SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ____)
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Guthrie Savings, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: common
stock and rights to buy common stock (options)
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(2) Aggregate number of securities to which transaction applies: 443,463
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (set forth the amount on which the filing
fee is calculated and state how it was determined): The per unit price is $22.25
for each of 402,257 shares of common stock; $22.25 less the $12.625 option
exercise price for 39,661 options; and $22.25 less the $17.00 option exercise
price for 1,545 options: ($22.25 x 402,257)+($9.625 x 39.611)+($5.25 x 1,545).
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $9,340,066.62
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(5) Total fee paid: $1,868.02
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[Guthrie Savings, Inc. Letterhead]
June ___, 1999
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of Guthrie Savings,
Inc., (the "Company"), I cordially invite you to attend the Annual Meeting of
Stockholders to be held at the office of the Company and its wholly-owned
subsidiary, Guthrie Federal Savings Bank (the "Bank"), 120 North Division,
Guthrie, Oklahoma on July __, 1999, at 5:00 p.m.
The matters to be considered by stockholders at the meeting are the
election of one director, the ratification of the appointment of Regier Carr &
Monroe, L.L.P. and a proposal to approve the Stock Purchase Agreement (the
"Agreement"), by and among Local Oklahoma Bank, N.A. ("Local Oklahoma"), the
Company and the Bank, pursuant to which Local Oklahoma would acquire the
outstanding common stock of the Company, dissolve the Company and then merge the
Bank with and into Local Oklahoma. The merger and acquisition are subject to
certain conditions, including regulatory and stockholder approval.
The accompanying Notice of Annual Meeting and proxy statement contain
information about these matters. We urge you to carefully review this
information.
The Board of Directors of the Company has unanimously approved the
Agreement and unanimously recommends that the stockholders of the Company
approve the Agreement. A failure to vote, either by not returning the enclosed
proxy or by checking the "Abstain" box on the proxy, will have the same effect
as a vote against approval of the Agreement.
The Board of Directors of the Company has determined that the other
matters to be considered at the meeting are in the best interest of the Company
and its stockholders. For the reasons set forth in the proxy statement, the
Board of Directors unanimously recommends a vote "FOR" each matter to be
considered.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING POSTAGE-PAID
RETURN ENVELOPE AS PROMPTLY AS POSSIBLE. This will not prevent you from voting
in person at the meeting, but will assure that your vote is counted if you are
unable to attend the meeting. YOUR VOTE IS VERY IMPORTANT.
Sincerely,
William L. Cunningham
President
Please do not send your common stock certificates at this time. If the
Agreement is approved, you will be sent instructions regarding the surrender of
your stock certificates.
<PAGE>
GUTHRIE SAVINGS, INC.
120 NORTH DIVISION
GUTHRIE, OKLAHOMA 73044
(405) 282-2201
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on July __, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Meeting")
of Guthrie Savings, Inc. ("the Company"), will be held at the office of the
Company and its wholly-owned subsidiary, Guthrie Federal Savings Bank (the
"Bank"), at 120 North Division, Guthrie, Oklahoma on July __, 1999, 5:00 p.m. A
proxy card and a proxy statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon the following
matters:
1. The election of one director of the Company;
2. The ratification of the appointment of Regier Carr & Monroe, L.L.P. as
independent auditors of the Company for the fiscal year ending March
31, 2000;
3. To consider and vote upon a proposal to approve the Stock Purchase
Agreement, dated as of May 26, 1999 (the "Agreement"), by and among
Local Oklahoma Bank, N.A. ("Local Oklahoma"), the Company and the Bank,
pursuant to which (i) Local Oklahoma would acquire the shares and stock
options of the Company (the "Acquisition"), then dissolve the Company
and merge the Bank with and into Local Oklahoma (the "Bank Merger and
together with the Acquisition, the "Merger and Acquisition"), (ii) each
outstanding share of the Company common stock would be converted into
the right, subject to adjustment, to receive a cash payment of $22.25
from Local Oklahoma upon completion of the Acquisition, subject to the
terms and conditions contained in the Agreement, and (iii) each
outstanding option to purchase Company common stock would be canceled
in exchange for a payment of $22.25 less the option exercise price; and
4. The transaction of such other matters as may properly come before the
Meeting or any adjournments thereof. The Board of Directors is not
aware of any other business to come before the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on the date
specified above or on any date or dates to which, by original or later
adjournment, the Meeting may be adjourned. Stockholders of record at the close
of business on June 8, 1999 are the stockholders entitled to vote at the Meeting
and any adjournments thereof.
EACH STOCKHOLDER, WHETHER OR NOT HE PLANS TO ATTEND THE MEETING, IS REQUESTED TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY WITHOUT DELAY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER MAY BE REVOKED BY
FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A DULY EXECUTED
PROXY BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE MEETING MAY REVOKE
HIS PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE MEETING.
HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN
NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER TO VOTE
PERSONALLY AT THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
Deborah Kay Bozarth
Secretary
Guthrie, Oklahoma
June _____, 1999
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM AT THE MEETING. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
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<PAGE>
TABLE OF CONTENTS
PAGE
----
GENERAL...................................................................
VOTING AND REVOCABILITY OF PROXIES........................................
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF...........................
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE...................
PROPOSAL I - INFORMATION WITH RESPECT TO NOMINEE FOR DIRECTOR,
DIRECTORS CONTINUING IN OFFICE, AND EXECUTIVE OFFICERS .................
PROPOSAL I - ELECTION OF DIRECTOR ........................................
INFORMATION WITH RESPECT TO NOMINEE FOR DIRECTOR, DIRECTORS
CONTINUING IN OFFICE, AND EXECUTIVE OFFICERS............................
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION...............................
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................
PROPOSAL II - PROPOSAL TO RATIFY APPOINTMENT OF AUDITORS..................
PROPOSAL III - PROPOSAL TO APPROVE STOCK PURCHASE AGREEMENT...............
SUMMARY...................................................................
SELECTED CONSOLIDATED FINANCIAL DATA......................................
MARKET PRICE OF STOCK AND RELATED SECURITY HOLDER MATTERS.................
THE MERGER AND ACQUISITION................................................
General................................................................
Background of the Merger...............................................
The Company's Reasons for the Merger...................................
Opinion of Financial Advisor...........................................
Federal Income Tax Consequences........................................
THE STOCK PURCHASE AGREEMENT..............................................
The Merger & Acquisition...............................................
Closing Date...........................................................
Possible Adjustment to Cash Consideration..............................
Exchange of the Common Stock Certificates..............................
Interests of Certain Persons...........................................
Post-Merger Benefits to Employees and Officers.........................
Appraisal Rights.......................................................
Business Pending Consummation..........................................
Accounting Treatment...................................................
Regulatory Approvals...................................................
Conditions to Consummation; Termination................................
Waiver; Amendment......................................................
Expenses; Termination Fees.............................................
LEGAL OPINIONS............................................................
ACCOUNTANTS...............................................................
FINANCIAL INFORMATION.....................................................
STOCKHOLDER PROPOSALS.....................................................
MISCELLANEOUS.............................................................
FORM 10-KSB...............................................................
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...........................
ANNEXES
Annex A - Stock Purchase Agreement .................................... A-1
Annex B - Opinion of Hovde Financial, Inc. ............................ B-1
Annex C - Oklahoma law regarding appraisal rights...................... C-1
EXHIBITS
Exhibit 1 - 1999 Annual Report to Stockholders
<PAGE>
PROXY STATEMENT
OF
GUTHRIE SAVINGS, INC.
120 NORTH DIVISION
GUTHRIE, OKLAHOMA 73044
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- --------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS
July , 1999
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- --------------------------------------------------------------------------------
GENERAL
- --------------------------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Guthrie Savings, Inc. (the "Company") to
be used at the Annual Meeting of Stockholders of the Company which will be held
at the office of the Company and its subsidiary, Guthrie Federal Savings Bank
(the "Bank"), at 120 North Division, Guthrie, Oklahoma on July __, 1999, 5:00
p.m. local time (the "Meeting"). The accompanying Notice of Meeting and this
Proxy Statement are being first mailed to stockholders on or about June __,
1999.
At the Meeting, stockholders will consider and vote upon (i) the
election of one director, (ii) the ratification of the appointment of Regier
Carr & Monroe, L.L.P. as independent auditors of the Company for the fiscal year
ending March 31, 2000 and (iii) to consider and vote upon a proposal to approve
the Stock Purchase Agreement, dated as of May 26, 1999 (the "Agreement"), by and
among Local Oklahoma Bank, N.A. ("Local Oklahoma"), the Company and the Bank,
pursuant to which (1) Local Oklahoma would acquire the shares and stock options
of the Company (the "Acquisition"), dissolve the Company and then merge the Bank
with and into Local Oklahoma (the "Bank Merger" and together with the
Acquisition, the "Merger and Acquisition"), (2) each outstanding share of the
Company common stock would be converted into the right, subject to adjustment,
to receive a cash payment of $22.25 from Local Oklahoma upon completion of the
Acquisition, subject to the terms and conditions contained in the Agreement, and
(3) each outstanding option to purchase Company common stock would be canceled
in exchange for a payment of $22.25 less the option exercise price. See PROPOSAL
III - PROPOSAL TO APPROVE STOCK PURCHASE AGREEMENT," "SUMMARY," "THE MERGER AND
ACQUISITION," "THE STOCK PURCHASE AGREEMENT." A copy of the Agreement is
attached as ANNEX A to this Proxy Statement.
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VOTING AND REVOCABILITY OF PROXIES
- --------------------------------------------------------------------------------
Stockholders who execute proxies retain the right to revoke them at any
time. Unless so revoked, the shares represented by such proxies will be voted at
the Meeting and all adjournments thereof. Proxies may be revoked by written
notice to the Secretary of the Company at the address above or by the filing of
a later dated proxy prior to a vote being taken on a particular proposal at the
Meeting. A proxy will not be voted if a stockholder attends the Meeting and
votes in person. Proxies solicited by the Board of Directors of the Company (the
"Board" or the "Board of Directors") will be voted in accordance with the
directions given therein. Where no instructions are indicated, signed proxies
will be voted "FOR" the nominee for director set forth below and "FOR" the other
listed proposals. The proxy confers discretionary authority on the persons named
therein to vote with respect to the election of any person as a director where
the nominee is unable to serve, or for good cause will not serve, and with
respect to such other business, if any, that may properly come before the
Meeting or any adjournment thereof.
<PAGE>
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
- --------------------------------------------------------------------------------
Stockholders of record as of the close of business on June 8, 1999 (the
"Record Date"), are entitled to one vote for each share of common stock of the
Company (the "Common Stock") then held. As of the Record Date, the Company had
402,257 shares of Common Stock issued and outstanding.
The certificate of incorporation of the Company ("Certificate of
Incorporation") provides that in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of Common Stock (the "Limit") be entitled or permitted to any vote with respect
to the shares held in excess of the Limit. Beneficial ownership is determined
pursuant to the definition in the Certificate of Incorporation and includes
shares beneficially owned by such person or any of his or her affiliates or
associates (as such terms are defined in the Certificate of Incorporation),
shares which such person or his or her affiliates or associates have the right
to acquire upon the exercise of conversion rights or options and shares as to
which such person and his or her affiliates or associates have or share
investment or voting power, but shall not include shares beneficially owned by
any employee stock ownership plan or similar plan of the issuer or any
subsidiary.
The presence in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote (after subtracting any
shares held in excess of the Limit) is necessary to constitute a quorum at the
Meeting. With respect to any matter, any shares for which a broker indicates on
the proxy that it does not have discretionary authority as to such shares to
vote on such matter (the "Broker Non- Votes") will be considered present for
purposes of determining whether a quorum is present. In the event there are
insufficient votes to ratify any proposals at the time of the Meeting, the
Meeting may be adjourned in order to permit the further solicitation of proxies.
As to the election of directors as set forth in Proposal I, the proxy
being provided by the Board enables a stockholder to vote for the election of
the nominees proposed by the Board, or to withhold authority to vote for the
nominees being proposed. Directors are elected by a plurality of votes of the
shares present in person or represented by proxy at a meeting and entitled to
vote in the election of directors.
As to the ratification of independent auditors as set forth in Proposal
II, the proposal to approve the Agreement as set forth in Proposal III and all
other matters that may properly come before the Meeting, by checking the
appropriate box, a stockholder may: vote "FOR" the item, (ii) vote "AGAINST" the
item, or (iii) vote to "ABSTAIN" on such item. Unless otherwise required by law,
all other matters shall be determined by a majority of votes cast affirmatively
or negatively without regard to (a) Broker Non-Votes or (b) proxies marked
"ABSTAIN" as to that matter.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
AGREEMENT, BELIEVES IT IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS ITS APPROVAL BY THE COMPANY'S
STOCKHOLDERS.
Directors, officers, and employees of the Company may solicit Proxies
from Company stockholders, either personally or by telephone, telegraph or other
form of communication. Such persons will receive no additional compensation for
such services. The Company has retained no third party to assist in soliciting
proxies or to send proxy materials to brokerage houses and other custodians,
nominees
2
<PAGE>
and fiduciaries for transmittal to their principals. All expenses associated
with the solicitation of proxies will be paid by the Company.
Persons and groups beneficially owning in excess of 5% of the Common
Stock are required to file certain reports regarding such ownership pursuant to
the Securities Exchange Act of 1934, as amended (the "1934 Act"). The following
table sets forth, as of the Record Date, persons or groups who beneficially own
more than 5% of the Common Stock and the ownership of all executive officers and
directors of the Company as a group. Other than as noted below, management knows
of no person or group that beneficially owns more than 5% of the outstanding
shares of Common Stock at the Record Date.
<TABLE>
<CAPTION>
Percent of Shares of
Amount and Nature of Common Stock
Name of Beneficial Owner Beneficial Ownership Outstanding
- ------------------------ -------------------- --------------------
<S> <C> <C>
Guthrie Federal Savings Bank Employee Stock 41,210(1) 10.2%
Ownership Plan
120 North Division, Guthrie, Oklahoma
Neil L. Pruitt 45,000(2) 11.2%
P.O. Box 1210, Toccoa, Georgia
Wellington Management Company, LLP 21,000(3) 5.2%
75 State Street, Boston, Massachusetts
William L. Cunningham 31,582(4) 7.6%
120 North Division, Guthrie, Oklahoma
Alvin R. Powell, Jr. 27,405(5) 6.8%
120 North Division, Guthrie, Oklahoma
James V. Seamans 20,829(6) 5.1%
120 North Division, Guthrie, Oklahoma
Keith Carrerer 20,905(6) 5.2%
120 North Division, Guthrie, Oklahoma
Directors and Executive Officers as a Group 136,319(7)(8) 31.1%
(7 persons)
</TABLE>
- ---------------------------------
(1) Based upon a Schedule 13G filed on December 20, 1994.
(2) Based upon a Schedule 13D dated May 11, 1995.
(3) Based on a Schedule 13G filed on February 9, 1999.
(4) Based on a Schedule 13D filed on June 2, 1999. Includes 12,878 shares
of Common Stock that may be acquired under exercisable options.
(5) Based on a Schedule 13D filed on December 8, 1998. Includes 2,575
shares of Common Stock that the individual has the right to acquire
pursuant to the exercise of options.
(6) Includes 2,575 shares of Common Stock that the individual has a right
to acquire under exercisable options.
(7) Includes options to purchase 36,571 shares that are exercisable within
60 days of the voting record date.
3
<PAGE>
(8) Excludes 22,666 unallocated shares of Common Stock held under the
Employee Stock Ownership Plan ("ESOP") for which Directors Camerer,
Powell and Seamans serve as members of the ESOP Committee or Trustee
Committee. Such individuals disclaim beneficial ownership with respect
to shares held in a fiduciary capacity. The ESOP Committee or the Board
instructs the ESOP Trustee regarding investment of ESOP plan assets.
The ESOP Trustee must vote all shares allocated to participant accounts
under the ESOP as directed by participants. Unallocated shares and
shares for which no timely voting direction is received will be voted
by the ESOP Trustee as directed by the ESOP Committee. As of the Record
Date, 18,544 shares have been allocated under the ESOP to participant
accounts.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
- --------------------------------------------------------------------------------
Section 16(a) of the 1934 Act requires the Company's officers and
directors, and persons who own more than ten percent of the Common Stock, to
file reports of ownership and changes in ownership of the Common Stock, on Forms
3, 4 and 5, with the Securities and Exchange Commission ("SEC") and to provide
copies of those Forms 3, 4 and 5 to the Company. With the exception of Mr.
Pruitt and the ESOP, the Company is not aware of any beneficial owner of more
than ten percent of its Common Stock. The Company has never received any Forms
3, 4 or 5 from Mr. Pruitt. Based upon a review of the copies of the forms
furnished to the Company, or written representations from certain reporting
persons that no Forms 5 were required, the Company believes that all Section
16(a) filing requirements applicable to its officers and directors were complied
with during the 1999 fiscal year.
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PROPOSAL I -- ELECTION OF DIRECTOR
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INFORMATION WITH RESPECT TO NOMINEE FOR DIRECTOR, DIRECTORS
CONTINUING IN OFFICE, AND EXECUTIVE OFFICERS
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Election of Director
The Certificate of Incorporation divides the Board of Directors into
three classes, each of which contains approximately one-third of the members of
the Board. The directors are elected by the stockholders of the Company for
staggered three-year terms, or until their successors are elected and qualified.
The Board of Directors currently consists of five members. One director will be
elected at the Meeting to serve for a three-year term or until his successor has
been elected and qualified.
Dr. James V. Seamans has been nominated by the Board of Directors to
serve as a director. Dr. Seamans is currently a member of the Board and has been
nominated for a three-year term to expire in 2002. It is intended that proxies
solicited and obtained by the Board will be voted for the election of the named
nominee, absent a contrary indication. If the nominee is unable to serve, the
shares represented by all valid proxies will be voted for the election of such
substitute as the Board of Directors may recommend. At this time, the Board
knows of no reason why the nominee might be unavailable to serve.
The following table sets forth information with respect to the nominee
and the directors continuing in office, their name, age, the year they first
became a director of the Company or the Bank, the expiration date of their
current term as a director, and the number and percentage of shares of the
Common Stock beneficially owned as of the Voting Record Date. Each director of
the Company is also a director of the Bank.
4
<PAGE>
<TABLE>
<CAPTION>
Year First Current Shares of
Elected or Term to Common Stock Percent
Name Age(1) Appointed(2) Expire Beneficially of Class
- ---- ------ ------------ ------- ------------ --------
BOARD NOMINEES FOR TERM TO EXPIRE IN 2002
<S> <C> <C> <C> <C> <C>
James V. Seamans 60 1992 1999 20,829(3)(4) 5.1%
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS CONTINUING IN OFFICE
<S> <C> <C> <C> <C> <C>
William L. Cunningham 59 1974 2000 31,582(5) 7.6%
Alvin R. Powell, Jr. 66 1990 2000 27,405(3)(4) 6.8%
Keith Camerer 71 1988 2001 20,905(3)(4) 5.2%
H. Stephen Ochs 49 1988 2001 19,598(6) 4.8%
</TABLE>
- ------------------------
(1) At March 31, 1999.
(2) Refers to the year the individual first became a director of the
Company or the Bank. All directors of the Bank during May 1994 became
directors of the Company when it was incorporated in May 1994.
(3) Excludes 22,666 unallocated shares of Common Stock held under the ESOP
for which such individual serves as a member of the ESOP Committee or
Trustee Committee. Such individual disclaims beneficial ownership with
respect to such shares held in a fiduciary capacity. These shares are
held in a suspense account and will be allocated among ESOP
participants annually on the basis of compensation as the ESOP debt is
repaid. The ESOP Committee or the Board instructs the ESOP Trustee
regarding investment of ESOP plan assets. The ESOP Trustee must vote
all shares allocated to participant accounts under the ESOP as directed
by participants. Unallocated shares and shares for which no timely
voting direction is received will be voted by the ESOP Trustee as
directed by the ESOP Committee. As of the Record Date, 18,544 shares
have been allocated under the ESOP to participant accounts.
(4) Includes 2,575 shares of Common Stock that the individual has a right
to acquire pursuant to the exercise of options.
(5) Includes 12,878 shares of Common Stock that the individual has a right
to acquire pursuant to the exercise of options.
(6) Includes 9,272 shares of Common Stock that the individual has a right
to acquire pursuant to the exercise of options.
The following individuals hold the executive offices in the Company set
forth opposite their names.
Name Age(1) Positions Held With the Company
---- ------ -------------------------------
William L. Cunningham 59 Director, Chief Executive Officer
and President
H. Stephen Ochs 49 Director and Vice President
Kathleen Ann Warner 48 Vice President
Kimberly D. Walker 42 Treasurer
- ------------------------
(1) At March 31, 1999.
5
<PAGE>
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. Since the
formation of the Company, none of the executive officers, directors, or other
personnel have received remuneration from the Company.
Biographical Information
Set forth below is certain information with respect to the directors of
the Company. All directors and executive officer have held their present
positions for five years unless otherwise stated.
Keith Camerer has served as a director of the Bank since 1988 and as a
director of the Company since its formation in May 1994. Mr. Camerer retired in
September 1997 as co-owner of Jelsma Abstract Company, an abstract and title
company. He is also a member of the Guthrie Lions Club.
William L. Cunningham has been with the Bank for 33 years and with the
Company since its formation in May 1994. He is a member of the board of
directors of the Heartland Community Bankers Association. Mr. Cunningham is also
a member of the Logan County Economic Development Board, and is a member of the
Guthrie Rotary Club, and the Logan County Historical Society.
H. Stephen Ochs has been with the Bank for 18 years and with the
Company since its formation in May 1994. Mr. Ochs is also a member of the
Guthrie Lions Club.
Alvin R. Powell, Jr. has been a director of the Bank since 1988 and as
a director of the Company since its formation in May 1994. Mr. Powell is self
employed as a theater owner and real estate broker. He is a partner in Beacon
Drive-In Theater and the owner of Homestead Real Estate of Guthrie. He is also a
member of the Guthrie Lions Club and the Guthrie Industrial Foundation.
James V. Seamans has been a director of the Bank since October 1992 and
a director of the Company since its formation in May 1994. Dr. Seamans is self
employed as a Dentist. He is also a member of the Guthrie Rotary Club.
Kathleen Ann Warner has been with the Bank for 27 years and the Company
since its formation in May 1994. Ms. Warner is a member of the Logan County
Historical Society, the Guthrie Chamber of Commerce and the Guthrie Rotary Club.
Kimberly D. Walker has been with the Bank for 12 years and the Company
since its formation in May 1994. Ms. Walker is a member of the Financial
Managers Society and a member of the parent- teacher organization of the Guthrie
Christian School, and the Guthrie Public Schools.
Nominations for Director
Pursuant to Article X of the Certificate of Incorporation, nominations,
other than those made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice in writing to the Secretary of the Company as set
forth in that Article. To be timely, a stockholder's notice shall be delivered
to, or mailed and received at, the principal executive offices of the Company
not less than 60 days prior to the anniversary date of the immediately preceding
annual meeting of stockholders of the Company.
6
<PAGE>
Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a director
and as to the stockholder giving the notice (i) the name, age, business address,
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of Common Stock
which are beneficially owned by such person on the date of such stockholder
notice, and (iv) any other information relating to such person that is required
to be disclosed in solicitations of proxies with respect to nominees for
election as directors; and (b) as to the stockholder giving the notice (i) the
name and address, as they appear on the Company's books, of such stockholder and
any other stockholders known by such stockholder to be supporting such nominees
and (ii) the class and number of shares of Common Stock which are beneficially
owned by such stockholder on the date of such stockholder notice and, to the
extent known, by any other stockholders known by such stockholder to be
supporting such nominees on the date of such stockholder notice.
The Board of Directors may reject any nomination by a stockholder not
timely made in accordance with the requirements of the Certificate of
Incorporation. If the presiding officer at the meeting determines that a
nomination was not made in accordance with the terms of the Certificate of
Incorporation, he shall so declare at the annual meeting and the defective
nomination shall be disregarded.
Meetings and Committees of the Board of Directors
The Board of Directors of the Company conducts its business through
meetings of the Board and through activities of its committees. All committees
act for both the Company and the Bank. During the fiscal year ended March 31,
1999, the Board of Directors held 12 regular meetings and no special meetings.
No director attended fewer than 100% of the total meetings of the Board of
Directors of the Bank and the Company and committees during the time such
director served during the fiscal year ended March 31, 1999.
The Company's full Board of Directors acts as the standing nominating
committee ("Nominating Committee") for selecting the management nominees for
election of directors in accordance with the Company's Bylaws. In its
deliberations, the Nominating Committee considers the candidate's knowledge of
the banking business and involvement in community, business, and civic affairs.
While the Board of Directors will consider nominees recommended by stockholders,
it has not actively solicited recommendations. Nominations by stockholders must
be submitted in writing to the Secretary of the Company and delivered to, or
mailed and received at, the Company not less than 60 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders.
The stockholder's notice must state as to the stockholder and as to each
nominee: (i) name, age, business address and residence address, (ii) the
principal occupation or employment, (iii) the number of shares of common stock
which are beneficially owned (as defined in the Certificate of Incorporation) on
the date of the stockholder notice, and (iv) any other information that is
required to be disclosed in solicitations of proxies with respect to nominees
under the federal proxy rules. Further, the stockholder's notice must also
state, to the extent known, the name, address of, and number of shares of common
stock beneficially owned by, any other stockholders known to be supporting the
nominee(s). During the fiscal year ended March 31, 1999, the Board of Directors
met one time as the Nominating Committee.
The executive committee of the Bank, which is comprised of all five
members of the Board of Directors, acts as the Company's standing compensation
committee ("Compensation Committee"). The Compensation Committee reviews the
performance and compensation of the officers of the Company. The Compensation
Committee met once during the 1999 fiscal year.
7
<PAGE>
The Audit Committee of the Company is a standing committee which is
comprised of the entire Board of Directors of the Company. The Audit Committee
annually selects the independent auditors and meets with the accountants to
discuss and review the annual audit. The Audit Committee is further responsible
for reviewing and approving internal controls for financial reporting. The Audit
Committee met once during the 1999 fiscal year.
- --------------------------------------------------------------------------------
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
- --------------------------------------------------------------------------------
Director Compensation
During fiscal year 1999 each non-employee member of the board of
directors of the Bank received a fee of $500 per board meeting held, including
special meetings. No fees for meetings are paid to Board members who are
employees. No additional fees are paid for committee meetings. For the year
ended March 31, 1999, fees paid to directors of the Bank totaled $18,000. During
fiscal year 1999, each member of the Board of Directors of the Company received
a fee of $300 per board meeting held, including special meetings. For the year
ended March 31, 1999, fees paid to directors of the Company totaled $18,000.
During 1995, directors received awards of stock options and restricted
stock under the 1994 Stock Option Plan and the management stock bonus plan
("MSBP"). A portion of these awards vested during the 1999 fiscal year.
Executive Officer Compensation
The Company has no full time employees, but relies on the employees of
the Bank for the limited services required by the Company. All compensation paid
to officers and employees is paid by the Bank.
The Company has agreed to reimburse the Bank for use of Bank employees.
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by the Chief Executive Officer of the
Company. No executive officer of the Company had a salary and bonus during the
years ended March 31, 1999, 1998, and 1997 that exceeded $100,000 for services
rendered in all capacities to the Company.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
--------------------------------------- ----------------------------
Securities
Restricted Underlying
Name and Fiscal Other Annual Stock Options/ All Other
Principal Position Year Salary Bonus Compensation(1) Awards($)(2) SARs(#) Compensation(3)
- ------------------- ---- ------ ----- --------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
William L. Cunningham 1999 $60,900 $ -- $ -- $ -- $ -- $13,282
President and Chief 1998 60,900 -- 5,673 -- -- 13,892
Executive Officer 1997 60,900 -- -- -- -- 12,288
</TABLE>
- ------------------------
(1) Payment for vacation time.
(2) At March 31, 1999, Mr. Cunningham had 2,061 shares of restricted stock
in the aggregate which had a total value of $39,159 (calculated by
multiplying the aggregate number of restricted stock by the Common
Stock's average bid and ask price of $19.00 on March 31, 1999).
Dividends, if any, are paid on the restricted stock awarded.
(3) Consists of an allocation of 819.214 and 771.763 and 699.040 shares of
Common Stock under the ESOP for the fiscal years ended March 31, 1997,
1998 and 1999, respectively. The per share value of these allocations
was $15.00, $18.00 and $19.00 at March 31, 1997, 1998 and 1999,
respectively, based on an average of the bid and ask prices as of March
31, 1997, 1998 and 1999, respectively.
8
<PAGE>
Employment Agreement
The Bank entered into an employment agreement with William L.
Cunningham, its President and Chief Executive Officer. The employment agreement
is for a term of three years with a base salary of $60,900. The agreement may be
terminated by the Bank for "just cause" as defined in the agreement. If the Bank
terminates Mr. Cunningham without just cause, he will be entitled to a
continuation of salary from the date of termination through the remaining term
of the agreement. The employment agreement contains a provision stating that in
the event of termination of employment in connection with, or within one year
after, any change in control of the Bank, Mr. Cunningham will be paid in a lump
sum equal to 2.99 times his average five year compensation. The aggregate
payments that would be made would be an expense to the Bank, thereby reducing
net income and the Bank's capital by that amount. On May 26, 1999 the Company
executed the Agreement, causing a change in control of the Bank in accordance
with the terms of the employment agreement with Mr. Cunningham. See "PROPOSAL
III - PROPOSAL TO APPROVE STOCK PURCHASE AGREEMENT - THE STOCK PURCHASE
AGREEMENT - Interests of Certain Persons."
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at in-the-Money Options/SARs
Shares Value Fiscal Year-End (#) at Fiscal Year-End ($)(1)
Acquired on Realized --------------------------- ---------------------------
Name Exercise (#) ($) Exercisable / Unexercisable Exercisable / Unexercisable
- --------------------- ------------ --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William L. Cunningham -- $ -- 7,727 / 5,151 $49,260 / $32,838
</TABLE>
- ------------------------
(1) Based on a value of $19.00 per share on March 31, 1999.
- --------------------------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
The Bank, like many financial institutions, has followed a policy of
granting various types of loans to officers, directors, and employees. Loans are
made in the ordinary course of business and on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with the Bank's other customers, and do not involve more
than the normal risk of collectibility, nor present other unfavorable features.
Furthermore, loans to an affiliate must be approved in advance by a
disinterested majority of the Board of Directors or be within other guidelines
established as a result of OTS regulations.
- --------------------------------------------------------------------------------
PROPOSAL II -- PROPOSAL TO RATIFY APPOINTMENT OF AUDITORS
- --------------------------------------------------------------------------------
Regier Carr & Monroe, L.L.P. was the Company's independent public
accountant for the fiscal year ending March 31, 1999. The Board of Directors has
approved the selection of Regier Carr & Monroe, L.L.P. as its auditors for the
fiscal year ending March 31, 2000, subject to ratification by the Company's
stockholders. A representative of Regier Carr & Monroe, L.L.P. is expected to be
present at the Meeting to respond to stockholders' questions and will have the
opportunity to make a statement if he or she so desires.
9
<PAGE>
Ratification of the appointment of the auditors requires the approval
of a majority of the votes cast by the stockholders of the Company at the
Meeting. The Board of Directors recommends that stockholders vote "FOR" the
ratification of the appointment of Regier Carr & Monroe, L.L.P.
as the Company's auditors for the fiscal year ending March 31, 2000.
- --------------------------------------------------------------------------------
PROPOSAL III -- PROPOSAL TO APPROVE STOCK PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUMMARY
- --------------------------------------------------------------------------------
THE FOLLOWING SUMMARY PROVIDES CERTAIN INFORMATION RELATING TO THE
MERGER AND ACQUISITION. THIS SUMMARY IS NOT INTENDED TO BE A SUMMARY OF ALL
MATERIAL INFORMATION RELATING TO THE MERGER AND ACQUISITION AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT, INCLUDING THE ANNEXES HERETO, AND IN THE DOCUMENTS
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT. A COPY OF THE AGREEMENT IS
ATTACHED AS ANNEX A TO THIS PROXY STATEMENT. STOCKHOLDERS ARE URGED TO READ
CAREFULLY THE ENTIRE PROXY STATEMENT, INCLUDING THE ANNEXES. AS USED IN THIS
PROXY STATEMENT, THE TERMS "LOCAL OKLAHOMA," "THE COMPANY" AND "THE BANK" REFER
TO SUCH ORGANIZATIONS, AND, UNLESS THE CONTEXT OTHERWISE REQUIRES, SUCH
ORGANIZATIONS AND THEIR RESPECTIVE SUBSIDIARIES.
Local Oklahoma Bank, N.A. ("Local Oklahoma")
Local Oklahoma is a national banking association, subject to the
regulation and supervision of the Office of the Comptroller of the Currency
("OCC"), with its principal office in Oklahoma City, Oklahoma. Local Oklahoma
was chartered in 1999. Prior to that time, Local Oklahoma was a federally
chartered savings bank. Local Oklahoma is the wholly-owned subsidiary of Local
Financial Corporation ("LFC"), a Delaware business corporation whose stock is
publicly held and listed on the American Stock Exchange. LFC is registered as a
bank holding company with the Board of Governors of the Federal Reserve System
("Federal Reserve Board") under the Federal Bank Holding Company Act of 1956, as
amended (the "BHC Act"). The principal executive office of Local Oklahoma and
LFC is located at 3601 N.W. 63rd Street, Oklahoma City, Oklahoma 73116 and the
telephone number at that address is (405) 841-2100.
At March 31, 1999, LFC had consolidated assets of $2.1 billion,
deposits of $1.6 billion and shareholders' equity of $124 million.
The Company and the Bank
The Company is an Oklahoma corporation organized in May 1994 and became
a unitary savings and loan holding company upon the completion of the conversion
and reorganization of the Bank from a mutual savings bank to a wholly-owned
stock savings bank subsidiary of the Company in October 1994. The Company's
principal asset is the stock of the Bank which is a community-oriented
institution offering a variety of financial services in Guthrie, Oklahoma. As of
March 31, 1999, the Company reported assets of $45.8 million, loans receivable
of $23.8 million, deposits of $35.1 million, and stockholders' equity of $7.4
million, and as of such date the Company operated through one office, which is
located in Logan County, Oklahoma. The principal executive offices of the
Company and the Bank are located at 120 North Division, Guthrie, Oklahoma, and
their telephone number is (405) 282-2201.
10
<PAGE>
The Merger and Acquisition
Under the terms of the Agreement, Local Oklahoma would acquire the
Company, then dissolve the Company and merge the Bank with and into Local
Oklahoma. Upon consummation of the Acquisition, each outstanding share of the
Common Stock would be converted into the right to receive a cash payment of
$22.25 from Local Oklahoma, subject to adjustment. Each outstanding share of
Common Stock subject to the First Stock Options (as defined in the Agreement)
would be converted into the right to receive a cash payment of $9.625 per share
($22.25 minus the exercise price), and each outstanding share of Common Stock
subject to the Second Stock Options (as defined in the Agreement) would be
converted into the right to receive a cash payment of $5.25 per share ($22.25
minus the exercise price). The merger of the Bank with and into Local Oklahoma,
is expected to occur immediately after the Acquisition.
Vote Required
Approval of the Agreement requires the affirmative vote of a majority
of the holders of the outstanding common stock of the Company. Each owner of
Common Stock on the Record Date will be entitled to one vote for each share held
of record upon each matter properly submitted at the Meeting or any adjournment
or adjournments thereof.
The directors and executive officers of the Company (including certain
of their related interests) beneficially owned, as of the Record Date, and are
entitled to vote at the Meeting, 136,319 shares of the Common Stock, which
represents 31.1% of the outstanding shares of the Common Stock entitled to be
voted at the Meeting. Accordingly, assuming that the directors and executive
officers of the Company vote their shares of the Common Stock in favor of
approval of the Agreement, approval of the Agreement will require the
affirmative vote of the holders of 19.9% of the additional outstanding shares of
the Common Stock entitled to be voted at the Meeting in order for the Agreement
to be approved at the Meeting.
Pursuant to Section 1090.1 of the Oklahoma General Corporation Act, the
Company is required to submit for stockholder vote a proposal to approve the
Agreement and obtain an affirmative vote of a majority of the votes cast in
order to consummate the Merger and Acquisition.
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX ON THE PROXY, WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST APPROVAL OF THE AGREEMENT.
Effective Date
Unless the Agreement is terminated, a closing is to be held as soon as
practicable after the satisfaction or waiver of the conditions to the
obligations of the parties to consummate the Merger and Acquisition and in no
event later than December 31, 1999. It is currently anticipated that the closing
will take place, and the Merger and Acquisition will become effective, during
the third calendar quarter of 1999.
Recommendation of the Company's Board of Directors
The Board of Directors of the Company has approved the Agreement by
unanimous vote, believes it is in the best interests of the Company and its
stockholders and unanimously recommends its approval by the Company's
stockholders.
11
<PAGE>
Opinion of Financial Advisor
Hovde Financial, Inc. ("Hovde") rendered its oral opinion to the
Company's Board of Directors on May 24, 1999, and subsequently rendered an
additional formal written updated opinion dated May 26, 1999 (the "Opinion")
that, as of the respective dates of such opinions and subject to the assumptions
set forth therein, the cash consideration is fair to the holders of the Common
Stock from a financial point of view. For information concerning the matters
reviewed, assumptions made and factors considered by Hovde see "- THE MERGER AND
ACQUISITION - Opinion of Financial Advisor" and ANNEX B to this Proxy Statement,
which sets forth a copy of Hovde's written fairness opinion dated
______________, 1999. Holders of the Common Stock are urged to, and should, read
the Opinion in its entirety.
Based upon the estimated aggregate purchase price to be paid in
connection with the Merger and Acquisition, Hovde's aggregate fees will be
approximately $142,297. Hovde was paid approximately $20,000 of such advisory
fee upon the signing of the Agreement and the remainder will be paid upon the
closing of this transaction. In addition, the Company has agreed to reimburse
Hovde for its reasonable out-of-pocket expenses, which shall not exceed $7,500
without the prior consent of the Company.
Federal Income Tax Consequences
The receipt of cash by a stockholder of the Company in exchange for
shares of the Common Stock pursuant to the Agreement will be a taxable
transaction to such stockholder for federal income tax purposes. In general, a
stockholder will recognize gain or loss upon the surrender of the stockholder's
Common Stock equal to the difference, if any, between (i) the total amount of
cash received in exchange for Common Stock and (ii) the stockholder's tax basis
in the Common Stock exchanged.
Stockholders are urged to consult their own tax advisors as to the specific
consequences to them of the Acquisition under applicable tax laws.
Interests of Certain Persons
Directors or executive officers of the Company have interests in the
Merger and Acquisition in addition to their interests as stockholders of the
Company generally. These interests include, among others, provisions in the
Agreement relating to indemnification and maintenance of director and officer
liability insurance coverage. These interests also relate to certain benefits
available as a result of a "change in control" of the Company, such as the
Acquisition, including, among others, the payment of certain benefits under an
existing employment agreement to the Company's President.
Appraisal Rights
Stockholders of the Company are entitled to appraisal rights in
connection with the Merger. See "PROPOSAL III -- PROPOSAL TO APPROVE STOCK
PURCHASE AGREEMENT --THE MERGER AND ACQUISITION -- Appraisal Rights."
Business Pending Consummation
The Company has agreed to carry on its business in substantially the
same manner its business was conducted prior to the date of the Agreement, and
has agreed not to take certain actions relating to the operation of the Company
pending consummation of the Merger and Acquisition, without the prior written
consent of Local Oklahoma, except as otherwise permitted by the Agreement.
12
<PAGE>
Regulatory Approvals
Although the Company, the Bank, and Local Oklahoma believe the Merger
and Acquisition will only require the approval of the OCC and notice to be filed
with the Office of Thrift Supervision ("OTS"), the Merger and Acquisition may
also be subject to the prior approval of the Federal Reserve Board, the Federal
Deposit Insurance Corporation (the "FDIC"), and other regulatory authorities.
Applications or waiver requests have been either filed with each of such
regulatory authorities for such approvals or will be filed in the near future if
necessary. There can be no assurance that the necessary regulatory approvals
will be obtained or as to the timing or conditions of such approvals. See "THE
STOCK PURCHASE AGREEMENT -- Regulatory Approvals."
Conditions to Consummation; Termination
Consummation of the Merger and Acquisition is subject, among other
things, to: (i) approval of the transactions contemplated by the Agreement by
the requisite vote of the stockholders of the Company; (ii) receipt of the
regulatory approvals referred to under "THE STOCK PURCHASE AGREEMENT --
Regulatory Approvals"; (iii) there being in effect no order, decree or
injunction of any court or agency of competent jurisdiction that enjoins or
prohibits the Merger and Acquisition or which would limit or otherwise affect in
a material respect the operation of the Bank and Local Oklahoma as a single
entity, following the Merger and Acquisition; and (iv) there being no suit,
action or proceeding pending or, in the case of governmental bodies, threatened,
which challenge the validity or legality, or seeks to restrain the consummation,
of the Merger and Acquisition or which seeks to limit or otherwise affect in a
material respect the operation of the Bank and Local Oklahoma as a single entity
following the Merger and Acquisition.
The Agreement may be terminated by mutual agreement of the Boards of
Directors of Local Oklahoma and the Company. The Agreement may also be
terminated by either the Board of Directors of the Company or of Local Oklahoma
if the Acquisition does not occur on or before December 31, 1999, or if certain
conditions set forth in the Agreement are not met.
Expenses; Termination Fees
The Company, the Bank, and Local Oklahoma must generally pay their own
respective legal and accounting fees and all other expenses and fees incurred in
connection with the Merger and Acquisition.
Generally, if the Company and the Bank have materially complied with
the terms and conditions of the Agreement and Local Oklahoma fails or refuses to
consummate the Agreement, then the Company and the Bank will be entitled to
receive an aggregate amount equal to Local Oklahoma's earnest money deposit of
$500,000 plus any accrued interest. If all of the conditions to the Company's
and the Bank's obligations to consummate the Agreement are fully satisfied and
the Company and the Bank fail or refuse to consummate the Agreement, then Local
Oklahoma will generally be entitled to: (i) terminate the Agreement and receive
its earnest money deposit of $500,000 plus any accrued interest; or (ii) enforce
specific performance of the Agreement under certain circumstances.
13
<PAGE>
- --------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
The following selected consolidated financial and other data for the
last five fiscal years are derived from the audited consolidated financial
statements of the Company. The data should be read in conjunction with the
audited consolidated financial statements, related notes and other financial
information incorporated by reference herein.
<TABLE>
<CAPTION>
UNAUDITED SELECTED FINANCIAL DATA
---------------------------------
(dollars in thousands, except per share data)
At or for the year ended March 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
TOTAL AMOUNTS OF:
- ----------------
<S> <C> <C> <C> <C> <C>
Total assets $45,768 $48,627 $49,047 $46,820 $44,727
Loans receivable 23,802 25,655 23,461 22,972 23,182
Securities available-for-sale 648 2,175 2,062 2,133 929
Mortgage-backed securities held-to-maturity 11,460 12,615 13,273 9,428 9,869
Investment securities held-to-maturity 1,000 3,900 8,700 9,751 8,366
Cash and cash equivalents 7,186 3,307 523 1,402 1,090
Deposits 35,079 35,538 34,293 36,311 34,543
Borrowed money 3,000 5,196 6,700 2,000 1,700
Stockholders equity 7,393 7,536 7,805 8,049 8,236
Net interest income 1,721 1,791 1,799 1,655 1,709
Net income (loss) 414 536 380 585 545
Diluted earnings per common shares 1.06 1.36 0.91 1.27 0.48
Common stock dividends declared per share 1.00 1.00 0.50 0.50 0.20
Return on average assets 0.88% 1.11% 0.79% 1.30% 1.24%
Return on average equity 5.61% 7.25% 4.89% 7.12% 10.39%
Dividend payout ratio (1) 90.62% 72.17% 55.32% 38.08% 17.38%
Average equity to average assets ratio 15.66% 15.26% 16.13% 18.18% 11.93%
Book value per share $ 18.38 $ 18.05 $ 17.33 $ 16.61 $ 15.99
====== ====== ====== ====== ======
</TABLE>
- ------------------------
(1) Cash dividends declared per common share.
- --------------------------------------------------------------------------------
MARKET PRICE OF STOCK AND RELATED SECURITY HOLDER MATTERS
- --------------------------------------------------------------------------------
There were 402,257 shares of common stock of the Company outstanding as
of March 31, 1999, held by approximately 200 stockholders of record (not
including the number of persons or entities holding the stock in nominee or
street name through various brokerage firms). Since its issuance in October
1994, the Company's common stock has been traded in the over-the-counter market.
The following table reflects high and low bid information for stock quotations
as published by the National Quotation Bureau through the "pink sheets." These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
14
<PAGE>
Year Ended March 31
--------------------------------------------------
1999 1998
---------------------- -----------------------
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter 18-9/16 17-5/8 17-1/8 15-1/2
Second Quarter 19-1/4 18-9/16 17 17
Third Quarter 19-1/2 17 18 17
Fourth Quarter 19-1/2 16-1/2 18-1/4 17-1/2
The high and low bids as of ____ __, 1999 were _______ and ______ respectively.
During the year ended March 31, 1999, the Board of Directors declared
and paid two dividends of $0.50 per share. The first $0.50 dividend was paid on
October 15, 1998 and the second $0.50 dividend was paid on February 10, 1999.
During the year ended March 31, 1998, the Board of Directors declared and paid
two dividends of $0.50 per share. The first $0.50 dividend was paid on October
10, 1997 and the second $0.50 was paid on February 10, 1998. The Company's
ability to pay dividends to shareholders is largely dependent upon the dividends
it receives from the Bank. The Agreement also restricts the Company's ability to
pay dividends. The Bank is subject to regulatory limitations on the amount of
cash dividends it may pay. The Bank may not declare or pay a cash dividend on
any of its stock if the effect thereof would cause the Bank's regulatory capital
to be reduced below (1) the amount required for the liquidation account
established in connection with the Bank's conversion from mutual to stock form,
or (2) the regulatory capital requirements imposed by the OTS.
- --------------------------------------------------------------------------------
THE MERGER AND ACQUISITION
- --------------------------------------------------------------------------------
A COPY OF THE AGREEMENT IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT AND
REFERENCE IS MADE THERETO FOR A COMPLETE DESCRIPTION OF THE TERMS OF THE MERGER
AND ACQUISITION. STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THE AGREEMENT
CAREFULLY.
General
Under the terms of the Agreement, Local Oklahoma would acquire the
Company, then dissolve the Company and merge the Bank with and into Local
Oklahoma. Upon consummation of the Acquisition, each outstanding share of the
Common Stock would be converted automatically and without any action on the part
of the holder thereof, into the right to receive a cash payment of $22.25 from
Local Oklahoma subject to adjustment.
Background of the Merger
During the normal course of its business, the Company has historically
received inquiries regarding its willingness to consider an acquisition by, or
affiliation with, larger financial institutions. Consistent with its fiduciary
obligations to its shareholders, the Company has considered such inquiries and
evaluated them with respect to the level and form of consideration proposed, and
the seriousness and specificity which has been conveyed to the Company in terms
of consideration, as well as the expected future operation of the Company, and
other considerations and factors deemed relevant by the Company, in
15
<PAGE>
formulating its business plan with the intent to provide maximum value to its
shareholders. In consideration of the current market conditions, the Company
felt it was necessary to consult with an investment banking firm experienced in
the area of financial institution mergers and acquisitions to evaluate the
prospects of accomplishing a transaction that would both maximize shareholder
value and continue to provide the Oklahoma markets it serves with the services
of a locally-based institution.
Based upon deliberations by the Board of Directors of the Company
regarding the cost of providing the increasingly broad array of financial
products and alternative delivery channels to remain competitive in the
marketplace and to continue to deliver exceptional service to its customers, the
Company Board retained Hovde to assist and advise the Company in exploring a
merger with a larger financial institution which would satisfy these objectives.
Subsequently, Hovde contacted those financial institutions which it believed
might meet the criteria for such a transaction with the Company. These
institutions were provided information (pursuant to a confidentiality agreement)
and various 1evels of discussions were held with each regarding the potential
for a suitable transaction with the Company. Thereafter, certain of these
institutions were asked to convey to the Company and its representative their
interest in pursuing a transaction with the Company. After receipt of these
indications of interest, and giving careful consideration to the entirety of the
proposals, including the consideration proposed to be paid in connection with
the transaction (and the form and other characteristics thereof), the Company
believed its overall objectives were most likely to be achieved by pursuing a
transaction with Local Oklahoma.
As a result of this process, the Company and Local Oklahoma commenced
extensive negotiations. In evaluating whether to affiliate with Local Oklahoma,
the Company considered the competitive conditions in the market served by the
Company, the Company's future growth prospects, the likely future prospects of
the local, state-wide, and national economy, the trading characteristics of the
Common Stock and the likely future price appreciation prospects of the Common
Stock. The Company also took into account its belief that affiliating with Local
Oklahoma, a larger financial institution with significantly greater resources
and expertise, offered expansion opportunities, financial products and services
not otherwise available to the Company and its customers. The Company and its
Board of Directors determined that the Company's competitive position and the
value of its stock could best be enhanced through affiliation with Local
Oklahoma.
Following arm's length negotiations between representatives of Local
Oklahoma and the Company, Local Oklahoma and the Company entered into the
Agreement on May 26, 1999. The aggregate price to be paid to holders of the
Common Stock resulted from negotiations which considered the historical earnings
and future combined earnings prospects of Local Oklahoma and the Company,
potential growth in the Company's market, the Company's asset quality and the
effect of the Merger on the shareholders, customers, and employees of Local
Oklahoma and the Company.
The Company's Reasons for the Merger and Acquisition and Recommendation
The terms of the Agreement, including the Cash Consideration to be
received by the Company's stockholders, were the result of arm's length
negotiations between the representatives of the Company and Local Oklahoma after
a thorough auction process. The factors of the Merger that the Board of
Directors of the Company considered material in deciding to approve and
recommend the terms of the Merger were (i) the cash to be received by the
Company's stockholders of $22.25 was equivalent to 124% of tangible book value
and 17.4 times the latest twelve months earnings and compared favorably to
acquisition prices paid for comparable companies, (ii) the taxable nature of a
cash transaction versus the pricing risk associated with taking stock, (iii)
information concerning the financial condition, results of operations, capital
levels, asset quality and future prospects of the Company, (iv) industry and
economic conditions,
16
<PAGE>
(v) the impact of the Merger and Acquisition on the depositors, employees,
customers and communities served by the Company through expanded commercial,
consumer and retail banking products and services, (v) the opinion of the
Company's financial advisor as to the fairness of the consideration to be
received by the holders of the Company's Common Stock from a financial point of
view, (vii) the general structure of the transaction and the compatibility of
management and business philosophy, (viii) the likelihood of receiving the
requisite regulatory approvals in a timely manner, and (ix) the ability of the
combined enterprise to compete in relevant banking and non-banking markets. In
making its determination, the Board did not ascribe relative weights to the
factors which it considered.
The Board of Directors of the Company believes that the Merger and
Acquisition is in the best interest of the Company and its shareholders. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE AGREEMENT.
Opinion of the Company's Financial Advisor
The Company retained Hovde to act as its financial advisor in
connection with the Merger and Acquisition. Hovde has rendered its written
opinion (the "Hovde Opinion") to the Company, dated ______________, 1999, to the
effect that, based upon and subject to the factors and assumptions set forth in
such opinion, and as of the date of such opinion, the Cash Consideration to be
paid by Local Oklahoma was fair, from a financial point of view, to the
shareholders of the Company.
The full text of the Hovde Opinion, which sets forth, among other
things, assumptions made, matters considered and qualifications and limitations
on the review undertaken, is attached hereto as Annex B and is incorporated
herein by reference. The Company stockholders are urged to read the Hovde
Opinion in its entirety. The Hovde Opinion, which was directed to the Board of
Directors, addresses only the fairness to the holders of the Common Stock, from
a financial point of view, of the consideration to be paid by Local Oklahoma for
the Common Stock pursuant to the Agreement, and does not constitute a
recommendation to any Company stockholder as to how such stockholder should
vote. The Hovde Opinion was rendered to the Board of Directors for its
consideration in determining whether to approve the Agreement. The following
summary of the Hovde Opinion is qualified in its entirety by reference to the
full text of the Hovde Opinion.
No limitations were imposed by the Company on the scope of Hovde's
investigation or the procedures to be followed by Hovde in rendering its
opinion. Hovde was not requested to and did not make any recommendation to the
Board of Directors as to the form or amount of consideration to be offered by
Local Oklahoma to the Company in the Cash Consideration, which was determined
through arm's-length negotiations between the parties. In arriving at its
opinion, Hovde did not ascribe a specific range of values to Local Oklahoma or
the Company, but rather made its determination as to the fairness, from a
financial point of view, of the consideration to be offered by Local Oklahoma to
the Company in the Cash Consideration on the basis of the financial and
comparative analyses described below. Hovde was not requested to opine as to,
and its opinion does not address, the Company's underlying business decision to
proceed with or effect the Merger and Acquisition.
During the course of the engagement, Hovde reviewed and analyzed
material bearing upon the financial and operating conditions of LFC and the
Company and their subsidiaries and material prepared in connection with the
proposed transactions including the following: the Agreement; certain publicly
available information concerning LFC, the Company and their subsidiaries,
including, as applicable, consolidated financial statements for the Company of
the years ended March 31, 1998 and 1997, and
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quarterly statements for the periods ended June 30, September 30 and December
31, 1998, respectively, and for LFC and its subsidiary of the years ended
December 31, 1998 and 1997, and quarterly statements for the period ended March
31, 1999, documents filed with the Securities and Exchange Commission, the
Federal Reserve Board, OCC, and certain other state or regulatory agencies filed
by each of the foregoing entities for the aforementioned three year period and
for the quarterly period ended March 31, 1999, as applicable, recent internal
reports for both companies, financial projections for the Company, the nature
and terms of recent sale and merger transactions involving banks and bank
holding companies that Hovde considered relevant, and financial and other
information provided to us by the management of the Company and Local Oklahoma.
In arriving at its opinion, Hovde assumed and relied upon the accuracy
and completeness of the financial and other information used by it without
assuming any responsibility for independent verification of such information and
further relied upon the assurances of the managements of Local Oklahoma and the
Company that they were not aware of any facts or circumstances that would make
such information materially inaccurate or misleading. With respect to any
financial projections reviewed by Hovde, Hovde assumed that such projections
were reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of Local Oklahoma and the Company.
Upon advice of Local Oklahoma and its legal and accounting advisors, Hovde
assumed that the Merger and Acquisition will be accounted for using the purchase
method of accounting and would generally be treated as a taxable transaction to
the Company's shareholders. In arriving at its opinion, Hovde did not conduct a
physical inspection of the properties and facilities of Local Oklahoma or the
Company and did not make or obtain any evaluations or appraisals of the assets
or liabilities of Local Oklahoma or the Company. In addition, Hovde noted that
it is not expert in the evaluation of loan portfolios or allowances for loan and
real estate owned losses and, upon advice of Local Oklahoma, it assumed that the
allowances for loan and real estate owned losses (as currently stated or as
adjusted for in connection with the Merger and Acquisition) provided to it by
the Company and used by it in its analysis and in arriving at its opinion were
in the aggregate adequate to cover all such losses. Hovde's Opinion necessarily
was based upon market, economic and other conditions as they existed on, and
could be evaluated as of, the date of its letter.
The following is a summary of the analyses Hovde Financial performed in
arriving at its opinion dated ______________, 1999, as to the fairness, from a
financial point of view, to the Company of the Cash Consideration. In connection
with the preparation and delivery of its opinion to the Board of Directors,
Hovde performed a variety of financial and comparative analyses, as described
below. The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial and comparative
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Furthermore, in arriving at its opinion, Hovde did not attribute
any particular weight to any analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, Hovde believes that its analyses must be considered as
a whole and that considering any portion of such analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the process underlying its opinion. In its analyses, Hovde made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of the
Company.
Any estimates contained in these analyses were not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses did not purport to be appraisals or
to reflect the prices at which businesses may actually be sold.
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Purchase Price Analysis. Hovde calculated the price-to-tangible book,
price-to-earnings and price- to-assets multiples, and core deposit premium paid
(defined as the transaction value minus the tangible book value, divided by core
deposits), in the Merger using December 31, 1998 financial data and based upon
an aggregate transaction value of $9.3 million. This analysis yielded a
price-to-tangible book value multiple of 124%, a price to last twelve months'
earnings multiple of 17.4x, a price to assets of 19.2%, and a deposit premium of
5.14%.
Comparable Transaction Analysis. Using publicly available information,
Hovde reviewed certain terms and financial characteristics, including historical
price-to-earnings ratio, the price-to-book ratio, the price-to-tangible book
ratio, and the core deposit premium paid at the time of transaction
announcement, of thrift merger and acquisition transactions.
The first comparable group included thrift transactions in which the
sellers were located in Oklahoma, Missouri, Texas, Iowa, Illinois, Indiana,
Montana, Kansas and Nebraska with assets less than $500 million and announce
dates after January 1, 1998. This analysis yielded 15 comparable transactions.
The average price-to-tangible book value for these transactions was 159.9%, and
ranged from 106% to 248%. The average price-to-trailing earnings for these
transactions was 23.4x, and ranged from 11.5x to 51.3x. The average
price-to-assets was 19.6%, and ranged from 11.1% to 37.1%. The average premium
on core deposits was 12.6%, and ranged from 2.6% to 32.8%.
The second comparable group included nationwide thrift transactions in
which the sellers earned ROAs between 0.75% and 1.25% with assets less than $250
million and announce dates after January 1, 1998. This analysis yielded 20
comparable transactions. The average price-to-tangible book value for these
transactions was 171.1%, and ranged from 106% to 290%. The average
price-to-trailing earnings for these transactions was 23.4x, and ranged from
12.9x to 40.0x. The average price-to-assets was 23.5%, and ranged from 11.7% to
50.9%. The average premium on core deposits was 14.7%, and ranged from 2.6% to
29.1%.
Because the reasons for and circumstances surrounding each of the
transactions analyzed were so diverse and because of the inherent differences in
the businesses, operations, financial conditions and prospects of the Company,
Local Oklahoma, and the companies included in the comparable group, Hovde
believed that a purely quantitative comparable transaction analysis would not be
particularly meaningful in the context of the evaluation of the fairness of the
Cash Consideration. Hovde believed that the appropriate use of a comparable
transaction analysis in this instance would involve qualitative judgments
concerning the differences between the characteristics of these transactions and
the Merger and Acquisition which would affect the acquisition values of the
acquired companies and the Company.
Discounted Terminal Value Analysis. Hovde estimated the present value
of the Common Stock by assuming a range of discount rates from 12% to 14% and an
8% annual growth rate in earnings through 2004, starting with earnings of $516
thousand in 1999. In arriving at the value of the Common Stock, Hovde assumed an
earnings growth rate of 5% from 2005 into perpetuity. This terminal value was
then discounted alone, with yearly cash flows for 1999 through 2004, to arrive
at the present value for the Common Stock. These rates and values were chosen to
reflect different assumptions regarding the required rates of return of holders
or prospective buyers of the Common Stock. This analysis and its underlying
assumptions yielded a range of value for the Company's shares of approximately
$16.10 to $20.98, compared to a total Cash Consideration of $22.25 per share.
Hovde is a nationally recognized investment banking firm. Hovde, as
part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with
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mergers and acquisitions competitive biddings, private placements and valuations
for corporate and other purposes. The Board retained Hovde based upon Hovde's
experience and expertise and its familiarity with the Company and Local
Oklahoma. Hovde is acting as financial advisor to the Company in connection with
the Merger and Acquisition. Pursuant to a letter agreement dated September 3,
1998, between the Company and Hovde, the Company has agreed to pay Hovde a fee
equal to $142,297, $20,000 of which has been paid to Hovde. The letter agreement
with Hovde also provides that the Company will reimburse Hovde for its
reasonable out-of-pocket expenses incurred in connection with the Merger and
Acquisition, provided these expenses will not exceed $7,500 without the prior
approval of the Company, and indemnify Hovde and certain related persons and
entities against certain liabilities, including liabilities under securities
laws, incurred in connection with its services thereunder.
Federal Income Tax Consequences
The following is a discussion of the material federal income tax
consequences of the Acquisition. The discussion of the material federal income
tax consequences may not apply to special situations, such as the Company's
stockholders, if any, who received their Common Stock upon the exercise of
employee stock options or otherwise as compensation, and the Company's
stockholders that are insurance companies, securities dealers, financial
institutions or foreign persons.
The receipt of cash by a stockholder of the Company in exchange for
shares of the Common Stock pursuant to the Agreement will constitute a taxable
transaction to such stockholder for federal income tax purposes. In general, a
stockholder will recognize gain or loss upon the surrender of the stockholder's
Common Stock equal to the difference, if any, between (i) the total amount of
cash received in exchange for the shares of Common Stock exchanged and (ii) the
stockholder's tax basis in such Common Stock. Any gain or loss will generally be
treated as capital gain or loss if the Common Stock exchanged was held as a
capital asset in the hands of the stockholder.
The cash payments due to the holders of the Common Stock upon the
exchange thereof pursuant to the Agreement (other than certain exempt entities
and persons) will generally be subject to a 31% backup withholding tax by the
exchange agent under federal income tax law unless certain requirements are met.
Generally, the exchange agent (Local Oklahoma) will be required to deduct and
withhold the tax if (i) the stockholder fails to furnish a taxpayer
identification number ("TIN") to the exchange agent or fails to certify under
penalty of perjury that such TIN is correct, (ii) the Internal Revenue Service
("IRS") notifies the exchange agent that the TIN furnished by the stockholder is
incorrect, (iii) the IRS notifies the exchange agent that the stockholder has
failed to report interest, dividends or original issue discount in the past, or
(iv) there has been a failure by the stockholder to certify under penalty of
perjury that such stockholder is not subject to the 31% backup withholding tax.
No ruling has been or will be requested from the IRS as to any of the
tax effects of any of the transactions discussed in this proxy statement to
stockholders of the Company, and no opinion of counsel has been or will be
rendered to the Company with respect to any of the tax effects of the
Acquisition to the Company's stockholders. There is no assurance that applicable
tax laws will not change, on a current or retroactive basis, prior to the
occurrence of the Merger and Acquisition.
Because the tax consequences of the Acquisition may vary depending upon
the particular circumstances of each stockholder and other factors, stockholders
of the Company are urged to consult their own tax advisor to determine their
particular tax consequences of the Acquisition (including but not limited to the
application and effect of state and local income and other tax laws).
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- --------------------------------------------------------------------------------
THE STOCK PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
THE FOLLOWING IS A BRIEF SUMMARY OF THE PROVISIONS OF THE AGREEMENT.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
AGREEMENT WHICH IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT.
The Merger and Acquisition
Under the terms of the Agreement, Local Oklahoma would acquire the
Company, then dissolve the Company and merge the Bank with and into Local
Oklahoma. Upon consummation of the Acquisition, each outstanding share of the
Common Stock will be converted, by virtue of the Acquisition, automatically and
without any action on the part of the holder thereof, into the right to receive
a cash payment of $22.25, subject to adjustment, from Local Oklahoma.
Closing Date
The date the Merger and Acquisition occur is the "Closing Date." Unless
the Agreement is terminated, the Merger and Acquisition will occur as soon as
practicable after the satisfaction or waiver of all conditions to the
obligations of the parties and in no event later than December 31, 1999. The
Merger and Acquisition will become effective after shareholder approval is
received, the obligations of Local Oklahoma, the Company and the Bank have been
satisfied and a Certificate of Acquisition is filed with the State of Oklahoma.
It is currently anticipated that the Merger and Acquisition will occur during
the third calendar quarter of 1999.
Possible Adjustment to Cash Consideration
The cash consideration ($22.25) to be paid for each share of Common
Stock is subject to the following adjustment: an amount will be deducted equal
to all cash dividends declared and paid by the Company to its stockholders
during the calendar year 1999, up to and including the Closing Date, as
determined on a per share basis by dividing the total dividends so declared by
the number of issued and outstanding shares receiving such dividends and
correspondingly reducing the purchase price to be paid by Local Oklahoma. This
deduction provision shall not apply to the regular semi-annual dividend paid in
March 1999 and, in the event the Closing Date is after September 30, 1999, would
not apply to a dividend declared and paid before the Closing Date, not to exceed
the earnings of the Company realized after September 30, 1999.
Exchange of the Common Stock Certificates
Twenty (20) days prior to the Closing Date, the Company will submit
written instructions to all of its shareholders for submitting stock
certificates to the Company on or before the Closing Date. All Common Stock
certificates delivered to the Company must be appropriately endorsed for
transfer to Local Oklahoma, or have an executed stock power pertaining to all of
the shares covered by such certificate(s) attached thereto authorizing the
transfer of the shares to Local Oklahoma. All Common Stock certificates which
are properly delivered to the Company on or before the Closing Date will be
delivered to Local Oklahoma by the Company at the Closing in exchange for the
payment to the various shareholders by Local Oklahoma's corporate check of an
amount equal to the price per share for the Common Stock multiplied by the
number of shares, in accordance with the terms of the Agreement. Those checks
will be delivered to the Company for mailing or delivery following the Closing
Date. Each holder of a stock
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certificate or certificates representing outstanding shares of Common Stock, who
does not present the stock certificate(s) to the Company endorsed for transfer
to Local Oklahoma, on or before the Closing Date, shall, as soon after the
Closing Date as possible, surrender or deliver such certificate or certificates
to Local Oklahoma duly endorsed for transfer, or with an appropriate executed
stock power (or, if such certificate or certificates shall have been lost or
destroyed, shall deliver to Local Oklahoma an affidavit to such effect), and
each such holder shall be entitled upon such surrender (or upon such delivery),
to receive from Local Oklahoma in exchange therefor by corporate check, an
amount equal to the price per share in accordance with the terms of the
Agreement. No interest will accrue on the cash payment to be made from and after
the Closing Date prior to the receipt by Local Oklahoma of the certificate or
certificates representing shares being surrendered.
THE COMPANY'S STOCKHOLDERS SHOULD NOT SEND THEIR CERTIFICATES UNTIL
THEY RECEIVE WRITTEN INSTRUCTIONS FROM THE COMPANY.
After the Closing Date, the stock transfer books of the Company will be
closed and there will be no further transfers on the transfer books of the
Company.
Interests of Certain Persons
Certain members of the Company's management and its Board may be deemed
to have interests in the Merger and Acquisition in addition to their interests,
if any, as stockholders of the Company. These interests are described in more
detail below.
President's Employment Agreement. President Cunningham has an
employment agreement with the Bank and a severance agreement with the Company
that provide for certain payments and benefits in the event of involuntary
termination of employment following a change of control as defined in those
agreements. The Company will terminate the employment of President Cunningham as
of the Closing Date and as a result of his termination Mr. Cunningham will
receive $187,200 on the Closing Date in satisfaction of the change in control
provisions in the agreements. Mr. Cunningham will execute a 12- month employment
agreement with Local Oklahoma that commences on the Closing Date.
During the 12-month period of employment of Mr. Cunningham by Local
Oklahoma, he will receive a salary of $5,000 per month and he will be entitled
to the same employee benefits of other senior management employees of Local
Oklahoma, including the use of an automobile, and all medical coverage, health
plans and other benefits, but not including the right to receive any stock
options from Local Oklahoma or LFC.
Insurance Coverage. The Company has an insurance policy for its
directors and officers that covers these individuals in the event they are
subject to a lawsuit in connection with their duties as officers and directors.
Pursuant to the Agreement, Local Oklahoma will not maintain or acquire such
insurance coverage, but will allow the Board of the Company to obtain extended
insurance coverage not to cost more than $25,000. The extended insurance would
provide coverage following the Merger and Acquisition for actions of directors
taken prior to the Closing. Such insurance coverage reduces the potential
exposure of officers and directors for actions taken by them prior to the
Closing.
Outside Directors' Consulting Agreement. The terms of the Agreement
provide that Local Oklahoma will enter into a three year consulting agreement
with Directors Camerer, Powell and Seamans, the directors of the Company and the
Bank who are not officers or employees of the Company or the Bank.
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Each of these outside directors who signs a consulting agreement with Local
Oklahoma is to receive an annual consulting fee of $9,600, payable on a
quarterly basis.
Other Officers' Employment Agreements. The Bank has employment
agreements, and the Company has change in control severance agreements, with H.
Stephen Ochs and Kathleen A. Warner. The severance agreements are to be
terminated without any payment to Mr. Ochs and Kathleen A. Warner; however, the
employment agreements are to remain in effect and Mr. Ochs and Kathleen A.
Warner are to be employed by Local Oklahoma under slightly modified terms of the
employment agreements.
Stock Benefits. All stock options previously granted but not yet vested
became vested at the execution of the Agreement. Each outstanding stock option
exercisable at $12.625 per share would be converted into the right to receive a
cash payment of $9.625, and each outstanding stock option exercisable at $17.00
per share would be converted into the right to receive a cash payment of $5.25.
Directors hold options exercisable at $12.625 per share. Absent the execution of
the Agreement, unvested options would have vested in equal amounts in each of
July 1999 and July 2000, and Common Stock awarded under the MSBP to the
directors but not yet vested would also have vested in equal amounts in each of
July 1999 and July 2000. This resulted in the early vesting of 5,151 options and
2,061 shares for Mr. Cunningham, 3,709 options and 1,485 shares for Mr. Ochs,
and 1,024 options and 412 shares for each of directors Camerer, Seamans, and
Powell.
Employee Stock Ownership Plan. Each employee participant in the ESOP
will become fully vested in his or her ESOP account as of the Closing Date. The
ESOP will be terminated as of the Closing Date. After payment at the Closing
Date of the ESOP debt to the Company or the Bank, estimated at $226,700, the
assets of the ESOP will be allocated to participant accounts. Following the
Closing Date, the additional estimated payments to be made by the ESOP to
Messrs. Cunningham and Ochs, in connection with their interests as participants
in the ESOP and as a result of the Merger and Acquisition, are $104,400 and
$76,600, respectively.
Post-Merger Benefits to Employees and Officers
In accordance with the Agreement, Local Oklahoma will allow the
employees of the Bank who are offered and who accept employment by Local
Oklahoma (the "Bank Employees") to participate in any of Local Oklahoma's
employee benefit plans in which similarly situated employees of Local Oklahoma
participate, to the same extent as comparable employees of Local Oklahoma. As of
the Closing Date, Local Oklahoma will permit the Bank Employees to participate
in Local Oklahoma's group medical coverage, life and disability insurance plans
and 401(k) and retirement plans, on the same terms and conditions as applicable
to comparable employees of Local Oklahoma, to the same extent and on the same
basis accorded to any other employee of Local Oklahoma under the specific
provisions of each of those respective employment benefit plans. Those employees
and their dependents who were covered by the Bank medical plan prior to the
Closing Date and who become employees of Local Oklahoma thereafter, will receive
credit for time covered under the Bank medical plan against the pre-existing
condition clause in Local Oklahoma's group medical coverage insurance policy
pursuant to the specific provisions of that policy. Any amounts accrued by the
Bank employees who become employees of Local Oklahoma after the Closing Date
under the Bank medical plan will be accrued towards the applicable deductible
and out-of-pocket amounts under Local Oklahoma's group medical insurance
coverage pursuant to the specific provisions of that plan.
Participation/coverage for such former Bank employees under the Local Oklahoma's
group medical insurance shall begin on the first day of the month immediately
following the Closing Date; provided, however, the Bank shall pay for
continuation of medical insurance coverage under its existing medical plan for
all of its employees through the last day of the month in which the Closing
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Date occurs. Employees of the Bank whose employment is continued by Local
Oklahoma shall not, however, be entitled under the provisions of Local
Oklahoma's retirement plans to receive credit under Local Oklahoma's retirement
plans for their years of prior service with the Bank or any of their other
previous employers. There will be no reduction in existing vacation or sick
leave accruals of the employees of Bank whose employment is continued by Local
Oklahoma after the Closing Date. There will also be no reduction in the existing
salary or wages of the employees of the Bank whose employment is continued by
Local Oklahoma, after the Closing Date, by reason of the Closing Date, and such
continuing employees will continue to be paid at their then current salary and
wages (i.e., in the same amounts paid to them by the Bank on the day prior to
the Closing Date), subject to Local Oklahoma's right to increase or decrease
such wages and salaries of such continued employees after the Closing Date in
any amount it sees fit, in its sole and absolute discretion, from time to time,
except as otherwise provided in the existing employment agreements with the
Bank, or in the Local Oklahoma-Cunningham employment agreement to be entered
into by Local Oklahoma and Mr. Cunningham on the date of the Closing Date.
Upon consummation of the transaction, Local Oklahoma shall have the
right to terminate or retain any or all of the Bank Employees at its sole
discretion. Bank Employees who are terminated by Local Oklahoma shall be subject
to the appropriate treatment accorded by Local Oklahoma's severance plan.
Appraisal Rights
Pursuant to Section 1091 of the Oklahoma General Corporation Act (the
"Act"), the stockholders of the Company are entitled to appraisal rights if
stock is held on the date of the making of a demand pursuant to the provisions
of the Act, the stock is continuously held through the Closing Date, the other
applicable provisions of the Act are complied with and the stockholder has not
voted in favor of the transaction nor consented thereto in writing pursuant to
the applicable provisions of the Act.
In the event a stockholder fails to perfect, withdraws or does not
comply with the applicable provisions of the Act, such shareholder shall receive
$22.25 per share of Common Stock upon surrender of the certificate or
certificates representing the dissenting shares. The full text of Section 1091
of the Act is attached to this Proxy Statement as ANNEX C. Any deviation from
the requirements of Section 1091 may result in a forfeiture of appraisal rights
granted thereunder.
Business Pending Consummation
The Company and the Bank have agreed in the Agreement to carry on their
business in substantially the same manner their business was conducted prior to
the date of this Agreement, and have agreed not to take certain actions relating
to the operation of the Company pending consummation of the Merger and
Acquisition, without the prior written consent of Local Oklahoma, except as
otherwise permitted by the Agreement. These actions include, without limitation:
(i) changing their accounting methods or their applications of
generally accepted accounting principals ("GAAP"), except for changes required
by changes to GAAP or by regulatory requirements.
(ii) amending their Certificate of Incorporation, Charter or Bylaws,
unless specified in the Agreement of consented to in advance by Local Oklahoma;
(iii) merging or consolidating with or into any other corporation;
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(iv) effecting any stock split, or change in any manner the rights of
the holders of the Common Stock or the character of the Company's business;
(v) electing any additional directors or officers;
(vi) redeeming or issuing any of their securities or entering into any
agreement providing for or granting any option, call, commitment or any
agreement relating to the purchase, sale, redemption or issuance of their
securities, or declare or pay any cash or stock dividends, except as
specifically provided for in the Agreement;
(vii) taking or omitting to take any action, which to their knowledge,
would cause a material breach of any contract, commitment or obligation;
(viii) granting any bonus or increase in compensation, other than
increases given in conformity with past practice; provided, that in no event
shall the cash bonuses exceed $10,000 in the aggregate;
(ix) entering into or making any change in any employee benefit program
or employment or consulting agreement, except as required by law;
(x) increasing their staff or paying any deferred compensation or any
other payments to their directors, officers and employees;
(xi) incurring or guaranteeing any additional borrowings of any person
or pledging of their assets, except in the ordinary course of business and
consistent with past practices and good corporate and banking practices;
(xii) purchasing or selling or contracting to sell their assets, except
in the ordinary course of business;
(xiii) taking any action or allowing any changes or matters to
transpire as set forth in Section 2.11 of the Agreement, including but not
limited to, the sale, assignment or other disposition of any of their assets not
in the ordinary course of business, materially changing the method of record
keeping, undertaking any material obligation or liability not in the ordinary
course of business, and making any capital expenditure or capital addition or
betterment in excess of $10,000 per project;
Accounting Treatment
Local Oklahoma is expected to use the purchase method of accounting
with respect to its acquisition of the Company in the Merger.
Regulatory Approvals
Although the Company, the Bank, and Local Oklahoma believe the Merger
and Acquisition will only require the approval of the OCC and notice to be filed
with the OTS, the Merger and Acquisition may also be subject to the prior
approval or waiver of the FDIC, the Federal Reserve Board and other regulatory
authorities.
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The Bank Merger is subject to prior approval by the OCC. Consummation
of the Merger and Acquisition is also subject to approval by the OCC under the
applicable federal banking statutes. The OCC must consider whether (i) the
Merger would result in a monopoly, or would be in furtherance of any combination
or conspiracy to monopolize or to attempt to monopolize the business of banking
in any part of the United States, (ii) the Merger would have the effect in the
relevant geographic market of substantially lessening competition, or would tend
to create a monopoly or in any other manner would be in restraint of trade,
unless the probable competitive effects of the proposed merger clearly outweigh
the anti-competitive effects of the transaction, (iii) the financial and
managerial resources and future prospects of the existing or proposed
institution, (iv) the probable effects on the convenience and needs of the
community served, and (v) the performance of Local Oklahoma and the Bank in
helping to meet the credit needs of the relevant communities, including low- and
moderate-income neighborhoods, consistent with safe and sound banking practices.
The Regulations of the OCC provide for the publication of notice of,
and the opportunity of administrative hearings relating to, the respective
applications for approval noted and described above. Interested parties may
intervene in the approval proceedings. If an interested party intervenes, such
intervention could substantially delay the regulatory approvals required for
consummation of the Merger and Acquisition.
An application seeking approval of the Merger and Acquisition and the
required notice to be filed with the OTS are expected to be filed with the
appropriate regulatory authorities in ________, 1999. The required regulatory
approvals had not been received as of the date of mailing of this Proxy
Statement but the Company and the Bank have no reason to believe that such
approvals will not be received.
The Merger and Acquisition cannot proceed in the absence of the
requisite regulatory approvals. There can be no assurance that such regulatory
approvals will be obtained, and, if the Merger and Acquisition is approved,
there can be no assurance as to the date of any such approvals. There can also
be no assurance that any such approvals will not contain a condition or
requirement which causes such approvals to fail to satisfy the conditions set
forth in the Agreement and described below under "-- Conditions to Consummation;
Termination." There can likewise be no assurance that the U.S. Department of
Justice or a state Attorney General will not challenge the Merger and
Acquisition or, if such a challenge is made, as to the result thereof.
Conditions To Consummation; Termination
Consummation of the Merger and Acquisition is subject, among other
things, to: (i) approval of the transactions contemplated by the Agreement by
the requisite vote of the stockholders of the Company; (ii) receipt of the
regulatory approvals referred to under "-- Regulatory Approvals"; (iii) there
being in effect no order, decree or injunction of any court or agency of
competent jurisdiction that enjoins or prohibits the Merger and Acquisition, or
which would limit or otherwise affect in a material respect the operation of the
Bank and Local Oklahoma as a single entity, following the Merger and
Acquisition; and (iv) there being no suit, action or proceeding pending or, in
the case of governmental bodies, threatened, which challenge the validity or
legality, or seeks to restrain the consummation, of the Merger and Acquisition
or which seeks to limit or otherwise affect in a material respect the operation
of the Bank and Local Oklahoma as a single entity, following the Merger and
Acquisition.
26
<PAGE>
Consummation of the Merger and Acquisition is also subject to the
satisfaction or waiver of various other conditions specified in the Agreement,
including, among others, the delivery by the Company and Local Oklahoma, each to
the other, of (a) opinions of their respective counsel reasonably satisfactory
to the addressees of such opinions, and (b) certificates executed by certain of
their respective executive officers as to due performance and compliance in all
material respects with the agreements and covenants in the Agreement and the
truth and correctness of the representations and warranties. The Agreement
provides that prior to the Closing Date, either before or after receipt of the
required stockholder approval, the Agreement may be terminated: (i) by mutual
consent of Local Oklahoma and the Company; or (ii) by either Local Oklahoma or
the Company in the event of a breach by the other party of any representation,
warranty, or covenant contained in the Agreement, which breach cannot or is not
cured within 20 days after written notice thereof is given to the party
committing such breach.
Waiver; Amendment
Prior to the Closing Date, any provision of the Agreement may be: (i)
waived in writing by the party benefitted by the provision; or (ii) amended or
modified at any time (including the structure of the transaction) only by an
agreement in writing among the parties thereto.
Expenses; Termination Fees
The Company, the Bank, and Local Oklahoma must generally pay their own
respective legal and accounting fees and all other expenses and fees incurred in
connection with the Merger and Acquisition.
Generally, if the Company and the Bank have materially complied with
the terms and conditions of the Agreement and Local Oklahoma fails or refuses to
consummate the Agreement, then the Company and the Bank will be entitled to
receive an amount equal to Local Oklahoma's earnest money deposit of $500,000
plus any accrued interest. If all of the conditions to the Company's and the
Bank's obligations to consummate the Agreement are fully satisfied and the
Company and the Bank fail or refuse to consummate the Agreement, then Local
Oklahoma will generally be entitled to: (i) terminate the Agreement and receive
a refund of its earnest money deposit of $500,000 plus any accrued interest; or
(ii) enforce specific performance of the Agreement under the terms of the
Agreement.
However, Local Oklahoma will generally not be able to enforce specific
performance of the Agreement if a court determines that both (i) a breach of the
Agreement resulted from the exercise of the fiduciary duties of the board of
directors of both the Company and the Bank in connection with another
acquisition proposal after Company stockholders approve the Agreement, and (ii)
specific performance would be inequitable to Company stockholders because of
their approval of the Agreement prior to the consideration of another
acquisition proposal.
- --------------------------------------------------------------------------------
LEGAL OPINIONS
- --------------------------------------------------------------------------------
Certain legal matters associated with the Merger and Acquisition will
be passed upon by Malizia Spidi & Fisch, PC, Washington, D.C., as counsel for
the Company and the Bank, and by Fellers, Snider, Blankenship, Bailey & Tippens
as counsel for Local Oklahoma.
27
<PAGE>
- --------------------------------------------------------------------------------
ACCOUNTANTS
- --------------------------------------------------------------------------------
The consolidated balance sheets of the Company as of March 31, 1999 and
1998, and the related consolidated statements of operations, comprehensive
income, stockholders' equity and cash flows for each of the years in the
three-year period ended March 31, 1999, included in the Company's 1999 Annual
Report to Stockholders which is incorporated by reference in the Company's
Annual Report on Form 10- KSB for the fiscal year ended March 31, 1999, have
been incorporated herein in reliance on the report of Regier Carr & Monroe,
L.L.P. independent certified public accountants, and upon the authority of said
firm as experts in accounting and auditing. The Company's independent certified
public accountants are expected to attend the Meeting and therefore will be
available to make a statement or respond to stockholders' questions.
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The Company's 1999 Annual Report to Stockholders is included as Exhibit
1 to this proxy statement.
- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this proxy statement.
However, execution of a proxy confers on the designated proxy holder
discretionary authority with respect to the election of any person as a director
where the nominee is unable to serve, or for good cause will not serve, as well
as with respect to other matters that may come before the Meeting or any
adjournment of the Meeting. This discretionary authority does not cover
non-Board nominated nominees of which the proxy holder was aware before May 16,
1999 and does not cover other matters of which the proxy holder was aware before
May 1, 1999.
In order to be eligible for inclusion in the Company's proxy materials
for next year's Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the Company's executive offices at
120 North Division, Guthrie, Oklahoma 73044, no later than February __, 2000.
In the event the Company receives notice of a stockholder proposal to
take action at next year's annual meeting of stockholders that is not submitted
for inclusion in the Company's proxy material, or is submitted for inclusion but
is properly excluded from the proxy material, the persons named in the proxy
sent by the Company to its stockholders may exercise their discretion to vote on
the stockholder proposal in accordance with their best judgment if notice of the
proposal is not received at the Company's executive offices by May __, 2000.
- --------------------------------------------------------------------------------
FORM 10-KSB
- --------------------------------------------------------------------------------
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED
MARCH 31, 1999 WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD
DATE UPON WRITTEN REQUEST TO THE SECRETARY, GUTHRIE SAVINGS, INC., 120 NORTH
DIVISION, GUTHRIE, OKLAHOMA 73044.
28
<PAGE>
- --------------------------------------------------------------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- --------------------------------------------------------------------------------
The following documents filed by the Company with the Securities and
Exchange Commission (File No. 0-24468) under Section 13(a) or 15(d) of the
Exchange Act are hereby incorporated by reference in this Proxy Statement:
(i) the Company's Annual Report on Form 10-KSB for the year ended
March 31, 1999; and
(ii) the Company's Current Report on Form 8-K, dated May 26, 1999.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Proxy
Statement to the extent that a statement contained herein modifies or supersedes
that earlier statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Proxy
Statement.
- --------------------------------------------------------------------------------
MISCELLANEOUS
- --------------------------------------------------------------------------------
The cost of soliciting proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitations by mail,
directors, officers, and regular employees of the Company may solicit proxies
personally or by telegraph or telephone without additional compensation.
The Company's Annual Report to Stockholders for the year ended March
31, 1999, including financial statements, is included with this proxy statement.
BY ORDER OF THE BOARD OF DIRECTORS
Deborah Kay Bozarth
Secretary
Guthrie, Oklahoma
June __, 1999
29
<PAGE>
ANNEX A -- STOCK PURCHASE AGREEMENT
(WITHOUT SCHEDULES)
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of this 26th
day of May, 1999, by and among LOCAL OKLAHOMA BANK, N.A., a national banking
association, and its successors and assigns, with mailing address of 3601 N.W.
63rd, Oklahoma City, Oklahoma 73116 ("Buyer"), and GUTHRIE SAVINGS, INC., an
Oklahoma corporation ("GSI") and GUTHRIE FEDERAL SAVINGS BANK, a federally
chartered stock savings bank ("Guthrie Bank"). GSI and Guthrie Bank both have
the mailing address of 120 North Division Street, Guthrie, Oklahoma 73044-3241,
and shall sometimes hereinafter be collectively referred to as the "Sellers."
(All of the foregoing shall sometimes hereinafter be collectively referred to
herein as the "Parties.")
R E C I T A L S:
a. GSI is an Oklahoma corporation and a publicly-held company
which files periodic reports with the Securities and Exchange
Commission ("SEC"). GSI is a unitary federal savings and loan
holding company under the Home Owners' Loan Act, as amended
("HOLA") duly registered with the Office of Thrift Supervision
("OTS") pursuant to applicable laws and regulations by reason of
its sole ownership of Guthrie Bank. GSI has authorized capital
stock consisting of Three Million (3,000,000) shares of common
stock, par value $0.01 per share (the "Common Stock"), and One
Million (1,000,000) shares of serial preferred stock, par value
$0.01 per share (the "Preferred Stock"). There are a total of
Four Hundred Two Thousand Two Hundred Fifty-Seven (402, 257)
shares of the Common Stock currently issued and outstanding
(hereinafter collectively referred to as the "Shares"). None of
the Preferred Stock has ever been issued. GSI has granted
qualified stock options to nine (9) individuals to purchase a
total of Thirty-Nine Thousand Six Hundred Sixty-One (39,661)
shares of its Common Stock for an exercise price of Twelve and
62.5/100 Dollars ($12.625) per share ("First Stock Options"), all
of which are currently exercisable. GSI has granted an additional
qualified stock option to one (1) other individual to purchase a
total of One Thousand Five Hundred Forty-Five (1,545) shares of
its Common Stock for an exercise price of Seventeen and No/100
Dollars ($17.00) per share ("Second Stock Option"). The First
Stock Options and the Second Stock Option are sometimes
hereinafter collectively referred to as the "Stock Options." The
Second Stock Option is fully exercisable by the individual holder
thereof in the event of the acquisition of control of GSI by
another corporation, or the merger of GSI into another
corporation with that corporation being the surviving
corporation.
b. Guthrie Bank has authorized capital stock of Three Million
(3,000,000) shares of common stock, par value $0.01 per share
(the "Guthrie Bank Stock"), and One Million (1,000,000) shares of
serial preferred stock, no par value per share. There are a total
of One Hundred Thousand (100,000) shares of the Guthrie Bank
Stock issued and outstanding. GSI is the owner of all of the
issued and outstanding Guthrie Bank Stock. None of the preferred
stock of Guthrie Bank
<PAGE>
has ever been issued. Guthrie Bank is engaged in the business of
operating a federal stock savings bank, subject to the regulation
and supervision of the OTS, with its only office in the City of
Guthrie, Logan County, Oklahoma.
c. Messrs. KEITH CAMERER, WILLIAM L. CUNNINGHAM, JAMES V.
SEAMANS, H. STEPHEN OCHS and ALVIN R. POWELL, JR. (the
"Directors") are the individuals who constitute all of the
currently elected members of the Board of Directors of GSI and of
Guthrie Bank, respectively.
d. Buyer is engaged in the business of operating a national
banking association, subject to the regulation and supervision of
the Office of the Comptroller of the Currency ("OCC"), with its
principal office in Oklahoma City, Oklahoma, and has Fifty (50)
branches at various locations in the State of Oklahoma. Buyer is
the wholly-owned subsidiary bank of Local Financial Corporation,
a Delaware corporation ("LFC"), a publicly held reporting company
whose stock is listed on the American Stock Exchange. LFC is duly
registered as a bank holding company under Section 3(a)(1) of the
Bank Holding Company Act and is regulated by the Federal Reserve
Board ("FRB").
e. The Parties (including, specifically, the respective Boards
of Directors of GSI, Guthrie Bank and the Buyer) consider it
advisable and to the benefit of and in the best interests of all
of the Parties, including, specifically, all of the Common Stock
shareholders of GSI ("GSI Shareholders") that Buyer and GSI
participate in and effectuate a share acquisition of all of the
Shares and all of the Stock Options by Buyer in accordance with
the provisions of Section 1090.1 of the Oklahoma General
Corporation Act (18 O.S. 1991,ss.1090.1), as a result of which
GSI will become a wholly-owned subsidiary of Buyer (the
"Acquisition") upon the terms, for the consideration and subject
to the other terms and conditions set forth in this Agreement.
GSI will subsequently be dissolved and Guthrie Bank will then, in
turn, be merged with and into Buyer, with Buyer to be the
surviving bank. The Directors and the Board of Directors of Buyer
have, respectively, duly authorized and approved GSI, Guthrie
Bank and Buyer entering into and performing this Agreement.
NOW, THEREFORE, in consideration of the aforementioned Recitals, the
premises, of the mutual covenants set forth herein, and of such other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by GSI, Guthrie Bank and the Buyer, and in order to consummate the
Acquisition and to be legally bound, the Parties hereto do hereby covenant and
agree as follows:
ARTICLE I
SALE AND PURCHASE OF THE SHARES
AND THE STOCK OPTIONS; CLOSING
-------------------------------
<PAGE>
Section 1.1 Buyer's Acquisition of All of the Common Stock of
GSI Pursuant to this Agreement and 18 O.S. 1991, ss.1090.1.
1.1.1 Subject to the terms and conditions of this
Agreement, at the Effective Time (as that term is defined in Section
1.15, below), each share of Common Stock (other than Dissenting Shares
of Common Stock, as such term is defined in Section 1.2 below) which is
outstanding immediately prior to the Effective Time, shall, by virtue
of the consummation of the Acquisition hereunder, and without any
further action, be converted into the right to receive a cash payment
in the amount set forth below, in this Subsection 1.1.1, pursuant to
the provisions of Section 1090.1 of the Oklahoma General Corporation
Act and the terms and provisions of this Agreement. The total amount of
approximately Nine Million Three Hundred Forty Thousand Sixty-Six and
62/100 Dollars ($9,340,066.62) will be payable on the date upon which
the Effective Time occurs (which shall be hereinafter sometimes
referred to as the "Closing Date" hereunder) for all of the issued and
outstanding Shares and all existing Stock Options ("Purchase Price") as
finally determined on the Closing Date in the following manner:
(i) a price of Twenty-Two and 25/100 Dollars
($22.25) per share of issued and outstanding Common Stock,
subject to reduction to account for any deduction(s) from the
Purchase Price, as provided for in Subsection 1.1.1(iv) below,
if applicable;
(ii) a price of Nine and 62.5/100 Dollars
($9.625) for each share subject to the First Stock Options
(which have an exercise price equal to $12.625 per share), to
be paid by GSI to the holders of the First Stock Options on or
before the Closing Date;
(iii) a price of Five and 25/100 Dollars
($5.25) for each share subject to the Second Stock Option
(which has an exercise price equal to $17.00 per share), to be
paid by GSI to the holder of the Second Stock Option on the
Closing Date; and
(iv) an amount will be deducted from the
Purchase Price which is equal to the total amount of any and
all cash dividends declared and paid by GSI to the holders of
its Common Stock during calendar year 1999, up to and
including the Closing Date, as determined on a per share basis
by dividing the total amount of any and all cash dividends so
declared and paid by the number of issued and outstanding
shares of Common Stock receiving such dividends and reducing
pro tanto the purchase price to be paid by Buyer for each
share of GSI Common Stock pursuant to Subsection 1.1.1(i),
above; PROVIDED, HOWEVER, that this provision shall not apply
to and there shall be no deduction from the Purchase Price
for: (i) the regular semi-annual dividend already declared and
paid by GSI to the holders of its Common Stock in March, 1999,
and (ii) in
<PAGE>
the event, and only in the event, the Closing of the
Acquisition shall not be consummated on or before September
30, 1999 (unless due to the failure of GSI or Guthrie Bank to
perform hereunder and/or to fully comply with the terms,
conditions and other provisions of this Agreement, to include,
without limitation, the obtaining by GSI of the approval of
the Acquisition by the vote of a majority of the Shares at a
meeting of the GSI Shareholders validly held for that purpose,
as required by Section 5.2(ii), below, in this Agreement) to a
dividend to be declared and paid by GSI to the GSI
Shareholders, before the Closing Date, in an amount not to
exceed one hundred percent (100%) of all earnings (i.e., the
net income from the consolidated operations of GSI and Guthrie
Bank) realized by GSI from and after September 30, 1999, and
up to and until the Closing Date, as determined on a per share
basis by dividing the total amount of said earnings from and
after September 30, 1999 to the Closing Date, by the total
number of issued and outstanding Shares. For this purpose only
the net income of GSI, on a consolidated basis, shall be
calculated without regard to, or deduction of, the
out-of-pocket expenses incurred by GSI or Guthrie Bank which
are solely attributable to this Agreement and the Acquisition
contemplated hereunder.
1.1.2 In addition to the payment of the Purchase
Price, as defined above, the Buyer agrees as additional and material
consideration to GSI and Guthrie Bank to assume all of the liabilities
of GSI and Guthrie Bank on the Closing Date, including the liquidation
account maintained by Guthrie Bank with regard to its conversion from a
federal mutual savings bank to a federal stock savings bank.
1.1.3 The conversion ratio, i.e. the right to receive
cash in exchange for each share of the Common Stock, and for the Stock
Options shall be appropriately and proportionately adjusted in the
event of any stock dividend on, or stock split or stock combination of,
or any other change in the Common Stock based on a record date
occurring during the period from the date of this Agreement until
immediately before the Effective Time, such that the total amount of
the Purchase Price shall not be increased in any event by reason
thereof. No adjustment in the Purchase Price will be made for the
payment of any cash dividends which GSI is specifically authorized to
pay to the holders of its Common Stock during the term of this
Agreement pursuant to the provisions of Section 1.1.1(iv), above.
Section 1.2 Dissenting Shares. Notwithstanding anything in
this Agreement to the contrary, shares of Common Stock which are outstanding
immediately prior to the Effective Time and which are held by shareholders who
shall not have voted such shares in favor of the Acquisition and who shall have
delivered to GSI in a timely manner a written demand for appraisal of such
shares in accordance with the procedures provided for in the Oklahoma General
Corporation Act [18 O.S. 1991 (Supp. 1998), ss.1091] shall not be converted into
the consideration provided for under Section 1.1, above, at the Effective Time
(the "Dissenting Shares"), but, instead, the holders thereof shall be entitled
to the payment of the appraised value of such shares in accordance with the said
provisions of the Oklahoma General Corporation Act; provided, however, in the
event a shareholder fails to perfect, withdraws, does not comply with
<PAGE>
the procedure required by the provisions of the Oklahoma General Corporation
Act, or otherwise loses his right to appraisal and payment for his shares of
Common Stock, pursuant to the applicable provisions of the Oklahoma General
Corporation Act, each such Dissenting Share of Common Stock held by such
Dissenting GSI Shareholder shall be converted into and represent only the right
to receive the consideration for the share of Common Stock, as specified in
Section 1.1 above, upon surrender of the certificate or certificates so
representing the Dissenting Shares of Common Stock.
Section 1.3 Effect of the Acquisition. At the Effective Time,
Buyer shall become the owner of all of the issued and outstanding capital stock
of GSI and GSI shall become a wholly-owned subsidiary corporation of Buyer, all
without any further action, corporate or otherwise, on the part of Buyer or GSI,
Guthrie Bank, the Directors, or any of the GSI Shareholders. None of the GSI
Shareholders shall have any further rights in their respective shares of Common
Stock as of the Effective Time and all such shares shall be automatically
converted into the right to receive the consideration set forth herein, subject
only to the Appraisal Rights accorded to the Dissenting Shares as set forth and
described in Section 1.2 above.
Section 1.4 Certificates of Incorporation. The Charter or the
Articles of Association of the Buyer, as the case may be, and the Certificate of
Incorporation of GSI, as in effect immediately prior to the Effective Time,
shall remain in effect thereafter, unless and until amended as provided by
applicable law. The Charter of Guthrie Bank, as in effect immediately prior to
the Effective Time, shall remain in effect thereafter, unless and until amended
by applicable law.
Section 1.5 By-Laws. The respective By-Laws of the Buyer, of
GSI, and of Guthrie Bank, as in effect immediately prior to the Effective Time,
shall remain in effect thereafter, unless and until amended or repealed as
provided by the By-Laws, the respective Articles of Association, Certificate of
Incorporation or Charter and applicable law.
Section 1.6 GSI Directors and Officers. Subject to their
respective rights under any existing employment agreements by and between
Guthrie Bank and any officer of Guthrie Bank, (provided such agreements have
been fully disclosed to Buyer as of the date of this Agreement), all directors
and officers of GSI and of Guthrie Bank, respectively, shall tender their
resignation from all positions held by them as an officer or director of either
GSI or Guthrie Bank (but not as an employee) at the Effective Time. New officers
and directors of GSI and Guthrie Bank, respectively, shall be designated by
Buyer at the Effective Time. The directors and officers of Buyer immediately
prior to the Effective Time shall remain as the directors and officers of Buyer
after the Effective Time.
Section 1.7 Continued Employment of William L. Cunningham;
Payment of Termination Fee for Cancellation of His Existing Employment and
Severance Agreements.
1.7.1 William L. Cunningham ("Cunningham") currently
serves as
<PAGE>
President and Chief Executive Officer of both GSI and Guthrie Bank. The
terms and conditions of Cunningham's employment by Guthrie Bank in that
capacity are expressly set forth in that certain Amended and Restated
Employment Agreement entered into by and between Cunningham and Guthrie
Bank dated March 17, 1998 ("Guthrie Bank- Cunningham Employment
Agreement"). In addition, Cunningham has made and entered into that
certain Change in Control Severance Agreement with GSI dated February
11, 1997 ("Cunningham Severance Agreement"). Buyer is desirous of
retaining Cunningham's expertise, knowledge, experience and strong
community relationship and ties with regard to the operation of Guthrie
Bank for the benefit of Buyer after consummation of the Acquisition.
Accordingly, Buyer agrees to employ Cunningham at its Guthrie, Oklahoma
branch for a period of not less than twelve (12) months from and after
the Closing Date so that he can work with Buyer in smoothing the
transition to its new ownership, management and control of Guthrie
Bank, both with the existing employees and customers of Guthrie Bank
and with the community of Guthrie, Oklahoma. Cunningham shall, during
such period of time, be a full-time employee of Buyer working the
normal work day required of all of Buyer's employees and performing
such specific duties, holding such position(s) and serving as such
officer(s) of Buyer, as Buyer's Board of Directors shall specify and
direct, in its sole discretion, from and after the Closing Date
hereunder, from time to time. During this said twelve (12) month period
of employment of Cunningham by Buyer, Buyer shall pay to Cunningham as
salary for his said services to Buyer after Closing the sum of Five
Thousand and No/100 Dollars ($5,000.00) per month, subject to normal
withholding for federal and state income taxes and social security and
employment taxes. In addition, Cunningham shall be entitled to receive
during this said twelve (12) month period of employment by Buyer all of
the same employee benefits provided to the Buyer's other senior
management employees by Buyer including, without limitation, the
provision of one (1) automobile for Cunningham's use during said
employment, all medical coverage, health plans, pension, profit-sharing
or other retirement benefits normally provided by Buyer to its senior
management employees; provided, however, that Cunningham shall not be
entitled to participate in, or be granted any stock options by Buyer,
or its parent company, LFC, pursuant to any existing stock option plan
of LFC by reason of his employment by Buyer for the twelve (12) months
immediately following the Closing Date. Cunningham, as a condition
precedent to Buyer being obligated to consummate this Agreement, must
(i) accept employment by Buyer for the twelve (12) month period of time
immediately following the Closing Date upon the foregoing terms and
conditions, and in consideration of the payment to him by Buyer of the
foregoing salary and benefits; and (ii) execute and enter into an
Employment Agreement with Buyer on the Closing Date containing those
terms and conditions substantially in the form of that certain Local
Oklahoma-Cunningham Employment Agreement, a copy of which is attached
hereto as Exhibit 1.7 and by this reference thereto made an integral
part hereof ("Local Oklahoma- Cunningham Employment Agreement"). At the
end of the twelve (12) month guaranteed period of employment of
Cunningham by Buyer pursuant hereto, the Local Oklahoma- Cunningham
Employment Agreement shall terminate and Cunningham can continue to be
employed thereafter by Buyer, or not, as Buyer then sees fit, on such
terms and conditions and in such capacity as Buyer then deems
appropriate, in its sole and absolute
<PAGE>
discretion, at will. Upon termination of the Local Oklahoma-Cunningham
Employment Agreement, Cunningham will have no further rights or
entitlements and Buyer will have no further obligations to Cunningham
with regard to his employment thereafter by Buyer, whether under this
Agreement, the Local Oklahoma-Cunningham Employment Agreement, or
otherwise.
1.7.2 At the same time, Buyer is desirous of
cancelling, terminating and fully abrogating the existing Guthrie
Bank-Cunningham Employment Agreement and Cunningham Severance Agreement
on the Closing Date such that neither of those agreements will be an
ongoing obligation or liability of Buyer, GSI or Guthrie Bank,
respectively, after consummation of the Acquisition. Accordingly, GSI
or Guthrie Bank shall pay to Cunningham on the Closing Date a one-time
lump sum payment in the sum of One Hundred Eighty-Seven Thousand Two
Hundred and No/100 Dollars ($187,200.00) as payment in full and
complete settlement of any and all obligations, liabilities or amounts
owing, or that might be owing at any time thereafter, by GSI, Guthrie
Bank or Buyer to Cunningham under the Guthrie Bank-Cunningham
Employment Agreement or Cunningham Severance Agreement. Cunningham
will, as a condition precedent to Buyer's obligation to consummate this
Agreement, agree to accept a cash payment to him immediately prior to
the Effective Time from either GSI or Guthrie Bank in the sum of One
Hundred Eighty-Seven Thousand Two Hundred and No/100 Dollars
($187,200.00) as payment in full and complete satisfaction and
discharge of all obligations and liabilities which may be owing to him
at Closing, or at any future time, by Buyer, GSI or Guthrie Bank,
respectively, under the terms and conditions of the Guthrie
Bank-Cunningham Employment Agreement and the Cunningham Severance
Agreement. As a condition precedent to being entitled to receive the
foregoing payment from GSI or Guthrie Bank at Closing, Cunningham will
execute and deliver to GSI, Guthrie Bank and Buyer in exchange therefor
a receipt and general release and discharge of all of his rights under
the Guthrie Bank-Cunningham Employment Agreement and the Cunningham
Severance Agreement, in form and substance mutually acceptable to GSI,
Guthrie Bank and Buyer, on the Closing Date.
1.8 Retention of GSI's and Guthrie Bank's Outside
Directors as Consultants to Buyer Post-Closing. GSI and Guthrie Bank
each have three (3) directors who are not officers or employees of GSI
or Guthrie Bank, i.e., outside directors, namely Keith Camerer, A.R.
Powell, Jr., and Dr. James V. Seamans (collectively, the "Outside
Directors"). After consummation of the Acquisition, Buyer is desirous
of retaining the services of each of the Outside Directors as a
consultant to Buyer in order to assure that they will be a positive
influence to promote Buyer's well-being and the growth of its business
in the City of Guthrie, Logan County, Oklahoma, and to otherwise assist
Buyer in a smooth transition to its new ownership, management and
control of Guthrie Bank after Closing, both with the continuing
employees and customers of Guthrie Bank and with the community of
Guthrie, in general. Each of the Outside Directors is a recognized
community leader in Guthrie and Logan County, Oklahoma and will be able
to provide valuable consultation to Buyer as to maintaining and
expanding its community relationships and marketing its services in the
best and most effective way possible to
<PAGE>
increase its presence in Guthrie. Each of the Outside Directors is
willing to provide such consulting services to Buyer after the Closing
and to provide consultation to Buyer on an ongoing basis thereafter
concerning the marketing, community activities and public relations of
Buyer in the Guthrie, Oklahoma area. Accordingly, Buyer hereby
covenants and agrees to retain each of the Outside Directors to serve
as consultants to Buyer for the foregoing purposes for a period of
three (3) years after the Closing and agrees to pay each of the Outside
Directors therefor an annual consulting fee in the amount of Nine
Thousand Six Hundred and No/100 Dollars ($9,600.00) per year, payable
quarterly each year for the three (3) years immediately following the
Closing Date, so long as such Outside Director continues to provide
such consulting to Buyer in accordance with the terms of the Consulting
Agreement, as defined below, to be entered into between them. As an
express condition precedent to Buyer being obligated to consummate this
Agreement, each of the Outside Directors will execute and deliver to
the Buyer on the Closing Date a Consulting Agreement, whereby each of
the Outside Directors will agree to serve as a consultant to Buyer for
the three (3) years immediately following the Closing Date and to
provide the consulting services and community relations described above
to Buyer on an ongoing basis during that time as the Buyer may
reasonably request, from time to time, and to be a positive force and
active promoter of Buyer's business in operating a branch in the
Guthrie, Oklahoma area during that period of time. It is not
contemplated that any of the Outside Directors will be designated a
director, or an advisory director, of Buyer after the Closing. None of
the Outside Directors will be deemed to be employees of Buyer by reason
of their serving as consultants to Buyer from and after the Closing
Date and thus they shall not be entitled to receive any of the benefits
which full-time employees of Buyer are ordinarily accorded by reason of
such employment, e.g., medical coverage and retirement benefits, etc.
Buyer and each of the Outside Directors will execute and enter into on
the Closing Date a Consulting Agreement containing the same terms and
conditions described above in this Section 1.8, substantially in the
form of that certain Consulting Agreement, a copy of which is attached
hereto as Exhibit 1.8 and by this reference made an integral part
hereof ("Consulting Agreement"). Sellers acknowledge and agree that,
other than the employment of Cunningham, on the terms described above
in Section 1.7, and the consultant fees to be paid to the Outside
Directors, as provided for in this Section 1.8, there are no other
agreements, whether written or oral, of Buyer with any other director,
officer, attorney or GSI Shareholder with regard to employment,
bonuses, benefits, consulting arrangements, or board, or Advisory Board
membership, of whatsoever kind or nature to occur after the
consummation of the Acquisition by reason thereof (other than the
assumption by Buyer on the Closing Date of the existing Amended and
Restated Employment Agreements granted to H. Stephen Ochs, a Vice
President of Guthrie Bank ("Ochs") and to Kathleen A. Warner, a Vice
President of Guthrie Bank ("Warner") by Guthrie Bank, both dated March
17, 1998, full and complete copies of which (together with any
amendments thereto) have previously been delivered by Guthrie Bank to
Buyer (hereinafter, respectively, the "Ochs Employment Agreement" and
the "Warner Employment Agreement").
1.9 Guthrie Bank Employees. Unless otherwise expressly
provided herein,
<PAGE>
Buyer shall have the right to terminate or to retain any of the
employees of Guthrie Bank after Closing, in its sole and absolute
discretion. Any employees of Guthrie Bank who are terminated from
employment by Buyer shall be subject to the appropriate treatment
accorded by Buyer's Severance Plan (a copy of which has previously been
provided to Sellers by Buyer) and not in accordance with any severance
policy maintained, or formerly maintained, by GSI or Guthrie Bank prior
to the Closing Date. Employees of Guthrie Bank who continue employment
with Buyer shall be immediately eligible for all employment benefit
plans maintained by Buyer for the benefit of its employees, including
group medical coverage, life insurance and disability coverage and
401(k) and retirement plans, to the same extent and on the same basis
accorded to any other employee of Buyer under the specific provisions
of each of those respective employment benefit plans. Those employees
and their dependents who were covered by the Guthrie Bank medical plan
prior to the Closing Date and who become employees of Buyer thereafter,
will receive credit for time covered under the Guthrie Bank medical
plan against the pre-existing condition clause in Buyer's group medical
coverage insurance policy pursuant to the specific provisions of that
policy. Any amounts accrued by the Guthrie Bank employees who become
employees of Buyer after the Closing Date under the Guthrie Bank
medical plan will be accrued towards the applicable deductible and
out-of-pocket amounts under Buyer's group medical insurance coverage
pursuant to the specific provisions of that plan.
Participation/coverage for such former Guthrie Bank employees under the
Buyer's group medical insurance shall begin on the first day of the
month immediately following the Closing Date; provided, however Guthrie
Bank shall pay for continuation of medical insurance coverage under its
existing medical plan for all of its employees through the last day of
the month in which the Closing Date occurs. Employees of Guthrie Bank
whose employment is continued by Buyer shall not, however, be entitled
under the provisions of Buyer's retirement plans to receive credit
under Buyer's retirement plans for their years of prior service with
Guthrie Bank or any of their other previous employers. There will be no
reduction in existing vacation or sick leave accruals of the employees
of Guthrie Bank whose employment is continued by Buyer after Closing.
There will also be no reduction in the existing salary or wages of the
employees of Guthrie Bank whose employment is continued by Buyer, after
Closing, by reason of the Closing, and such continuing employees will
continue to be paid at their then current salary and wages (i.e., in
the same amounts paid to them by Guthrie Bank on the day prior to the
Closing Date), subject to Buyer's right to increase or decrease such
wages and salaries of such continued employees after the Closing in any
amount it sees fit, in its sole and absolute discretion, from time to
time, except as otherwise provided in the existing Ochs or Warner
Employment Agreements, or in the Local Oklahoma-Cunningham Employment
Agreement to be entered into by Buyer and Cunningham on the Closing
Date.
1.10 GSI and Guthrie Bank Officers and Directors Must Purchase
Their Own Extended Directors and Officers Liability Coverage Prior to
Closing. Buyer does not carry or maintain, and will not acquire prior
to the Closing Date, the type of Directors and Officers Liability
Insurance Policy ("D&O Policy") which would provide any coverage or
indemnification for the directors and officers of an institution or
bank which it is acquiring for the period prior to the consummation of
such acquisition. Accordingly, prior to the Closing Date, the
Directors, at their option, may authorize GSI or Guthrie Bank, or both,
to obtain extended D&O Policy coverage under their existing D&O Policy,
for a period of time after the
<PAGE>
Closing Date in order to provide such coverage to their officers and
directors for any occurrences or claims which are made against them in
that capacity for the period of time prior to the Closing Date,
provided, however, that the cost of obtaining any such extended D&O
Policy coverage by GSI or Guthrie Bank shall not in any event exceed
the amount of Twenty-Five Thousand and No/100 Dollars ($25,000.00).
Section 1.11 Earnest Money Deposit. Upon the date this
Agreement is fully executed by Sellers and Buyer, Buyer shall make an earnest
money payment in the amount of Five Hundred Thousand and No/100 Dollars
($500,000.00) ("Earnest Money Deposit") into an escrow account to be established
pursuant to a written escrow agreement ("Escrow Agreement") by and among
Sellers, Buyer and the Trust Company of Oklahoma, an Oklahoma corporation with
trust powers ("Escrow Agent"), to be held by the Escrow Agent upon the following
terms and conditions:
1.11.1 The Earnest Money Deposit which has been
escrowed with the Escrow Agent, plus any interest earned thereon from
the date of the Escrow Agreement until the date of distribution of the
escrow fund in accordance with the terms and conditions of the Escrow
Agreement, shall be paid by the Escrow Agent to Buyer in immediately
available funds on the date any of the following events first occurs:
(a) This Agreement is terminated by either
Buyer or GSI for any reason upon the terms and conditions and
in accordance with the procedures set forth and described in
Section 7.1 through Section 7.5 of Article VII of this
Agreement; or
(b) The Acquisition is consummated on the
Closing Date in accordance with the terms and conditions of
the Agreement and GSI is acquired by Buyer in accordance
herewith.
1.11.2 The Earnest Money Deposit escrowed with the
Escrow Agent pursuant to the Escrow Agreement, plus any interest
accrued thereon from the date of the Escrow Agreement until the date of
the distribution of the escrow fund in accordance with the terms and
conditions of the Escrow Agreement, shall be paid by the Escrow Agent
to GSI in
immediately available funds, upon the receipt by the Escrow Agent from
Buyer and GSI of a joint certification that Buyer has failed to
consummate the Acquisition in accordance with the terms and conditions
of this Agreement even though (i) all of the conditions to the
obligations of Buyer to complete and consummate the Acquisition as set
forth in Article V of the Agreement have been fully satisfied, and (ii)
Sellers are not in default in any material respect under the Agreement.
If Buyer and Seller shall so jointly certify to the Escrow Agent in
writing that Buyer has failed to consummate the Acquisition under the
above circumstances, then, Buyer shall forfeit all rights to the
escrowed funds and the Escrow Agent shall forthwith pay to GSI the full
amount of the Earnest Money Deposit, together with any and all interest
thereon to the date of such payment, the same to be
<PAGE>
retained the Sellers as liquidated damages and not as a penalty for
such default or breach by Buyer under this Agreement. This Agreement
shall, in such event, be forthwith cancelled and be of no further force
and effect between the parties hereto and Buyer shall, in such event,
have no further obligations or liability to Sellers for damages. Buyer
and Sellers hereby agree that the amount of said Earnest Money Deposit
which is being escrowed pursuant to this Agreement is a reasonable
amount for liquidated damages in the event of the default, breach or
failure to consummate this Agreement by Buyer in the circumstances
described above in this Section 1.11.2 and that it would be impractical
and extremely difficult to determine the actual amount of damages
resulting from such breach by Buyer under such circumstances.
1.11.3 The Escrow Agent shall invest the funds
escrowed with it by Buyer pursuant to this Section 1.11 in accordance
with the written instructions to be given by Buyer to the Escrow Agent
on the date the Escrow Agreement is executed.
1.11.4 All fees charged the Escrow Agent for its
services as such in accordance with the provisions of this Section
shall be promptly paid when due by Buyer.
1.11.5 Such other terms and conditions as are
mutually acceptable to Buyer, Sellers and the Escrow Agent.
1.11.6 Buyer, Sellers and the Escrow Agent will
execute and enter into a certain Escrow Agreement containing the terms
set forth and described above in this Section 1.11 substantially in the
form of that certain Escrow Agreement which is attached to this
Agreement as Exhibit 1.11 hereto, and by this reference thereto made an
integral part hereof. The Escrow Agreement shall be executed and
delivered and the Earnest Money Deposit paid on the date when this
Agreement is fully executed by Sellers and Buyer.
1.11.7 Any provision of this Section 1.11 to the
contrary notwithstanding, neither Buyer nor Sellers shall be deemed to
have waived any right or remedies, whether at law or in equity, which
either of them may have to seek a judicial determination as to whether
any term or condition of this Section 1.11 and/or the said Escrow
Agreement, Exhibit 1.11 hereto, has been properly construed, applied,
satisfied or performed or to seek to enforce the provisions thereof.
Section 1.12 Closing. The consummation of the Acquisition
pursuant to this Agreement (the "Closing") shall take place on the Closing Date,
provided all of the conditions precedent to the Parties' obligations under this
Agreement as set forth in Articles V and VI herein have been fully performed and
satisfied in accordance with this Agreement. The Closing shall be effected on
the Closing Date at the offices of Buyer in Oklahoma City, Oklahoma, or at such
other place as the Parties hereto may mutually agree, at 10:00 a.m., Central
Time. At the Closing on the Closing Date, Buyer shall act as the exchange agent
(the "Exchange Agent") to effect the exchange of the Common Stock in accordance
with the following procedures:
<PAGE>
1.12.1 As of twenty (20) days prior to the Closing
Date, GSI shall submit written instructions to all of the GSI
Shareholders for submitting stock certificates to GSI on or before the
Closing Date, in form and substance reasonably acceptable to Buyer. All
Common Stock certificates delivered to GSI shall be appropriately
endorsed for transfer to Buyer, or have an executed stock power
pertaining to all of the shares covered by such certificate(s) attached
thereto authorizing the transfer of said shares to Buyer. All Common
Stock certificates which are so delivered to GSI on or before the
Closing Date shall be delivered to Buyer by GSI on the Closing Date in
exchange for the payment to the various shareholders by Buyer's
corporate check of an amount equal to the price per share of the
Purchase Price for the Common Stock, as determined in Section 1.1.1(i)
above, multiplied times the number of Shares being so surrendered.
Those checks will be so delivered to GSI for mailing or delivery to
those GSI Shareholders by GSI on the Closing Date. Each holder of a
stock certificate or certificates representing outstanding Shares of
Common Stock being converted as a result of the Acquisition pursuant to
this Agreement, at the Effective Time, who does not present their stock
certificate to GSI endorsed for transfer to Buyer, on or before the
Closing Date, shall, as soon after the Effective Time as possible,
surrender or deliver such certificate or certificates to the Exchange
Agent duly endorsed for transfer, or with an appropriate executed stock
power (or, if such certificate or certificates shall have been lost or
destroyed, shall deliver to the Exchange Agent an affidavit to such
effect and, if reasonably requested by the Exchange Agent, a bond or
indemnity agreement in form and substance satisfactory to the Exchange
Agent with regard thereto), and each such holder shall be entitled upon
such surrender (or upon such delivery), to receive from the Buyer in
exchange therefor by corporate check, an amount equal to the price per
share of the Purchase Price, as determined in the manner set forth
above in Section 1.1.1(i), at the Effective Time. The price received by
the selling GSI Shareholder whose shares are being redeemed shall be
equal to the Purchase Price per share for the Shares, as adjusted
pursuant to the provisions of Section 1.1.1, above, multiplied times
the number of Shares being surrendered for exchange pursuant hereto. No
interest will accrue on the cash payment to be made from and after the
Effective Time prior to the receipt by the Exchange Agent of the
certificate or certificates representing Shares being surrendered
pursuant to this provision to effectuate the conversion thereof.
1.12.2 Each holder of a Stock Option being acquired
pursuant to this Agreement, as a result of the Acquisition, shall, on
or before the Closing Date, execute and deliver to GSI for delivery by
GSI to Buyer on the Closing Date, that certain Cancellation and
Surrender of Qualified Stock Options Awarded Under Guthrie Savings,
Inc. 1994 Stock Option Plan ("Cancellation and Surrender"),
substantially in the form of that certain Cancellation and Surrender, a
copy of which is attached to this Agreement as Exhibit 1.12 hereto, and
by this reference made an integral part hereof, thereby cancelling and
surrendering all of the Stock Options held by that holder in exchange
for the payment to that holder, on or before the Closing Date, by GSI's
corporate check, of an amount equal to the Purchase Price per share for
the shares of Common Stock so covered by such Stock Option, as
specified in Section 1.1.1, above, multiplied times the number of
shares of Common Stock which are subject to the Stock Options being so
surrendered.
<PAGE>
No interest will accrue on the cash payment to be made by Buyer to the
holder of such Stock Options from and after the Effective Time prior to
the receipt by the Exchange Agent of the original, executed
Cancellation and Surrender from the holder of the Stock Options to
which payment is being so made.
1.12.3 All payments to GSI Shareholders made pursuant
to Subsection 1.12.1, above, shall be made by corporate check delivered
to the shareholder personally in exchange for the shareholder's share
certificates duly endorsed for transfer, or mailed to such shareholder
at the shareholder's address as shown on the stock records of GSI, or
to such other address a GSI Shareholder may specify in a written
instructions submitted with the shareholder's said stock certificates.
Notwithstanding the tender or non-tender of the stock certificates, all
Shares shall be and become void and shall cease to evidence any
ownership interests or rights in GSI, Guthrie Bank or Buyer on the
Closing Date having been converted pursuant to Oklahoma law to a right
to receive the cash payment expressly provided for in Subsection 1.1.1,
above. Notwithstanding anything to the contrary in this Agreement, this
Section 1.12 shall be construed as an agreement by Buyer as to which
the GSI Shareholders are intended to be third-party beneficiaries and
shall be enforceable by them, or by their respective personal
representatives and heirs.
Section 1.13 Closing Date Deliveries by Buyer. At the Closing,
Buyer shall deliver to GSI and Guthrie Bank the following:
1.13.1 Evidence in a form satisfactory to GSI and the
Guthrie Bank and their counsel that all requisite federal and state
regulatory approvals have been obtained to authorize the Acquisition of
GSI by Buyer and the concomitant acquisition of Guthrie Bank by Buyer
and the subsequent merger of Guthrie Bank with and into Buyer with
Buyer to be the surviving bank;
1.13.2 The payment of the Purchase Price by Buyer in
the manner and at the times required under the provisions of this
Article I, above;
1.13.3 A copy of Buyer's Board of Directors'
Resolutions as represented and required of the Buyer under the
provisions of Section 3.2 of the Agreement, below;
1.13.4 The Buyer's Closing Certificate, as
hereinafter defined, and required to be provided in Section 6.4 of this
Agreement, executed by the President of Buyer;
1.13.5 Execute and file the Certificate of
Acquisition with the Oklahoma Secretary of State to evidence the
consummation of the Acquisition pursuant hereto as required by the
provisions of 18 O.S. 1991, ss.1090.1;
1.13.6 An opinion of counsel for Buyer, substantially
in the form of Buyer's Opinion of Counsel which is attached to this
Agreement as Exhibit 1.13.6 and by this reference thereto made an
integral part hereof, in final form approved by Sellers'
<PAGE>
counsel prior to the execution thereof by Buyer's counsel;
1.13.7 The original, executed Local Oklahoma-
Cunningham Employment Agreement, duly executed by Buyer, substantially
in the form which is Exhibit 1.7 to this Agreement.
1.13.8 An original, executed Consulting Agreement for
each of the Outside Directors of GSI, duly executed by Buyer,
substantially in the form which is Exhibit 1.8 to this Agreement.
Section 1.14 Closing Date Deliveries by Sellers and the GSI
Shareholders. At the Closing, Sellers and the GSI Shareholders shall deliver to
the Buyer the following respective items, as stated below:
1.14.1 Closing Certificate of GSI and Guthrie Bank,
as required to be provided in Section 5.4 of this Agreement, duly
executed by the President of GSI and by the President and by the Chief
Financial Officer of Guthrie Bank;
1.14.2 A certified copy of the Resolutions of the GSI
Board of Directors, of the GSI Shareholders and of the Board of
Directors and Shareholders of Guthrie Bank, respectively, as required
and represented under the provisions of Sections 2.1, 2.2 and 2.10,
respectively, of this Agreement;
1.14.3 The share certificates representing all of the
issued and outstanding Shares, duly endorsed for transfer to the Buyer
by each of the GSI Shareholders who have not dissented to the
Acquisition and who have elected to deliver their Shares to GSI on or
before the Closing Date, as to their respective stock certificates, or
accompanied by stock powers duly executed for transfer to Buyer by each
of the GSI Shareholders as to their said, respective stock
certificates;
1.14.4 The original, executed Cancellation and
Surrender substantially in the form which is Exhibit 1.12 hereto, from
each holder of a Stock Option as to all of that holder's respective
Stock Options being acquired by Buyer at Closing obtained in exchange
for the payment made to the holder thereof by GSI of the applicable
portion of the Purchase Price, as specifically provided in Section
1.1.1, above.
1.14.5 Copies certified by the applicable government
agency of the Charter, Certificate of Incorporation and Bylaws of GSI,
Guthrie Bank, as required to be provided by GSI and Guthrie Bank to
Buyer pursuant to Sections 2.1 and 2.2, respectively, of this
Agreement;
1.14.6 All stock certificate(s) representing all of
the issued and outstanding Shares of Guthrie Bank Stock duly endorsed
for transfer, in such manner as Buyer may elect, by GSI, or accompanied
by stock powers duly executed by GSI for transfer of all of the issued
and outstanding Guthrie Bank Stock to Buyer;
<PAGE>
1.14.7 Copies of all insurance policies required to
be provided by GSI to Buyer pursuant to Section 2.23 of this Agreement;
1.14.8 The original, executed resignations, in form
satisfactory to Buyer, of all of the members of the Board of Directors
and all Officers of GSI and Guthrie Bank, respectively, and of any
subsidiary corporations of either of them from their respective office
or position on the Board of Directors held by them with regard to GSI,
Guthrie Bank and/or any of their subsidiary corporations, respectively;
1.14.9 Opinion of counsel for GSI and Guthrie Bank,
substantially in the form of GSI's Opinion of Counsel which is attached
to this Agreement as Exhibit 1.14.9 and by this reference thereto made
an integral part hereof, in final form approved by Buyer's counsel
prior to the execution thereof by GSI's counsel;
1.14.10 Original, executed copies of the Releases
substantially in the form of Exhibit 1.14.10, which is attached to this
Agreement and by this reference thereto made an integral part hereof,
shall be delivered to Buyer, executed by all of the Directors and all
of the executive officers of GSI and of Guthrie Bank, respectively
(collectively, the "Releases");
1.14.11 GSI shall execute and deliver to Buyer the
Certificate of Acquisition to be filed with the Oklahoma Secretary of
State to evidence the consummation of the Acquisition pursuant hereto
as required by the provisions of 18 O.S. 1991, ss.1090.1;
1.14.12 Evidence in form and substance satisfactory
to Buyer and GSI that the Guthrie Federal Savings Bank Employee Stock
Ownership Plan and Trust ("Guthrie Bank ESOP") will be completely
terminated on or before the Closing Date in compliance with all
applicable laws and regulations and the terms of the Guthrie Bank ESOP
and that neither GSI, Guthrie Bank nor Buyer will have any continuing
liability or responsibility for the operation or maintenance of the
Guthrie Bank ESOP from and after the Closing Date;
1.14.13 Evidence in form and substance satisfactory
to Buyer that the Guthrie Federal Savings Bank 401(k) Plan and Trust
("Guthrie Bank 401(k) Plan") will be completely terminated on or before
the Closing Date in compliance with all applicable laws and regulations
and the terms of the Guthrie Bank 401(k) Plan and that neither GSI,
Guthrie Bank nor Buyer will have any continuing liability or
responsibility for the operation or maintenance of the Guthrie Bank
401(k) Plan from and after the Closing Date.
1.14.14 Evidence in form and substance satisfactory
to Buyer that the Guthrie Federal Savings Bank Management Stock Bonus
Plan and Trust ("Guthrie Bank Management Stock Bonus Plan") will be
completely terminated on or before the Closing Date in compliance with
all applicable laws and regulations and the terms of the Guthrie
<PAGE>
Bank Management Stock Bonus Plan and that neither GSI, Guthrie Bank nor
Buyer will have any continuing liability or responsibility for the
operation or maintenance of the Guthrie Bank Management Stock Bonus
Plan from and after the Closing Date.
1.14.15 If Buyer so elects, in its sole discretion,
to obtain one, the evaluation of pension benefit consultants selected
by Buyer, at its sole expense, rendering its evaluation to Buyer that
each of the (i) Guthrie Bank ESOP; (ii) Guthrie Bank 401(k) Plan, and
(iii) the Guthrie Bank Management Stock Bonus Plan, were properly and
validly established, operated, maintained in accordance with each of
those respective plans and that the ESOP and each of said plans are
being terminated, respectively, in accordance with all applicable laws
and regulations and that such consultant does not know, or have reason
to believe, that Buyer will incur any material tax liability, or any
other material liability of any other kind or nature, with regard to
each of the (i) Guthrie Bank ESOP; (ii) Guthrie Bank 401(k) Plan, and
(iii) the Guthrie Bank Management Stock Bonus Plan, other than (i)
those liabilities which are ordinarily and customarily incurred in the
termination of such plans; (ii) the amounts reflected as a liability
therefor on the most recently available Financial Statements of GSI, as
that term is defined below; and (iii) any amounts which have been
disclosed by the Sellers on Exhibit 5.7, which is attached hereto, as
described and defined below in Section 5.7.
1.14.16 The payment in full by the Guthrie Bank ESOP
to GSI or Guthrie Bank, as the case may be, on the Closing Date of all
amounts then owing by the Guthrie Bank ESOP to GSI or Guthrie Bank to
include, without limitation, under that certain Promissory Note in the
original principal amount of Four Hundred Twelve Thousand One Hundred
and No/100 Dollars ($412,100.00), dated October 12, 1994, which was
made, executed and delivered by the Trustees of the Guthrie Bank ESOP
to GSI on that date ("ESOP Note"); provided that the Buyer has made
payment to the Guthrie Bank ESOP in full for all Shares of GSI Common
Stock owned by the Guthrie Bank ESOP which are delivered to Buyer, duly
endorsed for transfer, on the Closing Date by GSI.
1.14.17 Sellers shall use their best efforts to
obtain and deliver to Buyer, on or before the Closing Date, an
original, executed cancellation, surrender and release from Ochs and
Warner, respectively, of all of their rights and entitlements under
their respective Severance Agreements with GSI and an original,
executed amendment to their respective employment agreements with
Guthrie Bank making the changes and modifications to those employment
agreements, which are specified in Section 4.12, below, otherwise to
remain in full force and effect as originally stated;
1.14.18 The original, executed Local
Oklahoma-Cunningham Employment Agreement duly executed by Cunningham,
substantially in the form which is Exhibit 1.7 hereto, and an original,
executed receipt and release from Cunningham (in form and substance
satisfactory to Buyer) acknowledging his receipt from GSI or Guthrie
Bank of the payment to him on the Closing Date of the sum of
$187,200.00 pursuant to the terms and conditions of Section 1.7, above,
and his resultant complete release and discharge of any and all rights
he had, had or may thereafter have had under either the
<PAGE>
Guthrie Bank-Cunningham Employment Agreement or the Cunningham
Severance Agreement.
1.14.19 An original, executed Consulting Agreement
duly executed by each of the Outside Directors of GSI substantially in
the form which is Exhibit 1.8 hereto.
1.14.20 Such other documents, assignments, transfers
or officers' certificates as Buyer may deem reasonable and necessary in
order to fully effectuate the transaction contemplated by this
Agreement under the circumstances.
Section 1.15 Effective Time of the Acquisition. The
Acquisition shall become effective at 5:00 p.m., Central Time, on the date when
the last of the following actions shall have been completed:
1.15.1 The requisite approval by the GSI Shareholders
has been obtained and all necessary orders, consents and approvals
shall have been entered by any applicable regulatory authority having
jurisdiction over any of the Parties, to include, without limitation,
the Federal Deposit Insurance Corporation ("FDIC"), the Federal Reserve
Board ("FRB"), the OTS and the Comptroller of the Currency ("OCC"),
granting consent, authorization or approval as necessary to consummate
the transactions contemplated by this Agreement, without the imposition
of any condition or conditions which in the reasonable opinion of Buyer
or of GSI are unduly burdensome and all applicable waiting periods have
expired and all required notices have been published;
1.15.2 All of the conditions precedent to Buyer's
obligations to complete the Acquisition as set forth in Article V of
this Agreement, below, shall have been completely satisfied or
expressly waived in writing by Buyer;
1.15.3 All of the conditions precedent to the
obligations of GSI and Guthrie Bank to complete the Acquisition as set
forth in Article VI of this Agreement, below, shall have been
completely satisfied or expressly waived in writing by GSI;
1.15.4 A Certificate of Acquisition will have been
executed by Buyer and GSI, duly acknowledged and filed with the
Secretary of State of Oklahoma in accordance with the provisions of
Section 1090.1 of the Oklahoma General Corporation Act, which shall be
done five (5) business days after Subsections 1.15.1 through 1.15.3,
above, have been satisfied, unless the Parties mutually agree to a
different date. The Certificate of Acquisition shall specify the
"Effective Time" of the Acquisition. In the event that Buyer and GSI
fail to specify the date and time of the Effective Time in the
Certificate of Acquisition, the Acquisition shall become effective upon
(and the Effective Time will be) the time of the filing of the said
Certificate of Acquisition with the Secretary of State of Oklahoma.
The time when the Acquisition shall become effective, as defined by this Section
1.15, is herein
<PAGE>
called the "Effective Time" and the date upon which the Effective Time occurs
shall be hereinafter sometimes referred to as the "Closing Date" hereunder. The
stock transfer books of GSI shall be closed on the Closing Date and no transfer
of Common Stock by the GSI Shareholders shall be made thereafter by them, except
to Buyer pursuant to the Acquisition.
Section 1.16 Liquidation Account. The liquidation account
established by Guthrie Bank pursuant to the plan of conversion adopted by it in
connection with its conversion from a mutual federal savings bank to a stock
savings bank shall, to the extent required by applicable law, continue to be
maintained by Buyer after the Acquisition for the benefit of those persons and
entities who were savings account holders of Guthrie Bank on the eligibility and
supplemental eligibility record dates for such conversion and who continue, from
time to time, to have rights therein.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF GSI AND GUTHRIE BANK
-----------------------
GSI and Guthrie Bank do each hereby specifically covenant and
agree to prepare and deliver to Buyer, on or before the date of this Agreement,
complete and correct copies of each of the Exhibits required to be provided to
Buyer by the terms and provisions of this Article II, below, namely, Exhibits
2.3, 2.6-2.12, 2.15-2.16, 2.18, 2.20-2.24 and 2.30. GSI and Guthrie Bank also do
each hereby, respectively, represent and warrant to the Buyer, as of the date of
this Agreement and as of the Closing Date hereunder, as follows:
Section 2.1 Organization and Standing of GSI. GSI is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Oklahoma, and has all requisite power and authority (corporate
and other), and is duly qualified and licensed and possess all licenses,
franchises, permits and other governmental authorizations necessary to own,
lease and operate its assets and properties and to conduct its business as now
being conducted, including, without limitation, the full power and authority for
GSI to own all of the issued and outstanding capital stock of Guthrie Bank and
for GSI to enter into and perform its obligations under this Agreement and the
transactions contemplated hereby. GSI is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which its ownership or
leasing of property or the conduct of its business requires such licensing or
qualification, except where the failure to be so licensed, qualified or in good
standing would not have a material adverse effect on the financial condition,
operations, business or prospects of GSI or Guthrie Bank, respectively, either
individually, or taken as a whole. GSI is duly registered as a unitary bank
holding company with the OTS pursuant to applicable laws and regulations. GSI
does not own any equity interest, directly or indirectly, in any corporation,
limited liability company, partnership, joint venture, firm or other entity, of
any kind or nature, except for Guthrie Bank. All approvals for the Acquisition
required to be obtained from the Board of Directors or the Shareholders of GSI
under its Certificates of Incorporation or By-Laws, or under applicable law have
been obtained or will have been obtained prior to the Closing Date. GSI has
delivered to Buyer complete and correct copies of the Certificate of
Incorporation of GSI, as certified to by the Secretary of State of Oklahoma and
of the By-Laws of GSI, as certified to by the Secretary or
<PAGE>
Assistant Secretary of GSI, as in effect on the Closing Date.
Section 2.2 Organization and Standing of Guthrie Bank. Guthrie
Bank is a federally chartered stock savings bank duly organized, validly
existing and with a corporate existence under federal laws and with the OTS, its
regulator. Guthrie Bank has the full power and authority, corporate and
otherwise, and is duly qualified and licensed and possesses all licenses,
franchises, permits and other governmental authorizations necessary to own,
lease and operate its assets and properties and to conduct its business as now
being conducted, including, without limitation, the full power and authority to
operate Guthrie Bank and to enter into and perform each of its obligations under
this Agreement and the transactions contemplated hereby following the amendment
which Sellers will make to the Charter of Guthrie Bank, prior to the Closing
Date, to delete Section 8A thereof in its entirety. All approvals, if any,
required to be obtained from the Board of Directors or the Shareholders of
Guthrie Bank under its Charter or By-Laws, or by applicable law, have been
obtained, or will be obtained, on or before the Closing Date. Guthrie Bank is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which its ownership or leasing of property or the conduct of its
business requires such qualification, except where the failure to be so
licensed, qualified or in good standing would not have a material adverse effect
on the financial condition, operations, business or prospects of Guthrie Bank,
either individually or taken as a whole. Guthrie Bank does not own any equity
interest, directly or indirectly, in any corporation, limited liability company,
partnership, joint venture, firm or other entity of any kind or nature. The
deposit accounts of Guthrie Bank are insured by the Savings Association
Insurance Fund to the maximum extent permitted by the Federal Deposit Insurance
Act ("FDIA"), and Guthrie Bank has paid all premiums and assessments required to
be paid by it by the provisions of the FDIA and the regulations thereunder.
Guthrie Bank is a member in good standing of the Federal Deposit Insurance
Corporation ("FDIC") and of the Federal Home Loan Bank. Guthrie Bank has
delivered to Buyer complete and correct copies of the Charter of Guthrie Bank,
as certified to by the OTS and the By-Laws of Guthrie Bank, as certified to by
the Secretary or Assistant Secretary of Guthrie Bank.
Section 2.3 Capitalization of GSI and Guthrie Bank. The
authorized capital stock of GSI consists of Four Million (4,000,000) shares
consisting of (i) Three Million (3,000,000) shares of common stock, par value
$0.01 per share ("Common Stock"), of which Four Hundred Two Thousand Two Hundred
Fifty-Seven (402,257) shares are issued and outstanding and are owned by the
Shareholders listed on Exhibit 2.3.1 to this Agreement, which is attached hereto
and by this reference made a part hereof ("GSI Shareholders"), in the amounts
reflected thereon opposite the name of each such Shareholder, and of (ii) One
Million (1,000,000) shares of serial preferred stock, par value $0.01 per share,
none of which are issued and outstanding ("Preferred Stock"). One Hundred Eight
Thousand Seven Hundred Forty-Four (108,744) shares of the Common Stock of GSI
are held in its treasury. Ten Thousand Nine Hundred Forty-Two (10,942) shares of
GSI Common Stock are held by the Guthrie Bank Management Stock Bonus Plan as
"Plan Shares," of which Four Thousand One Hundred Twenty-Four (4,124) have not
been awarded to any employee or non-employee director of GSI or Guthrie Bank and
thus are not included in the total issued and outstanding shares of GSI Common
Stock stated above. No share of the capital stock of GSI has been reserved for
any
<PAGE>
purpose other than the Stock Options. The authorized capital of Guthrie Bank
consists of (i) Three Million (3,000,000) shares of common stock, par value
$0.01 per share ("Guthrie Bank Stock"), of which One Hundred Thousand (100,000)
shares are issued and outstanding and are owned by GSI, and (ii) One Million
(1,000,000) shares of serial preferred stock, no par value per share, of which
none is issued and outstanding. None of the capital stock of Guthrie Bank is
held in its treasury. No share of the capital stock of Guthrie Bank has been
reserved for any purpose. All of the issued and outstanding shares of the
capital stock of GSI and of Guthrie Bank, respectively, are duly and validly
authorized and issued, fully paid and non-assessable and have not been issued in
violation of any pre-emptive rights. There are no outstanding securities
convertible into or exchangeable for the capital stock of GSI, or of Guthrie
Bank, respectively, and there are no outstanding options, rights (pre-emptive or
otherwise), or warrants to purchase or to subscribe for any equity securities of
either GSI or Guthrie Bank, respectively, except for the Stock Options, as
defined above, granted by GSI for the total amount of Forty-One Thousand Two
Hundred Six (41,206) shares of Common Stock granted to the ten (10) individuals
listed on Exhibit 2.3.2 to this Agreement, which is attached hereto and by this
reference made a part hereof ("Stock Option Holders"). There are no outstanding
agreements, arrangements, commitments or understandings of any kind affecting or
relating to the voting, issuance, purchase, redemption, repurchase or transfer
of the capital stock of either GSI or Guthrie Bank, respectively, or any equity
securities of GSI or Guthrie Bank, respectively, except as expressly provided
for and described in this Agreement. On the Closing Date, GSI will have good,
valid and marketable title to all of the issued and outstanding shares of
Guthrie Bank Stock, free and clear of all mortgages, liens, pledges, charges,
claims, security interests, agreements, encumbrances and equities whatsoever,
with full right and authority to sell and transfer all of the Guthrie Bank Stock
to Buyer. Guthrie Bank has properly established and maintained a liquidation
account pursuant to the plan of conversion adopted by it in connection with its
conversion from a mutual federal savings bank to a stock savings bank, as
referenced above in Section 1.16, and has provided Buyer true and complete
copies of all records and information which it has in its possession or control
as to the operation or maintenance of its Liquidation Account prior to the date
of this Agreement.
Section 2.4 Trade Names. To the knowledge of Sellers, no other
person, firm or corporation is presently using or claiming, or has the right to
use or claim, any of the following trade names: "Guthrie Savings, Inc." and/or
"Guthrie Federal Savings Bank," or to any of the trademarks, logos or symbols
used by either GSI or Guthrie Bank in conjunction with said trade names,
respectively. Neither GSI nor Guthrie Bank has conferred any right or license to
use any of the aforesaid trade names, trademarks, logos, or symbols on any other
person, firm or corporation.
Section 2.5 Financial Statements. GSI and Guthrie Bank have
separately delivered to Buyer and identified by reference to this Section 2.5,
each of the following financial statements: (i) the audited annual consolidated
financial statements of GSI and Guthrie Bank (including a Balance Sheet and the
related Statements of Operations, Equity and Cash Flows, and the notes relating
thereto), as of and for the fiscal years ending March 31, 1996, March 31, 1997,
March 31, 1998, and March 31, 1999 (when and if available prior to the Closing
Date); (ii) the monthly unaudited financial statements of Guthrie Bank
(including a Balance Sheet and related
<PAGE>
Statements of Operations, Equity and Cash Flows, and the notes relating thereto)
prepared internally by Guthrie Bank, as of and for the months ending September
30, 1998, January 31, 1999, and February 28, 1999; and (iii) the unaudited,
internal annual consolidated financial statements of GSI and Guthrie Bank as of
and for the fiscal year ending March 31, 1999 (collectively, the "Financial
Statements"). The Financial Statements fairly present the consolidated financial
condition and results of operations of GSI and Guthrie Bank, respectively, as of
the dates and for the periods indicated therein, were prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved, except as otherwise set forth therein, and in accordance
with the books and records of GSI and Guthrie Bank, respectively. The books and
records of GSI and Guthrie Bank, respectively, on the basis of which such
respective Financial Statements were prepared fully and fairly reflect all of
the transactions of GSI and Guthrie Bank, respectively, and are complete and
correct in all material respects. Each of the books of account of GSI and
Guthrie Bank, reflect, respectively, substantially all items of income and
expense, and substantially all of their respective assets, liabilities and
accruals, and reflect all material items of income and expense and all material
assets, liabilities and accruals, and are maintained in form and substance
adequate for preparing audited Financial Statements in accordance with generally
accepted accounting principles.
Section 2.6 Liabilities. Neither GSI nor Guthrie Bank has any
indebtedness, obligation or liability, contingent or otherwise, and whether due
or to become due, which is required by generally accepted accounting principles
to be reflected in the Financial Statements, or which is material, except (i)
those reflected in the Financial Statements, (ii) those individual liabilities
subsequently incurred in the Ordinary Course of Business (as that term is
defined below in this Agreement), (iii) deposit accounts opened in the Ordinary
Course of Business of a type authorized by law, or (iv) those set forth in
Exhibit 2.6 to this Agreement. All deposit accounts and notes payable, and other
liabilities of either GSI or Guthrie Bank, respectively, are current and not in
default.
Section 2.7 Taxes. To the best of their respective knowledge
and belief, GSI and Guthrie Bank have each duly filed with the appropriate
governmental agencies all tax reports and returns required to be filed by each
said entity, including, without limitation, all federal, state, and local
income, franchise, sales and property tax returns, complete and accurate copies
of which have previously been provided to Buyer and each has duly paid in full,
or made adequate provision for the payment of, all taxes and other charges due
or claimed to be due from it by federal, state or local taxing authorities; and
there are no federal, state or local tax liens upon any of the property or
assets of either GSI or Guthrie Bank, respectively. All of such reports and
returns are true, correct, and complete in all material respects. The federal
income tax returns of GSI and Guthrie Bank, respectively, have been examined by
the federal tax authorities or closed by applicable statute and satisfied for
all periods to and including the fiscal year ended March 31, 1998; all
deficiencies asserted as a result of such examinations have been paid or finally
settled, and no state of facts exists or has existed which might constitute
grounds for the assessment of any further tax liability with respect to the
periods which have not been audited by the federal, state or local taxing
authorities. All of the respective tax liabilities of GSI and Guthrie Bank for
the current year to date and all prior years, whether or not they have become
due and payable, have been paid in full or adequately reserved for, and to the
extent tax liabilities have accrued but
<PAGE>
not become payable, they are properly reflected on the respective books of GSI
or Guthrie Bank or in the Financial Statements. No income, franchise, sales or
property tax return of either GSI or Guthrie Bank is currently being audited by
the Internal Revenue Service or any other taxing authority having jurisdiction
over any of them. Except as set forth on Exhibit 2.7 hereto, neither GSI nor
Guthrie Bank is a party to, or bound by, or have any obligation under any tax
sharing or similar Agreement. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any state or federal
income tax return of either GSI or Guthrie Bank, respectively, for any period.
Neither GSI nor Guthrie Bank is a party to any action or proceeding by any
governmental authority for assessment or collection of taxes, and no claim for
assessment or collection of taxes by any governmental authority has been
asserted against either GSI or Guthrie Bank. All federal or state income taxes
that either GSI or Guthrie Bank is or was required by applicable laws to
withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper governmental body or other person who is
entitled by law to receive such withholding.
Section 2.8 Property and Assets. Subject to Permitted Title
Exceptions, as that term is defined and described below in this Section, or as
otherwise indicated in Exhibit 2.8 hereto, GSI or Guthrie Bank, respectively,
each have good and marketable title to all of their respective properties and
assets, whether real, personal, tangible or intangible, reflected in the
Financial Statements or subsequently acquired, free and clear of all liens,
charges, Encumbrances, as that term is defined below in this Section, and claims
of third parties or restrictions. Permitted Title Exceptions include (i) liens
for current real estate taxes or special assessments not yet delinquent, (ii)
utility, access and other easements and rights-of-way, restrictions and
exceptions, that will not materially interfere with the present use or
occupation of the real estate owned by GSI or Guthrie Bank, respectively, as the
case may be, or impair the present business operations conducted thereon, (iii)
such minor defects, irregularities, encumbrances, easements, rights-of-way and
clouds on title as normally exist with respect to property similar in character
which do not materially impair the use of the premises affected thereby for the
purpose for which it is presently being used, and (iv) any building, zoning or
subdivision ordinances applicable to the premises, provided the same have not
been violated. Exhibit 2.8 lists and describes all real property and all
interests in real property (other than mortgages and deeds of trust) owned by
GSI or Guthrie Bank, respectively, separately identified as to the property and
assets owned by each of said entities, as of the date hereof, including, but not
limited to, all leaseholds, options to purchase real property and leases,
including without limitation, equipment leases, under which either GSI or
Guthrie Bank, respectively, is the lessor or the lessee. Subject to the
Permitted Title Exceptions, (A) GSI and Guthrie Bank, respectively, each enjoys
peaceful and undisturbed possession under all leases for the use of real
property and all equipment leases under which it is the lessee; (B) all of such
leases are in full force and effect and neither GSI nor Guthrie Bank is in
default in any regard under any such lease; and (C) except as disclosed in
Exhibit 2.8, all personal property and assets and improvements on real property
owned and currently used by either GSI or Guthrie Bank and material to their
respective businesses are in good operating condition and repair, normal wear
and tear excepted. For purposes of this Agreement, the term "Encumbrance" shall
mean any charge, claim, community property interest, condition, equitable
interest, lien, option, pledge, security interest, right of first refusal, or
restriction of any kind, including any restriction on use, voting, transfer,
receipt of
<PAGE>
income, or exercise of any other attribute of ownership.
Section 2.9 Litigation and Proceedings. Except as set forth in
Exhibit 2.9 hereto, (i) there is not pending any legal, administrative,
arbitration, governmental or other proceeding to which any of the Directors, GSI
or Guthrie Bank is a party, or, to the knowledge of GSI or Guthrie Bank is
threatened to be made a party; (ii) neither any of the Directors, GSI nor
Guthrie Bank is under any investigation to their respective knowledge with
respect to, or is charged with any violation or alleged violation of, any
federal, state, local or other law or regulation other than as described in each
of their respective most recent regulatory examination reports, if applicable;
(iii) Neither GSI nor Guthrie Bank is subject to any order of any federal,
state, or local court or other governmental agency not generally applicable to
entities engaged in their same business; (iv) no one has asserted, and to the
knowledge of GSI or Guthrie Bank, no one has grounds to assert any material
claims against any of the Directors, GSI or Guthrie Bank based upon the wrongful
action or inaction of any of the Directors, GSI or Guthrie Bank or any of their
respective officers, directors, agents or employees; and (v) no one has asserted
and, to the knowledge of GSI or Guthrie Bank, there do not exist grounds for any
claims against any of the Directors, GSI or Guthrie Bank, which have resulted or
may result in litigation that will prevent or delay the consummation of the
transactions contemplated by this Agreement.
Section 2.10 Authority. Each of GSI and Guthrie Bank,
respectively, has full corporate power and authority to carry out the
transactions provided for in this Agreement on the terms and conditions set
forth herein. The execution and delivery by GSI and Guthrie Bank of this
Agreement and the respective consummation by each of them of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action of each of them. This Agreement constitutes a valid and legally
binding obligation of GSI and Guthrie Bank, respectively, in accordance with its
terms, except that the enforcement of the rights and remedies created hereby and
thereby is subject to bankruptcy, insolvency, reorganization and similar laws of
general application affecting the rights and remedies of creditors and that the
availability of the remedy of specific performance or of injunctive or other
equitable relief is subject to the discretion of the court before which any
proceeding therefor may be brought. Except as listed on Exhibit 2.10 hereto,
neither the execution and delivery of this Agreement, nor the consummation by
GSI and/or Guthrie Bank, respectively, of the transactions contemplated hereby
in accordance with the terms and conditions hereof, nor the respective
compliance by GSI and Guthrie Bank with any of the provisions hereof, will
violate, conflict with, result in a breach of, constitute a default under,
accelerate the performance required by the terms of, or permit the termination
of any order, writ, injunction, decree, statute, rule, regulation or policy
guidelines applicable to GSI or Guthrie Bank, respectively, or any contract,
Agreement, indenture or instrument to which either GSI or Guthrie Bank is a
party or by which GSI or Guthrie Bank is bound or committed or the respective
Certificate of Incorporation, Charter or Bylaws of GSI or Guthrie Bank. Except
for the approvals contemplated by this Agreement, neither GSI nor Guthrie Bank
is required to obtain any consent, approval, order or authorization of, or to
effect any registration, declaration or filing with, any governmental authority
or under any contract, Agreement, indenture or instrument to which either of GSI
or Guthrie Bank is a party, or by which either of them is bound or committed in
connection with the execution and delivery of this Agreement, or the
consummation of the transactions contemplated hereby.
<PAGE>
Section 2.11 Absence of Certain Changes. Except as set forth
in Exhibit 2.11 hereto or permitted by this Agreement, since February 28, 1999,
none of the following actions, changes or matters has been taken by or
transpired with regard to either GSI or Guthrie Bank, respectively:
2.11.1 any material adverse change in the financial
condition, operations, business or prospects of GSI or Guthrie Bank,
either individually or taken as a whole, other than changes which are
the result of changes in laws or regulations, conditions affecting the
economy generally or other factors affecting banking institutions in
general;
2.11.2 any sale, assignment, transfer, purchase or
other disposition of any tangible or intangible asset of GSI or Guthrie
Bank, respectively, except in the Ordinary Course of Business
consistent with past practice, as that term is defined below in this
Section, and for fair and adequate consideration;
2.11.3 any suffering of any damage, destruction, or
loss, whether as the result of fire, explosion, earthquake, accident,
casualty, labor trouble, requisition or taking of property by any
government or any agency of any government, flood, windstorm, embargo,
riot or act of God or the enemy, or other similar or dissimilar
casualty or event or otherwise, and whether or not covered by
insurance, materially and adversely affecting the business, property,
or assets of GSI or Guthrie Bank, respectively;
2.11.4 any increase in the compensation payable or to
become payable by GSI or Guthrie Bank, respectively, to any of their
respective directors, officers, employees, agents, consultants, or any
bonus granted to any such persons, except in the Ordinary Course of
Business consistent with past practice;
2.11.5 any material change in the method of
recordkeeping employed by GSI or Guthrie Bank, respectively;
2.11.6 any issuance or sale by GSI or Guthrie Bank,
respectively, of any of their respective corporate debt securities, or
any borrowings of money or other pledging of any of their respective
credit except in the Ordinary Course of Business consistent with past
practice;
2.11.7 any occurrence of any other material
obligation or liability (absolute or contingent), except normal trade
or business obligations or liabilities incurred in the Ordinary Course
of Business;
2.11.8 any mortgage, pledge, or subjecting to lien,
claim, security interest, charge, Encumbrance, or restriction (other
than Permitted Title Exceptions) of any of the respective assets or
properties of GSI or Guthrie Bank, respectively;
2.11.9 any discharge or satisfaction of any lien,
mortgage, pledge, claim, security interest, charge, Encumbrance, or
restriction or payment of any obligation or
<PAGE>
liability (absolute or contingent), of GSI or Guthrie Bank, other than
in the Ordinary Course of Business;
2.11.10 any declaration or payment of dividends by
either GSI or Guthrie Bank on their respective capital stock, except as
expressly authorized to be paid by GSI to the GSI Shareholders pursuant
to the provisions of Section 1.1.1(iv), above;
2.11.11 any cancellation or compromise by GSI or
Guthrie Bank, respectively, of any material debt or claim, other than
in the Ordinary Course of Business or upon payment in full;
2.11.12 any waiver by GSI or Guthrie Bank,
respectively, of any material rights of value, other than in the
Ordinary Course of Business or upon payment in full;
2.11.13 except in the Ordinary Course of their
respective Businesses, any entering into, or agreeing to enter into,
any agreement or arrangement granting any preferential right to
purchase any of their respective assets, properties, or rights or
requiring the consent of any party to the transfer and assignment of
any such respective assets, properties, or rights;
2.11.14 any entering into of any material
transaction, contract, or commitment outside the Ordinary Course of its
Business;
2.11.15 any introduction of any material change with
respect to the operation of their respective businesses, including,
without limitation, their respective methods of accounting (exclusive
of changes generally applicable to the banking business or industry
such as, without limitation, changes in banking statutes, rules and
regulations, changes in accounting principles, rules and practices and
changes in tax laws and regulations, and the prevailing interpretation
of any thereof);
2.11.16 any receipt of notice or knowledge of, or
reason to believe that any labor unrest exists among any of their
respective employees, or that any group, organization or union has
attempted to organize any of their respective employees, or any receipt
of notice or knowledge of, or reason to believe that there will be,
resignations of several of their respective employees, or of more than
two (2) of the key executive employees of Guthrie Bank, i.e., Vice
President, or above, by reason of the execution of this Agreement or
the consummation of the transactions contemplated by this Agreement;
2.11.17 any failure to operate their respective
business organizations intact and to seek to preserve the goodwill of
their respective customers and others with whom they have business
relations;
2.11.18 any making by either GSI or Guthrie Bank,
respectively, of any capital expenditure or capital addition or
betterment in excess of $10,000 per respective project;
<PAGE>
2.11.19 any making by either GSI or Guthrie Bank,
respectively, of any loan or discount or entering into a financing
lease (A) which has not been made for good, valuable and adequate
consideration in the Ordinary Course of Business, and (B) which has not
been evidenced by notes or other evidences of indebtedness which are
true, genuine and what they purport to be; or
2.11.20 any agreement to do any of the foregoing.
2.11.21 For purposes of this Agreement, the term
"Ordinary Course of Business" shall be defined to mean an action taken
by a person which: (i) is consistent with the past practices of such
person and is taken in the ordinary course of the normal day-to-day
operations of such person; (ii) is not required to be authorized by
Board of Directors of such person (or by any person or group of persons
exercising similar authority); and (iii) is similar in nature and
magnitude to action customarily taken, without any authorization by the
Board of Directors (or by any person or group of persons exercising
similar authority), in the ordinary course of the normal day-to-day
operations of such persons that are in the same line of business as
such person.
Section 2.12 Employee Benefit Plans. Unless disclosed in
Exhibit 2.12 hereto:
2.12.1 Neither GSI nor Guthrie Bank, respectively,
maintains nor has maintained, nor has any present or future obligation
or liability under, any funded deferred compensation plans (including
profit sharing, pension, 401(k), savings, employee stock ownership
plans or trusts or other stock bonus plans), unfunded deferred
compensation arrangements or employee benefit plans as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), other than the respective plans, if any, maintained
by any of them as set forth in Exhibit 2.12 hereto, to include, without
limitation, the Guthrie Bank ESOP, the Guthrie Bank 401(k) Plan and the
Guthrie Bank Management Stock Bonus Plan (true and correct copies of
each of which have been delivered to Buyer) (hereinafter collectively
referred to as the "Benefit Plans").
2.12.2 There are no multi-employer plans, as defined
in Section 4001(a)(3) of ERISA, to which either GSI or Guthrie Bank,
respectively, contributes, or under which either of them has any
present or future obligation or liability.
2.12.3 Each of the Benefit Plans which is an employee
pension benefit plan, as defined in Section 3(2) of ERISA, and which is
intended to be "qualified" within the meaning of Section 401(a) of the
Internal Revenue Code of 1986 ("Code") ("Pension Plan"), has been
determined by the Internal Revenue Service to be so qualified and
neither GSI nor Guthrie Bank is aware of any fact that would adversely
affect such qualified status. To the best of the knowledge of Sellers,
each Benefit Plan has been operated and administered in accordance with
the requirements of ERISA and the applicable provisions of the Code and
has been fully funded at the times and in the amounts required by the
terms and conditions of each Benefit Plan by the entity
<PAGE>
maintaining that Benefit Plan, i.e., GSI or Guthrie Bank, respectively,
as the case may be.
2.12.4 With respect to each Benefit Plan for which an
annual report has been filed, no material adverse change has occurred
with respect to the matters covered by the most recent such annual
report on IRS Form 5500, which is included in Exhibit 2.12, since the
end of the period covered thereby.
2.12.5 None of the Benefit Plans (or any pension plan
maintained by a trade or business, whether or not incorporated, which
is under common control with either GSI or Guthrie Bank, respectively,
or any of them, within the meaning of Section 414(b) or (c) of the
Code) which are subject to Title IV of ERISA has completely or
partially terminated, or been the subject of a reportable event as
defined in Section 4043 of ERISA.
2.12.6 No proceedings by the Pension Benefit Guaranty
Corporation to terminate a Pension Plan (or any pension plan maintained
by a trade or business, whether or not incorporated, which is under
common control with either GSI or Guthrie Bank, respectively, or any of
them, within the meaning of Section 414(b) or (c) of the Code) pursuant
to Subtitle C of Title IV or ERISA have been instituted or threatened.
No liability under Subtitle D of Title IV of ERISA has been incurred by
either GSI or Guthrie Bank with respect to a Pension Plan or a pension
plan maintained by a trade or business whether or not incorporated
which is under common control with either GSI or Guthrie Bank,
respectively, or any of them, within the meaning of Section 414(b) or
(c) of the Code.
2.12.7 The present value of all accrued benefits
(vested and non-vested) under each of the defined benefit pension plans
disclosed under Exhibit 2.12 did not, as of the latest valuation date,
exceed the then current market value of the assets of such plan
allocable to such accrued benefits based upon the actuarial assumptions
currently utilized for such plans and as disclosed under Exhibit 2.12,
and no accumulated funding deficiency (whether or not waived) exists
with respect to any such plan which has been terminated by either GSI
or Guthrie Bank, respectively, or any of their respective predecessors.
2.12.8 There has been no prohibited transaction (as
is defined in Section 4975 of the Code or in Part 4 of Subtitle B of
Title I of ERISA) with respect to any Benefit Plan. No penalty or tax
under Section 402(i) of ERISA or Section 4975 of the Code has been
imposed upon either GSI or Guthrie Bank.
2.12.9 There are no pending or, to the knowledge of
GSI or Guthrie Bank, any threatened claims by or on behalf of the
Benefit Plans, by any employee or beneficiary covered under the Benefit
Plans, or otherwise involving the Benefit Plans which allege a breach
of fiduciary duties or violations of other applicable state or federal
law which could result in liability on the part of either GSI or
Guthrie Bank, respectively, or any of the Benefit Plans under ERISA or
any other law, nor, to the knowledge of GSI
<PAGE>
or Guthrie Bank, respectively, is there any basis for such a claim.
2.12.10 Each of GSI and Guthrie Bank, respectively,
has complied with all provisions relating to continuation coverage
required by Title I, Subtitle B, Part 6 of ERISA as applicable.
Section 2.13 Forms of Instruments, Etc. GSI and Guthrie Bank
will make available to Buyer, upon request, copies of all standard forms of
savings and deposit accounts, certificates of deposit, notes, mortgages, deeds
of trust, security agreements and other routine documents of a like nature
utilized on a regular and recurring basis by any of them in their respective
Ordinary Course of Business.
Section 2.14 Required Reports and Compliance with Laws and
Orders. GSI and Guthrie Bank has each duly filed with the OTS, the FDIC and the
SEC, as the case may be, in correct form the reports required to be filed by and
is in material compliance in all material respects with all laws, rules,
regulations, policy guidelines, orders and requirements applicable to it and has
paid all premiums and special assessments due and such reports were in all
material respects complete and accurate and in compliance with the requirements
of applicable laws and regulations, provided that information as of a later date
shall be deemed to modify information as of an earlier date; and GSI and Guthrie
Bank have previously delivered or made available to Buyer accurate and complete
copies of all such reports. In connection with the most recent examinations of
GSI and Guthrie Bank, respectively, by the OTS or the FDIC, as the case may be,
neither GSI nor Guthrie Bank was required to correct or change any action,
procedure or proceeding which GSI or Guthrie Bank believes has not been
corrected or changed as required by said examination. To the best of Sellers'
knowledge, there are not any facts or circumstances which would prevent any
required consents and approvals to the Acquisition being obtained from the OCC,
the OTS, the FRB, the SEC or the FDIC.
Section 2.15 Loans. All loan agreements, notes receivable,
borrowing arrangements, and leases ("Loans") made or held by GSI or Guthrie
Bank, as lender, as reflected in the Financial Statements and/or on the books of
GSI or Guthrie Bank, respectively, are valid, binding, and enforceable
obligations of the respective debtors without any claims or defenses, except as
set forth on Exhibit 2.15 which is attached hereto and by this reference made an
integral part hereof, and each such Loan which is secured by a security interest
in personal property is secured by a valid and perfected lien and each such Loan
which is secured by an interest in real property is secured by a valid and
perfected mortgage lien. The Loans and loan portfolio of GSI or Guthrie Bank,
respectively, are in accordance in all material respects with all applicable
laws, regulations, orders and policy guidelines other than as disclosed in
examination reports or in Exhibit 2.15 hereto. Exhibit 2.15 hereto contains a
list of all loan commitments of GSI or Guthrie Bank exceeding $50,000 including
the name of the borrower, other loans of such borrower held by GSI or Guthrie
Bank, respectively, and the type of security for the loan. The aggregate
reserves for Loans included in the Financial Statements are adequate as of such
dates in all respects for all known and/or estimated losses as of such dates
(net of recoveries relating to Loans previously charged off) on any Loans of GSI
or Guthrie Bank, respectively, which were outstanding as of such date. To the
best of the knowledge of GSI and Guthrie Bank, all Loans of
<PAGE>
GSI and Guthrie Bank are bona fide and arose in the Ordinary Course of Business.
Except for Loans described and listed in Exhibit 2.15 hereto (which Exhibit
shall include the borrower's name, amount of the loan, the number of days, if
any, the loan is delinquent and the name of the entity, bank or holding company,
i.e., GSI or Guthrie Bank, which made that Loan), neither GSI nor Guthrie Bank,
respectively, is a party to any written or oral (i) Loan under the terms of
which the obligor is more than thirty (30) days in default in payment of
principal, interest, or other provisions thereof as of the dates shown thereon;
(ii) Loan which has been or may be classified by the examiners for the OTS or
the FDIC, as "substandard," "doubtful," "loss," "other loans especially
mentioned," or any comparable classification used by such regulatory agencies;
(iii) Loan which has been so classified internally by that lender; (iv) Loan by
GSI or Guthrie Bank to any of its respective directors or officers, or any
member of its respective directors' or officers' immediate families (spouse,
siblings, children, or parents), or any affiliate or associate (as such terms
are defined in the rules and regulations applicable to that respective bank) of
the foregoing which is more than thirty (30) days delinquent, or (v) Loans which
are in known violation of any law, regulation, or rule of any governmental
authority, federal, state or county. Except as noted in Exhibit 2.15 hereto, the
documentation for all Loans of GSI or Guthrie Bank, respectively, which are
described in Exhibit 2.15 is substantially in the same form as for the other
Loans of similar type of GSI or Guthrie Bank, respectively.
Section 2.16 No Impending Material Adverse Events. Unless
disclosed in Exhibit 2.16, which is attached hereto and by this reference made
an integral part hereof, as of the date hereof, neither GSI nor Guthrie Bank,
respectively, has knowledge of any impending loss of their respective business,
or of any other presently existing facts or circumstances which would be
reasonably likely to have a material adverse effect upon the respective
financial condition, results of operations, business, or prospects of GSI or of
Guthrie Bank, respectively, other than changes which are the result of changes
in laws or regulations or other factors affecting banking institutions in
general.
Section 2.17 Books and Records. The minute books of GSI and
Guthrie Bank, respectively, each reflect accurately all significant action ever
taken by the shareholders and board of directors (or any committee thereof), of
each of those entities, i.e., GSI or Guthrie Bank, respectively.
Section 2.18 Regulatory Agreements. Except as disclosed in
Exhibit 2.18 hereto, neither GSI nor Guthrie Bank, respectively, is a party to
any Prompt Corrective Action, Assistance Agreement, Supervisory Directive,
memorandum of understanding, consent order, cease and desist order or condition
or any other regulatory letter, order or decree with, or a party to any
commitment letter or similar undertaking to, or is subject to any order to or
directive by, or has adopted any board resolutions at the request of, the OTS,
the FDIC or the SEC, as applicable, or any other regulatory agency that
restricts the conduct of the respective business of GSI or Guthrie Bank, or in
any manner relates to the capital adequacy, credit policies, ability to pay
dividends, net worth or asset management or maintenance, or good standing of GSI
or Guthrie Bank, respectively; nor has either GSI or Guthrie Bank been advised
by any such regulatory agency that it is contemplating issuing or requesting (or
is considering the appropriateness of issuing or requesting) any such order,
directive, written agreement,
<PAGE>
memorandum of understanding, extraordinary supervisory letter, commitment
letter, board resolution or similar undertaking.
Section 2.19 Full Disclosure. None of the information
concerning GSI or Guthrie Bank, respectively, contained in this Agreement and
the schedules hereto, or in any of the lists, documents or instruments attached
hereto or to be delivered by or on behalf of GSI or Guthrie Bank, respectively,
as contemplated by any provision of this Agreement, or as provided to Buyer for
inclusion in any of the applications or documents to be filed with governmental
agencies in connection with obtaining requisite approvals for the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary to make the
statements contained herein or therein, taken as a whole with all other such
lists, documents, instruments or other information so furnished in light of the
circumstances in which they are made, not misleading.
Section 2.20 Investments.
2.20.1 Set forth in Exhibit 2.20 hereto is a list of
all investment and mortgage-backed and related securities owned by GSI
and Guthrie Bank, respectively, indicating the original cost and
current market value thereof. Except as disclosed in Exhibit 2.20,
since February 28, 1999, no investment or mortgage-backed and related
securities have been acquired or disposed of by either GSI or Guthrie
Bank, respectively, except in the Ordinary Course of Business and the
investments of GSI or of Guthrie Bank in investment and mortgage-backed
and related securities are in accordance in all material respects with
all applicable laws, regulations, orders, and policy guidelines.
2.20.2 GSI and Guthrie Bank have each set forth
respectively in Exhibit 2.20 hereto a written description as of the
date hereof of each real estate development project in which either GSI
or Guthrie Bank has an equity ownership, if any, the amount of funds
invested by either GSI or Guthrie Bank, respectively, the appraised
value of any real property for which appraisals exist and the carrying
value on the books of GSI and Guthrie Bank, respectively, for any such
investment and, with respect to each such project which has not been
completed, an estimate of the cost of completing such project. GSI and
Guthrie Bank, each has made available to Buyer true and complete copies
of appraisal reports relating to each such project as are available.
Exhibit 2.20 also includes a listing of all other real property in
which either GSI or Guthrie Bank, respectively, has an equity interest
and the amount of each such investment. To the best of the knowledge of
GSI and Guthrie Bank, respectively, there are no facts, circumstances
or contingencies which exist or which are reasonably likely to occur
prior to the Closing hereunder (other than general economic conditions
and conditions generally affecting real estate) which would require a
material reduction under generally accepted accounting principles in
the aggregate values of the real estate investments, other real estate
owned, joint ventures, and construction loans, respectively, of either
GSI or Guthrie Bank, which reductions are not disclosed or reflected in
the Financial Statements, or Exhibit 2.20.
Section 2.21 Repurchase Agreements. Unless disclosed in
Exhibit 2.21 hereto,
<PAGE>
with respect to all repurchase agreements pursuant to which either GSI or
Guthrie Bank, is a party, (a) where either GSI or Guthrie Bank, respectively,
has an obligation to resell securities, it has either good title to or a valid,
perfected first lien or security interest in the government securities or other
collateral securing the repurchase Agreement, and the value of the collateral
securing each such repurchase agreement to which any of them is a party at the
date hereof equals or exceeds the amount of the debt secured by such collateral
under such repurchase Agreement, and (b) where either GSI or Guthrie Bank has
the respective obligation to repurchase securities, the value of the collateral
securing the said obligation of GSI or Guthrie Bank, respectively, does not
exceed 100% of the amount of said obligation.
Section 2.22 Significant Agreements. Except as set forth in
Exhibit 2.22 hereto, neither GSI nor Guthrie Bank, respectively, is a party to
(in its own name or as a successor in interest) nor bound by any written or
oral:
2.22.1 contracts or commitments involving employment,
consulting, deferred compensation, profit sharing, pension, bonus,
retirement, percentage compensation, incentive compensation, service
award, severance payment, employee benefit, or stock options or
warrants;
2.22.2 leases or licenses with respect to any
property, real or personal, as lessor, lessee, licensor, or licensee,
except leases of personal property with either GSI or Guthrie Bank,
respectively, as the case may be, as lessee with rental payments of
less than $5,000 per annum in the aggregate;
2.22.3 contract or commitment for capital
expenditures in excess of $10,000 for any one project;
2.22.4 material contract or commitment made other
than in the Ordinary Course of Business for the purchase of materials
or supplies or for the performance of services for a period extending
beyond February 28, 1999;
2.22.5 contract or option for the purchase of any
real or personal property other than in the Ordinary Course of
Business;
2.22.6 letter of credit or guarantee Agreement;
2.22.7 collective bargaining or other agreement
entered into with any union or other entity representing employees;
2.22.8 contract or commitment to (a) acquire
investment securities in excess of $25,000, or (b) to extend credit in
excess of $100,000, in each case for any one contract or commitment; or
2.22.9 contracts, commitments, or agreements not
otherwise described in Subsections 2.22.1 - 2.22.8, above, made other
than in the Ordinary Course of Business,
<PAGE>
in an amount with a value of more than $10,000 in the aggregate.
Each of GSI and Guthrie Bank, respectively, has performed in
all material respects all material obligations required to be performed by it to
date, and is not in default under, and no event has occurred which, with the
lapse of time or action by a third party, would result in a default under, any
presently outstanding indenture, mortgage, lease, contract, commitment, or
agreement to which either GSI or Guthrie Bank is a party, respectively, or by
which it is bound and which is material, or is set forth in Exhibit 2.22 hereto,
and each such presently outstanding indenture, mortgage, lease, contract,
commitment, or agreement is a valid, legally binding obligation of GSI and/or
Guthrie Bank, respectively, as the case may be, and the other party or parties
thereto.
Section 2.23 Insurance. Exhibit 2.23 hereto lists the
insurance policies which GSI and Guthrie Bank each has in full force and effect
with respect to its respective assets and business. Unless disclosed in Exhibit
2.23, since January 1, 1998, neither GSI nor Guthrie Bank has received any
notice of cancellation with respect to any of its insurance policies or bonds,
and within the last three (3) years neither GSI nor Guthrie Bank has been
refused any insurance coverage sought or applied for (except where the refusal
of coverage relates to an insurer's ceasing generally to offer a particular type
of coverage), and it has no reason to believe that existing insurance coverage
cannot be renewed as and when the same shall expire.
Section 2.24 Transactions with Affiliated Persons. Except as
listed in Exhibit 2.24 hereto, or elsewhere in this Agreement, no "affiliated
persons" or "affiliate" of either GSI or Guthrie Bank, respectively, as those
terms are defined in 12 C.F.R. ss.561.5 and 12 C.F.R. ss.563.41, respectively,
have engaged in any material transactions with either GSI or Guthrie Bank,
respectively.
Section 2.25 Brokers. Except as listed in Exhibit 2.25 hereto,
neither the Directors, GSI nor Guthrie Bank has retained or otherwise engaged or
employed any broker, finder or any other person, or paid or agreed to pay any
fee or commission to any agent, broker, finder or other person, for or on
account of such person's acting as a broker, finder or otherwise in connection
with this Agreement, the Acquisition or the other transactions contemplated
hereby, other than Hovde Financial, Inc., a Washington, D.C. investment banking
firm and/or Jeffrey W. Warlick, Senior Vice President of Hovde Financial, Inc.
(Referred to herein collectively as "Hovde") pursuant to a separate written
agreement between Sellers and Hovde, a complete and accurate copy of which was
delivered to Buyer by Sellers before the date of this Agreement. Accordingly,
GSI and Guthrie Bank hereby indemnify and agree to hold Buyer harmless from and
against any and all loss, cost or expense (including reasonable attorneys' fees
and expenses) resulting from any claim for any fee, commission, or similar
payment by any broker, agent, finder or salesman as the result of any action of
the Directors, GSI or Guthrie Bank, respectively, incident to the Acquisition,
this Agreement or the transactions contemplated hereby, it being understood that
the liability of Guthrie Bank under this provision is limited to the extent
necessary to comply with the requirements of 12 U.S.C. ss.ss. 371c and 371c-1.
GSI and Guthrie Bank hereby acknowledge and agree that, conditioned wholly upon
the successful consummation of the Acquisition pursuant to this Agreement, GSI
and Guthrie Bank shall hold
<PAGE>
Buyer wholly harmless from and shall cause Hovde to be fully paid the full
amount of the commission or finder's fee which GSI and Guthrie Bank have agreed
to pay Hovde pursuant to their separate agreement with Hovde, the full and
complete copy of which was previously provided to Buyer.
Section 2.26 No Default. Neither GSI nor Guthrie Bank,
respectively, is in default under and no event has occurred which, with the
lapse of time or action by a third party, would result in a default under the
terms of (i) any judgment, decree, order, or writ of any agency of any
government or court, whether federal, state or local and whether at law or in
equity, or (ii) any license, permit, rule or regulation of any federal or state
or local governmental agency which default would have a materially adverse
effect upon the respective financial condition, results of operation, business
or properties of GSI or Guthrie Bank.
Section 2.27 Hazardous Materials. To the best knowledge of GSI
or Guthrie Bank, respectively, no "Hazardous Materials" (as hereinafter defined)
has been disposed of, buried beneath, or percolated beneath the respective real
property, or improvements thereon, owned now or during the last five years by
GSI or Guthrie Bank, respectively (the "Real Property"), nor has any Hazardous
Materials ever been removed from and stored off-site of the Real Property, or of
any real or personal property securing the Loans of any of those said respective
entities. Further, to the best knowledge of GSI and Guthrie Bank, respectively,
there has been no "Release" (as hereinafter defined) of any Hazardous Materials
on or from the Real Property or any improvements thereon. GSI and Guthrie Bank,
respectively, is each in material compliance with all applicable federal, state
and local laws, administrative rulings, and regulations of any court,
administrative agency or other governmental or quasi-governmental authority,
relating to the protection of the environment (including, but not limited to,
laws prohibiting the creation of a public nuisance). Neither GSI nor Guthrie
Bank, respectively, has received notification from any governmental entity or a
private citizen acting in the public interest that it is a potentially
responsible party under Section 107 of the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended ("CERCLA") or Section 7003 of
the Resource Conservation and Recovery Act of 1976, as amended ("RCRA") and none
of them has received notification from any federal, state, or local government
agency, or regulatory body, of a violation. The term "Environmental Laws" for
the purposes of this Agreement, shall include, without limitation, the Clean Air
Act, 42 U.S.C. ss.7401, et seq.; the Clean Water Act, 33 U.S.C. ss.1251, et
seq., and the Water Quality Act of 1981; the Federal Insecticide, Fungicide and
Rodenticide Act ("FIFRA"), 7 U.S.C. ss.136 et seq.; the Marine, Protection,
Research and Sanctuaries Act, 33 U.S.C. ss.1401, et seq.; the National
Environmental Policy Act, 42 U.S.C. ss.4321, et seq.; the Noise Control Act, 42
U.S.C. ss.4901, et seq.; the Occupational Safety and Health Act, 29 U.S.C.
ss.651, et seq.; the RCRA, 42 U.S.C. ss.6901, et seq.; as amended by the
Hazardous and Solid Waste Amendments of 1984; the Safe Drinking Water Act, 42
U.S.C. ss.300f, et seq.; CERCLA, 42 U.S.C. ss.9601, et seq., as amended by the
Superfund Amendments and Reauthorization Act, and the Emergency Planning and
Community- Right-to-Know Act; the Toxic Substance Control Act ("TSCA"), 15
U.S.C. ss.2601, et seq. and the Atomic Energy Act, 42 U.S.C. ss.2011, et seq.,
all as may have been amended as of the date of this Agreement, together with
their implementing regulations and guidelines as of the date of this Agreement.
The term "Environmental Laws" shall also include all state, regional, county,
<PAGE>
municipal and other local laws, regulations and ordinances that are equivalent
or similar to the federal laws recited above or that purport to regulate
Hazardous Materials. The term "Hazardous Materials" shall include, without
limitation, any hazardous substance, pollutant, or contaminants regulated under
CERCLA; oil and petroleum products and natural gas, natural gas liquids,
liquified natural gas, and synthetic gas usable for fuel; pesticides regulated
under FIFRA; asbestos, polychlorinated biphenyls, and other substances regulated
under TSCA; source material; special nuclear material, and by-product materials
regulated under the Atomic Energy Act; and industrial process and pollution
control wastes to the extent regulated under applicable Environmental Laws. The
term "Release" shall have the meaning given to such term in Section 101(22) of
CERCLA.
Section 2.28 Books and Records. The books of account, minutes
books, stock record books and other records of GSI and Guthrie Bank,
respectively, all of which have been made available to Buyer (except for any
records relative to the Acquisition), are complete and correct and have been
maintained in accordance with sound business practices. The minutes books of
each of GSI and Guthrie Bank contain accurate and complete records of all
meetings held of, and corporate action taken by, the shareholders, the Boards of
Directors, and committees of the Boards of Directors of each of GSI and Guthrie
Bank, respectively, and no meetings of any such shareholders, Board of
Directors, or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At the Closing hereunder, all of
those books and records will be in the possession and control of GSI and Guthrie
Bank, respectively.
Section 2.29 Condition and Sufficiency of Assets. The
buildings, structures and equipment of GSI and Guthrie Bank, respectively,
whether owned or leased, are structurally sound, are in good operating condition
and repair, and are adequate for the uses to which they are being put, and none
of such buildings, plants, structures, or equipment is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost. The building, structures and equipment of GSI and
Guthrie Bank, respectively, are sufficient for the continued conduct of the
businesses of each of those entities after the Closing in substantially the same
manner as they were being conducted prior to the Closing.
Section 2.30 Employees and Directors.
2.30.1 Exhibit 2.30 which is attached hereto and by
this reference made an integral part hereof, contains a complete and
accurate list of the following information for each employee or
director of GSI or Guthrie Bank, respectively, including, each employee
on leave of absence or layoff status; employer; employee name; job
title, current compensation paid or payable, and any change in
compensation since December 31, 1998; vacation accrued; and service
credited for purposes of vesting and eligibility to participate under
any pension, retirement, profit-sharing, thrift-savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock
ownership (including investment credit or payroll stock ownership),
severance pay, insurance, medical, welfare, or vacation plan, or any
other Benefit Plan of any type or kind or any other Pension Plan,
employee benefit plan or any other director plan of any type or kind
maintained by either GSI or Guthrie Bank, respectively. Exhibit 4.1.10,
which is
<PAGE>
attached hereto as referenced in Section 4.1.10, below, contains a
complete and accurate list of the employee salary increases and cash
bonuses (not to exceed, in the aggregate, $10,000) which Sellers
contemplate making and paying to their employees on or before the
Effective Time.
2.30.2 No employee or director of GSI or Guthrie
Bank, respectively, is a party to, or is otherwise bound by, any
agreement or arrangement, including any confidentiality,
non-competition, or proprietary rights Agreement, between such employee
or director and any other person ("Proprietary Rights Agreement") that
in any way adversely affects or will affect (i) the performance of
his/her duties as an employee or director of GSI or Guthrie Bank,
respectively, or (ii) the ability of GSI or Guthrie Bank, respectively,
to conduct its respective business, including, without limitation, any
Proprietary Rights Agreement with the Directors, the GSI Shareholders,
GSI or Guthrie Bank by any such employee or director. To the knowledge
of GSI or Guthrie Bank, no director, officer, or other key employee of
either GSI or Guthrie Bank, respectively, intends to terminate his/her
employment with such entity in the immediate future or as a result of
the entering into this Agreement or consummating of the Acquisition
contemplated hereunder.
Section 2.31 Improper Payments. None of the officers,
directors, agents or employees of either GSI or Guthrie Bank, respectively, nor,
to the knowledge of GSI or Guthrie Bank themselves, respectively, any other
person or entity (including, without limitation, any affiliate of the Directors,
GSI or Guthrie Bank, respectively) acting on behalf of either GSI or Guthrie
Bank, as the case may be, in any case for which such action may be attributable
to either GSI or Guthrie Bank, has directly or indirectly, on behalf of or with
respect to either GSI or Guthrie Bank, (i) made any political contributions with
funds of GSI or Guthrie Bank, respectively, (ii) made any payment which was not
legal to make or which was not legal for the payee to receive, (iii) received
any payment which was not legal to receive or which was not legal for the payor
to make, (iv) executed any material transaction or payment which is not properly
booked in accordance with generally accepted accounting principles, or (v) had
any off- book bank or cash accounts of which GSI or Guthrie Bank, respectively,
was the beneficial owner.
2.32 Year 2000 Data Processing Compliance. To the best
knowledge of Sellers, the data processing systems of each of GSI and Guthrie
Bank have been made, or are currently in the process of being made, Year 2000
compliant and will be fully Year 2000 compliant on or before December 31, 1999.
GSI and Guthrie Bank are currently in compliance with all existing OTS rules and
regulations pertaining to becoming or being Year 2000 compliant and neither has
received any notification of any kind or nature from the OTS, or any other
government regulatory agency which has jurisdiction over them, that they are not
in compliance with, or are failing in any manner to fully satisfy all of the OTS
rules and requirements for their data processing systems being or becoming Year
2000 compliant. GSI and Guthrie Bank have been examined by the OTS in the last
year to verify their efforts to comply with the OTS rules and regulations on
becoming Year 2000 complaint (a full and complete copy of which said OTS exam
has been provided by Sellers to Buyer) and said exam did not note any
deficiencies or
<PAGE>
defaults of GSI or Guthrie Bank in becoming Year 2000 complaint on a timely
basis which have not been completely satisfied or cured by GSI and Guthrie Bank
prior to the date of this Agreement.
Section 2.33 Delays. Sellers are not aware of any matter that
could cause a delay in receiving the approvals required by this Agreement before
it can be consummated.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby makes the following representations and
warranties to GSI as of the date of this Agreement, and as of the Closing Date,
as follows:
Section 3.1 Organization and Standing of Buyer. Buyer is a
national banking association organized, validly existing and with a corporate
existence under the laws of the United States of America. Buyer has all
requisite corporate power and authority and is duly qualified and licensed and
possesses all licenses, franchises, permits and other governmental
authorizations necessary to own, lease and operate its assets and properties and
to conduct its business as now being conducted, including, without limitation,
the full power and authority to enter into and perform under this Agreement and
the transactions contemplated hereby. All approvals, if any, required to be
obtained from the Board of Directors or the shareholders of Buyer under Buyer's
Articles of Association and By-laws or applicable law have been obtained or will
be obtained prior to the Closing Date, subject to the absolute right of any
government regulatory agency to deny such approval.
Section 3.2 Authority. Buyer has full corporate power and
authority to carry out the transactions provided for in this Agreement on the
terms and conditions set forth herein. The execution and delivery of this
Agreement and the consummation by Buyer of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action. This
Agreement constitutes a valid and legally binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, except that the
enforcement of the rights and remedies created hereby is subject to bankruptcy,
insolvency, reorganization and similar laws of general application affecting the
rights and remedies of creditors and that the availability of the remedy of
specific performance or of injunctive relief is subject to the discretion of the
court before which any proceeding therefor may be brought. Neither the execution
and delivery of this Agreement, nor the consummation by Buyer of the
transactions contemplated hereby, will conflict with, or result in a breach of,
any terms, condition or provision of, or constitute a default under, (a) the
Articles of Association or Bylaws of Buyer, (b) any agreement or instrument to
which Buyer is a party or by which it is bound, or (c) any material order,
judgment or decree to which Buyer is subject.
Section 3.3 Brokers. Buyer has not retained or otherwise
engaged or employed any broker, finder or any other person, or paid or agreed to
pay any fee or commission to any agent, broker, finder or other person, for or
on account of such person's acting as a broker or
<PAGE>
finder in connection with this Agreement, or the Acquisition or the other
transactions contemplated hereby.
Section 3.4 Legal Proceedings. There is no action, suit or
proceeding pending against or affecting, or, to the knowledge of Buyer,
threatened against or affecting Buyer, or any of its assets, before any court or
arbitrator or any governmental body, agency or official that would, if decided
against Buyer, have a material adverse impact on the business, properties,
assets, liabilities or financial condition of Buyer (that are not already
reflected in Buyer's current financial statements) and which would have a
material adverse effect on Buyer's ability to consummate the Acquisition.
Section 3.5 Consents and Approvals. Except for the respective
consents and approvals of or filings or registrations with or notices to the
OTS, the FRB, the OCC and/or the FDIC or the expiration of any related
applicable waiting periods, no consents or approvals of or filings or
registrations with, or notices to any governmental agency, commission or
authority are necessary, and no waiting periods related thereto are required to
expire, in connection with (i) the execution and delivery by Buyer of this
Agreement and (ii) the consummation by Buyer of the transactions contemplated
hereby. To the best of Buyer's knowledge, there are not any facts or
circumstances which would prevent any required consents and approvals to the
Acquisition being obtained from the federal regulatory agencies listed above in
this Section 3.5.
Section 3.6 No Impending Material Adverse Events. As of the
date hereof, Buyer has no knowledge of any impending loss of business, or of any
other presently existing facts or circumstances which would be reasonably likely
to have a material adverse effect upon the financial condition, results of
operations, business, or prospects of Buyer.
Section 3.7 Full Disclosure. None of the information
concerning Buyer contained in this Agreement and the schedules hereto, or in any
of the lists, documents or instruments attached hereto or to be delivered by or
on behalf of Buyer as contemplated by a provision of this Agreement, or in any
of the applications or documents to be filed with governmental agencies in
connection with obtaining requisite approvals for the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary to make the statements
contained herein or therein, taken as a whole with all other such lists,
documents, instruments or other information so furnished in light of the
circumstances in which they are made, not misleading.
Section 3.8 Buyer's Financial Statements. Buyer has delivered
or will deliver to GSI copies of the statements of financial condition of Buyer
as of December 31, 1997, and as of December 31, 1998, and the related statements
of operations, changes in equity and cash flows for the six months period ending
December 31, 1997, and the year ended December 31, 1998, in each case
accompanied by the audit report of KPMG, LLP. The statements of financial
condition of Buyer referred to herein (including the related notes, where
applicable) fairly present the results of the operations, changes in equity and
cash flows of Buyer for the respective periods or as of the respective dates set
forth therein, in each case in conformity with generally accepted accounting
principles ("GAAP") consistently applied.
<PAGE>
Section 3.9 Compliance with Laws.
3.9.1 To the knowledge of Buyer, it is in compliance
with all laws, rules, regulations, reporting and licensing
requirements, and orders applicable to its business or employees
conducting its business (including, but not limited to, those relating
to consumer disclosure and currency transaction reporting) the breach
or violation of which would reasonably be expected to have a material
adverse effect on the financial condition or operations of Buyer; and
3.9.2 Buyer is not a party to any cease and desist
order, written agreement or memorandum of understanding with, or a
party to any commitment letter or similar undertaking to, or is subject
to any order to, directive by, or is a recipient of any extraordinary
supervisory letter from, or has adopted any board resolutions at the
request of, federal or state governmental authorities (the "Regulatory
Authorities") charged with the supervision or regulation of the
operations of any of them nor has it been advised by any such
government authority that it is contemplating issuing or requesting (or
is considering the appropriateness of issuing or requesting) any such
order, directive, written agreement, memorandum or understanding,
extraordinary supervisory letter, commitment letter, board resolutions
or similar undertaking.
Section 3.10 Delays. Buyer is not aware of any matter that
could cause a delay in receiving the approval required by this Agreement.
Section 3.11 Year 2000 Compliance. To the knowledge of Buyer,
Buyer has taken all reasonable steps necessary to address the software,
accounting and record keeping issues raised in order for the data processing
systems used in the banking business conducted by Buyer to be substantially Year
2000 compliant on or before the end of 1999 and, except as may be set forth on
Exhibit 3.11 hereto, which is attached hereto and by this reference made an
integral part hereof, Buyer does not expect its future cost of addressing such
Year 2000 issues to be material.
ARTICLE IV
FURTHER COVENANTS AND AGREEMENTS OF THE PARTIES
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Section 4.1 Conduct of Business. GSI and Guthrie Bank,
respectively, warrant and covenant to Buyer that, between the date of this
Agreement, and the Closing Date, the business of GSI and of Guthrie Bank,
respectively, shall (except with the prior written approval of Buyer), be
conducted in accordance with the following provisions:
4.1.1 Except as contemplated by this Agreement,
neither GSI nor Guthrie Bank, respectively, shall engage in any
transaction or incur any obligations except in the Ordinary Course of
Business consistent with good corporate and banking practices. GSI and
Guthrie Bank, respectively, shall each use its best efforts to maintain
in effect all approvals, licenses and authorizations from all federal
and state regulatory bodies and
<PAGE>
officials and all other rights, approvals and consents required to
carry on their respective business as now being conducted by each of
them.
4.1.2 GSI and Guthrie Bank shall each use its
respective best efforts to maintain and preserve its respective
business organization intact (including, to the extent consistent with
good business practice under the circumstances, the retention of its
respective employees) and maintain its relationships and goodwill with
deposit account holders, borrowers, employees and others having
business relationships with either GSI or Guthrie Bank, respectively,
so that they will be preserved for Buyer on and after the Closing Date.
4.1.3 Each of GSI and Guthrie Bank, respectively,
shall be maintained at all times as a corporation or federal savings
bank, as the case may be, duly organized, validly existing and in good
standing and shall be qualified to conduct its business as now being
conducted in accordance with all applicable laws.
4.1.4 Each of GSI and Guthrie Bank, respectively,
shall take all steps reasonably necessary to maintain in force all of
its respective existing casualty, liability and other insurance
policies and fidelity bonds with respect to its respective business,
properties, employees and agents, or replace them with substantially
similar policies and bonds providing substantially the same coverage.
4.1.5 Neither GSI nor Guthrie Bank, respectively,
shall make any change in their respective methods of accounting or in
their respective applications of generally accepted accounting
principles from the methods consistently applied throughout the periods
covered by the Financial Statements referred to in Section 2.5 of this
Agreement, except for changes required by changes in generally accepted
accounting principles and changes in applicable regulatory
requirements.
4.1.6 Each of GSI and Guthrie Bank, respectively,
shall, at their sole cost and expense, maintain all of their respective
properties in their respective present repair, order and condition,
ordinary wear and tear excepted.
4.1.7 Neither GSI nor Guthrie Bank, respectively,
shall (i) amend its respective Certificate of Incorporation, Charter or
Bylaws, as the case may be, except as specified herein, or as consented
to in advance by Buyer, (ii) or merge or consolidate with or into any
other corporation, (iii) effect any stock split, or change in any
manner the rights of the holders of its capital stock or the character
of its business or (iv) elect any additional directors or officers.
4.1.8 Neither GSI nor Guthrie Bank, respectively,
shall redeem or issue any of their respective securities or enter into
any agreement providing for or granting any option, warrant, call,
commitment or any agreement of any character relating to the purchase,
sale, redemption or issuance of the respective securities of GSI or
Guthrie Bank, nor shall GSI or Guthrie Bank, respectively, declare or
pay any cash or stock
<PAGE>
dividends on any of their respective shares of issued and outstanding
capital stock; except that GSI shall be expressly authorized to declare
a dividend in the amount, at the time and subject to the terms and
conditions imposed on such dividend by the express provisions of
Section 1.1.1 (iv) above.
4.1.9 Neither GSI nor Guthrie Bank, respectively,
shall take any action or omit to take any action which, to their
respective knowledge, will cause a material breach of any of their
respective contracts, commitments or obligations, including, but not
limited to, their respective obligations under this Agreement.
4.1.10 Neither GSI nor Guthrie Bank, respectively,
will (i) grant any increase in compensation or pay any bonus to any of
their respective officers or other employees except as expressly
provided in the Sellers' 1999 schedule of employee salary increases,
and cash bonuses, a true and complete copy of which has been provided
by Sellers to Buyer before the execution of this Agreement and is
attached hereto as Exhibit 4.1.10 to this Agreement and by this
reference made an integral part hereof, and/or except as provided for
by contracts in existence as of the date of this Agreement (the cash
bonuses to be granted by Sellers to Sellers' employees prior to the
Effective Time shall not exceed the sum of $10,000, in the aggregate,
as reflected on Exhibit 4.1.10 attached hereto); or (ii) enter into,
amend or alter any bonus, incentive compensation, profit sharing, stock
purchase, stock option, retirement, pension, group insurance, death
benefit or other fringe benefit, arrangement or trust agreement for the
benefit of officers or other employees of either GSI or Guthrie Bank,
respectively, or any employment or consulting agreement thereof, other
than any actions needed to be taken to terminate or modify such
agreements in accordance with the requirements of this Agreement; or
(iii) increase the staff of either GSI or Guthrie Bank, respectively,
or (iv) pay any deferred compensation or any other payments to any of
the respective directors, officers or employees of either GSI or
Guthrie Bank; except for the regular board meeting fees payable to
Directors and Guthrie Bank or the other compensation payable to
officers or employees of GSI or Guthrie Bank in the Ordinary Course of
Business.
4.1.11 Each of GSI and Guthrie Bank shall exercise
good faith and use their respective best efforts to duly comply with
all laws and regulations applicable to them and to the conduct of their
business, including the Community Reinvestment Act, and all applicable
anti-discrimination statutes and regulations regarding employment
practices and the extension or denial of credit. Each of GSI and
Guthrie Bank, shall file all tax returns and pay all taxes required of
them and shall not extend or agree to the extension of any statutes of
limitations with regard to such tax returns or tax liabilities.
4.1.12 Without limiting any of the foregoing
covenants, each of GSI and Guthrie Bank shall conduct its respective
business and affairs until the Closing hereunder in such manner that
all of the representations and warranties contained in Article II of
this Agreement required to be true at such time shall be true at such
time, and so that all its agreements and conditions contained in this
Agreement required to be performed by such time are so performed.
<PAGE>
4.1.13 Neither GSI nor Guthrie Bank, respectively,
shall (i) incur or guarantee any additional borrowings of any person or
(ii) pledge any of their assets, except, in each such case in the
Ordinary Course of Business and consistent with current business
practice, and good corporate and banking practices.
4.1.14 Neither GSI nor Guthrie Bank shall purchase,
or sell, or contract to sell any of their respective assets except in
the Ordinary Course of Business, consistent with their current business
practice.
4.1.15 Between the date of this Agreement and the
Closing Date, neither GSI nor Guthrie Bank, respectively, shall take
any of the actions, or allow any of the changes or matters to transpire
which are set forth above in Section 2.11 of this Agreement.
Section 4.2 Access and Information.
4.2.1 Consistent with applicable law, each of GSI and
Guthrie Bank, respectively, will permit Buyer, through its designated
agents, accountants, counsel, auditors, and other representatives
(collectively referred to as "Agents") to make or cause to be made such
investigation of the business, properties and personnel of each of GSI
and Guthrie Bank, respectively, as Buyer may reasonably deem necessary
or advisable prior to the Closing under the circumstances (other than
Sellers' internal documents and correspondence related solely to this
Agreement and/or protected by the attorney/client privilege as to the
Acquisition only). The Buyer and its Agents shall, at all reasonable
times and with reasonable notice given to GSI and Guthrie Bank, as the
case may be, without unduly interfering with the normal business
operations of GSI or Guthrie Bank, respectively, have full access to
their respective premises and to all of the respective properties,
books, contracts, commitments, and records of GSI or Guthrie Bank. GSI
and Guthrie Bank, respectively, shall, and each shall also authorize
and direct its respective agents, auditors, accountants, and counsel,
to fully cooperate with Buyer and its Agents in making available to
them all financial and other information requested, including, without
limitation, providing them with the right to examine all working papers
pertaining to audits made and to make copies and extracts thereof, and
full and complete access to all information concerning any litigation
in which any of them is currently involved. GSI and Guthrie Bank,
respectively, agree to cause to be delivered to Buyer or to make
available to Buyer to the extent such documents or information exists,
or are in their possession or control, all of the items pertaining to
each of GSI or Guthrie Bank, respectively, if any, as are set forth and
listed by Buyer on Exhibit 4.2.1 to this Agreement. Sellers shall not
be required to provide access to or to disclose information where such
access or disclosure would violate or prejudice the rights of any
customer, or would contravene any law, rule, regulation, order or
judgment to which Sellers are expressly subject. No investigation by or
on behalf of Buyer under this Section 4.2 or otherwise will affect any
of the representations and warranties of either GSI or Guthrie Bank,
respectively, as contained in this Agreement.
<PAGE>
4.2.2 Until the Closing, each of the Parties hereto
and their respective employees, agents, accountants, counsel, auditors
and other representatives shall keep confidential any information
(unless readily ascertainable from public information or sources)
obtained from the other party, except as may be required to be
disclosed to regulatory authorities, or in any requisite SEC filings,
or to the public, or to LFC's, Buyer's or GSI's shareholders,
respectively, in proxy and related materials. If this Agreement is
terminated, promptly after such termination all documents, working
papers or other written material obtained by one party from the other
party in connection with this Agreement shall be returned to the party
that provided such material and all additional copies thereof shall be
destroyed by the non-providing party and the parties shall comply with
all the provisions of section 8.1.1 of this Agreement, below,
concerning the treatment of Confidential Information.
4.2.3 Commencing with the date of this Agreement and
continuing until the first to occur of the Closing Date or the
termination of this Agreement in accordance with the terms and
provisions hereof, each of GSI and Guthrie Bank, as the case may be,
shall promptly advise Buyer in writing of any matter relating to its
respective financial condition, operations, assets, liabilities or
business which arises or is discovered after the date of this
Agreement, and which if existing or known on the date hereof would have
been required to be set forth and described herein or in one of the
Exhibits to this Agreement.
Section 4.3 Cooperation. The Parties hereto shall cooperate
with each other in every way in carrying out the transactions contemplated
hereby, in obtaining all required regulatory and any other approvals and
authorizations therefor, and in executing and delivering all documents,
instruments or copies thereof deemed necessary or useful by either party hereto.
Buyer shall, at its sole cost and expense, promptly prepare and file such
regulatory applications as are necessary to secure all federal and state
approvals necessary to effectuate the transactions contemplated herein and GSI
and Guthrie Bank, respectively, shall each assist Buyer with respect to any
necessary applications to be filed with the OCC, the OTS, the FRB and the FDIC,
respectively, provided, that the preparation and expense of all such
applications shall be the sole responsibility of Buyer. Each party shall have
the right to review and approve in advance all characterizations of the
information relating to it and made by the other party which appear in any
filing made in connection with the transactions contemplated by this Agreement.
Section 4.4 Buyer to Have No Control of GSI or Guthrie Bank
Prior to the Closing Date. Prior to the Closing Date, Buyer will not control or
attempt to exercise any control (as that term is defined in the Bank Control
Act) of the respective business or affairs of either GSI or Guthrie Bank. Prior
to the Closing Date, the management and policy control of GSI and Guthrie Bank
will each reside solely in its respective officers and directors and the
election of its respective directors shall be solely the affair of their
respective shareholders.
Section 4.5 Employees and Benefits. All employees of GSI and
of Guthrie Bank, respectively, will, upon the Closing Date, continue as the
respective employees of GSI and of Guthrie Bank, but the continuation of said
employment thereafter shall be within the sole and
<PAGE>
absolute discretion of the officers and directors of Buyer, except to the extent
otherwise specifically provided in this Agreement.
Section 4.6 Agreement Not to Negotiate. As a material
inducement to cause Buyer to enter into this Agreement, Sellers (subject to the
exercise of their fiduciary duties as advised by their counsel) hereby agree
that during the term of this Agreement they will not, either themselves, itself,
or through their, or its respective officers, directors, employees, agents,
accountants, counsel, representatives or others, (i) solicit any other
acquisition proposals, engage in any discussions concerning, or negotiate with
other persons or entities regarding, any other acquisition proposals, whether
formally or informally, or (ii) provide (except as may be required by law) any
non-public information documents or materials to any person or entity (other
than Buyer), or its agents, in connection with such proposals. If either of GSI
or Guthrie Bank, respectively, violates this Section 4.6 in any respect, then,
and in such event, Buyer shall be entitled to immediately seek the specific
performance of this Agreement and GSI and Guthrie Bank each specifically
acknowledge and agree that, then, and in such event, such equitable remedy will
be necessary and appropriate for Buyer to seek and that in such event a legal
remedy of damages would not be adequate to compensate Buyer for such a breach of
this Agreement.
Section 4.7 Alternative Structure. Notwithstanding any
provision of this Agreement to the contrary, Buyer may, with the written consent
of GSI, which consent shall not be unreasonably withheld or denied, elect,
subject to the filing of all necessary applications and the receipt of all
required regulatory approvals, to modify the structure of the acquisition of GSI
and Guthrie Bank set forth herein; provided that (i) the federal income tax
consequences of any transactions created by such modification shall not be
changed, (ii) the consideration to be paid to the GSI Shareholders is not
thereby changed in kind or reduced in amount as a result of such modification,
and (iii) such modification will not materially delay or jeopardize receipt of
any required regulatory approvals or any other conditions to the obligations of
Buyer as set forth in Article V of this Agreement below.
Section 4.8 Environmental Audits of All Real Property Owned
During Last Five Years. GSI and Guthrie Bank covenant and agree, at the
direction and control of Buyer, at Buyer's sole cost and expense, to obtain, as
expeditiously as possible, Phase I Environmental Audits of all parcels of real
property which either GSI or Guthrie Bank now own or have owned at any time
during the five (5) year period of time immediately preceding the date this
Agreement is fully executed by the Parties. Within fifteen (15) days after the
execution of this Agreement, GSI and Guthrie Bank will provide a list and
adequate legal descriptions of all such parcels of real property so owned by
them to Buyer and shall fully cooperate and assist the environmental consultants
selected by Buyer in performing such audits and in facilitating the prompt
completion thereof. If any of the Phase I Environmental Audits recommend the
conducting of a Phase II Environmental Audit of any such parcel of real property
owned or formerly owned by GSI or Guthrie Bank then, and in such event, the
Phase II Environmental Audits shall be conducted by Buyer's environmental
consultants, as expeditiously as possible, at the sole cost and expense of
Buyer. Complete copies of all such Phase I and Phase II Environmental Audits so
obtained shall be provided to GSI and to Buyer as soon as they are available,
subject to the confidentiality provisions of this Agreement.
<PAGE>
Section 4.9 Termination of the Benefit Plans. Each participant
in the Guthrie Bank ESOP who is not fully vested on the Closing Date will, in
accordance with the existing terms of the Guthrie Bank ESOP, become fully vested
in his or her respective Guthrie Bank ESOP account as of the Effective Time. GSI
and Guthrie Bank shall, at their sole cost and expense, take all necessary and
appropriate actions to cause all of the Benefit Plans, i.e., the Guthrie Bank
ESOP, the Guthrie Bank 401(k) Plan and the Guthrie Bank Management Stock Bonus
Plan, each of which are described and defined in Sections 1.14.12, 1.14.13 and
1.14.14, above, respectively, to be completely terminated on the Closing Date,
or as soon thereafter as possible, in order that each of them will not have any
continuing existence insofar as GSI, Guthrie Bank or Buyer is concerned and
neither GSI, Guthrie Bank nor Buyer shall have any further or future liability
or responsibility for any of the Benefit Plans from and after the Closing Date.
The termination of each of the Benefit Plans shall be done in a manner complying
with all provisions of the applicable laws and regulations and with the express
terms and conditions of each of the Benefit Plans themselves. All funds to be
paid by Buyer to the Guthrie Bank ESOP on the Closing Date to purchase all of
the Common Stock owned by the Guthrie ESOP on the Closing Date, shall be held or
distributed by the Trustees of the Guthrie Bank ESOP, as expeditiously as
possible, in a manner fully complying with all applicable laws and regulations
and the express terms of the Guthrie Bank ESOP, subject to the requirement in
Section 1.14.16, above, that the Trustees of the Guthrie Bank ESOP cause the
Guthrie Bank ESOP to pay in full the then remaining balance of the ESOP Note to
GSI, or Guthrie Bank, as the case may be, on the Closing Date (the ESOP Note has
a balance of $226,655.00 as of the date of this Agreement). Upon repayment of
the Guthrie Bank ESOP Note, the assets of the Guthrie Bank ESOP will be
allocated in accordance with the terms of the Guthrie Bank ESOP. GSI, Guthrie
Bank and the Directors, respectively, hereby covenant and agree to take all
actions necessary to terminate each of the Benefit Plans in accordance with the
terms and provisions of this Section 4.9 and to provide to Buyer on the Closing
Date evidence satisfactory to Buyer that each of the Benefit Plans has been, or
will expeditiously be, properly terminated and that neither Buyer, GSI nor
Guthrie Bank will have any continuing liability or responsibility for operation
and maintenance of any of the Benefit Plans from and after the Closing Date.
Section 4.10 Filings, Notices and Financial Statements. During
the period commencing on the date hereof and ending on the Closing Date, Buyer
shall provide to Sellers and Sellers shall provide to Buyer copies of all
filings made by either Buyer or Seller, respectively, as the case may be, on or
after the date hereof with the FRB, OTS, OCC and/or FDIC and any other federal
or state regulatory agency which has authority to regulate Sellers or Buyer or
any of their respective subsidiaries within three (3) business days following
any such filing.
Section 4.11 Termination of Computer Servicing Agreement with
BISYS, INC. On or before June 1, 1999, Guthrie Bank will provide written notice
to BISYS, INC. ("BISYS") of its intent to completely terminate and discontinue,
effective as of December 31, 1999, all data processing and other services
currently being provided to Guthrie Bank under the terms and conditions of that
certain Computer Servicing Agreement originally entered into by and between
Guthrie Bank and COMAC Joint Venture dated January 1, 1985 ("BISYS Agreement"),
as subsequently assigned to BISYS by COMAC Joint Venture and assumed by
<PAGE>
BISYS, with Guthrie Bank's consent by virtue of that certain Acknowledgment and
Assignment executed and delivered by COMAC Financial Systems, Inc. (The assignee
of COMAC Joint Venture), BISYS and Guthrie Bank dated September 8, 1992 ("BISYS
Assignment"). Guthrie Bank has delivered to Buyer prior to the date of this
Agreement, true, complete and correct copies of the BISYS Agreement and the
BISYS Assignment, together with any and all amendments and modifications
thereto. The written notice of termination of the BISYS Agreement, effective
December 31, 1999, to be given by Guthrie Bank on or before June 1, 1999,
pursuant to this Section 4.11 shall be in form and substance acceptable to
Buyer.
Section 4.12 Modification of Ochs and Warner Employment
Agreements. Sellers agree to use their best efforts to obtain and provide to
Buyer, on or before the Closing Date, from Ochs and Warner a written
cancellation, release and surrender (in form and substance satisfactory to
Buyer) of those certain Change in Control Severance Agreements, each dated
February 11, 1997, by and between GSI and Ochs and Warner, respectively, such
that such agreements shall cease, terminate, be of no further force and effect
and impose absolutely no obligations or liabilities on either GSI or Buyer from
and after the Closing Date. In addition, Guthrie Bank will use its best efforts
to execute and enter into written modifications or amendments to the Ochs
Employment Agreement and the Warner Employment Agreement, respectively, which
will amend those employment agreements to delete in their entirety therefrom the
provisions of Section 12(b)(ii) and (v) thereof, with all other provisions of
the Ochs and Warner Employment Agreements to remain in full force and effect as
originally stated. The said amendments to the Ochs and Warner Employment
Agreements shall be in form and substance satisfactory to Buyer.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF BUYER TO CLOSE
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The obligations of Buyer to complete and consummate the
transactions provided for in this Agreement shall be subject to the complete
satisfaction, on or prior to the Closing Date, of each of the following
conditions precedent, provided that any such condition (other than those set
forth in Section 5.1 below) may be waived by Buyer in writing.
Section 5.1 Regulatory Approvals. To the extent required by
applicable law and regulations, (i) all applicable state and federal regulatory
authorities having jurisdiction over the approval of this transaction, to
include, without limitation, the OCC, the FDIC, the FRB and the OTS, shall have
approved this Agreement and the transactions contemplated by this Agreement
without the imposition of any condition or conditions which in the reasonable
opinion of the Buyer, are unduly burdensome; (ii) all required notices have been
published and all applicable waiting periods, including those under the Hart
Scott Rodino Act, if applicable, have expired.
<PAGE>
Section 5.2 Performance of Agreements. Each of the Sellers
shall have performed all of their respective conditions, duties and obligations
contained in this Agreement required to be performed by each of them prior to
the Closing and specifically shall have obtained (i) the resolution of the Board
of Directors authorizing and approving this Agreement and submitting it to a
vote of the GSI Shareholders for approval, and (ii) the valid approval by a
majority of the Shares of Common Stock owned by the GSI Shareholders of this
Agreement and of the Acquisition, as expeditiously as possible after the date
this Agreement is fully executed by the Parties, in a manner sufficient to cause
the provisions of 18 O.S. 1991, ss.1090.1 to be applicable to this Agreement and
the Acquisition for all purposes, and shall have provided evidence to Buyer, in
form reasonably satisfactory to Buyer, that such requisite Board of Directors'
and GSI Shareholders' approvals have been properly obtained. In addition, GSI
shall have evidenced, or be able to evidence to Buyer on the Closing Date, that
each of the Benefit Plans will be on the Closing Date, or as expeditiously as
possible thereafter, completely terminated in accordance with the requirements
of Sections 1.14.12, 1.14.13 and 1.14.14, respectively, and of Section 4.9 of
this Agreement, above. Each of the Directors shall be prepared to transfer and
convey to Buyer all of the Shares and Stock Options which they own on the
Closing Date in the manner required by this Agreement.
Section 5.3 Continued Accuracy of Representations and
Warranties. The representations and warranties of GSI and of Guthrie Bank
(considered individually and collectively) contained in Article II of this
Agreement must have been accurate in all material respects as of the date of the
execution of this Agreement and must be accurate in all material respects on and
as of the Closing Date with the same effect as if made on that date, without
giving effect to any supplement made to the Exhibits to this Agreement after the
date of the execution of this Agreement.
Section 5.4 Delivery of Closing Certificate by GSI and Guthrie
Bank. Buyer shall have received a certificate, dated the Closing Date, in form
satisfactory to Buyer, of GSI and Guthrie Bank, respectively, executed on behalf
of GSI by its President and on behalf of Guthrie Bank by its President and by
its Chief Financial Officer, certifying to (i) the Purchase Price, less any and
all deductions, and (ii) to the satisfaction of the conditions set forth in
Sections 5.2, 5.3, 5.5, 5.9 and 5.10 of this Article V to the best of the
signers' knowledge (the "GSI Closing Certificate").
Section 5.5 Absence of Material Adverse Changes. There shall
have been no material adverse change in the business, assets, prospects or
financial condition of GSI and its subsidiary bank, Guthrie Bank, taken as a
whole since December 31, 1998 (which will include, without limitation, the
resignations of more than two (2) of their key executive employees, i.e., Vice
President or above of Guthrie Bank, from their employment, or such key executive
employees giving clear indication to Buyer, GSI or Guthrie Bank that they intend
to resign from such employment, on or before the Closing Date or shortly
thereafter, in anticipation of, or as a result of, the consummation of the
Acquisition), other than changes which are the result of changes in laws or
regulations or other factors affecting banking institutions, in general, and
except for changes not prohibited by this Agreement.
<PAGE>
Section 5.6 Opinion of Counsel of GSI and Guthrie Bank. Buyer
shall have received from counsel for GSI and Guthrie Bank an opinion of counsel,
dated the Closing Date, in the form and substance set forth in Exhibit 1.14.9 to
this Agreement. In rendering such opinion, counsel for GSI and Guthrie Bank may
rely upon the opinion of qualified counsel, upon certificates of government
officials and officers of GSI and Guthrie Bank, respectively, provided that such
counsel states that such counsel reasonably believes that such counsel and Buyer
may justifiably rely upon such other opinions and the accuracy of such
certificates, and provided further that such other opinions and certificates are
delivered to Buyer concurrently with such counsel's opinion.
Section 5.7 Report of Pension Benefit Consultants Retained by
Buyer as to Each of the Benefit Plans. Buyer shall have received the evaluation
and report of the pension benefit consultants of Buyer's choosing, addressed to
GSI and Buyer, in form and substance satisfactory to Buyer, opining or finding
that each of the Benefit Plans was properly and validly established, has been
and is qualified as an employee benefit plan by the Internal Revenue Service,
has been properly operated and maintained by GSI and Guthrie Bank until the
Closing Date and is being properly terminated by GSI or Guthrie Bank, as the
case may be, on the Closing Date, or as expeditiously thereafter as possible, in
accordance with all applicable laws and regulations and the express terms and
provisions of each of the Benefit Plans, and that such consultants, do not know,
or have any reason to know, of any materially adverse tax consequences or other
liabilities that may be incurred by GSI, Guthrie Bank or Buyer, respectively, by
reason of the operation, maintenance and termination of any of the Benefit Plans
(other than (i) any amounts reflected for any such liabilities on the Financial
Statements of GSI and Guthrie Bank; (ii) any amounts ordinarily and customarily
<PAGE>
incurred with regard to the termination of such plans; and (iii) any amounts
disclosed b Sellers to Buyer on Exhibit 5.7, which is attached hereto and by
this reference made an integral part hereof).
Section 5.8 Environmental Audits Do Not Disclose the Existence
of a Significant Hazardous Materials Problem. None of the Phase I or Phase II
Environmental Audits to be obtained by GSI and Guthrie Bank and provided to
Buyer pursuant to the requirements of Section 4.9, above, reveals the presence
of Hazardous Materials, as defined above, or the violation of any Environmental
Laws, as defined above, with regard to any of the real property owned by GSI or
Guthrie Bank now, or in the immediately preceding five (5) year period of time,
which would, in the reasonable opinion of Buyer, impose a material liability, or
a material potential liability (legal or economic) to Buyer if the Acquisition
was to be consummated.
Section 5.9 Absence of Litigation. There shall not be pending
any action in any court of competent jurisdiction seeking to enjoin consummation
of the transactions contemplated by this Agreement, or any action which, in the
opinion of counsel for Buyer, after an independent review of readily available
facts and applicable law, poses a significant risk of resulting in the
divestiture by Buyer of GSI or Guthrie Bank, or any material portion of the
assets of either GSI or Guthrie Bank, respectively, or otherwise threatens to
materially impair the value of the assets of either GSI or Guthrie Bank,
respectively, or poses the possible assessment of significant damages against or
the imposition of any other materially adverse consequences upon GSI or Guthrie
Bank.
Section 5.10 Third Party Consents. GSI and Guthrie Bank,
respectively, as the case may be, shall have received the consent of all third
parties who are subject to agreements with any of them and which agreement
requires or purports to require the consent of the other or another party
thereto to the transactions contemplated by this Agreement.
Section 5.11 Resignation of Directors and Officers. Buyer
shall have received currently dated original, written resignations from all of
the current Directors and officers of GSI and Guthrie Bank, respectively
(effective on the Closing Date).
Section 5.12 Executive Officers' and Directors' Releases.
Buyer shall have received the currently dated original Releases, in the form and
substance set forth in Exhibit 1.13.10 to this Agreement, from each of the
executive officers and each of the Directors of GSI and Guthrie Bank,
respectively.
<PAGE>
ARTICLE VI
CONDITIONS TO OBLIGATIONS
OF GSI AND GUTHRIE BANK
-----------------------
The obligations of GSI and Guthrie Bank to complete the
transactions provided for in this Agreement shall be subject to the
satisfaction, at or prior to the Closing Date, of each of the following
conditions precedent by Buyer, provided that any such condition (other than
those set forth in Section 6.3 below) may be waived by GSI or Guthrie Bank in
writing.
Section 6.1 Performance of Agreements. Buyer shall have
performed all conditions, duties and obligations contained in this Agreement
required to be performed by it prior to the Closing Date, and shall be prepared
to pay the Purchase Price, in full, to all of the GSI Shareholders and all of
the Stock Option Holders on the Closing Date.
Section 6.2 Continued Accuracy of Representations and
Warranties. The representations and warranties of Buyer contained in Article III
of this Agreement shall, be true and correct in all material respects on and as
of the Closing Date with the same effect as if made on that date.
Section 6.3 Regulatory Approvals. To the extent required by
applicable law and regulations, all applicable federal and state regulatory
authorities, if any, to include, without limitation, the OCC, the FDIC, the FRB
and the OTS, shall have approved this Agreement and the transactions
contemplated by this Agreement, without the imposition of any condition or
conditions which in the reasonable opinion of GSI are unduly burdensome and all
applicable waiting periods have expired and all required notices have been
published.
Section 6.4 Delivery of Buyer's Closing Certificate. GSI and
Guthrie Bank shall have received a certificate, dated the Closing Date, of
Buyer's President, certifying to (i) the Closing Date and the Effective Time;
(ii) the Purchase Price, less any and all deductions; and (iii) to the
satisfaction of the conditions set forth in Sections 6.1, 6.2 and 6.5 of this
Article VI to the best of the signer's knowledge (the "Buyer's Closing
Certificate").
Section 6.5 Absence of Litigation. There shall be no pending
or threatened litigation or administrative proceeding seeking to restrain,
prevent, rescind or change the terms of the transaction contemplated by this
Agreement or to obtain damages in connection therewith or any preliminary
injunction restraining such transactions.
Section 6.6 Approval of Acquisition by GSI Shareholders. The
valid approval of this Agreement and of the Acquisition has been made by a
majority of the Shares of Common Stock owned by the GSI Shareholders in the
manner required by 18 O.S. 1991 ss. 1090.1, and by the applicable provisions of
GSI's Certificate of Incorporation and By-Laws.
Section 6.7 Opinion of Counsel of Buyer. Sellers shall receive
from
<PAGE>
counsel for Buyer an opinion of counsel, dated the Closing Date, substantially
in the form set forth in Exhibit 1.13.6 to this Agreement. In rendering such
opinion, counsel for Buyer may rely upon the opinion of qualified counsel, upon
certificates of government officials and officers of Buyer, provided that such
counsel states that such counsel reasonably believes that such counsel and
Sellers may justifiably rely upon such other opinions and the accuracy of such
certificates, and provided further that such other opinions and certificates are
delivered to Sellers concurrently with such counsel's opinion.
Section 6.8 Fairness Opinion. GSI shall have received an
opinion from Hovde dated no more than three (3) days prior to the date the proxy
statement pertaining to the shareholder meeting to be held to vote on the
Acquisition is mailed to the GSI Shareholders (and if it becomes necessary to
resolicit proxies thereafter, dated no more than three (3) days prior to the
date of any substantive amendment to that proxy statement), to the effect that,
in Hovde's opinion, the consideration to be paid to the GSI Shareholders under
this Agreement for the Acquisition of their Shares is fair to them from a
financial point of view ("Hovde Fairness Opinion").
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER; REMEDIES
-------------------------------------------
Section 7.1 Termination by Mutual Consent. This Agreement may
be terminated prior to the Closing Date by the mutual written consent of the
Buyer and GSI.
Section 7.2 Termination by Any Party. This Agreement may be
terminated by either GSI or Buyer after (i) receipt of written notice of final
denial by any regulatory authority having jurisdiction of the transactions
contemplated hereby, or (ii) if a vote of the GSI Shareholders is taken and GSI
Shareholders possessing a majority of the issued and outstanding stock of GSI
fail to vote to approve the Acquisition at the meeting held for that purpose (or
any adjournment or postponement thereof) in accordance with the requirements of
18 O.S. 1991, ss. 1090.1.
Section 7.3 Termination by Buyer. Buyer may terminate this
Agreement by giving written notice to GSI (i) if any condition in Article V
hereof which must be fulfilled shall not have been fulfilled on or before the
date specified for the fulfillment thereof; provided, however, that such notice
shall include a statement of the grounds thereof and GSI shall have twenty (20)
days thereafter to cure the events or conditions cited in such notice (to the
extent curable) and if GSI cures the events or conditions giving the rise to
such grounds to the satisfaction of Buyer, Buyer shall not have any right to
terminate this Agreement based upon such specified events or conditions. If
Buyer does elect to terminate this Agreement, pursuant to this provision, and
GSI is unable to timely cure such default or breach within the said twenty (20)
day period, then, in such event, this Agreement shall be null, void and of no
further force and effect and none of the Parties hereto shall have any further
rights, duties or liabilities hereunder unless otherwise expressly provided in
this Agreement, except as otherwise specifically provided by Sections 4.2.2,
8.1.1, 8.1.2 or 7.9 of this Agreement.
<PAGE>
Section 7.4 Termination by GSI. GSI may terminate this
Agreement by giving written notice to Buyer if any condition in Article VI
hereof which must be fulfilled before GSI is obligated to consummate the
transactions contemplated hereby shall not have been fulfilled on or before the
date specified for the fulfillment thereof; provided, however, that such notice
shall include a statement of the grounds thereof and Buyer shall have twenty
(20) days thereafter to cure the events or conditions cited in such notice (to
the extent curable) and if Buyer cures the events or conditions giving rise to
such grounds, GSI shall not have any right to terminate this Agreement based
upon such events or conditions. If GSI does elect to terminate this Agreement,
pursuant to this Section, and Buyer is unable to timely cure its breach or
default within said twenty (20) day period of time, then, and in such event,
this Agreement shall be null, void and of no further force and effect, and none
of the Parties hereto shall have any further rights, duties or liabilities
hereunder, except as otherwise specifically provided by Sections 4.2.2, 8.1.1,
8.1.2, or 7.8 of this Agreement, or by the Escrow Agreement.
Section 7.5 Termination by Expiration. If the transactions
contemplated by this Agreement have not been consummated prior to December 31,
1999, any Party hereto may elect to terminate this Agreement by giving written
notice to the other Party hereto; provided that this right to terminate shall
not be available to any Party hereto whose failure to perform an obligation
under the Agreement has been the cause of, or has resulted in, the failure of
the transactions contemplated herein to be consummated by December 31, 1999.
Section 7.6 Amendment. This Agreement may be amended or
modified in whole or in part at any time by an agreement in writing executed by
all of the Parties hereto.
Section 7.7 Waiver. At any time prior to the Closing Date, any
of the Parties to this Agreement may, on their own respective behalf:
7.7.1 waive any inaccuracies in the representations
and warranties by the other Party contained herein or in any document
delivered by the other Party pursuant hereto; or
7.7.2 waive compliance by the other Party with the
covenants, agreements or conditions contained herein.
Any agreement to such waiver shall be valid only if set forth
in an instrument in writing executed by a duly authorized officer or
representative of the Party granting such waiver.
Section 7.8 Remedies Upon Buyer's Failure or Refusal to
Consummate the
<PAGE>
Acquisition. In the event of the failure or refusal of Buyer to consummate the
Acquisition under this Agreement despite the full satisfaction of all of the
conditions to Buyer's obligations to consummate the Acquisition as set forth in
Article V of the Agreement, other than as a result of a failure or refusal of
the Sellers to comply in some material respect with the terms and conditions of
this Agreement (in addition to Sellers' right to terminate this Agreement in
accordance with Section 7.4, above, in such event), in those circumstances,
Buyer and Sellers agree that Sellers will incur expenses related to the
Acquisition contemplated by this Agreement and that it is extremely difficult
and impracticable to ascertain the extent of the detriment to Sellers caused by
the breach or default by Buyer under this Agreement and the failure on Buyer's
part to consummate the Acquisition contemplated by this Agreement under such
circumstances, or the amount of compensation which Sellers should receive as a
result of Buyer's said failure or refusal to consummate the Acquisition under
the foregoing circumstances. Therefore, Buyer and Sellers do hereby agree that a
reasonable estimate of the total net detriment that Sellers would suffer in the
event that Buyer fails and refuses to consummate the Acquisition under this
Agreement under the circumstances set forth and described in the first sentence
of this section, is and shall be, as Sellers' sole and exclusive remedy under
this Agreement in such event (whether at law or in equity), an amount equal to
the Earnest Money Deposit, which has been paid by the Buyer to the Escrow Agent
pursuant to the terms and provisions of Section 1.11 of this Agreement and the
Escrow Agreement, which said Earnest Money Deposit, in such event, shall be paid
or disbursed to the Sellers by the Escrow Agent in accordance with the specific
terms and conditions of the Escrow Agreement. Said amount of the Earnest Money
Deposit shall be the full, agreed and liquidated damages for the failure or
refusal of the Buyer to consummate the Acquisition under the circumstances
described above in this Section, all other claims to damages or any other
remedies of any kind or nature (legal or equitable) being herein expressly
waived and relinquished by Sellers. The payment of such amount to Sellers as
liquidated damages is not intended as a forfeiture or penalty, but rather is
intended to constitute liquidated damages to Sellers for Buyer's failure or
refusal to consummate the Acquisition under the circumstances described above in
this section. Upon the failure or refusal of the Buyer to consummate the
Acquisition on the grounds described above in this Section, this Agreement shall
be terminated and none of the Parties hereto shall have any further rights or
obligations hereunder, except as otherwise specifically provided by Sections
4.2.2, 8.1.1, 8.1.2 and this Section 7.8 of this Agreement and for the right of
Sellers to collect such liquidated damages in the amount of the Earnest Money
Deposit, plus all interest accrued thereon, from the Escrow Agent, to the extent
not previously disbursed by the Escrow Agent to the Sellers in accordance with
the Escrow Agreement.
Section 7.9 Remedies Upon Sellers' Failure or Refusal to
Consummate the Acquisition. In the event of a failure or refusal of the Sellers
to consummate the Acquisition under this Agreement despite the full satisfaction
of all of the conditions to Sellers' obligations to consummate this Agreement as
set forth in Article VI of the Agreement, other than as a result of a failure or
refusal of the Buyer to comply in some material respect with the terms and
conditions of this Agreement, the Buyer, as its sole and exclusive remedies,
shall be entitled to either (i) terminate this Agreement pursuant to the
provisions of Section 7.3, above, and, in such event, shall receive a prompt
payment or distribution as a refund or return of the Earnest Money Deposit,
together with all interest earned thereon, from the Escrow Agent; or (ii)
enforce specific
<PAGE>
performance of this Agreement, in which event, Sellers agree that such equitable
remedy will be necessary and appropriate for Buyer to seek and that in such
event a legal remedy of damages would not be adequate to compensate Buyer for
such a breach of this Agreement by Sellers under the circumstances described
above in this Section 7.9. However, if a court considering the request for
specific performance determines that both (i) a breach of this Agreement
resulted from the exercise of the fiduciary duties of the board of directors of
Sellers as advised by their counsel in connection with another acquisition
proposal obtained in compliance with Section 4.6 of this Agreement following the
approval of this Agreement by GSI Stockholders and (ii) specific performance
would be inequitable to the GSI Stockholders because of their approval of this
Agreement prior to the Sellers' consideration of another acquisition proposal,
then specific performance will not be required. The foregoing remedies shall be
the sole and exclusive remedies of Buyer in the event of Sellers' failure or
refusal to consummate the Acquisition under the circumstances described above in
this Section, except for those rights and obligations accorded to Buyer by
Sections 4.2.2, 8.1.1, 8.1.2 and this Section 7.9 of this Agreement which shall
specifically survive the termination of this Agreement.
ARTICLE VIII
GENERAL AND MISCELLANEOUS PROVISIONS
------------------------------------
Section 8.1 Confidentiality.
8.1.1 Buyer acknowledges and agrees that the
information to be provided by GSI and Guthrie Bank to Buyer under this
Agreement and with regard to the transactions contemplated by this
Agreement will contain information, reports and financial data which
are confidential in nature and the property of GSI and Guthrie Bank, as
the case may be (the "Confidential Information"). Accordingly, Buyer
agrees that it, and any of its directors, officers, attorneys,
accountants, employees or other agents that are given access to the
Confidential Information, agree to be bound by the terms and provisions
of this Section 8.1 of the Agreement. In consideration of GSI and
Guthrie Bank providing Buyer with the Confidential Information, Buyer
agrees to keep the Confidential Information in strict confidence,
except as otherwise provided by this Agreement, and in order to
maintain its confidentiality, Buyer agrees that it will not use or
allow the use for any purpose of any Confidential Information other
than in connection with preparing, evaluating and performing the
transaction to be consummated pursuant to this Agreement. Buyer will
not disclose or allow disclosure to others of any of the Confidential
Information, except as provided herein and except to officers,
employees, directors, attorneys, accountants or agents of Buyer who are
actively and directly participating in Buyer's work in connection with
the consummation of the transaction contemplated by this Agreement and
Buyer will use its best efforts to cause all such officers, employees,
directors, attorneys, accountants or agents to observe the terms of
this section. Finally, Buyer agrees not to make or allow to be made
copies of any of the Confidential Information except as necessary to
perform the work to be performed by Buyer in conjunction with its
evaluating and consummating the transaction contemplated by this
Agreement.
<PAGE>
8.1.2 The provisions of this Section 8.1 shall be
inoperative as to particular portions of the Confidential Information
if such information (i) becomes generally available to the public other
than as a result of a disclosure by Buyer, its officers, directors,
attorneys, accountants, employees or agents; (ii) was available to
Buyer on a non-confidential basis prior to its disclosure to Buyer by
GSI or Guthrie Bank, or their respective officers, employees,
directors, accountants, counsel, agents, advisors or representatives,
(iii) becomes available to Buyer on a non-confidential basis from a
source other than GSI or Guthrie Bank, or their respective officers,
employees, directors, accountants, counsel, agents, advisors or
representatives, unless Buyer knows, after due inquiry, that such
source is not entitled to make the disclosure of such information to
it; or (iv) is disclosed to the OCC, FRB, OTS or FDIC, or any other
federal or state regulatory authority having jurisdiction over Buyer,
or GSI or Guthrie Bank, upon a proper and valid request being made
therefor by such agency, or by Buyer, or Buyer's affiliate, LFC, or by
GSI, with regard to any required securities filing made by LFC or GSI
with the SEC, the American Stock Exchange, NASDAQ and/or the Oklahoma
Securities Commission or with their respective public shareholders. The
provisions of this Section 8.1 shall be binding upon Buyer and its
directors, officers, employees, accountants, attorneys and agents for a
period of two (2) years from May 1, 1999, or until the Closing Date, if
the transaction contemplated by this Agreement is consummated,
whichever shall first occur. If Buyer is requested by any court or
governmental agency or authority (other than the aforesaid state or
federal regulatory authorities) to disclose any of the Confidential
Information, then it will provide GSI with prompt notice of such
request or requirement. GSI may then either seek appropriate protective
or other injunctive relief from all or part of such request or
requirement or waive the Buyer's compliance with the provisions of this
Section 8.1 pertaining to the Confidential Information so sought with
respect to all or any part of such request or requirement to produce
such Confidential Information. If, after GSI has had a reasonable
opportunity to seek such protective or injunctive relief, GSI has
failed to obtain such relief, and, in the opinion of Buyer's counsel,
Buyer believes it is legally compelled to disclose any of the
Confidential Information to such court, agency, arbitrator or
authority, then Buyer may disclose that portion of the Confidential
Information which its counsel advises it that it is so compelled to
disclose. In no event will Buyer oppose any action by GSI to obtain
injunctive or other appropriate protective relief and/or other reliable
assurance that confidential treatment will be accorded to the
Confidential Information disclosed to such court, agency, arbitrator or
other authority in such instances.
Section 8.2 Entire Agreement. The terms and conditions of this
Agreement (i) constitute the entire agreement and understanding between the
Buyer, GSI and Guthrie Bank; (ii) supersede all prior agreements and
understandings, written or oral, between the Buyer, GSI and Guthrie Bank; and
(iii) may not be modified or amended except by an instrument mutually executed
and delivered by the Buyer, GSI and Guthrie Bank.
Section 8.3 Governing Law. The terms and conditions of this
Agreement shall be governed by and construed in accordance with federal law, to
the extent applicable, and otherwise by the laws and decisions of the State of
Oklahoma.
<PAGE>
Section 8.4 Notices. Any notice or other communication
required or permitted under this Agreement, or convenient to the Buyer, GSI or
Guthrie Bank in the consummation of the transactions contemplated hereby, shall
be deemed delivered when (i) three (3) days after deposited in a receptacle of
the United States Postal Service, as registered or certified mail, return
receipt requested, postage prepaid, (ii) sent by electronic facsimile
transmission (if receipt is verified), (iii) personally delivered, or (iv) one
(1) day after received by an overnight courier service (which obtains a receipt
evidencing delivery) and shall be addressed as follows:
(i) If to the Directors, William L. Cunningham, President
GSI or Guthrie Bank: and Chief Executive Officer
Guthrie Savings, Inc. and
Guthrie Federal Savings Bank
120 North Division Street
Guthrie, Oklahoma 73044-3241
Telephone: (405) 282-2201
Telecopy: (405) 282-8637
with a copy to: Richard Fisch, Esq.
Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 "K" Street, N.W., Suite 700 East
Washington, D.C. 20005
Telephone: (202) 434-4660
Telecopy: (202) 434-4661
(ii) If to Buyer: Edward A. Townsend, Chairman of the Board
of Directors and Chief Executive Officer
Local Oklahoma Bank, F.S.B.
3601 N.W. 63rd Street
Oklahoma City, OK 73116
Telephone: (405) 841-2100
Facsimile: (405) 841-2289
with a copy to: Michael R. Ford, Esq.
Fellers, Snider, Blankenship,
Bailey & Tippens
Bank One Tower
100 N. Broadway, Suite 1700
Oklahoma City, OK 73102-8820
Telephone: (405) 232-0621
Facsimile: (405) 232-9659
Section 8.5 Successors. The terms and conditions hereof shall
be binding upon and inure to the benefit of the respective successors, assigns,
heirs and personal representatives of the Directors, GSI and Guthrie Bank and of
the Buyer.
<PAGE>
Section 8.6 Attorney Fees, Costs and Expenses. Except as
otherwise expressly provided herein, each of the Parties hereto shall pay its
own respective legal and accounting fees and all other expenses and fees
incurred by it in connection with the transactions contemplated by this
Agreement. Should either the Buyer, GSI or Guthrie Bank employ an attorney or
attorneys to enforce any of the terms and conditions hereof, or to protect any
right, title or interest created or evidenced hereby, the non-prevailing party
in any action pursued in courts of competent jurisdiction shall pay to the
prevailing party all reasonable costs, damages, and expenses, including
reasonable attorneys' fees, expended or incurred by the prevailing party.
Section 8.7 Press Releases and Public Statements. No party to
this Agreement shall make, issue or release any public announcement, statement
or acknowledgment of the existence of, or publicly reveal the terms, conditions
or the status of, the transactions provided for herein without first obtaining
the consent to such announcement, statement, acknowledgment, or revelation from
the other Parties hereto, provided, however, that Buyer, or its affiliates, or
GSI, may make any such release or announcement which, in the opinion of counsel
for the Buyer or GSI, respectively, is necessary or appropriate for Buyer, or
its affiliates, or GSI, as the case may be, to make in order to comply with
applicable laws or regulations, to include, without limitation, any such
release, announcement or filing which Buyer, or its affiliate, LFC, or GSI, is
required to make pursuant to the applicable provisions of federal or state
securities laws, or the rules and requirements of the SEC, American Stock
Exchange or NASDAQ.
Section 8.8 Survival of Representations and Warranties. If the
Acquisition is consummated or this Agreement is terminated pursuant to Article
VII, above, then, and in either such event, the representations and warranties
made by GSI and Guthrie Bank in Article II and by Buyer in Article III,
respectively, in this Agreement shall not survive the Closing Date hereunder.
Section 8.9 Assignment and Legal Effect. None of the Parties
to this Agreement may assign any of their respective rights, obligations or
duties under this Agreement to any other person without the prior written
consent of all other Parties hereto. Any assignment in contravention of this
provision shall be void. Anything in this Agreement to the contrary
notwithstanding, the Parties hereto shall not be required to take any action
under this Agreement which is found by the final decision of appropriate federal
or state governmental authorities to be inconsistent or in conflict with
applicable federal or state laws or regulations pertaining to any of the Parties
hereto.
Section 8.10 No Third-Party Beneficiaries. Execution of this
Agreement by the Parties hereto is not intended to and does not confer any
benefits or rights on (contractually or otherwise) any person or entity not a
party to this Agreement unless otherwise expressly stated herein.
Section 8.11 Time. Time is of the essence to the performance
of the terms and conditions of this Agreement, provided, however, that if the
final date of any period which is set for a time provision under this Agreement
falls on a Saturday, Sunday or legal holiday under the laws of the United States
of America or the State of Oklahoma, in such event the time of such
<PAGE>
period shall be extended to the next day which is not a Saturday, Sunday or
legal holiday.
Section 8.12 Severability. If any of the terms and conditions
of this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other of the terms and conditions hereof and the terms and
conditions hereof shall be thereafter construed as if such invalid, illegal or
unenforceable term or conditions had never been contained herein.
Section 8.13 Counterparts. This Agreement may be executed in
any number of counterparts, and each counterpart hereof shall be deemed to be an
original instrument, but all counterparts hereof taken together shall constitute
one and the same instrument.
Section 8.14 Additional Acts. In addition to the acts and
deeds recited herein and contemplated hereby to be performed, executed and/or
delivered by them, each of GSI, Guthrie Bank and Buyer, hereby agree to perform,
execute and/or deliver or cause to be performed, executed and/or delivered at
the Closing hereunder and thereafter any and all such further acts, deeds and
assurances as the Buyer or GSI may reasonably require to (i) invest in the Buyer
the complete ownership of and clear title to all assets and stock of GSI and
Guthrie Bank, and (ii) to consummate the Acquisition and all of the other
transactions contemplated by this Agreement.
Section 8.15 Headings. The headings herein are for reference
purposes only and shall not affect the meanings or interpretation of the terms
and conditions of this Agreement.
Section 8.16 Interpretation. Whenever the context hereof shall
so require, the singular shall include the plural, the male gender shall include
the female gender and neuter, and vice-versa.
<PAGE>
ANNEX B -- FAIRNESS OPINION OF HOVDE FINANCIAL, INC.
<PAGE>
Hovde Financial, Inc.
INVESTMENT BANKERS & FINANCIAL ADVISORS
May 26, 1999
Board of Directors
Guthrie savings, Inc.
120 North Division Street
Guthrie, Oklahoma 73044-3241
Members of the Board:
We have reviewed the Stock Purchase Agreement (the "Agreement") dated
May 26, 1999, by and among Local Oklahoma Bank, N.A. ("Buyer"), and Guthrie
Savings, Inc. ("GSI") and its wholly owned subsidiary, Guthrie Federal Savings
Bank ("Guthrie Bank") pursuant to which, among other things, GSI will become a
wholly owned subsidiary of Buyer and subsequently be dissolved, and Guthrie Bank
will then be merged with and into Buyer. As is set forth in the Agreement, all
of the issued and outstanding Shares (other than Dissenting Shares of Common
Stock) and Stock Options shall be converted into the right to receive an
aggregate amount of cash equal to $9,340,066.62, subject to reductions provided
for in the Agreement (the "Purchase Price"). Capitalized terms used herein shall
have the same meaning as in the Agreement, unless specifically stated otherwise.
Hovde Financial, Inc. ("Hovde") specializes in providing investment
banking and financial advisory services to commercial bank and thrift
institutions. Our principals are experienced in the independent valuation of
securities in connection with negotiated underwritings, subscription and
community offerings, private placements, merger and acquisition transactions and
recapitalizations. Pursuant to a written agreement dated September 3, 1998,
between GSI and Hovde, Hovde was engaged to assist GSI in exploring various
strategic options, including a merger or sale of GSI. Therefore, we are familiar
with GSI (including its wholly owned subsidiary, Guthrie Bank), having acted as
its financial advisor in connection with the proposed transaction, and having
participated in the negotiations leading to the Agreement.
During the course of our engagement, we reviewed and analyzed materials
bearing upon the financial and operating conditions of GSI, Guthrie Bank and
Buyer, and material prepared in connection with the proposed transaction,
including the following: the Agreement; certain publicly available information
concerning GSI, including consolidated financial statements for the years ended
March 31, 1998 and 1997, and the quarters ended June 30, 1998, September 30,
1998, and December 31, 1998; the nature and terms of recent sale and merger
transactions involving thrifts and thrift holding companies that we consider
relevant; historical and current market data for the common stock of GSI; and,
financial and other information provided to us by the managements of GSI,
Guthrie Bank and Buyer.
<PAGE>
Board of Directors
Guthrie Savings, inc.
May 26, 1999
Page Two
In addition, we have conducted meetings with members of the senior
management of GSI for the purpose of reviewing the future prospects of the
company. In this regard, we considered the net present value of future cash
flows attributable to each share of GSI and compared this to the per share value
of the Purchase Price. We also took into account our assessment of general
economic, market and financial conditions and our experience in other similar
transactions as well as our overall knowledge of the banking industry and our
general experience in securities valuations. As part of our engagement, we
solicited and reviewed competitive bids from parties which we believed to be
likely acquirers for GSI.
In rendering this opinion, we have assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations contained in the materials provided to us by GSI
and Buyer, and in the discussions with the management of GSI.
Based on the foregoing and our experience as investment bankers, we are
of the opinion that, as of the date hereof, the Purchase Price to be received by
the shareholders of GSI as described in the Agreement is fair from a financial
point of view.
Sincerely,
/s/Hovde Financial, Inc.
----------------------------------------
HOVDE FINANCIAL, INC.
<PAGE>
ANNEX C -- OKLAHOMA LAW REGARDING APPRAISAL RIGHTS
<PAGE>
OKLAHOMA General Corporate Act
Section 1091 APPRAISAL RIGHTS.--A. Any shareholder of a corporation of
this state who holds shares of stock on the date of the making of a demand
pursuant to the provisions of subsection D of this section with respect to the
shares, who continuously holds the shares through the effective date of the
merger or consolidation, who has otherwise complied with the provisions of
subsection D of this section and who has neither voted in favor of the merger or
consolidation nor consented thereto in writing pursuant to the provisions of
Section 1073 of this title shall be entitled to an appraisal by the district
court of the fair value of the shares of stock under the circumstances described
in subsections B and C of this section. As used in this section, the word
"shareholder" 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 "depository
receipt" means an 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. The provisions of this subsection
shall be effective only with respect to mergers or consolidations consummated
pursuant to an agreement of merger or consolidation entered into after November
1, 1988.
B. 1. Except as otherwise provided for in this subsection, appraisal
rights shall be available for the shares of any class or series of stock
of a constituent corporation in a merger or consolidation, or of the acquired
corporation in a share acquisition, to be effected pursuant to the provisions of
Section 1081, other than a merger effected pursuant to subsection G of Section
1081, and Sections 1082, 1086, 1087, 1090.1, or 1090.2 of this title.
2. a. 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 shareholders entitled
to receive notice of and to vote at the meeting of shareholders to act upon the
agreement of merger or consolidation, were either: (1) 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 (2) held of record by more than two thousand holders.
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 shareholders of the surviving corporation as provided
in subsection G of section 1081 of this title.
b. In addition, no appraisal rights shall be available for any
shares of stock, or depository receipts in respect thereof, of the constituent
corporation surviving a merger if the merger did not require for its approval
the vote of the shareholders of the surviving corporation as provided for in
subsection F of Section 1081 of this title.
3. Notwithstanding the provisions of paragraph 2 of this subsection,
appraisal rights provided for in 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
<PAGE>
or consolidation pursuant to the provisions of Sections 1081, 1082, 1086 , or
1087, 1090.1 or 1090.2 of this title to accept for the stock anything except:
a. shares of stock of the corporation surviving or resulting from
the merger or consolidation or depository receipts thereof, or
b. shares of stock of any other corporation, or depository
receipt 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 two thousand holders, or
c. cash in lieu of fractional shares or fractional depository
receipts described in subparagraphs a and b of this paragraph, or
d. any combination of the shares of stock, depository receipts,
and cash in lieu of the fractional shares or depository receipt described in
subparagraphs a, b, and c of this paragraph.
4. In the event all of the stock of a subsidiary Oklahoma corporation
party to a merger effected pursuant to the provisions of Section 1083 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 Oklahoma
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
shareholders, the corporation, not less than twenty (20) days prior to the
meeting, shall notify each of its shareholders entitled to the appraisal rights
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in the notice a copy of this
section. Each shareholder electing to demand the appraisal of the shares of the
shareholder shall deliver to the corporation, before the taking of the vote on
the merger or consolidation, a written demand for appraisal of the shares of the
shareholder. The demand will be sufficient if it reasonably informs the
corporation of the identity of the shareholder and that the shareholder intends
thereby to demand the appraisal of the shares of the shareholder. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
shareholder electing to take such action must do so by a separate written
<PAGE>
demand as herein provided. Within ten (10) days after the effective date of the
merger or consolidation, the surviving or resulting corporation shall notify
each shareholder of each constituent corporation who has complied with the
provisions of this subsection and has not voted in favor of or consented to the
merger or consolidation as of the date that the merger or consolidation has
become effective; or
2. If the merger or consolidation is approved pursuant to the
provisions of Section 1073 or 1083 of this title, each constituent corporation,
either before the effective date of the merger or consolidation or within ten
(10) days thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights of
the approval of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the class or series of stock of the
constituent corporation, and shall include in such notice a copy of this
section; provided, if the notice is given on or after the effective date of the
merger or consolidation, the notice shall be given by the surviving or resulting
corporation to all the holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. The notice may, and, if given
on or after the effective date of the merger or consolidation, shall, also
notify the shareholders of the effective date of the merger or consolidation.
Any shareholder entitled to appraisal rights may, within twenty (20) days after
the date of mailing of the notice, demand in writing from the surviving or
resulting corporation the appraisal of the holder's shares. The demand will be
sufficient if it reasonably informs the corporation of the identity of the
shareholder and that the shareholder intends to demand the appraisal of the
holder's shares. If the notice does not notify shareholders of the effective
date of the merger or consolidation either:
a. each constituent corporation shall send a second notice before
the effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of the constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation, or
b. the surviving or resulting corporation shall send a second notice
to all holders on or within ten (10) days after the effective date of the merger
or consolidation; provided, however, that if the second notice is sent more than
twenty (20) days following the mailing of the first notice, the second notice
need only be sent to each shareholder who is entitled to appraisal rights and
who has demanded appraisal of the holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
the notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
shareholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than ten (10) days prior
to the date the notice is given; provided, if the notice is given on or after
the effective date of the merger or consolidation, the record date shall be the
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
<PAGE>
E. Within one hundred twenty (120) days after the effective date of the merger
or consolidation, the surviving or resulting corporation or any shareholder who
has complied with the provisions of subsections A and D of this section and who
is otherwise entitled to appraisal rights, may file a petition in district court
demanding a determination of the value of the stock of all such shareholders;
provided, however, at any time within sixty (60) days after the effective date
of the merger or consolidation, any shareholder shall have the right to withdraw
the demand of the shareholder for appraisal and to accept the terms offered upon
the merger or consolidation. Within one hundred twenty (120) days after the
effective date of the merger or consolidation, any shareholder who has complied
with the requirements of subsections A and D of this section, 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 the shares. The written statement shall be mailed to the
shareholder within ten (10) days after the shareholder's written request for a
statement is received by the surviving or resulting corporation or within ten
(10) days after expiration of the period for delivery of demands for appraisal
pursuant to the provisions of subsection D of this section, whichever is later.
F. Upon the filing of any such petition by a shareholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which within
twenty (20) days after service, shall file, in the office of the court clerk of
the district court in which the petition was filed, a duly verified list
containing the names and addresses of all shareholders who have demanded payment
for their shares and with whom agreements regarding 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 duly verified list. The court clerk, if so ordered by the
court, shall give notice of the time and place fixed for the hearing on the
petition be registered or certified mail to the surviving or resulting
corporation and to the shareholders shown on the list at the addresses therein
stated. Notice shall also be given by one or more publications at least one (1)
week before the day of the hearing, in a newspaper of general circulation
published in the City of Oklahoma City, Oklahoma, or other 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 the petition, the court shall determine the shareholders
who have complied with the provisions of this section and who have become
entitled to appraisal rights. The court may require the shareholders who have
demanded an appraisal of their shares and who hold stock represented by
certificates to submit their certificates of stock to the court clerk for
notation thereon of the pendency of the appraisal proceedings; and if any
shareholder fails to comply with this direction, the court may dismiss the
proceedings as to that shareholder.
H. After determining the shareholders 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 the fair value, the
court shall take into account all relevant factors. In determining the fair rate
of interest, the
<PAGE>
court may consider all relevant factors, including the rate of interest which
the surviving or resulting corporation would have to pay to borrow money during
the pendency of the proceeding. Upon application by the surviving or resulting
corporation or by any shareholder 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 shareholder entitled to an appraisal. Any shareholder whose
name appears on the list filed by the surviving or resulting corporation
pursuant to the provisions of subsection F of this section and who has submitted
the certificates of stock of the shareholder to the court clerk, if required,
may participate fully in all proceedings until it is finally determined that the
shareholder is not entitled to appraisal rights pursuant to the provisions of
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
shareholders entitled thereto. Interest may be simple or compound, as the court
may direct. Payment shall be made to each shareholder, in the case of holders of
uncertificated stock immediately, and in the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing the stock. The court's decree may be enforced as other
decrees in the district court may be enforced, whether the surviving or
resulting corporation be a corporation of this state or of any other 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
shareholder, the court may order all or a portion of the expenses incurred by
any shareholder 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 of the shares entitled to an
appraisal.
K. From and after the effective date of the merger or consolidation, no
shareholder who has demanded "appraisal rights "as provided for in subsection D
of this section shall be entitled to vote the stock for any purpose or to
receive payment of dividends or other distributions on the stock, except
dividends or other distributions payable to shareholders 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 for in subsection E of this section, or if the shareholder shall
deliver to the surviving or resulting corporation a written withdrawal of the
shareholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within sixty (60) days after the effective date of the
merger or consolidation as provided for in subsection E of this section or
thereafter with the written approval of the corporation, then the right of the
shareholder to an appraisal shall cease; provided further; no appraisal
proceeding in the district court shall be dismissed as to any shareholder
without the approval of the court, and approval may be conditioned upon terms as
the court deems just.
L. The shares of the surviving or resulting corporation into which the shares of
any objecting shareholders 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. 422, L.'98, eff.
11-1-98.)
<PAGE>
EXHIBIT 1 -- 1999 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
[** LOGO **]
Guthrie Savings, Inc.
Annual Report - 1999
<PAGE>
Guthrie Savings, Inc.
ANNUAL REPORT - 1999
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Letter to
Stockholders............................................................... 1
Corporate Profile and Stock Price Information.............................. 2
Five-Year Financial Summary................................................ 4
Management's Discussion and Analysis....................................... 6
Independent Auditor's Report............................................... F-1
Consolidated Financial Statements.......................................... F-2
Notes to Consolidated Financial Statements................................. F-8
Corporate Information...................................................... 19
<PAGE>
To Our Stockholders:
With great pleasure, we have announced that as of May 26, 1999 the Company and
its subsidiary, Guthrie Federal Savings Bank, have signed a stock purchase
agreement with Local Oklahoma Bank, N.A. If you, our stockholders, approve the
agreement, then the Company and the Bank will be acquired by Local Oklahoma Bank
through a share acquisition of all of the shares of the Company and the Bank
will be owned by Local Oklahoma Bank. All current stockholders of the Company
will receive a cash payment for their shares. We feel this move will provide our
customers the opportunity to grow with a larger banking entity, which offers a
broader range of products and services.
As for the year ended March 31, 1999, net income was $414,320 or $1.06 per
share, this is a decrease of 22.64% from the year ended March 31, 1998. This
decrease related to an overall decrease in net interest income and an increase
in operating expenses.
The Board of Directors declared two $0.50 per share cash dividends during the
year. The first dividend was declared in September 1998 for stockholders of
record on October 5, 1998 and the other in January 1999 for stockholders of
record on February 1, 1999. The special cash dividends were paid as a result of
continued profitability of the Company and its wholly owned subsidiary, the
Bank.
Guthrie Federal management is continuing to make the transition into the next
millennium a priority. As Guthrie Federal moves forward, we can assure our
employees, customers and stockholders that we are working diligently to make a
coordinated effort to becoming Year 2000 compliant. Our efforts, both internal
and external, are under going testing, and contingency plans are in place in the
event of significant data processing delays, mistakes or failures.
We appreciate the loyal support that our stockholders, customers and employees
have given us during the past years and ask for your continued support in the
future.
Sincerely,
William L. Cunningham
President and Chief Executive Officer
- 1 -
<PAGE>
Guthrie Savings, Inc.
================================================================================
CORPORATE PROFILE AND RELATED INFORMATION
Guthrie Savings, Inc. (the "Company") is the parent company for Guthrie Federal
Savings Bank (the "Bank"). The Company is an Oklahoma corporation organized in
May 1994 at the direction of Guthrie Federal Savings and Loan Association (the
"Association") in connection with the Association's conversion from the mutual
to stock form of ownership (the "Conversion"). On October 11, 1994, the
Association completed its conversion and changed its name to Guthrie Federal
Savings Bank and became a wholly owned subsidiary of the Company. The Company is
a unitary savings and loan holding company which, under existing laws, generally
is not restricted in the types of business activities in which it may engage
provided the Bank retains a specified amount of its assets in housing-related
investments. At the present time, since the Company does not conduct any active
business, the Company does not intend to employ any persons other than officers
but utilizes the support staff and facilities of the Bank from time to time.
Guthrie Federal Savings Bank is a federally chartered stock savings bank
headquartered in Guthrie, Oklahoma. The Bank was founded in 1906 with a charter
from the Territory of Oklahoma under the name of "Employees Building and Loan
Association." Employees Building and Loan Association became known as "Guthrie
Savings and Loan Association" in 1968 when it changed its name. In early August
1994, Guthrie became a federal association under the name "Guthrie Federal
Savings and Loan Association." The Bank changed its name to Guthrie Federal
Savings Bank in October of 1994 in connection with its conversion from mutual to
stock form. The Bank's deposits have been federally insured by the Savings
Association Insurance Fund ("SAIF") and its predecessor, the Federal Savings and
Loan Insurance Corporation, since 1948, and the Bank is a member of the Federal
Home Loan Bank (the "FHLB") System.
Guthrie Federal Savings Bank is primarily engaged in attracting deposits from
the general public and using those deposits, together with other funds, to
originate real estate loans on one- to four-family residences and, to a lesser
extent, consumer loans. The Bank has one office in Guthrie, Oklahoma, which is
located in its primary market area of Logan County, Oklahoma. In addition, the
Bank holds interest-bearing deposits in other financial institutions and invests
in mortgage-backed securities and investment securities. The Bank offers its
customers fixed-rate and adjustable-rate mortgage loans, as well as consumer
loans, including home equity and savings account loans.
The Company and the Bank have signed a stock purchase agreement, subject to
stockholder approval, with Local Oklahoma Bank, N.A. Upon consummation of the
agreement, the Company and the Bank will be acquired by Local Oklahoma Bank
through a share acquisition procedure. All of the shares of common stock of the
Company and the Bank will be owned by Local Oklahoma Bank and all current
stockholders of the Company will receive a cash payment for their shares. See
further discussion at Management's Discussion and Analysis of Financial
Condition and Results of Operations.
- 2 -
<PAGE>
Stock Market Information
There were 402,257 shares of common stock (net of treasury stock) of Guthrie
Savings, Inc. outstanding on March 31, 1999, held by approximately 200
stockholders of record (not including the number of persons or entities holding
the stock in nominee or street name though various brokerage firms). Since its
issuance in October 1994, the Company's common stock has been traded in the
over-the-counter market. The following table reflects high and low bid
information for stock quotations as published by the National Daily Quotation
System "pink sheets". These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
Year Ended March 31,
------------------------------------------------------
1999 1998
-------------------------- --------------------------
HIGH LOW HIGH LOW
------------ ------------ ------------ ------------
First Quarter 18 9/16 17 5/8 17 1/8 15 1/2
Second Quarter 19 1/4 18 9/16 17 17
Third Quarter 19 1/2 17 18 17
Fourth Quarter 19 1/2 16 1/2 18 1/4 17 1/2
During the year ended March 31, 1999, the Board of Directors declared and paid
two dividends of $0.50 each per share. The first $0.50 dividend was paid on
October 15, 1998 and the second $0.50 dividend was paid on February 10, 1999.
During the year ended March 31, 1998 the Board of Directors declared and paid
two dividends totaling $1.00 per share. A $0.50 dividend was paid on October 10,
1997 and another $0.50 dividend was paid on February 10, 1998. The Company's
ability to pay dividends to shareholders is largely dependent upon the dividends
it receives from the Bank. The Bank is subject to regulatory limitations on the
amount of cash dividends it may pay. The Bank may not declare or pay a cash
dividend on any of its stock if the effect thereof would cause the Bank's
regulatory capital to be reduced below (1) the amount required for the
liquidation account established in connection with the Bank's conversion from
mutual to stock form, or (2) the regulatory capital requirements imposed by the
Office of Thrift Supervision ("OTS"). The stock purchase agreement with Local
Oklahoma Bank, N.A. further restricts the Company's ability to pay dividends.
- 3 -
<PAGE>
Guthrie Savings, Inc.
<TABLE>
<CAPTION>
============================================================================================================================
FIVE-YEAR FINANCIAL SUMMARY
Selected Financial Condition Data (Dollars in Thousands) (*)
============================================================================================================================
At March 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $45,768 $48,627 $49,047 $46,820 $44,727
Loans receivable (1) 23,802 25,655 23,461 22,972 23,182
Investment securities held-to-maturity 1,000 3,900 8,700 9,751 8,366
Investment securities available-for-sale 648 2,175 2,062 2,133 929
Mortgage-backed securities held-to-maturity 11,460 12,615 13,273 9,428 9,869
Cash and cash equivalents 7,186 3,307 523 1,402 1,090
Deposits 35,079 35,538 34,293 36,311 34,543
FHLB borrowings 3,000 5,196 6,700 2,000 1,700
Stockholders' equity 7,393 7,536 7,805 8,049 8,236
Summary of Operations (Dollars in Thousands) (*)
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Interest income $ 3,442 $ 3,668 $ 3,632 $ 3,416 $ 3,198
Interest expense 1,721 1,877 1,833 1,761 1,489
------------ ------------ ------------ ------------- -------------
Net interest income 1,721 1,791 1,799 1,655 1,709
Provision for loan losses 7 3 1 (132) 12
------------ ------------ ------------ ------------- -------------
Net interest income after
provision for loan losses 1,714 1,788 1,798 1,787 1,697
Non-interest income 257 242 251 336 193
Non-interest expense (2) 1,295 1,179 1,416 1,229 1,095
------------ ------------ ------------ ------------- -------------
Income before income taxes and
cumulative effect of accounting change 676 851 633 894 795
Provision for income taxes 262 315 253 309 250
------------ ------------ ------------ ------------- -------------
Income before cumulative effect of
accounting change 414 536 380 585 545
Cumulative effect of accounting change - - - - -
------------ ------------ ------------ ------------- -------------
Net income $ 414 $ 536 $ 380 $ 585 $ 545
============ ============ ============ ============= =============
Basic earnings per share* (3) $ 1.10 $ 1.41 $ 0.92 $ 1.28 $ 0.48
============ ============ ============ ============= =============
Diluted earnings per share* (3) $ 1.06 $ 1.36 $ 0.91 $ 1.27 $ 0.48
============ ============ ============ ============= =============
Dividends per share (3) $ 1.00 $ 1.00 $ 0.50 $ 0.50 $ 0.20
============ ============ ============ ============= =============
Book value per common share
outstanding at March 31 $ 18.38 $ 18.05 $ 17.33 $ 16.61 $ 15.99
============ ============ ============ ============= =============
</TABLE>
* Data presented prior to October 11, 1994, the date of conversion, is for
Guthrie Federal Savings Bank only.
(1) Includes loans held-for-sale totaling $81,757 at March 31, 1998.
(2) For 1997, includes $225,000 for a special assessment to recapitalize the
federal deposit insurance fund to which Guthrie Federal Savings Bank pays
premiums.
(3) For 1995, only includes period following conversion from mutual to stock on
October 11, 1994 (October 11, 1994 through March 31, 1995).
- 4 -
<PAGE>
Guthrie Savings, Inc.
<TABLE>
<CAPTION>
============================================================================================================================
FIVE-YEAR FINANCIAL SUMMARY
Selected Ratios and Other Data (*)
============================================================================================================================
Year Ended March 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average assets 0.88 % 1.11 % 0.79 % 1.30 % 1.24 %
Return on average equity 5.61 7.25 4.89 7.12 10.39
Average equity to average assets 15.66 15.26 16.13 18.18 11.93
Equity to assets at period end 16.15 15.50 15.91 17.19 18.41
Net interest spread 3.11 3.13 3.14 2.98 3.59
Net yield on average interest earning assets 3.74 3.79 3.81 3.78 4.02
Non-performing loans to total assets 0.68 0.42 0.85 1.33 1.80
Non-performing loans to net loans 1.31 0.80 1.79 2.72 3.46
Non-performing assets to total assets 0.68 0.44 0.85 1.33 1.94
Allowance for loan losses to total loans 1.43 1.38 1.61 1.70 2.33
Dividend payout 90.62 72.17 55.32 38.08 17.38
Number of:
Real estate loans outstanding 512 556 550 576 621
Deposit accounts 4,326 4,435 4,538 4,772 4,744
</TABLE>
[NET INCOME GRAPHICS OMITTED]
[NON-PERFORMING ASSETS/TOTAL ASSETS GRAPHICS OMITTED]
[TOTAL ASSETS GRAPHICS OMITTED]
[STOCKHOLDERS' EQUITY GRAHICS OMITTED]
(*) Data presented prior to October 11, 1994, the date of conversion, is for
Guthrie Federal Savings Bank only.
- 5 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Guthrie Savings, Inc.
The following is a discussion of the financial condition and results of
operations of the Company and its subsidiary Guthrie Federal Savings Bank (the
"Bank"), and should be read in conjunction with the accompanying Consolidated
Financial Statements.
General
The Bank is primarily engaged in the business of accepting deposit accounts from
the general public and using these funds to originate mortgage loans for the
purchase or refinancing of single-family residences located in Logan and
northern counties in Oklahoma, and for the purchase of mortgage-backed and
investment securities. The Bank also originates automobile loans, second
mortgage loans, and deposit loans. The Bank's market has historically provided
an excess of savings deposits over loan demand. Accordingly, in addition to
originating loans in its market the Bank also purchases mortgage-backed
securities and investment securities.
The Company's operations, as with those of the entire banking industry, are
significantly affected by prevailing economic conditions, competition, and the
monetary and fiscal policies of governmental agencies. Lending activities are
influenced by the demand for loans, competition among lenders, the prevailing
market rates of interest, primarily on competing investments, account
maturities, and the levels of personal income and savings in the market area.
The earnings of the Bank depend primarily on its level of net interest income,
which is the difference between interest income and interest expense. The Bank's
net interest income is a function of its interest rate spread, which is
determined by the difference between rates of interest earned on
interest-earning assets, and rates of interest paid on interest-bearing
liabilities. The Bank's earnings are also affected by its provision for losses
on loans, as well as the amount of non-interest income and non-interest expense,
such as compensation and related expenses, deposit insurance premiums, data
processing costs, and income taxes.
Subsequent to the end of the fiscal year, the Company and the Bank signed a
stock purchase agreement, subject to stockholder approval, with Local Oklahoma
Bank, N.A. Upon consummation of the agreement, the Company and the Bank will be
acquired by Local Oklahoma Bank through a share acquisition of all of the shares
of common stock of the Company and the Bank will be owned by Local Oklahoma
Bank. All current stockholders of the Company will receive a cash payment for
their shares. Although the parties will remain separate until the share
acquisition procedure, the Company and the Bank may, prior to the share
acquisition procedure, begin to change the way they categorize and account for
certain items that are reflected in the consolidated financial statements to
reduce the number of changes that are made following the share acquisition
procedure. It is not expected that these changes will result in any material
differences from current practice until immediately prior to the share
acquisition procedure. In the event the share acquisition procedure does not
occur, there will be no material change in the operations of the Bank and the
Company although there would be a one-time charge to cover expenses incurred in
preparing for the acquisition. This charge could total approximately $150,000.
Under certain circumstances if Local Oklahoma Bank, N.A. breaches the agreement
with the Company, the Company could be entitled to receive a $500,000 earnest
money deposit, which was paid by Local Oklahoma Bank, and any interest earned.
- 6 -
<PAGE>
Financial Condition
Consolidated total assets decreased 5.88% from $48,626,898 at March 31, 1998 to
$45,768,401 at March 31, 1999. This decrease is the result of the continued
maturity of investment and mortgage-backed securities held-to-maturity. The
proceeds from these maturities were used to decrease borrowings from the Federal
Home Loan Bank and purchase treasury stock.
Cash and cash equivalents:
The Bank's cash and cash equivalents increased $3,878,695 or 117.27% from
$3,307,419 at March 31, 1998 to $7,186,114 at March 31, 1999. This substantial
increase is directly related to the decrease in investment and mortgage-backed
securities discussed in the next two paragraphs.
Investment securities:
The Bank's securities portfolio provides liquidity for additional lending as
well as additional interest income. The investment securities in the portfolio
have varying maturities of ten years or less. Investment securities, including
available-for-sale, decreased $4,426,351, or 72.86% from 6,074,751 at March 31,
1998 to $1,648,400 at March 31, 1999. This decrease was directly related to the
decrease in borrowings from FHLB and purchase of treasury stock discussed above.
Securities called during the year ended March 31, 1999 totaled $3,900,000.
Mortgage-backed securities:
Mortgage-backed securities decreased $1,154,701, or 9.15%, from $12,615,162 at
March 31, 1998 to $11,460,461 at March 31, 1999. The Company did not have any
mortgage-backed securities classified as available-for-sale at March 31, 1999 or
1998. During the year ended March 31, 1999, the Bank purchased $2,523,109 in
mortgage-backed securities and repayments of mortgage-backed securities amounted
to $3,647,283. Mortgage-backed securities generally provide for lower returns
than loans originated by the Bank and are utilized when investable funds exceed
loan demand.
Loans receivable:
Net loans receivable decreased $1,852,969, or 7.22%, from $25,655,194 at March
31, 1998 to $23,802,225 at March 31, 1999. This decline in the loan portfolio is
related to an increase in loans originated for sale during the year. The Bank
originated loans held-for-sale of $2,932,925 during fiscal 1999 compared to
originations of $755,957 in fiscal 1998. Proceeds from the sale of loans
classified as held-for-sale amounted to $3,038,784 in fiscal 1999 compared to
sales of $679,013 in fiscal 1998. The Bank has supplemented its lending activity
by originating and selling loans that are not consistent with the Bank's loan
portfolio objectives.
The Bank has recognized impaired loans having recorded investments of $511,042
at March 31, 1999 and $440,137 at March 31, 1998. A loan is impaired when, based
on management's evaluation of current and historical information and events, it
is probable that all amounts due according to the contractual terms of the loan
agreement will not be collected. Loans that are classified as impaired are
typically collateral dependent; therefore, impairment is measured based upon the
fair value of the collateral less estimated costs to sell. Impairment is
recognized by creating a valuation allowance with a corresponding charge to
provision for loss on loans.
Management, as a part of the monitoring and evaluation of non-performing loans,
classifies loans in accordance with regulatory provisions as loss, doubtful or
substandard. Total loans classified as of March 31, 1999 and 1998, amounted to
$731,093 and $652,442, respectively, including loans recognized
- 7 -
<PAGE>
as impaired. Those loans classified that are not recognized as impaired include
loans which are currently past due 90 days or more or have a past history of
delinquency. The level of classified loans have remained relatively constant as
a result of improving economic conditions and real estate values. Classified
loans have been considered by management in the evaluation of the adequacy of
the allowance for loan loss. The Bank will continue with its existing collection
policies to keep non-performing assets to a minimum, but no assurance can be
given that negotiations with borrowers will continue to be successful.
Management is unaware of any trends that it reasonably expects will materially
impact future operating results, liquidity, or capital resources.
Foreclosed real estate:
The balance in foreclosed assets ("REO") at March 31, 1999 and 1998 was $0 and
$10,500, respectively. The March 31, 1998 balance in REO consisted of
undeveloped land. The balance in REO continues to be substantially lower than
that experienced by the Bank in prior years.
Deposits:
Deposits remained fairly consistent, decreasing only 1.29% from $35,537,831 at
March 31, 1998 to $35,078,760 at March 31, 1999. The Bank continues to offer
rates consistent with rates offered by other financial institutions in the area
but has not focused on offering aggressive rates to increase the deposit base.
The average cost on deposits decreased slightly from 4.46% for the year ended
March 31, 1998 to 4.29% for the year ended March 31, 1999.
Of the $22,910,213 in certificates of deposit held by the Bank at March 31,
1999, $19,604,566 of these deposits will mature during the year ended March 31,
2000. The majority of the Bank's time deposits consist of regular deposits from
consumers within the Bank's surrounding community rather than institutional or
brokered deposit accounts. As a result, most of these accounts of local
customers are expected to be renewed.
Advances and other borrowings from Federal Home Loan Bank:
The Bank has continued to utilize advances from the FHLB as a source of funds.
Fixed term advances from the FHLB totaled $3,000,000 and $5,196,000 at March 31,
1999 and 1998, respectively. There was one advance outstanding at March 31,
1999, this advance was an adjustable rate advance. The Bank did not receive any
proceeds from FHLB advances during fiscal 1999. Of the $5,196,000 in fixed term
advances outstanding at March 31, 1998, all were adjustable rate advances. The
funds provided by the advances received during fiscal 1998 were used primarily
to fund lending activity throughout the year.
The Bank also has a line of credit with the FHLB with no outstanding balance at
March 31, 1999 or 1998. The funds available under the line of credit can be used
to fund lending activity or for regular operations.
The weighted average cost of these borrowings from the FHLB was 5.08% and 5.58%
for the years ended March 31, 1999 and 1998, respectively. The advance
outstanding at March 31, 1999 matures during the year ended March 31, 2008.
Stockholders' equity:
Stockholders' equity decreased $143,034, from $7,536,128 at March 31, 1998 to
$7,393,094 at March 31, 1999. The Company adopted a plan to purchase up to 15%
of the Company's outstanding shares. At March 31, 1999 the Company had
repurchased 112,868 shares of its common stock as part of a plan to enhance
stockholder value. The book value per common share outstanding at March 31, 1999
was $18.38, up from $18.05 at March 31, 1998 and $17.33 at March 31, 1997. As
noted in the Stock Price Information section of this report the Company has also
been consistently paying dividends to stockholders.
- 8 -
<PAGE>
Implementation of New Accounting Pronouncements
During fiscal year 1999, the Company adopted the provisions of Statement No. 129
titled "Disclosure of Information about Capital Structure" and Statement No. 130
titled "Reporting Comprehensive Income." See Note 1 of the Consolidated
Financial Statements for a discussion of these new accounting pronouncements and
their effect on the Company.
Asset and Liability Management
The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities that either reprice or mature within a given period
of time. The difference, or the interest rate repricing "gap," provides an
indication of the extent to which an institution's interest rate spread will be
affected by changes in interest rates over a period of time. A gap is considered
positive when the amount of interest-rate sensitive assets maturing, or
repricing over a specified period of time, exceeds the amount of interest-rate
sensitive liabilities maturing or repricing within that period and is considered
negative when the amount of interest-rate sensitive liabilities maturing or
repricing over a specified period of time exceeds the amount of interest-rate
sensitive assets maturing or repricing within that period. Generally, during a
period of rising interest rates, a negative gap within a given period of time
would adversely affect net interest income, while a positive gap within a given
period of time would result in an increase in net interest income; during a
period of falling interest rates, a negative gap within a given period of time
would result in an increase in net interest income while a positive gap within a
given period of time would have the opposite effect.
In an effort to reduce interest rate risk and protect it from the negative
effect of increases in interest rates, the Bank has instituted certain asset and
liability management measures. The primary elements of this strategy include:
(i) balance sheet restructuring, and (ii) asset/liability management.
Management's strategy for asset/liability management has consisted of (i)
minimizing the origination of fixed rate mortgage loans with maturities of more
than 15 years, (ii) originating adjustable rate mortgage loans for portfolio
where maturities exceed 15 years, (iii) originating consumer and equity loans
that are short-term or adjustable, (iv) collecting fee income from fixed rate
loans with terms of more than 15 years that the Bank refers to other financial
institution, and (v) focusing marketing efforts and pricing to extend the
average maturities on deposits.
Quarterly, the OTS prepares a report on the interest rate sensitivity of the net
portfolio value ("NPV") from information provided by Bank. The OTS adopted a
rule in August 1993 incorporating an interest rate risk ("IRR") component into
the risk-based capital rules. Implementation of the rule has been delayed until
the OTS has tested the process under which institutions may appeal such capital
deductions. The IRR component is a dollar amount that will be deducted from
total capital for the purpose of calculating an institution's risk-based capital
requirement and is measured in terms of the sensitivity of its NPV to changes in
interest rates. The NPV is the difference between incoming and outgoing
discounted cash flows from assets, liabilities, and off-balance sheet contracts.
An institution's IRR is measured as the change to its NPV as the result of a
hypothetical 200 basis point change in market interest rates. A resulting change
in NPV of more than 2% of the estimated market value of its assets will require
the institution to deduct from its capital 50% of that excess change. The rule
provides that the OTS will calculate the IRR component quarterly for each
institution.
- 9 -
<PAGE>
The following tables present the Bank's NPV as well as other data as of March
31, 1999, as calculated by the OTS, based on information provided to the OTS by
the Bank.
<TABLE>
<CAPTION>
Change in Interest
Rates in Basis
Points (Rate Shock) Net Portfolio Value NPV as % of Present Value of Assets
------------------------ ---------------------------------------------------- -----------------------------------------
$ Amount $ Change Change % NPV Ratio Change
------------ ------------------ -------------- ---------------- ------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
+300 bp $7,341 (973) (12) % 16.18 % -158 bp
+200 bp (1) $7,861 (453) (5) % 17.07 % -69 bp
+100 bp $8,172 (142) (2) % 17.57 % -19 bp
0 bp $8,314 17.76 %
-100 bp $8,485 171 2 % 18.00 % +24 bp
-200 bp $8,698 385 5 % 18.31 % +54 bp
-300 bp $9,096 782 9 % 18.92 % +116 bp
</TABLE>
- --------------------
(1) Denotes rate shock used to compute interest rate risk capital component.
March 31, 1999
--------------
Risk Measures (200 Basis Point Rate Shock):
Pre-Shock NPV Ratio: NPV as % of Present Value of Assets 17.76 %
Exposure Measure: Post-Shock NPV Ratio 17.07 %
Sensitivity Measure: Change in NPV Ratio 69 bp
Set forth below is a breakout, by basis points of the Bank's NPV as of March 31,
1999 by assets, liabilities and off-balance sheet items.
<TABLE>
<CAPTION>
No
Net Portfolio Value -300 bp -200 bp -100 bp Change +100 bp +200 bp +300 bp
- ------------------------ ---------- ---------- ---------- --------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets $48,081 $47,517 $47,139 $46,807 $46,506 $46,039 $45,367
- -Liabilities 19,019 38,843 38,670 38,501 38,335 38,170 38,009
+Off Balance Sheet 34 24 16 8 1 (8) (17)
---------- ---------- ---------- --------------------------------- ----------
Net Portfolio Value $29,096 $ 8,698 $ 8,485 $ 8,314 $ 8,172 $ 7,861 $ 7,341
========== ========== ========== ================================= ==========
</TABLE>
Certain assumptions utilized by the OTS in assessing the interest rate risk of
savings associations were employed in preparing the previous table. These
assumptions related to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates would not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities would perform as set
forth above.
Certain shortcomings are inherent in the preceding NPV tables because the data
reflect hypothetical changes in NPV based upon assumptions used by the OTS to
evaluate the Bank as well as other institutions. However, net interest income
should decline with instantaneous increases in interest rates while net interest
income should increase with instantaneous declines in interest rates. Generally,
during
- 10 -
<PAGE>
periods of increasing interest rates, the Bank's interest rate sensitive
liabilities would reprice faster than its interest rate sensitive assets causing
a decline in the Bank's interest rate spread and margin. This would result from
an increase in the Bank's cost of funds that would not be immediately offset by
an increase in its yield on earning assets. An increase in the cost of funds
without an equivalent increase in the yield on earning assets would tend to
reduce net interest income.
In times of decreasing interest rates, fixed rate assets could increase in value
and the lag in repricing of interest rate sensitive assets could be expected to
have a positive effect on the Bank's net interest income. However, changes in
only certain rates, such as shorter term interest rate declines without longer
term interest rate declines, could reduce or reverse the expected benefit from
decreasing interest rates.
- 11 -
<PAGE>
Average Balances, Interest and Average Yields and Rates
The following table sets forth certain information relating to the Bank's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid. Such yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods
presented. Average balances are derived from month-end balances. Management does
not believe that the use of month-end balances instead of daily average balances
has caused any material difference in the information presented.
<TABLE>
<CAPTION>
Years Ended March 31,
----------------------------------------------------------------------------------------
March 31,
1999 1999 1998 1997
-------- ----------------------------- ----------------------------- ----------------------------
Average Average Average Average Average Average
Yield/ Yield/ Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
--------- -------- ---------- ---------- --------- -------- --------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) 8.37 % $ 25,018 $ 2,208 8.83 % $ 24,619 $ 2,218 9.01 % $ 22,895 $ 2,087 9.12 %
Mortgage-backed securities 6.37 % 12,414 772 6.22 % 12,213 800 6.55 % 12,146 775 6.38 %
Investment securities (2) 6.96 % 3,371 217 6.44 % 8,923 583 6.53 % 11,224 735 6.55 %
Other interest-earning assets 4.78 % 5,174 245 4.74 % 1,514 67 4.43 % 866 35 4.04 %
-------- --------- -------- ---------- ---------- --------- -------- --------- --------- --------
Total interest-earning assets 7.21 % $ 45,977 $ 3,442 7.49 % $ 47,269 $ 3,668 7.76 % $ 47,131 $ 3,632 7.71 %
======== ========= ======== ========== ========== ========= ======== ========= ========= ========
Non-interest-earning assets: 1,180 1,165 1,151
--------- ---------- ---------
Total assets $ 47,157 $ 48,434 $ 48,282
========= ========== =========
Interest-bearing liabilities:
Savings accounts 2.41 % $ 2,961 $ 76 2.57 % $ 2,895 $ 75 2.59 % $ 3,136 $ 81 2.58 %
Demand deposits 2.17 % 8,818 202 2.29 % 8,278 198 2.39 % 8,249 201 2.44 %
Certificates of deposit 4.97 % 23,218 1,224 5.27 % 23,351 1,266 5.42 % 23,187 1,247 5.38 %
Other borrowed funds 4.78 % 4,313 219 5.08 % 6,057 338 5.58 % 5,545 305 5.50 %
-------- --------- -------- ---------- ---------- --------- -------- --------- --------- --------
Total interest-bearing
liabilities 4.08 % $ 39,310 $ 1,721 4.38 % $ 40,581 $ 1,877 4.63 % $ 40,117 $ 1,834 4.57 %
======== ========= ======== ========== ========== ========= ======== ========= ========= ========
Non-interest bearing liabilities 464 464 379
--------- ---------- ---------
Total liabilities $ 39,774 $ 41,045 $ 40,496
========= ========== =========
Stockholder's equity 7,383 7,389 7,786
--------- ---------- ---------
Total liabilities and
stockholders' equity $ 47,157 $ 48,434 $ 48,282
========= ========== =========
.
Net interest income $ 1,721 $ 1,791 $ 1,798
======== ========= =========
Interest rate spread (3) 3.13 % 3.11 % 3.13 % 3.14 %
======== ========== ======== ========
Net yield on interest-earning
assets (4) 3.74 % 3.79 % 3.81 %
========== ======== ========
Ratio of average interest-
earning assets to
average interest-bearing
liabilities 116.96 % 116.48 % 117.48 %
========== ======== ========
</TABLE>
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
- 12 -
<PAGE>
The following Rate/Volume Analysis table presents, for the periods indicated,
information regarding changes in interest income and interest expense (in
thousands) of the Bank. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (changes in average volume multiplied by old rate); (ii)
changes in rates (changes in rate multiplied by old average volume); and (iii)
changes in rate-volume (changes in rate multiplied by the change in average
volume).
<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------------------------------------------------------------------
1999 vs. 1998 1998 vs. 1997
------------------------------------------ ------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------------------ ------------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
--------- ---------- -------- --------- --------- ---------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $ 35 $ (44) $ (1) $(10) $ 157 $ (25) $ (1) $ 131
Mortgage-backed securities 13 (40) (1) (28) 4 21 - 25
Investment securities (362) (8) 5 (365) (150) (2) - (152)
Other interest-earning assets 161 5 11 177 26 3 3 32
--------- ---------- -------- --------- --------- ---------- --------- ---------
Total interest-earning assets $(153) $ (87) $ 14 $(226) $ 37 $ (3) $ 2 $ 36
========= ========== ======== ========= ========= ========== ========= =========
Interest expense:
Savings accounts $ 2 $ (1) $ - $ 1 $ (6) $ - $ - $ (6)
Demand deposits 13 (8) (1) 4 1 (4) - (3)
Certificates of deposits (7) (35) - (42) 9 9 1 19
Other borrowed funds (97) (30) 8 (119) 28 4 1 33
--------- ---------- -------- --------- --------- ---------- --------- ---------
Total interest-bearing liabilities $(89) $ (74) $ 7 $(156) $ 32 $ 9 $ 2 $ 43
========= ========== ======== ========= ========= ========== ========= =========
Net change in interest income $(64) $ (13) $ 7 $(70) $ 5 $ (12) $ - $ (7)
========= ========== ======== ========= ========= ========== ========= =========
</TABLE>
Comparison of Operating Results for the Years Ended March 31, 1999 and 1998
General:
Net income decreased $121,275 or 22.64%, from $535,595 at March 31, 1998 to
$414,320 for the year ended March 31, 1999. This decrease relates to an overall
decrease in net interest income and an increase in operating expenses.
The operating results of the Company depend to a great degree on its net
interest income, which is the difference between interest income on
interest-earning assets, primarily loans, mortgage-backed securities and
investment securities, and interest expense on interest-bearing liabilities,
primarily deposits and borrowings. The Company's net income is also affected by
the level of its provision for losses on loans, non-interest income and
non-interest expense.
Net interest income:
The Bank's net interest income for the year ended March 31, 1999 decreased
$70,272, or 3.92%, from $1,790,804 for the year ended March 31, 1998 to
$1,720,532 for the year ended March 31, 1999. Interest income decreased
$226,224, or 6.17%, and interest expense decreased $155,952, or 8.31%. Yields on
the Company's interest-earning assets declined by 27 basis points during the
year ended March 31, 1999, and the rates paid on the Company's interest-bearing
liabilities decreased by 25 basis points resulting in a slight decrease in the
interest rate spread to 3.11% for the year ended March 31, 1999 from 3.13% for
the year ended March 31, 1998.
- 13 -
<PAGE>
The $226,224 decrease in total interest income is primarily the result of the
$187,851 decrease in interest on investment securities resulting from the
overall decrease in the Company's investment portfolio. The decrease in
investment securities, as reflected in the Bank's rate/volume analysis,
resulting from a decrease in the volume of investment securities was $362,000.
The $155,952 decrease in total interest expense consists primarily of a $119,020
decrease in interest on borrowed funds as proceeds from investment securities
were used to reduce advances from FHLB. As reflected in the Bank's rate/volume
analysis, the decrease in interest expense resulting from the decreased volume
of borrowed funds was $97,000, accompanied with the net decrease in the rate on
total interest-bearing liabilities of $74,000.
Provision for losses on loans:
The Bank currently maintains, and the Board of Directors monitors, allowances
for possible loan losses. These allowances are established based upon
management's periodic evaluation of known and inherent risks in the loan
portfolio, review of significant individual loans and collateral, review of
delinquent loans, past loss experience, adverse situations that may affect the
borrowers' ability to repay loans, current and expected market conditions and
other factors management deems important. Determining the appropriate level of
reserves involves a high degree of management judgment and is based upon
historical and projected losses in the loan portfolio and the collateral value
of specifically identified problem loans. Additionally, allowance strategies and
policies are subject to periodic review and revision in response to current
market conditions, actual loss experience and management's expectations.
The provision for losses on loans is the method by which the allowance for
losses is adjusted during the period. The provision for losses on loans directly
impacts net interest income; the amount of the provision for losses on loans
reduces net interest income by the same amount. Likewise, if a provision for
losses on loans is regularly recorded in prior periods and a smaller, or no,
provision for losses on loans is recorded during a subsequent period, the amount
of the reduction has the effect of increasing net interest income by that same
amount.
The allowance for loan losses was $339,290 and $353,236 at March 31, 1999 and
1998, respectively. The provision for loan losses was $6,511 and $3,186 for the
years ended March 31, 1999 and 1998, respectively. The provision for loan losses
remained fairly consistent during the year ended March 31, 1999, as a result of
management's evaluation of the adequacy of the allowance for losses on loans
after considering the loan portfolio in conjunction with current and expected
market conditions. This continuation in the level of allowance for loan losses
is primarily attributable to the continued improving economy and real estate
market in the primary market area, and the resulting low level of non-performing
loans. Historical non-performing loan rations are presented with the five-year
financial summary information. The allowance for loan losses as a percent of
total loans was 1.43% at March 31, 1999 and 1.38% at March 31, 1998. While
non-performing loans to net loans experienced a moderate increase in fiscal 1999
from 1998, both the fiscal 1999 and 1998 levels are the lowest in the past five
years. Charge-offs, net of recoveries, remained comparable between 1998 and
1997, consisting of approximately $20,457 in 1999 and $26,642 in 1998.
While the Bank maintains its allowance for losses at a level that it considers
to be adequate to provide for potential losses, there can be no assurance that
further additions will not be made to the loss allowance and that such losses
will not exceed the estimated amounts.
Non-interest income:
Non-interest income increased $15,252 from $242,436 for the year ended March 31,
1998 to $257,688 for the year ended March 31, 1999. This was primarily due to an
increase in the net gain on the sale of loans of $19,289, from $4,813 during
fiscal 1998 to $24,102 during fiscal 1999. The increase in loan sales results
largely from an effort to supplement the Bank's traditional portfolio lending
activity by making available to customers a broader array of loan products.
- 14 -
<PAGE>
Non-interest expense:
Non-interest expense increased $116,219 or 9.86% for the year ended March 31,
1999 compared to March 31, 1998. The increase was primarily the result of
increased occupancy expenses resulting from remodeling of the Bank facilities,
additional non-capital expenses incurred to become Year 2000 compliant and an
increase in professional fees relating to various tax and strategic planning
issues arising during the year.
Income taxes:
The Bank's income tax expense decreased $53,289, or 22.64%, from $315,335 for
the year ended March 31, 1998 to $262,046 for the year ended March 31, 1999.
This decrease in income tax resulted from a decrease in pre-tax income.
Comparison of Operating Results for the Years Ended March 31, 1998 and 1997
General:
Net income increased $155,215, or 40.81%, from $380,380 for the year ended March
31, 1997 to $535,595 for the year ended March 31, 1998. As discussed in the
following paragraphs, the net income for the year ended March 31, 1997 included
a one-time special SAIF assessment of $225,433, which net of tax effect,
resulted in decreasing fiscal year 1997 net income by approximately $149,000.
Without the special assessment during the year ended March 31, 1997 net income
would have been approximately $530,000, which is consistent with net income for
the year ended March 31, 1998.
On September 30, 1996, President Clinton signed into law a bill that provided
for a special assessment of SAIF insured institutions amounting to 65.7 basis
points applied to the Bank's deposit base measured as of March 31, 1995. The
total amount of the special assessment for the Bank was included in expense and
paid during the year ended March 31, 1997.
Beginning January 1, 1997, deposit insurance assessments for most SAIF members
were reduced to approximately 6.4 basis points of deposits on an annual basis
and are expected to remain at that rate through the end of 1999, down from the
previous level of 23 basis points, a reduction in the rate of deposit insurance
assessed the Bank of approximately 70%. Through 1999 BIF members are expected to
be assessed at approximately 1.3 basis points on deposits. Thereafter,
assessments for BIF and SAIF members should be the same and SAIF and BIF may be
merged. It is expected that these continuing assessments for both SAIF and BIF
members will be used to repay outstanding Financing Corporation bond
obligations.
Interest income:
Total interest income increased $35,771, or 0.98%, from $3,631,987 for the year
ended March 31, 1997 to $3,667,758 for the year ended March 31, 1998. This
slight increase resulted primarily from an increase in the average balance of
loans receivable. As reflected in the rate/volume analysis, the change in
interest income due to the volume of loans receivable was an increase of
$157,000 during fiscal year 1998 from fiscal year 1997. This increase is offset
by a decrease in interest income due to the volume of investment securities of
$150,000 during fiscal year 1998 from fiscal year 1997.
Interest expense:
Total interest expense increased $43,371 or 2.37%, from $1,833,583 for the year
ended March 31, 1997 to $1,876,954 for the year ended March 31, 1998. This
increase was due to the increase in borrowed funds throughout the fiscal year.
Approximately $28,000 of the increase in interest expense was due to an increase
in the volume of other borrowed funds which consists of advances and borrowings
from the FHLB. The average cost for interest-bearing liabilities increased
slightly from 4.57% for the year ended March 31, 1997 to 4.63% for the year
ended March 31, 1998.
- 15 -
<PAGE>
Net interest income:
As a result of the above, net interest income decreased $7,600 or 0.42% from
$1,798,404 for the year ended March 31, 1997 to $1,790,804 for the year ended
March 31, 1998. Net interest income declined $12,000 as a result of rising
interest rates. This was partially offset by an increase in net interest income
attributable to an increase in the volume of interest bearing assets over
interest bearing liabilities of $5,000.
Provision for losses on loans:
The provision for loan losses was $3,186 and $763 for the years ended March 31,
1998 and 1997, respectively. The provision for loan losses increased $2,423 for
the year ended March 31, 1998 as a result of management's evaluation of the
adequacy of the allowance in relation to the increase in the Bank's loan
portfolio, including increases in non-mortgage lending. The allowance for loan
losses as a percent of non-performing assets was 164.6% at March 31, 1998
compared to 89.9% at March 31, 1997.
Non-interest income:
Non-interest income decreased $8,841 from $251,277 for the year ended March 31,
1997 to $242,436 for the year ended March 31, 1998. This decrease is the result
of a $46,528 gain on the sale of certain equity investments realized during
fiscal 1997. This decrease was offset by an increase in income from service
charges of $18,770 or 11.41%. Service and late charges increased primarily due
to more strict enforcement of fee policies throughout fiscal year 1998.
Non-interest expense:
Total non-interest expense decreased $236,751 from $1,415,875 for the year ended
March 31, 1997 to $1,179,124 for the year ended March 31, 1998. This decrease
was primarily the result of the special one-time SAIF assessment of $225,433
during fiscal 1997. Federal insurance premium expense also decreased $41,341 or
65.71% from $62,913 for the year ended March 31, 1997 to $21,572 for the year
ended March 31, 1998. The decrease in regulatory insurance and assessments was
substantially due to the revised rate structure on insured deposits adopted by
the FDIC after the recapitalization of the SAIF. The Bank's annual deposit
insurance rate in effect prior to this recapitalization was 0.23% of insured
deposits, declining to 0.18% of insured deposits for the quarter ended December
31, 1996, and reduced to 0.064% of insured deposits effective January 1, 1997.
Income tax expense:
The Company's income tax expense increased $62,672 or 24.80%, from $252,663 for
the year ended March 31, 1997 to $315,335 for the year ended March 31, 1998. The
principal reason for the increase was the increase in pre-tax income.
Liquidity and Capital Resources
Liquidity is measured by a financial institution's ability to raise funds
through deposits, borrowed funds, capital or the sale of highly marketable
assets such as available-for-sale securities. Additional sources of liquidity,
including cash flow from both repayment of loans and maturity of investment
securities, are also included in determining whether liquidity is satisfactory.
During fiscal 1999, cash and cash equivalents increased by $3,878,695, primarily
as a result of investment securities being called or maturing during the year
ended March 31, 1999 resulting in total funds provided by investing activities
of $6,680,849. The Company also had net cash provided by operating activities of
$529,418. The cash provided by investing and operating activities were partially
offset by cash used by financing activities of $3,331,572. Cash and cash
equivalents used by financing activities resulted primarily from the repayment
of FHLB advances.
- 16 -
<PAGE>
During fiscal 1998, cash and cash equivalents increased by $2,784,590, primarily
as a result of investment and mortgage-backed securities classified as
held-to-maturity being called during the year ended March 31, 1998 resulting in
total funds provided by investing activities of $3,281,508. The Company also had
net cash provided by operating activities of $710,136. The cash provided by
investing and operating activities were partially offset by cash used by
financing activities of $1,207,054. Cash and cash equivalents used by financing
activities resulted primarily from the repayment of FHLB advances and other
borrowings.
The Company's principal asset is its investment in the capital stock of the
Bank, and because it does not generate any significant revenues independent of
the Bank, the Company's liquidity is dependent on the extent to which it
receives dividends from the Bank. The Bank's ability to pay dividends to the
Company is dependent on its ability to generate earnings and is subject to a
number of regulatory restrictions, the liquidation account and tax
considerations. Under capital distribution regulations of the OTS, a savings
institution that, immediately prior to, and on a proforma basis after giving
effect to, a proposed dividend, has total capital that is at least equal to the
amount of its fully phased-in capital requirements (a "Tier I Association") is
permitted to pay dividends during a calendar year in an amount equal to the
greater of (i) 75.0% of its net income for the recent four quarters, or (ii)
100.0% of its net income to date during the calendar year plus an amount that
would reduce by one-half the amount by which its ratio of total capital to
assets exceeded its fully phased-in risk-based capital ratio requirement at the
beginning of the calendar year. At March 31, 1999, the Bank qualified as a Tier
I Association. See Notes 10, 13 and 19 of Notes to Consolidated Financial
Statements for additional information on capital levels and compliance, tax bad
debt reserves and the liquidation account.
These capital distribution regulations were revised on April 1, 1999.
Cash dividends paid by the parent company to its common stock shareholders
totaled $375,471 and $386,549 during the fiscal years 1999 and 1998,
respectively. The payment of dividends on the common stock is subject to the
direction of the Board of Directors of the Company and depends on a variety of
factors, including operating results and financial condition, liquidity,
regulatory capital limitations and other factors. It is the intention of the
Bank to continue to pay dividends to the parent company, subject to regulatory,
income tax and liquidation account considerations, to cover cash dividends on
common stock when and as declared by the parent company.
The Bank is required under applicable federal regulations to maintain specified
levels of "liquid" investments in qualifying types of U.S. Government, federal
agency and other investments having maturities of five years or less. Current
OTS regulations require that a savings bank maintain liquid assets of not less
than 4% of its average daily balance of net withdrawable deposit accounts. At
March 31, 1999, the Bank met its liquidity requirement and expects to meet this
requirement in the future. The Bank adjusts liquidity as appropriate to meet its
asset/liability objectives.
OTS has also set minimum capital requirements for savings banks such as the
Bank. The capital standards generally require the maintenance of regulatory
capital sufficient to meet a tangible capital requirement, a core capital
requirement and a risk-based capital requirement. At March 31, 1999 the Bank
exceeded all of the minimum capital requirements as currently required.
Impact of Inflation and Changing Prices
The financial statements of Guthrie Savings, Inc. and notes thereto, presented
elsewhere 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 and due to inflation. The
impact of inflation is reflected in the increased cost of the Bank's operations.
Nearly all the assets and liabilities of the Bank are monetary. As a result,
interest rates have a greater impact on the Bank'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.
- 17 -
<PAGE>
Year 2000 Issue
A great deal of information has been disseminated about the global computer
crash that may occur in the Year 2000. Many computer programs that can only
distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to the operation of the Bank. Data
processing is also essential to most other financial institutions and many other
companies.
The most significant data processing applications of the Bank that could be
affected by this problem are provided by a third party service bureau. The Bank
has developed a plan to evaluate and test critical systems as they relate to the
Year 2000 issues and the Bank's service center. The Bank is evaluating their
internal data processing applications and has updated all computer terminals and
installed a network system. The Bank has estimated the cost of addressing the
Year 2000 issue to be approximately $100,000, consisting of $60,000 for new bank
computer equipment, $30,000 relating to service bureau fees and approximately
$10,000 for various other training and consulting fees. As of March 31, 1999 the
Bank has expended $40,000 for upgraded computer equipment. This expenditure has
been capitalized and will be depreciated over a three-year period. Data
processing costs and conversion costs of $22,730 associated with Year 2000
expenses have been expensed as of March 31, 1999 and $600 per month of data
processing costs will continue through the end of 1999. Expenses relating to
training costs for the Year 2000 have been $3,500 as of March 31, 1999. The
Bank's data service center currently has started external and internal testing
of modifications to critical systems. This testing includes testing of
interfaces between the Bank computer network, installed in October 1998, and the
data service center. The Bank has also been evaluating its non-information
technology systems (vault timers, electronic door lock and heating, ventilation
and air conditioning controls, etc.). The Bank has examined all of its
non-information technology systems and have either received certifications of
Year 2000 compliance for systems controlled by third party providers or
determined that the systems should not be impacted by the Year 2000. The Bank
expects to further test the systems it controls and receive third party
certification, where appropriate, that they will function. The Bank does not
expect any material costs to address the non-information technology systems and
has not had any material costs to date. The Bank has determined that the
information technology systems it uses have substantially more Year 2000 risk
than non-information technology systems it uses.
The Bank has evaluated most of its borrowers and does not believe that the Year
2000 problem should, on an aggregate basis, impact their ability to make
payments to the Bank. Most of the Bank's residential borrowers are not dependent
on their home computers for income and none of the commercial borrowers are so
large that a Year 2000 problem would render them unable to collect revenue or
rent and, in turn, continue to make loan payments to the Bank. As a result, the
Bank has not contacted residential borrowers concerning this issue and does not
consider this issue in the residential loan underwriting process. The Bank has
contacted all commercial borrowers and considered this issue during commercial
loan underwriting. The Bank does not expect any material costs to address this
risk area.
If there is a problem with the service center or the Bank relating to the Year
2000 issue the Bank would likely experience significant data processing delays,
mistakes or failures. These delays, mistakes or failures could have a
significant adverse impact on the financial condition and results of operation
of the Bank. If the Bank's service bureau would fail, which is not anticipated,
the Bank would enter deposit and loan transactions by hand in the general ledger
and compute loan payments and deposit balances and interest with the existing
computer system. The Bank could do this because of the relatively small number
of loan and deposit accounts and it's internal bookkeeping system. The computer
systems are independently able to generate label and mailings for all of the
Bank's customers and the Bank periodically tests this system and prints and
stores this material. If this labor-intensive approach would be necessary,
management and the employees would become much less efficient. However, the Bank
believes that it would be able to operate in this manner indefinitely, until the
Bank's existing service bureau would be able to again provide data processing
services.
- 18 -
<PAGE>
Independent Auditor's Report
To the Board of Directors and Stockholders of
Guthrie Savings, Inc.
Guthrie, Oklahoma
We have audited the accompanying consolidated statements of financial condition
of Guthrie Savings, Inc. and subsidiary as of March 31, 1999 and 1998 and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the three years in the period ended March 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Guthrie Savings, Inc. and
subsidiary as of March 31, 1999 and 1998, and the results of their operations
and cash flows for each of the three years in the period ended March 31, 1999 in
conformity with generally accepted accounting principles.
/s/Regier Carr & Monroe, L.L.P
Regier Carr & Monroe, L.L.P.
April 23, 1999
(except for Note 23, as to
which the date is May 26, 1999)
Wichita, Kansas
F-1
<PAGE>
Guthrie Savings, Inc.
Consolidated Statements of Financial Condition
March 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
-------------------- -------------------
<S> <C> <C>
Cash and cash equivalents:
Interest bearing $ 6,778,318 $ 2,995,502
Non-interest bearing 407,796 311,917
-------------------- -------------------
Total cash and cash equivalents 7,186,114 3,307,419
Time deposits in other financial institutions 500,000
Investment securities held-to-maturity (estimated market
value of $999,380 and $3,893,119 at March 31,
1999 and 1998, respectively) 1,000,000 3,900,000
Investment securities available-for-sale 648,400 2,174,751
Mortgage-backed securities held-to-maturity (estimated
market value of $11,507,649 and $12,744,277 at
March 31, 1999 and 1998, respectively) 11,460,461 12,615,162
Loans receivable, net 23,802,225 25,573,437
Loans held-for-sale 81,757
Accrued income receivable 229,454 262,853
Real estate owned and other repossessed assets, net 10,500
Office properties and equipment, net 716,549 569,093
Income taxes receivable, current 89,231
Prepaid expenses and other assets 135,967 131,926
-------------------- -------------------
Total assets $ 45,768,401 $ 48,626,898
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 35,078,760 $ 35,537,831
Advances and other borrowings from
Federal Home Loan Bank 3,000,000 5,196,000
Advances from borrowers for taxes and insurance 57,312 48,988
Other liabilities and accrued expenses 70,940 109,081
Deferred income 43,153 50,824
Income taxes payable, current 26,840
Deferred income taxes 125,142 121,206
-------------------- -------------------
Total liabilities 38,375,307 41,090,770
-------------------- -------------------
Commitments
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; no shares outstanding
Common stock, $0.01 par value; 3,000,000 shares
authorized; 515,125 shares issued and outstanding 5,151 5,151
Additional paid-in capital 4,845,752 4,811,997
Retained income, substantially restricted 4,580,402 4,541,553
Accumulated other comprehensive income (3,443)
Unamortized stock acquired by Employee Stock
Ownership Plan (226,655) (267,865)
Unamortized compensation related to Management
Stock Bonus Plan (60,938) (103,490)
Treasury stock, at cost, 112,868 and 97,668 shares
at March 31, 1999 and 1998, respectively (1,750,618) (1,447,775)
-------------------- -------------------
Total stockholders' equity 7,393,094 7,536,128
-------------------- -------------------
Total liabilities and stockholders' equity $ 45,768,401 $ 48,626,898
==================== ===================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-2
<PAGE>
Guthrie Savings, Inc.
Consolidated Statements of Operations
Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Interest income:
Interest on loans $2,207,776 $2,217,831 $2,087,179
Interest on mortgage-backed securities 771,864 800,182 774,790
Interest and dividends on investment securities 461,894 649,745 770,018
---------------- ---------------- ----------------
Total interest income 3,441,534 3,667,758 3,631,987
---------------- ---------------- ----------------
Interest expense:
Deposits 1,501,653 1,538,585 1,528,658
Borrowed funds 219,349 338,369 304,925
---------------- ---------------- ----------------
Total interest expense 1,721,002 1,876,954 1,833,583
---------------- ---------------- ----------------
Net interest income 1,720,532 1,790,804 1,798,404
Provision for losses on loans 6,511 3,186 763
---------------- ---------------- ----------------
Net interest income after provision for
losses on loans 1,714,021 1,787,618 1,797,641
---------------- ---------------- ----------------
Non-interest income:
Service charges 172,449 183,331 164,561
Gain on sale of loans 24,102 4,813
Net gain on sale of investments 46,528
Gain from real estate operations 5,730 4,289 12
Other 55,407 50,003 40,176
---------------- ---------------- ----------------
Total non-interest income 257,688 242,436 251,277
---------------- ---------------- ----------------
Non-interest expense:
Compensation and related expenses 636,463 624,197 589,319
Occupancy expense 84,093 63,715 63,368
Professional fees 144,669 110,740 118,628
Federal insurance premium 21,182 21,572 62,913
SAIF special assessment 225,433
Data processing 108,669 82,873 83,210
Bank charges 59,401 52,534 57,922
Other expense 240,866 223,493 215,082
---------------- ---------------- ----------------
Total non-interest expense 1,295,343 1,179,124 1,415,875
---------------- ---------------- ----------------
Income before income taxes 676,366 850,930 633,043
---------------- ---------------- ----------------
Income taxes:
Currently payable 260,216 295,447 211,499
Deferred tax expense 1,830 19,888 41,164
---------------- ---------------- ----------------
Total income taxes 262,046 315,335 252,663
---------------- ---------------- ----------------
Net income $ 414,320 $ 535,595 $ 380,380
================ ================ ================
Basic:
Earnings per share $ 1.10 $ 1.41 $ 0.92
================ ================ ================
Weighted average common shares outstanding 374,994 380,544 413,112
================ ================ ================
Diluted:
Earnings per share $ 1.06 $ 1.36 $ 0.91
================ ================ ================
Weighted average common shares outstanding 389,234 392,522 417,485
================ ================ ================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-3
<PAGE>
Guthrie Savings, Inc.
Consolidated Statements of Comprehensive Income
Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- --------------- ---------------
<S> <C> <C> <C>
Net income $ 414,320 $ 535,595 $ 380,380
------------- --------------- ---------------
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during period 3,443 42,936 (5,755)
Less: reclassification adjustment for
gains included in net income (30,708)
------------- --------------- ---------------
Total other comprehensive income 3,443 42,936 (36,463)
------------- --------------- ---------------
Comprehensive income $ 417,763 $ 578,531 $343,917
============= =============== ===============
</TABLE>
F-4
<PAGE>
Guthrie Savings, Inc.
Consolidated Statements of Changes in Stockholders'
Equity Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Unamortized Unamoritzed
Accumulated Common Compensation
Additional Other Stock Related Total
Common Paid-In Retained Comprehensive Acquired by to Treasury Stockholders'
Stock Capital Earnings Income ESOP MSBP Stock Equity
------ --------- ---------- ---------- ----------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1996 $5,151 $4,765,516 $4,222,553 $ (9,916) $(350,285) $ (175,286) $(409,078) $8,048,655
Allocation of shares by Employees' Stock
Ownership Plan 14,152 41,210 55,362
Amortization of compensation related to
Management Stock Bonus Plan 40,450 40,450
Net income for the year ended March 31, 1997 380,380 380,380
Cash dividend paid ($0.50 per share) (210,426) (210,426)
Net change in unrealized loss on
available-for-sale securities (36,463) (36,463)
Purchase of 34,268 treasury shares (472,918) (472,918)
------ ---------- ---------- -------- ----------- ----------- ----------- ----------
Balance, March 31, 1997 5,151 4,779,668 4,392,507 (46,379) (309,075) (134,836) (881,996) 7,805,040
Allocation of shares by Employees' Stock
Ownership Plan 21,813 41,210 63,023
Management Stock Bonus Plan shares awarded
(618 shares) 2,255 (10,506) 8,251 -
Compensation related to stock options issued 3,090 3,090
Amortization of compensation related to
Management Stock Bonus Plan 5,171 41,852 47,023
Net income for the year ended March 31, 1998 535,595 535,595
Cash dividend paid ($1.00 per share) (386,549) (386,549)
Net change in unrealized loss
on available-for-sale securities 42,936 42,936
Purchase of 33,520 treasury shares (574,030) (574,030)
------ ---------- ---------- -------- ----------- ----------- ----------- ----------
Balance, March 31, 1998 5,151 4,811,997 4,541,553 (3,443) (267,865) (103,490) (1,447,775) 7,536,128
Allocation of shares by Employees' Stock
Ownership Plan 24,329 41,210 65,539
Amortization of compensation related to
Management Stock Bonus Plan 9,426 42,552 51,978
Net income for the year ended March 31, 1999 414,320 414,320
Cash dividend paid ($1.00 per share) (375,471) (375,471)
Net change in unrealized loss
on available-for-sale securities 3,443 3,443
Purchase of 15,200 treasury shares (302,843) (302,843)
------ ---------- ---------- -------- ----------- ----------- ----------- ----------
Balance, March 31, 1999 $5,151 $4,845,752 $4,580,402 $ - $ (226,655) $ (60,938)$(1,750,618) $7,393,094
====== ========== ========== ======== ============ =========== =========== ==========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-5
<PAGE>
Guthrie Savings, Inc.
Consolidated Statements of Cash Flows
Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 414,320 $ 535,595 $ 380,380
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of investments (46,528)
Loss on sale of real estate acquired in
settlement of loans 1,848 1,698
Depreciation 38,162 31,593 37,027
Amortization of premiums and discounts
on investments and loans (7,721) (3,437) 3,660
Provision for losses on loans and real
estate owned 6,511 3,186 763
Origination of loans held-for-sale (2,932,925) (755,957)
Sale of loans held-for-sale 3,038,784 679,013
Gain on sale of loans held-for-sale (24,102) (4,813)
Decrease in accrued interest receivable 33,399 67,424 33,251
(Increase) decrease in other assets (4,041) (32,791) 11,710
Increase (decrease) in accrued expenses (38,141) 48,276 (17,979)
(Decrease) increase in accrued and deferred
income taxes (104,815) 28,911 90,738
Amortization related to ESOP and MSBP 108,091 110,046 95,812
Other non-cash items, net 48 3,090 (1,839)
--------------- --------------- ---------------
Net cash provided by operating activities 529,418 710,136 588,693
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and principal payments on loans
held-for-investment 1,757,425 (2,102,303) (485,968)
Proceeds from maturities and calls of investment
securities held-to-maturity 3,400,000 5,300,000 1,550,000
Proceeds from sales of investment securities
available-for-sale 81,800 102,347
Proceeds from maturities and calls of investment
securities available-for-sale 1,500,000
Acquisition of investment securities held-to-maturity (1,000,000) (500,000) (500,000)
Acquisition of investment securities available-for-sale (49,900) (48,300) (39,700)
Repayment of mortgage-backed securities
held-to-maturity 3,647,283 2,340,044 1,357,171
Acquisition of mortgage-backed securities
held-to-maturity (2,523,109) (1,705,880) (5,227,289)
Acquisition of fixed assets (186,278) (2,053) (7,824)
Proceeds from sale of foreclosed real estate 53,016 13,348
Other investing activities, net 612
--------------- --------------- ---------------
Net cash provided (used) by investing activities 6,680,849 3,281,508 (3,237,915)
--------------- --------------- ---------------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-6
<PAGE>
Guthrie Savings, Inc.
Consolidated Statements of Cash Flows (Continued)
Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (465,582) $ 1,241,367 $ (2,016,506)
Net increase (decrease) in escrow accounts 8,324 16,158 (7,468)
Proceeds from FHLB advance and other borrowings 11,300,000 12,000,000
Repayment of FHLB advance and other borrowings (2,196,000) (12,804,000) (7,300,000)
Purchase of treasury stock (302,843) (574,030) (472,918)
Cash dividends paid (375,471) (386,549) (433,166)
------------ ------------ ------------
Net cash provided (used) by financing activities (3,331,572) (1,207,054) 1,769,942
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 3,878,695 2,784,590 (879,280)
Cash and cash equivalents at beginning of year 3,307,419 522,829 1,402,109
------------ ------------ ------------
Cash and cash equivalents at end of year $ 7,186,114 $ 3,307,419 $ 522,829
============ ============ ============
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest on deposits, advances and other
borrowings $ 1,716,966 $ 1,873,167 $ 1,835,422
============ ============ ============
Income taxes $ 410,410 $ 237,703 $ 189,059
============ ============ ============
Transfers from loans to foreclosed real estate $ 51,776 $ 19,690 $ 54,446
============ ============ ============
Loans to facilitate the sale of foreclosed real estate $ -- $ -- $ 39,400
============ ============ ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-7
<PAGE>
Guthrie Savings, Inc.
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
1. Summary of Significant Accounting Policies
Nature of operations:
Guthrie Savings, Inc. (the Company) is an Oklahoma corporation and is the
parent company of its wholly-owned subsidiary, Guthrie Federal Savings Bank
(the Bank). At the present time, the Company does not conduct any active
business.
Guthrie Federal Savings Bank is primarily engaged in attracting deposits
from the general public and using those deposits, together with other
funds, to originate real estate loans on one- to four-family residences,
and, to a lesser extent, consumer loans. The Bank has one office in
Guthrie, Oklahoma, which is located in its primary market area of Logan
County, Oklahoma. In addition, the Bank holds interest-bearing deposits in
other financial institutions and invests in mortgage-backed securities and
investment securities. The Bank offers its customers fixed-rate and
adjustable-rate mortgage loans, as well as consumer loans, including home
equity and savings account loans.
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
Guthrie Savings, Inc. and its wholly-owned subsidiary, Guthrie Federal
Savings Bank. Significant intercompany transactions and balances have been
eliminated.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ significantly from
those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan
losses and the valuation of assets acquired in connection with foreclosures
or in satisfaction of loans. In connection with the determination of the
allowances for loan losses and the valuation of assets acquired by
foreclosure, management obtains independent appraisals for significant
properties.
Management believes that the allowances for losses on loans and valuations
of assets acquired by foreclosure are adequate and appropriate. While
management uses available information to recognize losses on loans and
assets acquired by foreclosure, future loss may be accruable based on
changes in economic conditions, particularly in central Oklahoma. In
addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowances for losses
on loans and valuations of assets acquired by foreclosure. Such agencies
may require the Bank to recognize additional losses based on their judgment
of information available to them at the time of their examination.
F-8
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
Cash and cash equivalents:
Cash and cash equivalents include unrestricted cash on hand, demand
deposits maintained in depository institutions and other readily
convertible investments with original contractual terms to maturity of
three months or less.
Investment and mortgage-backed securities:
Regulations require the Bank to maintain liquidity for maturities of
deposits and other short-term borrowings in cash, U.S. Government and other
approved securities.
Investments, including mortgage-backed securities, are classified as either
held-to-maturity, trading, or available-for-sale. Held-to-maturity
securities are securities for which the Bank has the positive intent and
ability to hold to maturity and are reported at amortized cost. Trading
securities are securities held principally for resale and are reported at
fair value, with unrealized changes in value reported in the institution's
income statement as part of its earnings. Available-for-sale securities are
securities not classified as trading nor as held-to-maturity securities and
are also reported at fair value, but any unrealized appreciation or
depreciation, net of tax effects, are reported as a separate component of
stockholders' equity until realized.
Gains or losses on sales of available-for-sale securities are determined
using the specific-identification method. All sales are made without
recourse.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
Loans receivable:
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal balances, net of deferred income on loans,
undisbursed loan proceeds and the allowance for loss on loans. Premiums and
discounts on loans are amortized into income using the interest method.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, current level of non-performing assets,
and current economic conditions.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to
the extent cash payments are received.
Loan origination fees and certain direct costs are capitalized and
recognized as an adjustment of the yield of the related loan.
Loans held-for-sale:
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate.
Net unrealized losses are recognized through a valuation allowance by
charges to income.
F-9
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
Foreclosed real estate:
Real estate properties acquired through, or in lieu of, loan foreclosure
are to be sold and are initially recorded at fair value at the date of
foreclosure establishing a new cost basis. Valuations are periodically
performed by management, and an allowance for losses is established by a
charge to operations if the carrying value of a property exceeds the fair
value less estimated costs to sell. Revenue and expenses from operations
and changes in the valuation allowance are included in gain or loss on
foreclosed real estate. The historical average holding period for such
property is approximately six months.
Financial instruments:
All derivative financial instruments previously held or issued by the
Company were held or issued for purposes other than trading. The Company
did not hold or issue any derivative financial instruments during the years
ended March 31, 1999, 1998 and 1997.
Off-balance sheet instruments:
In the ordinary course of business the Bank has entered into off-balance
sheet financial instruments consisting of commitments to extend credit,
commercial letters of credit, and standby letters of credit. Such financial
instruments are recorded in the financial statements when they are funded
or related fees are incurred or received.
Office properties and equipment:
Office properties and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on a straight-line basis or
accelerated methods over the estimated useful lives of five to fifty years
for buildings and improvements and three to twenty years for furniture,
fixtures, equipment and automobiles.
Income taxes:
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Advertising costs:
Advertising costs are expensed as incurred and included in other
non-interest expense. Advertising expenses totaled $22,181, $24,382 and
$25,425 for the years ended March 31, 1999, 1998 and 1997, respectively.
Stock-based compensation:
In October, 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. This Statement establishes a fair-value-based method of
accounting for stock compensation plans with employees and others. It
applies to all arrangements under which employees receive shares of stock
or other equity instruments of the employer, or the employer incurs
liabilities to employees in amounts based on the price of the employer's
stock. Although encouraged to do so, entities are not required to adopt the
recognition and measurement aspects of SFAS No. 123, and may continue to
account for stock-based compensation plans in accordance with APB Opinion
25. The Company has adopted the recognition and measurement provisions of
SFAS No. 123 effective for the fiscal year beginning April 1, 1997. SFAS
No. 123 will effect the Company's stock options granted after April 1,
1997. These options are recognized and measured in accordance with the
fair-value-based method of accounting.
F-10
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
Comprehensive income:
Effective April 1, 1998, the Corporation adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 130 entitled
Reporting Comprehensive Income. This statement requires disclosures of the
components of comprehensive income and the accumulated balance of other
comprehensive income with consolidated stockholders' equity. The adoption
of the provisions of SFAS No. 130, which are only of a disclosure nature,
did not effect the Corporation's consolidated financial position, results
of operations or liquidity.
Earnings per share:
Effective for the year ended March 31, 1998, the Company adopted the
provisions of SFAS No. 128, entitled Earnings Per Share, and accordingly,
restated all prior period earnings per share to conform with SFAS No. 128.
This statement requires dual presentation with equal prominence of basic
and diluted earnings per share (EPS) for income from continuing operations
and for net income on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Basic EPS excludes dilution and
is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. See Note 12 for additional information.
Impact of new accounting standards:
In June 1998, FASB issued SFAS No. 133 entitled Accounting for Derivative
Instruments and Hedging Activities. This statement requires the recognition
of all derivative financial instruments as either assets or liabilities in
the statement of financial position and measurement of those instruments at
fair value. The accounting for gains and losses associated with changes in
the fair value of a derivative and the effect on the consolidated financial
statements will depend on its hedge designation and whether the hedge is
highly effective in achieving offsetting changes in the fair value or cash
flows of the asset or liability hedged. Under the provisions of SFAS No.
133, the method that will be used for assessing the effectiveness of a
hedging derivative, as well as the measurement approach for determining the
ineffective aspects of the hedge, must be established at the inception of
the hedge. The methods must be consistent with the entity's approach to
managing risk.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999, with initial application as of the beginning of an
entity's fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of this
Statement. Earlier application is encouraged, but is permitted only as of
the beginning of any fiscal quarter beginning after June 15, 1999.
Retroactive application to financial statements of prior periods is
prohibited. Management of the Company has not determined the quarter in
which to adopt the provisions of this statement and does not believe that
such adoption will have a material effect on the Company's financial
position, liquidity or results of operations.
The Financial Accounting Standards Board has issued a proposed SFAS that,
if issued, would defer the effective date of SFAS No. 133 to all fiscal
years beginning after June 15, 2000.
F-11
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
Financial statement presentation:
Certain items in prior year financial statements have been reclassified
to conform to the 1998 presentation.
2. Investment Securities
The amortized cost and estimated market values of investment securities
at March 31 are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1999
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Held-to-maturity:
Government Agency Securities $1,000,000 $ 953 $ 1,573 $ 999,380
----------------- -------------- -------------- -----------------
Total held-to-maturity $1,000,000 $ 953 $ 1,573 $ 999,380
================= ============== ============== =================
Available-for-sale:
Stock in Federal Home Loan Bank,
at cost $ 648,400 648,400
----------------- -------------- -------------- -----------------
Total available-for-sale $ 648,400 $ - $ - $ 648,400
================= ============== ============== =================
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Held-to-maturity:
Government Agency Securities $3,900,000 $ 1,292 $ 8,173 $ 3,893,119
----------------- -------------- -------------- -----------------
Total held-to-maturity $3,900,000 $ 1,292 $ 8,173 $ 3,893,119
================= ============== ============== =================
Available-for-sale:
Government Agency Securities $1,500,000 $ - $ 5,549 $ 1,494,451
Stock in Federal Home Loan Bank,
at cost 680,300 680,300
----------------- -------------- -------------- -----------------
Total available-for-sale $2,180,300 $ - $ 5,549 $ 2,174,751
================= ============== ============== =================
</TABLE>
Government agency securities above include bonds and notes issued by
various government agencies. Those agencies include the following:
Federal Home Loan Bank, Fannie Mae, and Freddie Mac.
Government Agency Securities at March 31, 1998 included $500,000 of
Federal Home Loan Bank bonds, at cost, with dual indexed or inverse
floating rate structures whose yield may not move consistent with general
interest rate movements.
Federal Home Loan Bank members are required to maintain an investment in
stock at an amount equal to a percentage of outstanding home loans. Such
stock is assumed to have a market value which is equal to cost.
F-12
<PAGE>
2. Investment Securities (Continued)
The amortized cost and estimated market value of debt securities at March
31, 1999, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties. The equity securities, including Federal Home Loan Bank Stock,
have been excluded from the maturity table below because they do not have
contractual maturities associated with debt securities.
Amortized Estimated
Cost Market Value
---------------- ----------------
Held-to-maturity:
Due after one year through five years $ 500,000 $ 498,882
Due after five years through ten years 500,000 500,498
---------------- ----------------
Total held-to-maturity $1,000,000 $ 999,380
================ ================
There were no sales of investment securities available-for-sale during the
years ended March 31, 1999 and 1998. During the year ended March 31, 1997,
there were realized gains on sales of investment securities
available-for-sale of $46,528.
Investment securities with a carrying amount of $500,000 and $0 as of
March 31, 1999 and 1998, respectively, were pledged as collateral for
public funds as discussed in Note 8.
3. Mortgage-Backed Securities
Mortgage-backed securities, all of which were classified as
held-to-maturity at March 31, 1999 and 1998, consist of the following:
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------ ------------- -------------- ------------------
<S> <C> <C> <C> <C>
FHLMC - fixed rate $ 885,819 $ 17,628 $ 903,447
FHLMC - ARM's 1,029,788 32,712 997,076
GNMA - ARM's 2,589,492 12,792 5,776 2,596,508
FNMA - ARM's 1,593,211 18,290 16,703 1,594,798
GNMA - fixed rate 161,296 8,638 169,934
FNMA - fixed rate 1,690,175 694 12,230 1,678,639
Collateralized mortgage obligations-
government agency issue 3,510,680 56,849 282 3,567,247
------------------ ------------- -------------- -----------------
$ 11,460,461 $114,891 $ 67,703 $ 11,507,649
================== ============= ============== =================
</TABLE>
F-13
<PAGE>
3. Mortgage-Backed Securities (Continued)
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FHLMC - fixed rate $ 1,252,544 $ 10,226 $ -- $ 1,262,770
FHLMC - ARM's 1,254,724 772 18,935 1,236,561
GNMA - ARM's 2,920,533 16,944 4,905 2,932,572
FNMA - ARM's 1,324,286 29,363 1,294,923
GNMA - fixed rate 309,791 12,869 322,660
FNMA - fixed rate 559,283 7,144 552,139
Collateralized mortgage obligations-
government agency issue 4,994,001 151,962 3,311 5,142,652
----------- ----------- ----------- -----------
$12,615,162 $ 192,773 $ 63,658 $12,744,277
=========== =========== =========== ===========
</TABLE>
Collateralized mortgage obligations consist of floating rate notes with
varying contractual principal maturities. The Bank has no principal only,
interest only, or residual collateralized mortgage obligations.
There were no realized gains or losses on sales of mortgage-backed
securities during the years ended March 31, 1999, 1998 and 1997.
There were no mortgage-backed securities classified as available-for-sale
as of March 31, 1999 and 1998.
4. Loans Receivable
Loans receivable at March 31 are summarized as follows:
<TABLE>
<CAPTION>
March 31,
------------------------------------
1999 1998
--------------- -----------------
Real estate loans:
<S> <C> <C>
Residential $18,644,037 $19,486,296
Construction 1,630,000 2,097,800
Non-residential 1,721,601 1,763,895
Second mortgage and other equity 1,120,530 1,267,008
Consumer 2,412,920 2,483,123
--------------- -----------------
Gross loans 25,529,088 27,098,122
Less: Loans in process (1,331,517) (1,098,775)
Deferred loan fees and costs (56,056) (72,674)
Allowance for loan losses (339,290) (353,236)
--------------- -----------------
Net loans receivable $23,802,225 $25,573,437
=============== =================
</TABLE>
F-14
<PAGE>
4. Loans Receivable (Continued)
The following is an analysis of the allowance for loss on loans:
<TABLE>
<CAPTION>
March 31,
----------------------------------------------------
1999 1998 1997
-------------- ---------------- ---------------
<S> <C> <C> <C>
Balance, beginning of year $ 353,236 $ 376,692 $ 391,189
Provision charged to operations 6,511 3,186 763
Loans charged off (23,475) (33,844) (29,056)
Recoveries 3,018 7,202 13,796
-------------- ---------------- ---------------
Balance, end of year $ 339,290 $ 353,236 $ 376,692
============== ================ ===============
</TABLE>
Impairment of loans having recorded investments of $511,042 at March 31,
1999 and $440,137 at March 31, 1998 has been recognized in conformity
with FASB Statement No. 114, as amended by FASB Statement No. 118. The
average recorded investment in impaired loans during the years ended
March 31, 1999 and 1998, was $475,590 and $403,227, respectively. The
total allowance for loan losses related to these loans was $111,258 and
$106,625 at March 31, 1999 and 1998. Allowances for loss on these loans
are included in the above analysis of the overall allowance for loss on
loans. Interest income on impaired loans of $48,484 and $46,105 was
recognized for cash payments received for the years ended March 31, 1999
and 1998, respectively.
It is Bank policy not to modify interest rates on loans associated with
troubled debt restructuring. The Bank is not committed to lend additional
funds to debtors whose loans have been modified.
See Note 18 for disclosure of loans to related parties.
5. Accrued Income Receivable
Accrued interest receivable at March 31 is summarized as follows:
1999 1998
----------------- -----------------
Mortgage-backed securities $ 53,224 $ 61,121
Loans receivable 151,107 144,236
Investments 25,123 57,496
----------------- -----------------
$ 229,454 $ 262,853
================= =================
6. Foreclosed Real Estate
Real estate owned or in judgment and other repossessed assets consist of
the following:
1999 1998
----------------- -----------------
Real estate acquired by foreclosure $ - $ 10,500
================= =================
There was no activity in the allowance for loss account for the years
ended March 31, 1999, 1998 and 1997.
F-15
<PAGE>
6. Foreclosed Real Estate (Continued)
Income (loss) from real estate operations for the years ended March 31 is
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net gain on sale of real estate owned $ 5,823 $ 7,131 $ 1,439
Operating expenses (93) (2,842) (1,427)
----------------- ----------------- -----------------
$ 5,730 $ 4,289 $ 12
================= ================= =================
</TABLE>
7. Office Properties and Equipment
Office properties and equipment are stated at cost less accumulated
depreciation as follows:
March 31,
--------------------------------
1999 1998
----------------- -------------
Land $ 398,332 $ 398,332
Building and improvements 680,285 622,292
Furniture and equipment 264,434 246,501
Automobiles 13,103 13,103
----------------- -------------
1,356,154 1,280,228
Less accumulated depreciation (639,605) (711,135)
----------------- -------------
$ 716,549 $ 569,093
================= =============
Depreciation expense (1997 - $37,027) $ 38,162 $ 31,593
================= =============
8. Deposits
Deposits at March 31 are summarized as follows:
1999 1998
----------------- -----------------
Demand deposits $9,156,846 $8,862,808
Savings deposits 3,011,701 2,926,724
Certificates of deposit 22,910,213 23,748,299
----------------- -----------------
$35,078,760 $35,537,831
================= =================
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was $1,675,829 and $1,420,654 at March 31, 1999
and 1998, respectively. Deposit accounts as of March 31, 1999 and 1998
included public funds of $400,000 and $0, respectively. Public funds were
collateralized by investment securities as discussed in Note 2.
At March 31, 1999, scheduled maturities of certificates of deposit are as
follows:
Year Ending March 31,
- ----------------------------
2000 $19,604,566
2001 2,425,957
2002 498,830
2003 221,029
2004 159,831
-----------------
$22,910,213
=================
F-16
<PAGE>
9. Advances and Other Borrowings from Federal Home Loan Bank
Advances and other borrowings from the Federal Home Loan Bank at March 31
are summarized as follows:
1999 1998
---------------- ---------------
Advances $3,000,000 $5,196,000
================ ===============
At March 31, 1999 the Bank had $0 outstanding under a $3,000,000 line of
credit with the Federal Home Loan Bank. The existing line of credit
expires August 13, 1999. At March 31, 1998, the Bank had $0 outstanding
under a $3,000,000 line of credit, due August 15, 1998. The line of
credit bears interest at the line of credit rate established by the
Federal Home Loan Bank. This rate is adjusted from time to time.
Advances from the Federal Home Loan Bank are subject to fixed and
adjustable interest rates and at March 31 consist of the following:
<TABLE>
<CAPTION>
Fiscal 1999 1998
------------------------------------- -------------------------------------
Year Weighted Weighted
Maturity Amount Average Rate Amount Average Rate
- -------------- ---------------- ----------------- --------------- ------------------
<S><C> <C> <C> <C> <C>
1999 $ - % $2,196,000 5.64 %
2008 3,000,000 4.78 3,000,000 4.78
---------------- ----------------- --------------- ------------------
$3,000,000 4.78 % $5,196,000 5.14 %
================ ================= =============== ==================
</TABLE>
The advances and line of credit are collateralized by a blanket pledge
agreement, including all stock in Federal Home Loan Bank, qualifying
mortgage loans, certain mortgage-related securities and other
investments.
10. Income Taxes
The Company and subsidiary file consolidated federal income tax returns.
The Company's effective income tax rate was different than the statutory
federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
March 31,
---------------------------------------------------------------
1999 1998 1997
------------------- --------------------- ---------------------
<S> <C> <C> <C>
Statutory federal income tax 34.0 % 34.0 % 34.0 %
Increase resulting from:
Oklahoma income tax 3.9 1.5
Adjust tax bad debt reserves 0.8 5.4
Non-deductible items 0.8 0.4 0.3
Other 0.4 0.2
------------------- --------------------- ---------------------
38.7 % 37.1 % 39.9 %
=================== ===================== =====================
</TABLE>
F-17
<PAGE>
10. Income Taxes (Continued)
Deferred taxes are included in the accompanying Statement of Financial
Condition at March 31, 1999 and 1998 for the estimated future tax effects
of differences between the financial statement and federal income tax basis
of assets and liabilities given the provisions of currently enacted tax
laws.
The net deferred tax asset (liability) at March 31, 1999 and 1998 was
comprised of the following:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Deferred tax assets:
Deferred loan fees and costs $ 6,119 $ 9,319
Allowance for loan losses 86,560 93,614
Unrealized loss on available-for-sale securities 2,106
Accrued compensation 17,186 15,911
------------- -------------
Total deferred tax assets 109,865 120,950
------------- -------------
Deferred tax liabilities:
Accumulated depreciation (15,028) (11,155)
Special bad debt deduction (55,353) (76,353)
Increase in value of insurance contract (10,294)
FHLB stock dividends (154,332) (154,648)
------------- -------------
Total deferred tax liabilities (235,007) (242,156)
------------- -------------
Net liability $ (125,142) $ (121,206)
============= =============
</TABLE>
No valuation allowance was recorded against deferred tax assets at March
31, 1999 and 1998.
Effective with the tax year beginning April 1, 1996, the Bank is no longer
able to use the percentage of taxable income method and began to recapture
tax bad debt reserves of $377,949 over a six year period. The Bank
recaptured $62,992 in tax bad debt reserves during each of the year ended
March 31, 1999 and 1998. The reserves to be recaptured consist of bad debt
deductions after December 31, 1987. If the amounts deducted prior to
December 31, 1987 are used for purposes other than for loan losses, such as
in a distribution in liquidation or otherwise, the amounts deducted would
be subject to federal income tax at the then current corporate tax rate.
The Bank has recorded a deferred tax asset related to the allowance for
loan losses reported for financial reporting purposes and a deferred tax
liability for special bad debt deductions after December 31, 1987. The
Bank, in accordance with SFAS No. 109 had not recorded a deferred tax
liability of approximately $372,000 related to approximately $979,000 of
cumulative special bad debt deductions prior to December 31, 1987.
F-18
<PAGE>
11. Comprehensive Income
Accumulated comprehensive income as of March 31, 1999, 1998 and 1997
consists of unrealized gains and losses on available-for-sale
securities. Classification of comprehensive income and the related
income tax (expense) or benefit for the years ended March 31, 1999, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
--------------- --------------- ---------------
<S> <C> <C> <C>
Year Ended March 31, 1999
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $ 5,549 $ (2,106) $ 3,443
Less: reclassification adjustment
for gains included in net income - - -
--------------- --------------- ---------------
Total other comprehensive
income $ 5,549 $ (2,106) $ 3,443
=============== =============== ===============
Year Ended March 31, 1998
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $ 64,724 $ (21,788) $ 42,936
Less: reclassification adjustment
for gains included in net income - - -
--------------- --------------- ---------------
Total other comprehensive
income $ 64,724 $ (21,788) $ 42,936
=============== =============== ===============
Year Ended March 31, 1997
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $ (8,719) $ 2,964 $ (5,755)
Less: reclassification adjustment
for gains included in net income (46,528) 15,820 (30,708)
--------------- --------------- ---------------
Total other comprehensive
income $ (55,247) $ 18,784 $(36,463)
=============== =============== ===============
</TABLE>
F-19
<PAGE>
12. Earnings Per Share
The following is a reconciliation of the numerators and denominators of
the basic and diluted per share computations for income:
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
------------------- ------------------- ------------
<S> <C> <C> <C>
Year ended March 31, 1999:
Basic EPS
Income available to common stockholders $ 414,320 374,994 $ 1.10
============
Effect of dilutive securities
MSBP shares 1,168
Stock options 13,072
------------------- -------------------
Diluted EPS $ 414,320 389,234 $ 1.06
=================== =================== ============
Year ended March 31, 1998:
Basic EPS
Income available to common stockholders $ 535,595 380,544 $ 1.41
============
Effect of dilutive securities
MSBP shares 1,446
Stock options 10,532
------------------- -------------------
Diluted EPS $ 535,595 392,522 $ 1.36
=================== =================== ============
Year ended March 31, 1997:
Basic EPS
Income available to common stockholders $ 380,380 413,112 $ 0.92
============
Effect of dilutive securities
MSBP shares 624
Stock options 3,749
------------------- -------------------
Diluted EPS $ 380,380 417,485 $ 0.91
=================== =================== ============
</TABLE>
13. Regulatory and Capital Matters
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary--actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
F-20
<PAGE>
13. Regulatory and Capital Matters (Continued)
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of core capital (as defined in the regulations) to assets (as
defined) and core and total capital to risk weight assets (as defined).
Management believes, as of March 31, 1999, that the Bank meets all capital
adequacy requirements to which it is subject.
As of March 31, 1999, the most recent notification from the Office of
Thrift Supervision (OTS) categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are
no conditions or events since that notification that management believes
have changed the Bank's category.
The Bank's actual capital amounts (in thousands) and ratios are also
presented in the following table:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
--------------------------- ---------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
---------------- -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1999:
Total (Risk-Based) Capital
(to Risk Weighted Assets) $ 7,217 35.3% $ 1,632 8.0% $ 2,042 10.0%
Core (Tier I) Capital
(to Risk Weighted Assets) 6,989 34.2% N/A 1,225 6.0%
Core (Tier I) Capital - leverage
(to Assets) 6,989 15.3% 1,825 4.0% 2,282 5.0%
As of March 31, 1998:
Total (Risk-Based) Capital
(to Risk Weighted Assets) $ 7,080 33.4% $ 1,696 8.0% $ 2,120 10.0%
Core (Tier I) Capital
(to Risk Weighted Assets) 6,833 32.2% N/A 1,272 6.0%
Core (Tier I) Capital - leverage
(to Assets) 6,833 14.1% 1,943 4.0% 2,428 5.0%
</TABLE>
F-21
<PAGE>
13. Regulatory and Capital Matters (Continued)
The following is a reconciliation of net worth to regulatory capital as
reported in the March 31, 1999 and 1998 reports to the Office of Thrift
Supervision:
<TABLE>
<CAPTION>
March 31,
---------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Bank net worth per report
to Office of Thrift Supervision $ 6,989,000 $ 6,830,000
Rounding (339) (584)
------------------ ------------------
Net worth as reported in accompanying
financial statements (Bank only) 6,988,661 6,829,416
Adjustments to arrive at Core (Tier I)
and Tangible Capital:
Unrealized losses on certain
available-for-sale securities 3,000
------------------ ------------------
Core (Tier I) and Tangible Capital 6,988,661 6,832,416
Adjustments to arrive at Total Capital:
Allowable portion of general
allowance for loan losses 228,000 247,000
------------------ ------------------
Total Capital $ 7,216,661 $ 7,079,416
================== ==================
Risk weight assets $20,422,000 $21,202,000
================== ==================
</TABLE>
14. Employee Benefits Plans
Employee Retirement Plan:
The Bank adopted a 401(k) defined contribution savings plan during the
year ended March 31, 1997. Substantially all employees are covered under
the contributory plan. Pension costs attributable to the year ended March
31, 1999 and 1998 were $10,184 and $9,748, respectively, including all
current service costs.
Employee Stock Ownership Plan:
Upon conversion from mutual to stock form, the Bank established an
employee stock ownership plan (ESOP). The original acquisition of 41,210
shares of Company stock by the plan was funded by a loan from the Company
to the ESOP, in the amount of $412,100. The loan, together with interest,
is to be repaid over a ten year period. The debt, which is accounted for
as a liability of the Bank and a receivable for the Company, has been
eliminated in consolidation.
The Bank makes annual contributions to the ESOP equal to the ESOP's debt
service less dividends received by the ESOP. All dividends received by
the ESOP are used to pay debt service. The ESOP shares initially were
pledged as collateral for its debt. As the debt is repaid, shares are
released from the collateral and will be allocated to active employees,
based on the proportion of debt service paid in the year. The Bank
accounts for its ESOP in accordance with Statement of Position No. 93-6.
Accordingly, the debt of the ESOP is recorded as debt of the Bank and the
shares pledged as collateral are reported as unearned ESOP shares in the
Statement of Financial Condition. As of March 31, 1999, the balance of
indebtedness from the ESOP to the Company was $226,655, which is shown as
a deduction from stockholders' equity on the consolidated statement of
financial condition. As shares are released from collateral, the Company
reports compensation
F-22
<PAGE>
14. Employee Benefits Plans (Continued)
expense equal to the current market price of the shares, and the shares
become outstanding for earnings per share (EPS) computations. Dividends
on allocated ESOP shares are recorded as a reduction of retained
earnings; dividends on unallocated ESOP shares are recorded as
compensation expense. ESOP compensation expense was $51,370, $52,721 and
$29,606 for the years ended March 31, 1999, 1998 and 1997, respectively.
As of March 31, 1999, of the 40,589 ESOP shares, 17,924 shares were
allocated and 22,665 shares were unallocated. The 22,665 unallocated
shares had an estimated market value of $419,303 at March 31, 1999.
Management Stock Bonus Plan:
During the year ended March 31, 1996, the Bank adopted a Management Stock
Bonus Plan (MSBP), the objective of which is to enable the Bank to retain
personnel of experience and ability in key positions of responsibility.
All employees of the Bank are eligible to receive benefits under the
MSBP. Benefits may be granted at the sole discretion of a committee
appointed by the Board of Directors. The MSBP is managed by trustees who
are non-employee directors and who have the responsibility to invest all
funds contributed by the Bank to the trust created for the MSBP.
The MSBP purchased 20,605 shares of the Company's stock for $275,083. Of
these shares, 16,481 shares were granted in the form of restricted stock
payable over a five-year period at the rate of one-fifth of such shares
per year following the date of grant of the award. Compensation expense,
in the amount of the fair market value of the common stock at the date of
the grant to the employee, will be recognized pro rata over the five
years during which the shares are payable. A recipient of such restricted
stock will be entitled to all voting and other stockholder rights, except
that the shares, while restricted, may not be sold, pledged or otherwise
disposed of and are required to be held in escrow. If a holder of such
restricted stock terminates employment for reasons other than death,
disability or retirement, the employee forfeits all rights to shares
under restriction. If the participant's service terminates as a result of
death, disability, retirement or a change in control of the Bank, all
restrictions expire and all shares become unrestricted. The 4,124 shares
that have not been granted are accounted for as treasury stock. The Board
of Directors can terminate the MSBP at any time, and if it does so, any
shares not allocated will revert to the Company.
15. Stock Option Plan
The Company's Board of Directors and stockholders ratified, effective
July 27, 1995, the 1994 Stock Option Plan (the Option Plan). Pursuant to
the Option Plan, 51,512 shares of common stock are reserved for issuance
by the Company upon exercise of stock options granted to officers,
directors and employees of the Company and Bank from time to time under
the Option Plan. The purpose of the Option Plan is to provide additional
incentive to certain officers, directors and key employees by
facilitating their purchase of a stock interest in the Company. The
Option Plan provides for the granting of incentive and non-incentive
stock options with a duration of ten years, after which no awards may be
made, unless earlier terminated by the Board of Directors pursuant to the
Option Plan. Stock to be offered under the Plan may be authorized but
unissued common stock or previously issued shares which have been
reacquired by the Company and held as Treasury shares.
The Option Plan is administered by a committee of at least three
non-employee directors designated by the Board of Directors (the Option
Committee). The Option Committee selects the employees to whom options
are to be granted and the number of shares to be granted. The option
price may not be less than 100% of the fair market value of the shares on
the date of the
F-23
<PAGE>
15. Stock Option Plan (Continued)
grant, and no option shall be exercisable after the expiration of ten
years from the grant date. In the case of any employee who owns more than
10% of the outstanding common stock at the time the option is granted,
the option price may not be less than 110% of the fair market value of
the shares on the date of the grant, and the option shall not be
exercisable after the expiration of five years from the grant date. The
exercise price may be paid in cash, shares of the common stock, or a
combination of both.
Effective with ratification of the Option Plan, the Option Committee
granted 39,661 shares of common stock, at an exercise price of $12.63 per
share. Generally, options are exercisable at the rate of 20% on the
one-year anniversary and 20% annually thereafter. Options shall be
immediately exercisable in the event of the retirement following not less
than 10 years of service, death or disability of the option holder, or
upon change of control in the Company as provided in the plan. As of
March 31, 1999, no options have been exercised and all options granted
remain outstanding.
The Company accounts for the fair value of its grants issued under the
plan subsequent to April 1, 1997 in accordance with FASB Statement 123.
The compensation cost that has been charged against income for the plan
was $0 and $3,090 for the years ended March 31, 1999 and 1998,
respectively.
In accordance with SFAS No. 123, the fair value of each option grant is
estimated on the date of grant based on discussions with management and
various assumptions relating to the dividend yield, expected volatility,
risk-free interest rate and expected life. The Company did not grant any
stock options during the year ended March 31, 1999. Common stock options
granted during the year ended March 31, 1998 had an exercise price of
$17.00 per share and an estimated fair value of $2.00 per share.
Certain information for the years ended March 31, 1999 and 1998 relative to
stock options are as follows:
<TABLE>
<CAPTION>
March 31,
-------------------------------------------------------------------
1999 1998
-------------------------------- ------------------------------
Weighted-Average Weighted-Average
Fixed Options Shares Exercise Price Shares Exercise Price
-------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 41,206 $ 12.79 39,661 $ 12.63
Granted 1,545 17.00
Canceled
Exercised
-------------- -------------- ------------- -------------
Outstanding at end of year 41,206 $ 12.79 41,206 $ 12.79
============== ============== ============= =============
Exercisable at end of year 41,206 41,206
============== =============
Number of shares available for future grant:
Beginning of year 10,306 11,851
============== =============
End of year 10,306 10,306
============== =============
</TABLE>
F-24
<PAGE>
16. Financial Instruments with Off-Balance-Sheet Risk/Commitments
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financial needs of its
customers and to reduce its own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend credit,
standby letters of credit and commitments to sell loans. These
instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the Statement of
Financial Condition. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for loan commitments and standby
letters of credit is represented by the contractual notional amount of
those instruments. The Bank uses the same credit policies in making
commitments as it does for on-balance-sheet instruments.
At March 31, 1999 and 1998, the Bank had outstanding commitments to fund
real estate loans of $209,835 and $220,500, respectively. All of the
commitments outstanding at March 31, 1999 were for fixed rate loans with
rates of 7.25% to 7.75%.
The Bank had no standby letters of credit outstanding at March 31, 1999.
At March 31, 1998, the Bank had outstanding a standby letter of credit of
$150,000 with a fixed interest rate of 8.00%.
Loan commitments are agreements to lend to a customer as long as there is
no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Bank upon extension of
credit is based on management's credit evaluation of the counter-party.
Collateral held is primarily residential real estate, but may include
autos, accounts receivable, inventory, property, plant and equipment.
The Bank had no commitments to sell loans at March 31, 1999. The Bank had
an outstanding commitment to a mortgage banking concern to sell a $57,600
loan yet to be originated at March 31, 1998. The Bank has an outstanding
commitment to originate the loan at an approximately equivalent interest
rate.
At March 31, 1999 and 1998, loans with a carrying value of $0 and
$81,757, respectively, have been classified by management as
held-for-sale. The carrying value of these loans is at the lower of cost
or market value as of March 31, 1999 and 1998.
The Bank had no commitments to purchase mortgage-backed securities or
investment securities at March 31, 1999 and 1998.
17. Significant Concentrations of Credit Risk
The Bank grants mortgage, consumer and business loans primarily to
customers within the state. Although the Bank has a diversified loan
portfolio, a substantial portion of its customers' ability to honor their
contracts is dependent upon the agribusiness and energy sectors of the
economy. The Bank's net investment in loans is subject to a significant
concentration of credit risk given that the investment is primarily
within a specific geographic area.
F-25
<PAGE>
17. Significant Concentrations of Credit Risk (Continued)
As of March 31, 1999, the Bank had a net investment of $23,802,225 in
loans receivable. These loans possess an inherent credit risk given the
uncertainty regarding the borrower's compliance with the terms of the
loan agreement. To reduce credit risk, the loans are secured by varying
forms of collateral, including first mortgages on real estate, liens on
personal property, savings accounts, etc. It is generally Bank policy to
file liens on titled property taken as collateral on loans, such as real
estate and autos. In the event of default, the Bank's policy is to
foreclose or repossess collateral on which it has filed liens.
In the event that any borrower completely failed to comply with the terms
of the loan agreement and the related collateral proved worthless, the
Bank would incur a loss equal to the loan balance.
18. Related Party Transactions
Directors and primary officers of the Company were customers of, and had
transactions with, the Bank in the ordinary course of business during the
years ended March 31, 1999 and 1998, 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 transactions with other
persons and did not involve more than normal risk of loss or present
other unfavorable features.
The following analysis is of loans made to principal officers, directors
and principal holders of equity securities which individually exceeded
$60,000 in aggregate during the year ended March 31, 1999:
Balance, March 31, 1998 $ 91,334
New loans 14,055
Repayments (77,169)
Adjust for balances less than $60,000 (28,220)
----------
Balance, March 31, 1999 $ -
==========
19. Restrictions on Retained Earnings
Office of Thrift Supervision regulations require that upon conversion
from mutual to stock form of ownership, a "liquidation account" be
established by restricting a portion of net worth for the benefit of
eligible savings account holders who maintain their savings accounts with
the Bank after conversion. In the event of complete liquidation (and only
in such event) each savings account holder who continues to maintain
their savings account shall be entitled to receive a distribution from
the liquidation account after payment to all creditors but before any
liquidation distribution with respect to common stock. The initial
liquidation account was established at $3,534,000. This account may be
proportionately reduced for any subsequent reduction in the eligible
holder's savings accounts.
The Bank may not declare or pay a cash dividend to the Company if the
effect would cause the net worth of the Bank to be reduced below either
the amount required for the "liquidation account" or the net worth
requirement imposed by the OTS. If all capital requirements continue to
be met, the Bank may not declare or pay a cash dividend in an amount in
excess of the Bank's net earnings for the fiscal year in which the
dividend is declared plus one-half of the surplus over the capital
requirements, without prior approval of the OTS.
F-26
<PAGE>
20. Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value.
Cash and cash equivalents:
For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Time deposits in financial institutions:
The fair value of fixed maturity certificates of deposit are estimated
using the rates currently offered for deposits of similar remaining
maturities.
Investment securities and mortgage-backed securities:
Fair values are based on quoted market prices or dealer quotes, if
available. If a quoted market price or dealer quote is not available, fair
value is estimated using quoted market prices for similar securities.
Loans receivable:
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
Deposit liabilities:
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit are estimated using
the rates currently offered for deposits of similar remaining maturities.
Advances and other borrowings from Federal Home Loan Bank:
The fair value of advances from the Federal Home Loan Bank are estimated
using the rates offered for similar borrowings.
Commitments to extend credit:
The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms
of the agreements and the present creditworthiness of the counterparties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates.
F-27
<PAGE>
20. Disclosures about Fair Value of Financial Instruments (Continued)
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
--------------------------- ---------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------------ ------------ ------------ ------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents:
Interest bearing $6,785 $6,785 $2,996 $2,996
Non-interest bearing 408 408 312 312
Time deposits in other financial institutions 500 500
Investment securities held-to-maturity 1,000 999 3,900 3,893
Investment securities available-for-sale 649 649 2,175 2,175
Mortgage-backed securities held-to-maturity 11,460 11,508 12,615 12,744
Loans receivable 23,802 24,319 25,573 26,249
Loans held-for-sale 82 82
Financial liabilities:
Deposits 35,078 35,123 35,538 35,541
Advances and borrowings from FHLB 3,000 2,925 5,196 5,161
Par Value Fair Value Par Value Fair Value
------------ ------------ ------------ ------------
(In Thousands) (In Thousands)
Unrecognized financial instruments:
Commitments to extend credit $ 210 $ 218 $ 221 $ 228
</TABLE>
21. Deposit Insurance
The Deposit Insurance Funds Act of 1996 authorized the recapitalization
of the Savings Associations Insurance Fund (SAIF) by imposing a one time
special assessment on institutions with SAIF assessable deposits. Such
assessment was at the rate of 0.657% and was imposed in order to
increase the reserve levels of the SAIF to 1.25% of insured deposits. On
September 30, 1996, the Bank recorded a pre-tax expense for this
assessment of $225,433. The Bank's annual deposit insurance rate in
effect prior to this recapitalization was 0.23% of insured deposits,
declining to 0.064% of insured deposits effective January 1, 1997.
F-28
<PAGE>
22. Parent Company Financial Information
Condensed financial statements of Guthrie Savings, Inc. (Parent Company)
are shown below. The Parent Company has no significant operating
activities.
Condensed Statement of Financial Condition
As of March 31, 1999 and 1998
(In Thousands)
<TABLE>
<CAPTION>
Assets 1999 1998
----------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 86 $ 86
Investment in subsidiary 6,988 6,829
Loans receivable (subsidiary and ESOP) 227 548
Other 92 73
----------------- -----------------
Total assets $ 7,393 $ 7,536
================= =================
Stockholders' equity
Common stock $ 5 $ 5
Additional paid-in capital 4,846 4,812
Retained income 4,580 4,542
Net unrealized loss on available-for-sale securities (4)
Unamortized amounts related to ESOP and MSBP (287) (371)
Treasury stock (1,751) (1,448)
----------------- -----------------
Total stockholders' equity $ 7,393 $ 7,536
================= =================
</TABLE>
Condensed Statement of Operations
Year Ended March 31, 1999, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Equity earnings of subsidiary $ 511 $ 605 $ 419
Interest income 34 48 77
----------------- ----------------- -----------------
Total income 545 653 496
----------------- ----------------- -----------------
Other expenses 185 147 128
----------------- ----------------- -----------------
Income before income taxes 360 506 368
Income tax expense (benefit) (54) (30) (12)
----------------- ----------------- -----------------
Net income $ 414 $ 536 $ 380
================= ================= =================
</TABLE>
F-29
<PAGE>
22. Parent Company Financial Information (Continued)
Condensed Statement of Cash Flows
Year Ended March 31, 1999, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 414 $ 536 $ 380
Adjustments to reconcile net income to net cash
provided (used for) operating activities:
Equity in net income of subsidiary (511) (605) (419)
Increase in other assets (19) (29) (39)
Decrease in other liabilities (242)
Other non-cash items, net 23 22
--------------- --------------- ---------------
Net cash used by operating activities (93) (76) (320)
--------------- --------------- ---------------
Cash flow from investing activities:
Reduction of investment in subsidiary 450 450 250
Loans to subsidiary and ESOP, net 321 591 761
--------------- --------------- ---------------
Net cash provided by investing activities 771 1,041 1,011
--------------- --------------- ---------------
Cash flows from financing activities:
Cash dividends paid (375) (387) (210)
Purchase of treasury stock (303) (574) (473)
--------------- --------------- ---------------
Net cash provided used by financing activities (678) (961) (683)
--------------- --------------- ---------------
Increase in cash and cash equivalents - 4 8
Cash at beginning of year 86 82 74
--------------- --------------- ---------------
Cash at end of year $ 86 $ 86 $ 82
=============== =============== ===============
</TABLE>
23. Subsequent Event
The Company and the Bank have signed a stock purchase agreement, subject
to stockholder approval, with Local Oklahoma Bank, N.A. Upon
consummation of the agreement, the Company and the Bank will be acquired
by Local Oklahoma Bank through a share acquisition of all of the shares
of common stock of the Company and the Bank will be owned by Local
Oklahoma Bank and all current stockholders of the Company will receive a
cash payment for their shares.
F-30
<PAGE>
OFFICE LOCATION
CORPORATE OFFICE
Guthrie Savings, Inc.
120 North Division
Guthrie, Oklahoma 73044
<TABLE>
<CAPTION>
<S> <C>
Board of Directors of Guthrie Savings, Inc.
William L. Cunningham H. Stephen Ochs
President and Chief Executive Officer Vice President
Keith Camerer James V. Seamans
Retired Dentist
Alvin R. Powell, Jr.
Self Employed, Theater Owner/Real Estate Broker
Executive Officers of Guthrie Savings, Inc.
William L. Cunningham H. Stephen Ochs
President and Chief Executive Officer Vice President
Kathleen Ann Warner Kimberly D. Walker
Vice President Treasurer
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Corporate Counsel: Independent Auditors:
Brian W. Pierson Law Offices, Inc. Regier Carr & Monroe, L.L.P.
109 E. Oklahoma 300 West Douglas
P.O. Box 1459 Suite 100
Guthrie, Oklahoma 73044 Wichita, Kansas 67202
Special Counsel: Transfer Agent and Registrar:
Malizia Spidi & Fisch, PC American Securities Transfer
One Franklin Square &
1301 K Street, N.W., Suite 700 East Trust, Inc.
Washington, D.C. 20005 1825 Lawrence Street, Suite 444
Denver, Colorado 80202-1817
</TABLE>
The Company's Annual Report for the year ended March 31, 1999 filed with the
Securities and Exchange Commission on Form 10-KSB is available without charge
upon written request. For a copy of the Form 10-KSB or any other investor
information, please write or call Deborah K. Bozarth, Secretary, at the
Company's corporate office in Guthrie, Oklahoma. The annual meeting of
stockholders will be held on July 20, 1999 at 5:00 p.m. at Guthrie Federal
Savings Bank, located on 120 N. Division , Guthrie, Oklahoma.
<PAGE>
- --------------------------------------------------------------------------------
GUTHRIE SAVINGS, INC.
FORM OF PROXY
- --------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS
July __, 1999
- --------------------------------------------------------------------------------
The undersigned hereby appoints the Board of Directors of Guthrie
Savings, Inc. (the "Company"), or its designee, with full powers of
substitution, to act as attorneys and proxies for the undersigned, to vote all
shares of Common Stock of the Company which the undersigned is entitled to vote
at the Annual Meeting of Stockholders (the "Meeting"), to be held at the office
of the Company and Guthrie Federal Savings Bank (the "Bank"), 120 North
Division, Guthrie, Oklahoma on July __, 1999, at 5:00 p.m. and at any and all
adjournments thereof, in the following manner:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C> <C>
1. The election as director of James V. Seamans _ _
for a 3 year term. |_| |_|
FOR AGAINST ABSTAIN
--- ------- -------
2. The ratification of the appointment of Regier Carr
& Monroe, L.L.P. as independent auditors of
Guthrie Savings, Inc., for the fiscal year ending _ _
March 31, 2000. |_| |_| |_|
3. To consider and vote upon a proposal to approve
the Stock Purchase Agreement dated as of May
26, 1999 (the "Agreement"), by and among Local
Oklahoma Bank, N.A. ("Local Oklahoma"), the
Company and the Bank, pursuant to which (i)
Local Oklahoma would acquire the shares and
stock options of the Company (the "Acquisition"),
then dissolve the Company and merge the Bank
with and into Local Oklahoma (the "Bank Merger
and together with the Acquisition, the "Merger
and Acquisition"), (ii) each outstanding share
of the Company common stock would be
converted into the right, subject to adjustment,
to receive a cash payment of $22.25 from
Local Oklahoma upon completion of the
Acquisition, subject to the terms and conditions
contained in the Agreement, and (iii) each
outstanding option to purchase Company common
stock would be canceled in exchange for a _ _ _
payment of $22.25 less the option exercise price. |_| |_| |_|
</TABLE>
Note: Executing this proxy permits such attorneys and proxies to vote, in their
discretion, upon such other business as may properly come before the Meeting or
any adjournments thereof.
The Board of Directors recommends a vote "FOR" the above listed
propositions.
<PAGE>
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS
IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS
OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting, or
at any adjournments thereof, and after notification to the Secretary of the
Company at the Meeting of the stockholder's decision to terminate this proxy,
the power of said attorneys and proxies shall be deemed terminated and of no
further force and effect. The undersigned may also revoke this proxy by filing a
subsequently dated proxy or by written notification to the Secretary of the
Company of his or her decision to terminate this proxy.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Annual Meeting of Stockholders and a
proxy statement dated June __, 1999.
_ Please check here if you
Dated: ______________, 1999 |_| plan to attend the Meeting.
- --------------------------------- -----------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- --------------------------------- -----------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this proxy. When signing as
attorney, executor, administrator, trustee, or guardian, please give your full
title. If shares are held jointly, each holder should sign.
- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
- --------------------------------------------------------------------------------
