SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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FFD FINANCIAL CORPORATION
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PRELIMINARY COPY
FFD FINANCIAL CORPORATION
321 North Wooster Avenue
Dover, Ohio 44622
(330) 364-7777
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders (the "Special Meeting") of FFD Financial
Corporation, an Ohio corporation ("FFD"), will be held on [____________], 2005,
at _________ __.m., local time, at the Toland-Herzig Monarch Center, 831
Boulevard, Dover, Ohio 44622 for the following purposes, which are more
completely set forth in the accompanying Proxy Statement:
1. To consider and vote upon a proposal to amend FFD's Articles of
Incorporation to effect a 1-for-350 reverse stock split, followed
immediately by an amendment to FFD's Articles of Incorporation to
effect a 350-for-1 forward stock split of FFD's common shares
(collectively, the "Stock Splits"). As a result of the Stock Splits,
(a) each shareholder owning fewer than 350 common shares of FFD
immediately before the Stock Splits will receive $19.00 in cash,
without interest, for each FFD common share owned by such
shareholder immediately prior to the Stock Splits and will no longer
be a shareholder of FFD; and (b) each FFD common share held by a
shareholder owning 350 or more common shares of FFD immediately
prior to the effective time of the Stock Splits will continue to
represent one common share of FFD after completion of the Stock
Splits. The proposed amendments to FFD's Articles of Incorporation
are attached as Exhibits B and C to the accompanying Proxy
Statement; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
Only FFD shareholders of record as of the close of business on
[________________], 2005, will be entitled to notice of, and to vote at, the
Special Meeting and any adjournment thereof.
To assure that a quorum is present at the Special Meeting, please date,
sign and promptly return the enclosed proxy whether or not you expect to attend
the Special Meeting. A postage-prepaid envelope is enclosed for your
convenience.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE STOCK SPLITS, PASSED UPON THE
MERITS OR FAIRNESS OF THE STOCK SPLITS, OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
FFD's Board of Directors carefully considered the terms of the proposed
Stock Splits, has determined that the Stock Splits are fair to, and in the best
interests of, FFD and its shareholders, and unanimously recommends that you vote
"FOR" the approval of the Stock Splits.
By Order of the Board of Directors,
Trent B. Troyer
President and Chief Executive Officer
Dover, Ohio
[_____________________], 2005
FFD FINANCIAL CORPORATION
321 North Wooster Avenue
Dover, Ohio 44622
(330) 364-7777
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement provides information about a proposal to amend the
Articles of Incorporation, as amended (the "Articles"), of FFD Financial
Corporation ("FFD", "we" or "us") to effect a 1-for-350 reverse stock split,
followed immediately by a 350-for-1 forward stock split (together these are
referred to as the "Stock Splits") of FFD's common shares, no par value per
share ("FFD shares" or "shares"). If the Stock Splits are completed:
o Each share held by a shareholder owning fewer than 350 FFD shares
immediately before the Stock Splits will be cancelled and
extinguished in exchange for $19.00 in cash, without interest; and
o Each share held by a shareholder owning 350 or more FFD shares will
continue to represent one FFD share after the Stock Splits.
The proposed amendments to FFD's Articles to accomplish the Stock Splits
are attached as Exhibits B and C to this Proxy Statement. The Board of Directors
has scheduled a Special Meeting of Shareholders of FFD (the "Special Meeting")
to vote upon the Stock Splits. The date, time and place of the Special Meeting
are as follows:
[________, 2005, __:__,_.m.]
Toland-Herzig Monarch Center
831 Boulevard, Dover, Ohio 44622
We cannot complete the Stock Splits unless the holders of at least
[594,110] shares, which is a majority of the outstanding FFD shares, approve the
Stock Splits. The executive officers and directors of FFD who have indicated
they will vote in favor of the Stock Splits together own 159,318, or
approximately [13.41%] of the FFD shares outstanding on _____________, 2005 (the
"Record Date"). If our directors and officers exercised presently exercisable
options they hold prior to the Record Date, they would own approximately
198,402, or [16.16]%, of the FFD shares entitled to vote at the Special Meeting.
We urge you to read this Proxy Statement carefully and in its entirety,
including the attached Exhibits. This Proxy Statement is first being mailed to
FFD's shareholders on or about ___________, 2005.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE STOCK SPLITS, PASSED UPON THE
MERITS OR FAIRNESS OF THE STOCK SPLITS, OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY FFD.
SUMMARY TERM SHEET
The following is a summary of the material terms of the Stock Splits.
Although this summary describes what we believe are the most material terms and
conditions of the Stock Splits, this Proxy Statement contains a more detailed
description of the terms and conditions. We urge you to carefully review, in
their entirety, this Proxy Statement, the attached Exhibits and the documents
incorporated by reference before voting.
Information About the Stock Splits
The Stock Splits will consist of the following steps:
o A 1-for-350 reverse stock split of FFD shares will occur on the date
that the Ohio Secretary of State accepts for filing certificates of
amendment to our Articles (the "Effective Date"). As a result:
o Each holder of less than 350 FFD shares immediately before the
reverse stock split will receive cash in the amount of $19.00,
without interest, for each share held immediately before the
reverse stock split and will no longer be a shareholder of
FFD; and
o Each holder of 350 or more FFD shares immediately prior to the
reverse stock split will receive a fractional share for each
common share held immediately before the reverse stock split.
Fractional shares held by holders of more than 350 shares on
the Effective Date will not be purchased by FFD and holders of
350 or more shares will not be entitled to receive any cash
payment from FFD.
o After the reverse stock split is complete and holders of less than
350 shares have been cashed out, FFD will effect a 350-for-1 forward
stock split of the FFD shares. Each holder of 350 or more FFD shares
immediately before the reverse stock split will participate in the
forward stock split, which will result in the holder owning the same
number of shares after the forward stock split as before the reverse
stock split.
o If you are a record holder who holds less than 350 FFD shares but do
not want to be cashed out in the Stock Splits, you may remain a FFD
shareholder by purchasing a sufficient number of FFD shares, to the
extent available, in the open market far enough in advance of the
Stock Splits so that you hold at least 350 FFD shares on the
Effective Date. Conversely, if you are a record holder and want to
be cashed out in the Stock Splits, you may do so by selling a
sufficient number of FFD shares in the open market far enough in
advance of the Stock Splits so that you hold less than 350 shares on
the Effective Date.
o If you hold FFD shares in "street name" through a nominee (such as a
broker or a bank) the effect of the Stock Splits on your FFD shares
may be different than for record holders. FFD intends for the Stock
Splits to treat "street name" shareholders the same as those holding
shares in a record account, and nominees will be asked to effect the
Stock Splits for their beneficial owners. However, your nominee may
choose not to effect the Stock Splits on your FFD shares, and your
nominee may have different procedures that you must follow.
Shareholders holding shares in street name should contact their
nominee to determine how the Stock Splits will affect them.
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o If your nominee will not effect the Stock Splits on your street name
FFD shares and if you hold less than 350 shares and wish to ensure
that you are cashed out in the Stock Splits, you may transfer your
FFD shares out of street name and into a record account with FFD far
enough in advance that the transfer is complete by the Effective
Date.
o If your nominee will effect the Stock Splits, you hold less than 350
shares of FFD and you wish to continue as a FFD shareholder after
the Stock Splits, you may acquire additional FFD shares in your
street name account, if available, in the open market far enough in
advance that the transfer is complete by the Effective Date.
Please see the sections of this Proxy Statement entitled "Special Factors
- - Effects of the Stock Splits" and "Stock Splits Proposal - Summary and
Structure" for more information on the structure of the Stock Splits.
Purpose of and Reasons for the Stock Splits
o The Stock Splits are intended to reduce the number of record holders
of FFD shares below 300 and enable us to terminate the registration
of, or deregister, our shares under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Deregistration would suspend
our duty to file periodic reports and proxy statements with the
Securities and Exchange Commission (the "SEC") and, as a result, FFD
would no longer be a public reporting company. We will, however,
continue to be subject to the general anti-fraud provisions of
federal and applicable state securities laws and federal banking
laws applicable to FFD and First Federal.
o We estimate annual cost savings of approximately $173,000 per fiscal
year as a result of the deregistration of our shares and the related
suspension of periodic reporting requirements, including provisions
of the Sarbanes-Oxley Act of 2002, as amended (the "Sarbanes-Oxley
Act"), decreased transfer agent expenses from no longer being
required to service holders with small positions in FFD shares and
the elimination of costs associated with being listed on The NASDAQ
SmallCap MarketSM ("NASDAQ");
o We expect to realize non-recurring savings in the 2006 fiscal year
of at least $125,000 in fees and expenses to implement procedures to
comply with the internal controls audit requirements of Section 404
of the Sarbanes-Oxley Act;
o The Stock Splits constitute the most expeditious, efficient, cost
effective and fair method to convert FFD from a public reporting
company to a non-public, non-reporting company compared to other
alternatives considered by the Board.
Please see the sections of this Proxy Statement entitled "Special Factors
- - Purpose of and Reasons for the Stock Splits" and "Special Factors - Effects of
the Stock Splits" for more information on the principal reasons for the Stock
Splits.
Fairness of the Stock Splits
o The Board believes that the Stock Splits are in FFD's best interests
and are both substantively and procedurally fair to the affiliated
and unaffiliated holders of FFD shares, including those holders
whose shares will be cashed out in the Stock Splits ("Cashed Out
Holders") and those who will remain holders of FFD shares after the
Stock Splits ("Continuing Holders"). The
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factors the Board considered in determining the fairness of the
Stock Splits are described in greater detail in this Proxy
Statement.
o The Board has set $19.00 per share (the "Cash Out Price") as the
cash consideration to be paid by FFD to holders of less than 350 FFD
shares instead of issuing such holders fractional shares (i.e., less
than one whole share) in connection with the reverse stock split.
The Board made this determination in good faith and received a
fairness opinion (the "Fairness Opinion") prepared by Keller &
Company, Inc. ("Keller & Company"), an independent financial
advisor. The full text of the Fairness Opinion, dated May 10, 2005,
is attached to this Proxy Statement as Exhibit A. The Fairness
Opinion is also available for inspection and copying at FFD's
principal executive offices located at 321 North Wooster Avenue,
Dover, Ohio 44622.
o The Fairness Opinion states that, based upon and subject to the
factors and assumptions set forth therein, as of May 10, 2005, the
Cash Out Price is fair, from a financial point of view, to both the
Cashed Out Holders and the Continuing Holders. We urge you to read
the Fairness Opinion in its entirety.
o Keller & Company provided the Fairness Opinion for the Board in
connection with its consideration of the Stock Splits. The Fairness
Opinion is not a recommendation as to how you should vote with
respect to the Stock Splits.
Please see the sections of this Proxy Statement entitled "Special Factors
- - Fairness of the Stock Splits," "Opinion of Keller & Company," "Stock Splits
Proposal - Background of the Stock Splits" and "Stock Splits Proposal -
Recommendation of the Board" for more information regarding the fairness of the
Stock Splits.
Advantages of the Stock Splits
o By completing the Stock Splits, deregistering our shares and
suspending our periodic reporting obligations under the Exchange
Act, we expect to realize recurring annual cost savings of
approximately [$173,000]. In addition, we expect to realize
non-recurring savings of at least [$125,000] in consulting fees and
expenses to implement procedures to comply with the internal
controls audit requirements of Section 404 of the Sarbanes-Oxley
Act. Deregistration will also eliminate the significant amount of
time and effort previously required of our management to prepare and
review the reports required to be filed under the Exchange Act.
o The Stock Splits provide Cashed Out Holders with an opportunity to
liquidate their FFD shares at a premium without paying brokerage
commissions or other transaction fees.
o The Stock Splits will not impact affiliated holders of FFD shares
differently than unaffiliated holders on the basis of affiliate
status. The sole determining factor as to whether a shareholder will
remain a shareholder of FFD after the Stock Splits is the number of
shares held immediately prior to the Stock Splits.
o The Stock Splits will have minimum effect on the relative voting
power of Continuing Holders. An estimated 78,000 shares, which is
only 6.6% of the 1,188,219 outstanding FFD shares, will be
eliminated as a result of the Stock Splits, and the relative
percentage ownership of the Continuing Holders will be approximately
the same as it was prior to the
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Stock Splits. For example, including currently exercisable options,
the executive officers and directors of FFD and First Federal
currently beneficially own approximately [16.16]% of the outstanding
FFD shares, and will beneficially own approximately [17.25]% of the
outstanding FFD shares following the Stock Splits.
o The Stock Splits will reduce expenses related to administering small
shareholder accounts. The expense of administering accounts of small
shareholders is disproportionate to their ownership interest in FFD.
As of the Record Date, we estimate that we had approximately 399
record shareholders that held fewer than 350 FFD shares. These
shareholders hold approximately 78,000, or 6.6%, of our outstanding
shares but represent approximately 65% of our total number of record
holders. As a result, a disproportionate amount of our expenses
relating to the administration of shareholder accounts is
attributable to shareholders holding less than 7% of our issued and
outstanding shares.
o The Stock Splits will provide an effective use of our excess
capital. Over the past five years, we have repurchased shares in the
open market in order to utilize our excess capital. The limited
trading volume in FFD shares, however, has reduced the effectiveness
of repurchases as a capital management tool. The Stock Splits will
enable us to use a portion of our excess capital to reduce the
number of outstanding shares, increasing the value of FFD shares
through the anticipated improvement in return on equity and earnings
per share and the potential for increased dividends as a result of
fewer outstanding shares.
Please see the section of the Proxy Statement entitled "Special Factors -
Fairness of the Stock Splits" for a more detailed discussion of the foregoing.
Disadvantages of the Stock Splits
o Upon deregistration of our shares, our duty to file periodic reports
with the SEC will be suspended for as long as we have fewer than 300
record holders of FFD shares. Information regarding our operations
and financial results that is currently available to the general
public and our investors will not be readily available after
deregistration. Investors seeking information about us will have to
contact us directly to receive such information and we may elect not
to provide investors with requested information that we are not
required by law to provide.
o After the completion of the Stock Splits, our shares will no longer
be listed on NASDAQ and the liquidity of our shares may be reduced.
In addition to reduced liquidity, the lack of publicly available
financial and other information about FFD may cause a decrease in
the price at which FFD shares trade.
o Following the Stock Splits, Cashed Out Holders will have no further
financial interest in FFD and will not participate in the potential
appreciation in the value of, or the payment of dividends on, FFD
shares.
o After deregistration of our shares, FFD will no longer be subject to
the liability provisions of the Exchange Act that apply to public
companies or the provisions of the Sarbanes-Oxley Act, including the
requirement that our chief executive officer and chief financial
officer certify the accuracy of the financial statements contained
in our Exchange Act filings.
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Please see the section of the Proxy Statement entitled "Special Factors -
Disadvantages of the Stock Splits" for a more detailed discussion of the
foregoing.
Voting Information
o The Stock Splits require the approval of a majority of the
outstanding FFD shares entitled to vote at the Special Meeting. As
of the close of business on the Record Date, there were [1,188,219]
FFD shares outstanding and entitled to vote at the Special Meeting,
of which [594,110] are required to approve the Stock Splits. The
executive officers and directors of FFD who have indicated they will
vote in favor of the Stock Splits together own 159,318, or
approximately [13.41]%, of the FFD shares outstanding and entitled
to vote at the meeting. If our directors and executive officers
exercised their presently exercisable options prior to the Record
Date, they would own approximately 198,402, or [16.16%], of the
shares entitled to vote at the meeting.
Please see the section of the Proxy Statement entitled "Meeting and Voting
Information" for more information.
Material Federal Income Tax Consequences
o FFD will not recognize any gain, loss or deduction for federal
income tax purposes as a result of the Stock Splits.
o Continuing Holders will not recognize any gain or loss for federal
income tax purposes as a result of the Stock Splits. Cashed Out
Holders will generally recognize a capital gain or loss for federal
income tax purposes equal to the difference between the $19.00 Cash
Out Price and the shareholder's per share tax basis in the FFD
shares that are exchanged for cash. You should consult your tax
advisor to determine the effects of the Stock Splits on your FFD
shares.
Please see the section of this Proxy Statement entitled "Stock Splits
Proposal - Material Federal Income Tax Consequences" for more information on the
tax consequences of the Stock Splits.
Unavailability of Appraisal or Dissenters' Rights
o A shareholder of FFD does not have the right under Ohio law or FFD's
Articles or Code of Regulations (the "Regulations") to demand the
appraised value of the shareholder's FFD shares or any other
dissenters' rights whether or not the shareholder votes in favor of
the Stock Splits.
Please see the section of this Proxy Statement entitled "Stock Splits
Proposal - Unavailability of Appraisal or Dissenters' Rights" for more
information.
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Termination of Stock Splits
o The Board may, in its discretion, withdraw the Stock Splits from the
agenda of the Special Meeting prior to any vote thereon if it
believes it is FFD's best interests to do so. Although the Board
presently believes that the Stock Splits are in FFD's best interests
and has recommended a vote for the Stock Splits, the Board
nonetheless believes that it is prudent to recognize that factual
circumstances could possibly change prior to the Effective Date such
that it might not be appropriate or desirable to effect the Stock
Splits.
Please see the section of this Proxy Statement entitled "Stock Splits
Proposal - Termination of Stock Splits" for more information.
Escheat Laws
o All cash amounts payable to Cashed Out Holders that remain unclaimed
will be subject to applicable state laws regarding abandoned
property.
Please see the section of this Proxy Statement entitled "Stock Splits
Proposal - Escheat Laws" for more information.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
When used in this Proxy Statement the words or phrases "will likely
result," "are expected to," "will continue," "anticipate," "estimate," "project"
or similar expressions are intended to identify "forward-looking statements."
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from results presently anticipated or
projected. FFD cautions you not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. FFD advises
readers that FFD's actual results may differ materially from any opinions or
statements expressed with respect to future periods in any current statements in
this Proxy Statement or in our other filings with the SEC. Please see the
section of this Proxy Statement entitled "Available Information."
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TABLE OF CONTENTS
-----------------
SUMMARY TERM SHEET.............................................................2
Information About the Stock Splits..........................................2
Purpose of and Reasons for the Stock Splits.................................3
Fairness of the Stock Splits................................................3
Voting Information..........................................................6
Material Federal Income Tax Consequences....................................6
Unavailability of Appraisal or Dissenters' Rights...........................6
Termination of Stock Splits.................................................7
Escheat Laws................................................................7
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS.........................7
SPECIAL FACTORS................................................................9
Purpose of and Reasons for the Stock Splits.................................9
Effects of the Stock Splits................................................11
Alternatives to the Stock Splits...........................................15
Fairness of the Stock Splits...............................................16
Disadvantages of the Stock Splits..........................................20
Conclusion.................................................................21
STOCK SPLITS PROPOSAL.........................................................21
Background of the Stock Splits.............................................21
Summary and Structure......................................................25
Recommendation of the Board................................................26
Material Federal Income Tax Consequences...................................27
Unavailability of Appraisal or Dissenters' Rights..........................28
Share Certificates.........................................................28
Termination of Stock Splits................................................29
Escheat Laws...............................................................29
Regulatory Approvals.......................................................30
OPINION OF KELLER & COMPANY...................................................30
Public Comparables Analysis................................................32
Review of FFD Market Performance...........................................33
Conclusion.................................................................34
Engagement of Keller & Company.............................................34
MEETING AND VOTING INFORMATION................................................34
Time and Place.............................................................34
Revoking Your Proxy........................................................34
Record Date................................................................34
Quorum and Required Vote...................................................34
Solicitation and Costs.....................................................35
INFORMATION ABOUT FFD.........................................................36
Business of FFD and First Federal..........................................36
Management of FFD..........................................................36
Interest of Certain Persons in Matters to be Acted Upon....................38
Certain Transactions.......................................................40
Market Price and Dividend Information......................................40
FFD Share Repurchase Information...........................................41
FINANCIAL INFORMATION.........................................................41
Summary Historical Financial Information...................................41
Pro Forma Financial Information............................................43
AVAILABLE INFORMATION.........................................................48
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................48
PROPOSALS OF SHAREHOLDERS AND OTHER MATTERS...................................49
EXHIBIT A - FAIRNESS OPINION
EXHIBIT B - FORM OF REVERSE STOCK SPLIT AMENDMENT
EXHIBIT C - FORM OF FORWARD STOCK SPLIT AMENDMENT
8
SPECIAL FACTORS
Purpose of and Reasons for the Stock Splits
The purpose of the reverse stock split is to terminate FFD's status as a
public reporting company with the SEC. As a result of the reverse stock split
and the repurchase of the resulting fractional shares from holders of fewer than
350 shares, we expect to have approximately 217 record holders of FFD shares,
which would enable us to terminate the registration of our shares under the
Exchange Act. If the Stock Splits are completed, we intend to file with the SEC
to deregister the FFD shares. Upon deregistration, FFD shares would no longer be
quoted on NASDAQ. If a market maker will sponsor our shares, our shares may be
quoted in the Pink Sheets(R) or on the OTC Bulletin Board(R) (the "OTCBB"),
which are centralized quotation services that collect and publish market maker
quotes for securities.
The forward stock split is not necessary for us to reduce the number of
holders of FFD shares and deregister our shares with the SEC. The Board,
however, feels it is in the best interest of FFD and our shareholders to effect
the 350-for-1 forward split immediately after the reverse stock split. Without
the forward split, FFD shares would have an unusually high per share value,
which would tend to further decrease the liquidity of our shares.
Reduced Costs and Expenses. We incur both direct and indirect costs to
--------------------------
comply with the filing and reporting requirements imposed on us as a public
reporting company. As described below, these costs include, among other things,
management's time spent preparing and reviewing our public filings and legal and
accounting fees associated with the preparation and review of such filings.
Since our initial public offering in 1996, we have incurred increasing costs as
a result of being a public company. Since the passage of the Sarbanes-Oxley Act
in 2002, in particular, our public company expenses have increased significantly
and continue to do so.
When the Sarbanes-Oxley Act was adopted, we realized that we would incur
additional expenses as a result. We did not choose to deregister in 2002,
however, because much of the Act had yet to be implemented and the extent of the
increased costs was then unknown. Our legal and accounting costs have increased
28% from an average of $100,000 in 2001 and 2002, the last two fiscal years
prior to the passage of the Sarbanes-Oxley Act, to an average of $136,000 in
2003 and 2004, due primarily to the implementation of the Sarbanes-Oxley Act and
related SEC and NASDAQ rules. We expect these costs to increase further in the
future. Of particular concern is the pending internal controls audit requirement
imposed by Section 404 of the Sarbanes-Oxley Act, which is effective for FFD in
the 2007 fiscal year that begins July 1, 2006. We must begin preparing to comply
with Section 404 in the coming fiscal year and our expenses related to Section
404 compliance will begin at that time. We expect that our preparations to
comply with Section 404 will result in additional one-time expense of at least
$125,000, and significant increases in our annual audit and other expenses going
forward. For smaller publicly traded companies, such as FFD, these costs
represent a larger portion of our revenues than for larger public companies.
Not all of our reporting costs will be eliminated by deregistration,
however. We will continue to comply with all federal reporting requirements
applicable to FFD as a savings and loan holding company and to First Federal as
a federal savings bank. Also, we currently intend to continue to provide our
shareholders with annual audited financial statements and proxy statements,
although we are not required to do so. If provided, these documents may not be
as detailed or extensive as those required of a public reporting company.
The Board believes that by deregistering our shares and suspending FFD's
periodic reporting obligations under the Exchange Act, we will realize recurring
annual cost savings of approximately $173,000 in fees and expenses that we have
historically incurred and additional expenses we expect to
9
incur, including fees and expenses for compliance with the Sarbanes-Oxley Act
and associated regulations and compliance with requirements imposed on us by
NASDAQ. These estimated cost savings are described in greater detail below.
Estimated Annual Cost Savings:
------------------------------
Historical costs:
Legal fees $ 23,000
Printing, mailing and filing costs $ 15,000
Audit fees $ 30,750
NASDAQ listing fees $ 16,250
Transfer agent fees $ 8,000
--------
Total historical costs $ 93,000
--------
Additional expected annual costs:
Section 404 audit fees $ 40,000
New personnel costs $ 40,000
--------
Total additional costs $ 80,000
--------
Total estimated annual cost savings $173,000
========
These estimated annual cost savings reflect, among other things: (i) a
reduction in audit and related fees; (ii) a reduction in legal fees related to
securities law compliance and compliance with NASDAQ requirements; (iii) the
elimination of filing costs and expenses associated with electronically filing
periodic reports and other documents (such as proxy statements) with the SEC on
its Edgar database; (iv) the lower printing and mailing costs attributable to
the reduction in the number of shareholders and the reduced disclosure
requirements; (v) elimination of the need to hire additional personnel for
Section 404 compliance purposes; (vi) the lower risk of liability that is
associated with non-reporting company status and the expected decrease in
premiums for directors' and officers' liability insurance; (vii) the audit
savings due to FFD not being subject to the public company provisions of the
Sarbanes-Oxley Act; (viii) the elimination of annual NASDAQ listing fees; (ix)
the savings in fees charged by Registrar and Transfer Company, FFD's transfer
agent (the "Transfer Agent"), that are expected because of the reduction in the
number of shareholder accounts to be handled by the Transfer Agent; and (x) a
reduction in direct miscellaneous clerical and other expenses.
In addition to the estimated annual cost savings, completion of the Stock
Splits and deregistration of our shares would also result in a significant
one-time cost savings of at least $125,000 because we would not incur consulting
fees and other expenses relating to the new internal controls audit requirements
imposed by Section 404 of the Sarbanes-Oxley Act. Implementing Section 404 of
the Sarbanes-Oxley Act would require additional significant expenditures,
including fees to third parties for compliance planning, assessment,
documentation and testing. It would also require a significant investment of
time by the management and employees of FFD and First Federal.
The annual and non-recurring cost savings set forth above are only
estimates. The actual savings we realize from going private may be higher or
lower than these estimates. The estimates are based upon the (i) actual costs to
us of the services and disbursements in each of the categories listed above that
were reflected in our recent financial statements and (ii) allocation to each
category of management's estimates of the portion of the expenses and
disbursements believed to be solely or primarily attributable to our public
reporting company status. In some instances, these cost savings expectations
were based on verifiable assumptions. For example, our auditing fees will be
reduced if we cease to be a public
10
reporting company due to the elimination of fees for interim services. In
addition, the costs associated with retaining legal counsel to assist us in
complying with the Exchange Act reporting requirements will be eliminated if we
no longer file reports with the SEC.
Operational Flexibility. Another reason for the Stock Splits is the
-----------------------
operational flexibility that deregistration would provide. The Board believes
that ceasing to be a public reporting company would enable management to focus
more on FFD's long-term growth without the burden of SEC reporting requirements
and other aspects of being a public company.
Conclusion. In light of the foregoing, the Board believes the benefits FFD
----------
receives from maintaining its status as a public reporting company and
maintaining its small shareholder accounts are substantially outweighed by the
associated costs and expenses. The Board believes that it is in FFD's best
interests to eliminate the administrative burden and costs associated with
maintaining its status as a public reporting company and its small shareholder
accounts.
Effects of the Stock Splits
The primary effect of the Stock Splits will be to reduce the number of
record holders of FFD shares from approximately 616 to approximately 217.
Because we will have less than 300 record holders of FFD shares, we will be
able, and intend, to deregister our shares with the SEC under the Exchange Act
and our duty to file periodic reports with the SEC will be suspended for as long
as we have less than 300 record holders of our shares. After deregistration, FFD
shares will no longer be quoted on the NASDAQ. The suspension of our reporting
obligations under the Exchange Act and the elimination of our NASDAQ listing
will further reduce the existing limited trading market for FFD shares. After
deregistration of our shares, we will no longer be subject to the liability
provisions of the Exchange Act that apply to public companies or the provisions
of the Sarbanes-Oxley Act, including the requirement that FFD's officers certify
the accuracy of FFD's financial statements.
Discussed below are some additional effects of the Stock Splits on certain
persons or groups.
Effects on Cashed Out Holders. Upon completion of the Stock Splits, Cashed
-----------------------------
Out Holders (i.e., holders of less than 350 FFD shares immediately before the
completion of the Stock Splits):
o Will have their FFD shares cancelled in a taxable transaction in
exchange for the Cash Out Price instead of selling their shares at a
time and for a price of their choosing;
o Will receive the Cash Out Price without paying brokerage commissions
or other transaction fees;
o Will no longer be a shareholder of FFD and will not be able to
participate in FFD's future earnings or growth; and
o Will receive no interest on cash payments owed to them by FFD as a
result of the Stock Splits.
For a discussion of the federal income tax consequences of the Stock
Splits, please see the section of this Proxy Statement entitled "Stock Splits
Proposal - Material Federal Income Tax Consequences."
11
If you hold FFD shares in "street name" through a nominee, the Stock
Splits may not effect you the same as they do record holders. FFD intends for
the Stock Splits to affect shareholders holding FFD shares through a nominee the
same as those holding shares in a record account, and nominees will be asked to
effect the Stock Splits for their beneficial owners. However, your nominee may
choose not effect the Stock Splits on your shares, and your nominee may have
different procedures that you must follow. Shareholders holding shares in street
name should contact their nominee to determine how the Stock Splits will affect
them.
If you hold less than 350 FFD shares, but you would rather continue to be
a FFD shareholder after the Stock Splits and not be completely cashed out, you
may do so by taking one of the following actions far enough in advance so that
it is complete by the Effective Date:
o Purchase a sufficient number of additional shares, if available, on
the open market and have them registered in your name and
consolidated with your current record account, if you are a record
holder, so that you hold at least 350 FFD shares in your record
account immediately before the Effective Date;
o If your nominee will effect the Stock Splits on your FFD shares, you
may acquire additional shares in your street name account, if
available, in the open market. Due to the limited market in FFD
shares, there is no assurance that you will be able to purchase
enough shares to remain a shareholder of FFD. If your nominee
chooses not to effect the Stock Splits, you may not be required to
take any action to remain a shareholder of FFD if you continue to
hold your FFD shares through your nominee on the Effective Date. You
should contact your nominee to determine how the Stock Splits will
affect you.
o If applicable, consolidate accounts in which you hold an interest so
that you hold at least 350 FFD shares in one record account
immediately before the Stock Splits.
Effects on Continuing Holders. If the Stock Splits are completed,
-----------------------------
Continuing Holders (i.e., holders of 350 or more FFD shares immediately before
the Stock Splits):
o Will hold the same number of shares before and after the Stock
Splits;
o Will not receive cash for any portion of their FFD shares;
o Will likely experience a further reduction in liquidity of FFD
shares;
o Will not experience a significant increase in their respective
ownership percentages of FFD shares; and
o Will have less access to information about FFD.
After deregistration of our shares under the Exchange Act, FFD shares will
no longer be eligible for trading or quotation on any securities market or
quotation system, except the Pink Sheets(R) and the OTCBB. In order for FFD
shares to be quoted in the Pink Sheets(R) or on the OTCBB, one or more
broker-dealers would need to act as market maker and sponsor our shares.
Although we anticipate that a broker dealer will sponsor our shares in the Pink
Sheets(R) or on the OTCBB, there can be no assurance that any broker-dealer will
be willing to act as a market maker in our shares after the Stock Splits.
12
If you hold 350 or more FFD shares and you would prefer to be completely
cashed out in the Stock Splits, you may do so by selling enough FFD shares in
the open market so that you hold less than 350 FFD shares as of the Effective
Date. Due to the limited market for FFD shares, there is no assurance that you
will be able to sell enough shares to reduce your holdings to less than 350 FFD
shares. If you hold FFD shares in "street name," you should contact your nominee
(such as your broker or bank) to determine how the Stock Splits will affect you.
If you hold fewer than 350 FFD shares and your nominee does not intend to effect
the Stock Splits, you can ensure you are cashed out by transferring your FFD
shares into a record account with FFD far enough in advance that the transfer is
complete by the Effective Date.
Effects on and Surrender of FFD Share Certificates. In connection with the
--------------------------------------------------
Stock Splits, our shares will be assigned a new identification number by the
Committee on Uniform Security Identification Procedures, or "CUSIP." This new
CUSIP number will appear on all share certificates issued after the Effective
Date. All shares certificates evidencing ownership of FFD shares outstanding
prior to the Stock Splits will, after the Effective Date, be deemed to represent
(a) for Cashed Out Holders, the right to receive $19.00 for each FFD share being
repurchased in lieu of issuing fractional shares, and (b) for Continuing
Holders, the right to receive a new share certificate with the new CUSIP number,
whether or not the certificate is surrendered for exchange.
You will receive a letter of transmittal from us as soon as practicable
after the Stock Splits are completed. The letter of transmittal will contain
instructions on how to surrender your existing share certificate(s) to the
Transfer Agent for your cash payment or new certificate, as applicable. You will
not receive your cash payment or new certificate until you surrender your
outstanding share certificate(s) to the Transfer Agent, along with a completed
and executed copy of the letter of transmittal. Do not send your share
certificate(s) in with your proxy. Please wait until you receive your letter of
transmittal to surrender your share certificate(s) to the Transfer Agent.
Effects on FFD. We intend to apply to the SEC to deregister our shares as
--------------
soon as practicable after completion of the Stock Splits. Upon deregistration of
our shares, our duty to file periodic reports with the SEC will be suspended for
as long as we have fewer than 300 record holders and we will no longer be a
public reporting company. In addition, we will be relieved of the obligation to
comply with the requirements of the proxy rules under Section 14 of the Exchange
Act. However, we will continue to be subject to the general anti-fraud
provisions of federal and applicable state securities laws and we will also
continue to be subject to regulation by the Office of Thrift Supervision of the
Department of the Treasury (the "OTS") and the Federal Deposit Insurance
Corporation (the "FDIC"), as applicable to savings and loan holding companies
and federal savings banks.
We currently intend to continue to provide annual audited financial
statements and proxy statements to our shareholders, although there is no
requirement that we do so. If provided, these documents may not be as detailed
or extensive as the information we currently file with the SEC and deliver to
shareholders and our financial statements may not be accompanied by management's
discussion and analysis in the same detail. It will be more difficult for our
shareholders to obtain information about us.
As a result of the deregistration of our shares, we estimate that we will
save approximately $173,000 in annual costs associated with being a public
company, as well as reallocation to other aspects of our operations of personnel
expense for time currently spent by management and employees associated with our
SEC reporting activities. Additionally, we anticipate a one time cost savings of
at least $125,000 in expenses to comply with the internal controls audit
requirements of Section 404 of the Sarbanes-Oxley Act. These anticipated savings
are discussed under the heading "Purpose of and Reasons for the Stock Splits -
Reduced Costs and Expenses" above.
13
Although we will no longer be a public reporting company, we expect our
business and operations, and the business and operations of First Federal, to
continue as they are presently conducted. The executive officers and directors
of FFD and First Federal will not change due to the Stock Splits. First
Federal's deposits will continue to be insured by the FDIC and we will continue
to be regulated by the same bank regulatory agencies. We expect to realize time
and cost savings as a result of terminating our public company status, and we
intend to invest those savings in other areas of our business operations. Other
than as described in this Proxy Statement, neither FFD, First Federal nor their
management has any current plans or proposals to do any of the following: effect
any extraordinary corporate transaction (such as a merger, reorganization or
liquidation); sell or transfer any material amount of FFD or First Federal's
assets; change the composition of the Board or management of FFD or First
Federal; change materially FFD's indebtedness or capitalization; change FFD's
dividend policy; or otherwise effect any material change in FFD's corporate
structure or business.
Currently, we have no plans to issue FFD shares after the Stock Splits,
other than pursuant to FFD's 1996 Stock Option and Incentive Plan (the "1996
Plan") and the 2002 Stock Option Plan for Non-Employee Directors (the "Director
Plan" and together with the 1996 Plan, the "Option Plans"), but we reserve the
right to do so at any time and from time to time at such prices and on such
terms as the Board determines to be in FFD's best interests. If, in the future,
the Board determines that the adoption of a new option plan would be beneficial
to FFD, it may, in its discretion, adopt such a plan without shareholder
approval. The exercise of options granted under any newly adopted plan would
reduce the ownership percentage of FFD's shareholders at the time. Holders of
FFD shares do not currently have, and will not have, any preemptive or other
preferential rights to purchase any equity securities that we may issue in the
future, unless such rights are specifically granted to such holders.
After the Stock Splits are completed, we may, from time to time,
repurchase FFD shares in privately negotiated sales or other transactions.
Whether or not we purchase shares in the future will depend on a number of
factors, including FFD's financial condition, operating results and available
capital at the time.
Effects on Rights of FFD Shares. The rights associated with FFD shares
-------------------------------
will be unaffected by the Stock Splits, and there will be no changes with
respect to dividend, voting, liquidation or other rights associated with the
shares. We will hold the FFD shares acquired in the Stock Splits as treasury
shares.
Effect on ESOP. Because FFD shares will no longer be traded or quoted on
--------------
NASDAQ or any other established securities market, FFD's Employee Stock
Ownership Plan (the "ESOP") will be required to obtain annual appraisals to
value the FFD shares owned by the ESOP. In addition, under the terms of the
ESOP, the participants in the ESOP will have a "put right," which permits a
participant to require FFD to repurchase the participant's ESOP shares when they
are distributed to the participant.
Effects on FFD's Executive Officers, Directors and Affiliates. If we
-------------------------------------------------------------
complete the Stock Splits and deregister, our affiliates, consisting of our
executive officers, directors and any shareholders who own more than ten percent
(10%) of FFD shares, will be relieved from complying with the stock ownership
reporting requirements and "short swing profit" trading restrictions under
Section 16 of the Exchange Act, as well as many of the provisions of the
Sarbanes-Oxley Act. Our affiliates will also lose the ability to dispose of
their FFD shares pursuant to Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act").
14
As is more thoroughly discussed under the heading "Information About FFD -
Interests of Certain Persons in Matters to be Acted Upon," we expect that upon
the completion of the Stock Splits, our executive officers and directors will
own, including exercisable options, approximately [17.25]% of the then
outstanding FFD shares, as compared to approximately [16.16]% before the Stock
Splits.
Alternatives to the Stock Splits
In making its determination to proceed with the Stock Splits, the Board
considered the potential feasibility of the alternative transactions described
below. The Board did not investigate the potential costs of the transactions
listed below because it determined that they either had no certainty of
sufficiently reducing the number of FFD's shareholders or had other features,
such as triggering dissenters' rights, which could possibly add to the expense
and the uncertainty of the transaction.
Issuer Tender Offer. The Board considered the feasibility of an issuer
-------------------
tender offer to repurchase FFD shares. The primary disadvantage of this type of
transaction is that, due to its voluntary nature, we would have no assurance
that enough FFD shares would be tendered to sufficiently reduce the number of
FFD's shareholders. In addition, the rules governing tender offers require equal
treatment of all shareholders, including pro rata acceptance of offers from
shareholders. These requirements make it difficult to ensure that we would be
able to reduce the number of the holders of record of FFD shares enough to
permit us to deregister the FFD shares, and we could incur the expense of
repurchasing numerous shares and still be unable to deregister. As a result of
these disadvantages, the Board determined not to pursue this alternative.
Odd-Lot Tender Offer. Another option considered by the Board was an
--------------------
odd-lot tender offer. In an odd-lot tender offer we would offer to repurchase,
at a designated price per share, FFD shares held by any holder of less than 100
shares. Unlike general tender offers, which require FFD to permit all
shareholders to participate equally, there is an exception for tender offers to
holders of less than 100 shares. However, even if all holders of less than 100
FFD shares participated in the tender, we still could not sufficiently reduce
our number of shareholders to enable us to deregister. As a result, the Board
rejected this alternative.
Traditional Stock Repurchase Program. The Board also considered a plan
------------------------------------
whereby FFD would periodically repurchase FFD shares on the open market at
then-current market prices. The Board rejected this type of transaction since
repurchasing enough shares in this manner to enable us to deregister our shares
would likely take an extended period of time, have no assurance of success and
be of undeterminable cost.
Reorganization Through A Cash Out Merger. The alternative available to the
----------------------------------------
Board which was most similar to the Stock Splits was coordinating a merger with
a shell corporation and reissuing stock to the shareholders of the newly merged
entity. The share exchange would be such that shareholders owning less than 350
FFD shares prior to the merger would be cashed out, and shareholders owning more
than 350 shares would become shareholders in the newly formed entity. The Board
of Directors concluded that the Stock Splits were a better alternative since
they do not require the formation of a new entity, allow FFD to avoid the
regulatory issues and approvals associated with the merger of FFD into another
corporation and do not trigger dissenters' rights as would a cash out merger.
Sale of FFD. The Board is attempting to achieve the limited goal of
-----------
eliminating our expenses of being a public company. A sale of FFD would go well
beyond achieving this limited purpose. Our focus on serving our community and
our local customer base has enabled us to grow steadily and increase shareholder
value. The Board does not believe that it is time to abandon this model and is
instead seeking
15
to reduce the expenses and burden of being a public company to enable us to
further pursue this focus and remain independent.
Maintaining the Status Quo. The Board considered maintaining the status
--------------------------
quo. In that case, we would continue to incur the expenses of being a public
reporting company without enjoying the benefits traditionally associated with
public company status. The Board believes that maintaining the status quo is not
in the best interests of FFD and its shareholders and rejected this alternative.
Fairness of the Stock Splits
The Board believes that the Stock Splits are substantively and
procedurally fair to affiliated and unaffiliated shareholders, including Cashed
Out Holders and Continuing Holders. After consideration of all aspects of the
Stock Splits, as described below, all of the directors, none of whom are
employees of FFD, approved the Stock Splits. Except for the unanimous vote of
the Board to approve the Stock Splits and its recommendation that FFD's
shareholders approve the Stock Splits, we are not aware that any of our
executive officers, directors or affiliates has made a recommendation either in
support of or opposed to the Stock Splits.
Affiliated and unaffiliated shareholders will be treated equally in the
Stock Splits. The only factor affecting whether a shareholder will be cashed out
or will remain a shareholder of FFD is the number of shares held by the
shareholder. Ohio law requires that a majority of the issued and outstanding FFD
shares approve the Stock Splits, and the Board did not voluntarily structure the
Stock Splits to require the separate approval of FFD's unaffiliated
shareholders. In determining not to seek such separate approval, the Board was
aware that FFD's executive officers and directors together own 159,318, or
approximately [13.41%], of the FFD shares entitled to vote at the Special
Meeting and, if they exercised all of their presently exercisable options, would
hold 198,402, or [16.16]%, of the shares entitled to vote at the meeting. Our
executive officers and directors have indicated that they will vote in favor of
the Stock Splits. Because affiliated and unaffiliated shareholders will be
treated equally in the Stock Splits, if separate approval of unaffiliated
shareholders were required, our affiliated shareholders would be denied the
right to vote solely on the basis of their affiliate status when they will
receive no additional benefits or different treatment in the Stock Splits.
In determining the fairness of the Stock Splits, the Board chose not to
form a special committee of the Board to evaluate the Stock Splits. Four of
FFD's five directors are independent and no directors are employees of FFD or
First Federal. Further, although all of the directors own FFD shares, the 350
share threshold was determined without regard to their share ownership. As this
was the sole potential conflict of interest and the directors will be treated
identically to all other shareholders in the Stock Splits, the Board determined
that little or no additional protections would be afforded by an independent
committee.
Additionally, the Board chose to not retain an unaffiliated representative
to act solely on behalf of the shareholders for the purpose of negotiating the
terms of the Stock Splits or preparing a report covering the fairness of the
Stock Splits. The Board concluded that the expense of retaining an unaffiliated
representative was not justified because it would add no measurable protection
to FFD's shareholders. Again the Board considered the fact that affiliated and
unaffiliated shareholders will be treated equally in the Stock Splits. Other
than the deliberations of the Board, no "negotiations" regarding the Stock
Splits occurred, and the Board decided the method to be used and the split ratio
based solely on what it believed would be most effective and efficient to reduce
and maintain the number of shareholders below 300.
16
We have not made any provision in connection with the Stock Splits to
grant unaffiliated shareholders access to our corporate files or to obtain
counsel or appraisal services at our expense. The Board determined that this
proxy statement, together with our other filings with the SEC, provide adequate
information for unaffiliated shareholders to make an informed decision with
respect to the Stock Splits. The Board also considered the fact that under Ohio
law, subject to certain conditions, shareholders have the right to review our
relevant books and records. The Board does not believe that multiple legal or
financial advisors are necessary because affiliated and unaffiliated
shareholders are treated equally in the Stock Splits.
The Board determined that the steps discussed above would be costly and
would not provide any meaningful additional benefits, and did not feel they were
necessary to ensure the procedural fairness of the Stock Splits.
In determining the substantive fairness of the Stock Splits, the Board
considered the factors discussed below. The Board believes that the Stock Splits
are substantively fair to FFD's shareholders in light of these factors, taken
together with the disadvantages also discussed below. The Board did not assign
specific weight to the following factors in a formulaic fashion, but did place
special emphasis on the significant cost and time savings we expect to realize
from deregistration and the opportunity for unaffiliated holders of FFD shares
to sell their shares at a premium and without brokerage fees or commissions.
Significant Cost and Time Savings. By deregistering the FFD shares and
---------------------------------
suspending our reporting obligations under the Exchange Act, we expect to
realize recurring annual cost savings of approximately $173,000 and
non-recurring savings of at least $125,000 in fees and expenses that we would
otherwise expect to incur to implement procedures to comply with the internal
controls audit requirements of Section 404 of the Sarbanes-Oxley Act. In
addition, we will eliminate the time and effort previously spent by our
management to prepare and review our reports required to be filed with the SEC
under the Exchange Act and we will also be able to reallocate this personnel
time to other areas of operations. Please see the section entitled "Special
Factors - Purpose of and Reasons for the Stock Splits" for more information
about these cost savings.
The Cash Out Price of $19.00 per FFD share represents (i) a premium of
21.64% over the average closing price of FFD shares over the 90 trading days
prior to and including May 10, 2005, which was $15.62 per share, (ii) a premium
of 23.22% over the average closing price of FFD shares over the 60 trading days
prior to and including May 10, 2005, which was $15.42, (iii) a premium of 27.86%
over the average closing price of FFD shares over the 30 trading days prior to
and including May 10, 2005, which was $14.86 per share, and (iv) a premium of
26.67% over the closing price of FFD shares on May 10, 2005, which was $15.00
per share.
The Board reviewed the recommendation made by Keller & Company that $19.00
per share be established as the Cash Out Price. In reviewing this
recommendation, the Board took into consideration that, historically, the market
for FFD shares has not been very liquid. Over the past few years, the liquidity
of FFD shares has steadily decreased, as evidenced by an average trading volume
in 2004 of only 707 shares per day, down from 1,710 shares per day in 2001.
Due to this limited liquidity, trades of only a few shares may sharply
increase or decrease our trading price. If the trading price of our shares
changes suddenly due to a trade, the bid and asked prices may remain at a higher
or lower level for several days, even if no additional trades occur at that
price. To eliminate the effects of this occasional volatility, the Board used
the trading price averages for the 30, 60 and 90 day periods shown above to help
determine the fairness of the Cash Out Price.
17
The Board, in the exercise of its business judgment, approved $19.00 as
the Cash Out Price for the FFD shares because it represented fair consideration
at a premium to the current and historical market prices of our shares without
being so high as to be unfair to the Continuing Holders. The Board determined
that the Stock Splits are fair in part because they provide Cashed Out Holders
with an opportunity to liquidate their FFD shares without paying brokerage
commissions or other transaction fees.
Net Book Value. The Board believes that FFD's net book value per share
--------------
does not properly reflect our earnings stream and cash flow, two factors it
considers critical for a meaningful valuation of the FFD shares. Net book value
is based upon the historical cost of a company's assets and ignores the value of
a company as a going concern. The value of items such as a positive business
reputation, a trained workforce and established customer accounts are ignored in
computing net book value. The Board believes that the proper valuation of FFD
should be based on our historical and prospective operating performance and
Keller & Company's analysis was based upon this premise. As set forth in greater
detail in the section of this Proxy Statement entitled "Financial Information -
Summary Financial Information," our book value per share as of March 31, 2005,
was $14.34. The valuation of FFD shares, as determined by Keller & Company
exceeds our book value per share.
Liquidation Value. In determining the fairness of the Cash Out Price, the
-----------------
Board did not view FFD's liquidation value as representative of the value of our
shares. Most of FFD's assets are financial assets, and their liquidation value
roughly approximates their book value. If our assets were sold in an orderly
liquidation, some loans and deposits may be sold at a slight premium over book
value, but other assets may be sold at a discount. The liquidation process would
also involve additional legal fees, costs of sale and other expenses of the
liquidation process. As a result, the Board believes that our liquidation value
would be less than the current trading price of FFD shares.
Going Concern Value. The Board also reviewed and considered the valuation
-------------------
of our shares as a going concern. As part of its review, the Board considered
Keller & Company's analysis regarding our peer groups and the comparison of our
key pricing ratios compared to those of our peer groups. This analysis is
discussed later in this Proxy Statement under the heading "Opinion of Keller &
Company - Public Comparables Analysis." The Board reviewed and concurred with
Keller & Company's analysis which reflects that our pricing ratios are
consistent with the pricing ratios of the selected peer groups, with our
price-to-book ratio consistently higher than our peer groups. Based on that
analysis and our ongoing operations, the Board determined that our trading price
generally reflected the value of FFD shares on a going concern basis.
Equal Treatment of Affiliated and Unaffiliated Holders of FFD Shares. The
--------------------------------------------------------------------
stock splits will not affect holders of FFD shares differently on the basis of
affiliate status. The sole determining factor in whether a shareholder will be a
Cashed Out Holder or Continuing Holder as a result of the Stock Splits is the
number of FFD shares held by the shareholder immediately prior to the Stock
Splits. Please see the section entitled "Stock Splits Proposal - Summary and
Structure" for more information.
Minimum Effect on Relative Voting Power. The Stock Splits will have
---------------------------------------
minimum effect on the relative voting power of FFD's shareholders. The FFD
shares are the only voting shares of FFD and will continue to be the only voting
shares after the Stock Splits. The voting and other rights of FFD shares will
not be affected by the Stock Splits. The only effect of the Stock Splits on
FFD's voting power will be a slight increase in the overall ownership percentage
of the Continuing Holders.
No Material Change in Ownership Percentage of Executive Officers and
--------------------------------------------------------------------
Directors. Since only approximately 6.6% of the outstanding FFD shares will be
- ---------
eliminated as a result of the Stock Splits, the percentage ownership of the
Continuing Holders, including executive officers and directors, will be
approximately the same as it was prior to the Stock Splits. The executive
officers and directors of FFD
18
and First Federal currently beneficially own, including exercisable stock
options, approximately [16.16]% of the outstanding FFD shares, and will
beneficially own approximately [17.25]% following the Stock Splits. All of the
directors and executive officers currently hold over 350 shares and will remain
shareholders of FFD after the Stock Splits. Please see the section entitled
"Information About FFD - Interest of Certain Persons in Matters to be Acted
Upon."
Reduced Expenses from Administering Small Accounts. The Stock Splits will
--------------------------------------------------
reduce expenses related to administering small shareholder accounts. The expense
of administering accounts of small shareholders is disproportionate to their
ownership interest in FFD. As of the Record Date, we estimate that we had
approximately 399 record shareholders that held fewer than 350 FFD shares. These
shareholders hold approximately 78,000, or 6.6%, of our outstanding shares, but
represent approximately 65% of our total number of record holders. As a result,
a disproportionate amount of our expense relating to the administration of
shareholder accounts is attributable to shareholders holding less than 7% of our
issued and outstanding shares.
Effective Use of Excess Capital. The Stock Splits will provide a valuable
-------------------------------
use of our excess capital. Over the past five years, we have repurchased shares
in the open market in order to leverage our excess capital. The limited trading
volume in FFD shares, however, has reduced the effectiveness of repurchases as a
capital management tool. The Stock Splits will enable us to use a portion of
excess capital to reduce the number of our outstanding shares, increasing the
value of FFD shares through the anticipated improvement in return on equity and
earnings per share and the potential for increased dividends as a result of
fewer outstanding shares.
Potential Ability to Control Decision to Remain a Holder of or Liquidate
------------------------------------------------------------------------
FFD Shares. Another factor considered by the Board in determining the fairness
- ----------
of the Stock Splits to holders of FFD shares is that current holders of fewer
than 350 shares can remain FFD shareholders by acquiring additional shares so
that they own at least 350 FFD shares immediately before the Stock Splits.
Conversely, shareholders that own 350 or more FFD shares who desire to liquidate
their shares in connection with the Stock Splits at the premium price offered
can reduce their holdings to less than 350 FFD shares by selling shares prior to
the Stock Splits. The Board did not place undue emphasis on this factor due to
the limited trading market for the FFD shares. Please see the section entitled
"Special Factors - Effects of the Stock Splits."
Other Factors. Although potentially relevant to a determination of
-------------
fairness of the Stock Splits, the factors listed below are, for the reasons
given, not applicable to FFD, and were not considered by the Board for this
reason.
o Firm Offers. No firm offers to purchase FFD have been made during
-----------
the past two calendar years or during the current calendar year. We
have not received any firm offers to purchase FFD and the Board did
not seek out any such offers. The Board believes that a sale of FFD
is not in the best interests of FFD or our shareholders, customers,
employees or community at this time.
o Prior Public Offerings. We have not made any underwritten public
----------------------
offering of our shares or any other securities since our initial
public offering in 1996.
o Merger, Consolidation or Other Extraordinary Transaction. We have
--------------------------------------------------------
not engaged in a merger or consolidation with another company or in
any other extraordinary transaction, such as the sale or other
transfer of all, or a substantial part, of our assets, during the
past two calendar years or during the current calendar year.
19
o Securities Purchases. There have not been any purchases of our
--------------------
shares that would enable the holder to exercise control of FFD.
Disadvantages of the Stock Splits
Reduction of Market for FFD Shares. After the completion of the Stock
----------------------------------
Splits and the deregistration of our shares, we will no longer be listed on
NASDAQ. As a result, we anticipate that the public market for FFD shares will be
reduced. The Board, however, considered that potential trades in FFD shares
could be facilitated by a market maker in the Pink Sheets(R) or on the OTCBB
following deregistration. There can be no assurance, however, that a market
maker will be willing to sponsor our shares in the Pink Sheets (R) or on the
OTCBB. Please see the section entitled "Special Factors - Effects of the Stock
Splits" above.
Possible Decline in Price of the FFD Shares. After the completion of the
-------------------------------------------
Stock Splits, the liquidity of our shares will be reduced. In addition, the lack
of publicly available financial and other information about FFD and the
diminished opportunity for FFD's shareholders to monitor FFD's management due to
the reduced availability of public information may cause the Continuing Holders
to experience a decrease in the price at which they may sell their shares.
Please see "Special Factors - Disadvantages of the Stock Splits - Reduction of
Market for FFD Shares" and "Special Factors - Disadvantages of the Stock
Splits - Reduction of Publicly Available Information about FFD."
Reduction of Publicly Available Information About FFD. After
-----------------------------------------------------
deregistration of the FFD shares under the Exchange Act, information regarding
our operations and financial results that is currently available to the general
public and our investors will not be readily available after deregistration, and
investors seeking information about us will have to contact us directly to
receive such information. We may or may not provide investors with requested
information that we are not required by law to provide. The Stock Splits will
not affect the right of the Continuing Holders under Ohio law to obtain certain
information from FFD. Under Ohio law, a shareholder has the right to make a
written request to inspect certain books and records for any purpose reasonably
related to the person's interest as a shareholder. The Board believes that the
overall benefits to FFD of no longer being a public reporting company
substantially outweigh the disadvantages associated with a lack of publicly
available information about FFD. Please see the section entitled "Special
Factors - Effects of the Stock Splits" above.
Sarbanes-Oxley Act and Other Reporting and Disclosure Provisions Will No
------------------------------------------------------------------------
Longer Apply to FFD. After the completion of the Stock Splits and the
- -------------------
deregistration of our shares, we will no longer be subject to the liability
provisions of the Exchange Act that apply to public companies or the provisions
of the Sarbanes-Oxley Act, including the requirement that our chief executive
officer and our chief financial officer certify the accuracy of the financial
statements contained in our Exchange Act filings.
FFD Will No Longer Have the Potential Benefits Normally Associated with
-----------------------------------------------------------------------
Public Reporting Company Status. Another potential disadvantage of the Stock
- -------------------------------
Splits is that we will no longer potentially have the benefits normally
associated with being a public reporting company, such as better access to the
capital markets for issuances of securities. We would still have access to
capital markets, but if we were to conduct an offering of FFD shares or other
securities we would have to again become a reporting company, and the expenses
that we are seeking to eliminate would then be reinstated. We believe that the
cost savings of deregistration outweigh the drawbacks of losing more ready
access to the capital markets. We have historically had excess capital and have
not needed to obtain financing through public offerings. We have not issued FFD
shares or any other securities in a public offering since our initial public
offering in 1996, and we do not presently foresee any need to do so.
20
Another advantage of being a public company is using company stock, as
opposed to cash or other consideration, to effect acquisitions. The
opportunities for companies our size to acquire other businesses using stock are
limited. We have not previously completed an acquisition using stock and, given
the limited opportunities for such acquisitions, it is uncertain that we would
be able to do so in the future.
Cashed Out Holders Will Not Participate in Any Future Increases in Value
------------------------------------------------------------------------
of FFD Shares or Payments of Dividends. Following the Stock Splits, Cashed Out
- --------------------------------------
Holders will have no further financial interest in FFD and will not participate
in the potential appreciation in the value of, or the payment of dividends on,
FFD shares.
Conclusion
The Board believes that all of the factors mentioned above, both favorable
and unfavorable, when viewed together support a conclusion that the Stock Splits
are fair to all FFD shareholders, including the Cashed Out Holders and
Continuing Holders.
STOCK SPLITS PROPOSAL
Background of the Stock Splits
FFD became an SEC reporting company in 1996 in connection with the mutual
to stock conversion of First Federal. The conversion was governed by OTS
regulations. As a result of OTS conversion regulations governing the process for
determining how much stock would be offered in the conversion, FFD, like many
companies which converted in the mid-1990's, was required to raise more capital
than would have been desirable had the board been able to choose the amount of
capital to raise. Other OTS regulations which affected our early existence as a
public company included the requirement that converted companies remain Exchange
Act reporting companies for at least three years after conversion and
limitations on stock repurchases during the first three years following
conversion. As a result of these regulations, we had excess capital, could not
fully utilize stock repurchases as a mechanism for managing our excess capital,
and we had to remain a public company until at least 1999.
The 2000 fiscal year was the first year in which deregistering was an
option for FFD. Up to that time, the costs of being a public company had been
relatively stable from year to year and we were hopeful that we would have the
opportunity to grow through acquisitions and that it would be beneficial to have
a publicly traded stock as acquisition currency. However, we have never found an
appropriate acquisition opportunity in which we could use stock as currency,
which left us with stock repurchases and capital distributions as the principal
means of using our excess capital. We paid a special dividend of $4.50 per share
in June 1998. In addition, we have continually pursued stock repurchases, but
declining trading volume of FFD shares has reduced the effectiveness of
repurchases as a capital management tool. Our excess capital also meant that the
easier access to the capital markets available to public companies was not a
meaningful advantage to us. It was becoming more apparent to the Board that we
were not realizing the benefits of being a public company, while we continued to
incur the expense.
The passage of the Sarbanes-Oxley Act in 2002 ushered in a wave of
corporate reforms that have increased our expense as a public company without
enhancing, from an operations perspective, the benefits of being a public
company. As the regulations implementing the Sarbanes-Oxley Act were put into
place in 2003 and 2004 and the associated compliance costs materialized, our
legal and professional fees increased an average of 28% in the 2003 and 2004
fiscal years, with the expense of complying with
21
the internal controls audit requirements of Section 404 yet to be a factor. The
issue of remaining a public company began to become a more pressing issue for
FFD.
Under the original SEC regulations implementing Section 404 of the
Sarbanes-Oxley Act, we would have been required to comply in fiscal 2006,
beginning July 1, 2005. In anticipation of that effective date, the Board and
management began the education process that addressing Section 404 would
require. The Board reviewed and discussed information and checklists provided by
our auditors, legal counsel, and various banking industry groups relative to the
Section 404 certification process.
On October 19, 2004, at a meeting with all directors in attendance, the
Board met with FFD's auditors and legal counsel to discuss various audit and
accounting issues, including Section 404 compliance. Our auditor estimated that
adding Section 404 attestation procedures to the annual audit process would
cause our annual audit costs to increase approximately $40,000 per year. Our
auditor also estimated that we would incur additional expense in excess of
$100,000 to engage another public accounting firm to assist us in designing
Section 404 controls and procedures, which would need to be implemented
beginning in the 2005 fiscal year.
In light of these expense estimates, the Board and management revisited
the question of whether we were realizing the benefits generally associated with
being a public company and decided to fully investigate taking FFD private.
Since the stock conversion, the Board had achieved meaningful success in growing
FFD and increasing shareholder value, despite some of the limitations it
encountered. Because the Board believes that future growth and further
enhancement of shareholder value remain viable prospects for FFD, it appeared
that it remained in the best interests of a majority of our shareholders for FFD
to remain independent, but not as a public company. The Board instructed Trent
B. Troyer, our President and Chief Executive Officer, to provide the Board with
an analysis of our shareholder base to determine the feasibility of considering
becoming a private company.
At a meeting on November 9, 2004, which was attended by all directors, Mr.
Troyer presented an analysis showing the composition of our shareholder base.
The Board discussed various issues related to the advantages, disadvantages and
risks of undertaking a going private transaction. The Board instructed Mr.
Troyer to ask legal counsel to prepare a detailed memo of the various methods
and issues surrounding "going private" transactions, including the advantages
and disadvantages of going private.
At a meeting on December 14, 2004, which was attended by all directors,
the Board discussed a memo prepared by legal counsel which outlined each of the
potential methods that could be utilized to reduce our number of shareholders
below 300, thereby allowing us to deregister the FFD shares with the SEC. The
Board thoroughly discussed all aspects of the memo, including the advantages and
disadvantages of both public and private status.
At a meeting on January 11, 2005, which was attended by all directors, the
Board continued to discuss the advantages, disadvantages and various methods of
going private. The Board instructed Mr. Troyer and Robert R. Gerber, our Chief
Financial Officer, to prepare a detailed analysis of the estimated future
compliance costs and out of pocket expenses associated with remaining an SEC
reporting company, including Section 404 compliance costs. Specifically, the
Board asked Mr. Troyer and Mr. Gerber to contact public accounting firms to
obtain proposals for assistance with implementing a Section 404 compliance and
procedure program and otherwise complying with Section 404. The Board also
requested that Mr. Troyer and Mr. Gerber prepare a financial analysis with
pro-forma earnings per share information relative to both remaining public and
going private. The Board scheduled a special meeting on February 24, 2005, fully
devoted to discussion of going private.
22
During the period between the January 11th meeting and the scheduled
February 24th special meeting, management contacted several public accounting
firms with Section 404 expertise to obtain estimates regarding the costs of
implementing an internal control structure to comply with Section 404. All of
the firms contacted, with one exception, had the availability to complete the
scope of work desired. Each firm provided fee ranges based on hourly rates with
the overall cost dependent upon the amount of time spent on the engagement and
the level of participation by FFD's internal personnel. The estimate for outside
professional fees to document and implement a compliant internal control
structure ranged from a low of $125,000 to a high of $400,000, contingent upon
performance of a substantial amount of the work by FFD personnel.
On February 24, 2005, the Board held the special meeting to further
discuss going private. All of our directors and executive officers, our auditors
and our legal counsel were present. Mr. Troyer presented an analysis of
anticipated costs associated with FFD's ongoing compliance with the Exchange Act
rules and regulations, particularly the increased compliance requirements of the
Sarbanes-Oxley Act and Section 404 compliance costs. Based upon our historical
expenses associated with being a public company and estimated costs to implement
a Section 404 compliance program, our estimated total costs for the 2005 fiscal
year ranged between $300,000 and $350,000. Anticipated future annual costs would
be approximately $175,000 per year, including historical expenses associated
with being a public company and Section 404 compliance costs. Our legal counsel
presented the various methods available to us to reduce our number of
shareholders to a number that would enable us to deregister our shares. The
methods discussed included a reverse stock split, cash out merger and forms of
tender offers. The Board also discussed the advantages and disadvantages of
being a private company.
Management recommended that FFD go private based on its assessment of the
costs to remain a public company versus the likely benefits of remaining a
public company. Management presented its preliminary analysis of our shareholder
list and the split ratio necessary to sufficiently reduce the number of our
shareholders to allow us to deregister. The Board also reviewed the current
composition of our shareholders and number of shares issued and outstanding, and
analyzed the possible costs associated with a going private transaction. The
Board once again carefully considered the consequences of going private to FFD,
the Continuing Holders and the Cashed Out Holders, as well as the advantages and
disadvantages of the various methods of going private. The Board unanimously
decided to proceed with a going private transaction through a reverse stock
split, which appeared to be the most effective method available to us to reduce
the number of shareholders below 300. The Board asked Mr. Troyer to analyze
FFD's shareholder list to determine the effects of various split ratios and to
make a recommendation to the Board of a split ratio that would balance the
Board's goals of reducing the number of shareholders to a level comfortably
below the 300 shareholder threshold at which reporting obligations would be
reinstated, while minimizing the number of shareholders who would be cashed out.
The Board also discussed the price to be paid to the shareholders in lieu
of issuing fractional shares in connection with the reverse stock split. The
Board determined that a premium over the recent trading prices of FFD shares
would be appropriate and discussed various scenarios. The Board also discussed
the desirability of a forward split immediately following the reverse split to
avoid an unusually high per share value for FFD shares after the completion of
the reverse split. The Board determined that a subsequent forward split was
desirable. Also at this meeting the Board authorized Mr. Troyer to contact
Keller & Company to obtain an analysis of the price to be paid to the Cashed Out
Holders and a fairness opinion regarding the financial terms of the proposed
transaction.
After the February 24, 2005, Special Board meeting, Mr. Troyer performed a
detailed analysis of FFD's shareholder list and determined that a reverse split
of 1-for-350 would reduce the number of our record holders to approximately 217.
This level would provide us with greater flexibility in the event of
23
an increase in the number of record holders due to share transfers and would the
permit us to better manage the number of our shareholders without once again
moving above 300 holders.
At a meeting on March 17, 2005, which was attended by all directors, Mr.
Troyer presented his analysis of the shareholder list and recommended a reverse
split of 1-for-350. After further consideration and deliberation, the Board
unanimously decided to proceed with a 1-for-350 reverse stock split, followed by
an immediate forward stock split of 350-for-1. The Board also discussed the
consideration relevant to determining the cash-out price.
On May 10, 2005, the Board met once again to address the question as to
whether the Stock Splits are a fair transaction to our shareholders, both
affiliated and unaffiliated. Michael Keller of Keller & Company and our legal
counsel also participated in the meeting. The Board considered whether certain
procedures should be implemented to help assure fairness to unaffiliated
shareholders, such as granting unaffiliated shareholders access to our corporate
files or permitting unaffiliated shareholders to obtain counsel or appraisal
services at our expense. Because the number of FFD shares held was the only
factor determining whether or not a shareholder would be cashed out in the Stock
Splits, all of our shareholders, both affiliated and unaffiliated, will be
treated the same in the Stock Splits. The Board determined that these special
procedures would provide little or no added benefit to our unaffiliated
shareholders and did not justify their substantial additional expense.
Mr. Keller of Keller & Company discussed with the Board its valuation
analysis with respect to FFD shares. He presented the Board with information
regarding trading history, including volume and prices, of the FFD shares, and a
review of the market performance and trading history of companies comparable to
FFD. Mr. Keller stated that the current trading price of FFD shares as a
multiple of earnings and as a percent of book value per share was at or above
the level of our peers. The Board discussed the pros and cons of paying various
premiums above the current trading price. After presenting the relevant
financial information, Keller & Company advised the Board that, in its opinion,
a per share purchase price of $19.00 per FFD share in lieu of issuing fractional
shares to Cashed Out Holders would be fair to all of our shareholders. The
information presented to the Board by Keller & Company regarding its financial
analysis is described more fully under the heading "Opinion of Keller &
Company."
Finally, the Board reviewed analyses prepared by management regarding the
anticipated financial impact of the Stock Splits and held further discussions
with Mr. Keller and management. Specifically, the Board considered the total
number of FFD shares which would be exchanged for cash in the Stock Splits and
the resulting impact on our financial condition. The Board then discussed the
fairness of the price to be paid in lieu of issuing fractional shares in light
of, among other factors, the historical trading price of FFD shares, our going
concern value, liquidation value and net book value and the impact of the Stock
Splits on the relative voting power of FFD's shareholders. The Board concluded
that Cashed Out Holders should receive $19.00 for each FFD share held
immediately prior to the Stock Splits. In determining the premium to be paid for
the fractional shares, the Board particularly focused on the fact that the Stock
Splits is not a voluntary transaction for Cashed Out Holders. The Board
concluded that $19.00 is a fair price to all of our shareholders, both
affiliated and unaffiliated and those that will continue as FFD shareholders and
those who will be completely cashed out. The matters considered at the May 10,
2005, Board meeting are more fully discussed in this Proxy Statement at "Special
Factors - Fairness of the Stock Splits" and "Opinion of Keller & Company."
The Board also further discussed the advisability of a forward split
immediately following the reverse split in order to return the trading price of
FFD shares to approximately the trading price prior to the reverse stock split.
The Board decided that a corresponding forward split of 350-for-1 to return the
24
trading price of FFD shares to approximately the trading price of per share
prior to the reverse stock split would be in the best interests of both FFD and
the Continuing Holders.
On May 23, 2005, the Board again met to finally approve the Stock Splits
and the filing of documents with the SEC related to the Stock Splits. After
further discussion by the Board, the Board unanimously voted to approve the
Stock Splits and the $19.00 price per share to be paid to Cashed Out Holders and
to recommend the approval of the Stock Splits by FFD's shareholders.
Summary and Structure
The Board has authorized and recommends that you approve the Stock Splits.
The Stock Splits consist of two steps. First, we will conduct a 1-for-350
reverse stock split of the FFD shares. In the reverse split, (i) any holder of
350 or more FFD shares immediately before the reverse stock split will receive
approximately 0.00286 shares for each FFD share then owned and (ii) holders of
less than 350 FFD shares will have their shares cancelled and will receive
$19.00 in cash for each FFD share owned immediately prior to the reverse split.
The reverse split will be followed immediately by a 350-for-1 forward stock
split of the FFD shares. The Stock Splits will take effect on the Effective Date
(the date the Ohio Secretary of State accepts for filing certificates of
amendment to our Articles). The proposed amendments to our Articles are attached
to this Proxy Statement as Exhibits B and C and are incorporated herein by
reference. Generally, the effect of the Stock Splits is illustrated by the
following examples:
Hypothetical Scenario Result
- --------------------- ------
Shareholder A holds 200 Shareholder A's 200 shares will be converted
FFD shares in a single record into the right to receive $3,800 and in cash
account holds no other (200 x $19.00). If Shareholder A wanted to
FFD shares. continue to be a shareholder after the Stock
Splits, he could purchase an additional 150
FFD shares far enough in advance of the
Stock Splits so that the purchase is
complete by the Effective Date.
Shareholder B holds 300 FFD intends for the Stock Splits to treat
FFD shares in a brokerage shareholders holding FFD shares through a
account and holds no other nominee the same as those holding shares in
shares. a record account. However, nominees may
hold, in the aggregate, 350 or more FFD
shares and may choose not to effect the
Stock Splits and may also have different
procedures that must be followed.
Shareholders holding shares in street name
should contact their nominee to determine
how the Stock Splits will affect them. If
Shareholder B's nominee effects the Stock
Splits on FFD shares it holds for
Shareholder B, Shareholder B will be
entitled to receive $5,700 in cash (300 x
$19.00).
Shareholder C holds 525 Shareholder C's ownership will not be
FFD shares in a single record affected and he will continue to hold 525
account and holds no other FFD shares after the Stock Splits.
shares.
Shareholder D holds 200 After the Stock Splits, Shareholder D will
shares in each of two continue to hold 400 FFD shares.
separate record accounts for
a total of 400 FFD shares.
Shareholder D holds no other
FFD shares.
25
Husband and Wife each hold Shares held in joint accounts will not be
200 FFD shares in separate added to shares held individually in
record accounts and hold 200 determining whether a shareholder will
shares jointly in another remain a shareholder after the Stock Splits.
record account. They own In this situation, Husband and Wife will
no other FFD shares. each receive $3,800 each for the shares held
in their individual record accounts (200 x
$19.00), and $3,800 for the FFD shares held
in their joint account. Husband and Wife
will hold no FFD shares after the Stock
Splits. If Husband and Wife wished to
continue to be shareholders after the Stock
Splits, they could transfer a sufficient
number of shares from one account into
another so that at least 350 FFD shares are
held in one account at the time of the Stock
Splits.
The Board has set the Cash Out Price at $19.00 per FFD share held
immediately prior to the Stock Splits. The Board made this determination in good
faith, based upon the Fairness Opinion and other factors the Board deemed
relevant. Please see the sections entitled "Special Factors - Purpose of and
Reasons for the Stock Splits," "Special Factors - Fairness of the Stock Splits,"
"Opinion of Keller & Company" and "Stock Splits Proposal - Background of the
Stock Splits."
At least a majority of the FFD shares outstanding and entitled to vote at
the Special Meeting must approve the Stock Splits before they can be completed.
The executive officers and directors of FFD and First Federal who have indicated
that they will vote in favor of the Stock Splits proposal together own 159,318,
or approximately [13.41]%, of the FFD shares entitled to vote at the Special
Meeting and, if they exercised all of their presently exercisable stock options
prior to the Record Date, would own approximately 198,402, or [16.16]%, of the
FFD shares entitled to vote at the Special Meeting.
The Stock Splits are considered a "going-private" transaction as defined
in Rule 13e-3 promulgated under the Exchange Act because they are intended to
terminate the registration of the FFD shares and to suspend our filing and
reporting obligations under the Exchange Act. In connection with the Stock
Splits, we have filed, as required by the Exchange Act, a Rule 13e-3 Transaction
Statement on Schedule 13E-3 (the "Schedule 13E-3") with the SEC. Please see the
section entitled "Available Information."
The Board may, in its discretion, withdraw the Stock Splits from the
agenda of the Special Meeting prior to a vote being taken if it determines that
the Stock Splits, for any reason, are not then in the best interests of FFD.
Reasons the Board may withdraw the Stock Splits proposal include: any change in
the nature of the shareholdings of FFD prior to the Effective Date which would
result in us being unable to reduce the number of record holders of FFD shares
to below 300 as a result of the Stock Splits or that would enable us to
deregister without effecting the Stock Splits; any change in the number of
shares that will be exchanged for cash in connection with the Stock Splits that
would substantially increase the cost of the Stock Splits from what is currently
anticipated; and any adverse change in our financial condition. Please see the
section entitled "Stock Splits Proposal - Termination of Stock Splits"
Recommendation of the Board
The Board has unanimously determined that the Stock Splits are in the best
interests of FFD and its shareholders and are fair to FFD's shareholders. The
Board unanimously recommends that the shareholders vote "FOR" the approval of
the Stock Splits.
26
Material Federal Income Tax Consequences
We have summarized below the material federal income tax consequences to
FFD and to holders of FFD shares resulting from the Stock Splits. This summary
is based on the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Department Regulations (the "Treasury Regulations") issued
pursuant thereto, and published rulings and court decisions in effect as of the
date hereof, all of which are subject to change. This summary does not take into
account possible changes in such laws or interpretations, including amendments
to the Code, applicable statutes, Treasury Regulations and proposed Treasury
Regulations or changes in judicial or administrative rulings. Some of those
changes may have retroactive effect. No assurance can be given that any such
changes will not adversely affect this summary. This summary is not binding on
the Internal Revenue Service.
This summary does not address all aspects of the possible federal income
tax consequences of the Stock Splits and is not intended as tax advice to any
person or entity. In particular, this summary does not consider the individual
investment circumstances of holders of FFD shares, nor does it consider the
particular rules applicable to special categories of holders (such as tax exempt
entities, life insurance companies, regulated investment companies and foreign
taxpayers) or holders who hold, have held, or will hold, FFD shares as part of a
straddle, hedging or conversion transaction. In addition, this summary does not
address any consequences of the Stock Splits under any state, local or foreign
tax laws.
This summary assumes that you are one of the following: (i) a citizen or
resident of the United States, (ii) a domestic corporation, (iii) an estate, the
income of which is subject to United States federal income tax regardless of its
source, or (iv) a trust, if a United States court can exercise primary
supervision over the trust's administration and one or more United States
persons are authorized to control all substantial decisions of the trust. This
summary also assumes that you have held and will continue to hold your FFD
shares as capital assets for federal income tax purposes.
You should consult your tax advisor as to the particular federal, state,
local, foreign, and other tax consequences applicable to your specific
circumstances.
Federal Income Tax Consequences to FFD. We believe that the Stock Splits
--------------------------------------
will be treated as a tax-free "recapitalization" for federal income tax
purposes. This treatment will result in no material federal income tax
consequences to FFD.
Federal Income Tax Consequences to Continuing Holders Not Receiving Cash.
------------------------------------------------------------------------
If you (i) continue to hold FFD shares directly immediately after the Stock
Splits and (ii) you receive no cash as a result of the Stock Splits, you will
not recognize any gain or loss in the Stock Splits, and you will have the same
adjusted tax basis and holding period in your FFD shares as you had in such
shares immediately prior to the Stock Splits.
Federal Income Tax Consequences to Cashed Out Holders Retaining None of
-----------------------------------------------------------------------
Their FFD Shares. If you receive cash in exchange for your FFD shares as a
- ----------------
result of the Stock Splits, your tax consequence will depend on whether, in
addition to receiving cash, a person or entity related to you (as determined by
the Code) continues to hold FFD shares immediately after the Stock Splits.
If you receive cash, do not continue to hold directly any FFD shares, are
not related to any person or entity who or which continues to hold FFD shares
and you hold your FFD shares as a capital asset, you will recognize capital gain
or loss. The amount of this capital gain or loss will equal the difference
between the cash you receive for your FFD shares and your aggregate adjusted tax
basis in such FFD shares.
27
If you receive cash, do not continue to directly hold any FFD shares, but
are related to a person or entity who or which continues to hold FFD shares, you
may be treated as owning constructively the FFD shares owned by such related
person or entity, which may cause your receipt of cash in exchange for your FFD
shares to be treated (i) first, as ordinary taxable dividend income to the
extent of your ratable share of FFD's undistributed earnings and profits, (ii)
second, as a tax-free return of capital to the extent of your aggregate adjusted
tax basis in your FFD shares, and (iii) then, the remainder as capital gain. If
you are related to a person or entity who or which will continue to hold FFD
shares after the Stock Splits, you should consult with your own tax advisor to
determine your particular tax consequences.
Capital Gain and Loss. For individuals, net capital gain (defined
---------------------
generally as your total capital gains in excess of capital losses for the year)
recognized upon the sale of capital assets that have been held for more than 12
months generally will be subject to tax at a rate not to exceed 15%. Net capital
gain recognized from the sale of capital assets that have been held for 12
months or less will continue to be subject to tax at ordinary income tax rates.
Capital gain recognized by a corporate taxpayer will continue to be subject to
tax at the ordinary income tax rates applicable to corporations. There are
limitations on the deductibility of capital losses.
Special Rate for Certain Dividends. In general, dividends are taxed at
----------------------------------
ordinary income rates. However, you may qualify for a 15% rate of tax on any
cash received in the Stock Splits that is treated as a dividend as described
above, if (i) you are an individual or other non-corporate stockholder; (ii) you
have held the FFD shares with respect to which the dividend was received for
more than 60 days during the 120-day period beginning 60 days before the
ex-dividend date, as determined under the Code; and (iii) you were not obligated
during such period (pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or related property.
You should consult with your tax advisor regarding your eligibility for such
lower tax rates on dividend income.
Backup Withholding. Holders of FFD shares will be required to provide
------------------
their social security or other taxpayer identification numbers (or, in some
instances, additional information) to the Transfer Agent in connection with the
Stock Splits to avoid backup withholding requirements that might otherwise
apply. The letter of transmittal will require each holder of FFD shares to
deliver such information when the share certificates are surrendered following
the Effective Date of the Stock Splits. Failure to provide such information may
result in backup withholding.
As explained above, the amounts paid to you as a result of the Stock
Splits may result in dividend income, capital gain income, or some combination
of dividend and capital gain income to you depending on your individual
circumstances.
Unavailability of Appraisal or Dissenters' Rights
No appraisal or dissenters' rights are available under Ohio law or under
FFD's Articles or Regulations to holders of FFD shares who vote against the
Stock Splits. Other rights or actions may exist under Ohio law or federal and
state securities laws for shareholders who can demonstrate that they have been
damaged by the Stock Splits.
Share Certificates
We have appointed the Transfer Agent to act as exchange agent to carry out
the exchange of share certificates. On the Effective Date, all share
certificates evidencing ownership of FFD shares held by Cashed Out Holders will
be cancelled without further action by either the Cashed Out Holders or FFD and
such certificates, will represent only the right to receive cash in the amount
of $19.00 per FFD share upon their surrender.
28
In connection with the Stock Splits, FFD shares will be assigned a new
CUSIP number. As a result, the share certificates held by Continuing Holders
will be exchanged for new certificates bearing the new CUSIP number. After the
Effective Date, share certificates held by Continuing Holders will represent
only the right to receive a new share certificate for the same number of shares
bearing the new CUSIP number.
The Transfer Agent will furnish you with the necessary materials and
instructions to surrender your FFD share certificate(s) promptly following the
Effective Date. The letter of transmittal will explain how certificates are to
be surrendered for either cash or a new certificate. You must complete and sign
the letter of transmittal and return it with your certificate(s) to the Transfer
Agent as instructed before you can receive either the cash payment or new
certificate, as applicable, to which you are entitled. Do not send your
certificates to us, and do not send them to the Transfer Agent until you have
received a transmittal letter and followed the instructions therein.
No service charges will be payable by Cashed Out Holders in connection
with the exchange of certificates or the payment of cash in lieu of issuing
fractional shares.
Termination of Stock Splits
Although we are requesting your approval of the Stock Splits, the Board
may, in its discretion, withdraw the Stock Splits from the agenda of the Special
Meeting prior to any vote thereon. Although the Board presently believes that
the Stock Splits are in FFD's best interests and has recommended a vote for the
Stock Splits, the Board nonetheless believes that it is prudent to recognize
that factual circumstances could possibly change prior to the Special Meeting
such that it might not be appropriate or desirable to effect the Stock Splits at
that time. Such reasons include, among other things:
o Any change in the nature of the FFD's shareholdings which would
result in us being unable to reduce the number of record holders of
FFD shares to below 300 as a result of the Stock Splits;
o Any change in the number of our record holders that would enable us
to deregister the FFD shares under the Exchange Act without
effecting the Stock Splits;
o Any change in the number of FFD shares that will be exchanged for
cash in connection with the Stock Splits that would substantially
increase the cost and expense of the Stock Splits from what is
currently anticipated; or
o Any adverse change in our financial condition that would render the
Stock Splits inadvisable.
If the Board decides to withdraw the Stock Splits from the agenda of the
Special Meeting, the Board will promptly notify our shareholders of the decision
by mail and by announcement at the Special Meeting.
Escheat Laws
The unclaimed property and escheat laws of each state provide that under
circumstances defined in that state's statutes, holders of unclaimed or
abandoned property must surrender that property to the state. Cashed Out Holders
who do not return their share certificates and request payment of the Cash Out
Price generally will have a period of years from the Effective Date in which to
claim the cash payment to which they are entitled. For example, with respect to
Cashed Out Holders whose last known addresses, as
29
shown by the records of FFD, are in Ohio the period is five years. Following the
expiration of that five-year period, the relevant provisions of the Ohio Revised
Code would cause the cash payments to escheat to the State of Ohio. For Cashed
Out Holders who reside in other states or whose last known addresses, as shown
by the records of FFD, are in states other than Ohio, such states may have
abandoned property laws which call for such state to obtain either (i) custodial
possession of property that has been unclaimed until the owner reclaims it or
(ii) escheat of such property to the state. Under the laws of such other
jurisdictions, the "holding period" or the time period which must elapse before
the property is deemed to be abandoned may be shorter or longer than five years.
If FFD does not have a valid address for a Cashed Out Holder, then the unclaimed
cash payment would be turned over to the State of Ohio, FFD's state of
incorporation, in accordance with its escheat laws.
Regulatory Approvals
FFD is not aware of any material governmental or regulatory approval
required for completion of the Stock Splits, other than compliance with the
relevant federal and state securities laws and Ohio corporate laws.
OPINION OF KELLER & COMPANY
The Board retained Keller & Company to provide the Fairness Opinion. The
Fairness Opinion states that, based upon and subject to the factors and
assumptions set forth therein, the Cash Out Price to be paid to Cashed Out
Holders pursuant to the Stock Splits is fair from a financial point of view as
of May 10, 2005. Keller & Company presented to the Board a summary of the
analyses described below.
The Fairness Opinion was prepared for use by the Board and was directed
only to the fairness from a financial point of view, as of the date thereof, of
the Cash Out Price. The Board requested Keller & Company advise them on a fair
price to be paid per share to Cashed Out Holders in the Stock Splits that would
be fair to both the Cashed Out Holders and the Continuing Holders. Keller &
Company was not involved in structuring the Stock Splits and its opinion does
not compare the relative merits of the Stock Splits with those of any other
transaction or business strategy which were or might have been available to or
considered by the Board as alternatives to the Stock Splits and does not address
the underlying business decision by the Board to proceed with or effect the
Stock Splits. The Fairness Opinion is solely for the information of, and
directed to, the Board in its evaluation of the Stock Splits and is not to be
relied upon by any shareholder of FFD or any other person or entity. The
Fairness Opinion does not constitute a recommendation to the Board as to how it
should vote on the Stock Splits or to any shareholder as to how such shareholder
should vote at the Special Meeting. In furnishing the Fairness Opinion, Keller &
Company did not admit that it is an expert within the meaning of the term
"expert" as used in the Securities Act nor did it admit that its opinion serves
as a report or valuation within the meaning of the Securities Act.
The full text of the Fairness Opinion is attached as Exhibit A to this
Proxy Statement and is incorporated herein by reference. The Fairness Opinion is
also available for inspection and copying at FFD's principal executive offices
located at 321 North Wooster Avenue, Dover, Ohio 44622. The summary of the
Fairness Opinion set forth in this Proxy Statement is qualified in its entirety
by reference to the full text of the Fairness Opinion. Shareholders are urged to
read the Fairness Opinion carefully and in its entirety for a discussion of the
procedures followed, assumptions made, other matters considered and limits of
the review by Keller & Company in connection with the Fairness Opinion.
30
The Board selected Keller & Company as its financial advisor because it is
a recognized financial institutions consulting firm that has substantial
experience in the financial institutions industry. As part of its business,
Keller & Company is regularly engaged in the valuation of businesses and
securities, particularly those of financial institutions and financial
institution holding companies, in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuation for corporate and other purposes.
Keller & Company has served as consultant to FFD in the past, assisting
FFD in several projects, including the completion of FFD's conversion appraisal
in April 1996 and the preparation of FFD's three-year business plan filed at the
same time. During the past two years, Keller & Company has not provided any
services to FFD and has not received any fees.
In rendering the Fairness Opinion, Keller & Company reviewed the terms of
the Stock Splits and also reviewed financial and other information that was
publicly available, and FFD's results of operations for the quarter ended March
31, 2005, which were not then available to the public. Keller & Company also
reviewed certain publicly available operational, financial and stock market data
relating to selected public companies and conducted other financial studies,
analyses and investigations as Keller & Company deemed necessary or appropriate
for purposes of rendering the Fairness Opinion, as more fully set forth therein.
No limitations were imposed by the Board of FFD upon Keller & Company with
respect to the investigations made or procedures followed by it in rendering its
opinion.
Keller & Company assumed and relied upon, without independent
verification, the accuracy and completeness of all financial and other
information that was publicly available, supplied or otherwise communicated to
it by or on behalf of FFD. Keller & Company further relied upon the assurances
of FFD's management that they are unaware of any facts that would make the
information provided to it incomplete or misleading.
Keller & Company was not requested to make, and did not make, an
independent evaluation or appraisal of the assets, properties, facilities or
liabilities of FFD, and was not furnished with any such appraisals or
evaluations. Keller & Company's opinion is necessarily based upon financial,
economic, market and other conditions and circumstances existing and disclosed
to Keller & Company on the date of the Fairness Opinion. Subsequent developments
may affect the conclusions reached in the Fairness Opinion, and Keller & Company
has no obligation to update, revise or reaffirm the Fairness Opinion.
In preparing the Fairness Opinion, Keller & Company conducted the
following two principal analyses: (i) a comparison of FFD with certain
publicly-traded companies deemed comparable to FFD, and (ii) a review of the
historical and current market performance of the FFD shares on NASDAQ.
Keller & Company discussed FFD's current financial position and recent
earnings performance with senior management and discussed and reviewed local
economic conditions and growth trends. Keller & Company considered historical
pricing quotations for FFD and trading activity in FFD shares and identified a
comparable group of publicly traded thrift institutions based on asset size,
geographic location and financial characteristics that were similar to FFD.
Keller & Company assumed and relied upon the accuracy and completeness of all
the financial information, analyses and other information that was
publicly-available or furnished to it, and did not verify the accuracy of
completeness of this information.
No company used in any analysis as a comparison is identical to FFD, and
they all differ in various ways. As a result, Keller & Company applied its
experience and professional judgment in making such analyses. Accordingly, an
analysis of the results is not totally mathematical; rather it involves complex
considerations and judgments concerning differences in financial
characteristics, performance
31
characteristics and trading value of the comparable companies to which FFD is
being compared. The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to partial analyses or summary description. In
arriving at the Fairness Opinion, Keller & Company considered the results of all
of its analyses as a whole and did not attribute any particular weight to any
analysis or factor considered by it. Keller & Company believes that the summary
provided and the analyses described above must be considered as a whole and that
selecting portions of these analyses, without considering all of them, would
create an incomplete view of the process underlying its analyses and opinion. In
addition, Keller & Company may have given various analyses and factors more or
less weight than other analyses and factors and may have deemed various
assumptions more or less probable than other assumptions, therefore the range of
valuations resulting from any particular analysis described above should not be
taken to be Keller & Company's view of the actual value of FFD.
The following is a summary of the material financial analyses performed by
Keller & Company in connection with the preparation of the Fairness Opinion.
These summaries of financial analyses alone do not constitute a complete
description of the financial analyses Keller & Company employed in reaching its
conclusions. The order of analyses described does not represent relative
importance or weight given to those analyses by Keller & Company. Some of the
summaries of the financial analyses include information presented in tabular
format. The tables must be read together with the full text of each summary and
are alone not a complete description of Keller & Company's financial analyses.
Except as otherwise noted, the following quantitative information, to the extent
that it is based on market data, is based on market data as it existed on or
before May 10, 2005, and is not necessarily indicative of current market
conditions.
Public Comparables Analysis
Keller & Company reviewed and compared selected financial and stock market
information, ratios and multiples of FFD to corresponding financial and stock
market information, ratios and multiples for a group of ten selected
publicly-traded Midwest thrift institutions or thrift holding companies with
assets of $190.0 million or less and average assets of $146.9 million, compared
to $139.7 million in assets for FFD. The analysis included a comparison of such
key financial ratios as return on average assets, return on average equity, and
equity to assets, and such key pricing ratios as price relative to book value,
latest twelve months earnings and assets. The comparable group had an average
return on assets of 0.63%, compared to 0.50% for FFD and an average equity to
assets ratio of 11.45%, compared to 12.20% for FFD. The list of comparable group
institutions is set forth below:
AMB Financial Corp. - Indiana Midland Capital Holdings Corp. - Illinois
City Savings Financial Corp. - Indiana PFS Bancorp, Inc. - Indiana
Community Investors Bancorp - Ohio Peoples Ohio Financial - Ohio
Home City Financial Corp. - Ohio Peoples-Sidney Financial Corp. - Ohio
Logansport Financial Corp. - Indiana Third Century Bancorp - Indiana
The key pricing ratios for the comparable group, all Ohio publicly-traded
thrifts and all publicly-traded Midwest thrifts, are shown in the following
table:
32
Pricing Ratios
Trading Group Price to Book Price to Earnings Price to Assets
- ------------- ------------- ----------------- ---------------
Comparable Group 107.58% 18.0X 12.38%
Publicly-Traded Ohio Thrifts (1) 123.58% 20.8X 14.22%
Publicly-Traded Midwest Thrifts (1) 122.95% 20.6X 12.47%
- -----------------
(1) The pricing ratios include the effects of any pending
merger/acquisition transactions.
The Cash Out Price represents a price to book ratio of 132.50%, a price to
earnings multiple of 28.79 and a price to asset ratio of 16.16%, with all of
these in excess of the comparable group, all publicly-traded Ohio thrifts and
all publicly-traded Midwest thrifts. FFD's pricing ratios are based on its
financial statements for the quarter ended March 31, 2005.
Keller & Company considered the comparable group comparison and analysis
as the most appropriate basis for evaluating the fairness from a financial point
of view of the Cash Out Price. Keller & Company reviewed the pricing ratios for
the comparable group relative to FFD's corresponding ratios based on both the
Cash Out Price and the trading price for the FFD shares on May 10, 2005.
Review of FFD Market Performance
Keller & Company reviewed the trading prices of the FFD shares for the
period of January 1, 2004, through May 10, 2005, as quoted by NASDAQ. The
following table sets forth the high and low closing prices for the FFD shares
for (i) each quarter of the calendar year ended December 31, 2004, (ii) the
quarter ended March 31, 2005, and (iii) May 10, 2005 .
Quarter Ended High Close Low Close
------------- ---------- ---------
March 31, 2004 $ 15.50 $ 13.64
June 30, 2004 $ 15.65 $ 13.00
September 30, 2004 $ 15.91 $ 13.10
December 31, 2004 $ 15.81 $ 13.25
March 31, 2005 $ 16.63 $ 15.84
Latest Price Closing Price
------------ -------------
May 10, 2005 $ 14.90
The pricing for FFD shares indicated a stable trend over the four quarters
of 2004, followed by a slight rise in the first quarter of 2005, with a
declining trend from March 31, 2005 through May 10, 2005. The Cash Out Price of
$19.00 per share represents premiums of 27.52% above FFD's trading price on May
10, 2005, of $14.90, and 28.64% above the average trading price of FFD shares
for the 15 days prior to and including May 10, 2005, of $14.77. The pricing
trend for FFD shares combined with the price of the FFD shares on May 10, 2005,
indicate the fairness of the Cash Out Price of $19.00, which reflects a premium
of 27.51% over the closing price of the FFD shares on May 10, 2005.
33
Conclusion
Based upon the foregoing analyses and the assumptions and limitations set
forth in full in the text of the Fairness Opinion, Keller & Company is of the
opinion that, as of the date of the Fairness Opinion, the Cash Out Price of
$19.00 per Common Share to be paid by FFD in lieu of issuing fractional shares
in connection with the Stock Splits is fair, from a financial point of view, to
the Cashed Out Holders and Continuing Holders.
Engagement of Keller & Company
FFD has agreed to pay Keller & Company a fee of $3,500 and to reimburse
Keller & Company for its reasonable out-of-pocket expenses related to its
engagement, whether or not the Stock Splits are consummated. No compensation
received or to be received by Keller & Company is based on or is contingent on
the results of Keller & Company's engagement. There are no other current
arrangements to compensate Keller & Company, its affiliates or unaffiliated
representatives for any services rendered to FFD, its executive officers,
directors or affiliates. Keller & Company has not previously provided financial
institution consulting services to FFD or First Federal Community Bank in the
past two years. None of Keller & Company's employees who worked on the
engagement has any known financial interests in the assets or equity of FFD or
the outcome of the engagement.
MEETING AND VOTING INFORMATION
Each properly executed proxy received prior to the Special Meeting and not
revoked will be voted as directed by the shareholder or, in the absence of
specific instructions to the contrary, will be voted "FOR" the approval of the
Stock Splits.
Time and Place
The Special Meeting will be held on ___________, 2005, at ___:___ __.m.,
local time, at the Toland-Herzig Monarch Center, 831 Boulevard, Dover, Ohio
44622.
Revoking Your Proxy
Without affecting any vote previously taken, you may revoke your proxy by
either (i) submitting a later dated proxy or a written revocation which is
received by FFD before the proxy is exercised or (ii) by attending the Special
Meeting and voting in person or giving notice of revocation in open meeting
before the proxy is exercised. Attending the Special Meeting will not, by
itself, revoke a proxy.
Record Date
Only FFD shareholders of record at the close of business on the Record
Date are entitled to vote at the Special Meeting. Each shareholder will be
entitled to cast one vote for each FFD share then owned. According to FFD's
records, as of the Record Date there were [1,188,219] votes entitled to be cast
at the Special Meeting.
Quorum and Required Vote
The presence at the Special Meeting in person or by proxy of the holders
of at least a majority of the issued and outstanding FFD shares as of the Record
Date is necessary to establish a quorum to conduct business at the Special
Meeting.
34
Each FFD shareholder is entitled to cast one vote for each FFD share owned
on the Record Date. Under Ohio law and FFD's Articles and Regulations, the
affirmative vote of at least a majority, or [594,110], of the issued and
outstanding FFD shares as of the Record Date is necessary to approve the Stock
Splits. The executive officers and directors of FFD together own 159,318, or
approximately [13.41%], of the FFD shares entitled to vote at the Special
Meeting and, if they exercised all of their presently exercisable options before
the Record Date, would own 198,402, or [16.16]%, of the FFD shares entitled to
vote at the meeting. Our executive officers and directors have indicated they
will vote in favor of the Stock Splits.
Shareholders holding FFD shares in "street name" should review the
information provided to them by their nominee (such as a broker or bank). This
information will describe the procedures to follow to instruct the nominee how
to vote the street name shares and how to revoke previously given instructions.
The proposal to approve the Stock Splits is a "non-discretionary" item, meaning
that nominees cannot vote FFD shares in their discretion on behalf of a client
if the client has not given them voting instructions. Shares held in street name
that are not voted by brokerage firms or other nominees are referred to as
"broker non-votes."
Broker non-votes and abstentions are counted toward the establishment of a
quorum for the Special Meeting. However, because the affirmative vote of a
majority of the outstanding FFD shares is necessary to approve the Stock Splits,
broker non-votes and abstentions will have the same effect as a vote "AGAINST"
the proposal to approve the Stock Splits. The Board urges you to complete, date
and sign the enclosed proxy and to return it promptly in the enclosed postage
prepaid envelope so that a quorum can be assured for the Special Meeting and
your FFD shares can be voted as you wish.
Solicitation and Costs
The enclosed proxy is solicited on behalf of the Board. The company has
engaged The Altman Group to assist in the solicitation of proxies for the
Special Meeting at a fee of approximately $5,500, plus reimbursement of all out
of pocket expenses. In addition, proxies may be solicited by the directors,
officers and other employees of FFD and First Federal, in person or by
telephone, telegraph, mail, facsimile or electronic mail only for use at the
Special Meeting. FFD will bear the costs of preparing, assembling, printing and
mailing this Proxy Statement and the enclosed proxy and all other costs of the
Board's solicitation of proxies for the Special Meeting. Brokerage houses, banks
and other nominees, fiduciaries, and custodians nominally holding FFD shares as
of the Record Date will be requested to forward proxy soliciting material to the
beneficial owners of such FFD shares, and we will reimburse them for their
reasonable expenses.
We estimate that the repurchase of fractional FFD shares from Cashed Out
Holders in connection with the Stock Splits will cost approximately $1.48
million. We intend to finance the Stock Splits by using cash on hand.
The following is an estimate of the expenses we expect to incur in
connection with the Stock Splits and the solicitation of proxies for the Special
Meeting. Final expenses may be higher or lower than the estimates shown below.
35
Item Approximate Cost
---- ----------------
Legal fees $35,000
Keller & Company fees 3,500
Accounting fees 2,000
Filing fees 1,000
Proxy solicitor fees 6,000
Printing, mailing and other costs 8,000
-------
Total $55,500
=======
Based upon our estimated cost savings as a result of deregistering the FFD
shares, we expect to recoup these expenses in less than one year.
INFORMATION ABOUT FFD
Business of FFD and First Federal
FFD is a savings and loan holding company which owns all of the common
shares issued by First Federal upon its conversion from a mutual savings bank to
a stock savings bank in April 1996.
First Federal has conducted business in Tuscarawas County, Ohio since it
was incorporated in 1898 as an Ohio savings and loan association under the name
"Dover Building & Loan Company." First Federal obtained a federal savings and
loan charter in 1937 under the name "First Federal Savings & Loan Association."
In 1983, First Federal changed its charter to a federal savings bank charter, at
which time the name "First Federal Savings Bank of Dover" was adopted. In August
2001 First Federal adopted its present name.
First Federal's business involves attracting deposits from individual and
business customers and using such deposits to originate loans to individuals and
businesses in its market area consisting of Tuscarawas and contiguous counties
in Ohio. First Federal provides deposit products including checking, savings,
money market, and individual retirement accounts as well as certificates of
deposit. First Federal originates residential and home equity loans,
construction loans, nonresidential real estate loans, business loans, and
consumer loans. Loan funds are obtained primarily from deposits and loan
repayments. First Federal also invests in U.S. Government agency obligations,
interest-bearing deposits in other financial institutions, mortgage-backed
securities and other investments permitted by applicable law.
FFD is subject to regulation and examination by the OTS and the SEC. First
Federal is subject to supervision and regulation by the OTS and the FDIC.
FFD's principal offices are located at 321 North Wooster Avenue, Dover,
Ohio 44622, and FFD's phone number at that address is (330) 364-7777.
Management of FFD
Board of Directors. There are five members of FFD's Board of Directors.
------------------
Information regarding FFD's current directors is set forth below.
36
o Richard A. Brinkman, Jr., age 50, is the Chief Executive Officer of
Tuscarawas County AAA, a position he has held since 1993. Mr.
Brinkman is also the Chairman of the Ohio Conference of AAA Clubs,
Vice Chair of the Tuscarawas County Port Authority and is involved
in several other community and civic organizations.
o Stephen G. Clinton, age 52, is President and a director of Capital
Market Securities, Inc., a brokerage firm located in Kent, Ohio and
until 2004 served as Vice President of Young & Associates, a
financial institution consulting and capital markets firm also
located in Kent. Prior to joining Capital Market Securities in 2001,
Mr. Clinton was a principal of Tucker Anthony Capital Markets, an
investment banking firm headquartered in Boston, Massachusetts,
providing assistance to financial institutions in their
implementation of capital strategies, and the President of National
Capital Companies, LLC, an investment banking firm.
o Leonard L. Gundy, age 55, is President of Benchmark Construction,
Inc. located in New Philadelphia, Ohio. Mr. Gundy has served as
President of Benchmark, formerly Gundy Construction, Inc., since
1967.
o Enos L. Loader, age 67, was employed by Bank One Dover N.A. for 38
years, retiring in 1998 as Executive Vice President and Chief
Operating Officer. He currently provides business financial
consulting to several firms.
o Robert D. Sensel, age 60, has been President, Chief Executive
Officer and a director of Dover Hydraulics, Inc., Dover, Ohio, since
1984. Dover Hydraulics is involved in the manufacture, repair and
distribution of hydraulic cylinders and components for the steel,
construction and mining industries.
The Board has determined that, except for Mr. Gundy, each director is an
"independent director" under applicable NASDAQ rules.
Executive Officers. The following persons are executive officers of FFD
------------------
and First Federal:
o Trent B. Troyer, age 42, has served as the President and Chief
Executive Officer of FFD and First Federal since October 2000. From
March 1997 to October 2000, Mr. Troyer was employed by First Federal
as Senior Vice President of Commercial Lending.
o Robert R. Gerber, age 55, has served as Vice President, Treasurer
and Chief Financial Officer of FFD and First Federal since October
2000. Mr. Gerber served as President of FFD and First Federal from
1996 until October 2000.
o Scott C. Finnell, age 35, has served as Executive Vice President of
FFD and First Federal since November 2000. From 1998 until joining
FFD and First Federal, Mr. Finnell was employed by Bank One, N.A. as
Vice President, Commercial Lending.
o Sally K. O'Donnell, age 50, is the Secretary of both FFD and First
Federal and is Senior Vice President of Retail Lending of First
Federal. From 1998 until joining FFD and First Federal in April
2003, Ms. O'Donnell was the President of the Dover Market and
District Manager of Retail Lending with Bank One, N.A. Ms. O'Donnell
was named Secretary of FFD and First Federal in October 2004.
37
Each director and executive officer may be contacted at FFD's address at
321 North Wooster Avenue, Dover, Ohio 44622, and the phone number at that
address is (330) 364-7777.
To FFD's knowledge, none of FFD's executive officers or directors has been
convicted in a criminal proceeding during the past five years (excluding traffic
violations or similar misdemeanors) or has been a party to any judicial or
administrative proceeding during the past five years (except for matters that
were dismissed without sanction or settlement) that resulted in a judgment,
decree or final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
Each of FFD's executive officers and directors is a citizen of the United
States of America.
Interest of Certain Persons in Matters to be Acted Upon
Information regarding FFD shares beneficially owned by the executive
officers and directors of FFD and First Federal is set forth in the table below.
The Stock Splits will not impact affiliated holders of FFD shares differently
from unaffiliated holders of FFD shares on the basis of affiliate status. The
executive officers and directors of FFD and First Federal will receive no extra
or special benefit not shared on a pro rata basis by all other holders of FFD
shares. If the Stock Splits are implemented, the executive officers and
directors of FFD and First Federal will not benefit by any material increase in
their percentage ownership of FFD shares. Please see the sections entitled
"Special Factors - Fairness of the Stock Splits."
Share Ownership of Directors and Executive Officers. The following table
---------------------------------------------------
provides certain information regarding the number of FFD shares beneficially
owned by FFD's directors and executive officers as of ________________, 2005,
and the anticipated ownership percentage of such persons after the Stock Splits:
Percent of Percent of
outstanding FFD shares outstanding FFD
Number of before shares after
Name (1) FFD shares (2) Stock Splits (3) Stock Splits (4)
- -------- -------------- ---------------- ----------------
Richard A. Brinkman, Jr. 2,000 (5) 0.17 0.18
Stephen G. Clinton 35,705 (6) 3.00 3.19
Leonard L. Gundy 5,010 (7) 0.42 0.45
Enos L. Loader 27,741 (8) 2.31 2.48
Robert D. Sensel 32,500 (9) 2.74 2.93
Trent B. Troyer 33,475 (10) 2.81 3.00
All directors and executive
officers of FFD as a
group (9 persons) 198,402 (11) [16.16] [17.25]
- ----------------------
(1) Each of the persons listed on this table may be contacted at FFD's address
at 321 North Wooster Avenue, Dover, Ohio 44622.
(2) All shares are directly owned with sole voting or investment power unless
otherwise indicated.
(Footnotes continued on next page)
38
(3) Assumes a total of 1,188,219 FFD shares outstanding before the Stock
Splits, plus the number of shares the person or group has the right to
acquire within 60 days.
(4) Assumes a total of 1,110,219 FFD shares outstanding after the Stock
Splits, plus the number of shares the person or group has the right to
acquire within 60 days.
(5) Includes 1,000 shares as to which Mr. Brinkman has shared voting and
investment power as trustee.
(6) Includes 8,945 shares that may be acquired upon the exercise of options
awarded under the 1996 Plan, 14,117 shares as to which Mr. Clinton has
shared voting power as trustee of the First Federal Community Bank
Recognition and Retention Plan (the "RRP") and 1,850 shares held jointly
with his spouse.
(7) Includes 3,578 shares that may be acquired upon the exercise of options
awarded under the Director Plan.
(8) Includes 8,945 shares that may be acquired upon the exercise of options
awarded under the 1996 Plan, 14,117 shares as to which Mr. Loader has
shared voting power as trustee of the RRP and 1,000 shares held jointly
with his spouse.
(9) Includes 10,000 shares held by Mr. Sensel's spouse.
(10) Includes 4,952 shares that may be acquired upon the exercise of options
awarded under the Option Plan, 14,117 shares as to which Mr. Troyer has
shared voting power as trustee of the RRP and 13,384 shares held in the
ESOP.
(11) Includes 39,804 shares that may be acquired upon the exercise of options
awarded under the 1996 Plan, including 2,527 options that are expected to
vest in the next 60 days and 39,161 shares held in the ESOP. The 14,117
shares as to which Messrs. Clinton, Loader and Troyer have shared voting
power as Trustees of the RRP are counted only once.
[The directors and executive officers of FFD have not engaged in any
transactions involving FFD shares in the past 60 days.]
Owners of 5% or More of the FFD Shares. The following table sets forth
--------------------------------------
certain information regarding the only persons known to FFD to beneficially own
more than five percent of the outstanding FFD shares as of ___________, 2005,
and their anticipated ownership percentage after the Stock Splits:
Percent of FFD Percent of FFD
Number of shares outstanding shares outstanding
Name and address FFD shares before Stock Splits(1) after Stock Splits(2)
- ---------------- ---------- ---------------------- ---------------------
FFD Financial Corporation 133,933 (3) 11.27 12.06
Employee Stock Ownership Plan
First Bankers Trust Services, Inc.
1201 Broadway
Quincy, Illinois 62301
- ----------------------
(Footnotes on next page)
39
(1) Assumes a total of 1,188,219 FFD shares outstanding before the Stock
Splits.
(2) Assumes a total of 1,110,219 FFD shares outstanding after the Stock
Splits.
(3) Includes 26,354 unallocated shares as to which First Bankers Trust
Services, Inc. (the "ESOP Trustee") has sole voting power. The ESOP
Trustee also has voting power over shares that have been allocated to the
account of a participant but as to which no voting instructions are given
by the participant. The ESOP Trustee has limited investment power over all
133,933 shares.
Certain Transactions
First Federal makes loans to executive officers and directors of FFD and
First Federal in the ordinary course of business. All amounts owed by directors
or executive officers in excess of $60,000 during the last two fiscal years were
owed pursuant to loans made on substantially the same terms as those prevailing
at the time for comparable transactions with other persons, did not involve more
than the normal risk of collectibility or present other unfavorable features and
are current in their payments.
Market Price and Dividend Information
FFD shares are currently traded on NASDAQ under the symbol "FFDF." The
following table sets lists the high and low closing prices and dividend
information for the periods indicated. The last sale of FFD shares reported on
NASDAQ on ____________, 2005 was $_______. Prices in the table do not reflect
any retail mark-ups or mark-downs or commissions.
Cash Dividends
Quarter Ended High Close Low Close Declared
- ------------- ---------- --------- --------
Fiscal 2005
September 30, 2004 $16.27 $13.40 $.105
December 31, 2004 $16.04 $13.55 $.11
March 31, 2005 $16.75 $14.95 $.11
Fiscal 2004
September 30, 2003 $15.32 $13.25 $.10
December 31, 2003 $15.30 $14.59 $.105
March 31, 2004 $15.50 $13.64 $.105
June 30, 2004 $15.65 $13.00 $.105
Fiscal 2003
September 30, 2002 $14.00 $11.50 $.095
December 31, 2002 $13.25 $10.00 $.10
March 31, 2003 $14.50 $11.20 $.10
June 30, 2003 $14.50 $11.44 $.10
Dividends are paid only when declared by the Board, in its sole
discretion, based on FFD's financial condition, results of operation, market
conditions and such other factors as it may deem appropriate.
If the Stock Splits are completed and we deregister our shares, FFD shares
will no longer be quoted on NASDAQ or be eligible to be traded on any exchange
or automated quotation service operated by a national securities association,
and trades in FFD shares will only be possible through privately negotiated
transactions, in the Pink Sheets(R) or on the OTCBB.
40
FFD Share Repurchase Information
The following table provides information regarding repurchases of FFD
shares by FFD during the periods indicated.
Number Price Range Weighted Average Price
Quarter Ended Repurchased High Low Per Share
- ------------- ----------- ---- --- ---------
Fiscal 2005
September 30, 2004 8,945 $15.95 $14.10 $14.75
December 31, 2004 9,800 $14.46 $14.16 $14.16
March 31, 2005 6,644 $16.42 $16.00 $16.08
Through ______, 2005
Fiscal 2004
September 30, 2003 0 N/A N/A N/A
December 31, 2003 9,733 $15.19 $15.07 $15.14
March 31, 2004 8,744 $15.06 $15.00 $15.03
June 30, 2004 34,892 $15.12 $14.02 $14.03
Fiscal 2003
September 30, 2002 12,600 $12.75 $12.50 $12.61
December 31, 2002 703 $11.99 $11.99 $11.99
March 31, 2003 5,500 $13.57 $13.57 $13.57
June 30, 2003 10,000 $13.81 $13.81 $13.81
FINANCIAL INFORMATION
Summary Historical Financial Information
The following summary consolidated financial information was derived from
FFD's audited consolidated financial statements as of and for each of the years
ended June 30, 2004 and 2003, and from unaudited consolidated interim financial
statements as of and for the nine months ended March 31, 2005 and 2004. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) which are necessary for a fair presentation of the financial position
and results of operation have been included. The statement of operations data
for the nine months ended March 31, 2005 is not necessarily indicative of
results for a full year. This financial information is only a summary and should
be read in conjunction with our historical financial statements and the
accompanying footnotes, which are incorporated herein by reference into this
Proxy Statement. Please see the section entitled "Incorporation of Certain
Documents by Reference."
41
Nine Months Ended Year Ended
March 31, June 30,
---------------------- ------------------------------------
2005 2004 2004 2003 2002
(Dollars in thousands, except per share data)
Results of Operations
Interest income $ 5,110 $ 4,805 $ 6,360 $ 6,758 $ 8,005
Interest expense 1,796 1,899 2,487 2,966 3,893
-------- -------- -------- -------- --------
Net interest income 3,314 2,906 3,873 3,792 4,112
Provision for loan losses 11 -- 25 131 150
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses 3,303 2,906 3,848 3,661 3,962
Noninterest income 443 466 616 1,038 536
Noninterest expenses 2,789 2,565 3,423 3,133 2,812
-------- -------- -------- -------- --------
Income before taxes 957 807 1,041 1,566 1,686
Income tax expense 325 274 354 534 573
-------- -------- -------- -------- --------
Net income $ 632 $ 533 $ 687 $ 1,032 $ 1,113
======== ======== ======== ======== ========
Financial Condition
Total assets $139,705 $136,603 $135,892 $136,408 $130,303
Total deposits 109,312 103,503 105,446 104,351 95,542
Net loans 122,451 114,122 114,505 115,966 107,055
Shareholders' equity 17,038 17,119 16,738 16,918 16,541
Average assets 137,681 136,975 136,758 133,715 131,976
Average shareholders' equity 16,880 17,022 16,965 16,713 16,497
Key Financial Ratios
Return on average assets 0.61% 0.52% 0.50% 0.77% 0.84%
Return on average equity 04.99 4.17 4.05 6.17 6.75
Dividends paid as a percent
of net income 59.09 67.39 70.34 44.89 39.89
Per Share Data
Net income, basic $ 0.55 $ 0.46 $ 0.59 $ 0.88 $ 0.94
Net income, diluted $ 0.54 $ 0.45 $ 0.58 $ 0.86 $ 0.92
Cash dividends declared $ 0.33 $ 0.31 $ 0.42 $ 0.40 $ 0.38
Book value $ 14.34 $ 14.18 $ 14.21 $ 14.04 $ 13.48
FFD's book value per share, as set forth above, has been derived from
financial statements prepared by FFD's management relating to the fiscal periods
set forth above. As required by Exchange Act Rule 13a-14(a), FFD's Chief
Executive Officer and Chief Financial Officer have certified that such financial
statements, and the financial information included in the periodic reports in
which such financial statements appear, fairly present in all material respects
the financial condition, results of operation and cash flows of FFD as of, and
for, the periods presented in such periodic reports.
42
Pro Forma Financial Information
We do not expect the Stock Splits or our use of approximately $1.54
million to complete the Stock Splits (which includes payments to be made to
Cashed Out Holders and professional fees and other expenses related to the
transaction) to have any material adverse effect on our capitalization,
liquidity, results of operations or cash flow. Please see the section entitled
"Meeting and Voting Information - Solicitation and Costs." We expect to finance
the Stock Splits with cash and cash equivalents on hand.
If the Stock Splits are completed, Cashed Out Holders will receive cash in
the amount of $19.00 per FFD share held immediately prior to the Stock Splits.
The repurchase of the fractional FFD shares resulting from the Stock Splits is
estimated to cost approximately $1.48 million and would reduce the number of
record holders of FFD shares from approximately 616 to approximately 217.
We expect that, as a result of the Stock Splits and the cashing out of
fractional FFD shares held by the Cashed Out Holders:
o Our aggregate shareholders' equity will change from approximately
$17,038,000 (as of March 31, 2005) to approximately $15,507,000; and
o Book value per FFD share would change from $14.35 to $13.96,
assuming the cash out of fractional FFD shares had occurred on March
31, 2005.
The following pro forma consolidated information has been derived from
FFD's financial statements. The financial statements for the year ended June 30,
2004, have been audited by independent registered public accountants. The
financial statements for the quarterly periods ended March 31, 2005 and 2004 are
unaudited. In the opinion of FFD's management, these quarterly financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the results of these
quarters.
The pro forma consolidated financial statements have been prepared based
upon the assumption that the Stock Splits were completed effective the first day
of the period presented for the income statement and as of the date of the
balance sheet, and all fractional FFD shares under one whole share are
repurchased. These pro forma consolidated financial statements are not
necessarily indicative of the results that would have occurred had the Stock
Splits actually taken place at the respective time periods specified nor do they
purport to project the results of operations for any future date or period.
Based on information from various external sources, FFD believes that
approximately 78,000 FFD shares will be repurchased at $19.00 per share for a
total purchase price of approximately $1.48 million.
The pro forma results are not indicative of future results because FFD's
public reporting costs for the periods presented include only the historic
public reporting costs and do not include anticipated future costs. Further,
these results exclude $173,000 in estimated annual cost savings due to no longer
being an Exchange Act reporting company.
The unaudited pro forma financial statements should be read in conjunction
with our historical financial statements and the accompanying footnotes, which
are incorporated herein by reference into this Proxy Statement. Please see the
section entitled "Incorporation of Certain Documents by Reference."
43
PRO FORMA CONSOLIDATED INCOME STATEMENT
Nine Months Ended March 31, 2005
(Unaudited)
(Dollars in thousands, except per share data)
Pro-Forma
Historical Adjustments Pro-Forma
Interest income
Loans $4,817 -- $4,817
Mortgage-backed securities 28 -- 28
Investment securities, interest-bearing deposits and other (1) 265 (19) 246
------ ------ ------
Total interest income 5,110 (19) 5,091
Interest expense
Deposits 1,371 -- 1,371
Borrowings 425 -- 425
------ ------ ------
Total interest expense 1,796 -- 1,796
------ ------ ------
Net interest income 3,314 (19) 3,295
------ ------ ------
Provision for losses on loans 11 -- 11
------ ------ ------
Net interest income after provision
for losses on loans 3,303 (19) 3,284
Other income
Gain on sale of loans 193 -- 193
Other operating 250 -- 250
------ ------ ------
Total other income 443 -- 443
General, administrative and other expense
Employee compensation and benefits 1,297 -- 1,297
Occupancy and equipment 285 -- 285
Franchise taxes 156 -- 156
Data processing 220 -- 220
Loss on sale of real estate acquired through foreclosure -- --
Other operating (2) (4) 831 55 886
------ ------ ------
Total general, administrative and other expense 2,789 55 2,844
------ ------ ------
Earnings before income taxes 957 (74) 883
Federal income taxes (3)
Current 271 (25) 246
Deferred 54 -- 54
------ ------ ------
Total federal income taxes 325 (25) 300
------ ------ ------
NET EARNINGS $ 632 ($ 49) $ 583
EARNINGS PER SHARE
Basic $ 0.55 $ 0.59
====== ======
Diluted $ 0.54 $ 0.58
====== ======
(1) Loss of interest income on $1,482,000 of liquid investments utilized to
fund Stock Splits. Foregone interest is based on 1.74% per annum return on
Federal Home Loan Bank overnight deposits.
(2) Transaction Costs related to Stock Splits (Estimated at $55,000)
(3) Federal income tax consequences of Stock Splits at 34% statutory rate.
(4) Does not give effect to annual cost savings estimated at $173,000 on a
pre-tax basis.
44
PRO FORMA CONSOLIDATED INCOME STATEMENT
June 30, 2004
(Unaudited)
(Dollars in thousands, except per share data)
Historical Pro-Forma Pro-Forma
Adjustments
Interest income
Loans $ 6,043 $ 6,043
Mortgage-backed securities 58 58
Investment securities, interest-bearing deposits and other (1) 259 (11) 248
------- ------- -------
Total interest income 6,360 (11) 6,349
Interest expense
Deposits 1,899 -- 1,899
Borrowings 588 -- 588
------- ------- -------
Total interest expense 2,487 -- 2,487
------- ------- -------
Net interest income 3,873 (11) 3,862
Provision for losses on loans 25 -- 25
------- ------- -------
Net interest income after provision
for losses on loans 3,848 (11) 3,837
Other income
Gain on sale of loans 354 -- 354
Other operating 269 -- 269
------- ------- -------
Total other income 623 -- 623
General, administrative and other expense
Employee compensation and benefits 1,537 -- 1,537
Occupancy and equipment 391 -- 391
Franchise taxes 210 -- 210
Data processing 285 -- 285
Loss on sale of real estate acquired through foreclosure 7 -- 7
Other operating (2) (4) 1,000 55 1,055
------- ------- -------
Total general, administrative and other expense 3,430 55 3,485
------- ------- -------
Earnings before income taxes 1,041 (66) 975
Federal income taxes (3)
Current 311 (23) 288
Deferred 43 -- 43
------- ------- -------
Total federal income taxes 354 (23) 331
------- ------- -------
NET EARNINGS $ 687 ($ 43) $ 644
======= ======= =======
EARNINGS PER SHARE
Basic $ 0.59 $ 0.63
======= =======
Diluted $ 0.58 $ 0.62
======= =======
(1) Loss of interest income on $1,482,000 of liquid investments utilized to
fund Stock Splits. Foregone interest is based on 0.77% per annum return on
Federal Home Loan Bank overnight deposits.
(2) Transaction Costs related to Stock Splits (Estimated at $55,000)
(3) Federal income tax consequences of Stock Splits at 34% statutory rate.
(4) Does not give effect to annual cost savings estimated at $173,000 on a
pre-tax basis.
45
PRO FORMA CONSOLIDATED BALANCE SHEET
As of March 31, 2005
(Unaudited)
(Dollars in thousands)
Pro-Forma
ASSETS Historical Adjustments Pro-Forma
Cash and due from banks $ 2,219 $ -- $ 2,219
Interest-bearing deposits in other financial institutions 5,807 (1,556) 4,251
--------- --------- ---------
Cash and cash equivalents 8,026 (1,556) 6,470
Investment securities designated as available for sale - at market 3,424 -- 3,424
Mortgage-backed securities designated as available for sale - at market 517 -- 517
Mortgage-backed securities held to maturity - at amortized cost,
approximate market value of $261 and $411 as of March 31,
2005 and June 30, 2004, respectively 255 -- 255
Loans receivable - net 122,451 -- 122,451
Loans held for sale - at lower of cost or market -- -- --
Office premises and equipment - at depreciated cost 2,010 -- 2,010
Stock in Federal Home Loan Bank - at cost 2,114 -- 2,114
Accrued interest receivable 422 -- 422
Prepaid expenses and other assets 242 -- 242
Prepaid federal income taxes 244 25 269
--------- --------- ---------
Total assets $ 139,705 ($ 1,531) $ 138,174
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 109,312 -- $ 109,312
Advances from the Federal Home Loan Bank 12,484 -- 12,484
Accrued interest payable 118 -- 118
Other liabilities 468 -- 468
Deferred federal income taxes 285 -- 285
--------- --------- ---------
Total liabilities 122,667 -- 122,667
Commitments -- -- --
Shareholders' equity
Preferred stock - authorized 1,000,000 shares without par
value; no shares issued -- -- --
Common stock - authorized 5,000,000 shares without par or
stated value; 1,454,750 shares issued -- -- --
Additional paid-in capital 7,951 -- 7,951
Retained earnings - restricted (1) 12,630 (49) 12,581
Accumulated comprehensive loss; unrealized losses on securities
designated as available for sale, net of related tax benefits (50.00) -- (50.00)
Shares acquired by stock benefit plans (334.00) -- (334.00)
Less 266,531 treasury shares at March 31, 2005
and 344,531 proforma - at cost (2) (3,159.00) (1,482) (4,641.00)
Total shareholders' equity 17,038 (1,531) 15,507
--------- --------- ---------
Total liabilities and shareholders' equity $ 139,705 ($ 1,531) $ 138,174
========= ========= =========
(1) After tax costs of Stock Splits.
(2) Effects of Stock Splits on Treasury Shares (78,000 shares at $19.00).
46
PRO FORMA CONSOLIDATED BALANCE SHEET
As of June 30, 2004
(Dollars in thousands)
Pro-Forma
ASSETS Historical Adjustments Pro-Forma
Cash and due from banks $ 1,999 $ -- $ 1,999
Interest-bearing deposits in other financial institutions 8,821 (1,548) 7,273
--------- --------- ---------
Cash and cash equivalents 10,820 (1,548) 9,272
Investment securities designated as available for sale - at market 4,402 -- 4,402
Mortgage-backed securities designated as available for sale - at market 630 -- 630
Mortgage-backed securities held to maturity - at amortized cost,
approximate market value of $261 and $411 as of March 31,
2005 and June 30, 2004, respectively 395 -- 395
Loans receivable - net 114,288 -- 114,288
Loans held for sale - at lower of cost or market 217 -- 217
Office premises and equipment - at depreciated cost 2,028 -- 2,028
Stock in Federal Home Loan Bank - at cost 2,047 -- 2,047
Accrued interest receivable 381 -- 381
Prepaid expenses and other assets 275 -- 275
Prepaid federal income taxes 409 23 432
--------- --------- ---------
Total assets $ 135,892 ($ 1,525) $ 134,367
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 105,446 -- $ 105,446
Advances from the Federal Home Loan Bank 12,669 -- 12,669
Accrued interest payable 97 -- 97
Other liabilities 719 -- 719
Deferred federal income taxes 223 -- 223
--------- --------- ---------
Total liabilities 119,154 -- 119,154
Commitments -- -- --
Shareholders' equity
Preferred stock - authorized 1,000,000 shares without par
value; no shares issued -- -- --
Common stock - authorized 5,000,000 shares without par or
stated value; 1,454,750 shares issued -- -- --
Additional paid-in capital 7,910 -- 7,910
Retained earnings - restricted (1) 12,385 (43) 12,342
Accumulated comprehensive loss; unrealized losses on securities
designated as available for sale, net of related tax benefits (66) -- (66)
Shares acquired by stock benefit plans (444) -- (444)
Less 266,757 treasury shares at June 30, 2005
and 344,757 proforma - at cost (2) (3,047) (1,482) (4,529)
--------- --------- ---------
Total shareholders' equity 16,738 (1,482) 15,213
--------- --------- ---------
Total liabilities and shareholders' equity $ 135,892 ($ 1,525) $ 134,367
========= ========= =========
(1) After tax costs of Stock Splits.
(2) Effects of Stock Splits on Treasury Shares (78,000 shares at $19.00).
47
AVAILABLE INFORMATION
The Stock Splits will constitute a "going-private" transaction for
purposes of Rule 13e-3 of the Exchange Act. As a result, FFD has filed the
Schedule 13E-3 which contains additional information about FFD. Copies of the
Schedule 13E-3 are available for inspection and copying at FFD's principal
executive offices during regular business hours by any interested shareholder of
FFD, or a representative who has been so designated in writing, and may be
inspected and copied, or obtained by mail, by written request addressed to FFD
Financial Corporation, 321 North Wooster Avenue, Dover, Ohio 44622.
FFD is currently subject to the information requirements of the Exchange
Act and files periodic reports, proxy statements and other information with the
SEC relating to its business, financial and other matters. Copies of such
reports, proxy statements and other information, as well as the Schedule 13E-3,
may be copied (at prescribed rates) at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. For further information concerning the SEC's public
reference rooms, you may call the SEC at 1-800-SEC-0330. Some of this
information may also be accessed on the World Wide Web through the SEC's
internet address at "www.sec.gov."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In our filings with the SEC, information is sometimes incorporated by
reference. This means that we are referring you to information that we have
filed separately with the SEC. The information incorporated by reference should
be considered part of this Proxy Statement, except for any information
superseded by information contained directly in this Proxy Statement.
This Proxy Statement incorporates by reference the following documents
that we have previously filed with the SEC, copies of which are being delivered
to you with this Proxy Statement. They contain important information about FFD
and its financial condition.
o Our Annual Report on Form 10-KSB for the year ended June 30, 2004;
and
o Our Quarterly Report on Form 10-QSB for the quarter ended March 31,
2005.
We also incorporate by reference any additional documents that we may file
with the Commission under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
between the date of this Proxy Statement and the date of the Special Meeting.
We will provide, without charge, upon the written or oral request of any
person to whom this Proxy Statement is delivered, by first class mail or other
equally prompt means within one business day of receipt of such request, a copy
of any and all information that has been incorporated by reference, without
exhibits unless such exhibits are also incorporated by reference in this Proxy
Statement. You may obtain a copy of these documents and any amendments thereto
by written request addressed to FFD Financial Corporation, 321 North Wooster
Avenue, Dover, Ohio 44622.
48
PROPOSALS OF SHAREHOLDERS AND OTHER MATTERS
Shareholders of FFD desiring to submit proposals to be considered for
inclusion in FFD's Proxy Statement and form of Proxy (the "Proxy Materials") for
the 2005 Annual Meeting of Shareholders (the "2005 Annual Meeting") must provide
their proposals by certain deadlines. To be included in the Proxy Materials, a
shareholder proposal must have been received by FFD no later than May 24, 2005.
If a shareholder intends to present a proposal at the 2005 Annual Meeting and
the proposal was not included in the Proxy Materials, FFD's management proxies
for the 2005 Annual Meeting will be entitled to vote on such proposal in their
discretion, despite the exclusion of any discussion of the matter in the Proxy
Materials, if the proposal is not received by FFD before August 6, 2005.
The Board is not aware of other matters that are likely to be brought
before the Special Meeting. However, in the event that any other matters
properly come before the Special Meeting, the persons named in the enclosed
Proxy are expected to vote the FFD shares represented thereby on such matters in
accordance with their best judgment.
Dated: _________, 2005 By Order of the Board of Directors,
Trent B. Troyer
President and Chief Executive Officer
49
EXHIBIT A
---------
KELLER & COMPANY, INC.
FINANCIAL INSTITUTION CONSULTANTS
INVESTMENT AND FINANCIAL ADVISORS
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426 (614) 766-1459 FAX
keller@ee.net
May 10, 2005
Board of Directors
FFD Financial Corp.
321 N. Wooster Avenue
Dover, Ohio 44622
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view to the shareholders of FFD Financial Corp. ("FFD"), of the proposed price
per share for FFD stock to be paid to shareholders in connection with the
Reverse/Forward Stock Split ("Split") as defined below and set forth in the
proxy material and to be sent to certain shareholders of record date as of May
10, 2005..
As more fully described in the proxy material to be sent to shareholders, FFD
will conduct a Split, resulting in an exchange of one share for each 350 shares
of FFD. Any shareholder with less than 350 shares of FFD will receive cash based
on a price per share of $19.00. Upon completion of the reverse stock split, FFD
will then complete a forward stock split issuing 350 shares of FFD for each
current share of FFD.
Keller & Company, Inc. ("Keller"), as part of its bank consulting and advisory
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with the underwritings and distributions of
listed and unlisted securities and with mergers and acquisitions and other
corporate transactions. In connection with this opinion, we have reviewed, among
other things: (i) proxy material; (ii) Annual Reports for the years ended June
30, 2002, 2003, and 2004; (iii) Form 10-Q for the quarters ended September 30,
and December 31, 2003 and 2004; (iv) certain publicly-available financial
statements of FFD as of December 31, 2003 and 2004, and March 31, 2004 and 2005,
and other historical financial information provided by FFD that we deemed
relevant; and (v) such other information, financial studies, analyses and
investigations and financial, economic and market criteria as we considered
relevant. We reviewed historical returns and the current and historical market
prices and trading volumes of FFD's common stock and the historical and
projected earnings and other operating data of FFD and the current and future
capitalization of FFD. We considered the current market environment in general
and the banking environment in particular as well as the market trend for thrift
stocks in 2004 and 2005 to date.
50
Board of Directors
FFD Financial Corp.
May 10, 2005
Page 2
In arriving at its opinion, Keller considered financial information and trends
for FFD, the current market prices of a selected peer group of similar
publicly-traded thrift institutions and holding companies, and other groups of
publicly-traded thrifts, and the terms, conditions and premiums paid on other
similar transactions.
During the completion of our review, we have assumed and relied upon the
accuracy and completeness of all the financial information, analyses and other
information that was publicly-available or otherwise furnished to, reviewed by
or discussed with us, and we do not assume any responsibility or liability for
independently verifying the accuracy or completeness thereof. We did not make an
independent evaluation or appraisal of the specific assets, the collateral
securing assets or the liabilities (contingent or otherwise) of FFD or any of
its subsidiaries, or the collectability of any such assets, nor have we been
furnished with any such evaluations or appraisals. We did not make an
independent evaluation of the adequacy of the allowance for loan losses of FFD
nor have we reviewed any individual credit files relating to FFD and, we have
assumed that the respective allowances for loan losses for FFD is adequate to
cover such losses. We have also assumed that there has been no material change
in FFD's assets, financial condition, results of operations, business since the
date of the most recent financial statements made available to us. Our opinion
is necessarily based upon information available to us, and financial, stock,
market and other conditions and circumstances existing, as of the date hereof.
The opinion of Keller is directed to the Board of Directors of FFD in connection
with its Split and does not constitute a recommendation to any stockholder of
FFD as to how a stockholder should vote at any meeting of stockholders called to
consider and vote upon the Split. The opinion of Keller is not to be quoted or
referred to, in whole or in part, in any proxy material or in any other
document, nor shall this opinion be used for any other purposes, without
Keller's prior written consent provided; however, that we hereby consent to the
inclusion of this opinion as an annex to FFD's proxy material and to the
references to this opinion therein.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the price per share of $19.00 for FFD stock used in the Split of
FFD is fair, from a financial point of view.
Very truly yours,
/s/ Keller & Company, Inc.
KELLER & COMPANY, INC.
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EXHIBIT B
---------
FORM OF
REVERSE STOCK SPLIT
AMENDMENT
Article FOURTH of the Articles of Incorporation, as amended, of FFD
Financial Corporation is hereby amended and replaced in its entirety as follows:
FOURTH: (A) The authorized shares of the corporation shall be five million
(5,000,000), four million (4,000,000) of which shall be common shares, each
without par value, and one million (1,000,000) of which shall be preferred
shares, each without par value. The directors of the corporation may adopt an
amendment to the Articles of Incorporation in respect of any unissued or
treasury shares of any class and thereby fix or change: the division of such
shares into series and the designation and authorized number of each series; the
dividend rate; the date of payment of dividends and the dates from which they
are cumulative; the liquidation price; the redemption rights and price; the
sinking fund requirements; the conversion rights; and the restrictions on the
issuance of shares of any class or series.
(B) Effective at the date and time this amendment to the Articles of
Incorporation to amend and replace this Article FOURTH is accepted by the
Secretary of State of the State of Ohio (the "Effective Time"), each
three-hundred and fifty (350) of the corporation's common shares then issued and
outstanding shall be automatically converted into one fully-paid and
non-assessable common share (the "Reverse Stock Split"). In lieu of the issuance
of any fractional common shares or scrip that would otherwise result from the
Reverse Stock Split to holders who held less than three-hundred and fifty (350)
common shares immediately before the Effective Time ("Cashed Out Holders"), each
Cashed Out Holder shall be entitled to receive the amount of Nineteen Dollars
($19.00) in cash for each common share held immediately prior to the Effective
Time. Upon the completion of the Reverse Stock Split, cashed out holders shall
cease to be shareholders of the corporation. Holders who held three-hundred and
fifty (350) or more common shares immediately prior to the Effective Time shall
be issued fractional common shares. This subsection (B) of this Article FOURTH
shall affect only issued and outstanding shares of the corporation and shall not
affect the total authorized number of shares.
(C) This Article FOURTH shall not change the stated capital or paid-in
surplus referable to the common shares, if any.
52
EXHIBIT C
---------
FORM OF
FORWARD STOCK SPLIT
AMENDMENT
Article FOURTH of the Articles of Incorporation, as amended, of FFD
Financial Corporation is hereby amended and replaced in its entirety as follows:
FOURTH: (A) The authorized shares of the corporation shall be five million
(5,000,000), four million (4,000,000) of which shall be common shares, each
without par value, and one million (1,000,000) of which shall be preferred
shares, each without par value. The directors of the corporation may adopt an
amendment to the Articles of Incorporation in respect of any unissued or
treasury shares of any class and thereby fix or change: the division of such
shares into series and the designation and authorized number of each series; the
dividend rate; the date of payment of dividends and the dates from which they
are cumulative; the liquidation price; the redemption rights and price; the
sinking fund requirements; the conversion rights; and the restrictions on the
issuance of shares of any class or series.
(B) Effective at the date and time this amendment to the Articles of
Incorporation to amend and replace this Article FOURTH is accepted by the
Secretary of State of the State of Ohio (the "Effective Time"), each share of
the corporation's common shares then issued and outstanding shall be
automatically converted into three-hundred and fifty (350) fully paid and
non-assessable common shares (the "Forward Stock Split"). This subsection (B) of
this Article FOURTH shall affect only issued and outstanding shares of the
corporation and shall not affect the total authorized number of shares.
(C) This Article FOURTH shall not change the stated capital or paid-in
surplus referable to the common shares, if any.
53
PRELIMINARY COPY
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
FFD FINANCIAL CORPORATION
FFD FINANCIAL CORPORATION SPECIAL MEETING OF SHAREHOLDERS
__________________, 2005
IMPORTANT
Please complete both sides of the Proxy Card.
Sign, date and return the attached Proxy Card in the postage
paid envelope as soon as possible. Your vote is important,
regardless of the number of shares that you own.
The undersigned shareholder of FFD Financial Corporation ("FFD") hereby
constitutes and appoints _________________ as the Proxy or Proxies of the
undersigned with full power of substitution and resubstitution, to vote at the
Special Meeting of Shareholders of FFD to be held at the Toland-Herzig Monarch
Center, 831 Boulevard, Dover, Ohio 44622, on _________________, 2005, at ___:___
__.m., local time (the "Special Meeting"), all of the shares of FFD which the
undersigned is entitled to vote at the Special Meeting, or at any adjournment
thereof, on each of the following proposals, all of which are described in the
accompanying Proxy Statement:
1. The amendment of FFD's Articles of Incorporation to effect a 1-for-350
reverse stock split, followed immediately by a 350-for-1 forward stock
split of FFD's common shares (collectively, the "Stock Splits"). As a
result of the Stock Splits, (a) each shareholder owning fewer than 350
common shares of FFD immediately before the Stock Splits will receive
$19.00 in cash, without interest, for each FFD common share owned by such
shareholder immediately prior to the Stock Splits and will no longer be a
shareholder of FFD; and (b) each FFD common share held by a shareholder
owning 350 or more common shares of FFD immediately prior to the effective
time of the Stock Splits will continue to represent one common share of
FFD after completion of the Stock Splits.
[_] FOR [_] AGAINST [_] ABSTAIN
2. In their discretion, upon such other business as may properly come before
the Special Meeting or any adjournments thereof.
IMPORTANT: Please sign and date this Proxy on the reverse side.
Your Board of Directors recommends a vote "FOR" the approval of the
amendments to FFD's Articles of Incorporation to effect the Stock Splits.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. Unless otherwise specified, the shares
will be voted FOR the approval of the amendments to FFD's Articles of
Incorporation to effect the Stock Splits.
All Proxies previously given by the undersigned are hereby revoked.
Receipt of the Notice of the Special Meeting of Shareholders of FFD and of the
accompanying Proxy Statement is hereby acknowledged.
54
Please sign exactly as your name appears above. When signing as attorney,
executor, administrator, trustee, guardian or agent, please give your full
title. If share are held jointly, each holder should sign.
- ---------------------------- ------------------------------
Signature Signature
Dated: _______________, 2005 Dated: _________________, 2005
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED FOR MAILING IN THE U.S.A.
55