-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, cEAq0YIBCl/Yc6qK7+2FFXUfeWwzbvX2PyklDcEYsHiZ/salXP+HPzJVwhIPEzFd 1MCzMhjou7PxqGQ3cZYcmg== 0000038475-94-000002.txt : 19940315 0000038475-94-000002.hdr.sgml : 19940315 ACCESSION NUMBER: 0000038475-94-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOURTH FINANCIAL CORP CENTRAL INDEX KEY: 0000038475 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 480761683 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-04170 FILM NUMBER: 94515866 BUSINESS ADDRESS: STREET 1: 100 N BROADWAY STREET 2: P O BOX 4 CITY: WICHITA STATE: KS ZIP: 67202 BUSINESS PHONE: 3162614670 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________ FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 0-4170 Fourth Financial Corporation (Exact name of registrant as specified in its charter) Kansas 48-0761683 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 North Broadway Wichita, Kansas 67202 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (316) 261-4444 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $5.00 per share (Title of Class) Depositary Shares, each representing a 1/16th interest in a share of Class A 7% Cumulative Convertible Preferred Stock, Par Value $100.00 per share, Liquidation Preference $400.00 per share (equivalent to $25.00 per Depositary Share) (Title of Class) Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes__X__ No_____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. As of March 1, 1994, the aggregate market value of the voting stock of Registrant held by nonaffiliates of Registrant was approximately $624,500,000. Such value was computed by reference to the reported last sales price of such stock on March 1, 1994. At March 1, 1994, 26,463,733 shares of Common Stock, par value $5 per share, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the April 21, 1994 Annual Meeting of Stockholders of Registrant (the "1994 Proxy Statement") to be filed pursuant to Regulation 14A are incorporated by reference into Part III of this report. TABLE OF CONTENTS Item Page PART I 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . .10 4. Submission of Matters to a Vote of Security Holders. . . . . . . .10 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . .11 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . .11 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . .. . . . . .11 8. Financial Statements and Supplementary Data. . . . . . .. . . . . .11 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . .. . . . .12 PART III 10. Directors and Executive Officers of the Registrant . . . . . . . .12 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . .12 12. Security Ownership of Certain Beneficial Owners and Management . .12 13. Certain Relationships and Related Transactions . . . . . . . . . .12 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Financial Information. . . . . . . . . . . . . . . . . . . . . . . Appendix A PART I Item 1. Business. General Fourth Financial Corporation ("Registrant" or the "Company") is a bank holding company headquartered in Wichita, Kansas, which offers a broad range of bank and bank-related services through its subsidiaries, BANK IV Kansas, National Association ("BANK IV Kansas") and BANK IV Oklahoma, National Association ("BANK IV Oklahoma"). The Company is the largest bank holding company in Kansas and, at December 31, 1993, had total assets of $6.7 billion, total deposits of $5.3 billion, and stockholders' equity of $598 million. BANK IV Kansas, whose predecessor was originally organized in 1887, is the largest commercial bank in Kansas and, at December 31, 1993, had approximately 11% of all insured deposits in Kansas. BANK IV Kansas, the only major statewide bank in Kansas, has 78 offices in 31 communities. BANK IV Oklahoma has 39 offices in eleven communities. Registrant has entered into agreements to acquire additional banks in Oklahoma, Kansas, and Missouri and intends to continue expanding its operations throughout Oklahoma and Kansas and into Missouri. See "Pending Acquisitions" below. The two BANK IV banks provide a wide range of commercial and retail banking services. BANK IV Kansas' commercial and retail operations are conducted through three metropolitan divisions and a fourth division which oversees eleven smaller community banking operations. Each separate BANK IV market-based unit is operated semi-autonomously under the management of a local president. Trust, commercial and retail investments, mortgage banking, leasing, and bank card services are each managed on a line-of-business basis. At December 31, 1993, the BANK IV banks held total assets of $6.1 billion in various fiduciary capacities and exercised investment authority over $2.5 billion of these assets. Also on that date, the BANK IV banks serviced a $1.0 billion residential mortgage loan portfolio, of which $384 million was serviced for others. The BANK IV banks operate the VIA system, a network of 302 automated teller machines located throughout Kansas and Oklahoma serving over 227,000 accounts. In addition, Registrant owns several other subsidiaries which perform various financially-related services such as reinsurance of credit life and health insurance policies. Such subsidiaries in the aggregate do not account for a material portion of the Company's revenues or profits. Recent Acquisitions During 1993, the Company acquired two banks located in Kansas and eight banks located in Oklahoma. The Company also assumed the deposits and acquired substantially all of the assets of Commercial Bank and Trust Company, Tulsa, Oklahoma ("Commercial-Tulsa") and assumed $99.4 million of deposits of a failed bank located in Mission, Kansas by paying a premium of $1.1 million to the Federal Deposit Insurance Corporation. The Kansas banks acquired were Southgate Bank and Trust Company, Prairie Village, Kansas ("Southgate"), and Farmers & Merchants State Bank, Derby, Kansas ("F&M"). The Oklahoma banks acquired were Guaranty Bank & Trust Company, Tulsa, Oklahoma ("Guaranty"); Bank of Woodward, Woodward and Waukomis, Oklahoma ("Woodward"); Nichols Hills Bank and Trust Company, Nichols Hills (Oklahoma City), Oklahoma ("Nichols Hills"); Commercial Bank and Trust Co., Muskogee, Oklahoma ("Commercial-Muskogee"); First Bank & Trust Co. of Ft. Gibson, Ft. Gibson, Oklahoma ("Ft. Gibson"); First Bank and Trust Co. of Tahlequah, Tahlequah, Oklahoma ("Tahlequah"); Western National Bank of Tulsa, Tulsa, Oklahoma ("Western"); and Security Bank & Trust Company of Ponca City, Ponca City, Oklahoma ("Ponca"). The following table sets forth for each such bank acquisition the amount of assets of the acquired bank at the date of acquisition, the amount paid by the Company, the number of shares of common stock of the Company issued, and the accounting method used to account for the acquisition.
No. of Accounting Bank Assets Cash Paid Shares Method - ---------- -------- --------- --------- ---------- (In thousands) Southgate $ 62,628 - 451,310 Pooling Guaranty 82,606 $ 4,386 - Purchase Woodward 130,192 17,859 - Purchase Derby 61,565 8,068 - Purchase Nichols Hills 97,869 - 469,906 Pooling Commercial-Muskogee Ft. Gibson, Tahlequah and Commercial-Tulsa 465,060 - 1,874,812 Pooling Western 206,288 - 1,110,695 Pooling 108,748(1) Purchase Ponca 117,275 - 478,395 Pooling __________ (1) To acquire minority interest.
Pending Acquisitions The Company has entered into definitive agreements to acquire a Missouri savings association, Great Southern Savings Bank, Springfield, Missouri ("Great Southern"); two Kansas banks, Emprise Bank, National Association, Hutchinson, Kansas ("Emprise") and First National Bank and Trust Company in Dodge City, Dodge City, Kansas ("First National"); one Oklahoma bank, Metro Bank of Broken Arrow, Broken Arrow, Oklahoma ("Metro"); and one Oklahoma savings association, Equity Bank for Savings, F.A., Oklahoma City, Oklahoma ("Equity"). The following table sets forth for each such proposed acquisition the amount of assets of the financial institution at December 31, 1993 (unaudited), the amount of cash proposed to be paid by the Company, the number of shares of common stock of the Company proposed to be issued, and the accounting method to be used to account for the acquisition.
Cash to No. of Accounting Bank Assets be Paid Shares Method - -------- ------- ------- --------- ---------- (In thousands) Great Southern $530,368 - 2,798,813 Pooling Emprise 268,450 $29,953 - Purchase First National and Metro 148,818 - 662,220 Pooling Equity 520,224 92,046 - Purchase
All of such agreements are subject to various conditions, including obtaining regulatory approvals, the banks or holding companies meeting specified net worth requirements, and, in the case of the two proposed acquisitions for Fourth Stock, that the transactions be eligible for treatment for accounting purposes as "poolings of interests." The Company is in various stages of obtaining the required regulatory approvals and it is anticipated that all of the various pending transactions will be completed in the second and third quarters of 1994. The Company has also agreed in principle to acquire an automobile leasing company for a cash purchase price of approximately $28.5 million. The proposed acquisition is subject to various conditions, among which are negotiation and execution of a definitive agreement, completion of the Company's due diligence investigation, and obtaining regulatory approvals. The Company continues to be engaged in an active acquisition program. Pursuant to that program, the Company is presently considering or engaging in discussions concerning additional acquisitions. However, except for the pending transactions described above, as of March 1, 1994, the Company has no binding commitments, agreements, or understandings to acquire any additional financial institutions, but additional acquisition agreements may be negotiated or entered into at any time. Competition BANK IV Kansas is the largest bank in Kansas, and as of September 30, 1993 (the latest date for which statewide information is available), held approximately 14.9% of the total bank deposits in Kansas. As of December 31, 1993, BANK IV Kansas was the largest of approximately 490 commercial banks in the State of Kansas. As of June 30, 1993, BANK IV Kansas ranked 114th largest, as measured by total assets, out of approximately 11,100 commercial banks in the United States. BANK IV Oklahoma is the third-largest bank in Tulsa, Oklahoma, and the fifth-largest out of nearly 400 banks in Oklahoma. There are one or more other commercial banks located in each BANK IV community, resulting in strong competition in all areas of bank services. The principal methods of competition in the commercial banking industry are price, service, and interest rates paid to depositors and charged to credit customers. In addition, banks compete for loans and deposits with other types of financial institutions such as savings and loan associations, credit unions, money market mutual funds, and finance companies. Increasingly, banks also compete for both consumer and commercial loans and for deposits with large retail and commercial enterprises. Among other things, this increased competition has resulted in banks being required to accept lower interest rates on loans and to pay interest on a larger percentage of their deposits. Lines of Business and Reportable Segments Registrant and its subsidiaries engage primarily in commercial banking. Registrant and its subsidiaries, therefore, did not engage in material operations in separate reportable industry segments for the last three fiscal years. Employees As of March 1, 1994, Registrant and its subsidiaries had a total of 3,437 full-time-equivalent employees. Registrant had 982 full-time-equivalent employees. BANK IV Kansas had 1,646, BANK IV Oklahoma had 807, and Fourth Financial Insurance Company and BANK IV Community Development Corporation each had one. Regulation and Supervision Federal Regulation. The Company is subject to the Bank Holding Company Act of 1956, as amended (the "Act"), and to regulation by the Board of Governors of the Federal Reserve System (the "Board"). The Act limits the nonbanking activities which may be engaged in by the Company and its subsidiaries to those so closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is a proper incident to banking or managing or controlling banks, the Board must consider whether performance of an activity by an affiliate of a bank holding company can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency. The benefits of the activity must also outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. The Act also prohibits bank holding companies from acquiring substantially all the assets of, or owning more than 5% of the voting shares of, any bank which is not already majority-owned, or of any nonbanking company, without the prior approval of the Board. No application to acquire shares or assets of a bank located outside the state in which the operations of the applicant's banking subsidiaries are principally conducted may be approved by the Board unless such acquisition is specifically authorized by a statute of the state in which the bank whose shares or assets are to be acquired is located. The Company, its nonbanking subsidiaries, BANK IV Kansas, and BANK IV Oklahoma, are all affiliates of each other within the meaning of the Federal Reserve Act. As such, they are subject to certain restrictions on loans by the two BANK IV banks to the Company or such nonbanking subsidiaries and on investments in and loans secured by their stock or other securities. The Company and its subsidiaries, including the two BANK IV banks, are also subject to certain restrictions on the issuance, underwriting, and distribution of securities. In addition, the Board may examine the Company or any of its subsidiaries. As a bank holding company, the Company is a legal entity separate and distinct from its subsidiaries. The principal sources of funds available for dividends on the Company's common stock and its preferred stock are dividends from the two BANK IV banks and cash and other investments held by the Company. The approval of the Comptroller of the Currency (the "Comptroller") is required if total dividends declared by a national bank in any one year exceed the bank's net profits for that year plus the profits for the two preceding years retained by the bank. In 1994, the BANK IV banks may pay an aggregate of approximately $15.8 million (in addition to their 1994 net profits) in dividends to the Company without obtaining regulatory approval. The Comptroller's approval was required and obtained for dividends paid by the BANK IV banks in 1993. Because of the financial strength of Registrant, and both banks' anticipated earnings capacity, the BANK IV banks both anticipate they will be able to obtain permission from the Comptroller to pay dividends in 1994 to the extent justified by their respective financial conditions and subject to the capital requirements described in the next section. Capital Guidelines. Bank holding companies, such as the Company, and their bank subsidiaries are required to maintain three capital ratios which measure capital adequacy. Capital is separated into "Tier 1 capital" (as applied to the Company, common stockholders' equity and Preferred Stock, less certain intangible assets) and "Tier 2 capital" (as applied to the Company, the allowance for credit losses limited to 1.25% of risk-weighted assets). The first two ratios, which are based on the degree of credit risk in the company's assets, provide for weighting assets based on assigned risk factors and include off-balance-sheet items such as loan commitments and stand-by letters of credit. The ratio of total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets and off-balance-sheet commitments and contingencies must be at least 8.0% and the ratio of Tier 1 capital to risk-weighted assets and off- balance-sheet commitments must be at least 4.0%. The capital leverage ratio supplements the risk-based capital guidelines. Banks and bank holding companies are to maintain a minimum ratio of Tier 1 capital to average adjusted total assets of 3.0%. These ratio requirements are minimums. Any institution operating at or near those levels would be expected by the regulators to have well-diversified risk, including no undue interest rate risk exposures, excellent asset quality, high liquidity, and good earnings and, in general, would have to be considered a strong banking organization. All other organizations and any institutions experiencing or anticipating significant growth are expected to maintain capital ratios at least one to two percent above the minimum levels, and higher capital ratios can be required if warranted by particular circumstances or risk profile. A bank's deposit insurance premium is based, in part, on the bank's capital levels. The Federal Deposit Insurance Corporation is the single insurer of deposits in financial institutions. Deposit insurance premium rates range from 0.23% to 0.31% of a bank's assessment base (as defined), depending on the bank's supervisory rating by the bank's primary regulator and its capital level. A bank is typically defined to be "well capitalized" if it maintains a Tier I capital ratio of at least 6.0%, a total risk-based capital ratio of at least 10.0%, and a leverage ratio of at least 5.0%. It is the Company's intention to maintain sufficient capital in each of its bank subsidiaries to permit them to maintain a "well capitalized" designation. The capital ratios for both of the Company's subsidiary banks exceeded the "well capitalized" regulatory capital requirements at December 31, 1993. Because of the Company's intention to continue making acquisitions, it is anticipated that the Comptroller will expect the BANK IV banks to maintain the greater of a 6.0% leverage ratio or a 10.0% total risk-based capital ratio. At December 31, 1993, the Company's capital exceeded the amount required by the greater of a 6.0% leverage or a 10.0% risk-based capital ratio by an aggregate of approximately $107.9 million. Pending and Proposed Legislation. There are various pending and proposed bills in Congress that, among other things, would substantially eliminate existing federal and state law restrictions on interstate banking and on interstate acquisitions of banks and bank holding companies and would restructure the federal supervision of financial institutions. The Company is unable to predict with any certainty the effect any such legislation would have on the Company and its subsidiaries. Kansas Regulation. A Kansas bank holding company is prohibited from acquiring, directly or indirectly, any voting shares in any Kansas bank if, after such acquisition, all of the Kansas banks in which such bank holding company or any subsidiary of such bank holding company has ownership or control of any voting shares would have, in the aggregate, more than 15% of the total deposits of all banks domiciled in Kansas plus the total deposits, savings deposits, shares and other accounts in savings and loan associations, federal savings banks, and building and loan associations in Kansas as determined by the Kansas bank commissioner on the basis of the most recent reports to supervisory authorities which are available at the time of the acquisition. The statute contains an exception from the 15%-of-statewide-deposits limitation in the case of an acquisition that the Kansas bank commissioner determines would be in the public interest to prevent the failure or probable failure of the acquired bank. As of December 31, 1993, BANK IV Kansas had approximately 11.0% (12.0% on a pro forma basis) of the total deposits of all Kansas banks, savings and loan associations, federal savings banks, and building and loan associations according to the most recent information available to the Company. Bank holding companies located in Nebraska, Missouri, Colorado, Oklahoma, and Arkansas are permitted to acquire banks and bank holding companies located in Kansas upon obtaining the approval of the Kansas State Banking Board. Among the factors to be considered in granting such approval are whether existing subsidiaries of the applicant are operated in a safe, sound, and prudent manner, the adequacy of services being provided by existing subsidiaries of the applicant, whether the applicant proposes to provide adequate and appropriate services in the communities served by the Kansas banks to be acquired, whether the proposed acquisition will result in a Kansas bank or bank holding company located in Kansas that has adequate capital and good earnings prospects, and whether the proposed acquisition is in the interests of the depositors and creditors of the bank or bank holding company which is the subject of the proposed acquisition and in the public interest generally. Such acquisitions are also subject to the deposits limitation described above. No application can be approved unless the state banking board finds that the laws of the state or jurisdiction in which the applicant bank holding company is located permit a Kansas bank holding company to acquire a bank located in that state or jurisdiction on terms that are substantially no more restrictive than those established under the Kansas statute. The Kansas statute would also permit Iowa banks or bank holding companies to acquire Kansas banks and bank holding companies if Iowa were to adopt appropriate reciprocal legislation. Oklahoma Regulation. The Company is permitted under Oklahoma law to acquire additional banks, but such banks must have been in existence and continuous operation for at least five years. Oklahoma prohibits a multi-bank holding company from acquiring any additional banks if such acquisition would result in the bank holding company having direct or indirect ownership of banks located in Oklahoma that would have in excess of 11% of the aggregate deposits of all financial institutions located in Oklahoma which have deposits insured by the Federal Deposit Insurance Corporation or National Credit Union Administration. As of December 31, 1993, BANK IV Oklahoma had approximately 4.8% (6.0% on a pro forma basis) of the total deposits of insured Oklahoma savings and loans, credit unions, and banks. This restriction is not expected to affect the Oklahoma acquisition activities of the Company in the near future. Missouri Regulation. The Company is also permitted under Missouri law to acquire additional banks. Missouri law prohibits an adjoining-state bank holding company from obtaining control of any bank if the total deposits in that bank together with the total deposits in all banks controlled by the adjoining-state bank holding company exceed 13% of the total deposits in all depository financial institutions in Missouri which have deposits insured by an agency of the federal government. As of December 31, 1992, the latest date for which information concerning deposits in Missouri financial institutions is available to the Company, Great Southern had approximately 0.5% of the total deposits of federally insured depository financial institutions in Missouri. This restriction is not expected to affect the Missouri acquisition activities of the Company in the near future. Government Monetary Policy and Economic Controls The earnings of Registrant and the BANK IV banks are affected by the policies of regulatory authorities. An important function of the Federal Reserve System is to regulate the national supply of bank credit in order to affect the level of economic activity. Among the instruments used to implement these objectives are open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements. These instruments are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may also affect interest rates charged on loans or paid for deposits. Statistical Disclosure The information required by Guide 3, "Statistical Disclosure by Bank Holding Companies," has been integrated throughout the attached Appendix under the captions "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and such information is hereby incorporated herein by reference. Executive Officers of the Registrant Listed below are the names and ages of all executive officers of Registrant and offices held by them with Registrant and the BANK IV banks. Name Age Positions and Offices - ------------ ----- --------------------- Darrell G. Knudson 56 Chairman of the Board, President, and Chief Executive Officer of Registrant and Director of BANK IV Kansas and BANK IV Oklahoma K. Gordon Greer 57 Chairman of the Board, President, and Chief Executive Officer of BANK IV Kansas Edward F. Keller 53 Chairman of the Board and Chief Executive Officer of BANK IV Oklahoma Michael R. Ritchey 54 President, Trust and Asset Management, and Senior Trust Officer of Registrant and of BANK IV Kansas; Executive Vice President of BANK IV Oklahoma David L. Strohm 42 Executive Vice President and Treasurer of Registrant; Executive Vice President of BANK IV Kansas and BANK IV Oklahoma James J. Gartner 52 Executive Vice President and Director of the Risk Control Group of Registrant William J. Rainey 47 Executive Vice President, Secretary and General Counsel of Registrant Michael J. Shonka 46 Senior Vice President and Chief Financial Officer of Registrant; Senior Vice President of BANK IV Kansas and BANK IV Oklahoma John F. Guettler 48 Senior Vice President and Director of Human Resources of Registrant Mr. Knudson is a member of the Executive Committee of Registrant. There is no family relationship between any of the executive officers of Registrant. Mr. Knudson was elected Vice Chairman of Registrant effective December 31, 1990, Chairman of the Board on July 1, 1991, and President on March 16, 1992. Mr. Knudson was Vice Chairman of First Bank System, Inc., a Minnesota-based multi-bank holding company, from 1982 until his resignation in 1990 to join Registrant. Mr. Greer has been Chairman of the Board of BANK IV Kansas since December, 1992, and President of BANK IV Kansas (or its predecessor BANK IV Wichita) since March, 1989. He was a director and President of the Company from September, 1990 through March, 1992 and was also Chairman of the Board of BANK IV Kansas (or its predecessor BANK IV Wichita) from January, 1991 through December, 1991. Mr. Keller has been Chairman of the Board of BANK IV Oklahoma since December 31, 1992, and was Chairman of the Board and Chief Executive Officer of The Fourth National Bank of Tulsa prior to its acquisition by the Company in December, 1992. Mr. Ritchey has been the senior trust officer of the Company and its subsidiary banks and responsible for their trust operations for more than five years. He was elected Executive Vice President of Registrant in February, 1990. Mr. Strohm was elected to his present position with BANK IV Kansas in January, 1994, was elected to his present position with BANK IV Oklahoma in January, 1993, and was elected Executive Vice President of Registrant in September, 1990 and Treasurer in 1986. Mr. Strohm has been responsible for supervising Registrant's funds management, treasury, and asset and liability management functions since 1983. He has also been responsible for supervising Registrant's acquisition activities since 1993. Mr. Gartner was Senior Vice President and Senior Credit Officer of First Bank South Dakota, N.A. (from July 1987) and Senior Credit Officer of First Bank North Dakota, N.A. and First Bank East Grand Forks, N.A. from 1990, until he became employed by Registrant in February, 1992. Mr. Rainey was Senior Vice President, General Counsel, and Secretary of Valley National Corporation (Arizona bank holding company) from 1987 to 1991 and Vice President and General Counsel of Cabot Corporation, Boston, Massachusetts (specialty chemicals and energy) from 1991 to 1993. He commenced his employment with Registrant on February 28, 1994. Mr. Shonka, Registrant's chief financial officer, has been Senior Vice President of Registrant since January, 1988. Mr. Guettler has held his present position since December, 1988. Directors of the Registrant Listed below are the names and principal occupations of Registrant's directors. Name Principal Occupation Lionel D. Alford . . . . . . . . . .President, Alford, Inc. (investments and consulting) Thomas R. Clevenger. . . . . . . . .Investments Jordan L. Haines . . . . . . . . . .Chairman of the Board of Registrant until his retirement in 1991 Joseph M. Klein. . . . . . . . . . .President, CCI Corporation (truck parts distributor) Lawrence M. Jones. . . . . . . . . .Chairman and Chief Executive Officer, The Coleman Company, Inc. (manufacturer of outdoor recreational products) until his retirement in December, 1993 Darrell G. Knudson . . . . . . . . .Chairman of the Board of Registrant Fred L. Merrill, Sr. . . . . . . . .Chief Executive Officer, Cereal Food Processors, Inc. (flour mills) Russell W. Meyer, Jr.. . . . . . . .Chairman and Chief Executive Officer, The Cessna Aircraft Company (general aviation aircraft manufacturer) Laird G. Noller. . . . . . . . . . .President, Noller Enterprises (automobile dealerships) Patrick E. O'Shaughnessy . . . . . .Chairman and Chief Executive Officer, Lario Oil & Gas Company (oil exploration) Robert F. Vickers. . . . . . . . . .Trustee and Administrator, The Vickers Trusts Ken Wagnon . . . . . . . . . . . . .Owner, franchise restaurants and other investments, and President, Capital Enterprises, Inc. (accounting and management services) Item 2. Properties. Kansas The only significant real property owned by Registrant is a building located in Wichita, Kansas, acquired in January 1994 that is being remodeled for use as a data processing and operations facility. BANK IV Kansas owns substantially all of its banking facilities, but the land on which some of such facilities are located is leased and 13 branch facilities, including seven branches located in supermarkets, are leased entirely. Registrant believes that all of such properties are well maintained and suitable for their intended purposes. Described below are the principal buildings operated by BANK IV Kansas. Wichita Registrant and BANK IV Kansas occupy a four-building complex located in downtown Wichita, Kansas. The Fourth Financial Center is a ten-level office building located at 100 North Broadway. The building is located on an 88,450-square-foot tract of land and contains approximately 396,000 square feet of gross area, which includes a 25,000-square-foot enclosed courtyard. The building contains approximately 312,000 rentable square feet, of which BANK IV Kansas and Registrant utilize approximately 156,000 square feet with the balance being leased to tenants. Fourth Operations Center is a five-level office building located adjacent to Fourth Financial Center and connected by an enclosed pedestrian walkway. The 63,000-square-foot building is located on a 13,020-square-foot tract of land and houses operating functions of Registrant and its subsidiaries. A 450-car, six-level parking garage and walk-in bank facility is located just west of Fourth Financial Center and is connected to it by an enclosed pedestrian walkway. Another building, Exchange Place, is located one block west of the Fourth Financial Center. Exchange Place is located on five tracts of land, two of which are owned by BANK IV Kansas and three of which are leased. The leases on the three leased tracts expire on August 31, 2003, and on December 31, 2009. The building, constructed prior to 1903 with various additions to the basic structure being completed through 1957, is an eight-level structure plus a full basement, a mezzanine floor, and an eighth floor mechanical area. The building contains approximately 147,000 square feet of rentable space of which BANK IV Kansas and Registrant are currently occupying approximately 118,700 square feet and the remaining 28,300 square feet are leased. Topeka BANK IV Kansas owns the BANK IV Tower, a 16-story office building in downtown Topeka, Kansas containing 146,900 square feet. At February 1, 1994, BANK IV Kansas occupied approximately 127,700 square feet of the building with approximately 19,200 square feet available for lease and expansion. A 260-car, eight-level parking garage is attached to the building. Townsite Plaza Development, Inc., a subsidiary of BANK IV Kansas, owns and operates three buildings located immediately east of the BANK IV Tower above a municipal subsurface garage. The three buildings, constructed between 1976 and 1981, contain an aggregate of approximately 138,000 square feet of rentable space, of which a total of 112,350 square feet was leased as of February 1, 1994. Oklahoma BANK IV Oklahoma does not own any major building facilities. It leases 71,000 square feet in the BANK IV Center Building in downtown Tulsa which is used as the BANK IV Oklahoma headquarters. In addition, BANK IV Oklahoma owns banking facilities in Muskogee, Nichols Hills, Braman, Ponca City, Shidler, Fort Gibson, Tahlequah, Woodward, and Waukomis, and 15 branch facilities in Tulsa. Its remaining ten facilities in Tulsa are leased. BANK IV Oklahoma believes its facilities are substantially all well-maintained and generally suitable for their intended purposes. Item 3. Legal Proceedings. Except for the legal proceeding described in the next paragraph, neither Registrant nor any of its subsidiaries is a party to any pending legal proceedings required to be disclosed in this Item. Because of the nature of their businesses, the BANK IV banks are at all times subject to legal actions, which are ordinary routine litigation incidental to their normal business operations. Claims in various amounts of up to approximately $20,000,000 have been asserted; however, after consultation with its legal counsel, Registrant does not anticipate that any potential liabilities arising from these claims would have a material effect on the results of operations. BANK IV Kansas and the United States Department of Justice have agreed to settle an action against BANK IV Kansas seeking statutory civil penalties and injunctive relief for alleged violations of the Clean Air Act and regulations promulgated thereunder. The lawsuit, filed in the United States District Court for the District of Kansas, is captioned United States of America v. BANK IV Kansas, et al., Case No. 93-2315-KVH. The lawsuit arises out of the demolition by the bank of an apartment building in Independence, Kansas, which allegedly contained asbestos-containing building materials. It is alleged that the bank failed to inspect the building prior to demolition, failed to notify the appropriate governmental agencies of its intent to demolish the building, and failed to comply with certain work practice requirements. The proposed consent decree provides for the payment of $127,500. The settlement is subject to a mandatory 30-day public comment period and court approval. Item 4. Submission of Matters to a Vote of Security Holders. No information is required in response to this Item as no matters were submitted to a vote of Registrant's security holders during the fourth quarter of the fiscal year covered by this report. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. (a) Market Information. The Common Stock of Registrant is traded in the national over-the-counter market. The NASDAQ symbol for the Common Stock is FRTH. Information concerning the high and low bid prices for the Registrant's Common Stock for each full quarterly period within the two most recent fiscal years is contained in the attached Appendix under the caption "Quarterly Financial Data" and is hereby incorporated herein by reference. (b) Holders. There were approximately 5,940 holders of record of Registrant's Common Stock at March 1, 1994. (c) Dividends. The information concerning the payment of dividends by Registrant during the past two fiscal years contained in the attached Appendix under the caption "Quarterly Financial Data" is hereby incorporated herein by reference. The information concerning restrictions on the ability of Registrant's subsidiaries to transfer funds to Registrant contained in Item 1 under the caption "Regulation and Supervision," in Note 19 - Restrictions on Intercompany Funds Transfers of the Notes to Consolidated Financial Statements contained in the attached Appendix, and under the caption "Parent Company Funding Sources and Dividends" in the attached Appendix is hereby incorporated herein by reference. Item 6. Selected Financial Data. The information required by Item 301 of Regulation S-K, contained in the attached Appendix under the caption "Selected Consolidated Financial Data," is hereby incorporated by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information required by Item 303 of Regulation S-K, contained in the attached Appendix under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," is hereby incorporated by reference. Item 8. Financial Statements and Supplementary Data. Set forth below are the consolidated financial statements of Registrant and its subsidiaries, appearing in the attached Appendix, which are hereby incorporated by reference: a. Consolidated Statements of Condition b. Consolidated Statements of Income c. Consolidated Statements of Changes in Stockholders' Equity d. Consolidated Statements of Cash Flows e. Notes to Consolidated Financial Statements f. Report of Independent Auditors g. Reports of Other Auditors The information required by Item 302 of Regulation S-K, contained in the attached Appendix under the caption "Quarterly Financial Data," is hereby incorporated by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. No information is required in response to this Item. PART III Item 10. Directors and Executive Officers of the Registrant. The information required by Item 401 of Regulation S-K will be contained in the 1994 Proxy Statement under the caption "Election of Directors" and is hereby incorporated by reference. The information required by Item 405 of Regulation S-K will be contained in the 1994 Proxy Statement under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934" and is hereby incorporated by reference. Information concerning the executive officers of Registrant is contained in Item 1 of this report under the caption "Executive Officers of the Registrant." Item 11. Executive Compensation. The information required by Item 402 of Regulation S-K will be contained in the 1994 Proxy Statement under the captions "Compensation of Directors and Executive Officers," "Compensation Committee Interlocks and Insider Participation," "Report of Compensation Committee on Executive Compensation," and "Company Performance" and is hereby incorporated by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by Item 403 of Regulation S-K will be contained in the 1994 Proxy Statement under the caption "Stock Ownership" and is hereby incorporated by reference. Item 13. Certain Relationships and Related Transactions. The information required by Item 404 of Regulation S-K will appear under the caption "Transactions with Management" in the 1994 Proxy Statement and is hereby incorporated by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) The following documents are filed as part of this report: (1) Financial Statements: the financial statements, notes, and independent auditors' reports described in Item 8 to which reference is hereby made. (2) Financial Statement Schedules: none. (3) Exhibits: the following exhibits: Exhibit No. Description ------- 3.01 - Restated Articles of Incorporation and amendments (Exhibit 3.01 to Form 10-Q for the quarter ended June 30, 1992, previously filed by Registrant).* 3.02 - Certificate of Designation (Exhibit 3.02 to Form 10-K for year ended December 31, 1991, previously filed by Registrant (the "1991 10- K")).* 3.03 - Form of Deposit Agreement (Exhibit 3.03 to 1991 10-K).* 3.04 - Form of Depositary Receipt (Exhibit 3.04 to 1991 10-K).* 3.05 - Bylaws. 10.01 - Amended and Restated Fourth Financial Corporation 1981 Incentive Stock Option Plan (Exhibit 4(a) to Post-Effective Amendment No. 2 to Form S-8, Regis. No. 2-80907, previously filed by Registrant).* 10.02 - Amended and Restated Fourth Financial Corporation 1986 Incentive Stock Option Plan (Exhibit 10.02 to Form 10-K for the year ended December 31, 1990, previously filed by Registrant).* 10.03 - Revolving Credit and Term Loan Agreement, dated as of July 1, 1987, between Chemical Bank and Registrant (Exhibit 10.04 to Form 10- K for the year ended December 31, 1987, previously filed by Registrant).* 10.04 - First Amendment dated as of July 1, 1989, to Revolving Credit and Term Loan Agreement (Exhibit 10.04 to Form 10-K for the year ended December 31, 1989, previously filed by Registrant).* 10.05 - Second Amendment dated as of November 15, 1989, to Revolving Credit and Term Loan Agreement (Exhibit 10.05 to Form 10-K for the year ended December 31, 1989, previously filed by Registrant).* 10.06 - Third Amendment, dated as of March 29, 1991, to Revolving Credit and Term Loan Agreement (Exhibit 10.06 to 1991 10-K).* 10.07 - Fourth Financial Corporation 1993 Employee Stock Purchase Plan. 10.08 - Fourth Financial Corporation 1993 Incentive Stock Option Plan. 10.09 - Fourth Financial Corporation Amended and Restated Non-Employee Directors Deferred Fee Plan. 10.10 - Fourth Financial Corporation Non-Employee Directors Stock Option Plan. 10.11 - Agreement and Plan of Reorganization, dated as of October 12, 1993, between Fourth Financial Corporation and Great Southern Bancorp, Inc. (Exhibit 2.1 to Form 8-K, dated October 12, 1993).* 10.12 - Stock Purchase Agreement, dated as of January 31, 1994, between BANK IV Kansas, National Association, and Emprise Financial Corporation. 10.13 - Agreement and Plan of Reorganization, dated as of February 2, 1994, among Fourth Financial Corporation, First Dodge City Bancshares, Inc., First National Bancshares of Dodge City, Inc., Metro Bancshares, Inc., Metro Bank of Broken Arrow, First National Bank and Trust Company in Dodge City, and the stockholders of First Dodge City Bancshares, Inc. 10.14 - Stock Purchase Agreement, dated as of February 9, 1994, among Fourth Financial Corporation, LSB Industries, and Prime Financial Corporation. 10.15 - $35,000,000 line of credit agreement, dated as of June 21, 1993, between Fourth Financial Corporation and Continental Bank N.A. 22 - Subsidiaries of Registrant. 24.01 - Consent of Ernst & Young. 24.02 - Consent of Arthur Andersen & Co. 24.03 - Consent of Sartain Fischbein & Co. 24.04 - Consent of GRA, Thompson, White & Co, P.A. 24.05 - Consent of Grant Thornton. 24.06 - Consent of Deloitte & Touche. Exhibits 10.01, 10.02, 10.07, 10.08, 10.09, 10.10, and 10.13 are compensation plans required to be filed as exhibits pursuant to Item 14(c). ___________ * Document has been previously filed with the Securities and Exchange Commission and is incorporated by reference and made a part hereof. (b) Reports on Form 8-K During the last quarter of the period covered by this report Registrant filed two reports on Form 8-K. The first report dated October 12, 1993, reported under Item 5 the Registrant's agreement to acquire Great Southern Bancorp, Inc. Another Form 8-K, dated November 12, 1993, reported under Item 5 three agreements in principle to acquire four financial institutions. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FOURTH FINANCIAL CORPORATION By: /s/ Darrell G. Knudson ------------------ Darrell G. Knudson Chairman of the Board Date: March 11, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Darrell G. Knudson Chairman of the Board March 11, 1994 Darrell G. Knudson (Principal Executive Officer) /s/ Michael J. Shonka Senior Vice President March 11, 1994 Michael J. Shonka (Principal Financial Officer) /s/ Barbara M. Noyes Vice President and Controller March 11, 1994 Barbara M. Noyes (Principal Accounting Officer) /s/ Lionel D. Alford Director March 11, 1994 Lionel D. Alford /s/ Thomas R. Clevenger Director March 11, 1994 Thomas R. Clevenger /s/ Jordan L. Haines Director March 11, 1994 Jordan L. Haines /s/ Lawrence M. Jones Director March 11, 1994 Lawrence M. Jones /s/ Joseph M. Klein Director March 11, 1994 Joseph M. Klein /s/ Darrell G. Knudson Director March 11, 1994 Darrell G. Knudson /s/ Russell W. Meyer, Jr. Director March 11, 1994 Russell W. Meyer, Jr. /s/ Fred L. Merrill, Sr. Director March 11, 1994 Fred L. Merrill, Sr. /s/ Laird G. Noller Director March 11, 1994 Laird G. Noller /s/ Patrick E. O'Shaughnessy Director March 11, 1994 Patrick E. O'Shaughnessy /s/ Robert F. Vickers Director March 11, 1994 Robert F. Vickers /s/ Ken Wagnon Director March 11, 1994 Ken Wagnon FOURTH FINANCIAL CORPORATION INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Pages Consolidated Statements of Condition. . . . . . . . . . . . . . A-2 Consolidated Statements of Income . . . . . . . . . . . . . . . A-3 Consolidated Statements of Changes in Stockholders' Equity. . . A-4 Consolidated Statements of Cash Flows . . . . . . . . . . . . . A-5 Notes to Consolidated Financial Statements . . . . . . . . . . A-6 - A-46 Report of Independent Auditors. . . . . . . . . . . . . . . . . A-36 Reports of Other Auditors . . . . . . . . . . . . . . . . . . . A-37 - A-42 Selected Consolidated Financial Data . . . . . . . . . . . . . A-43 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . A-44 - A-74
FOURTH FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CONDITION December 31, ------------------------- 1993 1992 ----------- ----------- (Dollars in thousands) Assets: Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 313,799 $ 400,531 Interest-bearing deposits in other financial institutions . . . . . . . . . . . . 2,232 4,641 Investment securities (Market value-$2,930,908 and $2,610,180) . . . . . . . . . 2,929,543 2,564,918 Trading account securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 474 3,524 Federal funds sold and securities purchased under agreements to resell . . . . . 4,575 200,121 Loans and leases: Total loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,257,787 2,841,036 Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . (66,368) (73,055) ---------- ---------- Net loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,191,419 2,767,981 Bank premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,972 123,336 Income receivable and other assets . . . . . . . . . . . . . . . . . . . . . . . 94,061 440,208 Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,798 63,522 ---------- ---------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,742,873 $6,568,782 ========== ========== Liabilities And Stockholders' Equity: Deposits: Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 944,290 $1,036,371 Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,363,446 4,343,546 ---------- ---------- Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,307,736 5,379,917 Federal funds purchased and securities sold under agreements to repurchase . . . 493,927 326,137 Federal Home Loan Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . 250,000 -- Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,002 23,692 Accrued interest, taxes, and other liabilities . . . . . . . . . . . . . . . . . 55,874 282,585 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,989 29,340 ---------- ---------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,144,528 6,041,671 ---------- ---------- Minority interest in subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,298 Stockholders' Equity: Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 103,641 Common stock, par value $5 per share Authorized: 50,000,000 shares Issued: 26,575,251 and 25,218,204 shares . . . . . . . . . . . . . . . . . . 132,876 126,091 Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,905 101,717 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239,456 195,433 Less: Treasury stock at cost (111,518 shares) . . . . . . . . . . . . . . . . . (3,245) -- Stock option loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,795) (1,069) ---------- ---------- Stockholders' equity before net unrealized gains on available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . 573,197 525,813 Net unrealized gains on available-for-sale securities . . . . . . . . . . . . . 25,148 -- Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . 598,345 525,813 ---------- ---------- Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . . $6,742,873 $6,568,782 ========== ========== The accompanying notes are an integral part of the financial statements.
FOURTH FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, ---------------------------------- 1993 1992 1991 --------- --------- --------- (Dollars in thousands, except per share amounts) Interest Income: Interest and fees on loans and leases . . . . . . . . . . . . . . . . . $254,730 $260,741 $305,778 Interest on short-term investments . . . . . . . . . . . . . . . . . . . 1,937 4,336 13,724 Interest and dividends on investment securities: Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,800 140,701 133,983 Tax-preferred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,864 21,119 25,489 Interest and dividends on trading account securities . . . . . . . . . . 136 222 594 -------- -------- -------- Total interest income. . . . . . . . . . . . . . . . . . . . . . . . 433,467 427,119 479,568 -------- -------- -------- Interest Expense: Interest on deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 154,725 179,013 254,005 Interest on borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 18,909 10,060 13,070 Interest on long-term debt . . . . . . . . . . . . . . . . . . . . . . . 1,867 3,324 4,134 -------- -------- -------- Total interest expense . . . . . . . . . . . . . . . . . . . . . . . 175,501 192,397 271,209 -------- -------- -------- Net Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 257,966 234,722 208,359 Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . 7,056 21,343 43,665 -------- -------- -------- Net Interest Income After Provision For Credit Losses. . . . . . . . . . . 250,910 213,379 164,694 -------- -------- -------- Noninterest Income: Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,310 17,627 17,335 Service charges on deposit accounts. . . . . . . . . . . . . . . . . . . 32,711 26,820 23,211 Bank card fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,658 13,531 13,927 Investment securities gains. . . . . . . . . . . . . . . . . . . . . . . 1,311 2,520 4,721 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,113 22,516 26,702 -------- -------- -------- Total noninterest income . . . . . . . . . . . . . . . . . . . . . . 89,103 83,014 85,896 -------- -------- -------- Noninterest Expense: Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . 114,575 100,491 93,123 Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . . 22,004 19,030 17,944 Net occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,307 14,458 14,020 FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,071 11,679 10,915 Bank card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,577 5,021 7,074 Amortization of intangible assets. . . . . . . . . . . . . . . . . . . . 9,132 5,424 5,080 Nonoperating charge. . . . . . . . . . . . . . . . . . . . . . . . . . . 12,708 5,573 6,997 Net costs of operation of other real estate and nonperforming assets . . 3,088 2,356 6,736 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,524 52,894 48,452 -------- -------- -------- Total non-interest expense . . . . . . . . . . . . . . . . . . . . . 252,986 216,926 210,341 -------- -------- -------- Income Before Income Taxes, Extraordinary Item and Cumulative Effect of a Change in Accounting Principle . . . . . . . . . . . . . . . 87,027 79,467 40,249 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,845 18,534 9,537 -------- -------- -------- Income Before Extraordinary Item and Cumulative Effect of a Change in Accounting Principle. . . . . . . . . . . . . . . . . . . . . . . . . 65,182 60,933 30,712 Extraordinary item - tax benefit from utilization of net operating loss carryforward. . . . . . . . . . . . . . . . . . . . . . -- -- 1,397 Cumulative effect of a change in accounting for income taxes . . . . . . 10,509 2,373 -- -------- -------- -------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,691 $ 63,306 $ 32,109 ======== ======== ======== Net Income Applicable to Common and Common-Equivalent Shares . . . . . . . $ 68,691 $ 57,355 $ 32,109 ======== ======== ======== Primary Earnings Per Common Share: Income applicable to common and common-equivalent shares before extraordinary item and cumulative effect of a change in accounting principle . . . . . . . . . . . . . . . . . . . . $2.26 $2.17 $1.26 Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- .06 Cumulative effect of a change in accounting for income taxes . . . . . . .41 .10 -- ----- ----- ----- Net income applicable to common and common-equivalent shares . . . . . . $2.67 $2.27 $1.32 ===== ===== ===== Fully Diluted Earnings Per Common Share: Income before extraordinary item and cumulative effect of a change in accounting principle. . . . . . . . . . . . . . . . . . $2.19 $2.11 $1.23 Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- .05 Cumulative effect of a change in accounting for income taxes . . . . . . .35 .08 -- ----- ----- ----- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.54 $2.19 $1.28 ===== ===== ===== Dividends Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . $ .98 $ .88 $ .88 ===== ===== ===== The accompanying notes are an integral part of the financial statements.
FOURTH FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Net Preferred Stock Common Stock Treasury Stock Stock Unrealized --------------- --------------- Capital Retained -------------- Option Gains on Shares Amount Shares Amount Surplus Earnings Shares Amount Loans Securities Total ------ -------- ------ -------- -------- -------- ------ ------- ------ ---------- ------- (In thousands) Balance, December 31, 1990 As previously reported . . . . . . -- $ -- 21,485 $107,425 $ 82,537 $135,248 -- $ -- $ (705) $ -- $324,505 Adjustment for poolings of interests . . . . 790 2,511 2,719 13,596 14,897 5,504 -- -- (235) -- 36,273 ------ -------- ------ -------- -------- -------- ---- ------- ------- ------- -------- Adjusted balance. . 790 2,511 24,204 121,021 97,434 140,752 -- -- (940) -- 360,778 Net income. . . . . . -- -- -- -- -- 32,109 -- -- -- -- 32,109 Purchase of stock for treasury . . . . -- -- -- -- -- -- (40) (697) -- -- (697) Issuance of common stock under stock option plans . . . . -- -- 147 736 835 -- 40 697 -- -- 2,268 Cash dividends: Common stock. . . . -- -- -- -- -- (16,434) -- -- -- -- (16,434) Pooled companies. . -- -- -- -- -- (95) -- -- -- -- (95) Net change in stock option loans . . . . -- -- -- -- -- -- -- -- (346) -- (346) Capital transactions of pooled companies. 92 576 73 366 501 -- -- -- 60 -- 1,503 ------ -------- ------ -------- -------- -------- ---- ------- ------- -------- -------- Balance, December 31, 1991 . . . . . . . . . 882 3,087 24,424 122,123 98,770 156,332 -- -- (1,226) -- 379,086 Adjustment for pool- ing of interests . . -- -- 479 2,392 2,833 -- -- -- -- -- 5,225 ------ -------- ------ -------- -------- -------- ---- ------- ------- -------- -------- Adjusted balance, January 1, 1992. . . . 882 3,087 24,903 124,515 101,603 156,332 -- -- (1,226) -- 384,311 Net income. . . . . . -- -- -- -- -- 63,306 -- -- -- -- 63,306 Issuance of preferred stock. . . 250 100,000 -- -- (3,080) -- -- -- -- -- 96,920 Issuance of common stock under stock option plans . . . . -- -- 163 813 1,657 -- -- -- -- -- 2,470 Cash dividends: Preferred stock . . -- -- -- -- -- (5,951) -- -- -- -- (5,951) Common stock . . . -- -- -- -- -- (16,768) -- -- -- -- (16,768) Pooled companies. . -- -- -- -- -- (1,486) -- -- -- -- (1,486) Net change in stock option loans . . . . -- -- -- -- -- -- -- -- (18) -- (18) Capital transactions of pooled companies. 90 554 152 763 1,537 -- -- -- 175 -- 3,029 ------ -------- ------ -------- -------- -------- ---- ------- ------- -------- -------- Balance, December 31, 1992 . . . . . . . . . 1,222 103,641 25,218 126,091 101,717 195,433 -- -- (1,069) -- 525,813 Net income. . . . . . -- -- -- -- -- 75,691 -- -- -- -- 75,691 Purchase of stock for treasury . . . . -- -- -- -- -- -- (112) (3,245) -- -- (3,245) Issuance of common stock under stock option plans . . . . -- -- 199 993 2,414 -- -- -- -- -- 3,407 Cash dividends: Preferred stock . . -- -- -- -- -- (7,000) -- -- -- -- (7,000) Common stock . . . -- -- -- -- -- (22,705) -- -- -- -- (22,705) Pooled companies. . -- -- -- -- -- (1,963) -- -- -- -- (1,963) Net change in stock option loans . . . . -- -- -- -- -- -- -- -- (726) -- (726) Capital transactions of pooled companies. (972) (3,641) 1,158 5,792 1,774 -- -- -- -- -- 3,925 Net unrealized gains on available-for- sale securities. . . -- -- -- -- -- -- -- -- -- 25,148 25,148 ------ -------- ------ -------- -------- -------- ---- ------- ------- -------- -------- Balance, December 31, 1993 . . . . . . . . . 250 $100,000 26,575 $132,876 $105,905 $239,456 (112) $(3,245) $(1,795) $ 25,148 $598,345 ====== ======== ====== ======== ======== ======== ==== ======= ======= ======== ======== The accompanying notes are an integral part of the financial statements.
FOURTH FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, ----------------------------------- 1993 1992 1991 ----------- ----------- ----------- Increase (Decrease) in Cash and Due from Banks (In thousands) Cash Flows From Operating Activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,691 $ 63,306 $ 32,109 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 219 171 Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . 7,056 21,343 43,665 Provision for security losses. . . . . . . . . . . . . . . . . . . . . . . . -- -- 1,491 Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 24,374 20,033 18,455 Accretion of discounts on investment securities, net of amortization of premiums . . . . . . . . . . . . . . . . . . . . . . 15,692 9,268 409 Write-down of other real estate owned. . . . . . . . . . . . . . . . . . . . 4,376 3,005 4,713 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,711) (1,071) (4,466) Investment securities gains. . . . . . . . . . . . . . . . . . . . . . . . . (1,311) (2,520) (4,721) Write-down of core deposit intangibles, purchased mortgage servicing rights, premises and equipment, and other assets. . . . . . . . . 6,652 -- -- Gain on sales of premises and equipment, other real estate owned, and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . (2,934) (3,405) (4,562) Gain on sale of credit card loans. . . . . . . . . . . . . . . . . . . . . . -- (169) (3,226) Change in assets and liabilities, net of effects from purchases of acquired entities: Trading account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,062 4,125 (3,477) Loans held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . (109,631) 2,087 (1,158) Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317,285 (29,815) 43,903 Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,156) 14,588 44,902 Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,681 3,823 11,147 Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,970) (7,640) (7,366) ---------- ---------- ---------- Net cash provided by operating activities . . . . . . . . . . . . . . . 324,309 97,177 171,989 ---------- ---------- ---------- Cash Flows From Investing Activities: Purchase of banks, net of cash acquired . . . . . . . . . . . . . . . . . . . (2,468) (7,662) (2,280) Purchase of consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . -- (60,751) -- Proceeds from sales of investment securities . . . . . . . . . . . . . . . . . 10,202 70,444 249,716 Proceeds from maturities and prepayments of investment securities. . . . . . . 1,037,690 946,753 1,378,158 Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . (1,488,299) (1,320,880) (2,001,658) Purchase of mortgage servicing rights. . . . . . . . . . . . . . . . . . . . . -- (1,247) (28) Proceeds from sale of credit card loans. . . . . . . . . . . . . . . . . . . . -- 4,038 25,473 Proceeds from sales of premises and equipment, other real estate owned, and other assets . . . . . . . . . . . . . . . . . . 15,740 28,775 42,759 Purchases of premises and equipment. . . . . . . . . . . . . . . . . . . . . . (34,757) (17,788) (14,278) Change in assets and liabilities, net of effects from purchases of acquired entities: Interest-bearing deposits in other financial institutions. . . . . . . . . . 3,432 728 1,372 Federal funds sold and securities purchased under agreements to resell . . . 205,698 (1,782) 242,243 Loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (201,051) 128,093 166,301 ---------- ---------- ---------- Net cash provided by (used in) investing activities. . . . . . . . . . . (453,813) (231,279) 87,778 ---------- ---------- ---------- Cash Flows From Financing Activities: Transfers associated with the assumptions of savings and loan association net liabilities, less premiums paid. . . . . . . . . . . 91,832 46,413 187,461 Other transfer associated with the assumption of deposits, net of premium paid . . . . . . . . . . . . . . . . . . . . . . . . -- 28,998 -- Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . (15,125) (17,560) (10,338) Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . -- -- 35,000 Acquisition of treasury stock. . . . . . . . . . . . . . . . . . . . . . . . . (3,245) -- (697) Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . (22,705) (16,768) (16,434) Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . (7,000) (5,368) -- Proceeds from exercise of stock options. . . . . . . . . . . . . . . . . . . . 3,407 2,470 2,268 Net change in stock option loans . . . . . . . . . . . . . . . . . . . . . . . (726) (18) (346) Proceeds from issuance of preferred stock, net of offering costs . . . . . . . -- 96,920 -- Capital transactions of pooled companies . . . . . . . . . . . . . . . . . . . (1,524) (346) 331 Change in liabilities, net of effects from purchases of acquired entities: Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (414,912) (152,290) (353,645) Federal funds purchased and securities sold under agreements to repurchase . 167,790 177,913 (73,375) Federal Home Loan Bank borrowings. . . . . . . . . . . . . . . . . . . . . . 250,000 -- -- Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,020) (18,960) (47,715) ---------- ---------- ---------- Net cash provided by (used in) financing activities. . . . . . . . . . . 42,772 141,404 (277,490) ---------- ---------- ---------- Increase (decrease) in cash and due from banks . . . . . . . . . . . . . . . . . (86,732) 7,302 (17,723) Cash and due from banks at beginning of period . . . . . . . . . . . . . . . . . 400,531 387,535 405,258 Adjustment for pooling of interests. . . . . . . . . . . . . . . . . . . . . . . -- 5,694 -- ---------- ---------- ---------- Cash and due from banks at end of period . . . . . . . . . . . . . . . . . . . . $ 313,799 $ 400,531 $ 387,535 ========== ========== ========== Supplemental Disclosures: Cash payments for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 178,079 $ 199,110 $ 278,256 ========== ========== ========== Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,377 $ 20,940 $ 13,128 ========== ========== ========== See accompanying notes.
FOURTH FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 - Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of Fourth Financial Corporation and its wholly-owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated. The consolidated financial statements for prior years have been restated to reflect the poolings of interests detailed in Footnote 2 - Bank Acquisitions. Certain reclassifications of previously reported amounts have been made to conform with current year presentation format. Investment and Trading Account Securities Management determines the appropriate classification of securities at the time of purchase. Securities are classified as "Held-to-maturity" when management has the intent and the Company has the positive ability to hold the securities to maturity. Held-to- maturity securities are stated at cost, adjusted for amortization of premiums and accretion of discounts, both computed on the constant yield method. The prepayment history of each mortgage-backed security pool is used to recalculate the yield used to amortize and accrete the premium and discount on these securities. Amortization, accretion, and interest and dividends on held-to-maturity securities are included in "Interest and dividends on investment securities." In May 1993, the Financial Accounting Standards Board issued Financial Accounting Standard ("FAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As permitted by the Statement, the Company elected to adopt the provisions of the new standard as of December 31, 1993. Marketable equity securities and debt securities that at the time of adoption (and subsequently upon purchase) were deemed to be available-for-sale for the implementation of asset and liability management strategies, possible liquidity needs, and other purposes were classified as available-for-sale. Available- for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in a separate component of stockholders' equity. In accordance with FAS No. 115, prior-period financial statements have not been restated to reflect the change in accounting principle. At December 31, 1993, investment securities were increased $41,227,000; deferred income taxes payable were increased $16,079,000; and stockholders' equity was increased $25,148,000 to reflect the net unrealized gains on available-for-sale securities previously carried at amortized cost or lower of cost or market. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Amortization, accretion, and interest and dividends on securities classified as available-for-sale are included in "Interest and dividends on investment securities." Realized gains and losses and declines in value judged to be other-than-temporary on available-for- sale securities are included in "Investment securities gains." The cost of securities sold is based on the specific identification method. Securities held for sale to customers and in anticipation of short-term market movements are classified as "Trading account securities." Securities held in the trading account are stated at market value. Gains and losses, both realized and unrealized, are reflected in "Other noninterest income." The specific identification method is used to determine the cost of securities sold. Loans and Leases Loans are reported at the principal amount outstanding, net of unearned discount. Interest income on loans is accrued based on the unpaid principal and the applicable rate. Interest on discounted loans and leases is generally accrued on a basis approximating a level yield over the terms of the loans or leases. Residential mortgage loans and educational loans held for sale are stated at the lower of cost or market value. These loans are analyzed on an aggregate basis to determine the lower of cost or market value. Net gains or losses on the sale of these loans, including adjustments to market value, are part of normal operations and are reflected in "Other noninterest income." The specific identification method is used to determine the cost of loans sold. A loan is placed on nonaccrual status when principal or interest is due and has remained unpaid for 90 days or more unless the loan is both well secured and in the process of collection. A loan is also placed on nonaccrual status when there is reasonable doubt as to the ability of the borrower to continue to pay principal or interest. At the time a loan is classified as nonaccrual, interest previously recorded but not collected is reversed. Interest payments received on such loans are generally recorded as a reduction in carrying value unless such carrying value is deemed to be collectible. A loan is not reclassified as accruing until all principal and interest payments are brought current and the borrower has demonstrated the ability to service the loan in accordance with its contractual terms. Fair Values of Financial Instruments The following methods and assumptions were used by the Company in estimating its fair value disclosures in accordance with FAS No. 107, "Disclosures About Fair Value of Financial Instruments." Because there is no market for many of these financial instruments, the Company has no basis to determine whether these estimated fair values would be indicative of the value that could be obtained in an arm's-length sale. Cash and due from banks: The carrying amounts reported in the consolidated statements of condition for cash and due from banks approximate those assets' fair values. Interest-bearing deposits in other financial institutions: Fair values of $2,279,000 for these fixed-rate certificates of deposit were estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates with similar maturities. The carrying amount of these certificates of deposit was $2,232,000. Investment and trading account securities: Fair values for investment securities were based on quoted market prices, where available. If quoted market prices were not available, fair values were based on quoted market prices of comparable instruments. Federal funds sold and securities purchased under agreements to resell: The carrying amounts of federal funds sold and securities purchased under agreements to resell approximate their fair values. Loans and leases: For variable-rate loans that reprice in accordance with indices, fair values were estimated to be equal to carrying values. A significant portion of a credit card portfolio's value results from the ongoing cardholder relationship that generates receivables and fees over time. This relationship value is not defined as a financial instrument and therefore not disclosed under FAS No. 107. The carrying values of the credit card receivables approximate their fair values. The fair values for one-to-four family fixed-rate mortgage loans were based on quoted market prices of similar loans, adjusted for differences in loan characteristics. The fair values for other fixed-rate loans were estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms. Because the allowance for credit losses provides for the credit risk inherent in the loan and lease portfolio, neither the cash flows nor discount rates were adjusted to reflect changes in credit risk subsequent to when loans were originated. Nonperforming loans have not been discounted. Off-balance-sheet instruments: No premium or discount was ascribed to loan commitments because virtually all funding will be at current market rates. The estimated fair values of the interest rate swaps generally represent an estimate of the amount the Company would receive or pay to terminate the agreement at the reporting date. These values were based on dealer quotes with respect to the amortizing swaps. For swaps with fixed maturities, the estimated values represent the present value of the cash flow stream discounted at current interest rate spreads. Deposit liabilities: For deposits with no defined maturities, demand deposits, interest-bearing checking deposits, and savings deposits, FAS No. 107 defines fair value as the amount payable on demand at the reporting date (i.e., their carrying amounts). Included in "Intangible assets" at December 31, 1993 was $15,828,000 (net of accumulated amortization) representing the value of core deposits assumed in deposit assumption transactions. The value of the core deposit relationships built by the Company over time was neither considered in the fair value amounts nor recorded as an intangible asset in the statements of condition. The carrying amounts for variable-rate certificates of deposit approximated their fair values at the reporting date. Fair values for fixed-rate certificates of deposit were estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates with similar maturities. Federal funds purchased, securities sold under agreements to repurchase, and other borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings approximate their fair values. Federal Home Loan Bank borrowings: The carrying amounts of the short-term portion of these borrowings approximate their fair values. A discounted cash flow analysis, using the current rates on Federal Home Loan Bank borrowings of similar maturities, was used to estimate the fair values of these borrowings with maturities greater than one year. Long-term borrowings: The fair values of the Company's long-term debt were estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Other Real Estate and Nonperforming Assets Other real estate and nonperforming assets include assets acquired from loan settlements and foreclosures. These assets are carried at the lower of the loan carrying amount or fair value minus estimated selling costs and are included in "Income receivable and other assets" in the consolidated statements of condition. At the time of acquisition or repossession, any write-down necessary to record an asset at its fair value is charged to the allowance for credit losses. A valuation allowance for estimated selling costs is recorded through a charge to "Net costs of operation of other real estate and nonperforming assets." Losses and gains as well as net costs associated with these properties are also included in "Net costs of operation of other real estate and nonperforming assets" in the consolidated statements of income. In accordance with the Securities and Exchange Commission's Financial Reporting Release 28 ("FRR 28"), "Other real estate and nonperforming assets" previously has included certain loans valued at the fair value of the underlying collateral even though the Company did not have possession of that collateral. The main objective of FRR 28 was to require a systematic methodology to be applied to the recognition and measurement of potential losses inherent in loans, where the repayment of the loan was expected to come only from the operation or the sale of the collateral. Collateral was to be considered repossessed in substance and accounted for at fair value in those cases where the borrower had little or no equity in the collateral considering the property's fair value and where, considering economic conditions, the borrower's ability to rebuild equity was doubtful. During 1993, banking system regulators issued guidance confirming that the loss recognition on collateral-dependent loans should be based on the fair value of the collateral, but that such loans need not be reported as "Other real estate" unless possession of the underlying collateral has been obtained. The Company's consolidated statement of condition reflects the adoption of this regulatory guidance as of December 31, 1993, and the 1992 consolidated statement of condition has been restated to reclassify substantive repossessions from "Other assets" to "Loans." These loans are all classified as nonaccrual loans. Allowance for Credit Losses The allowance for credit losses is the amount deemed by management to be reasonably necessary to provide for possible losses on loans that may become uncollectible. Additions to the allowance are charged to expense as the provision for credit losses. Loan losses and recoveries are charged or credited directly to the allowance. It is the Company's policy to charge off any loan or portion of that loan when it is deemed to be uncollectible in the ordinary course of business. An evaluation of the overall quality of the portfolio is performed to determine the necessary level of the allowance for credit losses. This evaluation takes into consideration the classification of loans and the application of loss estimates to these classifications. It is the responsibility of management in each of the Company's markets to classify its loans as pass, special mention, substandard, doubtful, or loss. The classification criteria are established by the credit administration function of the Company, which is independent of all lending functions, and are intended to be consistent with the criteria applied by federal banking system examiners. These classifications take into consideration all sources of repayment, underlying collateral, the value of such collateral, and current and anticipated economic conditions, trends, and uncertainties. The Company has an independent loan review function which reviews the loans periodically. The Company's bank subsidiaries also are subjected to periodic examinations by the Office of the Comptroller of the Currency. Loss factors are developed by loan type and classification using historical loss data and statistical modeling techniques. The application of these loss factors to the portfolio classifications, combined with analyses of general economic conditions, trends in portfolio volume, maturity, and composition, and estimates of potential future losses on specific large loans and those loans requiring special attention, provide management with data essential to identify and estimate the credit risk inherent in the portfolio. The allowance for credit losses reflects the result of these estimates and is deemed to be adequate at each balance sheet date. Loan and Loan Commitment Fees The Company generally recognizes loan and loan commitment fees as revenue when received and related costs as expenses when incurred. FAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating Loans," provides for the deferral of such fees and direct loan origination costs and the amortization of such fees and costs over the lives of the related loans as an adjustment of yield. However, the adoption of FAS No. 91 would not have a material effect on operating results. Bank Premises and Equipment Land is stated at cost, and buildings and equipment are stated at cost less accumulated depreciation. For financial reporting purposes, depreciation is included in operating expenses and is computed principally on the straight-line method over the estimated useful lives of the related assets. Accelerated methods are generally used for income tax purposes with deferred income taxes provided for timing differences. Additions, major replacements, and improvements to buildings and equipment are added to the asset accounts at cost. Maintenance, repairs, and minor replacements are charged directly to operating expense. The costs incidental to the operation and maintenance of buildings, net of income received from tenants, are reflected as "Net occupancy" expense in the accompanying consolidated statements of income. Income Taxes The Company and its subsidiaries, except the insurance subsidiary, file a consolidated federal income tax return. The income tax effects of transactions are recognized in the years in which they enter into the determination of reported income, regardless of when they are recognized for tax return purposes. When income and expenses are recognized in different periods for tax purposes, applicable deferred taxes are provided in the financial statements. Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FAS No. 109, "Accounting for Income Taxes." As permitted under the new rules, prior years' financial statements have not been restated. 2 - Acquisitions Purchase Transactions During 1993 three acquisitions accounted for as purchases were completed: Guaranty Bancorporation ("GB"), Bancshares of Woodward, Inc. ("BOW"), and F&M Bank Services, Inc. ("FBS"). The following table presents information regarding these purchase transactions.
Acquisition Bank Subsidiary Assets Date Company Acquired Location Acquired Cash Paid - ----------- ------------------ ------------------------------------- ---------- ----------- (In thousands) May 14, 1993 GB Guaranty Bank & Trust Company Tulsa, OK . . . . . . . . . . . . . . $ 82,606 $ 4,386 May 28, 1993 BOW Bank of Woodward Woodward and Waukomis, OK . . . . . . 130,192 17,859 May 28, 1993 FBS Farmers & Merchants State Bank Derby, KS . . . . . . . . . . . . . . 61,565 8,068 -------- ------- $274,363 $30,313 ======== =======
During 1992 two acquisitions accounted for as purchases were completed: Farmers and Merchants Bank ("FMB") and Southern Bancorp, Inc. ("SBI"). The following table presents information regarding these purchase transactions.
Acquisition Bank Subsidiary Assets Date Company Acquired Location Acquired Cash Paid - ----------- ------------------ ------------------------------------- ---------- ----------- (In thousands) July 31, 1992 FMB Farmers and Merchants Bank Colby, KS . . . . . . . . . . . . . . $ 66,827 $ 8,921 December 11, 1992 SBI Southern National Bank Tulsa, OK . . . . . . . . . . . . . . 64,510 9,951 -------- ------- $131,337 $18,872 ======== =======
The following table presents supplementary information regarding the cash paid in these purchase transactions.
1993 1992 -------- -------- (In thousands) Fair value of assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . $274,363 $131,337 Fair value of liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . (253,378) (115,464) Cost in excess of net assets acquired . . . . . . . . . . . . . . . . . . . . . 9,328 2,999 -------- -------- Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,313 18,872 Cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,845 11,210 -------- -------- Net cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,468 $ 7,662 ======== ========
For each of these transactions, the consolidated statements of income include only the income and expenses of the acquired company since acquisition. The purchase price has been allocated to the net identifiable assets acquired based on their fair values with the excess allocated to cost in excess of net assets acquired. The effect on results of operations for 1993 and 1992, had the purchase transactions occurred at the beginning of these years, was not material. Poolings of interests The following table presents the five 1993 business combinations accounted for as poolings of interests. The consolidated statements for the prior periods have been restated as if the entities had been combined at the beginning of the periods presented, with the exception that periods prior to January 1, 1992 have not been restated for the results of operations of Ponca Bancshares, Inc. ("PBI") which were not material. Adjustments to conform the acquired companies' accounting policies to those of the Company were not material.
Company Acquired/ Company Assets Shares Date Location Abbreviation Acquired Issued - ------------------ ------------------------------------- ------------ ------------ -------- (In thousands) February 12, 1993 Southgate Banking Corporation, SBC $ 62,628 451,310 Prairie Village, KS May 28, 1993 Nichols Hills Bancorporation, Inc., NHB 97,869 469,906 Nichols Hills (Oklahoma City), OK September 17, 1993 Commercial Landmark Corporation, CLC 465,060 1,874,812 Muskogee, OK December 3, 1993 Western National Bancorporation, Inc., WNB 206,288 1,110,695 Tulsa, OK December 10, 1993 Ponca Bancshares, Inc., PBI 117,275 478,395 Ponca City, OK -------- --------- $949,120 4,385,118 ======== =========
In addition to the business combinations listed, the Company issued 108,748 shares to acquire the minority interest of Western National Bank of Tulsa, the bank subsidiary of WNB. As prescribed by Accounting Principles Board Opinion No. 16, the acquisition of the minority interest was accounted for as a purchase. The fair market value of shares issued exceeded the net asset value of the minority interest by $1,673,000 at the time of acquisition. The following table presents the four 1992 business combinations accounted for as poolings of interests. The consolidated statements for the prior periods have been restated as if the entities had been combined at the beginning of the periods presented. Adjustments to conform the acquired companies' accounting policies to those of the Company were not material.
Company Acquired/ Company Assets Shares Date Location Abbreviation Acquired Issued - ------------------ ------------------------------------- ------------ ------------ -------- (In thousands) September 9, 1992 KNB Bancshares, Inc., KNB $ 99,256 267,390 Prairie Village, KS October 30, 1992 Mission Hills Bancshares, Inc., MHB 94,762 358,709 Mission Woods, KS December 30, 1992 United Bank of Kansas, Inc., UBK 122,885 663,739 Liberal, KS December 31, 1992 Fourth National Corporation, FNC 368,325 1,639,941 Tulsa, OK -------- ---------- $685,228 2,929,779 ======== =========
The effect of pooling-of-interests accounting treatment on previously reported selected operating results is as follows:
Nine Months Ended Year Ended December 31, September 30, ------------------------- 1993 1992 1991 ---------------- ---------- ---------- (Dollars in thousands, except per share data) Interest income: Company. . . . . . . . . . . . . . . . . . . . . . $305,596(1) $352,697 $409,274 Pooled companies . . . . . . . . . . . . . . . . . 17,921 74,422 70,294 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $323,517 $427,119 $479,568 ======== ======== ======== Net interest income: Company. . . . . . . . . . . . . . . . . . . . . . $180,407(1) $191,483 $174,782 Pooled companies . . . . . . . . . . . . . . . . . 11,292 43,239 33,577 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $191,699 $234,722 $208,359 ======== ======== ======== Net income: Company. . . . . . . . . . . . . . . . . . . . . . $ 56,096(1) $ 53,187 $ 25,320 Pooled companies . . . . . . . . . . . . . . . . . (587) 10,119 6,789 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $ 55,509 $ 63,306 $ 32,109 ======== ======== ======== Net income applicable to common stock: Company. . . . . . . . . . . . . . . . . . . . . . $ 50,846(1) $ 47,236 $ 25,320 Pooled companies . . . . . . . . . . . . . . . . . (587) 10,119 6,789 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $ 50,259 $ 57,355 $ 32,109 ======== ======== ======== Primary earnings per common share, after cumulative effect of a change in accounting principle: Company. . . . . . . . . . . . . . . . . . . . . . $ 2.06(1) $ 2.17 $ 1.18 Pooled companies . . . . . . . . . . . . . . . . . (.10) .10 .14 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $ 1.96 $ 2.27 $ 1.32 ======== ======== ======== Fully diluted earnings per common share, after cumulative effect of a change in accounting principle: Company. . . . . . . . . . . . . . . . . . . . . . $ 1.99(1) $ 2.16 $ 1.18 Pooled companies . . . . . . . . . . . . . . . . . (.12) .03 .10 -------- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . $ 1.87 $ 2.19 $ 1.28 ======== ======== ======== _________ (1) Includes SBC, NHB, and CLC which were acquired prior to September 30, 1993.
Pending Acquisitions Pending acquisitions as of December 31, 1993 are listed in the table below. The proposed transactions are subject to approval by regulators and other contractual conditions.
Assets Number of December 31, 1993 Cash Expected Shares Expected Accounting Bank (Unaudited) To Be Paid To Be Issued Method ------ ----------------- ------------- --------------- ---------- (In thousands) Great Southern Savings Bank Springfield, MO ("Great Southern"). . . $ 530,368 $ -- 2,798,813 Pooling Emprise Bank, National Association, Hutchinson, KS ("Emprise"). . . . . . . 268,450 29,953 -- Purchase First National Bank and Trust Company in Dodge City, Dodge City, KS and Metro Bank of Broken Arrow, Broken Arrow, OK, ("First National") . . . . . 148,818 -- 662,220 Pooling Equity Bank for Savings, F.A. Oklahoma City, OK ("Equity"). . . . . . 520,224 92,046 -- Purchase ---------- -------- --------- $1,467,860 $121,999 3,461,033 ========== ======== =========
3 - Assumption of Deposits On April 2, 1993, $99,399,000 of deposits and other liabilities were assumed by the Kansas bank subsidiary from a failed bank in Mission, Kansas. A premium of $1,141,000 was paid to the Federal Deposit Insurance Corporation ("FDIC") to assume these deposits. During 1992, the Company completed two deposit assumption transactions. On March 27, 1992, $46,484,000 of deposits and other liabilities were assumed by the Kansas bank subsidiary from a failed savings and loan in Hays, Kansas. A premium of $57,000 was paid to the Resolution Trust Corporation ("RTC") to assume these deposits. On December 31, 1992, the Company's Oklahoma bank subsidiary assumed the deposits and acquired the branch facilities and equipment of nine offices from a S&L in Tulsa, Oklahoma. The following table presents supplementary information regarding the cash paid in this transaction.
1992 -------------- (In thousands) Fair value of assets acquired . . . . . . . . . . . . . . . $346,595 Fair value of liabilities assumed . . . . . . . . . . . . . (349,355) Cost in excess of net assets acquired . . . . . . . . . . . 2,376 Value of core deposits assumed . . . . . . . . . . . . . . 15,240 -------- Cash paid . . . . . . . . . . . . . . . . . . . . . . . . 14,856 Cash acquired . . . . . . . . . . . . . . . . . . . . . . 43,854 -------- Net cash received . . . . . . . . . . . . . . . . . . . . $ 28,998 ========
4 - Cash and Due from Banks The subsidiary banks are required by federal law to maintain reserves against their deposit liabilities. These reserves can be maintained in the form of vault cash or balances at a Federal Reserve Bank. The average cash and Federal Reserve balances maintained as reserves were $117,490,000 for 1993 and $93,282,000 for 1992. Cash and due from banks also includes checks in process of collection and balances maintained at correspondent banks for services rendered. 5 - Investment Securities In May 1993, the Financial Accounting Standards Board issued FAS No. 115 which modified the accounting for investment securities. As permitted by the statement, the Company elected to adopt the provisions of the new standard as of December 31, 1993. In accordance with FAS No. 115, prior-period financial statements have not been restated to reflect the change in accounting principle. Pursuant to FAS 115, the Company's investment securities at December 31, 1993 were classified as either held-to-maturity securities or available-for-sale securities. Those securities classified as held-to-maturity securities are those management has the intent and the Company has the positive ability to hold until maturity. The available-for-sale securities are those securities deemed to be available for sale for the implementation of asset and liability management strategies, possible liquidity needs, and other purposes. At December 31, 1992, the Company's "Investment securities" were carried at amortized cost since management had the intent and the Company had the ability to hold the securities on a long-term basis. The following table presents the amortized cost and estimated fair value of investment securities classified as held-to-maturity and carried at amortized cost.
Held-to-maturity December 31, 1993 December 31, 1992 ------------------------------------------ ------------------------------------------ Gross Gross Estimated Gross Gross Estimated Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value ---------- ---------- ---------- --------- ---------- ---------- ---------- --------- (In thousands) (In thousands) U.S. Treasury obligations. $ 1,514 $ 21 $ -- $ 1,535 $ 284,856 $ 5,377 $ (457) $ 289,776 Obligations of U.S. government agencies and corporations: Mortgage-backed. . . . . 1,751,443 13,443 (12,191) 1,752,695 1,731,879 18,219 (10,301) 1,739,797 Other. . . . . . . . . . 359 43 (1) 401 279,783 6,736 (397) 286,122 Obligations of states and political subdivisions. . 4,750 13 (56) 4,707 215,471 25,345 (36) 240,780 Other securities: Collateralized auto receivables . . . . . . 12,364 88 -- 12,452 28,935 594 -- 29,529 Corporate notes and bonds . . . . . . . . . -- -- -- -- 10,580 179 (11) 10,748 Foreign debt securities. 2,155 5 -- 2,160 -- -- -- -- Money market mutual funds . . . . . . . . . 212 -- -- 212 220 -- -- 220 ---------- ------- -------- ---------- ---------- ------- -------- ---------- Total debt securities. 1,772,797 13,613 (12,248) 1,774,162 2,551,724 56,450 (11,202) 2,596,972 Federal Home Loan Bank stock(1) . . . . . 24,911 -- -- 24,911 1,166 -- -- 1,166 Federal Reserve Bank stock(1) . . . . . 12,589 -- -- 12,589 8,452 -- -- 8,452 Other equity securities(1) . . . . . 1,470 -- -- 1,470 3,576 18 (4) 3,590 ---------- ------- -------- ---------- ---------- ------- -------- ---------- Total. . . . . . . . . $1,811,767 $13,613 $(12,248) $1,813,132 $2,564,918 $56,468 $(11,206) $2,610,180 ========== ======= ======== ========== ========== ======= ======== ========== - ----------- (1) Securities do not have a readily determinable fair value.
The amortized cost and estimated fair value of the held-to-maturity debt securities at December 31, 1993 are shown below by contractual maturity.
December 31, 1993 ------------------------------- Estimated Amortized Fair Cost Value ---------- ---------- (In thousands) Due in one year or less . . . . . . . . . . . . . . $ 2,071 $ 2,126 Due after one year through five years . . . . . . . 17,258 17,314 Due after five years through ten years. . . . . . . 25 27 Due after ten years . . . . . . . . . . . . . . . . 2,000 2,000 ---------- ---------- 21,354 21,467 Mortgage-backed securities. . . . . . . . . . . . . 1,751,443 1,752,695 ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . $1,772,797 $1,774,162 ========== ==========
The following table presents the amortized cost and estimated fair value of investment securities classified as available-for-sale and carried at estimated fair value.
Available-for-sale December 31, 1993 ------------------------------------------ Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------- ---------- ---------- ---------- (In thousands) U.S. Treasury obligations. . . . . . . . . . . . . . . . . $ 297,891 $10,518 $ (78) $ 308,331 Obligations of U.S. government agencies and corporations: Mortgage-backed. . . . . . . . . . . . . . . . . . . . . 215,889 4,530 (1,571) 218,848 Other. . . . . . . . . . . . . . . . . . . . . . . . . . 299,900 7,179 (803) 306,276 Obligations of states and political subdivisions . . . . . 222,130 21,266 (463) 242,933 Corporate notes and bonds. . . . . . . . . . . . . . . . . 39,567 710 (40) 40,237 ---------- ------- -------- ---------- Total debt securities. . . . . . . . . . . . . . . . . 1,075,377 44,203 (2,955) 1,116,625 Equity securities. . . . . . . . . . . . . . . . . . . . . 1,172 -- (21) 1,151 ---------- ------- -------- ---------- Total. . . . . . . . . . . . . . . . . . . . . . . . . $1,076,549 $44,203 $ (2,976) $1,117,776 ========== ======= ======== ==========
The amortized cost and estimated fair value of the available-for-sale debt securities at December 31, 1993 are shown below by contractual maturity.
December 31, 1993 ------------------------------- Estimated Amortized Fair Cost Value ---------- ---------- (In thousands) Due in one year or less . . . . . . . . . . . . . . $ 89,296 $ 90,289 Due after one year through five years . . . . . . . 615,487 641,886 Due after five years through ten years. . . . . . . 128,606 134,916 Due after ten years . . . . . . . . . . . . . . . . 26,099 30,686 ---------- ---------- 859,488 897,777 Mortgage-backed securities. . . . . . . . . . . . . 215,889 218,848 ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . $1,075,377 $1,116,625 ========== ==========
The fair values of investment securities are based upon available market data and estimates which often reflect transactions of relatively small size and which are not necessarily indicative of prices at which larger amounts of particular issues could be readily sold. Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. The book value of investment securities pledged to secure public deposits and for other purposes, as required or permitted by law, aggregated $1,135,612,000 at December 31, 1993. The gross proceeds, gains, and losses realized from the sale of investment securities are detailed in the following table. This table does not include proceeds from nor realized gains and losses attributable to prepayments of investment securities.
1993 1992 1991 ----------- ------------ ------------ Proceeds from sale of investment securities . . . . . . . . $10,202,000 $ 70,444,000 $249,716,000 =========== ============ ============ Gross realized gains . . . . . . . . . . . . . . . . . . . $ 55,000 $ 2,311,000 $ 5,540,000 Gross realized losses . . . . . . . . . . . . . . . . . . . 43,000 47,000 978,000 ----------- ------------ ------------ Net gains . . . . . . . . . . . . . . . . . . . . . . . $ 12,000 $ 2,264,000 $ 4,562,000 =========== ============ ============
Gross securities gains in 1992 include $688,000 realized by a pooled company associated with securities which were sold due to a deterioration in credit quality. A gain was realized because the securities had previously been written down to 37.0% of par value. Not included in the table above are $299,685,000 of 1992 sales of short-term Treasury Bills related to the restructuring of the securities portfolio obtained with the assumption of deposits from a Tulsa, Oklahoma S&L. These securities were sold within 14 days of maturity; thus the market risk had been substantially eliminated as a pricing factor, and a gain of only $5,000 was realized. "Income receivable and other assets" includes the receivable for the proceeds from this sale, which were received January 4, 1993. 6 - Loans and Leases The book value and estimated fair value of loans and leases are as follows:
December 31, 1993 December 31, 1992 --------------------- --------------------- Amount Percent Amount Percent ----------- --------- ----------- --------- (Dollars in thousands) Commercial and industrial . . . . . . . . . . . . . . . . . . $ 849,026 26.1% $ 737,924 26.0% Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . 164,752 5.0 143,383 5.0 Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,962 2.4 55,754 2.0 Bank stock. . . . . . . . . . . . . . . . . . . . . . . . . . 34,576 1.1 41,282 1.4 Real estate, less unearned discount: Construction. . . . . . . . . . . . . . . . . . . . . . . . 92,158 2.8 63,948 2.2 Secured by 1-4 family residences. . . . . . . . . . . . . . 781,946 24.0 690,202 24.3 Permanent commercial real estate and other. . . . . . . . . 500,129 15.4 436,888 15.4 Residential mortgage loans held for sale. . . . . . . . . . 110,132 3.4 501 -- Consumer, less unearned discount. . . . . . . . . . . . . . . 417,126 12.8 467,916 16.5 Credit card . . . . . . . . . . . . . . . . . . . . . . . . . 91,562 2.8 81,012 2.9 Educational . . . . . . . . . . . . . . . . . . . . . . . . . 55,968 1.7 41,889 1.5 Lease financing . . . . . . . . . . . . . . . . . . . . . . . 40,195 1.2 29,490 1.0 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,255 1.3 50,847 1.8 ---------- ------ ---------- ------ Loans and leases - book value . . . . . . . . . . . . . . $3,257,787 100.0% $2,841,036 100.0% ========== ====== ========== ====== Loans and leases - estimated fair value . . . . . . . . . $3,281,535 $2,859,833 ========== ==========
The Company manages exposure to credit risk through loan portfolio diversification by customer and market, as well as by product. Although the aggregate legal lending limits of the Company's bank subsidiaries totaled $79,422,000 at December 31, 1993, the Company had no single lending relationship with an aggregate loan amount outstanding in excess of $20,000,000. The Company principally lends to businesses and individuals in Kansas, Oklahoma, and the contiguous states or to Kansas and Oklahoma based customers that do business in other states. Nonaccrual loans and troubled debt restructurings are summarized below: December 31, --------------------- 1993 1992 -------- -------- (In thousands) Nonaccrual loans . . . . . . . . . . . . . . . . $33,833 $36,772 Troubled debt restructurings . . . . . . . . . . 290 1,906 ------- ------- $34,123 $38,678 ======= ======= The effect of nonaccrual loans and troubled debt restructurings on interest income was:
Year Ended December 31, ---------------------------- 1993 1992 1991 ------ ------ ------ (In thousands) Interest income which would have been recorded pursuant to the original terms . . . . . . . . . . $4,039 $7,823 $11,241 ====== ====== ======= Interest income recorded . . . . . . . . . . . . . . . . . . $1,504 $1,598 $ 2,073 ====== ====== =======
In the ordinary course of business, the Company has made loans to directors and executive officers of the Company and its significant subsidiaries. Loans to these customers were transacted on the same terms, including similar interest rates and collateral terms, as those prevailing at the time for comparable transactions with unrelated persons and, in management's opinion, did not involve more than a normal risk of collectibility or present other unfavorable features at the time they were made. An analysis of aggregate loan activity with this group, including their immediate families, companies in which they are principal owners, and trusts in which they are involved, follows: 1993 -------------- (In thousands) Loans outstanding at December 31, 1992. . . . . . . . $ 39,236 New loans . . . . . . . . . . . . . . . . . . . . . 214,894 Repayments. . . . . . . . . . . . . . . . . . . . . (176,635) Other changes . . . . . . . . . . . . . . . . . . . 271 -------- Loans outstanding at December 31, 1993. . . . . . . . $ 77,766 ======== Other changes include loans outstanding at December 31, 1992 to directors elected or retired in 1993, loans purchased or sold during the current year, and any other loans outstanding at December 31, 1992 to related individuals or entities not considered to be related parties at December 31, 1993. 7 - Allowance for Credit Losses Changes in the allowance for credit losses are as follows:
1993 1992 1991 ------- ------- ------- (In thousands) Balance at January 1, as previously reported . . . . . . . . . . . . . . . . $60,498 $57,459 $53,049 Adjustment for poolings of interests . . . . . . . . . . . . . . . . . . . 12,557 13,210 9,672 ------- ------- ------- Balance at January 1, as restated. . . . . . . . . . . . . . . . . . . . . . 73,055 70,669 62,721 Allowance for credit losses of purchased banks . . . . . . . . . . . . . . 3,266 1,739 464 Allowance for purchased loans. . . . . . . . . . . . . . . . . . . . . . . -- 3,424 -- ------- ------- ------- 76,321 75,832 63,185 Provisions charged to operating expense. . . . . . . . . . . . . . . . . . 7,056 21,343 43,665 Recoveries on loans and leases previously charged off. . . . . . . . . . . 9,799 6,958 7,189 Loans and leases charged off . . . . . . . . . . . . . . . . . . . . . . . (26,808) (31,078) (44,559) ------- ------- ------- Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . $66,368 $73,055 $69,480 ======= ======= =======
8 - Bank Premises and Equipment A summary of land, buildings, and equipment appears below:
December 31, 1993 December 31, 1992 ------------------------------- -------------------------------- Accumulated Book Accumulated Book Cost Depreciation Value Cost Depreciation Value -------- ------------ ------- -------- ------------ -------- (In thousands) Land . . . . . . . . . . . . . . . . . . $ 22,993 $ -- $ 22,993 $ 21,382 $ -- $ 21,382 Buildings and leasehold improvements . . 153,368 71,155 82,213 136,342 63,796 72,546 Furniture and equipment. . . . . . . . . 111,207 73,441 37,766 89,770 60,362 29,408 -------- -------- -------- -------- -------- -------- Total. . . . . . . . . . . . . . . . $287,568 $144,596 $142,972 $247,494 $124,158 $123,336 ======== ======== ======== ======== ======== ========
Depreciation expense amounted to $15,705,000 in 1993, $14,204,000 in 1992, and $13,470,000 in 1991. 9 - Intangible Assets Included in intangible assets are the following items:
December 31, 1993 December 31, 1992 ------------------------------- -------------------------------- Accumulated Book Accumulated Book Cost Amortization Value Cost Amortization Value -------- ------------ ------- -------- ------------- ------- (In thousands) Cost in excess of net assets acquired . . $64,728 $18,259 $46,469 $53,386 $14,992 $38,394 Value of core deposits assumed. . . . . . 28,055 12,227 15,828 26,825 5,335 21,490 Purchased mortgage servicing rights . . . 5,749 4,248 1,501 5,749 2,111 3,638 ------- ------- ------- ------- ------- ------- $98,532 $34,734 $63,798 $85,960 $22,438 $63,522 ======= ======= ======= ======= ======= =======
The cost of purchased entities in excess of fair value of net assets acquired is being amortized on a straight-line basis over a period of twenty years. The value of core deposits assumed and the purchased mortgage servicing rights are being amortized using accelerated methods over the estimated periods benefitted, not exceeding ten years. 10 - Deposits The book value and estimated fair value of deposits are presented below:
December 31, ----------------------------- 1993 1992 ------------ ------------ (In thousands) Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . $ 944,290 $1,036,371 Interest-bearing deposits: Interest-bearing checking deposits . . . . . . . . . . . . . . . . . 908,792 800,606 Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 1,259,486 1,220,952 Time deposits under $100,000 . . . . . . . . . . . . . . . . . . . . 1,835,211 1,923,026 Time deposits of $100,000 or more . . . . . . . . . . . . . . . . . . 359,957 398,962 ---------- ---------- Total interest-bearing deposits . . . . . . . . . . . . . . . . . . 4,363,446 4,343,546 ---------- ---------- Deposits - book value . . . . . . . . . . . . . . . . . . . . . . $5,307,736 $5,379,917 ========== ========== Deposits - estimated fair value . . . . . . . . . . . . . . . . . $5,350,182 $5,424,630 ========== ==========
11 - Purchased Funds, Borrowings and Long-Term Debt The following schedules summarize, by category, purchased funds, borrowings, and long-term debt. Federal funds purchased and securities sold under agreements to repurchase
December 31, 1993 December 31, 1992 -------------------- --------------------- Amount Rate Amount Rate -------- -------- --------- -------- (Dollars in thousands) Federal funds purchased . . . . . . . . . . . . . . . . . . . . $370,026 2.96% $261,048 2.92% Securities sold under agreements to repurchase. . . . . . . . . 123,901 3.27 65,089 3.49 -------- -------- Total book value. . . . . . . . . . . . . . . . . . . . . . . $493,927 3.04 $326,137 3.03 ======== ======== Estimated fair value. . . . . . . . . . . . . . . . . . . . . $493,927 $326,137 ======== ========
Federal funds purchased and securities sold under agreements to repurchase generally mature daily or on demand. Federal Home Loan Bank borrowings
December 31, 1993 December 31, 1992 -------------------- --------------------- Amount Rate Amount Rate -------- -------- --------- -------- (Dollars in thousands) Federal Home Loan Bank borrowings - book value. . . . . . . . . $250,000 4.01% $ -- --% ======== ======== Estimated fair value. . . . . . . . . . . . . . . . . . . . . . $251,402 $ -- ======== ========
At December 31, 1993, Federal Home Loan Bank borrowings included $175,000,000 with an average rate of 3.76% that matures in 1994. The remaining balance matures in 1995 ($50,000,000) and 1996 ($25,000,000). Other borrowings
December 31, 1993 December 31, 1992 -------------------- --------------------- Amount Rate Amount Rate -------- -------- --------- -------- (Dollars in thousands) Treasury tax and loan . . . . . . . . . . . . . . . . . . . . . $23,002 2.75% 17,306 2.67 Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 5,961 6.57 Commercial paper . . . . . . . . . . . . . . . . . . . . . . . -- -- 425 2.80 -------- -------- Total book value. . . . . . . . . . . . . . . . . . . . . . . $ 23,002 2.75 $ 23,692 3.65 ======== ======== Estimated fair value. . . . . . . . . . . . . . . . . . . . . $ 23,002 $ 23,692 ======== ========
Treasury tax and loan borrowings generally mature daily or on demand. The $5,961,000 of notes payable at December 31, 1992 were debts of pooled companies. These notes were paid in full at the acquisition dates. Commercial paper has a maximum maturity of 270 days. The Company has a $35,000,000 committed line of credit from an unaffiliated bank. Amounts borrowed under the agreement have alternative fluctuating interest rates. A commitment fee of 1/8 of 1% is charged on this commitment, which matures on May 31, 1994. There have been no borrowings under this agreement. The Company is required to maintain capital ratios above the regulatory "Well Capitalized" standard and the ratio of nonperforming assets to total loans plus other real estate owned may not exceed 4.0%. In the event of a default on either of these covenants, the lender would have the right to impose additional covenants, and increase fees and margins as it may deem prudent, or the lender could deny any future advances, as well as cause the obligations then outstanding to become immediately due and payable. At December 31, 1993, the Company was in compliance with all the terms of this agreement. Long-term debt
December 31, 1993 December 31, 1992 ----------------- ----------------- Amount Rate Amount Rate ---------- ------ ---------- ------ (Dollars in thousands) Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,125 8.60% $21,875 8.60% Mortgage indebtedness and other notes payable . . . . . . . . . . 864 4.60 5,950 6.94 Subordinated debentures . . . . . . . . . . . . . . . . . . . . . -- -- 1,515 6.70 ------- ------- Total book value. . . . . . . . . . . . . . . . . . . . . . . . $13,989 8.35 $29,340 8.17 ======= ======= Estimated fair value. . . . . . . . . . . . . . . . . . . . . . $14,352 $30,358 ======= =======
The parent company's term loan with an unaffiliated bank requires semiannual installments of $4,375,000, due the last day of March and September through March 1995. The Company is required to maintain consolidated net worth above an adjusted base of $498,076,000 at December 31, 1993; maintain a ratio of consolidated equity to consolidated assets above the level required by the Federal Reserve Board of Governors; maintain investments in subsidiaries below 140% of consolidated equity; and to maintain a level of consolidated tangible net worth exceeding consolidated funded debt. The Company is in compliance with all of the terms of the agreement. The mortgage indebtedness and other notes payable of $5,950,000 in 1992 includes $5,368,000 from current year pooling-of-interests acquisitions. The majority (87.5%) of the acquired balance was paid off at the acquisition dates. Certain buildings and real estate have been pledged as collateral on mortgage indebtedness and other notes payable. Maturities of this long-term debt for years subsequent to December 31, 1993, are as follows: Years ended December 31, (In thousands) ------------------------ -------------- 1994 . . . . . . . . . . . . . $ 554 1995 . . . . . . . . . . . . . 75 1996 . . . . . . . . . . . . . 29 1997 . . . . . . . . . . . . . 32 1998 . . . . . . . . . . . . . 14 Thereafter . . . . . . . . . . 160 ------ Total . . . . . . . . . . . . $ 864 ====== The subordinated debentures were also obligations of a pooled company. The interest rate was 2% above the average of the one year United States treasury bill obligations issued in the two previous Treasury auctions preceding December 31 each year. Although the debentures were not due until December 31, 1998, they were subject to redemption at the face amount plus accrued interest on any quarterly interest payment date after December 31, 1991. These debentures were redeemed by the Company in 1993. 12 - Preferred Stock
December 31, December 31, 1993 1992 ------------- ------------- (Dollars in thousands) Class A cumulative convertible preferred stock, par value $100 per share Authorized: 250,000 shares Issued: 250,000 shares (at liquidation preference) . . . . . . . $100,000 $100,000 Class B preferred stock, no par value Authorized: 5,000,000 shares . . . . . . . . . . . . . . . . . . -- -- CLC's convertible preferred stock, par value $6.22 per share Authorized: 771,720 shares Issued: None and 181,700 shares. . . . . . . . . . . . . . . . . -- 1,130 WNB's 1987 convertible preferred stock Issued: None and 51,368 shares . . . . . . . . . . . . . . . . . -- 769 WNB's 1989 convertible preferred stock Issued: None and 398,749 shares. . . . . . . . . . . . . . . . . -- 1,742 -------- -------- $100,000 $103,641 ======== ========
On February 24, 1992, the Company issued 250,000 shares of nonvoting Class A Cumulative Convertible Preferred Stock. This preferred stock was issued in the form of 4,000,000 depositary shares each representing a 1/16 interest in a share of preferred stock and each having a liquidation preference of $25.00. Dividends are payable quarterly beginning June 1, 1992 at an annual rate of $1.75 per depositary share. The depositary shares are not redeemable by the Company prior to March 1, 1997. However, they may be converted at the election of shareholders into a total of 3,448,275 shares of the Company's common stock at a conversion price of $29.00 per common share. At the Company's annual meeting in April 1992, the stockholders authorized 5,000,000 shares of a new class of preferred stock, designated Class B Preferred Stock. The Board of Directors has been authorized to set the dividend, voting, conversion, redemption, and other rights of this stock when and if issued. The restatement of prior-period financial statements for the poolings of interests resulted in the inclusion of CLC's and WNB's convertible preferred stock in the Company's prior-period financial statements. The par value, shares authorized, and shares issued in the previous table have been adjusted by the exchange ratio to reflect equivalent Company shares at December 31, 1992. Prior to CLC's merger with the Company, CLC's preferred stock was converted to CLC common stock, which was then exchanged for Company common stock. All of WNB's preferred stock was exchanged for Company common stock in the business combination. CLC's convertible preferred stock was convertible into one share of CLC common stock for each share of CLC preferred stock at the option of the holder. Dividends were noncumulative and could only be paid if covered by current-period profits and approved by CLC's Board of Directors. Dividends were payable at the following rates: 1991 - 5% of par 1992 - 7% of par 1993 - 8% of par 1994 and thereafter - 8.75% of par WNB's 1987 convertible preferred stock was convertible into approximately 2.2 shares of WNB common stock for each share of WNB 1987 preferred stock. The 1987 preferred was redeemable by WNB at any time after December 31, 1992, at book value plus any unpaid cumulative dividends. Dividends accumulated at 3.5% annually. At December 31, 1992, cumulative unpaid dividends amounted to $108,000 which had not been charged to retained earnings. The WNB 1987 preferred stock shareholders received 117,487 Company shares in the business combination and no dividends were declared. Each share of WNB 1989 preferred stock was convertible into one share of WNB common stock and was redeemable by WNB at any time after December 31, 2000, at book value increased by 3.0% per year compounded quarterly, plus any unpaid cumulative dividends. The dividends accumulated at 12%, but were payable only in additional shares of 1989 preferred stock. At December 31, 1992, cumulative undeclared dividend shares totaled 198,731 (as adjusted for the business combination exchange ratio). The WNB 1989 preferred stock shareholders received 672,462 shares of Company stock in the business combination and no dividends were declared. 13 - Nonoperating Charge During 1993, the Company recorded a nonoperating charge of $12,708,000 to reflect merger, integration, and restructuring charges associated with the current- year acquisitions and to accelerate core deposit intangible amortization, data processing hardware depreciation, and software amortization. Acquisition-related premises and equipment write-downs totaled $1,252,000 and were associated with dispositions of excess facilities and equipment. Merger, integration, and restructuring charges also included severance and other compensation of $2,970,000; systems conversion costs of $1,579,000; and other restructuring expenses related to acquisitions of $1,233,000. The 1992 nonoperating charge of $5,573,000 was principally associated with the consolidation of Oklahoma data processing, operations, and staff functions. This expense included severance and other compensation of $886,000; systems conversion costs of $1,941,000; acquisition-related premises and equipment write-downs of $621,000; the settlement of lease obligations on excess facilities of $991,000; and other restructuring expenses of $884,000 related to acquisitions. Also included in the 1992 nonoperating charge was a $250,000 computer write- down. The $6,997,000 nonoperating charge for 1991 recognized the costs of a work force reduction. This charge included $5,648,000 attributable to an early retirement incentive plan, $1,062,000 for the cost of severance compensation, and $287,000 associated with the closing of five loan production offices. 14 - Income Taxes Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FAS No. 109, "Accounting for Income Taxes." As permitted under the new rules, prior years' financial statements have not been restated. The cumulative effect of adopting FAS No. 109 as of January 1, 1993 was to increase net income by $10,509,000. The $2,373,000 increase for the year ended December 31, 1992 was a result of the 1993 pooling-of-interests transactions. Two of the "pooled" companies elected early adoption of FAS No. 109 effective January 1, 1992. At December 31, 1993, the Company had net operating loss and general business credit carryforwards of $14,777,000 and $424,000, respectively, which can be carried forward to reduce future federal income taxes payable. These carryforwards are principally related to previous losses of banks acquired in 1992 and 1993. Utilization of the carryforwards is limited by tax law to the future earnings of and other limits on the use of tax attributes of acquired companies. Net operating loss carryforwards expire in years 2000 through 2007 and general business credit carryforwards expire in years 1994 through 2005 if not utilized. For financial reporting purposes, a valuation allowance of $13,211,000 has been recognized to offset the deferred tax assets related to these carryforwards and other deferred tax assets whose realization is uncertain. If realized, the tax benefit on $3,413,000 of net operating loss carryforwards will be applied to reduce "cost in excess of net assets acquired" recorded in connection with acquisitions accounted for as purchases. The net change in the valuation allowance for deferred tax assets for 1993 was a decrease of $3,294,000. Pursuant to FAS No. 109, the Company's third quarter 1993 financial statements reflected certain adjustments to recognize the impact of the new tax law on the Company's financial condition. These adjustments reduced 1993 income tax expense by $616,000. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1993 are as follows:
December 31, 1993 ----------------- (In thousands) Deferred tax assets: Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . $18,874 Net operating loss carryforwards. . . . . . . . . . . . . . . . . . . . . . 8,159 Write-down of other real estate owned . . . . . . . . . . . . . . . . . . . 5,425 Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,043 Core deposit amortization . . . . . . . . . . . . . . . . . . . . . . . . . 1,854 Nonoperating charge accrual . . . . . . . . . . . . . . . . . . . . . . . . 1,132 Pension contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,018 Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334 ------- Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . 38,839 Valuation allowance for deferred tax assets . . . . . . . . . . . . . . . . (13,211) ------- Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . 25,628 ------- Deferred tax liabilities: Securities fair value adjustment. . . . . . . . . . . . . . . . . . . . . . (16,079) Purchase accounting adjustment. . . . . . . . . . . . . . . . . . . . . . . (4,173) Discount accretion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,145) State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,343) Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,121) Depreciation expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,752) ------- Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . (29,613) ------- Net deferred tax liability. . . . . . . . . . . . . . . . . . . . . . . . $(3,985) =======
Significant components of the provision for income taxes are as follows:
Liability Deferred Deferred Method Method Method ------------ ------------ ------------ December 31, December 31, December 31, 1993 1992 1991 ------------ ------------ ------------ (In thousands) Current: Federal . . . . . . . . . . . . . . . . . . . . . . . . . $23,636 $16,166 $11,203 State . . . . . . . . . . . . . . . . . . . . . . . . . . 3,920 3,439 2,800 ------- ------- ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . 27,556 19,605 14,003 ------- ------- ------- Deferred: Federal . . . . . . . . . . . . . . . . . . . . . . . . . (5,936) (312) (3,578) State . . . . . . . . . . . . . . . . . . . . . . . . . . 225 (759) (888) ------- ------- ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . (5,711) (1,071) (4,466) ------- ------- ------- Total income tax expense. . . . . . . . . . . . . . . $21,845 $18,534 $ 9,537 ======= ======= =======
Tax effects of investment securities transactions included in the above amounts are $459,000 in 1993, $504,000 in 1992, and $954,000 in 1991. The components of the provision for deferred income taxes for the periods ended December 31, 1992 and December 31, 1991 are as follows:
December 31, December 31, 1992 1991 ------------ ------------ (In thousands) Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . $(1,571) $(1,823) Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . (939) (1,012) Write-down of other real estate owned. . . . . . . . . . . . . . . . . . 972 (791) Bond discount accretion. . . . . . . . . . . . . . . . . . . . . . . . . 147 (646) Leasing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 142 Cash basis tax reporting . . . . . . . . . . . . . . . . . . . . . . . . -- (596) Employee benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . (385) (478) Write-down of investment securities. . . . . . . . . . . . . . . . . . . -- 465 State taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 334 Utilization of loss carryforwards against deferred tax liability . . . . -- (381) Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 320 ------- ------- Provision for deferred income taxes. . . . . . . . . . . . . . . . . . $(1,071) $(4,466) ======= =======
The effective income tax rates differ from the federal statutory rates for the reasons shown in the following table.
Liability Method Deferred Method Deferred Method ------------------- ------------------- ------------------- December 31, 1993 December 31, 1992 December 31, 1991 ------------------- ------------------- ------------------- Amount Rate Amount Rate Amount Rate --------- -------- --------- -------- --------- -------- (Dollars in thousands) Income tax expense at federal statutory rate . . . $30,459 35.0% $27,019 34.0% $13,685 34.0% Tax-preferred income on obligations of states, political subdivisions, and U.S. possessions. . . (6,457) (7.4) (7,076) (8.9) (8,637) (21.5) Goodwill and purchase accounting amortization. . . 1,271 1.5 986 1.2 1,018 2.5 State taxes, net of federal income tax benefit . . 2,688 3.1 1,693 2.1 1,374 3.4 Alternative minimum tax. . . . . . . . . . . . . . -- -- -- -- 2,348 5.8 Investment tax credit. . . . . . . . . . . . . . . -- -- (232) (.3) -- -- Benefit of net operating losses and alternative minimum tax credits . . . . . . . . . (4,090) (4.7) (5,208) (6.6) (1,486) (3.7) Deferred tax benefits not recorded due to uncertainty of realization. . . . . . . . . . . . -- -- -- -- 605 1.5 Other, net . . . . . . . . . . . . . . . . . . . . (2,026) (2.4) 1,352 1.8 630 1.7 ------- ---- ------- ---- ------- ----- Actual income tax expense. . . . . . . . . . . $21,845 25.1% $18,534 23.3% $ 9,537 23.7% ======= ==== ======= ==== ======= ====
15 - Employee Benefit Plans The Company and its subsidiaries have two types of pension plans. The Company's defined benefit plan covers substantially all employees. The supplemental executive retirement plan provides for payments equal to the benefit which would have been paid under the pension plan and the savings and investment plan if certain Internal Revenue Code limitations had not been imposed including Section 415, Section 401(a)(17), and the Section 401(a)(4) prohibition on deferred compensation as eligible compensation under the pension plan. The plans' funded status and amounts included in the consolidated financial statements are presented below:
December 31, 1993 December 31, 1992 ------------------------- ------------------------- Supplemental Supplemental Defined Executive Defined Executive Benefit Retirement Benefit Retirement Plan Plan Plan Plan ---------- ------------ ---------- ------------ (In thousands) Actuarial present value of benefit obligations: Vested benefit obligation . . . . . . . . . . . . . . . . $(20,425) $ (737) $(14,682) $(1,035) ======== ======= ======== ======= Accumulated benefit obligation. . . . . . . . . . . . . . $(21,695) $ (799) $(15,410) $(1,050) ======== ======= ======== ======= Projected benefit obligation. . . . . . . . . . . . . . . $(28,234) $(1,169) $(20,880) $(1,107) Plan assets, at fair value. . . . . . . . . . . . . . . . . 20,086 -- 16,580 -- -------- ------- -------- ------- Funded status . . . . . . . . . . . . . . . . . . . . . . . (8,148) (1,169) (4,300) (1,107) Prior service cost (benefit) not yet recognized in periodic pension cost, being amortized over 10 years . . . (1,641) 1 41 55 Unrecognized net (asset) obligation from date of initial application, being amortized over 15 years . . . . (2,541) 104 (2,900) 119 Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions. . 10,499 377 5,342 258 -------- ------- -------- ------- Accrued pension cost included in consolidated statements of condition . . . . . . . . . . $ (1,831) $ (687) $ (1,817) $ (675) ======== ======= ======== =======
Effective January 1, 1994, the pension plan was amended to reduce the pension benefits by approximately 10%. Both the projected benefit obligation and the prior service benefit reflect this change. The accumulated benefit obligation at December 31, 1993 was not affected by this plan amendment. The assets of the defined benefit plan are administered by the trust division of a subsidiary bank and consist of a wide variety of diversified securities including common stocks, corporate bonds, and U.S. Treasury obligations. The trust also participates in commingled funds for qualified employee benefit accounts, including two equity funds and one fixed-income fund. Contributions to the plan are based upon the Projected Unit Credit Actuarial Funding method and are limited to amounts that are currently deductible for tax reporting purposes. Net pension cost includes the following components:
Year Ended December 31, ---------------------------------- 1993 1992 1991 -------- -------- -------- (In thousands) Service cost-benefits earned during the year. . . . . . . . . . $2,329 $1,441 $1,425 Interest cost on the projected benefit obligation . . . . . . . 1,579 1,414 1,744 Actual return on plan assets. . . . . . . . . . . . . . . . . . (2,119) (1,397) (3,865) Net amortization and deferrals. . . . . . . . . . . . . . . . . 691 (314) 1,560 ------ ------ ------ Net periodic pension cost . . . . . . . . . . . . . . . . . . $2,480 $1,144 $ 864 ====== ====== ======
Assumptions used in the accounting include: As of December 31, ------------------------------------ 1993 1992 1991 -------- -------- -------- Discount rates. . . . . . . . . . . . . . . . . . . . . . . . . 7.00% 7.00% 7.75% Average rates of increase in compensation levels. . . . . . . . 4.70% 4.70% 6.00% Expected long-term rate of return on assets . . . . . . . . . . 8.75% 9.25% 9.25%
The Company and its subsidiaries also maintain a contributory savings and investment plan for substantially all employees. The savings and investment plan and related trust qualify under Section 401 of the Internal Revenue Code as a qualified profit-sharing plan and trust. According to the plan, an employee may contribute from 2% to 4% of base salary, which the employer then supplements with a contribution of 50% of the employee's contributed amount. Employees may contribute up to an additional 11% of base salary in pre-tax dollars, but without further employer contributions. The plan also provides for an additional matching contribution of up to an additional 2% of the employee's eligible compensation based on the Company's achievement of established earnings-per-share targets. Vesting in the employer contributions ranges from 20% with three years to 100% with seven years of service. During 1993, employees could elect to invest in one or more of four investment funds, in 25% increments. These funds included a Fourth Financial Corporation common stock fund, a fixed-income fund, an equity fund, and a money market fund. An additional fund, an international equity fund, was added effective January 1, 1994, and the fund elections may now be made in 10% increments. Forfeitures are used to reduce the Company's contributions. The expense for this plan plus similar plans of pooled companies which were merged with this plan was $1,823,000 in 1993, $1,951,000 in 1992, and $1,150,000 in 1991. This expense includes additional matching contributions of $629,000 and $625,000 for 1993 and 1992, respectively, attributable to the achievement of performance goals. No additional performance-based matching contribution was made for 1991. The restatement of prior period financial statements for the poolings of interests resulted in the inclusion of SBC's contributory Employee Stock Ownership Plan ("ESOP") and PBC's noncontributory ESOP. Both plans covered substantially all employees with one year of service. Annual contributions to these plans were determined by the respective Boards of Directors of SBC and PBC. In 1993, 1992, and 1991, contributions made to the plans totaled $230,000, $247,000, and $316,000, respectively. The SBC ESOP was terminated February 12, 1993 and all stock was allocated to the participants. At December 31, 1993, the PBC ESOP was in the process of being terminated. Effective January 1, 1990, the Company discontinued providing medical coverage for employees who retired at age 65 or older. The Company continues to underwrite approximately $30,000 of the annual cost of health care benefits for such employees who retired prior to January 1, 1990. Employees retiring after age 55 but before age 65 and with at least ten years' service may continue participation in the Company's health plan until age 65, but the plan requires that the full cost of providing coverage under the plan be paid by the covered retirees. Financial Accounting Standard ("FAS") No. 106 establishes accounting standards for "Employers' Accounting for Postretirement Benefits Other Than Pensions." Although it applies to all forms of postretirement benefits, FAS No. 106 focuses principally on postretirement health care benefits. The Statement provides that the expected cost of postretirement benefits be accrued during the years that the employee renders services. This Statement was effective for 1993; however, the adoption of FAS No. 106 would not have a material effect on the Company's statement of condition and operating results. 16 - Stock Option and Stock Purchase Plans The Company grants options to key employees under incentive stock option plans at prices equal to the market value on the date of grant. Terms of the plans generally provide for the exercise of the options for periods of up to ten years, as determined by the Board of Directors. Under the 1981 stock option plan, 162,141 shares were reserved for issuance, of which 94,975 shares were under option, and 28,100 were exercisable at December 31, 1993. Options may no longer be granted under this plan. At December 31, 1993, there were 867,653 shares reserved for issuance under the 1986 stock option plan of which 703,063 were under option, and 78,426 were exercisable. The 1993 stock option plan, which is substantially identical to the 1986 plan, was approved and adopted in 1993. Under the 1993 plan, a maximum of 1,000,000 shares may be issued; however, at December 31, 1993, no options had been granted. The following table presents information regarding stock option transactions and prices:
Shares Under Option ------------------------------------------------------------------------- 1993 1992 1991 ----------------------- ----------------------- ----------------------- Price Price Price Number Per Share Number Per Share Number Per Share ---------- ------------ --------- ------------- ---------- ------------ Balance at January 1 . . . . . . . 684,339 $14.80-29.88 518,297 $14.80-23.50 804,928 $11.30-24.70 Granted. . . . . . . . . . . . . . 299,100 27.50-30.38 248,900 22.87-29.88 14,000 18.37-19.63 Exercised. . . . . . . . . . . . . (172,747) 14.80-23.20 (74,858) 14.80-23.20 (220,138) 11.30-18.20 Terminated or canceled . . . . . . (12,654) -- (8,000) -- (80,493) -- -------- -------- -------- Balance at December 31 . . . . . . 798,038 17.00-30.38 684,339 14.80-29.88 518,297 14.80-23.50 ======== ======== ========
An optionee may pay the option exercise price by tendering stock of the Company having a market value equal to the exercise price. The optionee must have held the tendered stock for at least six months before it can be used to exercise an option. Transactions under this program are accounted for as the purchase and reissuance of treasury stock. The following is a summary of activity:
1993 1992 1991 ---------- ---------- ---------- Shares tendered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,399 23,954 74,933 Shares issued under the stock option plans (including reissued treasury stock). . . . . . . . . . . . . . . . . . . . . . . . 75,720 37,891 108,759
An optionee also may borrow the amount of the option exercise price from the Company. The loans under this program bear interest at the Company's base rate adjusted quarterly and mature annually. Although the Company reserves the right not to renew any loan at maturity, it is the Company's present intention to allow each borrowing to be renewed for additional annual periods. At a minimum, Company stock valued at 125% of the loan amount must collateralize the loan. Such loans, which amounted to $1,795,000 and $1,069,000 at December 31, 1993 and 1992, respectively are reported as a reduction of stockholders' equity. The Fourth Financial Corporation 1993 Non-Employee Directors Stock Option Plan (the "Directors Option Plan") was approved and adopted in 1993. The plan will terminate, for the purposes of granting options, in ten years unless the plan is earlier terminated by the Board of Directors. The Directors Option Plan provides that each year, on the first Monday following the Company's annual meeting of stockholders, each non-employee director of the Company will automatically receive an option to acquire 2,000 shares of the Company's common stock and each non-employee director of the Company's subsidiaries will automatically receive an option to acquire 1,000 shares of the Company's common stock. A total of 500,000 shares of common stock were reserved for issuance under the Directors Option Plan. On April 26, 1993 twelve non-employee directors of the Company received an aggregate of 24,000 options and 20 non-employee directors of the Company's subsidiaries received an aggregate of 20,000 options for a total of 44,000 shares at an exercise price of $29.50. Each option was immediately exercisable and will expire ten years from the date of grant. No options were exercised in 1993. Under the 1988 Employee Stock Purchase Plan, which expired in April, 1993, and the 1993 Employee Plan which replaced it, employees are offered the option to purchase shares of the Company's common stock at 85% of the lower of the fair market value of such shares on the date granted or one year thereafter. Options issued under the plan are exercisable one year from the date of grant. At December 31, 1993, 750,000 shares were reserved for issuance, including 180,597 shares under option. No options under the plan were exercisable at December 31, 1993. Additional data regarding the Employee Stock Purchase Plan are as follows:
Shares Under Option ------------------------------------------------------------------------- 1993 1992 1991 ----------------------- ----------------------- ----------------------- Price Price Price Number Per Share Number Per Share Number Per Share ---------- ------------ ---------- ------------ ---------- ------------ Balance at January 1. . . . . . . 165,078 $23.06 214,611 $16.36 150,467 $21.89 Granted . . . . . . . . . . . . . 192,109 24.81 178,534 23.06 263,374 16.36 Exercised . . . . . . . . . . . . (71,259) 23.06 (111,612) 16.36 (42,117) 16.36 Terminated or canceled. . . . . . (105,331) -- (116,455) -- (157,113) -- -------- -------- -------- Balance at December 31. . . . . . 180,597 24.81 165,078 23.06 214,611 16.36 ======== ======== ========
17 - Earnings Per Common Share Earnings per common share are based on the following weighted average numbers of shares outstanding. 1993 1992 1991 ---------- ---------- ---------- Primary . . . . . . . . . . . . . . . . . . . . . . . . . . 25,733,838 25,310,475 24,417,006 Fully diluted . . . . . . . . . . . . . . . . . . . . . . . 29,764,552 28,897,968 25,202,528
Primary earnings per common share were computed by dividing net income applicable to common and common-equivalent shares by the weighted average common and common-equivalent shares outstanding during the period (common share equivalents include CLC's preferred stock and WNB's 1987 preferred stock). Fully diluted earnings per common share were computed by adjusting net income for interest expense (net of income taxes) associated with CLC's and WNB's convertible debt. The adjusted net income was then divided by the weighted average of common and common-equivalent shares outstanding plus the number of shares which would have been outstanding during the year had the Class A convertible preferred stock, the CLC and WNB convertible notes and debentures, and WNB's 1989 preferred stock been converted in accordance with their respective governing instruments. Stock options outstanding have been excluded from the computations as they were not materially dilutive. CLC's 9.5% convertible capital debentures were convertible into common stock based on the net book value (as defined by the debenture) of CLC. The $300,000 of debentures outstanding in March 1993 were converted to CLC common stock and were exchanged for the Company's stock (14,683 shares) in the business combination. WNB's convertible notes were convertible into common stock at $4.00 per share. The $61,247 of notes outstanding in October 1993 were converted to WNB common stock and were exchanged for the Company's stock (6,134 shares) in the business combination. At December 31, 1991, $593,677 of convertible debentures bearing interest at 12% were outstanding. These debentures were repaid during 1992. The adjustment of net income for CLC's and WNB's convertible debt interest expense (net of income taxes) was as follows:
1993 1992 1991 ------ ------ ------ (In thousands) Interest expense adjustment . . . . . . . . . . . . . . . . . . . $ 4 $ 85 $264
18 - Dividends Per Common Share Dividends per common share represent the Company's historical dividends declared without adjustment for the poolings of interests. The following table presents dividends declared by entities pooled during 1993 and 1992 prior to combination with the Company.
1993 1992 1991 --------------------- --------------------- --------------------- Per Per Per Equivalent Equivalent Equivalent Pooled Entity Historical Share Historical Share Historical Share - --------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- SBC . . . . . . . . . . . . . . . . . . $ -- $ -- $ -- $ -- $ -- $ -- NHB . . . . . . . . . . . . . . . . . . .43 .48 -- -- -- -- CLC . . . . . . . . . . . . . . . . . . .93 .72 -- -- -- -- WNB . . . . . . . . . . . . . . . . . . -- -- -- -- -- -- PBI . . . . . . . . . . . . . . . . . . .99 .81 .15 .12 n/a n/a KNB . . . . . . . . . . . . . . . . . . n/a n/a 3.06 .22 -- -- MHB . . . . . . . . . . . . . . . . . . n/a n/a 1.51 .44 -- -- UBK . . . . . . . . . . . . . . . . . . n/a n/a 17.78 .61 3.50 .12 FNC . . . . . . . . . . . . . . . . . . n/a n/a .25 .44 -- --
19 - Restrictions on Intercompany Funds Transfers Restrictions imposed by federal law limit the transfer of funds to the Company and certain other affiliates from the subsidiary banks in the form of loans or other extensions of credit, investments, and purchases of assets. Transfers by the subsidiary banks to the Company or any such single affiliate may not exceed 10% and transfers in the aggregate may not exceed 20% of a bank's capital, surplus, and undivided profits, after adding back the allowance for credit losses and subtracting certain intangibles. Based on these limitations, approximately $52,949,000 was available for transfer to the Company at December 31, 1993. In addition, the approval of the Comptroller of the Currency is required if dividends declared by either of the Company's national bank subsidiaries in 1994 exceed the bank's net profits for that year combined with its retained net profits for 1992 and 1993. In 1994, the subsidiary banks may distribute to the Company (in addition to their 1994 net profits) an aggregate of approximately $15,764,000 in dividends without approval from regulatory agencies. 20 - Financial Instruments with Off-Balance-Sheet Risk In the normal course of business in meeting the financing needs of its customers and managing its own exposure to fluctuations in interest rates, the Company is a party to various financial instruments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Statements of Condition. The contract or notional amounts of these instruments are an indicator of the Company's activities in particular classes of financial instruments. The following schedule summarizes the contract or notional amount of these instruments.
Contract or Notional Amount ------------------------- December 31, ------------------------- 1993 1992 ---------- ---------- (In thousands) Commitments to extend credit: Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 91,422 $ 75,614 Commercial letters of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . 13,728 19,827 Credit card lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325,338 306,755 Other loan commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,122,794 800,973 Commitments to sell loans: Commitments to sell residential mortgage loans. . . . . . . . . . . . . . . . . . 10,159 2,499 Interest rate instruments: Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251,000 1,000 Forward foreign currency contracts: Commitments to purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,717 67 Commitments to sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Commitments to extend credit are agreements to lend to a customer as long as the customer is in compliance with the conditions 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 Company uses the same credit policies in making commitments as it does for direct extensions of credit. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, real estate, equipment, and income-producing commercial properties. Standby letters of credit irrevocably obligate the issuing bank to pay a third-party beneficiary when a customer fails to repay an outstanding debt instrument or fails to perform some contractual non- financial obligation. Standby letters of credit are primarily issued to secure bonds from insurance companies, provide security for self- insured portions of workers compensation insurance, and collateralize guaranties or secure loans to other financial institutions. A commercial letter of credit is issued to facilitate trade or commerce. Under the terms of a commercial letter of credit, drafts will be drawn when the underlying transaction is consummated as intended. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Substantially all letters of credit mature within two years. At December 31, 1993, the Company was committed under agreements with the Federal National Mortgage Association to sell $13.5 million of 30-year fixed-rate residential mortgage loans with coupons ranging from 6.71% to 7.30%. Residential mortgage loans held for sale included $3.3 million of such loans at December 31, 1993. These commitments were all met in January 1994. Subsequent to December 31, 1993, the Company entered into similar contracts for the sale of $106.8 million of 15-year fixed-rate residential mortgage loans with rates of 7.00% or less. The maturities of these commitments extend to March 14, 1994. These commitments were satisfied by residential mortgage loans held for sale at December 31, 1993. Single-family mortgage loans which the Company's subsidiaries originate for sale are sold without recourse. However, the Company is obligated under recourse provisions related to $13,253,000 of loans it is servicing. These loans were included in the $371,000,000 mortgage loan servicing portfolio purchased during 1990. A pooled company was also committed to $334,000 of recourse loans at December 31, 1993. The Company assesses the credit risk of these and other loan commitments when evaluating the adequacy of the allowance for credit losses. Interest rate swaps involve the contractual exchange of fixed and floating rate interest payments based on an established notional amount. The Company uses interest rate swaps to modify the interest sensitivity position inherent in the repricing characteristics of specific assets or liabilities. The net interest received or paid on the interest rate swaps is accounted for as an adjustment to the interest income or interest expense on the assets or liabilities, respectively, that the swap was intended to modify. At December 31, 1993 and 1992 interest rate swaps were as follows:
December 31, 1993 ----------------------------------------------------------------- Weighted Estimated Notional Average Weighted Average Rate Fair Amount Term Received Paid Value ---------- -------- ---------- --------- ---------- (In thousands) Receive fixed rate . . . . . . . . . . . . $ 51,000 29 months (1) 5.89% 3.47% 157 Pay fixed rate . . . . . . . . . . . . . . 200,000 10 months 3.44% 3.94% (722)
December 31, 1992 ----------------------------------------------------------------- Weighted Estimated Notional Average Weighted Average Rate Fair Amount Term Received Paid Value ---------- -------- ---------- --------- ---------- (In thousands) Receive fixed rate . . . . . . . . . . . . $ 1,000 52 months 10.00% 3.13% 133 ________ (1)The term of $50.0 million of these swaps may extend up to an additional 48 months after the initial term depending on the variable rate index at the end of the initial term and each quarter thereafter as compared to that same index when the swaps were initiated.
The Company enters into forward foreign currency contracts to assist customers with their foreign currency needs related to foreign operations, exporting, or importing. These customer-driven contracts are generally hedged with offsetting contracts. The market value gains and losses relating to currency exchange contracts are recorded at settlement in "Other noninterest income." The contracts held at December 31, 1993 all matured in January 1994. 21 - Commitments and Contingencies At December 31, 1993, the Company was committed to make future rental payments under several long-term lease agreements for land, buildings, and equipment. There were no material capital leases. Future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 1993 are as follows: Years ending December 31, (In thousands) ------------------------- -------------- 1994 . . . . . . . . . . . . . $ 3,926 1995 . . . . . . . . . . . . . 3,297 1996 . . . . . . . . . . . . . 2,909 1997 . . . . . . . . . . . . . 2,162 1998 . . . . . . . . . . . . . 1,633 Later years . . . . . . . . . 7,826 ------ Total . . . . . . . . . . . $21,753 ======= Total rental expense (net of sublease income, which is not material) amounted to $5,670,000, $6,373,000, and $5,736,000 for 1993, 1992, and 1991, respectively. The Company and its subsidiaries are defendants in various matters of litigation which arose in the ordinary course of operations. Some of the pending litigation seeks damages in substantial amounts, but management, after consultation with legal counsel, does not anticipate that potential liabilities, if any, arising from these claims would have a material effect on the results of operations of the Company. 22 - Condensed Financial Information of Parent Corporation In the following condensed financial information of Fourth Financial Corporation (parent only), investments in subsidiaries are recorded using the equity method of accounting. Fourth Financial Corporation (Parent Only) Condensed Statements Of Condition
December 31, ------------------------- 1993 1992 ----------- ---------- (In thousands) Assets: Cash in subsidiary banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100 $ 248 Interest-bearing deposits in subsidiary banks. . . . . . . . . . . . . . . . . . . 1,856 4,665 Securities repurchase agreement with subsidiary bank . . . . . . . . . . . . . . . 23,100 55,900 Investments securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,145 104 Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,281 13,215 Investments in bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 480,601 447,782 Investments in other subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 46,615 5,329 Other assets (including receivables from subsidiaries of $4,718 in 1993 and $945 in 1992) . . . . . . . . . . . . . . . . . . . . . . . 9,725 4,311 Cost in excess of net assets acquired. . . . . . . . . . . . . . . . . . . . . . . 39,625 31,201 -------- -------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $621,048 $562,755 ======== ======== Liabilities And Stockholders' Equity: Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 425 Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 5,850 Other liabilities (including amounts owed to subsidiaries of $314 in 1993 and $977 in 1992) . . . . . . . . . . . . . . . . . . . . . . . . 9,578 8,158 Long-term debt (including notes due subsidiaries of $0 in 1993 and $634 in 1992) . . . . . . . . . . . . . . . . . . . . . . . . . 13,125 22,509 -------- -------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,703 36,942 Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 598,345 525,813 -------- -------- Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . $621,048 $562,755 ======== ========
Fourth Financial Corporation (Parent Only) Condensed Statements of Income Year Ended December 31, ---------------------------------- 1993 1992 1991 -------- -------- -------- (In thousands) Dividends from subsidiaries: Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 74,595 $ 56,122 $ 47,439 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470 250 600 Fee income (principally from subsidiaries) . . . . . . . . . . . . . . . . 57,498 39,370 31,752 Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,760 3,555 1,253 Investment securities gains. . . . . . . . . . . . . . . . . . . . . . . . 161 -- -- Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 -- -- -------- -------- -------- Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,799 99,297 81,044 -------- -------- -------- Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . 33,023 21,660 19,457 Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . 10,282 8,204 8,832 Net occupancy (includes rent paid to bank subsidiaries of $2,371 in 1993, $1,632 in 1992, and $1,400 in 1991). . . . . . . . . . 3,039 2,024 1,593 Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,180 1,780 1,635 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,429 2,407 1,897 Fees paid to bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . 42 196 307 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,869 3,171 4,621 Nonoperating charge. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,358 2,386 1,219 Amortization of cost in excess of net assets acquired. . . . . . . . . . . 2,680 2,628 2,024 Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,577 6,718 4,425 -------- -------- -------- Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,479 51,174 46,010 -------- -------- -------- Income before income taxes, cumulative effect of a change in accounting principle, and undistributed net income of subsidiaries. . . . 63,320 48,123 35,034 Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,863 1,293 3,634 Cumulative effect of a change in accounting for income taxes . . . . . . . 681 384 -- Net income of subsidiaries in excess of (less than) dividends received . . 7,827 13,506 (6,559) -------- -------- ------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,691 $ 63,306 $32,109 ======== ======== =======
Fourth Financial Corporation (Parent Only) Condensed Statements of Cash Flows Year Ended December 31, -------------------------------- 1993 1992 1991 -------- -------- -------- (In thousands) Increase (Decrease) in Cash and Cash Equivalents Cash Flows From Operating Activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,691 $ 63,306 $ 32,109 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 7,643 6,315 6,650 Write-down of premises and equipment . . . . . . . . . . . . . . . . 1,250 -- -- Net income of subsidiaries (in excess of) less than dividends received. . . . . . . . . . . . . . . . . . . . . . . . . (7,827) (13,506) 6,559 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . (889) (275) (365) Investment securities gains. . . . . . . . . . . . . . . . . . . . . (161) -- -- (Gain) loss on sale of equipment . . . . . . . . . . . . . . . . . . (8) 377 1 Change in assets and liabilities, net of effects from purchases of acquired entities: Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,517) (720) 606 Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 1,420 1,281 1,720 -------- -------- -------- Net cash provided by operating activities. . . . . . . . . . . . 72,602 56,778 47,280 -------- -------- -------- Cash Flows From Investing Activities: Purchase of banks, net of cash acquired. . . . . . . . . . . . . . . . (30,043) (9,951) -- Purchases of premises and equipment. . . . . . . . . . . . . . . . . . (11,001) (3,310) (2,842) Proceeds from sale of premises and equipment . . . . . . . . . . . . . 25 1,559 37 Purchases of investment securities . . . . . . . . . . . . . . . . . . (901) -- -- Proceeds from sales of investment securities . . . . . . . . . . . . . -- -- 5 Investments in subsidiaries. . . . . . . . . . . . . . . . . . . . . . (15,290) (57,520) (1,335) -------- -------- -------- Net cash used in investing activities. . . . . . . . . . . . . . (57,210) (69,222) (4,135) -------- -------- -------- Cash Flows From Financing Activities: Net change in commercial paper . . . . . . . . . . . . . . . . . . . . (425) (2,751) 821 Net change in other borrowings . . . . . . . . . . . . . . . . . . . . (5,850) (6,312) (45,550) Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . -- -- 35,000 Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . (13,628) (11,043) (6,005) Acquisition of treasury stock. . . . . . . . . . . . . . . . . . . . . (3,245) -- (697) Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . (22,705) (16,768) (16,434) Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . (7,000) (5,368) -- Proceeds from issuance of preferred stock, net of offering costs . . . -- 96,920 -- Proceeds from exercise of stock options. . . . . . . . . . . . . . . . 3,407 2,470 2,268 Net change in stock option loans . . . . . . . . . . . . . . . . . . . (726) (18) (346) Capital transactions of pooled companies . . . . . . . . . . . . . . . (977) (415) 926 -------- -------- -------- Net cash provided by (used in) financing activities. . . . . . . (51,149) 56,715 (30,017) -------- -------- -------- Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . (35,757) 44,271 13,128 Cash and cash equivalents at beginning of year . . . . . . . . . . . . . 60,813 16,542 3,414 -------- -------- -------- Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . $ 25,056 $ 60,813 $ 16,542 ======== ======== ======== Supplemental Disclosures: Cash and cash equivalents: Cash in subsidiary banks . . . . . . . . . . . . . . . . . . . . . . $ 100 $ 248 $ 324 Interest-bearing deposits in subsidiary banks. . . . . . . . . . . . 1,856 4,665 16,218 Securities repurchase agreements with subsidiary bank. . . . . . . . 23,100 55,900 -- -------- -------- -------- Total cash and cash equivalents. . . . . . . . . . . . . . . . . $ 25,056 $ 60,813 $ 16,542 ======== ======== ======== Cash payments for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,900 $ 3,246 $ 4,309 ======== ======== ======== Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,689 $ 16,094 $ 9,321 ======== ======== ======== Detail of entities acquired: Fair value of bank stock and other assets acquired . . . . . . . . . $ 20,986 $ 7,784 $ -- Cost in excess of net assets acquired. . . . . . . . . . . . . . . . 9,328 2,167 -- -------- -------- -------- Cash paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,314 $ 9,951 $ -- ======== ======== ========
FOURTH FINANCIAL CORPORATION REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Fourth Financial Corporation We have audited the accompanying consolidated statements of condition of Fourth Financial Corporation as of December 31, 1993 and 1992 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. 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 did not audit the 1992 financial statements of Commercial Landmark Corporation, Western National Bancorporation, Inc. or Ponca Bancshares, Inc., which statements reflect total assets and interest income constituting 12% and 15%, respectively, of the related consolidated totals. We did not audit the 1991 financial statements of Commercial Landmark Corporation, Western National Bancorporation, Inc., Fourth National Corporation, United Bank of Kansas, Inc. or KNB Bancshares, Inc., which statements reflect interest income constituting 22% of the related consolidated total. Those statements were audited by other auditors and our opinion, insofar as it relates to data included for these companies, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fourth Financial Corporation at December 31, 1993 and 1992, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Notes 1, 5 and 14 to the consolidated financial statements, in 1993 the Company changed its method of accounting for income taxes and investment securities. /s/ Ernst & Young Wichita, Kansas January 20, 1994 WESTERN NATIONAL BANCORPORATION, INC. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Western National Bancorporation, Inc.: We have audited the consolidated balance sheets of Western National Bancorporation, Inc. (Western, an Oklahoma corporation) and subsidiary as of December 31, 1992 and 1991, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1992 (such financial statements are not presented herein) prior to the pooling of Western with Fourth Financial Corporation (see Note 2 to the consolidated financial statements of Fourth Financial Corporation contained herein). 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 Western National Bancporation, Inc. and subsidiary as of December 31, 1992 and 1991, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1992, in conformity with generally accepted accounting principles. /s/ Arthur Andersen & Co. ARTHUR ANDERSEN & CO. Tulsa, Oklahoma March 11, 1993 COMMERCIAL LANDMARK CORPORATION AND SUBSIDIARIES Independent Auditors' Report The Board of Directors and Stockholders Commercial Landmark Corporation and Subsidiaries Muskogee, Oklahoma We have audited the accompanying consolidated balance sheets of Commercial Landmark Corporation and Subsidiaries as of December 31, 1992 and 1991, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the years then ended. 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 consolidated financial position of Commercial Landmark Corporation and Subsidiaries as of December 31, 1992 and 1991, and the results of their operations and their cash flows, for the years then ended, in conformity with generally accepted accounting principles. /s/ Sartain Fischbein & Co. February 19, 1993 SARTAIN FISCHBEIN & CO. PONCA BANCSHARES, INC. Independent Auditors' Report The Board of Directors Ponca Bancshares, Inc. Ponca, City, Oklahoma We have audited the accompanying consolidated balance sheet of Ponca Bancshares, Inc. and Subsidiary as of December 31, 1992 and the related consolidated statements of earnings, stockholders' equity and cash flows for the period from inception (February 4, 1992) to December 31, 1992. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ponca Bancshares, Inc. and Subsidiary as of December 31, 1992, and the consolidated results of their operations and their cash flows for the period then ended in conformity with generally accepted accounting principles. /S/ GRA, Thompson, White & Co., P.A. GRA, Thompson, White & Co., P.A. September 16, 1993 FOURTH NATIONAL CORPORATION REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Fourth National Corporation: We have audited the consolidated balance sheets of Fourth National Corporation (Fourth, a Delaware corporation) and subsidiaries as of December 31, 1991 and 1990, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1991 (such financial statements are not presented herein) prior to the pooling of Fourth with Fourth Financial Corporation (see Note 2 to the consolidated financial statements of Fourth Financial Corporation contained herein). 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 Fourth National Corporation and subsidiaries as of December 31, 1991 and 1990, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1991, in conformity with generally accepted accounting principles. /s/ Arthur Andersen & Co. ARTHUR ANDERSEN & CO. Tulsa, Oklahoma February 7, 1992 UNITED BANK OF KANSAS, INC. AND SUBSIDIARY REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders United Bank of Kansas, Inc. We have audited the consolidated balance sheet of United Bank of Kansas, Inc. and Subsidiary as of December 31, 1991, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year ended December 31, 1991 (not presented herein). 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 audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Bank of Kansas, Inc. and Subsidiary as of December 31, 1991, and the consolidated results of their operations and their consolidated cash flows for the year ended December 31, 1991 in conformity with generally accepted accounting principles. As discussed in Note B to the financial statements, the Company owns certain municipal bonds which are in default and the subject of litigation. The Company currently reflects these bonds in their financial statements at their estimated market value of $2,528,950. The ultimate outcome of the litigation and the amount ultimately recovered on these bonds cannot presently be determined. /s/ Grant Thornton Grant Thornton Wichita, Kansas January 23, 1992 KNB BANCSHARES, INC. AND SUBSIDIARIES INDEPENDENT AUDITORS' REPORT KNB Bancshares, Inc. and Subsidiaries: We have audited the consolidated statements of operations, changes in stockholders' equity and cash flows of KNB Bancshares, Inc. and Subsidiaries ("Bancshares and Subsidiaries") for the year ended December 31, 1991 (none of which are presented herein). These consolidated financial statements are the responsibility of the management of Bancshares and Subsidiaries. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of Bancshares and Subsidiaries for the year ended December 31, 1991 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche Deloitte & Touche February 7, 1992
FOURTH FINANCIAL CORPORATION SELECTED CONSOLIDATED FINANCIAL DATA Year Ended December 31, ---------------------------------------------------------- 1993 1992(1) 1991(1) 1990(1) 1989(1) ---------- ---------- ---------- ---------- ---------- (Dollars in thousands, except per share data) Summary Income Statement Information: Interest income . . . . . . . . . . . . . . . . . . $ 433,467 $ 427,119 $ 479,568 $ 471,191 $ 402,947 Interest expense. . . . . . . . . . . . . . . . . . 175,501 192,397 271,209 292,655 243,235 Net interest income . . . . . . . . . . . . . . . . 257,966 234,722 208,359 178,536 159,712 Net interest income (fully tax-equivalent)(2) . . . 267,929 245,431 221,323 193,381 175,013 Provision for credit losses . . . . . . . . . . . . 7,056 21,343 43,665 49,000 27,397 Noninterest income. . . . . . . . . . . . . . . . . 89,103 83,014 85,896 68,290 55,009 Noninterest expense(3). . . . . . . . . . . . . . . 252,986 216,926 210,341 187,155 157,474 Net income before extraordinary item and cumula- tive effect of a change in accounting principle. . 65,182 60,933 30,712 5,192 21,425 Net income. . . . . . . . . . . . . . . . . . . . . 75,691 63,306 32,109 9,092 21,425 Net income applicable to common stock . . . . . . . 68,691 57,355 32,109 9,092 21,425 Per Common Share Data(4): Earnings per common and common equivalent share: Primary . . . . . . . . . . . . . . . . . . . . . $ 2.67 $ 2.27 $ 1.32 $ .41 $ 1.00 Fully diluted . . . . . . . . . . . . . . . . . . 2.54 2.19 1.28 .40 1.00 Fully diluted as originally reported(1) . . . . . 2.54 2.16 1.24 .98 1.99 Common dividend(5). . . . . . . . . . . . . . . . . .98 .88 .88 .88 .82 Book value(6) . . . . . . . . . . . . . . . . . . . 18.83 16.74 15.39 14.80 15.47 Average common and common equivalent shares outstanding (000s). . . . . . . . . . . . . 25,734 25,310 24,417 22,223 21,345 Year-end common shares outstanding (000s) . . . . . 26,464 25,218 24,425 24,204 21,901 Year-end common shares outstanding assuming full dilution (000s). . . . . . . . . . . 29,912 29,578 25,441 24,862 21,901 Earnings Performance Ratios(7): Return on assets. . . . . . . . . . . . . . . . . . 1.16% 1.10% .57% .17% .50% Return on total stockholders' equity. . . . . . . . 13.74 13.00 8.66 2.62 6.57 Return on common stockholders' equity . . . . . . . 15.32 14.35 8.72 2.64 6.59 Summary Statement of Condition Information: Year-end assets . . . . . . . . . . . . . . . . . . $6,742,873 $6,568,782 $5,627,798 $5,763,227 $4,664,372 Year-end loans and leases . . . . . . . . . . . . . 3,257,787 2,841,036 2,795,615 2,988,966 2,581,643 Year-end allowance for credit losses. . . . . . . . 66,368 73,055 69,480 62,721 42,395 Year-end long-term debt . . . . . . . . . . . . . . 13,989 29,340 47,105 18,798 28,207 Year-end common stockholders' equity. . . . . . . . 498,345 422,172 375,999 358,266 338,748 Year-end stockholders' equity . . . . . . . . . . . 598,345 525,813 379,086 360,777 341,259 Average assets. . . . . . . . . . . . . . . . . . . 6,535,871 5,769,862 5,630,089 5,204,592 4,301,151 Average loans and leases. . . . . . . . . . . . . . 2,953,470 2,822,525 2,914,788 2,835,045 2,455,848 Average investment securities . . . . . . . . . . . 2,917,071 2,300,282 1,922,956 1,433,033 1,074,579 Average deposits. . . . . . . . . . . . . . . . . . 5,319,195 4,901,015 4,932,013 4,502,677 3,676,915 Average common stockholders' equity . . . . . . . . 448,509 399,551 368,165 344,029 325,176 Average stockholders' equity. . . . . . . . . . . . 550,821 487,035 370,676 346,540 326,175 Asset Quality Ratios: Allowance for credit losses/year-end loans and leases . . . . . . . . . . . . . . . . . . . . 2.04% 2.57% 2.49% 2.10% 1.64% Nonperforming assets/year-end loans plus other real estate and nonperforming assets . . . . . . . 1.34 2.01 3.50 4.51 4.10 Allowance for credit losses/year-end nonperforming loans. . . . . . . . . . . . . . . . 194.50 188.88 115.21 74.52 73.69 Net charge-offs/average loans and leases. . . . . . .58 .85 1.28 1.19 1.03 Capital Ratios: Stockholders' equity/assets(7). . . . . . . . . . . 8.43% 8.44% 6.58% 6.66% 7.58% Leverage ratio(8) . . . . . . . . . . . . . . . . . 7.61 7.99 8.41 -- -- Tier I risk-based capital(9). . . . . . . . . . . . 12.97 13.18 14.25 -- -- Total risk-based capital(9) . . . . . . . . . . . . 14.22 14.43 15.50 -- -- Common dividend payout ratio(10). . . . . . . . . . 36.70 38.77 66.67 214.63 82.00 __________ (1) Prior year financial statements have been restated to reflect poolings of interests, refer to Notes 2 and 3 of the Notes to Consolidated Financial Statements. Fully diluted earnings per share as originally reported represent historical earnings per share as reported in the Company's annual report for the year indicated. (2) Stated on a tax-equivalent basis assuming a marginal tax rate of 35% in 1993 and 34% in previous years. (3) Noninterest expense included nonoperating charges of $12.7 million, $5.6 million and $7.0 million for 1993, 1992, and 1991, respectively. (4) Adjusted for the five-for-four stock split effected as a 25% stock dividend and paid on March 1, 1990. (5) Dividends per common share represent historical dividends declared without adjustment for the poolings of interests. (6) Refer to Note 1 of the Notes to Consolidated Financial Statements regarding the adoption of FAS No. 115 which increased stockholders' equity by $25,148,000 at December 31, 1993. (7) Based on daily averages for all statement of condition items. (8) Tier I capital/fourth quarter average assets less certain intangibles. (9) Tier I capital is composed of common stockholders' equity less certain intangibles plus preferred stockholders' equity. Tier I capital does not include any unrealized gain or loss on securities available for sale, as regulators had not officially adopted the change by year-end. Total capital is Tier I capital plus the allowance for credit losses (limited to 1.25% of risk-weighted assets). Both capital amounts are divided by risk-weighted assets. (10) Common dividend per share divided by primary earnings per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Performance Summary Net income for 1993 was $75.7 million compared to $63.3 million in 1992 and $32.1 million in 1991. Fully diluted earnings per share were $2.54, $2.19, and $1.28 for 1993, 1992, and 1991, respectively. For 1993 return on assets and return on common equity were 1.16% and 15.32%, respectively. Return on assets was 1.10% for 1992 and .57% for 1991; return on common equity was 14.35% and 8.72% for the respective prior periods. These financial results reflect acquisitions accounted for as poolings of interests for the entire three-year period, as prior periods have been restated, with the exception that periods prior to January 1, 1992 have not been restated for the results of operations of Ponca Bancshares, Inc. which were not material. However, acquisitions accounted for using the purchase method of accounting are only included in the results of operations for the periods subsequent to acquisition. During 1991, 1992, and 1993, the Company completed the fifteen business combinations detailed in the following schedule.
Number of Acquisition Company Accounting Assets Cash Shares Date Company Acquired/Location Abbreviation Method Acquired Paid Issued - ------------- ------------------------------------ ------------ ---------- ---------- ---------- --------- (In thousands) 1991 - - ------ January 30 Citadel Bank of Independence, "CBI" Purchase $ 54,187 $ 3,966 -- Independence, KS 1992 - - ------ July 31 Farmers and Merchants Bank, "FMB" Purchase 66,827 8,921 -- Colby, KS September 9 KNB Bancshares, Inc., "KNB" Pooling 99,256 -- 267,390 Prairie Village, KS October 30 Mission Hills Bancshares, Inc., "MHB" Pooling 94,762 -- 358,709 Mission Woods, KS December 11 Southern Bancorp, Inc., "SBI" Purchase 64,510 9,951 -- Tulsa, OK December 30 United Bank of Kansas, Inc., "UBK" Pooling 122,885 -- 663,739 Liberal, KS December 31 Fourth National Corporation, "FNC" Pooling 368,325 -- 1,639,941 Tulsa, OK 1993 - - ------ February 12 Southgate Banking Corporation, "SBC" Pooling 62,628 -- 451,310 Prairie Village, KS May 14 Guaranty Bancorporation, "GB" Purchase 82,606 4,386 -- Tulsa, OK May 28 Bancshares of Woodward, Inc., "BOW" Purchase 130,192 17,859 -- Woodward and Waukomis, OK May 28 F&M Bank Services, Inc., "FBS" Purchase 61,565 8,068 -- Derby, KS May 28 Nichols Hills Bancorporation, Inc., "NHB" Pooling 97,869 -- 469,906 Nichols Hills, OK September 17 Commercial Landmark Corporation, "CLC" Pooling 465,060 -- 1,874,812 Muskogee, OK December 3 Western National Bancorporation, Inc., "WNB" Pooling 206,288 -- 1,110,695(1) Tulsa, OK December 10 Ponca Bancshares, Inc., "PBI" Pooling 117,275 -- 478,395 Ponca City, OK ---------- ------- --------- $2,094,235 $53,151 7,314,897 ========== ======= ========= - ---------- (1) An additional 108,748 shares were issued on December 3, 1993 to acquire the minority interest of WNB's bank subsidiary.
Five deposit assumption transactions also were completed during the three-year period ended December 31, 1993.
Transaction Liabilities Cash Date Location Assumed Paid --------------- --------------------------- ------------- ------------ (In thousands) February 15, 1991 Wichita, KS $168,568 $ 1,848 February 15, 1991 Garden City, KS 45,126 -- March 27, 1992 Hays, KS 46,484 57 December 31, 1992 Tulsa, OK 349,355 14,856 April 2, 1993 Mission, KS 99,399 1,141 -------- ------- $708,932 $17,902 ======== =======
Net income for each of the last three years included extraordinary gains and nonoperating charges. A new accounting standard, Financial Accounting Standard ("FAS") No. 109 - Accounting for Income Taxes, was implemented effective January 1, 1993 and resulted in an addition to income of $10.5 million ($.35 per fully diluted share). Two of the companies acquired in pooling-of-interests transactions in 1993 had elected to adopt FAS No. 109 early, resulting in the $2.4 million ($.08 per fully diluted share) income item in 1992. An extraordinary item of $1.4 million ($.05 per fully diluted share) in 1991 reflects the utilization of a net operating loss carryforward by one of the pooled companies. A nonoperating charge of $12.7 million (after-tax $8.6 million, or $.29 per fully diluted share) was taken during 1993 to record merger, integration, and restructuring charges associated with current- year acquisitions and to accelerate core deposit intangible amortization, data processing hardware depreciation, and software amortization. The merger, integration, and restructuring charges include premises and equipment write-downs associated with dispositions of excess facilities and equipment, severance and other compensation, and systems conversion costs. Both 1992 and 1991 financial results also reflected nonoperating charges. The 1992 nonoperating charge of $5.6 million (after-tax $3.7 million, or $.13 per fully diluted share) was recorded to recognize costs associated with the consolidation of Oklahoma data processing, operations, and staff functions. This expense also includes a loss from the disposal of excess facilities and a computer write-down. The 1991 nonoperating charge of $7.0 million (after-tax $4.6 million, or $.18 per fully diluted share) was associated with a work force reduction and included early retirement benefits and severance compensation. The increased income from operations for the current year was principally attributable to increased net interest income, improved credit quality, and earnings contributions from acquisitions made in prior years. Net interest income in 1993 increased by $23.3 million to total $258.0 million for 1993 as compared to $234.7 million for last year. The increase in net interest income was principally related to the increased volume of interest-earning assets. Total average interest-earning assets were $5.9 billion for 1993, a $687.9 million, or 13.1%, increase over 1992. Comparing 1993 and 1992, average loans and leases increased $130.9 million, while average investment securities increased $616.8 million. The increased average assets were principally funded by increases in average deposits of $418.2 million, net federal funds purchased and securities sold under agreements to repurchase of $194.3 million, and Federal Home Loan Bank borrowings of $162.6 million. The increase in net interest income attributable to the increased volume of interest-earning assets was partially offset by a decrease in the net yield on earning assets to 4.52% in 1993 from 4.68% in 1992. The provision for credit losses totaled $7.1 million and $21.3 million for 1993 and 1992, respectively. The 66.9% decrease in the provision reflects continued improvement in credit quality as demonstrated by a lower level of nonperforming assets and lower net charge-offs in 1993 as compared to 1992, and the strong allowance for credit losses. At December 31, 1993, nonperforming assets were $43.8 million or .65% of assets, down from $57.6 million or .88% of assets at December 31, 1992. Net charge-offs declined 29.5% to total $17.0 million in 1993 from $24.1 million in 1992. The allowance for credit losses was $66.4 million or 194.50% of nonperforming loans at December 31, 1993, compared to a ratio of 188.88% for 1992. Noninterest income was $89.1 million in 1993, a $6.1 million increase over the 1992 noninterest income of $83.0 million. Service charges on deposit accounts increased $5.9 million; brokerage and annuity sales commissions increased $1.8 million; and bank card fees increased $1.1 million. The larger customer base plus aggressive sales efforts resulted in a larger volume of service charge transactions, expanded brokerage and annuity sales activities, and additional merchant and credit cardholder sales volumes. Operating expenses (noninterest expense less the nonoperating charge and net costs of operations of other real estate and nonperforming assets) increased 13.4% to total $236.7 million in 1993. The Company's efficiency ratio (operating expense/fee income plus tax- equivalent net interest income) was 66.57% for 1993 compared to 64.40% for 1992. The current-year increase in the efficiency ratio principally reflects the Company's substantial increase in acquisition activity in the past two years and the resultant commitment of resources to acquisitions. Specifically, the Company makes a substantial initial investment towards identifying and managing the credit and other significant business risks associated with acquisitions, converting and consolidating the operations of the acquired entities, and instilling the BANK IV credit and sales culture, products, and services. In addition, entities acquired during 1993 and 1992, which increased total assets by over $2.0 billion or almost 30.3%, had a combined efficiency ratio of 71.5% resulting in a higher ratio for the entire company. The increased net income of $31.2 million reflected in a comparison of results of operations for 1992 and 1991 also can be attributed to increased net interest income and a decreased provision for credit losses. The $26.4 million increase in net interest income between 1992 and 1991 was due to an increased level of interest-free sources of funds, such as demand deposits and stockholders' equity, and the widening of spreads between the yields on earning assets and the rates paid on interest-bearing liabilities. At $21.3 million, the 1992 provision for credit losses was $22.3 million less than the 1991 provision for credit losses. The 1991 provision for credit losses of $43.7 million reflected the high level of nonperforming assets at December 31, 1991 of $99.3 million. By year-end 1992 nonperforming assets had declined to $57.6 million, and the ratio of the allowance for credit losses to nonperforming loans had increased to 188.88% from 115.21% at December 31, 1991. Net Interest Income For 1993, net interest income amounted to $258.0 million, representing an increase of $23.3 million or 9.9% over the $234.7 million earned during 1992. On a fully tax-equivalent basis, net interest income increased 9.2% to total $267.9 million in 1993 from $245.4 million in 1992. The increase in net interest income was attributable to an increased level of interest-earning assets due to loan growth, acquisitions, assumptions of savings and loan association ("S&L") and bank deposits, and increased borrowings associated with a higher level of federal funds purchased and Federal Home Loan Bank borrowings. However, the net yield on earning assets decreased to 4.52% in 1993 compared to 4.68% in 1992. The decrease in the net yield on earning assets is principally attributable to a sustained period of lower rates. The average cost of funds (interest expense/earning assets) declined 71 basis points while the earning asset yield declined 87 basis points. The prevailing low interest rates also have stimulated a high volume of mortgage loan originations and refinancings nationwide. Although the Company has benefitted from the originations and refinancings in its markets through increased loan fees, the nationwide refinancings and originations have resulted in accelerated prepayments on the Company's mortgage-backed securities. The net yield has declined as the proceeds from these prepayments have been reinvested at lower current rates, also reducing the net yield. Net interest income of $234.7 million for 1992 represented an increase of $26.3 million over the $208.4 million earned during 1991. On a tax-equivalent basis, net interest income increased 10.9% to total $245.4 million in 1992 from $221.3 million in 1991. The increase in net interest income between 1992 and 1991 was due to an increased level of interest-free sources of funds, such as demand deposits and stockholders' equity, and the widening of spreads between the earning asset yields and interest-bearing liability rates. As interest rates declined during 1992, interest-bearing liabilities repriced faster than interest-earning assets, causing the spread to widen to 3.96% (stated on a tax-equivalent basis) in 1992 from 3.55% in 1991. Loan fees included in net interest income amounted to $11.4 million, $8.4 million, and $5.6 million for 1993, 1992, and 1991, respectively. The increase in loan fees reflected an increase in the volume of residential mortgage loan originations and the refinancing of existing mortgages, both of which were stimulated by the continuing relatively low mortgage rates. The dollar volume of residential mortgage loan originations increased $175.0 million or 87.2% between 1993 and 1992 and $125.4 million or 166.5% between 1992 and 1991. The following table provides the dollar volume and the number of residential mortgage loan originations during each of the last three years.
Year Ended December 31, -------------------------------------------- 1993 1992 1991 ---------- ---------- ---------- (Dollars in thousands) Residential mortgage loan originations: Dollar volume . . . . . . . . . . . . . . . . . . . . . . . $375,647 $200,696 $75,321 Number of loans . . . . . . . . . . . . . . . . . . . . . . 5,659 3,062 1,124
The following table summarizes the changes in net interest income on a fully tax-equivalent basis, by major category of interest-earning assets and interest-bearing liabilities, identifying changes related to volumes, rates, and changes related to both volumes and rates. Nonaccrual loans are included in the loan volumes used to calculate the following analysis of net interest income; however, interest collected on such loans is usually recorded as a reduction in loans outstanding and is excluded from interest income.
1993 vs 1992 --------------------------------------------- Change Attributable to Total --------------------------------- Change Volume Yield/Rate Combination -------- -------- ---------- ----------- (In thousands) Increase (decrease) in: Interest income: Loans and leases(1) . . . . . . . . . . . . . . . . . $ (6,050) $ 12,112 $(17,217) $ (945) Interest-bearing deposits in other financial institutions . . . . . . . . . . . . . . . (48) (31) (19) 2 Federal funds sold and securities purchased under agreements to resell . . . . . . . . (2,351) (2,159) (411) 219 Taxable investment securities . . . . . . . . . . . . 17,098 42,557 (19,441) (6,018) Tax-preferred investment securities(1). . . . . . . . (2,965) (1,225) (1,810) 70 Trading account securities(1) . . . . . . . . . . . . (82) (45) (46) 9 -------- -------- -------- -------- Total interest income change. . . . . . . . . . . . 5,602 51,209 (38,944) (6,663) -------- -------- -------- -------- Interest expense: Savings and interest checking . . . . . . . . . . . . (5,646) 8,474 (12,402) (1,718) Time deposits . . . . . . . . . . . . . . . . . . . . (18,642) 3,860 (21,773) (729) Federal funds purchased and securities sold under agreements to repurchase. . . . . . . . . 3,100 4,646 (1,007) (539) Federal Home Loan Bank borrowings . . . . . . . . . . 6,415 6,415 -- -- Other borrowings. . . . . . . . . . . . . . . . . . . (666) (342) (424) 100 Long-term debt. . . . . . . . . . . . . . . . . . . . (1,457) (1,384) (126) 53 -------- -------- -------- -------- Total interest expense change . . . . . . . . . . . (16,896) 21,669 (35,732) (2,833) -------- -------- -------- -------- Increase (decrease) in net interest income on a taxable equivalent basis(1) . . . . . . . 22,498 $ 29,540 $ (3,212) $ (3,830) -------- ======== ======== ======== Decrease in taxable equivalent adjustment. . . . . . . 746 -------- Net interest income change . . . . . . . . . . . . . . $ 23,244 ========
1992 vs 1991 --------------------------------------------- Change Attributable to Total --------------------------------- Change Volume Yield/Rate Combination -------- -------- ---------- ----------- (In thousands) Increase (decrease) in: Interest income: Loans and leases(1) . . . . . . . . . . . . . . . . . $(45,186) $ (9,697) $(36,726) $ 1,237 Interest-bearing deposits in other financial institutions . . . . . . . . . . . . . . . 44 334 (107) (183) Federal funds sold and securities purchased under agreements to resell . . . . . . . . (9,432) (7,083) (4,920) 2,571 Taxable investment securities . . . . . . . . . . . . 6,718 34,093 (21,930) (5,445) Tax-preferred investment securities(1). . . . . . . . (6,462) (5,812) (767) 117 Trading account securities(1) . . . . . . . . . . . . (386) (356) (65) 35 -------- -------- -------- -------- Total interest income change. . . . . . . . . . . . (54,704) 11,479 (64,515) (1,668) -------- -------- -------- -------- Interest expense: Savings and interest checking . . . . . . . . . . . . (22,013) 9,111 (28,041) (3,083) Time deposits . . . . . . . . . . . . . . . . . . . . (52,979) (18,529) (38,715) 4,265 Federal funds purchased and securities sold under agreements to repurchase. . . . . . . . . (801) 4,313 (3,503) (1,611) Federal Home Loan Bank borrowings . . . . . . . . . . -- -- -- -- Other borrowings. . . . . . . . . . . . . . . . . . . (2,209) (1,618) (1,054) 463 Long-term debt. . . . . . . . . . . . . . . . . . . . (810) (548) (300) 38 -------- -------- -------- -------- Total interest expense change . . . . . . . . . . . (78,812) (7,271) (71,613) 72 -------- -------- -------- -------- Increase (decrease) in net interest income on a taxable equivalent basis(1) . . . . . . . 24,108 $ 18,750 $ 7,098 $ (1,740) -------- ======== ======== ======== Decrease in taxable equivalent adjustment. . . . . . . 2,255 -------- Net interest income change . . . . . . . . . . . . . . $ 26,363 ======== __________ (1) Computed on a tax-equivalent basis assuming a marginal tax rate of 35% in 1993 and 34% in 1992 and 1991.
The following table presents average balances, income and expense, and yields and rates for 1993, 1992 and 1991.
1993 1992 1991 -------------------------- -------------------------- -------------------------- Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate ---------- -------- ------ ---------- -------- ------ ---------- -------- ------ (Dollars in thousands) Assets: Interest-Earning Assets: Loans and leases(1)(2). . . $2,953,470 $255,046 8.64% $2,822,525 $261,096 9.25% $2,914,788 $306,282 10.51% Interest-bearing deposits in other financial institutions . . . . . . . 4,216 190 4.49 4,858 238 4.88 1,787 194 10.86 Federal funds sold and securities purchased under agreements to resell . . . 52,564 1,747 3.32 111,067 4,098 3.69 233,184 13,530 5.80 Investment securities: Taxable . . . . . . . . . 2,694,069 157,800 5.86 2,068,237 140,702 6.80 1,648,884 133,984 8.13 Tax-preferred(1). . . . . 223,002 28,469 12.77 232,045 31,434 13.55 274,072 37,896 13.83 Trading account securities(1). . . . . . . 3,349 178 5.31 4,047 260 6.45 9,013 646 7.17 ---------- -------- ---------- -------- --------- -------- Total interest-earning securities(1). . . . . 5,930,670 443,430 7.48 5,242,779 437,828 8.35 5,081,728 492,532 9.69 Cash and due from banks . . . 338,645 302,851 313,505 Bank premises and equipment . 131,612 114,006 109,637 Income receivable and other assets . . . . . . . . 145,562 139,294 142,492 Intangible assets, net. . . . 62,380 43,640 47,068 Allowance for credit losses . (72,998) (72,708) (64,341) ---------- ---------- ---------- Total assets. . . . . . $6,535,871 $5,769,862 $5,630,089 ========== ========== ========== Liabilities And Stockholders' Equity: Interest-Bearing Liabilities: Interest-bearing deposits: Savings and interest checking . . . . . . . . $2,085,435 $ 53,476 2.56% $1,823,880 $ 59,122 3.24% $1,639,815 $ 81,135 4.95% Time under $100,000 . . . 1,929,077 87,439 4.53 1,816,111 103,911 5.72 1,984,143 144,382 7.28 Time of $100,000 or more. 387,867 13,810 3.56 428,552 15,980 3.73 529,838 28,488 5.38 ---------- -------- ---------- -------- ---------- -------- Total interest-bearing deposits . . . . . . . 4,402,379 154,725 3.51 4,068,543 179,013 4.40 4,153,796 254,005 6.12 Federal funds purchased and securities sold under agreements to repurchase . 387,555 11,697 3.02 251,711 8,597 3.42 172,571 9,398 5.45 Federal Home Loan Bank borrowings . . . . . . . . 162,603 6,415 3.95 -- -- -- -- -- -- Other borrowings. . . . . . 21,929 797 3.63 28,619 1,463 5.11 51,180 3,672 7.17 Long-term debt. . . . . . . 18,320 1,867 10.19 31,390 3,324 10.59 36,187 4,134 11.42 ---------- -------- ---------- -------- ---------- -------- Total interest-bearing liabilities. . . . . . 4,992,786 175,501 3.52 4,380,263 192,397 4.39 4,413,734 271,209 6.14 -------- -------- -------- Noninterest-bearing deposits. 916,816 832,472 778,217 Other liabilities and minority interest in subsidiary . . . . . . . . . 75,448 70,092 67,462 ---------- ---------- ---------- Total liabilities . . . 5,985,050 5,282,827 5,259,413 Preferred stockholders' equity . . . . . . . . . . . 102,312 87,484 2,511 Common stockholders' equity . 448,440 399,551 368,165 Net unrealized gains on available-for-sale securities . . . . . . . . . 69 -- -- ---------- ---------- ---------- Total stockholders' equity . . . . . . . . 550,821 487,035 370,676 ---------- ---------- ---------- Total liabilities and stockholders' equity . $6,535,871 $5,769,862 $5,630,089 ========== ========== ========== Net interest income(1). . . . . $267,929 $245,431 $221,323 ======== ======== ======== Rate Analysis: Interest income/ interest-earning assets(1). 7.48% 8.35% 9.69% Interest expense/ interest-earning assets . . 2.96 3.67 5.34 ----- ----- ----- Net yield on earning assets(1) . . . . . . 4.52% 4.68% 4.35% ===== ===== ===== _________ (1) Income and rates are stated on a tax-equivalent basis assuming a marginal tax rate of 35% in 1993 and 34% in 1992 and 1991. (2) Nonaccrual loans are included in loans and leases.
Provision for Credit Losses The provisions for credit losses were $7.1 million, $21.3 million, and $43.7 million for 1993, 1992, and 1991, respectively. The provisions for 1992 and 1991 include $5.8 million and $9.2 million, respectively, associated with the current year pooling-of-interests transactions. The lower provision for credit losses in 1993 reflects the continued improvement in credit quality as demonstrated by a lower level of nonperforming assets and lower net charge-offs in 1993 as compared to 1992, and the strong allowance for credit losses. Net charge-offs for 1993 totaled $17.0 million or .58% of average loans as compared to net charge-offs of $24.1 million or .85% of average loans for 1992 and $37.4 million or 1.28% of average loans for 1991. Nonperforming loans at December 31, 1993 were $34.1 million, down from $38.7 million at year-end 1992 and $60.3 million at year-end 1991. The allowance for credit losses was $66.4 million, $73.1 million, and $69.5 million at December 31, 1993, 1992, and 1991, respectively. The ratio of allowance for credit losses to nonperforming loans increased to 194.50% at December 31, 1993, compared with 188.88% at December 31, 1992 and 115.21% at December 31, 1991. Noninterest Income Total noninterest income was $89.1 million for 1993, representing an increase of $6.1 million or 7.3% over the $83.0 million recorded in 1992. Included in 1993 noninterest income were $1.3 million of investment securities gains, compared to $2.5 million of similar gains realized in 1992. The securities gains in both years were due principally to called bonds. UBK, a prior-year business combination accounted for as a pooling of interests, realized a $1.5 million gain in 1992 from the settlement of a lawsuit. Fees collected in the normal course of business increased 11.3% to total $87.7 million in 1993 from $78.8 million in 1992. The most significant changes in noninterest income between 1993 and 1992 occurred in service charges on deposit accounts, brokerage and annuity sales commissions, and bank card fees. The $5.9 million or 22.0% increase in service charges was attributable to both consumer and commercial customers. These increased revenues were due to a reduction in waived fees and a larger volume of fee-based transactions. The $1.8 million or 49.7% increase in brokerage and annuity sales fees reflected expanded sales activities, particularly in the sale of mutual funds and annuities resulting in part from the additional BANK IV markets across Kansas and Oklahoma now served by an investment sales representative. These products are now available at most locations, and the low interest rates on deposits continue to make them more attractive to certain customers as alternative investments to interest-bearing deposits. Bank card fees increased $1.1 million to total $14.7 million in 1993. The increased fees were principally attributable to the addition of merchants and credit cardholders and increased merchant and cardholder sales volumes. Real estate loan service fees declined $883,000 or 26.9% as serviced loans also experienced accelerated prepayments due to the volume of mortgage loan refinancings and originations stimulated by low interest rates. At December 31, 1993, $384.1 million of loans were serviced for others. In addition, servicing will be retained on the $110.1 million of mortgages to be sold in the first quarter of 1994. Total noninterest income was $83.0 million for 1992, as compared to $85.9 million for 1991. Income for 1991 included a $3.2 million gain from the sale of a credit card portfolio. This gain occurred as a result of the exercise of a purchase option by an affinity group. Also included in 1991 noninterest income was a $4.0 million gain for the sale of a banking facility realized by SBC, a 1993 business combination accounted for as a pooling of interests. Investment securities gains were $2.5 million in 1992 and $4.7 million in 1991. Reimbursements from the RTC for expenses incurred on its behalf in connection with S&L deposit assumptions amounted to only $68,000 for 1992 compared to $945,000 for 1991. Fees collected in the normal course of business increased 7.9% from $73.0 million in 1991 to $78.8 million in 1992. The increased fees were due to increased service charges on deposit accounts and brokerage and annuity sales fees. The following table provides an analysis of noninterest income segregated between fees collected in the normal course of business and other revenues for the past three years.
Percent Change Year Ended December 31, ----------------- -------------------------------- 1992- 1991- 1993 1992 1991 1993 1992 -------- -------- -------- ------ ------ (Dollars in thousands) Fee income: Trust fees . . . . . . . . . . . . . . . . . . . . . $18,310 $17,627 $17,335 3.9% 1.7% Service charges on deposit accounts . . . . . . . . . 32,711 26,820 23,211 22.0 15.5 Bank card fees . . . . . . . . . . . . . . . . . . . 14,658 13,531 13,927 8.3 (2.8) Brokerage and annuity sales commissions . . . . . . . 5,274 3,522 1,566 49.7 124.9 Trading account profits and commissions . . . . . . . 770 840 1,360 (8.3) (38.2) Real estate loan service fees . . . . . . . . . . . . 2,399 3,282 2,823 (26.9) 16.3 Safe deposit rent . . . . . . . . . . . . . . . . . . 1,398 1,226 1,174 14.0 4.4 Travelers and official check fees and item handling charges . . . . . . . . . . . 2,154 2,282 2,296 (5.6) (.6) Insurance premiums. . . . . . . . . . . . . . . . . . 1,564 1,369 1,160 14.2 18.0 Other . . . . . . . . . . . . . . . . . . . . . . . . 8,447 8,258 8,115 2.3 1.8 ------- ------- ------- Total fee income . . . . . . . . . . . . . . . . . 87,685 78,757 72,967 11.3 7.9 ------- ------- ------- Other revenues: Investment securities gains . . . . . . . . . . . . . 1,311 2,520 4,721 (48.0) (46.6) Gain on sale of credit card loans . . . . . . . . . . -- 169 3,226 -- (94.8) Gain on sale of banking facility. . . . . . . . . . . -- -- 4,037 -- -- RTC reimbursements . . . . . . . . . . . . . . . . . 107 68 945 57.4 (92.8) Lawsuit settlement. . . . . . . . . . . . . . . . . . -- 1,500 -- -- -- ------- ------- ------- Total noninterest income. . . . . . . . . . . . . . $89,103 $83,014 $85,896 7.3 (3.4) ======= ======= ======= Fee income/average assets . . . . . . . . . . . . . . 1.34% 1.36% 1.30% Noninterest income/average assets . . . . . . . . . . 1.36% 1.44% 1.53%
Noninterest Expense Noninterest expense amounted to $253.0 million, $216.9 million, and $210.3 million for 1993, 1992, and 1991, respectively. Noninterest expense for each of these years includes certain nonoperating items such as net costs of operation of other real estate and nonperforming assets, the nonoperating charge primarily related to integration of acquired companies, and other unusual items. Net costs of operation of other real estate and nonperforming assets were $3.1 million in 1993, $2.4 million in 1992, and $6.7 million in 1991. The increased net costs of nonperforming asset properties in 1993 were principally attributable to write-downs recorded by CLC. The decline in net costs of operation of other real estate and nonperforming assets between 1992 and 1991 reflects the lower level of other real estate and nonperforming assets. As detailed in Note 13 to the Consolidated Financial Statements, the $12.7 million nonoperating charge for 1993 included write-downs of excess facilities and equipment, severance and other compensation, and system conversion costs, all associated with the merger and integration of the current- year acquisitions. The 1993 nonoperating charge also includes: acceleration of core deposit intangibles amortization associated with disintermediation of acquired deposits; and increased data processing hardware depreciation and software amortization related to the Company's commitment to continue to improve its technology. The $5.6 million nonoperating charge recorded during 1992 was principally associated with the consolidation of Oklahoma data processing, operations, and staff functions. The expense included severance and other compensation, systems conversion costs, the cost of the disposal of excess facilities, a computer write-down and other charges associated with acquisitions. In 1991, a $7.0 million nonoperating charge was recorded in connection with a work force reduction and included early retirement benefits and severance compensation. SBC, a current-year business combination accounted for as a pooling of interests, settled a lawsuit during the first quarter of 1993 resulting in $313,000 of lawsuit settlement cost. The provision for securities losses of $1.5 million in 1991 relates to municipal securities owned by another pooled company, which established an allowance for securities losses to reflect the decline in market value associated with the downgrading of the bonds by rating agencies. The bonds were subsequently sold during 1992 resulting in a gain of $688,000. Operating expense increased $27.9 million or 13.4% to total $236.7 million for 1993. The Company's efficiency ratio (operating expense/fee income plus tax-equivalent net interest income) was 66.57% for 1993 as compared to 64.40% for 1992. The increased operating expenses and efficiency ratio principally reflect: costs of effecting business combinations and deposit assumption transactions; operating expenses of purchase business combinations and deposit assumption transactions subsequent to consummation (including intangible asset amortization); and normal inflation-related and other cost increases. The large number of acquisitions have required a substantial commitment of resources for thorough assessment of credit and other business risks; software systems conversion and operations consolidation of acquired entities; and advertising, training, and other costs associated with instilling the BANK IV sales and credit culture, products, and services. Approximately $9.4 million of the current year expenses were attributable to these activities. Approximately 78% of the $27.9 million increase in total operating expenses was attributable to business combinations accounted for as purchase and deposit assumption transactions. Entities acquired in 1993 and 1992 had a combined efficiency ratio of 71.5% resulting in a higher ratio for the entire Company. A portion of the higher ratio is due to amortization of intangible assets. The ratio is also affected by excess branch capacity, facilities improvements, and the cost of implementing service delivery technology through such things as automated teller machines and loan and deposit platform automation. Management anticipates that the efficiency ratios of these acquired entities will improve as they become more fully assimilated and become increasingly focused on sales activities. Also, certain branches will be closed or consolidated. The efficiency ratio will continue to be affected by due diligence and other acquisition costs as long as the Company engages in an active acquisition program; however, the expense will represent a smaller portion of total expenses as the company grows. Also reflected in the increased intangible asset amortization between 1993 and 1992 was an acceleration of purchased mortgage servicing rights amortization. The increased amortization reflects a more rapid pay-off of mortgage loans which are serviced for other investors. Amortization of purchased mortgage servicing rights was $1.8 million in 1993, an increase of $617,000 from the 1992 amortization. The remaining unamortized balance of purchased mortgage servicing rights at December 31, 1993 was $1.5 million. During 1991 the Company sold approximately $22.2 million of credit card loans associated with an affinity group. The Company continued to service this portfolio for the purchaser through September 30, 1992, and the reimbursement for the cost of servicing was reflected in the lower 1992 bank card expense. Between 1992 and 1991 operating expense increased $13.8 million or 7.1%. This increase reflected the implementation of a sales and performance based compensation program, additional depreciation associated with an increased investment in data processing equipment, and the execution of retail and commercial strategies. Sales incentive and performance based compensation increased $2.7 million, reflecting the improved performance of the Company during 1992 as compared to 1991. The Company invested in additional data processing equipment to provide improved customer service and convenience and to handle the increase in transaction volumes from acquisitions. The $1.4 million increase in advertising expense between 1992 and 1991 reflects an increased focus on the retail customer, as well as additional product and image advertising associated with the merger of the Kansas subsidiary banks and promoting the Company's expansion into Oklahoma in late 1992. The following table presents an analysis of noninterest expense for the past three years.
Percent Change Year Ended December 31, -------------- -------------------------------- 1992- 1991- 1993 1992 1991 1993 1992 -------- -------- -------- ------ ------ (Dollars in thousands) Salaries and employee benefits . . . . . . . . . . . . $114,575 $100,491 $ 93,123 14.0% 7.9% Furniture and equipment. . . . . . . . . . . . . . . . 22,004 19,030 17,944 15.6 6.1 Net occupancy. . . . . . . . . . . . . . . . . . . . . 16,307 14,458 14,020 12.8 3.1 FDIC insurance . . . . . . . . . . . . . . . . . . . . 12,071 11,679 10,915 3.4 7.0 Bank card. . . . . . . . . . . . . . . . . . . . . . . 7,577 5,021 7,074 50.9 (29.0) Advertising and public relations . . . . . . . . . . . 8,343 6,296 4,924 32.5 27.9 Communication. . . . . . . . . . . . . . . . . . . . . 3,731 2,650 2,470 40.8 7.3 Postage and freight. . . . . . . . . . . . . . . . . . 6,194 5,403 5,190 14.6 4.1 Supplies, printed materials and forms. . . . . . . . . 5,162 5,272 4,809 (2.1) 9.6 Federal Reserve service fees . . . . . . . . . . . . . 1,461 1,090 1,067 34.0 2.2 Loan acquisition and maintenance . . . . . . . . . . . 2,295 2,372 2,870 (3.2) (17.4) Outside service fees . . . . . . . . . . . . . . . . . 4,064 5,719 4,884 (28.9) 17.1 Consulting fees. . . . . . . . . . . . . . . . . . . . 1,618 1,703 1,520 (5.0) 12.0 Other professional fees and examinations . . . . . . . 5,548 5,933 6,326 (6.5) (6.2) Amortization of intangible assets. . . . . . . . . . . 9,132 5,424 5,080 68.4 6.8 Other . . . . . . . . . . . . . . . . . . . . . . . . 16,642 16,237 12,730 2.5 27.5 -------- -------- -------- Total operating expense . . . . . . . . . . . . . 236,724 208,778 194,946 13.4 7.1 Net costs of operation of other real estate and nonperforming assets . . . . . . . . . . . 3,088 2,356 6,736 31.1 (65.0) Nonoperating charge. . . . . . . . . . . . . . . . . . 12,708 5,573 6,997 1.3X (20.4) Minority interest. . . . . . . . . . . . . . . . . . . 153 219 171 (30.1) 28.1 Provision for securities losses. . . . . . . . . . . . -- -- 1,491 -- -- Lawsuit settlement . . . . . . . . . . . . . . . . . . 313 -- -- -- -- -------- -------- -------- Total noninterest expense. . . . . . . . . . . . . $252,986 $216,926 $210,341 16.6 3.1 ======== ======== ======== Noninterest expense/average assets . . . . . . . . . . 3.87% 3.76% 3.74% Noninterest expense less noninterest income/average assets . . . . . . . . . . . . . . . . 2.51% 2.32% 2.21% Operating expense less fee income/average assets . . . . . . . . . . . . . . . . 2.28% 2.25% 2.17% Operating expense/fee income plus tax-equivalent net interest income. . . . . . . . . . 66.57% 64.40% 66.24%
Income Taxes Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by Financial Accounting Standard ("FAS") No. 109, "Accounting for Income Taxes." As permitted under the new rules, prior years' financial statements have not been restated. The cumulative effect of adopting FAS No. 109 as of January 1, 1993 was to increase net income by $10.5 million. Two pooled companies, CLC and PBI, elected early adoption of FAS No. 109, resulting in a $2.4 million increase in 1992 earnings. At December 31, 1993, the Company had net operating loss and general business credit carryforwards of $14.8 million and $424,000, respectively, which can be carried forward to reduce future federal income taxes payable. These carryforwards are principally related to previous losses of banks acquired in 1992 and 1993. Utilization of the carryforwards is limited by tax law to the future earnings of and other limits on the use of tax attributes of acquired companies. Net operating loss carryforwards expire in years 2000 through 2007 and general business credit carryforwards expire in years 1994 through 2005 if not utilized. At December 31, 1993, for financial reporting purposes, a valuation allowance of $13.2 million offset the deferred tax assets related to these carryforwards and other deferred tax assets whose realization is uncertain. If realized, the tax benefit on $3.4 million of net operating loss carryforwards will be applied to reduce "cost in excess of net assets acquired" recorded in connection with acquisitions accounted for as purchases. Income tax expense amounted to $21.8 million, $18.5 million, and $9.5 million for 1993, 1992, and 1991, respectively. The higher tax expense in each succeeding year was primarily attributable to a higher level of income before taxes. The federal tax expense for 1991 was computed using the Alternative Minimum Tax ("AMT") provisions of the Tax Reform Act of 1986. In 1992, federal tax expense computed in accordance with the then statutory tax rate of 34% exceeded AMT expense and AMT tax credits were recognized during 1992, reducing the tax provision to the amount which would have been recorded using the AMT provisions. The Revenue Reconciliation Bill of 1993 contained several provisions affecting corporations and financial institutions, including a tax rate increase to 35% and provisions mandating specific periods for the amortization of intangibles. Pursuant to FAS No. 109, the Company's third quarter 1993 financial statements reflected certain adjustments to recognize the impact of the new tax law on the Company's financial condition. These adjustments reduced 1993 income tax expense by $616,000. Statements of Condition Total assets amounted to $6.7 billion, $6.6 billion, and $5.6 billion at December 31, 1993, 1992, and 1991, respectively. Between December 31, 1991 and December 31, 1993, the Company completed five bank acquisitions accounted for as purchases and three bank and S&L purchase and assumption transactions. Assets acquired in these eight transactions totaled $900.9 million. The statements of condition for all of the periods presented include nine business combinations accounted for as poolings of interests. In aggregate the pooled companies had assets of $1.6 billion. The following sections describe the changes in the major Statement of Condition categories. Loans and Leases Period-end loans and leases increased $416.8 million or 14.7% to total $3.3 billion at December 31, 1993. Increases were realized in various commercial and retail categories. Loans added through bank purchase transactions totaled $121.7 million. Net internal loan growth was $295.1 million, two thirds of which was realized in the fourth quarter of 1993. The $91.7 million increase in the 1-4 family mortgage portfolio between December 31, 1992 and December 31, 1993 primarily reflects originations and refinancing activity stimulated by relatively low mortgage interest rates. In connection with the Company's adoption of FAS No. 115 relating to the classification of investment securities as held-to-maturity, available-for-sale, and trading securities, the Company evaluated its portfolio of residential mortgage loans which could be sold in the secondary market. This evaluation resulted in a decision to reclassify $110.1 million of residential mortgage loans as held for sale, resulting in the increase in this category. The consumer portfolio declined $50.8 million or 10.9%. This decrease is principally due to the $36.2 million paydown of automobile loans associated with the 1991 closure of the Company's indirect loan production offices. During 1991 and 1992, both commercial and retail loan demand were affected by an uncertain legislative and economic environment. Between December 31, 1991 and 1992 total loans did not change materially. Except for the origination and refinancing activity in loans secured by 1-4 family mortgages, which was stimulated by low mortgage rates, most loan categories showed little change. Total loans decreased $193.4 million or 6.5% from $3.0 billion at December 31, 1990 to $2.8 billion at year-end 1991. The decreases, which were realized in almost all categories, were attributable to the lack of loan demand and enhanced underwriting standards which emphasize cash flow rather than collateral based lending. Credit card loans decreased $16.7 million, or 17.4%, from year-end 1990 to year-end 1991 as an affinity group exercised its option to purchase its portfolio from the Company. Total loans increased by $407.3 million or 15.8% from December 31, 1989 to 1990. Approximately $269.8 million of this increase occurred in the 1-4 family residential mortgage portfolio and was principally attributable to the acquisition of loans from failed S&Ls. Additionally, $89.3 million of the increase was associated with bank acquisitions accounted for as purchases. The following table shows the composition of loans and leases for the past five years.
December 31, ---------------------------------------------------------- 1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- (In thousands) Commercial and industrial . . . . . . . . . . . . $ 849,026 $ 737,924 $ 728,222 $ 830,307 $ 817,885 Agriculture . . . . . . . . . . . . . . . . . . . 164,752 143,383 147,839 136,429 121,821 Energy . . . . . . . . . . . . . . . . . . . . . 77,962 55,754 60,053 69,091 68,136 Bank stock . . . . . . . . . . . . . . . . . . . 34,576 41,282 48,509 61,866 78,686 Real estate, less unearned discount: Construction . . . . . . . . . . . . . . . . . 92,158 63,948 92,634 112,301 134,293 Secured by 1-4 family residences . . . . . . . 781,946 690,202 629,593 653,267 383,486 Permanent commercial real estate and other . . 500,129 436,888 425,964 440,266 421,007 Residential mortgage loans held for sale. . . . 110,132 501 2,588 923 1,867 Consumer, less unearned discount . . . . . . . . 417,126 467,916 453,102 451,752 337,894 Credit card . . . . . . . . . . . . . . . . . . . 91,562 81,012 78,913 95,590 79,241 Educational . . . . . . . . . . . . . . . . . . . 55,968 41,889 34,686 32,042 48,637 Lease financing . . . . . . . . . . . . . . . . . 40,195 29,490 27,166 25,235 20,150 Other . . . . . . . . . . . . . . . . . . . . . . 42,255 50,847 66,346 79,897 68,540 ---------- ---------- ---------- ---------- ---------- Total loans and leases . . . . . . . . . . . $3,257,787 $2,841,036 $2,795,615 $2,988,966 $2,581,643 ========== ========== ========== ========== ==========
Commercial and Industrial: The Company's commercial and industrial loans generally are made to middle market and small businesses. There are no highly leveraged transactions. Agriculture: Loans secured by feeder cattle and other livestock accounted for approximately 58% of the agriculture portfolio at December 31, 1993. The remainder of the agriculture portfolio is secured by equipment, farm assets and accounts receivable and inventory, none of which represent a significant concentration. Energy: Loans secured by proven oil and gas reserves constitute substantially all of the energy loan portfolio. Generally, the Company will loan no more than 60% of the discounted value of such proven reserves. Annual engineering reports are required on all production loans of $100,000 or more. These reports include cash flow analyses on all properties and provide estimates of remaining recoverable reserves, rates of recovery, operating expenses, and taxes. There are no oil rig acquisition loans, and loans to well-servicing companies and suppliers are not material. Bank Stock: Loans for the purpose of purchasing a material interest in a bank make up this portfolio. Real Estate: Most of the construction loans are for 1-4 family residential construction and development. At December 31, 1993, approximately 43.2% of the portfolio was in the Kansas metropolitan markets of Wichita, Topeka and Kansas City. The Tulsa and Oklahoma City markets represented an additional 39.3% of this portfolio. The 1-4 family residence portfolio consists of loans secured by residences located primarily in Kansas and Oklahoma and is principally permanent first mortgage loans with the remainder consisting of home equity loans. At December 31, 1993, this portfolio included $100.9 million of seasoned, performing loans acquired in 1990 and 1991 as part of the S&L transactions. At December 31, 1993 $110.1 million of fixed-rate residential first mortgage loans were held for sale in the secondary market. Most of these loans had original maturities of 15 and 20 years and loan rates of 7.00% or less. Residential mortgage loans held for sale are carried at the lower of cost or market value determined on an aggregate basis. Permanent commercial real estate loans include loans in the Company's market for small office buildings/parks; neighborhood strip shopping centers; small manufacturing machine shop buildings; office warehouse properties; medical offices; and loans for purposes other than funding the acquisition of the collateral properties and in which cash flows from the properties are not the principal source of repayment. Also included in this portfolio are loans for the financing of apartment buildings in the Company's five metropolitan markets. Most of these loans are "mini-perms" with five-year maturities. The remaining commercial real estate loans are secured by farmland. Concentrations: The Company makes substantially all of its loans within Kansas, Oklahoma, and the contiguous states or to Kansas and Oklahoma based customers that do business in other states. At December 31, 1993, the Company had 20 lending relationships in which the aggregate loan amount exceeded $8 million; of these, seven were $10 million or more. The Company had no single lending relationship with an aggregate loan amount outstanding in excess of $20 million. The Company had no industry concentrations greater than 10.0% of total loans outstanding and no foreign loans at December 31, 1993. Maturity Distribution and Interest Sensitivity of Loans The maturity distribution of loans outstanding as of December 31, 1993 (excluding real estate-secured by 1-4 family residences, consumer, credit card, educational, and lease financing) by type and sensitivity to changes in interest rates is as follows:
Remaining Maturity -------------------------------------------------- Over One Year One Year Through Over Five or Less Five Years Years Total ---------- ---------- ---------- ----------- (In thousands) Commercial and industrial . . . . . . . . . . . . . . . $ 565,040 $240,066 $ 43,920 $ 849,026 Agriculture . . . . . . . . . . . . . . . . . . . . . . 145,439 16,168 3,145 164,752 Energy . . . . . . . . . . . . . . . . . . . . . . . . 55,569 18,105 4,288 77,962 Bank stock . . . . . . . . . . . . . . . . . . . . . . 23,164 8,034 3,378 34,576 Real estate-construction . . . . . . . . . . . . . . . 66,738 23,438 1,982 92,158 Real estate-permanent commercial and other . . . . . . 144,589 243,578 111,962 500,129 Other . . . . . . . . . . . . . . . . . . . . . . . . . 35,459 6,316 480 42,255 ---------- -------- -------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . $1,035,998 $555,705 $169,155 $1,760,858 ========== ======== ======== ========== Loans with fixed interest rates . . . . . . . . . . . . $ 254,289 $193,618 $ 43,248 $ 491,155 Loans with floating interest rates . . . . . . . . . . 781,709 362,087 125,907 1,269,703 ---------- -------- -------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . $1,035,998 $555,705 $169,155 $1,760,858 ========== ======== ======== ==========
Nonperforming Assets Nonperforming assets consist of nonaccrual loans, troubled debt restructurings, and other real estate and nonperforming assets. A loan is placed on nonaccrual status when principal or interest is due and has remained unpaid for 90 days or more unless the loan is both well secured and in the process of collection. A currently performing loan also may be placed on nonaccrual status when there is reasonable doubt as to the ability of the borrower to continue to pay principal or interest. Nonaccrual loans at December 31, 1993 included $13.1 million of these "performing/nonperforming" loans. Troubled debt restructurings are those loans for which the original contractual terms have been modified to provide a concession because of a deterioration in the borrower's financial condition. Other real estate and nonperforming assets include assets acquired from loan settlements and foreclosures. In accordance with the Securities and Exchange Commission's Financial Reporting Release 28 ("FRR 28"), "Other real estate and nonperforming assets" previously has included certain loans valued at the fair value of the underlying collateral even though the Company did not have possession of that collateral. The main objective of FRR 28 was to require a systematic methodology to be applied to the recognition and measurement of potential losses inherent in loans, where the repayment of the loan was expected to come only from the operation or the sale of the collateral. Collateral was to be considered repossessed in substance and accounted for at fair value in those cases where the borrower had little or no equity in the collateral considering the property's fair value and where, considering economic conditions, the borrower's ability to rebuild equity was doubtful. During 1993, banking regulators issued guidance confirming that the loss recognition on collateral dependent loans should be based on the fair value of the collateral, but that such loans need not be reported as "Other real estate" unless possession of the underlying collateral has been obtained. The Company's consolidated statement of condition reflects the adoption of this regulatory guidance as of December 31, 1993 and the 1992 consolidated statement of condition has been restated to reclassify substantive repossessions from "Other assets" to "Loans." The following table reflects the effects of this new classification policy at December 31 for the past five years.
December 31, ---------------------------------------------------------- 1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- (Dollars In thousands) Nonaccrual loans . . . . . . . . . . . . . . . . $ 3,707 $ 6,403 $ 4,563 $ 6,416 $ 3,140 Other real estate and nonperforming assets . . . (3,707) (6,403) (4,563) (6,416) (3,140) ------- ------- ------- ------- ------- Total nonperforming assets . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0 ======= ======= ======= ======= =======
Generally, principal and interest payments received on nonaccrual loans are applied as reductions of principal. For this reason and because of charge-offs, the book value of such loans understates the remaining contractual obligation of the borrowers. As of December 31, 1993, the carrying value of nonaccrual loans had been charged down to 71.4% of the customers' contractual principal obligations. Also, the carrying values of other real estate and nonperforming assets have been written down to current estimates of their fair values less a reserve for the estimated costs to sell the properties. Interest income of $1.5 million has been included in income for the year ended December 31, 1993 on loans which at year-end were considered nonaccrual loans or troubled debt restructurings. Interest of $4.0 million would have been recorded for the year if these loans had been current in accordance with their original terms. The following table presents nonperforming assets and those loans which are contractually past due 90 days or more as to principal or interest payments at December 31 for the past five years.
December 31, -------------------------------------------------------- 1993 1992 1991 1990 1989 ------- ------- ------- ------- ------- (Dollars in thousands) Nonaccrual loans . . . . . . . . . . . . . . . . . $33,833 $36,772 $55,389 $ 79,595 $ 48,874 Troubled debt restructurings . . . . . . . . . . . 290 1,906 4,918 4,576 8,660 ------- ------- ------- -------- -------- Total nonperforming loans . . . . . . . . . . 34,123 38,678 60,307 84,171 57,534 Other real estate and nonperforming assets . . . . 9,667 18,876 39,017 53,031 50,445 ------- ------- ------- -------- -------- Total nonperforming assets . . . . . . . . . . $43,790 $57,554 $99,324 $137,202 $107,979 ======= ======= ======= ======== ======== Past due loans (90 days or more) . . . . . . . . . $ 9,072 $10,533 $ 5,455 $ 6,809 $ 11,005 ======= ======= ======= ======== ======== Nonperforming assets/year-end loans plus other real estate and nonperforming assets. . . . 1.34% 2.01% 3.50% 4.51% 4.10% ==== ==== ==== ==== ==== Nonperforming assets/year-end assets . . . . . . . .65% .88% 1.76% 2.38% 2.31% ==== ==== ==== ==== ====
Nonperforming assets decreased $13.8 million or 23.9% from December 31, 1992 to total $43.8 million at the end of 1993. At December 31, 1993, total nonperforming assets represented 1.34% of total loans plus other real estate owned and nonperforming assets and .65% of total assets as compared to 2.01% of total loans plus other real estate owned and nonperforming assets and .88% of total assets at December 31, 1992. Companies acquired during 1993 in pooling-of- interests transactions represent $13.9 million of the December 31, 1993 total nonperforming assets compared to $17.6 million for those same companies at year-end 1992. Purchased banks added $1.8 million to the 1993 nonperforming asset total. The 1993 and 1992 pooling-of-interests combinations accounted for $61.1 million, $87.3 million, and $85.0 million of nonperforming assets at year-end 1991, 1990, and 1989, respectively. Management continues to focus on asset quality. An emphasis is placed on pro-active management of problem credits, early detection of potential problems, and timely charge-offs. A due diligence team is responsible for assessing potential problem loans in banks to be acquired prior to the execution of a definitive agreement. A separate work-out department is responsible for the resolution and collection of problem assets. An analysis of nonperforming loans by type is provided in the following table. There are no significant concentrations of nonperforming assets in any one market or industry.
December 31, ------------------------------------------------------------------- 1993 1992 1991 1990 1989 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Commercial and industrial. . . . . . . $14,695 $13,194 $23,021 $37,288 $19,701 Agriculture. . . . . . . . . . . . . . 1,526 1,449 1,250 766 1,001 Energy . . . . . . . . . . . . . . . . 510 184 402 2,508 511 Bank stock . . . . . . . . . . . . . . -- -- 41 -- 700 Real Estate: Construction . . . . . . . . . . . . 1,343 1,883 7,029 5,756 4,975 Secured by 1-4 family residences. . . . . . . . . . . . . 2,384 3,861 3,752 4,454 4,257 Permanent commercial real estate and other . . . . . . . 11,668 16,056 22,200 30,173 23,965 Consumer . . . . . . . . . . . . . . . 1,890 1,863 2,228 2,731 2,424 Lease financing. . . . . . . . . . . . 107 188 384 495 -- ------- ------- ------- ------- ------- Total nonperforming loans. . . . . $34,123 $38,678 $60,307 $84,171 $57,534 ======= ======= ======= ======= ======= Nonaccrual loans/nonaccrual loans and prior charge-offs . . . . . 71.41% =====
Potential Problem Loans Certain loans classified for regulatory purposes as doubtful, substandard, or special mention are included in the nonperforming loan table. Also included in the classified loans are certain other loans which are deemed to be potential problems. Potential problem loans are those loans which are currently performing but where known information about trends or uncertainties or possible credit problems of the borrowers causes management to have concerns as to the ability of such borrowers to comply with present repayment terms, possibly resulting in the transfer of such loans to nonperforming status. These loans totaled $6.3 million at December 31, 1993. Allowance for Credit Losses The allowance for credit losses is the amount deemed by management to be reasonably necessary to provide for possible losses on loans that may become uncollectible. Additions to the allowance are charged to expense as the provision for credit losses. Loan losses and recoveries are charged or credited directly to the allowance. It is the Company's policy to charge off any loan or portion of that loan when it is deemed to be uncollectible in the ordinary course of business. An evaluation of the overall quality of the portfolio is performed to determine the necessary level of the allowance for credit losses. This evaluation takes into consideration the classification of loans and the application of loss estimates to these classifications. It is the responsibility of management in each of the Company's markets to classify its loans as pass, special mention, substandard, doubtful, or loss. The classification criteria are established by the credit administration function of the Company, which is independent of all lending functions, and are intended to be consistent with the criteria applied by federal banking system examiners. These classifications take into consideration all sources of repayment, underlying collateral, the value of such collateral, and current and anticipated economic conditions, trends, and uncertainties. The Company has an independent loan review function which periodically reviews the loans and the classifications. The Company's bank subsidiaries also are subjected to periodic examinations by the Office of the Comptroller of the Currency. Loss factors are developed by loan type and classification using historical loss data and statistical modeling techniques. The application of these loss factors to the portfolio classifications combined with analyses of general economic conditions, trends in portfolio volume, maturity, and composition, and estimates of potential future losses on specific large loans and those loans requiring special attention provide management with data essential to identify and estimate the credit risk inherent in the portfolio. The allowance for credit losses reflects the result of these estimates, and is deemed to be adequate at each balance sheet date. As of December 31, 1993, the allowance for credit losses equaled $66.4 million or 2.04% of total loans and leases and 194.50% of nonperforming loans. Comparatively, the allowance for credit losses amounted to $73.1 million or 2.57% of total loans and leases and 188.88% of nonperforming loans at December 31, 1992. The decreased level of net charge-offs in 1993 compared to 1992 and the sound coverage ratio of the allowance for credit losses to nonperforming loans at December 31, 1993 reflected the continuing emphasis management is placing on resolving problem loans, reducing the risk profile of the Company, and prudently reserving for identifiable risks. The following table summarizes the changes in the allowance for credit losses for the past five years and presents selected related ratios.
1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- (Dollars in thousands) Balance at January 1, as previously reported . . . $ 60,498 $ 57,459 $ 53,049 $ 33,089 $ 29,342 Adjustment for poolings of interests . . . . . . . 12,557 13,210 9,672 9,306 9,378 ---------- ---------- ---------- ---------- ---------- Balance at January 1, as restated . . . . . . . . 73,055 70,669 62,721 42,395 38,720 Allowance for credit losses of purchased banks . . 3,266 1,739 464 2,827 1,643 Allowance for purchased loans . . . . . . . . . . -- 3,424 -- 2,165 -- ---------- ---------- ---------- ---------- ---------- 76,321 75,832 63,185 47,387 40,363 Charge-offs: Commercial and industrial . . . . . . . . . . . 15,450 16,126 22,342 15,519 15,327 Energy . . . . . . . . . . . . . . . . . . . . . 371 254 1,690 1,127 1,170 Real estate: Construction . . . . . . . . . . . . . . . . . 269 881 2,492 4,628 1,539 Secured by 1-4 family residences . . . . . . . 701 1,082 1,547 1,262 1,729 Permanent commercial real estate and other . . 3,954 4,624 6,184 8,865 4,757 Consumer . . . . . . . . . . . . . . . . . . . . 3,936 5,196 5,870 3,350 1,999 Credit card . . . . . . . . . . . . . . . . . . 1,596 2,243 2,470 2,046 1,231 Bank stock . . . . . . . . . . . . . . . . . . . -- -- 852 250 -- Agriculture . . . . . . . . . . . . . . . . . . 214 121 215 503 290 Lease financing . . . . . . . . . . . . . . . . 246 258 477 728 161 Other . . . . . . . . . . . . . . . . . . . . . 71 293 420 741 1,010 ---------- ---------- ---------- ---------- ---------- Total charge-offs . . . . . . . . . . . . . 26,808 31,078 44,559 39,019 29,213 ---------- ---------- ---------- ---------- ---------- Recoveries: Commercial and industrial . . . . . . . . . . . 4,592 3,214 3,330 2,084 2,403 Energy . . . . . . . . . . . . . . . . . . . . . 206 230 936 1,319 411 Real estate: Construction . . . . . . . . . . . . . . . . . 220 112 132 388 6 Secured by 1-4 family residences . . . . . . . 304 179 243 48 210 Permanent commercial real estate and other . . 1,358 409 463 294 24 Consumer . . . . . . . . . . . . . . . . . . . . 1,687 1,594 1,180 459 389 Credit card . . . . . . . . . . . . . . . . . . 496 604 418 300 281 Bank stock . . . . . . . . . . . . . . . . . . . 148 38 -- -- -- Agriculture . . . . . . . . . . . . . . . . . . 272 309 155 252 95 Lease financing . . . . . . . . . . . . . . . . 91 232 87 34 23 Other . . . . . . . . . . . . . . . . . . . . . 425 37 245 175 6 ---------- ---------- ---------- ---------- ---------- Total recoveries . . . . . . . . . . . . . . 9,799 6,958 7,189 5,353 3,848 ---------- ---------- ---------- ---------- ---------- Net loans and leases charged off . . . . . . . . . 17,009 24,120 37,370 33,666 25,365 Provision for credit losses . . . . . . . . . . . 7,056 21,343 43,665 49,000 27,397 ---------- ---------- ---------- ---------- ---------- Balance at December 31 . . . . . . . . . . . . . . $ 66,368 $ 73,055 $ 69,480 $ 62,721 $ 42,395 ========== ========== ========== ========== ========== Loans and leases at year-end . . . . . . . . . . . $3,257,787 $2,841,036 $2,795,615 $2,988,966 $2,581,643 Average loans and leases . . . . . . . . . . . . . $2,953,470 $2,822,525 $2,914,788 $2,835,045 $2,455,848 Net charge-offs/average loans and leases . . . . . .58% .85% 1.28% 1.19% 1.03% Allowance for credit losses/net charge-offs . . . 390.19% 302.88% 185.92% 186.30% 167.14% Allowance for credit losses/year-end nonperforming loans . . . . . . . . . . . . . . . 194.50% 188.88% 115.21% 74.52% 73.69% Allowance for credit losses/year-end nonperforming assets. . . . . . . . . . . . . . . 151.56% 126.93% 69.95% 45.71% 39.26% Allowance for credit losses/year-end loans and leases. . . . . . . . . . . . . . . . . 2.04% 2.57% 2.49% 2.10% 1.64%
The allowance for credit losses has been allocated by loan category. It should be recognized that such allocations are not necessarily indicative of future loan losses and that all of such allowance, except for the $1.3 million allowance for purchased loans included in the secured by 1-4 family residences and $3.5 million allowance for purchased loans included in consumer, is available to absorb losses on loans for any category. The allocation of the allowance for credit losses by loan type is as follows:
December 31, -------------------------------------------------------------------- 1993 1992 1991 1990 1989 ------------ ------------ ------------ ------------ ------------ (In thousands) Commercial and industrial. . . . . . . $24,791 $29,211 $29,799 $21,471 $14,447 Agriculture . . . . . . . . . . . . . 1,210 2,762 2,515 2,122 1,653 Energy . . . . . . . . . . . . . . . . 973 1,105 1,386 2,490 3,001 Bank stock . . . . . . . . . . . . . . 446 968 820 497 583 Real estate: Construction . . . . . . . . . . . . 1,364 1,895 2,163 5,266 3,642 Secured by 1-4 family residences . . 3,659 4,797 5,547 6,169 1,397 Permanent commercial real estate and other . . . . . . . . . . . . . 17,500 17,421 17,602 15,261 11,210 Consumer . . . . . . . . . . . . . . . 9,266 7,633 5,148 4,576 2,974 Credit card . . . . . . . . . . . . . 2,455 3,673 2,215 2,500 1,582 Educational. . . . . . . . . . . . . . -- -- -- -- -- Lease financing . . . . . . . . . . . 393 933 315 381 95 Other . . . . . . . . . . . . . . . . 4,311 2,657 1,970 1,988 1,811 ------- ------- ------- ------- ------- Total . . . . . . . . . . . . . . $66,368 $73,055 $69,480 $62,721 $42,395 ======= ======= ======= ======= =======
The following table compares the allocation of the allowance for credit losses by loan type expressed as a percentage of the total allowance for credit losses to the percentage of loans in each loan type to total loans:
December 31, ---------------------------------------------------------------------------------- 1993 1992 1991 1990 1989 -------------- -------------- -------------- -------------- -------------- (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Commercial and industrial. 37.3% 26.1% 40.0% 26.0% 42.9% 26.1% 34.2% 27.8% 34.1% 31.7% Agriculture . . . . . . . 1.8 5.0 3.8 5.0 3.6 5.3 3.4 4.6 3.9 4.7 Energy . . . . . . . . . . 1.5 2.4 1.5 2.0 2.0 2.1 4.0 2.3 7.1 2.6 Bank stock . . . . . . . . .7 1.1 1.3 1.4 1.2 1.7 .8 2.1 1.4 3.1 Real estate: Construction . . . . . . 2.1 2.8 2.6 2.2 3.1 3.3 8.4 3.7 8.6 5.2 Secured by 1-4 family residences . . . . . . 5.5 27.4 6.6 24.3 8.0 22.6 9.8 21.9 3.3 15.0 Permanent commercial real estate and other . 26.3 15.4 23.8 15.4 25.3 15.2 24.3 14.7 26.4 16.3 Consumer . . . . . . . . . 14.0 12.8 10.4 16.5 7.4 16.2 7.3 15.1 7.0 13.1 Credit card . . . . . . . 3.7 2.8 5.0 2.9 3.2 2.8 4.0 3.2 3.7 3.0 Educational . . . . . . . -- 1.7 -- 1.5 -- 1.3 -- 1.1 -- 1.9 Lease financing . . . . . .6 1.2 1.3 1.0 .5 1.0 .6 .8 .2 .8 Other . . . . . . . . . . 6.5 1.3 3.7 1.8 2.8 2.4 3.2 2.7 4.3 2.6 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== _____ (1) Allocation of allowance for credit losses by loan type as a percent of total allowance. (2) Loans by type as a percent of total loans.
Investment Portfolio The year-end book value of investment securities at December 31 for each of the last three years is presented in the tables below.
Held-to-maturity December 31, ---------------------------------------- 1993 1992 1991 ---------- ---------- ---------- (In thousands) U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $ 1,514 $ 284,856 $ 140,835 Obligations of U.S. government agencies and corporations: Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 1,751,443 1,731,879 1,354,866 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359 279,783 126,542 Obligations of states and political subdivisions . . . . . . . . . 4,750 215,471 245,768 Other securities: Collateralized auto receivables . . . . . . . . . . . . . . . . . 12,364 28,935 51,607 Corporate notes and bonds . . . . . . . . . . . . . . . . . . . . -- 10,580 7,121 Foreign debt securities . . . . . . . . . . . . . . . . . . . . . 2,155 -- -- Money market mutual funds . . . . . . . . . . . . . . . . . . . . 212 220 50,228 Commercial paper. . . . . . . . . . . . . . . . . . . . . . . . . -- -- 20,194 Bankers' acceptances . . . . . . . . . . . . . . . . . . . . . . -- -- 11,950 Non-agency mortgage-backed securities . . . . . . . . . . . . . . -- -- 5,672 Nonaccrual investments. . . . . . . . . . . . . . . . . . . . . . -- -- 2,529 ---------- ---------- ---------- Total debt securities . . . . . . . . . . . . . . . . . . . . . 1,772,797 2,551,724 2,017,312 Federal Home Loan Bank stock. . . . . . . . . . . . . . . . . . . 24,911 1,166 577 Federal Reserve Bank stock. . . . . . . . . . . . . . . . . . . . 12,589 8,452 6,355 Other equity securities . . . . . . . . . . . . . . . . . . . . . 1,470 3,576 3,827 ---------- ---------- ---------- Total, at amortized cost. . . . . . . . . . . . . . . . . . . . $1,811,767 $2,564,918 $2,028,071 ========== ========== ========== Excess market value . . . . . . . . . . . . . . . . . . . . . . . . $ 1,365 $ 45,262 $ 71,817 ========== ========== ==========
Available-for-sale December 31, ------------ 1993 ------------ (In thousands) U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $ 308,331 Obligations of U.S. government agencies and corporations: Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 218,848 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306,276 Obligations of states and political subdivisions . . . . . . . . . 242,933 Corporate notes and bonds . . . . . . . . . . . . . . . . . . . . . 40,237 ---------- Total debt securities . . . . . . . . . . . . . . . . . . . . . 1,116,625 Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . 1,151 ---------- Total, at estimated fair value. . . . . . . . . . . . . . . . $1,117,776 ==========
At December 31, 1993, the Company elected to adopt Financial Accounting Standard ("FAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." In accordance with FAS No. 115, prior period financial statements have not been restated to reflect the change in accounting principle. Pursuant to FAS No. 115 the securities classified as available-for-sale are carried at fair value. Upon adoption, the available-for-sale portfolio was increased by a net unrealized gain of $41.2 million, deferred income taxes payable was increased by $16.1 million, and stockholders' equity was increased by $25.1 million. Not including the adjustment to fair value for the available-for- sale portfolio, investment securities increased $323.4 million between December 31, 1992 and 1993. Acquisition transactions accounted for as purchases added $112.0 million of investment securities. The remainder of the increase is attributable to the Company becoming more fully invested and a larger volume of borrowed funds. Excluding U.S. Treasury obligations and obligations of U.S. government agencies and corporations, there were no security holdings of any one issuer at December 31, 1993 that exceeded 10% of consolidated stockholders' equity. The tables below summarize the maturity and yield distribution of investment securities at December 31, 1993.
Held-to-maturity Maturing ------------------------------------------------------------------------------------------ After One After Five Within But Within But Within After One Year Five Years Ten Years Ten Years Total ---------------- ---------------- ---------------- ---------------- ------------------ Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield -------- ------ -------- ------ -------- ------ -------- ------ ---------- ------ (Dollars in thousands) U.S. Treasury obligations . . . . $ 601 5.24% $ 913 5.09% $ -- --% $ -- --% $ 1,514 5.15% Obligations of U.S. government agencies and corporations: Mortgage-backed. . 181 8.50 218,773 6.49 215,721 5.59 1,316,768 5.14 1,751,443 5.36 Other. . . . . . . 168 4.56 191 4.94 -- -- -- -- 359 4.76 Obligations of states and political subdivisions(1) . . 1,090 7.04 3,790 6.02 25 11.54 2,000 11.54 6,905 7.80 Other securities: Collateralized auto receivables. -- -- 12,364 7.91 -- -- -- -- 12,364 7.91 Money market mutual funds. . . 212 3.00 -- -- -- -- -- -- 212 3.00 Other. . . . . . . -- -- -- -- -- -- 38,970 6.41 38,970 6.41 ------ -------- -------- ---------- ---------- Total. . . . . . $2,252 6.11 $236,031 6.55 $215,746 5.59 $1,357,738 5.18 $1,811,767 5.41 ====== ======== ======== ========== ========== _________ (1) Yields on tax-preferred securities are shown on a fully tax-equivalent basis assuming a marginal tax rate of 35%.
Available-for-sale Maturing ------------------------------------------------------------------------------------------ After One After Five Within But Within But Within After One Year Five Years Ten Years Ten Years Total ---------------- ---------------- ---------------- ---------------- ------------------ Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield -------- ------ -------- ------ -------- ------ -------- ------ ---------- ------ (Dollars in thousands) U.S. Treasury obligations . . . . $48,773 6.04% $254,305 6.13% $ 5,253 5.09% $ -- --% $ 308,331 6.10% Obligations of U.S. government agencies and corporations: Mortgage-backed. . -- -- 855 7.83 12,481 6.09 205,512 6.76 218,848 6.73 Other. . . . . . . 12,420 7.80 253,774 6.02 40,082 7.51 -- -- 306,276 6.29 Obligations of states and political subdivisions(1) . . 27,171 12.84 120,264 14.12 64,812 10.46 30,686 14.23 242,933 13.02 Other securities . . 1,925 7.70 13,543 6.15 24,769 6.10 1,151 -- 41,388 6.02 ------- -------- -------- -------- ---------- Total. . . . . . $90,289 8.36 $642,741 7.58 $147,397 8.36 $237,349 7.69 $1,117,776 7.78 ======= ======== ======== ======== ========== _________ (1) Yields on tax-preferred securities are shown on a fully tax-equivalent basis assuming a marginal tax rate of 35%.
Mortgage-backed securities have been included in the maturity tables based on their final maturities. However, this classification is not indicative of the interest rate risk characteristics of the portfolio. At December 31, 1993 the held-to-maturity portfolio included $513.3 million of floating-rate mortgage-backed securities guaranteed by the Federal National Mortgage Association. The yields on these securities float on a monthly basis with the Federal Home Loan Bank ("FHLB") Board 11th District average cost of funds, which reduces the interest rate risk associated with these investments as the changes in the cost of funds index have historically correlated with the changes in the Company's cost of funds. Also included in the held-to-maturity portfolio at December 31, 1993 were $847.4 million of collateralized mortgage obligations ("CMO"). These investments are secured by mortgage-backed securities guaranteed by agencies of the U.S. government. Of this CMO portfolio, $155.6 million also float on a monthly basis with the FHLB 11th District average cost of funds. The remaining $691.8 million of fixed-rate CMOs in the held-to-maturity portfolio are comprised of classes with an anticipated remaining average duration of two to three years. The December 31, 1993 available-for-sale mortgage-backed securities portfolio is comprised principally of securities issued by U.S. government agencies and corporations with an estimated average duration of up to five years. Also included in the December 31, 1993 mortgage-backed securities available-for-sale were $49.4 million of CMOs that do not meet the Office of the Comptroller of Currency's ("OCC") guidelines to be classified as "held-to-maturity" securities. The OCC requires simulation testing of mortgage derivative products to measure their estimated maturity or price sensitivity to interest rate increases or decreases of 300 basis points. Under current accounting practices, CMOs that fall outside the OCC's volatility guidelines are required to be included in the available-for-sale portfolio. Scheduled principal reductions and prepayments on the mortgage- backed securities approximated $219.6 million during the fourth quarter of 1993. The volume of principal reductions and prepayments combined with the Company's strong liquidity position (which is described in the Asset and Liability Management Section) demonstrates the Company's ability to hold a substantial portion of its investment securities to maturity. Deposits Average total deposits increased $418.2 million or 8.5% between December 31, 1993 and 1992. This increase in average deposits reflects the assumption of deposits from S&L and bank purchase acquisitions, which took place in December of 1992 and the second quarter of 1993. Deposits assumed from S&Ls totaled $448.3 million and deposits acquired through bank acquisitions accounted for as purchases totaled $246.1 million. At December 31, 1993, deposits totaled $5.3 billion, which was not materially different from deposits at December 31, 1992. The increased deposits from the assumptions and acquisitions were partially offset by the attrition of time deposits associated with the current low interest rates offered on these instruments. In addition, December 31, 1992 deposits included an unusually high volume of items in the process of collection. In response to perceived customer needs for a higher yield, a time deposit product was offered which provided the customer with the opportunity to reprice the instrument twice during its three- year term. At December 31, 1993, $222.8 million of these adjustable-rate time deposits were outstanding. Certain customers have reinvested maturing deposits in alternative investment instruments and some of these customers have purchased annuities, mutual funds, and other investments through the Company, resulting in increased fee income. Core deposits (demand, interest checking, savings, and time deposits under $100,000) represented 92.7% of total deposits at December 31, 1993 compared to 91.1% at December 31, 1992. The following table provides a breakdown of average deposits and average rates paid, by type, for the past three years.
1993 1992 1991 -------------------- -------------------- -------------------- Average Average Average Average Average Average Balance Rate Balance Rate Balance Rate ---------- -------- ---------- -------- ---------- -------- (Dollars in thousands) Noninterest-bearing deposits. . . . . . . . $ 916,816 -- $ 832,472 -- $ 778,217 -- Interest-bearing deposits: Interest-bearing checking deposits. . . . 870,178 2.49% 699,112 3.10% 595,778 4.61% Savings deposits . . . . . . . . . . . . 1,215,257 2.61 1,124,768 3.33 1,044,037 5.14 Time deposits under $100,000. . . . . . . 1,929,077 4.53 1,816,111 5.72 1,984,143 7.28 Time deposits of $100,000 or more . . . . 387,867 3.56 428,552 3.73 529,838 5.38 ---------- ---------- ---------- Total interest-bearing deposits . . . . 4,402,379 3.51 4,068,543 4.40 4,153,796 6.12 ---------- ---------- ---------- Total deposits . . . . . . . . . . . $5,319,195 $4,901,015 $4,932,013 ========== ========== ==========
The following table sets forth, by time remaining to maturity, certificates and other time deposits of $100,000 or more:
December 31, 1993 ----------------- (In thousands) Under three months . . . . . . . . . . . . . . . . . . . . . . . . . . $130,256 Over three through six months . . . . . . . . . . . . . . . . . . . . 52,367 Over six through twelve months . . . . . . . . . . . . . . . . . . . . 67,877 Over twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . 109,457 -------- $359,957 ======== Brokered deposits were immaterial at December 31, 1993.
Short-term Borrowings Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, Federal Home Loan Bank borrowings with a maturity of less than one year, commercial paper, notes payable, treasury tax and loan accounts and other borrowings. Amounts and interest rates related to short-term borrowings for the last three years were as follows:
1993 1992 1991 -------- -------- -------- (Dollars in thousands) Federal funds purchased: Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $370,026 $261,048 $103,643 Average interest rate at year-end . . . . . . . . . . . . . . . . . 2.96% 2.92% 3.06% Average outstanding during the year . . . . . . . . . . . . . . . . $321,023 $190,780 $125,829 Weighted average interest rate . . . . . . . . . . . . . . . . . . 3.00% 3.36% 5.50% Highest outstanding balance at any month-end . . . . . . . . . . . $474,245 $339,511 $129,633 Securities sold under agreements to repurchase: Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $123,901 $ 65,089 $ 44,581 Average interest rate at year-end . . . . . . . . . . . . . . . . . 3.27% 3.49% 4.12% Average outstanding during the year . . . . . . . . . . . . . . . . $ 66,532 $ 60,931 $ 46,742 Weighted average interest rate . . . . . . . . . . . . . . . . . . 3.10% 3.58% 5.30% Highest outstanding balance at any month-end . . . . . . . . . . . $123,901 $112,345 $ 58,883 Federal Home Loan Bank borrowings: Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $175,000 $ -- $ -- Average interest rate at year-end . . . . . . . . . . . . . . . . . 3.76% --% --% Average outstanding during the year . . . . . . . . . . . . . . . . $ 77,534 $ -- $ -- Weighted average interest rate . . . . . . . . . . . . . . . . . . 5.05% --% --% Highest outstanding balance at any month-end . . . . . . . . . . . $175,000 $ -- $ -- Commercial paper: Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $ -- $ 425 $ 3,176 Average interest rate at year-end . . . . . . . . . . . . . . . . . --% 2.80% 4.76% Average outstanding during the year . . . . . . . . . . . . . . . . $ 184 $ 1,118 $ 10,163 Weighted average interest rate . . . . . . . . . . . . . . . . . . 2.85% 3.85% 6.08% Highest outstanding balance at any month-end . . . . . . . . . . . $ 625 $ 3,528 $ 22,026 Notes payable: Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $ -- $ 5,961 $ 9,362 Average interest rate at year-end . . . . . . . . . . . . . . . . . --% 6.57% 6.97% Average outstanding during the year . . . . . . . . . . . . . . . . $ 3,140 $ 10,158 $ 17,247 Weighted average interest rate . . . . . . . . . . . . . . . . . . 7.84% 7.98% 10.02% Highest outstanding balance at any month-end . . . . . . . . . . . $ 134 $ 13,360 $ 56,635 Treasury tax and loan and other borrowings: Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $ 23,002 $ 17,306 $ 26,051 Average interest rate at year-end . . . . . . . . . . . . . . . . . 2.75% 2.67% 3.84% Average outstanding during the year . . . . . . . . . . . . . . . . $ 18,605 $ 17,343 $ 23,770 Weighted average interest rate . . . . . . . . . . . . . . . . . . 2.97% 3.37% 5.57% Highest outstanding balance at any month-end . . . . . . . . . . . $ 26,092 $ 25,397 $ 27,784
Asset and Liability Management Interest Rate Risk: The Company manages its assets and liabilities to control the exposure of its net interest income and capital to risks associated with interest rate changes and to achieve consistent growth in net interest income. Interest rate risk is evaluated using various tools, including interest sensitivity gap and simulation analysis. From time to time, interest rate swaps are used to modify the interest sensitivity position inherent in the repricing characteristics of specific assets or liabilities. The net interest received or paid on the interest rate swaps is accounted for as an adjustment to the interest income or interest expense on the assets or liabilities, respectively, that the swap was intended to modify. At December 31, 1993 and 1992 interest rate swaps were as follows:
December 31, 1993 ----------------------------------------------------------------- Weighted Weighted Average Rate Notional Average -------------------------- Amount Term Received Paid ---------- -------- ---------- ---------- (In thousands) Receive fixed rate . . . . . . . . . . . . $ 51,000 29 months (1) 5.89% 3.47% Pay fixed rate . . . . . . . . . . . . . . 200,000 10 months 3.44% 3.94%
December 31, 1992 ----------------------------------------------------------------- Weighted Weighted Average Rate Notional Average -------------------------- Amount Term Received Paid ---------- -------- ---------- ---------- (In thousands) Receive fixed rate . . . . . . . . . . . . $ 1,000 52 months 10.00% 3.13% - -------- (1) The term of $50.0 million of these swaps may extend up to an additional 48 months after the initial term depending on the variable rate index at the end of the initial term and each quarter thereafter as compared to that same index when the swaps were initiated.
The following table presents the Company's interest sensitivity gap position as of December 31, 1993. This table depicts the timing of the contractual maturity or repricing of most assets and liabilities at this date. Fixed-rate mortgage-backed securities are included in repricing-maturity categories based upon estimates of prepayments provided by a third-party market information service. These estimates may vary depending upon both the volatility and the level of market interest rates in relationship to the coupon rates of the underlying mortgages. Interest-bearing checking and savings deposits are included in the under-three-month category. This table does not indicate the effect the repricing of assets and liabilities would have on net interest income. Also, it does not reflect interest rate exposures, such as basis risk, prepayment risk, intra-period sensitivity, and the effect of interest rate floors and ceilings associated with certain financial instruments.
Repricing Maturity -------------------------------------------------------------------------------- Over Three Over Six Over One Under Through Through Through Over Three Six Twelve Five Five Noninterest- Months Months Months Years Years bearing Total ---------- --------- --------- --------- ---------- ----------- ---------- (Dollars in thousands) Assets: Loans and leases. . . . . . $1,772,016 $ 153,203 $ 243,776 $ 678,264 $366,515 $ 44,013 $3,257,787 Investments and trading account securities . . . . 1,119,962 169,416 291,559 1,239,671 68,182 41,227 2,930,017 Other earning assets . . . 4,673 269 1,538 327 -- -- 6,807 Nonearning assets . . . . . -- -- -- -- -- 548,262 548,262 ---------- --------- --------- ---------- -------- ---------- ---------- Total assets . . . . . . $2,896,651 $ 322,888 $ 536,873 $1,918,262 $434,697 $ 633,502 $6,742,873 ========== ========= ========= ========== ======== ========== ========== Liabilities and stockholders' equity: Deposits. . . . . . . . . . $2,772,609 $ 375,370 $ 368,853 $ 840,427 $ 6,187 $ 944,290 $5,307,736 Federal funds purchased and securities sold under agreements to repurchase . 493,927 -- -- -- -- -- 493,927 Federal Home Loan Bank borrowings . . . . . . . . 50,000 75,000 50,000 75,000 -- -- 250,000 Other borrowings. . . . . . 23,002 -- -- -- -- -- 23,002 Long-term debt . . . . . . 4,482 8 4,787 4,476 236 -- 13,989 Other liabilities . . . . . -- -- -- -- -- 55,874 55,874 Stockholders' equity . . . -- -- -- -- -- 598,345 598,345 ---------- --------- --------- ---------- -------- ---------- ---------- Total liabilities and stockholders' equity . . $3,344,020 $ 450,378 $ 423,640 $ 919,903 $ 6,423 $1,598,509 $6,742,873 ========== ========= ========= ========== ======== ========== ========== Interest rate swaps . . . . . $ 149,000 $(100,000) $ -- $ (49,000) $ -- $ -- $ -- Repricing gap adjusted for interest rate swaps. . . (298,909) (227,490) 113,233 949,359 428,274 (964,467) -- Cumulative adjusted repricing gap. . . . . . . . (298,909) (526,399) (413,166) 536,193 964,467 -- -- Cumulative adjusted rate- sensitive assets/ rate-sensitive liabilities . .87 .85 .89 (*) (*) (*) ___________ (*) Not meaningful.
The Company has a negative cumulative repricing gap in the one- year horizon. Consequently, it is more sensitive to a rising rate environment which, if it occurred, would adversely impact the net interest margin. Simulation modeling has demonstrated that a sudden and large increase in rates or a dramatic narrowing in the spread between asset yields and liability costs would result in an adverse impact on the net interest margin; however, the adverse impact is more moderate if interest rates increase gradually. Liquidity: The Company's consolidated statements of cash flows are presented elsewhere in this report. These statements distinguish cash flows as operating, investing, and financing. They provide a historical accounting of the Company's ability to generate cash required to meet its customers' and creditors' demands. Certain statement-of-condition items and ratios are indicative of the Company's strong liquidity position at December 31, 1993. The loans-to-deposits and loans-to-assets ratios averaged 55.52% and 45.19%, respectively, during 1993. During 1993, average core deposits (demand, interest checking, savings, and time deposits under $100,000) represented 91.8% of total deposits and 74.7% of average assets. At December 31, 1993, federal funds purchased, securities sold under agreements to repurchase, Federal Home Loan Bank borrowings, and other borrowings totaled $766.9 million. At that same date, additional borrowing liquidity was also available in the form of $1.0 billion of unpledged investment securities classified as held-to-maturity which could secure short-term borrowing requirements. In addition, substantial liquidity is available from the available-for-sale securities which could secure short-term borrowings or be sold. Regular maturities and prepayments of investment securities, particularly the mortgage-backed securities, also generate significant liquidity. Scheduled principal reductions and prepayments on the mortgage-backed securities approximated $219.6 million during the fourth quarter of 1993. As disclosed in Note 20 to the Consolidated Financial Statements, the Company had commitments to extend credit at December 31, 1993, including standby letters of credit of $91.4 million, commercial letters of credit of $13.7 million, unused credit card lines of $325.3 million, and other loan commitments of $1.1 billion. Some of these commitments will not be fully utilized, others will expire without being drawn upon, and the commitments will not all be used at the same time. Accordingly, management anticipates that the Company has ample liquidity to meet these and other demands. Capital Resources At December 31, 1993, total stockholders' equity was $598.3 million or 8.87% of total assets compared to $525.8 million or 8.00% of total assets at December 31, 1992. Included in total stockholders' equity at December 31, 1993 were $25.1 million in unrealized gains on available-for-sale securities recorded in connection with the Company's adoption of FAS No. 115. For 1993, total stockholders' equity averaged $550.8 million or 8.43% of average assets. The prior year average equity was $487.0 million or 8.44% of average assets. Banking system regulators apply two measures of capital adequacy to banking companies: the risk-based capital and leverage ratios. The risk-based capital rules provide for the weighting of assets and off-balance-sheet commitments and contingencies according to prescribed risk categories ranging from 0 to 100%. Regulatory capital is then divided by risk-weighted assets to determine the risk-adjusted capital ratios. The leverage ratio supplements the risk-based capital guidelines by placing a constraint on the degree to which a banking company can leverage its equity capital, regardless of the balance sheet composition. The leverage ratio is computed by dividing Tier I capital by quarter-to-date average assets less certain intangibles. The following table presents the Company's risk-based capital and leverage ratios together with the required minimums. At December 31, 1993, banking system regulators had not amended the regulatory capital rules to include net unrealized gains and losses on available-for-sale securities in Tier I capital. Accordingly, the ratios in the following table exclude the $25.1 million net unrealized gain on available-for- sale securities.
December 31, ------------------------------- 1993 1992 ------------ ------------ (Dollars in thousands) Tier I capital: Common stockholders' equity . . . . . . . . . . . . . . . . . . . . . . $ 476,277 $ 425,252 Preferred stockholders' equity. . . . . . . . . . . . . . . . . . . . . 96,920 100,561 Less intangible assets (1) . . . . . . . . . . . . . . . . . . . . . . (62,296) (59,883) ---------- ---------- Total Tier I capital . . . . . . . . . . . . . . . . . . . . . . . . 510,901 465,930 ---------- ---------- Tier II capital: Allowance for credit losses (2) . . . . . . . . . . . . . . . . . . . . 49,259 44,188 ---------- ---------- Total regulatory capital. . . . . . . . . . . . . . . . . . . . . . $ 560,160 $ 510,118 ========== ========== Risk-weighted assets and off-balance-sheet commitments and contingencies . . . . . . . . . . . . . . . . . . . . . $3,940,574 $3,534,759 ========== ========== Adjusted average assets (3) . . . . . . . . . . . . . . . . . . . . . . . $6,717,389 $5,828,591 ========== ==========
Regulatory Minimums ---------- Risk-based capital ratios: Tier I . . . . . . . . . . . . . . . . . . . . . . . . 4.00% 12.97% 13.18% Total . . . . . . . . . . . . . . . . . . . . . . . . . 8.00 14.22 14.43 Leverage ratio . . . . . . . . . . . . . . . . . . . . . 3.00 7.61 7.99 ___________ (1) All intangible assets except purchased mortgage servicing rights are subtracted from capital. (2) The allowance for credit losses is limited to 1.25% of risk-weighted assets. (3) Quarter-to-date average assets less all intangibles except purchased mortgage servicing rights.
As indicated in the preceding table, the Company's risk-based and leverage capital ratios substantially exceed the minimums required by banking system regulators. If the regulatory capital rules had been amended to include the net unrealized gain on available-for-sale securities in Tier I capital, the Company's risk-based and leverage ratios at December 31, 1993 would have been as follows:
December 31, 1993 ----------------- Risk-based capital ratios: Tier I . . . . . . . . . . . . . . . . . . . . . . . . . 13.64 Total. . . . . . . . . . . . . . . . . . . . . . . . . . 14.89 Leverage ratio . . . . . . . . . . . . . . . . . . . . . . 7.98
Including the net unrealized gains and losses on available-for-sale securities in regulatory capital computations could result in more volatile regulatory capital levels. However, it is the Company's intention to simulate the estimated volatility various interest rate forecasts could have on the net unrealized gains or losses in the available-for-sale portfolio and maintain capital levels in excess of those required by the regulators including the consideration of this volatility. The Federal Deposit Insurance Corporation adopted final regulations under the Federal Deposit Insurance Corporation Improvement Act, effective June 16, 1992. A bank is typically defined to be "well capitalized" if it maintains a Tier I capital ratio of at least 6.0%, a total risk-based capital ratio of at least 10.0% and a leverage ratio of at least 5.0%. Generally, it is the Company's intention to maintain sufficient capital in each of its bank subsidiaries to permit them to maintain a "well capitalized" designation. The capital ratios for both of the Company's subsidiary banks exceeded the "well capitalized" regulatory capital requirements at December 31, 1993. For 1993, the Company's board of directors had authorized the purchase of up to 500,000 shares of the Company's common stock to be used for general corporate purposes. A separate board of directors' action in December 1993 authorized the purchase of an additional 71,518 shares to be used to acquire the minority interests in the subsidiaries of First Dodge City Bancshares, Inc., a pending 1994 acquisition. A total of 111,518 shares were purchased in 1993, 40,000 shares for general corporate purposes and 71,518 shares specifically for the pending acquisition. The purchase of up to 500,000 common shares, or the equivalent in depositary shares representing interests in the Company's Class A Cumulative Preferred Stock, or a combination of the two has been authorized for 1994. Acquisitions As more fully explained in Notes 2 and 3 to the Consolidated Financial Statements, the Company completed 14 business combinations and three deposit assumption transactions during 1993 and 1992. Frequently, common stock is used as consideration in acquisitions so that stockholders' equity is increased as assets are acquired. During 1993 and 1992 a total of almost 7.3 million common shares were issued in pooling-of-interests transactions increasing common equity $105.1 million. Of the four pending acquisitions represented by definitive agreements (detailed in Item 1. Business of PART I of this Annual Report on Form 10-K), two will be accounted for as poolings of interests. These transactions will result in the issuance of approximately 3.5 million shares of common stock. The funding for the 1993 and 1992 purchase acquisitions was primarily derived from the proceeds of the public offering of $100.0 million of depositary shares representing interests in the Company's Class A 7.00% Cumulative Convertible Preferred Stock. Funding for currently pending acquisitions will be derived from retained earnings. The Company continues to be engaged in an active acquisition program. Pursuant to that program, the Company is presently considering or participating in discussions concerning additional acquisitions. Parent Company Funding Sources and Dividends The ability of the parent company to fund various operating expenses and dividend requirements is dependent in part on its ability to derive funds from its bank subsidiaries. Historically, these funds have been primarily provided by intercompany dividends. Intercompany dividends amounted to $76.3 million, $57.8 million, and $49.5 million for 1993, 1992, and 1991, respectively. The approval of the Comptroller of the Currency ("Comptroller") is required if total dividends declared by a national bank in any one year exceed the bank's net profits for that year plus the profits for the two preceding years retained by the bank. The Comptroller's approval was required and received for the 1993 dividends. In 1994, the subsidiary banks may distribute to the parent company (in addition to their 1994 net profits) an aggregate of approximately $15.8 million in dividends without approval from regulatory agencies. Because of the financial strength of the parent company and the anticipated earnings capacity of both the BANK IV banks, it is anticipated that the banks will be able to obtain permission from the Comptroller to pay additional dividends in 1994 to the extent justified by their respective financial condition and subject to the capital requirements described in the next paragraph. Because of the Company's intention to continue making acquisitions, it is anticipated that the Comptroller will expect the BANK IV banks to maintain the greater of a 6.0% leverage ratio or a 10.0% total risk-based capital ratio. These ratios exceed the otherwise applicable minimum regulatory requirements of a 3.0% leverage ratio and an 8.0% total risk-based capital ratio. At December 31, 1993, the BANK IV banks' aggregate capital exceeded the amount required by the greater of a 6.0% leverage or a 10.0% risk-based capital ratio by approximately $107.9 million. The parent company had approximately $25.1 million of cash and short-term investments at December 31, 1993. In addition, the parent company has available an unused $35.0 million committed line of credit from an unaffiliated bank to be used for general corporate purposes. The parent company has a term loan outstanding from an unaffiliated bank in the amount of $13.1 million at December 31, 1993. This note bears interest at 8.6% and matures in March 1995. Principal payments of approximately $4.4 million are payable semiannually on the last day of March and September. The borrowing agreements subject the Company to certain restrictions and covenants related to, among others, tangible net worth and the maintenance of specific ratios related to leverage, funded debt, total indebtedness, nonperforming loans, and nonperforming assets. The parent company is currently in compliance with all restrictions and covenants under both of these agreements. Recently Issued Accounting Standards In May 1993, the Financial Accounting Standards Board issued Financial Accounting Standard ("FAS") No. 114 which could have an effect on the Company in 1994 and after. FAS No. 114 addresses the accounting by creditors for impairment of certain loans. It is applicable to all creditors and to all loans, uncollateralized as well as collateralized, except large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment, loans that are measured at fair value or at the lower of cost or fair value, leases, and debt securities. It applies to all loans that are restructured in a troubled debt restructuring involving a modification of terms. The Statement requires that, when evaluating the need for an allowance for credit losses on impaired loans that are within the scope of this Statement, the loss accrual be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral- dependent. This Statement is effective for fiscal years beginning after December 15, 1994. The Company has not completed the analyses required to estimate the impact of FAS 114; however, the Company does not believe the adoption of the new rules will have an adverse effect on its financial condition. Effects of Inflation and Changing Prices Virtually all assets and liabilities of a banking organization are monetary in nature. As such, they represent obligations to pay or receive fixed and determinable amounts of money which are not affected by future changes in prices. Changes in interest rates are the greatest determinant of bank earnings. However, interest rates do not necessarily move in the same direction or with the same magnitude as prices of other goods and services. A financial institution can respond to changes in interest rates by matching the maturities and costs of its liabilities against its interest earning assets. How well the institution copes with changing interest rates may then be determined by examining its net yield on earning assets and analyzing its asset and liability structure. Accordingly, reference to the various supplementary schedules shown elsewhere in this report will assist in the understanding of how the Company is positioned to react to changing interest rates and inflationary trends. Quarterly Financial Data (Unaudited)
1993 ---------------------------------------------- 4th 3rd 2nd 1st ------- ------- ------- ------- (Dollars in thousands, except per share data) Summary Income Statement Information: Interest income . . . . . . . . . . . . . . . . . . . . . $109,950 $111,465 $108,047 $104,005 Interest expense. . . . . . . . . . . . . . . . . . . . . 43,683 45,857 44,218 41,743 -------- -------- -------- -------- Net interest income . . . . . . . . . . . . . . . . . . . 66,267 65,608 63,829 62,262 Provision for credit losses . . . . . . . . . . . . . . . 540 425 2,885 3,206 -------- -------- -------- -------- Net interest income after provision for credit losses . . 65,727 65,183 60,944 59,056 Investment securities gains . . . . . . . . . . . . . . . 262 168 133 748 Other noninterest income. . . . . . . . . . . . . . . . . 23,326 21,860 20,820 21,786 Noninterest expense . . . . . . . . . . . . . . . . . . . (61,233) (66,043) (62,535) (63,175) -------- -------- -------- -------- Income before income taxes and cumulative effect of a change in accounting principle . . . . . . . 28,082 21,168 19,362 18,415 Income tax expense. . . . . . . . . . . . . . . . . . . . 7,900 4,816 4,396 4,733 -------- -------- -------- -------- Income before cumulative effect of a change in accounting principle. . . . . . . . . . . 20,182 16,352 14,966 13,682 Cumulative effect of a change in accounting principle . . -- -- (5) 10,514 -------- -------- -------- -------- Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 20,182 $ 16,352 $ 14,961 $ 24,196 ======== ======== ======== ======== Net income applicable to common and common equivalent shares . . . . . . . . . . . . . . $ 18,432 $ 14,602 $ 13,211 $ 22,446 ======== ======== ======== ======== Per Common Share Data: Earnings per common and common equivalent share: Primary . . . . . . . . . . . . . . . . . . . . . . . . $ .71 $ .57 $ .51 $ .88 Fully diluted . . . . . . . . . . . . . . . . . . . . . .68 .55 .50 .81 Common dividend . . . . . . . . . . . . . . . . . . . . . .26 .24 .24 .24 Book value (period-end) . . . . . . . . . . . . . . . . . 18.83 17.91 17.70 17.37 Market value (period-end) bid . . . . . . . . . . . . . . 28 3/4 29 3/4 30 1/4 30 3/4 Market value (bid): High . . . . . . . . . . . . . . . . . . . . . . . . . $ 30 $ 31 $ 30 3/4 $ 31 Low . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3/4 28 1/2 26 3/4 28 1/2 As Previously Reported: Net interest income . . . . . . . . . . . . . . . . . . . $ 66,267 $ 61,851 $ 54,422 $ 51,915 Net income. . . . . . . . . . . . . . . . . . . . . . . . 20,182 18,795 17,032 22,152 Net income applicable to common and common equivalent shares . . . . . . . . . . . . . . 18,432 17,045 15,281 20,402 Fully diluted earnings per common share . . . . . . . . . .68 .67 .65 .86
1992 ---------------------------------------------- 4th 3rd 2nd 1st ------- ------- ------- ------- (Dollars in thousands, except per share data) Summary Income Statement Information: Interest income . . . . . . . . . . . . . . . . . . . . . $104,147 $106,849 $107,599 $108,524 Interest expense. . . . . . . . . . . . . . . . . . . . . 42,332 46,222 50,126 53,717 -------- -------- -------- -------- Net interest income . . . . . . . . . . . . . . . . . . . 61,815 60,627 57,473 54,807 Provision for credit losses . . . . . . . . . . . . . . . 5,418 4,124 5,307 6,494 -------- -------- -------- -------- Net interest income after provision for credit losses . . 56,397 56,503 52,166 48,313 Investment securities gains . . . . . . . . . . . . . . . 884 559 224 853 Other noninterest income. . . . . . . . . . . . . . . . . 20,288 20,464 20,811 18,931 Noninterest expense . . . . . . . . . . . . . . . . . . . (60,488) (54,009) (51,005) (51,424) -------- -------- -------- -------- Income before income taxes and cumulative effect of a change in accounting principle . . . . . . . 17,081 23,517 22,196 16,673 Income tax expense. . . . . . . . . . . . . . . . . . . . 4,917 5,267 4,446 3,904 -------- -------- -------- -------- Income before cumulative effect of a change in accounting principle. . . . . . . . . . . 12,164 18,250 17,750 12,769 Cumulative effect of a change in accounting principle . . -- -- -- 2,373 -------- -------- -------- -------- Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 12,164 $ 18,250 $ 17,750 $ 15,142 ======== ======== ======== ======== Net income applicable to common and common equivalent shares . . . . . . . . . . . . . . $ 10,414 $ 16,500 $ 16,000 $ 14,441 ======== ======== ======== ======== Per Common Share Data: Earnings per common share: Primary . . . . . . . . . . . . . . . . . . . . . . . . $ .41 $ .65 $ .63 $ .58 Fully diluted . . . . . . . . . . . . . . . . . . . . . .41 .62 .60 .56 Common dividend . . . . . . . . . . . . . . . . . . . . . .22 .22 .22 .22 Book value (period-end) . . . . . . . . . . . . . . . . . 16.74 16.53 16.06 15.59 Market value (period-end) bid . . . . . . . . . . . . . . 29 25 1/4 24 1/2 26 1/4 Market value (bid): High. . . . . . . . . . . . . . . . . . . . . . . . . . $ 31 $ 26 3/4 $ 27 3/4 $ 26 1/4 Low . . . . . . . . . . . . . . . . . . . . . . . . . . 24 1/2 23 3/4 24 1/4 22 1/2 As Previously Reported: Net interest income . . . . . . . . . . . . . . . . . . . $ 50,423 $ 56,909 $ 48,731 $ 45,137 Net income. . . . . . . . . . . . . . . . . . . . . . . . 12,360 17,481 15,236 10,460 Net income applicable to common and common equivalent shares . . . . . . . . . . . . . . 10,610 15,731 13,486 9,759 Fully diluted earnings per common share . . . . . . . . . .49 .63 .58 .44
The quarterly price range of the Company's common stock is the closing bid price, as reported by the NASDAQ national market system. Such over-the-counter market quotations reflect inter-dealer prices without retail markup, markdown, or commission and may not necessarily represent actual transactions. Information for previously reported quarters has been restated to reflect acquisitions accounted for as poolings of interests. EXHIBITS INDEX Exhibit No. Description ------- 3.01 - Restated Articles of Incorporation and amendments (Exhibit 3.01 to Form 10-Q for the quarter ended June 30, 1992, previously filed by Registrant).* 3.02 - Certificate of Designation (Exhibit 3.02 to Form 10-K for year ended December 31, 1991, previously filed by Registrant (the "1991 10- K")).* 3.03 - Form of Deposit Agreement (Exhibit 3.03 to 1991 10-K).* 3.04 - Form of Depositary Receipt (Exhibit 3.04 to 1991 10-K).* 3.05 - Bylaws. 10.01 - Amended and Restated Fourth Financial Corporation 1981 Incentive Stock Option Plan (Exhibit 4(a) to Post-Effective Amendment No. 2 to Form S-8, Regis. No. 2-80907, previously filed by Registrant).* 10.02 - Amended and Restated Fourth Financial Corporation 1986 Incentive Stock Option Plan (Exhibit 10.02 to Form 10-K for the year ended December 31, 1990, previously filed by Registrant).* 10.03 - Revolving Credit and Term Loan Agreement, dated as of July 1, 1987, between Chemical Bank and Registrant (Exhibit 10.04 to Form 10- K for the year ended December 31, 1987, previously filed by Registrant).* 10.04 - First Amendment dated as of July 1, 1989, to Revolving Credit and Term Loan Agreement (Exhibit 10.04 to Form 10-K for the year ended December 31, 1989, previously filed by Registrant).* 10.05 - Second Amendment dated as of November 15, 1989, to Revolving Credit and Term Loan Agreement (Exhibit 10.05 to Form 10-K for the year ended December 31, 1989, previously filed by Registrant).* 10.06 - Third Amendment, dated as of March 29, 1991, to Revolving Credit and Term Loan Agreement (Exhibit 10.06 to 1991 10-K).* 10.07 - Fourth Financial Corporation 1993 Employee Stock Purchase Plan. 10.08 - Fourth Financial Corporation 1993 Incentive Stock Option Plan. 10.09 - Fourth Financial Corporation Amended and Restated Non-Employee Directors Deferred Fee Plan. 10.10 - Fourth Financial Corporation Non-Employee Directors Stock Option Plan. 10.11 - Agreement and Plan of Reorganization, dated as of October 12, 1993, between Fourth Financial Corporation and Great Southern Bancorp, Inc. (Exhibit 2.1 to Form 8-K, dated October 12, 1993).* 10.12 - Stock Purchase Agreement, dated as of January 31, 1994, between BANK IV Kansas, National Association, and Emprise Financial Corporation. 10.13 - Agreement and Plan of Reorganization, dated as of February 2, 1994, among Fourth Financial Corporation, First Dodge City Bancshares, Inc., First National Bancshares of Dodge City, Inc., Metro Bancshares, Inc., Metro Bank of Broken Arrow, First National Bank and Trust Company in Dodge City, and the stockholders of First Dodge City Bancshares, Inc. 10.14 - Stock Purchase Agreement, dated as of February 9, 1994, among Fourth Financial Corporation, LSB Industries, and Prime Financial Corporation. 10.15 - $35,000,000 line of credit agreement, dated as of June 21, 1993, between Fourth Financial Corporation and Continental Bank N.A. 22 - Subsidiaries of Registrant. 24.01 - Consent of Ernst & Young. 24.02 - Consent of Arthur Andersen & Co. 24.03 - Consent of Sartain Fischbein & Co. 24.04 - Consent of GRA, Thompson, White & Co, P.A. 24.05 - Consent of Grant Thornton. 24.06 - Consent of Deloitte & Touche. Exhibits 10.01, 10.02, 10.07, 10.08, 10.09, 10.10, and 10.13 are compensation plans required to be filed as exhibits pursuant to Item 14(c). ___________ * Document has been previously filed with the Securities and Exchange Commission and is incorporated by reference and made a part hereof. EX-3 2 EXHIBIT 3.05 BY-LAWS FOURTH FINANCIAL CORPORATION Table of Contents PART I - MEETINGS OF SHAREHOLDERS Section 1.01 Annual Meetings Section 1.02 Postponed Election of Directors Section 1.03 Special Meetings Section 1.04 Notice of Shareholders' Meetings Section 1.05 Nomination for Election to the Board of Directors Section 1.06 Quorum Section 1.07 Organization of Shareholders' Meetings Section 1.08 Voting Rights at Shareholders' Meetings Section 1.09 Proxies Section 1.10 Records of Voting at Meetings Section 1.11 Adjourned Meetings and Notice Thereof PART II - DIRECTORS Section 2.01 Powers of Board of Directors Section 2.02 Number of Directors Section 2.03 Term of Office Section 2.04 Acceptance of Office Section 2.05 Vacancies Section 2.06 Organization Meeting of Board Section 2.07 Regular Meetings Section 2.08 Special Meetings Section 2.09 Quorum Section 2.10 Vote of Directors; Proxies Section 2.11 Fees PART III - OFFICERS AND EMPLOYEES Section 3.01 Officers and Employees Section 3.02 Terms of Office Section 3.03 Surety Bonds Section 3.04 The Chairman of the Board Section 3.05 President Section 3.06 Vice Presidents Section 3.07 Treasurer Section 3.08 Controller Section 3.09 Secretary Section 3.10 Officers Pro Tempore Table of Contents (Continued) PART IV - COMMITTEES Section 4.01 Appointment and Organization of Committees Section 4.02 Executive Committee Section 4.03 Audit and Examination Committee Section 4.04 Compensation and Personnel Committee Section 4.05 Asset, Liability and Investments Committee PART V - SEAL Section 5.01 Form Section 5.02 Authority to Use Seal PART VI - STOCK Section 6.01 Form of Stock Certificates Section 6.02 Transfer of Stock Section 6.03 Determining Shareholders of Record Section 6.04 Registered Stockholders Section 6.05 Registrars and Transfer Agents Section 6.06 General Authority Section 6.07 Control Share Acquisitions PART VII - MISCELLANEOUS Section 7.01 Execution of Instruments Section 7.02 Waiver of Notice Section 7.03 Meeting by Conference Telephone Section 7.04 Emergencies Section 7.05 Action Without a Meeting PART VIII - INDEMNIFICATION Section 8.01 Indemnification PART IX - CHANGES IN BY-LAWS Section 9.01 Amendments BY-LAWS FOURTH FINANCIAL CORPORATION PART I - MEETINGS OF SHAREHOLDERS Section 1.01 Annual Meetings - ---------------------------- The regular annual meeting of the shareholders of the Corporation for determining the number and electing members of the Board of Directors for the ensuing year, receiving and acting upon reports of officers as to acts, appointments, and transactions during the preceding year, and transacting such other business relative to the management of the Corporation as may lawfully come before it, shall be held at its main office on the third Thursday of April each year, or on such other date or at such other place as the Board of Directors may in any year or years designate. Section 1.02 Postponed Election of Directors - -------------------------------------------- If, for any cause, the annual election of directors is not held on the date fixed by these By-Laws, the Board of Directors shall order an election to be held on some other day, of which special notice shall be given in accordance with the Articles of Incorporation and these By-Laws. Section 1.03 Special Meetings - ----------------------------- Special meetings of the shareholders of the Corporation, for any purpose or purposes, may be called by the Board of Directors. Any call for a special meeting shall state the purpose of the meeting. The business transacted at a special meeting shall be limited to that stated in the call for the meeting, but the call for the meeting may state that any proper corporate business may be transacted at the meeting, in which case any proper corporate business may be transacted. Section 1.04 Notice of Shareholders' Meetings - --------------------------------------------- Except in specific instances where other notice is required by law or by the Articles of Incorporation, notice of any annual or special meeting of the shareholders, stating the time, place, and purpose of the meeting, shall be sufficient if mailed by first- class mail, postage prepaid, to each shareholder of record at the address shown upon the books of the Corporation, not less than ten days nor more than 50 days prior to the date set for such meeting. Section 1.05 Nomination for Election to the Board of Directors - -------------------------------------------------------------- No person shall be eligible for election to the Board of Directors at any shareholders' meeting unless such person is nominated as provided herein. Nominations for election to the Board of Directors by shareholders may be made by the Board of Directors or by any shareholder of any outstanding class of capital stock of the Corporation entitled to vote for the election of directors. Nominations, other than those made by the Board of Directors, shall be made in writing and shall be delivered or mailed to the President of the Corporation not less than 14 days nor more than 50 days prior to any meeting of shareholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to shareholders, such nomination shall be mailed or delivered to the President of the Corporation not later than the close of business on the seventh day following the day on which the notice of meeting was mailed. Such notification shall contain the following information to the extent known to the notifying shareholder: 1. The name and address of each proposed nominee. 2. The principal occupation of each proposed nominee. 3. The total number of shares of capital stock of the Corporation that to the knowledge of the notifying shareholder will be voted for each of the proposed nominees. 4. The name and residence address of the notifying shareholder. 5. The number of shares of capital stock of the Corporation owned by the notifying shareholder. In the event that any person so nominated shall at any time prior to any such meeting become ineligible or unable to serve as a director because of death, disability or incapacity, or shall withdraw as a nominee, the Board of Directors or the shareholder who nominated such nominee may nominate a substitute by delivering a written nomination to the President of the Corporation. Nominations not made in accordance herewith may, in the Chairman's discretion, be disregarded by the Chairman of the meeting, and upon the Chairman's instructions, the vote tellers may disregard all votes cast for each such nominee. Section 1.06 Quorum - ------------------- A majority of the outstanding capital stock represented in person or by proxy shall constitute a quorum at any meeting of shareholders unless otherwise provided by law. Less than a quorum may adjourn any meeting from time to time. Section 1.07 Organization of Shareholders' Meetings - --------------------------------------------------- The holders of a majority of the outstanding shares entitled to vote and represented at any meeting of the shareholders may choose persons to act as chairman and as secretary of the meeting. However, in the absence of such choice the Chairman of the Board of Directors, or in the Chairman's absence the President of the Corporation, shall act as chairman of the meeting. The Secretary of the Board of Directors, or in the Secretary's absence a person appointed by the chairman of the meeting, shall act as secretary of the meeting. Section 1.08 Voting Rights at Shareholders' Meetings - ---------------------------------------------------- In all elections of directors, each shareholder shall have the right to vote the number of shares owned by such shareholder for as many persons as there are directors to be elected, or to cumulate such shares and give one candidate as many votes as the number of directors multiplied by the number of such shareholder's shares shall equal, or to distribute them on the same principle among as many candidates as such shareholder shall think fit. In deciding all other questions at meetings of the shareholders, each shareholder shall be entitled to one vote on each share of stock owned by such shareholder. A majority of the votes cast shall decide every question or matter submitted to the shareholders at any meeting at which a quorum is present, unless otherwise provided by law or by the Articles of Incorporation. Section 1.09 Proxies - -------------------- Shareholders may vote at any meeting of the shareholders by proxies duly authorized in writing, but no officer or employee of the Corporation shall act as proxy. Proxies shall be valid only for one meeting, to be specified therein, and any adjournments of such meeting. Proxies shall be dated and shall be filed with the records of the meeting. Section 1.10 Records of Voting at Meetings - ------------------------------------------ In the case of any meeting of the shareholders, a record shall be made showing the names of the shareholders present and the number of shares held by each, the names of shareholders represented by proxy and the number of shares held by each, and the names of the proxies. This record also shall show the number of shares voted on each action taken, including the number of shares voted for each candidate for director. This record shall be included in the minute book of the Corporation. Section 1.11 Adjourned Meetings and Notice Thereof - -------------------------------------------------- Any meeting of the shareholders, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares present in person or represented by proxy, but in the absence of a quorum no other business may be transacted by such meeting. If any meeting of the shareholders is adjourned for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting. Otherwise, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken. PART II - DIRECTORS Section 2.01 Powers of Board of Directors - ----------------------------------------- The Board of Directors shall have power to manage and administer the business and affairs of the Corporation. Except as expressly limited by law, all corporate powers of the Corporation shall be vested in and may be exercised by the Board of Directors. Section 2.02 Number of Directors - -------------------------------- As prescribed by the Articles of Incorporation, the Board of Directors shall consist of not less than three nor more than 25 persons, who need not be shareholders. Section 2.03 Term of Office - --------------------------- As provided in the Articles of Incorporation, each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected. Section 2.04 Acceptance of Office - --------------------------------- Each person elected or appointed a director of the Corporation must file with the Secretary a written acceptance of the office before exercising the functions thereof. Section 2.05 Vacancies - ---------------------- Any vacancy occurring in the Board of Directors shall be filled by the majority vote of the remaining directors of the class in which such vacancy occurs or by the sole remaining director of that class if only one such director remains, or by the majority vote of the remaining members of the other two classes if there be no remaining member of the class in which the vacancy occurs. A director so elected to fill a vacancy shall serve for the remainder of the then present term of office of the class to which he or she was elected. Section 2.06 Organization Meeting of Board - ------------------------------------------- Following the annual meeting of the shareholders, the chairman or the secretary of the meeting shall promptly notify the directors- elect of their election, and they shall meet promptly for the purpose of organizing the new Board of Directors, appointing committees of the Board and officers, fixing salaries for the ensuing year, and transacting such other business as may properly come before the organization meeting. Section 2.07 Regular Meetings - ----------------------------- The regular meetings of the Board of Directors may be held on call of the Chairman of the Board, the President, or the Secretary at the main office of the Corporation on such dates as the Board of Directors may from time to time by resolution establish. When any regular meeting of the Board falls upon a holiday, the meeting shall be held on the next business day unless the Board designates some other day. Regular meetings of the Board of Directors may also be held at such other times and places, within or without the State of Kansas, as the Board itself may from time to time determine. There shall be mailed to each director at least ten days prior to any regular meeting a written notice of the time and place thereof. Section 2.08 Special Meetings - ----------------------------- Special meetings of the Board of Directors may be called by the Chairman of the Board or the President of the Corporation, or at the request of three or more directors. Each director shall be given at least two days' notice of the time, place, and purpose of any special meeting, which notice may be given in person, by telephone, by mail, by telegraph, or by any other effective method. Section 2.09 Quorum - ------------------- A majority of the directors shall constitute a quorum at any meeting unless otherwise provided by law. Less than a quorum may adjourn any meeting, from time to time, and the meeting may be held, as adjourned, without further notice. Section 2.10 Vote of Directors; Proxies - --------------------------------------- A majority of those directors present and voting at any meeting of the Board of Directors at which a quorum is present shall decide each matter considered unless otherwise provided by law or by the Articles of Incorporation. A director cannot vote by proxy or otherwise act by proxy at a meeting of the Board of Directors. Section 2.11 Fees - ----------------- Each director shall receive such annual fee, such fee for each Board meeting attended, and such fee for each meeting of any Board committee attended as the Board shall fix from time to time. PART III - OFFICERS AND EMPLOYEES Section 3.01 Officers and Employees - ----------------------------------- The officers of the Corporation shall be a Chairman of the Board of Directors, a President, one or more Vice Presidents, a Treasurer, a Controller, a Secretary, and such other officers as from time to time in the judgment of the Board may be required for the prompt and orderly transaction of the business of the Corporation. The Chairman of the Board and the President shall be members of the Board of Directors; other officers may, but need not, be members of the Board of Directors. Two or more offices may be held by the same individual, but no individual may hold at the same time the offices of Vice President, Secretary, and Treasurer. All officers shall be elected, appointed or employed and their duties prescribed by the Board of Directors. Nevertheless, the Board of Directors may delegate to the President the authority to prescribe the duties of other officers of the Corporation not inconsistent with law, the Articles of Incorporation and these By-Laws, and to appoint other employees, prescribe their duties and dismiss them. Section 3.02 Terms of Office - ---------------------------- The Chairman of the Board of Directors, the President, and any other officer who is a member of the Board of Directors shall hold office until the next organization meeting of the Board of Directors unless in the meantime such officer shall resign, be disqualified, or be removed from office. Any vacancy occurring in the office of Chairman of the Board of Directors or President shall be filled promptly by the remaining members of the Board of Directors. Each other officer and employee shall hold office or employment at the pleasure of the Board of Directors; provided, however, that the Board of Directors may delegate to the Chairman, the President, and such other officers as it deems appropriate the Board's authority to remove and to dismiss such other officers and employees. Section 3.03 Surety Bonds - ------------------------- Each officer and employee of the Corporation shall give bond of suitable amount with security to be approved by the Board of Directors, conditioned for the honest and faithful discharge of such officer's or employee's duties. At the discretion of the Board, such bonds may be schedule or blanket form and the premiums shall be paid by the Corporation. The amount of such bonds, the form of coverage, and the name of the company providing the surety therefor shall be reviewed by the Board of Directors annually. Section 3.04 The Chairman of the Board - --------------------------------------- The Chairman of the Board shall preside at all meetings of the Board of Directors. The Chairman shall be the Chief Executive Officer of the Corporation unless such duty is delegated to the President. The Chairman shall have general executive powers as well as the specific powers conferred by law, by the Articles of Incorporation, and by these By-Laws, and shall supervise the carrying out of the policies adopted or approved by the Board of Directors. The Chairman shall also perform such other duties and have such other powers as may be assigned from time to time by the Board of Directors. Section 3.05 President - ---------------------- The President shall, in the absence of the Chairman of the Board, preside at meetings of the Board of Directors. The President shall have general executive powers as well as the specific powers conferred by law, by the Articles of Incorporation, and by these By-Laws, and shall have the powers and duties usually incident to the office of President. The President shall also perform such other duties and have such other powers as may be assigned from time to time by the Board of Directors. Section 3.06 Vice Presidents - ---------------------------- Each Vice President shall have such powers and duties as may be assigned by the Board of Directors. Section 3.07 Treasurer - ---------------------- The Treasurer shall be responsible for the funding of the activities of the Corporation and its subsidiaries and for managing the investment of the funds of the Corporation and its subsidiaries. Section 3.08 Controller - ----------------------- The Controller shall keep proper records of all transactions of the Corporation, cause all duly authorized expenses of the Corporation to be paid, and prepare complete financial reports for each regular meeting of the Board of Directors. Section 3.09 Secretary - ---------------------- The Secretary shall be responsible for the minute book of the Corporation. In this minute book the Secretary shall record the proceedings of all regular and special meetings of the Board of Directors and the shareholders and the reports of the committees and directors. The minutes of all meetings of the Corporation shall be signed by the Secretary and the presiding officer. The Secretary shall also maintain and properly preserve the organization papers of the Corporation, the returns of elections, the Articles of Incorporation, the By-Laws and any amendments thereto. The Secretary shall also maintain proper records of all contracts of the Corporation. Section 3.10 Officers Pro Tempore - --------------------------------- The Board of Directors may, during the absence or disability of any officer, or upon the refusal of any officer to act, delegate such officer's powers and duties to any other officer, or to any director, for the time being. PART IV - COMMITTEES Section 4.01 Appointment and Organization of Committees - ------------------------------------------------------- The Board of Directors shall appoint, at its annual organization meeting, the committees specifically provided for in these By- Laws and shall designate the chairman of each committee. The Board of Directors may appoint other committees from time to time and assign them such powers and duties as it deems desirable. The Chairman of the Board of Directors and the President of the Corporation shall be ex-officio members of the Executive Committee and may be members of such other committees (other than the Audit and Examination Committee and the Compensation and Personnel Committee) as the Board of Directors directs. Each committee member shall serve until the next annual organization meeting of the Board of Directors and until a successor is appointed. The Board of Directors may increase or decrease the membership of any committee and appoint additional members to any committee. The Chairman of the Board of Directors may designate a person to serve in place of any committee member who becomes unable to serve because of death, resignation, incapacity, or absence. Unless these By-Laws otherwise require or the Board of Directors otherwise specifies, each committee may adopt rules of procedure, designate the time and place of its meetings, and specify the number of members (not less than a majority) which constitutes a quorum. Each committee shall keep minutes of its meetings and shall make reports of its activities at each regular meeting of the Board of Directors. Section 4.02 Executive Committee - --------------------------------- There shall be an Executive Committee consisting of at least five directors. The committee's responsibilities shall include (1) advising executive management as may be required on significant matters of strategy, policy, and business direction and (2) making recommendations to the Board of Directors as to the payment of dividends on the Corporation's securities. In addition, the committee may exercise, and by this By-Law is granted authority to exercise, all powers of the Board of Directors except those powers that the entire Board of Directors alone may exercise. Section 4.03 Audit and Examination Committee - -------------------------------------------- There shall be an Audit and Examination Committee consisting of at least four independent directors of the Corporation and at least one independent director of each of the Corporation's subsidiary banks. At least two members of the committee shall have banking or related financial management experience. No member of the committee shall be a large customer, as determined by the Board of Directors, or shall be an active officer or employee of the Corporation or of any of the Corporation's subsidiaries. The committee's responsibilities shall include (1) serving as, and performing all functions required to be performed by, the Audit Committee of each of the Corporation's subsidiary banks, (2) recommending to the Board of Directors the selection of the Corporation's independent auditors and overseeing the scope and performance of their services, (3) reviewing the Corporation's accounting policies, significant accounting estimates, and financial reporting, (4) reviewing the adequacy of internal controls and reporting thereon as required by applicable laws and regulations, (5) overseeing the Corporation's internal audit and compliance activities, (6) monitoring compliance with laws and regulations and reviewing reporting thereon, (7) monitoring compliance with policies of the Board of Directors, (8) regularly assessing the adequacy of the allowance for credit losses at each of the Corporation's subsidiary banks, and (9) reviewing the results of regulatory examinations, the responses thereto, and the corrective actions taken. The committee shall have access to outside legal counsel of its own choosing. Section 4.04 Compensation and Personnel Committee - ------------------------------------------------- There shall be a Compensation and Personnel Committee consisting of at least five directors, none of whom shall be an active officer or employee of the Corporation or of any of the Corporation's subsidiaries. The Committee's responsibilities shall include making recommendations to the Board of Directors concerning (1) the election, promotion, and compensation of the officers of the Corporation, (2) the nomination of candidates for election to the Board of Directors, (3) management succession planning, and (4) the Corporation's compensation and benefits programs and policies. The Committee shall also perform the functions prescribed for the administrative committee under such employee benefit plans as the Corporation may from time to time adopt. Section 4.05 Asset, Liability and Investments Committee - ------------------------------------------------------- There shall be an Asset, Liability and Investments Committee consisting of at least four directors of the Corporation and at least one director of each of the Corporation's subsidiary banks. The Committee's responsibilities shall include (1) monitoring compliance with the Asset and Liability Management and Investment Policies of the Corporation and its subsidiary banks, (2) reviewing the composition and performance of, and transactions in, the investment portfolios of the Corporation and its subsidiary banks, (3) monitoring the liquidity of the Corporation and its subsidiary banks and reviewing their funding plans, and (4) reviewing risks associated with interest-rate movements and hedging activities. PART V - SEAL Section 5.01 Form - ----------------- The following is an impression of the seal adopted by the Board of Directors of this Corporation: Section 5.02 Authority to Use Seal - ---------------------------------- The President, any Vice President, the Secretary, and any other officer designated by the Board of Directors shall have authority to affix the seal to any document requiring it and to attest the Corporation's execution of such document. PART VI - STOCK Section 6.01 Form of Stock Certificates - --------------------------------------- Certificates of stock of the Corporation shall be numbered and shall be entered on the books of the Corporation and its registrars and transfer agents as they are issued. They shall exhibit the holder's name and number of shares, the name of the Corporation and the state of its incorporation, the par value of shares represented thereby, and the total number of shares of stock which the Corporation is authorized to issue. They shall bear the signature of the Chairman of the Board, President or Vice President (which may be engraved, printed, or impressed) and shall be signed manually or by facsimile process by the Secretary, Treasurer, or any other officer appointed by the Board of Directors for that purpose, to be known as an Authorized Officer, and the seal of the Corporation shall be engraved thereon. Each certificate shall recite on its face that the stock represented thereby is transferable only upon the books of the Corporation properly endorsed. Section 6.02 Transfer of Stock - ------------------------------ The stock of the Corporation shall be assignable and transferable only on the books of the Corporation upon surrender of the certificate representing such stock properly endorsed by the holder named on such certificate or by an agent appointed in writing by such holder. A transfer book shall be kept in which all assignments and transfers of stock shall be made. Every person becoming a shareholder by such transfer shall, in proportion to such shares, succeed to all rights of the prior holder of such shares. Section 6.03 Determining Shareholders of Record - ----------------------------------------------- The Board of Directors may close the stock transfer books of the Corporation for a period of not less than ten days and not more than 60 days preceding the date of any meeting of shareholders, or the date for payment of any dividend, or the date for the allotment of rights, or the date when any change, conversion or exchange of capital stock shall go into effect, or in connection with obtaining the consent of shareholders for any purpose. As an alternative, the Board of Directors may fix in advance a record date, not less than ten days and not more than 60 days preceding the date of any such event, for the purpose of determining the shareholders entitled to receive notice of and to vote at any such meeting, or to receive payment of any such dividend, or to receive any such allotment of rights, or to exercise rights in respect to any such change, conversion or exchange of capital stock, or to give such consent, notwithstanding any transfer of any stock on the books of the Corporation after such record date. However, in no event shall the record date fixed by the Board of Directors be prior to the date of the meeting of the Board of Directors at which the record date is fixed. Section 6.04 Registered Stockholders - ------------------------------------ The Corporation may treat the holder of record of any share or shares of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to, or interest in, such share or shares on the part of any other person, whether or not the Corporation has express or other notice thereof, except as expressly provided by law. Section 6.05 Registrars and Transfer Agents - ------------------------------------------- The Board of Directors may, by resolution, appoint such registrars and transfer agents as it deems convenient for the conduct of the affairs of the Corporation and may prescribe the powers and duties of such registrars and transfer agents. The Board of Directors may change such registrars and transfer agents at its pleasure. Section 6.06 General Authority - ------------------------------ The Board of Directors may make all such rules and regulations as it may deem expedient concerning the issue, transfer, and registration of certificates for shares of the capital stock of the Corporation and concerning the replacement of lost, stolen, or destroyed certificates. Section 6.07 Control Share Acquisitions - --------------------------------------- The Kansas Control Share Acquisition Act (Chapter 93, 1988 Session Laws of Kansas) shall not apply to control share acqui- sitions of shares of the Corporation, nor shall the Corporation have the right provided by Section 10 of such act to call for redemption shares acquired in a control share acquisition, nor shall an objecting stockholder have the dissenters' rights provided for by Section 11 of such act. PART VII - MISCELLANEOUS Section 7.01 Execution of Instruments - ------------------------------------- All agreements, indentures, mortgages, deeds, conveyances, transfers, certificates, declarations, receipts, discharges, releases, satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds, undertakings, proxies, and other instruments or documents may be signed, executed, acknowledged, verified, delivered or accepted in behalf of the Corporation by the Chairman of the Board, the President, any Vice President, the Treasurer, the Controller, or the Secretary. Any such instruments may also be signed, executed, acknowledged, verified, delivered, or accepted in behalf of the Corporation in such other manner and by such other officers or employees as the Board of Directors may from time to time direct. Section 7.02 Waiver of Notice - ----------------------------- Whenever these By-Laws require or permit notice to be given to any director, officer, or shareholder, such person may sign a written waiver of such notice which shall be in all respects tantamount to notice. Section 7.03 Meeting by Conference Telephone - -------------------------------------------- Any meeting of the Board of Directors or of any committee may be held by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other simultaneously. Participating in any meeting so conducted shall constitute presence at the meeting in person by all persons so participating. Section 7.04 Emergencies - ------------------------ In the event of an emergency declared by the President of the United States or the person performing the functions of the President of the United States, the officers and employees of the Corporation will, to the extent possible and subject to applicable governmental directives during the emergency, continue to conduct the affairs of the Corporation under such guidance from the directors as may be available, except as to matters which by statute require specific approval of the Board of Directors. In the event of a state of emergency or disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Corporation by its directors and officers as contemplated by these By-Laws, any two available members of the then incumbent Executive Committee shall constitute a quorum of that committee for the full conduct and management of the affairs and business of the Corporation. In the event of the unavailability, at such time, of a minimum of two members of the then incumbent Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Corporation, in accordance with the foregoing provisions of this section. This By-Law shall be subject to implementation by resolutions of the Board of Directors passed from time to time for that purpose, and any provisions of these By-Laws (other than this section) and any resolutions which are contrary to the provisions of this section or to the provisions of any such implementing resolutions shall be suspended until it is determined by the interim Executive Committee acting under this section that it is to the advantage of the Corporation to resume the conduct and management of its affairs and business under all the provisions of these By-Laws. Section 7.05 Action Without a Meeting - ------------------------------------- Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without notice and without a meeting if all members of the Board of Directors or committee, as the case may be, consent in writing to the proposed action and if such written consent is filed in the minutes of proceedings of the Board of Directors or committee, as the case may be. Any action so taken by unanimous written consent shall have the same force and effect as action taken at a meeting of the Board of Directors or committee, as the case may be, by unanimous vote of all members. PART VIII - INDEMNIFICATION Section 8.01 Indemnification - ---------------------------- The Corporation shall (a) indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, or employee of the Corporation or of a subsidiary of the Corporation, or is or was serving at the request of the Corporation as a director, officer, or employee of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit, and (b) indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he is or was a director, officer, or employee of the Corporation or of a subsidiary of the Corporation or is or was serving at the request of the Corporation as a director, officer, or employee of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with any such action, suit or proceeding. Indemnification shall be afforded to the fullest extent permissible under the Kansas General Corporation Code or the indemnification provisions of any successor statute, and not further, and shall be subject to any applicable procedural requirements and standards of conduct on the part of the persons to be indemnified prescribed by that statute. The foregoing right of indemnification shall in no way be exclusive of any other rights of indemnification to which any such person may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, and shall inure to the benefit of the heirs, executors, and administrators of such a person. The Corporation may, but shall not be required to, purchase liability insurance indemnifying the directors, officers, and employees of the Corporation and its subsidiaries. PART IX - CHANGES IN BY-LAWS Section 9.01 Amendments - ----------------------- These By-Laws may be amended upon vote of the holders of a majority of the shares of stock of the Corporation represented at a meeting of the shareholders at which a quorum is present. These By-Laws may also be amended upon vote of a majority of the entire Board of Directors at any meeting of the Board, provided ten days' notice of the proposed amendment has been given to each member of the Board of Directors, but the authority of the Board of Directors to amend these By-Laws shall at all times be subject to the superior authority of the shareholders. In the case of any By-Law the provisions of which are prescribed by law or by the Articles of Incorporation, no amendment may be made unless the By-Law, as amended, is consistent with the requirements of law and of the Articles of Incorporation. EX-10 3 EXHIBIT 10.07 Fourth Financial Corporation and Subsidiaries 1993 EMPLOYEE STOCK PURCHASE PLAN 1993 FOURTH FINANCIAL CORPORATION AND SUBSIDIARIES EMPLOYEE STOCK PURCHASE PLAN TABLE OF CONTENTS Page ---- 1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Definitions . . . . . . . . . . . . . . . . . . . . . . . 1 Change of Control . . . . . . . . . . . . . . . . . . . . 1 Committee . . . . . . . . . . . . . . . . . . . . . . . . 1 Common Stock. . . . . . . . . . . . . . . . . . . . . . . 2 Compensation. . . . . . . . . . . . . . . . . . . . . . . 2 Employee. . . . . . . . . . . . . . . . . . . . . . . . . 2 Exercise Date . . . . . . . . . . . . . . . . . . . . . . 2 Offering Date . . . . . . . . . . . . . . . . . . . . . . 2 Price . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . 2 Termination Date. . . . . . . . . . . . . . . . . . . . . 2 Total Compensation. . . . . . . . . . . . . . . . . . . . 2 3. Eligibility . . . . . . . . . . . . . . . . . . . . . . . 3 4. Offering Dates. . . . . . . . . . . . . . . . . . . . . . 4 5. Participation . . . . . . . . . . . . . . . . . . . . . . 4 6. Granting of Option. . . . . . . . . . . . . . . . . . . . 4 7. Exercise of Option. . . . . . . . . . . . . . . . . . . . 5 8. Payment and Delivery. . . . . . . . . . . . . . . . . . . 5 9. Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 5 10. Administration. . . . . . . . . . . . . . . . . . . . . . 6 11. Restrictions on Transferability . . . . . . . . . . . . . 6 12. Changes in Capitalization . . . . . . . . . . . . . . . . 7 13. Merger; Change of Control . . . . . . . . . . . . . . . . 7 14. Termination of Employee's Rights of Participation . . . . 8 15. Amendment or Termination. . . . . . . . . . . . . . . . . 8 16. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 8 17. Stockholder Approval. . . . . . . . . . . . . . . . . . . 9 18. Application of Funds. . . . . . . . . . . . . . . . . . . 9 19. Governing Law . . . . . . . . . . . . . . . . . . . . . . 9 FOURTH FINANCIAL CORPORATION 1993 EMPLOYEE STOCK PURCHASE PLAN 1. PURPOSE. The purpose of this stock purchase plan (the "Plan") is to provide eligible Employees of Fourth Financial Corporation (the "Company") and its subsidiaries an opportunity to acquire a proprietary interest in the Company through the purchase of Common Stock and to encourage such Employees to remain in the employ of the Company or its subsidiaries. It is further intended that this Plan shall qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986 as now in effect and as may hereafter from time to time be amended (the "Code"). The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of Section 423 of the Code. 2. DEFINITIONS. Unless the context clearly requires a different meaning, the following words shall have the following meanings when used herein: (a) "Change of Control" means the acquisition by any person, entity, or group (as such term is defined in the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission adopted thereunder) of Common Stock in a transaction or series of transactions that results in such person, entity, or group owning beneficially 50% or more of the outstanding Common Stock; provided, that a merger or consolidation of the Company with or into another corporation shall not be deemed to be a Change of Control if, by reason of such merger or consolidation, the holders of Common Stock receive in exchange for their shares of Common Stock voting common stock of the surviving or resulting corporation that is registered under the Securities Exchange Act of 1934, as amended, and is either listed for trading on a national securities exchange or a security for which bid and asked quotations are reported in an automated quotations system operated by a national securities association. (b) "Committee" means the Committee established pursuant to Paragraph 10 hereof. (c) "Common Stock" means common stock, par value $5.00 per share, of the Company. (d) "Compensation" means all wages, salaries, bonuses, incentive pay, supplemental pay, commissions, and other forms of direct cash remuneration received by an Employee on account of service performed for the Company or any of its Subsidiaries, except that Compensation will not include any indirect or imputed remuneration, e.g., imputed income from life insurance, car allowances, etc. (e) "Employee" means any person, including an officer of the Company, who is customarily employed for more than 20 hours per week and more than five months in a calendar year by the Company or by the Company and one or more of its Subsidiaries, or by one or more Subsidiaries of the Company. (f) "Exercise Date" means the Termination Date. (g) "Offering Date" means the first day of a one-year offering period. (h) "Price" means the fair market value of the Common Stock as of a particular day, which value shall be determined by the Committee in such manner as may be consistent with the applicable Treasury regulations used by the Internal Revenue Service for determining stock valuations as of or on a specified day. (i) "Subsidiary" means any corporation of which the Company owns 80% or more of each class of outstanding equity securities, but does not include any subsidiary of a Subsidiary unless provided otherwise by the Committee. (j) The "Termination Date" of any offering under the Plan shall be the last day of a one-year offering period, e.g., the Termination Date of an offering having an Offering Date of May 1, 1993, would be April 30, 1994. (k) "Total Compensation" means the sum of all Compensation received by an Employee from the Company and each of its Subsidiaries. 3. ELIGIBILITY. (a) Any Employee who shall have been continuously employed by the Company, by the Company and one or more of its Subsidiaries, or by one or more of the Subsidiaries of the Company for a period of one or more years as of the Offering Date and who is employed by the Company and/or one of its Subsidiaries on the date his or her participation in any offering to be made under the Plan is to become effective shall be eligible to participate in offerings under the Plan made on or subsequent to his or her being so employed for one year, subject to the limitations imposed by Section 423(b) of the Code and to the limitations contained herein. For purposes of the one-year period referred to above, no credit shall be given for employment during any period of time during which the Subsidiary was not a Subsidiary of the Company. (b) Any provision of the Plan to the contrary notwithstanding, no Employee shall be granted an option hereunder: (i) if, immediately after the grant, such Employee would own shares of stock, and/or hold outstanding options to purchase shares of stock, possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary of the Company. For purposes of this paragraph, the rules of Section 424(d) of the Code shall apply in determining the stock ownership of an individual; or (ii) which permits his or her rights to purchase shares under all employee stock purchase plans of the Company and its Subsidiaries to accrue at a rate which exceeds $25,000 of fair market value of the shares (determined at the time such option is granted) for each calendar year in which such stock option is outstanding at any time. For purposes of this paragraph 3(b)(ii), (A) the right to purchase stock under an option accrues when the option (or any portion thereof) first becomes exercisable, (B) the right to purchase stock under an option accrues at the rate provided in the option but in no case may such rate exceed $25,000 of fair market value of such stock (determined at the time the option is granted) for any one calendar year, and (C) a right to purchase stock which has accrued under one option granted under the Plan may not be carried over to any other option. 4. OFFERING DATES. It is contemplated that the Plan will be implemented by annual twelve-month offerings which shall be consecutively numbered. Offering No. 1 shall commence on May 1, 1993, and shall end on April 30, 1994. Each succeeding offering, if authorized by the Board of Directors of the Company (or by the Committee in the event the Board of Directors of the Company shall by resolution delegate such authority to the Committee), shall commence on such date as the Board (or the Committee if so authorized) may determine, and shall continue for twelve months. Only one offering may be in effect at any one time. Participation in any offering under the Plan shall neither limit nor require participation in any other offering. 5. PARTICIPATION. Participation in the Plan shall be limited to eligible Employees as defined above. All eligible Employees shall be given notice of each offering within a reasonable time after a determination to make such offering has been made by the Board of Directors or the Committee as the case may be. 6. GRANTING OF OPTION. (a) Each eligible Employee shall be granted an option to purchase that number of whole shares (rounded down to the nearest whole share) of Common Stock determined by dividing 10% of the Total Compensation earned by the participant during the preceding calendar year by 85% of the Price of the stock on the Offering Date for such offering. (b) The option price of shares in any offering to be made hereunder shall be the lower of: (i) 85% of the Price of the Common Stock on the Offering Date for such offering; or (ii) 85% of the Price of the Common Stock on the Termination Date for such offering; provided, however, that in no event shall the option price be less than the par value of the Common Stock. In the event either an Offering Date or a Termination Date shall fall on a weekend, holiday, or any other day for which published Price quotations for the Common Stock are not available, the weighted average of the Prices for the next trading day immediately preceding and the next trading day immediately following such date for which such quotations are available shall be used. 7. EXERCISE OF OPTION. A participant may only exercise his or her option for the purchase of shares on or before 5:00 p.m. on the Exercise Date for the number of full shares covered by the grant of the option or any lesser number of full shares; provided, that such lesser number shall not be less than ten shares. Options shall be exercised only on forms supplied by the Company. No option under the Plan shall be exercised prior to the Termination Date of the offering with respect to which such option was granted and any option exercise form received prior to such date shall be effective at the close of business on the Termination Date. 8. PAYMENT AND DELIVERY. The option price shall be payable in United States dollars upon the exercise of the option and shall be payable by check only. Payment shall be made on or before the seventh day following the Exercise Date. The Company will deliver to each participant a certificate evidencing the shares purchased upon the exercise of his or her option. Any participant who fails to pay in full for any shares being purchased under the Plan shall forfeit his or her option with respect to any shares for which full payment has not then been made. 9. STOCK. (a) The shares to be sold to participants under the Plan may, at the election of the Company, be either Treasury shares or shares to be originally issued for such purpose. The maximum number of shares which shall be made available for sale under the Plan during all offerings under the Plan shall be 750,000 shares, subject to adjustment upon changes in capitalization of the Company as provided in Paragraph 12 hereof. If the total number of shares for which options are to be granted on any date in accordance with Paragraph 6 exceeds the number of shares then available under the Plan (after deduction of all shares for which options have been exercised or are then outstanding), the Company shall make a pro rata allocation of the shares remaining available in as nearly a uniform manner as shall be practicable and as it shall determine to be equitable. The Company shall give written notice of such reduction to each Employee affected thereby. (b) No participant shall have any interest in shares covered by his or her option until such option has been exercised, the shares have been fully paid for, and shall have been issued by the Company. (c) Shares to be delivered to a participant under the Plan will be registered in the name of the participant, or, if the participant so directs by written notice to the Company prior to the Termination Date of the pertinent offering, in the name of the participant and one such other person as may be designated, as joint tenants with rights of survivorship, to the extent permitted by applicable law. (d) In no event shall any certificates for fractional shares be issued under the Plan. 10. ADMINISTRATION. (a) The Plan shall be administered by the Committee which shall be appointed by the Board of Directors of the Company and shall consist of not fewer than three members of the Board of Directors. No member of the Committee shall be an officer or Employee of the Company or of any of its Subsidiaries or eligible to participate in the Plan. All members of the Committee shall serve at the pleasure of the Board of Directors of the Company which may, from time to time, remove members from, or add members to, the Committee. (b) The acts of a majority of the members of the Committee attending a meeting at which a quorum is present, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. (c) The Committee shall be vested with full authority to make, administer, and interpret such rules and regulations and to promulgate such forms as it deems necessary to administer the Plan, and any determination, decision, or action of the Committee in connection with the construction, interpretation, administration, or application of the Plan shall be final, conclusive, and binding upon all participants and any and all persons claiming under or through any participant. 11. RESTRICTIONS ON TRANSFERABILITY. No participant may sell, assign, pledge, encumber, transfer, or otherwise hypothecate any option or right to purchase shares under the Plan. No participant may sell, assign, pledge, encumber, transfer, or otherwise hypothecate any of the shares purchased under the Plan until the expiration of two years from the Offering Date of the offering in which such shares are issued, nor until the expiration of one year after the issuance of any shares to him or her; provided, however, this restriction shall terminate upon the occurrence of a Change of Control or other transaction described in Paragraph 13. All stock certificates issued under the Plan shall bear a conspicuous notation of such restriction. 12. CHANGES IN CAPITALIZATION. In the event of reorganization, recapitalization, stock split, stock dividend, combination of shares, offerings of rights, or any other change in the structure of the common shares of the Company except merger or consolidation, the Committee may make such adjustment, if any, as it may deem appropriate in the number, kind, and the option price of shares available for purchase under the Plan, and in the number of shares which an Employee is entitled to purchase. 13. MERGER; CHANGE OF CONTROL. (a) If the Company shall be the surviving or resulting corporation in any merger or consolidation, each then outstanding option granted hereunder shall pertain to and apply to the same number and type of shares of stock which a holder of the same number of shares of Common Stock subject to such option was entitled to receive by reason of such merger or consolidation. (b) Subject to Paragraph 3(b), the holder of an option granted hereunder shall have the right to exercise such option, in whole or in part, (i) during the period beginning with the commencement of a tender offer or exchange offer (other than a tender or exchange offer by the Company) which by its terms could result in a Change of Control of the Company and ending ten days after the first purchase of stock pursuant to such tender offer or exchange offer, (ii) during the 30-day period following a Change of Control of the Company, and (iii) during the 30-day period commencing on the date of approval by the stockholders of the Company of an agreement of merger or reorganization of the Company in which the Company will not survive as an independent, publicly- owned corporation, of a plan of dissolution or disposition of substantially all of the assets of the Company. For the purpose of determining the purchase price to be paid for shares purchased pursuant to this subparagraph (b), the Termination Date shall be deemed to be the date the holder of an option exercises his or her option (or, in the event public trading in the Common Stock of the Company ceases prior to such date, the last date the Common Stock is traded in the over-the-counter market). (c) At any time after the occurrence of a Change of Control, the Company shall have the right to cancel all outstanding options granted hereunder by making cash payment to each holder of a then outstanding option with respect to each share of Common Stock covered by such option, of the difference between the greatest per share amount of cash (and the fair market value of any other form of consideration) paid to the public stockholders of the Company in the transaction or transactions resulting in the Change of Control and the amount of cash that would have been paid by the option holder to exercise such option if the Termination Date of the offering had been the date such Change of Control occurred (or, in the event public trading in the Common Stock ceases prior to such date, the last date the Common Stock is traded in the over- the-counter market). The Company may not exercise any rights under this subparagraph (c) if the effect of such exercise would be to subject an option holder to any liability under Section 16 of the Securities Exchange Act of 1934, as amended. 14. TERMINATION OF EMPLOYEE'S RIGHTS OF PARTICIPATION. An Employee's rights to participate in the Plan shall terminate upon the termination of such Employee's employment by the Company or a subsidiary of the Company for any reason including death or retirement. 15. AMENDMENT OR TERMINATION. The Board of Directors of the Company may at any time terminate, withdraw, suspend, modify, or amend the Plan. No such termination can affect options previously granted, nor may an amendment make any change in any option theretofore granted which would adversely affect the rights of any participant, nor may an amendment be made without the prior approval of the stockholders of the Company if such amendment requires the sale of more shares than are authorized under Paragraph 9 of the Plan. No amendment to any provision of this Plan relating to the amount and price of securities to be offered or which specifies the timing of the granting of options under this Plan, or which sets forth a formula that determines the amount, price, and timing of options to be awarded under this Plan may be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act, or the rules thereunder. The Plan will terminate in any event on April 30, 1998, and no offering hereunder will be commenced after May 1, 1997. Although it is presently contemplated that offerings will be made under the Plan each year during the term of the Plan, the Company shall not be obligated to any Employee or other person whatsoever to make any offering under the Plan, or having made any offering or offerings, to make any further offering or offerings under the Plan. 16. NOTICES. All notices, exercises of options, payment for stock, or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given only when received by the Employee Benefits Office of the Company or when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 17. STOCKHOLDER APPROVAL. The Plan has been adopted by the Board of Directors of the Company on March 8, 1993, and is subject to the approval of the holders of a majority of the issued and outstanding Common Stock within 12 months after its adoption by the Board of Directors. 18. APPLICATION OF FUNDS. All proceeds received by the Company from the sale of stock under the Plan will be used for general corporate purposes. 19. GOVERNING LAW. This Plan and all agreements entered into under the Plan shall be construed in accordance with and shall be governed by the laws of the State of Kansas except as provided in Paragraph 1 hereof. EX-10 4 EXHIBIT 10.08 FOURTH FINANCIAL CORPORATION 1993 INCENTIVE STOCK OPTION PLAN 1. Purpose. The purpose of this l993 Incentive Stock Option Plan (the "Plan") is to encourage ownership in the Common Stock of Fourth Financial Corporation (the "Company") by key personnel of the Company and its subsidiaries and to provide an additional incentive for them to continue in the employ of the Company and its subsidiaries and to promote the success of the Company's business. 2. Stock Subject to the Plan. The maximum number of shares which may be issued upon exercise of Options granted under the Plan ("Options") shall be 1,000,000 shares of Common Stock, par value $5.00 per share, of the Company ("Common Stock"). Such shares may be either issued shares of Common Stock which shall have been reacquired by the Company or authorized but unissued shares of Common Stock as the Board of Directors of the Company (the "Board") shall from time to time determine. If any outstanding Option under the Plan for any reason expires or is terminated without having been exercised in full, the shares allocable to the unexercised portion of such Option shall again become available for option pursuant to the Plan. 3. Participation in the Plan. (a) Options may be granted only to employees (including officers) of the Company or of any subsidiary of the Company who shall be selected as provided in Section ll hereof. A director of the Company or of a subsidiary who shall not at the time also be an employee of the Company or of a subsidiary thereof shall not be eligible to receive an Option under the Plan. An employee who shall have been granted an Option under the Plan may be granted one or more additional Options. The term "subsidiary" as used in this Plan means a bank or other corporation more than 50% of the voting stock of which shall at the time be owned directly or indirectly by the Company. (b) No Option shall be granted to an individual who owns Common Stock possessing more than ten percent of the total combined voting power of all classes of common stock of the Company or of its parent or subsidiary corporations. (c) To the extent the aggregate fair market value (determined as of the time the Option is granted) of the Common Stock for which any employee may be granted Options which are exercisable for the first time by such employee during any calendar year under the Plan and any other "Incentive Stock Option Plan" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), of the Company and its parent and subsidiary corporations exceeds $100,000, such Options shall be treated as Options which are not incentive stock options. Nothing in this Plan shall be construed to give anyone the right to be granted an Option, and neither the Plan nor the granting of an Option or the taking of any other action under the Plan shall constitute or be any evidence of any agreement or understanding, express or implied, that the Company or any of its subsidiaries will employ an Option holder for any period of time or in any position or at any particular rate of compensation. 4. Option Prices. The purchase price of the Common Stock covered by each Option shall be not less than l00% of the fair market value of the Common Stock at the time of granting the Option. Such fair market value shall be determined by the Board (or any committee to which the Board shall have delegated pursuant to Section ll hereof power in that regard) but shall not be less than the mean between the reported bid and asked prices of the Common Stock on the date the Option is granted as reported by the NASDAQ quotation system. Notwithstanding the foregoing, the price at which Options may be exercised shall in all events be determined in a manner consistent with any regulations that may hereafter be promulgated from time to time by the Internal Revenue Service with respect to Section 422 of the Code. 5. Term of Options. The term of each Option shall be not more than ten years from the date of granting thereof and may be less than ten years. Each Option shall be subject to earlier termination as herein provided. 6. Exercise of Options. An Option may be exercised in accordance with its terms at any time or from time to time after the granting thereof and the approval of this Plan by the stockholders of the Company in accordance with Paragraph l2 of the Plan. The purchase price of the shares purchased upon exercise of an Option shall be paid in full in cash at the time of the exercise, but the Board of Directors may (but shall not be required to) determine that shares may be purchased in whole or in part upon the exercise of Options with Common Stock of the Company. The Board of Directors may (but shall not be required to) permit the payment for Common Stock purchased under the Plan by means of a loan from the Company or from one of its subsidiaries for all or a portion of the purchase price, upon such terms and conditions as the Board may from time to time determine. Except as provided in Paragraph 8 hereof, an Option may not be exercised in whole or in part unless the holder thereof shall then be an employee of the Company or of a subsidiary of the Company. The holder of an Option shall not have any of the rights of a stockholder with respect to the shares covered by his Option until and except to the extent that the Option shall have been duly exercised. 7. Nontransferability of Options. An Option shall not be transferable otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of the employee only by him. No Option or interest therein may be transferred, assigned, pledged, or hypothecated by the Optionee during his lifetime, by operation of law or otherwise, or be made subject to execution, attachment, or similar process. 8. Termination of Employment. All rights of an employee in an Option, to the extent it has not been exercised, shall terminate upon the death of the employee (except as hereinafter provided) or the termination of his employment for any reason other than disability or retirement because of age. In the case of termination by reason of disability, such rights shall terminate twelve months from the date of termination of employment and, in the case of retirement, three months from the date thereof. An Option shall not be affected by any temporary change of duties or position of the holder or any temporary leave of absence granted to him by the employing corporation. In the event of the death of the holder of an Option prior to termination of employment for any other reason, the unexercised portion of such Option may be exercised at any time within twelve months from the date of the holder's death, by his executor, administrator, personal representative, or other person who has acquired the right to exercise the Option by bequest or inheritance, but in no event may any Option be exercised after the expiration of the terms of the Option as set forth in Paragraph 5 of this Plan. 9. Adjustments Upon Changes in Capitalization. Notwithstanding any other provisions of this Plan, in the event of any change in the outstanding Common Stock of the Company by reason of a stock dividend, stock split, merger, consolidation, splitup, combination or exchange of shares, reorganization, liquidation, or the like, the aggregate number and class of shares of Common Stock available under the Plan and the number and class of shares subject to each outstanding Option and the option prices shall be appropriately adjusted by the Board, whose determination shall be conclusive. 10. Termination and Amendment of the Plan. Unless the Plan shall be previously terminated as hereinafter provided, no Option shall be granted under the Plan after ten years from the date the Plan is adopted by the Board of Directors. The Board of Directors may at any time prior to that date suspend or terminate the Plan and shall have the right to alter or amend the Plan or any part thereof at any time and from time to time as it may deem proper and in the best interest of the Company and to alter or amend the Plan in order that Options granted under the Plan shall qualify as "Incentive Stock Options" under Section 422 of the Code or qualify under similar or successor provisions of the Code as amended from time to time, or conform with any change in applicable law or regulations or rulings of administrative agencies. Any termination, suspension, alteration or amendment of the Plan effected pursuant to this Paragraph l0 may be made by the Board of Directors without further action on the part of the stockholders of the Company; provided, that no such termination, suspension, alteration, or amendment shall (a) impair, without the consent of the Option holder, any Option theretofore granted to him under the Plan or deprive him of any Common Stock which he may have acquired under the Plan, or (b) unless approved by the stockholders of the Company, (i) increase the total number of shares of Common Stock which may be purchased under the Plan except as provided in Paragraph 9 hereof, (ii) extend the time during which Options may be granted under the Plan, (iii) change the class of employees eligible to receive Options under the Plan, or (iv) change the manner of determining the Option price except to change the manner of determining the fair market value of the Common Stock. Any Option outstanding at the time of termination of the Plan shall remain in effect subject to the provisions of this Plan until the Option shall have been exercised or shall have expired. 11. Administration of Plan. (a) The Plan shall be administered under the general direction and control of the Board of Directors which may from time to time issue orders or adopt resolutions not inconsistent with the provisions of the Plan, to interpret the provisions and supervise the administration of the Plan. Subject to the provisions of the Plan, the Board of Directors shall have the plenary authority, in its discretion, to determine the time or times at which, and the employees of the Company and its subsidiaries to whom, Options shall be granted, the purchase price, and the number of shares of Common Stock to be covered by each Option, and when each Option may be exercised. (b) The Board of Directors shall appoint a committee (the "Committee") consisting of not fewer than three directors, none of whom shall be officers of the Company or eligible to participate in the Plan while members of the Committee, and who shall serve at the pleasure of the Board. The Board of Directors may, from time to time, remove members from or add members to the Committee and shall fill all vacancies on the Committee. The Board of Directors may delegate to the Committee full power and authority to take any action required or permitted to be taken by the Board of Directors under the Plan, except that the Committee shall not have the power to terminate, suspend, alter, or amend the Plan. The Options granted by such Committee may contain such terms and provisions as the Committee, in its discretion, deems desirable and appropriate, provided, however, that such additional terms shall not be inconsistent with any provision of the Plan or cause the Plan or the Options granted thereunder not to be classified as an Incentive Stock Option Plan and/or an Incentive Stock Option. (c) A majority of the Committee shall constitute a quorum, and the action of a majority of the members present at any meeting at which a quorum is present, or action authorized or approved in writing by a majority of the Committee, shall be deemed the action of the Committee. 12. Effective Date of the Plan. The Plan shall be effective from the date of its adoption by the Board of Directors, and Options may be granted immediately after such adoption, but no Option may be exercised under the Plan unless and until the Plan has been approved by the stockholders of the Company at a meeting held within twelve months after the date of such adoption. The Plan shall terminate if it is not approved by the stockholders of the Company within twelve months from the date of its adoption by the Board of Directors. 13. Government and Other Regulations. The obligations of the Company to sell and deliver shares of Common Stock shall be subject to all applicable laws, rules and regulations and such approvals by any governmental agencies as may be required, including, without limitation, the effectiveness of a registration statement under the Securities Act of l933, as deemed necessary or appropriate by counsel for the Company. 14. Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board of Directors nor the submission of the Plan for approval of the stockholders of the Company shall be construed as creating any limitations on the power of the Board of Directors to adopt such other incentive arrangements as it may deem desirable, including without limitation, the granting of stock options otherwise than under the Plan. 15. Merger; Change of Control. (a) If the Company shall be the surviving or resulting corporation in any merger or consolidation, each then outstanding Option granted hereunder shall pertain to and apply to the same number and type of shares of stock which a holder of the same number of shares of Common Stock subject to such Option was entitled to receive by reason of such merger or consolidation. (b) The holder of an Option granted hereunder shall have the right to exercise such Option, in whole or in part, (i) during the period beginning with the commencement of a tender offer or exchange offer (other than a tender offer or exchange offer by the Company) which by its terms could result in a Change of Control of the Company and ending ten days after the first purchase of stock pursuant to such tender offer or exchange offer, (ii) during the 30-day period following a Change of Control of the Company, and (iii) during the 30-day period commencing on the date of approval by the stockholders of the Company of an agreement of merger or reorganization of the Company in which the Company will not survive as an independent, publicly-owned corporation, or of a plan of dissolution or disposition of substantially all of the assets of the Company. (c) At any time after the occurrence of a Change of Control, the Company shall have the right to cancel all outstanding Options granted hereunder by making cash payment to each holder of a then outstanding Option, with respect to each share of Common Stock covered by such Option, of the difference between the greatest per share amount of cash (and the fair market value of any other form of consideration) paid to the public stockholders of the Company in the transaction or transactions resulting in the Change of Control and the amount of cash that would have been paid by the Option holder to exercise such Option. The Company may not exercise any rights under this subparagraph (c) if the effect of such exercise would be to subject an Option holder to any liability under Section 16 of the Securities Exchange Act of 1934, as amended. (d) "Change of Control" means the acquisition by any person, entity, or group (as such term is defined in the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission adopted thereunder) of Common Stock in a transaction or series of transactions that results in such person, entity, or group owning beneficially 50% or more of the outstanding Common Stock; provided, that a merger or consolidation of the Company with or into another corporation shall not be deemed to be a Change of Control if, by reason of such merger or consolidation, the holders of Common Stock receive in exchange for their shares of Common Stock voting common stock of the surviving or resulting corporation that is registered under the Securities Exchange Act of 1934, as amended, and is either a security listed for trading on a national securities exchange or a security for which bid and asked quotations are reported in an automated quotations system operated by a national securities association. EX-10 5 EXHIBIT 10.09 FOURTH FINANCIAL CORPORATION AMENDED AND RESTATED NON-EMPLOYEE DIRECTORS DEFERRED FEE PLAN FOURTH FINANCIAL CORPORATION AMENDED AND RESTATED NON-EMPLOYEE DIRECTORS DEFERRED FEE PLAN Table of Contents Page PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . 2 ARTICLE II PARTICIPATION . . . . . . . . . . . . . . . . . . 4 Section 2.1. Participation . . . . . . . . . . . . . . 4 ARTICLE III DEFERRED FEE ACCOUNTS . . . . . . . . . . . . . 5 Section 3.1. Crediting Amounts to Deferred Fee Accounts . . . . . . . . . . . . . . . . . . . . . 5 Section 3.2. Vesting of Deferred Fee Accounts . . . . 5 Section 3.3. Increases/Decreases of Account . . . . . 6 Section 3.4. Statement of Accounts . . . . . . . . . . 6 Section 3.5. Investment Direction . . . . . . . . . . 6 Section 3.6. Benefits Payable in Stock or Cash . . . . 7 Section 3.7. Dividend Reinvestment . . . . . . . . . . 8 Section 3.8. Number of Dividend Reinvestment Shares . 8 Section 3.9. Prior Deferral Agreements . . . . . . . . 8 Section 3.10. Administration of Prior Deferrals . . . . 9 ARTICLE IV DEATH BENEFITS . . . . . . . . . . . . . . . . . 9 Section 4.1. General . . . . . . . . . . . . . . . . . 9 Section 4.2. Beneficiary Designations . . . . . . . . 9 Section 4.3. Lump Sum Option . . . . . . . . . . . . . 10 ARTICLE V BENEFITS . . . . . . . . . . . . . . . . . . . . . 10 Section 5.1. Termination of Service . . . . . . . . . 10 ARTICLE VI SOURCE OF BENEFITS . . . . . . . . . . . . . . . 10 Section 6.1. Benefits Payable from General Assets . . 10 Section 6.2. Investments to Facilitate Payment of Benefits . . . . . . . . . . . . . . . . . . . . . 11 Section 6.3. Ownership of Insurance Contracts . . . . 11 Section 6.4. Company Obligation . . . . . . . . . . . 11 Section 6.5. Multiple Companies . . . . . . . . . . . 11 ARTICLE VII ADMINISTRATION OF THIS PLAN . . . . . . . . . . 12 Section 7.1. Plan Appointment of Committee . . . . . . 12 Section 7.2. Committee Action . . . . . . . . . . . . 12 Section 7.3. Committee Rules and Plan Powers-- General . . . . . . . . . . . . . . . . . . . . . . 12 Section 7.4. Reliance on Certificates, Etc . . . . . . 13 Section 7.5. Information to Committee . . . . . . . . 13 ARTICLE VIII AMENDMENT AND TERMINATION . . . . . . . . . . . 13 Section 8.1. Amendment . . . . . . . . . . . . . . . . 13 Section 8.2. Termination or Partial Termination of the Plan . . . . . . . . . . . . . . . . . . . . . 13 Section 8.3. Liquidation or Reorganization of Company . . . . . . . . . . . . . . . . . . . . . . 14 Section 8.4. Overriding Limitation . . . . . . . . . . 15 ARTICLE IX RESTRICTIONS ON ALIENATION OF BENEFITS . . . . . 15 ARTICLE X CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . 15 Section 10.1. Initiation of Claim . . . . . . . . . . . 15 Section 10.2. Announcement of Initial Decision . . . . 15 Section 10.3. Review Appeal of Initial Decision . . . . 16 Section 10.4. Conduct of Appeal and Decision . . . . . 16 ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . 16 Section 11.1. Execution of Receipts and Releases . . . 16 Section 11.2. No Guarantee of Interests . . . . . . . . 16 Section 11.3. Company Records . . . . . . . . . . . . . 17 Section 11.4. Evidence . . . . . . . . . . . . . . . . 17 Section 11.5. Notice . . . . . . . . . . . . . . . . . 17 Section 11.6. Change of Address . . . . . . . . . . . . 17 Section 11.7. Effect of Provisions . . . . . . . . . . 17 Section 11.8. Severability Clause . . . . . . . . . . . 17 Section 11.9. Minors and Incompetents . . . . . . . . . 17 Section 11.10. Indemnification . . . . . . . . . . . . 18 Section 11.11. Headings . . . . . . . . . . . . . . . . 18 Section 11.12. Governing Law . . . . . . . . . . . . . 18 FOURTH FINANCIAL CORPORATION AMENDED AND RESTATED NON-EMPLOYEE DIRECTORS DEFERRED FEE PLAN WHEREAS, Fourth Financial Corporation has heretofore adopted the Fourth Financial Corporation Amended and Restated Non- Employee Directors Deferred Fee Plan; and WHEREAS, it has become necessary and desirable to amend the Plan in so many particulars that it is desirable to amend and restate each and every section thereof. NOW, THEREFORE, the previous Plan is hereby amended and restated effective as of July 1, 1993, subject to shareholder approval, which Plan shall be known as the Fourth Financial Corporation Amended and Restated Non-Employee Directors Deferred Fee Plan; and the rights, privileges, and obligations shall be governed by the terms of this Plan from and after such effect date. PURPOSE ------- The purpose of the Fourth Financial Corporation Amended and Restated Non-Employee Directors Deferred Fee Plan shall be to provide specified benefits for Directors of Fourth Financial Corporation and its Subsidiary Banks. It is the intention of Fourth Financial Corporation that this program be administered as an unfunded employee benefit plan established and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly-compensated employees within the meaning of Section 201(2) of the Employee Retirement Income Security Act of 1974. ARTICLE I DEFINITIONS For purposes of this Plan, the following phrases or terms shall have the indicated meanings unless otherwise clearly apparent from the context: Beneficiary--means the person, persons, entity, or entities entitled to receive any benefits under this Plan pursuant to the designation of the Participant (or in default of such designation as provided in ARTICLE IV hereof). Change of Control--means the acquisition by any person, entity, or group (as defined in the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission adopted thereunder) of Common Stock of the Company in a transaction or series of transactions which results in such person, entity, or group owning beneficially 50% or more of the outstanding Common Stock. Code--means the Internal Revenue Code of 1986, as amended. Committee--means the Committee described in ARTICLE VII which is the named fiduciary with respect to this Plan. The Committee shall manage and administer the Plan in accordance with the provisions of said Article and as otherwise provided in this Plan. Common Stock--means Fourth Financial Corporation Common Stock, par value $5.00 per share. Company--means Fourth Financial Corporation and any of its Subsidiary Banks. For purposes of this Plan, the term "Subsidiary Bank" means a bank more than fifty percent (50%) of the voting stock of which shall at the time be owned directly or indirectly by the Company. Credited Interest--means interest credited at a rate that is the greater of (1) the rate of interest established by the Committee prior to the beginning of the Plan Year to be credited to a Participant's Credited Interest Account, or (2) the Prime Interest Rate minus one percentage point. The rate in (2) above shall be adjusted and determined as of the first business day of each Plan Year quarter. It is intended that the two rates shall be compared on a quarterly basis for purposes of determining the rate of interest to be credited to a Participant's Credited Interest Account for the upcoming Plan Year quarter. In the event the Committee fails to establish a rate of interest prior to the beginning of the Plan Year, the rate of interest last established by the Committee shall apply. Credited Interest Account--means the account established by the Company in the name of a Director which utilizes the accrual of Credited Interest as the method of computing gains attributable to such account. Deferred Fee Accounts--means a Director's Credited Interest Account and Phantom Stock Account. The Deferred Fee Accounts are the book entries established for each Director, which entries represent the Company's unsecured and unfunded promise to pay the amounts represented thereby. Director--means (i) any active member of the Board of Directors of Fourth Financial Corporation or (ii) any active or advisory member of the Board of Directors of a Subsidiary Bank, who is not otherwise an employee of the Company. Fee or Fees--means any compensation earned by a Director for services performed as a Director. Participant--means a Director who elects to participate in this Plan. Phantom Stock Account--means the account established by the Company in the name of a Director which utilizes the value of the Common Stock, and any dividends attributable thereto, as the method of computing the earnings or losses attributable to such account. Phantom Stock Units or Units--means a book entry representing the Participant's right to receive benefits based upon the performance of the Common Stock and any dividends attributable thereto, with each Unit being equivalent, for purposes of measuring performance, to one share of the Common Stock. Plan--means, unless the context otherwise requires, this document, any amendment(s) hereto, and the participation agreement of each Participant entered into pursuant to ARTICLE II. Plan Year--means the calendar year. Prime Interest Rate--means the rate per annum announced by Chemical Bank, N.A. from time to time as its prime rate in effect at its principal office in the City of New York. ARTICLE II PARTICIPATION Section 2.1. Participation. A. General. A Director may participate in this Plan for a Plan Year by executing a participation agreement providing for a deferral of 100% of his or her Fees earned during the Plan Year and returning such agreement to the Committee not later than the June 30th preceding the Plan Year to which such agreement relates. Notwithstanding the foregoing, a Director may elect to participate in this Plan for the period beginning July 1, 1993 and ending December 31, 1993 by executing a participation agreement providing for the deferral of 100% of his or her Fees earned during such period and by returning it to the Committee during the ten business-day period beginning on the third day after the Company's release of its financial information for the first quarter of 1993. A participation agreement made pursuant to this exception shall be irrevocable during such period and shall continue in effect after the expiration of such period as provided in subsection B hereof. B. Other Conditions of the Agreement. A participation agreement shall be irrevocable during the Plan Year following its delivery to the Committee. A participation agreement shall be effective for the Plan Year specified in the agreement and for each subsequent Plan Year unless prior to the June 30th preceding a Plan Year the Participant revokes said agreement, with such revocation to become effective as of the beginning of the subsequent Plan Year. Revocation shall occur by giving written notice to the Committee. Notwithstanding any other provision of this Plan to the contrary, an agreement made under this Section shall automatically terminate upon the termination of this Plan under ARTICLE VIII, or upon a Director's termination of service. C. Investment Election. When a Director first elects to defer Fees under Section 2.1.A, the Director shall also irrevocably elect (in accordance with Section 3.5) whether all future amounts which are deferred shall be credited 100% to his or her Credited Interest Account, 100% to his or her Phantom Stock Account, or 50% to each such Account. ARTICLE III DEFERRED FEE ACCOUNTS Section 3.1. Crediting Amounts to Deferred Fee Accounts. A. Credited Interest Account. When a Director elects under Section 2.1.A to have deferred Fees credited to his or her Credited Interest Account, the Company shall credit the Participant's Credited Interest Account with the amount of such deferred Fees as of the day such deferred Fees would have been paid to the Director were they not deferred under the Plan. B.1. Phantom Stock Account. When a Director elects under Section 2.1.A to have deferred Fees credited to his or her Phantom Stock Account, the Company shall credit the Participant's Phantom Stock Account with a number of Units as of the day such deferred Fees would have been paid to the Director were they not deferred under the Plan. The number of Units credited to the Participant's Phantom Stock Account shall be the quotient of (1) the amount of deferred Fees to be credited to the Participant's Phantom Stock Account divided by (2) the Fair Market Value of the Common Stock on such date. No partial Units will be credited to the Participant's Phantom Stock Account. All sums attributable to partial Units will instead be credited to the Director's Credited Interest Account. B.2. Fair Market Value. For purposes of the Plan, the term Fair Market Value means the mean between the reported closing bid and asked prices of the Common Stock as reported by the NASDAQ system. B.3. Limitation on Investment Directions. If the General Counsel of the Company, in his or her sole discretion, determines that the Company is in possession of material, undisclosed information about the Company, then a Participant's election to modify his or her investment direction pursuant to Section 3.5 shall not be effective until the second day after public dissemination of such information, and the price for Units to be credited to the Director's Phantom Stock Account shall be determined by reference to such later date. Section 3.2. Vesting of Deferred Fee Accounts. A Participant shall be 100% vested in his or her Deferred Fee Accounts. Section 3.3. Increases/Decreases of Account. A Participant's Deferred Fee Accounts shall be increased or decreased as follows: A. Credited Interest Account. The Company shall credit each Participant's Credited Interest Account with (1) any Fees which are deferred by the Director under Section 2.1.A and directed into the Credited Interest Account pursuant to Section 2.1.C; (2) any Prior Deferral Amounts (other than such amounts which the Director elects to have transferred to his or her Phantom Stock Account) pursuant to Section 3.10; and (3) any Credited Interest. Credited Interest shall be credited to each Director's Account, as of the end of each calendar quarter. Interest shall be credited during each quarter that a Director has any amount credited to his or her Credited Interest Account under the Plan. B. Phantom Stock Account. The Company shall credit each Participant's Phantom Stock Account with (1) Units attributable to Fees which are deferred by the Director under Section 2.1.A and directed into the Phantom Stock Account under Section 2.1.C, (2) Units attributable to Prior Deferral Amounts which the Director elects to have transferred to the Phantom Stock Account pursuant to Section 3.10, and (3) Units attributable to dividends on Common Stock under Section 3.7. The Participant's Deferred Fee Accounts shall be decreased by the amount of any distributions therefrom. Section 3.4. Statement of Accounts. The Committee shall submit to each Participant, within 120 days after the close of each Plan Year, a statement in such form as the Committee reasonably deems appropriate, setting forth the balances to the credit of such Participant in his or her Deferred Fee Accounts. Section 3.5. Investment Direction. A. One-Time Election for Future Deferrals. A Director may, as provided in 2.1.C, enter into a one-time irrevocable election to invest his or her future deferred Fees as follows: (1) 100% in his or her Credited Interest Account; (2) 100% in his or her Phantom Stock Account; or (3) 50% in his or her Credited Interest Account and 50% in his or her Phantom Stock Account. Except as provided in subsection B and Sections 3.9 and 3.10 with respect to Prior Deferral Amounts and the exception provided under Section 2.1.A, no such election shall affect amounts deferred in the calendar year in which the election is executed or any prior year. The election shall be made within the time period set forth in Section 2.1 and shall be effective for all following calendar years in which the Participant elects to defer Fees under the Plan. If a Participant ceases to defer Fees into the Plan for any reason, and if the Participant subsequently elects (pursuant to Section 2.1) to enter into a participation agreement and again defer Fees into the Plan, such Participant's one-time irrevocable investment election shall continue to govern the allocations of all amounts deferred under the Plan. B. Prior Deferral Amounts. A Director who has Prior Deferral Amounts (as described in Section 3.9) may enter into a one-time irrevocable election, during the ten business-day period beginning on the third day after the Company's release of its financial information for the first quarter of 1993, to have either all or 50% of such Amounts converted into Units and transferred to his or her Phantom Stock Account. Such election shall be made on a form provided by the Company which shall specify the amount or percentage authorized for transfer. The number of Units credited to a Participant's Phantom Stock Account as a result of such a transfer shall be the quotient of (1) the amounts to be transferred divided by (2) the Fair Market Value of the Common Stock on July 1, 1993. C. Limitation on Investment Directions. If the General Counsel of the Company, in his or her sole discretion, determines that the Company is in possession of material, undisclosed information about the Company, then a Participant's investment election shall not be effective until the second day after public dissemination of such information, and the price shall be determined by reference to such later date. Section 3.6. Benefits Payable in Stock or Cash. Amounts distributable under this Plan shall be paid at the time, and in the manner, provided in Articles IV and V. The amounts distributable under this Plan shall be the sum of the Participant's Credited Interest Account and the value of the Participant's Phantom Stock Account. The value of a Participant's Phantom Stock Account is determined by multiplying the number of Phantom Stock Units credited to such Account by the Fair Market Value of the Common Stock at the end of the business day next preceding the date of distribution. Amounts distributable under this Plan shall, at the recipient's election, be paid in cash, shares of Common Stock, or a combination of the two. In the event a Participant elects to receive all or a portion of his or her benefits in the form of Common Stock, no partial shares will be issued and the Participant shall receive a cash payment equal to the value of the partial shares. The Committee shall have authority, in its sole discretion, to approve or disapprove such Participant's election, and the election shall be made on the first business day following the expiration of the six month period which begins on the last date that the Participant acquired any Phantom Stock Units ("Election Date"). If a Participant fails to make a timely election, the amounts due shall be paid in cash, provided, however, that no amounts shall be payable under this Plan until the Election Date has passed. To the extent that a Participant elects to receive his or her benefits in the form of the Common Stock, the number of shares of Common Stock which will be distributable to such Participant shall be the quotient of (1) the amount of benefits payable to the Participant which the Participant has elected to receive in the form of shares of Common Stock divided by (2) the Fair Market Value of the Common Stock at the end of the business day next preceding the date of distribution. Section 3.7. Dividend Reinvestment. Additional Units shall be credited to each Director's Phantom Stock Account, as of each payment date for dividends on the Common Stock. The number of additional Units shall be determined pursuant to Section 3.8, on the basis of the number of Units credited to the Director's Phantom Stock Account on the record date for such dividends. Additional Units shall be credited for each record date that a Director has any amount credited to his or her Phantom Stock Account under the Plan. Section 3.8. Number of Dividend Reinvestment Shares. The number of additional Units credited to a Director's Phantom Stock Account as of any dividend payment date shall be the quotient of (1) the product of the number of Units credited to the Director's Phantom Stock Account on the dividend record date for such dividend multiplied by the per share dividend rate on the Common Stock divided by (2) the Fair Market Value of the Common Stock on the dividend payment date. Section 3.9. Prior Deferral Agreements. Some Directors have deferred their Fees earned prior to the effective date of this Plan pursuant to participation agreements with the Company. Such agreements are hereinafter referred to as "Prior Deferral Agreements." Any Prior Deferral Agreements in effect on the effective date of this Plan shall terminate as of such effective date with respect to Fees earned thereafter. A Director desiring to defer Fees earned after the effective date of this Plan shall enter into a new participation agreement as provided in Section 2.1. However, the provisions of Prior Deferral Agreements concerning the time and method of distribution of amounts previously deferred ("Prior Deferral Amounts"), shall remain fully effective with respect to such Amounts and shall also govern all of the Participant's future deferrals under the Plan. Section 3.10. Administration of Prior Deferrals. For purposes of administration, Prior Deferral Amounts shall be treated as a part of this Plan. Any Director who has Prior Deferral Amounts shall be permitted to make a one-time irrevocable election to have either all or 50% of such Amounts converted into Units and credited to his or her Phantom Stock Account in accordance with Section 3.5.B. Except to the extent that a Director makes such an election, a Participant's Prior Deferral Amounts shall be credited to his or her Credited Interest Account. ARTICLE IV DEATH BENEFITS Section 4.1. General. In the event of a Participant's death while a Director, the value of Participant's Deferred Fee Accounts shall be paid to the Beneficiary or Beneficiaries of the Participant. Unless the lump sum settlement option has been elected under Section 4.3, and subject to the limitations of Section 3.6, benefits shall be payable in five annual installments with the first payment commencing as soon as administratively practicable following the date specified in Section 3.6; provided, that, if the value of a Participant's Deferred Fee Accounts is $50,000 or less at the time payment is to commence, a lump sum distribution shall be made. Section 4.2. Beneficiary Designations. The Beneficiary or Beneficiaries of a Participant shall be the person, persons, entity, or entities designated by the Participant on a Beneficiary Designation provided by the Committee. If more than one Beneficiary is named, the shares and/or precedence of each Beneficiary shall be indicated. A Participant shall have the right to change the Beneficiary by submitting to the Committee a change of Beneficiary on forms provided by the Committee; provided, however, that no change of Beneficiary shall be effective until received by the Committee. If a Participant fails to file a Beneficiary Designation with the Committee (or revokes a Designation without providing a new one) or if the Beneficiary (should only one be designated) predeceases or ceases to exist or all Beneficiaries designated predecease or cease to exist or cannot be found upon the death of Participant, then and in such events the amounts otherwise payable to such Beneficiary or Beneficiaries shall be paid to Participant's estate. If the Committee has any doubt as to the proper Beneficiary to receive payments hereunder, the Committee shall have the right to withhold such payments until the matter is finally adjudicated or is otherwise resolved. Any payment made by the Committee in good faith and in accordance with the provisions of this Plan and the Participant's Beneficiary Designation Form shall fully discharge the Company, the Committee, and all Employers from all further obligations with respect to such payments. Section 4.3. Lump Sum Option. A Participant may, on delivery of his or her participation agreement to the Committee, prior to the first Plan Year in which that Participant elects to participate in this Plan, elect to have Death Benefits payable in one lump sum to the Participant's Beneficiary. The Participant shall make this election in his or her participation agreement and said election shall be irrevocable from and after delivery of that agreement. The failure to make an election by the time prescribed shall require payment to be made over the regular five-year period. ARTICLE V BENEFITS Section 5.1. Termination of Service. A. General. A Participant who ceases to be a member of the Board of Directors shall become entitled to receive the value of the Participant's Deferred Fee Accounts. Unless the lump sum option has been elected under Section 5.1.B, benefits shall be payable in ten annual installments with the first payment commencing as soon as administratively practicable after the date specified in Section 3.6, provided, that, if the value of a Participant's Deferred Fee Accounts is $50,000 or less at the time payment is to commence, a lump sum distribution shall be made. B. Lump Sum Option. A Participant may, on delivery of his or her participation Agreement to the Committee, prior to the first Plan Year in which that Participant elects to have fee reductions made under this Plan, elect to have benefits payable in one lump sum. The Participant shall make this election in his or her participation agreement, and said election shall be irrevocable from and after delivery of that agreement. The failure to make an election by the time prescribed shall require payment to be made over the regular ten-year period. ARTICLE VI SOURCE OF BENEFITS Section 6.1. Benefits Payable from General Assets. Amounts payable hereunder shall be paid exclusively from the general assets of the relevant Company, and no person entitled to payment hereunder shall have any claim, right, security interest, or other interest in any fund, trust, account, insurance contract, or asset of the relevant Company which may be looked to for such payment. The relevant Company's liability for the payment of benefits hereunder shall be evidenced only by this Plan and each participation agreement entered into between the relevant Company and a Participant. All Fees deferred hereunder shall at all times remain an unrestricted asset of the relevant Company, and Participants are general unsecured creditors of the relevant Company to the extent of their benefits under this Plan. Section 6.2. Investments to Facilitate Payment of Benefits. Although the Company is not obligated to invest in any specific asset or fund, or purchase any insurance contract, in order to provide the means for the payment of any liabilities under this Plan, the Company may elect to do so and, in such event, no Participant shall have any interest whatever in such asset, fund, or insurance contract. In the event the Company elects to purchase insurance contracts on the life of a Participant as a means for making, offsetting, or contributing to any benefits, which may become due and payable by the Company under this Plan, such Participant agrees to cooperate in the securing of life insurance on his or her life by furnishing such information as the Company and the insurance carrier may require, including the results and reports of previous employer and other insurance carrier physical examinations, taking such additional physical examinations as may be requested, and taking any other action which may be requested by the Company and the insurance carrier to obtain such insurance coverage. If a Participant does not cooperate in the securing of such life insurance, the Company shall have no further obligation to such Participant under this Plan and may terminate such individual's participation in this Plan as provided in Section 2.1. Section 6.3. Ownership of Insurance Contracts. In the event the Company elects to purchase insurance, the Company shall be the sole owner of any insurance contract(s) acquired on the life of a Participant, with all incidents or ownership therein, including, but not limited to, the right to cash and loan values, dividends, if any, death benefits, and the right of termination thereof, and a Participant shall have no interest whatsoever in such contract(s) and shall exercise none of the incidents of ownership thereof. Section 6.4. Company Obligation. Except as otherwise expressly provided herein, the Company shall have no obligation of any nature to a Participant under this Plan. Section 6.5. Multiple Companies. In furtherance of the provisions of Section 6.1, in the event that a single Participant enters into participation agreements under Section 2.1 with more than one Company while a Participant in this Plan, the liability for payment of such Participant's benefits under this Plan shall be apportioned among the Companies based upon a formula that the Committee shall develop to equitably apportion the cost of the benefits based upon the years of participation with each Company and the amounts of deferrals made while the Participant was a Director of that Company. The apportionment of benefits between Companies shall be set forth in writing and delivered to the Director, and the Director and all Companies shall be bound by the apportionment. In no event, will the Companies be jointly and severally liable for any amount. A Participant may only receive benefits under the Plan from the Company to whom the Committee has apportioned liability for the benefits. Notwithstanding the foregoing, in the event that a Participant consents, a Company may transfer to the accepting Company such assets as the accepting Company will require in exchange for the acceptance by the accepting Company of the full liability for payment of the transferred Director's full benefits. Thereafter the Participant shall look solely to the accepting Company for payment of all benefits under this Plan (unless and until a further transfer occurs, in which case, the provisions of this Section shall apply following such transfer). ARTICLE VII ADMINISTRATION OF THIS PLAN Section 7.1. Plan Appointment of Committee. This Plan shall be administered by a Committee of the Board of Directors of Fourth Financial Corporation. All members of the Committee shall serve at the pleasure of the Board of Directors of Fourth Financial Corporation, which may, from time to time, remove members from, or add members to, the Committee. Section 7.2. Committee Action. All acts of a majority of the members of the Committee attending a meeting at which a quorum is present, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. Section 7.3. Committee Rules and Plan Powers--General. Subject to the provisions of this Plan, the Committee shall from time to time establish rules, forms, and procedures for the administration of this Plan. Except as herein otherwise expressly provided, the Committee, in its sole discretion, shall have the exclusive right to interpret this Plan and to decide any and all matters arising thereunder or in connection with the administration of this Plan, and it shall endeavor to act, whether by general rules or by particular decisions, so as not to discriminate in favor of or against any person. Such decisions, actions, and records of the Committee shall be conclusive and binding upon the Company, Directors, and all persons having or claiming to have any right or interest in or under this Plan. The Committee shall also have the power to employ or solicit assistance from any individual who, in the opinion of the Committee, is necessary or helpful in assisting the Committee in the proper administration of this Plan. In addition, the Committee shall have the power to delegate to the appropriate officers of Fourth Financial Corporation such items as may be necessary or appropriate under the circumstances, including the computation and certification of the amount and form of benefits payable to Participants (Beneficiaries) under the terms of this Plan. Section 7.4. Reliance on Certificates, Etc. The members of the Committee and the officers and directors of the Company shall be entitled to rely on all certificates and reports made by any duly appointed accountants and on all opinions given by any duly appointed legal counsel. Such legal counsel may be counsel for the Company. Section 7.5. Information to Committee. To enable the Committee to perform its functions, the Company shall supply full and timely information to the Committee on all matters relating to the Fees of all Directors, their retirements, deaths, or other causes for termination, and such other pertinent facts as the Committee may require. ARTICLE VIII AMENDMENT AND TERMINATION Section 8.1. Amendment. The Board of Directors of Fourth Financial Corporation reserves the right (on behalf of all participating Companies) to amend this Plan at will and at any time and from time to time; provided, that, no amendment will reduce the benefits to which a Participant is then entitled or modify or change the manner or rate of crediting interest set forth herein without the express written consent of the Participant affected. This power to amend shall include, but shall not be limited to, the right to make retroactive any amendments necessary to keep this Plan an unfunded employee benefit plan described in Section 201(2) of ERISA or to preserve or obtain anticipated tax consequences for Participants (subject to the proviso of the first sentence of this Section). An amendment revising the price, date of purchase, or number of Units which are the subject of this Plan shall not be made more frequently than every six months unless necessary to comply with the Internal Revenue Code of 1986, as amended, or with the Employer Retirement Income Security Act of 1974, as amended. Section 8.2. Termination or Partial Termination of the Plan. In addition to all other rights granted the Board of Directors of Fourth Financial Corporation under this Plan, the Board of Directors of Fourth Financial Corporation shall possess the right to terminate, in whole or in part, this Plan at any time. Such right to terminate shall be exercised by the Board of Directors of Fourth Financial Corporation (and with Board of Directors' permission by any other Company as to that Company's Directors, a partial termination) subject to the following limitations: A. No action to terminate or partially terminate this Plan shall be taken except upon written notice to each Participant to be affected thereby, which notice shall be given not less than 30 days prior to the effective date of such termination; B. In terminating the Plan, the Committee shall determine in a uniform and consistent manner when affected Participants shall be paid their benefits from this Plan, including the possibility that payment shall be delayed until the Participant's termination of service as a Director. In all events, the Committee, in the event of a termination or partial termination, shall have substantial discretion in making all necessary determinations. Section 8.3. Liquidation or Reorganization of Company. A. Complete Liquidation. If the stockholders of a Company, other than Fourth Financial Corporation, adopt a plan of complete liquidation (other than a plan which is part of a plan or reorganization described in Subsection B hereof), the Plan shall be deemed to have been terminated as to that Company as of the date the plan of liquidation is adopted. The adoption of a plan of complete liquidation by Fourth Financial Corporation will be deemed effective to terminate this Plan as to all Companies. The rights of affected Participants upon such a liquidation under this Subsection A shall be determined under provisions of Section 8.2 relative to a complete termination. B. Change in Control and Reorganizations. At any time after the occurrence of a Change in Control, or if Company effectuates a merger, consolidation, or other transition constituting a reorganization with another corporation or corporations pursuant to which the shares of common stock of Company will be surrendered for stock of another corporation without any provision having been made for the continuance of this Plan, then this Plan shall be deemed to be terminated. If, however, provisions are made for the continuance of this Plan which expressly provide that: (1) this Plan shall be continued; and (2) the rights of each Participant in this Plan will continue in accordance with the terms hereof; then, in that event, the Plan shall not be terminated, but shall continue in accordance with the terms hereof and the terms of the reorganization plans and agreement(s), and all Participants and the surviving corporation shall be bound thereby. Section 8.4. Overriding Limitation. In the event of any amendment or termination under Sections 8.1, 8.2, or 8.3, all Participants and Beneficiaries shall be bound by the good faith determinations of the Board as to the benefits to be received which are attributable to the period prior to such amendment or termination. ARTICLE IX RESTRICTIONS ON ALIENATION OF BENEFITS Section 9.1. Benefits Not Assignable. No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, transfer, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign, transfer, pledge, encumber, or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, engagements, or torts of the person entitled to such benefit, and, to the extent permitted by law, the rights of any Participant or Beneficiary shall not be subject in any manner to attachment of other legal process for the debts of such Participant or Beneficiary. ARTICLE X CLAIMS PROCEDURE Section 10.1. Initiation of Claim. In the event that any Participant or Beneficiary disagrees with any decision (including any claim for benefits) made by the Committee or other agent of the Plan, the Participant or Beneficiary may make a written request for a redetermination under this Plan. This written claim shall be mailed or delivered to the Committee. The claim shall be considered by the Committee. Section 10.2. Announcement of Initial Decision. If the claim is denied, in full or in part, the Committee shall provide a written notice within 90 days of receipt of the written claim setting forth the specific reasons for denial, specific reference to the provisions of this Plan upon which the denial is based, and any additional information necessary to perfect the claim, and an explanation of why such material or information is necessary, and appropriate information and explanation of the steps to be taken if a review of the denial is desired. If the claim is granted, the decision shall also be communicated to the Participant or Beneficiary within 90 days of receipt. Section 10.3. Review Appeal of Initial Decision. If the claim is denied, in whole or in part, and a review is desired, the Participant or Beneficiary shall notify the Committee in writing within 60 days (a claim shall be deemed denied if the Committee does not take any action within the aforesaid 60-day period) after receipt of the written notice of denial. In requesting a review, the Participant or Beneficiary may request a review of the Plan document and other pertinent documents with regard to the Plan, may submit any written issues and comments, may request an extension of time for such written submission of issues and comments (of not more than 60 days) and may request that a hearing be held. If a hearing is held, the Participant or Beneficiary shall have the right to be represented by counsel of his or her choice and to have them participate at the hearing. Section 10.4. Conduct of Appeal and Decision. The decision on the review of the denied claim shall be rendered by the Committee within 60 days after receipt of the request for review is received or if a hearing is held, the hearing shall be held within 60 days after review is requested. In the latter event, the decision shall be rendered within 60 days after the hearing is held. The decision shall be written stating the specific reasons for the decision and shall include reference to specific provisions of the Plan on which the decision is based. ARTICLE XI MISCELLANEOUS Section 11.1. Execution of Receipts and Releases. Any payment to any Participant, a Participant's legal representative, or Beneficiary in accordance with the provisions of this Plan shall, to the extent thereof, be in full satisfaction of all claims hereunder against the relevant Company. The Company may require such Participant, legal representative, or Beneficiary, as a condition precedent to such payment, to execute a receipt and release therefor in such form as it may determine. Section 11.2. No Guarantee of Interests. Neither the Committee nor any of its members may guarantee the payment of any amounts which may be or becomes due to any person or entity under this Plan. The liability of the Participant's relevant Company to make any payment under this Plan is limited to the then available assets of the Company. Section 11.3. Company Records. Records of the Company as to a Participant's service so a Director, and Director's Fees paid by the Company shall be conclusive as to all persons and entities, unless determined to be incorrect. Section 11.4. Evidence. Evidence required of anyone under this Plan may be by certificate, affidavit, document, or other information which the person or entity acting on it considers pertinent and reliable, and signed, made, or presented by the proper party or parties. Section 11.5. Notice. Any notice which shall be or may be given under this Plan shall be in writing and shall be mailed by United States mail, postage prepaid. If notice is to be given to any Company, such notice shall be addressed to the Company at Fourth Financial Center, Wichita, Kansas 67202, marked to the attention of Manager of Human Resources, Fourth Financial Corporation Amended and Restated Non-Employee Directors Deferred Fee Plan; or, if notice to a Participant, addressed to the address shown on such Participant's latest participation agreement. Section 11.6. Change of Address. Any party may, from time to time, change the address to which notices shall be mailed by giving written notice of such new address. Section 11.7. Effect of Provisions. The provisions of this Plan shall be binding upon the Company and its successors and assigns, and upon a Participant, his or her Beneficiary, assigns, heirs, executors, and administrators. Section 11.8. Severability Clause. If any provision of this Plan is held to be invalid or unenforceable, this determination shall not affect the validity of this Plan or the other provisions of this Plan. In such event, this Plan shall be construed and endorsed as if such provision had not been included therein; provided, that, nothing shall increase the Company's liability for payment of benefits in any amount beyond the amounts specified in this Plan. Section 11.9. Minors and Incompetents. If any person to whom a benefit is payable is legally incompetent, either by reason of age or by reason of mental or physical disability, Company (and the Committee hereunder) is authorized to cause the payments becoming due to such person to be made to another for his or her benefit without responsibility of the Company, the Committee, or any fiduciary of this Plan to see to the application of such payments. Payments made pursuant to this authority shall constitute a complete discharge of Company's and Committee's duty. Section 11.10. Indemnification. The Company shall indemnify and save harmless each member of the Board of Directors, each member of the Committee, and employees of the Company or any of its subsidiaries from and against any loss resulting from liability which they may be subjected by reason of any act or conduct (except wilful or wanton misconduct) in their official capacities in the administration of this Plan. Expenses shall include the amount of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted, or a proceeding brought in settlement thereof. The foregoing right of indemnification shall be in addition to any other rights to which any such person may be entitled as a matter of law. Section 11.11. Headings. The titles and heading of Articles and Sections are included for convenience of reference only and are not to be considered in the construction of the provisions of this Plan. Section 11.12. Governing Law. All questions arising with respect to this Plan shall be determined by reference to the laws of the State of Kansas. Section 11.13. Government and Other Regulations. The obligations of the Company to permit a Participant to invest in Phantom Stock Units or to provide benefits by delivering shares of Common Stock shall be subject to all applicable laws, rules, and regulations and such approvals by any governmental agencies as may be required, including, without limitation, the effectiveness of a registration statement under the Securities Act of 1933, as deemed necessary or appropriate by counsel for the Company. Section 11.14. Compliance with SEC Regulations. It is the Company's intent that this Plan comply in all respects with Rule 16b-3 of the Securities Exchange Act of 1934, as amended, and any successor thereto. If any provision of this Plan is found not to be in compliance with such Rule, the provisions thereof shall be null and void. All elections to invest in Phantom Stock Units or receive benefits under the Plan in the form of Company Common Stock shall be made and executed in compliance with the provisions of Section 16 of the Securities Exchange Act of 1934, as amended, and any regulations promulgated thereunder. Adopted, subject to stockholder approval, as of this ______ day of __________________, 1993. FOURTH FINANCIAL CORPORATION By ------------------- /s/ Darrell G. Knudson Chairman of the Board ATTEST: ---------------- /s/ John C. Maloney Senior Vice President, Secretary, and General Counsel EX-10 6 EXHIBIT 10.10 FOURTH FINANCIAL CORPORATION 1993 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN 1. Purpose. The purposes of this l993 Non-Employee Directors Stock Option Plan (the "Plan") are: (1) to provide for the fair compensation of non-employee Directors of the Company and its subsidiaries, (2) to encourage ownership in the Common Stock of Fourth Financial Corporation (the "Company") by non-employee Directors of the Company and its subsidiaries, (3) to provide an additional incentive for them to continue in the service of the Company and its subsidiaries, so as to promote the success of the Company's business. It is anticipated that the Plan will assist the Company in attracting and retaining non-employee Directors who are capable of making valuable contributions to the long-term success of the Company and its subsidiaries. 2. Stock Subject to the Plan. The maximum number of shares which may be issued upon exercise of Options granted under the Plan ("Options") shall be 500,000 shares of the Company's Common Stock, par value $5.00 per share ("Common Stock"). Such shares may be either issued shares of Common Stock which shall have been reacquired by the Company or authorized but unissued shares of Common Stock as the Board of Directors of the Company (the "Board") shall from time to time determine. If any outstanding Option under the Plan for any reason expires or is terminated without having been exercised in full, the shares allocable to the unexercised portion of such Option shall again become available for option pursuant to the Plan. 3. Participation in the Plan. All non-employee Directors of the Company and its subsidiaries ("Non-Employee Directors") are eligible for, and shall automatically participate in, the Plan. A Director of the Company who is an employee of the Company, or of a subsidiary thereof, shall not be eligible to receive an Option under the Plan nor shall advisory directors be eligible to participate in the Plan. A Non-Employee Director who shall have been granted an Option under the Plan may be granted one or more additional Options if such Director continues to be eligible to receive Options. The term "subsidiary" as used in this Plan means a bank or other corporation more than 50% of the voting stock of which shall at the time be owned directly or indirectly by the Company. 4. Annual Grant of Options and Option Prices. (a) Each year on the first Monday following the Company's Annual Meeting of Stockholders, every Non-Employee Director of the Company who is eligible to receive options under the Plan shall automatically be granted an option to purchase 2,000 shares of the Company's Common Stock and each Non-Employee Director of a subsidiary who is eligible to receive options under the Plan shall automatically be granted an option to purchase 1,000 shares of the Company's Common Stock. (b) The purchase price of the Common Stock covered by each Option shall be the higher of (i) the mean between the reported bid and asked prices of the Common Stock on the date the Option is granted as reported on the NASDAQ National Market quotation system or (ii) the price of the last sale of Common Stock on such date as so reported. (c) If, on what would otherwise be a day on which Options would be granted, the General Counsel of the Company, in his or her sole discretion, determines that the Company is in possession of material, undisclosed information about the Company which would prohibit the Company from issuing securities without making a disclosure thereof, then the annual grant of Options shall be deferred until the second day after public dissemination of such information, and the price and option period shall be determined by reference to such later date. (d) If Common Stock is not publicly traded on any date a grant would otherwise be awarded, then the grant shall be made the next day thereafter on which Common Stock is so traded. 5. Term of Options. Except as is otherwise provided in Section 8 hereof, an Option shall expire at 5:00 P.M., Central time on the date which is ten years after the date such Option is granted. 6. Exercise of Options. An Option may be exercised in accordance with its terms at any time or from time to time after the granting thereof and the approval of this Plan by the stockholders of the Company. The purchase price of the shares purchased upon exercise of an Option shall be paid in full in cash at the time of the exercise. The Company shall have the right to require, prior to the issuance or delivery of any stock certificates, payment by an optionee of any taxes or other moneys required by law with respect to the issuance or delivery of shares of Common Stock. The holder of an Option shall not have any of the rights of a stockholder with respect to the shares covered by his or her Option until and except to the extent that the Option shall have been duly exercised. 7. Nontransferability of Options. An Option shall not be transferable otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of the optionee only by the optionee. No Option or interest therein may be transferred, assigned, pledged, or hypothecated by an optionee during his or her lifetime, by operation of law or otherwise, or be made subject to execution, attachment, or similar process. 8. Termination of Service. All rights of a Non- Employee Director in an Option, to the extent it has not been exercised, shall terminate three months after the date that such Non-Employee Director ceases to be a Non-Employee Director, except in the case of the Non-Employee Director's termination of service on account of death or disability. In the case of termination by reason of disability, such rights shall terminate twelve months from the date of termination of service. In the event of the death of the optionee, the unexercised portion of such Option may be exercised at any time within twelve months. In no event may any Option be exercised after the expiration of the terms of the Option as set forth in Paragraph 5 of this Plan. 9. Adjustments Upon Changes in Capitalization. Notwithstanding any other provisions of this Plan, in the event of any change in the outstanding Common Stock of the Company by reason of a stock dividend, stock split, merger, consolidation, splitup, combination or exchange of shares, reorganization, liquidation, or the like, the aggregate number and class of shares of Common Stock available under the Plan and the number and class of shares subject to each outstanding Option and the option prices shall be appropriately adjusted by the Board, whose determination shall be conclusive. 10. Termination and Amendment of the Plan. Unless the Plan shall be previously terminated as hereinafter provided, no Option shall be granted under the Plan after ten years from the date the Plan is adopted by the Board of Directors. The Board of Directors may at any time prior to that date suspend or terminate the Plan and shall have the right to alter or amend the Plan or any part thereof at any time and from time to time as it may deem proper and in the best interest of the Company. Any termination, suspension, alteration, or amendment of the Plan effected pursuant to this Paragraph l0 may be made by the Board of Directors without further action on the part of the stockholders of the Company; provided, that no such termination, suspension, alteration, or amendment shall (a) impair, without the consent of the Option holder, any Option theretofore granted to him under the Plan or deprive him of any Common Stock which he may have acquired under the Plan, or (b) unless approved by the stockholders of the Company, (i) increase the total number of shares of Common Stock which may be purchased under the Plan except as provided in Paragraph 9 hereof, (ii) extend the time during which Options may be granted under the Plan, (iii) change the class of Directors eligible to receive Options under the Plan, or (iv) change the manner of determining the Option price except to change the manner of determining the fair market value of the Common Stock. An amendment revising the price, date of exercise, option period, or number of shares which are the subject of an Option shall not be made more frequently than every six months unless necessary to comply with the Internal Revenue Code of 1986, as amended, or with the Employer Retirement Income Security Act of 1974, as amended. Any Option outstanding at the time of termination of the Plan shall remain in effect subject to the provisions of this Plan until the Option shall have been exercised or shall have expired. 11. Administration of Plan. The Plan shall be administered under the general direction and control of the Board of Directors which may from time to time issue orders or adopt resolutions not inconsistent with the provisions of the Plan, to interpret the provisions and supervise the administration of the Plan. 12. Effective Date of the Plan. The Plan shall be effective from the date of its approval by the stockholders of the Company. 13. Government and Other Regulations. The obligations of the Company to sell and deliver shares of Common Stock shall be subject to all applicable laws, rules, and regulations and such approvals by any governmental agencies as may be required, including, without limitation, the effectiveness of a registration statement under the Securities Act of l933, as deemed necessary or appropriate by counsel for the Company. 14. Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board of Directors nor the submission of the Plan for approval of the stockholders of the Company shall be construed as creating any limitations on the power of the Board of Directors to adopt such other incentive arrangements as it may deem desirable, including without limitation, the granting of stock options otherwise than under the Plan. 15. Compliance with SEC Regulations. It is the Company's intent that this Plan comply in all respects with Rule 16b-3 of the Securities Exchange Act of 1934, as amended, and any successor thereto. If any provision of this Plan is found not to be in compliance with such Rule, the provisions thereof shall be null and void. All grants and exercises of Options under this Plan shall be made and executed in compliance with the provisions of Section 16 of the Securities Exchange Act of 1934, as amended, and any regulations promulgated thereunder. 16. No Right to Continued Service. Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any Non-Employee Director any right to continued service as director of the Company or any subsidiary or affect any right of the Company or a subsidiary, acting through their Boards of Directors or stockholders to remove any Non-Employee Director. 17. Kansas Law Governs. To the extent not otherwise preempted, the laws of Kansas shall govern the resolution of all questions and disputes which arise with respect to this Plan. EX-10 7 EXHIBIT 10.12 STOCK PURCHASE AGREEMENT between BANK IV KANSAS, NATIONAL ASSOCIATION, as Purchaser and EMPRISE FINANCIAL CORPORATION, as Seller Dated as of January 31, 1994 TABLE OF CONTENTS Page # ------ ARTICLE I. Definitions . . . . . . . . . . . . . . . . . . .1 Section 1.1 Definitions . . . . . . . . . . . . . . . . . . .1 Section 1.2 Accounting Terms. . . . . . . . . . . . . . . . .8 Section 1.3 Use of Defined Terms. . . . . . . . . . . . . . .8 ARTICLE II. Sale and Transfer of Stock; Closing . . . . . . .8 Section 2.1 Sale of the Shares. . . . . . . . . . . . . . . .8 Section 2.2 Purchase Price. . . . . . . . . . . . . . . . . .8 Section 2.3 Closing . . . . . . . . . . . . . . . . . . . . .8 Section 2.4 Closing Deliveries. . . . . . . . . . . . . . . .8 ARTICLE III. Agreements of the Parties . . . . . . . . . . . .9 Section 3.1 Agreements of BANK IV . . . . . . . . . . . . . .9 Section 3.2 Agreements of Seller. . . . . . . . . . . . . . 10 Section 3.3 Section 338(h)(10) Election; Payment of Income Taxes . . . . . . . . . . . . 15 Section 3.4 Software and Copyrighted Materials. . . . . . . 15 ARTICLE IV. Representations and Warranties. . . . . . . . . 16 Section 4.1 Representations and Warranties of Seller. . . . . . . . . . . . . . . . . . . . . 16 Section 4.2 Representations and Warranties of BANK IV . . . . . . . . . . . . . . . . . . . . 26 ARTICLE V. Book Value Adjustments. . . . . . . . . . . . . 28 Section 5.1 Mutual Agreement. . . . . . . . . . . . . . . . 28 Section 5.2 Expenses Caused by BANK IV. . . . . . . . . . . 28 ARTICLE VI. Closing Conditions. . . . . . . . . . . . . . . 28 Section 6.1 Conditions to Obligations of BANK IV. . . . . . 28 Section 6.2 Conditions to Obligations of Seller . . . . . . 30 ARTICLE VII Termination of Agreement. . . . . . . . . . . . 31 Section 7.1 Mutual Consent; Termination Date. . . . . . . . 31 Section 7.2 Election by BANK IV . . . . . . . . . . . . . . 31 Section 7.3 Election by Seller. . . . . . . . . . . . . . . 31 Section 7.4 Effect of Termination . . . . . . . . . . . . . 32 ARTICLE VIII. Indemnification . . . . . . . . . . . . . . . . 32 Section 8.1 Closing; Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . 32 Section 8.2 Indemnification . . . . . . . . . . . . . . . . 32 Section 8.3 Procedure . . . . . . . . . . . . . . . . . . . 33 Section 8.4 Agreement as to Particular Contingent Liabilities . . . . . . . . . . . . . . . . . . 33 ARTICLE IX. Miscellaneous . . . . . . . . . . . . . . . . . 34 Section 9.1 Expenses. . . . . . . . . . . . . . . . . . . . 34 Section 9.2 Notices . . . . . . . . . . . . . . . . . . . . 34 Section 9.3 Time. . . . . . . . . . . . . . . . . . . . . . 35 Section 9.4 Law Governing . . . . . . . . . . . . . . . . . 35 Section 9.5 Entire Agreement; Amendment . . . . . . . . . . 35 Section 9.6 Successors and Assigns. . . . . . . . . . . . . 35 Section 9.7 Cover, Table of Contents, and Headings. . . . . . . . . . . . . . . . . . . . 35 Section 9.8 Counterparts. . . . . . . . . . . . . . . . . . 35 Section 9.9 Non-Competition . . . . . . . . . . . . . . . . 35 EXHIBITS Exhibit "A" Form of Morris, Laing, Evans, Brock & Kennedy, Chartered legal opinion Exhibit "B" Form of Noncompetition Agreement--W. A. Michaelis, Jr. Exhibit "C" Form of Noncompetition Agreement--M. D. Michaelis STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT, dated as of January 31, 1994, between BANK IV KANSAS, NATIONAL ASSOCIATION, a national banking association ("BANK IV"), and EMPRISE FINANCIAL CORPORATION, a Kansas corporation ("Seller"). W I T N E S S E T H: That, ------------------- WHEREAS, BANK IV desires to acquire all, and not less than all, of the issued and outstanding capital stock of all classes of Emprise Bank, National Association, Hutchinson, Kansas (the "Bank") subject to and pursuant to the terms of this Agreement; and WHEREAS, Seller owns all of the issued and outstanding capital stock of all classes of the Bank other than 1,200 directors' qualifying shares all of which it has the right to acquire; and WHEREAS, each party hereto believes that the proposed acquisition by BANK IV of Bank pursuant to the terms and conditions of this Agreement would be desirable and in their respective best interests; NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS 1.1. Definitions. The following terms as used in this Agreement shall have the following meanings unless the context otherwise requires. "This Agreement" refers to this Stock Purchase Agreement and all amendments hereto. "Bank" means Emprise Bank, National Association, a national banking association organized under the laws of the United States. "BANK IV" means BANK IV Kansas, National Association, a national banking association organized under the laws of the United States. "Bank Holding Company Act" means the federal Bank Holding Company Act of 1956, as amended (12 U.S.C. Section 1841 et seq.), or any successor federal statute, and the rules and regulations of the Board promulgated thereunder, all as the same may be in effect at the time. "Bank Stock" means common stock of the Bank, par value $10.00 per share. "Board" means the Board of Governors of the Federal Reserve System or any successor governmental entity which may be granted powers currently exercised by the Board of Governors. "Book Value of the Bank" means the aggregate consolidated book value of the Bank, calculated in accordance with GAAP, except excluding: (a) any adjustments otherwise required by Financial Accounting Standard No. 115 to reflect changes in the Bank's securities portfolio to adjust to market value; (b) any accounting adjustments to (i) the "push-down" accounting on the Bank and bank acquisitions by Bank; (ii) accrue for vacation pay, sick leave, and float holidays of employees not now reflected on the financial statements of Bank and which will not be reflected at the time of closing, notwithstanding that BANK IV will agree to cause such accrued employee benefits to be paid in accordance with past practices; (iii) the accounting treatment of intangible assets for goodwill, core deposit intangibles, covenants not to compete, and credit life agency shown on the daily statements of Bank, except that adjustments will be made for normal amortization of the assets in accordance with past practices of Bank; (iv) accrue for the litigation against Bank in Reno County District Court, Case No. 91 C 522, brought by Bruce Dierking, et al, if no final judgment has been rendered in the case at the time of Closing; (c) any other accounting adjustments, even though agreed upon by the parties, except in the amount that all such adjustments in the aggregate exceed the sum of $200,000, and (d) the cost to the Bank of discharging its remaining obligations under its discontinued pension plan; but including: (a) the effect of all dividends and bonuses permitted by this Agreement, whether or not otherwise properly accruable, which have not been accounted for in the Book Value of the Bank; and (b) adjustments, if any, to the loan loss reserves or investment portfolios as provided herein and as agreed by the parties. "Closing" means the event at which the purchase and sale agreed upon in this Agreement is consummated by payment of the Purchase Price by BANK IV and assignment of the Shares by Seller as provided in this Agreement. "Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, all as the same may be in effect at the time. "Comptroller" means the United States Comptroller of the Currency or any successor governmental agency which may be granted powers currently exercised by the Comptroller of the Currency. "Corporations" refers collectively to the Bank and Emprise Building Corp.-Hutchinson, and "Corporation" refers to any one of them. "Disclosure Statement" means the Disclosure Statement prepared by Seller and delivered by Seller to BANK IV prior to the execution and delivery of this Agreement by BANK IV. "Effective Time" means the date and time on which the Closing occurs. "Environmental, Health, and Safety Liabilities" means any loss, cost, expense, claim, demand, liability, or obligation of whatever kind or otherwise, based upon Environmental Law relating to: (i) any environmental, health, or safety matter or conditions, including, but not limited to, on-site or off-site contamination, occupational safety and health, and regulation of chemical substances or products; (ii) fines, penalties, judgments, awards, settlements, legal or administrative proceedings, damages, losses, claims, demands, and response, remedial or inspection costs and expenses arising under Environmental Laws; (iii) financial responsibility under any Environmental Law for cleanup costs or corrective actions, including for any removal, remedial or other response actions, and for any natural resource damage; and (iv) any other compliance, corrective, or remedial action required under any Environmental Law. "Environmental Law" means any provision of past or present Law relating to any environmental, health, or safety matters or conditions, Hazardous Materials, pollution, or protection of the environment, including, but not limited to, on- site and off-site contamination, occupational safety and health, and regulation of chemical substances or products, emissions, discharges, release, or threatened release of contaminants, chemicals or industrial, toxic, radioactive, or Hazardous Materials or wastes into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials, pollutants, contaminants, chemicals, or industrial, toxic, radioactive, or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder, all as the same may be in effect at the time. "Facilities" means any real property, leaseholds, or other interests in real property owned by the Bank or any of the Corporations and/or any buildings, plants, structures, or equipment of any of the Corporations. "FDIC" means the Federal Deposit Insurance Corporation or any successor agency. "Federal Deposit Insurance Act" means the Federal Deposit Insurance Act, as amended, and the rules and regulations promulgated thereunder, all as the same may be in effect at the time. "Financial Statements" refers to all of the financial statements described in clause i of Section 4.1 of this Agreement. "GAAP" means generally accepted accounting principles, applied on a consistent basis, set forth in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or their successors which are applicable in the circumstances in question; and the requisite that such principles be applied on a consistent basis means that the accounting principles observed in a current period are comparable in all material respects to those applied in a preceding period. "Hazardous Materials" means and includes: (i) any hazardous substance or toxic material (excluding any lawful product in customary quantities for use in the Bank's ordinary course of business which contains such substance or material), pollutant, contaminant, toxic material, or hazardous waste as defined in any state, federal, or local Environmental Law; (ii) waste oil and petroleum products; and (iii) any asbestos, asbestos containing material, urea formaldehyde or material which contains it. "Indemnifying Losses" shall have the meaning set forth in Section 8.2 of this Agreement. "Indemnitee" and "Indemnitees" shall have the meanings set forth in Section 8.2 of this Agreement. "Law" or "Laws" means all applicable statutes, laws, ordinances, regulations, orders, writs, injunctions, or decrees of the United States of America, any state or commonwealth, or any subdivision thereof, or of any court or governmental department, agency, commission, board, bureau, or other instrumentality. "Litigation" means any proceeding, claim, lawsuit, and/or investigation being conducted or, to the best of the knowledge of the person or corporation making the representation, threatened before any court or other tribunal, including, but not limited to, proceedings, claims, lawsuits, and/or investigations, under or pursuant to any occupational safety and health, banking, antitrust, securities, tax, or other Laws, or under or pursuant to any contract, agreement, or other instrument. "Permitted Contract" means a contract or agreement, written or oral, between the Bank or another of the Corporations, on the one hand, and a person other than a customer of the Bank or another financial institution, on the other hand, which (i) was entered into in the ordinary course of business, (ii) may be terminated by BANK IV after the Effective Time on no more than 30 days' prior notice, (iii) provides for a payment of no more than $1,000 in any calendar month by the Bank or a Corporation, and (iv) provides for no payment upon termination in excess of $1,000. "Permitted Encumbrances" means with respect to any asset: (a) liens for taxes not past due; (b) mechanics' and materialmen's liens for services or materials for which payment is not past due; and (c) minor defects, encumbrances, and irregularities in title which do not, in the aggregate, materially diminish the value of an asset or materially impair the use of an asset for the purposes for which it is or may reasonably be expected to be used. "Purchase" means the purchase at the Closing of the Shares from Seller by BANK IV pursuant to this Agreement. "Purchase Price" has the meaning set forth in Section 2.2 of this Agreement. "Required Approvals" means the approval, consent, or non- objection, as the case may be, of the Board, the Comptroller, and all other governmental or self-governing agencies, boards, departments, and bodies whose approval, consent or non-action is required in order to consummate the Purchase, the merger of the Bank into BANK IV and the retention by BANK IV of all of the Bank's Subsidiaries in substantially their present form, which approvals, consents, and non-objections shall have become final and nonappealable without any appeal or other form of review having been initiated and as to which all required waiting periods shall have expired. "Seller" means Emprise Financial Corporation, a Kansas corporation. "Shares" means collectively all of the 500,000 shares of Bank Stock being purchased and sold pursuant to this Agreement. "Subsidiary" means any corporation fifty percent or more of the common stock or other form of equity of which shall be owned, directly or indirectly, by another corporation. "Valuation Date" means the last day of the month which immediately precedes the Effective Time. 1.2. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistent with that applied in the preparation of the financial statements submitted pursuant to this Agreement, and all financial statements submitted pursuant to this Agreement shall be prepared in all material respects in accordance with such principles subject to exceptions described in this Agreement. 1.3. Use of Defined Terms. All terms defined in this Agreement shall have the defined meanings when used in any other agreement, document, or certificate made or delivered pursuant to this Agreement, unless the context otherwise requires. ARTICLE II SALE AND TRANSFER OF STOCK; CLOSING 2.1. Sale of the Shares. Subject to the terms and conditions of this Agreement, at the Closing, Seller shall sell, transfer, and deliver to BANK IV, and BANK IV shall purchase, all 500,000 of the Shares for the Purchase Price. 2.2. Purchase Price. The total Purchase Price for all of the Shares shall be the sum of: (i) the Book Value of the Bank at the Valuation Date; and (ii) $8,909,000. 2.3. Closing. The Closing shall take place at the offices of Foulston & Siefkin, 700 Fourth Financial Center, Wichita, Kansas, at 10:00 a.m., or at such other time or place as the parties may agree, on a date selected by BANK IV upon giving reasonable notice to Seller, which, unless otherwise agreed, shall be the end of the month in which the final Required Approval is obtained and in which the last required waiting periods shall expire. The parties agree to exert their best efforts to cause the Closing to occur on or before April 30, 1994. 2.4. Closing Deliveries. At the Closing: a. Seller shall deliver to BANK IV: (i) certificates representing all of the Shares, endorsed for transfer to BANK IV, free and clear of all encumbrances, liens, security interests, claims, and equities whatsoever; (ii) such other documents, including officers' certificates, as may be required by this Agreement or reasonably requested by BANK IV; and (iii) the opinion of Morris, Laing, Evans, Brock & Kennedy, Chartered, counsel to Seller and the Bank, substantially in the form of Exhibit "A" hereto. b. BANK IV shall deliver to Seller immediately available funds in the total amount of the Purchase Price, less that amount necessary to pay in full the present loan from BANK IV to Seller which is secured by a security interest in the Shares owned by Seller and which amount of the total Purchase Price shall be applied in payment and satisfaction of such loan. c. BANK IV and W. A. Michaelis, Jr., and M. D. Michaelis shall execute and deliver non- competition agreements substantially in the form of Exhibits "B" and "C" hereto, respectively. ARTICLE III AGREEMENTS OF THE PARTIES 3.1. Agreements of BANK IV. Prior to the Effective Time, BANK IV, shall use its best efforts in good faith to take or cause to be taken as promptly as practicable all such steps as shall be necessary to obtain all of the Required Approvals. All such steps, including all proceedings before governmental bodies, shall be at the sole cost and expense of BANK IV, but Seller shall fully cooperate and shall cause the Corporations to cooperate fully with BANK IV in obtaining all Required Approvals. 3.2. Agreements of Seller. a. Prior to the Closing, Seller shall not permit any of the Corporations to, except with the prior written consent of BANK IV or as otherwise provided in this Agreement: (1) Amend its articles or certificate of incorporation, bylaws, or other charter documents, make any change in its authorized, issued, or outstanding capital stock, grant any stock options or right to acquire shares of any class of its capital stock or any security convertible into any class of capital stock, purchase, redeem, retire, or otherwise acquire (otherwise than in a fiduciary capacity) any shares of any class of its capital stock or any security convertible into any class of its capital stock, or agree to do any of the foregoing; (2) Except for quarterly cash dividends in the maximum amount of $350,000 each payable by the Bank at the same time or times as has been done in the past, declare or pay any dividend or other distribution in respect of any class of its capital stock; (3) Adopt, enter into, or amend materially any employment contract or any bonus, stock option, profit sharing, pension, retirement, incentive, or similar employee benefit program or arrangement or grant any bonus, salary, or wage increase, except (a) normal individual bonuses or increases in compensation to employees in accordance with established employee procedures of the Corporations; and (b) normal severance pay on termination of any employee in accordance with past practices and employee termination guidelines; (4) Incur any indebtedness for borrowed money (except for federal funds, repurchase agreements entered into in the ordinary and usual course of business, deposits received by the Bank, endorsement for collection or deposit of negotiable instruments received in the ordinary and usual course of business, and issuance of letters of credit by the Bank in the ordinary and usual course of business), assume, guarantee, endorse, or otherwise as an accommodation become liable or responsible for obligations of any other individual, firm, or corporation; (5) Pay or incur any obligation or liability, absolute or contingent, other than liabilities incurred in the ordinary and usual course of business of the Corporations; (6) Except for transactions in the ordinary and usual course of business of the Bank, mortgage, pledge, or subject to lien or other encumbrance any of its properties or assets; (7) Except for transactions in the ordinary and usual course of business of the Bank (including, without limitation, sales of assets acquired by the Bank in the course of collecting loans), sell or transfer any of its properties or assets or cancel, release, or assign any indebtedness owed to it or any claims held by it; (8) Make any investment of a capital nature in excess of $25,000 for any one item or group of similar items either by the purchase of stock or securities (not including bonds or collateralized mortgage obligations purchased in the ordinary and usual course of business by the Bank), contributions to capital, property transfers, or otherwise, or by the purchase of any property or assets of any other individual, firm, or corporation; (9) Enter into any other agreement not in the ordinary and usual course of business; (10) Merge or consolidate with any other corporation, acquire any stock (except in a fiduciary capacity), solicit any offers for any Bank Stock, or a substantial portion of the assets of either of the Corporations or, except in the ordinary course of business, acquire any assets of any other person, corporation, or other business organization, or enter into any discussions with any person concerning, or agree to do, any of the foregoing; or (11) Enter into any transaction or take any action which would, if effected prior to the Effective Time, constitute a breach of any of the representations, warranties, or covenants contained in this Agreement; provided, that transactions and other dealings with affiliated banks which are made to separate their respective affairs shall not constitute a breach of any of the covenants contained in this subparagraph (a). b. Prior to the Effective Time, Seller shall cause each of the Corporations to conduct its respective business in the ordinary and usual course as heretofore conducted and to use its best efforts (1) to preserve its business and business organization intact, (2) to keep available to BANK IV the services of the present officers and employees of the Bank, except Seller reserves the right to hire Patrick W. Michaelis, Diana Fisher, Cynthia Fleming, Steve Onken, Roy Doonan, and Keith Moyer, (3) to preserve the good will of customers and others having business relations with the Bank, (4) to maintain its properties in customary repair, working order and condition (reasonable wear and tear excepted), (5) to comply with all Laws applicable to it and the conduct of its businesses, (6) to keep in force at not less than their present limits all existing policies of insurance, (7) except as provided in this Agreement, to make no material changes in the customary terms and conditions upon which it does business, (8) to duly and timely file all reports, tax returns, and other documents required to be filed with federal, state, local, and other authorities, and (9) unless it is contesting the same in good faith and has established reasonable reserves therefor, to pay when required to be paid all taxes indicated by tax returns so filed or otherwise lawfully levied or assessed upon it or any of its properties and to withhold or collect and pay to the proper governmental authorities or establish separate liability accounts for such payment all taxes and other assessments which it believes in good faith to be required by law to be so withheld or collected. c. Prior to the Effective Time, Seller shall cause the Corporations, to the extent permitted by Law, to give BANK IV and its counsel and accountants full access, during normal business hours and upon reasonable notice, to their respective properties, books, and records, and to furnish BANK IV during such period with all such information concerning their affairs as BANK IV may reasonably request. Except for matters expressly disclosed in the Disclosure Statement, the availability or actual delivery of information about the Corporations to BANK IV shall not affect the covenants, representations, and warranties of Seller contained in this Agreement. Except for information disclosed in the course of obtaining governmental approvals, BANK IV shall treat as confidential all such information in the same manner as BANK IV treats similar confidential information of its own and, if this Agreement is terminated, BANK IV shall continue to treat all such information obtained in such investigation and not otherwise known to BANK IV, or already in the public domain, as confidential and shall return such documents theretofore delivered by Seller to BANK IV as Seller shall request. d. Seller acknowledges that BANK IV will merge the Bank into BANK IV at the Effective Time. Accordingly, Seller agrees to take all such action and to cause the Bank to take all such action as BANK IV may reasonably request in order for such a merger to occur contemporaneous with the Effective Time. Any such request shall be in writing and mailed, faxed, served, or delivered to either Mr. L. Thomas Veatch, as Senior Vice President and Chief Financial Officer of Seller, or Ralph R. Brock, as attorney for Seller. e. Seller agrees not to sell, pledge, encumber or otherwise hypothecate or transfer any shares of Bank Stock prior to the Effective Time. f. Upon request, Seller shall furnish or cause to be furnished to BANK IV copies of title insurance policies, title opinions of attorneys, or other title evidence presently in the possession of Seller or Corporations covering or pertaining to the title of Corporations to any real properties owned by them. Any additional title evidence desired by BANK IV shall be obtained by it at its expense. Seller may, but shall not be obligated to, perform any curative title work in event the title to any of such real properties contains a defect other than Permitted Encumbrances. If Seller declines to perform any such curative work, then BANK IV may, but shall not be obligated to, undertake such curative work, in which event Seller shall fully cooperate with BANK IV in such work which shall then be at the cost and expense of BANK IV. g. BANK IV shall have the right at any time prior to Closing at its cost and expense to make such environmental inspections and surveys of the property of the Corporations and to obtain such environmental assessment reports as BANK IV may deem advisable and appropriate. BANK IV, its agents and consultants, shall have access to the properties at all reasonable times and may take such soil or other tests as may be reasonable, and Seller and Corporations shall cooperate fully with BANK IV with reference to such environmental surveys and assessments. h. Seller shall permit and cause Corporations to permit BANK IV at all reasonable times within 45 days from the date hereof to have any of the Facilities of Corporations surveyed by a duly licensed surveyor of BANK IV's choice. Any such surveys shall be made and obtained at the cost and expense of BANK IV, but Seller and Corporations shall cooperate fully with BANK IV in obtaining any such survey. i. From the date hereof through the Effective Time, Seller shall cause the Bank to give BANK IV one business day's advance notice by telephone or facsimile to Thomas A. Page, President-Community Banking of BANK IV, of all proposed securities purchases or sales involving an aggregate price of $250,000 or more. If no objection is received within such period of one business day, then Bank may proceed to make the proposed purchases or sales. j. Seller, in consultation with BANK IV, shall cause the Bank to exert its best efforts to fully discharge all of its remaining liabilities under its discontinued pension plan. 3.3. Section 338(h)(10) Election; Payment of Income Taxes. Seller and BANK IV agree to make a joint election under Section 338(h)(10) of the Code in accordance with applicable Law. At Closing, BANK IV shall pay to Seller an amount equal to all amounts that are included at the Valuation Date in the "Accrued Federal Income Tax," "Accrued Privilege Tax," "Deferred Federal Income Tax," "Deferred Privilege Tax," and any other accounts of Corporations containing a liability for income and privilege taxes, including any accounting adjustments and/or corrections agreed upon by Seller and BANK IV through the Valuation Date, plus the estimated liability of the Corporations for all such taxes for the period from the Valuation Date through the Effective Time, and plus the amount of any reimbursements for such taxes, if any, received by Corporations during such period, less the amount of such taxes, if any, paid by Corporations during such period. If any of such accounts have debit (negative) balances at the Valuation Date, they will offset the credit balances, and only the net amount will be paid to Seller. All liability for such taxes of the Corporations during the period from the Valuation Date through the Effective Time shall be estimated by using a per-day accrual for that period based on the average daily income of the Corporations for the preceding three months and a 39% combined tax rate, with the calculation of such average daily income to be made without regard to any accounting adjustments or adjustments to loan loss reserves or investment portfolios resulting from the transactions contemplated by this Agreement. Seller will pay all state and federal income taxes attributable to the Corporations' operations through the Effective Time. BANK IV will promptly pay over to Seller any refunds it may receive for overpayments, carrybacks, credits, or otherwise arising which are attributable to either or both of the Corporations for the period through the Effective Time. 3.4. Software and Copyrighted Materials. At Closing Seller shall assign to BANK IV all licenses owned by Seller of software or other copyrighted property and the licensed software and property presently being used by Bank sufficient to permit BANK IV to continue using such property if Bank paid for its right to use such property, such licenses can be assigned without the consent or approval of the licensors or any third party, and BANK IV desires to continue to use such property. If assignment of any such license or right to use such property requires the consent or approval of the licensor or another party, Seller agrees to use its best efforts to obtain such consent or approval or to obtain a separate license or right to use the property for BANK IV on such terms and for such price, royalty, or other consideration, if any, required by the licensor or other party as may be satisfactory to BANK IV, which shall pay such consideration. Any license or right to use such property and the software and property licensed will not be assigned to BANK IV or obtained for it if BANK IV does not desire to continue the use of such property or if any required consent to such assignment or right to use such property cannot be obtained on terms satisfactory to BANK IV. If any such rights or right to use such property is owned by Bank and BANK IV desires to continue to use such property, but will not have the right to do so after the merger without the consent of the licensor or a third party, Seller likewise will use its best efforts to obtain such consent or approval the same as though the license was owned by Seller. If any such license or right to use such property is owned by Bank and BANK IV does not desire to continue the use of such property, but Seller desires to acquire the same, then at Closing Bank shall assign to Seller such license or right to use such property and the property licensed if such license or right to use such property can be assigned without the consent or approval of the licensor or another party or if any required consent or approval can be obtained on terms and for such price, royalty, or other consideration, if any, required by the licensor or another party, as may be satisfactory to Seller, which shall pay such consideration. Any software or other licensed or copyrighted materials presently utilized by Bank and which BANK IV will not have the right to use after Closing shall at Closing be returned or delivered to Seller or the licensor who is entitled to it, as the case may be, and BANK IV covenants and agrees after Closing not to use, disclose, reveal, or permit others to use, disclose, or reveal such property or materials in violation of any license or other agreement pertaining thereto, or any copyright or other law, or rule of law pertaining to trade secrets or proprietary or confidential information, which violation could subject Seller to a claim or payment of damages or other legal remedies for such violation. Notwithstanding the foregoing, however, it is understood and agreed that any software or hardware techniques or methods devised or developed by the Data Processing Center or personnel of Seller shall be retained by Seller as its trade secrets and proprietary information, and after Closing Bank shall have no further right to use the same. ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1. Representations and Warranties of Seller. Except as disclosed in the Disclosure Statement, Seller represents and warrants to BANK IV as follows: a. Organization, Good Standing, and Authority. Seller is a bank holding company duly registered pursuant to the Bank Holding Company Act. Each of the Corporations is a corporation or bank duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. b. Authority. Each of the Corporations has all requisite corporate power and authority to conduct its business as it is now conducted, to own its properties and assets, and to lease properties used in its business. Neither of the Corporations is in violation of its charter documents or bylaws, or of any applicable Law in any material respect, or in default in any material respect under any material agreement, indenture, lease, or other document to which it is a party or by which it is bound. The deposits of the Bank are insured by the FDIC to the extent provided by the Federal Deposit Insurance Act and the Bank has paid all assessments and filed all reports required to be filed under the Federal Deposit Insurance Act. c. Binding Obligations; Due Authorization. This Agreement constitutes the valid and binding obligation of Seller, enforceable against it in accordance with the terms hereof, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws and equitable principles affecting creditors' rights generally. d. Absence of Default. The execution and the delivery of this Agreement, the sale of the Shares, and the consummation of the other transactions contemplated hereby, and the fulfillment of the terms hereof will not (1) conflict with, or result in a breach of the terms, conditions, or provisions of, or constitute a default under the organizational documents or bylaws of any of the Corporations or under any agreement or instrument under which either of the Corporations or the Seller is obligated, or (2) violate any Law to which either of the Corporations or the Seller is or will be subject prior to the Closing, but Seller makes no representation or warranty as to the proposed merger of the Bank into BANK IV or as to any aspect of any Law peculiar to BANK IV or Fourth Financial Corporation. e. Subsidiaries. The only Subsidiary of the Bank is Emprise Building Corp.-Hutchinson. f. Capitalization; Ownership of Shares. The Bank is authorized to issue 500,000 shares of capital stock, par value $10 per share, all of which is duly issued and outstanding. Seller is the owner, free and clear of all encumbrances, liens, security interests, and claims whatsoever, except a security interest to secure a loan from BANK IV, of all 500,000 shares of Bank Stock, except for 1,200 directors' qualifying shares. As provided herein, the loan will be repaid from the total Purchase Price at Closing. The directors' qualifying shares will be reacquired by Seller and will be sold and transferred to BANK IV at the Closing. Emprise Building Corp.-Hutchinson is authorized to issue 100,000 shares of common stock, par value $1 per share, of which 30,000 shares are issued and outstanding and are owned, free and clear of all liens, security interests, and claims whatsoever, by the Bank. g. Charter Documents. True and correct copies of the charter documents and bylaws of both of the Corporations, with all amendments thereto, are included in the Disclosure Statement as Exhibits "G-1" to "G-4." h. Options, Warrants, and Other Rights. None of the Corporations has outstanding any options, warrants, or rights of any kind requiring it to sell or issue to anyone any capital stock of any class and none of the Corporations has agreed to issue or sell any additional shares of its capital stock. i. Financial Statements. Included in the Disclosure Statement as Exhibits "I-1," et seq. are true and complete copies of the following financial statements, all of which are true and complete in all material respects and have been prepared in all material respects in accordance with GAAP and all applicable regulatory accounting principles consistently followed throughout the periods indicated, subject in the case of interim financial statements, to normal recurring year- end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse) and the absence of notes (which if presented would not differ materially from those included in the most recent year-end financial statements): (1) Unaudited Consolidated Financial Statements of the Bank as of December 31, 1992, and 1991, and for the fiscal years then ended with accountants' compilation report thereon and notes thereto, which have been compiled by Grant Thornton, independent certified public accountants; and (2) Consolidated Reports of Condition and Income, as of March 31, June 30, and September 30, 1993, as filed by the Bank with the FDIC. As soon as practicable between the date hereof and the Effective Time, Seller will deliver to BANK IV copies of monthly operating statements and monthly securities inventory reports of the Bank and of all reports filed by either of the Corporations with any regulatory agencies. The books of account of each of the Corporations and each of the Financial Statements fairly and correctly reflect and, when delivered, will reflect in all material respects in accordance with GAAP and all applicable rules and regulations of regulatory agencies applied on a consistent basis, the respective incomes, expenses, assets, and liabilities, except contingent liabilities disclosed in the Disclosure Statement, of each of the Corporations (except for the absence in the monthly operating statements of the Bank of certain information and footnotes normally included in financial statements prepared in accordance with GAAP and except the exceptions listed in the definition of Book Value of the Bank in Section 1.1 of this Agreement). There have been, and prior to the Effective Time there will be, no material changes in the financial condition of the Bank from December 31, 1992, other than changes made in the usual and ordinary conduct of the businesses of the Corporations, none of which has been or will be materially adverse and all of which have been or will be recorded in the books of account of the Corporations, except possible contingent liabilities disclosed in Exhibit "I-_" of the Disclosure Statement; and except as specifically permitted by this Agreement, there have been, and prior to the Effective Time there will be, no substantial changes in the respective businesses, assets, properties, or liabilities, absolute or contingent, of any of the Corporations, or in their respective condition, financial or otherwise, from the date of the most recent of the Financial Statements that has been delivered to BANK IV on the date hereof other than changes occurring in the usual and ordinary conduct of the business of the Corporations, none of which has been or will be materially adverse and all of which have been or will be recorded in the respective books of account of the Corporations. Neither of the Corporations has any contingent liabilities, other than letters of credit and similar obligations of the Bank incurred in the ordinary course of business, asserted or which have a reasonable likelihood of being asserted, that are not disclosed in the Financial Statements listed above or that have not otherwise been disclosed to BANK IV in the Disclosure Statement. Seller also agrees to use reasonable efforts to have the accountants of Bank prepare and deliver to BANK IV prior to Closing a copy of Bank's compiled consolidated financial statements as of December 31, 1993, and for the year then ended, with accountant's compilation report thereon and notes thereto, but makes no warranty that such financial statements can or will be available prior to Closing, particularly if Closing occurs prior to April 1, 1994. j. Real Properties. Exhibit "J" to the Disclosure Statement is a complete list of all real estate owned or leased by either of the Corporations. Each Corporation has good and marketable title in fee simple to all lands and buildings described in the Disclosure Statement as being owned by it, free and clear of all liens, encumbrances, and charges, except for Permitted Encumbrances. All leases of real property to which either of the Corporations is a party as lessee, true and complete copies of each of which with all amendments thereto are included in Exhibit "J" to the Disclosure Statement, are each valid and enforceable in accordance with their respective terms except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar Laws and equitable principles affecting creditors' rights generally, and there has been no material default by any party thereto. No zoning ordinance prohibits, interferes with, or materially impairs the usefulness of any of the real property and buildings thereon owned or used by any Corporation for the purposes for which it is now being used; and all the premises owned or leased by either of the Corporations are in good operating condition and repair, normal wear and tear excepted. k. Personal Property. Except for the personal property listed on Exhibit "K" to the Disclosure Statement, each of the Corporations has good and marketable title to all of the machinery, equipment, materials, supplies, and other property of every kind, tangible or intangible, contained in its offices and other facilities or shown as assets in its records and books of account, free and clear of all liens, encumbrances, and charges. All leases of personal property to which either of the Corporations is a party as lessee are valid and enforceable in accordance with their terms, and there has been no material default by any party thereto. All of such personal property owned or leased by either of the Corporations is in good operating condition, normal wear and tear excepted. l. Taxes. The Corporations have filed all tax returns and reports required to be filed with the United States Government and with all states and political subdivisions thereof where any such returns or reports are required to be filed and where the failure to file such return or report would subject any of the Corporations to any material liability or penalty. All taxes imposed by the United States, or by any foreign country, or by any state, municipality, subdivision, or instrumentality of the United States or of any foreign country, or by any other taxing authority, which are due and payable by either of the Corporations have been paid in such amounts and at such times as not to be delinquent or have been adequately provided for by reserves shown in the records and books of account of the Corporations and in the Financial Statements. No extension of time for the assessment of deficiencies for any years is in effect. Except for the potential claim by the State of Kansas for additional privilege taxes described in Exhibit "L" to the Disclosure Statement, neither Seller nor any of the Corporations has any knowledge of any unassessed tax deficiency proposed or threatened against any of them. m. Contracts. Other than Permitted Contracts and agreements with customers of the Bank and with financial institutions entered into by the Bank in the ordinary course of its banking business, attached to the Disclosure Statement as Exhibit "M" is a list of all material contracts and other agreements and arrangements, both written and oral, to which either of the Corporations is a party and which involve $10,000 or more, which affect or pertain to the operation of their respective businesses. To the best knowledge of Seller, all parties thereto have in all material respects performed, and are in good standing with respect to, all the material obligations required to be performed under all such contracts and other agreements and arrangements, and no obligation with respect thereto is overdue. All of the material agreements of the Corporations, including without limitation the agreements disclosed in writing pursuant to this clause (m), are valid, binding, and enforceable in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws and equitable principles affecting creditors' rights generally. Except as otherwise noted in Exhibit "M" to the Disclosure Statement, no contract, lease, or other agreement or arrangement to which either of the Corporations is a party or as to which any of their assets is subject requires the consent of any third party in connection with this Agreement. Except as described in Exhibit "M" to the Disclosure Statement, neither any Corporation nor Seller has any knowledge of any threatened cancellation of, any outstanding disputes or default under, or of any basis for any claim of breach or default of, any lease, contract, or other agreement or arrangement to which either of the Corporations is a party. Except for Permitted Contracts and except as set forth in Exhibit "M" to the Disclosure Statement, neither the Bank nor the Corporations is a party to: (1) Any contract for the purchase or sale of any materials, or supplies which contains any escalator, renegotiation, or redetermination clause or which commits it for a fixed term; (2) Any contract of employment with any officer or employee not terminable at will without liability on account of such termination; (3) Any management or consultation agreement not terminable at will without liability on account of such termination; (4) Any license, royalty, or union agreement, or loan agreement in which any of the Corporations is the borrower; (5) Any contract, accepted order, or commitment for the purchase or sale of materials, services, or supplies having a total remaining contract price in excess of $10,000; (6) Any contract containing any restrictions on any party thereto competing with either of the Corporations, or any other person; (7) Any other agreement which materially affects the business, properties, or assets of either of the Corporations, or which was entered into other than in the ordinary and usual course of business; or (8) Any letter of credit or commitment to make any loan or group of loans to related parties in an amount in excess of $250,000. n. Labor Relations; Employees; ERISA. Neither of the Corporations is a party to or affected by any collective bargaining agreement, nor is any Corporation a party to any pending or, to the best knowledge of Seller, threatened labor dispute, organizational efforts, or labor negotiations. Each of the Corporations has complied in all material respects with all applicable Laws relating to the employment of labor, including, but not limited to, the provisions thereof relating to wages, hours, collective bargaining, payment of social security taxes, and equal employment opportunity, the violation of which would have a materially adverse impact on their respective businesses. Neither of the Corporations is liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. Except for the Bank's profit sharing plan (the "Profit Sharing Plan"), true and complete copies of which with all amendments thereto are Exhibit "N" to the Disclosure Statement, neither of the Corporations has any written or oral retirement, pension, profit sharing, stock option, bonus, or other employee benefit plan or practice other than group health and accident insurance and employee bonuses for country club dues and year-end employee incentive awards. The Profit Sharing Plan is in material compliance with ERISA and the Code and is a "qualified plan" within the meaning of Section 401(a) of the Code and is the subject of a currently effective written determination of the Internal Revenue Service to such effect and to the further effect that the trust thereunder is a trust exempt from taxation under Section 501 of the Code. Neither Seller nor either of the Corporations knows of any facts or circumstances that could adversely affect the status of such plan as such a plan or such trust as such a trust. All accrued contributions and other payments to be made by the Bank under the Profit Sharing Plan have been made or reserves adequate for such purposes have been set aside therefor. Neither of the Corporations has violated any of the provisions of ERISA, and neither of them has engaged in any "prohibited transactions" as such term is defined in Section 406 of ERISA. Each of the Corporations has complied with all applicable notice requirements and has provided group health care continuation coverage under Section 4980B of the Code and/or any other applicable Laws. There is no employee of either of the Corporations whose employment is not terminable at will without severance pay or other penalty or compensation other than as described in Exhibit "N." All employment contracts with employees are oral and are terminable at will. o. Government Authorizations. Each of the Corporations has all permits, charters, licenses, orders, and approvals of every federal, state, local, or foreign governmental or regulatory body required in order to permit it to carry on its business substantially as presently conducted. All such licenses, permits, charters, orders, and approvals are in full force and effect, and, to the knowledge of the Corporations and Seller, no suspension or cancellation of any of them is threatened and neither Seller nor any of the Corporations knows of any fact or circumstance that will interfere with or adversely affect the renewal of any of such licenses, permits, charters, orders, or approvals; and none of such permits, charters, licenses, orders, and approvals will be affected by the consummation of the transactions contemplated by this Agreement, except as they may be affected by the merger contemplated by BANK IV. p. Insurance. Exhibit "P" to the Disclosure Statement is a complete list of all insurance policies presently in effect and in effect during the past three years. All the insurance policies and bonds currently maintained by any of the Corporations are in full force and effect. q. Litigation. Exhibit "Q" to the Disclosure Statement contains a true and complete list and brief description of all pending or, to the knowledge of either of the Corporations or Seller, threatened, Litigation to which either of the Corporations is or would be a party or to which any of their assets is or would be subject. Except as described on Exhibit "Q" to the Disclosure Statement, neither of the Corporations is a party to any Litigation other than routine litigation commenced by the Bank to enforce obligations of borrowers in which no counterclaims for any material amounts of money have been asserted or, to the knowledge of the Corporations or Seller, threatened. r. Brokers or Finders. No broker, agent, finder, consultant, or other party (other than legal and accounting advisors) has been retained by Seller or either of the Corporations or is entitled to be paid based upon any agreements, arrangements, or understandings made by Seller or either of the Corporations in connection with any of the transactions contemplated by this Agreement. s. Environmental Compliance. Each of the Corporations is in material compliance with all relevant Environmental Laws and neither of the Corporations has any material Environmental, Health, and Safety Liabilities. None of the Facilities is now being used or, to the best of Seller's knowledge, at any time in the past has ever been used by any of the Corporations, or to the knowledge of Seller without investigation, by third parties, for the storage (whether permanent or temporary), disposal, or handling of any Hazardous Materials, nor are any Hazardous Materials located in, on, under, or at any of the Facilities. Neither Seller nor either of the Corporations has received any notice of material violation of any Environmental Law, or any notice of any material potential Environmental, Health, and Safety Liabilities with respect to any of the Facilities or to any other properties and assets in which either of the Corporations has had an interest. t. Employment of Aliens. Each of the Corporations is in material compliance with the Immigration Reform and Control Act of 1986. u. Notes and Leases. All promissory notes and leases owned by the Bank at the Effective Time will represent bona fide indebtedness or obligations to the Bank and are and will be fully enforceable in accordance with their terms without valid set-offs or counterclaims, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws and equitable principles affecting creditors' rights generally; provided, however, no representation or warranty is made in this Agreement as to the collectibility of such notes and leases. v. No Misrepresentations. Neither this Agreement, the Disclosure Statement, nor the Financial Statements, when considered in conjunction with all other information and documents contained therein, contains or will contain any misstatement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. w. Updating of Representations and Warranties. Between the date hereof and the Effective Time, Seller will promptly disclose to BANK IV in writing any information of which it has actual knowledge (1) concerning any event that would render any material representation or warranty of Seller untrue if made as to the date of such event, (2) which renders any information set forth in this Agreement or the Disclosure Statement no longer correct in all material respects, or (3) which arises after the date hereof and which would have been required to be included in this Agreement or Disclosure Statement if such information had existed on the date hereof. x. True at Effective Time. Except as otherwise specifically provided in this Agreement, all of the representations and warranties set forth above will be true and correct at the Effective Time with the same force and effect as though such representations and warranties had been made at the Effective Time. 4.2. Representations and Warranties of BANK IV. BANK IV represents and warrants to Seller as follows: a. Organization, Good Standing, and Authority. BANK IV is a bank duly organized, validly existing, and in good standing under the laws of the United States, and has all requisite corporate power and authority to conduct its business as it is now conducted, to own its properties and assets, and to lease properties used in its business. BANK IV is not in violation of its charter documents or bylaws, or of any applicable Law in any material respect, or in default in any material respect under any material agreement, indenture, lease, or other document to which it is a party or by which it is bound. b. Binding Obligations; Due Authorization. This Agreement constitutes the valid and binding obligations of BANK IV, enforceable against it in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws and equitable principles affecting creditors' rights generally. The execution, delivery, and performance of this Agreement and the transactions contemplated hereby have been duly authorized by the board of directors of BANK IV. c. Absence of Default. None of the execution or the delivery of this Agreement, the consummation of the transactions contemplated hereby, or the fulfillment of the terms hereof, will (1) conflict with, or result in a breach of the terms, conditions, or provisions of, or constitute a default under the charter documents or bylaws of BANK IV or under any agreement or instrument under which BANK IV is obligated, or (2) violate any Law to which it is subject. d. Brokers or Finders. No broker, agent, finder, consultant, or other party (other than legal and accounting advisors) has been retained by BANK IV or is entitled to be paid based upon any agreements, arrangements, or understandings made by BANK IV in connection with any of the transactions contemplated by this Agreement. ARTICLE V BOOK VALUE ADJUSTMENTS 5.1. Mutual Agreement. The parties agree that no adjustments to the Book Value of the Bank shall be made for any of those items excluded from adjustment in the definition of Book Value of the Bank contained in Section 1.1 of this Agreement. No adjustments shall be made for loan loss reserves, investment portfolios, or accounting adjustments unless such accounting adjustments are in excess of $200,000 in the aggregate, without the mutual consent of both parties to this Agreement. With reference to loan loss reserves, BANK IV acknowledges that it has reviewed the loan loss reserves as of October 31, 1993, finds that they are adequate as of that time, and agrees not to request adjustments to the amount of the loan loss reserves as of that date for the loans of Bank existing on that date in the absence of material adverse changes subsequent to that date in the financial condition of a borrower or borrowers or in the absence of receipt after that date of additional financial information concerning a borrower or borrowers which justifies a higher risk reclassification of the loans of such borrower or borrowers. In event Seller and BANK IV are unable to agree on any accounting adjustment, adjustment to the loan loss reserves or investment portfolio, or to any adjustment which would cause an adjustment in Book Value of the Bank after good faith negotiations, then this Agreement shall terminate. 5.2. Expenses Caused by BANK IV. The amount of any out of pocket expense incurred by the Bank on or before Closing as a result of due diligence efforts undertaken by BANK IV or in preparation for assuming control of Corporations, including without limitation but by way of illustration, additional payroll costs resulting from attendance by employees at seminars to become familiar with BANK IV methods and procedures, shall be paid by BANK IV to Bank at Closing or, if this Agreement is terminated without closing other than by reason of Seller's breach or pursuant to Section 5.1, to Corporations in reimbursement of such expenses. ARTICLE VI CLOSING CONDITIONS 6.1. Conditions to Obligations of BANK IV. The obligations of BANK IV to purchase the Shares shall be subject to the following conditions which may, to the extent permitted by Law, be waived by BANK IV at its option: a. Absence of Litigation. No order, judgment, or decree shall be outstanding restraining or enjoining consummation of the purchase of the Shares; and no Litigation shall be pending or threatened in which it is sought to restrain or prohibit the purchase of the Shares or obtain other substantial monetary or other relief against one or more of the parties hereto in connection with this Agreement. b. Regulatory Approvals. All Required Approvals shall have been procured (and shall continue to be in effect) and all other requirements prescribed by Law shall have been satisfied. c. Minimum Net Worth of Bank. The Book Value of the Bank as of the Valuation Date, computed in accordance with GAAP, except as provided in this Agreement, shall be not less than $20,000,000. d. Opinion of Counsel. BANK IV shall have received the opinion of Morris, Laing, Evans, Brock & Kennedy, Chartered, counsel to the Corporations and Seller, substantially in the form of Exhibit "A" hereto. e. Representations and Warranties; Covenants. The representations and warranties of Seller contained in Section 4.1 of this Agreement shall have been true and correct in all material respects on the date made and shall be true and correct in all material respects at the Effective Time as though made at such time, excepting any changes occurring in the ordinary course of business, none of which shall have been materially adverse, and excepting any changes contemplated or permitted by this Agreement. Seller shall have performed all of its obligations under this Agreement. f. Certificates. Seller shall have delivered to BANK IV a certificate, in form and substance satisfactory to BANK IV, dated the Effective Time and signed by the chief executive officer and chief financial officer of each of Seller and Bank, certifying in such detail as BANK IV may reasonably request the fulfillment of the foregoing conditions; provided, that none of the certifications contained therein shall survive the Closing except to the extent they pertain to representations and warranties that survive the Closing as expressly provided in Section 8.1 of this Agreement. g. Resignations. Seller shall have delivered to BANK IV the written resignations, effective at the Effective Time, of those directors of the Corporations as BANK IV shall have requested at least five business days prior to the Effective Time. h. Delivery of Noncompetition Agreements. The parties shall have executed and delivered Noncompetition Agreements substantially in the form of Exhibits "B" and "C" hereto. 6.2. Conditions to Obligations of Seller. The obligation of Seller to sell the Shares and to consummate the transactions contemplated hereby shall be subject to the following conditions which may, to the extent permitted by Law, be waived by Seller at its option: a. General. Each of the conditions specified in clauses a and b of Section 6.1 shall have occurred and be continuing. b. Representations and Warranties; Covenants. The representations and warranties of BANK IV contained in Section 4.2 of this Agreement shall have been true and correct in all material respects on the date made and shall be true and correct in all material respects at the Effective Time as though made at such time. BANK IV shall have duly performed all of its obligations under this Agreement. c. Delivery of Noncompetition Agreements. The parties shall have executed and delivered Noncompetition Agreements substantially in the form of Exhibits "B" and "C" hereto. ARTICLE VII TERMINATION OF AGREEMENT 7.1. Mutual Consent; Termination Date. This Agreement shall terminate at any time when the parties hereto mutually agree in writing. This Agreement may also be terminated at the election of either Seller or BANK IV, upon written notice from the party electing to terminate this Agreement to the other party if, without fault on the part of the party electing to terminate this Agreement, there has been a denial of a Required Approval. Unless extended by written agreement of the parties, this Agreement shall terminate if all conditions to the obligations of the parties hereto have not occurred on or before May 31, 1994. 7.2. Election by BANK IV. This Agreement shall terminate at BANK IV's election, upon written notice from BANK IV to Seller if any one or more of the following events shall occur and shall not have been remedied to the satisfaction of BANK IV within 30 days after written notice is delivered to Seller: (a) there shall have been any material breach of any of the obligations, covenants, or warranties of the Seller hereunder; or (b) there shall have been any written representation or statement furnished by the Seller hereunder which at the time furnished is false or misleading in any material respect in relation to the size and scope of the transactions contemplated by this Agreement. BANK IV shall also have the right to terminate this Agreement without such 30 days' written notice if the parties are unable to agree as to adjustments to Book Value of Bank as provided in Section 5.1 of this Agreement. 7.3. Election by Seller. This Agreement shall terminate at the election of Seller upon written notice from Seller to BANK IV if any one or more of the following events shall occur and shall not have been remedied to its satisfaction within 30 days after written notice is delivered to BANK IV: (a) there shall have been any material breach of any of the obligations, covenants, or warranties of BANK IV hereunder; or (b) there shall have been any written representation or statement furnished by BANK IV hereunder which at the time furnished is false or misleading in any material respect in relation to the size and scope of the transactions contemplated by this Agreement. Seller shall also have the right to terminate this Agreement without such 30 days' written notice if the parties are unable to agree as to adjustments to Book Value of Bank as provided in Section 5.1 of this Agreement. 7.4. Effect of Termination. If either party commits a material breach of its obligations, covenants, or representations which gives the other party the right to elect to terminate as provided in this Article VII, termination shall be the sole remedy of the other party prior to Closing absent a willful breach of such obligations, covenants, warranties, or representations. Upon termination of this Agreement for any reason as provided in this Article VII, this Agreement shall become null and void and of no further force and effect, except that BANK IV shall keep confidential information acquired by it through its due diligence investigation, whether performed before or after execution of this Agreement, shall destroy all memoranda, summaries, or other writings based upon such information, and shall upon Seller's request return all documents or instruments obtained through such due diligence investigation, and shall not use any such information to compete against Bank for loans or other transactions or relationships or for Bank's customers, and shall reimburse Corporations for any expenses as provided in Section 5.2 of this Agreement. ARTICLE VIII INDEMNIFICATION 8.1. Closing; Survival of Representations and Warranties. Notwithstanding any rule of law or provision of this Agreement to the contrary, upon Closing all representations, warranties, and obligations of the parties under this Agreement shall be deemed to be true and fulfilled and shall not survive the Closing, except that the representations and warranties of Seller contained in subparagraphs (a), (c), (d), (f), (l), and (r), of Section 4.1 of this Agreement and the provisions of Sections 8.4 and 9.9 of this Agreement shall survive the Closing. 8.2. Indemnification. Seller shall be liable for, and shall defend, save, indemnify, and hold harmless BANK IV, the Corporations, and their respective successors, officers, directors, employees, and agents, and each of them (hereinafter individually referred to as an "Indemnitee" and collectively as "Indemnitees") against and with respect to any losses, liabilities, claims, diminution in value, litigation, demands, damages, costs, charges, reasonable legal fees, suits, actions, proceedings, judgments, expenses, or any other losses (herein collectively referred to as "Indemnifying Losses") that may be sustained, suffered, or incurred by, or obtained against, any Indemnitee arising from or by reason of the breach or nonfulfillment of any of the warranties, agreements, or representations made by the Seller in subparagraphs (a), (c), (d), (f), (l), and (r) of Section 4.1 of this Agreement. 8.3. Procedure. If any claim or demand shall be made or liability asserted against any Indemnitee, or if any Litigation, suit, action, or administrative or legal proceedings shall be instituted or commenced in which any Indemnitee is involved or shall be named as a defendant either individually or with others, and if such Litigation, claim, demand, liability, suit, action, or proceeding, if successfully maintained, will result in any Indemnifying Losses as defined in Section 8.2, BANK IV shall give Seller written notice thereof within 20 days after it acquires knowledge thereof. If, within 20 days after the giving of such notice, BANK IV receives written notice from Seller stating that Seller disputes or intends to defend against such claim, demand, liability, suit, action, or proceeding, then Seller shall have the right to select counsel of its choice and to dispute or defend against or settle such claim at its expense, and the Indemnitees shall fully cooperate with Seller in such dispute or defense or settlement so long as Seller is conducting such dispute or defense diligently and in good faith. If no such notice of intent to dispute or defend is received by BANK IV within the aforesaid 20- day period, of if such diligent and good faith defense is not being, or ceases to be, conducted, BANK IV shall have the right, directly or through one or more of the Indemnitees, to dispute and defend against the claim, demand, or other liability at the cost and expense of Seller, to settle such claim, demand, or other liability, together with interest or late charges thereon, and in either event to be indemnified as provided in this Agreement so long as BANK IV conducts such defense diligently and in good faith. If any event shall occur that would entitle Indemnitees to a right of indemnification hereunder, any loss, damage, or expense subject to indemnification shall be the after-tax net loss to the Indemnitees after due allowance for the income tax effect, if any, of amounts to be received by the Indemnitees hereunder, insurance, or offsetting income or assets resulting therefrom. 8.4. Agreement as to Particular Contingent Liability. If at or after the Effective Time any claim, demand, suit, or cross-claim against Bank is pending and unresolved or any claim or demand is made or suit or cross-claim is filed against Bank arising or alleged to have arisen in any manner out of any act, error, or omission done, made, or omitted by the Bank performing trust services in connection with Satco, Ltd., including without limitation, any claim, liability, or judgment arising in any manner out of Case No. 88 C 438, entitled City of South Hutchinson, Kansas and Hutchinson National Bank and Trust Company v. Satco Ltd., et al., pending in the District Court of Reno County, Kansas, and any subsequent claims or legal proceedings with respect to the Bank's relationship with Satco, Ltd., whether based on the Bank's services as trustee, as purchaser of industrial revenue bonds, as lender, or otherwise, BANK IV shall defend or cause Bank to defend against such claims, demands, suit, or cross-claim as BANK IV may deem advisable and appropriate. BANK IV shall have the right to select and employ counsel of its choice for such defense and shall have full control of such defense, including the power and authority to enter into any settlement or compromise as it may deem advisable, but shall keep Seller reasonably advised of all negotiations, actions, and proceedings in such defense. Seller shall fully cooperate with BANK IV in such defense, and may at Seller's expense employ counsel to monitor such defense, but such counsel shall have no right to conduct such defense or participate therein. All costs and expenses, including attorneys' fees, in conducting such defense shall be paid by BANK IV or Bank, but any money awarded or paid to the claimant or claimants, whether resulting from a judgment or a settlement and compromise, shall be paid 50% by Seller and 50% by BANK IV or Bank. ARTICLE IX MISCELLANEOUS 9.1. Expenses. Whether or not the Purchase is effected, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense, except as provided in Section 5.2. 9.2. Notices. All notices or other communications required or permitted hereunder, except as otherwise provided in this Agreement, shall be sufficiently given if personally delivered or if sent by certified or registered mail, postage prepaid, return receipt requested, addressed as follows: (a) If to BANK IV, addressed to K. Gordon Greer, Chairman of the Board, Post Office Box 4, Wichita, KS 67201; and (b) if to the Seller, addressed to W. A. Michaelis, Jr., Chairman of the Board of Emprise Financial Corporation, P. O. Box 247, Wichita, KS 67201, with a copy to Ralph R. Brock, attorney-at-law, Fourth Floor, 200 West Douglas, Wichita, KS 67202, or to such other person or such other address as shall have been furnished in writing in the manner provided herein for giving notice. 9.3. Time. Time is of the essence of this Agreement. 9.4. Law Governing. This Agreement shall, except to the extent federal law is applicable, be construed in accordance with and governed by the laws of the State of Kansas, without regard to the principles of conflicts of laws thereof. 9.5. Entire Agreement; Amendment. This Agreement and the agreements expressly provided for herein together contain and incorporate the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersede all prior negotiations, agreements, letters of intent, and understandings. This Agreement may only be amended by an instrument in writing duly executed by BANK IV and Seller and all attempted oral waivers, modifications, and amendments shall be ineffective. 9.6. Successors and Assigns. The rights and obligations of the parties hereto shall inure to the benefit of and shall be binding upon the successors and permitted assigns of each of them; provided, however, that this Agreement or any of the rights, interests, or obligations hereunder may not be assigned by either of the parties hereto without the prior written consent of the other party hereto. 9.7. Cover, Table of Contents, and Headings. The cover, table of contents, and the headings of the sections and subsections of this Agreement are for convenience of reference only and shall not be deemed to be a part hereof or thereof or taken into account in construing this Agreement. 9.8. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute but one agreement. 9.9. Non-Competition. For a period of five years from the Effective Time, Seller will not, within Reno, Pratt, Meade, Finney, or McPherson Counties in Kansas, directly or indirectly, own, manage, operate, or otherwise be connected with the ownership, management, operation or control of any business engaged in the business of commercial banking, of making consumer or commercial loans, or of accepting deposits; provided, however, that after 30 months from the Effective Time, the restriction contained herein pertaining to McPherson County, Kansas shall be reduced to comprise an area within a radius of five miles of Lindsborg, Kansas. It is understood that any banking business conducted by banks that are at such time Subsidiaries of Seller which does not breach the covenants in the Noncompetition Agreements of W. A. Michaelis, Jr. and M. D. Michaelis, Exhibits "B" and "C" hereto, shall not constitute a breach of the restrictive covenant contained in this Section 9.9. If, at any time during the period the restrictions described in the preceding sentence are in effect, all of the issued and outstanding capital stock of Seller is sold to, or Seller is merged into, a wholly unrelated and unaffiliated third party not controlled by any one or more of Seller's former stockholders, all of such restrictions shall terminate except that such purchaser shall not use the name "Emprise Bank" or a variation thereof within the area described in the preceding sentence during the remainder of such period. Seller agrees that, in addition to all other remedies otherwise available to BANK IV and the Bank, BANK IV and the Bank shall each have the right to injunctive relief to restrain and enjoin any actual or threatened breaches of this provision and that if in any litigation that might arise over the provisions contained in this Section a court should determine that the restrictions contained in this Section are too broad, or too long in duration, or too broad in geographic scope to be enforceable in equity, such provisions as such court might find unenforceable are amended only so much as shall be necessary in order for the restrictions contained herein to be enforceable and, as so amended, shall be enforced by such court. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed. BANK IV KANSAS, NATIONAL ASSOCIATION By -------------------------- /s/K. Gordon Greer, Chairman of the Board "BANK IV" [signatures continued] EMPRISE FINANCIAL CORPORATION By --------------------------- "Seller" AGREEMENT TO MERGE between BANK IV KANSAS, NATIONAL ASSOCIATION, and EMPRISE BANK, NATIONAL ASSOCIATION under the charter of BANK IV KANSAS, NATIONAL ASSOCIATION under the title of BANK IV KANSAS, NATIONAL ASSOCIATION THIS AGREEMENT made among BANK IV Kansas, National Association (hereinafter referred to as "BANK IV"), a banking association organized under the laws of the United States, being located at 100 North Broadway, City of Wichita, County of Sedgwick, in the State of Kansas, with a capital of $356,457,292.74 divided into 9,254,200 shares of common stock, each of $5.00 par value, and surplus of $218,601,457.92 and undivided profits, including capital reserves, of $91,584,834.82 as of December 31, 1993, and Emprise Bank, National Association, a national banking association organized under the laws of the United States (hereinafter referred to as "Emprise") being located at 20 West Second, Hutchinson, County of Reno, in the State of Kansas, with a capital of $5,000,000, divided into 500,000 shares of common stock, each of $10.00 par value, and surplus of $_________ and undivided profits, including capital reserves, of $_________ as of December 31, 1993, each acting pursuant to a resolution of its board of directors, adopted by the vote of a majority of its directors, pursuant to the authority given by and in accordance with the provisions of the Act of November 7, 1918, as amended (12 USC Section 215a). W I T N E S S E T H: That, Section 1. Emprise shall be merged into BANK IV under the charter of the latter. Section 2. The name of the receiving association (hereinafter referred to as the "Association") shall be BANK IV Kansas, National Association. Section 3. The business of the Association shall be that of a national banking association. This business shall be conducted by the Association at its main office which shall be located at 100 North Broadway, Wichita, Kansas, and at its legally established branches. Section 4. At the time the merger shall be effective, the amount of capital stock of the Association shall be $361,457,292.74, divided into 10,254,200 shares of common stock, each of $5.00 par value, the Association shall have a surplus of $___________, and undivided profits, including capital reserves, which when combined with the capital and surplus will be equal to the combined capital structures of the merging banks as stated in the preamble of this Agreement, adjusted, however, for normal earnings and expenses (and if applicable, purchase accounting adjustments) between December 31, 1993, and the effective time of the merger. The amount of capital stock of the Association and its surplus and undivided profits at the time the merger becomes effective shall also be adjusted to reflect the effect of all mergers of other banks into the Association, if any, between December 31, 1993 and the effective time of the merger. Section 5. All assets as they exist at the effective time of the merger shall pass to and vest in the Association without any conveyance or other transfer. The Association shall be responsible for all of the liabilities of every kind and description, including liabilities arising from the operation of a trust department, of each of the merging entities existing as of the effective time of the merger. Section 6. Of the capital stock of the Association, the presently outstanding 9,254,200 shares of common stock, each of $5.00 par value, the holder of it, Fourth Financial Corporation, shall retain its present rights. In addition, Fourth Financial Corporation shall receive an additional 1,000,000 shares of common stock of the Association by reason of the merger. Upon the merger becoming effective, all of the issued and outstanding shares of capital stock of Emprise shall be cancelled. Section 7. Except as expressly permitted in a Stock Purchase Agreement dated as of January 31, 1994, between BANK IV and Emprise Financial Corporation (the "Stock Purchase agreement"), Emprise shall not (i) declare or pay any dividend to its shareholders, (ii) dispose of any of its assets in any other manner except in the normal course of business and for adequate value, or (iii) take any other action which would violate the terms of the Stock Purchase Agreement. Section 8. The present board of directors and officers of BANK IV shall continue to serve as the board of directors and officers of the Association until the next annual meeting or until such time as their successors have been elected and have qualified. Section 9. The merger shall be effective immediately following the Purchase as such term is defined in the Stock Purchase Agreement. Effective as of the time this merger shall become effective as specified in the merger approval to be issued by the Comptroller of the Currency, the articles of association of BANK IV as then in effect shall be the articles of association of the resulting bank. Section 10. This Agreement may be terminated as provided in the Stock Purchase Agreement. Notwithstanding the approval of this Agreement by any stockholder group, this Agreement shall automatically terminate upon the termination of the Stock Purchase Agreement for any reason, and in no event shall the merger of Emprise into BANK IV occur prior to the consummation of the Purchase as such term is defined in the Stock Purchase Agreement. Section 11. This Agreement shall be ratified and confirmed by the affirmative vote of stockholders of each of the merging banks owning at least two-thirds of its capital stock outstanding, at a meeting to be held on the call of the directors; and the merger shall become effective at the time specified in a merger approval to be issued by the Comptroller of the Currency of the United States. WITNESS, the signatures and seals of said merging entities as of the ___ day of _______ 1994, each set by its chairman of the board, president, or a vice president and attested to by its cashier or secretary, pursuant to a resolution of its board of directors, acting by a majority: BANK IV KANSAS, NATIONAL ASSOCIATION Attest: By -------------------------- - ------------------------- /s/K. Gordon Greer, /s/John C. Maloney, Secretary Chairman of the Board and President [Seal of Bank] EMPRISE BANK, NATIONAL ASSOCIATION By --------------------------- ________________, President Attest: _______________________ ______________, Secretary [Seal of Bank] STATE OF KANSAS ) ) SS: SEDGWICK COUNTY ) On this ____ day of _______, 1994, before me, a notary public for this state and county, personally came K. Gordon Greer, as chairman of the board and president, and John C. Maloney, as secretary, of BANK IV Kansas, National Association, a national banking association, and each in his capacity acknowledged this instrument to be the act and deed of the association and the seal affixed to it to be its seal. WITNESS my official seal and signature this day and year. -------------------- Notary Public My Appointment Expires: - ----------------------- STATE OF KANSAS ) ) SS: RENO COUNTY ) On this ___ day of _______, 1994, before me, a notary public for this state and county, personally came ________________ as president, and ______________ as secretary of Emprise Bank, National Association, a national banking association, and each in his/her capacity acknowledged this instrument to be the act and deed of the bank and the seal affixed to it to be its seal. WITNESS my official seal and signature this day and year. -------------------- Notary Public My Appointment Expires: - ----------------------- EXHIBIT "A" _______, 1994 Board of Directors BANK IV Kansas, National Association 100 North Broadway Wichita, Kansas 67202 Gentlemen: We have acted as counsel to Emprise Financial Corporation ("Seller") in connection with the preparation of the Stock Purchase Agreement, dated as of January 31, 1994, between BANK IV Kansas, National Association and Seller (the "Agreement"). This Opinion Letter is provided to you at the request of Seller pursuant to Section 6.1(d) of the Agreement. Except as otherwise indicated herein, capitalized terms used in this Opinion Letter are defined in the Agreement or the Accord described below. This Opinion Letter is governed by, and shall be interpreted in accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law (1991). As a consequence, it is subject to a number of qualifications, exceptions, definitions, limitations on coverage and other limitations, all as more particularly described in the Accord, and this Opinion Letter should be read in conjunction therewith. The law covered by the opinions expressed herein is limited to the Federal Law of the United States and the Law of the State of Kansas. For purposes of this Opinion Letter, we have relied upon factual representations made by Seller in Section 4.1 of the Agreement. In addition, the opinions as to (a) due organization of the Seller and the Corporations in Paragraph 1 of this Opinion Letter, (b) capitalization of the Corporation and lack of encumbrances, liens, and security interests relating to the Bank Stock owned by Seller in Paragraph 4 of this Opinion Letter, and (c) options of the Corporation in Paragraph 5 of this Opinion Letter, are based solely on our review of the Constituent Documents, minute books, and stock records of the Corporations furnished to us by representatives of Seller. Based upon and subject to the foregoing, we are of the opinion that: 1. Organization, Good Standing, and Authority. Seller is a bank holding company duly registered pursuant to the Bank Holding Company Act. Seller and the Corporations are each a corporation or bank duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. 2. Binding Obligations. The Agreement is enforceable against the Seller. 3. Absence of Default. None of the execution or the delivery of the Agreement, the consummation of the Purchase, or the fulfillment of the terms thereof, will (1) violate the Constituent Documents of either of the Corporations or of Seller or any agreement or instrument under which Seller is obligated, or (2) violate applicable provisions of any order or understandings issued to or entered into by Seller or by any of the Corporations by any governmental agency or body having regulatory authority over their business or affairs. 4. Capitalization. The Bank is authorized to issue 500,000 shares of common stock, par value $10 per share, all of which are validly issued and outstanding. Emprise Building Corp.-Hutchinson is authorized to issue 100,000 shares of common stock, par value $1 per share, of which 30,000 shares are validly issued and outstanding and owned by the Bank. Seller is the owner, free and clear of all encumbrances, liens, and security interests whatsoever, of all issued and outstanding shares of Bank Stock, except that the Shares are subject to a security interest of BANK IV given to secure a loan from BANK IV to Seller. 5. Options. To our Actual Knowledge, neither of the Corporations has outstanding any options, warrants, or rights of any kind requiring it to sell or issue to anyone any capital stock of any class and neither of the Corporations has agreed to sell any shares of its capital stock. 6. Governmental Approvals. The execution, delivery, and performance of the Agreement by Seller do not require any approval, authorization, consent, exemptions, notices of intent not to disapprove, or other action of any regulatory body, administrative agency, or any other governmental body or any filing with any governmental body to which Seller or either Corporation is subject, other than approvals of or filing with the Board and the Comptroller. All such requisite approvals, authorizations, consents, exemptions, and notices have been taken by the appropriate governmental body. We hereby confirm to you that to our Actual Knowledge there are no actions or proceedings against either Corporation, pending or overtly threatened in writing, before any court, governmental agency or arbitrator which (i) seek to affect the enforceability of the Agreement or (ii) seek damages in excess of $25,000, except as described in the Disclosure Statement. In this connection, we also confirm to you that we do not ordinarily represent either Corporation in actions or proceedings in which they are or may be involved or in the conduct of their legal affairs. The phrase "Primary Lawyer Group", as used in the Accord, is hereby modified and, for the purposes of applying the Accord to this Opinion Letter, the Primary Lawyer Group means only the lawyers in this firm who have given substantive legal attention to representation of Seller and the Corporations in connection with the Transaction. This Opinion Letter may be relied upon by you only in connection with the Transaction and may not be used or relied upon by you or any other person for any purpose whatsoever, except to the extent authorized in the Accord, without in each instance our prior written consent. Very truly yours, /s/Morris, Laing, Evans, Brock & Kennedy, Chartered EXHIBIT "B" NONCOMPETITION AGREEMENT ------------------------ THIS AGREEMENT, made and entered into on the ___ day of ____________, 1994, by and between BANK IV KANSAS, NATIONAL ASSOCIATION, a national banking association, hereinafter referred to as "BANK IV"; and W. A. MICHAELIS, JR., hereinafter referred to as "Michaelis." W I T N E S S E T H: That, - - - - - - - - - - WHEREAS, contemporaneous with the execution and delivery of this Agreement BANK IV is purchasing all of the issued and outstanding capital stock ("Bank Stock") of Emprise Bank, National Association, Hutchinson, Kansas (the "Bank") from Emprise Financial Corporation ("Seller") pursuant to a Stock Purchase Agreement dated as of January 31, 1994 (the "Agreement"); and WHEREAS, Michaelis, as a substantial stockholder of Seller, will receive substantial benefits from the sale of the Bank Stock to BANK IV; and WHEREAS, Michaelis holds senior management level positions with Seller and has held senior management level positions with Bank; and WHEREAS, Seller owns and may hereafter acquire other banks (which banks, whether now or hereafter acquired, are hereinafter referred to as "Other Banks") located and doing business in the State of Kansas over which Michaelis has control; and WHEREAS, the Agreement provides that the parties hereto will enter into this Noncompetition Agreement; NOW THEREFORE, in consideration of the premises and the covenants contained herein and the payments to be made to Michaelis pursuant to this Agreement and the Agreement, the parties hereto agree as follows: 1. Consideration. Contemporaneous with the execution and delivery of this Agreement, BANK IV has paid Michaelis $400,000, receipt of which is hereby acknowledged by Michaelis. 2. Relationship, Confidence, and Trust. Michaelis acknowledges that during the period Seller owned the Bank and he held a senior management level position, he acquired valuable and confidential information, trade secrets, and relationships with respect to the Bank's successful business practices and operations, including, by way of illustration and not of limitation, knowledge of the Bank's customers, prices, costs, and future plans (collectively "Proprietary Information"). As a consequence of the foregoing, Michaelis occupied a position of trust and confidence with respect to the Bank's affairs. In view of the foregoing and in consideration of the consideration paid to him, Michaelis agrees that it is reasonable and necessary for the protection of the goodwill and business of the Bank and BANK IV that he make the covenants contained in Paragraphs 3 and 4 regarding his conduct, and that BANK IV and the Bank will suffer irreparable injury if he engages in conduct prohibited thereby. The covenants contained in Paragraphs 3 and 4 shall each be construed to be a separate agreement independent of any other provision of this Agreement, and the existence of any claim or cause of action of Michaelis against BANK IV or the Bank, predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by BANK IV or the Bank of any of said covenants. 3. Disclosure of Proprietary Information. Michaelis recognizes and acknowledges that the Proprietary Information and all other information as to the business affairs of the Bank not generally known to the public, as the same may exist from time to time, are confidential information and are valuable, special, and unique assets of BANK IV's and the Bank's business. Michaelis therefore agrees that he will never disclose any of the Proprietary Information, or any other information as to the business affairs of the Bank to any person, firm, corporation, association, or other entity for any reason or purpose whatsoever; provided, that Michaelis may make use of such information in managing the Other Banks. In the event of a breach or threatened breach by Michaelis of the provisions of this paragraph, the Bank and BANK IV shall each be entitled to injunctive or other equitable relief enjoining and restraining him from disclosing, in whole or in part, any such Proprietary Information. Nothing herein shall be construed as prohibiting BANK IV or the Bank from pursuing any other remedies available to BANK IV or the Bank for such breach or threatened breach. 4. Restrictive Covenant. For a period of five years from the date of this Agreement, Michaelis will not, within Reno, Pratt, Meade, Finney, or McPherson Counties in Kansas, without the prior written consent of BANK IV, directly or indirectly, own, manage, operate, consult with, be employed by, or be connected with the ownership, management, operation, or control of any business engaged in the business of commercial banking, of making consumer or commercial loans, or of accepting deposits; provided, however, that after 30 months from the date hereof, the restriction contained herein pertaining to McPherson County, Kansas shall be reduced to comprise an area within a radius of five miles of Lindsborg, Kansas. Without limiting the generality of the foregoing, Michaelis will not, directly or indirectly through Seller or any Other Bank or entity while owned or controlled by him, solicit during the above five-year or 30-month periods any customers of Bank in the above prohibited areas for loans or deposits or other banking business; provided, however, that loans, deposits, or other banking business may be conducted with such customers if they voluntarily on their own initiative without such solicitation choose to conduct banking business with Other Banks; and provided, further, that Other Banks conducting any banking business with customers of Bank who are also customers of Other Banks or who were referred to Bank by an Other Bank shall not constitute a violation of this Agreement. It is also understood that newspaper, magazine, regional telephone directories, radio, television, or other advertising by Other Banks, although published to target customers and to develop business in areas other than the above prohibited areas, may also be received, delivered, or otherwise reach the prohibited areas, and the fact that such advertising may reach the prohibited areas likewise shall not constitute a violation of this Agreement. 5. Remedies on Breach. Michaelis agrees that, in addition to all other remedies otherwise available to BANK IV and the Bank, BANK IV and the Bank shall each have the right to injunctive relief to restrain and enjoin any actual or threatened breaches of this provision and that if in any litigation that might arise over the provisions contained in this paragraph a court should determine that the restrictions contained in this paragraph are too broad, or too long in duration, or too broad in geographic scope to be enforceable in equity, such provisions as such court might find unenforceable are amended only so much as shall be necessary in order for the restrictions contained herein to be enforceable and, as so amended, shall be enforced by such court. 6. Notices. Any notices required or permitted to be given under this Agreement shall be sufficient if in writing, and if sent by registered or certified mail to his or her last known residence in the case of Michaelis, or to its principal office in the case of BANK IV. 7. Waiver of Breach. The waiver of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 8. Assignment. The rights and obligations of BANK IV under this Agreement shall inure to the benefit of, and shall be binding upon, BANK IV, the Bank, and their respective successors and assigns. Obligations of Michaelis contained herein are obligations personal to and binding only on Michaelis, and Michaelis shall not have the right to assign any of the rights or obligations contained in this Agreement. 9. Entire Agreement. This instrument contains the entire agreement of the parties. It may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. IN WITNESS WHEREOF, the parties have executed this Agreement on the day, month, and year first above written. BANK IV Kansas, National Association By____________________________ /s/K. Gordon Greer, Chairman of the Board "BANK IV" ______________________________ /s/W. A. Michaelis, Jr. "Michaelis" EXHIBIT "C" NONCOMPETITION AGREEMENT ------------------------ THIS AGREEMENT, made and entered into on the ___ day of ____________, 1994, by and between BANK IV KANSAS, NATIONAL ASSOCIATION, a national banking association, hereinafter referred to as "BANK IV"; and M. D. MICHAELIS, hereinafter referred to as "Michaelis." W I T N E S S E T H: That, - - - - - - - - - - WHEREAS, contemporaneous with the execution and delivery of this Agreement BANK IV is purchasing all of the issued and outstanding capital stock ("Bank Stock") of Emprise Bank, National Association, Hutchinson, Kansas (the "Bank") from Emprise Financial Corporation ("Seller") pursuant to a Stock Purchase Agreement dated as of January 31, 1994 (the "Agreement"); and WHEREAS, Michaelis, as a substantial stockholder of Seller, will receive substantial benefits from the sale of the Bank Stock to BANK IV; and WHEREAS, Michaelis holds senior management level positions with Seller and has held senior management level positions with Bank; and WHEREAS, Seller owns and may hereafter acquire other banks (which banks, whether now or hereafter acquired, are hereinafter referred to as "Other Banks") located and doing business in the State of Kansas over which Michaelis has control; and WHEREAS, the Agreement provides that the parties hereto will enter into this Noncompetition Agreement; NOW THEREFORE, in consideration of the premises and the covenants contained herein and the payments to be made to Michaelis pursuant to this Agreement and the Agreement, the parties hereto agree as follows: 1. Consideration. Contemporaneous with the execution and delivery of this Agreement, BANK IV has paid Michaelis $600,000, receipt of which is hereby acknowledged by Michaelis. 2. Relationship, Confidence, and Trust. Michaelis acknowledges that during the period Seller owned the Bank and he held a senior management level position with Bank, he acquired valuable and confidential information, trade secrets, and relationships with respect to the Bank's successful business practices and operations, including, by way of illustration and not of limitation, knowledge of the Bank's customers, prices, costs, and future plans (collectively "Proprietary Information"). As a consequence of the foregoing, Michaelis occupied a position of trust and confidence with respect to the Bank's affairs. In view of the foregoing and in consideration of the consideration paid to him, Michaelis agrees that it is reasonable and necessary for the protection of the goodwill and business of the Bank and BANK IV that he make the covenants contained in Paragraphs 3 and 4 regarding his conduct, and that BANK IV and the Bank will suffer irreparable injury if he engages in conduct prohibited thereby. The covenants contained in Paragraphs 3 and 4 shall each be construed to be a separate agreement independent of any other provision of this Agreement, and the existence of any claim or cause of action of Michaelis against BANK IV or the Bank, predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by BANK IV or the Bank of any of said covenants. 3. Disclosure of Proprietary Information. Michaelis recognizes and acknowledges that the Proprietary Information and all other information as to the business affairs of the Bank not generally known to the public, as the same may exist from time to time, are confidential information and are valuable, special, and unique assets of BANK IV's and the Bank's business. Michaelis therefore agrees that he will never disclose any of the Proprietary Information, or any other information as to the business affairs of the Bank to any person, firm, corporation, association, or other entity for any reason or purpose whatsoever; provided, that Michaelis may make use of such information in managing the Other Banks. In the event of a breach or threatened breach by Michaelis of the provisions of this paragraph, the Bank and BANK IV shall each be entitled to injunctive or other equitable relief enjoining and restraining him from disclosing, in whole or in part, any such Proprietary Information. Nothing herein shall be construed as prohibiting BANK IV or the Bank from pursuing any other remedies available to BANK IV or the Bank for such breach or threatened breach. 4. Restrictive Covenant. For a period of five years from the date of this Agreement, Michaelis will not, within Reno, Pratt, Meade, Finney, or McPherson Counties in Kansas, without the prior written consent of BANK IV, directly or indirectly, own, manage, operate, consult with, be employed by, or be connected with the ownership, management, operation, or control of any business engaged in the business of commercial banking, of making consumer or commercial loans, or of accepting deposits; provided, however, that after 30 months from the date hereof, the restriction contained herein pertaining to McPherson County, Kansas shall be reduced to comprise an area within a radius of five miles of Lindsborg, Kansas. Without limiting the generality of the foregoing, Michaelis will not, directly or indirectly through Seller or any Other Bank or entity while owned or controlled by him, solicit during the above five-year or 30-month periods any customers of Bank in the above prohibited areas for loans or deposits or other banking business; provided, however, that loans, deposits, or other banking business may be conducted with such customers if they voluntarily on their own initiative without such solicitation choose to conduct banking business with Other Banks; and provided, further, that Other Banks conducting any banking business with customers of Bank who are also customers of Other Banks or who were referred to Bank by an Other Bank shall not constitute a violation of this Agreement. It is also understood that newspaper, magazine, regional telephone directories, radio, television, or other advertising by Other Banks, although published to target customers and to develop business in areas other than the above prohibited areas, may also be received, delivered, or otherwise reach the prohibited areas, and the fact that such advertising may reach the prohibited areas likewise shall not constitute a violation of this Agreement. 5. Remedies on Breach Michaelis agrees that, in addition to all other remedies otherwise available to BANK IV and the Bank, BANK IV and the Bank shall each have the right to injunctive relief to restrain and enjoin any actual or threatened breaches of this provision and that if in any litigation that might arise over the provisions contained in this paragraph a court should determine that the restrictions contained in this paragraph are too broad, or too long in duration, or too broad in geographic scope to be enforceable in equity, such provisions as such court might find unenforceable are amended only so much as shall be necessary in order for the restrictions contained herein to be enforceable and, as so amended, shall be enforced by such court. 6. Notices. Any notices required or permitted to be given under this Agreement shall be sufficient if in writing, and if sent by registered or certified mail to his or her last known residence in the case of Michaelis, or to its principal office in the case of BANK IV. 7. Waiver of Breach. The waiver of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 8. Assignment. The rights and obligations of BANK IV under this Agreement shall inure to the benefit of, and shall be binding upon, BANK IV, the Bank, and their respective successors and assigns. Obligations of Michaelis contained herein are obligations personal to and binding only on Michaelis, and Michaelis shall not have the right to assign any of the rights or obligations contained in this Agreement. 9. Entire Agreement. This instrument contains the entire agreement of the parties. It may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. IN WITNESS WHEREOF, the parties have executed this Agreement on the day, month, and year first above written. BANK IV Kansas, National Association By____________________________ /s/K. Gordon Greer, Chairman of the Board "BANK IV" ______________________________ /s/M. D. Michaelis "Michaelis" EX-10 8 EXHIBIT 10.13 AGREEMENT AND PLAN OF REORGANIZATION among FOURTH FINANCIAL CORPORATION, FIRST DODGE CITY BANCSHARES, INC., FIRST NATIONAL BANCSHARES OF DODGE CITY, INC., METRO BANCSHARES, INC., METRO BANK OF BROKEN ARROW, FIRST NATIONAL BANK AND TRUST COMPANY IN DODGE CITY and THE STOCKHOLDERS OF FIRST DODGE CITY BANCSHARES, INC. Dated as of February 2, 1994 TABLE OF CONTENTS Page No. -------- ARTICLE I. Definitions . . . . . . . . . . . . . . . . . . 2 Section 1.1 Definitions . . . . . . . . . . . . . . . . . . 2 Section 1.2 Accounting Terms. . . . . . . . . . . . . . . . 9 Section 1.3 Use of Defined Terms. . . . . . . . . . . . . . 9 ARTICLE II. Plan of Reorganization. . . . . . . . . . . . . 9 Section 2.1 Tax-Free Reorganizations. . . . . . . . . . . . 9 Section 2.2 Agreements of Fourth. . . . . . . . . . . . . . 10 Section 2.3 Agreements of First Dodge, FNB, MBI, the Banks, and the Stockholders. . . . . . . . . . . . . . 12 Section 2.4 The Mergers . . . . . . . . . . . . . . . . . . 17 Section 2.5 Conversion and Exchange of Shares . . . . . . . 19 Section 2.6 Advance Preparations for Bank Mergers . . . . . 22 ARTICLE III. Representations and Warranties. . . . . . . . . 22 Section 3.1 Representation and Warranties of First Dodge, FNB, MBI, the Banks, and the Stockholders . . . 22 Section 3.2 Representations and Warranties of Fourth. . . . . . . . . . . . . . . . . . . . . 34 ARTICLE IV. Securities Laws Matters . . . . . . . . . . . . 37 Section 4.1 Registration Statement and Proxy Statement . . . . . . . . . . . . . . . . . . . 37 Section 4.2 State Securities Laws . . . . . . . . . . . . . 38 Section 4.3 Affiliates. . . . . . . . . . . . . . . . . . . 38 ARTICLE V. Closing Conditions. . . . . . . . . . . . . . . 39 Section 5.1 Conditions to Obligations of Fourth, BANK IV Kansas, and BANK IV Oklahoma. . . . . . 39 Section 5.2 Conditions to Obligations of First Dodge, FNB, MBI, the Banks, and the Stockholders . . . 41 ARTICLE VI. Effective Time. . . . . . . . . . . . . . . . . 42 ARTICLE VII. Termination of Agreement. . . . . . . . . . . . 43 Section 7.1 Mutual Consent; Absence of Stockholder Approval; Termination Date. . . . . . . . . . . 43 Section 7.2 Election by Fourth. . . . . . . . . . . . . . . 43 Section 7.3 Election by First Dodge . . . . . . . . . . . . 44 ARTICLE VIII.Indemnification . . . . . . . . . . . . . . . . . 44 Section 8.1 Effect of Closing . . . . . . . . . . . . . . . 44 Section 8.2 General Indemnification . . . . . . . . . . . . 45 Section 8.3 Procedure . . . . . . . . . . . . . . . . . . . 45 Section 8.4 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . 46 Section 8.5 Several Liability of Stockholders . . . . . . . 46 Section 8.6 Indemnification Payments. . . . . . . . . . . . 47 ARTICLE IX. Miscellaneous . . . . . . . . . . . . . . . . . 47 Section 9.1 Expenses. . . . . . . . . . . . . . . . . . . . 47 Section 9.2 Affiliates' Agreements. . . . . . . . . . . . . 47 Section 9.3 Notices . . . . . . . . . . . . . . . . . . . . 47 Section 9.4 Stockholders' Agreements. . . . . . . . . . . . 47 Section 9.5 Power of Attorney . . . . . . . . . . . . . . . 48 Section 9.6 Time. . . . . . . . . . . . . . . . . . . . . . 49 Section 9.7 Law Governing . . . . . . . . . . . . . . . . . 49 Section 9.8 Entire Agreement; Amendment . . . . . . . . . . 49 Section 9.9 Successors and Assigns. . . . . . . . . . . . . 49 Section 9.10 Cover, Table of Contents, and Headings. . . . . . . . . . . . . . . . . . . . 49 Section 9.11 Counterparts. . . . . . . . . . . . . . . . . . 49 EXHIBITS Exhibit "A" . . . . . Form of BANK IV Kansas Merger Agreement Exhibit "B" . . . . . Form of BANK IV Oklahoma Merger Agreement Exhibit "C" . . . . . Form of Fourth Merger Agreement Exhibit "D" . . . . . Form of Mangan, Dalton, Trenkle, Rebein & Doll, Chartered legal opinion Exhibit "E" . . . . . Form of Consulting and Marketing Agreement Exhibit "F" . . . . . Form of Foulston & Siefkin legal opinion Exhibit "G" . . . . . Form of Affiliate's Agreement AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION, dated as of February 2, 1994, among FOURTH FINANCIAL CORPORATION, a Kansas corporation ("Fourth"); FIRST DODGE CITY BANCSHARES, INC., a Kansas corporation ("First Dodge"); FIRST NATIONAL BANCSHARES OF DODGE CITY, INC., a Kansas corporation ("FNB"); METRO BANCSHARES, INC., an Oklahoma corporation ("MBI"); FIRST NATIONAL BANK AND TRUST COMPANY IN DODGE CITY, a national banking association ("First National"); METRO BANK OF BROKEN ARROW, an Oklahoma banking corporation ("Metro Bank"); and the stockholders of First Dodge ("Stockholders"). W I T N E S S E T H: That, ------------------- WHEREAS, Fourth is a bank holding company engaged in the business of owning and operating banks located in the States of Kansas and Oklahoma; and WHEREAS, Fourth desires to acquire all, and not less than all, of the assets of First Dodge and MBI and all of the issued and outstanding capital stock of all classes of First Dodge's and MBI's direct and indirect subsidiaries, subject to and pursuant to the terms of this Agreement; and WHEREAS, each party hereto believes that the proposed acquisition by Fourth of First Dodge, MBI, and their subsidiaries pursuant to the terms and conditions of this Agreement would be desirable and in their respective best interests and those of their respective stockholders; NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1. Definitions. The following terms as used in this Agreement shall have the following meanings unless the context otherwise requires: "Affiliate" has the same meaning as in Rules 145 and 405 adopted under the Securities Act by the SEC, as the same may be amended from time to time. "This Agreement" refers to this Agreement and Plan of Reorganization and all amendments hereto. "BANK IV Kansas" means BANK IV Kansas, National Association, a national banking association. "BANK IV Kansas Merger" means the merger of First National into BANK IV Kansas pursuant to the BANK IV Kansas Merger Agreement. "BANK IV Kansas Merger Agreement" means the Agreement to Merge, substantially in the form of Exhibit "A" hereto, pursuant to which the BANK IV Kansas Merger will be effected. "BANK IV Oklahoma" means BANK IV Oklahoma, National Association, a national banking association. "BANK IV Oklahoma Merger" means the merger of Metro Bank into BANK IV Oklahoma pursuant to the BANK IV Oklahoma Merger Agreement. "BANK IV Oklahoma Merger Agreement" means the Agreement to Merge, substantially in the form of Exhibit "B" hereto, pursuant to which the BANK IV Oklahoma Merger will be effected. "Bank Holding Company Act" means the federal Bank Holding Company Act of 1956, as amended (12 U.S.C. Section 1841 et seq.), or any successor federal statute, and the rules and regulations of the Board promulgated thereunder, all as the same may be in effect at the time. "Bank Mergers" refers collectively to the BANK IV Kansas Merger and the BANK IV Oklahoma Merger. "Bank Merger Agreements" refers collectively to the BANK IV Kansas Merger Agreement and the BANK IV Oklahoma Merger Agreement. "Banks" refers collectively to First National and Metro Bank and "Bank" refers to either one of them. "Best Efforts" does not include those actions which are not commercially reasonable under the circumstances. "Board" means the Board of Governors of the Federal Reserve System or any successor governmental entity which may be granted powers currently exercised by the Board of Governors. "Closing" means the consummation of the Mergers as provided in this Agreement. "Closing Price" means the closing price of Fourth Stock on the trading day two trading days prior to the Effective Time as reported in the Southwest Edition of The Wall Street Journal. "Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, all as the same may be in effect at the time. "Comptroller" means the United States Comptroller of the Currency or any successor governmental agency which may be granted powers currently exercised by the Comptroller of the Currency. "Corporations" refers collectively to First Dodge, FNB, MBI, the Banks, and their respective Subsidiaries. "Disclosure Statement" means the Disclosure Statement prepared by First Dodge, FNB, MBI, the Banks, and the Stockholders and delivered by them to Fourth prior to the execution and delivery of this Agreement by Fourth. "Effective Time" means the date and time on which the Mergers are effective as more fully defined in this Agreement. "Environmental, Health, and Safety Liabilities" means any loss, cost, expense, claim, demand, liability, or obligation of whatever kind or otherwise, based upon any Environmental, Health, and Safety Law relating to: (i) any environmental, health, or safety matter or conditions, including, but not limited to, on-site or off-site contamination, occupational safety and health, and regulation of chemical substances or products; (ii) fines, penalties, judgments, awards, settlements, legal or administrative proceedings, damages, losses, claims, demands, and response, remedial or inspection costs and expenses arising under any Environmental, Health, and Safety Law; (iii) financial responsibility under any Environmental Law for cleanup costs or corrective actions, including for any removal, remedial or other response actions, and for any natural resource damage; and (iv) any other compliance, corrective, or remedial action required under any Environmental, Health, and Safety Law. "Environmental, Health, and Safety Law" means any provision of past or present Law relating to any environmental, health, or safety matters or conditions, Hazardous Materials, pollution, or protection of the environment, including, but not limited to, on-site and off-site contamination, occupational safety and health, and regulation of chemical substances or products, emissions, discharges, release, or threatened release of contaminants, chemicals or industrial, toxic, radioactive, or Hazardous Materials or wastes into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials, pollutants, contaminants, chemicals, or industrial, toxic, radioactive, or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder, all as the same may be in effect at the time. "Federal Deposit Insurance Act" means the Federal Deposit Insurance Act, as amended, and the rules and regulations promulgated thereunder, all as the same may be in effect at the time. "FDIC" means the Federal Deposit Insurance Corporation or any successor agency. "Financial Statements" refers to all of the financial statements described in clause g of Section 3.1 of this Agreement and clause i of Section 2.3 of this Agreement. "First Dodge" means First Dodge City Bancshares, Inc., a Kansas corporation and a party to this Agreement. "First Dodge Stock" means the common stock, par value $1.00 per share, of First Dodge. "First National" means First National Bank and Trust Company in Dodge City, a national banking association and a party to this Agreement. "First National Stock" means the common stock of First National, par value $100 per share. "FNB" means First National Bancshares of Dodge City, Inc., a Kansas corporation and a party to this Agreement. "FNB Common Stock" means the common stock of FNB, par value $1.00 per share. "FNB Preferred Stock" means the preferred stock of FNB, par value $1.00 per share. "Fourth" means Fourth Financial Corporation, a Kansas corporation and a party to this Agreement. "Fourth Merger" means the merger of First Dodge, MBI, and FNB into Fourth pursuant to the Fourth Merger Agreement. "Fourth Merger Agreement" means the Agreement of Merger, substantially in the form of Exhibit "C" hereto, pursuant to which the Fourth Merger will be effected. "Fourth Stock" means the common stock of Fourth, par value $5 per share. "GAAP" means generally accepted accounting principles, applied on a consistent basis, set forth in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or their successors which are applicable in the circumstances in question; and the requisite that such principles be applied on a consistent basis means that the accounting principles observed in a current period are comparable in all material respects to those applied in a preceding period. "Hazardous Materials" means and includes: (i) any hazardous substance or toxic material (excluding any lawful product for use in the ordinary course of such Bank's business which contains such substance or material), pollutant, contaminant, toxic material, or hazardous waste as defined in any federal, state, or local environmental Law; (ii) waste oil and petroleum products; and (iii) any asbestos, asbestos containing material, urea formaldehyde or material which contains it. "Law" or "Laws" means all applicable statutes, laws, ordinances, regulations, orders, writs, injunctions, or decrees of the United States of America, any state or commonwealth, or any subdivision thereof, or of any court or governmental department, agency, commission, board, bureau, or other instrumentality. "Litigation" means any proceeding, claim, lawsuit, and/or investigation being conducted or, to the best of the knowledge of the person or corporation making the representation, threatened before any court or other tribunal, including, but not limited to, proceedings, claims, lawsuits, and/or investigations, under or pursuant to any occupational safety and health, banking, antitrust, securities, tax, or other Laws, or under or pursuant to any contract, agreement, or other instrument. "MBI" means Metro Bancshares, Inc., an Oklahoma corporation and a party to this Agreement. "MBI Common Stock" means the common stock of MBI, par value $.10 per share. "MBI Preferred Stock" means the preferred stock of MBI, par value $1.00 per share. "Merger Agreements" collectively refers to the three merger agreements provided for in this Agreement pursuant to which all of the three Mergers will be accomplished. "Mergers" collectively refers to all three of the mergers provided for in this Agreement. "Metro Bank" means Metro Bank of Broken Arrow, an Oklahoma banking corporation and a party to this Agreement. "Metro Stock" means the common stock of Metro Bank, par value $2.50 per share. "Occupied Properties" means the parcels of real property owned or leased by a Bank on which such Bank conducts or has conducted operations, all of which are described in Schedule H to the Disclosure Statement under the caption "Bank Occupied Properties". "Permitted Contract" means a contract or agreement, written or oral, between a Bank, on the one hand, and a person other than a customer of such Bank or another financial institution, on the other hand, which (i) was entered into in the ordinary course of business, (ii) may be terminated by Fourth or BANK IV Kansas or BANK IV Oklahoma, as the case may be, after the Effective Time on no more than 30 days prior notice, (iii) provides for a payment of no more than $5,000 in any calendar month by such Bank, and (iv) provides for no payment upon termination in excess of $5,000. "Permitted Encumbrances" mean with respect to any asset: (a) liens for taxes not past due; (b) mechanics' and materialmen's liens for services or materials for which payment is not past due; and (c) minor defects, encumbrances, and irregularities in title which do not, in the aggregate, materially diminish the value of a property or materially impair the use of a property for the purposes for which it is or may reasonably be expected to be held. "Proxy Statement" means the joint proxy statement to be used in connection with the special stockholders' meetings of First Dodge, First National, and MBI to be called for the purpose of considering and voting upon the Mergers. "Registration Statement" means the registration statement on Form S-4 to be filed by Fourth with the SEC pursuant to the Securities Act in connection with the registration of the shares of Fourth Stock to be issued in connection with the Fourth Merger and the BANK IV Kansas Merger. "Required Approvals" means the approval, consent, or non- objection, as the case may be, of the Board, the Comptroller, and all other governmental or self-governing agencies, boards, departments, and bodies whose approval, consent, or non-action is required in order to consummate the Mergers, and each of them, and the retention of all of the Banks' Subsidiaries in substantially their present form, which approvals, consents, and non-objections shall have become final and nonappealable without any appeal or other form of review having been initiated and as to which all required waiting periods shall have expired. "SEC" means the United States Securities and Exchange Commission or any other governmental entity which may be granted powers currently being exercised by the Securities and Exchange Commission. "Securities Act" means the federal Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations promulgated thereunder, all as the same shall be in effect at the time. "Stockholders" refers collectively to the three persons executing this Agreement as "Stockholders", and "Stockholder" refers to any one of them. "Subsidiary" means any corporation fifty percent or more of the common stock or other form of equity of which shall be owned, directly or indirectly, by another corporation. 1.2. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistent with that applied in the preparation of the financial statements submitted pursuant to this Agreement, and all financial statements submitted pursuant to this Agreement shall be prepared in all material respects in accordance with such principles. 1.3. Use of Defined Terms. All terms defined in this Agreement shall have the defined meanings when used in the Merger Agreements, or any other agreement, document, or certificate made or delivered pursuant to this Agreement, unless the context otherwise requires. ARTICLE II PLAN OF REORGANIZATION 2.1. Tax-Free Reorganizations. It is the intention of the parties that the Mergers contemplated by this Agreement and the Merger Agreements shall qualify as tax-free reorganizations under Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code. 2.2. Agreements of Fourth. a. Fourth shall cause BANK IV Kansas and BANK IV Oklahoma to execute and deliver the Bank Merger Agreement to which it is a party. Fourth has approved and adopted this Agreement and the Fourth Merger Agreement in accordance with the applicable Laws of the United States of America and the State of Kansas. Fourth, as sole shareholder of BANK IV Kansas, shall vote all of the stock of BANK IV Kansas in favor of the BANK IV Kansas Merger Agreement and, together with its wholly owned subsidiary, shall vote or cause to be voted all of the stock of BANK IV Oklahoma in favor of the approval and adoption of the Bank IV Oklahoma Merger Agreement. Subject to the terms and conditions contained in this Agreement, upon receipt of all of the Required Approvals, Fourth shall cause BANK IV Kansas and BANK IV Oklahoma to perform the Bank Merger Agreements. b. Fourth shall cause all necessary action to be taken to authorize the issuance of the number of shares of Fourth Stock to be issued in the Fourth Merger and the BANK IV Kansas Merger. c. Prior to the Effective Time, Fourth, separately and with the other parties hereto, shall use, and cause BANK IV Kansas and BANK IV Oklahoma to use, their Best Efforts in good faith to take or cause to be taken as promptly as practicable all such steps as shall be necessary to obtain all of the Required Approvals, and shall do any and all acts and things reasonably deemed by Fourth or the Corporations to be necessary or appropriate in order to cause the Mergers to be consummated on the terms provided herein and in the Merger Agreements as promptly as practicable. d. On or prior to the Effective Time, as appropriate for the transactions contemplated hereby, Fourth, BANK IV Kansas, and BANK IV Oklahoma shall execute and deliver the Merger Agreements and the other closing documents provided for in this Agreement, shall take all such other actions as are required or desirable to effect the Mergers, and shall utilize their Best Efforts to cause all of the conditions described in Section 5.2 of this Agreement to occur and be continuing, and to consummate all of the other transactions contemplated hereby. e. Prior to the Effective Time, Fourth shall, to the extent permitted by Law and outstanding confidentiality agreements, give First Dodge and its counsel and accountants full access, during normal business hours and upon reasonable notice, to its respective properties, books, and records, and shall furnish First Dodge during such period with all such information concerning its affairs as First Dodge may reasonably request. The availability or actual delivery of information about Fourth to First Dodge shall not affect the covenants, representations, and warranties of Fourth contained in this Agreement; provided, that First Dodge shall promptly disclose to Fourth any apparent breaches of such covenants, representations, or warranties discovered by it prior to the Effective Time. Except for information disclosed in the Registration Statement or as otherwise required to be disclosed in the course of obtaining governmental approvals, First Dodge shall treat as confidential all such information in the same manner as First Dodge treats similar confidential information of its own and, if this Agreement is terminated, First Dodge shall continue to treat all such information obtained in such investigation and not otherwise known to First Dodge from a source not known to First Dodge to be under a confidential relationship with Fourth, or already in the public domain, as confidential and shall return such documents theretofore delivered by Fourth to First Dodge as Fourth shall request. f. On or before the Effective Time, BANK IV Kansas shall replace and refinance First Dodge's existing credit facilities with Commerce Bank, N.A. on terms no less favorable to First Dodge than those currently provided by Commerce Bank. g. On or before the Effective Time, Thomas P. Shirley and John V. Harding may each purchase from First Dodge the policies of life insurance on their respective lives for a cash purchase price equal to the then current cash surrender value of the policy or policies being purchased. h. Fourth shall provide directors' and officers' liability insurance coverage for the directors and officers of the Corporations substantially similar to that currently in effect, or continue such insurance, for a period of two years from the Effective Time. 2.3. Agreements of First Dodge, FNB, MBI, the Banks, and the Stockholders. a. Prior to the consummation of the Mergers, none of the Corporations shall, except with the prior written consent of Fourth or as otherwise provided in this Agreement or the Merger Agreements: (1) Amend its articles of association, articles of incorporation, bylaws, or other charter documents, or make any change in its authorized, issued, or outstanding capital stock, grant any stock options or right to acquire shares of any class of its capital stock or any security convertible into any class of capital stock, purchase, redeem, retire, or otherwise acquire any shares of any class of its capital stock or any security convertible into any class of its capital stock, or agree to do any of the foregoing; (2) Declare, set aside, or pay any dividend or other distribution in respect of any class of its capital stock, except that First Dodge, MBI, and First National shall each pay cash dividends in an aggregate per share amount equal to the product of (a) the cash dividends paid on a share of Fourth Stock to Fourth stockholders of record between November 15, 1993 and the Effective Time multiplied by (b) the number of shares of Fourth Stock to be issued per share of common stock of First Dodge, MBI, and First National, respectively, in the Fourth Merger and BANK IV Kansas Merger; (3) Adopt, enter into, or amend materially any employment contract or any bonus, stock option, profit sharing, pension, retirement, incentive, or similar employee benefit program or arrangement or grant any salary or wage increase except (a) normal individual increases in compensation to employees in accordance with established employee procedures of the Corporations; and (b) the Fourth Financial Corporation Acquisition Severance Schedule previously furnished to First Dodge; (4) Incur any indebtedness for borrowed money (except for federal funds, repurchase agreements entered into in the ordinary and usual course of business, deposits received by a Bank, endorsement, for collection or deposit, of negotiable instruments received in the ordinary and usual course of business, and issuance of letters of credit by a Bank in the ordinary and usual course of business), assume, guarantee, endorse, or otherwise as an accommodation become liable or responsible for obligations of any other individual, firm, or corporation; (5) Pay or incur any obligation or liability, absolute or contingent, other than liabilities incurred in the ordinary and usual course of business of the Corporations; (6) Except for transactions in the ordinary and usual course of business of the Banks or for Permitted Encumbrances, mortgage, pledge, or subject to lien or other encumbrance any of its properties or assets; (7) Except for transactions in the ordinary and usual course of business of the Banks (including, without limitation, sales of assets acquired by a Bank in the course of collecting loans) sell or transfer any of its properties or assets or cancel, release, or assign any indebtedness owed to it or any claims held by it; (8) Make any investment of a capital nature in excess of $25,000 for any one item or group of similar items either by the purchase of stock or securities (not including bonds purchased in the ordinary and usual course of business by the Banks), contributions to capital, property transfers, or otherwise, or by the purchase of any property or assets of any other individual, firm, or corporation; (9) Enter into any other agreement not in the ordinary and usual course of business; (10) Merge or consolidate with any other corporation, acquire any stock (except in a fiduciary capacity), solicit any offers for any class of its capital stock or a substantial portion of the assets of any of the Corporations or, except in the ordinary course of business, acquire any assets of any other person, corporation, or other business organization, or enter into any discussions with any person concerning, or agree to do, any of the foregoing; or (11) Enter into any transaction or take any action which would, if effected prior to the Effective Time, constitute a breach of any of the representations, warranties, or covenants contained in this Agreement. b. Prior to the Effective Time, each of the Corporations shall conduct its respective business in the ordinary and usual course as heretofore conducted, including maintaining its current policies and procedures regarding the review, approval, and collection of loans, and, each of the Corporations shall use its best efforts (1) to preserve its business and business organization intact, (2) to keep available to Fourth, BANK IV Kansas, and BANK IV Oklahoma the services of its present officers and employees, (3) to preserve the good will of customers and others having business relations with it, (4) to maintain its properties in customary repair, working order, and condition (reasonable wear and tear excepted), (5) to comply with all Laws applicable to it and the conduct of its business, (6) to keep in force at not less than their present limits all existing policies of insurance, (7) to make no material changes in the customary terms and conditions upon which it does business, (8) to duly and timely file all reports, tax returns, and other documents required to be filed with federal, state, local, and other authorities, and (9) unless it is contesting the same in good faith and has established reasonable reserves therefor, to pay when required to be paid all taxes indicated by tax returns so filed or otherwise lawfully levied or assessed upon it or any of its properties and to withhold or collect and pay to the proper governmental authorities or hold in separate bank accounts for such payment all taxes and other assessments which it believes in good faith to be required by law to be so withheld or collected. c. Prior to the Effective Time, the Corporations shall, to the extent permitted by Law, give Fourth and its counsel and accountants full access, during normal business hours and upon reasonable notice, to their respective properties, books, and records, and shall furnish Fourth during such period with all such information concerning their affairs as Fourth may reasonably request. The availability or actual delivery of information about the Corporations to Fourth shall not affect the covenants, representations, and warranties of the Corporations and the Stockholders contained in this Agreement or the Merger Agreements except as provided in Section 8.1 hereof; provided, that Fourth shall promptly disclose to First Dodge and the Stockholders any apparent breaches of such covenants, representations, or warranties discovered by it prior to the Effective Time. Except for confidential information disclosed in the Registration Statement or as otherwise required to be disclosed in the course of obtaining governmental approvals, Fourth shall treat as confidential all confidential information in the same manner as Fourth treats similar confidential information of its own and, if this Agreement is terminated, Fourth shall continue to treat all such information obtained in such investigation and not otherwise known to Fourth from a source not known to Fourth to be under a confidential relationship with the Corporations, or already in the public domain, as confidential and shall return such documents theretofore delivered by the Corporations to Fourth as the Corporations shall request. d. First Dodge, MBI, FNB, and the Banks shall each cause this Agreement and the Merger Agreements to be submitted promptly to their respective stockholders for approval, adoption, ratification, and confirmation at meetings to be called and held in accordance with the applicable Law and their respective articles of incorporation or association and bylaws. The respective boards of directors of First Dodge, FNB, MBI, and the Banks shall at all times prior to the Effective Time, recommend that the Merger Agreements be approved, ratified, and confirmed, and as of the date hereof, by authorizing the execution of this Agreement, the boards of directors of First Dodge, FNB, MBI, and the Banks do hereby recommend such approval, adoption, ratification, and confirmation. e. First Dodge, FNB, MBI, and the Banks shall separately and jointly with each other and with Fourth, BANK IV Kansas, and BANK IV Oklahoma, each use its Best Efforts in good faith to take or cause to be taken as promptly as practicable all such steps as shall be necessary to obtain all of the Required Approvals, and shall do any and all acts and things reasonably deemed by Fourth or the Corporations to be necessary or appropriate in order to cause the Mergers to be consummated on the terms provided herein and in the Merger Agreements as promptly as practicable. f. On or prior to the Effective Time, as appropriate for the transactions contemplated hereby, First Dodge, FNB, MBI, and the Banks shall each execute and deliver the Merger Agreements and the other closing documents provided for in this Agreement, shall take all such other actions required or desirable in order to effect the Mergers, and shall utilize their best efforts to cause all of the conditions described in Section 5.1 of this Agreement to occur and be continuing, and to consummate all of the other transactions contemplated hereby. g. On or prior to the Effective Time, First Dodge shall exert its Best Efforts to cause First National to enter into a contract with John V. Harding substantially in the form of Exhibit "E" hereto. h. The Corporations shall cooperate with Fourth in Fourth's efforts to obtain current title evidence or insurance, environmental assessment reports, and surveys on such of the Corporations' real estate as Fourth may desire. i. First Dodge shall engage an independent auditing firm to audit the 1993 consolidated financial statements of First Dodge and shall deliver a copy of same to Fourth upon its completion but no later than February 10, 1994. j. From the date hereof through the Effective Time, Metro Bank and First National shall give Robert W. Peterson, Assistant Vice President, BANK IV Kansas (or such other person as may be designated by Fourth in writing) at least one business day advance oral notice of all proposed securities purchases or sales involving an aggregate price of $250,000 or more. 2.4. The Mergers. a. At the Effective Time, the BANK IV Kansas Merger, the BANK IV Oklahoma Merger, and the Fourth Merger shall occur simultaneously pursuant to the Merger Agreements. The BANK IV Kansas Merger Agreement, the BANK IV Oklahoma Merger Agreement, and the Fourth Merger Agreement shall be substantially in the form of Exhibits "A", "B", and "C" to this Agreement, respectively, with such immaterial changes thereto as may be required or desirable in order to obtain the required governmental approvals and with all blanks properly completed. b. As the result of the BANK IV Kansas Merger, the separate existence of First National shall cease and BANK IV Kansas, as the surviving association, shall continue its corporate existence under the laws of the United States; the existing articles of association of BANK IV Kansas and the bylaws of BANK IV Kansas shall be the articles of association and bylaws of the merged bank; the directors and officers of BANK IV Kansas immediately preceding the BANK IV Kansas Merger shall be the directors and officers of the merged bank; BANK IV Kansas shall possess all the rights, privileges, powers, and franchises of First National; all property, real, personal, and mixed, belonging to First National shall be vested in and belong to BANK IV Kansas; and all rights of creditors and depositors of First National shall continue unimpaired. c. As the result of the BANK IV Oklahoma Merger, the separate existence of Metro Bank shall cease and BANK IV Oklahoma, as the surviving association, shall continue its corporate existence under the laws of the United States; the existing articles of association of BANK IV Oklahoma and the bylaws of BANK IV Oklahoma shall be the articles of association and bylaws of the merged bank; the directors and officers of BANK IV Oklahoma immediately preceding the BANK IV Oklahoma Merger shall be the directors and officers of the merged bank; BANK IV Oklahoma shall possess all the rights, privileges, powers, and franchises of Metro Bank; all property, real, personal, and mixed, belonging to Metro Bank shall be vested in and belong to BANK IV Oklahoma; and all rights of creditors and depositors of Metro Bank shall continue unimpaired. d. As the result of the Fourth Merger, the separate existence of First Dodge, FNB, and MBI shall cease, and Fourth, as the surviving corporation, shall continue its corporate existence under the laws of the State of Kansas; the articles of incorporation and the bylaws of Fourth in effect at the Effective Time shall be the articles of incorporation and bylaws of the surviving corporation until further amended as provided by Law; the directors and officers of Fourth immediately preceding the Fourth Merger shall be the directors and officers of the surviving corporation; Fourth shall possess all the rights, privileges, powers, and franchises of a public as well as of a private nature of First Dodge, MBI, and FNB; all property, real, personal, and mixed, belonging to First Dodge, FNB, and MBI shall be vested in and belong to Fourth; and all rights of creditors of First Dodge, MBI, and FNB shall continue unimpaired. e. From time to time as and when requested by Fourth, BANK IV Kansas, or BANK IV Oklahoma, their respective successors or assigns, the officers and directors of the Banks, First Dodge, FNB, and MBI last in office shall execute and deliver such deeds and other instruments and shall take or cause to be taken such other actions as shall be necessary or desirable to vest or perfect in or to confirm of record or otherwise BANK IV Kansas's, BANK IV Oklahoma's, or Fourth's title to, and possession of, all the property, interests, assets, rights, privileges, immunities, powers, franchises, and authority of the Banks, First Dodge, FNB, MBI, or any of them, and otherwise to carry out the purposes of this Agreement; provided, that no such officer or director shall thereby incur any expense or liability. 2.5. Conversion and Exchange of Shares. a. Fourth Merger. The manner of converting or exchanging the shares of capital stock of First Dodge, FNB, and MBI outstanding at the Effective Time shall be as follows: (1) The Fourth Merger shall effect no change in any of the then issued and outstanding shares of Fourth Stock and none of Fourth's then issued and outstanding shares of Fourth Stock shall be converted or exchanged as the result of the Fourth Merger. (2) At the Effective Time, upon consummation of the Fourth Merger, each issued and outstanding share of First Dodge Stock and each issued and outstanding share of MBI Common Stock not owned by First Dodge shall cease to be an issued and existing share, and each such share shall automatically be converted into and exchanged for a number of shares of Fourth Stock as is set forth in the following table: No. of Shares Class of Stock of Fourth Stock -------------- --------------- First Dodge Stock 112.42 MBI Common Stock 0.30 (3) No separate amounts are being paid with respect to the FNB Common Stock or MBI Preferred Stock (all of which is owned by First Dodge) or the MBI Common Stock owned by First Dodge as their respective values are fully reflected in the number of shares of Fourth Stock being issued with respect to First Dodge Stock in the Fourth Merger. b. Bank Mergers. The manner of converting or exchanging the shares of capital stock of the Banks into capital stock of BANK IV Kansas or BANK IV Oklahoma, par value $5 per share, shall be as follows: (1) At the Effective Time, upon consummation of the Bank Mergers each issued and outstanding share of First National Stock shall cease to be an issued and existing share, and each such share not owned of record by FNB shall automatically be converted into and exchanged for the right to receive 95.92 shares of Fourth Stock. (2) No separate payment will be made with respect to First National Stock owned by FNB or to Metro Bank Stock, all of which is owned by MBI, as their values are fully reflected in the number of shares of Fourth Stock being issued with respect to First Dodge Stock and MBI Stock in the Fourth Merger. (3) The 6,000 shares of First National Stock issued and outstanding at the Effective Time (consisting of 733 shares to be issued to replace the shares being cancelled pursuant to clause (l) above and the 5,267 shares then owned of record by FNB) shall automatically be and become an aggregate of 120,000 shares of capital stock of BANK IV Kansas, par value $5 per share, all of which shall be issued to and owned by Fourth. (4) The 305,000 shares of Metro Stock issued and outstanding at the Effective Time, shall automatically be and become an aggregate of 152,500 shares of capital stock of BANK IV Oklahoma, par value $5 per share, all of which shall be issued to and owned by Fourth. c. Adjustment for Changes in Fourth's Capitalization. In the event that between the date of this Agreement and the Effective Time Fourth shall take any action to subdivide its outstanding shares of common stock into a greater number of shares, or to combine its outstanding shares of common stock into a smaller number of shares, or to declare a stock dividend on its outstanding common stock, or to effect a reclassification of its common stock, then the number and kind of shares of Fourth Stock which the stockholders of First Dodge, First National, and MBI shall be entitled to receive in the Mergers shall be adjusted equitably to prevent dilution or enlargement of the proportionate common stock interests in Fourth to be received by them. d. Stock Certificates. After the Effective Time and until surrendered for exchange, each outstanding stock certificate which prior to the Effective Time represented First Dodge Stock, MBI Common Stock not owned by First Dodge, or First National Stock not owned of record by FNB, shall be deemed for all corporate purposes to represent the right to receive the number of shares of Fourth Stock into which the shares of stock have been so converted; provided, that in any matters relating to the shares represented by such stock certificates, Fourth, BANK IV Kansas, and BANK IV Oklahoma may rely exclusively upon the record of stockholders maintained by First Dodge, MBI, or First National containing the names and addresses of all stockholders of record at the Effective Time. Unless and until such outstanding stock certificates formerly representing such shares are so surrendered, no dividend payable to holders of Fourth Stock, as of any date on or subsequent to the Effective Time, shall be paid to the holder of such outstanding certificates in respect thereof. Upon surrender of such outstanding certificates (or, in case of lost certificates, upon receipt of a surety bond or other form of indemnification which is satisfactory to Fourth), however, the former First Dodge, MBI, or First National stockholder shall receive a certificate evidencing the shares of Fourth Stock to which such stockholder is entitled plus the accrued dividends on such stock from the Effective Time, without interest. e. Fractional Shares. No fractional shares of Fourth Stock will be issued. Instead, upon surrender of First Dodge, MBI, or First National stock certificates (or in the case of lost certificates, a surety bond or other form of indemnification which is satisfactory to Fourth), Fourth will pay, or cause to be paid, to the holder thereof the value of the fractional interest to which the holder thereof would otherwise be entitled, based upon the Closing Price. f. Exchange Procedure. Promptly after the Effective Time, Fourth will send a notice and transmittal form to each record holder of outstanding certificates that immediately prior to the Effective Time evidenced shares of First Dodge Stock, MBI Common Stock not owned of record by First Dodge, or First National Stock not owned of record by FNB, advising such stockholder of the effectiveness of the Mergers and the procedures for surrendering to Fourth such certificates in exchange for certificates representing the number of shares of Fourth Stock into which the shares of such capital stock represented by such certificates shall have been converted. 2.6. Advance Preparations for Bank Mergers. The parties acknowledge that Fourth anticipates it will be desirable to take various actions immediately following the Effective Time to maximize the future profitability of BANK IV Kansas and BANK IV Oklahoma, and that, as future stockholders of Fourth, the First Dodge, MBI, FNB, and Bank stockholders will all benefit from such actions to the extent they are successful. Accordingly, First National and Metro Bank agree to cooperate with Fourth in making advance plans and preparations for post-closing operations, including, without limitation cooperation with employees of Fourth in planning for post-closing operations. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1. Representations and Warranties of First Dodge, FNB, MBI, the Banks, and the Stockholders. Except as expressly disclosed in the Disclosure Statement, First Dodge, FNB, MBI, the Banks, and the Stockholders jointly and severally represent and warrant to Fourth as follows: a. Organization, Good Standing, and Authority. Each of First Dodge, FNB, and MBI is a bank holding company duly registered pursuant to the Bank Holding Company Act. Each of the Corporations is a corporation or bank duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation, and each has all requisite corporate power and authority to conduct its business as it is now conducted, to own its properties and assets, and to lease properties used in its business. The only Subsidiaries of First National are First Ag Credit Corporation and Southwest, Inc., both of which are Kansas corporations. The only Subsidiary of FNB is First National which has the two Subsidiaries described above. Metro Bank has no Subsidiaries. The only Subsidiary of MBI is Metro Bank. The only Subsidiaries of First Dodge are FNB and its Subsidiaries and MBI and its Subsidiary. None of the Corporations is in violation of its charter documents or bylaws, or of any applicable Law in any material respect. The deposits of both of the Banks are insured by the Federal Deposit Insurance Corporation to the extent provided by the Federal Deposit Insurance Act and each of the Banks has paid all assessments and filed all reports required to be filed under the Federal Deposit Insurance Act. b. Binding Obligations; Due Authorization. This Agreement constitutes, and the Merger Agreements will upon execution and delivery constitute, subject only to the approval and adoption thereof by the stockholders of First Dodge, FNB, MBI, and the Banks, valid and binding obligations of First Dodge, FNB, MBI, each of the Banks, and each Stockholder, enforceable against each of such parties in accordance with the respective terms of such documents, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar Laws and equitable principles affecting creditors' rights generally. The execution, delivery, and performance of this Agreement, the Merger Agreements, and the transactions contemplated by all such agreements have been duly authorized by the respective boards of directors of First Dodge, FNB, MBI, and each Bank. c. Absence of Default. None of the execution or the delivery of this Agreement and the Merger Agreements, the consummation of the transactions contemplated hereby or thereby, or the fulfillment of the terms hereof or thereof, will (1) conflict with, or result in a breach of the terms, conditions, or provisions of, or constitute a default under the charter documents or bylaws of any of the Corporations or under any agreement or instrument under which any of the Corporations or any of the Stockholders is obligated, or (2) violate any Law to which any of the Corporations or any of the Stockholders is subject. d. Capitalization. First Dodge is authorized to issue 100,000 shares of First Dodge Stock, par value $1.00 per share, of which 5,254.5 shares are validly issued and outstanding. FNB is authorized to issue: (i) 100,000 shares of FNB Common Stock, par value $1.00 per share, of which 5,254.50 shares are validly issued and outstanding; and (ii) 1,500,000 shares of FNB Preferred Stock, par value $1.00 per share, none of which is issued and outstanding. MBI is authorized to issue: (i) 1,000,000 shares of MBI Common Stock, par value $.10 per share, of which 905,000 are validly issued, 904,795 shares are validly issued and outstanding, and 205 shares are held as treasury shares; and (ii) 3,000,000 shares of MBI Preferred Stock, par value $1.00 per share, of which 1,915,333 shares are validly issued and outstanding. Metro Bank is authorized to issue 340,000 shares of Metro Stock, par value $2.50 per share, of which 305,000 shares are validly issued and outstanding. First National is authorized to issue 6,000 shares of First National Stock, par value $100 per share, all of which are validly issued and outstanding. First Dodge owns all of the issued and outstanding FNB Common Stock and MBI Preferred Stock and 900,795 shares of MBI Common Stock, all of which are free and clear of all encumbrances, liens, security interests, and claims whatsoever except for the pledge of such shares to Commerce Bank, N.A. FNB owns 5,267 shares of First National Stock, free and clear of all encumbrances, liens, security interests, and claims whatsoever. MBI owns all of the issued and outstanding shares of Metro Stock, free and clear of all encumbrances, liens, security interests, and claims whatsoever. e. Charter Documents. True and correct copies of the charter documents and bylaws of each of the Corporations, with all amendments thereto, are included in the Disclosure Statement as Exhibits "E-1" to "E-14." f. Options, Warrants, and Other Rights. None of the Corporations has outstanding any options, warrants, or rights of any kind requiring it to sell or issue to anyone any capital stock of any class and none of the Corporations has agreed to issue, sell, or purchase any additional shares of any class of its capital stock. g. Financial Statements. Included in the Disclosure Statement as Exhibits "G-1" through "G-4" are true and complete copies of the following financial statements, all of which have been prepared in accordance with GAAP and all applicable regulatory accounting principles consistently followed throughout the periods indicated and fairly present in all material respects the financial condition of the Corporations as of the dates and for the periods indicated, subject in the case of interim financial statements, to normal recurring year- end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse) and the absence of notes (which if presented would not differ materially from those included in the most recent year-end financial statements): (1) Audited Consolidated Financial Statements of First National as of December 31, 1992 and 1991, and for the fiscal years then ended, with auditors' report thereon and notes thereto, which have been examined by Smoll, Banning & Neier, Chtd, independent certified public accountants; (2) Unaudited financial statements of each of the Corporations, as of September 30, 1993 and 1992 and for the periods then ended; (3) Consolidated Reports of Condition and Income as of March 31, June 30, September 30, and December 31, 1993, as filed by the Banks with the Comptroller and the FDIC; and (4) Annual Reports on Form FR Y-9 filed by First Dodge, FNB, and MBI with the Board for the years ended December 31, 1992 and 1991. As soon as practicable between the date hereof and the Effective Time, the Corporations will deliver to Fourth copies of monthly operating statements and monthly securities inventory reports of the Banks and of all reports filed by either of them with any regulatory agencies. The books of account of each of the Corporations and each of the Financial Statements fairly and correctly reflect and, when delivered, will reflect in all material respects in accordance with GAAP and all applicable rules and regulations of regulatory agencies applied on a consistent basis, the respective incomes, expenses, assets, and liabilities, absolute or contingent, of each of the Corporations (except for the absence in the monthly operating statements of the Banks of certain information and footnotes normally included in financial statements prepared in accordance with GAAP which in the aggregate would not be materially adverse). There have been no material adverse changes in the financial condition of any of the Corporations from December 31, 1992, other than changes made in the usual and ordinary conduct of the businesses of the Corporations, none of which has been or will be materially adverse and all of which have been or will be recorded in the books of account of the Corporations; and except as specifically permitted by this Agreement, there have been no material adverse changes in the respective businesses, assets, properties, or liabilities, absolute or contingent, of any of the Corporations, or in their respective condition, financial or otherwise, from the date of the most recent of the Financial Statements that has been delivered to Fourth on the date hereof other than (i) changes occurring in the usual and ordinary conduct of the business of the Corporations, none of which has been or will be materially adverse and all of which have been or will be recorded in the respective books of account of the Corporations, and (ii) resulting from action required or permitted by this Agreement to be taken by any of the Corporations. To the extent required by GAAP, all contingent liabilities of any of the Corporations, other than letters of credit and similar obligations of the Banks incurred in the ordinary course of business, are described in or reserved against in the Financial Statements listed above. h. Properties. First Dodge, FNB, MBI, and First National's Subsidiaries do not own or lease any real property. Exhibit "H" to the Disclosure Statement is a complete list of all real estate owned or leased by either Bank. Each Bank has good and marketable title in fee simple to all of the real property shown on its book as being owned by it, free and clear of all liens, encumbrances, and charges, except for those exceptions described on Exhibit "H" to the Disclosure Statement and Permitted Encumbrances. All leases of real property to which a Bank is a party as lessee, a true and complete copy of each of which with all amendments thereto is included in Exhibit "H" to the Disclosure Statement, are valid and enforceable in accordance with their respective terms except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar Laws and equitable principles affecting creditors' rights generally, and there has been no material default by any party thereto. No zoning ordinance prohibits, interferes with, or materially impairs the usefulness of the Occupied Properties; and all the premises on the Occupied Properties or leased by a Bank are in good operating condition and repair, normal wear and tear excepted. i. Personal Property. Either First National or Metro Bank has good and merchantable title to all of the machinery, equipment, materials, supplies, and other property of every kind, tangible or intangible, contained in its offices and other facilities or shown as assets in its records and books of account, free and clear of all liens, encumbrances, and charges except for leasehold improvements to leased premises and for personal property held under the leases described on Exhibit "I" to the Disclosure Statement. Exhibit "I" to the Disclosure Statement is a complete list of all leases of personal property to which either of the Banks is a party. All leases of personal property to which either of the Banks is a party as lessee, true and complete copies of each which with all amendments thereto are included in Exhibit "I" to the Disclosure Statement, are valid and enforceable in accordance with their terms, and there has been no material default by any party thereto. All of such personal property owned or leased by either of the Banks is in good operating condition, normal wear and tear excepted. j. Taxes. The Corporations have all filed all tax returns and reports required to be filed with the United States Government and with all states and political subdivisions thereof where any such returns or reports are required to be filed and where the failure to file such return or report would subject any of the Corporations to any material liability or penalty. All taxes imposed by the United States, or by any foreign country, or by any state, municipality, subdivision, or instrumentality of the United States or of any foreign country, or by any other taxing authority, which are due and payable by any of the Corporations have been paid in full or adequately provided for by reserves shown in the records and books of account of the Corporations and in the Financial Statements. No extension of time for the assessment of deficiencies for any years is in effect. None of the Corporations has any knowledge of any unassessed tax deficiency proposed or threatened against any of them. k. Contracts. Other than Permitted Contracts and agreements with customers of the Banks and with financial institutions entered into by the Banks in the ordinary course of their banking businesses, attached to the Disclosure Statement as Exhibit "K" is a list of all material contracts and other agreements and arrangements, both written and oral, to which any of the Corporations is a party, which affect or pertain to the operation of their respective businesses, and which involve future payments by any of the Corporations of $10,000 or more (the "Scheduled Agreements"). All parties to the Scheduled Agreements have in all material respects performed, and are in good standing with respect to, all the material obligations required to be performed under all such contracts and other agreements and arrangements, and no obligation with respect thereto is overdue. All of the agreements of the Corporations, including without limitation the agreements disclosed in writing pursuant to this clause k, are valid, binding, and enforceable in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws and equitable principles affecting creditors' rights generally. Except as otherwise noted in Exhibit "K" to the Disclosure Statement, no contract, lease, or other agreement or arrangement to which any of the Corporations is a party or as to which any of any of their assets is subject requires the consent of any third party in connection with this Agreement or any of the Mergers. The Corporations are not in default under any of the Scheduled Agreements; the Corporations are not aware of any default by any other party to any of the Scheduled Agreements or any claim by any other party that the Corporations are in default under any of the Scheduled Agreements. Except for Permitted Contracts and except as set forth in Exhibit "K" to the Disclosure Statement, none of the Corporations is a party to: (1) Any contract for the purchase or sale of any materials, services, or supplies which contains any escalator, renegotiation, or redetermination clause or which commits it for a fixed term; (2) Any contract of employment with any officer or employee not terminable at will without liability on account of such termination; (3) Any management or consultation agreement not terminable at will without liability on account of such termination; (4) Any license, royalty, or union agreement, or loan agreement in which a Corporation is the borrower; (5) Any contract, accepted order, or commitment for the purchase or sale of materials, services, or supplies having a total remaining contract price in excess of $10,000; (6) Any contract containing any restrictions on any party thereto competing with any Corporation or any other person; (7) Any other agreement which materially affects the business, properties, or assets of any of the Corporations, or which was entered into other than in the ordinary and usual course of business; or (8) Any letter of credit or commitment to make any loan or group of loans to related parties in an amount in excess of $100,000. None of the Corporations' agreements described in this clause k other than loans made in the ordinary course is reasonably anticipated by any of the Corporations or any Stockholder to result in a material loss to any of the Corporations. l. Labor Relations; Employees; ERISA. None of the Corporations is a party to or affected by any collective bargaining agreement or employment agreement, nor is any Corporation a party to any pending or threatened labor dispute, organizational efforts, or labor negotiations. Each of the Corporations has complied with all applicable Laws relating to the employment of labor, including, but not limited to, the provisions thereof relating to wages, hours, collective bargaining, payment of social security taxes, and equal employment opportunity, the violation of which would have a materially adverse impact on their respective businesses. None of the Corporations is liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. Except for First National's profit sharing plan (the "Profit Sharing Plan"), and Metro Bank's 401K Plan (the "401K Plan") true and complete copies of each of which together with all amendments thereto are attached as Exhibits L-1 and L-2, respectively, to the Disclosure Statement, none of the Corporations has any written or oral retirement, pension, profit sharing, stock option, bonus, or other employee benefit plan or practice other than group health, life, and accident insurance. The Profit Sharing Plan and the 401K Plan are both in material compliance with ERISA and the Code and each is a "qualified plan" within the meaning of Section 401(a) of the Code and each is the subject of a currently effective written determination of the Internal Revenue Service to such effect and to the further effect that the trust thereunder is a trust exempt from tax under Section 501 of the Code. The Corporations know of no facts or circumstances that could adversely affect the status of either such plan as such a plan or such trust as such a trust. All accrued contributions and other payments to be made by First National under the Profit Sharing Plan or by Metro Bank under the 401K Plan have been made or reserves adequate for such purposes have been set aside therefor. None of the Corporations has violated any of the provisions of ERISA, and none of them has engaged in any "prohibited transactions" as such term is defined in Section 406 of ERISA. Each of the Corporations has complied with all applicable notice requirements and has provided group health care continuation coverage under Section 4980B of the Code and/or any other applicable Laws. There is no employee of any of the Corporations whose employment is not terminable at will without severance pay or other penalty or compensation. m. Government Authorizations. Each of the Corporations has all permits, charters, licenses, orders, and approvals of every federal, state, local, or foreign governmental or regulatory body required in order to permit it to carry on its business substantially as presently conducted. All such licenses, permits, charters, orders, and approvals are in full force and effect, and none of the Corporations knows of any threatened suspension or cancellation of any of them and none of the Corporations knows of any fact or circumstance that will interfere with or adversely affect the renewal of any of such licenses, permits, charters, orders, or approvals; and none of such permits, charters, licenses, orders, and approvals will be affected by the consummation of the transactions contemplated by this Agreement. n. Insurance. Exhibit "N" to the Disclosure Statement is a complete list of all insurance policies presently in effect and in effect during the past three years. All the insurance policies and bonds currently maintained by any of the Corporations are in full force and effect. o. Litigation. Exhibit "O" to the Disclosure Statement contains a true and complete list and brief description of all pending or, to the knowledge of any of the Corporations or Stockholders, threatened Litigation to which any of the Corporations is or would be a party or to which any of their assets is or would be subject. Except as described on Exhibit "O" to the Disclosure Statement, none of the Corporations is a party to any Litigation other than routine litigation commenced by a Bank to enforce obligations of borrowers in which no counterclaims for any material amounts of money have been asserted or, to the knowledge of any of the Corporations, threatened. p. Brokers or Finders. No broker, agent, finder, consultant, or other party (other than legal, accounting, and financial advisors) has been retained by any of the Corporations or any Stockholder or is entitled to be paid based upon any agreements, arrangements, or understandings made by any of the Corporations or any Stockholder in connection with any of the transactions contemplated by this Agreement or the Merger Agreements. q. SEC Filings To Be Accurate. The information pertaining to the Corporations and Stockholders which has been or will be furnished to Fourth by or on behalf of any of the Corporations or Stockholders for inclusion in the Registration Statement or the Proxy Statement, and the information pertaining to any of the Corporations or Stockholders which will appear in the Registration Statement or the Proxy Statement, in the form filed with the SEC, will not contain any untrue statement of any material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading. The Corporations and Stockholders shall promptly advise Fourth in writing if prior to the Effective Time any of them shall obtain knowledge of any fact that would make it necessary to amend the Registration Statement or the Proxy Statement, or to supplement the prospectus contained in the Registration Statement, in order to make the statements therein not misleading or to comply with applicable Law. r. Stockholder Matters. Exhibit "R" to the Disclosure Statement accurately sets forth after the name of each Stockholder the number of shares of First Dodge Stock, MBI Common Stock, and First National Stock beneficially owned by such Stockholder, in each case free and clear of all liens, encumbrances, claims, and equities which would impair the right of the record owner to vote such shares in favor of the Fourth Merger or the BANK IV Kansas Merger, and the number of shares of Fourth Stock to be received in the Fourth Merger and the BANK IV Kansas Merger; provided, however, that no Stockholder makes any warranty as to the shares owned by any other Stockholder. None of the Corporations is a party and none of the Stockholders is a party to any agreement which in any way restricts the right of any stockholder of any of the Corporations to vote on this Agreement or the Merger Agreements or consummate the transactions contemplated therein. There is no plan or intention by the Stockholders, and to the best of the knowledge of First Dodge, FNB, MBI, Metro Bank or First National, there is no plan or intention on the part of the remaining stockholders of MBI or First National to sell, exchange, or otherwise dispose of a number of shares of Fourth Stock received in any of the Mergers that would reduce the First Dodge, MBI, and First National stockholders' ownership of Fourth Stock to a number of shares having a value, as of the Effective Time, of less than 50 percent of the value of all of the capital stock of all of such corporations outstanding immediately prior to the Effective Time. Solely for purposes of the preceding sentence, an amount of Fourth Stock equal to (i) the value of First Dodge Stock, First National Stock, and MBI Common Stock surrendered by persons exercising dissenters' rights, (ii) the value of stock surrendered for cash in lieu of fractional shares of Fourth Stock, and (iii) the value of shares of Fourth Stock held by stockholders prior to the Mergers and otherwise sold, redeemed, or disposed of prior or subsequent to the Effective Time, shall be deemed received by such stockholders in the Mergers and sold, exchanged, or disposed of immediately thereafter. s. Environmental Compliance. Each of the Banks is in material compliance with all relevant Environmental, Health, and Safety Laws and none of the Corporations has any material Environmental, Health, and Safety Liabilities. Except as described in Exhibit "S" to the Disclosure Statement, none of the Occupied Properties and, to the knowledge of First Dodge, FNB, MBI, and the Banks, no real or personal property owned or leased by either Bank at any time is now being used or has at any time in the past ever been used for the storage (whether permanent or temporary), disposal, or handling of any Hazardous Materials, nor are any Hazardous Materials located in, on, under, or at any real or personal property owned, leased, or used by a Bank. Neither Stockholders nor any of the Corporations have received any notice of a material violation of any Environmental, Health, and Safety Law, or any notice of any material potential Environmental, Health, and Safety Liabilities with respect to any properties or assets in which any of the Corporations has or has had any interest. t. Employment of Aliens. The Banks are in material compliance with the Immigration and Control Act of 1986. u. Notes and Leases. All promissory notes and leases owned by the Banks at the Effective Time will represent bona fide indebtedness or obligations to such Bank and are and will be fully enforceable in accordance with their terms without valid set-offs or counterclaims, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws and equitable principles affecting creditors' rights generally; provided, however, no representation or warranty is made in this Agreement as to the collectibility of any such note or lease. v. No Misrepresentations. Neither this Agreement, the Financial Statements, nor any other letter, certificate, statement, or document furnished or to be furnished to Fourth by or on behalf of the Corporations, the Stockholders, or any of them, pursuant to or in connection with this Agreement and the transactions contemplated hereby, when considered in conjunction with all other information and documents furnished to Fourth hereunder, contains or will contain any misstatement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. w. Updating of Representations and Warranties. Between the date hereof and the Effective Time, First Dodge, FNB, MBI, the Banks, and the Stockholders will promptly disclose to Fourth in writing any information of which any of them has actual knowledge (1) concerning any event that would render any of their representations or warranties contained in this Agreement untrue if made as to the date of such event, (2) which renders any information set forth in this Agreement or the Disclosure Statement no longer correct in all material respects, or (3) which arises after the date hereof and which would have been required to be included in this Agreement or the Disclosure Statement if such information had existed on the date hereof. 3.2. Representations and Warranties of Fourth. Fourth represents and warrants to First Dodge, FNB, MBI, the Banks, and the Stockholders, and each of them, as follows: a. Organization, Good Standing, and Authority. Fourth is a bank holding company duly registered pursuant to the Bank Holding Company Act. Fourth and each of its banking Subsidiaries is a corporation or bank duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation, and each has all requisite corporate power and authority to conduct its business as it is now conducted, to own its properties and assets, and to lease properties used in its business. None of Fourth or any of its banking Subsidiaries is in violation of its charter documents or bylaws, or of any applicable Law in any material respect, or in default in any material respect under any material agreement, indenture, lease, or other document to which it is a party or by which it is bound. All of Fourth's issued and outstanding equity securities are duly registered under the Federal Securities Exchange Act of 1934, as amended. Shares of Fourth Stock are eligible for trading in the National Market System of NASDAQ. b. Binding Obligations; Due Authorization. This Agreement constitutes, and the Merger Agreements will upon execution and delivery constitute, valid and binding obligations of Fourth and, in the case of the Bank Merger Agreements, BANK IV Oklahoma and BANK IV Kansas, as the case may be, enforceable against them in accordance with the terms of such documents, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws and equitable principles affecting creditors' rights generally. The execution, delivery, and performance of this Agreement and the Merger Agreements, and the transactions contemplated by all such agreements have been duly authorized by the respective boards of directors of Fourth, BANK IV Kansas, and BANK IV Oklahoma. No approval of the holders of outstanding Fourth Stock or other voting securities of Fourth is necessary to consummate the Mergers. c. Absence of Default. None of the execution or the delivery of this Agreement and the Merger Agreements, the consummation of the transactions contemplated hereby or thereby, or the fulfillment of the terms hereof or thereof, will (1) conflict with, or result in a breach of the terms, conditions, or provisions of, or constitute a default under the charter documents or bylaws of Fourth or any of its banking Subsidiaries or under any agreement or instrument under which Fourth or any of its banking Subsidiaries is obligated, or (2) violate any Law to which any of them is subject. d. Disclosure Materials Delivered by Fourth. Fourth has previously delivered to First Dodge its Annual Report on Form 10-K for the year ended December 31, 1992, and its Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30, and September 30, 1993, in each case with exhibits thereto, as filed with the SEC, and a copy of the definitive proxy statement used by Fourth in connection with its 1993 annual stockholders' meeting. All of the financial statements contained in such documents have been prepared in accordance with GAAP applied on a consistent basis. The books of account of Fourth and each of its banking Subsidiaries fairly and correctly reflect, in accordance with GAAP applied on a consistent basis, the respective incomes, expenses, assets, and liabilities, absolute and contingent, of Fourth and each of its banking Subsidiaries. There have been no material adverse changes in the consolidated financial condition of Fourth from September 30, 1993. e. Brokers or Finders. No broker, agent, finder, consultant, or other party (other than legal and accounting advisors) has been retained by Fourth or is entitled to be paid based upon any agreements, arrangements, or understandings made by Fourth in connection with any of the transactions contemplated by this Agreement or the Merger Agreements. f. SEC Filings to be Accurate. The information pertaining to Fourth which has been or will be furnished by or on behalf of Fourth and its banking Subsidiaries or its management for inclusion in the Registration Statement or the Proxy Statement, and the information pertaining to Fourth which will appear in the Registration Statement or the Proxy Statement, in the form filed with the SEC, will contain no untrue statement of any material fact and will not omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading. Fourth shall promptly advise First Dodge in writing if prior to the Effective Time it shall obtain knowledge of any fact that would make it necessary to amend the Registration Statement or the Proxy Statement, or to supplement the prospectus contained in the Registration Statement, in order to make the statements therein not misleading or to comply with applicable Law. g. No Misrepresentations. Neither this Agreement, the disclosure documents described in clause "d" of this Section 3.2, nor any other letter, certificate, statement, or document furnished or to be furnished to First Dodge, FNB, MBI, the Banks, or the Stockholders by or on behalf of Fourth pursuant to or in connection with this Agreement and the transactions contemplated hereby contains or will contain any misstatement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. h. Capitalization. Fourth is authorized to issue (i) 50,000,000 shares of common stock, par value $5 per share, of which 26,352,215 shares were issued and outstanding on December 31, 1993, (ii) 250,000 shares of Class A 7% Cumulative Convertible Preferred Stock, par value $100 per share, all of which are issued and outstanding, and (iii) 5,000,000 shares of Class B Preferred Stock, without par value, none of which have been issued. The shares of Fourth Stock to be issued in the Mergers will be duly and validly issued, fully paid, and nonassessable, and not issued in violation of any preemptive rights or any Laws applicable thereto. i. Updating of Representations and Warranties. Between the date hereof and the Effective Time, Fourth will promptly disclose to First Dodge and the Stockholders in writing any information of which it has actual knowledge (1) concerning any event that would render any representation or warranty of Fourth untrue if made as of the date of such event, (2) which renders any information set forth in this Agreement no longer correct in all material respects, or (3) which arises after the date hereof and which would have been required to be included in the Agreement if such information had existed on the date hereof. ARTICLE IV SECURITIES LAWS MATTERS 4.1. Registration Statement and Proxy Statement. Fourth shall as soon as practicable prepare and file the Registration Statement under and pursuant to the Securities Act for the purpose of registering the shares of Fourth Stock to be issued in the Mergers. First Dodge, FNB, MBI, and the Banks shall each provide promptly to Fourth such information concerning its respective business, financial condition, and affairs as may be required or appropriate for inclusion in the Registration Statement or the Proxy Statement and each shall cause its counsel and auditors to cooperate with the other's counsel and auditors in the preparation and filing of the Registration Statement and the Proxy Statement. Fourth and First Dodge shall use their Best Efforts to have the Registration Statement declared effective under the Securities Act as soon as may be practicable and thereafter First Dodge, MBI, and First National shall each distribute the Proxy Statement to its respective stockholders in accordance with applicable Laws not fewer than 20 business days prior to the date on which the Fourth Merger Agreement and the Bank Merger Agreements are to be submitted to the stockholders for voting thereon. If necessary, in light of developments occurring subsequent to the distribution of the Proxy Statement to stockholders, First Dodge, MBI, and First National shall each mail or otherwise furnish to its respective stockholders such amendments to the Proxy Statement or supplements to the Proxy Statement as may, in the opinion of Fourth or First Dodge, be necessary so that the Proxy Statement, as so amended or supplemented, will contain no untrue statement of any material fact and will not omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or as may be necessary to comply with applicable Law. Fourth shall not be required to maintain the effectiveness of the Registration Statement for the purpose of resale of Fourth Stock by any person. 4.2. State Securities Laws. Fourth shall prepare and file and the parties hereto shall cooperate in making any filings required under the securities laws of any State in order either to qualify or register the Fourth Stock so it may be offered and sold lawfully in such State in connection with the Mergers or to obtain an exemption from such qualification or registration. 4.3. Affiliates. Certificates representing shares of Fourth Stock issued to Affiliates of First Dodge, MBI, or First National pursuant to the Fourth Merger Agreement or the Bank Merger Agreements may be subjected to stop transfer orders and may bear a restrictive legend in substantially the following form: The shares of common stock represented by this certificate have been issued or transferred to the registered holder as the result of a transaction to which Rule 145 under the Securities Act of 1933, as amended (the "Act"), applies. Such shares may not be sold, pledged, transferred, or assigned, and the issuer shall not be required to give effect to any attempted sale, pledge, transfer, or assignment, except (i) pursuant to a then current effective registration under the Act, (ii) in a transaction permitted by Rule 145 as to which the issuer has, in the reasonable opinion of its counsel, received reasonably satisfactory evidence of compliance with Rule 145, or (iii) in a transaction which, in the opinion of counsel satisfactory to the issuer or as described in a "no-action" or interpretive letter from the staff of the Securities and Exchange Commission, is not required to be registered under the Act. Transfer of the shares represented by this certificate is further restricted by an Affiliate's Agreement dated as of __________, 1994, between the issuer and the registered holder to which reference is hereby made. ARTICLE V CLOSING CONDITIONS 5.1. Conditions to Obligations of Fourth, BANK IV Kansas, and BANK IV Oklahoma. The obligations of Fourth to effect the Mergers and to issue any Fourth Stock and the obligation of BANK IV Kansas and BANK IV Oklahoma to effect the Bank Mergers shall be subject to the following conditions which may, to the extent permitted by Law, be waived by Fourth at its option: a. Stockholder Approvals. The approval, ratification, and confirmation of this Agreement and the Bank Merger Agreements and the Fourth Merger Agreement by the respective stockholders of each Bank and First Dodge, FNB, and MBI shall have been duly obtained as required by Law. b. Absence of Litigation. No order, judgment, or decree shall be outstanding restraining or enjoining consummation of any of the Mergers; and no Litigation shall be pending or threatened in which it is sought to restrain or prohibit any of the Mergers or obtain other substantial monetary or other relief against one or more of the parties hereto in connection with this Agreement. c. Securities Laws. The Registration Statement shall have become effective under the Securities Act and Fourth shall have received all state securities laws permits or other authorizations or confirmation of the availability of exemption from registration requirements necessary to issue the Fourth Stock in the Mergers. Neither the Registration Statement nor any such permit, authorization, or confirmation shall be subject to a stop-order or threatened stop-order or similar proceeding or order by the SEC or any state securities authority. d. Regulatory Approvals. All Required Approvals shall have been procured and shall continue to be in effect. e. Limit on Dissent. The holders of an aggre- gate amount of the then issued and outstanding First Dodge Stock, MBI Common Stock, and First National Stock which shall be convertible into an amount of Fourth Stock issuable in the Mergers equal to not more than five percent of the total amount of Fourth Stock issuable in the Mergers shall have validly exercised their rights as dissenting stockholders. f. Minimum Net Worths of the Banks. Fourth shall be reasonably satisfied that the stockholders' equity of the Metro Bank and the consolidated stockholders' equity of First National as of the end of the month immediately preceding the Effective Time, computed in accordance with GAAP, are not less than $3,500,000 and $9,000,000, respectively. g. Opinion of Counsel. Fourth shall have received the opinion of Mangan, Dalton, Trenkle, Rebein & Doll, Chartered, counsel to the Corporations and the Stockholders, substantially in the form of Exhibit "D" hereto. h. Representations and Warranties; Covenants. The representations and warranties of First Dodge, FNB, MBI, the Banks, and the Stockholders contained in Section 3.1 of this Agreement shall have been true and correct in all material respects on the date made and shall be true and correct in all material respects at the Effective Time as though made at such time, excepting: (i) any changes occurring in the ordinary course of business, none of which shall have been materially adverse, and (ii) any changes contemplated or permitted by this Agreement. First Dodge, FNB, MBI, the Banks, and the Stockholders shall each have performed in all material respects all of their obligations under this Agreement. i. Certificates. First Dodge, FNB, MBI, and the Banks shall each have delivered to Fourth a certificate, in form and substance satisfactory to Fourth, dated the Effective Time and signed by its chief executive officer and chief financial officer certifying in such detail as Fourth may reasonably request the fulfillment of conditions a, b, e, f, and h above and m below. j. Affiliates' Agreements. Fourth shall have received all of the agreements of Affiliates of First Dodge, MBI, and First National substantially in the form of Exhibit "G" hereto. k. Pooling of Interests. Fourth shall have received a letter from its independent public accountants, dated the Effective Time, to the effect that the Mergers can each properly be treated for accounting purposes as a "pooling of interests" under GAAP. l. Employment Agreement. John V. Harding shall have executed and delivered an agreement substantially in the form of Exhibit "E" hereto. m. Material Adverse Changes. Since the date of this Agreement there shall not have occurred any material adverse change in the condition (financial or otherwise) business, liabilities (contingent or otherwise), properties, or assets of any of the Corporations. n. Satisfactory Environmental Reports. Fourth shall have received environmental assessment reports covering all of the Corporations' real estate, in form and substance reasonably satisfactory to Fourth, which do not cause Fourth reasonably to conclude that there are any material Environmental, Health, and Safety Liabilities associated with any of such real estate. 5.2. Conditions to Obligations of First Dodge, FNB, MBI, the Banks, and the Stockholders. The obligations of First Dodge, FNB, MBI, the Banks, and the Stockholders to effect the Mergers and to consummate the transactions contemplated hereby shall be subject to the following conditions which may, to the extent permitted by Law, be waived by it at its option: a. General. Each of the conditions specified in clauses a, b, c, and d of Section 5.1 of this Agreement shall have occurred and be continuing. b. Representations and Warranties; Covenants. The representations and warranties of Fourth contained in Section 3.2 of this Agreement shall have been true and correct in all material respects on the date made and shall be true and correct in all material respects at the Effective Time as though made at such time, excepting any changes occurring in the ordinary course of business, none of which shall have been materially adverse, and excepting any changes contemplated or permitted by this Agreement. Fourth shall have duly performed in all material respects all of its obligations under this Agreement. c. Certificate. Fourth shall have delivered to First Dodge a certificate, in form and substance satisfactory to First Dodge, dated the Effective Time and signed by its chief executive officer and chief financial officer on behalf of Fourth, certifying in such detail as First Dodge may reasonably request as to the fulfillment of the foregoing conditions except for the conditions set forth in clauses a and d of Section 5.1 of this Agreement. d. Opinion of Counsel. First Dodge shall have received the opinion of Foulston & Siefkin, counsel to Fourth, addressed to First Dodge, FNB, MBI, the Banks and their stockholders, satisfactory in form and substance to First Dodge, substantially in the form of Exhibit "F" hereto. e. Material Adverse Change. Since the date of this Agreement there shall not have occurred any material adverse change in the condition (financial or otherwise), business, properties, liabilities (contingent or otherwise), or assets of Fourth. ARTICLE VI EFFECTIVE TIME The consummation of the Mergers and the delivery of the certificates and other documents called for by this Agreement, and the consummation of all other transactions contemplated by this Agreement shall take place at such time and place in Wichita, Kansas, as the parties may mutually agree which, unless otherwise agreed, shall be not later than the last day of the month in which the final regulatory approval required to effect the Mergers is received and the latest required waiting period expires. The parties agree that they shall exert their reasonable best efforts to cause the Effective Time to be on or before June 30, 1994. ARTICLE VII TERMINATION OF AGREEMENT 7.1. Mutual Consent; Absence of Stockholder Approval; Termination Date. This Agreement and the Merger Agreements shall terminate at any time when the parties hereto mutually agree in writing. This Agreement and the Merger Agreements may also be terminated at the election of either First Dodge or Fourth, as the case may be, upon written notice from the party electing to terminate this Agreement and the Merger Agreements to the other party if, without fault on the part of the party electing to terminate this Agreement and the Merger Agreements, the Merger Agreements are not ratified and approved by the stockholders of First Dodge, FNB, MBI, Metro Bank or First National by the requisite vote or if there has been a denial of a Required Approval except upon compliance with terms reasonably deemed onerous by Fourth. Unless extended by written agreement of the parties, this Agreement and the Merger Agreements shall terminate if all conditions to the obligations of the parties hereto have not occurred on or before June 30, 1994. 7.2. Election by Fourth. Notwithstanding the approval of the Merger Agreements by the stockholders of BANK IV Kansas and BANK IV Oklahoma, this Agreement and the Merger Agreements shall terminate at Fourth's election, upon written notice from Fourth to First Dodge, if any one or more of the following events shall occur and shall not have been remedied to the satisfaction of Fourth within 30 days after written notice is delivered to First Dodge: (a) there shall have been any material breach of any of the material obligations, covenants, or warranties of First Dodge, FNB, MBI, First National, Metro Bank, or the Stockholders hereunder; or (b) there shall have been any written representation or statement furnished by First Dodge, FNB, MBI, First National, Metro Bank, or the Stockholders hereunder which at the time furnished is false or misleading in any material respect in relation to the size and scope of the transactions contemplated by this Agreement. 7.3. Election by First Dodge. Notwithstanding the approval of the Merger Agreements by the stockholders of First Dodge, FNB, MBI, First National, or Metro Bank, this Agreement and the Merger Agreements shall terminate at the election of First Dodge, upon written notice from First Dodge to Fourth, if any one or more of the following events shall occur and shall not have been remedied to their satisfaction within 30 days after written notice is delivered to Fourth: (a) there shall have been any material breach of any of the material obligations, covenants, or warranties of Fourth hereunder; or (b) there shall have been any written representation or statement furnished by Fourth hereunder which at the time furnished is false or misleading in any material respect in relation to the size and scope of the transactions contemplated by this Agreement. ARTICLE VIII INDEMNIFICATION 8.1. Effect of Closing. Except as provided in this Section, closing of the transactions contemplated by this Agreement shall not prejudice any claim for damages which any of the parties hereto may have hereunder in law or in equity, due to a material default in observance or the due and timely performance of any of the covenants and agreements herein contained or for the material breach of any warranty or representation hereunder, unless such observance, performance, warranty, or representation is specifically waived in writing by the party making such claim. In the event any warranty or representation contained herein is or becomes untrue or breached (other than by reason of any fraudulent misrepresentation or fraudulent breach of warranty or any willful breach of a covenant) and such breach or misrepresentation is promptly communicated by First Dodge to Fourth in writing prior to the Effective Time, Fourth shall have the right, at its sole option, either to waive such misrepresentation or breach in writing or to terminate this Agreement, but in either such event, neither First Dodge, FNB, MBI, either Bank, nor any of the Stockholders shall be liable to Fourth for any such damages, costs, expenses, or otherwise by reason of such breach or misrepresentation. In the event Fourth elects to close the transactions contemplated by this Agreement notwithstanding the written communication of such breach or misrepresentation to Fourth by First Dodge, Fourth shall be deemed to have waived such breach or misrepresentation in writing. 8.2. General Indemnification. Subject to the limitations on the liability of Stockholders contained in this Article VIII, Stockholders shall be liable for, and shall defend, save, indemnify, and hold harmless Fourth, BANK IV Kansas, BANK IV Oklahoma, and their respective officers, directors, employees, and agents, and each of them (hereinafter individually referred to as an "Indemnitee" and collectively as "Indemnitees") against and with respect to any losses, liabilities, claims, diminution in value, litigation, demands, damages, costs, charges, legal fees, suits, actions, proceedings, judgments, expenses, or any other losses (including without limitation any income tax consequences of the receipt of any indemnification payment) (herein collectively referred to as "Indemnifying Losses") that may be sustained, suffered, or incurred by, or obtained against, any Indemnitee arising from or by reason of the breach or nonfulfillment of any of the warranties, agreements, or representations made by the Stockholders, or any of them, in this Agreement; provided, however that the liability of Stockholders to defend, save, indemnify, and hold harmless any of the Indemnitees for any liabilities, claims, or demands indemnified under this Agreement, shall be limited to the amount by which all such Indemnifying Losses exceed $240,000 in the aggregate, net of income tax effect and after taking into account all available insurance proceeds. It is agreed that the indemnification obligations of the Stockholders shall be solely for the benefit of the Indemnitees and may not be enforced by any insurer under any subrogation or similar agreement or arrangement or by any governmental agency except as a receiver for any Indemnitee. 8.3. Procedure. If any claim or demand shall be made or liability asserted against any Indemnitee, or if any litigation, suit, action, or administrative or legal proceedings shall be instituted or commenced in which any Indemnitee is involved or shall be named as a defendant either individually or with others, and if such Litigation, claim, demand, liability, suit, action, or proceeding, if successfully maintained, will result in any Indemnifying Losses as defined in Section 8.2, Fourth shall give Stockholders written notice thereof within 20 days after it acquires knowledge thereof. If, within 20 days after the giving of such notice, Fourth receives written notice from Stockholders (by the Agents, as defined in Section 9.5, acting for all Stockholders jointly) stating that Stockholders dispute or intend to defend against such claim, demand, liability, suit, action, or proceeding, then Stockholders shall have the right to select counsel of their choice and to dispute or defend against or settle such claim at their expense, and the Indemnitees shall fully cooperate with Stockholders in such dispute or defense or settlement so long as Stockholders are conducting such dispute or defense diligently and in good faith. If no such notice of intent to dispute or defend is received by Fourth within the aforesaid 20-day period, of if such diligent and good faith defense is not being, or ceases to be, conducted, Fourth shall have the right, directly or through one or more of the Indemnitees, to dispute and defend against the claim, demand, or other liability at the cost and expense of Stockholders, to settle such claim, demand, or other liability, together with interest or late charges thereon, and in either event to be indemnified as provided in this Agreement so long as Fourth conducts such defense diligently and in good faith; provided, notice of any proposed settlement shall be given to Stockholders as far in advance as practicable under the circumstances and, if Stockholders shall timely object to the terms of such proposed settlement, they may assume the defense in accordance with the terms of this Section 8.3. If any event shall occur that would entitle Indemnitees to a right of indemnification hereunder, any loss, damage, or expense subject to indemnification shall be subject to the limitations otherwise set forth in this Article VIII. 8.4. Survival of Representations and Warranties. Notwithstanding any rule of law or provision of this Agreement to the contrary, the representations and warranties of Stockholders contained in this Agreement and not waived pursuant to the terms of this Agreement shall survive the Mergers and the closing of the transactions described in this Agreement; provided, however, that no claim by an Indemnitee for indemnification or breach of warranty under this Agreement shall be valid unless an Indemnitee shall have given written notice of its assertion or claim to Stockholders on or prior to the date on which Fourth files or is required to file with the SEC its Annual Report on Form 10-K for the year ended December 31, 1994, whichever is earlier. 8.5. Several Liability of Stockholders. The liability of the Stockholders under this Agreement shall not be joint, but rather shall be several in proportion to the aggregate amount of Fourth Stock each such Stockholder receives for the stock being exchanged pursuant to this Agreement and the Merger Agreements as compared to the total amount of Fourth Stock being received by all First Dodge, MBI, and First National stockholders. The liability of each such Stockholder under this Agreement shall be limited to the sum of the value of Fourth Stock and cash for fractional shares, if any, received by such Stockholder under this Agreement and the Merger Agreements. For the purposes of this Section 8.5, the Fourth Stock received by Stockholders shall be deemed to have the same value as the reported closing price thereof in the NASDAQ quotation system on the date in which the Effective Time occurs. 8.6. Indemnification Payments. All indemnification obligations of the Stockholders under this Article VIII shall be satisfied by payment in Fourth Stock which will be deemed to have the same value as the reported closing price thereof in the NASDAQ quotation system on the date in which the Effective Time occurs. ARTICLE IX MISCELLANEOUS 9.1. Expenses. Whether or not the Mergers are effected, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense. 9.2. Affiliates' Agreements. Prior to the Effective Time, First Dodge shall deliver to Fourth a list, reviewed by its counsel, identifying all of the stockholders who are, in its opinion, Affiliates of First Dodge, MBI, or First National. First Dodge, MBI, and First National shall each use its Best Efforts to cause each of its stockholders who is identified by it as being an Affiliate to execute a written agreement, on or before the Effective Time, in a form substantially similar to the form of Affiliate's Agreement attached hereto as Exhibit "G". Fourth shall not be obligated to deliver any shares of Fourth Stock to any person who is named as an Affiliate on such list prior to receipt of such an agreement. 9.3. Notices. All notices or other communications required or permitted hereunder shall be sufficiently given if personally delivered or if sent by certified or registered mail, postage prepaid, return receipt requested, addressed as follows: (a) if to Fourth, addressed to Darrell G. Knudson, Chairman of the Board, Post Office Box 4, Wichita, Kansas 67201; and (b) if to First Dodge, FNB, MBI, First National, Metro Bank, and the Stockholders, addressed to John V. Harding, 619 Second Avenue, Dodge City, Kansas 67801, or to such other address as shall have been furnished in writing in the manner provided herein for giving notice. 9.4. Stockholders' Agreements. Each Stockholder agrees not to sell, pledge, encumber, or otherwise hypothecate or transfer any shares of capital stock of any class of any of the Corporations prior to the Effective Time unless the transferee or pledgee agrees with Fourth in writing to be bound by this Agreement and to vote all shares of such stock owned by him or her in favor of approval of this Agreement and the Merger Agreements. 9.5. Power of Attorney. Each Stockholder irrevocably appoints each of the other Stockholders, jointly (the "Agents"), the agents and attorneys-in-fact of such Stockholder for the purposes of acting in the name and stead of such Stockholder in: (i) giving and receiving all notices permitted or required by this Agreement; (ii) agreeing with Fourth, BANK IV Kansas, and BANK IV Oklahoma as to any amendments to this Agreement and the Merger Agreements which the Agents may deem necessary or advisable, including but not limited to the extension of time in which to consummate the transactions contemplated by this Agreement, and the waiver of any closing conditions; (iii) employing legal counsel; (iv) paying any legal and any other fees and expenses incurred by the Agents in consummating the transactions contemplated by this Agreement; and (v) making, executing, acknowledging, and delivering all such contracts, orders, receipts, notices, requests, instructions, certificates, letters, and other writings, and in general doing all things and taking all actions which the Agents, in their sole discretion, may consider necessary or proper in connection with or to carry out the terms of this Agreement, as fully as if such Stockholders were personally present and acting. This power of attorney and all authority conferred hereby is granted and conferred subject to the interests of Fourth, BANK IV Kansas, BANK IV Oklahoma, First Dodge, FNB, MBI, the Banks, and the other Stockholders who are parties to this Agreement, and in consideration of those interests and for the purpose of completing the transactions contemplated hereby, this power of attorney and all authority conferred hereby shall be irrevocable and shall not be terminated by any Stockholder or by operation of law, whether by the death, incompetency, or incapacity of the Stockholders, or any of them, or by the occurrence of any other event. If any Stockholder should die or become incompetent or incapacitated, or any other event should occur before the consummation of the transactions contemplated by this Agreement, all actions taken by the Agents pursuant to this Agreement shall be as valid as if such death, incompetence, or incapacity or other event had not occurred, regardless of whether Fourth, BANK IV Kansas, BANK IV Oklahoma, First Dodge, FNB, MBI, First National, Metro Bank, or the Agents, or any of them, shall have received notice of such death, incompetence, incapacity, or other event. Each Stockholder agrees to hold the Agents, and each of them, free and harmless from any and all loss, damage, expense, or liability which they, he, or she may sustain or incur as a result of any action taken or not taken in good faith hereunder. Any Agent shall have the power to act alone hereunder. 9.6. Time. Time is of the essence of this Agreement. 9.7. Law Governing. This Agreement shall, except to the extent federal law is applicable, be construed in accordance with and governed by the laws of the State of Kansas, without regard to the principles of conflicts of laws thereof. 9.8. Entire Agreement; Amendment. This Agreement contains and incorporates the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior negotiations, agreements, letters of intent, and understandings. This Agreement may only be amended by an instrument in writing duly executed by all corporate parties hereto and the Stockholders (by the Agents acting for all Stockholders jointly), and all attempted oral waivers, modifications, and amendments shall be ineffective. 9.9. Successors and Assigns. The rights and obligations of the parties hereto shall inure to the benefit of and shall be binding upon the successors and permitted assigns of each of them; provided, however, that this Agreement, the Merger Agreements, or any of the rights, interests, or obligations hereunder or thereunder may not be assigned by any of the parties hereto without the prior written consent of the other parties hereto. 9.10. Cover, Table of Contents, and Headings. The cover, table of contents, and the headings of the sections and subsections of this Agreement and the Merger Agreements are for convenience of reference only and shall not be deemed to be a part hereof or thereof or taken into account in construing this Agreement or the Merger Agreements. 9.11. Counterparts. This Agreement and the Merger Agreements may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute but one agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed. FOURTH FINANCIAL CORPORATION FIRST DODGE CITY BANCSHARES, INC. By By -------------------------- -------------------------- /s/Darrell G. Knudson Chairman of the Board Chairman of the Board "Fourth" "First Dodge" FIRST NATIONAL BANCSHARES METRO BANCSHARES, INC. OF DODGE CITY, INC. By__________________________ By____________________________ "FNB" "MBI" METRO BANK OF BROKEN ARROW FIRST NATIONAL BANK AND TRUST COMPANY IN DODGE CITY By______________________ By__________________________ "Metro Bank" "First National" [signatures continued] _______________________________ __________________________ /s/Thomas P. Shirley /s/John V. Harding VIDA EBNER REVOCABLE TRUST By________________________ /s/Vida Ebner, Trustee "Stockholders" EXHIBIT "A" AGREEMENT TO MERGE between BANK IV KANSAS, NATIONAL ASSOCIATION, and FIRST NATIONAL BANK AND TRUST COMPANY IN DODGE CITY under the charter of BANK IV KANSAS, NATIONAL ASSOCIATION under the title of BANK IV KANSAS, NATIONAL ASSOCIATION THIS AGREEMENT made among BANK IV Kansas, National Association (hereinafter referred to as "BANK IV"), a banking association organized under the laws of the United States, being located at 100 North Broadway, City of Wichita, County of Sedgwick, in the State of Kansas, with a capital of $356,457,292.74 divided into 9,254,200 shares of common stock, each of $5.00 par value, and surplus of $218,601,457.92 and undivided profits, including capital reserves, of $91,584,834.82 as of December 31, 1993, and First National Bank and Trust Company in Dodge City, a national banking association organized under the laws of the United States (hereinafter referred to as "First National") being located at 619 Second, Dodge City, County of Ford, in the State of Kansas, with a capital of $600,000, divided into 6,000 shares of common stock, each of $100.00 par value, and surplus of $_________ and undivided profits, including capital reserves, of $_________ as of December 31, 1993, each acting pursuant to a resolution of its board of directors, adopted by the vote of a majority of its directors, pursuant to the authority given by and in accordance with the provisions of the Act of November 7, 1918, as amended (12 USC Section 215a). W I T N E S S E T H: That, Section 1. First National shall be merged into BANK IV under the charter of the latter. Section 2. The name of the receiving association (hereinafter referred to as the "Association") shall be BANK IV Kansas, National Association. Section 3. The business of the Association shall be that of a national banking association. This business shall be conducted by the Association at its main office which shall be located at 100 North Broadway, Wichita, Kansas, and at its legally established branches. Section 4. The amount of capital stock of the Association shall be $46,871,000, divided into 9,374,200 shares of common stock, each of $5.00 par value, and at the time the merger shall become effective, the Association shall have a surplus of $___________, and undivided profits, including capital reserves, which when combined with the capital and surplus will be equal to the combined capital structures of the merging banks as stated in the preamble of this Agreement, adjusted, however, for normal earnings and expenses (and if applicable, purchase accounting adjustments) between December 31, 1993, and the effective time of the merger. The amount of capital stock of the Association and its surplus and undivided profits at the time the merger becomes effective shall also be adjusted to reflect the effect of all mergers of other banks into the Association, if any, between December 31, 1993 and the effective time of the merger. Section 5. All assets as they exist at the effective time of the merger shall pass to and vest in the Association without any conveyance or other transfer. The Association shall be responsible for all of the liabilities of every kind and description, including liabilities arising from the operation of a trust department, of each of the merging entities existing as of the effective time of the merger. Section 6. Of the capital stock of the Association, the presently outstanding 9,254,200 shares of common stock, each of $5.00 par value, the holder of it, Fourth Financial Corporation, shall retain its present rights. In addition, Fourth Financial Corporation shall receive an additional 120,000 shares of common stock of the Association by reason of the merger. Upon the merger becoming effective, the shares of capital stock of First National shall no longer be outstanding and the sole right of the holders thereof, other than Fourth Financial Corporation, shall be to exchange such shares for 95.92 shares of common stock of Fourth Financial Corporation, par value $5.00 per share, for each share of capital stock of First National so exchanged. Section 7. Except as expressly permitted in an Agreement and Plan of Reorganization dated as of February 2, 1994, among Fourth Financial Corporation, First National, First Dodge City Bancshares, Inc., First National Bancshares of Dodge City, Inc., Metro Bancshares, Inc., Metro Bank of Broken Arrow, and the stockholders of First Dodge City Bancshares, Inc. (the "Reorganization Agreement"), First National shall not (i) declare or pay any dividend to its shareholders, (ii) dispose of any of its assets in any other manner except in the normal course of business and for adequate value, or (iii) take any other action which would violate the terms of the Reorganization Agreement. Section 8. The present board of directors and officers of BANK IV shall continue to serve as the board of directors and officers of the Association until the next annual meeting or until such time as their successors have been elected and have qualified. Section 9. Effective as of the time this merger shall become effective as specified in the merger approval to be issued by the Comptroller of the Currency, the articles of association of BANK IV as then in effect shall be the articles of association of the resulting bank. Section 10. This Agreement may be terminated as provided in the Reorganization Agreement. Notwithstanding the approval of this Agreement by any stockholder group, this Agreement shall automatically terminate upon the termination of the Reorganization Agreement for any reason, and in no event shall the merger of First National into BANK IV occur prior to the consummation of the other Mergers as such term is defined in the Reorganization Agreement. Section 11. This Agreement shall be ratified and confirmed by the affirmative vote of stockholders of each of the merging banks owning at least two-thirds of its capital stock outstanding, at a meeting to be held on the call of the directors; and the merger shall become effective at the time specified in a merger approval to be issued by the Comptroller of the Currency of the United States. WITNESS, the signatures and seals of said merging entities as of the ___ day of February 1994, each set by its chairman of the board, president, or a vice president and attested to by its cashier or secretary, pursuant to a resolution of its board of directors, acting by a majority: BANK IV KANSAS, NATIONAL ASSOCIATION Attest: By ------------------------- - ------------------------- /s/K. Gordon Greer, /s/John C. Maloney, Secretary Chairman of the Board and President [Seal of Bank] FIRST NATIONAL BANK AND TRUST COMPANY IN DODGE CITY By -------------------------- ________________, President Attest: _______________________ ______________, Secretary [Seal of Bank] STATE OF KANSAS ) ) SS: SEDGWICK COUNTY ) On this _____ day of February, 1994, before me, a notary public for this state and county, personally came K. Gordon Greer, as chairman of the board and president, and John C. Maloney, as secretary, of BANK IV Kansas, National Association, a national banking association, and each in his capacity acknowledged this instrument to be the act and deed of the association and the seal affixed to it to be its seal. WITNESS my official seal and signature this day and year. ---------------------------- Notary Public My Appointment Expires: - ----------------------- STATE OF KANSAS ) ) SS: FORD COUNTY ) On this ____ day of February, 1994, before me, a notary public for this state and county, personally came ________________ as president, and ______________ as secretary of The First National Bank and Trust Company in Dodge City, a national banking association, and each in his/her capacity acknowledged this instrument to be the act and deed of the bank and the seal affixed to it to be its seal. WITNESS my official seal and signature this day and year. ---------------------------- Notary Public My Appointment Expires: - ----------------------- EXHIBIT "B" AGREEMENT TO MERGE between BANK IV OKLAHOMA, NATIONAL ASSOCIATION and METRO BANK OF BROKEN ARROW under the charter of BANK IV OKLAHOMA, NATIONAL ASSOCIATION under the title of BANK IV OKLAHOMA, NATIONAL ASSOCIATION THIS AGREEMENT made between BANK IV Oklahoma, National Association (hereinafter referred to as "BANK IV"), a banking association organized under the laws of the United States, being located at 515 South Boulder, City of Tulsa, County of Tulsa, in the State of Oklahoma, with a capital of $190,712,286.07 divided into 5,720,647 shares of common stock, each of $5.00 par value, and surplus of $133,050,335.55 and undivided profits, including capital reserves, of $29,058,715.74 as of December 31, 1993, and Metro Bank of Broken Arrow (hereinafter referred to as "Metro"), a banking corporation organized under the laws of the State of Oklahoma, being located at 1800 S. Elm Place, Broken Arrow, Tulsa County, in the State of Oklahoma, with a capital of $762,500, divided into 305,000 shares of common stock, each of $2.50 par value, and surplus and undivided profits of approximately $__________ as of December 31, 1993, each acting pursuant to a resolution of its board of directors, adopted by the vote of a majority of its directors, pursuant to the authority given by and in accordance with the provisions of the Act of November 7, 1918, as amended (12 USC 215a). W I T N E S S E T H: That, Section 1. Metro shall be merged into BANK IV under the charter of the latter. Section 2. The name of the receiving association (hereinafter referred to as the "Association") shall be BANK IV Oklahoma, National Association. Section 3. The business of the Association shall be that of a national banking association. This business shall be conducted by the Association at its main office which shall be located at 515 South Boulder, Tulsa, Oklahoma, and at its legally established branches. Section 4. The amount of capital stock of the Association shall be $29,365,735 divided into 5,873,147 shares of common stock, each of $5.00 par value, and at the time the merger shall become effective, the Association shall have a surplus of $___________, and undivided profits, including capital reserves, which when combined with the capital and surplus will be equal to the combined capital structures of the merging banks as stated in the preamble of this Agreement, adjusted, however, for normal earnings and expenses (and if applicable, purchase accounting adjustments) between December 31, 1993, and the effective time of the merger. The amount of capital stock of the Association and its surplus and undivided profits at the time the merger becomes effective shall also be adjusted to reflect the effect of all mergers of other banks into the Association, if any, between December 31, 1993 and the effective time of the merger. Section 5. All assets as they exist at the effective time of the merger shall pass to and vest in the Association without any conveyance or other transfer. The Association shall be responsible for all of the liabilities of every kind and description, including liabilities arising from the operation of a trust department, of Metro existing as of the effective time of the merger. Section 6. Of the capital stock of the Association, the presently outstanding 5,720,647 shares of common stock, each of $5.00 par value, the two holders of it, Fourth Financial Corporation and IV Commercial Acquisition, Inc., shall retain their present rights. In addition, Fourth Financial Corporation shall receive by reason of the merger an additional 152,500 shares of common stock, par value $5.00 per share of the Association. The sole shareholder of Metro, Metro Bancshares, Inc. ("MBI"), is a party to an Agreement and Plan of Reorganization, among Fourth Financial Corporation, MBI, First Dodge City Bancshares, Inc. ("First Dodge"), Metro, First National Bancshares of Dodge City, Inc., First National Bank and Trust Company in Dodge City, and the stockholders of First Dodge, dated as of February 2, 1994 (the "Reorganization Agreement"), pursuant to which the stockholders of MBI and First Dodge are receiving full payment for the value of all of the issued and outstanding capital stock of MBI and First Dodge, so no separate consideration is to be paid to Metro or any of its shareholders in such capacity by reason of the merger effected hereby. Section 7. Except as expressly permitted in the Reorganization Agreement, Metro shall not (i) declare or pay any dividend to its shareholders, (ii) dispose of any of its assets in any other manner except in the normal course of business and for adequate value, or (iii) take any other action which would violate the terms of the Reorganization Agreement. Section 8. The present board of directors and officers of BANK IV shall continue to serve as the board of directors and officers of the Association until the next annual meeting or until such time as their successors have been elected and have qualified. Section 9. Effective as of the time this merger shall become effective as specified in the merger approval to be issued by the Comptroller of the Currency, the articles of association of the resulting bank shall be the Articles of Association of BANK IV. Section 10. This Agreement may be terminated as provided in the Reorganization Agreement. Notwithstanding the approval of this Agreement by any shareholder group, this Agreement shall automatically terminate upon the termination of the Reorganization Agreement for any reason, and in no event shall the merger of Metro into BANK IV occur prior to the consummation of the other Mergers as such term is defined in the Reorganization Agreement. Section 11. This Agreement shall be ratified and confirmed by the affirmative vote of shareholders of each of the merging banks owning at least two-thirds of its capital stock outstanding, at a meeting to be held on the call of the directors; and the merger shall become effective at the time specified in a merger approval to be issued by the Comptroller of the Currency of the United States. WITNESS, the signatures and seals of said merging banks this ___ day of February, 1994, each set by its chairman of the board, president, or a vice president and attested to by its cashier or secretary, pursuant to a resolution of its board of directors, acting by a majority: BANK IV OKLAHOMA, NATIONAL ASSOCIATION Attest: By ------------------------- _______________________ Ronald L. Baldwin Lisa R. Carr, Secretary President [Seal of Bank] Metro Bank of Broken Arrow Attest: By ---------------------------- ___________________________ _______________ _____________, Secretary President [Seal of Bank] STATE OF OKLAHOMA ) ) SS: TULSA COUNTY ) On this ____ day of February, 1994, before me, a notary public for this state and county, personally came Ronald L. Baldwin, President, and Lisa R. Carr as Secretary, of BANK IV Oklahoma, National Association, and each in his/her capacity acknowledged this instrument to be the act and deed of the association and the seal affixed to it to be its seal. WITNESS my official seal and signature this day and year. ---------------------------- My Appointment Expires: Notary - ----------------------- STATE OF OKLAHOMA ) ) SS: TULSA COUNTY ) On this ___ day of February, 1994, before me, a notary public for this state and county, personally came _______________ as President, and _____________ as Secretary of Metro Bank of Broken Arrow, an Oklahoma banking corporation, and each in his/her capacity acknowledged this instrument to be the act and deed of the association and the seal affixed to it to be its seal. WITNESS my official seal and signature this day and year. ---------------------------- My Appointment Expires: Notary Public - ----------------------- APPENDIX "C" AGREEMENT OF MERGER THIS AGREEMENT OF MERGER, made as of the ____ day of _______ 1994, among FOURTH FINANCIAL CORPORATION, a Kansas corporation ("Fourth"); FIRST DODGE CITY BANCSHARES, INC., a Kansas corporation ("First Dodge"); FIRST NATIONAL BANCSHARES OF DODGE CITY, INC., a Kansas corporation ("FNB"); and METRO BANCSHARES, INC., an Oklahoma corporation ("MBI"). Fourth, First Dodge, FNB, and MBI are hereinafter sometimes referred to as the "Constituent Corporations;" First Dodge, FNB, and MBI are hereinafter sometimes referred to as the "Merging Corporations"); and Fourth is hereinafter sometimes called the "Surviving Corporation." Recitals -------- A. The respective Boards of Directors of each of the four Constituent Corporations have duly adopted resolutions approving the adoption of an Agreement and Plan of Reorganization, dated as of February 2, 1994, among Fourth, First Dodge, FNB, MBI, Metro Bank of Broken Arrow, First National Bank and Trust Company in Dodge City, and First Dodge's stockholders (the "Agreement and Plan of Reorganization") and this Agreement of Merger, subject, among other things, to the approval and adoption of the Agreement and Plan of Reorganization and this Agreement of Merger by the holders of at least a majority of the issued and outstanding capital stock of each class of the Merging Corporations having voting rights, authorizing the proposed merger of the Merging Corporations into Fourth upon the terms and conditions herein set forth. B. No approval of the stockholders of Fourth of this Agreement is required by reason of K.S.A. Section 17-6702(e) and 17- 6701(f). NOW, THEREFORE, Fourth and each of the Merging Corporations hereby agree that Fourth and the Merging Corporations shall merge on the terms and conditions hereinafter provided and in accordance with the following plan: Plan of Merger -------------- 1. First Dodge, FNB, and MBI shall simultaneously merge with and into Fourth which shall continue as the Surviving Corporation and shall be governed by the laws of the State of Kansas (the "Merger"). At the Effective Time (as defined in Paragraph 6), the separate existences of each of the Merging Corporations shall cease. The corporate identity, existence, purposes, franchises, powers, rights, and immunities of Fourth shall continue unaffected and unimpaired by the Merger, and the corporate identity, existence, purposes, franchises, powers, rights, and immunities of each of the Merging Corporations shall be merged into Fourth which shall be fully vested therewith. It is the intention of the parties that the transaction contemplated by this Agreement of Merger shall qualify as a tax-free reorganization under Section 368 of the Internal Revenue Code of 1986, as amended. 2. The Articles of Incorporation and Bylaws of Fourth, as in effect on the Effective Time, shall be and remain the articles of incorporation and bylaws of the Surviving Corporation until thereafter amended as provided by law. 3. At the Effective Time: (a) Fourth shall, without other transfer, succeed to and possess all the rights, privileges, powers, and franchises both of a public and private nature and shall be subject to all the restrictions, disabilities, debts, liabilities, and duties of each of the Constituent Corporations. (b) The rights, privileges, powers, and franchises of each of the Constituent Corporations and all property, real, personal and mixed, of and all debts due or belonging to any of the Constituent Corporations shall be vested in Fourth; and all property, rights, privileges, powers, and franchises, and all and every other interest shall be thereafter as effectually the property of Fourth as they were of any of the Constituent Corporations. (c) Title to any real estate and to any other property vested by deed or otherwise in any of the Constituent Corporations shall not revert or be in any way impaired by reason of the Merger or the statutes providing therefor; provided, however, that all rights of creditors and all liens upon the property of any of the Constituent Corporations shall be preserved unimpaired, and all debts, liabilities, and duties of all of the Constituent Corporations shall thenceforth attach to Fourth and may be enforced against it to the same extent as if they had been incurred or contracted by Fourth. After the Effective Time, the Constituent Corporations shall each execute or cause to be executed such further assignments, assurances, or other documents as may be necessary or desirable to confirm title to their respective properties, assets, and rights in Fourth or to otherwise carry out the purposes of this Agreement of Merger, and their respective officers and directors shall do all such acts and things to accomplish those purposes which Fourth may reasonably request. 4. At the Effective Time: (a) Each issued and outstanding share of each class of capital stock of each of the Merging Corporations shall cease to be an issued and existing share. (b) Each share of common stock of First Dodge and MBI shall automatically be converted into and exchanged for shares of common stock of Fourth ("Fourth Stock") as follows: No. of Shares of Fourth Stock --------------- First Dodge Common Stock, par value $1 per share . . . . . . . . 112.42 MBI Common Stock, par value $.10 per share . . . . . . . . . 0.30 (c) No share of Fourth Stock shall be issued in exchange for any shares of any other class of capital stock of any of the Merging Corporations, as all of such shares are owned, directly or indirectly, by First Dodge and the value of each thereof is fully reflected in the number of shares being issued with respect to First Dodge common stock. (d) Until surrendered for exchange, each outstanding stock certificate which prior to the Effective Time represented common stock of First Dodge or MBI shall be deemed for all corporate purposes to represent the right to receive the number of shares of Fourth Stock into which the shares have been so converted; provided, that in any matters relating to the shares represented by such certificates, Fourth may rely conclusively upon the record of stockholders maintained by First Dodge and MBI containing the names and addresses of the holders of record of such stock at the Effective Time. Unless and until such outstanding stock certificates formerly representing shares of common stock of First Dodge or MBI are so surrendered, no dividend payable to the holders of record of Fourth Stock, as of any date subsequent to the Effective Time, shall be paid to the holder of such outstanding certificates in respect thereof. Upon surrender of such outstanding certificates (or, in the case of lost certificates, upon receipt of a surety bond or other form of indemnification satisfactory to Fourth), however, the former First Dodge or MBI stockholders shall receive certificates evidencing the shares of Fourth Stock to which they are entitled plus the accrued dividends on such stock, without interest. (e) No fractional shares of Fourth Stock will be issued. Instead, upon surrender of First Dodge or MBI common stock certificates (or, in the case of lost certificates, upon receipt of a surety bond or other form of indemnification which is satisfactory to Fourth), Fourth will pay, or cause to be paid, to the holder thereof the cash value of the fractional interest to which the holder thereof would otherwise be entitled, based upon the closing price of Fourth Stock on the last trading day two trading days prior to the Effective Time as reported in the Southwest Edition of The Wall Street Journal. (f) The Merger shall effect no change in the rights of the holders of Fourth Stock that is outstanding immediately before the Effective Time. 5. The officers and directors of Fourth at the Effective Time shall continue to be the officers and directors of the Surviving Corporation until their successors are duly elected and qualified or their earlier death, resignation, or removal. 6. The Merger shall be effected by and be given effect upon the filing of this Agreement of Merger in the offices of the Secretary of State of Kansas and the Secretary of State of Oklahoma. Such date and time of filing is referred to in this Agreement of Merger as the "Effective Time." This Agreement of Merger shall also be recorded in accordance with the provisions of the Kansas General Corporation Code and the Oklahoma General Corporation Act, but such recording shall not be a condition precedent to its becoming effective. 7. This Agreement of Merger may be terminated and abandoned by mutual consent of the Boards of Directors of Fourth and the Merging Corporations at any time prior to the Effective Time, or by the Board of Directors of either Fourth Financial or the Merging Corporations (acting jointly) if the Agreement and Plan of Reorganization shall have been terminated as therein provided. 8. This Agreement of Merger may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts together shall constitute but one agreement. IN WITNESS WHEREOF, pursuant to authority duly given by its Board of Directors, each of the Constituent Corporations has caused this Agreement of Merger to be executed by its Chairman of the Board or President and attested by its Secretary or an Assistant Secretary as of the date and year first above written. FOURTH FINANCIAL CORPORATION By ------------------------------- /s/Darrell G. Knudson Chairman of the Board ATTEST: By -------------------------------- /s/John C. Maloney, Secretary [signatures continued] FIRST DODGE CITY BANCSHARES, INC. By_______________________________ ATTEST: _______________________________ Chairman of the Board By____________________________ , Secretary FIRST NATIONAL BANCSHARES OF DODGE CITY, INC. ATTEST: By_______________________________ _______________________________ By____________________________ President , Secretary METRO BANCSHARES, INC. ATTEST: By_______________________________ _______________________________ By____________________________ President , Secretary ACKNOWLEDGMENTS --------------- STATE OF KANSAS ) ) ss: SEDGWICK COUNTY ) BE IT REMEMBERED that on this ____ day of ________ 1994, personally came before me, a Notary Public, in and for the county and state aforesaid, Darrell G. Knudson and John C. Maloney, Chairman of the Board and Secretary, respectively, of Fourth CORPORATION, a Kansas corporation, both of whom are personally known to me and personally known to me to be the said officers of said corporation, and they each separately duly executed the above and foregoing Agreement of Merger before me and acknowledged the said Agreement of Merger to be their act and deed and the act and deed of said corporation; that the facts stated therein are true; that the signature of the chairman of the board of said corporation to the foregoing Agreement of Merger is in the handwriting of said chairman of the board of said corporation, and that its seal affixed to said Agreement of Merger, and attested by the secretary of said corporation, is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day and year aforesaid. --------------------------------- Notary Public My Appointment Expires: - ---------------------- STATE OF KANSAS ) ) ss: FORD COUNTY ) BE IT REMEMBERED that on this _____ day _______, 1994, personally came before me, a Notary Public, in and for the county and state aforesaid, ______________________ and ______________, Chairman of the Board and Secretary, respectively, of FIRST DODGE CITY BANCSHARES, INC., a Kansas corporation, both of whom are personally known to me and personally known to me to be the said officers of said corporation, and they each separately duly executed the above and foregoing Agreement of Merger before me and acknowledged the said Agreement of Merger to be their act and deed and the act and deed of said corporation; that the facts stated therein are true; that the signature of the chairman of the board of said corporation to the foregoing Agreement of Merger is in the handwriting of said chairman of the board of said corporation, and that its seal affixed to said Agreement of Merger, and attested by the secretary of said corporation, is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day and year aforesaid. --------------------------------- Notary Public My Appointment Expires: - ---------------------- STATE OF KANSAS ) ) ss: FORD COUNTY ) BE IT REMEMBERED that on this _____ day _______, 1994, personally came before me, a Notary Public, in and for the county and state aforesaid, ______________________ and ______________, President and Secretary, respectively, of FIRST NATIONAL BANCSHARES OF DODGE CITY, INC., a Kansas corporation, both of whom are personally known to me and personally known to me to be the said officers of said corporation, and they each separately duly executed the above and foregoing Agreement of Merger before me and acknowledged the said Agreement of Merger to be their act and deed and the act and deed of said corporation; that the facts stated therein are true; that the signature of the president of said corporation to the foregoing Agreement of Merger is in the handwriting of said president of said corporation, and that its seal affixed to said Agreement of Merger, and attested by the secretary of said corporation, is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day and year aforesaid. --------------------------------- Notary Public My Appointment Expires: - ---------------------- STATE OF OKLAHOMA ) ) ss: TULSA COUNTY ) BE IT REMEMBERED that on this _____ day _______, 1994, personally came before me, a Notary Public, in and for the county and state aforesaid, ______________________ and ______________, President and Secretary, respectively, of METRO BANCSHARES, INC., an Oklahoma corporation, both of whom are personally known to me and personally known to me to be the said officers of said corporation, and they each separately duly executed the above and foregoing Agreement of Merger before me and acknowledged the said Agreement of Merger to be their act and deed and the act and deed of said corporation; that the facts stated therein are true; that the signature of the president of said corporation to the foregoing Agreement of Merger is in the handwriting of said president of said corporation, and that its seal affixed to said Agreement of Merger, and attested by the secretary of said corporation, is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day and year aforesaid. --------------------------------- Notary Public My Appointment Expires: - ---------------------- CERTIFICATES ------------ The undersigned, ______________, Secretary of FIRST DODGE CITY BANCSHARES, INC., a Kansas corporation, on behalf of said corporation, hereby certifies, pursuant to K.S.A. Section 17-6702 of the General Corporation Code of the State of Kansas, that the foregoing Agreement of Merger to which this Certificate is attached has been submitted to the stockholders of said corporation at a special meeting thereof, duly called and held in accordance with the Bylaws of said corporation and the General Corporation Code of the State of Kansas, on the ____ day of _______, 1994, and at said meeting said agreement was duly considered, adopted, and approved by the holders of a majority of each class of capital stock entitled to vote thereon pursuant to a vote by ballot in person or by proxy taken for the adoption or rejection of said Agreement of Merger, and the votes of the stockholders of said corporation representing _________ shares of Common Stock, being _____% of the issued and outstanding Common Stock of said corporation, entitled to vote were for the approval and adoption of said agreement and voted therefor. IN WITNESS WHEREOF, the undersigned has executed this Certificate on the _____ day of ________, 1994. --------------------------------- ______________, Secretary STATE OF KANSAS ) ) ss: FORD COUNTY ) BE IT REMEMBERED that on this ___ day of ________, 1994, personally came before me, a Notary Public, in and for the county and state aforesaid, ______________, Secretary of FIRST DODGE CITY BANCSHARES, INC., a Kansas corporation, who is personally known to me and personally known to me to be the said officer of said corporation, and she duly executed the above and foregoing certificate before me and acknowledged the said certificate to be her act and deed and the act and deed of said corporation; that the facts stated therein are true; that this signature is that of the secretary of said corporation, and that its seal affixed to said certificate is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day and year aforesaid. --------------------------------- Notary Public My Appointment Expires: - ---------------------- The undersigned, ______________, Secretary of FIRST NATIONAL BANCSHARES OF DODGE CITY, INC., a Kansas corporation, on behalf of said corporation, hereby certifies, pursuant to K.S.A. SECTION 17-6702 of the General Corporation Code of the State of Kansas, that the foregoing Agreement of Merger to which this Certificate is attached has been submitted to the sole stockholder of said corporation and, by unanimous written consent executed by said sole stockholder on ____________, 1994, in lieu of a special meeting of stockholders in accordance with the Bylaws of said corporation and the General Corporation Code of the State of Kansas, said sole stockholder duly considered, adopted, and approved said Agreement of Merger by voting all of the 5,254.50 shares of common stock, par value $1 per share, that were then issued and outstanding in favor thereof. IN WITNESS WHEREOF, the undersigned has executed this Certificate on the ___ day of ________, 1994. --------------------------------- ______________, Secretary STATE OF KANSAS ) ) ss: FORD COUNTY ) BE IT REMEMBERED that on this ___ day of ________, 1994, personally came before me, a Notary Public, in and for the county and state aforesaid, ______________, Secretary of FIRST NATIONAL BANCSHARES OF DODGE CITY, INC., a Kansas corporation, who is personally known to me and personally known to me to be the said officer of said corporation, and she duly executed the above and foregoing certificate before me and acknowledged the said certificate to be her act and deed and the act and deed of said corporation; that the facts stated therein are true; that this signature is that of the secretary of said corporation, and that its seal affixed to said certificate is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day and year aforesaid. --------------------------------- Notary Public My Appointment Expires: - ---------------------- The undersigned, ______________, Secretary of METRO BANCSHARES, INC., an Oklahoma corporation, on behalf of said corporation, hereby certifies, pursuant to the General Corporation Act of the State of Oklahoma, that the foregoing Agreement of Merger to which this Certificate is attached has been submitted to the stockholders of said corporation at a special meeting thereof, duly called and held in accordance with the Bylaws of said corporation and the General Corporation Act of the State of Oklahoma, on the ____ day of _______, 1994, and at said meeting said agreement was duly considered, adopted, and approved by the holders of a majority of each class of capital stock entitled to vote thereon pursuant to a vote by ballot in person or by proxy taken for the adoption or rejection of said Agreement of Merger, and the votes of the stockholders of said corporation representing _________ shares of Common Stock, being _____% of the issued and outstanding Common Stock of said corporation and _____ shares of Preferred Stock, being ___% of the issued and outstanding Preferred Stock, entitled to vote were for the approval and adoption of said agreement and voted therefor. IN WITNESS WHEREOF, the undersigned has executed this Certificate on the ____ day of ________, 1994. --------------------------------- ______________, Secretary STATE OF OKLAHOMA ) ) ss: TULSA COUNTY ) BE IT REMEMBERED that on this ____ day of ________, 1994, personally came before me, a Notary Public, in and for the county and state aforesaid, ______________, Secretary of METRO BANCSHARES, INC., an Oklahoma corporation, who is personally known to me and personally known to me to be the said officer of said corporation, and she duly executed the above and foregoing certificate before me and acknowledged the said certificate to be her act and deed and the act and deed of said corporation; that the facts stated therein are true; that this signature is that of the secretary of said corporation, and that its seal affixed to said certificate is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day and year aforesaid. -------------------------------- Notary Public My Appointment Expires: - ---------------------- The undersigned, John C. Maloney, Secretary of Fourth Financial Corporation, a Kansas corporation, on behalf of said corporation, hereby certifies, in accordance with K.S.A. Section 17-6702(e) and pursuant to K.S.A. Section 17-6701(f) of the General Corporation Code of the State of Kansas, that the foregoing Agreement of Merger to which this Certificate is attached has been duly approved by the board of directors of Fourth Financial Corporation and has been duly adopted pursuant to Subsection (f) of said K.S.A. Section 17-6701 in that (i) the foregoing Agreement of Merger does not amend in any respect the Articles of Incorporation of Fourth Financial Corporation; (ii) each share of stock of Fourth Financial Corporation outstanding immediately prior to the effective date of the merger is to be an identical outstanding or treasury share of the surviving corporation after the effective date of the merger; and (iii) the authorized unissued shares or the treasury shares of common stock of Fourth Financial Corporation to be issued or delivered under the foregoing Agreement of Merger do not exceed 20% of the shares of common stock of Fourth Financial Corporation outstanding immediately prior to the effective date of the merger. IN WITNESS WHEREOF, the undersigned has executed this Certificate on the ___ day of ___, 1994. _______________________________ /s/John C. Maloney, Secretary STATE OF KANSAS ) ) ss: SEDGWICK COUNTY ) BE IT REMEMBERED that on this ____ day of _______, 1993, personally came before me, a Notary Public, in and for the county and state aforesaid, John C. Maloney, Secretary of FOURTH FINANCIAL CORPORATION, a Kansas corporation, who is personally known to me and personally known to me to be the said officer of said corporation, and he duly executed the above and foregoing certificate before me and acknowledged the said certificate to be his act and deed and the act and deed of said corporation; that the facts stated therein are true; that this signature is that of the secretary of said corporation, and that its seal affixed to said certificate is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day and year aforesaid. --------------------------------- Notary Public My Appointment Expires: - ---------------------- TO THE SECRETARY OF STATE OF THE STATE OF OKLAHOMA: Pursuant to Section 1082 of the Oklahoma General Corporation Act, Metro Bancshares, Inc., an Oklahoma Corporation, was merged into Fourth Financial Corporation, a Kansas corporation and the surviving corporation. Fourth Financial Corporation agrees that it may be served with process in Oklahoma in any proceeding for the enforcement of any obligation of Metro Bancshares, Inc., as well as for enforcement of any obligation of Fourth Financial Corporation arising from the aforementioned merger, including any suit or other proceeding to enforce the right of stockholders as determined in appraisal proceedings pursuant to the provisions of Section 1091 of the Oklahoma General Corporation Act, and hereby irrevocably appoints the Secretary of State of the State of Oklahoma as its agent to accept service of process in any such suit or other proceedings. The Secretary of State of the State of Oklahoma shall mail any such service of process to the following address: FOURTH FINANCIAL CORPORATION 100 N. Broadway Wichita, Kansas 67202 IN WITNESS WHEREOF, Fourth Financial Corporation has caused these presents to be executed by its Chairman of the Board and Secretary on this ____ day of ________, 1994. FOURTH FINANCIAL CORPORATION By ------------------------------- /s/Darrell G. Knudson Chairman of the Board ATTEST: By ------------------------------- /s/John C. Maloney, Secretary STATE OF KANSAS ) ) ss: SEDGWICK COUNTY ) BE IT REMEMBERED that on this ____ day of ________, 1994, personally came before me, a Notary Public, in and for the county and state aforesaid, Darrell G. Knudson and John C. Maloney, Chairman of the Board and Secretary, respectively, of FOURTH FINANCIAL CORPORATION, a Kansas corporation, both of whom are personally known to me and personally known to me to be the said officers of said corporation, and they each separately duly executed the above and foregoing agreement before me and acknowledged the said agreement to be their act and deed and the act and deed of said corporation; that the facts stated therein are true; that the signature of the chairman of the board of said corporation to the foregoing agreement is in the handwriting of said chairman of the board of said corporation, and that its seal affixed to said agreement, and attested by the secretary of said corporation, is the corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day and year aforesaid. --------------------------------- Notary Public My Appointment Expires: _________________________ EXHIBIT "D" ___________, 1994 Fourth Financial Corporation Post Office Box 4 Wichita, Kansas 67201-0004 Re: First Dodge City Bancshares, Inc., Metro Bancshares, Inc., First National Bancshares of Dodge City, Inc., Metro Bank of Broken Arrow, and First National Bank and Trust Company in Dodge City Gentlemen: We have acted as counsel to First Dodge City Bancshares, Inc. ("First Dodge"), Metro Bancshares, Inc. ("MBI"), First National Bancshares of Dodge City, Inc. ("FNB"), Metro Bank of Broken Arrow ("Metro Bank"), and First National Bank and Trust Company in Dodge City ("First National") (all of which are collectively referred to herein as the "Merging Corporations"), in connection with the merger (the "Fourth Merger") of First Dodge, FNB, and MBI with Fourth Financial Corporation, a Kansas corporation ("Fourth"), the merger (the "BANK IV Oklahoma Merger") of Metro Bank with BANK IV Oklahoma, a national banking association ("BANK IV Oklahoma"), and the merger ("BANK IV Kansas Merger") of First National into BANK IV Kansas, National Association ("BANK IV Kansas"), all pursuant to the Agreement and Plan of Reorganization, dated as of February 2, 1994 (the "Agreement"), among Fourth, the Merging Corporations, and the stockholders of First Dodge ("Stockholders"), the related ancillary Merger Agreements described therein, and the related Disclosure Statement prepared by the Merging Corporations and the Stockholders. We have also acted as counsel to the Stockholders in connection with these transactions. This Opinion Letter is provided to you at your request, pursuant to Section 5.1.g of the Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Agreement or in the Accord described below. This Opinion Letter is governed by, and shall be interpreted in accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law (1991). As a consequence, it is subject to a number of qualifications, exceptions, assumptions, definitions, limitations on coverage and other limitations, all as more particularly described in the Accord, and this Opinion Letter should be read in conjunction therewith. The Law covered by the opinions expressed herein is limited to the federal Law of the United States and the Laws of the States of Oklahoma and Kansas. The opinion in Paragraph 6 below is further limited to our Actual Knowledge after interviews with corporate officers and review of copies of documents relating to Litigation furnished to us by such officers. Based upon and subject to the foregoing, we are of the opinion that: 1. First Dodge, FNB, and MBI are each a bank holding company duly registered pursuant to the Bank Holding Company Act. Each of the Corporations is a corporation or bank duly organized, validly existing, and in good standing under the Laws of the jurisdiction of its incorporation, and each has all requisite corporate power and authority to conduct its business as it is now conducted, to own its properties and assets and to lease properties used in its business. None of the Corporations has any Subsidiaries except as described in Section 3.1.a of the Agreement. 2. The Agreement and the Merger Agreements are enforceable against such of the Merging Corporations that have executed the same, and against each Stockholder. 3. None of the execution or delivery of the Agreement or the Merger Agreements or the performance by the Merging Corporations of their agreements therein, will (a) violate the Constituent Documents of any of the Merging Corporations or breach or result in a default under any agreement or instrument of which we have Actual Knowledge under which any of the Merging Corporations or the Stockholders is obligated, or (b) violate any Laws to which any of the Merging Corporations or the Stockholders is subject. 4. The capitalization of the Corporations and the ownership by First Dodge of the capital stock of its Subsidiaries are accurately described in Section 3.1 of the Agreement. 5. None of the Corporations has outstanding any options, warrants, or rights of any kind requiring it to sell or issue to anyone any capital stock of any class and none of the Corporations has agreed to issue or sell any additional shares of its capital stock. 6. The Disclosure Statement contains a true and complete list and brief description of all Litigation pending or overtly threatened in writing to which any of the Corporations is or would be a party or to which any of their assets is or would be subject. Except as set forth in Exhibit "O" to the Disclosure Statement, none of the Corporations is a party to any Litigation other than routine litigation commenced by a Bank to enforce obligations of borrowers in which no counterclaims for any material amounts of money have been asserted or overtly threatened in writing. 7. The execution, delivery, and performance of the Agreement and the Merger Agreements by the Merging Corporations do not require any approval, authorization, consent, exemptions, notices or intent not to disapprove, or other action of any governmental body or any filing with any other governmental body to which the Merging Corporations or the transactions contemplated hereby are subject, other than approvals of (a) the Board; (b) the Comptroller; (c) the SEC and the securities commissioners or similar officers of the several states; and (d) the Kansas and Oklahoma secretaries of state. All requisite approvals, authorizations, consents, and exemptions have been granted by, and all requisite actions have been taken by, the governmental bodies listed in the foregoing clauses (a), (b) and (c). 8. Upon the filing of the Fourth Merger Agreement with the Secretary of State of Oklahoma and the Secretary of State of Kansas and the payment of all required taxes and fees, the Fourth Merger will be effected in compliance with all applicable Laws of the States of Oklahoma and Kansas and Fourth will succeed to the assets and liabilities of First Dodge, FNB, and MBI pursuant to the Oklahoma General Corporation Act and the Kansas General Corporation Law. Upon the final approval of the Bank Mergers by the Comptroller, the Bank Mergers will each be effected in accordance with all applicable Laws and BANK IV Kansas shall succeed to the assets and liabilities of First National and BANK IV Oklahoma will succeed to the assets of Metro Bank. While we have not verified, do not pass upon, and do not assume responsibility for, the accuracy, completeness, or fairness of the factual statements contained in the Registration Statement or the Proxy Statement, to the extent that we participated in the preparation of the Proxy Statement used in connection with the special stockholders' meetings of First Dodge, MBI, and First National for the purpose of considering and voting upon the Mergers and the Registration Statement on Form S-4 filed by Fourth with the SEC in connection with the registration of shares of Fourth Stock to be issued in connection with the Mergers, and in the course of such preparation, in conferences with certain officers and employees of the Corporations, Fourth, BANK IV Kansas, and BANK IV Oklahoma with respect thereto, our examination of the Proxy Statement and Registration Statement and discussions in the above- described conferences did not disclose to us any information which gave us reason to believe that the Proxy Statement, at the time it was first mailed to stockholders of First Dodge, MBI, and First National and at the time of the special stockholders' meetings of First Dodge, MBI, and First National at which the Mergers were approved, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except as to financial statements and other financial and statistical information relating to the Corporations, Fourth, BANK IV Kansas, or BANK IV Oklahoma contained therein and as to all material relating to or furnished by Fourth, BANK IV Kansas, or BANK IV Oklahoma, for use in the Proxy Statement or the Registration Statement, as to all of which we express no opinion). The phrase "Primary Lawyer Group," as used in the Accord, is hereby modified and for the purposes of applying the Accord to this Opinion Letter the Primary Lawyer Group means only the lawyers in this firm who have given substantive legal attention to representation of the Merging Corporations and the Stockholders in connection with the foregoing transactions. This Opinion Letter may be relied upon by you only in connection with the foregoing transactions and may not be used or relied upon by you or any other person for any purpose whatsoever, except to the extent authorized by the Accord, without in each instance our prior written consent. Very truly yours, MANGAN, DALTON, TRENKLE, REBEIN & DOLL, CHARTERED EXHIBIT "E" CONSULTING AND MARKETING AGREEMENT THIS AGREEMENT, made and entered into on the __ day of ______, 1994, by and between FIRST NATIONAL BANK AND TRUST COMPANY IN DODGE CITY, a national banking association, with its principal place of business at Dodge City, Kansas ("Bank"); FOURTH FINANCIAL CORPORATION, a Kansas corporation ("Fourth Financial"); and JOHN V. HARDING, hereinafter referred to as "Executive". W I T N E S S E T H: That, - - - - - - - - - - WHEREAS, Fourth Financial, First Dodge City Bancshares, Inc. ("First Dodge"), First National Bancshares of Dodge City, Inc., Metro Bancshares, Inc., Metro Bank of Broken Arrow ("Metro Bank"), Bank, and the stockholders of First Dodge have heretofore entered into an Agreement and Plan of Reorganization, dated as of February 2, 1994 (the "Agreement"); and WHEREAS, the Agreement provides for the execution and delivery of this Agreement; and WHEREAS, upon consummation of the transactions contemplated by the Agreement, the Bank will be merged into a wholly owned subsidiary of Fourth Financial, BANK IV Kansas, National Association ("BANK IV"), who will succeed to this Agreement; NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the parties agree as follows: 1. Resignations. Executive hereby resigns all directorships and all offices he holds with First Dodge and with any of its subsidiaries, such resignations to be effective at the Effective Time as such term is defined in the Agreement (the "Effective Time"). 2. Service as Advisory Director of BANK IV. Executive hereby agrees to serve as an advisory director of the Dodge City, Kansas market-based bank of BANK IV at the pleasure of the Board of Directors of BANK IV. It is recognized that Executive's travel schedule may prevent his regular attendance at meetings. 3. Consulting and Marketing Agreement. (a) Executive is hereby retained as an independent consultant for a five-year period commencing at the Effective Time and ending five years thereafter. His duties shall consist of: (i) giving such advice and assistance to management of BANK IV as may reasonably be requested from time to time; (ii) assisting BANK IV in retaining the customers and goodwill of the Bank; (iii) upon request of BANK IV devoting at least 15 consecutive days per calendar quarter on developing new business for BANK IV's commercial loan and trust department; and (iv) being involved in economic development activities in the communities of Broken Arrow or Dodge City. It is expressly understood that, while Executive is expected to devote substantial time to performing his duties hereunder, he is not expected or required to keep regular hours or work full-time. (b) For all services rendered under this Paragraph 3, Executive shall receive compensation of $155,000 per year. Such compensation shall be payable in equal quarterly payments payable on the first business day of each calendar quarter. Executive will not be an employee of BANK IV and shall not be eligible to participate in any of its health insurance, life insurance, retirement, savings, stock option, or other employee benefit programs. (c) The provisions of this Paragraph 3 may only be terminated by BANK IV in the event of material, intentional breach by Executive of his duties hereunder after giving Executive written notice and at least 30 days to cure any default that can be cured by performance. (d) If Executive dies during the term hereof, BANK IV's payment obligations under this Agreement shall terminate as of the end of the month in which such death occurs. 4. Automobile. At the Effective Time, BANK IV shall transfer to Executive the Cadillac automobile currently being furnished to him by the Bank. 5. Relationship of Confidence and Trust. Executive acknowledges that during his term of employment by the Bank and First Dodge he has acquired valuable and confidential information, trade secrets, and relationships with respect to the Bank's and Metro Bank's successful business practices and operations, including, by way of illustration and not of limitation, knowledge of the Bank's and Metro Bank's customers, prices, selling techniques, costs, and future plans (collectively "Proprietary Information"). In addition Executive has developed and maintained on behalf of the Bank and Metro Bank a personal acquaintance with various persons, including, but not limited to, customers and suppliers, which acquaintances may constitute the Bank's or Metro Bank's only contact with such persons. As a consequence of the foregoing, Executive occupies a position of trust and confidence with respect to the Bank's and Metro Bank's affairs. In view of the foregoing and in consideration of the consideration paid to him, Executive agrees that it is reasonable and necessary for the protection of the goodwill and business of the Bank, BANK IV, and BANK IV Oklahoma, National Association ("BANK IV Oklahoma") (collectively the "Banks"), that he make the covenants contained in Paragraphs 6 and 7 regarding his conduct, and that the Banks will suffer irreparable injury if he engages in conduct prohibited thereby. The covenants contained in Paragraphs 6 and 7 shall each be construed to be a separate agreement independent of any other provision of this Agreement, and the existence of any claim or cause of action of Executive against Fourth Financial or any of the Banks, predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Banks of any of said covenants. The covenants contained in Paragraphs 6 and 7 shall survive the termination of this Agreement for any reason. 6. Disclosure of Proprietary Information. Executive recognizes and acknowledges that the Proprietary Information and all other information as to the business affairs of the Banks not generally known to the public, as the same may exist from time to time, are confidential information and are valuable, special, and unique assets of the Banks' businesses. Executive therefore agrees that he will never disclose any of the Proprietary Information, or any other information as to the business affairs of either of the Banks to any person, firm, corporation, association, or other entity for any reason or purpose whatsoever except as he may be compelled to do by legal process. In the event of a breach or threatened breach by Executive of the provisions of this paragraph, the Banks, or either of them, shall each be entitled to injunctive or other equitable relief enjoining and restraining him from disclosing, in whole or in part, any such Proprietary Information. Nothing herein shall be construed as prohibiting the Banks from pursuing any other remedies available to either of them for such breach or threatened breach. 7. Restrictive Covenant. For a five-year period commencing at the Effective Time and ending on the date of the termination of this Agreement, Executive will not, within Tulsa or Wagoner Counties in Oklahoma, or within 100 miles of Dodge City, Kansas without the prior written consent of BANK IV or BANK IV Oklahoma, as the case may be, directly or indirectly, own, manage, operate, consult with, be employed by, or be connected with the ownership, management, operation, or control of any business engaged in the business of commercial banking, of making consumer or commercial loans (other than credit sales), of accepting deposits, or providing trust services; provided, nothing contained in this sentence shall prohibit Executive from owning not more than 5% of the outstanding voting stock of any corporation or bank whose securities are publicly traded. Executive agrees that, in addition to all other remedies otherwise available to each of the Banks, each of the Banks shall each have the right to injunctive relief to restrain and enjoin any actual or threatened breaches of this provision and that if in any litigation that might arise over the provisions contained in this paragraph a court should determine that the restrictions contained in this paragraph are too broad, or too long in duration, or too broad in geographic scope to be enforceable in equity, such provisions as such court might find unenforceable are amended only so much as shall be necessary in order for the restrictions contained herein to be enforceable and, as so amended, shall be enforced by such court. 8. Notices. Any notices required or permitted to be given under this Agreement shall be sufficient if in writing, and if sent by registered or certified mail to his or her last known residence in the case of Executive, or to its principal office in the case of BANK IV or BANK IV Oklahoma. 9. Waiver of Breach. The waiver of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 10. Assignment. The rights and obligations of BANK IV and BANK IV Oklahoma under this Agreement shall inure to the benefit of, and shall be binding upon, BANK IV, BANK IV Oklahoma, and their respective successors and assigns. Executive shall not have the right to assign any of the rights or obligations contained in this Agreement. 11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an origi- nal, but which together shall constitute but one agreement. 12. Captions. Captions used in this Agreement are for convenience of reference only and shall not be deemed a part of this Agreement nor used in the construction of its meaning. 13. Savings Clause. If any provision of this Agreement shall be deemed invalid or unenforceable as written, it shall be construed, to the greatest extent possible, in a manner which shall render it valid and enforceable and any limitations on the scope or duration of any such provision shall be deemed to be a part hereof. No invalidity or unenforceability shall affect any other provision of this Agreement unless the provision deemed to be so invalid or unenforceable is a material element of this Agreement, taken as a whole. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. FOURTH FINANCIAL CORPORATION By___________________________ Its__________________________ "Fourth Financial" [signatures continued] FIRST NATIONAL BANK AND TRUST COMPANY IN DODGE CITY By____________________________ Its___________________________ "Bank" ______________________________ /s/John V. Harding "Executive" EXHIBIT "F" ___________, 1994 Boards of Directors and Stockholders First Dodge City Bancshares, Inc. First National Bancshares of Dodge City, Inc. Metro Bancshares, Inc. Metro Bank of Broken Arrow First National Bank and Trust Company in Dodge City Gentlemen: We have acted as counsel to Fourth Financial Corporation ("Fourth"), and BANK IV Oklahoma, National Association ("BANK IV Oklahoma"), and BANK IV Kansas, National Association ("BANK IV Kansas") in connection with the preparation of the Agreement and Plan of Reorganization, dated as of February 2, 1994, among Fourth, First Dodge City Bancshares, Inc.("First Dodge"), First National Bancshares of Dodge City, Inc. ("FNB"), Metro Bancshares, Inc. ("MBI"), Metro Bank of Broken Arrow ("Metro Bank"), and First National Bank and Trust Company in Dodge City ("First National") and the stockholders of First Dodge (the "Agreement") and the ancillary Merger Agreements and Registration Statement provided for therein. This Opinion Letter is provided to you at the request of Fourth pursuant to Section 5.2.d of the Agreement. Except as otherwise indicated herein, capitalized terms used in this Opinion Letter are defined in the Agreement or the Accord described below. This Opinion Letter is governed by, and shall be interpreted in accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law (1991). As a consequence, it is subject to a number of qualifications, exceptions, assumptions, definitions, limitations on coverage and other limitations, all as more particularly described in the Accord, and this Opinion Letter should be read in conjunction therewith. The law covered by the opinions expressed herein is limited to the federal Law of the United States and the Law of the State of Kansas. Based upon and subject to the foregoing, we are of the opinion that: 1. Organization, Good Standing, and Authority. Fourth is a bank holding company duly registered pursuant to the Bank Holding Company Act. Fourth, BANK IV Kansas, and BANK IV Oklahoma are each a corporation or bank duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation, and each has all requisite corporate power and authority to conduct its business as it is now conducted, to own its properties and assets, and to lease properties used in its business. Neither Fourth, BANK IV Kansas, nor BANK IV Oklahoma is in violation of its Constituent Documents. 2. Binding Obligations. The Agreement and the Merger Agreements are enforceable against such of Fourth, BANK IV Kansas, and BANK IV Oklahoma as have executed such agreements. 3. Absence of Default. None of the execution or the delivery of the Agreement or the Merger Agreements, or the performance by Fourth, BANK IV Kansas, or BANK IV Oklahoma of their agreements therein, will (1) violate the Constituent Documents or breach or result in a default under any agreement or instrument under which Fourth, BANK IV Kansas, or BANK IV Oklahoma is obligated of which we have Actual Knowledge, or (2) violate any statutory law or regulation to which any of them is subject. 4. Capitalization. Fourth is authorized to issue (i) 50,000,000 shares of common stock, par value $5 per share, of which 26,352,215 shares were issued and outstanding on December 31, 1993, (ii) 250,000 shares of Class A Cumulative Convertible Preferred Stock, par value $100 per share, all of which are issued and outstanding, and (iii) 5,000,000 shares of Class B Preferred Stock, no par value, none of which is issued and outstanding. The shares of Fourth Stock to be issued in the Mergers, when issued in accordance with the Agreement, will be duly and validly issued, fully paid, and nonassessable, and will not be issued in violation of any preemptive rights or any Laws applicable thereto. 5. Government Authorizations. To our Actual Knowledge, Fourth, BANK IV Kansas, and BANK IV Oklahoma have all material permits, charters, licenses, orders, and approvals of every federal, state, local, or foreign governmental or regulatory body required in order to permit them to carry on their respective businesses substantially as presently conducted. 6. Governmental Approvals. The execution, delivery, and performance of the Agreement and the Merger Agreements by Fourth, BANK IV Kansas, and BANK IV Oklahoma do not require any approval, authorization, consent, exemptions, notices of intent not to disapprove, or other action of any regulatory body, administrative agency, or any other governmental body or any filing with any governmental body to which Fourth, BANK IV Kansas, or BANK IV Oklahoma are subject, other than approvals of or filings with (a) the Board; (b) the Comptroller; (c) the SEC and the securities commissioner or similar officers of the several states; and (d) the Kansas and Oklahoma secretaries of state. All such requisite approvals, authorizations, consents, exemptions, and notices have been taken by the appropriate governmental body listed in the foregoing clauses (a), (b), and (c). 7. Fourth Merger. Upon the filing of the Fourth Merger Agreement with the Secretary of the State of Kansas and Secretary of State of the State of Oklahoma and the payment of all required taxes and fees, the Fourth Merger shall be effected in compliance with all applicable laws of the State of Kansas. While we have not verified, do not pass upon, and do not assume responsibility for, the accuracy, completeness, or fairness of the factual statements contained in the Registration Statement or the Proxy Statement, to the extent we participated in the preparation and filing of the Proxy Statement and the Registration Statement with the SEC and, in the course of such preparation, in conferences with certain officers and employees of the Corporations, Fourth, BANK IV Kansas, and BANK IV Oklahoma with respect thereto, our examination of the Proxy Statement and Registration Statement and discussions in the above-described conferences did not disclose to us any information which gave us reason to believe that the Proxy Statement, at the time it was first mailed to stockholders of First Dodge, FNB, and First National and at the time of the special stockholders' meetings at which the Mergers were approved by the stockholders of First Dodge, FNB, and First National, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except as to financial statements and other financial and statistical information relating to the Corporations, Fourth, BANK IV Kansas, or BANK IV Oklahoma contained therein and as to all material relating to or furnished by the Corporations and the Stockholders for use in the Proxy Statement, as to all of which we do not express any opinion). We hereby confirm to you that there are no actions or proceedings against Fourth or any Subsidiary of Fourth, pending or overtly threatened in writing, before any court, governmental agency, or arbitrator (i) which seek to affect the enforceability of the Agreement or (ii) which seek damages in excess of $10,000,000 other than Kansas Public Employees Retirement System v. Peters, Gamm, West & Vincent, et al., Case No. 92 CV 433 in the Third Judicial District Court, Shawnee County, Kansas. The phrase "Primary Lawyer Group", as used in the Accord, is hereby modified and for the purposes of applying the Accord to this Opinion Letter the Primary Lawyer Group means only the lawyers in this firm who have given substantive legal attention to representation of Fourth, BANK IV Kansas, and BANK IV Oklahoma in connection with the Transaction. This Opinion Letter may be relied upon by you only in connection with the Transaction and may not be used or relied upon by you or any other person for any purpose whatsoever, except to the extent authorized by the Accord, without in each instance our prior written consent. Very truly yours, FOULSTON & SIEFKIN EXHIBIT "G" AFFILIATE'S AGREEMENT --------------------- THIS AGREEMENT, made and entered into as of the ______ day of ____________, 1994, by and between __________________________ (hereinafter referred to as "Affiliate"), and FOURTH FINANCIAL CORPORATION, a Kansas corporation (hereinafter referred to as "Fourth"). W I T N E S S E T H: That; - - - - - - - - - - WHEREAS, Fourth, First Dodge City Bancshares, Inc. ("First Dodge"), First National Bancshares of Dodge City, Inc. ("FNB"), and Metro Bancshares, Inc. ("MBI") are parties to an Agreement and Plan of Reorganization, dated as of February 2, 1994 (the "Agreement"), which provides for, subject to various terms and conditions, the merger of First Dodge, FNB, and MBI into Fourth (the "Fourth Merger"), the merger of First National Bank and Trust Company in Dodge City ("First National") into BANK IV Kansas, National Association (the "BANK IV Kansas Merger"), and the merger of Metro Bank of Broken Arrow into BANK IV Oklahoma, National Association (the "BANK IV Oklahoma Merger") (the Fourth Merger, the BANK IV Kansas Merger, and the BANK IV Oklahoma Merger being collectively referred to herein as the "Mergers"); and WHEREAS, Section 5.1.j of the Agreement provides that a condition to Fourth's obligation to effect the Mergers is the execution and delivery by each "affiliate" of First Dodge, MBI, and First National, as such term is defined in the Agreement (an "Affiliate"), of an agreement concerning the shares of common stock, par value $5 per share, of Fourth ("Fourth Stock") to be received by such Affiliate in the Mergers; and WHEREAS, the parties desire to effect the Mergers and it is in the best interests of the undersigned that the Mergers be effected; NOW, THEREFORE, in consideration of the premises and the issuance of Fourth Stock to the undersigned in the Mergers, and in order to induce First Dodge, MBI, and First National and Fourth to effect the Mergers, the undersigned hereby agree as follows: 1. Securities Act Restriction on Transfer and Sale. Affiliate hereby agrees not to sell, pledge, offer to sell, transfer, assign, or otherwise dispose of any of the shares of Fourth Stock issued to Affiliate in the Mergers in violation of the Securities Act of 1933, as amended. 2. Pooling of Interests Restriction on Transfer and Sale. Affiliate hereby agrees not to sell, pledge, offer to sell, transfer, assign, or otherwise dispose of any shares of Fourth Stock to be received by Affiliate in the Mergers or in any other way reduce Affiliate's risk relative to such shares (within the meaning of Accounting Series Release No. 130) until such time as financial results covering at least 30 days following the Mergers have been published. 3. Restrictive Legend. Affiliate hereby acknowledges and agrees that all certificates evidencing Fourth Stock to be issued to Affiliate pursuant to the Mergers shall be subject to stop transfer orders and shall bear a restrictive legend substantially in the following form: The shares of common stock represented by this certificate have been issued or transferred to the registered holder as the result of a transaction to which Rule 145 under the Securities Act of 1933, as amended (the "Act"), applies. Such shares may not be sold, pledged, transferred, or assigned, and the issuer shall not be required to give effect to any attempted sale, pledge, transfer, or assignment, except (i) pursuant to a then current effective registration under the Act, (ii) in a transaction permitted by Rule 145 as to which the issuer has, in the reasonable opinion of its counsel, received reasonably satisfactory evidence of compliance under Rule 145, or (iii) in a transaction which, in the opinion of counsel satisfactory to the issuer or as described in a "no-action" or interpretive letter from the staff of the Securities and Exchange Commission, is not required to be registered under the Act. Transfer of the shares represented by this certificate is further restricted by an Affiliate's Agreement dated as of ____________________, 1994, between the issuer and the registered holder to which reference is hereby made. 4. Miscellaneous. This Affiliate's Agreement constitutes the entire agreement and understanding of the parties relating to the subject matter hereof and may not be amended or modified except by written instrument duly executed by the parties hereto. This Affiliate's Agreement shall be governed by the laws of the State of Kansas and shall be construed in accordance therewith. This Affiliate's Agreement shall inure to the benefit of, and shall be binding upon, the heirs, legatees, devisees, successors, trustees, and assigns of the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Affiliate's Agreement as of the date first above written. FOURTH FINANCIAL CORPORATION By________________________________ /s/Darrell G. Knudson, Chairman of the Board "Fourth" _________________________________ "Affiliate" EX-10 9 EXHIBIT 10.14 STOCK PURCHASE AGREEMENT among FOURTH FINANCIAL CORPORATION, as Purchaser and LSB INDUSTRIES, INC., and PRIME FINANCIAL CORPORATION, as Sellers Dated as of February 9, 1994 TABLE OF CONTENTS Page # ------ ARTICLE I. Definitions. . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . 8 Section 1.3 Use of Defined Terms . . . . . . . . . . . . . . . . . . 8 ARTICLE II. Sale and Transfer of Stock; Closing. . . . . . . . . . . 8 Section 2.1 Sale of the Shares . . . . . . . . . . . . . . . . . . . 8 Section 2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . 8 Section 2.3 Additional Adjustments to Purchase Price . . . . . . . .10 Section 2.4 Post-Closing Adjustments . . . . . . . . . . . . . . . .11 Section 2.5 Closing. . . . . . . . . . . . . . . . . . . . . . . . .11 Section 2.6 Closing Deliveries . . . . . . . . . . . . . . . . . . .12 Section 2.7 Option to Acquire Certain Loans. . . . . . . . . . . . .13 Section 2.8 Retained Assets and Retained Corporations and Certain Loans. . . . . . . . . . . . . . . . . . . .13 ARTICLE III. Agreements of the Parties. . . . . . . . . . . . . . . .13 Section 3.1 Agreements of Fourth . . . . . . . . . . . . . . . . . .13 Section 3.2 Agreements of Sellers. . . . . . . . . . . . . . . . . .15 ARTICLE IV. Representations and Warranties . . . . . . . . . . . . .20 Section 4.1 Representations and Warranties of Sellers. . . . . . . .20 Section 4.2 Representations and Warranties of Fourth . . . . . . . .30 ARTICLE V. Closing Conditions . . . . . . . . . . . . . . . . . . .32 Section 5.1 Conditions to Obligations of Fourth. . . . . . . . . . .32 Section 5.2 Conditions to Obligations of Sellers . . . . . . . . . .34 ARTICLE VI. Termination of Agreement . . . . . . . . . . . . . . . .35 Section 6.1 Mutual Consent; Termination Date . . . . . . . . . . . .35 Section 6.2 Election by Fourth . . . . . . . . . . . . . . . . . . .35 Section 6.3 Election by Sellers . . . . . . . . . . . . . . . . . .36 ARTICLE VII. Indemnification. . . . . . . . . . . . . . . . . . . . .36 Section 7.1 Effect of Closing. . . . . . . . . . . . . . . . . . . .36 Section 7.2 General Indemnification. . . . . . . . . . . . . . . . .37 Section 7.3 Procedure . . . . . . . . . . . . . . . . . . . . . . .38 Section 7.4 Survival of Representations and Warranties . . . . . . .38 Section 7.5 Special Indemnification. . . . . . . . . . . . . . . . .39 Section 7.6 Separate Indemnification for Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . .40 Section 7.7 Separate Indemnification for Barki Litigation . . . . . . . . . . . . . . . . . . . . . . .41 Section 7.8 Director and Officer Indemnification . . . . . . . . . .41 ARTICLE VIII. Miscellaneous. . . . . . . . . . . . . . . . . . . . . .42 Section 8.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . .42 Section 8.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . .42 Section 8.3 Time . . . . . . . . . . . . . . . . . . . . . . . . . .43 Section 8.4 Law Governing. . . . . . . . . . . . . . . . . . . . . .43 Section 8.5 Entire Agreement; Amendment. . . . . . . . . . . . . . .43 Section 8.6 Successors and Assigns . . . . . . . . . . . . . . . . .43 Section 8.7 Cover, Table of Contents, and Headings . . . . . . . . .43 Section 8.8 Counterparts . . . . . . . . . . . . . . . . . . . . . .43 Section 8.9 No Third Party Beneficiaries . . . . . . . . . . . . . .43 Section 8.10 Severability . . . . . . . . . . . . . . . . . . . . . .43 EXHIBITS Exhibit "A" Form of Housley Goldberg & Kantarian, P.C. legal opinion with attached opinion of David A. Shear Exhibit "B" Form of Foulston and Siefkin legal opinion Exhibit "C" Form of Lease - Equity Tower (OMITTED) Exhibit "D" Form of Real Estate Contract - Retained Assets (OMITTED) Exhibit "E" Form of Bank Merger Agreement STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT, dated as of February 9, 1994, among FOURTH FINANCIAL CORPORATION, a Kansas corporation ("Fourth"), LSB INDUSTRIES, INC., a Delaware corporation ("LSB"), and PRIME FINANCIAL CORPORATION, an Oklahoma corporation ("Prime"). W I T N E S S E T H: That, ------------------- WHEREAS, Fourth desires to acquire all, and not less than all, of the issued and outstanding capital stock of all classes of Equity Bank for Savings, F.A. (the "Bank") and to simultaneously merge the Bank into Fourth's subsidiary, BANK IV Oklahoma, National Association ("BANK IV") as permitted by Section 501.1D of the Oklahoma Banking Code of 1965 as amended, subject to and pursuant to the terms of this Agreement; and WHEREAS, LSB owns all of the issued and outstanding capital stock of all classes of Prime and Prime owns all of the issued and outstanding capital stock of the Bank; and WHEREAS, each party hereto believes that the proposed acquisition by Fourth of Bank and the merger of the Bank into BANK IV pursuant to the terms and conditions of this Agreement would be desirable and in their respective best interests; NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS 1.1. Definitions. The following terms as used in this Agreement shall have the following meanings unless the context otherwise requires. "This Agreement" refers to this Stock Purchase Agreement and all exhibits hereto and all amendments hereto. "Bank" means Equity Bank for Savings, F.A., a savings bank organized under the laws of the United States. "BANK IV" means BANK IV Oklahoma, National Association, a national banking association. "Bank Holding Company Act" means the federal Bank Holding Company Act of 1956, as amended (12 U.S.C. Section 1841 et seq.), or any successor federal statute, and the rules and regulations of the Board promulgated thereunder, all as the same may be in effect at the time. "Bank Merger Agreement" means the Agreement to Merge, substantially in the form of Exhibit "E" hereto, pursuant to which the Bank will be merged into BANK IV at the Closing simultaneously with the consummation of the Purchase. "Bank Stock" means common stock of the Bank, par value $.01 per share. "Board" means the Board of Governors of the Federal Reserve System or any successor governmental entity which may be granted powers currently exercised by the Board of Governors. "Closing" shall mean the purchase and sale of the Shares and the simultaneous consummation of the Merger. "Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, all as the same may be in effect at the time. "Comptroller" means the United States Comptroller of the Currency or any successor governmental agency which may be granted powers currently exercised by the Comptroller of the Currency. "Corporations" means collectively the Bank and all of the following of its Subsidiaries: Credit Card Center, Inc., Equity Financial Service Corp., and United BankCard, Inc.; and "Corporation" means any one of them. "Disclosure Statement" means the Disclosure Statement prepared by Sellers and delivered by Sellers to Fourth prior to the execution and delivery of this Agreement by Fourth. "Effective Time" means the date and time on which the Purchase is effected as more fully defined in this Agreement. "Environmental Liabilities" means all losses, costs, expenses, claims, demands, liabilities, or obligations of whatever kind or otherwise, based upon an Environmental Law relating to: (i) any environmental matter or condition, including, but not limited to, on-site or off-site contamination, and regulation of chemical substances or products; (ii) fines, penalties, judgments, awards, settlements, legal or administrative proceedings, damages, losses, claims, demands, and response, remedial or inspection costs and expenses arising under Environmental Laws; (iii) financial responsibility under any Environmental Law for cleanup costs or corrective actions, including for any removal, remedial or other response actions, and for any natural resource damage; and (iv) any other compliance, corrective, or remedial action required under any Environmental Law. "Environmental Law" means any provision of Law relating to any environmental matters or conditions, Hazardous Materials, pollution, or protection of the environment, including, but not limited to, on-site and off-site contamination, and regulation of chemical substances or products, emissions, discharges, release, or threatened release of contaminants, chemicals, or industrial, toxic, radioactive, or Hazardous Materials or wastes into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials, pollutants, contaminants, chemicals, or industrial, toxic, radioactive, or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder, all as the same may be in effect at the time. "Facilities" means any real property, leaseholds, or other interests owned by the Bank or any of the Corporations and/or any buildings, plants, structures, or equipment of any of the Corporations, but shall not include any real property, leaseholds, or other interests owned by any of the Retained Corporations nor any of the Retained Assets other than the Equity Tower. "Federal Deposit Insurance Act" means the Federal Deposit Insurance Act, as amended, and the rules and regulations promulgated thereunder, all as the same may be in effect at the time. "FDIC" means the Federal Deposit Insurance Corporation or any successor agency. "Financial Statements" refers to all of the financial statements described in clause h of Section 4.1 and clause h of Section 5.1 of this Agreement. "GAAP" means generally accepted accounting principles, applied on a consistent basis. "Hazardous Materials" means and includes: (i) any hazardous substance or toxic material (excluding any lawful product in customary quantities for use in the Bank's or other occupant's ordinary course of business which contains such substance or material), pollutant, contaminant, toxic material, or hazardous waste as defined in any state, federal, or local Environmental Law; (ii) waste oil and petroleum products; and (iii) any asbestos, asbestos containing material, urea formaldehyde or material which contains urea formaldehyde. "Indemnifying Losses" has the meaning set forth in Section 7.2 of this Agreement. "Indemnitee" and "Indemnitees" shall have the meanings set forth in Section 7.2 of this Agreement. "Law" or "Laws" means all applicable statutes, laws, ordinances, regulations, orders, writs, injunctions, or decrees of the United States of America, any state or commonwealth, or any subdivision thereof, or of any court or governmental department, agency, commission, board, bureau, or other instrumentality. "Litigation" means any proceeding, claim, lawsuit, and/or investigation being conducted or, to the best of the knowledge of the person or corporation making the representation, threatened before any court or other tribunal, including, but not limited to, proceedings, claims, lawsuits, and/or investigations, under or pursuant to any occupational safety and health, banking, antitrust, securities, tax, or other Laws, or under or pursuant to any contract, agreement, or other instrument. "LSB" means LSB Industries, Inc., a Delaware corporation. "Merger" means the merger of the Bank into BANK IV at the Closing immediately following the Purchase. "OREO Properties" means any interest in any real or personal property owned by the Bank or any other Corporation acquired through foreclosure or otherwise in connection with collecting a loan or lease. "OTS" means the Office of Thrift Supervision of the United States Treasury and any successor agency which may be granted powers currently exercised by the Office of Thrift Supervision. "Permitted Contract" means a contract or agreement, written or oral, between the Bank or another of the Corporations, on the one hand, and a person other than a customer of the Bank or another financial institution, on the other hand, which (i) was entered into in the ordinary course of business, (ii) may be terminated by the Bank after the Effective Time on no more than 60 days' prior notice, (iii) provides for a payment of no more than $5,000 in any calendar month by the Bank or a Corporation, and (iv) provides for no payment upon termination in excess of $5,000. "Permitted Encumbrances" means with respect to any asset: (a) liens for taxes not past due; (b) mechanics' and materialmen's liens for services or materials for which payment is not past due; and (c) minor defects, encumbrances, and irregularities in title which do not, in the aggregate, materially diminish the value of an asset or materially impair the use of an asset for the purposes for which it is or is intended to be used. "Purchase" means the purchase at the Closing of all of the Shares from Sellers by Fourth pursuant to this Agreement. "Purchase Price" has the meaning set forth in Section 2.2 of this Agreement as adjusted in accordance with this Agreement. "Required Approvals" means the approval, consent, or non-objection, as the case may be, of the Board, the OTS, the Comptroller, and all other governmental or self-governing agencies, boards, departments, and bodies whose approval, consent, or non-action is required in order to consummate the Purchase and the Merger and the retention by BANK IV of all of the Corporations engaged in banking or thrift-related activities and their operations in substantially their present form except as specifically otherwise provided in this Agreement, which approvals, consents, and non-objections shall have become final and nonappealable without any appeal or other form of review having been initiated and as to which all required waiting periods shall have expired. "Retained Assets" means collectively (i) the loan and all related rights and agreements on the books of the Bank secured by the Equity Tower building (the "Equity Tower"), (ii) all OREO Properties, (iii) receivables sold to the Bank pursuant to various purchase agreements dated March 8, 1988, and (iv) such other assets that Sellers elect to acquire from the Bank pursuant to the provisions of Section 2.7 hereof; and "Retained Asset" means any one of the Retained Assets. "Retained Corporations" means all of the following wholly owned Subsidiaries of the Bank all of the capital stock of each of which is to be purchased by LSB or Prime prior to the Effective Time: Northwest Financial Corporation, Northwest Energy Enterprises, Inc., and Northwest Capital Corporation; and "Retained Corporation" means any one of them. "Securities Portfolio" means (i) all equity securities other than investments in Subsidiaries, (ii) all mortgage-backed securities (as defined by Section 5(c)(1)(R) of the Home Owners' Loan Act), (iii) all government securities (as defined by Section 5(c)(1)(F) of the Home Owners' Loan Act), and (iv) all obligations of or fully insured as to principal and interest by the United States, owned by the Bank as of the Effective Time, whether held for sale or otherwise. "Sellers" means LSB and Prime collectively. "Shares" means collectively all of the 100,000 shares of Bank Stock being purchased and sold pursuant to this Agreement. "Subsidiary" means any corporation fifty percent or more of the common stock or other form of equity of which shall be owned, directly or indirectly, by another corporation. "Tangible Book Value of the Bank" means the aggregate consolidated stockholders' equity of the Bank, calculated in accordance with GAAP, less the amounts in the following accounts: purchased mortgage servicing rights (account number 1797), goodwill (account number 1799), and United BankCard goodwill (account number 1305), net of accumulated amortization (account number 1310). "Time Deposits" means all deposit liabilities shown on the Bank's records as time deposits. 1.2. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistent with that applied in the preparation of the financial statements submitted pursuant to this Agreement, and all financial statements submitted pursuant to this Agreement shall be prepared in all material respects in accordance with such principles. 1.3. Use of Defined Terms. All terms defined in this Agreement shall have the defined meanings when used in any other agreement, document, or certificate made or delivered pursuant to this Agreement, unless the context otherwise requires. ARTICLE II SALE AND TRANSFER OF STOCK; CLOSING 2.1. Sale of the Shares. Subject to the terms and conditions of this Agreement, at the Closing, Sellers shall sell, transfer, and deliver to Fourth, and Fourth shall purchase, all of the Shares for the Purchase Price. 2.2. Purchase Price. (a) The Purchase Price for all of the Shares shall be the sum of: (i) the Tangible Book Value of the Bank at the Effective Time; (ii) $9,300,000 with respect to the Bank's credit card receivables; (iii) one percent of the aggregate unpaid principal balance at the Effective Time of loans secured by fixed-rate mortgages having fully amortizing original terms of 15 years or less, excluding loans originated after October 31, 1993; (iv) six percent of the aggregate unpaid principal balance at the Effective Time of loans secured by fixed-rate mortgages having fully amortizing original terms of more than 15 years but not more than 30 years, excluding loans originated after October 31, 1993; (v) two percent of the aggregate unpaid principal balance at the Effective Time of loans secured by variable rate mortgages, excluding loans originated after October 31, 1993; (vi) the amount of unamortized discount on the mortgages included in (iii), (iv), and (v) above; (vii) 0.65% of the aggregate unpaid principal balance at the Effective Time of loans serviced by Bank prior to March 1, 1993 on which the Bank performs mortgage servicing (other than loans serviced for the account of Bank), one percent of such balance on such loans originated on or after March 1, 1993 secured by fixed or adjustable rate mortgages of fully amortizing original terms of at least ten but not more than 15 years, and 1.25% of such balance on such loans originated on or after March 1, 1993, secured by fixed or adjustable rate mortgages having original fully amortizing terms of more than 15 but not more than 30 years; (viii) the remainder obtained by subtracting the Required Reserve (as hereinafter defined) from the Bank's actual loan loss reserve account (including its unallocated loan loss reserve) at the Effective Time. "Required Reserve" means $2,700,000 as adjusted by the amount by which the Bank's loan loss reserve account (including its unallocated loan loss reserve) would have to be adjusted at the Effective Time under normal prudent banking practice to reflect aggregate changes of at least $500,000 occurring subsequent to October 31, 1993 in the quality of commercial and energy loans held by the Bank on October 31, 1993 or originated since October 31, 1993 and not reviewed in advance by Fourth; provided, that no such change in the quality of a loan shall be included in this calculation to the extent such change has been reflected in the calculation of the Tangible Book Value of the Bank at the Effective Time, or if such change is less than $25,000; (ix) to the extent not otherwise reflected in the calculations of the Tangible Book Value of the Bank, the amount, either positive (if the aggregate fair market value exceeds book value) or negative (if the aggregate fair market value is less than book value), by which the aggregate fair market value of the Bank's Securities Portfolio at the Effective Time differs from the aggregate book value of the Securities Portfolio on such date; (x) $11,000,000, with respect to the Bank's deposit balances; (xi) $10,500,000, with respect to the Bank's net operating loss carryforward at the Effective Time; (xii) the difference, positive (in the case of a rise in the yield curve) or negative (in the case of a decline in the yield curve), between the aggregate book value of all of the Bank's Time Deposits at the Effective Time and the aggregate value of such deposits after repricing them to the Treasury yield curve at the Effective Time; and (xiii) $1,400,000, representing the aggregate premiums attributable to the Sayre, Clinton, Thomas, and Beaver branches of the Bank. 2.3. Additional Adjustments to Purchase Price. (a) The percentages specified in subparagraphs (iii) and (iv) of Section 2.2 were calculated using the following yields and spreads as of August 31, 1993: 15 year 30 year Bank's average portfolio yield 7.44% 8.79% FNMA required 30-day yield 6.19% 6.66% Spread 1.25% 2.13% If, at the Effective Time, either of such spreads has fluctuated by more than 0.25%, the applicable percentages in subparagraphs (iii) and (iv) of Section 2.2(a) will be adjusted up (if the spread has widened) or down (if the spread has narrowed) by 1/4 of one percent for each full 1/8 of one percent change in the spread, in the case of loans with an original term of 15 years or less, and by 3/8 of one percent for each full 1/8 of one percent change in the spread, in the case of loans with an original term of more than 15 but not more than 30 years. (b) The amount of the Purchase Price will be increased by the aggregate amount, if any, the Tangible Book Value of the Bank at the Effective Time has been reduced by any restructuring charge or charges that the Bank shall have recorded on its books as the result of the anticipated effects of the Purchase, none of which the Bank shall be obligated to take, and all of which shall have been approved in advance in writing by Fourth to the extent permitted by Law. 2.4. Post-Closing Adjustments. (a) Unless otherwise specifically provided herein, each component of the Purchase Price shall be calculated as of the Effective Time; provided, however, that if any element of the Purchase Price cannot be calculated accurately as of the Effective Time, such items shall be calculated as of the end of the month preceding the Effective Time. Any element of the Purchase Price so calculated shall be adjusted to reflect the accurate amount as of the Effective Time and Sellers and Fourth agree to enter into mutually agreeable arrangements for the final adjustment and the payment or repayment of the net amount thereof with interest from the Effective Time at four percent per year within five business days after Sellers deliver to Fourth a written statement setting forth in reasonable detail all proposed price adjustments and the basis of calculating each. (b) Upon completion of the 1994 consolidated corporate income tax return of LSB, LSB shall notify Fourth of the amount of the final net operating loss carryforward of the Bank at the Effective Time. To the extent any payment shall be owing to Fourth pursuant to the formula set forth in clause (ii) and the second sentence of Section 7.5(a) and regardless of whether Sellers exercise the option referred to in Section 7.5(c), LSB shall make such payment to Fourth no later than the due date of LSB's 1994 consolidated federal income tax return (including extensions). 2.5. Closing. The Closing shall take place at the offices of Foulston & Siefkin, 700 Fourth Financial Center, Wichita, Kansas, at 10:00 a.m., or at such other time or place as the parties may agree, on a date selected by Fourth upon giving reasonable notice to Sellers, which, unless otherwise agreed, shall be on the 15th day (or the closest Friday if the 15th is not a Friday) of the month in which the final Regulatory Approval is obtained and in which all required waiting periods expire if such earliest legal closing date is during the first 15 days of the month and on the last business day of the month if the earliest legal closing date occurs after the 15th day of a month. The parties agree to exert their best efforts to cause the Closing to occur on or before June 30, 1994. 2.6. Closing Deliveries. At the Closing: a. Sellers shall deliver to Fourth: (i) certificates representing all of the Shares, endorsed for transfer to Fourth, free and clear of all encumbrances, liens, security interests, claims, and equities whatsoever; (ii) such other documents including officers' certificates as may be required by this Agreement or reasonably requested by Fourth; and (iii) the opinion of Housley Goldberg & Kantarian, P.C., counsel to Sellers and the Bank, substantially in the form of Exhibit "A" hereto. b. Fourth shall deliver to Sellers: (i) immediately available funds in the total amount of the Purchase Price; (ii) such documents including officers' certificates as may be required by this Agreement or reasonably requested by Sellers; and (iii) the opinion of Foulston & Siefkin, counsel to Fourth, substantially in the form of Exhibit "B" hereto. c. BANK IV and Northwest Tower Limited Partnership shall execute and deliver a real estate lease substantially in the form of Exhibit "C" hereto pursuant to which Bank will lease from Northeast Tower Limited Partnership certain first-floor and other space in the Equity Tower in Oklahoma City for a ten-year term, with renewal options and options to rent additional space in such building. Contemporaneously with the Purchase, the Bank shall be merged into BANK IV pursuant to the Bank Merger Agreement. 2.7. Option to Acquire Certain Loans. Sellers shall have the option, but not the obligation, to acquire any loan owned by the Bank that has been charged off or written down for a purchase price equal to the net book value of each loan that has been written down and for a purchase price of $1.00 in the case of each loan that has been charged off. 2.8. Retained Assets, Retained Corporations, and Certain Loans. Subject to all of the closing conditions set forth in Sections 5.1 and 5.2 having occurred and continuing in effect, Sellers shall purchase the Retained Assets from the Bank at the Effective Time for the aggregate book value thereof as of the Effective Time (or $1.00 in the case of each loan that has been charged off), and Sellers shall purchase all of the capital stock of all of the Retained Corporations from the Bank not later than the business day immediately preceding the Effective Time for the aggregate book value thereof as of such date. Each such purchase shall be effected by the payment to the Bank of immediately available funds. All sales by the Bank of OREO Properties shall be pursuant to a real estate contract substantially in the form of Exhibit "D" hereto. ARTICLE III AGREEMENTS OF THE PARTIES 3.1. Agreements of Fourth. a. Prior to the Effective Time, Fourth, separately and with Sellers, shall use its best efforts in good faith to take or cause to be taken as promptly as practicable all such steps as shall be necessary to obtain all of the Required Approvals. b. Fourth shall promptly prepare and file all applications necessary to obtain the Required Approvals and shall afford Sellers at least four days' opportunity to review and comment upon the drafts of such applications prior to the filing thereof. c. Fourth shall observe the confidentiality obligations set forth in Section 3.2.c, below. d. Fourth shall consult with Sellers prior to issuing any press release or other planned public statement regarding the subject matter of this Agreement or the termination thereof as to the contents of such press release or statement. e. Fourth agrees to take such action as may be necessary to cause BANK IV to be well capitalized upon the consummation of the transactions contemplated by this Agreement at and immediately following the Effective Time. f. Fourth agrees to provide such information as LSB may reasonably request in connection with the preparation of material for the conduct of a meeting of LSB's stockholders to approve this Agreement, and such information furnished by Fourth will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. g. Following the Closing, in the event Sellers or any of their Subsidiaries, officers, directors, or affiliates shall be called upon to provide an indemnity pursuant to the provisions of this Agreement, or should otherwise be called upon to take or defend against legal action with respect to matters occurring prior to the Effective Time, Fourth shall permit Sellers to examine (subject to reasonable limitations) the former records of the Bank or the Corporations. h. BANK IV shall reimburse LSB for all out-of- pocket COBRA liabilities incurred by LSB with respect to employees of the Bank at the Effective Time who are terminated after the Effective Time by BANK IV to the extent not paid or reimbursed by re-insurance or stop loss coverage; provided, however that such reimbursement shall be net of all COBRA premiums paid by such employees after the Effective Time and net of the aggregate amount of all Bank employee forfeitures under the Bank's cafeteria plan. 3.2. Agreements of Sellers. a. Prior to the Closing, except with respect to those commitments binding as of the date of this Agreement described in an exhibit to the Disclosure Statement, or as otherwise provided in this Agreement, Sellers shall not, without the prior written consent of Fourth which shall not unreasonably be withheld, permit any of the Corporations to: (1) Amend its articles or certificate of incorporation, bylaws, or other charter documents, make any change in its authorized, issued, or outstanding capital stock, grant any stock options or right to acquire shares of any class of its capital stock or any security convertible into any class of capital stock, purchase, redeem, retire, or otherwise acquire (otherwise than in a fiduciary capacity) any shares of any class of its capital stock or any security convertible into any class of its capital stock, or agree to do any of the foregoing; (2) Declare, set aside, or pay any dividend or other distribution in respect of any class of its capital stock; (3) Adopt, enter into, or amend materially any employment contract or any bonus, stock option, profit sharing, pension, retirement, incentive, or similar employee benefit program or arrangement or grant any salary or wage increase, except (a) normal individual increases in compensation to employees in accordance with established employee procedures of the Corporations; (b) the Fourth Financial Corporation Acquisition Severance Schedule previously furnished to Seller; and (c) severance agreements to be performed by Sellers without any obligation of the Bank or Fourth; (4) Incur any indebtedness for borrowed money (except for federal funds, repurchase agreements entered into in the ordinary and usual course of business, deposits received by the Bank, endorsement, for collection or deposit, of negotiable instruments received in the ordinary and usual course of business, and issuance of letters of credit by the Bank in the ordinary and usual course of business), assume, guarantee, endorse, or otherwise as an accommodation become liable or responsible for obligations of any other individual, firm, or corporation; (5) Pay or incur any obligation or liability, absolute or contingent, other than liabilities incurred in the ordinary and usual course of business of the Corporations; (6) Except for transactions in the ordinary and usual course of business of the Bank, mortgage, pledge, or subject to lien or other encumbrance any of its properties or assets; (7) Except for transactions in the ordinary and usual course of business of the Bank (including, without limitation, sales of assets acquired by the Bank in the course of collecting loans) or as permitted by this Agreement, sell or transfer any of its properties or assets or cancel, release, or assign any indebtedness owed to it or any claims held by it; (8) Make any investment of a capital nature in excess of $25,000 for any one item or group of similar items either by the purchase of stock or securities (not including bonds or collateralized mortgage obligations purchased in the ordinary and usual course of business by the Bank), contributions to capital, property transfers, or otherwise, or by the purchase of any property or assets of any other individual, firm, or corporation other than certain planned improvements being made to the Bank's Classen and Portland branches; (9) Enter into any other agreement not in the ordinary and usual course of business; (10) Merge or consolidate with any other corporation, acquire any stock (except in a fiduciary capacity), solicit any offers for any Bank Stock, or a substantial portion of the assets of any of the Corporations or, except in the ordinary course of business, acquire any assets of any other person, corporation, or other business organization, or enter into any discussions with any person concerning, or agree to do, any of the foregoing; (11) Own at the Effective Time any bonds, notes, loans, or other investment securities of any kind which are not expressly enumerated in the definition of "Securities Portfolio" in Section 1.1 of this Agreement other than Bank's investments in the other Corporations; or (12) Except as permitted or contemplated by this Agreement, enter into any transaction or take any action which would, if effected prior to the Effective Time, constitute a material breach of any of the representations, warranties, or covenants contained in this Agreement. b. Except as otherwise provided in this Agreement, prior to the Effective Time, each Seller shall use its reasonable best efforts to cause each of the Corporations to conduct its respective business in the ordinary and usual course as heretofore conducted and to use its reasonable best efforts (1) to preserve its business and business organization intact, (2) to keep available to BANK IV the services of the present officers and employees of the Bank, (3) to preserve the good will of customers and others having business relations with the Bank, (4) to maintain its properties in customary repair, working order and condition (reasonable wear and tear excepted), (5) to comply in all material respects with all Laws applicable to it and the conduct of its businesses, (6) to keep in force at not less than their present limits all existing policies of insurance, (7) to make no material changes in the customary terms and conditions upon which it does business, (8) to continue its current practice of selling loans secured by fixed rate mortgages on a servicing-retained basis, (9) to duly and timely file all reports, tax returns, and other material documents required to be filed with federal, state, local and other authorities, and (10) unless it is contesting the same in good faith and has established reasonable reserves therefor, to pay when required to be paid all material taxes indicated by tax returns so filed or otherwise lawfully levied or assessed upon it or any of its properties and to withhold or collect and pay to the proper governmental authorities or hold in separate bank accounts for such payment all taxes and other assessments which it believes in good faith to be required by law to be so withheld or collected. c. Prior to the Effective Time, Sellers shall cause the Corporations, to the extent permitted by Law, to give Fourth and its counsel and accountants full access, during normal business hours and upon reasonable notice, to their respective properties, books, and records, and to furnish Fourth during such period with all such information concerning their affairs as Fourth may reasonably request. Except for matters expressly disclosed in the Disclosure Statement, the availability or actual delivery of information about the Corporations to Fourth shall not affect the covenants, representations, and warranties of Sellers contained in this Agreement. Except for information disclosed in the course of obtaining Required Approvals, Fourth shall treat as confidential all confidential information disclosed to it by Sellers or the Corporations in the same manner as Fourth treats similar confidential information of its own and, if this Agreement is terminated, Fourth shall continue to treat all such confidential information obtained through such disclosure and not otherwise known to Fourth or already in the public domain, as confidential and shall return such documents theretofore delivered by Sellers to Fourth as Sellers shall request. d. Sellers shall cause the Corporations, separately and jointly with each other and with Fourth, to each use reasonable efforts in good faith to take or cause to be taken as promptly as practicable all such steps as shall be necessary to obtain all Required Approvals as promptly as practicable. e. Sellers agree not to sell, pledge, encumber, or otherwise hypothecate or transfer any shares of Bank Stock prior to the Effective Time. f. At the Closing, BANK IV, as lessee, and Northwest Tower Limited Partnership, as lessor, shall execute and deliver a real estate lease substantially in the form of Exhibit "C," to this Agreement. No party hereto shall be liable to any other party if such lessor fails to execute such lease. g. Sellers agree to cause the Corporations to cooperate with Fourth in Fourth's efforts to obtain current title evidence or insurance, environmental assessment reports, and surveys on such of the Corporations' real properties as Fourth may desire. h. Sellers will take, and will cause the Bank to take, all such corporate action as may be required to authorize, execute, and perform the Bank Merger Agreement. i. LSB agrees: (1) To file all required federal, state, and local income tax returns in a timely manner for 1993 and 1994 or obtain appropriate extensions for such filings and to pay, when due, all income taxes due for such periods; (2) To give Fourth written notice promptly of any issues raised by any taxing authorities which might reasonably result in an increase in the income tax liabilities of the Bank for any period in which it is or was a member of the "Group" defined in Section 4.1.k of this Agreement or which might reasonably affect the amount of the Bank's net operating loss; (3) To consult with Fourth and BANK IV about the resolution of any such issues and not to settle any such issues without giving Fourth an opportunity to assume responsibility for the resolution of such issues, at Fourth's expense, if the effect of such settlement would be to increase the liability of Fourth or any of its affiliates for any tax for any period beginning after the Effective Time or affect the amount of the Bank's net operating loss unless Sellers agree to pay and do pay to Fourth the full amount of such increase in liability grossed up for any federal or state tax attributable to such payment; and (4) That all existing income tax sharing or allocation agreements or arrangements of any kind between the Corporations and LSB or any other member of such Group, whether or not in writing, shall automatically be terminated at the Effective Time and no further payments shall be made by Bank thereunder except to the extent the amount thereof has been taken into account in calculating the Tangible Book Value of the Bank. ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1. Representations and Warranties of Sellers. Except as expressly disclosed in the Disclosure Statement, Sellers jointly and severally represent and warrant to Fourth as follows: a. Organization, Good Standing, and Authority. Each Seller is a savings and loan holding company duly registered pursuant to the federal Home Owners' Loan Act. Each of the Corporations is a corporation or savings bank duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation, and each has all requisite corporate power and authority to conduct its business as it is now conducted, to own its properties and assets, and to lease properties used in its business. None of the Corporations is in violation of its charter documents or bylaws, or of any applicable Law in any material respect, or in default in any material respect under any material agreement, indenture, lease, or other document to which it is a party or by which it is bound. The deposits of the Bank are insured by the FDIC to the extent provided by the Federal Deposit Insurance Act and the Bank has paid all assessments and filed all reports required to be filed under the Federal Deposit Insurance Act of which failure to do so would have a material adverse effect upon the Bank. b. Binding Obligations; Due Authorization. This Agreement constitutes the valid and binding obligation of each Seller, enforceable against it in accordance with the terms hereof, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws and equitable principles affecting creditors' rights generally. c. Absence of Default. The execution and the delivery of this Agreement, the sale of the Shares, and the consummation of the other transactions contemplated hereby, and the fulfillment of the terms hereof will not (1) conflict with, or result in a breach of the terms, conditions, or provisions of, or constitute a default under the organizational documents or bylaws of any of the Corporations or under any agreement or instrument under which any of the Corporations or either Seller is obligated, or (2) violate any Law to which any of the Corporations or any Seller is subject. d. Subsidiaries. LSB is the owner of all of the issued and outstanding capital stock of all classes of Prime. The only Subsidiaries of the Bank are the following: Name State of Incorporation ---- -------------------- Northwest Financial Corporation Oklahoma Northwest Energy Enterprises, Inc. Oklahoma Credit Card Center, Inc. Oklahoma Equity Financial Service Corp. Oklahoma United BankCard, Inc. Oklahoma Northwest Capital Corporation Oklahoma e. Capitalization. The Bank is authorized to issue 1,000,000 shares of capital stock, par value $.01 per share, of which 100,000 shares are issued and outstanding. Prime is the owner, free and clear of all encumbrances, liens, security interests, and claims whatsoever, of all 100,000 shares of Bank Stock. The capitalization of each of the Bank's Subsidiaries excluding the Retained Corporations, is as follows: Number of Shares Name Par Value Issued Outstanding ---- --------- ------- --------- Credit Card Center, Inc. $ 10.00 6,700 5,200 Equity Financial Service Corp. 1.00 1,000 1,000 United BankCard, Inc. 1,000.00 250 250 f. Charter Documents. True and correct copies of the charter documents and bylaws of each of the Corporations, with all amendments thereto, are included in the Disclosure Statement as Exhibits "E-1" to "E-8." g. Options, Warrants, and Other Rights. None of the Corporations has outstanding any options, warrants, or rights of any kind requiring it to sell or issue to anyone any capital stock of any class and none of the Corporations has agreed to issue or sell any additional shares of its capital stock. h. Financial Statements. Included in the Disclosure Statement as Exhibits "H-1" through "H-6" are copies of the following financial statements, all of which are true and complete in all material respects and have been prepared in all material respects in accordance with GAAP and all applicable regulatory accounting principles consistently followed throughout the periods indicated, subject in the case of interim financial statements, to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse) and the absence of notes (which if presented would not differ materially from those included in the most recent year-end financial statements): (1) Audited Consolidated Financial Statements of the Bank as of December 31, 1992, and 1991, and for the fiscal years then ended with auditors' report thereon and notes thereto, which have been examined by Ernst & Young, independent certified public accountants; (2) Thrift Financial Reports filed by the Bank with the OTS for the quarters ended December 31, 1992, March 31, 1993, June 30, 1993, and September 30, 1993; and (3) Unaudited financial statements of the Bank as of October 31, 1993 and for the period then ended. As soon as practicable between the date hereof and the Effective Time, Sellers will deliver to Fourth copies of monthly operating statements of the Bank and of all reports filed by any of the Corporations with any regulatory agencies. The books of account of each of the Corporations and each of the Financial Statements fairly and correctly reflect and, when delivered, will reflect in all material respects in accordance with GAAP and all applicable rules and regulations of regulatory agencies applied on a consistent basis, the respective financial conditions and results of operations of each of the Corporations (except for the absence in the monthly operating statements of the Bank of certain information and footnotes normally included in financial statements prepared in accordance with GAAP). There have been, and prior to the Effective Time there will be, no material adverse changes in the financial condition of the Corporations from December 31, 1992, other than changes made in the usual and ordinary conduct of the businesses of the Corporations, none of which has been or will be materially adverse and all of which have been or will be recorded in the books of account of the Corporations; and except as specifically permitted by this Agreement, there have been, and prior to the Effective Time there will be, no substantial adverse changes in the respective businesses, assets, properties, or liabilities, absolute or contingent, of any of the Corporations, or in their respective condition, financial or otherwise, from the date of the most recent of the Financial Statements that has been delivered to Fourth on the date hereof other than changes occurring in the usual and ordinary conduct of the business of the Corporations, none of which has been or will be materially adverse and all of which have been or will be recorded in the respective books of account of the Corporations. None of the Corporations has any contingent liabilities, other than letters of credit and similar obligations of the Bank incurred in the ordinary course of business, that are not described in or reserved against in the Financial Statements listed above. i. Real Properties. Exhibit "I" to the Disclosure Statement is a complete list of all real estate owned or leased by any of the Corporations. Each Corporation has good and marketable title in fee simple to all lands and buildings described in the Disclosure Statement as being owned by it, free and clear of all liens, encumbrances, and charges, except for Permitted Encumbrances. All leases of real property to which any of the Corporations is a party as lessee, complete copies of each of which with all amendments thereto are included in Exhibit "I" to the Disclosure Statement, are each valid and enforceable in accordance with their respective terms except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar Laws and equitable principles affecting creditors' rights generally, and there has been no material default by any party thereto. No zoning ordinance prohibits, interferes with, or materially impairs the usefulness of any of the Facilities owned or used by any Corporation for the purposes for which it is now being used; and all the Facilities owned or leased by any of the Corporations are in good operating condition and repair, normal wear and tear excepted. j. Personal Property. Except for leased properties, each of the Corporations has good and marketable title to all of the machinery, equipment, materials, supplies, and other property of every kind, tangible or intangible, contained in its offices and other facilities or shown as assets in its records and books of account, free and clear of all liens, encumbrances, and charges. All leases of personal property to which any of the Corporations is a party as lessee are valid and enforceable in accordance with their terms, and there has been no material default by any party thereto. The material items of personal property owned or leased by any of the Corporations are generally in good operating condition, normal wear and tear excepted. k. Taxes. LSB, Prime, the Bank, the Corporations, and the Retained Corporations are members of the same "affiliated group" (the "Group"), as defined in Section 1504(a)(1) of the Code. Each member of the Group has filed or caused to be filed, or a filing was made on its behalf, all tax returns and reports required to have been filed by or for it, and all material information set forth in such returns or reports is accurate and complete. Each member of the Group has paid or made adequate provision for all taxes, additions to tax, penalties, and interest for all periods covered by those returns or reports. There are no material unpaid taxes, additions to tax, penalties, or interest due and payable by any member of the Group, except for taxes and any such related liabilities being contested in good faith and disclosed in Exhibit "K" to the Disclosure Statement. Each member of the Group has collected or withheld all amounts required to be collected or withheld by it for any taxes, and all such amounts have been paid to the appropriate governmental agencies or set aside in appropriate accounts for future payment when due. Each member of the Group is in material compliance with, and its records contain all information and documents (including, without limitation, IRS Forms W-9) necessary to comply in all material respects with applicable information reporting and tax withholding requirements under federal, state, and local laws, rules, and regulations, and such records identify with specificity all accounts subject to backup withholding. The Financial Statements fully and properly reflect, as of the dates thereof, the accrued taxes, additions to tax, penalties, and interest. No extension of time for the assessment of deficiencies for any years is in effect. No member of the Group has any knowledge of any unassessed tax deficiency proposed or threatened against any of them. l. Contracts. Other than Permitted Contracts and agreements with customers of the Bank and with financial institutions entered into by the Bank in the ordinary course of its banking business, attached to the Disclosure Statement as Exhibit "L" is a list of all material contracts and other agreements and arrangements, both written and oral, to which Bank or any of the other Corporations is a party and which involve $10,000 or more, which affect or pertain to the operation of their respective businesses. To the knowledge of Sellers, all parties thereto have in all material respects performed, and are in good standing with respect to, all the material obligations required to be performed under all such contracts and other agreements and arrangements, and no obligation with respect thereto is overdue. All of the material agreements of the Corporations, including without limitation the agreements disclosed in writing pursuant to this clause (l), are valid, binding, and enforceable in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws and equitable principles affecting creditors' rights generally. Except as otherwise noted in Exhibit "L" to the Disclosure Statement, no material contract, lease, or other agreement or arrangement to which either Bank or one of the other Corporations is a party or as to which any of their assets is subject requires the consent of any third party in connection with this Agreement. Except as described in Exhibit "L" to the Disclosure Statement, neither any Corporation nor any Seller has any knowledge of any threatened cancellation of, any outstanding disputes or default under, or of any basis for any claim of breach or default of, any material lease, contract, or other agreement or arrangement to which any of the Corporations is a party. Except for Permitted Contracts and except as set forth in Exhibit "L" to the Disclosure Statement, neither the Bank nor any of the other Corporations is a party to: (1) Any contract for the purchase or sale of any materials or supplies having an aggregate purchase or sale price in excess of $10,000 which contains any escalator, renegotiation, or redetermination clause or which commits it for a fixed term; (2) Any contract of employment with any officer or employee not terminable at will without liability on account of such termination; (3) Any management or consultation agreement not terminable at will without liability on account of such termination; (4) Any license or royalty agreement having an aggregate future commitment to pay at least $10,000, or union agreement, or loan agreement in which any of the Corporations is the borrower; (5) Any contract, accepted order, or commitment for the purchase or sale of materials, services, or supplies having a total remaining contract price in excess of $10,000; (6) Any contract containing any restrictions on any party thereto competing with the Bank, any of the other Corporations, or any other person in the business of banking or activities relating to banking; (7) Any other agreement which materially affects the business, properties, or assets of either Bank or one of the other Corporations, or which was entered into other than in the ordinary and usual course of business; or (8) Any letter of credit or commitment to make any loan or group of loans to related parties in an amount in excess of $500,000. None of LSB, Prime, or any of the Corporations has any knowledge based upon which it has formed a conclusion that a material loss is reasonably anticipated with respect to any of the agreements described in clause "l." m. Labor Relations; Employees; ERISA. None of the Corporations is a party to or affected by any collective bargaining agreement, nor is any Corporation a party to any pending or, to the knowledge of Sellers, threatened labor dispute, organizational efforts, or labor negotiations. Each of the Corporations has complied in all material respects with all applicable Laws relating to the employment of labor, including, but not limited to, the provisions thereof relating to wages, hours, collective bargaining, payment of social security taxes, and equal employment opportunity, the violation of which would have a materially adverse impact on their respective businesses. None of the Corporations is liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing in an amount which would have a material adverse effect on the Bank or any of the Corporations. None of the Corporations has any written or oral retirement, pension, profit sharing, stock option, bonus, or other employee benefit plan or practice other than group health and accident insurance except that Bank employees participate in Bank's and LSB's cafeteria plans, which include health, disability insurance (long and short term), life insurance, and supplemental life insurance, and LSB's 401(k) plan, and thirteen employees in the United BankCard division of the Bank participate in a "frozen" 401(k) plan. The Bank is in the process of attempting to terminate this "frozen" plan. None of the Corporations has violated any of the provisions of ERISA, and none of them has engaged in any "prohibited transactions" as such term is defined in Section 406 of ERISA in an amount which would have a material adverse effect on the Bank or the Corporations. There is no employee of any of the Corporations whose employment is governed by a written or oral employment agreement for a specific term of employment. n. Government Authorizations. Each of the Corporations has all permits, charters, licenses, orders, and approvals of every federal, state, local, or foreign governmental or regulatory body required in order to permit it to carry on its business substantially as presently conducted except where the absence thereof would not have a material adverse effect on the Bank or the affected Corporation. All such licenses, permits, charters, orders, and approvals are in full force and effect, and, to the knowledge of the Corporations and Seller, no suspension or cancellation of any of them is threatened and none of the Corporations knows of any fact or circumstance that will materially interfere with or materially adversely affect the renewal of any of such licenses, permits, charters, orders, or approvals; and none of such permits, charters, licenses, orders, and approvals will be affected by the consummation of the transactions contemplated by this Agreement. o. Insurance. Exhibit "O" to the Disclosure Statement is a complete list of all insurance policies presently in effect and in effect during the past three years. All the insurance policies and bonds currently maintained by any of the Corporations are in full force and effect. p. Litigation. Exhibit "P" to the Disclosure Statement contains a true and complete list and brief description of all pending or, to the knowledge of any of the Corporations or any Seller, threatened, Litigation to which any of the Corporations is or would be a party or to which any of their assets is or would be subject. Except as described on Exhibit "P" to the Disclosure Statement, none of the Corporations is a party to any Litigation other than routine litigation commenced by the Bank to enforce obligations of borrowers in which no counterclaims for any material amounts of money have been asserted or, to the knowledge of the Corporations or any Seller, threatened. q. Brokers or Finders. Except for an agreement with Lazard Freres & Co., whose fee will be paid by LSB, no broker, agent, finder, consultant, or other party (other than legal and accounting advisors) has been retained by either of the Sellers or any of the Corporations or is entitled to be paid based upon any agreements, arrangements, or understandings made by either of the Sellers or any of the Corporations in connection with any of the transactions contemplated by this Agreement. r. Environmental Compliance. Except as disclosed in Exhibit "R", to Sellers' knowledge, each of the Corporations is in material compliance with all relevant Environmental Laws and none of the Corporations has any material Environmental Liabilities. None of the Facilities is now being used or, to either Seller's knowledge, has at any time in the past ever been used for the storage (whether permanent or temporary), by any of the Corporations, or to the knowledge of either Seller, by third parties, disposal, or handling of any Hazardous Materials, nor are any Hazardous Materials located in, on, under, or at any of the Facilities. No Corporation has received any notice of material violation of any Environmental Law, or any notice of any material potential Environmental Liabilities with respect to any of the Facilities or to any other properties and assets in which any Corporation has had an interest. s. Employment of Aliens. Each Corporation is in material compliance with the Immigration and Control Act of 1986. t. Notes and Leases. All promissory notes and leases owned by the Bank or any other Corporation at the Effective Time will represent bona fide indebtedness or obligations to the Bank and are and will be fully enforceable in accordance with their terms without valid set-offs or counterclaims, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws and equitable principles affecting creditors' rights generally; provided, however, no representation or warranty is made in this Agreement as to the collectibility of such notes and leases. u. Updating of Representations and Warranties . Between the date hereof and the Effective Time, Sellers will promptly disclose to Fourth in writing any information of which either of them has actual knowledge (1) concerning any event that would render any representation or warranty of Sellers untrue if made as to the date of such event, (2) which renders any information set forth in this Agreement or the Disclosure Statement no longer correct in all material respects, or (3) which arises after the date hereof and which would have been required to be included in this Agreement or Disclosure Statement if such information had existed on the date hereof. v. True at Effective Time. Except as otherwise specifically provided in this Agreement, all of the representations and warranties of Sellers set forth above will be true and correct at the Effective Time with the same force and effect as though such representations and warranties had been made at the Effective Time. 4.2. Representations and Warranties of Fourth. Fourth represents and warrants to Sellers as follows: a. Organization, Good Standing, and Authority. Fourth is a corporation duly organized, validly existing, and in good standing under the laws of the State of Kansas, and has all requisite corporate power and authority to conduct its business as it is now conducted, to own its properties and assets, and to lease properties used in its business. Fourth is not in violation of its charter documents or bylaws, or of any applicable Law in any material respect, or in default in any material respect under any material agreement, indenture, lease, or other document to which it is a party or by which it is bound. b. Binding Obligations; Due Authorization. This Agreement constitutes the valid and binding obligations of Fourth, enforceable against it in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws and equitable principles affecting creditors' rights generally. The execution, delivery, and performance of this Agreement and the transactions contemplated hereby have been duly authorized by the board of directors of Fourth. c. Absence of Default. None of the execution or the delivery of this Agreement, the consummation of the transactions contemplated hereby, or the fulfillment of the terms hereof, will (1) conflict with, or result in a breach of the terms, conditions, or provisions of, or constitute a default under the charter documents or bylaws of Fourth or under any agreement or instrument under which Fourth is obligated, or (2) violate any Law to which it is subject. d. Brokers or Finders. No broker, agent, finder, consultant, or other party (other than legal and accounting advisors) has been retained by Fourth or is entitled to be paid based upon any agreements, arrangements, or understandings made by Fourth in connection with any of the transactions contemplated by this Agreement. e. Required Approvals. Fourth knows of no reason that would preclude obtaining the Required Approvals in a timely manner, but various persons have the right to object to the granting of Required Approvals and the various governmental agencies involved can be expected to conduct various types of economic and other analysis, any one of which may cause a delay or denial of a requested approval. f. Capitalization of the Bank. Fourth will contribute such additional capital to BANK IV as may be necessary in order for BANK IV to be well capitalized following consummation of the Purchase, the Merger, and the other transactions contemplated or permitted by this Agreement. Fourth has sufficient capital resources to be able to make such additional capital contribution and to perform its obligations under this Agreement. ARTICLE V CLOSING CONDITIONS 5.1. Conditions to Obligations of Fourth. The obligations of Fourth to purchase the Shares shall be subject to the following conditions which may, to the extent permitted by Law, be waived by Fourth at its option: a. Absence of Litigation. No order, judgment, or decree shall be outstanding restraining or enjoining consummation of the purchase of the Shares, the Merger, or any of the other transactions permitted or contemplated by this Agreement; and no Litigation shall be pending or threatened in which it is sought to restrain or prohibit the purchase of the Shares, the Merger, or any of the other transactions permitted or contemplated by this Agreement or to obtain other substantial monetary or other relief against one or more of the parties hereto in connection with this Agreement. b. Regulatory Approvals. All Required Approvals shall have been procured (and shall continue to be in effect) and all other requirements prescribed by Law shall have been satisfied. c. Minimum Tangible Book Value of Bank. The Tangible Book Value of the Bank as of the Effective Time, without taking into account any restructuring charges described in Section 2.3(b) of this Agreement, shall be not less than $41,000,000. Such amount shall be substantiated by the total consolidated stockholder's equity of the Bank as reflected in the books of record and balance sheets of the Bank. d. Opinion of Counsel. Fourth shall have received the opinion of Housley Goldberg & Kantarian, P.C., counsel to the Corporations and Sellers, substantially in the form of Exhibit "A" hereto. e. Representations and Warranties; Covenants. The representations and warranties of the Sellers contained in this Agreement shall have been true and correct in all material respects on the date made and shall be true and correct in all material respects at the Effective Time as though made at such time, excepting any changes occurring in the ordinary course of business, none of which shall have been materially adverse, and excepting any changes contemplated or permitted by this Agreement. Sellers shall have performed all of their obligations under this Agreement. f. Certificates. Sellers shall have delivered to Fourth a certificate, in form and substance satisfactory to Fourth, dated the Effective Time and signed by the chief executive officer and chief financial officer of each of the Corporations, certifying in such detail as Fourth may reasonably request the fulfillment of the foregoing conditions. g. Resignations. Sellers shall have delivered to Fourth the written resignations, effective at the Effective Time, of those officers and directors of the Bank and the other Corporations as Fourth shall have requested at least two business days prior to the Effective Time. h. 1993 Audit Report. Seller shall have delivered to Fourth a copy of the Bank's audited consolidated Financial Statements as of December 31, 1993 and for the year then ended, with auditor's report thereon and notes thereto. i. Lease of Equity Tower. Northwest Tower Limited Partnership shall have entered into a lease as lessor of the Equity Tower, substantially in the form of Exhibit "C" hereto. j. Satisfactory Environmental Reports. Fourth shall have received environmental assessment reports covering all of the Facilities, in form and substance reasonably satisfactory to Fourth, which do not cause Fourth reasonably to conclude that there are any material Environmental Liabilities associated with any of the Facilities. 5.2. Conditions to Obligations of Sellers. The obligation of Sellers to sell the Shares and to consummate the transactions contemplated hereby shall be subject to the following conditions which may, to the extent permitted by Law, be jointly waived by Sellers at their option: a. General. Each of the conditions specified in clauses a and b of Section 5.1 shall have occurred and be continuing. b. Representations and Warranties; Covenants. The representations and warranties of Fourth contained in this Agreement shall have been true and correct in all material respects on the date made and shall be true and correct in all material respects at the Effective Time as though made at such time. Fourth shall have duly performed all of its obligations under this Agreement. c. Minimum Purchase Price. The Purchase Price shall be not less than $92,000,000, which minimum amount shall be reduced by the amount of the option price described in clause c of Section 7.5 if such option has been exercised by Sellers. d. Fairness Opinion. LSB shall have received by February 10, 1994, a written opinion from Lazard Freres & Co. to the effect that the Purchase Price is fair to Sellers from a financial point of view. e. Opinion of Counsel. Sellers shall have received the opinion of Foulston & Siefkin, counsel to Fourth, substantially in the form of Exhibit "B" hereto. f. Certificates. Fourth shall have delivered to Sellers a certificate, in form and substance reasonably satisfactory to Sellers, dated the Effective Time and signed by the chief executive officer and chief financial officer of Fourth, certifying in such detail as Sellers may reasonably request, the accuracy of the representations and warranties and the fulfillment of the covenants of Fourth hereunder. g. LSB's Stockholder Approval. The stockholders of LSB shall have approved this Agreement and the Purchase. h. Change in Treasury Regulations. The United States Department of the Treasury shall not have finally adopted the proposed changes to the Treasury Regulations, at Sec. 1.1502-33 (56 FR 47379, Sept. 19, 1991, revised 57 FR 53550, Nov. 12, 1992, revised, 57 FR 62251, Dec. 30, 1992), nor shall have any other change in the Law occurred with the effect, in the reasonable judgment of Sellers based upon the advice of their tax advisors, that the tax basis of LSB or Prime in the Bank Stock shall be significantly reduced. i. Conveyance of Retained Corporations and Retained Assets. On or before the Effective Time, all of the Retained Assets and all of the Bank's interests in the Retained Corporations shall have been transferred to Sellers or their designee or designees as provided in this Agreement. ARTICLE VI TERMINATION OF AGREEMENT 6.1. Mutual Consent; Termination Date. This Agreement shall terminate at any time when the parties hereto mutually agree in writing. This Agreement may also be terminated at the election of either Sellers (acting jointly) or Fourth, upon written notice from the party electing to terminate this Agreement to the other party if, without fault on the part of the party electing to terminate this Agreement, there has been a denial of a Required Approval or the imposition of one or more terms (not including a requirement to divest a single branch of the Bank not located in Oklahoma City) reasonably deemed onerous by Fourth or Sellers as a condition to obtaining a Regulatory Approval. Unless extended by written agreement of the parties, this Agreement shall terminate if all conditions to the obligations of the parties hereto have not occurred on or before June 30, 1994. 6.2. Election by Fourth. This Agreement shall terminate at Fourth's election, upon written notice from Fourth to Sellers if any one or more of the following events shall occur and shall not have been remedied to the satisfaction of Fourth within 30 days after written notice is delivered to Seller: (a) there shall have been any uncured material breach of any of the obligations, covenants, or warranties of the Sellers hereunder; or (b) there shall have been any written representation or statement furnished by the Sellers hereunder which at the time furnished is false or misleading in any material respect in relation to the size and scope of the transactions contemplated by this Agreement. 6.3. Election by Sellers. This Agreement shall terminate at the election of Sellers (acting jointly) upon written notice from Sellers to Fourth if any one or more of the following events shall occur and shall not have been remedied to its satisfaction within 30 days after written notice is delivered to Fourth: (a) there shall have been any uncured material breach of any of the obligations, covenants, or warranties of Fourth hereunder; or (b) there shall have been any written representation or statement furnished by Fourth hereunder which at the time furnished is false or misleading in any material respect in relation to the size and scope of the transactions contemplated by this Agreement. ARTICLE VII INDEMNIFICATION 7.1. Effect of Closing. Except as provided in this Section, closing of the transactions contemplated by this Agreement shall not prejudice any claim for damages which any of the parties hereto may have hereunder in law or in equity, due to an uncured material default in observance or the due and timely performance of any of the covenants and agreements herein contained or for the material breach of any warranty or representation hereunder, unless such observance, performance, warranty, or representation is specifically waived in writing by the party making such claim. If any warranty or representation contained herein is or becomes untrue or breached in any material respect (other than by reason of any willful misrepresentation or breach of warranty) and such breach or misrepresentation is promptly communicated to the other parties in writing prior to the Effective Time, such non-breaching parties shall have the right (jointly in the case of Sellers), at their sole option, either to waive such misrepresentation or breach in writing or to terminate this Agreement, but in either such event, the breaching parties shall not be liable to the other parties for any such damages, costs, expenses, or otherwise by reason of such breach or misrepresentation. If such non-breaching parties elect to close the transactions contemplated by this Agreement notwithstanding the written communication of such breach or misrepresentation, they shall be deemed to have waived such breach or misrepresentation in writing. Similarly, if Fourth receives an environmental assessment report on the Facilities pursuant to Section 5.1(j) indicating the existence of any Environmental Liability and elects to close the transactions contemplated by this Agreement, it shall be deemed to have waived all right to indemnification with respect thereto. 7.2. General Indemnification. Subject to the limitations on the liability of Sellers contained in Section 7.1 and this Section 7.2, Sellers shall be jointly and severally liable for, and shall defend, save, indemnify, and hold harmless Fourth, BANK IV, the Corporations, and their respective successors, officers, directors, employees, and agents, and each of them (hereinafter individually referred to as an "Indemnitee" and collectively as "Indemnitees") against and with respect to any losses, liabilities, claims, diminution in value, litigation, demands, damages, costs, charges, reasonable legal fees, suits, actions, proceedings, judgments, expenses, or any other losses (herein collectively referred to as "Indemnifying Losses") that may be sustained, suffered, or incurred by, or obtained against, any Indemnitee arising from or by reason of the material uncured breach or nonfulfillment of any of the warranties, agreements, or representations made by the Sellers, in this Agreement; provided, however that the liability of Sellers to defend, save, indemnify, and hold harmless any of the Indemnitees for any liabilities, claims, or demands indemnified under this Section 7.2 (but not under Section 7.5, 7.6, or 7.7) or any damages, costs, charges, reasonable legal fees, suits, actions, proceedings, or judgments received, incurred, filed, or entered thereon, shall be limited to the amount by which all such liabilities, claims, and demands so discovered or made, and all damages, costs, charges, reasonable legal fees, suits, actions, proceedings, judgments, expenses, and other losses recovered, incurred, filed, or entered thereon or in connection therewith, exceed $1,000,000 in the aggregate, net of income tax effect and such liability shall not exceed $25,000,000. Indemnitees shall be obligated to exhaust all reasonably available remedies as a condition to being indemnified hereunder but not as a condition to giving notice pursuant to Sections 7.3 and 7.4. It is agreed that the indemnification obligations of Sellers hereunder shall be solely for the benefit of the Indemnitees and may not be enforced by any insuror under any subrogation or similar agreement or arrangement or by any governmental agency except as a receiver for an Indemnitee. 7.3. Procedure. If any claim or demand shall be made or liability asserted against any Indemnitee, or if any Litigation, suit, action, or administrative or legal proceedings shall be instituted or commenced in which any Indemnitee is involved or shall be named as a defendant either individually or with others, and if such Litigation, claim, demand, liability, suit, action, or proceeding, if successfully maintained, will result in any Indemnifying Losses as defined in Section 7.2, Fourth shall give Sellers written notice thereof as soon as practicable but within 20 days (ten days in the case of legal process) after it acquires knowledge thereof. If the Indemnifying Loss arises otherwise, Fourth shall give notice to Sellers within 20 days of the discovery of the basis therefor. If, within 20 days after the giving of such notice, Fourth receives written notice from Sellers stating that Sellers dispute or intend to defend against or prosecute, as the case may be, such claim, demand, liability, suit, action, or proceeding, then Sellers shall have the joint right to select counsel of their choice and to dispute or defend against, prosecute, or settle such claim at their expense, and the Indemnitees shall fully cooperate with Sellers in such dispute, prosecution, defense or settlement so long as Sellers are conducting such dispute, defense, or prosecution diligently and in good faith. If no such notice of intent to dispute or defend is received by Fourth within the aforesaid 20-day period, of if such diligent and good faith defense is not being, or ceases to be, conducted, Fourth shall have the right, directly or through one or more of the Indemnitees, to dispute and defend against the claim, demand, or other liability at the cost and expense of Sellers, to settle such claim, demand, or other liability, together with interest or late charges thereon, and in either event to be indemnified as provided in this Agreement so long as Fourth conducts such defense diligently and in good faith. If any event shall occur that would entitle Indemnitees to a right of indemnification hereunder, any loss, damage, or expense subject to indemnification shall be the after-tax net loss to the Indemnitees (in excess of $1,000,000 but not to exceed $25,000,000, as provided in the preceding section) after due allowance for the income tax effect, if any, of amounts to be received by the Indemnitees hereunder, insurance, or offsetting income or assets resulting therefrom. 7.4. Survival of Representations and Warranties. Notwithstanding any rule of law or provision of this Agreement to the contrary, the representations and warranties of Sellers contained in this Agreement shall survive the Closing and the Purchase and the closing of the transactions described in this Agreement; provided, however, that (except for the indemnification obligations contained in Sections 7.6 and 7.7 hereof, as to which there shall be no time limit) no claim for indemnification or breach of warranty under this Agreement shall be valid unless an Indemnitee shall have given written notice of its assertion or claim to Seller: (a) within three years from the Effective Time in the case of a claim for breach of any representation or warranty contained in Section 4.1.k of this Agreement; (b) by the earlier of October 31, 1998 or 30 days after the date on which the Internal Revenue Service completes its examination of Fourth's 1994 federal income tax return and gives Fourth written notice of any proposed adjustments (provided that both such periods shall be extended by a period of time equal to 30 days plus the length of in each case any periods for which LSB shall have agreed to a tolling of any limitation period applicable to the assertion against LSB or any member of the Group described in Section 4.1.k of any deficiency by the Internal Revenue Service) in the case of a claim under Section 7.5 of this Agreement; and (c) within two years of the Effective Time in all other cases. 7.5. Special Indemnification. (a) Separate and apart from the indemnification provisions in the preceding sections of this Article VII, and not subject to the deductibility and maximum liability provisions contained in Section 7.2, Sellers jointly and severally agree to indemnify BANK IV and Fourth from any reduction in the aggregate amount of the Bank's net operating loss carryforward for federal income tax purposes (to the extent an adjustment has not already been made pursuant to Section 2.4(b)), below $64,000,000; provided, however, that such reduction results from either (i) a reduction required by final action related to an audit or adjustment by the Internal Revenue Service and made retroactive to the period prior to the Effective Time or (ii) a reduction in the net operating loss carryforward of the Bank at the Effective Time attributable to the consolidated taxable income of LSB (after taking into account the taxable income or loss of each member of the consolidated group contained in the consolidated return of LSB and taking into account the allocations of consolidated income, gain, and loss affecting such net operating loss carryforward), including the effects of the sale of the Retained Assets and Retained Corporations to Sellers and all extraordinary items. The payment to be made by Sellers shall be equal to the product of (a) the dollar amount of the reduction required in (i) above and/or the reduction determined in (ii) above, and (b) a fraction, the numerator of which shall be $10,500,000, and the denominator of which shall be $64,000,000. However, to the extent that an adjustment merely postpones the related tax benefit to BANK IV or Fourth to a later, reasonably ascertainable period, then such adjustment shall not be subject to this special indemnification. (b) If there is an audit or similar inquiry of the Internal Revenue Service of any tax return which may have the effect of reducing the Bank's net operating loss as of or for a period prior to the Closing, all parties to this Agreement shall cooperate with each other as to the determination of the adjustments under such audit, shall make available to each other as may reasonably be requested all information, records, and documents until the expiration of any applicable statute of limitations or extensions thereof. (c) Sellers shall have the right and option, exercisable at any time prior to the business day next preceding the Effective Time, by giving written notice to Fourth, to elect to have the Purchase Price reduced by $600,000 in consideration of the termination of Section 7.5(a) of this Agreement, in which event the provisions of Section 7.5(a) shall thereupon be of no further force and effect. 7.6. Separate Indemnification for Environmental Matters. Separate and apart from the indemnification provided in the preceding sections of this Article VII, and not subject to the $1,000,000 deductibility and $25,000,000 maximum liability provisions contained in Section 7.2, Sellers shall be jointly and severally liable for, and shall forever defend, save, indemnify, and hold harmless Fourth, Bank, and BANK IV from and against, any and all Environmental Liabilities that may be incurred or sustained by, or rendered against Fourth, Bank, or BANK IV arising in any manner out of the direct or indirect ownership or operation at any time by the Bank or by any of its current or former Subsidiaries of any current or former Non-Bank Facility (as hereinafter defined). "Non-Bank Facility" means any interest in real property, building, plant, structure, or equipment which is not (i) currently or formerly owned or operated by the Bank in the ordinary course of its banking business as a banking facility, (ii) the Equity Tower, (iii) property located at Coffee Creek Road and Kelly Avenue, Edmond, Oklahoma, (iv) an OREO Property, or (v) collateral held as security for loans or participations. 7.7. Separate Indemnification for Barki Litigation, COMAC, and 401(k) Plan. Separate and apart from the indemnification provided in the preceding sections of this Article VII, and not subject to the $1,000,000 deductibility and $25,000,000 maximum liability provisions contained in Section 7.2, Sellers shall be jointly severally liable for, and shall forever defend, save, indemnify, and hold harmless Fourth, BANK IV, and Bank from and against any and all losses, expenses (including amounts reasonably paid in settlement), liabilities, costs, penalties, damages, and judgments that may be incurred or sustained by, or rendered against, Fourth, BANK IV, or Bank arising out of or associated in any manner with (i) the United BankCard division "frozen" 401(k) plan described in Section 4.1(m) of this Agreement, (ii) Mai-Li Barki vs. Equity Bank for Savings, F.A. et al., Case No. CJ-91-90852, filed in the District Court of Oklahoma County, Oklahoma or otherwise out of the claims contained in such case, or (iii) the pending Internal Revenue Service examination of COMAC Financial Services Ltd Partnership described in Exhibit "K" to the Disclosure Statement; provided, however, BANK IV shall be responsible for the payment of one-half of the out-of-pocket attorneys' fees and costs incurred in connection with the Barki litigation. Sellers shall have the right to defend the Barki action in accordance with the provisions of Section 7.2 of this Agreement. 7.8. Director and Officer Indemnification. From and after the Effective Time, Fourth shall indemnify, defend, and hold harmless each person who is now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time, an officer, director, or employee of any of the Corporations (the "Bank Indemnified Parties") against all losses, claims, damages, costs, expenses (including attorney's fees), liabilities, or judgments or amounts that are paid in settlement (which settlement shall require the prior written consent of Fourth, which consent shall not be unreasonably withheld) of or in connection with any claim, action, suit, proceeding, or investigation (each a "Claim") in which a Bank Indemnified Party is, or is threatened to be made, a party based in whole or in part on or arising in whole or in part out of the fact that such person is or was a director, officer, or employee of a Corporation if such Claim pertains to any matter or fact arising, existing, or occurring prior to the Effective Time (but excluding the transactions expressly contemplated by this Agreement), regardless of whether such Claim is asserted or claimed prior to, or at or after, the Effective Time (the "Indemnified Liabilities") to the full extent required under applicable law in effect as of the date hereof or as amended applicable to a time prior to the Effective Time or as required under the Bank's charter and bylaws (and Fourth shall pay expenses in advance of the final disposition of any such action or proceeding to each Bank Indemnified Party to the full extent permitted by applicable law in effect as of the date hereof or as amended applicable to a time prior to the Effective Time upon receipt of any undertaking required by applicable law). Any Bank Indemnified Party wishing to claim indemnification under this Section 7.8 upon learning of any Claim, shall notify Fourth (but the failure so to notify Fourth shall not relieve Fourth from any liability which it may have under this Section 7.8 except to the extent such failure materially prejudices Fourth) and shall deliver to Fourth copies of all demand letters, notices, summonses, pleadings, and other documents which such party may have received relating to such Claim. The obligations of Fourth described in this Section 7.8 continue in full force and effect, without any amendment thereto, for a period of three years from the Effective Time; provided, however, that all rights to indemnification in respect of any Claim asserted or made within such period shall continue until the final disposition of such Claim. ARTICLE VIII MISCELLANEOUS 8.1. Expenses. Whether or not the Purchase is effected and whether or not this Agreement is terminated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense. 8.2. Notices. All notices or other communications required or permitted hereunder shall be sufficiently given if personally delivered or if sent by certified or registered mail, postage prepaid, return receipt requested, addressed as follows: (a) If to Fourth, addressed to Ronald L. Baldwin, Executive Vice President, Post Office Box 2360, Tulsa, Oklahoma 74101-2360; and (b) if to the Sellers, addressed to Tony M. Shelby, Senior Vice President, Post Office Box 754, 16 South Pennsylvania, Oklahoma City, Oklahoma 73107, or to such other person or such other address as shall have been furnished in writing in the manner provided herein for giving notice. 8.3. Time. Time is of the essence of this Agreement. 8.4. Law Governing. This Agreement shall, except to the extent federal law is applicable, be construed in accordance with and governed by the laws of the State of Kansas, without regard to the principles of conflicts of laws thereof. 8.5. Entire Agreement; Amendment. This Agreement contains and incorporates the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior negotiations, agreements, letters of intent, and understandings. This Agreement may only be amended by an instrument in writing duly executed by Fourth and Sellers and all attempted oral waivers, modifications, and amendments shall be ineffective. 8.6. Successors and Assigns. The rights and obligations of the parties hereto shall inure to the benefit of and shall be binding upon the successors and permitted assigns of each of them; provided, however, that this Agreement or any of the rights, interests, or obligations hereunder may not be assigned by any of the parties hereto without the prior written consent of the other parties hereto. 8.7. Cover, Table of Contents, and Headings. The cover, table of contents, and the headings of the sections and subsections of this Agreement are for convenience of reference only and shall not be deemed to be a part hereof or thereof or taken into account in construing this Agreement. 8.8. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute but one agreement. 8.9. No Third Party Beneficiaries. Except as specifically provided herein, nothing in this Agreement shall entitle any person other than Sellers and Fourth to any claim, cause of action, remedy, or right of any kind. 8.10. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed. FOURTH FINANCIAL CORPORATION By --------------------------------- /s/Darrell G. Knudson, Chairman of the Board "Fourth" PRIME FINANCIAL CORPORATION LSB INDUSTRIES, INC. By_________________________ By_________________________ "Prime" "LSB" "Sellers" EXHIBIT "A" _______, 1994 Board of Directors Fourth Financial Corporation Wichita, Kansas Gentlemen: We have acted as counsel to LSB Industries, Inc. ("LSB") and Prime Financial Corporation ("Prime") (collectively "Sellers") in connection with the preparation of the Stock Purchase Agreement, dated as of February 8, 1994, among Fourth Financial Corporation and Sellers (the "Agreement"). This Opinion Letter is provided to you at the request of Seller pursuant to Section 5.1(d) of the Agreement. Except as otherwise indicated herein, capitalized terms used in this Opinion Letter are defined in the Agreement or the Accord described below. This Opinion Letter is governed by, and shall be interpreted in accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law (1991). As a consequence, it is subject to a number of qualifications, exceptions, definitions, limitations on coverage and other limitations, all as more particularly described in the Accord, and this Opinion Letter should be read in conjunction therewith. The law covered by the opinions expressed herein is limited to the Federal Law of the United States, the corporate Law of the State of Deleware, and the Law of the State of Oklahoma. The confirmation concerning Litigation below is further limited to our Actual Knowledge after interviews with corporate officers and review of copies of documents relating to Litigation furnished to us by such officers. Based upon and subject to the foregoing, we are of the opinion that: 1. Organization and Good Standing. Each Seller is a savings and loan holding company duly registered pursuant to the federal Home Owners' Loan Act. Sellers and the Corporations are each a corporation or savings bank duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. 2. Binding Obligations. The Agreement is enforceable against each Seller. 3. Absence of Default. None of the execution or the delivery of the Agreement, the consummation of the Purchase, or the performance by Sellers of the terms thereof, will (a) violate the Constituent Documents of any of the Corporations or of either Seller, (b) breach or result in a default under any agreement or instrument under which any of the Corporations or either Seller is obligated of which we have Actual Knowledge, or (c) violate any Laws to which any of the Corporations or either Seller is subject. 4. Capitalization. The Bank is authorized to issue 1,000,000 shares of common stock, par value $.01 per share, of which 100,000 shares are validly issued and outstanding. Prime is the owner, free and clear of all encumbrances, liens, and security interests whatsoever, of all issued and outstanding shares of Bank Stock. LSB owns all of the issued and outstanding capital stock of Prime. 5. Options. None of the Corporations has outstanding any options, warrants, or rights of any kind requiring it to sell or issue to anyone any capital stock of any class, and to our Actual Knowledge, none of the Corporations has agreed to sell any shares of its capital stock. 6. Governmental Approvals. The execution, delivery, and performance of the Agreement by Sellers do not require any approval, authorization, consent, exemptions, notices of intent not to disapprove, or other action of any regulatory body, administrative agency, or any other governmental body or any filing with any governmental body to which either Seller or any Corporation is subject, other than approvals of or filings with the Board, the OTS, and the Comptroller. All such requisite approvals, authorizations, consents, exemptions, and notices have been taken by the appropriate governmental body. We hereby confirm to you that the Disclosure Statement contains a true and complete list and brief description of all Litigation pending or overtly threatened in writing to which any of the Corporation is or would be a party or to which any of their assets is or would be subject. Except as set forth in Exhibit "P" to the Disclosure Statement, none of the Corporations is a party to any Litigation other than routine litigation commenced by the Bank to enforce obligations of borrowers in which no counterclaims for any material amounts of money have been asserted or overtly threatened in writing. The phrase "Primary Lawyer Group", as used in the Accord, is hereby modified and, for the purposes of applying the Accord to this Opinion Letter, the Primary Lawyer Group means only the lawyers in this firm who have given substantive legal attention to representation of Sellers and the Corporations in connection with the Transaction. This Opinion Letter may be relied upon by you only in connection with the Transaction and may not be used or relied upon by you or any other person for any purpose whatsoever, except to the extent authorized in the Accord, without in each instance our prior written consent. Very truly yours, Housley Goldberg & Kantarian P.C. EXHIBIT "B" ___________, 1994 Boards of Directors and Stockholders LSB Industries, Inc. Prime Financial Corporation Gentlemen: We have acted as counsel to Fourth Financial Corporation ("Fourth") in connection with the preparation of the Stock Purchase Agreement, dated as of February 9, 1994, among Fourth, LSB Industries, Inc., and Prime Financial Corporation (the "Agreement"). This Opinion Letter is provided to you at the request of Fourth pursuant to Section 5.2.e of the Agreement. Except as otherwise indicated herein, capitalized terms used in this Opinion Letter are defined in the Agreement or the Accord described below. This Opinion Letter is governed by, and shall be interpreted in accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law (1991). As a consequence, it is subject to a number of qualifications, exceptions, assumptions, definitions, limitations on coverage and other limitations, all as more particularly described in the Accord, and this Opinion Letter should be read in conjunction therewith. The law covered by the opinions expressed herein is limited to the federal Law of the United States and the Law of the State of Kansas. Based upon and subject to the foregoing, we are of the opinion that: 1. Organization, Good Standing, and Authority. Fourth is a bank holding company duly registered pursuant to the Bank Holding Company Act. Fourth is a corporation validly existing and in good standing under the laws of the jurisdiction of its incorporation. 2. Binding Obligations. The Agreement is enforceable against Fourth. 3. Absence of Default. None of the execution or the delivery of the Agreement, the consummation of the Purchase, or the performance by Fourth of its agreements therein will (a) violate the Constituent Documents of Fourth, (b) breach or result in a default under any agreement or instrument under which Fourth is obligated of which we have Actual Knowledge, or (c) violate any Laws to which Fourth is subject. 4. Governmental Approvals. The execution, delivery, and performance of the Agreement by Fourth does not require any approval, authorization, consent, exemptions, notices of intent not to disapprove, or other action of any regulatory body, administrative agency, or any other governmental body or any filing with any governmental body to which Fourth is subject, other than approvals of or filings with the Board, the Comptroller, and the OTS. All such requisite approvals, authorizations, consents, exemptions, and notices have been taken by the appropriate governmental body. The phrase "Primary Lawyer Group", as used in the Accord, is hereby modified and for the purposes of applying the Accord to this Opinion Letter the Primary Lawyer Group means only the lawyers in this firm who have given substantive legal attention to representation of Fourth in connection with the Transaction. This Opinion Letter may be relied upon by you only in connection with the Transaction and may not be used or relied upon by you or any other person for any purpose whatsoever, except to the extent authorized by the Accord, without in each instance our prior written consent. Very truly yours, FOULSTON & SIEFKIN EXHIBIT "E" AGREEMENT TO MERGE between BANK IV OKLAHOMA, NATIONAL ASSOCIATION and EQUITY BANK FOR SAVINGS, F.A. under the charter of BANK IV OKLAHOMA, NATIONAL ASSOCIATION under the title of BANK IV OKLAHOMA, NATIONAL ASSOCIATION THIS AGREEMENT made between BANK IV Oklahoma, National Association (hereinafter referred to as "BANK IV"), a banking association organized under the laws of the United States, being located at 515 South Boulder, City of Tulsa, County of Tulsa, in the State of Oklahoma, with a capital of $190,712,286.07 divided into 5,720,647 shares of common stock, each of $5.00 par value, and surplus of $133,050,335.55 and undivided profits, including capital reserves, of $29,058,715.74 as of December 31, 1993, and Equity Bank for Savings, F.A. (hereinafter referred to as "Equity"), a federal savings association organized under the laws of the United States, being located at 1601 N.W. Expressway, Oklahoma City, Oklahoma County, in the State of Oklahoma, with a capital of $1,000.00, divided into 100,000 shares of common stock, each of $.01 par value, and surplus and undivided profits of approximately $__________ as of December 31, 1993, each acting pursuant to a resolution of its board of directors, adopted by the vote of a majority of its directors, pursuant to the authority given by and in accordance with the provisions of the Act of November 7, 1918, as amended (12 USC 215c). W I T N E S S E T H: That, Section 1. Equity shall be merged into BANK IV under the charter of the latter, simultaneously with the consummation of the Purchase, as such term is defined in a Stock Purchase Agreement, dated as of February 9, 1994, between Fourth Financial Corporation, as purchaser, and LSB Industries, Inc. and Prime Financial Corporation, as sellers (the "Stock Purchase Agreement"). Section 2. The name of the receiving association (hereinafter referred to as the "Association") shall be BANK IV Oklahoma, National Association. Section 3. The business of the Association shall be that of a national banking association. This business shall be conducted by the Association at its main office which shall be located at 515 South Boulder, Tulsa, Oklahoma, and at its legally established branches. Section 4. The amount of capital stock of the Association shall be $__________ divided into _________ shares of common stock, each of $5.00 par value, and at the time the merger shall become effective, the Association shall have a surplus of $___________, and undivided profits, including capital reserves, which when combined with the capital and surplus will be equal to the combined capital structures of the merging banks as stated in the preamble of this Agreement, adjusted, however, for normal earnings and expenses (and, if applicable, other merger transactions effected by BANK IV prior to the time this merger is effective and purchase accounting adjustments) between December 31, 1993, and the effective time of the merger. The amount of capital stock of the Association and its surplus and undivided profits at the time the merger becomes effective shall also be adjusted to reflect the effect of all mergers of other banks into the Association, if any, between December 31, 1993 and the effective time of the merger. Section 5. All assets as they exist at the effective time of the merger shall pass to and vest in the Association without any conveyance or other transfer. The Association shall be responsible for all of the liabilities of every kind and description, including liabilities arising from the operation of a trust department, of Equity existing as of the effective time of the merger. Section 6. Of the capital stock of the Association, the presently outstanding 5,720,647 shares of common stock, each of $5.00 par value, the two holders of it, Fourth Financial Corporation and IV Commercial Acquisition, Inc., shall retain their present rights. In addition, Fourth Financial Corporation, who will then be the sole stockholder of Equity, shall receive by reason of the merger an additional 200 shares of common stock, par value $5.00 per share, of the Association. Section 7. Except as expressly permitted in the Stock Purchase Agreement, Equity shall not (i) declare or pay any dividend to its shareholders, (ii) dispose of any of its assets in any other manner except in the normal course of business and for adequate value, or (iii) take any other action which would violate the terms of the Stock Purchase Agreement. Section 8. The present board of directors and officers of BANK IV shall continue to serve as the board of directors and officers of the Association until the next annual meeting or until such time as their successors have been elected and have qualified. Section 9. Effective as of the time this merger shall become effective as specified in the merger approval to be issued by the Comptroller of the Currency, the articles of association of the resulting bank shall be the Articles of Association of BANK IV. Section 10. This Agreement may be terminated as provided in the Stock Purchase Agreement. Notwithstanding the approval of this Agreement by any shareholder group, this Agreement shall automatically terminate upon the termination of the Stock Purchase Agreement for any reason, and in no event shall the merger of Equity into BANK IV occur prior to the consummation of the Purchase as such term is defined in the Stock Purchase Agreement. Section 11. This Agreement shall be ratified and confirmed by the affirmative vote of shareholders of each of BANK IV and Equity owning at least two-thirds of its capital stock outstanding, at a meeting to be held on the call of the directors; and the merger shall become effective at the time specified in a merger approval to be issued by the Comptroller of the Currency of the United States. WITNESS, the signatures and seals of said merging banks this ___ day of February, 1994, each set by its chairman of the board, president, or a vice president and attested to by its cashier or secretary, pursuant to a resolution of its board of directors, acting by a majority: BANK IV OKLAHOMA, NATIONAL ASSOCIATION Attest: By___________________ ____________________ /s/Ronald L. Baldwin /s/Lisa R. Carr, Secretary President [Seal of Bank] Equity Bank for Savings, F.A. Attest: By_________________________ ___________________________ ________________, President _____________, Secretary [Seal of Association] STATE OF OKLAHOMA ) ) SS: TULSA COUNTY ) On this ____ day of February, 1994, before me, a notary public for this state and county, personally came Ronald L. Baldwin, President, and Lisa R. Carr as Secretary, of BANK IV Oklahoma, National Association, and each in his/her capacity acknowledged this instrument to be the act and deed of the association and the seal affixed to it to be its seal. WITNESS my official seal and signature this day and year. _____________________ My Appointment Expires: Notary - ---------------------- STATE OF OKLAHOMA ) ) SS: OKLAHOMA COUNTY ) On this ___ day of February, 1994, before me, a notary public for this state and county, personally came _______________ as President, and _____________ as Secretary of Equity Bank for Savings, F.A., a federal savings association, and each in his/her capacity acknowledged this instrument to be the act and deed of the association and the seal affixed to it to be its seal. WITNESS my official seal and signature this day and year. _____________________ My Appointment Expires: Notary Public ______________________ EX-10 10 EXHIBIT 10.15 June 2, 1993 Mike Shonka, SVP & Chief Financial Officer Fourth Financial Corporation P.O. Box 4 Wichita, KS 67201-0004 Dear Mike: We confirm by this letter that Continental Bank, N.A. ("CBNA") has established a committed short-term corporate liquidity and commercial paper backup line of credit in favor of Fourth Financial Corporation ("FFC") in the amount of $35 million effective June 2, 1993 through May 31, 1994, subject to the following terms and conditions: 1) The Bank will lend to FFC from time to time, amounts not exceeding in aggregate outstanding at any one time $35 million. The maturity of any individual borrowing shall be determined by FFC in advance, provided that no individual borrowing will have a maturity date later than May 31, 1994. 2) All borrowings under this line will be senior unsecured obligations of FFC. 3) Fourth Financial may borrow under this line for short-term bridge funding of an acquisition, not to include hostile or unfriendly acquisitions, for period of up to 90 days. 4) Before first borrowing under this line, FFC, will, in advance, supply CBNA with a certified copy of its General Operating and Borrowing Resolution, certificates of incumbency, a Note, and any other documents CBNA may reasonably require, attesting to the authority and signature authenticity of any person or persons requesting the borrowings from CBNA. 5) FFC may repay all or part of any individual borrowing under the line at any time without penalty, other than our costs associated with broken funding if applicable. 6) The line is subject to a facility fee on the commitment amount at the rate of 1/8 of 1% per annum. The facility fee will be computed and paid at the end of each calendar quarter in arrears, based on the actual number of days elapsed in a year of 365 days. 7) Borrowing under the line shall bear interest at FFC's choice of either: a) The rate most recently announced by CBNA at Chicago, Illinois, as its Reference Rate as quoted from time to time, calculated based on a year of 365 days; or b) Reserve-Adjusted LIBOR + 1/2 of 1% p.a. (for interest periods of 30, 60, or 90 days), with three days' advance notice of borrowing; or c) Upon request, we will quote Money Market Rates for periods of overnight to 30 days. 8) If FFC's consolidated or of its bank subsidiaries' individual a) Capital ratios should at any time fall below the regulatory "Well Capitalized" standard, or b) Ratio of Nonperforming Assets to Total Loans and OREO should at any time exceed 4.00%, then CBNA will have the option either to: (i) Impose on FFC such additional covenants, financial and otherwise, and increased fees and margins as it may deem prudent in the circumstances, or (ii) Terminate the facility. 9) The Bank may at its discretion cancel this commitment and declare any sum then outstanding to be immediately due and payable, should FFC or any of its subsidiaries fail to pay or default on the payment of any of its indebtedness or breach any term or covenant of any evidence of such indebtedness, whether or not such default or breach is waived by the noteholder or obligee. 10) FFC may cancel all or a part of this line at any time without penalty, upon repayment of any outstanding advance and payment of any accrued facility fee then due. 11) Regular year-to-year renewals are anticipated, by mutual agreement, barring unexpected changes in Fourth Financial's condition. 12) Fourth Financial and its subsidiaries will promptly provide CBNA with its audited annual and unaudited interim financial statements, Call Reports and Y-9 Reports, and any other financial information as CBNA shall reasonable request from time to time. If this represents a correct expression of our agreement, please accept it by signing each of the two originals of this letter and returning one to me for our records. Continental Bank looks forward to continuing our long and satisfying relationship with Fourth Financial Corporation. Please let us know of anything additional you may require. Sincerely, /s/ G. Waters Geoffrey R. Waters Vice President Accepted: Fourth Financial Corporation Accepted by: ----------------- /s/ Michael J. Shonka Title: Senior Vice President --------------------- & Chief Financial Officer EX-22 11 EXHIBIT 22 SUBSIDIARIES OF REGISTRANT -------------------------- Listed below are the names and states of incorporation or jurisdiction of organization of each of Registrant's subsidiaries. Each subsidiary does business only under its official name or an abbreviated form of its official name, except BANK IV Kansas, National Association, carries on its credit card and debit card activities under the names "KBC Card Services" and Fourth Financial Card Company" and carries on its residential mortgage origination and servicing activities under the name " BANK IV Mortgage Company". Name State or Jurisdiction ---- --------------------- Subsidiaries of Registrant ------------------------- BANK IV Kansas, National Association United States BANK IV Oklahoma, National Association United States IV Commercial Acquisition, Inc. Kansas Fourth Financial Insurance Company Arizona BANK IV Financial Services, Inc. Kansas Southgate Trust Company Kansas Fourth Investment Advisors, Inc. Oklahoma BANK IV Community Development Corporation Kansas Subsidiaries of BANK IV Kansas ------------------------------ OA Management, Inc. Kansas CSI Holdings, Inc. Kansas Townsite Plaza Development, Inc. Kansas SG Company Kansas BANC IV Investments, Inc. Kansas Subsidiaries of BANK IV Oklahoma -------------------------------- Quatro I, Inc. Oklahoma Boston Holdings, Ltd. Delaware Subsidiary of IV Commercial Acquisition, Inc. --------------------------------------------- IV CB&T-Tulsa Holdings, Inc. Oklahoma EX-24 12 EXHIBIT 24.01 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 2-80907, No. 33-34455, No. 33-21295, and No. 33-37477) pertaining to the Amended and Restated 1981 Incentive Stock Option Plan, the Amended and Restated 1986 Incentive Stock Option Plan, the 1993 Employee Stock Purchase Plan of Fourth Financial Corporation, and the Fourth Financial Corporation Savings and Investment Plan of our report dated January 20, 1994, with respect to the consolidated financial statements of Fourth Financial Corporation included in this Annual Report on Form 10-K for the year ended December 31, 1993. /s/ Ernst & Young ERNST & YOUNG Wichita, Kansas March 11, 1994 EXHIBIT 24.02 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports incorporated by reference in this Form 10- K, into the Company's previously filed Registration Statements on Form S-8 (Reg. No. 2-80907, No. 33-34455, No. 33-21295 and No. 33-37477). /s/ Arthur Andersen & Co. ARTHUR ANDERSEN & CO. Tulsa, Oklahoma March 10, 1994 EXHIBIT 24.03 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 2-80907, No. 33-34455, No. 33-21295 and No. 33-37477) pertaining to the Amended and Restated 1981 Incentive Stock Option Plan, the Amended and Restated 1986 Incentive Stock Option Plan, the 1993 Employee Stock Purchase Plan of Fourth Financial Corporation, and the Fourth Financial Corporation Savings and Investment Plan of our report dated February 19, 1993, with respect to the consolidated financial statements of Commercial Landmark Corporation included in this Annual Report on Form 10-K for the year ended December 31, 1993. /s/ Sartain Fischbein & Co. SARTAIN FISCHBEIN & CO. March 9, 1994 EXHIBIT 24.04 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 2-80907, No. 33-34455, No. 33-21295, and No. 33-37477) pertaining to the Amended and Restated 1981 Incentive Stock Option Plan, the Amended and Restated 1986 Incentive Stock Option Plan, the 1993 Employee Stock Purchase Plan of Fourth Financial Corporation, and the Fourth Financial Corporation Savings and Investment Plan of our reports dated September 16, 1993, with respect to the consolidated financial statements of Ponca Bancshares, Inc. and Subsidiary and of Security Bank & Trust Company of Ponca City, Oklahoma and Subsidiaries as of December 31, 1992 and for the periods then ended included in Fourth Financial Corporation's Annual Report on Form 10-K for the year ended December 31, 1993. /s/ GRA, Thompson, White & Co., P.A. GRA, THOMPSON, WHITE & CO., P.A. Merriam, Kansas March 10, 1994 EXHIBIT 24.05 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 2-80907, No. 33-34455, No. 33-21295 and No. 33-37477) pertaining to the Amended and Restated 1981 Incentive Stock Option Plan, the Amended and Restated 1986 Incentive Stock Option Plan, the 1993 Employee Stock Purchase Plan of Fourth Financial Corporation and the Fourth Financial Corporation Savings and Investment Plan of our report dated January 23, 1992, with respect to the consolidated financial statements of United Bank of Kansas, Inc. and Subsidiary (not presented herein) included in this Annual Report on Form 10-K for Fourth Financial Corporation for the year ended December 31, 1993. /s/ Grant Thornton GRANT THORNTON Wichita, Kansas March 10, 1994 EXHIBIT 24.06 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the following Registration Statements of Fourth Financial Corporation of our report on the financial statements of KNB Bancshares, Inc. and Subsidiaries for the year ended December 31, 1991, dated February 7, 1992, which is included in the Annual Report on Form 10-K of Fourth Financial Corporation for the year ended December 31, 1993: No. 2-80907 on Form S-8 (Amended and Restated 1981 Incentive Stock Option Plan) No. 33-34455 on Form S-8 (Amended and Restated 1986 Incentive Stock Option Plan) No. 33-21295 on Form S-8 (1993 Employee Stock Purchase Plan of Fourth Financial Corporation) No. 33-37477 on Form S-8 (Fourth Financial Corporation Savings and Investment Plan) /s/ Deloitte & Touche DELOITTE & TOUCHE Kansas City, Missouri March 10, 1994 -----END PRIVACY-ENHANCED MESSAGE-----