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Filed Pursuant to Rule 424(b)(2)
Registration No. 333-00939
PROXY STATEMENT/PROSPECTUS
PROXY STATEMENT OF
FFE FINANCIAL CORP.
FOR AN ANNUAL MEETING OF ITS STOCKHOLDERS
TO BE HELD MARCH 28, 1996
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THIS PROXY STATEMENT INCLUDES THE PROSPECTUS OF
SOUTHTRUST CORPORATION
RELATING TO UP TO 331,761 SHARES OF COMMON STOCK
(PAR VALUE $2.50 PER SHARE)
TO BE ISSUED IN CONNECTION WITH A PROPOSED MERGER OF
FFE FINANCIAL CORP. INTO SOUTHTRUST OF
FLORIDA, INC., A WHOLLY-OWNED SUBSIDIARY OF
SOUTHTRUST CORPORATION
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION
WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SOUTHTRUST CORPORATION OR
FFE FINANCIAL CORP. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OF ANY SECURITIES OTHER THAN THE SHARES TO WHICH IT RELATES OR AN OFFER OF ANY
KIND TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL.
NEITHER DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ALL INFORMATION
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS RELATING TO SOUTHTRUST CORPORATION
AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY SOUTHTRUST CORPORATION AND ALL
INFORMATION RELATING TO FFE FINANCIAL CORP. AND ITS SUBSIDIARIES HAS BEEN
SUPPLIED BY FFE FINANCIAL CORP.
THIS PROXY STATEMENT/PROSPECTUS AND THE ACCOMPANYING FORM OF PROXY ARE
FIRST BEING MAILED TO STOCKHOLDERS OF FFE FINANCIAL CORP. ON OR ABOUT FEBRUARY
28, 1996.
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THE SECURITIES OF SOUTHTRUST CORPORATION OFFERED IN CONNECTION WITH THE
MERGER DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR BANK DEPOSITS,
ARE NOT OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION, AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY
The date of this Proxy Statement/Prospectus is February 28, 1996.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION................................................................. 3
INTRODUCTION.......................................................................... 4
SUMMARY............................................................................... 7
ELECTION OF DIRECTORS OF FFE.......................................................... 21
BENEFICIAL OWNERSHIP OF FFE COMMON STOCK.............................................. 27
THE MERGER............................................................................ 29
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................................. 50
DESCRIPTION OF SOUTHTRUST CAPITAL STOCK............................................... 51
PRO FORMA FINANCIAL INFORMATION....................................................... 56
MARKET AND DIVIDEND INFORMATION RESPECTING THE COMMON STOCK OF SOUTHTRUST AND FFE..... 61
COMPARISON OF THE COMMON STOCK OF SOUTHTRUST AND FFE.................................. 64
SUPERVISION AND REGULATION............................................................ 67
CERTAIN INFORMATION CONCERNING THE BUSINESS OF FFE AND
THE BANK............................................................................ 73
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 90
LEGAL MATTERS......................................................................... 107
EXPERTS............................................................................... 107
ADDITIONAL INFORMATION................................................................ 108
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 109
INDEX TO THE FINANCIAL STATEMENTS OF FFE FINANCIAL CORP............................... F-1
Exhibit A -- Agreement and Plan of Merger............................................. A-1
Exhibit B -- Subsidiary Agreement and Plan of Merger.................................. B-1
Exhibit C -- Opinion of Hovde Financial, Inc.......................................... C-1
Exhibit D -- SouthTrust Stock Option Agreement........................................ D-1
Exhibit E -- Delaware Dissent Provisions.............................................. E-1
</TABLE>
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AVAILABLE INFORMATION
SouthTrust Corporation, a Delaware corporation ("SouthTrust"), is subject
to the informational requirements of the Securities Exchange Act of 1934 (the
"Exchange Act") and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, Suite 1400,
500 West Madison Street, Chicago, Illinois 60661-2511. Copies of such material
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
SouthTrust has filed a Registration Statement on Form S-4 (herein, together
with all amendments thereto, called the "Registration Statement") with the
Commission under the Securities Act of 1933 (the "Securities Act") with respect
to the shares of Common Stock of SouthTrust offered hereby. This Proxy
Statement/Prospectus does not contain all of the information and undertakings
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to SouthTrust and the shares of Common
Stock of SouthTrust, reference is made to the Registration Statement and the
exhibits and schedules thereto. Statements contained in this Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to are not necessarily complete, and in each instance reference is made
to a copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement and the exhibits and schedules
thereto may be inspected at the Commission's office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies thereof may be obtained from the Public
Reference Section of the Commission at such address at prescribed rates.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE DOCUMENTS RELATING TO
SOUTHTRUST (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH EXHIBITS ARE NOT
SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE ON
REQUEST WITHOUT CHARGE FROM AUBREY D. BARNARD, SOUTHTRUST CORPORATION, 420 NORTH
20TH STREET, BIRMINGHAM, ALABAMA 35203, TELEPHONE NUMBER (205) 254-5000. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
MARCH 21, 1996. SEE "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
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INTRODUCTION
GENERAL
This Proxy Statement/Prospectus is being furnished to the holders of the
common stock, par value $.01 per share ("FFE Common Stock"), of FFE Financial
Corp., a Delaware corporation ("FFE"), in connection with the solicitation of
proxies by the Board of Directors of FFE for use at the annual meeting of
stockholders of FFE to be held on March 28, 1996, at 4:00 p.m., local time, at
the Beach Road branch of FFE at 1200 South McCall Road, Englewood, Florida
34223, and at any adjournment thereof (the "Annual Meeting").
The only matters to be considered at the Annual Meeting are (i) the
election two (2) persons to serve on the Board of Directors of FFE, (ii) the
consideration and vote upon that certain Agreement and Plan of Merger dated as
of November 3, 1995 (the "Merger Agreement") among FFE, SouthTrust Corporation,
a Delaware corporation ("SouthTrust"), and SouthTrust of Florida, Inc., a
Florida corporation and a wholly-owned subsidiary of SouthTrust ("ST-Sub"), and
(iii) the ratification and approval of the selection of KPMG Peat Marwick LLP as
the independent certified accountants of FFE for the fiscal year ended September
30, 1996.
The Restated Certificate of Incorporation and the Bylaws of FFE provide
that the number of directors of FFE shall be fixed from time to time pursuant to
a resolution adopted by the Board of Directors of FFE. As of the date of this
Proxy Statement/Prospectus, the Board of Directors of FFE consists of six
persons. The Restated Certificate of Incorporation and the Bylaws of FFE further
provide that the members of the Board of Directors of FFE shall be divided into
three classes, one class to be elected at each annual meeting of stockholders
and to serve for a term of three years. See "ELECTION OF DIRECTORS."
The Merger Agreement provides for the merger of FFE into ST-Sub (the
"Merger") and the exchange in the Merger of each outstanding share of FFE Common
Stock for cash in the amount of $10.80 (the "Cash Consideration") and 0.645
shares (the "Exchange Ratio") of common stock, par value $2.50 per share, of
SouthTrust, together with the associated rights to purchase shares of the Series
A Junior Participating Preferred Stock of SouthTrust (collectively, the
"SouthTrust Common Stock"), which Cash Consideration and Exchange Ratio may be
adjusted pursuant to the terms of the Merger Agreement. See "THE
MERGER -- Effect of Merger on FFE Common Stock and FFE Stock Options." The Cash
Consideration and the shares of SouthTrust Common Stock issued pursuant to the
Exchange Ratio are collectively referred to herein as the "Merger
Consideration."
No fractional shares of SouthTrust Common Stock will be issued in the
Merger, and, in lieu thereof, each holder of shares of FFE Common Stock that
otherwise would have been entitled to receive a fractional share of SouthTrust
Common Stock will be entitled to receive a cash payment in an amount equal to
the product of (i) the fractional interest of a share of SouthTrust Common Stock
to which such holder otherwise would have been entitled and (ii) the last sales
price of one share of SouthTrust Common Stock at the Effective Time of the
Merger (as defined below), as reported by the Nasdaq National Market ("Nasdaq").
At or following the Effective Time of the Merger, First of Englewood, FSB, a
federal savings bank and a wholly-owned subsidiary of FFE (the "Bank"), will be
merged into SouthTrust Bank of Florida, National Association, a wholly-owned
subsidiary of ST-Sub ("ST-Bank").
The Cash Consideration for which each share of FFE Common Stock may be
exchanged in the Merger is subject to adjustment under certain circumstances.
The Merger Agreement provides that the Cash Consideration shall be decreased
based upon certain restitution payments made or to be made to customers of the
Bank following a review of the Bank's adjustable rate mortgages, as required by
the Merger Agreement. There will be no reduction in the Cash Consideration if
the after-tax cost of restitution payments is less than or equal to $125,000
(the "Threshold Amount"). If restitution payments exceed the Threshold Amount,
then the amount of the Cash Consideration reduction will equal, in the
aggregate, 50% of the first $125,000 in after-tax cost in excess of the
Threshold Amount plus 100% of any additional after-tax cost, divided in both
cases by the number of outstanding shares of FFE Common Stock and the number of
shares of FFE Common Stock subject to outstanding options immediately prior to
the Effective Time of the Merger. Such Cash Considera-
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tion shall be increased (at the rate of 8% per annum) to the extent that the
Effective Time of the Merger occurs after April 30, 1996.
The number of shares of SouthTrust Common Stock for which each share of FFE
Common Stock may be exchanged in the Merger is also subject to adjustment under
certain circumstances. The Merger Agreement provides that if 0.645, when
multiplied by the average last sales price of SouthTrust Common Stock for the
later to occur of the twenty (20) trading days immediately preceding the date of
the meeting of stockholders of FFE at which the Merger is to be considered or
the twenty (20) trading days immediately following the date that the last
regulatory approval relating to the Merger is received (and all waiting periods
applicable thereto have expired), as reported by Nasdaq, results in the
aggregate of the amount attributable to each share of FFE Common Stock, after
taking into account all adjustments, being less than $22.95 (including the Cash
Consideration, as the same may be adjusted), SouthTrust shall adjust the
Exchange Ratio so that the aggregate of the amount attributable to each share of
FFE Common Stock, after all adjustments, shall equal $22.95 (including the Cash
Consideration, as the same may be adjusted), and if 0.645, when multiplied by
the average last sales price of SouthTrust Common Stock, as defined above,
results in the aggregate of the amount attributable to each share of FFE Common
Stock being more than $31.05 (including the Cash Consideration, as the same may
be adjusted), SouthTrust shall adjust the Exchange Ratio so that the aggregate
of the amount attributable to each share of FFE Common Stock, after taking into
account all adjustments, shall equal $31.05 (including the Cash Consideration,
as the same may be adjusted).
Based upon the last sales price of SouthTrust Common Stock on February 26,
1996, of $26.125 and after adjusting for the Cash Consideration, the aggregate
value of the consideration to be exchanged for each share of FFE Common Stock
was $27.65. See "DESCRIPTION OF SOUTHTRUST CAPITAL STOCK -- SouthTrust Common
Stock" and "MARKET AND DIVIDEND INFORMATION RESPECTING THE COMMON STOCK OF
SOUTHTRUST AND FFE." Within the limits described in the preceding paragraph, the
number of shares of SouthTrust Common Stock to be received for each share of FFE
Common Stock in the Merger is fixed, and therefore, within such limits, a change
in the market price of SouthTrust Common Stock before the Merger would affect
the value of the SouthTrust Common Stock to be received in the Merger.
Subject to the approval of the Merger Agreement by the stockholders of FFE
and the satisfaction or waiver of all conditions contained in the Merger
Agreement, the Merger will become effective upon the filing of Certificates or
Articles of Merger with the Secretary of State of the States of Florida and
Delaware (the "Effective Time of the Merger").
A copy of the Merger Agreement is attached hereto as Exhibit A, and the
description thereof contained in this Proxy Statement/Prospectus is qualified in
its entirety by reference to such Exhibit A.
VOTING AT THE ANNUAL MEETING
The Board of Directors of FFE has fixed the close of business on February
21, 1996 as the record date (the "Record Date") for the determination of holders
of shares of FFE Common Stock entitled to notice of and to vote at the Annual
Meeting. On the Record Date, FFE had outstanding 483,243 shares of FFE Common
Stock, which constituted the only outstanding class of capital stock of FFE
entitled to notice of and to vote at the Annual Meeting. The presence, in person
or by proxy, of the holders of a majority of the outstanding shares of FFE
Common Stock entitled to vote is necessary to constitute a quorum at the Annual
Meeting. The affirmative vote of the holders of a plurality of the outstanding
shares of FFE Common Stock entitled to vote thereon is required to elect the
nominees for directors named in this Proxy Statement/Prospectus. The affirmative
vote of the holders of a majority of the outstanding shares of FFE Common Stock
entitled to vote thereon is required to approve the Merger Agreement. Each
holder of record of shares of FFE Common Stock on the Record Date is entitled to
one vote for each share of such stock held of record.
As of the Record Date, FFE directors and executive officers (9 persons)
beneficially owned a total of 87,017 shares of FFE Common Stock (including
31,484 shares of FFE Common Stock which may be acquired by such persons pursuant
to options exercisable within 60 days of the Record Date), representing
approximately 17.7% of the shares of FFE Common Stock entitled to vote at the
Annual Meeting. All such
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directors and officers have informed FFE that, as of the date of the Proxy
Statement/Prospectus, they intend to vote such shares to elect the nominees for
directors named in this Proxy Statement/Prospectus and to approve the Merger
Agreement.
Hovde Financial, Inc. ("Hovde") has rendered its opinion to the Board of
Directors of FFE dated November 2, 1995, and updated as of February 28, 1996
stating that, in its opinion, the Merger is fair from a financial point of view
to the stockholders of FFE. See "THE MERGER -- Opinion of Financial Advisor."
THE BOARD OF DIRECTORS OF FFE RECOMMENDS THAT THE STOCKHOLDERS OF FFE VOTE
FOR THE ELECTION OF THE NOMINEES FOR DIRECTORS NAMED IN THIS PROXY
STATEMENT/PROSPECTUS AND FOR APPROVAL OF THE MERGER AGREEMENT. SEE "ELECTION OF
DIRECTORS" AND "THE MERGER -- BACKGROUND OF THE MERGER; REASONS FOR THE MERGER;
RECOMMENDATION OF THE BOARD OF DIRECTORS OF FFE."
A proxy in the form enclosed, properly completed and returned in time for
the voting thereof at the Annual Meeting, with instructions specified thereon,
will be voted in accordance with such instructions. Only votes FOR a particular
matter constitute affirmative votes. Votes that are withheld or abstain,
including broker non-votes, with respect to a matter are counted for quorum
purposes, but such votes have no effect on the election of directors of FFE and
will have the same effect as negative votes with respect to the proposal
regarding the Merger Agreement. If no specification is made, a signed proxy will
be voted FOR the election of the nominees for directors named in this Proxy
Statement/Prospectus and FOR approval of the Merger Agreement. A proxy may be
revoked at any time prior to its exercise (i) by filing with the Secretary of
FFE either an instrument revoking the proxy or a duly executed proxy bearing a
later date or (ii) by attending the Annual Meeting and voting in person.
Attendance at the Annual Meeting will not itself revoke a proxy.
The solicitation subject to this Proxy Statement/Prospectus is made on
behalf of the Board of Directors of FFE. In addition to the use of the mail,
proxies may be solicited by telephone, telegraph or personally by the directors,
officers and employees of FFE, who will receive no extra compensation for their
services. The expenses of such solicitation will be paid by FFE. Regan and
Associates will solicit proxies on behalf of FFE for a fee of $3,500, plus
expenses. FFE will reimburse banks, brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy soliciting material to the beneficial owners of shares of FFE Common
Stock.
STOCKHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING
PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID ENVELOPE.
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SUMMARY
The following is a brief summary of certain information contained in or
incorporated by reference into this Proxy Statement/Prospectus with respect to
FFE, SouthTrust and the terms of the Merger. The following summary is not
intended to be complete and is qualified in all respects by the information
appearing elsewhere herein or incorporated by reference into this Proxy
Statement/Prospectus, the Exhibits hereto and the documents referred to herein.
ANNUAL MEETING
The Annual Meeting will be held at 4:00 p.m., local time, on March 28, 1996
at the principal executive offices of FFE at 1200 South McCall Road, Englewood,
Florida 34223, to elect two nominees to the Board of Directors of FFE, to
consider and vote upon the approval of the Merger Agreement and to ratify the
selection of KPMG Peat Marwick LLP as the independent certified accountants of
FFE for the fiscal year ended September 30, 1996. Only holders of record of
shares of FFE Common Stock as of the close of business on February 21, 1996 will
be entitled to notice of and to vote at the Annual Meeting, including any
adjournment thereof.
ELECTION OF DIRECTORS
The Board of Directors of FFE proposes to nominate G.L. Smith and Robert L.
Bedford for election as directors of FFE, such persons to serve until their
successors have been elected and qualified.
PARTIES TO THE MERGER
SouthTrust
SouthTrust is a regional bank holding company headquartered in Birmingham,
Alabama, and engages in a full range of banking services from more than 430
banking locations in Alabama, Florida, Georgia, Mississippi, North Carolina,
South Carolina and Tennessee. SouthTrust, through its bank-related subsidiaries,
also offers a range of other services, including mortgage banking services, data
processing services and securities brokerage services. As of December 31, 1995,
SouthTrust had consolidated total assets of approximately $20.8 billion, which
ranked it as the largest bank holding company headquartered in Alabama. The
largest bank subsidiary of SouthTrust is SouthTrust Bank of Alabama, N.A., the
oldest predecessor of which was incorporated in 1887, and which had
approximately $11.1 billion in total assets as of December 31, 1995. Of
SouthTrust's approximately $20.8 billion in assets as of December 31, 1995,
approximately $11.1 billion were in Alabama, approximately $3.4 billion were in
Florida and approximately $4.1 billion were in Georgia.
SouthTrust has pursued a strategy of acquiring banks and financial
institutions in or near major metropolitan or growth markets in Florida,
Georgia, Mississippi, North Carolina, South Carolina and Tennessee. The purpose
of this strategy is to give SouthTrust business development opportunities in
metropolitan markets with favorable prospects for population and per capita
income growth.
During fiscal year 1995, SouthTrust effected acquisitions of 7 financial
institutions, with total assets of approximately $713.0 million. The following
table presents certain information as of December 31, 1995 with
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respect to transactions which are currently pending as of the date of this Proxy
Statement/Prospectus, including the Merger:
<TABLE>
<CAPTION>
TOTAL TOTAL TOTAL
INSTITUTION LOCATION ASSETS DEPOSITS LOANS*
-------------------------------------------- -------------------- ------- -------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
FFE Financial Corp.......................... Englewood, Florida 140.6 120.6 99.1
Bankers First Corporation................... Augusta, Georgia 1,061.0 769.3 885.3
Citizens Bank of MacClenny.................. MacClenny, Florida 84.0 72.4 53.1
First State Bank of Florida................. Deltona, Florida 88.4 81.7 61.3
Lake State Bank............................. Lutz, Florida 28.8 24.9 17.6
</TABLE>
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* Net of unearned income
SouthTrust anticipates that the acquisitions of Bankers First Corporation,
Citizens Bank of MacClenny and Lake State Bank each will be accounted for as a
pooling of interests, and that the acquisitions of FFE and First State Bank of
Florida each will be accounted for pursuant to the purchase method of
accounting. Consummation of the pending transactions is subject, in each case,
to, among other things, approval by applicable regulatory authorities.
As a routine part of its business, SouthTrust evaluates opportunities to
acquire bank holding companies, banks and other financial institutions. Thus, at
any particular point in time, including the date of this Proxy
Statement/Prospectus, discussions and, in some cases, negotiations and due
diligence activities looking toward or culminating in the execution of
preliminary or definitive documents respecting potential acquisitions may occur
or be in progress. These transactions may involve SouthTrust acquiring such
financial institutions in exchange for cash or capital stock, and depending upon
the terms of these transactions, they may have a dilutive effect upon the
SouthTrust Common Stock to be issued to holders of FFE Common Stock in the
Merger.
The principal executive offices of SouthTrust are located at 420 North 20th
Street, Birmingham, Alabama 35203, and its telephone number is (205) 254-5000.
FFE and the Bank
FFE was organized in December 1992 at the direction of the Board of
Directors of the Bank (formerly First Federal Savings and Loan Association of
Englewood) for the purpose of becoming a savings and loan holding company to
hold all of the outstanding stock of the Bank. The Bank is a federal stock
savings bank and a wholly-owned subsidiary of FFE. FFE is primarily engaged in
the business of directing, planning and coordinating the business activities of
the Bank.
The Bank was chartered under the name of First Federal Savings and Loan
Association of Englewood in 1959 as a federal mutual savings and loan
association, offering home mortgage loans and savings accounts and primarily
serving the Englewood, Florida area. The Bank converted from mutual to stock
form in August 1993, in connection with the organization of FFE. The Bank now
operates three full-service offices. The Bank is a member of the Federal Home
Loan Bank System, and its savings deposits are insured by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC"). The Bank is subject to comprehensive regulation, examination and
supervision by the Office of Thrift Supervision ("OTS") and the FDIC. See
"CERTAIN INFORMATION CONCERNING THE BUSINESS OF FFE AND THE BANK" and
"SUPERVISION AND REGULATION."
The business of the Bank consists primarily of attracting savings and
retail deposits and using these funds, as well as loan repayments and
borrowings, to originate loans, primarily for the purchase, refinancing or
construction of residential real estate. The Bank also holds loans secured by
multi-family and commercial real estate, but does not originate such loans. The
Bank also invests in securities and mortgage-backed obligations.
The principal sources of funds for the Bank's lending and investment
activities are retail deposits and savings accounts. In addition to deposits and
savings accounts, the Bank obtains funds from loan principal repayments,
proceeds from sales or maturities of mortgage-backed securities and investments,
borrowings
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from the Federal Home Loan Bank of Atlanta, and funds provided from operations.
The Bank's principal expenses are interest paid on deposits, borrowings and
operating expenses.
The Bank's primary market area for loans and deposits is southwest Sarasota
and west Charlotte counties in southwestern Florida, which area had a population
of approximately 50,000 in December 1995. This market area has a diverse economy
with an emphasis on tourism. In recent periods, the Bank's market area has been
above national averages in population growth and has experienced an above
average unemployment rate.
FFE and the Bank maintain their principal executive offices at 1200 South
McCall Road, Englewood, Florida 34223, and the telephone number at such office
is (813) 474-3205.
SouthTrust of Florida, Inc.
ST-Sub, a Florida corporation, is a wholly-owned subsidiary of SouthTrust.
ST-Bank is a wholly-owned subsidiary of ST-Sub and currently owns all of the
banking operations of SouthTrust located in the State of Florida.
THE MERGER
TERMS OF THE MERGER
Subject to approval of the Merger Agreement by the stockholders of FFE at
the Annual Meeting, the receipt of required regulatory approval and certain
other conditions, FFE will be merged into ST-Sub pursuant to the Merger
Agreement. At the Effective Time of the Merger, each share of FFE Common Stock
which is issued and outstanding immediately prior to the Effective Time (other
than certain excluded shares as described below) shall be converted into and
represent the right to receive and be exchanged for (A) cash in the amount of
$10.80 and (B) 0.645 shares of SouthTrust Common Stock, as such Cash
Consideration and Exchange Ratio may be adjusted pursuant to the terms of the
Merger Agreement. See "THE MERGER -- Effect of Merger on FFE Common Stock and
FFE Stock Options."
The Merger Agreement provides that the Cash Consideration portion of the
Merger Consideration for which each share of FFE Common Stock may be exchanged
in the Merger is subject to being increased (at the rate of 8% per annum) to the
extent that the Effective Time of the Merger occurs after April 30, 1996. Such
Cash Consideration is also subject to being decreased if payments made or to be
made to customers following a review of the Bank's adjustable rate mortgages, as
required by the Merger Agreement, exceed the Threshold Amount. If restitution
payments exceed the Threshold Amount, then the amount of the Cash Consideration
reduction will equal, in the aggregate, 50% of the first $125,000 in after-tax
cost in excess of the Threshold Amount plus 100% of any additional after tax
cost, divided in both cases by the number of outstanding shares of FFE Common
Stock and the number of shares of FFE Common Stock subject to outstanding
options immediately prior to the Effective Time of the Merger. See "THE
MERGER -- Effect of Merger on FFE Common Stock and FFE Stock Options."
The Exchange Ratio, which determines the number of shares of SouthTrust
Common Stock for which each share of FFE Common Stock may be exchanged in the
Merger, is also subject to adjustment under certain circumstances. The Merger
Agreement provides that if 0.645, when multiplied by the average last sales
price of SouthTrust Common Stock, as reported by Nasdaq, for the later to occur
of the twenty (20) trading days immediately preceding the date of the meeting of
stockholders of FFE at which the Merger is to be considered or the twenty (20)
trading days immediately following the date that the last regulatory approval
relating to the Merger is received (and all waiting periods applicable thereto
have expired) results in the aggregate of the amount attributable to each share
of FFE Common Stock (including the Cash Consideration, as the same may be
adjusted), after taking into account all adjustments, being less than $22.95,
SouthTrust shall adjust the Exchange Ratio so that the aggregate of the amount
attributable to each share of FFE Common Stock (including the Cash
Consideration, as the same may be adjusted), after all adjustments, shall equal
$22.95, and if 0.645, when multiplied by the average last sales price of
SouthTrust Common Stock, as defined above, results in the aggregate of the
amount attributable to each share of FFE Common Stock (including the Cash
Consideration, as the same may be adjusted) being more than $31.05, SouthTrust
shall
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adjust the Exchange Ratio so that the aggregate of the amount attributable to
each share of FFE Common Stock (including the Cash Consideration, as the same
may be adjusted), after taking into account all adjustments, shall equal $31.05.
The Exchange Ratio, including the number of shares of SouthTrust Common Stock
issuable in the Merger, is also subject to appropriate adjustment in the event
of certain stock splits, stock dividends, reclassifications or similar
distributions effected by SouthTrust. Because the Exchange Ratio is subject to
being adjusted under the circumstances discussed in this paragraph, the Exchange
Ratio may not be definitively determined until immediately prior to the
Effective Time of the Merger. However, based upon the last sales price of
SouthTrust Common Stock on February 26, 1996 (the second trading day immediately
prior to the date of this Proxy Statement/Prospectus), no adjustment in the
Exchange Ratio would be required. See "THE MERGER -- Effect of Merger on FFE
Common Stock and FFE Stock Options."
No fractional shares of SouthTrust Common Stock will be issued in the
Merger, and, in lieu thereof, each holder of shares of FFE Common Stock that
otherwise would have been entitled to receive a fractional share of SouthTrust
Common Stock will be entitled to receive a cash payment in an amount equal to
the product of (i) the fractional interest of a share of SouthTrust Common Stock
to which such holder otherwise would have been entitled and (ii) the last sales
price of SouthTrust Common Stock as reported by Nasdaq on the last trading day
preceding the Effective Time of the Merger.
All rights with respect to shares of FFE Common Stock issuable pursuant to
the exercise of stock options ("FFE Options") granted by FFE under the FFE 1992
Stock Option and Incentive Plan (the "FFE Stock Option Plan"), and held by each
participant thereunder, shall be converted into, as of the Effective Time of the
Merger, the right of the holders thereof to receive either (i) a cash payment
equal to the excess, if any, of the value of the consideration exchanged for
each share of FFE Common Stock pursuant to the terms of the Merger Agreement
over the exercise price per share of such option or (ii) at the election of such
participant by written notice delivered to SouthTrust at least five business
days prior to the consummation of the Merger, a substitute option pursuant to
which such optionee may receive shares of SouthTrust Common Stock. Each FFE
Option assumed by SouthTrust may be exercised from and after the Effective Time
of the Merger solely for the number of shares (rounded to the nearest whole
share) of SouthTrust Common Stock that would have been received by the optionee
in the Merger as determined in a manner consistent with Section 424(a) of the
Internal Revenue Code had the entire option been exercised in full for shares of
FFE Common Stock immediately before the Merger upon the same terms and
conditions of the FFE Stock Option Plan as were applicable immediately before
the Effective Time of the Merger (assuming that all unvested options were then
fully vested) and that such shares of FFE Common Stock received upon exercise
had been converted in the Merger only into shares of SouthTrust Common Stock at
the full fair market value of the Merger Consideration (as if the Cash
Consideration portion thereof was to be received in shares of SouthTrust Common
Stock), with appropriate pro rata adjustment to the relevant option price for
the shares of SouthTrust Common Stock substituted therefor so that the aggregate
option exercise price of shares of SouthTrust Common Stock subject to the option
immediately following the assumption and substitution shall be the same as the
aggregate option exercise price for the shares of FFE Common Stock relating to
the SouthTrust Stock Option immediately before such assumption and substitution.
Each outstanding share of FFE Common Stock awarded pursuant to the FFE
Management Recognition Plan (the "MRP") that is unvested immediately prior to
the Effective Time of the Merger shall be canceled in exchange for a cash
payment from SouthTrust equal to the amount of the per share consideration to be
exchanged by SouthTrust determined by application of the Exchange Ratio for such
share of FFE Common Stock pursuant to the Merger Agreement. See "THE
MERGER -- Effect of Merger on FFE Common Stock and FFE Stock Options."
As promptly as practicable after the Effective Time of the Merger,
SouthTrust or its agents shall send or cause to be sent to each former holder of
record of FFE Common Stock a letter of transmittal for use in exchanging their
stock certificates formerly representing such FFE Common Stock for the right to
receive certificates representing the appropriate number of shares of SouthTrust
Common Stock determined by application of the Exchange Ratio, plus the Cash
Consideration.
As of the Effective Time of the Merger or immediately thereafter, the Bank
will be merged with and into ST-Bank (the "Subsidiary Merger"), pursuant to that
certain Subsidiary Agreement and Plan of Merger
10
<PAGE> 11
dated as of January 4, 1996, among the Bank and ST-Bank, a copy of which is
annexed hereto as Exhibit B (the "Subsidiary Merger Agreement"), with ST-Bank
being the surviving association.
VOTE REQUIRED
The affirmative vote of the holders of a plurality of the shares of FFE
Common Stock present in person or by proxy at the Annual Meeting is required to
elect nominees for directors named in this Proxy Statement/Prospectus, and the
affirmative vote of the holders of a majority of the outstanding shares of FFE
Common Stock is required to approve the Merger Agreement. As of February 21,
1996, 483,243 shares of FFE Common Stock were outstanding. Each share of FFE
Common Stock entities the holder thereof to one vote on the matters to be
considered at the Annual Meeting. Votes that are withheld or abstain, including
broker non-votes, with respect to a matter are counted for quorum purposes, but
such votes will have no effect upon the election of directors and will have the
same effect as negative votes with respect to the proposal regarding the Merger
Agreement. If no specification is made, a signed proxy will be voted FOR the
election as directors of the nominees named in the Proxy Statement/Prospectus
and FOR approval of the Merger Agreement.
Directors and executive officers of FFE, and their affiliates, owned, as of
the Record Date, directly or indirectly, 87,017 shares of FFE Common Stock
(including 31,484 shares of FFE Common Stock which may be acquired by such
persons pursuant to options exercisable within 60 days of the Record Date),
constituting approximately 17.7% of the shares of FFE Common Stock outstanding
on the Record Date for the Annual Meeting. It is anticipated that all of such
shares will be voted for approval of the Merger Agreement.
BACKGROUND OF THE MERGER; REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF
DIRECTORS OF FFE
The Board of Directors of FFE believes that the merger is in the best
interest of FFE and its stockholders. In the course of reaching its
determination to approve the Merger and recommend the approval of the Merger
Agreement to the stockholders of FFE, the Board of Directors, without assigning
any relative or specific weights, considered a number of factors, including (i)
the Cash Consideration and SouthTrust Common Stock to be received, (ii) the
other terms of the Merger Agreement and (iii) the fairness opinion of Hovde.
THE MEMBERS OF THE BOARD OF DIRECTORS OF FFE HAVE UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS IN THE BEST INTEREST OF FFE
AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS OF FFE RECOMMENDS THAT
STOCKHOLDERS OF FFE VOTE IN FAVOR OF THE MERGER AGREEMENT.
SouthTrust is engaging in the transactions pursuant to the Merger because
the Merger and the Subsidiary Merger are consistent with its expansion strategy
within the southeastern United States and because the acquisition of FFE and the
Bank will augment and enhance SouthTrust's competitive position in such market.
See "THE MERGER -- Background of the Merger; Reasons for the Merger;
Recommendations of the Board of Directors of FFE."
OPINION OF FINANCIAL ADVISOR
The Board of Directors of FFE engaged Hovde Financial, Inc. to consider the
fairness of the Merger, from a financial point of view, to the stockholders of
FFE. In connection with the consideration of the Merger Agreement, Hovde
delivered its initial opinion letter to the Board of Directors of FFE, dated
November 2, 1995, and updated on February 28, 1996, a copy of which is attached
hereto as Exhibit C, stating that, based upon the information and procedures
specified therein, in its opinion the Merger is fair, from a financial point of
view, to the stockholders of FFE.
Hovde has acted as a financial advisor to FFE in connection with the Merger
and, as indicated above, was engaged to render the aforementioned fairness
opinion. FFE paid $10,000 upon engagement, plus upon the consummation of the
Merger, FFE has agreed to pay Hovde a fee equal to (a) 5.0% of the first $1
million of the Merger Consideration; (b) 4.0% of the next $1 million of the
Merger Consideration; (c) 3.0% of the next
11
<PAGE> 12
$1 million of the Merger Consideration; (d) 2.0% of the next $1 million of the
Merger Consideration; and either (i) 0.50% of the remaining Merger Consideration
in the event total Merger Consideration is less than or equal to $12.8 million;
or (ii) 0.75% of the remaining Merger Consideration in the event total Merger
Consideration is greater than $12.8 million and less than or equal to $14.2
million; or (iii) 1.0% of the remaining Merger Consideration in the event total
Merger Consideration is greater than $14.2 million and less than or equal to
$15.5 million; and (e) In the event total Merger Consideration is greater than
$15.5 million, an additional 2.0% fee is due on the Merger Consideration in
excess of $15.5 million. In addition, FFE has agreed to reimburse Hovde for its
out-of-pocket costs and expenses incurred in connection with the activities
contemplated by its engagement, regardless of whether the Merger is consummated.
FFE has further agreed to indemnify Hovde against certain liabilities which may
arise in connection with its engagement.
See "THE MERGER -- Opinion of Financial Advisor."
INTERESTS OF CERTAIN PERSONS NAMED IN THE MERGER
Certain officers and members of the Board of Directors of FFE may be deemed
to have interests in the Merger in addition to their interests, if any, as
stockholders of FFE. Among those interests are certain employment and change in
control agreements that provide for severance pay and other benefits upon the
occurrence of a change in control of FFE, the acceleration of vesting of rights
in FFE Options under the FFE Stock Option Plan, the acceleration of incentive
bonus awards under the FFE Management Recognition Plan, and an agreement by
SouthTrust to indemnify directors, officers, employees and agents of FFE and its
subsidiaries for a period of three years from and after the Effective Time of
the Merger against certain liabilities arising prior to the Merger.
See "THE MERGER -- Interests of Certain Named Persons in the Merger" and
"THE MERGER -- Business and Management of FFE Following the Merger; Plans for
Business of FFE."
EFFECTIVE TIME OF THE MERGER
The Merger will become effective when the Certificates or Articles of
Merger are accepted for filing with the Secretary of State of the States of
Florida and Delaware. The parties to the Merger Agreement will cause such
Certificate or Articles of Merger to be so filed, subject to the satisfaction or
waiver of each of the conditions to consummation of the Merger, on the date of
the closing of the transaction. Subject to satisfaction of the conditions
contained in the Merger Agreement, the parties currently anticipate that the
Merger will become effective during the first half of 1996, although there can
be no assurance as to whether or when the Merger will become effective. See "THE
MERGER -- Effective Time of the Merger" and "THE MERGER -- Regulatory Approvals
and Certain Other Conditions to the Merger; Waiver and Amendment."
NO ASSURANCE CAN BE PROVIDED THAT THE NECESSARY STOCKHOLDER AND REGULATORY
APPROVALS CAN BE OBTAINED OR THAT THE OTHER CONDITIONS PRECEDENT TO THE MERGER
CAN OR WILL BE SATISFIED. FFE AND SOUTHTRUST ANTICIPATE THAT ALL CONDITIONS TO
THE CONSUMMATION OF THE MERGER WILL BE SATISFIED SO THAT THE MERGER CAN BE
CONSUMMATED DURING THE FIRST HALF OF 1996; HOWEVER, DELAYS IN THE CONSUMMATION
OF THE MERGER COULD OCCUR.
STOCK OPTION AGREEMENT AND BREAK-UP FEE
Following the execution of the Merger Agreement and as a condition to such
execution, FFE granted SouthTrust an option (the "SouthTrust Option") to
purchase, under certain circumstances, up to 104,640 shares (the "Option
Shares") of FFE Common Stock at a price equal to $27.00 per share pursuant to
the terms of a Stock Option Agreement dated November 3, 1995 between FFE and
SouthTrust (the "SouthTrust Stock Option Agreement"), but only upon the
occurrence of specified events related generally to the making by third parties
of offers to acquire FFE and the acquisition by third parties of FFE Common
Stock, which Stock Option Agreement shall expire at the Effective Time of the
Merger, upon the termination of the Merger Agreement if no event by which the
option becomes exercisable shall have occurred or one year after the
12
<PAGE> 13
termination of the Merger Agreement if an event by which the option becomes
exercisable shall have occurred. The SouthTrust Stock Option Agreement was
approved by the Board of Directors of FFE.
If, after the date of the Merger Agreement, an offer to acquire FFE or the
Bank is presented or proposed to FFE or its stockholders and (i) thereafter the
Merger Agreement and the Merger are disapproved by the stockholders of FFE and
(ii) within one year after termination of the Merger Agreement such acquisition
is consummated or a definitive agreement is entered into by FFE relating to such
acquisition (a "Trigger Event"), then upon the occurrence of a Trigger Event and
in lieu of any other rights and remedies of SouthTrust, FFE shall (x) reimburse
SouthTrust for its third party transaction expenses in an amount up to two
hundred thousand dollars ($200,000) and (y) pay SouthTrust an additional cash
amount of four hundred thousand dollars ($400,000) as an agreed-upon fee as the
sole and exclusive remedy of SouthTrust against FFE (collectively the "Break-Up
Fee"); provided, however, that SouthTrust shall not be entitled to any such
payment if SouthTrust exercises any option granted by the SouthTrust Stock
Option Agreement or exercises any right to require FFE to repurchase the option
granted by the SouthTrust Stock Option Agreement.
REGULATORY APPROVALS AND CERTAIN OTHER CONDITIONS TO THE MERGER; WAIVER AND
AMENDMENT
The respective obligations of SouthTrust and FFE to consummate the Merger
are subject to the satisfaction of certain conditions, including, among others,
(i) the receipt of all required regulatory approvals with respect to the Merger,
(ii) the approval of the Merger Agreement by the requisite vote of the
stockholders of FFE, and (iii) certain other conditions customary in
transactions of this kind.
Consummation of the Merger is subject to receipt of the prior approval by
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") under the Bank Holding Company Act of 1956, as amended (the "Bank
Holding Company Act"). The Bank Holding Company Act prohibits the Federal
Reserve Board from approving the Merger (i) if such transaction 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 (ii) if the effect of such transaction in any section of the country
may be substantially to lessen competition or to tend to create a monopoly, or
if it would in any other manner be a restraint of trade, unless the relevant
regulatory agency finds that the anti-competitive effects of such merger are
clearly outweighed by the public interest and by the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served. Under the Bank Holding Company Act, the Federal Reserve Board also
considers whether the proposed transaction can reasonably be expected to produce
benefits to the public, such as greater convenience, increased competition, or
gains in efficiency, that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interests, or unsound banking practices. The Federal Reserve Board has the
authority to deny an application if it concludes that the combined organization
would have an inadequate capital position or if the acquiring organization does
not meet the requirements of the Community Reinvestment Act of 1977. In
addition, the Merger may not be consummated until the 15th day following the
dates of each of the requisite approvals, during which periods the United States
Department of Justice may comment adversely on the transaction (which has the
effect of extending the waiting period to the 30th day following approval) or
challenge such merger on antitrust grounds. The commencement of an antitrust
action would stay the effectiveness of such an approval unless a court
specifically orders otherwise.
The Merger is also subject to the delivery of prior notice to the Office of
Thrift Supervision (the "OTS") neither of which require any waiting period. In
their evaluations, the Florida Department and the OTS take into account
considerations similar to those applied by the Federal Reserve Board.
On February 7, 1996, SouthTrust filed with the Federal Reserve Board an
application seeking approval to merge FFE into ST-Sub and to merge the Bank into
ST-Bank. On January 5, 1996, ST-Bank submitted to the Office of the Comptroller
of Currency (the "OCC") an application seeking approval to merge the Bank into
ST-Bank. In addition, FFE filed the required notice with OTS on February 8,
1996. SouthTrust filed its application with the OTS on February 12, 1996.
THE MERGER CANNOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCE THAT SUCH REGULATORY APPROVALS WILL
13
<PAGE> 14
BE OBTAINED OR AS TO THE TIMING OF ANY SUCH APPROVALS. THERE ALSO CAN BE NO
ASSURANCE THAT ANY SUCH APPROVALS WILL NOT IMPOSE CONDITIONS THAT ARE DEEMED BY
FFE OR SOUTHTRUST TO MATERIALLY ADVERSELY IMPACT THE ECONOMIC OR BUSINESS
ASSUMPTIONS OF THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT. THERE CAN
ALSO BE NO ASSURANCE THAT THE UNITED STATES DEPARTMENT OF JUSTICE OR A STATE
ATTORNEY GENERAL WILL NOT CHALLENGE THE MERGER OR, IF SUCH A CHALLENGE IS MADE,
AS TO THE RESULT THEREOF.
Approval by the OCC of the Subsidiary Merger is not a condition to the
obligation of SouthTrust to consummate the Merger. Accordingly, it is possible
that, if all conditions to the respective obligations of SouthTrust and FFE to
consummate the Merger are satisfied, but the OCC and all other regulatory
approvals with respect to the Subsidiary Merger have not been obtained, the
Merger could be consummated prior to the Subsidiary Merger.
At any time before the Merger becomes effective, any party to the Merger
Agreement may waive conditions contained therein to its own obligations, to the
extent that such obligations, agreements and conditions are intended for its own
benefit. In addition, the Merger Agreement may be amended by written instrument
signed on behalf of each of the parties thereto.
See "THE MERGER -- Regulatory Approvals and Certain Other Conditions to the
Merger; Waiver and Amendment."
TERMINATION
The Merger Agreement may be terminated in the following ways: (i) at any
time prior to the Effective Time of the Merger, by the mutual written consent of
the Boards of Directors of SouthTrust and FFE; (ii) at any time prior to the
Effective Time of the Merger, by SouthTrust or FFE if there shall have been a
final judicial or regulatory determination (as to which all periods for appeal
shall have expired and no appeal shall be pending) that any material provision
of the Merger Agreement is illegal, invalid or unenforceable (unless the
enforcement thereof is waived by the affected party) or denying any regulatory
application the approval of which is a condition precedent to either party's
obligations under the Merger Agreement; (iii) at any time on or before June 30,
1996, by SouthTrust or FFE in the event that the Merger has not been consummated
prior to such date provided that the party seeking to terminate the Merger
Agreement is not in material breach thereof; (iv) by either party at any time
after the stockholders of FFE fail to approve the Merger Agreement by the
required vote at the Stockholders' Meeting of FFE; (v) at any time prior to the
Effective Time of the Merger, by SouthTrust or FFE, in the event of a material
breach by the other party of any representation, warranty, covenant or agreement
contained in the Merger Agreement or in any schedule or document delivered
pursuant thereto, which breach would result in the failure to satisfy the
closing conditions set forth in Section 6.1(a) or 6.1(b) of the Merger
Agreement, in the case of SouthTrust, or Section 6.2(a) or 6.2(b) of the Merger
Agreement, in the case of FFE, and which breach cannot be or is not cured within
thirty (30) days after written notice of such breach is given by the
non-breaching party to the party committing such breach; or (vi) at any time
prior to the Effective Time of the Merger, by FFE if the after-tax costs of the
restitution payments made or to be made to customers exceeds $500,000.
In the event that the Merger Agreement is terminated by a party (the
"Aggrieved Party") solely by reason of the willful material breach by the other
party ("Breaching Party") of any of its representations, warranties, covenants
or agreements contained therein then the Aggrieved Party shall be entitled to
such remedies and relief against the Breaching Party as are available at law or
in equity. Moreover, the Aggrieved Party without terminating the Merger
Agreement shall be entitled to specifically enforce the terms thereof against
the Breaching Party in order to cause the Merger to be consummated.
In the event the Merger Agreement is terminated, the Merger Agreement will
be void and have no further effect and such termination will be without
liability to any party to the Merger Agreement, except for any liability
incurred or suffered by any party as a result of the willful material breach by
the other party of any of its representations, warranties, covenants or
agreements set forth in the Merger Agreement and any liability
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<PAGE> 15
resulting from the occurrence of a Trigger Event as described in "THE
MERGER -- SouthTrust Stock Option Agreement and Break-Up Fee."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
FFE and SouthTrust have received an opinion of Bradley, Arant, Rose & White
to the effect that, for federal income tax purposes, (i) the Merger will qualify
as a reorganization under Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Code"); (ii) no gain or loss will be recognized by holders of
shares of FFE Common Stock who receive shares of SouthTrust Common Stock in the
Merger (except in connection with the receipt of the Cash Consideration and the
cash in lieu of fractional interests in shares of SouthTrust Common Stock);
(iii) gain, if any, will be recognized by holders of FFE Common Stock with
respect to the Cash Consideration received from SouthTrust up to the amount of
Cash Consideration received, and the amount of such gain recognized that does
not have the effect of a dividend (as determined on a stockholder by stockholder
basis) will be treated as gain from the exchange of property; and (iv) cash
received by holders of shares of FFE Common Stock in lieu of fractional
interests in shares of SouthTrust Common Stock will be treated as having been
received as distributions in full payment in exchange for the fractional share
interests in shares of SouthTrust Common Stock which they would otherwise be
entitled to receive. See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS."
THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES MAY VARY FOR EACH HOLDER OF
SHARES OF FFE COMMON STOCK. ALL HOLDERS OF SHARES OF FFE COMMON STOCK ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS.
RIGHTS OF DISSENT AND APPRAISAL
A stockholder of FFE may dissent from the Merger pursuant to Section 262 of
the General Corporation Law of the State of Delaware ("DGCL") and receive cash
equal to the fair value, as of immediately prior to the Effective Time of the
Merger, of the shares of FFE Common Stock held by such stockholder. The
appraisal value of the FFE Common Stock may differ from the consideration that a
stockholder of FFE is entitled to receive in the Merger. See "THE
MERGER -- Rights of Dissent and Appraisal."
The foregoing summary is not intended to be complete and is qualified in
all respects by reference to the text of Section 262 of the DGCL which is
attached as Exhibit E to this Proxy Statement/Prospectus.
COMPARATIVE STOCK PRICES
SouthTrust Common Stock and FFE Common Stock are traded in the
over-the-counter market through the facilities of Nasdaq.
The following table sets forth the last sales prices for SouthTrust Common
Stock and FFE Common Stock, respectively, as of selected dates, and the pro
forma equivalent market value of the 0.645 share of SouthTrust Common Stock and
the Cash Consideration to be received in the Merger for each share of FFE Common
Stock:
<TABLE>
<CAPTION>
SOUTHTRUST FFE SOUTHTRUST
COMMON STOCK COMMON STOCK COMMON STOCK AND CASH
HISTORICAL HISTORICAL EQUIVALENT(3)
------------ ------------ ---------------------
<S> <C> <C> <C>
November 2, 1995(1).................... $ 24.875 $18.50 $ 26.84
February 26, 1996(2)................... $ 26.125 $26.00 $ 27.65
</TABLE>
- ---------------
(1) Last trading day preceding the announcement of the execution of the Merger
Agreement.
(2) Most recent practicable date preceding the date of this Proxy
Statement/Prospectus.
(3) Pro forma equivalents calculated by multiplying the historical last sales
price for SouthTrust Common Stock as of the selected date by the Exchange
Ratio of 0.645 shares of SouthTrust Common Stock per share of FFE Common
Stock and adding $10.80, an amount representing the Cash Consideration
receivable in exchange for each share of FFE Common Stock. Pro forma
equivalents do not reflect
15
<PAGE> 16
possible adjustments, as provided for in the Merger Agreement and described
more fully elsewhere in this Proxy Statement/Prospectus, to the Cash
Consideration and Exchange Ratio.
FFE's stockholders are advised to obtain current market quotations for
SouthTrust Common Stock and FFE Common Stock. No assurance can be given as to
the market prices of SouthTrust Common Stock or FFE Common Stock at any time
before the Effective Time of the Merger or as to the market price of SouthTrust
Common Stock at any time thereafter. Because the Exchange Ratio of FFE Common
Stock for SouthTrust Common Stock is fixed within the limits discussed more
fully elsewhere in this Proxy Statement/Prospectus, it will not compensate FFE's
stockholders for increases or decreases in the market price of SouthTrust Common
Stock which could occur before the Effective Time of the Merger unless the
aggregate amount attributable to each share of FFE Common Stock (including the
Cash Consideration, as the same may be adjusted), after taking into account all
adjustments, would otherwise be less than $22.95 or more than $31.05 (including
the Cash Consideration, as the same may be adjusted). In such event, however,
the Exchange Ratio would be adjusted so that the aggregate amount attributable
to each share of FFE Common Stock (including the Cash Consideration, as the same
may be adjusted), after taking into account all adjustments, would not be less
than $22.95 nor more than $31.05 (including the Cash Consideration, as the same
may be adjusted). As a result, in the event the market price of SouthTrust
Common Stock decreases, the value of the SouthTrust Common Stock to be received
in the Merger in exchange for FFE Common Stock would decrease, but not to the
extent that the aggregate amount attributable to each share of FFE Common Stock
(including the Cash Consideration, as the same may be adjusted), after taking
into account all adjustments, would be less than $22.95. Also as a result, in
the event the market price for SouthTrust Common Stock increases, the value of
the SouthTrust Common Stock to be received in the Merger in exchange for FFE
Common Stock would increase, but not to the extent that the aggregate amount
attributable to each share of FFE Common Stock (including the Cash
Consideration, as the same may be adjusted), after taking into account all
adjustments, would be greater than $31.05. See "Market and Dividend Information
Respecting the Common Stock of SouthTrust and FFE" and "THE MERGER -- Effect of
Merger on FFE Common Stock and FFE Stock Options."
RESALE OF SOUTHTRUST COMMON STOCK RECEIVED IN THE MERGER
The shares of SouthTrust Common Stock to be issued pursuant to the Merger
Agreement have been registered under the Securities Act, thereby allowing such
shares to be sold without restriction by stockholders of FFE who are not deemed
to be "affiliates" (as that term is defined under the Securities Act) of FFE and
who do not become affiliates of SouthTrust. The shares of SouthTrust Common
Stock to be issued to affiliates of FFE may be resold only pursuant to an
effective registration statement, pursuant to Rule 145 under the Securities Act,
or in transactions otherwise exempt from registration under the Securities Act.
SouthTrust will not be obligated and does not intend to register its shares
under the Securities Act for resale by stockholders of FFE who are affiliates.
Under the volume limitations of Rule 145, and based upon the outstanding shares
of SouthTrust Common Stock as of December 31, 1995, an affiliate of FFE who
otherwise complies with Rule 145, subject to the undertaking described below,
will be free to resell, during any given three-month period, up to 879,036
shares of SouthTrust Common Stock.
FFE has agreed to use its best efforts to obtain from each individual or
entity identified by FFE as an affiliate a letter agreement pursuant to which
such affiliate agrees not to sell, pledge, transfer or otherwise dispose of such
shares of SouthTrust Common Stock in violation of the Securities Act or the
rules and regulations thereunder.
See "THE MERGER -- Resale of SouthTrust Common Stock Received in the
Merger."
DIFFERENCES IN RIGHTS OF FFE STOCKHOLDERS
Upon consummation of the Merger, FFE stockholders will become SouthTrust
stockholders. As a result, their rights as stockholders, which now are governed
by Delaware corporate law and FFE's Certificate of Incorporation and Bylaws,
will be governed by Delaware corporate law and SouthTrust's Restated Certificate
of Incorporation and Bylaws. Because of certain differences between the
provisions of FFE's Certificate of
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<PAGE> 17
Incorporation and Bylaws and SouthTrust's Restated Certificate of Incorporation
and Bylaws, the current rights of FFE stockholders will change after the Merger.
Some of these differences include certain anti-takeover provisions applicable to
SouthTrust. See "COMPARISON OF THE COMMON STOCK OF SOUTHTRUST AND FFE."
ACCOUNTING TREATMENT
The Merger will be accounted for by SouthTrust pursuant to the purchase
method of accounting. See "THE MERGER -- Accounting Treatment."
EQUIVALENT SHARE DATA
The following summary presents comparative historical unaudited per share
data for both SouthTrust and FFE. The pro forma amounts assume the Merger had
been effective during the periods presented and has been accounted for pursuant
to the purchase method of security. SouthTrust's pro forma amounts represent the
combined pro forma results, and FFE's pro forma equivalent amounts are computed
by multiplying the pro forma amounts by a factor of 0.645, to reflect the
Exchange Ratio in the Merger of 0.645 shares of SouthTrust Common Stock, and
adding $10.80, the amount representing the Cash Consideration to be receivable
in the Merger for each share of FFE Common Stock. The data presented should be
read in conjunction with the historical financial statements and the related
notes thereto included elsewhere herein or incorporated by reference herein, and
the pro forma financial statements included elsewhere in this Proxy
Statement/Prospectus. Results for the nine months ended September 30, 1995, are
not necessarily indicative of results expected for the entire year.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Net income (loss) per common share:
SouthTrust..................................................... $ 2.15 $ 1.75
FFE............................................................ 0.77 1.36
SouthTrust pro forma combined.................................. 2.14 1.75
FFE pro forma equivalent....................................... 1.38(1) 1.13(1)
Cash dividends per common share:
SouthTrust..................................................... $ 0.68 $ 0.60
FFE............................................................ 0.00 0.00
SouthTrust pro forma combined(2)............................... 0.68 0.60
FFE pro forma equivalent....................................... 0.44(1) 0.39(1)
Book value per common share (period end):
SouthTrust..................................................... $13.94 $ 15.83
FFE............................................................ 15.88 18.21
SouthTrust pro forma combined.................................. 13.98 15.87
FFE pro forma equivalent....................................... 9.02(1) 10.24(1)
</TABLE>
- ---------------
(1) FFE pro forma equivalent presentation does not include any effect of the
Cash Consideration to be paid in connection with the Merger.
(2) SouthTrust pro forma combined dividends represent historical cash dividends
of SouthTrust.
SELECTED FINANCIAL DATA
The following tables set forth certain selected historical consolidated
financial information for FFE and SouthTrust. The historical income statement
data included in the selected financial data for the five most recent fiscal
years are derived from audited consolidated financial statements of FFE and
SouthTrust. The financial data for the interim periods of SouthTrust ended
September 30, 1995 and 1994 are derived from the unaudited historical financial
statements of SouthTrust and reflect, in the opinion of the management of
17
<PAGE> 18
SouthTrust, all adjustments (consisting only of recurring adjustments) necessary
for a fair presentation of such data. This information should be read in
conjunction with the consolidated financial statements of FFE and SouthTrust,
and the related notes thereto, included in documents appearing elsewhere herein
or incorporated herein by reference and in conjunction with the unaudited pro
forma financial information, including the notes thereto, appearing elsewhere in
this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" and "PRO FORMA FINANCIAL INFORMATION."
SOUTHTRUST CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------------------ -----------------------
1994 1993 1992 1991 1990 1995 1994
---------- ---------- ---------- ---------- -------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income......... $1,108,612 $ 927,551 $ 828,080 $ 823,725 $776,661 $1,084,835 $ 792,108
Interest expense........ 501,067 397,743 382,930 474,453 498,329 578,869 345,857
---------- ---------- ---------- ---------- -------- ---------- ----------
Net interest
income......... 607,545 529,808 445,150 349,272 278,332 505,966 446,251
Provision for loan
losses................ 44,984 45,032 43,305 38,042 44,635 39,489 33,272
---------- ---------- ---------- ---------- -------- ---------- ----------
Net interest income
after provision for
loan
losses................ 562,561 484,776 401,845 311,230 233,697 466,477 412,979
Non-interest income..... 184,778 174,702 136,683 108,881 91,084 151,730 137,896
Non-interest expense.... 485,999 434,951 373,636 296,796 234,713 396,509 358,900
---------- ---------- ---------- ---------- -------- ---------- ----------
Income before income
taxes................. 261,340 224,527 164,892 123,315 90,068 221,698 191,975
Provision for income
taxes................. 88,338 73,992 50,646 33,309 20,360 76,282 64,340
---------- ---------- ---------- ---------- -------- ---------- ----------
Net income............ $ 173,002 $ 150,535 $ 114,246 $ 90,006 $ 69,708 $ 145,416 $ 127,635
========== ========== ========== ========== ========= ========== ==========
Net income per common
share and common share
equivalent............ $ 2.15 $ 1.94 $ 1.66 $ 1.42 $ 1.14 $ 1.75 $ 1.59
Cash dividends declared
per common share...... 0.68 0.60 0.52 0.48 0.46 0.60 0.51
Average common shares
and common share
equivalents
outstanding........... 80,628 77,772 68,948 63,255 61,148 83,075 80,267
(IN MILLIONS)
BALANCE SHEET DATA (at
period end)
Total assets............ $ 17,632.1 $ 14,708.0 $ 12,714.4 $ 10,158.1 $9,005.9 $20,020.76 $16,955.48
Total loans net of
unearned income....... 12,121.9 9,448.3 7,546.6 5,965.0 5,531.4 14,077.5 11,472.3
Total deposits.......... 12,801.2 11,515.4 10,082.3 8,277.2 7,228.0 14,009.5 12,243.2
Total stockholders'
equity................ 1,135.3 1,051.8 860.4 662.0 549.6 1,387.3 1,128.5
</TABLE>
18
<PAGE> 19
FFE FINANCIAL CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED SEPTEMBER ENDED
30, SEPTEMBER 30, YEAR ENDED
------------------------ ------------- DECEMBER 31,
1995 1994 1993 1992(1) 1991
------ ------ ------ ------------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income............................. $9,649 $8,440 $9,750 $ 9,103 $ 14,664
Interest expense............................ 5,876 4,251 5,155 5,822 10,585
------ ------ ------ ------------- ------------
Net interest income...................... 3,773 4,189 4,595 3,281 4,079
Provision for loan losses................... 49 391 358 662 1,185
------ ------ ------ ------------- ------------
Net interest income after provision for loan
losses................................... 3,724 3,798 4,237 2,619 2,894
Non-interest income......................... 818 803 986 761 1,983
Non-interest expense........................ 3,693 4,776 4,640 4,209 4,842
------ ------ ------ ------------- ------------
Net income............................... $ 849 $ (175) $ 583 $ (344) $ 35
====== ====== ====== ========== ==========
Net income per common share and common share
equivalent............................... $ 1.74 $ (.37) NA NA NA
Cash dividends declared per common share.... 0.00 0.00 NA NA NA
Average common shares and common share
equivalents outstanding.................. 487 473 NA NA NA
(IN MILLIONS)
BALANCE SHEET DATA (at period end)
Total assets................................ $140.7 $128.4 $128.6 $ 149.1 $ 157.8
Total loans, net............................ 97.6 92.8 92.4 98.9 107.8
Total deposits.............................. 120.6 118.4 117.7 139.6 149.9
Total stockholders' equity.................. 8.6 7.5 7.9 3.9 4.2
</TABLE>
- ---------------
(1) During 1992, FFE changed its fiscal year end from December 31 to September
30.
SELECTED PRO FORMA INFORMATION
The following table sets forth certain unaudited pro forma combined
financial information for SouthTrust and FFE giving effect to the Merger. This
information should be read in conjunction with the consolidated financial
statements of FFE and SouthTrust and the related notes thereto included
elsewhere herein or incorporated herein by reference and in conjunction with the
unaudited pro forma financial information, including the notes thereto,
appearing elsewhere in this Proxy Statement/Prospectus. Details of pro forma and
pre-acquisition adjustments affecting the historical combined amounts are
included in the Pro Forma Combining Condensed Financial Statements set forth on
pages 56 through 60, inclusive, herein. See "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE" and "PRO FORMA FINANCIAL INFORMATION."
19
<PAGE> 20
PRO FORMA COMBINED INFORMATION
SOUTHTRUST CORPORATION AND FFE FINANCIAL CORP.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1994 SEPTEMBER 30, 1995
----------------- ------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
INCOME STATEMENT DATA
Interest Income............................................ $ 1,116,682 $1,091,951
Interest expense........................................... 505,486 583,484
----------------- ------------------
Net interest income.............................. 611,196 508,467
Provision for loan losses.................................. 45,351 39,539
----------------- ------------------
Net interest income after provision for loan losses ....... 565,845 468,928
Non-interest income........................................ 185,605 152,393
Non-interest expense....................................... 489,996 339,053
----------------- ------------------
Income before income taxes................................. 261,454 222,268
Provision for income taxes................................. 88,546 76,572
----------------- ------------------
Net income....................................... $ 172,908 $ 145,696
============= ==============
Net income per common share and common share equivalent.... $ 2.14 $ 1.75
Average common shares and common share equivalents
outstanding.............................................. 80,934 83,304
(IN MILLIONS)
BALANCE SHEET DATA
Total assets............................................... $ 17,770.1 $ 20,161.5
Total loans net of unearned income......................... 12,215.9 14,175.1
Total deposits............................................. 12,921.1 14,130.1
Total stockholders' equity................................. 1,142.8 1,395.9
</TABLE>
RECENT DEVELOPMENTS
SouthTrust's net income for the fourth quarter of 1995 increased to $53.6
million up 18% from $45.4 million for the fourth quarter of 1994. For 1995,
SouthTrust's net income was $199.0 million, up 15% from 1994. SouthTrust's
earnings per share for the fourth quarter of 1995 were $0.61, compared with
$0.56 for the fourth quarter of 1994. For 1995, SouthTrust's earnings per share
were $2.36, as compared to $2.15 per share for 1994, an increase of 10%.
SouthTrust's net income for 1995 resulted in a 26% increase in stockholders'
equity compared to the previous year.
SouthTrust's total assets increased 18%, reaching a level of $20.8 billion
as of December 31, 1995. This compares with $17.6 billion one year ago.
SouthTrust's loans increased 21% to $14.7 billion, while deposits increased 14%
to $14.6 billion.
20
<PAGE> 21
ELECTION OF DIRECTORS OF FFE
The Certificate of Incorporation and the Bylaws of FFE provide that the
number of directors of FFE shall be fixed from time to time pursuant to a
resolution adopted by the Board of Directors of FFE. As of the date of this
Proxy Statement/Prospectus, the Board of Directors of FFE consists of six
persons. The Certificate of Incorporation and the Bylaws of FFE further provide
that the members of the Board of Directors shall be divided into three classes,
one class to be elected at each annual meeting of stockholders and to serve for
a term of three years.
CURRENT NOMINEES
The Board of Directors proposes to nominate the two persons named below for
election as directors, such persons to serve until the 1998 Annual Meeting of
Stockholders and until their successors have been elected and shall have
qualified.
The names, ages and principal occupations during the past five years of the
nominees, and the year each first became a director of FFE are as follows:
<TABLE>
<CAPTION>
NAME, AGE AND
PRINCIPAL OCCUPATION DIRECTOR
OF NOMINEES AGE SINCE(1)
- ------------------------------------------------------------------------------- --- --------
<S> <C> <C>
G. L. Smith.................................................................... 55 1991
Mr. Smith is the President and Chief Executive Officer of FFE, a position he
has held since 1991. Mr. Smith has responsibility for the overall management
and recommendations of the establishment of the policies of the Bank. He
joined the Bank in 1981 as Senior Vice President with responsibility for
operations in the Bank's financial area. Mr. Smith has over 22 years of
experience in the thrift industry.
Robert L. Bedford.............................................................. 55 1980
Mr. Bedford has been the Deputy Commissioner of Education for the State of
Florida since April 1994, prior to serving as Deputy Commissioner, Mr.
Bedford was the Superintendent of the Charlotte County School Board from July
1987 until April 1994. As Superintendent, Mr. Bedford was responsible for
supervision of 22 schools and 14,000 students in Charlotte County.
</TABLE>
- ---------------
(1) Includes service as a director of the Bank.
Each of the nominees was elected as a director at the 1993 Annual Meeting
of Stockholders. Unless directed to the contrary, the persons acting under the
proxy solicited hereby will vote for the nominees named above. Should any such
nominee become unable to accept election, which is not anticipated, it is
intended that the persons acting under the proxy will vote for the election in
his stead of such other person as the Board of Directors may recommend. Proxies
may not be voted for more than two persons.
See "BENEFICIAL OWNERSHIP OF FFE COMMON STOCK" for information regarding
the number and percentage of shares of FFE Common Stock owned beneficially by
each of the nominees.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE NOMINEES
FOR DIRECTORS NAMED ABOVE.
CONTINUING DIRECTORS
The following tabulation sets forth with respect to those persons who were
elected as directors of FFE at previous Annual Meetings of Stockholders (and
will continue to serve as directors following the Annual
21
<PAGE> 22
Meeting) the names, ages and principal occupations during the past five years,
and the year each person first became a director of FFE:
<TABLE>
<CAPTION>
CURRENT
NAME, AGE AND PRINCIPAL TERM DIRECTOR
OCCUPATION AGE EXPIRES SINCE
---------------------------------------------------------------- --- ------- --------
<S> <C> <C> <C>
John F. Bass III................................................ 66 1998 1959
Mr. Bass is a private investor and was a founding director of
the Bank. He has served as Chairman of the Board of Directors
since 1969.
Eunice G. Albritton............................................. 64 1997 1979
Ms. Albritton is the Secretary Treasurer of Big Gasparilla
Corp. d/b/a Boca Grande Fishery and Fishery Restaurant located
in Placida, Florida. She is also the President of Gasparilla
Shrimper, Inc., a shrimp boat company, and Gasparilla
Diversified Inc., a landholdings and lease-rental company,
both of which are located in Placida, Florida. She is also the
owner of Mrs. Stratton's Salads, Inc., a processor of prepared
salads. Ms. Albritton has been the Secretary of the Bank since
1979, and became the Secretary of FFE in December 1992.
Michael J. Mosolino............................................. 45 1998 1993
Mr. Mosolino is the owner of Blue Dolphin Car Wash located in
Bradenton and Englewood, Florida, and has operated this
business since 1988. Mr. Mosolino is also a partner in Broad
Avenue Realty, a commercial rental facility, a position he has
held for approximately ten years. Broad Avenue Realty is
located in New Jersey.
Wilber A. Rapp.................................................. 62 1997 1993
Mr. Rapp is a Professor Emeritus of Finance at Ohio State
University.
</TABLE>
- ---------------
(1) Includes service as a director of the Bank.
Of the directors named above, Ms. Albritton and Mr. Rapp were elected at
the 1994 Annual Meeting of Stockholders, and Messrs. Bass and Mosolino were
elected at the 1995 Annual Meeting of Stockholders, to serve for the terms
indicated.
See "BENEFICIAL OWNERSHIP OF FFE COMMON STOCK" for information regarding
the number and percentage of shares of FFE Common Stock owned beneficially by
each of the Directors of FFE.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Meetings of the Board of Directors of FFE are generally held on a quarterly
basis. The Board of Directors met 14 times during fiscal 1995. During fiscal
1995, no incumbent director of FFE attended fewer than 75% of the aggregate of
the total number of board meetings and the total number of meetings held by the
committees of the Board of Directors on which he served.
The Board of Directors of FFE has standing Executive, Audit and
Compensation Committees.
The Executive Committee of the Board of Directors generally acts in lieu of
the full Board of Directors between board meetings. The members of this
committee are Directors Bass (Chairman), Smith, Bedford and Albritton. This
committee meets on an as needed basis and did not meet during the year ended
September 30, 1995.
The Audit Committee is composed of Directors Bedford (Chairman), Rapp,
Mosolino and Albritton. The Audit Committee meets in conjunction with the Audit
Committee of the Bank on a quarterly basis and is responsible for reviewing
internal audit procedures and the annual audit report and reporting to the full
Board of Directors. This committee also meets with FFE's external auditors prior
to the annual audit to review audit procedures. This committee met three times
during the year ended September 30, 1995.
22
<PAGE> 23
The Compensation Committee administers the FFE Stock Option Plan and the
FFE Management Recognition Plan through its sub-committee, the MRP and Stock
Option Committee and makes salary and bonus recommendations to the Board of
Directors of FFE. The current members of this committee are Directors Bass,
Bedford, Mosolino, Rapp and Smith. Director Smith does not sit on the MRP and
Stock Option Sub-Committee. This committee meets at least annually or on an as
needed basis. This committee met 1 time during the year ended September 30,
1995.
COMPENSATION OF DIRECTORS
During the year ended September 30, 1995 the Board of Directors of FFE held
5 regular and special meetings. Directors of FFE are not compensated for their
services. Directors of the Bank are paid $800 per regular meeting and $400 per
special meeting. All directors attended more than 75% of the meetings of the
Board of Directors (including any meetings of any committees thereof of which
they are members).
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
RICHARD W. TROUTMAN, age 48, is Senior Vice President of the Bank with
responsibility for the Lending Division. Mr. Troutman recommends and establishes
lending policies and guidelines and is responsible for the Bank's loan
production function. Prior to joining the Bank in June 1992, Mr. Troutman was
employed as Senior Vice President -- Lending Division Head by Coast Bank, a
federal savings bank located in Sarasota, Florida. He held this former position
for 11 years.
WALLACE D. MOSSBARGER, age 61, is Senior Vice President and Chief Financial
Officer of the Bank, a position he has held since June 1991. Mr. Mossbarger has
responsibility for the accounting Division and oversees the Bank's audit
compliance functions. Prior to joining the Bank, Mr. Mossbarger was Senior Vice
President for Barnett Bank of Southwest Florida, a commercial bank located in
Sarasota, Florida from 1971 to 1991.
VIRGINIA R. DUNN, age 59, is a Vice President of the Bank a position she
has held since 1984. Mrs. Dunn is responsible for marketing, personnel and
administration of employee benefit programs and insurance coverage. Mrs. Dunn
joined the Bank in 1973, and has held a variety of positions.
SECTION 16 COMPLIANCE
Section 16(a) of the Exchange Act requires the FFE's directors and
executive officers, and persons who own more than 10% of a registered class of
FFE's equity securities, to file with the SEC initial reports of ownership and
reports of changes in ownership of FFE Common Stock and other equity securities
of FFE. Officers, directors and greater than 10% stockholders are required by
SEC regulation to furnish FFE with copies of all Section 16(a) forms they file.
To the FFE's knowledge, based solely on a review of the copies of such
reports furnished to the FFE and written representations that no other reports
were required, during the fiscal year ended September 30, 1995, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10 percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
FFE has not paid any compensation to its executive officers since its
formation. FFE does not presently anticipate paying any compensation to such
persons until it becomes actively involved in the operation or acquisition of
businesses other than the Bank and FFE.
23
<PAGE> 24
The following table sets forth information regarding compensation paid by
FFE and the Bank to their Chief Executive Officer for services rendered during
the fiscal year ended September 30, 1995. No other executive officer received in
excess of $100,000 from FFE during the fiscal year ended September 30, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------
AWARDS
---------- PAYOUTS
ANNUAL COMPENSATION RESTRICTED -------------------
------------------------------------------- STOCK OPTIONS/ LTIP
NAME AND PRINCIPAL SALARY BONUS OTHER ANNUAL AWARD(S) SARS PAYOUTS ALL OTHER
POSITION YEAR ($) ($) COMPENSATION ($) (#) ($) COMPENSATION ($)
- ------------------------ ----- -------- -------- ------------ ---------- -------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gail L. Smith........... 1995 $144,200(3) $ -- $ -- $ -- $ -- $ -- $7,950(4)
President and Chief 1994 115,313(3) -- -- -- -- -- --
Executive Officer 1993 107,190(3) -- -- 57,284(1) 23,144 (2) -- --
</TABLE>
- ---------------
(1) Represents the dollar value at November 30, 1994 of the award of 4,629
shares of FFE Common Stock pursuant to the MRP granted during fiscal 1993.
The shares of restricted stock shall be earned in equal annual installments
over a five year period commencing one year after August 26, 1993, provided
Mr. Smith maintains continuous service (as defined in the MRP) with the
Bank. During this restricted period, Mr. Smith will be entitled to receive
cash dividends (if any are paid), with respect to the restricted shares.
(2) Represents an incentive stock option to purchase 23,144 shares of FFE Common
Stock awarded to Mr. Smith under the FFE Stock Option Plan during fiscal
1993.
(3) Amounts include directors fees of $11,200, $10,400 and $11,200 payable to
Mr. Smith during fiscal years 1995, 1994 and 1993, respectively.
(4) Matching contribution to Mr. Smith's 401(k) Plan, $7,283; life insurance
premium, $667.
The following table sets forth information regarding the number and value
of stock options at September 30, 1995 held by the Company's Chief Executive
Officer. No stock options were exercised during fiscal 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES IN-THE-MONEY OPTIONS/ SARS
ACQUIRED ON VALUE OPTIONS/ SARS AT FY-END (#) AT FY-END ($)
EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gail L. Smith........................ N/A N/A N/A 23,144 N/A $ 202,510(1)
</TABLE>
- ---------------
(1) Represents the aggregate market value (market price of the common stock less
the exercise price) of the option granted based upon the average of the bid
and asked price of $18.75 per share of the common stock as reported on the
NASDAQ system on September 29, 1995.
EMPLOYMENT AGREEMENT
On August 26, 1993, the Bank entered into an employment agreement with Gail
L. Smith for a three year term. The employment agreement provides for an annual
base salary as determined by the Board of Directors, but not less than Mr.
Smith's then-current salary of $103,000. Salary increases are reviewed not less
often than annually thereafter, and are subject to the sole discretion of the
Board of Directors. The employment contract provides for an automatic extension
for one additional year upon authorization by the Board of Directors at the end
of each year. The contract provides for termination upon the employee's death,
for cause or upon certain events specified by OTS regulations. The employment
contract is terminable by the employee upon 90 days' notice to the Bank. The
employment contract provides for payment to the employee, in the event there is
a change in control of FFE or the Bank, as defined in such agreement, where
employment terminates involuntarily in connection with such change in control or
within 12 months thereafter, of the remaining salary payable under the contract,
plus a severance payment equal to three times his average annual compensation
24
<PAGE> 25
over the past three years of employment. Total payments under the employment
contract can not exceed three times the employee's annual salary or an amount
that would cause certain adverse tax consequences to the Bank and the employee
under Section 280G of the Code. This employment contract may have an "anti-
takeover" effect that could affect a proposed future acquisition of control of
the Bank. This agreement was amended in 1995 to provide for continuation of
health and medical insurance and benefit coverage at the employee's expense upon
termination of employment for any reason but cause.
Based on his current salary, if Mr. Smith had been terminated as of
September 30, 1995, under circumstances entitling him to severance pay as
described above, he would have been entitled to receive a lump sum cash payment
of approximately $475,000.
SEVERANCE AGREEMENT
The Board of Directors has approved a severance agreement with Mr. Wallace
D. Mossbarger to provide termination payments in the event there is a change in
control of FFE or the Bank where employment terminates involuntarily in
connection with such change of control or within 12 months thereafter. The
severance agreement provides for payment to the officer of up too 100% of "base
salary" (as defined in Section 280G(n)(3) of the Code). Assuming a change of
control were to have taken place on September 30, 1995, the amounts due and
payable to Mr. Mossbarger would be approximately $61,000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank, like many financial institutions, has followed a policy of
granting to officers, directors and employees loans secured by the borrower's
residence and consumer loans. All loans to the Bank's officers and directors are
made in the ordinary course of business and on the same terms, including
interest rate and collateral, and conditions as those of comparable transactions
prevailing at the time, and do not involve more than the normal risk of
collectibility or present other unfavorable features.
All loans by the Bank to its directors and executive officers are subject
to OTS regulations restricting loans and other transactions with affiliated
persons of FFE. All loans from FFE to its officers, directors, key employees or
their affiliates are approved or ratified by a majority of the independent and
disinterested members of the FFE's Board of Directors. At September 30, 1995,
the FFE's loans to directors, officers, employees and members of their immediate
families and affiliates totalled $711,000 or 8.3% of the FFE's stockholders'
equity.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On May 17, 1994, FFE dismissed the firm of Deloitte & Touche LLP
("Deloitte") as independent certified accountants for FFE.
The change of independent certified accountants was approved by the Board
of Directors.
Deloitte performed audits of the financial statements for the two fiscal
years ended September 30, 1993 and 1992. The reports did not contain an adverse
opinion or a disclaimer of opinion. Accountants' opinion for fiscal year ended
September 30, 1992 was unqualified and included an uncertainty related to
capital compliance. Accountants' opinion for fiscal year ended September 30,
1993 was unqualified and included an explanatory paragraph related to an
uncertainty concerning litigation.
During the two fiscal years ended September 30, 1993, and from September
30, 1993 through the effective date of the Deloitte termination, there have been
no disagreements between FFE and Deloitte on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements would have caused Deloitte to make reference to the subject
matter of such disagreements in connection with its report.
25
<PAGE> 26
During the two fiscal years ended September 30, 1993 and from September 30,
1993 until the effective date of the dismissal of Deloitte, Deloitte did not
advise FFE of any of the following matters:
A. That the internal controls necessary for FFE to develop reliable
financial statements did not exist;
B. That information had come to Deloitte's attention that had led it
to no longer be able to rely on management's representations, or that has
made it unwilling to be associated with the financial statements prepared
by management;
C. That there was a need to expand significantly the scope of the
audit of FFE, or that information had come to Deloitte's attention that if
further investigated (i) may materially impact the fairness or reliability
of either a previously issued audit report or underlying financial
statements, or the financial statements issued or to be issued covering the
fiscal periods subsequent to the date of the most recent financial
statements covered by an audit report (including information that may
prevent it from rendering an unqualified audit report on those financial
statements) or (ii) may cause it to be unwilling to rely on management's
representation or be associated with the Company's financial statements and
that, due to its dismissal, Deloitte did not so expand the scope of its
audit or conduct such further investigation;
D. That information had come to Deloitte's attention that it had
concluded materially impacted the fairness or reliability of either (i) a
previously issued audit report or the underlying financial statements or
(ii) the financial statements issued or to be issued covering the fiscal
period subsequent to the date of the most recent financial statements
covered by an audit report (including information that, unless resolved to
the accountant's satisfaction, would prevent it from rendering an
unqualified audit report on those financial statements), or that, due to
its dismissal, there were no such unresolved issues as of the date of its
dismissal.
Deloitte has furnished a letter to the Securities and Exchange Commission
dated July 27, 1994 stating that it agrees with the above statements.
On June 21, 1994 FFE engaged the firm of KPMG Peat Marwick LLP as
independent certified accountants for the Company, and the selection of KPMG
Peat Marwick LLP to serve as the independent certified accountants for FFE
during the current fiscal year is hereby recommended to the holders of FFE
Common Stock for election, approval and ratification.
During the two fiscal years ended September 30, 1993 and from September 30,
1993 through the engagement on June 21, 1994 of KPMG Peat Marwick LLP as the
FFE's independent accountant, neither FFE nor anyone on its behalf had consulted
KPMG Peat Marwick LLP with respect to any accounting or auditing issues
involving FFE other than discussions with regard to the engagement and as
discussed below. In particular, there were no discussions with FFE regarding the
application of accounting principles to a specific transaction, the type of
audit opinion that might be rendered on the financial statements or any related
item.
26
<PAGE> 27
BENEFICIAL OWNERSHIP OF FFE COMMON STOCK
The following table sets forth certain information as to those persons
believed by management of FFE to be beneficial owners of more than 5% of FFE's
outstanding shares of FFE Common Stock on February 10, 1996. Persons and groups
beneficially owning in excess of 5% of the FFE Common Stock are required to file
certain reports regarding such ownership with FFE and with the SEC, in
accordance with the Securities Exchange Act of 1934, as amended. Where
appropriate, historical information set forth below is based on the most recent
Schedule 13D or 13G filed on behalf of such person with the FFE. Other than
those persons listed below, management is not aware of any person or group that
owns more than 5% of the FFE Common Stock as of February 10, 1996. The holders
have sole voting and dispositive power, unless otherwise noted.
<TABLE>
<CAPTION>
BENEFICIAL OWNER SHARES BENEFICIALLY OWNED PERCENT OF CLASS
- ---------------------------------------------------------- ------------------------- ----------------
<S> <C> <C>
David G. Booth (1)........................................ 28,100 5.9%
24 Monroe Place #9A
Brooklyn, New York 11201
Estate of Oliver R. Grace(2).............................. 35,795 7.6
Drake Associates, L.P.
c/o Thomas L. Seifert
515 Madison Avenue
Suite 2000
New York, New York 10022
First Financial Fund, Inc.(3)............................. 34,800 7.3
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Wellington Management Company(4).......................... 40,000 8.0
75 State Street
Boston, WA 02109
Gail L. Smith(5).......................................... 36,773 7.7
1160 South McCall Road
Englewood, Florida 34223
</TABLE>
- ---------------
(1) The above information regarding beneficial ownership by David G. Booth is as
reported by him in a statement dated October 18, 1993 on Schedule 13-D
under the Securities and Exchange Act of 1934. Mr. Booth reported sole
voting power of 28,100 shares.
(2) The above information regarding beneficial ownership by the Estate of Oliver
R. Grace and Drake Associates, L.P. is as reported by them in an amended
statement dated November 17, 1993, under the Securities Exchange Act of
1934. The Estate of Oliver R. Grace reported sole voting and dispositive
power of 9,295 shares. Drake Associates, L.P. reported sole voting and
dispositive power of 26,500 shares.
(3) The above information regarding beneficial ownership by First Financial
Fund, Inc. is as reported by them in a statement dated February 10, 1994
and February 2, 1995 on Schedule 13-G under the Securities and Exchange Act
of 1934. First Financial Fund, Inc. reported shared voting and dispositive
power over 28,800 shares and 6,000 shares, respectively.
(4) The above information regarding beneficial ownership by Wellington
Management Company is as reported by them in a statement dated February 10,
1994 and February 3, 1995 on Schedule 13-G under the Securities and
Exchange Act of 1934. Wellington Management Company reported shared
dispositive power over 33,000 shares and 7,000 shares, respectively.
(5) Includes 8,320 shares held directly, 680 shares held by Mr. Smith's spouse,
4,629 shares awarded under the MRP over which Mr. Smith has sole voting and
dispositive power and 23,144 shares subject to options granted to Mr. Smith
under the FFE Stock Option Plan.
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<PAGE> 28
The following table sets forth certain information as to the common stock
of FFE owned of record or beneficially by each director and executive officer of
FFE, FFE's chief executive officer, and by all directors and executive officers
as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AS OF PERCENT
NAME POSITION SEPTEMBER 30, 1995 OF CLASS
- ------------------------------------------ ---------------------------- ------------------- --------
<S> <C> <C> <C>
Eunice G. Albritton....................... Secretary and Director 4,166 .8%
John F. Bass, III......................... Chairman of the Board 4,166 .8
Robert L. Bedford......................... Vice Chairman of the Board 6,726 1.4
Michael J. Mosolino....................... Director 4,561 .9
Wilbur A. Rapp............................ Director 15,666 3.2
Virginia R. Dunn(1)....................... Vice President 9,025 1.8
Directors and executive officers of the
Company and the Bank as a group (9
persons)(2)............................. 87,017 17.7
</TABLE>
- ---------------
(1) Includes 5,025 shares held directly and 4,000 shares held by family members.
(2) Includes shares held directly, as well as, jointly with family members, and
shares held in retirement accounts in a fiduciary capacity or by certain
family members, with respect to which shares the listed individuals or
group members may be deemed to have sole voting and investment power. This
table also includes 1,666,740 and 23,144 shares subject to options granted
under the FFE Stock Option Plan to each Senior Vice President, each
non-employee director and the chief executive officer, respectively. This
table excludes 2,500 and 1,111 shares subject to options granted under the
FFE Stock Option Plan to each Senior Vice President and each non-employee
director, respectively which are not exercisable within 60 days of February
21, 1996.
28
<PAGE> 29
THE MERGER
The terms of the Merger are set forth in the Merger Agreement, and the
terms of the Subsidiary Merger are set forth in the Subsidiary Merger Agreement.
The description of the Merger which follows summarizes the principal provisions
of the Merger Agreement and the Subsidiary Merger Agreement, is not complete and
is qualified in all respects by reference to the Merger Agreement and the
Subsidiary Merger Agreement, copies of which are attached hereto as Exhibits A
and B, respectively.
GENERAL
The Merger Agreement has been approved by the Boards of Directors of FFE,
SouthTrust and ST-Sub, and by SouthTrust as the sole stockholder of ST-Sub. No
approval of the Merger by the stockholders of SouthTrust is required. The
Subsidiary Merger Agreement has been approved by the Boards of Directors of the
Bank and ST-Bank, by FFE as the sole stockholder of the Bank and by ST-Sub as
the sole stockholder of ST-Bank.
Subject to approval of the Merger Agreement by the stockholders of FFE at
the Annual Meeting, the receipt of required regulatory approval, and certain
other conditions, FFE will be merged into ST-Sub pursuant to the Merger
Agreement. At the Effective Time of the Merger, each share of FFE Common Stock
which is issued and outstanding immediately prior to the Effective Time of the
Merger (other than certain excluded shares as described below) shall be
converted into and represent the right to receive and be exchanged for (A) cash
in the amount of $10.80 and (B) 0.645 shares of SouthTrust Common Stock, as the
Cash Consideration and the Exchange Ratio may be adjusted pursuant to the terms
of the Merger Agreement. See "-- Effect of Merger on FFE Common Stock and FFE
Stock Options."
The Merger Agreement provides that the Cash Consideration portion of the
Merger Consideration for which each share of FFE Common Stock may be exchanged
in the Merger is subject to being increased (at the rate of 8% per annum) to the
extent that the Effective Time of the Merger occurs after April 30, 1996. Such
Cash Consideration is subject to being decreased if payments made or to be made
to customers following a review of the Bank's adjustable rate mortgages, as
required by the Merger Agreement, exceed the Threshold Amount. If restitution
payments exceed the Threshold Amount, then the amount of the Cash Consideration
reduction will equal, in the aggregate, 50% of the first $125,000 in after-tax
cost in excess of the Threshold Amount plus 100% of any additional after-tax
cost, divided in both cases by the number of shares of FFE Common Stock and the
number of shares of FFE Common Stock subject to options immediately prior to the
Effective Time of the Merger. See "-- Effect of Merger on FFE Common Stock and
FFE Stock Options."
The Exchange Ratio, which determines the number of shares of SouthTrust
Common Stock and associated SouthTrust rights for which each share of FFE Common
Stock may be exchanged in the Merger, is also subject to adjustment under
certain circumstances. The Merger Agreement provides that if 0.645, when
multiplied by the average last sales price of SouthTrust Common Stock, as
reported by Nasdaq, for the later to occur of the twenty (20) trading days
immediately preceding the date of the annual meeting of stockholders of FFE at
which the Merger is to be considered or the twenty (20) trading days immediately
following the date that the last regulatory approval relating to the Merger is
received (and all waiting periods applicable thereto have expired) results in
the aggregate of the amount attributable to each share of FFE Common Stock
(including the Cash Consideration, as the same may be adjusted), after taking
into account all adjustments, being less than $22.95, SouthTrust shall adjust
the Exchange Ratio so that the aggregate of the amount attributable to each
share of FFE Common Stock (including the Cash Consideration, as the same may be
adjusted), after all adjustments, shall equal $22.95, and if 0.645, when
multiplied by the average last sales price of SouthTrust Common Stock, as
defined above, results in the aggregate of the amount attributable to such share
of FFE Common Stock (including the Cash Consideration, as the same may be
adjusted) being more than $31.05, SouthTrust shall adjust the Exchange Ratio so
that the aggregate of the amount attributable to each share of FFE Common Stock
(including the Cash Consideration, as the same may be adjusted), after taking
into account all adjustments, shall equal $31.05. The Exchange Ratio, including
the number of shares of SouthTrust Common Stock issuable in the Merger, is also
subject to appropriate adjustment in the event of certain stock splits, stock
dividends, reclassifications or similar distributions effected
29
<PAGE> 30
by SouthTrust. Because the Exchange Ratio may be adjusted under certain
circumstances as discussed in this paragraph, the Exchange Ratio may not be
definitively determined until immediately prior to the Effective Time of the
Merger. However, based upon the last sales price of SouthTrust Common Stock on
February 26, 1996 (the second trading day immediately prior to the date of this
Proxy Statement/Prospectus), no adjustment in the Exchange Ratio would be
required.
No fractional shares of SouthTrust Common Stock will be issued in the
Merger, and, in lieu thereof, each holder of shares of FFE Common Stock that
otherwise would have been entitled to receive a fractional share of SouthTrust
Common Stock will be entitled to receive a cash payment in an amount equal to
the product of (i) the fractional interest of a share of SouthTrust Common Stock
to which such holder otherwise would have been entitled and (ii) the last sales
price of SouthTrust Common Stock as reported by Nasdaq on the last trading day
preceding the Effective Time of the Merger.
Subject to the approval of the Merger Agreement by the stockholders of FFE,
the receipt of all required regulatory approvals, and the satisfaction or waiver
of the conditions contained in the Merger Agreement, the Merger Agreement
provides that the Effective Time of the Merger will be the day on which the
Certificate of Merger shall be accepted for filing by the Secretary of State of
the States of Florida and Delaware.
As promptly as practicable after the Effective Time of the Merger,
SouthTrust or its agents shall send or cause to be sent to each former holder of
record of FFE Common Stock a letter of transmittal for use in exchanging their
stock certificates formerly representing such FFE Common Stock for the right to
receive certificates representing the appropriate number of shares of SouthTrust
Common Stock, plus the Cash Consideration.
As of the Effective Time of the Merger or immediately thereafter, and
pursuant to the terms of the Subsidiary Merger Agreement, the Bank, a
wholly-owned subsidiary of FFE, shall be merged with and into ST-Bank, a
wholly-owned subsidiary of ST-Sub, and ST-Bank shall be the surviving
association. Upon the consummation of the Subsidiary Merger, all of the issued
and outstanding shares of capital stock of the Bank shall be canceled, and all
of the shares of capital stock of ST-Bank outstanding immediately prior to the
consummation of the Subsidiary Merger shall constitute the only outstanding
shares of stock of the surviving association.
BACKGROUND OF AND REASONS FOR THE MERGER
Effective August 26, 1993, the Bank converted from a federally chartered
mutual savings and loan association to a federally chartered stock savings bank.
At the same time, FFE was formed as the Bank's holding company. In connection
with the conversion, FFE completed an initial public offering of stock, selling
462,875 shares of FFE Common Stock at $10.00 per share.
Following the conversion, management of FFE focused its attention primarily
on increasing its core business while reviewing, from time to time, its
strategic alternatives in light of its size, the increasing consolidation of the
financial services industry and other relevant considerations. In early 1995,
the Board of Directors of FFE determined to maintain an informed position with
respect to its strategic alternatives by, among other things, retaining a
financial advisor.
In May 1995, FFE engaged Hovde to serve as its financial advisor on
financial and strategic matters relating to the enhancement of stockholder
value, including the possible sale of FFE.
During the summer of 1995, Hovde contacted approximately 30 parties
regarding a potential transaction with FFE. After execution of confidentiality
agreements and subsequent review of financial and other material concerning FFE
provided to such parties by Hovde, three parties, including SouthTrust,
expressed initial interest at approximately $27 per share; the two other
potential acquirors expressed initial interest at levels slightly above that of
SouthTrust. As a result of these initial indications of interest, Hovde
conducted further negotiations and provided further information on FFE to
SouthTrust and these two other potential acquirors.
Following these additional negotiations, one of the potential acquirors
other than SouthTrust indicated it was no longer interested in pursuing a
potential transaction with FFE. Thereafter, SouthTrust and the other
30
<PAGE> 31
remaining interested party were invited to conduct on-site due diligence of FFE,
which occurred during the latter part of September and first half of October,
1995. Thereafter, both SouthTrust and the other party were asked to submit
definitive proposals to acquire FFE, which proposals were to both include
comments to the form of purchase agreement prepared by FFE's counsel and
previously distributed to each party, as well as any additional contingencies to
a prompt execution of such agreement.
The remaining party other than SouthTrust submitted a proposal which
contained two alternatives. The first alternative involved an exchange of common
shares. The second alternative proposed an exchange of newly-issued, convertible
preferred shares for each share of FFE Common Stock. Because this second
proposal involved the issuance of shares for which there was no existing market,
Hovde independently evaluated such proposal based upon the issuer's financial
condition, operating performance, market area, liquidity of shares (including
both the existing common shares, as well as the proposed new issue of
convertible preferred shares) and other underlying fundamentals. Hovde also
considered the proposed dividend yield on the preferred shares, as well as the
conversion premium relative to the trading price of this party's common shares.
As a result of these analyses, Hovde valued both of this party's proposals at
levels below that offered by SouthTrust.
Both proposals made by the party other than SouthTrust were conditioned
upon additional due diligence of FFE, as well as further review and comments to
the form of definitive agreement previously provided. SouthTrust's proposal was
not contingent upon further due diligence, and was only subject to satisfactory
resolution of the comments submitted along with its final proposal. As a result
of its pricing level, definitive nature, liquidity of the shares offered, and
underlying financial condition of the issuer, the Board of Directors of FFE
determined that SouthTrust's proposal represented the greatest opportunity to
maximize shareholder value, and instructed its management, legal counsel and
financial advisors to negotiate a final definitive purchase agreement with
SouthTrust.
Subsequent discussions and negotiations between SouthTrust, FFE and Hovde,
acting on behalf of FFE, resulted in a formal offer to FFE, as set forth in the
Merger Agreement.
On November 3, 1995, at a meeting of FFE's Board of Directors that included
the participation of Hovde and Silver, Freedman & Taff, L.L.P., FFE's outside
legal counsel, FFE's Board reviewed the terms of the proposed Merger,
unanimously approved the offer from SouthTrust and authorized the execution and
delivery of the Merger Agreement.
FFE's Reasons and Board Recommendation for the Merger. The terms of the
Merger Agreement, including the consideration to be paid by FFE's stockholders,
were the result of arm's-length negotiations between the representatives of
SouthTrust and FFE. In the course of reaching its determination to approve the
Merger Agreement and recommend it to the stockholders of FFE, the Board of
Directors, without assigning any relative or specific weights, considered a
number of factors, including, among other things (i) the financial and valuation
analyses prepared by Hovde, (ii) the draft of the fairness opinion to be
rendered by Hovde, (iii) the terms of the Merger Agreement as negotiated
(including the transaction structure, the form and amount of the Merger
consideration, and the potential impact of the proposed Merger Agreement and the
Option Agreement on other institutions that might have an interest in a business
combination with FFE), and the negotiation process, (iv) the financial
condition, operations and prospects of SouthTrust and the anticipated effect
thereon of the proposed transaction, (v) industry and economic factors, (vi) the
nature and compatibility of SouthTrust's management and business philosophy,
(vii) the prospects for growth and expanded products and services, and other
anticipated impact on depositors, employees, customers and communities served by
FFE and (viii) regulatory and other factors.
In approving the Merger, FFE's Board of Directors was aware that (i) the
Merger Agreement contains certain provisions prohibiting FFE from soliciting,
facilitating or accepting other offers or agreements to acquire FFE (see
"-- Business Pending the Merger") and (ii) SouthTrust would be able to exercise
the SouthTrust Option or be entitled to receive the Break-Up Fee from FFE in
certain circumstances generally relating to a failure of FFE to consummate the
Merger because of another offer for FFE or a material change or potential
material change in the ownership of FFE (see "-- SouthTrust Stock Option
Agreement and Break-Up Fee"). However, the Board was also aware that such terms
were specifically bargained for and
31
<PAGE> 32
insisted upon by SouthTrust as inducements to enter into the Merger Agreement,
and that the Board's obligations under the Merger Agreement to recommend that
FFE's stockholders approve the Merger Agreement and to use its reasonable best
efforts to obtain such approval were explicitly made subject to the Board's
fiduciary duties upon written advice of counsel to FFE. Accordingly, the Merger
Agreement expressly permits the Board, in the exercise of its fiduciary duties,
to withdraw or change its recommendation of the Merger Agreement and to suspend
or terminate its efforts to obtain stockholder approval of the Merger Agreement
at the Annual Meeting (it should be noted, however, that in such circumstances
SouthTrust might still be able to exercise its rights under the Option Agreement
or be entitled to the payment of the Break-Up Fee. In addition, in connection
with its approval of the proposed Merger, the board was advised by Hovde that
the indicated value of the Merger (i) exceeded the upper end of Hovde's range of
estimates of the net present value of the discounted cash flow attributable to
each FFE common share based upon an acquisition of FFE at a later date and (ii)
Hovde believed that the process followed by FFE in soliciting proposals and
negotiating the Merger Agreement had been fair and effective and that it had
obtained as high a price for FFE as could have been obtained through other
techniques. In presenting this advice, Hovde stated that these findings were
necessarily based upon economic, market, monetary and other conditions as they
existed and could be evaluated at the time, represented their best business
judgment under the circumstances and should not be construed in any way as a
financial fairness or other form of expert opinion. Hovde's fairness opinion is
described below and included as Exhibit C to this Prospectus/Proxy Statement.
See "-- Opinion of Financial Advisor."
THE FFE BOARD UNANIMOUSLY RECOMMENDS THAT FFE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT.
SouthTrust's Reasons for the Merger
SouthTrust is engaging in the transactions pursuant to the Merger because
the Merger and the Subsidiary Merger are consistent with its expansion strategy
within the southeastern United States and because the acquisition of FFE and the
Bank will augment and enhance SouthTrust's existing competitive position in such
market.
OPINION OF FINANCIAL ADVISOR
FFE retained Hovde Financial, Inc. to act as its financial advisor in
connection with the Merger and related matters and requested that Hovde render
its opinion with respect to the fairness, from a financial point of view, to the
stockholders of FFE of the Merger Consideration.
FFE selected Hovde to serve as its financial advisor based upon, among
other things, Hovde's expertise in the valuation of businesses and their
securities in connection with mergers and acquisitions of financial institutions
in general, and commercial banks and thrift institutions in particular. As part
of its services, Hovde assisted FFE in evaluating its strategic alternatives, in
marketing FFE to potentially Interested Acquirors, and in negotiating with
SouthTrust relating to the Agreement and the Merger. Hovde also provided
comparative information regarding similar transactions and provided general
advisory services to FFE. See "-- Background of the Merger."
Hovde has delivered to the Board of Directors of FFE its opinion that,
based upon and subject to the various considerations set forth in its written
opinion dated November 2, 1995, the Merger Consideration is fair from a
financial point of view to the stockholders of FFE as of such date. In
requesting Hovde's advice and opinion, no limitations were imposed by FFE upon
Hovde with respect to the investigations made or procedures followed by it in
rendering its opinion.
The full text of the opinion of Hovde, dated February 28, 1996, which
describes the procedures followed, assumptions made, matters considered and
limitations on the review undertaken, is attached hereto as Exhibit C.
Stockholders of FFE should read this opinion in its entirety.
HOVDE'S OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE MERGER CONSIDERATION, AND DOES NOT CONSTITUTE A RECOMMEN-
32
<PAGE> 33
DATION TO ANY STOCKHOLDER OF FFE AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
FFE STOCKHOLDER MEETING. THE SUMMARY OF THE OPINION OF HOVDE SET FORTH IN THIS
PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
SUCH OPINION.
The following is a brief summary of the analyses performed by Hovde in
connection with its fairness opinion:
During the course of its engagement, and as a basis for arriving at
its opinion, Hovde reviewed and analyzed material bearing upon the
financial and operating condition of SouthTrust and FFE and material
prepared in connection with the Merger, including, among other things, the
following: (i) the Merger Agreement; (ii) certain publicly available
information concerning FFE, including the consolidated financial statements
of FFE for each of the three years ended September 30, 1994 and the three
subsequent quarterly periods ended December 31, 1994, March 31, and June
30, 1995; (iv) the nature and terms of recent acquisition and merger
transactions involving thrift institutions and thrift holding companies
that Hovde considered reasonably similar to FFE in size, financial
character, operating character, historical performance and geographic
market; and (v) financial and other information provided to Hovde by the
management of SouthTrust and FFE. Hovde conducted meetings with members of
senior management of FFE for purposes of reviewing the future prospects of
FFE. Hovde also took into account its experience in other transactions, as
well as its knowledge of the commercial banking and thrift industries and
its general experience in securities valuations.
In rendering its opinion, Hovde assumed, without independent verification,
the accuracy and completeness of the financial and other information and has
relied upon the accuracy of the representations of the parties contained in the
Merger Agreement. Hovde has not made any independent evaluation or appraisal of
any properties, assets or liabilities of FFE. Hovde assumed and relied upon the
accuracy and completeness of the publicly available and other financial and
other information provided to it, relied upon the representations and warranties
of SouthTrust and FFE made pursuant to the Merger Agreement, and did not
independently attempt to verify any of such information.
In connection with its opinion, Hovde performed various analyses with
respect to FFE. The following is a brief summary of such analyses, certain of
which were presented to the Board of Directors of FFE by Hovde on or before
November 3, 1995.
Analysis of the Merger Consideration. Hovde reviewed the value of the
Merger Consideration to be received by each FFE stockholder. Hovde calculated
that the Merger Consideration equated to approximately 155.2% of FFE's tangible
book value at September 30, 1995, a multiple of approximately 15.9X FFE's
earnings for the twelve months ended September 30, 1995, and a premium to core
deposits of approximately 4.14%.
Analysis of Selected Merger/Acquisition Transactions. Hovde reviewed
certain financial data relating to selected recently completed and pending
thrift acquisition transactions involving institutions in the State of Florida.
The selection included a total of seven transactions of which there were two
completed and five pending transactions. In each transaction, Hovde reviewed the
price as a multiple of tangible book value, as a multiple to earnings for the
last twelve reported months for each company, and as a premium to core deposits.
In regard to the comparable transactions, the median price to tangible book
was 140.5%, and the median price to earnings multiple was 16.3x. The mean price
to book and price to earnings multiples for these companies were 141.8% and
17.6x, respectively. The median and mean premium to core deposits for the
comparable group were 5.62% and 5.04%, respectively.
No company or transaction used in the above analysis as a comparison is
identical to FFE, SouthTrust or the contemplated transaction. Accordingly, an
analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading value of the companies to which they are being
compared.
33
<PAGE> 34
Comparison of the Merger Consideration to Selected Merger/Acquisitions
Transactions. The Merger Consideration equated to approximately 155.2% of FFE's
tangible book value at September 30,1995. This compared favorably to both the
median and mean price/tangible book multiples for the comparative group
discussed above, which medians and means were 140.4% and 141.8%, respectively.
The Merger Consideration represents a higher price to tangible book multiple
than either the median or mean price/tangible book multiples of the group
overall, and is higher than all but one of the seven transactions in the
comparable group. On a price/earnings basis, the Merger Consideration equated to
15.8 times FFE's earnings for the twelve month period ending September 30, 1995.
This was somewhat below the median and mean price/ earnings multiple for the
comparative group discussed above, which were 16.3x and 17.7x, respectively. On
a premium to core deposits basis, the Merger Consideration equated to 4.14%,
which was also somewhat below the comparable group median and mean of 5.62% and
5.04%, respectively.
Discounted Cash Flow Analysis. Hovde performed a discounted cash flow
analysis to determine a range of present values per share of FFE Common Stock
assuming FFE continued to operate as a stand-alone entity and was acquired at a
later date. This range was determined by projecting FFE's after-tax net income
for the five years ended September 30, 1996 through 2000. Projected net income
was determined through consultation with FFE's management and generally included
modest growth in assets (4-5% yearly), as well as progressively higher net
income as a percent of average assets (increasing from 0.58% to 0.70% for the
twelve months ended September 30, 2000). Net income for the year ended September
30, 1996 was impacted by an estimated 0.85% (based upon deposits) pre-tax charge
to recapitalize the SAIF. "Terminal values" per share of FFE Common Stock were
determined by applying ranges of price to tangible book multiples (ranging from
1.2 times to 1.7 times) and price to earnings multiples (ranging from 13.5 times
to 16.0 times), against FFE's projected equity or earnings (as the case may be)
at dates between September 30, 1997 and September 30, 2000. Present values of
the terminal values were then determined using annual discount rates of 12% and
15%. The above calculations resulted in a present value per share of FFE Common
Stock ranging from $16.19 (based upon a sale in five years at 1.2 times book
value using a discount rate of 15%) to $27.34 (based upon a sale in two years at
1.7 times book value using a discount rate of 12%). The majority of the net
present values per share of FFE Common Stock were in the range of approximately
$19 to $24.
Based upon the foregoing analyses and other investigations and assumptions
set forth in its opinion, without giving specific weightings to any one factor
or comparison, Hovde determined that the Merger Consideration offer was fair
from a financial point of view to the stockholders of FFE. Hovde's fairness
opinion does not take into account any adjustment to the Merger Consideration
that may be provided for in the Agreement.
THE SUMMARY OF THE PRESENTATION BY HOVDE TO THE BOARD OF DIRECTORS OF FFE
AS SET FORTH ABOVE DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH
PRESENTATION. THE PREPARATION OF A FAIRNESS OPINION INVOLVES VARIOUS
DETERMINATIONS AS TO THE MOST APPROPRIATE AND RELEVANT METHODS OF FINANCIAL
ANALYSES AND THE APPLICATION OF THOSE METHODS TO THE PARTICULAR CIRCUMSTANCES,
AND, THEREFORE, SUCH AN OPINION IS NOT READILY SUSCEPTIBLE TO SUMMARY
DESCRIPTION. FURTHERMORE, IN ARRIVING AT ITS OPINION, HOVDE DID NOT ATTRIBUTE
ANY PARTICULAR WEIGHT TO ANY ANALYSIS OR FACTOR CONSIDERED BY IT, BUT RATHER
MADE QUALITATIVE JUDGMENTS AS TO THE SIGNIFICANCE AND RELEVANCE OF EACH ANALYSIS
AND FACTOR. ACCORDINGLY, HOVDE BELIEVES THAT ITS ANALYSES AND THE SUMMARY SET
FORTH ABOVE MUST BE CONSIDERED AS A WHOLE AND THAT SELECTING PORTIONS OF ITS
ANALYSES, WITHOUT CONSIDERING ALL FACTORS AND ANALYSES, COULD CREATE AN
INCOMPLETE VIEW OF THE PROCESS UNDERLYING THE ANALYSES SET FORTH IN ITS REPORT
TO THE BOARD OF DIRECTORS OF FFE AND ITS FAIRNESS OPINION. IN PERFORMING ITS
ANALYSES, HOVDE MADE NUMEROUS ASSUMPTIONS WITH RESPECT TO INDUSTRY PERFORMANCE,
GENERAL BUSINESS AND ECONOMIC CONDITIONS AND OTHER MATTERS, MANY OF WHICH ARE
BEYOND THE CONTROL OF SOUTHTRUST OR FFE. THE ANALYSES PERFORMED BY HOVDE ARE NOT
NECESSARILY INDICATIVE OF ACTUAL VALUES OR ACTUAL FUTURE
34
<PAGE> 35
RESULTS, WHICH MAY BE SIGNIFICANTLY MORE OR LESS FAVORABLE THAN SUGGESTED BY
SUCH ANALYSES.
INTERESTS OF CERTAIN PERSONS NAMED IN THE MERGER
Certain officers of FFE and members of the FFE Board of Directors have
interests in the Merger that are in addition to any interests they may have as
stockholders of FFE generally. These interests include, among others, provisions
in the Merger Agreement relating to indemnification of FFE directors and
officers, directors' and officers' liability insurance, and certain severance
and other employee benefits, as described below.
SouthTrust has agreed in the Merger Agreement that it shall, or shall cause
ST-Sub to indemnify, defend and hold harmless the present and former directors,
officers, employees and agents of FFE and the Bank against all losses, expenses,
claims, damages or liabilities arising out of actions or omissions occurring at
or prior to the Effective Time of the Merger (including the transactions
contemplated by the Merger Agreement) to the full extent then permitted under
United States law, Delaware law and by the Certificate of Incorporation and
Bylaws of FFE and the Bank as in effect on the date of the Merger Agreement.
Pursuant to the Merger Agreement, appropriate steps shall be taken to
terminate all employee benefit plans of FFE as of the Effective Time of the
Merger or as promptly as practicable thereafter. Following the termination of
all such employee benefit plans, SouthTrust has agreed to cover the officers and
employees of FFE and the Bank who are employed by SouthTrust or one of its
affiliates under employee benefits plans of SouthTrust (the "Continuing
Employees"), including welfare and fringe benefit plans, but excluding the
SouthTrust Corporation Revised Retirement Income Plan and the SouthTrust
Corporation Employee's Profit Sharing Plan, on the same basis as and subject to
the same conditions as are applicable to any newly-hired employee of SouthTrust;
provided, however, that (i) with respect to SouthTrust's group medical insurance
plan, SouthTrust shall credit each such Continuing Employee for eligible
expenses incurred by such employee and his or her dependents (if applicable)
under FFE's group medical benefits plan during the current calendar year for
purposes of satisfying the deductible provisions under SouthTrust's plan for
such current year, and SouthTrust shall waive all waiting periods under said
plans for pre-existing conditions; and (ii) credit for each such employee's past
service with FFE and the Bank prior to the Effective Time of the Merger shall be
given by SouthTrust to employees for purposes of: (1) determining vacation and
sick leave benefits and accruals, in accordance with the established policies of
SouthTrust; and (2) establishing eligibility for participation in, and vesting
under, SouthTrust's employee benefits plans (including welfare and fringe
benefit plans), and for purposes of determining the scheduling of vacations and
other determinations which are made based on length of service; provided,
however, such credit for past service shall not be given to any such employee
for purposes of establishing eligibility for participation in the 1990
Discounted Stock Plan of SouthTrust or for purposes of determining benefit
accrual under the SouthTrust Corporation Employee's Profit Sharing Plan.
The Merger Agreement further provides that, on the day prior to the
Effective Time of the Merger, each FFE employee benefit plan that is intended to
be a pension, profit sharing, stock bonus, thrift, savings plan that is
qualified under Section 401(a) of the Internal Revenue Code ("FFE Qualified
Plans") shall be terminated with full acceleration of vesting, except for any
required payment of employer-matching contributions with respect to elective
contributions made prior to the Effective Time of the Merger. As soon as
practicable after the Effective Time of the Merger, subject only to orderly
winding-up of the affairs of each such FFE Qualified Plan (excluding obtaining a
determination letter from the Internal Revenue Service as to the effect of such
termination upon such FFE Qualified Plan), the assets of each such plan shall be
distributed to the participants and beneficiaries thereof with full right of
roll-over to an individual retirement account.
The Merger Agreement also provides that at the Effective Time of the
Merger, SouthTrust shall enter into a covenant not to compete and consulting
agreement with Mr. G. L. Smith (the "Covenant Not to Compete and Consulting
Agreement"), which provides that during the one year period following Mr.
Smith's cessation of active employment with the Bank he will not engage in
competition with SouthTrust or any of its financial institution Subsidiaries and
he will provide transition consulting services to SouthTrust during such one
year period in exchange for $108,000 which shall be paid to him at a rate of
$9,000 per month.
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SouthTrust has further agreed in the Merger Agreement that it shall assume
all of the obligations of the Bank under that certain employment agreement
between the Bank and Mr. G. L. Smith dated August 26, 1993 (the "Employment
Agreement"), and shall assume all of the obligations of the Bank under that
certain Change In Control Severance Agreement between Wallace D. Mossbarger and
the Bank dated March 21, 1995 (the "Severance Agreement"). SouthTrust
acknowledges that the consummation of the Merger will constitute both a change
in control and change in circumstances under the Employment Agreement and the
Severance Agreement so as to constitute an involuntary termination of the
employment of Messrs. Smith and Mossbarger in connection with a change in
control pursuant to the terms of the Employment Agreement and the Severance
Agreement.
Pursuant to the Merger Agreement, each outstanding share of FFE Common
Stock awarded pursuant to the FFE Management Recognition Plan that is unvested
immediately prior to the Effective Time of the Merger shall be canceled in
exchange for a per share cash payment from SouthTrust at the Effective Time of
the Merger equal to the amount of the per share consideration to be exchanged by
SouthTrust for such share of FFE Common Stock pursuant to the terms of the
Merger Agreement. Each holder of such FFE Common Stock, as a condition to the
receipt of payment, shall be required to deliver his certificate or certificates
representing such shares to SouthTrust for cancellation and shall also be
required to execute a cancellation agreement. See "-- Effect of Merger on FFE
Common Stock and FFE Common Stock Options."
EFFECT OF MERGER ON FFE COMMON STOCK AND FFE STOCK OPTIONS
At the Effective Time of the Merger, each share of FFE Common Stock which
is issued and outstanding immediately prior to the Effective Time (other than
certain excluded shares as described below) shall be converted into and
represent the right to receive and be exchanged for (A) cash in the amount of
$10.80 and (B) 0.645 share of SouthTrust Common Stock, as such Cash
Consideration and Exchange Ratio may be adjusted pursuant to the terms of the
Merger Agreement and as more fully described below.
The Cash Consideration portion of the Merger Consideration for which each
share of FFE Common Stock may be exchanged in the Merger is subject to being
increased (at the rate of 8% per annum) to the extent that the Effective Time of
the Merger occurs after April 30, 1996. Such Cash Consideration is subject to
being decreased if payments made or to be made to customers following a review
of the Bank's adjustable rate mortgages, as required by the Merger Agreement,
exceed the Threshold Amount. If restitution payments exceed the Threshold
Amount, then the amount of the Cash Consideration reduction will equal, in the
aggregate, 50% of the first $125,000 in after-tax cost in excess of the
Threshold Amount plus 100% of any additional after-tax cost, divided in both
cases by the number of shares of FFE Common Stock and the number of shares of
FFE Common Stock subject to options immediately prior to the Effective Time of
the Merger.
The Exchange Ratio, which determines the number of shares of SouthTrust
Common Stock and associated SouthTrust rights for which each share of FFE Common
Stock may be exchanged in the Merger, is also subject to adjustment. The Merger
Agreement provides that if 0.645, when multiplied by the average last sales
price of SouthTrust Common Stock, as reported by Nasdaq, for the later to occur
of the twenty (20) trading days immediately preceding the date of the annual
meeting of stockholders of FFE at which the Merger is to be considered or the
twenty (20) trading days immediately following the date that the last regulatory
approval relating to the Merger is received (and all waiting periods applicable
thereto have expired) results in the aggregate of the amount attributable to
each share of FFE Common Stock (including the Cash Consideration, as the same
may be adjusted), after taking into account all adjustments, being less than
$22.95, SouthTrust shall adjust the Exchange Ratio so that the aggregate of the
amount attributable to each share of FFE Common Stock (including the Cash
Consideration, as the same may be adjusted), after all adjustments, shall equal
$22.95, and if 0.645, when multiplied by the average last sales price of
SouthTrust Common Stock, as defined above, results in the aggregate of the
amount attributable to each share of FFE Common Stock (including the Cash
Consideration, as the same may be adjusted) being more than $31.05, SouthTrust
shall adjust the Exchange Ratio so that the aggregate of the amount attributable
to each share of FFE Common Stock (including the Cash Consideration, as the same
may be adjusted), after taking into account all adjustments, shall equal $31.05.
The Exchange Ratio, including the number of shares of SouthTrust Common
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Stock issuable in the Merger, is also subject to appropriate adjustment in the
event of certain stock splits, stock dividends, reclassifications or similar
distributions effected by SouthTrust. Because the Exchange Ratio may be adjusted
under certain circumstances as discussed in this paragraph, the Exchange Ratio
may not be definitively determined until just prior to the Effective Time of the
Merger. However, based upon the last sales price of SouthTrust Common Stock on
February 26, 1996 (the second trading day immediately prior to the date of this
Proxy Statement/Prospectus), no adjustment to the Exchange Ratio would be
required.
No fractional shares of SouthTrust Common Stock will be issued in the
Merger, and, in lieu thereof, each holder of shares of FFE Common Stock that
otherwise would have been entitled to receive a fractional share of SouthTrust
Common Stock will be entitled to receive a cash payment in an amount equal to
the product of (i) the fractional interest of a share of SouthTrust Common Stock
to which such holder otherwise would have been entitled and (ii) the last sales
price of SouthTrust Common Stock as reported by Nasdaq on the last trading day
preceding the Effective Time of the Merger.
At the Effective Time of the Merger, all rights with respect to FFE Common
Stock issuable pursuant to FFE Options granted by FFE under the FFE Stock Option
Plan, which are outstanding at the Effective Time, whether or not exercisable,
shall be converted into, as of the Effective Time of the Merger, the right of
the holders thereof to receive either (i) a cash payment equal to the excess, if
any, of the value of the consideration exchanged for each share of FFE Common
Stock pursuant to the terms of the Merger Agreement over the exercise price per
share of such option or (ii) at the election of such participant by written
notice delivered to SouthTrust at least five business days prior to the
consummation of the Merger, a substitute option pursuant to which such optionee
may receive shares of SouthTrust Common Stock. Each FFE Option assumed by
SouthTrust may be exercised from and after the Effective Time of the Merger
solely for the number of shares (rounded to the nearest whole share) of
SouthTrust Common Stock that would have been received by the optionee in the
Merger as determined in a manner consistent with Section 424(a) of the Internal
Revenue Code had the entire option been exercised in full for shares of FFE
Common Stock immediately before the Merger upon the same terms and conditions of
the FFE Stock Option Plan as were applicable immediately before the Effective
Time of the Merger (assuming that all unvested options were then fully vested)
and that such shares of FFE Common Stock received upon exercise had been
converted in the Merger only into shares of SouthTrust Common Stock at the full
fair market value of the Merger Consideration (as if the Cash Consideration
portion thereof was to be received in shares of SouthTrust Common Stock), with
appropriate pro rata adjustment to the relevant option price for the shares of
SouthTrust Common Stock substituted therefor so that the aggregate option
exercise price of shares of SouthTrust Common Stock subject to the option
immediately following the assumption and substitution shall be the same as the
aggregate option exercise price for the shares of FFE Common Stock relating to
the SouthTrust Option immediately before such assumption and substitution.
Pursuant to the Merger Agreement, SouthTrust has agreed to file with the
Commission a registration statement on Form S-8 with respect to shares of
SouthTrust Common Stock to be issued pursuant to the FFE Stock Options and such
shares shall be duly authorized, issued in compliance with federal and state
securities laws, fully paid and unassessable and not subject to or in violation
of any preempted rights. At the Effective Time of the Merger, SouthTrust shall
have reserved sufficient shares of SouthTrust Common Stock for issuance with
respect to the FFE Stock Options, and SouthTrust shall take any action required
to be taken under any applicable securities law in connection with the issuance
of shares of SouthTrust Common Stock pursuant to such Stock Options.
At the Effective Time of the Merger, each outstanding share of FFE Common
Stock awarded pursuant to the Management Recognition Plan of FFE that is
unvested immediately prior to the Effective Time of the Merger shall be canceled
in exchange for a cash payment from SouthTrust equal to the amount of the per
share consideration to be exchanged by SouthTrust for such share of FFE Common
Stock pursuant to the terms of the Merger Agreement.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective when the Certificates of Merger shall be
accepted for filing with the Secretary of State of the States of Delaware and
Florida. The parties to the Merger Agreement will cause such Certificate of
Merger to be so filed, subject to the satisfaction or waiver of each of the
conditions to
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consummation of the Merger, on the date of the closing of the transaction. The
Merger cannot become effective until FFE's stockholders have approved the Merger
Agreement and all required regulatory approvals and actions have been obtained
and taken.
NO ASSURANCE CAN BE PROVIDED THAT THE NECESSARY STOCKHOLDER AND REGULATORY
APPROVALS CAN BE OBTAINED OR THAT OTHER CONDITIONS PRECEDENT TO THE MERGER CAN
OR WILL BE SATISFIED. THE PARTIES CURRENTLY ANTICIPATE THAT ALL REGULATORY
APPROVALS WILL BE RECEIVED AND ALL OTHER CONDITIONS TO THE CONSUMMATION OF THE
MERGER WILL BE SATISFIED DURING THE FIRST HALF OF 1996; HOWEVER, DELAYS IN THE
CONSUMMATION OF THE MERGER COULD OCCUR.
The Board of Directors of either FFE or SouthTrust generally may terminate
the Merger Agreement if the Merger is not consummated by June 30, 1996, unless
the party seeking termination is in material breach of any representation,
warranty, covenant or other agreement contained in the Merger Agreement. See
"-- Regulatory Approvals and Certain Other Conditions to Consummation of the
Merger; Waiver and Amendment"; and "Termination."
EXCHANGE OF STOCK CERTIFICATES
At the Effective Time of the Merger, SouthTrust will deliver to the
Exchange Agent the total consideration to be paid by SouthTrust for the shares
of FFE Common Stock. As promptly as practicable after the Effective Time of the
Merger, the Exchange Agent shall send a letter of transmittal to each former
holder of record of shares of FFE Common Stock for use in exchanging their
certificates formerly representing shares of FFE Common Stock for shares of
SouthTrust Common Stock and Cash Consideration in accordance with the procedures
provided for herein and in the Merger Agreement. The letter of transmittal will
contain detailed instructions concerning the manner of executing and submitting
such stock certificates.
At the Effective Time of the Merger, the holders of shares of FFE Common
Stock will cease to be stockholders of FFE and will have no voting or other
rights with respect to shares of FFE Common Stock, other than the right to
receive the Merger Consideration upon surrender of the stock certificates
respecting their shares of FFE Common Stock. As of the Effective Time of the
Merger, all holders of shares of FFE Common Stock shall be deemed to be holders
of the shares of SouthTrust Common Stock into which such shares of FFE Common
Stock shall have been converted in the Merger, whether or not they surrender the
stock certificates representing their shares of FFE Common Stock. Such holders
shall be entitled to all dividends or distributions in respect of shares of
SouthTrust Common Stock where the record date for the payment of such dividends
or distributions occurs on or after the Effective Time of the Merger; however,
no such dividends or distributions shall be paid to holders of any unsurrendered
certificate or certificates representing FFE Common Stock, and SouthTrust shall
not be obligated to deliver to the holder of such unsurrendered certificate any
of the consideration to which such holder of FFE Common Stock is entitled as a
result of the Merger or any cash payment in lieu of a fractional interest in
SouthTrust Common Stock until such holder surrenders the certificate or
certificates representing FFE Common Stock as provided for in the Merger
Agreement. Until the stock certificates evidencing the shares of FFE Common
Stock are surrendered pursuant to the Merger Agreement, no stock certificates
representing shares of SouthTrust Common Stock will be delivered or remitted to
such holders. All dividends or other distributions declared on or after the
Effective Time of the Merger with respect to the SouthTrust Common Stock and
payable to the holders of record thereof after the Effective time of the Merger
which are payable to the holder of a certificate respecting shares of FFE Common
Stock not theretofore surrendered and exchanged for SouthTrust Common Stock
shall be paid or delivered by SouthTrust to the Exchange Agent, in trust, for
the benefit of such holders. All such dividends and distributions held by the
Exchange Agent for payment or delivery to the holders of non-surrendered
certificates respecting shares of FFE Common Stock unclaimed at the end of 180
days from the Effective Time shall be repaid or redelivered by the Exchange
Agent to ST-Sub after which time any holder of such certificates who has not
theretofore surrendered such certificates to the Exchange Agent, subject to
applicable law, shall look as a general creditor only to the SouthTrust for
payment or delivery of such dividends or distributions, as the case may be. Any
shares of SouthTrust Common Stock or Cash Consideration delivered or made
available to the Exchange Agent pursuant to the terms of the Merger
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Agreement and not exchanged for certificates respecting shares of FFE Common
Stock within one year after the Effective Time of the Merger pursuant to the
Merger Agreement shall be returned by the Exchange Agent to SouthTrust which
shall thereafter act as Exchange Agent subject to the rights of holders of
non-surrendered certificates respecting shares of FFE Common Stock.
In addition, holders of shares of FFE Common Stock will not be entitled to
receive any interest respecting any dividends or distributions payable in
respect of shares of SouthTrust Common Stock, and SouthTrust, after the lapse of
the appropriate time period and in accordance with the applicable laws of
escheat or abandoned property, may remit any unclaimed funds or unclaimed stock
certificates representing shares of SouthTrust Common Stock to state officials
under the applicable laws of escheat or abandoned property.
RESALE OF SOUTHTRUST COMMON STOCK RECEIVED IN THE MERGER
The shares of SouthTrust Common Stock to be issued pursuant to the Merger
Agreement have been registered under the Securities Act, thereby allowing such
shares to be sold without restriction by stockholders of FFE who are not deemed
to be "affiliates" (as that term is defined in the rules under the Securities
Act) of FFE and who do not become affiliates of SouthTrust. The shares of
SouthTrust Common Stock to be issued to affiliates of FFE may be resold only
pursuant to an effective registration statement, pursuant to Rule 145 under the
Securities Act, or in transactions otherwise exempt from registration under the
Securities Act. SouthTrust will not be obligated and does not intend to register
its shares under the Securities Act for resale by stockholders who are
affiliates. Under the volume limitations of Rule 145, and based upon the
outstanding shares of SouthTrust Common Stock as of December 31, 1995 (exclusive
of shares of SouthTrust Common Stock to be issued in the Merger), each affiliate
of FFE will be free to resell, during any given three-month period, up to
approximately 879,036 shares of SouthTrust Common Stock, provided that such
affiliate otherwise complies with the provisions of Rule 145.
FFE has agreed to use its best efforts to obtain from each individual or
entity identified by FFE as an affiliate a letter agreement pursuant to which
such affiliate agrees not to sell, pledge, transfer or otherwise dispose of such
shares of SouthTrust Common Stock in violation of the Securities Act or the
rules and regulations thereunder.
ACCOUNTING TREATMENT
The Merger will be accounted for by SouthTrust as a purchase transaction in
accordance with generally accepted accounting principals. One effect of such
accounting treatment is that the earnings of FFE will be combined with the
earnings of SouthTrust only from and after the Effective Date of the Merger.
Furthermore, such earnings of FFE will, for purposes of the earnings or losses
of SouthTrust, be reduced by certain depreciation and amortization charges
arising out of purchase accounting adjustments.
SOUTHTRUST STOCK OPTION AGREEMENT AND BREAK-UP FEE
Following the execution of the Merger Agreement and as a condition to such
execution, FFE granted SouthTrust an option to purchase, under certain
circumstances, up to 104,640 shares of FFE Common Stock at a price equal to
$27.00 per share pursuant to the terms of a Stock Option Agreement dated
November 3, 1995 between FFE and SouthTrust, but only upon the occurrence of
specified events related generally to the making by third parties of offers to
acquire FFE and the acquisition by third parties of FFE Common Stock, which
SouthTrust Stock Option Agreement shall expire at the Effective Time of the
Merger, upon the termination of the Merger Agreement if no event by which the
option becomes exercisable shall have occurred or one year after the termination
of the Merger Agreement if an event by which the option becomes exercisable
shall have occurred. The SouthTrust Stock Option Agreement was approved by the
Board of Directors of FFE.
A copy of the SouthTrust Stock Option Agreement is attached hereto as
Exhibit D, and the description thereof contained in this Proxy
Statement/Prospectus is qualified in its entirety by reference to such Exhibit
D.
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If, after the date of the Merger Agreement, an offer to acquire FFE or the
Bank is presented or proposed to FFE or its stockholders and (i) thereafter the
Merger Agreement and the Merger are disapproved by the stockholders of FFE and
(ii) within one year after termination of the Merger Agreement such acquisition
is consummated or a definitive agreement is entered into by FFE relating to such
acquisition, then upon the occurrence of a Trigger Event and in lieu of any
other rights and remedies of SouthTrust, FFE shall (x) reimburse SouthTrust for
its third party transaction expenses in an amount up to two hundred thousand
dollars ($200,000) and (y) pay SouthTrust an additional cash amount of four
hundred thousand dollars ($400,000) as an agreed-upon fee as the sole and
exclusive remedy of SouthTrust against FFE; provided, however, that SouthTrust
shall not be entitled to any such payment if SouthTrust exercises any option
granted by the SouthTrust Stock Option Agreement or exercises any right to
require FFE to repurchase the option granted by the SouthTrust Stock Option
Agreement.
REGULATORY APPROVALS AND CERTAIN OTHER CONDITIONS TO THE MERGER; WAIVER AND
AMENDMENT
The respective obligations of SouthTrust and FFE to consummate the Merger
are subject to the satisfaction of certain conditions, including, among others,
(i) the receipt of all required regulatory approvals with respect to the Merger,
(ii) the approval of the Merger Agreement by the requisite vote of FFE's
stockholders, and (iii) certain other conditions as described in more detail
below.
Applications for the approvals described below have been submitted to the
appropriate regulatory agencies. There can be no assurance that such regulatory
approvals will be obtained or as to the timing of any such approvals. There also
can be no assurance that any such approvals will not impose conditions or be
restricted in a manner (including requirements relating to the raising of
additional capital or the disposition of assets) which in the reasonable
judgment of the Board of Directors of either SouthTrust or FFE would so
materially adversely impact the economic or business benefits of the
transactions contemplated by the Merger Agreement that, had such condition or
requirement been known, such party would not, in its reasonable judgment, have
entered into the Agreement.
FFE and SouthTrust are not aware of any material governmental approvals or
actions that are required for consummation of the Merger, except as described
below. Should any other approval or action be required, it currently is
contemplated that such approval or action would be sought.
Consummation of the Merger is subject to receipt of the prior approval by
the Federal Reserve Board under the Bank Holding Company Act. The Bank Holding
Company Act requires that the Federal Reserve Board 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 prohibits the Federal Reserve Board from
approving the Merger (i) if such transaction 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 (ii) if
the effect of such transaction in any section of the country may be
substantially to lessen competition or to tend to create a monopoly, or if it
would in any other manner be a restraint of trade, unless the relevant
regulatory agency finds that the anti-competitive effects of such merger are
clearly outweighed by the public interest and by the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served. Under the Bank Holding Company Act, the Federal Reserve Board also
considers whether the proposed transaction can reasonably be expected to produce
benefits to the public, such as greater convenience, increased competition, or
gains in efficiency, that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interests, or unsound banking practices. The Federal Reserve Board has the
authority to deny an application if it concludes that the combined organization
would have an inadequate capital position or if the acquiring organization does
not meet the requirements of the Community Reinvestment Act of 1977. In
addition, the Merger may not be consummated until the 15th day following the
dates of each of the requisite approvals, during which periods the United States
Department of Justice may comment adversely on the transaction (which has the
effect of extending the waiting period to the 30th day following approval) or
challenge such Merger on antitrust grounds. The commencement of an antitrust
action would stay the effectiveness of such an approval unless a court
specifically orders otherwise.
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The Merger cannot proceed in the absence of the requisite regulatory
approvals. There can be no assurance that such regulatory approvals will be
obtained, and, if the Merger is approved, there can be no assurance as to the
date of any such approval. There can also be no assurance that the United States
Department of Justice or a State Attorney General will not challenge the Merger
or, if such a challenge is made, as to the result thereof.
On February 7, 1996, SouthTrust filed with the Federal Reserve Board an
application seeking approval to merge FFE into ST-Sub and to merge the Bank into
ST-Bank.
In connection with the Merger, it is contemplated that, either
contemporaneously with or shortly following the Effective Time of the Merger,
the Bank will be merged into ST-Bank, whereupon the Bank will cease to be a
separate entity (the "Subsidiary Merger"). Because ST-Bank, the surviving bank
in the transaction, is a national bank, the merger of the banking subsidiaries
will be subject to the approval of the Office of the Comptroller of the Currency
("OCC") under the Bank Merger Act, which prohibits the merger or consolidation
of any insured institution with any other depository institution without the
approval of the insured institution's primary supervisory federal regulatory
agency. The approval standards to be applied by the OCC under the Bank Merger
Act are identical to those applicable to the Merger under Section 3 of the Bank
Holding Company Act. The merger of ST-Bank and the Bank also is subject to prior
notice to the OTS, following the receipt of which, the OTS has authority to
raise supervisory objections to such merger with the OCC.
On January 5, 1996, ST-Bank submitted to the OCC an application seeking
approval to merge the Bank into ST-Bank. In addition, FFE filed the required
notice with the OTS on February 8, 1996. SouthTrust filed its application with
the OTS on February 12, 1996.
Approval by the OCC of the Subsidiary Merger is not a condition to the
obligation of SouthTrust to consummate the Merger. Accordingly, it is possible
that, if all conditions to the respective obligations of SouthTrust and BFC to
consummate the Merger are satisfied, but the OCC and all other regulatory
approvals with respect to the Subsidiary Merger have not been obtained, the
Merger could be consummated even though consent to the Subsidiary Merger were to
be delayed.
In addition to receipt of all necessary regulatory approvals and the
expiration of all required notice and waiting periods following the granting of
such approvals, and the approval of the Merger Agreement by the requisite vote
of the stockholders of FFE, consummation of the Merger is subject to the
satisfaction of certain other conditions on or before the Effective Time of the
Merger. Such additional conditions include, among others, the following:
(a) The accuracy of the representations and warranties made by FFE and
SouthTrust in the Merger Agreement and in any documents or certificates
provided by either party, in all material respects, and the performance, in
all material respects, of their respective obligations thereunder;
(b) There shall not have been any action taken or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any federal or state government or governmental agency or
instrumentality or court, which would prohibit SouthTrust's ownership or
operation of all or a material portion of the business or assets of FFE or
the Bank, or would compel SouthTrust to dispose of all or a material
portion of the business or assets of the Bank, as a result of the Merger
Agreement, or which would render SouthTrust or FFE unable to consummate the
transactions contemplated by the Merger Agreement;
(c) Since the date of the Merger Agreement, neither party shall have
suffered any materially adverse effect, as defined in the Merger Agreement;
(d) SouthTrust shall have received the opinion of Silver, Freedman &
Taff L.L.P., counsel to FFE, and FFE shall have received the opinion of
Bradley, Arant, Rose & White, counsel to SouthTrust;
(e) SouthTrust shall have received a certificate signed by the
President and Chief Executive Officer of FFE, and FFE shall have received a
certificate signed by a senior officer of SouthTrust, both dated as of the
Effective Time of the Merger, certifying that based upon the officer's best
knowledge, the
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conditions regarding the accuracy of representations and warranties, the
performance of obligations under the Merger Agreement and the absence of
any materially adverse effect since the date of the Merger Agreement have
been satisfied;
(f) Mr. G. L. Smith, if he is then living, shall have executed the
Covenant Not to Compete and Consulting Agreement;
(g) As of the date of the Merger Agreement, FFE shall have received a
written fairness opinion from Hovde to the effect that the Merger
Consideration is fair to its stockholders from a financial point of view;
(h) No preliminary or permanent injunction or other order by any
federal or state court which prevents the consummation of the Merger shall
have been issued and shall remain in effect; nor shall there be any third
party proceeding pending to prevent the consummation of the Merger;
(i) The parties shall have received all applicable regulatory
approvals and consents to consummate the transactions contemplated in the
Merger Agreement and all required waiting periods shall have expired;
(j) The Registration Statement of which this Proxy
Statement/Prospectus is a part shall have been declared effective under the
Securities Act and no stop orders shall be in effect and no proceedings for
such purpose shall be pending or threatened by the SEC;
(k) Each party to the Merger Agreement shall have received a tax
opinion from Bradley, Arant, Rose & White, counsel to SouthTrust, pursuant
to the terms of the Merger Agreement substantially to the effect that the
Merger will constitute a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code; and
(l) The SouthTrust Common Stock to be issued to holders of FFE Common
Stock shall have been approved for listing on the Nasdaq National Market
subject to official notice of issuance.
At any time before the Merger becomes effective, any party to the Merger
Agreement may waive conditions contained therein to its own obligations, to the
extent that such obligations, agreements and conditions are intended for its own
benefit. In addition the Merger Agreement may be amended by written instruments
signed on behalf of each of the parties thereto.
TERMINATION
The Merger Agreement may be terminated in the following ways: (i) at any
time prior to the Effective Time of the Merger, by the mutual written consent of
the Boards of Directors of SouthTrust and FFE; (ii) at any time prior to the
Effective Time of the Merger, by SouthTrust or FFE if there shall have been a
final judicial or regulatory determination (as to which all periods for appeal
shall have expired and no appeal shall be pending) that any material provision
of the Merger Agreement is illegal, invalid or unenforceable (unless the
enforcement thereof is waived by the affected party) or denying any regulatory
application the approval of which is a condition precedent to either party's
obligations under the Merger Agreement; (iii) at any time on or before June 30,
1996, by SouthTrust or FFE in the event that the Merger has not been consummated
prior to such date provided that the party seeking to terminate the Merger
Agreement is not in material breach thereof; (iv) by either party at any time
after the stockholders of FFE fail to approve the Merger Agreement and the
Merger by the required vote at the Annual Meeting; (v) at any time prior to the
Effective Time of the Merger, by SouthTrust or FFE, in the event of a material
breach by the other party of any representation, warranty, covenant or agreement
contained in the Merger Agreement or in any schedule or document delivered
pursuant thereto, which breach would result in the failure to satisfy the
closing conditions set forth in Sections 6.1(a) or 6.1(b) of the Merger
Agreement, in the case of SouthTrust, or Sections 6.2(a) or 6.2(b) of the Merger
Agreement, in the case of FFE, and which breach cannot be or is not cured within
thirty (30) days after written notice of such breach is given by the
non-breaching party to the party committing such breach; or (vi) at any time
prior to the Effective Time of the Merger, by FFE if the after-tax cost of the
restitution
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payments made or to be made to customers pursuant to Section 4.4(a) of the
Merger Agreement exceeds $500,000.
In the event that the Merger Agreement is terminated by a party (the
"Aggrieved Party") solely by reason of the willful material breach by the other
party ("Breaching Party") of any of its representations, warranties, covenants
or agreements contained therein then the Aggrieved Party shall be entitled to
such remedies and relief against the Breaching Party as are available at law or
in equity. Moreover, the Aggrieved Party without terminating the Merger
Agreement shall be entitled to specifically enforce the terms thereof against
the Breaching Party in order to cause the Merger to be consummated.
In the event the Merger Agreement is terminated, the Merger Agreement will
be void and have no further effect and such termination will be without
liability to any party to the Merger Agreement, except for any liability
incurred or suffered by any party as a result of the willful material breach by
the other party of any of its representations, warranties, covenants or
agreements set forth in the Merger Agreement and any liability resulting from
the occurrence of a Trigger Event as described in "-- SouthTrust Stock Option
Agreement and Break-Up Fee."
CERTAIN EXPENSES
The Merger Agreement provides that, except in connection with FFE's
obligation to reimburse SouthTrust for its third party transaction expenses in
an amount up to $200,000 in connection with certain Trigger Events as discussed
more fully under "-- SouthTrust Stock Option Agreement and Break-Up Fee," each
of the parties shall bear its own costs, fees and expenses incurred in
connection with the Merger Agreement and the Merger; provided however, all
application and filing fees to be paid by either party to regulatory authorities
in connection with the transactions contemplated by the Merger Agreement will be
borne and paid by SouthTrust.
RIGHTS OF DISSENT AND APPRAISAL
The General Corporation Law of the State of Delaware sets forth certain
rights and remedies applicable to stockholders of record of FFE (each, a
"Stockholder") who may object to the Merger. These rights are available only to
Stockholders holding shares of FFE Common Stock through the Effective Time of
the Merger (the "Dissenting Shares") if the Merger is completed, provided that
Stockholders comply with Section 262 of the DGCL. Stockholders of SouthTrust are
not entitled to appraisal rights with respect to the Merger. Set forth below is
a summary of Stockholders' rights as provided by Section 262 of the DGCL. A copy
of Section 262 of the DGCL is attached to this Proxy Statement/Prospectus as
Exhibit E. The following discussion is not a complete statement of the law
relating to appraisal rights and is qualified in its entirety by reference to
Exhibit E. This discussion and Exhibit E should be reviewed carefully by any
Stockholder who wishes to exercise statutory appraisal rights or who wishes to
preserve the right to do so, because the failure to comply with the procedures
set forth herein or therein will result in the loss of such appraisal rights.
Any Stockholder who contemplates the assertion of appraisal rights is urged to
consult his own counsel.
Under Section 262 of the DGCL, when a merger is to be submitted for
approval at a meeting of stockholders, not less than 20 days prior to the
meeting, a constituent corporation must notify each of the holders of its stock
for which appraisal rights are available that such appraisal rights are
available and include in each such notice a copy of Section 262. This Proxy
Statement/Prospectus shall constitute such notice to Stockholders.
Stockholders who desire to exercise their appraisal rights must satisfy all
of the following conditions. Any Stockholder must be a stockholder of record of
FFE from the date he makes a written demand for appraisal (as described below)
through the Effective Time of the Merger and must continuously hold his
Dissenting Shares throughout the period between such dates. A written demand for
appraisal of the Dissenting Shares must be delivered to the Secretary of FFE
before the taking of the vote of Stockholders on the Merger Agreement. Such vote
will take place at the FFE Annual Meeting. The demand will be sufficient if it
reasonably informs FFE of the identify of the Stockholder and that the
Stockholder intends thereby to demand the appraisal of his Dissenting Shares.
This written demand for appraisal of Dissenting Shares must
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be in addition to and separate from any proxy or vote abstaining from or voting
against the Merger Agreement. Although a Stockholder must vote against, abstain
from voting, or fail to vote on the Merger Agreement to preserve his rights to
appraisal, such vote against, failure to vote, or abstention from voting will
not, of itself, constitute a demand for appraisal within the meaning of Section
262 of the DGCL.
Holders of Dissenting Shares electing to exercise their appraisal rights
under Section 262 of the DGCL must neither vote for approval of the Merger
Agreement nor consent thereto in writing. A Stockholder who signs and returns a
proxy card without expressly specifying a vote against approval of the Merger
Agreement or a direction to abstain, by checking the applicable box on the proxy
card enclosed herewith, will effectively have thereby waived such Stockholder's
appraisal rights as to those shares because, in the absence of express
instructions to the contrary, such Dissenting Shares will be voted in favor of
the Merger Agreement. Accordingly, a Stockholder who desires to perfect his
appraisal rights with respect to any Dissenting Shares must, as one of the
procedural steps involved in such perfection, either (i) refrain from executing
and returning a proxy card and from voting in person in favor of the Merger
Agreement or (ii) check either the "Against" or the "Abstain" box next to the
proposal on such card or affirmatively vote in person against the Merger
Agreement or register in person an abstention with respect thereto.
A demand for appraisal must be executed by or for the Stockholder, fully
and correctly, exactly as such Stockholder's name appears on the certificate or
certificates representing his Dissenting Shares. If the Dissenting Shares are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a Stockholder; however, the agent must identify the record owner
and expressly disclose the fact that, in exercising the demand, such person is
acting as agent for the record owner. If a Stockholder holds Dissenting Shares
through a broker who in turn holds the shares through a central securities
depository nominee, a demand for appraisal of such Dissenting Shares must be
made by or on behalf of the depository nominee and must identify the depository
nominee as the holder of record.
A record owner, such as a broker, fiduciary or other nominee who holds
Dissenting Shares as a nominee for others, may exercise appraisal rights with
respect to the Dissenting Shares held for all or less than all beneficial owners
of Dissenting Shares as to which such person is the record owner. In such case,
the written demand must set forth the number of Dissenting Shares covered by
such demand. Where the number of Dissenting Shares is not expressly stated, the
demand will be presumed to cover all Dissenting Shares outstanding in the name
of such record owner. A person having a beneficial interest in Dissenting Shares
that are held of record in the name of another person must act promptly to cause
the record holder to follow the steps summarized herein property and in a timely
manner to perfect whatever appraisal rights are available.
A Stockholder who elects to exercise appraisal rights must mail or deliver
his written demand to: Secretary, FFE Financial Corp., 1160 South McCall Road,
Englewood, Florida 34223.
The written demand for appraisal must specify the Stockholder's name and
mailing address, the number of Dissenting Shares owned, and a statement that the
Stockholder is thereby demanding appraisal of his Dissenting Shares. Within ten
days after the Effective Time of the Merger the Surviving Corporation will
provide notice of the Effective Time of the Merger to all Stockholders who have
complied with Section 262 of the DGCL. Upon written request, the Surviving
Corporation will furnish each Stockholder who has complied with the requirements
of Section 262 of the DGCL a statement setting forth the aggregate number of
Dissenting Shares not voted in favor of the Merger Agreement with respect to
which demands for appraisal have been received and the aggregate number of
holders of such Dissenting Shares.
Within 120 days after the Effective Time of the Merger, either the
Surviving Corporation or any Stockholder who has complied with the required
conditions of Section 262 of the DGCL may file a petition in the Delaware Court
of Chancery (the "Chancery Court"), with a copy served on the Surviving
Corporation in the case of a petition filed by a Stockholder, demanding a
determination of the fair value of the Dissenting Shares of all dissenting
Stockholders. Within 120 days after the Effective Time of the Merger, any
Stockholder who has theretofore complied with the applicable provisions of
Section 262 of the DGCL will be entitled, upon written request, to receive from
the Surviving Corporation a statement setting forth the
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aggregate number of Dissenting Shares not voting in favor of the Merger
Agreement and with respect to which demands for appraisals were received by FFE
and the number of holders of such Dissenting Shares. Such statement must be
mailed within 10 days after written request therefor has been received by the
Surviving Corporation. Within 20 days of the filing of a petition by a
Stockholder with the Chancery Court, or contemporaneous with the filing of a
petition by the Surviving Corporation, the Surviving Corporation must file with
the Chancery Court a verified list containing the names and addresses of the
Stockholders who have demanded payment for their Dissenting Shares have not been
reached.
If a petition for appraisal is timely filed, all Stockholders who have
complied with Section 262 of the DGCL will become entitled to such a
determination. The Chancery Court will hold a hearing on such petition through
which it will determine which Stockholders are entitled to appraisal rights and
will appraise the Dissenting Shares owned by such Stockholders. The Chancery
Court may require Stockholders who have demanded an appraisal for the Dissenting
Shares and who hold such Dissenting Shares represented by certificates to submit
their certificates to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; if any such Stockholder fails to comply
with such direction, the Chancery Court may dismiss the proceedings as to such
Stockholder. Where proceedings are not dismissed, the appraisal will be based
upon the Chancery Court's determination of the fair value of such Dissenting
Shares exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining fair value,
the Chancery Court is to take into account all relevant factors.
Stockholders considering seeking appraisal should recognize that the fair
value of the Dissenting Shares determined under Section 262 of the DGCL could be
more than, the same as or less than the consideration that Stockholders are
entitled to receive pursuant to the Merger Agreement if they do not seek
appraisal of their Dissenting Shares, and opinions of investment banking firms
as to fairness, from a financial point of view, are not opinions as to fair
value under Section 262 of the DGCL. The cost of the appraisal proceeding may be
determined by the Chancery Court and levied against the parties as the Chancery
Court deems equitable in the circumstances, including, if the Chancery Court
found equitable justification therefor, against the Surviving Corporation or any
affiliate thereof which may be a party to the proceeding. Upon application of a
dissenting Stockholder, the Chancery Court may order that all or a portion of
the expenses incurred by any dissenting Stockholder in connection with the
appraisal proceeding, including without limitation, reasonable attorneys' fees
and the fees and expenses of experts, be charged pro rata against the value of
all the Dissenting Shares entitled to appraisal. In the absence of such a
determination or assessment, each party bears its own expenses.
Any Stockholder who has duly demanded appraisal in compliance with Section
262 of the DGCL will not, after the Effective Time of the Merger, be entitled to
vote his Dissenting Shares for any purpose, subject to such demand or to receive
payment of dividends or other distributions on such Dissenting Shares, except
for dividends or distributions payable to Stockholders of record at a date prior
to the Effective Time of the Merger.
At any time within 60 days after the Effective Time of the Merger, any
Stockholder shall have the right to withdraw such demand for appraisal and to
accept the terms offered in the Merger Agreement; after this period, the
Stockholder may withdraw such demand for appraisal only with the consent of the
Surviving Corporation. If no petition for appraisal is filed with the Chancery
Court within 120 days after the Effective Time of the Merger, Stockholders'
rights to appraisal shall cease, and all Stockholders shall be entitled to
receive only the consideration provided in the Merger Agreement. Inasmuch as the
Surviving Corporation will have no obligation to file such a petition, any
Stockholder who desires such a petition to be filed is advised to file it on a
timely basis. Any Stockholder may withdraw such Stockholder's demand for
appraisal by delivering to the Surviving Corporation a written withdrawal of
such demand for appraisal and acceptance of the Merger, except (i) that any such
attempt to withdraw made more than 60 days after the Effective Time of the
Merger will require written approval of the Surviving Corporation and (ii) that
no appraisal proceeding in the Chancery Court shall be dismissed as to any
Stockholder without the approval of the Chancery Court, and such approval may be
conditioned upon such terms as the Chancery Court deems just.
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The foregoing summary is not intended to be complete and is qualified in
all respects by reference to the text of Section 262 of the DGCL which is
attached as Exhibit E to this Proxy Statement/Prospectus.
CONDUCT OF BUSINESS BY FFE PENDING THE MERGER
The Merger Agreement provides that, after the date of the Merger Agreement
and except with the prior written approval of SouthTrust, FFE will not declare
or pay any dividend or make any other distribution with respect to its capital
stock whether in cash, stock or other property. FFE and the Bank shall continue
to carry on, after the date of the Merger Agreement, their respective businesses
and the discharge or incurring of obligations and liabilities, only in the
usual, regular and ordinary course of business, as heretofore conducted, and by
way of amplification and not limitation, FFE and the Bank will not, without the
prior written consent of SouthTrust:
(a) issue any capital stock or any options, warrants, or other rights
to subscribe for or purchase capital stock or any securities convertible
into or exchangeable for any capital stock, except pursuant to options
outstanding on the date hereof under the FFE Stock Option Plan;
(b) directly or indirectly redeem, purchase or otherwise acquire any
capital stock or ownership interests of FFE or the Bank;
(c) effect a reclassification, recapitalization, split-up, exchange of
shares, readjustment or other similar change in or to any capital stock or
otherwise reorganize or recapitalize;
(d) change its Charter, Certificate of Incorporation, or Bylaws;
(e) enter into any employment agreement, severance agreement, change
of control agreement, or plan relative to the foregoing; or grant any
increase (other than ordinary and normal increases consistent with past
practices) in the compensation payable or to become payable to directors,
officers or employees except as required by law, pay or agree to pay any
bonus, or adopt or make any change in any bonus, insurance, pension, or
other FFE employee benefit plan;
(f) except for the short-term renewal of Federal Home Loan Bank
("FHLB") advances outstanding at the date of the Merger Agreement, raising
short-term funds against its existing line of credit with the FHLB and
deposit-taking in the ordinary course of its business, borrow or agree to
borrow any funds, including but not limited to repurchase transactions, or
indirectly guarantee or agree to guarantee any obligations of others;
(g) make or commit to make any new loan or letter of credit or any new
or additional discretionary advance under any existing line of credit, in a
principal amount in excess of $500,000 or that would increase the aggregate
credit outstanding to any one borrower (or group of affiliated borrowers)
to more than $500,000 (excluding for this purpose any accrued interest or
overdrafts), without the prior written consent of SouthTrust acting through
a senior officer in a written notice to FFE, which approval or rejection
shall be given on a timely basis after delivery by FFE to such officer of
SouthTrust of the complete loan package;
(h) make any changes in its policies concerning which persons may
approve loans;
(i) enter into any securities transaction for its own account or
purchase or otherwise acquire any investment security for its own account
other than U.S. Treasury obligations and deposits in an overnight account
at the FHLB of Atlanta or securities issued or guaranteed by the Government
National Mortgage Association, the Federal National Mortgage Association or
the Federal Home Loan Mortgage Corporation, provided SouthTrust's consent
shall not be unreasonably withheld or delayed relating to the purchase of
other readily marketable investment securities;
(j) increase or decrease the rate of interest paid on time deposits or
on certificates of deposit, except in a manner and pursuant to policies
consistent with past practices;
(k) enter into, modify or extend any agreement, contract or commitment
out of the ordinary course of business or having a term in excess of six
months and involving an expenditure in excess of ten
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thousand dollars ($10,000), other than letters of credit, loan agreements,
deposit agreements, and other lending, credit and deposit documents made in
the ordinary course of business;
(l) except in the ordinary course of business, place on any of its
assets or properties any mortgage, pledge, lien, charge, or other
encumbrance;
(m) cancel any material indebtedness owing to it or any claims which
it may possess or waive any rights of material value;
(n) sell or otherwise dispose of any real property or any material
amount of tangible or intangible personal property other than (a)
properties acquired in foreclosure or otherwise in the ordinary collection
of indebtedness owed to the Bank, (b) student loans or (c) loans which are
held for sale by the Bank and are sold in the secondary market within sixty
(60) days of origination;
(o) foreclose upon or otherwise take title to or possession or control
of any real property without first obtaining a phase one environmental
report thereon; provided, however, that the Bank and its subsidiaries shall
not be required to obtain such a report with respect to single family,
non-agricultural residential property of one acre or less to be foreclosed
upon unless it has reason to believe that such property might contain
Hazardous Substances;
(p) knowingly or willfully commit any act or fail to commit any act
which will cause a material breach of any agreement, contract or
commitment;
(q) engage in any activity which constitutes or may constitute a
material violation of any law, statute, rule, governmental regulation, or
order;
(r) purchase any real or personal property or make any capital
expenditure where the amount paid or committed therefor is in excess of
twenty-five thousand dollars ($25,000), except for outstanding commitments
set forth in the Merger Agreement;
(s) in the case of the Bank, voluntarily make any material changes in
or to its asset and deposit mix;
(t) engage in any activity or transaction outside the ordinary course
of business;
(u) enter into or acquire any derivatives contract or structured note;
or
(v) enter into any new, or modify, amend or extend the terms of any
existing, contracts relating to the purchase or sale of financial or other
futures, or any put or call option relating to cash, securities or
commodities or any interest rate swap agreements or other agreements
relating to the hedging of interest rate risk.
In addition, in the Merger Agreement, FFE has agreed that FFE and the Bank
shall not, without the prior written consent of SouthTrust, willfully engage in
any transaction or wilfully take any action that would render untrue any of the
representations and warranties of FFE contained in the Merger Agreement, if such
representations and warranties were given as of the date of such transaction or
action.
FFE has also agreed in the Merger Agreement that it will, and will cause
the Bank to, use their best efforts to maintain their respective properties and
assets in their present state of repair, order and condition, reasonable wear
and tear excepted, and to maintain and keep in full force and effect all
policies of insurance presently in effect, including the insurance of accounts
with the FDIC. FFE will, and will cause Bank to, take all requisite action
(including without limitation the making of claims and the giving of notices)
pursuant to its directors' and officers' liability insurance policy or policies
in order to preserve all rights thereunder with respect to all matters known by
FFE which could reasonably give rise to a claim prior to the Effective Time of
the Merger.
Furthermore, FFE shall promptly notify SouthTrust in writing of the
occurrence of any matter or event known to and directly involving FFE or the
Bank that is reasonably likely to result in a Material Adverse Effect (as
defined in the Merger Agreement) on FFE or impair the ability of FFE to
consummate the transactions contemplated herein.
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FFE shall provide to SouthTrust such reports on litigation involving FFE
and the Bank as SouthTrust shall reasonably request, provided that FFE shall not
be required to divulge information to the extent that, in the good faith opinion
of its counsel, by doing so, it would risk waiver of the attorney-client
privilege to its detriment.
At the request of SouthTrust, FFE shall cause the Bank, immediately prior
to Closing and after satisfaction or waiver of the conditions to Closing set
forth in the Merger Agreement hereof, to establish and take such reserves and
accruals as SouthTrust reasonably shall request to conform the Bank's loan,
accrual, reserve and other accounting policies to the policies of a significant
subsidiary of SouthTrust that is a national banking association, provided
however, such requested conforming adjustment shall not be taken into account in
determining whether FFE has experienced a Material Adverse Effect, as defined in
the Merger Agreement.
BUSINESS AND MANAGEMENT OF FFE FOLLOWING THE MERGER; PLANS FOR BUSINESS OF FFE
Upon consummation of the Merger, FFE will be merged into ST-Sub, with
ST-Sub being the surviving corporation in the Merger (the surviving corporation
being sometimes referred to herein as the "Surviving Corporation"). As of the
Effective Time of the Merger, it is anticipated that the Board of Directors of
the Surviving Corporation shall consist of those persons who are serving as
directors of ST-Sub as of the Effective Time of the Merger, and such other
persons as may be designated in writing by SouthTrust at or prior to the
Effective Time of the Merger. It is further anticipated that the officers of the
Surviving Corporation shall be those persons serving as officers of ST-Sub as of
the Effective Time of the Merger, and such other persons as may be designated in
writing by SouthTrust at or prior to the Effective Time of the Merger.
As of the Effective Time of the Merger or immediately thereafter, the Bank
will be merged into ST-Bank in the Subsidiary Merger. Upon consummation of the
Subsidiary Merger, it is anticipated that the Board of Directors of ST-Bank, as
the surviving association in the Subsidiary Merger, shall consist of those
persons who are serving as directors of ST-Bank as of the effective time of the
Subsidiary Merger, and such other persons as may be designated in writing by
SouthTrust at or prior to such time. It is further anticipated that the officers
of ST-Bank, as the surviving association in the Subsidiary Merger, shall be
those persons serving as officers of ST-Bank at the effective time of the
Subsidiary Merger and such other persons as may be designated in writing by
SouthTrust at or prior to the effective time of such merger.
After the Effective Time of the Merger, the Surviving Corporation will
operate as a subsidiary corporation of SouthTrust acting as a holding company
for certain of its banking operations headquartered in Florida. After the
effectiveness of the Subsidiary Merger, the operations of the Bank will be
integrated into the operations of ST-Bank, with efforts directed toward
preserving the existing customer and banking relationships of the Bank as part
of ST-Bank.
Pursuant to the Merger Agreement, appropriate steps shall be taken to
terminate all employee benefit plans of FFE as of the Effective Time of the
Merger or as promptly as practicable thereafter. Following the termination of
all such employee benefit plans, Southtrust has agreed to cover the officers and
employees of FFE and the Bank who are employed by SouthTrust or one of its
affiliates under employee benefits plans of SouthTrust, including welfare and
fringe benefit plans, but excluding the SouthTrust Corporation Revised
Retirement Income Plan and the SouthTrust Corporation Employee's Profit Sharing
Plan, on the same basis as and subject to the same conditions as are applicable
to any newly-hired employee of SouthTrust; provided, however, that (i) with
respect to SouthTrust's group medical insurance plan, SouthTrust shall credit
each such Continuing Employee for eligible expenses incurred by such employee
and his or her dependents (if applicable) under FFE's group medical benefits
plan during the current calendar year for purposes of satisfying the deductible
provisions under SouthTrust's plan for such current year, and SouthTrust shall
waive all waiting periods under said plans for pre-existing conditions; and (ii)
credit for each such employee's past service with FFE and the Bank prior to the
Effective Time of the Merger shall be given by SouthTrust to employees for
purposes of: (1) determining vacation and sick leave benefits and accruals, in
accordance with the established policies of SouthTrust; and (2) establishing
eligibility for participation in, and vesting under, SouthTrust's employee
benefits plans (including welfare and fringe benefit plans), and for purposes of
determining the scheduling of vacations and other determinations which are made
based on length of service;
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provided, however, such credit for past service shall not be given to any such
employee for purposes of establishing eligibility for participation in the 1990
Discounted Stock Plan of SouthTrust or for purposes of determining benefit
accrual under the terms of the SouthTrust Corporation Employee's Profit Sharing
Plan.
The Merger Agreement further provides that, on the day prior to the
Effective Time of the Merger, each FFE Qualified Plan shall be terminated with
full acceleration of vesting, except for any required payment of
employer-matching contributions with respect to elective contributions made
prior to the Effective Time of the Merger. As soon as practicable after the
Effective Time of the Merger, subject only to orderly winding-up of the affairs
of each such FFE Qualified Plan (excluding obtaining a determination letter from
the Internal Revenue Service as to the effect of such termination upon such FFE
Qualified Plan, the assets of each such plan shall be distributed to the
participants and beneficiaries thereof with full right of roll-over to an
individual retirement account.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain anticipated federal income
tax consequences of the Merger to holders of FFE Common Stock who are citizens
of the United States. It does not discuss all the tax consequences that may be
relevant to holders of FFE Common Stock entitled to special treatment under the
Code (such as insurance companies, dealers in securities, tax-exempt
organizations or foreign persons) or to holders of FFE Common Stock who acquired
their FFE Common Stock as compensation. The summary set forth below does not
purport to be a complete analysis of all potential tax effects of the
transactions contemplated by the Merger Agreement or the Merger itself.
EACH HOLDER OF FFE COMMON STOCK IS URGED TO CONSULT HIS OR HER OWN TAX AND
FINANCIAL ADVISOR AS TO THE EFFECT OF SUCH FEDERAL INCOME TAX CONSEQUENCES ON
HIS OR HER OWN PARTICULAR FACTS AND CIRCUMSTANCES, AND ALSO AS TO ANY STATE,
LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES ARISING OUT OF THE MERGER.
Neither SouthTrust, ST-Sub nor FFE has requested or will receive an advance
ruling from the Internal Revenue Service ("IRS") as to any of the federal income
tax effects of the Merger to holders of FFE Common Stock or of any of the
federal income tax effects to SouthTrust, ST-Sub or FFE of the Merger. Instead,
FFE will rely upon an opinion of Bradley, Arant, Rose & White as to the federal
income tax consequences of the Merger to the holders of FFE Common Stock. The
opinion of Bradley, Arant, Rose & White is based upon the Code, regulations now
in effect thereunder, current administrative rulings and practice, and judicial
authority, all of which are subject to change. The opinion of Bradley, Arant,
Rose & White is based upon certain factual assumptions. One such assumption is
that FFE will transfer "substantially all" of its assets to ST-Sub within the
meaning of Section 368(a)(2)(D) of the Code. Unlike a ruling from the IRS, an
opinion is not binding on the IRS and there can be no assurance, and none is
hereby given, that the IRS will not take a position contrary to one or more
positions reflected herein or that the opinion will be upheld by the courts if
challenged by the IRS.
In the opinion of Bradley, Arant, Rose & White, which opinion is based upon
various representations and subject to various assumptions and qualifications,
the following federal income tax consequences to the holders of FFE Common Stock
will result from the Merger:
(i) The Merger will qualify as a reorganization under Sections
368(a)(1)(A) and 368(a)(2)(D) of the Code. FFE, SouthTrust, and ST-Sub each
will be "a party to a reorganization" within the meaning of Section 368(b)
of the Code.
(ii) FFE stockholders will recognize no gain or loss upon their
exchange of FFE Common Stock solely for SouthTrust Common Stock.
(iii) The basis of the shares of SouthTrust Common Stock received by
the stockholders of FFE (including any fractional share interests to which
they may be entitled) will be the same as the basis of the shares of FFE
Common Stock surrendered in exchange therefor.
(iv) The holding period of the shares of SouthTrust Common Stock
received by FFE stockholders (including any fractional share interests to
which they may be entitled) will include the period during which the shares
of FFE Common Stock surrendered in exchange therefor was held by the FFE
stockholders, provided that the shares of FFE Common Stock surrendered were
held as a capital asset within the meaning of Section 1221 of the Code by
the FFE stockholders as of the Effective Time of the Merger.
(v) FFE stockholders who exercise dissenters' rights, and as a result
of which receive only cash, will be treated as having received such cash as
a distribution in redemption of their shares of FFE Common Stock, subject
to the provisions and limitations of Section 302 of the Code. Those FFE
stockholders who receive only cash, and who hold no SouthTrust Common
Stock, directly or indirectly through the application of Section 318(a) of
the Code, following the Merger will be treated as having a complete
termination of their interests in FFE within the meaning of Section
302(b)(3) of the Code, and the cash
50
<PAGE> 51
received will be treated as a distribution in full payment in exchange for
each such stockholder's FFE Common Stock as provided in Section 302(a) of
the Code. As further provided in Section 1001 of the Code, gain will be
realized and recognized by such stockholders measured by the difference
between the redemption price and the adjusted basis of the shares of FFE
Common Stock surrendered as determined under Section 1011 of the Code.
Provided that Section 341 of the Code (relating to collapsible
corporations) is inapplicable and the FFE Common Stock is held as a capital
asset by such stockholders, the gain, if any, will constitute capital gain.
Such gain will constitute long-term capital gain if the surrendered shares
of FFE Common Stock were held by the stockholder for a period greater than
one year prior to the Merger; if the surrendered shares of FFE Common Stock
were held by such stockholder for a period of one year or less, the gain
will constitute short-term capital gain.
(vi) FFE stockholders who receive the Cash Consideration will be
treated for federal income tax purposes as if SouthTrust Common Stock
having a value equal to such Cash Consideration actually was issued as part
of the Merger and then was redeemed by SouthTrust in exchange for the Cash
Consideration, and the Cash Consideration will be treated as a distribution
in full payment in exchange for such FFE Common Stock, subject to the
provisions and limitations of Section 302 of the Code.
(vii) The receipt by a holder of FFE Common Stock of cash in lieu of a
fractional share of SouthTrust Common Stock will be treated as though such
fractional share were issued to such holder of FFE Common Stock in the
Merger and thereafter redeemed by SouthTrust for cash. The receipt of such
cash in lieu of a fractional share by a holder of FFE Common Stock will be
treated as a distribution by SouthTrust in full payment in exchange for the
fractional share as provided in Section 302(a) of the Code.
The opinion of Bradley, Arant, Rose & White is rendered solely with respect
to certain federal income tax consequences of the Merger under the Code, and
does not extend to the income or other tax consequences of the Merger under the
laws of any State or any political subdivision of any State; nor does it extend
to any tax effects or consequences of the Merger to SouthTrust or ST-Sub other
than those expressly stated in the opinion. Furthermore, no opinion is expressed
as to the federal or state tax treatment of the transaction under any other
provisions of the Code and regulations, or about the tax treatment of any
conditions existing at the time of, or effects resulting from, the transaction
that are not specifically covered by the opinion. Specifically, no opinion is
expressed with respect to any income or other tax consequences of transactions
involving the FFE Stock Options and the Unvested MRP Shares.
DESCRIPTION OF SOUTHTRUST CAPITAL STOCK
GENERAL
The authorized capital stock of SouthTrust consists of 200,000,000 shares
of common stock, par value $2.50 per share (referred to throughout this Proxy
Statement/Prospectus as "SouthTrust Common Stock"), and 5,000,000 shares of
Preferred Stock, par value $1.00 per share ("SouthTrust Preferred Stock"). As of
December 31, 1995, 87,903,683 shares of SouthTrust Common Stock were issued and
outstanding, exclusive of shares held as treasury stock, and no shares of
SouthTrust Preferred Stock were outstanding. As of December 31, 1994, 2,741,834
shares of SouthTrust Common Stock were reserved for employee benefit plans, and
90,812 shares were reserved for the conversion of convertible debentures assumed
in connection with a 1988 acquisition by SouthTrust. In addition, 500,000 shares
of SouthTrust Preferred Stock designated as Series A Junior Participating
Preferred Stock were reserved for issuance upon the exercise of certain rights
described below under "SouthTrust Common Stock-Stockholder Rights Plan."
Since SouthTrust is a holding company, the right of SouthTrust, and hence
the right of creditors and stockholders of SouthTrust, to participate in any
distribution of assets of any subsidiary (including SouthTrust Bank of Alabama,
National Association) upon its liquidation or reorganization or otherwise is
necessarily subject to the prior claims of creditors of the subsidiary, except
to the extent that claims of SouthTrust itself as a creditor of the subsidiary
may be recognized.
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<PAGE> 52
The following summary does not purport to be complete and is subject in all
respects to the applicable provisions of the General Corporation Law of the
State of Delaware and SouthTrust's Restated Certificate of Incorporation,
including the Certificate of Designation describing the Series A Junior
Participating Preferred Stock.
SOUTHTRUST COMMON STOCK
Dividend Rights
Holders of SouthTrust Common Stock are entitled to dividends when, as and
if declared by SouthTrust's Board of Directors out of funds legally available
therefor. Under Delaware law, SouthTrust may pay dividends out of surplus
(whether capital surplus or earned surplus) or net profits for the fiscal year
in which declared or for the preceding fiscal year, even if its surplus accounts
are in a deficit position. The sources of funds for payment of dividends by
SouthTrust are its subsidiaries. Because its primary subsidiaries are banks,
payments made by such subsidiaries to SouthTrust are limited by law and
regulations of the bank regulatory authorities. See "MARKET AND DIVIDEND
INFORMATION RESPECTING THE COMMON STOCK OF SOUTHTRUST AND FFE."
Voting Rights and Other Matters
The holders of SouthTrust Common Stock are entitled to one vote per share
on all matters brought before the stockholders. The holders of SouthTrust Common
Stock do not have the right to cumulate their shares of SouthTrust Common Stock
in the election of directors. SouthTrust's Restated Certificate of Incorporation
provides that in the event of a transaction or a series of transactions with an
"Interested Stockholder" (generally defined as a holder of more than 10% of the
voting stock of SouthTrust or an affiliate of such a holder) pursuant to which
SouthTrust would be merged into or with another corporation or securities of
SouthTrust would be issued in a transaction which would permit control of
SouthTrust to pass to another entity, or similar transactions having the same
effect, approval of such transactions requires the vote of the holders of 70% of
the voting power of the outstanding voting securities of SouthTrust, except in
cases in which either certain price criteria and procedural requirements are
satisfied or the transaction is recommended to the stockholders by a majority of
the members of SouthTrust's Board of Directors who are unaffiliated with the
Interested Stockholder and who were directors before the Interested Stockholder
became an Interested Stockholder.
Holders of SouthTrust Common Stock are not entitled to any preemptive
rights to subscribe for any additional securities which may be issued.
Liquidation Rights
In the event of liquidation, holders of the SouthTrust Common Stock will be
entitled to receive pro rata any assets distributable to stockholders with
respect to the shares held by them, after payment of indebtedness and such
preferential amounts as may be required to be paid to the holders of any
SouthTrust Preferred Stock hereafter issued by SouthTrust.
Provisions with Respect to Board of Directors
SouthTrust's Restated Certificate of Incorporation provides that the
members of SouthTrust's Board of Directors are divided into three classes as
nearly equal in number as possible. Each class is elected for a three-year term.
At each annual meeting of stockholders of SouthTrust, one-third of the members
of SouthTrust's Board of Directors will be elected for a three-year term, and
the other directors will remain in office until their three-year terms expire.
Therefore, control of SouthTrust's Board of Directors cannot be changed in one
year, and at least two annual meetings must be held before a majority of the
members of SouthTrust's Board of Directors can be changed.
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<PAGE> 53
Special Vote Requirements for Certain Amendments to Restated Certificate of
Incorporation
The General Corporation Law of the State of Delaware and the Restated
Certificate of Incorporation and Bylaws of SouthTrust provide that, because the
Board of Directors of SouthTrust is classified, a director, or SouthTrust's
entire Board of Directors, may be removed by the stockholders only for cause.
The Restated Certificate of Incorporation and Bylaws of SouthTrust also provide
that the affirmative vote of the holders of at least 70% of the voting power of
the outstanding capital stock entitled to vote for the election of directors is
required to remove a director or the entire Board of Directors from office.
Certain portions of the Restated Certificate of Incorporation of SouthTrust
described in certain of the preceding paragraphs, including those related to
business combinations and the classified Board of Directors, may be amended only
by the affirmative vote of the holders of 70% of the voting power of the
outstanding voting stock of SouthTrust.
Possible Effects of Special Provisions
Certain of the provisions contained in the Restated Certificate of
Incorporation and Bylaws of SouthTrust described above have the effect of making
it more difficult to change SouthTrust's Board of Directors, and may make
SouthTrust's Board of Directors less responsive to stockholder control. These
provisions also may tend to discourage attempts by third parties to acquire
SouthTrust because of the additional time and expense involved and a greater
possibility of failure, and, as a result, may adversely affect the price that a
potential purchaser would be willing to pay for the capital stock of SouthTrust,
thereby reducing the amount a stockholder might realize in, for example, a
tender offer for the capital stock of SouthTrust.
Stockholder Rights Plan
On February 22, 1989, the Board of Directors of SouthTrust declared a
dividend to holders of SouthTrust Common Stock of record on March 6, 1989 (the
"SouthTrust Record Date") of one right (a "Right"; collectively, the "Rights")
for, and to be attached to, each share of SouthTrust Common Stock outstanding on
the SouthTrust Record Date. Each Right entitles the holder thereof to purchase
from SouthTrust one one-hundredth of a share of SouthTrust Preferred Stock
designated as the Series A Junior Participating Preferred Stock ("Series A
Preferred Stock") at a purchase price of $75.00 (the "Purchase Price"). Such
resolutions also provide that as long as the Rights are attached to shares of
SouthTrust Common Stock as provided in the Rights Agreement referred to below,
the appropriate number of Rights shall be issued with each share of SouthTrust
Common Stock issued after March 6, 1989. The number of Rights attached to or to
be issued with each share of SouthTrust Common Stock as well as the redemption
price for each such Right, were appropriately decreased as a result of a
three-for-two stock split effected by SouthTrust on January 24, 1992, and a
three-for-two stock split effected by SouthTrust on May 19, 1993. Accordingly,
at the present time four-ninths of a Right is attached to each share of
SouthTrust Common Stock and four-ninths of a Right will be issued with each
share of SouthTrust Common Stock exchanged in the Merger for FFE Common Stock.
The Rights will expire on February 22, 1999 unless redeemed earlier and
will not be exercisable or transferable separately from the shares of SouthTrust
Common Stock until the close of business on the Distribution Date, which will
occur on the earlier of (i) the tenth day following a public announcement that a
person (an "Acquiring Person") or any associate or affiliate of an Acquiring
Person has acquired, or obtained the right to acquire, beneficial ownership of
20% or more of the outstanding SouthTrust Common Stock (the "Stock Acquisition
Date"); or (ii) the tenth day following commencement of a tender or exchange
offer which would result in the ownership of 20% or more of the outstanding
SouthTrust Common Stock; or (iii) the tenth day after SouthTrust's Board of
Directors declares, upon a determination by at least a majority of SouthTrust's
Disinterested Directors, that a person, alone or with affiliates and associates
(an "Adverse Person"), has become the beneficial owner of a substantial amount
(not to be less than 10%) of outstanding SouthTrust Common Stock and that such
person's ownership either is intended to cause SouthTrust to take action adverse
to its long-term interests or may cause a material adverse impact on SouthTrust
to the detriment of SouthTrust's stockholders.
In the event that (i) SouthTrust's Board of Directors determines that a
person is an Adverse Person; (ii) SouthTrust is the surviving corporation in a
merger with an Acquiring Person and SouthTrust's Common
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<PAGE> 54
Stock remains outstanding and unchanged and is not exchanged for securities of
the Acquiring Person or other property; (iii) an Acquiring Person receives a
financial benefit or advantage, through certain self-dealing transactions
involving SouthTrust, greater than that received by other stockholders of
SouthTrust or that which would have resulted from arms-length negotiations; (iv)
a person becomes the beneficial owner of 30% or more of the outstanding
SouthTrust Common Stock (except pursuant to a "Fair Offer" as determined by the
Disinterested Directors); or (v) while there is an Acquiring Person, an event
involving SouthTrust or any of its subsidiaries occurs which results in the
Acquiring Person's proportionate ownership interest being increased by more than
1%, each holder of a Right will have the right to receive, upon payment of the
Purchase Price, in lieu of Series A Preferred Stock, a number of shares of
SouthTrust Common Stock (or, in certain circumstances, cash or other property)
having a value equal to twice the Purchase Price. Rights are not exercisable
following the occurrence of any of the events set forth in this paragraph until
the expiration of the period during which the Rights may be redeemed by
SouthTrust as described below. Notwithstanding the foregoing, after the
occurrence of any of the events set forth in this paragraph, Rights that are
(or, under certain circumstances, Rights that were) beneficially owned by an
Acquiring Person or an Adverse Person will be null and void.
Unless the Rights are redeemed earlier, if, after the Distribution Date,
SouthTrust is acquired in a merger or other business combination in which
SouthTrust is not the surviving corporation or in which SouthTrust Common Stock
is changed into or exchanged for securities of any other person or other
property (other than a merger which follows a Fair Offer) or 50% or more of the
assets or earning power of SouthTrust and its subsidiaries (taken as a whole)
are sold or transferred, the Rights Agreement provides that each holder of
record of a Right will from and after that time have the right to receive, upon
payment of the Purchase Price, that number of shares of common stock of the
acquiring company which has value equal to twice the Purchase Price.
At any time until ten days following the Stock Acquisition Date (subject to
certain provisions requiring action by a majority of the Disinterested
Directors, as defined in the Rights Agreement), SouthTrust may redeem the Rights
in whole, but not in part, at a price of $0.01 per Right. Prior to the
Distribution Date, SouthTrust may, except with respect to the Purchase Price,
redemption price or date of expiration of the Rights, amend the Rights in any
manner. At any time after the Distribution Date, SouthTrust may amend the Rights
in any manner that does not adversely affect the interest of holders of the
Rights as such.
The Rights have certain anti-takeover effects and may adversely affect a
third party's attempt to acquire SouthTrust. The Rights will cause substantial
dilution to a person or group that attempts to acquire SouthTrust. The Rights
should not interfere with any merger or other business combination approved by
SouthTrust's Board of Directors since, among other things, the Board of
Directors may, at its option, under certain circumstances, redeem all but not
less than all of the then outstanding Rights at the redemption price, as
discussed below.
The foregoing description of the Rights and the Series A Preferred Stock
does not purport to be complete and is qualified in its entirety by reference to
the Rights Agreement between SouthTrust and Mellon Bank, N.A., as Rights Agent,
and the Certificate of Designation for the Series A Preferred Stock, copies of
each of which are filed as exhibits to the Registration Statement of which this
Proxy Statement/Prospectus forms a part.
Transfer Agent
The transfer agent for SouthTrust Common Stock is Mellon Securities Trust
Company.
SOUTHTRUST PREFERRED STOCK
General
Under SouthTrust's Restated Certificate of Incorporation, the Board of
Directors is authorized without further stockholder action to provide for the
issuance of up to 5,000,000 shares of SouthTrust Preferred Stock, in one or more
series, by adoption of a resolution or resolutions providing for the issuance of
such series and
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<PAGE> 55
determining the relative rights and preferences of the shares of any such series
with respect to the rate of dividend, call provisions, payments on liquidation,
sinking fund provisions, conversion privileges and voting rights and whether the
shares shall be cumulative, non-cumulative or partially cumulative. The holders
of SouthTrust Preferred Stock would not have any preemptive right to subscribe
for any shares issued by SouthTrust. It is not possible to state the actual
effect of the authorization and issuance of SouthTrust Preferred Stock upon the
rights of holders of SouthTrust Common Stock unless and until SouthTrust's Board
of Directors determines the price and specific rights of the holders of a series
of SouthTrust Preferred Stock. Such effects might include, however, (i)
restrictions on dividends on SouthTrust Common Stock if dividends on SouthTrust
Preferred Stock have not been paid; (ii) dilution of the voting power of
SouthTrust Common Stock to the extent that SouthTrust Preferred Stock has voting
rights, or that any SouthTrust Preferred Stock series is convertible into
SouthTrust Common Stock; (iii) dilution of the equity interest of SouthTrust
Common Stock unless the SouthTrust Preferred Stock is redeemed by SouthTrust;
and (iv) SouthTrust Common Stock not being entitled to share in SouthTrust's
assets upon liquidation until satisfaction of any liquidation preference granted
SouthTrust Preferred Stock. While the ability of SouthTrust to issue SouthTrust
Preferred Stock is, in the judgment of SouthTrust's Board of Directors,
desirable in order to provide flexibility in connection with possible
acquisitions and other corporate purposes, its issuance could impede an attempt
by a third party to acquire a majority of the outstanding voting stock of
SouthTrust.
Series A Junior Participating Preferred Stock
In connection with the adoption of the Stockholder Rights Plan described
above, SouthTrust's Board of Directors designated 500,000 shares of SouthTrust's
authorized but unissued SouthTrust Preferred Stock as Series A Junior
Participating Preferred Stock (which has been previously referred to as the
"Series A Preferred Stock"). The terms of the Series A Preferred Stock are such
that one share of Series A Preferred Stock will be approximately equivalent in
terms of dividend and voting rights, before adjustment for the three-for-two
stock split effected on January 24, 1992 and a further three-for-two stock split
effective on May 19, 1993, to 100 shares of SouthTrust Common Stock. No shares
of Series A Preferred Stock have been issued as of the date of this Proxy
Statement/Prospectus.
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<PAGE> 56
PRO FORMA FINANCIAL INFORMATION
The following pro forma combining condensed financial presentation of
SouthTrust was prepared to provide information on the combined financial
statements of SouthTrust and FFE, as well as the previously consummated
acquisitions by SouthTrust of Plant State Bank, CNB Capital Corp., Southern Bank
Group, Inc., First Commercial Financial Corporation and FBC Holding Company,
Inc., and the pending acquisitions of Citizens Bank of Macclenny, First State
Bank of Florida and Bankers' First Corporation. The pro forma presentation
assumes that these transactions had been consummated at September 30, 1995 for
purposes of the balance sheet presentation and, for purposes of the pro forma
income statement, at the inception of each income statement period. The
acquisition of Bankers' First Corporation and Citizens Bank of Macclenny will be
accounted for as poolings of interests, with the remaining transactions being
accounted for under the purchase method of accounting. In connection with the
pending acquisition of FFE and First State Bank of Florida, which transactions
will be accounted for under the purchase method of accounting, management of
SouthTrust will review the carrying amounts of assets and liabilities to be
acquired to determine if any adjustment to the carrying amounts is necessary.
Actual purchase accounting adjustments will be determined at the respective
consummation dates of each transaction, and are not expected to materially
change the pro forma financial statements presented herein. The pro forma effect
of SouthTrust's acquisition of various branches is not presented because the
operations of such branches, when acquired by SouthTrust, will differ
substantially from available historical financial information of such branches.
The unaudited pro forma combining condensed financial presentation is
presented for information purposes only and is not necessarily indicative of the
combined financial position or results of operations which would actually have
occurred if the transactions had been consummated in the past or which may be
obtained in the future and should be read in conjunction with the audited
financial statements incorporated by reference in this Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
See the Selected Pro Forma Information table herein on page 20, which sets
forth, for the year ended December 31, 1994, and the nine-months ended September
30, 1995, certain unaudited pro-forma combined financial information for
SouthTrust and FFE giving effect to the Merger.
56
<PAGE> 57
SOUTHTRUST CORPORATION
PRO FORMA COMBINING CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
SOUTHTRUST PURCHASE AND COMBINED
CORPORATION PRE-ACQUISITION SOUTHTRUST OTHER PRO FORMA PRO FORMA
CONSOLIDATED FFE ADJUSTMENTS AND FFE ACQUISITIONS ADJUSTMENTS COMBINED
------------ -------- --------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks.................. $ 747,390 $ 1,769 $(5,119)(1) $ 744,040 $ 32,806 $ (12,516)(2) $ 764,330
Short-term investments... 242,904 3,140 0 246,044 16,966 0 263,010
Securities available for
sale................... 2,023,635 12,318 0 2,035,953 80,790 0 2,116,743
Investment securities.... 2,036,057 19,358 0 2,055,415 70,398 0 2,125,813
Loans, net of unearned
income................. 14,077,496 98,467 0 14,175,963 1,009,307 0 15,185,270
Less:
Allowance for loan
losses............... 194,962 818 0 195,780 2,012 0 197,792
------------ -------- ------- ----------- ------------ ----------- -----------
Net loans.............. 13,882,534 97,649 0 13,980,183 1,007,295 0 14,987,478
Other assets............. 1,088,243 6,457 4,088(3) 1,098,788 54,018 6,528(3) 1,159,334
------------ -------- ------- ----------- ------------ ----------- -----------
Total assets..... $ 20,020,763 $140,691 $(1,031) $20,160,423 $1,262,273 $ ( 5,988) $21,416,708
========== ======== ============ ========== ========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing....... $ 11,908,785 $117,283 $ 0 $12,026,068 $ 921,839 $ 0 $12,947,907
Other.................. 2,100,759 3,288 0 2,104,047 26,565 0 2,130,612
------------ -------- ------- ----------- ------------ ----------- -----------
Total deposits... 14,009,544 120,571 0 14,130,115 948,404 0 15,078,519
Federal funds purchased
and securities sold
under agreements to
repurchase............. 2,661,899 0 0 2,661,899 15,612 0 2,677,511
Other borrowings......... 751,595 9,000 0 760,595 0 0 760,595
Other liabilities........ 319,189 2,488 0 321,677 13,535 0 335,212
Long-term debt........... 891,281 0 0 891,281 168,855 0 1,060,136
------------ -------- ------- ----------- ------------ ----------- -----------
Total
liabilities.... 18,633,508 132,059 0 18,765,567 1,146,406 0 19,911,973
Stockholders' equity:
Common stock........... 220,289 5 759(1) 221,053 3,642 12,361(4) 237,056
Capital surplus...... 337,358 3,685 3,325(1) 344,368 61,468 (16,341)(4) 389,495
Retained earnings...... 849,031 5,115 (5,115)(1) 849,031 50,034 (2,008)(4) 897,057
Unrealized loss on
securities available
for sale............. (13,267) (108) 0 (13,375) 723 0 (12,652)
Unearned
Compensation......... 0 (65) 0 (65) 0 0 (65)
Treasury stock......... (6,156) 0 0 (6,156) 0 0 (6,156)
------------ -------- ------- ----------- ------------ ----------- -----------
Total stockholders'
equity................. 1,387,255 8,632 (1,031) 1,394,856 115,867 (5,988) 1,504,735
------------ -------- ------- ----------- ------------ ----------- -----------
Total Liabilities
and
Stockholders'
Equity......... $ 20,020,763 $140,691 $(1,031) $20,160,423 $1,262,273 $ (5,988) $21,416,708
========== ======== ============ ========== ========= ========== ==========
</TABLE>
See Notes to Pro Forma Combining Condensed Financial Statements.
57
<PAGE> 58
SOUTHTRUST CORPORATION
PRO FORMA COMBINING CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SOUTHTRUST PRO FORMA
CORPORATION PRO FORMA SOUTHTRUST OTHER PRO FORMA PRO FORMA
CONSOLIDATED FFE ADJUSTMENTS AND FFE ACQUISITIONS ADJUSTMENTS COMBINED
------------ ------ ----------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on
loans.................... $ 880,930 $5,734 $ 0 $ 886,664 $ 75,106 $ 0 $ 961,770
Interest on securities..... 193,294 1,554 (325)(5) 194,523 10,547 (1,052 )(5) 204,018
Interest on short-term
investments.............. 10,611 153 0 10,764 1,615 0 12,379
---------- ------ ----- ---------- ------- ------- ----------
Total interest
income........... 1,084,835 7,441 (325) 1,091,951 87,268 (1,052 ) 1,178,167
INTEREST EXPENSE
Interest on deposits....... 413,680 4,044 0 417,724 35,050 0 452,774
Interest on borrowings..... 165,189 571 0 165,760 10,963 0 176,723
---------- ------ ----- ---------- ------- ------- ----------
Total interest
expense.......... 578,869 4,615 0 583,484 46,013 0 629,497
---------- ------ ----- ---------- ------- ------- ----------
Net interest income...... 505,966 2,826 (325) 508,467 41,255 (1,052 ) 548,670
Provision for loan
losses................... 39,489 50 0 39,539 2,338 0 41,877
---------- ------ ----- ---------- ------- ------- ----------
Net interest income after
provision for loan
losses................. 466,477 2,776 (325) 468,928 38,917 (1,052 ) 506,793
NON-INTEREST INCOME
Service charges on deposit
accounts................. 68,595 273 0 68,868 5,600 0 74,468
Mortgage origination and
servicing fees......... 22,902 0 0 22,902 1,051 0 23,953
Other.................... 60,233 394 0 60,627 2,134 0 62,761
---------- ------ ----- ---------- ------- ------- ----------
Total.............. 151,730 667 0 152,397 8,785 0 161,182
NON-INTEREST EXPENSE
Salaries and employee
benefits............... 209,105 1,081 0 210,186 14,146 0 224,332
Net occupancy and
equipment expenses..... 32,047 533 0 32,580 5,614 0 38,194
Other.................... 155,357 783 153(6) 156,293 11,330 243 (6) 167,866
---------- ------ ----- ---------- ------- ------- ----------
Total.............. 396,509 2,397 153 399,059 31,090 243 430,392
---------- ------ ----- ---------- ------- ------- ----------
Income before income
taxes.................. 221,698 1,049 (478) 222,268 16,612 (1,295 ) 237,583
Income tax expense......... 76,282 404 (114)(7) 76,572 6,128 (368 )(7) 82,332
---------- ------ ----- ---------- ------- ------- ----------
Net income............... $ 145,416 $ 645 $ (364) $ 145,694 $ 10,484 $ (927 ) $ 155,251
========== ====== ===== ========== ======= ======= ==========
Earnings per share....... $ 1.75 $ 1.75 $ 1.71
Average common shares.... 83,075 83,304 90,638
</TABLE>
See Notes to Pro Forma Combining Condensed Financial Statements.
58
<PAGE> 59
SOUTHTRUST CORPORATION
PRO FORMA COMBINING CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
SOUTHTRUST PRO FORMA
CORPORATION PRO FORMA SOUTHTRUST OTHER PRO FORMA PRO FORMA
CONSOLIDATED FFE ADJUSTMENTS AND FFE ACQUISITIONS ADJUSTMENTS COMBINED
------------ ------ ----------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on
loans.................... $ 868,461 $6,799 $ 0 $ 875,260 $ 90,061 $ 0 $ 965,321
Interest on securities..... 229,568 1,500 (390)(5) 230,678 14,909 (1,262 )(5) 244,325
Interest on short-term
investments.............. 10,583 161 0 10,744 1,955 0 12,699
------------ ------ ----------- ---------- ------------ ----------- ----------
Total interest
income........... 1,108,612 8,460 (390) 1,116,682 106,925 (1,262 ) 1,222,345
INTEREST EXPENSE
Interest on deposits....... 377,643 4,302 0 381,945 38,656 0 420,601
Interest on borrowings..... 123,424 117 0 123,541 12,246 0 135,787
------------ ------ ----------- ---------- ------------ ----------- ----------
Total interest
expense.......... 501,067 4,419 0 505,486 50,902 0 556,388
------------ ------ ----------- ---------- ------------ ----------- ----------
Net interest
income........... 607,545 4,041 (390) 611,196 56,023 (1,262 ) 665,957
Provision for loan
losses................... 44,984 367 0 45,351 2,569 0 47,920
------------ ------ ----------- ---------- ------------ ----------- ----------
Net interest income after
provision for loan
losses................. 562,561 3,674 (390) 565,845 53,454 (1,262 ) 618,037
NON-INTEREST INCOME
Service charges on deposit
accounts................. 86,304 394 0 86,698 7,405 0 94,103
Mortgage origination and
service fees............. 27,760 0 0 27,760 1,284 0 29,044
Other...................... 70,714 433 0 71,147 4,360 0 75,507
------------ ------ ----------- ---------- ------------ ----------- ----------
Total.............. 184,778 827 0 185,605 13,049 0 198,654
------------ ------ ----------- ---------- ------------ ----------- ----------
NON-INTEREST EXPENSE
Salaries and employee
benefits................. 257,637 1,459 0 259,096 19,226 0 278,322
Net occupancy and equipment
expenses................. 68,172 721 0 68,893 7,492 0 76,385
Other...................... 160,190 1,613 204(6) 162,007 16,831 401 (6) 179,239
------------ ------ ----------- ---------- ------------ ----------- ----------
Total.............. 485,999 3,793 204 489,996 43,549 401 533,946
------------ ------ ----------- ---------- ------------ ----------- ----------
Income before income
taxes.................. 261,340 708 (594) 261,454 22,954 (1,663 ) 282,745
Income tax expense......... 88,338 345 (137)(7) 88,546 7,826 (442 )(7) $ 95,930
------------ ------ ----------- ---------- ------------ ----------- ----------
Net income......... $ 173,002 $ 363 $ (457) $ 172,908 $ 15,128 $ (1,221 ) $ 186,815
=========== ====== =========== ========== =========== =========== ==========
Earnings per share......... $ 2.15 $ 2.14 $ 2.09
Average common shares...... 80,628 80,934 89,493
</TABLE>
See Notes to Pro Forma Combining Condensed Financial Statements.
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<PAGE> 60
NOTES TO PRO FORMA COMBINING CONDENSED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Note: The results of operations for SouthTrust for the nine months ended September 30, 1995
include a charge to earnings of approximately $6.5 million ($4.0 million after tax)
related to the accrual of the proposed assessment on Savings Association Insurance
Fund ("SAIF") insured deposits. Since legislation had not been enacted to levy such a
charge, SouthTrust reversed the earlier accrual in the fourth quarter of 1995.
(1) Reflects the purchase price of FFE which includes 305,721 shares of SouthTrust Common
Stock issued at an exchange ratio of 0.645 shares of SouthTrust Common Stock for each
share of FFE Common Stock and cash of $10.80 per share for each of the 473,986
outstanding shares of FFE, net of eliminated equity of FFE.
(2) Reflects the cash purchase price of First State Bank of Florida.
(3) Goodwill resulting from purchase acquisitions.
(4) Reflects the issuance of 785,000 shares of SouthTrust Common Stock for the outstanding
shares of Citizens Bank of Macclenny, 5,350,318 shares of SouthTrust Common Stock for
the outstanding shares of Bankers First Corporation, and 265,719 shares of SouthTrust
Common Stock for the outstanding shares of Lake State Bank in transactions accounted
for as poolings-of-interests. Amounts do not reflect the conversion of 478,588 Bankers
First Corporation options which will be converted into SouthTrust options at a
conversion ratio of 1.126 to 1, or the proceeds from the exercise of such options.
(5) To reflect the loss on earning assets for the cash portion of the purchase price on
FFE and First State Bank of Florida at the weighted average yield on earning assets of
7.62% in 1994 and 8.49% for the nine months ended September 30, 1995.
(6) To reflect the amortization of goodwill resulting from purchase acquisitions over a 20
year life on a straight-line basis.
(7) Tax benefit resulting from (5) above.
</TABLE>
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MARKET AND DIVIDEND INFORMATION RESPECTING THE
COMMON STOCK OF SOUTHTRUST AND FFE
COMPARATIVE STOCK PRICES PER SHARE
The following table sets forth certain information as to the high and low
last sales price per share of SouthTrust Common Stock and FFE Common Stock for
the calendar quarters indicated. The information listed below with respect to
the high and low last sales prices was obtained from Nasdaq, and reflects
interdealer prices, without retail markup, markdown or commissions, and may not
represent actual transactions.
<TABLE>
<CAPTION>
SOUTHTRUST FFE
COMMON COMMON
STOCK STOCK
----------- -----------
HIGH LOW HIGH LOW
---- ---- ---- ----
<S> <C> <C> <C> <C>
1994:
First Calendar Quarter........................................ $19 5/8 $17 7/8 $ 11 $10 3/4
Second Calendar Quarter....................................... 22 1/8 18 1/8 13 1/4 12 3/4
Third Calendar Quarter........................................ 21 7/8 19 5/8 13 3/4 13 1/4
Fourth Calendar Quarter....................................... 20 1/4 17 14 1/4 12 1/2
1995:
First Calendar Quarter........................................ $21 3/8 $18 3/8 15 13
Second Calendar Quarter....................................... 23 1/8 20 7/8 16 1/4 14 1/4
Third Calendar Quarter........................................ 27 1/8 23 9/16 19 1/2 16 7/8
Fourth Calendar Quarter....................................... 25 7/8 24 1/2 25 18 1/4
1996:
First Calendar Quarter (through February 26, 1996)............ 26 5/8 25 1/4 26 24 3/4
</TABLE>
On November 2, 1995 and November 4, 1995 (the trading days immediately
before and after the public announcement of the proposed Merger), the last sales
prices of SouthTrust Common Stock, as obtained from Nasdaq, were $24.875 and
$24.875, respectively, and the last sales prices of FFE Common Stock, as
obtained from Nasdaq, were $19 and $18, respectively; and on February 26, 1996,
the last sales price of SouthTrust Common Stock as obtained from Nasdaq was
$26.125, and the last sales price of FFE Common Stock on February 26, 1996, as
obtained from Nasdaq, was $26.00.
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<PAGE> 62
DIVIDENDS
The following table sets forth the respective cash dividends per share
declared on SouthTrust Common Stock and FFE Common Stock during the periods
indicated:
<TABLE>
<CAPTION>
DIVIDENDS
DECLARED PER DIVIDENDS
SHARE OF DECLARED PER
SOUTHTRUST SHARE OF FFE
COMMON STOCK COMMON STOCK
------------ ------------
<S> <C> <C>
1994:
First Calendar Quarter.............................. $ 0.17 $0
Second Calendar Quarter............................. 0.17 0
Third Calendar Quarter.............................. 0.17 0
Fourth Calendar Quarter............................. 0.17 0
1995:
First Calendar Quarter.............................. $ 0.20 0
Second Calendar Quarter............................. 0.20 0
Third Calendar Quarter.............................. 0.20 0
Fourth Calendar Quarter............................. 0.20 0
1996:
First Calendar Quarter.............................. $ 0.22 0
</TABLE>
Dividends paid by SouthTrust on the SouthTrust Common Stock are at the
discretion of SouthTrust's Board of Directors and depend upon the restrictions
on the payment of dividends by banks as described below, SouthTrust's earnings
and financial condition and other relevant factors. SouthTrust has increased the
dividend paid on its Common Stock for 26 consecutive years. The current policy
of SouthTrust is to pay dividends on a quarterly basis. Subject to an evaluation
of its earnings and financial condition and other factors, including the
restrictions on the payment of dividends by banks described below, SouthTrust
anticipates that it will continue to pay regular quarterly dividends with
respect to the SouthTrust Common Stock.
There are certain limitations on the payment of dividends to SouthTrust by
its subsidiary banks. The amount of dividends that each subsidiary national bank
of SouthTrust may declare in one year, without approval of the OCC, is the sum
of the bank's net profits for that year and its retained net profits for the
preceding two years. Under the rules of the OCC, the calculation of net profits
is more restrictive under certain circumstances. The banking authorities in the
states where SouthTrust owns state-chartered banks also regulate the payment of
dividends by banks organized in such states. Under the Alabama Banking Code, a
state bank may not declare or pay a dividend in excess of 90% of the net
earnings of such bank until the surplus of the bank is equal to at least 20% of
its capital, and thereafter the prior written approval of the Superintendent of
Banks is required if the total of all dividends declared by the bank in any
calendar year exceeds the total of its net earnings for that year combined with
its retained net earnings for the preceding two years. No dividends, withdrawals
or transfers may be made from the bank's surplus without prior written approval
of the Superintendent of Banks.
Under the Florida Banking Code, a state bank may not declare or pay a
dividend in excess of 80% of the net earnings of such bank until the surplus is
equal to the amount of common stock. If the amount of the surplus is equal to
the amount of common stock, the bank may pay out an amount equal to the current
year plus the prior two years undistributed earnings.
Under the North Carolina Banking Code, a state chartered bank with common
stock in excess of $15,000 may not declare a dividend until the surplus is equal
to at least 50% of the amount of common stock.
The South Carolina Banking Code provides that, before a state chartered
bank can pay a dividend, approval must be obtained from the South Carolina
Commissioner of Banking.
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Under the Tennessee Banking Code, a state bank may not declare dividends in
excess of 90% of the net earnings during the past year until the surplus is
equal to the amount of common stock.
Under Title 81 of the Mississippi Code of 1972 (the "Mississippi Banking
Code"), no state bank may declare or pay any dividend upon its common stock
unless it has received the written approval of the Commissioner of Banking and
Consumer Finance.
Under the foregoing laws and regulations, at September 30, 1995,
approximately $290.5 million was available for payment of dividends to
SouthTrust by its bank subsidiaries.
Dividends paid by FFE on the FFE Common Stock are at the discretion of
FFE's Board of Directors and are dependent on the restrictions on the payment of
dividends by corporations chartered in Delaware as described in "Comparison of
the Common Stock of SouthTrust and FFE -- Dividends" below, the restrictions on
the payment of dividends by federal savings banks described below, and FFE's
earnings and financial condition and other relevant factors. Under OTS
regulations, a savings association that is well capitalized is permitted to
declare dividends of up to the greater of (i) the sum of 100% of its current net
income plus one-half of its capital in excess of the minimum regulatory
requirements or (ii) 75% of its net income during the most recent four-quarter
period. FFE currently does not have a policy of paying cash dividends on its
common stock.
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<PAGE> 64
COMPARISON OF THE COMMON STOCK
OF SOUTHTRUST AND FFE
The rights of FFE stockholders are governed by the Certificate of
Incorporation of FFE, the bylaws of FFE and the laws of the State of Delaware.
The rights of SouthTrust stockholders are governed by the Restated Certificate
of Incorporation of SouthTrust, the bylaws of SouthTrust and the laws of the
State of Delaware. After the Merger becomes effective, the rights of FFE
stockholders who become SouthTrust stockholders will continue to be governed by
the laws of the State of Delaware, but will be governed by SouthTrust's Restated
Certificate of Incorporation and bylaws. The following summary of the rights of
the holders of SouthTrust Common Stock and the holders of FFE Common Stock is
qualified in its entirety by reference to the Restated Certificate of
Incorporation of SouthTrust and the Certificate of Incorporation of FFE, the
bylaws of SouthTrust and FFE, and the General Corporation Law of the State of
Delaware.
DIVIDEND RIGHTS
The sources of funds for payments of dividends by SouthTrust and FFE are
their subsidiaries. Because their primary subsidiaries are financial
institutions, payments made by such subsidiaries to SouthTrust and FFE are
limited by law and regulations of the bank and thrift regulatory authorities.
See "Description of SouthTrust Capital Stock -- SouthTrust Common -- Dividends"
and "Market and Dividend Information Respecting the Common Stock of SouthTrust
and FFE" for information concerning the effect of such limitations on
SouthTrust's ability to pay dividends. Delaware law provides that, subject to
any restrictions in the corporation's certificate of incorporation, dividends
may be declared from the corporation's surplus or, if there is no surplus, from
its net profits for the fiscal year in which the dividend is declared and the
preceding fiscal year. Dividends may not be declared, however, if the
corporation's capital has been diminished to an amount less than the aggregate
amount of all capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets.
VOTING RIGHTS AND OTHER MATTERS
The holders of shares of FFE Common Stock and the holders of shares of
SouthTrust Common Stock are each entitled to one vote per share on all matters
brought before the shareholders. Neither the holders of shares of FFE Common
Stock nor the holders of shares of SouthTrust Common Stock have the right to
cumulate their votes in the election of directors. The absence of cumulative
voting reduces the likelihood that the holders of a minority interest in a
corporation will be able to obtain representation of the board of directors of
that corporation.
The Restated Certificate of Incorporation of SouthTrust provides that in
the event of a transaction or a series of transactions with an Interested
Stockholder (generally defined as a holder of more than 10% of the voting stock
of SouthTrust or an affiliate of such a holder) pursuant to which SouthTrust
would be merged into or with another corporation or securities of SouthTrust
would be issued in a transaction which would permit control of SouthTrust to
pass to another entity, or similar transactions having the same effect, approval
of such transaction requires the vote of the holders of 70% of the outstanding
voting securities of SouthTrust, except in cases in which either certain price
criteria and procedural requirements are satisfied or the transaction is
recommended to the shareholders by a majority of the members of the Board of
Directors of SouthTrust who are unaffiliated with the Interested Stockholder and
who were directors before the Interested Stockholder became an Interested
Stockholder. The Certificate of Incorporation of FFE provides that the
affirmative vote of the holders of (i) two-thirds of the outstanding shares of
FFE Common Stock entitled to vote, and (ii) a majority of outstanding shares not
held by a "Related Person" (defined as a person or entity that beneficially owns
10% or more of the outstanding shares of FFE Common Stock) are required to
approve certain specified significant corporate transactions between FFE and the
Related Person, including, among other things, a merger or sale of 25% or more
of total assets. The Certificate of Incorporation of FFE also provides that in
evaluating a transaction described above, in determining what is in the best
interests of FFE and its stockholders, FFE's Board of Directors may consider all
factors it deems relevant, including the social and economic effects of the
transaction on FFE and its employees and customers, the business and financial
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<PAGE> 65
condition and earnings prospects of the acquiring person, and the competence,
experience and integrity of the acquiror and its management.
SouthTrust and FFE are subject to Section 203 of the Delaware General
Corporation Law. That section generally provides that a corporation may not
engage in a business combination, except with extraordinary corporate approval,
with any person deemed to be an "interested stockholder" for a period of three
years following the date that the stockholder became an interested stockholder.
An "interested stockholder" is defined as any person who directly or indirectly
owns 15% or more of the outstanding voting stock of the corporation within the
three-year period beginning immediately prior to the date on which such
determination is made. The extraordinary corporate approval must consist of
board approval prior to the time the person became an interested stockholder or
approval of the transaction by the board of directors and at least two-thirds of
the outstanding voting stock which is not owned by the interested stockholder;
in the absence of such approval, the interested stockholder must own at least
85% of the voting stock of the corporation.
The effect of the business combination and affiliated transactions
provisions, respectively, is to make more difficult the acquisition of a
majority control of a corporation or the use of its assets to finance such
acquisition.
The bylaws of SouthTrust and the bylaws of FFE each provide that the
members of the board of directors are to be divided into three (3) classes as
nearly equal as possible. Each such class is elected for a three-year term. At
each annual meeting of stockholders, one-third of the members of the board of
directors will be elected for a three-year term, and the other directors will
remain in office. Therefore, control of the board of directors cannot be changed
in one (1) year, and at least two (2) annual meetings must be held before a
majority of the members of the board of directors can be changed. But for this
provision in the bylaws, all directors of SouthTrust and FFE would stand for
election at each of their respective annual meetings.
Delaware General Corporation Law provides (unless otherwise provided in a
corporation's charter or bylaws), that a director, or the entire Board of
Directors, may be removed by the shareholders with or without cause by vote of
the holders of a majority of the shares of capital stock of the corporation then
entitled to vote on the election of directors. The Restated Certificate of
Incorporation and bylaws of SouthTrust, however, provide that the affirmative
vote of the holders of at least 70% of the voting power of the outstanding
capital stock entitled to vote for the election of directors is required to
remove a director or the entire Board of Directors from the office and such
removal may be effected only for cause. The vacancy created by any such removal
shall then be filled by majority vote of the directors then in office and the
successor director so elected shall fill the unexpired term of the director
removed from office. The Certificate of Incorporation of FFE provides that
directors may be removed only for "cause" and only by the affirmative vote of
the holders of a majority of the outstanding shares of capital stock of FFE
entitled to vote generally in the election of directors.
The bylaws of SouthTrust also provide that vacancies on the Board of
Directors, caused by the death or resignation of a director or the creation of a
new directorship, may be filled by the remaining directors. A person selected by
the remaining directors to fill a vacancy will serve until the annual meeting of
stockholders at which the term of the class of directors to which such director
has been appointed expires. Therefore, if a director who was recently elected to
a three-year term resigns, the remaining directors will be able to select a
person to serve the remainder of that three-year term, and such person will not
be required to stand for election until the third annual meeting of stockholders
after such director's appointment. The bylaws of FFE provide that vacancies
created by newly created directorships or resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the directors then in office, though less than a
quorum. Directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of office of the class to which they
have been elected expires, and until such director's successor shall have been
duly elected and qualified.
Under the Delaware General Corporation Law (unless otherwise provided in a
corporation's charter), any action required or permitted to be taken by the
stockholders of a corporation may be taken without a meeting and without a
stockholder vote if a written consent is signed by the holders of the shares of
outstanding stock having the requisite number of votes that would be necessary
to authorize such action at a meeting of stockholders at which all shares
entitled to vote thereon were present and voted. Under the Restated Certificate
of Incorporation of SouthTrust, action by written consent of the stockholders is
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<PAGE> 66
prohibited. Further, under the Restated Certificate of Incorporation and Bylaws
of SouthTrust, the stockholders are not permitted to call a special meeting of
stockholders or to require that the Board of Directors call such a meeting. The
bylaws of FFE also require that any action required or permitted to be taken by
the stockholders of FFE must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in writing by
such stockholders.
Certain portions of the Restated Certificate of Incorporation of SouthTrust
described in certain of the proceeding paragraphs, including those related to
business combinations and the classified Board of Directors, may be amended only
by the affirmative vote of the holders of 70% of the outstanding voting stock of
SouthTrust. FFE's Certificate of Incorporation generally may be amended as
prescribed by law. However, certain provisions of the Certificate of
Incorporation of FFE relating to calling special meetings, limitations on voting
shares held in excess of 10% of the then outstanding shares of FFE Common Stock,
stockholders consenting in writing, nominations for directors submitted by
stockholders, the classification of its board of directors, removal of
directors, evaluation and approval of certain business combinations, approval of
transactions with Interested Persons, indemnification of directors, limitations
on the liability of directors and the amendment of the Certificate of
Incorporation and bylaws of FFE may not be amended or rescinded unless the same
is approved by the affirmative vote of the holders of not less than 80% of the
outstanding shares of FFE capital stock entitled to vote generally in the
election of directors.
The provisions contained in the Restated Certificate of Incorporation of
SouthTrust described above have the effect of making it more difficult to change
the Board of Directors, and may make the Board of Directors less responsive to
shareholder control. Those provisions also may tend to discourage attempts by
third parties to acquire SouthTrust because of the additional time and expense
involved and a greater possibility of failure. This also can affect the price
that a potential purchaser would be willing to pay for the stock of SouthTrust,
thereby reducing the amount a stockholder might realize in, for example, a
tender offer for the stock of SouthTrust.
DISSENT AND APPRAISAL RIGHTS
Section 262 of the DGCL provides that there is no right to dissent if, at
the record date, the shares of the corporation were listed on a national
securities exchange, designated as a national market system security on Nasdaq
or held by more than 2,000 shareholders. Since the shares of SouthTrust Common
Stock are listed on Nasdaq and held by more than 2,000 stockholders of record,
holders of SouthTrust Common Stock are not entitled to dissent or appraisal
rights. Prior to the Merger, holders of the FFE Common Stock were entitled to
dissent or appraisal rights pursuant to Section 262 of the DGCL. See "THE
MERGER -- Rights of Dissent and Appraisal."
RIGHTS ON LIQUIDATION
In the event of liquidation, the holders of SouthTrust Common Stock and the
holders of FFE Common Stock will be entitled to receive pro rata any assets
distributable to stockholders with respect to the shares held by them, after
payment of indebtedness and such preferential amounts as may be required to be
paid to the holders of any preferred stock presently outstanding or hereafter
issued by either corporation.
PREEMPTIVE RIGHTS
The holders of SouthTrust Common Stock and FFE Common Stock do not have any
preemptive rights to purchase additional shares of any class of securities,
including common stock, of SouthTrust or FFE, respectively, which may hereafter
be issued.
REPORTS TO STOCKHOLDERS
The SouthTrust Common Stock is registered under the Exchange Act, and,
therefore, SouthTrust is required to provide annual reports containing audited
financial statements to stockholders and to file other reports with the
Commission and solicit proxies in accordance with the rules of the Commission.
SouthTrust also provides reports to its stockholders on an interim basis
containing unaudited financial information.
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<PAGE> 67
The FFE Common Stock is registered under the Exchange Act, and, therefore,
FFE is required to provide annual reports containing audited financial
statements to stockholders, file other reports with the Commission and solicit
proxies in accordance with the rules of the Commission. FFE also provides
reports to its stockholders on an interim basis containing unaudited financial
information.
STOCKHOLDERS' RIGHTS PLAN
As described above under the caption "DESCRIPTION OF SOUTHTRUST CAPITAL
STOCK -- SouthTrust Common Stock -- Stockholder's Rights Plan," presently
attached to each share of SouthTrust Common Stock is two-thirds of a Right
issued pursuant to the Rights Agreement described under such caption. Each Right
entitles the holder thereof to purchase from SouthTrust 1/100th of a share of
the Series A Preferred Stock at the Purchase Price.
SUPERVISION AND REGULATION
HOLDING COMPANY REGULATION
SouthTrust is a bank holding company within the meaning of the Bank Holding
Company Act, and is registered with the Federal Reserve Board. SouthTrust's
banking subsidiaries are subject to restrictions under federal law which limit
the transfer of funds by the subsidiary banks to SouthTrust and its nonbanking
subsidiaries, whether in the form of loans, extensions of credit, investments or
asset purchases. Such transfers by any subsidiary bank to SouthTrust or any
non-banking subsidiary are limited in amount to 10% of the subsidiary bank's
capital and surplus and, with respect to SouthTrust and all such nonbanking
subsidiaries, to an aggregate of 20% of such bank's capital and surplus.
Furthermore, such loans and extensions of credit are required to be secured in
specified amounts. The Bank Holding Company Act also prohibits, subject to
certain exceptions, a bank holding company from engaging in or acquiring direct
or indirect control of more than 5% of the voting stock of any company engaged
in non-banking activities. An exception to this prohibition is for activities
expressly found by the Federal Reserve Board to be so closely related to banking
or managing or controlling banks as to be a proper incident thereto.
As a bank holding company, SouthTrust is required to file with the Federal
Reserve Board semi-annual reports and such additional information as the Federal
Reserve Board may require. The Federal Reserve Board may also make examinations
of SouthTrust and each of its subsidiaries.
According to Federal Reserve Board policy, bank holding companies are
expected to act as a source of financial strength to each subsidiary bank and to
commit resources to support each such subsidiary. This support may be required
at times when a bank holding company may not be able to provide such support.
Furthermore, in the event of a loss suffered or anticipated by the
FDIC -- either as a result of default of a banking or thrift subsidiary of
SouthTrust or related to FDIC assistance provided to a subsidiary in danger of
default -- the other banking subsidiaries of SouthTrust may be assessed for the
FDIC's loss, subject to certain exceptions.
Various federal and state statutory provisions limit the amount of
dividends the subsidiary banks can pay to SouthTrust without regulatory
approval. The approval of the OCC is required for any dividend by a national
bank to its holding company if the total of all dividends declared by the bank
in any calendar year would exceed the total of its net profits, as defined by
the OCC, for that year combined with its retained net profits for the preceding
two years less any required transfers to surplus or a fund for the retirement of
any preferred stock. Comparable prohibitions on the declaration of dividends are
imposed by the Alabama Banking Code, the Florida Banking Code, the North
Carolina Banking Code, the South Carolina Banking Code, the Tennessee Banking
Code, and the Mississippi Banking Code. In addition, a national bank may not pay
a dividend in an amount greater than its net profits then on hand after
deducting its loan losses and bad debts. For this purpose, bad debts are defined
to include, generally, the principal amount of loans which are in arrears with
respect to interest by six months or more or are past due as to payment of
principal (in each case to the extent that such debts are in excess of the
reserve for possible credit losses). Under the foregoing laws and regulations,
at December 31, 1995, approximately $332.8 million was available for payment of
dividends to
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<PAGE> 68
SouthTrust by its bank subsidiaries. The payment of dividends by any subsidiary
bank may also be affected by other factors, such as the maintenance of adequate
capital for such subsidiary bank. In addition to the foregoing restrictions, the
Federal Reserve Board has the power to prohibit dividends by bank holding
companies if their actions constitute unsafe or unsound practices. The Federal
Reserve Board has issued a policy statement on the payment of cash dividends by
bank holding companies, which expresses the Federal Reserve Board's view that a
bank holding company experiencing earnings weaknesses should not pay cash
dividends that exceed its net income or that could only be funded in ways that
weaken the bank holding company's financial health, such as by borrowing.
Furthermore, the OCC also has authority to prohibit the payment of dividends by
a national bank when it determines such payment to be an unsafe and unsound
banking practice.
FFE is a unitary savings bank holding company subject to regulatory
oversight by the OTS. As such, FFE is required to register and file reports with
the OTS and is subject to regulation and examination by the OTS. In addition,
the OTS has enforcement authority over FFE and any non-savings association
subsidiary, which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association. As a
unitary savings bank holding company, the Company generally is not subject to
activity restrictions.
FFE must obtain approval from the OTS before acquiring control of any other
SAIF-insured association. Such acquisitions are generally prohibited if they
result in a multiple savings and loan holding company controlling savings
associations in more than one state. However, such interstate acquisitions are
permitted based on specific state authorization or in a supervisory acquisition
of a failing savings association.
OTS regulations also impose various restrictions or requirements on the
ability of savings associations such as the Bank to pay dividends or make other
distributions of capital to its holding company. OTS regulations prohibit an
association from declaring or paying any dividends or from repurchasing any of
its stock if, as a result, the regulatory capital of the association would be
reduced below the amount required to be maintained for the liquidation account
established in connection with its mutual to stock conversion.
The OTS utilizes a three-tiered approach to permit associations, based on
their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account. Generally, Tier 1
associations, which are associations that before and after the proposed
distribution meet their fully phased-in capital requirements, may make capital
distributions during any calendar year equal to the greater of 100% of net
income for the year-to-date plus 50% of the amount by which the lesser of the
Bank's tangible, core or risk-based capital exceeds its fully phased-in capital
requirement for such capital component, as measured at the beginning of the
calendar year, or the amount authorized for a Tier 2 association. However, a
Tier 1 association deemed to be in need of more than normal supervision by the
OTS may be downgraded to a Tier 2 or Tier 3 association as a result of such a
determination. The Bank meets the requirements for a Tier 1 association and has
not been notified of a need for more than normal supervision. Tier 2
associations, which are associations that before and after the proposed
distribution meet their current minimum capital requirements, may make capital
distributions of up to 75% of net income over the most recent four quarter
period. Tier 3 associations (which are associations that do not meet current
minimum capital requirements) that propose to make any capital distribution and
Tier 2 associations that propose to make a capital distribution in excess of the
noted safe harbor level must obtain OTS approval prior to making such
distribution. Tier 2 associations proposing to make a capital distribution
within the safe harbor provisions and Tier 1 associations proposing to make any
capital distribution need only submit written notice to the OTS 30 days prior to
such distribution. As a subsidiary of FFE, the Bank is also required to give the
OTS 30 days' notice prior to declaring any dividend on its stock. The OTS may
object to the distribution during that 30-day period based on safety and
soundness concerns.
The OTS has proposed regulations that would revise the current capital
distribution restrictions. The proposal eliminates the current tiered structure
and the safe-harbor percentage limitations. No assurance may be given as to
whether or in what form the regulations may be adopted. The proposed regulation,
in its current form, is not expected to have a significant impact on the Bank's
nor FFE's operations.
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The OTS also has extensive authority over the operations of savings
associations, including the Bank. As part of this authority, the Bank is
required to file periodic reports with the OTS and is subject to periodic
examinations by the OTS and the FDIC. The last regular OTS examination of the
Bank was as of June 30, 1995. The Bank has not been examined by the FDIC since
1992. The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these standards must submit a compliance plan. A
failure to submit a plan or to comply with an approved plan will subject the
institution to further enforcement action. The OTS and other federal banking
agencies have also proposed additional guidelines on asset quality and earnings
standards. No assurance can be given as to whether or in what form the proposed
regulations will be adopted. The Bank is a member of the Federal Home Loan Bank
System and its deposit accounts are insured up to applicable limits by the FDIC
under SAIF, which insurance is backed by the full faith and credit of the United
States Government.
All savings associations, including the Bank, are required to meet a
qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. This test requires a savings association to have at least 65% of its
portfolio assets in qualified thrift investments on a monthly average for nine
out of every 12 months on a rolling basis. At December 31, 1995, the Bank met
the test and has always met the test since its effectiveness.
RISK-BASED CAPITAL GUIDELINES
Under the Federal Reserve Board's risk-based capital guidelines applicable
to SouthTrust, the minimum ratio of capital to risk-weighted assets (including
certain off-balance sheet items, such as standby letters of credit) is 8%. To be
considered a "well capitalized" bank or bank holding under the guidelines, a
bank or bank holding company must have a total risk-based capital ratio in
excess of 10%. At December 31, 1994, SouthTrust and all of SouthTrust's
subsidiary banks were sufficiently capitalized to be considered "well
capitalized." See "-- Recent Legislation." At least half of the total capital is
to be comprised of common equity, retained earnings and a limited amount of
perpetual preferred stock, after subtracting goodwill and certain other
adjustments ("Tier 1 capital"). The remainder may consist of perpetual debt,
mandatory convertible debt securities, a limited amount of subordinated debt,
other preferred stock not qualifying for Tier 1 capital and a limited amount of
loan loss reserves ("Tier 2 capital"). SouthTrust's national banking
subsidiaries are subject to similar capital requirements adopted by the OCC, and
its state non-member bank subsidiaries are subject to similar capital
requirements adopted by the FDIC. In addition, the Federal Reserve Board, the
OCC and the FDIC have adopted a minimum leverage ratio (Tier 1 capital to total
assets) of 3%. Generally, banking organizations are expected to operate well
above the minimum required capital level of 3% unless they meet certain
specified criteria, including that they have the highest regulatory ratings.
Most banking organizations are required to maintain a leverage ratio of 3% plus
an additional cushion of at least 1% to 2%. The guidelines also provide that
banking organizations experiencing internal growth or making acquisitions will
be expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance upon intangible assets. On
September 30, 1995, SouthTrust had a Tier 1 capital ratio of 7.82%, a total
risk-based capital ratio of 11.45% and a leverage ratio of 6.41%.
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<PAGE> 70
The following table sets forth the various regulatory capital ratios of
SouthTrust as of the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------
1995 1994
----- -----
<S> <C> <C>
Regulatory Capital Ratios:
Tier 1 risk-based capital*........................................... 7.82% 7.86%
Total risk-based capital............................................. 11.45 12.04
Leverage ratio*...................................................... 6.41 6.19
</TABLE>
- ---------------
* Under the risk-based and leverage capital guidelines, regulatory required
minimums are 4% and 8% for Tier 1 and Total Capital ratios, respectively. The
leverage ratio must be maintained at a level generally considered to be in
excess of 3%.
Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989, failure to meet the capital guidelines could subject a banking institution
to a variety of enforcement remedies available to federal regulatory
authorities, including the termination of deposit insurance by the FDIC.
The OTS has also established capital standards, including a tangible
capital requirement, a leverage ratio (or core capital) requirement and a
risk-based capital requirement applicable to savings associations such as the
Bank. These capital requirements must be generally as stringent as the
comparable capital requirements for national banks. The OTS is also authorized
to impose capital requirements in excess of these standards on individual
associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital.
The capital standards also require core capital equal to at least 3% of
adjusted total assets (as defined by regulation). Core capital generally
consists of tangible capital plus certain intangible assets, including a limited
amount of purchased credit card relationships.
The OTS risk-based requirement requires savings associations to have total
capital of at least 8.0% of risk-weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities.
RECENT LEGISLATION
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") substantially revised the depository institution regulatory and
funding provisions of the Federal Deposit Insurance Act and makes revisions to
several other federal banking statutes. Among other things, FDICIA requires the
federal banking regulators to take prompt corrective action in respect of
depository institutions that do not meet minimum capital requirements. FDICIA
establishes five capital tiers: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." A depository institution is well capitalized if it
significantly exceeds the minimum level required by regulation for each relevant
capital measure, adequately capitalized if it meets each such measure,
undercapitalized if it fails to meet any such measure, significantly
undercapitalized if it is significantly below such measure and critically
undercapitalized if it fails to meet any critical capital level set forth in
regulations. The critically under-capitalized level occurs where tangible equity
is less than 2% of total tangible assets or less than 65% of the minimum
leverage ratio to
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<PAGE> 71
be prescribed by regulation (except to the extent that 2% would be higher than
such 65% level). A depository institution may be deemed to be in a
capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions became subject to
restrictions on borrowing from the Federal Reserve System, effective as of
December 19, 1993. In addition, undercapitalized depository institutions are
subject to growth limitations and are required to submit capital restoration
plans. A depository institution's holding company must guarantee the capital
plan, up to an amount equal to the lesser of 5% of the depository institution's
assets at the time it becomes undercapitalized or the amount of the capital
deficiency when the institution fails to comply with the plan. The federal
banking agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to succeed
in restoring the depository institution's capital. If a depository institution
fails to submit an acceptable plan, it is treated as if it is significantly
undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator.
FDICIA provides authority for special assessments against insured deposits
and for the development of a general risk-based deposit insurance assessment
system. The risk-based insurance assessment system would be used to calculate a
depository institution's semiannual deposit insurance assessment based on the
probability (as defined in the statute) that the deposit insurance fund will
incur a loss with respect to the institution. In accordance with FDICIA, on
September 15, 1992, the FDIC approved a transitional risk-based insurance
premium system and an increases in the deposit insurance premium for commercial
banks and thrifts to an average of 25.4 basis points, effective January 1, 1993.
Effective with fiscal years beginning after December 31, 1992, each insured
institution having over $500 million in total assets will be required to submit
to the FDIC and make available to the public an annual report on the
institution's financial condition and management. The institution's independent
public accountant will be required to audit and attest to certain of the
statements made in that annual report.
FDICIA amended the prior law with respect to the acceptance of brokered
deposits by insured depository institutions to permit only a "well capitalized"
(as defined in the statute as significantly exceeding each relevant minimum
capital level) depository institution to accept brokered deposits without prior
regulatory approval. A depository institution which has a capital level category
of "adequately capitalized" may not accept brokered deposits without prior
regulatory approval. FDICIA also established new uniform disclosure requirements
for the interest rates and terms of deposits accounts. Based on the FDIC's most
recent classification, both SouthTrust and the Bank are classified as
well-capitalized institutions.
FDICIA also contains various provisions related to an institution's
interest rate risk. Under certain circumstances, an institution may be required
to provide additional capital or maintain higher capital levels to address
interest rate risks.
The foregoing necessarily is a general description of certain provisions of
FDICIA and does not purport to be complete. Several of the provisions of FDICIA
will be implemented through the adoption of regulations by the various federal
banking agencies. FDICIA is not expected to have a material effect on the
results of operations of SouthTrust or FFE.
SOURCE OF STRENGTH
According to the Federal Reserve Board policy, bank holding companies are
expected to act as a source of financial strength to each subsidiary bank and to
commit resources to support each such subsidiary. This support may be required
at times when a bank holding company may not be able to provide such support. In
the event of a loss suffered or anticipated by the FDIC -- either as a result of
default of a banking subsidiary
71
<PAGE> 72
or SouthTrust or related to FDIC assistance provided to a subsidiary in danger
of default -- the other banking subsidiaries of SouthTrust may be assessed for
the FDIC's loss, subject to certain exceptions.
THE RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act") became law. The Interstate
Banking Act has two major provisions regarding the merger, acquisition and
operation of banks across state lines. First it provides that effective
September 29, 1995, adequately capitalized and managed bank holding companies
will be permitted to acquire banks in any state. State laws prohibiting
interstate banking or discriminating against out-of-state banks will be
preempted as of the effective date. States cannot enact laws opting out of this
provision; however, states may adopt a minimum restriction requiring that target
banks located with the state be in existence for a period of years, up to a
maximum of five years, before such bank may be subject to the Interstate Banking
Act. The Interstate Banking Act establishes deposit caps which prohibit
acquisitions that would result in the acquiror controlling 30% or more of the
deposits of insured banks and thrifts held in the state in which the acquisition
or merger is occurring or in any state in which the target maintains a branch or
10% or more of the deposits nationwide. State-level deposit caps are not
preempted as long as they do not discriminate against out-of-state acquirors,
and the federal deposit caps apply only to initial entry acquisitions.
In addition to the foregoing, the Interstate Banking Act provides that as
of June 1, 1997, adequately capitalized and managed banks will be able to engage
in interstate branching by merging banks in different states. However, unlike
the interstate banking provision, states may opt out of the application of this
provision by enacting specific legislation before June 1, 1997. If a state does
not opt-out, banks will be required to comply with the state's provisions with
respect to branching across state lines.
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies. The likelihood and timing of any such changes
and the impact such changes might have on SouthTrust and its subsidiaries,
however, cannot be determined at this time.
FFE
FFE is registered with the OTS as a savings and loan holding company and is
subject to OTS regulation, examination, supervision and reporting requirements.
The Bank is a member of the Federal Home Loan Bank System and its deposit
accounts are insured up to applicable limits by the FDIC under SAIF. The Bank is
subject to regulation by the OTS, as its chartering agency, and the FDIC, as its
deposit insurer.
72
<PAGE> 73
CERTAIN INFORMATION CONCERNING THE BUSINESS OF FFE AND THE BANK
GENERAL
The principal asset of FFE is the outstanding capital stock of the Bank,
its wholly owned subsidiary, and FFE's business consists only of the business of
the Bank.
The Bank's main business consists of attracting retail deposits from the
general public and investing those funds primarily in first mortgages secured by
owner-occupied, single-family residences and mortgage-backed securities. To a
much lesser extent, the Bank also originates residential construction and
consumer loans in the Bank's market area. The Bank holds, in its portfolio,
loans secured by multi-family and non-residential real estate. Currently, the
Bank only originates multi-family and non-residential real estate loans on a
limited basis.
The Bank's revenues are derived principally from interest on mortgage loans
and mortgage-backed securities, interest and dividends on investment securities
and fee income from loan and deposit account charges.
MARKET AREA
The main office of the Bank is located in Englewood, Florida. Through its
network of three offices, the Bank currently serves southwest Sarasota and west
Charlotte counties in southwestern Florida.
The Englewood market area has a population of approximately 50,000 persons,
and a diverse economy with an emphasis on tourism. In recent periods, the Bank's
market area has been above national averages in population growth and has
experienced an above average unemployment rate.
LENDING ACTIVITIES
General. Historically, the Bank originated fixed-rate mortgage loans.
Since 1980, however, the Bank has emphasized the origination and retention in
its portfolio of adjustable-rate mortgage ("ARM") loans. The Bank's strategy has
been to increase the percentage of assets in its portfolio with more frequent
repricing. In response to customer demand, however, the Bank continues to
originate some fixed-rate mortgages with terms up to 30 years. The Bank
underwrites these mortgage loans under secondary market guidelines allowing them
to be saleable in the secondary market. During fiscal 1995, the Bank held fixed
rate originations in its portfolio for investment rather than selling them in
the secondary market. The fixed rate loans are being originated at premium rates
and in order to keep its share of the construction lending market, the Bank must
portfolio those loans. At September 30, 1995, there were no fixed rate loans for
sale.
The Bank's primary focus in lending activities is on the origination of
loans collateralized by first mortgages on owner-occupied, one- to four-family
residences. The Bank also originates residential construction and consumer loans
in its market area. From 1990 until October 8, 1993, when the OTS terminated its
restrictions as a result of the successful completion of the Bank's mutual to
stock conversion, the OTS required the Bank to limit its origination of loans
secured by commercial real estate to loans which would facilitate the sale of
foreclosed assets. Despite the elimination of the supervisory restrictions, the
Bank has continued to so limit its origination of loans secured by commercial
and multi-family real estate.
All residential loans must be approved by the loan committee comprised of
the three top officers of the Bank. The lending limit currently established by
the Bank is $500,000. All loan approvals are ratified by the Board of Directors.
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<PAGE> 74
Loan Portfolio Composition. The following table presents information
concerning the composition of the Bank's loan portfolio in dollar amounts and in
percentages (before deductions for loans in process, deferred fees and discounts
and allowances for loan losses) as of the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------------
1995 1994 1993
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family....................... $83,419 83.71% $77,542 78.95% $75,901 80.60%
Multi-family.............................. 1,028 1.03 840 .86 1,270 1.35
Commercial................................ 10,741 10.78 12,956 13.19 14,422 15.32
Construction or development............... 3,256 3.26 5,564 5.66 1,376 1.46
------- ------- ------- ------- ------- -------
Total real estate loans........... 98,444 98.78 96,902 98.66 92,969 98.73
------- ------- ------- ------- ------- -------
Other Loans:
Consumer Loans:
Deposit account........................ 503 .50 639 .65 812 .86
Student................................ 15 .02 20 .02 21 .02
Automobile............................. -- -- -- -- 14 .02
Other.................................. -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total consumer loans.............. 518 .52 659 .67 847 .90
Commercial business loans.............. 695 .70 655 .67 351 .37
------- ------- ------- ------- ------- -------
Total other loans................. 1,213 1.22 1,314 1.34 1,198 1.27
------- ------- ------- ------- ------- -------
Total loans....................... 99,657 100.00% 98,216 100.00% 94,167 100.00%
====== ====== ======
Plus:
Premiums on loans purchased............... 199 138 --
Less:
Loans in process.......................... 1,301 4,216 758
Deferred fees and discounts............... 88 89 110
Allowance for loan losses................. 818 1,230 909
------- ------- -------
Total loans receivable, net....... $97,649 $92,819 $92,390
======= ======= =======
</TABLE>
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<PAGE> 75
The following table shows the composition of the Bank's loan portfolio by
fixed- and adjustable-rate categories at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------------
1995 1994 1993
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family.................... $14,848 14.90% $15,928 16.22% $21,663 23.00%
Multi-family........................... 118 .12 144 .14 374 .39
Commercial............................. 344 .35 1,184 1.21 1,062 1.13
Construction or development............ 328 .32 -- -- -- --
------- ------- ------- ------- ------- -------
Total fixed-rate real estate
loans........................... 15,638 15.69 17,256 17.57 23,099 24.52
Consumer and commercial business....... 518 .52 659 .67 858 .91
------- ------- ------- ------- ------- -------
Total fixed-rate loans............ 16,156 16.21 17,915 18.24 23,957 25.43
------- ------- ------- ------- ------- -------
Adjustable-Rate Loans:
Real estate:
One- to four-family.................... 68,571 68.81 61,614 62.73 54,238 57.61
Multi-family........................... 910 .91 696 .71 896 .95
Commercial............................. 10,397 10.43 11,772 11.99 13,360 14.19
Construction or development............ 2,928 2.94 5,564 5.66 1,376 1.46
------- ------- ------- ------- ------- -------
Total adjustable-rate real estate
loans........................... 82,806 83.09 79,646 81.09 69,870 74.21
Consumer and commercial business....... 695 .70 655 .67 340 .36
------- ------- ------- ------- ------- -------
Total adjustable rate loans....... 83,501 83.79 80,301 81.76 70,210 74.57
------- ------- ------- ------- ------- -------
Total loans....................... 99,657 100.00% 98,216 100.00% 94,167 100.00%
====== ====== ======
Plus:
Premiums on loans purchased............... 199 138 --
Less:
Loans in process.......................... 1,301 4,216 758
Deferred fees and discounts............... 88 89 110
Allowance for loan losses................. 818 1,230 909
------- ------- -------
Total loans receivable, net....... $97,649 $92,819 $92,390
======= ======= =======
</TABLE>
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<PAGE> 76
The following schedule illustrates the interest rate sensitivity of the
Bank's loan portfolio at September 30, 1995. Mortgages which have adjustable or
renegotiable interest rates are shown as repricing in the period during which
the contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
REAL ESTATE
------------------------------------------------------
ONE- TO MULTI-FAMILY AND CONSTRUCTION COMMERCIAL
FOUR-FAMILY COMMERCIAL OR DEVELOPMENT CONSUMER BUSINESS TOTAL
----------------- ----------------- ---------------- ----------------- ------------ -----------------
DUE DURING PERIODS WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
ENDING SEPTEMBER AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
30, AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
- ------------------ ------- -------- ------- -------- ------ -------- ------ -------- ------ -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996(1)........... $ 2,422 7.86% $ 533 10.49% $2,576 7.47% $375 7.98% $319 10.79% $ 6,225 8.08%
1997.............. 2,703 7.87 610 10.60 12 8.42 99 8.81 36 10.86 3,460 8.41
1998.............. 2,773 7.87 766 9.78 12 8.44 4 8.00 33 10.88 3,588 8.31
1999 and 2000..... 6,041 7.86 943 9.82 28 8.45 40 8.59 307 10.51 7,359 8.23
2001 to 2005...... 16,476 7.79 2,711 10.18 94 8.49 -- -- -- -- 19,281 8.13
2006 to 2015...... 35,669 7.52 5,817 10.16 134 8.17 -- -- -- -- 41,620 7.89
2015 and
following....... 17,335 7.35 389 8.45 400 7.86 -- -- -- -- 18,124 7.38
------- --- ------- -------- ------ --- ------ --- ------ -------- ------- ---
Total..... $83,419 7.60% $11,769 10.09% $3,256 7.76% $518 8.19% $695 10.67% $99,657 7.92%
======= ======= ======= ======= ====== ======= ====== ======= ====== ======= ======= =======
</TABLE>
- ---------------
(1) Includes demand loans, loans having no stated maturity.
The total amount of loans due after September 30, 1996, which have
predetermined interest rates is $13,255,000 while the total amount of loans due
after such dates which have floating or adjustable interest rates is
$80,177,000.
One- to Four-Family Residential Mortgage Lending. Residential loan
originations are generated by the Bank's marketing efforts, its present
customers, walk-in customers and referrals from real estate brokers and
builders. The Bank has focused its lending efforts primarily on the origination
of loans secured by first mortgages on owner-occupied, one- to four-family
residences in its market area. At September 30, 1995, the Bank's one- to
four-family residential mortgage loans totaled $83.4 million, or 84% of the
Bank's loan portfolio, substantially all of which are conventional loans. This
portfolio includes a substantial number of first mortgage loans collateralized
by vacation or second homes in the Bank's primary market area.
The Bank currently makes adjustable-rate one- to four-family residential
mortgage loans on primary residences in amounts up to 95% of the appraised
value, or selling price, of the security property, whichever is less. Generally,
for loans with a loan-to-value ratio in excess of 80%, the Bank requires private
mortgage insurance to reduce exposure levels below the 80% level. The Bank
currently offers one-year and three-year ARM loans at rates determined in
accordance with market and competitive factors for a term of up to 30 years. The
loans provide for a 2% annual cap and floor, and a 6% lifetime cap and floor on
the interest rate over the rate in effect at the date of origination. These
loans' annual and lifetime caps on interest rate increases reduce the extent to
which they can help protect the Bank against interest rate risk. See
"Management's Discussion and Analysis of Operations -- Asset/Liability
Management."
Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
rise, the payment by the borrower rises to the extent permitted by the terms of
the loan, thereby increasing the potential for default. At the same time, the
marketability of the underlying property may be adversely affected by higher
interest rates. The Bank believes that these risks, which have not had a
material adverse effect on the Bank to date, generally are less than the risks
associated with holding fixed-rate loans in an increasing interest rate
environment.
The Bank also originates fixed-rate mortgage loans. Most fixed-rate loans
currently originated by the Bank have a term of 30 years. In addition, the Bank
originates 15-year fixed-rate loans. Interest rates charged on these fixed-rate
loans are competitively priced according to market conditions. Although the Bank
has recently been portfolioing its fixed rate product, management believes the
risks associated with this strategy have been minimized by the higher rates
charged on these loans.
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<PAGE> 77
In underwriting residential real estate loans, the Bank evaluates both the
borrower's ability to make monthly payments and the value of the property
collateralizing the loan. Potential borrowers are qualified for fixed-rate loans
based upon the stated rate of the loan. On ARM loans, the borrower is qualified
based on the fully indexed rate as opposed to the initial rate of interest
charged to the borrower.
An appraisal of the security property from Board-approved independent fee
appraisers is obtained on all loan applications. The Bank generally requires, in
connection with the origination of residential real estate loans, title, fire
and casualty insurance coverage, as well as flood insurance where required, to
protect the Bank's interest. The cost of this insurance coverage is paid by the
borrower.
The Bank's residential mortgage loans customarily include due-on-sale
clauses giving the Bank the right to declare the loan immediately due and
payable in the event, among other things, the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid. The
Bank has enforced due-on-sale clauses in its mortgage contracts for the purpose
of increasing its loan portfolio yield. The yield increase is obtained through
the authorization of assumptions of existing loans at higher rates of interest
and the imposition of assumption fees. ARM loans may be assumed provided home
buyers meet the Bank's underwriting standards, upon payment of an assumption
fee.
Commercial/Multi-Family Real Estate Lending. In the past, the Bank engaged
in commercial real estate lending, including loans collateralized by
multi-family residential property, primarily in its market area. Beginning in
1990, because of newly enacted regulatory capital requirements and OTS
restrictions, the Bank stopped originating commercial real estate loans, except
for loans which facilitate the sale of foreclosed assets. As previously
indicated, these restrictions were terminated on October 8, 1993. Currently, the
Bank only originates multi-family and non-residential real estate loans on a
limited basis. At September 30, 1995 the Bank had $11.8 in
commercial/multi-family real estate loans, representing 12% of its loan
portfolio as of such date. The Bank's commercial/multi-family real estate loan
portfolio is collateralized by multi-family residential property, primarily
apartment buildings and condominiums, office buildings, retail shopping centers,
motels, hotels, churches and land. These properties are located within the State
of Florida, and are seasoned loans with the exception of loans to facilitate the
sale of real estate owned made since 1989. Because of general economic
conditions and the increased risk associated with such loans, the Bank does not
anticipate any significant non-residential real estate loan originations or
purchases.
At September 30, 1995, the maximum amount which the Bank could have loaned
to any one borrower and the borrower's related entities was $1.3 million. At
September 30, 1995, the Bank had one loan with an outstanding balance in excess
of this amount. This loan was originated prior to the adoption of the current
limitations and has been grandfathered. The loan had a principal balance of
$1,633,194, is secured by a motel and was current at September 30, 1995.
Most of the Bank's commercial/multi-family real estate loans have been
originated with adjustable-rates and have terms of 20 to 30 years. Rates on the
Bank's adjustable-rate commercial/multi-family real estate loans are generally
tied to the prime rate of interest or constant maturity indices for U.S.
Treasury securities. Loans collateralized by such properties are generally
larger and involve a greater degree of risk than one-to four-family residential
mortgage loans. Because payments on loans collateralized by
commercial/multi-family real estate properties are often dependent on the
successful operation or management of the properties, repayment of such loans
may be subject to adverse conditions in the real estate market or the economy.
If the cash flow from the project is reduced (for example, if leases are not
obtained or renewed), the borrower's ability to repay the loan may be impaired.
The Bank also maintains an escrow account for most of its loans
collateralized by real estate, in order to ensure that the borrower provides
funds to cover property taxes in advance of the required payment. These accounts
are analyzed annually to confirm that adequate funds are available. For loans
which do not include an escrow requirement, an annual review of tax payments is
performed by the Bank in order to confirm payment. In order to monitor the
adequacy of cash flows on income-producing properties, the borrower or lead
lender is contacted annually, requesting financial information including rental
rates and income, maintenance costs and an update of real estate property tax
payments.
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<PAGE> 78
Construction Lending. The Bank originates a limited number of loans to
finance the construction of one-to four-family residences. At September 30, 1995
the Bank had loans to finance the construction of one-to four-family residences
totaling $3.3 million or approximately 3.3% of its loan portfolio. Substantially
all of these loans are made to individuals who propose to occupy the premises
upon completion of construction. Construction loans are structured for up to a
30 year term with a six month construction phase. Upon completion of the
construction phase, these loans continue as permanent loans of the Bank. Loan
proceeds are disbursed in increments as construction progresses and as
inspections warrant. These loans are originated using the Bank's underwriting
standards for one- to four-family residential mortgage loans and have adjustable
rates of interest. The Bank requires interest-only payments on such loans during
the construction phase.
Consumer Lending. Consumer loans do not constitute a significant part of
the Bank's loan portfolio, and the Bank is currently originating only consumer
loans secured by savings deposits.
Commercial Business Lending. Federally chartered savings institutions,
such as the Bank, are authorized to make secured or unsecured loans and letters
of credit for commercial, corporate, business and agricultural purposes and to
engage in commercial leasing activities, up to a maximum of 10% of total
assets. The Bank does not engage in commercial leasing, but does engage, to a
limited extent, in other commercial business lending activities. At September
30, 1995, the Bank had $695,000 in commercial business loans outstanding, or
.70% of its total loan portfolio. The Bank's commercial business lending
activities encompass loans with a variety of purposes and security. However, a
majority of these loans are unsecured lines of credit. Generally, the Bank's
commercial business lending has been to borrowers headquartered, or doing
business, in the Bank's market area.
Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to make repayment from his or her employment and other
income, and which are collateralized by real property whose value tends to be
more easily ascertainable, commercial business loans are of higher risk and
typically are made on the basis of the borrower's ability to make repayment from
the cash flow of the borrower's business. As a result, the availability of funds
for the repayment of commercial business loans may be substantially dependent on
the success of the business itself. Further, the collateral securing the loans
may depreciate over time, may be difficult to appraise and may fluctuate in
value based on the success of the business.
Mortgage-Backed Securities. The Bank has a small portfolio of
mortgage-backed securities and has utilized such investments to complement its
mortgage lending activities. At September 30, 1995, mortgage-backed securities
totaled $19.4 million. For information regarding the carrying and market values
of the Bank's mortgage-backed securities portfolio, see "Item 7. Financial
Statements -- Note 3 of the Notes to Consolidated Financial Statements."
During fiscal 1995, in order to supplement it's loan originations the Bank
purchased for investment $9.8 million of mortgage-backed securities with a fixed
rate of interest of 8.5%. The Bank also holds adjustable-rate mortgage-backed
securities with an approximate balance of $3.1 million at September 30, 1995.
Mortgage-backed securities can serve as collateral for borrowings and, through
repayments, as a source of liquidity. At September 30, 1995 approximately $9.4
million, of the Bank's mortgage-backed securities are pledged to secure advances
from the Federal Home Loan Bank of Atlanta.
Under the OTS' risk-based capital requirements, Government National
Mortgage Association ("GNMA") mortgage-backed securities have a zero percent
risk weighting and Federal National Mortgage Association ("FNMA"), Federal Home
Loan Mortgage Corporation ("FHLMC") and AA-rated mortgage-backed securities have
a 20% risk weighting, in contrast to the 50% risk weighting carried by one- to
four-family performing residential mortgage loans.
78
<PAGE> 79
The following table sets forth the contractual maturities of the Bank's
mortgage-backed securities at September 30, 1995.
<TABLE>
<CAPTION>
DUE IN SEPTEMBER 30,
------------------------------------------------------------------------ 1995
6 MONTHS 6 MONTHS 1 TO 3 TO 5 5 TO 10 10 TO 20 OVER 20 BALANCE
OR LESS TO 1 YEAR 3 YEARS YEARS YEARS YEARS YEARS OUTSTANDING
-------- --------- ------- ------ ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation........................ $ 450 $ 468 $2,557 $2,308 $ 910 $ -- $ -- $ 6,693
Federal National Mortgage
Association........................ 185 210 739 541 860 -- 742 3,277
Government National Mortgage
Association........................ 377 588 2,838 1,867 2,358 -- 1,360 9,388
-------- --------- ------- ------ ------- -------- ------- -------------
Total........................ $1,012 $ 1,266 $6,134 $4,716 $4,128 -- $2,102 $19,358
========= ======== ======= ====== ====== ======= ======= ============
</TABLE>
ORIGINATIONS, PURCHASES, SALES AND REPAYMENTS OF LOANS AND MORTGAGE-BACKED
SECURITIES
As described above, the Bank originates real estate loans through marketing
efforts, the Bank's customer base, walk-in customers, and referrals from real
estate brokers and builders. The Bank originates both adjustable-rate and
fixed-rate loans. Its ability to originate loans is dependent upon the relative
customer demand for fixed-rate or ARM loans in the origination market, which is
affected by the current and expected future level of interest rates. From time
to time, the Bank has also purchased mortgage-backed securities in accordance
with its ongoing asset/liability management objectives.
During the 1995 fiscal year, the Bank purchased a 95% participating
interest in 58 single family residential loans in the amount of $3.4 million.
All purchased loans were required to meet the Bank's underwriting guidelines.
The following table shows the loan origination, purchase, sale and
repayment activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Originations by type:
Real estate -- one- to four-family................... $ 4,898 $ 10,674 $ 6,539
-- multi-family.......................... 144 -- --
-- commercial............................ 1,250 150 994
-- construction or development........... 7,304 7,778 2,761
Non-real estate -- consumer.......................... 127 98 240
-- commercial business.............. 631 225 --
-------- -------- --------
Total loans originated....................... 14,354 18,925 10,534
-------- -------- --------
Purchases:
Real estate -- one- to four-family................... 3,462 5,238 100
-- commercial............................ -- -- 200
Mortgage-backed securities........................... 9,793 5,892 1,960
-------- -------- --------
Total loans and mortgage-backed securities
purchased.................................. 13,255 11,130 2,260
-------- -------- --------
</TABLE>
79
<PAGE> 80
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Sales and Repayments:
Real estate -- one- to four-family................... -- (3,741) (2,872)
-- multi-family.......................... -- -- --
-------- -------- --------
Total loans sold............................. -- (3,741) (2,872)
Mortgage-backed securities sold...................... -- -- --
-------- -------- --------
Total sales.................................. -- (3,741) (2,872)
Principal repayments................................. (18,101) (17,723) (15,482)
-------- -------- --------
Total reductions............................. (18,101) (21,464) (18,354)
-------- -------- --------
Net increase (decrease)...................... $ 9,508 $ 8,591 $ (5,560)
======== ======== ========
</TABLE>
ASSET QUALITY
When a borrower fails to make a required payment on a loan, the Bank
attempts to cause the delinquency to be cured by contacting the borrower. In the
case of real estate loans, a late notice is sent 15 days after the due date, and
personal contact may be made, particularly for larger balance loans. If the
delinquency is not cured by the 30th day, contact with the borrower is made by
phone. Additional written and verbal contacts are made with the borrower to the
extent the borrower appears to be cooperative. The Bank sends a 30-day default
letter and, on the 61st day, usually institutes appropriate action to foreclose
on the property. Interest income on loans more than 90 days delinquent is
reduced by the full amount of accrued and uncollected interest. If foreclosed,
the property is sold at public auction and may be purchased by the Bank.
Delinquent consumer loans are handled in a generally similar manner. The Bank's
procedures for repossession and sale of consumer collateral are subject to
various requirements under Florida consumer protection laws.
The Bank's procedures for commercial real estate and multi-family loans
include a request for updated financial statements on an annual basis. This
information is analyzed and any changes are noted. This information is analyzed
to determine if the loan should be renewed at maturity or any additional monies
can reasonably be expected to be advanced in the future. If the financial
statement shows inherent weaknesses, the loan generally is put on the Bank's
"watch list". If the loan is also delinquent, it may be classified as
substandard and additions to the Bank's general valuation allowance established.
Delinquent Loans. The following table sets forth information concerning
delinquent mortgage and other loans at September 30, 1995. The amounts presented
represent the total remaining principal balances of the related loans, rather
than the actual payment amounts which are overdue.
<TABLE>
<CAPTION>
LOANS DELINQUENT FOR:
------------------------------------------------------------------
30-59 DAYS 60-89 DAYS
-------------------------- -------------------------------------
PERCENT PERCENT PERCENT
OF LOAN OF LOAN OF LOAN
NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY CATEGORY
------ ------ -------- ------ ------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family................ 14 $866 1.04% 6 $ 104 .12% 1.69%
Multi-family....................... -- -- -- -- -- -- --
Commercial......................... -- -- -- 1 215 2.00 2.00
Commercial business.................. -- -- -- -- -- -- --
-- --
------ ------
Total...................... 14 $866 .87% 7 $ 319 .32% 1.63%
====== ====== ====== ======
</TABLE>
80
<PAGE> 81
<TABLE>
<CAPTION>
LOANS DELINQUENT FOR:
--------------------------
90 DAYS AND OVER TOTAL DELINQUENT LOANS
-------------------------- --------------------------
PERCENT PERCENT
OF LOAN OF LOAN
NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY
------ ------ -------- ------ ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family................ 9 $440 .53% 29 $1,410 1.69%
Multi-family....................... -- -- -- -- -- --
Commercial......................... -- -- -- 1 215 2.00
Commercial business.................. -- -- -- -- -- --
-- --
------ ------
Total...................... 9 $440 .44% 30 $1,625 1.63%
====== ====== ====== ======
</TABLE>
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets in the Bank's loan portfolio. Since 1991,
loans are placed on non-accrual status when the collection of principal payments
and/or interest becomes doubtful or when the loan becomes delinquent for more
than 90 days. For all periods presented, the Bank has had no troubled debt
restructurings (which involve forgiving a portion of interest or principal on
any loans or making loans at a rate materially less than that of market rates).
Foreclosed assets include assets acquired in settlement of loans and loans
classified as in-substance foreclosure.
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------ DECEMBER 31,
1995 1994 1993 1992 1991
------ ------ ------ ------ ------------
(DOLLAR IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family......................... $ 561 $ 432 $ 75 $ 18 $ 1,391
Commercial real estate...................... -- 1,381 -- -- 3,964
Consumer.................................... -- 3 3 2 208
Commercial business......................... -- -- 90 -- 89
------ ------ ------ ------ ------------
Total............................... 561 1,816 168 20 5,652
------ ------ ------ ------ ------------
Foreclosed assets:
One- to four-family......................... 194 17 154 1,722 1,993
Multi-family................................ -- 247 297 249 1,436
Commercial real estate...................... 1,276 1,651 2,171 4,934 5,914
------ ------ ------ ------ ------------
Total............................... 1,470 1,915 2,622 6,905 9,343
------ ------ ------ ------ ------------
Total non-performing assets......... $2,031 $3,731 $2,790 $6,925 $ 14,995
====== ====== ====== ====== ==========
Total as a percentage of total
assets............................ 1.44% 2.91% 2.17% 4.64% 9.50%
====== ====== ====== ====== ==========
</TABLE>
For the year ended September 30, 1995, gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $49,241. The amount that was included in
interest income on such loans was $24,538 for the year ended September 30, 1995.
Foreclosed Assets. As of September 30, 1995, the Bank had approximately
$1.5 million in carrying value of foreclosed assets. See Note 5 of the Notes to
Consolidated Financial Statements of FFE for a detailed discussion of the Bank's
treatment of foreclosed assets and valuation of such assets.
At December 31, 1995, the Bank had only one foreclosed asset in excess of
$250,000. This asset is improved land located in Charlotte County, Florida which
originally was part of the project developed by the Bank's subsidiary. See
"-- Subsidiary and Other Activities." The land was to be the site of 66
condominium units, but development of this phase of the project was never
started. On September 30, 1991, this tract was transferred to the Bank as a
foreclosed asset in forgiveness of the debt of the subsidiary to the Bank. At
December 31, 1995, the Bank held the property at a carrying value of $878,000.
81
<PAGE> 82
Other Loan of Concern. In addition to the non-performing assets set forth
in the table above, the Bank has one loan classified as special mention with a
principal balance $214,990 at September 30, 1995. The loan was originated on
April 23, 1986 in the amount of $248,000 for the purpose of purchasing two small
retail properties. The original appraisal in February of 1986 valued the
properties at $331,000. The property was reappraised in January of 1995 for
$390,000. The loan is classified as special mention since the borrower has filed
for bankruptcy. The borrower is making payments, however the loan was 60 days
delinquent at September 30, 1995. The bankruptcy court has ordered that the
borrower not pay the 60 day delinquency until the bankruptcy proceedings are
complete.
Classified Assets. Federal regulations provide for the classification of
loans and other assets, such as debt and equity securities considered by the OTS
to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
When an insured institution classifies problem assets as either substandard
or doubtful, it may establish general allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances which
have been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets. When an insured institution classifies problem assets
as "loss," it is required either to establish a specific allowance for losses
equal to 100% of that portion of the asset so classified or to charge-off such
amount. An institution's determination as to the classification of its assets
and the amount of its valuation allowances is subject to review by the
regulatory authorities, who may order the establishment of additional general or
specific loss allowances.
In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Bank regularly reviews
the problem loans in its portfolio to determine whether any loans require
classification in accordance with applicable regulations. Classified assets of
the Bank at September 30, 1995, all of which are included in the table of
non-performing assets above or are described under the caption "-- Other Loans
of Concern" above, were as follows (in thousands):
<TABLE>
<S> <C>
Special Mention............................................................ $ 215
Substandard................................................................ 2,031
Doubtful................................................................... --
Loss....................................................................... --
------
Total classified assets.......................................... $2,246
======
</TABLE>
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and changes in the nature and volume of its loan
activity. Such evaluation, which includes a review of all loans of which full
collectibility may not be reasonably assured, considers among other matters, the
estimated fair value of the underlying collateral, economic conditions,
historical loan loss experience and other factors that warrant recognition in
providing for an adequate loan allowance. Although management believes it uses
the best information available to make such determinations, future adjustments
to reserves may be necessary, and net income could be significantly affected, if
circumstances differ substantially from the assumptions used in making the
initial determinations. At September 30, 1995, the Bank had an allowance for
loan losses of $817,967. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Comparison of Year Ended September 30,
1995 and 1994 -- Provision for Loan Losses."
82
<PAGE> 83
The following table sets forth an analysis of the Bank's allowance for loan
losses during the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1995 1994 1993 1992 1991
------------- ------------- ------------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period... $ 1,230 $ 909 $ 822 $ 1,133 $ 901
------------- ------------- ------------- ------------- ------------
Charge-offs:
One- to four-family............ (41) (80) (82) (290) --
Commercial and multi-family
real estate................. (424) -- (6) (705) (865)
Consumer....................... (3) -- (6) (42) (112)
Commercial business............ -- -- (200) -- (40)
------------- ------------- ------------- ------------- ------------
Total Charge-offs...... (468) (80) (294) (1,037) (1,017)
------------- ------------- ------------- ------------- ------------
Recoveries:
One- to four-family............ -- -- -- 38 --
Consumer....................... 6 10 23 15 40
Commercial business............ -- -- -- 11 24
------------- ------------- ------------- ------------- ------------
Total Recoveries....... 6 10 23 64 64
------------- ------------- ------------- ------------- ------------
Net charge-offs recoveries....... (462) (70) (271) (973) (953)
------------- ------------- ------------- ------------- ------------
Provision charged to
operations..................... 50 391 358 662 1,185
------------- ------------- ------------- ------------- ------------
Balance at end of period......... $ 818 $ 1,230 $ 909 $ 822 $1,133
========== ========== ========== ========== ==========
Ratio of net charge-offs
(recoveries) during the period
to average loans outstanding
during the period.............. .47% .07% .28% .90% .75%
========== ========== ========== ========== ==========
Ratio of net charge-offs
(recoveries) during the period
to average non-performing
assets......................... 16.04% 2.15% 5.58% 8.88% 8.66%
========== ========== ========== ========== ==========
Ratio of allowance for loan
losses to total loans.......... .82% 1.25% .97% .82% 1.04%
========== ========== ========== ========== ==========
</TABLE>
The distribution of the Bank's allowance for losses on loans at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------------------------------------------------------------------------- ------------------
1995 1994 1993 1992 1991
------------------ ------------------ ------------------ ------------------ ------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family...... $235 83.71% $ 223 78.95% $203 80.60% $ 77 81.42% $ 84 78.01%
Multi-family............. -- 1.03 -- .86 -- 1.35 -- 2.26 -- 1.90
Commercial real estate... 551 10.78 943 13.19 688 15.32 719 13.66 1,030 17.51
Construction or
development............ 24 3.26 56 5.66 14 1.46 7 .94 5 .51
Consumer................. 1 .52 1 .67 1 .90 1 1.06 4 1.23
Commercial business...... 7 .70 7 .67 3 .37 18 .66 10 .84
------ --------- ------- --------- ------ --------- ------ --------- ------ ---------
Total............ $818 100.00 $1,230 100.00% $909 100.00% $822 100.00% $1,133 100.00%
====== ======= ====== ======= ====== ======= ====== ======= ====== =======
</TABLE>
83
<PAGE> 84
INVESTMENT ACTIVITIES
The Bank must maintain minimum levels of investments that qualify as liquid
assets under OTS regulations. Liquidity may increase or decrease depending upon
the availability of funds and comparative yields on investments in relation to
the return on loans. Historically, the Bank has maintained liquid assets at
levels above the minimum requirements imposed by the OTS regulations and at
levels believed adequate to meet the requirements of normal operations,
including repayments of maturing debt and potential deposit outflows. Cash flow
projections are regularly reviewed and updated to assure that adequate liquidity
is maintained. At September 30, 1995, the Bank's liquidity ratio (liquid assets
as a percentage of net withdrawable savings deposits and current borrowings) was
18.22%. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly.
Generally, the investment policy of the Bank is to invest funds among
various categories of investments and maturities based upon the Bank's
asset/liability management policies, investment quality and marketability,
liquidity needs and performance objectives.
At September 30, 1995 and December 31, 1995, the Bank's interest-bearing
deposits with banks totaled $3.1 million, or 2.2% of total assets, respectively,
and its investment securities with a carrying value totaled $12.3 million, or
8.7% of total assets. As of such date, the Bank also had a $1.0 million
investment in Federal Home Loan Bank stock, satisfying its requirement for
membership in the FHLB of Atlanta. It is the Bank's general policy to purchase
investment securities which are U.S. Government securities and federal agency
obligations and other issues that are rated investment grade. At September 30,
1995, the average term to maturity or repricing of the investment securities
portfolio was 1.94 years. See also "-- Lending Activities" and "-- Mortgage
Backed Securities," and Note 3 of the Notes to the Consolidated Financial
Statements of FFE for additional information regarding the Bank's
mortgage-backed securities.
84
<PAGE> 85
The following table sets forth the composition of the Bank's investment
portfolio at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------------------------
1995 1994(2) 1993
------------------ ------------------ ------------------
AMORTIZED % OF AMORTIZED % OF AMORTIZED % OF
COST TOTAL COST TOTAL COST TOTAL
--------- ------ --------- ------ --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Investment Securities:
U.S. government securities.............. $11,492 85.09% $11,484 79.50% $10,499 59.71%
Federal agency obligations.............. 1,000 7.40 2,000 13.66 2,011 11.44
Mutual fund(1).......................... -- -- -- -- 4,143 23.56
------- ------ ------- ------ ------- ------
Subtotal........................ 12,492 92.49 13,484 93.16 16,653 94.71
FHLB stock................................ 1,013 7.51 942 6.84 930 5.29
------- ------ ------- ------ ------- ------
Total investment securities and
FHLB stock.................... $13,505 100.00% $14,426 100.00% $17,583 100.00%
======= ====== ======= ====== ======= ======
Weighted average remaining life of
investment securities................... 1.94 years 2.60 years 3.35 years
Other Interest-Earning Assets:
Interest-bearing deposits with banks.... $ 2,733 87.03% $ 2,037 90.49% $ 3,380 94.89%
Federal funds sold...................... 407 12.97 214 9.51 182 5.11
------- ------ ------- ------ ------- ------
Total Other Interest-Earning
Assets........................ $ 3,140 100.00% $ 2,251 100.00% $ 3,562 100.00%
======= ====== ======= ====== ======= ======
Weighted average remaining life or term to
repricing of investment securities and
other interest-earning assets excluding
FHLB stock.............................. 1.55 years 2.21 years 2.16 years
</TABLE>
- ---------------
(1) Represents investments in mutual funds which are invested in adjustable-rate
mortgages.
(2) Effective October 1, 1993, the Company adopted SFAS No. 115. See "Item 7.
Financial Statements -- Note 2 of the Notes to Consolidated Financial
Statements.
The composition and maturities of the investment securities portfolio,
excluding FHLB of Atlanta stock, are indicated in the following table as of the
date indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
-------------------------------------------------------------------
LESS THAN 1 TO 5 5 TO 10 OVER TOTAL INVESTMENT
1 YEAR YEARS YEARS 10 YEARS SECURITIES
--------- --------- --------- --------- -------------------
AMORTIZED AMORTIZED AMORTIZED AMORTIZED AMORTIZED MARKET
COST COST COST COST COST VALUE
--------- --------- --------- --------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. government securities............ $ 4,996 $ 6,496 $ -- $ -- $11,492 $11,340
Federal agency obligations............ -- 1,000 -- -- 1,000 978
------ ------ ------ ------ ------- -------
Total investment
securities................ $ 4,996 $ 7,496 $ -- $ -- $12,492 $12,318
====== ====== ====== ====== ======= =======
Weighted average yield................ 4.63% 5.12% --% --% 4.93%
</TABLE>
The Bank's investment securities portfolio at September 30, 1995, contained
neither tax-exempt securities nor securities of any issuer with an aggregate
book value in excess of 10% of the Bank's stockholders' equity, excluding
securities issued by the United States Government, or its agencies.
The Bank's investment securities portfolio is managed in accordance with a
written investment policy adopted by the Board of Directors. Investments may be
made by the Bank's officers within specified limits and must be approved in
advance by the Board of Directors for transactions over certain limits. At
September 30, 1995, the Bank held no investments for trading purposes, but did
hold $12.3 million in investment securities available for sale, which were
carried at market value. Effective October 1, 1993, FFE adopted the Financial
Accounting Standards Board's newly issued Statement of Financial Accounting
Standards No. 115 "Account-
85
<PAGE> 86
ing for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). See
Note 2 of the Notes to the Consolidated Financial Statements of FFE for a
discussion of SFAS No. 115 and its effect on FFE's accounting for investments
and mortgage-backed securities.
SOURCES OF FUNDS
General. The Bank's primary sources of funds are deposits, amortization
and prepayment of loan principal (including mortgage-backed securities), sales
or maturities of investment securities, mortgage-backed securities and
short-term investments, borrowings, and funds provided from operations.
Borrowings, predominantly from the FHLB of Atlanta, may be used on a
short-term basis to compensate for reductions in deposits or deposit inflows at
less than projected levels, and have been used in the past on a longer-term
basis to support lending activities. The Bank has had no borrowings other than
FHLB advances outstanding since 1990.
Deposits. The Bank offers a variety of deposit accounts having a wide
range of interest rates and terms. The Bank's deposits consist of passbook
accounts, NOW and non-interest-bearing checking accounts, and money market and
certificate accounts. The Bank relies primarily on advertising, competitive
pricing policies and customer service to attract and retain these deposits. The
Bank solicits deposits from its market area only, and does not use brokers to
obtain deposits.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. The variety of deposit accounts offered by the Bank has allowed it
to be competitive in obtaining funds and to respond with flexibility to changes
in consumer demand. The Bank has become more susceptible to short-term
fluctuations in deposit flows, as customers have become more interest rate
conscious. The Bank manages the pricing of its deposits in keeping with its
asset/liability management and profitability objectives. Based on its
experience, the Bank believes that its passbook, NOW and non-interest-bearing
checking accounts are relatively stable sources of deposits. However, the
ability of the Bank to attract and maintain certificates of deposit, and the
rates paid on these deposits, has been and will continue to be significantly
affected by market conditions.
The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by the Bank for the periods indicated.
<TABLE>
<CAPTION>
AT AT AT
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------- ------------------- -------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
TRANSACTIONS AND SAVINGS DEPOSITS:
Non-Interest Bearing Demand Deposits........... $ 3,288 2.72% $ 3,597 3.04% $ 3,679 3.13%
NOW Accounts (1.75%, 1.75% and 1.75%).......... 11,802 9.79 10,785 9.11 9,240 7.85
Money Market Checking (1.75%, 1.75%,
and 2.40%)................................... 867 .72 1,482 1.25 2,753 2.34
Money Market Plus (3.26%, 2.47%, and 2.40%)
Weighted Average Rate........................ 14,517 12.04 16,259 13.73 17,997 15.29
Passbook and Statement Savings (2.20, 2.20% and
2.00%)....................................... 9,032 7.49 10,569 8.92 12,795 10.87
-------- -------- -------- -------- -------- --------
Total Non-Certificates.................. 39,506 32.76 42,692 36.05 46,464 39.48
-------- -------- -------- -------- -------- --------
CERTIFICATES:
0.00-3.99%..................................... 142 .12 11,096 9.37 15,266 12.97
4.00-6.99%..................................... 80,923 67.12 64,637 54.58 50,015 42.51
7.00-8.99%..................................... -- -- -- -- 5,934 5.04
-------- -------- -------- -------- -------- --------
Total Certificates...................... 81,065 67.24 75,733 63.95 71,215 60.52
-------- -------- -------- -------- -------- --------
Total Deposits.......................... $120,571 100.00% $118,425 100.00% $117,679 100.00%
========= ======= ========= ======= ========= =======
</TABLE>
86
<PAGE> 87
The following table sets forth the savings flows at the Bank during the
periods indicated. Deposit flows at savings institutions may also be influenced
by external factors such as governmental credit policies and, particularly in
recent periods, depositors' perceptions of the adequacy of federal insurance of
accounts. The net decrease in deposits for the year ended September 30, 1993 was
primarily a result of the Bank's planned shrinkage to improve its capital ratios
and the then current level of market interest rates.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER SEPTEMBER SEPTEMBER
30, 30, 30,
1995 1994 1993
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Opening balance.......................................... $ 118,425 $ 117,679 $ 139,572
Deposits................................................. 256,253 268,007 279,079
Withdrawals.............................................. (257,866) (270,127) (304,380)
Interest credited........................................ 3,759 2,866 3,408
------------ ------------ ------------
Ending balance........................................... $ 120,571 $ 118,425 $ 117,679
========== ========== ==========
Net increase (decrease).................................. $ 2,146 $ 746 $ (21,893)
========== ========== ==========
Percent increase (decrease).............................. 1.81% .63% (15.69)%
========== ========== ==========
</TABLE>
The following table shows rate and maturity information for the Bank's
certificates of deposit as of September 30, 1995.
<TABLE>
<CAPTION>
0.00- 6.00- PERCENT
5.99% 7.99% TOTAL OF TOTAL
------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Certificate accounts maturing in quarter ending:
December 31, 1995....................................... $ 4,692 $ 17 $ 4,709 5.81%
March 31, 1996.......................................... 5,080 60 5,140 6.34
June 30, 1996........................................... 8,080 7,781 15,861 19.57
September 30, 1996...................................... 6,775 1,282 8,057 9.94
December 31, 1996....................................... 1,296 11,233 12,529 15.46
March 31, 1997.......................................... 66 5,698 5,764 7.11
June 30, 1997........................................... 1,402 6,895 8,297 10.23
September 30, 1997...................................... 2,164 3,302 5,466 6.74
December 31, 1997....................................... 2,153 2,745 4,898 6.04
March 31, 1998.......................................... 2,845 438 3,283 4.05
June 30, 1998........................................... 1,305 59 1,364 1.68
September 30, 1998...................................... 287 -- 287 .35
Thereafter.............................................. 2,011 3,399 5,410 6.68
------- ------- ------- --------
Total........................................... $38,156 $42,909 $81,065 100.00
======= ======= ======= =======
Percent of total................................ 47.09% 52.93% 100.00%
======= ======= =======
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit by time remaining until maturity as of September 30, 1995.
<TABLE>
<CAPTION>
MATURITY
OVER OVER ---------
3 MONTHS 3 TO 6 6 TO 12 OVER
OR LESS MONTHS MONTHS 12 MONTHS TOTAL
-------- ------ ------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000....... $4,407 $5,140 $22,490 $43,643 $75,680
Certificates of deposit of $100,000 or more...... 302 -- 1,428 3,655 5,385
-------- ------ ------- --------- -------
Total certificates of deposit.......... $4,709 $5,140 $23,918 $47,298 $81,065
======= ====== ======= ======== =======
</TABLE>
Borrowings. Although deposits are the Bank's primary source of funds, the
Bank's policy has been to utilize borrowings when they are a less costly source
of funds or can be invested at a positive rate of return.
87
<PAGE> 88
The only borrowings utilized by the Bank in recent periods have been
advances from the FHLB of Atlanta. The Bank may obtain advances from the FHLB of
Atlanta upon the security of its capital stock of the FHLB of Atlanta and
certain of its mortgage loans and mortgage-backed securities. Such advances may
be made pursuant to several different credit programs, each of which has its own
interest rate and range of maturities.
The following table sets forth the maximum month-end balance and average
balance of FHLB advances for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1993
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Maximum Balance:
FHLB advances...................................... $12,500 $ 4,000 $ 2,500
Average Balance:
FHLB advances...................................... $ 8,898 $ 527 $ 199
</TABLE>
The following table sets forth certain information as to the Bank's FHLB
advances at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1993
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
FHLB advances........................................ $ 9,000 $ -- $ --
Other borrowings..................................... -- -- --
------------- ------------- -------------
Total borrowings........................... $ 9,000 $ -- $ --
========== ========== ==========
Weighted average interest rate of
FHLB advances...................................... 7.57% --% --%
</TABLE>
Under a specific collateral agreement with the FHLB of Atlanta, the Bank is
required to collateralize its outstanding advances. At September 30, 1995, the
Bank had pledged first mortgage loans with an approximate principal balance of
$10.6 million, and mortgage-backed securities with an approximate principal
balance of $9.5 million and to secure its outstanding advances.
SUBSIDIARY AND OTHER ACTIVITIES
As a federally chartered savings bank, the Bank is permitted by OTS
regulations to invest up to 2% of its assets in the stock of, or unsecured loans
to, service corporation subsidiaries. The Bank may also make conforming loans,
in an amount up to 50% of its total capital, to service corporation subsidiaries
in which it owns at least 10% of the capital stock. The Bank may invest an
additional 1% of its assets in service corporations where such additional funds
are used for inner-city or community development purposes and may invest,
without limitation, in subsidiaries that are solely engaged in activities that
the Bank could directly engage.
The Bank had one wholly owned subsidiary, Gasparilla Service Corporation
("GSC"), which previously engaged in the development and sale of real estate.
GSC entered into a joint venture in 1982 for the purpose of developing 196
residential condominium units on property located in Charlotte County, Florida.
As of September 30, 1994, the Bank ceased operation of its service corporation
and has no investment in or loans to its service corporation. At December 31,
1995, there are 4 undeveloped building sites for 66 condominium units and the
joint venturer is no longer involved in the project. The building sites are
included as foreclosed assets of the Bank, and the Bank is attempting to sell
the undeveloped sites instead of completing the development. See "-- Asset
Quality -- Foreclosed Assets."
COMPETITION
The Bank faces strong competition, both in originating real estate and
other loans and in attracting deposits. Competition in originating real estate
loans comes primarily from other savings institutions,
88
<PAGE> 89
commercial banks, credit unions and mortgage bankers making loans secured by
real estate located in the Bank's market area.
The Bank attracts all of its deposits through its branch offices, primarily
from the communities in which those branch offices are located; therefore,
competition for those deposits is principally from other savings institutions,
commercial banks and investment brokers located in the same communities. There
was one thrift and six banks in the market area as of December 31, 1995. The
Bank competes for these deposits by offering a variety of deposit accounts at
competitive rates, convenient business hours, and convenient branch locations
with interbranch deposit and withdrawal privileges at each, plus access to the
"Honor" and "Presto" ATM network systems. The Bank estimates its share of the
savings market in its primary market area to be approximately 18.4% as of
December 31, 1995.
EMPLOYEES
At September 30, 1995, the Bank had a total of 36 full-time employees and 6
part-time employees. None of the Bank's employees are represented by any
collective bargaining group. Management considers its employee relations to be
good.
DESCRIPTION OF PROPERTY
The main office of FFE is located at 1200 South McCall Road, Englewood,
Florida.
The following table sets forth information relating to each of the Bank's
offices, all of which were owned by the Bank as of September 30, 1995. The total
net book value of the Bank's premises and equipment at September 30, 1995, was
$2.8 million.
<TABLE>
<CAPTION>
DATE NET BOOK VALUE AT
LOCATION ACQUIRED SEPTEMBER 30, 1995
- -------------------------------------------------------------------- -------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Main Office:
1200 South McCall Road............................................ 1969 $ 809
Englewood, Florida
Branch Offices:
686 N. Indiana Avenue............................................. 1984 479
Englewood, Florida
2691 Placida Road................................................. 1974 287
Grove City, Florida
Executive Office and Loan Operational Center:
1160 South McCall Road............................................ 1990 1,235
Englewood, Florida
</TABLE>
The Bank maintains depositor and borrower customer files on an on-line
basis with Fiserv, Inc., Tampa, Florida. The net book value of the data
processing and computer equipment utilized by the Bank at September 30, 1995 was
$9,614.
LEGAL PROCEEDINGS
FFE and the Bank are involved as plaintiff or defendant in various legal
actions arising in the normal course of business. While the ultimate outcome of
these proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with counsel representing FFE and the Bank in the
proceedings, that the resolution of these proceedings should not have a material
effect on the consolidated results of operations or financial condition of FFE
or the Bank.
89
<PAGE> 90
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Bank's net income is primarily dependent upon the difference (or
"spread") between the average yield earned on loans, mortgage-backed securities
and investments and the average rate paid on deposits and borrowings, as well as
the relative amounts of such assets and liabilities. The interest rate spread is
affected by regulatory, economic, and competitive factors that influence
interest rates, loan demand and deposit flows. The Bank, like other thrift
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 interest-earning assets.
The Bank's results of operations are also affected by, among other things,
provisions for loan losses, write-down of real estate owned, employee salaries
and benefits, occupancy costs, federal insurance premiums, marketing expenses
and other expenses.
In addition, the Bank's operating results are affected by customer service
charges. The Bank's operating results have also been historically affected by
gains or losses on the sales of investment and mortgage-backed securities and
other income.
The Bank's operating results in recent years have been adversely affected
by loss provisions on loans and real estate owned and losses on the sale of real
estate owned. Such provisions and losses on sales have resulted primarily from
commercial real estate loans and commercial real estate owned which have been
adversely affected by an uncertain real estate economic outlook which has
inhibited economic activity and depressed real estate values in national and
local markets.
FINANCIAL CONDITION DATA
At December 31, 1995, FFE had total assets of $139.4 million, a decrease of
$1.2 million from September 30, 1995. This decrease resulted primarily from the
decline in the principal balance of loans and mortgage-backed securities.
Deposits increased approximately $2.1 million as a result of FFE offering higher
rates on deposit accounts in order to remain competitive. Advances by borrowers
for taxes and insurance declined approximately $1,357,000 due to the normal
payment of property taxes on behalf of borrowers in November of 1995.
Stockholders' equity increased approximately $264,000 for the three months ended
December 31, 1995. This increase was a combination of FFE's net income of
$165,000 for the three months ended December 31, 1995 and an increase in
stockholders' equity due to a positive adjustment of investments
available-for-sale to fair value of approximately $93,000. In addition,
stockholders' equity was increased by approximately $6,000 as a result of the
amortization of unearned compensation in connection with the MRP. See Note 7 to
the condensed consolidated financial statements of FFE.
Beginning in 1989, management of the Bank took actions to restrict growth
and shrink the size of the institution. This planned shrinkage was undertaken to
assist the Bank in complying with regulatory capital ratios. Prior to the
formation of FFE, the Bank was not in compliance with its required capital
ratios. Substantially all of the proceeds of the initial public offering of the
FFE Common Stock were transferred to the capital of the Bank in order to bring
the Bank into compliance with the regulatory capital requirements.
ASSET QUALITY
In accordance with the Bank's internal classification of assets policy,
management evaluates the loan portfolio on a monthly basis to identify loss
potential and determine the adequacy of the allowance for
90
<PAGE> 91
estimated loan losses. The following table sets forth the amounts and categories
of the Bank's non-performing assets as of the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1995
------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Non-accruing loans:
One-to-four family............................................. $ 416 $ 561
Commercial real estate......................................... -- --
Consumer....................................................... -- --
------------ -------------
Total.................................................. 416 561
------------ -------------
Foreclosed assets:
One-to-four family............................................. 313 194
Multi-family................................................... -- --
Commercial real estate......................................... 1,272 1,276
------------ -------------
Total.................................................. 1,585 1,470
------------ -------------
Total non-performing assets............................ $2,001 $ 2,031
========== ==========
Total as a percentage of total assets.................. 1.43% 1.44%
========== ==========
</TABLE>
Non-Accruing Loans. Generally when a loan becomes delinquent 90 days or
more, the Bank will place the loan on a non-accrual status and, as a result,
accrued interest is taken out of income. Future interest income is recognized on
the cash basis. The loan will remain on a non-accrual status until the borrower
has brought the loan current.
Foreclosed Assets. As of December 31, 1995, the Bank had approximately
$1.5 million in carrying value of foreclosed assets. Only one of the foreclosed
assets exceeds $250,000 in carrying value. This property is improved land which
originally was part of a 196 unit condominium project to be developed by the
Bank's subsidiary (which subsidiary ceased operations on September 30, 1994) in
a joint venture. This land was to be the site of 66 condominium units, but
development of this phase of the project was never started. On September 30,
1991, this tract was transferred to the Bank as a foreclosed asset in
forgiveness of the debt of the subsidiary to the Bank. At December 31, 1995, the
property has a carrying value of approximately $878,000.
Other Loan of Concern. In addition to the non-performing assets set forth
in the table above, the Bank has one loan classified as special mention with a
principal balance of $213,612 at December 31, 1995. The loan originated on April
23, 1986 in the amount of $248,000 for the purpose of purchasing two small
retail properties. The original appraisal in February of 1986 valued the
properties at $331,000. The property was reappraised in January of 1995 for
$390,000. The loan is classified as special mention since the borrower has filed
for bankruptcy. The borrower is making payments, however the loan was 60 days
delinquent at December 31, 1995. The bankruptcy court has ordered that the
borrower not pay the 60 day delinquency until the bankruptcy proceedings are
complete.
Classified Assets. In connection with the filing of its periodic reports
with the OTS and in accordance with its classification of assets policy, the
Bank regularly reviews its portfolio to determine whether any loans require
classification in accordance with the applicable regulations. Classified assets
of the Bank at December 31, 1995, all of which are included in the table of
non-performing assets above or are described under the caption "Other Loan of
Concern" above, were as follows (in thousands):
<TABLE>
<S> <C>
Special Mention............................................................ $ 214
Substandard................................................................ 2,001
------
Total Classified Assets.......................................... $2,215
======
</TABLE>
Allowance For Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in its portfolio and changes in the nature and
91
<PAGE> 92
volume of its loan activity. Such evaluation which includes a review of all
loans of which full collectibility may not be reasonably assured, considers
among other matters, the estimated fair value of the underlying collateral,
economic conditions, historical loan loss experience and other factors that
warrant recognition in providing for an adequate loan loss allowance. Although
management believes that it uses the best information available to make such
determinations future adjustment to reserves may be necessary, and net income
could be significantly affected, if circumstances differ from the assumptions
used in making the initial determinations.
The distribution of the Bank's allowance for losses on loans at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995 AT SEPTEMBER 30, 1995
------------------------- -------------------------
PERCENT OF LOANS PERCENT OF LOANS
IN EACH CATEGORY IN EACH CATEGORY
AMOUNT TO TOTAL LOANS AMOUNT TO TOTAL LOANS
------ ---------------- ------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
One-to-four family...................... $208 85.80% $235 83.71%
Multi-family............................ -- 1.05% -- 1.03%
Commercial real estate.................. 569 10.88% 551 10.78%
Construction or development............. 10 1.10% 24 3.26%
Consumer................................ 1 .55% 1 .52%
Commercial business..................... 6 .62% 7 .70%
------ ---------------- ------ -------
Total......................... $794 100.00% $818 100.00%
====== ============ ====== ============
</TABLE>
The following table sets forth information with respect to activity in the
Bank's allowance for losses on loans during the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------
1995 1994
---- ------
<S> <C> <C>
Balance at beginning of period.......................................... $818 $1,230
---- ------
Charge-offs:
One-to-four family.................................................... (25) (12)
Consumer.............................................................. -- (3)
---- ------
Total Charge-offs............................................. (25) (15)
---- ------
Recoveries:
Consumer loans........................................................ 1 3
---- ------
Net (charge-offs) recoveries............................................ (24) (12)
Provision charged to operations......................................... -- --
---- ------
Balance at end of period................................................ $794 $1,218
==== ======
Ratio of net charge-offs during the period to average loans outstanding
during the period..................................................... .01% .01%
==== ======
Ratio of net charge-offs during the period to average non-performing
assets................................................................ 1.19% .33%
==== ======
Ratio of allowance for loan losses to total loans....................... .81% 1.25%
==== ======
</TABLE>
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
Results of Operations
FFE's results of operations are dependant on the operating results of its
main operating subsidiary, the Bank. The Bank's net income is primarily
dependent upon the difference (or "spread") between the average
92
<PAGE> 93
yield earned on loans, mortgage-backed securities and investments and the
average rate paid on deposits and borrowings, as well as the relative amounts of
such assets and liabilities.
General. The Bank had net income of approximately $165,000 for the three
months ended December 31, 1995 compared to net income of approximately $203,000
for the three months ended December 31, 1994. The decrease in net income was
primarily due to a decline in the Bank's net interest income of approximately
$26,000 and a decline in other income of approximately $20,000.
Net Interest Income. Net interest income decreased $26,000 from $947,000
for the three months ended December 31, 1994 compared to $921,000 for the
comparable period in 1995. Interest income increased $327,000 for the three
months ended December 31, 1995 compared to the three months ended December 30,
1994 primarily due to an increase in interest earning assets of $7.9 million and
an increase of 57 basis points in the average interest rate earned on interest
earning assets as the adjustable-rate portion of the Bank's loans and
mortgage-backed securities responded to changes in market interest rates and the
indices upon which they are priced. Interest expense increased $352,000 for the
three months ended December 31, 1995 compared to the three months ended December
31, 1994 primarily due to a $5.6 million increase in the average balance of
interest bearing liabilities and a 91 point basis increase in the average
interest rate paid on interest bearing liabilities.
Provision for loan losses. The Bank's had no provision for loan losses
during the three months ended December 31, 1995 and 1994. The Bank uses all
information available in determining its level of reserves for loan losses,
however, there can be no assurance that future losses will not exceed the
estimated amounts thereby adversely affecting future results of operations.
Provision for losses on real estate owned. The Bank's provision for losses
on real estate owned increased $8,000 during the three months ended December 31,
1995 as compared to the same period during 1994. The Bank uses all information
available in determining its level of reserves for loss on real estate owned,
however, there can be no assurance that future losses will not exceed the
reserves originally provided as properties held respond to changes in market
conditions.
Losses on sales of real estate owned. Losses on the sale of real estate
owned declined from a loss of approximately $6,000 during the three months ended
December 31, 1994 to a gain of $7,000 for the three months ended December 31,
1995. The reduced loss was the result of the marketability of the properties
sold during the three months ended December 31, 1995. The volume of sales of
real estate owned has declined and leveled off on a basis consistent with the
Bank's foreclosure activity and market conditions.
Other income. Other income declined $27,000 during the three months ended
December 31, 1995 as compared to the same period during 1994. The decrease was
primarily the result of miscellaneous non-operating recoveries of approximately
$36,000 which were received during the quarter ended December 31, 1994.
Other expenses. Employee compensation and benefits declined approximately
$9,000 for the three months ended December 31, 1995 as compared to the same
period ended in 1994. Compensation and benefits have been controlled through a
decline in the number of personnel which was partially offset by increases in
rates made to salaries of remaining employees. Occupancy and equipment expense
remained constant at $160,000 for the three months ended December 31, 1995 as
compared to the same period in 1994. Deposit insurance premium also remained
constant at approximately $79,000 for the three months ended December 31, 1995
as compared to the three months ended December 31, 1994. Examination and
professional fees increased approximately $6,000 for the three months ended
December 31, 1995 as compared to the same period in 1994. Real estate owned
operating expense increased approximately $22,000 for the three months ended
December 31, 1995 as compared to the three months ended December 31, 1994. Such
increase is attributable to the nature and the number of the properties held.
Other expenses increased approximately $2,000 for the three months ended
December 31, 1995 as compared to the three months ended December 31, 1994.
Average Balances, Interest Rates and Yields. The following table presents
for the periods indicated the Bank's total dollar amount of interest income from
average interest earning assets and the resultant yields, as
93
<PAGE> 94
well as the interest expense on average interest-bearing liabilities, expressed
in both dollars and rates, and the net interest margin. No tax equivalent
adjustments were made. All average balances are monthly average balances and
include the balances of non-accruing loans.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------- -------------------------------
AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
----------- -------- ------ ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest-Earning Assets:
Loans receivable........................... $ 97,033 $1,961 8.08% $ 93,110 $1,734 7.45%
Mortgage-backed securities................. 19,079 334 7.00% 15,703 233 5.94%
Investment securities and other
interest-earnings assets................. 16,906 221 5.23% 16,362 224 5.48%
FHLB stock................................. 1,013 19 7.50% 942 17 7.22%
----------- -------- ------ ----------- -------- ------
Total interest-earning assets....... $ 134,031 2,535 7.57% $ 126,117 2,208 7.00%
============ ============
-------- ------ -------- ------
Interest-Bearing Liabilities:
Deposits................................... $ 121,935 $1,456 4.78% $ 119,852 1,168 3.90%
FHLB advances.............................. 8,333 158 7.58% 4,817 93 7.72%
----------- -------- ------ ----------- -------- ------
Total interest-bearing liabilities........... $ 130,268 1,614 4.96% $ 124,669 1,261 4.05%
============ ============
-------- ------ -------- ------
Net Interest Income.......................... $ 921 $ 947
======= =======
Net Interest Rate Spread..................... 2.61% 2.95%
======= =======
Net Earning Assets........................... $ 3,763 $ 1,448
============ ============
Net Yield on Average Interest-Earning
Assets..................................... 2.75% 3.00%
======= =======
Average Interest-Earning Assets to Average
Interest-Bearing Liabilities............... 1.02x 1.01x
======= =======
</TABLE>
ASSET/LIABILITY MANAGEMENT
The Bank, like other thrift institutions, is subject to interest rate risk
to the extent that its interest-bearing liabilities with short and medium terms
mature or reprice more rapidly, or on a different basis, than its interest
earning assets, a significant portion of which consist of long-term fixed rate
loans. As a continuing part of its strategy, the Bank considers methods of
managing this asset/liability mismatch, consistent with maintaining acceptable
levels of net interest income. During periods of changing rates, if the rates on
the Bank's deposits rise more quickly than its rates on loans, or if rates on
loans fall more quickly than its rates on deposits, the Bank's earnings may be
adversely affected. The Bank, however, has sought to control the historic gap
between the long terms to maturity or repricing on its interest-earning assets
and the short terms on its interest-bearing liabilities, while continuing to
satisfy its interest rate spread objectives, by engaging in the following
asset/liability management strategies:
- Adjustable Rate Mortgage Loans -- In an attempt to hedge against
interest rate fluctuations, the Bank began originating adjustable rate
mortgage loans in 1983. ARM's reprice to the terms of the market (subject
to the time periods, floors and caps contained in the instruments) and as
of December 31, 1995 comprise approximately $80.5 million of the
Association's portfolio or 82.8%. The Bank currently uses two indices to
price its ARM's which are both based on the Treasury Bill rate.
- Saleable Loan Products -- All loan originations, both adjustable and
fixed rate products, are underwritten to FHLMC standards so that
originations can be readily converted to cash through sales as the need
arises.
- Deposit Composition -- The Bank has adopted a cost effective pricing
strategy which emphasizes short-term low cost deposits. In addition, the
Bank actively promotes what it considers to be its core deposits of
passbook, demand deposit, non-interest bearing checking, money market and
NOW accounts.
94
<PAGE> 95
Such deposits tend to generate long-term banking relationships with
customers and historically have not been rate driven accounts.
Each of the above steps, and the Bank's progress in controlling its
exposure to interest rate risk while satisfying its interest rate spread
objectives, is regularly reviewed by management. The GAP between the Bank's
assets which mature or reprice within one year and its liabilities which mature
or reprice during the same period was a negative $1,773,000 or 1.27% of total
assets at December 31, 1995. During periods of falling interest rates, a
negative GAP would tend to result in a increase in net interest income and
during periods of rising interest rates a negative GAP would tend to result in
decreasing net interest income.
The table below sets forth certain information relating to the repricing of
the Bank's interest-earning assets, interest-bearing liabilities and the
resulting interest rate sensitivity GAP. The interest rate sensitivity GAP is
defined as the amount by which assets repricing within the respective periods
exceed liabilities repricing within such periods. One-to-four family fixed-rate
mortgage loans are assumed to prepay at an annual rate of 18%. Adjustable rate
loans are shown based on their repricing dates. Passbook accounts are assumed to
be withdrawn at annual rates of 16%, 26%, 17% and 41%, respectively, during the
periods shown. Money market deposit accounts are assumed to decay at the annual
rates of 63%, 19%, 7% and 11%, respectively, in each of the periods shown.
The effect of these assumptions is to quantify the dollar amount of items
that are interest-sensitive and can be repriced within each of the periods
specified. Such repricing can occur in one of three ways: (1) the rate of
interest to be paid on an asset or liability may adjust periodically on the
basis of an index; (2) an asset or liability such as a mortgage may amortize,
permitting reinvestment of cash flows at the then prevailing interest rates; or
(3) an asset or liability may mature, at which time the proceeds can be
reinvested at current market rates.
The following table sets forth the interest rate sensitivity of the Bank's
assets and liabilities at December 31, 1995, on the basis of factors set forth
above.
<TABLE>
<CAPTION>
ONE YEAR OVER 1-3 OVER 3-5 OVER 5
OR LESS YEARS YEARS YEARS TOTAL
-------- -------- -------- ------- --------
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
-------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fixed rate one-to-four family (including
mortgage-backed securities), commercial
real estate and construction loans......... $ 5,588 $ 11,176 $ 11,176 $ 3,103 $ 31,043
Adjustable rate one-to-four family (including
mortgage-backed securities), commercial
real estate and construction loans......... 67,571 7,806 8,251 103 83,731
Commercial business loans.................... 579 -- 22 -- 601
Consumer loans............................... 426 64 43 -- 533
Investment securities and other.............. 9,776 4,483 2,994 -- 17,253
-------- -------- -------- ------- --------
Total interest-earning assets...... 83,940 23,529 22,486 3,206 133,161
-------- -------- -------- ------- --------
Savings deposits............................. 1,414 2,360 1,540 3,693 9,007
Demand and now deposits...................... 20,618 6,215 2,136 3,399 32,368
Certificates................................. 59,931 16,127 5,246 -- 81,304
FHLB advances................................ 3,750 3,250 -- -- 7,000
-------- -------- -------- ------- --------
Total interest-earning
liabilities...................... 85,713 27,952 8,922 7,092 129,679
-------- -------- -------- ------- --------
Interest-earning assets less interest-bearing
liabilities................................ $(1,773 ) $ (4,423) $ 13,564 $(3,886) $ 3,482
======= ======= ======= ======= ========
Cumulative interest rate sensitivity GAP..... $(1,773 ) $ (6,196) $ 7,368 $ 3,482
======= ======= ======= =======
Cumulative interest rate GAP as a percentage
of total assets at December 31, 1995....... (1.27 )% (4.44)% 5.28% 2.50%
======= ======= ======= =======
</TABLE>
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Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as "ARM" loans, have features
which restrict changes in interest rates on a short term basis and over the life
of the asset. Further, in the event of a change in interest rates, prepayment
and early withdrawal levels would likely deviate significantly from those
assumed in calculating the table. Finally, the ability of many borrowers to
service their debt may decrease in the event of an interest rate increase.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required under applicable federal regulations to maintain
specified levels of liquid investments in qualifying types of U.S. Government
securities, federal agency securities, and other investments. Regulations
currently in effect require the Bank to maintain liquid assets of not less than
5% of its average daily balance of its net withdrawable accounts plus short-term
borrowings during the preceding calendar month; short-term liquid assets must
consist of not less than 1% of that amount. The Bank has consistently exceeded
these requirements. The Bank's liquidity ratio was 19.17% at December 31, 1995.
The Bank's primary sources of cash are proceeds from the sales of loans and
mortgage-backed securities, payments of loan principal (including
mortgage-backed securities), maturity and sale of investment securities, and
operations. The Bank uses these sources of cash primarily to meet ongoing
commitments to fund maturing savings certificates, savings withdrawals and
existing loan commitments, and to maintain its liquidity. In addition, the Bank
also uses FHLB advances as a source of funds when such advances can be invested
in instruments that provide yields which are consistent with the Bank's interest
rate spread objectives.
Federally Insured savings institutions, such as the Bank, are required to
maintain a minimum level of regulatory capital. FIRREA and FDICIA have
significantly affected savings institutions in several ways. Adverse effects
include higher deposit insurance premiums, more stringent capital requirements,
more stringent investment limitations and restrictions, and the possible
reduction of future dividend payments on Federal Home Loan Bank stock owned by
savings institutions. In addition, the legislation enhances federal regulatory
enforcement powers.
FIRREA requires institutions not meeting all of the capital standards to
submit to the OTS a capital plan outlining the institutions' plans for attaining
the required levels of regulatory capital. Failure to obtain approval of its
capital plan or to maintain compliance with an approved capital plan could
result in the OTS limiting an institution's asset growth and imposing other
sanctions and enforcement actions, including regulatory takeover of the
institution. An institution not in compliance with FIRREA's capital standards or
its capital plan also will be subject to more severe asset growth limitations.
Regulations implementing the prompt corrective action provisions of FDICIA
became effective on December 19, 1992. These prompt corrective action
regulations define specific capital categories based on an institution's capital
ratios. The capital categories, in declining order, are "well capitalized,"
"adequately capitalized," "under capitalized," and "critically
undercapitalized." Institutions categorized as "undercapitalized" or worse are
subject to certain restrictions, including the requirement to file a capital
plan with the OTS, prohibitions on the payment of dividends and management fees,
restrictions on executive compensation, and increased supervisory monitoring.
Other restrictions may be imposed on the institution by the Federal Deposit
Insurance Corporation, including the requirements to raise capital, to sell
assets, or to sell the entire institution. Once an institution becomes
"critically undercapitalized," it must generally be placed in receivership or
conservatorship within 90 days.
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<PAGE> 97
As of December 31, 1995, regulatory requirements are to maintain a tangible
capital ratio of 1.5%, a leverage capital ratio of 3%, and a risk-based capital
ratio of 8%. The following table summarizes the Bank's compliance with current
capital requirements at December 31, 1995:
<TABLE>
<CAPTION>
EXCESS OF
REQUIRED ACTUAL REQUIRED ACTUAL REQUIRED
% % AMOUNT AMOUNT MINIMUM
-------- ------ -------- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Tangible capital............................. 1.5% 6.3% $2,094 $8,839 $ 6,745
Core capital................................. 3.0% 6.3% 4,188 8,839 4,651
Core/leverage capital........................ 4.0% 6.3% 5,584 8,839 3,255
Tier 1 risk-based capital.................... 4.0% 13.9% 2,546 8,839 6,293
Total risk-based capital........... 8.0% 15.0% 5,091 9,579 4,488
</TABLE>
The following table summarizes the capital thresholds for each prompt
corrective action capital categories. An institution's capital category is based
on whether it meets the threshold for all three capital ratios within the
category.
<TABLE>
<CAPTION>
TIER 1 TOTAL
LEVERAGE RISK-BASED RISK-BASED
CATEGORIES RATIO RATIO RATIO
- -------------------------------------------------- -------------- -------------- ---------------
<S> <C> <C> <C>
"Well capitalized"................................ 5% or higher 6% or higher 10% or higher
"Adequately capitalized".......................... 4% or higher 4% or higher 8% or higher
"Under capitalized"............................... less than 4% less than 4% less than 8%
"Significantly under capitalized"................. less than 3% less than 3% less than 6%
"Critically under capitalized"................... An institution is considered "critically under
capitalized" if its ratio of tangible equity to
total assets is 2% or less
</TABLE>
As of December 31, 1995, the Bank was in compliance with all current
requirements and was classified as a "well capitalized" institution.
EFFECT OF NEW ACCOUNTING STANDARDS
The FASB has issued Statement of Financial Accounting Standard No. 122,
"Accounting for Mortgage Servicing Rights" ("SFAS No. 122"), which becomes
effective for years beginning after December 15, 1995. SFAS No. 122 amends FASB
Statement No. 65, "Accounting for Certain Mortgage Banking Activities," to
require that a mortgage banking enterprise recognize as separate assets rights
to service mortgage loans for others, however those rights are acquired. A
mortgage banking enterprise that acquires mortgage servicing rights through
either the purchase or organization of mortgage loans and sells or securitizes
those loans with servicing rights retained should allocate the total cost of the
mortgage loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values. If it is not
practicable to estimate the fair values separately, the entire cost of
purchasing or originating the loans should be allocated to the mortgage loans
(without the servicing rights) and no cost should be allocated to the mortgage
servicing rights. SFAS No. 122 also requires that a mortgage banking enterprise
assess its capitalized mortgage servicing rights for impairment based on the
fair value of those rights. Management does not believe that this statement will
have a material impact on its consolidated results of operations.
FINANCIAL ACCOUNTING STANDARDS NO. 114 AND 118
Effective October 1, 1995, FFE adopted Statement of Financial Accounting
Standards No. 114 (FAS 114), "Accounting by Creditors for Impairment of a Loan,"
and Statement of Financial Accounting Standards No. 118 (FAS 118), "Accounting
by Creditors for Impairment of a Loan -- Income Recognition and Disclosures."
These statements require creditors account for impaired loans, except for those
loans that are accounted for at fair value or at the lower of cost or fair
value, at the present value of the expected future cash flows discounted at the
loan's effective interest rate. A loan is impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all principal and interest amounts
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<PAGE> 98
due according to the contractual terms of the loan agreement. FFE's adoption of
these accounting standards did not have a material effect on the operations or
financial condition of FFE.
RESULTS OF OPERATIONS
The Bank's net income is primarily dependent upon the difference (or
"spread") between the average yield earned on loans, mortgage-backed securities
and investments and the average rate paid on deposits and borrowings, as well as
the relative amounts of such assets and liabilities. The interest rate spread is
affected by regulatory, economic, and competitive factors that influence
interest rates, loan demand and deposit flows. The Company and the Bank, like
other thrift institutions and their holding companies, are subject to interest
rate risk to the degree that their interest-bearing liabilities mature or
reprice at different times, or on a different basis than interest-earning
assets.
The Bank's interest expense has been a product of the interest paid on
deposits and borrowed funds. The Bank emphasizes and promotes its passbook,
demand deposit, money market and NOW accounts in its market area.
The Bank's results of operations are also affected by, among other things,
provisions for loan losses, write downs of real estate owned, employee salaries
and benefits, occupancy costs, federal insurance premiums, marketing expenses
and other expenses.
In addition, the Bank's operating results are affected by customer service
charges and other income. The Bank's operating results have been affected by
gains or losses on the sale of investment securities and mortgage-backed
securities.
The Bank's operating results in recent years have been adversely affected
by loss provisions on loans, write-downs of real estate owned, and losses on the
sales of real estate owned. Such provisions, write-downs and losses on sales
have resulted primarily from commercial real estate loans and commercial real
estate owned which have been adversely affected by an uncertain national real
estate economic outlook which has inhibited economic activity and depressed real
estate values in national and local markets.
The results of operations have also been adversely impacted by losses on a
real estate venture conducted through the Bank's wholly owned subsidiary,
Gasparilla Service Corporation. As of September 30, 1994, Gasparilla Service
Corporation ceased operations and has no remaining assets or liabilities,
accordingly, no additional losses are anticipated.
The Bank's results of operations, prior to its conversion to stock form,
were influenced by the Bank's failure to meet its regulatory capital
requirements which resulted in the Bank entering into a supervisory agreement
with the OTS effective as of October 31, 1990. In addition, a capital plan was
filed in June of 1990 with the OTS, which detailed the Bank's strategies to
achieve capital compliance. The supervisory agreement required the Bank to
reduce its asset base, refrain from deposit growth and restrict certain types of
lending.
On August 26, 1993, the Bank completed a conversion from a Federal mutual
savings and loan to a Federal stock savings bank pursuant to its plan of
conversion adopted on May 27, 1993. All stock of the Bank was issued to the
Company, the holding company formed in connection with the conversion.
Substantially all of the proceeds from the stock offering were transferred to
the capital of the Bank in order to bring the Bank into compliance with the
regulatory capital requirements. As a result of the compliance with regulatory
capital requirements, the capital plan and supervisory agreement were lifted on
October 1, 1993. Management of the Bank does not expect any material change in
the operations of the Bank as a result of the lifting of the capital plan and
the supervisory agreement.
COMPARISON OF YEARS ENDED SEPTEMBER 30, 1995 AND 1994
General. The Bank had net income of $848,000 for the year ended September
30, 1994 compared to a net loss of $175,000 for the year ended September 30,
1994. As discussed in more detail below, results of operations for the year
ended September 30, 1995 were negatively impacted by a decline in net interest
income of $416,000. This decline was offset by a favorable decline in the
provision for loan losses of $341,000. In
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<PAGE> 99
addition, the results of operations for the year ended September 30, 1994 were
adversely impacted by a provision for loss on litigation of $685,000.
Net Interest Income. Net interest income decreased $416,000 from
$4,189,000 for the year ended September 30, 1994 compared to $3,773,000 for the
year ended September 30, 1995. Such decline was primarily attributed to interest
income increasing at a slower rate than the increase in interest expense. The
slower rise in interest income was due to the Bank's use of lagging market
indexed adjustable rate mortgage products. The average balances of
interest-earning assets increased by $10.3 million due to an increase in the
average balance of mortgage-backed securities of $8.4 million resulting from the
purchase of $9.8 million of 8.5% fixed rate mortgage-backed securities and an
increase in loans of $6.7 million due to a purchase of a 95% participation
interest totalling $3.4 million in 58 loans which were partially offset by the
decrease in the average balance of investment securities and other
interest-bearing assets of $4.9 million resulting from the sale of mutual funds.
The average balances of interest bearing liabilities also increased $10.5
million. The average balance of FHLB advances increased $8.4 million to fund the
increase in assets. The average balance of deposits also increased $2.1 due to
the general increase in market rates. Interest income increased $1,208,000 for
the year ended September 30, 1995 compared to the year ended September 30, 1994
primarily due to a $6.7 million increase in the average balance of loans and a
$8.4 million increase in the average balance of mortgage-backed securities. In
addition, interest income was positively impacted by an 11 basis point increase
in the average interest rate earned on loans as the adjustable-rate portfolio of
the Bank began to respond to increases in market interest rates. Interest
expense increased $1,624,000 for the year ended September 30, 1995. Interest on
savings increased $984,000 and interest on advances from the FHLB increased
$640,000 for the year ended September 30, 1995. These increases were due to the
increase in the average cost of deposits and to increased average advance
balances outstanding during the year ended September 30, 1995. The weighted
average rate paid on interest-bearing liabilities increased from 3.65% for the
year ended September 30, 1994 to 4.90% for the year ended September 30, 1995.
The principal reason for the increase in the average balance of advances
outstanding was the Bank invested $9.0 million of advances in mortgage-backed
securities yielding 8.5%. This decision also impacted the Bank's weighted
average rate paid on interest-bearing liabilities.
Provision for Loan Losses. The Bank's provision for loan losses decreased
$341,000 during the year ended September 30, 1995 as compared to fiscal 1994.
This decline was due to a reduction in non-performing assets from approximately
$3,730,000 at September 30, 1994 to $2,031,000 at September 30, 1995. The
decline in non-performing assets diminished the need for large additions to the
provision for loan losses during fiscal 1995. The provision for loan losses for
fiscal 1994 was adversely impacted by a provision of approximately $424,000
which was made for a loan collateralized by a business rental property located
in Venice, Florida which was in receivership and foreclosure during fiscal 1994.
This loan was foreclosed upon and the related property was sold during the year
ended September 30, 1995.
The allowance for loan losses reflects what the Bank believes is an
adequate level of reserves under its circumstances, although there can be no
assurance that future losses will not exceed the estimated amounts thereby
adversely affecting future results of operations.
Provision for Losses on Real Estate Owned. The Bank's provision for losses
on real estate owned decreased $470,000 during the year ended September 30, 1995
as compared to fiscal 1994. This decline was due to a decline in real estate
owned of approximately $445,000 from September 30, 1994 to September 30, 1995.
In addition, the provision for fiscal 1994 was adversely impacted by a provision
of approximately $502,000 which was provided on a piece of real estate owned
which was formally part of a project to be developed by the Bank's subsidiary.
This provision was made based on a reappraisal of the property which was
received during the year ended September 30, 1994. Management periodically
obtains reappraisals on properties which are held for extended periods of time.
Gains On Sales of Real Estate Owned. Gains on the sale of real estate
owned increased $34,000 during the year ended September 30, 1995 as compared to
fiscal 1994. The increase was primarily affected by the number and marketability
of the properties available in the Bank's portfolio of real estate owned.
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<PAGE> 100
Provision for Loss on Litigation. As more fully discussed in Note 11 of
the Notes to the Consolidated Financial Statements of FFE, the Bank settled a
lawsuit during the year ended September 30, 1994 which reduced net income by
$685,000. No such litigation loss was experienced during the year ended
September 30, 1995.
Other Income. Other income increased $14,000 during the year ended
September 30, 1995 as compared to the year ended September 30, 1994. This
increase was primarily the result of a decline in gain on the sale of
available-for-sale assets (loans and investment securities) of approximately
$303,000 which was offset by an increase in other miscellaneous income of
approximately $300,000. The decline in gain on sale of available-for-sale assets
in fiscal 1995 was the result of no such assets being sold during fiscal 1995.
The increase in other miscellaneous income was the result of a $44,000 gain on
the sale of stock of a former data processing service bureau, a $56,000 gain
which was recognized when the Bank received an adequate down payment relating to
a previous sale of real estate owned on which the profit (and interest on the
loan to facilitate) was previously deferred, a $78,000 recovery from the State
of Florida relating to environmental cleanup costs on a former parcel of real
estate owned, and other miscellaneous non-operating recoveries of approximately
$104,000. In addition, other income was negatively impacted by a decrease in
customer service charges of $22,000 which occurred as result of a decline in the
Bank's checking transactional accounts.
Other Expenses. The Bank's employee compensation and benefits decreased
$21,000 for the year ended September 30, 1995 as compared to the year ended
September 30, 1994. Compensation and benefits costs have been controlled through
a decline in the number of personnel which was partially offset by increases in
salaries paid to remaining employees. Occupancy and equipment expenses declined
from $743,000 to $694,000 for the year ended September 30, 1995 as compared to
the year ended September 30, 1994. The decline in occupancy and equipment
expense relates to portions of the Bank's property and equipment becoming fully
depreciated and accordingly, no longer impacting operations through depreciation
expense. Occupancy and equipment expense, other than depreciation, has been
maintained at a consistent level since the Bank ceased its planned program of
shrinkage in fiscal 1994. Advertising and promotion expense decreased
approximately $26,000 for the year ended September 30, 1995 since portions of
fiscal 1994 included an expanded advertising program relating to the Bank's name
change as a result of the Conversion. Deposit insurance premiums declined
approximately $39,000 for the year ended September 30, 1995 as compared to the
year ended September 30, 1994 due to an improvement in the Bank's rating
category which reduced premiums. Examination and professional fees decreased
$208,000 for the year ended September 30, 1995 as compared to the same period
ended September 30, 1994. Examination fees declined approximately $113,000 as a
result of a continued decline in the level of real estate owned and
non-performing loans which directly impacted the level of examination fees. In
addition, certain legal fees declined approximately $49,000 as a result of the
Bank entering into a settlement agreement in connection with litigation which
arose out of the construction of a condominium project by the Bank's former
subsidiary. See Note 11 of the Notes to the Consolidated Financial Statements of
FFE. The settlement agreement allowed the Bank to reduce the amount of
attorney's fees which were being incurred to defend itself in such litigation.
Real estate owned operating expense declined $20,000 for the year ended
September 30, 1995 as compared to 1994 as a result of a decline in the overall
level of real estate owned. Other miscellaneous expenses decreased $52,000 for
the year ended September 30, 1995 as compared to the year ended September 30,
1994 primarily due to reduced expenses and losses from the Bank's service
corporation which was scaling down its operations in 1994 (and ceasing
operations on September 30, 1994).
The deposits of savings associations such as the Bank are presently insured
by the Savings Association Insurance Fund, which, along with the Bank Insurance
Fund (the "BIF"), is one of the two insurance funds administered by the FDIC.
Financial institutions which are members of the BIF are experiencing
substantially lower deposit insurance premiums because the BIF has achieved its
required level of reserves while the SAIF has not yet achieved its required
reserves. A recapitalization plan for the SAIF under consideration by Congress
provides for a special assessment of 0.80% to 0.90% of deposits to be imposed on
all SAIF insured institutions to enable the SAIF to achieve its required level
of reserves. If the proposed assessment of 0.80% to 0.90% was effected based on
deposits as of March 31, 1995 (as proposed), the Bank's special assessment would
amount to approximately $644,000 to $724,000, before taxes, respectively.
Accordingly, this special
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<PAGE> 101
assessment would significantly increase non-interest expense and adversely
effect the Bank's results of operations. Conversely, depending upon the Bank's
capital level and supervisory rating, and assuming the insurance premium levels
for BIF and SAIF members are again equalized, future deposit insurance premiums
are expected to decrease significantly, to as low as .04% from the .23% of
deposits currently paid by the Bank, which would reduce non-interest expense for
future periods.
COMPARISON OF YEAR ENDED SEPTEMBER 30, 1994 AND 1993
General. The Bank had a net loss of $175,000 for the year ended September
30, 1994 compared to net income of $583,000 for the year ended September 30,
1993. As discussed in more detail below, results of operations for the year
ended September 30, 1994 were negatively impacted by a decline in net interest
income of $406,000, an increase in the provision for loan losses of
approximately $33,000, a decline in the gain on sales of office property and
equipment of $189,000, and a provision for litigation loss in 1994 of $685,000.
Net Interest Income. Net interest income decreased $406,000 from
$4,595,000 for the year ended September 30, 1993 compared to $4,189,000 for the
comparable period in 1994. Interest income decreased $1,310,000 for the year
ended September 30, 1994 compared to the year ended September 30, 1993 primarily
due to a $7.3 million decrease in the average balance of loans and a $4.0
million increase in mortgage-backed securities and an 81 basis point decrease in
the average interest rate earned on loans as the adjustable-rate portfolio of
the Bank responded to decreases in market interest rates. Interest expense
decreased $903,000 for the year ended September 30, 1994 compared to the year
ended September 30, 1993 primarily due to a $8.9 million decrease in the average
balance of deposits and a 46 basis point decrease in the average rate paid on
deposits caused by decreases in market interest rates.
The reduction in market interest rates, combined with management's decision
to, at times, pay rates which were at the lower end of the competitive scale,
has resulted in decreases in the Bank's level of deposits since 1989. In
addition, management has also emphasized money market, passbook and NOW accounts
as opposed to trying to attract long-term certificates of deposit. The decrease
in deposits has been consistent with and required by the Bank's determination to
shrink its asset size. See "Business Strategy." Management believes that
customers continue to place a value on federal insurance on deposit accounts and
that, to the extent the Bank pays competitive rates on deposits, it will be able
to maintain its deposit levels and liquidity.
Provision for loan losses. The Bank's provision for loan losses increased
$33,000 during the year ended September 30, 1994 as compared to fiscal 1993.
This increase was due to a provision of approximately $424,000 made on a loan
collateralized by a business rental property located in Venice, Florida which is
in receivership and foreclosure. The allowance for loan losses reflects what the
Bank believes was an adequate level of reserves under its circumstances,
although there can be no assurance that future losses will not exceed the
estimated amounts thereby adversely affecting future results of operations.
Provisions for losses on real estate owned. The Bank's provision for
losses on real estate owned increased $15,000 during the year ended September
30, 1994 as compared to fiscal 1993. The increase was the result of a provision
of approximately $502,000 made on a piece of real estate owned which was
formerly part of a project to be developed by the Bank's subsidiary. This
provision was made based on a reappraisal of the property which was received
during the year ended September 30, 1994. Management periodically obtains
reappraisals on properties which are held for extended periods of time. Without
the provision of $502,000 discussed above, the provision for losses on real
estate owned would have declined substantially which is consistent with the
overall reduction in real estate owned.
Losses on sales of real estate owned. Losses on the sale of real estate
owned decreased $140,000 during the year ended September 30, 1994 as compared to
the same period during 1993. The decease was the result of a decrease in the
level of real estate owned, due to management's efforts to reduce non-performing
assets.
Provision for loss on litigation. As more fully discussed in Note 11 of
the Notes to the Consolidated Financial Statements of FFE, the Bank and its
subsidiary settled a lawsuit during the year ended September 30, 1994 which
reduced net income by $685,000.
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<PAGE> 102
Other income. Other income declined $182,000 during the year ended
September 30, 1994 as compared to the same period ended September 30, 1993. The
decrease was primarily the result of a non-recurring gain of $195,000 during the
year ended September 30, 1993 from the Bank's sale of a former branch location.
In addition, other income was positively impacted by an increase in customer
service charges of $23,000 which occurred as a result of an expanded marketing
program for demand deposit accounts and an increase in the Bank's fee schedule.
Other income was also negatively impacted by a decrease in other miscellaneous
income of $5,000 for the year ended September 30, 1994 as compared to the year
ended September 30, 1993. The decrease in other miscellaneous income was
primarily due to sales of loans which resulted in losses of $64,000 during the
year ended September 30, 1994 as compared to gains of $56,000 during the year
ended September 30, 1993. The losses on loan sales were the result of less
favorable market rates which adversely affected loans held for sale. The losses
from loan sales were partially offset by the reversal of a reserve in the amount
of $50,000 for potential environmental cleanup costs for a parcel of former real
estate owned. This reserve (which was established in 1992) was reversed after
the Bank was notified by the State of Florida that the cost of the cleanup would
be paid for by the State.
Other expenses. The Bank's employee compensation and benefits increased
$261,000 for the year ended September 30, 1994 as compared to the year ended
September 30, 1993. Such increase was primarily due to a credit adjustment of
$153,000 which was realized during the year ended September 30, 1993 relating to
health insurance. This credit was realized on the Bank's self-insured portion of
the health plan when the Bank changed its insurance carrier. In addition, the
Bank experienced increased costs in 1994 for group insurance and the
amortization of the deferred compensation relating to the MRP. Occupancy and
equipment expenses declined from $840,000 to $743,000 for the year ended
September 30, 1994 as compared to the year ended September 30, 1993. Such
decline is primarily due to a renegotiation of the Bank's contract for data
processing services. Advertising and promotion expense increased approximately
$21,000 for the year ended September 30, 1994 as a result of expanded
advertising relating to the Bank's name change as well as additional promotion
of deposit programs. Deposit insurance premiums declined approximately $40,000
for the year ended September 30, 1994 as compared to the year ended September
30, 1993 due to an improvement in the Bank's rating category which reduced
premiums. Examination and professional fees increased $39,000 for the year ended
September 30, 1994 as compared to the same period ended September 30, 1993 since
the costs incurred in the 1994 period were at increased levels as a result of
examination and legal fees associated with a publicly owned holding company.
Legal fees resulting from litigation also contributed to the increase in
examination and professional fees. Real estate owned operating expense declined
$146,000 for the year ended September 30, 1994 as compared to 1993 as a result
of a decline in the overall level of real estate owned. Other miscellaneous
expenses decreased $154,000 for the year ended September 30, 1994 as compared to
the year ended September 30, 1993 primarily due to reduced expenses and losses
from the Bank's service corporation which was scaling down its operations in
1994 (and ceased operations on September 30, 1994). In addition, other
miscellaneous expenses for the year ended September 30, 1993, included several
miscellaneous non-recurring non-operating expenses.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them.
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following table presents for the periods indicated the Bank's total
dollar amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates, and the net interest margin.
No tax equivalent
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<PAGE> 103
adjustments were made. All average balances are monthly average balances and
include the balances of non-accruing loans.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------- ------------------------------- -------------------------------
AVERAGE INTEREST AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE BALANCE PAID RATE
----------- -------- ------ ----------- -------- ------ ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable.......... $ 96,657 $7,468 7.73% $ 89,965 $6,857 7.62% $ 97,235 $8,198 8.43 %
Mortgage-backed
securities.............. 18,760 1,259 6.71 10,328 477 4.62 6,444 300 4.66
Investment securities and
other interest-bearing
assets.................. 15,787 851 5.39 20,648 1,054 5.10 20,898 1,194 5.71
FHLB stock................ 981 71 7.24 939 53 5.64 1,028 58 5.64
----------- -------- ----------- -------- ----------- --------
Total interest-earning
assets(1)............. $ 132,185 9,649 7.30 $ 121,880 8,441 6.93 $ 125,605 9,750 7.76
========= ========= =========
-------- -------- --------
INTEREST-BEARING
LIABILITIES:
Deposits.................. 121,192 5,212 4.30 119,044 4,228 3.55 $ 127,977 5,136 4.01
FHLB advances............. 8,898 664 7.46 527 24 4.55 188 19 10.10
----------- -------- ----------- -------- ----------- --------
Total interest-bearing
liabilities........... $ 130,090 5,876 4.52 $ 119,571 4,252 3.56 $ 128,165 5,155 4.02
========= ========= =========
-------- -------- --------
Net interest income......... $4,189 $4,595
====== ======
Net interest rate spread.... $3,773 2.78% 3.37% 3.74 %
====== ===== ===== =====
Net earning assets.......... $ 2,095 $ 2,309 $ (2,560)
========= ========= =========
Net yield on average
interest-earning
assets.................... 2.85% 3.44% 3.66 %
===== ===== =====
Average interest-earning
assets to average
interest-bearing
liabilities............... 1.02x 1.02x .98x
===== ====== ======
</TABLE>
- ---------------
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves.
<TABLE>
<CAPTION>
AT AT AT
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Weighted average yield on:
Loans receivable...................................... 7.91% 7.40% 8.06%
Mortgage-backed securities............................ 6.87 4.81 4.55
Investment securities................................. 4.93 5.07 5.88
Other interest-earning assets......................... 6.20 5.71 3.97
Combined weighted average yield on interest-earning
assets........................................... 7.44 6.90 7.42
Weighted average rate paid on:
Savings deposits...................................... 2.22 2.20 2.00
Demand and NOW deposits............................... 2.28 1.92 1.90
Certificates.......................................... 5.89 4.63 4.92
FHLB Advances......................................... 7.57 -- --
Combined weighted average rate paid on
interest-bearing liabilities..................... 4.90 3.65 3.73
Spread.................................................. 2.54% 3.25% 3.69%
</TABLE>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The following schedule presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the increase related to
higher outstanding balances and that due to the levels and volatility of
interest rates. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii)
changes in rate
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<PAGE> 104
(i.e., changes in rate multiplied by old volume). For purposes of this table,
changes attributable to both rate and volume, which cannot be segregated have
been allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 VS. 1994 1994 VS. 1993
--------------------------- ---------------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
DUE TO TOTAL DUE TO TOTAL
-------------- INCREASE -------------- INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
------ ----- ---------- ------ ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable.......................... $ 512 $ 99 $ 611 $(587 ) (754) $ (1,341)
Mortgage-backed securities................ 504 278 782 180 (3) 177
Investments and other interest-earning
assets................................. (268 ) 65 (203) (14 ) (126) (140)
FHLB stock................................ 2 16 18 (5 ) -- (5)
------ ----- ---------- ------ ----- ----------
Total interest-earning assets..... 750 458 1,208 (426 ) (883) (1,309)
------ ----- ---------- ------ ----- ----------
Interest-bearing liabilities:
Deposits.................................. 77 907 984 (343 ) (565) (908)
FHLB advances............................. 615 25 640 7 (2) 5
------ ----- ---------- ------ ----- ----------
Total interest-bearing
liabilities..................... 692 932 1,624 (336 ) (567) (903)
------ ----- ---------- ------ ----- ----------
Net interest income......................... $ 58 $(474) $ (416) $ (90 ) 316) $ (406)
====== ===== ======== ====== ===== ========
</TABLE>
ASSET/LIABILITY MANAGEMENT
The Bank, like other thrift institutions, is subject to interest rate risk
to the extent that its interest-bearing liabilities with short and medium terms
mature or reprice more rapidly, or on a different basis, than its
interest-earning assets, a significant portion of which consist of long-term
fixed rate loans. As a continuing part of its strategy, the Bank considers
methods of managing this asset/liability mismatch, consistent with maintaining
acceptable levels of net interest income. During periods of changing rates, if
the rates on the Bank's deposits rise more quickly than its rates on loans, or
if rates on loans fall more quickly than its rates on deposits, the Bank's
earnings may be adversely affected. The Bank, however, has sought to control the
historic gap between the long terms to maturity or repricing on its
interest-earning assets and the short terms on its interest-bearing liabilities,
while continuing to satisfy its interest rate spread objectives, by engaging in
the following asset/liability management strategies:
- Adjustable Rate Mortgage Loans -- In an attempt to hedge against interest
rate fluctuations, the Bank began originating adjustable rate mortgage
loans in 1983. ARM's reprice to the terms of the market and as of
September 30, 1995 comprise approximately $82.8 million of the Bank's
portfolio or 83%. The Bank currently uses two indices to price its ARM's
which are both based on the Treasury Bill rate.
- Saleable Loan Products -- All loan originations, both adjustable and
fixed rate products, are underwritten to FHLMC standards so that
originations can be readily converted to cash through sales as the need
arises.
- Deposit Composition -- As previously discussed, the Bank has adopted a
cost effective pricing strategy which emphasizes short-term low cost
deposits. In addition, the Bank actively promotes what it considers to be
its core deposits of passbook, demand deposit, non-interest bearing
checking, money market and NOW accounts. Such deposits tend to generate
long-term banking relationships with customers and historically have not
been rate driven accounts.
Each of the above steps, and the Bank's progress in controlling its
exposure to interest rate risk while satisfying its interest rate spread
objectives, is regularly reviewed by management. As a result, the gap between
the Bank's assets which mature or reprice within one year and its liabilities
which mature or reprice during the
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<PAGE> 105
same period was $6,839,000 or 4.86% of total assets at September 30, 1995. This
relatively matched gap position at September 30, 1995, mitigates the extent to
which the Bank's operations are affected by fluctuations in interest rates.
During periods of falling interest rates a positive gap position would tend to
result in a decrease in net interest income and during periods of rising
interest rates a positive gap would tend to result in increasing net interest
income.
The following table sets forth the repricing dates of the Bank's
interest-earning assets and interest-bearing liabilities at September 30, 1995,
and the Bank's interest rate sensitivity "gap" percentages at the dates
indicated. The interest rate sensitivity gap is defined as the amount by which
assets repricing within the respective periods exceed liabilities repricing
within such periods. One- to four-family fixed-rate mortgage loans are assumed
to prepay at an annual rate of 15%. Adjustable-rate mortgage loans and all other
loans are assumed to prepay at a rate of 15% per year. Passbook accounts are
assumed to be withdrawn at annual rates of 16%, 26%, 17%, and 41%, respectively,
during the periods shown. Demand deposit accounts are assumed to decay at annual
rates of 64%, 19%, 6%, and 11%, respectively, in each of the periods shown.
The effect of these assumptions is to quantify the dollar amount of items
that are interest-sensitive and can be repriced within each of the periods
specified. Such repricing can occur in one of three ways: (1) the rate of
interest to be paid on an asset or liability may adjust periodically on the
basis of an index; (2) an asset or liability such as a mortgage loan may
amortize, permitting reinvestment of cash flows at the then-prevailing interest
rates; or (3) an asset or liability may mature, at which time proceeds can be
reinvested at current market rates.
The following table sets forth the interest rate sensitivity of the Bank's
assets and liabilities at September 30, 1995, on the basis of the factors and
assumptions set forth above.
<TABLE>
<CAPTION>
MATURING OR REPRICING
----------------------------------------------------
ONE YEAR OVER 1-3 OVER 3-5 OVER
OR LESS YEARS YEARS 5 YEARS
-------- -------- -------- ------- TOTAL
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
-------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fixed rate one- to four-family (including
mortgage-backed securities), commercial real
estate and construction loans................ $ 4,758 $ 9,516 $ 9,516 $ 7,930 $ 31,720
Adjustable rate one- to four-family, commercial
real estate and construction loans........... 70,484 8,731 6,566 301 86,082
Commercial business loans...................... 672 -- 23 -- 695
Consumer loans................................. 368 98 51 1 518
Investment securities and other................ 9,125 2,457 4,888 -- 16,470
-------- -------- -------- ------- --------
Total interest-earning assets........ 85,407 20,802 21,044 8,232 135,485
-------- -------- -------- ------- --------
Savings deposits............................... 1,418 2,366 1,545 3,703 9,032
Demand and NOW deposits........................ 19,412 5,851 2,011 3,200 30,474
Certificates................................... 55,738 19,916 5,411 -- 81,065
FHLB Advances.................................. 2,000 7,000 -- -- 9,000
-------- -------- -------- ------- --------
Total interest-bearing liabilities... 78,568 35,133 8,967 6,903 129,571
-------- -------- -------- ------- --------
Interest-earning assets less interest-bearing
liabilities.................................. $ 6,839 $(14,331) $ 12,077 $ 1,329 $ 5,914
======= ======== ======= ====== ========
Cumulative interest-rate sensitivity gap....... $ 6,839 $ (7,492) $ 4,585 $ 5,194
======= ======== ======= ======
Cumulative interest-rate gap as a percentage of
total assets at September 30, 1995........... 4.86 % (5.33%) 3.26% 4.20%
======= ======== ======= ======
Cumulative interest-rate gap as a percentage of
interest-earning assets at September 30,
1994......................................... 5.02 %
=======
Cumulative interest-rate gap as a percentage of
interest-earning assets at September 30,
1993......................................... 17.08 %
=======
</TABLE>
105
<PAGE> 106
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types
may lag behind changes in market rates. Additionally, certain assets, such as
"ARM" loans, have features which restrict changes in interest rates on a
short-term basis and over the life of the asset. Further, in the event of a
change in interest rates, prepayment and early withdrawal levels would likely
deviate significantly from those assumed in calculating the table. Finally, the
ability of many borrowers to service their debt may decrease in the event of an
interest rate increase.
At September 30, 1995, the Bank had interest-earning assets of
approximately $135,485,000 having a weighted average effective yield of 7.4%,
and a duration of 2.6 years; and interest-bearing liabilities of approximately
$129,571,000 having a weighted average effective interest rate of 3.65%, and a
duration of 0.98 years. The durations are based on the contractual maturities or
terms to repricing for both the interest-earning assets and interest-bearing
liabilities. 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 net interest income.
The Bank originates and purchases both adjustable and fixed interest rate
loans. At September 30, 1995, the composition of these loans was as follows:
FIXED RATE
<TABLE>
<CAPTION>
APPROXIMATE
TERM TO MATURITY BOOK VALUE
------------------------------------------------------------------------ -----------
<S> <C>
1 month-1 year.......................................................... $ 1,562,000
1 year-3 years.......................................................... 314,000
3 years-5 years......................................................... 577,000
5 years-10 years........................................................ 2,114,000
Over 10 years........................................................... 11,589,000
-----------
Total Fixed Rate Loans........................................ $16,156,000
-----------
</TABLE>
ADJUSTABLE RATE
<TABLE>
<CAPTION>
TERM TO RATE ADJUSTMENT
------------------------------------------------------------------------
<S> <C>
1 month-1 year.......................................................... $67,903,000
1 year-3 years.......................................................... 8,731,000
3 years-5 years......................................................... 6,867,000
-----------
Total Adjustable Rate Loans................................... $83,501,000
-----------
Total Loans................................................... $99,657,000
-----------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required under applicable federal regulations to maintain
specified levels of liquid investments in qualifying types of U.S. Government
securities, federal agency securities, and other investments. Regulations
currently in effect require First Federal to maintain liquid assets of not less
than 5% of its average daily balance of its net withdrawable accounts plus
short-term borrowings during the preceding calendar month; short-term liquid
assets must consist of not less than 1% of that amount. The Bank has
consistently exceeded these requirements. The Bank's liquidity ratio was 18.22%
and 18.92%, respectively, at September 30, 1995 and 1994.
The Bank's primary sources of cash are proceeds from the sales of loans and
mortgage-backed securities, payments of loan principal (including
mortgage-backed securities), maturity and sale of investment securities, and
operations. The Bank uses these sources of cash primarily to meet ongoing
commitments to fund maturing savings certificates, savings withdrawals and
existing loan commitments, and to maintain its liquidity. In
106
<PAGE> 107
addition the Bank is able to obtain advances from the FHLB, in the event funds
are needed to meet ongoing funding commitments. At September 30, 1995 and 1994,
respectively, the Bank had outstanding commitments to originate approximately
$318,300 and $657,700 of loans. The Bank believes that it has adequate liquidity
to fund these commitments.
The Bank completed its initial public offering on August 26, 1993 with the
sale of 462,875 shares at $10.00 per share. Substantially all of the net
proceeds, of approximately $3.5 million was invested in all of the common stock
of the Bank issued in its conversion from a mutual to a stock savings bank.
The Bank is a member of SAIF and the deposits of the Bank are insured by
the Federal Deposit Insurance Corporation. As more fully discussed in Note 11 of
the Notes to the Consolidated Financial Statements of FFE, Congress is
considering legislation on the issue of a one-time assessment to all members of
the SAIF to capitalize and increase SAIF's reserves. The plan that has been
proposed would require a one-time fee of approximately 85 to 90 basis points of
SAIF-insured deposits. This would mean an assessment to the Bank of
approximately $1,050,000, which would reduce the Bank's capital by the amount of
the fee less any related tax-effect. Management of the Bank is unable to predict
whether this proposal or any similar proposal will be enacted. See Note 12 of
the Notes to the Consolidated Financial Statements of FFE.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and notes thereto presented herein
have been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the changes in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of the Bank's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Bank are monetary in
nature. As a result, interest rates have a greater impact on the Bank's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") has issued several new
accounting standards which have impacted the accounting for transactions of the
Bank. The new standards are discussed in detail at Note 13 of the Notes to
Consolidated Financial Statements of FFE.
LEGAL MATTERS
Certain legal matters in connection with the SouthTrust Common Stock being
offered hereby will be passed upon by Bradley, Arant, Rose & White, 2001 Park
Place, Suite 1400, Birmingham, Alabama, counsel for SouthTrust. As of September
30, 1995, the partners and associates of the firm of Bradley, Arant, Rose &
White beneficially owned approximately 2,034,000 shares of SouthTrust Common
Stock. Certain tax consequences of the Merger also have been passed upon by
Bradley, Arant, Rose & White.
EXPERTS
The consolidated financial statements of SouthTrust and subsidiaries
incorporated by reference in this Proxy Statement/Prospectus and elsewhere in
the Registration Statement, have been audited by Arthur Andersen LLP,
independent public accountants, for the periods indicated in their reports
thereon and are incorporated herein by reference in reliance upon the authority
of said firm as experts in giving said reports.
The consolidated financial statements of FFE and its subsidiary as of and
for the fiscal year ended September 30, 1993 included in this Proxy
Statement/Prospectus have been audited by Deloitte & Touche LLP, independent
certified public accountants, as indicated in their report with respect thereto,
and are included herein in reliance upon the authority of said firm as experts
in accounting and auditing.
107
<PAGE> 108
The consolidated financial statements of FFE Financial Corp. and subsidiary
as of and for the years ended September 30, 1995 and 1994, have been included in
this Proxy Statement/Prospectus in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do so
and to respond to appropriate questions.
ADDITIONAL INFORMATION
AVAILABLE INFORMATION; DELISTING AND DEREGISTRATION
FFE is subject to the information requirements of the Exchange Act and, in
accordance therewith, is required to file periodic reports, proxy statements and
other information with the Commission relating to its business, financial
condition and other matters. Such reports, proxy statement and other information
can be inspected and copies made at the public reference facilities of the
Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and are
also available for inspection and copying at the regional offices of the
Commission located at 75 Park Place, New York, New York 10007; and Northwestern
Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such materials can be obtained by mail on payment of the Commission's
customary fees by writing to its principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
After the Effective Time of the Merger, the FFE Common Stock will not be
registered pursuant to the Exchange Act, and FFE will not be subject to the
information requirements of the Exchange Act. Accordingly, FFE will no longer be
required to file periodic reports, proxy statements and other information with
the Commission or to transmit certain documents to its stockholders.
OTHER BUSINESS
The Board of Directors of FFE does not know of any matter to be brought
before the Annual Meeting other than as described in the Notice of Annual
Meeting accompanying this Proxy Statement. If any other matter comes before the
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote the proxy in accordance with their best judgment with respect to
such other matters.
STOCKHOLDER PROPOSALS
No proposals to be presented at the Annual Meeting were received by FFE
prior to November 28, 1995, the date on which, under the rules of the
Commission, such proposals were required to be submitted to FFE in order for a
stockholder of FFE to have the right to have such proposal included in FFE's
proxy materials for such annual meeting.
108
<PAGE> 109
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
INFORMATION WITH RESPECT TO SOUTHTRUST
The following documents filed by SouthTrust with the Commission are
incorporated by reference herein:
(i) SouthTrust's Annual Report on Form 10-K for the year ended
December 31, 1994 (including therein SouthTrust's Proxy Statement for its
Annual Meeting of Stockholders held April 19, 1995) (Commission File No.
0-3613);
(ii) SouthTrust's Quarterly Reports on Form 10-Q for the quarters
ended September 30, 1995, June 30, 1995 and March 31, 1995, (Commission
File No. 0-3613); and
(iii) SouthTrust's Current Report on Form 8-K dated January 10, 1996
(Commission File No. 0-3613).
All documents filed by SouthTrust pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement/Prospectus and
prior to final adjournment of the Annual Meeting, shall be deemed to be
incorporated by reference into this Proxy Statement/Prospectus from the date of
the filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference 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 or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
The audited financial statements of SouthTrust incorporated herein by
reference should only be read in conjunction with the discussion of consummated
and pending acquisitions set forth under the caption "Summary -- Parties to the
Merger -- SouthTrust."
Copies of all documents with respect to SouthTrust incorporated by
reference (not including exhibits to the documents incorporated by reference
unless such exhibits are specifically incorporated into the documents
incorporated by reference) will be provided without charge to each person to
whom a copy of this Proxy Statement/Prospectus is delivered upon written or oral
request. Requests for such copies should be directed to Mr. Aubrey D. Barnard,
Secretary, SouthTrust Corporation, 420 North 20th Street, Birmingham, Alabama
35203, telephone number (205) 254-5000.
109
<PAGE> 110
INDEX TO THE FINANCIAL STATEMENTS
OF FFE FINANCIAL CORP.
<TABLE>
<S> <C>
Audited Financial Statements:
Independent Auditors' Report........................................................ F-2
Independent Auditors' Report........................................................ F-3
Consolidated Balance Sheets as of September 30, 1995 and 1994....................... F-4
Consolidated Statements of Operations for the years ended September 30, 1995, 1994
and 1993......................................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended September 30,
1995, 1994 and 1993.............................................................. F-6
Consolidated Statements of Cash Flows for the years ended September 30, 1995, 1994
and 1993......................................................................... F-7
Notes to Consolidated Financial Statements for the years ended September 31, 1995,
1994 and 1993.................................................................... F-8
Interim Unaudited Financial Statements:
Condensed Consolidated Statements of Financial Condition as of December 31, 1995 and
September 30, 1995............................................................... F-24
Condensed Consolidated Statements of Operations for the three month period ended
December 31, 1995................................................................ F-25
Condensed Consolidated Statements of Stockholders' Equity for the three month period
ended December 31, 1995.......................................................... F-26
Condensed Consolidated Statements of Cash Flows for the three month period ended
December 31, 1995 and 1994....................................................... F-27
Notes to Condensed Consolidated Financial Statements as of December 31, 1995 and
1994............................................................................. F-28
</TABLE>
F-1
<PAGE> 111
[KPMG PEAT MARWICK LLP LOGO]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
FFE Financial Corp. and Subsidiary:
We have audited the accompanying consolidated balance sheets of FFE
Financial Corp. and subsidiary as of September 30, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FFE
Financial Corp. and subsidiary as of September 30, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Tampa, Florida
October 20, 1995, except as to Note 16,
which is as of November 3, 1995
F-2
<PAGE> 112
[DELOITTE & TOUCHE LLP LOGO]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
FFE Financial Corp.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of FFE Financial Corp. and subsidiary (the
"Company") for the year ended September 30, 1993. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of the Company
for the year ended September 30, 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 11 to the consolidated financial statements, the
Company's subsidiary (the "Bank") is a defendant in lawsuits claiming the Bank
is a responsible party in relation to alleged damages resulting from certain
defects in the construction of a condominium project developed by the Bank's
subsidiary. The ultimate outcome of the litigation cannot presently be
determined. Accordingly, no provision for any loss that may result upon
resolution of this matter has been made in the accompanying consolidated
financial statements for the year ended September 30, 1993.
/s/ DELOITTE & TOUCHE LLP
- --------------------------------------
Deloitte & Touche LLP
November 24, 1993
F-3
<PAGE> 113
FFE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
CASH.............................................................. $ 1,768,929 $ 2,378,826
INTEREST-BEARING DEPOSITS......................................... 3,139,569 2,251,232
------------ ------------
Total cash and cash equivalents......................... 4,908,498 4,630,058
GOVERNMENT SECURITIES AVAILABLE FOR SALE -- at market (Note 3).... 12,318,125 12,825,000
MORTGAGE-BACKED SECURITIES HELD-TO-MATURITY -- market values of
$19,628,167 and $10,589,622, respectively (Note 3).............. 19,358,405 11,290,647
LOANS RECEIVABLE -- net of allowance for losses of $817,967 and
$1,229,670, respectively (Note 4)............................... 97,648,773 92,818,760
ACCRUED INTEREST RECEIVABLE:
Investments..................................................... 135,331 107,450
Loans........................................................... 585,174 448,382
Mortgage-backed securities...................................... 114,401 49,650
REAL ESTATE OWNED (Note 5)........................................ 1,469,989 1,914,660
OFFICE PROPERTIES AND EQUIPMENT -- net (Note 6)................... 2,810,487 3,004,056
FEDERAL HOME LOAN BANK STOCK -- at cost (Note 8).................. 1,012,700 941,900
OTHER ASSETS...................................................... 329,509 406,358
------------ ------------
TOTAL............................................................. $140,691,392 $128,436,921
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSIT ACCOUNTS (Note 7)......................................... $120,570,957 $118,425,082
ADVANCES FROM FEDERAL HOME LOAN BANK (Note 8)..................... 9,000,000 --
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE..................... 1,714,227 1,726,527
OTHER LIABILITIES................................................. 514,695 736,361
DEFERRED INCOME TAXES (Note 10)................................... 259,099 87,695
------------ ------------
Total liabilities....................................... 132,058,978 120,975,665
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY (Note 12):
Preferred stock $.01 par value; authorized 500,000 shares; none
outstanding.................................................. -- --
Common stock $.01 par value; authorized 2,000,000 shares; issued
and outstanding 473,986 shares............................... 4,740 4,740
Additional paid-in capital...................................... 3,685,222 3,685,222
Retained earnings -- substantially restricted................... 5,114,858 4,266,944
Unrealized losses on investments available for sale -- net (Note
2)........................................................... (107,583) (408,609)
Unearned compensation (Note 9).................................. (64,823) (87,041)
------------ ------------
Total stockholders' equity.............................. 8,632,414 7,461,256
------------ ------------
TOTAL................................................... $140,691,392 $128,436,921
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 114
FFE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans......................................... $7,468,349 $6,857,193 $8,198,175
Interest on mortgage-backed securities............................. 1,258,704 476,914 300,271
Interest and dividends on investments.............................. 717,389 963,871 1,140,222
Interest on interest-bearing deposits.............................. 204,891 142,698 111,835
---------- ---------- ----------
Total....................................................... 9,649,333 8,440,676 9,750,503
---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposit accounts (Note 7).............................. 5,212,038 4,228,035 5,136,433
Interest on borrowings............................................. 664,413 23,924 18,701
---------- ---------- ----------
Total....................................................... 5,876,451 4,251,959 5,155,134
---------- ---------- ----------
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSSES........................................................ 3,772,882 4,188,717 4,595,369
PROVISION FOR LOAN LOSSES (Note 4)................................... 49,545 391,408 358,307
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.................. 3,723,337 3,797,309 4,237,062
---------- ---------- ----------
OTHER INCOME:
Gain on sale of available for sale assets, net..................... -- 303,392 55,829
Gains on sales of investments and mortgage-backed
securities -- net................................................ -- -- 279,573
Gains on sales of real estate owned -- net......................... 44,992 11,343 --
Customer service charges........................................... 369,612 391,750 368,792
Gains on sales of office properties and equipment -- net........... -- 1,585 191,336
Other.............................................................. 403,760 95,841 90,146
---------- ---------- ----------
Total....................................................... 818,364 803,911 985,676
---------- ---------- ----------
OTHER EXPENSES:
Employee compensation and benefits (Note 9)........................ $1,437,604 $1,458,727 $1,198,319
Occupancy and equipment............................................ 693,772 742,970 840,253
Advertising and promotion.......................................... 69,985 96,349 75,391
Deposit insurance premium.......................................... 311,450 350,200 389,890
Examination and professional fees.................................. 149,546 357,400 318,651
Real estate owned operating expense -- net......................... 52,645 72,335 218,454
Losses on sales of real estate owned -- net........................ -- -- 140,007
Provision for loss on litigation (Note 11)......................... -- 684,700 --
Provision for losses on real estate owned.......................... 104,962 575,493 560,730
Other.............................................................. 344,749 396,449 549,750
---------- ---------- ----------
Total....................................................... 3,164,713 4,734,623 4,291,445
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.................................... 1,376,988 (133,403) 931,293
---------- ---------- ----------
INCOME TAX PROVISION (BENEFIT):
Current............................................................ 357,670 136,178 166,762
Deferred........................................................... 171,404 (94,178) 181,873
---------- ---------- ----------
Total....................................................... 529,074 42,000 348,635
---------- ---------- ----------
NET INCOME (LOSS).................................................... $ 847,914 $ (175,403) $ 582,658
========== ========== ==========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES................. 487,003 473,986
========== ==========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES, ASSUMING FULL
DILUTION........................................................... 492,221 473,986
========== ==========
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
Primary............................................................ $ 1.74 $ (.37)
========== ==========
Fully diluted...................................................... $ 1.72 $ (.37)
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 115
FFE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
UNREALIZED LOSS
COMMON STOCK ADDITIONAL ON INVESTMENTS
---------------- PAID-IN RETAINED AVAILABLE UNEARNED
SHARES AMOUNT CAPITAL EARNINGS FOR SALE COMPENSATION TOTAL
------- ------ ---------- ---------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1992....... -- $ -- $ -- $3,859,689 $ -- $ -- $3,859,689
Proceeds from sale of common stock
(net of offering expenses of
$1,131,864)..................... 462,875 4,629 3,492,257 -- -- -- 3,496,886
Issuance of MRP stock (Note 9).... 10,185 102 101,748 -- -- (101,850) --
Expenses related to MRP stock
program (Note 9)................ -- -- -- -- -- 1,851 1,851
Net income for year ended
September 30, 1993.............. -- -- -- 582,658 -- -- 582,658
------- ------ ---------- ---------- --------------- ------------ ----------
BALANCE, SEPTEMBER 30, 1993....... 473,060 4,731 3,594,005 4,442,347 -- (99,999) 7,941,084
Adjustment to conversion
expenses........................ -- -- 81,966 -- -- -- 81,966
Issuance of MRP stock............. 926 9 9,251 -- -- (9,260) --
Expense related to MRP stock
program (Note 9)................ -- -- -- -- -- 22,218 22,218
Adjustment of investments
available for sale to fair
value -- net
(Note 2)........................ -- -- -- -- (408,609) -- (408,609)
Net loss for the year ended
September 30, 1994.............. -- -- -- (175,403) -- -- (175,403)
------- ------ ---------- ---------- --------------- ------------ ----------
Balance, September 30, 1994....... 473,986 4,740 3,658,222 4,266,944 (408,609) (87,041) 7,461,256
Expense related to MRP stock
program (Note 9)................ -- -- -- -- -- 22,218 22,218
Adjustment of investments
available for sale to fair
value -- net
(Note 2)........................ -- -- -- -- 301,026 -- 301,026
Net income for the year ended
September 30, 1995.............. -- -- -- 847,914 -- -- 847,914
------- ------ ---------- ---------- --------------- ------------ ----------
Balance, September 30, 1995....... 473,986 $4,740 $3,685,222 $5,114,858 $(107,583) $ (64,823) $8,632,414
======= ======= ========= ========= ============== ============ =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 116
FFE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
NET INCOME (LOSS)......................................................... $ 847,914 $ (175,403) $ 582,658
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Provision for loan losses............................................... 49,545 391,408 358,307
Provision for losses on real estate owned............................... 104,962 575,493 560,730
Depreciation and amortization........................................... 271,806 328,883 341,832
FHLB stock dividends.................................................... -- (11,700) (57,784)
Gains on sales of investments and mortgage-backed securities -- net..... -- -- (279,573)
Gains on sales of assets available for sale -- net...................... -- (303,392) (55,829)
Losses (gains) on sales of office properties and equipment -- net....... 4,270 (1,585) (191,336)
Losses (gains) on sales of real estate owned -- net..................... (44,992) (11,343) 140,007
(Increase) decrease in accrued interest receivable...................... (229,424) 152,619 306,759
(Increase) decrease on other assets..................................... (107,651) (37,930) 35,194
Decrease in other liabilities........................................... (221,666) (116,813) (440,173)
Increase (decrease) in deferred taxes................................... 171,404 (94,178) 181,873
------------ ------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 846,168 696,059 1,482,665
------------ ------------ -----------
INVESTING ACTIVITIES:
Purchases of investments and mortgage-backed securities held to
maturity.............................................................. (9,792,547) (23,990,809) (9,541,247)
Proceeds from sales of investments and mortgage-backed securities....... -- -- 15,348,437
Proceeds from maturities of investments and principal reductions on
mortgage-backed securities held to maturity........................... 1,686,679 1,300,619 3,376,619
Proceeds from sales of assets available for sale........................ 1,000,000 25,313,436 2,930,365
Net (increase) decrease in loans........................................ (2,911,463) 405,618 4,273,600
Purchases of property and equipment..................................... (44,623) (464,971) (36,220)
Purchases of loans...................................................... (3,462,295) (5,238,000) --
Proceeds from sales of real estate owned................................ 1,868,746 396,447 2,632,288
Proceeds from sales of property and equipment........................... 25,000 2,746 390,457
Sale (purchase) of FHLB stock........................................... (70,800) -- 249,684
------------ ------------ -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.............. (11,701,303) (2,274,914) 19,623,983
FINANCING ACTIVITIES:
Proceeds from sale of common stock...................................... $ -- $ -- $ 3,496,906
Net decrease in checking transactional accounts......................... (1,649,549) (1,545,995) (8,327,929)
Net decrease in savings deposits........................................ (1,536,633) (2,226,041) (1,857,842)
Net increase (decrease) in certificate accounts......................... 5,332,057 4,517,808 (11,706,985)
Net increase (decrease) in advances from FHLB........................... 9,000,000 -- (2,500,000)
Refund of conversion expenses........................................... -- 81,966 --
Net increase (decrease) in advances by borrowers for taxes and
insurance............................................................. (12,300) (63,588) 57,683
------------ ------------ -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.............. 11,133,575 764,150 (20,838,167)
------------ ------------ -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................... 278,440 (814,705) 268,481
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD............................. 4,630,058 5,444,763 5,176,282
------------ ------------ -----------
CASH AND CASH EQUIVALENTS END OF PERIOD................................... $ 4,908,498 $ 4,630,058 $ 5,444,763
============= ============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid....................................................... $ 54,500 $ 186,500 $ 225,000
============= ============= ============
Interest paid........................................................... $ 5,872,157 $ 4,252,495 $ 5,178,680
============= ============= ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Loans settled by acquisition of real estate............................. $ 1,644,046 $ 271,130 $ 483,144
============= ============= ============
Unrealized loss on mortgage-backed securities available for sale, net of
deferred taxes of $65,938 and $250,438................................ $ (107,583) $ (408,609) $ --
============= ============= ============
Issuance of MRP stock................................................... $ -- $ 9,260 $ 1,851
============= ============= ============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 117
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
1. BASIS OF PRESENTATION
Conversion -- FFE Financial Corp., a newly formed holding corporation,
completed an initial public offering on August 26, 1993, consisting of 462,875
shares of $.01 par value common stock (the "offering"). The gross proceeds of
the offering totaled $4,628,750, of which $4,629 was allocated to common stock
and $3,492,257, which is net of conversion costs of $1,131,864, was allocated to
additional paid-in capital. Simultaneous to the offering, First of Englewood
Federal Savings Bank (the "Bank") formerly known as First Federal Savings and
Loan Association of Englewood, converted from a federal mutual savings and loan
association to a federal stock savings bank as approved by members of the Bank
(the "conversion"). Substantially all of the net proceeds from the offering were
used to acquire 100% of the common stock of the Bank.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the significant accounting and reporting
policies which FFE Financial Corp. follows in preparing and presenting its
consolidated financial statements. The Bank's primary market is the Southwest
Coast of Florida.
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of FFE Financial Corp. and the Bank and its
Subsidiary (collectively, the "Company"). The accounts of FFE Financial Corp.
consist of its investment in the Bank, an immaterial amount of cash and expenses
necessary to operate a public holding company. Significant intercompany balances
and transactions have been eliminated in consolidation.
Investments and Mortgage-Backed Securities -- The Company accounts for
investments and mortgage-backed securities in accordance with the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
No. 115"). Under SFAS No. 115, investments in debt and equity securities are
required to be classified into: 1) trading securities, 2) held-to-maturity
securities, or 3) available-for-sale securities. Investments available-for-sale
are reported at fair value, with unrealized gains and losses excluded from
earnings and reported as a separate component of stockholders' equity.
Investments classified as held-to-maturity are reported at amortized cost.
Pursuant to the statement, as of September 30, 1995, the Company's net
unrealized losses on the investments available-for-sale of $107,583 (which is
net of the related income tax effect of $65,938) has been reported as a separate
component of stockholders' equity in the accompanying consolidated financial
statements. Gains or losses on the disposition of securities available-for-sale
are based on the specific identification method.
Allowance for Loan Losses -- A provision for loan losses is charged to
operations based on management's evaluation of the estimated loss in the loan
portfolio. Such evaluation, which includes a review of all loans of which full
collectibility may not be reasonably assured, considers, among other matters,
the fair value of the underlying collateral, economic conditions, historical
loan loss experience, and comments made by regulatory agencies as a result of
examinations. Although management believes it uses the best information
available to make such determinations, future adjustments to reserves may be
necessary if circumstances differ substantially from the assumptions used in
making the determinations.
Loans -- Loans receivable are stated at unpaid principal balances, less the
allowance for loan losses, loans in process, and net of deferred
loan-origination fees and discounts. Loans receivable also include premiums on
loans purchased.
Real Estate Owned -- Real estate owned includes properties acquired through
foreclosure and properties for which a deed of the underlying collateral was
accepted in lieu of foreclosure. Real estate acquired in settlement of loans is
initially recorded at the lower of cost or estimated fair value minus estimated
selling
F-8
<PAGE> 118
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
costs. Based on period evaluations by management, the carrying values are
reduced when they exceed net realizable value.
Land held for sale, which is included in real estate owned, is carried at
cost, but not in excess of estimated fair value. The amounts the Company
ultimately recovers from real estate owned could differ materially from the
amounts used in arriving at the net carrying value of the assets because of
future market factors beyond the Company's control or changes in the Company's
strategy for recovering its investment. Costs relating to the acquisition,
development and improvement of property are capitalized, but not in excess of
net realizable value, whereas those relating to holding the property are charged
to expense.
Office Properties and Equipment -- Office properties and equipment are
carried at cost less accumulated depreciation. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets, ranging from
5 to 40 years.
Uncollected Interest -- The Company reverses all previously accrued
interest and ceases accruing interest on certain loans which may become
uncollectible and/or on which are more than 90 days past due. Such interest, if
ultimately collected, is credited to income in the period of recovery.
Loan Fees and Premiums and Discounts on Loans and Mortgage-Backed
Securities -- Loan fees (including commitment fees), net of certain direct costs
of origination, are deferred and amortized into income over the contractual life
of loans using the level yield method. If a commitment expires unexercised, the
commitment fee is recognized into income upon expiration of the commitment.
Premiums and discounts on loans and mortgage-backed securities purchased
are amortized to income using the level yield method over the estimated life of
the loan or mortgage-backed security.
Income Taxes -- The Company files consolidated federal and state income tax
returns. Income taxes are allocated to FFE Financial Corp., and to the Bank and
its subsidiary as though separate tax returns were being filed.
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. As specifically related to financial
institutions, the statement also provides that a deferred tax liability,
generally, will not be recognized for bad debt reserves that arose in tax years
beginning before December 31, 1987; however, a deferred tax liability shall be
recognized for such reserves arising in tax years beginning after December 31,
1987. At September 30, 1995 and 1994, the Bank's tax bad debt reserves that
arose prior to December 31, 1987 were approximately $1.1 million. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. The Company periodically evaluates the
collectibility of deferred tax assets and provides a valuation allowance for the
portion of such assets not considered realizable.
Off-Balance Sheet Risk -- The Bank is a party to financial instruments with
off-balance sheet risk such as commitments to extend credit and purchase loans.
Management assesses the risk related to these instruments for potential loss,
and at September 30, 1995, no significant losses are expected.
Cash and Cash Equivalents -- Cash and cash equivalents include cash and
amounts due from depository institutions, interest-bearing deposits in banks,
and Federal funds sold with initial maturities of less than three months.
Federal Reserve Board regulations require savings institutions to maintain
noninterest-earning reserves against their transactions accounts, nonpersonal
time deposits with an original maturity of less than one-half year, and certain
money market deposit accounts. At September 30, 1995, the reserve requirement
amounted to $333,000 and was exceeded by vault cash.
Earnings Per Common Share -- Earnings per common share is calculated using
the weighted average number of common stock and common stock equivalent (stock
options) shares outstanding. Earnings per
F-9
<PAGE> 119
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
share information is not presented for the year ended September 30, 1993 because
the Company's stock was issued on August 26, 1993.
Reclassifications -- Certain amounts in the 1994 and 1993 consolidated
financial statements have been reclassified to conform to the 1995 presentation.
3. INVESTMENTS, MORTGAGE-BACKED AND GOVERNMENT SECURITIES
The amortized cost and market values of investments and mortgage-backed
securities at September 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------------------------------- ----------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT &
AGENCY SECURITIES
AVAILABLE-FOR-
SALE............... $12,491,646 $ -- $ (173,521) $12,318,125 $13,484,047 $ -- $ (659,047) $12,825,000
----------- ---------- ---------- ----------- ----------- ----- ----------- -----------
MORTGAGE-BACKED
SECURITIES HELD-
TO-MATURITY:
GNMA Pass-Through
Certificates..... 9,388,983 511,527 -- 9,900,510 58,709 369 (1,937) 57,141
FHLMC Pass-Through
Certificates..... 6,692,736 -- (163,051) 6,529,685 7,542,249 -- (477,134) 7,065,115
FNMA -- ARMS Pass-
Through
Certificates..... 3,276,686 -- (78,714) 3,197,972 3,689,689 -- (222,283) 3,467,406
----------- ---------- ---------- ----------- ----------- ----- ----------- -----------
Mortgage-Backed
Securities......... 19,358,405 511,527 (241,765) 19,628,167 11,290,647 369 (701,354) 10,589,662
----------- ---------- ---------- ----------- ----------- ----- ----------- -----------
TOTAL........ $31,850,051 $511,527 $ (415,286) $31,946,292 $24,774,694 $369 $(1,360,401) $23,414,662
========== ======== ========= ========== ========== ======== ========== ==========
</TABLE>
The amortized cost and estimated market value of mortgage-backed and
government securities at September 30, 1995, by contractual maturity, are as
follows:
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less..................................... $ 4,995,912 $ 4,973,438
Due after one year through five years....................... 7,495,734 7,344,687
Mortgage-backed securities.................................. 19,358,405 19,628,167
----------- -----------
$31,850,051 $31,946,292
========== ==========
</TABLE>
Proceeds from the sale of investments and government securities available
for sale for the years ended September 30, 1995, 1994 and 1993 were $1,000,000,
$21,635,992 and $15,348,437, respectively, resulting in gross losses of $0,
$60,343 and $0, respectively, and gross gains of $0, $427,740, $279,573,
respectively.
There were no sales of investments or securities classified as held to
maturity during 1995 or 1994. There were no sales of mortgage-backed securities
during the years ended September 30, 1995, 1994 and 1993.
At September 30, 1995, the Company has pledged mortgage-backed securities
with a carrying value of approximately $9,457,240 to secure its advances from
the Federal Home Loan Bank (see Note 8).
F-10
<PAGE> 120
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LOANS RECEIVABLE
Loans receivable-net consist of the following at September 30:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Real estate loans:
Residential mortgage -- one to four units................. $83,419,251 $77,541,808
Other mortgage loans...................................... 11,769,608 13,795,754
Construction.............................................. 3,255,742 5,563,898
Other loans:
Commercial lines of credit................................ 695,046 655,480
Loans on savings accounts................................. 502,656 638,743
Education................................................. 14,985 19,714
----------- -----------
99,657,288 98,215,397
Add: Premiums on purchased loans............................ 198,734 138,748
Deduct: Undisbursed portion of loans in process............. 1,301,744 4,216,233
Allowance for loan losses.......................... 817,967 1,229,670
Deferred loan fees, net............................ 87,538 89,482
----------- -----------
$97,648,773 $92,818,760
========== ==========
</TABLE>
The Company is engaged principally in providing first mortgage loans to
individuals and commercial enterprises primarily in the Englewood area. At
September 30, 1995, the Company's assets consist primarily of assets that earned
interest at adjustable interest rates. Those assets were funded primarily with
short-term liabilities that have interest rates that vary with market rates over
time.
The Company sells the fixed rate loans that are originated in the secondary
market as market conditions permit. During the years ended September 30, 1994
and 1993, proceeds from loan sales approximated $3,677,444 and $2,930,365,
respectively, resulting in losses (gains) of $64,007 and ($55,829),
respectively. No loans were sold in the year ended September 30, 1995 and were
available for sale at September 30, 1995.
The adjustable rate loans have interest rate adjustment limitations and are
generally indexed to the median annualized cost of funds for OTS-insured savings
and loans. Future market factors may affect the correlation of interest rate
adjustment with the rates the Company pays on the short-term deposits that have
been primarily utilized to fund these loans.
At September 30, 1995 and 1994, the Company was servicing loans for others
amounting to approximately $11,754,141 and $12,948,000, respectively. Servicing
loans for others generally consists of collecting mortgage payments, maintaining
escrow accounts, disbursing payments to investors, and processing of
foreclosures. Loan servicing income is recorded on the cash basis and includes
servicing fees from investors and certain charges collected from borrowers, such
as late payment fees. In connection with these loans serviced for others, the
Company held borrowers' escrow balances of approximately $219,000 and $242,000,
respectively.
F-11
<PAGE> 121
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Balance -- Beginning of Year....................... $1,229,670 $ 908,811 $ 821,751
Provision.......................................... 49,545 391,408 358,307
---------- ---------- ----------
Total.................................... 1,279,215 1,300,219 1,180,058
---------- ---------- ----------
Charge-offs........................................ (467,316) (80,711) (293,505)
Recoveries......................................... 6,068 10,162 22,258
---------- ---------- ----------
Net charge-offs.................................... (461,248) (70,549) (271,247)
---------- ---------- ----------
Balance -- End of Year............................. $ 817,967 $1,229,670 $ 908,811
========= ========= =========
</TABLE>
Provisions for loan losses include charges to reduce the recorded balances
of mortgage loans receivable to their estimated fair value. Such provisions are
based on management's estimate of fair value of the collateral, considering the
current and currently anticipated future operating or sales conditions, thereby
causing these estimates to be particularly susceptible to changes that could
result in a material adjustment to results of operations in the near term.
Recovery of the carrying value of such loans is dependent to a great extent on
economic, operating and other conditions that may be beyond the Company's
control. While the Company believes its allowance for loan losses at September
30, 1995 and 1994 is adequate in light of present economic conditions, there can
be no assurances that the Company will not be required to make additional
provisions for loan losses in the future in response to changing economic
conditions or regulatory guidelines.
Included in the Company's loan portfolio are various loans identified as
non-performing loans (loans that have ceased to accrue interest income). A
summary of these types of loans is as follows:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------
1995 1994 1993
-------- ---------- --------
<S> <C> <C> <C>
Non-Performing Loans.............................. $561,000 $1,816,000 $168,000
======== ========= ========
</TABLE>
The increase in non-performing loans in 1994 is primarily due to one loan,
with a book value of approximately $1,400,000, secured by a commercial office
property.
The following table summarizes the interest income which would have been
recorded under the original terms of non-performing loans at September 30, 1995,
1994 and 1993 and the interest income actually recognized for the periods
indicated.
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Interest income which would have been recorded.............. $ 49,241 $172,615 $14,506
Interest income recognized.................................. (24,538) (58,450) (5,381)
-------- -------- -------
Interest income foregone.................................... $ 24,703 $114,165 $ 9,125
======== ======== =======
</TABLE>
The aggregate amount of loans outstanding to executive officers and
directors and any associates of such persons as of September 30, 1995 and 1994
was approximately $711,152 and $731,531, respectively. The schedule below
summarizes the activity of loans to executive officers, directors and associates
of the Company at September 30, 1995:
<TABLE>
<S> <C>
Balance, beginning of period.............................................. $731,531
Repayments................................................................ (20,379)
--------
Balance, end of period.................................................... $711,152
========
</TABLE>
F-12
<PAGE> 122
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has originated or purchased commercial real estate mortgage
loans, the remaining outstanding balances of which totaled $11,769,608 and
$13,795,754 at September 30, 1995 and 1994, respectively. These loans are
considered by management to be of somewhat greater risk of uncollectibility due
to the dependency on income production or future development of the real estate.
These loans are collateralized by the following types of real estate at
September 30:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Apartments -- 5 or more units............................. $ 1,028,260 $ 839,841
Motel/Hotel............................................... 2,004,088 2,067,334
Mobile Home Park.......................................... -- 47,686
Church.................................................... 836,064 1,068,640
Other Commercial (office buildings, land, retail shopping,
condominiums and other)................................. 7,901,196 9,772,253
----------- -----------
$11,769,608 $13,795,754
========== ==========
</TABLE>
All of the Company's commercial real estate loans are collateralized by
real estate in the State of Florida.
Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), a federally-chartered savings and loan association's aggregate
commercial real estate loans may not exceed 400% of its capital as determined
under the capital standards provisions of FIRREA. The Bank is federally-
chartered and subject to this limitation. FIRREA does not require divestiture of
any loan that was lawful when it was originated. In order to comply with this
limitation, the Bank may not originate additional commercial real estate loans
until such time as its aggregate commercial loan portfolio falls below 400% of
capital. At September 30, 1995, the Bank's limitation was approximately
$35,219,000; no such originations or purchases of commercial real estate loans
were made by the Bank during fiscal 1995, 1994 and 1993.
The OTS regulatory capital regulations, issued November 6, 1989, require
that the portion of nonresidential construction and land loans in excess of 80%
loan-to-value ratio be deducted from total capital for purposes of the
risk-based capital standard over a 5-year phase-in period commencing July 1,
1990. At September 30, 1995, the Bank had no loans which were subject to this
deduction.
Also, under FIRREA, the Bank may not, after August 9, 1989, make real
estate loans to one borrower in excess of 15% of its unimpaired capital and
surplus, unless such loans do not exceed $500,000. This 15% limitation results
in a dollar limitation of approximately $1,285,000 and $1,111,000 at September
30, 1995 and 1994, respectively.
5. REAL ESTATE OWNED
Real estate owned ("REO") consists of the following at September 30:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Acquired by foreclosure....................................... $ 554,371 $ 789,560
Acquired for development and sale............................. 878,000 878,000
Under contract to sell........................................ 37,618 247,100
---------- ----------
Total real estate owned............................. $1,469,989 $1,914,660
========= =========
</TABLE>
The real estate owned acquired for development represents the undeveloped
land acquired from the Bank's subsidiary. The ability of the Company to recover
the carrying value of real estate held for sale is based upon the future sale of
the land. The ability to effect such sale is subject to market conditions and
other factors, all of which are beyond the Company's control.
F-13
<PAGE> 123
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company markets certain of its REO properties under a program that
includes favorable financing incentives such as not requiring any down payment
and, on adjustable-rate loans, an initial interest rate which is below then
current market rates. Of the properties sold under this program, $120,000 and
$247,100 in outstanding loans at September 30, 1995 and 1994, respectively,
received 100% financing from the Company. Until received, profits, if any,
resulting from such sales are deferred; losses, if any, are recognized
immediately. These loans are currently performing but are included in the
calculation of non-performing assets because they are loans to facilitate the
sale of REO without sufficient down payments to constitute classifying the
transactions as sales.
6. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment -- net are summarized as follows at
September 30:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land........................................................ $ 785,141 $ 810,141
Buildings and improvements.................................. 3,129,008 3,108,527
Furniture and equipment..................................... 843,318 916,017
----------- -----------
Total............................................. 4,757,467 4,834,685
Less accumulated depreciation............................... (1,946,980) (1,830,629)
----------- -----------
$ 2,810,487 $ 3,004,056
========== ==========
</TABLE>
The Company currently owns all of its office properties.
7. DEPOSIT ACCOUNTS
Deposit accounts are summarized as follows at September 30:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
NOW accounts (weighted average rate of 1.75% at September
30, 1995 and 1994)...................................... $ 11,801,576 $ 10,784,517
Noninterest-bearing demand deposits....................... 3,288,011 3,597,201
Money market checking (weighted average rate of 1.75% at
September 30, 1995 and 1994)............................ 867,352 1,481,740
Money market plus (weighted average rates of 3.26% and
2.47% at September 30, 1995 and 1994, respectively)..... 14,516,560 16,259,590
Passbook and statement savings (weighted average rate of
2.20% at September 30, 1995 and 1994)................... 9,032,209 10,568,842
Certificate accounts:
2.0% - 2.99%............................................ 142,086 --
3.0% - 4.99%............................................ 4,076,425 50,539,475
5.0% - 6.99%............................................ 76,846,738 25,193,717
------------ ------------
Total certificate accounts...................... 81,065,249 75,733,192
------------ ------------
$120,570,957 $118,425,082
=========== ===========
Weighted average interest rate............................ 4.70% 3.69%
=========== ===========
</TABLE>
F-14
<PAGE> 124
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amounts of scheduled maturities of certificate accounts are as follows:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
1996........................................................ $33,822,649
1997........................................................ 32,020,181
1998........................................................ 9,811,367
1999........................................................ 1,428,523
2000........................................................ 3,982,529
-----------
$81,065,249
==========
</TABLE>
At September 30, 1995 and 1994, the Bank had $5,385,000 and $4,802,000 of
certificate accounts of $100,000 and over. The Bank had no public funds at
September 30, 1995 and 1994.
Interest on deposits is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest on checking accounts...................... $ 724,579 $ 663,799 $ 805,920
Interest on passbook and statement savings......... 211,094 230,250 341,994
Interest on certificate accounts................... 4,306,297 3,368,638 4,017,762
Less early withdrawal penalties.................... (29,932) (34,652) (29,243)
---------- ---------- ----------
Balance, end of year............................. $5,212,038 $4,228,035 $5,136,433
========= ========= =========
</TABLE>
8. ADVANCES FROM FEDERAL HOME LOAN BANK
The Company obtains advances from the Federal Home Loan Bank ("FHLB") as
necessary to fund its lending and other cash flow obligations. At September 30,
1995, the Company had $9,000,000 of advances outstanding which mature as
follows:
<TABLE>
<CAPTION>
YEAR ENDING WEIGHTED
SEPTEMBER 30, AMOUNT AVERAGE RATE
-------------------------------------------------------------- ---------- ------------
<S> <C> <C>
1996........................................................ $2,000,000 7.33%
1997........................................................ 3,750,000 7.79
1998........................................................ 3,250,000 7.46
---------- -----
$9,000,000 7.57%
========= =========
</TABLE>
Under a specific collateral agreement with the Federal Home Loan Bank of
Atlanta, the Company is required to collateralize its outstanding advances. The
collateral consists of residential first mortgages, mortgage-backed securities,
and all of its FHLB stock. At September 30, 1995, the Company had pledged first
mortgage loans with an approximate principal balance of $10,640,000, and
mortgage-backed securities with an approximate principal balance of $9,457,000,
to secure the advances.
9. EMPLOYEE BENEFIT AND MANAGEMENT RECOGNITION PLANS
The Company has a qualified plan under Section 401(K) of the Internal
Revenue Code which allows employees to make contributions from pretax earnings
for which it contributes an amount equal to an employee's contribution but not
in excess of 6% of the participating employee's compensation. Contributions for
the years ended September 30, 1995, 1994 and 1993 were approximately $64,000,
$56,000 and $38,000, respectively.
Subsequent to the offering (see Note 1), the Company adopted a stock
incentive plan (the "Plan") for key officers, members of the Board of Directors,
and employees. In accordance with the terms of the
F-15
<PAGE> 125
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Conversion, 46,288 shares of common stock were reserved for issuance under the
Plan. During the year ended September 30, 1994, 40,731 options were granted to
officers and the Board of Directors of the Company. The exercise price of the
options granted ranged from $10 to $11.75 per share (with an average price of
$10.08 and aggregate of $410,549). The options granted are to vest at a rate of
20% per year of continuous service from the date of grant. At September 30,
1995, 8,146 of the options are vested. There were no options exercised or
canceled during the years ended September 30, 1995 or 1994.
Subsequent to the offering (see Note 1), the Company adopted a Management
Recognition Plan ("MRP") for key officers and members of the Board of Directors.
In accordance with the terms of the Conversion, 13,886 shares of common stock
were reserved for issuance under the MRP. On the date of Conversion, 10,185
shares were granted to officers and the Board of Directors of the Bank with a
fair market value of $10 a share reflecting unearned compensation expense of
$101,850. During the year ended September 30, 1994, an additional 926 shares
were granted under this plan with a fair value of $10 a share reflecting
unearned compensation of $9,260. The shares granted are to vest over a five-year
period, which is the amortization period for the unearned compensation. The
amortization expense of unearned compensation for the years ended September 30,
1995 and 1994 was $22,218.
10. INCOME TAXES
The Company's effective tax rate differs from the statutory federal income
tax rate for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Statutory rate applied to earnings (loss) before income
taxes................................................ $468,176 $(45,357) $316,640
Increase (decrease) resulting from:
Provision for state income taxes..................... 49,985 17,579 19,060
Change in deferred tax asset valuation allowance..... -- -- (55,657)
Reduction in base year tax bad debt reserves......... -- 69,778 34,480
Other................................................ 10,913 -- 34,112
-------- -------- --------
$529,074 $ 42,000 $348,635
======== ======== ========
</TABLE>
Income tax provision (benefit) consists of the following components for the
years ended September 30, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
----------------------------- ------------------------------ -----------------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL FEDERAL STATE TOTAL
-------- ------- -------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current tax
provision............ $323,167 $34,503 $357,670 $121,944 $ 14,234 $136,178 $165,552 $ 1,210 $166,762
Net deferred tax
(benefit) expense.... 154,869 16,535 171,404 (80,453) (13,725) (94,178) 164,023 17,850 181,873
-------- ------- -------- -------- -------- -------- -------- ------- --------
$478,036 $51,038 $529,074 $ 41,491 $ 509 $ 42,000 $329,575 $19,060 $348,635
======== ======= ======== ======== ======== ======== ======== ======= ========
</TABLE>
F-16
<PAGE> 126
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the deferred tax assets and liabilities under SFAS No.
109 consist of the following at September 30:
<TABLE>
<CAPTION>
1995 1994
---------------------------------- ----------------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
-------- ----------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Accelerated
depreciation for tax
purposes............. $155,549 $ -- $ 155,549 $172,346 $ -- $ 172,346
Basis difference on
land held for sale... 21,490 -- 21,490 21,490 -- 21,490
Book bad debt
allowance............ 315,052 -- 315,052 489,190 -- 489,190
Loan points recognized
for income tax less
than amounts reported
in financial
statements........... -- (186,909) (186,909) -- (224,539) (224,539)
FHLB stock dividends
not included in
taxable income....... -- (120,584) (120,584) -- (120,697) (120,697)
Capitalized interest on
investment not yet
deducted for book
purposes............. -- (451,871) (451,871) -- (451,871) (451,871)
Other.................. 8,174 -- 8,174 26,386 -- 26,386
-------- ----------- --------- -------- ----------- ---------
$500,265 $ (759,364) $(259,099) $709,412 $ (797,107) $ (87,695)
======== ========= ========= ======== ========= =========
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
Financial Instruments With Off-Balance Sheet Risk -- The Bank is a party to
financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These agreements involve,
to varying degrees, elements of risk in excess of the amount recognized in the
consolidated balance sheets. The Bank does not use financial instruments with
off-balance sheet risk as part of its own asset/liability management program or
for trading purposes.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.
Off-balance sheet financial instruments whose contract amounts represent
credit risk at September 30 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Commitments to extend credit under:
Commitments to originate fixed rate loans................... $ 318,300 $ --
Commitments to originate adjustable rate loans.............. -- 657,700
Undisbursed loan funds...................................... 1,301,744 4,216,233
Unused lines of credit...................................... 23,385 31,620
---------- ----------
$1,643,429 $4,905,553
========= =========
</TABLE>
F-17
<PAGE> 127
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and any required payment of a fee. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon the extension of credit, is based on
management's credit evaluation of the other party. Such collateral consists
primarily of residential properties.
Leases -- The Company leases various equipment. Rental expense under
operating leases for property for the year ended September 30, 1995, 1994 and
1993 amounted to approximately $15,600, $16,800 and $19,700, respectively. At
September 30, 1995 and 1994, no significant noncancelable leases with initial or
remaining terms of more than one year were in effect.
Contingencies -- The Bank and its subsidiary were two of several defendants
named in lawsuits by a condominium association claiming defects in the
construction of a condominium project developed by the Bank's subsidiary and its
former joint venture partners. These lawsuits claimed that the Bank was a
responsible party because the Bank made decisions on behalf of its subsidiary.
Damages sought were approximately $2,000,000. The litigation was ordered to
arbitration by the court, and on January 11, 1994, the Bank and other defendants
offered a settlement to the condominium association. The Bank's portion of the
settlement was approximately $754,000. The Bank provided a reserve for loss in
the amount of $754,000 during the three months ended December 31, 1993. On March
15, 1994, the Bank entered into a final settlement and its loss approximated the
reserve previously established. During the three months ended September 30,
1994, the Bank received $69,300 in settlement of various counter claims against
subcontractors which were involved in the condominium project.
At September 30, 1995, the Company and the Bank are involved in routine
legal proceedings occurring in the ordinary course of business, which will not
have a material effect on the consolidated financial statements.
Congress is considering legislation on the issue of a one-time Savings
Association Insurance Fund ("SAIF") assessment sufficient to capitalize SAIF and
increase its reserve ratio to 1.25% of SAIF-insured deposits. If the assessment
is put into place, it would be approximately 85 to 90 basis points of
SAIF-insured deposits. This would mean an assessment of approximately $1,050,000
to the Bank likely to be due on or about January 1, 1996.
12. RETAINED INCOME AND REGULATORY CAPITAL REQUIREMENTS
REGULATORY CAPITAL REQUIREMENTS
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") and the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") have significantly affected savings institutions in several ways.
Adverse effects include higher deposit insurance premiums, more stringent
capital requirements, more stringent investment limitations and restrictions,
and the possible reduction of future dividend payments on Federal Home Loan Bank
stock owned by savings institutions. In addition, the legislation enhances
federal regulatory enforcement powers.
FIRREA requires institutions not meeting all of the capital standards to
submit to the OTS a capital plan outlining the institutions' plans for attaining
the required levels of regulatory capital. Failure to obtain approval of its
capital plan or to maintain compliance with an approved capital plan could
result in the OTS limiting an institution's asset growth and imposing other
sanctions and enforcement actions, including regulatory takeover of the
institution. An institution not in compliance with FIRREA's capital standards or
its capital plan also will be subject to more severe asset growth limitations.
Regulations implementing the prompt corrective action provisions of FDICIA
became effective on December 19, 1992. These prompt corrective action
regulations define specific capital categories based on an
F-18
<PAGE> 128
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
institution's capital ratios. The capital categories, in declining order, are
"well capitalized," "adequately capitalized," "undercapitalized," and
"critically undercapitalized." Institutions categorized as "undercapitalized" or
worse are subject to certain restrictions, including the requirement to file a
capital plan with the OTS, prohibitions on the payment of dividends and
management fees, restrictions on executive compensation, and increased
supervisory monitoring. Other restrictions may be imposed on the institution by
the Federal Deposit Insurance Corporation, including requirements to raise
additional capital, to sell assets, or to sell the entire institution. Once an
institution becomes "critically undercapitalized," it must generally be placed
in receivership or conservatorship within 90 days.
As of September 30, 1995, regulatory requirements are to maintain a
tangible capital ratio of 1.5%, a leverage capital ratio of 3%, and a risk-based
capital ratio of 8%. Due to the Company's financial condition and its inability
to meet the required regulatory capital ratios prior to the Conversion, the
Company was operating under an OTS-approved capital plan and supervisory
agreement at September 30, 1992. Subsequent to the Conversion and Offering (see
Note 1), the Company met all regulatory capital ratios and was released from
their capital plan and supervisory agreement on October 1, 1993 and October 8,
1993, respectively.
The following table summarizes the Bank's compliance with current capital
requirements at September 30, 1995:
<TABLE>
<CAPTION>
EXCESS OF
REQUIRED ACTUAL REQUIRED ACTUAL REQUIRED
PERCENTAGE PERCENTAGE AMOUNT AMOUNT MINIMUM
---------- ---------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Tangible capital....................... 1.5% 6.2% $2,111 8,675 6,564
Core capital........................... 3.0% 6.2% 4,222 8,675 4,453
Core/leverage capital.................. 4.0% 6.2% 5,629 8,675 3,046
Tier 1 risk-based capital.............. 4.0% 13.5% 2,579 8,675 6,096
Total risk-based capital..... 8.0% 14.6% 5,144 9,414 4,270
======== ======== ====== ======= ======
</TABLE>
The following table summarizes the capital thresholds for each prompt
corrective action capital categories. An institution's capital category is based
on whether it meets the threshold for all three capital ratios within the
category.
<TABLE>
<CAPTION>
TIER 1 TOTAL
LEVERAGE RISK-BASED RISK-BASED
CATEGORIES RATIO RATIO RATIO
- ---------------------------------------------------- ------------- ------------- --------------
<S> <C> <C> <C>
"Well capitalized".................................. 5% or higher 6% or higher 10% or higher
"Adequately capitalized"............................ 4% or higher 4% or higher 8% or higher
"Under capitalized"................................. less than 4% less than 4% less than 8%
"Significantly under capitalized"................... less than 3% less than 3% less than 6%
"Critically under capitalized"...................... An institution is considered "critically
under capitalized" if its ratio of tangible
equity to total assets is 2% or less
</TABLE>
As of September 30, 1995, the Bank was in compliance will all current
requirements and was classified as a "well capitalized" institution.
LIQUIDATION ACCOUNT
At the time of conversion from a mutual to a stock institution, the Bank
established a liquidation account in an amount equal to the Bank's net worth as
reflected in its latest consolidated balance sheets contained in the final
offering circular. The liquidation account will be maintained for the benefit of
eligible deposit account holders who continue to maintain their deposit accounts
in the Bank after conversion. In the event of a complete liquidation, and only
in such an event, each eligible account holder will be entitled to receive a
F-19
<PAGE> 129
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
distribution of a proportionate share of the liquidation account before
liquidation distributions may be made with respect to the stockholders. The
total amount of the liquidation account will be decreased in an amount
proportionately corresponding to decreases in the deposit account balances of
eligible account holders on each subsequent annual determination date. At
September 30, 1995, the remaining balance of the liquidation account was
approximately $2.54 million. Except for the repurchase of stock and payment of
dividends by the Bank, the existence of the liquidation account will not
restrict the use or application of such net worth.
DIVIDEND RESTRICTIONS
The Bank may not declare or pay a cash dividend on its capital stock if the
effect thereon would cause its net worth to be reduced below either the amount
required for the liquidation account or the imposed regulatory capital
requirements. While the regulations would permit the payment of limited
dividends by the Bank, it is expected that earnings will be retained to support
operations and the regulatory capital requirement.
STOCKHOLDERS' EQUITY RECONCILIATION
The following table is a reconciliation of stockholders' equity reported in
the audited financial statements with regulatory capital reported in the
September 30, 1995 Thrift Financial Report (TFR) to the OTS:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Stockholders' equity reported on audited financial statements.......... $8,632
Parent company only net loss (cumulative).............................. 52
Proceeds of offering retained by Parent company........................ (117)
-------
September 30, 1995, TFR schedule SC, line 80........................... $8,567
===========
</TABLE>
At periodic intervals, both the OTS and the Federal Deposit Insurance
Corporation ("FDIC") routinely examine the Company's financial statements as
part of their legally prescribed oversight of the savings and loan industry.
13. FASB STATEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statements of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of Loan" ("SFAS No. 114") and No. 118, "Accounting by Creditors of Impairment of
a Loan -- Income Recognition and Disclosures" ("SFAS No. 118"). These
pronouncements are applicable to all creditors and to all loans that are
individually and specifically evaluated for impairment, uncollateralized, as
well as collateralized, except large groups of smaller-balance homogeneous loans
that are collectively evaluated for impairment, and those loans that are
accounted for at fair value or at the lower of cost or fair value. They require
that impaired loans be measured at the present value of expected future cash
flows by discounting those cash flows at the loans' effective interest rate.
They also require the Company to account for a trouble debt restructuring
involving a modification of terms at fair value as of the date of the
restructuring, and apply to financial statements for fiscal years beginning
after December 15, 1994 and will become effective for the Company in fiscal
1996. Management does not believe that the implementation of these statements
will have a material effect on its consolidated financial statements.
The FASB has issued Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights" ("SFAS No. 122"), which becomes
effective for years beginning after December 15, 1995. SFAS No. 122 amends FASB
Statement No. 65, "Accounting for Certain Mortgage Banking Activities," to
require that a mortgage banking enterprise recognize as separate assets rights
to service mortgage loans for others, however those rights are acquired. A
mortgage banking enterprise that acquires mortgage servicing rights through
either the purchase or organization of mortgage loans and sells or securitizes
those loans with
F-20
<PAGE> 130
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
servicing rights retained should allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans (without the mortgage servicing
rights) based on their relative fair values. If it is not practicable to
estimate the fair values separately, the entire cost of purchasing or
originating the loans should be allocated to the mortgage loans (without the
mortgage servicing rights) and no cost should be allocated to the mortgage
servicing rights. SFAS No. 122 also requires that a mortgage banking enterprise
assess its capitalized mortgage serving rights for impairment based on the fair
value of those rights. Management does not believe that this statement will have
a material impact on the consolidated financial statements.
14. SUMMARY FINANCIAL DATA OF FFE FINANCIAL CORP. (PARENT COMPANY ONLY)
Summary financial data of FFE Financial Corp. (Parent company only) is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
CONDENSED BALANCE SHEETS 1995 1994
-------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Assets:
Cash........................................................ $ 2,959 $ 16,540
Investments in subsidiary................................... 8,739,819 7,902,366
Other....................................................... 62,042 38,000
---------- ----------
Total assets........................................ $8,804,820 $7,956,906
========= =========
Liabilities and stockholders' equity:
Liabilities................................................. $ -- $ --
Stockholders' equity........................................ 4,740 4,740
Additional paid-in capital.................................. 3,685,222 3,685,222
Retained earnings........................................... 5,114,858 4,266,944
---------- ----------
Total stockholders' equity.......................... 8,804,820 7,956,906
---------- ----------
Total liabilities and stockholders' equity.......... $8,804,820 $7,956,906
========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------
CONDENSED INCOME STATEMENTS 1995 1994
-------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Dividends from Bank subsidiary................................ $ 65,000 $ --
---------- ----------
Operating expenses............................................ 78,581 100,348
---------- ----------
Loss before income tax benefit and equity in undistributed
loss of subsidiary.......................................... (13,581) (100,348)
Income tax benefit............................................ 24,042 38,000
---------- ----------
Income (loss) before equity in undistributed loss............. 10,461 (62,348)
Equity in undistributed income (loss)......................... 837,453 (113,055)
---------- ----------
Net income (loss)................................... $ 847,914 $ (175,403)
========= =========
</TABLE>
F-21
<PAGE> 131
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------
CONDENSED STATEMENTS OF CASH FLOWS 1995 1994
-------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Cash used in operating activities:
Net income (loss)............................................. $ 847,914 $ (175,403)
Adjustments to reconcile net loss to net cash used in
operating activities:
Equity in loss (earnings) of subsidiary....................... (837,453) 113,055
Increase in other assets...................................... (24,042) (38,000)
---------- ----------
Net cash used in operating activities............... (13,581) (100,348)
---------- ----------
Cash flow provided by financing activities:
Stock proceeds invested in subsidiary......................... -- 11
Refund of conversion expenses................................. -- 81,966
---------- ----------
Net cash provided by financing activities........... -- 81,977
---------- ----------
Net increase (decrease) in cash..................... $ (13,581) $ (18,371)
========= =========
</TABLE>
The major source of funds available to FFE Financial Corp. for payment of
dividends is the earnings of the Bank. The ability of the Bank to pay dividends
to the holding company is restricted (see Note 12).
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present selected quarterly financial data for the two
more recent fiscal years (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1995 YEAR ENDED SEPTEMBER 30, 1994
------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income................... $ 2,208 $ 2,424 $ 2,508 $ 2,509 $ 2,189 $ 2,093 $ 2,081 $ 2,078
Interest Expense................ 1,261 1,475 1,560 1,580 1,094 1,050 1,044 1,064
------- ------- ------- ------- ------- ------- ------- -------
Net interest income before
provision for loan losses..... 947 949 948 929 1,095 1,043 1,037 1,014
Provision for (recovery of) loan
losses........................ -- 2 25 23 24 367 (4) 4
------- ------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses..... 947 947 923 906 1,071 676 1,041 1,010
Other income.................... 149 187 241 242 133 449 99 123
Other expenses.................. 768 837 844 716 1,717 844 1,357 817
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes......................... 328 297 320 432 (513) 281 (217) 316
Applicable income taxes......... 125 113 127 164 (178) 107 (82) 195
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) per share..... $ 203 $ 184 $ 193 $ 268 $ (335) $ 174 $ (135) $ 121
======== ======== ======== ======== ======== ======== ======== ========
Earnings (loss) per common and
common equivalent share:
Primary....................... $ .42 $ .38 $ .40 $ .54 $ (.71) $ .37 $ (.28) $ .23
======== ======== ======== ======== ======== ======== ======== ========
Fully diluted................. $ .42 $ .38 $ .39 $ .54 $ (.71) $ .37 $ (.28) $ .23
======== ======== ======== ======== ======== ======== ======== ========
Weighted average common and
common equivalent shares...... 483,449 484,859 486,655 491,639 473,060 473,523 473,986 473,986
======== ======== ======== ======== ======== ======== ======== ========
Weighted average common and
common equivalent shares,
assuming full dilution........ 483,449 484,859 489,058 492,221 473,060 473,523 473,986 473,986
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
F-22
<PAGE> 132
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. PENDING BUSINESS COMBINATION
On November 3, 1995, the Company entered into an Agreement and Plan of
Merger (the "Agreement") with SouthTrust Corporation ("SouthTrust") pursuant to
which the Company will be merged with and into SouthTrust of Florida, a
wholly-owned subsidiary of SouthTrust. With approval from the Company's
stockholders and various regulatory agencies, each share of common stock of the
Company shall be converted into the right to receive $10.80 in cash, subject to
potential downward adjustment as provided in the Agreement, as well as .645
shares of SouthTrust common stock, also subject to either an upward or downward
adjustment based upon fluctuations in the price of SouthTrust's common stock.
Certain key officers and members of the Board of Directors of the Company may
receive certain employment and change in control agreements. Such agreements
provide severance pay and other benefits upon the completion of the acquisition
of the Company by SouthTrust. In addition, those participating in the Plan and
MRP would become fully vested for all options and shares issued under those
agreements. SouthTrust would also indemnify all directors, officers and
employees for a period of three years from the closing date of the Agreement
against certain liabilities arising prior to the merger.
F-23
<PAGE> 133
FFE FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1995 AND SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1995
------------ -------------
<S> <C> <C>
ASSETS
CASH.............................................................. $ 2,231,593 $ 1,768,929
INTEREST-BEARING DEPOSITS......................................... 4,769,721 3,139,569
------------ -------------
Total cash and cash equivalents......................... 7,001,314 4,908,498
GOVERNMENT SECURITIES AVAILABLE FOR SALE -- at market (Note 4).... 11,469,999 12,318,125
MORTGAGE-BACKED SECURITIES HELD-TO-MATURITY -- market values of
$19,224,609 and $19,628,167, respectively
(Notes 4 and 8)................................................. 18,729,867 19,358,405
LOANS RECEIVABLE -- net of allowance for losses of $794,609 and
$817,967, respectively (Note 8)................................. 95,802,931 97,648,773
ACCRUED INTEREST RECEIVABLE....................................... 862,373 834,906
REAL ESTATE OWNED................................................. 1,585,202 1,469,989
OFFICE PROPERTIES AND EQUIPMENT -- Net............................ 2,763,302 2,810,487
FEDERAL HOME LOAN BANK STOCK -- at cost........................... 1,012,700 1,012,700
OTHER ASSETS...................................................... 266,592 329,509
------------ -------------
TOTAL................................................... $139,494,280 $ 140,691,392
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
DEPOSIT ACCOUNTS.................................................. $122,679,297 $ 120,570,957
ADVANCES FROM FEDERAL HOME LOAN BANK (Note 8)..................... 7,000,000 9,000,000
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE..................... 357,149 1,714,227
OTHER LIABILITIES................................................. 561,883 773,794
------------ -------------
Total liabilities....................................... 130,598,329 132,058,978
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Note 7):
Preferred stock $.01 par value; authorized 500,000 shares; none
outstanding
Common stock $.01 par value; authorized 2,000,000 shares; issued
and outstanding 473,986 shares............................... 4,740 4,740
Additional paid-in capital...................................... 3,685,222 3,685,222
Retained earnings -- substantially restricted................... 5,279,858 5,114,858
Unrealized losses on investments available for sale -- net (Note
4)........................................................... (14,601) (107,583)
Unearned compensation (Note 7).................................. (59,268) (64,823)
------------ -------------
Total stockholders' equity.............................. 8,895,951 8,632,414
------------ -------------
TOTAL................................................... $139,494,280 $ 140,691,392
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-24
<PAGE> 134
FFE FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans...................................... $1,961,244 $1,734,164
Interest on mortgage-backed securities.......................... 333,997 233,122
Interest and dividends on investments........................... 172,390 189,664
Interest on interest-bearing deposits........................... 67,443 51,386
------------ ------------
Total................................................... 2,535,074 2,208,336
------------ ------------
INTEREST EXPENSE:
Interest on deposit accounts.................................... 1,455,824 1,168,323
Interest on borrowings.......................................... 158,184 93,335
------------ ------------
Total................................................... 1,614,008 1,261,658
------------ ------------
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSSES..................................................... 921,066 946,678
PROVISION FOR LOAN LOSSES......................................... -- --
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES..................................................... 921,066 946,678
------------ ------------
OTHER INCOME:
Gains on sales of real estate owned -- net...................... 7,059 --
Customer service charges........................................ 95,426 96,654
Other........................................................... 31,620 58,288
------------ ------------
Total................................................... 134,105 154,942
------------ ------------
OTHER EXPENSES:
Employee compensation and benefits.............................. 347,809 356,715
Occupancy and equipment......................................... 159,938 160,719
Advertising and promotion....................................... 24,834 26,618
Deposit insurance premium....................................... 78,645 76,683
Examination and professional fees............................... 54,187 47,979
Real estate owned operating expense -- net...................... 23,029 1,187
Losses on sales of real estate owned -- net..................... -- 6,051
Provision for losses on real estate owned....................... 24,774 16,698
Other........................................................... 83,090 80,915
------------ ------------
Total................................................... 796,306 773,565
------------ ------------
INCOME BEFORE INCOME TAXES........................................ 258,865 328,055
INCOME TAX PROVISION.............................................. 93,865 124,661
------------ ------------
NET INCOME.............................................. $ 165,000 $ 203,394
========== ==========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES (Note 5)..... 495,841 483,449
========== ==========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES, ASSUMING
FULL DILUTION (Note 5).......................................... 498,129 483,449
========== ==========
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE (Note 5):
Primary......................................................... $ .33 $ .42
========== ==========
Fully diluted................................................... $ .33 $ .42
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-25
<PAGE> 135
FFE FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL LOSS ON
COMMON PAID-IN RETAINED INVESTMENTS UNEARNED
STOCK CAPITAL EARNINGS FOR SALE COMPENSATION TOTAL
------ ---------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30,
1995...................... $4,740 $3,685,222 $5,114,858 $ (107,583) $(64,823) $8,632,414
Amortization of unearned
compensation.............. -- -- -- -- 5,555 5,555
Adjustment of investments
available for sale to fair
value -- net (Note 4)..... -- -- -- 92,982 -- 92,982
Net Income.................. -- -- 165,000 -- -- 165,000
------ ---------- ---------- ----------- ------------ ----------
BALANCE, DECEMBER 31,
1995...................... $4,740 $3,685,222 $5,279,858 $ (14,601) $(59,268) $8,895,951
====== ========= ========= ========= ========== =========
</TABLE>
See notes to condensed consolidated financial statements.
F-26
<PAGE> 136
FFE FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME......................................................... $ 165,000 $ 203,394
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Provision for losses on real estate owned........................ 24,774 --
Depreciation and amortization.................................... 53,912 72,046
Losses (gains) on sales of real estate owned -- net.............. (7,059) 6,051
Increase in accrued interest receivable.......................... (27,467) (241,446)
(Increase) decrease in other assets.............................. 5,927 (850,060)
Decrease in other liabilities.................................... (211,911) (595,953)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES................ 3,176 (1,405,968)
------------ ------------
INVESTING ACTIVITIES:
Purchases of investments and mortgage-backed securities.......... -- (9,792,547)
Proceeds from maturities of investments and principal reductions
on mortgage-backed securities................................. 1,626,949 381,040
Net (increase) decrease in loans................................. 1,603,313 (162,985)
Purchases of property and equipment.............................. -- (29,514)
Proceeds from sales of real estate owned......................... 108,116 28,282
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES................ 3,338,378 (9,575,724)
------------ ------------
FINANCING ACTIVITIES:
Net increase in checking transactional accounts.................. 1,895,630 1,296,837
Net decrease in savings deposits................................. (25,625) (467,328)
Net increase in certificate accounts............................. 238,335 666,202
Net increase (decrease)in advances from FHLB..................... (2,000,000) 10,000,000
Net decrease in advances by borrowers for taxes and insurance.... (1,357,078) (1,281,975)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................ (1,248,738) 10,213,736
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... 2,092,816 (767,956)
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD................... 4,908,498 4,630,058
------------ ------------
CASH AND CASH EQUIVALENTS -- END OF PERIOD......................... $ 7,001,314 $ 3,862,102
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid (refunded) -- net.............................. $ 266,270 $ (1,873)
=========== ==========
Interest paid.................................................... $ 1,617,008 $ 1,294,499
=========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Loans settled by acquisition of real estate...................... $ 242,529 $ 158,276
=========== ==========
Unrealized loss on investments available for sale, net of
deferred taxes of $8,949 and $336,943......................... $ (14,601) $ (549,749)
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-27
<PAGE> 137
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and therefore, do
not include all information and disclosures which are necessary for a fair
presentation of financial condition, results of operations and cash flows in
accordance with generally accepted accounting principles. However, in the
opinion of management, all adjustments (which consist of normal recurring
accruals) which are necessary for a fair presentation of the consolidated
financial statements have been included. The interim consolidated results of
operations for the three months ended December 31, 1995 are not necessarily
indicative of the results which may be expected for the entire year.
Certain amounts in the financial statements for the three months ended
December 31, 1994 have been reclassified to conform with the 1995 presentation.
NOTE 2. PRINCIPLES OF CONSOLIDATION
The accompanying condensed consolidated financial statements include the
accounts of FFE Financial Corp. (the "Holding Company") and its wholly-owned
subsidiary First of Englewood F.S.B. (the "Bank") collectively, the ("Company").
All significant intercompany balances and transactions have been eliminated in
consolidation.
NOTE 3. STOCK CONVERSION
FFE Financial Corp., a newly formed holding corporation, completed an
initial public offering on August 26, 1993, consisting of 462,875 shares of $.01
par value common stock (the "Offering") and 10,185 shares issued pursuant to the
Bank's Management Recognition Plan. The gross proceeds of the Offering totaled
$4,628,750 of which $4,629 was allocated to common stock and $3,492,257 (which
is net of conversion costs of $1,131,864) was allocated to additional paid-in
capital. Simultaneous to the Offering, the Bank, formerly known as First Federal
Savings and Loan of Englewood, converted from a federal mutual savings and loan
association to a federal stock savings bank as approved by members of the Bank
(the "Conversion"). Substantially all of the net proceeds of the Offering were
used to acquire 100% of the common stock of the Bank.
NOTE 4. INVESTMENTS AND MORTGAGE-BACKED SECURITIES
The Company accounts for investments and mortgaged-backed securities in
accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS No. 115"). Under SFAS No. 115 investments in
debt and equity securities are required to be classified into: 1) trading
securities, 2) held-to-maturity securities or 3) available-for-sale securities.
Pursuant to SFAS No. 115, at December 31, 1995, the Company has classified
$11,469,999 of investments in U.S. Government and agency obligations as
investments available-for-sale. Such investments available-for-sale are reported
at fair value, with unrealized gains and losses excluded from earnings and
reported as a separate component of stockholders' equity. In addition, the
Company has classified its investments in mortgage-backed securities of
$18,729,867 as held-to-maturity. Investments classified as held-to-maturity are
reported at amortized cost. Pursuant to the statement, as of December 31, 1995,
the Company's net unrealized losses on the investments available-for-sale of
$14,601 (which is net of the related income tax effect of $8,949) has been
reported as a separate component of stockholders' equity in the accompanying
condensed consolidated financial statements.
F-28
<PAGE> 138
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. EARNINGS PER COMMON SHARE
Earnings per common share is calculated by dividing net income by the
weighted average number of common stock and common stock equivalent (stock
options) shares outstanding.
NOTE 6. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
At December 31, 1995, the Company had no commitments outstanding to
originate loans.
CONTINGENCIES
At December 31, 1995, the Company and the Bank are involved in routine
legal proceedings occurring in the ordinary course of business, which will not
have a material effect on the condensed consolidated financial statements.
A number of proposals are being considered by the Treasury Department, the
FDIC, the OTS, and Congress to recapitalize the Savings Association Insurance
Fund ("SAIF"). Most of the proposals provide for a one-time assessment of .85%
to .90% of SAIF insured deposits, which would mean an assessment of
approximately $1,015,000 to the Bank. The ultimate resolution of these proposals
is uncertain at this time.
NOTE 7. STOCK INCENTIVE AND MANAGEMENT RECOGNITION PROGRAMS
On January 25, 1994, the Company's shareholders approved a stock incentive
plan (the "Plan") for key officers, members of the Board of Directors and
employees. In accordance, with the terms of the Conversion, 46,288 shares of
common stock were reserved for issuance under the Plan. As of December 31, 1994
and 1995, the Company has granted 40,731 options under the Plan. The exercise
price of the options granted ranges from $10 to $11.75 per share. The options
granted vest at a rate of 20% per year of continuous service from the date of
grant. There have been no options exercised or canceled.
Subsequent to the Offering (see Note 3), the Company adopted a Management
Recognition Plan ("MRP") for key officers and members of the Board of Directors.
In accordance with the terms of the Conversion, 13,886 shares of common stock
were reserved for issuance under the MRP. As of December 31, 1995, 11,111 shares
of common stock were granted to officers and the Board of Directors. The
unearned compensation for the shares granted aggregated $110,999 and is being
amortized over the vesting period of five years.
NOTE 8. ADVANCES FROM THE FEDERAL HOME LOAN BANK
The Company obtains advances from the Federal Home Loan Bank ("FHLB") as
necessary to fund its lending and other cash flow obligations.
At December 31, 1995, the Company has $7,000,000 of advances outstanding as
follows:
<TABLE>
<CAPTION>
INTEREST
MATURITY DATE RATES AMOUNT
------------------------------------------------------------- -------------- ----------
<S> <C> <C>
October 19, 1996............................................. 7.21% $ 750,000
December 1, 1996............................................. 7.93 3,000,000
October 19, 1997............................................. 7.46 3,250,000
----------
Total.............................................. $7,000,000
=========
</TABLE>
Under a specific collateral agreement with the FHLB, the Company is
required to collateralize its outstanding advances. The collateral consists of
residential first mortgages, mortgage-backed securities, and all
F-29
<PAGE> 139
FFE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of its FHLB stock. At December 31, 1994, the Company had pledged first mortgage
loans with an approximate principal balance of $10,786,000, and mortgage-backed
securities with an approximate principal balance of $9,078,000, to secure the
advances.
NOTE 9. PENDING BUSINESS COMBINATION
On November 3, 1995, the Company entered into an Agreement and Plan of
Merger (the "Agreement") with SouthTrust Corporation ("SouthTrust") pursuant to
which the Company will be merged with and into SouthTrust of Florida, a
wholly-owned subsidiary of SouthTrust. With approval from the Company's
stockholders and various regulatory agencies, each share of common stock of the
Company shall be converted into the right to receive $10.80 in cash, subject to
potential downward adjustment as provided in the Agreement, as well as .645
shares of SouthTrust common stock, also subject to either an upward or downward
adjustment based upon fluctuations in the price of SouthTrust's common stock.
Certain key officers and members of the Board of Directors of the Company may
receive certain employment and change in control agreements. Such agreements
provide severance pay and other benefits upon the completion of the acquisition
of the Company by SouthTrust. In addition, those participating in the Plan and
MRP would become fully vested for all options and shares issued under those
agreements. SouthTrust would also indemnify all directors, officers and
employees for a period of three years from the closing date of the Agreement
against certain liabilities arising prior to the merger.
NOTE 10. ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 114 AND
118
Effective October 1, 1995, FFE adopted Statement of Financial Accounting
Standards No. 114 (FAS 114), "Accounting by Creditors for Impairment of a Loan,"
and Statement of Financial Accounting Standards No. 118 (FAS 118), "Accounting
by Creditors for Impairment of a Loan -- Income Recognition and Disclosures."
These statements require creditors account for impaired loans, except for those
loans that are accounted for at fair value or at the lower of cost or fair
value, at the present value of the expected future cash flows discounted at the
loan's effective interest rate. A loan is impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all principal and interest amounts due according to the contractual terms of the
loan agreement. The Company's adoption of these accounting standards did not
have a material effect on the operations or financial condition of the Company.
F-30
<PAGE> 140
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
BETWEEN
SOUTHTRUST CORPORATION
SOUTHTRUST OF FLORIDA, INC.
AND
FFE FINANCIAL CORP.
<PAGE> 141
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
THE MERGER......................................................................... A-1
Section 1.1 Effects of the Merger.............................................. A-1
Section 1.2 Conversion of Stock................................................ A-2
Section 1.3 Time and Place of Closing.......................................... A-3
Section 1.4 Exchange of FFE Common Stock....................................... A-3
Section 1.5 Conversion of First of Englewood, F.S.B............................ A-4
Section 1.6 Execution of Stock Option Agreement................................ A-5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SOUTHTRUST....................................... A-5
Section 2.1 Organization....................................................... A-5
Section 2.2 Authorization...................................................... A-5
Section 2.3 Conflicts.......................................................... A-5
Section 2.4 Anti-takeover Provisions Inapplicable.............................. A-6
Section 2.5 Capitalization..................................................... A-6
Section 2.6 SouthTrust Financial Statements; Material Changes.................. A-6
Section 2.7 SouthTrust Subsidiaries............................................ A-7
Section 2.8 SouthTrust Filings................................................. A-7
Section 2.9 SouthTrust Reports................................................. A-7
Section 2.10 Compliance with Laws............................................... A-8
Section 2.11 Disclosure......................................................... A-8
Section 2.12 Litigation......................................................... A-8
Section 2.13 Licenses........................................................... A-8
Section 2.14 Contracts and Commitments.......................................... A-8
Section 2.15 Defaults........................................................... A-9
Section 2.16 Undisclosed Liabilities............................................ A-9
Section 2.17 Assets............................................................. A-9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FFE.............................................. A-9
Section 3.1 Organization....................................................... A-9
Section 3.2 Authorization...................................................... A-10
Section 3.3 Conflicts.......................................................... A-10
Section 3.4 Anti-takeover Provisions Inapplicable.............................. A-10
Section 3.5 Capitalization and Stockholders.................................... A-10
Section 3.6 FFE Financial Statements; Material Changes......................... A-11
Section 3.7 FFE Subsidiaries................................................... A-11
Section 3.8 FFE Filings........................................................ A-12
Section 3.9 FFE Reports........................................................ A-12
Section 3.10 Compliance With Laws............................................... A-12
Section 3.11 Disclosure......................................................... A-13
Section 3.12 Litigation......................................................... A-13
Section 3.13 Licenses........................................................... A-13
Section 3.14 Taxes.............................................................. A-13
Section 3.15 Insurance.......................................................... A-14
Section 3.16 Loans; Investments................................................. A-14
Section 3.17 Allowance for Possible Loan Losses................................. A-15
Section 3.18 FFE Benefit Plans.................................................. A-15
</TABLE>
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Section 3.19 Compliance with Environmental Laws................................. A-17
Section 3.20 Contracts and Commitments.......................................... A-18
Section 3.21 Defaults........................................................... A-20
Section 3.22 Operations Since September 30, 1994................................ A-20
Section 3.23 Corporate Records.................................................. A-21
Section 3.24 Undisclosed Liabilities............................................ A-21
Section 3.25 Assets............................................................. A-21
Section 3.26 Insider Interests.................................................. A-21
Section 3.27 Registration Obligations........................................... A-22
Section 3.28 Regulatory Matters................................................. A-22
ARTICLE IV
COVENANTS OF FFE................................................................... A-22
Section 4.1 Business in Ordinary Course........................................ A-22
Section 4.2 Conforming Accounting and Reserve Policies; Restructuring
Expenses....................................................................... A-24
Section 4.3 Certain Actions.................................................... A-24
Section 4.4 Curative and Compliance Matters.................................... A-25
ARTICLE V
ADDITIONAL AGREEMENTS.............................................................. A-25
Section 5.1 Inspection of Records; Confidentiality............................. A-25
Section 5.2 Registration Statement; Stockholder Approval....................... A-25
Section 5.3 Affiliate Letters.................................................. A-26
Section 5.4 Brokers............................................................ A-26
Section 5.5 Cooperation........................................................ A-26
Section 5.6 Regulatory Applications............................................ A-26
Section 5.7 Financial Statements and Reports................................... A-26
Section 5.8 Press Release...................................................... A-27
Section 5.9 Delivery of Supplements to Disclosure Schedules.................... A-27
Section 5.10 Litigation Matters................................................. A-27
Section 5.11 Tax Opinion........................................................ A-27
Section 5.12 Options; MRP; Employment Agreements; Benefits and Related
Matters........................................................................ A-27
Section 5.13 Tax Treatment...................................................... A-29
Section 5.14 Stock Exchange Listing............................................. A-29
Section 5.15 Directors' and Officers' Indemnification Insurance................. A-29
ARTICLE VI
CONDITIONS......................................................................... A-29
Section 6.1 Conditions to the Obligations of SouthTrust........................ A-29
Section 6.2 Conditions to the Obligations of FFE............................... A-30
Section 6.3 Conditions to the Obligations of the Parties....................... A-30
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER..................................................... A-31
Section 7.1 Termination........................................................ A-31
Section 7.2 Liabilities and Remedies; Break-Up Fee............................. A-32
Section 7.3 Survival of Agreements............................................. A-32
Section 7.4 Amendment.......................................................... A-32
Section 7.5 Waiver............................................................. A-32
ARTICLE VIII
GENERAL PROVISIONS................................................................. A-33
Section 8.1 Survival........................................................... A-33
Section 8.2 Notices............................................................ A-33
</TABLE>
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Section 8.3 Applicable Law..................................................... A-34
Section 8.4 Headings, Etc. .................................................... A-34
Section 8.5 Severability....................................................... A-34
Section 8.6 Entire Agreement; Binding Effect; Non-Assignment; Counterparts..... A-34
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") being made and entered
into as of the 3rd day of November, 1995, by and between SouthTrust of Florida,
Inc., a Florida Corporation ("ST-Florida") and a wholly owned subsidiary of
SouthTrust Corporation, a Delaware corporation ("SouthTrust"), and FFE Financial
Corp., a Delaware corporation ("FFE"), which Agreement is joined into by
SouthTrust.
WITNESSETH THAT:
WHEREAS, SouthTrust is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended ("BHC");
WHEREAS, FFE is a registered savings and loan holding company under the
Home Owner's Loan Act, as amended ("HOLA");
WHEREAS, the Boards of Directors of SouthTrust, ST-Florida and FFE deem it
advisable and in the best interests of the stockholders of SouthTrust,
ST-Florida and FFE that SouthTrust and FFE become affiliated by causing FFE to
be merged with and into, and under the charter of, ST-Florida in accordance with
the applicable corporation law of the States of Florida and Delaware ("Corporate
Law") with ST-Florida deemed to be the continuing and surviving entity (the
"Merger"), pursuant to which the stockholders of FFE will receive shares of
common stock, $2.50 par value per share, of SouthTrust ("SouthTrust Common
Stock") and cash as provided herein in exchange for their shares of common
stock, $.01 par value per share, of FFE ("FFE Common Stock"); and
WHEREAS SouthTrust, ST-Florida and FFE desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also desire to set forth various conditions precedent to the Merger;
and
WHEREAS it is contemplated that SouthTrust and FFE will enter into a stock
option agreement (the "Stock Option Agreement") in substantially the form of
Exhibit 1.6, pursuant to which FFE is granting SouthTrust an option to purchase
shares of FFE Common Stock.
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 Effects of the Merger. (a) Surviving Corporation. Subject to
the terms and conditions of this Agreement, FFE shall be merged with and into,
and under the charter of, ST-Florida at the Effective Time (as defined below) in
accordance with the Corporate Law with ST-Florida being the continuing and
surviving corporation (sometimes referred to hereinafter as the "Surviving
Corporation"), and the separate existence of FFE shall cease.
(b) Effective Time. The Merger shall become effective when the Certificate
or Articles of Merger shall be accepted for filing by the Secretaries of State
of the States of Florida and Delaware (the "Effective Time"). On the Closing
Date (as defined in Section 1.3(a), the parties shall execute, acknowledge and
file, in accordance with the Corporate Law, the Certificate or Articles of
Merger.
(c) Rights and Liabilities. The Surviving Corporation shall be called
"SouthTrust of Florida, Inc.", and shall possess all of the properties
privileges, immunities, powers, franchises and rights of a public as well as a
private nature and be subject to all of the liabilities, restrictions and duties
of ST-Florida and FFE and be governed by the laws of the State of Florida.
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(d) Certificate or Articles of Incorporation. The Certificate or Articles
of Incorporation of ST-Florida shall be the Certificate or Articles of
Incorporation of the Surviving Corporation until amended in accordance with the
provisions thereof and the applicable Corporate Law.
(e) Bylaws. The Bylaws of ST-Florida in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until altered,
amended or repealed as provided therein, or in the Certificate or Articles of
Incorporation of the Surviving Corporation or the applicable Corporate Law.
(f) Directors and Officers. The directors of the Surviving Corporation
shall be the persons who were directors of ST-Florida immediately prior to the
Effective Time. The officers of the Surviving Corporation shall be the persons
who were officers of ST-Florida immediately prior to the Effective Time.
Section 1.2 Conversion of Stock. At the Effective Time:
(a) SouthTrust Common Stock. Each share of Common Stock of ST-Florida
and each share of SouthTrust Common Stock (and the rights (the "SouthTrust
Rights") associated with the SouthTrust Common Stock issued pursuant to a
Rights Agreement dated February 2, 1989 between SouthTrust and Mellon Bank,
N.A.)(the "Right Agreement"), which is issued immediately prior thereto
(whether then outstanding or held in the treasury of ST-Florida or
SouthTrust), shall continue to be issued without any change therein, and
each outstanding share of Common Stock of ST-Florida shall continue as one
share of Common Stock of the Surviving Corporation.
(b) FFE Common Stock. Each share of FFE Common Stock which is issued
and outstanding immediately prior to the Effective Time (other than
"Excluded Shares" which shall mean (i) shares of FFE Common Stock held by
FFE, SouthTrust, ST-Florida and their respective Significant Subsidiaries
as defined in Rule 1.2 of Regulation S-X of the Securities and Exchange
Commission ("SEC") which shall be canceled, but not those held in a
fiduciary capacity or in satisfaction of debts previously contracted, (ii)
Dissenting Shares as defined in Section 1.2(d) hereof and (iii) shares
awarded pursuant to the FFE Management Retention Plan ("MRP") prior to the
date hereof that are unvested immediately prior to the Effective Time)
shall be converted into and represent the right to receive and be
exchangeable into (A) cash in the amount of $10.80, as adjusted pursuant to
the next sentence of this Section 1.2(b), provided that if the Effective
Time takes place after April 30, 1996, then the stated cash amount shall be
increased at the rate of 8% per annum calculated from and including May 1,
1996 through the date on which the Effective Time occurs and (B) a number
of shares of SouthTrust Common Stock (and associated SouthTrust Rights)
equal to the Exchange Ratio (as herein defined). If the after-tax cost to
FFE Bank of restitution payments made or to be made to customers pursuant
to Section 4.4(a) of this Agreement exceeds $125,000 (the "Threshold
Amount"), the cash amount set forth in part (A) of this Section 1.2(b)
shall be decreased in an amount equal to the sum of 50% of the first
$125,000 in after-tax cost of such restitution which is in excess of the
Threshold Amount and 100% of the after-tax cost of such restitution in
excess of $250,000, divided by the number of shares of FFE Common Stock
outstanding immediately prior to the Effective Time and the number of
shares FFE Common Stock subject to outstanding options immediately prior to
the Effective Time. The "Exchange Ratio" shall be equal to .645 of a share
of SouthTrust Common Stock and associated SouthTrust Rights. However,
notwithstanding the foregoing, if .645, when multiplied by the average last
sales price of SouthTrust Common Stock for the later to occur of the twenty
(20) trading days immediately preceding the date of the special meeting of
stockholders of FFE at which the Merger is to be considered or the twenty
(20) trading days immediately following the date that the last regulatory
approval relating to the Merger is received (and all waiting periods
applicable thereto have expired), as reported by the Automated Quotation
System of the National Association of Securities Dealers, Inc.-National
Market System ("NASDAQ"), results in the aggregate of the amount
attributable to each share of FFE Common Stock, after taking into account
all adjustments, pursuant to (A) and (B) above being less than $22.95,
SouthTrust shall adjust the Exchange Ratio so that the aggregate of the
amount attributable to each share of FFE Common Stock, after all
adjustments, pursuant to (A) and (B) above, shall equal $22.95, and if
.645, when multiplied by the average last sales price of SouthTrust Common
Stock, as determined above, results in the aggregate of the amount
attributable to each share of FFE Common
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Stock, after taking into account all adjustments, pursuant to (A) and (B)
above, being more than $31.05, SouthTrust shall adjust the Exchange Ratio
so that the aggregate of the amount attributable to each share of FFE
Common Stock, after taking into account all adjustments, shall equal
$31.05.
(c) Actions Affecting SouthTrust Common Stock. If, prior to the
Effective Time, shares of SouthTrust Common Stock shall be changed into a
different number of shares or a different class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or there occurs a distribution of warrants or
rights with respect to SouthTrust Common Stock, or a stock dividend, stock
split or other general distribution of SouthTrust Common Stock is declared
with a record date prior to the Effective Time, then in any such event the
Exchange Ratio, as well as the number of SouthTrust Rights issuable in the
Merger, shall be appropriately adjusted.
(d) Dissenting Shares. Any shares of FFE Common Stock held by a
holder who dissents from the Merger in accordance with the Corporate Law of
the State of Delaware and becomes entitled to obtain payment for the fair
value of such shares of FFE Common Stock pursuant to the applicable
provisions of the Corporate Law of the State of Delaware shall be herein
called "Dissenting Shares." Notwithstanding any other provision of this
Agreement, any Dissenting Shares shall not, after the Effective Time, be
entitled to vote for any purpose or receive any dividends or other
distributions and shall be entitled only to such rights as are afforded in
respect of Dissenting Shares pursuant to the Corporate Law of the State of
Delaware. All payments in respect of Dissenting Shares shall be from funds
of SouthTrust and not from the acquired assets of FFE.
Section 1.3 Time and Place of Closing. (a) Closing; Closing Date. The
closing of the transactions contemplated by this Agreement (the "Closing") will
be held on a date mutually agreed upon by SouthTrust and FFE (the "Closing
Date"). In the absence of such agreement, and subject to the satisfaction or
waiver of all covenants and conditions contained in this Agreement on behalf of
each party, the Closing shall be held on the tenth business day after the last
to occur of: (i) the receipt of all consents and approvals of government
regulatory authorities as legally required to consummate the Merger and the
expiration of all applicable waiting periods; and (ii) the requisite approval of
the Merger by the stockholders of FFE. Provided however, if the record date for
a cash dividend on SouthTrust Common Stock is scheduled or contemplated to occur
within said ten business day period then the Closing Date and the Effective Time
will take place prior to such dividend record date.
(b) Closing Location. The closing shall take place at the offices of
SouthTrust or such other place as SouthTrust and FFE may mutually agree prior to
the Closing Date.
Section 1.4 Exchange of FFE Common Stock. (a) Exchange Procedures. As
soon as practicable after the Effective Time, the Exchange Agent, who shall be
appointed by SouthTrust, shall mail to each holder of record of a certificate or
certificates (other than certificates representing Excluded Shares) which as of
the Effective Time represented outstanding shares of FFE Common Stock (the
("Certificates"): (i) a form letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates (or a lost certificate affidavit
and bond in a form reasonably acceptable to the Exchange Agent); and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration (as herein defined). The "Merger Consideration"
shall mean the number of whole shares of SouthTrust Common Stock and the amount
of cash into which the FFE Common Stock shall have been converted by virtue of
the Merger as provided above and the cash value of any fraction of a share of
SouthTrust Common Stock as provided below. Upon surrender of a Certificate for
cancellation to the Exchange Agent (or a lost certificate affidavit and bond in
a form reasonably acceptable to the Exchange Agent), together with such letter
of transmittal, duly executed, the holder of such Certificate shall be entitled
to receive as promptly as practicable thereafter the Merger Consideration into
which the shares of FFE Common Stock represented by the Certificate so
surrendered shall have been converted pursuant to the provisions of this
Agreement and the Certificate so surrendered shall forthwith be delivered to the
Surviving Corporation for cancellation. In the event of a transfer of ownership
of FFE Common Stock which is not registered in the transfer records of FFE, the
Merger Consideration may be issued to a transferee if the Certificate
representing such FFE Common Stock is presented to the Exchange Agent,
accompanied by
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all documents required to evidence and effect such transfer and by any
applicable stock transfer taxes. No interest shall be payable on or with respect
to the cash portion of the Merger Consideration.
(b) Delivery of Merger Consideration to Exchange Agent. At the Effective
Time, SouthTrust shall deliver to the Exchange Agent the aggregate Merger
Consideration to be paid for all of the issued and outstanding shares of FFE
Common Stock other than Excluded Shares. On an as-required basis, SouthTrust
shall promptly and timely tender to the Exchange Agent additional cash funds
required for the payment of cash in lieu of fractional shares. The Merger
Consideration remaining in the hands of the Escrow Agent for non-surrendered
Certificates shall be returned to SouthTrust at the expiration of 180 days from
the Effective Time as provided in Section 1.4(c) below.
(c) Failure to Exchange FFE Common Stocks. No dividends or other
distributions declared on or after the Effective Time with respect to SouthTrust
Common Stock payable to the holders of record thereof on or after the Effective
Time shall be paid to the holder of any non-surrendered Certificate with respect
to SouthTrust Common Stock represented thereby until the holder of record shall
surrender such Certificate. Subject to the effect, if any, of applicable law,
after the subsequent surrender and exchange of a Certificate, the holder thereof
shall be entitled to receive any such dividends or distributions, without
interest thereon, which became payable on or after the Effective Time with
respect to the SouthTrust Common Stock represented by such Certificate. All
dividends or other distributions declared on or after the Effective Time with
respect to the SouthTrust Common Stock and payable to the holders of record
thereof after the Effective Time which are payable to the holder of a
Certificate not theretofore surrendered and exchanged for SouthTrust Common
Stock pursuant to this Section 1.4 shall be paid or delivered by Surviving
Corporation to the Exchange Agent, in trust, for the benefit of such holders.
All such dividends and distributions held by the Exchange Agent for payment or
delivery to the holders of non-surrendered Certificates unclaimed at the end of
180 days from the Effective Time shall be repaid or redelivered by the Exchange
Agent to the Surviving Corporation after which time any holder of Certificates
who has not theretofore surrendered such Certificates to the Exchange Agent,
subject to applicable law, shall look as a general creditor only to the
Surviving Corporation for payment or delivery of such dividends or
distributions, as the case may be. Any Merger Consideration delivered or made
available to the Exchange Agent pursuant to this Section 1.4 and not exchanged
for Certificates within one year after the Effective Time pursuant to this
Section 1.4 shall be returned by the Exchange Agent to the Surviving Corporation
which shall thereafter act as Exchange Agent subject to the rights of holders of
non-surrendered Certificates.
(d) Full Payment. All shares of SouthTrust Common Stock issued upon the
surrender for exchange of FFE Common Stock shall thereupon be validly issued and
outstanding, fully paid and non-assessable, and shall not be liable to any
further call, nor shall the holder thereof be liable for any further payments
with respect thereto.
(e) Fractional Shares. No certificates or scrip representing fractional
shares of SouthTrust Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution of the Surviving
Corporation shall relate to any factional share, and such fractional share
interests will not entitle the owner thereof to vote or to any other rights of a
stockholder of the Surviving Corporation. In lieu of any fractional share, the
Exchange Agent or the Surviving Corporation as the case may be, shall pay to
each holder of shares of FFE Common Stock who otherwise would be entitled to
receive a fractional share of SouthTrust Common Stock an amount of cash (without
interest) equal to the product achieved when such fraction is multiplied by an
amount equal to the last sales price of SouthTrust Common Stock, as reported by
NASDAQ, as of the trading day immediately preceding the Effective Time, rounded
to the nearest cent.
(f) List of FFE Stockholders. At the Effective Time, FFE shall deliver a
certified copy of a list of its stockholders to the Exchange Agent, after which
there shall be no further registrations or transfers on the stock transfer books
of FFE of the shares of FFE Common Stock that were outstanding immediately prior
thereto. If, after the Effective Time, Certificates representing such shares are
presented to FFE or SouthTrust, they shall be canceled and exchanged as provided
in this Article I.
Section 1.5 Conversion of First of Englewood, F.S.B. The parties
understand that it is the present intention of SouthTrust to convert First of
Englewood, F.S.B. ("FFE Bank"), a wholly owned subsidiary of
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FFE, into a national banking association at or after the Effective Time, to
relocate FFE Bank's main office to a place to be designated by SouthTrust at or
after the Effective Time, and to merge FFE Bank into one of SouthTrust's
national bank Subsidiaries (retaining FFE Bank's existing offices as branches)
at or after the Effective Time. FFE shall take all such actions as are
reasonably requested by SouthTrust so that SouthTrust may accomplish such
conversion, relocation and merger as aforesaid. Nothing contained in this
Section 1.5 is intended to impose an obligation on SouthTrust to alter the
manner in which SouthTrust or any SouthTrust Subsidiary conducts business.
Section 1.6 Execution of Stock Option Agreement. It is contemplated that
SouthTrust and FFE will enter into the Stock Option Agreement in the form as set
forth in Exhibit 1.6.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SOUTHTRUST
SouthTrust represents and warrants to FFE that:
Section 2.1 Organization. (a) SouthTrust is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite power and authority, corporate and otherwise, to own,
operate and lease its assets, properties and business and to carry on its
business substantially as it has been and is now being conducted. SouthTrust is
duly qualified to do business and is in good standing in each jurisdiction where
the character of the assets or properties owned or leased by it or the nature of
the business transacted by it requires that it be so qualified, except where the
failure to so qualify would not have a Material Adverse Effect (as herein
defined) on SouthTrust or its ability to consummate the transactions
contemplated herein. SouthTrust has all requisite corporate power and authority
to enter into this Agreement and, subject to the receipt of all requisite
regulatory approvals and the expiration of applicable waiting periods, to
consummate the transactions contemplated hereby SouthTrust is duly registered as
a bank holding company under BHC.
(b) As used in this Agreement, the term "Material Adverse Effect" with
respect to an entity means any condition, event, change or occurrence that has
or may reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), properties, business, operations or results of
operations, of such entity on a consolidated basis; it being understood that a
Material Adverse Effect shall not include: (i) a change with respect to, or
effect on, such entity and its Subsidiaries resulting from a change in law,
rule, regulation, generally accepted accounting principles or regulatory
accounting principles, including but not limited to, a change that would require
the bad debt reserve of a thrift institution to be restored to income; (ii) a
change with respect to, or effect on, such entity and its Subsidiaries resulting
from expenses (such as legal, accounting and investment bankers' fees) incurred
in connection with this Agreement; (iii) a change with respect to, or effect on,
such entity and its Subsidiaries resulting from any other matter affecting
depository institutions generally including, without limitation, changes in
general economic conditions and changes in prevailing interest and deposit
rates; (iv) any one-time special insurance premium assessed by the Federal
Deposit Insurance Corporation ("FDIC") on deposits insured by the Savings
Association Insurance Fund ("SAIF"); (v) in the case of FFE, any financial
change resulting from adjustments taken pursuant to Section 4.2 hereof; or (vi)
the costs and expenses of the audits and other corrective actions taken pursuant
to Section 4.4 and the amount of the restitution payments, if any to be made in
connection therewith.
Section 2.2 Authorization. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly approved and authorized by SouthTrust's Board of Directors or the
Executive Committee thereof, and no other corporate action on the part of
SouthTrust is required to be taken. This Agreement has been duly executed and
delivered by SouthTrust and constitutes the valid and binding obligation of
SouthTrust and is enforceable against SouthTrust (except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles and
doctrines).
Section 2.3 Conflicts. Subject to the second sentence of this Section
2.3, the execution and delivery of this Agreement does not, and the consummation
of the transactions contemplated hereby will not, conflict
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with or result in any violation, breach or termination of, or default or loss of
a material benefit under, or permit the acceleration of any obligation under, or
result in the creation of any material lien, charge or encumbrance on any of the
property or assets under, any provision of the Certificate [Articles] of
Incorporation or Bylaws of SouthTrust or similar documents of any SouthTrust
Subsidiary (as defined in Section 2.7 hereof) or any mortgage, indenture, lease,
agreement or other instrument, permit, concession, grant, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to SouthTrust or any SouthTrust Subsidiary or their respective properties, other
than any such conflicts, violations or defaults which (i) will not have a
Material Adverse Effect on SouthTrust or (ii) are disclosed in Section 2.3 of
that certain confidential writing delivered by SouthTrust to FFE within two
business days prior to the date hereof (the "SouthTrust Disclosure Schedule").
No consent, approval, order or authorization of, or registration, declaration or
filing with, any federal or state governmental authority is required by or with
respect to SouthTrust in connection with the execution and delivery of this
Agreement or the consummation by SouthTrust of the transactions contemplated
hereby except for: (a) the filing of all applicable regulatory applications by
SouthTrust, FFE and/or their respective Subsidiaries for approval of the
transactions contemplated by this Agreement; (b) the filing by SouthTrust of the
registration statement relating to the SouthTrust Common Stock to be issued
pursuant to this Agreement (the "Registration Statement") with the SEC and
various blue sky authorities, which Registration Statement shall include the
prospectus/proxy statement for use in connection with the FFE Stockholders'
Meeting (the "Proxy Statement"); (c) the filing of the Certificate or Articles
of Merger with respect to the Merger with the Secretary of State of the States
of Florida and Delaware; (d) any filings, approvals or no-action letters with or
from state securities authorities; and (e) any anti-trust filings, consents,
waivers or approvals.
Section 2.4 Anti-takeover Provisions Inapplicable. No "business
combination," "moratorium," "control share" or other state anti-takeover statute
or regulation (i) prohibits or restricts SouthTrust's ability to perform its
obligations under this Agreement or its ability to consummate the transactions
contemplated hereby, (ii) would have the effect of invalidating or voiding this
Agreement or any provision hereof, or (iii) would subject FFE to any material
impediment or condition in connection with the exercise of any of its rights
under this Agreement.
Section 2.5 Capitalization. (a) As of the date hereof, the authorized
capital stock of SouthTrust consists of (i) 200,000,000 shares of SouthTrust
Common Stock, $2.50 par value per share, of which, as of October 17, 1995,
87,763,319 shares were issued and outstanding (ii) 5,000,000 shares of preferred
stock, $1.00 par value per share, of which none are issued and outstanding. All
of the issued and outstanding shares of SouthTrust Common Stock have been, and
all of the shares of SouthTrust Common Stock to be issued in the Merger will be,
at the Effective Time, duly and validly authorized and issued, and are or will
be, as the case may be, fully paid and non-assessable. None of the outstanding
shares of SouthTrust Common Stock has been issued in violation of any preemptive
rights of the current or past stockholders of SouthTrust and none of the
outstanding shares of SouthTrust Common Stock is or will be entitled to any
preemptive rights in respect of the Merger or any of the other transactions
contemplated by this Agreement.
(b) As of September 30, 1995, SouthTrust does not have outstanding any
securities or rights convertible into or exchangeable for SouthTrust Common
Stock or any commitments, contracts, understandings or arrangements by which
SouthTrust is or may be bound to issue additional shares of SouthTrust Common
Stock, except for SouthTrust Common Stock issuable in connection with past or
pending acquisitions or employee benefit plans and except for transactions
pursuant to the Rights Agreement.
Section 2.6 SouthTrust Financial Statements; Material Changes. SouthTrust
has heretofore delivered to FFE its audited consolidated financial statements
for fiscal years ended 1993 and 1994 and its unaudited consolidated financial
statements as of June 30, 1995 (together the "SouthTrust Financial Statements").
The SouthTrust Financial Statements (x) are true and correct in all material
respects; (y) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto, and except in the case of
unaudited consolidated financial statements for the absence of footnotes and for
normal recurring year-end adjustments which are not material); and (z) fairly
present the consolidated financial position of SouthTrust as of the dates
thereof and the consolidated results of its operations, stockholders' equity,
cash flows and changes in financial position for
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the periods then ended. Since June 30, 1995 to the date hereof, SouthTrust and
the SouthTrust Subsidiaries have not undergone or suffered any changes in their
respective condition (financial or otherwise), properties, business or
operations which have been, in any case or in the aggregate, materially adverse
to SouthTrust on a consolidated basis except as disclosed in Section 2.6 of the
SouthTrust Disclosure Schedule.
Section 2.7 SouthTrust Subsidiaries. (a) SouthTrust owns directly or
indirectly all of the issued and outstanding shares of capital stock of the
SouthTrust Subsidiaries. No capital stock of any of the SouthTrust Subsidiaries
is, or may become required to be, issued (other than to SouthTrust) by reason of
any options, warrants, scrip, right 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 any SouthTrust Subsidiary.
All of the shares of capital stock of each SouthTrust Subsidiary held by
SouthTrust or a SouthTrust Subsidiary are fully paid and non-assessable and are
owned free and clear of any claim, lien or encumbrance, except as disclosed on
Section 2.7 of the SouthTrust Disclosure Schedule.
(b) Each SouthTrust Subsidiary is either a financial institution or a
corporation and is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated or organized, and is
duly qualified to do business and in good standing in each jurisdiction where
the character of the assets or properties owned or leased by it or the nature of
the business transacted by it requires it to be so qualified, except where the
failure to so qualify, either individually or in the aggregate, would not have a
Material Adverse Effect on SouthTrust or the ability of SouthTrust to consummate
the transactions contemplated herein. Each SouthTrust Subsidiary has the
corporate power and authority necessary for it to own, operate or lease its
assets, properties and business and to carry on its business as it has been and
is now being conducted.
(c) For purposes of this Agreement, a "SouthTrust Subsidiary" or a
"Subsidiary" of SouthTrust shall mean SouthTrust of Florida, Inc., SouthTrust of
Georgia, Inc., SouthTrust Bank of Alabama, N.A., SouthTrust Bank of Georgia,
N.A., and SouthTrust Bank of (Florida).
Section 2.8 SouthTrust Filings. SouthTrust has previously made available,
or will make available prior to the Effective Time, to FFE true and correct
copies of its (i) proxy statements relating to all meetings of its stockholders
(whether special or annual) during calendar years 1994 and 1995 and (ii) all
other reports, as amended, or filings, as amended, required to be filed under
the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act")
by SouthTrust with the SEC since January 1, 1994 including without limitation on
Forms 10-K, 10-Q and 8-K.
Section 2.9 SouthTrust Reports. Since January 1, 1994, each of SouthTrust
and the SouthTrust Subsidiaries has filed, and will continue to file, all
reports and statements, together with any amendment required to be made with
respect thereto, that it was, or will be required to file with the SEC, the
Federal Reserve Board, the Office of the Comptroller of the Currency ("OCC"),
the FDIC, the NASD and other applicable banking, securities and other regulatory
authorities (except filings which are not material). As of their respective
dates (and without giving effect to any amendments or modifications filed after
the date of this Agreement with respect to reports and documents filed before
the date of this Agreement), each of such reports and documents, including the
financial statements, exhibits, and schedules thereto, complied in all material
respects with all of the statutes, rules and regulations enforced or promulgated
by the authority with which they were filed and did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. Except for normal examinations conducted
by the Internal Revenue Service, state and local taxing authorities, the Federal
Reserve Board, the OCC or the FDIC in the regular course of the business of
SouthTrust or the SouthTrust Subsidiaries, no federal, state or local
governmental agency, commission or other entity has initiated any proceeding or,
to the best knowledge of SouthTrust, investigation into the business or
operations of SouthTrust or the SouthTrust Subsidiaries within the past two (2)
years except as set forth in Section 2.9 of the SouthTrust Disclosure Schedule.
There is no unresolved violation, criticism or exception by the SEC, Federal
Reserve Board, OCC, FDIC or other agency, commission or entity with respect to
any report or statement referred to herein that is material to SouthTrust on a
consolidated basis.
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Section 2.10 Compliance with Laws. (a) Except as disclosed in Section
2.10 of the SouthTrust Disclosure Schedule, the businesses of SouthTrust and the
SouthTrust Subsidiaries are not being conducted in violation of any law,
ordinance or regulation of any governmental entity, including, without
limitation, any laws affecting financial institutions (including those
pertaining to the Bank Secrecy Act, the investment of funds, the lending of
money, the collection of interest and the extension of credit), federal and
state securities laws, laws and regulations relating to financial statements and
reports, truth-in-lending, truth-in-savings, usury, fair credit reporting,
consumer protection, occupational safety, fair employment practices, fair labor
standards and laws and regulations relating to employee benefits, and any
statutes or ordinances relating to the properties occupied or used by SouthTrust
or any SouthTrust Subsidiary, except for possible violations which either singly
or in the aggregate do not and, insofar as reasonably can be foreseen in the
future, will not have a Material Adverse Effect on SouthTrust.
(b) Except as disclosed in Section 2.10 of the SouthTrust Disclosure
Schedule, no investigation or review by any governmental entity with respect to
SouthTrust or any SouthTrust Subsidiary is pending or, to the best knowledge of
SouthTrust, threatened, nor has any governmental entity indicated to SouthTrust
an intention to conduct the same, other than normal financial institution
regulatory examinations and those the outcome of which will not have a Material
Adverse Effect on SouthTrust.
(c) As of the date of this Agreement, all SouthTrust Subsidiaries that are
financial institutions have a rating under the Community Reinvestment Act of
1977 from the applicable regulatory authority or authorities which is at least
"satisfactory."
Section 2.11 Disclosure. None of the written information supplied by
SouthTrust for inclusion in the Proxy Statement relating to the FFE
Stockholders' Meeting or the information relating to SouthTrust and the
SouthTrust Subsidiaries in the Registration Statement, will, in the case of the
Proxy Statement or any amendments thereof or supplements thereto, at the time of
mailing of the Proxy Statement and at the FFE Stockholders' Meeting or, in the
case of the Registration Statement, at the time it becomes effective and at the
time of the FFE Stockholder's Meeting, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Registration Statement at the time it becomes effective and
at the time of the FFE Stockholder's Meeting will comply as to form in all
material respects with the provisions of the Securities Act of 1933, as amended,
and the rules and regulations thereunder (the "Securities Act").
Section 2.12 Litigation. Except as disclosed in Section 2.12 of the
SouthTrust Disclosure Schedule, there is no suit, action, investigation or
proceeding, legal, quasi-judicial administrative or otherwise, pending or, to
the best knowledge of SouthTrust threatened, against or affecting SouthTrust or
any SouthTrust Subsidiary, or any of their respective officers, directors,
employees or agents, in their capacities as such, that is reasonably expected to
have, a Material Adverse Effect on SouthTrust or which would materially affect
the ability of SouthTrust to consummate the transactions contemplated herein or
which is seeking to enjoin consummation of the transactions provided for herein
or to obtain other relief in connection with this Agreement or the transactions
contemplated hereby, nor is there any judgment, decree, injunction, rule or
order of any court, governmental department, commission agency, instrumentality
or arbitrator outstanding against SouthTrust or any SouthTrust Subsidiary or any
of their respective officers, directors, employees or agents, in their
capacities as such, having, or which, insofar as reasonably can be foreseen in
the future, would have any such effect.
Section 2.13 Licenses. SouthTrust and the SouthTrust Subsidiaries hold
all licenses, certificates, permits, franchises and all patents, trademarks,
service marks, trade names, copyrights or rights thereto, and required
authorizations, approvals, consents, licenses, clearances and orders or
registrations with all appropriate federal, state or other authorities that are
material to the conduct of their respective businesses as now conducted and as
presently proposed to be conducted.
Section 2.14 Contracts and Commitments. Section 2.14 of the SouthTrust
Disclosure Schedule contains, and shall be supplemented by SouthTrust, as
required by Section 5.9 hereof, so as to contain at the Closing Date copies of
each of the following documents, certified by an officer of SouthTrust to be
true and correct copies of such documents on the dates of such certificates.
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(a) The Restated Certificate of Incorporation, and Restated Bylaws of
SouthTrust and the Charter and Bylaws of the banking affiliate of
SouthTrust into which FFE Bank will be merged.
(b) All judgments, orders, injunctions, court decrees or settlement
agreements arising out of or relating to the labor and employment practices
or decisions of SouthTrust or any SouthTrust Subsidiary which, by their
terms, continue to bind or affect SouthTrust or any SouthTrust Subsidiary.
(c) All orders, decrees, memorandums agreements or understandings with
regulatory agencies binding upon or affecting the current operations of
SouthTrust or any SouthTrust Subsidiary or any of their directors or
officers in their capacities as such.
Section 2.15 Defaults. There have been no defaults in the obligations to
be performed by SouthTrust or any SouthTrust Subsidiary under contracts or
commitments which are reasonably likely to result in a Material Adverse Effect
on SouthTrust.
Section 2.16 Undisclosed Liabilities. All of the material obligations or
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due, and regardless of when asserted) arising out of
transactions or events heretofore entered into, or action or inaction, including
taxes with respect to or based upon transactions or events heretofore occurring
("Liabilities") have, in the case of SouthTrust and the SouthTrust Subsidiaries,
been reflected, disclosed or reserved against in the SouthTrust Financial
Statements dated December 31, 1994, or in the notes thereto, which were prepared
in accordance with the second sentence of Section 2.6, and SouthTrust and
SouthTrust Subsidiaries have no other Liabilities except (a) Liabilities
incurred since December 31, 1994 in the ordinary course of business, (b) as
disclosed in SouthTrust Financial Statements delivered to FFE prior to the date
of this Agreement, or (c) as disclosed in Section 2.16 of the SouthTrust
Disclosure Schedule.
Section 2.17 Assets. (a) SouthTrust and the SouthTrust Subsidiaries have
good, and marketable title to their real properties including leaseholds, and
their other assets and properties, all as reflected as owned or held by
SouthTrust in the SouthTrust Financial Statements, dated as of June 30, 1995,
and those acquired since such date, except for (i) assets and properties
disposed of since such date in the ordinary course of business and (ii) liens,
none of which, in the aggregate, except as set forth in Section 2.17 of the
SouthTrust Disclosure Schedule, are material to the assets of SouthTrust on a
consolidated basis. All buildings, structures, fixtures and appurtenances
comprising part of the real properties of SouthTrust and the SouthTrust
Subsidiaries (whether owned or leased) are in good operating condition and have
been well maintained, reasonable wear and tear excepted. Title to all real
property owned by SouthTrust and the SouthTrust Subsidiaries is held in fee
simple, except as otherwise noted in the SouthTrust Financial Statements as of
June 30, 1995 or as set forth in Section 2.17 of the SouthTrust Disclosure
Schedule. SouthTrust and the SouthTrust Subsidiaries have title or other rights
to its assets sufficient in all material respects for the conduct of their
respective businesses as presently conducted, and except as set forth in the
SouthTrust Financial Statements, dated as of June 30, 1995, or in Section 2.17
of the SouthTrust Disclosure Schedule, free, clear and discharged of and from
any and all liens, charges, encumbrances, security interests and/or equities
which are material to SouthTrust or any SouthTrust Subsidiary.
(b) All leases pursuant to which SouthTrust or any SouthTrust Subsidiary,
as lessee, leases real or personal property which are material to the business
of SouthTrust on a consolidated basis are, to the best knowledge of SouthTrust,
valid, effective, and enforceable against the lessor in accordance with their
respective terms.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FFE
FFE represents and warrants to SouthTrust that:
Section 3.1 Organization. FFE is a corporation duly organized, validity
existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority, corporate and otherwise, to own, operate and
lease its assets, properties and business and to carry on its business
substantially as it has
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been and is now being conducted. FFE is duly qualified to do business and is in
good standing in each jurisdiction where the character of the assets or
properties owned or leased by it or the nature of the business transacted by it
requires that it be so qualified except where the failure to so qualify would
not have a Material Adverse Effect on FFE or its ability to consummate the
transactions contemplated herein. FFE has all requisite corporate power and
authority to enter into this Agreement and, subject to the approval of this
Agreement and the Merger by its stockholders and the receipt of all requisite
regulatory approvals and the expiration of any applicable waiting periods, to
consummate the transactions contemplated hereby. FFE is duly registered as a
savings and loan holding company under HOLA.
Section 3.2 Authorization. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and unanimously approved and authorized by FFE's Board of Directors,
and all necessary corporate action on the part of FFE has been taken, subject to
the approval of this Agreement and the Merger by the stockholders of FFE. This
Agreement has been duly executed and delivered by FFE and constitutes the valid
and binding obligation of FFE and is enforceable against FFE (except to the
extent that enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization moratorium or similar laws or equitable principles or
doctrines).
Section 3.3 Conflicts. Subject to the second sentence of this Section
3.3, the execution and delivery of this Agreement does not, and the consummation
of the transactions contemplated hereby will not, conflict with or result in any
violation, breach or termination of, or default or loss of a material benefit
under, or permit the acceleration of any obligation under, or result in the
creation of any material lien, charge or encumbrance on any property or assets
under, any provision of the Certificate or Articles of Incorporation or Bylaws
of FFE or similar documents of any FFE Subsidiary (as defined in Section 3.7
hereof), or any mortgage, indenture, lease, agreement or other instrument,
permit, concession, grant, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to FFE or any FFE Subsidiary or
their respective properties, other than any such conflicts, violations or
defaults which (i) are not material to the conduct of business or operations of
FFE or any FFE Subsidiary; or (ii) are disclosed in Section 3.3 of that certain
confidential writing delivered by FFE to SouthTrust within two business days
prior to the date hereof (the "FFE Disclosure Schedule"). No consent, approval,
order or authorization of, or registration, declaration or filing with any
federal or state governmental authority is required by or with respect to FFE in
connection with the execution and delivery of this Agreement or the consummation
by FFE of the transactions contemplated hereby except for: (a) the filing of all
applicable regulatory applications by SouthTrust, FFE and/or their respective
Subsidiaries for approval of the transactions contemplated by this Agreement;
(b) the filing by SouthTrust of the Registration Statement and the Proxy
Statement with the SEC and various blue sky authorities; (c) the filing of a
Certificate or Articles of Merger with respect to the Merger with the
Secretaries of State of the States of Florida and Delaware; (d) any filings,
approvals or nonaction letters with or from state securities authorities; and
(e) any anti-trust filings, consents, waivers or approvals.
Section 3.4 Anti-takeover Provisions Inapplicable. No "business
combination," "moratorium," "control share" or other state anti-takeover statute
or regulation, or any charter provision, bylaw, instrument or other agreement to
which FFE is a party (i) prohibits or restricts FFE's ability to perform its
obligations under this Agreement, or its ability to consummate the transactions
contemplated hereby, (ii) would have the effect of invalidating or voiding this
Agreement or any provision hereof, or (iii) would subject SouthTrust to any
material impediment or condition in connection with the exercise of any of its
right under this Agreement.
Section 3.5 Capitalization and Stockholders. (a) As of the date hereof,
the authorized capital stock of FFE consists of (i) 2,000,000 shares of FFE
Common Stock, $0.01 par value, of which 473,986 shares were issued and
outstanding and no shares were held as treasury shares as of September 30, 1995
and (ii) 500,000 shares of preferred stock, $0.01 par value, of which none are
issued and outstanding. All of the issued and outstanding shares of FFE Common
Stock have been duly and validly authorized and issued, and are fully paid and
non-assessable. None of the outstanding shares of FFE Common Stock has been
issued in violation of any preemptive rights of current or past stockholders or
are subject to any preemptive rights of the current or past stockholders of FFE.
All of the issued and outstanding shares of FFE Common Stock will be entitled to
vote to approve this Agreement and the Merger.
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(b) As of September 30, 1995, FFE had 46,288 shares of FFE Common Stock
reserved for issuance under the FFE 1992 Stock Option and Incentive Plan (the
"FFE Stock Option Plan") for the benefit of employees and directors of FFE and
FFE Bank, pursuant to which options covering 40,731 shares of FFE Common Stock
were outstanding as of such date (the "FFE Stock Options"). As of September 30,
1995, 11,111 shares of FFE Common Stock were outstanding under the MRP. Except
as set forth in this Section, there are no shares of capital stock or other
equity securities of FFE outstanding and no 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 FFE, or contracts, commitments, understandings,
or arrangements by which FFE is or may be bound to issue additional shares of
its capital stock or options, warranties, or rights to purchase or acquire any
additional share of its capital stock. The FFE Stock Options have an average
exercise price of $10.08 per share.
Section 3.6 FFE Financial Statements; Material Changes. FFE has
heretofore delivered to SouthTrust its audited, consolidated financial
statements for fiscal years ended September 30, 1994 and September 30, 1993 and
its unaudited consolidated financial statements for the quarters ended December
31, 1994, March 31, 1995 and June 30, 1995 (together the "FFE Financial
Statements"). The FFE Financial Statements (x) are true and correct in all
material respects; (y) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto and, except in the case of the
unaudited consolidated financial statements for the absence of footnotes and for
normal and recurring year-end adjustments which are not material); and (z)
fairly present the consolidated financial position of FFE as of the dates
thereof and the consolidated results of its operations, stockholders' equity,
cash flows and changes in financial position for the periods then ended. Since
September 30, 1994 to the date hereof, FFE and the FFE Subsidiaries have not
undergone or suffered any changes in their respective condition (financial or
otherwise), properties, business or operations which have been, in any case or
in the aggregate, materially adverse to FFE on a consolidated basis except as
disclosed in Section 3.6 of the FFE Disclosure Schedule or any FFE Financial
Statement dated subsequent to such date hereof and delivered to SouthTrust as of
the date hereof.
Section 3.7 FFE Subsidiaries. (a) All of the FFE Subsidiaries as of the
date of this Agreement are listed in Section 3.7 of the FFE Disclosure Schedule.
FFE owns directly or indirectly all of this issued and outstanding shares of
capital stock of the FFE Subsidiaries. Section 3.7 of the FFE Disclosure
Schedule sets forth the number of shares of authorized and outstanding capital
stock of the FFE Subsidiaries. No capital stock of any of the FFE Subsidiaries
is or may become required to be issued (other than to FFE) 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 into or
exchangeable for, shares of the capital stock of any FFE Subsidiary. There are
no contracts, commitments, understandings or arrangements relating to the rights
of FFE to vote or to dispose of shares of the capital stock of any FFE
Subsidiary. All of the shares of capital stock of each FFE Subsidiary held by
FFE or any FFE Subsidiary are fully paid and non-assessable and are owned free
and clear of any claim, lien or encumbrance, except as disclosed in Section 3.7
of the FFE Disclosure Schedule.
(b) Each FFE Subsidiary is either a federally chartered stock savings
institution or a corporation and is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated or
organized, and is duly qualified to do business and in good standing in each
jurisdiction where the character of the assets or properties owned or leased by
it or the nature of the business transacted by it requires it to be so qualified
except where the failure to so qualify, either individually or in the aggregate,
would not have a Material Adverse Effect on FFE or its ability to consummate the
transactions contemplated herein. Each FFE Subsidiary has the corporate power
and authority necessary for it to own, operate or lease its assets, properties
and business and to carry on its business substantially as it has been and is
now being conducted.
(c) For purposes of this Agreement, an "FFE Subsidiary" or a "Subsidiary"
of FFE shall mean each corporation, savings bank, association, and other entity
in which FFE owns or controls directly or indirectly 10% or more of the
outstanding equity securities; provided, however, there shall not be included
any such
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entity acquired in good faith through foreclosure, or any such entity to the
extent that the equity securities of such entity are owned or controlled in a
bona fide fiduciary capacity.
(d) FFE Bank is a member in good standing of the Federal Home Loan Bank
System. All eligible deposit accounts issued by FFE Bank are insured by the FDIC
through the SAIF in accordance with the provisions of the Federal Deposit
Insurance Company Act (the "Act"). FFE Bank has paid all regular premiums and
special assessments and filed reports required under the Act. FFE Bank is, and
at all times since June 1, 1990 has been, a "domestic building and loan
association" as defined in Section 7701(a)(19) of the Code and a "qualified
thrift lender" as defined in Section 10(m) of HOLA. The liquidation account
established by FFE Bank in connection with its conversion from mutual to stock
form has been maintained since its establishment in accordance with applicable
laws and the records with respect to said account are complete and accurate in
all material respects.
Section 3.8 FFE Filings. FFE has previously made available, or will make
available prior to the Effective Time, to SouthTrust true and complete copies of
the (i) proxy statements relating to all meetings of stockholders (whether
special or annual) of FFE during calendar years 1993 and 1994 and (ii) all other
reports, as amended, or filings, as amended, required to be filed under the
Securities Exchange Act by FFE with the SEC since January 1, 1994 including
without limitation Forms 10-K, 10-Q and 8-K.
Section 3.9 FFE Reports. Since January 1, 1994, each of FFE and the FFE
Subsidiaries has filed, and will continue to file, all reports and statements,
together with any amendment required to be made with respect thereto, that it
has, or will be, required to file with the SEC, the OTS, the FDIC, and the NASD,
and other applicable banking, securities and other regulatory authorities
(except filings which are not material). As of their respective dates (and
without giving effect to any amendments or modifications filed after the date of
this Agreement with respect to reports and documents filed before the date of
this Agreement), each of such reports and documents, including the financial
statements, exhibits, and schedules thereto, complied in all material respects
with all of the statutes, rules and regulations enforced or promulgated by the
authority with which they were filed and did not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were
made, not misleading. Except for normal examinations conducted by the Internal
Revenue Service, state and local taxing authorities, the OTS or the FDIC in the
regular course of the business of FFE or the FFE Subsidiaries, no federal, state
or local governmental agency, commission or other entity has initiated any
proceeding or, to the best knowledge of FFE, investigation into the business or
operations of FFE or the FFE Subsidiaries within the past two (2) years except
as set forth in Section 3.9 of the FFE Disclosure Schedule. There is no
unresolved violation, criticism or exception by the SEC, OTS, FDIC or other
agency, commission or entity with respect to any report or statement referred to
herein that is material to FFE or any FFE Subsidiary.
Section 3.10 Compliance With Laws. (a) Except as disclosed in Section
3.10 of the FFE Disclosure Schedule, the businesses of FFE and the FFE
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any governmental entity, including without limitation, any laws
affecting financial institutions (including those pertaining to the Bank Secrecy
Act, the investment of funds, the lending of money, the collection of interest
and the extension of credit), federal and state securities laws, laws and
regulations relating to financial statements and reports, truth-in-lending,
truth-in-savings, usury, fair credit reporting, consumer protection,
occupational safety, fair employment practices, fair labor standards and laws
and regulations relating to employee benefits, and any statutes or ordinances
relating to the properties occupied or used by FFE or any FFE Subsidiary, except
for possible violations which either singly or in the aggregate do not and,
insofar as reasonably can be foreseen in the future, will not have a Material
Adverse Effect on FFE.
(b) Except as disclosed in Section 3.10 of the FFE Disclosure Schedule, no
investigation or review by any governmental entity with respect to FFE or any
FFE Subsidiary is pending or, to the best knowledge of FFE, threatened, nor has
any governmental entity indicated to FFE an intention to conduct the same, other
than normal thrift regulatory examinations and those the outcome of which will
not have a Material Adverse Effect on FFE.
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(c) As of the date of this Agreement, Bank's rating under the Community
Reinvestment Act of 1977, as assigned to Bank by its applicable regulatory
authority, is at least "satisfactory."
Section 3.11 Disclosure. None of the information supplied by FFE for
inclusion in the Proxy Statement or in the Registration Statement, will, in the
case of the Proxy Statement or any amendments thereof, or supplements thereto,
at the time of the FFE Stockholders' Meeting or, in the case of the Registration
Statement, at the time it becomes effective and at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
Section 3.12 Litigation. Except as disclosed in Section 3.12 of the FFE
Disclosure Schedule, there is no suit, action, investigation or proceeding,
legal, quasi-judicial, administrative or otherwise, pending or, to the best
knowledge of FFE threatened, against or affecting FFE or any FFE Subsidiary, or
any of their respective officers, directors, employees or agents, in their
capacities as such, which is seeking equitable relief or damages against FFE,
any FFE Subsidiary, or any of their respective officers, directors, employees or
agents, in their capacities as such, in excess of $10,000, or which would
materially affect the ability of FFE to consummate the transactions contemplated
herein or which is seeking to enjoin consummation of the transactions provided
for herein or to obtain other relief in connection with this Agreement or the
transactions contemplated hereby, nor is there any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against FFE or any FFE Subsidiary or
any of their respective officers, directors, employees or agents, in their
capacities as such, having, or which, insofar as reasonably can be foreseen in
the future, would have any such effect.
Section 3.13 Licenses. FFE and the FFE Subsidiaries hold all licenses,
certificates, permits, franchises and all patents, trademarks, service marks,
trade names, copyrights or right thereto, and required authorizations,
approvals, consents, licenses, clearances and orders or registrations with all
appropriate federal, state or other authorities that are material to the conduct
of their respective businesses as now conducted and as presently proposed to be
conducted.
Section 3.14 Taxes. (a) Except as disclosed in Section 3.14 of the FFE
Disclosure Schedule, FFE and the FFE Subsidiaries have each timely filed all tax
and information returns required to be filed and have paid (or FFE has paid on
behalf of its Subsidiaries), or have accrued on their respective books and set
up an adequate reserve for the payment of, all taxes required to be paid and
have accrued on their respective books and set up an adequate reserve for the
payment of all income and other taxes payable in respect of periods through the
end of the calendar month next preceding the date hereof. Neither FFE nor any
FFE Subsidiary is delinquent in the payment of any tax, assessment or
governmental charge. No deficiencies for any taxes have been proposed, asserted
or assessed against FFE or any FFE Subsidiary that have not been resolved or
settled and no requests for waivers of the time to assess any such tax are
pending or have been agreed to. The income tax returns of FFE and FFE
Subsidiaries have not been audited by the Internal Revenue Service, state,
municipal or other taxing authority for any of the last 10 years. Neither FFE
nor any FFE Subsidiary is a party to any action or proceeding by any
governmental authority for the assessment or the collection of taxes. Deferred
taxes of FFE and the FFE Subsidiaries have been accounted for in accordance with
generally accepted accounting principles.
(b) FFE has not filed any consolidated federal income tax return with an
"affiliated group" (within the meaning of Section 1504 of the Code) where FFE
was not the common parent of the group. Neither FFE nor any FFE Subsidiary is,
or has been, a party to any tax allocation agreement or arrangement pursuant to
which it has any contingent or outstanding liability to anyone other than FFE or
any FFE Subsidiary.
(c) FFE and the FFE Subsidiaries have each withheld amounts from its
employees, stockholders, or holders of public deposit accounts in compliance
with the tax withholding provisions of applicable federal, state and local laws,
have filed all federal, state and local returns and reports for all periods for
which such returns or reports would be due with respect to income tax
withholding, social security, unemployment taxes, income and other taxes and all
payments or deposits with respect to such taxes have been timely made and except
as set found in Section 3.14 of the FFE Disclosure Schedule, have notified all
employees, stockholders and holders of public deposit accounts of their
obligations to file all forms, statements or reports with it in
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accordance with applicable federal, state and local tax laws and have taken
reasonable steps to insure that such employees, stockholders and holders of
public deposit accounts have filed all such forms statements and reports with
it.
Section 3.15 Insurance. FFE and the FFE Subsidiaries maintain insurance
with insurers which in the best judgment of management of FFE are sound and
reputable, on their respective assets, and upon their respective businesses and
operations, against loss or damage, risks, hazards and liabilities as in their
judgment they deem appropriate. FFE and the FFE Subsidiaries are presently
insured, and during the past three (3) years have been insured, for reasonable
amounts against such risks as companies or institutions engaged in a similar
business would, in accordance with prudent business practices, be insured. All
material claims under all policies of insurance maintained by FFE and the FFE
Subsidiaries have been filed in due and timely fashion.
Section 3.16 Loans; Investments. (a) Except as otherwise disclosed in
Section 3.16 of the FFE Disclosure Schedule, each loan reflected as an asset on
the FFE Financial Statement, dated as of June 30, 1995, is evidenced by
appropriate and sufficient documentation and constitutes, to the best knowledge
of FFE, the legal, valid and binding obligation of the obligor named therein,
and is enforceable in accordance with its terms except to the extent that the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles or doctrines. Except as set
forth in Section 3.16 of the FFE Disclosure Schedule, all such loans are, and at
the Effective Time will be, free and clear of any security interest, lien,
encumbrance or other charge. Except as set forth in Section 3.16 of the FFE
Disclosure Schedule, there is no loan or other asset of FFE or of any FFE
Subsidiary that has been classified by examiners or others as "Other Loans of
Concern," "Substandard," "Doubtful" or "Loss" as of September 30, 1995. Set
forth in Section 3.16 of the FFE Disclosure Schedule is a complete list of the
REO of FFE and the FFE Subsidiaries as of September 30, 1995.
(b) All guarantees of indebtedness owed to FFE or any FFE Subsidiary,
including but not limited to those of the Federal Housing Administration, the
Small Business Administration, and other state and federal agencies, are, to the
best knowledge of FFE, valid and enforceable, except to the extent
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles or doctrines
and except as would not be material to FFE on a consolidated basis.
(c) All interest rate swaps, caps, floors and option agreements and other
interest rate risk management arrangements to which FFE or any FFE Subsidiary is
a party or by which any of their properties or assets may be bound were entered
into in the ordinary course of business and, to the best knowledge of FFE, in
accordance with then-customary practice and applicable rules, regulations and
policies of thrift regulatory authorities and with counterparties believed to be
financially responsible at the time and are legal, valid and binding obligations
and are in full force and effect. FFE and the FFE Subsidiaries have duly
performed in all material respects all of their respective obligations
thereunder to the extent that such obligations to perform have accrued, and to
the best knowledge of FFE, there are no material breaches, violation of defaults
or allegation or assertions of such by any party thereunder. None of the
transactions contemplated by this Agreement would permit: (i) a counterparty
under any interest rate swap, cap, floor and option agreement or any other
interest rate risk management agreement; or (ii) any party to any
mortgage-backed security financing arrangement, to accelerate, discontinue,
terminate or otherwise modify any such agreement or arrangement or would require
FFE or any FFE Subsidiary to recognize any gain or loss with respect to such
arrangement.
(d) Except as set forth in Section 3.16 of the FFE Disclosure Schedule and
except for pledges to secure public and trust deposits, none of the investments
reflected in the FFE Financial Statements, dated as of September 30, 1994, under
the heading "Investment Securities," and none of the investments made by FFE and
the FFE Subsidiaries since September 30, 1994, is subject to any restriction,
whether contractual or statutory, which materially impairs the ability of FFE or
any FFE Subsidiary to freely dispose of such investment at any time. With
respect to all material repurchase agreements to which FFE or any FFE Subsidiary
is a party, FFE or such Subsidiary has a valid, perfected first lien or security
interest in the government securities or other collateral securing each such
repurchase agreement, and the value of the
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collateral securing each such repurchase agreement equals or exceeds the amount
of the debt secured by such collateral under such agreement. Except as set forth
in the Disclosure Schedule of FFE and except for a transaction involving less
than $100,000, neither FFE nor any FFE Subsidiary has sold or otherwise disposed
of any assets in a transaction in which the acquiror of such assets or other
person has the right, either conditionally or absolutely, to require FFE or any
FFE Subsidiary to repurchase or otherwise reacquire any such assets. Set forth
in Section 3.16 of the FFE Disclosure Schedule is a complete and accurate list
of each investment and debt security, mortgage-backed and related securities,
marketable equity securities and securities purchased under agreements to resell
owned by FFE or any FFE Subsidiary, showing as of September 30, 1995, the
carrying values and estimated fair values of investment and debt securities, the
gross carrying value and estimated fair value of the mortgage-backed and related
securities and the estimated cost and estimated fair value of the marketable
equity securities.
(e) All United States Treasury securities, obligations of other United
States Government agencies and corporations, obligations of States of United
States and their political subdivisions, and other investment securities
classified as "held to maturity" and "available for sale" held by FFE and the
FFE Subsidiaries, as reflected in the FFE Financial Statements, dated June 30,
1995, were classified and accounted for in accordance with F.A.S.B. 115 and the
intentions of management.
Section 3.17 Allowance for Possible Loan Losses. The allowance for
possible loan losses shown the FFE Financial Statements as of June 30, 1995 (and
as shown on any financial statements to be delivered by FFE to SouthTrust
pursuant to Section 5.7 hereof), as of such date was (and will be as of such
subsequent financial statement dates) adequate in all respects to provide for
possible or specific losses, net of recoveries relating to loans previously
charged off, on loans outstanding, and contained (or that will be contained) an
additional amount of unallocated reserves for unanticipated future losses at a
level considered adequate in each case, under the standards applied by
applicable federal regulatory authorities and based upon generally accepted
practices applicable to FFE Bank. To the best knowledge of FFE, the aggregate
principal amount of loans contained (or that will be contained) in the loan
portfolio of FFE and the FFE Subsidiaries as of September 30, 1995 (and as of
the dates of any financial statements to be delivered by FFE to SouthTrust
pursuant to Section 5.7 hereof), in excess of such reserve, was (and will be)
fully collectible.
Section 3.18 FFE Benefit Plans. (a) Section 3.18 of the FFE Disclosure
Schedule contains a list and a true and correct copy (or, a description with
respect to any oral employee benefit plan, practice, policy or arrangement),
including all amendments thereto, of each compensation, consulting, employment,
termination or collective bargaining agreement, and each stock option, stock
purchase, stock appreciation right, MRP, life, health, accident or other
insurance, bonus, deferred or incentive compensation, severance or separation
agreement or any agreement providing any payment or benefit resulting from a
change in control, profit sharing, retirement, or other employee benefit plan,
practice, policy or arrangement of any kind, oral or written, covering
employees, former employees, directors or former directors of FFE or any FFE
Subsidiary or their respective beneficiaries, including, but not limited to, any
employee benefit plans within the meaning of Section 3(3) of ERISA, which FFE or
any FFE Subsidiary maintains, to which FFE or any FFE Subsidiary contributes, or
under which any employee, former employee, director or former director of FFE or
any FFE Subsidiary is covered or has benefit rights and pursuant to which any
liability of FFE or any FFE Subsidiary exists or is reasonably likely to occur
(the "FFE Benefit Plans"). Except as set forth in Section 3.18 of the FFE
Disclosure Schedule, FFE and the FFE Subsidiaries are not bound by any FFE
Benefit Plan or other document, plan or agreement which contains any provisions
which would cause an increase or acceleration of benefits or benefit
entitlements to employees or former employees of FFE or any FFE Subsidiary or
their respective beneficiaries, or other provisions, which would cause an
increase in the liability of FFE or any FFE Subsidiary or to SouthTrust or any
SouthTrust Subsidiary as a result of the transactions contemplated by this
Agreement or any related action thereafter (a "Change in Control Benefit"). The
term "FFE Benefit Plans" as used herein refers to all plans contemplated under
the preceding sentences of this Section 3.18, provided that the term "Plan" or
"Plans" is used in this Agreement for convenience only and does not constitute
an acknowledgment that a particular arrangement is an employee benefit plan
within the meaning of Section 3(3) of ERISA. Except as disclosed in the
Disclosure Schedule of FFE, no Benefit Plan is a multi-employer plan within the
meaning of Section 3(37) of ERISA.
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(b) Each of the FFE Benefit Plans that is intended to be a pension, profit
sharing, stock bonus, thrift, savings plan that is qualified under Section
401(a) of the Code ("FFE Qualified Plans") has been determined by the Internal
Revenue Service to qualify under Section 401(a) of the Code, or an application
for determination of such qualification has been timely made to the Internal
Revenue Service prior to the end of the applicable remedial amendment period
under Section 401(b) of the Code (a copy of each such determination letter or
pending application is included in Section 3.18 of the FFE Disclosure Schedule)
and, to the best of FFE's knowledge, there exist no circumstances likely to
materially adversely affect the qualified status of any such FFE Qualified Plan.
All such FFE Qualified Plans established or maintained by FFE or any of the FFE
Subsidiaries or to which FFE or any of the FFE Subsidiaries contribute are in
compliance in all material respects with all applicable requirements of ERISA,
and are in compliance in all material respects with all applicable requirements
(including qualification and non-discrimination requirements in effect as of the
Effective Time) of the Code for obtaining the tax benefits the Code thereupon
permits with respect to such FFE Qualified Plans. Neither FFE nor any FFE
Subsidiary is a plan sponsor of, or contributes to, a defined benefit pension
plan which is subject to Title IV of ERISA. All accrued contributions and other
payments required to be made by FFE or any FFE Subsidiary to any FFE Benefit
Plan through June 30, 1995, have been made or reserves adequate for such
purposes as of June 30, 1995, have been set aside therefor and will be reflected
in the FFE Financial Statements, dated as of June 30, 1995. Neither FFE nor any
FFE Subsidiary is in material default in performing any of its respective
contractual obligations under any of the FFE Benefit Plans or any related trust
agreement or insurance contract, and there are no material outstanding
liabilities of any such Plan other than liabilities for benefits to be paid to
participants in such Plan and their beneficiaries in accordance with the terms
of such Plan.
(c) There is no pending or, to the best knowledge of FFE, threatened
litigation or pending claim (other than benefit claims made in the ordinary
course) by or on behalf of or against any of the FFE Benefit Plans (or with
respect to the administration of any such Plans) now or heretofore maintained by
FFE or any FFE Subsidiary which allege violations of applicable state or federal
law which are reasonably likely to result in a liability on the part of FFE or
any FFE Subsidiary or any such Plan.
(d) FFE and the FFE Subsidiaries and all other person having fiduciary or
other responsibilities or duties with respect to any FFE Benefit Plan are and
have since the inception of each such Plan been in substantial compliance with,
and each such Plan is and has been operated in substantial accordance with, its
provisions and in substantial compliance with the applicable laws, rules and
regulations governing such Plan, including, without limitation, the rules and
regulations promulgated by the Department of Labor, the PBGC and the Internal
Revenue Service under ERISA, the Code or any other applicable law. No
"reportable event" (as defined in Section 4043(b) of ERISA) has occurred with
respect to any FFE Benefit Plan. No FFE Benefit Plan has engaged in or been a
party to a "prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975(c) of the Code). All FFE Benefit Plans that are group health plans
have been operated in compliance with the group health plan continuation
requirements of Section 4980B of the Code and Section 601 of ERISA.
(e) Neither FFE nor any FFE Subsidiary has made any payments, or is or has
been a party to any agreement or any FFE Benefit Plan, that under any
circumstances could obligate it to make payments that are or will not be
deductible because of Sections 162(m) or 280G of the Code.
(f) Section 3.18 of the FFE Disclosure Schedule describes any obligation
that FFE or any FFE Subsidiary has to provide health or welfare benefits to
retirees or other former employees, directors or their dependents (other than
rights under Section 4980B of the Code or Section 601 of ERISA), including
information as to the number of retirees, other former employees or directors
and dependents entitled to such coverage and their ages.
(g) Section 3.18 of the FFE Disclosure Schedule lists: (i) each officer and
director of FFE and any FFE Subsidiary who is eligible to receive a Change in
Control Benefit, showing the amount of each such Change in Control Benefit,
estimated compensation for 1995 based upon compensation received to the date of
this Agreement, the individual's participation in any bonus or other employee
benefit plan, and such individual's compensation from FFE or any FFE Subsidiary
for each of the calendar years 1990 through 1994 as reported
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by FFE or a FFE Subsidiary on Form W-2 or Form 1099; (ii) each other employee of
FFE or the FFE Subsidiaries who may be eligible for a Change in Control Benefit,
showing the number of years of service of each such employee together with his
or her estimated compensation for 1995; (iii) a listing of each FFE Stock
Option, showing the holder thereof, the number of shares, the exercise price per
share, the vesting dates thereof and a copy of the option agreements relating
thereto; and (iv) a listing of each MRP Agreement, and the participants therein,
showing the number of outstanding shares of FFE Common Stock credited to each
participant and the vesting dates thereof.
(h) FFE and the FFE Subsidiaries have filed or caused to be filed, and will
continue to file or cause to be filed, in a timely manner all filings pertaining
to each FFE Benefit Plan with the Internal Revenue Service and the Department of
Labor, as prescribed by the Code or ERISA, or regulations issued thereunder. All
such filings, as amended, were complete and accurate in all material respects as
of the dates of such filings, and there were no misstatements or omissions in
any such filing which would be material to the financial condition of FFE on a
consolidated basis.
Section 3.19 Compliance with Environmental Laws. (a) Except as set forth
in Section 3.19 of the FFE Disclosure Schedule: (i) the operations of FFE and
each of the FFE Subsidiaries comply in all material respects with all applicable
past and present Environmental Laws; (ii) none of the operations of FFE or any
FFE Subsidiary, no assets presently or formerly owned or leased by FFE or any
FFE Subsidiary and no Mortgaged Premises or Participating Facility (as defined
below) are subject to judiciary or administrative proceedings alleging the
violation of any past or present Environmental Law, nor are they the subject of
any claims alleging damages to health or property, pursuant to which FFE, any
FFE Subsidiary or any owner of a Mortgaged Premises or a Participating Facility
would be liable in law or equity; (iii) none of the operations of FFE or any FFE
Subsidiary, no assets presently owned or, to the best knowledge of FFE, formerly
owned by FFE or any FFE Subsidiary, and to the best knowledge of FFE, no
Mortgaged Premises or a Participating Facility, exclusive of FFE and the FFE
Subsidiary are the subject of any federal, state or local investigation
evaluating whether any remedial action is needed to respond to a release or
threatened release of any Hazardous Substance, or any other substance into the
environment, nor has FFE or any FFE Subsidiary, or, to the best knowledge of
FFE, any owner or a Mortgaged Premises or a Participating Facility exclusive of
FFE or any FFE Subsidiary, been directed to conduct such investigation, formally
or informally, by any governmental agency, nor have any of them agreed with any
governmental agency or private person to conduct any such investigation; and
(iv) neither FFE nor any FFE Subsidiary, nor, to the best knowledge of FFE, any
owner of a Mortgaged Premises or a Participating Facility has filed any notice
under any Environmental Law indicating past or present treatment, storage of
disposal of a Hazardous Substance or reporting a spill or release of a Hazardous
Substance, or any other substance into the environment.
(b) With respect to (i) the real property owned (including REO) or leased
by FFE or any FFE Subsidiary as of the date hereof; and (ii) to the best
knowledge of FFE, any real property formerly owned (including REO) or leased by
FFE or any FFE Subsidiary (collectively referred to as the "FFE Premises"), (x)
no part of the FFE Premises has been used for the generation, manufacture,
handling, storage, or disposal of Hazardous Substances; (y) except as disclosed
in Section 3.19 of the FFE Disclosure Schedule, the FFE Premises do not contain,
and have never contained, an underground storage tank; and (z) the FFE Premises
do not contain and are not contaminated by any quantity of a Hazardous Substance
from any source. With respect to any underground storage tank listed in Section
3.19 of the FFE Disclosure Statement as an exception to the foregoing, such
underground storage tank presently or previously located on a FFE Premises is or
has been maintained or removed, as applicable, in compliance with the
Environmental Laws, and has not been the source of any release of a Hazardous
Substance into the environment, unless otherwise set forth in Section 3.19 of
the FFE Disclosure Schedule.
(c) For purposes of this Section, "Mortgaged Premises" shall mean each (i)
real property interest (including without limitation any fee or leasehold
interest) which is encumbered of affected by any mortgage, deed of trust, deed
to secure debt or other similar document or instrument granting to FFE or any
FFE Subsidiary a lien on or security interest in such real property interest and
(ii) any other real property interest upon which is situated assets or other
property affected or encumbered by any document or instrument granting to FFE or
any FFE Subsidiary a lien thereon or security interest therein; provided,
however, that the
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term "Mortgaged Premises" shall not include one- to four-unit, single-family
residences. For purposes of this Section, "Participating Facility" means any
property in which FFE or any FFE Subsidiary participates in the management of
such property and, where the context requires, includes the owner or operator of
such property.
Section 3.20 Contracts and Commitments. Section 3.20 of the FFE
Disclosure Schedule contains, and shall be supplemented by FFE, as required by
Section 5.9 hereof, so as to contain at the Closing Date copies of each of the
following documents, certified by an officer of FFE to be true and correct
copies of such documents on the dates of such certificates:
(a) A list and description of each outstanding loan agreement,
mortgage, pledge agreement or other similar document or commitment to
extend credit to any officer or director of FFE or any FFE Subsidiary, as
well as a listing of all deposits or deposit surrogates, including the
amount, type and interest being paid thereon, to which FFE or any FFE
Subsidiary is a party under which it may (contingently or otherwise) have
any liability involving any officer or director of FFE or any FFE
Subsidiary;
(b) A list and description of each outstanding letter of credit and
each commitment to issue a letter of credit in excess of $50,000 to which
FFE or any FFE Subsidiary is a party and/or under which it may
(contingently or otherwise) have any liability;
(c) A list and description of each contract or agreement (not
otherwise included in the FFE Disclosure Schedule or specifically excluded
therefrom in accordance with the terms of this Agreement) involving goods,
services or occupancy and which (i) has a term of more than six months;
(ii) cannot be terminated on thirty days (or less) written notice without
penalty; and (iii) involves an annual expenditure by FFE or any FFE
Subsidiary in excess of $25,000;
(d) A list and description of each contract or commitment (other than
FFE Permitted Liens as defined in Section 3.22(c)) hereof affecting
ownership of, title to, use of, or any interest in real property which is
currently owned by FFE or any FFE Subsidiary, and a list and description of
all real property owned, leased or licensed by FFE or any FFE Subsidiary.
(e) A list of all fees, salaries, bonuses and other forms of
compensation including but not limited to, country club memberships,
automobiles available for personal use, and credit cards available for
personal use, provided by FFE or any FFE Subsidiary to any employee,
officer, or director or former employee, officer or director of FFE or any
FFE Subsidiary who earns in excess of $50,000 annually.
(f) A list and description of each commitment made by FFE or any FFE
Subsidiary to or with any of its officers, directors or employees extending
for a period of more than six months from the date hereof or providing for
earlier termination only upon the payment of a penalty or equivalent
thereto.
(g) The Certificate [Articles] of Incorporation, Charters and Bylaws
and specimen certificates of each type of security issued by FFE and each
FFE Subsidiary.
(h) A list and description of each other contract or commitment
providing for payment based in any manner upon outstanding loans or profits
of FFE or any FFE Subsidiary.
(i) A list and description of all powers of attorney granted by FFE or
any FFE Subsidiary which are currently in force.
(j) A list and description of all policies of insurance currently
maintained by FFE or any FFE Subsidiary and a list and description of all
unsettled or outstanding claims of FFE or any FFE Subsidiary which have
been, or to the best knowledge of FFE, will be, filed with the companies
providing insurance coverage for FFE or any FFE Subsidiary (except for
routine claims for health benefits).
(k) Each collective bargaining agreement to which FFE or any FFE
Subsidiary is a party and all affirmative action plans or programs covering
employees of FFE or any FFE Subsidiary, as well as all employee manuals and
human resource management policies promulgated or adopted by FFE or any FFE
Subsidiary.
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(l) Each lease or license with respect to real or personal property,
whether as lessor, lessee, licensor or licensee, with annual rental or
other payments due thereunder in excess of $10,000 to which FFE or any FFE
Subsidiary is a party, which does not expire within six months from the
date hereof and cannot be terminated upon thirty days (or less) written
notice without penalty.
(m) All employment, consulting and professional services contracts to
which FFE or any FFE Subsidiary is a party.
(n) All judgments, orders, injunctions, court decrees or settlement
agreements rising out of or relating to the labor and employment practices
or decisions of FFE or any FFE Subsidiary which, by their terms, continue
to bind or affect FFE or any FFE Subsidiary.
(o) All orders, decrees, memorandums, agreements or understandings
with regulatory agencies binding upon or affecting the current operations
of FFE or any FFE Subsidiary or any of their directors of officers in their
capacities as such.
(p) All material trademarks, trade names, service marks, patents, or
copyrights, whether registered or the subject of an application for
registration, which are owned by FFE or any FFE Subsidiary or licensed from
a third party.
(q) All policies formally adopted by the Board of Directors of FFE or
any FFE Subsidiary as currently in effect with respect to environmental
matters and copies of all policies that have been in effect during the last
five (5) years regarding the performance of environmental investigations of
properties accepted as collateral for loans, including the effective dates
of all such policies.
(r) Each other agreement to which FFE or any FFE Subsidiary is a party
(which does not expire within six months from the date hereof and cannot be
terminated upon thirty days (or less) written notice without penalty) which
individually during its term could commit FFE or any FFE Subsidiary to an
expenditure (either individually or through a series of installments) in
excess of $25,000 or which creates a material right or benefit to receive
payments, goods or services not referred to elsewhere in this Section 3.20
including without limitation:
(i) each agreement of guaranty or indemnification running to any
person;
(ii) each agreement containing any covenant limiting the right of
FFE or any FFE Subsidiary to engage in any line of business
or to compete with any person;
(iii) each agreement with respect to any license, permit and
similar matter that is necessary to the operations of FFE or
any FFE Subsidiary;
(iv) each agreement that requires the consent or approval of any
other party in order to consummate the Merger;
(v) each agreement relating to the servicing of loans and each
mortgage forward commitment and similar agreement pursuant to
which FFE or any FFE Subsidiary sells to others mortgages
which it originates;
(vi) each contract relating to the purchase or sale of financial
or other futures, or any put or call option relating to cash,
securities or commodities and each interest rate swap
agreement or other agreement relating to the hedging of
interest rate risks and each agreement or arrangement
described in Section 3.16(d) hereof; and
(vii) each contract or agreement (with the exception of the Federal
National Mortgage Association or Federal Home Loan Mortgage
Corporation Seller's Guide), including but not limited to
each contract or agreement pursuant to which FFE or any FFE
Subsidiary has sold, transferred, assigned or agreed to
service any loan, which provides for any recourse or
indemnification obligation (as opposed to general
representations and warranties) on the part of FFE or any FFE
Subsidiary; the name and address of each person which might
or could have been entitled to recourse against or
indemnification from FFE
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or any FFE Subsidiary; and the monetary amount of each actual or
potential recourse or indemnification obligation under each such
contract or agreement.
Section 3.21 Defaults. There has not been any default in any material
obligation to be performed by FFE or any FFE Subsidiary under any material
contract or commitment, and neither FFE or any FFE Subsidiary has waived, and
will not waive prior to the Effective Time, any material right under any
material contract or commitment. To the best knowledge of FFE, no other party to
any material contract or commitment is in default in any material obligation to
be performed by such party.
Section 3.22 Operations Since September 30, 1994. Between September 30,
1994, and the date hereof, except as set forth in Section 3.22 of the FFE
Disclosure Schedule, there has not been:
(a) any increase in the compensation payable or to become payable by
FFE or any FFE Subsidiary to any executive officer or director;
(b) any payment of dividends or other distributions by FFE to its
stockholders or any redemption by FFE of its capital stock;
(c) any mortgage, pledge or subjection to lien, charge or encumbrance
of any kind of or on any asset, tangible or intangible, of FFE or any FFE
Subsidiary, except for pledges and liens given to secure deposits and other
liabilities of FFE or any FFE Subsidiary arising in the ordinary course of
banking business;
(d) any creation or assumption of indebtedness (including the
extension or renewal of any existing indebtedness, or the increase
thereof), by FFE or any FFE Subsidiary for borrowed money, or otherwise,
other than in the ordinary course of business, none of which (except those
which are being disputed in good faith) is in default;
(e) the establishment of any new, or increase in the formula for
contributions to or benefits under any existing, retirement, pension,
profit sharing, stock bonus, savings or thrift plan, or any similar plan,
whether funded or unfunded and whether qualified or unqualified (within the
meaning of the Code) by FFE or any FFE Subsidiary;
(f) any action by FFE or any FFE Subsidiary seeking any cancellation
of, or decrease in the insured limit under, or increase in the deductible
amount or the insured's retention (whether pursuant to coinsurance or
otherwise) of or under, any policy of insurance maintained directly or
indirectly by FFE or any FFE Subsidiary on any of their respective assets
or businesses, including but not by way of limitation, fire and other
hazard insurance on its assets, automobile liability insurance, general
public liability insurance, and directors' and officers' liability
insurance; and if an insurer takes any such action, FFE shall promptly
notify SouthTrust;
(g) any change in FFE's independent auditors, historic methods of
accounting (other than as required by generally accepted accounting
principles or regulatory accounting principles), or in its system for
maintaining its equipment and real estate;
(h) any purchase, whether for cash or secured or unsecured obligations
(including finance leases) by FFE or any FFE Subsidiary of any fixed asset
which either (i) has a purchase price individually or in the aggregate in
excess of $50,000 or (ii) is outside of the ordinary course of business;
(i) any sale or transfer of any asset in excess of $50,000 of FFE or
any FFE Subsidiary or outside of the ordinary course of business with the
exception of loans and marketable securities that are held for sale and
sold in the ordinary course of business at market prices;
(j) any cancellation or compromise of any debt to, claim by or right
of, FFE or any FFE Subsidiary except in the ordinary course of business;
(k) any amendment or termination of any material contract or
commitment to which FFE or any FFE Subsidiary is a party, other than in the
ordinary course of business;
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(l) any material damage or destruction to any assets or property of
FFE or any FFE Subsidiary whether or not covered by insurance; or
(m) any event or condition of any character (other than changes in
legal, economic or other conditions which are not specially or uniquely
applicable to FFE or any FFE Subsidiary) materially adversely affecting the
business, operations or financial condition of FFE on a consolidated basis.
Section 3.23 Corporate Records. The corporate record books, transfer
books and stock ledgers of FFE and each FFE Subsidiary are complete and accurate
in all material respects and reflect all meetings, consents and other material
actions of the organizers, incorporators, stockholders, Boards of Directors and
committees of the Boards of Directors of FFE and each such Subsidiary, and all
transactions in their respective capital stocks, since their respective
inceptions.
Section 3.24 Undisclosed Liabilities. All of the Liabilities have, in the
case of FFE and the FFE Subsidiaries, been reflected, disclosed or reserved
against in the FFE Financial Statements dated September 30, 1994 or in the notes
thereto, and FFE and the FFE Subsidiaries have no other Liabilities except (a)
Liabilities incurred since September 30, 1994 in the ordinary course of
business, (b) as disclosed in FFE Financial Statements delivered to SouthTrust
prior to the date of the Agreement, or (c) as disclosed in Section 3.24 of the
FFE Disclosure Schedule.
Section 3.25 Assets. (a) FFE and the FFE Subsidiaries have good and
marketable title to their real properties, including any leaseholds and ground
leases, and their other assets and properties, all as reflected as owned or held
by FFE or any FFE Subsidiary in the FFE Financial Statements dated as of June
30, 1995, and those acquired since such date, except for (i) assets and
properties disposed of since such date in the ordinary course of business and
(ii) FFE Permitted Liens none of which, in the aggregate, except as set forth in
Section 3.25 of the FFE Disclosure Schedule; are material to the assets of FFE
on a consolidated basis. All buildings, structures, fixtures and appurtenances
comprising part of the real properties of FFE and the FFE Subsidiaries (whether
owned or leased) are in good operating condition and have been well maintained,
reasonable wear and tear excepted. Title to all real property owned by FFE and
the FFE Subsidiaries is held in fee simple, except as otherwise noted in the FFE
Financial Statements as of June 30, 1995, or as set forth in Section 3.25 of the
FFE Disclosure Schedule. FFE or any FFE Subsidiary have title or other rights to
its assets sufficient in all material respect for the conduct of their
respective businesses as presently conducted, and except as set forth in the FFE
Financial Statements as of June 30, 1995 or in Section 3.25 of the FFE
Disclosure Schedule, free, clear and discharged of and from any and all liens,
charges, encumbrances, security interests and/or equities which are material to
FFE or any FFE Subsidiary.
(b) All leases pursuant to which FFE or any FFE Subsidiary, as lessee,
leases real or personal property which are material to the business of FFE on a
consolidated basis are valid, effective, and enforceable against the lessor in
accordance with their respective terms. There is not under any of such leases
any existing default, or any event which with notice or lapse of time or both
would constitute a default, with respect to either FFE or any FFE Subsidiary, or
to the best knowledge of FFE, the other party. Except as disclosed in Section
3.25 of the FFE Disclosure Schedule, none of such leases contains a prohibition
against assignment by FFE or any FFE Subsidiary, by operation of law or
otherwise, or any other provision which would preclude the Surviving Corporation
or any FFE Subsidiary from possessing and using the leased premises for the same
purposes and upon the same rental and other terms upon the consummation of the
Merger as are applicable to the use by FFE or any FFE Subsidiary as of the date
of this Agreement.
Section 3.26 Insider Interests. All outstanding loans and other
contractual arrangements (including deposit relationships) between FFE or any
FFE Subsidiary and any officer, director or employee of FFE or any FFE
Subsidiary conform to the applicable rules and regulations and requirements of
all applicable regulatory agencies which were in effect when such loans and
other contractual arrangements were entered into. Except as set forth in Section
3.26 of the FFE Disclosure Schedule, no officer, director or employee of FFE or
any FFE Subsidiary has any interest in any property, real or personal, tangible
or intangible, used in or pertaining to the business of FFE or any FFE
Subsidiary.
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Section 3.27 Registration Obligations. None of FFE or any FFE Subsidiary
is under any obligation contingent or otherwise which will survive the Merger to
register any of its securities under the Securities Act of 1933 or any state
securities laws.
Section 3.28 Regulatory Matters. None of FFE or any FFE Subsidiary has
agreed to take any action or has any knowledge of any fact or has agreed to any
circumstance that would materially impede or delay receipt of any Consents of
any Regulatory Authorities referred to in this Agreement including, matters
relating to the Community Reinvestment Act of 1977 and protests thereunder.
ARTICLE IV
COVENANTS OF FFE
Section 4.1 Business in Ordinary Course. (a) Without the prior written
consent of SouthTrust, FFE shall not declare or pay any dividend or make any
other distribution with respect to its capital stock whether in cash, stock or
other property, after the date of this Agreement.
(b) FFE and the FFE Subsidiaries shall continue to carry on, after the date
hereof, their respective businesses and the discharge or incurring of
obligations and liabilities, only in the usual, regular and ordinary course of
business, as heretofore conducted, and by way of amplification and not
limitation, FFE and each of the FFE Subsidiaries will not, without the prior
written consent of SouthTrust:
(i) issue any capital stock or any options, warrants, or other rights
to subscribe for or purchase capital stock or any securities convertible
into or exchangeable for any capital stock, except pursuant to options
outstanding on the date hereof under the FFE Stock Option Plan;
(ii) directly or indirectly redeem, purchase or otherwise acquire any
capital stock or ownership interests of FFE or any of the FFE Subsidiaries;
(iii) effect a reclassification, recapitalization, split-up, exchange
of shares, readjustment or other similar change in or to any capital stock
or otherwise reorganize or recapitalize;
(iv) change its Charter, Certificate [Articles] of Incorporation, or
Bylaws;
(v) enter into any employment agreement, severance agreement, change
of control agreement, or plan relative to the foregoing; or grant any
increase (other than ordinary and normal increases consistent with past
practices) in the compensation payable or to become payable to directors,
officers or employees except as required by law, pay or agree to pay any
bonus, or adopt or make any change in any bonus, insurance, pension, or
other FFE Benefit Plan;
(vi) except for the short-term renewal of Federal Home Loan Bank
("FHLB") advances outstanding at the date of this Agreement, raising
short-term funds against its existing line of credit with the FHLB and
deposit-taking in the ordinary course of its business, borrow or agree to
borrow any funds, including but not limited to repurchase transactions, or
indirectly guarantee or agree to guarantee any obligations of others;
(vii) make or commit to make any new loan or letter of credit or any
new or additional discretionary advance under any existing line of credit,
in a principal amount in excess of $500,000 or that would increase the
aggregate credit outstanding to any one borrower (or group of affiliated
borrowers) to more than $500,000 (excluding for this purpose any accrued
interest or overdrafts), without the prior written consent of SouthTrust
acting through a senior officer in a written notice to FFE, which approval
or rejection shall be given on a timely basis after delivery by FFE to such
officer of SouthTrust of the complete loan package;
(viii) make any changes in its policies concerning which persons may
approve loans;
(ix) enter into any securities transaction for its own account or
purchase or otherwise acquire any investment security for its own account
other than U.S. Treasury obligations and deposits in an overnight account
at the FHLB of Atlanta or securities issued or guaranteed by the Government
National
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Mortgage Association, the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation, provided SouthTrust's consent shall
not be unreasonably withheld or delayed relating to the purchase of other
readily marketable investment securities;
(x) increase or decrease the rate of interest paid on time deposits or
on certificates of deposit, except in a manner and pursuant to policies
consistent with past practices;
(xi) enter into, modify or extend any agreement, contract or
commitment out of the ordinary course of business or having a term in
excess of six months and involving an expenditure in excess of ten thousand
dollars ($10,000), other than letters of credit, loan agreements, deposit
agreements, and other lending, credit and deposit documents made in the
ordinary course of business;
(xii) except in the ordinary course of business, place on any of its
assets or properties any mortgage, pledge, lien, charge, or other
encumbrance;
(xiii) cancel any material indebtedness owing to it or any claims
which it may possess or waive any rights of material value;
(xiv) sell or otherwise dispose of any real property or any material
amount of tangible or intangible personal property other than (a)
properties acquired in foreclosure or otherwise in the ordinary collection
of indebtedness owed to FFE Bank, (b) student loans or (c) loans which are
held for sale by FFE Bank and are sold in the secondary market within sixty
(60) days of origination;
(xv) foreclose upon or otherwise take title to or possession or
control of any real property without first obtaining a phase one
environmental report thereon; provided, however, that FFE Bank and its
subsidiaries shall not be required to obtain such a report with respect to
single family, non-agricultural residential property of one acre or less to
be foreclosed upon unless it has reason to believe that such property might
contain Hazardous Substances;
(xvi) knowingly or willfully commit any act or fail to commit any act
which will cause a material breach of any agreement, contract or
commitment;
(xvii) engage in any activity which constitutes or may constitute a
material violation of any law, statute, rule, governmental regulation, or
order;
(xviii) purchase any real or personal property or make any capital
expenditure where the amount paid or committed therefor is in excess of
twenty-five thousand dollars ($25,000), except for outstanding commitments
set forth in Section 3.20 of the FFE Disclosure Schedule;
(xix) in the case of FFE Bank, voluntarily make any material changes
in or to its asset and deposit mix;
(xx) engage in any activity or transaction outside the ordinary course
of business;
(xxi) enter into or acquire any derivatives contract or structured
note; or
(xxii) enter into any new, or modify, amend or extend the terms of any
existing, contracts relating to the purchase or sale of financial or other
futures, or any put or call option relating to cash, securities or
commodities or any interest rate swap agreements or other agreements
relating to the hedging of interest rate risk.
(c) FFE and the FFE Subsidiaries shall not, without the prior written
consent of SouthTrust, wilfully engage in any transaction or wilfully take any
action that would render untrue any of the representations and warranties of FFE
contained in Article III hereof, if such representations and warranties were
given as of the date of such transaction or action.
(d) FFE will, and will cause the FFE Subsidiaries to, use their best
efforts to maintain their respective properties and assets in their present
state of repair, order and condition, reasonable wear and tear excepted, and to
maintain and keep in full force and effect all policies of insurance presently
in effect, including the insurance of accounts with the FDIC. FFE will, and will
cause the FFE Subsidiaries to, take all requisite
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action (including without limitation the making of claims and the giving of
notices) pursuant to its directors' and officers' liability insurance policy or
policies in order to preserve all rights thereunder with respect to all matters
known by FFE which could reasonably give rise to a claim prior to the Effective
Time,
(e) FFE shall promptly notify SouthTrust in writing of the occurrence of
any matter or event known to and directly involving FFE or any FFE Subsidiary
that is reasonably likely to result in a Material Adverse Effect on FFE or
impair the ability of FFE to consummate the transactions contemplated herein.
(f) FFE shall provide to SouthTrust such reports on litigation involving
FFE and each of the FFE Subsidiaries as SouthTrust shall reasonably request,
provided that FFE shall not be required to divulge information to the extent
that, in the good faith opinion of its counsel, by doing so, it would risk
waiver of the attorney-client privilege to its detriment.
Section 4.2 Conforming Accounting and Reserve Policies; Restructuring
Expenses. At the request of SouthTrust, FFE shall cause FFE Bank, immediately
prior to Closing and after satisfaction or waiver of the conditions to Closing
set forth in Article VI hereof, to establish and take such reserves and accruals
as SouthTrust reasonably shall request to conform FFE Bank's loan, accrual,
reserve and other accounting policies to the policies of an SouthTrust
Significant Subsidiary that is a national banking association, provided however,
such requested conforming adjustment shall not be taken into account in
determining whether FFE has experienced a Material Adverse Effect.
Section 4.3 Certain Actions. (a) Neither FFE (nor any of its
Subsidiaries) (i) shall solicit, initiate, participate in discussions of, or
encourage or take any other action to facilitate (including by way of the
disclosing or furnishing of any information) any inquiry or the making of any
proposal relating to any Acquisition Transaction (as defined below) or a
potential Acquisition Transaction with respect to itself or any of its
Subsidiaries or (ii) shall (A) solicit, initiate, participate in discussions of,
or encourage or take any other action to facilitate any inquiry or proposal, or
(B) enter into any agreement, arrangement, or understanding (whether written or
oral) regarding any proposal or transaction providing for or requiring it to
abandon, terminate or fail to consummate this Agreement, or compensating it or
any of its Subsidiaries under any of the instances described in this clause. FFE
shall immediately instruct and otherwise use its best efforts to cause its
directors, officers, employees, agents, advisors (including, without limitation,
any investment banker, attorney, or accountant retained by it or any of its
Subsidiaries), consultants and other representatives to comply with such
prohibitions. FFE shall immediately cease and cause to be terminated any
existing activities, discussions, or negotiations with any parties conducted
heretofore with respect to such activities. Notwithstanding the foregoing, FFE
may provide information at the request of or enter into negotiations with a
third party with respect to an Acquisition Transaction if the Board of Directors
of FFE determines, in good faith after consultation with counsel, that the
exercise of its fiduciary duties to FFE's stockholders under applicable law
requires it to take such action, and, provided further, that FFE may not, in any
event, provide to such third party any information which it has not provided to
SouthTrust. FFE shall promptly notify SouthTrust orally and in writing in the
event it receives any such inquiry or proposal and shall provide reasonable
detail of all relevant facts relating to such inquiries. This Section shall not
prohibit accurate disclosure by FFE in any document (including the Proxy
Statement and the Registration Statement) or other disclosure under applicable
law if in the opinion of the Board of Directors of FFE, disclosure is
appropriate under applicable law.
(b) "Acquisition Transaction" shall, with respect to FFE, mean any of the
following: (i) a merger or consolidation, or any similar transaction (other than
the Merger) of any company with either FFE or any Significant Subsidiary of FFE,
(ii) a purchase, lease or other acquisition of all or substantially all the
assets of either FFE or any Significant Subsidiary of FFE, (iii) a purchase or
other acquisition of "beneficial ownership" by any "person" or "group" (as such
terms are defined in Section 13(d)(3) of the Securities Exchange Act) (including
by way of merger, consolidation, share exchange, or otherwise) which would cause
such person or group to become the beneficial owner of securities representing
19.9% or more of the voting power of either FFE or any Significant Subsidiary of
FFE, but excluding the acquisition of beneficial ownership by any employee
benefit plan maintained or sponsored by FFE, (iv) a tender or exchange offer to
acquire securities representing 19.9% or more of the voting power of FFE, (v) a
public proxy or consent
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solicitation made to stockholders of FFE seeking proxies in opposition to any
proposal relating to any of the transactions contemplated by this Agreement that
has been recommended by the Board of Directors of FFE, (vi) the filing of an
application or notice with the Federal Reserve Board, the OCC, the OTS, or any
other federal or state regulatory authority (which application has been accepted
for processing) seeking approval to engage in one or more of the transactions
referenced in clauses (i) through (iv) above, or (vii) the making of a bona fide
offer to the Board of Directors FFE by written communication, that is or becomes
the subject of public disclosure, to engage in one or more of the transactions
referenced in clauses (i) through (v) above.
Section 4.4 Curative and Compliance Matters. Prior to the Effective Time,
FFE and FFE Subsidiary, at their expense, shall:
(a) Permit a comprehensive audit by one or more third parties selected
by FFE and approved by SouthTrust to be made of the adjustable rate
mortgage loans of FFE Subsidiary, including the practices, procedures and
policies of FFE Subsidiary relating thereto, and FFE Subsidiary shall, at
its expense, take such corrective action with respect to any deficiencies
or defects regarding such accounts, practices, policies or procedures as
such third parties may reasonable recommend, including, without limitation,
making appropriate restitution payments to its customers;
(b) Use reasonable efforts to ensure that (i) all loans requiring
flood and hazard insurance have appropriate and customary flood and hazard
insurance in full force and effect and (ii) all loans that were originated
as construction loans, but were changed to permanent loans, have up-dated
and appropriate and customary title insurance in full force and effect;
(c) Use reasonable efforts to ensure that all due and unpaid real
estate taxes with respect to all real estate loans as to which escrow
accounts are not maintained have been paid in full; and
(d) Use reasonable efforts to undertake any technical corrections as
SouthTrust may reasonably specify.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Inspection of Records; Confidentiality. (a) SouthTrust and
FFE shall each afford to the other and to the other's accountants, counsel and
other representatives (and their Subsidiaries) full access during normal
business hours during the period prior to the Effective Time to all of their
respective properties, books, contracts, commitments and records, including all
attorneys' responses to auditors' requests for information, and accountants'
work papers, developed by either of them or their respective Subsidiaries or
their respective accountants or attorneys, and will permit each other and their
respective representatives to discuss such information directly with each
other's officers, directors, employees, attorneys and accountants. SouthTrust
and FFE shall each use their best efforts to furnish to the other all other
information concerning its business, properties and personnel as such other
party may reasonably request. Any failure to comply with this covenant shall be
disregarded if promptly corrected without material adverse consequences to the
other party. The availability or actual delivery of information shall not affect
the representations, warranties, covenants, and agreements of the party
providing such information that are contained in this Agreement or in any
certificates or other documents delivered pursuant hereto.
(b) In the event that this Agreement is terminated, each party shall return
all non-public documents furnished hereunder, shall destroy all documents or
portions thereof prepared by such other party that contain non-public
information furnished by the other party pursuant hereto and, in any event,
shall hold all non-public information confidential unless or until such
information is or becomes a matter of public knowledge or is or becomes known to
the party receiving the information through persons other than the party
providing such information.
Section 5.2 Registration Statement; Stockholder Approval. SouthTrust
shall file the Registration Statement with the SEC, and FFE and SouthTrust shall
use their best efforts to cause the Registration Statement to become effective
under the Securities Act. SouthTrust will take any action required to be taken
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under the applicable blue sky or securities laws in connection with the issuance
of the shares of SouthTrust Common Stock in the Merger. Each party shall Furnish
all information concerning it and the holders of its capital stock as the other
party may reasonably request in connection with such action. FFE shall call the
FFE Stockholders' Meeting as soon as appropriate after the date of this
Agreement for the purpose of voting upon this Agreement and the Merger. In
connection with the FFE Stockholders' Meeting, (i) SouthTrust and FFE shall
jointly prepare the Proxy Statement as part of the Registration Statement and
FFE shall mail the Proxy Statement to its stockholders and (ii) the Board of
Directors of FFE shall recommend to its stockholders the approval of this
Agreement and the Merger; provided, however, that such recommendation may be
withdrawn, modified, or amended, or not made at all, after the receipt by FFE of
an offer to effect an Acquisition Transaction (as defined in Section 4.3 hereof)
with FFE to the extent the Board of Directors of FFE reasonably determines that,
in the exercise of its fiduciary obligations after consultation with counsel, it
has a duty to do so.
Section 5.3 Affiliate Letters. FFE shall use best efforts to obtain and
deliver to SouthTrust as promptly as practicable after (and shall use its
reasonable best efforts to obtain and deliver within five (5) business days
after) the date hereof a signed representation letter substantially in the form
of Exhibit 5.3 hereto from each executive officer and director of FFE and each
stockholder of FFE who FFE reasonably believes is an "affiliate" of FFE within
the meaning of such term as used in Rule 145 under the Securities Act and shall
use its best efforts to obtain and deliver to SouthTrust a signed representation
letter substantially in the form of Exhibit 5.3 from any person who becomes an
executive officer or director of FFE or any stockholder who becomes such an
"affiliate" after the date hereof as promptly as practicable after (and shall
use its reasonable best efforts to obtain and deliver within five business days
after) such person achieves such status.
Section 5.4 Brokers. Each of SouthTrust and FFE represents, as to itself
and its Subsidiaries, that no agent, broker, investment banker or other firm or
person or officer or director of either is or will be entitled to any broker's
or finder's fee or any other commission, bonus or similar fee in connection with
any of the transactions contemplated by this Agreement, other than Hovde
Financial, Inc., which has provided advice to FFE at its request in connection
with the Merger.
Section 5.5 Cooperation. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement at
the earliest practicable time. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and/or directors of SouthTrust or FFE, as the
case may be, shall take all such necessary action.
Section 5.6 Regulatory Applications. SouthTrust, FFE and/or their
respective Subsidiaries shall file all necessary applications with all
applicable regulatory authorities, and shall use their best efforts to respond
as promptly as practicable to all inquiries received concerning said
applications. SouthTrust undertakes to file such applications so that the
transactions contemplated by the Agreement will be consummated on or prior to
the date specified in Section 7.1(f) hereof. In the event the Merger is
challenged or opposed by any administrative or legal proceeding, whether by the
United States Department of Justice or otherwise, the determination of whether
and to what extent to seek appeal or review, administrative or otherwise, or
other appropriate remedies shall be made by SouthTrust. The party filing an
application shall deliver a copy thereof to the other party in advance of filing
and copies of all responses from or written communications from regulatory
authorities relating to the Merger or this Agreement (to the extent permitted by
law), and the filing party shall also deliver a final copy of each regulatory
application to the other party promptly after it is filed with the appropriate
regulatory authority. Each party shall advise the other party periodically of
the status of each regulatory application.
Section 5.7 Financial Statements and Reports. From the date of this
Agreement and prior to the Effective Time: (a) each party will deliver to the
other, not later than ninety (90) days after the end of any fiscal year, its
Annual Report on Form 10-K (and all schedules and exhibits thereto) for the
fiscal period then
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ended prepared in conformity with generally accepted accounting principles; (b)
FFE will deliver to SouthTrust not later than forty-five (45) days after the end
of any fiscal quarter, the Report of Condition and Income filed by FFE Bank with
the OTS; (c) each party will deliver to the other not later than forty-five (45)
days after the end of each quarter, its Report on Form 10-Q for such quarter as
filed with the SEC which shall be prepared in conformity with generally accepted
accounting principles and the rules and regulations of the SEC; and (d) each
party will deliver to the other any and all other material reports filed with
the SEC, the Federal Reserve Board, the OCC, the FDIC, the OTS, or any other
regulatory agency within five (5) business days of the filing of any such
report.
Section 5.8 Press Release. Except as provided in Section 4.3(a) or as
otherwise reasonably determined by a party to comply with its legal obligations,
at all times prior to the Effective Time, each party shall mutually agree with
the other prior to the issuance of any press release or other information to the
press or any third party for general circulation with respect to this Agreement
or the transactions contemplated hereby.
Section 5.9 Delivery of Supplements to Disclosure Schedules. Five (5)
business days prior to the Effective Time, each party will supplement or amend
its Disclosure Schedule with respect to any matter hereafter arising which, if
existing or occurring at or prior to, the date of this Agreement, would have
been required to be set forth or described in such Disclosure Schedule or which
is necessary to correct any information in the Disclosure Schedule or in any
representation and warranty made by the disclosing party which has been rendered
inaccurate thereby. For purposes of determining the accuracy of the
representations and warranties of SouthTrust and FFE contained, respectively, in
Articles II and III hereof in order to determine the fulfillment of the
conditions set forth in Section 6.1(a) and 6.2(a) hereof as of the date of this
Agreement, the Disclosure Schedule of each party shall be deemed to include only
that information contained therein on the date it is initially delivered to the
other party.
Section 5.10 Litigation Matters. FFE will consult with SouthTrust about
any proposed settlement, or any disposition of, any litigation involving amounts
in excess of $10,000.
Section 5.11 Tax Opinion. SouthTrust agrees to obtain a written opinion
of Bradley, Arant, Rose & White, addressed to SouthTrust and FFE, dated the
Closing Date, subject to the representations and assumptions referred to
therein, and substantially to the effect that the Merger will constitute a
tax-free reorganization within the meaning of Section 368(a) of the Code and
that SouthTrust and FFE will each be a party to the reorganization.
Section 5.12 Options; MRP; Employment Agreements; Benefits and Related
Matters. (a) FFE Stock Options. Except as otherwise provided in this Section
5.12(a) with respect to FFE Stock Options, each holder of an FFE Stock Option
outstanding on the date hereof and remaining outstanding immediately prior to
the Effective Time shall receive from SouthTrust at the Effective Time, whether
or not the option is then exercisable or vested, a cash payment in an amount
equal to the product of (i) the number of shares of FFE Common Stock subject to
such option immediately prior to the Effective Time and (ii) the excess, if any,
of the consideration to be exchanged by SouthTrust for each share of FFE Common
Stock pursuant to Section 1.2(b) hereof, over the exercise price per share of
such option, net of any cash which must be withheld under federal and state
income and employment tax requirements. Such cash payments shall be in
consideration of, and shall result in, the settlement and cancellation of all
such options. As a condition to the receipt of a cash payment in cancellation of
options, each option holder shall execute a cancellation agreement in the form
attached hereto as Exhibit 5.12(a). Each holder of a FFE Stock Option shall, by
written notice to SouthTrust delivered at least five business days prior to the
Closing Date, be entitled to have all of his or her Stock Options assumed by
SouthTrust in accordance with the terms and provisions of the FFE Stock Option
Plan, in which case said Stock Option shall become fully exercisable and vested
and continue outstanding as an option to purchase, in the place of the purchase
of shares of FFE Common Stock, the number of shares (rounded to the nearest
whole share) of SouthTrust Common Stock that would have been received by the
optionee in the Merger as determined in an manner consistent with Section
4.24(a) of the Code had the entire Stock Option been exercised in full for
shares of FFE Common Stock immediately before the Merger upon the same terms and
conditions under the relevant Stock Option as were applicable immediately before
the Effective Time (assuming that all unvested options were then fully vested)
and that such shares of FFE
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Common Stock received upon exercise had been converted in the Merger only into
shares of SouthTrust Common Stock at the full fair market value of the Merger
Consideration (as if the cash portion thereof was to be received in shares of
SouthTrust Common Stock), with appropriate pro rata adjustment to the relevant
option price for the shares of SouthTrust Common Stock substituted therefor so
that the aggregate option exercise price of shares of SouthTrust Common Stock
subject to the option immediately following the assumption and substitution
shall be the same as the aggregate option exercise price for the shares of FFE
Common Stock relating to the Stock Option immediately before such assumption and
substitution. The shares of SouthTrust Common Stock to be issued pursuant to the
FFE Stock Options shall be registered pursuant to the registration statement on
Form S-8 filed with the SEC and such shares shall be duly authorized, issued in
compliance with federal and state securities laws, fully paid and unassessable
and not subject to or in violation of any preempted rights. At the Effective
Time, SouthTrust shall have reserved sufficient shares of SouthTrust Common
Stock for issuance with respect to the FFE Stock Options and SouthTrust shall
take any action required to be taken under any applicable securities law in
connection with the issuance of the shares pursuant to such Stock Options.
(b) Unvested MRP Shares. Each outstanding share of FFE Common Stock
awarded pursuant to the MRP that is unvested immediately prior to the Effective
Time shall be canceled in exchange for a per share cash payment from SouthTrust
at the Effective Time equal to the amount of the per share consideration to be
exchanged by SouthTrust for such share of FFE Common Stock pursuant to Section
1.2(b) hereof. Each holder of such restricted shares, as a condition to the
receipt of payment, shall be required to deliver his certificate or certificates
representing such restricted shares to SouthTrust for cancellation and shall
also be required to execute a cancellation agreement in the form attached hereto
as Exhibit 5.12(b).
(c) Written Agreements with Employees. SouthTrust shall assume all of the
obligations of FFE Bank under that certain employment agreement between FFE Bank
and G. L. Smith dated August 26, 1993 (the "Employment Agreement"), and shall
assume all of the obligations of FFE Bank under that certain Change In Control
Severance Agreement between Wallace D. Mossbarger and FFE Bank dated March 21,
1995 (the "Severance Agreement"). SouthTrust acknowledges that the consummation
of the Merger will constitute both a change in control and change in
circumstances under the Employment Agreement and the Severance Agreement so as
to constitute an involuntary termination of the employment of Messrs. Smith and
Mossbarger in connection with a change in control pursuant to the terms of the
Employment Agreement and the Severance Agreement.
(d) Covenant Not to Compete and Consulting Agreement. At the Effective
Time, SouthTrust shall enter into a covenant not to compete and consulting
agreement with Mr. G. L. Smith in the form attached hereto as Exhibit 5.12(d)
(the "Covenant Not to Compete and Consulting Agreement"), which provides that
during the one year period following Mr. Smith's cessation of active employment
with FFE Bank he will not engage in competition with SouthTrust or any of its
financial institution Subsidiaries and he will provide post-Merger transition
consulting services to SouthTrust during such one year period in exchange for
$108,000 which shall be paid to him at a rate of $9,000 per month.
(e) FFE Qualified Plans. All contributions to the FFE Qualified Plans
shall terminate as of the Effective Time, except for any required payment of
employer-matching contributions with respect to elective contributions made
prior to the Effective Time. On the day prior to the Effective Time, all such
Qualified Plans shall be terminated with full acceleration of vesting. As soon
as practicable after the Effective Time, subject only to orderly winding-up of
the affairs of each such Qualified Plan (excluding obtaining a determination
letter from the Internal Revenue Service as to the effect of such termination
upon such Qualified Plan, the assets of each Qualified Plan shall be distributed
to the participants and beneficiaries thereof with full right of roll-over to an
individual retirement account.
(f) Continuing Employees. To the extent permitted by applicable law, from
and after the Effective Time, the former employees of FFE and the FFE
Significant Subsidiaries who are continuing employees of SouthTrust or any
SouthTrust Significant Subsidiary including FFE Bank or its successor (the
"Continuing Employees") shall be entitled to participate in SouthTrust's
employee benefit plans, including welfare and fringe benefit plans but excluding
the SouthTrust Corporation Revised Retirement Income Plan (the "ST
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Retirement Plan") and the SouthTrust Corporation Employees' Profit Sharing Plan
(the "ST PS Plan"), on the same basis and subject to the same conditions as are
applicable to any newly employed, comparably situated employee of SouthTrust;
provided, however, that
(i) with respect to SouthTrust's group medical benefits plan, each
Continuing Employee shall be credited for eligible expenses incurred by
such Continuing Employee and his or her dependents (if applicable) under
the FFE group medical benefits plan during the calendar year including the
Effective Date for purposes of satisfying the deductible provisions under
SouthTrust's group medical benefits plan for such current year, and all
waiting periods under said plans and preexisting conditions shall be waived
with respect to all Continuing Employees and their dependents; and
(ii) credit for each such Continuing Employee's past service with FFE
and the FFE Significant Subsidiaries prior to the Effective Time ("Past
Service Credit") shall be given for purposes of:
(1) determining vacation and sick leave benefits and accruals in
accordance with the established policies of SouthTrust; and
(2) establishing eligibility for participation in such employee
benefit plans and for purposes of determining the scheduling of
vacations and other determinations which are based on length of service;
provided, however, notwithstanding anything contained in this Agreement
to the contrary, Past Service Credit shall not be given to any such
employee for purposes of establishing eligibility in the 1990 discounted
stock plan of SouthTrust.
From and after January 1 following the Effective Time, for purposes of
determining eligibility to participate in, and vesting in accrued benefits
under, both the ST Retirement Plan and the ST PS Plan, employment of a
Continuing Employee by FFE and the FFE Significant Subsidiaries shall be
credited as if it were employment by SouthTrust, but such service shall not be
credited for purposes of determining benefit accrual under the ST Retirement
Plan.
Section 5.13 Tax Treatment. Neither FFE or any of the FFE Subsidiaries,
nor SouthTrust or any of the SouthTrust Subsidiaries, shall voluntarily take any
action which would disqualify the transaction contemplated in this Agreement as
a "reorganization" pursuant to Section 368(a) of the Code.
Section 5.14 Stock Exchange Listing. SouthTrust shall use its best
efforts to list on the NASDAQ/ National Market, subject to official notice of
issuance, the shares of SouthTrust Common Stock to be issued in the Merger.
Section 5.15 Directors' and Officers' Indemnification Insurance. For
three (3) years after the Effective Time, SouthTrust shall, and shall cause
SouthTrust Subsidiary, to indemnify, defend and hold harmless the present
directors, employees and agents of FFE and FFE Subsidiary against all
liabilities arising out of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement) to the full extent permitted under United States Law, Delaware
law and the Certificate [Articles] of Incorporation, Charter or Bylaws of FFE
and FFE Subsidiary in the form in effect at the date of this Agreement. Without
limiting the foregoing, in any case in which approval by the surviving entity is
required to effectuate any indemnification, SouthTrust shall cause the surviving
entity to direct, at the election of FFE, that the determination of any such
approval shall be made by independent counsel mutually agreed upon between
SouthTrust and FFE.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to the Obligations of SouthTrust. Notwithstanding
any other provision of this Agreement, the obligations of SouthTrust to
consummate the Merger are subject to the following conditions precedent (except
as to those which SouthTrust may choose to waive):
(a) All of the representations and warranties made by FFE in this
Agreement and in any documents or certificates provided by FFE shall have
been true and correct in all material respects as of the date of
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this Agreement and as of the Effective Time as though made on and as of the
Effective Time, except for information contained in a subsequent Disclosure
Schedule of FFE relating to an event or series of events arising after the
date hereof which does not have a Material Adverse Effect on FFE or as
otherwise contemplated by this Agreement;
(b) FFE shall have performed in all material respects all obligations
and shall have complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
prior to or at the Effective Time;
(c) There shall not have been any action taken or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any federal or state government or governmental agency or
instrumentality or court, which would prohibit SouthTrust's ownership or
operation of all or a material portion of the business or assets of FFE or
FFE Bank, or would compel SouthTrust to dispose of all or a material
portion of the business or assets of FFE Bank, as a result of this
Agreement, or which would render SouthTrust or FFE unable to consummate the
transactions contemplated by this Agreement;
(d) Since the date hereof, FFE shall not have suffered Material
Adverse Effect;
(e) SouthTrust shall have received the opinion of Silver, Freedman &
Taff L.L.P., counsel to FFE, in the form of the attached Exhibit 6.1(e);
(f) Mr. G. L. Smith, if he is then living, shall have executed the
Covenant Not to Compete and Consulting Agreement; and
(g) SouthTrust shall have received a certificate signed by the
President and Chief Executive Officer of FFE, dated as of the Effective
Time, certifying that based upon his best knowledge, the conditions set
forth in Sections 6.1(a), (b), and (d) hereof have been satisfied.
Section 6.2 Conditions to the Obligations of FFE. Notwithstanding any
other provision of this Agreement, the obligations of FFE to consummate the
Merger are subject to the following conditions precedent (except as to those
which FFE may chose to waive);
(a) All of the representations and warranties made by SouthTrust in
this Agreement and in any documents or certificates provided by SouthTrust
shall have been true and correct in all material respects as of the date of
this Agreement and as of the Effective Time as though made on and as of the
Effective Time, except for information contained in a subsequent Disclosure
Schedule of SouthTrust relating to an event or series of events arising
after the date hereof which does not have a Material Adverse Effect on
SouthTrust or as otherwise contemplated by this Agreement;
(b) SouthTrust shall have performed in all material respects all
obligations and shall have complied in all material respects with all
agreements and covenants required by this Agreement to be performed or
complied with by it prior to or at the Effective Time;
(c) Since the date hereof, SouthTrust shall not have suffered a
Material Adverse Effect;
(d) FFE shall have received the opinion of Bradley, Arant, Rose &
White, counsel to SouthTrust, in the form attached hereto as Exhibit
6.2(d); and
(e) FFE shall have received a certificate signed by a senior officer
of SouthTrust, dated as of the Effective Time, that based upon his best
knowledge, the conditions set forth in Sections 6.2(a), (b) and (c) have
been satisfied.
Section 6.3 Conditions to the Obligations of the Parties. Notwithstanding
any other provision of this Agreement, the obligations of SouthTrust on the one
hand and FFE on the other hand, to consummate the
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Merger are subject to the following conditions precedent (except as to those
which SouthTrust or FFE may choose to waive):
(a) As of the date of this Agreement, FFE shall have received a
written fairness opinion from its financial advisor to the effect that the
Merger Consideration is fair to its stockholders from a financial point of
view;
(b) No preliminary or permanent injunction or other order by any
federal or state court which prevents the consummation of the Merger shall
have been issued and shall remain in effect; nor shall there be any third
party proceeding pending to prevent the consummation of the Merger;
(c) The parties shall have received all applicable regulatory
approvals and consents to consummate the transactions contemplated in this
Agreement and all required waiting periods shall have expired;
(d) The Registration Statement shall have been declared effective
under the Securities Act and no stop orders shall be in effect and no
proceedings for such purpose shall be pending or threatened by the SEC;
(e) Each party shall have received the tax opinion addressed to it
referred to in Section 5.11 of this Agreement; and
(f) The SouthTrust Common Stock to be issued to holders of FFE Common
Stock shall have been approved for listing on the NASDAQ/National Market
subject to official notice of issuance.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) By the mutual written consent of the Boards of Directors of
SouthTrust and FFE;
(b) At any time prior to the Effective Time, by SouthTrust or FFE if
there shall have been a final judicial or regulatory determination (as to
which all periods for appeal shall have expired and no appeal shall be
pending) that any material provision of this Agreement is illegal, invalid
or unenforceable (unless the enforcement thereof is waived by the affected
party) or denying any regulatory application the approval of which is a
condition precedent to either party's obligations hereunder;
(c) At any time on or before the date specified in 7.1(f) hereof, by
SouthTrust or FFE in the event that any of the conditions precedent to the
obligations of the other party to the Merger are rendered impossible to be
satisfied or fulfilled by said date (other than by reason of a breach by
the party seeking to terminate);
(d) By either party at any time after the stockholders of FFE fail to
approve this Agreement and the Merger by the required vote at the FFE
Stockholders' Meeting;
(e) By SouthTrust or FFE, in the event of a material breach by the
other party of any representation, warranty, covenant or agreement
contained herein or in any schedule or document delivered pursuant hereto,
which breach would result in the failure to satisfy the closing condition
set forth in Section 6.1(a) or 6.1(b), in the case of SouthTrust, or
Section 6.2(a) or 6.2(b), in the case of FFE, and which breach cannot be or
is not cured within thirty (30) days after written notice of such breach is
given by the non-breaching party to the party committing such breach; or
(f) By either party on or after June 30, 1996 (or August 31, 1996 in
the event a protest is filed with regulatory authorities alleging the
failure of either party or either party's Subsidiaries to comply with the
Community Reinvestment Act of 1977), in the event the Merger has not been
consummated by such date (provided that the terminating party is not then
in material breach of any representation, warranty, covenant or other
agreement contained herein).
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(g) By FFE if the after-tax cost of the restitution payments made or
to be made to customers pursuant to Section 4.4(a) of this Agreement
exceeds $500,000.
In the event either party elects to effect any termination pursuant to
Section 7.1(b) through 7.1 (g) above, it shall give written notice to the other
party hereto specifying the basis for such termination and certifying that such
termination has been approved by the vote of a majority of the members of its
Board of Directors.
Section 7.2 Liabilities and Remedies; Break-Up Fee. (a) In the event that
this Agreement is terminated by a party (the "Aggrieved Party") solely by reason
of the willful material breach by the other party ("Breaching Party") of any of
its representations, warranties, covenants or agreements contained herein then
the Aggrieved Party shall be entitled to such remedies and relief against the
Breaching Party as are available at law or in equity. Moreover, the Aggrieved
Party without terminating this Agreement shall be entitled to specifically
enforce the terms hereof against the Breaching Party in order to cause the
Merger to be consummated. Each party acknowledges that there is not an adequate
remedy at law to compensate the other party relating to the non-consummation of
the Merger. To this end, each party, to the extent permitted by law, irrevocably
waives any defense it might have based on the adequacy of a remedy at law which
might be asserted as a bar to specific performance, injunctive relief or other
equitable relief.
(b) If, after the date of this Agreement, an Acquisition Transaction is
offered, presented or proposed to FFE or its stockholders and (i) thereafter
this Agreement and the Merger are disapproved by the stockholders of FFE and
(ii) within one year after termination of this Agreement an Acquisition
Transaction is consummated or a definitive agreement is entered into by FFE
relating to an Acquisition Transaction (a "Trigger Event"), then upon the
occurrence of a Trigger Event and in lieu of any other rights and remedies of
SouthTrust, FFE shall (x) reimburse SouthTrust for its third party transaction
expenses in an amount up to two hundred thousand dollars ($200,000) and (y) pay
SouthTrust an additional cash amount of four hundred thousand dollars ($400,000)
as an agreed-upon break-up fee as the sole and exclusive remedy of SouthTrust
against FFE; provided, however, that SouthTrust shall not be entitled to any
payment under this Section 7.2(b) if SouthTrust exercises any option granted by
the Stock Option Agreement or exercises any right to require FFE to repurchase
the option granted by the Stock Option Agreement.
(c) Except as provided in Sections 7.2(a) and (b) of this Agreement, each
of the parties shall bear its own costs, fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby;
provided however, all application and filing fees to be paid by either party to
regulatory authorities in connection with the transactions contemplated by this
Agreement shall be borne and paid by SouthTrust.
Section 7.3 Survival of Agreements. In the event of termination of this
Agreement by either SouthTrust or FFE as provided in Section 7.1, this Agreement
shall forthwith become void and have no effect except that the agreements
contained in Sections 5.1(b), 5.5, and 7.2 hereof shall survive the termination
hereof
Section 7.4 Amendment. This Agreement may be amended by the parties
hereto by action taken by their respective Boards of Directors at any time
before or after approval hereof by the stockholders of FFE but, after such
approval, no amendment shall be made which changes the form of consideration or
the value of the consideration to be received by the stockholders of FFE without
the approval of the stockholders of FFE. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto. SouthTrust and FFE may, without approval of their respective Boards of
Directors, make such technical changes to this Agreement, not inconsistent with
the purposes hereof as may be required to effect or facilitate any regulatory
approval or acceptance of the Merger or of this Agreement or to effect or
facilitate any regulatory or governmental filing or recording required for the
consummation of any of the transactions contemplated hereby.
Section 7.5 Waiver. Any term, provision or condition of this Agreement
(other than the requirement of FFE stockholder approval) may be waived in
writing at any time by the party which is entitled to the benefits hereof. Each
and every right granted to any party hereunder, or under any other document
delivered in connection herewith or therewith, and each and every right allowed
it by law or equity, shall be cumulative
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and may be exercised from time to time. The failure of either party at any time
or times to require performance of any provision hereof shall in no manner
affect such party's right at a later time to enforce the same. No waiver by any
party of a condition or of the breach of any term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or breach or a waiver of any other
condition or of the breach of any other term, covenant, representation or
warranty of this Agreement. No investigation, review or audit by SouthTrust of
FFE or FFE of SouthTrust prior to or after the date hereof shall estop or
prevent either party form exercising any right hereunder or be deemed to be a
waiver of any such right.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Survival. All representations, warranties, covenants and
agreements of the parties in this Agreement or in any instrument delivered by
the parties pursuant to this Agreement (other than the agreements, covenants and
obligations set forth herein which are contemplated to be performed after the
Effective Time) shall not survive the Effective Time, provided that no such
representations, warranties or covenants shall be deemed to be terminated or
extinguished so as to deprive SouthTrust or FFE (or any of their respective
directors, officers, employees or agents) of any defense in law or equity which
otherwise would be available against the claims of any person, including,
without limitation, any stockholder or former stockholder of either SouthTrust
of FFE, the aforesaid representations, warranties, and covenants being material
inducements to consummation by SouthTrust, FFE and the Surviving Corporation of
the transactions contemplated hereby.
Section 8.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, by facsimile
transmission or by registered or certified mail to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice) and shall be deemed to be delivered on the date so delivered:
(a) if to SouthTrust:
SouthTrust Corporation
420 North 20th Street
Birmingham, AL 35203
Attention: Mr. Frederick W. Murray, Jr.
Fax (205) 254-5022
copy to:
Bradley, Arant, Rose & White
2001 Park Place, Suite 1400
Birmingham, AL 35203
Attention: C. Larimore Whitaker, Esq.
Fax (205) 252-0264
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(b) if to FFE:
FFE Financial Corp.
1160 South McCall Road
Englewood, Florida 34223
Attention: G.L. Smith
copy to:
Silver, Freedman & Taff, L.L.P.
Seventh Floor
1100 New York Avenue, N.W.
Washington, D.C. 20005
Attention: Barry P. Taff, Esq.
Section 8.3 Applicable Law. This Agreement shall be construed and
interpreted according to the laws of the State of Delaware without regard to
conflicts of laws principles thereof, except to the extent that the federal laws
of the United States apply.
Section 8.4 Headings, Etc. The article headings and section headings
contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement.
Section 8.5 Severability. If any term, provision, covenant, or
restriction contained in this Agreement is held by a final and unappealable
order of a court of competent jurisdiction to be invalid, void, or
unenforceable, then the remainder of the terms, provisions, covenants, and
restrictions contained in this Agreement shall remain in full force and effect,
and shall in no way be affected, impaired, or invalidated unless the effect
would be to cause this Agreement to not achieve its essential purposes.
Section 8.6 Entire Agreement; Binding Effect; Non-Assignment;
Counterparts. Except as otherwise expressly provided herein, this Agreement
(including the documents and instruments referred to herein) (a) constitutes the
entire agreement between the parties hereto and supersedes all other prior
agreements and undertakings, both written and oral, between the parties, with
respect to the subject matter hereof; and (b) is not intended to confer upon any
other person any rights or remedies hereunder except as specifically provided
herein. This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
party hereto without the prior written consent of the other party hereto (other
than by SouthTrust to a subsidiary or affiliate of SouthTrust in order that
SouthTrust may undertake any actions necessary to effect conversion of FFE Bank
in accordance with Section 1.5 of this Agreement). This Agreement may be
executed in two or more counterparts which together shall constitute a single
agreement.
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
<TABLE>
<S> <C>
SOUTHTRUST CORPORATION
By: /s/ ALTON E. YOTHER
--------------------------------------------
Senior Vice-President
/s/ AUBREY D. BARNARD
- --------------------------------------------
Secretary
SOUTHTRUST OF FLORIDA, INC.
By: /s/ ALTON E. YOTHER
--------------------------------------------
Senior Vice-President
/s/ AUBREY D. BARNARD
- --------------------------------------------
Secretary
FFE FINANCIAL CORP.
By: /s/ GAIL L.
SMITH
--------------------------------------------
President
/s/ SANDRA L. FRASER
- --------------------------------------------
Secretary
</TABLE>
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EXHIBIT B
SUBSIDIARY AGREEMENT AND
PLAN OF MERGER
SUBSIDIARY AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of this
4th day of January, 1996 between FIRST OF ENGLEWOOD, FSB, a federally chartered
stock savings bank (the "Bank"), and a wholly-owned subsidiary of FFE FINANCIAL
CORP. ("FFE"), and SOUTHTRUST BANK OF FLORIDA, NATIONAL ASSOCIATION, a national
banking corporation ("ST-Bank") and a wholly-owned subsidiary of SOUTHTRUST OF
FLORIDA, INC. ("ST-Florida"), which in turn is a wholly-owned subsidiary of
SOUTHTRUST CORPORATION ("SouthTrust").
WITNESSETH:
WHEREAS, the Boards of Directors of ST-Florida, FFE, and SouthTrust have
approved, and deem it advisable and in the best interests of their respective
shareholders to consummate, the transactions set forth in the Agreement and Plan
of Merger dated as of November 3, 1995 among SouthTrust, ST-Florida, and FFE
(the "Parent Merger Agreement") pursuant to which FFE will merge with and into
ST-Florida (the "Parent Merger");
WHEREAS, the Boards of Directors of the Bank and ST-Bank have approved, and
deem it advisable to consummate, the transactions provided for herein pursuant
to which the Bank will merge with and into ST-Bank, subject to and as soon as
practicable following the consummation of the Parent Merger; and
WHEREAS, the parties to this Agreement contemplate that the transactions
set forth herein shall qualify pursuant to Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code"), and that this Agreement constitutes a
plan of reorganization pursuant to Section 368 of the Code.
NOW, THEREFORE, in consideration of the foregoing and the respective
covenants and agreements set forth herein and in the Parent Merger Agreement,
the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 Merger. (a) Subject to the provisions hereof, Bank shall be merged
with and into ST-Bank (the "Merger") under the charter of ST-Bank, and ST-Bank
shall be the surviving association (sometimes hereinafter referred to as the
"Association" when reference is made to it after the Effective Time of the
Merger (as defined below)). The name of the surviving association shall be
SouthTrust Bank of Florida, National Association, and the business of the
Association shall be that of a national banking association. This business shall
be conducted by the Association at its main office, which shall be located in
St. Petersburg, Florida and at its legally established branches. The address of
the main office and of such branches existing as of the Effective Time of the
Merger is set forth in Annex A hereto.
(b) The Merger shall occur immediately following the consummation of the
Parent Merger (the "Effective Time of the Merger"), or at such other date and
time as ST-Bank and Bank may mutually designate, provided, however, that the
Merger shall not occur and shall not be effective unless and until approved by
the Office of the Comptroller of the Currency, the Office of Thrift Supervision
and the Board of Governors of the Federal Reserve System.
1.2 Effect of Merger. At the Effective Time of the Merger, Bank shall be
merged with and into ST-Bank and the separate existence of Bank shall cease. All
of the shares of capital stock of the Bank issued and outstanding as of the
Effective Time of the Merger, and all rights in respect thereof, shall be
canceled. The shares of capital stock of ST-Bank outstanding immediately prior
to consummation of the Merger shall constitute the only outstanding shares of
capital stock of the Association following consummation of the Merger.
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1.3 Conveyance. All assets of Bank and ST-Bank as they exist at the
Effective Time of the Merger shall pass to and vest in the Association without
any conveyance or other transfer. The Association shall be responsible for all
the liabilities of every kind and description of each of ST-Bank and Bank
existing as of the Effective Time of the Merger, including the liabilities
arising from the operation of a trust department, and including the liabilities
arising from the liquidation account of the Bank.
1.4 Board of Directors; Articles of Association; Bylaws. The present
Board of Directors of ST-Bank shall continue to serve as the Board of Directors
of the Association until the next annual meeting or until such time as their
successors have been elected and have qualified. The number, names and residence
addresses, and the terms of the members of the Board of Directors, are set forth
in Annex B hereto. Effective as of the time this Merger shall become effective,
the Articles of Association and the Bylaws of the Association shall be the
Articles of Association and Bylaws of ST-Bank as in effect immediately prior to
the Merger.
1.5 Savings Accounts. From and after the Effective Time of the Merger,
savings accounts of the Association shall be issued in a manner consistent with
the issuance of savings accounts by ST-Bank prior to the Effective Time of the
Merger.
ARTICLE II
CAPITALIZATION
2.1 Capitalization of Bank and ST-Bank. As of September 30, 1995, Bank
had a total capital of $8,567,000. There were 473,986 shares of Common Stock,
each of $0.01 par value. As of September 30, 1995, ST-Bank had total capital of
$299,301,000. There were 1,000,000 shares of Common Stock, each of $10.00 par
value.
2.2 Capitalization of Association. The amount of capital stock of the
Association shall be $10,000,000, divided into 1,000,000 shares of Common Stock,
each of $10.00 par value. The combined surplus of the Association shall be
$243,168,000.
ARTICLE III
COVENANTS
3.1 Covenants of Bank and ST-Bank. During the period from the date of
this Agreement and continuing until the Effective Time, each of the parties
hereto agrees to observe and perform all agreements and covenants in the Parent
Merger Agreement that pertain or are applicable to Bank and ST-Bank,
respectively. Each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
subject to and in accordance with the applicable provisions of the Parent Merger
Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction prior to the Effective Time of the following conditions:
(a) Effective Time of the Parent Merger. The Effective Time (as
defined in the Parent Merger Agreement) of the Parent Merger shall have
occurred.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect.
There shall not be any action
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taken, or any statute, rule, regulation or order enacted, enforced or
deemed applicable to the Merger, which makes the consummation of the Merger
illegal as of the Effective Time.
(c) Shareholder Approval. The sole shareholder of ST-Bank and the
sole shareholder of the Bank each shall have voted affirmatively to approve
the Merger by not less than two-thirds of the outstanding voting stock of
ST-Bank and the Bank, respectively.
(d) Other Approvals. All requisite regulatory approvals relating to
the Merger shall have been obtained and continue to be in full force and
effect, and all waiting and notice periods under applicable law shall have
expired.
ARTICLE V
TERMINATION AND AMENDMENT
5.1 Termination. This Agreement shall be terminated immediately and
without any action on the part of the Bank or ST-Bank upon any termination of
the Parent Merger Agreement.
5.2 Effect of Termination. In the event of termination of this Agreement
as provided in Sections 4.1 or 5.1 hereof, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of the Bank or
ST-Bank or their respective officers or directors.
5.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
ARTICLE VI
GENERAL PROVISIONS
6.1 Nonsurvival of Agreements. None of the agreements in this Agreement
or in any instrument delivered pursuant to this Agreement shall survive the
Effective Time.
6.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the Bank or ST-Bank, respectively, at the addresses for notices to
FFE or ST-Florida, respectively, as set forth in the Parent Merger Agreement,
with copies to the persons referred to therein.
6.3 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation."
6.4 Counterparts. This Agreement may be executed in two counterparts, both
of which shall be considered one and the same agreement and shall become
effective when both counterparts have been signed by each of the parties and
delivered to the other party, it being understood that both parties need not
sign the same counterpart.
6.5 Entire Agreement. Except as otherwise set forth in the Parent Merger
Agreement, this Agreement (including the documents and the instruments referred
to herein) constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof. This Agreement shall be subject to the terms and
conditions of the Parent Merger Agreement.
6.6 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party.
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IN WITNESS WHEREOF, the signatures and seals of the Bank and ST-Bank this
4th day of January, 1996, each set by its president or a vice president and
attested to by its cashier or secretary, pursuant to a resolution of its board
of directors, acting by a majority, and witness the signature of a majority of
each of the board of directors:
FIRST OF ENGLEWOOD, FSB
By: /s/ GAIL L. SMITH
Attest: --------------------------
Its President and
/s/ SANDRA L. FRASER Chief Executive Officer
- ---------------------------
Assistant Secretary SOUTHTRUST BANK OF FLORIDA,
NATIONAL ASSOCIATION
(Seal of Bank)
By: /s/ CHARLES E. HUGHES
Attest: ----------------------------
Its Chairman President and
/s/ ROGER G. CLARKE Chief Executive Officer
- --------------------------
Cashier
(Seal of Bank)
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STATE OF FLORIDA )
COUNTY OF DUVAL ) SS:
On this 3rd day of January, 1996, before me, a notary public for this state
and county, personally came Charles E. Hughes, Jr., as president, and Roger G.
Clarke as cashier, of SouthTrust Bank of Florida, National Association, and each
in his/her said capacity acknowledged this instrument to be the act and deed of
the association and the seal affixed to it to be its seal.
WITNESS my official seal and signature this day and year.
<TABLE>
<S> <C>
/s/ MARY E. ZVEARE
(Seal of Notary) -----------------------------------------------
Notary Public, Duval County.
My commission expires January 19, 1998
</TABLE>
STATE OF FLORIDA )
COUNTY OF CHARLOTTE ) SS:
On this 4th day of January, 1996, before me, a notary public for this state
and county, personally came Gail L. Smith, as president, and Sandra L. Fraser,
as assistant secretary, of First of Englewood, FSB, and each in his/her said
capacity acknowledged this instrument to be the act and deed of the association
and the seal.
WITNESS my official seal and signature this day and year.
<TABLE>
<S> <C>
/s/ JANINE LIVESEY
(Seal of Notary) -----------------------------------------------
Notary Public, Charlotte County
My commission expires February 9, 1996
</TABLE>
<PAGE> 184
EXHIBIT C
HOVDE FINANCIAL, INC.
INVESTMENT BANKERS & FINANCIAL ADVISORS
February 28, 1995
Board of Directors
FFE Financial Corp.
1160 South McCall Road
Englewood, Florida 34223
Members of the Board:
We have reviewed the Agreement and Plan of Merger ("Agreement") entered
into by SouthTrust Corporation ("SouthTrust"), SouthTrust of Florida, Inc.
("ST-Florida") and FFE Financial Corp. ("FFE") on November 2, 1995, pursuant to
which FFE shall be merged with and into ST-Florida, and each outstanding share
of FFE common stock will be automatically converted into .645 shares of common
stock of SouthTrust and $10.80 in cash, subject to certain adjustments and
limitations as provided in the Agreement ("Merger Consideration"). In
connection therewith, you have requested our opinion as to the fairness, from a
financial point of view, of the Merger Consideration to the stockholders of
FFE.
Hovde Financial, Inc. ("Hovde") specializes in providing investment banking
and financial advisory services to commercial bank and thrift institutions. Our
principals are experienced in the independent valuation of securities in
connection with negotiated underwritings, subscription and community offerings,
private placements, merger and acquisition transactions and recapitalizations.
Pursuant to a Consulting Agreement dated May 24, 1994 between FFE and Hovde,
Hovde was engaged to assist FFE in exploring various strategic options,
including a potential affiliation of FFE with a larger financial institution.
Therefore, we are familiar with FFE, having acted as its financial advisor in
connection with the proposed transaction, and having participated in the
negotiations leading to the Agreement.
During the course of our engagement, we reviewed and analyzed material
bearing upon the financial and operating conditions of FFE and SouthTrust and
material prepared in connection with the proposed transaction, including the
following: the Agreement; certain publicly available information concerning FFE
and SouthTrust, including consolidated financial statements for each of the
three years ended September 30, 1994 and December 31, 1994, respectively, as
well as subsequent quarterly statements for the periods ended December 31, 1995
and September 30, 1995 respectively; the nature and terms of recent sale and
merger transactions involving thrifts and thrift holding companies that we
consider relevant; historical and current market data for the common stock of
FFE and SouthTrust; and financial and other information provided to us by the
management of FFE and SouthTrust.
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Board of Directors
FFE Financial Corp.
February 28, 1996
Page Two
In addition, we have conducted meetings with members of the senior
management of FFE for the purpose of reviewing the future prospects of FFE. In
this regard, we considered the net present value of future cash flows
attributable to each share of FFE and compared this to the per share value of
the Merger Consideration. We also took into account our assessment of general
economic, market and financial conditions and our experience in other similar
transactions, as well as our overall knowledge of the thrift industry and our
general experience in securities valuations.
In rendering this opinion, we have assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations contained in the materials provided to us by FFE
and SouthTrust, and in the discussions with FFE's management.
Based on the foregoing and our experience as investment bankers, we are of
the opinion that, as of the date hereof, the Merger Consideration to be received
by the shareholders of FFE as described in the Agreement is fair from a
financial point of view.
Sincerely,
/s/ Hovde Financial, Inc.
--------------------------------------
HOVDE FINANCIAL, INC.
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<PAGE> 186
EXHIBIT D
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of November 3, 1995 (the
"Agreement"), is by and between FFE Financial Corp., a Delaware corporation
("Issuer"), and SouthTrust Corporation, a Delaware corporation ("Grantee").
WHEREAS, Issuer and SouthTrust of Florida, Inc., a Florida corporation and
a wholly-owned subsidiary of Grantee ("ST-Sub"), have entered into an Agreement
and Plan of Merger dated as of November 3, 1995 and joined in by Grantee (the
"Merger Agreement"), providing for, among other things, the merger of FFE with
and into ST-Sub, with ST-Sub as the surviving corporation; and
WHEREAS, as a condition and inducement to Grantee's execution of the Merger
Agreement, Grantee has required that Issuer agree, and Issuer has agreed, to
grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, and intending to be legally bound hereby, Issuer and
Grantee agree as follows:
1. Defined Terms. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Merger Agreement.
2. Grant of Option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase
up to 104,640 shares (the "Option Shares") of Common Stock of Issuer, par value
$0.1 per share ("Issuer Common Stock"), at a purchase price per Option Share
(the "Purchase Price") equal to $27.00; provided, however, that in no event
shall the number of shares of Issuer Common Stock for which this Option is
exercisable exceed 19.9% of the Issuer's issued and outstanding shares of Common
Stock. The number of shares of Issuer Common Stock that may be received upon the
exercise of the Option and the Purchase Price are subject to adjustment as
herein set forth.
3. Exercise of Option. (a) Provided that (i) Grantee shall not be in
material breach of the agreements or covenants contained in this Agreement or
the Merger Agreement, and (ii) no preliminary or permanent injunction or other
order against the delivery of the Option Shares issued by any court of competent
jurisdiction in the United States shall be in effect, Grantee may exercise the
Option, in whole or in part, at any time and from time to time, but only
following the occurrence of a Purchase Event (as defined below); provided that
the Option shall terminate and be of no further force or effect upon the earlier
to occur of (A) the Effective Time of the Merger, (B) termination of the Merger
Agreement in accordance with the terms thereof before the occurrence of a
Purchase Event or Preliminary Purchase Event (other than a termination of the
Merger Agreement by Grantee pursuant to Section 7.1(e) (an "Issuer Default
Termination")); (C) the close of business on the 365th day after the occurrence
of an Issuer Default Termination; and (D) the close of business on the 365th day
after termination of the Merger Agreement (other than an Issuer Default
Termination) following the occurrence of a Purchase Event or a Preliminary
Purchase Event (hereinafter sometimes referred to as the "Termination Date");
provided that any purchase of Option Shares upon exercise of the Option shall be
subject to compliance with applicable law, including, without limitation, the
Home Owner's Loan Act (the "HOLA"). The rights set forth in Section 8 shall
terminate when the right to exercise the Option terminates (other than as a
result of a complete exercise of the Option) as set forth herein.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) Without Grantee's prior written consent, Issuer shall have
authorized, recommended, publicly proposed or publicly announced an
intention to authorize, recommend or propose, or entered into a agreement
with any person (other than Grantee or any subsidiary of Grantee) to effect
an Acquisition Transaction (as defined below). As used herein, the term
"Acquisition Transaction" shall mean (A) a merger, consolidation or similar
transaction involving Issuer or any of its subsidiaries (other than
transactions solely between Issuer's subsidiaries), (B) the disposition, by
sale, lease, exchange or
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otherwise, of assets of Issuer or any of its subsidiaries representing in
either case 15% or more of the consolidated assets of Issuer and its
subsidiaries or (C) the issuance, sale or other disposition of (including
by way of merger, consolidation, share exchange or any similar transaction)
securities representing 20% or more of the voting power of Issuer or any of
its significant subsidiaries; or
(ii) any person (other than Grantee or any subsidiary of Grantee)
shall have acquired beneficial ownership (as such term is defined in Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of, or the right to acquire beneficial ownership of,
or any "group" (as such term is defined under the Exchange Act) shall have
been formed which beneficially owns or has the right to acquire beneficial
ownership of, 20% or more (or, if such person or group is the beneficial
owner of 20% or more on the date hereof, such person or group acquires an
additional 5% or more) of the voting power of Issuer or any of its
significant subsidiaries.
(c) As used herein, a "Preliminary Purchase Event" means any of the
following events:
(i) any person (other than Grantee or any subsidiary of Grantee) shall
have commenced (as such term is defined in Rule 14d-2 under the Exchange
Act) or shall have filed a registration statement under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to a tender offer
or exchange offer to purchase any shares of Issuer Common Stock such that,
upon consummation of such offer, such person would own or control 20% or
more of the then outstanding shares of Issuer Common Stock (such an offer
being referred to herein as a "Tender Offer" or an "Exchange Offer",
respectively); or
(ii) the holders of Issuer Common Stock shall not have approved the
Merger Agreement at the meeting of such shareholders held for the purpose
of voting on the Merger Agreement, such meeting shall not have been held or
shall have been canceled prior to termination of the Merger Agreement or
Issuer's Board of Directors shall have withdrawn or modified in a manner
adverse to Grantee the recommendation of Issuer's Board of Directors with
respect to the Merger Agreement, in each case, after it shall have been
publicly announced that any person (other than Grantee or any subsidiary of
Grantee) shall have (A) made, or disclosed an intention to make, a proposal
to engage in an Acquisition Transaction, (B) commenced a Tender Offer or
filed a registration statement under the Securities Act with respect to an
Exchange Offer or (C) filed an application (or given a notice), whether in
draft or final form, under South Carolina banking or corporate law, the BHC
Act, the Bank Merger Act or the Change in Bank Control Act of 1978 for
approval to engage in an Acquisition Transaction.
As used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Preliminary Purchase Event or Purchase Event, it being understood that the
giving of such notice by Issuer shall not be a condition to the right of Grantee
to exercise the Option.
(e) In the event Grantee wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) subject to the next sentence, a
place and date not earlier than three business days nor later than 15 business
days after the Notice Date for the closing (the "Closing") of such purchase (the
"Closing Date"). If prior notification to or consent of any regulatory authority
is required in connection with such purchase, then, notwithstanding the prior
occurrence of the Termination Date, the Closing Date shall be extended for such
period as shall be necessary to enable such prior notification or consent to
occur or to be obtained (and the expiration of any mandatory waiting period).
Issuer shall cooperate with Grantee in the filing of any applications or
documents necessary to obtain any required consent or in connection with any
required prior notification and the Closing shall occur immediately following
receipt of such consent (or the filing of any such prior notification and the
expiration of any mandatory waiting periods).
4. Payment and Delivery of Certificates. (a) On each Closing Date, Grantee
shall (i) pay to Issuer, in immediately available funds by wire transfer to a
bank account designated by Issuer, an amount equal to the
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<PAGE> 188
Purchase Price multiplied by the number of Option Shares to be purchased on such
Closing Date, and (ii) present and surrender this Agreement to the Issuer at the
address of the Issuer specified herein.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a)
above, (i) Issuer shall deliver to Grantee (A) a certificate or certificates
representing the Option Shares to be purchased at such Closing, which Option
Shares shall be free and clear of all liens, claims, charges and encumbrances of
any kind whatsoever and subject to no preemptive rights, and (B) if the Option
is exercised in part only, an executed, new Stock Option Agreement with the same
terms as this Agreement evidencing the right to purchase the balance of the
shares of Issuer Common Stock purchasable hereunder, and (ii) Grantee shall
deliver to Issuer a letter agreeing that Grantee shall not offer to sell or
otherwise dispose of such Option Shares in violation of applicable federal and
state law or of the provisions of this Agreement.
(c) In addition to any other legend that is required by applicable law,
certificates for the Option Shares delivered at each Closing shall be endorsed
with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT
TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF NOVEMBER , 1995. A COPY
OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON
RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without such legend if Grantee shall have
delivered to Issuer a copy of a letter from the staff of the Securities and
Exchange Commission (the "SEC"), or an opinion of counsel in form and substance
reasonably satisfactory to Issuer and its counsel, to the effect that such
legend is not required for purposes of the Securities Act.
(d) Upon the giving by Grantee to Issuer of the written notice of exercise
of the Option provided for under Section 3(e), the tender of the applicable
purchase price in immediately available funds and the tender of this Agreement
to Issuer, Grantee shall be deemed to be the holder of record of the shares of
Issuer Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates representing
such shares of Issuer Common Stock shall not then be actually delivered to
Grantee. Issuer shall pay all expenses, and any and all United States federal,
state, and local taxes and other charges that may be payable in connection with
the preparation, issuance and delivery of stock certificates under this Section
in the name of the Grantee or its assignee, transferee, or designee.
(e) Issuer agrees (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Issuer Common Stock so that the Option may be exercised without additional
authorization of Issuer Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Issuer Common
Stock, (ii) that it will not, by amendment to its Certificate or Articles of
Incorporation or Bylaws or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek to
avoid the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by Issuer, (iii) promptly to
take all action as may from time to time be required (including (A) complying
(if applicable) with all premerger notification, reporting and waiting period
requirements specified in 15 U.S.C. Section 18a and regulations promulgated
thereunder and (B) in the event, under any federal law, including, without
limitation, the HOLA, or under any state law, prior notice to or consent of any
regulatory authority is necessary before the Option may be exercised,
cooperating fully with Grantee in preparing any required application or notice
and providing such information to such regulatory authority as such regulatory
authority may require) in order to permit Grantee to exercise the Option and
Issuer duly and effectively to issue shares of the Issuer Common Stock pursuant
hereto, and (iv) promptly to take all action provided herein to protect the
rights of Grantee against dilution.
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5. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Due Authorization. Issuer has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Issuer. This Agreement has been duly
executed and delivered by Issuer.
(b) Authorized Stock. Issuer has taken all necessary corporate and
other action to authorize and reserve and to permit it to issue, and, at
all times from the date hereof until the obligation to deliver Issuer
Common Stock upon the exercise of the Option terminates, will have reserved
for issuance, upon exercise of the Option, the number of shares of Issuer
Common Stock necessary for Grantee to exercise the Option, and Issuer will
take all necessary corporate action to authorize and reserve for issuance
all additional shares of Issuer Common Stock or other securities which may
be issued pursuant to Section 7 upon exercise of the Option. The shares of
Issuer Common Stock to be issued upon due exercise of the Option, including
all additional shares of Issuer Common Stock or other securities which may
be issuable pursuant to Section 7, upon issuance pursuant hereto, shall be
duly and validly issued, fully paid and nonassessable, and shall be
delivered free and clear of all liens, claims, charges and encumbrances of
any kind or nature whatsoever, including any preemptive right of any
shareholder of Issuer, but subject to the voting restrictions contained in
the Certificate of Incorporation of Issuer.
(c) No Violation. Except as disclosed pursuant to the Merger Agreement,
the execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby will not, conflict with, or result in any
violation pursuant to any provisions of the Certificate of Incorporation or
by-laws of Issuer or any subsidiary of Issuer or, subject to obtaining any
approvals or consents contemplated hereby, result in any violation of any loan
or credit agreement, note, mortgage, indenture, lease, plan or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Issuer or any
subsidiary of Issuer or their respective properties or assets which violation
would have a material adverse effect on the Condition of Issuer on a
consolidated basis.
6. Representations and Warrants of Grantee. Grantee hereby represents and
warrants to Issuer that:
(a) Due Authorization. Grantee has all requisite corporate power and
authority to enter to this Agreement and, subject to any approvals or
consents referred to herein, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the translations contemplated hereby have been duly authorized by all
necessary corporate action on the part of Grantee. This Agreement has been
duly executed and delivered by Grantee.
(b) Purchase Not for Distribution. This Option is not being, and any
Option Shares or other securities acquired by Grantee upon exercise of the
Option will not be, acquired with a view to the public distribution thereof
and will not be transferred or otherwise disposed of except in a
transaction registered or exempt from registration under the Securities
Act.
7. Adjustment upon Changes in Capitalization, etc. (a) In the event of any
change in Issuer Common Stock by reason of a stock dividend stock split,
split-up, recapitalization, combination, exchange of shares or similar
transaction, the type and number of shares or securities subject to the Option,
and the Purchase Price therefor, shall be adjusted appropriately, and proper
provision shall be made in the agreements governing such transaction so that
Grantee shall receive, upon exercise of the Option, the number and class of
shares or other securities or property that Grantee would have received in
respect of Issuer Common Stock if the Option had been exercised immediately
prior to such event, or the record date therefor, as applicable. If any
additional shares of Issuer Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first sentence of
this Section 7(a)), the number of shares of Issuer Common Stock subject to the
Option shall be adjusted so that, after such issuance, it, together with any
shares of Issuer Common Stock previously issued pursuant hereto, equals 19.9% of
the number of shares of Issuer Common Stock then issued and outstanding, without
giving effect to any shares subject to or issued pursuant to the Option.
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(b) In the event that, prior to the Termination Date, Issuer shall enter in
an agreement: (i) to consolidate with or merge into any person, other than
Grantee or one of its subsidiaries, and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any person, other
than Grantee or one of its subsidiaries, to merge into Issuer and Issuer shall
be the continuing or surviving corporation, but, in connection with such merger,
the then outstanding shares of Issuer Common Stock shall be changed into or
exchanged for stock or other securities of Issuer or any other person or cash or
any other property or the outstanding shares of Issuer Common Stock immediately
prior to such merger shall after such merger represent less than 50% of the
outstanding shares and share equivalents of the merged company, or (iii) to sell
or otherwise transfer all or substantially all of its assets to any person,
other than Grantee or one of its subsidiaries, then, and in each such case, the
agreement governing such transaction shall make proper provisions so that, upon
the consummation of any such transaction and upon the terms and conditions set
forth herein, the Option, notwithstanding the fact that as of the date of
consummation of such transaction the Termination Date shall have occurred, shall
be converted into, or exchanged for, an option (the "Substitute Option"), at the
election of Grantee, of either (x) the Acquiring Corporation (as defined below),
(y) any person that controls the Acquiring Corporation, or (z) in the case of a
merger described in clause (ii), the Issuer (in each case, such entity being
referred to as the "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option, provided
that, if the terms of the Substitute Option cannot, because of the applicability
of any law or regulation, have the exact terms as the Option, such terms shall
be as similar as possible and in no event less advantageous to Grantee. The
Substitute Option Issuer shall also enter into an agreement with the then-holder
or holders of the Substitute Option in substantially the same form as this
Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
the Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of the Issuer
Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of each share of
Substitute Common Stock subject to the Substitute Option (the "Substitute
Purchase Price") shall be equal to the Purchase Price multiplied by a fraction
in which numerator is the number of shares of the Issuer Common Stock for which
the Option was theretofore exercisable and the denominator is the number of
shares for which the Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (x) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (y) the Issuer in a consolidation or merger or in which the Issuer
is the continuing or surviving person, and (z) the transferee of all or any
substantial part of the Issuer's assets (or the assets of its
subsidiaries).
(ii) "Substitute Common Stock" shall mean the common stock issued by
the Substitute Option Issuer upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the highest of (x) the price per
share of the Issuer Common Stock at which a Tender Offer or Exchange Offer
therefor has been made by any person (other than Grantee), (y) the price
per share of the Issuer Common Stock to be paid by any person (other than
the Grantee) pursuant to an agreement with Issuer, and (z) the highest last
sales price per share of Issuer Common Stock quoted on the NASDAQ/NMS (or
if Issuer Common Stock is not quoted on the NASDAQ/NMS, the highest bid
price per share on any day as quoted on the principal trading market or
securities exchange on which such shares are traded as reported by a
recognized source chosen by Grantee) within the six-month period
immediately preceding the agreement described in Section 7(b) above;
provided, however, that in the event of a sale of less than all of Issuer's
assets, the Assigned Value shall be the sum of the price paid in such sale
for such assets and the current market value of the remaining assets of
Issuer as determined by a nationally recognized investment banking firm
selected by Grantee, divided by the number of shares of the Issuer Common
Stock outstanding at the time of such sale. In the event that a Tender
Offer or Exchange Offer is made for the Issuer Common Stock or an agreement
is entered into for a merger or consolidation involving consideration other
than
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cash, the value of the securities or other property issuable or deliverable
in exchange for the Issuer Common Stock shall be determined by a nationally
recognized investment banking firm mutually selected by Grantee and Issuer
(or if applicable, Acquiring Corporation), provided that if a mutual
selection cannot be made as to such investment banking firm, it shall be
selected by Grantee.
(iv) "Average Price" shall mean the average last sales price or
closing price of a share of the Substitute Common Stock for the one year
immediately preceding the consolidation, merger or sale in question, but in
no event higher than the last sales price or closing price of the shares of
the Substitute Common Stock on the day preceding such consolidation,
merger, or sale; provided that if Issuer is the issuer of the Substitute
Option, the Average Price shall be computed with respect to a share of
common stock issued by Issuer, the person merging into Issuer or by any
company which controls or is controlled by such person, as Grantee may
elect.
(f) In no event pursuant to any of the foregoing paragraphs shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of the Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of Substitute Common Stock
but for this clause (f), the Substitute Option Issuer shall make a cash payment
to Grantee equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (f) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (f). This
difference in value shall be determined by a nationally recognized investment
banking firm selected by Grantee.
(g) Issuer shall not enter into any transaction described in subsection (b)
of this Section 7 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assumes in writing all of the obligations of Issuer
hereunder and takes all other actions that may be necessary so that the
provisions of this Section 7 are given full force and effect (including, without
limitation, any action that may be necessary so that the shares of Substitute
Common Stock are in no way distinguished from or have lesser economic value
(other than any diminution resulting from the fact that the Substitute Common
Stock is "restricted securities" within the meaning of Rule 144 under the
Securities Act) than other shares of common stock issued by the Substitute
Option Issuer).
(h) The provisions of Sections 8, 9, and 10 shall apply, with appropriate
adjustments, to any securities for which the Option becomes exercisable pursuant
to this Section 7 and, as applicable, references in such sections to "Issuer,"
"Option," "Purchase Price," and "Issuer Common Stock" shall be deemed to be
references to "Substitute Option Issuer," "Substitute Option," "Substitute
Purchase Price," and "Substitute Common Stock," respectively.
8. Repurchase at the Option of Grantee. (a) Subject to the last sentence
of Section 3(a), at the request of Grantee at any time commencing upon the first
occurrence of a Repurchase Event (as defined in Section 8(d)) and ending at the
close of business 365 days thereafter, Issuer shall repurchase from Grantee the
Option and all shares of Issuer Common Stock purchased by Grantee pursuant
hereto with respect to which Grantee then has beneficial ownership. The date on
which Grantee exercises its rights under this Section 8 is referred to as the
"Request Date". Such repurchase shall be at an aggregate price (the "Section 8
Repurchase Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by Grantee for any shares of
Issuer Common Stock acquired pursuant to complete or partial exercise of
the Option with respect to which Grantee then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price (as defined
below) for each share of Issuer Common Stock over (y) the Purchase Price
(subject to adjustment pursuant to Section 7), multiplied by the number of
shares of Issuer Common Stock with respect to which the Option has not been
exercised; and
(iii) the excess, if any, of the Applicable Price over the Purchase
Price (subject to adjustment pursuant to Section 7) paid (or, in the case
of Option Shares with respect to which the Option has been exercised but
the Closing Date has not occurred, payable) by Grantee for each share of
Issuer Common
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Stock with respect to which the Option has been exercised and with respect
to which Grantee then has beneficial ownership, multiplied by the number of
such shares.
(b) If Grantee exercises its rights under this Section 8, Issuer shall,
within ten (10) business days after the Request Date, pay the Section 8
Repurchase Consideration to Grantee in immediately available funds, and
contemporaneously with such payment Grantee shall surrender to Issuer the Option
and the certificates evidencing the shares of Issuer Common Stock purchased
thereunder with respect to which Grantee then has beneficial ownership, and
Grantee shall warrant that it has sole record and beneficial ownership of such
shares and that the same are then free and clear of all liens, claims, charges
and encumbrances of any kind whatsoever. Notwithstanding the foregoing, to the
extent that prior notification to or consent of any regulatory authority is
required in connection with the payment of all or any portion of the Section 8
Repurchase Consideration, or Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify
Grantee and thereafter deliver from time to time, and as permitted by applicable
law or regulation, that portion of the Section 8 Repurchase Consideration that
it is not then so prohibited from paying within five business days after the
date on which Issuer is no longer prohibited; provided, however, that if Issuer
at any time is prohibited under applicable law or regulation, or as a
consequence of administrative policy, from delivering to the Grantee the Section
8 Repurchase Consideration, in full (and Issuer hereby undertakes to use its
best efforts to obtain all required consents of regulatory authorities and to
file any required notices as promptly as practicable in order to accomplish such
repurchase), the Grantee may, at its option, revoke its request that Issuer
repurchase the Option or the Option Shares either in whole or to the extent of
the prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Grantee that portion of the Section 8 Repurchase Consideration
that Issuer is not prohibited from delivering; and (ii) deliver, to the Grantee
either (A) a new Stock Option Agreement evidencing the right of Issuer to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Stock Option
Agreement was exercisable at the time of delivery of the notice of repurchase by
a fraction, the numerator of which is the Section 8 Repurchase Consideration
less the portion thereof theretofore delivered to the Grantee and the
denominator of which is the Section 8 Repurchase Consideration, or (B) a
certificate for the Option Shares it is then prohibited from repurchasing.
Notwithstanding anything herein to the contrary, all of Grantee's rights
under this Section 8 shall terminate on the date of termination of this Option
pursuant to Section 3(a).
(c) For purposes of this Agreement, the "Applicable Price" means the
highest of: (i) the highest price per share of Issuer Common Stock paid for any
such share by the person or groups described in Section 8(d)(i) below; (ii) the
price per share of Issuer Common Stock received by holders of Issuer Common
Stock in connection with any merger or other business combination transaction
described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) above; or (iii) the highest
last sales price per share of Issuer Common Stock quoted on the NASDAQ/NMS (or
if Issuer Common Stock is not quoted on the NASDAQ/NMS, the highest bid price
per share as quoted on the principal trading market or securities exchange on
which such shares are traded as reported by a recognized source chosen by
Grantee) during the sixty (60) business days preceding the Request Date;
provided, however, that in the event of a sale of less than all of Issuer's
assets, the Applicable Price shall be the sum of the price paid in such sale for
such assets and the current market value of the remaining assets of Issuer as
determined by a nationally recognized investment banking firm selected by
Grantee, divided by the number of shares of the Issuer Common Stock outstanding
at the time of such sale. If the consideration to be offered, paid or received
pursuant to either of the foregoing clauses (i) or (ii) shall be other than in
cash, the value of such consideration shall be determined in good faith by an
independent nationally recognized investment banking form selected by Grantee
and reasonably acceptable to Issuer, which determination shall be conclusive for
all purposes of this Agreement.
(d) As used herein, a "Repurchase Event" shall occur if (i) any person
(other than Grantee or any subsidiary of Grantee) shall have acquired beneficial
ownership of (as such term is defined in Rule 13d-3 promulgated under the
Exchange Act), or the right to acquire beneficial ownership of, or any "group"
(as such term is defined under the Exchange Act) shall have been formed which
beneficially owns or has the right
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to acquire beneficial ownership of, 50% or more of the then outstanding shares
of Issuer Common Stock, or (ii) any of the transactions described in Section
7(b)(i), 7(b)(ii) or 7(b)(iii) above shall be consummated.
9. Registration Rights. (a) Demand Registration Rights. Issuer shall,
subject to the conditions of subparagraph (c) below, if requested by Grantee, as
expeditiously as possible prepare and file a registration statement under the
Securities Act (or similar document under analogous bank securities regulations)
if such registration is necessary in order to permit the sale or other
disposition of any or all shares of Issuer Common Stock or other securities that
have been acquired by or are issuable to Grantee upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by
Grantee in such request, including without limitation a "shelf" registration
statement under Rule 415 under the Securities Act or any successor provision,
and Issuer shall use its best efforts to qualify such shares or other securities
for sale under any applicable state securities laws.
(b) Additional Registration Rights. If Issuer at any time after the
exercise of the Option proposes to register any shares of Issuer Common Stock
under the Securities Act in connection with an underwritten public offering of
such Issuer Common Stock, Issuer will promptly give written notice to Grantee
(and any permitted transferee) of its intention to do so and, upon the written
request of Grantee (or any such permitted transferee of Grantee) given within 30
days after receipt of any such notice (which request shall specify the number of
shares of Issuer Common Stock intended to be included in such underwritten
public offering by Grantee (or such permitted transferee)), Issuer will cause
all such shares, the holders of which shall have requested participation in such
registration, to be so registered and included in such underwritten public
offering; provided, that the Issuer may elect not to cause all of the shares for
which the Grantee has requested participation in such registration to be
registered and included in such underwritten public offering if the
underwriters, for good business reasons and in good faith, object to such
inclusion.
(c) Conditions to Required Registration. Issuer shall use all reasonable
efforts to cause each registration statement referred to in subparagraph (a)
above to become effective and to obtain all consents or waivers of other parties
which are required therefor and to keep such registration statement effective,
provided, however, Issuer shall not be required to register Option Shares under
the Securities Act pursuant to subparagraph (a) above:
(i) prior to the earliest of (a) termination of the Merger Agreement,
and (b) a Purchase Event or a Preliminary Purchase Event;
(ii) on more than two occasions;
(iii) more than once during any calendar year; and
(iv) within 90 days after the effective date of a registration
referred to in subparagraph (b) above pursuant to which the holder or
holders of the Option Shares concerned were afforded the opportunity to
register such shares under the Securities Act and such shares were
registered as requested.
In addition to the foregoing, Issuer shall not be required to maintain the
effectiveness of any registration statement after the expiration of 180 days
from the effective date of such registration statement. Issuer shall use all
reasonable efforts to make any filings, and take all steps, under all applicable
state securities laws to the extent necessary to permit the sale or other
disposition of the Option Shares so registered in accordance with the intended
method of distribution for such shares.
(d) Expenses. Except where applicable state law prohibits such payments,
Issuer will pay all of its expenses (including without limitation registration
fees, qualification fees, blue sky fees and expenses, legal expenses, printing
expenses and the costs of special audits or "cold comfort" letters, expenses of
underwriters, excluding discounts and commissions but including liability
insurance if Issuer so desires or the underwriters so require, and the
reasonable fees and expenses of any necessary special experts) in connection
with each registration pursuant to subparagraph (a) or (b) above (including the
related offerings and sales by holders of Option Shares) and all other
qualifications, notifications or exemptions pursuant to subparagraph (a) or (b)
above; provided, however, that fees and expenses of counsel to the Grantee and
any other expenses incurred by the Grantee in connection with such registration
shall be borne by the Grantee.
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(e) Indemnification. In connection with any registration under
subparagraph (a) or (b) above Issuer hereby indemnifies the holder of the Option
Shares, and each underwriter thereof, including each person, if any, who
controls such holder or underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, losses, claims, damages and liabilities
caused by any untrue, or alleged untrue, statement of a material fact contained
in any registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission, or alleged omission, to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such expenses, losses, claims, damages or
liabilities of such indemnified party are caused by any untrue statement or
alleged untrue statement that was included by Issuer in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon and in conformity with,
information furnished in writing to Issuer by such indemnified party expressly
for use therein, and Issuer and each officer, director and controlling person of
Issuer shall be indemnified by such holder of the Option Shares, or by such
underwriter, as the case may be, for all such expenses, losses, claims, damages
and liabilities caused by any untrue, or alleged untrue, statement, that was
included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon, and in conformity with, information furnished in
writing to Issuer by such holder or such underwriter, as the case may be,
expressly for such use.
Promptly upon receipt by a party indemnified under this subparagraph (e) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this subparagraph (e), such indemnified party shall
notify the indemnifying party in writing of the commencement of such action, but
the failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
subparagraph (e). In case notice of commencement of any such action shall be
given to the indemnifying party as above provided, the indemnifying party shall
be entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and satisfactory to such
indemnified party. The indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel (other than reasonable costs of investigation)
shall be paid by the indemnified party unless (i) the indemnifying party either
agrees to pay the same, (ii) the indemnifying party fails to assume the defense
of such action with counsel satisfactory to the indemnified party, or (iii) the
indemnified party has been advised by counsel that one or more legal defenses
may be available to the indemnifying party that may be contrary to the interest
of the indemnified party, in which case the indemnifying party shall be entitled
to assume the defense of such action notwithstanding its obligation to bear fees
and expenses of such counsel. No indemnifying party shall be liable for any
settlement entered into without its consent, which consent may not be
unreasonably withheld.
If the indemnification provided for in this subparagraph (e) is unavailable
to a party otherwise entitled to be indemnified in respect of any expenses,
losses, claims, damages or liabilities referred to herein, then the indemnifying
party, in lieu of indemnifying such party otherwise entitled to be indemnified,
shall contribute to the amount paid or payable by such party to be indemnified
as a result of such expenses, losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative benefits received by
Issuer, the selling shareholders and the underwriters from the offering of the
securities and also the relative fault of Issuer, the selling shareholders and
the underwriters in connection with the statements or omissions which resulted
in such expenses, losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The amount paid or payable by a party as a
result of the expenses, losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim; provided, however, that in no case shall the holders of the Option
Shares be responsible, in the aggregate, for any amount in excess of the net
offering proceeds attributable to its Option Shares included in the offering. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Any obligation by any
holder to indemnify shall be several and not joint with other holders.
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In connection with any registration pursuant to subparagraph (a) or (b)
above, Issuer and each holder of any Option Shares (other than Grantee) shall
enter into an agreement containing the indemnification provisions of this
subparagraph (e).
(f) Miscellaneous Reporting. Issuer shall comply with all reporting
requirements and will do all such other things as may be necessary to permit the
expeditious sale at any time of any Option Shares by the holder thereof in
accordance with and to the extent permitted by any rule or regulation
promulgated by the SEC from time to time. Issuer shall at its expense provide
the holder of any Option Shares with any information necessary in connection
with the completion and filing of any reports or forms required to be filed by
them under the Securities Act or the Exchange Act, or required pursuant to any
state securities laws or the rules of any stock exchange.
(g) Issue Taxes. Issuer will pay all stamp taxes in connection with the
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will save Grantee harmless, without limitation as to time,
against any and all liabilities, with respect to all such taxes.
10. Quotation; Listing. If Issuer Common Stock or any other securities to
be acquired upon exercise of the Option are then authorized for quotation or
trading or listing on the NASDAQ/NMS or any securities exchange, Issuer, upon
the request of Grantee, will promptly file an application, if required, to
authorize for quotation or trading or listing the shares of Issuer Common Stock
or other securities to be acquired upon exercise of the Option on the NASDAQ/NMS
or such other securities exchange and will use its best efforts to obtain
approval, if required, of such quotation or listing as soon as practicable.
11. Division of Option. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Grantee, upon presentation and
surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
12. Miscellaneous. (a) Expenses. Except as otherwise provided in Section
9, each of the parties hereto shall bear and pay all costs and expenses incurred
by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision if such
waiver is in writing. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
(c) Entire Agreement; No Third-Party Beneficiary; Severability. This
Agreement, together with the Merger Agreement and the other documents and
instruments referred to herein and therein, between Grantee and Issuer (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and (b) is not intended to confer upon any person other
than the parties hereto (other than any transferees of the Option Shares or any
permitted transferee of this Agreement pursuant to Section 12(h)) any rights or
remedies hereunder. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or a federal or state
regulatory agency to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
If for any reason such court or regulatory agency determines that the Option
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does not permit Grantee to acquire, or does not require Issuer to repurchase,
the full number of shares of Issuer Common Stock as provided in Sections 3 and 8
(as adjusted pursuant to Section 7), it is the express intention of Issuer to
allow Grantee to acquire or to require Issuer to repurchase such lesser number
of shares as may be permissible without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Florida without regard to any
applicable conflicts of law rules.
(e) Descriptive Heading. The descriptive headings contained herein are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or a such other address
for a party as shall be specified by like notice):
<TABLE>
<S> <C>
If to Issuer to: FFE Financial Corp.
1160 South McCall Road
Englewood, Florida 34223
Telecopy Number: (813) 474-3509
Attention: G. L. Smith
with a copy to: Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005
Telecopy Number: (205) 682-0354
Attention: Barry P. Taff, Esq.
If to Grantee to: SouthTrust Corporation
420 North 20th Street
Birmingham, Alabama 35203
Telecopy Number: (205) 254-6695
Attention: Frederick W. Murray, Jr.
Executive Vice President
with a copy to: Bradley, Arant, Rose & White
1400 Park Place Tower
2001 Park Place
Birmingham, Alabama 35203
Telecopy Number: (205) 251-8611
Attention: C. Larimore Whitaker, Esq.
</TABLE>
(g) Counterparts. This Agreement and any amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Grantee may assign this
Agreement to a wholly owned subsidiary of Grantee and Grantee may assign its
rights hereunder in whole or in part after the occurrence of a Purchase Event.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties and their respective
successors and assigns.
(i) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
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(j) Specific Performance. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the day
and year first written above.
<TABLE>
<S> <C>
ATTEST: FFE FINANCIAL CORP.
By: /s/ EUNICE G. ALBRITTON By: /s/ G. L. SMITH
- --------------------------------------------- ---------------------------------------------
Its Secretary Its President
[CORPORATE SEAL]
ATTEST: SOUTHTRUST CORPORATION
By: /s/ A. D. BARNARD By: /s/ ALTON E. YOTHER
- --------------------------------------------- ---------------------------------------------
Its Secretary Alton E. Yother
Its Senior Vice President
[CORPORATE SEAL]
</TABLE>
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EXHIBIT E
SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW
SECTION 262. Appraisal Rights. (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock which, at
the record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc. or (ii) held of record by more than 2,000 stockholders; and
further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger
did not require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of Section 251 of this
title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation;
b. Shares of stock of any other corporation which at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
stockholders;
c. Cash in lieu of fractional shares of the corporations described
in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock and cash in lieu of
fractional shares described in the foregoing subparagraphs a., b. and c.
of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a
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provision, the procedures of this section, including those set forth in
subsections (d) and (3) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or 253 of this title, the surviving or resulting corporation, either
before the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown
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on the list at the addresses therein stated. Such notice shall also be given by
1 or more publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington, Delaware
or such publication as the Court deems advisable. The forms of the notices by
mail and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or
resulting corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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