employees. Management considers its relations with its employees to
be good. OSI's employees are not represented by a collective bargaining agent.
Competition
OSI faces strong competition, both in originating real estate and other loans
and in attracting deposits. Competition in originating real estate loans comes
primarily from commercial banks, other savings institutions, mortgage bankers
and credit unions, located in OSI's market areas. Other commercial banks,
savings institutions, and credit unions provide vigorous competition in
consumer lending.
OSI attracts all of its deposits through its branch offices, primarily from
the communities in which those branch offices are located; therefore,
competition for those deposits is principally
from commercial banks and other savings
institutions located in the same communities as well as brokerage firms. OSI
competes for these deposits by offering a variety of deposit accounts at
competitive rates, convenient business hours, and convenient branch locations
with interbranch deposit and withdrawal privileges at each. An automated teller
machine ("ATM") facility is available at the Guthrie branch.
Regulation
General. Stillwater Federal is a federally chartered savings bank, the
deposits of which are federally insured and backed by the full faith and credit
of the United States Government. Accordingly, Stillwater Federal is subject to
broad federal regulation and oversight extending to all its operations. OSI is
a member of the FHLB of Topeka and is subject to certain limited regulation by
the Board of Governors of the Federal Reserve System ("Federal Reserve Board").
As the savings and loan holding company of Stillwater Federal, OSI also is
subject to federal regulation and oversight. The purpose of the regulation of
OSI and other holding companies is to protect subsidiary savings associations.
Stillwater Federal is a member of the Savings Association Insurance Fund
("SAIF") and the deposits of Stillwater Federal
are insured by the FDIC. As a result, the
FDIC has certain regulatory and examination authority over Stillwater Federal.
Certain of these regulatory requirements and restrictions are discussed below or
elsewhere in this document.
Federal Regulation of Savings Associations. The OTS has extensive authority
over the operations of savings associations. As part of this authority,
Stillwater Federal is required to file periodic reports with the OTS and is
subject to periodic examinations by the OTS and the FDIC. The last regular OTS
examination of OSI was as of March 31, 1994. When these examinations are
conducted by the OTS and the FDIC, the examiners may require OSI to provide for
higher general or specific loan loss reserves. Financial institutions in various
regions of the United States have been called upon by examiners to write down
assets and to establish increased levels of reserves, primarily as a result of
perceived weaknesses in real estate values and a more restrictive regulatory
climate.
The OTS has established a schedule for the assessment of fees upon all
savings associations to fund the operations of the OTS. The general assessment,
to be paid on a semi-annual basis, is computed upon the savings association's
total assets, as reported in the association's latest quarterly thrift financial
report. Savings associations (unlike Stillwater Federal) that are classified as
"troubled" (i.e., having a supervisory rating of "4" or "5" or subject to a
conservatorship) are required to pay a 50% premium over the standard
assessment. Stillwater Federal's OTS assessment for the fiscal year ended
September 30, 1993, was $47,537.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including Stillwater Federal and OSI.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and unsafe or unsound practices. Except under
certain circumstances, public disclosure of final enforcement actions by the OTS
is required.
In addition, the investment, lending and branching authority of Stillwater
Federal is prescribed by federal laws and regulations, and it is prohibited from
engaging in any activities not permitted by such laws and regulations. For
instance, no savings institution may invest in non-investment grade corporate
debt securities. In addition, the permissible level of investment by federal
associations in loans secured by non-residential real property may not exceed
400% of total capital, except with approval of the OTS. Federal savings
associations also are generally authorized to branch nationwide. Stillwater
Federal is in compliance with the noted restrictions.
Stillwater Federal's general permissible lending limit for loans-to-one-
borrower is equal to the greater of $500,000 or 15% of unimpaired capital and
surplus (except for loans fully secured by certain readily marketable
collateral, in which case this limit is increased
to 25% of unimpaired capital and surplus).
At June 30, 1994, Stillwater Federal's lending limit under this new restriction
was approximately $1.1 million. Stillwater Federal is in compliance with the
loans-to-one-borrower limitation.
In December 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") was enacted into law. FDICIA provides for, among other
things, the recapitalization of the Bank Insurance Fund; adoption of safety and
soundness standards enhanced federal supervision of depository institutions,
including greater authority for the appointment of a conservator or receiver for
undercapitalized institutions; the establishment of risk-based deposit insurance
premiums; liberalization of the qualified thrift lender test; greater
restrictions on transactions with affiliates; and mandated consumer protection
disclosures with respect to deposit accounts. See "- Insurance of Accounts and
Regulation by the FDIC," "- Regulatory Capital Requirements" and "- Qualified
Thrift Lender Test."
The OTS, as well as the other federal banking agencies, have issued proposed
safety and soundness standards on matters such as loan underwriting and
documentation, internal controls and audit systems, interest rate risk exposure
and compensation and other employee benefits. The proposal also establishes the
maximum ratio of classified assets to total capital (which for this purpose
includes loss allowances exceeding the amount includable for regulatory capital
purposes) at 100% and the minimum level of earnings sufficient to absorb losses
without impairing capital. Earnings will be sufficient if the net income or loss
over the last four quarters is assumed to continue over the next four quarters
and the institution would otherwise remain in capital compliance. Any
institution which fails to comply with these standards must submit a compliance
plan. A failure to submit a plan or to comply with an approved plan will subject
the institution to further enforcement action. The proposal also requires
savings and loan holding companies to ensure that transactions and relationships
with their subsidiary savings associations do not have a detrimental effect on
the safe and sound operation of the association. No assurance can be given as
to the final form of the proposed regulations.
Insurance of Accounts and Regulation by the FDIC. Stillwater Federal is a
member of the SAIF, which is administered by the FDIC. Savings deposits are
insured up to applicable limits by the FDIC and such insurance is backed by the
full faith and credit of the United States Government. As insurer, the FDIC
imposes deposit insurance premiums and is authorized to conduct examinations of
and to require reporting by FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious risk to the FDIC. The FDIC also has the
authority to initiate enforcement actions against savings associations, after
giving the OTS an opportunity to take such action, and may terminate the deposit
insurance if it determines that the institution has engaged or is engaging in
unsafe or unsound practices, or is in an unsafe or unsound condition.
FDICIA also requires the FDIC to implement a risk-based deposit insurance
assessment system. Pursuant to this requirement, the FDIC adopted a transitional
risk-based assessment system, effective January 1, 1993, under which all insured
depository institutions are placed into one of nine categories and assessed
insurance premiums, ranging from .23% to .31% of deposits, based upon their
level of capital and supervisory evaluation.
The permanent system, adopted in June
1993 and effective January 1, 1994, continues the risk classification system
established under the transitional rule. Under the system, institutions
classified as well capitalized (i.e., a core capital ratio of at least 5%, a
ratio of Tier 1 or core capital to risk-weighted assets ("Tier 1 risk-based
capital") of at least 6% and a risk-based capital ratio of at least 10%) and
considered healthy would pay the lowest premium while institutions that are less
than adequately capitalized (i.e., core and Tier 1 risk-based capital ratios of
less than 4% or a risk-based capital ratio of less than 8%) and considered of
substantial supervisory concern would pay the highest premium. Risk
classification of all insured institutions will be made by the FDIC for each
semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual basis,
if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. In addition, under FDICIA, the FDIC may impose special assessments on SAIF
members to repay amounts borrowed from the United States Treasury or for any
other reason deemed necessary by the FDIC.
Regulatory Capital Requirements. Federally insured savings associations,
such as Stillwater Federal, are required to maintain a minimum level of
regulatory capital. The OTS has established capital standards, including a
tangible capital requirement, a leverage ratio (or core capital) requirement and
a risk-based capital requirement applicable to such savings associations. These
capital requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of adjusted
total assets (as defined by regulation). Tangible capital generally includes
common stockholders' equity and retained income, and certain noncumulative
perpetual preferred stock and related income. In addition, all intangible
assets, other than a limited amount of purchased mortgage servicing rights, must
be deducted from tangible capital. No assurance can be given as to the final
form of such regulation or the date of its effectiveness. At June 30, 1994,
Stillwater Federal had no unamortized purchased mortgage servicing rights.
As required by federal law, the OTS has proposed to revise the definition of
common stockholders' equity to reflect the provisions of the Statement of
Financial Accounting Standards No. 115 ("SFAS No. 115"). Under SFAS No. 115,
which is effective for fiscal years beginning after December 31, 1993, debt and
equity securities available for sale must be reported at their fair value, which
may be more or less than amortized cost. Such securities will be considered
available for sale unless the institution can demonstrate that it has the intent
and the ability to hold the security until maturity. Among other things, the OTS
is soliciting public comment on how changes in the fair value of the security
should be taken into consideration for purposes of determining an institution's
compliance with the capital regulations. No assurance can be given as to the
final form of the regulation or the date of its effectiveness.
The OTS regulations establish special capitalization requirements for savings
associations that own subsidiaries. Under these regulations certain
subsidiaries are consolidated for capital purposes and others
are excluded from assets and capital.
In determining compliance with the capital requirements, all
subsidiaries engaged solely in activities permissible for national banks or
engaged in certain other activities solely as agent for its customers are
"includable" subsidiaries that are consolidated for capital purposes in
proportion to the association's level of ownership, including the assets of
includable subsidiaries in which the association has a minority interest that is
not consolidated for GAAP purposes. For excludable subsidiaries the debt and
equity investments in such subsidiaries are deducted from assets and capital,
with a five-year transition period beginning on July 1, 1990, for investments
made before April 12, 1989.
At June 30, 1994, Stillwater Federal had tangible capital of $7.5 million,
or 7.7% of adjusted total assets, which is approximately $6.0 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets (as defined by regulation). Core capital generally
consists of tangible capital plus certain intangible assets, including
supervisory goodwill (which is phased-out over a five-year period) and a limited
amount of purchased credit card relationships. As a result of the prompt
corrective action provisions of FDICIA discussed below, however, a savings
association must maintain a core capital ratio of at least 4% to be considered
adequately capitalized unless its supervisory condition is such to allow it to
maintain a 3% ratio. At June 30, 1994, Stillwater Federal had no intangibles
which were subject to these tests.
As required by federal law, the OTS has proposed a rule revising its minimum
core capital requirement to be no less stringent than that imposed on national
banks. The OTS has proposed that only those savings associations rated a
composite one (the highest rating) under the MACRO rating system for savings
associations will be permitted to operate at or near the regulatory minimum
leverage ratio of 3%. All other savings associations will be required to
maintain a minimum leverage ratio of 4% to 5%. The OTS will assess each
individual savings association through the supervisory process on a case-by-case
basis to determine the applicable requirement. No assurance can be given as to
the final form of any such regulation, the date of its effectiveness or the
requirement applicable to Stillwater Federal.
At June 30, 1994, Stillwater Federal had core capital equal to $7.5 million,
or 7.7% of adjusted total assets, which is $4.6 million above the minimum
leverage ratio requirement of 3% as in effect on that date.
The OTS risk-based requirement requires savings associations to have total
capital of at least 8% of risk-weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. At
June 30, 1994, Stillwater Federal had no capital instruments that qualify as
supplementary capital and $502,000 of general loss reserves, which was less than
to 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for the
purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio (these
items are excluded on a sliding scale through June 30, 1994, after which they
must be excluded in their entirety) and reciprocal holdings of qualifying
capital instruments. Stillwater Federal had $162,000 of such exclusions from
capital and assets at June 30, 1994.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight, ranging
from 0% to 100% based on the risk inherent in the type of asset. For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one- to four-family first lien mortgage loans not more than 90 days delinquent
and having a loan to value ratio of not more than 80% at origination unless
insured to such ratio by an insurer approved by the FNMA or FHLMC.
On June 30, 1994, Stillwater Federal had total capital of $7.8 million
(including $7.5 million in core capital and $502,000 in qualifying supplementary
capital) and risk-weighted assets of $46.9 million (including $1.7 million in
converted off-balance sheet assets); or total capital of 16.7% of risk-weighted
assets. This amount was $4.1 million above the 8.0% requirement in effect on
that date.
Under FDICIA all the federal banking agencies, including the OTS, must revise
their risk-based capital requirements to ensure that such requirements account
for interest rate risk, concentration of credit risk and the risks of
non-traditional activities, and that they reflect the actual performance of and
expected loss on multi-family loans.
The OTS has adopted a final rule that requires every savings association with
more than normal interest rate risk to deduct from its total capital, for
purposes of determining compliance with such requirement, an amount equal to 50%
of its interest-rate risk exposure multiplied by the present value of its
assets. This exposure is a measure of
the potential decline in the net portfolio value
of a savings association, greater than 2% of the present value of its assets,
based upon a hypothetical 200 basis point increase or decrease in interest rates
(whichever results in a greater decline). Net portfolio value is the present
value of expected cash flows from assets, liabilities and off-balance sheet
contracts. The rule provides for a two quarter lag between calculating interest
rate risk and recognizing any deduction from capital. Institutions are first
required to recognize any deduction on September 30, 1994. Any savings
association with less than $300 million in assets and a total capital ratio in
excess of 12% is exempt from this requirement unless the OTS determines
otherwise.
Pursuant to FDICIA, the federal banking agencies, including the OTS, have
also proposed regulations authorizing the agencies to require a depository
institution to maintain additional total capital to account for concentration of
credit risk and the risk of non-traditional activities. No assurance can be
given as to the final form of any such regulation.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against associations that fail to meet capital
requirements. Effective December 19, 1992, the federal banking agencies,
including the OTS, were given additional enforcement authority over
undercapitalized depository institutions. The OTS is generally required to take
action to restrict the activities of an "undercapitalized association"(generally
defined to be one with less than either a 4% core capital ratio, a Tier 1 risk-
based capital ratio or an 8% risk-based capital ratio). Any such association
must submit a capital restoration plan and until such plan is approved by the
OTS may not increase its assets, acquire
another institution, establish a branch or
engage in any new activities, and generally may not make capital distributions.
The OTS is authorized to impose the additional restrictions, discussed below,
that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any company
controlling an undercapitalized association must agree that it will enter into
a limited capital maintenance guarantee with respect to the institution's
achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions mandated by FDICIA. These actions and restrictions include
requiring the issuance of additional voting securities;
limitations on asset growth; mandated asset reduction;
changes in senior management; divestiture, merger or acquisition
of the association; restrictions on executive compensation; and any other action
the OTS deems appropriate. An association that becomes "critically
undercapitalized" (i.e., a tangible capital ratio of 2% or less) is subject to
further mandatory restrictions on its activities in addition to those applicable
to significantly undercapitalized associations. In addition, the OTS must
appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after
it becomes critically undercapitalized.
Any undercapitalized association is also subject to other possible
enforcement actions by the OTS or the FDIC. Such actions could include a capital
directive, a cease-and-desist order, civil money penalties, the establishment of
restrictions on all aspects of the association's operations or the appointment
of a receiver or conservator or a forced merger into another institution.
If the OTS determines that an association is in an unsafe or unsound
condition or is engaged in an unsafe or unsound practice it is authorized to
reclassify a well-capitalized association as an adequately capitalized
association and if the association is adequately capitalized, to impose the
restrictions applicable to an undercapitalized association. If the association
is undercapitalized, the OTS is authorized to impose the restrictions applicable
to a significantly undercapitalized association.
The imposition by the OTS or the FDIC of any of these measures on Stillwater
Federal may have a substantial adverse effect on Stillwater Federal's operations
and profitability. Company shareholders do not have preemptive rights, and
therefore, if OSI is directed by the OTS or the FDIC to issue additional shares
of Common Stock, such issuance may result in the dilution in the percentage of
ownership of OSI.
Limitations on Dividends and Other Capital Distributions. OTS regulations
impose various restrictions or requirements on associations with respect to
their ability to pay dividends or make other distributions
of capital. OTS regulations prohibit an
association from declaring or paying any dividends or from
repurchasing any of its stock if, as a result, the regulatory capital of the
association would be reduced below the amount required to be maintained for the
liquidation account established in connection with its mutual to stock
conversion.
The OTS utilizes a three-tiered approach to permit associations, based on
their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account. See "- Regulatory Capital
Requirements".
Generally, Tier 1 associations, which are associations that before and after
the proposed distribution meet their fully phased-in capital requirements, may
make capital distributions during any calendar year equal to the greater of 100%
of net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its fully
phased-in capital requirement for such capital component, as measured at the
beginning of the calendar year, or the amount authorized for a Tier 2
association. However, a Tier 1 association deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association as a result of such a determination.
Stillwater Federal meets the requirements
for a Tier 1 association and has not been notified of a need for more than
normal supervision. Tier 2 associations, which are associations that
before and after the proposed distribution meet their current minimum capital
requirements, may make capital distributions of up to 75% of net income over
the most recent four quarter period.
Tier 3 associations (which are associations that do not meet current minimum
capital requirements) that propose to make any capital distribution and Tier 2
associations that propose to make a capital distribution in excess of the noted
safe harbor levels must obtain OTS approval prior to making such distribution.
Tier 2 associations proposing to make a capital distribution within the safe
harbor provisions and Tier 1 associations proposing to make any capital
distribution need only submit written notice to the OTS 30 days prior to such
distribution. As a subsidiary of OSI, Stillwater Federal will also be required
to give the OTS 30 days' notice prior to declaring any dividend on its stock.
The OTS may object to the distribution during that 30-day period based on safety
and soundness concerns. See "- Regulatory Capital Requirements."
Liquidity. All savings associations, including Stillwater Federal, are
required to maintain an average daily balance of liquid assets equal to a
certain percentage of the sum of its
average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. This liquid asset ratio
requirement may vary from time to time (between 4% and 10%) depending upon
economic conditions and savings flows of all savings associations. At the
present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time deposits,
certain bankers acceptances and short-term United States Treasury obligations)
currently must constitute at least 1% of the association's average daily balance
of net withdrawable deposit accounts and current borrowings. Penalties may be
imposed upon associations for violations of either liquid asset ratio
requirement. At June 30, 1994, Stillwater Federal was in compliance with both
requirements, with an overall liquid asset ratio of 16.7% and a short-term
liquid assets ratio of 10.7%.
Accounting. An OTS policy statement applicable to all savings associations
clarifies and re-emphasizes that the investment activities of a savings
association must be in compliance with approved and documented investment
policies and strategies, and must be accounted for in accordance with GAAP.
Under the policy statement, management must support its classification of and
accounting for loans and securities (i.e., whether held for investment, sale or
trading) with appropriate documentation. Management believes that Stillwater
Federal is in compliance with these amended rules.
The OTS has adopted an amendment to its accounting regulations, which may be
made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS.
Qualified Thrift Lender Test. All savings associations, including Stillwater
Federal, are required to meet a qualified thrift lender ("QTL") test to avoid
certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio assets (which consists of
total assets less intangibles, properties used
to conduct the savings association's business and liquid
assets not exceeding 20% of total assets) in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling
basis. Such assets primarily consist of residential housing related loans and
investments. At June 30, 1994, Stillwater Federal met the test and has always
met the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the Bank Insurance Fund. Generally, such
transfers are not permitted until August 1994.
If an association that fails the test has not yet requalified and has not
converted to a national bank, its new investments and activities are limited to
those permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
Transactions with Affiliates. Generally, transactions between a savings
association or its subsidiaries and its affiliates are required to be on terms
as favorable to the association as transactions with non-affiliates. In
addition, certain of these transactions are restricted to a percentage of the
association's capital. Affiliates of Stillwater Federal include OSI and any
company which is under common control with Stillwater Federal. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of most
affiliates. A savings association's subsidiaries are not deemed affiliates,
however; the OTS has the discretion to treat subsidiaries of savings
associations as affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons are also
subject to conflict of interest regulations enforced by the OTS. These conflict
of interest regulations and other statutes also impose restrictions on loans to
such persons and their related interests. Among other things, such loans must
be made on terms substantially the same as for loans to unaffiliated
individuals.
Holding Company Regulation. OSI is a unitary savings and loan holding
company subject to regulatory oversight by the OTS. As such, OSI is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over OSI
and its non-savings association subsidiaries which also permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
subsidiary savings association.
As a unitary savings and loan holding company, OSI generally is not subject
to activity restrictions. If OSI acquires control of another savings association
as a separate subsidiary, it would become a multiple savings and loan holding
company, and the activities of OSI and any of its subsidiaries (other than
Stillwater Federal or any other SAIF-insured savings association) would become
subject to such restrictions unless such other associations each qualify as a
QTL and were acquired in a supervisory acquisition.
If Stillwater Federal were to fail the QTL test, OSI would have to obtain the
approval of the OTS prior to continuing, after such failure, directly or through
its other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure OSI would have to register as, and would become
subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See "--Qualified Thrift Lender Test."
OSI must obtain approval from the OTS before acquiring control of any other
SAIF-insured association. Such acquisitions are generally prohibited if they
result in a multiple savings and loan holding company controlling savings
associations in more than one state. However, such interstate acquisitions are
permitted based on specific state authorization or in a supervisory acquisition
of a failing savings association.
Federal Reserve System. The Federal Reserve Board requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At June 30, 1994, Stillwater Federal was in compliance with
these reserve requirements. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements that may be imposed by the OTS. See "-- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board regulations require associations to
exhaust other reasonable alternative sources of funds, including FHLB
borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System. Stillwater Federal is a member of the FHLB
of Topeka, which is one of 12 regional FHLBs that administers the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the board of directors of the FHLB. These policies
and procedures are subject to the regulation and oversight of the Federal
Housing Finance Board. All advances from
the FHLB are required to be fully secured by
sufficient collateral as determined by the FHLB. In addition, all long-term
advances are required to provide funds for residential home financing.
As a member, Stillwater Federal is required to purchase and maintain stock
in the FHLB of Topeka. At June 30, 1994, Stillwater Federal had $1.4 million in
FHLB stock, which was in compliance with this requirement. In past years,
Stillwater Federal has received substantial dividends on its FHLB stock. Over
the past five calendar years such dividends have averaged 9.27% and were 7.12%
for fiscal year 1993.
Under federal law, the FHLBs are required to provide funds for the resolution
of troubled savings associations and to contribute to low- and moderately-priced
housing programs through direct loans or interest subsidies on advances targeted
for community investment and low- and moderate-income housing projects. These
contributions have affected adversely the level of FHLB dividends paid and could
continue to do so in the future. These contributions could also have an adverse
effect on the value of FHLB stock in the future. A reduction in value of
Stillwater Federal's FHLB stock may result in a corresponding reduction in
Stillwater Federal's capital.
For the fiscal year ended September 30, 1993, dividends paid by the FHLB of
Topeka to Stillwater Federal totaled $98,000, which constitute a $25,000
decrease over the amount of dividends received in
fiscal 1992. The $18,800 dividend
received for the quarter ended June 30, 1994, reflects an annualized rate of
5.50%, or 1.62% below the rate for calendar 1993.
Federal and State Taxation. Savings associations such as Stillwater Federal
that meet certain definitional tests relating to the composition of assets and
other conditions prescribed by the Internal Revenue Code of 1986, as amended
(the "Code"), are permitted to establish
reserves for bad debts and to make annual additions thereto
which may, within specified formula limits, be taken as a
deduction in computing taxable income for federal income tax purposes. The
amount of the bad debt reserve deduction for "non-qualifying loans" is computed
under the experience method. The amount of the bad debt reserve deduction for
"qualifying real property loans" (generally loans secured by improved real
estate) may be computed under either the experience method or the percentage of
taxable income method (based on an annual election).
Under the experience method, the bad debt reserve deduction is an amount
determined under a formula based generally upon the bad debts actually sustained
by the savings association over a period of years.
The percentage of specially computed taxable income that is used to compute
a savings association's bad debt reserve deduction under the percentage of
taxable income method (the "percentage bad debt deduction") is 8%. The
percentage bad debt deduction thus computed is reduced by the amount permitted
as a deduction for non-qualifying loans under the experience method. The
availability of the percentage of taxable income method permits qualifying
savings associations to be taxed at a lower effective federal income tax rate
than that applicable to corporations, generally (approximately 31.3% assuming
the maximum percentage bad debt deduction).
If an association's specified assets (generally, loans secured by residential
real estate or deposits, educational loans, cash and certain government
obligations) constitute less than 60% of its total assets, the association may
not deduct any addition to a bad debt reserve and generally must include
existing reserves in income over a four year period. No
representation can be made as to whether Stillwater
Federal will meet the 60% test for subsequent taxable years.
Under the percentage of taxable income method, the percentage bad debt
deduction cannot exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to 6% of such
loans outstanding at the end of the taxable year or the greater of (i) the
amount deductible under the experience method or (ii) the amount which when
added to the bad debt deduction for "non-qualifying
loans" equals the amount by which 12% of
the amount comprising savings accounts at year-end exceeds the sum of surplus,
undivided profits and reserves at the beginning of the year. At June 30, 1994,
the 6% and 12% limitations did not restrict the percentage bad debt deduction
available to Stillwater Federal.
In addition to the regular income tax, corporations, including OSI and
savings associations such as Stillwater Federal, generally are subject to an
alternative minimum tax. An alternative minimum tax is imposed at a minimum tax
rate of 20% on alternative minimum taxable income, which is the sum of a
corporation's regular taxable income (with certain adjustments) and tax
preference items, less any available exemption. The alternative minimum tax is
imposed to the extent it exceeds the corporation's regular income tax and net
operating losses can offset no more than 90% of alternative minimum taxable
income. For taxable years beginning after 1986 and before 1996, corporations,
including savings associations such as Stillwater Federal, are also subject to
an environmental tax equal to 0.12% of the excess of alternative minimum taxable
income for the taxable year (determined without regard to net operating losses
and the deduction for the environmental tax) over $2 million.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses).
OSI and Stillwater Federal will file a consolidated federal income tax return
for the fiscal year ended September 30, 1994 using the accrual method of
accounting. Savings associations, such as Stillwater Federal, that file federal
income tax returns as part of a consolidated group are required by applicable
Treasury regulations to reduce their taxable income for purposes of computing
the percentage bad debt deduction for losses attributable to activities of the
non-savings association members of the consolidated group that are functionally
related to the activities of the savings association member.
If the Mergers are effected, Stillwater Federal will no longer separately
exist and will be a part of a commercial bank, BANK IV Oklahoma. Fourth
Financial is not permitted to use the reserve method for deducting bad debts,
and the Stillwater Federal bad debt reserves as of the date of the Mergers will
be recaptured into income by BANK IV Oklahoma using either a "cut-off" method
or a "recapture" method.
Stillwater Federal has been audited by the IRS or the statute of limitations
has expired with respect to consolidated federal income tax returns through the
year ended September 30, 1986. With respect to years examined by the IRS,
either all deficiencies have been
satisfied or sufficient reserves have been established
to satisfy asserted deficiencies. In the opinion of management, any examination
of still open returns (including returns of predecessors of, or entities merged
into, Stillwater Federal) would not result in a deficiency which could have a
material adverse effect on the financial condition of Stillwater Federal.
Change in Accounting for Income Taxes. Statement of Financial Accounting
Standards No. 109, was issued by the Financial Accounting Standards Board
("FASB") in early 1992 and was required to be adopted for fiscal years beginning
after December 15, 1992. SFAS No. 109 requires a change from the deferred
method to the asset and liability method of
accounting for income taxes. Under the
asset and liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. Under
SFAS No. 109, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes
the enactment date. Under the deferred
method, deferred taxes were recognized using the tax rate applicable to the year
of the calculation and were not adjusted for subsequent changes in tax rates.
Oklahoma Taxation. OSI and Stillwater Federal file Oklahoma income tax
returns. For Oklahoma income tax purposes, OSI is taxed at a rate equal to 6.0%
of income. For these purposes income generally means federal taxable income,
subject to certain adjustments, including the addition of interest income on
state and municipal obligations (other than the state of or municipalities
located in Oklahoma) and the exclusion of 50% of the interest income on United
States Treasury obligations. The exclusion of income on United States Treasury
obligations has the effect of reducing significantly the Oklahoma taxable income
of savings associations.
OSI and Stillwater Federal have not been audited by the state tax authorities
with respect to their Oklahoma income tax returns. In the opinion of management,
any examination of returns would not result in a deficiency which could have a
material adverse effect on the financial condition of Stillwater Federal.
OSI is also subject to an annual franchise tax imposed by the State of
Oklahoma.
Delaware Taxation. As a Delaware holding company, OSI is exempted from
Delaware corporate income tax but is required to file an annual report with and
pay an annual fee to the State of Delaware. OSI is also subject to an annual
franchise tax imposed by the State of Delaware. None of these will apply to
Fourth Financial after the Mergers are effected.
PRICE RANGE OF AND DIVIDENDS ON FOURTH STOCK AND OSI STOCK
Fourth Stock and OSI Stock are both traded in the over-the-counter market and
are reported under the National Association of Securities Dealers Automated
Quotation ("NASDAQ")symbols FRTH and OKSI, respectively.
The following table sets forth the high and low closing sales prices of
Fourth Stock as reported on the NASDAQ National Market System and the cash
dividends paid per share of common stock for the periods indicated.
Calendar Year High Low Dividends
-------------- ---- ---- ---------
1991:
First Quarter $21 1/4 $16 1/2 $ .22
Second Quarter 20 1/2 18 .22
Third Quarter 21 1/4 18 1/4 .22
Fourth Quarter 24 1/2 19 1/4 .22
1992:
First Quarter 26 1/4 22 1/2 .22
Second Quarter 28 1/2 24 1/2 .22
Third Quarter 27 1/4 24 .22
Fourth Quarter 31 1/2 25 .22
1993:
First Quarter 31 1/4 28 1/2 .22
Second Quarter 30 7/8 26 7/8 .24
Third Quarter 31 1/4 28 1/2 .24
Fourth Quarter 30 3/8 26 .26
1994:
First Quarter 28 3/4 25 3/8 .26
Second Quarter 30 3/4 26 5/8 .26
Third Quarter 30 1/2 27 3/4 .26
Fourth Quarter 33 29 1/4 .26(1)
(through November 8)
______________
(1) Payable December 1 to stockholders of record on November 15.
A public announcement of the proposed Mergers was made on April 20, 1994. The
reported closing sales price of Fourth Stock on April 19, 1994, was $27 1/4.
Information concerning a recent reported price of Fourth Stock is set forth
on the cover page of this Proxy Statement-Prospectus.
Holders of Fourth Stock are entitled to receive dividends thereon when, as,
and if declared by the Board of Directors out of funds legally available for
such purpose, and, upon liquidation, to share ratably in any assets available
for distribution after payment of liabilities. Information about restrictions
on the ability of Fourth Financial to pay dividends is contained in Item 1 of
the Fourth 10-K, under the caption "Regulation and Supervision".
The following table sets forth the high and low closing bid prices of OSI
Stock as reported on the NASDAQ System ("Small-Cap Issues") since the Conversion
for the fiscal periods indicated. Reported trading of OSI Stock is sporadic
with no trades being reported on many days and with large fluctuations in
reported trading volume. The following prices may not be indicative of prices
that would be obtained in a more regular market.
Fiscal Year High Low
----------- ---- ---
1993:
Third Quarter $13 1/4 $12
Fourth Quarter 14 12 1/2
1994:
First Quarter 14 3/8 13 1/2
Second Quarter 16 14 1/8
Third Quarter 20 14
Fourth Quarter 23 1/2 19 3/8
1995:
First Quarter
(through November 7) 25 1/4 24
A public announcement of the Agreement was made on April 20, 1994. The
reported closing sales price of OSI Stock on April 19, 1994, was $14 1/8.
Information concerning a recent reported price of OSI Stock is set forth on
the cover page of this Proxy Statement-Prospectus.
OSI has neither declared nor paid cash dividends on it common stock since its
organization in 1993. Holders of OSI Stock are entitled to receive dividends
thereon when, as, and if declared by the Board of Directors out of funds legally
available for such purpose, and, upon liquidation, to share ratably in any
assets available for distribution after
payment of liabilities. OSI is dependent on
receiving dividends from Stillwater Federal in order for OSI to be able to pay
dividends on OSI Stock.
Under federal regulations, Stillwater Federal may not declare or pay a cash
dividend if the effect thereof would cause its regulatory capital to be reduced
below (i) the amount required for the special liquidation account established in
connection with its conversion to the stock form of organization, or (ii) the
regulatory capital and capital distribution requirements imposed by the OTS.
Earnings appropriated to the bad debt reserves and deducted for federal income
tax purposes cannot be used to pay cash dividends without the payment of federal
income taxes by Stillwater Federal on the amount of such earnings deemed removed
from the reserves for such purpose at the then current income tax rate.
Information about restrictions on the ability of Stillwater Federal to pay
dividends to OSI is contained above under the caption "Information Concerning
OSI and Stillwater Federal -- Limitations on Dividends and Other Capital
Distributions." See "The Agreement and Proposed Mergers -- Dividends" for a
discussion of a proposed OSI cash dividend.
Neither Fourth Financial nor any of its executive officers or directors or
their affiliates owned any shares of capital stock of OSI on the date of this
Proxy Statement-Prospectus and neither OSI nor any of its executive officers or
directors beneficially owned any shares of Fourth Stock on such date.
EQUITY SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information as to those persons
believed by management of OSI to be beneficial owners of more than 5% of OSI's
outstanding shares of Common Stock on November 10, 1994. Persons and groups
beneficially owning in excess of 5% of OSI's Common Stock are required to file
certain reports regarding such ownership with OSI and with the United States
Securities and Exchange Commission (the "SEC"), in accordance with the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Where
appropriate, historical information set forth below
is based on the most recent Schedule 13D
or 13G filed on behalf of such person with OSI. Other than those persons listed
below, management is not aware of any person or group that owns more than 5% of
OSI's Common Stock as of November 10, 1994. The holders have sole voting and
dispositive power, unless otherwise noted.
Name and Address Amounts and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
------------------- ----------------------- --------
Yamaichi International 35,150 shares 8.3%
(America), Inc.
Two World Trade Center
New York, New York
Oklahoma Savings, Inc. 28,698 6.8
Employee Stock
Ownership Plan
601 South Husband
Stillwater, Oklahoma (1)
Laifer, Inc. 28,500 6.8
26th Floor
114 West 47th Street
New York, New York 10036
_____________
(1) Held by OSI's Employee Stock Ownership Plan ("ESOP"). First Bankers
Trust, the trustee of the ESOP, may be deemed to beneficially own all
unallocated ESOP shares.
The following table sets forth certain information as to the common stock
of OSI owned of record or beneficially by each director and executive officer of
OSI, OSI's chief executive officer, and by all directors and executive officers
as a group.
Shares of Common
Stock Beneficially
Owned as of Percent
Name Position November 10, 1994(1) of Class
- ---- -------- ------------------- -----
Calvin J. Anthony Chairman of the
Board 20,994 4.95%
Beth F. Buchanan President and Chief
Executive Officer 9,459 2.22
Robert J. Arnold Director 20,568 4.85
Dan H. Duncan Director 5,519 1.30
James L. Martin Director 5,969 1.41
Fred A. Shultz Director 4,969 1.17
All directors
and executive
officers as
a group
(7 persons) 71,867 16.39
_____________
(1) Amounts include shares held directly and jointly with family members, as
well as shares which are held in retirement accounts, or held by certain
members of the named individuals' families, or held by trusts of which the
named individual is a trustee or substantial beneficiary, with respect to
which shares the respective directors may be deemed to have sole or shared
voting and/or investment power. Amounts also include restricted shares
under the Recognition and Retention Plan over which the individuals have
voting power as well as shares subject to options granted under OSI's 1993
Stock Option and Incentive Plan which were ratified by stockholders at
OSI's first annual meeting held on January 27, 1994.
Set forth below, as to each director and executive officer of OSI, OSI's
chief executive officer, each known beneficial owner of more than 5% of OSI
Stock, and all executive officers and directors of OSI, as a group, is
information as of November 10, 1994, as to the number of shares of Fourth Stock
to be received by such persons or group in the OSI Merger. None of such persons
or groups will beneficially own as much as 1% of the Fourth Stock that will be
outstanding upon consummation of the OSI Merger.
Number of Shares
of Fourth Stock
to be
Name Beneficially Owned(1)
----- -------------------
Calvin J. Anthony 17,634
Beth F. Buchanan 7,945
Robert J. Arnold 17,277
Dan H. Duncan 4,711
James L. Martin 5,013
Fred A. Schultz 1,764
Yamaichi International
(America) Inc. 29,526
Laifer, Inc. 23,940
Oklahoma Savings,
Inc. Employee Stock
Ownership Plan 24,106
All directors and
executive officers
as a group (7 persons) 58,033
_______________
(1) See preceding tables for information concerning present beneficial
ownership of OSI Stock.
EXPERTS
The consolidated financial statements of Fourth Financial Corporation
appearing in Fourth Financial Corporation's Annual Report (Form 10-K) for the
year ended December 31, 1993, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon
included therein and incorporated herein by
reference, as to the year 1992 are based in part on the reports of
Arthur Andersen LLP, Sartain Fischbein & Co., and GRA, Thompson, White & Co.,
P.A., independent auditors, and as to the year 1991 are based in part on the
reports of Arthur Andersen LLP, Sartain Fischbein & Co., Grant Thornton, and
Deloitte & Touche LLP, independent auditors. The financial statements referred
to above are included in reliance upon such reports given upon the authority of
such firms as experts in accounting and auditing.
The consolidated financial statements of Oklahoma Savings, Inc. as of
September 30, 1993 and 1992 and for each of the three years in the period ended
September 30, 1993 included in this Proxy Statement-Prospectus and OSI's Annual
Report on Form 10-KSB have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is included in this Proxy Statement-
Prospectus and incorporated herein by reference, in reliance upon such report of
such firm given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
The legality of the Fourth Stock to be issued in the OSI Merger is being
passed upon for Fourth Financial by Foulston & Siefkin, Wichita, Kansas. As of
November 1, 1994, three of the lawyers in such law firm participating in the
Merger for Foulston & Siefkin beneficially owned an aggregate of 14,064 shares
of Fourth Stock. Certain legal matters in connection with the OSI Merger will
be passed upon for OSI by Silver, Freedman & Taff, Washington, D.C. (a
partnership including professional corporations), special counsel to OSI.
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed with the Securities and Exchange
Commission by Fourth Financial (File No. 0-4170) are incorporated herein by
reference:
1. The annual report of Fourth Financial on Form 10-K for the year ended
December 31, 1993.
2. The quarterly report of Fourth Financial on Form 10-Q for the quarter
ended March 31, 1994.
3. The quarterly report of Fourth Financial on Form 10-Q for the quarter
ended June 30, 1994.
4. The revised definitive proxy statement of Fourth Financial used in
connection with its 1994 Annual Meeting of Stockholders held on April 21,
1994.
5. The description of the capital stock of Fourth Financial contained in its
quarterly report on Form 10-Q for the quarter ended June 30, 1992.
6. All documents filed by Fourth Financial pursuant to Sections 13(a),
13(c), 14, or 15(d) of the Securities and Exchange Act of 1934,
as amended, after the date hereof and before
the date of the Special Meeting shall be deemed
to be incorporated by reference herein and made a part hereof from the
date any such document is filed.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes hereof to the extent that a
statement contained herein or in any other subsequently filed document which
also is incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed to constitute a part
of this Proxy Statement-Prospectus except as so modified or superseded.
The Annual Report of Fourth Financial on Form 10-K for the year ended December
31, 1993, and the Quarterly Report of Fourth Financial on Form 10-Q for the
quarter ended June 30, 1994 are attached to this Proxy Statement-Prospectus as
Annexes IV and V, respectively.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers, and employees of
OSI, who will not be specifically paid for such services, may solicit proxies
from OSI stockholders, personally or by telephone, facsimile, mail, or other
form of communication. Brokerage houses,
nominees, fiduciaries, and other custodians will be
requested to forward soliciting materials to beneficial owners and will
be reimbursed for their reasonable expenses incurred in sending proxy materials
to beneficial owners. OSI has retained Regan & Associates, Inc. to assist in
the solicitation of proxies for a fee estimated to be approximately $2,000 plus
reasonable out-of-pocket expenses not to exceed $1,250.
DEADLINE FOR SUBMISSION OF FOURTH FINANCIAL AND
OSI STOCKHOLDERS'
PROPOSALS FOR
THE NEXT ANNUAL MEETINGS OF STOCKHOLDERS
Any proposals to be submitted by Fourth Financial stockholders pursuant to
Rule 14a-8 of the Securities and Exchange Commission, other than proposed
nominees for election as directors, at Fourth Financial's 1995 Annual Meeting of
Stockholders must be received by Fourth Financial at its principal executive
offices at 100 North Broadway, Post Office Box 4, Wichita, Kansas 67201, by
November 16, 1994, for inclusion in Fourth Financial's proxy statement and form
of proxy. If the date of the 1995 Annual Meeting is changed to a date more than
thirty days earlier or later than April 21, 1995, Fourth Financial shall, in a
timely manner, inform its stockholders of such change and the date by which
proposals of stockholders must be received for such inclusion.
Fourth Financial's Bylaws provide that nominations for directors, together
with certain information specified by the Bylaws, must be submitted in writing
not later than fourteen days nor earlier than fifty days prior to the date of
the Annual Meeting of Stockholders, except that if fewer than twenty-one days'
written notice of the meeting is given to stockholders, such nominations may be
made during the seven days following the date the notice was made.
Stockholders of OSI wishing to include proposals in the proxy materials in
connection with the annual meeting of OSI to be held in 1995 must have submitted
the same in writing so as to be received by the Secretary of OSI at the
executive office of OSI on or before August 24, 1994.
Such proposals must meet the other requirements
of the rules of the Securities and Exchange Commission relating to
stockholders' proposals. If OSI stockholders approve the Agreement and OSI
Merger Agreement and the OSI Merger is consummated in December 1994, there will
not be a 1995 annual meeting of OSI stockholders.
INDEPENDENT AUDITORS
OSI's independent auditors for the fiscal year ended September 30, 1993 were
Deloitte & Touche LLP. Deloitte & Touche LLP has also been selected to continue
as independent auditors for OSI for the fiscal year ending September 30, 1994
and such selection has been ratified by the stockholders.
A representative of Deloitte & Touche LLP is expected to attend the
Special Meeting and will be given an opportunity to make a
statement if such representative desires to do so and
will also be available to respond to appropriate questions from stockholders
present at the Special Meeting.
INDEX TO FINANCIAL STATEMENTS AND RELATED INFORMATION
Oklahoma Savings, Inc. Page
------
Independent Auditors' Report. . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Financial Condition,
September 30, 1993 and 1992 . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Operations, years
ended September 30, 1993, 1992, and 1991 . . . . . . . . . . F-6
Consolidated Statements of Capital/Stockholders' Equity,
years ended September 30, 1993, 1992, and 1991 . . . . . . . F-8
Consolidated Statements of Cash Flows, years ended
September 30, 1993, 1992, and 1991 . . . . . . . . . . . . . F-9
Notes to Consolidated Financial Statements, years
ended September 30, 1993, 1992, and 1991. . . . . . . . . . . F-11
Consolidated Statements of Financial Condition,
June 30, 1994 (unaudited) and September 30, 1993. . . . . . . F-27
Consolidated Statements of Operations, three
months ended June 30, 1994 and 1993 (unaudited) . . . . . . . F-28
Consolidated Statements of Operations, nine
months ended June 30, 1994 and 1993 (unaudited) . . . . . . . F-29
Consolidated Statements of Cash Flows, nine
months ended June 30, 1994 and 1993 (unaudited) . . . . . . . F-30
Notes to Consolidated Financial Statements,
nine months ended June 30, 1994 (unaudited) . . . . . . . . . F-31
Management's Discussion and Analysis of Financial Condition
and Results of Operations and other financial information . . F-33
INDEX TO FINANCIAL STATEMENTS AND RELATED INFORMATION
Fourth Financial Corporation, Oklahoma Savings, Inc.,
Blackwell Security Bancshares, Inc., and Standard
Bancorporation, Inc. (Pending Acquisitions)
Page
----
Pro forma Condensed Consolidated Statement of Condition
as of June 30, 1994 (unaudited) . . . . . . . . . . . . . . . F-63
Fourth Financial Corporation, Equity Bank for Savings, F. A., and
Emprise Bank, National Association (Recent Acquisitions), and
Oklahoma Savings, Inc., Blackwell Security Bancshares, Inc., and
Standard Bancorporation, Inc. (Pending Acquisitions)
Pro forma Condensed Consolidated Statements of Income for the
six months ended June 30, 1994 and 1993 (unaudited) and for
year ended December 31, 1993 (unaudited). . . . . . . . . . . F-66
Pro forma Condensed Consolidated Statement of Income for the
six months ended June 30, 1994 (unaudited). . . . . . . . . . F-67
Pro forma Condensed Consolidated Statement of Income for the
six months ended June 30, 1993 (unaudited). . . . . . . . . . F-68
Pro forma Condensed Consolidated Statement of Income for the
year ended December 31, 1993 (unaudited). . . . . . . . . . . F-69
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Oklahoma Savings, Inc.:
We have audited the accompanying consolidated statements of financial condition
of Oklahoma Savings, Inc. and its subsidiary (the "Holding Company") as of
September 30, 1993 and 1992 and the related consolidated statements of
operations, capital/stockholders' equity and cash flows for each of the three
years in the period ended September 30, 1993. These financial statements are
the responsibility of the Holding Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Holding Company at September
30, 1993 and 1992 and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 1993 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Oklahoma City, Oklahoma
November 5, 1993
<TABLE>
<CAPTION>
OKLAHOMA SAVINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1993 AND 1992
-------------------------------------------------------------------------------
ASSETS 1993 1992
<S> <C> <C>
CASH $1,528,589 $1,284,428
OVERNIGHT DEPOSITS WITH FEDERAL
HOME LOAN BANK 4,400,000 4,500,000
--------- ---------
Cash and cash equivalents 5,928,589 5,784,428
INTEREST-BEARING DEPOSITS 1,386,000 396,000
INVESTMENT SECURITIES (approximate fair
value of $10,212,600 and $7,432,000 9,994,688 7,167,825
at September 30, 1993 and 1992)
FEDERAL HOME LOAN BANK STOCK, at cost 1,373,100 1,373,100
MORTGAGE-BACKED PASS-THROUGH SECURITIES
(approximate fair value of $4,878,000 and
$5,821,000 at September 30, 1993 and 1992) 4,746,281 5,763,185
LOANS RECEIVABLE (net of allowance for
loan losses of $1,276,657 and $1,206,781
at September 30, 1993 and 1992) 69,369,431 74,642,316
ACCRUED INTEREST RECEIVABLE 689,339 703,213
OFFICE PROPERTIES AND EQUIPMENT, net 490,235 485,361
LEASED PROPERTY, net 400,000 1,273,877
REAL ESTATE OWNED AND OTHER ASSETS
ACQUIRED THROUGH FORECLOSURE, net 2,248,563 3,319,023
OTHER ASSETS 304,122 287,169
---------- -----------
TOTAL $96,930,348 $101,195,497
========== ===========
<FN>
(Continued)
</TABLE>
<TABLE>
<CAPTION>
OKLAHOMA SAVINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1993 AND 1992
--------------------------------------------------------------------------------
LIABILITIES AND CAPITAL/STOCKHOLDERS' EQUITY 1993 1992
<S> <C> <C>
LIABILITIES:
Deposits $89,221,730 $97,207,686
Advances from borrowers for taxes and insurance 567,887 563,221
Accrued interest payable 276,582 269,068
Other liabilities 257,431 124,290
Deferred income 185,023 184,458
Employee Stock Ownership Plan obligation 245,983 -
---------- ----------
Total liabilities 90,754,636 98,348,723
---------- ----------
COMMITMENTS AND CONTINGENCIES
CAPITAL/STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share, authorized
500,000 shares, none issued - -
Common stock, par value $.01 per share, authorized
2,000,000 shares, issued 419,200 shares 4,192 -
Capital in excess of par value 3,688,027 -
Retained earnings - substantially restricted 2,825,163 2,846,774
Deferred stock compensation (341,670) -
---------- -----------
Total capital/stockholders' equity 6,175,712 2,846,774
---------- -----------
TOTAL $96,930,348 $101,195,497
========== ===========
<FN>
See notes to consolidated financial statements.
(Concluded)
</TABLE>
<TABLE>
<CAPTION>
OKLAHOMA SAVINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
------------------------------------------------------------------------------
1993 1992 1991
INTEREST INCOME:
<S> <C> <C> <C>
Loans $6,107,502 $7,200,445 $8,524,881
Mortgage-backed securities 397,603 468,949 486,155
Investment securities 533,598 483,558 469,266
Interest-bearing deposits and
overnight deposits with the FHLB 191,838 278,946 442,166
--------- --------- ---------
Total interest income 7,230,541 8,431,898 9,922,468
--------- --------- ---------
INTEREST EXPENSE:
Demand deposits 490,396 597,268 866,325
Savings and time deposits 3,350,351 4,750,890 6,591,027
Other 5,245 - -
--------- --------- ---------
Total interest expense 3,845,992 5,348,158 7,457,352
--------- --------- ---------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 3,384,549 3,083,740 2,465,116
PROVISION FOR LOAN LOSSES 183,516 357,188 1,068,926
--------- --------- ---------
NET INTEREST INCOME 3,201,033 2,726,552 1,396,190
--------- --------- ---------
OTHER INCOME:
Service charges 332,083 461,655 607,718
Gain from sale of real estate
owned, net 12,375 33,430 -
Gain from termination of pension plan - 158,245 -
Gain from sale of FHLMC preferred stock - - 126,169
Gain on sale of mortgage-backed
securities - - 3,360
Other 102,913 58,061 82,446
-------- -------- --------
Total other income $447,371 $711,391 $819,693
<FN>
(Continued)
</TABLE>
<TABLE>
<CATION>
OKLAHOMA SAVINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
------------------------------------------------------------------------------
1993 1992 1991
<S> <C> <C> <C>
Total other income $447,371 $711,391 $819,693
-------- -------- --------
OTHER EXPENSES:
Salaries and employee benefits 825,310 783,104 857,778
Occupancy expense 134,703 183,305 193,402
Real estate owned - operating
expenses, net 160,851 185,790 232,865
General and administrative 387,700 399,988 534,964
Federal insurance premium 300,902 278,150 299,285
Data processing expense 190,672 193,980 265,319
Insurance and surety bond premiums 114,600 127,722 120,805
Leased property valuation provision 864,977 - -
Provision for losses on real estate
owned 614,000 111,000 39,000
Loss on sale of real estate owned, net - - 52,430
--------- --------- ---------
Total other expenses 3,593,715 2,263,039 2,595,848
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 54,689 1,174,904 (379,965)
INCOME TAX EXPENSE 88,100 425,000 -
-------- --------- --------
INCOME (LOSS) BEFORE (33,411) 749,904 (379,965)
EXTRAORDINARY ITEM
REDUCTION OF INCOME TAX EXPENSE
ARISING FROM CARRYFORWARD OF
PRIOR YEARS' OPERATING LOSSES 11,800 425,000 -
--------- --------- ---------
NET INCOME (LOSS) ($21,611) $1,174,904 ($379,965)
========= ========= =========
EARNINGS PER SHARE (SINCE ISSUANCE) $0.80
=========
AVERAGE SHARES OUTSTANDING 421,950
=========
<FN>
See notes to consolidated financial statements.
(Concluded)
</TABLE>
<TABLE>
<CAPTION>
OKLAHOMA SAVINGS, INC.
CONSOLIDATED STATEMENTS OF CAPITAL/STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
-------------------------------------------------------------------------------
Capital in Deferred
Common Excess of Retained Stock
Stock Par Value Earnings Compensation
<S> <C> <C> <C> <C>
BALANCE,
OCTOBER 1, 1990 $ - $ - $2,051,835 $ -
Net loss - - (379,965) -
------- ---------- ---------- -----------
BALANCE,
SEPTEMBER 30, 1991 - - 1,671,870 -
Net income - - 1,174,904 -
------- ---------- ---------- ----------
BALANCE,
SEPTEMBER 30, 1992 - - 2,846,774 -
Net proceeds from issuance
of common stock 4,100 3,595,869 - -
Common stock issued for
Recognition and Retention
Plan 92 92,158 - (92,250)
Deferred stock compensation - - - (286,980)
Amortization of deferred
stock compensation - - - 37,560
Net loss - - (21,611) -
------- ---------- ---------- ----------
BALANCE,
SEPTEMBER 30, 1993 $4,192 $3,688,027 $2,825,163 $ (341,670)
======= ========== ========= ==========
<FN>
See note to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
OKLAHOMA SAVINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
----------------------------------------------------------------------------------
1993 1992 1991
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ($21,611) $1,174,904 ($379,965)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Provision for loan and real estate
owed lossed 797,516 468,188 1,107,926
Dividends on FHLB stock - (88,500) (120,600)
Depreciation and amortization expense 120,081 163,117 128,748
Accretion of discounts and amortization
of premiums, net 88,867 (37,514) (2,653)
(Gain) loss on sale of real estate owed (12,375) (33,430) 52,430
Gain on sale of FHLMC preferred stock - - (126,169)
Gain on sale of mortgage-backed
securities - - (3,360)
Loss on sale of office properties and
equipment - 5,680 -
Loss on writedown of leased properties 864,977 - -
Changes in assets and liabilities:
Other liabilities 133,141 (83,427) 62,898
Deferred income 565 60,074 5,540
Accrued interest payable 7,514 222,785 (5,162)
Other assets (16,953) 28,785 (29,820)
Accrued interest receivable 13,874 177,662 142,886
--------- --------- --------
Net cash provided from operations 1,975,596 2,058,324 832,699
--------- --------- --------
INVESTING ACTIVITIES:
Purchase of mortgage-backed securities - (1,587,765) (1,000,051)
Principal repayments on mortgage-backed
securities 1,003,926 1,323,033 836,661
Proceeds from sale of mortgage-backed
securities - - 1,058,327
Maturities of investment securities 1,500,000 2,500,000 3,000,000
Purchase of investment securities (5,084,702) (3,000,000) (4,111,000)
Principal repayments on investment
securities 681,949 - -
Loans originated and principal
repayments, net 3,873,124 3,453,021 6,570,680
Sale of education loans 1,213,462 1,241,133 2,583,565
Purchase of interest-bearing deposits (1,188,000) (1,681,341) (1,089,000)
Proceeds from maturing interest-bearing
deposits 198,000 1,188,000 826,619
Proceeds from sales of FHLMC preferred
stock - - 139,009
Proceeds from sales of real estate owned 471,619 485,205 942,948
Real estate held for development - - 125,594
Purchase of office properties and
equipment (78,495) (14,139) (6,090)
Proceeds from sales of office properties
and equipment - 14,500 -
--------- --------- ---------
Net cash provided from investing $2,590,883 $3,921,647 $9,877,262
<FN>
(Continued)
</TABLE>
<TABLE>
<CAPTION>
OKLAHOMA SAVINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
-----------------------------------------------------------------------------------
1993 1992 1991
<S> <C> <C> <C>
Net cash provided from investing $2,590,883 $3,921,647 $9,877,262
--------- --------- ---------
FINANCING ACTIVITIES:
Net decrease in deposits (7,985,956) (5,973,689) (10,487,574)
Net change in advances from borrowers
for taxes and insurance 4,666 9,559 (10,821)
Payments on Employee Stock Ownership
Plan obligation (40,997)
Proceeds from issuance of common stock 3,599,969 - -
--------- --------- ----------
Net cash used by financing
activities (4,422,318) (5,964,130) (10,498,395)
--------- --------- ----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 144,161 15,841 211,566
CASH AND CASH EQUIVALENTS,
Beginning of year 5,784,428 5,768,587 5,557,021
--------- --------- ---------
End of year $5,928,589 $5,784,428 $5,768,587
========= ========= =========
SUPPLEMENTAL CASH FLOWS DISCLOSURES:
Cash paid for interest on deposits
(including interest credited
to deposit accounts) $3,833,233 $5,125,373 $7,462,500
Loans originated to finance the
sale of real estate owned 325,350 1,245,050 2,569,000
Loans transferred to real estate owned 419,926 1,440,442 2,218,000
Cash paid for income taxes 128,215 - -
<FN>
See notes to consolidated financial statements.
(Concluded)
</TABLE>
OKLAHOMA SAVINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
- ------------------------------------------------------------------------------
1. ORGANIZATION
In March 1993, Stillwater Savings and Loan Association, an Oklahoma chartered
mutual savings and loan association, converted to a federally chartered mutual
savings bank and changed its name to Stillwater Federal Savings Bank (the
"Bank"). In April 1993, Oklahoma Savings, Inc. (the "Holding Company") was
formed at the direction of the Bank for the purpose of acquiring all of the
outstanding common stock issued in the conversion of the Bank to a stock savings
bank. On June 28, 1993, the Holding Company completed a subscription and
community offering of 409,975 shares of its common stock at $10 per share and
received net proceeds of $3,599,969. Concurrently, the Holding Company acquired
all of the Bank's outstanding common stock for $3,564,000. The Holding
Company's only significant asset is its investment in the Bank.
At the time of conversion, the Bank established a liquidation account in the
amount of $2,846,774. The liquidation account will be maintained for the
benefit of eligible depositors who continue to maintain their accounts at the
Bank after conversion. The liquidation account will be reduced annually to the
extent that eligible depositors have reduced their qualifying deposits.
Subsequent increases will not restore an eligible account holder's interest in
the liquidation account. In the event of a complete liquidation, each eligible
depositor will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for accounts then held. The liquidation account balance is not available for
payment of dividends.
Regulations of the Office of Thrift Supervision ("OTS") limit the amount of
dividends and other capital distributions that may be paid by a savings
institution without prior approval of the OTS. This regulatory restriction is
based on a three-tiered system with the greatest flexibility being afforded to
well-capitalized (Tier 1) institutions. OTS regulations prohibit a savings
institution from paying dividends or making other capital distributions if, as
a result, its net worth would be reduced to an amount that is less than the
required regulatory capital or the liquidation account.
2. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Basis of Presentation - As discussed in Note 1, on June 28, 1993, the Bank
became a wholly owned subsidiary of the Holding Company. The transaction is
being accounted for using historical costs (similar to a pooling of interests),
consequently, no goodwill or intangibles were recorded as a result of this
transaction. As such, the accompanying consolidated financial statements of the
Holding Company have been restated to reflect the accounts and operations of the
Bank. All material intercompany balances and transactions are eliminated.
The accounting and reporting policies of the Holding Company conform to
generally accepted accounting principles and to general practices within the
savings and loan industry.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, noninterest-bearing deposits in depository
institutions and overnight deposits with the Federal Home Loan Bank ("FHLB").
Generally, overnight deposits with the FHLB are purchased and sold for one day
periods.
Investments and Mortgage-backed Securities - Investments and mortgage-backed
securities held for investment are carried at cost, adjusted for amortization
of premiums and accretion of discounts. Amortization of premiums and accretion
of discounts are recorded to income over the estimated life of the individual
investment on the level yield method. The Bank has the ability and intent to
hold mortgage-backed securities and investment securities to maturity.
Accordingly, no adjustment has been made for the excess, if any, of amortized
cost over market. Gain or loss on sale of all investments is based on the
specific identification method.
Should the Bank acquire investment and mortgage-backed securities intended to
be held for indefinite periods of time, including securities which management
may sell as part of the Bank's asset/liability management strategy in response
to changes in interest rates, prepayment factors, and other similar factors,
they will be classified as held for sale and accounted for at the lower of cost
or market.
Liquidity Requirement - Regulations require the Bank to maintain in cash and
U.S. Government and other approved securities an amount equal to 5% of savings
accounts (net of loans on savings accounts) plus short-term borrowings.
Interest on Loans - Interest on loans is credited to income as earned and
accrued only if deemed collectible. No interest income is recognized on loans
which are 90 days past due or when management believes collectibility is
doubtful and a reserve is established for interest previously accrued. Loans
may be reinstated to accrual status when all payments are brought current and,
in the opinion of management, collection of the remaining balance is reasonably
expected.
Allowance and Provisions for Losses - Provisions for losses include charges to
reduce the recorded balances of mortgage loans receivable, loans foreclosed
in-substance, and real estate owned to their estimated net realizable value or
fair value, as applicable. Provisions for possible loan losses are charged to
operations based on management's evaluation of the potential losses in its loan
portfolio. The major factors considered in evaluating potential losses are
historical charge-off experience, delinquency rates, regional economic
conditions and collateral value. Management's estimate of fair value of
collateral considers the current and currently anticipated future operating or
sales conditions, thereby causing these estimates to be particularly susceptible
to changes that could result in an adjustment to results of operations in the
future. Recovery of the carrying value of such loans and real estate owned is
dependent to a great extent on conditions that may be beyond the Bank's control.
Office Properties and Equipment - Office properties and equipment are carried
at cost less accumulated depreciation. Major additions or betterments are
charged to the asset account while normal maintenance and repairs are expensed
as incurred. When property or equipment is sold, or otherwise disposed of, the
cost and related accumulated depreciation are removed from the respective
accounts and the resulting gains and losses are reflected in income.
Depreciation and amortization are computed generally on the straight-line basis
over the estimated useful lives of the assets ranging from 5 to 30 years.
Real Estate Owned and Other Assets Acquired Through Foreclosure - Real estate
owned ("REO") and other assets acquired through foreclosure are recorded at the
lower of the unpaid balance of the loan plus related foreclosure costs, or fair
value less the estimated costs to sell the asset. Write-downs of carrying value
required at the time of foreclosure or in-substance foreclosure are recorded as
a charge to the allowance for loan losses. Costs related to the development of
such real estate are capitalized whereas those related to holding the property
are expensed. Foreclosed property is subject to periodic reevaluation based
upon estimates of current fair value and any necessary adjustments are recorded
in the valuation allowance.
In the ordinary course of business, the Bank institutes appropriate legal action
to foreclose or repossess the real estate or other property securing delinquent
loans, if the delinquency cannot be cured. The Bank's policy is to reclassify
the loan balance to REO when that property is in-substance foreclosed, even
though formal foreclosure or repossession proceedings are not completed.
In-substance foreclosure occurs when the borrower has little or no equity in the
collateral at its current estimated fair value, proceeds for repayment are
expected to come only from the operations or sale of the collateral, and the
borrower has either abandoned control of the collateral or it is doubtful the
borrower will rebuild equity in the collateral or be able to repay the loan by
other means in the foreseeable future. Even though the collateral underlying
these loans has not been formally repossessed, a loss is recognized by reducing
the carrying value of the asset to the estimated fair value of the related
collateral. The amounts the Bank could ultimately recover from such
in-substance foreclosures could differ from the amounts used in arriving at the
net carrying value of the assets because of future market factors beyond the
Holding Company's control.
Profit from sales of foreclosed property financed by the Bank is recognized in
accordance with the provisions of SFAS No. 66, "Accounting for Sales of Real
Estate". Losses are recognized as incurred.
Effective September 30, 1992, the Holding Company adopted the provisions of
Statement of Position 92-3 Accounting for Foreclosed Assets ("SOP 92-3") issued
by the American Institute of Certified Public Accountants. The adjustment
required to record foreclosed assets in accordance with SOP 92-3 was not
material.
Income Taxes - Income taxes are accounted for under the provisions of Accounting
Principles Board Opinion No. 11. Deferred income taxes are provided on items
that are recognized for financial accounting purposes in periods different than
for income tax purposes.
The Financial Accounting Standards Board has issued SFAS No. 109, "Accounting
for Income Taxes" (the "Statement"), which requires an asset and liability
approach for financial accounting and reporting for income taxes. The effective
date of the Statement is for fiscal years beginning after December 15, 1992.
The Statement permits the recording of a deferred tax asset to recognize the
future tax benefits to be realized upon utilization of net operating loss
carryforwards. If, on the basis of available evidence, it is more likely than
not that all or a portion of the deferred tax asset will not be realized, the
asset must be reduced by a valuation allowance. The Holding Company has not
determined the amount of valuation allowance that will be established to reduce
the future tax benefits that may be realized upon utilization of its existing
tax loss carryforwards (see Note 11). Management of the Holding Company intends
to adopt the Statement when required.
Loan Origination Fees and Direct Origination Costs, Premiums, and Discounts -
Loan origination fees net of certain direct costs of origination are recorded
as deferred income and recognized into income over the life of the related loan
as a yield adjustment. The unamortized net loan fee balance related to loans
that are paid off prior to maturity are recognized in income at the time of
prepayment. Unearned discounts on loans and premiums and discounts on
mortgage-backed securities purchased are amortized by the level-yield method
over the estimated life of the underlying loans.
Earnings Per Share - Earnings per share were determined by dividing net income
earned from the date of initial stock offering through the end of the year by
the weighted average shares of common stock and common stock equivalents
outstanding for the period.
Reclassification - Certain reclassifications have been made in the 1992 and 1991
financial statements to conform with the presentation in 1993.
New Accounting Pronouncements - In December 1991, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments". SFAS
No. 107 requires disclosures of the fair value of financial instruments, both
assets and liabilities recognized and not recognized in the statement of
financial condition, for which it is practical to estimate fair value. SFAS No.
107 is effective for fiscal years ending after December 11, 1995 for entities
with less than $150 million in total assets.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan". This statement requires that impaired loans be measured
based on the present value of the expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. SFAS No. 114 is effective for fiscal years beginning
after December 15, 1994. Management has not determined the effect of
implementing SFAS No. 114 on the Holding Company's consolidated financial
statements.
In May 1993, FASB issued SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". SFAS No. 115 discusses the accounting and
reporting for investments in debt securities. Such investments are to be
classified in three categories (held-to-maturity, trading and
available-for-sale) and account for such items in the prescribed manner. The
statement is effective for fiscal years beginning after December 15, 1993. The
Bank currently only acquires investment securities with the intent to hold them
until maturity; therefore, management does not anticipate that implementation
of SFAS No. 115 will have a significant effect on the Holding Company's
consolidated financial statements.
3. REGULATORY CAPITAL REQUIREMENTS
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") established regulatory capital standards that were effective December
7, 1989 and require thrifts to have core capital equal to 3.00% of adjusted
total assets, of which 1.50% must be tangible capital. Core capital generally
consists of retained earnings less unidentified intangible assets. Tangible
capital consists of retained earnings less all intangible assets other than
certain purchased mortgage servicing rights. Additionally, the Bank must
maintain total capital equal to increasing percentages, 8.00% on September 30,
1993, of risk-weighted assets and certain off-balance sheet items.
In April 1991, the Office of Thrift Supervision ("OTS") proposed a core capital
requirement for savings associations comparable to the requirement for national
banks that became effective December 31, 1990. The proposal calls for an OTS
core capital requirement of at least 3% of total adjusted assets for thrifts
that receive the highest supervisory rating for safety and soundness, with a 4%
to 5% core capital requirement for all other thrifts. If adopted as proposed,
management would expect the Bank to be subject to a 4% to 5% core capital
requirement.
Along with the anticipated increase in the core capital requirements, the OTS
has recently adopted an amendment to the risk-based capital requirement that
includes an interest rate risk component for any institution carrying "above
normal" interest rate risk. "Above normal" interest rate risk would be
determined based on the change in the net market value of the institution's
assets, liabilities and off-balance sheet items under specific interest rate
scenarios. Interest rate risk determined to be "above normal" would likely
require additional risk-based capital. Based on the Bank's risk-based and
interest-rate risk profile and the level of interest rates at September 30,
1993, as well as the Bank's level of risk-based capital, it appears that this
amendment, effective July 1, 1994, will not affect the Bank's compliance with
its risk-based capital requirements.
The Bank's capital requirements and the amount of its capital at September 30,
1993 and 1992 follow (dollars in thousands):
<TABLE>
<CAPTION>
Requirement Actual Capital
-------------------------------------------- ------------------------------------
1993 1992 1993 1992
------------------ ------------------ ---------------- ---------------
Amount Percent Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Core $2,908 3.00% $ 3,036 3.00% $6,176 6.37% $2,847 2.81%
Tangible $1,454 1.50% $ 1,518 1.50% $6,176 6.37% $2,847 2.81%
Risk-based $3,596 8.00% $ 4,150 7.20% $6,522 14.51% $3,553 6.20%
</TABLE>
A reconciliation of the Bank's capital as shown in the accompanying statements
of financial condition to risk-based capital at September 30, 1993 and 1992
follows:
September 30,
------------------
1993 1992
(in thousands)
As reported in the accompanying statements
of financial condition $6,176 $2,847
General loan valuation allowances 565 773
Equity investment required to be deducted (219) (67)
------ ------
Risk-based capital $6,522 $3,553
====== ======
On June 12, 1991 as a result of its failure to meet the prescribed capital
requirements, the Bank entered into a consent agreement with the OTS. The
consent agreement contained provisions limiting the Bank's growth and lending
activities and provides for the appointment of a conservator, should OTS deem
one necessary. In October 1991, the Bank filed a capital plan with OTS that
described how it intended to meet the capital requirements by December 31,
1994. The OTS accepted the capital plan on December 10, 1991. As a result
of the Bank's conversion to a stocksavings bank and the acquisition of its
stock by the Holding Company, the Bank is in compliance with regulatory
capital standards. The OTS terminated the consent agreement and capital
directive on September 29, 1993 and September 27, 1993, respectively.
4. INVESTMENT SECURITIES
A comparison of the amortized cost and approximate fair value of the Bank's
investment securities follows:
<TABLE>
<CAPTION>
September 30, 1993
---------------------------------------------
Gross Unrealized Approximate
Amortized ---------------- Fair
Cost Gains Losses Value
U.S. Government and agency
obligations due:
<S> <C> <C> <C> <C>
Within one year $ 2,011,583 $ 23,082 $ 65 $ 2,034,600
One to five years 7,017,958 194,964 1,822 7,211,100
Five to ten years 965,147 1,753 - 966,900
---------- -------- ------ -----------
Total $ 9,994,688 $ 219,799 $ 1,887 $ 10,212,600
========== ======== ====== ===========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1992
---------------------------------------------
Gross Unrealized Approximate
Amortized ----------------- Fair
Cost Gains Losses Value
U.S. Government and agency
obligations due:
<S> <C> <C> <C> <C>
Within one year $ 1,521,683 $ 8,317 $ - $ 1,530,000
One to five years 4,575,998 259,002 - 4,835,000
Five to ten years 1,070,144 - 3,144 1,067,000
---------- -------- ------ ----------
Total $ 7,167,825 $ 267,319 $ 3,144 $ 7,432,000
========== ======== ====== ==========
</TABLE>
U.S. Government obligations at September 30, 1993 bear interest at rates ranging
from 3.88% to 8.88%, with a weighted average rate of 5.55%. At September 30,
1993 and 1992, accrued interest receivable on investment securities amounted to
$125,824 and $93,471, respectively.
The weighted average yields on investment securities for the years ended
September 30, 1993, 1992 and 1991 were 5.27%, 5.94% and 7.13%, respectively.
There have been no sales of investment securities during the years ended
September 30, 1993 and 1992.
5. MORTGAGE-BACKED PASS-THROUGH SECURITIES
Mortgage-backed pass-through securities held at September 30, 1993 and 1992
bear interest at stated interest rates ranging from 4.75% to 9.43% and
5.50% to 9.79%, respectively, and mature between July 2007 through
January 2025. The Bank had no sales of mortgage-backed pass-through
securities during fiscal 1993 and 1992. A comparison of the amortized costs
and approximate fair value of the Bank's mortgage-backed securities follows:
<TABLE>
<CAPTION>
September 30, 1993
----------------------------------------------
Gross Unrealized
Amortized ----------------- Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
FHLMC certificates $ 2,872,441 $ 135,059 $ - $ 3,007,500
GNMA certificates 1,432,287 16,618 4,905 1,444,000
FNMA certificates 441,553 - 15,053 426,500
---------- -------- ------- ----------
Total $ 4,746,281 $ 151,677 $19,958 $ 4,878,000
========== ======== ====== ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1992
---------------------------------------------
Gross Unrealized Approximate
Amortized ----------------- Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
FHLMC certificates $ 3,543,041 $ 87,066 $26,107 $ 3,604,000
GNMA certificates 1,578,122 12,455 4,577 1,586,000
FNMA certificates 642,022 - 11,022 631,000
---------- -------- ------- ----------
Total $ 5,763,185 $ 99,521 $41,706 $ 5,821,000
========== ======== ======= ==========
</TABLE>
The weighted average yield on mortgage-backed securities for the years ended
September 30, 1993, 1992 and 1991 were 7.55%, 7.87% and 8.60%, respectively.
Maturities of mortgage-backed securities are not presented since the loans
underlying such securities may be subject to prepayment by the borrowers.
6. LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
1993 1992
Real estate mortgages secured by first mortgages:
Conventional one-to-four family residences:
<S> <C> <C>
- fixed rate $17,693,714 $14,913,000
- adjustable rate 39,639,355 42,959,000
Conventional - other 2,890,181 7,712,516
Commercial 7,488,285 8,060,778
Partially guaranteed by VA or insured by FHA - residential 736,336 509,732
Construction and development - residential 612,667 1,355,446
Whole loans and participations purchased 270,200 468,587
Whole loans and participations sold and serviced for others (3,669,554) (5,296,396)
---------- ----------
Total first mortgages 65,661,184 70,682,663
---------- ----------
Installment and other 1,006,480 1,437,845
Second mortgages 1,045,990 1,442,339
Loans secured by deposits 1,089,440 932,135
Commercial loans 130,770 169,614
Education loans - held for sale 2,478,886 1,875,094
---------- ----------
Total 71,412,750 76,539,690
---------- ----------
Deduct:
Unearned discounts (73,773) (42,778)
Undisbursed portion of loans in process (692,889) (647,815)
Allowance for possible loan losses (1,276,657) (1,206,781)
----------- -----------
Loans receivable, net $69,369,431 $74,642,316
=========== ===========
</TABLE>
At September 30, 1993 and 1992, accrued interest receivable on loans amounted
to $689,339 and $555,338, respectively. Accrued interest receivable has
been reduced by an allowance for uncollectible interest amounting to
$27,601 and $25,723 at September 30, 1993 and 1992, respectively. The Bank's
gross loan portfolio consists of approximately $49,521,000 of variable rate
loans and $21,892,000 of fixed rate loans at September 30, 1993. Nonaccrual
and restructured loans at September 30, 1993 are not significant.
The unpaid principal balance of loans serviced for others totaled $6,658,990
at September 30, 1991.
Transactions in the allowance for loan losses at September 30, 1993, 1992
and 1991 are summarized as follows:
1993 1992 1991
Balance, beginning of period $1,206,781 $ 979,161 $1,089,663
Provision for loan losses 183,516 357,188 1,068,926
Loans charged off (113,640) (129,568) (1,179,428)
---------- ---------- ----------
Balance, end of period $1,276,657 $1,206,781 $ 979,161
========== ========== ==========
The Bank has originated or purchased in prior years commercial real estate
loans which are considered by management to be of somewhat greater risk of
uncollectibility due to the dependency on income production or future
development of the real estate. The commercial real estate loans are
collateralized by multi-family residential property, commercial properties
and undeveloped land. The Bank's mortgage loan portfolio is collateralized
primarily by real estate located in the State of Oklahoma which has recently
experienced a weak real estate market. Other loans are made primarily to
customers within the Bank's Oklahoma market area of Payne, Logan, and Noble
counties.
The Bank originates education loans which are guaranteed by the Oklahoma
State Regents for Higher Education. These loans are held in the portfolio
during the payment deferral period, and are sold, at par plus accrued
interest, to the Student Loan Marketing Association at the end of that
period.
The Bank's loan portfolio contains certain loans which do not conform to
current OTS Loans-to-One Borrower limitations. Such loans were in compliance
with OTS regulations when originated or approval was received from the OTS
prior to funding.
7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at September 30, 1993 and 1992 are summarized
as follows:
1993 1992
Land $ 159,348 $ 159,348
Building and improvements 696,744 688,021
Furniture and equipment 826,569 833,260
--------- ---------
Total 1,682,661 1,680,629
Less accumulated depreciation (1,192,426) (1,195,268)
--------- ---------
Office properties and equipment, net $ 490,235 $ 485,361
========= =========
8. LEASED PROPERTY
Property leased to others under operating leases by major classes at
September 30, 1993 and 1992 are summarized as follows:
1993 1992
Land $ 355,000 $ 441,874
Building and improvements 288,561 1,066,664
--------- ---------
Total 643,561 1,508,538
Less accumulated depreciation (243,561) (234,661)
--------- ---------
Properties under operating leases, net $ 400,000 $1,273,877
========= =========
Future minimum rentals on noncancelable operating leases follow:
Year ending
September 30,
1994 $ 52,517
1995 53,717
1996 49,917
1997 25,917
1998 25,917
Thereafter 12,959
--------
$ 220,944
========
The Bank has two operating leases, one 10 year lease expiring in 1999 and
one 5 year lease expiring in 1996 with an option to renew for an additional
5 years.
Leased property consists of a former branch facility that was vacated as part
of the Bank's program to reduce operating costs. The Bank's intent is to
reoccupy the facility at the earliest date possible; therefore, the facility is
classified as leased property and not real estate held for investment. Prior
to December 1992, the Bank carried this facility at historical cost since, in
management's judgment, no permanent impairment in such value had occurred
considering the intended future reoccupation of the branch facility. In
December 1992, the Bank, after considering the possible length of time required
to reoccupy the leased property, wrote the property down to its estimated fair
value which was based upon the income approach using the lease agreements
currently in effect.
9. REAL ESTATE OWNED AND OTHER ASSETS ACQUIRED THROUGH FORECLOSURE
Real estate owned and other assets acquired by the Holding Company through
foreclosure proceedings, in-substance foreclosed or deeded in lieu of
foreclosure consists of the following:
1993 1992
Single family residences $ 76,774 $ 197,348
Mobile homes 5,000 43,896
Other land and commercial property 2,912,581 3,077,779
Valuation allowance (745,792) -
--------- ---------
Total $2,248,563 $3,319,023
========= =========
Real estate owned and other assets acquired through foreclosure are subject to
periodic evaluations based upon estimates of fair value. Prior to September 30,
1992, the Bank recorded valuation adjustments to real estate owned and other
assets acquired through foreclosure by reducing the carrying value of individual
assets. Effective September 30, 1992, in accordance with SOP 92-3, the Bank
records adjustments to the carrying value of such assets through a valuation
allowance. In-substance foreclosures included in real estate owned were
$2,381,849 and $2,261,120 at September 30, 1993 and 1992, respectively.
Transactions in the valuation allowance for real estate owned and other assets
acquired through foreclosure are summarized as follows:
1993
Balance, beginning of period $ -
Provision for losses 614,000
Reclassification 131,792
--------
Balance, end of period $ 745,792
========
10. DEPOSITS
The weighted average stated interest rate payable on all deposits at September
30, 1993 and 1992 was 3.91% and 4.60%, respectively. The stated rates at
which the Bank paid interest on deposits and related balances of such
deposits at September 30, 1993 and 1992 follow:
Stated Rate 1993 1992
DEMAND DEPOSITS:
Zero rate NOW accounts 0.00% $ 1,032,754 $ 839,205
2.75% - 3.00% at 1993
NOW and SuperNOW accounts 3.00% - 3.30% at 1992 6,517,843 5,301,160
3.00% at 1993
Money market demand accounts 3.30% at 1992 8,886,295 9,078,226
---------- ----------
Total demand deposits 16,436,892 15,218,591
---------- ----------
SAVINGS DEPOSITS:
Zero rate accounts 0.00% 2,997 -
Passbook accounts 3.25% at 1993 and 1992 6,012,280 5,978,513
---------- ----------
Total savings deposits 6,015,277 5,978,513
---------- ----------
TIME DEPOSITS: 2.51% - 3.50% 18,916,877 1,897,345
Savings certificates 3.51% - 4.50% 30,410,303 29,852,339
4.51% - 5.50% 6,324,136 22,865,307
5.51% - 6.50% 3,336,713 6,161,797
6.51% - 7.50% 2,606,754 6,423,669
7.51% - 8.50% 1,284,563 4,112,334
8.51% - 9.50% 64,074 374,896
Variable rate time deposits
- average rate 4.02% and
4.18% at September 30, 1993
and 1992 3,826,141 4,322,895
---------- ----------
Total time deposits 66,769,561 76,010,582
---------- ----------
Total deposits $ 89,221,730 $97,207,686
========== ==========
The amounts of scheduled maturities of time deposits at September 30, 1993
follow:
<TABLE>
<CAPTION>
Year ending September 30,
------------------------------------------------------------------
Stated Rate 1994 1995 1996 1997 1998 Total
<S> <C> <C> <C> <C> <C> <C>
2.51% - 3.50% $18,916,877 $ - $ - $ - $ - $18,916,877
3.51% - 4.50% 24,313,408 5,358,930 737,965 - - 30,410,303
4.51% - 5.50% 3,284,296 319,928 1,107,917 397,408 1,214,587 6,324,136
5.51% - 6.50% 1,281,747 632,292 635,392 787,282 - 3,336,713
6.51% - 7.50% 1,932,105 144,806 130,854 398,989 - 2,606,754
7.51% - 8.50% 1,089,487 126,732 55,344 13,000 - 1,284,563
8.51% - 9.50% 64,074 - - - - 64,074
Variable 1,998,787 1,827,354 - - - 3,826,141
---------- --------- --------- --------- --------- ----------
$52,880,781 $8,410,042 $2,667,472 $1,596,679 $1,214,587 $66,769,561
========== ========= ========= ========= ========= ==========
</TABLE>
11. INCOME TAXES
At September 30, 1993, there is approximately $2,655,000 of net operating loss
carryforwards for Oklahoma income tax purposes and none for federal income tax
purposes arising from the Bank's tax losses in prior years. These carryforwards
expire during the years 2004 through 2006. No current tax benefit for these
carryforwards has been recorded as the ultimate realization of such benefit is
not assured. Extraordinary gains were recognized for the benefit of utilizing
net operating loss carryforwards of approximately $55,000 and $1,090,000 to
offset book taxable income for the years ended September 30, 1993 and 1992.
The Bank is permitted under the Internal Revenue Code to deduct an annual
addition to its reserve for bad debts in determining taxable income, subject to
certain limitations. This deduction for income tax purposes differs
significantly from the bad debt provision used for financial accounting
purposes. Bad debt deductions for income tax purposes are included in taxable
income of later years only if the bad debt reserves are used subsequently for
purposes other than to absorb bad debt losses. Retained earnings at September
30, 1993 includes approximately $1,000,000 representing bad debt deductions for
which no deferred income taxes have been provided.
The provision for federal and state income taxes at September 30, 1993, 1992 and
1991 includes the following:
1993 1992 1991
Current:
Federal $ 85,300 $370,500 $ -
State 2,800 54,500 -
Deferred:
Federal - - -
State - - -
Total provision 88,100 425,000 -
------- ------- -------
Reduction of income tax expense
arising from carryforward of prior
years' operating losses (11,800) (425,000) -
------- ------- ------
$ 76,300 $ - $ -
======= ======= ======
The effective income tax rates are different from the statutory federal income
tax rates at September 30, 1993, 1992 and 1991 for the following reasons:
1993 1992 1991
Statutory federal income tax rates 34% 34% (34)%
State income taxes 5 5 (5)
Stock dividend (3)
Corporate tax bracket benefit (18)
Alternative minimum tax 97
Net operating loss carryforward (21) (36) 39
Other, primarily prior year accrual
adjustment 43 - -
---- ---- ----
140% -0- % -0- %
==== ==== ====
12. OFFICER, DIRECTOR AND EMPLOYEE PLANS
In connection with the stock conversion, the Boards of Directors of the Bank and
the Holding Company have approved the adoption of an Employee Stock Ownership
Plan (the "ESOP") effective October 1, 1992. The ESOP was capitalized with
funds from a $286,980 note payable to a bank made by the ESOP Trust. These
funds were used by the ESOP to purchase 28,698 shares of the Holding Company's
stock issued in the conversion. Shares purchased with the borrowed funds, to
the extent of the borrowing, represent deferred compensation to employees for
future services. As the loan is repaid, common stock is allocated to ESOP
participants based on the proportion of the loan payment to total principal and
interest payments required under the remaining loan term. Compensation expense
recognized is based on the number of shares allocated to ESOP participants. As
the ESOP was established for the benefit of the Bank's employees, the
compensation and interest expense on the note payable to the bank is recorded
by the Bank as the borrowing is repaid. During fiscal 1993, $37,560 and $5,245
were charged to compensation and interest expense, respectively. The balance
of deferred compensation related to the ESOP is $249,420 at September 30, 1993.
The ESOP covers substantially all employees who meet certain eligibility
requirements.
Since the funds for payment of principal and interest on the ESOP loan will be
provided by the Holding Company, the unpaid balance of the loan is reported as
a liability in the Holding Company's consolidated statement of financial
condition. The loan is repayable in seven annual installments of $40,997 with
the final installment due September 30, 1999. Interest on the loan is based
upon prime rate plus 1% (7% at September 30, 1993).
Also in connection with the stock ownership plan, the Holding Company
established a Management Recognition and Retention Plan (the "RRP"). Under the
terms of the RRP, restricted stock awards covering shares representing an
aggregate of 12,300 shares of common stock can be granted to directors, officers
and key employees by the Board of Directors. Awards are nontransferable and
nonassignable. At September 30, 1993, 9,225 shares of restricted stock have
been awarded under the RRP at the issue price of $10 per share and deferred
compensation of $92,250 was recorded. The awards will vest at a rate of 20% per
year, with the first installment vesting on March 31, 1994 and each additional
installment vesting each March 31 thereafter, subject in each case to the
continued service of the holder as an employee of the Holding Company or Bank.
Amortization of the deferred compensation to expense will occur as the stock
awards vest.
A Stock Option and Incentive Plan ("Stock Option Plan") has been adopted by the
Board of Directors of the Holding Company subject to ratification by
stockholders of the Holding Company. Stock options and restricted stock awards
covering 41,920 shares may be granted to directors and officers of the Holding
Company or its subsidiaries under the Stock Option Plan. Options granted under
the Stock Option Plan may be either options that qualify as "incentive stock
options" (options that afford tax treatment to recipients upon compliance with
certain restrictions and that do not normally result in tax deductions to the
employer) or options that do not so qualify. In the event of a change in
control of the Holding Company, outstanding options may become immediately
exercisable and restricted stock may become fully vested. The exercise price
of stock options granted under the Stock Option Plan is required to be at least
equal to the fair market value per share of the stock on the date of grant.
Subject to ratification of the Stock Option Plan, options representing 10,900
shares of common stock were granted to directors and officers at the offering
price of $10 per share.
The Bank provided a defined benefit, noncontributory pension plan that covered
substantially all employees who met certain eligibility requirements. On May
16, 1991, the Bank's Board of Directors voted to terminate the pension plan as
the Board believed that the pension plan was not compensating employees
equitably. An application was subsequently filed with the Internal Revenue
Service seeking approval of such termination and such approval was received on
December 18, 1991. The Bank paid all benefits due to participants in April 1992
and recognized a net gain of $158,245 upon termination.
13. RELATED PARTY TRANSACTIONS
Directors, officers, and employees of the Bank and Holding Company were
customers of, and had transactions with, the Bank in the ordinary course of
business and similar transactions are expected in the future. All loans
included in such transactions were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactionswith other persons and did not involve more than normal
risk of loss or present other unfavorable features.
Related party loans are summarized as follows:
Year Ended
September 30,
1993
Balance, beginning of period $ 598,861
New loans 140,975
Loan payments received (239,186)
---------
Balance, end of period $ 500,650
=========
14. COMMITMENTS AND CONTINGENCIES
Outstanding loan commitments amounted to approximately $808,438 and $1,113,200
at September 30, 1993 and 1992, respectively. Approximately $336,133 and
$342,000 of the outstanding loan commitments at September 30, 1993 and 1992 are
for adjustable rate loans. The Bank's fixed-rate outstanding loan commitments
at September 30, 1993 and 1992 have stated interest rate ranges of 6.25% -
10.00% and 7.75% - 9.25%, respectively.
The Bank and Holding Company are parties to various legal actions normally
associated with financial institutions, the aggregate effect of which, in
management's and legal counsel's opinion, would not be material to the
consolidated financial condition or results of operations of the Holding
Company.
At periodic intervals, both the OTS and the Federal Deposit Insurance
Corporation (the "FDIC") routinely examine the Bank's financial statements as
part of their legally prescribed oversight of the savings and loan industry.
Based on these examinations, the regulators can direct that the Bank's financial
statements be adjusted in accordance with their findings. A future examination
by the OTS or the FDIC could include a review of certain transactions or other
amounts reported in the Bank's financial statements. However, the increasingly
uncertain regulatory environment in which the Bank now operates and the extent,
if any, to which a forthcoming regulatory examination may ultimately result in
adjustments to the financial statements cannot presently be determined.
15. INTEREST RATE RISK
The Bank is engaged principally in providing first mortgage loans to individuals
and commercial enterprises. At September 30, 1993, the Bank's assets included
approximately $49,521,000 of adjustable rate loans. The adjustable rate loans
have interest rate adjustment limitations and are generally indexed to the
National Average Rate for all major lenders as published by the FHLB and the
1-year U.S. Treasury note rate. Future market factors may affect the
correlation of the interest rate adjustment with the rates the Bank pays on the
short-term deposits that have been primarily utilized to fund these loans.
These assets were also funded primarily with short-term liabilities that have
interest rates that vary with market rates over time.
At September 30, 1993, the Bank had interest-earning assets of approximately
$91,270,000 having a weighted average effective yield of approximately 7.11% and
interest-bearing liabilities of approximately $89,222,000 having a weighted
average effective interest rate of 3.91%. The weighted average maturity of the
Bank's interest sensitive assets is longer than that of its interest sensitive
liabilities which indicates that the Bank is exposed to interest rate risk
because, in a rising rate environment, liabilities will be repricing faster at
higher rates, thereby reducing net interest income.
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------
Fiscal year 1993 December 31 March 31 June 30 September 30
(in thousands)
<S> <C> <C> <C> <C>
Interest income $ 1,886 $ 1,814 $ 1,828 $ 1,702
Interest expense (1,050) (975) (920) (901)
------ ------ ------ ------
Net interest income 836 839 908 801
Provision for loan losses (60) (90) (106) 73
Other income 141 136 90 80
Other expense (1,797) (526) (606) (665)
------ ------ ------ ------
Income before income taxes (880) 359 286 289
Income taxes - (68) (60) 52
------ ------ ------ ------
Net income (loss) $ (880) $ 291 $ 226 $ 341
====== ====== ====== ======
Earnings per share (since issuance) - - - $.80
======
Average Shares Outstanding 427,350
=======
Fiscal year 1992
Interest income $ 2,234 $ 2,135 $ 2,050 $ 2,013
Interest expense (1,535) (1,379) (1,264) (1,170)
------ ------ ------ ------
Net interest income 699 756 786 843
Provision for loan losses (46) (82) (75) (154)
Other income 171 174 279 87
Other expense (480) (606) (568) (609)
------ ------ ------ ------
Income before income taxes 344 242 422 167
Income taxes - - - -
------ ------ ------ ------
Net income $ 344 $ 242 $ 422 $ 167
====== ====== ====== ======
</TABLE>
- - - - - -
<TABLE>
<CAPTION>
OKLAHOMA SAVINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
ASSETS 1994 1993
--------------- --------------
<S> <C> <C>
Cash and Cash Equivalents $5,754,670 $5,928,589
Interest-Bearing Deposits 1,089,000 1,386,000
Investment Securities 11,955,655 9,994,688
(Market value $11,801,934)
Federal Home Loan Bank stock 1,373,100 1,373,100
Mortgage-backed securities 3,897,175 4,746,281
(Market value $3,843,384)
Loans receivable, net 70,794,840 69,369,431
Accrued interest receivable 653,818 689,339
Office properties and equipment, net 494,163 490,235
Leased property 400,000 400,000
Real estate, net 452,222 2,248,563
Other assets 116,831 304,122
--------------- --------------
Total Assets $96,981,474 $96,930,348
=============== ==============
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $88,563,420 $89,221,730
Advances from borrowers
for taxes and insurance 510,177 567,887
Accrued interest payable 17,821 276,582
Other liabilities 153,254 257,431
Deferred income 188,740 185,023
Employee Stock Ownership Plan 259,563 245,983
--------------- --------------
Total Liabilities 89,692,975 90,754,636
--------------- --------------
STOCKHOLDERS' EQUITY:
Common Stock $4,200 $4,192
Additional paid-in capital 3,719,900 3,688,027
Retained Earnings 3,853,307 2,825,163
Deferred stock compensation (288,908) (341,670)
--------------- --------------
Total Stockholders' Equity 7,288,499 6,175,712
--------------- --------------
Total Liabilities & Stockholders' Equity $96,981,474 $96,930,348
=============== ==============
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
OKLAHOMA SAVINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS
ENDED JUNE 30,
1994 1993
-------------- -------------
<S> <C> <C>
Interest Income:
Loans $1,272,088 $1,562,297
Mortgage-backed securities 70,436 93,601
Investments 167,993 130,483
Interest-bearing deposits 56,293 42,103
-------------- -------------
Total Interest Income 1,566,810 1,828,484
Interest Expense:
Demand deposits 117,262 122,988
Savings and time deposits 718,397 797,699
Other 4,971 0
-------------- -------------
Total Interest Expense 840,630 920,687
-------------- -------------
Net Interest Income before Provision
for Loan Losses 726,180 907,797
Provision for loan losses (382,684) 106,516
-------------- -------------
Net Interest Income 1,108,864 801,281
Noninterest Income:
Service charges 75,428 81,373
Other 21,009 8,466
Gain on sale of real estate owned, net 103,333 0
-------------- -------------
Total Noninterest Income 199,770 89,839
Noninterest Expenses:
Salaries and employee benefits 233,748 214,183
Occupancy expense 28,929 29,518
Real estate owned-operating expenses, net 25,961 41,845
General and administrative 146,151 105,111
Federal insurance premium 65,590 75,576
Service bureau expense 39,692 50,489
Insurance and surety bond premiums 13,032 28,357
Leased property valuation provision 0 0
Loss on sale of real estate owned, net 0 9,495
Provision for losses on real estate owned 0 51,000
-------------- -------------
Total Noninterest Expenses 553,103 605,574
-------------- -------------
Income before Income Taxes 755,531 285,546
Income Tax Expense 132,441 60,000
-------------- -------------
Net Income $623,090 $225,546
============== =============
Income per common share (since issuance) $1.44 N/A
============== =============
Average shares outstanding 431,842 0
============== =============
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
OKLAHOMA SAVINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS
ENDED JUNE 30,
1994 1993
-------------- -------------
<S> <C> <C>
Interest Income:
Loans $4,039,100 $4,702,586
Mortgage-backed securities 225,083 309,988
Investments 489,391 401,723
Interest-bearing deposits 163,391 114,532
-------------- -------------
Total Interest Income 4,916,965 5,528,829
Interest Expense:
Demand deposits 346,986 364,997
Savings and time deposits 2,174,477 2,580,395
Other 13,581 0
-------------- -------------
Total Interest Expense 2,535,044 2,945,392
-------------- -------------
Net Interest Income before Provision
for Loan Losses 2,381,921 2,583,437
Provision for loan losses (260,152) 256,516
-------------- -------------
Net Interest Income 2,642,073 2,326,921
Noninterest Income:
Service charges 227,103 255,117
Other 80,792 83,378
Gain on sale of real estate owned, net 151,144 0
-------------- -------------
Total Noninterest Income 459,039 338,495
Noninterest Expenses:
Salaries and employee benefits 702,420 592,035
Occupancy expense 89,173 102,032
Real estate owned-operating expenses, net 66,592 113,072
General and administrative 475,821 289,626
Federal insurance premium 213,676 218,406
Service bureau expense 124,684 148,692
Insurance and surety bond premiums 41,102 85,995
Leased property valuation provision 0 864,977
Loss on sale of real estate owned, net 0 4,315
Provision for losses on real estate owned 40,000 481,000
-------------- -------------
Total Noninterest Expenses 1,753,468 2,900,150
-------------- -------------
Income (Loss) before Income Taxes 1,347,644 (234,734)
Income Tax Expense 319,500 128,215
-------------- -------------
Net Income (Loss) $1,028,144 ($362,949)
============== =============
Income per common share (since issuance) $2.38 N/A
============== =============
Average shares outstanding 431,842 0
============== =============
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
OKLAHOMA SAVINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS
ENDED JUNE 30,
1994 1993
------------ ------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $1,028,144 ($362,949)
Adjustments to reconcile net income(loss) to
net cash provided by operating activities
Provision for loan and real estate owned losses (220,152) 737,516
Depreciation and amortization expense 112,777 51,890
Accretion of discounts and amortization of
premiums, net 103,995 (41,416)
(Gain) Loss on sale of real estate owned (151,144) 4,315
Provision for leased property valuation 0 864,977
Changes in assets and liabilities:
Other liabilities (104,177) 402,169
Deferred income 3,717 19,516
Accrued interest payable (258,761) (248,320)
Other assets 187,291 110,359
Accrued interest receivable 35,521 (18,316)
Employee Stock Ownership Plan 13,580
------------ ------------
Net cash provided from operations 750,791 1,519,741
------------ ------------
INVESTING ACTIVITIES:
Principal repayments on mortgage-backed securities 833,501 734,648
Maturities of investment securities 1,000,000 1,000,000
Principal repayments on investment securities 456,268 155,569
Purchase of investment securities (3,505,625) (500,000)
Loans originated and principal repayments, net (564,297) 2,747,059
Sale of education loans 778,263 990,777
Maturities of interest-bearing deposits 594,000 99,000
Purchase of interest-bearing deposits (297,000) (594,000)
Proceeds from sales of real estate owned 528,262 469,845
Purchase of office properties and equipment (63,943) (65,593)
------------ ------------
Net cash provided from (used in) investing activities (240,571) 5,037,305
------------ ------------
FINANCING ACTIVITIES:
Net decrease in deposits (658,310) (6,311,870)
Net change in advances from borrowers for taxes
and insurance (57,710) (50,236)
Issue additional shares-Recognition and Retention Plan 8,200
Proceeds from sale of common stock, net 23,681 3,749,970
ESOP Debt Guarantee 0 (286,980)
------------ ------------
Net cash used by financing activities (684,139) (2,899,116)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (173,919) 3,657,930
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,928,589 5,784,428
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $5,754,670 $9,442,358
============ ============
SUPPLEMENTAL CASH FLOWS DISCLOSURES:
Cash paid for interest on deposits (including
interest credited to deposit accounts) $2,793,805 $3,193,712
Loans originated to finance the sale of
real estate owned 1,503,650 376,361
Loans transferred to real estate owned 124,427 0
Income taxes paid 238,000 128,215
<FN>
See notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OKLAHOMA SAVINGS, INC.
BASIS OF PRESENTATION
The consolidated financial statements included in this report have been prepared
by Oklahoma Savings, Inc. (the "Company") pursuant to the rules and regulations
of the Securities and Exchange Commission for interim reporting and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation. These financial statements have not been audited by an
independent accountant. The consolidated financial statements include the
accounts of the Company and its subsidiaries.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures are adequate to
make the information presented not misleading. However, these financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended September 30, 1993. The financial data for the interim periods presented
may not necessarily reflect the results to be anticipated for the complete year.
PRINCIPLES ON CONSOLIDATION
The consolidated financial statements include the accounts of Oklahoma Savings,
Inc. and its wholly-owned subsidiary, Stillwater Federal Savings Bank (the
"Bank"). All significant intercompany balances and transactions have been
eliminated in consolidation.
EARNINGS PER SHARE
Earnings per share were determined by dividing net income earned from the date
of the initial stock offering through the end of June 30, 1994 by the weighted
average shares of common stock and common stock equivalents outstanding for the
period.
ACCOUNTING FOR INCOME TAXES
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," effective October 1, 1993. This Statement
supersedes Accounting Principles Board Opinion No. 11 which was utilized by the
Company in prior periods. The cumulative effect of adopting SFAS No. 109 on the
Company's financial statements was not significant.
There was no change in the valuation allowances charged off for the three months
and nine months ended June 30, 1994.
Under SFAS 109, the Company is not required to provide a deferred tax liability
for bad debt reserves established for tax purposes in tax years beginning before
December 31, 1987 unless it becomes apparent that these reserves will reverse
in the foreseeable future. Such reserves aggregated approximately $1,965,000
at June 30, 1994.
PENDING MERGER
Oklahoma Savings, Inc. signed a definitive agreement on July 21, 1994 to merge
with Fourth Financial Corporation. The stock purchase transaction is presently
valued at approximately $10 million with a stock exchange rate of one share of
Oklahoma Savings, Inc. stock for a .84 share of Fourth Financial Corporation
stock. The acquisition, which is subject to regulatory approvals and the
approval of the Company shareholders, is expected to be completed late in 1994.
SUBSEQUENT EVENTS
The Company owns a participating interest in a large apartment complex currently
under Resolution Trust Corporation control. The Company's recorded investment
at June 30, 1994 is $0.00. Such property has been sold by the RTC; however, the
Company has not been provided information sufficient to determine its
proportionate share of the sale proceeds, net of expenses. Consequently, no
accrual has been made in the accompanying financial statements for this
transaction.
In addition, the Company has entered into a contract, subject to the completion
of a satisfactory environmental audit or a sales price adjustment for
environmental remediation costs, to sell its leased property with a carrying
value of $400,000 at June 30, 1994. The contract sales price without adjustment
is $850,000 cash. The Company expects the sale to occur during the fourth
quarter of 1994.
Management's Discussion and Analysis of Financial Condition
General
The primary business of Stillwater Federal is that of a
community-oriented financial institution offering a variety of
financial services to meet the needs of the communities it serves.
Stillwater Federal attracts deposits from the general public and uses
such deposits, together with borrowings and other funds, to originate
one-to-four family residential mortgage loans. To a much lesser extent,
Stillwater Federal also originates residential construction and
consumer loans in its primary market area. Stillwater Federal also
invests in mortgage-backed securities, which are insured by or
guaranteed by federal agencies, investment grade securities and
securities issued by the U.S. government or agencies thereof.
OSI's net income is primarily dependent upon the difference (or
"spread") between the average yield earned on loans, mortgage-backed
securities and investments and the average rate paid on deposits and
borrowings. The interest rate spread is affected by regulatory,
economic and competitive factors that influence interest rates, loan
demand and deposit flows.
OSI's interest expense is a result of the interest paid on
deposits and borrowed funds. Stillwater Federal emphasizes and
promotes its passbook and statement savings, checking, money market and
NOW accounts, and certificates of deposit principally from its primary
market area.
OSI's net income is also affected by, among other things, fee
income, gains and losses on sales of loans and securities, if any, and
provision for loan losses, service charges, operating expenses,
including net receipts from real estate owned properties and income
taxes.
Financial Condition
June 30, 1994 compared to September 30, 1993. Total assets
remained relatively unchanged at $97.0 million for both June 30, 1994
and September 30, 1993. The composition of OSI's assets changed,
primarily due to an increase in investment securities of $2.0 million
and an increase in loans receivable of $1.4 million. These investment
securities were purchased from excess liquidity which was accumulated
from principal repayments on mortgage-backed securities and proceeds
from the sale of student loans and real estate owned.
In addition to the sale of $514,000 of real estate owned, the
balance of the decline in real estate owned resulted primarily from a
modification of a $1.1 million land loan previously classified as an
in-substance foreclosure which was transferred into loans receivable.
OSI had originally classified the loan as an in-substance foreclosure
in 1991, and has received periodic payments of principal and interest
since then.
During this period, OSI's deposits decreased $658,000.
Management believes the decline was primarily due to depositors seeking
high yielding competitive market products.
September 30, 1993 compared to September 30, 1992. Total assets
declined by $4.3 million to $96.9 million at September 30, 1993
compared to $101.2 million at September 30, 1992. The decline was
primarily due to a $5.3 million decrease in loans receivable as
principal repayments exceeded loan originations, the $865,000 write-
down related to Stillwater Federal leased former North Stillwater
branch described below, the establishment of a $614,000 valuation
allowance on real estate owned (primarily related to a large apartment
complex which was sold in 1994, as described below), partially offset
by an increase of $2.8 million in investment securities.
During this period, Stillwater Federal also experienced a $8.0
million decline in deposits. The overall decline in size was due to
management's continuing efforts to reduce OSI's asset size to improve
Stillwater Federal's regulatory capital compliance and management's
belief that depositors sought higher yielding investment alternatives
due to the relatively low interest rate environment experienced
throughout the year.
Leased Property
OSI has leased property consisting of a former branch facility
that was vacated as part of its program to reduce operating costs.
Prior to December 1992, OSI carried this facility at historical cost
since, in management's judgment, no permanent impairment in value had
occurred. In December 1992, OSI, after considering the possible length
of time required to reoccupy the leased property, wrote the property
down $865,000 to its estimated fair value, or $400,000, which was based
upon an appraisal utilizing the income approach using the lease
agreements currently in effect.
Stillwater Federal has entered into a contract, subject to the
completion of a satisfactory environmental audit or a sales price
adjustment for environmental remediation costs, to sell its leased
property. The contract sales price without adjustment is $850,000
cash. OSI expects the sale to occur during the fourth quarter of 1994.
Non-performing Assets and Loan Loss Provision
Management has predominantly considered the value of the
underlying collateral of problem loans and historical loan loss
experience when establishing loan loss provisions. Management also
considers, however, other factors including general economic
conditions, the composition of Stillwater Federals' loan portfolio and
the level of its non-performing assets in assessing the adequacy of the
loan loss allowance.
Management, as a result of this review process, recorded a
recovery for loan losses of $260,000 for the nine months ended June 30,
1994, compared to a provision for loan losses of $257,000 for the same
period a year ago. This recovery was based on the significant decline
in nonperforming assets and management's review and evaluation of
potential losses in its loan portfolio at June 30, 1994. Management
recorded a provision for loan losses of $184,000 for the fiscal year
ended September 30, 1993, compared to $357,000 and $1,069,000 for the
fiscal years ended September 30, 1992 and 1991, respectively.
Future additions to OSI's allowance for loan losses and any
change in the related ratio of the allowance for loan losses to total
loans are dependent upon the economy, changes in real estate values,
interest rates, the view of the regulatory authorities toward adequate
reserve levels and inflation. There can be no assurance that any future
loan losses will not exceed the estimated amounts or that OSI will not
be required to make additional additions to its allowance for loan
losses in the future. Management's estimate of the adequacy of the
allowance for loan losses is particularly susceptible to changes that
could result in revisions to its evaluation.
At June 30, 1994, OSI's allowance for loan losses totalled
$840,000 or 1.19% of net loans receivable compared to $1.3 million or
1.84% of net loans receivable at September 30, 1993. At June 30, 1994,
OSI's nonperforming assets totalled $591,000 or .61% of total assets
compared to $2.9 million or 3.02% of total assets at September 30,
1993.
Results of Operations
OSI's results of operations depend primarily on the level of its
net interest income and non-interest income and the level of its
operating expenses. Net interest income depends upon the volume of
interest-earning assets and interest-bearing liabilities and interest
rates earned or paid on them. While the recent interest rate
environment has proven beneficial to most thrift institutions,
including Stillwater Federal, increases in market rates of interest
generally adversely affect the net interest income of most thrifts.
Comparison of Nine Months ended June 30, 1994 and June 30, 1993.
General. OSI's net income for the nine months ended June 30,
1994 was $1,028,000 as compared to a $363,000 loss for the same period
in 1993. The primary reasons for the loss in 1993 were the $865,000
write-down on leased properties related to Stillwater Federal's leased
former North Stillwater branch and the establishment of a $430,000
valuation allowance for real estate owned.
Net Interest Income. Net interest income before provision for
loan losses declined approximately $202,000 for the nine months ended
June 30, 1994 from $2.6 million for the same period a year ago. The
primary reason for this decrease was a decrease in interest income
which more than offset the decrease in interest expense. Interest
income decreased $612,000 to $4.9 million for the nine months ended
June 30, 1994 from $5.5 million for the same period in 1993 primarily
due to the principal repayments from loans and mortgage-backed
securities being reinvested at lower interest rates. The decline in
interest rates also resulted in a reduction in yield on its loans,
primarily adjustable-rate mortgage ("ARM") loans, and adjustable rate
mortgage-backed and related securities.
Interest expense decreased $410,000 to $2.5 million for the nine
months ended June 30, 1994 from $2.9 million for the same period in
1993 due primarily to the general decline in interest rates and a
decrease in deposits.
Non-interest Income. Non-interest income increased $121,000 to
$459,000 in the nine months ended June 30, 1994 from $338,000 in the
same period in 1993. This increase was primarily due to gains on the
sale of real estate owned, partially offset by a decrease in service
related income.
Stillwater Federal owns a participating interest in a large
apartment complex currently under the control of the Resolution Trust
Corporation ("RTC"), an agency of the U.S. government. The property
was sold by the RTC prior to June 30, 1994, however, the dollar amount
of Stillwater Federals' proportionate share of the sale proceeds, net
of expenses, was not available at that time. Subsequently, Stillwater
Federal was informed by the RTC that it would receive approximately
$463,000 which Stillwater Federal will record during the fourth quarter
of fiscal 1994.
Non-interest Expense. Non-interest expense decreased $1.1
million to $1.8 million in the nine months ended June 30, 1994 from
$2.9 million in the same period in 1993. As discussed previously, this
decrease was primarily due to the $865,000 write-down on leased
properties and a $430,000 valuation allowance for real estate owned
recorded in 1993. The decrease was partially offset by a $110,000
increase in employee benefits and salaries, primarily due to the
implementation of OSI's stock-based compensation plans and normal
salary increases, as well as an increase in overall other general and
administrative expenses.
Income Taxes. OSI's income tax expense increased $191,000 to
$320,000 for the nine months ended June 30, 1994 compared to $128,000
for the same period in 1993 since the fiscal 1993 income taxes were
accrued only for alternative minimum tax.
Comparison of Years Ended September 30, 1993 and 1992
General. The net loss for the year ended September 30, 1993 was
$22,000, which equated to a return on average assets of negative 0.02%
and a return on average shareholders' equity of negative 0.76%. The
1993 loss in comparison to the 1992 income of $1.2 million was
primarily due to the $865,000 write-down on a leased property and the
establishment of a $614,000 valuation allowance for real estate owned.
For the year ended September 30, 1992 the return on assets was 1.14%,
while the return on average equity was 52.0%.
Net Interest Income. Net interest income before the provision
for loan losses increased $300,000 from $3.1 million for the year ended
September 30, 1992 to $3.4 million for the year ended September 30,
1993. The primary reason for this increase was a decrease in interest
expense of $1.5 million from $5.3 million for the year ended September
30, 1992 to $3.8 million for the comparable period in 1993 which more
than offset the decrease in interest income. Interest income decreased
$1.2 million during the same period due to a $1.1 million decline in
interest earned from loans receivable from $7.2 million to $6.1 million
for the years ended September 30, 1992 and 1993, respectively. OSI's
net interest spread increased 41 basis points, from 3.40% at September
30, 1992 to 3.81% at September 30, 1993.
The decrease in interest income was primarily attributable to a
decrease in the yield earned on OSI's loan portfolio. This decrease
was primarily the result of the lower interest rate environment which
existed during 1993 as compared to September 1992. Additionally, the
decrease resulted from the decline in the average balance of loans
receivable as principal repayments exceeded loan originations. The
balance of net loans receivable declined $5.3 million, from $74.6
million at September 30, 1992 to $69.3 million at September 30, 1993.
Accompanying this decline was a decrease in the yield on the average
balance of loans receivable from 9.23% to 8.48% at September 30, 1992
and 1993, respectively.
The decrease in interest expense was due to a combination of the
general market decline in interest rates and to a lesser extent, the
decline in deposits, primarily certificates of deposit. The cost of
certificates of deposit declined $1.4 million from $4.5 million to $3.2
million at September 30, 1992 and 1993, respectively. The overall
average yield paid on all deposits declined from 4.61% at September 30,
1992 to 3.91% at September 30, 1993.
Non-Interest Income. Non-interest income declined $264,000 from
$711,000 for the year ended September 30, 1992 to $447,000 for the same
period in 1993. The primary reason for this decline was the one-time
gain realized from the termination of OSI's defined benefit
noncontributory pension plan in 1992 and, to a lesser extent, the
$130,000 decrease in service charges during the year ended September
30, 1993 due to a decline in both the amount of loans serviced by
Stillwater Federal and demand transaction accounts.
Non-Interest Expenses. Non-interest expenses increased by $1.3
million from $2.3 million for the year ended September 30, 1992 to $3.6
million for the year ended September 30, 1993. This increase was
primarily due to the one-time valuation write-down on leased property
of $865,000 related to Stillwater Federal leased former North
Stillwater branch, discussed above, and a $614,000 valuation allowance
for real estate owned primarily related to the large apartment complex
discussed above that was classified as an in-substance foreclosure at
September 30, 1993.
Income Tax Provision (Benefit). The liability for income taxes
increased $76,000 for the year ended September 30, 1993. OSI continued
to benefit from the accumulated loss carryforwards for income taxes;
however, during the fiscal year ended September 30, 1993, due to timing
differences between book and tax accounting, OSI was subject to an
alternative minimum tax.
Comparison of Years Ended September 30, 1992 and 1991
General. OSI had net income of $1.2 million in 1992 compared to
a net loss of $380,000 in 1991. As discussed in more detail below, the
increase in net income was primarily the result of an increase of
$619,000 in net interest income, a $712,000 reduction in the provision
for loan losses, a decrease in non-interest expenses of $333,000 and a
decrease of $108,000 in non-interest income.
Net Interest Income. Net interest income before the provision
for loan losses increased $619,000 from $2.5 million for fiscal 1991 to
$3.1 million for 1992. Interest income decreased $1.5 million for 1992
compared to 1991 primarily due to a .95% reduction in the average yield
on interest-earning assets and a $6.0 million decrease in the average
balances of interest-earning assets, predominantly loans receivable as
repayments exceeded loan originations. The decline in assets was part
of management's strategy to reduce OSI's asset size in order to attain
capital compliance.
Interest income on loans decreased $1.3 million or 15.54% for
1992, from $8.5 million for 1991 to $7.2 million for 1992. The
decrease was attributable to a significant decrease in the yield on
OSI's loan portfolio. The decline in the yield was the direct result
of the lower interest rate environment which existed during 1992 as
compared to 1991, which caused downward adjustments of OSI's ARMs and
stimulated prepayments of both ARMs and higher yielding fixed-rate
loans. Net loans receivable decreased $5.3 million or 6.59% during
1992, from $79.9 million at September 30, 1991, to $74.6 million at
September 30, 1992.
Interest earned on mortgage-backed securities decreased by
$17,000 or 3.50% to $469,000 in 1992 from $486,000 in 1991. This
decrease resulted primarily from the decreased yield on mortgage-backed
investments from 8.21% for 1991 to 8.11% in 1992 reflecting the general
decline in interest rates during the period.
Interest on other investments decreased $148,000 from 1991 to
1992 due primarily to the decrease in the yields on other investments
from 10.39% for 1991 to 8.69% for 1992 reflecting the general decline
in interest rates during the period.
Interest expense decreased $2.1 million for 1992 compared to 1991
primarily due to a 1.48% reduction in the average rate paid on
interest-bearing liabilities, predominately certificates of deposit.
The result was a .48% increase in OSI's interest rate spread from 3.15%
at September 30, 1991, to 3.63% at September 30, 1992.
Non-Interest Income. Non-interest income decreased $109,000
from $820,000 in 1991 to $711,000 in 1992. The decrease in
non-interest income was due primarily to the decrease in service
charges of $146,000. Service fees continued to decline as a result of
a decrease in the number of deposit accounts and overdraft charges
related to demand accounts. During both 1991 and 1992, non-interest
income was increased by one-time gains of $126,000 and $158,000,
respectively, which were realized from the gain on the sale of an
investment held at the lower of cost or market in 1991, and the
termination of OSI's defined benefit noncontributory pension plan in
fiscal 1992. OSI terminated the plan because the Board believed that
the pension plan was not compensating employees in an equitable manner.
OSI paid all benefits due to participants in 1992 and recognized a net
gain of $158,000 upon termination.
Non-Interest Expenses. Non-interest expenses decreased by
$333,000 or 12.83% from $2.6 million in 1991 to $2.3 million in 1992.
General and administrative expenses decreased by $135,000, in part, by
the closing of the North Stillwater branch office. Real estate owned
operating expenses decreased by $47,000 as a result of the decline in
real estate owned properties. Salaries and employee benefits decreased
by $75,000 as a result of the closing of the North Stillwater branch as
well as changes in management personnel. Service bureau expenses
decreased by $71,000 as a result of a decline in the number of
transactions processed by the service bureau, reflecting the decline in
deposit accounts secured by OSI. The loss on sale of real estate owned
(net) decreased by $52,000 due to net gains realized on such sales in
1992.
Income Tax Provision (Benefit). Income tax expense increased
$425,000 from none in 1991 to $425,000 in 1992 due to improved results
of operations resulting in net income. The expense was offset,
however, by the utilization of tax net loss carryforwards.
Average Balances, Interest Rates and Yields
The following tables present for the periods indicated the total
dollar amount of interest income from average interest earning assets
and the resultant yields, as well as the interest expense on average
interest bearing liabilities, expressed both in dollars and rates. No
tax equivalent adjustments were made. All average balances are monthly
average balances. Non-accruing loans have been included in the table
as loans carrying a zero yield.
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------------------------------------------
1994 1993
----------------------------- -----------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
----------- -------- ------ ----------- -------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable . . . . . . . . . . . . . . . $69,358 $4,039 7.76% $72,886 $4,703 8.60%
Investment Securities. . . . . . . . . . . . . 11,528 489 5.66 8,376 402 6.40
Other interest-earning assets. . . . . . . . . 5,010 163 4.34 3,703 115 4.14
Mortgage-backed securities . . . . . . . . . . 4,231 225 7.09 5,344 310 7.73
------- ------ ------- ------
Total interest-earning assets. . . . . . . . . $90,127 $4,916 5.45% $90,309 $5,530 6.12%
Interest-Bearing Liabilities:
Time deposits. . . . . . . . . . . . . . . . . $65,426 $2,014 4.10% $71,229 $2,433 4.55%
Demand and NOW deposits. . . . . . . . . . . . 16,685 347 2.77 16,055 365 3.03
Savings deposits . . . . . . . . . . . . . . . 6,669 160 3.20 5,835 147 3.36
Borrowings . . . . . . . . . . . . . . . . . . 246 14 7.59 --- --- ---
------- ------ ------- ------
Total interest-bearing liabilities . . . . . . $89,026 $2,535 2.85% $93,119 $2,945 3.16%
Net interest income. . . . . . . . . . . . . . . $2,381 $2,585
Net interest spread. . . . . . . . . . . . . . . 2.60% 2.96%
Net earning assets . . . . . . . . . . . . . . . $1,101 $(2,810)
Net yield on average interest-earning assets . . 2.64% 2.86%
Average interest-earning assets to
average interest-bearing liabilities. . . . . . 101.24% 96.98%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------------------------
1993 1992 1991
------------------------- ------------------------- -------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
----------- ------- ----- ----------- ------- ----- ----------- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable . . . . . . . . $72,016 $6,107 8.48% $77,995 $7,200 9.23% $84,876 $8,524 10.04%
Investment Securities. . . . . . 8,782 534 6.08 5,571 484 8.69 4,524 470 10.39
Other interest-earning assets. . 4,816 192 3.99 6,741 279 4.14 6,753 442 6.55
Mortgage-backed securities . . . 5,227 398 7.61 5,786 469 8.11 5,919 486 8.21
------- ------ ------- ------ -------- ------
Total interest-earning assets. . $90,841 $7,231 7.96% $96,093 $8,432 8.77% $102,072 $9,992 9.72%
Interest-Bearing Liabilities:
Time deposits. . . . . . . . . . $70,252 $3,156 4.49% $78,716 $4,543 5.77% $86,543 $6,362 7.35%
Demand and NOW deposits. . . . . 16,226 491 3.03 15,779 597 3.78 17,857 866 4.85
Savings deposits . . . . . . . . 5,834 194 3.33 5,057 208 4.11 4,530 229 5.06
Borrowings . . . . . . . . . . . 287 5 1.74 --- --- --- --- --- ---
------- ------ ------- ------ --------
Total interest-bearing
liabilities . . . . . . . . . . $92,599 $3,846 4.15% $99,552 $5,348 5.37% $108,930 $7,457 6.85%
Net interest income. . . . . . . . $3,385 $3,084 $2,465
Net interest spread. . . . . . . . 3.81% 3.40% 2.87%
Net earning assets . . . . . . . . $(1,758) $(3,459) $(6,858)
Net yield on average
interest-earning assets . . . . . 3.73% 3.21% 2.41%
Average interest-earning assets
to average interest-bearing
liabilities . . . . . . . . . . . 98.10% 96.53% 93.70%
</TABLE>
The following table presents the weighted average yields on
interest-earning assets and the weighted average rates paid on
interest-bearing liabilities at the dates indicated.
<TABLE>
<CAPTION>
At June 30, At September 30,
----------- --------------------
1994 1993 1992 1991
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average yield on:
Loans receivable, net . . . . . . . . . . . . . . . . . . . . 7.38% 7.82% 8.80% 9.86%
Mortgage-backed securities. . . . . . . . . . . . . . . . . . 7.19 7.55 7.87 8.60
Investment securities . . . . . . . . . . . . . . . . . . . . 4.95 5.48 6.43 7.55
Other interest-earning assets . . . . . . . . . . . . . . . . 4.26 3.42 3.34 5.67
Combined weighted average yield on interest-
earning assets . . . . . . . . . . . . . . . . . . . . . . . 6.86 7.49 8.24 9.40
Weighted average rate paid on:
Savings deposits. . . . . . . . . . . . . . . . . . . . . . . 3.29 3.30 3.30 5.13
Demand and NOW deposits . . . . . . . . . . . . . . . . . . . 2.91 2.84 3.13 4.80
Certificates. . . . . . . . . . . . . . . . . . . . . . . . . 4.19 4.22 5.01 6.60
Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . 8.25 7.00 --- ---
Combined weighted average rate paid on interest-
bearing liabilities. . . . . . . . . . . . . . . . . . . . . 3.89 3.91 4.61 6.25
Spread. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.97 3.58 3.63 3.15
</TABLE>
Rate/Volume Analysis of Net Interest Income
The following schedule 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 increase related to higher outstanding
balances and that due to the unprecedented levels and volatility of
interest rates. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes
attributable to (i) changes in volume (i.e., changes in volume
multiplied by old rate) and (ii) 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 June 30, Year Ended September 30,
-------------------------- -----------------------------------------------------
1993 vs. 1994 1992 vs. 1993 1991 vs. 1992
-------------------------- ------------------------- -------------------------
Increase Increase Increase
(Decrease) Total (Decrease) Total (Decrease) Total
Due to Increase Due to Increase Due to Increase
------------- ------------- -------------
Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ---------- ------ ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable . . . . . . . $(220) $(442) $(662) $(424) $(669) $(1,093) $(503) $(821) $(1,324)
Mortgage-backed securities . . (61) (24) (85) (59) (12) (71) 22 (39) (17)
Investment securities. . . . . 126 (39) 87 90 (40) 50 37 (23) 14
Other. . . . . . . . . . . . . 42 6 48 (77) (10) 87 (25) (138) (163)
----- ----- ----- ----- ----- ------- ----- ------ -------
Total interest-earning assets. $(113) $(501) $(612) $(470) $(731) $(1,201) $(469) $(1,021) (1,490)
====== ===== ----- ===== ===== ------- ===== ======= -------
Interest-bearing liabilities:
Demand and NOW deposits. . . . 15 (33) (18) 50 (156) (106) (60) (209) (269)
Savings deposits . . . . . . . 19 (6) 13 2 (16) (14) (66) 45 (21)
Certificate accounts . . . . . (189) (231) (420) (439) (948) (1,387) (489) (1,330) (1,819)
Borrowings . . . . . . . . . . 14 --- 14 5 --- 5 --- --- ---
----- ----- ----- ----- ----- -------- ----- ------- -------
Total interest-bearing
liabilities . . . . . . . . . $(141) $(269) $(411) $(382) $(1,120) $(1,502) $(615) $(1,494) $(2,109)
===== ===== ----- ===== ======= ------- ===== ======= -------
Net interest income. . . . . . $(201) $ 301 $ 618
===== ======= =======
</TABLE>
Asset/Liability Management
OSI is subject to interest rate risk to the extent that its
interest-bearing liabilities with short and medium term maturities
mature or reprice more rapidly, or on a different basis, than its
interest-earning assets. As a continuing part of its strategy, OSI
considers methods of managing this asset/liability mismatch, consistent
with maintaining acceptable levels of net interest income.
OSI has implemented strategies to build its net interest margin
while adhering to its policy guidelines and reducing OSI's overall
sensitivity to interest rates. Management believes that, in the
present economic environment, the profits generated by increased
margins during favorable interest rate environments can offset
reductions of net interest income that may occur during unfavorable
interest rate environments.
OSI has several strategies to manage its interest rate risk.
Primarily, OSI is currently emphasizing the origination of 15 year or
less fixed-rate mortgages for portfolio while selling all longer term
fixed-rate mortgages in the secondary market. Management believes that
the faster amortization of 15 year or less fixed-rate mortgages as
compared to 30 year fixed-rate mortgages permits a more rapid
reinvestment of assets and thus a greater responsiveness to interest
rate changes. In addition, OSI currently offers a 30 year adjustable-
rate mortgage that adjusts annually with a margin over the Constant
Maturities Treasury Index which index is more responsive to changes in
interest rates.
To complement the mortgage loan strategy, the Investment
Committee consisting of Directors Buchanan, Arnold and Duncan and Chief
Financial Officer Griffith continually assesses OSI's asset/liability
mix. To enhance yield and to increase the interest rate sensitivity of
its assets, the Investment Committee purchases a mix of fixed- and
adjustable-rate investment securities and mortgage-backed securities.
OSI also purchases investments which will mature in intervals or in a
ladder of maturities. This enables OSI to purchase fixed-rate products
which will mirror adjustable-rate products because of the systematic
maturing and reinvesting of these funds.
The OTS mandates a Net Portfolio Value ("NPV") approach to the
quantification of interest rate risk. NPV is the difference between
incoming and outgoing discounted cash flows from assets, liabilities
and off-balance sheet contracts. Management measures the institution's
interest rate risk as the change occurring to its NPV resulting from a
200 basis point increase or decrease in market interest rates. Any
decline in NPV of up to two percent of Stillwater Federal's assets is
considered by the OTS a "normal level". As of March 31, 1994, a change
in interest rates of positive 200 basis points will result in a 1.66%
decline in Stillwater Federal's NPV while a change in interest rates of
negative 200 basis points will result in a .91% increase in Stillwater
Federal's NPV. As a percentage of Stillwater Federal's assets, a
change of negative 200 basis points results in a 1.94% increase in
assets while a change of positive 200 basis points results in a 2.61%
decrease in assets.
Liquidity and Capital Resources
OSI's principal sources of funds are deposits, amortization, and
prepayment of loan principal (including mortgage-backed securities),
maturities of investment securities, mortgage-backed securities, and
short-term investments, and operations. While scheduled loan repayments
and maturing investments are relatively predictable, deposit flows and
early loan repayments are more influenced by interest rates, general
economic conditions, competition, and, most recently, the restructuring
of the thrift industry. OSI generally manages the pricing of its
deposits to maintain its desired deposit balance, but has been
selective with regard to deposit rates on certain savings products,
and, when necessary, has supplemented deposits with longer term and/or
less expensive alternative sources of funds.
Federal regulations historically have required Stillwater Federal
to maintain minimum levels of liquid assets. The required percentage
has varied from time to time based upon economic conditions and savings
flows and is currently 5% of net withdrawable savings deposits and
borrowings payable on demand or in one year or less during the
preceding calendar month. Liquid assets for purposes of this ratio
include cash, certain time deposits, U.S. Government, government agency
and corporate securities and other obligations generally having
remaining maturities of less than five years. Stillwater Federal has
historically maintained its Liquidity ratio at levels in excess of
those required. At June 30, 1994, Stillwater Federal's liquid assets
totalled $14.5 million resulting in an average liquidity ratio of
16.71%.
Liquidity management is both a daily and long-term responsibility
of management. OSI adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) the projected
amount of student loans held for sale by OSI, (iii) expected deposit
flows, (iv) yields available on interest-earning deposits, and (v) the
objective of its asset/liability management program. Excess liquidity
is invested generally in interest-earning overnight deposits and other
short-term government and agency obligations. If OSI requires funds
beyond its ability to generate them internally, it has additional
borrowing capacity with the FHLB of Topeka.
OSI uses its liquidity resources principally to meet on-going
commitments, to fund maturing certificates of deposit and deposit
withdrawals, to invest, to fund existing and future loan commitments,
to maintain liquidity and to meet operating expenses. OSI considers its
liquidity and capital resources to be adequate to meet its foreseeable
short and long-term requirements. OSI expects to be able to fund or
refinance, on a timely basis, its material commitments and long-term
liabilities.
At June 30, 1994, Stillwater Federal had tangible and core
capital of $7.5 million or 7.7% of adjusted total assets, which was
approximately $6.0 million and $4.6 million above the regulatory
minimum requirements of 1.5% and 3.0%, respectively, of the adjusted
total assets in effect on that date. On June 30, 1994, Stillwater
Federal had risk-based capital of $7.8 million (including $7.5 million
in core capital), or 16.7% of risk-weighted assets of $46.9 million.
This amount was $4.1 million above the 8.0% regulatory requirement in
effect on that date. Stillwater Federal is presently in compliance with
the fully phased-in capital requirements.
Impact of Inflation and Changing Prices
The Financial Statements and Notes thereto presented herein have
been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering
the change in the relative purchasing power of money over time due to
inflation. The impact of inflation is reflected in the increased cost
of OSI's operations. Unlike most industrial companies, nearly all the
assets and liabilities of OSI are monetary. As a result, interest
rates have a greater impact on OSI's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in
the same direction or to the same extent as the price of goods and
services.
Effect of New Accounting Standards
In December 1991, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
107, "Disclosures about Fair Value of Financial Instruments". SFAS No.
107 requires disclosures of the fair value of financial instruments,
both assets and liabilities recognized and not recognized in the
statement of financial condition, for which it is practical to estimate
fair value. SFAS No. 107 is not effective until fiscal years ending
after December 11, 1995 for entities with less than $150 million in
total assets.
SFAS No. 109, "Accounting for Income Taxes," was issued by the
FASB in February 1992. SFAS No. 109 requires a change from the
deferred method to the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income
taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities. As
specifically related to financial institutions, the statement also
provides that a deferred tax liability, generally, will not be
recognized for bad debt reserves that arose in tax years beginning
before December 31, 1987; however, a deferred tax liability shall be
recognized for such reserves arising in tax years beginning after
December 31, 1987. Under SFAS No. 109, the tax effect on deferred
taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. OSI intends to adopt the provisions
of SFAS No. 109 for the fiscal year ending September 30, 1994.
Management has not determined the amount of valuation allowance that
will be established to reduce the future tax benefits that may be
realized upon the utilization of its existing tax loss carryforwards.
In May 1993, the FASB issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." SFAS No. 114 states that impaired
loans be recorded at the present value of future principal and interest
expected to be collected using the loans contractual interest rate
adjusted for deferred fees and unamortized premium/discounts. SFAS No.
114 is effective for financial statements for fiscal years beginning
after December 15, 1994. Early adoption is permitted. OSI will adopt
SFAS No. 114 for the fiscal year ending September 30, 1996. Management
has not determined the effect of implementing SFAS No. 114 on OSI's
consolidated financial statements.
In May 1993, the FASB issued SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115
requires that debt securities be categorized and accounted for as
follows: securities held to maturity are reported at amortized cost;
trading securities are reported at fair value with unrealized gains and
losses included in earnings; securities available for sale are reported
at fair value with unrealized gains and losses excluded from earnings
and reported as a separate component of shareholders' equity, net of
related tax effects. This standard is effective for OSI for fiscal
years beginning after December 15, 1993 and early adoption is
permitted. OSI will adopt SFAS No. 115 for the fiscal year beginning
October 1, 1994. Based on the investment securities held by OSI as of
June 30, 1994, management does not believe that this statement will
have a material effect on the classification of OSI's investment
securities.
Lending Activities
General. Historically, OSI originated fixed-rate mortgage loans.
Since the mid 1980s, however, in order to reduce its exposure to
changes in interest rates, OSI has emphasized the origination and
holding of adjustable-rate mortgage loans and loans with shorter terms
to maturity than traditional 30 year, fixed-rate loans. Management's
strategy has been to increase the percentage of assets in its portfolio
with more frequent repricing or shorter maturities. In response to
customer demand, however, OSI continues to originate conventional
fixed-rate mortgages with terms to maturity of fifteen years or less
for its portfolio while selling, servicing released, pursuant to
forward sales commitments, fixed-rate mortgages with longer terms to
maturity.
OSI's primary focus in lending activities is on the origination
of loans secured by first mortgages on owner-occupied, one- to
four-family residences. To a much lesser extent, OSI also originates
residential construction and consumer loans in OSI's market area.
Beginning in 1990, OSI limited its origination of loans secured by
commercial and multi-family real estate to loans which facilitate the
sale of foreclosed assets. However, OSI has recently resumed the
origination of new commercial and multi-family real estate loans,
subject to market conditions, on a limited basis within its primary
market area. At June 30, 1994, OSI's net loan portfolio totaled $70.8
million.
Loan applications are initially considered at various levels of
authority, depending on the type, amount and loan-to-value ratio of the
loan. The members of OSI's loan review committee include all OSI's
directors. All mortgage real estate loan commitments less than
$100,000 must be approved by at least two members of OSI's loan review
committee. Mortgage loans above $100,000 require the approval of three
members of the loan committee. Consumer loans under $10,000 require
the approval of either President Buchanan or Chief Financial Officer
Griffith and a designated officer. Consumer loans in excess of this
amount require the approval of a majority of the loan committee.
All of OSI's lending is subject to its written underwriting
standards and to loan origination procedures. Decisions on loan
applications are made on the basis of detailed applications and
property valuations (consistent with OSI's written appraisal policy) by
independent appraisers. The loan applications are designed primarily
to determine the borrower's ability to repay. The more significant
items on the application are verified through the use of credit
reports, financial statements, tax returns and/or confirmations.
An appraisal of the security property is obtained as required by
regulatory guidelines on loans secured by real property. Appraisals
are prepared by Board-approved independent fee appraisers. OSI
requires evidence of marketable title and lien position as well as
appropriate title insurance (or a legal opinion) on all loans secured
by real property, and requires fire and extended coverage casualty
insurance in amounts at least equal to the principal amount of the loan
or the value of improvements on the property, depending on the type of
loan. OSI may also require flood insurance to protect the property
securing its interest.
Prior to the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), the aggregate amount
of loans that Stillwater Federal was permitted to make under applicable
federal regulations to any one borrower, including related entities, or
the aggregate amount that Stillwater Federal could have invested in any
one real estate project, was, with certain exceptions, limited to the
lesser of 10% of Stillwater Federal's deposits or 100% of its
regulatory capital. Effective August 9, 1989, Stillwater Federal's
loans-to-one-borrower limit was reduced in accordance with FIRREA,
generally to the greater of 15% of unimpaired capital and surplus or
$500,000. At June 30, 1994, the maximum amount which Stillwater
Federal could have lent to any one borrower and the borrower's related
entities was approximately $1.1 million. At June 30, 1994, Stillwater
Federal had one lending relationship in excess of this amount. At June
30, 1994, the principal balance of the largest amount outstanding to
any one borrower, or group of related borrowers, was $1.5 million,
consisting of two loans of $766,000 and $690,000, respectively, which
were originated prior to the adoption of FIRREA and have been
grandfathered under FIRREA. These loans are each secured by a movie
theater and have always performed in accordance with their payment
terms.
The second largest amount outstanding to one borrower totaled
$1.0 million and is a loan secured by a hotel which was converted into
a light industry manufacturing facility. The loan was originated in
July 1991 as a loan to facilitate the sale of real estate owned and has
always performed in accordance with its payment terms. Prior to its
sale, OSI had attempted to operate the property as a hotel, and as a
result, had incurred losses of $1.5 million related to this property.
The third largest amount outstanding to one borrower totaled
$978,000 (net of specific reserves of $112,000) and is a loan secured
by undeveloped land in Tulsa, Creek and Payne Counties, Oklahoma. OSI
had classified this loan as an in-substance foreclosed asset in May
1991; however, OSI has continued to receive periodic payments of
principal and interest since that date from the borrower sufficient to
prevent foreclosure. In June 1994, OSI modified the terms of the loan
to a current market interest rate and extended the term of the loan.
Since modification, the loan has been performing in accordance with its
repayment terms.
OSI had only three other lending relationships aggregating in
excess of $500,000 at June 30, 1994. Each of these loans, totalling
$625,000, $552,000 and $539,000, respectively, was current as of June
30, 1994.
None of the above mentioned loans was classified by OSI at June
30, 1994.
Loan Portfolio Composition. The following table presents the
composition of OSI's loan portfolio in dollar amounts and in
percentages (before deductions for loans in process, deferred fees and
discounts and the allowances for loan losses) of total loans as of the
dates indicated.
<TABLE>
<CAPTION>
June 30, September 30,
---------------- ----------------------------------------------------
1994 1993 1992 1991
---------------- ---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in Thousands)
Real Estate Loans
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family . . . . . . . . . . $54,896 76.08% $54,670 76.55% $57,872 75.61% $56,731 69.60%
Commercial. . . . . . . . . . . . . . . 6,976 9.67 7,488 10.49 8,222 10.74 11,936 14.64
Multi-family. . . . . . . . . . . . . . 2,809 3.89 2,890 4.05 3,233 4.23 2,775 3.40
Construction or development . . . . . . 2,602 3.61 613 0.86 1,356 1.77 1,777 2.19
------ ------ ------- ------ ------- ------ ------- ------
Total real estate loans . . . . . . . 67,283 93.25 65,661 91.95 70,683 92.35 73,219 89.83
Other Loans:
- -----------
Consumer Loans:
Student. . . . . . . . . . . . . . . . 2,122 2.94 2,479 3.47 1,875 2.45 2,052 2.52
Deposit account. . . . . . . . . . . . 940 1.30 1,089 1.53 932 1.22 1,121 1.38
Second Mortgages . . . . . . . . . . . 766 1.06 1,046 1.46 1,442 1.88 2,144 2.63
Home improvement . . . . . . . . . . . 219 .30 273 0.38 331 .43 536 .66
Automobile . . . . . . . . . . . . . . 72 .10 129 0.18 293 .38 848 1.04
Other. . . . . . . . . . . . . . . . . 554 .77 604 0.85 814 1.06 1,189 1.46
------- ------ ------- ------ ------- ------ ------- ------
Total consumer loans . . . . . . . . 4,673 6.47 5,620 7.87 5,687 7.43 7,890 9.68
Commercial business loans. . . . . . . . 202 .28 131 0.18 170 0.22 401 0.49
------- ------ ------- ------ ------- ------ ------- ------
Total other loans. . . . . . . . . . 4,875 6.75 5,751 8.05 5,857 7.65 8,291 10.17
------- ------ ------- ------ ------- ------ ------- ------
Total loans. . . . . . . . . . . . . . . 72,158 100.00% 71,412 100.00% 76,540 100.00% 81,510 100.00%
====== ====== ====== ======
Less:
- ----
Loans in process . . . . . . . . . . . . 460 692 648 574
Deferred fees and discounts. . . . . . . 63 74 43 49
Allowance for losses . . . . . . . . . . 840 1,277 1,207 979
------- ------- ------- -------
Total loans, net . . . . . . . . . . . . $70,795 $69,369 $74,642 $79,908
======= ======= ======= =======
</TABLE>
The following table shows the composition of OSI's loan
portfolio by fixed and adjustable rate at the dates indicated.
<TABLE>
<CAPTION>
June 30, September 30,
---------------- ----------------------------------------------------
1994 1993 1992 1991
---------------- ---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in Thousands)
Fixed-Rate Loans:
- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate:
One- to four-family. . . . . . . . . . $14,810 20.52% $14,910 20.88% $14,913 19.48% $10,998 13.49%
Multi-family, commercial,
construction or development . . . . . 4,952 6.86 2,749 3.85 3,051 3.99 4,572 5.61
------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans . . . . . . 19,762 27.38 17,659 24.73 17,964 23.47 15,570 19.10
------- ------ ------- ------ ------- ------ ------- ------
Consumer . . . . . . . . . . . . . . . . 3,626 5.03 4,222 5.91 3,675 4.81 4,825 5.92
Commercial business. . . . . . . . . . . 133 .18 10 0.01 26 .03 64 .08
------- ------ ------- ------ ------- ------ ------- ------
Total fixed-rate loans. . . . . . . 23,521 32.59 21,891 30.65 21,665 28.31 20,459 25.10
------- ------ ------- ------ ------- ------ ------- ------
Adjustable-Rate Loans:
- ---------------------
Real estate:
One- to four-family. . . . . . . . . . 40,086 55.55 39,760 55.68 42,959 55.91 45,733 56.11
Multi-family, commercial,
construction or development . . . . . 7,435 10.30 8,242 11.54 9,760 12.75 11,916 14.62
------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans . . . . . . 47,521 65.85 48,002 67.22 52,719 68.88 57,649 70.73
------- ------ ------- ------ ------- ------ ------- ------
Consumer . . . . . . . . . . . . . . . . 1,047 1.46 1,398 1.96 2,012 2.63 3,065 3.76
Commercial business. . . . . . . . . . . 69 .10 121 0.17 144 .18 337 .41
------- ------ ------- ------ ------- ------ ------- ------
Total adjustable rate loans . . . . 48,637 67.41 49,521 69.35 54,875 71.69 61,051 74.90
------- ------ ------- ------ ------- ------ ------- ------
Total loans: 72,158 100.00% 71,412 100.00% 76,540 100.00% 81,510 100.00%
- ----------- ====== ====== ====== ======
Less:
----
Loans in process. . . . . . . . . . . . 460 692 648 574
Deferred fees and discounts . . . . . . 63 74 43 49
Allowance for loan losses . . . . . . . 840 1,277 1,207 979
------- ------- ------- -------
Total loans, net. . . . . . . . . . $70,795 $69,369 $74,642 $79,908
======= ======= ======= =======
</TABLE>
The following schedule illustrates the interest rate sensitivity
of OSI's loan portfolio at June 30, 1994. Mortgages which have
adjustable or renegotiable interest rates are shown as maturing in the
period during which the contract is due. The schedule does not reflect
the effects of possible prepayments or enforcement of due-on-sale
clauses.
<TABLE>
<CAPTION>
Real Estate
----------------------------------------------------
Construction
Multi-family and or Commercial
One-to four Family Commercial Development Consumer Business Total
------------------ ---------------- ---------------- ---------------- ---------------- ----------------
Weighted Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------- -------- ------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(Dollars in Thousands)
Due During
Periods Ending
June 30,
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995(1). . . . $ 31 9.81% $ 34 8.00% $ 901 7.55% $2,332 7.61% $ 3 9.75% $ 3,301 7.63%
1996 . . . . . 116 8.35 23 9.50 --- --- 334 8.07 69 4.88 542 7.78
1997 and 1998. 985 8.43 71 10.14 30 8.33 548 8.22 --- 1,634 8.43
1999 to 2003 . 6,772 7.94 1,252 7.74 368 9.47 1,095 8.51 130 6.00 9,617 8.01
2004 to 2018 . 37,534 7.13 8,405 9.74 1,303 10.13 364 8.03 --- 47,606 7.68
2019 and
following . . 9,458 6.14 --- --- --- --- --- --- --- --- 9,458 6.14
<FN>
- ----------
(1)Includes demand loans, loans having no stated maturity and overdraft loans.
</TABLE>
The total amount of loans due after June 30, 1995 which have
predetermined interest rates is $19.0 million while the total amount of
loans due after such dates which have floating or adjustable interest
rates is $50.0 million.
One- to Four-Family Residential Mortgage Lending. Residential
loan originations are generated by OSI's marketing efforts, its present
customers, walk-in customers and referrals from real estate brokers and
builders. OSI has focused its lending efforts primarily on the
origination of loans secured by first mortgages on owner-occupied,
single-family residences in its market area. At June 30, 1994, OSI's
one- to four-family residential mortgage loans totaled $54.9 million,
or 76.1% of OSI's loan portfolio before net items, substantially all of
which are conventional loans secured by properties located in OSI's
primary market area. At that date, the average outstanding residential
loan balance was $33,000 and the largest outstanding residential loan
had a book value of $257,000.
OSI's current fixed-rate loan originations conform to secondary
market standards (i.e., Federal Home Loan Mortgage Corporation
("FHLMC") and Federal National Mortgage Association ("FNMA") standards)
to permit their sale in the secondary market. Most of OSI's fixed-rate
residential loans have contractual terms to maturity of 30 years. As
a part of its asset/liability management strategy and in response to an
increase in refinancing activity, OSI began in 1991 to limit fixed rate
loan originations to fully amortizing loans with maturities of 15 years
or less for retention in portfolio. In 1993, OSI began originating for
sale, pursuant to forward sales commitments, fixed-rate mortgage loans
with terms greater than 15 years. Interest rates charged on these
fixed-rate loans are competitively priced according to market
conditions.
OSI has offered ARM loans at rates, terms and fees determined in
accordance with market and competitive factors. The programs currently
offered primarily meet the standards and requirements of the secondary
market for residential loans. OSI's current one- to four-family
residential ARMs are fully amortizing loans with contractual maturities
of up to 30 years. The interest rates on the ARMs currently originated
by OSI are subject to adjustment at stated intervals and are subject to
annual and lifetime adjustment limits above and below the initial rate.
Most of OSI's ARMs have interest rates which adjust annually based on
a margin over one of several indices. These loans' annual and lifetime
caps on interest rate increases reduce the extent to which they can
help protect OSI against interest rate risk. OSI has from time to time
originated ARMs at slightly below the fully-indexed rate, however,
borrowers of adjustable rate loans are qualified at the fully-indexed
rates. OSI's ARMs by their terms do not permit their convertibility
into fixed-rate loans.
OSI retains ARMs in its portfolio consistent with its ongoing
asset/liability objectives. ARM loans decrease the risks associated
with changes in interest rates but involve other risks, primarily
because as interest rates rise, the payment by the borrower rises to
the extent permitted by the terms of the loan, thereby increasing the
potential for default. At the same time, the marketability of the
underlying property may be adversely affected by higher interest rates.
OSI believes that these risks, which have not had a material adverse
effect on OSI to date, generally are less than the risks associated
with holding fixed-rate loans in an increasing interest rate
environment.
OSI evaluates both the borrower's ability to make principal,
interest and escrow payments and the value of the property that will
secure the loan. OSI generally originates residential mortgage loans
with loan-to-value ratios up to 80%. On any mortgage loan exceeding an
80% loan-to-value ratio at the time of origination, OSI will generally
require private mortgage insurance in an amount intended to reduce
OSI's exposure to 80% or less of the appraised value of the underlying
property.
OSI's residential mortgage loans customarily include a
due-on-sale clause giving OSI the right to declare the loan immediately
due and payable in the event that, among other things, the borrower
sells or otherwise disposes of the property subject to the mortgage and
the loan is not repaid. Any residential mortgage loan may be assumed
provided home buyers meet OSI's underwriting standards and the
applicable fees are paid.
Multi-Family and Commercial Real Estate Lending. At June 30,
1994, OSI had $2.8 million and $7.0 million in multi-family and
commercial real estate loans, respectively, representing 3.9% and 9.7%,
respectively, of OSI's loan portfolio before net items. OSI's
multi-family and commercial real estate loan portfolio includes loans
secured by apartment buildings, fraternity and sorority houses, office
buildings, retail stores, theaters, manufacturing facilities and other
properties, which are predominately located in OSI's primary market
area. Most of OSI's multi-family and commercial real estate loan
portfolio is seasoned, and beginning in 1990, OSI has had no
significant originations of such loans except for loans to facilitate
the sale of real estate owned. OSI expects to originate, subject to
market conditions, a limited amount of commercial and multi-family real
estate loans in its primary market area in fiscal 1995.
Since 1990, OSI has only originated eight loans secured by
multi-family or commercial real estate. Each of these loans was
originated in connection with the sale of foreclosed assets and is
secured by property located in OSI's primary market area. The terms of
each of these loans was negotiated on a case by case basis. The total
amount outstanding on the eight loans was approximately $1.4 million at
June 30, 1994 of which the largest loan totalled $1.0 million and was
secured by a light manufacturing facility located in Stillwater,
Oklahoma.
Multi-family and commercial real estate loans generally are
originated in amounts up to 75% of the appraised value of the property
securing the loan. Commercial and multi-family loans may be made at
either fixed and adjustable interest rates for terms of up to 25 years.
The other terms of multi-family and commercial real estate loans are
negotiated on a case-by-case basis.
Appraisals on properties securing multi-family and commercial
real estate loans originated by OSI are performed by an independent
appraiser at the time the loan is made. All appraisals on multi-family
and commercial real estate loans are reviewed by OSI's management. In
addition, OSI's underwriting procedures generally require verification
of the borrower's credit history, income and financial statements,
banking relationships, references and income projections for the
property. Personal guarantees are generally obtained for OSI's
multi-family and commercial real estate loans.
The table below sets forth by type of security property the
number and amount of OSI's multi-family and commercial real estate
loans and the amounts of such loans which were non-performing at June
30, 1994. The amounts shown do not reflect allowances for losses.
<TABLE>
<CAPTION>
Number
of Original Outstanding Amount
Loans Loan Amount Principal Non-performing
------ ----------- ----------- --------------
(Dollars in Thousands)
Market Area:
- -----------
<S> <C> <C> <C> <C>
Multi-family . . . . . . . . . . . . . . . . 20 $ 3,705 $2,809 $ ---
Warehouse. . . . . . . . . . . . . . . . . . 6 995 742 ---
Office Space . . . . . . . . . . . . . . . . 17 3,006 2,453 ---
Retail . . . . . . . . . . . . . . . . . . . 23 4,416 1,880 ---
Other. . . . . . . . . . . . . . . . . . . . 9 1,615 1,050 28
-- ------- ------ -------
Total. . . . . . . . . . . . . . . . . . . . 75 $13,737 $8,934 $ 28
-- ------- ------ -------
Other Oklahoma:
- --------------
Retail . . . . . . . . . . . . . . . . . . . 1 200 86 ---
Theater. . . . . . . . . . . . . . . . . . . 1 875 766 ---
-- ------- ------ --------
Total. . . . . . . . . . . . . . . . . . . . 2 $ 1,075 $ 852 $ ---
-- ------- ------ --------
Total Multi-family
and commercial. . . . . . . . . . . . . . . 77 $14,812 $9,786 $ 28
== ======= ====== ========
</TABLE>
OSI's largest multi-family and commercial real estate loans at
June 30, 1994 are discussed at "-Lending Activities -General." OSI had
six other loans with a book value in excess of $300,000, none of which
were classified pursuant to OTS regulations. See "- Asset Quality."
Multi-family and commercial real estate lending affords OSI an
opportunity to receive interest at rates higher than those generally
available from one- to four-family residential lending. Nevertheless,
loans secured by such properties are generally larger and involve a
greater degree of risk than one- to four-family residential mortgage
loans. Because payments on loans secured by multi-family and
commercial real estate properties are often dependent on the successful
operation or management of the properties, repayment of such loans may
be subject to adverse conditions in the real estate market or the
economy. If the cash flow from the project is reduced (for example, if
leases are not obtained or renewed), the borrower's ability to repay
the loan may be impaired.
Residential Construction or Development Lending. At June 30,
1994, OSI had construction or development loans totaling $2.6 million,
or 3.6% of OSI's loan portfolio before net items. Included in
construction or development lending are land and developed building lot
loans totaling $1.9 million or 2.63% of OSI's loan portfolio before net
items. All of such loans have terms that are individually negotiated
and are located in OSI's primary market area. The balance of the loans
are to builders and owner-occupants to finance the construction of
single-family residences. Loans to owner-occupants are generally made,
although not required, with permanent financing on the constructed
property to be provided by OSI. Construction loans are generally made
with a term of up to nine months on a fixed rate, interest-only basis.
Residential construction loans to owner-occupants are generally
underwritten using the same criteria as for one- to four-family
residential loans. Loan proceeds are disbursed in increments as
construction progresses and inspections warrant.
Construction loans afford OSI the opportunity to charge loan
origination fees, to increase the frequency of repricing of its loan
portfolio and to earn yields higher than those obtainable on loans
secured by existing one-to four-family residential properties. The
higher yields reflect the higher risks associated with construction
lending; principally, the difficulty in evaluating accurately the total
funds required to complete a project and the post-completion value of
the project. As a result, OSI places a strong emphasis upon the
borrower's ability to repay, and, to a lesser extent, the experience
and expertise of the builder who has contracted to construct the
property.
Consumer Lending. Management considers consumer lending to be an
important component of its strategic plan. Specifically, consumer
loans generally have shorter terms to maturity (thus reducing OSI's
exposure to changes in interest rates) and carry higher rates of
interest than do one- to four-family residential mortgage loans. In
addition, management believes that the offering of consumer loan
products helps to expand and create stronger ties to its existing
customer base, by increasing the number of customer relationships and
providing cross-marketing opportunities. At June 30, 1994, OSI's
consumer loan portfolio totaled $4.7 million, or 6.5% of its loan
portfolio before net items.
OSI has offered a variety of secured consumer loans, including
guaranteed student loans, second mortgage loans, home improvement
loans, auto loans and loans secured by savings deposits. Recent
consumer loans originations have focused primarily on guaranteed
student loans. OSI currently originates all of its consumer loans in
its primary market area. OSI's guaranteed student loans comprised
approximately 45.4% of OSI's total consumer loan portfolio. The
student loans originated by OSI are guaranteed as to principal and
interest by the Oklahoma State Regents for Higher Education. Upon the
student nearing graduation, OSI sells such student loans with servicing
released pursuant to forward sales commitments. Under recently enacted
federal legislation, however, beginning in the fall of 1994, qualified
schools will be permitted to originate student loans directly. This
legislation is expected to adversely affect OSI's ability to originate
student loans and thus maintain the consumer loan portfolio at its
present dollar size.
Second mortgage loans (which include certain first liens) are
generally originated in amounts, together with the amount of the
existing first mortgage, of up to 80% of the appraised value of the
property securing the loan. The term to maturity on such loans may be
up to 10 years and requires monthly payments of principal and interest.
OSI does not originate home equity lines of credit. Other consumer
loan terms vary according to the type of collateral, length of contract
and creditworthiness of the borrower. OSI's consumer loans generally
have fixed-rates of interest.
OSI does not intend to originate any consumer loans on an
indirect basis (i.e., where loan contracts are purchased from retailers
of goods or services which have extended credit to their customers).
The underwriting standards employed by OSI for consumer loans
include a determination of the applicant's payment history on other
debts and an assessment of the ability to meet existing obligations and
payments on the proposed loan. Although creditworthiness of the
applicant is a primary consideration, the underwriting process also
includes a comparison of the value of the security, if any, in relation
to the proposed loan amount and the underlying guarantee, if any.
Consumer loans may entail greater risk than do residential
mortgage loans, particularly in the case of consumer loans which are
unsecured, or are secured by rapidly depreciable assets, such as
automobiles. In such cases, any repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment of the
outstanding loan balance as a result of the greater likelihood of
damage, loss or depreciation. In addition, consumer loan collections
are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws,
including bankruptcy and insolvency laws, may limit the amount which
can be recovered on such loans. Although the level of delinquencies in
OSI's consumer loan portfolio has recently been low (at June 30, 1994,
$5,000 or approximately 0.11% of the consumer loan portfolio, was 60
days or more delinquent), there can be no assurance that delinquencies
will not increase in the future.
Commercial Business Lending. OSI engages in a limited amount of
commercial business lending activities, generally with its existing
customers. At June 30, 1994, OSI had $202,000 in commercial business
loans outstanding, representing less than one percent of OSI's loan and
mortgage-backed securities portfolio before net items.
Unlike residential mortgage loans, which generally are made on
the basis of the borrower's ability to make repayment from his or her
employment and other income, and which are secured by real property
whose value tends to be more easily ascertainable, commercial business
loans are of higher risk and typically are made on the basis of the
borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the
repayment of commercial business loans may be substantially dependent
on the success of the business itself (which, in turn, is likely to be
dependent upon the general economic environment). OSI's commercial
business loans almost always include personal guarantees and are
usually, but not always, secured by business assets, such as accounts
receivable, equipment and inventory as well as real estate. However,
the collateral securing the loans may depreciate over time, may be
difficult to appraise and may fluctuate in value based on the success
of the business. At June 30, 1994, OSI's commercial business loans
were performing in accordance with their terms.
Mortgage-Backed and Related Securities. OSI purchases
mortgage-backed and related securities to complement its mortgage
lending activities. At June 30, 1994, mortgage-backed and related
securities totaled $5.9 million, or 6.1% of OSI's total assets.
Historically, most of OSI's mortgage-backed securities were long
term, fixed-rate federal agency securities. In recent years, OSI began
to purchase other types of mortgage-backed securities as well as
collateralized mortgage obligations ("CMOs"), consistent with its
asset/liability management and balance sheet objectives. In this
regard, OSI emphasizes the purchase of adjustable-rate or short-or
intermediate effective term fixed-rate mortgage-backed securities for
asset/liability management purposes and in order to supplement OSI's
originations of ARM loans. At June 30, 1994, $1.6 million or 41.0% of
OSI's mortgage-backed securities carried adjustable rates of interest.
OSI had not purchased any fixed rate mortgage-backed securities since
1988.
A CMO is a special type of pass-through debt in which the stream
of principal and interest payments on the underlying mortgages or
mortgage-backed securities is used to create classes with different
maturities and, in some cases, amortization schedules, as well as a
residual interest, with each such class possessing different risk
characteristics. Management believes these securities may represent
attractive alternatives relative to other investments due to the wide
variety of maturity and repayment options available through such
investments. Stillwater Federal held $2.0 million of CMOs at June 30,
1994.
Under the OTS' risk-based capital requirements, Government
National Mortgage Association ("GNMA") mortgage-backed securities have
a zero percent risk-weighting and Federal National Mortgage Association
("FNMA"), FHLMC and AA- or higher rated mortgage-backed securities have
a 20% risk-weighting, in contrast to the 50% risk-weighting carried by
one- to four-family performing residential mortgage loans. None of the
mortgage-backed securities held by Stillwater Federal had a risk-weight
for regulatory capital purposes above 20%.
All of OSI's mortgage-backed and related securities are backed by
federal agencies. Accordingly, management believes that OSI's
mortgage-backed and related securities are generally resistant to
credit problems.
The following table sets forth the contractual maturities of
OSI's mortgage-backed and related securities at June 30, 1994.
<TABLE>
<CAPTION>
Due in June 30,
------
1994
6 Months 6 Months 1 to 3 3 to 5 5 to 10 10 to 20 Over 20 Balance
or Less to 1 Year Years Years Years Years Years Outstanding
-------- --------- ------ ------ ------- -------- ------- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgaged-backed Securities:
Federal Home Loan
Mortgage Corporation . . . . $ --- $ --- $ --- $ --- $ --- $2,301 $ --- $2,301
Federal National
Mortgage Association . . . . --- --- --- --- --- --- 335 335
Government National
Mortgage Association . . . . --- --- --- --- --- --- 1,261 1,261
----- ----- ----- ----- ----- ------ ------ ------
Total Mortgaged-backed
Securities . . . . . . . . $ --- $ --- $ --- $ --- $ --- $2,301 $1,596 $3,897
----- ----- ----- ----- ----- ------ ------ ------
Collateralized Mortgage
Obligations:
Federal Home Loan
Mortgage Corporation . . . . --- --- --- --- --- --- 1,482 1,482
Federal National
Mortgage Association . . . . --- --- --- --- --- --- 502 502
Total Collateralized
Mortgage Obligations . . . --- --- --- --- --- --- 1,984 1,984
----- ----- ----- ----- ----- ------ ------ ------
Total . . . . . . . . . . . . $ --- $ --- $ --- $ --- $ --- $2,301 $3,580 $5,881
===== ===== ===== ===== ===== ====== ====== ======
</TABLE>
Originations, Purchases and Sales of Loans and Mortgage-Backed
Securities
As described above, OSI originates real estate loans through
marketing efforts, OSI's customer base, walk-in customers, and
referrals from real estate brokers and builders. OSI originates both
adjustable-rate and fixed-rate loans. Its ability to originate loans
is dependent upon the relative customer demand for fixed-rate or ARM
loans in the origination market, which is affected by the term
structure (short-term compared to long-term) of interest rates as well
as the current and expected future level of interest rates.
Except for the discounted purchase in November 1992 of the
outstanding participation interests in certain loans (secured by
properties primarily located in Stillwater, Oklahoma) for which OSI was
the lead lender, OSI has not purchased residential loans during recent
years. OSI may consider purchasing loans in the future depending on
market conditions. At June 30, 1994, OSI had made no commitments to
purchase or sell any mortgage-backed securities. At that same date,
OSI had loan commitments of approximately $1.1 million and commitments
to sell, consisting totally of guaranteed student loans of $2.1
million. At June 30, 1994, OSI held $85,000 of its other loans for
sale and none of its mortgage-backed securities were held for sale.
See also "- Lending Activities - Mortgage-Backed Securities."
OSI sells its student loan originations and long-term fixed rate
residential mortgage loan originations. When loans are sold, OSI
generally does not retain the responsibility for servicing the loan.
OSI had $2.9 million in loans serviced for others as of June 30, 1994
and $475,000 in loans serviced by others at that date.
The following table shows the loan origination, purchase and
repayment activities of OSI for the periods indicated.
<TABLE>
<CAPTION>
Nine Months
Ended
June 30, Year Ended September 30,
----------- -------------------------------
1994 1993 1992 1991
----------- ------- ------- --------
(In Thousands)
Originations by type:
- ---------------------
Adjustable rate:
---------------
<S> <C> <C> <C> <C>
Real estate - one- to four-family . . . . . . . . . . . . . $ 7,038 $ 3,667 $ 3,309 $ 1,002
- commercial. . . . . . . . . . . . . . . . . . --- --- --- 62
- construction or development . . . . . . . . . 90 --- --- 16
Non-real estate - consumer. . . . . . . . . . . . . . . . . --- --- 22 12
- commercial business . . . . . . . . . . . --- --- --- 499
------- ------- ------- --------
Total adjustable-rate. . . . . . . . . . . . . . . . 7,128 3,667 3,331 1,591
Fixed rate:
----------
Real estate - one- to four-family . . . . . . . . . . . . . 3,955 3,117 5,843 726
- commercial. . . . . . . . . . . . . . . . . . 82 --- 77 52
- construction or development . . . . . . . . . 2,160 130 315 120
Non-real estate - consumer. . . . . . . . . . . . . . . . . 1,815 2,412 2,193 2,361
- commercial business . . . . . . . . . . . 146 --- --- 179
------- ------- ------- --------
Total fixed-rate . . . . . . . . . . . . . . . . . . 8,158 5,659 8,428 3,438
------- ------- ------- --------
Total loans originated . . . . . . . . . . . . . . . $15,286 $ 9,326 $11,759 $ 5,029
======= ======= ======= ========
Purchases:
- ---------
Real estate - one- to four-family . . . . . . . . . . . . . $ --- $ --- $ --- $ ---
Mortgage-backed securities. . . . . . . . . . . . . . . . . --- --- 1,588 1,000
------- ------- ------- --------
Total purchased. . . . . . . . . . . . . . . . . . . $ --- $ --- $ 1,588 $ 1,000
======= ======= ======= ========
Sales and Repayments:
- --------------------
Non-real estate - consumer. . . . . . . . . . . . . . . . . $ 778 $ 1,213 $ 1,241 $ 2,584
Mortgage-backed securities. . . . . . . . . . . . . . . . . --- --- --- 1,058
------- ------- ------- --------
Total sales. . . . . . . . . . . . . . . . . . . . . 778 1,213 1,241 3,642
Principal repayments. . . . . . . . . . . . . . . . . . . . 13,778 13,199 15,212 11,596
Mortgage-backed securities repayments . . . . . . . . . . . 833 1,004 1,323 837
------- ------- ------- --------
Total reductions . . . . . . . . . . . . . . . . . . 15,389 15,416 17,776 16,075
------- ------- ------- --------
Net increase (decrease). . . . . . . . . . . . . . . $ (103) $(6,090) $(4,429) $(10,046)
======= ======= ======= ========
</TABLE>
Asset Quality
When a borrower fails to make a required payment on a loan, OSI
attempts to cause the delinquency to be cured by contacting the
borrower. In the case of residential loans, a late notice is sent 15
days after the due date. If the delinquency is not cured by the 30th
day, contact with the borrower is made by phone or a letter is sent.
In the event a real estate loan payment is past due for 90 days
or more OSI performs an in depth review of the loan status and
circumstances of the borrower. Based upon the results of its review,
OSI may negotiate and accept a repayment program with the borrower,
accept a voluntary deed in lieu of foreclosure or, when deemed
necessary, initiate foreclosure proceedings. If foreclosed on, real
property is sold at a public sale and OSI may bid on the property to
protect its interest. A decision as to whether and when to initiate
foreclosure proceedings is based on such factors as the amount of the
outstanding loan in relation to the original indebtedness, the extent
of delinquency and the borrower's ability and willingness to cooperate
in curing delinquencies.
Delinquent consumer loans are handled in a generally similar
manner. Initial contacts are made when the payment is 15 days past due
and telephone contact begins when a loan is 30 days past due. If these
efforts fail to bring the loan current, appropriate action may be taken
to collect any loan payment that remains delinquent. OSI's procedures
for repossession and sale of consumer collateral are subject to various
requirements under Oklahoma consumer protection laws.
Delinquent Loans. The following table sets forth OSI's loan
delinquencies by type, by amount and by percent of loan type at June
30, 1994.
<TABLE>
<CAPTION>
Loans Delinquent for Total Delinquent
---------------------------------------------------
60-89 Days 90 Days and Over Loans
------------------------ ------------------------ ------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to Four-Family . . . --- $--- ---% 1 $11 .02% 1 $11 .02%
Commercial. . . . . . . . --- --- --- 1 28 .40 1 28 .40
Consumer. . . . . . . . . . --- --- --- 2 5 .11 2 5 .11
--- ---- -- --- - ---
TOTAL . . . . . . . . . --- $--- ---% 4 $44 .06% 4 $44 .06%
=== ==== == === = ===
</TABLE>
The following table sets forth OSI's loan delinquencies by
type, by amount and by percent of loan type at September 30, 1993.
<TABLE>
Loans Delinquent for Total Delinquent
---------------------------------------------------
60-89 Days 90 Days and Over Loans
------------------------ ------------------------ ------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to Four-Family . . . 4 $287 0.52% 2 $ 21 0.04% 6 $308 0.56%
Commercial. . . . . . . . --- --- --- 2 285 3.81 2 285 3.81
Consumer. . . . . . . . . . 0 0 --- 1 1 0.02 1 1 0.02
--- ---- --- ---- --- ----
TOTAL . . . . . . . . . 4 $287 0.40% 5 $307 0.43% 9 $594 0.83%
=== ==== === ==== === ====
</TABLE>
The table below sets forth the amounts and categories of
non-performing assets in OSI's loan portfolio. Foreclosed assets
include assets acquired in settlement of loans.
<TABLE>
June 30, September 30,
-------- --------------------------------
1994 1993 1992 1991
-------- ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family. . . . . . . . . . . . . . . . . . $ 11 $ 294 $ 336 $ 439
Commercial . . . . . . . . . . . . . . . . . . . . . . 28 285 190 193
Consumer . . . . . . . . . . . . . . . . . . . . . . . 5 15 56 318
----- ------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . 44 594 582 950
----- ------ ------ ------
Troubled Debt Restructurings:
One- to four-family. . . . . . . . . . . . . . . . . . $ --- $ 37 $ --- $ 52
Consumer . . . . . . . . . . . . . . . . . . . . . . . --- 13 72 306
Commercial business. . . . . . . . . . . . . . . . . . --- --- 13 ---
----- ------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . --- 50 85 358
----- ------ ------ ------
Foreclosed assets:
One- to four-family . . . . . . . . . . . . . . . . $ 46 $ 69 $ 243 $1,362
Multi-family . . . . . . . . . . . . . . . . . . . . --- 230 876 19
Commercial . . . . . . . . . . . . . . . . . . . . . 493 1,986 2,339 1,972
Consumer . . . . . . . . . . . . . . . . . . . . . . 8 --- 11 ---
----- ------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . 547 2,285 3,469 3,353
----- ------ ------ ------
Total non-performing assets. . . . . . . . . . . . . . $ 591 $2,929 $4,136 $4,661
===== ====== ====== ======
Total as a percentage of total assets. . . . . . . . . .61% 3.02% 4.09% 4.41%
===== ====== ====== ======
</TABLE>
Non-Accruing Loans. As of June 30, 1994, OSI had $44,000 in net
book value of non-accruing loans, consisting of one residential
mortgage loan totaling $11,000, commercial loans totaling $28,000 and
$5,000 of consumer loans.
Foreclosed Assets. As of June 30, 1994, OSI had $547,000 in net
book value of foreclosed assets. OSI's largest foreclosed asset at
that date was a public storage facility consisting of a 12,783 square
foot warehouse located in Oklahoma City, Oklahoma. The carrying value
was $294,000 at June 30, 1994. Subsequent to June 30, 1994, OSI
entered into a contract to sell the property which is scheduled to
close on or before September 30, 1994. OSI does not expect to incur
any significant gain or loss on the sale.
Other Loans of Concern. In addition to the non-performing assets
set forth in the table above, as of June 30, 1994, there were also 69
single-family loans with an aggregate of $1.7 million net book value,
two land loans aggregating $74,000, and one commercial real estate loan
of $43,000 with respect to which known information about the past
credit problems of the borrowers or the cash flows of the security
property have caused management to monitor present loan repayments.
Classified Assets. Federal regulations provide for the
classification of loans and other assets, such as debt and equity
securities considered by the OTS to be of lesser quality, as
"substandard," "doubtful" or "loss." An asset is considered
"substandard" if it is inadequately protected by the current net worth
and paying capacity of the obligor or of the collateral pledged, if
any. "Substandard" assets include those characterized by the "distinct
possibility" that the insured institution will sustain "some loss" if
the deficiencies are not corrected. Assets classified as "doubtful"
have all of the weaknesses inherent in those classified "substandard,"
with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing
facts, conditions, and values, "highly questionable and improbable."
Assets classified as "loss" are those considered "uncollectible" and of
such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan
losses in an amount deemed prudent by management. General allowances
represent loss allowances which have been established to recognize the
inherent risk associated with lending activities, but which, unlike
specific allowances, have not been allocated to particular problem
assets. When 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,
Stillwater Federal regularly reviews the problem loans in its portfolio
to determine whether any loans require classification in accordance
with applicable regulations. Classified assets of Stillwater Federal,
all of which are included in the table of non-performing assets above
or are described under the caption "- Other Loans of Concern" were as
follows at the date indicated:
<TABLE>
<CAPTION>
June 30, September 30,
1994 1993
-------- -------------
(In Thousands)
<S> <C> <S>
Substandard . . . . . . . . . . . . . . . . . . $1,362 $3,252
Doubtful. . . . . . . . . . . . . . . . . . . . --- ---
Loss. . . . . . . . . . . . . . . . . . . . . . 364 1,117
------ ------
Total classified assets. . . . . . . . . . . $1,726 $4,369
====== ======
</TABLE>
Based upon an appraisal received subsequent to June 30, 1994, OSI
determined to remove $112,000 from the loss classification.
Allowance for Loan Losses. The allowance for loan losses is
established through a provision for loan losses based on management's
evaluation of the risk inherent in its loan portfolio and changes in
the nature and volume of its loan activity. Such evaluation, which
includes a review of all loans of which full collectibility may not be
reasonably assured, considers among other matters, the estimated value
of the underlying collateral, economic conditions, historical loan loss
experience and other factors that warrant recognition in providing for
an adequate loan allowance. Although management believes it uses the
best information available to make such determinations, future
adjustments to reserves may be necessary, and net income could be
significantly affected, if circumstances differ substantially from the
assumptions used in making the initial determinations. At June 30,
1994, OSI had an allowance for loan losses of $840,000 or 1.19% of net
loans receivable. See Note 2 of the Notes to Consolidated Financial
Statements for the years ended September 30, 1993, 1992, and 1991 for
a discussion of the accounting policies related to the allowance and
provisions for losses.
The ratio of the allowance for loan losses to average non-
performing loans has increased during the period from 1990 to 1994 due
to the increasing emphasis placed on establishing general valuation
allowances. Historically, savings and loan associations had not
provided such allowances, but rather established allowances based on
identification of specific problem loans.
The ratio of net charge-offs to average loans outstanding and
average non-performing loans in 1991 is significantly greater than in
other periods presented due to the transfer of several significant
loans to real estate owned during that year. Prior to such transfer,
these loans were written down to the estimated fair value of the
collateral by a charge to the allowance for loan losses.
The following table sets forth an analysis of OSI's allowance for
loan losses.
<TABLE>
<CAPTION>
Nine Months
Ended
June 30, Year Ended September 30,
----------- ------------------------------
1994 1993 1992 1991
----------- ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period . . . . . . . . . . . . . . . . $1,277 $1,207 $ 979 $1,090
Charge-offs:
One- to four-family. . . . . . . . . . . . . . . . . . . . . 17 48 86 295
Commercial real estate . . . . . . . . . . . . . . . . . . . --- 77 --- 703
Construction or development. . . . . . . . . . . . . . . . . 155 --- 5 13
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . 5 10 71 189
Commercial business. . . . . . . . . . . . . . . . . . . . . --- --- --- 10
------ ------ ------ ------
Total Charge-offs. . . . . . . . . . . . . . . . . . . . 177 135 162 1,210
Recoveries:
Commercial real estate . . . . . . . . . . . . . . . . . . . --- --- 28 ---
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . --- 21 5 4
Real estate owned. . . . . . . . . . . . . . . . . . . . . . --- --- --- 26
------ ------ ------ ------
Total recoveries . . . . . . . . . . . . . . . . . . . . --- 21 33 30
Net charge-offs. . . . . . . . . . . . . . . . . . . . . . . . --- 114 129 1,180
Additions charged to operations. . . . . . . . . . . . . . . . (260) 184 357 1,069
------ ------ ------ ------
Balance at end of period . . . . . . . . . . . . . . . . . . . $ 840 $1,277 $1,207 $ 979
====== ====== ====== ======
Ratio of net charge-offs during the period to average loans
outstanding during the period . . . . . . . . . . . . . . . . .26% 0.16% 0.16% 1.39%
====== ====== ====== ======
Ratio of net charge-offs during the period to average non-
performing assets . . . . . . . . . . . . . . . . . . . . . . 10.06% 3.33% 3.20% 20.82%
====== ====== ====== ======
Ratio of allowance for loan loss to total loans. . . . . . . . 1.19% 1.79% 1.58% 1.20%
====== ====== ====== ======
Ratio of allowance for loan loss to non-performing loans . . . 143.13% 336.94% 180.06% 74.85%
====== ====== ====== ======
</TABLE>
The distribution of OSI's allowance for losses on loans at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
June 30, September 30,
------------------ ------------------------------------------------------------
1994 1993 1992 1991
------------------ ------------------ ------------------ ------------------
Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in
Each Each Each Each
Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family . . . . . $ 166 76.08% $ 169 76.55% $ 163 75.61% $ 174 69.60%
Multi-family. . . . . . . . . --- 3.89 --- 4.05 --- 4.23 --- 3.40
Commercial real estate. . . . 24 9.67 24 10.49 74 10.74 44 14.64
Construction or development . 112 3.61 164 0.86 165 1.77 165 2.19
Consumer. . . . . . . . . . . 28 6.47 40 7.87 58 7.43 82 9.68
Commercial business . . . . . 8 0.28 11 0.18 --- 0.22 --- 0.49
Unallocated . . . . . . . . . 502 --- 869 --- 747 --- 514 ---
------ ------ ------ ------ ------ ------ ------ ------
Total. . . . . . . . . . $ 840 100.00% $1,277 100.00% $1,207 100.00% $ 979 100.00%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Investment Activities
Stillwater Federal must maintain minimum levels of investments
that qualify as liquid assets under OTS regulations. Liquidity may
increase or decrease depending upon the availability of funds and
comparative yields on investments in relation to the return on loans.
Historically, Stillwater Federal has maintained liquid assets at
levels above the minimum requirements imposed by the OTS regulations
and at levels believed adequate to meet the requirements of normal
operations, including repayments of maturing debt and potential
deposit outflows. Cash flow projections are regularly reviewed and
updated to assure that adequate liquidity is maintained. At June 30,
1994, Stillwater Federal's liquidity ratio (liquid assets as a
percentage of net withdrawable savings deposits and current
borrowings) was 16.7%.
Federally chartered savings institutions have the authority to
invest in various types of liquid assets, including United States
Treasury obligations, securities of various federal agencies, certain
certificates of deposit of insured banks and savings institutions,
certain bankers' acceptances, repurchase agreements and federal
funds. Subject to various restrictions, federally chartered savings
institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose
assets conform to the investments that a federally chartered savings
institution is otherwise authorized to make directly.
Generally, the investment policy of OSI is to invest funds
among various categories of investments and maturities based upon
OSI's asset/liability management policies, investment quality and
marketability, liquidity needs and performance objectives.
At June 30, 1994 OSI's interest-bearing deposits with banks
totaled $1.1 million, or less than one percent of total assets, and
its investment securities totaled $12.0 million, or 12.3% of total
assets. As of such date, OSI also had a $1.4 million investment in
FHLB stock, satisfying its requirement for membership in the FHLB of
Topeka. It is OSI's general policy to purchase investment securities
which are U.S. Government securities and federal agency obligations
and other issues that are rated investment grade or have credit
enhancements. At June 30, 1994, the average term to maturity or
repricing of the investment securities portfolio was 1.63 years.
The following table sets forth the composition of OSI's
investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
June 30, September 30,
--------------------- -----------------------------------------------------------------
1994 1993 1992 1991
--------------------- --------------------- --------------------- ---------------------
Book Value % of Total Book Value % of Total Book Value % of Total Book Value % of Total
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Securities:
U.S. Government securities. $ 7,559 66.64% $ 7,105 62.50% $ 6,098 71.40% $ 4,609 66.86%
Federal agency obligations. 2,412 21.26 2,890 25.42 1,070 12.53 1,000 14.50
Collaterialized mortgage
obligations. . . . . . . . 1,984 14.89 -- -- -- -- -- --
------- ------ ------- ------ ------ ------ ------- ------
Subtotal . . . . . . . . 11,955 89.70 9,995 87.92 7,168 83.93 5,609 81.36
FHLB stock. . . . . . . . . . 1,373 12.10 1,373 12.08 1,373 16.07 1,285 18.64
------- ------ ------- ------ ------ ------ ------- ------
Total investment
securities and
FHLB stock. . . . . . . $13,328 100.00% $11,368 100.00% $8,541 100.00% $ 6,894 100.00%
======= ====== ======= ====== ====== ====== ======= ======
Average remaining life of
investment securities. . . . 1.26 Years 2.77 Years 3.34 Years 1.84 Years
Other Interest-Earning Assets:
Interest-bearing deposits
with Bank. . . . . . . . . $ 1,089 100.00% $ 1,386 100.00% $ 396 100.00% $ 891 100.00%
------- ------ ------- ------ ------ ------ ------ ------
Total. . . . . . . . . . $ 1,089 100.00% $ 1,386 100.00% $ 396 100.00% $ 891 100.00%
======= ====== ======= ====== ====== ====== ====== ======
Average remaining life or
term repricing of investment
securities and other
interest-earning assets,
excluding FHLB stock . . . . 1.29 Years 1.44 Years 1.71 Years 1.41 Years
</TABLE>
The composition and contractual maturities of the investment
securities portfolio, excluding FHLB Stock and collateralized mortgage
obligations, are indicated in the following table.
<TABLE>
<CAPTION>
June 30, 1994
------------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over Total Investment
1 Year Years Years 10 Years Securities
---------- ---------- ---------- ---------- ----------
Book Value Book Value Book Value Book Value Book Value Market Value
---------- ---------- ---------- ---------- ---------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government securities . . . . . . . . $3,009 $4,550 $--- $--- $7,559 $7,546
Federal agency obligations . . . . . . . . --- 1,856 556 --- 2,412 2,349
------ ------ ---- ---- ------ ------
Total investment securities. . . . . . . . $3,009 $6,406 $556 $--- $9,971 $9,895
====== ====== ==== ==== ====== ======
Weighted average yield . . . . . . . . . . 4.21% 5.27% 4.12% ---% 4.89% 4.91%
</TABLE>
OSI's investment securities portfolio at June 30, 1994 contained
neither tax-exempt securities nor securities of any issuer with an
aggregate book value in excess of 10% of OSI's retained earnings,
excluding securities issued by the United States Government, or its
agencies.
OSI's investment securities portfolio is managed in accordance
with a written investment policy adopted by the Board of Directors
acting as an Investment Committee. Investments may be made by
President Buchanan or Chief Financial Officer Griffith. At June 30,
1994, OSI held no investments for trading purposes.
The OTS has issued guidelines regarding management oversight and
accounting treatment for securities, including investment securities,
loans, mortgage-backed and related securities and derivative
securities. The guidelines require thrift institutions to reduce the
carrying value of securities to the lesser of cost or market value
unless it can be demonstrated that a class of securities is intended to
be held to maturity. As of June 30, 1994 OSI held $5.9 million and
$11.3 million, respectively, of principal amount of mortgage-backed and
related securities and investment securities which OSI intends to hold
until maturity. As of such date, these securities had a market value
of $5.8 million and $11.2 million, respectively.
Sources of Funds
General. OSI's primary sources of funds are deposits,
amortization and prepayment of loan principal (including
mortgage-backed securities), sales or maturities of loans, investment
securities, mortgage-backed securities and short-term investments,
borrowings and funds provided from operations.
Borrowings, predominantly from the FHLB of Topeka, may be used on
a short-term basis to compensate for seasonal reductions in deposits or
deposit inflows at less than projected levels, and have been used in
the past on a longer-term basis to support lending activities
consistent with OSI's asset/liability objectives.
Deposits. OSI offers a variety of deposit accounts having a wide
range of interest rates and terms. OSI's deposits consist of passbook,
statement savings, checking, NOW accounts and money market and
certificate accounts. OSI relies primarily on advertising, competitive
pricing policies and customer service to attract and retain these
deposits. OSI solicits deposits from its primary market area only, and
does not use brokers to obtain deposits.
The flow of deposits is influenced significantly by general
economic conditions, changes in money market and prevailing interest
rates and competition. Management believes that customers continue to
place a value on federal insurance on deposit accounts and that, to the
extent OSI maintains competitive rates, it will be able to maintain its
deposit and liquidity levels. OSI manages the pricing of its deposits
in keeping with its asset/liability management and profitability
objectives.
Based on its experience, OSI believes that its passbook,
statement savings, checking, NOW and non-interest-bearing checking
accounts are relatively stable sources of deposits. However, the
ability of OSI to attract and maintain certificates of deposit, and the
rates paid on these deposits, has been and will continue to be
significantly affected by market conditions.
The following table sets forth the savings flows of OSI during
the periods indicated.
<TABLE>
<CAPTION>
Nine Months
Ended
June 30, Year Ended September 30,
--------------------------------
1994 1993 1992 1991
------------ -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Opening balance . . . . . . . $ 89,222 $ 97,208 $103,181 $113,669
Deposits. . . . . . . . . . . 67,749 221,089 73,394 105,691
Withdrawals . . . . . . . . . (70,299) (231,585) (83,091) (121,739)
Interest credited . . . . . . 1,891 2,510 3,724 5,560
-------- -------- -------- --------
Ending balance. . . . . . . . $ 88,563 $ 89,222 $ 97,208 $103,181
======== ======== ======== ========
Net increase (decrease) . . $ (659) $ (7,986) $ (5,973) $(10,488)
======== ======== ======== ========
Percent increase (decrease) . (.74)% (8.22)% (5.79)% (9.23)%
==== ===== ===== =====
</TABLE>
The following table sets forth the dollar amount of savings
deposits in the various types of deposit programs offered by OSI for
the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
June 30, Year Ended September 30,
-------------------------------------------------------
1994 1993 1992 1991
------------------ ----------------- ----------------- -----------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
-------- --------- -------- -------- -------- -------- -------- --------
(Dollars in Thousands)
Transactions and Savings Deposits:
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing accounts . . . . . $ 1,216 1.37% $ 1,036 1.16% $ 839 0.86% $ 1,029 1.00%
Passbook and Statement Savings
Accounts 3.25% . . . . . . . . . . . . 6,963 7.86 6,012 6.72 5,979 6.13 4,080 3.95
NOW Accounts 2.75% . . . . . . . . . . 6,894 7.78 6,518 7.28 5,301 5.44 4,908 4.75
Money Market Accounts 3.25% . . . . . . 8,667 9.79 8,886 9.93 9,078 9.31 10,401 10.08
------- ------ ------- ------ ------- ------ -------- ------
Total Non-Certificates. . . . . . . . . 23,740 26.80 22,452 25.09 21,197 21.74 20,418 19.78
------- ------ ------- ------ ------- ------ -------- ------
Certificates:
- ------------
3.00 - 5.99% . . . . . . . . . . . . 62,379 70.42 61,192 68.37 61,823 63.42 21,180 20.52
6.00 - 7.99% . . . . . . . . . . . . 2,351 2.65 5,148 5.75 12,289 12.61 56,409 54.65
8.00 - 9.99% . . . . . . . . . . . . 93 .11 430 0.48 1,899 1.95 5,174 5.01
10.00% and over . . . . . . . . . . . . --- --- --- --- --- --- --- ---
------- ------ ------- ------ ------- ------ -------- ------
Total Certificates. . . . . . . . . . . 64,823 73.18 66,770 74.60 76,011 77.98 82,763 80.18
------- ------ ------- ------ ------- ------ -------- ------
Accrued Interest. . . . . . . . . . . . 18 .02 277 0.31 269 0.28 46 0.04
------- ------ ------- ------ ------- ------ -------- ------
Total Deposits. . . . . . . . . . . . . $88,581 100.00% $89,499 100.00% $97,477 100.00% $103,227 100.00%
======= ====== ======= ====== ======= ====== ======== ======
</TABLE>
The following table shows rate and maturity information for
OSI's certificates of deposit as of June 30, 1994.
<TABLE>
<CAPTION>
Percent
3.00- 6.00- 8.00- of
5.99% 7.99% 9.99% Total Total
-------- -------- -------- --------- ---------
(Dollars in Thousands)
Certificate accounts maturing
in quarter ending :
- -----------------------------
<S> <C> <C> <C> <C> <C>
September 30, 1994 . . . . . . $18,000 $ 548 $ 19 $18,567 28.64%
December 31, 1994. . . . . . . 15,012 142 57 15,211 23.47
March 31, 1995 . . . . . . . . 9,100 39 17 9,156 14.13
June 30, 1995. . . . . . . . . 8,303 35 --- 8,338 12.86
September 30, 1995 . . . . . . 2,126 75 --- 2,201 3.40
December 31, 1995 . . . . . . 2,336 78 --- 2,414 3.72
March 31, 1996 . . . . . . . . 1,180 227 --- 1,407 2.17
June 30, 1996. . . . . . . . . 1,464 331 --- 1,795 2.77
September 30, 1996 . . . . . . 562 119 --- 681 1.05
December 31, 1996. . . . . . . 404 --- --- 404 .62
March 31, 1997 . . . . . . . . 361 266 --- 627 .97
June 30, 1997. . . . . . . . . 580 486 --- 1,066 1.64
Thereafter . . . . . . . . . . 2,951 5 --- 2,956 4.56
------- ------ ----- ------- ------
Total . . . . . . . . . . . $62,379 $2,351 $ 93 $64,823 100.00%
======= ====== ===== ======= ======
Percent of total. . . . . . 96.23% 3.63% .14%
===== ===== ====
</TABLE>
The following table indicates the amount of OSI's certificates
of deposit by time remaining until maturity as of June 30, 1994.
<TABLE>
<CAPTION>
Maturity
--------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
---------- ------ ------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000. . . . . $16,636 $14,503 $16,256 $12,851 $60,246
Certificates of deposit of $100,000 or more . . . . 1,931 708 1,238 700 4,577
------- ------- ------- ------- -------
Total certificates of deposit . . . . . . . . . . . $18,567 $15,211 $17,494 $13,551 $64,823
======= ======= ======= ======= =======
</TABLE>
Borrowings. Although deposits are OSI's primary source of funds,
OSI's policy has been to utilize borrowings when they are a less costly
source of funds or can be invested at a positive rate of return. In
addition, OSI has relied upon selected borrowings for short-term
liquidity needs.
OSI may obtain advances from the FHLB of Topeka upon the
security of its capital stock of the FHLB of Topeka and certain of its
mortgage loans. Such advances may be made pursuant to several
different credit programs, each of which has its own interest rate and
range of maturities. At June 30, 1994 OSI had $246,000 of borrowings
(as compared to an initial amount borrowed of $287,000) outstanding
related to its Employee Stock Ownership Plan at a weighted average
interest rate of 7.36%. At June 30, 1994, the interest rate was 8.25%.
OSI has had no outstanding FHLB advances or other borrowings since
1989.
FOURTH FINANCIAL CORPORATION,
OKLAHOMA SAVINGS, INC., BLACKWELL SECURITY BANCSHARES, INC.
AND STANDARD BANCORPORATION, INC. (Pending Acquisitions)
The following unaudited pro forma condensed consolidated statement
of condition as of June 30, 1994 combines the amounts shown in the
historical consolidated statements of condition of Fourth Financial,
and OSI, as reflected in the unaudited pro forma condensed consolidated
statement of condition (see "Pro Forma Financial Statements") with the
historical consolidated statements of condition of the following
companies, all as of June 30, 1994:
Blackwell Security Bancshares, Inc. ("BSB")* Purchase Transaction
Standard Bancorporation, Inc. ("SBI")* Pooling Transaction
* Financial statements are not presented separately herein.
The pro forma condensed consolidated statement of condition is not
necessarily indicative of the combined financial position as it may be
in the future or as it might have been had the acquisitions been
consummated on June 30, 1994. The following notes describe the
assumptions used in this pro forma condensed consolidated statement of
condition. The pro forma condensed consolidated statement of condition
should be read in conjunction with the other pro forma and historical
financial statements and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CONDITION
June 30, 1994
(Unaudited)
(Dollars in thousands, except per share amounts)
Combined
Pro Forma
Fourth Financial Pro Forma
----------------------
and OSI SBI BSB Adj. Combined
---------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks..............$ 397,673 $ 2,526 $ 1,524 $ (15)D $ 401,708
Interest-bearing deposits
in other financial institutions.... 2,918 - - - 2,918
Investment securities................ 3,292,177 23,964 20,380 12 C 3,336,533
Trading account securities........... 1,833 - - - 1,833
Federal funds sold and
securities purchased under
agreements to resell............... 16,944 1,700 3,543 (3,091)B 10,496
(8,600)C
Loans and leases..................... 3,692,144 49,601 23,603 - 3,765,348
Allowance for credit losses.......... (74,413) (603) (499) - (75,515)
---------------- --------- ---------- ---------- -----------
Net loans and leases............. 3,617,731 48,998 23,104 - 3,689,833
Bank premises and
equipment........................ 156,371 2,643 597 - 159,611
Income receivable and
other assets....................... 147,803 722 958 1,073 C 150,556
Intangible assets, net............... 113,583 - - 1,690 C 115,273
---------------- --------- ---------- ---------- -----------
Total assets..................$ 7,747,033 $ 80,553 $ 50,106 $ (8,931) $ 7,868,761
================ ========= ========== ========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Deposits.............................$ 5,811,855 $ 73,362 $ 43,305 $ (15)D $ 5,928,507
Other borrowings..................... 1,213,334 - - - 1,213,334
Accrued interest, taxes, and
other liabilities.................. 108,436 420 203 (14)B 109,818
773 C
Long-term debt....................... 9,532 3,077 - (3,077)B 9,532
---------------- --------- ---------- ---------- -----------
Total liabilities............ 7,143,157 76,859 43,508 (2,333) 7,261,191
---------------- --------- ---------- ---------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock...................... 100,000 585 - (585)A 100,000
Common stock......................... 136,088 2 217 1,570 A 137,663
3 (217)C
Capital surplus...................... 107,576 1,360 1,428 (985)A 107,951
(1,428)C
Retained earnings.................... 266,659 1,891 5,149 (5,149)C 268,550
Less: Stock option loans and
ESOP loans...................... (2,082) - - - (2,082)
Less: Treasury stock................. - - - -
Unrealized gains on
available-for-sale securities... (4,365) (147) (196) 196 C (4,512)
---------------- --------- ---------- ---------- -----------
Total stockholders' equity.... 603,876 3,694 6,598 (6,598) 607,570
---------------- --------- ---------- ---------- -----------
Total liabilities and
stockholders' equity...$ 7,747,033 $ 80,553 $ 50,106 $ (8,931) $ 7,868,761
================ ========= ========== ========== ===========
Book value per share
of common stock.................. $18.51 $18.44
====== ======
Risk-based capital ratios:
Tier I (regulatory minimum 4%).... 10.93 % 10.79
Total (regulatory minimum 8%)..... 12.18 12.04
Leverage capital ratio (regulatory
minimum 3%)...................... 7.00 6.91
</TABLE>
Pro forma adjustments and notes to the condensed consolidated
statement of condition are as follows:
(A) To record the issuance of 315,000 shares of Fourth Financial
stock in exchange for all of the 11,310 shares of
Standard Bancorporation, Inc. in a transaction accounted for
as a pooling of interests.
(B) To record Fourth Financial's repayment of debt and accrued
interest of Standard Bancorporation, Inc.
(C) To record the purchase of BSB, eliminate equity accounts,
and reflect the purchase method of accounting:
Investment securities. . . . . . . . . . . . . . . . . 12
Income receivable and other assets . . . . . . . . . . 1,073
Accrued interest, taxes and other liabilities . . . 773
Intangible assets (cost in excess of net
assets acquired) . . . . . . . . . . . . . . . . . . 1,690
(D) To eliminate intercompany balances (dollars in thousands):
Cash and due from banks/deposits . . . . . . . . . . . 15
The purchase price has been allocated to the identifiable assets
and liabilities acquired based upon the estimate of their fair
values with the excess allocated to cost in excess of net assets
acquired. As required by Statement of Financial Accounting
Standard No. 109 "Accounting for Income Taxes," deferred taxes
have been recorded for the difference between the tax basis and
book basis of the net assets at an effective rate of 39%.
Cost in excess of net assets acquired is being amortized on the
straight-line method over 20 years.
Pro forma book value per share of common stock is based on the
26,845,241 shares issued and outstanding of common stock of Fourth
Financial at June 30, 1994, the 372,262 shares anticipated to be issued
in the pending OSI acquisition, and the 11,310 shares anticipated to be
issued in the pending SBI acquisition.
FOURTH FINANCIAL CORPORATION,
EQUITY BANK FOR SAVINGS, F.A., AND
EMPRISE BANK, NATIONAL ASSOCIATION (Recent Acquisitions),
AND OKLAHOMA SAVINGS, INC., BLACKWELL SECURITY BANCSHARES, INC.,
AND STANDARD BANCORPORATION, INC. (Pending Acquisitions)
The following unaudited pro forma condensed consolidated
statements of income for the six months ended June 30, 1994 and 1993
and for the year ended December 31, 1993 combine (1) the amounts shown
in the historical consolidated statements of income of Fourth Financial
which have been restated for pooling-of-interest transactions prior to
June 30, 1994, (2) the amounts shown in the historical consolidated
statements of income of Equity (acquired May 26, 1994 and not presented
separately herein), (3) the amounts shown in the historical
consolidated statements of income of Emprise (acquired May 31, 1994 and
not presented separately herein), and (4) the amounts shown in the
historical consolidated statements of income of OSI as reflected in the
unaudited pro forma condensed consolidated statements of income (see
"Pro Forma Financial Statements") with (5) the amounts shown in the
historical consolidated statements of income of the following
companies:
Blackwell Security Bancshares, Inc. ("BSB")* Purchase Transaction
Standard Bancorporation, Inc. ("SBI")* Pooling Transaction
* Financial statements are not presented separately herein.
The historical financial statements of OSI used in these pro forma
condensed consolidated statements of income reflect its September 30
year end. The historical financial statements of Fourth Financial,
Equity, Emprise, BSB, and SBI all reflect year ends of December 31.
The combination of BSB is based on the purchase method of
accounting assuming, for pro forma purposes only, that the acquisition
had been consummated at January 1, 1993. Historical financial
statements will not be restated to reflect the purchase acquisitions
since operations will only be included from the date of acquisition.
The combination of SBI is based on the pooling-of-interests method of
accounting. The pro forma results for the year ended December 31, 1993
and six months ended June 30, 1994 and 1993 are not necessarily
indicative of the results as they may be in the future. The pro forma
condensed consolidated statements of income should be read in
conjunction with the other pro forma and historical financial
statements and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Six Months Ended Year Ended
June 30, December 31,
-------------------- ------------
1994 1993 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans.......... $ 155,859 $ 149,606 $ 304,945
Interest on short-term investments.. 823 1,804 2,625
Interest and dividends
on investment securities.......... 92,818 95,229 195,057
Interest and dividends on trading
account securities................ 54 66 135
---------- ---------- ----------
Total interest income.......... 249,554 246,705 502,762
---------- ---------- ----------
Interest expense:
Interest on deposits................ 82,392 92,503 183,000
Interest on other borrowings........ 19,270 9,330 24,153
Interest on long-term debt.......... 783 1,375 2,453
---------- ---------- ----------
Total interest expense......... 102,445 103,208 209,606
---------- ---------- ----------
Net interest income...................... 147,109 143,497 293,156
Provision for credit losses.............. 991 7,323 9,333
---------- ---------- ----------
Net interest income after provision
for credit losses...................... 146,118 136,174 283,823
Non-interest income...................... 57,832 53,497 110,044
Non-interest expense..................... 142,250 150,152 301,458
---------- ---------- ----------
Income before income taxes,
minority interest and cumulative
change in accounting principle......... 61,700 39,519 92,409
Income taxes........................ 20,776 9,336 22,404
---------- ---------- ----------
Income before minority interest and
cumulative change in accounting
principle.............................. 40,924 30,183 70,005
Minority interest........................ - - (355)
---------- ---------- ----------
Income before cumulative change in
accounting principle................... $ 40,924 $ 30,183 $ 69,650
========== ========== ==========
Income before cumulative change in
accounting principle applicable to
common and common-equivalent shares.. $ 37,424 $ 26,683 $ 62,650
========== ========== ==========
Earnings before cumulative change
in accounting principle per
common share:
Primary.............................. $ 1.37 $ 1.01 $ 2.35
========== ========== ==========
Fully diluted........................ $ 1.33 $ 0.99 $ 2.27
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Six Months Ended June 30, 1994
(Unaudited)
(In thousands, except per share amounts)
Combined
Pro Forma
Fourth Financial,
Equity, Emprise Pro Forma
-------------------
and OSI SBI BSB Adj. Combined
---------- --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans.... $ 152,634 $ 2,115 $ 1,110 $ - $ 155,859
Interest on short-term
investments................. 829 59 76 (141)B 823
Interest and dividends
on investment securities.... 91,629 601 547 41 A 92,818
Interest and dividends on
trading account securities.. 54 - - - 54
---------- --------- --------- ------- ----------
Total interest income..... 245,146 2,775 1,733 (100) 249,554
---------- --------- --------- ------- ----------
Interest expense:
Interest on deposits.......... 80,861 891 640 - 82,392
Interest on other borrowings.. 19,270 0 0 - 19,270
Interest on long-term debt... 692 91 - - 783
---------- --------- --------- ------- ----------
Total interest expense.... 100,823 982 640 - 102,445
---------- --------- --------- ------- ----------
Net interest income................ 144,323 1,793 1,093 (100) 147,109
Provision for credit losses........ 938 56 (3) - 991
---------- --------- --------- ------- ----------
Net interest income after
provision for credit losses...... 143,385 1,737 1,096 (100) 146,118
Non-interest income................ 57,331 310 191 - 57,832
Non-interest expense............... 139,807 1,614 717 112 A 142,250
---------- --------- --------- ------- ----------
Income before income taxes
and cumulative change in
accounting principle............. 60,909 433 570 (212) 61,700
Income taxes ................. 20,559 110 173 (11)A 20,776
(55)B
---------- --------- --------- ------- ----------
Income before cumulative change
in accounting principle.......... $ 40,350 $ 323 $ 397 $ (146) $ 40,924
========== ========= ========= ======= ==========
Income before cumulative
change in accounting principle
applicable to common and
common-equivalent shares......... $ 36,850 $ 37,424
========== ==========
Earnings before cumulative
change in accounting principle
per common share:
Primary........................ $1.36 $1.37
===== =====
Fully diluted.................. $1.32 $1.33
===== =====
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Six Months Ended June 30, 1993
(Unaudited)
(In thousands, except per share amounts)
Combined
Pro Forma
Fourth Financial
Equity, Emprise Pro Forma
-------------------
and OSI SBI BSB Adj. Combined
---------- --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans.... $ 146,430 $ 2,011 $ 1,165 $ - $ 149,606
Interest on short-term
investments................. 1,827 47 55 (125)B 1,804
Interest and dividends
on investment securities.... 93,870 763 557 39 A 95,229
Interest and dividends on
trading account securities.. 66 - - - 66
---------- --------- --------- ------- ----------
Total interest income..... 242,193 2,821 1,777 (86) 246,705
---------- --------- --------- ------- ----------
Interest expense:
Interest on deposits.......... 90,933 888 682 - 92,503
Interest on other borrowings.. 9,330 - - - 9,330
Interest on long-term debt... 1,283 92 - - 1,375
---------- --------- --------- ------- ----------
Total interest expense.... 101,546 980 682 - 103,208
---------- --------- --------- ------- ----------
Net interest income................ 140,647 1,841 1,095 (86) 143,497
Provision for credit losses........ 7,270 48 5 - 7,323
---------- --------- --------- ------- ----------
Net interest income after
provision for credit losses...... 133,377 1,793 1,090 (86) 136,174
Non-interest income................ 52,934 301 262 - 53,497
Non-interest expense............... 147,598 1,628 814 112 A 150,152
---------- --------- --------- ------- ----------
Income before income taxes
and cumulative change in
accounting principle............. 38,713 466 538 (198) 39,519
Income taxes ................. 9,064 137 196 (12)A 9,336
(49)B
Income before cumulative change
---------- --------- --------- ------- ----------
in accounting principle.......... $ 29,649 $ 329 $ 342 $ (137) $ 30,183
========== ========= ========= ======= ==========
Income before cumulative
change in accounting principle
applicable to common and
common-equivalent shares......... $ 26,149 $ 26,683
========== ==========
Earnings before cumulative
change in accounting principle
per common share:
Primary........................ $1.00 $1.01
===== =====
Fully diluted.................. $0.98 $0.99
===== =====
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31,1993
(Unaudited)
(In thousands, except per share amounts)
Combined
Pro Forma
Fourth Financial,
Equity, Emprise Pro Forma
-------------------
and OSI SBI BSB Adj. Combined
---------- --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans.... $ 298,580 $ 4,094 $ 2,271 $ - $ 304,945
Interest on short-term
investments................. 2,689 83 115 (262)B 2,625
Interest and dividends
on investment securities.... 192,433 1,375 1,169 80 A 195,057
Interest and dividends on
trading account securities.. 135 - - - 135
---------- --------- --------- ------- ----------
Total interest income..... 493,837 5,552 3,555 (182) 502,762
---------- --------- --------- ------- ----------
Interest expense:
Interest on deposits.......... 179,924 1,723 1,353 - 183,000
Interest on other borrowings.. 24,153 - - - 24,153
Interest on long-term debt... 2,273 180 - - 2,453
---------- --------- --------- ------- ----------
Total interest expense.... 206,350 1,903 1,353 - 209,606
---------- --------- --------- ------- ----------
Net interest income................ 287,487 3,649 2,202 (182) 293,156
Provision for credit losses........ 9,251 72 10 - 9,333
---------- --------- --------- ------- ----------
Net interest income after
provision for credit losses...... 278,236 3,577 2,192 (182) 283,823
Non-interest income................ 108,767 754 523 - 110,044
Non-interest expense............... 296,369 3,209 1,656 224 A 301,458
---------- --------- --------- ------- ----------
Income before income taxes,
minority interest and cumulative
change in accounting principle... 90,634 1,122 1,059 (406) 92,409
Income taxes ................. 21,885 304 340 (102)B 22,404
(23)A
---------- --------- --------- ------- ----------
Income before minority interest
and cumulative change in
accounting principle............. 68,749 818 719 (281) 70,005
Minority interest.................. (355) - - - (355)
---------- --------- --------- ------- ----------
Income before cumulative change
in accounting principle.......... $ 68,394 $ 818 $ 719 $ (281) $ 69,650
========== ========= ========= ======= ==========
Income before cumulative
change in accounting principle
applicable to common and
common-equivalent shares......... $ 61,394 $ 62,650
========== ==========
Earnings before cumulative change
in accounting principle per
common share:
Primary........................ $2.33 $2.35
===== =====
Fully diluted.................. $2.25 $2.27
===== =====
</TABLE>
Pro forma adjustments and notes to the condensed consolidated
statements of income are as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
---------------------- --------------
1994 1993 1993
-------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
(A) To reflect adjustments resulting from the purchase
method of accounting for BSB:
Interest and dividends on investment securities . . . . . (41) (39) (80)
Noninterest expense:
Cost in excess of net assets acquired amortization 42 42 84
Covenant not to compete amortization. . . . . . . . . . 70 70 140
---- ---- ----
Total effect on noninterest expense . . . . . . . . . . 112 112 224
Income taxes. . . . . . . . . . . . . . . . . . . . . . . (11) (12) (23)
(B) To reflect the foregone interest income on short-term
investments converted to cash and used for the
purchase of BSB and the related income tax effects:
Interest on short-term investments. . . . . . . . . . . . 141 125 262
Income taxes. . . . . . . . . . . . . . . . . . . . . . . (55) (49) (102)
</TABLE>
Pro forma earnings per common share are based on the following
weighted average number of shares outstanding:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
----------------------- --------------
1994 1993 1993
-------- -------- --------
<S> <C> <C> <C>
Primary . . . . . . . . . . . . . . . . . . . . . . . 27,407,591 26,542,501 26,656,345
Fully diluted . . . . . . . . . . . . . . . . . . . . 30,855,866 30,610,110 30,687,059
</TABLE>
Primary earnings per common share were computed by dividing net
income applicable to common and common-equivalent shares by the
weighted average common and common-equivalent shares outstanding during
the period. Fully diluted earnings per common share were computed by
adjusting net income for interest expense (net of income taxes)
associated with convertible debt. The adjusted net income was then
divided by the weighted average of common and common-equivalent shares
outstanding plus the number of shares which would have been outstanding
during the year had convertible securities been converted in accordance
with their respective governing instruments. Note 17 to the Fourth
Financial 1993 Consolidated Financial Statements more fully describes
Fourth Financial's common stock equivalents and convertible securities.
The adjustment of net income for convertible debt interest expense (net
of income taxes) was as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
-----------------------
1994 1993 1993
-------- -------- --------
<S> <C> <C> <C>
Interest expense adjustment. . . . . . . . . . . . . . . . . . -- 4 4
</TABLE>
ANNEX I
AGREEMENT AND PLAN OF REORGANIZATION
between
FOURTH FINANCIAL CORPORATION,
and
OKLAHOMA SAVINGS, INC.,
Dated as of July 21, 1994
as Amended November 8, 1994
TABLE OF CONTENTS
Page No.
-------
ARTICLE I. Definitions. . . . . . . . . . . . . . . . .2
Section 1.1 Definitions. . . . . . . . . . . . . . . . .2
Section 1.2 Accounting Terms . . . . . . . . . . . . . .8
Section 1.3 Use of Defined Terms . . . . . . . . . . . .8
ARTICLE II. Plan of Reorganization . . . . . . . . . . .8
Section 2.1 Tax-Free Reorganizations . . . . . . . . . .8
Section 2.2 Agreements of Fourth . . . . . . . . . . . .9
Section 2.3 Agreements of OSI and the Bank . . . . . . 12
Section 2.4 The Mergers. . . . . . . . . . . . . . . . 17
Section 2.5 Conversion and Exchange of Shares. . . . . 18
Section 2.6 Advance Preparations for Bank Merger . . . 20
Section 2.7 Negative Covenants . . . . . . . . . . . . 20
ARTICLE III. Representations and Warranties . . . . . . 21
Section 3.1 Representations and Warranties of OSI. . . 21
Section 3.2 Representations and Warranties of Fourth . 31
ARTICLE IV. Securities Laws Matters. . . . . . . . . . 35
Section 4.1 Registration Statement and Proxy Statement 35
Section 4.2 State Securities Laws. . . . . . . . . . . 36
Section 4.3 Affiliates . . . . . . . . . . . . . . . . 36
Section 4.4 Affiliates' Agreements . . . . . . . . . . 37
ARTICLE V. Closing Conditions . . . . . . . . . . . . 37
Section 5.1 Conditions to Obligations of Fourth and
BANK IV Oklahoma . . . . . . . . . . . . . 37
Section 5.2 Conditions to Obligations of OSI and the
Bank . . . . . . . . . . . . . . . . . . . 40
ARTICLE VI. Effective Time . . . . . . . . . . . . . . 41
ARTICLE VII. Termination of Agreement . . . . . . . . . 42
Section 7.1 Mutual Consent; Absence of Stockholder
Approval; Termination Date . . . . . . . . 42
Section 7.2 Election by Fourth . . . . . . . . . . . . 42
Section 7.3 Election by OSI. . . . . . . . . . . . . . 42
Section 7.4 Effect of Termination. . . . . . . . . . . 43
ARTICLE VIII. Miscellaneous. . . . . . . . . . . . . . . 43
Section 8.1 Nonsurvival of Representations, Warranties,
and Agreements . . . . . . . . . . . . . . 43
Section 8.2 Expenses . . . . . . . . . . . . . . . . . 44
Section 8.3 Notices. . . . . . . . . . . . . . . . . . 44
Section 8.4 Time . . . . . . . . . . . . . . . . . . . 44
Section 8.5 Law Governing. . . . . . . . . . . . . . . 44
Section 8.6 Entire Agreement; Amendment. . . . . . . . 44
Section 8.7 Press Releases . . . . . . . . . . . . . . 45
Section 8.8 Severability . . . . . . . . . . . . . . . 45
Section 8.9 Successors and Assigns . . . . . . . . . . 45
Section 8.10 Cover, Table of Contents, and Headings . . 45
Section 8.11 Counterparts . . . . . . . . . . . . . . . 45
EXHIBITS
Exhibit "A" Form of BANK IV Oklahoma Merger Agreement
Exhibit "B" Form of Fourth Merger Agreement
Exhibit "C" Form of Silver, Freedman and Taff and Ellis &
Morgan legal opinions [Omitted]
Exhibit "D" Form of Foulston & Siefkin legal opinion
[Omitted]
Exhibit "E" Form of Affiliate's Agreement
[Omitted]
AGREEMENT AND PLAN OF REORGANIZATION
(as amended)
AGREEMENT AND PLAN OF REORGANIZATION, dated as of July 21,
1994, between FOURTH FINANCIAL CORPORATION, a Kansas corporation
("Fourth"), and OKLAHOMA SAVINGS, INC., a Delaware corporation
("OSI"), as amended November 8, 1994.
W I T N E S S E T H: That,
--------------------
WHEREAS, the Boards of Directors of Fourth and OSI have
approved, and deem it advisable and in the best interests of
their respective stockholders to consummate the business
combination transaction provided for herein; and
WHEREAS, Fourth and OSI desire to make certain
representations, warranties, and agreements in connection with
the transaction contemplated hereby and also to prescribe various
conditions to consummating such transaction; and
WHEREAS, for Federal income tax purposes, it is intended
that the merger contemplated by this agreement shall qualify as a
reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, and agreements
set forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. The following terms as used in this
Agreement shall have the following meanings unless the context
otherwise requires:
"Affiliate" has the same meaning as in Rules 145 and 405
adopted under the Securities Act by the SEC, as the same may be
amended from time to time.
"Agreement" refers to this Agreement and Plan of
Reorganization and all amendments hereto.
"Bank" means Stillwater Federal Savings Bank, a federal
savings bank.
"Bank Stock" means the common stock of the Bank, par value
$.01 per share.
"BANK IV Oklahoma" means BANK IV Oklahoma, National
Association, a national banking association.
"Bank Merger" means the merger of the Bank into BANK IV
Oklahoma pursuant to the Bank Merger Agreement.
"Bank Merger Agreement" means the Agreement to Merge,
substantially in the form of Exhibit "A" hereto, pursuant to which
the Bank Merger will be effected.
"Bank Holding Company Act" means the federal Bank Holding
Company Act of 1956, as amended (12 U.S.C. Section 1841 et seq.),
or any successor federal statute, and the rules and regulations of
the Board promulgated thereunder, all as the same may be in effect
at the time.
"Best Efforts" does not include those actions which are not
commercially reasonable under the circumstances.
"Board" means the Board of Governors of the Federal Reserve
System or any successor governmental entity which may be granted
powers currently exercised by the Board of Governors.
"Closing" means the consummation of the Mergers as provided in
this Agreement.
"Closing Price" means the closing price of Fourth Stock on the
trading day two trading days prior to the Effective Time as
reported in the Southwest Edition of The Wall Street Journal.
"Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder, all as the
same may be in effect at the time.
"Comptroller" means the United States Comptroller of the
Currency or any successor governmental agency which may be granted
powers currently exercised by the Comptroller of the Currency.
"Corporations" refers to OSI and the Bank.
"Disclosure Statement" means the Disclosure Statement prepared
by OSI and delivered by it to Fourth prior to the execution and
delivery of this Agreement by Fourth.
"Effective Time" means the date and time on which the Mergers
are effective as more fully defined in this Agreement.
"Environmental, Health, and Safety Liabilities" means any
loss, cost, expense, claim, demand, liability, or obligation of
whatever kind or otherwise, based upon any Environmental, Health,
and Safety Law relating to:
(i) any environmental, health, or safety matter or
conditions, including, but not limited to, on-site or off-site
contamination, occupational safety and health, and regulation
of chemical substances or products;
(ii) fines, penalties, judgments, awards, settlements,
legal or administrative proceedings, damages, losses, claims,
demands, and response, remedial or inspection costs and
expenses arising under any Environmental, Health, and Safety
Law;
(iii) financial responsibility under any Environmental
Law for cleanup costs or corrective actions, including for any
removal, remedial or other response actions, and for any
natural resource damage; and
(iv) any other compliance, corrective, or remedial action
required under any Environmental, Health, and Safety Law.
"Environmental, Health, and Safety Law" means any provision of
past or present Law relating to any environmental, health, or
safety matters or conditions, Hazardous Materials, pollution, or
protection of the environment, including, but not limited to, on-
site and off-site contamination, occupational safety and health,
and regulation of chemical substances or products, emissions,
discharges, release, or threatened release of contaminants,
chemicals or industrial, toxic, radioactive, or Hazardous Materials
or wastes into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of Hazardous Materials,
pollutants, contaminants, chemicals, or industrial, toxic,
radioactive, or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated
thereunder, all as the same may be in effect at the time.
"ESOP" means the Oklahoma Savings, Inc. Employees Stock
Ownership Plan.
"Exchange Act" means the federal Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
thereunder, all as the same may be in effect at the time.
"Federal Deposit Insurance Act" means the Federal Deposit
Insurance Act, as amended, and the rules and regulations
promulgated thereunder, all as the same may be in effect at the
time.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor agency.
"Financial Statements" refers to all of the financial
statements described in clause g of Section 3.1 of this Agreement.
"Fourth" means Fourth Financial Corporation, a Kansas
corporation and a party to this Agreement.
"Fourth Merger" means the merger of OSI into Fourth pursuant
to the Fourth Merger Agreement.
"Fourth Merger Agreement" means the Agreement of Merger,
substantially in the form of Exhibit "B" hereto, pursuant to which
the Fourth Merger will be effected.
"Fourth SEC Documents" has the meaning contained in Section
3.2.d of this Agreement.
"Fourth Stock" means the common stock of Fourth, par value $5
per share.
"GAAP" means generally accepted accounting principles, applied
on a consistent basis, set forth in Opinions of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting
Standards Board and/or their successors which are applicable in the
circumstances in question; and the requisite that such principles
be applied on a consistent basis means that the accounting
principles observed in a current period are comparable in all
material respects to those applied in a preceding period.
"Hazardous Materials" means and includes: (i) any hazardous
substance or toxic material (excluding any lawful product for use
in the ordinary course of the Bank's business which contains such
substance or material), pollutant, contaminant, toxic material, or
hazardous waste as defined in any federal, state, or local
environmental Law; (ii) waste oil and petroleum products; and (iii)
any asbestos, asbestos-containing material, urea formaldehyde or
material which contains it.
"Law" or "Laws" means all applicable statutes, laws,
ordinances, regulations, orders, writs, injunctions, or decrees of
the United States of America, any state or commonwealth, or any
subdivision thereof, or of any court or governmental department,
agency, commission, board, bureau, or other instrumentality.
"Litigation" means any proceeding, claim, lawsuit, and/or
investigation being conducted or, to the best of the knowledge of
the person or corporation making the representation, threatened
before any court or other tribunal, including, but not limited to,
proceedings, claims, lawsuits, and/or investigations, under or
pursuant to any occupational safety and health, banking, antitrust,
securities, tax, or other Laws, or under or pursuant to any
contract, agreement, or other instrument.
"Merger Agreements" collectively refers to the two merger
agreements provided for in this Agreement pursuant to which the two
Mergers will be accomplished.
"Mergers" refers collectively to the Bank Merger and the
Fourth Merger.
"Occupied Properties" means the parcels of real property owned
or leased by the Corporations on which one or more of the
Corporations conduct or have conducted deposit taking activities,
all of which properties are described in Schedule H to the
Disclosure Statement under the caption "Bank Occupied Properties".
"OTS" means the Office of Thrift Supervision of the United
States Department of the Treasury and any successor agency which
may be granted powers currently exercised by the Office of Thrift
Supervision.
"OSI" means Oklahoma Savings, Inc., a Delaware corporation and
a party to this Agreement.
"OSI Stock" means the common stock, par value $.01 per share,
of OSI.
"OSI 1993 10-K" means the Form 10-KSB for the fiscal year
ended September 30, 1993 filed by OSI.
"OSI SEC Documents" has the meaning contained in Section 3.1.r
of this Agreement.
"Permitted Contract" means a contract or agreement, written or
oral, between the Bank, on the one hand, and a person other than a
customer of the Bank or another financial institution, on the other
hand, which (i) was entered into in the ordinary course of
business, (ii) may be terminated by Fourth or BANK IV Oklahoma, as
the case may be, after the Effective Time on no more than 30 days'
prior notice, (iii) provides for a payment of no more than $5,000
in any calendar month by the Bank, and (iv) provides for no payment
upon termination in excess of $5,000.
"Permitted Encumbrances" mean with respect to any asset:
(a) liens for taxes not past due;
(b) mechanics' and materialmen's liens for services or
materials for which payment is not past due; and
(c) minor defects, easements, restrictions,
encumbrances, and irregularities in title which do not, in the
aggregate, materially diminish the value of a property or
materially impair the use of a property for the purposes for
which it is or may reasonably be expected to be held.
"Proxy Statement" means the proxy statement to be used in
connection with the special stockholders' meeting of OSI to be
called for the purpose of considering and voting upon the Mergers.
"Registration Statement" means the registration statement on
Form S-4 to be filed by Fourth with the SEC pursuant to the
Securities Act in connection with the registration of the shares of
Fourth Stock to be issued in connection with the Fourth Merger.
"Required Approvals" means the approval, consent, or non-
objection, as the case may be, of the Board, the OTS, the
Comptroller, and all other governmental or self-governing agencies,
boards, departments, and bodies whose approval, consent, or non-
action is required in order to consummate the Mergers, and each of
them, which approvals, consents, and non-objections shall have
become final and nonappealable without any appeal or other form of
review having been initiated and as to which all required waiting
periods shall have expired.
"SEC" means the United States Securities and Exchange
Commission or any other governmental entity which may be granted
powers currently being exercised by the Securities and Exchange
Commission.
"Securities Act" means the federal Securities Act of 1933, as
amended, or any successor federal statute, and the rules and
regulations promulgated thereunder, all as the same shall be in
effect at the time.
"Subsidiary" means any corporation fifty percent or more of
the common stock or other form of equity of which shall be owned,
directly or indirectly, by another corporation.
1.2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP
consistent with that applied in the preparation of the financial
statements submitted pursuant to this Agreement, and all financial
statements submitted pursuant to this Agreement shall be prepared
in all material respects in accordance with such principles.
1.3. Use of Defined Terms. All terms defined in this
Agreement shall have the defined meanings when used in the Merger
Agreements, or any other agreement, document, or certificate made
or delivered pursuant to this Agreement, unless otherwise there
defined or unless the context otherwise requires.
ARTICLE II
PLAN OF REORGANIZATION
2.1. Tax-Free Reorganizations. It is the intention of the
parties that the Mergers contemplated by this Agreement and the
Merger Agreements shall qualify as tax-free reorganizations under
Section 368(a)(1)(A) of the Code.
2.2. Agreements of Fourth.
a. Fourth shall cause BANK IV Oklahoma to execute and
deliver the Bank Merger Agreement. Fourth has approved and
adopted this Agreement and the Fourth Merger Agreement in
accordance with the applicable Laws of the United States of
America and the State of Kansas. Fourth shall vote or cause
to be voted all of the stock of BANK IV Oklahoma in favor of
the approval and adoption of the Bank Merger Agreement.
Subject to the terms and conditions contained in this
Agreement, upon receipt of all of the Required Approvals,
Fourth shall cause BANK IV Oklahoma to perform the Bank Merger
Agreement.
b. Fourth shall cause all necessary action to be taken
to authorize the issuance of the number of shares of Fourth
Stock to be issued in the Fourth Merger and shall reserve such
shares for issuance in the Fourth Merger.
c. Prior to the Effective Time, Fourth, separately and
with the other parties hereto, shall use, and cause BANK IV
Oklahoma to use, its Best Efforts in good faith to take or
cause to be taken as promptly as practicable all such steps as
shall be necessary to obtain all of the Required Approvals,
and shall do any and all acts and things reasonably deemed by
Fourth or the Corporations to be necessary or appropriate in
order to cause the Mergers to be consummated on the terms
provided herein and in the Merger Agreements as promptly as
practicable.
d. On or prior to the Effective Time, as appropriate
for the transactions contemplated hereby, Fourth shall, and
shall cause BANK IV Oklahoma to, execute and deliver the
Merger Agreements and the other closing documents provided for
in this Agreement, shall take all such other actions as are
required or desirable to effect the Mergers, and shall utilize
their Best Efforts to cause all of the conditions described in
Section 5.2 of this Agreement to occur and be continuing, and
to consummate all of the other transactions contemplated
hereby.
e. Prior to the Effective Time, Fourth shall, to the
extent permitted by Law and outstanding confidentiality
agreements, give OSI and its counsel and accountants full
access, during normal business hours and upon reasonable
notice, to its properties, books, and records, and shall
furnish OSI during such period with all such information
concerning its affairs as OSI may reasonably request. The
availability or actual delivery of information about Fourth to
OSI shall not affect the covenants, representations, and
warranties of Fourth contained in this Agreement; provided,
that OSI shall promptly disclose to Fourth any apparent
breaches of such covenants, representations, or warranties
discovered by it prior to the Effective Time. Except for
information disclosed in the Registration Statement or as
otherwise required to be disclosed in the course of obtaining
governmental approvals, OSI shall treat as confidential all
such information in the same manner as OSI treats similar
confidential information of its own and, if this Agreement is
terminated, OSI shall continue to treat all such information
obtained in such investigation and not otherwise known to OSI
from a source not known to OSI to be under a confidential
relationship with Fourth, or already in the public domain, as
confidential and shall return such documents theretofore
delivered by Fourth to OSI as Fourth shall request.
f. With regard to OSI's and Bank's employees who are
terminated due to job eliminations within six months of
Closing, Fourth shall honor its Acquisition Severance Schedule
previously furnished to OSI.
g. Fourth shall provide directors' and officers'
liability insurance coverage for the directors and officers of
the Corporations substantially similar to that currently in
effect, or continue such insurance, for a period of three
years from the Effective Time, which insurance shall provide
coverage for acts and omissions occurring on or prior to the
Effective Time.
h. Between the date of this Agreement and the Effective
Time of the Mergers, Fourth agrees that Fourth and its
Subsidiaries shall not (i) amend any of their articles of
incorporation, charters, bylaws or other governing instruments
so as to materially adversely affect the rights which the
stockholders of OSI who become holders of Fourth Stock
pursuant to the Fourth Merger would have had had they acquired
the Fourth Stock to be issued pursuant to the Fourth Merger on
the date hereof, or (ii) enter into any agreement,
understanding or commitment with any other party which would
materially interfere with, delay or impede in any material
respect consummation of the transactions contemplated hereby.
i. Fourth shall provide or cause to be provided to all
employees of OSI and the Bank who become employees of BANK IV
Oklahoma following the consummation of the Mergers the same
employee benefits offered to employees of Fourth and its
banking Subsidiaries, and to give credit to any and all
employees of OSI and the Bank following the consummation of
the Mergers for all service with OSI and the Bank prior to the
Effective Time in accordance with Paragraph 5C the Fourth
Financial Corporation Acquisition Schedule previously
delivered to OSI. If the Mergers have not been consummated by
December 31, 1994, the Bank may conform its vacation schedule
and sick leave policies to those of BANK IV Oklahoma,
effective January 1, 1995.
j. Prior to the filing of any applications with
governmental authorities relating to the Required Approvals,
Fourth shall provide its proposed filing(s) to OSI and its
counsel at least two business days prior to filing for their
review and comments.
k. Immediately following the consummation of the Bank
Merger, BANK IV Oklahoma as successor in interest to the Bank
will terminate the written employment agreement between the
Bank and Beth F. Buchanan dated January 1, 1994 by making a
single lump sum payment to Beth F. Buchanan within five days
after the Effective Time in an amount equal to 299% of her
"base amount" of compensation, as defined in Section 280G
(b)(3) of the Code. Notwithstanding the foregoing, Beth F.
Buchanan's employment will be continued by BANK IV Oklahoma as
an "employee at will" but subject to the same rights and
entitlements of any other employees of the Bank who continue
their service with BANK IV Oklahoma.
l. At the Effective Time, BANK IV Oklahoma will invite
each person who was a member of the Board of Directors of the
Bank immediately prior to the Effective Time to become a
member of a BANK IV Oklahoma Advisory Board of Directors to
serve at the pleasure of BANK IV Oklahoma.
2.3. Agreements of OSI.
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a. Prior to the consummation of the Mergers, neither of
the Corporations shall, except with the prior written consent
of Fourth or as otherwise provided in this Agreement or the
Merger Agreements:
(1) Amend its charter, certificate of
incorporation, bylaws, or other charter documents, or
make any change in its authorized, issued, or outstanding
capital stock, grant any stock options or right to
acquire shares of any class of its capital stock or any
security convertible into any class of capital stock,
purchase, redeem, retire, or otherwise acquire any shares
of any class of its capital stock or any security
convertible into any class of its capital stock, or agree
to do any of the foregoing;
(2) Declare, set aside, or pay any dividend or
other distribution in respect of any class of its capital
stock except if the Mergers are not consummated by
November 15, 1994, OSI may declare and pay a cash
dividend per share of OSI Stock equal to the product of
0.84 multiplied by the per share fourth quarter cash
dividend declared by Fourth, and if the Mergers are not
consummated by the record date for Fourth's first
quarter, 1995, dividend, OSI may declare and pay a
further cash dividend per share of OSI Stock equal to the
product of 0.84 multiplied by the per share first quarter
cash dividend declared by Fourth;
(3) Adopt, enter into, amend materially or grant
any options, restricted stock, or other rights under any
employment contract or any bonus, stock option, profit
sharing, pension, retirement, incentive, or similar
employee benefit program or arrangement or grant any
salary or wage increase except (a) normal individual
increases in compensation to employees in accordance with
established employee procedures of the Corporations, (b)
payments in accordance with the Fourth Financial
Corporation Acquisition Severance Schedule previously
furnished to OSI, (c) normal bonuses on a pro rata basis
through closing, (d) increases in the contributions to be
made to the ESOP for the current fiscal year in an amount
equal to the maximum amount permitted by applicable Law,
(e) the termination of the ESOP as of the Effective Time,
and (f) acceleration of vesting under the Oklahoma
Savings, Inc. Recognition and Retention Plan (with
respect to Restricted Stock) and stock options issued
under the Oklahoma Savings, Inc. 1993 Stock Option and
Incentive Plan;
(4) Incur any indebtedness for borrowed money
(except for federal funds, advances from the Federal Home
Loan Bank System, repurchase agreements entered into in
the ordinary and usual course of business, deposits
received by the Bank, endorsement, for collection or
deposit, of negotiable instruments received in the
ordinary and usual course of business, and issuance of
letters of credit by the Bank in the ordinary and usual
course of business), assume, guarantee, endorse, or
otherwise as an accommodation become liable or
responsible for obligations of any other individual,
firm, or corporation;
(5) Pay or incur any obligation or liability,
absolute or contingent, other than liabilities incurred
in the ordinary and usual course of business of the
Corporations;
(6) Except for transactions in the ordinary and
usual course of business of the Bank or for Permitted
Encumbrances, mortgage, pledge, or subject to lien or
other encumbrance any of its properties or assets;
(7) Except for transactions in the ordinary and
usual course of business of the Bank (including, without
limitation, sales of assets acquired by the Bank in the
course of collecting loans) and the sale of the Bank's
real property located at 1020 North Boomer, Stillwater,
Oklahoma, sell or transfer any of its properties or
assets or cancel, release, or assign any indebtedness
owed to it or any claims held by it;
(8) Without Fourth's consent, which consent will
not be unreasonably withheld, make any investment of a
capital nature in excess of $25,000 for any one item or
group of similar items either by the purchase of stock or
securities (not including bonds or other investment
securities purchased in the ordinary and usual course of
business by the Bank), contributions to capital, property
transfers, or otherwise, or by the purchase of any
property or assets of any other individual, firm, or
corporation;
(9) Without Fourth's consent, which consent will
not be unreasonably withheld, enter into any material
other agreement not in the ordinary and usual course of
business;
(10) Except as described in subparagraph (b) of
Section 7.3 of this Agreement, merge or consolidate with
any other corporation, acquire any stock (except in a
fiduciary capacity), solicit any offers for any class of
its capital stock or a substantial portion of the assets
of any of the Corporations or, except in the ordinary
course of business, acquire any assets of any other
person, corporation, or other business organization, or
enter into any discussions with any person concerning, or
agree to do, any of the foregoing; or
(11) Enter into any transaction or take any
voluntary action which would, if effected prior to the
Effective Time, constitute a breach of any of the
representations, warranties, or covenants contained in
this Agreement.
b. Prior to the Effective Time, OSI shall cause each of
the Corporations to conduct its respective business in the
ordinary and usual course as heretofore conducted, including
maintaining its current policies and procedures regarding the
review, approval, and collection of loans; to furnish Fourth
with monthly financial statements and management reports; and
to use its Best Efforts (1) to preserve its business and
business organization intact, (2) to keep available to Fourth
and BANK IV Oklahoma the services of its present officers and
employees, (3) to preserve the good will of customers and
others having business relations with it, (4) to maintain its
properties in customary repair, working order, and condition
(reasonable wear and tear excepted), (5) to comply with all
Laws applicable to it and the conduct of its business, (6) to
keep in force at not less than their present limits all
existing policies of insurance, (7) to make no material
changes in the customary terms and conditions upon which it
does business, (8) to duly and timely file all reports, tax
returns, and other documents required to be filed with
federal, state, local, and other authorities, and (9) unless
it is contesting the same in good faith and has established
reasonable reserves therefor, to pay when required to be paid
all taxes indicated by tax returns so filed or otherwise
lawfully levied or assessed upon it or any of its properties
and to withhold or collect and pay to the proper governmental
authorities or hold in separate bank accounts for such payment
all taxes and other assessments which it believes in good
faith to be required by law to be so withheld or collected.
c. Prior to the Effective Time, OSI shall cause the
Corporations, to the extent permitted by Law, to give Fourth
and its counsel and accountants full access, during normal
business hours and upon reasonable notice, to their respective
properties, books, and records, and to furnish Fourth during
such period with all such information concerning their affairs
as Fourth may reasonably request. The availability or actual
delivery of information about the Corporations to Fourth shall
not affect the covenants, representations, and warranties of
the Corporations contained in this Agreement or the Merger
Agreements except as provided in Section 8.1 hereof; provided,
that Fourth shall promptly disclose to OSI any apparent
breaches of such covenants, representations, or warranties
discovered by it prior to the Effective Time. Except for
confidential information disclosed in the Registration
Statement or as otherwise required to be disclosed in the
course of obtaining governmental approvals, Fourth shall treat
as confidential all confidential information in the same
manner as Fourth treats similar confidential information of
its own and, if this Agreement is terminated, Fourth shall
continue to treat all such information obtained in such
investigation and not otherwise known to Fourth from a source
not known to Fourth to be under a confidential relationship
with the Corporations, or already in the public domain, as
confidential and shall return such documents theretofore
delivered by the Corporations to Fourth as the Corporations
shall request.
d. OSI shall cause this Agreement and the Fourth Merger
Agreement to be submitted promptly to its stockholders for
approval, adoption, ratification, and confirmation at a
special meeting to be called and held in accordance with
applicable Law and its respective certificate of incorporation
and bylaws. Subject to its fiduciary obligations to its
stockholders, the board of directors of OSI shall at all times
prior to the Effective Time recommend that the Merger
Agreements be approved, ratified, and confirmed, and as of the
date hereof, by authorizing the execution of this Agreement,
the board of directors of OSI does hereby recommend such
approval, adoption, ratification, and confirmation. Subject
to approval of the Fourth Merger by the stockholders of OSI,
OSI, as the sole stockholder of the Bank, shall approve and
adopt the Bank Merger and the Bank Merger Agreement.
e. OSI, separately and jointly with Fourth and BANK IV
Oklahoma, shall use, and shall cause the Bank to use, its Best
Efforts in good faith to take or cause to be taken as promptly
as practicable all such steps as shall be necessary to obtain
all of the Required Approvals, and shall do any and all acts
and things reasonably deemed by Fourth or the Corporations to
be necessary or appropriate in order to cause the Mergers to
be consummated on the terms provided herein and in the Merger
Agreements as promptly as practicable.
f. On or prior to the Effective Time, as appropriate
for the transactions contemplated hereby, OSI shall, and shall
cause the Bank to, execute and deliver the Merger Agreements
and the other closing documents provided for in this
Agreement, shall take all such other actions required or
desirable in order to effect the Mergers, and shall utilize
its Best Efforts to cause all of the conditions described in
Section 5.1 of this Agreement to occur and be continuing, and
to consummate all of the other transactions contemplated
hereby.
g. OSI shall cause each of the Corporations to
cooperate with Fourth in Fourth's efforts to obtain current
title evidence or insurance, environmental assessment reports,
and surveys on such of the Corporation's real estate as Fourth
may desire.
h. From the date hereof through the Effective Time, OSI
shall cause the Bank to give Robert W. Peterson, Vice
President, BANK IV Kansas, N.A. (or such other person as may
be designated by Fourth in writing) at least one business day
advance oral notice of all proposed securities purchases or
sales involving an aggregate price of $100,000 or more.
i. Subject to receipt of a favorable determination
letter on or before June 30, 1995, as of the Effective Time,
the Board of Directors of OSI shall cause the ESOP to be
terminated in accordance with applicable Law. Each
participant in the ESOP shall become fully vested at the
Effective Time. On or prior to the Effective Time, the Board
of Directors of OSI shall designate a committee consisting of
at least two current members of the Board of Directors of the
Bank (the "Committee") and the administrative and other
authority previously exercised with respect to the ESOP by the
Board of Directors of the Bank shall be solely exercised by
the Committee which authority shall include, but not be
limited to, the appointment and removal of trustees and
adoption of amendments to the ESOP, all as may be necessary or
appropriate in the winding up the ESOP and the distribution of
its assets as soon as practicable to or for the benefit of
existing and former participants or their beneficiaries in a
single lump sum or to an individual retirement account or
other eligible plan, including but not limited to the savings
and investment plan of Fourth, at the election of each
participant or beneficiary. Prior to the making of any
termination distributions or allocating any amounts resulting
from the retirement of the ESOP loan, the Bank or the
Committee shall obtain a favorable determination letter from
the Internal Revenue Service relating to the plan's tax-
qualified status. The determination letter request shall
fully describe all relevant facts and authorities relating to
the issue of allocating the unallocated shares to
participants. If on or before June 30, 1995, a favorable
determination letter relating to the retirement of the ESOP
debt and the allocation of unallocated amounts has not been
obtained and if the plan is otherwise qualified, the ESOP
shall be merged into the savings and investment plan of Fourth
and any unallocated amounts shall not be allocated to
participants in the ESOP. Any expenses incurred with respect
to the ESOP after the Effective Time shall be paid solely from
the assets of the ESOP and shall not be paid by Fourth or BANK
IV Oklahoma.
2.4. The Mergers.
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a. At the Effective Time, the Bank Merger and the
Fourth Merger shall occur simultaneously pursuant to the
Merger Agreements. The Bank Merger Agreement and the Fourth
Merger Agreement shall be substantially in the form of
Exhibits "A" and "B" to this Agreement, respectively, with
such immaterial changes thereto as may be required or
desirable in order to obtain the required governmental
approvals and with all blanks properly completed.
b. As the result of the Bank Merger, the separate
existence of the Bank shall cease and BANK IV Oklahoma, as the
surviving association, shall continue its corporate existence
under the laws of the United States; the existing articles of
association of BANK IV Oklahoma and the bylaws of BANK IV
Oklahoma shall be the articles of association and bylaws of
the merged bank; the directors and officers of Bank IV
Oklahoma immediately preceding the Bank Merger shall be the
directors and officers of the merged bank; BANK IV Oklahoma
shall possess all the rights, privileges, powers, and
franchises of the Bank; all property, real, personal, and
mixed, belonging to the Bank shall be vested in and belong to
BANK IV Oklahoma; and all rights of creditors and depositors
of the Bank shall continue unimpaired.
c. As the result of the Fourth Merger, the separate
existence of OSI shall cease, and Fourth, as the surviving
corporation, shall continue its corporate existence under the
laws of the State of Kansas; the articles of incorporation and
the bylaws of Fourth in effect at the Effective Time shall be
the articles of incorporation and bylaws of the surviving
corporation until further amended as provided by Law; the
directors and officers of Fourth immediately preceding the
Fourth Merger shall be the directors and officers of the
surviving corporation; Fourth shall possess all the rights,
privileges, powers, and franchises of a public as well as of
a private nature of OSI; all property, real, personal, and
mixed, belonging to OSI shall be vested in and belong to
Fourth; and all rights of creditors of OSI shall continue
unimpaired.
d. From time to time as and when requested by Fourth,
BANK IV Oklahoma, its respective successors or assigns, the
officers and directors of the Bank and OSI last in office
shall execute and deliver such deeds and other instruments and
shall take or cause to be taken such other actions as shall be
necessary or desirable to vest or perfect or to confirm of
record or otherwise BANK IV Oklahoma's or Fourth's title to,
and possession of, all the property, interests, assets,
rights, privileges, immunities, powers, franchises, and
authority of the Bank or OSI, or either of them, and otherwise
to carry out the purposes of this Agreement; provided, that no
such officer or director shall thereby incur any expense or
liability.
2.5. Conversion and Exchange of Shares.
---------------------------------
a. Fourth Merger. The manner of converting or
exchanging the shares of capital stock of OSI outstanding at
the Effective Time shall be as follows:
(1) The Fourth Merger shall effect no change in any
of the then issued and outstanding shares of Fourth Stock
and none of Fourth's then issued and outstanding shares
of Fourth Stock shall be converted or exchanged as the
result of the Fourth Merger.
(2) At the Effective Time, upon consummation of the
Fourth Merger, each issued and outstanding share of OSI
Stock shall cease to be an issued and existing share, and
each share shall automatically be converted into and
exchanged for 0.84 shares of Fourth Stock.
b. Bank Merger. At the Effective Time, upon
consummation of the Bank Merger, each issued and outstanding
share of Bank Stock shall automatically be converted into and
exchanged for .002 shares of capital stock of BANK IV
Oklahoma, par value $5.00.
c. Adjustment for Changes in Fourth's Capitalization.
In the event that between the date of this Agreement and the
Effective Time Fourth shall take any action to subdivide its
outstanding shares of common stock into a greater number of
shares, or to combine its outstanding shares of common stock
into a smaller number of shares, or to declare a stock
dividend on its outstanding common stock, or to effect a
reclassification of its common stock, then the number and kind
of shares of Fourth Stock which the stockholders of OSI shall
be entitled to receive in the Fourth Merger shall be adjusted
equitably to prevent dilution or enlargement of the
proportionate common stock interests in Fourth to be received
by them.
d. Stock Certificates. After the Effective Time and
until surrendered for exchange, each outstanding stock
certificate which prior to the Effective Time represented OSI
Stock shall be deemed for all corporate purposes to represent
the right to receive the number of shares of Fourth Stock into
which the shares of stock have been so converted; provided,
that in any matters relating to the shares represented by such
stock certificates, Fourth may rely exclusively upon the
record of stockholders maintained by OSI containing the names
and addresses of all stockholders of record at the Effective
Time. Unless and until such outstanding stock certificates
formerly representing such shares are so surrendered, no
dividend payable to holders of Fourth Stock, as of any date on
or subsequent to the Effective Time, shall be paid to the
holder of such outstanding certificates in respect thereof.
Upon surrender of such outstanding certificates (or, in case
of lost certificates, upon receipt of a surety bond or other
form of indemnification which is satisfactory to Fourth),
however, the former OSI stockholder shall receive a
certificate evidencing the shares of Fourth Stock to which
such stockholder is entitled plus the accrued dividends on
such stock from the Effective Time, without interest.
e. Fractional Shares. No fractional shares of Fourth
Stock will be issued. Instead, upon surrender of OSI stock
certificates (or in the case of lost certificates, a surety
bond or other form of indemnification which is satisfactory to
Fourth), Fourth will pay, or cause to be paid, to the holder
thereof the cash value of the fractional interest to which the
holder thereof would otherwise be entitled, based upon the
Closing Price.
f. Exchange Procedure. Promptly after the Effective
Time, Fourth will send a notice and transmittal form to each
record holder of outstanding certificates that immediately
prior to the Effective Time evidenced shares of OSI Stock,
advising such stockholder of the effectiveness of the Fourth
Merger and the procedures for surrendering to Fourth such
certificates in exchange for certificates representing the
number of shares of Fourth Stock into which the shares of such
capital stock represented by such certificates shall have been
converted.
2.6. Advance Preparations for Bank Merger. The parties
acknowledge that Fourth anticipates it will be desirable to take
various actions immediately following the Effective Time to
maximize the future profitability of BANK IV Oklahoma, and that, as
future stockholders of Fourth, the OSI stockholders will all
benefit from such actions to the extent they are successful.
Accordingly, OSI will cooperate and will cause the Bank to
cooperate with Fourth in making advance plans and preparations for
post-closing operations, including, without limitation, cooperation
with employees of Fourth in planning for post-closing operations.
2.7. Negative Covenants. Neither Fourth, OSI, nor any of
their respective Subsidiaries has taken or will voluntarily take
any action that would (i) prevent the transactions contemplated
hereby, including the Mergers, from qualifying as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code,
or (ii) materially impede or delay receipt of any regulatory
approval referred to in the Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of OSI. Except as
expressly disclosed in the Disclosure Statement, OSI represents and
warrants to Fourth as follows:
a. Organization, Good Standing, and Authority. OSI is
a savings and loan holding company duly registered pursuant to
the Home Owners Loan Act of 1933, as amended. Each of the
Corporations is a corporation or bank duly organized, validly
existing, and in good standing under the laws of the
jurisdiction of its incorporation and with all appropriate
governmental agencies, and each has all requisite corporate
power and authority to conduct its business as it is now
conducted, to own its properties and assets, and to lease
properties used in its business. The only subsidiary of OSI
is the Bank. The Bank has no Subsidiaries. Neither of the
Corporations is in violation of its charter documents or
bylaws, or of any applicable Law in any material respect. The
deposits of the Bank are insured by the FDIC to the maximum
extent for each depositor permitted by Law and the Bank has
paid all assessments and filed all reports required to be
filed under the Federal Deposit Insurance Act.
b. Binding Obligations; Due Authorization. This
Agreement constitutes, and the Merger Agreements will upon
execution and delivery constitute, subject only to Required
Approvals and the approval and adoption thereof by the
stockholders of OSI and the Bank, valid and binding
obligations of OSI and the Bank, enforceable against each of
such parties in accordance with the respective terms of such
documents, except as the enforceability thereof may be limited
by applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws relating to or affecting the
enforcement of creditors' rights generally, or the rights of
creditors of federally chartered savings banks or savings and
loan holding companies and subject as to the enforcement of
remedies to general principles of equity. The execution,
delivery, and performance of this Agreement, the Merger
Agreements, and the transactions contemplated by all such
agreements have been duly authorized by the board of directors
of OSI.
c. Absence of Default. None of the execution or the
delivery of this Agreement and the Merger Agreements, and
subject to the obtaining of all Required Approvals and the
approval of OSI's stockholders, the consummation of the
transactions contemplated hereby or thereby or the fulfillment
of the terms hereof or thereof, will (1) conflict with, or
result in a breach of the terms, conditions, or provisions of,
or constitute a default under the charter documents or bylaws
of either of the Corporations or under any material agreement
or instrument under which either of the Corporations is
obligated, the result of which conflict or breach is likely to
have a material adverse effect on either of the Corporations,
its material assets, or its financial condition, or (2)
violate any Law to which either of the Corporations is
subject.
d. Capitalization. OSI is authorized to issue: (a)
2,000,000 shares of OSI Stock, par value $.01 per share, of
which 420,020 shares are validly issued and outstanding; and
(b) 500,000 shares of preferred stock, par value $.01 per
share, none of which is issued and outstanding. The Bank is
authorized to issue: (a) 2,000,000 shares of Bank Stock, par
value $.01 per share, of which 409,975 shares are validly
issued and outstanding, all of which are owned by OSI free and
clear of all encumbrances, liens, security interests, and
claims whatsoever, and (b) 500,000 shares of preferred stock,
par value $.01 per share, none of which is issued and
outstanding.
e. Charter Documents. True and correct copies of the
charter documents and bylaws of both of the Corporations, with
all amendments thereto, are included in the Disclosure
Statement as Exhibits "E-1" to "E-4."
f. Options, Warrants, and Other Rights. Neither of the
Corporations has outstanding any options, warrants, or rights
of any kind requiring it to sell or issue to anyone any
capital stock of any class and neither of the Corporations has
agreed to issue, sell, or purchase any additional shares of
any class of its capital stock except for options to purchase
23,149 shares of OSI Stock granted under OSI's incentive stock
option plan.
g. Financial Statements. Included in the Disclosure
Statement as Exhibits "G-1" through "G-4" are true and
complete copies of the following financial statements, all of
which have been prepared in accordance with GAAP and all
applicable regulatory accounting principles consistently
followed throughout the periods indicated and fairly present
in all material respects the financial condition of the
Corporations as of the dates and for the periods indicated,
subject in the case of interim financial statements, to normal
recurring year-end adjustments (the effect of which will not,
individually or in the aggregate, be materially adverse) and
the absence of notes (which if presented would not differ
materially from those included in the most recent year-end
financial statements):
(1) Audited Consolidated Financial Statements of OSI as
of September 30, 1993, and 1992, and for each of the
three fiscal years in the period ended September 30,
1993, with auditors' report thereon and notes thereto,
which have been examined by Deloitte & Touche,
independent certified public accountants;
(2) Audited Financial Statements of the Bank as of
September 30, 1993, and 1992, and for each of the three
fiscal years in the period ended September 30, 1993, with
auditors' report thereon and notes thereto, which have
been examined by Deloitte & Touche, independent certified
public accountants;
(3) Quarterly Reports on Form 10-Q for the periods
ending December 31, 1993, and March 31, 1994; and
(4) Thrift Financial Reports as of June 30, September
30, and December 31, 1993, and March 31, 1994, as filed
by the Bank with the OTS.
As soon as practicable between the date hereof and the
Effective Time, the Corporations will deliver to Fourth copies
of monthly operating statements and monthly securities
inventory reports of the Bank and of all reports filed by
either of them with any regulatory agencies. The books of
account of each of the Corporations and each of the Financial
Statements fairly and correctly reflect and, when delivered,
will reflect in all material respects in accordance with GAAP
and all applicable rules and regulations of regulatory
agencies applied on a consistent basis, the respective
incomes, expenses, assets, and liabilities, absolute or
contingent, of each of the Corporations (except for the
absence in the monthly operating statements of the Bank of
certain information and footnotes normally included in
financial statements prepared in accordance with GAAP which in
the aggregate would not be materially adverse). There have
been no material adverse changes in the financial condition of
either of the Corporations from September 30, 1993, other than
changes made in the usual and ordinary conduct of the
businesses of the Corporations, none of which has been or will
be materially adverse and all of which have been or will be
recorded in the books of account of the Corporations; and
except as specifically permitted by this Agreement, there have
been no material adverse changes in the respective businesses,
assets, properties, or liabilities, absolute or contingent, of
either of the Corporations, or in their respective condition,
financial or otherwise, from the date of the most recent of
the Financial Statements that has been delivered to Fourth on
the date hereof other than (i) changes occurring in the usual
and ordinary conduct of the business of the Corporations, none
of which has been or will be materially adverse and all of
which have been or will be recorded in the respective books of
account of the Corporations, or (ii) resulting from action
required or permitted by this Agreement to be taken by one of
the Corporations; provided, the effects of changes in interest
rates, changes in generally accepting accounting principles
and regulatory accounting principles, and the third-party
costs of expenses relating to the transactions contemplated by
this Agreement shall not be taken into account. To the extent
required by GAAP, all contingent liabilities of either of the
Corporations, other than letters of credit and similar
obligations of the Bank incurred in the ordinary course of
business, are described in or reserved against in the
Financial Statements listed above.
h. Properties. OSI does not own or lease any real
property. Exhibit "H" to the Disclosure Statement is a
complete list of all real estate owned or leased by the Bank.
The Bank has good and marketable title in fee simple to all of
the real property shown on its books as being owned by it,
free and clear of all liens, encumbrances, and charges, except
for those exceptions described on Exhibit "H" to the
Disclosure Statement and Permitted Encumbrances. All leases
of real property to which the Bank is a party as lessee, a
true and complete copy of each of which with all amendments
thereto is included in Exhibit "H" to the Disclosure
Statement, are valid and enforceable in accordance with their
respective terms except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, or similar
Laws and equitable principles affecting creditors' rights
generally, and there has been no material default by any party
thereto. No zoning ordinance prohibits, interferes with, or
materially impairs the usefulness of the Occupied Properties;
and all the premises on the Occupied Properties or leased by
the Bank are in good operating condition and repair, normal
wear and tear excepted.
i. Personal Property. OSI does not own or lease any
material tangible personal property. The Bank has good and
merchantable title to all of the machinery, equipment,
materials, supplies, and other property of every kind,
tangible or intangible, contained in its offices and other
facilities or shown as assets in its records and books of
account, free and clear of all liens, encumbrances, and
charges except for leasehold improvements to leased premises
and for personal property held under the leases described on
Exhibit "I" to the Disclosure Statement. All leases of
personal property to which the Bank is a party as lessee, true
and complete copies of each which with all amendments thereto
are included in Exhibit "I" to the Disclosure Statement, are
valid and enforceable in accordance with their terms, and
there has been no material default by any party thereto. All
of such personal property owned or leased by the Bank is in
good operating condition, normal wear and tear excepted.
j. Taxes. The Corporations have all filed all tax
returns and reports required to be filed with the United
States Government and with all states and political
subdivisions thereof where any such returns or reports are
required to be filed and where the failure to file such return
or report would subject any of the Corporations to any
material liability or penalty. All taxes imposed by the
United States, or by any foreign country, or by any state,
municipality, subdivision, or instrumentality of the United
States or of any foreign country, or by any other taxing
authority, which are due and payable by any of the
Corporations have been paid in full or adequately provided for
by reserves shown in the records and books of account of the
Corporations and in the Financial Statements. No extension of
time for the assessment of deficiencies for any years is in
effect. None of the Corporations has any knowledge of any
unassessed tax deficiency proposed or threatened against any
of them.
k. Contracts. Other than Permitted Contracts and
agreements with customers of the Bank and with financial
institutions entered into by the Bank in the ordinary course
of banking business, attached to the Disclosure Statement as
Exhibit "K" is a list of all material contracts and other
agreements and arrangements, both written and oral, to which
either of the Corporations is a party, which affect or pertain
to the operation of their respective businesses, and which
involve future payments by either of the Corporations of
$5,000 or more (the "Scheduled Agreements"). All parties to
the Scheduled Agreements have in all material respects
performed, and are in good standing with respect to, all the
material obligations required to be performed under all such
contracts and other agreements and arrangements, and no
obligation with respect thereto is overdue. All of the
agreements of either of the Corporations, including without
limitation the agreements disclosed in writing pursuant to
this clause k, are valid, binding, and enforceable in
accordance with their terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar
Laws and equitable principles affecting creditors' rights
generally. Except as otherwise noted in Exhibit "K" to the
Disclosure Statement, no contract, lease, or other agreement
or arrangement to which either of the Corporations is a party
or as to which any of their assets is subject requires the
consent of any third party in connection with this Agreement
or either of the Mergers. The Corporations are not in default
under any of the Scheduled Agreements; the Corporations are
not aware of any material default by any other party to any of
the Scheduled Agreements or any claim by any other party that
the Corporations are in material default under any of the
Scheduled Agreements. Except for Permitted Contracts and
except as set forth in Exhibit "K" to the Disclosure
Statement, neither of the Corporations is a party to:
(1) Any contract for the purchase or sale of any
materials, services, or supplies which contains any
escalator, renegotiation, or redetermination clause or
which commits it for a fixed term;
(2) Any contract of employment with any officer or
employee not terminable at will without liability on
account of such termination;
(3) Any management or consultation agreement not
terminable at will without liability on account of such
termination;
(4) Any license, royalty, or union agreement, or
loan agreement in which a Corporation is the borrower;
(5) Any contract, accepted order, or commitment for
the purchase or sale of materials, services, or supplies
having a total remaining contract price in excess of
$10,000;
(6) Any contract containing any restrictions on any
party thereto competing with either Corporation or any
other person;
(7) Any other agreement which materially affects
the business, properties, or assets of either of the
Corporations, or which was entered into other than in the
ordinary and usual course of business; or
(8) Any letter of credit or commitment to make any
loan or group of loans to related parties in an amount in
excess of $100,000.
None of the Corporations' agreements described in this
clause k other than loans made in the ordinary course is
reasonably anticipated by either of the Corporations to result
in a material loss to any of the Corporations.
l. Labor Relations; Employees; ERISA. Neither of the
Corporations is a party to or affected by any collective
bargaining agreement or employment agreement, nor is either
Corporation a party to any pending or, to the knowledge of
senior management of the Corporations, threatened labor
dispute, organizational efforts, or labor negotiations. Each
of the Corporations has complied with all applicable Laws
relating to the employment of labor, including, but not
limited to, the provisions thereof relating to wages, hours,
collective bargaining, payment of social security taxes, and
equal employment opportunity, the violation of which would
have a materially adverse impact on their respective
businesses. Neither of the Corporations is liable for any
arrears of wages or any taxes or penalties for failure to
comply with any of the foregoing. Except for the ESOP, OSI's
Management Recognition and Retention Plan, and OSI's 1993
Stock Option and Incentive Plan, and two deferred compensation
plans for two employees, true and complete copies of each of
which together with all amendments thereto are attached as
Exhibits L-1 through L-5, respectively, to the Disclosure
Statement, none of the Corporations has any written or oral
retirement, pension, profit sharing, stock option, bonus, or
other employee benefit plan or practice other than group
health, life, and accident insurance. The ESOP is in material
compliance with ERISA and the Code and is a "qualified plan"
within the meaning of Section 401(a) of the Code and a request
for a favorable determination letter relating to the plan's
qualified status has been filed with the Internal Revenue
Service and no adverse response has been received. The
Corporations know of no facts or circumstances that could
adversely affect the tax-qualified status of such plan. None
of the Corporations has violated any of the provisions of
ERISA, and none of them has engaged in any "prohibited
transactions" as such term is defined in Section 406 of ERISA.
Each of the Corporations has complied with all applicable
notice requirements and has provided group health care
continuation coverage under Section 4980B of the Code and/or
any other applicable Laws. Except for Beth F. Buchanan, there
is no employee of any of the Corporations whose employment is
not terminable at will without severance pay or other penalty
or compensation. A true and complete copy of the employment
agreement with Ms. Buchanan is attached as Exhibit L-6 to the
Disclosure Statement.
m. Government Authorizations. Both of the Corporations
has all permits, charters, licenses, orders, and approvals of
every federal, state, local, or foreign governmental or
regulatory body required in order to permit it to carry on its
business substantially as presently conducted except where the
failure to do so would not have a material adverse effect on
the businesses, results of operations or general business
affairs of OSI and the Bank taken as a whole. All such
licenses, permits, charters, orders, and approvals are in full
force and effect, and neither of the Corporations knows of any
threatened suspension or cancellation of any of them or of any
fact or circumstance that will interfere with or adversely
affect the renewal of any of such licenses, permits, charters,
orders, or approvals prior to the Effective Time.
n. Insurance. Exhibit "N" to the Disclosure Statement
is a complete list of all insurance policies presently in
effect and in effect during the past three years. All the
insurance policies and bonds currently maintained by any of
the Corporations are in full force and effect.
o. Litigation. Exhibit "O" to the Disclosure Statement
contains a true and complete list and brief description of all
pending or, to the knowledge of either of the Corporations,
threatened Litigation to which either of the Corporations is
or is likely to be a party or to which any of their assets is
or would be subject. Except as described on Exhibit "O" to
the Disclosure Statement, neither of the Corporations is a
party to any Litigation other than routine litigation
commenced by the Bank to enforce obligations of borrowers in
which no counterclaims for any material amounts of money have
been asserted or, to the knowledge of either of the
Corporations, threatened. To the knowledge of the
Corporations, there are no threatened proceedings against or
investigations of either of the Corporations by any regulatory
agency.
p. Brokers or Finders. No broker, agent, finder,
consultant, or other party (other than legal, accounting, and
financial advisors) has been retained by either of the
Corporations or is entitled to be paid based upon any
agreements, arrangements, or understandings made by either of
the Corporations in connection with any of the transactions
contemplated by this Agreement or the Merger Agreements.
q. SEC Filings To Be Accurate. The information
pertaining to the Corporations which has been or will be
furnished to Fourth by or on behalf of either of the
Corporations for inclusion in the Registration Statement or
the Proxy Statement, and the information pertaining to either
of the Corporations which will appear in the Registration
Statement or the Proxy Statement, in the form filed with the
SEC, will not contain any untrue statement of any material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the
light of the circumstances under which they are made, not
misleading. The Corporations shall promptly advise Fourth in
writing if prior to the Effective Time either of them shall
obtain knowledge of any fact that would make it necessary to
amend the Registration Statement or the Proxy Statement, or to
supplement the prospectus contained in the Registration
Statement, in order to make the statements therein not
misleading or to comply with applicable Law.
r. SEC Documents. OSI has made available to Fourth a
true and complete copy of each report, schedule, registration
statement, and definitive proxy statement filed by OSI with
the SEC since June 30, 1993 in substantially the form filed
with the SEC (the "OSI SEC Documents"). As of their
respective dates, the OSI SEC Documents complied in all
material respects with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such OSI SEC
Documents, and none of the OSI SEC Documents 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 therein, in light of the circumstances
under which they were made, not misleading. The financial
statements of OSI included in the OSI SEC Documents comply in
all material respects with the published rules and regulations
of the SEC with respect thereto, have been or will have been
prepared in accordance with GAAP (except as may be indicated
in the notes thereto or, in the case of the unaudited
financial statements, as permitted by Form 10-Q), and fairly
present, and will fairly present, the consolidated financial
position of OSI and its consolidated Subsidiary as of the
dates thereof and the consolidated results of their operations
and cash flows for the periods then ended. All material
agreements, contracts, and other documents required to be
filed as exhibits to any of the OSI SEC Documents have been so
filed. To OSI's knowledge, there are no unasserted claims
that are not disclosed in the OSI SEC Documents and that would
reasonably be expected to have, individually or in the
aggregate, a materially adverse effect on OSI.
s. Environmental Compliance. The Bank is in material
compliance with all relevant Environmental, Health, and Safety
Laws and none of the Corporations has any material
Environmental, Health, and Safety Liabilities. Except as
described in Exhibit "S" to the Disclosure Statement, none of
the Occupied Properties and, to the knowledge of OSI and the
Bank, no real or personal property owned or leased by the Bank
at any time is now being used or has at any time in the past
ever been used for the storage (whether permanent or
temporary), disposal, or handling of any Hazardous Materials,
nor are any Hazardous Materials located in, on, under, or at
any real property owned, leased, or used by the Bank. The
Corporations have not received any notice of a material
violation of any Environmental, Health, and Safety Law, or any
notice of any material potential Environmental, Health, and
Safety Liabilities with respect to any properties or assets in
which any of the Corporations has or has had any interest.
t. Employment of Aliens. The Bank is in material
compliance with the Immigration and Control Act of 1986.
u. Notes and Leases. Except as described in Exhibit
"U" to the Disclosure Statement, all promissory notes and
leases owned by the Bank at the Effective Time will represent
bona fide indebtedness or obligations to the Bank and are and
will be fully enforceable in accordance with their terms
without valid set-offs or counterclaims, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium,
or similar Laws and equitable principles affecting creditors'
rights generally; provided, however, no representation or
warranty is made in this Agreement as to the collectibility of
any such note or lease.
v. No Misrepresentations. Neither this Agreement, the
Financial Statements, nor any other letter, certificate,
statement, or document furnished or to be furnished to Fourth
by or on behalf of the Corporations, pursuant to or in
connection with this Agreement and the transactions
contemplated hereby, when considered in conjunction with all
other information and documents furnished to Fourth hereunder,
contains or will contain any misstatement of a material fact
or omits or will omit to state a material fact necessary to
make the statements contained herein or therein not
misleading.
w. Updating of Representations and Warranties. Between
the date hereof and the Effective Time, OSI and the Bank will
promptly disclose to Fourth in writing any information of
which either of them has actual knowledge (1) concerning any
event that would render any of their representations or
warranties contained in this Agreement untrue if made as of
the date of such event, (2) which renders any information set
forth in this Agreement or the Disclosure Statement no longer
correct in all material respects, or (3) which arises after
the date hereof and which would have been required to be
included in this Agreement or the Disclosure Statement if such
information had existed on the date hereof.
3.2. Representations and Warranties of Fourth. Fourth
represents and warrants to OSI as follows:
a. Organization, Good Standing, and Authority. Fourth
is a bank holding company duly registered pursuant to the Bank
Holding Company Act. Fourth and each of its banking
Subsidiaries is a corporation or bank duly organized, validly
existing, and in good standing under the laws of the
jurisdiction of its incorporation, and each has all requisite
corporate power and authority to conduct its business as it is
now conducted, to own its properties and assets, and to lease
properties used in its business. None of Fourth or any of its
banking Subsidiaries is in violation of its charter documents
or bylaws, or of any applicable Law in any material respect,
or in default in any material respect under any material
agreement, indenture, lease, or other document to which it is
a party or by which it is bound. All of Fourth's issued and
outstanding equity securities and the Fourth Stock to be
issued in the Fourth Merger are duly registered under the
Federal Securities Exchange Act of 1934, as amended. Shares
of Fourth Stock are eligible for trading in the National
Market System of NASDAQ.
b. Binding Obligations; Due Authorization. This
Agreement constitutes, and the Merger Agreements will upon
execution and delivery constitute, valid and binding
obligations of Fourth and, in the case of the Bank Merger
Agreement, BANK IV Oklahoma, as the case may be, enforceable
against them in accordance with the terms of such documents,
except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws and
equitable principles affecting creditors' rights generally.
The execution, delivery, and performance of this Agreement and
the Merger Agreements, and the transactions contemplated by
all such agreements have been duly authorized by the
respective boards of directors of Fourth and BANK IV Oklahoma.
No approval of the holders of outstanding Fourth Stock or
other voting securities of Fourth is necessary to consummate
the Mergers.
c. Absence of Default. None of the execution or the
delivery of this Agreement and the Merger Agreements, and
subject to the receipt of the Required Approvals, the
consummation of the transactions contemplated hereby or
thereby, or the fulfillment of the terms hereof or thereof,
will (1) conflict with, or result in a breach of the terms,
conditions, or provisions of, or constitute a default under
the charter documents or bylaws of Fourth or any of its
banking Subsidiaries or under any agreement or instrument
under which Fourth or any of its banking Subsidiaries is
obligated, the result of which is likely to have a material
adverse effect upon Fourth, its banking Subsidiaries, its
material assets, or its financial condition, or (2) violate
any Law to which any of them is subject.
d. SEC Documents. Fourth has made available to OSI a
true and complete copy of each report, schedule, registration
statement, and definitive proxy statement filed by Fourth with
the SEC since January 1, 1991 in substantially the form filed
with the SEC (the "Fourth SEC Documents"). As of their
respective dates, the Fourth SEC Documents complied in all
material respects with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Fourth
SEC Documents, and none of the Fourth SEC Documents 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 therein, in light of the circumstances
under which they were made, not misleading. All material
agreements, contracts, and other documents required to be
filed as exhibits to any of the Fourth SEC Documents have been
so filed. To Fourth's knowledge, there are no unasserted
claims that are not disclosed in the Fourth SEC Documents that
would reasonably be expected to have, individually or in the
aggregate, a material adverse effect on Fourth.
e. Brokers or Finders. No broker, agent, finder,
consultant, or other party (other than legal and accounting
advisors) has been retained by Fourth or is entitled to be
paid based upon any agreements, arrangements, or
understandings made by Fourth in connection with any of the
transactions contemplated by this Agreement or the Merger
Agreements.
f. Charter Documents. True and correct copies of the
Restated Articles of Incorporation and Bylaws of Fourth, with
all amendments thereto, are attached as Exhibit 3.01 to
Fourth's 10-Q for the quarter ended June 30, 1992 and Exhibit
3.04 to Fourth's 10-K for the year ended December 31, 1993,
respectively.
g. Government Authorizations. Fourth and each of its
bank Subsidiaries has all permits, charters, licenses, orders,
and approvals of every federal, state, local, or foreign
governmental or regulatory body required in order to permit it
to carry on its business substantially as presently conducted.
All such licenses, permits, charters, orders, and approvals
are in full force and effect and neither Fourth nor any of its
bank Subsidiaries knows of any threatened suspension or
cancellation of any of them and none knows of any fact or
circumstance that will interfere with or adversely affect the
renewal of any such licenses, permits, charters, orders, or
approvals, and none of such permits, charters, licenses,
orders, and approvals will be affected by the consummation of
the transactions contemplated by this Agreement.
h. Financial Statements. The financial statements
included in the Fourth SEC Documents have all been prepared in
accordance with GAAP consistently followed throughout the
periods indicated and fairly present in all material respects
the consolidated financial condition of Fourth as of the dates
and for the periods indicated, subject in the case of interim
financial statements to normal recurring year-end adjustments
(the effect of which will not, individually or in the
aggregate, be materially adverse) and the absence of notes,
which, if presented, would not differ materially from those
included in the most recent year-end financial statements.
There has been no material adverse change in the consolidated
financial condition of Fourth since March 31, 1994, other than
changes made in the usual and ordinary conduct of the
businesses of Fourth and its Subsidiaries, none of which has
been or will be materially adverse and all of which have been
or will be recorded in the books of account of Fourth or its
Subsidiaries.
i. SEC Filings to be Accurate. The information
pertaining to Fourth which has been or will be furnished by or
on behalf of Fourth and its banking Subsidiaries or its
management for inclusion in the Registration Statement or the
Proxy Statement, and the information pertaining to Fourth
which will appear in the Registration Statement or the Proxy
Statement, in the form filed with the SEC, will contain no
untrue statement of any material fact and will not omit to
state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading.
Fourth shall promptly advise OSI in writing if prior to the
Effective Time it shall obtain knowledge of any fact that
would make it necessary to amend the Registration Statement or
the Proxy Statement, or to supplement the prospectus contained
in the Registration Statement, in order to make the statements
therein not misleading or to comply with applicable Law.
j. No Misrepresentations. Neither this Agreement, the
disclosure documents described in clause "d" of this Section
3.2, nor any other letter, certificate, statement, or document
furnished or to be furnished to OSI or the Bank by or on
behalf of Fourth pursuant to or in connection with this
Agreement and the transactions contemplated hereby contains or
will contain any misstatement of a material fact or omits or
will omit to state a material fact necessary to make the
statements contained herein or therein not misleading.
k. Capitalization. Fourth is authorized to issue (i)
50,000,000 shares of common stock, par value $5 per share, of
which 27,201,925 shares were issued and 26,845,241 shares were
outstanding on June 30, 1994, (ii) 250,000 shares of Class A
7% Cumulative Convertible Preferred Stock, par value $100 per
share, all of which are issued and outstanding, and (iii)
5,000,000 shares of Class B Preferred Stock, without par
value, none of which have been issued. The shares of Fourth
Stock to be issued in the Mergers will be duly and validly
issued, fully paid, and nonassessable, and not issued in
violation of any preemptive rights or any Laws applicable
thereto.
l. Updating of Representations and Warranties. Between
the date hereof and the Effective Time, Fourth will promptly
disclose to OSI in writing any information of which it has
actual knowledge (1) concerning any event that would render
any representation or warranty of Fourth untrue if made as of
the date of such event, (2) which renders any information set
forth in this Agreement no longer correct in all material
respects, or (3) which arises after the date hereof and which
would have been required to be included in the Agreement if
such information had existed on the date hereof.
ARTICLE IV
SECURITIES LAWS MATTERS
4.1. Registration Statement and Proxy Statement. Fourth shall
as soon as practicable prepare and file the Registration Statement
under and pursuant to the Securities Act for the purpose of
registering the shares of Fourth Stock to be issued in the Merger.
OSI and the Bank shall each provide promptly to Fourth such
information concerning its respective business, financial
condition, and affairs as may be required or appropriate for
inclusion in the Registration Statement or the Proxy Statement and
each shall cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation and filing of the
Registration Statement and the Proxy Statement. Fourth and OSI
shall use their Best Efforts to have the Registration Statement
declared effective under the Securities Act as soon as may be
practicable and thereafter OSI shall distribute the Proxy Statement
to its stockholders in accordance with applicable Laws not fewer
than 20 business days prior to the date on which the Fourth Merger
Agreement is to be submitted to the stockholders for voting
thereon. If necessary, in light of developments occurring
subsequent to the distribution of the Proxy Statement to
stockholders, OSI shall mail or otherwise furnish to its
stockholders such amendments to the Proxy Statement or supplements
to the Proxy Statement as may, in the opinion of Fourth or OSI, be
necessary so that the Proxy Statement, as so amended or
supplemented, will contain no untrue statement of any material fact
and will not omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or
as may be necessary to comply with applicable Law. Fourth shall
not be required to maintain the effectiveness of the Registration
Statement for the purpose of resale of Fourth Stock by any person.
4.2. State Securities Laws. Fourth shall prepare and file and
the parties hereto shall cooperate in making any filings required
under the securities laws of any State in order either to qualify
or register the Fourth Stock being issued in the Fourth Merger so
it may be offered and sold lawfully in such State in connection
with the Fourth Merger or to obtain an exemption from such
qualification or registration.
4.3. Affiliates. Certificates representing shares of Fourth
Stock issued to Affiliates of OSI pursuant to the Fourth Merger
Agreement may be subjected to stop transfer orders and may bear a
restrictive legend in substantially the following form:
The shares of common stock represented by this
certificate have been issued or transferred to the
registered holder as the result of a transaction to which
Rule 145 under the Securities Act of 1933, as amended
(the "Act"), applies. Such shares may not be sold,
pledged, transferred, or assigned, and the issuer shall
not be required to give effect to any attempted sale,
pledge, transfer, or assignment, except (i) pursuant to
a then current effective registration under the Act, (ii)
in a transaction permitted by Rule 145 as to which the
issuer has, in the reasonable opinion of its counsel,
received reasonably satisfactory evidence of compliance
with Rule 145, or (iii) in a transaction which, in the
opinion of counsel satisfactory to the issuer or as
described in a "no-action" or interpretive letter from
the staff of the Securities and Exchange Commission, is
not required to be registered under the Act.
4.4. Affiliates' Agreements. OSI shall use its Best Efforts
to cause each director, executive officer and other person who is
an "affiliate" (for purposes of Rule 145 under the Securities Act)
of OSI to deliver to Fourth, at least thirty days prior to the
Effective Time, a written agreement, in substantially the form of
Exhibit E hereto, providing that such person will not, subject to
the terms of such agreement, sell, pledge, transfer, or otherwise
dispose of any shares of Fourth Stock received by such "affiliate"
in the Fourth Merger, except in compliance with the applicable
provisions of the Securities Act and the rules and regulations
thereunder.
ARTICLE V
CLOSING CONDITIONS
5.1. Conditions to Obligations of Fourth and BANK IV Oklahoma.
The obligations of Fourth to effect the Fourth Merger and to issue
any Fourth Stock and the obligation of BANK IV Oklahoma to effect
the Bank Merger shall be subject to the following conditions which
may, to the extent permitted by Law, be waived by Fourth at its
option:
a. Stockholder Approvals. The approval, ratification,
and confirmation of this Agreement and the Fourth Merger
Agreement by the stockholders of OSI shall have been duly
obtained as required by Law.
b. Absence of Litigation. No order, judgment, or
decree shall be outstanding restraining or enjoining
consummation of either of the Mergers; and no Litigation shall
be pending or threatened in which it is sought to restrain or
prohibit either of the Mergers or obtain other substantial
monetary or other relief against one or more of the parties
hereto in connection with this Agreement.
c. Securities Laws. The Registration Statement shall
have become effective under the Securities Act and Fourth
shall have received all state securities laws permits or other
authorizations or confirmation of the availability of
exemption from registration requirements necessary to issue
the Fourth Stock in the Merger. Neither the Registration
Statement nor any such permit, authorization, or confirmation
shall be subject to a stop-order or threatened stop-order or
similar proceeding or order by the SEC or any state securities
authority.
d. Regulatory Approvals. All appropriate regulatory
agencies concerned with the transaction (including the Office
of Thrift Supervision) shall have approved the transaction,
and no such approval shall have involved the imposition of any
conditions which are materially burdensome or unacceptable to
Fourth such as a requirement to pay out the Bank's liquidation
account in connection with the Bank Merger, it being
understood that the imposition of conditions customarily
imposed in transactions similar to that contemplated hereby
shall not be deemed materially burdensome or unacceptable to
Fourth.
e. Limit on Dissent. The holders of an aggregate
amount of the then issued and outstanding OSI Stock
convertible into an amount of Fourth Stock equal to not more
than five percent of the total amount of Fourth Stock issuable
in the Fourth Merger shall have validly exercised their rights
as dissenting stockholders.
f. Minimum Net Worth of the Bank. Fourth shall have
been reasonably satisfied that the aggregate net worth of the
Bank as of the end of the month immediately preceding the
Effective Time computed in accordance with GAAP was at least
$6,600,000 including any adjustment required by Financial
Accounting Standards ("FAS") No. 109 to properly record the
effect of income taxes, but excluding any adjustments required
by FAS. No. 115 to adjust to market value the Bank's
available-for-sale investment securities portfolio and all
accounting entries made in anticipation of the Mergers.
g. Opinion of Counsel. Fourth shall have received the
opinion of Silver, Freedman and Taff, counsel to the
Corporations, substantially in the form of Exhibit "C" hereto.
h. Representations and Warranties; Covenants. The
representations and warranties of OSI and the Bank contained
in Section 3.1 of this Agreement shall have been true and
correct in all material respects on the date made and shall be
true and correct in all material respects at the Effective
Time as though made at such time, excepting: (i) any changes
occurring in the ordinary course of business, none of which
shall have been materially adverse considering the business or
financial condition of OSI and the Bank taken as a whole, and
(ii) any changes contemplated or permitted by this Agreement,
and provided the effects arising or resulting from changes in
interest rates, changes in generally accepted accounting
principles or regulatory accounting principles, and the third
party costs and expenses relating to the transaction
contemplated herein shall not be taken into account. OSI and
the Bank shall each have performed in all material respects
all of their obligations under this Agreement.
i. Certificates. OSI and the Bank shall each have
delivered to Fourth a certificate, in form and substance
satisfactory to Fourth, dated the Effective Time and signed by
its chief executive officer and chief financial officer
certifying in such detail as Fourth may reasonably request the
fulfillment of conditions a, b, e, f, and h above and k and l
below.
j. Affiliates' Agreements. Prior to the Effective
Time, Fourth shall have received from OSI a list, reviewed by
OSI's counsel, identifying all of its stockholders who are, in
its opinion, Affiliates of OSI. Fourth shall not be obligated
to deliver any shares of Fourth Stock to any person who is
named as an Affiliate on such list prior to receipt from such
person of an agreement substantially in the form of Exhibit
"E" hereto.
k. Exercise of Stock Options. OSI shall have caused
all outstanding stock options to be exercised or cancelled by
receipt of the merger consideration less the exercise price
per share in accordance with the agreements pursuant to which
they were granted prior to closing.
l. Material Adverse Changes. Since the date of this
Agreement there shall not have occurred any material adverse
change in the condition (financial or otherwise), business,
liabilities (contingent or otherwise), properties, or assets
of any of the Corporations; provided, the effects of changes
in interest rates, changes in generally accepted accounting
principles and regulatory accounting principles, and the
third-party costs and expenses relating to the transactions
contemplated by this Agreement shall not be taken into
account.
m. Satisfactory Environmental Reports. Fourth shall,
at its sole expense, have received environmental assessment
reports covering all of the Corporations' real estate, in form
and substance reasonably satisfactory to Fourth, which do not
cause Fourth reasonably to conclude that there are any
material Environmental, Health, and Safety Liabilities
associated with any of such real estate which would require
remediation expenditures in excess of an aggregate of
$150,000.
n. Buchanan Employment Agreement Termination. Beth F.
Buchanan shall have executed and delivered to Fourth a written
agreement, in form and substance satisfactory to Fourth, to
terminate her employment agreement with the Bank upon receipt
of the payment described in Section 2.2k of this Agreement.
5.2. Conditions to Obligations of OSI and the Bank. The
obligations of OSI and the Bank to effect the Mergers and to
consummate the transactions contemplated hereby shall be subject to
the following conditions which may, to the extent permitted by Law,
be waived by it at its option:
a. General. Each of the conditions specified in
clauses a, b, c, and d of Section 5.1 of this Agreement shall
have occurred and be continuing.
b. Representations and Warranties; Covenants. The
representations and warranties of Fourth contained in
Section 3.2 of this Agreement shall have been true and correct
in all material respects on the date made and shall be true
and correct in all material respects at the Effective Time as
though made at such time, excepting any changes occurring in
the ordinary course of business, none of which shall have been
materially adverse, and excepting any changes contemplated or
permitted by this Agreement. Fourth shall have duly performed
in all material respects all of its obligations under this
Agreement.
c. Certificate. Fourth shall have delivered to OSI a
certificate, in form and substance satisfactory to OSI, dated
the Effective Time and signed by its chief executive officer
and chief financial officer on behalf of Fourth, certifying in
such detail as OSI may reasonably request as to the
fulfillment of the foregoing conditions except for the
conditions set forth in clause a of Section 5.1 of this
Agreement.
d. Opinion of Counsel. OSI shall have received the
opinion of Foulston & Siefkin, counsel to Fourth, addressed to
OSI, satisfactory in form and substance to OSI, substantially
in the form of Exhibit "D" hereto.
e. Material Adverse Change. Since the date of this
Agreement there shall not have occurred any material adverse
change in the condition (financial or otherwise), business,
properties, liabilities (contingent or otherwise), or assets
of Fourth; provided the effects of changes in interest rates,
changes in generally accepted accounting principles and
regulatory accounting principles, and the third-party costs
and expenses relating to the transactions contemplated by this
Agreement shall not be taken into account.
f. Fairness Opinion. OSI shall have received, prior to
mailing the Proxy Statement to OSI stockholders, a written
"fairness" opinion from an independent financial consultant to
OSI that the consideration to be received by the stockholders
of OSI in the Fourth Merger is fair from a financial point of
view and such opinion shall not have been withdrawn prior to
Closing.
ARTICLE VI
EFFECTIVE TIME
The consummation of the Mergers and the delivery of the
certificates and other documents called for by this Agreement, and
the consummation of all other transactions contemplated by this
Agreement shall take place at such time and place in Wichita,
Kansas, as the parties may mutually agree which, unless otherwise
agreed, shall be not later than the last day of the month in which
the final regulatory approval required to effect the Mergers is
received and the latest required waiting period expires. The
parties agree that they shall exert their reasonable best efforts
to cause the Effective Time to be on or before February 28, 1995.
ARTICLE VII
TERMINATION OF AGREEMENT
7.1. Mutual Consent; Absence of Stockholder Approval;
Termination Date. This Agreement and the Merger Agreements shall
terminate at any time when the parties hereto mutually agree in
writing. This Agreement and the Merger Agreements may also be
terminated at the election of either OSI or Fourth, as the case may
be, upon written notice from the party electing to terminate this
Agreement and the Merger Agreements to the other party if, without
fault on the part of the party electing to terminate this Agreement
and the Merger Agreements, the Merger Agreements are not ratified
and approved by the stockholders of OSI by the requisite vote or if
there has been a denial of a Required Approval except upon
compliance with terms reasonably deemed onerous by Fourth. Unless
extended by written agreement of the parties, this Agreement and
the Merger Agreements shall terminate if all conditions to the
obligations of the parties hereto have not occurred on or before
February 28, 1995.
7.2. Election by Fourth. Notwithstanding the approval of the
Bank Merger Agreement by the stockholders of BANK IV Oklahoma, this
Agreement and the Merger Agreements shall terminate at Fourth's
election, upon written notice from Fourth to OSI, if any one or
more of the following events shall occur and shall not have been
remedied to the satisfaction of Fourth within 30 days after written
notice is delivered to OSI: (a) there shall have been any material
breach of any of the material obligations, covenants, or warranties
of OSI or the Bank; or (b) there shall have been any written
representation or statement furnished by OSI or the Bank which at
the time furnished is false or misleading in any material respect
in relation to the size and scope of the transactions contemplated
by this Agreement.
7.3. Election by OSI.
---------------
a. Notwithstanding the approval of the Merger
Agreements by the stockholders of OSI and the Bank, this
Agreement and the Merger Agreements shall terminate at the
election of OSI, upon written notice from OSI to Fourth, if
any one or more of the following events shall occur and shall
not have been remedied to OSI's satisfaction within 30 days
after written notice is delivered to Fourth: (i) there shall
have been any material breach of any of the material
obligations, covenants, or warranties of Fourth hereunder; or
(ii) there shall have been any written representation or
statement furnished by Fourth hereunder which at the time
furnished is false or misleading in any material respect in
relation to the size and scope of the transactions
contemplated by this Agreement.
b. Notwithstanding the approval of the Fourth Merger
Agreement by the stockholders of OSI, OSI shall have the right
to terminate this Agreement and the Merger Agreements without
liability to Fourth, except as expressly set forth in Section
8.2.b, in order to accept an offer described in Section
2.3.a.(10) of this Agreement if, in the good faith judgement
of the Board of Directors of OSI, after affording Fourth a
reasonable opportunity to discuss such offer directly with the
Board of Directors of OSI and to match such offer (which
Fourth shall not be obligated to do), such offer affords the
OSI stockholders materially superior value than is afforded
them in this Agreement.
7.4. Effect of Termination. In the event of termination of
this Agreement by either OSI or Fourth as provided in this Article
VII, this Agreement and the Merger Agreements shall forthwith
become void and there shall be no liability or obligation on the
part of OSI, Fourth, or their respective officers, directors, or
employees except (i) with respect to the parties' obligations under
Section 8.2, (ii) all obligations relating to the confidential
information contained in this Agreement and in existing
confidentiality agreements, and (iii) with respect to any
liabilities or damages incurred or suffered by a party as a result
of the willful breach by the other party of any of its covenants or
agreements set forth in this Agreement or as a result of the breach
by the other party of any of its representations or warranties
contained in this Agreement as to which a member of the Board of
Directors or a member of senior management of such party had actual
knowledge of the untruthfulness or falsity of the representations
or warranties when made.
ARTICLE VIII
MISCELLANEOUS
8.1. Nonsurvival of Representations, Warranties, and
Agreements. None of the representations, warranties, and
agreements in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Closing, except for
the agreements contained in this Agreement that contemplate
performance after the Closing.
8.2. Expenses.
--------
a. Except as provided in subparagraph (b) hereof,
whether or not the Mergers are effected, all costs and
expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party
incurring such expense.
b. If this agreement is terminated by OSI pursuant to
Section 7.3 (b) of this Agreement, OSI shall promptly pay to
Fourth in cash an amount equal to the sum of (i) all
reasonable documented out-of-pocket expenses and fees incurred
by Fourth and its subsidiaries in negotiating, preparing,
executing, and performing this Agreement and in preparing for
the Merger up to a maximum of $300,000, and (ii) $500,000.
8.3. Notices. All notices or other communications required or
permitted hereunder shall be sufficiently given if personally
delivered or if sent by certified or registered mail, postage
prepaid, return receipt requested, addressed as follows: (a) if to
Fourth, addressed to Darrell G. Knudson, Chairman of the Board,
Post Office Box 4, Wichita, Kansas 67201; and (b) if to OSI and the
Bank, addressed to Beth F. Buchanan, President, 601 South Husband,
Stillwater, Oklahoma 74074, or to such other address as shall have
been furnished in writing in the manner provided herein for giving
notice.
8.4. Time. Time is of the essence of this Agreement.
8.5. Law Governing. This Agreement shall, except to the
extent federal law is applicable, be construed in accordance with
and governed by the laws of the State of Kansas, without regard to
the principles of conflicts of laws thereof.
8.6. Entire Agreement; Amendment. This Agreement contains and
incorporates the entire agreement and understanding of the parties
hereto with respect to the subject matter hereof and supersedes all
prior negotiations, agreements, letters of intent, and
understandings. This Agreement may only be amended by an
instrument in writing duly executed by all corporate parties
hereto, and all attempted oral waivers, modifications, and
amendments shall be ineffective.
8.7. Press Releases. Except as may be required by law, Fourth
and OSI shall consult with each other as to the form and substance
of any proposed published press release relating to this Agreement
or the Mergers.
8.8. Severability. Any term, provision, covenant, or
restriction in this Agreement which is held to be invalid, void, or
unenforceable by any judicial or regulatory authority of competent
jurisdiction shall be ineffective to the extent of such invalidity,
voidness, or unenforceability; but neither the remaining terms,
provisions, covenants, or restrictions contained in this Agreement
nor the validity or enforceability thereof shall be affected or
impaired thereby. Any term, provision, covenant, or restriction
contained in this Agreement found to be unenforceable as written
shall be interpreted to be as broad as is enforceable.
8.9. Successors and Assigns. The rights and obligations of
the parties hereto shall inure to the benefit of and shall be
binding upon the successors and permitted assigns of each of them;
provided, however, that this Agreement, the Merger Agreements, or
any of the rights, interests, or obligations hereunder or
thereunder may not be assigned by any of the parties hereto without
the prior written consent of the other parties hereto.
8.10. Cover, Table of Contents, and Headings. The cover,
table of contents, and the headings of the sections and subsections
of this Agreement and the Merger Agreements are for convenience of
reference only and shall not be deemed to be a part hereof or
thereof or taken into account in construing this Agreement or the
Merger Agreements.
8.11. Counterparts. This Agreement and the Merger Agreements
may be executed in one or more counterparts, each of which shall be
deemed an original but which together shall constitute but one
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed.
FOURTH FINANCIAL CORPORATION OKLAHOMA SAVINGS, INC.
By/s/ Darrell G. Knudson By/s/ Calvin J. Anthony
------------------------ ----------------------------
Darrell G. Knudson Calvin J. Anthony
Chairman of the Board Chairman of the Board
"Fourth" "OSI"
Exhibit "A"
AGREEMENT TO MERGE
between
BANK IV OKLAHOMA, NATIONAL ASSOCIATION
and
STILLWATER FEDERAL SAVINGS BANK
under the charter of
BANK IV OKLAHOMA, NATIONAL ASSOCIATION
under the title of
BANK IV OKLAHOMA, NATIONAL ASSOCIATION
THIS AGREEMENT made between BANK IV Oklahoma, National
Association (hereinafter referred to as "BANK IV"), a banking
association organized under the laws of the United States, being
located at 515 South Boulder, City of Tulsa, County of Tulsa, in
the State of Oklahoma, with a capital of $211,647,325.96 divided
into 5,873,347 shares of common stock, each of $5.00 par value, and
surplus of $174,374,059.66 and undivided profits, including capital
reserves, of $7,906,531.30 as of June 30, 1994, and Stillwater
Federal Savings Bank (hereinafter referred to as "Bank"), a federal
savings association organized under the laws of the United States,
being located at 601 South Husband, City of Stillwater, in the
State of Oklahoma, with a capital of $4,099.75, divided into
409,975 shares of common stock, each of $.01 par value, and surplus
and undivided profits of approximately $6,450,220.28 as of June 30,
1994, each acting pursuant to a resolution of its board of
directors, adopted by the vote of a majority of its directors,
pursuant to the authority given by and in accordance with the
provisions of the Act of November 7, 1918, as amended (12 USC
215a).
W I T N E S S E T H: That,
Section 1. Bank shall be merged into BANK IV
under the charter of the latter.
Section 2. The name of the receiving association
(hereinafter referred to as the "Association") shall be
BANK IV Oklahoma, National Association.
Section 3. The business of the Association shall
be that of a national banking association. This business
shall be conducted by the Association at its main office
which shall be located at 515 South Boulder, Tulsa,
Oklahoma, and at its legally established branches.
Section 4. The amount of capital stock of the
Association shall be $29,370,830 divided into 5,874,166
shares of common stock, each of $5.00 par value, and at
the time the merger shall become effective, the
Association shall have a surplus of $________, and
undivided profits, including capital reserves, which when
combined with the capital and surplus will be equal to
the combined capital structures of the merging banks as
stated in the preamble of this Agreement, adjusted,
however, for normal earnings and expenses (and if
applicable, purchase accounting adjustments) between June
30, 1994, and the effective time of the merger. The
amount of capital stock of the Association and its
surplus and undivided profits at the time the merger
becomes effective shall also be adjusted to reflect the
effect of all mergers of other banks into the
Association, if any, between June 30, 1994, and the
effective time of the merger.
Section 5. All assets as they exist at the
effective time of the merger shall pass to and vest in
the Association without any conveyance or other transfer.
The Association shall be responsible for all of the
liabilities of every kind and description, including
liabilities arising from the operation of a trust
department, of Bank existing as of the effective time of
the merger.
Section 6. Of the capital stock of the
Association, the presently outstanding 5,873,347 shares
of common stock, each of $5.00 par value, the two holders
of it, Fourth Financial Corporation and IV Commercial
Acquisition, Inc., shall retain their present rights. In
addition, Fourth Financial Corporation shall receive by
reason of the merger an additional 819 shares of common
stock, par value $5.00 per share of the Association. The
sole shareholder of Bank, Oklahoma Savings, Inc. ("OSI"),
is a party to an Agreement and Plan of Reorganization
between Fourth Financial Corporation and OSI, dated as of
July 21, 1994 (the "Reorganization Agreement"), pursuant
to which the stockholders of OSI are receiving full
payment for the value of all of the issued and
outstanding capital stock of OSI, so no separate
consideration is to be paid to Bank or any of its
shareholders in its capacity as the stockholder of the
Bank by reason of the merger effected hereby.
Section 7. Except as expressly permitted in the
Reorganization Agreement, Bank shall not (i) declare or
pay any dividend to its shareholders, (ii) dispose of any
of its assets in any other manner except in the normal
course of business and for adequate value, or (iii) take
any other action which would violate the terms of the
Reorganization Agreement.
Section 8. The present board of directors and
officers of BANK IV shall continue to serve as the board
of directors and officers of the Association until the
next annual meeting or until such time as their
successors have been elected and have qualified.
Section 9. Effective as of the time this merger
shall become effective as specified in the merger
approval to be issued by the Comptroller of the Currency,
the articles of association of the resulting bank shall
be the Articles of Association of BANK IV.
Section 10. For purposes of granting a limited
priority claim to the assets of the Bank in the unlikely
event (and only upon such event) of a complete
liquidation of the Association to persons who continue to
maintain savings accounts with the Association after the
merger, and who, immediately prior to the merger had a
subaccount balance (as described in 12 C.F.R.
Section 563b.3(f)(4)) with respect to the liquidation account
of the Bank, the Association shall, at the time of the
merger, establish a liquidation account in an amount
equal to the liquidation account of the Bank immediately
prior to the merger, which liquidation account shall
participate pari passu with any other liquidation
accounts of the Association. If the balance in any
savings account to which a subaccount balance relates at
the close of business on the last day of any fiscal year
of the Association after the merger is effected is less
than the balance in such savings account at the effective
time of the merger or at the close of business on the
last day of any other fiscal year of the Association
after the merger is effected, such subaccount balance
shall be reduced in an amount proportionate to the
reduction in such savings account balance. No subaccount
balance shall be increased, notwithstanding any increase
in the balance of the related savings account. If such
related savings account is closed, such subaccount shall
be reduced to zero upon such closing. In the event of a
complete liquidation of the Association, and only in such
event, the amount distributable to each accountholder
will be determined in accordance with the applicable
rules and regulations pertaining to conversions by
savings and loan associations from mutual to stock form
of organization, on the basis of such accountholder's
subaccount balance with the Association at the time of
its liquidation. No merger, consolidation, purchase of
bulk assets with assumption of savings accounts and other
liabilities, or similar transaction, whether or not the
Association is the surviving institution, will be deemed
to be a complete liquidation for this purpose, and, in
any such transaction, the liquidation account shall be
assumed by the surviving institution.
Section 11. This Agreement may be terminated as
provided in the Reorganization Agreement.
Notwithstanding the approval of this Agreement by any
shareholder group, this Agreement shall automatically
terminate upon the termination of the Reorganization
Agreement for any reason, and in no event shall the
merger of Bank into BANK IV occur prior to the
consummation of the other Merger as such term is defined
in the Reorganization Agreement.
Section 12. This Agreement shall be ratified and
confirmed by the affirmative vote of all of the
shareholders of the Bank at a meeting to be held on the
call of the directors; and the merger shall become
effective at the time specified in a merger approval to
be issued by the Comptroller of the Currency of the
United States.
WITNESS, the signatures and seals of said merging bank
this day of July, 1994, each set by its chairman of the board,
president, or a vice president and attested to by its cashier or
secretary, pursuant to a resolution of its board of directors,
acting by a majority:
BANK IV OKLAHOMA,
NATIONAL ASSOCIATION
By
---------------------------
Edward F. Keller, Chairman
of the Board and President
Attest:
- -----------------------------
[Seal of Bank]
STILLWATER FEDERAL SAVINGS BANK
By
---------------------------
Beth F. Buchanan
President
Attest:
- -----------------------
[ACKNOWLEDGEMENTS OMITTED]
Exhibit "B"
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER is made as of the __ day of
___________ 1994, between FOURTH FINANCIAL CORPORATION, a Kansas
corporation ("Fourth"), and OKLAHOMA SAVINGS, INC., a Delaware
corporation ("OSI"). Fourth and OSI are hereinafter sometimes
referred to as the "Constituent Corporations;" OSI is hereinafter
sometimes referred to as the "Merging Corporation"; and Fourth is
hereinafter sometimes called the "Surviving Corporation."
Recitals
--------
A. The respective Boards of Directors of each of the
two Constituent Corporations have duly adopted resolutions
approving an Agreement and Plan of Reorganization, dated as of July
21, 1994, between Fourth and OSI (the "Agreement and Plan of
Reorganization") and this Agreement of Merger, subject, among other
things, to the approval and adoption of the Agreement and Plan of
Reorganization and this Agreement of Merger by the holders of at
least a majority of the issued and outstanding capital stock of
each class of OSI having voting rights, authorizing the proposed
merger of the OSI into Fourth upon the terms and conditions herein
set forth.
B. No approval of the stockholders of Fourth of this
Agreement is required by reason of K.S.A. 17-6702(e) and 17-
6701(f).
NOW, THEREFORE, Fourth and OSI hereby agree that Fourth
and OSI shall merge on the terms and conditions hereinafter
provided and in accordance with the following plan:
Plan of Merger
--------------
1. OSI shall merge with and into Fourth which shall
continue as the Surviving Corporation and shall be governed by the
laws of the State of Kansas (the "Merger"). At the Effective Time
(as defined in Paragraph 6), the separate existence of OSI shall
cease. The corporate identity, existence, purposes, franchises,
powers, rights, and immunities of Fourth shall continue unaffected
and unimpaired by the Merger, and the corporate identity,
existence, purposes, franchises, powers, rights, and immunities of
OSI shall be merged into Fourth which shall be fully vested
therewith. It is the intention of the parties that the transaction
contemplated by this Agreement of Merger shall qualify as a tax-
free reorganization under Section 368 of the Internal Revenue Code
of 1986, as amended.
2. The Articles of Incorporation and Bylaws of Fourth,
as in effect on the Effective Time, shall be and remain the
articles of incorporation and bylaws of the Surviving Corporation
until thereafter amended as provided by law.
3. At the Effective Time:
(a) Fourth shall, without other transfer, succeed
to and possess all the rights, privileges, powers, and
franchises both of a public and private nature and shall
be subject to all the restrictions, disabilities, debts,
liabilities, and duties of each of the Constituent
Corporations.
(b) The rights, privileges, powers, and franchises
of each of the Constituent Corporations and all property,
real, personal and mixed, of and all debts due or
belonging to any of the Constituent Corporations shall be
vested in Fourth; and all property, rights, privileges,
powers, and franchises, and all and every other interest
shall be thereafter as effectually the property of Fourth
as they were of any of the Constituent Corporations.
(c) Title to any real estate and to any other
property vested by deed or otherwise in any of the
Constituent Corporations shall not revert or be in any
way impaired by reason of the Merger or the statutes
providing therefor; provided, however, that all rights of
creditors and all liens upon the property of any of the
Constituent Corporations shall be preserved unimpaired,
and all debts, liabilities, and duties of all of the
Constituent Corporations shall thenceforth attach to
Fourth and may be enforced against it to the same extent
as if they had been incurred or contracted by Fourth.
After the Effective Time, the Constituent Corporations
shall each execute or cause to be executed such further
assignments, assurances, or other documents as may be
necessary or desirable to confirm title to their
respective properties, assets, and rights in Fourth or to
otherwise carry out the purposes of this Agreement of
Merger, and their respective officers and directors shall
do all such acts and things to accomplish those purposes
which Fourth may reasonably request.
4. At the Effective Time:
(a) Each issued and outstanding share of each class
of capital stock of OSI shall cease to be an issued and
existing share.
(b) Each share of common stock of OSI, par value
$.01 per share, except those as to which dissenters'
rights have been validly exercised, shall automatically
be converted into and exchanged for 0.84 shares of common
stock, par value $5.00 per share, of Fourth ("Fourth
Stock").
(c) Until surrendered for exchange, each
outstanding stock certificate which prior to the
Effective Time represented common stock of OSI shall be
deemed for all corporate purposes to represent the right
to receive the number of shares of Fourth Stock into
which the shares have been so converted; provided, that
in any matters relating to the shares represented by such
certificates, Fourth may rely conclusively upon the
record of stockholders maintained by OSI containing the
names and addresses of the holders of record of such
stock at the Effective Time. Unless and until such
outstanding stock certificates formerly representing
shares of common stock of OSI are so surrendered, no
dividend payable to the holders of record of Fourth
Stock, as of any date subsequent to the Effective Time,
shall be paid to the holder of such outstanding
certificates in respect thereof. Upon surrender of such
outstanding certificates (or, in the case of lost
certificates, upon receipt of a surety bond or other form
of indemnification satisfactory to Fourth), however, the
former OSI stockholders shall receive certificates
evidencing the shares of Fourth Stock to which they are
entitled plus the accrued dividends on such stock,
without interest.
(d) No fractional shares of Fourth Stock will be
issued. Instead, upon surrender of OSI common stock
certificates (or, in the case of lost certificates, upon
receipt of a surety bond or other form of indemnification
which is satisfactory to Fourth) Fourth will pay, or
cause to be paid, to the holder thereof the cash value of
the fractional interest to which the holder thereof would
otherwise be entitled, based upon the closing price of
Fourth Stock on the trading day two trading days prior to
the Effective Time as reported in the Southwest Edition
of The Wall Street Journal.
(e) The Merger shall effect no change in the rights
of the holders of any of the Fourth Stock that is
outstanding immediately before the Effective Time.
5. The officers and directors of Fourth at the
Effective Time shall continue to be the officers and directors of
the Surviving Corporation until their successors are duly elected
and qualified or their earlier death, resignation, or removal.
6. The Merger shall be effected by and be given effect
upon the filing of this Agreement of Merger in the offices of the
Secretary of State of Kansas and the Secretary of State of
Delaware. Such date and time of filing is referred to in this
Agreement of Merger as the "Effective Time." This Agreement of
Merger shall also be recorded in accordance with the provisions of
the Kansas General Corporation Code and the General Corporation Law
of the State of Delaware, but such recording shall not be a
condition precedent to its becoming effective.
7. This Agreement of Merger may be terminated and
abandoned by mutual consent of the Boards of Directors of Fourth
and OSI at any time prior to the Effective Time, or by the Board of
Directors of either Fourth or OSI if the Agreement and Plan of
Reorganization shall have been terminated as therein provided.
8. This Agreement of Merger may be executed in any
number of counterparts, and each such counterpart hereof shall be
deemed to be an original instrument, but all of such counterparts
together shall constitute but one agreement.
IN WITNESS WHEREOF, pursuant to authority duly given by
its Board of Directors, each of the Constituent Corporations has
caused this Agreement of Merger to be executed by its Chairman of
the Board or President and attested by its Secretary or an
Assistant Secretary as of the date and year first above written.
FOURTH FINANCIAL CORPORATION
By
----------------------------
Darrell G. Knudson
Chairman of the Board
ATTEST:
By
-------------------------------
William J. Rainey, Secretary
OKLAHOMA SAVINGS, INC.
By
----------------------------
Calvin J. Anthony
Chairman of the Board
ATTEST:
By
____________________, Secretary
[ACKNOWLEDGEMENTS, CERTIFICATES,
AND CONSENT OMITTED]
ANNEX II
262 APPRAISAL RIGHTS.-(a) Any stockholder of a
corporation of this State who holds shares of stock on the date of
the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to Section 228 of this title shall be
entitled to an appraisal by the Court of Chancery of the fair value
of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation;
the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of
a member of a nonstock corporation; and the words "depository
receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited
with the depository.
(b) Appraisal rights shall be available for the shares
of any class or series of stock of a constituent corporation in a
merger or consolidation to be effected pursuant to Section 251, 252, 254,
257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any class or
series of stock, which stock, or depository receipts in respect
thereof, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc. or (ii) held of record by more than 2,000 holders; and further
provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the
merger did not require for its approval the vote of the holders of
the surviving corporation as provided in subsection (f) of Section 251 of
this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the
shares of any class or series of stock of a constituent corporation
if the holders thereof are required by the terms of an agreement of
merger or consolidation pursuant to Section 251, 252, 254, 257, 258, 263
and 264 of this title to accept for such stock anything except:
(a) Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository receipts
in respect thereof;
(b) Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock or
depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
holders;
(c) Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a. and
b. of this paragraph; or
(d) Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a., b.
and c. of this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under Section 253 of this
title is not owned by the parent corporation immediately prior to
the merger, appraisal rights shall be available for the shares of
the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as a
result of an amendment to its certificate of incorporation, any
merger or consolidation in which the corporation is a constituent
corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those
set forth in subsections (d) and (e) of this section, shall apply
as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be submitted
for approval at a meeting of stockholders, the corporation, not
less than 20 days prior to the meeting, shall notify each of its
stockholders who was such on the record date for such meeting with
respect to shares for which appraisal rights are available pursuant
to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent
corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the
vote on the merger or consolidation, a written demand for appraisal
of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall
not constitute such a demand. A stockholder electing to take such
action must do so by a separate written demand as herein provided.
Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant
to Section 228 or 253 of this title, the surviving or resulting
corporation, either before the effective date of the merger or
consolidation or within 10 days thereafter, shall notify each of
the stockholders entitled to appraisal rights of the effective date
of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent
corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail,
return receipt requested, addressed to the stockholder at his
address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after
the date of mailing of the notice, demand in writing from the
surviving or resulting corporation the appraisal of his shares.
Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the
merger or consolidation, the surviving or resulting corporation or
any stockholder who has complied with subsections (a) and (d)
hereof and who is otherwise entitled to appraisal rights, may file
a petition in the Court of Chancery demanding a determination of
the value of the stock of all such stockholders. Notwithstanding
the foregoing, at any time within 60 days after the effective date
of the merger or consolidation, any stockholder shall have the
right to withdraw his demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after
the effective date of the merger or consolidation, any stockholder
who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with
respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. Such written statement
shall be mailed to the stockholder within 10 days after his written
request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d)
hereof, whichever is later.
(f) Upon the filing of any such petition by a
stockholder, service of a copy thereof shall be made upon the
surviving or resulting corporation, which shall within 20 days
after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment
for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting
corporation. If the petition shall be filed by the surviving or
resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the
Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on
the list at the addresses therein stated. Such notice shall also
be given by 1 or more publications at least 1 week before the day
of the hearing, in a newspaper of general circulation published in
the City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section and
who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for their
shares and who hold stock represented by certificates to submit
their certificates of stock to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings; and
if any stockholder fails to comply with such direction, the Court
may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining their
fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation,
together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all
relevant factors, including the rate of interest which the
surviving or resulting corporation would have had to pay to borrow
money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder
entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving
or resulting corporation pursuant to subsection (f) of this section
and who has submitted his certificates of stock to the Register in
Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled
to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value
of the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct.
Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders
of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The
Court's decree may be enforced as other decrees in the Court of
Chancery may be enforced, whether such surviving or resulting
corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and
expenses of experts, to be charged pro rata against the value of
all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights
as provided in subsection (d) of this section shall be entitled to
vote such stock for any purpose or to receive payment of dividends
or other distributions on the stock (except dividends or other
distributions payable to stockholders of record at a date which is
prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be
filed within the time provided in subsection (e) of this section,
or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of his demand for an appraisal and
an acceptance of the merger or consolidation, either within 60 days
after the effective date of the merger or consolidation as provided
in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as
to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation
to which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the surviving
or resulting corporation. (Last amended by Ch. 262, L. '94, eff.
7-1-94.)
ANNEX III
July 21, 1994
Board of Directors
Oklahoma Savings, Inc.
601 S. Husband, Box 2077
Stillwater, Oklahoma 74076
Dear Board of Directors:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the shareholders of
Oklahoma Savings, Inc., Stillwater, Oklahoma ("OSI"), of the financial terms
of a merger proposal whereby OSI shall merge ("Merger") with and into Fourth
Financial Corporation, Wichita, Kansas ("FRTH"). We have not been requested
to opine as to, and our opinion does not in any matter address OSI's underlying
business decision to proceed with or effect the Merger.
Pursuant to an Agreement and Plan of Reorganization ("the Agreement") at the
Effective Time of the Merger, FRTH will acquire all of OSI's common shares
which are either issued and outstanding (420,020 shares as of the date of the
Agreement) or reserved for issuance pursuant to the 1991 Stock Option Plan
(23,149 shares granted as of the date of the Agreement). The issued and
outstanding shares will be converted, by operation of the Merger, into .84
shares of FRTH common stock (the "Merger Consideration"). The option
shares shall be assumed to be converted into issued and outstanding shares prior
to consummation of the Merger. The complete terms of the proposed
transaction are described in the Agreement dated July 21, 1994 by and among
FRTH and OSI and this summary is qualified in its entirety by reference
thereto. A copy of the Agreement will be attached as an Exhibit to the Proxy
Statement - Prospectus of OSI which will be provided to OSI's shareholders.
Oklahoma Savings, Inc.
July 21, 1994
Page 2
Charles Webb & Company, as part of its investment banking business, is
continuously engaged in the evaluation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings and
distributions of listed and unlisted securities. We are familiar
with the market for common stocks of publicly traded banks, thrifts
and bank and thrift holding companies.
On July 11, 1994, you engaged us to advise OSI and its shareholders as to the
fairness of the Merger from a financial perspective. Prior to your execution of
the Agreement with FRTH, we studied financial and other business data
supplied to us by OSI including audited financial statements for the year ended
September 30, 1993, and subsequent financial statements (unaudited) for the
quarters ended December 31, 1993, March 31, 1994 and June 30, 1994 and
certain other information. We discussed with the senior management and the
boards of directors of OSI and its wholly-owned subsidiary Stillwater Federal
Savings and Loan Association ("Stillwater"), the current position and
prospective outlook for OSI and Stillwater, the possibility of obtaining other
acquisition proposals, and the board's reasons for seeking affiliation and
merger. We considered historical quotations and the prices of recorded
transactions in OSI's common stock since its conversion from mutual to
stock form and public offering in June, 1993. We reviewed
financial and stock market data of other thrifts, particularly
in the Central region, and the financial and structural terms
of several other recent transactions involving savings and loan mergers and
acquisitions or proposed changes of control of comparably situated companies.
For FRTH, we reviewed the audited financial statements for the year ended
December 31, 1993, and subsequent financial statements (unaudited) for the
quarters ended March 31, 1994, and certain other information. We discussed
with the senior management (certain members of the senior management group
are also members of the board of directors) of FRTH, the current position and
prospective outlook for FRTH and its wholly-owned subsidiaries, including
FRTH's reasons for seeking an affiliation and merger. We considered historical
quotations and the prices of recorded transactions in FRTH's common stock
over the past five years. Further, for comparative purposes, we reviewed
financial and stock merger data of other bank holding companies, particularly
in the Central region.
For purposes of this opinion we have relied, without independent verification,
material furnished to us by OSI and FRTH and the material otherwise made
available to us, including information from published sources, and we have not
made any independent effort to verify such data. With respect to the financial
forecasts we received for OSI, we assumed (with your consent) that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgment of OSI's management.
Oklahoma Savings, Inc.
July 21, 1994
Page 3
In addition, we have not made or obtained any independent appraisals or
evaluations of the assets or liabilities, and potential and/or contingent
liabilities of OSI or FRTH. We have further relied on the assurances of
management of OSI and FRTH that they are not aware of any facts that would make
such information inaccurate or misleading. We express no opinion on matters of
a legal, regulatory, tax or accounting nature or the ability of the Merger as
set forth in the Agreement to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to OSI or the ability to consummate the Merger. Our opinion is
based on the market, economic and other relevant considerations as they exist
and can be evaluated on the date hereof.
We have acted as financial advisor to OSI in connection with the Merger and
will receive a fee for services a majority of which is payable upon delivery of
this opinion. In addition, OSI has agreed to indemnify us for certain
liabilities arising out of rendering this opinion.
Based upon and subject to the foregoing, as outlined in the foregoing paragraphs
and based on such other matters as we considered relevant, it is our opinion
that as of the date hereof the financial terms of the proposed merger as set
forth in the Agreement, are fair to the shareholders of OSI from a financial
point of view.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent. It is understood that
this letter is directed solely to the Board of Directors of OSI in its
consideration of the Agreement, and is not intended to be and does not
constitute a recommendation to any shareholder as to how such shareholder
should vote with respect to the Merger.
Very truly yours,
/S/ Charles Webb & Company
Charles Webb & Company
Dublin, Ohio
ANNEX IV
Form 10-K of Fourth Financial Corporation for the
year ended December 31, 1993, which was previously filed with
the Securities and Exchange Commission, is omitted.
ANNEX V
Form 10-Q of Fourth Financial Corporation for the
quarter ended June 30, 1994, which was previously filed with
the Securities and Exchange Commission, is omitted.
[OUTSIDE BACK COVER]
TABLE OF CONTENTS
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Page
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Summary 3
The Special Meeting 11
The Agreement and Proposed Mergers 12
Pro Forma Financial Statements 25
Information Concerning Fourth Financial 34
Information Concerning OSI and Stillwater Federal 36
Price Range of and Dividends on Fourth Stock and OSI Stock 47
Equity Securities and Principal Holders Thereof 50
Experts 52
Legal Matters 52
Information Incorporated by Reference 53
Solicitation of Proxies 53
Deadline for Submission of Fourth Financial and OSI Stockholders'
Proposals for the Next Annual Meetings of Stockholders 54
Independent Auditors 54
Index to Financial Statements and Related Information F-1
Annex I - Agreement and Plan of Reorganization, dated as of
July 21, 1994, as amended November 8, 1994, with
Exhibits "A" and "B"only
Annex II - Section 262 of the Delaware General Corporation Law
Annex III - Opinion of Charles Webb & Company
Annex IV - Form 10-K of Fourth Financial Corporation for the
year ended December 31, 1993
Annex V - Form 10-Q of Fourth Financial Corporation for the
quarter ended June 30, 1994
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
-----------------------------------------
Section 8.01 of Registrant's Bylaws provides as follows:
The Corporation shall (a) indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending, or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, or
employee of the Corporation or of a subsidiary of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, or
employee of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit, and (b) indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the Corporation), by reason of the
fact that he is or was a director, officer, or employee of the Corporation or
of a subsidiary of the Corporation or is or was serving at the request of the
Corporation as a director, officer, or employee of another corporation,
partnership, joint venture, trust, or other enterprise, against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with any such action,
suit or proceeding. Indemnification shall be afforded to the fullest extent
permissible under the Kansas General Corporation Code or the indemnification
provisions of any successor statute, and not further, and shall be subject to
any applicable procedural requirements and standards of conduct on the part
of the persons to be indemnified prescribed by that statute. The foregoing
right of indemnification shall in no way be exclusive of any other rights of
indemnification to which any such person may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, and
shall inure to the benefit of the heirs, executors, and administrators of such
a person. The Corporation may, but shall not be required to, purchase
liability insurance indemnifying the directors, officers, and employees of the
Corporation and its subsidiaries.
Kansas Statutes Annotated Section 17-6305 provides as follows:
(a) A corporation shall have power to indemnify any person who was or
is a party, or is threatened to be made a party, to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, other than an action by or in the right of
the corporation, by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, including attorney fees, if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation; and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which such person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that
such person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or
is a party, or is threatened to be made a party, to any threatened, pending
or completed action or suit by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, including attorney
fees, if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b), or in
defense of any claim, issue or matter therein, such director, officer,
employee or agent shall be indemnified against expenses actually and
reasonably incurred by such person in connection therewith, including attorney
fees.
(d) Any indemnification under subsections (a) and (b), unless ordered
by a court, shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because such
director, officer, employee or agent has met the applicable standard of
conduct set forth in subsections (a) and (b). Such determination shall be
made (1) by the board of directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding, or (2)
if such a quorum is not obtainable, or even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
(e) Expenses incurred by a director or officer in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of
an undertaking by or on behalf of the director or officer to repay such amount
if it is ultimately determined that the director or officer is not entitled
to be indemnified by the corporation as authorized in this section. 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.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in a
person's official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under
the provisions of this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers and employees or agents,
so that any person who is or was a director, officer, employee or agent of
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under this section with respect to the resulting
or surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefits plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan;
and references to "serving at the request of the corporation" shall include
any service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee
or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such
person reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to
in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Pursuant to a policy of directors' and officers' liability insurance having
limits of $15,000,000, the directors and officers of the Registrant are insured,
subject to the limits, retention, exceptions, and other terms and conditions of
the policy, against liability for any actual or alleged error or misstatement or
misleading statement or act or omission or neglect or breach of duty while
acting in their capacities as directors or officers of the Registrant.
Item 21. Exhibits and Financial Statement Schedules.
-------------------------------------------
(a) Exhibits:
2.1 Agreement and Plan of Reorganization, dated as of July 21,
1994, between Fourth Financial Corporation and Oklahoma
Savings, Inc. (Exhibit 2.02 to Form 10-Q for the quarter ended
June 30, 1994).*
2.2 Letter amendment dated November 8, 1994, to Agreement and Plan
of Reorganization.
4.1 Restated Articles of Incorporation of Fourth Financial
Corporation, dated August 10, 1992 (Exhibit 3.01 to Form 10-Q
for quarter ended June 30, 1992).*
4.2 Bylaws (Exhibit 3.05 to Form 10-K for the year ended December
31, 1993).*
5.1 Opinion of Foulston & Siefkin.*
8.1 Tax opinion of Deloitte & Touche LLP.*
10.1 Stock Purchase and Merger Agreement, dated as of June 23, 1994
among Fourth Financial Corporation and BANK IV Oklahoma,
National Association as Purchasers, Security Bank and Trust
Company and the Stockholders of Blackwell Security Bancshares,
Inc., as Sellers (Exhibit 2.01 to Form 10-Q for the quarter
ended June 30, 1994).*
10.2 Agreement and Plan of Reorganization, dated September 2, 1994,
among Fourth Financial Corporation, Standard Bancorporation,
Inc., and all of the stockholders of Standard Bancorporation,
Inc.*
13.1 Annual Report of Fourth Financial Corporation on Form 10-K for
fiscal year ended December 31, 1993.*
13.2 Quarterly Report of Fourth Financial Corporation on Form 10-Q
for the quarter ended March 31, 1994.*
13.3 Quarterly Report of Fourth Financial Corporation on Form 10-Q
for the quarter ended June 30, 1994.*
23.1 See page II-9 of the Registration Statement for the consent of
Ernst & Young LLP.*
23.2 See page II-10 of the Registration Statement for the consent
of Arthur Andersen LLP.*
23.3. See page II-11 of the Registration Statement for the consent
of Sartain Fischbein & Co.*
23.4 See page II-12 of the Registration Statement for the consent
of GRA, Thompson, White & Co., P.A.*
23.5 See page II-13 of the Registration Statement for the consent
of Grant Thornton.*
23.6 See page II-14 of the Registration Statement for the consent
of Deloitte & Touche LLP.*
23.7 See page II-15 of the Registration Statement for the consent
of Deloitte & Touche LLP.*
23.8 The consent of Foulston & Siefkin is included in their opinion
filed as Exhibit 5.1 to the Registration Statement.*
23.9 See page II-17 of the Registration Statement for the consent
of Charles Webb & Company.*
24.1 Power of Attorney (included on signature page of the
Registration Statement).*
99.1 Form of Proxy to be used at the Special Meeting.*
99.2 Form of Affiliate's Agreement (Exhibit "F" to Exhibit 2.02 to
Form 10-Q for the quarter ended June 30, 1994).*
__________________________
* Previously filed with Securities and Exchange Commission and incorporated
herein by reference.
(b) Financial Statement Schedules:
NONE
Item 22. Undertakings.
1. The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.
2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be
a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
3. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant 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 registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question 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.
4. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
5. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
6. The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable
registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
7. The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph 6 immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement
and will not be used until such amendment is effective, and
that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Wichita, State of
Kansas, on November 9, 1994.
Fourth Financial Corporation
By /s/ Darrell G. Knudson*
---------------------------
Darrell G. Knudson
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Darrell G. Knudson* Chairman of the Board
Darrell G. Knudson (Principal Executive Officer
of the Issuer) November 9, 1994
/s/ Michael J. Shonka* Senior Vice President
Michael J. Shonka (Principal Financial Officer) November 9, 1994
/s/ Barbara M. Noyes* Vice President and Controller
Barbara M. Noyes (Principal Accounting Officer) November 9, 1994
/s/ Lionel D. Alford* Director November 9, 1994
Lionel D. Alford
Director November , 1994
Thomas R. Clevenger
Director November , 1994
Jordan L. Haines
Director November , 1994
Lawrence M. Jones
/s/ Joseph M. Klein* Director November 9, 1994
Joseph M. Klein
/s/ Darrell G. Knudson* Director November 9, 1994
Darrell G. Knudson
/s/ Fred L. Merrill, Sr.* Director November 9, 1994
Fred L. Merrill, Sr.
Director November , 1994
Russell W. Meyer, Jr.
/s/ Laird G. Noller* Director November 9, 1994
Laird G. Noller
/s/ Patrick E. O'Shaughnessy* Director November 9, 1994
Patrick E. O'Shaughnessy
/s/ Robert F. Vickers* Director November 9, 1994
Robert F. Vickers
Director November , 1994
Ken Wagnon
________________
*By /s/ William J. Rainey
William J. Rainey
Attorney in Fact
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Fourth Financial
Corporation for the registration of 372,262 shares of its common stock and to
the incorporation by reference therein of our report dated January 20, 1994,
with respect to the consolidated financial statements of Fourth Financial
Corporation included in its Annual Report (Form 10-K) for the year ended
December 31, 1993, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Wichita, Kansas
October 3, 1994
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of
our reports (and to all references to our Firm) included in or made part
of this registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
October 5, 1994
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-4) and related Prospectus of Fourth
Financial Corporation for the registration of 372,262 shares of its common
stock and to the incorporation by reference therein of our report dated
February 19, 1993, with respect to the consolidated financial statements
of Fourth Financial Corporation included in its Annual Report (Form 10-K)
for the year ended December 31, 1993, filed with the Securities and
Exchange Commission.
/s/ Sartain Fischbein & Co.
SARTAIN FISCHBEIN & CO.
Tulsa, Oklahoma
October 5, 1994
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the heading "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Fourth
Financial Corporation for the registration of up to 372,262 shares of its
common stock. We also consent to the incorporation by reference of our
report dated September 16, 1993, with respect to the 1992 consolidated
financial statements of Ponca Bancshares, Inc. and Subsidiary included in
Fourth Financial Corporation's Annual Report on Form 10-K for the year
ended December 31, 1993.
/s/ GRA, Thompson, White & Co., P.A.
Merriam, Kansas
October 3, 1994
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 23, 1992 with respect to the
consolidated financial statements, not appearing therein, of United Bank
of Kansas, Inc. and Subsidiary included in Fourth Financial Corporation's
Annual Report on Form 10-K for the year ended December 31, 1993 which is
incorporated by reference in this Registration Statement (Form S-4) and
related Prospectus. We consent to the incorporation by reference in the
Registration Statement and related Prospectus of the aforementioned report
and to the use of our name as it appears under the caption "Experts".
/s/ Grant Thornton
GRANT THORNTON
Wichita, Kansas
October 5, 1994
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement of Fourth Financial Corporation on Form S-4 (relating to the
registration of 372,261 shares of common stock) of the report of Deloitte
& Touche on the financial statements of KNB Bancshares, Inc. and
Subsidiaries for the year ended December 31, 1991, dated February 7, 1992,
appearing in the Annual Report on Form 10-K of Fourth Financial Corporation
for the year ended December 31, 1993 and to the reference to Deloitte &
Touche LLP under the heading "Experts" in the Proxy Statement-Prospectus,
which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Kansas City, Missouri
September 29, 1994
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement (relating to
the registration of 372,262 shares of common stock of Fourth
Financial Corporation) of Fourth Financial Corporation on Form S-4
of the report of Deloitte & Touche dated November 5, 1993 included
in the Annual Report on Form 10-KSB of Oklahoma Savings, Inc. for
the year ended September 30, 1993 and to the use of our report
appearing in the Prospectus which is a part of such Registration
Statement.
We also consent to the reference to Deloitte & Touche LLP under
the headings "Experts", "Certain Federal Income Tax Consequences",
"Tax Opinion", and "Independent Auditors" in such Prospectus and
to the inclusion of our opinion dated October 5, 1994 regarding
the Federal and Oklahoma State income tax consequences of the
reorganization of Oklahoma Savings, Inc. with Fourth Financial
Corporation (Exhibit 8.1) in this Registration Statement on Form
S-4.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Oklahoma City, Oklahoma
October 5, 1994
CONSENT OF CHARLES WEBB & COMPANY
October 3, 1994
Board of Directors
Oklahoma Savings, Inc.
601 South Husband
Stillwater, Oklahoma 74074
Gentlemen:
We hereby consent to the use of our firm's name in the Form S-4
Registration Statement, and any amendments thereto, for Fourth
Financial Corporation, and to the inclusion of, summary of and
references to our Fairness Opinion in such filings including the
Proxy Statement - Prospectus of Oklahoma Savings, Inc.
Very Truly Yours,
CHARLES WEBB & COMPANY
/S/ Patricia A. McJoynt
Executive Vice President
Dublin, Ohio
Exhibit Page
No. Description No.
- -------- ------------ ------
2.1 Agreement and Plan of Reorganization, dated as of July
21, 1994, between Fourth Financial Corporation and
Oklahoma Savings, Inc. (Exhibit 2.02 to Form 10-Q for
the quarter ended June 30, 1994).*
2.2 Letter amendment dated November 8, 1994, to Agreement
and Plan of Reorganiztion.
4.1 Restated Articles of Incorporation of Fourth Financial
Corporation, dated August 10, 1992 (Exhibit 3.01 to
Form 10-Q for quarter ended June 30, 1992).*
4.2 Bylaws (Exhibit 3.05 to Form 10-K for the year ended
December 31, 1993).*
5.1 Opinion of Foulston & Siefkin.*
8.1 Tax opinion of Deloitte & Touche LLP.*
10.1 Stock Purchase and Merger Agreement, dated as of June
23, 1994 among Fourth Financial Corporation and BANK IV
Oklahoma, National Association as Purchasers, Security
Bank and Trust Company and the Stockholders of
Blackwell Security Bancshares, Inc., as Sellers
(Exhibit 2.01 to Form 10-Q for the quarter ended June
30, 1994).*
10.2 Agreement and Plan of Reorganization, dated September
2, 1994, among Fourth Financial Corporation, Standard
Bancorporation, Inc., and all of the stockholders of
Standard Bancorporation, Inc.*
13.1 Annual Report of Fourth Financial Corporation on Form
10-K for fiscal year ended December 31, 1993.*
13.2 Quarterly Report of Fourth Financial Corporation on
Form 10-Q for the quarter ended March 31, 1994.*
13.3 Quarterly Report of Fourth Financial Corporation on
Form 10-Q for the quarter ended June 30, 1994.*
23.1 See page II-9 of the Registration Statement for the
consent of Ernst & Young LLP.*
23.2 See page II-10 of the Registration Statement for the
consent of Arthur Andersen LLP.*
23.3. See page II-11 of the Registration Statement for the
consent of Sartain Fischbein & Co.*
23.4 See page II-12 of the Registration Statement for the
consent of GRA, Thompson, White & Co., P.A.*
23.5 See page II-13 of the Registration Statement for the
consent of Grant Thornton.*
23.6 See page II-14 of the Registration Statement for the
consent of Deloitte & Touche LLP.*
23.7 See page II-15 of the Registration Statement for the
consent of Deloitte & Touche LLP.*
23.8 The consent of Foulston & Siefkin is included in their
opinion filed as Exhibit 5.1 to the Registration
Statement.*
23.9 See page II-17 of the Registration Statement for the
consent of Charles Webb & Company.*
24.1 Power of Attorney (included on signature page of the
Registration Statement).*
99.1 Form of Proxy to be used at the Special Meeting.*
99.2 Form of Affiliate's Agreement (Exhibit "F" to Exhibit
2.02 to Form 10-Q for the quarter ended June 30,
1994).*
__________________________
* Previously filed with Securities and Exchange Commission and
incorporated herein by reference.
EX-2.2
November 8, 1994
Calvin J. Anthony, Chairman of the Board
Oklahoma Savings, Inc.
N. A. R. V.
825 South Walnut Street
Stillwater, Oklahoma 74074
Dear Mr. Anthony:
This letter reflects the amendments we have agreed upon
to the Agreement and Plan of Reorganization dated as of
July 21, 1994, between Fourth Financial Corporation and
Oklahoma Savings, Inc. (the "Agreement").
We have agreed that the last sentence of ARTICLE VI and
the last sentence of Section 7.1 of the Agreement are
each amended by deleting therefrom "December 31, 1994"
and substituting therefor "February 28, 1995".
We have also agreed that Section 2.3.a.(2) of the Agreement
is amended by inserting before the semicolon at the end
thereof the following new language: ", and if the Mergers
are not consummated by the record date for Fourth's first
quarter, 1995, dividend, OSI may declare and pay a further
cash dividend per share of OSI Stock equal to the product
of 0.84 multiplied by the per share first quarter cash
dividend declared by Fourth".
In all other respects the Agreement remains unchanged
and fully effective.
If this letter accurately reflects the terms of our agreement,
please so indicate by signing the enclosed copy and
returning it to us at your earliest convenience. Thank you
for your cooperation.
FOURTH FINANCIAL CORPORATION
by /s/Darrell G. Knudson
___________________________
Darrell G. Knudson
Chairman of the Board
Mr. Anthony
November 8, 1994
Page 2
The terms of the foregoing letter are agreed to and accepted
as of November 8, 1994.
OKLAHOMA SAVINGS, INC.
by /s/
___________________________
Calvin J. Anthony
Chairman of the Board
Exhibit 5.1
FOULSTON & SIEFKIN
700 Fourth Financial Center
Wichita, Kansas 67202
(316) 267-6371
October 5, 1994
Fourth Financial Corporation
100 North Broadway
Wichita, Kansas 67202
Re: Registration Statement
Form S-4 (Oklahoma Savings, Inc.)
Dear Sirs:
In connection with the proposed public offering by Fourth
Financial Corporation (the "Company") of 372,262 shares (the
"Shares") of its Common Stock, par value $5.00, to be issued by the
Company in connection with consummation of a merger pursuant to an
Agreement and Plan of Reorganization, dated as of July 21, 1994,
among Fourth Financial Corporation and Oklahoma Savings, Inc. and
a related Agreement of Merger (collectively, the "Agreement"), we
have examined the corporate records and proceedings of the Company,
the Agreement, and the above described Registration Statement (the
"Registration Statement") with respect to:
1. The organization of the Company;
2. The legal sufficiency of all corporate
proceedings of the Company taken in connection with the
creation, issuance, the form and validity, and full
payment and nonassessability, of all the presently
outstanding and issued stock of the Company; and
3. The legal sufficiency of all corporate
proceedings of the Company taken in connection with the
creation, issuance, and the form and validity of the
Shares, and full payment and nonassessability, when
issued pursuant to the Agreement, of the Shares.
Based upon such examination, we are of the opinion that:
(a) Fourth Financial Corporation is duly organized and
validly existing in good standing under the laws of the State of
Kansas;
(b) The Company is authorized to have issued and
outstanding 50,000,000 shares of Common Stock of the par value of
$5.00 per share;
(c) The Company has taken all necessary and required
corporate proceedings in connection with the creation and issuance
of all the presently issued and outstanding Common Stock of the
Company, and all of said stock so issued has been validly issued,
is fully paid and nonassessable, and in all respects is in proper
form and valid;
(d) When the Registration Statement shall have been
declared effective by order of the Securities and Exchange
Commission, the Agreement shall have been duly approved and adopted
by the stockholders of Oklahoma Savings, Inc., and the Shares shall
have been issued upon the terms and conditions set forth in the
Agreement, then the Shares will be validly issued and outstanding,
fully paid, and nonassessable.
We hereby consent (1) to be named in the Registration
Statement, and in the Proxy Statement-Prospectus which constitutes
a part thereof, as the attorneys who will pass upon legal matters
in connection with the sale of the Shares covered by the
Registration Statement, and (2) to the filing of this opinion as
Exhibit 5.1 to the Registration Statement.
Very truly yours,
/s/ Foulston & Siefkin
FOULSTON & SIEFKIN
EXHIBIT 8.1
October 5, 1994
Board of Directors
Oklahoma Savings, Inc.
601 S. Husband Street
Stillwater, OK 74076
Re: Federal and State of Oklahoma Income Tax
Opinion regarding the reorganization of Oklahoma Savings,
Inc. with Fourth Financial Corporation
Gentlemen:
This is in response to your request for our tax opinion on the proposed
merger ("Fourth Merger") of Oklahoma Savings, Inc. ("OSI") into Fourth
Financial Corporation ("Fourth") and the proposed merger ("Bank Merger")
of Stillwater Federal Savings Bank ("Savings Bank"), a wholly-owned
subsidiary of OSI, into Bank IV Oklahoma, National Association ("Bank
IV") a subsidiary owned partly by Fourth and partly by IV Commercial
Acquisition, Inc., a wholly owned subsidiary of Fourth. The conclusions
represented herein are premised on the facts and representations in the
Agreement and Plan of Reorganization by and between OSI and Fourth dated
as of July 21, 1994 ("Agreement"), the proxy statement-prospectus
contained in the registration statement (Form S-4) filed with the
Securities and Exchange Commission on October 5, 1994, the
representations of facts as set forth in Fourth's and OSI's letters of
representations dated October 4, 1994, and the law as it exists today.
FACTS
OSI, a corporation duly organized, validly existing, and in good
standing under the laws of the state of Delaware, was organized in 1993
to operate as a savings institution holding company. The authorized
capital stock of OSI consists of (i) 2,000,000 shares of common stock,
par value $.01 per share, of which 419,200 shares were issued and
outstanding as of the date of the Agreement, and (ii) 500,000 shares of
preferred stock, par value $.01 per share, none of which is issued and
outstanding. OSI is a savings and loan holding company duly registered
pursuant to the Home Owners Loan Act of 1933, as amended.
Savings Bank, a wholly-owned subsidiary of OSI, is a federally chartered
savings bank which was incorporated in 1920 as an Oklahoma chartered
mutual savings and loan association. In 1993, Savings Bank converted to
a federally-chartered mutual savings bank and changed its name from
"Stillwater Savings and Loan Association" to "Stillwater Federal Savings
Bank."
Pursuant to the Plan of Conversion ("Plan") adopted February 22, 1993,
Savings Bank's charter to operate as a mutual savings bank was amended
to permit it to continue its operations as a federally-chartered stock
savings bank. Under the Plan, OSI issued a specific number of shares of
common stock ("Conversion stock") prior to the consummation of the
conversion. The dollar amount for which all shares of Conversion stock
were sold was based on the estimated market value of OSI and Savings
Bank after the conversion.
Savings Bank serves its primary market area, Payne, Logan, and Noble
counties of Oklahoma, through four retail banking offices. Savings Bank
is a community-oriented financial institution offering a variety of
financial services. Savings Bank attracts deposits from the general
public and uses the funds to originate one- to four-family residential
mortgage loans. Savings Bank's earnings are primarily derived from
interest earned on its loans and mortgage-backed securities and interest
and dividends earned on its investment securities. Its chief expenses
include interest paid on savings deposits and borrowing and operating
expenses.
Fourth, a corporation duly organized, validly existing, and in good
standing under the laws of the state of Kansas is a bank holding
company. Fourth is authorized to issue (i) 50,000,000 shares of common
stock, par value $5 per share, of which 27,201,925 shares were issued
and 26,845,241 shares were outstanding on June 30, 1994, (ii) 250,000
shares of Class A 7% Cumulative Preferred Stock, par value $100 per
share, all of which are issued and outstanding, and (iii) 5,000,000
shares of Class B Preferred Stock, without par value, none of which have
been issued. All of Fourth's issued and outstanding equity securities
and the Fourth stock to be issued in the Fourth Merger are duly
registered under the Federal Securities Exchange Act of 1934, as
amended. Shares of Fourth stock are eligible for trading in the
National Market System of NASDAQ. Fourth is a bank holding company duly
registered pursuant to the Bank Holding Company Act.
Bank IV, a subsidiary partly owned by Fourth and partly by IV Commercial
Acquisition, Inc., a wholly owned subsidiary of Fourth, is the third
largest bank in Oklahoma. Bank IV is a banking association organized
under the laws of the United States.
THE TRANSACTION
In March 1994, OSI received an unsolicited offer to negotiate a merger
with Fourth. On April 15, 1994, OSI requested, and subsequently
received permission from the Office of Thrift Supervision to negotiate
with Fourth to enter into an agreement in principle and begin
negotiations toward a definitive agreement with Fourth. A period of
negotiations followed and on April 20, 1994, the companies jointly
announced an agreement in principle whereby OSI would be acquired by
Fourth and merge with Fourth. On July 21, 1994, the parties entered
into the Agreement whereby Fourth agreed to acquire OSI for
approximately $23.00 per share payable in Fourth shares.
Following the Reorganization, Savings Bank will be able to offer its
customers a wide variety of lending programs, trust, international, and
mutual fund investment services that Savings Bank does not offer
currently.
At the date and time on which the Mergers are effective, the Fourth
Merger and the Bank Merger shall occur simultaneously pursuant to the
Merger Agreements. The merger of OSI into Fourth with Fourth surviving
will be a statutory merger under the laws of the States of Kansas and
Delaware. As a result of the Fourth Merger, the separate existence of
OSI shall cease, and Fourth, as the surviving corporation, shall
continue its corporate existence under the laws of the state of Kansas.
The existing articles of incorporation and bylaws of Fourth in effect at
the Effective Time shall be the articles of incorporation and bylaws of
the surviving corporation until further amended as provided by law. The
directors and officers of Fourth immediately preceding the Fourth Merger
shall be the directors and officers of the surviving corporation.
Fourth shall possess all rights, privileges, powers and franchises of
OSI. All property, real, personal, and mixed, and all rights of
creditors of OSI shall be vested in and belong to Fourth.
Within ten days from the Merger Effective Time, Fourth must mail to any
dissenting stockholder, written notice that the Fourth Merger has become
effective and include a copy of Section 262 of the Delaware General
Corporation Law. A dissenting stockholder who desires to pursue his or
her rights as a dissenting stockholder then has 20 days from the date
Fourth mails such notice in which to demand in writing from Fourth
payment of the value of his or her stock.
At the Merger Effective Time, upon consummation of the Fourth Merger,
each issued and outstanding share of OSI stock, except dissenting
stockholders' stock, shall cease to be an issued and existing share, and
each share shall automatically be converted into and exchanged for 0.84
shares of Fourth stock.
No fractional shares of Fourth stock will be issued. Instead, upon
surrender of OSI common stock certificates, Fourth will pay, or cause to
be paid, to the holder thereof the cash value of the fractional interest
to which the holder thereof would otherwise be entitled, based upon the
closing price of the Fourth stock on the trading day two trading days
prior to the Merger Effective Time as reported in The Wall Street
Journal.
The merger of Savings Bank with and into Bank IV will be a merger
pursuant to the laws of the United States. As a result of the Bank
Merger, the separate existence of Savings Bank shall cease and Bank IV,
as the surviving association, shall continue its corporate existence
under the laws of the United States. The existing articles of
association and bylaws of Bank IV shall be the articles of association
and bylaws of the merged bank. The directors and officers of Bank IV
immediately preceding the Bank Merger shall be the directors and
officers of the merged bank. Bank IV shall possess all the rights,
privileges, powers, and franchises of Savings Bank. All property, real,
personal, and mixed, and all rights of creditors and depositors of
Savings Bank shall be vested in and belong to Bank IV.
For purposes of granting a limited priority claim to the assets of
Savings Bank in the unlikely event (and only upon such event) of a
complete liquidation of Bank IV to persons who continue to maintain
savings accounts with Bank IV after the merger, and who, immediately
prior to the merger had a subaccount balance (as described in 12 C.F.R.
Sec. 563b.3(f)(4)) with respect to the liquidation account of Savings
Bank, Bank IV shall, at the time of the merger, establish a liquidation
account in an amount equal to the liquidation account of Savings Bank
immediately prior to the merger, which liquidation account shall
participate pari passu with any other liquidation accounts of Bank IV.
If the balance in any savings account to which a subaccount balance
relates at the close of business on the last day of any fiscal year of
Bank IV after the merger is effected is less than the balance in such
savings account at the effective time of the merger or at the close of
business on the last day of any other fiscal year of Bank IV after the
merger is effected, such subaccount balance shall be reduced in an
amount proportionate to the reduction in such savings account balance.
No subaccount balance shall be increased, notwithstanding any increase
in the balance of the related savings account. If such related savings
account is closed, such subaccount shall be reduced to zero upon such
closing. In the event of a complete liquidation of Bank IV, and only in
such event, the amount distributable to each account holder will be
determined in accordance with the applicable rules and regulations
pertaining to conversions by savings and loan associations from mutual
to stock form of organization, on the basis of such account holder's
subaccount balance with Bank IV at the time of its liquidation. No
merger, consolidation, purchase of bulk assets with assumption of
savings accounts and other liabilities, or similar transaction, whether
or not Bank IV is the surviving institution, will be deemed to be a
complete liquidation for this purpose, and, in any such transaction, the
liquidation account shall be assumed by the surviving institution.
At the Merger Effective Time, upon consummation of the Bank Merger, each
issued and outstanding share of Savings Bank stock shall automatically
be converted into and exchanged for .002 shares of capital stock of Bank
IV, par value $5.00.
REPRESENTATIONS
In order to determine the consequences of the Fourth Merger for federal
income tax purposes, Fourth has directed us to rely on the following
representations:
(1) The fair market value of the Fourth common stock to be received by
each shareholder of OSI will be approximately equal to the fair
market value of the OSI stocksurrendered in the exchange.
(2) Fourth has no plan or intention to reaquire any of its stock
issued to the shareholders of OSI in the proposed transaction.
(3) After the proposed transaction, Fourth will continue the historic
business of OSI or use a significant portion of OSI's historic
assets in Fourth's business, except that the management of OSI
will be consolidated with that of Fourth.
(4) Fourth is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986
(as amended) (Code).
(5) There is no intercorporate indebtedness existing between OSI and
Fourth which was issued, acquired, or will be settled at a
discount.
(6) The payment of cash in lieu of fractional shares of Fourth stock
is solely for the purpose of avoiding the expense and
inconvenience to Fourth of issuing fractional shares and does not
represent separately bargained-for consideration. The total cash
consideration that will be paid in the transaction to the OSI
shareholders instead of issuing fractional shares of Fourth stock
will not exceed one percent of the total consideration that will
be issued in the transaction to the OSI shareholders in exchange
for their shares of OSI stock. The fractional share interests of
each OSI shareholder will be aggregated, and no OSI shareholder
will receive cash in an amount equal to or greater than the value
of one full share of Fourth stock.
(7) Fourth will pay its own expenses, if any, incurred in connection
with the transaction.
(8) The merger of OSI with and into Fourth, with Fourth surviving,
will qualify as a statutory merger under the laws of the States of
Kansas and Delaware.
In order to determine the consequences of the Fourth Merger for federal
income tax purposes, OSI has directed us to rely on the following
representations:
(1) The fair market value of the Fourth common stock to be received by
each shareholder of OSI will be approximately equal to the fair
market value of the OSI stock surrendered in the exchange.
(2) There is no plan or intention by the shareholders of OSI who own 5
percent or more of the OSI stock, and, to the best of the
knowledge of the management of OSI, there is no plan or intention
on the part of the remaining shareholders of OSI to sell, exchange
or otherwise dispose of a number of shares of Fourth common stock
received in the Merger that would reduce the OSI shareholders'
ownership of Fourth common stock to a number of shares having a
value, as of the date of the merger, of less than 50 percent of
the value of all of the formerly outstanding stock of OSI as of
the same date. For purposes of this representation, shares of OSI
stock surrendered by dissenters or exchanged for cash in lieu of
fractional shares of Fourth common stock will be treated as
outstanding OSI stock at the Merger Effective Time. Moreover,
shares of OSI's stock and shares of Fourth common stock held by
OSI shareholders and otherwise sold, redeemed, or disposed of
prior or subsequent to the transaction will be considered in
making this representation.
(3) OSI is not under the jurisdiction of a court in a Title 11 or
similar case (within the meaning of Section 368(a)(3)(A) of the
Code).
(4) The liabilities of OSI to be assumed by Fourth and the liabilities
to which the transferred assets of OSI are subject were incurred
by OSI and Savings Bank in the ordinary course of business and are
associated with the assets to be transferred.
(5) The fair market value of the assets of OSI transferred to Fourth
will exceed the sum of the liabilities to be assumed by Fourth,
plus the amount of liabilities, if any, to which the transferred
assets are subject.
(6) OSI is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(7) There is no intercorporate indebtedness existing between OSI and
Fourth which was issued, acquired, or will be settled at a
discount.
(8) OSI and the shareholders of OSI will each pay their own expenses,
if any, incurred in connection with the transaction.
(9) The adjusted basis of the assets of OSI transferred to Fourth will
exceed the sum of the liabilities to be assumed by Fourth, plus
the liabilities, if any, to which the transferred assets are
subject.
(10) None of the compensation received by any shareholder-employees of
OSI will be separate consideration for, or allocable to, any of
their shares of OSI stock; none of the shares of Fourth stock
received by any shareholder-employee will be separate
consideration for, or allocable to, any employment agreement; and
the compensation paid to any shareholder-employees will be for
services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar
services.
(11) The merger of OSI with and into Fourth, with Fourth surviving,
will qualify as a statutory merger under the laws of the States of
Kansas and Delaware.
(12) The conversion of Savings Bank from a mutual to a stock savings
bank was a separate and distinct transaction from the Fourth
Merger. OSI had no discussion with Fourth or any other party
prior to the conversion and this merger or any other merger was
not contemplated at the time of the conversion.
In order to determine the consequences of the Bank Merger for federal
income tax purposes, Fourth has directed us to rely on the following
representations:
(1) The fair market value of the Bank IV common stock to be received
by Fourth will be approximately equal to the fair market value of
the Savings Bank stock surrendered in the exchange.
(2) After the proposed transaction, Bank IV will continue the historic
business of Savings Bank and use a significant portion of Savings
Bank's business assets in Bank IV's business, except that the
management of Savings Bank will be consolidated with that of Bank
IV.
(3) Bank IV has no plan or intention to reaquire any of its stock
issued to Fourth in the proposed transaction.
(4) Fourth has no plan or intention to sell or otherwise dispose of
the Bank IV stock received in the transaction.
(5) Bank IV will pay its own expenses, if any, incurred in connection
with the transaction.
(6) Bank IV is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(7) There is no intercorporate indebtedness existing between Savings
Bank and Bank IV which was issued, acquired, or will be settled at
a discount.
(8) The merger of Savings Bank with and into Bank IV, with Bank IV
surviving, will qualify as a merger pursuant to the corporation
laws of the United States.
In order to determine the consequences of the Bank Merger for federal
income tax purposes, OSI has directed us to rely on the following
representations:
(1) The fair market value of the Bank IV common stock to be received
by Fourth will be approximately equal to the fair market value of
the Savings Bank stock surrendered in the exchange.
(2) Savings Bank is not under the jurisdiction of a court in a Title
11 or similar case (within the meaning of Section 368(a)(3)(A) of
the Code).
(3) The liabilities of Savings Bank to be assumed by Bank IV and the
liabilities to which the transferred assets of Savings Bank are
subject were incurred by Savings Bank in the ordinary course of
business and are associated with the assets to be transferred.
(4) The fair market value of the assets of Savings Bank transferred to
Bank IV will exceed the sum of the liabilities to be assumed by
Bank IV, plus the amount of liabilities, if any, to which the
transferred assets are subject.
(5) Savings Bank is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(6) There is no intercorporate indebtedness existing between Savings
Bank and Bank IV which was issued, acquired, or will be settled at
a discount.
(7) The adjusted basis of the assets of Savings Bank transferred to
Bank IV will exceed the sum of the liabilities to be assumed by
Bank IV, plus the liabilities, if any, to which the transferred
assets are subject.
(8) Savings Bank will pay its own expenses, if any, incurred in
connection with the transaction.
(9) The merger of Savings Bank with and into Bank IV, with Bank IV
surviving, will qualify as a merger pursuant to the corporation
laws of the United States.
(10) The conversion of Savings Bank from a mutual to a stock savings
bank was a separate and distinct transaction from the Fourth
Merger. Savings Bank had no discussion with Bank IV or any other
party prior to the conversion and this merger or any other merger
was not contemplated at the time of the conversion.
APPLICABLE LAW
Section 368(a)(1)(A) of the Code provides that the term
"reorganization" means a statutory merger or consolidation. Under
Section 1.368-2(b)(1) of the Income Tax Regulations (Regulations),
in order to qualify as a reorganization under Section 368(a)(1)(A),
the transaction must be a merger or consolidation effected pursuant
to the corporation laws of the United States or a State or
Territory or the District of Columbia. It has been represented
that the merger of OSI with and into Fourth will qualify as a
statutory merger under the laws of the States of Delaware and
Kansas. It has been represented that the merger of Savings Bank
with and into Bank IV will qualify as a merger pursuant to the
corporation laws of the United States.
In addition to the requirements set forth in the statute, in order
for a transaction to be a tax-free reorganization, certain
requirements set forth in the regulations under Section 368 of the
Code must also be met. Section 1.368-1(b) of the Regulations
provides that the purpose of the reorganization provisions of the
Code is to except from the general rule of taxability certain
specifically described exchanges incident to such readjustments of
corporate structures made in one of the particular ways specified
in the Code, as are required by business exigencies and which
effect only a readjustment of continuing interest in property under
modified corporate forms. Requisite to a reorganization under the
Code are a continuity of the business enterprise under the modified
corporate form, and (except as provided in section 368(a)(1)(D)) a
continuity of interest therein on the part of those persons who,
directly or indirectly, were the owners of the enterprise prior to
the reorganization.
To be treated as a reorganization described in Section 368(a)(1)(A)
of the Code, the transaction must be planned and carried out for a
genuine business purpose. This transaction is being entered into
in order for Fourth to expand its business operations into Payne,
Logan and Noble counties of Oklahoma while benefiting from the
addition of Savings Bank's personnel, deposit taking and loan
origination market share and loan portfolio. Fourth and OSI
believe Savings Bank should be in an enhanced competitive position
with respect to other financial institutions in the area. Savings
Bank should be able to offer its customers a wide variety of
lending programs, trust, international, and mutual fund investment
services that Savings Bank does not currently offer. This should
satisfy the business purpose requirement for both the Fourth Merger
and the Bank Merger.
Section 1.368-1(d) of the Regulations provide that continuity of
business enterprise requires that the acquiring corporations either
(i) continue the acquired corporation's historic business or (ii)
use a significant portion of the acquired corporation's historic
business assets in a business. It has been represented that after
the proposed transaction, Fourth will continue the historic
business of OSI or use a significant portion of OSI's business
assets in Fourth's business, except that the management of OSI will
be consolidated with that of Fourth. It has also been represented
that after the proposed transaction, Bank IV will continue the
historic business of Savings Bank or use a significant portion of
Savings Bank's business assets in Bank IV's business, except that
the management of Savings Bank will be consolidated with that of
Bank IV. According to Rev. Rul. 85-198, 1985-2 C.B. 120 the
continuity of business enterprise requirement of Sec. 1.368-1(d) of
the regulations is satisfied when the business of a former
subsidiary of a merged bank holding company is carried on in the
same manner and form indirectly, through a second tier subsidiary,
of the surviving bank holding company. Accordingly, the continuity
of business enterprise requirement should be met for both the
Fourth Merger and the Bank Merger.
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a
continuity of interest therein on the part of those persons who,
directly or indirectly, were the owners of the enterprise prior to
the reorganization. Rev. Proc. 77-37, 1977-2 CB 568 provides that
the "continuity of interest" requirement of section 1.368-1(b) of
the Regulations is satisfied if there is continuing interest
through stock ownership in the acquiring or transferee corporation
(or a corporation in "control" thereof within the meaning of
section 368(c) of the Code) on the part of the former shareholders
of the acquired or transferor corporation which is equal in value,
as of the effective date of the reorganization, to at least 50
percent of the value of all of the formerly outstanding stock of
the acquired or transferor corporation as of the same date. It is
not necessary that each shareholder of the acquired or transferor
corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof,
which is equal in value to at least 50 percent of the value of his
former stock interest in the acquired or transferor corporation, so
long as one or more of the shareholders of the acquired or
transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a
corporation in "control" thereof) which is, in the aggregate, equal
in value to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation.
Sales, redemptions, and other dispositions of stock occurring prior
or subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a
50 percent continuing interest through stock ownership as of the
effective date of the reorganization.
It has been represented that there is no plan or intention by the
shareholders of OSI who own 5 percent or more of OSI stock, and to
the best of the knowledge of the management of OSI, there is no
plan or intention on the part of remaining shareholders of OSI to
sell, exchange, or otherwise dispose of a number of shares of
Fourth common stock received in the merger that will reduce the OSI
shareholders' ownership of Fourth common stock to a number of
shares having a value, as of the date of the merger, of less than
50 percent of the value of all the formerly outstanding stock of
OSI as of the same date. For purposes of this representation,
shares of OSI stock surrendered by dissenters or exchanged for cash
in lieu of fractional shares of Fourth common stock will be treated
as outstanding OSI stock at the Merger Effective Time. Moreover,
shares of OSI's stock and shares of Fourth common stock held by OSI
shareholders and otherwise sold, redeemed, or disposed of prior or
subsequent to the transaction will be considered in making this
representation. It has also been represented that Fourth has no
plan or intention to sell or otherwise dispose of the Bank IV stock
received in the transaction. Pursuant to the Merger agreement for
the Bank Merger, Bank IV shall, at the time of the merger,
establish a liquidation account in an amount equal to the
liquidation account of Savings Bank immediately prior to the merger
in accordance with the rules and regulations pertaining to
conversions by savings and loan associations from mutual to stock
form of organization. Accordingly, the continuity of interest
requirement should be met for both the Fourth Merger and the Bank
Merger.
Based on the analysis set forth above, the merger of OSI with and
into Fourth, with Fourth surviving, and the merger of Savings Bank
with and into Bank IV, with Bank IV surviving, should qualify as
reorganizations described in Section 368(a)(1)(A) of the Code.
Section 361(a) of the Code provides that no gain or loss shall be
recognized to a corporation if such corporation is a party to a
reorganization and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another
corporation a party to the reorganization.
Section 361(b) of the Code provides that if Section 361(a) would
apply to an exchange but for the fact that the property received in
exchange consists not only of stock or securities permitted by
Section 361(a) to be received without recognition of gain, but also
of other property or money, then
(A) Property distributed - If the corporation receiving such
other property or money distributes it in pursuance of the
plan of reorganization, no gain to the corporation shall be
recognized from the exchange, but
(B) Property not distributed - If the corporation receiving such
other property or money does not distribute it in pursuance
of the plan or reorganization, the gain,if any, to the
corporation shall be recognized.
Section 357(a) of the Code provides that if the taxpayer receives
property which would be permitted to be received under section 361
without the recognition of gain if it were the sole consideration,
and as part of the consideration, another party to the exchange
assumes a liability of the taxpayer, or acquires from the taxpayer
property subject to a liability, then such assumption or
acquisition shall not be treated as money or other property, and
shall not prevent the exchange from being within the provisions of
section 361.
Section 368(b)(2) of the Code provides the term " a party to a
reorganization" includes both corporations, in the case of a
reorganization resulting from the acquisition by one corporation of
stock or properties of another.
Since OSI and Fourth are each a party to a reorganization and the
exchange is for Fourth common stock and cash only to the extent
there are dissenters no gain or loss should be recognized to OSI on
the transfer of its property to Fourth in accordance with the
Agreement. Since Bank IV and Savings Bank are each a party to a
reorganization and the exchange is solely for Bank IV common stock,
no gain or loss should be recognized to Savings Bank on the
transfer of its property to Bank IV in accordance with the
Agreement.
Section 1032(a) of the Code provides that no gain or loss shall be
recognized to a corporation on the receipt of money or other
property in exchange for stock (including treasury stock) of such
corporation. OSI will merge with and into Fourth in accordance
with the Agreement. Accordingly, Fourth should not recognize any
gain or loss as a result of the exchange of its stock for the
property of OSI. Savings Bank will merge with and into Bank IV.
Accordingly, Bank IV should not recognize any gain or loss as a
result of the exchange of its stock for the property of Savings
Bank.
Section 362(b) of the Code provides that if property was acquired
by a corporation in connection with a reorganization to which this
part applies, then the basis shall be the same as it would be in
the hands of the transferor, increased in the amount of gain
recognized to the transferor on such transfer. Since Fourth will
receive property (i.e., the assets) from OSI in connection with a
reorganization within the meaning of Section 368(a)(1)(A) and OSI
will recognize no gain or loss on the transfer, the basis of the
assets to be received by Fourth should be the same as the basis of
those assets in the hands of OSI immediately prior to the transfer.
Since Bank IV will receive property (i.e., the assets) from Savings
Bank in connection with a reorganization within the meaning of
Section 368(a)(1)(A) and Savings Bank will recognize no gain or
loss on the transfer, the basis of the assets to be received by
Bank IV should be the same as the basis of those assets in the
hands of Savings Bank immediately prior to the transfer.
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property however acquired
there shall be included the period for which such property was held
by any other person, if under this chapter such property has, for
the purpose of determining gain or loss from a sale or exchange,
the same basis in whole or in part in his hands as it would have in
the hands of such other person. Because the basis of the assets to
be received by Fourth from OSI should be the same as the basis of
those assets in the hands of OSI immediately prior to the transfer,
the holding period for the assets of OSI to be received by Fourth
should include the period during which such assets were held by
OSI. Because the basis of the assets to be received by Bank IV
from Savings Bank should be the same as the basis of those assets
in the hands of Savings Bank immediately prior to the transfer, the
holding period for the assets of Savings Bank to be received by
Bank IV should include the period during which such assets were
held by Savings Bank.
Section 354(a)(1) of the Code provides that no gain or loss shall be
recognized if stock or securities in a corporation a party to a
reorganization are, in pursuance of the plan of reorganization,
exchanged solely for stock or securities in such corporation or in
another corporation a party to the reorganization. Since the stock
of OSI is being exchanged for Fourth common stock and cash, only to
the extent there are dissenters no gain or loss shall be recognized
by the OSI shareholders on the exchange of their OSI stock for Fourth
common stock (including fractional share interests that they might
otherwise be entitled to receive). Since the stock of Savings Bank
is being exchanged solely for Bank IV common stock, no gain or loss
shall be recognized by the Savings Bank shareholder on the exchange
of its Savings Bank stock for Bank IV common stock
Section 358(a)(1)of the Code provides that in the case of an exchange
to which Section 354 applies, the basis of the property to be
received without the recognition of gain or loss shall be the same as
that of the property exchanged. Since a shareholder of OSI will
receive solely Fourth stock in the exchange, the basis of the Fourth
common stock (including fractional share interests that they might
otherwise be entitled to receive) in the hands of the former OSI
shareholders should be the same, in each instance, as the basis of
the OSI common stock surrendered in exchange therefore. Since Fourth
will receive solely Bank IV stock in the exchange the basis of the
Bank IV common stock, in the hands of Fourth should be the same as
the basis of the Savings Bank common stock surrendered in exchange
therefore.
Section 1223(1) of the Code provides that, in determining the period
for which the taxpayer has held property received in an exchange,
there shall be included the period for which the taxpayer held the
property exchanged if, under this chapter, the property has, for the
purpose of determining gain or loss from a sale or exchange, the same
basis in whole or in part in his hands as the property exchanged,
and, in the case of such exchanges after March 1, 1954, the property
exchanged, at the time of such exchange, was a capital asset as
defined in section 1221 or property described in section 1231. Since
the basis of the Fourth common stock held by the OSI shareholders
should have the same basis as the OSI common stock exchanged, the
holding period of the Fourth common stock (including fractional share
interests that they might otherwise be entitled to receive) should
include the period for which the OSI common stock was held, provided
that such stock was a capital asset on the date of the exchange.
Since the basis of the Bank IV common stock held by Fourth should
have the same basis as the Savings Bank common stock exchanged, the
holding period of the Bank IV common stock should include the period
for which the Savings Bank common stock was held, provided that such
stock was a capital asset on the date of the exchange.
Rev. Rul. 66-365, 1966-1 C.B. 116, provides that cash received by a
target shareholder as part of a plan of reorganization under Section
368(a)(1)(A) of the Code, when the target shareholder is otherwise
entitled to receive a fractional share of stock of the acquiring
corporation in exchange for the target stock, will be treated as if
the fractional shares were distributed as part of the exchange and
then were redeemed by the acquirer. These cash payments will be
treated as having been received as distributions in full payment in
exchange for the stock redeemed as provided in Section 302(a),
provided the redemption is not essentially equivalent to a dividend.
Thus, the receipt of cash will result in gain or loss measured by the
difference between the basis of such fractional share interest and
the cash received, and such gain or loss will be capital gain or loss
to the target shareholder, provided the target stock was a capital
asset in the shareholder's hands and, as such, would be subject to
the provisions and limitations of Subchapter P of Chapter 1 of the
Code.
Rev. Proc. 77-41, 1977-2, C.B. 574, provides that the Service will
issue an advance ruling under Section 302(a) of the Code that cash to
be distributed to shareholders in lieu of fractional share interest
arising in corporate reorganizations will be treated as having been
received in part or full payment in exchange for the stock redeemed
if the cash distribution is undertaken solely for the purpose of
saving the corporation the expense and inconvenience of issuing and
transferring fractional shares, and is not separately bargained for
consideration. The purpose of the transaction giving rise to the
fractional share interest, the maximum amount of cash that may be
received by any one shareholder, and the percentage of the total
consideration that will be cash are among the factors that will be
considered in determining whether a ruling is to be issued.
It has been represented that the payment of cash in lieu of
fractional shares of Fourth stock is solely for the purpose of
avoiding the expense and inconvenience to Fourth of issuing
fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the
transaction to the OSI shareholders instead of issuing fractional
shares of Fourth common stock will not exceed one percent of the
total consideration that will be issued in the transaction to the OSI
shareholders in exchange for their shares of OSI stock. The
fractional share interests of each OSI shareholder will be
aggregated, and no OSI shareholder will receive cash in an amount
equal to or greater than the value of one full share of Fourth common
stock.
Accordingly, cash received by a shareholder of OSI otherwise entitled
to receive a fractional share of Fourth common stock in the exchange
for OSI common stock will be treated as if the fractional shares were
distributed as part of the exchange and then were redeemed by Fourth.
These cash payments will be treated as having been received as
distributions in full payment in exchange for the stock redeemed as
provided in Section 302(a) of the Code. This receipt of cash will
result in gain or loss measured by the difference between the basis
of such fractional share interest and the cash received. Such gain
or loss will be capital gain or loss to an OSI shareholder, provided
the OSI common stock was a capital asset in the shareholder's hands
and, as such, would be subject to the provisions and limitations of
Subchapter P of Chapter 1 of the Code.
Section 302(b)(3) of the Code provides that if a redemption is in
complete redemption of all of the stock of a corporation owned by a
shareholder, such redemption shall be treated as a distribution in
part or full payment in exchange for such stock. Because of the
operation of Section 302, where cash is received by a dissenting OSI
shareholder, such cash will be treated as received by the OSI
shareholder as a distribution in redemption of his stock subject to
the provisions and limitations of Section 302.
Section 381(a)(2) of the Code provides that in the case of the
acquisition of the assets of another corporation in a transfer to
which section 361 applies, but only if the transfer is in connection
with a reorganization described in subparagraph (A), (C), (D), (F),
or (G) of section 368(a)(1), the acquiring corporation shall succeed
to and take into account, as of the close of the day of distribution
or transfer, the items described in subsection (c) of the distributor
or transferor corporation, subject to the conditions and limitations
specified in subsections (b) and (c).
Section 1.381(a)-1(a) of the Regulations provides that a corporation
which acquires the assets of another corporation in certain
liquidations and reorganizations shall succeed to, and take into
account, as of the close of the date of distribution or transfer, the
items described in section 381(c) of the distributor or transferor
corporation. These items shall be taken into account by the acquiring
corporation subject to the conditions and limitations specified in
sections 381, 382(b), and 383 and the regulations thereunder.
Because the Fourth Merger is a transaction to which Section 361 and
368(a)(1)(A) apply, Fourth should succeed to and take into account
the items of OSI described in Section 381(c), subject to the
conditions and limitations specified in Sections 381(b) and (c).
Because the Bank Merger is a transaction to which Section 361 and
368(a)(1)(A) apply, Bank IV should succeed to and take into account
the items of Savings Bank described in Section 381 (c), subject to
the conditions and limitations specified in Sections 381 (b) and (c).
Sec. 381(c)(2) of the Code and Section 1.381(c)(2)-1 of the
Regulations provide that in the case of a distribution or transfer
described in subsection (a) the earnings and profits or deficit in
earnings and profits, as the case may be, of the distributor or
transferor corporation shall, subject to subparagraph (B), be deemed
to have been received or incurred by the acquiring corporation as of
the close of the date of the distribution or transfer; and a deficit
in earnings and profits of the distributor, transferor, or acquiring
corporation shall be used only to offset earnings and profits
accumulated after the date of transfer. Because the Fourth Merger
should be a transfer described in Section 381(a), the earnings and
profits, or deficit in earning and profits, of OSI should be deemed
to have been received or incurred by Fourth as of the close of the
date of transfer, except that any deficit in earnings and profits of
OSI, on the one hand, or Fourth on the other hand, should be used
only to offset earnings and profits accumulated after the date of the
transfer. Because the Bank Merger should be a transfer described in
Section 381(a) the earnings and profits, or deficit in earning and
profits, of Savings Bank should be deemed to have been received or
incurred by Bank IV as of the close of the date of transfer, except
that any deficit in earnings and profits of Savings Bank, on the one
hand, or Bank IV on the other hand, should be used only to offset
earnings and profits accumulated after the date of the transfer.
The Oklahoma Income Tax Act, which is Article 23 of Title 68 of the
Oklahoma Statutes of 1991, provides in Section 2353 that any terms
used in the Oklahoma Income Tax Act shall have the same meaning as
when used in a comparable context in the Code, unless a different
meaning is clearly required. This Section also provides that the tax
status and all elections for all taxpayers shall be the same for all
purposes as they are for federal income tax purposes except when the
Oklahoma Income Tax Act specifically provides otherwise. Oklahoma
taxable income is defined in Section 2353 to be taxable income as
reported to the federal government adjusted for items specifically
set forth in Section 2358 which is entitled "Adjustments to arrive at
Oklahoma taxable income and Oklahoma Adjusted gross income".
The Oklahoma Income Tax Act does not contain specific Sections which
are comparable to the Code but merely adopts the entire Code and then
makes specific adjustments thereto. Therefore, the income tax
treatment of any transaction is the same for Oklahoma purposes as it
is for federal purposes unless there is a specific provision in the
Oklahoma Income Tax Act which changes the income tax treatment. No
specific adjustments came to our attention relative to the Fourth
Merger or the Bank Merger.
OPINION
Based on the facts set forth above and in the Agreement, the proxy
statement-prospectus contained in the registration statement (Form S-4)
filed with the Securities and Exchange Commission on October 5, 1994,
the representations of facts as set forth in Fourth's and OSI's letters
of representations dated October 4, 1994, it is our opinion that the
federal and Oklahoma income tax consequences of the proposed merger of
OSI with and into Fourth, with Fourth surviving, and the proposed merger
of Savings Bank with and into Bank IV, with Bank IV surviving, are as
follows:
Fourth Merger:
The merger of OSI with and into Fourth, with Fourth surviving,
should qualify as a reorganization under Section 368 (a)(1)(A) of
the Code. Fourth and OSI should both be "a party to a
reorganization" within the meaning of Section 368(b).
No gain or loss should be recognized by OSI upon the transfer of its
assets to Fourth in exchange for Fourth common stock or cash for
dissenters, if any, and the assumption by Fourth of the liabilities
of OSI, by reason of the application of Sections 361(a), 361(b) and
357(a) of the Code.
No gain or loss should be recognized by Fourth on the receipt of
OSI's assets in exchange for Fourth common stock and cash for
dissenters, if any, and the assumption by Fourth of OSI's
liabilities, by reason of the application of Section 1032(a).
The basis of the assets of OSI in the hands of Fourth should be the
same as the basis of such assets in the hands of OSI immediately
prior to the reorganization, by reason of the application of Section
362(b) of the Code.
The holding period of the property acquired by Fourth from OSI
should include the holding period of such property in the hands of
OSI immediately prior to the reorganization, by reason of the
application of Section 1223(2) of the Code.
No gain or loss should be recognized by OSI shareholders upon the
exchange of their OSI common stock (including fractional share
interests that they might otherwise be entitled to receive) solely
for Fourth common stock, by reason of the application of Section
354(a)(1) of the Code.
The basis of the Fourth common stock (including fractional share
interest that they might otherwise be entitled to receive) received
by the shareholders of OSI should be the same as the basis of the
OSI stock exchanged therefore, by reason of the application of
Section 358(a)(1) of the Code.
The holding period of the Fourth common stock (including fractional
interests that they might otherwise be entitled to receive) received
by the OSI shareholders should include the holding period of the OSI
shares surrendered in the exchange, provided the OSI stock was held
as a capital asset on the date of the exchange, by reason of the
application of Section 1223(1) of the Code.
As provided in Section 381(a)(2) of the Code and Section 1.381(a)-
1(a) of the Regulations, Fourth should succeed to and take into
account as of the close of the day of transfer the items of OSI
described in Section 381(c) subject to the conditions and
limitations specified in Sections 381(b) and 381(c).
As provided in Section 381(c)(2) of the Code and Section
1.381(c)(2)-1 of the Regulations, Fourth should succeed to and take
into account the earnings and profits, or deficit in earnings and
profits, of OSI as of the date or dates of transfer. Any deficit in
earnings and profits of either Fourth or OSI should be used only to
offset earnings and profits accumulated after the date or dates of
transfer.
Cash received by a shareholder of OSI otherwise entitled to receive
a fractional share of Fourth common stock in exchange for his OSI
stock should be treated as if the fractional shares were distributed
as part of the exchange and then were redeemed by Fourth. These
cash payments should be treated as having been received as
distributions in full payment in exchange for the stock redeemed as
provided in Section 302(a) of the Code. This receipt of cash should
result in gain or loss measured by the difference between the basis
of such fractional share interest and the cash received. Such gain
or loss should be capital gain or loss to the OSI shareholder,
provided the OSI stock was a capital asset in such shareholder's
hands and as such, will be subject to the provisions and limitations
of Subchapter P of Chapter 1 of the Code (Rev. Rul. 66-365 and Rev.
Proc. 77-41).
Where cash is received by a dissenting OSI shareholder, such cash
should be treated as received by the OSI shareholder as a
distribution in redemption of his stock, subject to the provisions
and limitations of Section 302 of the Code.
Bank Merger:
The merger of Savings Bank with and into Bank IV, with Bank IV
surviving, should qualify as a reorganization under Section 368
(a)(1)(A) of the Code. Bank IV and Savings Bank should both be "a
party to a reorganization" within the meaning of Section 368(b).
No gain or loss should be recognized by Savings Bank upon the
transfer of its assets to Bank IV in accordance with the Agreement
and the assumption by Bank IV of the liabilities of Saving Bank, by
reason of the application of Sections 361(a) and 357(a) of the Code.
No gain or loss should be recognized by Bank IV on the receipt of
Savings Bank's assets in exchange for Bank IV common stock and the
assumption by Bank IV of Savings Bank's liabilities, by reason of
the application of Section 1032(a).
The basis of the assets of Savings Bank in the hands of Bank IV
should be the same as the basis of such assets in the hands of
Saving Bank immediately prior to the reorganization, by reason of
the application of Section 362(b) of the Code.
The holding period of the property acquired by Bank IV from Savings
Bank should include the holding period of such property in the hands
of Savings Bank immediately prior to the reorganization, by reason
of the application of Section 1223(2) of the Code.
No gain or loss should be recognized by Fourth upon the exchange of
their Savings Bank common stock solely for Bank IV common stock, by
reason of the application of Section 354(a)(1) of the Code.
The basis of the Bank IV common stock received by Fourth should be
the same as the basis of the Savings Bank stock exchanged therefore,
by reason of the application of Section 358(a)(1) of the Code.
The holding period of the Bank IV common stock received by Fourth
should include the holding period of the Savings Bank shares
surrendered in the exchange, provided the Savings Bank stock was
held as a capital asset on the date of the exchange, by reason of
the application of Section 1223(1) of the Code.
As provided in Section 381(a)(2) of the Code and Section 1.381(a)-
1(a) of the Regulations, Bank IV should succeed to and take into
account as of the close of the day of transfer the items of Savings
Bank described in Section 381(c), subject to the conditions and
limitations specified in Sections 381(b) and 381(c).
As provided in Section 381(c)(2) of the Code and Section
1.381(c)(2)-1 of the Regulations, Bank IV, as the deemed survivor,
should succeed to and take into account the earnings and profits, or
deficit in earnings and profits, of Savings Bank as of the date or
dates of transfer. Any deficit in earnings and profits of either
Bank IV or Savings Bank should be used only to offset earnings and
profits accumulated after the date or dates of transfer.
State of Oklahoma Law:
During the course of our review, no specific provisions in the
Oklahoma Income Tax Act came to our attention which would treat the
Fourth Merger or the Bank Merger differently for Oklahoma purposes
than for federal purposes.
This opinion is based solely upon:
a. The representations, information, documents, and facts
("representations") that we have included or referenced in this
opinion letter;
b. Our assumptions (without independent investigation or review) that
all of the representations and all of the original, copies, and
signatures of documents are accurate, true and authentic;
c. Our assumption (without independent investigation or review) that
there will be timely execution and delivery of, and performance as
required by the representations and documents;
d. The understanding that only the issues and tax consequences opined
upon herein are covered by this tax opinion; and
e. The law, regulations, cases, rulings and other tax authority in
effect as of the date of this letter.
If there are any significant change of the foregoing tax authorities
(for which we have no responsibility to advise you), it may result in
our opinion being rendered invalid, or necessitate (upon your request) a
reconsideration of the opinion.
While this opinion letter represents our considered judgment as to the
proper tax treatment to the parties involved, it is not binding on the
IRS or the courts.
Deloitte & Touche LLP
Certified Public Accountants
October 5, 1994
Oklahoma City, Oklahoma
EXHIBIT 10.2
AGREEMENT AND PLAN OF REORGANIZATION
among
FOURTH FINANCIAL CORPORATION,
STANDARD BANCORPORATION, INC.,
and
ALL OF THE STOCKHOLDERS OF
STANDARD BANCORPORATION, INC.
Dated as of September 2, 1994
TABLE OF CONTENTS
Page No.
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ARTICLE I. Definitions . . . . . . . . . . . . . . . . . . .2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . .2
Section 1.2 Accounting Terms. . . . . . . . . . . . . . . . .8
Section 1.3 Use of Defined Terms. . . . . . . . . . . . . . .8
ARTICLE II. Plan of Reorganization. . . . . . . . . . . . . .8
Section 2.1 Tax-Free Reorganization . . . . . . . . . . . . .8
Section 2.2 Agreements of Fourth. . . . . . . . . . . . . . .9
Section 2.3 Agreements of SBI and the Stockholders. . . . . 10
Section 2.4 The Merger. . . . . . . . . . . . . . . . . . . 15
Section 2.5 Conversion and Exchange of Shares . . . . . . . 16
Section 2.6 Advance Preparations for Merger . . . . . . . . 18
ARTICLE III. Representations and Warranties. . . . . . . . . 18
Section 3.1 Representations and Warranties of SBI, and the
Stockholders. . . . . . . . . . . . . . . . . . 18
Section 3.2 Representations and Warranties of Fourth. . . . 30
ARTICLE IV. Securities Laws Matters . . . . . . . . . . . . 33
Section 4.1 Registration Statement and Proxy Statement. . . 33
Section 4.2 State Securities Laws . . . . . . . . . . . . . 33
Section 4.3 Affiliates. . . . . . . . . . . . . . . . . . . 33
Section 4.4 Affiliates' Agreements. . . . . . . . . . . . . 34
ARTICLE V. Closing Conditions. . . . . . . . . . . . . . . 35
Section 5.1 Conditions to Obligations of Fourth . . . . . . 35
Section 5.2 Conditions to Obligations of SBI and
the Stockholders. . . . . . . . . . . . . . . . 37
ARTICLE VI. Effective Time. . . . . . . . . . . . . . . . . 38
ARTICLE VII. Termination of Agreement. . . . . . . . . . . . 39
Section 7.1 Mutual Consent; Absence of Stockholder
Approval; Termination Date. . . . . . . . . . . 39
Section 7.2 Election by Fourth. . . . . . . . . . . . . . . 39
Section 7.3 Election by SBI . . . . . . . . . . . . . . . . 39
Section 7.4 Effect of Termination . . . . . . . . . . . . . 40
ARTICLE VIII. Indemnification . . . . . . . . . . . . . . . . 40
Section 8.1 Effect of Closing . . . . . . . . . . . . . . . 40
Section 8.2 General Indemnification . . . . . . . . . . . . 41
Section 8.3 Procedure . . . . . . . . . . . . . . . . . . . 41
Section 8.4 Survival of Representations and Warranties. . . 42
Section 8.5 Several Liability of Stockholders . . . . . . . 42
Section 8.6 Indemnification Payments. . . . . . . . . . . . 43
ARTICLE IX. Miscellaneous . . . . . . . . . . . . . . . . . 43
Section 9.1 Expenses. . . . . . . . . . . . . . . . . . . . 43
Section 9.2 Notices . . . . . . . . . . . . . . . . . . . . 43
Section 9.3 Stockholders' Agreements. . . . . . . . . . . . 43
Section 9.4 Time. . . . . . . . . . . . . . . . . . . . . . 44
Section 9.5 Law Governing . . . . . . . . . . . . . . . . . 44
Section 9.6 Entire Agreement; Amendment . . . . . . . . . . 44
Section 9.7 Successors and Assigns. . . . . . . . . . . . . 44
Section 9.8 Cover, Table of Contents, and Headings. . . . . 44
Section 9.9 Counterparts. . . . . . . . . . . . . . . . . . 44
EXHIBITS
Exhibit "A" Form of Merger Agreement
Exhibit "B" Form of Knudsen, Berkheimer, Richardson &
Endacott legal opinion
Exhibit "C" Form of Foulston & Siefkin legal opinion
Exhibit "D" Form of Affiliate's Agreement
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of September
2, 1994, between FOURTH FINANCIAL CORPORATION, a Kansas
corporation ("Fourth"), STANDARD BANCORPORATION, INC., a Nebraska
corporation ("SBI"), and all of the stockholders of SBI and CHRIS
J. MURPHY.
W I T N E S S E T H: That,
--------------------
WHEREAS, the Boards of Directors of Fourth and SBI have
approved and deem it advisable and in the best interests of their
respective stockholders to consummate the business combination
transaction provided for herein; and
WHEREAS, Fourth, SBI, the stockholders of SBI, and Mr.
Murphy, who is a party to an agreement with Mr. Harper dated
April 17, 1991 relating to Mr. Harper's shares of SBI capital
stock, desire to make certain representations, warranties, and
agreements in connection with the transaction contemplated hereby
and also to prescribe various conditions to consummating such
transaction; and
WHEREAS, for Federal income tax purposes, it is intended
that the merger contemplated by this agreement shall qualify as a
reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, and agreements
set forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms as used in this
Agreement shall have the following meanings unless the context
otherwise requires:
"Affiliate" has the same meaning as in Rules 145 and 405
adopted under the Securities Act by the SEC, as the same may be
amended from time to time.
"Agreement" refers to this Agreement and Plan of
Reorganization and all amendments hereto.
"Bank" means Standard Bank & Trust, a Missouri state-chartered
bank.
"Bank Stock" means the common stock of the Bank, par value
$100.00 per share.
"Bank Holding Company Act" means the federal Bank Holding
Company Act of 1956, as amended (12 U.S.C. Section 1841 et seq.),
or any successor federal statute, and the rules and regulations of
the Board promulgated thereunder, all as the same may be in effect
at the time.
"Best Efforts" does not include those actions which are not
commercially reasonable under the circumstances.
"Board" means the Board of Governors of the Federal Reserve
System or any successor governmental entity which may be granted
powers currently exercised by the Board of Governors.
"Closing" means the consummation of the Merger as provided in
this Agreement.
"Closing Price" means the closing price of Fourth Stock on the
trading day two trading days prior to the Effective Time as
reported in the Southwest Edition of The Wall Street Journal.
"Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder, all as the
same may be in effect at the time.
"Comptroller" means the United States Comptroller of the
Currency or any successor governmental agency which may be granted
powers currently exercised by the Comptroller of the Currency.
"Corporations" refers to SBI and the Bank.
"Disclosure Statement" means the Disclosure Statement prepared
by SBI and the Stockholders, and delivered by them to Fourth prior
to the execution and delivery of this Agreement by Fourth.
"Division Director" means the Director of the Division of
Finance of the State of Missouri or any successor official or
agency which may be granted powers currently exercised by the
Director of the Division of Finance of the State of Missouri.
"Effective Time" means the date and time on which the Merger
is effective as more fully defined in this Agreement.
"Environmental, Health, and Safety Liabilities" means any
loss, cost, expense, claim, demand, liability, or obligation of
whatever kind or otherwise, based upon any Environmental, Health,
and Safety Law relating to:
(i) any environmental, health, or safety matter or
conditions, including, but not limited to, on-site or off-site
contamination, occupational safety and health, and regulation
of chemical substances or products;
(ii) fines, penalties, judgments, awards, settlements,
legal or administrative proceedings, damages, losses, claims,
demands, and response, remedial or inspection costs and
expenses arising under any Environmental, Health, and Safety
Law;
(iii) financial responsibility under any Environmental
Law for cleanup costs or corrective actions, including for any
removal, remedial or other response actions, and for any
natural resource damage; and
(iv) any other compliance, corrective, or remedial action
required under any Environmental, Health, and Safety Law.
"Environmental, Health, and Safety Law" means any provision of
past or present Law relating to any environmental, health, or
safety matters or conditions, Hazardous Materials, pollution, or
protection of the environment, including, but not limited to, on-
site and off-site contamination, occupational safety and health,
and regulation of chemical substances or products, emissions,
discharges, release, or threatened release of contaminants,
chemicals or industrial, toxic, radioactive, or Hazardous Materials
or wastes into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of Hazardous Materials,
pollutants, contaminants, chemicals, or industrial, toxic,
radioactive, or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated
thereunder, all as the same may be in effect at the time.
"Exchange Act" means the federal Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
thereunder, all as the same may be in effect at the time.
"Exchange Ratio" means: in the case of SBI Class A Common
Stock, 53.9974; in the case of SBI Class B Common Stock, 53.9971;
and, in the case of SBI Preferred Stock, 3.4487.
"Federal Deposit Insurance Act" means the Federal Deposit
Insurance Act, as amended, and the rules and regulations
promulgated thereunder, all as the same may be in effect at the
time.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor agency.
"Financial Statements" refers to all of the financial
statements described in clause g of Section 3.1 of this Agreement.
"Fourth" means Fourth Financial Corporation, a Kansas
corporation and a party to this Agreement.
"Fourth Stock" means the common stock of Fourth, par value $5
per share.
"GAAP" means generally accepted accounting principles, applied
on a consistent basis, set forth in Opinions of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting
Standards Board and/or their successors which are applicable in the
circumstances in question; and the requisite that such principles
be applied on a consistent basis means that the accounting
principles observed in a current period are comparable in all
material respects to those applied in a preceding period.
"Hazardous Materials" means and includes: (i) any hazardous
substance or toxic material (excluding any lawful product for use
in the ordinary course of the Bank's business which contains such
substance or material), pollutant, contaminant, toxic material, or
hazardous waste as defined in any federal, state, or local
environmental Law; (ii) waste oil and petroleum products; and (iii)
any asbestos, asbestos-containing material, urea formaldehyde or
material which contains it.
"Law" or "Laws" means all applicable statutes, laws,
ordinances, regulations, orders, writs, injunctions, or decrees of
the United States of America, any state or commonwealth, or any
subdivision thereof, or of any court or governmental department,
agency, commission, board, bureau, or other instrumentality.
"Litigation" means any proceeding, claim, lawsuit, and/or
investigation being conducted or, to the best of the knowledge of
the person or corporation making the representation, threatened
before any court or other tribunal, including, but not limited to,
proceedings, claims, lawsuits, and/or investigations, under or
pursuant to any occupational safety and health, banking, antitrust,
securities, tax, or other Laws, or under or pursuant to any
contract, agreement, or other instrument.
"Merger" means the merger of SBI into Fourth pursuant to the
Merger Agreement.
"Merger Agreement" means the Agreement and Articles of Merger,
substantially in the form of Exhibit "A" hereto, pursuant to which
the Merger will be effected.
"Occupied Properties" means the parcels of real property owned
or leased by the Corporations on which the Corporations conduct or
have conducted operations, all of which are described in Exhibit
"H" to the Disclosure Statement under the caption "Occupied
Properties".
"Permitted Contract" means a contract or agreement, written or
oral, between the Bank, on the one hand, and a person other than a
customer of the Bank or another financial institution, on the other
hand, which (i) was entered into in the ordinary course of
business, (ii) may be terminated by Fourth after the Effective Time
on no more than 30 days' prior notice, (iii) provides for a payment
of no more than $10,000 in any calendar month by the Bank, and (iv)
provides for no payment upon termination in excess of $10,000.
"Permitted Encumbrances" mean with respect to any asset:
(a) liens for taxes not past due;
(b) mechanics' and materialmen's liens for services or
materials for which payment is not past due; and
(c) minor defects, encumbrances, and irregularities in
title which do not, in the aggregate, materially diminish the
value of a property or materially impair the use of a property
for the purposes for which it is or may reasonably be expected
to be held.
"Proxy Statement" means the proxy statement to be used in
connection with the special stockholders' meeting of SBI to be
called for the purpose of considering and voting upon the Merger.
"Registration Statement" means the registration statement on
Form S-4 to be filed by Fourth with the SEC pursuant to the
Securities Act in connection with the registration of the shares of
Fourth Stock to be issued in connection with the Merger.
"Required Approvals" means the approval, consent, or non-
objection, as the case may be, of the Board, the Comptroller, the
Division Director, and all other governmental or self-governing
agencies, boards, departments, and bodies whose approval, consent,
or non-action is required in order to consummate the Merger, the
conversion of the Bank into a national banking association or the
merger of the Bank with another Missouri financial institution as
contemplated by Section 2.3.i below, the direct ownership by Fourth
of the Bank in substantially its present form, and all other
transactions expressly set forth in this Agreement, which
approvals, consents, and non-objections shall have become final and
nonappealable without any appeal or other form of review having
been initiated and as to which all required waiting periods shall
have expired.
"SBI" means Standard Bancorporation, Inc., a Nebraska
corporation and a party to this Agreement.
"SBI Class A Common Stock" means Class A common stock of SBI,
par value $1.00 per share.
"SBI Class B Common Stock" means Class B non-voting common
stock of SBI, par value $1.00 per share.
"SBI Common Stock" refers collectively to both SBI Class A
Common Stock and SBI Class B Common Stock.
"SBI Preferred Stock" means 9% cumulative, non-participating,
non-voting preferred stock of SBI, par value $100 per share.
"SBI Stock" refers collectively to both classes of SBI Common
Stock and SBI Preferred Stock.
"SEC" means the United States Securities and Exchange
Commission or any other governmental entity which may be granted
powers currently being exercised by the Securities and Exchange
Commission.
"Securities Act" means the federal Securities Act of 1933, as
amended, or any successor federal statute, and the rules and
regulations promulgated thereunder, all as the same shall be in
effect at the time.
"Stockholders" refers collectively to the persons executing
this Agreement as "Stockholders," including Chris J. Murphy, and
"Stockholder" refers to any one of them.
"Subsidiary" means any corporation fifty percent or more of
the common stock or other form of equity of which shall be owned,
directly or indirectly, by another corporation.
1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP
consistent with that applied in the preparation of the financial
statements submitted pursuant to this Agreement, and all financial
statements submitted pursuant to this Agreement shall be prepared
in all material respects in accordance with such principles.
1.3 Use of Defined Terms. All terms defined in this
Agreement shall have the defined meanings when used in the Merger
Agreement, or any other agreement, document, or certificate made or
delivered pursuant to this Agreement, unless otherwise there
defined or unless the context otherwise requires.
ARTICLE II
PLAN OF REORGANIZATION
2.1 Tax-Free Reorganization. It is the intention of the
parties that the Merger contemplated by this Agreement and the
Merger Agreement shall qualify as tax-free reorganization under
Section 368(a)(1)(A) of the Code.
2.2 Agreements of Fourth.
a. Fourth has approved and adopted this Agreement and
the Merger Agreement in accordance with the applicable Laws of
the United States of America and the State of Kansas.
b. Fourth shall cause all necessary action to be taken
to authorize the issuance of the number of shares of Fourth
Stock to be issued in the Merger.
c. Prior to the Effective Time, Fourth, separately and
with the other parties hereto, shall use its Best Efforts in
good faith to take or cause to be taken as promptly as
practicable all such steps as shall be necessary to obtain all
of the Required Approvals, and shall do any and all acts and
things reasonably deemed by Fourth or the Corporations to be
necessary or appropriate in order to cause the Merger to be
consummated on the terms provided herein and in the Merger
Agreement as promptly as practicable.
d. On or prior to the Effective Time, as appropriate
for the transactions contemplated hereby, Fourth shall execute
and deliver the Merger Agreement and the other closing
documents provided for in this Agreement, shall take all such
other actions as are required or desirable to effect the
Merger, and shall utilize its Best Efforts to cause all of the
conditions described in Section 5.2 of this Agreement to occur
and be continuing, and to consummate all of the other
transactions contemplated hereby.
e. Prior to the Effective Time, Fourth shall, to the
extent permitted by Law and outstanding confidentiality
agreements, give SBI and its counsel and accountants full
access, during normal business hours and upon reasonable
notice, to its respective properties, books, and records, and
shall furnish SBI during such period with all such information
concerning its affairs as SBI may reasonably request. The
availability or actual delivery of information about Fourth to
SBI shall not affect the covenants, representations, and
warranties of Fourth contained in this Agreement; provided,
that SBI shall promptly disclose to Fourth any apparent
breaches of such covenants, representations, or warranties
discovered by it prior to the Effective Time. Except for
information disclosed in the Registration Statement or as
otherwise required to be disclosed in the course of obtaining
governmental approvals, SBI shall treat as confidential all
such information in the same manner as SBI treats similar
confidential information of its own and, if this Agreement is
terminated, SBI shall continue to treat all such information
obtained in such investigation and not otherwise known to SBI
from a source not known to SBI to be under a confidential
relationship with Fourth, or already in the public domain, as
confidential and shall return such documents theretofore
delivered by Fourth to SBI as Fourth shall request.
f. At the Effective Time, Fourth shall replace or repay
SBI's existing credit facility with First Bank, N.A., pursuant
to a Credit Agreement dated December 12, 1991 or any
replacement financing.
g. Fourth shall provide directors' and officers'
liability insurance coverage for the directors and officers of
the Corporations substantially similar to that currently in
effect, or continue such insurance, for a period from the
Effective Time through the termination of the applicable
indemnification period described in Section 8.4 of this
Agreement, which insurance shall provide coverage for acts and
omissions occurring on or prior to the Effective Time.
2.3 Agreements of SBI and the Stockholders.
--------------------------------------
a. Prior to the consummation of the Merger, SBI shall
not, and shall not permit the Bank to, except with the prior
written consent of Fourth or as otherwise provided in this
Agreement or the Merger Agreement:
(1) Amend its articles of association, articles of
incorporation, bylaws, or other charter documents, or
make any change in its authorized, issued, or outstanding
capital stock, grant any stock options or right to
acquire shares of any class of its capital stock or any
security convertible into any class of capital stock,
purchase, redeem, retire, or otherwise acquire any shares
of any class of its capital stock or any security
convertible into any class of its capital stock, or agree
to do any of the foregoing;
(2) Declare, set aside, or pay any dividend or
other distribution in respect of any class of its capital
stock, except that the Bank shall be permitted to pay
dividends sufficient to permit SBI to make required
payment on its Bank Stock debt to First Bank, N.A. and to
pay its normal operating expenses including expenses
associated with the proposed merger transaction;
(3) Adopt, enter into, or amend materially any
employment contract or any bonus, stock option, profit
sharing, pension, retirement, incentive, or similar
employee benefit program or arrangement or grant any
salary or wage increase except (a) normal individual
increases in compensation to employees in accordance with
established employee procedures of the Corporations, (b)
payments in accordance with the Fourth Financial
Corporation Acquisition Severance Schedule previously
furnished to SBI, and (c) accrued but unvested bonuses
for three senior executives identified in the Disclosure
Statement in the approximate aggregate amount of
$100,000, and in the individual amounts set forth in the
Disclosure Statement, may be paid at Closing;
(4) Incur any indebtedness for borrowed money
(except for borrowings under SBI's current credit
facility with First Bank, N.A., to pay SBI's expenses
incurred in the ordinary course of business and federal
funds, repurchase agreements entered into in the ordinary
and usual course of business, deposits received by the
Bank, endorsement, for collection or deposit, of
negotiable instruments received in the ordinary and usual
course of business, and issuance of letters of credit by
the Bank in the ordinary and usual course of business),
assume, guarantee, endorse, or otherwise as an
accommodation become liable or responsible for
obligations of any other individual, firm, or
corporation;
(5) Pay or incur any obligation or liability,
absolute or contingent, other than liabilities incurred
in the ordinary and usual course of business of the
Corporations;
(6) Except for transactions in the ordinary and
usual course of business of the Bank or for Permitted
Encumbrances, mortgage, pledge, or subject to lien or
other encumbrance any of its properties or assets;
(7) Except for transactions in the ordinary and
usual course of business of the Bank (including, without
limitation, sales of assets acquired by the Bank in the
course of collecting loans) sell or transfer any of its
properties or assets or cancel, release, or assign any
indebtedness owed to it or any claims held by it;
(8) Without Fourth's consent, which consent will
not be unreasonably withheld, make any investment of a
capital nature in excess of $25,000 for any one item or
group of similar items either by the purchase of stock or
securities (not including bonds purchased in the ordinary
and usual course of business by the Bank), contributions
to capital, property transfers, or otherwise, or by the
purchase of any property or assets of any other
individual, firm, or corporation;
(9) Without Fourth's consent, which consent will
not be unreasonably withheld, enter into any other
agreement not in the ordinary and usual course of
business;
(10) Merge or consolidate with any other
corporation, acquire any stock (except in a fiduciary
capacity), solicit any offers for any class of its
capital stock or a substantial portion of the assets of
any of the Corporations or, except in the ordinary course
of business, acquire any assets of any other person,
corporation, or other business organization, or enter
into any discussions with any person concerning, or agree
to do, any of the foregoing; or
(11) Enter into any transaction or take any action
which would, if effected prior to the Effective Time,
constitute a breach of any of the representations,
warranties, or covenants contained in this Agreement.
b. Prior to the Effective Time, SBI shall, and shall
cause the Bank to, conduct its respective business in the
ordinary and usual course as heretofore conducted, including
maintaining its current policies and procedures regarding the
review, approval, and collection of loans; furnish Fourth with
monthly financial statements and management reports; and use
its Best Efforts (1) to preserve its business and business
organization intact, (2) to keep available to Fourth the
services of its present officers and employees, (3) to
preserve the good will of customers and others having business
relations with it, (4) to maintain its properties in customary
repair, working order, and condition (reasonable wear and tear
excepted), (5) to comply with all Laws applicable to it and
the conduct of its business, (6) to keep in force at not less
than their present limits all existing policies of insurance,
(7) to make no material changes in the customary terms and
conditions upon which it does business, (8) to duly and timely
file all reports, tax returns, and other documents required to
be filed with federal, state, local, and other authorities,
and (9) unless it is contesting the same in good faith and has
established reasonable reserves therefor, to pay when required
to be paid all taxes indicated by tax returns so filed or
otherwise lawfully levied or assessed upon it or any of its
properties and to withhold or collect and pay to the proper
governmental authorities or hold in separate bank accounts for
such payment all taxes and other assessments which it believes
in good faith to be required by law to be so withheld or
collected.
c. Prior to the Effective Time, to the extent permitted
by Law, SBI shall, and shall cause the Bank to, give Fourth
and its counsel and accountants full access, during normal
business hours and upon reasonable notice, to their respective
properties, books, and records, and furnish Fourth during such
period with all such information concerning their affairs as
Fourth may reasonably request. The availability or actual
delivery of information about the Corporations to Fourth shall
not affect the covenants, representations, and warranties of
the SBI and the Stockholders contained in this Agreement or
the Merger Agreement except as provided in Section 8.1 hereof;
provided, that Fourth shall promptly disclose to SBI and the
Stockholders any apparent breaches of such covenants,
representations, or warranties discovered by it prior to the
Effective Time. Except for confidential information disclosed
in the Registration Statement or as otherwise required to be
disclosed in the course of obtaining governmental approvals,
Fourth shall treat as confidential all confidential
information in the same manner as Fourth treats similar
confidential information of its own and, if this Agreement is
terminated, Fourth shall continue to treat all such
information obtained in such investigation and not otherwise
known to Fourth from a source not known to Fourth to be under
a confidential relationship with the Corporations, or already
in the public domain, as confidential and shall return such
documents theretofore delivered by the Corporations to Fourth
as the Corporations shall request.
d. SBI shall cause this Agreement and the Merger
Agreement to be submitted promptly to its stockholders for
approval, adoption, ratification, and confirmation at a
meeting to be called and held in accordance with the
applicable Law and its articles of incorporation and bylaws.
The board of directors of SBI hereby recommends to its
stockholders the approval, adoption, ratification, and
confirmation of the Agreement and the Merger Agreement.
e. SBI shall, and shall cause the Bank, to use its Best
Efforts with Fourth in good faith to take or cause to be taken
as promptly as practicable all such steps as shall be
necessary to obtain all of the Required Approvals, and do any
and all acts and things reasonably deemed by Fourth or the
Corporations to be necessary or appropriate in order to cause
the Merger to be consummated on the terms provided herein and
in the Merger Agreement as promptly as practicable.
f. On or prior to the Effective Time, as appropriate
for the transactions contemplated hereby, SBI shall execute
and deliver the Merger Agreement and the other closing
documents provided for in this Agreement, shall take all such
other actions required or desirable in order to effect the
Merger, and shall utilize its Best Efforts to cause all of the
conditions described in Section 5.1 of this Agreement to occur
and be continuing, and to consummate all of the other
transactions contemplated hereby.
g. SBI shall obtain current title evidence or
insurance, environmental assessment reports, and surveys on
such of the Corporations' real estate as Fourth may reasonably
request.
h. From the date hereof through the Effective Time, SBI
shall cause the Bank to give Robert W. Peterson, Vice
President, BANK IV Kansas, National Association (or such other
person as may be designated by Fourth in writing) at least one
business day advance oral notice of all proposed securities
purchases or sales involving an aggregate price of $50,000 or
more.
i. SBI and Stockholders acknowledge that Fourth may
acquire one or more financial institutions located in Missouri
in addition to the Bank and that Fourth intends to merge all
of its Missouri financial institutions together into a
national banking association called "BANK IV Missouri,
National Association." Accordingly, Stockholders and SBI
agree to take, and to cause the Bank to take, all such action
as Fourth may reasonably request in order for (1) such a
merger to occur contemporaneous with or immediately following
the Closing and/or (2) the Bank to be converted into a
national banking association named "BANK IV Missouri, National
Association" contemporaneously or immediately following the
Closing.
j. Prior to the Effective Time, SBI shall acquire all
of the shares of Bank Stock held as directors' qualifying
shares pursuant to the existing repurchase agreements between
the Bank and the Bank directors.
k. Chris J. Murphy and Charles M. Harper agree that Mr.
Murphy will not acquire any shares of SBI Stock from Mr.
Harper pursuant to their existing agreement prior to the
Effective Time. Mr. Murphy agrees that if he acquires any of
the Fourth Stock issued to Mr. Harper in the Merger, he will
be bound by the terms and conditions of this Agreement at such
time as though he had been an SBI stockholder on the date
hereof. Fourth shall not be required to register the transfer
of any shares of Fourth Stock from Mr. Harper to Mr. Murphy
until Mr. Murphy has executed and delivered to Fourth an
Affiliate's Agreement.
2.4 The Merger.
---------
a. At the Effective Time, the Merger shall occur
pursuant to the Merger Agreement. The Merger Agreement shall
be substantially in the form of Exhibit "A" to this Agreement,
with such immaterial changes thereto as may be required or
desirable in order to obtain the required governmental
approvals and with all blanks properly completed.
b. As the result of the Merger, the separate existence
of SBI shall cease, and Fourth, as the surviving corporation,
shall continue its corporate existence under the laws of the
State of Kansas; the articles of incorporation and the bylaws
of Fourth in effect at the Effective Time shall be the
articles of incorporation and bylaws of the surviving
corporation until further amended as provided by Law; the
directors and officers of Fourth immediately preceding the
Merger shall be the directors and officers of the surviving
corporation; Fourth shall possess all the rights, privileges,
powers, and franchises of a public as well as of a private
nature of SBI; all property, real, personal, and mixed,
belonging to SBI shall be vested in and belong to Fourth; and
all rights of creditors of SBI shall continue unimpaired
against Fourth.
c. From time to time as and when requested by Fourth,
its respective successors or assigns, the officers and
directors of SBI last in office shall execute and deliver such
deeds and other instruments and shall take or cause to be
taken such other actions as shall be necessary or desirable to
vest or perfect in or to confirm of record or otherwise
Fourth's title to, and possession of, all the property,
interests, assets, rights, privileges, immunities, powers,
franchises, and authority of SBI and otherwise to carry out
the purposes of this Agreement; provided, that no such officer
or director shall thereby incur any expense or liability.
2.5 Conversion and Exchange of Shares.
---------------------------------
a. Merger. The manner of converting or exchanging the
shares of capital stock of SBI outstanding at the Effective
Time shall be as follows:
(1) The Merger shall effect no change in any of the
then issued and outstanding shares of Fourth Stock and
none of Fourth's then issued and outstanding shares of
Fourth Stock shall be converted or exchanged as the
result of the Merger.
(2) At the Effective Time, upon consummation of the
Merger, each issued and outstanding share of SBI Class A
Common Stock, SBI Class B Common Stock, and SBI Preferred
Stock shall cease to be an issued and existing share, and
each share (and all rights to receive accrued preferred
stock dividends) shall automatically be converted into
and exchanged solely for that number of shares of Fourth
Stock equal to the appropriate Exchange Ratio for such
class of stock. A maximum of 315,000 shares of Fourth
Stock will be issued in connection with the Merger, with
126,354 shares of Fourth Stock being allocated for the
conversion and exchange of SBI Class A Common Stock,
168,471 shares of Fourth Stock being allocated for the
conversion and exchange of SBI Class B Common Stock, and
20,175 shares of Fourth Stock being allocated for
conversion and exchange of SBI Preferred Stock. No
holder of SBI Preferred Stock shall have any right to
receive any dividend on any of the SBI Preferred Stock.
b. Adjustment for Changes in Fourth's Capitalization.
If, between the date of this Agreement and the Effective Time,
Fourth shall take any action to subdivide its outstanding
shares of common stock into a greater number of shares, or to
combine its outstanding shares of common stock into a smaller
number of shares, or to declare a stock dividend on its
outstanding common stock, or to effect a reclassification of
its common stock, then the number and kind of shares of Fourth
Stock which the stockholders of SBI shall be entitled to
receive in the Merger shall be adjusted equitably to prevent
dilution or enlargement of the proportionate common stock
interests in Fourth to be received by them.
c. Stock Certificates. After the Effective Time and
until surrendered for exchange, each outstanding stock
certificate which prior to the Effective Time represented SBI
Stock shall be deemed for all corporate purposes to represent
the right to receive the number of shares of Fourth Stock into
which the shares of stock have been so converted; provided,
that in any matters relating to the shares represented by such
stock certificates, Fourth may rely exclusively upon the
record of stockholders maintained by SBI containing the names
and addresses of all stockholders of record at the Effective
Time. Unless and until such outstanding stock certificates
formerly representing such shares are so surrendered, no
dividend payable to holders of Fourth Stock, as of any date on
or subsequent to the Effective Time, shall be paid to the
holder of such outstanding certificates in respect thereof.
Upon surrender of such outstanding certificates (or, in case
of lost certificates, upon receipt of a surety bond or other
form of indemnification which is satisfactory to Fourth),
however, the former SBI stockholder shall receive a
certificate evidencing the shares of Fourth Stock to which
such stockholder is entitled plus the accrued dividends on
such stock from the Effective Time, without interest.
d. Fractional Shares. No fractional shares of Fourth
Stock will be issued. Instead, upon surrender of SBI stock
certificates (or in the case of lost certificates, a surety
bond or other form of indemnification which is satisfactory to
Fourth), Fourth will pay, or cause to be paid, to the holder
thereof the cash value of the fractional interest to which the
holder thereof would otherwise be entitled, based upon the
Closing Price.
e. Exchange Procedure. Promptly after the Effective
Time, Fourth will send a notice and transmittal form to each
record holder of outstanding certificates that immediately
prior to the Effective Time evidenced shares of SBI Stock,
advising such stockholder of the effectiveness of the Merger
and the procedures for surrendering to Fourth such
certificates in exchange for certificates representing the
number of shares of Fourth Stock into which the shares of such
capital stock represented by such certificates shall have been
converted.
2.6 Advance Preparations for Merger. The parties acknowledge
that Fourth anticipates it will be desirable to take various
actions immediately following the Effective Time to maximize the
future profitability of the Bank, and that, as future stockholders
of Fourth, the stockholders of SBI will all benefit from such
action to the extent they are successful. Accordingly, SBI will,
and will cause the Bank to, cooperate with Fourth in making advance
plans and preparations for post-closing operations, including,
without limitation, cooperation with employees of Fourth in
planning for post-closing operations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of SBI and the
Stockholders. Except as expressly disclosed in the Disclosure
Statement, SBI and the Stockholders jointly and severally represent
and warrant to Fourth as follows:
a. Organization, Good Standing, and Authority. SBI is
a bank holding company duly registered pursuant to the Bank
Holding Company Act. Each of the Corporations is a
corporation or bank duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its
incorporation and with all appropriate governmental agencies,
and each has all requisite corporate power and authority to
conduct its business as it is now conducted, to own its
properties and assets, and to lease properties used in its
business. The only subsidiary of SBI is the Bank. The Bank
has no Subsidiaries. None of the Corporations is in violation
of its charter documents or bylaws, or of any applicable Law
in any material respect. The deposits of the Bank are insured
by the FDIC to the maximum extent for each depositor provided
by the Federal Deposit Insurance Act and the Bank has paid all
assessments and filed all reports required to be filed under
the Federal Deposit Insurance Act.
b. Binding Obligations; Due Authorization. This
Agreement constitutes, and the Merger Agreement will upon
execution and delivery constitute, subject only to the
approval and adoption thereof by the stockholders of SBI,
valid and binding obligations of SBI and each Stockholder,
enforceable against each of such parties in accordance with
the respective terms of such documents, except as the
enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other
similar Laws relating to or affecting the enforcement of
creditors' rights generally, and subject as to the enforcement
of remedies to general principles of equity. The execution,
delivery, and performance of this Agreement, the Merger
Agreement, and the transactions contemplated by all such
agreements have been duly authorized by the board of directors
of SBI.
c. Absence of Default. None of the execution or the
delivery of this Agreement and the Merger Agreement, the
consummation of the transactions contemplated hereby or
thereby, or the fulfillment of the terms hereof or thereof,
will (1) conflict with, or result in a breach of the terms,
conditions, or provisions of, or constitute a default under
the charter documents or bylaws of any of the Corporations or
under any material agreement or instrument under which any of
the Corporations is obligated, other than the Credit Agreement
dated December 12, 1991, between SBI and First Bank, N.A., or
(2) violate any Law to which any of the Corporations is
subject.
d. Capitalization. SBI is authorized to issue (i)
6,000 shares of SBI Preferred Stock, par value $100 per share,
of which 5,850 shares are validly issued and outstanding; (ii)
500,000 shares of SBI Class A Common Stock, par value $1.00
per share, of which 2,340 shares are validly issued and
outstanding; and (iii) 500,000 shares of SBI Class B Common
Stock, par value $1.00 per share, of which 3,120 shares are
validly issued and outstanding. The Bank is authorized to
issue 26,000 shares of Bank Stock, par value $100 per share,
of which 26,000 shares are validly issued and outstanding, all
of which are owned by SBI, except for: (i) ten shares held as
directors' qualifying shares, all of which are subject to
valid repurchase agreements, true and correct copies of which
are included in the Disclosure Statement as Exhibits "D-1" to
"D-10"; and (ii) the pledge of such shares to secure the loan
from First Bank, N.A. referred to above, are free and clear of
all encumbrances, liens, security interests, and claims
whatsoever.
e. Charter Documents. True and correct copies of the
charter documents and bylaws of each of the Corporations, with
all amendments thereto, are included in the Disclosure
Statement as Exhibits "E-1" to "E-4."
f. Options, Warrants, and Other Rights. Neither of the
Corporations has outstanding any options, warrants, or rights
of any kind requiring it to sell or issue to anyone any
capital stock of any class and neither of the Corporations has
agreed to issue, sell, or purchase any additional shares of
any class of its capital stock.
g. Financial Statements. Included in the Disclosure
Statement as Exhibits "G-1" through "G-6" are true and
complete copies of the following financial statements, all of
which have been prepared in accordance with GAAP and all
applicable regulatory accounting principles consistently
followed throughout the periods indicated and fairly present
in all material respects the financial condition of the
Corporations as of the dates and for the periods indicated,
subject in the case of interim financial statements, to normal
recurring year-end adjustments (the effect of which will not,
individually or in the aggregate, be materially adverse) and
the absence of notes (which if presented would not differ
materially from those included in the most recent year-end
financial statements):
(1) Audited Consolidated Financial Statements of
SBI as of December 31, 1993, and 1992 and for the fiscal
years then ended, with auditors' report thereon and notes
thereto, which have been examined by Deloitte & Touche,
LLP, independent certified public accountants;
(2) Audited Financial Statements of the Bank as of
December 31, 1993, and 1992 and for the fiscal years then
ended, with auditors' report thereon and notes thereto,
which have been examined by Deloitte & Touche LLP,
independent certified public accountants; and
(3) Consolidated Reports of Condition and Income as
of September 30, 1993, December 31, 1993, March 31, 1994,
and June 30, 1994.
As soon as practicable between the date hereof and the
Effective Time, the Corporations will deliver to Fourth copies
of monthly operating statements and monthly securities
inventory reports of the Bank and SBI and of all reports filed
by either of them with any regulatory agencies. The books of
account of each of the Corporations and each of the Financial
Statements fairly and correctly reflect and, when delivered,
will reflect in all material respects in accordance with GAAP
or otherwise applicable rules and regulations of regulatory
agencies applied on a consistent basis, the respective
incomes, expenses, assets, and liabilities, absolute or
contingent, of each of the Corporations (except for the
absence in the monthly operating statements of the Bank and in
the quarterly regulatory reports of certain information,
adjustments, and footnotes normally included in financial
statements prepared in accordance with GAAP which in the
aggregate would not be materially adverse). There have been
no material adverse changes in the financial condition of any
of the Corporations from December 31, 1993, other than changes
made in the usual and ordinary conduct of the businesses of
the Corporations, none of which has been or will be materially
adverse and all of which have been or will be recorded in the
books of account of the Corporations; and except as
specifically permitted by this Agreement, there have been no
material adverse changes in the respective businesses, assets,
properties, or liabilities, absolute or contingent, of any of
the Corporations, or in their respective condition, financial
or otherwise, from the date of the most recent of the
Financial Statements that has been delivered to Fourth on the
date hereof other than (i) changes occurring in the usual and
ordinary conduct of the business of the Corporations, none of
which has been or will be materially adverse and all of which
have been or will be recorded in the respective books of
account of the Corporations, and (ii) resulting from action
required or permitted by this Agreement to be taken by any of
the Corporations. Neither of the Corporations has any
contingent liabilities, other than letters of credit and
similar obligations of the Bank incurred in the ordinary
course of business, that are not described in or reserved
against in the Financial Statements listed above. No claims
based on "undisclosed liabilities and obligations" as defined
in the Purchase and Assumption Agreement, dated December 1,
1990 among W. Grant Gregory, Standard State Bank and Trust,
and Independence Financial Corporation have been asserted
against either of the Corporations pursuant to such Purchase
and Assumption Agreement.
h. Properties. SBI does not own or lease any real
property. Exhibit "H" to the Disclosure Statement is a
complete list of all real estate owned or leased by the Bank.
The Bank has good and marketable title in fee simple to all of
the real property shown on its books as being owned by it,
free and clear of all liens, encumbrances, and charges, except
for those exceptions described on Exhibit "H" to the
Disclosure Statement and Permitted Encumbrances. All leases
of real property to which the Bank is a party as lessee, a
true and complete copy of each of which with all amendments
thereto is included in Exhibit "H" to the Disclosure
Statement, are valid and enforceable in accordance with their
respective terms except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, or similar
Laws and equitable principles affecting creditors' rights
generally, and there has been no material default by any party
thereto. No zoning ordinance prohibits, interferes with, or
materially impairs the usefulness of the Occupied Properties;
and all the premises on the Occupied Properties or leased by
the Bank are in good operating condition and repair, normal
wear and tear excepted.
i. Personal Property. SBI does not own or lease any
material tangible personal property. The Bank has good and
merchantable title to all of the machinery, equipment,
materials, supplies, and other property of every kind,
tangible or intangible, contained in its offices and other
facilities or shown as assets in its records and books of
account, free and clear of all liens, encumbrances, and
charges except for leasehold improvements to leased premises
and for personal property held under the leases described on
Exhibit "I" to the Disclosure Statement. All leases of
personal property to which the Bank is a party as lessee, true
and complete copies of each which with all amendments thereto
are included in Exhibit "I" to the Disclosure Statement, are
valid and enforceable in accordance with their terms, and
there has been no material default by any party thereto. All
of such personal property owned or leased by the Bank is in
good operating condition, normal wear and tear excepted.
j. Taxes. Except for an amended 1993 federal tax
return providing for the payment of additional income tax in
the amount of approximately $30,000 to be filed by the
Corporations prior to the Effective Time, the Corporations
have all filed all tax returns and reports required to be
filed with the United States Government and with all states
and political subdivisions thereof where any such returns or
reports are required to be filed and where the failure to file
such return or report would subject any of the Corporations to
any material liability or penalty. All taxes imposed by the
United States, or by any foreign country, or by any state,
municipality, subdivision, or instrumentality of the United
States or of any foreign country, or by any other taxing
authority, which are due and payable by any of the
Corporations have been paid in full or adequately provided for
by reserves shown in the records and books of account of the
Corporations and in the Financial Statements. No extension of
time for the assessment of deficiencies for any years is in
effect. None of the Corporations has any knowledge of any
unassessed tax deficiency proposed or threatened against any
of them.
k. Contracts. Other than Permitted Contracts and
agreements with customers of the Bank and with financial
institutions entered into by the Bank in the ordinary course
of banking business, attached to the Disclosure Statement as
Exhibit "K" is a list of all material contracts and other
agreements and arrangements, both written and oral, to which
either of the Corporations is a party, which affect or pertain
to the operation of their respective businesses, and which
involve future payments by any of the Corporations of $10,000
or more (the "Scheduled Agreements"). All parties to the
Scheduled Agreements have in all material respects performed,
and are in good standing with respect to, all the material
obligations required to be performed under all such contracts
and other agreements and arrangements, and no obligation with
respect thereto is overdue. All of the agreements of the
Corporations, including without limitation the agreements
disclosed in writing pursuant to this clause k, are valid,
binding, and enforceable in accordance with their terms,
except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws and equitable
principles affecting creditors' rights generally. Except as
otherwise noted in Exhibit "K" to the Disclosure Statement, no
contract, lease, or other agreement or arrangement to which
any of the Corporations is a party or as to which any of any
of their assets is subject requires the consent of any third
party in connection with this Agreement or the Merger. The
Corporations are not in default under any of the Scheduled
Agreements; the Corporations are not aware of any default by
any other party to any of the Scheduled Agreements or any
claim by any other party that the Corporations are in default
under any of the Scheduled Agreements. Except for Permitted
Contracts and except as set forth in Exhibit "K" to the
Disclosure Statement, neither of the Corporations is a party
to:
(1) Any contract for the purchase or sale of any
materials, services, or supplies which contains any
escalator, renegotiation, or redetermination clause or
which commits it for a fixed term;
(2) Any contract of employment with any officer or
employee not terminable at will without liability on
account of such termination;
(3) Any management or consultation agreement not
terminable at will without liability on account of such
termination;
(4) Any license, royalty, or union agreement, or
loan agreement in which a Corporation is the borrower;
(5) Any contract, accepted order, or commitment for
the purchase or sale of materials, services, or supplies
having a total remaining contract price in excess of
$10,000;
(6) Any contract containing any restrictions on any
party thereto competing with either Corporation or any
other person;
(7) Any other agreement which materially affects
the business, properties, or assets of either of the
Corporations, or which was entered into other than in the
ordinary and usual course of business; or
(8) Any letter of credit or commitment to make any
loan or group of loans to related parties in an amount in
excess of $100,000.
None of the Corporations' agreements described in this
clause k other than loans made in the ordinary course is
reasonably anticipated by either of the Corporations or any
Stockholder to result in a material loss to either of the
Corporations.
1. Labor Relations; Employees; ERISA. Neither of the
Corporations is a party to or affected by any collective
bargaining agreement or employment agreement, nor is any
Corporation a party to any pending or, to the knowledge of
either of the Corporations, any threatened labor dispute,
organizational efforts, or labor negotiations. Each of the
Corporations has complied with all applicable Laws relating to
the employment of labor, including, but not limited to, the
provisions thereof relating to wages, hours, collective
bargaining, payment of social security taxes, and equal
employment opportunity, the violation of which would have a
materially adverse impact on their respective businesses.
Neither of the Corporations is liable for any arrears of wages
or any taxes or penalties for failure to comply with any of
the foregoing. True and complete copies of the Bank's 401(K)
Plan, the Bank's Annual Officer Bonus Plan, and the Bank's
long-term incentive plan, together with all amendments
thereto, are attached as Exhibits L-1 through L-3,
respectively, to the Disclosure Statement. Except for the
three plans described in the preceding sentence, neither of
the Corporations has any written or oral retirement, pension,
profit sharing, stock option, bonus, or other employee benefit
plan or practice other than group health, life, and accident
insurance. Each such plan is in material compliance with
ERISA and the Code and the 401(K) Plan is a "qualified plan"
within the meaning of Section 401(a) of the Code and is the
subject of a currently effective written determination of the
Internal Revenue Service to such effect and to the further
effect that the trust thereunder is a trust exempt from tax
under Section 501 of the Code. The Corporations and
Stockholders know of no facts or circumstances that could
adversely affect the status of such plan as such a plan or
such trust as such a trust. All accrued contributions and
other payments to be made by the Bank under the three plans
have been made or reserves adequate for such purposes have
been set aside therefor. Neither of the Corporations has
violated any of the provisions of ERISA, and neither of them
has engaged in any "prohibited transactions" as such term is
defined in Section 406 of ERISA. Each of the Corporations has
complied with all applicable notice requirements and has
provided group health care continuation coverage under Section
4980B of the Code and/or any other applicable Laws. There is
no employee of either of the Corporations whose employment is
not terminable at will without severance pay or other penalty
or compensation.
m. Government Authorizations. Each of the Corporations
has all permits, charters, licenses, orders, and approvals of
every federal, state, local, or foreign governmental or
regulatory body required in order to permit it to carry on its
business substantially as presently conducted except where the
failure to do so would not have a material adverse effect on
the businesses, results of operations or general business
affairs of SBI and the Bank taken as a whole. All such
licenses, permits, charters, orders, and approvals are in full
force and effect, and neither of the Corporations knows of any
threatened suspension or cancellation of any of them or of any
fact or circumstance that will interfere with or adversely
affect the renewal of any of such licenses, permits, charters,
orders, or approvals; and none of such permits, charters,
licenses, orders, and approvals will be affected by the
consummation of the transactions contemplated by this
Agreement.
n. Insurance. Exhibit "N" to the Disclosure Statement
is a complete list of all insurance policies presently in
effect and in effect during the past three years. All the
insurance policies and bonds currently maintained by either of
the Corporations are in full force and effect.
o. Litigation. Exhibit "O" to the Disclosure Statement
contains a true and complete list and brief description of all
pending or, to the knowledge of either of the Corporations or
any of the Stockholders, threatened Litigation to which either
of the Corporations is or would be a party or to which any of
their assets is or would be subject. Except as described on
Exhibit "O" to the Disclosure Statement, neither of the
Corporations is a party to any Litigation other than routine
litigation commenced by the Bank to enforce obligations of
borrowers in which no counterclaims for any material amounts
of money have been asserted or, to the knowledge of either of
the Corporations or any of the Stockholders, threatened. To
the knowledge of the Corporations or any of the Stockholders,
there are no threatened proceedings against or investigations
of any of the Corporations by either regulatory agency.
p. Brokers or Finders. No broker, agent, finder,
consultant, or other party (other than legal, accounting, and
financial advisors) has been retained by either of the
Corporations or any Stockholder or is entitled to be paid
based upon any agreements, arrangements, or understandings
made by either of the Corporations or any Stockholder in
connection with any of the transactions contemplated by this
Agreement or the Merger Agreement.
q. SEC Filings To Be Accurate. The information
pertaining to the Corporations which has been or will be
furnished to Fourth by or on behalf of any of the Corporations
or Stockholders for inclusion in the Registration Statement or
the Proxy Statement, and the information pertaining to either
of the Corporations which will appear in the Registration
Statement or the Proxy Statement, in the form filed with the
SEC, will not contain any untrue statement of any material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the
light of the circumstances under which they are made, not
misleading. The Corporations and Stockholders shall promptly
advise Fourth in writing if prior to the Effective Time any of
them shall obtain knowledge of any fact that would make it
necessary to amend the Registration Statement or the Proxy
Statement, or to supplement the prospectus contained in the
Registration Statement, in order to make the statements
therein not misleading or to comply with applicable Law.
r. Stockholder Matters. Exhibit "R-1" to the
Disclosure Statement accurately sets forth after the name of
each Stockholder, the number of shares of each class of SBI
Stock beneficially owned by such Stockholder, in each case
free and clear of all liens, encumbrances, claims, and
equities which would impair the right of the record owner to
vote such shares in favor of the Merger, and the number of
shares of Fourth Stock to be received in the Merger; provided,
however, that no Stockholder makes any warranty as to the
shares owned by any other Stockholder. Neither of the
Corporations is a party and none of the Stockholders is a
party to any agreement (except for an agreement dated April
17, 1991, by and between Charles M. Harper and Chris J.
Murphy) which in any way restricts the right of any
Stockholder to vote on this Agreement or the Merger Agreement
or consummate the transactions contemplated therein. There is
no plan or intention by any of the Stockholders to sell,
exchange, or otherwise dispose of a number of shares of Fourth
Stock received in the Merger that would reduce the SBI
stockholders' ownership of Fourth Stock to a number of shares
having a value, as of the Effective Time, of less than 50
percent of the value of all of the SBI Stock outstanding
immediately prior to the Effective Time. Solely for purposes
of the preceding sentence, an amount of Fourth Stock equal to
(i) the value of SBI Stock surrendered for cash in lieu of
fractional shares of Fourth Stock, and (ii) the value of
shares of Fourth Stock held by SBI stockholders prior to the
Merger and otherwise sold, exchanged, or disposed of prior or
subsequent to the Effective Time, shall be deemed received by
SBI stockholders in the Merger and sold, exchanged, or
disposed of immediately thereafter.
s. Environmental Compliance. The Corporations are in
material compliance with all relevant Environmental, Health,
and Safety Laws and neither of the Corporations has any
material Environmental, Health, and Safety Liabilities.
Except as described in Exhibit "S" to the Disclosure
Statement, none of the Occupied Properties and, to the
knowledge of SBI and any of the Stockholders, no real or
personal property owned or leased by the Bank at any time is
now being used or has at any time in the past ever been used
for the storage (whether permanent or temporary), disposal, or
handling of any Hazardous Materials, nor are any Hazardous
Materials located in, on, under, or at any real or personal
property owned, leased, or used by the Bank. Neither of the
Corporations has received any notice of a material violation
of any Environmental, Health, and Safety Law, or any notice of
any material potential Environmental, Health, and Safety
Liabilities with respect to any properties or assets in which
either of the Corporations has or has had any interest.
t. Employment of Aliens. The Bank is in material
compliance with the Immigration and Control Act of 1986.
u. Notes and Leases. All promissory notes and leases
owned by the Bank at the Effective Time will represent bona
fide indebtedness or obligations to the Bank and are and will
be fully enforceable in accordance with their terms without
valid set-offs or counterclaims, except as shown on the books
and records of the Bank and except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar
Laws and equitable principles affecting creditors' rights
generally; provided, however, no representation or warranty is
made in this Agreement as to the collectibility of any such
note or lease.
v. No Misrepresentations. Neither this Agreement, the
Financial Statements, nor any other letter, certificate,
statement, or document furnished or to be furnished to Fourth
by or on behalf of SBI, the Stockholders, or any of them,
pursuant to or in connection with this Agreement and the
transactions contemplated hereby, when considered in
conjunction with all other information and documents furnished
to Fourth hereunder, contains or will contain any misstatement
of a material fact or omits or will omit to state a material
fact necessary to make the statements contained herein or
therein not misleading.
w. Updating of Representations and Warranties. Between
the date hereof and the Effective Time, SBI and the
Stockholders will promptly disclose to Fourth in writing any
information of which any of them has actual knowledge (1)
concerning any event that would render any of their
representations or warranties contained in this Agreement
untrue if made as of the date of such event, (2) which renders
any information set forth in this Agreement or the Disclosure
Statement no longer correct in all material respects, or (3)
which arises after the date hereof and which would have been
required to be included in this Agreement or the Disclosure
Statement if such information had existed on the date hereof.
3.2 Representations and Warranties of Fourth. Fourth
represents and warrants to SBI and the Stockholders, and each of
them, as follows:
a. Organization, Good Standing, and Authority. Fourth
is a bank holding company duly registered pursuant to the Bank
Holding Company Act. Fourth and each of its banking
Subsidiaries is a corporation or bank duly organized, validly
existing, and in good standing under the laws of the
jurisdiction of its incorporation and with all appropriate
governmental agencies, and each has all requisite corporate
power and authority to conduct its business as it is now
conducted, to own its properties and assets, and to lease
properties used in its business. None of Fourth or any of its
banking Subsidiaries is in violation of its charter documents
or bylaws, or of any applicable Law in any material respect,
or in default in any material respect under any material
agreement, indenture, lease, or other document to which it is
a party or by which it is bound. All of Fourth's issued and
outstanding equity securities are duly registered under the
Federal Securities Exchange Act of 1934, as amended. Shares
of Fourth Stock are listed on the National Market System of
NASDAQ.
b. Binding Obligations: Due Authorization. This
Agreement constitutes, and the Merger Agreement will upon
execution and delivery constitute, valid and binding
obligations of Fourth, enforceable against it in accordance
with the terms of such documents, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium,
or other similar laws and equitable principles affecting
creditors' rights generally. The execution, delivery, and
performance of this Agreement and the Merger Agreement, and
the transactions contemplated by all such agreements have been
duly authorized by the board of directors of Fourth. No
approval of the holders of outstanding Fourth Stock or other
voting securities of Fourth is necessary to consummate the
Merger.
c. Absence of Default. None of the execution or the
delivery of this Agreement and the Merger Agreement, the
consummation of the transactions contemplated hereby or
thereby, or the fulfillment of the terms hereof or thereof,
will (1) conflict with, or result in a breach of the terms,
conditions, or provisions of, or constitute a default under
the charter documents or bylaws of Fourth or any of its
banking Subsidiaries or under any agreement or instrument
under which Fourth or any of its banking Subsidiaries is
obligated, or (2) violate any Law to which any of them is
subject.
d. SEC Documents. Fourth has previously delivered to
SBI its Annual Report on Form 10-K for the year ended December
31, 1993, and its Quarterly Reports on Form 10-Q for the
quarters ended March 31 and June 30, 1994, in each case with
exhibits thereto, as filed with the SEC, and a copy of the
definitive proxy statement used by Fourth in connection with
its 1994 annual stockholders' meeting. All of the financial
statements contained in such documents have been prepared in
accordance with GAAP applied on a consistent basis. The books
of account of Fourth and each of its banking Subsidiaries
fairly and correctly reflect, in accordance with GAAP applied
on a consistent basis, the respective incomes, expenses,
assets, and liabilities, absolute and contingent, of Fourth
and each of its banking Subsidiaries. There have been no
material adverse changes in the consolidated financial
condition of Fourth from December 31, 1993.
e. Brokers or Finders. No broker, agent, finder,
consultant, or other party (other than legal and accounting
advisors) has been retained by Fourth or is entitled to be
paid based upon any agreements, arrangements, or
understandings made by Fourth in connection with any of the
transactions contemplated by this Agreement or the Merger
Agreement.
f. SEC Filings to be Accurate. The information
pertaining to Fourth which has been or will be furnished by or
on behalf of Fourth and its banking Subsidiaries or its
management for inclusion in the Registration Statement or the
Proxy Statement, and the information pertaining to Fourth
which will appear in the Registration Statement or the Proxy
Statement, in the form filed with the SEC, will contain no
untrue statement of any material fact and will not omit to
state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading.
Fourth shall promptly advise SBI in writing if prior to the
Effective Time it shall obtain knowledge of any fact that
would make it necessary to amend the Registration Statement or
the Proxy Statement, or to supplement the prospectus contained
in the Registration Statement, in order to make the statements
therein not misleading or to comply with applicable Law.
g. No Misrepresentations. Neither this Agreement, the
disclosure documents described in clause "d" of this Section
3.2, nor any other letter, certificate, statement, or document
furnished or to be furnished to SBI or the Stockholders, by or
on behalf of Fourth pursuant to or in connection with this
Agreement and the transactions contemplated hereby contains or
will contain any misstatement of a material fact or omits or
will omit to state a material fact necessary to make the
statements contained herein or therein not misleading.
h. Capitalization. Fourth is authorized to issue (i)
50,000,000 shares of common stock, par value $5 per share, of
which 27,201,925 shares were issued and 26,845,241 shares were
outstanding on June 30, 1994, (ii) 250,000 shares of Class A
7% Cumulative Convertible Preferred Stock, par value $100 per
share, all of which are issued and outstanding, and (iii)
5,000,000 shares of Class B Preferred Stock, without par
value, none of which have been issued. The shares of Fourth
Stock to be issued in the Merger will be duly and validly
issued, fully paid, and nonassessable, and not issued in
violation of any preemptive rights or any Laws applicable
thereto.
i. Updating of Representations and Warranties. Between
the date hereof and the Effective Time, Fourth will promptly
disclose to SBI and the Stockholders in writing any
information of which it has actual knowledge (1) concerning
any event that would render any representation or warranty of
Fourth untrue if made as of the date of such event, (2) which
renders any information set forth in this Agreement no longer
correct in all material respects, or (3) which arises after
the date hereof and which would have been required to be
included in the Agreement if such information had existed on
the date hereof.
ARTICLE IV
SECURITIES LAWS MATTERS
4.1 Registration Statement and Proxy Statement. Fourth shall
as soon as practicable prepare and file the Registration Statement
under and pursuant to the Securities Act for the purpose of
registering the shares of Fourth Stock to be issued in the Merger.
SBI shall, and shall cause the Bank to provide promptly to Fourth
such information concerning their respective businesses, financial
condition, and affairs as may be required or appropriate for
inclusion in the Registration Statement or the Proxy Statement and
each shall cause its counsel and independent public accountants to
cooperate with the other's counsel and independent public
accountants in the preparation and filing of the Registration
Statement and the Proxy Statement. Fourth and SBI shall use their
Best Efforts to have the Registration Statement declared effective
under the Securities Act as soon as may be practicable and
thereafter SBI shall distribute the Proxy Statement to its
stockholders in accordance with applicable Laws not fewer than 20
business days prior to the date on which the Merger Agreement is to
be submitted to the stockholders for voting thereon. If necessary,
in light of developments occurring subsequent to the distribution
of the Proxy Statement to stockholders, SBI shall mail or otherwise
furnish to its stockholders such amendments to the Proxy Statement
or supplements to the Proxy Statement as may, in the opinion of
Fourth or SBI, be necessary so that the Proxy Statement, as so
amended or supplemented, will contain no untrue statement of any
material fact and will not omit to state any material fact required
to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, or as may be necessary to comply with applicable Law.
Fourth shall not be required to maintain the effectiveness of the
Registration Statement for the purpose of resale of Fourth Stock by
any person.
4.2 State Securities Laws. Fourth shall prepare and file and
the parties hereto shall cooperate in making any filings required
under the securities laws of any State in order either to qualify
or register the Fourth Stock so it may be offered and sold lawfully
in such State in connection with the Merger or to obtain an
exemption from such qualification or registration.
4.3 Affiliates. Certificates representing shares of Fourth
Stock issued to Affiliates of SBI pursuant to the Fourth Merger
Agreement may be subjected to stop transfer orders and may bear a
restrictive legend in substantially the following form:
The shares of common stock represented by this
certificate have been issued or transferred to the
registered holder as the result of a transaction to which
Rule 145 under the Securities Act of 1933, as amended
(the "Act"), applies. Such shares may not be sold,
pledged, transferred, or assigned, and the issuer shall
not be required to give effect to any attempted sale,
pledge, transfer, or assignment, except (i) pursuant to
a then current effective registration under the Act, (ii)
in a transaction permitted by Rule 145 as to which the
issuer has, in the reasonable opinion of its counsel,
received reasonably satisfactory evidence of compliance
with Rule 145, or (iii) in a transaction which, in the
opinion of counsel satisfactory to the issuer or as
described in a "no-action" or interpretive letter from
the staff of the Securities and Exchange Commission, is
not required to be registered under the Act. Transfer of
the shares represented by this certificate is further
restricted by an Affiliate's Agreement dated as of
____________, 1994, between the issuer and the registered
holder to which reference is hereby made.
4.4 Affiliates' Agreements. Each Stockholder shall, and SBI
shall use its Best Efforts to cause each director, executive
officer, and other person who is an Affiliate of SBI to, deliver to
Fourth, at the Effective Time, a written agreement, in
substantially the form of Exhibit "D" hereto, providing that such
person will not sell, pledge, transfer, or otherwise dispose of any
shares of Fourth Stock received by such Affiliate in the Merger,
except in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder, or sell or
otherwise dispose of any shares of Fourth Stock received by such
Affiliate in the Merger or in any other way reduce his risk
relative to such shares (within the meaning of Accounting Series
Release No. 130) until such time as financial results covering at
least 30 days following the Merger have been published.
ARTICLE V
CLOSING CONDITIONS
5.1 Conditions to Obligations of Fourth. The obligations of
Fourth to effect the Merger and to issue any Fourth Stock shall be
subject to the following conditions which may, to the extent
permitted by Law, be waived by Fourth at its option:
a. Stockholder Approvals. The approval, ratification,
and confirmation of this Agreement and the Merger Agreement by
the stockholders of SBI shall have been duly obtained as
required by Law.
b. Absence of Litigation. No order, judgment, or
decree shall be outstanding restraining or enjoining
consummation of the Merger; and no Litigation shall be pending
or threatened in which it is sought to restrain or prohibit
the Merger or obtain other substantial monetary or other
relief against one or more of the parties hereto in connection
with this Agreement.
c. Securities Laws. The Registration Statement shall
have become effective under the Securities Act and Fourth
shall have received all state securities laws permits or other
authorizations or confirmation of the availability of
exemption from registration requirements necessary to issue
the Fourth Stock in the Merger. Neither the Registration
Statement nor any such permit, authorization, or confirmation
shall be subject to a stop-order or threatened stop-order or
similar proceeding or order by the SEC or any state securities
authority.
d. Regulatory Approvals. All appropriate regulatory
agencies concerned with the transaction shall have approved
the transaction, and no such approval shall have involved the
imposition of any conditions which are materially burdensome
to Fourth or otherwise materially inconsistent with any
application as filed.
e. Minimum Net Worth of the Bank. Fourth shall have
been reasonably satisfied that the aggregate net worth of the
Bank calculated as of the end of the month immediately
preceding the Effective Time, determined in accordance with
GAAP was at least $6,500,000, excluding any adjustments
required by F.A.S. No. 115 to reflect changes in the Bank's
securities portfolio to adjust to market value.
f. Opinion of Counsel. Fourth shall have received the
opinion of Knudsen, Berkheimer, Richardson & Endacott, counsel
to the Corporation, substantially in the form of Exhibit "B"
hereto.
g. Representations and Warranties; Covenants. The
representations and warranties of SBI and the Stockholders
contained in Section 3.1 of this Agreement shall have been
true and correct in all material respects on the date made and
shall be true and correct in all material respects at the
Effective Time as though made at such time, excepting: (i) any
changes occurring in the ordinary course of business, none of
which shall have been materially adverse, and (ii) any changes
contemplated or permitted by this Agreement. SBI and the
Stockholders shall each have performed in all material
respects all of their obligations under this Agreement.
h. Certificates. SBI and the Stockholders shall have
delivered to Fourth a certificate, in form and substance
satisfactory to Fourth, dated the Effective Time and signed by
each of the Corporations' chief executive officer and chief
financial officer certifying in such detail as Fourth may
reasonably request the fulfillment of conditions a, b, e, and
g above and j and n below.
i. Affiliates' Agreements. Prior to the Effective
Time, Fourth shall have received from SBI a list, reviewed by
SBI's counsel, identifying all of its stockholders who are, in
its opinion, Affiliates of SBI. Fourth shall not be obligated
to deliver any shares of Fourth Stock to any person who is
named as an Affiliate on such list prior to receipt from such
person of an agreement substantially in the form of Exhibit
"D" hereto.
j. Material Adverse Changes. Since the date of this
Agreement there shall not have occurred any material adverse
change in the condition (financial or otherwise) business,
liabilities (contingent or otherwise), properties, or assets
of any of the Corporations.
k. Satisfactory Environmental Reports. Fourth shall
have received environmental assessment reports covering all of
the Corporations' real estate, in form and substance
reasonably satisfactory to Fourth, which do not cause Fourth
reasonably to conclude that there are any material
Environmental, Health, and Safety Liabilities associated with
any of such real estate.
l. Pooling of interests. Fourth shall have received a
letter from its independent public accountants, dated the
Effective Time, to the effect that the Merger can properly be
treated for accounting purposes as a "pooling of interests"
under GAAP. Fourth's accountants have reviewed the agreement,
dated April 17, 1991, between Charles M. Harper and Chris J.
Murphy and have advised Fourth that the provisions of such
agreement will not prevent the transaction from qualifying for
treatment as a "pooling of interests."
m. Resignations. SBI shall have delivered to Fourth
the written resignations, effective at the Effective Time, of
those officers and directors of the Bank as Fourth shall have
requested at least two business days prior to the Effective
Time.
n. Directors' Qualifying Shares. SBI shall have
acquired all of the ten shares of Bank Stock held as
directors' qualifying shares in accordance with currently
existing agreements.
5.2 Conditions to Obligations of SBI and the Stockholders.
The obligations of SBI and the Stockholders to effect the Merger
and to consummate the transactions contemplated hereby shall be
subject to the following conditions which may, to the extent
permitted by Law, be waived by them at their option:
a. General. Each of the conditions specified in
clauses a, b, c, and d of Section 5.1 of this Agreement shall
have occurred and be continuing.
b. Representations and Warranties; Covenants. The
representations and warranties of Fourth contained in
Section 3.2 of this Agreement shall have been true and correct
in all material respects on the date made and shall be true
and correct in all material respects at the Effective Time as
though made at such time, excepting any changes occurring in
the ordinary course of business, none of which shall have been
materially adverse, and excepting any changes contemplated or
permitted by this Agreement. Fourth shall have duly performed
in all material respects all of its obligations under this
Agreement.
c. Certificate. Fourth shall have delivered to SBI a
certificate, in form and substance satisfactory to SBI, dated
the Effective Time and signed by its chief executive officer
and chief financial officer on behalf of Fourth, certifying in
such detail as SBI may reasonably request as to the
fulfillment of the foregoing conditions except for the
conditions set forth in clauses a and e of Section 5.1 of this
Agreement.
d. Opinion of Counsel. SBI and the Stockholders shall
have received the opinion of Foulston & Siefkin, counsel to
Fourth, addressed to SBI and the Stockholders, satisfactory in
form and substance to SBI, substantially in the form of
Exhibit "C" hereto.
e. Material Adverse Change. Since the date of this
Agreement there shall not have occurred any material adverse
change in the condition (financial or otherwise), business,
properties, liabilities (contingent or otherwise), or assets
of Fourth.
ARTICLE VI
EFFECTIVE TIME
The consummation of the Merger and the delivery of the
certificates and other documents called for by this Agreement, and
the consummation of all other transactions contemplated by this
Agreement shall take place at such time and place in Wichita,
Kansas, as the parties may mutually agree which, unless otherwise
agreed, shall be not later than the last day of the month in which
the final regulatory approval required to effect the Merger is
received and the latest required waiting period expires. The
parties agree that they shall exert their reasonable Best Efforts
to cause the Effective Time to be on or before December 31, 1994.
ARTICLE VII
TERMINATION OF AGREEMENT
7.1 Mutual Consent; Absence of Stockholder Approval;
Termination Date. This Agreement and the Merger Agreement shall
terminate at any time when the parties hereto mutually agree in
writing. This Agreement and the Merger Agreement may also be
terminated at the election of either SBI or Fourth, as the case may
be, upon written notice from the party electing to terminate this
Agreement and the Merger Agreement to the other party if, without
fault on the part of the party electing to terminate this Agreement
and the Merger Agreement, the Merger Agreement is not ratified and
approved by the stockholders of SBI by the requisite vote or if
there has been a denial of a Required Approval or the granting of
a Required Approval only upon compliance with terms reasonably
deemed onerous by Fourth. Unless extended by written agreement of
the parties, this Agreement and the Merger Agreement shall
terminate if all conditions to the obligations of the parties
hereto and the Closing have not occurred on or before January 31,
1995.
7.2 Election by Fourth. This Agreement shall terminate at
Fourth's election, upon written notice from Fourth to SBI, if any
one or more of the following events shall occur and shall not have
been remedied to the satisfaction of Fourth within 30 days after
written notice is delivered to SBI: (a) there shall have been any
material breach of any of the material obligations, covenants, or
warranties of SBI or the Stockholders; or (b) there shall have been
any written representation or statement furnished by SBI which at
the time furnished is false or misleading in any material respect
in relation to the size and scope of the transactions contemplated
by this Agreement.
7.3 Election by SBI. Notwithstanding the approval of the
Merger Agreement by the Stockholders of SBI, this Agreement and the
Merger Agreement shall terminate at the election of SBI, upon
written notice from SBI to Fourth, if any one or more of the
following events shall occur and shall not have been remedied to
SBI's satisfaction within 30 days after written notice is delivered
to Fourth: (a) there shall have been any material breach of any of
the material obligations, covenants, or warranties of Fourth
hereunder; or (b) there shall have been any written representation
or statement furnished by Fourth hereunder which at the time
furnished is false or misleading in any material respect in
relation to the size and scope of the transactions contemplated by
this Agreement.
7.4 Effect of Termination. In the event of termination of
this Agreement by either SBI or Fourth as provided in this Article
VII, this Agreement and the Merger Agreement shall forthwith become
void and there shall be no liability or obligation on the part of
the Stockholders, SBI, Fourth, or their respective officers,
directors, or employees except (i) with respect to the parties'
obligations under Section 9.1, (ii) all obligations relating to the
confidential information contained in this Agreement and in
existing confidentiality agreements, and (iii) with respect to any
liabilities or damages incurred or suffered by a party as a result
of the willful breach by the other party of any of its
representations, warranties, covenants or agreements set forth in
this Agreement.
ARTICLE VIII
INDEMNIFICATION
8.1 Effect of Closing. Except as provided in this Section,
closing of the transactions contemplated by this Agreement shall
not prejudice any claim for damages which any of the parties hereto
may have hereunder in law or in equity, due to a material default
in observance or the due and timely performance of any of the
covenants and agreements herein contained or for the material
breach of any warranty or representation hereunder, unless such
observance, performance, warranty, or representation is
specifically waived in writing by the party making such claim. In
the event any warranty or representation contained herein is or
becomes untrue or breached (other than by reason of any fraudulent
misrepresentation or fraudulent breach of warranty or any willful
breach of a covenant) and such breach or misrepresentation is
promptly communicated by SBI to Fourth in writing prior to the
Effective Time, Fourth shall have the right, at its sole option,
either to waive such misrepresentation or breach in writing or to
terminate this Agreement, but in either such event, neither SBI nor
any of the Stockholders shall be liable to Fourth for any such
damages, costs, expenses, or otherwise by reason of such breach or
misrepresentation. In the event Fourth elects to close the
transactions contemplated by this Agreement notwithstanding the
written communication of such breach or misrepresentation to Fourth
by SBI, Fourth shall be deemed to have waived such breach or
misrepresentation in writing.
8.2 General Indemnification. Subject to the limitations on
the liability of Stockholders contained in this Article VIII,
Stockholders shall be liable for, and shall defend, save,
indemnify, and hold harmless Fourth, and its respective officers,
directors, employees, and agents, and each of them (hereinafter
individually referred to as an "Indemnitee" and collectively as
"Indemnitees") against and with respect to any losses, liabilities,
claims, diminution in value, litigation, demands, damages, costs,
charges, legal fees, suits, actions, proceedings, judgements,
expenses, or any other losses (including without limitation any
income tax consequences of the receipt of any indemnification
payment) (herein collectively referred to as "Indemnifying Losses")
that may be sustained, suffered or incurred by, or obtained
against, any Indemnitee arising from or by reason of the breach or
nonfulfillment of any of the warranties, agreements, or
representations made by the Stockholders, or any of them, in this
Agreement; provided, however that the liability of Stockholders to
defend, save, indemnify, and hold harmless any of the Indemnitees
for any liabilities, claims, or demands indemnified under this
Agreement, shall be limited to the amount by which all such
Indemnifying Losses exceed $100,000 in the aggregate, net of income
tax effect and after taking into account all available insurance
proceeds, net recoveries on other real estate owned and other non-
ledger assets, in each case to the extent such amounts exceed the
amounts such assets were carried on the books of the Bank at July
31, 1994. It is agreed that the indemnification obligations of the
Stockholders shall be solely for the benefit of the Indemnitees and
may not be enforced by any insurer under any subrogation or similar
agreement or arrangement or by any governmental agency except as a
receiver for any Indemnitee.
8.3 Procedure. If any claim or demand shall be made or
liability asserted against any Indemnitee, or if any litigation,
suit, action, or administrative or legal proceedings shall be
instituted or commenced in which any Indemnitee is involved or
shall be named as a defendant either individually or with others,
and if such Litigation, claim, demand, liability, suit, action, or
proceeding, if successfully maintained, will result in any
Indemnifying Losses as defined in Section 8.2, Fourth shall give
Stockholders written notice thereof within 20 days after it
acquires knowledge thereof. If, within 20 days after the giving of
such notice, Fourth receives written notice from Stockholders
(acting jointly) stating that Stockholders dispute or intend to
defend against such claim, demand, liability, suit, action, or
proceeding, then Stockholders shall have the right to select
counsel of their choice and to dispute or defend against or settle
such claim at their expense, and the Indemnitees shall fully
cooperate with Stockholders in such dispute or defense or
settlement so long as Stockholders are conducting such dispute or
defense diligently and in good faith. If no such notice of intent
to dispute or defend is received by Fourth within aforesaid 20-day
period, or if such diligent and good faith defense is not being, or
ceases to be, conducted, Fourth shall have the right, directly or
through one or more of the Indemnitees, to dispute and defend
against the claim, demand, or other liability at the cost and
expense of Stockholders, to settle such claim, demand, or other
liability, together with interest or late charges thereon, and in
either event to be indemnified as provided in this Agreement so
long as Fourth conducts such defense diligently and in good faith;
provided, notice of any proposed settlement shall be given to
Stockholders as far in advance as practicable under the
circumstances and, if Stockholders shall timely object to the terms
of such proposed settlement, they may assume the defense in
accordance with the terms of this Section 8.3. If any event shall
occur that would entitle Indemnitees to a right of indemnification
hereunder, any loss, damage, or expense subject to indemnification
shall be subject to the limitations otherwise set forth in this
Article VIII.
8.4 Survival of Representations and Warranties.
Notwithstanding any rule of law or provision of this Agreement to
the contrary, the representations and warranties of Stockholders
contained in this Agreement shall survive the Merger and the
closing of the transactions described in this Agreement; provided,
however, that no claim by an Indemnitee for indemnification or
breach of warranty under this Agreement shall be valid unless an
Indemnitee shall have given written notice of its assertion or
claim to Stockholders on or prior to the earlier date on which
Fourth files or is required to file with the SEC its: (a) Annual
Report on Form 10-K for the year ended December 31, 1994 if the
Effective Time is in 1994, or (b) Quarterly Report on Form 10-Q for
the quarter ending March 31, 1995 if the Effective Time is after
December 31, 1994.
8.5 Several Liability of Stockholders. The liability of the
Stockholders under this Agreement shall not be joint, but rather
shall be several in proportion to the aggregate amount of Fourth
Stock each such Stockholder receives for the stock being exchanged
pursuant to this Agreement and the Merger Agreement as compared to
the total amount of Fourth Stock being received by all SBI
stockholders. The liability of each Stockholder under this
Agreement shall be limited to the sum of the value of Fourth Stock
and cash for fractional shares, if any, received by such
Stockholder under this Agreement and the Merger Agreement. For the
purposes of this Section 8.5, the Fourth Stock received by
Stockholders shall be deemed to have the same value as the reported
closing price thereof in the NASDAQ quotation system on the date in
which the Effective Time occurs.
8.6 Indemnification Payments. All indemnification
obligations of the Stockholders under this Article VIII shall be
satisfied by payment in Fourth Stock which will be deemed to have
the same value as the reported closing price thereof in the NASDAQ
quotation system on the date in which the Effective Time occurs.
ARTICLE IX
MISCELLANEOUS
9.1 Expenses. Whether or not the Merger is effected, all
costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party
incurring such expense.
9.2 Notices. All notices or other communications required or
permitted hereunder shall be sufficiently given if personally
delivered or if sent by certified or registered mail, postage
prepaid, return receipt requested, addressed as follows: (a) if to
Fourth, addressed to Darrell G. Knudson, Chairman of the Board,
Post Office Box 4, Wichita, Kansas 67201; and (b) if to SBI and the
Stockholders, addressed to W. Grant Gregory, 375 Park Avenue, Suite
307, New York, N.Y. 10152, or to such other address as shall have
been furnished in writing in the manner provided herein for giving
notice.
9.3 Stockholders' Agreements. Each Stockholder agrees not to
sell, pledge, encumber, or otherwise hypothecate or transfer any
shares of capital stock of any class of either of the Corporations
prior to the Effective Time. Each Stockholder also agrees to vote
all shares of SBI Stock owned by him or it in favor of approval of
this Agreement and the Merger Agreement.
9.4 Time. Time is of the essence of this Agreement.
9.5 Law Governing. This Agreement shall, except to the
extent federal law is applicable, be construed in accordance with
and governed by the laws of the State of Kansas, without regard to
the principles of conflicts of laws thereof.
9.6 Entire Agreement; Amendment. This Agreement contains and
incorporates the entire agreement and understanding of the parties
hereto with respect to the subject matter hereof and supersedes all
prior negotiations, agreements, letters of intent, and
understandings. This Agreement may only be amended by an
instrument in writing duly executed by all corporate parties hereto
and the Stockholders (by the Agents acting for all Stockholders
jointly), and all attempted oral waivers, modifications, and
amendments shall be ineffective.
9.7 Successors and Assigns. The rights and obligations of
the parties hereto shall inure to the benefit of and shall be
binding upon the successors and permitted assigns of each of them;
provided, however, that this Agreement, the Merger Agreement, or
any of the rights, interests, or obligations hereunder or
thereunder may not be assigned by any of the parties hereto without
the prior written consent of the other parties hereto.
9.8 Cover, Table of Contents, and Headings. The cover, table
of contents, and the headings of the sections and subsections of
this Agreement and the Merger Agreement are for convenience of
reference only and shall not be deemed to be a part hereof or
thereof or taken into account in construing this Agreement or the
Merger Agreement.
9.9 Counterparts. This Agreement and the Merger Agreement may
be executed in one or more counterparts, each of which shall be
deemed an original but which together shall constitute but one
agreement.
[continued]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed.
FOURTH FINANCIAL CORPORATION STANDARD BANCORPORATION, INC.
By /s/Darrell G. Knudson By /s/W. Grant Gregory
--------------------- -------------------
Darrell G. Knudson W. Grant Gregory
Chairman of the Board Chairman of the Board
"Fourth" "SBI"
STOCKHOLDERS
I. Class A Common Stock No. of Shares
-------------------- -------------
Date: ___________, 1994 /s/W. Grant Gregory 780 shares
-------------------
W. Grant Gregory
Date: ___________, 1994 /s/Charles M. Harper 780 shares
--------------------
Charles M. Harper
Date: ___________, 1994 /s/Chris J. Murphy - shares
-------------------
Chris J. Murphy
THE STUART KANSAS CITY
LIMITED PARTNERSHIP
Date: ___________, 1994 By/s/James Stuart, III 780 shares
--------------------
James Stuart, III
General Partner
[continued]
II. Class B Non-Voting Common Stock
-------------------------------
Date: ___________, 1994 /s/Charles M. Harper 1,040 shares
--------------------
Charles M. Harper
Date: ___________, 1994 /s/Chris J. Murphy - shares
-----------------
Chris J. Murphy
THE STUART KANSAS CITY
LIMITED PARTNERSHIP
Date: ___________, 1994 By /s/James Stuart, III 1,040 shares
---------------------
James Stuart, III
General Partner
SOUTHWEST COMPANY
Date: ___________, 1994 By /s/James Gregory 1,040 shares
------------------
James Gregory
President
III. 9% Cumulative, Non-Participating, Non-Voting Preferred Stock
------------------------------------------------------------
Date: ___________, 1994 /s/Charles M. Harper 1,950 shares
---------------------
Charles M. Harper
Date: ___________, 1994 /s/James Stuart 1,950 shares
------------------
James Stuart
Date: ___________, 1994 /s/Chris J. Murphy - shares
-------------------
Chris J. Murphy
SOUTHWEST COMPANY
Date: ___________, 1994 By /s/James Gregory 1,950 shares
------------------
James Gregory
President
Exhibit "A"
AGREEMENT AND ARTICLES OF MERGER
--------------------------------
THIS AGREEMENT AND ARTICLES OF MERGER is made as of
the _____ day of __________ 1994, between FOURTH FINANCIAL
CORPORATION, a Kansas corporation ("Fourth") and STANDARD
BANCORPORATION, INC., a Nebraska corporation ("SBI"). Fourth and
SBI are hereinafter sometimes referred to as the "Constituent
Corporations;" SBI is hereinafter sometimes referred to as the
"Merging Corporation"; and Fourth is hereinafter sometimes called
the "Surviving Corporation."
Recitals
--------
A. The respective Boards of Directors of each of
the two Constituent Corporations have duly adopted resolutions
approving an Agreement and Plan of Reorganization, dated as of
September 2, 1994, between Fourth and SBI (the "Agreement and Plan
of Reorganization") and this Agreement and Articles of Merger,
subject, among other things, to the approval and adoption of the
Agreement and Plan of Reorganization and this Agreement and
Articles of Merger by the holders of at least two-thirds of the
issued and outstanding capital stock of each class of SBI,
authorizing the proposed merger of the SBI into Fourth upon the
terms and conditions herein set forth.
B. No approval of the stockholders of Fourth of
this Agreement is required by reason of K.S.A. 17-6702(e) and
17-6701(f).
NOW, THEREFORE, Fourth and SBI hereby agree that
Fourth and SBI shall merge on the terms and conditions hereinafter
provided and in accordance with the following articles and plan:
Articles and Plan of Merger
---------------------------
1. SBI shall merge with and into Fourth which
shall continue as the Surviving Corporation and shall be governed
by the laws of the State of Kansas (the "Merger"). At the Effective
Time (as defined in Paragraph 6), the separate existence of SBI
shall cease. The corporate identity, existence, purposes,
franchises, powers, rights, and immunities of Fourth shall continue
unaffected and unimpaired by the Merger, and the corporate
identity, existence, purposes, franchises, powers, rights, and
immunities of SBI shall be merged into Fourth which shall be fully
vested therewith. It is the intention of the parties that the
transaction contemplated by this Agreement of Merger shall qualify
as a tax-free reorganization under Section 368 of the Internal
Revenue Code of 1986, as amended.
2. The Restated Articles of Incorporation and
Bylaws of Fourth, as in effect on the Effective Time, shall be and
remain the articles of incorporation and bylaws of the Surviving
Corporation until thereafter amended as provided by law.
3. At the Effective Time:
(a) Fourth shall, without other transfer,
succeed to and possess all the rights, privileges,
powers, and franchises both of a public and private
nature and shall be subject to all the
restrictions, disabilities, debts, liabilities, and
duties of each of the Constituent Corporations.
(b) The rights, privileges, powers, and
franchises of each of the Constituent Corporations
and all property, real, personal and mixed, of and
all debts due or belonging to any of the
Constituent Corporations shall be vested in Fourth;
and all property, rights, privileges, powers, and
franchises, and all and every other interest shall
be thereafter as effectually the property of Fourth
as they were of any of the Constituent
Corporations.
(c) Title to any real estate and to any
other property vested by deed or otherwise in any
of the Constituent Corporations shall not revert or
be in any way impaired by reason of the Merger or
the statutes providing therefor; provided, however,
that all rights of creditors and all liens upon the
property of any of the Constituent Corporations
shall be preserved unimpaired, and all debts,
liabilities, and duties of all of the Constituent
Corporations shall thenceforth attach to Fourth and
may be enforced against it to the same extent as if
they had been incurred or contracted by Fourth.
After the Effective Time, the Constituent
Corporations shall each execute or cause to be
executed such further assignments, assurances, or
other documents as may be necessary or desirable to
confirm title to their respective properties,
assets, and rights in Fourth or to otherwise carry
out the purposes of this Agreement of Merger, and
their respective officers and directors shall do
all such acts and things to accomplish those
purposes which Fourth may reasonably request.
4. At the Effective Time:
(a) Each issued and outstanding share of
each class of capital stock of SBI shall cease to
be an issued and existing share.
(b) Each share of capital stock of SBI
(together with all rights to receive unpaid
preferred stock dividends), shall automatically be
converted into and exchanged for shares of common
stock of Fourth, par value $5.00 per share ("Fourth
Stock"), as follows:
No. of Shares
of Fourth
Stock to Be
Class of SBI Capital Stock Received
- -------------------------- -----------
Class A Common Stock, par value $1 p/share 53.9974
Class B Common Stock, par value $1 p/share 53.9971
9% Cumulative Non-Voting Preferred
Stock, $100 p/share 3.4487
(c) Until surrendered for exchange, each
outstanding stock certificate which prior to the
Effective Time represented capital stock of SBI
shall be deemed for all corporate purposes to
represent the right to receive the number of shares
of Fourth Stock into which the shares have been so
converted; provided, that in any matters relating
to the shares represented by such certificates,
Fourth may rely conclusively upon the record of
stockholders maintained by SBI containing the names
and addresses of the holders of record of such
stock at the Effective Time. Unless and until such
outstanding stock certificates formerly
representing shares of capital stock of SBI are so
surrendered, no dividend payable to the holders of
record of Fourth Stock, as of any date subsequent
to the Effective Time, shall be paid to the holder
of such outstanding certificates in respect
thereof. Upon surrender of such outstanding
certificates (or, in the case of lost certificates,
upon receipt of a surety bond or other form of
indemnification satisfactory to Fourth), however,
the former SBI stockholders shall receive
certificates evidencing the shares of Fourth Stock
to which they are entitled plus the accrued
dividends on such stock, without interest.
(d) No fractional shares of Fourth Stock
will be issued. Instead, upon surrender of SBI
common or preferred stock certificates (or, in the
case of lost certificates, upon receipt of a surety
bond or other form of indemnification which is
satisfactory to Fourth) Fourth will pay, or cause
to be paid, to the holder thereof the cash value of
the fractional interest to which the holder thereof
would otherwise be entitled, based upon the closing
price of Fourth Stock on the last trading day two
trading days prior to the Effective Time as
reported in the Southwest Edition of The Wall
Street Journal.
(e) The Merger shall effect no change in
the rights of the holders of Fourth Stock that is
outstanding immediately before the Effective Time.
(f) No holder or former holder of SBI
preferred stock shall have any right to receive any
additional payment or other consideration with
respect to unpaid dividends on such preferred
stock, the rights to the receipt of which dividends
shall be extinguished at the Effective Time.
5. The officers and directors of Fourth at the
Effective Time shall continue to be the officers and directors of
the Surviving Corporation until their successors are duly elected
and qualified or their earlier death, resignation, or removal.
6. The Merger shall be effected by and be given
effect upon the filing of this Agreement of Merger in the offices
of the Secretary of State of Kansas and the Secretary of State of
Nebraska. Such date and time of filing is referred to in this
Agreement of Merger as the "Effective Time." This Agreement of
Merger shall also be recorded in accordance with the provisions of
the Kansas General Corporation Code and the Nebraska Business
Corporation Act, but such recording shall not be a condition
precedent to its becoming effective.
7. This Agreement and Articles of Merger may be
terminated and abandoned by mutual consent of the Boards of
Directors of Fourth and SBI at any time prior to the Effective
Time, or by the Board of Directors of either Fourth Financial or
SBI (acting jointly) if the Agreement and Plan of Reorganization
shall have been terminated as therein provided.
8. This Agreement and Articles of Merger may be
executed in any number of counterparts, and each such counterpart
hereof shall be deemed to be an original instrument, but all of
such counterparts together shall constitute but one agreement.
IN WITNESS WHEREOF, pursuant to authority duly given
by its Board of Directors, each of the Constituent Corporations has
caused this Agreement and Articles of Merger to be executed by its
Chairman of the Board, President, or Vice President and attested by
its Secretary or an Assistant Secretary as of the date and year
first above written.
FOURTH FINANCIAL CORPORATION
By
----------------------------
Darrell G. Knudson
Chairman of the Board
ATTEST:
By
-----------------------------
William J. Rainey, Secretary
STANDARD BANCORPORATION, INC.
By
----------------------------
Chris J. Murphy
President
ATTEST:
By
------------------------------
E. Dean Gall, Secretary
ACKNOWLEDGMENTS
---------------
STATE OF KANSAS )
)ss:
SEDGWICK COUNTY )
BE IT REMEMBERED that on this day of
1994, personally came before me, a Notary Public, in and for the
county and state aforesaid, Darrell G. Knudson and William J.
Rainey, Chairman of the Board and Secretary, respectively, of
Fourth Financial Corporation, a Kansas corporation, both of whom
are personally known to me and personally known to me to be the
said officers of said corporation, and they each separately duly
executed the above and foregoing Agreement and Articles of Merger
before me and acknowledged the said Agreement and Articles of
Merger to be their act and deed and the act and deed of said
corporation; that the facts stated therein are true; that the
signature of the chairman of the board of said corporation to the
foregoing Agreement and Articles of Merger is in the handwriting
of said chairman of the board of said corporation, and that its
seal affixed to said Agreement and Articles of Merger, and
attested by the secretary of said corporation, is the corporate
seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and
seal of office the day and year aforesaid.
----------------------------------------
Notary Public
My Appointment Expires:
- -----------------------
ACKNOWLEDGMENTS
---------------
STATE OF __________ )
) ss:
COUNTY )
BE IT REMEMBERED that on this _____ day of
___________, 1994, personally came before me, a Notary Public, in
and for the county and state aforesaid, Chris J. Murphy and
E. Dean Gall, President and Secretary, respectively, of Standard
Bancorporation, Inc., a Nebraska corporation, both of whom are
personally known to me and personally known to me to be the said
officers of said corporation, and they each separately duly
executed the above and foregoing Agreement and Articles of Merger
before me and acknowledged the said Agreement and Articles of
Merger to be their act and deed and the act and deed of said
corporation; that the facts stated therein are true; that the
signature of the president of said corporation to the foregoing
Agreement and Articles of Merger is in the handwriting of said
president of said corporation, and that its seal affixed to said
Agreement and Articles of Merger, and attested by the secretary of
said corporation, is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and
seal of office the day and year aforesaid.
----------------------------------------
Notary Public
My Appointment Expires:
- -----------------------
CERTIFICATES
------------
The undersigned, Chris J. Murphy, and E. Dean Gall,
President and Secretary, respectively, of Standard Bancorporation,
Inc., a Nebraska corporation, pursuant to the Nebraska Business
Corporation Act, hereby certify that (a) the foregoing Agreement
and Articles of Merger to which this Certificate is attached
contains the plan of merger, (b) said Agreement and Articles of
Merger has been submitted to the stockholders of said corporation
at a special meeting thereof, duly called and held in accordance
with the Bylaws of said corporation and the Nebraska Business
Corporation Act on the __ day of _____________, 1994, and (c) at
such meeting said stockholders duly considered, adopted, and
approved said Agreement and Articles of Merger by voting all of the
2,340 shares of Class A Common Stock, par value $1.00 per share,
all of the 3,120 shares of Class B Common Stock, par value $1.00
per share, and all of the 5,850 shares of 9% Cumulative Non-Voting
Preferred Stock, $100 par value per share, that were then issued
and outstanding in favor thereof.
IN WITNESS WHEREOF, the undersigned have executed this
Certificate on the ___ day of ________________, 1994.
__________________________
Chris J. Murphy, President
__________________________
E. Deal Gall, Secretary
STATE OF ________ )
) ss:
COUNTY )
BE IT REMEMBERED that on this ___ day of
_____________, 1994, personally came before me, a Notary Public, in
and for the county and state aforesaid Chris J. Murphy and E. Dean
Gall, President and Secretary of Standard Bancorporation, Inc., a
Nebraska corporation, both of them are personally known to me and
personally known to me to be the said officers of said corporation,
and they each separately duly executed the above and foregoing
certificate before me and acknowledged the said certificate to be
their act and deed and the act and deed of said corporation; that
the facts stated therein are true; that the signatures are that of
the president and secretary of said corporation, and that its seal
affixed to said certificate is the corporate seal of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and
seal of office the day and year aforesaid.
------------------------------
Notary Public
My Appointment Expires:
- ------------------------
The undersigned, William J. Rainey, Secretary of
Fourth Financial corporation, a Kansas corporation, on behalf of
said corporation, hereby certifies, in accordance with K.S.A. 17-
6702(e) and pursuant to K.S.A. 17-6701(f) of the General
Corporation Code of the State of Kansas, that the foregoing
Agreement and Articles of Merger to which this Certificate is
attached has been duly approved by the board of directors of Fourth
Financial Corporation and has been duly adopted pursuant to
Subsection (f) of said K.S.A. 17-6701 in that (i) the foregoing
Agreement and Articles of Merger does not amend in any respect the
Articles of Incorporation of Fourth Financial Corporation; (ii)
each share of stock of Fourth Financial Corporation outstanding
immediately prior to the effective date of the merger is to be an
identical outstanding or treasury share of the surviving
corporation after the effective date of the merger; and (iii) the
authorized unissued shares or the treasury shares of common stock
of Fourth Financial Corporation to be issued or delivered under the
foregoing Agreement and Articles of Merger do not exceed 20% of the
shares of common stock of Fourth Financial Corporation outstanding
immediately prior to the effective date of the merger.
IN WITNESS WHEREOF, the undersigned has executed
this Certificate on the ____ day of __________, 1994.
----------------------------------------
William J. Rainey, Secretary
STATE OF KANSAS )
) ss:
SEDGWICK COUNTY )
BE IT REMEMBERED that on this __ day of ______
1994, personally came before me, a Notary Public, in and for the
county and state aforesaid, William J. Rainey, Secretary of FOURTH
FINANCIAL CORPORATION, a Kansas corporation, who is personally
known to me and personally known to me to be the said officer of
said corporation, and he duly executed the above and foregoing
certificate before me and acknowledged the said certificate to be
his act and deed and the act and deed of said corporation; that the
facts stated therein are true; that this signature is that of the
secretary of said corporation, and that its seal affixed to said
certificate is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and
seal of office the day and year aforesaid.
------------------------------
Notary Public
My Appointment Expires:
- ------------------------
TO THE SECRETARY OF STATE OF THE STATE OF NEBRASKA:
Pursuant to Section 21-2076 of the Nebraska Business
Corporation Act, Standard Bancorporation, Inc., a Nebraska
corporation, was merged into Fourth Financial Corporation, a Kansas
corporation and the surviving corporation. Fourth Financial
Corporation agrees that (a) it may be served with process within or
without the State of Nebraska in any proceeding in the courts of
Nebraska for the enforcement of any obligation of Standard
Bancorporation, Inc., and in any proceeding for enforcement of the
rights of a dissenting shareholder of Standard Bancorporation, Inc.
against Fourth Financial Corporation arising from the
aforementioned merger, and (b) it will promptly pay to the
dissenting shareholders of Standard Bancorporation, Inc. the
amount, if any, to which they will be entitled under the Nebraska
Business Corporation Act with respect to the rights of dissenting
shareholders.
IN WITNESS WHEREOF, Fourth Financial Corporation has
caused these presents to be executed by its Chairman of the Board
and Secretary on this ___ day of __________, 1994.
FOURTH FINANCIAL CORPORATION
By
-----------------------------
Darrell G. Knudson
Chairman of the Board
ATTEST:
By
-----------------------------
William J. Rainey, Secretary
STATE OF KANSAS )
) ss:
SEDGWICK COUNTY )
BE IT REMEMBERED that on this ____ day of _________,
1994, personally came before me, a Notary Public, in and for the
county and state aforesaid, Darrell G. Knudson and William J.
Rainey, Chairman of the Board and Secretary, respectively, of
FOURTH FINANCIAL CORPORATION, a Kansas corporation, both of whom
are personally known to me and personally known to me to be the
said officers of said corporation, and they each separately duly
executed the above and foregoing agreement before me and
acknowledged the said agreement to be their act and deed and the
act and deed of said corporation; that the facts stated therein are
true; that the signature of the chairman of the board of said
corporation to the foregoing agreement is in the handwriting of
said chairman of the board of said corporation, and that its seal
affixed to said agreement, and attested by the secretary of said
corporation, is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and
seal of office the day and year aforesaid.
------------------------------
Notary Public
My Appointment Expires:
- -----------------------
Exhibit "B"
_________, 1994
Fourth Financial Corporation
Post Office Box 4
Wichita, Kansas 67201-0004
Re: Standard Bancorporation, Inc.
Gentlemen:
We have acted as counsel to Standard Bancorporation, Inc.
("SBI") and its stockholders in connection with the merger (the
"Merger") of SBI with Fourth Financial Corporation, a Kansas
corporation ("Fourth"), pursuant to the Agreement and Plan of
Reorganization, dated as of September 2, 1994 (the "Agreement"),
between Fourth and SBI, the related ancillary Merger Agreement
described therein, and the related Disclosure Statement prepared by
SBI. This Opinion Letter is provided to you at your request,
pursuant to Section 5.1.g of the Agreement. Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed
to such terms in the Agreement or in the Accord described below.
This Opinion Letter is governed by, and shall be
interpreted in accordance with the Legal Opinion Accord (the
"Accord") of the ABA Section of Business Law (1991). As a
consequence, it is subject to a number of qualifications,
exceptions, assumptions, definitions, limitations on coverage and
other limitations, all as more particularly described in the
Accord, and this Opinion Letter should be read in conjunction
therewith. The Law covered by the opinions expressed herein is
limited to the Federal Law of the United States and the Laws of the
States of Nebraska and Missouri.
Based upon and subject to the foregoing, we are of the
opinion that:
1. SBI is a bank holding company duly registered
pursuant to the Bank Holding Company Act. Each of the
Corporations is a corporation or bank duly organized,
validly existing, and in good standing under the Laws of
the jurisdiction of its incorporation, and each has all
requisite corporate power and authority to conduct its
business as it is now conducted, to own its properties
and assets and to lease properties used in its business.
Except for the Bank being a Subsidiary of SBI, neither of
the Corporations has any Subsidiaries.
2. The Agreement and the Merger Agreement are
enforceable against the Corporations and the
Stockholders.
3. None of the execution or delivery of the
Agreement or the Merger Agreement or the performance by
the Corporations of their agreements therein will (a)
violate the Constituent Documents of either of the
Corporations or breach or result in a default under any
agreement or instrument of which we have Actual Knowledge
under which either of the Corporations or the
Stockholders is obligated, or (b) violate any Laws to
which either of the Corporations or the Stockholders is
subject.
4. The capitalization of the Corporations and the
ownership by SBI of the capital stock of the Bank are
accurately described in Section 3.1 of the Agreement.
The Stockholders collectively own all of the issued and
outstanding capital stock of all classes of SBI in the
manner described in the Agreement.
5. Neither of the Corporations has outstanding any
options, warrants, or rights of any kind requiring it to
sell or issue to anyone any capital stock of any class
and neither of the Corporations has agreed to issue or
sell any additional shares of its capital stock.
6. The execution, delivery, and performance of the
Agreement and the Merger Agreement by the Corporations do
not require any approval, authorization, consent,
exemptions, notices or intent not to disapprove, or other
action of any governmental body or any filing with any
other governmental body to which the Corporations or the
transactions contemplated hereby are subject, other than
approvals of (a) the Board; (b) the Comptroller; (c) the
Division Director; and; (d) the SEC and the securities
commissioners or similar officers of the several states.
All requisite approvals, authorizations, consents, and
exemptions have been granted by, and all requisite
actions have been taken by, the governmental bodies
listed in the foregoing clauses (a), (b), (c), and (d).
7. Upon the filing of the Merger Agreement with the
Secretary of State of Nebraska and the Secretary of State
of Kansas pursuant to the Nebraska Business Corporation
Act and the Kansas General Corporation Law and the
payment of all required taxes and fees, the Merger will
be effected in compliance with all applicable Laws of the
State of Nebraska, and Fourth will succeed to the assets
and liabilities of SBI.
We hereby confirm to you that, except as set forth in
Exhibit "O" to the Disclosure Statement, neither of the
Corporations is a party to any Litigation other than routine
litigation commenced by the Bank to enforce obligations of
borrowers in which no counterclaims for any material amounts of
money have been asserted or overtly threatened in writing.
While we have not verified, do not pass upon, and do not
assume responsibility for the accuracy, completeness, or fairness
of the factual statements contained in the Registration Statement
or the Proxy Statement, to the extent that we participated in the
preparation of the Proxy Statement used in connection with the
special stockholders' meeting of SBI for the purpose of considering
and voting upon the Merger and the Registration Statement on Form
S-4 filed by Fourth with the SEC in connection with the
registration of shares of Fourth Stock to be issued in connection
with the Merger, and in the course of such preparation, in
conferences with certain officers and employees of the
Corporations, and Fourth with respect thereto, our examination of
the Proxy Statement and Registration Statement and discussions in
the above described conferences did not disclose to us any
information which gave us reason to believe that the Proxy
Statement, at the time it was first mailed to stockholders of SBI
and at the time of the special stockholders' meeting of SBI at
which the Merger was approved, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading (except as to financial statements and other financial
and statistical information relating to the Corporations, or Fourth
contained therein and as to all material relating to or furnished
by Fourth for use in the Proxy Statement or the Registration
Statement, as to all of which we express no opinion).
The phrase "Primary Lawyer Group," as used in the Accord,
is hereby modified and for the purposes of applying the Accord to
this Opinion Letter the Primary Lawyer Group means only the lawyers
in this firm who have given substantive legal attention to
representation of the Merging Corporations and the Stockholders in
connection with the foregoing transactions.
This Opinion Letter may be relied upon by you only in
connection with the foregoing transactions and may not be used or
relied upon by you or any other person for any purpose whatsoever,
except to the extent authorized by the Accord, without in each
instance our prior written consent.
Very truly yours,
KNUDSEN, BERKHEIMER, RICHARDSON
& ENDACOTT
Exhibit "C"
_________, 1994
Board of Directors and Stockholders
Standard Bancorporation, Inc.
Gentlemen:
We have acted as counsel to Fourth Financial Corporation
("Fourth"), in connection with the preparation of the Agreement and
Plan of Reorganization, dated as of September 2, 1994, among
Fourth, Standard Bancorporation, Inc. ("SBI") and the stockholders
of SBI (the "Agreement") and the ancillary Merger Agreement and
Registration Statement provided for therein. This Opinion Letter
is provided to you at the request of Fourth pursuant to Section
5.2d of the Agreement. Except as otherwise indicated herein,
capitalized terms used in this Opinion Letter are defined in the
Agreement or the Accord described below.
This Opinion Letter is governed by, and shall be
interpreted in accordance with, the Legal Opinion Accord (the
"Accord") of the ABA Section of Business Law (1991). As a
consequence, it is subject to a number of qualifications,
exceptions, assumptions, definitions, limitations on coverage and
other limitations, all as more particularly described in the
Accord, and this Opinion Letter should be read in conjunction
therewith. The law covered by the opinions expressed herein is
limited to the federal Law of the United States and the Law of the
State of Kansas.
Based upon and subject to the foregoing, we are of the
opinion that:
1. Organization, Good Standing, and Authority.
Fourth is a bank holding company duly registered pursuant
to the Bank Holding Company Act. Fourth is a corporation
duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation,
and has all requisite corporate power and authority to
conduct its business as it is now conducted, to own its
properties and assets, and to lease properties used in
its business. Fourth is not in violation of its
Constituent Documents.
2. Binding Obligations. The Agreement and the
Merger Agreement are enforceable against Fourth.
3. Absence of Default. None of the execution or
the delivery of the Agreement or the Merger Agreement, or
the performance by Fourth of its agreements therein, will
(1) violate the Constituent Documents or breach or result
in a default under any agreement or instrument under
which Fourth is obligated of which we have Actual
Knowledge, or (2) violate any statutory law or regulation
to which it is subject.
4. Capitalization. Fourth is authorized to issue
50,000,000 shares of common stock, par value $5 per
share, of which _____________ shares were issued and
__________ shares were outstanding on __________, 1994,
(ii) 250,000 shares of Class A Cumulative Convertible
Preferred Stock, par value $100 per share, all of which
are issued and outstanding, and (iii) 5,000,000 shares of
Class B Preferred Stock, no par value, none of which is
issued and outstanding. The shares of Fourth Stock to be
issued in the Merger, when issued in accordance with the
Agreement, will be duly and validly issued, fully paid,
and nonassessable, and will not be issued in violation of
any preemptive rights or any Laws applicable thereto.
5. Government Authorizations. To our Actual
Knowledge, Fourth has all material permits, charters,
licenses, orders, and approvals of every federal, state,
local, or foreign governmental or regulatory body
required in order to permit it to carry on its business
substantially as presently conducted.
6. Governmental Approvals. The execution,
delivery, and performance of the Agreement and the Merger
Agreement by Fourth does not require any approval,
authorization, consent, exemptions, notices of intent not
to disapprove, or other action of any regulatory body,
administrative agency, or any other governmental body or
any filing with any governmental body to which Fourth is
subject, other than approvals of or filings with (a) the
Board; (b) the Comptroller; (c) the Division Director;
(d) the SEC and the securities commissioner or similar
officers of the several states. All such requisite
approvals, authorizations, consents, exemptions, and
notices have been taken by the appropriate governmental
body listed in the foregoing clauses (a), (b), (c), and
(d).
7. Fourth Merger. Upon the filing of the Merger
Agreement with the Secretary of the State of Kansas and
Secretary of State of the State of Nebraska and the
payment of all required taxes and fees, the Merger shall
be effected in compliance with all applicable laws of the
State of Kansas.
While we have not verified, do not pass upon, and do not
assume responsibility for, the accuracy, completeness, or fairness
of the factual statements contained in the Registration Statement
or the Proxy Statement, to the extent we participated in the
preparation and filing of the Proxy Statement and the Registration
Statement with the SEC and, in the course of such preparation, in
conferences with certain officers and employees of the
Corporations, and Fourth, with respect thereto, our examination of
the Proxy Statement and Registration Statement and discussions in
the above-described conferences did not disclose to us any
information which gave us reason to believe that the Proxy
Statement, at the time it was first mailed to stockholders of SBI
and at the time of the special stockholders' meeting at which the
Merger was approved by the stockholders of SBI, contained any
untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading (except as to financial statements
and other financial and statistical information relating to the
Corporations, or Fourth, contained therein and as to all material
relating to or furnished by the Corporations and the Stockholders
for use in the Proxy Statement, as to all of which we do not
express any opinion).
We hereby confirm to you that there are no actions or
proceedings against Fourth or any Subsidiary of Fourth, pending or
overtly threatened in writing, before any court, governmental
agency, or arbitrator (i) which seek to affect the enforceability
of the Agreement or (ii) which seek damages in excess of $10,000,
000 other than Kansas Public Employees Retirement System v. Peters,
Gamm, West & Vincent, et al., Case No. 92 CV 433 in the Third
Judicial District Court, Shawnee County, Kansas.
The phrase "Primary Lawyer Group", as used in the Accord,
is hereby modified and for the purposes of applying the Accord to
this Opinion Letter the Primary Lawyer Group means only the lawyers
in this firm who have given substantive legal attention to
representation of Fourth in connection with the Transaction.
This Opinion Letter may be relied upon by you only in
connection with the Transaction and may not be used or relied upon
by you or any other person for any purpose whatsoever, except to
the extent authorized by the Accord, without in each instance our
prior written consent.
Very truly yours,
FOULSTON & SIEFKIN
Exhibit "D"
AFFILIATE'S AGREEMENT
---------------------
THIS AGREEMENT, made and entered into as of the __ day
of ________ 1994, by and between ____________________________,
(hereinafter referred to as "Affiliate") and FOURTH FINANCIAL
CORPORATION, a Kansas corporation (hereinafter referred to as
"Fourth").
W I T N E S S E T H: That;
--------------------
WHEREAS, Fourth, Affiliate and Standard Bancorporation,
Inc. ("SBI") are parties to an Agreement and Plan of
Reorganization, dated as of September 2, 1994 (the "Agreement"),
which provides for, subject to various terms and conditions, the
merger of SBI into Fourth (the "Merger"); and
WHEREAS, Section 5.1.i of the Agreement provides that a
condition to Fourth's obligation to effect the Merger is the
execution and delivery by each "affiliate" of SBI, as such term
is defined in the Agreement (an "Affiliate"), of an agreement
concerning the shares of common stock, par value $5 per share, of
Fourth ("Fourth Stock") to be received by such Affiliate in the
Merger; and
WHEREAS, the parties desire to effect the Merger and it
is in the best interests of the undersigned that the Merger be
effected;
NOW, THEREFORE, in consideration of the premises and the
issuance of Fourth Stock to the undersigned in the Merger, and in
order to induce SBI and Fourth to effect the Merger, the
undersigned hereby agree as follows:
1. Securities Act Restriction on Transfer and Sale.
Affiliate hereby agrees not to sell, pledge, offer to sell,
transfer, assign, or otherwise dispose of any of the shares of
Fourth Stock issued to Affiliate in the Merger in violation of the
Securities Act of 1933, as amended.
2. Pooling of Interests Restriction on Transfer and
Sale. Affiliate hereby agrees not to sell, pledge, offer to sell,
transfer, assign, or otherwise dispose of any shares of Fourth
Stock to be received by Affiliate in the Merger or in any other way
reduce Affiliate's risk relative to such shares (within the meaning
of Accounting Series Release No. 130) until financial results
covering at least 30 days following the Merger have been published.
3. Restrictive Legend. Affiliate hereby acknowledges
and agrees that all certificates evidencing Fourth Stock to be
issued to Affiliate pursuant to the Merger shall be subject to stop
transfer orders and shall bear a restrictive legend substantially
in the following form:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE BEEN ISSUED OR TRANSFERRED TO THE
REGISTERED HOLDER AS THE RESULT OF A TRANSACTION TO WHICH
RULE 145 UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), APPLIES. SUCH SHARES MAY NOT BE SOLD,
PLEDGED, TRANSFERRED, OR ASSIGNED, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
PLEDGE, TRANSFER, OR ASSIGNMENT, EXCEPT (i) PURSUANT TO
A THEN CURRENT EFFECTIVE REGISTRATION UNDER THE ACT, (ii)
IN A TRANSACTION PERMITTED BY RULE 145 AS TO WHICH THE
ISSUER HAS, IN THE REASONABLE OPINION OF ITS COUNSEL,
RECEIVED REASONABLY SATISFACTORY EVIDENCE OF COMPLIANCE
UNDER RULE 145, OR (iii) IN A TRANSACTION WHICH, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OR AS
DESCRIBED IN A "NO-ACTION" OR INTERPRETIVE LETTER FROM
THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION, IS
NOT REQUIRED TO BE REGISTERED UNDER THE ACT.
TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS
FURTHER RESTRICTED BY AN AFFILIATE'S AGREEMENT DATED AS
OF ______________, 1994, BETWEEN THE ISSUER AND THE
REGISTERED HOLDERS TO WHICH REFERENCE IS HEREBY MADE.
4. Miscellaneous. This Affiliate's Agreement
constitutes the entire agreement and understanding of the parties
relating to the subject matter hereof and may not be amended or
modified except by written instrument duly executed by the parties
hereto. This Affiliate's Agreement shall be governed by the laws
of the State of Kansas and shall be construed in accordance
therewith. This Affiliate's Agreement shall inure to the benefit
of, and shall be binding upon, the heirs, legatees, devisees,
successors, trustees, and assigns of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Affiliate's Agreement as of the date first above written.
FOURTH FINANCIAL CORPORATION
By
------------------------------
Darrell G. Knudson
Chairman of the Board
"Fourth"
-----------------------------
"Affiliate"
Exhibit 99.1
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
OKLAHOMA SAVINGS, INC.
The undersigned hereby appoints Calvin J. Anthony and Beth F.
Buchanan, and each of them, each with the power to act alone and with
full power of substitution, as attorneys and proxies of the undersigned
to attend the Special Meeting of Stockholders of Oklahoma Savings, Inc.
(the "Corporation"), to be held on ___________, 1994, at 10:00 a.m.,
Central Standard Time, and all adjournments thereof, and there to vote
all shares of capital stock of the Corporation held of record by the
undersigned as follows:
1. Approval and adoption of an Agreement and Plan of
Reorganization, dated as of July 21, 1994, among Fourth
Financial Corporation ("Fourth Financial") and the
Corporation, a related Agreement of Merger which provides
for the merger of the Corporation into Fourth Financial,
and the transactions contemplated therein, all as described
in the Notice of such meeting and the Proxy Statement-
Prospectus which accompanied such Notice.
FOR ___ AGAINST ___ ABSTAIN ___
2. In their discretion on such other matters as may properly
come before the meeting.
This proxy will be voted as directed, or if no direction is indicated
with respect to Item 1, this proxy will be voted FOR the proposal.
DATED: ____________, 1994
_____________________________
Signature
_____________________________
Signature if held jointly
Please sign exactly as name(s) appear(s) hereon and return promptly in
the enclosed envelope, indicating official position or representative
capacity where applicable.
PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
