<PAGE> 1
As filed with the Securities and Exchange Commission
on April 24, 1996
Registration No. 33- _____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
UNION PLANTERS CORPORATION
(Exact name of registrant as specified in its charter)
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Tennessee 6712 62-0859007
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
7130 Goodlett Farms Parkway
Memphis, Tennessee 38018
(901)383-6000
(Address, including zip code, and telephone number, of
registrant's principal executive offices)
E. JAMES HOUSE, JR. ESQ.,
SECRETARY AND MANAGER OF THE LEGAL DEPARTMENT OF
UNION PLANTERS CORPORATION
7130 GOODLETT FARMS PARKWAY
MEMPHIS, TENNESSEE 38018
(901)383-6584
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
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R. NASH NEYLAND, ESQ. LEONARD S. VOLIN, ESQ.
Wyatt, Tarrant & Combs Housley Kantarian & Bronstein, P.C.
6075 Poplar Avenue, Suite 650 1220 19th Street, N.W., Suite 700
Memphis, Tennessee 38119 Washington, D.C. 20036
</TABLE>
Approximate date of commencement of proposed sale to public: As
promptly as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
=============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER SHARE(1) OFFERING REGISTRATION FEE
PRICE(1)
- -------------------------------------------------------------------------------------------------------------
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Common Stock, $5.00 par 434,650 $30.13 $13,096,004 $4,515.86
value per share shares
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated pursuant to Rule 457(f)(1).
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
<PAGE> 2
UNION PLANTERS CORPORATION
CROSS REFERENCE OF ITEMS IN FORM S-4 TO PROSPECTUS
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ITEMS IN PART I OF FORM S-4 PROSPECTUS CAPTION OR LOCATION
- --------------------------- ------------------------------
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Facing Page, Cross Reference Sheet and
Outside Front Cover Page of Prospectus
Outside Front Cover Page
2. Inside Front and Outside Back Cover Inside Front Cover and TABLE OF CONTENTS
Pages of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed *
Charges and Other Information
4. Terms of the Transaction SUMMARY and THE MERGER
5. Pro Forma Financial Information SUMMARY
6. Material Contacts with the Company Being *
Acquired
7. Additional Information Required for *
Reoffering by Persons and Parties Deemed
to be Underwriters
8. Interests of Named Experts and Counsel LEGAL OPINIONS
9. Disclosure of Commission Position on *
Indemnification for Securities Act
Liabilities
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 SUMMARY, THE MERGER, CERTAIN REGULATORY
Registrants CONSIDERATIONS, DESCRIPTION OF THE UPC
COMMON AND PREFERRED STOCK, CERTAIN
PROVISIONS THAT MAY HAVE AN ANTI-
TAKEOVER EFFECT and INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE
11. Incorporation of Certain Information by INCORPORATION OF CERTAIN DOCUMENTS BY
Reference REFERENCE
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<PAGE> 3
<TABLE>
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ITEMS IN PART I OF FORM S-4 PROSPECTUS CAPTION OR LOCATION
- --------------------------- ------------------------------
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12. Information with Respect to S-2 or S-3 *
Registrants
13. Incorporation of Certain Information by *
Reference
14. Information with Respect to Registrants *
Other Than S-3 or S-2 Registrants
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 *
Companies
16. Information with Respect to S-2 or S-3 *
Companies
17. Information with Respect to Companies SUMMARY, THE MERGER, CERTAIN REGULATORY
Other Than S-3 or S-2 Companies CONSIDERATIONS, BUSINESS OF VALLEY
FEDERAL SAVINGS BANK, MANAGEMENT'S DIS-
CUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF
VALLEY FEDERAL SAVINGS BANK, and
FINANCIAL STATEMENTS OF VALLEY FEDERAL
SAVINGS BANK
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or INCORPORATION OF CERTAIN DOCUMENTS BY
Authorizations are to be Solicited REFERENCE, THE SPECIAL MEETING, THE
MERGER, and EFFECT OF MERGER ON RIGHTS
OF VALLEY FEDERAL SHAREHOLDERS
19. Information if Proxies, Consents or *
Authorizations are not to be Solicited
or in an Exchange Offer
* Omitted because the answer is negative or the item is inapplicable.
</TABLE>
<PAGE> 4
[VALLEY FEDERAL SAVINGS BANK LETTERHEAD]
May ___, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
(the "Meeting") of Valley Federal Savings Bank ("Valley Federal") to be held at
________________________, _________________, _____________, Alabama, on
__________, June _____, 1996 at _:__ _.m., central daylight time.
As described in the enclosed Prospectus and Proxy Statement, at the
Special Meeting the shareholders of Valley Federal will be asked to approve an
Agreement and Plan of Combination dated as of November 1, 1995, as amended
April 11, 1996 (the "Combination Agreement") which provides for the acquisition
of Valley Federal by Union Planters Corporation ("UPC"). Pursuant to the
Combination Agreement, shareholders of Valley Federal will receive 1.0976
shares of UPC Common Stock for each share of Valley Federal Common Stock.
Further information concerning the Combination Agreement is contained in the
accompanying Notice of Special Meeting and Proxy Statement-Prospectus.
Your Board of Directors has unanimously approved the Agreement and
recommends that you vote for its approval. An abstention or failure to vote is
the equivalent of voting against the Combination Agreement.
Your vote is important, regardless of the number of shares you own.
ON BEHALF OF THE BOARD OF DIRECTORS, WE URGE YOU TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD AS SOON AS POSSIBLE, EVEN IF YOU CURRENTLY PLAN TO ATTEND
THE MEETING. This will NOT prevent you from voting in person but will assure
that your vote is counted if you are unable to attend the Meeting.
Sincerely,
Billy Don Anderson
President and Chief Executive Officer
** PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME **
<PAGE> 5
VALLEY FEDERAL SAVINGS BANK
501 NORTH MONTGOMERY AVENUE
SHEFFIELD, ALABAMA 35660
(205) 383-1101
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD _____________, 1996
A Special Meeting of Shareholders (the "Special Meeting") of Valley
Federal Savings Bank ("Valley Federal" or the "Bank") is scheduled to be held
at _____________________________, Sheffield, Alabama on _____________, June
___, 1996 at __:__, __.m., Central Daylight Time.
A Proxy Card and a Proxy Statement - Prospectus for the Meeting are
enclosed.
The Special Meeting is for the following purposes, all of which are
more completely described in the accompanying Proxy Statement - Prospectus:
1. The approval of the Agreement and Plan of Combination dated as of
November 1, 1995, as amended April 11, 1996, between Union Planters
Corporation ("UPC"), Valley Interim Federal Savings Bank ("Interim")
and the Bank, including a related Plan of Combination and Letter
Agreement (collectively, the "Combination Agreement") and the merger
of Interim and Valley Federal (the "Merger") with Valley Federal as
the surviving entity; and
2. Such other matters as may properly come before the Special Meeting or
any adjournment thereof.
NOTE: The Board of Directors of Valley Federal is not aware of any
other business to come before the Special Meeting.
Any action may be taken on any one of the foregoing proposals at the
Special Meeting on the date specified above or on any date or dates to which,
by original or later adjournment, the Special Meeting may be adjourned.
Shareholders of record at the close of business on ______________, 1996 are the
shareholders entitled to vote at the Special Meeting and any adjournment
thereof.
You are requested to fill in and sign the enclosed form of proxy which
is solicited by the Board of Directors of Valley Federal and to mail it
promptly in the enclosed envelope. The proxy will not be used if you attend
and vote at the Special Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
MARTHA P. SMITH
SECRETARY
Sheffield, Alabama
May ___, 1996
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE BANK THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME.
<PAGE> 6
PROSPECTUS
434,650 SHARES OF COMMON STOCK
OF
UNION PLANTERS CORPORATION
PROXY STATEMENT
OF
VALLEY FEDERAL SAVINGS BANK
501 NORTH MONTGOMERY AVENUE
SHEFFIELD, ALABAMA 35660
SPECIAL MEETING OF SHAREHOLDERS
JUNE ___, 1996
This Proxy Statement-Prospectus (hereinafter referred to as the "Proxy
Statement-Prospectus") relates to up to 434,650 shares of common stock, $5.00
par value per share (the "UPC Common Stock"), of Union Planters Corporation
("UPC"), a Tennessee-chartered bank holding company, to be issued to holders
of common stock, $0.01 par value per share (the "Valley Federal Common Stock")
of Valley Federal Savings Bank ("Valley Federal"), a federal savings bank, in a
merger (the "Merger") in which Valley Interim Federal Savings Bank, a federal
savings bank which is a wholly-owned subsidiary of UPC ("Interim"), would be
merged with and into Valley Federal. The Merger is to be consummated pursuant
to an Agreement and Plan of Combination dated as of November 1, 1995, as
amended April 11, 1996 by and among Valley Federal, Interim and UPC (the
"Combination Agreement"), and a related Plan of Combination and Letter
Agreement (collectively the "Combination Agreement"). In the Merger, those
persons who are record holders of Valley Federal Common Stock outstanding
immediately prior to the effective time of the Merger ("Valley Federal Record
Shareholders") will receive, in exchange for each of their shares of Valley
Federal Common Stock, 1.0976 shares of UPC Common Stock (the "Exchange Ratio").
The annexed Notice of Special Meeting of Shareholders and this Proxy
Statement-Prospectus explain the Merger, the Exchange Ratio, and the
Combination Agreement, and provide specific information relative to the Special
Meeting. Please read these materials carefully and thoughtfully consider the
information contained in them. In addition to the satisfaction of certain
contractual conditions, the prior approvals of not only the Valley Federal
shareholders, but also of certain federal and state governmental regulatory
agencies, are required in order to consummate the Merger.
Shares of UPC Common Stock are now, and the UPC Common Stock to be
issued in connection with the Merger will be, listed for trading on the New
York Stock Exchange ("NYSE") under the symbol "UPC". The last reported sale
price of UPC Common Stock on the NYSE on May ___, 1996, was $_______ per share.
Based on the closing price per share of the
<PAGE> 7
UPC Common Stock on that date, the value of the UPC Common Stock to be received
for each share of Valley Federal Common Stock would be approximately $______.
However, the value of UPC Common Stock is subject to fluctuation, and the value
of the UPC Common Stock to be received by Valley Federal Record Shareholders
upon consummation of the Merger may be more or less than $________.
The consideration to be received by Valley Federal's shareholders
pursuant to the Combination Agreement was negotiated by the Board of Directors
of Valley Federal in light of various factors, including Valley Federal's
recent operating results, current financial condition and perceived future
prospects. Trident Financial Corporation ("Trident"), Valley Federal's
financial advisor, has advised the Board of Directors of Valley Federal that in
its opinion the consideration to be received by Valley Federal's shareholders
in the Merger is fair to the shareholders of Valley Federal from a financial
point of view. THE BOARD OF DIRECTORS OF VALLEY FEDERAL BELIEVES THAT THE
MERGER IS IN THE BEST INTEREST OF VALLEY FEDERAL'S SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT VALLEY FEDERAL'S SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE
COMBINATION AGREEMENT. AN ABSTENTION OR FAILURE TO VOTE IS THE EQUIVALENT OF
VOTING AGAINST THE COMBINATION AGREEMENT AND THE MERGER.
All information contained in this Proxy Statement-Prospectus
pertaining to UPC and its subsidiaries, including Interim, has been supplied by
UPC, and all information pertaining to Valley Federal has been supplied by
Valley Federal. This Proxy Statement-Prospectus and the accompanying Proxy
Card are first being mailed to the Valley Federal shareholders on or about May
___, 1996.
THE SHARES OF UPC COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
SAVINGS ASSOCIATION INSURANCE FUND, THE BANK INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR THE OFFICE OF THRIFT
SUPERVISION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE
SECURITIES COMMISSION OR THE OFFICE OF THRIFT SUPERVISION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS MAY ___, 1996.
<PAGE> 8
TABLE OF CONTENTS
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AVAILABLE INFORMATION 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 1
SUMMARY 4
Parties to the Merger 4
Special Meeting of Valley Federal Shareholders 6
Votes Required; Record Date 6
Terms of the Merger 7
Effective Date 7
Reasons for the Merger; Recommendation of Board of Directors 8
Fairness Opinion of Financial Advisor 8
Waiver and Amendment; Termination 9
Conditions; Regulatory Approvals 9
Limitation on Negotiations 9
Management After the Merger 10
Interests of Certain Persons in the Merger 10
No Shareholders' Dissenters' Rights 10
Comparison of the Rights of UPC and Valley Federal Shareholders 10
Provisions That May Have an Anti-Takeover Effect 11
Certain Federal Income Tax Consequences 11
Accounting Treatment 11
Market Prices of UPC and Valley Federal Common Stock 11
Selected Consolidated Financial Data 14
Recent Developments Affecting UPC 18
Equivalent and Pro Forma Per Share Data 22
Pro Forma Condensed Consolidated Financial Information 25
THE SPECIAL MEETING 30
Time and Place of Special Meeting; Solicitation of Proxies; Revocation 30
Votes Required 31
Voting 31
Recommendation 31
THE MERGER 32
Background of the Merger 32
Reasons for the Merger; Recommendation of Board of Directors 35
Fairness Opinion of Financial Advisor 35
Terms of the Merger 42
Effective Date and Effective Time of the Merger 43
Surrender of Certificates 43
No Shareholders' Dissenters' Rights 44
Conditions to Consummation of the Merger 44
Regulatory Approvals 46
</TABLE>
<PAGE> 9
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Conduct of Business Pending the Merger 47
Waiver and Amendment; Termination 50
Representations and Warranties of Valley Federal 50
Representations, Warranties and Covenants of UPC and Interim 51
Management after the Merger 51
Interests of Certain Persons in the Merger 52
Employee Benefit Plans 53
Limitation on Negotiations 53
Certain Federal Income Tax Consequences 54
Accounting Treatment 56
Expenses 56
Resales of UPC Common Stock 56
CERTAIN REGULATORY CONSIDERATIONS 57
DESCRIPTION OF THE UPC COMMON AND PREFERRED STOCK 58
The UPC Common Stock 59
UPC Preferred Stock 60
CERTAIN PROVISIONS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT 60
EFFECT OF MERGER ON RIGHTS OF VALLEY FEDERAL SHAREHOLDERS 62
Removal of Directors 62
Required Shareholder Votes 63
Election of Directors 63
Amendment of Charter and Bylaws 63
Share Purchase Rights Plan 63
Limitations on Changes in Control 64
64
BUSINESS OF VALLEY FEDERAL SAVINGS BANK 64
General 64
Asset/Liability Management 64
Average Balances, Interest Rates and Yields 66
Yields Earned and Rates Paid 68
Rate/Volume Analysis 68
Lending Activities 70
Reserves for Losses on Loans and Real Estate 82
Investment Activities 82
Sources of Funds 82
Subsidiary Activity 89
Competition 89
Personnel 90
Regulation 90
Federal and State Taxation 101
Properties 103
</TABLE>
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Legal Proceedings 104
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF VALLEY FEDERAL SAVINGS
BANK 104
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS 111
INDEPENDENT ACCOUNTANTS 113
STOCKHOLDER PROPOSALS 113
LEGAL OPINIONS 113
EXPERTS 113
INDEX TO APPENDICES 115
Appendix A Agreement and Plan of Combination dated as of November 1, 1995, as amended April 11, 1996, and related
Plan of Combination and Letter Agreement.
Appendix B Fairness Opinion of Trident Financial Corporation
Appendix C Valley Federal Savings Bank Consolidated Financial Statements for the years ended September 30, 1995
and 1994 and the three months ended December 31, 1995 and 1994
</TABLE>
<PAGE> 11
AVAILABLE INFORMATION
Both UPC and Valley Federal are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and in accordance therewith UPC files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission") and
Valley Federal files reports, proxy statements and other information with the
Office of Thrift Supervision (the "OTS"). Such UPC reports, proxy statements
and other information can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at regional offices of the
Commission located at Room 1228, 75 Park Place, New York, New York 10007 and
500 West Madison Street, Chicago, Illinois 60661-2511. Copies of such UPC
material can be obtained by mail from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, such reports, proxy statements and other information
concerning UPC can be inspected at the offices of the New York Stock Exchange,
20 Broad Street, New York, New York 10005. Such Valley Federal reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the OTS at 1776 G Street, N.W., Washington,
D.C. 20552. Copies of such materials can be obtained at prescribed rates by
writing to the Office of Thrift Supervision, 1700 G Street, N.W., Washington,
D.C. 20552. Reports, proxy statements and other information concerning Valley
Federal can also be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
UPC has filed with the Commission a Registration Statement on
Form S-4 (together with any amendments thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of UPC Common Stock to be issued pursuant to the
Combination Agreement. This Proxy Statement-Prospectus does not contain all of
the information set forth in the Registration Statement and the Exhibits
thereto. Certain items have been omitted as permitted by the rules and
regulations of the Commission. For further information regarding UPC and the
UPC Common Stock offered by this Proxy Statement-Prospectus, reference is made
to the complete Registration Statement, including all amendments thereto and
the schedules and exhibits filed as a part thereof. Statements contained
herein concerning provisions of documents are necessarily summaries of the
documents and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by UPC with the
Commission pursuant to the Exchange Act are hereby incorporated by reference in
this Proxy Statement-Prospectus:
1. UPC's Annual Report on Form 10-K for the year ended December
31, 1995;
1
<PAGE> 12
2. UPC's Registration Statement on Form 8-A dated January 19,
1989, filed on February 1, 1989 (Commission File Number
0-6919), in connection with UPC's designation and
authorization of its Series A Preferred Stock;
3. UPC's Current Reports on Form 8-K dated January 5, 1996, as
filed on January 5, 1996; March 8, 1996, as filed on March 13,
1996; April 1, 1996, as filed on April 1, 1996; April 2,
1996, as filed on April 2, 1996; and April 18, 1996, as filed
on April 18, 1996.
4. The description of the UPC Common Stock contained in UPC's
Registration Statement under Section 12(b) of the Exchange Act
and any amendment or report filed for the purpose of updating
such description.
The fact that a report has been listed above does not mean that it has not been
superseded or amended, in whole or in part, by a subsequent report.
All documents filed by UPC with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Proxy Statement-Prospectus and prior to the termination of the offering
of the shares of the UPC Common Stock offered hereby shall likewise be
incorporated herein by reference and shall become a part hereof from and after
the time such documents are filed. Any statement contained herein or in a
document incorporated herein shall be deemed to be modified or superseded for
purposes of this Proxy Statement-Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy
Statement-Prospectus.
UPC's Annual Report on Form 10-K for the year ended December
31, 1995, incorporates by reference specific portions of UPC's Annual Report to
Shareholders for that year (UPC's "Annual Report to Shareholders" which is
Exhibit 13 to said Form 10-K) but does not incorporate other portions of UPC's
Annual Report to Shareholders. The portion of UPC's Annual Report to
Shareholders captioned "Letter to Shareholders" and other portions of UPC's
Annual Report to Shareholders not specifically incorporated into UPC's Annual
Report on Form 10-K are not incorporated herein and are not a part of the
Registration Statement.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT-PROSPECTUS IS DELIVERED, UPON
WRITTEN OR ORAL REQUEST, TO UNION PLANTERS CORPORATION, POST OFFICE BOX 387,
MEMPHIS, TENNESSEE 38147 (TELEPHONE
2
<PAGE> 13
NUMBER (901) 383-6584), ATTENTION: E. JAMES HOUSE, SECRETARY. IN ORDER TO
ENSURE DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, REQUESTS SHOULD
BE RECEIVED PRIOR TO _________________, 1996.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
DOCUMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS DOCUMENT NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF UPC OR VALLEY FEDERAL SINCE THE DATE HEREOF OR THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
3
<PAGE> 14
SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE A COMPLETE DESCRIPTION OF ALL
MATERIAL FACTS REGARDING UPC, INTERIM, VALLEY FEDERAL AND THE MATTERS TO BE
CONSIDERED AT THE SPECIAL MEETING, AND IS QUALIFIED IN ALL RESPECTS BY
INFORMATION APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT-PROSPECTUS, THE APPENDICES HERETO AND THE DOCUMENTS REFERRED TO
HEREIN.
PARTIES TO THE MERGER
UPC. Union Planters Corporation ("UPC") is a multi-state
bank holding company and savings and loan holding company headquartered in
Memphis, Tennessee. At December 31, 1995, UPC had total consolidated assets of
approximately $11.3 billion, loans of approximately $7.1 billion, deposits of
approximately $9.4 billion and shareholders' equity of approximately $966
million. As of that date, UPC was the second-largest independent bank holding
company headquartered in Tennessee as measured by consolidated assets.
In recent years, UPC's Management has emphasized asset quality
and maintenance of capital well in excess of regulatory minimums. At December
31, 1995, UPC's ratio of nonperforming loans to total loans was .48 % and its
ratio of nonperforming assets to loans and foreclosed properties was .59 %.
The ratio of UPC's allowance for losses on loans to total loans at such date
was 1.89% and the ratio of UPC's allowance for losses on loans to nonperforming
loans was 391%. Also at such date, UPC's leverage, Tier 1 risk-based capital,
and total risk-based capital ratios were 8.09%, 12.64% and 16.35%,
respectively.
UPC conducts its business activities through its principal
bank subsidiary, the $2.2 billion asset Union Planters National Bank, founded
in 1869 and headquartered in Memphis, Tennessee, 35 other bank subsidiaries and
two savings bank subsidiaries located in Tennessee, Mississippi, Arkansas,
Louisiana, Alabama, Missouri and Kentucky (collectively, the "UPC Banking
Subsidiaries"). Through the UPC Banking Subsidiaries, UPC provides a
diversified range of financial services in the communities in which it
operates, including traditional banking services, consumer, commercial and
corporate lending, retail banking and mortgage banking. UPC also is engaged
in mortgage servicing, investment management and trust services, the issuance
and servicing of credit and debit cards, and the origination, packaging and
securitization of the government-guaranteed portions of Small Business
Administration loans.
Through the UPC Banking Subsidiaries, UPC operates
approximately 404 banking offices. UPC's assets are allocable by state to its
banking offices (before consolidating adjustments) approximately as follows:
$6.2 billion in Tennessee, $2.4 billion in Mississippi, $1.0 billion in
Missouri, $922 million in Arkansas, $562 million in Louisiana, $250 million in
Alabama and $111 million in Kentucky.
4
<PAGE> 15
Acquisitions have been, and are expected to continue to be, an
important part of the expansion of UPC's business. UPC completed four
acquisitions in 1992, 12 in 1993, 13 in 1994, and three in 1995 adding
approximately $1.6 billion in total assets in 1992, $1.3 billion in 1993, $3.8
billion in 1994, and $1.3 billion in 1995. UPC has completed two acquisitions
in 1996, adding approximately $122 million in assets. Prior to the date
hereof, UPC has entered into agreements to acquire the following financial
institutions: Leader Financial Corporation, Memphis, Tennessee ("Leader"), a
savings and loan holding company whose principal subsidiary is Leader Federal
Bank for Savings ("Leader Federal"), with total consolidated assets of
approximately $3.1 billion as of December 31, 1995; Eastern National Bank,
Miami, Florida, a national banking association ("ENB") with total consolidated
assets of approximately $266 million at December 31, 1995; and Franklin
Financial Group, Inc., Morristown, Tennessee ("FFGI"), a savings and loan
holding company whose principal subsidiary is Franklin Federal Savings Bank
("Franklin Federal"), with total consolidated assets of approximately $137
million at December 31, 1995. For additional information regarding these
acquisitions, see "Recent Developments Affecting UPC." For a discussion of
UPC's acquisition program and UPC Management's philosophy on that subject, see
the caption "Acquisitions" (on page 6) and Note 2 to UPC's audited consolidated
financial statements for the years ended December 31, 1995, 1994 and 1993 (on
pages 41 through 43) contained in UPC's Annual Report to Shareholders which is
Exhibit 13 to UPC's Annual Report on Form 10-K for the year ended December 31,
1995, which Exhibit 13 is incorporated by reference herein to the extent
indicated herein.
UPC expects to continue to take advantage of the consolidation
of the financial services industry by further developing its franchise through
the acquisition of financial institutions. Future acquisitions may entail the
payment by UPC of consideration in excess of the book value of the underlying
net assets acquired, may result in the issuance of additional shares of UPC
capital stock or the incurring of additional indebtedness by UPC, and could
have a dilutive effect on the earnings or book value per share of UPC Common
Stock. Moreover, significant charges against earnings are sometimes required
incidental to acquisitions. For a description of acquisitions which are
currently pending, see "Recent Developments Affecting UPC--Pending
Acquisitions."
UPC controls risk through centralized loan review and audit
functions as well as close monitoring of the financial performance of each UPC
Banking Subsidiary. UPC also implements its asset and liability management
strategy on a consolidated basis and effects all trades for the investment
portfolios of the UPC Banking Subsidiaries. UPC seeks to achieve economies in
the UPC Banking Subsidiaries through consolidation of administrative and
operational processes.
UPC's corporate office is located at 7130 Goodlett Farms
Parkway, Memphis, Tennessee 38018, and its telephone number is (901) 383-6000.
Additional information about UPC is included in the documents incorporated by
reference in this Proxy Statement-Prospectus. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
5
<PAGE> 16
Valley Federal. Valley Federal is a federal savings bank
headquartered in Sheffield, Alabama. At December 31, 1995, Valley Federal had
total assets of approximately $122 million, total deposits of approximately
$106 million, and total shareholders' equity of approximately $10 million. For
the year ended September 30, 1995, Valley Federal reported net income of
approximately $201 thousand (restated); and for the quarter ended December 31,
1995, Valley Federal reported net income of approximately $35 thousand
(restated).
Valley Federal's executive office is located at 501 North
Montgomery Avenue, Sheffield, Alabama, 35660, and its telephone number is (205)
383-1101.
For additional information about Valley Federal, see "Business
of Valley Federal Savings Bank", and the Consolidated Financial Statements and
notes thereto included at Appendix C of this Proxy Statement - Prospectus.
Interim. Interim is a newly formed federal savings bank
organized solely for the purpose of consummating the Merger. Interim has been
organized by UPC as a wholly-owned subsidiary and will have its main office at
7130 Goodlett Farms Parkway, Memphis, Tennessee 38018. In the Merger, Interim
will be merged with and into Valley Federal which will survive the Merger.
SPECIAL MEETING OF VALLEY FEDERAL SHAREHOLDERS
A Special Meeting (the "Special Meeting") of the Valley
Federal Shareholders will be held on ___________, June ___, 1996, at ______
_.m., Central Daylight Time, at ___________________________________, to
consider and vote upon a proposal to approve the Combination Agreement and the
Merger. See "THE SPECIAL MEETING."
VOTES REQUIRED; RECORD DATE
Only Valley Federal Shareholders of record at the close of
business on _________, 1996 (the "Record Date") will be entitled to receive
notice of and to vote at the Special Meeting. The affirmative votes of the
holders of at least two-thirds (2/3) of the shares of Valley Federal Common
Stock outstanding on the Record Date are required to approve the Combination
Agreement and the Merger.
The directors and executive officers of Valley Federal owned
as of the Record Date, 101,011 shares or approximately 27.5% of the outstanding
shares of Valley Federal Common Stock. It is expected that substantially all
of such shares will be voted for approval of the Combination Agreement and
Merger. If all such shares of Valley Federal Common Stock are voted "FOR"
approval of the Combination Agreement and Merger, then 143,562 (54%) of the
remaining 265,849 outstanding shares of Valley Federal Common Stock must be
voted "FOR" approval of the Combination Agreement and Merger in order to
achieve the two-thirds shareholder approval required. See "THE SPECIAL
MEETING."
6
<PAGE> 17
TERMS OF THE MERGER
Upon consummation of the Merger, each share of Valley Federal
Common Stock outstanding immediately prior to the Effective Time of the Merger
will be converted exclusively into 1.0976 shares of UPC Common Stock in
exchange for each share of Valley Federal Common Stock (the "Exchange Ratio").
See "THE MERGER--Terms of the Merger."
In no event will UPC issue fractional shares of UPC Common
Stock, but instead will settle any fractional share in cash, without interest.
The cash amount to be paid to Valley Federal Record Shareholders for a fraction
of a share of UPC Common Stock to be issued in the Merger will be determined by
multiplying the particular fraction by the last sale price of UPC Common Stock
on the NYSE on the date the Merger is closed (the "Closing Date").
Pursuant to the terms of the Combination Agreement, Valley
Federal Options outstanding immediately prior to the Effective Time of the
Merger will be automatically amended to represent options to purchase a number
of shares (rounded up to the nearest whole share) of UPC Common Stock equal to
the number of shares subject to option multiplied by the Exchange Ratio.
See "THE MERGER--Terms of the Merger" for a description of
the Exchange Ratio, and the effect of the Merger being consummated on the
Valley Federal Options. See also Sections 2.7 and 3.1(e) of the Combination
Agreement, a copy of which is attached hereto as Appendix A, for the specific
provisions concerning these matters.
Based on the closing price per share of the UPC Common Stock
on May ___, 1996, the value of the UPC Common Stock to be received for each
share of Valley Federal Common Stock would be approximately $_____. However,
the value of UPC Common Stock is subject to fluctuation, and the value of the
UPC Common Stock to be received upon consummation of the Merger may be more or
less than $_____.
The market price of the UPC Common Stock may change
significantly prior to the effective date of the Merger. The Combination
Agreement DOES NOT contain any provisions which would cause an adjustment to
the Exchange Ratio prior to consummation of the Merger based on the market
price of UPC Common Stock. However, it is a condition precedent to Valley
Federal's obligation to consummate the Merger that the fairness opinion
received by Valley Federal's Board of Directors (the "Valley Federal Board")
from Trident Financial Corporation shall not have been withdrawn on or prior to
the Closing Date. See "THE MERGER--Fairness Opinion of Financial Advisor" and
"THE MERGER--Conditions to Consummation of the Merger".
EFFECTIVE DATE
The Merger will become effective at the date and time as
specified on the endorsement of the Articles of Combination filed with the OTS
(the "Effective Time of the
7
<PAGE> 18
Merger"). Assuming the expiration of all statutory waiting periods and the
satisfaction or waiver of all contractual conditions to closing set forth in
the Combination Agreement, it is expected that the Merger will become effective
early in the third quarter of 1996. The effective date of the Merger will be
the day on which the Effective Time of the Merger occurs (the "Effective Date
of the Merger"). Only Valley Federal Record Shareholders will be entitled to
receive the shares of UPC Common Stock and cash payment for any fractional
share to be exchanged in the Merger pursuant to the Combination Agreement and
Plan of Combination.
REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors of Valley Federal believes the Merger
is fair to, and in the best interests of, Valley Federal and its shareholders
and unanimously recommends that the Valley Federal Shareholders vote "FOR"
approval of the Combination Agreement and Plan of Combination. The Valley
Federal Board considered a number of factors, including the compatibility of
the respective business management philosophies of Valley Federal and UPC,
UPC's ability to provide comprehensive financial services in Valley Federal's
market, the financial terms of other recent business combinations in the local
financial services industry, UPC's financial resources to serve the lending and
deposit needs of the local communities served by Valley Federal and the
financial effect on the Valley Federal Shareholders of Valley Federal's
continued independence as compared to the benefits of the Merger. See "THE
MERGER--Reasons for the Merger; Recommendation of Board of Directors."
FAIRNESS OPINION OF FINANCIAL ADVISOR
Valley Federal has retained Trident Financial Corporation
("Trident") as its financial advisor in connection with the Merger and
requested that Trident render an opinion that, as of the date of the
Combination Agreement, as of the date the Combination Agreement was amended
(April 11, 1996) and again as of the date of this Proxy Statement-Prospectus,
the Exchange Ratio was fair from a financial point of view to the Valley
Federal Shareholders. A copy of Trident's updated written opinion as of the
date hereof is attached hereto as Appendix B and should be read in its entirety
with respect to assumptions made, limitations on review undertaken and other
matters. The description of Trident's opinion set forth herein is qualified in
its entirety by reference to the opinion. Consummation of the Merger is
subject to Valley Federal's receipt of an updated opinion from Trident within
five days prior to the closing of the Merger reinforcing the opinions provided
in the initial opinion.
See "THE MERGER--Fairness Opinion of Financial Advisor" for
information regarding, among other things, the selection of Trident and its
compensation for services rendered in connection with the Merger and its
rendering of such opinion.
8
<PAGE> 19
WAIVER AND AMENDMENT; TERMINATION
Prior to the Effective Date of the Merger, any condition to
consummation of the Merger (to the extent permitted by law) may be amended,
modified or waived by the party benefitted by the provision by an agreement in
writing which is approved by the Board of Directors of UPC (the "UPC Board")
and the Valley Federal Board.
The Combination Agreement and Plan of Combination is subject
to termination by UPC and/or Valley Federal at any time prior to the Effective
Date of the Merger upon the occurrence of certain events, including, under
certain circumstances, if the Merger has not been consummated on or before
August 1, 1996. See "THE MERGER--Waiver and Amendment; Termination."
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is subject to various conditions,
including receipt of the approval of the Valley Federal Shareholders, receipt
of the required prior regulatory approvals and satisfaction of certain other
contractual closing conditions. The regulatory approvals and consents
necessary to consummate the transactions contemplated by the Combination
Agreement include the prior approval of the Board of Governors of the Federal
Reserve System (the "Federal Reserve"), the OTS and the Alabama State Banking
Department (the "Alabama Department"). Such approvals have been received.
Regulatory approval reflects only the view by the particular regulatory agency
that the transaction does not contravene applicable competitive standards
imposed by law, and that the transaction is consistent with regulatory policies
relating to safety and soundness. A regulatory agency's approval of the
transaction is not, and should not be construed as, an endorsement or
recommendation of the proposed Merger. See "THE MERGER--Conditions to
Consummation of the Merger," "--Regulatory Approvals", "--Conduct of Business
Pending the Merger" and "CERTAIN REGULATORY CONSIDERATIONS."
LIMITATION ON NEGOTIATIONS
Valley Federal is prohibited from instituting, soliciting or
knowingly encouraging any inquiry, discussion or proposal concerning any
"Acquisition Proposal" (defined generally as any agreement or proposal pursuant
to which any entity other than UPC or any UPC subsidiary would acquire
ownership, directly or indirectly, of Valley Federal, or the right to vote ten
percent (10%) or more of the outstanding Valley Federal Common Stock, or a
significant portion of the assets or earning power of Valley Federal), except
for actions reasonably considered by the Board of Directors of Valley Federal,
based upon the advice of legal counsel, to be required in order to fulfill its
fiduciary duties. In the event Valley Federal were to enter into a letter of
intent or agreement with respect to an Acquisition Proposal, Valley Federal or
the acquiror would be required to pay liquidated damages to UPC in the amount
of $750 thousand. Such sum would be payable immediately in the event that
Valley Federal were to enter into a letter of intent or agreement with respect
to an Acquisition Proposal. The limitation will remain in effect until August
1, 1996, unless before that date either the Merger shall have been consummated
or the
9
<PAGE> 20
Combination Agreement shall have been terminated, or if the Merger shall not
have been consummated under specified circumstances. See "THE
MERGER--Limitation on Negotiations."
MANAGEMENT AFTER THE MERGER
Simultaneously with the execution of the Combination Agreement
and the Plan of Combination, UPC and Valley Federal entered into a letter
agreement (the "Letter Agreement"), a copy of which is included in Appendix A to
this Proxy Statement-Prospectus, pursuant to which the parties agreed to
certain matters relating to, among other things, the management and Board of
Directors of Valley Federal following the Effective Time of the Merger and
certain actions to be taken with respect to employee benefit plans and
agreements. Pursuant to the Letter Agreement, those persons serving as
directors and officers of Valley Federal immediately prior to the Effective
Time of the Merger will serve as directors or officers of Valley Federal after
the Effective Time of the Merger, with certain exceptions in the event of the
possible merger of Valley Federal and BANKFIRST, a subsidiary of UPC located in
Decatur, Alabama. This is consistent with UPC's operational philosophy of
having its subsidiary banks operate autonomously in their respective
communities with the banking decisions being made, within broad guidelines
established by UPC, by a local board of directors and executive management.
See "THE MERGER--Management after the Merger", "--Employee Benefit Plans."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In connection with the Merger, Billy Don Anderson, the
President of Valley Federal, will receive certain payments under the terms of
his employment agreement with Valley Federal. See "THE MERGER--Interests of
Certain Persons in the Merger."
NO SHAREHOLDERS' DISSENTERS' RIGHTS
Shareholders of Valley Federal do not have the right to
dissent from the Merger and obtain in cash the fair value of their shares of
Valley Federal Common Stock under applicable OTS statutes and regulations.
COMPARISON OF THE RIGHTS OF UPC AND VALLEY FEDERAL SHAREHOLDERS
Upon consummation of the Merger, holders of Valley Federal
Common Stock, whose rights are presently governed by the regulations of the OTS
and Valley Federal's Charter and Bylaws, would become shareholders of UPC, a
Tennessee corporation. Accordingly, their rights would be governed by
Tennessee corporate law and the Charter and Bylaws of UPC. Certain differences
arise as a result of the change of governing law and differences between the
Charter and Bylaws of UPC and the Charter and Bylaws of Valley Federal. See
"EFFECT OF THE MERGER ON RIGHTS OF VALLEY FEDERAL SHAREHOLDERS."
10
<PAGE> 21
PROVISIONS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT
Certain provisions of UPC's Charter and Bylaws, and certain
provisions of Tennessee law, may have an anti-takeover effect in that they
could prevent, discourage or delay a change in control of UPC. See
"DESCRIPTION OF THE UPC COMMON AND PREFERRED STOCK" and "CERTAIN PROVISIONS
THAT MAY HAVE AN ANTI-TAKEOVER EFFECT."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is expected that, for federal income tax purposes, the
Merger will qualify as a tax-free reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, for
federal income tax purposes, no gain or loss would be recognized by Valley
Federal Record Shareholders who exchange their shares of Valley Federal Common
Stock solely for shares of UPC Common Stock in the Merger. However, cash
received in lieu of fractional shares may give rise to taxable income or loss.
A condition to the consummation of the Merger is the receipt by UPC of an
opinion of Wyatt, Tarrant & Combs, and the receipt by Valley Federal of an
opinion of Housley Kantarian & Bronstein, P.C., each to the effect that, for
federal income tax purposes, the Merger will be treated as one or more tax-free
reorganizations and that Valley Federal Record Shareholders will not recognize
any gain or loss upon their exchange of Valley Federal Common Stock solely for
UPC Common Stock in the Merger. ALL VALLEY FEDERAL SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO THEM, INCLUDING THE APPLICABILITY OF VARIOUS FEDERAL, STATE, LOCAL
AND FOREIGN TAX LAWS. See "THE MERGER--Certain Federal Income Tax
Consequences."
ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a pooling of
interests under generally accepted accounting principles ("GAAP") as described
in Accounting Principles Board Opinion No. 16 and the interpretations thereof.
Consummation of the Merger is conditioned upon UPC's receipt of a letter from
its independent accountants that the Merger should be accounted for as a
pooling of interests. See "THE MERGER--Accounting Treatment."
MARKET PRICES OF UPC AND VALLEY FEDERAL COMMON STOCK
UPC Common Stock. The UPC Common Stock is listed and traded
on the NYSE (symbol: UPC). The following table sets forth for the periods
indicated the high and low closing sale prices of the UPC Common Stock on the
NYSE and the cash dividends declared per share for the periods indicated:
11
<PAGE> 22
<TABLE>
<CAPTION>
Price Range Cash Dividends
------------------------------ Declared Per
High Low Share
------ ------ --------------
<S> <C> <C> <C>
1996
First Quarter $31.75 $29.00 $0.27
Second Quarter
Through May ___, 1996
Total
1995
First Quarter $24.50 $20.88 $0.23
Second Quarter 28.13 23.13 0.25
Third Quarter 30.75 26.13 0.25
Fourth Quarter 32.25 29.63 0.25
-----
Total $0.98
=====
1994
First Quarter $26.25 $23.13 $0.21
Second Quarter 28.75 24.75 0.21
Third Quarter 26.00 23.50 0.23
Fourth Quarter 24.50 19.63 0.23
-----
Total $0.88
=====
1993
First Quarter $29.13 $22.50 $0.18
Second Quarter 29.25 22.63 0.18
Third Quarter 30.00 25.00 0.18
Fourth Quarter 28.75 23.63 0.18
-----
Total $0.72
=====
</TABLE>
The last reported sales price of UPC Common Stock on the NYSE
as of May ___, 1996, which was the last practicable date prior to the mailing
of this Proxy Statement-Prospectus, was $ per share, and as of October
31, 1995, the first trading day immediately preceding the date the Merger was
publicly announced, was $30.75 per share.
Valley Federal Common Stock. The Valley Federal Common Stock
is listed and traded on the National Association of Securities Dealers
Automated Quotation System ("Nasdaq") under the symbol "VAFD". The following
table sets forth for the periods indicated the high and low bid quotations for
Valley Federal Common Stock as reported by the Nasdaq Small Cap Market and the
cash dividends declared per share during the periods indicated. These
quotations reflect inter-dealer prices, without mark-up, mark-down or
commission and may not necessarily represent actual transactions.
12
<PAGE> 23
<TABLE>
<CAPTION>
Price Range Cash Dividends
------------------------------- Declared Per
High Low Share(*)
------- -------- --------------
<S> <C> <C> <C>
1996
First Quarter $35.25 $33.00
Second Quarter
Through May ___, 1996
1995
First Quarter $31.00 $28.50
Second Quarter 30.50 23.00
Third Quarter 29.00 25.00
Fourth Quarter 36.50 25.50 $0.60
1994
First Quarter $23.00 $19.50
Second Quarter 23.00 22.50
Third Quarter 27.50 22.75
Fourth Quarter 28.50 27.25 $0.60
1993
First Quarter $17.00 $16.00
Second Quarter 17.50 16.50
Third Quarter 19.50 17.50
Fourth Quarter 19.50 19.00 $0.50
</TABLE>
- --------------------
(*)Annual dividends.
The last reported sales price of Valley Federal Common Stock
on the Nasdaq Small Cap Market as of May ___, 1996, which was the last
practicable date prior to the mailing of this Proxy Statement-Prospectus, was
$____ per share, and as of October 31, 1995, the first trading day immediately
preceding the date the Merger was publicly announced, the last reported sales
price was $27.50 per share.
Valley Federal Shareholders are advised to obtain current
market quotations for UPC Common Stock and Valley Federal Common Stock. No
assurance can be given as to the market price of UPC Common Stock at the
Effective Time of the Merger or anytime after the date thereof.
13
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present for UPC, selected consolidated
financial data for the five year period ended December 31, 1995, and for Valley
Federal, selected consolidated financial data for the five year period ended
September 30, 1995 and for the three month periods ended December 31, 1995 and
1994. The information for UPC has been derived from the consolidated financial
statements of UPC, including the audited consolidated financial statements of
UPC incorporated in this Proxy Statement-Prospectus by reference to UPC's 1995
Annual Report on Form 10-K for the year ended December 31, 1995, and should be
read in conjunction therewith and with the notes thereto. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE." The information for Valley Federal has
been derived from the restated consolidated financial statements of Valley
Federal, including the audited consolidated financial statements of Valley
Federal included in this Proxy Statement-Prospectus, and should be read in
conjunction therewith and with the notes thereto. Historical results are not
necessarily indicative of results to be expected for any future period. In the
opinion of the management of Valley Federal, all adjustments, consisting only
of normal recurring adjustments necessary to arrive at a fair statement of
interim results of operations of Valley Federal, have been included.
See "-Recent Developments Affecting UPC" for information
concerning UPC's recently completed and pending acquisitions.
14
<PAGE> 25
UNION PLANTERS CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31, (1)
-------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ---------- ----------- ---------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net interest income $ 447,431 $ 423,114 $ 375,033 $ 305,211 $ 256,537
Provision for losses on loans 22,231 4,894 17,950 29,071 35,960
Investment securities gains (losses) 476 (20,298) 4,506 14,019 2,633
Other noninterest income 157,176 121,103 123,056 103,506 95,415
Noninterest expense 382,164 427,697 346,450 297,665 255,906
----------- ----------- ----------- ---------- ----------
Earnings before income taxes, extraordinary item,
and accounting changes 200,688 91,328 138,195 96,000 62,719
Applicable income taxes 65,286 25,467 41,168 27,048 14,443
----------- ----------- ----------- ---------- ----------
Earnings before extraordinary item and accounting changes 135,402 65,861 97,027 68,952 48,276
Extraordinary item - defeasance of debt, net of taxes - - (3,206) - -
Accounting changes, net of taxes - - 5,782 - -
----------- ----------- ----------- ---------- ----------
Net earnings $ 135,402 $ 65,861 $ 99,603 $ 68,952 $ 48,276
=========== =========== =========== ========== ==========
PER COMMON SHARE DATA (2)
Primary
Earnings before extraordinary item and accounting changes $ 2.82 $ 1.28 $ 2.24 $ 1.75 $ 1.35
Extraordinary item - defeasance of debt, net of taxes - - (0.08) - -
Accounting changes, net of taxes - - 0.15 - -
Net earnings 2.82 1.28 2.31 1.75 1.35
Fully diluted
Earnings before extraordinary item and accounting changes 2.70 1.28 2.18 1.73 1.35
Extraordinary item - defeasance of debt, net of taxes - - (0.07) 0 0
Accounting changes, net of taxes - - 0.13 0 0
Net earnings 2.70 1.28 2.24 1.73 1.35
Cash dividends 0.98 0.88 0.72 0.60 0.48
Book value 19.24 16.08 16.25 14.08 12.88
BALANCE SHEET DATA (AT PERIOD END)
Total assets $11,277,116 $10,985,020 $ 9,919,944 $8,331,073 $6,566,973
Loans, net of unearned income 7,069,853 6,721,597 5,293,850 4,193,149 3,613,945
Allowance for losses on loans 133,487 133,966 125,499 100,282 74,739
Investment securities 2,774,890 3,084,110 3,431,081 2,935,665 1,864,871
Deposits 9,447,736 9,253,165 8,445,760 7,171,191 5,698,062
Short-term borrowings 241,023 455,010 300,414 343,452 244,513
Long-term debt (3)
Parent company 214,758 114,790 114,729 74,292 38,163
Subsidiary banks 270,500 241,218 212,149 38,463 18,790
Total shareholders' equity 966,331 805,147 751,844 595,106 475,128
Average assets 10,954,895 10,948,979 9,706,356 7,586,827 6,555,009
Average shareholders' equity 899,615 850,934 707,788 551,650 442,756
Average shares outstanding (in thousands)
Primary 45,008 43,741 38,914 35,463 34,569
Fully diluted 49,618 44,083 43,144 38,307 34,922
PROFITABILITY AND CAPITAL RATIOS
Return on average assets 1.24 % 0.60 % 1.03 % 0.91 % 0.74 %
Return on average common equity 15.92 7.61 15.10 13.11 10.95
Net interest income (taxable-equivalent) to
average earning assets (4) 4.59 4.36 4.40 4.57 4.48
Loans/deposits 74.83 72.64 62.68 58.47 63.42
Common and preferred dividend payout ratio 37.55 62.50 32.64 36.12 34.51
Equity/assets (period end) 8.57 7.33 7.58 7.14 7.24
Average shareholders' equity/average total assets 8.21 7.77 7.29 7.27 6.75
Leverage ratio (5) 8.09 7.15 7.21 7.07 7.06
Tier 1 capital to risk-weighted assets (5) 12.64 11.88 13.10 12.85 11.66
Total capital to risk-weighted assets (5) 16.35 14.27 15.74 14.83 13.80
ASSET QUALITY RATIOS
Allowance/period end loans 1.89 1.99 2.37 2.39 2.07
Nonperforming loans/total loans 0.48 0.32 0.58 1.22 1.01
Allowance/nonperforming loans 391 614 411 196 205
Nonperforming assets/loans and foreclosed properties 0.59 0.43 0.78 1.58 1.60
Provision/average loans 0.32 0.08 0.35 0.72 0.95
Net charge-offs/average loans 0.36 0.09 0.28 0.55 0.92
</TABLE>
- -----------------------------
(1) Reference is made to "Basis of Presentation" in Note 1 to the
consolidated financial statements.
(2) Share and per share amounts have been retroactively restated for
significant acquisitions accounted for as poolings of interests.
(3) Long-term debt includes subordinated notes and debentures, obligations
under capital leases, mortgage indebtedness, and notes payable with
maturities greater than one year. Subsidiary banks' long-term debt is
primarily FHLB advances.
(4) Calculation does not include the impact of the unrealized gain or loss on
available for sale securities.
(5) The risk-based capital ratios are based upon capital guidelines
prescribed by Federal bank regulatory authorities. Under those
guidelines, the required minimum Tier 1 and Total capital to
risk-weighted assets ratios are 4% and 8%, respectively. The required
minimum leverage ratio of Tier 1 capital to total adjusted assets is 3%
to 5% (5% for bank holding companies effecting acquisitions).
15
<PAGE> 26
VALLEY FEDERAL SAVINGS BANK
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended
December 31, Years Ended September 30,
----------------------- ------------------------------------------------------
1995 1994 1995 1994 1993 1992 1991
------- -------- ------- ------- ------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income . . . . . . . . . $ 2,363 $ 2,149 $ 8,972 $ 8,412 $ 9,079 $ 10,103 $ 11,057
Interest expense . . . . . . . . (1,516) (1,175) (5,488) (4,372) (4,860) (6,228) (7,784)
------- -------- ------- ------- ------- --------- --------
Net interest income . . . . . . . 847 974 3,484 4,040 4,219 3,875 3,273
Provision for loan losses . . . . (45) (75) (306) (180) (361) (235) (245)
------- -------- ------- ------- ------- --------- --------
Net interest income after
provision for loan losses . . . 802 899 3,178 3,860 3,858 3,640 3,028
Other interest income . . . . . . 125 105 526 704 778 637 483
Gain (loss) on sales of
investment securities, net . . -- -- -- -- (54) (89) (2)
Gain (loss) on sales of loan
and mortgage-backed securities,
net . . . . . . . . . . . . . . 22 (13) (44) 103 (2) 34 (12)
Noninterest expense . . . . . . . (895) (769) (3,402) (3,352) (3,225) (2,906) (2,675)
------- -------- ------- ------- ------- --------- --------
Income before income taxes
and extraordinary items . . . . 54 222 258 1,315 1,355 1,316 822
Income tax expense . . . . . . . (19) ( 75) (57) (402) (440) (540) (370)
------- -------- ------- ------- ------- --------- --------
Net income . . . . . . . . . . . $ 35 $ 147 $ 201 $ 913 $ 915 $ 776 $ 452
======= ======== ======= ======= ======= ========= ========
</TABLE>
OTHER DATA
<TABLE>
<CAPTION>
Three Months Ended
December 31, Years Ended September 30,
-------------------- ---------------------------------------------
1995 1994 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Return on assets . . . . . . . . 0.03% 0.12% 0.16% 0.76% 0.73% 0.61% 0.39%
Return on equity . . . . . . . . 0.37 1.65 2.08 9.94 10.07 9.38 6.04
Average equity to average
assets . . . . . . . . . . . . 8.11 7.13 7.74 7.66 6.87 6.47 6.30
Interest rate spread . . . . . . 2.56 3.06 2.82 3.09 3.40 3.32 2.81
Net yield on interest-earning
assets . . . . . . . . . . . . 2.96 3.67 2.98 3.58 3.57 3.43 2.96
</TABLE>
16
<PAGE> 27
VALLEY FEDERAL SAVINGS BANK
SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
At At September 30,
December 31, ----------------------------------------------------------
1995 1995 1994 1993 1992 1991
------------ -------- --------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total amount of:
Loans receivable, net . . . . . . . . . . $ 94,888 $ 96,033 $ 89,315 $ 77,959 $ 73,499 $ 76,522
Mortgage-backed securities,
net . . . . . . . . . . . . . . . . . . 15,135 20,087 22,227 31,277 35,885 25,211
Cash, certificates of deposit
and investment securities . . . . . . . 3,623 4,880 4,250 11,231 12,542 10,246
Total assets . . . . . . . . . . . . . . . 122,101 125,911 120,432 125,735 127,153 116,622
Deposits (1) . . . . . . . . . . . . . . . 105,694 108,717 100,836 111,370 117,634 108,141
Short-term borrowings . . . . . . . . . . . 5,000 6,000 9,000 -0- -0- -0-
Stockholders' equity . . . . . . . . . . . 9,559 9,654 9,187 9,084 8,278 7,487
- -------------------------------------------------------------------------------------------------------------------------
Number of:
Real estate loans outstanding . . . . . . 2,344 2,300 2,286 2,222 1,964 2,211
Savings accounts . . . . . . . . . . . . 9,063 9,118 8,939 8,990 9,237 9,567
Full service offices open . . . . . . . . 4 4 4 4 4 4
- -------------------------------------------------------------------------------------------------------------------------
Per Common Share Data:
Net Earning . . . . . . . . . . . . . . . $ 0.29 $ 0.56 $ 2.53 $ 2.54 $ 2.16 $ 1.25
Cash Dividends . . . . . . . . . . . . . 0.60 0.60 0.60 0.60 0.50 0.50
Book Value . . . . . . . . . . . . . . . 26.06 26.74 26.45 26.18 22.99 20.80
</TABLE>
17
<PAGE> 28
RECENT DEVELOPMENTS AFFECTING UPC
Pending Acquisitions. UPC has entered into definitive agreements to acquire
the following financial institutions in addition to Valley Federal
(collectively, the "Pending Acquisitions") which UPC's Management considers
probable of consummation and which are expected to close in 1996.
<TABLE>
<CAPTION>
Consideration
---------------------------------------------
Approximate
Asset Size Value
Institution (In Millions) (In Millions) Type
- ------------------------------------ ------------- ------------- --------------------------
<S> <C> <C> <C>
Leader Financial Corporation, $3,099 $ 523.0 Approximately 16.6 million
Memphis, Tennessee, and its shares of UPC Common Stock
subsidiary, Leader Federal Bank for
Savings (1)
Eastern National Bank, 266 30.4 Cash, Notes and UPC
Miami, Florida Series E Preferred Stock(2)
Franklin Financial Group, Inc., 137 22.7 Approximately 670,000
Morristown, Tennessee, shares of UPC Common Stock
and its subsidiary, Franklin Federal
Savings Bank ------
$3,502 $576.1
====== ======
</TABLE>
(1) Reference is made to UPC's Current Reports on Form 8-K dated March
8, 1996, April 1, 1996, and April 2, 1996, incorporated by
reference herein, for additional information concerning the
acquisition of Leader Financial Corporation.
(2) Cash in the amount of $4.5 million, UPC Promissory Notes in the
aggregate original principal amount of $14.5 million, and up to
317,458 shares of Series E Preferred Stock of UPC.
Recently Completed Acquisitions. Since December 31, 1995, UPC has
completed the acquisition of the following institutions (collectively, the
"Recently Completed Acquisitions").
18
<PAGE> 29
<TABLE>
<CAPTION>
Consideration
----------------------------------
Approximate
Asset Size Value
Institution (In Millions) (In Millions) Type
- ------------------------------------ ------------- ------------- ----
<S> <C> <C> <C>
First Bancshares of Eastern $ 60 $10.9 Cash
Arkansas, Inc., West Memphis,
Arkansas, and its subsidiary First
National Bank of West Memphis,
Arkansas
First Bancshares of N.E. Arkansas, 62 9.2 Cash
Inc., Osceola, Arkansas, and its
subsidiary, First National Bank of
Osceola, Arkansas
---- -----
Total $122 $20.1
==== =====
</TABLE>
Earnings Considerations Related to Pending Acquisitions. It is
expected that either UPC or the institutions to be acquired in connection with
the Pending Acquisitions will incur charges related to such acquisitions and to
the assimilation of those institutions into the UPC organization. Anticipated
charges would arise from matters such as, but not limited to, legal and
accounting fees, financial advisory fees, consulting fees, payment of
contractual benefits triggered by a change of control, early retirement and
involuntary separation and related benefits, costs associated with elimination
of duplicate facilities and branch closures, data processing charges,
cancellation of vendor contracts, the potential for additional provisions for
loan losses and similar costs which normally arise from the consolidation of
operational activities.
Aggregate charges expected to arise with respect to the Pending
Acquisitions have been preliminarily estimated to be between $17 million and
$22 million after taxes, which does not include a potential after-tax charge of
approximately $6 million for the recapture of Leader Federal's thrift bad debt
reserve, which, under existing law, would be triggered by the assimilation of
Leader Federal's branches into Union Planters National Bank, UPC's principal
subsidiary, and certain other banking subsidiaries. If enacted by the
Congress, pending legislation would eliminate or substantially decrease the
taxes associated with a recapture of a thrift institution's bad debt reserve.
In addition, the range of estimated potential charges set forth above does not
take into account any potential assessment for recapitalization of the Savings
Association Insurance Fund discussed below under the heading " - - Earnings
Considerations Relating to Potential Special Regulatory Assessments."
To the extent that UPC's recognition of these acquisition related
charges are contingent upon consummation of a particular transaction, those
charges would be recognized in the period in which
19
<PAGE> 30
such transaction closes. This range of potential charges is based on currently
available information as well as preliminary estimates and is subject to
change. The range is provided as a preliminary estimate of the significant
charges which may in the aggregate be required and should be viewed
accordingly. These charges are not reflected in the pro forma consolidated
financial statements.
Earnings Considerations Relating to Potential Special Regulatory
Assessment. There are several bills currently under consideration by the U.S.
Congress, the purpose of which is to provide additional financing for the
Savings Association Insurance Fund ("SAIF") and to provide for interest
payments on the Financing Corporation ("FICO") bonds issued in connection with
earlier Congressional efforts to support the then failing thrift industry. A
common feature of these proposed bills is a one-time special assessment of from
85 to 90 basis points on all deposits insured by the SAIF ($0.85 to $0.90 per
$100 of covered deposits) ("SAIF Insured Deposits"). All SAIF Insured Deposits
may not be subject to an assessment at the 85 to 90 basis point level. Those
SAIF Insured Deposits which were acquired by banks in so-called Oakar
transactions ("Oakar Deposits") may be assessed at a lower rate, possibly 66
basis points. In addition to the special assessment on SAIF Insured Deposits,
the bills also contemplate special assessments on deposits which are insured by
the Bank Insurance Fund ("BIF") ("BIF Deposits"). The assessment on BIF
Deposits would be for the purpose of providing financial support to pay
interest on the FICO bonds. It is unknown at this time what the assessment
level will be on BIF Deposits, but it is believed the assessment will be in the
7 to 10 basis point range. The proposed bills generally provide that such
assessments will reduce the paying institution's taxable income. At December
31, 1995, UPC's Banking Subsidiaries held approximately $1.4 billion in SAIF
Insured Deposits, approximately $1.0 billion of which are Oakar Deposits. At
December 31, 1995, Valley Federal held approximately $106 million in SAIF
Insured Deposits. If all recently completed and pending acquisitions had been
consummated by December 31, 1995, then UPC's subsidiaries would have held
approximately $3.2 billion in SAIF Insured Deposits, approximately $1.0 billion
of which would have been Oakar Deposits, assuming the savings associations to
be acquired (Leader Federal, Valley Federal and Franklin Federal) had not been
merged into other UPC bank subsidiaries. Should the proposed legislation be
adopted at levels indicated, both UPC and Valley Federal, as well as all other
financial institutions with insured deposits, would be required to take
significant charges in relation to these special assessments. See "CERTAIN
REGULATORY CONSIDERATIONS."
UPC's First Quarter 1996 Operating Results. The following table
presents certain information for UPC for the three months ended March 31, 1996
and 1995. Reference is made to UPC's press release dated April 18, 1996, which
is included in UPC's Current Report on Form 8-K dated April 18, 1996. See
"Incorporation of Certain Documents by Reference."
20
<PAGE> 31
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, (1)
---------------------------------------------
1996 1995
-------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
INCOME STATEMENT DATA
Net interest income $ 115,473 $ 108,839
Provision for losses on loans 7,981 2,222
Investment securities gains (losses) 60 (21)
Other noninterest income 40,137 36,100
Noninterest expense 89,152 90,665
Earnings before income taxes 58,537 52,031
Applicable income taxes 19,393 16,374
Net earnings 39,144 35,657
PER COMMON SHARE DATA
Net earnings
- primary $ 0.82 $ 0.75
- fully diluted 0.78 0.72
Cash dividends 0.27 0.23
Book value 19.76 17.13
PROFITABILITY RATIOS
Return on average assets 1.40 % 1.33 %
Return on average common equity 17.35 18.16
Net interest income as a percentage of
average earning assets (taxable-equivalent basis) (3) 4.61 4.57
ASSET QUALITY DATA
Allowance for losses on loans $ 136,277 $ 135,410
Nonperforming loans 35,254 25,970
Nonperforming assets 41,968 32,632
Loans 90 days or more past due 19,903 9,662
Allowance for losses on loans to loans 1.92 % 1.99 %
Nonperforming loans to loans 0.50 0.38
Nonperforming assets to loans and foreclosed properties 0.59 0.48
Allowance/nonperforming loans 387 521
BALANCE SHEET DATA (AT PERIOD END)
Total assets $11,368,682 $10,784,332
Loans, net of unearned income 7,091,737 6,797,363
Investment securities
Available for sale (Amortized cost: $2,919,840 and $1,725,056) 2,951,092 1,712,766
Held to maturity (Fair value: $1,129,936 at March 31, 1995) - 1,124,011
Total deposits 9,522,876 9,133,076
Long-term debt (2) 472,466 435,877
Total shareholders' equity 992,865 860,488
CAPITAL RATIOS
Equity/assets 8.73 % 7.98 %
Leverage (3) 8.22 7.61
</TABLE>
- ----------------------
(1) Interim period ratios are annualized.
(2) Includes subsidiary banks' long-term debt (primarily Federal Home Loan
Bank advances) of $256.2 million and $305.9 million at March 31, 1996
and 1995, respectively.
(3) Excludes the impact of the fair value adjustment for available for sale
securities.
21
<PAGE> 32
Valley Federal's Second Quarter 1996 Operating Results.
The following table presents certain information relative to Valley
Federal for the three and six months ended March 31, 1996.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest income $ 2,239 $ 2,191 $ 4,602 $ 4,340
Interest expense 1,403 1,312 2,919 2,487
-------- -------- --------- --------
Net interest income $ 836 $ 879 $ 1,683 $ 1,853
Non-interest income 137 76 284 168
Non-interest expense 817 808 1,712 1,577
Provision for loan losses 45 65 90 140
-------- -------- --------- --------
Net income before taxes $ 111 $ 82 $ 165 $ 304
Income tax expense 41 17 60 92
-------- -------- --------- --------
Net income $ 70 $ 65 $ 105 $ 212
======== ======== ========= ========
Earnings per share $ 0.19 $ 0.18 $ 0.29 $ 0.59
Book value per share $ 26.16 $ 26.10
Return on Assets 0.17% 0.31%
Return on Equity 2.18% 4.18%
</TABLE>
EQUIVALENT AND PRO FORMA PER SHARE DATA
The following table presents selected, comparative, unaudited per
share data for: (i) UPC Common Stock and Valley Federal Common Stock on an
historical basis; (ii) UPC Common Stock on a pro forma basis including all
Recently Completed Acquisitions as well as Pending Acquisitions, including
Valley Federal; and (iii) Valley Federal Common Stock on an equivalent pro
forma basis, for the periods indicated. Separate pro forma and equivalent pro
forma per share data is not
22
<PAGE> 33
presented separately for Valley Federal because it would not be significantly
different from UPC's results.
The pro forma data for 1995 reflects the assumed acquisition of all
Recently Completed Acquisitions and all Pending Acquisitions, including
Valley Federal, as of January 1, 1995. The pro forma data for 1994 and 1993
reflects only the assumed acquisition of Leader because the other Pending and
Recently Completed Acquisitions are not considered significant to UPC. Leader
constitutes a significant subsidiary which management considers probable and is
expected to be accounted for as a pooling of interests. Reference is made to
UPC's Current Reports on Form 8-K dated March 8, 1996, April 1, 1996, and April
2, 1996 for information regarding the Leader acquisition and pro forma
financial statements which are incorporated by reference herein. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.
The pro forma information is not necessarily indicative of the results
of the future operations of either UPC, Valley Federal, the Recently Completed
Acquisitions or the Pending Acquisitions or the actual results that would have
occurred had the Valley Federal Merger been consummated January 1, 1995. The
information is derived from and should be read in conjunction with, the
historical consolidated financial statements of UPC (including related notes
thereto) which are incorporated by reference, the historical consolidated
financial statements of Valley Federal (including related notes thereto) which
are included herein, the historical financial statements of Leader, a
significant probable Pending Acquisition, (including related notes thereto)
which are incorporated by reference, and the pro forma consolidated financial
statements (including related notes thereto) which are incorporated by
reference herein.
23
<PAGE> 34
UNION PLANTERS CORPORATION
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
Years Ended December 31, (1)
------------------------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
EARNINGS BEFORE EXTRAORDINARY ITEM
AND ACCOUNTING CHANGES
UPC
Primary $2.82 $ 1.28 $2.24
Fully diluted 2.70 1.28 2.18
Valley Federal
Common share 0.25 2.48 2.42
UPC pro forma (all Recently Completed and
Pending Acquisitions and Valley Federal) (2)
Primary 2.67 1.52 2.17
Fully diluted 2.58 1.52 2.11
Valley Federal equivalent pro forma (all Recently Completed
and Pending Acquisitions and Valley Federal) (2)
Primary 2.94 1.67 2.38
Fully diluted 2.83 1.66 2.32
CASH DIVIDENDS PER SHARE
UPC 0.98 0.88 0.72
Valley Federal 0.60 0.60 0.50
Valley Federal equivalent pro forma 1.08 0.97 0.79
December 31,
1995
BOOK VALUE PER COMMON SHARE ------------
UPC $19.24
Valley Federal 26.25
UPC pro forma (all Recently Completed and
Pending Acquisitions and Valley Federal) 18.64
Valley Federal pro forma equivalent (all Recently Completed
and Pending Acquisitions and Valley Federal) 20.46
</TABLE>
- --------------------------
(1) Information for Valley Federal has been converted to a calendar year basis
for comparison purposes.
(2) The equivalent pro forma per share data for Valley Federal are computed by
multiplying UPC's pro forma information by 1.0976, the Exchange Ratio.
(3) See also, "-- Recent Developments Affecting UPC."
24
<PAGE> 35
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following tables contain unaudited pro forma consolidated
condensed financial information including a balance sheet at December 31, 1995,
and statements of earnings for the years ended December 31, 1995, 1994 and
1993. The pro forma statements reflect pro forma historical results for (i)
UPC for all periods, (ii) UPC and Leader for all periods, and (iii) UPC,
Leader, Valley Federal, the Recently Completed Acquisitions and all other
Pending Acquisitions, as of and for the year ended December 31, 1995 only. The
unaudited pro forma consolidated financial information reflects the Recently
Completed Acquisitions and the ENB transaction using the purchase method of
accounting and reflects Valley Federal and the Pending Acquisitions (except
ENB) using the pooling of interests method of accounting. The unaudited pro
forma consolidated financial information should be read in conjunction with the
historical consolidated financial statements of UPC which are incorporated by
reference herein, and of Valley Federal which are included herein, and in
conjunction with the information presented in UPC's Current Reports on Form 8-K
incorporated by reference herein. Pro forma results are not necessarily
indicative of future operating results. Certain nonrecurring charges as
discussed in " --Recent Developments Affecting UPC -- Earnings Considerations
Related to Pending Acquisitions" have not been included in the pro forma
consolidated financial information. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE".
25
<PAGE> 36
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
UPC AND
RECENTLY
UPC COMPLETED
AND AND PENDING
UPC LEADER ACQUISITIONS
----------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 432,949 $ 459,963 $ 487,080
Interest-bearing deposits at financial
institutions 13,571 14,115 15,456
Federal funds sold and securities
purchased under agreements to resell 356,655 446,655 448,867
Trading account assets 121,927 121,927 121,927
Loans held for resale 68,819 87,879 87,879
Available for sale securities, at fair value 2,774,890 3,575,755 3,721,380
Loans 7,100,051 9,073,371 9,490,374
Less: Unearned income (30,198) (39,496) (40,638)
Allowance for losses on loans (133,487) (156,388) (160,418)
----------- ----------- -----------
Net loans 6,936,366 8,877,487 9,289,318
Premises and equipment 228,272 246,885 265,699
Accrued interest receivable 100,686 172,745 177,894
Goodwill and other intangibles 58,535 58,535 73,922
Other assets 184,446 315,089 325,104
----------- ----------- -----------
Total assets $11,277,116 $14,377,035 $15,014,526
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 1,420,358 $ 1,599,721 $ 1,653,789
Certificates of deposit of $100,000
and over 754,434 915,006 980,887
Other interest-bearing 7,272,944 8,510,239 8,951,269
----------- ----------- -----------
Total deposits 9,447,736 11,024,966 11,585,945
Short-term borrowings 241,023 838,283 845,010
FHLB advances 268,892 798,039 809,438
Long-term debt 216,366 228,537 241,537
Accrued interest, expenses, and taxes 90,754 125,413 127,626
Other liabilities 46,014 147,294 156,833
----------- ----------- -----------
Total liabilities 10,310,785 13,162,532 13,766,389
----------- ----------- -----------
Shareholders' equity
Preferred stock
Convertible 91,810 91,810 98,521
Nonconvertible 0 0 0
Common stock 227,235 302,677 308,405
Additional paid-in capital 111,348 123,088 134,600
Net unrealized gain (loss) on available
for sale securities 21,366 32,410 32,398
Retained earnings 514,572 664,518 674,213
Treasury stock 0 0 0
----------- ----------- -----------
Total shareholders' equity 966,331 1,214,503 1,248,137
----------- ----------- -----------
Total liabilities and
shareholders' equity $11,277,116 $14,377,035 $15,014,526
=========== =========== ===========
</TABLE>
26
<PAGE> 37
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
UPC AND
RECENTLY
UPC COMPLETED
AND AND PENDING
UPC LEADER AQUISITIONS
-------- ---------- ------------
<S> <C> <C> <C>
Interest and fees on loans $636,769 $ 804,420 $ 847,101
Interest on investment securities
Taxable 137,453 177,272 187,820
Tax-exempt 31,816 32,313 32,575
Interest on deposits at financial institutions 1,910 1,936 2,067
Interest on federal funds sold and securities
purchased under agreements to resell 12,095 17,041 17,304
Interest on trading account assets 12,774 12,774 12,774
Interest on loans held for resale 3,865 5,318 5,318
-------- ---------- ----------
Total interest income 836,682 1,051,074 1,104,959
-------- ---------- ----------
Interest expense
Interest on deposits 347,859 422,360 445,614
Interest on short-term borrowings 12,825 33,856 34,072
Interest on FHLB advances and long-term debt 28,567 58,917 61,862
-------- ---------- ----------
Total interest expense 389,251 515,133 541,548
-------- ---------- ----------
Net interest income 447,431 535,941 563,411
Provision for losses on loans 22,231 27,381 30,496
-------- ---------- ----------
Net interest income after provision
for losses on loans 425,200 508,560 532,915
Noninterest income
Service charges on deposit accounts 71,611 75,694 78,764
Bank card income 20,103 20,740 20,740
Mortgage servicing income 9,835 23,739 23,739
Trust service income 8,010 8,010 8,010
Profits and commissions from trading activities 10,441 10,441 10,441
Investment securities gains 476 409 368
Other income 37,176 42,110 45,297
-------- ---------- ----------
Total noninterest income 157,652 181,143 187,359
-------- ---------- ----------
Noninterest expense
Salaries and employee benefits 171,325 197,855 210,402
Net occupancy expense 27,192 30,447 33,649
Equipment expense 30,156 34,405 34,405
Other expense 153,491 167,592 179,001
-------- ---------- ----------
Total noninterest expense 382,164 430,299 457,457
-------- ---------- ----------
Earnings before income taxes 200,688 259,404 262,817
Applicable income taxes 65,286 86,649 89,296
-------- ---------- ----------
Net earnings $135,402 $ 172,755 $ 173,521
======== ========== ==========
Earnings per common share
Primary $ 2.82 $ 2.72 $ 2.67
Fully diluted 2.70 2.64 2.58
Weighted average shares outstanding
(in thousands)
Primary 45,008 60,384 61,525
Fully diluted 49,618 64,994 66,712
</TABLE>
27
<PAGE> 38
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
UPC
AND
UPC LEADER
-------- --------
<S> <C> <C>
Interest and fees on loans $517,032 $644,690
Interest on investment securities
Taxable 162,012 193,276
Tax-exempt 32,999 33,415
Interest on deposits at financial institutions 734 748
Interest on federal funds sold and securities
purchased under agreements to resell 4,472 6,862
Interest on trading account assets 9,143 9,143
Interest on loans held for resale 1,573 2,396
-------- --------
Total interest income 727,965 890,530
-------- --------
Interest expense
Interest on deposits 262,572 317,721
Interest on short-term borrowings 21,300 28,277
Interest on FHLB advances and long-term debt 20,979 38,927
-------- --------
Total interest expense 304,851 384,925
-------- --------
Net interest income 423,114 505,605
Provision for losses on loans 4,894 9,661
-------- --------
Net interest income after provision
for losses on loans 418,220 495,944
Noninterest income
Service charges on deposit accounts 55,551 59,564
Bank card income 10,953 11,386
Mortgage servicing income 9,621 18,797
Trust service income 7,990 7,990
Profits and commissions from trading activities 6,639 6,639
Investment securities losses (20,298) (22,515)
Other income 30,349 42,365
-------- --------
Total noninterest income 100,805 124,226
-------- --------
Noninterest expense
Salaries and employee benefits 175,218 201,532
Net occupancy expense 28,041 31,638
Equipment expense 28,698 32,618
Other expense 195,740 208,785
-------- --------
Total noninterest expense 427,697 474,573
-------- --------
Earnings before income taxes 91,328 145,597
Applicable income taxes 25,467 45,174
-------- --------
Net earnings $ 65,861 $100,423
======== ========
Earnings per common share
Primary $ 1.28 $ 1.52
Fully diluted 1.28 1.52
Weighted average shares outstanding
(in thousands)
Primary 43,741 59,587
Fully diluted 44,083 59,929
</TABLE>
28
<PAGE> 39
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1993
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
UPC
AND
UPC LEADER
-------- --------
<S> <C> <C>
Interest and fees on loans $425,967 $531,417
Interest on investment securities
Taxable 157,403 186,966
Tax-exempt 30,507 30,596
Interest on deposits at financial institutions 1,862 1,884
Interest on federal funds sold and securities
purchased under agreements to resell 6,175 8,569
Interest on trading account assets 6,194 6,194
Interest on loans held for resale 7,438 8,163
-------- --------
Total interest income 635,546 773,789
-------- --------
Interest expense
Interest on deposits 238,019 298,312
Interest on short-term borrowings 8,203 8,203
Interest on FHLB advances and long-term debt 14,291 27,984
-------- --------
Total interest expense 260,513 334,499
-------- --------
Net interest income 375,033 439,290
Provision for losses on loans 17,950 22,660
-------- --------
Net interest income after provision
for losses on loans 357,083 416,630
Noninterest income
Service charges on deposit accounts 49,490 53,723
Bank card income 10,393 10,884
Mortgage servicing income 9,595 9,067
Trust service income 7,643 7,643
Profits and commissions from trading activities 13,787 13,787
Investment securities gains 4,506 3,508
Other income 32,148 39,951
-------- --------
Total noninterest income 127,562 138,563
-------- --------
Noninterest expense
Salaries and employee benefits 163,711 186,703
Net occupancy expense 25,393 28,476
Equipment expense 25,989 30,345
Other expense 131,357 144,165
-------- --------
Total noninterest expense 346,450 389,689
-------- --------
Earnings before income taxes, extraordinary
items, and accounting changes 138,195 165,504
Applicable income taxes 41,168 51,864
-------- --------
Earnings before extraordinary items
and accounting changes $ 97,027 $113,640
======== ========
Earnings per common share before extraordinary items
and accounting changes (1)
Primary $ 2.24 $ 2.17
Fully diluted 2.18 2.11
Weighted average shares outstanding
(in thousands)
Primary 38,914 43,192
Fully diluted 43,144 47,422
</TABLE>
- ---------------------
(1) - Leader was organized on March 18, 1993 in connection with the conversion
of its principal subsidiary, Leader Federal Bank for Savings and
subsidiaries, from a federal mutual savings bank to a
federally-chartered capital stock savings bank. Accordingly, the
calculation of pro forma earnings per share on a pooled basis is based
on Leader's fourth quarter net income since the stock conversion
occured on September 30, 1993.
29
<PAGE> 40
THE SPECIAL MEETING
TIME AND PLACE OF SPECIAL MEETING; SOLICITATION OF PROXIES; REVOCATION
Each copy of this Proxy Statement-Prospectus being mailed to Valley
Federal Shareholders on the Record Date is accompanied by a Proxy Card
furnished in connection with the Valley Federal Board's solicitation of proxies
for use at the Special Meeting and at any adjournments or postponements
thereof. The Special Meeting is scheduled to be held at ______ __.m., Central
Daylight Time on ___________, June ___, 1996, at ______________________________
______________________________________. Only Valley Federal Shareholders at
the close of business on ____________, 1996, are entitled to receive notice of
and to vote at the Special Meeting. At the Special Meeting, Valley Federal
Shareholders will consider and vote upon a proposal to approve the Combination
Agreement and the Merger. If no contrary instructions are indicated on the
Proxy Card, the Proxy will be voted FOR the approval of the Combination
Agreement and the Merger. If other matters properly come before the Special
Meeting, the Proxy will be voted by the persons named therein as determined by
a majority of Valley Federal's Board of Directors. Valley Federal's management
is not aware of any other matters to be acted upon at the Special Meeting.
VALLEY FEDERAL SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY CARD AND TO RETURN IT PROMPTLY TO VALLEY FEDERAL IN THE
ENCLOSED, POSTAGE-PAID ENVELOPE. FAILURE TO RETURN YOUR PROPERLY EXECUTED
PROXY CARD OR FAILURE TO VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT
AS A VOTE AGAINST THE APPROVAL OF THE COMBINATION AGREEMENT AND THE MERGER.
VALLEY FEDERAL SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH
THEIR PROXY CARDS.
Any Valley Federal Shareholder who has executed and delivered a Proxy
Card may nevertheless revoke it at any time before it is voted by attending the
Special Meeting and voting in person at the Special Meeting or by giving notice
of revocation in writing, or by submitting a signed Proxy Card bearing a later
date to Valley Federal Savings Bank, 501 North Montgomery Avenue, Sheffield,
Alabama, Attention: Martha P. Smith, Secretary, provided such notice or later
dated Proxy Card is actually received by Valley Federal before the vote of
Valley Federal Shareholders has been taken.
In addition to solicitation of proxies from Valley Federal
Shareholders by use of the mail, proxies also may be solicited by personal
interview, telephone and facsimile by directors, officers and employees of
Valley Federal who will not be specifically compensated for such services. It
is expected that banks, brokerage houses, and other institutions, nominees or
fiduciaries will be requested to forward the soliciting materials to their
principals and obtain authorization for the execution of proxies. All costs of
soliciting proxies, assembling and mailing the Proxy Statement-Prospectus, all
papers which now accompany or hereafter may supplement the same, as well as
reasonable out-of-pocket expenses incurred by such banks, brokerage houses,
and other institutions, nominees or fiduciaries for forwarding proxy materials
to and obtaining proxies from their principals, will be borne by Valley
Federal; provided, however, that UPC will pay all Commission filing fees
30
<PAGE> 41
and other regulatory filing fees incurred in connection with the Merger and the
costs of printing the Proxy Statement-Prospectus.
VOTES REQUIRED
The affirmative votes of the holders of at least two-thirds (2/3) of
the outstanding shares of Valley Federal Common Stock entitled to vote at the
Special Meeting are required in order to approve the Combination Agreement and
the Merger. As of the Record Date, there were 366,860 shares of Valley Federal
Common Stock outstanding and entitled to vote at the Special Meeting, with each
share entitled to one vote.
The Valley Federal directors and executive officers held beneficially
as of the Record Date 101,011 shares or approximately 27.5% of the outstanding
shares of Valley Federal Common Stock. It is expected that substantially all
of such shares will be voted "FOR" approval of the Combination Agreement and
the Merger. Assuming all 101,011 of the shares of Valley Federal Common Stock
held beneficially by Valley Federal directors and executive officers are voted
"FOR" approval of the Combination Agreement and the Merger, then 143,562 (54%)
of the remaining 265,849 shares of Valley Federal Common Stock outstanding must
be voted "FOR" the Combination Agreement and the Merger in order to achieve the
two-thirds shareholder approval required.
VOTING
Only the holders of record of Valley Federal Common Stock as of the
close of business on the Record Date are entitled to vote either in person or
by proxy at the Special Meeting and any adjournments thereof. At the close of
business on the Record Date, 366,860 shares of Valley Federal Common Stock were
issued and outstanding.
A majority of the outstanding shares of Valley Federal Common Stock
present in person or by proxy will constitute a quorum for the transaction of
business at the Special Meeting. Abstentions and broker non-votes will be
treated as shares that are present at the Special Meeting for purposes of
determining the presence of a quorum for the transaction of business at the
Special Meeting.
The proposal to approve the Combination Agreement and the Merger
requires the affirmative vote of the holders of two-thirds of the issued and
outstanding shares of Valley Federal Common Stock as of the Record Date.
Therefore, failure to return a properly executed Proxy Card or to vote in
person at the Special Meeting, abstentions and broker non-votes, will have the
same effect as a vote against approval of the Combination Agreement and the
Merger.
RECOMMENDATION
For the reasons described below, the Valley Federal Board has adopted
and approved the Combination Agreement and the Merger and believes that the
Merger is in the best interest of Valley Federal and the Valley Federal
Shareholders and recommends that the Valley Federal Shareholders vote "FOR" the
approval of the Combination Agreement and the Merger.
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<PAGE> 42
THE MERGER
The following information concerning the Merger, insofar as it relates
to matters contained in the Combination Agreement, is qualified in its
entirety by reference to the Combination Agreement which is annexed hereto as
Appendix A and is incorporated herein by reference. Valley Federal
Shareholders are urged to read carefully the Combination Agreement.
BACKGROUND OF THE MERGER
From time to time Valley Federal has been contacted informally by
various financial institutions regarding a possible affiliation. Generally
such contacts were confined to one meeting and no further expression of
interest or discussions occurred.
Valley Federal was first contacted by UPC in June 1994, at which time
Benjamin W. Rawlins, Jr., Chairman of UPC, and Jackson W. Moore, President of
UPC, met with the Board of Directors of Valley Federal and expressed their
interest in a possible affiliation with Valley Federal.
In September 1994, at its regular monthly meeting, the Board of
Directors of Valley Federal reviewed the contacts recently received from
interested acquirors. Based on the frequency of such occurrences, the Board of
Directors directed management to contact legal counsel and a consulting firm
which had previously assisted in Valley Federal's strategic planning process,
and request that those parties, in conjunction with management and the Board of
Directors, undertake a preliminary review of Valley Federal's strategic
alternatives to enhance shareholder value. The consulting firm prepared a
report outlining key considerations to be considered by Valley Federal in
connection with a sale of control of Valley Federal and included a comparative
analysis of five major bank holding companies that had undertaken a number of
acquisitions in Alabama and other southern states. This analysis was presented
to the Board of Directors in late September 1994. The Board of Directors
authorized management to continue consultation with legal counsel and
appropriate financial advisors as necessary.
Valley Federal continued to receive sporadic contacts from various
financial institutions. In March 1995, after a meeting and presentation to the
Board of Directors, the Board of Directors engaged Trident, a firm experienced
in the analysis and evaluation of financial institutions, to assist the Board
of Directors in considering strategies to maximize shareholder value.
Specifically, Trident was requested to perform a comparative analysis of (i)
the value of Valley Federal as an independent entity, (ii) Valley Federal's
current acquisition value, and (iii) the effect that Valley Federal's future
financial condition and operating results would be expected to have on its
stock price and future acquisition value. If appropriate, Trident was
requested to formulate a list of potential acquirors.
In light of the frequent inquiries and the Board's engagement of
Trident, the Board of Directors appointed a Special Committee of the Board of
Directors in May 1995 for the purpose of facilitating the resolution of issues
that could arise in connection with an acquisition proposal. The Special
Committee consisted of Messrs. Robbins, Estes and Anderson.
32
<PAGE> 43
At a Special Meeting of the Board of Directors in June 1995, Trident
presented its report to the Board of Directors. The report (i) assessed the
strengths and weaknesses of Valley Federal, (ii) identified positive and
negative trends in Valley Federal's current operating environment, (iii)
projected Valley Federal's future financial condition and results of operations
over a six year time horizon, (iv) marked Valley Federal's assets and
liabilities to their then-current market values, (v) compared the current
acquisition value of Valley Federal versus the present value of the estimated
future acquisition value of Valley Federal assuming Valley Federal continued to
operate independently for some period of time, and (vi) analyzed potential
acquisition partners. Trident estimated the then-current acquisition value of
Valley Federal to be in the range of $34.00 to $37.00 per share.
In light of the information and analyses prepared by Trident, the
Board of Directors evaluated the options available to Valley Federal and the
question of whether Valley Federal should continue as an independent entity or
instead solicit indications of interest from other financial institutions
regarding a possible affiliation. The Board of Directors expressed confidence
in Valley Federal's business plan and Valley Federal's future as a going
concern. However, based upon the estimated future earnings for Valley Federal
and the future acquisition value of Valley Federal (as discounted to present
value), the Board concluded that it would be appropriate to consider
alternatives to remaining independent and also determined to solicit
indications of interest in a possible affiliation with Valley Federal. Trident
was directed by the Board of Directors to prepare a confidential information
memorandum (the "Information Memorandum") for distribution to potential
acquirors. The Board of Directors selected six financial institution holding
companies, including UPC, to be contacted by representatives of Trident to
determine their interest in a possible acquisition of Valley Federal. These
institutions either had previously informally expressed an interest in
discussing an affiliation with Valley Federal or had been identified by Trident
as potentially interested parties. In July 1995, management of Valley Federal
reviewed and approved the Information Memorandum and, upon obtaining executed
confidentiality and standstill agreements from each of the six prospective
acquirors, Trident forwarded an Information Memorandum to each of the parties.
Three of the six companies, including UPC, indicated an interest in making a
proposal to affiliate with Valley Federal.
On August 24, 1995, the Board of Directors held a special meeting,
also attended by legal counsel and representatives of Trident, to review the
terms of the three indications of interest which had been received as well as
background information on all three parties prepared by Trident. The Board of
Directors discussed each of the three proposals and authorized Trident to
pursue further discussions with the two potentially interested parties offering
the highest valuations and other more favorable terms. Both of these parties,
which included UPC, were invited to conduct off-site due diligence and to
submit a revised indication of interest containing their best offer as well as
more detailed information on other terms of their respective initial
indications of interest.
On September 12, 1995, the Board of Directors met to discuss the terms
of the two offers that had been received from UPC and the other potentially
interested party (the "Other Interested Party"). Representatives of Trident
and legal counsel were also present at the meeting. Trident discussed with the
Board of Directors each of the two revised proposals, including an analysis of
each proposal
33
<PAGE> 44
prepared by Trident and distributed to the Board in advance of the meeting.
Both proposals were for all stock transactions and included a fixed exchange
ratio although UPC's exchange ratio was to be fixed at a later date than the
proposal of the Other Interested Party. The proposal from UPC was for a price
of $37.50 with the precise exchange ratio to be fixed on the date a definitive
agreement was signed based on the closing sales price for the UPC common stock.
The UPC proposal represented 141.4% of Valley Federal's book value on a per
share basis, a price/earnings ratio of 26.4 times and a 4.8% premium over
tangible book value as a percentage of deposits. The proposal from the Other
Interested Party was for a fixed exchange ratio of shares of common stock for
each share of Valley Federal's common stock. Based on the closing sales price
of the Other Interested Party's common stock at that time, this proposal was
valued at $35.89 per share and represented 135.3% of book value on a per share
basis, a price/earnings ratio of 25.3 times and a 4.1% premium over tangible
book value as a percentage of deposits. Based on the then-market price for
each of the two parties' common stock, UPC's offer exceeded the offer of the
Other Interested Party by $1.61 per share. Additionally, it was expected that
the UPC best and final offer would likely result in a greater degree of local
autonomy than would an affiliation with the Other Interested Party. Based upon
these factors, the Board of Directors authorized management to enter into the
negotiation of a definitive agreement with UPC. Discussions continued with UPC
through September and October 1995 as the parties worked towards a definitive
agreement.
On November 1, 1995, the Board of Directors held a special meeting at
which the terms of the proposed agreement and the related Plan of Combination
and Letter Agreement were reviewed. Legal counsel was present at this meeting,
and representatives of Trident participated by teleconference. The Board of
Directors also reviewed updated due diligence information regarding UPC which
had been compiled by Trident. Trident rendered its opinion to the Board of
Directors that the proposed transaction was fair to the Valley Federal
Shareholders from a financial point of view. The Board of Directors
unanimously approved the execution of the definitive Combination Agreement,
Plan of Combination and Letter Agreement.
In early April 1996, management of Valley Federal determined that it
had understated its accrual of interest payable and interest expense on certain
certificates of deposit, thereby resulting in an underreporting of interest
expense for certain prior periods. As a result, it was determined that Valley
Federal would be required to restate its financial statements for the fiscal
years ended September 30, 1995 and 1994 and the quarters ended December 31,
1995 and 1994. In accordance with the terms of the Combination Agreement,
Valley Federal notified UPC of the restatement. UPC informed Valley Federal
that, due to the reduction in earnings and stockholders' equity resulting from
the restatement, the Exchange Ratio set forth in the Combination Agreement
should be reduced. On April 10, 1996, the Board of Directors of Valley Federal
met to discuss the restatement and the proposal by UPC to reduce the Exchange
Ratio to 1.0976 shares of UPC Common Stock for each share of Valley Federal
Common Stock. Valley Federal's legal counsel and representatives of Trident
participated in this meeting by teleconference. Trident informed the Board
that it was able to render its opinion that the proposed transaction, as
amended, was fair to the Valley Federal Shareholders from a financial point of
view. All members of the Board of Directors present at this meeting approved
the amendment to the Combination Agreement. One director was absent due to a
prior commitment. Valley Federal, UPC and Interim executed the amendment on
April 11, 1996.
34
<PAGE> 45
REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors of Valley Federal has determined that the
Merger is in the best interests of Valley Federal and its shareholders. In
evaluating the Agreement, the Board of Directors, with the assistance of legal
counsel and Trident, considered a variety of factors including: (i) the value
being offered to shareholders by UPC in relation to the market value, book
value and earnings per share of Valley Federal's common stock; (ii) information
concerning the financial condition, results of operations and prospects of UPC
and Valley Federal, including the long term equity growth potential of Valley
Federal as compared to UPC; (iii) the competitive environment for financial
institutions generally; (iv) the compatibility of the respective business
management philosophies of Valley Federal and UPC; (v) UPC's ability to provide
comprehensive financial services in Valley Federal's market; (vi) the financial
terms of other recent business combinations in the local financial services
industry; (vii) UPC's financial resources to serve the lending and deposit
needs of the local communities served by Valley Federal, thereby enhancing the
related long term customer service potential for Valley Federal's customer
service base; (viii) the opinion of Trident that the consideration to be
received by Valley Federal Shareholders is fair from a financial point of
view; and (ix) the financial effect on Valley Federal Shareholders of Valley
Federal's continued independence as compared to the benefits of the proposed
transaction.
THE BOARD OF DIRECTORS OF VALLEY FEDERAL UNANIMOUSLY RECOMMENDS THAT
THE HOLDERS OF VALLEY FEDERAL COMMON STOCK VOTE "FOR" APPROVAL OF THE
COMBINATION AGREEMENT AND THE MERGER.
FAIRNESS OPINION OF FINANCIAL ADVISOR
Valley Federal retained Trident to act as its financial advisor and to
render a fairness opinion (the "Opinion") in connection with the Merger. As
part of its engagement, Trident performed an evaluation analysis of Valley
Federal in an acquisition context. On June 6, 1995, Trident presented its
valuation report (the "Valuation Report") to Valley Federal's Board of
Directors.
On November 1, 1995, Trident met with Valley Federal's Board of
Directors to review the purposed terms of the Combination Agreement and the
Merger. At that time, Trident presented a report (the "Merger Analysis and Due
Diligence Report") to Valley Federal's Board of Directors summarizing the
financial terms of the Merger and providing updated market information with
respect to thrift mergers and acquisitions. Trident also compared UPC's offer
to the valuation of Valley Federal set forth in the Valuation Report and
analyzed the advantages and disadvantages of the Merger. Trident further
reported on its financial analysis and on-site due diligence examination of
UPC. In addition, Trident rendered its written opinion to Valley Federal's
Board of Directors to the effect that, as of that date, the consideration to be
received by Valley Federal's shareholders pursuant to the Combination Agreement
was fair to them from a financial point of view.
35
<PAGE> 46
Trident also met with the Board of Directors of Valley Federal via
teleconference on April 10, 1996 to provide its opinion that the consideration
to be received by Valley Federal Shareholders pursuant to the amended Exchange
Ratio was fair to them from a financial point of view.
Trident delivered its updated written opinion to Valley Federal's
Board of Directors as of the date of this Proxy Statement-Prospectus stating
that, as of such date, the consideration to be received by the shareholders of
Valley Federal in the Merger is fair from a financial point of view. Trident
has consented to the inclusion of such opinion and the related disclosure in
this Proxy Statement-Prospectus which is being circulated to Valley Federal
Shareholders.
TRIDENT'S OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF VALLEY
FEDERAL AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW,
OF THE CONSIDERATION, TO BE RECEIVED BY VALLEY FEDERAL SHAREHOLDERS BASED ON
CONDITIONS AS THEY EXISTED AND COULD BE EVALUATED AS OF THE DATE OF THE
OPINION. TRIDENT'S OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY VALLEY
FEDERAL SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL
MEETING, NOR DOES TRIDENT'S OPINION ADDRESS THE UNDERLYING BUSINESS DECISION TO
EFFECT THE MERGER. THIS SUMMARY OF TRIDENT'S OPINION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION, WHICH IS ATTACHED TO
THIS PROXY STATEMENT-PROSPECTUS AS APPENDIX B. VALLEY FEDERAL SHAREHOLDERS
ARE URGED TO READ TRIDENT'S OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND THE LIMITS ON THE REVIEW UNDERTAKEN IN
RENDERING SUCH OPINION.
In connection with rendering its opinion, Trident reviewed and
analyzed, among other things, the following: (i) the Combination Agreement, as
amended; (ii) this Proxy Statement-Prospectus; (iii) certain publicly available
information concerning Valley Federal, including the restated audited financial
statements of Valley Federal for each of the years in the three-year period
ended September 30, 1995 and the unaudited financial statements of Valley
Federal for the three months ended December 31, 1995 and 1994; (iv) certain
publicly available information concerning UPC including the audited
consolidated financial statements of UPC for each of the years in the
three-year period ended December 31, 1995; (v) certain other internal
information, primarily financial in nature, concerning the business and
operations of Valley Federal and UPC furnished to Trident by Valley Federal and
UPC for purposes of Trident's analysis; (vi) certain information with respect
to the pricing and trading of the Valley Federal Common Stock; (vii) certain
information with respect to the pricing and trading of UPC Common Stock; (viii)
certain publicly available information with respect to other companies that
Trident believed to be comparable to Valley Federal and UPC and the trading
markets for such other companies' securities; and (ix) certain publicly
available information concerning the nature and terms of other transactions
that Trident considered relevant to its inquiry. Trident also met with certain
officers and employees of Valley Federal to discuss the foregoing, as well as
other matters which it believed relevant to its inquiry.
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<PAGE> 47
In its review and analysis, and in arriving at its opinion, Trident
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to it or that was publicly available and did not
attempt to independently verify any such information. Trident did not conduct a
physical inspection of the properties or facilities of Valley Federal or UPC,
nor did it make or obtain any independent calculations or appraisals of any of
such properties or facilities.
In conducting its analyses and arriving at its opinion as expressed
herein, Trident considered such financial and other factors as it deemed
appropriate under the circumstances including, among others, the following:
(i) the historical and current financial condition and results of operations of
Valley Federal and UPC, including interest income, interest expense, net
interest income, net interest margin, interest sensitivity, non-interest
expense, dividends, book value, return on assets, return on equity,
capitalization, the amount and type of nonperforming assets and the reserve for
loan losses; (ii) the business prospects of Valley Federal and UPC; (iii) the
economies in Valley Federal's and UPC's respective market areas; (iv) the
historical and current market for Valley Federal Common Stock and UPC Common
Stock and for the equity securities of certain other companies that Trident
believed to be comparable to Valley Federal and UPC; and (v) the nature and
terms of certain other acquisition transactions that Trident believed to be
relevant. Trident also took into account its assessment of general economic,
market, financial and regulatory conditions and trends, as well as its
knowledge of the financial institutions industry, its experience in connection
with similar transactions, and its knowledge of securities valuation generally.
Trident's opinion necessarily was based upon conditions in existence and
subject to evaluation on the respective dates of its opinion. Trident's opinion
is, in any event, limited to the fairness from a financial point of view, of
the consideration to be received by the holders of Valley Federal Common Stock
in the Merger and does not address Valley Federal's underlying business
decision to effect the Merger.
Trident met with the Board of Directors of Valley Federal at various
times between June 6, 1995 and November 1, 1995 to present analyses contained
in a series of reports. Two key reports presented by Trident were the
Valuation Report dated June 6, l995 and the Merger Analysis and Due Diligence
Report dated November 1, 1995. The following is a brief summary of the
Valuation Report presented by Trident to the Board of Directors of Valley
Federal on June 6, 1995:
Financial Analysis of Valley Federal. Trident examined Valley
Federal's financial performance for the period from September 30, 1990
through March 31, 1995 by analyzing the composition of its balance
sheet, adjusting and normalizing its earnings and calculating a
variety of operating and financial ratios for Valley Federal. Trident
also studied the trading of Valley Federal's common stock for the
previous twelve months, and compared the performance of its stock to
certain stock indices.
Peer Group Analysis. Trident evaluated Valley Federal's strengths and
weaknesses by comparing the financial performance of Valley Federal to
that of the following groups of SAIF-insured, OTS regulated thrift
institutions: (i) all United States institutions; (ii) all
institutions in the Southeast; (iii) all Alabama institutions; (iv)
all United States institutions with total assets of between $50
million and $150 million; and (v) Southeast institutions with total
assets between $50 million and $150 million (the "Aggregates"). This
analysis compared
37
<PAGE> 48
a number of Valley Federal's historical financial ratios to those of
the Aggregates, including, but not limited to: (i) the balance sheet
composition as a percentage of total assets at December 31, 1994; (ii)
the loan portfolio as a percentage of total assets at December 31,
1994; (iii) the investment portfolio as a percentage of total assets
at December 31, 1994; (iv) asset quality at December 31, 1994. Trident
also compared Valley Federal's growth rates between December 31, 1991
and December 31, 1994, its yields on assets and costs of liabilities
and its income and expense data for 1993 and 1994 to those of the
Aggregates.
Comparison to Actively-Traded Thrifts. Trident compared Valley
Federal to the following groups of actively-traded thrifts as of May
30, 1995; (i) all U.S. thrifts; (ii) U.S. thrifts with assets between
$75 million and $150 million; (iii) all Southeast thrifts; (iv) all
Alabama thrifts; and (v) eight actively-traded thrifts Trident
believed were most similar to Valley Federal in terms of size, capital
structure, profitability and asset quality. Trident compared Valley
Federal to the aforementioned groups of actively-traded thrifts on the
basis of its balance sheet, GAAP capital, regulatory capital, asset
quality, loan loss reserves, asset and deposit growth, return on
average assets, return on average equity, and the components of
earnings during the trailing four quarters. Trident also compared
Valley Federal's pricing ratios to the pricing ratios for other
actively-traded thrifts.
Financial Projections. With input from Valley Federal's management,
Trident prepared six year financial projections for Valley Federal
beginning March 31, 1995. The projections were based on certain
assumptions, including modest asset growth, modest loan growth, modest
deposit growth, a gradually increasing interest-rate spread, a rising
interest-rate environment for the following twelve months and then
declining slowly thereafter, a constant $0.60 annual cash dividend per
share, and a 35% tax rate. These financial projections were used to
estimate Valley Federal's valuation in an acquisition context at
various future dates, and the resulting returns to shareholders by
continuing to remain an independent financial institution.
Valuation of Valley Federal. Trident estimated the fair market value
of Valley Federal in an acquisition context. ln valuing Valley
Federal, Trident considered three different approaches to value: the
asset approach, the income approach and the market approach.
The asset approach considers the market value of a company's assets
and liabilities, as well as any intangible value the company may have.
Trident estimated Valley Federal's net asset value by adjusting the
carrying value of its assets and liabilities to reflect current market
values (rather than liquidation values). In addition, the net asset
value of Valley Federal was adjusted downward based on an estimate of
the impact of recapturing Valley Federal's bad debt reserve for tax
purposes and estimated transaction and other costs. Finally, Trident
increased Valley Federal's net asset value for the assumed exercise of
outstanding options to purchase Valley Federal's Common Stock. Based
on the adjustments discussed above, Trident increased Valley Federal's
fully- diluted net asset value to be approximately $9.8 million or
$24.80 per share. After determining Valley Federal's net asset value,
Trident added an intangible premium to reflect the estimated value of
its customer relationships. According to the asset approach, the
total value of Valley Federal is the sum of its net asset value and
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<PAGE> 49
its intangible value. Based on a branch purchase methodology and
intangible ("core deposit") premiums observed in the market for thrift
acquisitions, as well as Trident's knowledge of Valley Federal,
Trident applied premiums equal to 4% and 5% of core deposits to
Valley Federal's estimated fully-diluted net asset value. Using the
asset approach, Trident established a reference range of $34.50 to
$37.00 per share of Valley Federal Common Stock.
Trident also used an income approach in its valuation of Valley
Federal by discounting Valley Federal's projected future earnings plus
merger cost savings of 25% to 50% as a result of an assumed
acquisition of Valley Federal. The projected earnings were discounted
to the present at rates of 14%, 15% and 16%. The discount rates
chosen were estimates of the required rates of return for holders or
prospective holders of shares of financial institutions similar to
Valley Federal, based on a number of factors including prevailing
interest rates, the pricing ratios of publicly traded financial
institutions, the financial condition and operating results of Valley
Federal, Trident's general knowledge of valuations, the securities
markets and acquisition values in other mergers of financial
institutions. Trident adjusted the resulting values to reflect the
cost of recapturing the tax bad debt reserve and certain
merger-related expenses. Using the income approach, Trident
established a reference range of $30.00 to $37.00 per share of Valley
Federal Common Stock.
In the market approach, Trident analyzed certain median pricing ratios
(e.g., price to book value, price to tangible book value, price to
reported earnings, price to assets, and the premium paid over tangible
book value as a percentage of core deposits) resulting from selected
completed thrift merger transactions, as well as recently announced
pending transactions. In applying the market approach, Trident
considered the pricing ratios for the following groups of thrift
merger transactions: (i) all pending thrift merger transactions (48
transactions); (ii) all pending thrift mergers announced during the 90
days prior to May 30, 1995 (the date of the market data) (20
transactions); (iii) all pending thrift mergers involving thrifts
located in the Southeast (8 transactions); (iv) all pending thrift
mergers involving thrifts located in the Alabama, Georgia,
Mississippi, Tennessee, and North Carolina (5 transactions); (v) all
pending thrift mergers in which the aggregate consideration was
between $10 million and $25 million (9 transactions); (vi) all pending
thrift mergers in which the target thrift had assets between $75
million and $150 million (13 transactions); (vii) all pending thrift
mergers in which the target thrift had a return on assets of between
0.50% and 0.75% (9 transactions); (viii) all pending thrift mergers in
which the target thrift had a return on equity of between 8% and 10%
(12 transactions); (ix) all pending thrift mergers in which the target
thrift had a tangible equity ratio of between 7% and 8% of assets (7
transactions); and (x) all pending thrift mergers in which the target
thrift had a nonperforming assets to assets ratio of between 0.75% and
1.25% (9 transactions). Trident also considered the pricing ratios
for ten pending or completed thrift merger transactions in which the
target thrift had similar profitability and asset quality ratios.
Trident then performed a comparison of a number of financial ratios
for Valley Federal to those of the target thrift institutions. Based
on Valley Federal's financial condition and results of operations, as
well as other factors, relative to the groups of thrift mergers noted
above, Trident chose ranges of pricing ratios to apply to Valley
Federal. Trident chose price to book value ratios of 125% to 145%,
resulting in per share values of
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$33.00 to $38.25; price to tangible book value ratios of 125% to 145%,
resulting in per share values of $33.00 to $38.25; price to earnings
multiples of 14.0 to 17.0 times earnings, resulting in per share
values of $29.50 to $35.75; price to assets ratios of 8% to 10%,
resulting in per share values of $27.75 to $34.50 and premiums over
tangible book value as a percentage of core deposits of 4% to 5%,
resulting in per share values of $36.50 to $39.00. Based on these
derived ranges of value, Trident established a reference range of
$32.00 to $38.00 per share using the market approach.
Trident then reviewed the results from the three approaches, and after
consideration of all relevant facts, reconciled the acquisition values
generated by each approach and determined a final range of $32.00 to
$37.00 per share for the acquisition value of Valley Federal. Trident
did not apply specific weights to the three individual approaches, but
rather gave greater consideration to the asset and income approaches,
which were supported by the market approach, in reconciling the
reference ranges and estimating the final range of value for Valley
Federal.
The following is a brief summary of the Merger Analysis and Due
Diligence Report presented to the Board of Directors of Valley Federal
on November 1, 1995:
Summary of Proposed Transaction. Trident presented a summary of the
financial terms of the Merger. Trident also compared the pricing
ratios for the Merger with the median pricing ratios for selected
groups of pending thrift mergers and acquisitions. Trident discussed
the advantages and disadvantages of the Merger from a financial point
of view.
Review of Due Diligence Examination of UPC. Trident presented a
summary of its on-site due diligence examination of UPC. UPC's
historical balance sheets and income statements were presented, along
with a variety of financial ratios that analyzed UPC's financial
condition and operating results through September 30, 1995. Trident
discussed UPC's strengths and weaknesses, peer group comparisons,
profitability, dividends, financial condition, loan portfolio
composition, asset quality, loan loss reserve coverage, stock price,
business strategy growth, UPC's previous mergers and acquisitions, its
banking subsidiaries, recent regulatory examinations of UPC, recent
bank analysts' reports on UPC and other issues. Trident reported that
during its investigation, Trident did not discover any conditions that
would prevent it from rendering its fairness opinion to Valley
Federal's Board of Directors. As discussed above, Trident relied,
without independent verification, upon the accuracy and completeness
of all the financial and other information provided by UPC.
UPC's Stock Pricing. Trident examined the trading activity of UPC
common stock between October 27, 1994 and October 27, 1995, and
compared the performance of UPC's stock to certain stock indices.
Trident also compared UPC and the pricing of its common stock to other
regional commercial banks, commercial banks of a similar size and all
actively-traded commercial banks as of October 27, 1995.
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On April 10, 1996, Trident met with the Board of Directors of Valley Federal
via teleconference to discuss UPC's proposal to reduce the Exchange Ratio to
1.0976 shares of UPC Common Stock for each share of Valley Federal Common Stock
as a result of the restatement of Valley Federal's financial statements for the
fiscal years ended September 30, 1995 and 1994 and the quarters ended December
31, 1995 and 1994. Trident informed the Board of Directors that, because the
value of the consideration to be received by the Valley Federal Shareholders
pursuant to the reduced Exchange Ratio still fell within the range of $32.00 to
$37.00 per share previously established and because such range had been
established assuming a higher book value and level of earnings based on Valley
Federal's financial statements prior to the restatement, Trident would still be
able to render its opinion that the consideration to be received by the Valley
Federal Shareholders was fair to them from a financial point of view.
The summaries of Trident's Valuation Report, Merger Analysis and Due
Diligence Report, and the Opinion set forth above reflect all the material
analysis, factors and assumptions considered by Trident and the material
valuation methodologies used by Trident in arriving at the Opinion as to
fairness described above. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial or summary description.
Trident believes that its analyses and the summary set forth above must be
considered as a whole and that selecting portions of its analyses, without
considering all of the analyses, or all of the above summary, without
considering all factors and analyses, would create an incomplete view of the
processes underlying the analyses set forth in Trident's reports and the
Opinion. Therefore, the ranges of valuations resulting from any single
analysis described above should not be taken to be Trident's view of the actual
value of Valley Federal or the combined company. In performing its analyses,
Trident made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
the control of Valley Federal or UPC. The values or actual future results are
a result of changing economic conditions, changes in company strategy and
polices, as well as a number of other factors. Such individual analyses were
prepared to provide valuation guidance solely as part of Trident's overall
valuation analysis and the determination of the fairness of the consideration
to be received by Valley Federal's shareholders, and were provided to Valley
Federal's Board of Directors in connection with the delivery of Trident's
opinion. The analyses do not purport to be appraisals or to reflect the prices
at which a company might actually be sold or the prices at which any securities
may trade at the present time or at any time in the future. Trident's opinion
and presentations to Valley Federal's Board of Directors were among the many
factors taken into consideration by Valley Federal's Board of Directors in
making its determination to approve the Combination Agreement.
Trident, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwriting, and valuations for corporate
and other purposes. Trident has extensive experience with the valuation of
financial institutions. Valley Federal's Board of Directors selected Trident
as its financial advisor because of its previous experience with Trident,
because Trident is a nationally recognized investment banking firm specializing
in financial institutions and because of its substantial experience in
transactions similar to the Merger. Trident is not affiliated with either
Valley Federal or UPC.
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For its services as a financial advisor, Valley Federal paid Trident a
retainer of $5,000, a fee of $10,000 upon the delivery of the Valuation Report,
and a fee of $25,000 upon execution of the Combination Agreement. An
additional fee equal to $100,000 plus 2% of the amount by which the aggregate
value of the Merger exceeds $9 million (and therefore contingent upon such
value), less $25,000, will be payable to Trident upon consummation of the
Merger (a balance due of approximately $159,000 based on a share price of
$30.375 for UPC Common Stock). Valley Federal has also agreed to reimburse
Trident for its reasonable out-of-pocket expenses and to indemnify Trident
against certain liabilities, including certain liabilities under federal
securities laws.
TERMS OF THE MERGER
At the Effective Time of the Merger, Interim will merge with and into
Valley Federal with Valley Federal surviving the Merger. As the surviving
entity, Valley Federal will continue to operate as a wholly-owned subsidiary of
UPC. In that manner, Valley Federal will be acquired by UPC. Subsequent to
the Merger, it is anticipated that Valley Federal will be merged with
BANKFIRST, a wholly-owned subsidiary of UPC headquartered in Decatur, Alabama.
See "-- Management After the Merger". In the Merger, each share of Valley
Federal Common Stock outstanding immediately prior to the Effective Time of the
Merger will be converted into 1.0976 shares of UPC Common Stock (including the
corresponding number of rights associated with the UPC Common Stock pursuant to
the UPC Share Purchase Rights Agreement). Thereafter, shares of Valley Federal
Common Stock held by Valley Federal Record Holders immediately prior to the
Effective Time of the Merger shall constitute only the right to receive such
consideration.
The Exchange Ratio. Pursuant to the Combination Agreement, the Valley
Federal Record Shareholders will receive for each of their shares of Valley
Federal Common Stock 1.0976 shares of UPC Common Stock (including the
corresponding number of rights associated with the UPC Common Stock pursuant to
the UPC Share Purchase Rights Agreement). No fractional shares of UPC Common
Stock will be issued in the transaction and if, after aggregation of all shares
(and fractional shares) of UPC Common Stock to which a Valley Federal Record
Shareholder shall be entitled to receive as a result of the Merger being
consummated, such Valley Federal Record Shareholder should be entitled to any
fraction of a share of UPC Common Stock, cash will be paid by UPC in lieu of
such remaining fractional share based on the closing sale price of UPC Common
Stock on the NYSE on the Closing Date.
Valley Federal Options. Pursuant to Section 2.7 of the Combination
Agreement, at the Effective Time of the Merger all Valley Federal Options then
outstanding immediately prior to the Effective Time of the Merger will be
automatically amended to represent the option to purchase that number of shares
of UPC Common Stock (rounded up to the nearest whole share) as would equal the
number of shares subject to option multiplied by the Exchange Ratio for each
share of Valley Federal Common Stock which otherwise could be purchased upon
the same terms and conditions except for appropriate adjustments to the option
prices for UPC Common Stock substituted therefor such that the aggregate option
exercise price of shares subject to an option immediately following the
substitution will be the same as the aggregate option price for such shares
immediately prior to such substitution. Thereafter, the stock option plan
pursuant to which the Valley Federal Options
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were issued will remain in effect, but no additional Valley Federal Options
will be issued. UPC will register with the Commission the shares of UPC Common
Stock to be issued upon exercise of the Valley Federal Options outstanding
immediately prior to the Effective Time of the Merger, which it is anticipated
will become effective on or shortly after the Effective Date of the Merger.
Such shares will also be listed on the NYSE.
EFFECTIVE DATE AND EFFECTIVE TIME OF THE MERGER
As soon as reasonably practicable after all conditions precedent
contained in the Combination Agreement have been satisfied or lawfully waived,
including receipt of all regulatory approvals and expiration of all statutory
waiting periods, or on such later date as may be agreed to by UPC and Valley
Federal, the parties will cause to be filed Articles of Combination with the
OTS. The Effective Time and Date of the Merger will be the time and date
specified on the endorsement of the Articles of Combination by the OTS. It is
presently expected that the Effective Time of the Merger will occur in the
third quarter of 1996.
SURRENDER OF CERTIFICATES
Within ten business days after the Effective Time of the Merger, the
Corporate Trust Department of Union Planters National Bank, acting in the
capacity of exchange agent for UPC and Valley Federal (the "Exchange Agent"),
will mail to each Valley Federal Record Shareholder a form letter of
transmittal, together with instructions and a return mailing envelope
(collectively, the "Exchange Materials") to facilitate the exchange of such
holder's certificates formerly representing shares of Valley Federal Common
Stock for UPC Common Stock and the cash payment for any fractional share, as
provided in the Combination Agreement.
VALLEY FEDERAL SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE THE EXCHANGE MATERIALS FROM THE EXCHANGE AGENT.
Upon receipt of the Exchange Materials, Valley Federal Record
Shareholders should complete the letter of transmittal in accordance with the
instructions provided and deliver the letter of transmittal, together with all
stock certificates formerly representing shares of Valley Federal Common Stock
to the Exchange Agent in the return envelope provided. If the Exchange Agent
shall have received the certificates and related documentation completed in
proper form, on or prior to the thirtieth day after the Effective Time of the
Merger, UPC will issue and the Exchange Agent will mail to the Valley Federal
Record Shareholder a certificate representing the whole number of shares of UPC
Common Stock to which such holder is entitled pursuant to the Combination
Agreement, together with a check in the amount of any cash consideration in
lieu of a fractional share. No consideration will be delivered to a Valley
Federal Record Shareholder unless and until such holder shall have properly
delivered to the Exchange Agent certificates formerly representing the shares
of Valley Federal Common Stock owned by him or her and in respect of which he
or she claims payment is due, or such documentation, if applicable, and
security in respect of lost or stolen certificates as may be required by the
Combination Agreement or the Exchange Materials.
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No dividend or other distribution with respect to the shares of UPC
Common Stock will be paid or delivered to the holder of any unsurrendered
certificate(s) formerly evidencing and representing shares of Valley Federal
Common Stock until the holder surrenders such certificate(s) in accordance with
the Exchange Materials, at which time the holder will be entitled to receive
all previously withheld dividends and distributions, without any interest
thereon.
After the Effective Time of the Merger there will be no further
transfers recognized of Valley Federal Common Stock on Valley Federal's stock
transfer books. If certificates representing shares of Valley Federal Common
Stock should be presented for transfer after the Effective Time of the Merger,
they will be returned to the presenter together with a form of letter of
transmittal and exchange instructions.
Neither UPC, Valley Federal, the Exchange Agent, nor any other person
shall be liable to any former Valley Federal Record Shareholder for any amount
properly delivered to a public official pursuant to applicable unclaimed
property, escheat or similar laws.
If a certificate formerly representing Valley Federal Common Stock
shall have been lost, stolen or destroyed, the Exchange Agent will deliver the
consideration properly payable with respect to the shares of Valley Federal
Common Stock formerly represented by such certificate in accordance with the
Combination Agreement upon receipt of appropriate evidence as to such loss,
theft or destruction; appropriate evidence as to ownership of such certificate
by the claimant; and a lost instrument bond in form and with a surety
satisfactory to UPC and the Exchange Agent as required by the Exchange
Materials.
NO SHAREHOLDERS' DISSENTERS' RIGHTS
Shareholders of Valley Federal do not have the right to dissent from
the Merger and obtain in cash the fair value of their shares of Valley Federal
Common Stock under applicable OTS statutes and regulations.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of UPC and Valley Federal to effect the
Merger are subject to the satisfaction of the following conditions prior to the
Effective Time of the Merger: (i) approval of the Combination Agreement and
Plan of Combination and the transactions contemplated thereby by the
affirmative votes of the holders of at least two-thirds (2/3) of the total
shares of Valley Federal Common Stock outstanding on the Record Date; (ii)
approval of the Combination Agreement and the transactions contemplated thereby
by the Federal Reserve, the OTS and the Alabama Department, and the expiration
of any statutory waiting periods with respect thereto; (iii) no claim, action,
suit, investigation or other proceeding shall be pending or threatened before
any court or agency which presents a substantial risk of the restraint or
prohibition of the consummation of the Merger or the obtaining of material
damages or other relief in connection therewith; and (iv) the Registration
Statement of which this Proxy Statement-Prospectus forms a part shall have been
declared effective
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by the Commission and no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the Commission or any state
securities commission.
The obligations of UPC and Interim to effect the Merger are further
subject to the satisfaction or waiver by UPC and Interim of the following
conditions: (i) UPC shall have received a legal opinion, dated the date of
Closing, from counsel to Valley Federal as to the due organization, valid
existence and good standing of Valley Federal, the enforceability and due
authorization of the Combination Agreement, the due authorization of the Valley
Federal Common Stock, the receipt of all required approvals and the absence of
conflict with Valley Federal's Charter and Bylaws (subject to limitations as
provided in the Combination Agreement); (ii) each of the representations and
warranties of Valley Federal set forth in the Combination Agreement shall, in
all material respects, be true on and as of the Effective Date of the Merger as
if made on such date (except to the extent they relate by their terms to an
earlier date or to the extent the breach thereof would not have, or would not
reasonably be expected to have, a material adverse effect on the business and
operations of Valley Federal); (iii) there shall have been no damage to or
destruction of any property of Valley Federal, and no zoning or other order,
limitation or restriction shall have been imposed against the same, in either
case, where such destruction or imposition would have a material adverse impact
upon the operations, business or prospects of Valley Federal (after considering
any available insurance coverage); (iv) the absence of any change in the
business, financial condition, results of operations or prospects of Valley
Federal (other than changes attributable to changes in laws, regulations, or
generally accepted accounting principles, changes in interest rates, economic,
financial or market conditions affecting the banking or thrift industry
generally, or changes that may occur as a consequence of actions or inactions
that either party hereto is expressly obligated to take under the Combination
Agreement); (v) Valley Federal shall not have committed to effect any form of
business combination with, or asset sale to, any other person or entity,
adopted any "poison pill", shareholders' rights provision or "golden
parachute", or taken any other action the effect of which would be to
materially diminish the value of Valley Federal to UPC; (vi) Valley Federal
shall have at the Effective Date total assets of not less than $120 million and
tangible equity capital of at least $9.0 million (as calculated pursuant to the
Combination Agreement) and shall not have issued or repurchased any shares of
Valley Federal Common Stock or other securities (except pursuant to the
exercise of Valley Federal stock options) and, since September 30, 1994, there
shall have been no extraordinary sale of assets, nor any investment portfolio
restructuring; (vii) each non-officer member of the Valley Federal Board shall
have entered into a non-compete agreement with UPC and Valley Federal,
providing for a term of not less than two years and covering the general
geographic regions in which Valley Federal operates and does business; (viii)
UPC shall have received from Price Waterhouse LLP a letter dated within five
(5) business days prior to the Closing Date stating its opinion that the Merger
should be accounted for by UPC as a pooling of interests for financial purposes
and that such accounting is in accordance with GAAP and from Valley Federal's
independent accountants a letter dated within five (5) business days prior to
the Closing Date stating that it is aware of no reason why the Merger may not
be accounted for as a pooling of interests; (ix) UPC shall have received from
its legal counsel an opinion to the effect that the Merger will constitute one
or more tax-free reorganizations under the Internal Revenue Code and that the
Valley Federal Shareholders will not recognize any gain or loss in the Merger,
to the extent that such Valley Federal Shareholders exchange shares of Valley
Federal Common Stock solely for shares of UPC
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Common Stock as contemplated by the Merger; (x) each of the material acts and
undertakings of Valley Federal to be performed at or before the Closing Date
pursuant to the Combination Agreement shall have been duly performed, except
for breaches of acts and undertakings which would not have, or would not
reasonably be expected to have, any material adverse effect on the business or
operations of Valley Federal; and (xi) UPC shall have received certain
certificates signed by various officers of Valley Federal.
The obligation of Valley Federal to effect the Merger is further
subject to the satisfaction or waiver by Valley Federal of the following
conditions: (i) Valley Federal shall have received a legal opinion, dated the
date of Closing, from counsel to UPC and Interim as to the due organization,
valid existence and good standing of UPC and Interim; the enforceability and
due authorization of the Combination Agreement by UPC and Interim; the receipt
of required approvals; the absence of conflict with UPC's and Interim's
respective Charters, Bylaws and material contracts; and the due authorization
of the shares of UPC Common Stock to be issued in the Merger (subject to
limitations as permitted in the Combination Agreement); (ii) each of the
representations and warranties of UPC and Interim set forth in the Combination
Agreement will, in all material respects, be true at the Effective Time of the
Merger as if made on such date (except to the extent they relate by their terms
to an earlier date or to the extent the breach thereof would not have, or would
not reasonably be expected to have, a material adverse effect on the business
and operations of Valley Federal); and Valley Federal shall have received a
certificate signed by certain officers of UPC and Interim to that effect; (iii)
each of the material acts and undertakings of UPC and Interim to be performed
at or prior to the Closing Date pursuant to the Combination Agreement shall
have been duly performed, except for breaches of acts and undertakings which
would not have or would not reasonably be expected to have, any material
adverse effect on the business or operations of UPC and the UPC subsidiaries
taken as a whole; (iv) Valley Federal shall have received from the Exchange
Agent a certificate to the effect that the Exchange Agent has received and
holds certificates representing the number of shares of UPC Common Stock, and
cash for any fractional shares, in an amount sufficient to meet the obligations
of UPC to the Valley Federal Shareholders under the Combination Agreement; (v)
Valley Federal shall have received an opinion from Trident that the Exchange
Ratio is fair to the Valley Federal Shareholders from a financial point of
view, such fairness opinion shall not have been withdrawn prior to the Special
Meeting and Valley Federal shall have received an updated "fairness opinion"
within five days prior to the Closing Date; (vi) Valley Federal shall have
received a legal opinion from its legal counsel that the Merger will constitute
one or more tax-free reorganizations under Section 368 of the Code and certain
related tax matters; and (vii) Valley Federal shall have received certain
certificates signed by various officers of UPC and Interim.
No assurance can be provided as to when or whether all of the
conditions precedent to the Merger will be satisfied or waived by the party
lawfully permitted to do so.
REGULATORY APPROVALS
The Merger and its related transactions are subject to prior approval
by (i) the Federal Reserve under Section 3(a) of the Bank Holding Company Act,
as amended (the "Bank Holding Company Act"); (ii) the OTS under the Home
Owners' Loan Act ("HOLA"); and (iii) the Alabama
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Department under Title 5-14A-3 et seq of the Alabama Code. The Bank Holding
Company Act and HOLA require that the Federal Reserve and the OTS take into
consideration, among other factors, the financial and managerial resources and
future prospects of the institutions and the convenience and needs of the
communities to be served. The Bank Holding Company Act and HOLA prohibit the
Federal Reserve and the OTS from approving the Merger if it would result in a
monopoly or be in furtherance of any combination or conspiracy to monopolize or
to attempt to monopolize the business of banking in any part of the United
States, or if its effect in any section of the country would be to
substantially lessen competition or to tend to create a monopoly, or if it
would in any other manner be a restraint of trade, unless the Federal Reserve
and the OTS should find that the anti-competitive effects of the Merger are
clearly outweighed by the public interest and the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served. The Federal Reserve and the OTS also has the authority to deny an
application if it should conclude that the combined organization would have an
inadequate capital position or if the acquiring organization does not comply
with the requirements of the Community Reinvestment Act of 1977, as amended
(the "CRA"). Under the Bank Holding Company Act, the Merger may not be
consummated earlier than the 15th day following the date of approval by the
Federal Reserve, during which period the United States Department of Justice is
afforded an opportunity to challenge the Merger on antitrust grounds.
Approvals of the Merger were received on January 22, 1996 from the
Alabama Department, February 2, 1996 from the Federal Reserve and March 13,
1996 from the OTS. See "THE MERGER--Conditions to Consummation of the Merger"
and "-- Waiver and Amendment; Termination."
Regulatory approval reflects only the view by the particular
regulatory agencies that the transaction does not contravene applicable
competitive standards imposed by law, and that the transaction is consistent
with regulatory policies regarding safety and soundness. A regulatory agency's
approval is not an opinion by that regulatory agency that the proposed Merger
is favorable to Valley Federal Shareholders from a financial point of view, or
that the regulatory agency has considered the adequacy of the terms of the
proposed Merger. A REGULATORY AGENCY'S APPROVAL OF THE MERGER IS NOT, AND
SHOULD NOT BE CONSTRUED AS, AN ENDORSEMENT OR RECOMMENDATION OF THE PROPOSED
MERGER.
CONDUCT OF BUSINESS PENDING THE MERGER
The Combination Agreement contains certain restrictions upon the
conduct of Valley Federal's business pending consummation of the Merger. In
particular, the Combination Agreement provides that, without the written
consent of UPC, Valley Federal may not, among other things; (i) amend its
Charter or Bylaws; (ii) impose or permit any lien, charge or encumbrance to
exist in respect to any share of stock held by Valley Federal; (iii)
repurchase, redeem or otherwise acquire any of its capital stock or other
equity securities or any securities or instruments convertible into any shares
of its capital stock or any rights or options to purchase any shares of its
capital stock except as otherwise permitted by the Combination Agreement, split
or otherwise subdivide its capital stock, recapitalize in any way or declare a
cash or stock dividend in respect to the Valley Federal Common Stock other than
its regular annual cash dividend of sixty cents ($0.60) per share of Valley
Federal Common
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Stock, the declaration dates of which shall be in accordance with Valley
Federal's past practice; (iv) issue, sell, agree to sell, or otherwise dispose
of or permit to become outstanding any Valley Federal Common Stock (except for
the issuance of shares of Valley Federal Common Stock upon the exercise of
options outstanding as of the date of the Combination Agreement), sell or
otherwise dispose of a substantial part of Valley Federal's assets or earning
power or acquire a substantial part of the assets or earning power of any other
entity; (v) dispose of, discontinue or acquire any asset other than in the
ordinary course of business; (vi) incur any additional debt in excess of
$50,000 except in the ordinary course of business; (vii) increase compensation
or benefits, pay bonuses or enter into severance arrangements except in
accordance with past practices or effect any change in retirement benefits for
any class of its employees, directors or officers, unless such change is
required by applicable law; (viii) amend any existing employment contract with
any person having a salary in excess of $30,000 per year (unless such amendment
is required by law) to increase the compensation or benefits payable
thereunder, except that any increase in accordance with past practices is
permitted, or enter into any new employment contract providing for an annual
salary exceeding $30,000 per year unless Valley Federal may terminate such
contract at will without liability, other than liability for past services;
(ix) adopt any new, or make any material change in or termination of any
existing, benefit plan (unless such amendment is required by law) to increase
the compensation or benefits payable thereunder, except that any increase in
accordance with past practices is permitted; (x) enter into any material lease
agreement; (xi) make any capital expenditures except in the ordinary course of
business; (xii) extend credit (or commit to extend credit) to any officer,
director or holder of 5% or more of Valley Federal Common Stock if such
extension of credit would exceed 2% of the capital of Valley Federal or amend
the terms of any such credit; (xiii) except as permitted by the Combination
Agreement, acquire direct or indirect control over any person or entity except
in connection with mergers, acquisitions, or other transactions approved in
writing by UPC, internal reorganizations involving existing subsidiaries,
acquisitions in Valley Federal's fiduciary capacity, or the creation of new
subsidiaries organized to conduct or continue activities otherwise permitted by
the Combination Agreement; or (xiv) enter into any transaction other than in
the ordinary course of business.
Valley Federal has also agreed (i) to call a meeting of its
shareholders for the purpose of seeking approval of the Combination Agreement
as soon as reasonably practicable after the date of the Combination Agreement
and to use its best efforts to ensure that such meeting is held not later than
45 days after the registration statement has been declared effective by the
Commission and the proxy materials cleared by the OTS; (ii) to cooperate with
UPC in the preparation of the registration statement and the proxy materials;
(iii) to use its best efforts to assist UPC in obtaining all required
government approvals necessary to complete the transactions contemplated by the
Combination Agreement and to provide to UPC or to the appropriate governmental
authorities all information reasonably required to be submitted in connection
with obtaining such approvals; (iv) to secure all necessary consents and
releases required of Valley Federal at its own cost and expense and to comply
with all applicable laws, regulations and rulings in connection with the
Combination Agreement and the consummation of the transactions contemplated
thereby; (v) at all times, until and as of the Closing, to inform UPC in
writing of any and all facts necessary to amend or supplement the
representations and warranties made in the Combination Agreement and the
related schedules attached thereto as necessary so that the information
contained therein will accurately reflect the
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current status of Valley Federal; (vi) to give such further assistance to UPC
and to execute, acknowledge and deliver all such documents and instruments as
UPC may reasonably request and take such further action as may be necessary or
appropriate effectively to consummate the transactions contemplated by the
Combination Agreement; (vii) to afford UPC and its authorized representatives
reasonable access during normal business hours to the properties, operations,
books, records, contracts, documents, loan files and other information of, or
relating to Valley Federal (other than information with respect to the
deliberations of Valley Federal concerning the Combination Agreement, the
Merger and the transactions contemplated thereby) and to provide reasonable
assistance to UPC in its investigation of matters relating to Valley Federal
and its subsidiaries; (viii) to use all reasonable efforts and to take, or to
cause to be taken, all actions, and to do, or to cause to be done, all things
necessary, proper, or advisable under applicable laws and regulations to
consummate and make effective, with reasonable promptness after the date of the
Combination Agreement, the transactions contemplated by the Combination
Agreement, including, without limitation, using reasonable efforts to lift or
rescind any injunction or restraining or other order adversely affecting the
ability of the parties to consummate the transactions contemplated by the
Combination Agreement; and (ix) to cause the Valley Federal Common Stock to
continue at all times through the Effective Time of the Merger to be listed on
the Nasdaq Stock Market. The Board of Directors of Valley Federal also agreed
to recommend, subject to compliance with its legal and fiduciary duties as
advised by outside counsel, to the Valley Federal Record Shareholders the
approval of the Combination Agreement and the Plan of Combination and to use
its best efforts to obtain such approvals, subject to compliance with its legal
and fiduciary duties.
Valley Federal has further agreed that, unless the prior written
consent of UPC is obtained and except as otherwise contemplated by the
Combination Agreement, it will: (i) operate its business only in the usual,
regular and ordinary course; (ii) preserve intact its business organization and
assets and maintain its rights and franchises; (iii) take no action, unless
required by law, rules or regulation that would (a) adversely affect the
ability of any of them or UPC to obtain any necessary approvals of regulatory
authorities necessary to consummate the transactions contemplated by the
Combination Agreement, or (b) adversely affect the ability of any party to
perform its covenants and agreements under the Combination Agreement; (iv)
except as they may terminate in accordance with their terms, keep in full force
and effect, and not default in any of its obligations under all material
contracts; (v) keep in full force and effect insurance coverage with
responsible insurance carriers which is reasonably adequate in coverage and
amount for companies the size of Valley Federal and for the businesses and
properties owned by it and in which it is engaged, to the extent that such
insurance is reasonably available, and give notice, in accordance with the
terms and conditions of its current policies, of any existing or potential
claims arising out of events and circumstances occurring during the effective
time of such policies; (vi) use its best efforts to retain Valley Federal's
present customer base and to facilitate the retention of such customers after
the Effective Time of the Merger; and (vii) maintain, renew, keep in full force
and effect, and preserve its business organization and material rights and
franchises, permits and licenses, and to use its best efforts to maintain its
existing, or substantially equivalent, credit arrangements with banks and other
financial institutions.
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WAIVER AND AMENDMENT; TERMINATION
Prior to the Effective Date of the Merger any condition to closing set
forth in the Combination Agreement may (to the extent permitted by law) be
waived by the party benefitted by the provision, or the Combination Agreement
may be amended or modified (including the structure of the transaction) by an
agreement in writing between the parties.
The Combination Agreement may be terminated at any time prior to the
Effective Date of the Merger, either before or after approval by the Valley
Federal Shareholders, as follows: (i) by the mutual consent of the parties;
(ii) by UPC or Interim if Valley Federal should violate any affirmative or
negative covenant in respect to the operation of its business as provided in
the Combination Agreement; (iii) by UPC, Interim or Valley Federal if the
Closing Date shall not have occurred on or before August 1, 1996, unless the
failure should be due to actions of the party seeking to terminate, provided,
however, that if UPC shall have filed any and all applications to obtain the
requisite governmental approvals within 60 days of the date of the Combination
Agreement, and if the Closing shall not have occurred solely because of a delay
caused by a regulatory agency or authority in its review of the application
before it, then Valley Federal shall, upon UPC's written request, extend the
Closing Date until August 31, 1996; (iv) by either party if any governmental or
regulatory approval should be denied and not successfully appealed within
certain time limits; (v) by either party if the other party's closing
conditions shall not have been satisfied in all material respects or waived as
of the Closing Date or if the other party shall have committed a material
breach which shall not have been cured within 30 days after the breaching party
receives notice of such breach; (vi) by UPC or Interim should Valley Federal
enter into any business combination or any letter of intent or agreement with
respect thereto with any other person; (vii) by UPC or Interim upon the
occurrence of any event or circumstances which may have the effect of limiting
or restricting UPC's voting power or other rights normally enjoyed by the
Valley Federal Shareholders; or (viii) by UPC or Interim should Valley Federal
enter into any formal agreement, letter of understanding, memorandum or other
similar arrangement with any bank regulatory authority establishing a formal
capital plan.
In the event of the valid termination of the Combination Agreement by
either UPC or Valley Federal, the Combination Agreement and the Plan of
Combination shall become void, and there will be no liability on the part of
either party or their officers or directors except for liability for breach of
the Combination Agreement or for any misstatement or misrepresentation made
prior to such termination.
REPRESENTATIONS AND WARRANTIES OF VALLEY FEDERAL
Valley Federal has made certain representations and warranties to UPC
and Interim with respect to, among other things, its organization and
qualification and the organization and qualification of any Valley Federal
subsidiary; the authorization, execution and delivery of the Combination
Agreement and the absence of any breach as a result of such Combination
Agreement; the absence of any legal restrictions on Valley Federal or its
subsidiaries; government and other approvals; licenses and franchises; charter
documents; financial statements; the absence of certain
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changes; deposits; properties; condition of its fixed assets and equipment; tax
matters; litigation; hazardous materials; insurance; labor and employment
matters; capitalization; disclosure; the absence of undisclosed liabilities;
classified assets; compliance with laws; employee benefit plans; material
contracts; material contract defaults; reports; and the truth and accuracy of
certain statements, the disclosure schedule, and Exchange Act and listing
filings.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF UPC AND INTERIM
UPC and Interim have made certain representations and warranties to
Valley Federal with respect to, among other things, their organization and
corporate authority; the authorization, execution and delivery of the
Combination Agreement and the absence of any breaches as a result thereto; the
absence of any legal bar on the consummation of the transactions contemplated
by the Combination Agreement; government approvals; capitalization; the UPC
financial statements; Exchange Act filings; the UPC Common Stock; licenses and
franchises; the absence of certain changes; tax matters; litigation; the
absence of undisclosed liabilities; compliance with laws; material contract
defaults; the truth and accuracy of certain statements and information; and
full disclosure.
UPC has also agreed (i) it will not take any action or fail to take
any action which would adversely affect its ability to perform its obligations
under the Combination Agreement or the tax or accounting treatment of the
Merger; (ii) to use all reasonable efforts and to take, or cause to be taken,
all actions necessary, proper or advisable under applicable laws and
regulations to consummate and make effective, with reasonable promptness, the
Merger; and (iii) to cause each of its subsidiaries to use its reasonable best
efforts to obtain consents of all third parties and regulatory authorities
necessary for the consummation of the transactions contemplated by the
Combination Agreement.
MANAGEMENT AFTER THE MERGER
The Combination Agreement, the Plan of Combination and the Letter
Agreement provide that, after the Effective Time of the Merger, the name of
Valley Federal as the surviving bank shall remain Valley Federal Savings Bank,
and that Valley Federal's directors and officers in place immediately prior to
the Effective Time of the Merger shall continue to be the directors and
officers of Valley Federal after the Effective Time of the Merger, subject to
changes resulting from the contemplated merger between Valley Federal and
BANKFIRST as discussed below. In addition, UPC has agreed that, until the
earlier of the effective time of the merger of Valley Federal and BANKFIRST, as
described below, or the third anniversary of the Effective Date of the Merger,
the Board of Directors of Valley Federal shall be composed of the same persons
currently serving as directors of Valley Federal, provided that, without UPC's
consent, the number of directors may not be increased and no interim or
replacement director will be appointed upon the death, retirement or removal of
any Valley Federal director unless required by OTS regulation.
It is anticipated that Valley Federal may be merged with BANKFIRST, a
wholly-owned subsidiary of UPC headquartered in Decatur, Alabama. In such
event, it is expected that William D. Powell, the current Chairman and Chief
Executive Officer of BANKFIRST, would continue as
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the Chairman and Chief Executive Officer of the surviving institution and that
Billy Don Anderson, the President and Chief Executive Officer of Valley
Federal, would serve as the President and Chief Operating Officer of the
surviving institution. In addition, in the event of a merger between BANKFIRST
and Valley Federal, the board of directors of the surviving institution would
be composed of the directors of BANKFIRST as of the effective date of the
merger, the non-officer members of Valley Federal's Board of Directors as of
the effective date of the merger, and Mr. Anderson. UPC has agreed that it
shall cause to be elected for one additional term as directors of the surviving
institution, those persons initially serving as directors of the surviving
institution as described above or such persons who are nominated by the board
of directors of the surviving institution regardless of any otherwise
applicable age-related requirement provided that, each director (i) continues
to qualify to serve as such, (ii) is not permanently incapacitated and unable
to serve as director, and (iii) continues to adequately perform his services as
a director, and further provided that UPC has not determined that the
institution resulting from the merger of BANKFIRST and Valley Federal has
failed to meet the general performance standards of other UPC Banking
Subsidiaries.
As long as Valley Federal operates as a separate institution, UPC has
agreed that staffing related decisions regarding Valley Federal shall be vested
solely in Mr. Anderson and the Valley Federal Board of Directors. In the event
of a merger of BANKFIRST and Valley Federal, all matters relating to personnel
will be determined by Mr. Powell and Mr. Anderson, subject to supervision by
the board of directors of the surviving institution, without prior approval by
UPC.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Valley Federal has entered into an employment agreement with Billy Don
Anderson under which Mr. Anderson serves Valley Federal as its President and
Chief Executive Officer. Under the terms of the agreement, Mr. Anderson will
be entitled, upon consummation of the Merger, to be paid an amount equal to the
product of 2.99 times Mr. Anderson's average base salary over the prior five
year period, approximately $397,134.
Currently, certain directors of Valley Federal participate in a
directors' deferred compensation plan pursuant to which a portion of the fees
payable to participating directors are deferred. Such plan will be terminated
as of the Effective Time of the Merger and all participants will, to the extent
provided under the plan and applicable law, become fully vested in and eligible
to receive benefits under the plan.
Valley Federal has entered into incentive stock option agreements with
certain officers and directors of Valley Federal pursuant to which each was
awarded options to purchase shares of Valley Federal Common Stock. Upon the
Effective Date of the Merger, each of such options shall become exercisable for
that number of shares of UPC Common Stock as shall equal the number of shares
subject to option multiplied by the Exchange Ratio.
From and after the Effective Date of the Merger, UPC has agreed to
indemnify each person who is now, or has been at any time prior to the date of
the Combination Agreement or who becomes prior to the Effective Date, an
officer, employee or director of Valley Federal against all
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losses, claims, damages, costs, expenses (including reasonable attorneys'
fees), liabilities or judgments or amounts paid in settlement of or in
connection with any claim, action, suit or proceeding to the extent it pertains
to any matter of fact arising prior to the Effective Date of the Merger
(including the transactions contemplated by the Combination Agreement) to the
full extent permitted under applicable federal law, as in effect on the date
hereof or amended prior to the Effective Time, and under Valley Federal's
charter and bylaws, as in effect on the date hereof. After the Effective Date
of the Merger, Valley Federal officers, employees and directors who become
officers, employees or directors of UPC or any of its subsidiaries shall
prospectively have the same indemnification rights to which officers, employees
and directors of UPC are entitled under the Charter of UPC and applicable law
and shall be covered on a prospective basis by UPC's directors and officers
liability insurance policy on a basis at least equal to the coverage provided
to persons in similar positions at UPC.
EMPLOYEE BENEFIT PLANS
Pursuant to the Letter Agreement, UPC has agreed to provide severance payments
to employees of Valley Federal (other than those employees whose severance
benefits are provided for in a written employment agreement) whose
employment with Valley Federal is terminated following the Effective Time of
the Merger in accordance with the terms of the UPC Involuntary Severance Pay
Plan, provided, however, that the following exceptions to such plan will apply
for a one year period following the Effective Time: (i) an offer of employment
at any affiliate of Valley Federal which the employee does not accept will not
make such employee ineligible to receive severance benefits; and (ii) employees
with one year or more of service will receive severance benefits equal to two
weeks salary plus one additional week for each year or partial year of service
with no maximum applicable. After the Effective Time of the Merger, all
employees of Valley Federal immediately prior to the Effective Time of the
Merger who continue as employees will be afforded the opportunity to
participate in any employee benefit plans maintained by UPC on an equal basis
with employees of UPC with comparable positions, compensation and tenure.
Pre-existing conditions for covered employees at the Effective Time of the
Merger will be waived under UPC's medical plan and service with Valley Federal
prior to the Effective Time will be deemed service with UPC for purposes of
determining eligibility for participation and vesting in such UPC employee
benefit plans. Employee welfare benefit plans maintained by Valley Federal
immediately prior to the Effective Time of the Merger will be terminated after
the Effective Time.
LIMITATION ON NEGOTIATIONS
The Combination Agreement provides that Valley Federal and its
subsidiaries shall not (and shall use their best efforts to ensure that their
respective directors, officers, employees and advisors do not) institute,
solicit or knowingly encourage any inquiry, discussion or proposal, or
participate in any discussions or negotiations with, or provide any
confidential or non-public information to, any entity or group concerning any
"Acquisition Proposal," except for actions reasonably considered by the Valley
Federal Board of Directors, based upon the advice of outside counsel, to be
required in order for the Valley Federal Board to fulfill its fiduciary
obligations. Valley Federal must notify UPC immediately following receipt of
any "Acquisition Proposal". The term "Acquisition Proposal"
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is defined to mean any tender offer, agreement, understanding or other proposal
of any nature pursuant to which any person or entity, other than UPC or any UPC
Subsidiary, would directly or indirectly (i) acquire or participate in a
merger, share exchange, consolidation or any other business combination
involving Valley Federal; (ii) acquire the right to vote ten percent or more of
the Valley Federal Common Stock; or (iii) acquire a significant portion of the
assets or earning power of Valley Federal.
In the event Valley Federal were to enter into a letter of intent or
agreement with respect to an Acquisition Proposal, Valley Federal or the
acquiror would be required to pay liquidated damages in the amount of $750,000
to UPC, which amount represents the sum of the agreed expenses incurred by UPC
in connection with the Merger and the agreed loss to UPC in the event the
Merger were not consummated. Such sum would be payable immediately in the
event that Valley Federal were to enter into a letter of intent or agreement
with respect to an Acquisition Proposal, provided that, if the Acquisition
Proposal is the result of a hostile takeover of Valley Federal, any sums due
UPC shall be paid only at the closing of the transactions set forth in such
Acquisition Proposal. The limitation on negotiations and provision for
liquidated damages will remain in effect until August 1, 1996, unless before
that date either the Merger should be consummated or the Combination Agreement
should be terminated, or if the Merger should be otherwise not consummated,
under specified circumstances. These provisions may have the effect of
discouraging competing offers to acquire or merge with Valley Federal.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a discussion of the material federal income tax
consequences of the Merger to Valley Federal and to Valley Federal Record
Shareholders who are citizens and residents of the United States. THE
FOLLOWING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF
ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER TO VOTE IN FAVOR OF
APPROVAL OF THE MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY. FURTHER, THE
DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A
PARTICULAR VALLEY FEDERAL RECORD SHAREHOLDER SUBJECT TO SPECIAL TREATMENT UNDER
CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS,
INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS AND
SHAREHOLDERS WHO ACQUIRED THEIR SHARES AS COMPENSATION, NOR ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN JURISDICTION. THE
DISCUSSION IS BASED UPON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (I.E.,
THE CODE), TREASURY REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT
DECISIONS AS OF THE DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE,
AND ANY SUCH CHANGE COULD AFFECT THE VALIDITY OF THIS DISCUSSION.
HOLDERS OF VALLEY FEDERAL COMMON STOCK ARE URGED TO CONSULT THEIR TAX
ADVISORS AS TO THE EFFECT OF THEIR PARTICULAR FACTS AND CIRCUMSTANCES ON THE
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THEM, AND ALSO AS TO THE
EFFECT OF ANY STATE, LOCAL, FOREIGN AND OTHER FEDERAL TAX LAWS.
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Under current federal income tax law, and based upon assumptions and
representations to be made by UPC and Valley Federal, and assuming the Merger
is consummated in the manner set forth in the Combination Agreement, it is
anticipated that the following federal income tax consequences will result:
(i) the Merger will constitute one or more tax-free reorganizations
within the meaning of Section 368 of the Code;
(ii) Valley Federal Record Shareholders will not recognize any gain
or loss to the extent that such Valley Federal Record Shareholders exchange
shares of Valley Federal Common Stock solely for shares of UPC Common Stock as
contemplated by the Combination Agreement and related Plan of Combination;
(iii) the basis of UPC Common Stock received by a Valley Federal
Record Shareholder who exchanges Valley Federal Common Stock solely for UPC
Common Stock in the Merger will be the same as the basis of the Valley Federal
Common Stock surrendered in exchange therefor (subject to any adjustments
required as a result of the receipt of cash in lieu of a fractional share of
UPC Common Stock); and
(iv) the holding period of the UPC Common Stock received by a Valley
Federal Record Shareholder in the Merger will include the period during which
the Valley Federal Common Stock surrendered in exchange therefor was held
(provided that the Valley Federal Common Stock of such Valley Federal Record
Shareholder was held as a capital asset at the Effective Time of the Merger.
Based upon representations to be made by UPC and Valley Federal as of
the Effective Time, Housley Kantarian & Bronstein, P.C., counsel to Valley
Federal, will render an opinion, dated as of the Effective Time, that the
Merger will qualify as one or more reorganizations with the consequences set
forth above. Additionally, based upon representations to be made by UPC and
Valley Federal as of the Effective Time, Wyatt, Tarrant & Combs, counsel to
UPC, will render an opinion, dated as of the Effective Time, that the Merger
will qualify as one or more reorganizations and that Valley Federal Record
Shareholders will not recognize any gain or loss to the extent that such Valley
Federal Record Shareholders exchange shares of Valley Federal Common Stock
solely for shares of UPC Common Stock in the Merger. Both opinions would be
based entirely upon the Code, regulations then in effect or proposed
thereunder, then-current administrative rulings and practice and judicial
authority, all of which would be subject to change, possibly with retroactive
effect. Consummation of the Merger is conditioned upon the receipt by UPC of
the opinion of Wyatt, Tarrant & Combs and the receipt by Valley Federal of the
opinion of Housley Kantarian & Bronstein, P.C. UPC and Valley Federal may
waive their receipt of the respective opinion as a condition to such
consummation, although such waiver by either party is not expected to be made.
See "-- Conditions to Consummation of the Merger."
No ruling has been or will be requested from the Internal Revenue
Service ("IRS"), including any ruling as to the federal income tax consequences
of the Merger to UPC, Valley Federal or the Valley Federal Record Shareholders.
Unlike a ruling from the IRS, the opinions of counsel are not
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binding on the IRS. There can be no assurance that the IRS will not take a
position contrary to the positions reflected in the tax opinions noted above or
that such opinions would be upheld by the courts if challenged.
Holders of Valley Federal Common Stock who receive cash in the Merger
as a result of the rounding off of fractional share interests in the UPC Common
Stock will be treated, in each instance, as having received the fractional
share interests and then having sold such interest for the cash received. This
sale will result in the recognition of gain or loss for federal income tax
purposes, generally measured by the difference between the amount of cash
received and the portion of the basis for the share of Valley Federal Common
Stock allocable to such fractional share interests.
ACCOUNTING TREATMENT
The Merger is expected to be treated by UPC and Valley Federal as a
pooling of interests for accounting purposes. Accordingly, under GAAP, as
described in Accounting Principles Board Opinion No. 16 for business
combinations, the assets and liabilities of Valley Federal and UPC will be
carried on the books of UPC immediately subsequent to the Effective Time of the
Merger at the amounts recorded on the respective books of each corporation
immediately prior to the Effective Time of the Merger. Net income of UPC
subsequent to the Merger becoming effective will include the net income of
Valley Federal and UPC for the entire fiscal period in which the Merger is
consummated. Consummation of the Merger is conditioned upon the receipt by UPC
of a letter from its independent accountants to the effect that the Merger
should be accounted for as a pooling of interests and a letter from Valley
Federal's independent accountants that they are aware of no reason why the
Merger should not be accounted for as a pooling of interests.
EXPENSES
The Combination Agreement provides, in general, that UPC, Valley
Federal and Interim will each pay its own expenses in connection with the
Combination Agreement and the transactions contemplated thereby, including fees
and expenses of their own independent accountants and counsel, provided that
UPC will pay all filing and registration fees and the costs of printing this
Proxy Statement-Prospectus.
RESALES OF UPC COMMON STOCK
The shares of UPC Common Stock issued to Valley Federal Record
Shareholders pursuant to the Combination Agreement will be freely transferable
under the Securities Act, except for those shares of UPC Common Stock issued to
any Valley Federal executive officer, director or shareholder who may be deemed
as of the date of the Special Meeting to be an "affiliate" of Valley Federal
and, therefore, an "underwriter" with respect to the UPC Common Stock received
for purposes of Rule 145 under the Securities Act. Affiliates may not sell
their shares of UPC Common Stock acquired in connection with the Merger except
pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 promulgated under the
Securities Act or another applicable exemption from the registration
requirements of the Securities
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Act. Persons who may be deemed to be affiliates of Valley Federal generally
include individuals or entities that control, are controlled by or are under
common control with, Valley Federal. In addition, so that UPC would be able to
account for the Merger as a pooling of interests, affiliates of Valley Federal
will be prohibited from pledging, assigning, selling, transferring or likewise
alienating or taking any action which would eliminate or diminish their risk of
owning or holding shares of UPC Common Stock received in the Merger, or from
entering into a formal or informal agreement to do so, until UPC has published
financial information reflecting the results of combined operations of UPC and
Valley Federal for a period of not less than thirty days. UPC will place
restrictive legends on certificates representing UPC Common Stock issued to all
persons who are deemed by UPC to be "affiliates".
CERTAIN REGULATORY CONSIDERATIONS
As a bank holding company, UPC is subject to the regulation and
supervision of the Federal Reserve. In addition, as a savings and loan holding
company, UPC is registered with the OTS. Thus, UPC is subject to Federal
Reserve and OTS regulation, supervision and reporting requirements. The UPC
Banking Subsidiaries which are national banking associations are subject to
supervision and examination by both the Office of the Comptroller of the
Currency (the "Comptroller") and the Federal Deposit Insurance Corporation (the
"FDIC"). State chartered bank subsidiaries of UPC which are members of the
Federal Reserve System are subject to supervision and examination by both the
Federal Reserve and the state banking authorities of the states in which they
are located. State-chartered bank subsidiaries of UPC which are not members of
the Federal Reserve System are subject to supervision and examination by both
the FDIC and the state banking authorities of the states in which they are
located. UPC's federally-chartered savings bank subsidiaries, like Valley
Federal, are subject to supervision and examination by the OTS. UPC's Banking
Subsidiaries are subject to various requirements and restrictions, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and regulations
also affect the operations of these banking subsidiaries. In addition to the
impact of regulation, these banking subsidiaries are also affected
significantly by the actions of the Federal Reserve as it attempts to control
the money supply and credit availability in order to influence the economy. A
more detailed discussion of this subject may be found in Part I, Item 1 of
UPC's Annual Report on Form 10-K for the year ended December 31, 1995, under
the caption GOVERNMENTAL SUPERVISION AND REGULATION OF FINANCIAL INSTITUTIONS
which is hereby incorporated by reference in this Proxy Statement-Prospectus.
Some of the many subjects of governmental regulation are: business
expansion through acquisitions or otherwise, capital adequacy, the requirement
of prompt corrective action under certain circumstances, restriction upon
payments of dividends and making other distributions, support of subsidiary
banks, limitations upon transactions with affiliates, FDIC Deposit Insurance
assessments, standards for safety and soundness, limitations upon acceptance of
brokered deposits, consumer protection, accounting, financial reporting and
similar matters.
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In the area of FDIC insurance assessments, Federal regulators have
recently reduced the annual premiums for most of the nation's banks, but not
savings associations, as a result of having reached required capital levels in
its Bank Insurance Fund ("BIF"). Under the new premium schedule, the annual
premiums for banks range from a minimum of $2,000 per year to $.27 for every
$100 of deposits as opposed to a range of $.23 to $.31 under the old assessment
schedule. For a detailed description of FDIC insurance assessment
requirements, see Part I, Item 1 of UPC's Annual Report on Form 10-K for the
year ended December 31, 1995. Based on UPC's current deposit levels, it is
estimated that UPC's deposit insurance expense will be reduced approximately
$12 million annually. As of December 31, 1995, UPC had approximately $8.0
billion of deposits insured by the BIF and $1.4 billion of deposits insured by
the Savings Association Insurance Fund ("SAIF").
Several proposed bills have been introduced into the United States
legislature, the main purpose of which is to provide additional capitalization
of the SAIF and to provide funds to pay interest and/or principal on bonds
issued to finance governmental costs associated with the savings and loan
industry. A common feature of the proposed legislation is a one-time payment
to the SAIF and BIF by both savings associations and banks. The consideration
of these proposed bills is ongoing, and at this time it is impossible to state
with accuracy the amounts, if any, Valley Federal and UPC, or any of their
subsidiaries, will be required to pay in connection with any such legislation
should it be passed, or the effect such payments, if any, will have on the
financial condition of Valley Federal or UPC. See "Recent Developments
Concerning UPC--Earnings Considerations Relating to Potential Special
Regulatory Assessment".
DESCRIPTION OF THE UPC COMMON AND PREFERRED STOCK
UPC's Restated Charter ("Charter") currently authorizes the issuance
of 100,000,000 shares of common stock having a par value of $5.00 per share
(the "UPC Common Stock") and 10,000,000 shares of preferred stock having no par
value (the "UPC Preferred Stock"). As of March 31, 1996, 45,602,329 shares of
UPC Common Stock were issued and outstanding and approximately 1,136,000 shares
were subject to issuance through the exercise of options granted pursuant to
UPC's 1992 and 1983 Stock Option Plans and other employee, officer and director
benefit plans; approximately 502,000 shares were authorized for issuance
pursuant to said plans but not yet subject to option grants or otherwise
issued; and approximately 4,710,292 shares were authorized for issuance and
reserved for conversion of certain outstanding shares of UPC Preferred Stock.
In addition, as of March 31, 1996, 3,540,419 shares of UPC Preferred Stock of
all series were issued and outstanding, consisting of 44,000 shares of UPC's
Series B $8.00 Nonredeemable Cumulative Convertible Preferred Stock (the
"Series B Preferred Stock"); and 3,496,419 shares of UPC's 8% Cumulative,
Convertible Preferred Stock, Series E (the "Series E Preferred Stock"). As of
March 31, 1996, none of UPC's 250,000 authorized shares of Series A Preferred
Stock were issued and outstanding nor is management aware of the existence of
circumstances from which it may be inferred that such issuance is imminent.
THE CAPITAL STOCK OF UPC DOES NOT REPRESENT OR CONSTITUTE A DEPOSIT ACCOUNT AND
IS NOT INSURED BY THE FDIC, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY GOVERNMENTAL AGENCY.
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THE UPC COMMON STOCK
General. Shares of UPC Common Stock may be issued at such time or
times and for such consideration (not less than the par value thereof) as the
UPC Board may deem advisable, subject to such limitations as may be set forth
in the laws of the State of Tennessee, UPC's Charter or Bylaws or the rules of
the NYSE. Union Planters National Bank, a wholly-owned subsidiary of UPC, is
the Registrar, Transfer Agent and Dividend Disbursing Agent for shares of UPC
Common Stock. Its street address is Union Planters National Bank, Corporate
Trust Department, 6200 Poplar Avenue, Third Floor, Memphis, Tennessee 38119.
Its mailing address is P.O. Box 387, Memphis, Tennessee 38147.
Dividends. Subject to the preferential dividend rights applicable to
outstanding shares of the UPC Preferred Stock and subject to applicable
requirements, if any, with respect to the setting aside of sums for purchase,
retirement or sinking funds, if any, for all outstanding UPC Preferred Stock,
the holders of the UPC Common Stock are entitled to receive, to the extent
permitted by law, only such dividends as may be declared from time to time by
the UPC Board.
UPC has the right to, and may from time to time, enter into borrowing
arrangements or issue other debt instruments, the provisions of which may
contain restrictions on payment of dividends and other distributions on UPC
Common Stock and UPC Preferred Stock; however, UPC has no such arrangements in
effect at the date hereof.
Liquidation Rights. In the event of the voluntary or involuntary
liquidation, dissolution, distribution of assets or winding-up of UPC, after
distribution in full of the preferential amounts required to be distributed to
the holders of UPC Preferred Stock, holders of UPC Common Stock will be
entitled to receive all of the remaining assets of UPC, of whatever kind,
available for distribution to shareholders ratably in proportion to the number
of shares of UPC Common Stock held. The UPC Board may distribute in kind to
the holders of UPC Common Stock such remaining assets of UPC or may sell,
transfer or otherwise dispose of all or any part of such remaining assets to
any other person or entity and receive payment therefor in cash, stock or
obligations of such other person or entity, and may sell all or any part of the
consideration so received and distribute any balance thereof in kind to holders
of UPC Common Stock. Neither the merger or consolidation of UPC into or with
any other corporation, nor the merger of any other corporation into UPC, nor
any purchase or redemption of shares of stock of UPC of any class, shall be
deemed to be a dissolution, liquidation or winding-up of UPC for purposes of
this paragraph.
Because UPC is a holding company, its right and the rights of its
creditors and shareholders, including the holders of UPC Preferred Stock and
UPC Common Stock, to participate in the distribution of assets of a subsidiary
on its liquidation or recapitalization may be subject to prior claims of such
subsidiary's creditors except to the extent that UPC itself may be a creditor
having recognized claims against such subsidiary.
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<PAGE> 70
UPC PREFERRED STOCK
Series A Preferred Stock. UPC's Charter provides for the issuance of
up to 250,000 shares (subject to adjustment by action of the UPC Board) of
Series A Preferred Stock under certain circumstances involving a potential
change in control of UPC. None of such shares are outstanding and management
is aware of no facts suggesting that issuance of such shares may be imminent.
The Series A Preferred Stock is described in more detail in UPC's Registration
Statement on Form 8-A dated January 19, 1989, and filed February 1, 1989
(Commission File No. 0-6919) which is incorporated by reference herein.
Series B Preferred Stock. 44,000 shares of Series B Preferred Stock
were outstanding as of March 31, 1996. Such shares bear a dividend rate of
$8.00 per share per annum; dividends are cumulative. Each share of Series B
Preferred Stock is convertible at the option of the holder into 7.722 shares of
UPC Common Stock, with the maximum number of shares of UPC Common Stock into
which such shares may be converted being 339,768. The Series B Preferred Stock
is not subject to any sinking fund provisions and has no preemptive rights.
Such shares provide for a liquidation preference of $100.00 per share plus
unpaid dividends accrued thereon and are not subject to redemption by UPC.
Holders of Series B Preferred Stock have no voting rights except as required by
law and in certain other limited circumstances.
Series E Preferred Stock. 3,496,419 shares of Series E Preferred
Stock were outstanding as of March 31, 1996. Up to 317,458 shares of Series E
Preferred Stock are expected to be issued upon consummation of UPC's pending
acquisition of ENB. All shares of Series E Preferred Stock have a stated value
of $25.00 per share. Dividends are payable at the rate of $0.50 per share per
quarter and are cumulative. The Series E Preferred Stock is convertible at the
rate of 1.25 shares of UPC Common Stock for each share of Series E Preferred
Stock. The Series E Preferred Stock is not subject to any sinking fund
provisions and has no preemptive rights. Such shares have a liquidation
preference of $25.00 per share plus unpaid dividends accrued thereon and, at
UPC's option and with the prior approval of the Federal Reserve, are subject to
redemption by UPC at any time or from time to time after March 31, 1997 at a
redemption price of $25.00 per share plus any unpaid dividends. Holders of
Series E Preferred Stock have no voting rights except as required by law and in
certain other limited circumstances.
CERTAIN PROVISIONS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT
Certain provisions of UPC's Charter and Bylaws and certain provisions
of Tennessee law may have an anti-takeover effect in that they could prevent,
discourage or delay a change in control of UPC. The following summary briefly
describes certain of those provisions. The summary is not intended to be
complete and is qualified in its entirety by reference to UPC's Charter and
Bylaws and to applicable Tennessee law.
Charter and Bylaw Provisions. Pursuant to UPC's Charter, the
directors of UPC are elected for three-year terms of office, and approximately
one-third of the members of the UPC Board are
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<PAGE> 71
up for election each year. The Bylaws also provide that the affirmative vote
of the holders of 66 2/3% of the outstanding shares of UPC Common Stock is
required to remove any or all of the directors of UPC.
The Charter requires the affirmative votes of the holders of 66 2/3%
of the outstanding shares for approval of a merger, consolidation or a sale or
lease of all or substantially all of the assets of UPC if the other party to
the transaction is a beneficial owner of 10% or more of the outstanding shares
of UPC. The Charter also requires the affirmative votes of the holders of 66
2/3% of the outstanding stock; to change the number, election and
classification of directors; to give approval of certain transactions as
described above; and to amend certain other provisions of the Charter.
Share Purchase Rights Plan. In 1989, the UPC Board adopted a Share
Purchase Rights Plan and distributed a dividend of one Preferred Share Unit
Purchase Right ("Right") for each outstanding share of UPC Common Stock.
Moreover, one Right was required to be, automatically and without further
action by UPC, distributed in respect to each share of UPC Common Stock issued
thereafter. The Rights are generally designed to deter coercive takeover
tactics and to encourage all persons interested in potentially acquiring
control of UPC to treat each shareholder on a fair and equal basis. Each Right
trades in tandem with the share of UPC Common Stock to which it relates until
the occurrence of certain events indicating a potential change in control of
UPC. Upon the occurrence of such an event, the Rights would separate from UPC
Common Stock and each holder of a Right (other than the potential acquiror)
would be entitled to purchase certain equity securities at prices below their
market value. UPC has authorized 250,000 shares of Series A Preferred Stock
for issuance under the Share Purchase Rights Plan, but no shares have been
issued as of the date of this Proxy Statement-Prospectus. Until a Right is
exercised, the holders thereof, as such, will have no rights as shareholders of
UPC, thus they would have no right to vote or to receive dividends on the
Series A shares.
Provisions of the Tennessee Code. As a Tennessee corporation, UPC is
or could be subject to various legislative acts set forth in Chapter 35 of
Title 48 of the Tennessee Code, which impose certain restrictions on business
combinations, including, but not limited to, combinations with interested
shareholders similar to those described above.
The Tennessee Business Combination Act (the "Tennessee BCA") generally
prohibits a "business combination" (generally defined to include mergers, share
exchanges, sales and leases of assets, issuances of securities, and similar
transactions) by UPC or a subsidiary with an "Interested Shareholder"
(generally defined as any person or entity which beneficially owns 10% or more
of the voting power of any class or series of UPC's stock then outstanding)
within five years after the person or entity becomes an Interested Shareholder
unless the business combination or the transaction pursuant to which the
Interested Shareholder became such was approved by the UPC Board before the
Interested Shareholder became such, and the business combination satisfies any
other applicable requirements imposed by law or by UPC's Charter or Bylaws.
The Tennessee BCA also severely limits the extent to which UPC or any of its
officers or directors could be held liable for resisting any business
combination.
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<PAGE> 72
The Tennessee Control Share Acquisition Act (the "Tennessee CSAA")
restricts the voting powers of shares acquired by a party once a specific level
of control is acquired unless certain conditions are met. Specifically, the
Tennessee CSAA provides that "Control Shares" will not have the voting rights
to which they normally would be entitled unless approved by the other
shareholders at an annual or special meeting. "Control shares" are shares
that, in the absence of the Tennessee CSAA, would give the acquiror voting
power within any of the following ranges of all of the voting power of UPC: (i)
one-fifth or more but less than one-third; (ii) one-third or more but less than
a majority; or (iii) a majority or more.
The provisions described above might be deemed to make UPC less
attractive as a candidate for acquisition by another company than would
otherwise be the case in the absence of such provisions. For example, if
another company should seek to acquire a controlling interest of less than 66
2/3% of the outstanding shares of UPC Common Stock, the acquiror would not
thereby obtain the ability to replace a majority of the UPC Board until at
least the second annual meeting of shareholders following the acquisition, and
furthermore the acquiror would not obtain the ability immediately to effect a
merger, consolidation or other similar business combination unless the
described conditions were met. As a result, UPC's shareholders may be deprived
of opportunities to sell some or all of their shares at prices that represent a
premium over prevailing market prices in a takeover context. The provisions
described above also may make it more difficult for UPC's shareholders promptly
to replace the UPC Board or management, even if the holders of a majority of
the UPC Common Stock should believe that such replacement is in the interests
of UPC. As a result, such provisions may tend to perpetuate the incumbent UPC
Board and management.
EFFECT OF MERGER ON RIGHTS OF VALLEY FEDERAL SHAREHOLDERS
At the Effective Date of the Merger, Valley Federal Record
Shareholders automatically will become holders of the UPC Common Stock and
their rights as holders of the UPC Common Stock will be determined by the
Tennessee Business Corporation Act and by UPC's Charter and Bylaws. The
following is a summary of the material differences in the rights of holders of
UPC Common Stock and Valley Federal Common Stock.
REMOVAL OF DIRECTORS
Valley Federal Directors may be removed with or without cause by the
vote of the holders of a majority of the shares entitled to vote at any meeting
called for that purpose provided that, if less than the entire board is to be
removed, no one director may be removed if the votes cast against the removal
would be sufficient to elect a director if then cumulatively voted at an
election of the class of directors of which such director is a part.
UPC's Bylaws provide that directors may be removed with or without
cause by vote of the holders of 66 2/3% or more of the outstanding shares
entitled to vote generally in the election of directors.
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<PAGE> 73
REQUIRED SHAREHOLDER VOTES
OTS regulations require the affirmative vote of 66 2/3% of
shareholders with respect to any merger, consolidation or other business
combination to which Valley Federal is a party. The UPC Charter provides that
the vote of the holders of 66 2/3% or more of the shares entitled to vote shall
be required to approve any merger or consolidation of UPC with or into any
other corporation or the sale, lease, exchange or other disposition of
substantially all of UPC's assets, if on the date a binding agreement is
executed providing for such merger, sale or other disposition, the corporation,
person or entity into which UPC would be merged or to which its assets would be
sold is the beneficial owner of 10% or more of the outstanding capital stock of
UPC. Otherwise, under Tennessee law and UPC's Charter, the affirmative vote of
a majority of shareholders would be required to approve a merger,
consolidation, or other business combination to which UPC is a party and which
requires the consent of UPC shareholders under Tennessee law.
ELECTION OF DIRECTORS
UPC's Charter and Valley Federal's Bylaws both provide for a
classified board of directors consisting of three classes with staggered terms
of three years each. Therefore, UPC and Valley Federal shareholders are
entitled to elect only one class, i.e., approximately one-third of directors
annually. To increase the number of UPC's directors, 66 2/3% of the directors
then in office must concur. A majority of the Board of Directors may increase
the number of Valley Federal directors.
AMENDMENT OF CHARTER AND BYLAWS
Valley Federal's Charter provides that any amendment to the Valley
Federal Charter must first be approved preliminarily by the OTS and thereafter
approved by the holders of a majority of the votes eligible to be cast at a
legal meeting of the shareholders. Pursuant to the Valley Federal Bylaws, the
affirmative vote of a majority of the votes eligible to be cast is required for
stockholders to amend the Bylaws. The UPC Charter requires the affirmative
vote of 66 2/3% of the outstanding shares to amend certain provisions of UPC's
Charter regarding the election of directors, the approval of certain mergers,
consolidations or similar transactions and to amend certain other provisions;
otherwise the affirmative vote of a majority of the votes eligible to be cast
is required. The UPC Charter provisions may make it more difficult for
shareholders of UPC to amend certain provisions of the UPC Charter. The UPC
Bylaws, as with the Valley Federal Bylaws may be amended by the affirmative
vote of a majority of the votes eligible to be cast.
SHARE PURCHASE RIGHTS PLAN
As described above under "CERTAIN PROVISIONS THAT MAY HAVE AN
ANTI-TAKEOVER EFFECT--Share Purchase Rights Plan," UPC Common Stock has
attached Rights, which may deter certain takeover proposals. Valley Federal
does not have a rights plan.
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LIMITATIONS ON CHANGES IN CONTROL
As described above under CERTAIN PROVISIONS THAT MAY HAVE AN
ANTI-TAKEOVER EFFECT--Provisions of the Tennessee Code, UPC is subject to
Tennessee law restrictions on changes in control. As a federally chartered
savings bank headquartered in Alabama, these provisions are not currently
applicable to Valley Federal as there is no similar provision under applicable
federal law.
BUSINESS OF VALLEY FEDERAL SAVINGS BANK
GENERAL
Valley Federal is a federal stock savings bank conducting business
through its home office which is located at 501 North Montgomery Avenue,
Sheffield, Alabama and three branch offices located in Florence, Tuscumbia and
Muscle Shoals, Alabama.
Valley Federal was chartered by the Federal Home Loan Bank Board
("FHLBB"), the predecessor to the OTS of the Department of the Treasury, in
April 1934 as Sheffield Federal Savings and Loan Association. On October 15,
1987, Valley Federal converted from a federal mutual savings and loan
association to a federal stock savings bank. Since 1935, Valley Federal has
been a member of the FHLB and its savings deposits have been insured by SAIF or
its predecessor, the Federal Savings and Loan Insurance Corporation ("FSLIC").
Valley Federal is subject to comprehensive regulation, examination and
supervision by the OTS and the FDIC. For further discussion of regulation
affecting Valley Federal, see "--Regulation."
The principal business of Valley Federal consists of attracting
savings deposits from the general public and originating mortgage loans for the
purpose of financing or refinancing one-to-four family dwellings and other
improved residential and commercial real estate. Valley Federal derives its
income largely from interest and fees in connection with its lending
activities. Its principal expenses are interest paid on savings deposits and
operating expenses. In recent years, Valley Federal has been structuring its
loan portfolio in order to make its assets more interest-rate sensitive. This
has been accomplished by selling long term fixed rate loans and by originating
for portfolio adjustable rate real estate loans and other loans which reprice
more frequently than long-term residential mortgages. At September 30, 1995,
adjustable rate loans, the majority of which mature or reprice within one year,
constituted 52.5% of Valley Federal's total loan portfolio. Although Valley
Federal continues to originate long-term fixed rate mortgage loans, all such
loans are being originated to qualify for resale in the secondary market.
ASSET/LIABILITY MANAGEMENT
The term "rate sensitivity" refers to those assets and liabilities
which are "sensitive" to fluctuations in rates and yields. An asset or
liability is interest rate sensitive within a specific time period if it will
mature or reprice within that time period. Savings institutions have
historically
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operated in a mismatched position with their liabilities being greatly more
interest-sensitive than their assets. Valley Federal is attempting, through
investments in adjustable rate mortgages, consumer loans, commercial real
estate loans and short-term investments, and the origination of long-term,
fixed-rate loans intended to be eligible for sale in the secondary market, to
achieve a better match between its assets and liabilities in terms of both
interest rate volatility and maturities.
The matching of Valley Federal's assets and liabilities may be
analyzed by examining the extent to which its assets and liabilities are
interest rate sensitive and by monitoring the expected effects of interest rate
changes on an institution's net portfolio value. If Valley Federal's assets
mature or reprice more quickly or to a greater extent than its liabilities,
Valley Federal's net portfolio value and net interest income would tend to
increase during periods of rising interest rates but decrease during periods of
falling interest rates. If Valley Federal's assets mature or reprice more
slowly or to a lesser extent than its liabilities, Valley Federal's net
portfolio value and net interest income would tend to decrease during periods
of rising interest rates but increase during periods of falling interest rates.
The OTS requires Valley Federal to measure its interest rate risk by computing
estimated changes in the net present value of its cash flows from assets,
liabilities and off-balance sheet items ("NPV") in the event of a range of
assumed changes in market interest rates. These computations estimate the
effect on Valley Federal's NPV of sudden and sustained 1% to 4% increases and
decreases in market interest rates. Valley Federal's Board of Directors has
adopted an interest rate risk policy which establishes maximum decreases in
Valley Federal's estimated NPV of -20%, -35%, 50% and - 70% in the event of 1%,
2%, 3% and 4% increases and decreases in market interest rates, respectively.
At September 30, 1995, based on information provided by the OTS, it was
estimated that Valley Federal's NPV would decrease -2%, -7%, -15% and -25% and
increase 3%, 8%, 13% and 22% in the event of 1%, 2%, 3% and 4% increases and
decreases in market interest rates, respectively. These calculations indicate
that Valley Federal's net portfolio value could be adversely affected by
increases in interest rates but could be favorably affected by decreases in
interest rates. These calculations indicate that Valley Federal would not be
deemed to have more than a normal level of interest rate risk under risk-based
regulatory capital requirements. See "Regulation -- Regulatory Capital
Requirements." Changes in interest rates also may affect Valley Federal's net
interest income, with increases in rates expected to decrease income and
decreases in rates expected to increase income, as Valley Federal's
interest-bearing liabilities would be expected to mature or reprice more
rapidly than the Saving Bank's interest-earning assets.
While management does not expect current interest rates to have a
material adverse effect on Valley Federal's NPV or net interest income in the
future, management cannot predict future interest rates or their effects on
Valley Federal's NPV or net interest income. Computations of prospective
effects of hypothetical interest rate changes are based on numerous
assumptions, including relative levels of market interest rates, prepayments
and deposit run-offs and should not be relied upon as indicative of actual
results. Certain shortcomings are inherent in such computations. Although
certain assets and liabilities may have similar maturity or periods of
repricing they may react at different times and in different degrees to changes
in the market interest rates. The interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market interest rates,
while rates on other types of assets and liabilities may lag behind changes in
market interest rates. Certain assets, such as adjustable rate mortgages, may
have features which restrict changes in interest
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rates on a short term basis and over the life of the asset. In the event of a
change in interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making calculations set forth above.
Additionally, an increased credit risk may result as the ability of many
borrowers to service their debt may decrease in the event of an interest rate
increase.
Valley Federal's Board of Directors is responsible for reviewing
Valley Federal's asset and liability policies. The Board reviews interest rate
risk and trends, as well as liquidity and capital ratios and requirements, at
least monthly. Valley Federal's management is responsible for administering
the policies and determinations of the Board of Directors with respect to
Valley Federal's asset and liability goals and strategies. Management expects
that Valley Federal's asset and liability policies and strategies will continue
as described above so long as competitive and regulatory conditions in the
financial institution industry and market interest rates continue as they have
in recent years.
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following table sets forth information concerning Valley Federal's
interest-earning assets, interest-bearing liabilities, net interest income,
interest rate spreads and net yields on average interest-earning assets during
the periods indicated. Average balance calculations are based on daily
balances.
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<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------------
1995 1994
------------------------------ -----------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans . . . . . . . . . . . . . . . . . . . . . . . $ 93,205 $7,520 8.07% $ 83,149 $ 6,798 8.18%
Less allowance for possible loan losses . . . . . . (820) (745)
-------- ------ --------
Total loan portfolio, net . . . . . . . . . . . . 92,385 7,520 8.07 82,404 6,798 8.18
Mortgage-backed securities, net . . . . . . . . . . 20,530 1,264 6.16 26,453 1,237 4.68
Investments (include certificates of deposit) . . . 3,334 135 4.05 9,963 309 3.10
FHLB stock . . . . . . . . . . . . . . . . . . . . 742 53 7.14 813 68 8.36
-------- ------ -------- --------
Total interest-earning assets . . . . . . . . . . 116,991 8,972 7.67 119,633 8,412 7.03
Other assets . . . . . . . . . . . . . . . . . . . 7,285 ------ 2,482 --------
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . $124,276 $122,115
======== ========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
NOW, Super NOW and VIP accounts . . . . . . . . . . $ 22,475 $ 799 3.56% $ 28,841 $ 852 2.95%
Money market demand accounts . . . . . . . . . . . 2,093 67 3.20 2,343 66 2.82
Passbook accounts . . . . . . . . . . . . . . . . . 8,832 244 2.76 10,649 294 2.76
Certificate accounts . . . . . . . . . . . . . . . 71,037 3,811 5.36 64,456 2,958 4.59
-------- ------ --------
Total deposit accounts . . . . . . . . . . . . . . 104,437 4,921 4.71 106,289 4,170 3.92
Short-term borrowings (include FHLB advances) . . . 8,754 567 6.48 4,573 202 4.42
-------- ------ -------- --------
Total interest-bearing liabilities . . . . . . . . . 113,191 5,488 4.85 110,862 4,372 3.94
Other liabilities . . . . . . . . . . . . . . . . . 1,465 ------ 1,868 --------
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . 114,656 112,730
Stockholders' equity . . . . . . . . . . . . . . . . 9,620 9,385
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . $124,276 $122,115
======== ========
Rate differential(a) . . . . . . . . . . . . . . . . 2.82 3.09
Net interest income and net yield
on interest-earning assets(b) . . . . . . . . . . . $3,484 2.98 $ 4,040 3.38
====== ========
<CAPTION>
Year Ended September 30,
------------------------------
1993
------------------------------
Average Average
Balance Interest Yield
------- -------- -------
<S> <C> <C> <C>
Assets:
Interest-earning assets:
Loans . . . . . . . . . . . . . . . . . . . . . . . $ 75,372 $ 6,703 8.89%
Less allowance for possible loan losses . . . . . . (390) --
-------- --------
Total loan portfolio, net . . . . . . . . . . . . 74,982 6,703 8.89
Mortgage-backed securities, net . . . . . . . . . . 31,252 1,873 5.99
Investments (include certificates of deposit) . . . 10,870 425 3.91
FHLB stock . . . . . . . . . . . . . . . . . . . . 970 78 8.04
-------- --------
Total interest-earning assets . . . . . . . . . . 118,074 9,079 7.69
Other assets . . . . . . . . . . . . . . . . . . . 6,329 --------
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . $124,403
========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
NOW, Super NOW and VIP accounts . . . . . . . . . . $ 30,162 $ 1,045 3.46%
Money market demand accounts . . . . . . . . . . . 2,395 76 3.17
Passbook accounts . . . . . . . . . . . . . . . . . 10,087 320 3.17
Certificate accounts . . . . . . . . . . . . . . . 68,013 3,333 4.90
-------- --------
Total deposit accounts . . . . . . . . . . . . . . 110,657 4,774 4.31
Short-term borrowings (include FHLB advances) . . . 2,587 86 3.32
-------- --------
Total interest-bearing liabilities . . . . . . . . . 113,244 4,860 4.29
Other liabilities . . . . . . . . . . . . . . . . . 2,508 --------
--------
Total liabilities . . . . . . . . . . . . . . . . . . 115,752
Stockholders' equity . . . . . . . . . . . . . . . . 8,651
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . $124,403
========
Rate differential(a) . . . . . . . . . . . . . . . . 3.40
Net interest income and net yield
on interest-earning assets(b) . . . . . . . . . . . $ 4,219 3.57%
=======
</TABLE>
- ---------------
(a) Represents spread between average interest-earning assets and average
interest-bearing liabilities.
(b) Represents net interest income from average total interest-earning assets.
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YIELDS EARNED AND RATES PAID
Net interest income is affected by (i) the difference ("interest rate
spread") between rates of interest earned on its interest-earning assets and
rates of interest paid on its interest-bearing liabilities and (ii) the
relative amounts of its interest-earning assets and interest-bearing
liabilities. When interest-earning assets equal or exceed interest-bearing
liabilities, any positive interest rate spread will generate net interest
income. Thrift institutions have traditionally used interest rate spreads as a
measure of net interest income. Another indicator of an institution's net
interest income is its "net yield on interest-earning assets" which is net
interest income divided by average interest earning assets.
The following tables set forth for the periods and at the date
indicated, the weighted average yields earned on Valley Federal's assets, the
weighted average interest rates paid on Valley Federal's liabilities, together
with the interest rate spread and net yield on interest-earning assets. The
weighted average yields are computed on a daily basis.
<TABLE>
<CAPTION>
At
Years Ended September 30, September 30,
--------------------------- -------------
1993 1994 1995 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average yield on loans receivable, net . . . 8.89% 8.18% 8.07% 8.07%
Weighted average yield on mortgage-backed
securities, net . . . . . . . . . . . . . . . . . . 5.99 4.68 6.16 5.67
Weighted average yield on investments and
interest-bearing deposits . . . . . . . . . . . . . 3.91 3.10 4.05 6.79
Weighted average yield on other interest-
earning assets - FHLB stock . . . . . . . . . . . . 8.04 8.36 7.14 7.15
Weighted average yield on all interest-
earning assets . . . . . . . . . . . . . . . . . . 7.69 7.03 7.67 7.68
Weighted average rate paid on deposits . . . . . . . 4.31 3.92 4.71 5.14
Weighted average rate paid on FHLB advances . . . . . 3.32 4.42 6.48 7.05
Weighted average rate paid on all
interest-bearing liabilities . . . . . . . . . . . 4.29 3.94 4.85 5.16
Interest rate spread (spread between weighted
average rate on all interest-earning assets
and all interest-bearing liabilities) . . . . . . . 3.40 3.09 2.82 2.52
Net yield (net interest income (expense) as a
percentage of average interest-earning assets . . . 3.57 3.38 2.98 3.29
</TABLE>
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in
interest income and interest expense of Valley Federal for the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (1) changes in
volume (changes in volume multiplied by old rate); and (2) changes in rates
(change in rate multiplied by old volume).
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<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------------------
1993 vs. 1992 1994 vs. 1993 1995 vs. 1994
------------------------ ----------------------- -----------------------
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Due to Due to
------------------------ ----------------------- -----------------------
Amount Volume Rate Amount Volume Rate Amount Volume Rate
------ ------ ---- ------ ------ ---- ------ ------ ----
(Dollars are in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans, net . . . . . . . . . . . $ (550) $ 197 $ (747) $ 95 $ 657 $ (562) $ 722 $ 814 $ (92)
Mortgage-backed securities, net . (335) 72 (407) (586) (264) (322) 27 (313) 340
Investments (includes
certificates of deposits) . . (157) 128 (285) (184) (33) (151) (174) (249) 75
Other interest-earning assets
-FHLB stock . . . . . . . . . . 18 5 13 8 (14) 22 (15) (6) (9)
------- ----- ------- ----- ------ ------- ------ ----- -----
Total interest income . . . . . . . (1,024) 402 (1,426) (667) 346 (1,013) 560 246 314
------- ----- ------- ----- ------ ------- ------ ----- -----
Interest expense:
Deposit accounts . . . . . . . . (1,454) (137) (1,317) (604) (198) (406) 751 57 694
Short-term borrowings
(includes FHLB advances) . . . 86 86 -- 116 88 28 365 271 94
------- ----- ------- ----- ------ ------- ------ ----- -----
Total interest expense . . . . . . (1,368) 51 (1,317) (488) (110) (378) 1,116 328 788
------- ----- ------- ----- ------ ------- ------ ----- -----
Net change in net interest income . $ 344 $ 453 $ (109) $(179) $ 456 $ (635) $ (556) $ (82) $(474)
======= ===== ======= ===== ====== ======= ====== ===== =====
</TABLE>
69
<PAGE> 80
LENDING ACTIVITIES
GENERAL. The principal lending activity of Valley Federal
historically has been the origination of conventional first mortgage
single-family loans. Valley Federal also makes loans on two-to-four family
dwelling units, multi-family dwelling units, commercial real estate and other
improved real estate. To a lesser extent, Valley Federal also makes consumer
loans.
In an effort to make the yields on its loan portfolio and investments
more interest rate sensitive, Valley Federal has implemented a number of
measures in recent years. Those measures include: (i) origination of mortgage
loans with adjustable interest rates including adjustable rate mortgage loans
on residential properties and (ii) adoption of a policy under which Valley
Federal generally originates long-term, fixed-rate mortgage loans intended to
qualify for sale in the secondary market. At September 30, 1995, $92.4 million
(or 96.2%) of Valley Federal's loans receivable were comprised of loans that
were other than long-term, fixed-rate loans (which historically have been the
industry's traditional area of lending activity). These lending policies were
adopted to shorten the term of Valley Federal's assets and make them less
susceptible to interest rate volatility.
At September 30, 1995, Valley Federal's loan portfolio, including
mortgage-backed securities, totaled $116.1 million or 92.2% of its total
assets. On that date, $62.6 million or 65.2% of the total loan portfolio
consisted of loans secured by mortgages on single family dwellings and the
remainder consisted of loans secured by two-to-four family and multi-family
residential properties, and commercial real estate loans, while the remainder
of the loan portfolio consisted of savings account, home improvement and other
loans.
The loans-to-one-borrower limits applicable to national banks apply to
savings institutions in the same manner and to the same extent. With certain
exceptions, loans and extensions of credit to a person outstanding at one time
and not fully secured shall not exceed 15% of the unimpaired capital and
surplus of the savings institution. Loans and extensions of credit fully
secured by readily marketable collateral may comprise an additional 10% of
unimpaired capital and surplus. At September 30, 1995, the maximum amount
which Valley Federal ordinarily could have loaned to one borrower and the
borrower's related entities was approximately $1.5 million.
Federal regulations limit the amount which federally-chartered thrift
institutions may lend in relationship to the appraised value of the real estate
securing the loan, as determined by an appraisal at the time of loan
origination. Valley Federal's lending policies, generally limit the maximum
loan-to-value ratio on residential mortgage loans to 80% of the lesser of the
appraised value or purchase price, with the condition that private mortgage
insurance and an escrow account for taxes and insurance be required on any home
loans with loan-to-value ratios in excess of 80%. The loan-to- value ratio,
maturity and other provisions of the loans made by Valley Federal have
generally reflected the policy of making less than the maximum loan permissible
under
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<PAGE> 81
applicable regulations, in accordance with sound lending practices, market
conditions, and underwriting standards established by Valley Federal.
LOAN AND MORTGAGE-BACKED SECURITIES PORTFOLIO ANALYSIS. Set forth below is
selected data relating to the composition of Valley Federal's loan portfolio by
type of loan and type of security on the dates indicated.
71
<PAGE> 82
<TABLE>
<CAPTION>
At September 30
------------------------------------------------------------
1993 1994 1995
----------------- ----------------- --------------
$ % $ % $ %
- - - - - -
<S> <C> <C> <C> <C> <C> <C>
Type of Loan:
Conventional real estate loans:
Interim construction loans . . . . . . . . $ 7,775 7.1% $ 3,052 2.7% $ 5,146 4.4%
Loans on existing property (1) . . . . . . 64,256 58.8 80,306 72.0 81,742 70.4
Lease financing loans . . . . . . . . . . . 2,613 2.4 2,638 2.3 3,053 2.6
Mortgage-backed securities . . . . . . . . . 31,277 28.6 22,865 20.5 20,087 17.3
Consumer loans:
Savings account loans . . . . . . . . . . . 800 0.7 819 0.7 921 0.8
Home improvement loans . . . . . . . . . . 2,822 2.6 221 0.2 320 0.3
Other . . . . . . . . . . . . . . . . . . . 3,068 2.8 4,708 4.2 6,313 5.4
Less:
Loans in process . . . . . . . . . . . . . (2,871) (2.6) (2,040) (1.8) (939) (0.8)
Discounts and other . . . . . . . . . . . . (1) -- -- -- -- --
Deferred loan fees . . . . . . . . . . . . (158) (0.1) (162) (0.1) (61) (0.1)
Allowance for losses . . . . . . . . . . . (344) (0.3) (795) (0.7) (462) (0.3)
-------- ----- -------- ----- -------- -----
Total . . . . . . . . . . . . . . . . . . $109,237 100.0% $111,612 100.0% $116,120 100.0%
======== ===== ======== ===== ======== =====
Residential real estate:
Single family (2) . . . . . . . . . . . . . $ 55,678 50.9% $ 58,913 52.8% $ 62,575 53.9%
Two - four family . . . . . . . . . . . . . 4,783 4.4 3,886 3.5 3,301 2.8
Other dwelling units . . . . . . . . . . . . 5,193 4.7 3,175 12.8 4,276 3.7
Commercial or industrial real estate . . . . 7,276 6.7 14,671 13.1 16,706 14.4
Mortgage-backed securities . . . . . . . . . 31,277 28.6 22,865 20.5 20,087 17.3
Savings accounts . . . . . . . . . . . . . . 800 0.7 819 0.7 921 0.8
Other . . . . . . . . . . . . . . . . . . . . 7,604 7.0 10,280 9.2 9,716 8.3
Less:
Loans in process . . . . . . . . . . . . . (2,871) (2.6) (2,040) (1.8) (939) (0.8)
Discounts and other . . . . . . . . . . . . (1) -- -- -- --
Deferred loan fees . . . . . . . . . . . . (158) (0.1) (162) (0.1) (61) (0.1)
Allowance for losses . . . . . . . . . . . (344) (0.3) (795) (0.7)% (436) (0.3)
-------- ----- -------- ----- -------- -----
Total . . . . . . . . . . . . . . . . . . $109,237 100.0% $111,612 100.0% $116,120 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
- -----------------
(1) Includes construction loans converted to permanent loans.
(2) Includes lease financing loans.
72
<PAGE> 83
RESIDENTIAL LOANS. The primary lending activity of Valley Federal has
been the granting of conventional loans to enable borrowers to purchase
existing homes or refinance existing mortgages. Mortgage loans made by Valley
Federal are generally long-term loans, amortized on a monthly basis, with
principal and interest due each month. The initial contractual loan payment
period for residential loans typically ranges from 15 to 30 years. Valley
Federal's experience indicates that real estate loans generally remain
outstanding for significantly shorter periods than their contractual terms.
Borrowers may refinance or prepay loans at their option, subject to any
prepayment penalty provisions when included in the note. Valley Federal
requires mortgage title insurance on all mortgage loans and hazard insurance at
least in the amount covering replacement value.
Valley Federal has offered renegotiable rate mortgages and adjustable
rate mortgages that have rate adjustments each year based upon the federal
National Monthly Median Cost of Funds Index or the One Year Treasury Bill rate
adjusted to a constant maturity. The interest rates on most of these mortgages
are adjustable once a year with limitations on upward adjustments of 2% per
year and 6% over the life of the loan. The majority of these loans have
ceilings of 14.5% for the life of the loan.
Because of market demands, Valley Federal continues to originate
long-term fixed rate residential loans. However, Valley Federal generally does
not retain these loans in its portfolio but rather packages them in accordance
with the guidelines of the Federal Home Loan Mortgage Corporation for immediate
resale in the secondary market. All such loans are sold on a non-recourse
basis. Valley Federal continues to service almost all loans sold in the
secondary market and as of September 30, 1995, Valley Federal was servicing
$34.9 million of loans sold.
COMMERCIAL REAL ESTATE AND COMMERCIAL BUSINESS LOANS. Valley Federal
makes and participates in commercial property loans including loans secured by
multi-family apartment projects with more than four units and commercial
business loans, which constituted approximately $25.5 million or approximately
26.6% of Valley Federal's loan portfolio at September 30, 1995. These loans
are typically secured by improved real estate, and also by non-real estate
collateral including accounts receivable, inventory and chattel equipment.
Permanent commercial loans are made in amounts up to 80% of the appraised value
of the property and generally have 10 to 30 year terms with interest rates that
adjust every one or three years based on the one- or three-year Treasury
Security Index or the federal National Monthly Median Cost of Funds Index.
Commercial real estate loans are generally made in amounts between $100,000 and
$1.0 million. Valley Federal has purchased interests in commercial real estate
loans that have been originated by other institutions. The majority of these
loans are secured by properties located in Alabama, Florida or Georgia and the
amount of such loans is generally between $100,000 and $1.2 million.
Commercial real estate and multi-family residential lending entails significant
additional risks, compared to residential property lending. Commercial real
estate loans typically involve large loan balances to single borrowers or
groups of related borrowers. The payment experience of such loans is typically
dependent upon the successful operation of the real estate project. These
73
<PAGE> 84
risks can be significantly affected by supply and demand conditions in the
market for office and retail space and for apartments, and as such may be
subject, to a greater extent, to adverse conditions in the economy. In dealing
with these risks, Valley Federal reviews the financial condition of the lending
entity originating the loan and its lending capabilities. Valley Federal also
reviews the completed credit package submitted on behalf of the borrower by the
lending entity. Personal inspections of the property to serve as collateral
are made to determine the accuracy of the appraisal information.
The aggregate amount of loans which a federal savings institution may
make on the security of liens on non-residential real property may not exceed
400% of the institution's regulatory capital.
CONSUMER AND OTHER LOANS. The consumer loans granted by Valley
Federal have included loans on automobiles, boats and other consumer goods,
loans secured by savings accounts and signature loans. Consumer loans have up
to a five year term and a fixed interest rate. Valley Federal has originated
second mortgage loans for home improvement and other purposes. These loans
generally have an amortization of ten years, with a call provision at the end
of five years. Valley Federal generally limits the loan-to-value ratios on its
secured consumer loans to 65% to 90% depending on the type of collateral
securing the loan. As of September 30, 1995, consumer loans outstanding were
$7.6 million or approximately 7.9% of the Savings Bank's total loan portfolio.
Valley Federal believes that the shorter term and the normally higher interest
rates available on various types of consumer loans have been helpful in
maintaining a profitable spread between Valley Federal's average loan yield and
its cost of funds. Such loans, however, pose a greater risk of collectibility.
LOAN AND MORTGAGE-BACKED SECURITIES MATURITY SCHEDULE. The following
table sets forth certain information at September 30, 1995 regarding the dollar
amount of loans and mortgage-backed certificates maturing in Valley Federal's
portfolio based on their contractual terms to maturity. Demand loans, loans
having no stated schedule of repayments and no stated maturity and overdrafts
are reported as due in one year or less.
74
<PAGE> 85
<TABLE>
<CAPTION>
Due Due 1 through Due 2 Due 3 Due 5 Due 10 Due
During the 2 years through 3 though 5 through 10 through 15 after 15
Year Ending after years after years after years after years after years after
9/30/96 9/30/95 9/30/95 9/30/95 9/30/95 9/30/95 9/30/95 Total
----------- -------- ----------- ----------- ----------- ----------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage (1) . . $ 5,340 $2,419 $ 2,111 $ 9,606 $ 4,625 $ 9,247 $33,750 $ 67,098
Real estate construction . . 3,075 -- -- -- -- -- -- 3,075
Commercial (2) . . . . . . . 4,168 1,706 1,046 8,554 1,015 1,576 3,141 21,206
Consumer . . . . . . . . . . 2,652 763 817 1,844 40 -- -- 6,116
------- ------ -------- -------- -------- ------- ------- --------
Total loans . . . . . . . $15,235 $4,888 $ 3,974 $ 20,004 $ 5,680 $10,823 $36,891 $ 97,495
======= ====== ======== ======== ======== ======= ======= ========
Total mortgage-backed
securities . . . . . . . . $ 1,923 $ 653 $ 4,411 $ 5,348 $ 2,299 $ 1,516 $ 3,937 $ 20,087
======= ====== ======== ======== ======== ======= ======= ========
</TABLE>
- ---------------
(1) Excludes commercial real estate mortgage loans.
(2) Includes commercial real estate mortgage loans and commercial business
loans.
The next table sets forth the dollar amount of all loans and
mortgage-backed securities due after one year from September 30, 1995 which
have predetermined interest rates and have floating or adjustable interest
rates.
<TABLE>
<CAPTION>
Predetermined Floating or
Rates Adjustable Rates Total
------------- ---------------- -----
(In thousands)
<S> <C> <C> <C>
Real estate mortgage (1) . . . . . . . . . $ 14,688 $ 47,077 $ 61,765
Real estate construction . . . . . . . . .
Commercial (2) . . . . . . . . . . . . . . 15,638 1,400 17,038
Installment . . . . . . . . . . . . . . . . 3,083 381 3,464
--------- --------- ----------
Total loans . . . . . . . . . . . . . . . $ 33,409 $ 48,858 $ 82,267
========= ========= ==========
Total mortgage-backed securities . . . . $ 15,052 $ 3,112 $ 18,164
========= ========= ==========
</TABLE>
- ---------------
(1) Excludes commercial real estate mortgage loans
(2) Includes commercial real estate mortgage loans and commercial business
loans.
75
<PAGE> 86
LOAN SOLICITATION AND PROCESSING. Loan originations primarily come
from walk-in customers. The Loan Committee is responsible for underwriting and
approval of all loans up to $350,000. This committee is composed of four
officers of Valley Federal. Any loan in excess of $350,000 has to be approved
by the Executive Loan Committee which is composed of three members of the Board
of Directors.
Upon receipt of a loan application from a prospective borrower, a
credit report and verification are ordered to verify specific information
relating to the loan applicant's employment, income and credit standing. An
appraisal of the real estate intended to secure the proposed loan is undertaken
by an independent fee appraiser.
All appraisals performed in connection with mortgages made by Valley
Federal must be performed by state-certified or state-licensed appraisers.
Appraisals by state-certified appraisers are required for all such transactions
having a value of $1.0 million or more. The OTS has adopted regulations
requiring that all real estate-related financial transactions engaged in by
savings institutions and having a transaction value of $250,000 or more, other
than those involving appraisals of one-to-four family properties, shall require
an appraisal performed by a state-certified appraiser. One-to-four family
residential property financing may require an appraisal from a state-certified
appraiser if the amount involved exceeds $1.0 million or if the financing
involves a "complex" one-to-four family property appraisal. Exceptions are
made for financing in which the transaction value is $50,000 or less or when
the lien is not necessary security.
Loan applicants are promptly notified of the decision of Valley
Federal by a letter setting forth the terms and conditions of the decision. If
approved, these terms and conditions include the amount of the loan, interest
rate basis, amortization term, a brief description of real estate to be
mortgaged to Valley Federal, and the notice of requirement of insurance
coverage to be maintained to protect Valley Federal's interest. Prior to
closing any long-term loan, the borrower must provide proof of fire and
casualty insurance on the property serving as collateral and it must be
maintained during the full term of the loan. In addition, all loans originated
require title insurance policies or an attorney's title opinion.
76
<PAGE> 87
LOAN PURCHASES AND SALES. Valley Federal has engaged in selling in
the secondary market certain loans it has originated. Such loans sold are
generally fixed-rate, long-term mortgage loans. These loans are sold primarily
to FHLMC. During the years ended September 30, 1993, 1994 and 1995 the Savings
Bank sold $16.3 million, $21.9 million and $5.3 million of loans and
mortgage-backed securities, respectively.
The sale of loans in the secondary mortgage market reduces Valley
Federal's risk that the interest rates it pays on deposits will escalate while
holding long-term, fixed-rate loans in its portfolio and allows Valley Federal
to continue to make loans during periods when savings flows decline or funds
are not otherwise available for lending purposes. In connection with such
sales, Valley Federal generally retains the servicing of the loans (e.g.,
collection of principal and interest payments), for which it generally receives
a fee payable monthly of 1/4% to 1/2% per annum of the unpaid balance of each
loan. As of September 30, 1995, the Savings Bank was servicing loans for
others aggregating $34.9 million.
In addition to originating loans, Valley Federal has purchased real
estate loans in the secondary market. Valley Federal's purchases in the
secondary market are dependent upon the demand for mortgage credit in the local
market area and the inflow of funds from traditional sources. Purchases of
loans enable Valley Federal to utilize available funds more quickly
particularly where sufficient loan demand for products such as adjustable
mortgage loans is not obtainable locally. The Bank also purchases adjustable
rate mortgage-backed securities with short-term average lives to enhance
interest rate risk. During the years ended September 30, 1993, 1994 and 1995
Valley Federal purchased $13.6 million, $15.4 million and $3.2 million,
respectively of mortgage-backed securities.
77
<PAGE> 88
Set forth below is a table showing Valley Federal's loan and mortgage
backed securities, origination, purchase and sales activity for the periods
indicated.
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------------------------
1993 1994 1995
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Loans Originated:
Real estate loans:
Conventional:
Construction loans . . . . . . . . . . . . . $ 5,219 $ 8,838 $ 7,062
Loans for purchase of existing property . . . 8,513 11,103 16,459
Loans refinanced . . . . . . . . . . . . . . 12,457 14,723 8,358
--------- --------- ---------
Total real estate originations . . . . . . . . 26,189 34,664 31,879
Other originations . . . . . . . . . . . . . . 8,485 12,264 14,628
--------- --------- ---------
Total loan originations . . . . . . . . . . . . . 34,674 46,928 46,507
--------- --------- ---------
Loans and Mortgage-Backed Securities Purchased:
Loans . . . . . . . . . . . . . . . . . . . . . 827 -- --
Mortgage-backed securities, net of
premiums (discounts) . . . . . . . . . . . . . 13,618 15,430 3,187
--------- --------- ---------
Total loans and mortgage-backed securities
purchased . . . . . . . . . . . . . . . . . . . 14,445 15,430 3,187
--------- --------- ---------
Loans and Mortgage-Backed
Securities Sold:
Loans . . . . . . . . . . . . . . . . . . . . . 14,608 9,290 2,664
Mortgage-backed securities, net of
premiums (discounts) . . . . . . . . . . . . . 1,698 12,655 2,671
--------- --------- ---------
Total loans and mortgage-backed securities sold . 16,306 21,945 5,335
--------- --------- ---------
Repayments:
Loans . . . . . . . . . . . . . . . . . . . . . 15,640 25,650 36,244
Mortgage-backed securities . . . . . . . . . . 16,565 11,187 3,301
--------- --------- ---------
Total repayments . . . . . . . . . . . . . . 32,205 36,837 39,545
--------- --------- ---------
Provision for loan losses . . . . . . . . . . . . (361) (180) (306)
--------- --------- ---------
Increase in portfolio of loans and
mortgage-backed securities . . . . . . . . . . $ 247 $ 3,396 $ 4,508
========= ========= =========
</TABLE>
LOAN COMMITMENTS. Valley Federal issues commitments to
prospective borrowers to make loans conditioned upon the occurrence of certain
events. Such commitments are made on specified terms and conditions, and are
honored for 30 days from approval with no additional fees required. Valley
Federal charges a non-refundable commitment fee equal to 1% of the actual
amount of committed funds on all single-family construction loans. Valley
Federal had outstanding commitments to originate mortgage loans aggregating
$500,000 at September 30, 1995. Valley Federal had no outstanding commitments
to purchase loans at September 30, 1995. These commitments are issued for both
adjustable-rate mortgages and fixed-rate mortgages.
LOAN ORIGINATION AND OTHER FEES. In addition to interest
earned on loans, Valley Federal receives loan origination fees or "points" for
originating loans. Loan points are a percentage of the principal amount of the
mortgage loan which are charged to the borrower for creation of the loan. The
volume of loan origination and commitment fees vary with the volume and type of
loans and mortgage markets, which in turn respond to the demand for and
availability of money. Generally accepted accounting principles limit
immediate recognition of loan origination fees as
78
<PAGE> 89
revenues and require that such income (net of certain loan origination costs)
for each loan be amortized over the contractual life of such loans. Valley
Federal recognized as current income other loan fees and service charges of
$646,589, $561,650 and $489,433 for the years ended September 30, 1993, 1994
and 1995, respectively.
Valley Federal also receives other fees and charges relating
to existing loans, which include late charges and other fees collected in
connection with a change in borrower or other loan modifications. These fees
and charges have not constituted a material source of income to the Savings
Bank.
COLLECTION PROCEDURES. Valley Federal's collection procedures
provide that when a loan is ten to 30 days delinquent, the borrower will be
contacted by mail and payment requested. After a delinquency of 20 days, a
late charge is assessed. If the delinquency continues, subsequent efforts will
be made to contact the delinquent borrower. In certain instances, Valley
Federal may modify the loan or grant a limited moratorium on loan payments to
enable the borrower to reorganize his financial affairs. If the loan continues
in a delinquent status for 90 to 120 days or more, Valley Federal generally
will initiate foreclosure proceedings.
NON-PERFORMING ASSETS AND ASSET CLASSIFICATION. Loans are
reviewed on a regular basis and are placed on a non-accrual status when, in the
opinion of management, the collection of additional interest is doubtful.
Residential and commercial mortgage loans and commercial business loans are
placed on non-accrual status when either principal or interest is 90 days or
more past due unless they are adequately secured and there is reasonable
assurance of full collection of principal and interest. Consumer loans
generally are charged off when the loan becomes over 120 days delinquent.
Interest accrued and unpaid at the time a loan is placed on non-accrual status
is charged against interest income. Subsequent payments are either applied to
the outstanding principal balance or recorded as interest income, depending on
the assessment of the ultimate collectibility of the loan.
Real estate acquired by Valley Federal as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate
owned until such time as it is sold. When such property is acquired, it is
carried at the lower of fair value or balance of the loan on the property, net
of any write-downs subsequently determined to be necessary to reduce the
carrying value to estimated net realizable value.
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<PAGE> 90
The following table sets forth information with respect to
Valley Federal's non-performing assets for the periods indicated. At the dates
shown, Valley Federal had no accruing loans which were contractually past due
90 days or more.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------
1993 1994 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Non-accrual loans:
Real Estate:
Residential . . . . . . . . . . . . . . . . . $ 135 $ 380 $ 172
Commercial . . . . . . . . . . . . . . . . . . 16 326 760
Commercial Business . . . . . . . . . . . . . . 18 551 44
Consumer . . . . . . . . . . . . . . . . . . . -- 26 8
------- -------- --------
169 1,283 984
Restructured Loans:
Real Estate:
Residential . . . . . . . . . . . . . . . . . 21 -- --
Total . . . . . . . . . . . . . . . . . . . $ 190 $ 1,283 $ 984
======= ======== ========
Percentage of Total Loans . . . . . . . . . . . . 0.61% 1.45% 1.02%
======= ======== ========
Other Non-Performing Assets (1) . . . . . . . . . $ 166 $ 59 $ --
======= ======== ========
</TABLE>
- ---------------
(1) Other non-performing assets represents property acquired by Valley
Federal through foreclosure or repossession. This property is
carried at the lower of fair value or balance of the loan on the
property, net of any write-downs subsequently determined to be
necessary to reduce the carrying value to estimated net realizable
value.
At September 30, 1995, none of Valley Federal's accruing loans which
were contractually past due 90 days or more exceeded $150,000, except for the
following: (i) a $234,000 participation in a loan secured by an apartment
complex in Auburn, Alabama. The owners of the complex filed for bankruptcy
protection. Valley Federal is seeking to proceed with foreclosure and has
allocated $58,000 of its allowance for loan losses to this loan, and management
does not expect Valley Federal to incur any further loss on this loan, and (ii)
three loans totaling $528,000 secured by apartment complexes located in
Lauderdale County. Valley Federal has allocated $76,000 of its allowance for
loan losses to these loans, and management does not expect the Savings Bank to
incur any further loss on these loans.
At September 30, 1995, there were no loans other than those disclosed
above where known information about possible credit problems of borrowers
caused management to have serious doubts as to the ability of such borrowers to
comply with the present loan repayment terms and which may result in disclosing
such loans as past due, nonaccrual or restructured loans.
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<PAGE> 91
The following table sets forth an analysis of Valley Federal's
allowance for possible loan losses for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------
1993 1994 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at Beginning of Period . . . . . . $ 422 $ 344 $ 795
-------- --------- ---------
Loans Charged-Off:
Residential Real Estate . . . . . . . . . -- 35 1
Commercial Business . . . . . . . . . . . 342 86 620
Consumer . . . . . . . . . . . . . . . . . 169 31 34
-------- --------- ---------
Total Charge-Offs . . . . . . . . . . . . . 511 152 655
-------- --------- ---------
Recoveries:
Residential Real Estate . . . . . . . . -- 2 1
Commercial Business . . . . . . . . . . . 39 414 5
Consumer . . . . . . . . . . . . . . . . 13 6 10
-------- --------- ---------
Net Loans Charged-Off . . . . . . . . . . . 459 (270) 639
-------- --------- ---------
Provision for Possible Loan Losses . . . . 361 180 306
-------- --------- ---------
Balance at End of Period . . . . . . . . . $ 344 $ 795 $ 462
======== ========= =========
Ratio of Net Charge-Offs to Average
Loans Outstanding During the Period . . . .583% (.325)% 0.686%
======== ========= =========
</TABLE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes that
the allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
further losses and, except with respect to the allowance for commercial loans,
which reflects a specific reserve against a particular loan, does not restrict
the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------
1993 1994 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Loans:
Real Estate - Mortgage
Residential . . . . . . . . . . . . . . $ 249 $ 214 $ 176
Commercial . . . . . . . . . . . . . . -- 58 102
Real Estate - Construction . . . . . . . -- -- 16
Commercial Business . . . . . . . . . . . -- 276 118
Consumer . . . . . . . . . . . . . . . . 95 247 50
-------- --------- ---------
Total Allowance for Loan Losses . . . . $ 344 $ 795 $ 462
======== ========= =========
</TABLE>
Federal regulations require insured institutions to classify their
assets on a regular basis. Under the regulations, assets are subject to
evaluation under a classification system that has three categories: (i)
Substandard, (ii) Doubtful and (iii) Loss. The regulations also create a
Special Mention designation, described as assets which do not currently expose
an insured institution to a sufficient degree of risk to warrant classification
but do possess credit deficiencies or potential weaknesses deserving
management's close attention.
An asset is classified Substandard if it is determined to involve a
distinct possibility that the insured institution could sustain some loss if
deficiencies associated with the loan, such as inadequate documentation, are
not corrected. An asset is classified as Doubtful if full collection is highly
questionable or improbable. An asset is classified as Loss if it is considered
uncollectible, even if a partial recovery could be expected in the future.
Assets classified as
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<PAGE> 92
Substandard or Doubtful require the institution to establish general allowances
for loan losses. If an asset or portion thereof is classified Loss, the
insured institution must either establish specified allowances for loan losses
in the amount of 100 percent of the portion of the asset classified Loss, or
charge off such amount.
At September 30, 1995, Valley Federal had classified $120,000 of
assets as Doubtful, $1.5 million as Substandard and $1.5 million on a watch
list, based on management's review of Valley Federal's portfolio. In addition,
in connection with examinations of insured institutions, regulatory examiners
have authority to identify problem assets and, if appropriate, classify them.
RESERVES FOR LOSSES ON LOANS AND REAL ESTATE
In making loans, Valley Federal recognizes the fact that credit losses
will be experienced and that the risk of loss will vary with, among other
things, the type of loan being made, the creditworthiness of the borrower over
the term of the loan and, in the case of a secured loan, the quality of the
security for the loan.
It is management's policy to maintain reserves for estimated losses on
loans and real estate acquired. Such reserves are based on, among other
things, estimates of the historical loan loss experience, evaluation of
economic conditions in general and in various sectors of Valley Federal's
customer base, and periodic reviews of loan portfolio quality by Valley Federal
personnel. Specific reserves will be provided for individual loans where the
ultimate collection is considered questionable by management after reviewing
the current status of loans which are contractually past due and considering
the net realizable value of the security of the loan or guarantees, if
applicable. At September 30, 1995 the balance in the allowance for possible
loan losses amounted to $462,000.
INVESTMENT ACTIVITIES
Interest income and dividends from the deposits and investment
securities generally provide the second largest source of income for Valley
Federal after interest on loans. At September 30, 1995, Valley Federal's
investment securities portfolio totalled $1.5 million and consisted primarily
of an FHLB Note, an FHLB bond and a tax free municipal bond. Valley Federal is
required under federal regulations to maintain a minimum amount of liquid
assets and is also permitted to make certain other securities investments. See
"Regulation," below, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources." The
balance of Valley Federal's investments in short-term securities in excess of
regulatory requirements reflects management's response to the significant
percentage of deposits with short maturities. It is the intention of
management to hold securities with short maturities in Valley Federal's
investment portfolio in order to enable Valley Federal to match more closely
the interest rate sensitivities of its assets and liabilities. Investment
decisions are made by authorized officers of Valley Federal within policies
established by the
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<PAGE> 93
Board of Directors and approved and reviewed monthly by the Board. The Savings
Bank has not engaged in any hedging or high-risk derivative investment
activities.
SOURCES OF FUNDS
GENERAL. Savings accounts and other types of deposits have
traditionally been an important source of Valley Federal's funds for use in
lending and for other general business purposes. In addition to savings
accounts, Valley Federal derives funds from loan repayments, from loan sales
and from operations. The availability of funds from loan sales is influenced
by general interest rates and other market conditions. Loan repayments are a
relatively stable source of funds while deposit inflows and outflows vary and
are influenced by prevailing interest rates and money market conditions.
Valley Federal does not solicit brokered deposits.
DEPOSITS. Deposits are attracted principally from within Valley
Federal's primary market area, the Colbert, Lauderdale and Franklin County
areas of North Alabama. Valley Federal offers a broad selection of deposit
instruments including NOW accounts, money market deposit accounts, regular
passbook savings accounts, term certificate accounts and retirement savings
plans. Deposit account terms vary, the principal differences being the minimum
balance required, the time period that the funds must remain on deposit and the
interest rate. To date Valley Federal has not obtained any funds through
brokered deposits. The deregulation of various federal controls in insured
deposits has allowed Valley Federal to be more competitive in obtaining funds
and given it more flexibility to meet the threat of net deposit outflows.
While the deregulation of rates payable on deposits has allowed Valley Federal
to be competitive in the acquisition and retention of funds, it has also
resulted in a more volatile cost of funds.
Interest rates paid, maturity terms and withdrawal penalties are
established by Valley Federal on a periodic basis. Determination of rates and
terms are predicated on funds acquisition and liquidity requirements, rates
paid by competitors and growth goals.
The following table sets forth the deposit activities of Valley Federal
for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------
1993 1994 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Deposits over (under) withdrawals . . . . . $(9,327) $(11,905) $ 6,283
Interest credited . . . . . . . . . . . . . 3,063 1,371 1,598
------- -------- -------
Net increase in savings deposits . . . . . $(6,264) $(10,534) $ 7,881
======= ======== =======
</TABLE>
83
<PAGE> 94
Savings deposits in Valley Federal as of September 30, 1995 were
represented by the various types of deposit programs described below.
<TABLE>
<CAPTION>
Weighted
Percentage Percentage
Interest Minimum Minimum Balances of Total
Rate Term Category Amount in thousands Savings
- ---------- ------- -------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
-- None Noninterest-bearing demand
accounts $ 100 $ 1,280 1.18%
* 2.10% None NOW Accounts 100 4,552 4.19
* 2.75 None Passbook Statement Accounts 10 8,356 7.69
* 3.24 None Money Market Accounts 1,000 1,917 1.76
* 4.44 None Super NOW and VIP Accounts 2,500 16,012 14.73
* 1.73 None Club Account 100 50 .05
Certificates of Deposits
------------------------
* 5.09 18 months IRA 500 3,888 3.58
* 5.42 3 years IRA 500 602 .55
* 6.41 5 years IRA 500 2,505 2.30
* 5.49 182 days 6-month Money Market 500 9,916 9.12
* 4.74 18 months 18-month Money Market 500 1,001 .92
* 6.67 4 years 4 year Money Market 500 33 .03
* 4.20 32-182 days 32-182 day Variable Rate 500 512 .47
* 5.94 1 year 1 year Fixed Rate 500 14,937 13.74
* 5.94 2 years 2 year Fixed Rate 500 14,071 12.94
* 5.16 3 years 3 year Fixed Rate 500 2,742 2.52
* 5.90 4 years 4 year Fixed Rate 500 11,833 10.88
* 6.60 5 years 5 year Fixed Rate 500 748 .69
* 6.11 6 months 6 Month Jumbo 500 1,027 .94
* 6.71 1 year 1 year Jumbo 99,000 9,240 8.50
* 4.39 30 months 2-1/2 year Variable Rate 500 299 .28
* 6.74 2 years Variable Rate 10,000 3,196 2.94
---- ---------- ------
5.18
====
$ 108,717 100.00%
========== ======
</TABLE>
* Represents weighted average rate.
The following paragraphs set forth a description of the more
significant types of deposit accounts offered by Valley Federal.
NOW ACCOUNTS AND SUPER NOW AND VIP ACCOUNTS. Regular NOW accounts,
student NOW accounts, senior citizen NOW accounts, and VIP accounts are the
types of transaction accounts offered by Valley Federal. Funds may be invested
in and withdrawn from NOW accounts which are similar to interest-bearing
checking accounts. The NOW accounts pays 2.50% if a minimum balance of $1,000
is maintained throughout the monthly cycle period. Senior citizen and student
accounts do not require a minimum balance. Valley Federal has offered and
actively marketed NOW accounts since 1981. Valley Federal began offering VIP
accounts in 1989.
Valley Federal's VIP accounts have variable interest rates, and rates
are set by management. The interest rate on VIP accounts is determined by
account balance. Tier 1-$50,000 or more; tier-2 $10,000 but less than
$50,000; tier 3-less than 10,000.
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<PAGE> 95
The NOW account and the VIP account are available only to individuals,
non-profit organizations, and governmental units.
PASSBOOK SAVINGS. The minimum balance required to invest in passbook
savings is $10. An interest rate of 2.75% with an APY of 2.78 is paid on this
account. Interest is compounded quarterly from date of deposit to date of
withdrawal and credited quarterly.
MONEY MARKET DEPOSIT ACCOUNTS. The main features of Valley Federal's
MMDA include the following: (1) $1,000 minimum balance (interest rate drops to
NOW account rate if the balance drops below the minimum balance required); (2)
no limit on the rate the Bank can pay on the account; (3) six preauthorized or
automatic third party transfers (e.g., to cover a monthly loan payment) are
permitted, three of which may be in the form of checks; (4) no restrictions on
the size and frequency of withdrawals by mail or in person; (5) no restrictions
on the size and frequency of withdrawals by mail or in person; (5) no
restriction on additional deposits to the accounts; and (6) no minimum maturity
or early withdrawal penalty.
CERTIFICATES OF DEPOSIT. Valley Federal currently offers certificates
of deposit with terms ranging from seven days to five years. The minimum
opening balance for certificates maturing in 31 days is $2,500. The minimum
opening balance for all other certificates have no ceilings, are set weekly by
Valley Federal's management with the approval of the President, and are for the
fixed term of the certificates. All certificates of deposit carry a penalty
for early withdrawal. Interest is compounded at maturity on the 7-31 day
certificate, on 91-181 day certificates interest is paid by check or compounded
at maturity, interest is compounded at maturity or paid quarterly by check on
the 182-364 day certificate. Monthly checks are offered on accounts with a
minimum balance of $5,000. The interest may also be transferred to an existing
account.
Interest on all other certificates may be mailed or credited to an
existing account quarterly or mailed monthly if the $5,000 minimum balance
requirement is met.
JUMBO CERTIFICATES. Valley Federal offers negotiated rate "Jumbo"
certificates for terms of six months and one year in minimum amount of $99,000.
Management anticipates that certain of Valley Federal's jumbo certificates are
rate-sensitive and might not be renewed upon the expiration of their terms in
the event another depository institution were to offer higher interest rates.
RETIREMENT ACCOUNTS. Valley Federal offers certificates with terms of
18 months, three years and five years. The interest rates are set weekly by
management on these accounts. The certificates can be established with a
minimum deposit of $100. The penalty is waived when the customer reaches the
age of 59 1/2.
85
<PAGE> 96
The following table sets forth the time deposits in Valley Federal
classified by rates as of the dates indicated:
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------
1993 1994 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Below 4.01% . . . . . . . . . . . . . . . . $ 31,261 $ 22,215 $ --
4.01-6.00% . . . . . . . . . . . . . . . . 16,318 28,561 56,088
6.01-8.00% . . . . . . . . . . . . . . . . 19,287 14,177 20,462
Above 8.00% . . . . . . . . . . . . . . . . -- 81 --
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . $ 66,866 $ 65,034 $ 76,550
======== ======== ========
</TABLE>
The following table sets forth the amount and maturities of time deposits
at September 30, 1995:
<TABLE>
<CAPTION>
Amount Due
--------------------------------------------------------------------------------------
Less Than After
Rate One Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years 5 Years Total
- ---- --------- --------- --------- --------- --------- ------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Between 4.01 - 6.00% . . $ 10,604 $ 15,938 $ 14,369 $ 3,344 $ 11,833 $ -- $ 56,088
Between 6.01 - 8.00% . . 9,240 4,914 3,021 -- 33 3,254 20,462
--------- --------- --------- --------- ---------- -------- ---------
Total . . . . . . . . . $ 19,844 $ 20,852 $ 17,390 $ 3,344 $ 11,866 $ 3,254 $ 76,550
========= ========= ========= ========= ========== ======== =========
</TABLE>
DEPOSIT FLOW. The following table sets forth the change in dollar
amount of savings deposits in the various types of savings accounts offered by
Valley Federal between the dates indicated.
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<PAGE> 97
<TABLE>
<CAPTION>
Balance at Balance at
September 30, % of Increase September 30, % of Increase
1993 Deposits (Decrease) 1994 Deposits (Decrease)
------------- -------- ---------- ------------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand amounts . . . . . . . . $ 1,193 1.07% $ 654 $ 1,593 1.58% $ 400
NOW checking accounts . . . . . . 6,342 5.69 2,637 4,956 4.91 (1,386)
Jumbo certificates . . . . . . . 6,332 5.69 (539) 5,290 5.24 (1,042)
Super NOW and VIP
checking accounts . . . . . . . 23,726 21.30 (4,660) 16,912 16.77 (6,814)
Passbook and regular
savings . . . . . . . . . . . . 10,774 9.65 1,911 10,034 9.95 (710)
Money market deposit
accounts . . . . . . . . . . . 2,499 2.24 221 2,307 2.29 (192)
Six month money market
certificates . . . . . . . . . 10,770 9.67 (1,435) 10,313 10.23 (457)
IRA accounts . . . . . . . . . . 6,544 5.88 249 6,559 6.50 15
18 month money market
certificates . . . . . . . . . 1,434 1.29 (550) 1,216 1.21 (218)
Remaining 1-8 years fixed term,
fixed-rate certificate . . . . 262 0.24 (61) 89 0.09 (173)
1 to 4 years fixed rate . . . . . 41,075 36.88 810 40,907 40.57 (168)
Other . . . . . . . . . . . . . . 449 0.40 (5,501) 660 0.66 211
-------- ------ ------- -------- ------ --------
Total . . . . . . . . . . . . $111,370 100.00% $(6,264) $100,836 100.00% $(10,534)
======== ====== ======= ======== ======= ========
<CAPTION>
Balance at
September 30, % of Increase
1995 Deposits (Decrease)
------------- -------- ----------
Noninterest-bearing
demand amounts . . . . . . . . $ 1,280 1.18% $ (313)
NOW checking accounts . . . . . . 4,602 4.24 (354)
Jumbo certificates . . . . . . . 10,267 9.44 4,977
Super NOW and VIP
checking accounts . . . . . . . 16,012 14.73 (900)
Passbook and regular
savings . . . . . . . . . . . . 8,356 7.69 (1,678)
Money market deposit
accounts . . . . . . . . . . . 1,917 1.76 (390)
Six month money market
certificates . . . . . . . . . 9,916 9.12 (397)
IRA accounts . . . . . . . . . . 6,995 6.43 436
18 month money market
certificates . . . . . . . . . 1,001 0.92 (215)
Remaining 1-8 years fixed term,
fixed-rate certificate . . . . -- -- (89)
1 to 4 years fixed rate . . . . . 47,826 43.99 6,919
Other . . . . . . . . . . . . . . 545 0.50 (115)
-------- ------ ------
Total . . . . . . . . . . . . $108,717 100.00% $7,881
======== ====== ======
</TABLE>
87
<PAGE> 98
In the unlikely event of liquidation of Valley Federal, savings
account holders will be entitled to full payment of their savings accounts
prior to any payment being made to the holders of capital stock. Substantially
all of Valley Federal's savings account holders are residents of the State of
Alabama.
BORROWINGS. Savings deposits are the primary source of funds of
Valley Federal's lending and investment activities and for its general business
purposes. Valley Federal, if the need arises, may rely on advances from the
FHLB of Atlanta to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. The FHLB has served as Valley Federal's primary
borrowing source. Advances from the FHLB are typically secured by Valley
Federal's stock in the FHLB and a portion of Valley Federal's first mortgage
loans. At September 30, 1995 Valley Federal had $6.0 million of FHLB advances
outstanding. See Note 9 of Notes to Consolidated Financial Statements.
The FHLB of Atlanta functions as a central reserve bank providing
credit for thrift institutions. As a member, Valley Federal is required to own
capital stock in the FHLB and is authorized to apply for advances on the
security of such stock and certain of its home mortgages and other assets
(principally, securities which are obligations of, or guaranteed by, the United
States) provided certain standards related to creditworthiness have been met.
Advances are made pursuant to several different programs. Each credit program
has its own interest rate and range of maturities. Depending on the program,
limitations on the amount of advances are based either on a fixed percentage of
Valley Federal's net worth or on the FHLB's assessment of the Valley Federal's
creditworthiness.
Valley Federal has also borrowed using reverse repurchase agreements
in which the borrowing is secured by underlying securities. These borrowings
generally have terms of seven to 21 days. At September 30, 1995, there were no
securities sold under agreements to repurchase outstanding.
Valley Federal occasionally borrows funds from other lenders in the
Savings Bank's market area. These borrowings typically have terms of 12 months
and adjustable interest rates. At September 30, 1995, Valley Federal had no
borrowings from local commercial banks.
88
<PAGE> 99
The following table sets forth certain information regarding
short-term borrowings by Valley Federal at the dates and during the periods
indicated:
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------
1993 1994 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Maximum amount of borrowings outstanding
at any month end:
Federal Home Loan Bank advances . . . . . . . . $ 4,000 $ 10,000 $ 14,000
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------
1993 1994 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Approximate average short-term borrowings
outstanding with respect to:(1)
Federal Home Loan Bank advances . . . . . . . . $ 2,587 $ 4,573 $ 8,754
Approximate weighted average rate paid
on: (1)
Federal Home Loan Bank advances . . . . . . . . 3.32% 4.42% 6.48%
</TABLE>
- --------------------
(1) The average amount of short-term borrowings outstanding during each
year is computed on a daily basis and the appropriate weighted average
interest rate paid during each year is computed by dividing interest
expense on the related borrowings by the average amount outstanding
during the year.
SUBSIDIARY ACTIVITY
Valley Federal has one wholly-owned subsidiary, Valley Service
Corporation of Alabama. The service corporation has not been active except for
serving as an investor in Savings and Loan Data Corporation stock which is held
by it in connection with data processing services provided to its parent
corporation. As of September 30, 1995, the net book value of the Savings
Bank's investment in stock, unsecured loans, and conforming loans in its
service corporation was approximately $16,000.
COMPETITION
Valley Federal experiences substantial competition, both in attracting
and retaining savings deposits and in the making of mortgage and other loans.
Direct competition for savings deposits comes from other savings institutions,
commercial banks, and credit unions located in northwest Alabama. Additional
competition for savings deposits comes from money market mutual funds and
corporate and government debt securities.
The primary factors in competing for loans are interest rates and loan
origination fees and the range of services offered by various financial
institutions. Competition for origination of real estate loans normally comes
from other savings and loan associations, commercial banks, mortgage bankers,
mortgage brokers and insurance companies.
Valley Federal considers northwest Alabama its primary market area,
specifically, Colbert, Lauderdale and Franklin Counties. Valley Federal has
its home office and three branch offices
89
<PAGE> 100
in four separate cities in Colbert County. Valley Federal is able to compete
effectively in its primary market areas by offering an array of savings and
loan products and services.
As of September 30, 1995, there were nine banks in Colbert County and
10 banks in Lauderdale County with 36 total branch offices. Several credit
unions also have offices in Valley Federal's market area. Valley Federal is
the only savings bank headquartered in Colbert County.
PERSONNEL
As of September 30, 1995, Valley Federal had 44 full-time employees
and eight part-time employees. The employees are not represented by a
collective bargaining unit. Valley Federal believes its relationship with its
employees to be good.
REGULATION
GENERAL. As a federal savings institution, Valley Federal is subject
to extensive regulation by the OTS. The lending activities and other
investments of Valley Federal must comply with various federal regulatory
requirements. OTS will periodically examine Valley Federal for compliance with
various regulatory requirements. The FDIC also has the authority to conduct
special examinations of SAIF members. Valley Federal must file reports with
OTS describing its activities and financial condition. Valley Federal is also
subject to certain reserve requirements promulgated by the Federal Reserve.
This supervision and regulation is intended primarily for the protection of
depositors. Certain of these regulatory requirements are referred to below or
appear elsewhere herein.
FEDERAL HOME LOAN BANK SYSTEM. Valley Federal continues to be a
member of the FHLB System, which consists of 12 regional FHLBs subject to
supervision and regulation by the Federal Housing Finance Board ("FHFB"). The
Federal Home Loan Banks provide a central credit facility primarily for member
institutions. As a member of the FHLB of Atlanta, Valley Federal is required
to acquire and hold shares of capital stock in the FHLB of Atlanta in an amount
at least equal to 1% of the aggregate unpaid principal of its home mortgage
loans, home purchase contracts, and similar obligations at the beginning of
each year, or 1/20 of its advances (borrowings) from the FHLB of Atlanta,
whichever is greater. Valley Federal was in compliance with this requirement
with investment in FHLB of Atlanta stock at September 30, 1995, of $767,800.
The FHLB of Atlanta serves as a reserve or central bank for its member
institutions within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
advances to members in accordance with policies and procedures established by
the FHFB and the Board of Directors of the FHLB of Atlanta. Under FIRREA,
long-term advances may only be made for the purpose of providing funds for
residential housing finance. As of September 30, 1995, Valley Federal had $6.0
million of advances from the FHLB of Atlanta. See "-Sources of Funds -
Borrowings."
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<PAGE> 101
LIQUIDITY REQUIREMENTS. Valley Federal is required under OTS
regulation to maintain average daily balances of liquid assets (cash, certain
time deposits, bankers' acceptances, highly rated corporate debt and commercial
paper, securities of certain mutual funds, mortgage loans and mortgage-related
securities with less than one year to maturity or subject to purchase within
one year and specified U.S. government, state or federal agency obligations)
equal to the monthly average of not less than a specified percentage (currently
5%) of its net withdrawable savings deposits plus short-term borrowings.
Savings institutions also are required to maintain average daily balances of
short-term liquid assets at a specified percentage (currently 1%) of the total
of their net withdrawable savings accounts and borrowings payable in one year
or less. Monetary penalties may be imposed for failure to meet liquidity
requirements. The average daily and short-term liquidity ratios of Valley
Federal at September 30, 1995 were 8.49% and 2.73%, respectively.
QUALIFIED THRIFT LENDER TEST. Savings institutions are required to
meet a Qualified Thrift Lender test. A savings institution that does not meet
the Qualified Thrift Lender test must either convert to a bank charter or
comply with the following restrictions on its operations: (i) the institution
may not engage in any new activity or make any new investment, directly or
indirectly, unless such activity or investment is permissible for a national
bank; (ii) the branching powers of the institution shall be restricted to those
of a national bank; (iii) the institution shall not be eligible to obtain any
advances from its FHLB; and (iv) payment of dividends by the institution shall
be subject to the rules regarding payment of dividends by a national bank.
Upon the expiration of three years from the date the institution ceases to be a
Qualified Thrift Lender, it must cease any activity and not retain any
investment not permissible for a national bank and immediately repay any
outstanding FHLB advances (subject to safety and soundness considerations).
To meet the Qualified Thrift Lender test, an institution's "Qualified
Thrift Investments" must total at least 65% of "portfolio assets." Portfolio
assets are defined as total assets less intangibles, property used by a savings
institution in its business and liquidity investments in an amount not
exceeding 20% of assets. Qualified Thrift Investments consist of (i) loans,
equity positions or securities related to domestic, residential real estate or
manufactured housing, (ii) 50% of the dollar amount of residential mortgage
loans subject to sale under certain conditions, and (iii) stock in an FHLB or
the FHLMC. In addition, subject to a 20% of portfolio assets limit, savings
institutions are able to treat as Qualified Thrift Investments 200% of their
investments in loans to finance "starter homes" and loans for construction,
development or improvement of housing and community service facilities or for
financing small businesses in "credit-needy" areas. In order to maintain
Qualified Thrift Lender status, the savings institution must maintain a weekly
average percentage of Qualified Thrift Investments to portfolio assets equal to
65% on a monthly average basis in nine out of 12 months. A savings institution
that fails to maintain Qualified Thrift Lender status is permitted to requalify
once, and if it fails the Qualified Thrift Lender test a second time, it will
become immediately subject to all penalties as if all time limits on such
penalties had expired.
91
<PAGE> 102
At September 30, 1995, approximately 77.8% of Valley Federal's assets
were invested in Qualified Thrift Investments, which is in excess of the
percentage required to qualify the Savings Bank as a Qualified Thrift Lender.
REGULATORY CAPITAL REQUIREMENTS. Under OTS capital standards, savings
institutions must maintain "tangible" capital equal to at least 1.5% of
adjusted total assets, "core" capital equal to at least 3% of adjusted total
assets and "total" capital (a combination of core and "supplementary" capital)
equal to at least 8% of "risk-weighted" assets. In addition, the OTS has
recently adopted regulations which impose certain restrictions on institutions
that have a ratio of total regulatory capital to risk-weighted assets that is
less than 8.0%, a ratio of Tier 1 capital to risk-weighted assets of less than
4.0% or a ratio of Tier 1 capital to adjusted total assets of less than 4.0%
(or 3.0% if the institution is rated Composite 1 under the OTS examination
rating system). For purposes of these regulations, Tier 1 capital has the same
definition as core capital. See "--Prompt Corrective Regulatory Action." Core
capital is defined as common stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus,
minority interests in the equity accounts of fully consolidated subsidiaries,
certain nonwithdrawable accounts and pledged deposits and "qualifying
supervisory goodwill." Core capital is generally reduced by the amount of an
institution's intangible assets for which no market exists. Limited exceptions
to the deduction of intangible assets are provided for purchased mortgage
servicing rights, purchased credit card relationships and qualifying
supervisory goodwill held by an eligible institution. Tangible capital is
given the same definition as core capital but does not include an exception for
qualifying supervisory goodwill and is reduced by the amount of all the savings
institution's intangible assets with only a limited exception for purchased
mortgage servicing rights and purchased credit card relationships.
Adjusted total assets are a savings institution's total assets as
determined under generally accepted accounting principles, adjusted for certain
goodwill amounts, and increased by a pro rated portion of the assets of
subsidiaries in which the institution holds a minority interest and which are
not engaged in activities for which the capital rules require the institution
to net its debt and equity investments against capital, as well as a pro rated
portion of the assets of other subsidiaries for which netting is not fully
required under phase-in rules. Adjusted total assets are reduced by the amount
of assets that have been deducted from capital, the portion of the
institution's investments in subsidiaries that must be netted against capital
under the capital rules and, for purposes of the core capital requirement,
qualifying supervisory goodwill. At September 30, 1995, Valley Federal's
adjusted total assets for purposes of the core and tangible capital
requirements were $125.9 million.
In determining compliance with the risk-based capital requirement, a
savings institution is allowed to use both core capital and supplementary
capital provided the amount of supplementary capital used does not exceed the
institution's core capital. Supplementary capital is defined to include
certain preferred stock issues, nonwithdrawable accounts and pledged deposits
that do not qualify as core capital, certain approved subordinated debt,
certain other capital instruments and a portion of the institution's general
loss allowances. Total core and supplementary capital are reduced by the
amount of capital instruments held by other depository institutions pursuant
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to reciprocal arrangements and, since July 1, 1990, by an increasing percentage
of the institution's high loan-to-value ratio land loans, non-residential
construction loans and equity investments other than those deducted from core
and tangible capital. As of June 30, 1995, the Savings Bank had no high ratio
land or non-residential construction loans and no equity investments for which
OTS regulations require a phased deduction from total capital.
The risk-based capital requirement is measured against risk-weighted
assets which equal the sum of each asset and the credit-equivalent amount of
each off-balance sheet item after being multiplied by an assigned risk weight.
Under the OTS risk-weighting system, one- to four-family first mortgages not
more than 90 days past due with original loan-to-value ratios under 80% are
assigned a risk weight of 50%. Consumer and residential construction loans are
assigned a risk weight of 100%. Mortgage-backed securities issued, or fully
guaranteed as to principal and interest, by the FNMA or FHLMC are assigned a
20% risk weight. Cash and U.S. Government securities backed by the full faith
and credit of the U.S. Government are given a 0% risk weight. As of September
30, 1995, Valley Federal's risk-weighted assets were approximately $72.0
million.
The table below presents Valley Federal's historical capital position
relative to its various regulatory capital requirements at September 30, 1995.
<TABLE>
<CAPTION>
At September 30, 1995
--------------------------------
Percent of
Amount Assets (1)
------ ----------
(Dollars in thousands)
<S> <C> <C>
Tangible Capital . . . . . . . . . . . . $ 9,833 7.81%
Tangible Capital Requirement . . . . . . 1,888 1.50
----------- -----
Excess . . . . . . . . . . . . . . . . $ 7,945 6.31%
=========== =====
Core Capital . . . . . . . . . . . . . . $ 9,833 7.81%
Core Capital Requirement . . . . . . . . 3,777 3.00
----------- -----
Excess (2) . . . . . . . . . . . . . . $ 6,056 4.81%
=========== =====
Total Capital (i.e., Core and
Supplementary Capital) . . . . . . . . $ 10,213 14.18%
Risk-Based Capital Requirement . . . . . 5,761 8.00
----------- -----
Excess . . . . . . . . . . . . . . . . $ 4,452 6.18%
=========== =====
</TABLE>
- ------------------
(1) Based upon adjusted total assets for purposes of the tangible capital
and core capital requirements, and risk-weighted assets for purposes
of the risk-based capital requirements.
(2) Reflects the current core capital requirement of 3.00%. On the basis
of the proposed increase in the core capital requirement to between
4.00% and 5.00%, Valley Federal's excess core capital would be between
$4,797 and $3,538, respectively.
The capital standards applicable to savings institutions must be no
less stringent than those applicable to national banks. Effective December 31,
1990, the Office of the Comptroller of the Currency ("OCC") adopted regulations
implementing more stringent core capital requirements for national banks. The
OCC regulations establish a minimum core capital ratio of 3% for the most
highly rated banks, with at least an additional 100 to 200 basis point
"cushion" amount of additional capital required on a case-by-case basis,
considering the quality of risk management systems and the overall risk in
individual banks. The OTS has proposed an amendment to its capital regulations
which would establish a minimum core capital ratio of 3.00% for savings
institutions rated composite 1 under the OTS rating system. For all other
savings institutions,
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the minimum core capital ratio would be 3.00% plus at least an additional 100
to 200 basis points. In determining the amount of additional core capital, the
OTS would assess both the quality of risk management systems and the level of
overall risk in each individual savings institution through the supervisory
process on a case-by-case basis.
The OTS has adopted an amendment to its risk-based capital
requirements that will require, following an indefinite delay of its
effectiveness, savings institutions with more than a "normal" level of interest
rate risk to maintain additional total capital. A savings institution's
interest rate risk will be measured in terms of the sensitivity of its "net
portfolio value" to changes in interest rates. Net portfolio value is defined,
generally, as the present value of expected cash inflows from existing assets
and off-balance sheet contracts less the present value of expected cash
outflows from existing liabilities. A savings institution will be considered
to have a "normal" level of interest rate risk exposure if the decline in its
net portfolio value after an immediate 200 basis point increase or decrease in
market interest rates (whichever results in the greater decline) is less than
two percent of the current estimated economic value of its assets. A savings
institution with a greater than normal interest rate risk will be required to
deduct from total capital, for purposes of calculating its risk-based capital
requirement, an amount (the "interest rate risk component") equal to one-half
the difference between the institution's measured interest rate risk and the
normal level of interest rate risk, multiplied by the economic value of its
total assets.
The OTS will calculate the sensitivity of a savings institution's net
portfolio value based on data submitted by the institution in a schedule to its
quarterly Thrift Financial Report and using the interest rate risk measurement
model adopted by the OTS. The amount of the interest rate risk component, if
any, to be deducted from a savings institution's total capital will be based on
the institution's Thrift Financial Report filed two quarters earlier. Savings
institutions with less than $300 million in assets and a risk-based capital
ratio above 12% are generally exempt from filing the interest rate risk
schedule with their Thrift Financial Reports. However, the OTS will require
any exempt savings institution that it determines may have a high level of
interest rate risk exposure to file such schedule on a quarterly basis. Valley
Federal has not determined whether, on the basis of current financial data, it
would be deemed to have more than normal level of interest rate risk under the
new rule.
The Director of OTS is authorized to establish the minimum level of
capital for a savings institution at such amount or at such ratio of
capital-to-assets as the Director determines to be necessary or appropriate for
such institution in light of the particular circumstances of the institution.
The Director of OTS may treat the failure of any savings institution to
maintain capital at or above such level as an unsafe or unsound practice and
may issue a directive requiring any savings institution which fails to maintain
capital at or above the minimum level required by the Director to submit and
adhere to a plan for increasing capital. Such an order may be enforced in the
same manner as a cease and desist order.
DEPOSIT INSURANCE. Valley Federal is required to pay assessments
based on a percent of its insured deposits to the FDIC for insurance of its
deposits by the SAIF. Under the Federal
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Deposit Insurance Act, the FDIC is required to set semi-annual assessments for
SAIF-insured institutions to maintain the designated reserve ratio of the SAIF
at 1.25% of estimated insured deposits or at a higher percentage of estimated
insured deposits that the FDIC determines to be justified for that year by
circumstances raising a significant risk of substantial future losses to the
SAIF.
The FDIC has adopted a risk-based deposit insurance premium assessment
system. Under this system, the assessment rate for an insured depository
institution will depend on the assessment risk classification assigned to the
institution by the FDIC which will be determined by the institution's capital
level and supervisory evaluations. Based on the data reported to regulators
for the date closest to the last day of the seventh month preceding the
semi-annual assessment period, institutions are assigned to one of three
capital groups -- well capitalized, adequately capitalized or undercapitalized
- -- using the same percentage criteria as under the prompt corrective action
regulations. See "-- Prompt Corrective Regulatory Action." Within each
capital group, institutions are assigned to one of three subgroups on the basis
of supervisory evaluations by the institution's primary supervisory authority
and such other information as the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
fund. Subgroup A will consist of financially sound institutions with only a
few minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses which, if not corrected, could result in significant deterioration
of the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken. The
FDIC establishes separate assessment rates for depository institutions insured
by the BIF and the SAIF. For SAIF-insured institutions such as Valley Federal,
the assessment rate currently ranges from 0.23% of deposits for well
capitalized institutions in Subgroup A to 0.31% of deposits for
undercapitalized institutions in Subgroup C.
On August 8, 1995, the FDIC approved a significant reduction in the
deposit insurance premiums charged to those depository institutions that are
insured by the BIF. This schedule established assessment rates ranging from
0.04% for well capitalized institutions in Subgroup A to 0.31% for
undercapitalized institutions in Subgroup C. On November 14, 1995, the BIF
assessment rate schedule was further revised to a statutory minimum of $2,000
annually for well capitalized institutions in Subgroup A to 0.27% of deposits
for undercapitalized institutions in Subgroup C. These revisions to the BIF
assessment rate schedule created a significant disparity between the deposit
insurance premiums paid by BIF members and deposit insurance premiums paid by
SAIF members. As part of the Balanced Budget Act, Congress proposed to
authorize the FDIC to assess a one-time fee on institutions with deposits
insured by the SAIF in order to increase the SAIF's reserve ratio to the 1.25%
of aggregate insured deposits required by the FDIA. Although the Balanced
Budget Act was subsequently vetoed by the President and did not become law,
there is a significant possibility that some form of a SAIF recapitalization
could be included in future legislation. The amount of any such one time
assessment would be determined by the FDIC based on the amount of reserves in
the SAIF, the amount of insured deposits and such other factors as the FDIC
deems appropriate. Under the Balanced Budget Act, the amount of the one time
assessment would have been based on deposits at March 31, 1995 and was
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expected to range from 0.85%-0.90% of insured deposits. This assessment would
have been payable during the first quarter of 1996. Based on its deposits at
September 30, 1995, the proposed one-time assessment would have been
approximately $555,000 after taxes (assuming a 0.90% assessment rate), which at
September 30, 1995 would have reduced tangible and core capital ratios to 7.37%
from 7.81%, and reduced risk based capital ratio to 13.41% from 14.18%.
However, if such a special assessment is imposed and the SAIF is recapitalized,
it could have the effect of reducing the Savings Bank's deposit insurance
premiums in future periods, thereby establishing competitive equality between
BIF and SAIF insured financial institutions.
SAIF members generally are prohibited from converting to the status of
members of the BIF administered by the FDIC or merging with or transferring
assets to a BIF member before the date on which the SAIF first meets or exceeds
the designated reserve ratio. The FDIC, however, may approve such a
transaction in the case of a SAIF member in default or if the transaction
involves an insubstantial portion of the deposits of each participant. In
addition, mergers, transfers of assets and assumptions of liabilities may be
approved by the appropriate bank regulator so long as deposit insurance
premiums continue to be paid to the SAIF for deposits attributable to the SAIF
members plus an adjustment for the annual rate of growth of deposits in the
surviving bank without regard to subsequent acquisitions. An institution may
adopt a commercial bank or savings bank charter if the resulting bank remains
an SAIF member.
The FDIC has adopted a regulation which provides that any insured
depository institution with a ratio of Tier 1 capital to total assets of less
than 2% will be deemed to be operating in an unsafe or unsound condition, which
would constitute grounds for the initiation of termination of deposit insurance
proceedings. The FDIC, however, would not initiate termination of insurance
proceedings if the depository institution has entered into and is in compliance
with a written agreement with its primary regulator, and the FDIC is a party to
the agreement, to increase its Tier 1 capital to such level as the FDIC deems
appropriate. Tier 1 capital is defined as the sum of common stockholders'
equity, noncumulative perpetual preferred stock (including any related surplus)
and minority interests in consolidated subsidiaries, minus all intangible
assets other than mortgage servicing rights and qualifying supervisory goodwill
eligible for inclusion in core capital under OTS regulations and minus
identified losses and investments in certain securities subsidiaries. Insured
depository institutions with Tier 1 capital equal to or greater than 2% of
total assets may also be deemed to be operating in an unsafe or unsound
condition notwithstanding such capital level. The regulation further provides
that in considering applications that must be submitted to it by savings
institutions, the FDIC will take into account whether the institution is
meeting with the Tier 1 capital requirement for state non-member banks of 4% of
total assets for all but the most highly rated state non-member banks.
TRANSACTIONS WITH RELATED PARTIES. Transactions between savings
institutions and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of a savings institution is any company or
entity which controls, is controlled by or is under common control with the
savings institution. In a holding company context, the parent holding company
of a savings institution and any companies which are controlled by such parent
holding company are affiliates of the savings institution. Generally, Sections
23A and 23B (i) limit the extent to
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which the savings institution or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus, and contain an aggregate limit on all
such transactions with all affiliates to an amount equal to 20% of such capital
stock and surplus and (ii) require that all such transactions be on terms
substantially the same, or at least as favorable, to the institution or
subsidiary as those provided to a non-affiliate. The term "covered
transaction" includes the making of loans, purchase of assets, issuance of a
guarantee and similar other types of transactions. In addition to the
restrictions imposed by Sections 23A and 23B, no savings institution may (i)
loan or otherwise extend credit to an affiliate, except for any affiliate which
engages only in activities which are permissible for bank holding companies, or
(ii) purchase or invest in any stocks, bonds, debentures, notes or similar
obligations of any affiliate, except for affiliates which are subsidiaries of
the savings institution.
Further, savings institutions are subject to the restrictions
contained in Section 22(h) of the Federal Reserve Act and the Federal Reserve
Board's Regulation O thereunder on loans to executive officers, directors and
principal stockholders. Under Section 22(h), loans to a director, executive
officer and to a greater than 10% stockholder of a savings institution and
certain affiliated interests of such persons, may not exceed, together with all
other outstanding loans to such person and affiliated interests, the
institution's loans-to-one-borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus). Section 22(h) also prohibits
the making of loans above amounts prescribed by the appropriate federal banking
agency, to directors, executive officers and greater than 10% stockholders of a
savings institution, and their respective affiliates, unless such loan is
approved in advance by a majority of the board of directors of the institution
with any "interested" director not participating in the voting. Regulation O
prescribes the loan amount (which includes all other outstanding loans to such
person) as to which such prior board of director approval is required as being
the greater of $25,000 or 5% of capital and surplus (up to $500,000). Further,
Section 22(h) requires that loans to directors, executive officers and
principal stockholders be made on terms substantially the same as offered in
comparable transactions to other persons. Section 22(h) also generally
prohibits a depository institution from paying the overdrafts of any of its
executive officers or directors.
Savings institutions are also subject to the requirements and
restrictions of Section 22(g) of the Federal Reserve Act and Regulation O on
loans to executive officers and the restrictions of 12 U.S.C. Section 1972 on
certain tying arrangements and extensions of credit by correspondent banks.
Section 22(g) of the Federal Reserve Act requires approval by the board of
directors of a depository institution for extension of credit to executive
officers of the institution, and imposes reporting requirements for and
additional restrictions on the type, amount and terms of credits to such
officers. Section 1972 (i) prohibits a depository institution from extending
credit to or offering any other services, or fixing or varying the
consideration for such extension of credit or service, on the condition that
the customer obtain some additional service from the institution or certain of
its affiliates or not obtain services of a competitor of the institution,
subject to certain exceptions, and (ii) prohibits extensions of credit to
executive officers, directors, and greater than 10% stockholders of a
depository institution by any other institution which has a correspondent
banking relationship with the institution, unless such extension of credit is
on substantially the
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same terms as those prevailing at the time for comparable transactions with
other persons and does not involve more than the normal risk of repayment or
present other unfavorable features.
FEDERAL RESERVE SYSTEM. Pursuant to regulations of Federal Reserve, a
thrift institution must maintain average daily reserves equal to 3% on the
first $52.0 million of transaction accounts, plus 12% on the remainder. This
percentage is subject to adjustment by the Federal Reserve Board. Because
required reserves must be maintained in the form of vault cash or in a
non-interest bearing account at a Federal Reserve Bank, the effect of the
reserve requirement is to reduce the amount of the institution's
interest-earning assets. As of September 30, 1995, Valley Federal met its
reserve requirements.
DIVIDEND RESTRICTIONS. Under OTS regulations, Valley Federal is not
permitted to pay dividends on its capital stock if its regulatory capital would
thereby be reduced below the remaining balance of the liquidation account
established at the time of the Savings Bank's conversion from mutual to stock
form for the benefit of certain depositors. In addition, the Savings Bank is
required by OTS regulations to give the OTS 30 days' prior notice of any
proposed declaration of dividends to its stockholders.
OTS regulations impose additional limitations on the payment of
dividends and other capital distributions (including stock repurchases and cash
mergers) by the Savings Bank. Under these regulations, an institution that,
immediately prior to, and on a pro forma basis after giving effect to, a
proposed capital distribution, has total capital (as defined by OTS regulation)
that is equal to or greater than the amount of its fully phased-in capital
requirements (a "Tier 1 Association") is generally permitted, after notice, to
make capital distributions during a calendar year in the amount equal to the
greater of: (a) 75% of its net income for the previous four quarters; or (b)
100% of its net income to date during the calendar year plus an amount that
would reduce by one-half the amount by which its ratio of total capital to
assets exceeded its fully phased-in risk-based capital ratio requirement at the
beginning of the calendar year. An institution with total capital in excess of
current minimum capital ratio requirements but not in excess of the fully
phased-in requirements (a "Tier 2 Association") is permitted, after notice, to
make capital distributions without OTS approval of up to 75% of its net income
for the previous four quarters, less dividends already paid for such period.
An institution that fails to meet current minimum capital requirements (a "Tier
3 Association") is prohibited from making any capital distributions without the
prior approval of the OTS. A Tier 1 Association that has been notified by the
OTS that its is in need of more than normal supervision will be treated as
either a Tier 2 or Tier 3 Association. Valley Federal is a Tier 1 Association.
Despite the above authority, the OTS may prohibit any institution from making a
capital distribution that would otherwise be permitted by the regulation, if
the OTS were to determine that the distribution constituted an unsafe or
unsound practice.
Under the OTS prompt corrective action regulations, Valley Federal
would be prohibited from making any capital distributions if, after making the
distribution, it would have: (i) a total risk-based capital ratio of less than
8.0%; (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a
leverage ratio of less than 4.0%. See "--Prompt Corrective Regulatory Action."
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In addition to the foregoing, earnings of Valley Federal appropriated
to bad debt reserves and deducted for federal income tax purposes are not
available for payment of cash dividends or other distributions to the Valley
Federal's stockholders without payment of taxes at the then current tax rate on
the amount of earnings removed from the reserves for such distributions. See
"--Federal and State Taxation--Federal Taxation." Valley Federal intends to
make full use of this favorable tax treatment afforded to Valley Federal, and
Valley Federal and does not contemplate use of any earnings of Valley Federal
in a manner which would limit Valley Federal's bad debt deduction or create
federal tax liabilities.
PROMPT CORRECTIVE REGULATORY ACTION. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), the federal banking
regulators are required to take prompt corrective action if an institution
fails to satisfy certain minimum capital requirements, including a leverage
limit, a risk-based capital requirement, and any other measure deemed
appropriate by the federal banking regulators for measuring the capital
adequacy of an insured depository institution. All institutions, regardless of
their capital levels, are restricted from making any capital distribution or
paying any management fees that would cause the institution to become
undercapitalized. An institution that fails to meet the minimum level for any
relevant capital measure (an "undercapitalized institution") generally is: (i)
subject to increased monitoring by the appropriate federal banking regulator;
(ii) required to submit an acceptable capital restoration plan within 45 days;
(iii) subject to asset growth limits; and (iv) required to obtain prior
regulatory approval for acquisitions, branching and new lines of businesses.
The capital restoration plan must include a guarantee by the institution's
holding company that the institution will comply with the plan until it has
been adequately capitalized on average for four consecutive quarters, under
which the holding company would be liable up to the lesser of 5% of the
institution's total assets or the amount necessary to bring the institution
into capital compliance as of the date it failed to comply with its capital
restoration plan. A significantly undercapitalized institution, as well as any
undercapitalized institution that does not submit an acceptable capital
restoration plan, may be subject to regulatory demands for recapitalization,
broader application of restrictions on transactions with affiliates,
limitations on interest rates paid on deposits, asset growth and other
activities, possible replacement of directors and officers, and restrictions on
capital distributions by any bank holding company controlling the institution.
Any company controlling the institution may also be required to divest the
institution or the institution could be required to divest subsidiaries. The
senior executive officers of a significantly undercapitalized institution may
not receive bonuses or increases in compensation without prior approval and the
institution is prohibited from making payments of principal or interest on its
subordinated debt, with certain exceptions. If an institution's ratio of
tangible capital to total assets falls below the "critical capital level"
established by the appropriate federal banking regulator, the institution is
subject to conservatorship or receivership within 90 days unless periodic
determinations are made that forbearance from such action would better protect
the deposit insurance fund. Unless appropriate findings and certifications are
made by the appropriate federal bank regulatory agencies, a critically
undercapitalized institution must be placed in receivership if it remains
critically undercapitalized on average during the calendar quarter beginning
270 days after the date it became critically undercapitalized.
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Under the OTS regulation, implementing the prompt corrective action
provisions of FDICIA, the OTS measures an institution's capital adequacy on the
basis of its total risk-based capital ratio (the ratio of its total capital to
risk-weighted assets), Tier 1 risk-based capital ratio (the ratio of its core
capital to risk-weighted assets) and leverage ratio (the ratio of its core
capital to adjusted total assets). An institution that is not subject to an
order or written directive to meet or maintain a specific capital level is
deemed "well capitalized" if it also has: (i) a total risk-based capital ratio
of 10% or greater; (ii) a Tier 1 risk-based capital ratio of 6.0% or greater;
and (iii) a leverage ratio of 5.0% or greater. An "adequately capitalized"
savings institution is an institution that does not meet the definition of well
capitalized and has: (i) a total risk-based capital ratio of 8.0% or greater;
(ii) a Tier 1 capital risk-based ratio of 4.0% or greater; and (iii) a leverage
ratio of 4.0% or greater (or 3.0% or greater if the savings institution has a
composite 1 CAMEL rating). An "undercapitalized institution" is an institution
that has (i) a total risk-based capital ratio less than 8.0%; or (ii) a Tier 1
risk-based capital ratio of less than 4.0%; or (iii) a leverage ratio of less
than 4.0% (or 3.0% if the institution has a composite 1 CAMEL rating). A
"significantly undercapitalized" institution is defined as an institution that
has: (i) a total risk-based capital ratio of less than 6.0%; or (ii) a Tier 1
risk-based capital ratio of less than 3.0%; or (iii) a leverage ratio of less
than 3.0%. A "critically undercapitalized" savings institution is defined as
an institution that has a ratio of core capital to total assets of less than
2.0%. The OTS may reclassify a well capitalized savings institution as
adequately capitalized and may require an adequately capitalized or
undercapitalized institution to comply with the supervisory actions applicable
to institutions in the next lower capital category if the OTS determines, after
notice and an opportunity for a hearing, that the savings institution is in an
unsafe or unsound condition or that the institution has received and not
corrected a less-than-satisfactory rating for any CAMEL rating category.
STANDARDS FOR SAFETY AND SOUNDNESS. Under FDICIA, as amended by the
Riegle Community Development and Regulatory Improvement Act of 1994 (the "CDRI
Act"), each federal banking agency is required to establish safety and
soundness standards for institutions under its authority. On July 10, 1995,
the federal banking agencies, including the OTS, released Interagency
Guidelines Establishing Standards for Safety and Soundness and published a
final rule establishing deadlines for submission and review of safety and
soundness compliance plans. The final rule and the guidelines went into effect
on August 9, 1995. The guidelines require savings institutions to maintain
internal controls and information systems and internal audit systems that are
appropriate for the size, nature and scope of the institution's business. The
guidelines also establish certain basic standards for loan documentation,
credit underwriting, interest rate risk exposure, and asset growth. The
guidelines further provide that savings institutions should maintain safeguards
to prevent the payment of compensation, fees and benefits that are excessive or
that could lead to material financial loss, and should take into account
factors such as comparable compensation practices at comparable institutions.
If the OTS determines that a savings institution is not in compliance with the
safety and soundness guidelines, it may require the institution to submit an
acceptable plan to achieve compliance with the guidelines. A savings
institution must submit an acceptable compliance plan to the OTS within 30 days
of receipt of a request for such a plan. Failure to submit or implement a
compliance plan may subject the institution to regulatory sanctions.
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Additionally under FDICIA, as amended by the CDRI Act, the federal
banking agencies are required to establish standards relating to the asset
quality and earnings that the agencies determine to be appropriate. On July
10, 1995, the federal banking agencies, including the OTS, issued proposed
guidelines relating to asset quality and earnings. Under the proposed
guidelines, a savings institution should maintain systems, commensurate with
its size and the nature and scope of its operations, to identify problem assets
and prevent deterioration in those assets as well as to evaluate and monitor
earnings and ensure that earnings are sufficient to maintain adequate capital
and reserves.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION. Thrift institutions such as Valley Federal are
subject to the provisions of the Internal Revenue Code of 1986 (the "Code") in
the same general manner as other corporations. However, by meeting certain
definitional tests and other conditions prescribed by the Code, thrift
institutions may benefit from special deductions for annual additions to tax
bad debt reserves with respect to loans. For purposes of the bad debt reserve
deduction, loans are separated into "qualifying real property loans," which
generally are loans secured by interests in improved real property, and
"nonqualifying loans," which are all other loans. The bad debt reserve
deduction with respect to nonqualifying loans must be based on actual loss
experience. The bad debt reserve deduction with respect to qualifying real
property loans may be based upon actual loss experience (the "experience
method") or a percentage of taxable income determined without regard to such
deduction (the "percentage of taxable income method"). The Tax Reform Act of
1986 (the "1986 Act") eliminated a third method of computation, the percentage
of outstanding loan balances method, effective for taxable years beginning
after December 31, 1986. Valley Federal has historically used the percentage
of taxable income method.
Under the percentage of taxable income method, the bad debt reserve
deduction for qualifying real property loans is computed as a percentage, which
Congress has reduced from as much as 60% in prior years to 8% of the thrift's
taxable income, with certain adjustments, effective for taxable years beginning
after 1986. The allowable deduction under the percentage of taxable income
method for taxable years beginning before 1987 was scaled downward in the event
that less than 82% of the total dollar amount of the assets of an institution
qualified within certain designated categories. The 1986 Act eliminated this
scale down provision, and for years after 1986 the maximum deduction may be
taken as long as not less than 60% of the total dollar amount of the assets of
an institution falls within such categories. If the amount of qualifying
assets falls below 60%, the institution would get no deduction and could be
required to recapture, generally over a period of up to four years, its
existing bad debt reserves (although net operating loss carryforwards could be
used to offset such recapture). As of September 30, 1995, Valley Federal's
qualifying assets were in excess of 60% of total assets and it is anticipated
that they will remain so in the foreseeable future.
The bad debt deduction under the percentage of taxable income method
is limited to the extent that the amount accumulated in the reserve for losses
on qualifying real property loans exceeds 6% of such loans outstanding at the
end of the taxable year. In addition, the amount
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claimed as a bad debt deduction when added to accumulated loss reserves is
limited to the excess, if any, of 12% of total deposits or withdrawable
accounts of depositors at year-end in excess of the sum of surplus, undivided
profits and reserves at the beginning of the year. It is not expected that
either limitation will restrict Valley Federal from making the maximum addition
to its bad debt reserves. The percentage bad debt deduction is reduced by the
deduction for losses on nonqualifying loans.
Earnings appropriated to Valley Federal's tax bad debt reserves and
claimed as a tax deduction will not be available for the payment of cash
dividends or other distributions to stockholders (including distributions made
upon dissolution or liquidation), unless the Bank includes the amount
distributed in taxable income, along with the amount deemed necessary to pay
the resulting federal income tax. As of September 30, 1995, the end of Valley
Federal's most recent fiscal year, Valley Federal had approximately $3.9
million of accumulated bad debt reserves for which federal income taxes have
not been provided.
Among various proposals currently being considered by the FDIC and
Congress in connection with the recent premium disparity between BIF and SAIF
insured depository institutions is a requirement that savings institutions
convert to commercial banks. Under current federal income tax laws, a savings
institution, such as the Savings Bank, converting to a commercial bank must
"recapture" into taxable income the amount of its tax bad debt reserve that
would not have been allowed if the savings institution had operated as a
commercial bank. The tax associated with the recapture of all or part of its
tax bad debt reserve would immediately reduce the capital of the savings
institution, even though such tax would actually be paid out over the
succeeding years. Based on the current proposal and Valley Federal's
accumulated bad debt reserve at September 30, 1995, the capital reduction under
current law would have amounted to approximately $1.4 million at that date.
Management cannot predict at this time whether the foregoing proposal will be
adopted in its current form or, if adopted, whether such proposal might be
amended to remedy some or all of the adverse financial and tax effects from the
recapture.
For taxable years beginning prior to 1987, in addition to the regular
income tax to which Valley Federal was subject, a minimum tax was imposed at a
rate of 15% of (a) tax preference items, including a portion of the excess of
Valley Federal's bad debt deduction over the amount that would have been
allowable based on actual loss experience, less (b) the greater of $10,000 or
the Savings Bank's regular tax liability less certain credits.
For taxable years beginning after December 31, 1986, the Code imposes
an alternative minimum tax at a rate of 20%. The alternative minimum tax
generally applies to a base of regular taxable income plus certain tax
preferences ("alternative minimum taxable income" or "AMTI") and is payable to
the extent such AMTI is in excess of an exemption amount. The Code provides
that an item of tax preference is the excess of the bad debt deduction
allowable for a taxable year pursuant to the percentage of taxable income
method over the amount allowable under the experience method. The other items
of tax preference that constitute AMTI include (a) tax-exempt interest on
newly-issued (generally, issued on or after August 8, 1986) private activity
bonds other than certain qualified bonds and (b) for taxable years including
1987
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through 1989, 50% of the excess of (i) the taxpayer's pre-tax adjusted net book
income over (ii) AMTI (determined without regard to this latter preference and
prior to reduction by net operating losses). For taxable years beginning after
1989, this latter preference will be replaced by 75% of the excess (if any) of
(i) 75% of adjusted current earnings as defined in the Code, over (ii) AMTI
(determined without regard to this preference and prior to reduction by net
operating losses). For any taxable year beginning after 1986, net operating
losses can offset no more than 90% of AMTI. Certain payments of alternative
minimum taxes may be used as credits against regular tax liabilities in future
years. In addition, for taxable years after 1986 and before 1992,
corporations, including thrift institutions, are also subject to an
environmental tax equal to 0.12% of the excess of AMTI for the taxable year
(determined without regard to net operating losses and the deduction for the
environmental tax) over $2.0 million.
Valley Federal's federal income tax returns have been audited by the
Internal Revenue Service through tax year 1984.
STATE TAXATION. The State of Alabama imposes a 6% excise tax on the
earnings of financial institutions such as Valley Federal. This tax is
deductible in determining federal taxable income. The Alabama regular
corporate income tax rate is 5%.
PROPERTIES.
The following table sets forth the location of Valley Federal's
offices and other facilities as well as certain additional information relating
to these offices and facilities as of September 30, 1995.
<TABLE>
<CAPTION>
Net Book
Year Square Owned/ Total Value at
Name of Office Opened Footage Leased Cost 9/30/95
- -------------- ------ ------- ------ ---- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Home Office 1962 34,640 Owned $1,044 $ 329
501 N. Montgomery Avenue
Sheffield, Alabama 35660
Tuscumbia Branch 1960 3,443 Owned 128 34
201 East Sixth Street
Tuscumbia, Alabama 35674
Florence Branch 1993 5,924 Owned 798 728
501 Dr. Hicks Boulevard
Florence, Alabama 35630
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Muscle Shoals Branch 1990 4,800 Owned 920 764
700 E. Avalon Avenue
Muscle Shoals, Alabama 35660
</TABLE>
The net book value of Valley Federal's investment in office properties
and equipment less accumulated depreciation totalled $2.6 million at September
30, 1995.
Valley Federal utilizes the services of Intrieve, Inc., Cincinnati,
Ohio for the majority of its accounting and record keeping activities.
LEGAL PROCEEDINGS
Although Valley Federal is, from time to time, involved in various
legal proceedings in the normal course of business, there are no material
pending legal proceedings to which Valley Federal or its subsidiary is a party,
or to which any of their property is subject.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF VALLEY FEDERAL SAVINGS BANK
RESTATEMENT
In April, 1996, subsequent to the issuance of the September 30, 1995
consolidated financial statements, Valley Federal learned that its accruals of
interest payable and interest expense for the years ended September 30, 1995 and
1994 were understated. These underaccruals occurred because of Valley Federal's
oversight of the facts dealing principally with a change in Valley Federal's
practice of crediting interest to customer accounts on certificates of deposit
from a quarterly to an annual basis. Such change in practice of crediting
interest was erroneously omitted from the amount of accrued interest reported.
Accordingly, the consolidated financial statements for the years ended September
30, 1995 and 1994 have been restated and the following comparisons of financial
condition and operating results include the effects of the restatement. The
impact of the restatement was to increase the accrued liability for interest
expense by $565,000 and $200,000 at September 30, 1995 and 1994, respectively,
and to increase interest expense by $365,000 and $200,000 for the years then
ended. The net of tax effect on net income and retained earnings was to
decrease each by $231,000 and $127,000 as of and for the years ended September
30, 1995 and 1994, respectively.
GENERAL
Valley Federal's business primarily consists of attracting
savings deposits from the general public and using such deposits to originate
mortgage loans secured by one-to-four-family residences consumer household
loans, commercial and multi-family real estate loans and to purchase
investments and mortgage-backed securities. Valley Federal's revenues are
derived
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principally from interest earned on loans and, to a lesser extent, from
interest earned on investments and mortgage-backed securities.
Valley Federal's results of operations in recent years have
reflected the fundamental changes which have occurred in the regulatory,
economic, and competitive environment in which savings institutions operate.
Valley Federal's results of operations are primarily dependent on its net
interest income, which is the difference between the average yield earned on
loans, investment and mortgage-backed securities and the average rate paid on
deposits, as well as the relative amounts of such assets and liabilities.
Valley Federal, as other savings institutions, is subject to interest rate risk
to the degree that its interest-bearing liabilities mature or reprice at
different times, or on a different basis, than its interest-earning assets.
Valley Federal also generates non-interest income, such as loan fees and
service charges on deposit accounts and rental income from property it owns.
Net income is further affected by the level of operating expenses, such as
compensation, professional and data processing services, and regulatory and
other insurance premiums, the provision for loan loss reserves and income
taxes.
The operations of Valley Federal, and savings institutions
generally, are significantly influenced by general economic conditions and
monetary and fiscal policies of governmental regulatory agencies. Deposit
flows and costs of funds are influenced by interest rates on competing
investments and prevailing market rates of interest. Lending activities are
affected by the demand for financing real estate and other types of loans,
which in turn is affected by the interest rates at which such financing may be
offered and other factors affecting loan demand and the availability of funds.
ASSET AND LIABILITY MANAGEMENT
A principal operating objective of Valley Federal and other
mortgage lenders is to maintain a positive interest rate spread notwithstanding
fluctuations in prevailing interest rates. Savings institutions have
historically maintained substantial portfolios of long-term interest-earning
assets (such as 15-year fixed rate mortgage loans) and short-term
interest-bearing liabilities (such as demand deposits and one-year certificates
of deposit). in response to past losses incurred in the savings institution
industry as a result of dramatic and sustained increases in prevailing interest
rates, savings institutions generally sought to reduce their exposure to
changes in interest rates by attempting to match the periods in which their
interest-earning assets and interest-bearing liabilities can be expected to
reprice.
In accordance with Valley Federal's interest rate risk
strategy, management emphasizes the origination of adjustable rate loans where
possible, the purchase of adjustable rate mortgage-backed securities and the
maintenance of a portfolio of short-term investments. Valley Federal continues
to make long-term fixed rate loans. Given present interest rates management
has encouraged a long-term deposit position by its customers, and has practiced
a conservative pricing strategy so as to avoid costly deposits.
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Certain investments and mortgage-backed securities that
management does not have the intent and ability to hold until maturity are
classified as available for sale. At September 30, 1995, the entire securities
portfolio of $21.1 million was classified as available for sale. Valley
Federal uses such securities as part of its asset/liability management strategy
which includes selling securities in response to changing interest rates,
prepayment risks, or similar economic factors. These securities are recorded
at market value, with the appreciation or depreciation from cost, net of income
taxes, included as a separate component of stockholders' equity. As a result,
Valley Federal's total capital is susceptible to future fluctuations in the
market value portion of the securities portfolio due to changes in interest
rates. Valley Federal has no "trading" account securities and has not engaged
and does not expect to engage in the near future in such short-term
transactions.
INTEREST RATE SENSITIVITY ANALYSIS
The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring an institution's interest rate sensitivity "gap".
An asset or liability is said to be interest rate sensitive within a specific
period if it will mature or reprice within that period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities, and
is considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest rate sensitive assets. Generally, during a
period of rising interest rates, a negative gap would adversely affect net
interest income while a positive gap would result in an increase in net
interest income, while conversely during a period of falling interest rates, a
negative gap would result in an increase in net interest income, while a
positive gap would negatively affect net interest income.
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS ENDED DECEMBER 31, 1995 AND
1994
Consolidated net income decreased $112,000 or 76.19% from $147,000 for
the quarter ended December 31, 1994 to $35,000 for the quarter ended December
31, 1995. The Bank's interest rate spread decreased from 3.06% to 2.56% for
the same periods. Earnings per share was $.10 and $.41 for the quarters ended
December 31, 1995 and 1994, respectively.
Total interest income increased $214,000 from $2,149,000 to $2,363,000
for the quarters ended December 31, 1994 and 1995, respectively. This increase
was due to a 1.43% increase in the balances of loans and securities outstanding
during the quarter ended December 31, 1995 and an 8.53% increase in yields
earned on loans and securities due to rising rates.
Total interest expense increased from $1,175,000 to $1,516,000 or
29.02%. The increase was due to a 24.53% increase in the cost of funds from
4.28% during the quarter ended December 31, 1994 to 5.33% in the current year,
and an increase in the average volume of
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interest bearing liabilities which is composed of a 7.79% increase in the
average volume of deposits offset by a 53.13% decrease in borrowed funds.
During the quarters ended December 31, 1995 and 1994, the Bank added a
provision for loan losses of $45,000 and $75,000, respectively, to its
allowance for loan losses.
Total noninterest income increased $55,000 from the prior year quarter. This
increase is due primarily to an increase in the gain on the sale of available
for sale securities. Total noninterest expense increased $126,000 or 16.38%
due primarily to increases in professional fees related to the Bank's planned
merger with Union Planters Corporation.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1995, 1994, AND 1993
Valley Federal's total assets increased by $5.5 million, or
4.6% between September 30, 1995 and 1994 compared to a decline of $5.4 million,
or 4.3% between September 30, 1994 and 1993. The change in total assets is due
primarily to the change in the availability of funds. During fiscal 1995, a
$7.9 million increase in deposits allowed Valley Federal to increase its
lending activity. This contrasts a $10.5 million decrease in deposits in
fiscal 1994. During 1994, loan demand remained high and Valley Federal met
this demand by generating funds from alternate sources, the sale of securities
and short-term borrowings. The volatility of deposits occurred as some
depositors withdrew or deposited their money to seek higher yielding
investments as a result of the competitive interest rate environment.
Valley Federal's net loan portfolio increased $6.7 million
from September 30, 1994 to 1995 and $11.4 million from September 30, 1993 to
1994. As discussed above, the increase in loans was funded by sales of
securities and short-term borrowings in fiscal 1994 and by deposit growth in
fiscal 1995. Valley Federal's portfolio of securities decreased $1.2 million
and $11.3 million during fiscal 1995 and 1994, respectively. The change in
securities was also affected by Valley Federal's adoption of Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities, on October 1, 1994. The impact at adoption of
classifying securities as available for sale was an increase in the recorded
value of available for sale securities of $1,044,000 and an increase in equity
of $611,000, which is net of taxes. Valley Federal had $21.1 million and $18.5
million of securities classified as available for sale at September 30, 1995
and 1994, respectively. Valley Federal also had $3.8 million of securities
classified as to be held to maturity at September 30, 1994. The unrealized
holding losses, net of taxes, on the available for sale securities was $179,000
and $661,000 at September 30, 1994 and 1994, respectively.
The changes in the deposits area also controlled the amount of
short-term borrowings needed by Valley Federal. During the year ended
September 30, 1994, Valley Federal's short-term borrowings increased $5.0
million to a year end balance of $9.0 million in order to fund loan demand. As
deposits increased during fiscal 1995, Valley Federal chose to repay $3.0
million of these borrowings which reduced the outstanding balance at September
30, 1995 to $6.0 million.
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Valley Federal had no foreclosed real estate at September 30,
1995, which represents a decrease from the balance of $59,000 at September 30,
1994. Foreclosed real estate decreased $108,000 or 64.7% from September 30,
1993 to 1994.
Other than the increase in deposits and decrease in borrowed
funds discussed above, the only other notable change in liabilities is the
$365,000 increase in accrued interest payable to $585,000 at September 30, 1995
from $220,000 at September 30, 1994. See "--Restatement."
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
Net Income. Valley Federal's net income decreased $712,000 or
78.0% from $913,000 for 1994 to $201,000 for 1995. This decrease was primarily
due to the increase in the cost of funds which can be attributed to rising
interest rates during fiscal 1995 and to a decrease in non-interest income,
primarily loan fees and service charges.
Net Interest Income. Net interest income decreased $556,000,
or 13.8%, from $4,040,000 for 1994 to $3,484,000 for 1995. This decrease
reflects a decrease in Valley Federal's interest rate spread from 3.09% to
2.82%, which was attributable to the rise in market interest rates between the
respective periods. Because Valley Federal's interest-bearing liabilities are
more rate sensitive than its interest-earnings assets, the average cost of
interest-bearing liabilities increased at a faster rate than the average yield
on interest-earning assets between the periods.
Interest Income. Interest income increased $560,000, or 6.7%,
from $8,412,000 for 1994 to $8,972,000 for 1995. Interest on loans increased
$722,000, or 10.6%, due to a 11.9% increase in the average size of the loan
portfolio offset by a decrease in the average rate on loans from 8.18% to
8.07%. The increase was partially offset by a decrease in interest on
securities of $182,000, or 11.9%, due primarily to a 4.2% decrease in the
average size of the investment portfolio. Other interest income, which
represents interest in cash and overnight funds, increased from $86,000 to
$106,000.
Interest Expense. Interest expense, which is primarily
interest on deposits, increased $1,116,000, or 25.5%, from $4,372,000 for 1994
to $5,488,000 for 1995. The increase in interest expense is due to a $751,000,
or 18.0%, increase in interest on deposits caused by an increase in the average
rate paid on deposits from 3.92% for 1994 to 4.71% for 1995. The increase in
rate was offset by a 1.74% decrease in the average volume of deposits
outstanding during 1995. In addition, interest on borrowed funds increased
$365,000 from $202,000 in 1994 to $567,000 in 1995. This increase is due
almost entirely to an increase in the average balance of borrowed funds from
$4.6 million for 1994 to $8.8 million for 1995.
Provision for Loan Losses. The provision for loan losses for
1995 was $306,000 compared to $180,000 for 1994. Management considers many
factors in determining the necessary levels of loan loss reserves, including a
detailed analysis of specific loan in the portfolio, known and inherent risk in
the portfolio, estimated value of the underlying collateral,
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assessment of general trends in the rest of the real estate market, and current
and prospective economic and regulatory conditions.
Noninterest Income. Noninterest income decreased $325,000, or
40.3%, from $807,000 for 1994 to $482,000 for 1995. This decrease is due to
the following changes. Gains recognized on the sale of securities during
fiscal 1995 were $134,000 less than in 1994 due to decreased activity. Other
noninterest income decreased $102,000 due primarily to a $75,000 gain on the
sale of real estate owned recorded in 1994 compared to no gain in 1995. Also,
loan fees and service charges decreased $76,000.
Noninterest Expense. Noninterest expense increased $50,000,
or 1.5%, from $3,352,000 for 1994 to $3,402,000 for 1995.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993
Net Income. Valley Federal's net income decreased $2,000 from
$915,000 for 1993 to $913,000 for 1994.
Net Interest Income. Net interest income decreased $179,000,
or 4.2% from $4,219,000 for 1993 to $4,040,000 for 1994. This decrease is due
to a decrease in the interest rate spread from 3.40% to 3.09%. The change in
spread is due to the average yield on interest-earning assets decreasing 0.66%
from 7.69% to 7.03% while the average rate paid on interest-bearing liabilities
only decreased 0.35% from 4.29% to 3.94%. Due to the more rapid repricing of
interest-bearing liabilities, portions of the overall decrease occurred in the
prior fiscal period while the interest earning assets, which are less rate
sensitive, repriced during the current period.
Interest Income. Interest income decreased $667,000, or 7.3%
from $9,079,000 for 1993 to $8,412,000 for 1994, due primarily to a decrease in
interest on securities of $770,000, which was caused by a decline in average
securities from $42.1 million in 1993 to $36.4 million in 1994, offset by an
increase in interest on loans of $96,000. The increase in interest on loans is
due to a $7.4 million increase in net average loans offset by a decrease in the
average yield on loans from 8.89% in 1993 to 8.18% in 1994.
Interest Expense. Interest expense decreased $488,000, or
10.0% from $4,860,000 for 1992 to $4,372,000 for 1994. This decrease is due to
the 4.0% decrease in average volume of deposits from $110.7 million in 1993 to
$106.3 million in 1994 and the decrease in average rate paid from 4.31% to
3.92%.
Provision for Loan Losses. The provision for loan losses in
1993 was $361,000 compared to $180,000 for 1994. Management considers many
factors in determining the necessary levels of loan loss reserves, including a
detailed analysis of specific loans in the portfolio, known and inherent risk
in the portfolio, estimated value of the underlying collateral,
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assessment of general trends in the rest of the real estate market, and current
and prospective economic and regulatory conditions.
Noninterest Income. Noninterest increased $85,000, or 11.8%
from $722,000 for 1993 to $807,000 for 1994. The increase is due primarily to
the net gain on the sale of securities in 1993 of $56,000. This was offset
somewhat by a $103,000 decrease in loan fees and service charges, resulting
mainly from decreased originations.
Noninterest Expense. Noninterest expense increased $127,000,
or 3.9%, from $3,225,000 for 1993 to $3,352,000 for 1994. Salaries and
employee benefits increased $75,000 due to merit salary increases and increases
in the cost of benefits. Professional fees increased $48,000 due primarily to
increased legal activity by Valley Federal.
Income Taxes. The effective tax rate was 30.60% for 1994
compared to 32.5% for 1993. The lower rate for 1994 resulted primarily from
the $48,000 decrease in taxes upon adoption of SFAS No. 109.
LIQUIDITY AND CAPITAL RESOURCES
Valley Federal is required by OTS regulations to maintain a
minimum level of specified liquid assets which is currently equal to 5% of
deposits and short-term borrowings. Valley Federal's liquidity ratio at
September 30, 1995 was approximately 8.5%. Valley Federal maintains a higher
level of liquidity than required by regulation as a matter of management
philosophy in order to more closely match interest-sensitive assets with
interest-sensitive liabilities.
Valley Federal's principal sources of funds for loans,
investments and operations are net income, deposits from its primary market
area, principal and interest payments on loans, investment and mortgage-backed
securities and proceeds from sales of such securities. Its principal funding
commitments are for the origination and purchase of loans and the payment of
maturing deposits.
During recent years, Valley Federal has also used the proceeds
from maturing investment and mortgage-backed securities for payment of
maturing deposits and for increasing loans. Valley Federal, and the savings
industry generally, experienced deposit outflows during 1994 as a result of
customers choosing alternative investments given the relatively lower interest
rates which have been paid on deposits by financial institutions; however,
during 1995 it experienced deposit inflows as a result of higher interest rates
paid by the institution. Deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions, and competition.
Valley Federal has other sources of liquidity if there is a
need for additional funds. These sources include substantial borrowing
authority with the FHLB of Atlanta and the ability
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to borrow against its investment portfolio. At September 30, 1995 and 1994,
Valley Federal has $6.0 million and $9.0 million of advances from the FHLB of
Atlanta, respectively.
Valley Federal's most liquid assets are cash and cash
equivalents, which are short-term highly liquid investments with original
investments with original maturities of less than three months.
The levels of such assets are dependent on Valley Federal's
operating, financing, and investment activities at any given time. Valley
Federal's cash and cash equivalents totaled $3.3 million and $2.0 million at
September 30, 1995 and 1994, respectively. The variation in the levels of cash
and cash equivalents were influenced by deposit flows and loan demand during
the periods disclosed.
Valley Federal had $47.9 million in certificates due within
one year and $32.3 million in demand deposits and passbook accounts without
specific maturity at September 30, 1995. Management estimates that most of the
deposits will be retained or replaced by new deposits.
Valley Federal is not aware of any trends or uncertainties
that will have or are reasonably likely to have a material effect on Valley
Federal's liquidity or capital resources. Valley Federal has no current plans
for material capital improvements or other capital expenditures. Management
believes that Valley Federal has sufficient liquidity to meet its operational
needs in the near future.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Persons and groups beneficially owning in excess of 5% of the Valley
Federal Common Stock are required to file certain reports disclosing such
ownership pursuant to the Securities Exchange Act of 1934. Based upon such
reports and information, management knows of no persons who beneficially owned
more than 5% of the Valley Federal outstanding shares of Common Stock at the
Record Date, except as set forth in the table below.
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<TABLE>
<CAPTION>
PERCENT OF SHARES
NAME AND ADDRESS AMOUNT AND NATURE OF COMMON STOCK
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OUTSTANDING
------------------- ----------------------- -----------------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS:
First Financial Fund, Inc. 24,000 (1) 6.67%
One Seaport Plaza - 18th Floor
New York, NY 10292
Harvey F. Robbins 28,000 7.76%
1742 Woodmont Drive
Tuscumbia, AL 35674
Billy Don Anderson 32,060 (2) 8.34%
127 Highland Place
Sheffield, AL 35660
MANAGEMENT:
Billy Don Anderson 32,060 (2) 8.34%
Frank J. Donsbach 7,500 (3) 2.08%
Edward W. Estes 16,717 4.63%
G. Olen Green 12,824 3.55%
Harvey F. Robbins 28,000 7.75%
Donald F. Ruggles 10,000 2.77%
Billy A. Smith, Jr. 10,000 2.77%
All Directors and Executive Officers
as a group (11 persons)
</TABLE>
- -------------------------
(1) According to Schedules 13-G dated February 1 and April 19, 1989, First
Financial Fund, Inc. ("FFF") is an investment company and has sole
voting and shared dispositive power over 24,000 shares, and Wellington
Management Company is an investment advisor to FFF and has shared
dispositive power over such shares.
(2) Includes exercisable employee stock options for 21,740 shares.
(3) Includes exercisable employee stock options for 4,300 shares.
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INDEPENDENT ACCOUNTANTS
Representatives of Deloitte & Touche LLP, Valley Federal's independent
accountants, are expected to be present at the Special Meeting. They will be
afforded the opportunity to make a statement if they desire to do so and will
be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
If the Merger is consummated prior to the anticipated date of the 1997
annual meeting of shareholders, Valley Federal will not hold a 1997 annual
meeting of shareholders. In the event the 1997 annual meeting of shareholders
is held, any shareholder proposal intended for inclusion in Valley Federal's
proxy statement and proxy relating to the 1997 annual meeting of shareholders
must have been received at Valley Federal's main office at 501 North Montgomery
Avenue, Sheffield, Alabama, no later than August 14, 1996. Any such proposal
shall be subject to the requirements of the proxy rules adopted under the
Exchange Act.
LEGAL OPINIONS
The validity of the shares of the UPC Common Stock offered hereby will
be passed upon by E. James House, Jr., Secretary and Manager of the Legal
Department of UPC. E. James House, Jr. is an officer of, and receives
compensation from UPC. Certain tax consequences of the Merger and other
matters will be passed upon by Housley Kantarian & Bronstein, P.C.,
Washington, D.C., special counsel to Valley Federal.
EXPERTS
The consolidated financial statements of Union Planters Corporation
incorporated in this Proxy Statement-Prospectus by reference to the Annual
Report on Form 10-K of Union Planters Corporation for the year ended December
31, 1995, have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements of Valley Federal Savings Bank
included in this Proxy Statement-Prospectus as of September 30, 1995, and
1994 and for the three years ended September 30, 1995 have been audited by
Deloitte & Touche, LLP, independent auditors, as stated in their reports
appearing herein (which reports express an unqualified opinion and include an
explanatory paragraph referring to the restatement of the financial statements
for the years ended September 30, 1995 and 1994) and has been so included in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
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The consolidated statements of financial position of Leader Financial
Corporation and its subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995,
incorporated in this Proxy Statement - Prospectus by reference to Union
Planters Corporation's Current Report on Form 8-K, dated April 1, 1996, have
been audited by KPMG Peat Marwick LLP, independent certified public
accountants, as stated in their report which is incorporated herein by
reference and in reliance on the report of such firm given upon their authority
as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP refers to changes in accounting
principles related to the adoption in 1994 of the provisions of Statement of
Position 93-6, Employer's Accounting for Employee Stock Ownership Plans, and in
1993 of the provisions of Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other than Pensions, and No. 115, Accounting for
Certain Investments in Debt and Equity Securities.
BY ORDER OF THE BOARD OF DIRECTORS
Martha P. Smith, Secretary
Sheffield, Alabama
May _____, 1996
114
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UNION PLANTERS CORPORATION
INDEX TO APPENDICES
APPENDIX
A -- Agreement and Plan of Combination between Union Planters
Corporation, Valley Interim Federal Savings Bank and Valley
Federal Savings Bank, dated as of November 1, 1995 as amended
April 11, 1996, together with the related Plan of Combination
and Letter Agreement.
B -- Fairness Opinion of Trident Financial Corporation
C -- Valley Federal Savings Bank Consolidated Financial Statements
for the year ended September 30, 1995 and 1994 and the three
months ended December 31,1995 and 1994.
<PAGE> 126
APPENDIX A
<PAGE> 127
AGREEMENT AND PLAN OF COMBINATION
DATED AS OF NOVEMBER 1, 1995
BETWEEN
UNION PLANTERS CORPORATION AND
VALLEY INTERIM FEDERAL SAVINGS BANK,
A FEDERAL SAVINGS BANK IN ORGANIZATION
AND
VALLEY FEDERAL SAVINGS BANK
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TABLE OF CONTENTS
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AGREEMENT AND PLAN OF COMBINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 1
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2
TERMS OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Charter, ByLaws, Directors, Officers and Name of the Resulting Bank . . . . . . . . . . . . . . . . 8
(a) Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(b) Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c) Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(d) Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Due Diligence Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 Availability of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 UPC's Right to Revise the Structure of the Transaction . . . . . . . . . . . . . . . . . . . . . . . 9
2.6 Holding Period of UPC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.7 Valley Federal Stock Options and Treasury Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(a) Description of Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(b) Continuation of the Valley Federal Option Plan . . . . . . . . . . . . . . . . . . . . . . 12
(c) Reclassification, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(d) Limited Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 3
DESCRIPTION OF TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1 Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(a) Satisfaction of Conditions to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Conversion of Shares of INTERIM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(d) Conversion and Cancellation of Shares of Valley Federal . . . . . . . . . . . . . . . . . . 14
(e) Conversion and Exchange of Valley Federal Shares; Exchange Ratio . . . . . . . . . . . . . 14
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(f) Mechanics of Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(g) Stock Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(h) Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(i) Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(j) Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(k) Reservation of shares of UPC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.2 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF UPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.1 Organization and Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.2 Authorization, Execution and Delivery; Combination Agreement Not in Breach . . . . . . . . . . . . . 18
4.3 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.4 Government Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.6 UPC Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.7 Exchange Act Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.8 The UPC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.9 Licensing, Franchises, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.10 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.11 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.13 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.14 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.15 Material Contract Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.16 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.17 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF VALLEY FEDERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.1 Organization and Qualification of Valley Federal and Subsidiaries . . . . . . . . . . . . . . . . . 25
5.2 Authorization, Execution and Delivery; Combination Agreement Not in Breach . . . . . . . . . . . . . 26
5.3 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.4 Government and Other Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.5 Licenses, Franchises, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.6 Charter Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.7 Valley Federal Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.8 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.9 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.10 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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5.11 Valley Federal Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.12 Condition of Fixed Assets and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.15 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.17 Labor and Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.18 Capitalization of Valley Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.19 Sole Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.20 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.21 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.22 Classified Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.23 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.24 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.25 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.26 Material Contract Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.27 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.28 Statements True and Correct; Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.29 Exchange Act and Listing Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 6
COVENANTS OF UPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.1 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.2 Registration of UPC Common Stock under the Securities Laws . . . . . . . . . . . . . . . . . . . . . 45
6.3 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 7
COVENANTS OF VALLEY FEDERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.1 Proxy Statement; Valley Federal Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . . 47
7.2 Conduct of Business -- Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.3 Conduct of Business -- Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.4 Conduct of Business -- Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE 8
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.1 Conditions to the Obligations of Valley Federal . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(a) Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(b) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(c) Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
(d) Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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(e) Opinion of UPC's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(f) Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(g) Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
8.2 Conditions to the Obligations of UPC and INTERIM . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(a) Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(b) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(c) Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(d) Destruction of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(e) No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(f) Opinion of Valley Federal's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(g) Other Business Combinations etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(h) Maintenance of Certain Covenants, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(i) Non-Compete Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(j) Pooling of Interests Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . 62
(k) Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.3 Conditions to Obligations of All Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(a) No Pending or Threatened Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(b) Governmental Approvals and Acquiescence Obtained . . . . . . . . . . . . . . . . . . . . . 63
(c) Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(d) Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE 9
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE 10
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.2 Assignability and Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.5 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.6 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.9 Modifications, Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.10 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.11 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.12 Finders and Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.13 Equitable Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.14 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
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10.15 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.16 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.17 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
EXHIBIT B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
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AGREEMENT AND PLAN OF COMBINATION
THIS AGREEMENT AND PLAN OF COMBINATION (the "Combination Agreement")
dated as of the ____day of November, 1995, by and between UNION PLANTERS
CORPORATION ("UPC"), a corporation chartered and existing under the laws of the
State of Tennessee which is registered both as a bank holding company and a
savings and loan holding company and whose principal offices are located at
7130 Goodlett Farms Parkway, Memphis, Shelby County, Tennessee 38018; VALLEY
INTERIM FEDERAL SAVINGS BANK ("INTERIM"), a federal savings bank to be formed
and chartered under the laws of the United States of America as a wholly-owned
subsidiary of UPC and whose principal place of business will be located at 7130
Goodlett Farms Parkway, Memphis, Shelby County, Tennessee 38018; and VALLEY
FEDERAL SAVINGS BANK ("Valley Federal" or "Resulting Bank" as the context may
require), a federal savings bank chartered and existing under the laws of the
United States of America, having its main offices at 501 North Montgomery,
Sheffield, Alabama 35660. UPC, INTERIM and Valley Federal are sometimes
referred to herein as the "Parties."
RECITALS
A. Valley Federal desires to be acquired by UPC on the terms and
subject to the conditions set forth in this Combination Agreement and the
accompanying Plan of Combination (Attached hereto as Exhibit A) (the "Plan of
Combination").
B. The Board of Directors of Valley Federal deems it desirable
and in the best interests of Valley Federal and the stockholders of Valley
Federal (the "Valley Federal Stockholders") that INTERIM be merged with and
into Valley Federal (which would survive the merger as the "Resulting Bank") on
the terms and subject to the conditions set forth in this Combination Agreement
and in the manner provided in this Combination Agreement and the Plan of
Combination.
C. The Boards of Directors of UPC and INTERIM deem it desirable
and in the best interests of UPC and INTERIM and the shareholders of UPC and
INTERIM that INTERIM be merged with and into Valley Federal on the terms and
subject to the conditions set forth in this Combination Agreement and in the
manner provided in this Combination Agreement and the Plan of Combination.
AGREEMENT AND PLAN OF COMBINATION - PAGE 1
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D. The respective Boards of Directors of UPC, INTERIM, and Valley
Federal have each adopted (or, in the case of INTERIM, will adopt) resolutions
setting forth and adopting this Combination Agreement and the Plan of Combina-
tion, and have directed that this Combination Agreement and the Plan of
Combination and all resolutions adopted by said Boards of Directors and by the
Valley Federal Stockholders related to this Combination Agreement, be submitted
with appropriate applications to, and filed with the Board of Governors of the
Federal Reserve System (the "Federal Reserve"), the Office of Thrift
Supervision (the "OTS"), and such other regulatory agencies or authorities,
including the Alabama State Banking Department ("ASBD"), as may be necessary in
order to obtain all governmental authorizations required to consummate the
proposed Merger (as defined herein) in accordance with this Combination
Agreement, the Plan of Combination and applicable law.
NOW THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants and agreements herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Parties agree as follows:
AGREEMENT
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Combination Agreement,
the following terms have the definitions indicated:
"AFFILIATE" of a party means any person, partnership,
corporation, association or other legal entity directly or indirectly
controlling, controlled by or under common Control, as that term is defined
herein, with that party.
"ALABAMA CODE" shall mean the Alabama Code of 1975 Annotated,
as amended.
"APPLICABLE ENVIRONMENTAL LAWS" shall have the meaning
assigned to such term in Section 5.15(a) of this Combination Agreement.
"ASBD" shall mean the Alabama State Banking Department.
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"AUDITED FINANCIAL STATEMENTS OF VALLEY FEDERAL" shall have
the meaning assigned to such term in Section 5.7 of this Combination Agreement.
"BALANCE SHEET DATE" shall have the meaning assigned to such
term in Section 5.8 of this Combination Agreement.
"BHCA" shall mean the Bank Holding Company Act of 1956, as
amended.
"BUSINESS DAY" shall mean any Monday, Tuesday, Wednesday,
Thursday or Friday that is not a federal or state holiday generally recognized
by banks in Tennessee.
"CERCLA" shall have the meaning set forth in Section 5.15(a)
of this Combination Agreement.
"CLOSING" shall have the meaning assigned to such term in
Section 3.1(a) of this Combination Agreement.
"CLOSING DATE" shall have the meaning assigned to such term in
Section 3.2 of this Combination Agreement.
"COMBINATION AGREEMENT" means this Agreement and Plan of
Combination together with the Plan of Combination (Exhibit A), and all Exhibits
and Schedules annexed to, and incorporated by specific reference as a part of,
this Combination Agreement.
"CONSIDERATION" shall mean the value to be received by the
Valley Federal Record Holders in exchange for their Valley Federal Common
Stock, such value to be determined as provided in Article 3, Section 3.1(e), of
this Combination Agreement.
"CONTROL" shall have the meaning assigned to such term in
Section 2(a)(2) of the Bank Holding Company Act of 1956, as amended.
"DEPOSITS" shall mean all deposits (including, but not limited
to, certificates of deposit, savings accounts, NOW accounts and checking
accounts) of Valley Federal.
"EFFECTIVE DATE OF THE MERGER" shall mean that date on which
the Effective Time of the Merger shall have occurred.
"EFFECTIVE TIME OF THE MERGER" shall have the meaning assigned
in Section 3.3 of the Plan of Combination and Section 3.1(b) of this
Combination Agreement.
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"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
"EXCHANGE AGENT" shall mean Union Planters National Bank,
Memphis, Tennessee, acting through its Corporate Trust Department.
"EXCHANGE RATIO" shall have the meaning assigned to such term
in Section 3.1(e) of this Combination Agreement.
"FDIC" means the Federal Deposit Insurance Corporation.
"FEDERAL RESERVE" shall mean the Board of Governors of the
Federal Reserve System and shall include the Federal Reserve Bank of St. Louis
acting under delegated authority.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"GOVERNMENTAL APPROVALS" shall have the meaning assigned to
such term in Section 4.4 of this Combination Agreement.
"HAZARDOUS SUBSTANCES" shall have the meaning set forth in
Section 5.15(a) of this Combination Agreement.
"HOLA" shall mean the Home Owners' Loan Act, as amended.
"INTERIM" shall mean Valley Interim Federal Savings Bank, a
federal savings bank to be formed and chartered under the laws of the United
States of America as a wholly-owned subsidiary of UPC with its principal place
of business located at 7130 Goodlett Farms Parkway, Memphis, Shelby County,
Tennessee 38018
"INTERIM COMMON STOCK" shall have the meaning assigned to such
term in Section 3.1(c) of this Combination Agreement.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code
of 1986, as amended.
"MERGER" shall, as described in Section 2.1 of this
Combination Agreement, mean the merger of INTERIM with and into Valley Federal,
which shall survive the Merger as the Resulting Bank.
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"NYSE" shall mean the New York Stock Exchange, or its
successor, upon which shares of the UPC Common Stock are listed for trading.
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"OFFICER" shall have the meaning set forth in Section 5.8(k)
of this Combination Agreement.
"OTS" shall mean the Office of Thrift Supervision or any
successor thereto.
"PARTIES" shall mean Valley Federal, UPC, and INTERIM
collectively; Valley Federal on the one hand, or UPC and INTERIM on the other
hand, may sometimes be referred to as a "PARTY."
"PENSION PLAN" shall mean any employee pension benefit plan as
such term is defined in Section 3(2) of ERISA which is maintained by the
referenced Party.
"PERSON" shall mean any natural person, fiduciary,
corporation, partnership, joint venture, association, business trust or any
other entity of any kind.
"PLAN OF COMBINATION" shall mean the Plan of Combination
substantially in the form of Exhibit A hereto to be executed by authorized
representatives of Valley Federal, UPC and INTERIM and filed with the OTS along
with the Articles of Combination in accordance with 12 C.F.R. Section 552.13,
and providing for the Merger of INTERIM with and into Valley Federal as
contemplated by Section 2.1 of this Combination Agreement.
"PROPERTY" shall have the meaning assigned to such term in
Section 5.15(a) of this Combination Agreement.
"PROXY STATEMENT" shall mean the proxy statement to be used by
Valley Federal to solicit proxies with a view to securing the approval of the
VA Stockholders of this Combination Agreement and the Plan of Combination.
"REALTY" means the real property of VAlley Federal owned or
leased by Valley Federal or any Subsidiary of Valley Federal
"RECORDS" means all available records, minutes of meetings of
the Board of Directors, committees and shareholders of Valley Federal, original
instruments and other documentation, pertaining to Valley Federal, Valley
Federal's assets (including plans
AGREEMENT AND PLAN OF COMBINATION - PAGE 5
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and specifications relating to the Realty), Valley Federal's liabilities, the
Valley Federal Common Stock, the Deposits and the loans, and all other business
and financial records which are necessary or customary for use in the conduct
of Valley Federal's business by UPC and Valley Federal on and after the
Effective Time of the Merger as it was conducted prior to the Closing Date.
"REGULATORY AUTHORITIES" shall mean, collectively, the Federal
Reserve, the OTS, the SEC, or any other state or federal governmental or
quasi-governmental entity which has, or may hereafter have, jurisdiction over
any of the transactions described in this Combination Agreement.
"RELEASE" shall have the meaning assigned to such term in
Section 5.15(b)(i) of this Combination Agreement.
"RESULTING BANK" shall mean Valley Federal as the federal
savings bank resulting from the consummation of the Merger as set forth in
Section 2.1 of this Combination Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"SEC DOCUMENTS" shall mean all reports, proxy statements and
registration statements filed, or required to be filed, by a Party or any of
its Subsidiaries pursuant to the Securities Laws, whether filed, or required to
be filed, with the SEC, the OTS, the Comptroller of the Currency, the FDIC or
with any other Regulatory Authority pursuant to the Securities Laws.
"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the rules
and regulations of the SEC promulgated thereunder, as well as any similar state
securities laws and any similar rules and regulations promulgated by the
applicable federal bank Regulatory Authorities.
"STOCKHOLDERS MEETING" shall mean the meeting of the Valley
Federal Stockholders to be held pursuant to Section 7.1 of this Combination
Agreement, including any adjournment or adjournments thereof.
"SUBSIDIARIES" shall mean all of those corporations, banks,
associations or other entities of which the entity in question owns or controls
5% or more of the outstanding voting equity securities either directly or
through an unbroken chain of entities as to each of which 5% or more of the
outstanding equity securities is owned directly or indirectly by its parent;
provided, however, that there shall not be included any such entity acquired
through foreclosure or in satisfaction of a debt previously contracted in good
AGREEMENT AND PLAN OF COMBINATION - PAGE 6
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faith, any such entity that owns or operates an automatic teller machine
interchange network, any such entity that is a joint venture of the parent or
of a Subsidiary of the parent, or any such entity the equity securities of
which are owned or controlled in a fiduciary capacity or through a small
business investment corporation.
"UPC" shall mean Union Planters Corporation, a
Tennessee-chartered bank holding company which is also registered as a savings
and loan holding company having its principal place of business at 7130
Goodlett Farms Parkway, Cordova, Shelby County, Tennessee 38018.
"UPC COMMON STOCK" shall have the meaning set forth in Section
4.5 of this Combination Agreement.
"UPC FINANCIAL STATEMENTS" shall mean (i) the audited
consolidated balance sheets and related consolidated statements of earnings, of
changes in shareholders' equity, and of cash flows (including related notes) of
UPC and its Subsidiaries as of December 31, 1993 and 1994 and each subsequent
December 31 prior to the Effective Time of the Merger, and (ii) the related
unaudited consolidated balance sheets and related consolidated statements of
earnings, of changes in shareholders' equity, and of cash flows (including
related notes) of UPC and its Subsidiaries for each of the quarters ended or
ending after January 1, 1995, as filed by UPC in SEC Documents.
"UPC PREFERRED STOCK" shall have the meaning assigned to such
term in Section 4.5 of this Combination Agreement.
"VALLEY FEDERAL" means Valley Federal Savings Bank, a federal
savings bank chartered and existing under the laws of the United States of
America, whose main office is located at 501 North Montgomery, Sheffield,
Alabama 35660.
"VALLEY FEDERAL COMMON STOCK" has the meaning assigned to such
term in Section 3.1(d) of this Combination Agreement.
"VALLEY FEDERAL COMPANIES" shall mean Valley Federal and all
of its Subsidiaries.
"VALLEY FEDERAL EMPLOYEE PLANS" shall mean any pension plans,
profit sharing plans, deferred compensation plans, stock option plans,
cafeteria plans, and any other such or related benefit plans or arrangements
offered or funded by Valley Federal or any Valley Federal Subsidiary, to or for
the benefit of the officers, directors or employees of Valley Federal or any
Valley Federal Subsidiary.
AGREEMENT AND PLAN OF COMBINATION - PAGE 7
<PAGE> 140
"VALLEY FEDERAL RECORD HOLDERS" means the holders of record of
all of the issued and outstanding shares of Valley Federal Common Stock
immediately prior to the Effective Time of the Merger.
"VALLEY FEDERAL STOCKHOLDERS" shall have the meaning assigned
to such term in Recital B of this Combination Agreement.
"VALLEY FEDERAL STOCK OPTIONS" shall have the meaning assigned
to such term in Section 2.7 of this Combination Agreement.
ARTICLE 2
TERMS OF THE MERGER
2.1 The Merger.
Subject to the satisfaction (or lawful waiver) of all
of the conditions to the obligations of each of the Parties to this Combination
Agreement, at the Effective Time of the Merger, INTERIM shall be merged with
and into Valley Federal (the "Merger"), which latter corporation (the
"Resulting Bank") shall survive the Merger.
2.2 Charter, ByLaws, Directors, Officers and Name of the Resulting Bank.
(a) Charter. At the Effective Time of the
Merger, the Charter of Valley Federal, as in effect immediately prior to the
Effective Time of the Merger, shall continue to be the Charter of Valley
Federal as the Resulting Bank, unless and until the same shall be amended
thereafter as provided by law and the terms of such Charter.
(b) Bylaws. At the Effective Time of the Merger,
the Bylaws of Valley Federal, as in effect immediately prior to the Effective
Time of the Merger, shall continue to be the Bylaws of Valley Federal as the
Resulting Bank, unless and until amended or repealed as provided by law, its
Charter and such Bylaws.
(c) Directors and Officers. The directors of
Valley Federal in office immediately prior to the Effective Time of the Merger
shall continue to be the directors of Valley Federal as the Resulting Bank, to
hold office as provided in the Charter and Bylaws of Valley Federal as the
Resulting Bank, unless and until their successors shall have been elected or
appointed and shall have qualified or until they shall have been removed in the
manner provided therein. The officers of Valley Federal in office immediately
prior to the Effective Time of the Merger shall continue to be the officers of
Valley Federal as the Resulting Bank, to hold office as provided in the Charter
and
AGREEMENT AND PLAN OF COMBINATION - PAGE 8
<PAGE> 141
Bylaws of Valley Federal as the Resulting Bank, until their successors shall
have been appointed or they shall have been removed as provided therein.
(d) Name. The name of Valley Federal as the
Resulting Bank following the Merger shall continue to be:
"VALLEY FEDERAL SAVINGS BANK"
2.3 Due Diligence Review. Prior to the date of this
Combination Agreement, each Party has conducted a due diligence review of the
books, records and operations of the other Party, including, but not limited
to, a review of the Party's loan portfolios, ORE and classified assets,
investment portfolios and properties, to verify the reasonableness of the
Party's earnings projections, growth projections and sustained earnings
prospects after consummation of the Merger at reasonable growth rates.
2.4 Availability of Information. Each Party shall
continue to provide the other Party (including its Officers, employees, agents,
and representatives) access to all of such Party's books, records, properties
and facilities (other than with respect to the deliberations of such Party)
relating to the Merger, this Agreement, and the transactions contemplated
hereby, on reasonable notice and during customary business hours, and shall
use its best efforts to cause its Officers, employees, agents and
representatives to cooperate with any of the reviewing Party's reasonable
requests for information which would be customary in order to verify that there
has been no material adverse change in the reviewed Party since the date of the
due diligence review provided for in Section 2.3 of this Combination Agreement.
Except as expressly permitted by the disclosing Party, the receiving Party
shall keep confidential all non- public information received by the disclosing
Party in connection with the provisions of this Section 2.4 and, in the event
the Merger shall not be consummated, the receiving Party shall not directly or
indirectly use any information provided by the disclosing Party for any
competitive or commercial purpose, and the receiving Party shall promptly
return to the disclosing Party all non-public proprietary and business
information received from the disclosing Party.
2.5 UPC's Right to Revise the Structure of the
Transaction. UPC shall, in its reasonable discretion, have the unilateral
right to revise the structure of the corporate reorganization contemplated by
this Combination Agreement in order to achieve tax benefits or for any other
reason which UPC may deem advisable; provided, however, that UPC shall not have
the right, without the approval of the Board of Directors of Valley Federal, to
make any revision to the structure of the reorganization which (i) changes the
amount of the Consideration which the Valley Federal Record Holders are
entitled to receive (determined in the manner provided in Section 3.1(e) of
this Combination Agreement); (ii) changes the intended tax-free effects of the
Merger to UPC, Valley Federal, or the Valley Federal Record Holders; (iii)
would permit UPC to pay the
AGREEMENT AND PLAN OF COMBINATION - PAGE 9
<PAGE> 142
Consideration other than by delivery of UPC Common Stock registered with the
SEC (in the manner described in Section 6.2 of this Combination Agreement);
(iv) would be materially adverse to the interests of Valley Federal or the
Valley Federal Record Holders as shareholders of Valley Federal; (v) would
unreasonably impede or delay consummation of the Merger. UPC may exercise this
right of revision by giving written Notice to Valley Federal in the manner
provided in Section 10.1 of this Combination Agreement which Notice shall be in
the form of an amendment to this Combination Agreement or in the form of an
Amended and Restated Agreement and Plan of Combination.
2.6 Holding Period of UPC Common Stock. Valley Federal
hereby acknowledges and agrees that, in order to qualify the Merger as a
"pooling of interests" under the rules and regulations promulgated by the SEC,
Accounting Principles Board Opinion No. 16 and GAAP, any Valley Federal Record
Holder who would be deemed an "Affiliate" of Valley Federal under the
Securities Laws and who accepts shares of UPC Common Stock as Consideration for
the cancellation, exchange and conversion of his shares of Valley Federal
Common Stock pursuant to the terms and conditions of this Combination
Agreement, may not pledge on a nonrecourse basis, assign, sell, transfer,
devise, otherwise alienate or take any action which would eliminate or diminish
the risk of owning or holding the shares of UPC Common Stock to be received by
such Valley Federal Record Holder upon consummation of the Merger, nor enter
into any formal or informal agreement to pledge on a nonrecourse basis, assign,
sell or transfer, devise, or otherwise alienate his right, title and interests
in any of the shares of UPC Common Stock to be delivered by UPC to such Valley
Federal Record Holder pursuant to the terms and conditions of this Combination
Agreement, until such time as UPC shall have publicly released a statement of
UPC's consolidated earnings reflecting the combined financial results of
operations of UPC and Valley Federal for a period of not less than thirty (30)
days subsequent to the Effective Time of the Merger. Valley Federal further
acknowledges and agrees that any UPC Common Stock Certificates issued in
connection with the Merger to Valley Federal Record Holders who would be deemed
Affiliates of Valley Federal or UPC under the Securities Laws shall be subject
to and bear a restrictive legend substantially in the form as follows:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE HELD SUBJECT
TO ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THE RULES AND REGULATIONS PROMULGATED BY
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") THEREUNDER. NO SALES,
TRANSFERS OR OTHER DISPOSITION OF THESE SHARES MAY BE MADE EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR IN ACCORDANCE WITH THE REQUIREMENTS OF SEC RULES 144 AND
AGREEMENT AND PLAN OF COMBINATION - PAGE 10
<PAGE> 143
145 OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT. NO SALE, TRANSFER, OR OTHER DISPOSITION OF THESE SHARES MAY BE
MADE UNTIL AFTER THE PUBLICATION OF FINANCIAL RESULTS COVERING AT
LEAST 30 DAYS OF POST MERGER COMBINED OPERATIONS OF UPC AND VALLEY
FEDERAL. NO AGREEMENT MAY BE ENTERED INTO BY THE HOLDER OF THIS
CERTIFICATE WHICH WOULD ALLOW OR REQUIRE THE SALE, TRANSFER, OR OTHER
DISPOSITION OF THESE SHARES DURING THE TIME PERIOD MENTIONED ABOVE OR
WHICH WOULD OTHERWISE REDUCE THE RISK BORNE BY THE SHAREHOLDER NAMED
ON THE REVERSE SIDE OF THIS CERTIFICATE SUBSEQUENT TO THE CONSUMMATION
OF THE MERGER THROUGH THE END OF SUCH TIME PERIOD.
2.7 Valley Federal Stock Options and Treasury Stock.
(a) Description of Plans. Valley Federal has
established the Valley Federal Savings Bank 1987 Stock Option and Incentive
Plan (the "Valley Federal Plan"). Valley Federal has reserved 36,000 shares of
Valley Federal Common Stock for issuance upon the exercise of any such options
from time to time under the Valley Federal Plan. As of the date hereof, 36,000
stock options have been granted by Valley Federal under the Valley Federal
Plan, 1000 such options have been exercised, 0 such options have been
forfeited, and 35,000 such options are outstanding. The option exercise prices
for such outstanding options are as follows: 13,500 shares/Ten Dollars ($10)
per share; 10,500 shares/Twelve Dollars ($12) per share; 11,000
shares/Twenty-four and 12/100 Dollars ($24.12) per share.
Valley Federal has not granted any such Valley Federal Stock Options in 1995
and Valley Federal will not grant any additional Valley Federal Stock Options
after the date hereof and prior to the termination of this Combination
Agreement or Effective Time of the Merger.
As of the date of this Combination Agreement, there are no other options,
rights, warrants, scrip or similar rights issued and outstanding by Valley
Federal to purchase shares of Valley Federal Common Stock or any other capital
stock of Valley Federal. Therefore, at the Effective Time of the Merger there
will be in the aggregate 35,000 issued and outstanding Valley Federal Stock
Options. As of the date of this Combination Agreement, Valley Federal has not
repurchased any shares of its capital stock. Therefore, as of the date of this
Combination Agreement, there are no shares of Valley Federal Common Stock held
by Valley Federal as Treasury Stock, nor will there be any such shares at the
Effective Time of the Merger.
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<PAGE> 144
(b) Continuation of the Valley Federal Option
Plan. The Valley Federal Option Plan shall continue in effect but no
additional options shall be available for grant thereunder after the Effective
Time of the Merger. At the Effective Time of the Merger, each outstanding
option under the Valley Federal Option Plans shall continue outstanding as an
option to purchase, in place of the purchase of a share of Valley Federal
Common Stock, that number of shares (rounded up to the nearest whole share) of
UPC Common Stock that would have been received by the optionee in connection
with the Merger had such option been exercised in full (without regard to any
limitations contained thereon on exercise) for shares of Valley Federal Common
Stock immediately prior to the Effective Time of the Merger, upon the same
terms and conditions under the relevant option as were applicable immediately
prior to the Effective Time of the Merger, except (i) that all Valley Federal
Stock Options shall be immediately exercisable and (ii) for appropriate pro
rata adjustments to the relevant option price for shares of UPC Common Stock
substituted therefor such that the aggregate option exercise price of shares
subject to an option immediately following the assumption and substitution
shall be the same as the aggregate option exercise price for such shares
immediately prior to such assumption and substitution. UPC and Valley Federal
agree to take such actions as shall be necessary to give effect to the
foregoing. At all times after the Effective Time of the Merger, UPC shall
reserve for issuance such number of shares of UPC Common Stock as necessary so
as to permit the exercise of any Valley Federal Stock Options granted under the
Valley Federal Option Plans and which were unexercised prior to the Effective
Time of the Merger in the manner contemplated by this Combination Agreement and
the instruments pursuant to which the Valley Federal Stock Options were
granted. UPC shall make all filings required under the Securities Laws, no
later than the Effective Date of the Merger, so as to permit the exercise of
such Valley Federal Stock Options and the sale or transfer of the shares of UPC
Common Stock received by the optionee upon such exercise.
(c) Reclassification, etc. In case of any
reclassification, reorganization, recapitalization, stock dividend or
distribution, subdivision, combination or exchange of the outstanding shares of
the UPC Common Stock or in case of any consolidation or merger of UPC with or
into any other corporation, or in the case of any sale or transfer of all or
substantially all of UPC's assets, then the rights of the optionees under the
Valley Federal Stock Option Plan shall be appropriately adjusted so that the
optionees will be in the same position as if their options had been exercised
immediately before such corporate action or transaction. The provisions hereof
shall similarly apply to successive reclassifications, reorganizations,
recapitalizations, stock dividends or distributions, subdivisions, combinations
or exchanges, consolidations, mergers, sales or transfers.
(d) Limited Obligations. Nothing contained in
this Combination Agreement or in the other documentation of the proposed
transactions shall be deemed
AGREEMENT AND PLAN OF COMBINATION - PAGE 12
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to have reduced, contracted, enlarged, ratified, affirmed, undertaken,
authorized, approved or otherwise to have affected whatever contractual rights
the holders of Valley Federal Stock Options may have under applicable
documentation other than as expressly stated in this Combination Agreement with
respect to the outstanding Valley Federal Stock Options identified herein which
are outstanding under the Valley Federal Stock Option Plan at the Effective
Time of the Merger.
ARTICLE 3
DESCRIPTION OF TRANSACTION
3.1 Terms of the Merger.
(a) Satisfaction of Conditions to Closing. After
the transactions contemplated herein have been approved by the stockholders of
Valley Federal and INTERIM, and each other condition to the obligations of the
Parties hereto, other than those conditions which are to be satisfied by
delivery of documents by any Party to any other Party, has been satisfied or,
if lawfully permitted, waived by the Party or Parties entitled to the benefits
thereof, a closing (the "Closing") will be held on the date (the "Closing
Date") and at the time of day and place referred to in Section 3.2 of this
Combination Agreement. At the Closing the Parties shall use their respective
best efforts to deliver the certificates, letters and opinions which constitute
conditions to effecting the Merger and each Party will provide the other
Parties with such proof or indication of satisfaction of the conditions to the
obligations of such other Parties to consummate the Merger as such other
Parties may reasonably require. If all conditions to the obligations of each
of the Parties shall have been satisfied or lawfully waived by the Party
entitled to the benefits thereof, the Parties shall, at the Closing, duly
execute Articles of Combination for filing with the OTS and promptly thereafter
INTERIM and Valley Federal shall take all steps necessary or desirable to
consummate the Merger in accordance with all applicable laws, rules and
regulations and the Plan of Combination which is attached hereto as Exhibit A
and incorporated by reference as part of this Combination Agreement. The
Parties shall thereupon take such other and further actions as UPC shall direct
or as may be required by law or this Combination Agreement to consummate the
transactions contemplated herein.
(b) Effective Time of the Merger. Upon the
satisfaction of all conditions to Closing, the Merger shall become effective on
the date and at the time as specified on the endorsement of the Articles of
Combination by the OTS (the "Effective Time of the Merger").
AGREEMENT AND PLAN OF COMBINATION - PAGE 13
<PAGE> 146
(c) Conversion of Shares of INTERIM. At the
Effective Time of the Merger, each share of $1.00 par value common stock of
INTERIM (the "INTERIM Common Stock") issued and outstanding immediately prior
to the Effective Time of The Merger shall, by virtue of the Merger becoming
effective and without any further action on the part of anyone, become one
share of the issued and outstanding common stock of the Resulting Bank.
(d) Conversion and Cancellation of Shares of
Valley Federal. At the Effective Time of the Merger, each share of $0.01 par
value common stock of Valley Federal (the "Valley Federal Common Stock")
validly issued and outstanding immediately prior to the Effective Time of the
Merger shall, by virtue of the Merger becoming effective and without any
further action on the part of anyone, be converted, exchanged and cancelled as
provided in Section 3.1(e) hereof.
(e) Conversion and Exchange of Valley Federal
Shares; Exchange Ratio. At the Effective Time of the Merger, the outstanding
shares of Valley Federal Common Stock held by the Valley Federal Record Holders
immediately prior to the Effective Time of the Merger shall, without any
further action on the part of anyone, cease to represent any interest (equity,
shareholder or otherwise) in Valley Federal and shall automatically be
converted exclusively into, and constitute only the right of the Valley Federal
Record Holders to receive in exchange for their shares of Valley Federal Common
Stock, whole shares of UPC Common Stock (including the corresponding number of
rights associated with the UPC Common Stock pursuant to the UPC Share Purchase
Rights Agreement dated January 19, 1989, between UPC and Union Planters
National Bank as Rights Agent) and a cash payment in settlement of any
remaining fractional share of UPC Common Stock in accordance with the terms and
conditions of this Section 3.1(e). The shares of UPC Common Stock and the cash
settlement of any remaining fractional share of UPC Common Stock deliverable by
UPC to the Valley Federal Record Holders pursuant to the terms of this
Combination Agreement are sometimes collectively referred to herein as the
"Consideration."
The number of shares of UPC Common Stock to be exchanged for each share of
Valley Federal Common Stock issued and outstanding immediately prior to the
Effective Time of the Merger shall be determined by applying an exchange ratio
(the "Exchange Ratio") to each share of Valley Federal Common Stock issued and
outstanding at the Effective Time of the Merger. The Exchange Ratio shall be
equal to the quotient of Thirty-seven and 50/100 Dollars ($37.50) divided by
the price per share for the "last" real time trade (i.e. closing price) of UPC
Common Stock on the NYSE (as published in the Wall Street Journal) on the date
of execution of this Agreement,
The Exchange Ratio shall be based on an aggregate of no more than 396,000 fully
diluted shares of Valley Federal Common Stock issued and outstanding
immediately prior
AGREEMENT AND PLAN OF COMBINATION - PAGE 14
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to the Effective Time of the Merger which, for purposes of this paragraph,
shall be determined by counting all Options issued and outstanding immediately
prior to the Effective Time of the Merger as shares of Valley Federal Common
Stock); and further based on the assumption that there shall be no shares of
$0.01 par value serial preferred stock ("Valley Federal Preferred Stock")
outstanding and no other options, warrants, rights or other instruments
outstanding or subject to issuance which are convertible into or otherwise
represent the right to acquire any Valley Federal Common Stock, Valley Federal
Preferred Stock or any other capital stock of Valley Federal. No fractional
shares of UPC Common Stock shall be issued and if, after aggregating all of the
shares of UPC Common Stock to which a Valley Federal Record Holder is entitled
based upon the Exchange Ratio, there shall be a fractional share of UPC Common
Stock remaining, such fractional share shall be settled by a cash payment
therefor pursuant to the Mechanics of Payment of the Purchase Price set forth
in Section 3.1(f) hereof, which shall be calculated based upon the last sale
price per share of one (1) full share of UPC Common Stock on the NYSE on the
Closing Date.
Should either UPC or Valley Federal effect any stock splits, reverse stock
splits, stock dividends, reclassifications, recapitalizations, exchange of
shares or similar changes in their respective capital accounts subsequent to
the date of this Combination Agreement but prior to the Effective Time of the
Merger, the Exchange Ratio shall be proportionally adjusted in order to give
effect to such changes.
(f) Mechanics of Payment of Purchase Price. As soon as
reasonably practicable after the Effective Time of the Merger and the receipt
by UPC of the Certified Valley Federal Shareholder List from the transfer agent
of Valley Federal, but in any event no later than ten (10) business days
thereafter, the Corporate Trust Department of Union Planters National Bank,
Memphis, Tennessee (the "Exchange Agent") shall deliver to each of the Valley
Federal Record Holders such materials and information deemed necessary by the
Exchange Agent to advise the Valley Federal Record Holders of the procedures
required for proper surrender of their certificates evidencing and representing
shares of the Valley Federal Common Stock in order for the Valley Federal
Record Holders to receive the Consideration. Such materials shall include,
without limitation, a Letter of Transmittal, an Instruction Sheet, and a return
mailing envelope addressed to the Exchange Agent (collectively the "Shareholder
Materials"). All Shareholder Materials shall be sent by United States mail to
the Valley Federal Record Holders at the addresses set forth on a certified
shareholder list to be delivered by Valley Federal to UPC at the Closing (the
"Shareholder List"). As soon as reasonably practicable thereafter, the Valley
Federal Record Holders of all of the outstanding shares of Valley Federal
Common Stock, shall deliver, or cause to be delivered, to the Exchange Agent,
pursuant to the Shareholder Materials, the certificates formerly evidencing and
representing all of the shares of Valley Federal Common Stock which were
validly issued and outstanding immediately prior to the Effective Time of the
Merger, and the Exchange
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Agent shall take prompt action to process such certificates formerly evidencing
and representing shares of Valley Federal Common Stock received by it
(including the prompt return of any defective submissions with instructions as
to those actions which may be necessary to remedy any defects). Upon receipt
of the proper submission of the certificate(s) formerly representing and
evidencing ownership of the shares of Valley Federal Common Stock, the Exchange
Agent shall, on or prior to the 30th day after the Effective Time of the
Merger, mail to the former Valley Federal Stockholders in exchange for the
certificate(s) surrendered by them, the Consideration to be paid for each such
Valley Federal Shareholder's shares of Valley Federal Common Stock evidenced by
the certificate or certificates which were cancelled and converted exclusively
into the right to receive the Consideration upon the Merger becoming effective.
After the Effective Time of the Merger and until properly surrendered to the
Exchange Agent, each outstanding certificate or certificates which formerly
evidenced and represented the shares of Valley Federal Common Stock of an
Valley Federal Record Holder, subject to the provisions of this Section, shall
be deemed for all corporate purposes to represent and evidence only the right
to receive the Consideration into which such Valley Federal Record Holder's
shares of Valley Federal Common Stock were converted and aggregated at the
Effective Time of the Merger. Unless and until the outstanding certificate or
certificates, which immediately prior to the Effective Time of the Merger
evidenced and represented the Valley Federal Record Holder's Valley Federal
Common Stock shall have been surrendered as provided above, the Consideration
payable to the Valley Federal Record Holder(s) of the cancelled shares as of
any time after the Effective Date shall not be paid to the Valley Federal
Record Holder(s) of such certificate(s). Each Valley Federal Shareholder will
be responsible for all federal, state and local taxes which may be incurred by
him on account of his receipt of the Consideration to be paid in the Merger.
The Valley Federal Record Holder(s) of any certificate(s) which shall have been
lost or destroyed may nevertheless, subject to the provisions of this Section,
receive the Consideration to which each such Valley Federal Record Holder is
entitled, provided that each such Valley Federal Record Holder shall deliver to
UPC and to the Exchange Agent: (i) a sworn statement certifying such loss or
destruction and specifying the circumstances thereof and (ii) a lost instrument
bond in form satisfactory to UPC and the Exchange Agent which has been duly
executed by a corporate surety satisfactory to UPC and the Exchange Agent,
indemnifying the Resulting Bank, UPC, the Exchange Agent (and their respective
successors) to their satisfaction against any loss or expense which any of them
may incur as a result of such lost or destroyed certificates being thereafter
presented. Any costs or expenses which may arise from such replacement
procedure, including the premium on the lost instrument bond, shall be for the
account of the Valley Federal Shareholder.
(g) Stock Transfer Books. At the Effective Time
of the Merger, the stock transfer books of Valley Federal shall be closed and
no transfer of shares of Valley Federal Common Stock shall be made thereafter.
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(h) Effects of the Merger. At the Effective Time
of the Merger, the corporate existence of INTERIM shall cease, and INTERIM
shall be merged with and into Valley Federal which, as the Resulting Bank,
shall thereupon and thereafter possess all of the assets, rights, privileges,
appointments, powers, licenses, permits and franchises of the two merged
federal savings banks, whether of a public or a private nature, and shall be
subject to all of the liabilities, restrictions, disabilities and duties of
both Valley Federal and INTERIM.
(i) Transfer of Assets. At the Effective Time of
the Merger, all rights, assets, licenses, permits, franchises and interests of
Valley Federal and INTERIM in and to every type of property, whether real,
personal, or mixed, whether tangible or intangible, and to choses in action
shall be deemed to be vested in Valley Federal as the Resulting Bank by virtue
of the Merger becoming effective and without any deed or other instrument or
act of transfer whatsoever.
(j) Assumption of Liabilities. At the Effective
Time of the Merger, the Resulting Bank shall become and be liable for all
debts, liabilities, obligations and contracts of Valley Federal, including, but
not limited to, its liquidation account, as well as those of INTERIM, whether
the same shall be matured or unmatured; whether accrued, absolute, contingent
or otherwise; and whether or not reflected or reserved against in the balance
sheets, other financial statements, books of account or records of Valley
Federal or INTERIM.
(k) Reservation of shares of UPC Common Stock.
UPC shall reserve for issuance a sufficient number of shares of UPC Common
Stock for the purpose of issuing shares of UPC Common Stock to the Valley
Federal Record Holders in accordance with the terms and conditions of this
Section 3.1.
3.2 Time and Place of Closing. The Closing shall take
place at 10:00 a.m. on the Business Day next preceding the date on which the
Effective Time of the Merger is expected to occur, or at such other time as the
Parties, acting through their chief executive officers, presidents or chief
financial officers, may mutually agree (the "Closing Date"). The place of
Closing shall be at Union Planters National Bank, Administrative Center, Union
Planters Corporation Executive Offices (Fourth Floor), 7130 Goodlett Farms
Parkway, Memphis, Shelby County, Tennessee 38018. The Closing may be held at
such other time and place as may be mutually agreed upon by the Parties.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF UPC
Except as described in the UPC Disclosure Schedule, as of the
date hereof, UPC and INTERIM represent and warrant to Valley Federal as
follows:
4.1 Organization and Corporate Authority. UPC and each
UPC Subsidiary is a corporation (and INTERIM will be a federal savings bank)
duly organized, validly existing, and in good standing under the laws of the
State of Tennessee and the United States of America, respectively, and (i)
have, in all material respects, all requisite corporate power and authority to
own, operate and lease their material properties and carry on their businesses
as they are currently being conducted; (ii) are in good standing and are duly
qualified to do business in each jurisdiction where the character of their
properties owned or held under lease or the nature of their business makes such
qualification necessary; and (iii) have in effect all federal, state, local and
foreign governmental authorizations, permits and licenses necessary for them to
own or lease their properties and assets and to carry on their businesses as
they are currently being conducted. The corporate Charter and Bylaws of UPC
and the Charter and Bylaws of INTERIM, as amended to date, are (or in the case
of INTERIM will be) in full force and effect as of the date of this Combination
Agreement. UPC is duly registered as a bank holding company with the Federal
Reserve and as a savings and loan holding company with the OTS.
4.2 Authorization, Execution and Delivery; Combination
Agreement Not in Breach.
(a) UPC and INTERIM have all requisite corporate
power and authority to execute and deliver this Combination Agreement and the
Plan of Combination and to consummate the transactions contemplated hereby and
thereby. This Combination Agreement, and all other agreements contemplated to
be executed in connection herewith by UPC and INTERIM, have been (or upon
execution by INTERIM will have been) duly executed and delivered by UPC and/or
INTERIM, and have been (or upon execution will have been) duly authorized by
all necessary action corporate or otherwise. Other than the approval of UPC as
sole shareholder of INTERIM, no other corporate proceedings on the part of UPC
or INTERIM are (or will be) necessary to authorize such execution and delivery
and the consummation of the transactions contemplated hereby. This Combination
Agreement, and all other agreements contemplated to be executed in connection
herewith, constitute (or upon execution will constitute) legal, valid and
enforceable obligations of UPC and INTERIM, subject, as to enforceability, to
applicable bankruptcy, insolvency, reorganization, moratorium or similar
AGREEMENT AND PLAN OF COMBINATION - PAGE 18
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laws affecting the enforcement of creditors' rights generally, and to the
application of equitable principles and judicial discretion. The shareholders
of UPC are not required to approve this Combination Agreement, any of the
transactions contemplated hereby, or the issuance of UPC common stock as
required by the terms herein.
(b) The execution and delivery of this
Combination Agreement and the Plan of Combination, the consummation of the
transactions contemplated hereby and the fulfillment of the terms hereof will
not result in a violation or breach of any of the terms or provisions of, or
constitute a default under (or an event which, with the passage of time or the
giving of notice or both, would constitute a default under), or conflict with,
or permit the acceleration of any obligation under, any material mortgage,
lease, covenant, agreement, indenture or other instrument to which UPC or
INTERIM is a party or by which they or their property or any of their assets
are bound; the corporate Charters or Bylaws of UPC or the Charter or Bylaws of
INTERIM; any material judgment, decree, order, regulatory letter of
understanding, or award of any court, governmental body or arbitrator by which
UPC or INTERIM is bound; any material permit, concession, grant, franchise,
license, law, statute, ordinance, rule or regulation applicable to UPC or
INTERIM or their properties; or result in the creation of any lien, claim,
security interest, encumbrance, charge, restriction or right of any third party
of any kind whatsoever upon the property or assets of UPC or INTERIM, except
that the Government Approvals shall be required in order for UPC and INTERIM to
consummate the Merger.
4.3 No Legal Bar. Neither UPC nor INTERIM is a party to,
subject to or bound by any agreement, judgment, order, letter of understanding,
writ, prohibition, injunction or decree of any court or other governmental body
of competent jurisdiction or any law which would prevent the execution of this
Combination Agreement by UPC or INTERIM, its delivery to Valley Federal or the
consummation of the transactions contemplated hereby, and no action or
proceeding is pending against UPC or INTERIM in which the validity of this
Combination Agreement, any of the transactions contemplated hereby or any
action which has been taken by any of the Parties in connection herewith or in
connection with any of the transactions contemplated hereby is at issue.
4.4 Government Approvals. No consent, approval, order
or authorization of, or registration, declaration or filing with, any federal,
state or local governmental authority is required to be made or obtained by UPC
or INTERIM in connection with the execution and delivery of this Combination
Agreement or the consummation of the transactions contemplated hereby by UPC or
INTERIM except for: (a) the prior approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve") of the Merger under the Bank
Holding Company Act of 1956, as amended, and the regulations promulgated by the
Federal Reserve thereunder, (b) the prior approval of the Office of Thrift
Supervision (the "OTS") under the Home Owners Loan Act, as amended, and the
regulations promulgated by the OTS thereunder, (c) the prior approval of the
Alabama
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State Banking Department ("ASBD") under Title 5-14A-3 et seq of the Alabama
Code and the regulations promulgated by the ASBD thereunder, and (d) the filing
of a registration statement with the SEC pursuant to the 1933 Act with respect
to the UPC Common Stock to be issued in the transaction (collectively, the
"Government Approvals"). Neither UPC nor INTERIM is aware of any reason why
the Government Approvals required to be obtained by the Regulatory Authorities
in connection with the Merger should not be granted by such Regulatory
Authorities or why such Government Approvals should be conditioned on any
requirement which would be a significant impediment to UPC's ability to carry
on its businesses.
4.5 Capitalization.
(a) The authorized capital stock of UPC consists
of 10,000,000 shares of preferred stock having no par value (the "UPC Preferred
Stock"), and 100,000,000 shares of common stock having a par value of $5.00 per
share (the "UPC Common Stock"). As of September 30, 1995, UPC had issued and
outstanding: 44,000 shares of $8.00 Nonredeemable Cumulative Convertible
Preferred Stock, Series B; No (0) shares of 10-3/8% Increasing Rate,
Redeemable, Cumulative Preferred Stock, Series C; No (0) shares of 9.5%
Redeemable, Cumulative Preferred Stock, Series D; and 3,496,419 shares of 8%
Cumulative, Convertible Preferred Stock, Series E. In addition, 250,000 shares
of UPC Preferred Stock have been reserved for issuance as Series A Preferred
Stock pursuant to the UPC Share Purchase Rights Agreement dated January 19,
1989, between UPC and Union Planters National Bank as Rights Agent (the "UPC
Share Purchase Rights Agreement"). As of September 30, 1995, 41,298,627 shares
of UPC Common Stock were validly issued and outstanding.
As of the date of this Combination Agreement, UPC
owns and is the beneficial record holder, directly or indirectly, of all of the
outstanding capital stock of its Subsidiaries except for directors' qualifying
shares, free and clear of all liens, charges or encumbrances.
(b) The authorized capital stock of INTERIM
shall consist of 1,000 shares of common stock having a par value of $1.00 per
share (the "INTERIM Common Stock") and no preferred stock. As of the date here
of, INTERIM shall issue all 1,000 shares of the authorized INTERIM Common Stock
to UPC. Therefore, UPC is the record holder and beneficial owner of all of the
INTERIM Common Stock outstanding.
4.6 UPC Financial Statements. UPC has delivered and, to
the extent reference is made to financial statements not yet available or
capable of development, will deliver to Valley Federal true and complete copies
of: (i) UPC's audited Consolidated Financial Statements for the calendar years
ended December 31, 1993 and 1994 (as originally issued, but without giving
effect to subsequently effected business
AGREEMENT AND PLAN OF COMBINATION - PAGE 20
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combinations accounted for as poolings of interests); (ii) UPC's unaudited
consolidated financial statements for each of the calendar quarters ending
after January 1, 1995 and ending prior to the Closing Date; and (iii) upon
issuance thereof, UPC's audited Consolidated Financial Statements for the
calendar year ending December 31, 1995. Such financial statements and the
notes thereto present fairly, or will present fairly when issued, in all
material respects, the consolidated financial position of UPC at the respective
dates thereof and the consolidated results of operations and consolidated cash
flow of UPC for the periods indicated, and in each case in conformity with GAAP
consistently applied and maintained.
4.7 Exchange Act Filings. The outstanding shares of UPC
Common Stock are registered with the SEC pursuant to the 1934 Act and UPC has
filed with the SEC all material forms and reports required by law to be filed
by UPC with the SEC, which forms and reports, taken as a whole, are true and
correct in all material respects, and do not misstate a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
4.8 The UPC Common Stock. All shares of UPC Common Stock
to be issued by UPC and delivered to the Valley Federal Record Holders in
exchange for all of the Valley Federal Common Stock held by the Valley Federal
Record Holders will be duly authorized, validly issued, fully paid and
non-assessable, and none of such shares of UPC Common Stock will have been
issued in violation of any preemptive rights of any UPC shareholders. The
shares of UPC Common Stock to be delivered in payment of the Consideration
shall have in all material respects such distinguishing characteristics as
those of the shares of UPC Common Stock outstanding immediately prior to the
Effective Time of the Merger.
4.9 Licensing, Franchises, Etc. UPC and all UPC
Subsidiaries hold all licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses. The benefits
of all of such licenses, franchises, permits and authorizations are in full
force and effect and may continue to be enjoyed by UPC and all UPC Subsidiaries
subsequent to the Closing of the transactions contemplated herein without any
consent or approval. Neither UPC nor any UPC Subsidiary has received notice of
any proceeding for the suspension or revocation of any such license, franchise,
permit, or authorization and no such proceeding is pending or has been
threatened by any governmental authority.
4.10 Absence of Certain Changes. Except as disclosed in
Schedule 4.10 or as provided for or contemplated in this Combination Agreement,
since December 31, 1994 (the "Balance Sheet Date") there has not been any
material adverse change in the business, property, assets (including loan
portfolios), liabilities (whether absolute, accrued,
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contingent or otherwise), prospects, operations, liquidity, income, condition
(financial or otherwise) or net worth of UPC.
4.11 Tax Matters. Except as described in Schedule 4.11
hereto:
(a) all federal, state, local, and foreign tax
returns required to be filed by or on behalf of UPC and each UPC Subsidiary
have been timely filed or requests for extensions have been timely filed,
granted, and have not expired for periods ended on or before the date of this
Combination Agreement, and all returns filed are, and the information contained
therein is, complete and accurate. All tax obligations reflected in such
returns have been paid. As of the date of this Combination Agreement, there is
no audit examination, deficiency, or refund litigation or matter in controversy
with respect to any taxes that might result in a determination materially
adverse to UPC or any UPC Subsidiary except as fully reserved for in the UPC
Financial Statements. All taxes, interest, additions, and penalties due with
respect to completed and settled examinations or concluded litigation have been
paid.
(b) Neither UPC nor any UPC Subsidiary has
executed an extension or waiver of any statute of limitations on the assessment
or collection of any tax due that is currently in effect.
(c) Adequate provision for any federal, state,
local, or foreign taxes due or to become due for UPC and all UPC Subsidiaries
for all periods through and including December 31, 1994, has been made and is
reflected on the December 31, 1994 financial statements included in the UPC
Financial Statements, and have been and will continue to be made with respect
to periods ending after December 31, 1994.
(d) Deferred taxes of UPC and each UPC Subsidiary
have been and will be provided for in accordance with GAAP.
(e) To the best knowledge of UPC, neither the
Internal Revenue Service nor any foreign, state, local or other taxing
authority is now asserting or threatening to assert against UPC or any UPC
Subsidiary any deficiency or claim for additional taxes, or interest thereon or
penalties in connection therewith. All material income, payroll, withholding,
property, excise, sales, use, franchise and transfer taxes, and all other
taxes, charges, fees, levies or other assessments, imposed upon UPC by the
United States or by any state, municipality, subdivision or instrumentality of
the United States or by any other taxing authority, including all interest,
penalties or additions attributable thereto, which are due and payable by UPC
or any UPC Subsidiary, either have been paid in full, or have been properly
accrued and reflected in UPC's Financial Statements referred to in Section 4.6
of this Combination Agreement.
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4.12 Litigation. Except as set forth in Schedule 4.12
hereto, there is no action, suit or proceeding pending against UPC or any UPC
Subsidiary, or to the best knowledge of UPC or any UPC Subsidiary threatened
against or affecting UPC, any UPC Subsidiary or any of their assets, before any
court or arbitrator or any governmental body, agency or official that (i)
would, if decided against UPC or the UPC Subsidiary, have a material adverse
impact on the business, properties, assets, liabilities, condition (financial
or other) or prospects of UPC or any UPC Subsidiary and that are not reflected
in the UPC Financial Statements or (ii) has been brought by or on behalf of any
employee employed or formerly employed by UPC or any UPC Subsidiary.
4.13 Absence of Undisclosed Liabilities. Except as
described in Schedule 4.13 hereto, neither UPC nor any UPC Subsidiary has any
obligation or liability (contingent or otherwise) that is material to the
financial condition or operations of UPC or any UPC Subsidiary, or that, when
combined with all similar obligations or liabilities, would be material to the
financial condition or operations of UPC or any UPC Subsidiary (i) except as
disclosed in the UPC Financial Statements delivered to Valley Federal prior to
the date of this Combination Agreement or (ii) except obligations or
liabilities incurred in the ordinary course of its business consistent with
past practices or (iii) except as contemplated under this Combination
Agreement. Since December 31, 1994, neither UPC nor any UPC Subsidiary has
incurred or paid any obligation or liability which would be material to the
financial condition or operations of UPC or such UPC Subsidiary, except for
obligations paid in connection with transactions made by it in the ordinary
course of its business consistent with past practices, laws and regulations
applicable to UPC or any UPC Subsidiary.
4.14 Compliance with Laws. UPC and each UPC Subsidiary:
(a) Is in compliance with all laws, rules,
regulations, reporting and licensing requirements, and orders applicable to its
business or employees conducting its business (including, but not limited to,
those relating to consumer disclosure and currency transaction reporting) the
breach or violation of which would or could reasonably be expected to have a
material adverse effect on the financial condition or operations of UPC or any
UPC Subsidiary, or which would or could reasonably be expected to subject UPC
or any UPC Subsidiary or any of its directors or officers to civil money
penalties; and
(b) Has received no notification or communication
from any agency or department of federal, state, or local government or any of
the Regulatory Authorities, or the staff thereof (i) asserting that UPC or any
UPC Subsidiary is not in compliance with any of the statutes, rules,
regulations, or ordinances which such governmental authority or Regulatory
Authority enforces, which, as a result of such noncompliance, would result in a
material adverse impact on UPC or any UPC Subsidiary, (ii) threatening to
revoke any license, franchise, permit, or governmental
AGREEMENT AND PLAN OF COMBINATION - PAGE 23
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authorization which is material to the financial condition or operations of UPC
or any UPC Subsidiary, or (iii) requiring UPC or any UPC Subsidiary to enter
into a cease and desist order, consent, agreement, or memorandum of
understanding.
4.15 Material Contract Defaults. Neither UPC nor any UPC
Subsidiary is in default in any respect under any contract, agreement,
commitment, arrangement, lease, insurance policy, or other instrument to which
it is a party or by which its respective assets, business, or operations may be
bound or affected or under which it or its respective assets, business, or
operations receives benefits, and which default is reasonably expected to have,
either individually or in the aggregate, a material adverse effect on UPC or
any UPC Subsidiary, and there has not occurred any event that, with the lapse
of time or the giving of notice or both, would constitute such a default.
4.16 Statements True and Correct. None of the information
prepared by, or on behalf of, UPC or any UPC Subsidiary regarding UPC, INTERIM,
or any other UPC Subsidiary included or to be included in the Proxy Statement
to be mailed to Valley Federal's shareholders in connection with the Valley
Federal's Stockholders Meeting, and any other documents to be filed with the
SEC, or any other Regulatory Authority in connection with the transaction
contemplated herein, will, at the respective times such documents are filed,
and, with respect to the Proxy Statement, when first mailed to the stockholders
of Valley Federal, be false or misleading with respect to any material fact, or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or, in
the case of the Proxy Statement or any amendment thereof or supplement thereto,
at the time of the Valley Federal's Stockholders Meeting, be false or
misleading with respect to any material fact, or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of any proxy for the Valley Federal's Stockholders
Meeting. All documents which UPC or any UPC Subsidiary is responsible for
filing with the SEC or any other Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable law, including applicable provisions
of the Securities Laws and the rules and regulations issued thereunder.
4.17 Disclosure. The information concerning, and the
representations or warranties made by UPC and/or INTERIM as set forth in this
Combination Agreement, or in any document, statement, certificate or other
writing furnished or to be furnished by UPC or INTERIM to Valley Federal
pursuant hereto, do not and will not contain any untrue statement of a material
fact or omit and will not omit to state a material fact required to be stated
herein or therein which is necessary to make the statements and facts contained
herein or therein, in light of the circumstances under which they were or are
made, not false or misleading. Copies of all documents heretofore or hereafter
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delivered or made available to Valley Federal by UPC and/or INTERIM pursuant
hereto were or will be complete and accurate copies of such documents.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF VALLEY FEDERAL
Except as described in the Valley Federal Disclosure Schedule, as of the date
hereof, Valley Federal represents and warrants to UPC and INTERIM as follows:
5.1 Organization and Qualification of Valley Federal and
Subsidiaries. Valley Federal is a federal savings bank duly organized, validly
existing and in good standing under the laws of the United States of America
and (a) has in all material requests all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as it is currently being conducted; and (b) is in good standing and is duly
qualified to do business in each jurisdiction where the character of its
material properties owned or held under lease or the nature of its business
makes such qualification necessary, except to the extent that any failure to so
qualify would not have a material adverse effect on the business or financial
condition of Valley Federal. Each Valley Federal Subsidiary is duly chartered,
validly existing and in good standing under the laws of the state or
jurisdiction of its incorporation and (a) has, in all material respects, all
requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is currently being conducted and
(b) is in good standing and is duly qualified to do business in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its business makes such qualification necessary, except to the
extent that any failure to so qualify would not have a material adverse effect
on the business or financial condition of any Valley Federal Subsidiary.
Valley Federal and each of its Subsidiaries have in effect all federal, state,
local and foreign governmental authorizations, permits and licenses necessary
for them to own or lease their respective properties and assets and to carry on
their business as it is currently being conducted. Valley Federal engages only
in activities (and holds properties only of the types) permitted by the HOLA
and the rules and regulations promulgated by the OTS thereunder or the FDIC for
insured depository institutions. Valley Federal's deposit accounts are insured
by the Savings Association Insurance Fund (the "SAIF") as administered by the
FDIC to the fullest extent permitted under applicable law.
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5.2 Authorization, Execution and Delivery; Combination
Agreement Not in Breach.
(a) Valley Federal has all requisite power and
authority to execute and deliver this Combination Agreement and the Plan of
Combination and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Combination Agreement and the Plan of
Combination and the consummation of the proposed transaction has been duly
authorized by at least two-thirds of the entire Board of Directors of Valley
Federal and, except for the approval of the Valley Federal Stockholders, no
other corporate proceedings on the part of Valley Federal are necessary to
authorize the execution and delivery of this Combination Agreement and the Plan
of Combination and the consummation of the transactions contemplated hereby and
thereby. This Combination Agreement and all other agreements and instruments
herein contemplated to be executed by Valley Federal have been (or upon
execution will have been) duly executed and delivered by Valley Federal and
constitute (or upon execution will constitute) the legal, valid and enforceable
obligations of Valley Federal, subject, as to enforceability, to applicable
bankruptcy, insolvency, receivership, conservatorship, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and to the application of equitable principles and judicial
discretion.
(b) Except as disclosed in Schedule 5.2, the
execution and delivery of this Combination Agreement and the Plan of
Combination, the consummation of the transaction contemplated hereby and
thereby, and the fulfillment of the terms hereof and thereof will not result in
a violation or breach of any of the terms or provisions of, or constitute a
default under (or an event which, with the passage of time or the giving of
notice, or both, would constitute a default under), or conflict with, or permit
the acceleration of, any obligation under any mortgage, lease, covenant,
agreement, indenture or other instrument to which Valley Federal or any Valley
Federal Subsidiary is a party or by which Valley Federal or any Valley Federal
Subsidiary is bound; the Charter or Bylaws of Valley Federal; or any judgment,
decree, order, regulatory letter of understanding or award of any court,
governmental body, authority or arbitrator by which Valley Federal or any
Valley Federal Subsidiary is bound; or any permit, concession, grant, fran-
chise, license, law, statute, ordinance, rule or regulation applicable to
Valley Federal or any Valley Federal Subsidiary or the properties of any of
them; or result in the creation of any lien, claim, security interest,
encumbrance, charge, restriction or right of any third party of any kind
whatsoever upon the properties or assets of Valley Federal or any Valley
Federal Subsidiary, except that the Government Approvals shall be required in
order for Valley Federal to consummate the Merger.
5.3 No Legal Bar. Neither Valley Federal nor any Valley
Federal Subsidiary is a party to, or subject to, or bound by, any agreement or
judgment, order, letter of understanding, writ, prohibition, injunction or
decree of any court or other
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governmental authority or body, or any law which would prevent the execution of
this Combination Agreement or the Plan of Combination by Valley Federal, the
delivery thereof to UPC and INTERIM, or the consummation of the transactions
contemplated hereby and thereby, and no action or proceeding is pending against
Valley Federal or any Valley Federal Subsidiary in which the validity of this
Combination Agreement, any of the transactions contemplated hereby or any
action which has been taken by any of the Parties in connection herewith or in
connection with the transaction contemplated hereby is at issue.
5.4 Government and Other Approvals. Except for the
Government Approvals described in Section 4.4, and the filing of a Proxy
Statement with the OTS in connection with the Merger, no consent, approval,
order or authori- zation of, or registration, declaration or filing with, any
federal, state or local governmental authority is required to be made or
obtained by Valley Federal in connection with the execution and delivery of
this Combination Agreement and the Plan of Combination or the consummation of
the transactions contemplated by this Combination Agreement. Except as set
forth in Schedule 5.4 hereto, no consent or approval is required from any
landlord, licensor or other non- governmental party which has granted rights to
Valley Federal or any Valley Federal Subsidiary in order to avoid forfeiture or
impairment of such rights.
5.5 Licenses, Franchises, etc. Valley Federal and all
Valley Federal Subsidiaries hold all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses.
The benefits of all of such licenses, franchises, permits and authorizations
are in full force and effect and may continue to be enjoyed by Valley Federal
and its Subsidiaries subsequent to the Closing of the transactions contemplated
herein without any consent or approval. Neither Valley Federal nor any Valley
Federal Subsidiary has received notice of any proceeding for the suspension or
revocation of any such license, franchise, permit, or authorization and no such
proceeding is pending or has been threatened by any governmental authority.
5.6 Charter Documents. Included in Schedule 5.6 hereto
are true and correct copies of the Charter and Bylaws of Valley Federal and
each Valley Federal Subsidiary, respectively. The Charter and Bylaws of Valley
Federal and each Valley Federal Subsidiary, as amended to date, are in full
force and effect.
5.7 Valley Federal Financial Statements. Accompanying
Schedule 5.7 hereto are true copies of the audited consolidated statements of
financial condition of Valley Federal as of September 30, 1994 and September
30, 1993, and related consolidated statements of income, consolidated
statements of stockholders equity and consolidated statements of cash flow of
Valley Federal for the years ended September 30, 1994, and September 30, 1993
(the "Audited Financial Statements of Valley Federal") and the comparative
interim (or annual) financial statements for any subsequent quarter
AGREEMENT AND PLAN OF COMBINATION - PAGE 27
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(or year) ending after September 30, 1994 and prior to the Closing Date (to the
extent that such statements are not available or currently capable of being
developed these will be delivered immediately upon being made available or
developed). Such financial statements (i) were (or will be) prepared from the
books and records of Valley Federal; (ii) were (or will be) prepared in
accordance with generally accepted accounting principles consistently applied
(except for omission of notes to unaudited financial statements and in the case
of interim financial statements to customary recurring year-end adjustments
normal in nature and amounts); (iii) accurately present (or will present)
Valley Federal's consolidated financial condition and the consolidated results
of their operations, changes in stockholders' equity and cash flows at the
relevant dates thereof and for the periods covered thereby; (iv) in the opinion
of Valley Federal management, contain or reflect (or will contain and reflect)
all necessary adjustments and accruals for an accurate presentation of Valley
Federal's consolidated financial condition and the consolidated results of
Valley Federal's operations and cash flows for the periods covered by such
Financial Statements; (v) in the opinion of Valley Federal management, contain
and reflect (or will contain and reflect) adequate provisions for loan losses,
for ORE reserves and for all reasonably anticipatable liabilities for all
taxes, federal, state, local or foreign, with respect to the periods then
ended; and (vi) in the opinion of Valley Federal management, contain and
reflect (or will contain and reflect) adequate provisions for all reasonably
anticipated liabilities for Post Retirement Benefits Other Than Pensions
("OPEB") pursuant to FASB 106 and 112 as of the date of such financial
statements.
5.8 Absence of Certain Changes. Except as disclosed in
Schedule 5.8, or in the Valley Federal SEC Documents, or as provided for or
contemplated in this Combination Agreement, since December 31, 1994 (the
"Balance Sheet Date") to the date hereof there has not been:
(a) any transaction by Valley Federal not in the
ordinary course of business and in conformity with past practice;
(b) any material adverse change in the business,
property, assets (including loan portfolios), liabilities (whether absolute,
accrued, contingent or otherwise), prospects, operations, liquidity, income,
condition (financial or otherwise) or net worth of Valley Federal;
(c) any damage, destruction or loss, whether or
not covered by insurance, which has had or is reasonably expected to have a
material adverse effect on any of the properties or business or prospects of
Valley Federal or their future use and operation by Valley Federal;
(d) any acquisition or disposition by Valley
Federal of any property or asset of Valley Federal, whether real or personal,
having a fair market value, singularly
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or in the aggregate, in an amount greater than Twenty Thousand Dollars
($20,000), except in the ordinary course of business and in conformity with
past practice;
(e) any mortgage, pledge or subjection to lien,
charge or encumbrance of any kind on any of the respective properties or assets
of Valley Federal, except to secure extensions of credit in the ordinary course
of business and in conformity with past practice;
(f) any amendment, modification or termination of
any contract or agreement, relating to Valley Federal, to which Valley Federal
is a party which would have an adverse effect upon the financial condition or
operations of Valley Federal;
(g) any increase in, or commitment to increase,
the compensation payable or to become payable to any officer, director,
employee or agent of Valley Federal, or any bonus payment or similar
arrangement made to or with any of such officers, directors, employees or
agents, other than routine increases made in the ordinary course of business
not exceeding the greater of ten percent (10%) per annum or $6,000 for any of
them individually;
(h) any incurring of, assumption of, or taking
of, by Valley Federal, any property subject to, any liability, except for
liabilities incurred or assumed or property taken subsequent to the Balance
Sheet Date in the ordinary course of business and in conformity with past
practice;
(i) any material alteration in the manner of
keeping the books, accounts or Records of Valley Federal or any Valley Federal
Subsidiary, or in the accounting policies or practices therein reflected,
except as may be required by generally accepted accounting principles or as
required by the OTS;
(j) any release or discharge of any obligation or
liability of any person or entity related to or arising out of any loan made by
Valley Federal of any nature whatsoever, except in the ordinary course of
business and in conformity with past practice; or
(k) to the best knowledge of Valley Federal, any
loan (except credit card loans, passbook loans or home loans) by Valley Federal
to any Officer, director or known 5% shareholder of Valley Federal or any
Affiliate of Valley Federal; or to any member of the immediate family of such
Officer, director or known 5% shareholder of Valley Federal or any Affiliate of
Valley Federal; or to any Person in which such Officer, director or known 5%
shareholder directly or indirectly owns beneficially or of record ten percent
(10%) or more of any class of equity securities in the case of a corporation,
or of any equity interest, in the case of a partnership or other non-corporate
entity; or to any
AGREEMENT AND PLAN OF COMBINATION - PAGE 29
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trust or estate in which such Officer, director or 5% shareholder has a ten
percent (10%) or more beneficial interest; or as to which such Officer,
director or 5% shareholder serves as a trustee or in a similar capacity. As
used in this Section, "Officer" shall refer to a person who holds the title of
chairman, president, executive vice president, senior vice president,
controller, secretary, cashier or treasurer or who performs the normal duties
of such officer whether or not he or she is compensated for such service or has
an official title.
5.9 Deposits. None of the Deposits is a "brokered"
Deposit or subject to any encumbrance, legal restraint or other legal process.
Except as set forth in Schedule 5.9, no portion of the Deposits represents a
Deposit by any Affiliate of Valley Federal.
5.10 Properties. Except (i) for encumbrances which do not
materially effect the value thereof, (ii) liens for current taxes and special
assessments not yet due and payable, (iii) as described in Schedule 5.10 hereto
or (iv) adequately reserved against in the Valley Federal Financial Statements,
Valley Federal and each Valley Federal Subsidiary has good and marketable title
free and clear of all material liens, encumbrances, charges, defaults, or
equities of whatever character to all of the material properties and assets,
tangible or intangible, reflected in the Valley Federal Financial Statements as
being owned by Valley Federal or any Valley Federal Subsidiary as of the dates
thereof. All buildings, and all fixtures, equipment, and other property and
assets that are material to the business of Valley Federal and its Subsidiaries
on a consolidated basis, held under leases or subleases by Valley Federal or
any Valley Federal Subsidiary, are held under valid instruments enforceable in
accordance with their respective terms (except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws
affecting the enforcement of creditors' rights generally, and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceedings
may be pending). The policies of fire, theft, liability, and other insurance
maintained with respect to the properties, assets or businesses of the Valley
Federal Companies provide coverage reasonably believed by management of Valley
Federal to be adequate against loss, and the fidelity bonds in effect as to
which any of the Valley Federal Companies is a named insured are believed to be
sufficient.
5.11 Valley Federal Subsidiaries. Schedule 5.11 hereto
lists all of the active and inactive Valley Federal Subsidiaries as of the date
of this Combination Agreement and describes generally the business activities
conducted, or permitted to be conducted, by each Valley Federal Subsidiary. No
equity securities of any of the Valley Federal Subsidiaries are or may become
required to be issued (other than to Valley Federal) by reason of any options,
warrants, scrip, rights to subscribe to, calls, or commitments of any character
whatsoever relating to, or securities or rights convertible
AGREEMENT AND PLAN OF COMBINATION - PAGE 30
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into or exchangeable for, shares of the capital stock of any Valley Federal
Subsidiary, and there are no contracts, commitments, understandings, or
arrangements by which any Valley Federal Subsidiary is bound to issue (other
than to Valley Federal) any additional shares of its capital stock or options,
warrants, or rights to purchase or acquire any additional shares of its capital
stock. All of the shares of capital stock of each Valley Federal Subsidiary
held by Valley Federal or by any Valley Federal Subsidiary are fully paid and
nonassessable and are owned by Valley Federal or such Valley Federal Subsidiary
free and clear of any claim, lien, or encumbrance of any nature whatsoever,
whether perfected or not.
5.12 Condition of Fixed Assets and Equipment. Except as
disclosed in Schedule 5.12 hereof, each item of Valley Federal's 's fixed
assets and equipment having a net book value in excess of Twenty-five Thousand
Dollars ($25,000) included in the Fixed Assets is in good operating condition
and repair, normal wear and tear excepted.
5.13 Tax Matters. Except as described in Schedule 5.13
hereto:
(a) all federal, state, local, and foreign tax
returns required to be filed by or on behalf of Valley Federal and each Valley
Federal Subsidiary have been timely filed or requests for extensions have been
timely filed, granted, and have not expired for periods ended on or before the
date of this Combination Agreement, and all returns filed are, and the
information contained therein is, complete and accurate in all material
respects. All tax obligations reflected in such returns have been paid. As of
the date of this Combination Agreement, there is no audit examination,
deficiency, or refund litigation or matter in controversy with respect to any
taxes that might result in a determination materially adverse to Valley Federal
or any Valley Federal Subsidiary except as fully reserved for in the Audited
Financial Statements of Valley Federal. All taxes, interest, additions, and
penalties due with respect to completed and settled examinations or concluded
litigation have been paid.
(b) Neither Valley Federal nor any Valley Federal
Subsidiary has executed an extension or waiver of any statute of limitations on
the assessment or collection of any tax due that is currently in effect.
(c) Adequate provision for any federal, state,
local, or foreign taxes due or to become due for Valley Federal and all Valley
Federal Subsidiaries for all periods through and including September 30, 1994,
has been made and is reflected on the September 30, 1994 financial statements
included in the Audited Financial Statements of Valley Federal, and have been
and will continue to be made with respect to periods ending after September 30,
1994.
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(d) Deferred taxes of Valley Federal and each
Valley Federal Subsidiary have been and will be provided for in accordance with
GAAP.
(e) To the best knowledge of Valley Federal,
neither the Internal Revenue Service nor any foreign, state, local or other
taxing authority is now asserting or threatening to assert against Valley
Federal or any Valley Federal Subsidiary any deficiency or claim for additional
taxes, or interest thereon or penalties in connection therewith. All material
income, payroll, withholding, property, excise, sales, use, franchise and
transfer taxes, and all other taxes, charges, fees, levies or other
assessments, imposed upon Valley Federal by the United States or by any state,
municipality, subdivision or instrumentality of the United States or by any
other taxing authority, including all interest, penalties or additions
attributable thereto, which are due and payable by Valley Federal or any Valley
Federal Subsidiary, either have been paid in full, or have been properly
accrued and reflected in the Audited Financial Statements of Valley Federal
referred to in Section 5.7 of this Combination Agreement.
5.14 Litigation. Except as set forth in Schedule 5.14
hereto or disclosed in the Valley Federal SEC documents, there is no action,
suit or proceeding pending against Valley Federal or any Valley Federal
Subsidiary, or to the best knowledge of Valley Federal threatened against or
affecting Valley Federal, any Valley Federal Subsidiary or any of their assets,
before any court or arbitrator or any governmental body, agency or official
that (i) is reasonably expected to, if decided against Valley Federal or the
Valley Federal Subsidiary, have a material adverse impact on the business,
properties, assets, liabilities, condition (financial or other) or prospects of
Valley Federal taken as a whole and that are not reflected in the Audited
Financial Statements of Valley Federal or (ii) has been brought by or on behalf
of any employee employed or formerly employed by Valley Federal or any Valley
Federal Subsidiary.
5.15 Hazardous Materials.
(a) Valley Federal and all Valley Federal
Subsidiaries have obtained all permits, licenses and other authorizations which
are required to be obtained by Valley Federal or its Subsidiaries with respect
to the Property (as defined herein) under all Applicable Environmental Laws (as
defined herein). All Property controlled, directly or indirectly, by Valley
Federal or any Valley Federal Subsidiary is in compliance with the terms and
conditions of all of such permits, licenses and authorizations, and is also in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
any Applicable Environmental Laws or in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except (i) the noncompliance of which would
not have a material adverse effect on the
AGREEMENT AND PLAN OF COMBINATION - PAGE 32
<PAGE> 165
financial condition or operations or prospects of Valley Federal or any Valley
Federal Subsidiary or (ii) as described in detail in Schedule 5.15 hereto. For
purposes hereof, the following terms shall have the following meanings:
"APPLICABLE ENVIRONMENTAL LAWS" shall mean all federal, state,
local and municipal environmental laws, rules or regulations to the extent
applicable to the Property, including, but not limited to, (a) the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq. ("CERCLA"); (b) the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901 et seq. "RCRA"; (c) the Federal Water Pollution
Control Act, 33 U.S.C. Section 1251 et seq.; (d) the Clean Air Act, 42 U.S.C.
Section 7401 et seq.; (e) the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1471 et seq.; (f) the Toxic Substances Control Act, 15 U.S.C. Section
2601 et seq.; (g) the Emergency Planning and Community Right-to-Know Act, 42
U.S.C. Section 11001 et seq.; (h) the National Environmental Policy Act, 42
U.S.C. Section 4321 et seq.; (i) the Rivers and Harbours Act of 1899, 33 U.S.C.
Section 401 et seq.; (j) the Occupational Safety and Health Act, 29 U.S.C.
Section 651 et seq.; (k) the Safe Drinking Water Act, 42 U.S.C. Section 300(f)
et seq.; (l) the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; (m)
the Hazardous Waste Management Act of 1977, (n) any environmental laws
contained in the Alabama Code and regulations promulgated thereunder, (o) any
amendments to the foregoing Acts as adopted from time to time on or before the
Closing; and (p) any rule, regulation, order, injunction, judgment, declaration
or decree implementing or interpreting any of the foregoing Acts, as amended.
"HAZARDOUS SUBSTANCES" shall mean any substance, material,
waste, or pollutant that is now (or prior to the Closing) listed, defined,
characterized or regulated as hazardous, toxic or dangerous under or pursuant
to any statute, law, ordinance, rule or regulation of any federal, state,
regional, county or local governmental authority having jurisdiction over the
Property of Valley Federal or any Valley Federal Subsidiary or its use or
operation, including, without limitation, (a) any substance, material, element,
compound, mixture, solution, waste, chemical or pollutant listed, defined,
characterized or regulated as hazardous, toxic or dangerous under any
Applicable Environmental Laws, (b) petroleum, petroleum derivatives or
by-products, and other hydrocarbons, (c) polychlorinated biphenyls (PCBs),
asbestos and urea formaldehyde, and (d) radioactive substances, materials or
waste.
"PROPERTY" shall be deemed to include, but shall not be
limited to, all real property owned, controlled, leased or held by Valley
Federal or a Valley Federal Subsidiary, in whole or in part, solely or in a
joint venture or other business arrangement, either for operational or
investment purposes, and whether assigned, purchased, or obtained through
foreclosure (or similar action) or in satisfaction of debts previously
contracted.
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(b) In addition, except as set forth in Schedule
5.15(b) hereto:
(i) No notice, notification, demand,
request for information, citation, summons or order has been issued, no
complaint has been filed, no penalty has been assessed and, to the best
knowledge of Valley Federal, no investigation or review is pending by any
governmental or other entity with respect to any alleged failure by Valley
Federal or any Valley Federal Subsidiary to have any permit, license or
authorization required in connection with the conduct of the business of Valley
Federal or any Valley Federal Subsidiary or with respect to any generation,
treatment, storage, recycling, transportation, release or disposal, or any
release as defined in 42 U.S.C. Section 9601(22) ("Release"), of any Hazardous
Substances generated by Valley Federal or any Affiliate of Valley Federal at
the Property;
(ii) None of the Property has received or
held any Hazardous Substances in such amount and in such manner as to
constitute a violation of the Applicable Environmental Laws, and no Hazardous
Substances have been Released or disposed of on, in or under any of the
Property during Valley Federal's or any Valley Federal Subsidiary's occupancy
thereof, or during the occupancy thereof by any assignee or sublessee of Valley
Federal or any Valley Federal Subsidiary, except in compliance with all
Applicable Environmental Laws;
(iii) There are no Hazardous Substances
being stored at any Property or located in, on or upon, any Property (including
the subsurface thereof) or installed or affixed to structures or equipment on
the Property; and there are no underground storage tanks for Hazardous
Substances, active or abandoned, at any Property; and
(iv) No Hazardous Substances have been
Released in a reportable quantity, where such a quantity has been established
by statute, ordinance, rule, regulation or order, at, on or under any Property.
(c) Neither Valley Federal nor any Affiliate of
Valley Federal has transported or arranged for the transportation of any
Hazardous Substances to any location which is listed on the National Priorities
List under CERCLA, listed for possible inclusion on the National Priorities
List by the Environmental Protection Agency in the CERCLA Information System
("CERCLIS") or on any similar state list or which is the subject of federal,
state or local enforcement actions or other investigations which may lead to
claims against the owner of the Property for cleanup costs, remedial work,
damages to natural resources or for personal injury claims, including, but not
limited to, claims under CERCLA.
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(d) Except as set forth in Schedule 5.15(d), no
Hazardous Substances have been generated, recycled, treated, stored, disposed
of or Released by, Valley Federal or any Affiliate of Valley Federal in
violation of Applicable Environmental Laws.
(e) No oral or written notification of a Release
of Hazardous Substances has been filed by or on behalf of Valley Federal or any
Affiliate of Valley Federal relating to the Property and no Property is listed
or proposed for listing on the National Priority List promulgated pursuant to
CERCLA, on CERCLIS or on any similar state list of sites requiring
investigation or clean-up.
(f) There are no liens arising under or pursuant
to any Applicable Environmental Laws on any Property, and no government actions
have been taken or, to the best knowledge of Valley Federal, threatened, or are
in process which could subject any of such properties to such liens and none of
the Property would be required to place any notice or restriction relating to
the presence of Hazardous Substances at any Property in any deed to such
Property.
(g) Except as described in Schedule 5.15(g)
hereto, there have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the possession of
Valley Federal or any Affiliate of Valley Federal in relation to any Property,
which have not been made available to UPC.
(h) Valley Federal is not aware of any facts
which might suggest that Valley Federal or any Valley Federal Subsidiary has
engaged in any management practice with respect to any of its past or existing
borrowers which could reasonably be expected to subject Valley Federal or any
Valley Federal Subsidiary or the Property to any liability, either directly or
indirectly, under the principles of law as set forth in United States v. Fleet
Factors Corp., 901 F.2d 1550 (11th Cir. 1990) as modified by 40 C.F.R. Part
300.
5.16 Insurance. Valley Federal has paid all material
amounts due and payable under any insurance policies and guaranties applicable
to Valley Federal and all Valley Federal's Subsidiaries' assets and operations;
all such insurance policies and guaranties are in full force and effect; and
all of Valley Federal's and its Subsidiaries' material Realty and other
material properties are insured against fire, casualty, theft, loss, and such
other events against which it is customary to insure, all such insurance
policies being in amounts that are reasonably believed by Valley Federal
management to be adequate and consistent with past practice and experience.
5.17 Labor and Employment Matters. Except as reflected in
Schedule 5.17 hereto, there is no (i) collective bargaining agreement or other
labor agreement to
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which Valley Federal or any Valley Federal Subsidiary is a party or by which
any of them is bound; (ii) employment, profit sharing, deferred compensation,
bonus, stock option, purchase, retainer, consulting, retirement, welfare or
incentive plan or contract to which Valley Federal or any Valley Federal
Subsidiary is a party or by which it is bound; or (iii) plan or agreement under
which "fringe benefits" (including, but not limited to, vacation plans or
programs, sick leave plans or programs and related benefits) are afforded any
of the employees of Valley Federal or any Valley Federal Subsidiary. No party
to any such agreement, plan or contract is in default with respect to any
material term or condition thereof, nor has any event occurred which, through
the passage of time or the giving of notice, or both, would constitute a
default thereunder or would cause the acceleration of any obligation of any
party thereto. Neither Valley Federal nor any Valley Federal Subsidiary has
received notice from any governmental agency of any alleged violation of
applicable laws that remains unresolved respecting employment and employment
practices, terms and conditions of employment and wages and hours. Valley
Federal and each Valley Federal Subsidiary have complied in all material
respects with all applicable laws, rules and regulations relating to the
employment of labor, including those related to its employment practices,
employee disabilities, wages, hours, collective bargaining and the payment and
withholding of taxes and other sums as required by the appropriate governmental
authorities, except for failures to comply with such laws which would not have
a material adverse effect on the business or operations of Valley Federal and
the Valley Federal Subsidiaries taken as a whole, and Valley Federal and each
Valley Federal Subsidiary have withheld and paid to the appropriate
governmental authorities or are holding for payment not yet due to such
authorities, all amounts required to be withheld from the employees of Valley
Federal and each Valley Federal Subsidiary and are not liable for any arrears
of wages, taxes, penalties or other sums for failure to comply with any of the
foregoing. Except as set forth in Schedule 5.17, there is no: unfair labor
practice complaint against Valley Federal or any Valley Federal Subsidiary
pending before the National Labor Relations Board or any state or local agency;
pending labor strike or other labor trouble affecting Valley Federal or any
Valley Federal Subsidiary; labor grievance pending against Valley Federal or
any Valley Federal Subsidiary; pending representation question respecting the
employees of Valley Federal or any Valley Federal Subsidiary; pending
arbitration proceedings arising out of or under any collective bargaining
agreement to which Valley Federal or any Valley Federal Subsidiary is a party,
or to the best knowledge of Valley Federal, any basis for which a claim may be
made under any collective bargaining agreement to which Valley Federal or any
Valley Federal Subsidiary is a party.
5.18 Capitalization of Valley Federal. The authorized
capital stock of Valley Federal consists of 15,000,000 shares of common stock
having a par value of $0.01 per share (the "Valley Federal Common Stock"),
5,000,000 shares of serial preferred stock having a par value of $0.01 per
share (the "Valley Federal Preferred Stock") and no other class of equity
security. As of the date of this Combination
AGREEMENT AND PLAN OF COMBINATION - PAGE 36
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Agreement, 361,000 shares of Valley Federal Common Stock were issued and
outstanding, no shares of Valley Federal Common Stock were held by Valley
Federal as treasury stock and no shares of Valley Federal Preferred Stock were
issued and outstanding. All of the outstanding Valley Federal Common Stock is
validly issued, fully-paid and nonassessable and has not been issued in
violation of any preemptive rights of any Valley Federal Stockholder. Except
as described in Section 2.7 of this Combination Agreement or as described on
Schedule 5.18 hereto, as of the date hereof, there are no outstanding
securities or other obligations which are convertible into Valley Federal
Common Stock or into any other equity or debt security of Valley Federal, and
there are no outstanding options, warrants, rights, scrip, rights to subscribe
to, calls or other commitments of any nature which would entitle the holder,
upon exercise thereof, to be issued Valley Federal Common Stock or any other
equity or debt security of Valley Federal. Accordingly, immediately prior to
the Effective Time of the Merger, there will be not more than (nor less than)
361,000 shares of Valley Federal Common Stock issued and outstanding, plus that
number of shares issued pursuant to the exercise of any Valley Federal Stock
Options. Except as set forth in Schedule 5.18 hereto, Valley Federal owns and
is the beneficial record holder of, and has good and freely transferable title
to, all shares of common stock outstanding of each of its Subsidiaries, free
and clear of all liens, charges or encumbrances. Since October 16, 1987, the
Valley Federal Common Stock has been continuously listed on the NASDAQ, an
interdealer quotation system, by the National Association of Securities
Dealers.
5.19 Sole Agreement. With the exception of this
Combination Agreement and the Plan of Combination, neither Valley Federal nor
any Valley Federal Subsidiary has been or is a party to: any letter of intent
or agreement to merge, to consolidate, to sell or purchase assets (other than
in the normal course of its business) or to any other agreement which
contemplates the involvement of Valley Federal or any Valley Federal Subsidiary
(or any of their assets) in any business combination of any kind; or any
agreement obligating Valley Federal to issue or sell or authorize the issuance,
sale or transfer of Valley Federal Common Stock, Valley Federal Stock or any
other capital stock of Valley Federal. Except as described in Section 2.7,
Schedule 5.18 and Schedule 5.19 hereto, there are no (nor will there be at the
Effective Time of the Merger any) shares of capital stock or other equity
securities of Valley Federal outstanding, except for shares of Valley Federal
Common Stock presently issued and outstanding, and there are no (nor will there
be at the Effective Time of the Merger any) outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of Valley Federal, or contracts, commitments,
understandings, or arrangements by which Valley Federal is or may be bound to
issue additional shares of its capital stock or options, warrants, or rights to
purchase or acquire any additional shares of its capital stock. There are no
(nor will there be at the Effective Time of the Merger any) contracts,
commitments, understandings, or arrangements by which Valley Federal or any
Valley
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Federal Subsidiary is or may be bound to transfer or issue to any third party
any shares of the capital stock of any Valley Federal Subsidiary, and there are
no (nor will there be at the Effective Time of the Merger any) contracts,
agreements, understandings or commitments relating to the right of Valley
Federal to vote or to dispose of any such shares.
5.20 Disclosure. The information concerning, and
representations and warranties made by Valley Federal set forth in this
Combination Agreement, or in the Disclosure Schedules of Valley Federal, or in
any document, statement, certificate or other writing furnished or to be
furnished by Valley Federal to UPC and INTERIM pursuant hereto, does not and
will not contain any untrue statement of a material fact or omit and will not
omit to state a material fact required to be stated herein or therein necessary
to make the statements and facts contained herein or therein, in light of the
circumstances in which they were or are made, not false or misleading. Copies
of all documents heretofore or hereafter delivered or made available to UPC by
Valley Federal pursuant hereto were or will be complete and accurate copies of
such documents.
5.21 Absence of Undisclosed Liabilities. Except as
described in Schedule 5.21 hereto, neither Valley Federal nor any Valley
Federal Subsidiary has any obligation or liability (contingent or otherwise)
that is material to the financial condition or operations of Valley Federal or
any Valley Federal Subsidiary, or that, when combined with all similar
obligations or liabilities, would be material to the financial condition or
operations of Valley Federal or any Valley Federal Subsidiary (i) except as
disclosed in the Audited Financial Statements of Valley Federal delivered to
UPC prior to the date of this Combination Agreement or (ii) except obligations
or liabilities incurred in the ordinary course of its business consistent with
past practices or (iii) except as contemplated under this Combination
Agreement. Since September 30, 1994, neither Valley Federal nor any Valley
Federal Subsidiary has incurred or paid any obligation or liability which would
be material to the financial condition or operations of Valley Federal or such
Valley Federal Subsidiary, except for obligations paid in connection with
transactions made by it in the ordinary course of its business consistent with
past practices, laws and regulations applicable to Valley Federal or any Valley
Federal Subsidiary.
5.22 Classified Assets. Except as disclosed in Schedule
5.22 hereto, as of the date thereof, Valley Federal has no Loan which has been
criticized or classified by bank examiners representing any Regulatory
Authority or by its independent auditors as "Other Assets Especially
Mentioned," "Substandard," "Doubtful" or "Loss" or as a "Potential Problem
Loan," as defined under the SEC's Guide 3 to the 1933 Act.
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In the opinion of Valley Federal management, the net
book value of ORE on the Balance Sheet of Valley Federal Financial Statements
is no greater than the net realizable value of the ORE in accordance with
Statement of Position 92-3.
5.23 Compliance with Laws. Valley Federal and each Valley
Federal Subsidiary:
(a) To the best knowledge of Valley Federal, is
in compliance with all laws, rules, regulations, reporting and licensing
requirements, and orders applicable to its business or employees conducting its
business (including, but not limited to, those relating to consumer disclosure
and currency transaction reporting) the breach or violation of which would or
could reasonably be expected to have a material adverse effect on the financial
condition or operations of Valley Federal or any Valley Federal Subsidiary
taken as a whole, or which would or could reasonably be expected to subject
Valley Federal or any Valley Federal Subsidiary or any of its directors or
officers to civil money penalties; and
(b) Has received no notification or communication
from any agency or department of federal, state, or local government or any of
the Regulatory Authorities, or the staff thereof (i) asserting that Valley
Federal or any Valley Federal Subsidiary is not in compliance with any of the
statutes, rules, regulations, or ordinances which such governmental authority
or Regulatory Authority enforces, which, as a result of such noncompliance,
would result in a material adverse impact on Valley Federal or any Valley
Federal Subsidiary, (ii) threatening to revoke any license, franchise, permit,
or governmental authorization which is material to the financial condition or
operations of Valley Federal or any Valley Federal Subsidiary, or (iii)
requiring Valley Federal or any Valley Federal Subsidiary to enter into a cease
and desist order, consent, agreement, or memorandum of understanding.
5.24 Employee Benefit Plans.
(a) Valley Federal has previously made available
to UPC true and complete copies of each "employee benefit plan," as defined in
ERISA, which, to the best of its knowledge, is subject to any provision of
ERISA and covers any employee, whether active or retired, of Valley Federal or
any Valley Federal Subsidiary, together with the most recent annual report
(Form 5500 including, if applicable, Schedule B thereto) prepared in connection
with any such plan. Such plans are hereinafter referred to collectively as the
"Employee Plans", and each such Employee Plan is listed in Schedule 5.24(a)
hereto. To the best knowledge of Valley Federal, each Employee Plan which is
intended to be qualified under Section 401(a) of the Internal Revenue Code, is
so qualified. Except as disclosed in Schedule 5.24(a) hereto, all Employee
Plans were in effect for substantially all of calendar year 1994 and there has
been no material
AGREEMENT AND PLAN OF COMBINATION - PAGE 39
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amendment thereof (other than amendments required to comply with applicable
law) or material increase in the cost thereof or benefits thereunder on or
after January 1, 1995.
(b) Valley Federal has made available to UPC true
and complete copies and descriptions of each plan or arrangement maintained or
otherwise contributed to by Valley Federal or any Valley Federal Subsidiary
which is not an Employee Plan and which (exclusive of base salary and base
wages) provides for any form of current or deferred compensation, bonus, stock
option, profit sharing, benefit, retirement, incentive, group health or
insurance, welfare plan (including, but not limited to, "employee welfare
benefit plans" as that term is defined in ERISA), or similar plan or
arrangement for the benefit of any employee or class of employees, whether
active or retired, of Valley Federal or any Valley Federal Subsidiary (such
plans and arrangements being collectively referred to herein as "Benefit
Arrangements" and all such Benefit Arrangements of Valley Federal and Valley
Federal's Subsidiaries are listed on Schedule 5.24(b) hereto). Except as
disclosed in Schedule 5.24(b) hereto, there are no other Benefit Arrangements
of the Valley Federal Companies and all Benefit Arrangements which are in
effect were in effect for substantially all of calendar year 1995. Except as
disclosed in Schedule 5.24(b) hereto or as was required by applicable law,
there has been with respect to Benefit Arrangements no material amendment
thereof or material increase in the cost thereof or benefits payable thereunder
on or after January 1, 1995, and no material increase in the base salary and
wage levels of Valley Federal or any Valley Federal Subsidiary other than in
the ordinary course of business, and except in the ordinary course of business,
no change in the terms or conditions of employment (including severance
benefits) compared, in each case, to those prevailing for substantially all of
calendar year 1995. Except as disclosed in Schedule 5.24(b) hereto, there has
been no material increase in the compensation of or benefits payable to any
senior executive employee of Valley Federal or any Valley Federal Subsidiary
since January 1, 1995, other than in the ordinary course of business, nor any
employment, severance or similar contract entered into with any such employee,
nor any amendment to any such contract, since January 1, 1995. Except as
disclosed in Schedule 5.24(b) hereto, there is no contract, agreement or
Benefit Arrangement covering any employee of Valley Federal or any Valley
Federal Subsidiary which individually or collectively could give rise to the
payment of any amount which would constitute an "excess parachute payment," as
such term is defined in Section 280(G) of the Internal Revenue Code.
(c) With respect to all Employee Plans and
Benefit Arrangements, Valley Federal and each Valley Federal Subsidiary are in
substantial compliance with the requirements prescribed by any and all
statutes, governmental or court orders, or rules or regulations currently in
effect, including but not limited to ERISA and the Internal Revenue Code,
applicable to such Employee Plans or Benefit Arrangements except to the extent
that any such non- compliance would not have a material adverse effect on the
financial condition, operations or prospects of Valley Federal. To the best
knowledge of
AGREEMENT AND PLAN OF COMBINATION - PAGE 40
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Valley Federal, no condition exists that could constitute grounds for the
termination of any Employee Plan under Section 4042 of ERISA. To the best
knowledge of Valley Federal no "prohibited transaction," as defined in Section
406 of ERISA and Section 4975 of the Internal Revenue Code, has occurred with
respect to any Employee Plan, or any other employee benefit plan maintained by
Valley Federal or any Valley Federal Subsidiary which is covered by Title I of
ERISA, which could subject any person (other than a person for whom neither
Valley Federal nor any Valley Federal Subsidiary is directly or indirectly
responsible) to liability under Title I of ERISA or to the imposition of any
tax under Section 4975 of the Internal Revenue Code which could have an adverse
effect on the business, assets, financial condition, results of operations or
prospects of any Valley Federal Company. To the best knowledge of Valley
Federal, no Employee Plan subject to Part III of Subtitle B of Title I of ERISA
or Section 412 of the Internal Revenue Code, or both, has incurred any
"accumulated funding deficiency," as defined in Section 412 of the Code,
whether or not waived. Neither Valley Federal nor any Valley Federal
Subsidiary has failed to make any contribution or pay any amount due and owing
as required by the terms of any Employee Plan or Benefit Arrangement. No
Benefit Arrangement has incurred, nor does any Benefit Arrangement have, on a
current basis, any unfunded plan liabilities, whether or not waived. Neither
Valley Federal nor any Valley Federal Subsidiary has incurred or expects to
incur, directly or indirectly, any liability under Title IV of ERISA arising in
connection with the termination of, or a complete or partial withdrawal from,
any plan covered or previously covered by Title IV of ERISA which could
constitute a liability of UPC or any of its Affiliates (including Valley
Federal or any Valley Federal Subsidiary) at or after the Effective Time of the
Merger. Except as disclosed in Schedule 5.24(c) hereto, to the best knowledge,
information and belief of Valley Federal, no condition exists that could
subject any person (other than a person for whom neither Valley Federal nor any
Valley Federal Subsidiary is directly or indirectly responsible) to
liabilities, damages, losses, taxes or sanctions that arise under Sections
106(b), 162(i) and 4980B of the Internal Revenue Code or Sections 601 through
608 of ERISA for failure to comply with the continuation health care coverage
requirements of Sections 162(k) and 4980B of the Internal Revenue Code with
respect to any current or former employee, including their beneficiaries, of
Valley Federal or any Valley Federal Subsidiary.
(d) Except as described in Schedule 5.24(d)
hereto, each Employee Plan or Benefit Arrangement and each personal services
contract, fringe benefit, consulting contract or similar arrangement with or
for the benefit of any officer, director, employee or other person can be
terminated by Valley Federal (or by INTERIM as the Resulting Bank) within a
period of 30 days following the Effective Time of the Merger, without payment
of any amount as a penalty, bonus, premium, severance pay or other compensation
for such termination.
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5.25 Material Contracts. Except as reflected in the
Audited Financial Statements of Valley Federal, or as described in Schedule
5.25 hereto, neither Valley Federal nor any Valley Federal Subsidiary, nor any
of their respective assets, businesses, or operations, is as of the date of
this Combination Agreement a party to, or is bound or affected by, or receives
benefits under any contract or agreement or amendment thereto that in each case
would (assuming that each were a reporting company under the 1934 Act, whether
or not it is so registered) be required to be filed as an exhibit to an Annual
Report on Form 10-K filed by Valley Federal as of the date of this Combination
Agreement that has not already been filed as an exhibit to Valley Federal's
Form 10-K filed for the fiscal year ended September 30, 1995, or in any other
SEC Document filed prior to the date of this Combination Agreement.
5.26 Material Contract Defaults. Neither Valley Federal
nor any Valley Federal Subsidiary is in default in any material respect under
any contract, agreement, commitment, arrangement, lease, insurance policy, or
other instrument to which it is a party or by which its respective assets,
business, or operations may be bound or affected or under which it or its
respective assets, business, or operations receives benefits, and which default
is reasonably expected to have either individually or in the aggregate a
material adverse effect on Valley Federal or any Valley Federal Subsidiary
taken as a whole, and there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
5.27 Reports. Since January 1, 1993, Valley Federal has
filed all reports and statements, together with any amendments required to be
made with respect thereto, that it was required to file with (i) the FDIC; (ii)
the OTS, including, but not limited to, Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Reports on Forms 8-K, and proxy statements; and (iii) any
other applicable federal or state securities or banking authorities (except, in
the case of federal or state securities authorities, filings that are not
material). Except as set forth in Schedule 5.27, as of their respective dates,
each of such reports and documents, including the financial statements,
exhibits, and schedules thereto, complied in all material respects with all of
the requirements of their respective forms and all of the statutes, rules, and
regulations enforced or promulgated by the Regulatory Authority with which they
were filed. All such reports were true and complete in all material respects
and did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Valley Federal has previously made available to UPC true and
correct copies of all such reports filed by Valley Federal after January 1,
1993.
5.28 Statements True and Correct; Disclosure Schedule. (a)
None of the information prepared by, or on behalf of, Valley Federal or any
Valley Federal Subsidiary regarding Valley Federal, or any Valley Federal
Subsidiary included or to be included in
AGREEMENT AND PLAN OF COMBINATION - PAGE 42
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the Proxy Statement to be mailed to Valley Federal's stockholders in connection
with the Shareholders Meeting, and any other documents to be filed with the
SEC, or any other Regulatory Authority in connection with the transaction
contemplated herein, will, at the respective times such documents are filed,
and, with respect to the Proxy Statement, when first mailed to the stockholders
of Valley Federal, be false or misleading with respect to any material fact, or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or, in
the case of the Proxy Statement or any amendment thereof or supplement thereto,
at the time of the Stockholders Meeting, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Stockholders Meeting. All documents which Valley Federal or any
Valley Federal Subsidiary is responsible for filing with the SEC or any other
Regulatory Authority in connection with the transactions contemplated hereby
will comply as to form in all material respects with the provisions of
applicable law, including applicable provisions of the Securities Laws and the
rules and regulations issued thereunder.
(b) The Valley Federal Disclosure Schedule sets
forth, among other things, exceptions to Valley Federal's representations and
warranties in this Article 5. While Valley Federal has used its best efforts
to identify in the Disclosure Schedule the particular representation or
warranty to which each such exception relates, each such exception shall be
deemed disclosed for purposes of all representations and warranties in this
Article 5. The mere inclusion of an exception in the Disclosure Schedule shall
not be deemed an admission by Valley Federal that such exception represents a
material fact, event or circumstance.
5.29 Exchange Act and Listing Filings.
(a) The outstanding shares of Valley Federal
Common Stock are registered with the OTS pursuant to the 1934 Act and Valley
Federal has filed with the OTS all material forms and reports required by laws
to be filed by Valley Federal with the OTS, which forms and reports, taken as a
whole, are true and correct in all material respects, and do not misstate a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
(b) The outstanding shares of Valley Federal
Common Stock are listed for trading on the NASDAQ (under the symbol "VAFD")
pursuant to the listing rules of the NASDAQ and Valley Federal has filed with
the NASDAQ all material forms and reports required by law to be filed by Valley
Federal with the NASDAQ, which forms and reports, taken as a whole, are true
and correct in all material respects, and do not misstate a material fact or
omit to state a material fact required to be stated therein or
AGREEMENT AND PLAN OF COMBINATION - PAGE 43
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necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE 6
COVENANTS OF UPC
6.1 Approvals. Within thirty (30) days after execution
of this Combination Agreement, UPC shall file any and all applications with the
appropriate government Regulatory Authorities in order to obtain the Government
Approvals and shall take such other actions as may be reasonably required to
consummate the transactions contemplated in this Combination Agreement and the
Plan of Combination with reasonable promptness. UPC shall, at least five days
prior to filing such applications, provide Valley Federal with copies thereof
for its review. UPC shall pay all fees and expenses arising in connection with
such applications for regulatory approval and for all SEC filing fees and the
costs of qualifying the shares of UPC Common Stock under State blue sky laws as
necessary. UPC agrees to provide the appropriate Regulatory Authorities with
the information required by such authorities in connection with UPC's
applications for regulatory approval and UPC agrees to use its best efforts to
obtain such regulatory approvals, and any other approvals and consents as may
be required for the Closing, as promptly as practicable; provided, however,
that nothing in this Section 6.1 shall be construed to obligate UPC to take any
action to meet any condition required to obtain prior regulatory approval if
UPC shall, reasonably, deem such condition to constitute a significant
impediment upon UPC's ability to carry on its business or acquisition programs
or to require UPC to increase UPC's capital ratios to amounts in excess of the
Federal Reserve's minimum capital ratio guidelines which may be in effect from
time to time. UPC shall not knowingly take any action or omit to take any
action during the term of this Combination Agreement which would, in any
material manner, adversely affect the receipt by UPC of the Government
Approvals or adversely affect the ability of UPC to perform its obligations
under this Combination Agreement or adversely affect the qualification of the
Merger as a tax free reorganization under Section 368 of the Internal Revenue
Code or adversely affect the qualification of the Merger for pooling of
interests accounting treatment. Subject to the terms and conditions of this
Combination Agreement, UPC and INTERIM agree to use all reasonable efforts and
to take, or to cause to be taken, all actions, and to do, or cause to be done,
all things necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective, with reasonable promptness after
the date of this Combination Agreement, the transaction contemplated by the
Combination Agreement, including, without limitation, using reasonable efforts
to lift or rescind any injunction or restraining or other order adversely
affecting, in any material manner, the ability of the Parties to consummate the
AGREEMENT AND PLAN OF COMBINATION - PAGE 44
<PAGE> 177
transaction contemplated by this Combination Agreement. UPC shall use, and
shall cause each of its Subsidiaries to use, its reasonable best efforts to
obtain consents of all third parties and Regulatory Authorities necessary or
desirable for the consummation of each of the transactions contemplated by this
Combination Agreement. UPC agrees that it will, in its capacity as sole
shareholder of INTERIM, vote to approve this Agreement and the Plan of
Combination.
6.2 Registration of UPC Common Stock under the Securities
Laws. UPC shall cooperate with Valley Federal in the preparation of the Valley
Federal Proxy Statement to be used at the Shareholders Meeting (and which shall
serve also as UPC's prospectus with respect to UPC's issuance of shares of the
UPC Common Stock) and shall cause a registration statement on the appropriate
form of the SEC to be prepared and filed so as to cause any shares of UPC
Common Stock which may be delivered to the Valley Federal Record Holders in
payment of the Consideration to be registered under the 1933 Act and to be duly
qualified under appropriate state securities laws. UPC shall also list for
trading on the New York Stock Exchange the UPC Common Stock. Such
registration, qualification and listing shall be effected prior to the Closing.
6.3 Employee Benefits. Except as otherwise contemplated
in the Letter Agreement between the parties of even date herewith, following
the consummation of the transactions contemplated herein, UPC shall not be
obligated to make further contributions to any of the Employee Plans or Benefit
Arrangements of Valley Federal or the Valley Federal Subsidiaries and all
employees of Valley Federal and the Valley Federal Subsidiaries immediately
prior to the Effective Time of the Merger who shall continue as employees of
the Resulting Bank or as employees of any other UPC Subsidiary will be afforded
the opportunity to participate in any employee benefit plans maintained by UPC
or UPC's Subsidiaries, including but not limited to any "employee benefit
plan," as that term is defined in ERISA, on an equal basis with employees of
UPC or any UPC Subsidiaries with comparable positions, compensation, and
tenure. Service with Valley Federal or with any Valley Federal Subsidiary
prior to the Effective Time of the Merger by such former Valley Federal Company
employees will be deemed service with UPC for purposes of determining
eligibility for participation and vesting (but not for any benefit accruals) in
such employee benefit plans of UPC and UPC's Subsidiaries.
6.4 Indemnification. (a) From and after the Effective
Date of the Merger, UPC 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 Date of the Merger, an officer, employee, or director of
Valley Federal, or any of its subsidiaries (the "Indemnified Parties") against
all losses, claims, damages, costs, expenses (including reasonable attorneys'
fees), liabilities or judgments or amounts that are paid in settlement
AGREEMENT AND PLAN OF COMBINATION - PAGE 45
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(which settlement shall require the prior written consent of UPC, which consent
shall not be unreasonably withheld) of or in connection with any claim, action,
suit, proceeding or investigation (a "Claim") in which an Indemnified Party is,
or is threatened to be made, a party or a witness 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 or officer of Valley Federal or any of its subsidiaries if such Claim
pertains to any matter of fact arising, existing, or occuring prior to the
Effective Date of the Merger (including, without limitation, the Merger and
other transactions contemplated by this Agreement or the Plan of Combination)
regardless of whether such Claim is asserted or claimed prior to, at or after
the Effective Date of the Merger (the "Indemnified Liabilities") to the full
extent permitted under applicable federal law as of the date hereof or amended
prior to the Effective Date of the Merger and under the Valley Federal Charter
or Bylaws as in effect on the date hereof (and UPC shall pay expenses in
advance of the full disposition of any such action or proceeding to each of the
Indemnified Parties to the full extent permitted by law and under the Valley
Federal Charter or Bylaws). Any Indemnified Party wishing to claim
indemnification under this provision, upon learning of any claim, shall notify
UPC (but the failure to so notify UPC shall not relieve UPC from any liability
which UPC may have under this section except to the extent UPC is materially
prejudiced thereby). Notwithstanding the foregoing, the Indemnified Parties as
a group may retain only one law firm to represent them with respect to each
matter under this section unless there is, under applicable standards of
professional conduct, a conflict on any one significant issue between the
positions of any two or more Indemnified Parties.
(b) From and after the Effective Date of the Merger, the
directors, officers and employees of Valley Federal and its subsidiaries who
become directors, officers, or employees of UPC or any of its subsidiaries, (i)
except for the indemnification rights set forth in subparagraph (a) above,
shall have indemnification rights with prospective application only and (ii)
shall be covered on a prospective basis by UPC's directors and officers
liability insurance policy on a basis at least equal to the coverage provided
to persons in similar positions at UPC. The prospective indemnification rights
shall consist of such rights to which directors, officers or employees of UPC
are entitled under the provisions of the Charter of UPC, as in effect from time
to time after the Effective Date of the Merger, as applicable, and provisions
of applicable law as in effect from time to time after the Effective Date of
the Merger.
(c) The obligations of UPC provided under this Section 6.4
are intended to benefit, and be enforceable against UPC directly by, the
Indemnified Parties, and shall be binding on all respective successors of UPC.
AGREEMENT AND PLAN OF COMBINATION - PAGE 46
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ARTICLE 7
COVENANTS OF VALLEY FEDERAL
7.1 Proxy Statement; Valley Federal Stockholder Approval.
Valley Federal shall call the Stockholders Meeting to be held as soon as
reasonably practicable after the date of this Combination Agreement and shall
use its best efforts to ensure that such meeting is held not later than 45 days
after the registration has been declared effective by the SEC and proxy
materials cleared by the OTS, for the purpose of (i) approving this Combination
Agreement and the Plan of Combination, and (ii) such other related matters as
it deems appropriate. In connection with the Stockholders Meeting, (i) Valley
Federal shall, with UPC's assistance, prepare a Proxy Statement to be filed
with the OTS as part of UPC's registration statement (which shall be filed with
the SEC) and with any other appropriate Regulatory Authority; shall mail or
cause to be mailed such Proxy Statement to its shareholders and shall provide
UPC the opportunity to review and comment on the Proxy Statement at least five
(5) business days prior to the filing of the Proxy Statement with the
Regulatory Authorities for prior review and at least five (5) business days
prior to the mailing of the Proxy Statement to the Valley Federal Stockholders;
(ii) the Parties shall furnish to each other all information concerning them
that the other Party may reasonably request in connection with the preparation
of such Proxy Statement; (iii) the Board of Directors of Valley Federal shall
recommend (subject to compliance with their legal and fiduciary duties as
advised by outside counsel) to Valley Federal Stockholders the approval of this
Combination Agreement and the Plan of Combination; and (iv) Valley Federal
shall use its best efforts, subject to compliance with its legal and fiduciary
duty as advised by outside counsel, to obtain such Valley Federal Stockholders'
approvals.
7.2 Conduct of Business -- Affirmative Covenants. Unless
the prior written consent of UPC shall have been obtained and, except as
otherwise contemplated herein:
(a) Valley Federal shall, and shall cause each
Valley Federal Subsidiary to:
(i) Operate its business only in the
usual, regular, and ordinary course;
(ii) Preserve intact its business
organizations and assets and to maintain its rights and franchises;
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(iii) Take no action, unless otherwise
required by law, rules or regulation, that would (A) adversely affect the
ability of any of them or UPC to obtain any necessary approvals of Regulatory
Authorities required to consummate the transactions contemplated by this
Combination Agreement, or (B) adversely affect the ability of such Party to
perform its covenants and agreements under this Combination Agreement;
(iv) Except as they may terminate in
accordance with their terms, keep in full force and effect, and not default in
any of their obligations under, all material contracts;
(v) Keep in full force and effect
insurance coverage with responsible insurance carriers which is reasonably
adequate in coverage and amount for companies the size of Valley Federal or
such Valley Federal Subsidiary and for the businesses and properties owned by
each and in which each is engaged, to the extent that such insurance is
reasonably available; and give notice, in accordance with the terms and
conditions of its current policies, of any existing or potential claims arising
out of events and circumstances occuring during the effective time of such
policies.
(vi) Use its best efforts to retain
Valley Federal's present customer base and to facilitate the retention of such
customers by the Resulting Bank and its branches after the Effective Time of
the Merger; and
(vii) Maintain, renew, keep in full force
and effect, and preserve its business organization and material rights and
franchises, permits and licenses, and to use its best efforts to maintain
positive relations with its present employees so that such employees will
continue to perform effectively and will be available to Valley Federal, or UPC
and UPC's Subsidiaries at and after the Effective Time of the Merger, and to
use its best efforts to maintain its existing, or substantially equivalent,
credit arrangements with banks and other financial institutions and to assure
the continuance of Valley Federal's customer relationships;
(b) Valley Federal agrees to use its best efforts
to assist UPC in obtaining the Government Approvals necessary to complete the
transactions contemplated hereby and do not know of any reason that such
Government Approvals cannot be obtained, and Valley Federal shall provide to
UPC or to the appropriate governmental authorities all information reasonably
required to be submitted in connection with obtaining such approvals;
(c) Valley Federal, at its own cost and expense,
shall use its best efforts to secure all necessary consents and all consents
and releases, if any, required of Valley Federal, or third parties and shall
comply with all applicable laws, regulations
AGREEMENT AND PLAN OF COMBINATION - PAGE 48
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and rulings in connection with this Combination Agreement and the consummation
of the transactions contemplated hereby;
(d) At all times until, and as of, the Closing,
Valley Federal shall inform UPC in writing of any and all facts necessary to
amend or supplement the representations and warranties made herein and the
Schedules attached hereto as necessary so that the information contained herein
and therein will accurately reflect the current status of Valley Federal;
provided, however, that any such updates to Schedules shall be required prior
to the Closing only with respect to matters which represent material changes to
the Schedules and the information contained therein; and provided further, that
before such amendment, supplement or update may be deemed to be a part of this
Combination Agreement, UPC shall have agreed in writing to each amendment,
supplement or update to the Schedules made subsequent to the date of this
Combination Agreement as an amendment to this Combination Agreement;
(e) On and after the Closing Date, Valley Federal
shall give such further assistance to UPC and shall execute, acknowledge and
deliver all such documents and instruments as UPC may reasonably request and
take such further action as may be necessary or appropriate effectively to
consummate the transaction contemplated by this Combination Agreement;
(f) Between the date of this Combination
Agreement and the Closing Date, Valley Federal shall afford UPC and its
authorized agents and representatives reasonable access during normal business
hours to the properties, operations, books, records, contracts, documents, loan
files and other information of, or relating to Valley Federal and its
Subsidiaries (other than information with respect to the deliberations of
Valley Federal concerning this Agreement, the Merger and the transactions
contemplated hereby). Valley Federal shall provide reasonable assistance to
UPC in its investigation of matters relating to Valley Federal and its
Subsidiaries; any nonpublic information provided by Valley Federal to UPC shall
be kept confidential by UPC pursuant to the provisions of Section 2.4 herein;
and
(g) Subject to the terms and conditions of this
Combination Agreement, Valley Federal agrees to use all reasonable efforts and
to take, or to cause to be taken, all actions, and to do, or to cause to be
done, all things necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective, with reasonable promptness after
the date of this Combination Agreement, the transaction contemplated by this
Combination Agreement, including, without limitation, using reasonable efforts
to lift or rescind any injunction or restraining or other order adversely
affecting the ability of the Parties to consummate the transaction contemplated
by this Combination Agreement. Valley Federal shall use, and shall cause each
of its Subsidiaries to use, its and their best efforts to obtain consents of
all third parties and
AGREEMENT AND PLAN OF COMBINATION - PAGE 49
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Regulatory Authorities necessary or desirable for the consummation of each of
the transactions contemplated by this Combination Agreement.
(h) Shall cause the Valley Federal Common Stock
to continue at all times through the Effective Time of the Merger to be listed
on the NASDAQ exchange.
7.3 Conduct of Business -- Negative Covenants. From the
date of this Combination Agreement until the earlier of the Effective Time of
the Merger or the termination of this Combination Agreement, Valley Federal
covenants and agrees that it will not do, nor agree or commit to do, nor permit
any Valley Federal Subsidiary to do or commit or agree to do any of the
following without the prior written consent of the chief executive officer,
president, or chief financial officer of UPC, which consent will not be
unreasonably withheld:
(a) Except as expressly contemplated by this
Combination Agreement or the Plan of Combination, amend its Charter or Bylaws;
or
(b) Impose, or suffer the imposition, on any
share of capital stock held by it or by any of its Subsidiaries of any lien,
charge, or encumbrance, or permit any such lien, charge, or encumbrance to
exist; or
(c) (i) Repurchase, redeem, or otherwise acquire
or exchange, directly or indirectly, any shares of its capital stock or other
equity securities or any securities or instruments convertible into any shares
of its capital stock, or any rights or options to acquire any shares of its
capital stock or other equity securities except as expressly permitted by this
Combination Agreement or the Plan of Combination; or (ii) split or otherwise
subdivide its capital stock; or (iii) recapitalize in any way; or (iv) declare
a stock dividend on the Valley Federal Common Stock; or (v) pay any cash
dividend on the Valley Federal Common Stock other than its normal cash dividend
of not more than $0.60 per share, the declaration date of which shall be in
accordance with past practice; or
(d) Except as expressly permitted by this
Combination Agreement, acquire direct or indirect control over any corporation,
association, firm, organization or other entity, other than in connection with
(i) mergers, acquisitions, or other transactions approved in writing by UPC,
(ii) internal reorganizations or consolidations involving existing
Subsidiaries, (iii) foreclosures in the ordinary course of business and not
knowingly exposing it to liability by reason of Hazardous Substances, (iv)
acquisitions of control in its fiduciary capacity, or (v) the creation of new
subsidiaries organized to conduct or continue activities otherwise permitted by
this Combination Agreement; or
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(e) Except as expressly permitted by this
Combination Agreement or the Plan of Combination, to (i) issue, sell, agree to
sell, or otherwise dispose of or otherwise permit to become outstanding any
additional shares of Valley Federal Common Stock, (except upon exercise of a
stock option described in Section 2.7 herein), Valley Federal Preferred Stock
or any other capital stock of Valley Federal or of any Valley Federal
Subsidiary, or any stock appreciation rights, or any option, warrant,
conversion, call, scrip, or other right to acquire any such stock, or any
security convertible into any such stock, unless any such shares of such stock
are directly sold or otherwise directly transferred to Valley Federal or any
Valley Federal Subsidiary, or are issued in connection with any of the
above-described securities encompassed in the Valley Federal Option Plans, or
(ii) sell, agree to sell, or otherwise dispose of any substantial part of the
assets or earning power of Valley Federal or of any Valley Federal Subsidiary;
or (iii) sell, agree to sell, or otherwise dispose of any asset of Valley
Federal or any Valley Federal Subsidiary other than in the ordinary course of
business for reasonable and adequate consideration; or (iv) buy, agree to buy
or otherwise acquire a substantial part of the assets or earning power of any
other Person or entity; or
(f) Incur, or permit any Valley Federal
Subsidiary to incur, any additional debt obligation or other obligation for
borrowed money [other than (i) in replacement of existing short-term debt with
other short-term debt of an equal or lesser amount, or (ii) financing of
banking related activities consistent with past practices,] in excess of an
aggregate of $50,000 (for Valley Federal and its Subsidiaries on a consolidated
basis) except in the ordinary course of the business of Valley Federal or such
Valley Federal Subsidiary consistent with past practices (and such ordinary
course of business shall include, but shall not be limited to, creation of
deposit liabilities, entry into repurchase agreements or reverse repurchase
agreements, purchases or sales of federal funds, Federal Reserve advances, FHLB
advances and sales of certificates of deposit); or
(g) Grant any increase in compensation or
benefits to any of its employees, directors or officers, except in accordance
with past practices or as required by law; pay any bonus except in accordance
with past practices; enter into any severance agreements with any of its
directors, officers or employees; or effect any change in retirement benefits
for any class of its employees, directors or officers, unless such change is
required by applicable law; or
(h) Amend any existing employment contract
between it and any person having a salary thereunder in excess of $30,000 per
year (unless such amendment is required by law) to increase the compensation or
benefits payable thereunder, except that any increase in accordance with past
practices shall be permitted; or to enter into any new employment contract with
any person having an annual salary thereunder in excess of $30,000 that Valley
Federal or its respective successors do not
AGREEMENT AND PLAN OF COMBINATION - PAGE 51
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have the unconditional right to terminate without liability (other than
liability for services already rendered), at any time on or after the Effective
Time of the Merger; or
(i) Adopt any new employee benefit plan or
terminate or make any material change in or to any existing employee benefit
plan other than any change that is required by law or that, in the opinion of
counsel, is necessary or advisable to maintain the tax-qualified status of any
such plan; or
(j) Enter into any new lease agreements that are
material to Valley Federal or any Valley Federal Subsidiary; or
(k) Make any capital expenditure except for
ordinary purchases, repairs, renewals or replacements; or
(l) Enter into any transactions other than in the
ordinary course of business; or
(m) Grant or commit to grant any new extension of
credit to any officer, director or holder of 5% or more of the outstanding
Valley Federal Common Stock, or to any corporation, partnership, trust or other
entity controlled by any such person, if such extension of credit, together
with all other credits then outstanding to the same borrower and all affiliated
persons of such borrower, would exceed two percent (2%) of the capital of
Valley Federal or amend the terms of any such credit outstanding on the date
hereof.
7.4 Conduct of Business -- Certain Actions.
(a) Except to the extent necessary to consummate
the transactions specifically contemplated by this Combination Agreement,
Valley Federal shall not, and shall use its best efforts to ensure that its
respective directors, officers, employees, and advisors do not, directly or
indirectly, institute, solicit, or knowingly encourage (including by way of
furnishing any information not legally required to be furnished) any inquiry,
discussion, or proposal, or participate in any discussions or negotiations
with, or provide any confidential or non-public information to, any
corporation, partnership, person or other entity or group (other than to UPC or
any UPC Subsidiary) concerning any "Acquisition Proposal" (as defined below),
except for actions reasonably considered by the Board of Directors of Valley
Federal, based upon the advice of outside legal counsel, to be required in
order to fulfill its fiduciary obligations. Valley Federal shall notify UPC
immediately if any Acquisition Proposal has been or should hereafter be
received by Valley Federal, such notice to contain, at a minimum, the identity
of such persons, and, subject to disclosure being consistent with the fiduciary
obligations of Valley Federal's Board of Directors, a copy of any written
inquiry, the terms of any proposal or
AGREEMENT AND PLAN OF COMBINATION - PAGE 52
<PAGE> 185
inquiry, any information requested or discussions sought to be initiated, and
the status of any reports, negotiations or expressions of interest. For
purposes of this Section, "Acquisition Proposal" means any tender offer,
agreement, understanding or other proposal of any nature pursuant to which any
corporation, partnership, person or other entity or group, other than UPC or
any UPC Subsidiary, would directly or indirectly (i) acquire or participate in
a merger, share exchange, consolidation or any other business combination
involving Valley Federal; (ii) acquire the right to vote ten percent (10%) or
more of the Valley Federal Common Stock; or (iii) acquire a significant portion
of the assets or earning power of Valley Federal.
(b) As a condition of and as an inducement to
UPC's entering into this Combination Agreement, Valley Federal covenants,
acknowledges, and agrees that it shall be a specific, absolute, and
unconditionally binding condition precedent to Valley Federal's entering into a
letter of intent, agreement in principle, or definitive agreement (whether or
not considered binding, non-binding, conditional or unconditional) with any
third-party with respect to an Acquisition Proposal, or supporting or
indicating an intent to support an Acquisition Proposal, other than this
Combination Agreement and the transactions contemplated in this Combination
Agreement, regardless of whether Valley Federal has otherwise complied with the
provisions of Section 7.4(a) hereof, that Valley Federal or such third-party
which is a party of the Acquisition Proposal shall have paid UPC the sum of
Seven Hundred Fifty Thousand Dollars ($750,000), which sum represents the (i)
direct costs and expenses (including, but not limited to, fees and expenses
incurred by UPC's financial or other consultants, printing costs, investment
bankers, accountants, and counsel) incurred by or on behalf of UPC in
negotiating and undertaking to carry out the transactions contemplated by this
Combination Agreement; and (ii) indirect costs and expenses of UPC in
connection with the transactions contemplated by this Combination Agreement,
including UPC's management time devoted to negotiation and preparation for the
transactions contemplated by this Combination Agreement; and (iii) UPC's loss
as a result of the transactions contemplated by this Combination Agreement not
being consummated. Accordingly, Valley Federal hereby stipulates and covenants
that prior to Valley Federal's entering into a letter of intent, agreement in
principle, or definitive agreement, (whether binding or non-binding,
conditional or unconditional) with any third-party with respect to an
Acquisition Proposal or supporting or indicating an intent to support an
Acquisition Proposal, either Valley Federal or such third-party shall have paid
to UPC the amount set forth above in immediately available funds to satisfy the
specific, absolute, and unconditionally binding condition precedent imposed by
this Section 7.4. Notwithstanding anything to the contrary in this Section
7.4(b), in the event such Acquisition Proposal should be the result of a
hostile takeover of Valley Federal, any sums due UPC hereunder shall be paid
only at the closing of the transactions set forth in such Acquisition Proposal.
UPC acknowledges that under no circumstances shall any officer or director of
Valley Federal) (unless such officer or director shall have an interest in a
potential acquiring party in any Acquisition
AGREEMENT AND PLAN OF COMBINATION - PAGE 53
<PAGE> 186
Proposal) be held personally liable to UPC for any amount of the foregoing
payment. On payment of such amount to UPC, UPC shall have no cause of action
or claim (either in law or equity) whatsoever against Valley Federal, or any
officer or director of Valley Federal, with respect to or in connection with
such Acquisition Proposal, this Combination Agreement or the Plan of
Combination.
(c) The requirements, conditions, and obligations
imposed by this Section 7.4 shall continue in full force and effect from the
date of this Combination Agreement until June 30, 1996, unless and until the
earlier of any of the following events shall occur, in which event Valley
Federal shall not be obligated to pay the amount required by this Section 7.4
as a condition precedent to such transaction:
(1) This Combination Agreement shall
have been terminated (i) mutually by the Parties pursuant to Section 9.1(a) of
this Combination Agreement; (ii) by UPC and INTERIM pursuant to Section 9.1(b)
of this Combination Agreement; (iii) by UPC and INTERIM or Valley Federal
pursuant to Section 9.1(c) of this Combination Agreement; (iv) by UPC and
INTERIM or Valley Federal pursuant to Section 9.1(d) of this Combination
Agreement; (v) by UPC and INTERIM or Valley Federal pursuant to Section 9.1(e)
of this Combination Agreement, and in the case of termination pursuant to
Section 9.1(e), only on the basis of the failure to satisfy the conditions
enumerated in subparagraph (2) below; (vi) by UPC and INTERIM pursuant to
Section 9.1(f) of this Combination Agreement; (vii) by UPC and INTERIM or
Valley Federal pursuant to Section 9.1(g) of this Combination Agreement; (viii)
by UPC and INTERIM pursuant to Section 9.1(i) of this Combination Agreement;
or
(2) In the event the Merger should not
be consummated as a result of the failure to satisfy any of the following
conditions:
(i) Material inaccuracy (without
waiver thereof) of representations and warranties of UPC as contemplated by the
provisions of Section 8.1(b) of this Combination Agreement;
(ii) Noncompliance by UPC or INTERIM
with their respective obligations as required by the provisions of Section
8.1(a) of this Combination Agreement;
(iii) The failure by UPC or INTERIM
to effect all corporate action necessary on their respective parts as required
by the provisions of Section 8.1 of this Combination Agreement, or to satisfy
the conditions set forth in Sections 8.1(d) or 8.1(g) of this Combination
Agreement;
AGREEMENT AND PLAN OF COMBINATION - PAGE 54
<PAGE> 187
(iv) The failure to receive the
requisite approvals as required by the provisions of Section 8.3(b) of this
Combination Agreement other than any such failure arising out of any action or
inaction on the part of Valley Federal ;
(v) The occurrence of material
legal proceedings as contemplated by the provisions of Section 8.3(a) of this
Combination Agreement;
(vi) The failure on the part of
counsel to UPC to deliver the requisite opinion required by the provisions of
Section 8.1(e) of this Combination Agreement; or
(vii) UPC shall have determined not
to consummate the Merger pursuant to Sections 8.2(d), 8.2(e), 8.2 (h), 8.2(j),
or 8.2(k)
(viii) The failure by UPC to deliver
to Valley Federal the certificates contemplated by Section 8.1(c) of this
Combination Agreement.
ARTICLE 8
CONDITIONS TO CLOSING
8.1 Conditions to the Obligations of Valley Federal.
Unless waived in writing by Valley Federal, the obligation of Valley Federal to
consummate the transaction contemplated by this Combination Agreement is
subject to the satisfaction at or prior to the Closing Date of the following
conditions:
(a) Performance. Each of the material acts and
undertakings of UPC and INTERIM to be performed at or prior to the Closing Date
pursuant to this Combination Agreement shall have been duly performed, except
for breaches of acts and undertakings which would not have or would not
reasonably be expected to have, any material adverse effect on the business or
operations of UPC and the UPC subsidiaries taken as a whole;
(b) Representations and Warranties. The
representations and warranties of UPC and INTERIM contained in Article 4 of
this Combination Agreement shall be true and complete, in all material
respects, on and as of the Effective Time of the Merger with the same effect as
though made on and as of the Effective Time of the Merger; except (i) for any
such representations and warranties made as of a specified date, which shall be
true and correct in all material respects as of such date and (ii) for
AGREEMENT AND PLAN OF COMBINATION - PAGE 55
<PAGE> 188
breaches of representations and warranties which would not have, or would not
reasonably be expected to have, a material adverse effect on the business or
operations of UPC and the UPC Subsidiaries taken as a whole;
(c) Documents. In addition to the other
deliveries of UPC or INTERIM described elsewhere in this Combination Agreement,
Valley Federal shall have received the following documents and instruments:
(i) a certificate signed by the
Secretary or an assistant secretary of UPC and INTERIM dated as of the Closing
Date certifying that:
(A) UPC's and INTERIM'S respective
Boards of Directors have duly adopted resolutions (copies of which shall be
attached to such certificate) approving the substantive terms of this
Combination Agreement (including the Plan of Combination) and authorizing the
consummation of the transactions contemplated by this Combination Agreement and
certifying that such resolutions have not been amended or modified and remain
in full force and effect;
(B) each person executing this
Combination Agreement on behalf of UPC or INTERIM is an officer of UPC or
INTERIM, as the case may be, holding the office or offices specified therein
and that the signature of each person set forth on such certificate is his or
her genuine signature;
(C) the charter documents of UPC
and INTERIM attached to such certificate remain in full force and effect; and
(D) UPC and INTERIM are in good
standing under their respective corporate charters; and
(ii) a certificate signed respectively by
duly authorized officers of UPC or INTERIM stating that the conditions set
forth in Section 8.1(a) and Section 8.1(b) of this Combination Agreement have
been fulfilled;
(d) Consideration. Valley Federal shall have
received a certificate executed by an authorized officer of the Exchange Agent
to the effect that the Exchange Agent has received and holds in its possession
certificates evidencing and representing that number of shares of UPC Common
Stock and cash funds sufficient to meet the obligations of UPC to the Valley
Federal Record Holders to deliver the Consideration under this Combination
Agreement and the Plan of Combination; and
AGREEMENT AND PLAN OF COMBINATION - PAGE 56
<PAGE> 189
(e) Opinion of UPC's Counsel. Valley Federal
shall have been furnished with an opinion of counsel to UPC, dated as of the
Closing Date, addressed to and in form and substance satisfactory to Valley
Federal, to the effect that:
(i) UPC is a Tennessee corporation duly
organized, validly existing, and in good standing under the laws of the State
of Tennessee, and INTERIM is a federal savings bank duly organized, validly
existing, and in good standing under the laws of the United States;
(ii) this Combination Agreement has been
duly and validly authorized, executed and delivered by UPC and INTERIM and
(assuming this Combination Agreement is a binding obligation of Valley Federal)
constitutes a valid and binding obligation of UPC and INTERIM enforceable in
accordance with its terms, subject as to enforceability to applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and to the application of
equitable principles and judicial discretion;
(iii) neither the execution and delivery
by UPC or INTERIM of this Combination Agreement nor any of the documents to be
executed and delivered by UPC or INTERIM in connection herewith violates or
conflicts with UPC's or INTERIM's corporate charters or bylaws or, to the best
of the knowledge, information and belief (without making special inquiry) of
such counsel, any material contracts, agreements or other commitments of UPC or
INTERIM;
(iv) to the knowledge of such counsel
after due inquiry, no consent or approval by any Governmental Authority which
has not already been obtained is required for execution and delivery by UPC and
INTERIM of this Combination Agreement or any of the documents to be executed
and delivered by UPC or INTERIM in connection herewith; and
(v) the shares of UPC Common Stock to be
issued in the names of the Valley Federal Record Holders and delivered in
exchange for their shares of Valley Federal Common Stock will be duly
authorized, validly issued, fully paid and non-assessable and are not subject
to preemptive rights;
Such opinion may (i) expressly rely as to matters of fact upon certificates
furnished by appropriate officers of UPC or INTERIM or appropriate government
officials; (ii) in the case of matters of law governed by the laws of the
states in which they are not licensed, reasonably rely upon the opinions of
legal counsel duly licensed in such states and may be limited, in any event, to
Federal Law and the States of Tennessee and Alabama; and (iii) incorporate, be
guided by, and be interpreted in accordance with, the Legal Opinion Accord of
the ABA Section of Business Law (1991).
AGREEMENT AND PLAN OF COMBINATION - PAGE 57
<PAGE> 190
(f) Fairness Opinion. Valley Federal shall have
received a "fairness opinion" letter from Trident Financial Corporation to the
effect that, in the opinion of Trident Financial Corporation the Consideration
to be received by the Valley Federal Record Holders is fair to the shareholders
of Valley Federal from a financial point of view, and such "fairness opinion"
shall be updated and shall not have been withdrawn prior to the Valley Federal
Shareholders meeting, and Valley Federal shall have received an updated
"fairness opinion" letter from Trident Financial Corporation within five (5)
days prior to the Closing Date reinforcing the opinions provided in the initial
"fairness opinion" letter.
(g) Tax Opinion. Valley Federal shall have
received a written opinion from its counsel, Housley Goldberg Kantarian &
Bronstein, to the effect that (i) the Merger will constitute one or more
tax-free reorganizations under Section 368 of the Internal Revenue Code, (ii)
that the Valley Federal Record Holders will not recognize any gain or loss in
the Merger to the extent that such Valley Federal Record Holders exchange
shares of Valley Federal Common Stock solely for shares of UPC Common stock as
contemplated by this Combination Agreement and the Plan of Combination, (iii)
the basis of UPC Common Stock received by a Valley Federal stockholder who
exchanges Valley Federal Common Stock solely for UPC Common Stock in the Merger
will be the same as the basis of the Valley Federal Common Stock surrendered in
exchange therefor (subject to any adjustments required as a result of the
receipt of cash in lieu of a fractional share of UPC common Stock) and (iv) the
holding period of the UPC Common Stock received by a Valley Federal stockholder
in the Merger will include the period during which the Valley Federal Common
Stock surrendered in exchange thereof was held (provided that the Valley
Federal Common Stock of such Valley Federal stockholder was held as a capital
asset at the Effective Date of the Merger).
8.2 Conditions to the Obligations of UPC and INTERIM.
Unless waived in writing by UPC and INTERIM, the obligation of UPC and INTERIM
to consummate the transactions contemplated by this Combination Agreement is
subject to the satisfaction at or prior to the Closing Date of the following
conditions:
(a) Performance. Each of the material acts and
undertakings of Valley Federal to be performed at or before the Closing Date
pursuant to this Combination Agreement shall have been duly performed, except
for breaches of acts and undertakings which would not have, or would not
reasonably be expected to have, any material adverse effect on the business or
operations of Valley Federal and the Valley Federal Subsidiaries taken as a
whole;
(b) Representations and Warranties. The
representations and warranties of Valley Federal contained in Article 5 of this
Combination Agreement shall
AGREEMENT AND PLAN OF COMBINATION - PAGE 58
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be true and correct, in all material respects, on and as of the Closing Date
with the same effect as though made on and as of the Closing Date, except (i)
for any such representations and warranties made as of a specified date, which
shall be true and correct in all material respects as of such date and (ii) for
breaches of representations and warranties which would not have, or would not
reasonably be expected to have, a material adverse effect on the business or
operations of Valley Federal and the Valley Federal Subsidiaries taken as a
whole;
(c) Documents. In addition to the documents
described elsewhere in this Combination Agreement, UPC shall have received the
following documents and instruments:
(i) a certificate signed by the Secretary
or an assistant secretary of Valley Federal dated as of the Closing Date
certifying that:
(A) Not less than two-thirds of the
members of Valley Federal's Board of Directors had duly adopted resolutions
(copies of which shall be attached to such certificate) approving the
substantive terms of this Combination Agreement (including the Plan of
Combination) and authorizing the execution and delivery of this Combination
Agreement and Plan of Combination and the consummation of the transactions
contemplated hereby and thereby, and certifying that such resolutions have not
been amended or modified and remain in full force and effect;
(B) each person executing this
Combination Agreement on behalf of Valley Federal is an officer of Valley
Federal, as the case may be, holding the office or offices specified therein
and that the signature of each person set forth on such certificate is his or
her genuine signature;
(C) the charter documents of Valley
Federal attached to such certificate remain in full force and effect; and
(D) Valley Federal is in good
standing with the OTS under its corporate charter; and
(ii) a certificate signed by the President,
Chief Executive Officer and Chief Financial Officer of Valley Federal stating
that the conditions set forth in Section 8.2(a), Section 8.2(b) and 8.2(e)
(which in the case of (e) shall be such person's opinion, to be reasonably
determined) this Combination Agreement have been satisfied.
AGREEMENT AND PLAN OF COMBINATION - PAGE 59
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(d) Destruction of Property. Between the date of
this Combination Agreement and the Closing Date there shall have been no damage
to or destruction of real property, improvements or personal property of Valley
Federal or any Valley Federal Subsidiary, and no zoning or other order,
limitation or restriction imposed against the same, in case of either such
destruction or imposition which would have a material adverse impact upon the
operations, business or prospects of Valley Federal; provided, however, that
the availability of insurance coverage shall be taken into account in
determining whether there has been such a material adverse impact. In the
event of such damage, destruction, order, limitation or restriction, UPC or
INTERIM may elect either (i) to close the contemplated transaction in
accordance with the terms of this Combination Agreement or (ii) to terminate
this Combination Agreement without penalty;
(e) No Material Adverse Change. No material
adverse change in the business, property, assets (including loan portfolios),
liabilities (whether absolute, contingent or otherwise), prospects, operations,
liquidity, income, or condition (financial or otherwise) of Valley Federal and
its Subsidiaries taken as a whole shall have occurred since the date of this
Combination Agreement, other than any such change attributable to or resulting
from any changes in law, regulation, or generally accepted accounting
principles, changes in interest rates, economic, financial or market conditions
affecting the banking or thrift industry generally or changes that may occur as
a consequence of actions or inactions that either party hereto is expressly
obligated to take under this Agreement. In the event of such a material
adverse change with respect to Valley Federal and its Subsidiaries, UPC and
INTERIM may elect either (i) to close the contemplated transaction in
accordance with the terms of this Combination Agreement or (ii) to terminate
this Combination Agreement without penalty;
(f) Opinion of Valley Federal's Counsel. UPC
shall have been furnished with an opinion of Housley, Goldberg, Kantarian &
Bronstein, P.C., counsel to Valley Federal, dated the Closing Date, addressed
to and in form and substance satisfactory to UPC, to the effect that:
(i) Valley Federal is a federal savings
bank duly organized, validly existing and in good standing under the laws of
the United States of America;
(ii) this Combination Agreement has been
duly and validly authorized, executed and delivered by Valley Federal and
(assuming that this Combination Agreement is a binding obligation of UPC and
INTERIM and the Plan of Combination is a binding obligation of UPC and INTERIM)
constitutes a valid and binding obligation of Valley Federal enforceable in
accordance with its terms, subject as to enforceability to applicable
bankruptcy, insolvency, reorganization, moratorium or similar
AGREEMENT AND PLAN OF COMBINATION - PAGE 60
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laws affecting the enforcement of creditors' rights generally and to the
application of equitable principles and judicial discretion;
(iii) neither the execution and delivery
by Valley Federal of this Combination Agreement nor any of the documents to be
executed and delivered by Valley Federal in connection herewith violates or
conflicts with Valley Federal's corporate charter or bylaws;
(iv) to the actual knowledge of such
counsel, no consent or approval, which has not already been obtained, by any
governmental authority is required for execution and delivery by Valley Federal
of this Combination Agreement or any of the documents to be executed and
delivered by Valley Federal in connection herewith or the consummation of the
Merger contemplated hereby or thereby;
(v) the shares of Valley Federal Common
Stock outstanding are duly authorized and are non-assessable and have not been
issued in violation of any preemptive rights;
Such opinion may (i) expressly rely as to matters of fact upon certificates
furnished by appropriate officers of Valley Federal or appropriate government
officials; (ii) in the case of matters of law governed by the laws of the
states in which they are not licensed, reasonably rely upon the opinions of
legal counsel duly licensed in such states and may be limited, in any event, to
Federal Law and (iii) incorporate, be guided by, and be interpreted in
accordance with, the Legal Opinion Accord of the ABA Section of Business Law
(1991); and
(g) Other Business Combinations etc. Valley
Federal shall not have entered into any agreement, letter of intent,
understanding or other arrangement pursuant to which Valley Federal would
merge; consolidate with; effect a business combination with; sell any
substantial part of Valley Federal's assets or earning power; acquire a
significant part of the shares or assets of any other Person or entity
(financial or otherwise); adopt any "poison pill" or other type of
anti-takeover arrangement, any stockholder rights provision, any "golden
parachute" or similar program which would have the effect of materially
decreasing the value of Valley Federal or the benefits of acquiring the Valley
Federal Common Stock; and
(h) Maintenance of Certain Covenants, Etc. At
the time of Closing: (i) the total assets of Valley Federal shall be at least
$120,000,000; (ii) the tangible equity capital of Valley Federal shall be at
least $9,000,000, the calculation of which shall exclude: (1) reductions to
capital that may result from any extraordinary expenses associated with the
termination of employee benefit plans according to the terms of this Agreement
and the Letter Agreement between the parties of even date
AGREEMENT AND PLAN OF COMBINATION - PAGE 61
<PAGE> 194
herewith, and (2) the anticipated fees and expenses for Trident Financial
Corporation as set forth in the Valley Federal Disclosure Schedule; (iii)
Valley Federal shall not have issued or repurchased from the date hereof any
Valley Federal Common Stock, Valley Federal Preferred Stock, or any other
capital or equity or debt securities of Valley Federal, or any rights to
purchase or repurchase such securities, except as set forth in this Agreement
(therefore, there shall be not more than 396,000 shares of Valley Federal
Common Stock validly issued and outstanding at the Effective Time of the Merger
counting all such shares as may be granted pursuant to any Valley Federal Stock
Options outstanding as of the date of this Combination Agreement); (iv) from
September 30, 1994, there shall have been no extraordinary sale of assets, nor
any investment portfolio restructuring by Valley Federal; Valley Federal shall
not have issued or granted since September 30, 1994 through the Closing Date
any additional shares of restricted or unrestricted Valley Federal Common
Stock, stock appreciation rights or any other rights in connection with the
Valley Federal Stock Option Plan, except as expressly provided for in this
Combination Agreement. The criteria and calculations set forth above shall be
determined in accordance with GAAP assuming that Valley Federal shall have been
operated consistently in the normal course of its business; provided, however,
that the effects of any balance sheet expansion through abnormal, unusual or
out of the ordinary borrowings or by the realization of extraordinary gains or
other income from the disposition of assets or liabilities or through similar
transactions shall be eliminated from the calculations; and provided, further
that any adverse effects of special assessments on members of the Savings and
Loan Insurance Fund (SAIF), or other adverse effects caused by legislation or
other governmental action involving SAIF-insured institutions and the potential
combination of the Bank Insurance Fund (BIF) with SAIF (including tax recapture
of loan loss provisions associated with potential charter conversion
requirements) shall be eliminated from the calculations.
(i) Non-Compete Agreements. Each non-officer
member of the Board of Directors of Valley Federal shall have entered into a
non-compete agreement with UPC substantially in the form of UPC's standard form
of non-compete agreement, attached hereto as Exhibit B, providing for a term of
not less than two (2) years and covering the general geographic region(s) in
which Valley Federal currently operates and does business or has a present
intention to do business.
(j) Pooling of Interests Accounting Treatment.
UPC shall have received (i) from Price Waterhouse, or other independent
accountants acceptable to UPC, a letter dated within five (5) days prior to the
Closing Date, in form and substance acceptable to UPC, stating the accountants'
opinion that, based upon the information furnished to them, the Combination and
Merger should be accounted for by UPC as a "pooling of interests" for financial
statement purposes and that such accounting treatment is in accordance with
generally accepted accounting principles and (ii) from Valley Federal's
regularly retained independent accountants or other independent accountants
AGREEMENT AND PLAN OF COMBINATION - PAGE 62
<PAGE> 195
acceptable to UPC, a letter dated within five (5) days prior to the Closing
Date stating that, upon a review of Valley Federal's books and records, the
accountants are aware of no reason why a business combination, such as the one
contemplated in this Combination Agreement, to which Valley Federal is a party
may not be accounted for as a "pooling of interests" under generally accepted
accounting principles.
(k) Tax Opinion. UPC shall have received a
written opinion from its counsel, Wyatt, Tarrant, & Combs, to the effect that
the Merger will constitute one or more tax-free reorganizations under Section
368 of the Internal Revenue Code and that the Valley Federal Record Holders
will not recognize any gain or loss, in the Merger, to the extent that such
Valley Federal Record Holders exchange shares of Valley Federal Common Stock
solely for shares of UPC Common Stock as contemplated by the Merger.
8.3 Conditions to Obligations of All Parties. The
obligation of each party to effect the transactions contemplated hereby shall
be subject to the fulfillment, at or prior to the Closing, of the following
conditions:
(a) No Pending or Threatened Claims. That no
claim, action, suit, investigation or other proceeding shall be pending or
threatened before any court or governmental agency which presents a substantial
risk of the restraint or prohibition of the transactions contemplated by this
Combination Agreement or the obtaining of material damages or other relief in
connection therewith; and
(b) Governmental Approvals and Acquiescence
Obtained. The Parties hereto shall have received all applicable Governmental
Approvals for the consummation of the transactions contemplated herein and all
waiting periods incidental to such approvals or notices given shall have
expired.
(c) Registration Statement. The registration
statement shall have been declared effective by and shall not be subject to a
stop order of the SEC and, if the offer and sale of UPC Common Stock in the
Merger pursuant to this Combination Agreement is subject to the Blue Sky laws
of any state, shall not be subject to a stop order of any state securities
commission.
(d) Shareholder Approval. This Combination
Agreement and the Plan of Combination shall have been approved by the Valley
Federal Shareholders by the vote required by applicable law.
AGREEMENT AND PLAN OF COMBINATION - PAGE 63
<PAGE> 196
ARTICLE 9
TERMINATION
9.1 Termination. This Combination Agreement and the Plan
of Combination may be terminated at any time prior to the Closing, as follows:
(a) By mutual consent in writing of the Parties;
(b) By UPC or INTERIM, should Valley Federal or
any Valley Federal Subsidiary fail to conduct its business pursuant to Valley
Federal's Covenants made in Article 7;
(c) By UPC, INTERIM or Valley Federal in the
event the Closing shall not have occurred by June 30, 1996 (the "Target
Date"), unless the failure of the Closing to occur shall be due to the failure
of the Party seeking to terminate this Agreement to perform its obligations
hereunder in a timely manner. If UPC shall have filed any and all applications
to obtain the requisite Government Approvals within sixty (60) days of the date
hereof, and if the Closing shall not have occurred solely because of a delay
caused by a government regulatory agency or authority in its review of the
application before it, then Valley Federal shall, upon UPC's written request,
extend the Closing Date until August 31, 1996.
(d) By either UPC, INTERIM or Valley Federal,
upon written notice to the other Party, upon denial of any Governmental
Approval necessary for the consummation of the Merger (or should such approval
be conditioned upon a substantial deviation from the transaction contemplated);
provided, however, that either UPC or Valley Federal may, upon written notice
to the other, extend the term of this Combination Agreement for only one sixty
(60) day period to prosecute diligently and overturn such denial, provided that
such denial has been appealed within ten (10) business days of the receipt
thereof;
(e) By UPC or INTERIM if the conditions set forth
in Sections 8.2 or 8.3 are not satisfied in all material respects as of the
Closing Date, or by Valley Federal if the conditions set forth in Section 8.1
or 8.3 are not satisfied in all material respects as of the Closing Date, and
such failure has not been waived prior to the Closing;
(f) By UPC or INTERIM upon the occurrence of any
event or circumstance which may have the effect of limiting or restricting
UPC's voting power or
AGREEMENT AND PLAN OF COMBINATION - PAGE 64
<PAGE> 197
other rights normally enjoyed by the registered holders of the Valley Federal
Common Stock which are the subject of the instant transaction;
(g) By UPC, INTERIM or Valley Federal in the
event that there shall have been a material breach of any obligation of the
other Party hereunder and such breach shall not have been remedied within
thirty (30) days after receipt by the breaching Party of written notice from
the other Party specifying the nature of such breach and requesting that it be
remedied;
(h) By UPC or INTERIM should Valley Federal or
any Valley Federal Subsidiary enter into any letter of intent or agreement with
a view to being acquired by or effecting a business combination with any other
Person; or any agreement to merge, to consolidate, to combine or to sell a
material portion of its assets or to be acquired in any other manner by any
other Person or to acquire a material amount of assets or a material equity
position in any other Person, whether financial or otherwise; or
(i) By UPC or INTERIM should Valley Federal or
any Valley Federal Subsidiary enter into any formal agreement, letter of
understanding, memorandum or other similar arrangement with any bank regulatory
authority establishing a formal capital plan requiring Valley Federal to raise
additional capital or to sell a substantial portion of its assets.
If a Party should elect to terminate this Combination Agreement pursuant to
subsections (b), (c), (d), (e), (f), (g), (h), or (i) of this Section 9.1, it
shall give notice to the other Party, in writing, of its election in the manner
prescribed in Section 10.1 ("Notices") of this Combination Agreement.
9.2 Effect of Termination. In the event that this
Combination Agreement should be terminated pursuant to Section 9.1 hereof, all
further obligations of the Parties under this Combination Agreement shall
terminate without further liability of any Party to another; provided, however,
that the provisions of (i) the last sentence of Section 2.4 (relating to
confidentiality), (ii) Section 10.6 (Publicity), (iii) Section 10.11 (Payment
of Expenses), and (iv) Section 10.12 (Finders and Brokers) shall survive any
such termination; and provided further, that a termination under Section 9.1
hereof shall not relieve any Party of any liability for a breach of this
Combination Agreement or for any misstatement or misrepresentation made
hereunder prior to such termination, or be deemed to constitute a waiver of any
available remedy for any such breach, misstatement or misrepresentation.
AGREEMENT AND PLAN OF COMBINATION - PAGE 65
<PAGE> 198
ARTICLE 10
GENERAL PROVISIONS
10.1 Notices. Any notice, request, demand and other
communication which either Party hereto may desire or may be required hereunder
to give shall be in writing and shall be deemed to be duly given if delivered
personally or mailed by certified or registered mail (postage prepaid, return
receipt requested), air courier or facsimile transmission, addressed or
transmitted to such other Party as follows:
<TABLE>
<S> <C>
If to Valley Federal: Valley Federal Savings Bank
501 North Montgomery
Sheffield, AL 35660
Attn: Billy Don Anderson, President
Phone: (205) 383-1101
Fax: (205) 386-8628
With a copy to: Housley, Goldberg, Kantarian & Bronstein, P.C.
1220 19th Street, N.W., Suite 700
Washington, D.C. 20036
Attn: Leonard S. Volin
Phone: (202) 822-9611
Fax: (202) 822-0140
If to UPC: Union Planters Corporation
P.O. Box 387 (mailing address)
Memphis, Tennessee 38147
OR
7130 Goodlett Farms Parkway (deliveries)
Memphis, Tennessee 38018
Attn: Jackson W. Moore, President and
E. James House, Jr., Manager, Legal Division
Fax: (901) 383-2877
With copies to: Wyatt, Tarrant & Combs
6075 Poplar Avenue
Suite 650
</TABLE>
AGREEMENT AND PLAN OF COMBINATION - PAGE 66
<PAGE> 199
Memphis, TN 38119
Attention: R. Nash Neyland
Phone: (901) 527-1023 (direct)
Fax: (901) 537-1010
or to such other address as any Party hereto may hereafter designate to the
other Parties in writing. Notice shall be deemed to have been given on the
date reflected in the proof or evidence of delivery, or if none, on the date
actually received.
10.2 Assignability and Parties in Interest. This
Combination Agreement shall not be assignable by any of the Parties hereto;
provided, however, that UPC may assign, set over and transfer all, or any part
of its rights and obligations under this Combination Agreement to any one or
more of its present or future Affiliates; provided, however, such assignment
shall not change the form or nature of Consideration to be received by the
Valley Federal Shareholders. Except as provided herein, in Section(s) 2.7 and
6.4, this Combination Agreement is not intended to confer upon any other person
not a Party to this Combination Agreement any rights or remedies hereunder, and
this Combination Agreement shall inure to the benefit of, and be binding only
upon the Parties hereto and their respective successors and permitted assigns
and no other Persons.
10.3 Governing Law. This Combination Agreement shall be
governed by, and construed and enforced in accordance with, the internal laws,
and not the laws pertaining to choice or conflicts of laws, of the State of
Tennessee, unless and to the extent that federal law controls. Any dispute
arising between the Parties in connection with the transactions which are the
subject of this Combination Agreement shall be heard in a court of competent
jurisdiction located in Shelby County, Tennessee.
10.4 Counterparts. This Combination Agreement may be
executed simultaneously in one or more counterparts, each of which shall be
deemed an original, but all of which shall constitute but one and the same
instrument.
10.5 Best Efforts. Valley Federal, UPC and INTERIM each
agrees to use its best efforts to complete the transactions contemplated by
this Combination Agreement; provided, however, that the use of best efforts by
UPC shall not obligate UPC to obtain or to provide Valley Federal additional
capital in an amount, to divest any Subsidiary or branch, or to meet any other
condition which may be imposed by any Regulatory Authority as a condition to
approval which UPC shall deem, in good faith, to be unreasonable in the
circumstances.
10.6 Publicity. The Parties agree that press releases and
other public announcements to be made by any of them with respect to the
transactions contemplated hereby shall be subject to mutual agreement.
Notwithstanding the foregoing, each of the
AGREEMENT AND PLAN OF COMBINATION - PAGE 67
<PAGE> 200
Parties hereto may respond to inquiries relating to this Combination Agreement
and the transactions contemplated hereby by the press, employees or customers
without any notice or further consent of the other Parties.
10.7 Entire Agreement. This Combination Agreement,
together with the Plan of Combination which is Exhibit A hereto, the Letter
Agreement between the Parties dated as of the date hereof, the Schedules,
Annexes, Exhibits and certificates required to be delivered hereunder and any
amendments or addenda hereafter executed and delivered in accordance with
Section 10.9 hereof constitute the entire agreement of the Parties hereto
pertaining to the transaction contemplated hereby and supersede all prior
written and oral (and all contemporaneous oral) agreements and understandings
of the Parties hereto concerning the subject matter hereof. The Schedules,
Annexes, Exhibits and certificates attached hereto or furnished pursuant to
this Combination Agreement are hereby incorporated as integral parts of this
Combination Agreement.
10.8 Severability. If any portion or provision of this
Combination Agreement should be determined by a court of competent jurisdiction
to be invalid, illegal or unenforceable in any jurisdiction, such portion or
provision shall be ineffective as to that jurisdiction to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
validity or enforceability of the remaining portions or provisions hereof in
such jurisdiction or rendering that or any other portions or provisions of this
Combination Agreement invalid, illegal or unenforceable in any other
jurisdiction.
10.9 Modifications, Amendments and Waivers. At any time
prior to the Closing or termination of this Combination Agreement, the Parties
may, solely by written agreement executed by their duly authorized officers:
(a) extend the time for the performance of any of
the obligations or other acts of the other Party hereto;
(b) waive any inaccuracies in the representations
and warranties made by the other Party contained in this Combination Agreement
or in the Annexes, Schedules or Exhibits hereto or any other document delivered
pursuant to this Combination Agreement;
(c) waive compliance with any of the covenants or
agreements of the other Party contained in this Combination Agreement; and
(d) amend or add to any provision of this
Combination Agreement or the Plan of Combination; provided, however, that no
provision of this Combination Agreement may be amended or added to except by an
agreement in writing signed by
AGREEMENT AND PLAN OF COMBINATION - PAGE 68
<PAGE> 201
the Parties hereto or their respective successors in interest and expressly
stating that it is an amendment to this Combination Agreement.
10.10 Interpretation. The headings contained in this
Combination Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Combination Agreement.
10.11 Payment of Expenses. Except as set forth herein, UPC
and Valley Federal shall each pay its own fees and expenses (including, without
limitation, legal fees and expenses) incurred by it in connection with the
transactions contemplated hereunder.
10.12 Finders and Brokers. UPC and Valley Federal
represent and warrant to each other that they have employed no broker or finder
in connection with the transactions described in this Combination Agreement
under an arrangement pursuant to which a fee is, or may be due to such broker
or finder as a result of the execution of this Combination Agreement or the
closing of the transaction contemplated herein, except with respect to Valley
Federal and Trident Financial Corporation, which arrangements shall be
specifically disclosed in the Valley Federal Disclosure Schedule. This section
shall survive the termination of this Combination Agreement.
10.13 Equitable Remedies. The Parties hereto agree that,
in the event of a breach of this Combination Agreement by Valley Federal, UPC
and INTERIM will be without an adequate remedy at law by reason of the unique
nature of Valley Federal. In recognition thereof, in addition to (and not in
lieu of) any remedies at law which may be available to UPC and INTERIM, UPC and
INTERIM shall be entitled to obtain equitable relief, including the remedies of
specific performance and injunction, in the event of a breach of this
Combination Agreement by Valley Federal, and no attempt on the part of UPC or
INTERIM to obtain such equitable relief shall be deemed to constitute an
election of remedies by UPC or INTERIM which would preclude UPC or INTERIM from
obtaining any remedies at law to which it would otherwise be entitled. Valley
Federal covenants that it shall not contend in any such proceeding that UPC or
INTERIM is not entitled to a decree of specific performance by reason of having
an adequate remedy at law.
10.14 Attorneys' Fees. If any Party hereto shall bring an
action at law or in equity to enforce its rights under this Combination
Agreement (including an action based upon a misrepresentation or the breach of
any warranty, covenant, agreement or obligation contained herein), the
prevailing Party in such action shall be entitled to recover from the other
Party its reasonable costs and expenses necessarily incurred in connection with
such action (including fees, disbursements and expenses of attorneys and costs
of investigation).
AGREEMENT AND PLAN OF COMBINATION - PAGE 69
<PAGE> 202
10.15 Survival of Representations and Warranties. All
representations and warranties made by the Parties hereto or in any instrument
or document furnished in connection herewith, shall survive the Closing, and
any investigation at any time made by or on behalf of the Parties hereto, and
shall expire at the Effective Time of the Merger. However, as to any matter
which is based upon willful fraud, the representations and warranties set forth
in this Combination Agreement shall expire only upon expiration of the
applicable statutes of limitation. Nothing in this Section 10.15 shall limit
Valley Federal's, UPC's or INTERIM'S rights or remedies for misrepresentations,
breaches of this Combination Agreement or any other improper action or inaction
by the other Party hereto prior to the its termination. All obligations,
agreements, covenants, and undertakings of the Parties hereto to be performed
either in whole or in part after the Effective Time of the Merger shall survive
the Closing and shall not expire at the Effective Time of the Merger.
10.16 No Waiver. No failure, delay or omission of or by
any Party in exercising any right, power or remedy upon any breach or default
of any other Party shall impair any such rights, powers or remedies of the
Party not in breach or default, nor shall it be construed to be a waiver of any
such right, power or remedy, or an acquiescence in any similar breach or
default; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
Party of any provisions of this Combination Agreement must be in writing and
must be executed by the Parties to this Combination Agreement and shall be
effective only to the extent specifically set forth in such writing.
10.17 Remedies Cumulative. All remedies provided in this
Combination Agreement, by law or otherwise, shall be cumulative and not
alternative.
SIGNATURES APPEAR ON THE FOLLOWING PAGE
AGREEMENT AND PLAN OF COMBINATION - PAGE 70
<PAGE> 203
IN WITNESS WHEREOF, each of the Parties hereto has duly
executed and delivered this Combination Agreement or has caused this
Combination Agreement to be executed and delivered in its name and on its
behalf by its representative thereunto duly authorized, all as of the date
first written above.
VALLEY FEDERAL SAVINGS BANK
ATTEST:
/s/ Martha P. Smith By: /s/ Billy Don Anderson
- -------------------------------- ----------------------------------
MARTHA P. SMITH, Secretary BILLY DON ANDERSON
Its: President and
Chief Executive Officer
UNION PLANTERS CORPORATION
ATTEST:
/s/ E. James House, Jr. By: /s/ Jackson W. Moore
- -------------------------------- ----------------------------------
E. JAMES HOUSE, JR., Secretary JACKSON W. MOORE
Its: President and
Chief Operating Officer
VALLEY INTERIM FEDERAL SAVINGS
BANK, a federal savings bank in
Organization
ATTEST:
/s/ E. James House, Jr. By: /s/ Jackson W. Moore
- -------------------------------- ----------------------------------
E. JAMES HOUSE, JR., Secretary JACKSON W. MOORE
Its: President
AGREEMENT AND PLAN OF COMBINATION - PAGE 71
<PAGE> 204
EXHIBIT A
PLAN OF COMBINATION
SETTING FORTH THE PLAN OF COMBINATION
OF
VALLEY INTERIM FEDERAL SAVINGS BANK, A FEDERAL SAVINGS BANK
(IN ORGANIZATION)
WITH AND INTO
VALLEY FEDERAL SAVINGS BANK
(A FEDERAL SAVINGS BANK)
THIS PLAN OF COMBINATION ("Plan of Combination") is made and entered
into as of the _______ day of _____________ ___________, 19_______, by and
among VALLEY FEDERAL SAVINGS BANK ("Valley Federal"), a federal savings bank
chartered and existing under the laws of the United States of America and whose
principal offices are located at 501 North Montgomery, Sheffield, Alabama
35660; UNION PLANTERS CORPORATION ("UPC"), a corporation organized and existing
under the laws of the State of Tennessee having its principal office at 7130
Goodlett Farms Parkway, Cordova, Shelby County, Tennessee 38018 and which is
registered both as a bank holding company and a savings and loan holding
company; and VALLEY INTERIM FEDERAL SAVINGS BANK, A FEDERAL SAVINGS BANK (IN
ORGANIZATION) ("INTERIM"), a federal savings bank chartered and existing under
the laws of the United States of America, whose principal place of business is
located at 7130 Goodlett Farms Parkway, Cordova, Shelby County, Tennessee
38018, and which is a wholly-owned subsidiary of UPC. All of the authorized,
issued and outstanding shares of capital stock of INTERIM shall be owned and
held of record by UPC.
PREAMBLE
WHEREAS, UPC, INTERIM, and Valley Federal have entered into an
Agreement and Plan of Combination dated as of the 1st day of November, 1996,
("Combination Agreement") to which this Plan of Combination is Exhibit A and is
incorporated by reference as a part thereof providing for the merger of INTERIM
with and into Valley Federal (the "Resulting Bank") and the acquisition of all
of the Valley Federal
PLAN OF COMBINATION - EXHIBIT A TO AGREEMENT AND PLAN OF COMBINATION
PAGE 72
<PAGE> 205
Common Stock outstanding immediately prior to the Effective Time of the Merger
by UPC for the Consideration set forth in the Combination Agreement; and
WHEREAS, As provided in the Combination Agreement, UPC has caused
INTERIM to join in this Plan of Combination by executing and delivering same;
and
WHEREAS, The Boards of Directors of UPC, INTERIM, and Valley Federal
are each of the opinion that the interests of their respective corporations and
their corporations' respective shareholders would best be served if INTERIM
were to be merged with and into Valley Federal, which would survive the Merger,
on the terms and conditions provided in the Combination Agreement and in this
Plan of Combination, and as a result of such Merger becoming effective, the
Resulting Bank would become a wholly-owned subsidiary of UPC.
NOW, THEREFORE, in consideration of the covenants and agreements of
the Parties contained herein, Valley Federal, UPC, and INTERIM hereby make,
adopt and approve this Plan of Combination in order to set forth the terms and
conditions for the merger of INTERIM with and into Valley Federal (the
"Merger").
ARTICLE I.
DEFINITIONS
1.1 As used in this Plan of Combination and in any amendments
hereto, all capitalized terms herein shall have the meanings assigned to such
terms in the Combination Agreement unless otherwise defined herein.
ARTICLE 2
CAPITALIZATION
2.1 VALLEY INTERIM FEDERAL SAVINGS BANK, a federal savings bank
(in organization). The authorized capital stock of INTERIM shall consist of
1,000 shares of common stock having a par value of $1.00 per share (the
"INTERIM Common Stock") and no shares of preferred stock. As of the date of
this Plan of Combination, all 1,000 shares of INTERIM Common Stock are to be
issued to UPC. Therefore, all such issued and outstanding shares of INTERIM
Common Stock shall be owned beneficially and of record by UPC.
2.2 UNION PLANTERS CORPORATION. The authorized capital stock of
UPC consists of 10,000,000 shares of preferred stock having no par value (the
"UPC Preferred
PLAN OF COMBINATION - EXHIBIT A TO AGREEMENT AND PLAN OF COMBINATION
PAGE 73
<PAGE> 206
Stock"), and 100,000,000 shares of common stock having a par value of $5.00 per
share (the "UPC Common Stock"). As of September 30, 1995, UPC had issued and
outstanding: 44,000 shares of $8.00 Nonredeemable, Cumulative, Convertible
Preferred Stock, Series B; No (0) shares of 10-3/8% Increasing Rate,
Redeemable, Cumulative Preferred Stock, Series C; No (0) shares of 9.5%
Redeemable, Cumulative, Convertible Preferred Stock, Series D; and 3,496,419
shares of 8% Cumulative, Convertible Preferred Stock, Series E. In addition,
250,000 shares of UPC Series A Preferred Stock have been reserved for issuance
as Series A Preferred Stock pursuant to the UPC Share Purchase Rights Agreement
dated January 19, 1989, between UPC and Union Planters National Bank as Rights
Agent (the "UPC Share Purchase Rights Agreement"). As of September 30, 1995,
41,298,627 shares of UPC Common Stock were validly issued and outstanding.
2.3 The authorized capital stock of Valley Federal consists of
8,000,000 shares of common stock having a par value of $0.01 per share (the
"Valley Federal Common Stock") and 2,000,000 shares of preferred stock having a
par value of $0.01 per share (the "Valley Federal Preferred Stock). As of the
date hereof, 1,574,843 shares of Valley Federal Common Stock were issued and
outstanding, no shares of Valley Federal Common Stock were held by Valley
Federal as Valley Federal Treasury Stock and no shares of Valley Federal
Preferred Stock were issued and outstanding.
ARTICLE 3
PLAN OF COMBINATION
3.1 Constituent Corporations. The name of each constituent
corporation to the Merger is:
VALLEY INTERIM FEDERAL SAVINGS BANK,
A FEDERAL SAVINGS BANK (IN ORGANIZATION)
and
VALLEY FEDERAL SAVINGS BANK, A FEDERAL SAVINGS BANK
3.2 Resulting Bank. The Resulting Bank shall be:
VALLEY FEDERAL SAVINGS BANK
which as of the Effective Time of the Merger shall continue to be named:
VALLEY FEDERAL SAVINGS BANK
PLAN OF COMBINATION - EXHIBIT A TO AGREEMENT AND PLAN OF COMBINATION
PAGE 74
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3.3 Terms and Conditions of Merger. The Merger shall be
consummated only pursuant to, and in accordance with this Plan of Combination
and the Combination Agreement. Conditioned upon the satisfaction or lawful
waiver (by the Party or Parties entitled to the benefit thereof) of all
conditions precedent to consummation of the Merger, the Merger will become
effective on the date and at the time (the "Effective Time of the Merger") of
the filing of Articles of Combination with the Office of Thrift Supervision, or
at such later time and/or date as may be agreed upon by the parties and set
forth in the Articles of Combination. The Merger shall not become effective
unless and until it is approved by the Office of Thrift Supervision. At the
Effective Time of the Merger, INTERIM shall be merged with and into Valley
Federal which will survive the Merger, and the separate existence of INTERIM
shall cease thereupon, and without further action, Valley Federal shall
thereafter possess all of the assets, rights, privileges, appointments, powers,
licenses, permits and franchises of both Valley Federal and INTERIM, whether of
a public or private nature, and shall be subject to all of the liabilities,
restrictions, disabilities, and duties of both Valley Federal and INTERIM.
3.4 Charter. Immediately subsequent to the Effective Time of the
Merger, the Charter of Valley Federal, as in effect immediately prior to the
Effective Time of the Merger, shall constitute the Charter of Valley Federal as
the Resulting Bank, unless and until the same shall be amended as provided by
law and the terms of such Charter.
3.5 Bylaws. Immediately subsequent to the Effective Time of the
Merger, the Bylaws of Valley Federal, as in effect immediately prior to the
Effective Time of the Merger, shall continue to be its Bylaws as the Resulting
Bank, unless and until amended or repealed as provided by law, its Charter and
such Bylaws.
3.6 Directors and Officers. The directors of the Resulting Bank
from and after the Effective Time shall be seven (7) in number and shall be
those persons whose name, residence address and terms of office are identified
in Exhibit 1 hereto. The officers of the Resulting Bank from and after the
Effective Time shall be those individuals serving as officers of Valley Federal
immediately prior to the Effective Time and shall continue in office until
their successors are duly elected or otherwise duly selected.
3.7 Name. The name of Valley Federal as the Resulting Bank
following the Merger, shall remain:
VALLEY FEDERAL SAVINGS BANK
A FEDERAL SAVINGS BANK
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3.8 Savings Accounts. All savings accounts of Valley Federal
immediately prior to the Effective Time of the Merger shall continue to be
savings accounts in the Resulting Bank after consummation of the Merger without
any change whatsoever in any of the provisions of such savings accounts,
including, without limitation, their respective terms, maturity, minimum
required balances or withdrawal value.
3.9 Liquidation Account. The liquidation account of Valley
Federal as in effect as of the Effective Time of the Merger shall be unaffected
by the Merger and shall continue in existence as the liquidation account of the
Resulting Bank.
3.10 Principal Office. The home office of the Resulting Bank shall
be located at 501 North Montgomery, Sheffield, Alabama 35660. The branch
offices of the Resulting Bank will be located at the locations set forth in
Exhibit 2 hereof.
ARTICLE 4
DESCRIPTION OF THE TRANSACTION
4.1 Conversion of the INTERIM Common Stock. At the Effective Time
of the Merger, each share of $1.00 par value common stock of INTERIM (the
"INTERIM Common Stock") issued and outstanding immediately prior to the
Effective Time of The Merger shall, by virtue of the Merger becoming effective
and without any further action on the part of anyone, be converted into and
become one share of the issued and outstanding common stock of the Resulting
Bank.
4.2 Conversion and Cancellation of Shares of Valley Federal. At
the Effective Time of the Merger, each share of $0.01 par value common stock of
Valley Federal issued and outstanding immediately prior to the Effective Time
of the Merger shall, by virtue of the Merger becoming effective and without any
further action on the part of anyone, be converted, exchanged and cancelled as
provided in Section 4.3 hereof.
4.3 Exchange of Valley Federal Shares; Exchange Ratio. At the
Effective Time of the Merger, the outstanding shares of Valley Federal Common
Stock held by the Valley Federal Record Holders immediately prior to the
Effective Time of the Merger shall, without any further action on the part of
anyone, cease to represent any interest (equity, shareholder or otherwise) in
Valley Federal and shall automatically be converted exclusively into, and
constitute only the right of the Valley Federal Record Holders to receive in
exchange for their shares of Valley Federal Common Stock, whole shares of UPC
Common Stock (including the corresponding number of rights associated with the
UPC Common Stock pursuant to the UPC Share Purchase Rights Agreement and any
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cash payment made by UPC in settlement of any remaining fractional share of UPC
Common Stock in accordance with the terms and conditions of this Section 4.3.
The shares of UPC Common Stock and the cash settlement of any remaining
fractional share of UPC Common Stock deliverable by UPC to the Valley Federal
Record Holders pursuant to the terms of this Plan of Combination and the
Combination Agreement are sometimes collectively referred to herein as the
"Consideration."
The number of shares of UPC Common Stock to be exchanged for each share of
Valley Federal Common Stock issued and outstanding immediately prior to the
Effective Time of the Merger shall be determined by applying an exchange ratio
(the "Exchange Ratio") to each share of Valley Federal Common Stock issued and
outstanding at the Effective Time of the Merger. The Exchange Ratio shall be
equal to the quotient of Thirty-seven and 50/100 Dollars ($37.50) divided by
the price per share for the "last" real time trade i.e. closing price) of UPC
Common Stock on the NYSE (as published in the Wall Street Journal) on the date
of execution of the Combination Agreement.
The Exchange Ratio shall be based on an aggregate of no more than 396,000 fully
diluted shares of Valley Federal Common Stock issued and outstanding
immediately prior to the Effective Time of the Merger which, for purposes of
this paragraph, shall be determined by counting all Options issued and
outstanding immediately prior to the Effective Time of the Merger as shares of
Valley Federal Common Stock); and further based on the assumption that there
shall be no shares of $0.01 par value serial preferred stock ("Valley Federal
Preferred Stock") outstanding and no other options, warrants, rights or other
instruments outstanding or subject to issuance which are convertible into or
otherwise represent the right to acquire any Valley Federal Common Stock,
Valley Federal Preferred Stock or any other capital stock of Valley Federal.
No fractional shares of UPC Common Stock shall be issued and if, after
aggregating all of the shares of UPC Common Stock to which a Valley Federal
Record Holder is entitled based upon the Exchange Ratio, there shall be a
fractional share of UPC Common Stock remaining, such fractional share shall be
settled by a cash payment therefor pursuant to the Mechanics of Payment of the
Purchase Price set forth herein, which shall be calculated based upon tlast
sale price per share of one (1) full share of UPC Common Stock on the NYSE on
the Closing Date.
Should either UPC or Valley Federal effect any stock splits, reverse stock
splits, stock dividends or similar changes in their respective capital accounts
subsequent to the date of this Combination Agreement but prior to the Effective
Time of the Merger, the Exchange Ratio shall be adjusted in such a manner as
the Board of Directors of UPC shall deem in good faith to be fair and
reasonable in order to give effect to such changes.
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4.4 Mechanics of Payment of Purchase Price. As soon as reasonably
practicable after the Effective Time of the Merger, the Corporate Trust
Department of Union Planters National Bank, Memphis, Tennessee (the "Exchange
Agent") shall deliver to each of the Valley Federal Record Holders such
materials and information as may be deemed necessary by the Exchange Agent to
advise the Valley Federal Record Holders of the procedures required for proper
surrender of their certificates evidencing and representing shares of the
Valley Federal Common Stock in order for the Valley Federal Record Holders to
receive the Consideration. Such materials shall include, without limitation, a
Letter of Transmittal, an Instruction Sheet, and a return mailing envelope
addressed to the Exchange Agent (collectively the "Shareholder Materials").
All Shareholder Materials shall be sent by United States mail to the Valley
Federal Record Holders at the addresses set forth on a certified shareholder
list to be delivered by Valley Federal to UPC at the Closing (the "Shareholder
List"). As soon as reasonably practicable thereafter, the Valley Federal
Record Holders of all of the outstanding shares of Valley Federal Common Stock,
shall deliver, or cause to be delivered, to the Exchange Agent, pursuant to the
Shareholder Materials, the certificates evidencing and representing all of the
shares of Valley Federal Common Stock which were validly issued and outstanding
immediately prior to the Effective Time of the Merger, and the Exchange Agent
shall take prompt action to process such certificates formerly evidencing and
representing shares of Valley Federal Common Stock received by it (including
the prompt return of any defective submissions with instructions as to those
actions which may be necessary to remedy any defects). Upon receipt of the
proper submission of the certificate(s) formerly representing and evidencing
ownership of the shares of Valley Federal Common Stock, the Exchange Agent
shall, on or prior to the 30th day after the Effective Time of the Merger, mail
to the former Valley Federal Stockholders in exchange for the certificate(s)
surrendered by them, the Consideration to be paid for each such Valley Federal
Shareholder's shares of Valley Federal Common Stock evidenced by the
certificate or certificates which were cancelled and converted exclusively into
the right to receive the Consideration upon the Merger becoming effective.
After the Effective Time of the Merger and until properly surrendered to the
Exchange Agent, each outstanding certificate or certificates which formerly
evidenced and represented the shares of Valley Federal Common Stock of a Valley
Federal Record Holder, subject to the provisions of this Section 4.4, shall be
deemed for all corporate purposes to represent and evidence only the right to
receive the Consideration into which such Valley Federal Record Holder's shares
of Valley Federal Common Stock were converted and aggregated at the Effective
Time of the Merger. Unless and until the outstanding certificate or
certificates, which immediately prior to the Effective Time of the Merger
evidenced and represented the Valley Federal Record Holder's Valley Federal
Common Stock shall have been surrendered as provided above, the Consideration
payable to the Valley Federal Record Holder(s) of the cancelled shares as of
any time after the Effective Date shall not be paid to the Valley Federal
Record Holder(s) of such certificate(s) until such certificates shall
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have been surrendered in the manner required. Each Valley Federal Shareholder
will be responsible for all federal, state and local taxes which may be
incurred by him on account of his receipt of the Consideration to be paid in
the Merger. The Valley Federal Record Holder(s) of any certificate(s) which
shall have been lost or destroyed may nevertheless, subject to the provisions
of this Section, receive the Consideration to which each such Valley Federal
Record Holder is entitled, provided that each such Valley Federal Record Holder
shall deliver to UPC and to the Exchange Agent: (i) a sworn statement
certifying such loss or destruction and specifying the circumstances thereof
and (ii) a lost instrument bond in form satisfactory to UPC and the Exchange
Agent which has been duly executed by a corporate surety satisfactory to UPC
and the Exchange Agent, indemnifying the Resulting Bank, UPC, the Exchange
Agent (and their respective successors) to their satisfaction against any loss
or expense which any of them may incur as a result of such lost or destroyed
certificates being thereafter presented. Any costs or expenses which may arise
from such replacement procedure, including the premium on the lost instrument
bond, shall be for the account of the Valley Federal Shareholder.
4.5 Stock Transfer Books. At the Effective Time of the Merger,
the stock transfer books of Valley Federal shall be closed and no transfer of
shares of Valley Federal Common Stock shall be made thereafter.
4.6 Effects of the Merger. As of the Effective Time of the
Merger, the separate existence of INTERIM shall cease, and INTERIM shall be
merged with and into Valley Federal which, as the Resulting Bank, shall
thereupon and thereafter possess all of the assets, rights, privileges,
appointments, powers, licenses, permits and franchises of the two merged
corporations, whether of a public or a private nature, and shall be subject to
all of the liabilities, restrictions, disabilities and duties of both Valley
Federal and INTERIM.
4.7 Transfer of Assets. At the Effective Time of the Merger, all
rights, assets, licenses, permits, franchises and interests of Valley Federal
and INTERIM in and to every type of property, whether real, personal, or mixed,
whether tangible or intangible, and to choses in action shall be deemed to be
vested in Valley Federal as the Resulting Bank by virtue of the Merger and
without any deed or other instrument or act of transfer whatsoever.
4.8 Assumption of Liabilities. At the Effective Time of the
Merger, the Resulting Bank shall become and be liable for all debts,
liabilities, obligations and contracts of INTERIM as well as those of the
Resulting Bank, whether the same shall be matured or unmatured; whether
accrued, absolute, contingent or otherwise; and whether or not reflected or
reserved against in the balance sheets, other financial statements, books of
account or records of INTERIM or the Resulting Bank.
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4.9 Approvals of Shareholders of Valley Federal and INTERIM. In
order to become effective, the Merger must be approved by the respective
shareholders of Valley Federal and of INTERIM at meetings to be called for that
purpose by their respective Boards of Directors, or by their unanimous action
by written consent.
4.10 Valley Federal Stock Options. At the Effective Time of the
Merger, the Valley Federal Option Plans and any Valley Federal Stock Options
issued and outstanding shall be affected as follows:
(a) Continuation of the Valley Federal Option
Plan. Valley Federal's Option Plans shall continue in effect but no additional
options shall be available for grant thereunder after the Effective Time of the
Merger. At the Effective Time of the Merger, each outstanding option under the
Option Plans shall continue outstanding as an option to purchase, in place of
the purchase of a share of Valley Federal Common Stock, that number of shares
(rounded down to the nearest whole share) of UPC Common Stock that would have
been received by the optionee in connection with the Merger had such option
been exercised in full (without regard to any limitations contained thereon on
exercise) for shares of Valley Federal Common Stock immediately prior to the
Effective Time of the Merger upon the same terms and conditions under the
relevant option as were applicable immediately prior to the Effective Time of
the Merger, except for appropriate pro rata adjustments as to the relevant
option price for shares of UPC Common Stock substituted therefor so that the
aggregate option exercise price of shares subject to an option immediately
following the assumption and substitution shall be the same as the aggregate
option exercise price for such shares immediately prior to such assumption and
substitution. UPC, INTERIM and Valley Federal agree to take such actions as
shall be necessary to give effect to the foregoing.
(b) Reclassification, etc. In case of any
reclassification, reorganization, recapitalization, stock dividend or
distribution, subdivision, combination or exchange of the outstanding shares of
the UPC Common Stock or in case of any consolidation or merger of UPC with or
into any other corporation, or in the case of any sale or transfer of all or
substantially all of UPC's assets, then the rights of the optionees under the
Valley Federal Option Plans shall be appropriately adjusted so that the
optionees will be in the same position as if their options had been exercised
immediately before such corporate action or transaction. The provisions hereof
shall similarly apply to successive reclassifications, reorganizations,
recapitalizations, stock dividends or distributions, subdivisions, combinations
or exchanges, consolidations, mergers, sales or transfers.
(c) Limited Obligations. Nothing contained in
this Plan of Combination or in the other documentation of the proposed
transactions shall be deemed
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to have reduced, contracted, enlarged, ratified, affirmed, undertaken,
authorized, approved or otherwise to have affected whatever contractual rights
the holders of Valley Federal Stock Options may have under applicable
documentation other than as expressly stated in this Plan of Combination with
respect to the outstanding Valley Federal Stock Options identified in the
Combination Agreement which are outstanding under the Valley Federal Option
Plans at the Effective Time of the Merger.
ARTICLE 5
AMENDMENTS AND WAIVERS
5.1 AMENDMENTS. To the extent permitted by law, this Plan of
Combination may be amended as set forth in Section 10.9(d) of the Combination
Agreement; provided, however, that the provisions of Section 4.3 of this Plan
of Combination relating to the manner or basis upon which shares of Valley
Federal Common Stock will be converted into the exclusive right to receive the
Consideration from UPC shall not be amended in such a manner as to reduce the
amount of the Consideration payable to the Valley Federal Record Holders
determined as provided in Section 3.1 of the Combination Agreement nor shall
this Plan of Combination be amended to permit UPC to utilize assets other than
its UPC Common Stock or cash to make payment of the Consideration as provided
in Section 3.1(e) of the Combination Agreement at any time after the
Shareholders' Meeting without the requisite approval (except as provided for in
the Combination Agreement) of the Valley Federal Record Holders of the shares
of Valley Federal Common Stock outstanding, and that no amendment to this Plan
of Combination shall modify the requirements of regulatory approval as set
forth in Section 8.3(b) of the Combination Agreement.
5.2 AUTHORITY FOR AMENDMENTS AND WAIVERS. Prior to the
Effective Time of the Merger, UPC and INTERIM, acting through their respective
Boards of Directors or chief executive officers or presidents or other
authorized officers, shall have the right to amend this Plan of Combination to
postpone the Effective Time of the Merger to a date and time subsequent to the
time of filing of the Plan of Combination with the Office of Thrift
Supervision, to waive any default in the performance of any term of this Plan
of Combination by Valley Federal, to waive or extend the time for the
compliance or fulfillment by Valley Federal of any and all of its obligations
under this Plan of Combination, and to waive any or all of the conditions
precedent to the obligations of UPC and INTERIM under this Plan of Combination,
except any condition that, if not satisfied, would result in the violation of
any law or applicable governmental regulation. Prior to the Effective Time of
the Merger, Valley Federal, acting through its Board of Directors or chief
executive officer or president or other authorized officer, shall have the
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right to amend this Plan of Combination to postpone the Effective Time of the
Merger to a date and time subsequent to the time of filing of the Plan of
Combination with the Office of Thrift Supervision, to waive any default in the
performance of any term of this Plan of Combination by UPC or INTERIM, to waive
or extend the time for the compliance or fulfillment by UPC or INTERIM of any
and all of their obligations under this Plan of Combination, and to waive any
or all of the conditions precedent to the obligations of Valley Federal under
this Plan of Combination except any condition that, if not satisfied, would
result in the violation of any law or applicable governmental regulation.
ARTICLE 6
MISCELLANEOUS
6.1 NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by hand, by facsimile transmission, or by registered or certified mail, postage
pre-paid to the persons at the addresses set forth below (or at such other
addresses or facsimile numbers as may hereafter be designated as provided
below), and shall be deemed to have been delivered as of the date received by
the Party to which, or to whom it is addressed:
If to UPC or INTERIM: Union Planters Corporation
P.O. Box 387 (mailing)
Memphis, Tennessee 38147
7130 Goodlett Farms Parkway (deliveries)
Cordova, Tennessee 38018
Fax: (901) 383-2877
Attn: Mr. Jackson W. Moore, President
With a copy to: Wyatt, Tarrant, & Combs
6075 Poplar Avenue
Suite 650
Memphis, Tennessee 38119
Telephone: (901) 537-1000
Fax: (901) 537-1010
Attn: R. Nash Neyland
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If to Valley Federal: Valley Federal Savings Bank
501 North Montgomery
Sheffield, Alabama 35660
Attn: Mr. Billy Don Anderson, President
Phone: (205) 383-1101
Fax: (205) 386-8628
With a copy to: Housley, Goldberg, Kantarian, & Bronstein, P.C.
1220 19th Street, N.W., Suite 700
Washington, D.C. 20036
Phone: (202) 822-9611
Fax: (202) 822-0140
Attn: Leonard S. Volin
or at such other address as shall be furnished in writing by any of the Parties
to the others by notice given as provided in this section 6.1.
6.2 GOVERNING LAW. Except to the extent federal law shall be
controlling, this Plan of Combination shall be governed by and construed and
enforced in accordance with the laws of the State of Tennessee disregarding,
however, the Tennessee conflicts of laws rules.
6.3 CAPTIONS. The Captions heading the Sections in this Plan of
Combination are for convenience only and shall not affect the construction or
interpretation of this Plan of Combination.
6.4 COUNTERPARTS. This Plan of Combination may be executed in two or
more counterparts, each of which shall be deemed an original instrument, but
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the Parties has caused this Plan of Combination
to be duly executed and delivered by its duly authorized officers as of the
date first above written.
ATTEST: UNION PLANTERS CORPORATION
/s/ E. James House By: /s/ Jackson W. Moore
- ------------------------ ------------------------
E. James House Jackson W. Moore
ITs: Secretary Its: President
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ATTEST: VALLEY INTERIM FEDERAL SAVINGS BANK,
a federal savings bank, (in organization)
/s/ E. James House By: /s/ Jackson W. Moore
- ------------------------ ---------------------------------
E. James House Jackson W. Moore
Its: Secretary Its: President
ATTEST: VALLEY FEDERAL SAVINGS BANK
/s/ Martha P. Smith By: /s/ Billy Don Anderson
- ------------------------ ---------------------------------
Martha P. Smith Billy Don Anderson
Its: Secretary Its: President
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EXHIBIT 1
The directors of the Resulting Bank will be as follows:
Name Residence Address Term
- ---- ----------------- -----
Expires
-------
Billy Don Anderson 127 Highland Place 1995
Sheffield, AL 35660
Edward Estes 100 Riverbend Road 1995
Sheffield, AL 35660
Billy Smith, Jr. 122 Kingswood Drive 1995
Florence, AL 35630
Frank Donsbach 103 Terrace Street 1996
Sheffield, AL 35660
Harvey Robbins 1742 Mountainview Lane 1996
Tuscumbia, AL 35674
Olen Green 317 Martin Drive 1997
Muscle Shoals, AL 35660
Don Ruggles Rt. 1, Box 75-A 1997
Sheffield, AL 35660
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AMENDMENT NUMBER 1
TO
AGREEMENT AND PLAN OF COMBINATION
DATED AS OF NOVEMBER 1, 1995
BETWEEN
UNION PLANTERS CORPORATION AND
VALLEY INTERIM FEDERAL SAVINGS BANK
A FEDERAL SAVINGS BANK IN ORGANIZATION
AND
VALLEY FEDERAL SAVINGS BANK
DATED AS OF THE 11TH DAY OF APRIL, 1996
<PAGE> 219
This is Amendment Number 1 to the Agreement and Plan of Combination
("Combination Agreement") dated as of November 1, 1995 between Union Planters
Corporation ("UPC"), Valley Interim Federal Savings Bank, a federal savings
bank in organization ("Interim") and Valley Federal Savings Bank ("Valley
Federal") and the related Plan of Combination of Interim with and into Valley
Federal (the "Plan of Combination").
WHEREAS, UPC and Valley Federal entered into the Combination Agreement
which sets forth the terms and conditions governing the proposed acquisition of
Valley Federal by UPC;
WHEREAS, UPC and Valley Federal wish to amend the Combination
Agreement as hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. UPC and Interim represent and warrant to Valley Federal, and
Valley Federal represents and warrants to UPC and Interim that it has all
requisite corporate power and authority to execute and deliver this Amendment
Number 1 to the Combination Agreement and the Plan of Combination; that this
Amendment Number 1 has been (or upon execution will have been) duly executed
and delivered by them and has been (or upon execution will have been) duly
authorized by all necessary action by them, corporate or otherwise, and no
other corporate proceedings on their respective part is (or will be) necessary
to authorize such execution and delivery; and that this Amendment Number 1
constitutes (or upon execution will constitute) a legal, valid and enforceable
obligation of theirs, subject, as to enforceability, to applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally, and to the application of equitable
principles and judicial discretion.
2. The second paragraphs to Section 3.1(e) of the Combination
Agreement and Section 4.3 of the Plan of Combination are hereby amended to read
as follows:
"The number of shares of UPC Common Stock to be exchanged for each
share of Valley Federal Common Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall be
determined by applying an exchange ratio (the "Exchange Ratio") to
each share of Valley Federal Common Stock issued and outstanding at
the Effective Time of the Merger. The Exchange Ratio shall be equal
to 1.0976 shares of UPC Common Stock for each outstanding share of
Valley Federal Common Stock."
3. Section 9.1(c) of the Combination Agreement is amended to read
as follows:
"(c) By UPC, INTERIM or Valley Federal in the event the
Closing shall not have occurred on or before August 1, 1996 (the
"Target Date"), unless the failure of the Closing to occur shall be
due to the failure of the Party seeking to terminate this Agreement to
perform its obligations hereunder in a timely manner.
-1-
<PAGE> 220
If UPC shall have filed any and all applications to obtain the
requisite Government Approvals within sixty (60) days of the date
hereof, and if the Closing shall not have occurred solely because of a
delay caused by a government regulatory agency or authority in its
review of the application before it, then Valley Federal shall, upon
UPC's written request, extend the Closing Date until August 31, 1996."
4. Valley Federal has on or prior to the date hereof delivered to
UPC Supplement #3 to the Valley Federal Disclosure Schedule to the Combination
Agreement ("Supplement #3"). UPC acknowledges receipt of Supplement #3 and
agrees to its inclusion as a part of the Combination Agreement, pursuant to
Section 7.2(d) of the Combination Agreement.
5. UPC hereby waives any right to assert (i) a breach of any
representation or warranty of Valley Federal set forth in the Combination
Agreement, (ii) a material adverse change in the business, property, assets
(including loan portfolios), liabilities (whether absolute contingent or
otherwise), prospects, operations, liquidity, income or condition (financial or
otherwise) of Valley Federal and its Subsidiaries as contemplated in Section
8.2(e) of the Combination Agreement or (iii) a failure of any other condition
set forth in the Combination Agreement or the Plan of Combination, in all cases
only with respect to Supplement #3 and the information set forth therein
relating to the restatement of the Valley Federal financial statements to
properly account for interest expense on certificates of deposit of one year or
more and on IRA accounts.
6. Except as specifically revised by this Amendment Number 1, the
Combination Agreement and the Plan of Combination remain in full force and
effect. Should there be conflict or ambiguity between the matters expressed in
this Amendment Number 1 and the terms and conditions of the Combination
Agreement the parties intend that the provisions of this Amendment Number 1
shall prevail and supersede any such conflict or ambiguity. This Amendment
Number 1 may be executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties hereto and delivered
to each of the other parties hereto.
IN WITNESS WHEREOF, each of the parties hereto has duly executed and
delivered this Amendment Number 1 to the Combination Agreement, or has caused
this Amendment Number 1 to the Combination Agreement to be executed and
delivered in its name and on its behalf by its representative thereunto duly
authorized, as of the 11th day of April, 1996.
VALLEY FEDERAL SAVINGS BANK
ATTEST:
/s/ Martha P. Smith /s/ Billy Don Anderson
- ---------------------------------- -----------------------------------------
MARTHA P. SMITH BILLY DON ANDERSON
Secretary President and Chief Executive Officer
-2-
<PAGE> 221
UNION PLANTERS CORPORATION
ATTEST:
/s/ E. James House, Jr. /s/ Benjamin W. Rawlins, Jr.
- ---------------------------------- -----------------------------------------
VALLEY INTERIM FEDERAL SAVINGS BANK
ATTEST:
/s/ Lynn Lanigan /s/ M. Kirk Walters
- ---------------------------------- -----------------------------------------
-3-
<PAGE> 222
[LOGO]
UNION PLANTERS
CORPORATION
April 23, 1996
Valley Federal Savings Bank
501 North Montgomery
Sheffield, Alabama 35660
Gentlemen:
We have today entered into an Agreement and Plan of Combination (the
"Agreement") between Union Planters Corporation ("UPC"); Valley Interim Federal
Savings Bank, a federal savings bank in organization, a wholly-owned subsidiary
of UPC; and Valley Federal Savings Bank ("Valley Federal"). This letter is
intended to set forth certain additional agreements and undertakings of each of
the above parties and each of such parties agrees that this letter is an
integral part of the Agreement (as referred to in Section 10.7 thereof) and is
being entered into separately solely as an accommodation to UPC. All terms
used herein without definition shall have the same meaning as ascribed in the
Agreement.
Accordingly, in consideration of the parties having entered into the
Agreement and for other good and valuable considerations, the receipt and
sufficiency of which is hereby acknowledged, it is hereby further agreed that:
A. EMPLOYEES AND EMPLOYMENT ISSUES.
1. EMPLOYMENT ISSUES. Following the Effective Time of
the Merger, it is expected that Billy Don Anderson ("Anderson") will continue
to serve as the President and Chief Executive Officer of Valley Federal as the
Resulting Bank. Should Valley Federal be merged with BANKFIRST, it is expected
that William D. Powell ("Powell") would continue as the Chairman of the Board
and Chief Executive Officer of BANKFIRST (or the institution surviving the
merger), and that Anderson would serve as its President and Chief Operating
Officer. As long as Valley Federal operates as a separate institution,
Anderson and the Valley Federal Board of Directors shall make such decisions as
are appropriate regarding the staffing needs and levels of Valley Federal as
the Resulting Bank. Recognizing the possibility of a future merger into
BANKFIRST, Anderson and the Valley Federal Board of Directors may make such
decisions in consultation with Powell and may consider the fact that UPC will
be providing certain functions such as data processing, accounting, loan
review, portfolio management, audit and payroll and benefit administration to
Valley Federal. However, until such time as a
P.O. Box 387 - Memphis, Tennessee 38147
<PAGE> 223
Valley Federal Savings Bank
November 1, 1995
Page 2
potential merger of BANKFIRST and Valley Federal is consummated, staffing
related decisions of Valley Federal shall be vested solely in Anderson and the
Valley Federal Board of Directors. In the event of a merger of BANKFIRST and
Valley Federal, all matters relating to personnel, including the hiring of,
assignment of positions and titles to, and retention of, employees in the
normal course of business, shall be determined by Messrs. Powell and Anderson
subject to supervision by the local Board of Directors of the surviving
institution, without prior approval by UPC.
2. BENEFIT PLANS.
a. DIRECTORS DEFERRED COMPENSATION PLAN AS IN
EFFECT ON THE DATE HEREOF ("DIRECTORS' PLAN"). Valley Federal's Directors'
Plan shall be terminated at and as of the Effective Time of the Merger. Upon
termination thereof, participants in the Directors' Plan will, to the extent
provided under such plan and by applicable law, become fully vested in and
eligible to receive benefits under the Directors' Plan. To the extent
permitted by such plan and applicable law, Valley Federal shall distribute all
vested accrued benefits as directed by plan participants as soon as reasonably
practicable following the Effective Date of the Merger and termination of the
Directors' Plan in the manner required by such plan and applicable law. Prior
to the Effective Date of the Merger, Valley Federal shall fully reserve for all
anticipated costs associated with the termination of the Directors' Plan.
Participants in the Directors' Plan receiving payment upon termination thereof
will not be eligible to invest proceeds distributed thereunder in any employee
benefit plans maintained by UPC for its directors or employees.
b. PENSION PLAN. After the Effective Time of
the Merger there shall be no further accrual of benefits under Valley Federal's
Pension Plan as in effect on the date hereof (the "Pension Plan") and Valley
Federal shall take such steps as are necessary or practicable to terminate the
Pension Plan as soon as reasonably practicable after the Effective Time of the
Merger. Prior to the Effective Date of the Merger, Valley Federal shall take
such steps as are appropriate or necessary to determine the costs of
terminating the Pension Plan, including, but not limited to, the amount needed
to fully fund the Pension Plan in the event of the anticipated termination and
any penalties or termination fees associated therewith or in connection with
the assets held therein. Valley Federal shall coordinate with the Human
Resources Department of UPC to ascertain, as close as reasonably practicable,
the costs of terminating the Pension Plan and prior to the Effective Date of
the Merger, Valley Federal shall fully reserve for all such anticipated costs
and expenses. Upon termination of the Valley Federal Pension Plan, employees
of Valley Federal who are participants in such Pension Plan will, to the extent
provided under such plan and by applicable law, become fully vested in and
eligible to receive benefits under such plan to the extent required therein and
by applicable law. To the extent permitted by the Pension Plan and applicable
law, Valley Federal shall
<PAGE> 224
Valley Federal Savings Bank
November 1, 1995
Page 3
distribute all vested accrued benefits to plan participants as soon as
reasonably practicable following the termination of the Pension Plan in the
manner required by applicable law. Valley Federal shall obtain such regulatory
determinations regarding the termination of the Pension Plan as may be
appropriate to insure the qualified status of such plan (and related trust)
under the Internal Revenue Code. Upon the election of any participant, any
vested accrued benefit under the Pension Plan may be transferred to UPC's
401(k) retirement savings plan.
c. 401(K) PLAN. Notwithstanding anything to the
contrary in Section 6.3 or other sections of the Combination Agreement, after
the Effective Time of the Merger, all contributions under Valley Federal's
401(k) Plan as in effect on the date hereof (the "401(k) Plan") shall cease and
employees of Valley Federal who continue their employment with Valley Federal
after the Effective Time of the Merger shall be entitled to participate in
UPC's 401(k) Plan to the same extent as other employees of UPC as of
immediately after the Effective Time of the Merger. Valley Federal, in
coordination with UPC's Human Resources Department, shall take such steps as
are necessary to merge Valley Federal's 401(k) Plan with and into UPC's 401(k)
Plan as of the Effective Time of the Merger or as soon thereafter as possible,
but any delay in effectuating such merger shall not delay Valley Federal's
employees' right to participate in UPC's 401(k) Plan as of the Effective Time
of the Merger. Prior to the Effective Date of the Merger, Valley Federal shall
fully reserve for all anticipated costs and expenses related to its 401(k) Plan
and the merger thereof into UPC's 401(k) Plan. Valley Federal, in coordination
with UPC's Human Resources Department, shall obtain such regulatory
determinations regarding the merger of its 401(k) Plan into the UPC 401(k) Plan
as may be appropriate to insure the qualified status of such plans (and related
trusts) under the Internal Revenue Code.
d. MEDICAL, LIFE AND RELATED EMPLOYEE WELFARE
BENEFITS. After the Effective Time of the Merger, the continuing employees of
Valley Federal shall be eligible to receive group hospitalization, medical,
life, disability, and other employee welfare benefits no less than those
provided to other employees of UPC holding comparable positions. UPC shall
provide full coverage under its group medical, dental, flex benefits,
severance, disability, and life insurance plans. The UPC medical plan shall
waive all preexisting conditions for covered employees at the Effective Time of
the Merger. UPC will also waive proof of insurability for new participants
enrolling in the UPC plan following the Effective Time of the Merger.
Preexisting condition limitations may apply to new participants, not previously
covered under the Valley Federal medical plan, who may enroll in the UPC plan
following the Effective Time of the Merger. After the Effective Time of the
Merger, Valley Federal, in coordination with UPC's Human Resources Department,
shall take such steps as are necessary to terminate all such employee welfare
benefit plans it maintained for its employees immediately prior to the
<PAGE> 225
Valley Federal Savings Bank
November 1, 1995
Page 4
Effective Time of the Merger. Prior to the Effective Date of the Merger,
Valley Federal shall fully reserve for all costs and expenses related to such
employee welfare benefit plans, and the termination thereof, as well as for all
costs related thereto which would continue after the Effective Time of the
Merger, including, but not limited to, costs arising under or pursuant to the
Consolidated Omnibus Budget Reconciliation Act and reserves required for post-
termination benefits.
e. ACCRUED VACATION AND SICK LEAVE. In the
calendar year following the Effective Time of the Merger, Valley Federal
employees shall become subject to Union Planters policies and procedures
relative to accrued vacation and other paid time off benefits. For the
remainder of the calendar year in which the Effective Time of the Merger
occurs, all existing Valley Federal paid vacation and accrued time off benefits
will remain in force and effect, and to the extent necessary, immediately prior
to the end of the calendar year, Valley Federal shall pay its employees for all
remaining accrued vacation and sick leave. On the January 1st next following
the Effective Time of the Merger, the UPC policy will become effective and
applicable to Valley Federal employees, with full credit given for prior
service for Valley Federal or any Valley Federal subsidiary. Vacation
schedules will be based on seniority dates, and emergency paid time off
benefits will be granted based on 8 hours for every full quarter of completed
service up to a maximum of 160 hours (20, 8-hour days).
f. PAY TO STAY PLAN. UPC hereby acknowledges
the existence of Valley Federal's Pay to Stay Plan and such plan will be
honored in accordance with its terms.
g. SEVERANCE BENEFITS. UPC will provide
severance payments to employees of Valley Federal (other than employees whose
severance benefits are provided for in written employment agreements) whose
employment is terminated as a result of situations covered under the current
UPC involuntary severance pay plan. Such payments shall be consistent with the
terms and conditions of the UPC involuntary severance pay plan. However, for a
period of 1-year following the Effective Time of the Merger, the following
exceptions to the terms and conditions in the current UPC involuntary severance
plan will apply:
(i) an offer of employment at any affiliate of Valley
Federal which an employee does not accept will not make such
employee ineligible to receive severance benefits; and
(ii) employees with one year or more of service will
receive severance benefits equal to 2 weeks plus one
additional week
<PAGE> 226
Valley Federal Savings Bank
November 1, 1995
Page 5
for each year or partial year of service with no maximum applicable.
h. GENERAL / POOLING OF INTERESTS CONCERNS.
Notwithstanding anything in this paragraph A to the contrary, the rights
granted by UPC to Valley Federal employees in connection with the Merger shall
not in and of themselves be construed in any way to be an employment contract
with, or right to employment by, Valley Federal, UPC, or any other subsidiary
of UPC after the Effective Time of the Merger. In addition, no rights or
vesting in any stock, pension, welfare, benefit or other benefit or welfare
plan of Valley Federal, including the Valley Federal Stock Option Plan, shall
be accelerated or modified in contravention of the accounting rules necessary
to account for the Merger under the "pooling of interests" method of
accounting. To the extent any employee benefit or welfare benefit plan of
Valley Federal or the Valley Federal Stock Option Plan provides for
acceleration of vesting of rights upon consummation of the Merger, Valley
Federal shall take such steps as are appropriate or necessary to amend such
plan or arrangement if such amendment were determined to be necessary to allow
the Merger to be accounted for under the "pooling of interests" method of
accounting.
3. EXTENSION OF ANDERSON EMPLOYMENT CONTRACT. The Board
of Directors of Valley Federal shall be entitled to extend, in their sole
discretion, the term of the employment contract between Anderson and Valley
Federal as called for therein, subject to such limitations as may be set forth
in the Combination Agreement relative to increases in compensation and related
matters; provided, however, if the Valley Federal Board should determine to so
extend the term of such employment contract, the employment contract shall be
terminated in full at the Effective Time of the Merger, and as provided for
therein, Mr. Anderson shall be entitled to payment thereunder as noted in the
following paragraph. No amendment or extension shall be approved, however,
which would prevent the Merger from being accounted for under the "pooling of
interests" method of accounting.
4. EXISTING ANDERSON EMPLOYMENT CONTRACT. As noted in
the previous paragraph, it is understood that Mr. Anderson's employment
contract will be terminated at the Effective Time of the Merger. UPC
acknowledges and agrees that consummation of the Merger would constitute a
Change of Control under Mr. Anderson's employment contract, that the conditions
of at least (b)(ii), (iii) and (vi) of Section 12 of such agreement would
exist, and therefore, Mr. Anderson would be entitled to the payment determined
pursuant to Section 12(b) of the employment contract upon consummation of the
Merger and termination of his employment contract. Prior to the Effective Date
of the Merger Valley Federal shall fully accrue for all payments due or which
may be due to Mr. Anderson under such employment contract upon consummation
<PAGE> 227
Valley Federal Savings Bank
November 1, 1995
Page 6
of the Merger, including, but not limited to, such payments due Mr. Anderson
upon the Change of Control, change in conditions and termination of his
employment contract.
5. TIMING. Notwithstanding any other provision herein
or in the Combination Agreement, Valley Federal may take such actions on or
before the Effective Time as are necessary or appropriate to effectuate the
purposes of this Section A of the Agreement, including but not limited to (i)
the adoption and execution of agreements and amendments relating to the plans,
programs, and agreements referenced herein, and (ii) the adoption and execution
of any amendment required by applicable law.
B. BOARD OF DIRECTORS OF VALLEY FEDERAL. After the Effective
Time of the Merger and until the earlier of the effective time of the merger of
Valley Federal and BANKFIRST or the first anniversary of the Effective Date of
the Merger, the Board of Directors of Valley Federal shall be composed of the
same persons currently serving as directors of Valley Federal; provided,
however, that without the prior consent of UPC, the number of members of the
Board of Directors of Valley Federal shall not be increased and upon the death,
retirement or removal of any such director, no interim or replacement director
shall be appointed except by or at the direction of UPC. In the event of a
merger between Valley Federal and BANKFIRST, the initial board of directors of
the Resulting Bank shall be composed of the directors of BANKFIRST as of the
effective date of such merger and the non-officer members of the Valley Federal
board of directors as of the effective date of such merger, plus Mr. Anderson.
Thereafter UPC agrees that it will, or it will cause BNF Bancorp, Inc., to
cause, each person initially elected as a member of the board of directors of
the institution resulting from the merger of Valley Federal and BANKFIRST to be
re-elected as a director of such institution for at least one (1) additional
one year term regardless of any otherwise applicable age-related requirement;
provided each director shall be eligible for re-election only if (i) he
continues to qualify to serve as a director, (ii) he is not permanently
incapacitated and unable to serve as a director, (iii) he continues to
adequately perform his services as a director, and (iv) UPC has not determined
that the institution resulting from the merger of BANKFIRST and Valley Federal
has failed to meet the general performance standards of other UPC banking
subsidiaries. Nothing herein shall be deemed to limit UPC's or BNF Bancorp,
Inc.'s rights as sole shareholder of Valley Federal, or the institution
surviving the merger of BANKFIRST and Valley Federal, from taking such
shareholder actions as it deems necessary or appropriate.
C. PARTICIPATION IN UPC STOCK OPTION PLANS. After the Effective
Time of the Merger, management personnel of Valley Federal, as well as
management personnel of the institution surviving the merger of BANKFIRST and
Valley Federal, should such merger occur, shall be reviewed for possible grants
of options to purchase UPC stock at such times and to the same extent and on
the same conditions as management
<PAGE> 228
Valley Federal Savings Bank
November 1, 1995
Page 7
personnel at other affiliates of UPC, as determined by the Stock Option
Committee of the Board of Directors of UPC.
D. POST MERGER SECURITIES FILINGS. UPC shall use its best
efforts to ensure that not later than thirty (30) days following the end of the
first calendar quarter in which UPC and Valley Federal have completed thirty
days of combined post-merger operations, UPC will publish financial results
containing the combined UPC and Valley Federal results of operations.
Upon execution of this letter (or counterparts thereof) by the parties
hereto, this letter shall constitute an agreement between the parties to be
enforceable following the Effective Time of the Merger by either party hereto
or by any other party who is intended to be benefitted hereunder.
UNION PLANTERS CORPORATION
By: /s/ Jackson W. Moore
---------------------------------
Jackson W. Moore
VALLEY INTERIM FEDERAL SAVINGS BANK
By: /s/ Billy D. Anderson
---------------------------------
Billy D. Anderson
VALLEY FEDERAL SAVINGS BANK
By: /s/ Billy D. Anderson
---------------------------------
Billy D. Anderson
<PAGE> 229
APPENDIX B
<PAGE> 230
FORM OF FAIRNESS OPINION
, 1996
---------
Board of Directors
Valley Federal Savings Bank
501 North Montgomery Avenue
Sheffield, Alabama 35660
Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of shares of common stock (the "Valley
Federal Common Stock"), of Valley Federal Savings Bank ("Valley Federal") of
the consideration to be received by such stockholders in the proposed merger
(the "Proposed Merger") of Valley Federal with Union Planters Corporation
("Union Planters"), pursuant to the Agreement and Plan of Combination dated
November 1, 1995 (the "Agreement") and amended April 11, 1996 (The
"Amendment").
As more specifically set forth in the Agreement and Amendment, and
subject to a number of conditions and procedures described in the Agreement and
Amendment, in the Proposed Merger each of the issued and outstanding shares of
Valley Federal Common Stock shall be converted into 1.0976 shares of Union
Planters Common Stock (the "Exchange Ratio"). All unexercised options for the
right to purchase shares of Valley Federal Common Stock shall be converted into
options for the right to purchase shares of Union Planters Common Stock using
the Exchange Ratio as applicable to the holders of Valley Federal Common Stock.
Trident Financial Corporation ("Trident") is a financial consulting
and investment banking firm experienced in the valuation of business
enterprises with considerable experience in the valuation of thrift
institutions. Since 1975, Trident has valued in excess of 400 thrift
institutions in connection with mutual-to-stock conversions, mergers and
acquisitions, as well as other transactions. Trident is not affiliated with
Valley Federal or Union Planters.
In connection with rendering our opinion, we have reviewed and
analyzed, among other things, the following: (i) the Agreement; (ii) the
Amendment; (iii) certain publicly available information concerning Valley
Federal, including the audited financial statements of Valley Federal for each
of the years in the three year period ended September 30, 1995 and unaudited
financial statements for the three months ended December 31, 1994 and 1995;
(iv) certain publicly available information concerning Union Planters,
including the audited financial statements of Union Planters for each of the
years in the three year period ended December 31,
<PAGE> 231
Board of Directors
April 11, 1996
Page 2
1995; (v) certain other internal information, primarily financial in nature,
concerning the business and operations of Valley Federal and Union Planters
furnished to us by Valley Federal and Union Planters for purposes of our
analysis; (vi) information with respect to the trading market for Valley
Federal Common Stock; (vii) information with respect to the trading market for
Union Planters Common Stock; (viii) certain publicly available information with
respect to other companies that we believe to be comparable to Valley Federal
and Union Planters and the trading markets for such other companies'
securities; and (ix) certain publicly available information concerning the
nature and terms of other transactions that we believe relevant to our inquiry.
We have also met with certain officers and employees of Valley Federal and
Union Planters to discuss the foregoing as well as other matters we believe
relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to us or publicly available. We have not
attempted independently to verify any such information. We have not conducted
a physical inspection of the properties or facilities of Valley Federal or
Union Planters, nor have we made or obtained any independent evaluations or
appraisals of any of such properties or facilities. We did not specifically
evaluate Valley Federal's or Union Planters' loan portfolio or the adequacy of
Valley Federal's or Union Planters' reserves for possible loan losses.
In conducting our analysis and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial condition and results of operations of
Valley Federal and Union Planters, including interest income, interest expense,
net interest income, net interest margin, interest sensitivity, non-interest
expenses, earnings, dividends, book value, return on assets, return on equity,
capitalization, the amount and type of non-performing assets and the reserve
for loan losses; (ii) the business prospects of Valley Federal and Union
Planters; (iii) the economies in Valley Federal's and Union Planters' market
areas; (iv) the historical and current market for Valley Federal Common Stock
and Union Planters Common Stock and for the equity securities of certain other
companies that we believe to be comparable to Valley Federal and Union
Planters; and (v) the nature and terms of certain other acquisition
transactions that we believe to be relevant. We have also taken into account
our assessment of general economic, market, financial and regulatory conditions
and trends, as well as our knowledge of the thrift industry, our experience in
connection with similar transactions, and our knowledge of securities valuation
generally. Our opinion necessarily is based upon conditions as they exist and
can be evaluated on the date hereof. Our opinion is, in any event, limited to
the fairness, from a financial point of view, of the consideration to be
received by the holders of Valley Federal Common Stock in the Proposed Merger
and does not address Valley Federal's underlying business decision to effect
the Proposed Merger.
<PAGE> 232
Board of Directors
April 11, 1996
Page 3
Based upon and subject to the foregoing, we are of the opinion that
the consideration to be received by the holders of Valley Federal Common Stock
in the Proposed Merger is fair, as of the date hereof, from a financial point
of view, to such holders.
This opinion is being delivered to the Board of Directors of Valley
Federal for its exclusive use and is not to be reproduced, disseminated or
delivered to any third party without the express written consent of Trident
Financial Corporation, except as required by law.
This opinion will be updated prior to consummation of the Proposed
Merger.
Very truly yours,
TRIDENT FINANCIAL CORPORATION
<PAGE> 233
APPENDIX C
<PAGE> 234
VALLEY FEDERAL SAVINGS BANK
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended September 30, 1995 and 1994
<PAGE> 235
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors of
Valley Federal Savings Bank and Subsidiary, Sheffield, Alabama:
We have audited the accompanying consolidated statements of financial condition
of Valley Federal Savings Bank and subsidiary as of September 30, 1995 and
1994, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended September 30,
1995. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Valley Federal Savings Bank and
subsidiary at September 30, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, as of October
1, 1993.
As discussed in Note 17 to the consolidated financial statements, the
accompanying consolidated financial statements have been restated to record
accrued interest payable on certificates of deposit.
/s/ Deloitte & Touche
November 17, 1995
(April 10, 1996 as to paragraph 3 of Note 16 and as to Note 17)
<PAGE> 236
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1995 AND 1994 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
(Restated) (Restated)
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,312 $ 1,979
Interest-bearing deposits with banks 572 1,786
Securities available for sale (amortized cost of $21,365 at 1995 and 21,083 18,535
$19,579 at 1994) (Note 2)
Securities to be held to maturity (market value of $3,671) (Note 2) 3,793
Loans receivable, net of allowance for loan losses of $462 in 1995 and 96,033 89,315
$795 in 1994 (Notes 3 and 11)
Accrued interest receivable 815 795
Premises and equipment, net (Note 4) 2,587 2,818
Foreclosed real estate 59
Stock in Federal Home Loan Bank ("FHLB"), at cost (Note 5) 768 711
Income taxes (Note 8):
Current 146
Deferred 2 253
Other assets (Note 7) 593 388
--------- ---------
TOTAL ASSETS $ 125,911 $ 120,432
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 2) $ 108,717 $ 100,836
Borrowed funds (Note 9) 6,000 9,000
Advances by borrowers for taxes and insurance 621 575
Income taxes (Note 8):
Current 66
Accrued interest payable 589 220
Other liabilities 330 548
--------- ---------
Total liabilities 116,257 111,245
--------- ---------
</TABLE>
-2-
<PAGE> 237
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1995 AND 1994 (IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
(Restated) (Restated)
<S> <C> <C>
STOCKHOLDERS' EQUITY (Notes 8 and 10):
Serial preferred stock - $.01 par value,
5,000 shares authorized - none issued
Common stock - $.01 par value,
15,000 shares authorized, 361 shares
issued and outstanding $ 4 $ 4
Additional paid-in capital 3,193 3,193
Retained earnings, substantially restricted 6,636 6,651
Net unrealized depreciation on available for
sale securities, net of tax of $104 in 1995
and $383 in 1994 (Note 1) (179) (661)
--------- ---------
Total stockholders' equity 9,654 9,187
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 125,911 $ 120,432
========= =========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 238
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
(Restated) (Restated)
<S> <C> <C> <C>
INTEREST INCOME:
Loans receivable $7,520 $6,798 $6,703
Securities available for sale 1,147 1,302
Securities to be held to maturity 199 226
Securities held for investment 2,298
Other 106 86 78
------ ------ ------
Total interest income 8,972 8,412 9,079
------ ------ ------
INTEREST EXPENSE:
Deposits 4,921 4,170 4,774
Borrowed funds (Note 9) 567 202 86
------ ------ ------
Total interest expense 5,488 4,372 4,860
------ ------ ------
NET INTEREST INCOME 3,484 4,040 4,219
PROVISION FOR LOAN LOSSES (Note 3) 306 180 361
------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,178 3,860 3,858
------ ------ ------
NONINTEREST INCOME:
Loan fees and service charges 361 437 540
Loan servicing fees 135 135 106
Net gain (loss) on sales of:
Securities available for sale (Note 2) (31) 103
Securities held for investment (56)
Loans (13)
Other 30 132 132
------ ------ ------
Total noninterest income 482 807 722
------ ------ ------
NONINTEREST EXPENSES:
Salaries and employee benefits 1,543 1,551 1,476
Occupancy 484 531 556
Data processing 194 195 171
Insurance premiums 266 285 260
Losses on foreclosed real estate 13 9
Advertising 124 122 112
Professional fees 178 175 127
Other (Note 7) 613 480 514
------ ------ ------
Total noninterest expense 3,402 3,352 3,225
------ ------ ------
</TABLE>
-4-
<PAGE> 239
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
(Restated) (Restated)
<S> <C> <C> <C>
INCOME BEFORE INCOME TAX EXPENSE $ 258 $ 1,315 $ 1,355
INCOME TAX EXPENSE (Note 8) 57 402 440
--------- --------- ---------
NET INCOME $ 201 $ 913 $ 915
========= ========= =========
AVERAGE COMMON SHARES OUTSTANDING 361,000 361,000 360,500
========= ========= =========
EARNINGS PER SHARE $ 0.56 $ 2.53 $ 2.54
========= ========= =========
CASH DIVIDENDS PER SHARE
(Note 16) $ 0.60 $ 0.50 $ 0.50
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE> 240
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993 (IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NET NET
UNREALIZED UNREALIZED
DEPRECIATION APPRECIATION
RETAINED ON CERTAIN (DEPRECIATION)
ADDITIONAL EARNINGS, MARKETABLE ON SECURITIES TOTAL
CAPITAL PAID-IN SUBSTANTIALLY EQUITY AVAILABLE STOCKHOLDERS'
STOCK CAPITAL RESTRICTED SECURITIES FOR SALE EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1992 $ 4 $3,183 $5,184 $ (93) $ 8,278
Cash dividends, $.50 per share
(declared based on fiscal
1992 operations) (180) (180)
Net income for the year
ended September 30, 1993 915 915
Decrease in net unrealized
depreciation on certain
marketable equity securities 61 61
Proceeds from issuance of
common stock upon exercise
of options 10 10
---- ------ ------ ----- -------- -------
Balance at September 30, 1993 4 3,193 5,919 (32) 9,084
Cash dividends, $.50 per share
(declared based on fiscal
1993 operations) (181) (181)
Net income for the year
ended September 30, 1994
(as restated, see Note 17) 913 913
Impact at October 1, 1993 of
adoption of Statement of
Financial Accounting
Standards No. 115 net of
taxes (Note 2) $ 611 611
Decrease in net unrealized
depreciation on certain
marketable equity securities 32 32
Net change in unrealized
depreciation on securities
available for sale, net of
taxes. (1,272) (1,272)
---- ------ ------ ----- -------- -------
Balance at September 30, 1994
(as restated, see Note 17) 4 3,193 6,651 $ - (661) 9,187
=====
Cash dividends, $.60 per share
(declared based on fiscal
1994 operations) (216) (216)
Net income for the year
ended September 30, 1995
(as restated, see Note 17) 201 201
Net change in unrealized
depreciation on securities
available for sale, net of
taxes 482 482
---- ------ ------ -------- -------
Balance at September 30, 1995
(as restated, see Note 17) $ 4 $3,193 $6,636 $ (179) $ 9,654
==== ====== ====== ======== =======
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE> 241
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993 (IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
(Restated) (Restated)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 201 $ 913 $ 915
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation (Note 4) 250 261 262
Deferred income tax expense (35) (31) 30
Provision for loan losses 306 180 361
Accretion/amortization (125) (366) 47
Proceeds from loans held for sale 2,531 9,199 14,608
Originations of loans held for sale (2,544) (9,199) (14,608)
Net (gain) loss on sale of:
Securities available for sale 31 (103)
Securities held for investment 56
Foreclosed real estate (1) (64) (30)
Loans 13
(Increase) decrease in other assets (429) 163 102
Increase (decrease) in other liabilities 130 73 (115)
------- ------- -------
Net cash provided by operating activites 328 1,026 1,628
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing
deposits with banks 1,214 1,230 783
Purchases of:
Securities available for sale (4,670) (15,087)
Securities held for investment (14,136)
Securities to be held to maturity (272) (2,314)
Net purchases of premises and equipment (19) (99) (954)
Proceeds from sale of:
Securities available for sale 3,666 13,726
Securities held for investment 2,021
Foreclosed real estate 322 19
Proceeds from maturities of:
Securities available for sale 2,712 12,519
Securities held to maturity 673 3,386
Securities held for investment 20,035
Net increase in loans (7,024) (11,536) (4,821)
Decrease in foreclosed real estate 59
------- ------- -------
Net cash provided by (used in)
investing activities (3,661) 2,147 2,947
------- ------- -------
</TABLE>
-7-
<PAGE> 242
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993 (IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
(Restated) (Restated)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits, savings,
and NOW accounts $(3,634) $(8,702) $(4,739)
Net increase (decrease) in time deposits 11,516 (1,832) (1,525)
Net increase (decrease) in borrowed funds (3,000) 5,000 4,000
Proceeds from issuance of common stock 10
Dividends paid (216) (181) (180)
------- ------- -------
Net cash provided by (used in)
financing activities 4,666 (5,715) (2,434)
------- ------- -------
NET INCREASE (DECREASE) IN CASH
AND DUE FROM BANKS 1,333 (2,542) 2,141
CASH AND DUE FROM BANKS
BEGINNING OF YEAR 1,979 4,521 2,380
------- ------- -------
CASH AND DUE FROM BANKS,
END OF YEAR $ 3,312 $ 1,979 $ 4,521
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Noncash transactions:
Decrease in net unrealized
depreciation on certain marketable
equity securities $ 32 $ 61
======= =======
Loans foreclosed and transferred
to real estate owned $ 38 $ 151 $ 18
======= ======= =======
Transfers of held to maturity and held for investment
securities into available for sale (Notes 1 and 2) $ 3,334 $13,433 $18,459
======= ======= =======
Cash paid during the year for:
Interest $ 5,144 $ 4,198 $ 4,887
======= ======= =======
Income taxes $ 238 $ 332 $ 574
======= ======= =======
</TABLE>
-8-
<PAGE> 243
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Valley Federal Savings Bank ("the Bank") and
its wholly-owned subsidiary, Valley Service Corporation of Alabama,
which was incorporated in January, 1980. All intercompany balances
and transactions have been eliminated in the accompanying consolidated
financial statements. The subsidiary is not active. The service
corporation is comprised of $15 of stock in Intrieve Incorporated, the
Bank's service bureau, and $1 of working capital.
BASIS OF FINANCIAL STATEMENT PRESENTATION - The Bank's consolidated
financial statements have been prepared in accordance with generally
accepted accounting principles and with general practice within the
savings institutions industry. In preparing such financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period.
Actual results could differ from those estimates. Material estimates
that are particularly susceptible to significant change relate to the
determination of the allowance for loan losses and the valuation of
real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the
allowance for loan losses and the valuation of real estate owned,
management obtains independent appraisals for significant properties.
CASH AND DUE FROM BANKS - For the purpose of presentation in the
consolidated statements of cash flows, cash and cash equivalents are
defined as those amounts included in the balance sheet caption "Cash
and Due From Banks."
INVESTMENTS IN SECURITIES - The Bank adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities for the fiscal year
beginning October 1, 1993. As a result of this adoption, certain
securities classified as available for sale are carried at market
value, and unrealized appreciation (depreciation), net of related
income tax effect, on securities available for sale is shown as a
component of stockholders' equity at September 30, 1995 and 1994.
Prior to this adoption, at September 30, 1993, certain investment
securities and mortgage-backed securities classified as held for sale
were stated at the lower of cost or market.
SECURITIES TO BE HELD TO MATURITY - Certain investments and
mortgage-backed securities for which the Bank has the positive
intent and ability to hold to maturity are reported at cost,
adjusted for premiums and discounts that are recognized in
interest income using the interest method over the period to
maturity.
SECURITIES AVAILABLE FOR SALE - Securities available for sale
consist of investments, mortgage-backed securities, and
certain equity securities not classified as trading securities
nor as held to maturity securities. Unrealized gains and
losses, net of tax, on available for sale securities are
reported as a net amount in a separate component of
stockholders' equity until realized. Gains and losses on the
sale of available for sale securities are determined using the
specific-identification method. Premiums and discounts are
recognized in interest income using the interest method over
the period to maturity.
TRADING SECURITIES - The Bank has no trading account
securities.
-9-
<PAGE> 244
LOANS HELD FOR SALE - Mortgage loans originated and intended for sale
in the secondary market are carried at the lower of cost or estimated
market value in the aggregate. Net unrealized losses are recognized
through a valuation allowance by charges to income.
LOANS RECEIVABLE - Loans receivable that management has the intent and
ability to hold to the foreseeable future or until maturity or payoff
are reported at their outstanding unpaid principal balances reduced by
any chargeoffs or specific valuation accounts and net of any deferred
fees or costs on originated loans, or unamortized premiums or
discounts on purchased loans. Loan origination fees and certain
direct origination costs are capitalized and recognized as an
adjustment of the yield of the related loan.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is increased
by charges to income and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the allowance is
based on the Bank's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
FORECLOSED REAL ESTATE - Real estate properties acquired through, or
in lieu of, loan foreclosure are initially recorded at fair value at
the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and
the real estate is carried at the lower of cost or fair value minus
estimated costs to sell. Revenues and expenses from operations are
included in loss on foreclosed real estate.
INCOME TAXES - Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which
the deferred tax assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income
taxes.
Effective October 1, 1993, the Bank adopted SFAS No. 109, Accounting
for Income Taxes. The principal changes made by SFAS No. 109 are the
adoption of the liability method of accounting for deferred taxes and
revision of the criteria for recognition and measurement of deferred
tax assets. Under SFAS No. 109, deferred tax assets and liabilities
are based on the tax rates and laws enacted as of the balance sheet
date. The effects of future changes in tax laws or rates are not
anticipated. Because the cumulative effect at October 1, 1993 of
applying the new accounting method was not material, it is reflected
as a decrease of $48 in income tax expense for the year ended
September 30, 1994. The effect on net income during 1994 of applying
the new accounting method as compared to the previous method was
immaterial.
For the year ended September 30, 1993, the Bank accounted for income
taxes under the previous standard, Accounting Principles Board Opinion
No. 11.
PREMISES AND EQUIPMENT - Land is carried at cost. Bank premises,
furniture and equipment, and leasehold improvements are carried at
cost, less accumulated depreciation and amortization computed by the
straight-line method over periods ranging from 5 to 39 years.
EARNINGS PER SHARE - Earnings per share is based on the weighted
average number of shares plus equivalent shares outstanding. The
dilutive effect of shares issuable under stock options is immaterial.
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED - In December, 1991,
SFAS No. 107, Disclosures About Fair Value of Financial Instruments
was issued. SFAS No. 107 requires disclosure of the fair value of
financial instruments, both assets and liabilities recognized and not
-10-
<PAGE> 245
recognized in the statement of financial condition, for which it is
practicable to estimate fair value. The statement is effective for
fiscal years ending after December 15, 1995 for entities with less
than $150 million in total assets. The Bank will be required to adopt
SFAS No. 107 in fiscal 1996. The adoption of this statement is not
expected to have a significant impact on the Bank's financial
statements. SFAS No. 114, Accounting by Creditors for Impairment of a
Loan, was issued in May, 1993. SFAS No. 114 (later amended by SFAS
No. 118) addresses the accounting by creditors for impairment of
certain loans and applied to all loans that are restructured in a
troubled debt restructuring. It requires that impaired loans be
measured based on the present value of expected cash flows discounted
at the loan's effective interest rate. These requirements apply to
financial statements for fiscal years beginning after December 15,
1994. The adoption of this statement is not expected to have a
significant impact on the Bank's financial statements.
RECLASSIFICATIONS - Reclassifications of certain prior period amounts
were made for comparative purposes.
2. INVESTMENTS IN SECURITIES
The Bank's investments in securities have been classified in the
consolidated statements of financial condition according to
management's intent and ability to hold them. The carrying amount of
securities and their approximate fair value at September 30 were as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
1995:
U.S. Government and agency
securities $ 999 $ 54 $ 945
State and municipal securities 280 $ 15 295
Collateralized mortgage
obligations ("CMO's") 8,858 47 8,905
FHLMC certificates 7,827 234 7,593
FNMA certificates 3,401 56 3,345
------- ---- ------ -------
Total $21,365 $ 62 $ 344 $21,083
======= ==== ====== =======
1994:
U.S. Government and agency
securities $ 499 $ 37 $ 462
CMO's 8,497 375 8,122
FHLMC certificates 7,132 425 6,707
FNMA certificates 3,451 207 3,244
------- ------ -------
Total $19,579 $1,044 $18,535
======= ====== =======
</TABLE>
-11-
<PAGE> 246
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
1994:
State and municipal securities $ 9 $ 1 $ 10
FHLMC certificates 2,686 $ 97 2,589
FNMA certificates 1,098 26 1,072
------ ---- ---- ------
Total $3,793 $ 1 $123 $3,671
====== ==== ==== ======
</TABLE>
Gross realized gains and gross realized losses on sales of securities available
for sale for the years ended September 30, were:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Gross realized gains:
FNMA certificates $ 16
U.S. Government and agency securities $ 4
CMO's 196
---- -----
Total $ 16 $ 200
==== =====
Gross realized losses:
FNMA certificates $ 8
CMO's 32 $ 60
FHMLC certificates 7 12
Other debt securities 25
---- -----
Total $ 47 $ 97
==== =====
</TABLE>
The scheduled maturities of securities held to maturity and securities
available for sale at September 30, 1995, were as follows:
<TABLE>
<CAPTION>
SECURITIES
AVAILABLE FOR SALE
----------------------
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Due in one year or less $ 1,923 $ 1,906
Due in one year to five years 11,415 11,242
Due from five to ten years 2,571 2,637
Due after ten years 5,456 5,298
------- -------
Total $21,365 $21,083
======= =======
</TABLE>
Securities carried at approximately $1,493 at September 30, 1995 and $405 at
September 30, 1994, were pledged to secure certain deposits and for other
purposes permitted by law.
Upon adoption of SFAS No. 115, the Bank changed its intent with regard to
holding certain securities and therefore transferred such securities into
available for sale. In addition, the Bank transferred certain CMO's purchased
during 1994 into available for sale after initially classifying them as held to
maturity. This transfer was made in response to the potential future
classification of these securities as "high-risk" under the FASB's Emerging
Issues Task Force guidelines issued in November of 1993.
-12-
<PAGE> 247
As of September 30, 1995, based on the proposed business combination
described in Note 16, the Bank changed its intent with regard to
holding securities such that securities which were previously
classified as held to maturity are now classified as available for
sale. All securities held as of September 30, 1995 are classified as
available for sale.
3. LOANS RECEIVABLE
The components of loans in the consolidated statements of financial
condition at September 30, were as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Residential real estate mortgage $67,075 $66,469
Commercial 8,547 7,799
Real estate construction 5,146 3,052
Commercial real estate 11,122 10,317
Consumer 5,605 4,675
Net deferred loan fees, premiums, and discounts (61) (162)
Undisbursed portion of loans in process (939) (2,040)
------- -------
96,495 90,110
Allowance for loan losses (462) (795)
------- -------
Loans receivable, net $96,033 $89,315
======= =======
</TABLE>
An analysis of the changes in the allowance for loan losses for the
years ended September 30, follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Balance at October 1 $ 795 $ 344
----- -----
Loans charged off (655) (152)
Recoveries 16 423
----- -----
Net loans (charged off) recoveries (639) 271
----- -----
Provision for loan losses 306 180
----- -----
Balance at September 30 $ 462 $ 795
===== =====
</TABLE>
There are no significant loans held for sale at September 30, 1995.
Nonaccrual loans for which interest has been reduced totaled
approximately $828 and $1,283 at September 30, 1995 and 1994,
respectively. Interest income foregone on the related nonaccrual
loans totaled $35 and $45 during 1995 and 1994, respectively.
-13-
<PAGE> 248
4. PREMISES AND EQUIPMENT
Premises and equipment at September 30 are summarized by major
classifications as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land $ 397 $ 397
Buildings and improvements 2,866 2,866
Furniture, fixtures and equipment 1,661 1,641
------ ------
Total 4,924 4,904
Less accumulated depreciation 2,337 2,086
------ ------
Premises and equipment, net $2,587 $2,818
====== ======
</TABLE>
Depreciation expense charged to operations was $250, $261 and $262 for
the years ended September 30, 1995, 1994, and 1993, respectively.
5. STOCK IN FHLB
The Bank is a member of the FHLB System. As a member of this system,
it is required to maintain an investment in capital stock of the FHLB
of Atlanta. The investment is stated at cost. At September 30, 1995
and 1994, the investment in such stock amounted to $768 and $711,
respectively.
6. LOAN SERVICING FEES
Mortgage loans serviced for others are not included in the
accompanying consolidated statements of financial condition. The
unpaid principal balances of these loans was $32,921 and $31,588 at
September 30, 1995 and 1994, respectively.
7. RETIREMENT PLAN
The Bank has a defined benefit noncontributory retirement plan
covering substantially all of its employees. Benefits are generally
based upon the employee's highest average compensation for a
consecutive five year period preceding normal retirement date. It is
the Bank's policy to make contributions to the plan sufficient to meet
minimum funding requirements of applicable laws and regulations. Plan
assets consist principally of passbook savings, a certificate of
deposit and cash surrender value of life insurance policies held under
the plan.
Net periodic pension cost for the years ended September 30 consisted
of the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost for benefits earned during the year $ 94 $ 89 $ 82
Interest cost on projected
benefit obligation 88 92 81
Actual return on plan assets (31) (5) (23)
Accretion of unrecognized net transition liability (32) (75) (42)
---- ---- ----
Net periodic pension cost (included in
other noninterest expense) $119 $101 $ 98
==== ==== ====
</TABLE>
-14-
<PAGE> 249
The following table sets forth the funded status of the plan and
amounts recognized in the Bank's statement of financial condition at
September 30:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested $ 818 $ 664
Nonvested 7 7
------ ------
825 671
Effect of projected future compensation 492 475
------ ------
Projected benefit obligation 1,317 1,146
Plan assets at fair value 1,063 950
------ ------
Projected benefit obligation in excess of
plan assets (254) (196)
Unrecognized net transition liability 102 110
Unrecognized net loss 308 188
------ ------
Prepaid pension cost (included in other assets) $ 156 $ 102
====== ======
</TABLE>
Assumptions used in determining the actuarial information for the
years ended September 30, were as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Discount rate for plan obligation 7.5% 8.5%
Assumed rate of return on plan assets 7.5% 8.5%
Projected compensation increase 5.0% 6.0%
</TABLE>
8. INCOME TAXES
Income tax expense for the years ended September 30 is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Federal:
Current $ 91 $ 403 $ 409
Deferred (30) (20) 19
---- ----- -----
Total 61 383 428
---- ----- -----
State:
Current 1 30
Deferred (5) (11) 12
---- ----- -----
Total (4) 19 12
---- ----- -----
Total income tax expense $ 57 $402 $440
==== ==== ====
</TABLE>
-15-
<PAGE> 250
The provision for federal income tax differs from that computed at the
statutory corporate tax rate of 34% for the years ended September 30:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Expected income tax expense at statutory rate $ 88 $447 $461
Book bad debt provision in excess of (less than)
allowable tax bad debt deduction (77)
State excise tax, net of federal benefit 6 20 10
Effect of adoption of SFAS No. 109 (48)
Other (37) (17) 46
---- ---- ----
Total income tax expense $ 57 $402 $440
==== ==== ====
</TABLE>
For the year ended September 30, 1993, deferred income tax expense
results from differences in the recognition of income and expense for
tax and financial reporting purposes. The sources of the differences
and the related tax effects are as follows:
<TABLE>
<S> <C>
(Increase) decrease in accrued pension liability $ (2)
FHLB stock dividends 21
Effects of accounting for loan fees
for book differently from tax 18
Capital loss not currently deductible (18)
Prepaid expenses currently deductible 12
Depreciation 3
Effect of allowable federal bad
debt deduction applied to above (3)
Other ----
Total $ 31
====
</TABLE>
The tax effects of temporary differences that give rise to deferred
tax assets and liabilities at September 30, 1995 and 1994 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets:
Unrealized holding losses on securities available for sale $ 104 $ 383
Allowance for loan losses 31 97
Accrued expenses 244 94
Capital loss carryover 6 6
------ -----
Total assets 385 580
------ -----
Deferred tax liabilities:
Deferred loan fees 171 118
Depreciation 28 9
FHLB stock dividends 129 142
Prepaid expenses 49 58
Other 6
------ -----
Total liabilities 383 327
------ -----
Net deferred tax asset $ 2 $ 253
====== =====
</TABLE>
Retained earnings at September 30, 1995 includes approximately $3,900,
representing bad debt deductions for which no deferred income taxes
were provided under the Bank's previous method of
-16-
<PAGE> 251
accounting (see Note 1). This amount represents an allocation of
income to bad debt deductions for tax purposes only. Reduction of
amount so allocated for purposes other than tax bad debt losses or
adjustments arising from carryback from net operating losses would
create income for tax purposes only, which would be subject to the
then current corporate income tax rate. The unrecorded deferred
income tax liability on this amount was approximately $1,429 at
September 30, 1995.
9. BORROWED FUNDS
Borrowed funds consist entirely of advances from the FHLB and amounted
to $6,000 and $9,000 at September 30, 1995 and 1994, respectively.
Pursuant to collateral agreements with the FHLB, advances are secured
by qualifying first mortgage loans. All advances at September 30,
1995 have maturity dates of less than one year.
Interest expense incurred on such advances during 1995, 1994 and 1993
was $567, $202, and $86, respectively. The weighted average cost of
these advances was 6.48%, 4.42% and 3.32% at September 30, 1995, 1994,
and 1993, respectively.
10. CAPITAL REQUIREMENTS
FIRREA regulations require institutions to have minimum regulatory
tangible capital equal to 1.5 percent of total assets, minimum core
capital equal to 3.0 percent of total assets, and an 8.0 percent
risk-based capital ratio.
The Bank may not declare or pay a cash dividend on, or repurchase, any
of its common stock if the effect thereof would cause the net worth of
the Bank to be reduced below either the amount required for its
liquidation account or the net worth requirements imposed by the OTS.
As of September 30, 1995, the Bank was in compliance with these
requirements.
At September 30, 1995 the Bank had capital under generally accepted
accounting principles ("GAAP") and regulatory capital and ratios as
follows (dollars in thousands):
<TABLE>
<CAPTION>
REGULATORY
------------------------------------
GAAP TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL CAPITAL
<S> <C> <C> <C> <C>
GAAP capital, per consolidated
financial statements $ 9,654 $ 9,654 $ 9,654 $ 9,654
=======
Additional capital items x:
Unrealized dedpreciation on securities
available for sale 179 179 179
General valuation allowance 380
------- ------- -------
Regulatory capital-computed 9,833 9,833 10,213
Minimum capital required 1,888 3,777 5,761
------- ------- -------
Regulatory capital-excess $ 7,945 $ 6,056 $ 4,452
======= ======= =======
Regulatory capital as a percentage of total
assets or risk-adjusted assets 7.81% 7.81% 14.18%
Minimum capital required as a
percentage 1.50 3.00 8.00
------- ------- -------
Regulatory capital as a percentage
in excess of requirement 6.31% 4.81% 6.18%
======= ======= =======
</TABLE>
-17-
<PAGE> 252
GAAP capital per the consolidated financial statements is $474 less
than GAAP capital reported to the OTS in the Thrift Financial Report
due to: (i) the Bank reclassifying all securities previously
classified as held to maturity into the available for sale category as
described in Note 2 which decreased capital by $36, and (ii) net audit
adjustments which decreased capital by $438.
11. COMMITMENTS AND CONTINGENCIES
The Bank makes loan commitments and incurs contingent liabilities in
the normal course of business. As of September 30 outstanding loan
commitments issued by the Bank (excluding loans in process) in the
normal course of business were as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------- -----------------------------
AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C>
Fixed $ 259 8.75% - 9.50% $ 188 7.250% - 8.750%
Variable 268 5.50% - 9.50% 435 5.250% - 6.250%
----- -----
Total $ 527 $ 623
===== =====
</TABLE>
At periodic intervals, both OTS and the Federal Deposit Insurance
Corporation routinely examine the Bank's consolidated financial
statements as part of their legally prescribed oversight of the
savings institutions industry. Based on these examinations, the
regulators can direct that the Bank's consolidated financial
statements be adjusted in accordance with their findings.
12. INTEREST RATE RISK
The Bank is engaged principally in providing first mortgage loans to
individuals and commercial enterprises. At September 30, 1995, the
Bank's assets consist partly of assets that earned interest at fixed
interest rates. Those assets were funded primarily with short-term
liabilities that have interest rates that vary with market rates over
time. The shorter duration of the interest-sensitive liabilities
indicates that the Bank is exposed to interest rate risk because, in a
rising rate environment, liabilities will be repricing faster at
higher interest rates, thereby reducing the market value of long-term
assets and net interest income. Conversely, in a decreasing rate
environment, the Bank's asset value and net interest income will show
improvement.
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK
At September 30, 1995, financial instruments with off-balance sheet
risk to the Bank consisted of several letters of credit which totaled
$136. Management does not expect to incur any loss in connection with
these letter of credit commitments.
The Bank originates most of its loans in Sheffield, Florence, Muscle
Shoals, Tuscumbia and surrounding areas of Alabama.
14. EMPLOYEE BENEFIT PLANS
The Bank's stock option plan is for the benefit of officers and other
employees. Pursuant to the exercise of any option granted under the
stock option plan, 36,000 shares of authorized capital stock have been
reserved for future issuance. As of September 30, 1995, 36,000 shares
have been made available to executive officers and certain employees
by grants of options.
-18-
<PAGE> 253
The following table sets forth certain information regarding stock
options for the years ended September 30:
<TABLE>
<CAPTION>
Exercise Price $24.125 $12 $10 $9.75
<S> <C> <C> <C> <C>
OPTIONS
1993:
Outstanding at October 1, 1992 10,500 13,500 1,000
Exercised (1,000)
------ ------ ------
Outstanding at September 30, 1993 10,500 13,500 -
------ ------ ======
1994:
Granted 11,000
------- ------ ------
Outstanding at September 30, 1994 11,000 10,500 13,500
======= ====== ======
1995:
Granted
Exercised
------- ------ ------
Outstanding at September 30, 1995 11,000 10,500 13,500
======= ====== ======
Year scheduled to expire 2004 2002 1997
</TABLE>
In 1991 the Bank entered into deferred compensation agreements with
certain of its directors whereby the directors or their beneficiaries
will be provided specific annual retirement benefits for a period of
fifteen years from age 65. At September 30, 1995, the total amount to
be paid for the obligation under these agreements is $641. The Bank
is accruing the present value of such compensation from the date of
the agreements. The liability for deferred compensation related to
these agreements is $76 at September 30, 1995, computed using a
discount rate of 7.5%. The total expense applicable to these
agreements in 1995 was $44.
To provide funds for the payments under these deferred compensation
agreements the Bank has taken out insurance policies on the lives of
the directors covered by these plans. Cash surrender value of these
policies recorded as of September 30, 1995 and included in other
assets is $32.
-19-
<PAGE> 254
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the years ended September 30
is as follows:
<TABLE>
<CAPTION>
QUARTER
------------------------------------------------
FIRST SECOND THIRD FOURTH
<S> <C> <C> <C> <C>
1995:
Interest income $ 2,149 $ 2,191 $ 2,267 $ 2,365
Interest expense (1,175) (1,312) (1,463) (1,538)
------- ------- ------- -------
Net interest income 974 879 804 827
Provision for loan losses (75) (65) (71) (95)
Noninterest income 92 76 129 185
Noninterest expense (769) (808) (889) (936)
------- ------- ------- -------
Income before income taxes 222 82 (27) (19)
Income tax expense (75) (17) 18 17
------- ------- ------- -------
Net income (loss) $ 147 $ 65 $ (9) $ (2)
======= ======= ======= =======
Earnings (loss) per share (Note 1) $ 0.41 $ 0.18 $ (0.02) $ (0.01)
======= ======= ======= =======
Cash dividends per share $ 0.60 $ 0 $ 0 $ 0
======= ======= ======= =======
Market price per share:
Low $27 1/4 $ 28 $ 23 $25
======= ======= ======= =======
High $30 $ 29 $ 28 $25 1/2
======= ======= ======= =======
1994:
Interest income $ 2,093 $ 2,065 $ 2,096 $ 2,158
Interest expense (1,163) (1,001) (1,061) (1,147)
------- ------- ------- -------
Net interest income 930 1,064 1,035 1,011
Provision for loan losses (75) (55) (50)
Noninterest income 184 389 116 118
Noninterest expense (846) (842) (843) (821)
------- ------- ------- -------
Income before income taxes 193 556 308 258
Income tax expense (28) (220) (64) (90)
------- ------- ------- -------
Net income $ 165 $ 336 $ 244 $ 168
======= ======= ======= =======
Earnings per share (Note 1) $ 0.46 $ 0.93 $ 0.68 $ 0.46
======= ======= ======= =======
Cash dividends per share $ 0.50 $ 0 $ 0 $ 0
======= ======= ======= =======
Market price per share:
Low $19 $19 1/2 $22 1/2 $22 3/4
======= ======= ======= =======
High $19 1/2 $23 $23 $27 1/4
======= ======= ======= =======
</TABLE>
16. SUBSEQUENT EVENTS
On October 11, 1995, the Bank declared a cash dividend of $.60 per
share (declared based on fiscal 1995 operations) to stockholders of
record as of October 23, 1995. The dividend is payable November 6,
1995.
-20-
<PAGE> 255
On November 1, 1995, the Bank entered into a definitive merger
agreement ("Agreement") with Union Planters Corporation ("UPC").
Consummation of the affiliation is subject to approval of the Bank's
stockholders. Under terms of the Agreement, UPC will acquire all of
the outstanding shares of the Bank and the Bank's shareholders will
receive 1.2195 shares of UPC common stock for each share of the Bank's
common stock.
As of April 10, 1996, the Board of Directors of the Bank had
agreed with the request of UPC to amend the terms of the previously
announced Agreement. Under the revised terms of the Agreement, the
Bank's shareholders will receive 1.0976 shares of UPC stock for each
share of the Bank's common stock.
17. RESTATEMENT
Subsequent to the issuance of the September 30, 1995
consolidated financial statements, in April 1996, the Bank learned that
its accruals of interest payable and interest espense for the years
ended September 30, 1995 and 1994 were understated. These
underaccruals occurred principally as a result of a change in the
method of crediting interest to customer accounts on certificates of
deposit from a quarterly to an annual basis which was not reflected in
the amount of accrued interest reported. Accordingly, the accompanying
consolidated financial statements for the years ended September 30,
1995 and 1994 have been restated.
The effects of the restatement on the consolidated financial
statements is as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------- ---------------------------
As Previously As As Previously As
Reported Restated Reported Restated
<S> <C> <C> <C> <C>
As of September 30:
Income taxes - deferred asset $ 2 $ 180 $ 253
Accrued interest payable $ 24 589 20 220
Income taxes - deferred liability 205
Retained earnings, substantially restricted 6,994 6,636 6,778 6,651
Year Ended September 30:
Interest expense - deposits 4,556 4,921 3,970 4,170
Income tax expense 191 57 475 402
Net income 432 201 1,040 913
Earnings per share 1.20 0.56 2.88 2.53
</TABLE>
* * * * *
-21-
<PAGE> 256
VALLEY FEDERAL SAVINGS BANK
CONSOLIDATED FINANCIAL STATEMENTS
for the three months ended December 31, 1995 and 1994
<PAGE> 257
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
RESTATED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1995 AND SEPTEMBER 30, 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1995
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,052 $ 3,312
Interest-bearing deposits with banks 558 572
Securities available for sale, at market (amortized cost of
$19,055 and $21,365) 18,866 21,083
Loans receivable, net of allowance for loan losses
of $488 and $462 94,888 96,033
Accrued interest receivable 916 815
Premises and equipment, net 2,527 2,587
Stock in Federal Home Loan Bank, at cost 768 786
Income taxes:
Current 107 146
Deferred 18 2
Other assets 401 593
------------ ------------
TOTAL ASSETS $ 122,101 $ 125,911
============ ============
</TABLE>
- 1 -
<PAGE> 258
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
RESTATED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1995 AND SEPTEMBER 30, 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 105,694 $ 108,717
Borrowed funds 5,000 6,000
Advances by borrowers for taxes and
insurance 390 621
Accrued interest payable 730 589
Other liabilities 728 330
----------- ----------
Total liabilities 112,542 116,257
----------- ----------
STOCKHOLDERS' EQUITY:
Serial preferred stock - $.01 par value,
authorized 5,000,000 shares - none issued
Common stock - $.01 par value, 15,000,000
shares authorized, 364,160 shares issued
and outstanding 4 4
Additional paid-in capital 3,225 3,193
Retained earnings, substantially restricted 6,455 6,636
Net unrealized depreciation on securities
available for sale, net of related tax effect
of $64 and $104 (Note 4) (125) (179)
----------- -----------
Total stockholders' equity 9,559 9,654
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 122,101 $ 125,911
=========== ===========
</TABLE>
See notes to consolidated financial statements.
- 2 -
<PAGE> 259
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
RESTATED CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
INTEREST INCOME:
Loans receivable $ 2,042 $ 1,807
Securities available for sale 320 287
Securities held to maturity 44
Other 1 11
--------- --------
Total interest income 2,363 2,149
--------- --------
INTEREST EXPENSE:
Deposits 1,425 1,032
Borrowed funds 91 143
--------- --------
Total interest expense 1,516 1,175
--------- --------
NET INTEREST INCOME 847 974
PROVISION FOR LOAN LOSSES 45 75
--------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 802 899
--------- --------
NONINTEREST INCOME:
Loan fees and service charges 96 71
Loan servicing fees 29 32
Net gain (loss) on sales of:
Securities available for sale 22
Loans (13)
Other 2
--------- --------
Total noninterest income 147 92
--------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits 345 354
Occupancy 120 123
Data processing 47 35
Insurance premiums 73 69
Advertising 21 37
Professional fees 148 36
Other 141 115
--------- --------
Total noninterest expense 895 769
--------- --------
</TABLE>
- 3 -
<PAGE> 260
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
RESTATED CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
INCOME BEFORE INCOME
TAX EXPENSE $ 54 $ 222
INCOME TAX EXPENSE 19 75
------------ ------------
NET INCOME $ 35 $ 147
============ ============
AVERAGE COMMON SHARES
OUTSTANDING 361,137 361,000
============ ============
EARNINGS PER SHARE (Note 3) $ 0.10 $ 0.41
============ ============
CASH DIVIDENDS PER SHARE $ 0.60 $ 0.60
============ ============
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE> 261
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
RESTATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE QUARTERS ENDED DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET UNREALIZED
RETAINED DEPRECIATION
ADDITIONAL EARNINGS, ON SECURITIES TOTAL
COMMON PAID-IN SUBSTANTIALLY AVAILABLE STOCKHOLDERS'
STOCK CAPITAL RESTRICTED FOR SALE EQUITY
<S> <C> <C> <C> <C> <C>
FOR THE QUARTER ENDED
DECEMBER 31, 1995:
Balance at September 30, 1995 $4 $3,193 $6,636 $(179) $9,654
Cash dividends, $.60 per share
(declared based on fiscal
1995 operations) (216) (216)
Net income for the quarter
ended December 31, 1995 35 35
Exercise of stock options 32 32
Net change in unrealized
depreciation on securities
available for sale, net of
taxes of $40 54 54
-- ------ ------ ------ ------
Balance at December 31, 1995 $4 $3,225 $6,455 $(125) $9,559
== ====== ====== ====== ======
FOR THE QUARTER ENDED
DECEMBER 31, 1994:
Balance at September 30, 1994 $4 $3,193 $6,651 $(661) $9,187
Cash dividends, $.60 per share
(declared based on fiscal
1994 operations) (216) (216)
Net income for the quarter
ended December 31, 1994 147 147
Net change in unrealized
depreciation on securities
available for sale, net of
taxes of $130 (225) (225)
-- ------ ------ ------ ------
Balance at December 31, 1994 $4 $3,193 $6,582 $ (886) $8,893
== ====== ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE> 262
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
RESTATED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED DECEMBER 31, 1995 AND 1994 (DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 35 $ 147
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 59 58
Provision for loan losses 45 75
Accretion/amortization, net (45) (32)
Proceeds from loans held for sale 1,090 260
Originations of loans held for sale (1,090) (247)
(Gain) loss on sale of:
Securities available for sale (22)
Loans 13
(Increase) decrease in other assets 114 (162)
Increase (decrease) other liabilities 273 145
------- -------
Net cash provided by operating activities 459 257
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in interest-bearing deposits with banks 14 713
Purchases of:
Securities held to maturity (272)
Securities available for sale (2,232)
Proceeds from sale of securities available for sale 4,019
Proceeds from maturities of:
Securities held to maturity 356
Securities available for sale 588 948
Net (increase) decrease in loans 1,100 (1,903)
------- -------
Net cash provided by (used in) investing activities 3,489 (158)
------- ------
</TABLE>
- 6 -
<PAGE> 263
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
RESTATED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED DECEMBER 31, 1995 AND 1994 (DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits $ (3,024) $(2,885)
Net increase (decrease) in borrowed funds (1,000) 3,000
Cash dividends paid (216) (217)
Additional paid-in capital from options exercised 32
-------- --------
Net cash used in financing activities (4,208) (102)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (260) (3)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 3,312 1,979
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,052 $ 1,976
======== ========
SUPPLEMENTAL INFORMATION
FOR CASH FLOW:
Cash paid during the quarter for:
Interest $ 1,371 $ 1,112
======== ========
</TABLE>
See notes to consolidated financial statements.
- 7 -
<PAGE> 264
VALLEY FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. The consolidated financial statements include the accounts of Valley
Federal Savings Bank and its wholly-owned subsidiary, Valley Service
Corporation of Alabama (collectively the "Bank").
2. The consolidated financial statements at December 31, 1995 and for the
quarters ended December 31, 1995 and 1994 have been prepared in accordance
with instructions pursuant to Form 10-Q Quarterly Report. The data is
unaudited but, in the opinion on management, reflects all accruals and
adjustments necessary for a fair presentation of the Bank's financial
condition, results of operations and cash flows at the dates and for the
periods indicated. The results of operations for the quarters ended
December 31, 1995 are not necessarily indicative of results to be expected
for the entire fiscal year of 1996.
3. Earnings per share are computed based upon the weighted average number of
shares plus equivalent shares outstanding. The dilutive effect of shares
issuable under stock options is immaterial.
4. Effective October 1, 1995, the Bank adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, Accounting by Creditors for
Impairment of a Loan. SFAS No. 114 (later amended by SFAS No. 118)
addresses the accounting by creditors for impairment of certain loans and
applies to all loans that are restructured in a troubled debt
restructuring. It requires that impaired loans be measured based on the
present value of expected cash flows discounted at the loan's effective
interest rate. The adoption of this statement did not have a material
effect on the Bank's financial statements.
The Bank also adopted the provisions of SFAS No. 107, Disclosures About the
Fair Value of Certain Financial Instruments in its 1996 financial
statements. This Statement requires the Bank to disclose the fair value of
its securities, loans, deposits, borrowings, commitments and other
financial instruments, as well as the method of determining such values.
The adoption of this statement will affect the Bank's annual financial
statements only in terms of expanded disclosures.
5. On November 1, 1995, the Bank entered into a definitive merger agreement
("Agreement") with Union Planters Corporation ("UPC"). Consummation of the
affiliation is subject to approval of the Bank's stockholders. Under terms
of the agreement, UPC will acquire all of the outstanding shares of the
Bank and the Bank's shareholders will receive 1.2195 shares of UPC common
stock for each share of the Bank's common stock. As of April 10, 1996, the
Board of Directors of the Bank had agreed with the request of UPC to amend
the terms of the previously announced Agreement. Under the revised terms
of the Agreement, the Bank's shareholders will receive 1.0976 shares of UPC
stock for each share of the Bank's common stock.
6. Subsequent to the issuance of the September 30, 1995 consolidated financial
statements and the filing on Form 10-Q for the quarter ended December 31,
1995, in April 1996, the Bank learned that its accruals of interest payable
and interest expense for the years ended September 30, 1995 and 1994 and
the quarters ended December 31, 1995 and 1994 were understated. These
underaccuals occurred because of the Bank's oversight of the facts dealing
principally with a change in the Bank's practice of crediting interest to
customer accounts on certificates of deposit from a quarterly to an annual
basis. Such change in practice of crediting interest was erroneously
omitted from the amount of accrued interest reported. Accordingly, the
accompanying consolidated financial statements for the year ended September
30, 1995 and the quarters ended December 31, 1995 and 1994 have been
restated.
- 8 -
<PAGE> 265
The effects of the restatement on the consolidated financial statements are
as follows:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1995 SEPTEMBER 30, 1995
AS PREVIOUSLY AS AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
<S> <C> <C> <C> <C>
Statements of Financial Condition:
Income taxes - deferred asset $ 18 $ 2
Accrued interest payable $ 18 730 $ 24 589
Income taxes - deferred liability 243 205
Retained earnings, substantially restricted 6,906 6,455 6,994 6,636
<CAPTION>
QUARTER ENDED QUARTER ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
AS PREVIOUSLY AS AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
<S> <C> <C> <C> <C>
Statements of Income:
Interest expense - deposits $ 1,278 $ 1,425 $ 964 $ 1,032
Income tax expense 73 19 100 75
Net income 128 35 190 147
Earnings per share 0.35 0.10 0.53 0.41
</TABLE>
- 9 -
<PAGE> 266
PART II
INFORMATION NOT REQUIRED IN PROXY STATEMENT-PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Restated Charter of the Registrant provides as follows:
TWELFTH: INDEMNIFICATION OF CERTAIN PERSONS:
To the fullest extent permitted by Tennessee law, the Corporation may indemnify
or purchase and maintain insurance to indemnify any of its directors, officers,
employees or agents and any persons who may serve at the request of the
Corporation as directors, officers, employees, trustees or agents of any other
corporation, firm, association, national banking association, state-chartered
bank, trust company, business trust, organization or any other type of entity
whether or not the Corporation shall have any ownership interest in such
entity. Such indemnification(s) may be provided for in the Bylaws, or by
resolution of the Board of Directors or by appropriate contract with the person
involved.
Article V, INDEMNIFICATION, of the Registrant's Bylaws provides as follows:
The Corporation does hereby indemnify its directors and officers to the fullest
extent permitted by the laws of the State of Tennessee and by ARTICLE TWELFTH
of its Charter. The Corporation may indemnify any other person to the extent
permitted by the Charter and by applicable law.
Indemnification of corporate directors and officers is governed by Sections
48-18-501 through 48-18-509 of the Tennessee Business Corporation Act (the
"Act"). Under the Act, a person may be indemnified by a corporation against
judgments, fines, amounts paid in settlement and reasonable expenses (including
attorneys' fees) actually and necessarily incurred by him in connection with
any threatened or pending suit or proceeding or any appeal thereof (other than
an action by or in the right of the corporation), whether civil or criminal, by
reason of the fact that he is or was a director or officer of the corporation
or is or was serving at the request of the corporation as a director or
officer, employee or agent of another corporation of any type or kind, domestic
or foreign, if such director or officer acted in good faith for a purpose which
he reasonably believed to be in the best interest of the corporation and, in
criminal actions or proceedings only, in addition, had no reasonable cause to
believe that his conduct was unlawful. A Tennessee corporation may indemnify a
director or officer thereof in a suit by or in the right of the corporation
against amounts paid in settlement and reasonable expenses, including
attorneys' fees, actually and necessarily incurred as a result of such suit
unless such director or officer did not act in good faith or with the degree of
diligence, care and skill which ordinarily prudent men exercise under similar
circumstances and in like positions.
II-1
<PAGE> 267
A person who has been wholly successful, on the merits or otherwise, in the
defense of any of the foregoing types of suits or proceedings is entitled to
indemnification for the foregoing amounts. A person who has not been wholly
successful in any such suit or proceeding may be indemnified only upon the
order of a court or a finding that the director or officer met the required
statutory standard of conduct by (i) a majority vote of a disinterested quorum
of the board of Directors, (ii) the Board of Directors based upon the written
opinion of independent legal counsel to such effect, or (iii) a vote of the
shareholders.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
2 -- Agreement and Plan of Combination dated as of November 1, 1995, as amended April 11, 1996, by
and between Union Planters Corporation, Valley Federal Interim Savings Bank and Valley Federal
Savings Bank, along with the Plan of Combination and Letter Agreement.
5 -- Opinion of E. James House, Jr., Esquire, Secretary and Manager of the Legal Department of Union
Planters Corporation, regarding legality of the Union Planters Corporation Common Stock.
23(a) -- Consent of E. James House, Jr., Esq. (included in Exhibit 5).
23(b) -- Consent of Price Waterhouse LLP
23(c) -- Consent of Deloitte & Touche LLP
23(d) -- Consent of KPMG Peat Marwick LLP
23(e) -- Consent of Trident Financial Corporation
24 -- Power of Attorney (included in signature pages).
99(a) -- Form of Proxy
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under
the Securities Act of 1933, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of
II-2
<PAGE> 268
the Securities Exchange Act of 1934 that is incorporated by reference
in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(2) That for purposes of determining any liability under
the Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(3) That for the purpose of determining any liability
under the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(4) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(5) To respond to requests for information that is
incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11, or 13 of this Form S-4, within one business day of receipt
of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(6) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the
registration statement when it became effective.
(7) That prior to any public reoffering of the securities
registered hereunder through the use of a prospectus which is a part
of this registration statement, by any
II-3
<PAGE> 269
person or party who is deemed to be an underwriter within the meaning
of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration
form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other
items of the applicable form.
(8) That every prospectus: (i) that is filed pursuant to
Paragraph (7) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used on connection
with and offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE> 270
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Memphis, State of Tennessee, on the 15th day of February 1996.
DATE: February 15, 1996
UNION PLANTERS CORPORATION
By: /s/ Benjamin W. Rawlins, Jr.
-----------------------------
Benjamin W. Rawlins, Jr.
Chairman of the Board and Chief
Executive Officer
We, the undersigned directors and officers of Union Planters Corporation do
hereby constitute and appoint E. James House, Jr. and M. Kirk Walters, and each
of them, our true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for us and in our name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, and we do
hereby ratify and confirm all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Name Capacity Date
- ---- -------- ----
<S> <C> <C>
/s/ Benjamin W. Rawlins, Jr.
- ---------------------------- Chairman of the Board, 2/15/96
Benjamin W. Rawlins, Jr. Chief Executive Officer,
Director (Principal
Executive Officer)
/s/ John W. Parker
- ---------------------------- Executive Vice President 2/15/96
John W. Parker and Chief Financial
Officer (Principal
Financial Officer)
/s/ M. Kirk Walters
- ---------------------------- Senior Vice President, 2/15/96
M. Kirk Walters Treasurer and Chief
Accounting Officer
- ---------------------------- Director
Albert M. Austin
</TABLE>
II-5
<PAGE> 271
<TABLE>
<S> <C> <C>
/s/ Marvin E. Bruce
- ---------------------------- Director 2/15/96
Marvin E. Bruce
/s/ George W. Bryan
- ---------------------------- Director 2/15/96
George W. Bryan
/s/ Robert B. Colbert, Jr.
- ---------------------------- Director 2/15/96
Robert B. Colbert, Jr.
/s/ C. J. Lowrance, III
- ---------------------------- Director 2/15/96
C. J. Lowrance, III
/s/ Jackson W. Moore
- ---------------------------- President and Director 2/15/96
Jackson W. Moore
/s/ Stanley D. Overton
- ---------------------------- Director 2/15/96
Stanley D. Overton
/s/ V. Lane Rawlins
- ---------------------------- Director 2/15/96
V. Lane Rawlins
/s/ Mike P. Sturdivant
- ---------------------------- Director 2/15/96
Mike P. Sturdivant
/s/ Richard A. Trippeer, Jr.
- ---------------------------- Director 2/15/96
Richard A. Trippeer, Jr.
- ---------------------------- Director
Milton J. Womack
</TABLE>
II-6
<PAGE> 272
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
2 Agreement and Plan of Combination dated as of November 1, 1995, as amended April 11, 1996 by
and among Union Planters Corporation, Valley Federal Interim Savings Bank and Valley Federal
Savings Bank along with the Plan of Combination and Letter Agreement (included as Appendix A
to the Proxy Statement-Prospectus).
5 Opinion of E. James House, Jr., Esquire, Secretary and Manager of the Legal Department of
Union Planters Corporation, regarding legality of the Union Planters Corporation Common
Stock.
23(a) Consent of E. James House, Jr., Esq. (included in Exhibit 5).
23(b) Consent of Price Waterhouse LLP
23(c) Consent of Deloitte & Touche LLP
23(d) Consent of KPMG Peat Marwick LLP
23(e) Consent of Trident Financial Corporation
24 Power of Attorney (included in signature pages).
99(a) Form of Proxy
</TABLE>
<PAGE> 1
EXHIBIT 5
LEGAL OPINION OF E. JAMES HOUSE, JR.
AS TO VALIDITY OF SHARES OF UPC COMMON STOCK
<PAGE> 2
LOGO EXHIBIT 5
UNION PLANTERS CORPORATION
April 19, 1996
Union Planters Corporation
7130 Goodlett Farms Parkway
Memphis, Tennessee 38018
Re: 434,650 Shares of the Common Stock, $5.00 Par Value Per Share
of Union Planters Corporation, a Tennessee Corporation ("UPC")
Gentlemen:
The undersigned has participated in the preparation of a registration statement
on Form S-4 (the "Registration Statement") for filing with the Securities and
Exchange Commission in respect to not more than 434,650 shares of UPC's common
stock, $5.00 par value per share ("UPC Common Stock") which may be issued by
UPC pursuant to an Agreement and Plan of Combination dated as of November 1,
1995 (as amended April 11, 1996) by and between UPC, Valley Interim Federal
Savings Bank and Valley Federal Savings Bank (the "Agreement").
For purposes of rendering the opinion expressed herein, the undersigned has
examined UPC's corporate charter and all amendments thereto; UPC's by-laws and
amendments thereto; the Agreement and such of UPC's corporate records as the
undersigned has deemed necessary and material to rendering the undersigned's
opinion. The undersigned has relied upon certificates of public officials and
representations of UPC officials, and has assumed that all documents examined
by the undersigned as originals are authentic, that all documents submitted to
the undersigned as photocopies are exact duplicates of original documents, and
that all signatures on all documents are genuine.
Further, the undersigned is familiar with and has supervised all corporate
action taken in connection with the authorization of the issuance and offering
of the subject securities.
Based upon and subject to the foregoing and subsequent assumptions,
qualifications and exceptions, it is the undersigned's opinion that:
1. UPC is a duly organized and validly existing corporation in good
standing under the laws of the State of Tennessee and has all requisite power
and authority to issue, sell and deliver the subject securities, and to carry
on its business and own its property; and
2. The shares of UPC Common Stock to be issued by UPC pursuant to the
Merger have been duly authorized and when issued by UPC in accordance
therewith, such shares of UPC Common Stock will be fully paid and
nonassessable.
<PAGE> 3
Union Planters Corporation
April _____, 1996
Page 2
The opinion expressed above is limited by the following assumptions,
qualifications and exceptions.
(a) The undersigned is licensed to practice law only in the State
of Tennessee and expresses no opinion with respect to the effect of any laws
other than those of the State of Tennessee and of the United States of America.
(b) The opinion stated herein is based upon statutes, regulations,
rules, court decisions and other authorities existing and effective as of the
date of this opinion, and the undersigned undertakes no responsibility to
update or supplement said opinion in the event of or in response to any
subsequent changes in the law or said authorities, or upon the occurrence after
the date hereof of events or circumstances that, if occurring prior to the date
hereof, might have resulted in a different opinion.
(c) This opinion has been rendered solely for the benefit of Union
Planters Corporation and no other person or entity shall be entitled to rely
hereon without the express written consent of the undersigned.
(d) This opinion is limited to the legal matters expressly set
forth herein, and no opinion is to be implied or inferred beyond the legal
matters expressly so addressed.
The undersigned hereby consents to the undersigned being named as a party
rendering a legal opinion under the caption " Legal Opinions" in the Proxy
Statement-Prospectus constituting part of the Registration Statement and to the
filing of this opinion with the Securities and Exchange Commission as well as
all state regulatory bodies and jurisdictions where qualification is sought for
the sale of the subject securities.
The undersigned is an officer of, and receives compensation from UPC and
therefore is not independent from UPC.
Very truly yours,
UNION PLANTERS CORPORATION
By: /s/ E. James House, Jr.
-------------------------
E. James House, Jr.
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement-Prospectus constituting part of this Registration Statement on Form
S-4 of Union Planters Corporation of our report dated January 18, 1996, which
appears on page 33 of Union Planters Corporation's 1995 Annual Report to
Shareholders, which is incorporated by reference in its Annual Report on Form
10-K for the year ended December 31, 1995. We also consent to the reference to
us under the heading "Experts" in such Proxy Statement-Prospectus.
/s/ Price Waterhouse LLP
Memphis, Tennessee
April 24, 1996
<PAGE> 1
EXHIBIT 23(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement of Union Planters
Corporation on Form S-4 of our report dated November 17, 1995, (April 10, 1996
as to paragraph 3 of Note 16 and as to Note 17) of Valley Federal Savings Bank
as of September 30, 1995 and 1994 and for the three years in the period ended
September 30, 1995 and to the reference to us under the heading "Experts" in
the Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Birmingham, Alabama
April 22, 1996
<PAGE> 1
Exhibit 23(d)
ACCOUNTANTS' CONSENT
We consent to incorporation by reference in the registration statement (No.
33-___) on Form S-4 of Union Planters Corporation of our report dated February
2, 1996, to the consolidated statements of financial position of Leader
Financial Corporation and subsidiary as of December 31, 1995 and 1994, and
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995,
which report appears in the Current Report on Form 8-K dated April 1, 1996 of
Union Planters Corporation.
Our report refers to changes in accounting principles related to the adoption
in 1994 of the provisions of the American Institute of Certified Public
Accountants' Statement of Position 93-6, Employers' Accounting for Employee
Stock Ownership Plans, and in 1993 of the provisions of the Financial
Accounting Standards Board's Statements of Financial Accounting No. 106,
Employer's Accounting for Postretirement Benefits Other than Pensions, and No.
115, Accounting for Certain Investments in Debt and Equity Securities.
April 19, 1996 /s/ KPMG Peat Marwick LLP
<PAGE> 1
EXHIBIT 23(e)
CONSENT
Board of Directors
Union Planters Corporation
7130 Goodlett Farms Parkway
Memphis, Tennessee 38018
Gentlemen:
We hereby consent to the inclusion in this Registration Statement on
Form S-4 of our opinion, dated as of the date of the Proxy Statement/Prospectus
included therein and to the references to our firm in the Proxy
Statement/Prospectus. In giving such consent, we do not thereby admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the Rules and Regulations of the
Securities and Exchange Commission thereunder.
/s/ Trident Financial Corporation
April 23, 1996
<PAGE> 1
PROXY EXHIBIT 99(a)
REVOCABLE PROXY
VALLEY FEDERAL SAVINGS BANK
- --------------------------------------------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS
JUNE __, 1996
- --------------------------------------------------------------------------------
The undersigned hereby appoints __________________ and _______________
with full powers of substitution, to act as proxies for the undersigned, to
vote all shares of Common Stock of Valley Federal Savings Bank ("Valley
Federal" or the "Bank") which the undersigned is entitled to vote at a Special
Meeting of Shareholders ("Meeting"), to be held at
__________________________________, __________________, Sheffield, Alabama on
_________, June __, 1996 at __:__ p.m., Central Daylight Time and at any and
all adjournments thereof, as follows:
FOR AGAINST ABSTAIN
--- ------- -------
1. The approval of the Agreement and Plan
of Combination dated as of November 1,
1995, as amended April 11, 1996, between
Union Planters Corporation ("UPC"),Valley
Interim Federal Savings Bank ("Interim")
and Valley Federal Savings Bank, including
a related Plan of Combination and Letter
Agreement (collectively, the "Combination
Agreement") and the merger of Interim and
Valley Federal with Valley Federal as the
surviving entity.
The Board of Directors recommends a vote "FOR" each of the listed
propositions.
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED OR
ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED FOR
EACH OF THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS IS PRESENTED AT THE
SPECIAL MEETING, THIS PROXY WILL BE VOTED AS DETERMINED BY A MAJORITY OF THE
BOARD OF DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
<PAGE> 2
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Special
Meeting or at any adjournment thereof and after notification to the Secretary
of the Bank at the Meeting of the shareholder's decision to terminate this
proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force and effect.
The undersigned acknowledges receipt from the Bank prior to the
execution of this proxy, a notice of the Meeting, and a Proxy
Statement-Prospectus dated ________ ___, 1996.
Dated:________
- --------------------------- ---------------------------
PRINT NAME OF SHAREHOLDER PRINT NAME OF SHAREHOLDER
- --------------------------- ---------------------------
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
Please sign exactly as your name appears on the envelope in which this card was
mailed. When signing as attorney, executor, administrator, trustee or
guardian, please give your full title. If shares are held jointly, each holder
should sign.
================================================================================
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
================================================================================
