<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1995
REGISTRATION NO. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST UNION CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 6711 56-0898180
(State or other jurisdiction (Primary standard (I.R.S. employer
of incorporation or organization) industrial classification code number) identification number)
</TABLE>
ONE FIRST UNION CENTER
CHARLOTTE, NORTH CAROLINA 28288-0013
(704) 374-6565
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
MARION A. COWELL, JR., ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
FIRST UNION CORPORATION
ONE FIRST UNION CENTER
CHARLOTTE, NORTH CAROLINA 28288-0013
(704) 374-6828
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPY TO:
SHEILA A. HALPERN, P.A.
STEEL HECTOR & DAVIS
200 SOUTH BISCAYNE BLVD.
MIAMI, FL 33131-2398
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
the General Instruction G, check the following box: []
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
<S> <C> <C> <C>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFER-
BE REGISTERED REGISTERED PER UNIT ING PRICE
<S> <C> <C> <C>
Common Stock,
(including rights to
purchase shares of common
stock or junior
participating Class A
Preferred Stock).......... 6,000,000 shares (1) $20.375 (2) $247,569,698(2)
<CAPTION>
TITLE OF EACH CLASS AMOUNT OF
OF SECURITIES TO REGISTRATION
BE REGISTERED FEE
<S> <C>
Common Stock,
(including rights to
purchase shares of common
stock or junior
participating Class A
Preferred Stock).......... $85,369(2)
</TABLE>
(1) Represents the estimated maximum number of shares of common stock, par value
$3.33 1/3 per share, issuable by First Union Corporation("FUNC") upon
consummation of the acquisition of American Savings of Florida, F.S.B.
("ASF") by FUNC.
(2) Pursuant to Rules 457(f)(1) and 457(c), the registration fee for the FUNC
common stock is based on the last sale price of ASF common stock on the
Nasdaq National Market on March 22, 1995 ($20.375), and computed based on
the estimated maximum number of such shares (12,150,660), including shares
issuable upon the exercise of outstanding employee and director stock
options, that may be exchanged for the securities being registered.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
FIRST UNION CORPORATION PROSPECTUS
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS OF THE RESPONSES
TO THE ITEMS OF PART I OF FORM S-4.
<TABLE>
<CAPTION>
FORM S-4 ITEM LOCATION IN PROSPECTUS
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front Cover Page of
Prospectus......................................................... Outside front cover page; facing page
2. Inside Front and Outside Back Cover Pages of Prospectus............ AVAILABLE INFORMATION; TABLE OF CONTENTS
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other
Information........................................................ SUMMARY
4. Terms of the Transaction........................................... SUMMARY; GENERAL INFORMATION; THE MERGER;
DESCRIPTION OF FUNC CAPITAL STOCK; CERTAIN
DIFFERENCES IN THE RIGHTS OF ASF AND FUNC
STOCKHOLDERS; ANNEX A; ANNEX B; ANNEX C; ANNEX D
5. Pro Forma Financial Information.................................... *
6. Material Contacts with the Company Being Acquired.................. THE MERGER; ADDITIONAL MATTERS
7. Additional Information Required for Reoffering by Persons and
Parties Deemed to Be Underwriters.................................. *
8. Interests of Named Experts and Counsel............................. LEGAL OPINIONS; EXPERTS
9. Disclosure of Commission Position on Indemnification for Securities
Act Liabilities.................................................... *
10. Information with Respect to S-3 Registrants........................ INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE;
SUMMARY; FUNC
11. Incorporation of Certain Information by Reference.................. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
12. Information with Respect to S-2 or S-3 Registrants................. *
13. Incorporation of Certain Information by Reference.................. *
14. Information with Respect to Registrants Other Than S-3 or S-2
Registrants........................................................ *
15. Information with Respect to S-3 Companies.......................... *
16. Information with Respect to S-2 or S-3 Companies................... INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE;
SUMMARY; ASF
17. Information with Respect to Companies Other Than S-2 or S-3
Companies.......................................................... *
18. Information if Proxies, Consents or Authorizations are to be
Solicited.......................................................... INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE;
SUMMARY; GENERAL INFORMATION; THE MERGER; ASF;
FUNC; EXPERTS
19. Information if Proxies, Consents or Authorizations are not to be
Solicited, or in an Exchange Offer................................. *
</TABLE>
* Not applicable.
<PAGE>
AMERICAN SAVINGS OF FLORIDA, F.S.B.
17801 N.W. SECOND AVENUE
MIAMI, FLORIDA 33169-5089
(305) 653-5353
, 1995
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Meeting") of American Savings of Florida, F.S.B. ("ASF"). The Meeting will be
held at 10:00 a.m., Miami time, on Tuesday, May 23, 1995, at ASF's executive
offices, 17801 N.W. Second Avenue, Miami, Florida. At the Meeting you will be
asked to consider a special proposal in addition to annual meeting proposals.
The proposals are explained in detail in the accompanying Proxy
Statement/Prospectus.
You will be asked to vote on a proposal to approve an Agreement and Plan of
Merger (the "Merger Agreement") between ASF and First Union Corporation
("FUNC"), which provides for the merger of ASF into a subsidiary national bank
of FUNC (the "Merger"). Upon consummation of the Merger, each outstanding share
of ASF common stock will be converted into the right to receive shares of FUNC
common stock having a value of $21.00, based on the average closing price of
FUNC common stock on the New York Stock Exchange Composite Transactions Tape
(the "NYSE Tape") for the ten consecutive trading days ending on the last
trading day prior to the effective date of the Merger, in a transaction that is
intended to be tax-free for federal income tax purposes, all as more fully
discussed in the accompanying Proxy Statement/Prospectus. The last reported sale
price of FUNC common stock on the NYSE Tape on , 1995, was $
per share. FUNC is the ninth largest bank holding company in the nation, based
on total assets of $77.3 billion at December 31, 1994.
The proposed Merger has been approved by the Boards of Directors of ASF and
FUNC and is subject to certain conditions, including approval of the Merger and
the Merger Agreement by ASF stockholders and approval of the Merger by various
regulatory agencies.
You will also be asked to approve a proposal to adjourn the meeting if
there are not enough votes to approve the Merger Agreement, in order to solicit
additional votes on the Merger Agreement and the other matters to be considered
at the Meeting. In addition, you will be asked to vote on standard annual
meeting matters, including the election of directors and ratification of the
appointment of auditors as well as any other business that may properly come
before the Meeting.
I urge you to carefully review the information contained in the Proxy
Statement/Prospectus and the attached ANNEXES, information about ASF contained
in ASF's 1994 Annual Report to Stockholders which accompanies this Proxy
Statement/Prospectus and information about FUNC which you may obtain as
indicated in the accompanying Proxy Statement/Prospectus under "AVAILABLE
INFORMATION".
The Board of Directors of ASF believes that the Merger and each of the
other matters to be presented at the Meeting are in the best interests of ASF
and its stockholders and recommends that you vote "FOR" each of the proposals
described in the accompanying Proxy Statement/Prospectus.
IT IS VERY IMPORTANT THAT YOUR SHARES BE VOTED AT THE MEETING, REGARDLESS
OF WHETHER YOU ATTEND IN PERSON. PLEASE COMPLETE THE ENCLOSED PROXY AND MAIL IT
PROMPTLY IN THE ENCLOSED POSTAGE-PAID, RETURN ADDRESSED ENVELOPE. YOU SHOULD NOT
FORWARD YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS APPROVED, YOU
WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR EXISTING STOCK
CERTIFICATES.
Yours very truly,
STEPHEN D. TAYLOR
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE>
AMERICAN SAVINGS OF FLORIDA, F.S.B.
17801 N.W. SECOND AVENUE
MIAMI, FLORIDA 33169-5089
(305) 653-5353
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 23, 1995
, 1995
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of American Savings of Florida, F.S.B. ("ASF") will be held at 10:00
a.m., Miami time, on Tuesday, May 23, 1995, at ASF's executive offices, 17801
N.W. Second Avenue, Miami, Florida, for the following purposes, all of which are
set forth more completely in the accompanying Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of December 4, 1994, as amended as of March 27, 1995
(the "Merger Agreement"), between ASF and First Union Corporation
("FUNC"), pursuant to which (i) ASF will merge (the "Merger") with and
into a subsidiary national bank of FUNC, and (ii) each outstanding share
of ASF common stock will be converted into the right to receive a number
of shares of FUNC common stock equal to the quotient of (x) $21.00 and
(y) the average closing price of FUNC common stock on the New York Stock
Exchange Composite Transactions Tape for the ten consecutive trading
days ending on the last trading day prior to the effective date of the
Merger, all on and subject to the terms and conditions contained therein
(as part of the same proposal, stockholders will be voting on the
approval of the Merger itself);
2. To adjourn the Meeting (if the Merger Agreement has not been terminated
at the time of the Meeting) to another time and/or place in the event
that there are not sufficient votes at the time of the Meeting to
approve the Merger and the Merger Agreement, for the purpose of
soliciting additional votes in favor of the Merger and the Merger
Agreement, the election of each of the nine nominees for director and
the ratification of KPMG Peat Marwick LLP as independent auditors;
3. To elect each of the nine nominees for director to serve until the 1996
Annual Meeting of Stockholders of ASF, and until their successors are
duly elected and qualified;
4. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the fiscal year ending December 31, 1995; and
5. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
A copy of the Merger Agreement is set forth in ANNEX A to the accompanying
Proxy Statement/Prospectus. Upon consummation of the Merger, the terms of the
directors will terminate as provided in the Merger Agreement and the term of the
auditors will terminate as ASF will cease to exist as an independent entity.
The Board of Directors of ASF has fixed the close of business on March 24,
1995, as the record date for the determination of stockholders entitled to
notice of and to vote at the Meeting.
THE BOARD OF DIRECTORS OF ASF RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AND THE MERGER AGREEMENT, "FOR" ADJOURNMENT OF THE
MEETING, IF NECESSARY TO SOLICIT ADDITIONAL PROXIES IN FAVOR OF THE MERGER AND
THE MERGER AGREEMENT, AMONG OTHER THINGS, "FOR" THE ELECTION OF EACH OF THE
NOMINEES FOR DIRECTOR LISTED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS AND
"FOR" THE PROPOSAL TO RATIFY THE APPOINTMENT OF THE INDEPENDENT AUDITORS.
By Order of the Board of Directors of
AMERICAN SAVINGS OF FLORIDA, F.S.B.
ALAN B. GOLDSTEIN
SECRETARY
EVEN STOCKHOLDERS WHO EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO DATE,
SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. WHETHER OR NOT YOU ATTEND
THE MEETING, YOU MAY REVOKE YOUR APPOINTMENT OF PROXY.
<PAGE>
<TABLE>
<S> <C>
PROSPECTUS PROXY STATEMENT
FIRST UNION CORPORATION AMERICAN SAVINGS OF FLORIDA, F.S.B.
COMMON STOCK ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 23, 1995
(PAR VALUE $3.33 1/3 PER SHARE)
</TABLE>
This Proxy Statement/Prospectus is being furnished by American Savings of
Florida, F.S.B. ("ASF") to the holders of ASF common stock, par value $0.01 per
share ("ASF Common Stock"), as a proxy statement in connection with the
solicitation of proxies by the Board of Directors of ASF (the "ASF Board") for
use at the Annual Meeting of Stockholders of ASF to be held at 10:00 a.m., Miami
time, on May 23, 1995, at ASF's executive offices, 17801 N.W. Second Avenue,
Miami, Florida (the "Meeting"), and at any adjournment or adjournments thereof.
Proxies will not be used for any other meeting, nor will any proxy be valid
after 11 months from the date of its execution.
This Proxy Statement/Prospectus, the accompanying Notice of Annual Meeting
and the form of proxy enclosed herewith are first being mailed to the
stockholders of ASF on or about , 1995.
At the Meeting, ASF stockholders will have the opportunity to consider and
vote upon a proposal to approve an Agreement and Plan of Merger, dated as of
December 4, 1994, as amended as of March 27, 1995 (the "Merger Agreement"),
between ASF and First Union Corporation, a North Carolina corporation ("FUNC"),
pursuant to which ASF will merge with and into a subsidiary national bank (the
"Subsidiary") of FUNC (the "Merger"), all on and subject to the terms and
conditions contained therein. See "SUMMARY", "THE MERGER" and ANNEX A to this
Proxy Statement/Prospectus. As part of the same proposal, stockholders will be
voting on the approval of the Merger itself.
ASF Stockholders will also have the opportunity to vote on the following
proposals: a proposal to adjourn the Meeting (if the Merger Agreement has not
been terminated at the time of the Meeting) to another time and/or place in the
event that there are not sufficient votes at the time of the Meeting to approve
the Merger and the Merger Agreement, for the purpose of soliciting additional
votes in favor of the Merger and the Merger Agreement, the election of each of
the nine nominees for director and the ratification of ASF's independent
auditors; a proposal to elect each of the nine nominees for director to serve on
the ASF Board until the 1996 Annual Meeting of Stockholders of ASF, if held, and
until their successors are duly elected and qualified; and a proposal to ratify
ASF's independent auditors for the fiscal year ending December 31, 1995.
Upon consummation of the Merger, each outstanding share of ASF Common Stock
will be converted into the right to receive a number of shares of FUNC common
stock, par value $3.33 1/3 per share (together with the FUNC Rights (as
hereinafter defined) attached thereto, "FUNC Common Stock"), equal to the
quotient (the "Exchange Ratio") of (i) $21.00 and (ii) the average closing price
of FUNC Common Stock on the New York Stock Exchange (the "NYSE") Composite
Transactions Tape (the "NYSE Tape") for the ten consecutive trading days ending
on the last trading day prior to the effective date of the Merger (the
"Effective Date") (such average, the "FUNC Average Closing Price"), with cash in
lieu of the issuance of any fractional share interest. Assuming that the last
reported sale price of FUNC Common Stock on March 22, 1995 ($43.375) was the
FUNC Average Closing Price, the Exchange Ratio would be 0.4841 (the "Current
Exchange Ratio"). The actual Exchange Ratio will depend on the FUNC Average
Closing Price and may be higher or lower than the Current Exchange Ratio.
This document also constitutes a prospectus of FUNC relating to the shares
(the "FUNC Shares") of FUNC Common Stock that are issuable upon consummation of
the Merger. See "DESCRIPTION OF FUNC CAPITAL STOCK" and "CERTAIN DIFFERENCES IN
THE RIGHTS OF ASF AND FUNC STOCKHOLDERS".
Based on the shares of ASF Common Stock outstanding on the Record
Date (as hereinafter defined) and the shares of ASF Common Stock issuable
upon the exercise of outstanding employee and director stock options on that
date, and assuming the Current Exchange Ratio is the actual Exchange Ratio,
approximately FUNC Shares will be issuable upon consummation of the
Merger (the "Projected Number of FUNC Shares").
On December 2, 1994, the last business day prior to public announcement of
the execution of the Merger Agreement, the last reported sale prices per share
of FUNC Common Stock on the NYSE Tape and of ASF Common Stock on the Nasdaq
National Market were $40.00 and $16.4375, respectively. On , 1995,
such prices were $ and $ , respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE FUNC SHARES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1995.
<PAGE>
AVAILABLE INFORMATION
FUNC and ASF are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act"), and, in accordance therewith, file reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"), as to FUNC, and with the Office of Thrift
Supervision (the "OTS"), as to ASF. Reports, proxy statements and other
information filed by FUNC can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's Regional Offices in New York (7 World Trade
Center, 13th Floor, New York, New York 10048) and Chicago (Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60621) and copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Reports,
proxy statements and other information filed by ASF can be inspected and copied
at the public reference facilities maintained by the OTS at the Office of Public
Information, OTS, 1700 G Street, N.W., Washington, D.C. 20552, and can be
obtained by written request from such office, at prescribed rates. Reports,
proxy statements and other information relating to FUNC can also be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement on Form S-4, of which this Proxy
Statement/Prospectus is a part, and the exhibits thereto (together with any
amendments or supplements thereto, the "Registration Statement"), which has been
filed by FUNC with the Commission under the Securities Act of 1933, as amended,
and the rules and regulations thereunder (the "Securities Act"), certain
portions of which have been omitted pursuant to the rules and regulations of the
Commission and to which portions reference is hereby made for further
information.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS
RELATING TO FUNC ARE AVAILABLE WITHOUT CHARGE (OTHER THAN CERTAIN EXHIBITS TO
SUCH DOCUMENTS) TO EACH ASF STOCKHOLDER, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST, FROM
FIRST UNION CORPORATION, INVESTOR RELATIONS, TWO FIRST UNION CENTER, CHARLOTTE,
NORTH CAROLINA 28288-0206 (TELEPHONE NUMBER (704) 374-6782). COPIES OF SUCH
DOCUMENTS RELATING TO ASF ARE AVAILABLE WITHOUT CHARGE (OTHER THAN CERTAIN
EXHIBITS TO SUCH DOCUMENTS) TO EACH ASF STOCKHOLDER, INCLUDING ANY BENEFICIAL
OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR
ORAL REQUEST, FROM AMERICAN SAVINGS OF FLORIDA, F.S.B., INVESTOR RELATIONS
DEPARTMENT/OC215, 17801 N.W. 2ND AVENUE, MIAMI, FLORIDA 33169-5089 (TELEPHONE
NUMBER (305) 770-2080). IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS,
ANY SUCH REQUEST SHOULD BE MADE BY , 1995.
All information contained or incorporated by reference in this Proxy
Statement/Prospectus with respect to FUNC has been supplied by FUNC, and all
information contained or incorporated by reference in this Proxy
Statement/Prospectus with respect to ASF has been supplied by ASF.
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by FUNC or ASF. Neither the delivery of this
Proxy Statement/Prospectus nor any distribution of the securities to which this
Proxy Statement/Prospectus relates shall, under any circumstances, create any
implication that there has been no change in the affairs of FUNC or ASF since
the date hereof or that the information contained herein is correct as of any
time subsequent to its date. This Proxy Statement/Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
the securities to which it relates or an offer to sell or solicitation of an
offer to buy such securities in any circumstances in which such an offer or
solicitation is not lawful.
The Commissioner of Insurance of the State of North Carolina (the
"Commissioner") has not approved or disapproved this offering nor has the
Commissioner passed upon the accuracy or adequacy of this Proxy
Statement/Prospectus.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by FUNC with the Commission (File No.
1-10000) under Section 13(a) or 15(d) of the Exchange Act are hereby
incorporated by reference in this Proxy Statement/Prospectus:
(i) FUNC's Annual Report on Form 10-K for the year ended December 31, 1994;
and
(ii) All documents filed by FUNC pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the Meeting
are hereby incorporated by reference into this Proxy Statement/Prospectus and
shall be deemed a part hereof from the date of filing of such documents.
Certain information concerning ASF may be found in the copy of ASF's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, ("ASF's 1994
Form 10-K") which is included in ASF's Annual Report to Stockholders, a copy of
which is being delivered with this Proxy Statement/Prospectus. Specifically, the
information contained in Part I, Part II and Part III of ASF's 1994 Form 10-K
and the Financial Statements and Schedules contained in (but not the exhibits
referred to) Part IV of ASF's 1994 Form 10-K are hereby incorporated by
reference in the Proxy Statement/Prospectus. Only those portions of ASF's 1994
Form 10-K which have been incorporated by reference in the preceding sentence
are incorporated by reference herein. Copies of such portions so incorporated by
reference have been filed as Exhibit 99(b) to FUNC's Registration Statement on
Form S-4 of which this Proxy Statement/Prospectus is a part. The remaining
portions of ASF's Annual Report to Stockholders are not incorporated by
reference.
Any statement contained herein, in any supplement hereto, or in a document
incorporated or deemed to be incorporated by reference herein, shall be deemed
to be modified or superseded for purposes of the Registration Statement and this
Proxy Statement/Prospectus to the extent that a statement contained herein, in
any supplement hereto, or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of the Registration
Statement, this Proxy Statement/Prospectus or any supplement hereto.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AVAILABLE INFORMATION.................................................................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................................ 3
SUMMARY................................................................................................................ 6
GENERAL INFORMATION.................................................................................................... 18
General.............................................................................................................. 18
Record Date; Votes Required.......................................................................................... 18
PROPOSAL 1
THE MERGER............................................................................................................. 20
General.............................................................................................................. 20
Effective Date....................................................................................................... 20
Management After the Merger.......................................................................................... 20
Exchange of ASF Stock Certificates................................................................................... 20
Background and Reasons............................................................................................... 21
Opinions of Financial Advisors....................................................................................... 28
Interests of Certain Persons......................................................................................... 37
Effect on ASF Employee Benefit Programs.............................................................................. 38
Certain Federal Income Tax Consequences.............................................................................. 38
Business Pending Consummation........................................................................................ 39
No Solicitation...................................................................................................... 40
Regulatory Approvals................................................................................................. 40
Conditions to Consummation; Termination.............................................................................. 41
Waiver; Amendment.................................................................................................... 41
Survival............................................................................................................. 42
No Appraisal Rights.................................................................................................. 42
Accounting Treatment................................................................................................. 42
Expenses............................................................................................................. 42
Stock Option Agreement............................................................................................... 42
Voting Agreement; Escrow Agreement................................................................................... 43
Market Prices........................................................................................................ 44
Dividends............................................................................................................ 45
ASF.................................................................................................................... 46
General.............................................................................................................. 46
History and Business................................................................................................. 46
FUNC................................................................................................................... 47
General.............................................................................................................. 47
History and Business................................................................................................. 47
Common Stock Repurchase.............................................................................................. 48
Certain Regulatory Considerations.................................................................................... 48
DESCRIPTION OF FUNC CAPITAL STOCK...................................................................................... 51
Authorized Capital................................................................................................... 51
FUNC Common Stock.................................................................................................... 52
FUNC Preferred Stock................................................................................................. 52
FUNC Class A Preferred Stock......................................................................................... 53
Rights Plan.......................................................................................................... 53
Other Provisions..................................................................................................... 54
CERTAIN DIFFERENCES IN THE RIGHTS OF ASF AND FUNC STOCKHOLDERS......................................................... 54
General.............................................................................................................. 54
Authorized Capital................................................................................................... 54
Amendment of Articles of Incorporation or Bylaws..................................................................... 55
Size and Classification of Board of Directors........................................................................ 55
Removal of Directors by Stockholders................................................................................. 56
Director Exculpation................................................................................................. 56
Director Conflict of Interest Transactions........................................................................... 56
Stockholder Meetings................................................................................................. 57
Director Nominations................................................................................................. 57
Stockholder Proposals................................................................................................ 58
Stockholder Protection Rights Plan................................................................................... 58
Stockholder Inspection Rights; Stockholder Lists..................................................................... 58
Required Stockholder Vote for Certain Actions........................................................................ 59
Anti-Takeover Provisions............................................................................................. 60
Dissenters' or Appraisal Rights...................................................................................... 60
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
</TABLE>
<TABLE>
<S> <C>
Dividends and Other Distributions.................................................................................... 61
Voluntary Dissolution................................................................................................ 61
RESALE OF FUNC COMMON SHARES........................................................................................... 61
ADDITIONAL MATTERS..................................................................................................... 62
LEGAL OPINIONS......................................................................................................... 62
EXPERTS................................................................................................................ 62
OTHER PROPOSALS........................................................................................................ 63
PROPOSAL 2
ADJOURNMENT OF MEETING................................................................................................. 63
General.............................................................................................................. 63
Vote Required and Recommendation..................................................................................... 63
PROPOSAL 3
ELECTION OF DIRECTORS.................................................................................................. 64
Nominees for Director................................................................................................ 64
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................................... 65
Security Ownership of Certain Beneficial Owners...................................................................... 65
Potential Change in Control.......................................................................................... 65
Security Ownership of Management..................................................................................... 66
BOARD OF DIRECTORS AND COMMITTEES...................................................................................... 68
General Information.................................................................................................. 68
Committees........................................................................................................... 68
Compensation Committee Interlocks and Insider Participation.......................................................... 69
Director Compensation................................................................................................ 70
EXECUTIVE COMPENSATION................................................................................................. 72
Summary Compensation Table........................................................................................... 72
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values.................................... 73
Report of the Compensation and Stock Option Committees on Executive Compensation..................................... 74
Compensation Committee -- Policy and Procedural Framework............................................................ 74
Compensation Committee -- CEO Compensation........................................................................... 74
Compensation Committee -- Other Executive Officer Compensation....................................................... 75
Stock Option Committee............................................................................................... 75
ASF Board's Review................................................................................................... 75
Stock Price Performance Graph........................................................................................ 76
Termination of Employment, Change-in-Control Arrangements and Employment Contracts................................... 76
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................................... 78
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT...................................................................... 78
VOTE REQUIRED AND RECOMMENDATION....................................................................................... 78
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS.................................................................... 79
OTHER MATTERS.......................................................................................................... 79
STOCKHOLDER PROPOSALS TO BE PRESENTED AT 1996 ANNUAL MEETING OF ASF STOCKHOLDERS....................................... 79
ANNEXES:
ANNEX A -- THE MERGER AGREEMENT (INCLUDING THE STOCK OPTION AGREEMENT)............................................... A-1
ANNEX B -- THE VOTING AGREEMENT (INCLUDING THE ESCROW AGREEMENT)..................................................... B-1
ANNEX C -- OPINION OF GOLDMAN SACHS.................................................................................. C-1
ANNEX D -- OPINION OF BEAR STEARNS................................................................................... D-1
</TABLE>
5
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SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION RELATING TO THE
MERGER AND THE OTHER MATTERS TO BE CONSIDERED AT THE MEETING. THIS SUMMARY IS
NOT INTENDED TO BE A SUMMARY OF ALL MATERIAL INFORMATION RELATING TO SUCH
MATTERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MORE DETAILED
INFORMATION CONTAINED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING
THE ANNEXES HERETO, AND IN THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS. COPIES OF THE MERGER AGREEMENT (INCLUDING THE STOCK OPTION
AGREEMENT (AS HEREINAFTER DEFINED)) AND THE VOTING AGREEMENT (AS HEREINAFTER
DEFINED) (INCLUDING THE ESCROW AGREEMENT (AS HEREINAFTER DEFINED)) ARE SET FORTH
IN ANNEXES A AND B, RESPECTIVELY, TO THIS PROXY STATEMENT/PROSPECTUS AND
REFERENCE IS MADE THERETO FOR A COMPLETE DESCRIPTION OF THE TERMS OF THE MERGER.
STOCKHOLDERS ARE URGED TO READ CAREFULLY THIS ENTIRE PROXY STATEMENT/PROSPECTUS,
INCLUDING THE ANNEXES HERETO. AS USED IN THIS PROXY STATEMENT/PROSPECTUS, THE
TERMS "FUNC" AND "ASF" REFER TO SUCH ORGANIZATIONS, RESPECTIVELY, AND, UNLESS
THE CONTEXT OTHERWISE REQUIRES, SUCH ORGANIZATIONS AND THEIR RESPECTIVE
SUBSIDIARIES.
PROPOSAL 1:
PARTIES TO THE MERGER
FUNC; THE SUBSIDIARY
FUNC is a North Carolina-based multi-bank holding company registered under
the Bank Holding Company Act of 1956, as amended, and the rules and regulations
thereunder (the "BHCA"). FUNC provides a wide range of commercial and retail
banking services and trust services in North Carolina, Florida, South Carolina,
Georgia, Tennessee, Virginia, Maryland and Washington, D.C. FUNC also provides
various other financial services, including mortgage banking, capital markets
services, insurance and securities' brokerage services, through other
subsidiaries. As of December 31, 1994, and for the year then ended, FUNC
reported assets of $77.3 billion, net loans of $54.0 billion, deposits of $59.0
billion, stockholders' equity of $5.4 billion and net income applicable to
common stockholders before a redemption premium on preferred stock of $900
million, and as of such date FUNC operated through 1,562 offices in 42 states,
Washington, D.C. and two foreign countries. FUNC is the ninth largest bank
holding company in the United States, based on total assets at December 31,
1994. The principal executive offices of FUNC are located at One First Union
Center, Charlotte, North Carolina 28288-0013, and its telephone number is (704)
374-6565.
Pursuant to the Merger Agreement, FUNC will organize the Subsidiary to
facilitate the Merger. The Merger Agreement also provides that FUNC may change
the structure of the Merger, under certain conditions, including substituting an
existing subsidiary national bank (E.G., First Union National Bank of Florida
("FUNB-FL")) for the Subsidiary, in which case ASF would merge with and into
FUNB-FL instead of the Subsidiary. However, any such change may not adversely
affect the consideration to be received by ASF stockholders or the tax treatment
of such stockholders or delay the consummation of the Merger. If ASF merges with
and into FUNB-FL, the term "Subsidiary," as used in this Proxy
Statement/Prospectus, shall be deemed to include FUNB-FL.
FUNB-FL is a national banking association that provides a wide range of
commercial and retail banking services and trust services in Florida. As of
December 31, 1994, and for the year then ended, FUNB-FL's call report reflected
assets of $31.3 billion, net loans of $21.3 billion, deposits of $25.9 billion,
stockholder's equity of $2.5 billion and net income of $475 million, and as of
such date FUNB-FL operated through 553 banking offices in Florida and one
foreign country. The principal executive offices of FUNB-FL are located at 225
Water Street, Jacksonville, Florida 32202, and its telephone number is (904)
361-2265.
FUNC is continually evaluating acquisition opportunities and frequently
conducts due diligence activities in connection with possible acquisitions. As a
result, acquisition discussions and, in some cases, negotiations frequently take
place and future acquisitions involving cash, debt or equity securities can be
expected. Acquisitions typically involve the payment of a premium over book and
market values, and therefore some dilution of FUNC's book value and net income
per common share may occur in connection with any future transactions.
See "FUNC".
ASF
ASF is a federally chartered stock savings bank. ASF is primarily engaged
in the business of attracting deposits from the general public and using such
deposits to originate mortgage loans, consumer loans and commercial real estate
and residential construction loans. ASF is a member of the Federal Home Loan
Bank (the "FHLB") of Atlanta and its deposits are
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insured by the Savings Association Insurance Fund (the "SAIF") of the Federal
Deposit Insurance Corporation (the "FDIC"). As of December 31, 1994, and for the
year then ended, ASF reported assets of $3.6 billion, loans receivable, net and
loans held for sale of $2.0 billion, deposits of $2.3 billion, stockholders'
equity of $217 million and net income of $19 million, and as of such date ASF
operated through 29 retail offices in south Florida, eight mortgage origination
offices in Florida and two loan production offices in Chicago, Illinois. The
principal executive offices of ASF are located at 17801 N.W. Second Avenue,
Miami, Florida 33169-5089, and its telephone number is (305) 653-5353. See
"ASF". Further information about ASF is contained in ASF's 1994 Form 10-K which
is incorporated by reference into this Proxy Statement/Prospectus and is set
forth in ASF's 1994 Annual Report to Stockholders which accompanies this Proxy
Statement/Prospectus.
MEETING; RECORD DATE
The Meeting will be held on Tuesday, May 23, 1995, at 10:00 a.m., Miami
time, at ASF's executive offices, 17801 N.W. Second Avenue, Miami, Florida, for
the purpose of ASF stockholders considering and voting upon the following
proposals: (1) a proposal to approve the Merger and the Merger Agreement
("Proposal 1" or the "Merger Proposal"); (2) a proposal to adjourn the Meeting
(if the Merger Agreement has not been terminated at the time of the Meeting) to
another time and/or place in the event that there are not sufficient votes at
the time of the Meeting to approve the Merger and the Merger Agreement for the
purpose of soliciting additional votes in favor of the Merger and the Merger
Agreement, the election of each of the nine nominees for director and the
ratification of ASF's independent auditors ("Proposal 2" or the "Adjournment
Proposal"); (3) a proposal to elect each of the nine nominees for director to
serve on the ASF Board until the 1996 Annual Meeting of Stockholders of ASF, if
held, and until their successors are duly elected and qualified ("Proposal 3" or
the "Election Proposal"); and (4) a proposal to ratify the appointment of ASF's
independent auditors for the fiscal year ending December 31, 1995 ("Proposal 4"
or the "Auditors Proposal").
The ASF Board has fixed the close of business on Friday, March 24, 1995, as
the record date for stockholders entitled to notice of and to vote at the
Meeting (the "Record Date"). As of such date, there were shares of
ASF Common Stock outstanding and entitled to be voted at the Meeting.
See "GENERAL INFORMATION".
THE MERGER
Under the terms of the Merger Agreement, ASF will merge with and into the
Subsidiary. Upon consummation of the Merger, each outstanding share of ASF
Common Stock will be converted into the right to receive a number of shares of
FUNC Common Stock equal to the Exchange Ratio (I.E., the quotient of (i) $21.00
and (ii) the FUNC Average Closing Price), with cash in lieu of the issuance of
any fractional share interest. See "DESCRIPTION OF FUNC CAPITAL STOCK" and
"CERTAIN DIFFERENCES IN THE RIGHTS OF ASF AND FUNC STOCKHOLDERS".
VOTES REQUIRED
Approval of the Merger and the Merger Agreement requires the affirmative
votes of at least (i) two-thirds of the shares of ASF Common Stock issued and
outstanding on the Record Date (the "General Approval") and (ii) a majority of
the Non-interested Shares (as hereinafter defined) represented and voted at the
Meeting (the "Special Approval"). The "Non-interested Shares" are the
outstanding shares of ASF Common Stock other than shares held beneficially by
(x) The Enstar Group, Inc. ("Enstar"), the holder as of the Record Date of
approximately percent of the outstanding shares of ASF Common Stock, (y) the
directors and certain officers of ASF, and (z) the directors and officers of
Enstar. In connection with the execution of the Merger Agreement, Enstar agreed
to vote its shares of ASF Common Stock in favor of approval of the Merger and
the Merger Agreement at the Meeting. See "THE MERGER -- Voting Agreement; Escrow
Agreement" and ANNEX B.
Approval of Proposals 2, 3 and 4 and of all other matters which may come
before the Meeting requires the affirmative vote of a majority of the votes
cast, in person or by proxy, by persons entitled to vote at the Meeting. Enstar
has not informed ASF of how it intends to vote its shares (approximately
percent of the outstanding shares of ASF Common Stock as of the Record Date) in
connection with Proposals 2, 3 and 4. For a discussion of Enstar's right to vote
its shares of ASF Common Stock at the Meeting, see "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Potential Change in Control".
The directors and executive officers of ASF (including certain of their
related interests, among them Enstar) beneficially owned, as of the Record Date,
and are entitled to vote at the Meeting, shares of outstanding ASF
Common Stock, which represent approximately percent of the outstanding shares
of ASF Common Stock entitled to be voted at the Meeting. However, only
Non-interested Shares will be counted for purposes of the Special Approval. The
Merger Agreement
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provides that ASF shall use its reasonable efforts to cause its directors and
certain officers, Enstar and the directors and officers of Enstar to enter into
an agreement prohibiting such persons from acquiring additional shares of ASF
Common Stock on or before the Record Date. Enstar and substantially all of such
officers and directors entered into such an agreement.
See "GENERAL INFORMATION -- Record Date; Votes Required".
A FAILURE TO VOTE ON PROPOSAL 1, EITHER BY NOT RETURNING THE ENCLOSED PROXY
OR BY CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST APPROVAL OF THE MERGER AGREEMENT FOR PURPOSES OF THE GENERAL APPROVAL
AND WILL NOT COUNT FOR PURPOSES OF THE SPECIAL APPROVAL. EXECUTED BUT UNMARKED
PROXIES WILL BE VOTED AS FOLLOWS: FOR THE MERGER PROPOSAL, FOR THE ADJOURNMENT
PROPOSAL, FOR THE ELECTION OF EACH OF THE NINE NOMINEES NAMED ON THE FORM OF
PROXY AS DIRECTORS OF ASF AND FOR THE AUDITORS PROPOSAL. PURSUANT TO ASF'S
BYLAWS, IF ANY OTHER MATTERS ARE PROPERLY BROUGHT BEFORE THE MEETING, THE
PERSONS NAMED IN THE FORM OF PROXY WILL VOTE THE SHARES REPRESENTED BY SUCH
PROXY AS DETERMINED BY A MAJORITY OF THE ASF BOARD. IF NO SUCH ASF BOARD
DETERMINATION IS MADE, THE PERSONS NAMED WILL VOTE THE SHARES IN THEIR OWN
JUDGMENT.
EFFECTIVE DATE
Subject to the terms and conditions of the Merger Agreement, the Effective
Date will occur on the first business day of the month following the month in
which the last of the conditions to the consummation of the Merger (other than
the delivery of certificates, opinions, comfort letters and the like) is
satisfied or waived, or such other date as shall be mutually agreed upon by FUNC
and ASF. Subject to the foregoing, it is currently anticipated that the Merger
will be consummated in the second or third quarter of 1995. If the Merger is
consummated in either of such quarters, or in any other quarter, ASF
stockholders should not assume or expect that the Effective Date will precede
the record date for the dividend on FUNC Common Stock for that quarter, so as to
enable such stockholders to receive such dividend. See "THE MERGER -- Exchange
of ASF Certificates" and " -- Conditions to Consummation; Termination".
MANAGEMENT AFTER THE MERGER
The directors and officers of the Subsidiary in office prior to the
Effective Date will be the directors and officers of the surviving entity. At
the Effective Date, the directors listed in Proposal 3 below will not become
directors of FUNC or the Subsidiary.
RECOMMENDATION OF THE ASF BOARD
The ASF Board has approved the Merger Agreement, believes that the Merger
is in the best interests of ASF and its stockholders and is fair to the
stockholders, and recommends approval of the Merger and the Merger Agreement by
ASF stockholders. See "THE MERGER -- Background and Reasons; ASF". The ASF Board
also recommends that stockholders vote FOR the Adjournment Proposal, FOR the
election of each of the nominees for director under Proposal 3 and FOR the
Auditors Proposal.
OPINIONS OF FINANCIAL ADVISORS
By a letter dated December 4, 1994 and confirmed on , 1995,
Goldman, Sachs & Co. ("Goldman Sachs") advised the ASF Board that, in its
opinion, the consideration to be received by ASF stockholders for each share of
ASF Common Stock is fair, as of such dates, to the holders of ASF Common Stock.
By a letter dated December 9, 1994, and confirmed on , 1995, Bear,
Stearns & Co. Inc. ("Bear Stearns") advised the ASF Board that, in its opinion,
the consideration to be received by ASF stockholders for each share of ASF
Common Stock is fair to such stockholders from a financial point of view as of
such dates. The full text of Goldman Sachs' opinion, dated as of ,
1995, and Bear Stearns' opinion, dated as of , 1995, which describe
the procedures followed, assumptions made, limitations on the review undertaken,
and other matters in connection with rendering the opinions, are set forth in
ANNEXES C and D to this Proxy Statement/Prospectus and should be read in their
entirety by ASF stockholders. Neither the Goldman Sachs opinion nor the Bear
Stearns opinion is a condition to consummation of the Merger. See "THE
MERGER -- Opinions of Financial Advisors", ANNEX C and ANNEX D.
8
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of ASF's management and of the ASF Board have interests in
the Merger that are in addition to their interests as stockholders of ASF
generally. These interests include, among others, provisions in the Merger
Agreement relating to indemnification, directors' and officers' liability
insurance, cash payment for unexercised stock options, and continuation or
improvement of severance and certain other employee benefits.
Under the Bankruptcy Plan of Enstar, as modified (as hereinafter defined),
Enstar must sell or dispose of its shares of ASF Common Stock prior to June 1,
1995. Messrs. T. Wayne Davis and Nimrod T. Frazer, who are directors of ASF, are
also directors of Enstar and have interests in the Merger in that capacity. In
addition, Messrs. Davis and Frazer have personal interests in the Merger.
See "THE MERGER -- Interests of Certain Persons" and " -- Background and
Reasons; ASF".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned upon receipt by FUNC and by ASF
of an opinion of Sullivan & Cromwell, special counsel for FUNC, to the effect
that no gain or loss will be recognized for federal income tax purposes by
stockholders of ASF who receive FUNC Shares in exchange for their shares of ASF
Common Stock, other than in respect of cash received in lieu of fractional share
interests. See "THE MERGER -- Certain Federal Income Tax Consequences".
BECAUSE CERTAIN TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH ASF STOCKHOLDER, IT IS RECOMMENDED THAT ASF STOCKHOLDERS
CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY STATE AND LOCAL) TAX
CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
RESALE OF FUNC SHARES
The FUNC Shares will be freely transferable by the holders of such shares,
except for those shares held by those holders who may be deemed to be
"affiliates" (generally including directors, certain executive officers and ten
percent or more stockholders) of ASF under applicable federal securities laws.
See "RESALE OF FUNC COMMON SHARES". In addition, FUNC will repurchase from
Enstar on the Effective Date for approximately $82.5 million the shares of FUNC
Common Stock exchanged for 3,926,422 shares of ASF Common Stock. These and
certain other shares will be held in escrow pursuant to the Escrow Agreement.
See "THE MERGER -- Voting Agreement; Escrow Agreement" and ANNEX B.
BUSINESS PENDING CONSUMMATION
The Merger Agreement provides that, without the prior written consent of
FUNC or except as otherwise permitted by the Merger Agreement, ASF will
generally conduct its business only in the ordinary and usual course consistent
with past practice, and not take certain actions relating to the operation of
ASF pending consummation of the Merger or the termination of the Merger
Agreement. These actions include, without limitation: (i) paying dividends,
redeeming or otherwise acquiring shares of its capital stock, issuing additional
shares of its capital stock or giving any person the right to acquire any such
shares or incurring any debt; (ii) increasing the rate of compensation or paying
any bonuses to any of its directors, officers or employees; (iii) entering into
or modifying any employment agreements or employee benefit plans; (iv) disposing
of any material portions of its assets or acquiring any substantial portions of
the business or property of any other entities; (v) changing its lending,
investment, liability management, accounting procedures, or other material
banking policies in any material respect; (vi) incurring any capital
expenditures in excess of $100,000 individually or $500,000 in the aggregate;
(vii) taking any action that would impair ASF's allowed claim in the bankruptcy
proceedings of Enstar; (viii) entering into, terminating or changing any
material agreements, except for those agreements that are terminable by ASF
without penalty in excess of $100,000 upon not more than 60 days' prior written
notice; (ix) settling any claims involving money damages in excess of $250,000
or restrictions on the operations of ASF; or (x) acquiring private label
mortgage-backed securities.
The Merger Agreement also provides that, consistent with generally accepted
accounting principles and regulatory accounting principles, ASF will use its
best efforts to record any accounting adjustments required to conform its loan,
litigation and other reserve and real estate valuation policies and practices
(including loan classifications and levels of reserves) so as to be consistent
with those policies and practices applied by FUNC, provided that ASF shall not
be obligated to record any such accounting adjustments (i) unless and until ASF
is satisfied that the conditions to the obligations of the parties to consummate
the Merger will be satisfied or waived on or before the Effective Date and (ii)
in no event until the day prior to the Effective Date.
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<PAGE>
See "THE MERGER -- Business Pending Consummation".
NO SOLICITATION
The Merger Agreement provides that neither ASF nor any of its officers,
directors, agents or representatives will initiate, solicit, encourage, enter
into discussions or negotiations in furtherance of, or endorse a Competing
Transaction (as defined in the Merger Agreement). The Merger Agreement does not
prohibit ASF from furnishing information to, or entering into discussions with,
any person that makes a bona fide proposal to enter into, and may recommend,
endorse or enter into a definitive agreement with respect to, a Competing
Transaction, under certain circumstances. See "THE MERGER -- No Solicitation".
REGULATORY APPROVALS
The Merger is subject to the prior approval of the Office of the
Comptroller of the Currency (the "OCC"), and to prior notice to the OTS. An
application has been filed with the OCC and a notice has been given to the OTS.
Enstar has filed a separate notice with the OTS and has received permission from
the OTS to dispose of its ASF Common Stock. There can be no assurance that the
necessary regulatory approvals will be obtained or as to the timing or
conditions of such approvals. See "THE MERGER -- Regulatory Approvals".
CONDITIONS TO CONSUMMATION; TERMINATION
Consummation of the Merger is subject, among other things, to: (i)
approvals of the Merger Agreement and the Merger by the stockholders of ASF;
(ii) receipt of the regulatory approvals referred to above without any
restrictions or conditions which in the good faith, reasonable opinion of FUNC
would so materially adversely impact the economic or business benefits to FUNC
of the transactions contemplated by the Merger Agreement so as to render
inadvisable the consummation of the Merger; (iii) no court or governmental or
regulatory authority having taken any action which prohibits the Merger; (iv)
receipt by FUNC and ASF of the opinion of Sullivan & Cromwell as to certain
federal income tax consequences of the Merger; (v) the FUNC Shares having been
approved for listing on the NYSE, subject to official notice of issuance; (vi)
all Stock Options (as hereinafter defined) having been cancelled and paid for;
(vii) the continued effectiveness of the Registration Statement; (viii) the
receipt of all required "blue sky" permits; and (ix) the receipt of various
third party consents to the Merger.
The Merger Agreement may be terminated by mutual agreement of the Boards of
Directors of FUNC and ASF. The Merger Agreement may also be terminated by the
Board of Directors of either FUNC or ASF if the Merger does not occur on or
before August 25, 1995 (provided that the terminating party is not in breach of
the Merger Agreement) or upon the occurrence of certain specified events or if
certain other conditions set forth in the Merger Agreement are not met.
See "THE MERGER -- Conditions to Consummation; Termination".
NO APPRAISAL RIGHTS
Subject to certain assumptions, holders of ASF Common Stock do not have
appraisal rights under applicable provisions of OCC and OTS regulations. See
"THE MERGER -- No Appraisal Rights".
STOCK OPTION AGREEMENT
As an inducement and condition to FUNC's willingness to enter into the
Merger Agreement, ASF entered into a Stock Option Agreement with FUNC, dated as
of December 4, 1994 (the "Stock Option Agreement"). The Stock Option Agreement
is set forth in Exhibit C to the Merger Agreement, which is set forth in ANNEX A
to this Proxy Statement/Prospectus. Pursuant to the Stock Option Agreement, ASF
granted to FUNC an irrevocable option (the "Option"), exercisable only under
certain limited and specifically defined circumstances, none of which, to the
best of ASF's and FUNC's knowledge, has occurred as of the date hereof, to
purchase up to 2,288,700 authorized but unissued shares of ASF Common Stock for
a purchase price of $19.5625 per share (the "Purchase Price"), subject to
adjustment in certain circumstances. The last sale price per share of ASF Common
Stock on the Nasdaq National Market on December 2, 1994, the last business day
prior to the date on which the Stock Option Agreement was executed, was
$16.4375. The number of shares of ASF Common Stock subject to the Option
represents approximately 19.9 percent of the outstanding shares of ASF Common
Stock on December 4, 1994, before giving effect to the issuance of such shares.
FUNC does not have any voting rights with respect to the shares of ASF Common
Stock subject to the Option, prior to exercise of the Option. The purchase of
any shares of ASF Common
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Stock by FUNC pursuant to the Option is subject to compliance with applicable
law, including receipt of necessary approvals under the BHCA and the Home
Owners' Loan Act of 1933, as amended (the "HOLA").
The Stock Option Agreement and the Option were intended to increase the
likelihood that the Merger will be consummated on the terms set forth in the
Merger Agreement, and may be expected to discourage competing offers to acquire
ASF from potential third party acquirors because the Option could increase the
cost of such an acquisition.
See "THE MERGER -- Stock Option Agreement".
VOTING AGREEMENT; ESCROW AGREEMENT
As an inducement to and a condition of FUNC's willingness to enter into the
Merger Agreement, Enstar entered into a Shareholder Voting Agreement with FUNC,
dated as of December 4, 1994 (the "Voting Agreement"). In connection therewith
Enstar and FUNC also entered into an Escrow Agreement, dated as of December 4,
1994 (the "Escrow Agreement"), with First Union National Bank of North Carolina
(the "Escrow Agent").
The Voting Agreement provides, among other things, that Enstar will vote
its shares of ASF Common Stock in favor of approval of the Merger and the Merger
Agreement and sets forth provisions relating to payment by Enstar to ASF of a
bankruptcy claim in the principal amount of approximately $32.0 million (the
"Bankruptcy Claim") and certain other allowed claims of certain senior creditors
(the "Senior Claims") payable pursuant to the Bankruptcy Plan (as defined
hereinafter), as modified.
In order to facilitate payment of the Bankruptcy Claim to the Subsidiary,
as the successor to ASF following consummation of the Merger, Enstar has
delivered 3,926,422 shares of ASF Common Stock (the "Escrowed Shares") to the
Escrow Agent to be held under the Escrow Agreement pending consummation of the
Merger.
The Voting Agreement and the Escrow Agreement provide that on the Effective
Date the Escrowed Shares will be exchanged for FUNC Shares pursuant to the
Merger Agreement and FUNC will purchase such FUNC Shares from the Escrow Agent
for approximately $82.5 million ($21.00 per share of ASF Common Stock exchanged
for such FUNC Shares), whereupon the Escrow Agent will make payment on behalf of
Enstar of all or substantially all of the Bankruptcy Claim following payment of
the Senior Claims that are required by the Bankruptcy Plan, as modified, to be
paid before the Bankruptcy Claim can be paid.
The Voting Agreement and the Escrow Agreement also provide for the deposit
with the Escrow Agent on the Effective Date of certain additional FUNC Shares to
be received by Enstar in exchange for shares of ASF Common Stock held by Enstar,
which FUNC Shares are to be held by the Escrow Agent pending payment in full of
any balance remaining due under the Bankruptcy Claim and the interest payable on
the Bankruptcy Claim. The Voting Agreement further provides that, under certain
circumstances, Enstar has the right to receive such additional FUNC Shares (or
any cash or other securities then held in lieu thereof) to pay certain
obligations under the Bankruptcy Plan, as modified, which may be required to be
paid prior to payment of the balance due on the Bankruptcy Claim and any
interest payable thereon. See "THE MERGER -- Voting Agreement; Escrow Agreement"
and ANNEX B.
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following unaudited information, adjusted for any stock dividends and
stock splits, reflects, where applicable, certain comparative per share data
related to book value, cash dividends paid, net income and market value: (i) on
a historical basis for FUNC and ASF; (ii) on a pro forma combined basis per
share of FUNC Common Stock reflecting consummation of the Merger with the
Current Exchange Ratio; and (iii) on an equivalent pro forma basis per share of
ASF Common Stock reflecting consummation of the Merger with the Current Exchange
Ratio. Such information has been prepared giving effect to the Merger on a
purchase accounting basis. See "THE MERGER -- Accounting Treatment". The actual
Exchange Ratio will depend on the FUNC Average Closing Price and may be higher
or lower than the Current Exchange Ratio. Since purchase accounting does not
permit restatement of results for prior periods following consummation of the
Merger, consummation of the Merger will not affect FUNC's historical results for
the periods indicated.
Pro forma financial presentations provide information on the impact of the
Merger by showing how the Merger might have affected historical financial
statements if the Merger had been consummated at an earlier time. The pro forma
combined selected financial data do not purport to be indicative of the results
that actually would have been realized had FUNC and ASF been a single entity in
1994 or indicative of the combined financial position or results of operations
of future periods.
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The information shown below should be read in conjunction with the
historical financial statements of FUNC and ASF, including the respective notes
thereto, which are incorporated herein by reference and (with respect to ASF) in
ASF's 1994 Form 10-K set forth in ASF's 1994 Annual Report to Stockholders which
accompanies this Proxy Statement/Prospectus. See "AVAILABLE INFORMATION",
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "FUNC -- History and
Business".
<TABLE>
<CAPTION>
DECEMBER 31,
1994
<S> <C>
BOOK VALUE PER COMMON SHARE:
Historical:
FUNC....................................................................................................... $30.66
ASF........................................................................................................ 18.76
Pro forma combined per FUNC common share (1).................................................................. 30.75
Equivalent pro forma per ASF common share (2)................................................................. $14.89
</TABLE>
(1) The pro forma combined book value per FUNC common share amount represents
(i) FUNC's historical common stockholders' equity adjusted for the issuance
of the Projected Number of FUNC Shares, assuming a market price of $43.375
per FUNC common share and reflecting the purchase of 3.8 million shares of
FUNC Common Stock by FUNC at a cost of $161 million and the purchase of the
approximately 1.9 million shares of FUNC Common Stock expected to be issued
to Enstar at a cost of $82 million and the subsequent cancellation of such
shares (the "Repurchased Shares"), divided by (ii) pro forma combined
period-end common shares outstanding. See "The Merger -- Voting Agreement;
Escrow Agreement".
(2) The equivalent pro forma book value per ASF common share amount represents
the pro forma combined book value per FUNC common share amount, multiplied
by the Current Exchange Ratio.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
<S> <C>
CASH DIVIDENDS PAID PER COMMON SHARE:
Historical:
FUNC.................................................................................................. $1.72
ASF................................................................................................... --
Pro forma combined per FUNC common share (3)............................................................. 1.72
Equivalent pro forma per ASF common share (4)............................................................ $ .83
</TABLE>
(3) The pro forma combined cash dividends paid per FUNC common share amount
represents pro forma combined cash dividends paid on common stock
outstanding, divided by pro forma combined average common shares
outstanding, rounded to the nearest cent.
(4) The equivalent pro forma cash dividends paid per ASF common share amount
represents the pro forma combined per FUNC common share amount, multiplied
by the Current Exchange Ratio, rounded to the nearest cent. The current
annualized dividend rate per share for FUNC Common Stock, based upon the
most recently declared quarterly dividend rate of $.46 per share payable on
March 15, 1995, would be $1.84. On an equivalent pro forma basis, such
current annualized FUNC dividend per ASF common share would be $.88, based
on the Current Exchange Ratio, rounded to the nearest cent. Future FUNC and
ASF dividends are dependent upon their respective earnings and financial
conditions, government regulations and policies, and other factors. See "THE
MERGER -- Exchange of ASF Certificates" and " -- Business Pending
Consummation".
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
<S> <C>
NET INCOME PER SHARE APPLICABLE TO COMMON STOCKHOLDERS:
Historical:
FUNC (before redemption premium on preferred stock)........................................................ $ 5.22
FUNC (after redemption premium on preferred stock)......................................................... 4.98
ASF........................................................................................................ 1.60
Pro forma combined per FUNC common share (before redemption premium on preferred stock) (5)................... 5.20
Equivalent pro forma per ASF common share (before redemption premium on preferred stock) (6).................. $ 2.52
</TABLE>
12
<PAGE>
(5) The pro forma combined income per FUNC common share amount represents (i)
pro forma combined FUNC net income applicable to common stockholders, ASF
net income and the related purchase accounting adjustments described in
footnote (1) to the table under " -- Selected Financial Data" titled "FUNC
and ASF -- Pro Forma Combined Selected Financial Data" (assuming the Merger
had been effective January 1, 1994), divided by (ii) pro forma combined
average common shares outstanding, adjusted for the issuance of the
Projected Number of FUNC Shares, less the Repurchased Shares.
(6) The equivalent pro forma income per ASF common share amount represents the
pro forma combined income per FUNC common share amount, multiplied by the
Current Exchange Ratio.
<TABLE>
<CAPTION>
HISTORICAL EQUIVALENT PRO FORMA
FUNC ASF PER ASF COMMON SHARE (7)
<S> <C> <C> <C>
MARKET VALUE PER SHARE:
December 2, 1994............................................................ $40.00 16.4375 19.25
, 1995........................................................ $
</TABLE>
(7) The equivalent pro forma market values per ASF common share amounts
represent the historical market values per share of FUNC Common Stock,
multiplied by the Current Exchange Ratio, rounded down to the nearest
one-eighth. The FUNC and ASF historical market values per share represent
the last reported sale price per share of FUNC Common Stock on the NYSE Tape
and of ASF Common Stock on the Nasdaq National Market (i) on December 2,
1994, the last business day preceding public announcement of the execution
of the Merger Agreement, and (ii) on , 1995. See "THE
MERGER -- Market Prices". Because the market price of FUNC Common Stock is
subject to fluctuation, the market value of the FUNC Shares that holders of
ASF Common Stock will receive upon consummation of the Merger may increase
or decrease prior to, as well as after, the receipt of such shares following
the Effective Date. ASF stockholders are urged to obtain current market
quotations for FUNC Common Stock. See "FUNC -- Common Stock Repurchase".
SELECTED FINANCIAL DATA
The following tables set forth certain unaudited historical consolidated
selected financial information for FUNC and ASF and certain unaudited pro forma
combined selected financial data, giving effect to the Merger (with the Current
Exchange Ratio) on a purchase accounting basis. See "THE MERGER -- Accounting
Treatment". For a description of the terms of the Merger Agreement, see "THE
MERGER -- General". The actual Exchange Ratio will depend on the FUNC Average
Closing Price and may be higher or lower than the Current Exchange Ratio. Pro
forma financial data are presented as of and for the year ended December 31,
1994, and are intended to show how the Merger might have affected historical
financial statements if the Merger were consummated at an earlier time. The pro
forma combined selected financial data do not purport to be indicative of the
results that actually would have been realized had FUNC and ASF been a single
entity in 1994 or indicative of the combined financial position or results of
operations of future periods. This information should be read in conjunction
with the historical financial statements of FUNC and ASF, including the
respective notes thereto, which are incorporated herein by reference and (with
respect to ASF) in ASF's 1994 Form 10-K set forth in ASF's 1994 Annual Report to
Stockholders which accompanies this Proxy Statement/Prospectus. See "AVAILABLE
INFORMATION", "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE",
"FUNC -- History and Business" and "ASF -- History and Business". Since purchase
accounting does not require restatement of results for prior periods following
consummation of the Merger, consummation of the Merger will not affect FUNC's
historical results for the periods indicated.
13
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993 1992 1991
<S> <C> <C> <C> <C>
FUNC (HISTORICAL)
CONSOLIDATED SUMMARIES OF INCOME
(In thousands except per share data)
Interest income......................................................... $ 5,094,661 4,556,332 4,479,385 4,647,440
Interest expense........................................................ 2,060,946 1,790,439 2,020,968 2,742,996
Net interest income..................................................... 3,033,715 2,765,893 2,458,417 1,904,444
Provision for loan losses............................................... 100,000 221,753 414,708 648,284
Net interest income after provision for loan losses..................... 2,933,715 2,544,140 2,043,709 1,256,160
Securities available for sale transactions.............................. (11,507) 25,767 34,402 --
Investment security transactions........................................ 4,006 7,435 (2,881) 155,048
Noninterest income...................................................... 1,166,470 1,165,086 1,032,651 914,511
Noninterest expense..................................................... 2,677,228 2,521,647 2,526,678 1,905,918
Income before income taxes.............................................. 1,415,456 1,220,781 581,203 419,801
Income taxes............................................................ 490,076 403,260 196,152 71,070
Net income.............................................................. 925,380 817,521 385,051 348,731
Dividends on preferred stock............................................ 25,353 24,900 31,979 34,570
Net income applicable to common stockholders before redemption
premium............................................................... 900,027 792,621 353,072 314,161
Redemption premium on preferred stock................................... 41,355 -- -- --
Net income applicable to common stockholders after redemption premium... $ 858,672 792,621 353,072 314,161
PER COMMON SHARE DATA
Net income before redemption premium.................................... $ 5.22 4.73 2.23 2.24
Net income after redemption premium..................................... 4.98 4.73 2.23 2.24
Cash dividends.......................................................... 1.72 1.50 1.28 1.12
Book value.............................................................. 30.66 28.90 25.25 23.23
CASH DIVIDENDS PAID ON COMMON STOCK
(In thousands).......................................................... 297,902 243,845 167,601 126,029
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets.................................................................. 77,313,505 70,786,969 63,828,031 59,273,177
Loans, net of unearned income........................................... 54,029,752 46,876,177 41,923,767 41,383,580
Deposits................................................................ 58,958,273 53,742,411 49,150,965 47,176,223
Long-term debt.......................................................... 3,428,514 3,061,944 3,151,260 2,630,930
Preferred stockholders' equity.......................................... -- 284,041 297,215 397,356
Common stockholders' equity............................................. 5,397,517 4,923,584 4,161,948 3,463,441
Total stockholders' equity.............................................. $ 5,397,517 5,207,625 4,459,163 3,860,797
Preferred shares outstanding............................................ -- 6,318 6,846 10,851
Common shares outstanding............................................... 176,034 170,338 164,849 149,112
CONSOLIDATED AVERAGE BALANCE SHEET ITEMS
(In thousands)
Assets.................................................................. $72,670,694 68,101,222 61,145,974 55,095,439
Loans, net of unearned income........................................... 49,055,215 43,631,410 41,270,991 37,314,358
Deposits................................................................ 53,244,751 50,248,848 47,173,706 40,482,433
Long-term debt.......................................................... 3,213,607 3,006,560 2,789,653 2,187,595
Common stockholders' equity*............................................ 5,282,412 4,550,048 3,889,256 3,131,716
Total stockholders' equity*............................................. $ 5,554,390 4,839,397 4,213,896 3,467,437
Common shares outstanding............................................... 172,543 167,692 158,683 140,003
CONSOLIDATED PERCENTAGES
Net income applicable to common stockholders before redemption premium
to average common stockholders' equity................................ 17.04% 17.42 9.08 10.03
Net income applicable to common stockholders after redemption premium to
average common stockholders' equity................................... 16.26 17.42 9.08 10.03
Net income to:
Average total stockholders' equity.................................... 16.66 16.89 9.14 10.06
Average assets........................................................ 1.27 1.20 .63 .63
Average stockholders' equity to average assets.......................... 7.52 7.11 6.89 6.29
Allowance for loan losses to:
Net loans............................................................. 1.81 2.18 2.24 2.06
Nonaccrual and restructured loans..................................... 245 147 96 72
Nonperforming assets.................................................. 175 111 70 50
Net charge-offs to average net loans.................................... .33 .58 .86 1.48
Nonperforming assets to loans, net and foreclosed
properties............................................................ 1.03 1.95 3.19 4.10
Capital ratios:**
Tier 1 capital........................................................ 7.76 9.14 9.22 7.56
Total capital......................................................... 12.94 14.64 14.31 11.76
Leverage.............................................................. 6.12 6.13 6.55 5.31
Net interest margin..................................................... 4.77% 4.78 4.77 4.08
<CAPTION>
1990
<S> <C>
FUNC (HISTORICAL)
CONSOLIDATED SUMMARIES OF INCOME
(In thousands except per share data)
Interest income......................................................... 4,829,520
Interest expense........................................................ 3,094,334
Net interest income..................................................... 1,735,186
Provision for loan losses............................................... 425,409
Net interest income after provision for loan losses..................... 1,309,777
Securities available for sale transactions.............................. --
Investment security transactions........................................ 7,884
Noninterest income...................................................... 690,672
Noninterest expense..................................................... 1,680,973
Income before income taxes.............................................. 327,360
Income taxes............................................................ 64,993
Net income.............................................................. 262,367
Dividends on preferred stock............................................ 33,868
Net income applicable to common stockholders before redemption
premium............................................................... 228,499
Redemption premium on preferred stock................................... --
Net income applicable to common stockholders after redemption premium... 228,499
PER COMMON SHARE DATA
Net income before redemption premium.................................... 1.68
Net income after redemption premium..................................... 1.68
Cash dividends.......................................................... 1.08
Book value.............................................................. 21.81
CASH DIVIDENDS PAID ON COMMON STOCK
(In thousands).......................................................... 116,696
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets.................................................................. 54,588,410
Loans, net of unearned income........................................... 36,050,719
Deposits................................................................ 38,194,268
Long-term debt.......................................................... 1,850,860
Preferred stockholders' equity.......................................... 317,011
Common stockholders' equity............................................. 2,983,361
Total stockholders' equity.............................................. 3,300,372
Preferred shares outstanding............................................ 7,293
Common shares outstanding............................................... 136,777
CONSOLIDATED AVERAGE BALANCE SHEET ITEMS
(In thousands)
Assets.................................................................. 52,124,595
Loans, net of unearned income........................................... 35,877,585
Deposits................................................................ 36,209,083
Long-term debt.......................................................... 1,587,497
Common stockholders' equity*............................................ 2,937,441
Total stockholders' equity*............................................. 3,244,473
Common shares outstanding............................................... 135,622
CONSOLIDATED PERCENTAGES
Net income applicable to common stockholders before redemption premium
to average common stockholders' equity................................ 7.78
Net income applicable to common stockholders after redemption premium to
average common stockholders' equity................................... 7.78
Net income to:
Average total stockholders' equity.................................... 8.09
Average assets........................................................ .50
Average stockholders' equity to average assets.......................... 6.22
Allowance for loan losses to:
Net loans............................................................. 1.95
Nonaccrual and restructured loans..................................... 77
Nonperforming assets.................................................. 56
Net charge-offs to average net loans.................................... .68
Nonperforming assets to loans, net and foreclosed
properties............................................................ 3.42
Capital ratios:**
Tier 1 capital........................................................ 6.53
Total capital......................................................... 10.83
Leverage.............................................................. 4.90
Net interest margin..................................................... 3.99
</TABLE>
* Average common stockholders' equity and total stockholders' equity
exclude unrealized net losses on debt and equity securities in 1994.
** The 1990-1992 capital ratios are not restated for pooling of interests
acquisitions. The Tier I capital and total capital ratios for FUNC and for ASF
are based on risk-weighted assets pursuant to the requirements of their
respective primary federal regulators, which requirements differ in certain
respects.
14
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993 1992 1991
<S> <C> <C> <C> <C>
ASF (HISTORICAL)
CONSOLIDATED SUMMARIES OF OPERATIONS
(In thousands except per share data)
Interest income......................................................... $ 195,534 179,395 210,399 304,531
Interest expense........................................................ 117,095 110,141 144,912 240,950
Net interest income..................................................... 78,439 69,254 65,487 63,581
Provision for loan losses............................................... 600 650 6,600 11,151
Net interest income (loss) after provision for loan losses.............. 77,839 68,604 58,887 52,430
Securities available for sale transactions.............................. 3,672 425 15,969 2,923
Investment security transactions........................................ -- -- 3,312 19,111
Litigation recoveries................................................... -- -- 8,881 --
Recovery from Enstar.................................................... -- -- 4,006 --
Gains on sales of branches.............................................. -- -- -- 4,255
Noninterest income...................................................... 7,661 10,834 10,630 6,492
Noninterest expense..................................................... 67,074 60,565 57,901 64,804
Income before income tax expense (benefit), discontinued operations,
extraordinary items and accounting change............................. 22,098 19,298 43,784 20,407
Income tax expense (benefit)............................................ 2,871 (11,200) 17,526 9,666
Income (loss) from continuing operations................................ 19,227 30,498 26,258 10,741
Net loss from discontinued operations................................... -- -- -- --
Extraordinary items and accounting change............................... -- (2,159) 17,400 8,966
Net income (loss)....................................................... 19,227 28,339 43,658 19,707
Dividends on preferred stock............................................ -- -- 97 120
Net income (loss) applicable to common stockholders..................... $ 19,227 28,339 43,561 19,587
PER COMMON SHARE DATA*
Fully diluted net income (loss)......................................... $ 1.60 2.38 3.71 1.75
Cash dividends.......................................................... -- -- -- --
Book value.............................................................. 18.76 18.42 15.51 11.99
CASH DIVIDENDS PAID ON COMMON STOCK
(In thousands).......................................................... -- -- -- --
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets.................................................................. 3,560,612 3,117,032 2,955,099 3,373,330
Loans receivable, net and loans held for sale........................... 2,011,882 1,690,739 1,238,965 964,402
Deposits................................................................ 2,335,627 2,228,090 2,261,667 2,467,529
Borrowings.............................................................. 955,863 617,832 476,899 741,853
Preferred stockholders' equity.......................................... -- -- -- 938
Common stockholders' equity............................................. $ 216,534 207,867 173,855 131,638
Common shares outstanding*.............................................. 11,543 11,287 11,207 11,053
CONSOLIDATED PERCENTAGES
Net income (loss) applicable to common stockholders to average common
stockholders' equity.................................................. 9.16% 15.14 29.17 15.82
Net income (loss) to:
Average stockholders' equity.......................................... 9.16 15.14 29.09 15.77
Average assets........................................................ .58 .93 1.40 .53
Allowance for loan losses to:
Loans receivable, net................................................. .97 1.28 2.93 3.07
Nonperforming assets.................................................. 76.53 71.21 59.12 21.88
Net charge-offs to average loans receivable, net........................ .15 1.37 .35 2.03
Nonperforming loans to loans receivable, net and real estate acquired in
settlement of loans, net.............................................. 1.26 1.79 4.83 11.08
Capital ratios:
Tier 1 risk-based capital**........................................... 10.11 11.47 10.91 7.48
Total risk-based capital**............................................ 11.06 12.68 12.16 8.56
Leverage.............................................................. 5.09% 5.53 4.71 3.29
<CAPTION>
1990
<S> <C>
ASF (HISTORICAL)
CONSOLIDATED SUMMARIES OF OPERATIONS
(In thousands except per share data)
Interest income......................................................... 431,115
Interest expense........................................................ 365,103
Net interest income..................................................... 66,012
Provision for loan losses............................................... 72,922
Net interest income (loss) after provision for loan losses.............. (6,910)
Securities available for sale transactions.............................. (146)
Investment security transactions........................................ 1,677
Litigation recoveries................................................... 3,247
Recovery from Enstar.................................................... --
Gains on sales of branches.............................................. 745
Noninterest income...................................................... 12,310
Noninterest expense..................................................... 81,657
Income before income tax expense (benefit), discontinued operations,
extraordinary items and accounting change............................. (70,734)
Income tax expense (benefit)............................................ --
Income (loss) from continuing operations................................ (70,734)
Net loss from discontinued operations................................... (11,094)
Extraordinary items and accounting change............................... 9,100
Net income (loss)....................................................... (72,728)
Dividends on preferred stock............................................ 445
Net income (loss) applicable to common stockholders..................... (73,173)
PER COMMON SHARE DATA*
Fully diluted net income (loss)......................................... (6.63)
Cash dividends.......................................................... --
Book value.............................................................. 10.29
CASH DIVIDENDS PAID ON COMMON STOCK
(In thousands).......................................................... --
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets.................................................................. 4,400,121
Loans receivable, net and loans held for sale........................... 1,261,531
Deposits................................................................ 3,266,132
Borrowings.............................................................. 966,301
Preferred stockholders' equity.......................................... 1,665
Common stockholders' equity............................................. 111,814
Common shares outstanding*.............................................. 11,029
CONSOLIDATED PERCENTAGES
Net income (loss) applicable to common stockholders to average common
stockholders' equity.................................................. (41.74)
Net income (loss) to:
Average stockholders' equity.......................................... (39.90)
Average assets........................................................ (1.50)
Allowance for loan losses to:
Loans receivable, net................................................. 5.45
Nonperforming assets.................................................. 23.14
Net charge-offs to average loans receivable, net........................ 1.06
Nonperforming loans to loans receivable, net and real estate acquired in
settlement of loans, net.............................................. 21.71
Capital ratios:
Tier 1 risk-based capital**........................................... 4.47
Total risk-based capital**............................................ 5.42
Leverage.............................................................. 2.04
</TABLE>
* Adjusted for a one-for-five reverse common stock split effected at the close
of business on April 27, 1993.
** The Tier I capital and total capital ratios for ASF and for FUNC are based on
risk-weighted assets pursuant to the requirements of their respective primary
federal regulators, which requirements differ in certain respects.
15
<PAGE>
<TABLE>
<CAPTION>
AS OF AND
FOR
THE YEAR
ENDED
DECEMBER
31,
1994
<S> <C>
FUNC AND ASF
PRO FORMA COMBINED SELECTED FINANCIAL DATA (1)
CONSOLIDATED SUMMARIES OF INCOME
(In thousands except per share data)
Interest income.............................................................................................. $ 5,272,106
Interest expense............................................................................................. 2,178,041
Net interest income.......................................................................................... 3,094,065
Provision for loan losses.................................................................................... 100,600
Net interest income after provision for loan losses.......................................................... 2,993,465
Securities available for sale transactions................................................................... (7,835)
Investment security transactions............................................................................. 4,006
Noninterest income........................................................................................... 1,174,131
Noninterest expense.......................................................................................... 2,752,324
Income before income taxes................................................................................... 1,411,443
Income taxes................................................................................................. 483,341
Net income................................................................................................... 928,102
Dividends on preferred stock................................................................................. 25,353
Net income applicable to common stockholders before redemption premium....................................... 902,749
Redemption premium on preferred stock........................................................................ 41,355
Net income applicable to common stockholders after redemption premium........................................ $ 861,394
PER COMMON SHARE DATA
Net income applicable to common stockholders before redemption premium....................................... $ 5.20
Net income applicable to common stockholders after redemption premium........................................ 4.96
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
Assets....................................................................................................... 80,744,407
Loans, net of unearned income................................................................................ 56,060,721
Deposits..................................................................................................... 61,293,900
Long-term debt............................................................................................... 3,896,843
Total stockholders' equity................................................................................... $ 5,446,849
CONSOLIDATED PERCENTAGES
Allowance for loan losses to:
Net loans.................................................................................................. 1.78%
Nonperforming assets....................................................................................... 167
Net charge-offs to average net loans......................................................................... .33
Nonperforming assets to loans, net and foreclosed properties................................................. 1.06%
</TABLE>
(1) Based on the assumptions indicated above and below, on a pro forma basis the
Merger will increase FUNC's goodwill by $128,983,000, which will be
amortized on a straight-line basis over 25 years, and FUNC's deposit base
premium by $33,992,000, which will be amortized on an accelerated basis over
a ten-year period. The following assumptions were used to arrive at the pro
forma results of operations: cost of funds for the purchase of the
Repurchased Shares of 4.08 percent; applying a straight-line amortization
method over six years for the excess cost of carrying value over market
value of securities; applying straight-line depreciation over ten years for
premises and equipment; and merger-related accruals of $19 million for
branch closings, employee and occupancy-related costs, and other
merger-related expenses.
16
<PAGE>
PROPOSAL 2:
ADJOURNMENT OF MEETING
If the Merger Agreement has not been terminated at the time of the Meeting,
ASF stockholders will be asked at the Meeting to consider and vote on a proposal
to adjourn the Meeting in the event that there are not sufficient votes at the
Meeting to approve the Merger Proposal, for the purpose of soliciting additional
votes in favor of the Merger Proposal, the Auditors Proposal and in favor of the
election of each of the nine nominees for director in Proposal 3. If it is
necessary to adjourn the Meeting and the adjournment is for a period of less
than 30 days, no notice of the time and place of the adjourned meeting will be
given to ASF stockholders, other than an announcement made at the Meeting. If
the Meeting is adjourned, Proposals 1, 3 and 4 will be determined at the
reconvened Meeting. See "ADJOURNMENT OF MEETING".
PROPOSAL 3:
ELECTION OF DIRECTORS
At the Meeting, ASF stockholders will be asked to consider and vote on a
proposal to elect each of the nine nominees for director to serve on the ASF
Board until the 1996 Annual Meeting of Stockholders of ASF, and until their
successors are duly elected and qualified. At the Effective Date, the directors
listed in Proposal 3 will not become directors of FUNC or the Subsidiary. All of
the nine director nominees currently serve as directors on the ASF Board. See
"ELECTION OF DIRECTORS". Included in Proposal 3 is information about the
nominees for director, security ownership of beneficial owners of more than five
percent of ASF Common Stock and ASF's management, potential changes in control,
compensation committee interlocks, the committees of the ASF Board and their
composition, the compensation paid to ASF's directors and certain executive
officers of ASF, stock options, the report of the compensation and the stock
option committees of the ASF Board and other matters relating to the executive
officers, directors and certain holders of ASF Common Stock.
PROPOSAL 4:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
At the Meeting, ASF stockholders will be asked to consider and vote on a
proposal to ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the fiscal year ending December 31, 1995. KPMG Peat Marwick LLP was
appointed by the ASF Board to audit the books and records of ASF for the year
ending December 31, 1995. The term of KPMG Peat Marwick LLP as independent
auditors of ASF will terminate if the Merger is consummated, as of the Effective
Date. See "RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS".
EFFECT OF TERMINATION OF MERGER AGREEMENT
If the Merger Agreement has been terminated at or prior to the time of the
Meeting, ASF stockholders will nevertheless proceed with the Meeting and
consider the Election Proposal and the Auditors Proposal. See "THE
MERGER -- Conditions to Consummation; Termination".
17
<PAGE>
GENERAL INFORMATION
GENERAL
This Proxy Statement/Prospectus is being furnished by ASF to its
stockholders as a proxy statement in connection with the solicitation of proxies
by the ASF Board for use at the Meeting to be held on Tuesday, May 23, 1995, and
any adjournment or adjournments thereof, to consider and vote upon (i) a
proposal to approve the Merger and the Merger Agreement ("Proposal 1" or the
"Merger Proposal"); (ii) a proposal to adjourn the Meeting (if the Merger
Agreement has not been terminated at the time of the Meeting) to another time
and/or place in the event that there are not sufficient votes at the time of the
Meeting to approve the Merger and the Merger Agreement for the purpose of
soliciting additional votes in favor of the Merger and the Merger Agreement, the
election of each of the nine nominees for director and the ratification of ASF's
independent auditors ("Proposal 2" or the "Adjournment Proposal"); (iii) a
proposal to elect each of the nine nominees for director to the ASF Board to
serve until the 1996 Annual Meeting of Stockholders of ASF and until their
successors are duly elected and qualified ("Proposal 3" or the "Election
Proposal"); (iv) a proposal to ratify the appointment of ASF's independent
auditors for the fiscal year ending December 31, 1995 ("Proposal 4" or the
"Auditors Proposal"); and (v) such other business as may come before the Meeting
or any adjournment or adjournments thereof. In the event the Merger is
consummated, the directors nominated in the Election Proposal will not serve as
directors for FUNC or the Subsidiary. The term of KPMG Peat Marwick LLP as
independent auditors of ASF will terminate if the Merger is consummated, as of
the Effective Date.
This document is also furnished by FUNC to the holders of ASF Common Stock
as a prospectus in connection with the issuance of the FUNC Shares upon
consummation of the Merger.
After having been submitted, the enclosed proxy may be revoked by the
person giving it, at any time before it is exercised, by (i) submitting written
notice of revocation of such proxy to the Secretary of ASF, (ii) completing,
signing and delivering to the Secretary of ASF a proxy having a later date, or
(iii) such person attending the Meeting and voting in person on the same
proposal(s) as referenced in the proxy to be revoked. Attendance at the Meeting
without further action will not automatically revoke a proxy. If the enclosed
form of proxy is properly executed and returned to ASF in time to be voted at
the Meeting, the shares represented by that proxy will be voted in accordance
with the instructions marked on the proxy. EXECUTED BUT UNMARKED PROXIES WILL BE
VOTED AS FOLLOWS: FOR THE MERGER PROPOSAL, FOR THE ADJOURNMENT PROPOSAL, FOR THE
ELECTION OF EACH OF THE NINE NOMINEES NAMED ON THE FORM OF PROXY AS DIRECTORS OF
ASF AND FOR THE AUDITORS PROPOSAL. PURSUANT TO ASF'S BYLAWS, IF ANY OTHER
MATTERS ARE PROPERLY BROUGHT BEFORE THE MEETING, THE PERSONS NAMED IN THE FORM
OF PROXY WILL VOTE THE SHARES REPRESENTED BY SUCH PROXY AS DETERMINED BY A
MAJORITY OF THE ASF BOARD. IF NO DETERMINATION IS MADE, THE PERSONS NAMED WILL
VOTE THE SHARES IN THEIR OWN JUDGMENT.
Directors, officers and employees of ASF may solicit proxies from ASF
stockholders, either personally or by telephone, telegraph or other form of
communication. Such persons will receive no additional compensation for such
services. ASF has retained Georgeson & Company Inc. to assist in soliciting
proxies and to send proxy materials to brokerage houses and other custodians,
nominees and fiduciaries for transmittal to their principals, at a cost of
$ , plus out-of-pocket expenses. All expenses associated with the
solicitation of proxies in the form enclosed will be borne by the party
incurring the same. ASF will reimburse persons holding stock as nominees for
reasonable expenses in sending proxy materials to their principals. The ASF
Board has appointed a representative of First National Bank of Boston to serve
as the Inspector of Elections. The Inspector of Elections will tabulate the
votes of stockholders entitled to vote at the Meeting, whether cast in person or
by proxy, in order to determine stockholder approval or disapproval of Proposals
1, 2 and 4 and approval of each nominee under Proposal 3.
THE ASF BOARD HAS APPROVED ALL OF THE PROPOSALS TO BE PRESENTED AT THE
MEETING. THE ASF BOARD HAS APPROVED THE MERGER AGREEMENT, BELIEVES THE MERGER IS
IN THE BEST INTERESTS OF ASF AND ITS STOCKHOLDERS AND IS FAIR TO THE
STOCKHOLDERS, AND RECOMMENDS APPROVAL OF THE MERGER AND THE MERGER AGREEMENT BY
ASF STOCKHOLDERS. SEE "THE MERGER -- BACKGROUND AND REASONS; ASF". THE ASF BOARD
ALSO RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADJOURNMENT PROPOSAL, FOR THE
ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR UNDER THE ELECTION PROPOSAL AND
FOR THE AUDITORS PROPOSAL.
RECORD DATE; VOTES REQUIRED
The ASF Board has fixed the close of business on March 24, 1995, as the
Record Date for stockholders entitled to notice of and to vote at the Meeting,
and accordingly, only holders of ASF Common Stock of record at the close of
business on that day will be entitled to notice of and to vote at the Meeting.
The number of shares of ASF Common Stock outstanding on the
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Record Date was , each of such shares being entitled to one vote, either
in person or by proxy, on each matter to come before the Meeting.
The presence, in person or by proxy, of a majority of the shares of ASF
Common Stock outstanding on the Record Date is necessary to constitute a quorum
of the stockholders in order to take action at the Meeting. For these purposes,
shares of ASF Common Stock which are present, or represented by proxy, at the
Meeting will be counted for quorum purposes regardless of whether the holder of
the shares or proxy votes at the meeting or whether a broker with discretionary
authority exercises discretionary voting authority with respect to the proposals
to be voted on at the Meeting. Once a quorum is established, approval of the
Merger and the Merger Agreement requires the affirmative votes of the holders of
at least (i) two-thirds of the issued and outstanding shares of ASF Common Stock
(the "General Approval") and (ii) a majority of the Non-interested Shares
represented and voted at the Meeting (the "Special Approval"). For purposes of
the General Approval vote, abstentions and broker non-votes will have the same
effect as votes against the Merger and the Merger Agreement. For purposes of the
Special Approval, abstentions and broker non-votes will not be counted. In
connection with the execution of the Merger Agreement, Enstar, the holder on the
Record Date of approximately percent of the outstanding shares of ASF
Common Stock, agreed to vote its shares of ASF Common Stock in favor of approval
of the Merger and the Merger Agreement. See "THE MERGER -- Voting Agreement;
Escrow Agreement" and ANNEX B.
Approval of Proposals 2 and 4, election of directors under Proposal 3 and
approval of all other matters which may properly come before the Meeting require
the affirmative vote of a majority of the votes cast, in person or by proxy, by
persons entitled to vote at the Meeting. Enstar has not informed ASF of how it
intends to vote its shares (approximately percent of the outstanding shares
of ASF Common Stock as of the Record Date) in connection with Proposals 2, 3 and
4. For a discussion of Enstar's right to vote its shares of ASF Common Stock at
the Meeting, see "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT -- Potential Change in Control". A vote to withhold authority for the
election of any director will be counted as a vote cast against that director
for purposes of the Election Proposal. Abstentions and broker non-votes will not
be counted for purposes of determining approval of the Adjournment Proposal, the
Election Proposal and the Auditors Proposal. Votes cast will be tabulated by the
transfer agent for ASF Common Stock, a representative of which will be the
Inspector of Elections present at the Meeting.
The directors and executive officers of ASF (including certain of their
related interests, among them Enstar) beneficially owned, as of the Record Date,
and are entitled to vote at the Meeting shares of outstanding ASF Common
Stock, which represent approximately percent of the outstanding shares of ASF
Common Stock entitled to be voted at the Meeting. However, only Non-interested
Shares represented and voted at the Meeting will be counted for purposes of the
Special Approval. The Merger Agreement provides that ASF shall use its
reasonable efforts to cause its directors and certain officers, Enstar and the
directors and officers of Enstar to enter into an agreement prohibiting such
persons from acquiring additional shares of ASF Common Stock on or before the
Record Date. Enstar and substantially all of such officers and directors entered
into such an agreement.
If the Merger Agreement has been terminated at the time of the Meeting, ASF
stockholders will nevertheless proceed with the Meeting and consider the
Election Proposal and the Auditors Proposal.
IF YOU ARE PLANNING TO ATTEND THE MEETING PERSONALLY AND HAVE A DISABILITY
COVERED UNDER THE AMERICANS WITH DISABILITIES ACT, PLEASE NOTIFY THE SECRETARY
OF ASF BEFORE MAY 16, 1995 OF YOUR SPECIAL NEEDS WHEN ATTENDING THE MEETING.
A FAILURE TO VOTE ON THE MERGER PROPOSAL, EITHER BY NOT RETURNING THE
ENCLOSED PROXY OR BY CHECKING THE "ABSTAIN" BOX ON THE MERGER PROPOSAL, WILL
HAVE THE SAME EFFECT AS A VOTE "AGAINST" APPROVAL OF THE MERGER AND THE MERGER
AGREEMENT FOR PURPOSES OF THE GENERAL APPROVAL AND WILL NOT COUNT FOR PURPOSES
OF THE SPECIAL APPROVAL.
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PROPOSAL 1
THE MERGER
THE FOLLOWING INFORMATION RELATING TO THE MERGER IS NOT INTENDED TO BE A
COMPLETE DESCRIPTION OF ALL MATERIAL INFORMATION RELATING TO THE MERGER AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MORE DETAILED INFORMATION CONTAINED
ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING THE ANNEXES HERETO, AND
THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. COPIES OF THE MERGER AGREEMENT
(INCLUDING THE STOCK OPTION AGREEMENT) AND THE VOTING AGREEMENT (INCLUDING THE
ESCROW AGREEMENT) ARE SET FORTH IN ANNEX A AND ANNEX B, RESPECTIVELY, TO THIS
PROSPECTUS/PROXY STATEMENT, AND INCORPORATED HEREIN BY REFERENCE, AND REFERENCE
IS MADE THERETO FOR A COMPLETE DESCRIPTION OF THE TERMS OF THE MERGER.
STOCKHOLDERS OF ASF ARE URGED TO READ THE MERGER AGREEMENT CAREFULLY.
GENERAL
Under the terms of the Merger Agreement, ASF will merge with and into the
Subsidiary. Upon consummation of the Merger, each outstanding share of ASF
Common Stock will be converted, automatically and without any action on the part
of the holder thereof, into the right to receive a number of shares of FUNC
Common Stock equal to the Exchange Ratio (I.E., the quotient of (i) $21.00 and
(ii) the FUNC Average Closing Price). Each holder of ASF Common Stock who would
otherwise be entitled to a fractional share of FUNC Common Stock will receive
cash in lieu thereof in an amount determined by multiplying (x) the FUNC Average
Closing Price by (y) the fraction of a share of FUNC Common Stock to which such
holder would otherwise be entitled. If, prior to the Effective Date, FUNC Common
Stock undergoes a reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment, or in the event that a stock dividend on
FUNC Common Stock is declared with a record date in that same period, the
consideration to be received by ASF stockholders pursuant to the Merger will be
correspondingly adjusted.
EFFECTIVE DATE
Subject to the terms and conditions of the Merger Agreement, the Effective
Date will occur on the first business day of the month following the month in
which the last of the conditions to the obligations of the parties to consummate
the Merger (other than the delivery of certificates, opinions, comfort letters
and the like) is satisfied or waived, or such other date as shall be mutually
agreed upon by FUNC and ASF. Subject to the foregoing, and although there can be
no assurances, it is currently anticipated that the Merger will be consummated
in the second or third quarter of 1995. If the Merger is consummated in either
of such quarters, or in any other quarter, ASF stockholders should not assume or
expect that the Effective Date will precede the record date for the dividend on
FUNC Common Stock for that quarter, so as to enable such stockholders to receive
such dividend. The Board of Directors of either FUNC or ASF may terminate the
Merger Agreement if the Effective Date does not occur on or before August 25,
1995, provided that the terminating party is not in breach of any of the
covenants or agreements of the Merger Agreement. See " -- Exchange of ASF
Certificates" and " -- Conditions to Consummation; Termination".
MANAGEMENT AFTER THE MERGER
The directors and officers of the Subsidiary in office prior to the
Effective Date will be the directors and officers of the surviving entity. At
the Effective Date, the directors listed in Proposal 3 will not become directors
of FUNC or the Subsidiary.
EXCHANGE OF ASF STOCK CERTIFICATES
As promptly as practicable after the Effective Date, FUNC will direct First
Union National Bank of North Carolina (the "Exchange Agent") to send to each
holder of record of ASF Common Stock on the Effective Date, transmittal
materials for use in exchanging all of such holder's certificates representing
ASF Common Stock for a certificate or certificates representing the FUNC Shares
to which such holder is entitled and a check for such holder's fractional share
interest, as appropriate. The transmittal materials will contain information and
instructions with respect to the surrender and exchange of such certificates.
ASF STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE
THE LETTER OF TRANSMITTAL AND INSTRUCTIONS.
Upon surrender of all of the certificates for ASF Common Stock registered
in the name of a holder of such certificates (or indemnity satisfactory to FUNC
and the Exchange Agent if any of such certificates are lost, stolen or
destroyed), in
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accordance with a letter of transmittal, the Exchange Agent will mail to such
holder a certificate or certificates representing the number of FUNC Shares to
which such holder is entitled, together with all undelivered dividends or
distributions in respect of such shares and, where applicable, a check for any
fractional share interest (in each case, without interest).
All FUNC Shares issued to the holders of ASF Common Stock pursuant to the
Merger will be deemed issued as of the Effective Date. After the Effective Date,
former holders of record of ASF Common Stock will be entitled to vote at any
meeting of holders of FUNC Common Stock the number of FUNC Shares into which
their shares of ASF Common Stock have been converted, regardless of whether they
have surrendered their ASF Common Stock certificates. FUNC dividends having a
record date on or after the Effective Date will include dividends on all FUNC
Shares issued in the Merger, but no dividend or other distribution payable to
the holders of record of FUNC Shares on or after the Effective Date will be
distributed to the holder of any ASF Common Stock certificates until such holder
physically surrenders all such certificates as hereinabove described. Promptly
after such surrender, all undelivered dividends and other distributions and,
where applicable, a check for any fractional share interest, will be delivered
to such holder (in each case, without interest). FUNC dividends having a record
date before the Effective Date (which record date may, in FUNC's sole
discretion, be the day immediately preceding the Effective Date or any other day
prior to the Effective Date) will not include dividends on the FUNC Shares
issued in the Merger. As of the Effective Date, the stock transfer books of ASF
will be closed, and there will be no transfers on the transfer books of ASF of
the shares of ASF Common Stock that were outstanding immediately prior to the
Effective Date.
Notwithstanding the foregoing, the Merger Agreement provides that the
shares of ASF Common Stock held by those stockholders deemed to be "affiliates"
of ASF (as defined under the Securities Act, but generally including directors,
certain executive officers and ten percent or more stockholders) shall not be
exchanged for FUNC Shares until FUNC receives a written agreement from such
stockholders as contemplated by the Merger Agreement to the effect that they
will not sell the FUNC Shares except in accordance with Rule 145 of the
Securities Act.
BACKGROUND AND REASONS
ASF
BACKGROUND OF THE MERGER. On April 29, 1988, ASF became an indirect
wholly-owned subsidiary of Enstar. From April 29, 1988 until March 6, 1990, all
of the outstanding ASF Common Stock was owned directly or indirectly by Enstar.
On March 6, 1990, Enstar transferred 50 percent of the then outstanding shares
of ASF Common Stock to a trust for the benefit of Enstar stockholders. The trust
distributed the shares it held on July 2, 1990 to Enstar's stockholders. As of
the date hereof, Enstar holds approximately percent of the outstanding shares
of ASF Common Stock.
On May 31, 1991, Enstar filed for protection under Chapter 11 of the United
States Bankruptcy Code. Its plan of reorganization (the "Bankruptcy Plan") was
initially confirmed by the bankruptcy court on February 24, 1992, and became
effective on June 1, 1992. The Bankruptcy Plan was the result of negotiations
among Enstar, ASF (which was a creditor of Enstar) and Enstar's other major
creditors. The Bankruptcy Plan provided generally that ASF release its security
interest in all property, including the ASF Common Stock held by Enstar,
securing ASF's claim against Enstar in the bankruptcy proceedings, and provided
ASF with an allowed unsecured claim of $36,000,000 (which claim at the date of
this Proxy Statement/Prospectus is approximately $32,000,000) against Enstar's
estate. But see "BOARD OF DIRECTORS AND COMMITTEES -- Compensation Committee
Interlocks and Insider Participation; OTHER TRANSACTIONS WITH ENSTAR
AFFILIATES". Under the Bankruptcy Plan, among other things: (i) ASF was entitled
to receive 66.66 percent of all distributions from the estate until ASF's claim
was paid in full, but was not entitled to any proceeds from the sale or
distribution of Enstar's ASF Common Stock; (ii) Enstar was given until June 1,
1995 to sell its ASF Common Stock, unless otherwise agreed by certain classes of
creditors; and (iii) certain creditors, other than ASF, were permitted under
certain circumstances to require Enstar to sell their respective pro rata
portions of the ASF Common Stock earlier than that date. After public disclosure
of the terms of the Bankruptcy Plan, ASF received, directly or indirectly
(through Enstar), inquiries from third parties relating to their possible
interest in acquiring ASF. For a further discussion of Enstar's bankruptcy and
the Bankruptcy Plan, see "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT -- Potential Change in Control" and "BOARD OF DIRECTORS AND
COMMITTEES -- Compensation Committee Interlocks and Insider Participation;
ENSTAR CHAPTER 11 PROCEEDINGS".
On August 25, 1993, Enstar's modified plan of reorganization was confirmed
by the bankruptcy court. Generally, the modifications to the Bankruptcy Plan
provided, among other things, that ASF continued to be entitled to receive 66.66
percent of all distributions from the Enstar estate until ASF's allowed claim is
paid in full, and became eligible to participate in the distribution of proceeds
from the sale of Enstar's ASF Common Stock after certain other classes of
creditors are paid in full. At such time ASF is entitled to receive all
distributions of remaining property, if any, from the estate, including proceeds
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from the sale of ASF Common Stock, until its allowed claim is paid in full.
Under the modified Bankruptcy Plan, Enstar is obligated to sell or distribute
its ASF Common Stock before June 1, 1995, unless otherwise agreed by certain
classes of creditors whose claims have not been satisfied.
The Enstar claim is not reflected as an asset on ASF's consolidated balance
sheet because in 1991 ASF charged off all amounts receivable from Enstar,
including accrued interest (the "Enstar Receivable") due to a determination that
such amounts were uncollectible. The Enstar Receivable, if fully collected,
would result in a recovery to ASF of approximately $22 million, net after taxes
(assuming a 38 percent tax rate), or approximately $1.84 per share of ASF Common
Stock, as of March 31, 1995.
Throughout 1992, the ASF Board considered from time to time the effect
which Enstar's obligations under the Bankruptcy Plan could have on ASF and its
public stockholders, as well as the impact of regulatory capital requirements on
ASF and the occasional informal inquiries received by ASF concerning potential
acquisition. In view of these factors, the ASF Board determined in December 1992
to entertain presentations from a number of investment banking firms with a view
towards retaining such a firm to render advice to the ASF Board concerning the
strategic alternatives available for enhancing stockholder value (including a
possible sale of ASF), and the feasibility of pursuing the various alternatives
given the constraints which ASF was then facing, including the possibility that
Enstar would seek to cause a sale of ASF in order to facilitate the sale of
Enstar's ASF Common Stock then mandated by the Bankruptcy Plan.
In June 1993, the ASF Board determined to engage Dillon Read & Co. Inc.
("Dillon Read") as ASF's financial advisor to advise the Board regarding the
alternative actions and determinations to be made by the ASF Board in view of
possible action by Enstar and the uncertainty of Enstar's plans with respect to
its ASF Common Stock.
During the periods preceding and following the retention of Dillon Read,
representatives of ASF (and upon its formation, the Independent Committee, as
defined below) met from time to time with representatives of Enstar to explore
potential alternatives intended to satisfy Enstar's obligations under the
Bankruptcy Plan while at the same time furthering the interests of ASF's public
stockholders. See " -- Reasons for the Merger and Recommendation of the ASF
Board".
From time to time after Enstar filed the Bankruptcy Plan, the ASF Board
considered the potential conflict of interest between Enstar and ASF's other
stockholders. See " -- Interests of Certain Persons". In particular, members of
the ASF Board were concerned that Enstar's obligation to dispose of its ASF
Common Stock before June 1, 1995 could lead Enstar to seek (i) to sell its
shares of ASF Common Stock in a transaction not involving a sale of ASF as a
whole (see " -- Reasons for the Merger and Recommendation of the ASF Board") or
(ii) to cause a sale of ASF at a time when such a sale would not be in the best
interests of ASF's other stockholders. The ASF Board also recognized that
potential acquirors might perceive that the pressure for a sale prior to the
June 1, 1995 deadline could result in ASF receiving lower offers for ASF than
might otherwise be available if no such deadline existed.
The ASF Board believed that given the potential conflicts of interest, it
was appropriate to form the Special Advisory Committee of the ASF Board (the
"Independent Committee") to make recommendations to the full ASF Board with
respect to strategic alternatives for enhancing stockholder value, including a
potential sale or other transaction involving a change of control of ASF. The
ASF Board also authorized the Independent Committee to be involved in any
initial discussions and negotiations concerning any such transaction and, if
necessary, to retain separate professional advisors. The Independent Committee
was ultimately composed of three non-employee directors of ASF (with ASF's
president, Mr. Stephen D. Taylor, serving as an ex-officio non-voting member)
who were believed to be independent of all relationships with Enstar, Mr. Nimrod
T. Frazer (the Chairman of the Board of Enstar and a director of ASF) and any
other party which might seek to acquire control of ASF. In August 1993, Erwin
Allen, William H. Dukelow and Dr. Barbara W. Gothard were elected to the
Independent Committee. The Independent Committee then selected legal counsel and
in April 1994 retained Bear, Stearns & Co. Inc. ("Bear Stearns") as the
committee's financial advisor. Upon its engagement as financial advisor to the
Independent Committee, Bear Stearns conducted a review of ASF's five-year
business plan (1993-1997) (the "Business Plan"), its underlying assumptions and
ASF's managerial and other resources, for the purpose of establishing an
estimated net present value of shares of ASF Common Stock based upon various
multiples of projected earnings and at various discount rates.
In April 1994, Mr. Frazer delivered a letter to the ASF Board, on behalf of
Enstar, stating his intent to propose at the next ASF Board meeting that the ASF
Board retain an investment banking firm to begin immediately the process for the
orderly marketing and sale of ASF. At a regular meeting held on April 26, 1994,
the ASF Board reviewed this letter and its potential impact on ASF and its
public stockholders and discussed the various strategic alternatives available
to ASF and the need to have procedures in place designed to protect ASF's public
stockholders. The ASF Board instructed the Independent Committee to make a
recommendation to the full ASF Board concerning the selection of a financial
advisor for ASF and the
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ASF Board, which financial advisor would be instructed to provide advice to ASF
concerning and to explore available strategic alternatives, including a
potential sale. In addition, at the meeting, Mr. Frazer and Mr. T. Wayne Davis,
an outside director of ASF and a director of Enstar, agreed to refrain from
participating in substantive deliberations relating to, and voting on, any
matters potentially involving a change in control of ASF. It was agreed that Mr.
Taylor, the single member of ASF management on the ASF Board, also would refrain
from such participation. See " -- Interests of Certain Persons".
In May 1994, Bear Stearns provided the Independent Committee with an
assessment of the potential market value of ASF by performing a discounted cash
flow analysis which used projections of ASF's future earnings derived from ASF's
Business Plan and applied assumed multiples of earnings which ranged from 9.0
times to 11.0 times and discount rates ranging from 12.5 percent to 17.5
percent. This analysis resulted in estimates of the net present value of a share
of ASF Common Stock which ranged from $19.49 to $28.71, with a median of $23.70
per share, assuming repayment in full to ASF of the Enstar Receivable, and which
ranged from $17.77 to $26.99, with a median of $21.98 per share, assuming no
portion of the Enstar Receivable was repaid.
In May 1994, upon the recommendation of the Independent Committee, the ASF
Board selected Goldman Sachs as its financial advisor. In June 1994, Dillon Read
was retained by Enstar to serve as its financial advisor after termination of
Dillon Read's agreement with, and without objection from, ASF. In accordance
with the recommendation of the Independent Committee, the ASF Board authorized
Goldman Sachs, in connection with its review of strategic alternatives, to
contact potential acquirors, provide such acquirors with confidential
information and solicit indications of interest with a view towards ascertaining
the values which potentially could be realized if a sale of ASF were to be
pursued. Goldman Sachs was instructed to report directly to the Independent
Committee concerning the work performed pursuant to its engagement.
During June and July 1994, Goldman Sachs contacted more than two dozen
potential acquirors, a majority of which executed customary confidentiality
agreements and were provided with confidential information concerning ASF.
Thereafter, a number of potential acquirors submitted written or oral
preliminary indications of interest on or prior to the July 22, 1994 deadline
established by Goldman Sachs. On July 25, 1994, the Independent Committee
received a presentation from Goldman Sachs outlining the material terms of the
preliminary indications of interest. After considering this presentation and the
advice of Goldman Sachs, the Independent Committee determined to permit three
potential acquirors (including FUNC) to conduct a due diligence review of the
business and affairs of ASF. These three potential acquirors were believed by
the Independent Committee to have submitted the preliminary indications of
interest which would provide the highest potential value to ASF stockholders. In
addition, the Independent Committee instructed Goldman Sachs to further research
the potential value of a preliminary indication of interest submitted by a
fourth potential acquiror and to continue to engage in discussions with all of
the potential acquirors who had not been selected to conduct due diligence, in
each case in order to attempt to solicit more advantageous indications of
interest. Representatives of Enstar reported to the ASF Board that they had
separate conversations from time to time throughout the summer and fall of 1994
with potential acquirors, including those that had been selected to conduct due
diligence.
Throughout August and early September, the three selected potential
acquirors performed due diligence and engaged in discussions with Goldman Sachs
and representatives of ASF. Such potential acquirors were also furnished with a
draft merger agreement and instructed to submit a definitive indication of
interest, together with a detailed mark-up of the draft merger agreement, by
September 23, 1994. On that date, one of the potential acquirors that had
conducted due diligence declined to submit a definitive indication of interest,
a second offered only to purchase certain specified assets of ASF, and the
third, FUNC, submitted a definitive indication of interest for all of ASF and
was the sole potential acquiror to submit a mark-up of the proposed merger
agreement. The fourth potential acquiror which had submitted a preliminary
indication of interest, but had not been invited to conduct due diligence, also
submitted a second indication of interest.
The indication of interest submitted by FUNC on September 23, 1994, as
modified by subsequent negotiations between the parties (the "Original FUNC
Proposal") contemplated an acquisition of all of the shares of ASF at a price
per share of $21.80, subject to downward adjustment to reflect the after-tax
loss expected to be incurred by ASF as a result of the sale of its private label
mortgage-backed securities portfolio (the "MBS Portfolio"). The sale of the MBS
Portfolio, which had a principal value of approximately $500 million at that
time, was required by FUNC as a condition to its obligation to consummate an
acquisition of ASF. At the time the Original FUNC Proposal was received on
September 23, 1994, ASF anticipated that the downward adjustment which would
result from the portfolio sale would be approximately $.50 to $.75 per share of
ASF Common Stock. The consideration to be paid to ASF stockholders was to
consist of a combination of cash and FUNC Common Stock, with a maximum of 80
percent of the aggregate consideration to consist of FUNC Common Stock. To the
extent that stock would be received by an ASF stockholder, the transaction was
intended to constitute a tax-free exchange for federal income tax purposes.
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On September 26, 1994, the Independent Committee received presentations
from ASF management concerning ASF's business, results of operations and future
prospects, including its progress to date under ASF's Business Plan, and a
presentation from Goldman Sachs outlining the terms of the indications of
interest and the potential sales process generally. Goldman Sachs advised the
Independent Committee that, of the indications of interest received, FUNC's
definitive indication of interest was superior from a financial point of view.
Representatives of Enstar also addressed the Independent Committee and confirmed
Enstar's position that a sale transaction be pursued. Following deliberations,
the Independent Committee determined to recommend to the ASF Board that Goldman
Sachs be instructed to negotiate with FUNC with a view towards improving its
offer to a price which was higher in Bear Stearns' range of net present values,
to continue discussions with other potential acquirors and to continue to
explore alternatives to a sale.
On September 27, 1994, the ASF Board met to consider the recommendations of
the Independent Committee. At that meeting, Goldman Sachs repeated its
presentation concerning the various indications of interest. The ASF Board also
discussed alternatives available to ASF if a sale transaction were not pursued.
After analyzing and discussing the Goldman Sachs presentation and the other
matters previously considered by the Independent Committee, the ASF Board
determined to authorize Goldman Sachs to proceed in accordance with the
recommendations of the Independent Committee.
In the days that followed, no indication of interest which was superior
from a financial or other point of view to the Original FUNC Proposal was
received. At meetings held on October 4 and 5, 1994, the Independent Committee
met to consider whether to continue to pursue the Original FUNC Proposal. In its
deliberations, the Independent Committee consulted with its legal and financial
advisors and received presentations from Goldman Sachs, Bear Stearns and ASF
management, including presentations from ASF management concerning its estimate
of the values which could be achieved if ASF remained independent and pursued
its Business Plan, as revised in the weeks preceding the October 4 meeting (the
"Revised Business Plan"). Management's estimates of value were based upon the
same multiples of projected earnings and discount rates used by Bear Stearns in
its presentation to the Independent Committee on May 17, 1994, but utilized the
projected 1997 earnings contained in the Revised Business Plan. The analysis
assumed that no recovery of the Enstar Receivable would be realized, and
resulted in an estimated range of net present values for ASF Common Stock of
$17.82 to $24.81 per share, with a median of $21.12. Management also estimated
net present values based upon an adjustment to the Revised Business Plan which
included potential expansion through ASF's hypothetical acquisition of two
in-market financial institutions, and resulted in a range of net present values
per share of ASF Common Stock of $21.31 to $29.68 per share, with a median of
$25.26. The Independent Committee was aware that the values might have been
increased assuming the realization of (i) the Enstar Receivable and (ii)
potential litigation recoveries. At that time, the Enstar Receivable had an
estimated recovery value, net of taxes, ranging from $0.00 (zero) per share, if
nothing were collectible, to $1.81 per share, if fully collectible, and the
estimated value, net of taxes, of potential litigation recoveries was
approximately $.30 to $.50 per share. The Independent Committee recognized the
uncertainty as to whether ASF would achieve the increases in earnings projected
in the Revised Business Plan, particularly in light of rising short-term
interest rates and the deterioration of the operating environment for thrift
institutions in general, and contrasted this uncertainty with the relative
certainty of the value which might be obtained with the Original FUNC Proposal.
Enstar and its legal and financial advisors also addressed the Independent
Committee at these meetings to reiterate Enstar's support for the Original FUNC
Proposal, emphasizing the extensiveness of the process from which it resulted
and the proposal's perceived fairness to ASF stockholders. Following
deliberations, the Independent Committee determined to recommend that a
transaction with FUNC be pursued, subject to the negotiation of an acceptable
definitive merger agreement.
On October 5, 1994, the ASF Board met, reviewed the terms of the Original
FUNC Proposal, received presentations from its legal and financial advisors and
a synopsis of the revised business plan and considered the Independent
Committee's recommendations. Thereafter, the ASF Board ratified such
recommendations and instructed Goldman Sachs and the Independent Committee to
proceed in accordance therewith.
Over the next several weeks, ASF's legal and financial advisors, in
consultation with the Independent Committee, engaged in continuous negotiations
with FUNC and its representatives concerning the terms of a merger agreement and
a stock option agreement. Concurrently, Enstar and FUNC negotiated the terms of
a stockholder voting agreement. See " -- Voting Agreement; Escrow Agreement".
During the period in which negotiations continued, the Independent
Committee identified a number of potential risks associated with the terms of
the Original FUNC Proposal. Rising interest rates and related market conditions
caused the estimated loss on the sale on the MBS Portfolio to increase to an
amount in excess of $1.00 per share by the end of October 1994, resulting in a
comparable decrease in the value expected to be received by ASF stockholders
under the Original FUNC Proposal. Accordingly, the Independent Committee
determined it would be important to consummate the sale of the MBS
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Portfolio as soon as possible after entering into a merger agreement with FUNC
in order to avoid any further reduction in the value of the Original FUNC
Proposal. An immediate sale of the MBS Portfolio would have reduced ASF's
capital position and could have undermined its earning power. Moreover, the
Independent Committee was advised that, at that time, holding the MBS Portfolio
after the execution of a merger agreement contemplating a sale of the MBS
Portfolio also would have had an immediate negative effect on ASF's capital. The
Independent Committee became aware of regulatory concerns about this negative
effect on capital, particularly if the Merger failed to be consummated. In
addition, under the Original FUNC Proposal, the closing of the transaction was
conditioned upon, among other things, repayment of substantially all of the
Enstar Receivable, which raised concerns about the relative likelihood that the
transaction would be consummated. The Independent Committee also believed that
the likelihood that the transaction would qualify as a tax-free reorganization
for federal tax purposes (which was also a condition to closing) would be
enhanced if the consideration in the transaction which was to consist of FUNC
Common Stock were increased. Finally, the Independent Committee had reservations
regarding certain employment arrangements which led to concerns that a number of
employees might terminate their employment with ASF pending consummation of the
Merger, which could have an adverse effect on ASF if the Merger failed to close.
On October 27, 1994, ASF issued a press release stating that it was
considering a possible sale transaction.
Over the four-day period between October 27 and October 31, the Independent
Committee met to consider and analyze the proposed transaction. The Independent
Committee, through ASF's advisors, also continued to attempt without success to
improve the terms of the Original FUNC Proposal.
During its deliberations, the Independent Committee reexamined with its
legal and financial advisors the unresolved issues involved in the Original FUNC
Proposal and the Independent Committee's concerns. It also reconsidered the
Revised Business Plan and renewed its consideration of alternatives to a sale of
ASF. In addition, the Independent Committee received presentations from Enstar
and its legal and financial advisors, urging approval of the Original FUNC
Proposal. Finally, the Independent Committee was informed that Goldman Sachs was
prepared to issue a fairness opinion with respect to the consideration to be
received in the transaction. Members of the Bear Stearns advisory team informed
the Independent Committee of their view that the proposed price was toward the
lower end of, but within, the range of fairness, but that Bear Stearns'
valuation committee, whose approval is required before an opinion may be issued,
had not met to determine its conclusion. However, in light of all of the terms
and conditions of the Original FUNC Proposal, the Bear Stearns advisory team
indicated to the Independent Committee that they were prepared to recommend to
Bear Stearns' valuation committee that Bear Stearns issue its opinion that the
proposed transaction was inadequate. After the Independent Committee determined
that it was unable to recommend acceptance of the proposed transaction, Bear
Stearns issued such an inadequacy opinion. See " -- Opinions of Financial
Advisors; BEAR STEARNS".
On November 1, 1994, ASF issued a press release announcing that it had
determined not to pursue the sale transaction the consideration of which had
been publicly announced the previous week, and that it was continuing to review
its strategic alternatives.
In the weeks that followed the November 1, 1994 press release, the
Independent Committee and the ASF Board continued to examine the strategic
alternatives which were available to ASF. See " -- Reasons for the Merger and
Recommendation of the ASF Board". During this period, ASF and Goldman Sachs also
received indications of interest concerning an acquisition of either ASF or the
shares of ASF Common Stock owned by Enstar. Goldman Sachs also contacted a
number of other potential acquirors in an effort to solicit a proposal to
acquire ASF on acceptable terms and conditions.
On November 9, 1994, Donald T. Senterfitt was elected to the ASF Board
after being nominated by a representative of Enstar. For a discussion of Mr.
Senterfitt's background, see "ELECTION OF DIRECTORS -- Nominees for Director".
On November 23, 1994, FUNC expressed an interest in acquiring ASF for a
fixed value of $21.00 per share of ASF Common Stock. This expression of interest
was superior from a financial point of view to all of the other indications of
interest which had been received subsequent to the November 1, 1994 press
release. Under FUNC's revised proposal, ASF would not be required to sell the
MBS Portfolio prior to the consummation of the merger, and accordingly, no
adjustments to the purchase price would be made. FUNC thereafter agreed that 100
percent of the consideration to be received by ASF stockholders would consist of
FUNC Common Stock (although the FUNC Common Stock exchanged for the Escrowed
Shares will be repurchased by FUNC). See " -- Voting Agreement; Escrow
Agreement". As compared with the Original FUNC Proposal, the revised proposal
provided greater certainty as to (although still not assuring) the tax-free
nature of the transaction for federal income tax purposes and eliminated the
repayment of the Enstar Receivable as a condition to closing, thereby increasing
the likelihood that the merger would be consummated. ASF's concerns regarding
employees were also resolved to the satisfaction of the Independent Committee.
Because FUNC had also previously completed due diligence and
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because FUNC and ASF had substantially negotiated the terms of transaction
agreements, it was believed that definitive agreements concerning a transaction
could be negotiated promptly.
In a series of formal meetings and telephone conferences held during the
ten days prior to and on December 4, 1994, the Independent Committee completed
its review of the proposed transaction. The Independent Committee carefully
reviewed the terms of the Merger Agreement, the Stock Option Agreement and the
Voting Agreement, and received presentations from ASF management, the
Independent Committee's and ASF's legal counsel and each of Goldman Sachs and
Bear Stearns. See " -- Opinions of Financial Advisors". On December 4, 1994, the
Independent Committee unanimously determined that the terms of the proposed
Merger were in the best interests of ASF and all of its stockholders, and
recommended that the ASF Board approve the Merger Agreement and the Stock Option
Agreement.
On December 4, 1994, the ASF Board met to consider the proposed
transactions. At these meetings, the ASF Board reviewed the recommendations of
the Independent Committee and the reasons for such recommendations, received
presentations from ASF management, Goldman Sachs, Bear Stearns and ASF's legal
advisors which were substantially similar to those received by the Independent
Committee. Consistent with prior practice and by prior agreement, Messrs. Davis,
Frazer and Taylor did not participate in the final substantive discussions or
the vote on the Merger Agreement. After extensive deliberations, for the reasons
set forth below, the ASF Board concluded that the Merger was in the best
interests of ASF and its stockholders and voted to approve the Merger Agreement
and the Stock Option Agreement, which were executed later that day.
REASONS FOR THE MERGER AND RECOMMENDATION OF THE ASF BOARD. The ASF Board
believes that the Merger is fair to, and in the best interests of, ASF and all
of its stockholders. Accordingly, the ASF Board (with three directors leaving
the meeting and not present for substantive deliberations or voting) approved
the Merger Agreement and the Stock Option Agreement. Throughout the process
which culminated in the approval of the Merger Agreement, the ASF Board relied
heavily on the deliberations and recommendations of the Independent Committee,
the members of which constituted one-half (after the election of Mr. Senterfitt)
of the members of the ASF Board who would vote on the Merger. In reaching their
determinations, both the Independent Committee and the ASF Board considered the
factors outlined below.
A significant factor in the Independent Committee's and the ASF Board's
determinations to approve the Merger Agreement was the risks to ASF's public
stockholders which arose as a result of Enstar's obligation to dispose of its
shares of ASF Common Stock before June 1, 1995. The Independent Committee and
the ASF Board were particularly concerned with the potential adverse
consequences to ASF's public stockholders which might occur if Enstar disposed
of its shares in a transaction not involving a sale of ASF as a whole. Such
adverse consequences included (i) a possible immediate drop in the market price
of shares of ASF Common Stock which could result from the increase in the supply
of such shares available for sale if Enstar were to distribute its ASF Common
Stock to Enstar creditors, (ii) the possibility that a sale of the entire block
of Enstar's shares to a single party might prevent all other ASF stockholders
from realizing a control premium for their shares, and (iii) the uncertainties
for the future of ASF under policies which might be instituted if a purchaser of
the Enstar block assumed control of ASF.
In addition to their concerns relating to Enstar's obligation to dispose of
its shares of ASF Common Stock, the Independent Committee and the ASF Board
considered the following matters in reaching their respective determinations to
approve and adopt the Merger Agreement:
(i) ASF's and Goldman Sachs' discussions with other potential acquirors and
Goldman Sachs' extensive efforts to solicit potential acquirors during the
summer and early fall of 1994 and during the period following the rejection of
the Original FUNC Proposal. In this regard, the Independent Committee and the
ASF Board noted that no alternative acquiror approached ASF to discuss a
transaction superior to the Merger notwithstanding (a) the fact that Enstar's
obligations under the Bankruptcy Plan had been publicly disclosed for several
years, (b) the efforts of Goldman Sachs to solicit potential acquirors and (c)
ASF's October 27, 1994 and November 1, 1994 press releases concerning a
potential sale;
(ii) the Independent Committee's and the ASF Board's review, based in part
on the advice of Goldman Sachs, Bear Stearns and ASF's management, of
alternatives to the Merger, the range of possible values to ASF's stockholders
obtainable through implementation of such alternatives and the timing and
likelihood of actually receiving such values. The alternatives considered
included remaining independent and growing internally, remaining independent and
growing through future acquisitions, and the alternative of pursuing either of
such independence strategies combined with a recapitalization transaction
involving the repurchase of a portion of Enstar's shares of ASF Common Stock,
the retirement of other shares of ASF Common Stock held by Enstar in
satisfaction of ASF's bankruptcy claim against Enstar and a public offering of
convertible preferred stock by ASF. In this regard, both the Independent
Committee and the ASF Board recognized the uncertainty as to
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whether (a) ASF would achieve the increases in earnings projected its Revised
Business Plan, (b) potential target institutions would be available for purchase
by ASF at favorable prices and (c) the ASF Common Stock would actually trade at
the multiples indicated in the Bear Stearns presentation even if the earnings
projections contained in the Revised Business Plan were achieved. The
Independent Committee and the ASF Board contrasted these uncertainties with the
relative certainty of the value which could be realized in the Merger. Moreover,
with respect to the recapitalization alternative, the Independent Committee and
the ASF Board noted potential regulatory constraints on and potential
stockholder objections to purchases of Enstar's ASF Common Stock at above-market
prices and Enstar's reluctance to approve this alternative (which approval would
be required) in light of the availability of a sale to FUNC at a price which
Enstar viewed as in the best interests of ASF's stockholders. See " -- Opinions
of Financial Advisors; BEAR STEARNS";
(iii) the Independent Committee's and the ASF Board's familiarity with and
review of ASF's business, operations, financial condition, earnings and
prospects;
(iv) the current and prospective economic and competitive environment
facing financial institutions, including ASF and FUNC;
(v) the financial presentations of Goldman Sachs and Bear Stearns and the
respective opinions of Goldman Sachs and Bear Stearns as to the fairness of the
consideration to be received by stockholders of ASF pursuant to the Merger
Agreement. See " -- Opinions of Financial Advisors", ANNEX C and ANNEX D;
(vi) the Independent Committee's and the ASF Board's review, based in part
on presentations by Goldman Sachs and Bear Stearns, of the business, operations,
earnings and financial condition of FUNC on both a historical and a prospective
basis;
(vii) the Independent Committee's and the ASF Board's belief that the terms
of the Merger Agreement are attractive in that the agreement allows ASF
stockholders to become stockholders in FUNC, which, as of September 30, 1994, in
terms of asset size, was the ninth largest bank holding company in the United
States;
(viii) the fact that the market for FUNC Common Stock is far more liquid
than that for ASF Common Stock and that historically FUNC has paid dividends,
unlike ASF, which has not paid dividends since 1989, when it paid a dividend to
Enstar (which then owned 100 percent of the ASF Common Stock). See
"SUMMARY -- Cash Dividends Paid Per Share";
(ix) the expectation that the Merger will generally be a tax-free
reorganization for federal income tax purposes. See "THE MERGER -- Certain
Federal Income Tax Consequences"; and
(x) the terms and conditions of the Merger Agreement, and the improvements
to such terms and conditions relative to those contained in the Original FUNC
Proposal. See " -- Background and Reasons; ASF".
In view of the wide variety of factors considered in connection with their
evaluation of the Merger, neither the Independent Committee nor the ASF Board
found it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in reaching its
determination.
THE ASF BOARD RECOMMENDS THAT ASF STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
MERGER AND THE MERGER AGREEMENT.
FUNC
FUNC believes that it is advantageous to build a multi-state banking
organization. The economies of scale in banking favor such an organization as a
way of gaining efficiency and spreading costs over a large base, as well as
providing diversification. To further its objective to build a multi-state
banking organization, FUNC has heretofore concentrated its efforts on what it
perceives to be some of the better banking markets in the southeast and south
atlantic regions of the United States, and on advantageous ways of entering or
expanding its presence in those markets. FUNC believes that Florida is among the
better banking markets in such regions and that joining with ASF is an
attractive way to expand FUNC's presence in the southeastern Florida market.
FUNC is continually evaluating acquisition opportunities and frequently
conducts due diligence activities in connection with possible acquisitions. As a
result, acquisition discussions and, in some cases, negotiations frequently take
place and future acquisitions involving cash, debt or equity securities can be
expected. Acquisitions typically involve the payment of a premium over book and
market values, and therefore some dilution of FUNC's book value and net income
per common share may occur in connection with any future transactions. See
"FUNC -- History and Business".
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OPINIONS OF FINANCIAL ADVISORS
GOLDMAN SACHS
Pursuant to an engagement letter dated May 31, 1994 (the "Engagement
Letter"), ASF retained Goldman Sachs to act as its financial advisor regarding
alternative actions and determinations to be made by the ASF Board, including
possible transactions involving ASF Common Stock or other securities, a
reorganization, recapitalization, merger, consolidation or other corporate
transaction, and specifically including a possible sale of ASF. Goldman Sachs is
an internationally recognized investment banking firm and is continually engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estates, corporate and other purposes. Goldman Sachs is familiar
with ASF, having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to the Merger Agreement.
Goldman Sachs has also provided, and may provide in the future, certain
investment banking services to FUNC, for which Goldman Sachs receives customary
compensation. Investment banking services provided to FUNC since January 1, 1993
include services in connection with several debt offerings, derivative swaps, a
stock repurchase program and an acquisition advisory project unrelated to the
savings and loan industry, for which Goldman Sachs received aggregate
compensation from FUNC in the amount of approximately $ million. Goldman Sachs
has also managed offerings of debt and common stock for FUNC prior to 1993. In
the course of trading activities, Goldman Sachs had accumulated a net long
position of $3.0 million in various nonconvertible debentures of FUNC as of
December 4, 1994 and $ million as of , 1995. The ASF Board
selected Goldman Sachs to act as ASF's financial advisor based on Goldman Sachs'
substantial experience in mergers and acquisitions and in securities valuations
generally and their reputation in the banking and investment banking
communities.
By letter dated December 4, 1994, Goldman Sachs delivered their written
opinion to the ASF Board that, as of such date, the consideration to be received
by the holders of ASF Common Stock pursuant to the Merger Agreement is fair to
such holders. Goldman Sachs subsequently confirmed their December 4, 1994
written opinion by delivery of their written opinion dated , 1995,
provided in connection with the mailing of this Proxy Statement/Prospectus.
THE FULL TEXT OF THE GOLDMAN SACHS WRITTEN OPINION DATED ,
1995, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON
THEIR REVIEW, IS ATTACHED HERETO AS ANNEX C. HOLDERS OF SHARES OF ASF COMMON
STOCK ARE URGED TO AND SHOULD READ SUCH OPINION IN ITS ENTIRETY. NEITHER OF THE
GOLDMAN SACHS WRITTEN OPINIONS DISCUSSED HEREIN IS A CONDITION TO CONSUMMATION
OF THE MERGER.
Goldman Sachs' opinions are addressed only to the ASF Board and do not
constitute a recommendation to any ASF stockholder as to how such stockholder
should vote with respect to the Merger.
In connection with their opinions dated December 4, 1994 and ,
1995, Goldman Sachs reviewed, among other things: a draft of the Registration
Statement on Form S-4 of FUNC dated , 1995 of which this Proxy
Statement/Prospectus is a part (with respect to the , 1995 opinion
only); the Merger Agreement; the Stock Option Agreement; the Voting Agreement;
Annual Reports to Stockholders and Annual Reports on Form 10-K since December
31, 1990 for ASF and since December 31, 1989 for FUNC; certain interim reports
to stockholders and Quarterly Reports on Form 10-Q; certain other communications
from ASF and FUNC to their stockholders; and certain internal financial analyses
and forecasts for ASF prepared by its management. Goldman Sachs also held
discussions with members of the senior management of ASF and FUNC regarding the
past and current business operations, financial condition and future prospects
of their respective companies. Goldman Sachs reviewed the reported price and
trading activity for ASF Common Stock and FUNC Common Stock, compared certain
financial and stock market information for ASF and FUNC with similar information
for certain other companies, the securities of which are publicly traded,
reviewed the financial terms of certain recent business combinations in the
commercial banking and savings and loan industries and performed such other
studies and analyses as Goldman Sachs considered appropriate.
Goldman Sachs relied, without assuming responsibility for the independent
verification of such information, upon the accuracy and completeness of all of
the financial and other information reviewed by them for purposes of their
opinions. Goldman Sachs are not experts in the evaluation of loan and lease
portfolios for purposes of assessing the adequacy of the allowances for losses
with respect thereto and have assumed, with the consent of ASF, that such
allowances for each of ASF and FUNC are in the aggregate adequate to cover all
such losses. Goldman Sachs did not review individual credit files nor did they
make an independent evaluation or appraisal of the assets and liabilities of ASF
or FUNC or any of their respective subsidiaries and Goldman Sachs have not been
furnished with any such evaluation or appraisal. Goldman Sachs also assumed
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that FUNC will receive all necessary regulatory approvals without undue delay.
The ASF Board did not impose any limitations upon Goldman Sachs with respect to
investigations made or procedures followed by Goldman Sachs in rendering its
opinions. The consideration to be paid by FUNC pursuant to the Merger was
determined pursuant to negotiations between the respective representatives and
managements of ASF, including Goldman Sachs, and FUNC.
Pursuant to the terms of the Engagement Letter, ASF has agreed to pay
Goldman Sachs, if the Merger is consummated, a transaction fee equal to 0.625
percent of the aggregate consideration paid in such transaction. Based on the
terms of the Merger Agreement, the transaction fee payable to Goldman Sachs will
be approximately $1.6 million. No additional fee is required for Goldman Sachs'
opinions as to the fairness of the financial consideration to be received by
holders of shares of ASF Common Stock. In addition, ASF has agreed to reimburse
Goldman Sachs for their reasonable out-of-pocket expenses, including the
reasonable fees and disbursements of their counsel, retained with ASF's prior
written consent, plus any sales, use or similar taxes (including any interest,
penalties or other supplemental charges related thereto) arising in connection
with any matter referred to in the Engagement Letter, and to indemnify Goldman
Sachs against certain liabilities relating to or arising out of their
engagement, including liabilities under federal securities laws.
SUMMARY OF FINANCIAL ANALYSES. Prior to rendering its written opinion of
the same date, Goldman Sachs rendered an oral opinion to the ASF Board on
December 4, 1994, to the effect that, as of such date, the consideration to be
received by the holders of ASF Common Stock pursuant to the Merger Agreement was
fair to such holders. Set forth below is a summary of the financial analyses
that Goldman Sachs presented to the ASF Board on December 4, 1994 in connection
with its oral and written opinion. Goldman Sachs utilized substantially the same
types of analyses, appropriately updated, in preparing its written opinion dated
, 1995 as Goldman Sachs utilized in connection with its December 4,
1994 opinion. For purposes of certain analyses, Goldman Sachs adjusted ASF's
historical net income to reflect normalized after-tax core earnings before
extraordinary items.
SUMMARY OF FUNC PROPOSAL. Goldman Sachs noted that upon consummation of the
Merger, each outstanding share of ASF Common Stock would be converted into the
right to receive shares of FUNC Common Stock having a value of $21.00, the total
consideration being approximately $253 million (assuming 12.15 million
fully-diluted shares, including 651,584 options (as of December 4, 1994) with a
weighted average exercise price of $3.50). Goldman Sachs also noted that the
transaction would be for all stock consideration and is intended to be a
tax-free reorganization for federal income tax purposes, but would be treated as
a purchase accounting transaction rather than a pooling of interests transaction
since FUNC planned to repurchase in the open market a number of shares of FUNC
Common Stock equal to between 50 percent and 100 percent of the number of shares
of FUNC Common Stock to be issued in the transaction. Goldman Sachs explained
that the proposed consideration is based on a fixed price, rather than a fixed
exchange ratio, and that the precise number of FUNC shares to be issued in the
Merger would be determined based upon the average trading price of the FUNC
shares during a measurement period prior to the effective time of the Merger as
more fully set forth in the Merger Agreement.
PER SHARE EXCHANGE ANALYSIS. Goldman Sachs reviewed certain historical
financial information for ASF and FUNC and calculated the imputed value of the
FUNC transaction to holders of ASF Common Stock. Goldman Sachs compared the
fully diluted earnings per share of the ASF Common Stock in the years 1993, 1994
and 1995 on an adjusted actual, expected and projected basis, respectively, to
the fully diluted earnings represented by 0.525 shares of FUNC Common Stock
(representing the number of shares of FUNC Common Stock that ASF stockholders
would receive based upon a $40.00 per share price for the FUNC Shares). This
analysis showed that ASF stockholders would get a significant increase in their
earnings per share as a result of the Merger. Goldman Sachs also compared the
book value and the tangible book value of the ASF Common Stock of $17.56 and
$12.28, respectively, to the book value and tangible book value represented by
0.525 shares of FUNC Common stock of $16.45 and $12.74, respectively. The FUNC
earnings and book value numbers utilized in this comparison were not adjusted
for the pro forma impact of the Merger. In addition, Goldman Sachs stated that
while no dividends were currently being paid on ASF Common Stock, dividends of
$0.97 are currently paid on 0.525 shares of FUNC Common Stock, reflecting a 4.6
percent dividend yield.
COMPARISON OF SELECTED COMPARABLES. Goldman Sachs compared the financial
performance of ASF and FUNC to that of a group of selected thrifts based on
various financial measures of earnings performance, capital adequacy and asset
quality, utilizing financial data as of September 30, 1994. This analysis showed
that a group of selected Florida thrifts comprised of BankAtlantic, Coral Gables
and CSF Holdings ("Group One") had a median price to estimated 1994 earnings
ratio of 6.0 and a range from 5.5 to 9.0 and that a second group of thrifts not
located principally in Florida comprised of H.F. Ahmanson, Charter One
Financial, FirstFed Michigan, Golden West, Great Western and Standard Federal
Bank ("Group Two") had a median price to estimated 1994 earnings ratio of 7.7
and a range from 5.0 to 11.0, as compared to corresponding ratios of 10.0 for
ASF and 7.6 for FUNC. Group One had a median price to estimated 1995 earnings
ratio of 7.0 and a range from 5.8
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to 9.8 and Group Two had a price to earnings ratio of 6.5 and a range from 4.2
to 8.0, as compared to corresponding ratios of 9.4 for ASF and 7.0 for FUNC.
Group One had a median return on assets in the latest twelve months ("LTM") of
1.17 percent and a range from 1.07 percent to 1.25 percent and Group Two had a
median LTM return on assets of .68 percent and a range from .38 percent to 1.19
percent, as compared to corresponding returns of .44 percent for ASF on an
adjusted basis and 1.24 percent for FUNC. Group One had a median LTM return on
equity of 20.10 percent and a range from 8.47 percent to 20.42 percent and Group
Two had a median LTM return on equity of 11.41 percent and a range from 6.75
percent to 18.10 percent, as compared to corresponding returns of 7.13 percent
for ASF on an adjusted basis and 17.44 percent for FUNC. Group One had a median
price to tangible book value ratio of .87 and a range from .86 to 1.03 and Group
Two had a median price to tangible book value ratio of 1.16 and a range from
0.59 to 1.25, as compared to corresponding ratios of 1.34 for ASF and 1.72 for
FUNC. Group One had a median tangible common equity to tangible assets ratio of
6.3 percent and a range from 5.5 percent to 14.2 percent and Group Two and a
median tangible common equity to tangible assets ratio of 5.4 percent and a
range from 3.6 percent to 6.4 percent, as compared to corresponding ratios of
4.4 percent for ASF and 5.9 percent for FUNC. Group One had a median
nonperforming assets to loans and other real estate owned ("OREO") ratio of 2.2
percent and a range from 1.1 percent to 4.2 percent and Group Two had a median
nonperforming assets to loans and OREO ratio of 1.4 percent and a range from 0.5
percent to 3.7 percent, as compared to corresponding ratios of 1.4 percent for
ASF and 1.3 percent for FUNC. Group One had a median loan loss reserve to
nonperforming loans ratio of 94.6 percent and a range from 21.5 percent to 206.6
percent and Group Two had a median loan loss reserve to nonperforming loans
ratio of 72.8 percent and a range from 29.7 percent to 132.6 percent, as
compared to corresponding ratios of 41.5 percent for ASF and 203.0 percent for
FUNC. This analysis also showed that FUNC had a higher dividend yield (at 4.6
percent) than all but two of the companies in either of Group One or Group Two,
with a number of the companies, including ASF, paying no current dividend.
Goldman Sachs compared the financial performance of FUNC to that of a group
of 23 selected super-regional bank holding companies, based on various market
performance measures. This analysis showed that (i) FUNC had a price to es-
timated 1994 earnings ratio of 7.6 compared to a median ratio of 8.4 for the
group of super-regional bank holding companies; (ii) FUNC had a price to
estimated 1995 earnings ratio of 7.0 compared to a median ratio of 7.6 for the
group of super-regional bank holding companies; (iii) FUNC had a price to book
value ratio of 1.28 compared to a median ratio of 1.39 for the group of
super-regional bank holding companies; and (iv) FUNC had a price to tangible
book value of 1.72 compared to a median ratio of 1.55 for the group of
super-regional bank holding companies.
SUMMARY OF COMPARABLE THRIFT ACQUISITION STATISTICS. Goldman Sachs analyzed
and compared acquisition ratios for (i) the proposed FUNC acquisition of ASF,
(ii) a group of 9 FUNC acquisitions since 1992, (iii) a group of 13 selected
acquisitions in the southeastern United States since January 1, 1993 with a
transaction value in excess of $50 million, and (iv) a group of 69 selected
nationwide acquisitions since January 1, 1993 with a transaction value in excess
of $50 million. This analysis indicated that the price to book value ratio of
FUNC's acquisition of ASF is 1.19, compared to the median ratio for FUNC
acquisitions since 1992 of 1.36 and a range from 0.69 to 1.87; the median ratio
for the selected southeastern acquisitions of 1.56 and a range from 0.71 to
2.05; and the median ratio for the selected nationwide acquisitions of 1.60 and
a range from 0.65 to 2.62. The price to tangible book value ratio of FUNC's
acquisition of ASF is 1.69 or 1.47 after adjustment to reflect recovery of the
Bankruptcy Claim, compared to the median ratio for FUNC acquisitions since 1992
of 1.39 and a range from 1.01 to 1.87; the median ratio for the selected
southeastern acquisitions of 1.69 and a range from 1.11 to 2.21, and the median
ratio for the selected nationwide acquisitions of 1.69 and a range from 1.11 to
2.63. The price to LTM net income ratio of FUNC's acquisition of ASF is 17.7 on
an adjusted basis, compared to the median ratio for FUNC acquisitions since 1992
of 15.0 and a range from 3.9 to 33.3; the median ratio for the selected
southeastern acquisitions of 17.6 and a range from 8.9 to 21.3; and the median
ratio for the selected nationwide acquisitions of 14.8 and a range from 6.6 to
32.8. The deposit premium percentage of FUNC's acquisition of ASF is 4.56
percent or 3.55 percent, after adjustment to reflect recovery of the Bankruptcy
Claim, compared to the percentage for FUNC acquisitions since 1992 of 4.19
percent and a range from 0.05 percent to 8.24 percent; the median percentage for
the selected southeastern acquisitions of 6.42 percent and a range from 0.24
percent to 14.15 percent; and the median percentage for the selected nationwide
acquisitions of 8.19 percent and a range from 0.24 percent to 24.3 percent.
No company or transaction used in the above analyses as a comparison is
identical to ASF, FUNC or the Merger. Accordingly, an analysis of the results of
the foregoing is not mathematical, rather, it involves complex considerations
and judgments concerning differences in financial and operating characteristics
of the companies and other factors that could affect the public trading value of
the companies to which they are being compared.
OVERVIEW OF FUNC. Goldman Sachs presented selected information concerning
FUNC and its historical operating and market performance. Goldman Sachs reviewed
and analyzed the historical trading prices of FUNC Common Stock from
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December 1984 through December 1994, selected investment research reports for
FUNC and analyzed available information regarding the ownership and ownership
profiles of shares of FUNC Common Stock.
GENERAL. The foregoing is a summary description of the material analyses
prepared by Goldman Sachs in connection with its December 4, 1994 oral and
written opinion, but does not purport to be a complete description of the
analyses performed by Goldman Sachs. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Goldman Sachs believes that its analyses and the summary
set forth above must be considered as a whole and that selecting portions of its
analyses, without considering all analyses, or selecting part or all of the
above summary, without considering all factors and analyses, would create an
incomplete view of the process underlying the analyses set forth in the Goldman
Sachs presentations and opinions. The ranges of valuations resulting from any
par-ticular analysis described above should not be taken to be Goldman Sachs'
view of the actual value of ASF or FUNC. The fact that any specific analysis has
been referred to in the summary above is not meant to indicate that such
analysis was given more weight than any other analyses.
In performing its analyses, Goldman Sachs made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of ASF or FUNC. The analyses
performed by Goldman Sachs are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of
Goldman Sachs' analysis of the fairness of the consideration to be received by
holders of ASF Common Stock pursuant to the Merger Agreement and were provided
to the ASF Board in connection with the delivery of Goldman Sachs' opinion. The
analyses do not purport to be appraisals or to reflect the prices at which a
company might actually be sold or the prices at which any securities may trade
at the present time or at any time in the future. In addition, as described
above, Goldman Sachs' opinion and presentation to the ASF Board is just one of
many factors taken into consideration by the ASF Board in making its
determination to approve the Merger Agreement.
BEAR STEARNS
The Independent Committee and ASF retained Bear, Stearns in April 1994 to
act as financial advisor to the Independent Committee in connection with its
examination of available strategic alternatives, including the possible sale of
ASF. Bear Stearns was selected to act as the Independent Committee's financial
advisor because of Bear Stearns' reputation as a nationally recognized
investment banking firm with substantial experience in mergers and acquisitions
and corporate restructurings. No limitations were imposed by the Independent
Committee or ASF upon Bear Stearns with respect to the investigations made or
procedures followed by it in rendering its opinions. On December 4, 1994,
members of the Bear Stearns advisory team informed the ASF Board and the
Independent Committee of their view that the Merger was fair, from a financial
point of view, to the stockholders of ASF, but that Bear Stearns' valuation
committee, whose approval is required before an opinion may be issued, had not
met to determine its conclusion. The Bear Stearns advisory team indicated to the
ASF Board and the Independent Committee that they were prepared to recommend to
the Bear Stearns valuation committee that Bear Stearns issue its opinion that
the Merger was fair, from a financial point of view, to the stockholders of ASF.
Subsequently, Bear Stearns delivered its written opinion dated December 9, 1994,
that the Merger is fair, from a financial point of view to the stockholders of
ASF, and confirmed its opinion in writing on , 1995 (such opinion,
as updated on , 1995, being referred to herein as the "Fairness
Opinion"). Bear Stearns had previously delivered its written opinion dated
November 8, 1994 regarding the Original FUNC Proposal (the "Inadequacy
Opinion"), which is discussed below.
THE FULL TEXT OF THE WRITTEN FAIRNESS OPINION OF BEAR STEARNS, DATED
, 1995, WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEWS UNDERTAKEN, IS ATTACHED HERETO AS
ANNEX D AND SHOULD BE READ IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT/PROSPECTUS. THE SUMMARY OF THE FAIRNESS OPINION SET FORTH HEREIN IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPINION. THE FAIRNESS OPINION
DISCUSSED HEREIN IS NOT A CONDITION TO CONSUMMATION OF THE MERGER.
The Fairness Opinion is directed only to the fairness of the Merger to
ASF's stockholders from a financial point of view and does not constitute a
recommendation to any ASF stockholder as to how such stockholder should vote at
the Meeting.
BEAR STEARNS' FAIRNESS OPINION REGARDING THE MERGER. The consideration to
be paid by FUNC in the Merger was determined pursuant to negotiations between
the respective representatives and managements of ASF and FUNC. During these
negotiations, Bear Stearns advised the Independent Committee with respect to
potential forms of consideration that were discussed, the effects of such forms
of consideration on ASF and related matters. For purposes of rendering its
Fairness Opinion and reviewing the proposed Merger, Bear Stearns:
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i. reviewed the Proxy Statement/Prospectus in substantially the form
to be sent to stockholders, including a copy of the Merger Agreement;
ii. reviewed ASF's annual reports to stockholders and its annual
reports on Form 10-K for the fiscal years ended December 31, 1990 through
1994;
iii. reviewed FUNC's annual reports to stockholders and annual reports
on Form 10-K for the fiscal years ended December 31, 1991 through 1994;
iv. met with certain members of ASF's senior management and its legal
and financial advisors to review and discuss ASF's financial and operating
position, competition, management, employees, status with the OTS and the
FDIC, lending procedures, loan portfolio, deposits and branch network;
v. met with certain members of ASF's senior management and its
financial advisors to review and discuss certain operating and financial
information including management's Revised Business Plan, provided to Bear
Stearns by the management of ASF, relating to its business and prospects;
vi. met with the Chairman of Enstar, then the holder of approximately
percent of the outstanding shares of ASF Common Stock, and Enstar's
financial and legal advisors to discuss the status of legal proceedings and
other matters related to the bankruptcy administration of Enstar;
vii. reviewed the Revised Business Plan and the likelihood of ASF
achieving the projected results contained therein, and the possible trading
and acquisition valuations for the shares of ASF Common Stock which could
result;
viii. reviewed the process used by ASF and Goldman Sachs to solicit
acquisition proposals for ASF, and the proposals which were received;
ix. met with certain members of FUNC's senior management to review and
discuss FUNC's financial and operating position and business prospects;
x. reviewed the historical stock prices and trading volumes of FUNC
Common Stock and ASF Common Stock;
xi. reviewed publicly available financial data and stock market
performance data of publicly traded financial institutions which Bear
Stearns deemed generally comparable to ASF;
xii. reviewed the terms of recent acquisitions of publicly traded
institutions which Bear Stearns deemed generally comparable to the Merger;
xiii. reviewed the terms and structure of the Merger, including the
anticipated tax treatment of FUNC Common Stock to be received by ASF
stockholders; and
xiv. conducted such other studies, analyses, inquiries and
investigations as were deemed appropriate.
Bear Stearns performed substantially the same types of reviews in rendering
its written opinion dated December 9, 1994.
In conducting its review and arriving at and updating its Fairness Opinion,
Bear Stearns relied upon and assumed the accuracy and completeness of all of the
financial and other information regarding ASF and FUNC provided to it or
publicly available, and Bear Stearns did not independently verify such
information. Bear Stearns assumed that the projected financial results contained
in the Revised Business Plan had been reasonably prepared on bases reflecting
the best currently available estimates and judgments of ASF's management as to
ASF's expected future performance. Bear Stearns did not assume any
responsibility for the information or projections provided to Bear Stearns and
relied upon the assurances of ASF's management that it was unaware of any facts
that would make the information or projections provided to Bear Stearns
incomplete or misleading. In arriving at and updating its Fairness Opinion, Bear
Stearns did not perform or obtain any independent appraisal of the assets of ASF
or FUNC.
The following is a summary of the analyses performed by Bear Stearns in
connection with its opinion rendered on December 9, 1994 (which are
substantially the same types of analyses performed by Bear Stearns in connection
with its updated Fairness Opinion):
ANALYSIS OF ASF'S STOCK PRICE PERFORMANCE. Bear Stearns reviewed the
trading prices for ASF Common Stock over the period from January 1, 1991 to
November 30, 1994, and in particular, noted the changes in trading prices which
resulted after ASF's October 27, 1994 public announcement that it was
considering a possible sale transaction and its November 1, 1994 public
announcement that it had determined not to pursue such transaction.
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ANALYSIS OF COMPANIES COMPARABLE TO ASF. Bear Stearns performed an analysis
of ASF's financial performance and stock market trading data by comparing the
stock price to book value, stock price to tangible book value, stock price to
LTM earnings per share ("LTM EPS") and stock price to estimated 1995 earnings
per share ("EPS") of ASF to the following two subsets of publicly traded savings
institutions: (i) four institutions located in southern Florida with total
assets of $1.0 billion to $5.0 billion (the "Florida Institutions"), and (ii)
the fifty largest institutions nationwide based on total assets (the "National
Institutions"). The Florida Institutions included: CSF Holdings; Coral Gables
Fedcorp, Inc.; BankAtlantic Bancorp, Inc.; and Home Financial Corp. The National
Institutions included, in addition to ASF: H.F. Ahmanson & Company; Great
Western Financial Corporation; Golden West Financial Corporation; Washington
Mutual Savings Bank; Glendale Federal Bank, FSB; California Federal Bank, FSB;
Standard Federal Bank; Anchor Bancorp, Inc.; Dime Bancorp, Incorporated;
Roosevelt Financial Group, Inc.; FirstFed Michigan Corporation; Coast Savings
Financial; Metropolitan Financial Corporation; GP Financial Corporation;
People's Bank, MHC; Charter One Financial, Inc.; Sovereign Bancorp; Commercial
Federal Corporation; First Financial Corporation; TCF Financial Corp.;
Collective Bancorp, Inc.; Astoria Financial Corporation; CSF Holdings; Long
Island Bancorp; Brooklyn Bancorp, Inc.; St. Paul Bancorp, Inc.; FirstFed
Financial Corp.; Downey Savings and Loan Association; Washington Federal Savings
& Loan Association; SFFed Corp.; Rochester Community Savings Bank; Northeast
Federal Corp.; Bay View Capital Corporation; Centerbank; Columbia First Bank,
FSB; ALBANK Financial Corporation; Great Lakes Bancorp, FSB; Security Capital
Corporation; Webster Financial Corporation; Peoples Heritage Financial Group;
The Greater New York Savings Bank; NBB Bancorp, Inc.; Coral Gables Fedcorp,
Inc.; Westcorp Inc.; TR Financial Corp.; Loyola Capital Corporation; America
First Financial Fund 1987-A LP; Coastal Bancorp, Inc.; and Leader Financial
Corp.
Bear Stearns compared the multiples of stock price to book value, tangible
book value, LTM EPS and estimated 1995 EPS of ASF to the respective harmonic
means of these multiples for the Florida Institutions and the National
Institutions. Bear Stearns calculated (i) a stock price to book value multiple
for ASF of 0.87 times, and a multiple of 0.78 times when ASF's book value was
adjusted to reflect an estimate of the anticipated after tax gains which ASF
would realize on certain litigation claims, including full recovery of the
Enstar Receivable (the "Estimated Litigation Claims"), as compared to harmonic
means of 1.04 times and 0.90 times for the Florida Institutions and the National
Institutions, respectively, (ii) a stock price to tangible book value multiple
for ASF of 1.25 times, and a multiple of 1.07 times when ASF's book value was
adjusted to reflect the Estimated Litigation Claims, as compared to harmonic
means of 1.04 times and 0.96 times for the Florida Institutions and the National
Institutions, respectively, (iii) a stock price to LTM EPS multiple for ASF of
7.0 times when adjusted to reflect certain tax benefits available to ASF, and
16.1 times when adjusted to reflect ASF's having an assumed tax rate of 38
percent, as compared to harmonic means of 7.8 times and 9.2 times for the
Florida Institutions and the National Institutions, respectively, and (iv) a
price to estimated 1995 EPS for ASF of 9.1 times (based on projections from the
Revised Business Plan), as compared to harmonic means of 7.2 times and 7.8 times
for the Florida Institutions and the National Institutions, respectively.
ANALYSIS OF TRANSACTIONS COMPARABLE TO THE MERGER. Bear Stearns performed
an analysis of the consideration offered to ASF stockholders in the Merger by
comparing the multiples represented by such consideration to the book value,
tangible book value, LTM EPS and premium over tangible book value to core
deposits for ASF to the respective multiples of the consideration received by
stockholders in the following two subsets of savings institutions acquisitions:
(i) eleven transactions valued at over $10 million announced since January 1,
1993 where the seller was located in Florida (the "Florida Transactions"), and
(ii) thirty-five transactions valued at over $100 million announced since
January 1, 1993 (the "Nationwide Transactions"). The Florida Transactions
included (acquiror/acquiree): First National Bancorp/FF Bancorp Inc; PNC Bank
Corp/Indian River FSB; First of America/Presidential Holding; First of
America/F&C Bancshares Inc; FUNC/BancFlorida Financial Corporation; SunTrust
Banks, Inc/Regional Investment Corporation; AmSouth Bancorporation/Fortune
Bancorp; AmSouth Bancorporation/FloridaBank, A Federal Savings Bank; AmSouth
Bancorporation/Mid-State Federal Savings Bank; Regions Financial
Corporation/First Federal Enterprises; and Compass Bancshares/First Federal
Savings Bank of Northwest Florida. The Nationwide Transactions included
(acquiror/acquiree): FUNC/Ameribanc Investors Group; TCF Financial Corp/Great
Lakes Bancorp; Firstar Corporation/Investors Bank Corp; First Bancorporation of
Ohio/CIVISTA Corporation; Investor Group/Fidelity Federal Bank, FSB; Astoria
Financial Corporation/Fidelity New York, FSB; First Interstate
Bancorp/University Savings Bank; Dime Bancorp/Anchor Bancorp, Inc; First Bank
System, Inc/Metropolitan Financial Corporation; New York Bancorp, Inc/Hamilton
Bancorp, Inc; North Fork Bancorporation/Metro Bancshares, Inc; Citizens
Financial Group, Inc/Quincy Savings Bank; Shawmut National Corporation/Northeast
Federal Corporation; First Interstate, Bancorp/Sacramento Savings Bank; Fleet
Financial Group, Inc./NBB Bancorp, Inc.; MacAndrews & Forbes Holdings Inc/First
Nationwide Bank, A FSB; NBD Bancorp, Inc/AmeriFed Financial Corporation;
CoreStates Financial Corp/Germantown Savings Bank; Bank of Boston
Corporation/Pioneer Financial Cooperative Bank; FUNC/BancFlorida Financial
Corporation; Fifth Third Bancorp/Cumberland Federal Bancorporation; Roosevelt
Financial
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Group/Farm & Home Financial Corporation; Shawmut National Corporation/Gateway
Financial Corporation; Citizens Financial Group, Inc./Neworld Bancorp; Fleet
Financial Group, Inc./Sterling Bancshares Corporation; Bank of Boston
Corporation/BankWorcester Corporation; Shawmut National Corporation/Peoples
Bancorp of Worcester; Mercantile Bancorporation, Inc/United Postal Bancorp;
Southern National Corporation/The First Savings Bank, FSB; Standard Federal
Bank/Heritage Bankcorp; ABN-AMRO Holding NV/Cragin Financial Corporation;
Regions Financial Corporation/Secor Bank, Federal Savings Bank; PNC Bank
Corp/United Federal Bancorp; First Fidelity Bancorporation/Peoples Westchester
Savings Bank; and Temple-Inland Inc/American Federal Bank FSB.
Bear Stearns compared the multiples of the $21.00 value per share of ASF
Common Stock of the consideration expected to be received in the Merger to ASF's
book value, tangible book value and LTM EPS to the respective harmonic means of
these multiples for the Florida Transactions and the Nationwide Transactions.
Bear Stearns calculated (i) an acquisition price to book value multiple for the
Merger of 1.14 times, and a multiple of 1.02 times when ASF's book value was
adjusted to reflect the Estimated Litigation Claims, as compared to harmonic
means of 1.67 times and 1.57 times for the Florida Transactions and the
Nationwide Transactions, respectively, (ii) an acquisition price to tangible
book value multiple for the Merger of 1.63 times, and a multiple of 1.40 times
when ASF's book value was adjusted to reflect the Estimated Litigation Claims,
as compared to harmonic means of 1.72 times and 1.70 times for the Florida
Transactions and the Nationwide Transactions, respectively, (iii) an acquisition
price to LTM EPS multiple for the Merger of 9.2 times when adjusted to reflect
certain tax benefits available to ASF, and 21.0 times when adjusted to reflect
ASF's having an assumed tax rate of 38 percent, as compared to harmonic means of
15.4 times and 14.4 times for the Florida Transactions and the Nationwide
Transactions, respectively. Bear Stearns also compared the premium represented
by the $21.00 value per share of ASF Common Stock of the consideration expected
to be received in the Merger over ASF's tangible book value to core deposits of
4.50 percent (3.31 percent when ASF's book value was adjusted to reflect the
Estimated Litigation Claims) to the median values for the Florida Transactions
(7.62 percent) and the Nationwide Transactions (7.70 percent) and the mean
values for the Florida Transactions (8.07 percent) and the Nationwide
Transactions (7.67 percent). Bear Stearns also reviewed the ratios of tangible
equity to assets, LTM return on average assets, LTM return on average equity and
nonperforming assets to assets for ASF compared to the acquired companies in
each of the Florida Transactions and the Nationwide Transactions and calculated
median ratios for the respective groups of such acquired companies. Bear Stearns
calculated (i) a tangible equity to assets ratio for ASF of 4.33 percent, and a
ratio of 5.01 percent when ASF's book value was adjusted to reflect the
Estimated Litigation Claims, as compared to median ratios of 7.35 percent and
6.66 percent for the acquired companies in the Florida Transactions and the
Nationwide Transactions, respectively, (ii) an LTM return on average assets for
ASF of 0.72 percent, and 0.37 percent when adjusted to reflect ASF's having an
assumed tax rate of 38 percent, as compared to median ratios of 0.98 percent and
0.93 percent for the acquired companies in the Florida Transactions and the
Nationwide Transactions, respectively, (iii) an LTM return on average equity for
ASF of 11.26 percent, and 5.87 percent when ASF's book value was adjusted to
reflect ASF's having an assumed tax rate of 38 percent, as compared to median
ratios of 9.40 percent and 11.45 percent for the acquired companies in the
Florida Transactions and the Nationwide Transactions, respectively, and (iv) a
ratio of nonperforming assets to assets for ASF of 1.28 percent, as compared to
median ratios of 1.89 percent and 1.45 percent for the acquired companies in the
Florida Transactions and the Nationwide Transactions, respectively.
DISCOUNTED CASH FLOW ANALYSIS OF ASF. Bear Stearns performed a discounted
cash flow analysis of ASF on a stand-alone basis and on the basis of ASF being
acquired at the end of a five-year period. Bear Stearns reviewed management's
Revised Business Plan and determined a range of net present values for the
shares of ASF Common Stock which could result based upon assumed multiples of
projected earnings contained in the Revised Business Plan and assumed discount
rates. Bear Stearns applied assumed multiples ranging from 6.8 times to 14.3
times for the stand-alone case (a range based on the harmonic mean of the market
price to LTM EPS for the National Institutions, plus or minus one standard
deviation), and from 11.0 times to 21.0 times for the case of a subsequent
acquisition (a range based on the harmonic mean of the acquisition price to LTM
EPS for the Nationwide Transactions, plus or minus one standard deviation), in
each case using discount rates ranging from 12.5 percent to 17.5 percent. The
analysis resulted in a range of net present values for ASF as a stand-alone
entity of $14.96 to $38.89 (excluding the Enstar Receivable) and $16.79 to
$40.72 (including the Enstar Receivable); for the case in which ASF would be
acquired in five years, the resulting ranges were $24.10 to $57.28 (excluding
the Enstar Receivable) and $25.93 to $59.11 (including the Enstar Receivable).
The compound annual increase in pretax core income under the Revised Business
Plan (1994-1998) approximated 36 percent. Bear Stearns considered the likelihood
of ASF's achieving the projected results contained in the Revised Business Plan
in light of the deterioration of the operating environment for thrift
institutions resulting from recent increases in short-term interest rates and
the Independent Committee's expressed concern about ASF's ability to meet plan
projections given market conditions. In light of these considerations, Bear
Stearns also performed a discounted cash flow analysis which utilized a more
conservative earnings projection assuming a 10 percent annual increase in
earnings over a five-year period (1995-1999). Utilizing the more conservative
projections and assuming
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the same multiples and discount rates, the estimated range of net present values
resulting for the stand-alone case was $8.13 to $21.25 (excluding the Enstar
Receivable) and $9.96 to $23.08 (including the Enstar Receivable) and, for the
case of a subsequent acquisition, a range of net present values of $13.15 to
$31.20 (excluding the Enstar Receivable) and $14.98 to $33.03 (including the
Enstar Receivable). Bear Stearns determined that the $21.00 value per share of
ASF Common Stock of the consideration expected to be received in the Merger was
within the ranges of net present values which resulted, except in the case of a
subsequent acquisition, based upon ASF's Revised Business Plan.
ANALYSIS OF RELATIVE CONTRIBUTION. Bear Stearns determined the relative
contribution of ASF to FUNC after giving PRO FORMA effect to the Merger, using
an exchange ratio based on FUNC's then current stock price and other data as of
September 30, 1994. Bear Stearns determined that ASF stockholders would receive
approximately 3.5 percent of the PRO FORMA ownership of the combined company,
while ASF would contribute to the combined company approximately 4.5 percent of
the assets (after adjusting ASF's book value to reflect the Estimated Litigation
Claims), approximately 3.7 percent of the tangible equity (after adjusting ASF's
book value to reflect the Estimated Litigation Claims), approximately 3.6
percent of the loans, approximately 4.0 percent of the deposits, and
approximately 1.4 percent of LTM pretax income.
GOING CONCERN VALUATION OF FUNC. Bear Stearns compared certain financial
performance measures and stock market trading data for FUNC to 13 commercial
banking companies having total assets greater than $50 billion. These companies
included Citicorp, Bank America Corporation, NationsBank Corporation, Chemical
Banking Corp., The Chase Manhattan Corporation, Banc One Corporation, First
Interstate Bancorp, Key Corp, Wells Fargo & Company, Norwest Corporation, The
Bank of New York Company, Inc., PNC Bank Corp. and First Chicago Corporation.
Bear Stearns determined harmonic means for the stock price to book value,
the stock price to tangible book value, the stock price to LTM EPS and stock
price to estimated 1995 EPS for these commercial banking companies. FUNC's stock
price to book value was slightly below, its stock price to tangible book value
was slightly above, its stock price to LTM EPS was slightly below, and its stock
price to estimated 1995 earnings per share slightly above the respective
harmonic means for these commercial banking companies.
Bear Stearns' opinion dated December 9, 1994 and its updated Fairness
Opinion were based solely upon the information available to it and economic,
market and other conditions as they existed as of the dates of such opinions;
events occurring thereafter could materially affect the assumptions used in
preparing the opinions. Bear Stearns has not undertaken to reaffirm or revise
the Fairness Opinion or otherwise comment upon any events occurring after the
date thereof.
In connection with rendering the opinion dated December 9, 1994 and its
updated Fairness Opinion, Bear Stearns performed a variety of financial
analyses. The evaluation of the fairness, from a financial point of view, of the
consideration to be paid in the Merger was to some extent a subjective one based
on the experience and judgment of Bear Stearns, and not merely the result of
mathematical analysis of financial data. Accordingly, Bear Stearns believes that
its analyses must be considered as a whole and that considering portions of such
analyses or certain of the factors considered by Bear Stearns without
considering all such analyses and factors could create an incomplete view of the
process underlying the opinion. In its analyses, Bear Stearns made numerous
assumptions with respect to business, market, monetary and economic conditions,
industry performance, business and economic conditions and other matters, many
of which are beyond ASF's and FUNC's control. Any estimates contained in Bear
Stearns' analyses are not necessarily indicative of future results or actual
values, which may be significantly more or less favorable than such estimates.
No company or transaction used in the above analyses as a comparison is
identical to ASF, FUNC or the contemplated transaction. Accordingly, an analysis
of the results of the foregoing is not mathematical, rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which they are being compared. The analyses
performed by Bear Stearns are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of Bear
Stearns' analysis of the fairness of the Merger to ASF stockholders. The
analyses do not purport to be appraisals or to reflect the prices at which a
company might actually be sold or the prices at which any securities may trade
at the present time or at any time in the future.
Based upon these analyses, Bear Stearns has delivered its opinion that the
Merger is fair, from a financial point of view, to the stockholders of ASF.
BEAR STEARNS' INADEQUACY OPINION REGARDING THE ORIGINAL PROPOSAL. For
purposes of rendering the Inadequacy Opinion and reviewing the Original FUNC
Proposal, Bear Stearns conducted analyses based upon information available to
Bear Stearns at the time which were similar in scope to those made for purposes
of rendering the Fairness Opinion and reviewing
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the Merger, and which were subject to similar qualifications and limitations.
Based upon such analyses, Bear Stearns delivered the Inadequacy Opinion on
November 8, 1994 which concluded that the Original FUNC Proposal would have been
inadequate, from a financial point of view, to the stockholders of ASF. The
following is a summary of the differences between certain terms of the Original
FUNC Proposal and the proposed Merger of which Bear Stearns was informed, and
the principal considerations thereupon deemed relevant by Bear Stearns which led
Bear Stearns to render the Inadequacy Opinion with respect to the Original FUNC
Proposal, and the Fairness Opinion with respect to the proposed Merger:
PRICE ADJUSTMENT FOR SALE OF MBS PORTFOLIO. The Original FUNC Proposal
provided that the value of the consideration to be paid to ASF's
stockholders would have been adjusted to reflect any loss from ASF's sale
of the MBS Portfolio, and that the MBS Portfolio be sold as a condition to
FUNC's obligation to consummate the Original FUNC Proposal. As of October
31, 1994, based upon the value of the MBS Portfolio on such date, the value
of the Original FUNC Proposal would have been approximately $20.71 per
share of ASF Common Stock. Moreover, such value was subject to further
downward adjustment to the extent that the value of the MBS Portfolio
further declined following such date. In the Original FUNC Proposal there
were circumstances in which FUNC would not reimburse ASF for any loss from
the sale of the MBS Portfolio even if the acquisition of ASF did not close.
Whether or not the acquisition of ASF contemplated by the Original FUNC
Proposal was consummated, ASF's agreeing to the Original FUNC Proposal at
that time would have required ASF to recognize immediately the unrealized
net after tax loss inherent in the MBS Portfolio, thereby materially
reducing ASF's regulatory capital. The sale of the MBS Portfolio is not a
condition to closing of the Merger.
VALUE OF CONSIDERATION OFFERED. Bear Stearns compared the estimated
value of approximately $20.71 per share of ASF Common Stock in the Original
FUNC Proposal to the consideration received by stockholders in two subsets
of savings institution acquisitions. Bear Stearns reviewed the price to
adjusted book value, the price to adjusted tangible book value, the price
to LTM EPS and premium over tangible book value to core deposits paid in
each such transaction and calculated high, low, median and harmonic means
(however, with respect to premium over tangible book value to core
deposits, the arithmetic mean) for the respective groups of transactions.
These valuation ratios for the Original FUNC Proposal were below the
respective harmonic mean or median values of the valuation ratios of both
groups of comparable transactions. The estimated value of the Original FUNC
Proposal was below the mid-point of a range of present values based upon a
discounted dividend model applied by Bear Stearns to the projections
included in the Revised Business Plan. The estimated value of the Original
FUNC Proposal was also below the mid-point of a range of present values
determined by applying assumed acquisition multiples to projected earnings
derived from the Revised Business Plan.
LEGAL OPINION REGARDING CERTAIN TAX MATTERS. Both the Original FUNC
Proposal and the Merger provide that FUNC's obligation to consummate the
transaction is conditioned on receipt of an opinion from FUNC's legal
counsel that the acquisition of ASF by FUNC constitutes a "reorganization"
under Section 368(a) of the Code. Because the consideration in the Merger
will be entirely FUNC Common Stock (except for cash payments in lieu of
fractional shares), rather than 80 percent FUNC Common Stock as
contemplated by the Original FUNC Proposal, the necessary factual predicate
for the opinion is more likely to exist at the time of the closing of the
Merger.
AGREEMENTS WITH BEAR STEARNS; FEES. In a letter agreement dated April 26,
1994, the Independent Committee and ASF retained Bear Stearns to act as
financial advisor to the Independent Committee concerning its examination of
available strategic alternatives, including the possible sale of ASF. Pursuant
to such letter agreement, ASF paid Bear Stearns an initial fee of $75,000, an
additional fee of $75,000 when Bear Stearns provided the Independent Committee
with its first periodic evaluation of ASF in May 1994, and additional quarterly
fees of $15,000 starting in June 1994. This first letter agreement also provided
that the Independent Committee could request other services and that Bear
Stearns fees for such services would be reasonable and customary for such
services. Pursuant to a second letter agreement dated as of October 31, 1994,
the Independent Committee and ASF requested that Bear Stearns provide its
opinion as to whether the Original FUNC Proposal would have been adequate, from
a financial point of view, to ASF's stockholders. The Inadequacy Opinion was
provided pursuant to this second letter agreement for a fee of $200,000.
Pursuant to a third letter agreement dated as of December 1, 1994, the
Independent Committee and ASF requested that Bear Stearns provide its opinion as
to whether the Merger was fair, from a financial point of view, to ASF's
stockholders. The opinion dated December 9, 1994 and the updated Fairness
Opinion were provided pursuant to this third letter agreement for a total fee of
$150,000, $75,000 of which was paid when Bear Stearns informed the Independent
Committee that it was prepared to deliver such opinions, and $75,000 of which
will be paid upon consummation of the Merger. In addition, ASF has agreed to
reimburse Bear Stearns for its reasonable out-of-pocket costs and expenses
incurred in connection with the services rendered to the Independent Committee
pursuant to these letter agreements, including the fees and expenses of its
legal counsel. Pursuant to these letter agreements, ASF has agreed to indemnify
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Bear Stearns, its affiliates and their respective partners, directors, officers,
agents, consultants, employees and controlling persons against certain expenses
and liabilities, including liabilities under the federal securities laws.
INTERESTS OF CERTAIN PERSONS
Certain members of ASF's management and the ASF Board may be deemed to have
interests in the Merger in addition to their interests as stockholders of ASF
generally. In each case, the ASF Board was aware of these factors and considered
them, among others, in approving the Merger Agreement.
INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE
The Merger Agreement provides that FUNC will indemnify the past and present
directors and officers of ASF against certain liabilities for six years
following the Effective Date to the maximum extent that ASF would have been
allowed to indemnify such persons under OTS regulations as in effect on the date
of the Merger Agreement. FUNC will also indemnify, to the fullest extent allowed
by Florida law, the officers and directors of ASF against certain liabilities
arising in connection with the Merger and other transactions contemplated by the
Merger Agreement and the Stock Option Agreement for six years following the
Effective Date. The Merger Agreement also provides that FUNC will use its
reasonable best efforts to maintain ASF's existing directors and officers
liability insurance policies (including coverage for certain claims that are
excluded under such policies) or a policy (including FUNC's policy) covering
persons covered by such policies on the date of the Merger Agreement on similar
terms which are no less favorable to such persons, for a period of three years
after the Effective Date at an annual cost not to exceed $1,000,000 for the
portion of the premium related to ASF's officers and directors. Under the Voting
Agreement, the directors of Enstar, including Messrs. Davis and Frazer, will be
indemnified by FUNC, to the fullest extent permitted by Delaware law, against
certain liabilities arising in connection with the Voting Agreement and the
Merger Agreement.
See ANNEX A and ANNEX B.
TREATMENT OF STOCK OPTIONS AND SENIOR EXECUTIVE SEVERANCE PLAN
The Merger Agreement provides that all options (other than the Option) to
purchase shares of ASF Common Stock which are outstanding immediately prior to
the Effective Date, whether or not vested or exercisable (each, a "Stock
Option") shall be cancelled by ASF. Each holder of a Stock Option with an
exercise price per share that is less than $21.00 is entitled to receive
immediately prior to the Effective Date a cash payment equal to the difference
between $21.00 and the exercise price per share of the Stock Option, times the
total number of shares covered by the Stock Option. See "BOARD OF DIRECTORS AND
COMMITTEES -- Director Compensation" and " -- Executive Compensation" below
regarding the ownership of Stock Options by certain officers and directors of
ASF.
The Merger Agreement provides that FUNC and the Subsidiary will honor,
among other agreements, the ASF Senior Executive Employee Severance Pay Plan
(the "Severance Plan") covering certain management employees of ASF (the
"Severance Beneficiaries") unless an affected management employee would receive
better benefits under FUNC's severance plan and such employee accepts FUNC's
severance plan in lieu of the Severance Plan. See "EXECUTIVE
COMPENSATION -- Termination of Employment, Change-in-Control Arrangements and
Employment Contracts". The Severance Plan provides benefits in situations in
which a Severance Beneficiary's employment is terminated other than for just
cause (as defined in the Severance Plan), death or disability or the Severance
Beneficiary resigns after having his or her terms of employment adversely
affected, in connection with a change in control. The approval by ASF
stockholders of the Merger would constitute a change in control for purposes of
the Severance Plan. In the event of a termination in connection with a change in
control, the Chief Executive Officer of ASF would receive 52 weeks' salary under
the plan and other executive officers would receive 40 weeks' salary, in
addition to bonuses for both the CEO and the executive officers. For additional
information regarding the circumstances giving rise to payments under the
Severance Plan, the calculation of "weeks salary," the determination of the
bonuses to be paid to Severance Beneficiaries, and the treatment of ASF's
matching contributions to a 401(k) Plan, see "EXECUTIVE
COMPENSATION -- Termination of Employment, Change-in-Control Arrangements and
Employment Contracts".
INTEREST OF ENSTAR AND CERTAIN ASF DIRECTORS IN MATTERS TO BE ACTED UPON
Enstar is currently the owner of approximately percent of the outstanding
shares of ASF Common Stock. Under the Bankruptcy Plan, as modified, Enstar is
obligated to sell or distribute its shares of ASF Common Stock before June 1,
1995, unless otherwise agreed by certain classes of creditors whose claims have
not been satisfied. The Merger would allow Enstar to dispose of its shares of
ASF Common Stock as required by the Bankruptcy Plan and to satisfy certain of
its creditors in accordance with the Bankruptcy Plan. See "THE
MERGER -- Background and Reasons; ASF".
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Messrs. T. Wayne Davis and Nimrod T. Frazer, directors of ASF, are also
directors of Enstar. Mr. Frazer is Chairman of the Board, President and Chief
Executive Officer of Enstar. The Enstar Board of Directors has adopted a
resolution which allows for the creation of an incentive bonus pool (the "Enstar
Incentive Bonus Pool") for its outside directors, including Mr. Davis and
certain employees other than Mr. Frazer in the event that all of Enstar's
creditors are paid in full and property remains for distribution pursuant to the
Bankruptcy Plan to Enstar's former stockholders. In January 1993, after
receiving no objections to its inquiry from Enstar's creditors or the OTS,
Enstar engaged Mr. Frazer on an exclusive basis to market and sell Enstar's
shares of ASF Common Stock, for a commission in an amount equal to one percent
of the aggregate value of the shares of ASF Common Stock owned by Enstar upon
the sale or other disposition of those shares pursuant to the Bankruptcy Plan.
Based on the $21 value of the FUNC Shares to be received for each share of ASF
Common Stock pursuant to the Merger, Mr. Frazer would realize a commission from
Enstar of approximately $1.2 million upon the consummation of the Merger. In
addition, Mr. Frazer and Mr. Davis hold the rights to 77,316 and 279,565
cancelled shares of the common stock of Enstar, respectively (each less than one
percent of the class), which were cancelled in the Enstar bankruptcy proceeding
(the "Old Enstar Common Stock") and will benefit from the sale or disposition of
Enstar's ASF Common Stock to the extent that the proceeds from that sale or
disposition, combined with the value of Enstar's other assets, exceed the total
amounts owed Enstar's creditors, plus the interest on those amounts owed, and
any reserves for taxes and expenses established by Enstar as permitted under the
Bankruptcy Plan, as modified. In addition, (i) Mr. Davis serves as President and
Chairman of the Board of Tine W. Davis Family -- WD Charities, Inc., in which
capacity he exercises voting power over 47,250 shares of FUNC Common Stock; (ii)
Mr. Davis' first cousin, Robert D. Davis, is a member of the FUNC Board; (iii)
Mr. Davis' first cousin, A. Dano Davis, is a member of the board of directors of
FUNB-FL; and (iv) Mr. Davis serves, along with Robert D. Davis, A. Dano Davis
and three other directors, on the board of directors of a private company, which
company has voting power with respect to 900,000 shares of FUNC Common Stock. In
addition, directors of ASF have various banking relationships with affiliates of
FUNC, including loans and deposit accounts.
EFFECT ON ASF EMPLOYEE BENEFIT PROGRAMS
FUNC agreed in the Merger Agreement that as soon as administratively
practicable following the Effective Date, (i) employees of ASF generally will be
entitled to participate in FUNC's pension, severance, employee benefit, health,
welfare and similar plans on substantially the same terms and conditions as
employees of FUNC, giving effect, for eligibility and vesting of benefits (but
not for accrual of benefits), to years of service with ASF as if such service
were with FUNC; and (ii) all participants in ASF's 401(k) Plan will be fully
vested in amounts contained in or allocable to their accounts in accordance with
the terms of such plan, which will be merged into FUNC's 401(k) Plan. ASF's
employees who remain employees of FUNC or any subsidiary of FUNC will have the
right to participate in FUNC's 401(k) Plan, and all other ASF employees will be
entitled to roll their accounts in ASF's 401(k) Plan into individual retirement
accounts and to otherwise deal with their accounts as if they had been fully
vested and had terminated their employment with ASF.
The Merger Agreement provides that in addition to honoring ASF's Severance
Plan, FUNC and the Subsidiary will honor ASF's existing severance program for
employees other than participants in the Severance Plan (unless FUNC's plan is
better for such employees), as well as job continuation and severance payment
agreements with certain information services employees not eligible to
participate in the Severance Plan.
FUNB-FL has agreed that if an employee of ASF or its subsidiaries is
terminated during the 12 months following the Effective Date as a result of job
elimination, such employee will be entitled to the better of the severance
packages provided by ASF and FUNB-FL. The employees of ASF will be entitled to
participate in FUNB-FL's pension, severance, employee benefit, health, welfare
and similar plans on substantially the same terms and conditions as employees of
FUNB-FL, giving effect (except for the accrual of benefits under such plans) to
years of service with ASF and its subsidiaries as if such service were with
FUNB-FL.
See " -- Interests of Certain Persons; TREATMENT OF STOCK OPTIONS AND
SENIOR EXECUTIVE SEVERANCE PLAN".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER BUT IS NOT INTENDED TO BE A COMPLETE DESCRIPTION OF THOSE
CONSEQUENCES. THE DISCUSSION IS INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY
AND MAY NOT APPLY TO SPECIAL SITUATIONS, SUCH AS ASF STOCKHOLDERS, IF ANY, WHO
RECEIVED THEIR ASF COMMON STOCK UPON THE EXERCISE OF EMPLOYEE STOCK OPTIONS, OR
OTHERWISE AS COMPENSATION, THAT HOLD THEIR ASF COMMON STOCK AS PART OF A
"STRADDLE" OR "CONVERSION TRANSACTION," OR THAT ARE INSURANCE COMPANIES,
SECURITIES DEALERS, FINANCIAL INSTITUTIONS OR FOREIGN PERSONS, AND DOES NOT
DISCUSS ANY ASPECTS OF STATE, LOCAL OR FOREIGN TAXATION. THIS DISCUSSION IS
BASED UPON LAWS,
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REGULATIONS, RULINGS, AND DECISIONS NOW IN EFFECT AND ON PROPOSED REGULATIONS,
ALL OF WHICH ARE SUBJECT TO CHANGE (POSSIBLY WITH RETROACTIVE EFFECT) BY
LEGISLATION, ADMINISTRATIVE ACTION OR JUDICIAL DECISION. NO RULING HAS BEEN OR
WILL BE REQUESTED FROM THE INTERNAL REVENUE SERVICE (THE "SERVICE") ON ANY TAX
MATTER RELATING TO THE TAX CONSEQUENCES OF THE MERGER.
Sullivan & Cromwell, special counsel for FUNC, has advised FUNC and ASF
that in its opinion:
(i) No gain or loss will be recognized for federal income tax
purposes by ASF stockholders upon the exchange in the Merger of shares of
ASF Common Stock solely for FUNC Shares (except with respect to cash
received in lieu of a fractional share interest in FUNC Shares).
(ii) The basis of FUNC Shares received in the Merger by ASF
stockholders (including the basis of any fractional share interest in FUNC
Shares) will be the same as the basis of the shares of ASF Common Stock
surrendered in exchange therefor.
(iii) The holding period of FUNC Shares received in the Merger by an
ASF stockholder (including the holding period of any fractional share
interest in FUNC Shares) will include the holding period during which the
shares of ASF Common Stock surrendered in exchange therefor were held by
the ASF stockholder, provided such shares of ASF Common Stock were held as
capital assets.
(iv) Cash received by a holder of ASF Common Stock in lieu of a
fractional share interest in FUNC Shares will be treated as received in
exchange for such fractional share interest, and, provided the fractional
share would have constituted a capital asset in the hands of such holder,
the holder should in general recognize capital gain or loss in an amount
equal to the difference between the amount of cash received and the portion
of the adjusted tax basis in ASF Common Stock allocable to the fractional
share interest.
In addition, consummation of the Merger is conditioned on receipt by FUNC
and ASF of an opinion of Sullivan & Cromwell to the effect that (i) the Merger
constitutes a reorganization under Section 368(a) of the Code, and (ii) no gain
or loss will be recognized by ASF stockholders who receive FUNC Shares in
exchange for their shares of ASF Common Stock, except that gain or loss may be
recognized as to cash received in lieu of fractional share interests. Unlike a
ruling from the Service, an opinion of counsel is not binding on the Service and
there can be no assurance that the Service will not take a position contrary to
one or more of the positions reflected herein or that the positions herein will
be upheld by the courts if challenged by the Service.
The opinions of Sullivan & Cromwell summarized above are or will be based,
among other things, on representations contained in certificates of officers of
ASF, Subsidiary, FUNC and others, and on representations and agreements
contained in the Voting Agreement.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER AND OTHER FACTORS, EACH STOCKHOLDER
OF ASF IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER (INCLUDING THE
APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX LAWS).
BUSINESS PENDING CONSUMMATION
The Merger Agreement provides that, without the prior written agreement of
FUNC or except as otherwise permitted by the Merger Agreement, ASF will
generally conduct its business only in the ordinary and usual course consistent
with past practice, and not take certain actions relating to the operation of
ASF pending consummation of the Merger or termination of the Merger Agreement.
These actions include, without limitation: (i) paying dividends, redeeming or
otherwise acquiring shares of its capital stock, issuing additional shares of
its capital stock or giving any person the right to acquire any such shares, or,
incurring any debt; (ii) increasing the rate of compensation or paying bonuses
to any of its directors, officers or employees; (iii) entering into or modifying
any employment agreements or employee benefit plans; (iv) disposing of any
material portions of its assets or acquiring any substantial portions of the
business or property of any other entities; (v) changing its lending,
investment, liability management, accounting procedure, or other material
banking policies in any material respect; (vi) incurring any capital
expenditures in excess of $100,000 individually or $500,000 in the aggregate;
(vii) taking any action that would impair the Bankruptcy Claim; (viii) entering
into, terminating or changing any material agreements, except for those
agreements that are terminable by ASF without penalty in excess of $100,000 upon
not more
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than 60 days' prior written notice; (ix) settling any claims involving money
damages in excess of $250,000 or any restrictions on the operations of ASF; or
(x) acquiring private label mortgage-backed securities.
The Merger Agreement also provides that, consistent with generally accepted
accounting principles and regulatory accounting principles, ASF will use its
best efforts to record any accounting adjustments required to conform its loan,
litigation, and other reserve and real estate valuation policies and practices
(including loan classifications and levels of reserves) so as to be consistent
with those policies and practices applied by FUNC, provided that ASF shall not
be obligated to record any such accounting adjustments (i) unless and until ASF
is satisfied that the conditions to the obligations of the parties to consummate
the Merger will be satisfied or waived on or before the Effective Date and (ii)
in no event until the day prior to the Effective Date.
NO SOLICITATION
The Merger Agreement provides that neither ASF nor any of its officers,
directors, agents and representatives (the "Restricted Parties") will initiate,
solicit or encourage inquiries or proposals that would constitute or that would
lead to a Competing Transaction. The Merger Agreement defines a "Competing
Transaction" as any of the following involving ASF: (i) any merger,
consolidation, share exchange, business combination, or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 20 percent or more of the assets or deposits of ASF, in a single
transaction or a series of related transactions; or (iii) any tender offer or
exchange offer for 20 percent or more of the outstanding shares of ASF Common
Stock or the filing of a registration statement under the Securities Act in
connection therewith. The Merger Agreement also prohibits the Restricted Parties
from entering into discussions or negotiations with any person or entity in
furtherance of such inquiries or to obtain a Competing Transaction, or agreeing
to endorse or endorsing any Competing Transaction, or authorizing any of the
officers or directors of ASF or its subsidiaries to take such action. ASF has
agreed to use its reasonable best efforts to cause its directors, officers (vice
president and above), agents and representatives (including, without limitation,
any investment banker, financial advisor, attorney or accountant retained by
ASF) not to take any of the prohibited actions.
The Merger Agreement does not prohibit ASF from furnishing information to,
or entering into discussions or negotiations with, any person that makes a bona
fide proposal to enter into a Competing Transaction after December 4, 1994, as
long as such proposal is not solicited or encouraged by ASF after that date. In
addition, ASF may recommend or endorse or enter into a definitive agreement with
respect to the Competing Transaction as long as: (i) the ASF Board determines in
good faith (after considering the advice of outside counsel) that such action is
required for the ASF Board to comply with its fiduciary duties to ASF's
stockholders under applicable law, (ii) the ASF Board reasonably believes that
the proposal is made in good faith, (iii) prior to furnishing such information
to such person, ASF receives from such person an executed confidentiality
agreement, with terms reasonably satisfactory to ASF, and (iv) ASF provides
prior notice to FUNC.
REGULATORY APPROVALS
The Merger is subject to the prior approval of the OCC under the Bank
Merger Act (the "BMA") and Section 5(d)(3) of the Federal Deposit Insurance Act
(the "FDI Act"). The BMA requires that the OCC take into consideration, among
other factors, the financial and managerial resources and future prospects of
the institutions, and the convenience and needs of the communities to be served
(including compliance with fair lending laws). The BMA prohibits the OCC from
approving the Merger (i) if it would result in a monopoly or be in furtherance
of any combination or conspiracy to monopolize, or to attempt to monopolize, the
business of banking in any part of the United States, or (ii) if its effect in
any section of the country may be substantially to lessen competition or to tend
to create a monopoly, or if it would in any other manner be a restraint of
trade, unless the OCC finds that the anti-competitive effects of such merger are
clearly outweighed by the public interest and by the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served. The OCC has the authority to deny an application if it concludes that
the combined organization would have an inadequate capital position or if the
acquiring organization does not meet the requirements of the Community
Reinvestment Act of 1977 (the "CRA"). Under the FDI Act and the BMA, the Merger
may not be consummated until the 30th day (which may, in certain circumstances,
be reduced to the 15th day) following the date of the approval of the relevant
regulatory agency, during which time the United States Department of Justice may
challenge the Merger on antitrust grounds. The commencement of an antitrust
action would stay the effectiveness of such an approval unless a court
specifically orders otherwise. The Merger is also subject to prior notice being
given to the OTS. An application for approval of the Merger by the OCC has been
filed and notice has been given to the OTS. Because Enstar is subject to a
capital maintenance obligation with respect to ASF under the Capital Maintenance
Agreement, Enstar has filed a separate notice with and has obtained the consent
of the OTS to
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dispose of the shares of ASF Common Stock it owns. See "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Potential Change in Control".
THE MERGER CANNOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCE THAT SUCH REGULATORY APPROVALS WILL BE
OBTAINED OR AS TO THE DATES OF ANY OF SUCH APPROVALS. THERE CAN ALSO BE NO
ASSURANCE THAT SUCH APPROVALS WILL NOT CONTAIN A CONDITION OR REQUIREMENT WHICH
CAUSES SUCH APPROVALS TO FAIL TO SATISFY THE CONDITION SET FORTH IN THE MERGER
AGREEMENT AND DESCRIBED BELOW UNDER " -- CONDITIONS TO CONSUMMATION;
TERMINATION". THERE CAN LIKEWISE BE NO ASSURANCE THAT THE UNITED STATES
DEPARTMENT OF JUSTICE WILL NOT CHALLENGE THE MERGER, OR, IF SUCH A CHALLENGE IS
MADE, AS TO THE RESULT THEREOF. ANY APPROVAL, IF AND WHEN RECEIVED FROM THE OCC,
DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE MERGER BY SUCH
AGENCY.
CONDITIONS TO CONSUMMATION; TERMINATION
Consummation of the Merger is subject, among other things, to: (i) approval
of the Merger and the Merger Agreement by the stockholders of ASF; (ii) receipt
of the regulatory approvals referred to above without any restrictions or
conditions which in the good faith reasonable opinion of FUNC would so
materially adversely impact the economic or business benefits to FUNC of the
transactions contemplated by the Merger Agreement so as to render inadvisable
the consummation of the Merger; (iii) no court or governmental or regulatory
authority having taken any action which prohibits the Merger; (iv) receipt by
FUNC and ASF of the opinion of Sullivan & Cromwell as to certain federal income
tax consequences of the Merger; (v) the FUNC Shares having been approved for
listing on the NYSE, subject to official notice of issuance; (vi) all Stock
Options having been cancelled and paid for; (vii) the continued effectiveness of
the Registration Statement; (viii) the receipt of all required "blue sky"
permits; and (ix) the receipt of various third party consents to the Merger.
Consummation of the Merger is also subject to the satisfaction or waiver of
various other conditions specified in the Merger Agreement, including, among
others: (i) the delivery by ASF and FUNC, each to the other, of (a) opinions of
their respective counsel, and (b) certificates executed by certain of their
respective executive officers as to compliance with the Merger Agreement; (ii)
the accuracy of the representations and warranties, and compliance in all
material respects with the agreements and covenants, of the parties to the
Merger Agreement; and (iii) the receipt by FUNC of letters from ASF's
independent certified public accountants with respect to ASF's financial
position and results of operations, which letters shall be based upon procedures
customarily undertaken by such firm.
The Merger Agreement provides that, whether before or after the required
approval of the Merger and the Merger Agreement by the stockholders of ASF, the
Merger Agreement may be terminated, and the Merger abandoned, at any time prior
to the Effective Date: (i) by mutual consent of FUNC and ASF; (ii) by either
FUNC or ASF (a) if the stockholders of ASF fail to approve the Merger Agreement,
(b) in the event of a breach by the other party of any representation or
warranty contained in the Merger Agreement, which breach is not cured after 30
days' written notice thereof is given to the party committing such breach which
would result in a failure to satisfy any of the conditions to the consummation
of the Merger described above, (c) in the event of a material breach by the
other party of any of the covenants or agreements contained in the Merger
Agreement, which breach is not cured after 30 days' written notice thereof is
given to the party committing such breach, (d) if any required governmental
approval has been denied or required to be withdrawn, or the applicable
governmental authority has indicated an intention to deny or impose a condition
or requirement which generally would materially adversely impact the economic or
business benefits to FUNC of the Merger, (e) if a court order restrains or
prohibits the Merger or any action is taken by any governmental authority which
would make the Merger illegal, or (f) if the Merger is not consummated on or
before August 25, 1995, provided that the party seeking to terminate the Merger
is not in breach of any of the covenants or agreements of the Merger Agreement;
(iii) by FUNC if the ASF Board fails to recommend the Merger to ASF stockholders
or withdraws, modifies or changes its recommendation of the Merger or the Merger
Agreement to the stockholders of ASF; or (iv) by ASF, if in the exercise of its
good faith judgment as to its fiduciary duties to its stockholders the ASF Board
determines that such termination is required, and ASF shall have agreed to a
Competing Transaction.
WAIVER; AMENDMENT
Prior to the Effective Date, any provision of the Merger Agreement may be:
(i) waived by the party benefitted by the provision; or (ii) amended or modified
at any time (including the structure of the transaction) by an agreement in
writing among the parties thereto, approved by their respective Boards of
Directors and executed in the same manner as the Merger Agreement, provided that
after approval by the stockholders of ASF, the consideration to be received by
the stockholders of ASF may not thereby be decreased.
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SURVIVAL
No representations, warranties, agreements or obligations of FUNC or ASF
under the Merger Agreement survive the Effective Date, except for provisions of
the Merger Agreement regarding the applicability of Florida law and
indemnification of and insurance for ASF's officers and directors.
NO APPRAISAL RIGHTS
Holders of ASF Common Stock do not have appraisal rights under the
applicable provisions of OCC regulations or OTS regulations. In a transaction
such as the Merger, OCC regulations provide that OTS regulations shall determine
whether or not ASF stockholders have any appraisal rights. In accordance with
OTS regulations, holders of ASF Common Stock will have no appraisal rights if
the FUNC Common Stock remains listed on the NYSE on the Effective Date and the
ASF Common Stock remains quoted on the Nasdaq National Market on the date of the
Meeting. See "CERTAIN DIFFERENCES IN THE RIGHTS OF ASF AND FUNC
STOCKHOLDERS -- Dissenters' or Appraisal Rights; ASF".
ACCOUNTING TREATMENT
It is expected that the purchase method of accounting will be used to
account for the Merger upon consummation. As required by generally accepted
accounting principles, under purchase accounting, the assets and liabilities of
ASF as of the Effective Date will be recorded at their respective fair market
values and added to those of FUNC. Financial statements of FUNC issued after
consummation of the Merger would reflect such values. Financial statements of
FUNC issued before consummation of the Merger would not be restated
retroactively to reflect ASF's historical financial position or results of
operations. The unaudited pro forma financial information contained in this
Proxy Statement/Prospectus has been prepared using the purchase method of
accounting to account for the Merger. See "SUMMARY OF THE MERGER".
EXPENSES
All expenses incurred by or on behalf of the parties in connection with the
Merger Agreement and the transactions contemplated thereby will be borne by the
party incurring the same, except for (i) the fees and expenses of Sullivan &
Cromwell in rendering a tax opinion in connection with the Merger, which fees
and expenses will be paid by FUNC and (ii) in the event of a willful breach of
the Merger Agreement, the costs, fees and expenses of counsel of the
non-breaching parties will be paid by the breaching party.
STOCK OPTION AGREEMENT
As an inducement and condition to FUNC's willingness to enter into the
Merger Agreement, ASF issued to FUNC the Option to purchase, under certain
conditions, up to 2,288,700 shares of ASF Common Stock at a Purchase Price of
$19.5625 per share, subject to adjustment in certain circumstances. The Option
was granted to FUNC pursuant to the Stock Option Agreement. The last sale price
of ASF Common Stock on the Nasdaq National Market on December 2, 1994, the last
business day prior to the date on which the Stock Option Agreement was executed,
was $16.4375. The number of shares of ASF Common Stock subject to the Option
represents approximately 19.9 percent of the then outstanding shares of ASF
Common Stock, before giving effect to the issuance of such shares, and may not
exceed such percentage at the time of exercise. FUNC does not have any voting
rights with respect to the shares of ASF Common Stock subject to the Option
prior to exercise of the Option.
If FUNC is not in material breach of the Stock Option Agreement or the
Merger Agreement and no injunction against delivery of the shares covered by the
Option is in effect, FUNC may exercise the Option, in whole or in part, at any
time and from time to time following the happening of certain events (each a
"Purchase Event"), including, among others:
(i) ASF taking certain actions without FUNC's prior written consent,
including, among others, authorizing, recommending or entering into an
agreement with any third party to effect any of the following (each, an
"Acquisition Transaction") (a) a merger, consolidation or similar
transaction involving ASF or any of its significant subsidiaries, (b) the
sale, lease, exchange or other disposition of 20 percent or more of the
consolidated assets or deposits of ASF and its subsidiaries, or (c) the
issuance, sale or other disposition of 20 percent or more of the voting
power of ASF or any of its significant subsidiaries; or
42
<PAGE>
(ii) the acquisition by any third party of the beneficial ownership,
or the right to acquire beneficial ownership, of 20 percent or more (or if
such party is the beneficial owner of 20 percent or more on the date of the
Option Agreement, such party acquires an additional five percent or more)
of the voting power of ASF or any of its significant subsidiaries, without
FUNC's prior written consent.
The Option will terminate upon the earliest of certain events, including:
(i) consummation of the Merger; (ii) termination of the Merger Agreement prior
to the happening of a Purchase Event or a Preliminary Purchase Event (as defined
below), unless ASF has engaged in discussions with any third party regarding an
Acquisition Transaction since December 4, 1994 and prior to such termination; or
(iii) 18 months after any other termination of the Merger Agreement. A
"Preliminary Purchase Event" is defined to include, among other events: (a)
commencement by any third party of a tender or exchange offer to purchase 20
percent or more of the outstanding shares of ASF Common Stock, (b) failure of
the stockholders of ASF to approve the Merger Agreement, or the ASF Board shall
have withdrawn or modified in any manner adverse to FUNC its recommendation with
respect to the Merger Agreement, or the Meeting shall not have been held or
shall have been cancelled prior to termination of the Merger Agreement, in each
case after public announcement that a third party (x) proposes to engage in an
Acquisition Transaction, (y) commences a tender offer to purchase 20 percent or
more of the outstanding shares of ASF Common Stock, or (z) files an application
under certain federal statutes relating to the regulation of banks and other
financial institutions or their holding companies, to engage in an Acquisition
Transaction, (c) any third party shall have proposed to ASF or its stockholders,
publicly or in any writing that becomes publicly disclosed, to engage in an
Acquisition Transaction; (iv) ASF furnishes information or enters into
discussions or negotiations pursuant to the Merger Agreement with any third
party that makes an unsolicited, bona fide expression of interest in acquiring
ASF; (v) after a bona fide proposal by a third party to ASF or its stockholders
to engage in an Acquisition Transaction, ASF breaches any covenant or obligation
in the Merger Agreement which, under the terms of the Merger Agreement, would
entitle FUNC to terminate the Merger Agreement; or (vi) any third party files an
application with any federal or state bank regulatory authority for approval to
engage in an Acquisition Transaction.
Upon the occurrence of certain events set forth in the Option Agreement,
the Option must be converted into, or exchanged for an option, at the election
of FUNC, of another corporation or ASF (the "Substitute Option"). In addition,
the Option Agreement grants certain registration rights ("Registration Rights")
to FUNC with respect to the shares covered by the Option, and contains certain
agreements by FUNC with respect to the voting of such shares in connection with
any meeting of ASF stockholders to vote on an Acquisition Transaction with a
third party ("Voting Arrangements"). The terms of such Substitute Option,
Registration Rights and Voting Arrangements are set forth in the Stock Option
Agreement.
The Stock Option Agreement and the Option are intended to increase the
likelihood that the Merger will be consummated according to the terms set forth
in the Merger Agreement, and may be expected to discourage competing offers to
acquire ASF from potential third party acquirors because the Option could
increase the cost of such an acquisition.
To the knowledge of ASF's and FUNC's executive management, no event giving
rise to exercise of the Option has occurred as of the date of this Proxy
Statement/Prospectus.
A copy of the Stock Option Agreement is set forth in Exhibit C to the
Merger Agreement, which is set forth in ANNEX A to this Proxy
Statement/Prospectus, and reference is made thereto for the complete terms of
the Stock Option Agreement and the Option. The foregoing discussion is qualified
in its entirety by reference to the Stock Option Agreement.
VOTING AGREEMENT; ESCROW AGREEMENT
As an inducement to and a condition of FUNC's willingness to enter into the
Merger Agreement, Enstar entered into the Voting Agreement, and in connection
therewith Enstar and FUNC also entered into the Escrow Agreement with the Escrow
Agent.
The Voting Agreement provides, among other things, that Enstar will vote
its shares of ASF Common Stock in favor of approval of the Merger and the Merger
Agreement and sets forth provisions relating to payment by Enstar to ASF of the
Bankruptcy Claim in the principal amount of approximately $32.0 million owing
from Enstar to ASF and certain other Senior Claims payable pursuant to Enstar's
Bankruptcy Plan, as modified.
In order to facilitate the payment of the Bankruptcy Claim to the
Subsidiary, as the successor to ASF following consummation of the Merger, Enstar
delivered the 3,926,422 Escrowed Shares to the Escrow Agent to be held under the
Escrow Agreement pending consummation of the Merger.
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<PAGE>
The Voting Agreement and the Escrow Agreement provide that on the Effective
Date the Escrowed Shares will be exchanged for FUNC Shares pursuant to the
Merger Agreement and FUNC will purchase such FUNC Shares from the Escrow Agent
for approximately $82.5 million ($21.00 per share of ASF Common Stock exchanged
for such FUNC Shares), whereupon the Escrow Agent will make payment on behalf of
Enstar of all or substantially all of the Bankruptcy Claim following payment of
the Senior Claims that are required by the Bankruptcy Plan to be paid under the
Bankruptcy Plan, as modified, before the Bankruptcy Claim can be paid.
The Voting Agreement and the Escrow Agreement also provide for the deposit
with the Escrow Agent on the Effective Date of certain additional shares of FUNC
Common Stock to be received by Enstar in exchange for shares of ASF Common Stock
held by Enstar, which FUNC Shares are to be held by the Escrow Agent pending
payment in full of any balance remaining due under the Bankruptcy Claim and the
interest payable on the Bankruptcy Claim. The Voting Agreement further provides
that, under certain circumstances, Enstar has the right to receive any FUNC
Shares, cash or other securities then held by the Escrow Agent to pay certain
obligations under the Bankruptcy Plan, as modified, which may be required to be
paid prior to payment of the balance due on the Bankruptcy Claim and any
interest payable thereon.
A copy of the Voting Agreeement is set forth in ANNEX B to this
Prospectus/Proxy Statement and a copy of the Escrow Agreement is set forth in
Exhibit A to the Voting Agreement. Reference is made to ANNEX B for the complete
terms of the Voting Agreement and the Escrow Agreement. The foregoing discussion
is qualified in its entirety by reference to the Voting Agreement and the Escrow
Agreement.
MARKET PRICES
The following table sets forth (i) the high, low and last reported sale
prices per share of FUNC Common Stock on the NYSE Tape and of ASF Common Stock
on the Nasdaq Small Cap Market (for the first and second quarters of 1993) or
the Nasdaq National Market (for each quarterly period thereafter), and (ii) the
equivalent pro forma market values per share of ASF Common Stock, based on the
Current Exchange Ratio. The actual Exchange Ratio will depend on the FUNC
Average Closing Price and may be higher or lower than the Current Exchange
Ratio.
<TABLE>
<CAPTION>
FUNC ASF
HIGH LOW LAST HIGH LOW
<S> <C> <C> <C> <C> <C>
1993
First quarter.......................................... $ 50 7/8 42 1/4 47 3/4 13 1/8 10 5/16
Second quarter......................................... 51 1/2 40 48 1/2 13 1/8 9 3/4
Third quarter.......................................... 49 5/8 43 1/2 47 5/8 18 3/4 11 3/8
Fourth quarter......................................... 48 1/8 37 7/8 41 1/4 20 3/8 17 1/2
1994
First quarter.......................................... 43 3/4 39 3/4 41 5/8 22 1/4 17 1/2
Second quarter......................................... 47 5/8 41 1/4 46 1/8 23 1/4 20 5/8
Third quarter.......................................... 47 1/4 43 1/4 43 1/4 23 3/8 17 7/8
Fourth quarter......................................... 45 1/4 39 3/8 41 3/8 21 3/4 15 1/8
1995
First quarter (through )................ $
<CAPTION>
EQUIVALENT PRO FORMA PER ASF COMMON
SHARE (1)
LAST HIGH LOW LAST
<S> <C> <C> <C> <C>
1993
First quarter.......................................... 12 3/16 24 5/8 20 3/8 23
Second quarter......................................... 11 1/2 24 7/8 19 1/4 23 3/8
Third quarter.......................................... 18 3/8 24 21 23
Fourth quarter......................................... 19 1/8 23 1/4 18 1/4 19 7/8
1994
First quarter.......................................... 21 1/4 21 1/8 19 1/8 20 1/8
Second quarter......................................... 21 3/4 23 19 7/8 22 1/4
Third quarter.......................................... 18 3/8 22 3/4 20 7/8 20 7/8
Fourth quarter......................................... 19 5/8 21 7/8 19 20
1995
First quarter (through )................
</TABLE>
(1) Equivalent pro forma market values per ASF common share amounts represent
the high, low and last reported sales prices per share of FUNC Common Stock,
multiplied by the Current Exchange Ratio, rounded down to the nearest one-
eighth.
On December 2, 1994, the last business day prior to public announcement of
the execution of the Merger Agreement, the high, low and last reported sale
prices per share of FUNC Common Stock on the NYSE Tape and of ASF Common Stock
on the Nasdaq National Market were $40.00, $39.625, $40.00 and $16.50, $15.625,
$16.4375, respectively. On , 1995, such prices were $ ,
$ , $ and $ , $ , $ , respectively. See "FUNC -- Common
Stock Repurchase".
44
<PAGE>
ASF stockholders are advised to obtain current market quotations for FUNC
Common Stock and ASF Common Stock. No assurance can be given as to the market
prices of FUNC Common Stock or ASF Common Stock at any time before the Effective
Date or as to the market price of FUNC Common Stock thereafter.
The Merger Agreement provides for the filing of a listing application with
the NYSE covering the FUNC Shares. It is a condition to consummation of the
Merger that the FUNC Shares be authorized for listing on the NYSE, effective
upon official notice of issuance. See " -- Conditions to Consummation;
Termination".
DIVIDENDS
The following table sets forth (i) the cash dividends paid or declared on
FUNC Common Stock and ASF Common Stock with respect to each calendar quarter
since January 1, 1993, and (ii) the equivalent pro forma cash dividends paid per
share of ASF Common Stock, based on the Current Exchange Ratio. The actual
Exchange Ratio will depend on the FUNC Average Closing Price and may be higher
or lower than the Current Exchange Ratio.
<TABLE>
<CAPTION>
EQUIVALENT PRO FORMA
FUNC ASF PER ASF COMMON SHARE (1)
<S> <C> <C> <C>
1993
First quarter.............................................................. $.35 -- .17
Second quarter............................................................. .35 -- .17
Third quarter.............................................................. .40 -- .19
Fourth quarter............................................................. .40 -- .19
1994
First quarter.............................................................. .40 -- .19
Second quarter............................................................. .40 -- .19
Third quarter.............................................................. .46 -- .22
Fourth quarter............................................................. .46 -- .22
1995
First quarter.............................................................. $.46 -- .22
</TABLE>
(1) Equivalent pro forma cash dividends paid per ASF common share amounts
represent FUNC historical dividend rates per share, multiplied by the
Current Exchange Ratio, rounded to the nearest cent. The current annualized
dividend rate per share for FUNC Common Stock, based upon the most recently
declared quarterly dividend rate of $.46 per share payable on March 15,
1995, would be $1.84. On an equivalent pro forma basis, such current
annualized FUNC dividend per ASF common share would be $.88, based on the
Current Exchange Ratio. Future FUNC and ASF dividends are dependent upon
their respective earnings and financial condition, government regulations
and policies, and other factors.
See "FUNC -- Certain Regulatory Considerations; PAYMENT OF DIVIDENDS" AND
"DESCRIPTION OF FUNC CAPITAL STOCK".
As to the securities of ASF or FUNC, as of the date of this Proxy
Statement/Prospectus, no dividends are in arrears nor does there exist any
default in principal or interest of such securities.
45
<PAGE>
ASF
GENERAL
Financial and other information relating to ASF, including information
relating to ASF's directors and executive officers, is set forth in (i) ASF's
1994 Form 10-K, a copy of which is set forth in ASF's 1994 Annual Report to
Stockholders which accompanies this Proxy Statement/Prospectus, and (ii)
sections of this Proxy Statement/Prospectus under the following headings:
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT", "ELECTION OF
DIRECTORS", "BOARD OF DIRECTORS AND COMMITTEES", "EXECUTIVE COMPENSATION", and
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS". The following is a brief
summary of ASF's history and business, and is qualified in its entirety by
reference to more detailed information contained in ASF's 1994 Form 10-K.
HISTORY AND BUSINESS
Headquartered in Miami, Florida, ASF was originally chartered in 1950 by
the Florida Department of Banking and Finance as a mutual savings and loan
association and was converted into a Florida capital stock savings and loan
association in 1976. On May 14, 1991, ASF converted into a federally-chartered
stock savings bank. ASF is one of the largest thrift institutions headquartered
in Florida based on total assets. As of December 31, 1994 and for the year then
ended, ASF reported assets of $3.6 billion, loans receivable, net and loans held
for sale of $2.0 billion, deposits of $2.3 billion, stockholders' equity of $217
million and net income of $19 million, and as of such date ASF operated through
29 retail offices in south Florida, eight mortgage origination offices in
Florida and two loan production offices in Chicago. As of December 31, 1994, ASF
employed 725 full-time employees.
As a member of the Federal Home Loan Bank System with deposits insured by
the FDIC through the SAIF, ASF is subject to supervision, examination and
regulation by the OTS and the FDIC, and also is subject to the regulations of
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") and the Federal Housing Finance Board.
As of , 1995, Enstar owned approximately percent of the
outstanding shares of ASF Common Stock. The remaining shares are publicly held
and trade on the Nasdaq National Market under the symbol "ASFL". Enstar is a
unitary savings and loan holding company of ASF. See "THE MERGER -- Background
and Reasons; ASF" and "BOARD OF DIRECTORS AND COMMITTEES -- Compensation
Committee Interlocks and Insider Participation; ENSTAR CHAPTER 11 PROCEEDINGS".
ASF's principal business is attracting deposits from the public and
originating and investing in residential real estate mortgage and consumer loans
and investing in mortgage-backed securities ("MBSs") such as those guaranteed by
the Federal National Mortgage Association, Federal Home Loan Mortgage
Corporation, or Government National Mortgage Association, and has included
privately issued MBSs. ASF's primary sources of revenues are interest earned on
mortgage loans and MBSs, fees earned in connection with loans and deposits and
income earned on its portfolio of loans serviced for others. Its principal
expense is interest incurred on interest bearing liabilities, including deposits
and borrowings.
ASF's operating results depend to a significant degree on the spread
between the interest income it receives from loans and investments and the
interest cost of deposits and borrowings.
ASF's sources of new funds are primarily deposits, MBSs, collateralized
mortgage obligations, loan repayments, reverse repurchase agreements and
borrowings from the FHLB of Atlanta. ASF leases office space in its retail
facilities to American Securities Investment Corp., a wholly-owned subsidiary of
ASF, which contracts with an unaffiliated company (licensed as a securities
broker/dealer) for the distribution of securities to the public, including ASF's
customers. ASF also subleases space to a corporate affiliate of the third party
to distribute insurance products, such as annuities.
ASF's lending operations currently consist of permanent residential real
estate lending, residential land and construction lending, commercial real
estate lending and consumer lending (including automobile loans, guaranteed
student loans and home equity lines of credit).
ASF's operating strategy has emphasized traditional thrift activities
uniquely suited to community needs through the expansion of its retail banking
activities and loan originations. In particular, efforts to achieve continuing
core earnings focus primarily on strengthening (i) originations of residential
first and second mortgage loans and multifamily first mortgage loans on existing
properties, (ii) the indirect automobile lending business, (iii) residential
land and construction lending and (iv) student lending. ASF has agreed with FUNC
in the Merger Agreement to operate its business in the ordinary course and in
accordance with past practices (subject to restrictions and exceptions contained
in the Merger Agreement) pending consummation of the Merger. See "THE
MERGER -- Business Pending Consummation".
46
<PAGE>
FUNC
GENERAL
Financial and other information relating to FUNC, including information
relating to FUNC's directors and executive officers, is set forth in FUNC's 1994
Annual Report on Form 10-K and 1995 Annual Meeting Proxy Statement, copies of
which may be obtained from FUNC as indicated under "AVAILABLE INFORMATION".
HISTORY AND BUSINESS
FUNC was incorporated under the laws of North Carolina in 1967 and is
registered as a bank holding company under the BHCA. Pursuant to a corporate
reorganization in 1968, First Union National Bank of North Carolina ("FUNB-NC")
and First Union Mortgage Corporation, a mortgage banking firm acquired by
FUNB-NC in 1964, became subsidiaries of FUNC.
In addition to FUNB-FL and FUNB-NC, FUNC also operates banks in North
Carolina, South Carolina, Georgia, Tennessee, Virginia, Maryland and Washington,
D.C. In addition to providing a wide range of commercial and retail banking and
trust services through its banking subsidiaries, FUNC also provides various
other financial services, including mortgage banking, capital markets services,
insurance and securities' brokerage services, through other subsidiaries.
Since the 1985 Supreme Court decision upholding regional interstate banking
legislation, FUNC has concentrated its efforts on building a large, regional
banking organization in what it perceives to be some of the better banking
markets in the southeastern and south atlantic regions of the United States.
Since November 1985, FUNC has completed 50 banking related acquisitions,
including the more significant completed acquisitions (I.E., involving the
acquisition of $3.0 billion or more of assets or deposits) set forth in the
following table.
<TABLE>
<CAPTION>
ASSETS/ CONSIDERATION/
NAME HEADQUARTERS DEPOSITS(1)(2) ACCOUNTING TREATMENT COMPLETION DATE
<S> <C> <C> <C> <C>
Atlantic Bancorporation....................... Florida $3.8 billion common stock/pooling November 1985
Northwestern Financial Corporation............ North Carolina 3.0 billion common stock/pooling December 1985
First Railroad & Banking Company of Georgia... Georgia 3.7 billion common stock/pooling November 1986
Florida National Banks of Florida, Inc........ Florida 7.9 billion cash and preferred January 1990
stock/purchase
Southeast banks............................... Florida 9.9 billion cash, notes and preferred September 1991
stock/
purchase
Resolution Trust Company ("RTC") 5.3 billion cash/purchase 1991-1994
acquisitions................................ Florida,
Georgia,
Virginia
Dominion Bankshares Corporation............... Virginia 8.9 billion common stock and March 1993
preferred stock/pooling
Georgia Federal Bank, FSB..................... Georgia 4.0 billion cash/purchase June 1993
First American Metro Corp..................... Virginia 4.6 billion cash/purchase June 1993
ASF........................................... Florida $3.6 billion common stock/purchase
</TABLE>
(1) The dollar amounts indicated represent the assets of the related
organization as of the last reporting period prior to acquisition, except
for (i) the dollar amount relating to RTC acquisitions, which represents
savings and loan deposits acquired from the RTC and (ii) the dollar amount
relating to Southeast banks, which represent assets of the two banking
subsidiaries of Southeast Banking Corporation acquired from the FDIC.
(2) In addition, FUNC purchased Lieber & Company ("Lieber"), a mutual fund
advisory company with approximately $3.4 billion in assets under management,
in June 1994. Since such assets are not owned by Lieber, they are not
reflected on FUNC's balance sheet.
FUNC is continually evaluating acquisition opportunities and frequently
conducts due diligence activities in connection with possible acquisitions. As a
result, acquisition discussions and, in some cases, negotiations frequently take
place and future acquisitions involving cash, debt or equity securities can be
expected. Acquisitions typically involve the payment of a premium over book and
market values, and therefore some dilution of FUNC's book value and net income
per common share
47
<PAGE>
may occur in connection with any future transactions. See " -- Certain
Regulatory Considerations; INTERSTATE BANKING AND BRANCHING LEGISLATION".
COMMON STOCK REPURCHASE
The Board of Directors of FUNC has authorized the repurchase from time to
time of up to 13 million shares of FUNC Common Stock, including a number of
shares approximately equal to the number of FUNC shares expected to be issued in
the Merger. Between December 5, 1994 and February 14, 1995, FUNC has repurchased
in the open market 3.8 million shares of FUNC Common Stock of the shares of FUNC
Common Stock expected to be issued in the Merger, at a cost of $161 million.
CERTAIN REGULATORY CONSIDERATIONS
AS A BANK HOLDING COMPANY, FUNC IS SUBJECT TO REGULATION UNDER THE BHCA AND
TO ITS EXAMINATION AND REPORTING REQUIREMENTS. THE FOLLOWING DISCUSSION SETS
FORTH CERTAIN OF THE MATERIAL ELEMENTS OF THE REGULATORY FRAMEWORK APPLICABLE TO
BANK HOLDING COMPANIES AND THEIR SUBSIDIARIES AND PROVIDES CERTAIN SPECIFIC
INFORMATION RELEVANT TO FUNC. TO THE EXTENT THAT THE FOLLOWING INFORMATION
DESCRIBES STATUTORY AND REGULATORY PROVISIONS, IT IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE PARTICULAR STATUTORY AND REGULATORY PROVISIONS. A CHANGE IN
APPLICABLE STATUTES, REGULATIONS OR REGULATORY POLICY MAY HAVE A MATERIAL EFFECT
ON THE BUSINESS OF FUNC.
GENERAL
FUNC is a bank holding company within the meaning of the BHCA and is
registered as such with the Federal Reserve Board. Under the BHCA, bank holding
companies may not directly or indirectly acquire the ownership or control of
more than five percent of the voting shares or substantially all of the assets
of any company, including a bank, without the prior approval of the Federal
Reserve Board. Federal Reserve Board approval is not required for the Merger
because a national bank, the Subsidiary, will actually acquire ASF. See "THE
MERGER -- Regulatory Approvals". In addition, bank holding companies are
generally prohibited under the BHCA from engaging in nonbanking activities,
subject to certain exceptions.
The earnings of FUNC are affected by general economic conditions,
management policies and the legislative and governmental actions of various
regulatory authorities, including the Federal Reserve Board and the OCC. In
addition, there are numerous governmental requirements and regulations which
affect the activities of FUNC.
PAYMENT OF DIVIDENDS
FUNC is a legal entity separate and distinct from its banking and other
subsidiaries. A major portion of FUNC's revenues result from amounts paid as
dividends to FUNC by its national bank subsidiaries. The prior approval of the
OCC is required if the total of all dividends declared by a national bank in any
calendar year will exceed the sum of such bank's net profits for that year and
its retained net profits for the preceding two calendar years, less any required
transfers to surplus. Federal law also prohibits any national bank from paying
dividends which would be greater than such bank's undivided profits after
deducting statutory bad debt in excess of such bank's allowance for loan losses.
Under the foregoing dividend restrictions and certain restrictions
applicable to certain of FUNC's nonbanking subsidiaries, as of December 31,
1994, FUNC's subsidiaries, without obtaining affirmative governmental approvals,
could pay aggregate dividends of $397 million to FUNC. During 1994, FUNC's
subsidiaries paid $682 million in cash dividends to FUNC.
In addition, FUNC and its national bank subsidiaries are subject to various
general regulatory policies and requirements relating to the payment of
dividends, including requirements to maintain adequate capital above regulatory
minimums. The appropriate federal regulatory authority is authorized to
determine under certain circumstances relating to the financial condition of a
national bank or bank holding company that the payment of dividends would be an
unsafe or unsound practice and to prohibit payment thereof. The OCC and the FDIC
have indicated that paying dividends that deplete a bank's capital base to an
inadequate level would be an unsound and unsafe banking practice. The OCC, the
FDIC and the Federal Reserve Board have each indicated that banking
organizations should generally pay dividends only out of current operating
earnings.
BORROWINGS
There are also various legal restrictions on the extent to which each of
FUNC and its nonbank subsidiaries can borrow or otherwise obtain credit from its
bank subsidiaries. In general, these restrictions require that any such
extensions of credit must
48
<PAGE>
be secured by designated amounts of specified collateral and are limited, as to
any one of FUNC or such nonbank subsidiaries, to ten percent of the lending
bank's capital stock and surplus, and as to FUNC and all such nonbank
subsidiaries in the aggregate, to 20 percent of such lending bank's capital
stock and surplus.
CAPITAL
The minimum guidelines for the ratio of capital to risk-weighted assets
(including certain off-balance sheet activities, such as standby letters of
credit) is eight percent. At least half of the total capital is to be composed
of common equity, retained earnings and a limited amount of qualifying perpetual
preferred stock, less certain intangibles ("tier 1 capital" and together with
tier 2 capital "total capital"). The remainder may consist of subordinated debt,
qualifying preferred stock and a limited amount of the loan loss allowance
("tier 2 capital"). At December 31, 1994, FUNC's tier 1 and total capital ratios
were 7.76 percent and 12.94 percent, respectively. On an FUNC and ASF combined
basis, such ratios at December 31, 1994, would have been 7.50 percent and 12.57
percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum leverage ratio of tier 1 capital to adjusted average quarterly assets
("leverage ratio") equal to three percent for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies will generally be required to maintain a leverage
ratio of from at least four to five percent. FUNC's leverage ratio at December
31, 1994, was 6.12 percent. On an FUNC and ASF combined basis, such ratio at
December 31, 1994, would have been 5.82 percent. The guidelines also provide
that bank holding companies experiencing internal growth or making acquisitions
will be expected to maintain strong capital positions substantially above the
minimum supervisory levels without significant reliance on intangible assets.
Furthermore, the guidelines indicate that the Federal Reserve Board will
continue to consider a "tangible tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The Federal
Reserve Board has not advised FUNC of any specific minimum leverage ratio or
tangible tier 1 leverage ratio applicable to it.
Each of FUNC's subsidiary national banks is subject to similar capital
requirements adopted by the OCC. Each of FUNC's subsidiary banks had a leverage
ratio in excess of 5.68 percent, as of December 31, 1994. The OCC has not
advised any of the subsidiary national banks of any specific minimum leverage
ratio applicable to it.
As of December 31, 1994, the capital ratios of FUNC's banking subsidiaries,
which consist of FUNB-NC, First Union National Bank of South Carolina
("FUNB-SC"), First Union National Bank of Georgia ("FUNB-GA"), FUNB-FL, First
Union National Bank of Washington, D.C. ("FUNB-DC"), First Union National Bank
of Maryland ("FUNB-MD"), First Union National Bank of Tennessee ("FUNB-TN"),
First Union National Bank of Virginia ("FUNB-VA") and First Union Home Equity
Bank, N.A. ("FUHEB") were as follows:
<TABLE>
<CAPTION>
REGULATORY
MINIMUM FUNB-NC FUNB-SC FUNB-GA FUNB-FL FUNB-DC FUNB-MD FUNB-TN FUNB-VA FUHEB
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 capital ratio......... 4% 7.32 7.88 8.26 7.95 16.75 20.53 12.76 9.21 7.60
Total capital ratio.......... 8 10.69 12.15 11.18 10.76 18.03 21.81 14.02 13.11 12.10
Leverage ratio............... 3-5% 6.10 5.77 5.69 5.91 8.33 12.82 8.47 7.10 7.22
</TABLE>
Banking regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations, including a proposal to add an
interest rate risk component to risk-based capital guidelines.
FIRREA
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), among other things, imposes liability on an institution the deposits
of which are insured by the FDIC, such as FUNC's subsidiary national banks, for
certain potential obligations to the FDIC incurred in connection with other
FDIC-insured institutions under common control with such institution.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the OCC is authorized to require payment of the
deficiency by assessment upon the bank's stockholders, pro rata and, to the
extent necessary, if any such assessment is not paid by any stockholder after
three months notice, to sell the stock of such stockholder to make good the
deficiency. Under Federal Reserve Board policy, FUNC is expected to act as a
source of financial strength to each of its subsidiary banks and to commit
resources to support each of such subsidiaries. This support may be required at
times when, absent such Federal Reserve Board policy, FUNC may not find itself
willing or able to provide it.
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Any capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
FDICIA
In December 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 (as amended, "FDICIA") was enacted, which substantially revises the bank
regulatory and funding provisions of the FDI Act and makes revisions to several
other federal banking statutes.
Among other things, the FDICIA requires the federal banking agencies to
take "prompt corrective action" in respect of depository institutions that do
not meet minimum capital requirements. The FDICIA establishes five capital
tiers: "well capitalized"; "adequately capitalized"; "undercapitalized";
"significantly undercapitalized"; and "critically undercapitalized". A
depository institution's capital tier will depend upon how its capital levels
compare to various relevant capital measures and certain other factors, as
established by regulation.
Each of the OCC and the FDIC has adopted substantially identical
regulations establishing relevant capital measures and relevant capital levels.
The relevant capital measures are the total capital ratio, tier 1 capital ratio
and the leverage ratio. Under the regulations, a regulated bank will be (i)
"well capitalized" if it has a total capital ratio of ten percent or greater, a
tier 1 capital ratio of six percent or greater and a leverage ratio of five
percent or greater and is not subject to any order or written directive by the
OCC or the FDIC, as the case may be, to meet and maintain a specific capital
level for any capital measure; (ii) "adequately capitalized" if it has a total
capital ratio of eight percent or greater, a tier 1 capital ratio of four
percent or greater and a leverage ratio of four percent or greater (three
percent in certain circumstances) and is not "well capitalized"; (iii)
"undercapitalized" if it has a total capital ratio of less than eight percent, a
tier 1 capital ratio of less than four percent or a leverage ratio of less than
four percent (three percent in certain circumstances); (iv) "significantly
undercapitalized" if it has a total capital ratio of less than six percent, a
tier 1 capital ratio of less than three percent or a leverage ratio of less than
three percent; and (v) "critically undercapitalized" if its tangible equity is
equal to or less than two percent of average quarterly tangible assets. As of
December 31, 1994, all of FUNC's subsidiary banks had capital levels that
qualify them as being "well capitalized" under such regulations.
The FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
"undercapitalized". "Undercapitalized" depository institutions are subject to
growth limitations and are required to submit a capital restoration plan. The
federal banking agencies may not accept a capital plan without determining,
among other things, that the plan is based on realistic assumptions and is
likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the parent
holding company is limited to the lesser of: (i) an amount equal to five percent
of the depository institution's total assets at the time it became
"undercapitalized"; and (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable with respect to such institution as of the time it fails to comply
with the plan. If a depository institution fails to submit an acceptable plan,
it is treated as if it is "significantly undercapitalized".
"Significantly undercapitalized" depository institutions may be subject to
a number of requirements and restrictions, including orders to sell sufficient
voting stock to become "adequately capitalized", requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
"Critically undercapitalized" institutions are subject to the appointment of a
receiver or conservator.
The FDICIA directs that each federal banking agency prescribe standards, in
some cases to the extent such agency determines such standards to be
appropriate, for depository institutions relating to internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth and quality, compensation,
earnings and stock valuation, and such other standards as the agency deems
appropriate.
The FDICIA also contains a variety of other provisions that may affect the
operations of FUNC, including new reporting requirements, regulatory standards
or guidelines for real estate lending, "truth in savings" provisions, the
requirement that a depository institution give 90 days' prior notice to
customers and regulatory authorities before closing any branch and a prohibition
on the acceptance or renewal of brokered deposits by depository institutions
that are not "well capitalized" or are
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"adequately capitalized" and have not received a waiver from the FDIC. Under
regulations relating to the brokered deposit prohibition, all of FUNC's
subsidiary banks are "well capitalized" and not subject to the prohibition.
DEPOSITOR PREFERENCE STATUTE
Legislation has been enacted providing that deposits and certain claims for
administrative expenses and employee compensation against an insured depository
institution would be afforded a priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, in
the "liquidation or other resolution" of such an institution by any receiver.
INTERSTATE BANKING AND BRANCHING LEGISLATION
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "IBBEA") authorizes interstate acquisitions of banks and bank holding
companies without geographic limitation beginning one year after enactment. In
addition, beginning June 1, 1997, a bank may merge with a bank in another state
as long as neither of the states has opted out of interstate branching between
the date of enactment of the IBBEA and May 31, 1997. The IBBEA further provides
that states may enact laws permitting interstate merger transactions prior to
June 1, 1997. A bank may establish and operate a DE NOVO branch in a state in
which the bank does not maintain a branch if that state expressly permits DE
NOVO branching. Once a bank has established branches in a state through an
interstate merger transaction, the bank may establish and acquire additional
branches at any location in the state where any bank involved in the interstate
merger transaction could have established or acquired branches under applicable
federal or state law. A bank that has established a branch in a state through DE
NOVO branching may establish and acquire additional branches in such state in
the same manner and to the same extent as a bank having a branch in such state
as a result of an interstate merger. If a state opts out of interstate branching
within the specified time period, no bank in any other state may establish a
branch in the opting out state, whether through an acquisition or DE NOVO.
BHCA LEGISLATION
Various bills have been introduced into the United States Congress that
would repeal in some respects the provisions of the Glass-Steagall Act
prohibiting certain banking organizations from engaging in certain securities
activities and the provisions of the BHCA prohibiting affiliations between
banking organizations and non-banking organizations. FUNC cannot predict if and
when any such legislation or any similar legislation may be enacted.
DESCRIPTION OF FUNC CAPITAL STOCK
THE DESCRIPTIVE INFORMATION SUPPLIED HEREIN OUTLINES CERTAIN PROVISIONS OF
THE ARTICLES OF INCORPORATION, AS AMENDED (THE "ARTICLES"), AND BYLAWS OF FUNC
AND THE NORTH CAROLINA BUSINESS CORPORATION ACT (THE "NCBCA"). THE INFORMATION
DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ALL RESPECTS BY REFERENCE TO
THE PROVISIONS OF FUNC'S ARTICLES AND BYLAWS AND THE NCBCA.
AUTHORIZED CAPITAL
The authorized capital stock of FUNC consists of 750,000,000 shares of FUNC
Common Stock, 10,000,000 shares of Preferred Stock, no-par value per share
("FUNC Preferred Stock"), and 40,000,000 shares of FUNC Class A Preferred Stock,
no-par value per share ("FUNC Class A Preferred Stock"). As of December 31,
1994, there were 176,033,912 shares of FUNC Common Stock, 6,318,350 shares of
Series 1990 Cumulative Perpetual Adjustable Rate Preferred Stock (the "FUNC
Series 1990 Preferred Stock"), constituting a single series of FUNC Preferred
Stock, and no shares of FUNC Class A Preferred Stock issued and outstanding. The
FUNC Preferred Stock and FUNC Class A Preferred Stock are each issuable in one
or more series and, with respect to any series, the Board of Directors of FUNC,
subject to certain limitations, is authorized to fix the numbers of shares,
dividend rates, liquidation prices, liquidation rights of holders, redemption,
conversion and voting rights and other terms of the series. Shares of FUNC Class
A Preferred Stock and FUNC Preferred Stock that are redeemed, repurchased or
otherwise acquired by FUNC have the status of authorized, unissued and
undesignated shares of FUNC Class A Preferred Stock and FUNC Preferred Stock,
respectively, and may be reissued. On December 20, 1994, the Board of Directors
of FUNC called the FUNC Series 1990 Preferred Stock for redemption on March 31,
1995, at the redemption price of $51.50 per share.
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FUNC COMMON STOCK
Subject to the prior rights of the holders of any FUNC Preferred Stock and
any FUNC Class A Preferred Stock then outstanding, holders of FUNC Common Stock
are entitled to receive such dividends as may be declared by the Board of
Directors out of funds legally available therefor and, in the event of
liquidation or dissolution, to receive the net assets of FUNC remaining after
payment of all liabilities and after payment to holders of all shares of FUNC
Preferred Stock and FUNC Class A Preferred Stock of the full preferential
amounts to which such holders are respectively entitled, in proportion to their
respective holdings.
See "FUNC -- Certain Regulatory Considerations; PAYMENT OF DIVIDENDS".
Subject to the rights of the holders of any FUNC Preferred Stock and any
FUNC Class A Preferred Stock then outstanding, all voting rights are vested in
the holders of the shares of FUNC Common Stock, each share being entitled to one
vote on all matters requiring stockholder action and in the election of
directors. Holders of FUNC Common Stock have no preemptive, subscription or
conversion rights. All of the outstanding shares of FUNC Common Stock are fully
paid and nonassessable, and the shares issuable to the stockholders of ASF upon
consummation of the Merger will, upon issuance, be fully paid and nonassessable.
FUNC PREFERRED STOCK
All shares of each series of FUNC Preferred Stock must be of equal rank and
have the same powers, preferences and rights and are subject to the same
qualifications, limitations and restrictions, except with respect to dividend
rates, redemption prices, liquidation amounts, terms of conversion or exchange
and voting rights.
FUNC SERIES 1990 PREFERRED STOCK
The following summary of the FUNC Series 1990 Preferred Stock is qualified
in its entirety by reference to the Statement of Classification of Shares of
FUNC relating thereto, a copy of which is incorporated by reference as an
exhibit to the Registration Statement, and to the applicable provisions of the
NCBCA.
The FUNC Series 1990 Preferred Stock, the only series of FUNC Preferred
Stock currently outstanding, is entitled, in the event of involuntary
liquidation, dissolution or winding up of FUNC, to receive a distribution of
$5.00 per share, plus accrued and unpaid dividends (whether or not declared) to
the date of the final distribution (the "Preferential Amount"), if any, before
any payment or distribution shall be made or set apart for payment on the FUNC
Common Stock or any other class or series of stock ranking junior to the FUNC
Series 1990 Preferred Stock. If FUNC's assets are insufficient to pay the full
Preferential Amount, no distribution may be made to holders of any other series
of FUNC Preferred Stock or any series of stock ranking on a parity with the FUNC
Series 1990 Preferred Stock unless proportionate distributive amounts are paid
ratably in proportion to the preferential sums that would be payable if all sums
payable in respect of all such stock were discharged in full.
The FUNC Series 1990 Preferred Stock is redeemable, at FUNC's option, at
$51.50 per share on any dividend payment date after January 29, 1995, and after
January 29, 2000, at $50.00 per share, in each case plus accrued and unpaid
dividends to the date fixed for redemption. The FUNC Series 1990 Preferred Stock
is not convertible. As indicated above, the FUNC Series 1990 Preferred Stock has
been called for redemption on March 31, 1995, at the redemption price of $51.50
per share.
The dividend rate on the FUNC Series 1990 Preferred Stock is calculated on
the basis of a price of $50.00 per share, payable quarterly, and is reset
quarterly at a rate of one percent per annum above the highest of: (i) a
three-month United States Treasury bill rate; (ii) a United States Treasury
ten-year constant maturity rate; and (iii) a United States Treasury 30-year
constant maturity rate. In no event will such rate be less than 6.75 percent per
annum or more than 13.75 percent per annum. Dividends on the FUNC Series 1990
Preferred Stock are cumulative.
The FUNC Series 1990 Preferred Stock has no voting rights except as set
forth below.
If the equivalent of six full quarterly dividends payable on the FUNC
Series 1990 Preferred Stock or any other series of FUNC Preferred Stock are in
arrears, holders of the FUNC Series 1990 Preferred Stock will have the right,
voting together as a single class with the holders of all other series of FUNC
Preferred Stock having like voting rights, to elect two additional directors of
FUNC until all dividends in arrears on the FUNC Series 1990 Preferred Stock and
any such other series of FUNC Preferred Stock have been fully paid or set apart
for payment.
The affirmative vote or consent of the holders of 66 2/3 percent, or in
some cases a majority, of the outstanding shares of the FUNC Series 1990
Preferred Stock and all other series of FUNC Preferred Stock then outstanding
having like voting
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rights, voting together as a single class, will be necessary for the approval of
certain matters affecting the rights of the series, including the authorization,
creation, establishment or increase in the amount of shares of any series of
stock ranking prior to the FUNC Series 1990 Preferred Stock, or any voluntary
liquidation, dissolution or winding up of FUNC; provided that a consolidation or
merger of FUNC with or into any other corporation or corporations or a sale,
lease or other conveyance of all or substantially all of the assets of FUNC will
not be deemed to be a liquidation, dissolution or winding up of FUNC.
FUNC CLASS A PREFERRED STOCK
Shares of FUNC Class A Preferred Stock rank prior or superior to FUNC
Common Stock and on a parity with or junior to (but not prior or superior to)
FUNC Preferred Stock or any series thereof, in respect of the right to receive
dividends and/or the right to receive payments out of the net assets of FUNC
upon any involuntary or voluntary liquidation, dissolution or winding up of
FUNC. However, shares of FUNC Class A Preferred Stock do not have the right to
vote with shares of FUNC Series 1990 Preferred Stock for purposes of electing
two directors in the event of dividend arrearages, as described under " -- FUNC
Preferred Stock" above. Subject to the foregoing and the terms of any particular
series of FUNC Class A Preferred Stock, series of FUNC Class A Preferred Stock
may vary as to priority.
RIGHTS PLAN
Each share of FUNC Common Stock has attached to it one right (a "FUNC
Right") issued pursuant to a Shareholder Protection Rights Agreement (as
amended, the "FUNC Rights Agreement"). Each FUNC Right entitles its registered
holder to purchase one one-hundredth of a share of a junior participating series
of FUNC Class A Preferred Stock designed to have economic and voting terms
similar to those of one share of FUNC Common Stock, for $110.00 (the "Rights
Exercise Price"), subject to adjustment, after the earlier of: (i) the tenth
business day (subject to extension) after commencement of a tender or exchange
offer which, if consummated, would result in a person becoming the beneficial
owner of 15 percent or more of the outstanding shares of FUNC Common Stock (an
"Acquiring Person"); and (ii) the tenth business day after the first date (the
"Flip-in Date") of a public announcement that a person has become an Acquiring
Person (in either case, the "Separation Time"). The FUNC Rights will not trade
separately from the shares of FUNC Common Stock unless and until the Separation
Time occurs.
The FUNC Rights will not be exercisable until the business day following
the Separation Time. The FUNC Rights will expire on the earliest of: (i) the
Exchange Time (as defined below); (ii) the close of business on December 28,
2000; and (iii) the date on which the FUNC Rights are redeemed or terminated as
described below (in any such case, the "Expiration Time"). The Rights Exercise
Price and the number of FUNC Rights outstanding, or in certain circumstances the
securities purchasable upon exercise of the FUNC Rights, are subject to
adjustment upon the occurrence of certain events.
In the event that prior to the Expiration Time a Flip-in Date occurs, FUNC
will take such action as shall be necessary to ensure and provide that each FUNC
Right (other than FUNC Rights beneficially owned by an Acquiring Person or any
affiliate, associate or transferee thereof, which FUNC Rights shall become void)
shall constitute the right to purchase, from FUNC, shares of FUNC Common Stock
having an aggregate market price equal to twice the Rights Exercise Price for an
amount in cash equal to the then current Rights Exercise Price. In addition, the
Board of Directors of FUNC may, at its option, at any time after a Flip-in Date
and prior to the time that an Acquiring Person becomes the beneficial owner of
more than 50 percent of the outstanding shares of FUNC Common Stock, elect to
exchange all of the then outstanding FUNC Rights for shares of FUNC Common
Stock, at an exchange ratio of two shares of FUNC Common Stock per FUNC Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the Separation Time (the "Rights Exchange Rate").
Immediately upon such action by the Board of Directors (the "Exchange Time"),
the right to exercise the FUNC Rights will terminate and each FUNC Right will
thereafter represent only the right to receive a number of shares of FUNC Common
Stock equal to the Rights Exchange Rate. If FUNC becomes obligated to issue
shares of FUNC Common Stock upon exercise of or in exchange for FUNC Rights,
FUNC, at its option, may substitute therefor shares of junior participating FUNC
Class A Preferred Stock upon exercise of each FUNC Right at a rate of two
one-hundredths of a share of junior participating FUNC Class A Preferred Stock
upon the exchange of each FUNC Right.
The FUNC Rights are redeemable by FUNC at $0.01 per right, subject to
adjustment upon the occurrence of certain events, at any date prior to the date
on which they become exercisable and, in certain events, may be canceled and
terminated without any payment to the holders thereof. The FUNC Rights have no
voting rights and are not entitled to dividends.
The FUNC Rights will not prevent a takeover of FUNC. The FUNC Rights,
however, may cause substantial dilution to a person or group that acquires 15
percent or more of FUNC Common Stock unless the FUNC Rights are first redeemed
or terminated by the Board of Directors of FUNC. Nevertheless, the FUNC Rights
should not interfere with a transaction that is
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in the best interests of FUNC and its stockholders because the FUNC Rights can
be redeemed or terminated, as hereinabove described, before the consummation of
such transaction.
The complete terms of the FUNC Rights are set forth in the FUNC Rights
Agreement. The FUNC Rights Agreement is incorporated by reference as an exhibit
to the Registration Statement. A copy of the FUNC Rights Agreement can be
obtained upon written request to the Rights Agent, First Union National Bank of
North Carolina, Two First Union Center, Charlotte, North Carolina 28288-1154.
OTHER PROVISIONS
The Articles and Bylaws of FUNC contain a number of provisions which may be
deemed to have the effect of discouraging or delaying attempts to gain control
of FUNC, including provisions in the Articles: (i) classifying the Board of
Directors into three classes with each class to serve for three years with one
class being elected annually; (ii) authorizing the Board of Directors to fix the
size of the Board of Directors between nine and 30 directors; (iii) authorizing
directors to fill vacancies on the Board of Directors that occur between annual
meetings, except that vacancies resulting from a removal of a director by a
stockholder vote may only be filled by a stockholder vote; (iv) providing that
directors may be removed only for cause and only by affirmative vote of the
majority of shares entitled to be voted in the election of directors, voting as
a single class; (v) authorizing only the Board of Directors, the Chairman of the
Board or the President to call a special meeting of stockholders (except for
special meetings called under specified circumstances for holders of classes or
series of stock ranking superior to the FUNC Common Stock); and (vi) requiring
an 80 percent vote of stockholders entitled to vote in the election of
directors, voting as a single class, to alter any of the foregoing provisions.
The Bylaws include provisions setting forth specific conditions under
which: (i) business may be transacted at an annual meeting of stockholders; and
(ii) persons may be nominated for election as directors of FUNC at an annual
meeting of stockholders.
Two North Carolina "anti-takeover" statutes adopted in 1990, The North
Carolina Shareholder Protection Act and The North Carolina Control Share
Acquisition Act, allowed North Carolina corporations to elect to either be
covered or not be covered by such statutes. FUNC elected not to be covered by
such statutes.
In addition to the foregoing, in certain instances the issuance of
authorized but unissued shares of FUNC Common Stock, FUNC Class A Preferred
Stock or FUNC Preferred Stock may have an anti-takeover effect.
CERTAIN DIFFERENCES IN THE RIGHTS OF ASF AND FUNC STOCKHOLDERS
GENERAL
ASF is a federal savings bank subject to the provisions of the HOLA, the
rules and regulations of the OTS promulgated thereunder and, under certain
circumstances, Florida law. FUNC is a North Carolina corporation subject to the
provisions of the NCBCA. Stockholders of ASF will, upon consummation of the
Merger, become stockholders of FUNC. The rights of such stockholders as
stockholders of FUNC will then be governed by the Articles and Bylaws of FUNC,
in addition to the NCBCA.
Set forth below are certain differences between the rights of an ASF
stockholder under ASF's Charter and Bylaws and the HOLA, on the one hand, and
the rights of an FUNC stockholder under FUNC's Articles and Bylaws and the
NCBCA, on the other hand.
The following summary does not reflect any rules of the NYSE that may apply
to FUNC in connection with the matters discussed. THIS SUMMARY DOES NOT PURPORT
TO BE A COMPLETE DISCUSSION OF, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO, THE HOLA, THE NCBCA, AND THE ARTICLES OR CHARTER AND BYLAWS OF EACH
CORPORATION.
AUTHORIZED CAPITAL
ASF. The authorized capital stock of ASF as set forth in ASF's Charter
consists of 24,000,000 shares of ASF Common Stock and 10,000,000 shares of
preferred stock, par value $.01 per share (the "ASF Preferred Stock"). Shares of
capital stock may be issued from time to time, for not less than their par
value, as authorized by the ASF Board, without approval of the stockholders,
except as otherwise provided in the Federal Stock Charter of ASF (the "ASF
Charter") or as required by applicable law, rule or regulation. Promissory notes
and future services may not constitute any portion of the consideration for the
stock. No shares of capital stock may be issued directly or indirectly to
officers, directors or controlling persons of ASF other than as part of a
general public offering or as directors' qualifying shares unless their issuance
or the plan under
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which they would be issued is approved by a majority of the votes eligible to be
cast at a meeting of ASF stockholders. Shares of ASF Preferred Stock may be
issued in one or more series, and the ASF Board may, subject to certain
limitations, fix and determine the relative rights and preferences of the shares
in any series, to the extent permitted by applicable law. As of February 28,
1995, there were 11,724,610 shares of ASF Common Stock issued and outstanding,
426,050 shares reserved for issuance upon the exercise of unexercised employee
stock options, 2,288,700 shares reserved for issuance upon exercise of the
Option and no shares of ASF Preferred Stock outstanding. The ASF Charter was
adopted by ASF's stockholders in connection with ASF's conversion (the
"Conversion") in 1991 from a Florida-chartered stock savings and loan
association to a federally-chartered stock savings bank. At that time, 2,750,000
shares of preferred stock were designated as $2.19 Cumulative Convertible
Preferred Stock, Series A of American Savings of Florida, F.S.B. ("Series A
Preferred Stock") and there were issued and outstanding 59,812 shares of Series
A Preferred Stock, all of which subsequently have been either converted or
redeemed in accordance with their express terms. Although the terms of the
Series A Preferred Stock contained in the Supplement to the ASF Charter provide
that these shares assume the status of authorized but unissued shares of
preferred stock (and shall not be reissued as shares of Series A Preferred
Stock), the ASF Charter provides that shares of preferred stock which are
converted or redeemed in accordance with their express terms shall be cancelled
and not reissued.
All of the outstanding shares of ASF Common Stock are fully paid and
nonassessable. Each holder of ASF Common Stock is entitled to one vote for each
share held. The holders of the capital stock of ASF are not entitled to
preemptive rights or cumulative voting. In addition to the voting rights granted
to holders of each class and series of capital stock of ASF under the ASF
Charter and the Amended and Restated Bylaws of ASF (the "ASF Bylaws"), the ASF
Charter provides that such holders have the rights to vote on amendments to the
ASF Charter and other transactions and matters, separately as a group, that
holders of the same class and series had under Florida law in effect immediately
prior to ASF's conversion (the "Conversion") in 1991 from a Florida-chartered
stock savings and loan association to a federally-chartered stock savings bank.
See " -- Anti-Takeover Provisions; ASF". The votes required under Florida law
for approval of the Merger Proposal, the Adjournment Proposal, the Election
Proposal and the Auditors Proposal will be satisfied if the votes required under
OTS regulations and the ASF Bylaws, as set forth in each proposal, are
satisfied.
In the event of liquidation or dissolution, holders of ASF Common Stock are
entitled to receive the net assets of ASF remaining after payment of all
liabilities in proportion to their respective holdings. See " -- Dividends and
Other Distributions; ASF".
FUNC. FUNC's authorized capital is set forth under "DESCRIPTION OF FUNC
CAPITAL STOCK -- Authorized Capital".
AMENDMENT OF ARTICLES OF INCORPORATION OR BYLAWS
ASF. An amendment to the ASF Charter must be proposed by the ASF Board,
preliminarily approved by the OTS and approved by the stockholders of ASF by a
majority of the total votes eligible to be cast at a meeting. To the extent
shares of stock are issued and outstanding in a given class or series, the ASF
Charter provides for voting by class or series in the event that a charter
amendment is proposed that would adversely affect the specific terms of any
class or series of capital stock as set forth in the charter. The ASF Bylaws may
be amended in a manner consistent with OTS regulations at any time by a majority
vote of the full ASF Board or a majority vote of the votes cast by stockholders
of ASF at a meeting of stockholders.
FUNC. Under North Carolina law, an amendment to the Articles of FUNC
generally requires the recommendation of the Board of Directors of FUNC and the
approval of either a majority of all shares entitled to vote thereon or a
majority of the votes cast thereon, depending on the nature of the amendment. In
accordance with North Carolina law, the Board of Directors of FUNC may condition
its submission of the proposed amendment on any basis. An amendment to the
Bylaws of FUNC generally requires the approval of either the stockholders or the
Board of Directors of FUNC. The Board of Directors of FUNC generally may not
amend any Bylaw approved by the stockholders. Under certain circumstances, the
approval of the holders of at least two-thirds, or in some cases a majority, of
the outstanding shares of any series of FUNC Preferred Stock or FUNC Class A
Preferred Stock may be required to amend the FUNC Articles. In addition, certain
amendments to the Articles or Bylaws require the approval of not less than 80
percent of the outstanding shares of FUNC entitled to vote in the election of
directors, voting together as a single class. See "DESCRIPTION OF FUNC CAPITAL
STOCK".
SIZE AND CLASSIFICATION OF BOARD OF DIRECTORS
ASF. The ASF Charter provides that the authorized number of directors shall
be between six and fifteen, except when a greater number is approved by the
Director of the OTS. Subject to this limitation, the number of directors at any
time is designated in the ASF Bylaws, which currently set the size of the ASF
Board at nine directors. The ASF Bylaws may be amended, and therefore the number
of directors may be determined, by a majority vote of the full ASF Board. See
" --
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Amendment of Articles of Incorporation or Bylaws; ASF". The ASF Bylaws provide
that a meeting for the election of directors shall occur annually and that
directors shall serve until the next succeeding annual meeting and until their
successors are elected and qualified. The ASF Board is not divided into classes
for election purposes.
FUNC. The size of the Board of Directors of FUNC is determined by the
affirmative vote of a majority of the Board of Directors of FUNC, provided that
the FUNC Board of Directors may not set the number of directors at less than
nine nor more than 30, and provided further that no decrease in the number of
directors may shorten the term of any director then in office. The number of
directors of FUNC is currently set at 25. The FUNC Board of Directors is divided
into three classes, each as nearly as possible equal in number as the others,
with one class being elected annually. See "DESCRIPTION OF FUNC CAPITAL STOCK".
REMOVAL OF DIRECTORS BY STOCKHOLDERS
ASF. Except for directors elected under specified circumstances by holders
of any class or series of stock, directors of ASF may be removed only for cause
and only at a meeting of stockholders called expressly for that purpose, by a
vote of the holders of a majority of the shares then entitled to vote at an
election of directors. Directors who were elected by holders of any class or
series of stock may be removed for cause only by a vote of the holders of a
majority of the shares of such class or series then entitled to vote at an
election of directors. If less than the entire board is to be removed, no one of
the directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then voted at an election of directors.
FUNC. Except for directors elected under specified circumstances by holders
of any class or series of stock having a preference over the FUNC Common Stock
as to dividends or upon liquidation, directors of FUNC may be removed only for
cause and only by a vote of the holders of a majority of the shares then
entitled to vote in the election of directors, voting together as a single
class.
DIRECTOR EXCULPATION
ASF. The Florida Business Corporation Act (the "FBCA") provides that a
director is not personally liable for monetary damages to a corporation or any
other person, including its stockholders, for any statement, vote, decision or
failure to act, regarding corporate management or policy, unless: (i) the
director breached or failed to perform his duties as a director; and (ii) the
breach or failure constitutes (a) a violation of criminal law (with certain
exceptions), (b) a transaction from which the director derived an improper
personal benefit, (c) a circumstance in which the director would be liable for
an unlawful distribution under the FBCA, (d) in a proceeding by or in the right
of a corporation to procure a judgment in its favor or by or in the right of a
stockholder, conscious disregard for the best interest of the corporation, or
willful misconduct, or (e) in a proceeding by or in the right of someone other
than the corporation or a stockholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property. The term
"recklessness," as used above, means the action, or omission to act, in
conscious disregard of a risk: (x) known, or so obvious that it should have been
known, to the director; and (y) known to the director, or so obvious that it
should have been known, to be so great as to make it highly probable that harm
would follow from such action or omission. Under the FBCA this limitation of
directors' liability need not be set forth in the corporation's charter.
Although the state of the law in this area is not settled, to the extent not
preempted by federal law or regulation, this limitation of liability may apply
to ASF.
FUNC. FUNC's Articles provide for the elimination of personal liability of
each director of FUNC to the fullest extent permitted by the provisions of the
NCBCA, as the same may be in effect from time to time. The NCBCA does not permit
the elimination of such liability with respect to (i) acts or omissions the
director believed were clearly in conflict with the best interests of FUNC, (ii)
any liability under the NCBCA for unlawful distributions by FUNC, or (iii) any
transaction from which the director derived an improper personal benefit.
DIRECTOR CONFLICT OF INTEREST TRANSACTIONS
ASF. Under OTS regulations, each director or other affiliated person of ASF
must avoid placing himself or herself in a position which creates, or which
leads to or could lead to a conflict of interest or appearance of a conflict of
interest between the personal financial interests of that person and
accomplishment of the purposes of the HOLA. Under OTS guidelines, ASF directors
are prohibited from advancing their own personal or business interests, or those
of others, at the expense of ASF. The OTS has taken the position that a director
of an OTS-regulated institution with a potential conflict of interest in any
matter must disclose to the institution's board of directors the nature and
extent of the conflicting interest and the facts known
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to the director as to the matter under consideration, and must refrain from
participation in the deliberations, voting and any other involvement in the
matter.
Under OTS regulations, extensions of credit (including loans) to directors
of ASF and companies controlled by them (i) must be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, (ii) may not involve more
than the normal risk of repayment or present other unfavorable features, (iii)
are limited in amount (based in part on the capital position of ASF) and (iv)
may be subject to prior approval of a majority of the entire ASF Board with the
interested director not participating, directly or indirectly, in the vote. The
regulations provide further that a director's participation in the discussion,
or attempt to influence the voting, by the ASF Board constitutes indirect
participation in the vote.
FUNC. North Carolina law generally permits transactions involving a North
Carolina corporation and an interested director of that corporation if: (i) the
material facts of the transaction and the director's interest are disclosed and
a majority of disinterested shares entitled to vote thereon authorizes, approves
or ratifies the transaction; (ii) the material facts are disclosed and a
majority of disinterested directors or a committee of the board of directors
authorizes, approves or ratifies the transaction; or (iii) the transaction is
fair to the corporation. North Carolina law prohibits loans to directors or the
guaranteeing of their obligations by a North Carolina corporation unless
approved by a majority vote of disinterested stockholders or unless the
corporation's board of directors determines that the loan or guarantee benefits
the corporation and either approves the specific loan or guarantee or a general
plan of loans and guarantees by the corporation.
STOCKHOLDER MEETINGS
ASF. Special meetings of ASF stockholders may be called for any purpose,
unless otherwise prescribed by the regulations of the OTS, by the Chairman of
the Board, the President, or a majority of the ASF Board, and shall be called
upon the written request of the holders of not less than one-tenth of the
outstanding capital stock of ASF entitled to vote at the meeting. A majority of
the outstanding shares of ASF entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders. Except as
otherwise provided in the ASF Charter, the ASF Bylaws, or the rules and
regulations of the OTS, a majority of the votes cast is generally required for
any action by ASF stockholders.
FUNC. A special meeting of stockholders may be called for any purpose only
by the Board of Directors of FUNC, by the Chairman of FUNC's Board of Directors
or by FUNC's President (except for special meetings called under specified
circumstances for holders of any class or series of stock having a preference
over the FUNC Common Stock as to dividends or upon liquidation). A quorum for a
meeting of the stockholders of FUNC is a majority of the outstanding shares of
FUNC entitled to vote. Except as provided in FUNC's Articles or the NCBCA, a
majority of the votes cast is generally required for any action by the
stockholders of FUNC. North Carolina law provides that such quorum and voting
requirements may be increased only with the approval of the stockholders of
FUNC.
DIRECTOR NOMINATIONS
ASF. Under the ASF Bylaws, stockholders may nominate candidates for the ASF
Board by delivering to the Secretary of ASF a written nomination at least five
days prior to the date of an annual meeting; provided, however, that if the ASF
Board, acting as the nominating committee, fails to forward its slate of
nominees to the Secretary of ASF at least 20 days prior to the date of an annual
meeting, nominations for directors may be made at the annual meeting by any
stockholder entitled to vote and shall be voted upon.
FUNC. FUNC's Bylaws establish procedures that must be followed for
stockholders to nominate persons for election to FUNC's Board of Directors. Such
nominations must be made by delivering written notice to the Secretary of FUNC
not less than 60 or more than 90 days prior to the annual meeting at which
directors will be elected; provided, however, that if less than 70 days' notice
of the date of the meeting is given, such written notice by the stockholder must
be so delivered not later than the tenth day after the day on which such notice
of the date of the meeting was given. Notice will be deemed to have been given
more than 70 days prior to the meeting if the meeting is called on the third
Tuesday of April regardless as to when public disclosure is made. The nomination
notice must set forth certain information about the person to be nominated
similar to that required to be disclosed in the solicitation of proxies for
election of directors pursuant to Items 7(a) and 7(b) of Regulation 14A under
the Exchange Act, and such person's written consent to being nominated and to
serving as a director if elected. The nomination notice must also set forth
certain information about the person submitting the notice, including the name
and address of the stockholder and the class and number of shares of FUNC owned
of record or beneficially by such stockholder. The Chairman of the meeting will,
if the facts warrant, determine that a nomination was not made in accordance
with the provisions prescribed by the Bylaws and the defective nomination will
be disregarded. The foregoing procedures do
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not apply to any director who is nominated under specified circumstances by
holders of any class or series of stock having a preference over FUNC Common
Stock as to dividends or upon liquidation.
STOCKHOLDER PROPOSALS
ASF. Under the ASF Bylaws, any stockholder may make a proposal at an annual
meeting and the same may be discussed and considered, but unless stated in
writing and filed with the Secretary of ASF at least five days before the
meeting, a proposal shall be laid over for action at an adjourned, special, or
annual meeting of the stockholders taking place 30 days or more thereafter.
However, federal law requires that a stockholder proposal made in connection
with an annual meeting and submitted for inclusion in ASF's proxy statement
under Regulation 14A of the Exchange Act must be received at ASF's principal
executive offices not less than 120 calendar days in advance of the date of
ASF's proxy statement sent to stockholders in connection with the previous
year's annual meeting of stockholders, except in limited circumstances in which
a "reasonable time" prior to the proxy solicitation is required. The stockholder
also must comply with requirements concerning, among other things, minimum stock
ownership, notice and timeliness.
FUNC. FUNC's Bylaws establish procedures that must be followed for a
stockholder to submit a proposal to a vote of the stockholders of FUNC at an
annual meeting of stockholders. Such proposal must be made by the stockholder
delivering written notice to the Secretary of FUNC not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that if less than 70
days' notice of the date of the meeting is given, such written notice by the
stockholder must be so delivered not later than the tenth day after the day on
which such notice of the date of the meeting was given. Notice will be deemed to
have been given more than 70 days prior to the meeting if the meeting is called
on the third Tuesday of April. The stockholder proposal notice must set forth:
(i) a brief description of the proposal and the reasons for its submission; (ii)
the name and address of the stockholder, as they appear on FUNC's books; (iii)
the classes and number of shares of FUNC owned by the stockholder; and (iv) any
material interest of the stockholder in such proposal other than such holder's
interest as a stockholder of FUNC. The Chairman of the meeting will, if the
facts warrant, determine that any proposal was not properly submitted in
accordance with the provisions prescribed by the Bylaws and the defective
proposal will not be submitted to the meeting for a vote of the stockholders.
STOCKHOLDER PROTECTION RIGHTS PLAN
ASF. ASF does not have a stockholder protection rights plan.
FUNC. FUNC has adopted the FUNC Rights Agreement. See "DESCRIPTION OF FUNC
CAPITAL STOCK -- Rights Plan".
STOCKHOLDER INSPECTION RIGHTS; STOCKHOLDER LISTS
ASF. Under OTS regulations, qualified stockholders of ASF have the right,
upon making written demand stating a proper purpose, to examine, in person or by
agent or attorney, at any reasonable time or times, ASF's books and records of
account, minutes and record of stockholders and to make extracts therefrom. Such
right is limited to a stockholder or group of stockholders holding of record
shares of ASF Common Stock (i) having a cost of not less than $100,000 or
constituting not less than one percent of the outstanding ASF Common Stock,
provided in either case such stockholder or stockholders have held such stock
for a period of at least six months before making such demand, or (ii)
constituting not less than five percent of the outstanding ASF Common Stock.
In addition, after fixing a record date for a stockholders' meeting and at
least 20 days before such meeting, ASF is required under the ASF Bylaws to
prepare a list of stockholders entitled to vote at such stockholders' meeting
and to make the list available at the home office of ASF to any stockholder at
any time during usual business hours for a period of 20 days prior to such
meeting. This list is also available at the time and place of the meeting for
inspection by stockholders during the entire meeting. A stockholder list for the
Meeting is available for inspection by ASF stockholders in the manner described
above.
The above inspection rights may be denied to any stockholder or group of
stockholders if such person or persons refuses to furnish ASF, its transfer
agent or registrar, with an affidavit that such examination or inspection is not
for any purpose which is in the interest of a business or object other than the
business of ASF, that such stockholder has not within the five years preceding
the date of the affidavit sold or offered for sale, and does not now intend to
sell or offer for sale, any list of stockholders of ASF or any other
corporation, and that such stockholder has not within said five-year period
aided or abetted any other person in procuring any list of stockholders for the
purpose of selling or offering for sale such list. In addition, no stockholder
has the right to obtain, inspect or copy any portion of ASF's books and records
containing certain information relating to ASF's depositors and borrowers.
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FUNC. Under the NCBCA, qualified stockholders have the right to inspect and
copy certain records of FUNC if their demand is made in good faith and for a
proper purpose. Such right of inspection requires that the stockholder give FUNC
at least five business days' written notice of the demand, describing with
reasonable particularity his purpose and the requested records. The records must
be directly connected with the stockholder's purpose. The rights of inspection
and copying extend not only to stockholders of record but also to beneficial
ownership which is certified to FUNC by the stockholder of record. However, FUNC
is under no duty to provide any accounting records or any records with respect
to any matter that FUNC determines in good faith may, if disclosed, adversely
affect FUNC in the conduct of its business or may constitute material non-public
information, and the rights of inspection and copying are limited to
stockholders who either have been stockholders for at least six months or who
hold at least five percent of the outstanding shares of any class of stock of
FUNC. A stockholder's agent or attorney has the same inspection and copying
rights as the stockholder he represents.
In addition, after fixing a record date for a stockholders' meeting, FUNC
is required to prepare a stockholder list with respect to such stockholders'
meeting and to make such list available at FUNC's principal office or at a place
identified in the meeting notice to any stockholder beginning two business days
after notice or such meeting is given and continuing through such meeting and
any adjournment thereof. Subject to the applicable provisions of the NCBCA, a
stockholder or his agent or attorney upon written demand at his own expense
during regular business hours is entitled to copy such list.
REQUIRED STOCKHOLDER VOTE FOR CERTAIN ACTIONS
ASF. Under OTS regulations, a combination of two depository institutions
that includes a federal stock association, such as ASF, requires approval by a
two-thirds vote of the entire board of each federal savings association entering
into the combination. A combination is defined by OTS regulations to include a
merger, a consolidation, and an acquisition of the assets or an assumption of
the liabilities of one institution by another. In general, the agreement in
which the combination is set forth must be approved by an affirmative vote of
two-thirds of the outstanding voting stock of the federal savings institutions
participating in the combination and by a majority of the shares of each voting
class entitled to vote as a class. Under certain circumstances in which ASF
would be the resulting institution, no approval would be required by ASF
stockholders. See "GENERAL INFORMATION -- Record Date; Votes Required".
FUNC. Under North Carolina law, except as otherwise provided below or in
the NCBCA, any plan of merger or share exchange involving FUNC would require
adoption by the Board of Directors, who would generally be required to recommend
its approval to the stockholder, who in turn would be required to approve the
plan by a vote of a simple majority of the outstanding shares. Except as
otherwise provided below or in the NCBCA, any sale, lease, exchange or other
disposition of all or substantially all of FUNC's assets not made in the usual
and regular course of business would generally require that the Board of
Directors recommend the proposed transaction to the stockholders who would be
required to approve the transaction by a vote of a simple majority of the
outstanding shares. In accordance with North Carolina law, the submission by the
Board of Directors of any such action may be conditioned on any basis,
including, without limitation, conditions regarding a supermajority voting
requirement or that no more than a certain number of shares indicate that they
will seek dissenters' rights.
With respect to a plan of merger, no vote of the stockholders of FUNC is
required if FUNC is the surviving corporation and: (i) FUNC's Articles would
remain unchanged after the merger, subject to certain exceptions; (ii) each
stockholder of FUNC immediately before the merger would hold an identical number
of shares, with identical designations, limitations, preferences and relative
rights, after the merger; (iii) the number of shares of FUNC stock entitled to
vote unconditionally in the election of directors to be issued in the merger
(either by the conversion of securities issued in the merger or by the exercise
of rights and warrants issued in the merger) would not exceed 20 percent of the
shares of FUNC stock entitled to vote unconditionally in the election of
directors outstanding immediately before the merger; and (iv) the number of
shares of FUNC stock entitling holders to participate without limitation in
distributions to be issued in the merger (either by the conversion of securities
issued in the merger or by the exercise of rights and warrants issued in the
merger) would not exceed 20 percent of the shares of FUNC stock entitling
holders to participate without limitation in distributions outstanding
immediately before the merger.
With respect to a sale, lease, exchange or other disposition of all or
substantially all the assets of FUNC made upon the authority of the Board of
Directors, no vote of the stockholders of FUNC would be required if such
disposition is made in the usual and regular course of business or if such
disposition is made to a wholly-owned subsidiary of FUNC.
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ANTI-TAKEOVER PROVISIONS
ASF. Under the ASF Charter stockholders of ASF are entitled to the voting
rights contained in the anti-takeover statutes under the FBCA to which holders
of the same class and series of capital stock of ASF were entitled immediately
prior to the Conversion. Under the "affiliated transactions" statute (which has
not changed in any material respect since the Conversion) certain business
transactions, including mergers, consolidations, certain sales, leases and other
dispositions of assets, stock issuances and other similar transactions between a
Florida corporation and an "interested" stockholder (defined generally as the
beneficial owner of more than ten percent of the outstanding voting stock of the
corporation) or a related party, require approval by two-thirds of the voting
stock not beneficially owned by the interested stockholder. This provision does
not apply (i) if the affiliated transaction is approved by a majority of the
disinterested directors (defined generally to be, or to have been elected by,
members of the board of directors who were members prior to the date on which
the interested stockholder became an interested stockholder); (ii) the
corporation has not had more than 300 stockholders of record at any time during
the three years prior to announcement of the transaction; (iii) the interested
stockholder has beneficially owned at least 80 percent of the corporation's
outstanding voting stock for at least five years preceding the date of
announcement of the transaction; (iv) the interested stockholder beneficially
owns at least 90 percent of the outstanding voting stock (other than shares
acquired directly from the corporation in a transaction not approved by a
majority of the disinterested directors); (v) the corporation is a registered
investment company; or (vi) in connection with the affiliated transaction,
certain price and procedural requirements are met. The Merger was approved by a
majority of the disinterested directors (as defined) of ASF and therefore is not
subject to the voting requirements of the affiliated transactions statute of the
FBCA.
The "control-share acquisitions" statute under the FBCA prevents an
acquiror who acquires voting stock in a Florida corporation within certain
specified ranges of voting power, from obtaining certain voting rights unless a
majority of disinterested stockholders approves a resolution granting the
rights. ASF elected not to be governed by the restrictions imposed by the
control-share acquisitions statute, in accordance with the provisions of such
statute.
In addition, the Change in Bank Control Act provides that no person, acting
directly or indirectly or through or in concert with one or more persons, may
acquire control of a savings association unless the OTS has been given 60 days'
prior written notice. Further, HOLA provides that no company may acquire control
of a savings association without the prior approval of the OTS. Any company that
acquires such control becomes a "savings and loan holding company" subject to
registration, examination and regulation by OTS. For these purposes, control of
a savings association is conclusively deemed to have been acquired by, among
other things, the acquisition of more than 25 percent of any class of voting
stock of a savings association or the ability to control the election of a
majority of the directors of a savings association. Moreover, control is
presumed to have been acquired, subject to rebuttal, upon the acquisition of
more than ten percent of any savings association, where certain enumerated
"control factors" are also present in the acquisition. The OTS may prohibit an
acquisition of control if it finds, among other things, that the acquisition
would result in a monopoly or substantially lessen competition.
FUNC. North Carolina has two anti-takeover statutes in force, The North
Carolina Shareholder Protection Act and The North Carolina Control Share
Acquisition Act. These statutes restrict business combinations with, and the
accumulation of shares of voting stock of, certain North Carolina corporations.
In accordance with the provisions of these statutes, FUNC elected not to be
covered by the restrictions imposed by these statutes. As a result, such
statutes do not apply to FUNC.
DISSENTERS' OR APPRAISAL RIGHTS
ASF. OTS regulations provide generally for dissenters' appraisal rights
under certain circumstances. A stockholder of a federally-chartered savings
institution does not possess dissenters' appraisal rights if: (i) the
institution's stock was listed on the NYSE or the American Stock Exchange or
quoted on the Nasdaq National Market system on the date of the meeting of
stockholders at which the combination was acted upon, and the stockholder will
receive "qualified consideration" in exchange for his stock; or (ii) action by
the institution's stockholders was not required under OTS regulations in order
to approve the combination. "Qualified consideration" for this purpose means
cash, shares of stock of any savings institution or corporation that, on the
effective date of the transaction, will be listed on the NYSE or the American
Stock Exchange or quoted on the Nasdaq National Market system, or any
combination of such stock and cash. See "THE MERGER -- No Appraisal Rights".
FUNC. North Carolina law generally provides dissenters' rights for mergers
and certain share exchanges that would require stockholder approval, sales of
all or substantially all of the assets (other than sales that are in the usual
and regular course of business and certain liquidations and court-ordered
sales), certain amendments to the articles of incorporation and
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any corporate action taken pursuant to a stockholder vote to the extent the
articles of incorporation, bylaws or a resolution of the board of directors
entitles stockholders to dissent.
DIVIDENDS AND OTHER DISTRIBUTIONS
ASF. Under OTS regulations limitations are imposed upon "capital
distributions" by savings institutions, including cash dividends, payments to
repurchase or otherwise acquire the institution's shares, payments to
stockholders of another institution in a cash-out merger, and other
distributions charged against capital, including direct and indirect
distributions to affiliates. The limitations vary depending upon the capital
levels of the institution. In addition, OTS may prohibit a proposed capital
distribution by an institution, which would otherwise be permitted by the
regulation, if the OTS determines that the distribution would constitute an
unsafe and unsound practice. Under HOLA, ASF, as a savings institution
subsidiary of a holding company, must notify the Regional Director of OTS not
less than 30 days prior to each proposed declaration of a dividend.
As a condition to regulatory approval of Enstar's acquisition of ASF, ASF
entered into, and continues to operate under, the Regulatory Capital
Maintenance/Dividend Agreement (the "Capital Maintenance Agreement") among
Enstar, a subsidiary of Enstar and the Federal Savings and Loan Insurance
Corporation (a predecessor of OTS) which prohibits ASF from making distributions
unless specified net worth requirements are met. Under the Capital Maintenance
Agreement (and OTS regulations generally), ASF may not pay dividends or
repurchase stock unless such action would not reduce ASF's regulatory capital
below its regulatory capital requirement. If that condition is met, the Capital
Maintenance Agreement provides that ASF may pay dividends in an aggregate amount
of not more than (i) 50 percent of ASF's net income for its fiscal year, (ii) 75
percent of net income, if ASF's regulatory capital is equal to or greater than
its fully phased-in requirement, and (iii) 90 percent of net income, if ASF's
regulatory capital is equal to or greater than (a) its fully phased-in
regulatory capital requirements plus (b) two percent of ASF's liabilities. The
Capital Maintenance Agreement is more restrictive with respect to capital
distributions than OTS regulations generally.
FUNC. Under North Carolina law, FUNC generally may make dividends or other
distributions to its stockholders unless after the distribution either: (i) FUNC
would not be able to pay its debts as they become due in the usual course of
business; or (ii) FUNC's assets would be less than the sum of its liabilities
plus the amount that would be needed to satisfy the preferential dissolution
rights of stockholders whose preferential rights are superior to those receiving
the distribution. See "CERTAIN REGULATORY CONSIDERATIONS RELATING TO
FUNC -- Payment of Dividends" and "DESCRIPTION OF FUNC CAPITAL STOCK".
VOLUNTARY DISSOLUTION
ASF. The ASF Board may, under OTS regulations, propose a plan for
dissolution of ASF. The plan may provide for either: (i) appointment of the FDIC
or the RTC as receiver for the purpose of liquidation; (ii) transfer of all of
ASF's assets to another association and home-financing institution under federal
or state charter either for cash sufficient to pay all obligations of the bank
and retire all outstanding accounts or in exchange for that association's
payment of all of ASF's outstanding obligations and issuance of share accounts
or other evidence of interest to ASF's stockholders on a pro rata basis; or
(iii) dissolution in a manner proposed by the directors which they consider best
for all concerned. In order to take effect, the plan must be approved by the OTS
and by ASF's stockholders at a duly called meeting. ASF is not required to
obtain approval for voluntary dissolution where ASF transfers all of its assets
and liabilities to a bank in a transaction that is subject to the OTS' separate
rules governing merger, consolidation, purchase or sale of assets, or assumption
of liabilities.
FUNC. North Carolina law provides that FUNC may be dissolved if the Board
of Directors of FUNC proposes dissolution and a majority of the shares of FUNC
entitled to vote thereon approves. In accordance with North Carolina law, the
Board of Directors of FUNC may condition its submission of a proposal for
dissolution on any basis.
RESALE OF FUNC COMMON SHARES
The FUNC Shares have been registered under the Securities Act, thereby
allowing such shares to be traded freely and without restriction by those
holders of ASF Common Stock who receive such shares following consummation of
the Merger and who are not deemed to be "affiliates" (as defined under the
Securities Act, but generally including directors, certain executive officers
and ten percent or more stockholders) of ASF or FUNC. Each holder of ASF Common
Stock who is deemed by ASF to be an affiliate has entered into an agreement with
FUNC providing, among other things, that such affiliate will not transfer any
FUNC Shares received by such holder in the Merger except in compliance with the
Securities Act. This Proxy Statement/Prospectus does not cover any resales of
FUNC Shares received by affiliates of ASF. In addition, certain
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shares of FUNC Common Stock will be held in escrow pursuant to the Escrow
Agreement. See "THE MERGER -- Voting Agreement; Escrow Agreement".
ADDITIONAL MATTERS
From time to time FUNB-FL and its affiliates have entered into transactions
with certain of the directors of ASF or their affiliates in the ordinary course
of business, including, without limitation, certain members of the ASF Board or
their affiliates maintaining deposit accounts and loans with FUNB-FL or its
affiliates. Additionally, from time to time, Goldman Sachs has maintained
business relationships with FUNC or its affiliates. See "THE MERGER -- Opinions
of Financial Advisors; GOLDMAN SACHS".
LEGAL OPINIONS
Certain legal matters associated with the Merger, including the validity of
the FUNC Shares being offered hereby will be passed upon for FUNC by Marion A.
Cowell, Jr., Esq., Executive Vice President, Secretary and General Counsel of
FUNC. Mr. Cowell is also a stockholder of FUNC and holds options to purchase
additional shares of FUNC Common Stock.
Sullivan & Cromwell, special counsel for FUNC, has delivered an opinion
concerning certain federal income tax consequences of the Merger. See "THE
MERGER -- Certain Federal Income Tax Consequences". Sullivan & Cromwell
regularly performs legal services for FUNC and its subsidiaries. Members of
Sullivan & Cromwell performing these legal services own shares of FUNC's Common
Stock.
Certain legal matters associated with the Merger will be passed upon for
ASF by Steel Hector & Davis, counsel for ASF. From time to time, Steel Hector &
Davis performs legal services for FUNB-FL which are unrelated to the Merger.
EXPERTS
The statements of consolidated financial condition of ASF as of December
31, 1994 and 1993, and the related statements of consolidated earnings,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1994, included in ASF's 1994 Form 10-K which is
incorporated by reference herein, have been incorporated by reference herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. The aforementioned report of KPMG
Peat Marwick LLP covering ASF's consolidated financial statements refers to
changes in the methods of accounting for investments and income taxes in 1993.
The consolidated balance sheets of FUNC as of December 31, 1994 and 1993,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1994, included in FUNC's 1994 Annual Report to Stockholders which
is incorporated by reference in FUNC's 1994 Annual Report on Form 10-K and
incorporated by reference herein, have been incorporated by reference herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. The aforementioned report of KPMG
Peat Marwick LLP covering FUNC's consolidated financial statements refers to a
change in the method of accounting for investments in 1994.
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OTHER PROPOSALS
At the Meeting, holders of ASF Common Stock as of the Record Date will be
asked to consider several matters in addition to approval of the Merger and the
Merger Agreement. These matters are discussed under the captions "ADJOURNMENT OF
MEETING," "ELECTION OF DIRECTORS," and "RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS".
PROPOSAL 2
ADJOURNMENT OF MEETING
GENERAL
The ASF Board seeks your approval of a separate proposal authorizing the
individuals named in the Proxy to vote to adjourn the Meeting (if the Merger
Agreement has not been terminated as of the time of the Meeting) to another time
and/or place in the event that there are not sufficient votes at the time of the
Meeting to approve the Merger and the Merger Agreement for the purpose of
soliciting additional votes in favor of the Merger and the Merger Agreement, the
election of each of the nine nominees for director and the ratification of KPMG
Peat Marwick LLP as independent auditors. While such an adjournment would not
invalidate any proxies previously submitted, including those submitted by
holders of ASF Common Stock voting against Proposal 1, it would give ASF the
opportunity to solicit additional proxies in favor of Proposals 1, 3 and 4. In
addition, any holder of ASF Common Stock could revoke a proxy after an
adjournment. See "GENERAL INFORMATION -- General".
As discussed in Proposal 1, approval of the Merger and the Merger Agreement
requires the affirmative votes of at least (i) two-thirds of the shares of ASF
Common Stock issued and outstanding on the Record Date, and (ii) a majority of
the Non-interested Shares represented and voted at the Meeting. ASF is
presenting this proposal to the ASF stockholders as a precautionary measure
because of the importance of the Merger Proposal to ASF stockholders and because
of the added burden of having to meet two separate voting requirements for
approval of the Merger Proposal.
If it is necessary to adjourn the Meeting and the adjournment is for a
period of less than 30 days, no notice of the time and place of the adjourned
meeting need be given the ASF stockholders, other than an announcement made at
the Meeting. If the Meeting is adjourned, Proposals 1, 3 and 4 will be
determined at the reconvened meeting.
VOTE REQUIRED AND RECOMMENDATION
If a quorum is present at the Meeting, the affirmative vote of a majority
of the votes cast in person or by proxy, by persons entitled to vote at the
Meeting is required to adjourn the Meeting in order to solicit additional
proxies in favor of the Merger and the Merger Agreement. If a quorum is not
present, the affirmative vote of the holders of a majority of the shares of ASF
Common Stock represented in person or by proxy and entitled to vote at the
Meeting may adjourn the Meeting for solicitation of additional proxies.
THE ASF BOARD RECOMMENDS THAT HOLDERS OF ASF COMMON STOCK VOTE FOR PROPOSAL 2.
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PROPOSAL 3
ELECTION OF DIRECTORS
The persons named below have been nominated by the ASF Board to serve as
directors of ASF for a term of one year and until their successors are duly
elected and qualified, or until their earlier resignation, removal from office
or death. In addition, at the Effective Date the terms of the directors will
terminate as ASF will cease to exist as an independent entity and the directors
listed in this Proposal 3 will not become directors of FUNC or the Subsidiary.
All of the nominees named below currently serve as directors on the ASF Board.
Donald T. Senterfitt was elected by the ASF Board in November 1994. ASF is not
aware of any arrangement or understanding between Enstar or any other person and
any nominee pursuant to which such nominee has been nominated as a director.
Further, there are no such arrangements or understandings between ASF and any
nominee.
NOMINEES FOR DIRECTOR
Erwin Allen, age 73, director since July 1993. Retired. President and Vice
Chairman of the Board of Peninsula Federal, Miami, Florida, from 1978 to 1983.
Director, from 1983 until 1992, of Atico Financial, Miami, Florida. From 1972
until 1978, Senior Vice President of the Federal Home Loan Bank of Atlanta and
Supervisory Agent of the Federal Home Loan Bank Board (Fourth District).
T. Wayne Davis, age 48, director since July 1993. President and Chairman of
the Board of Tine W. Davis Family -- WD Charities, Inc. since 1980, President of
Redwing Properties, Inc. since 1987, and of counsel to the Florida law firm of
Greenberg, Traurig et al. since April 1990. Director of Accustaff, Inc., a
temporary staffing agency, since February 1994, director of Enstar since June
1990, director of Winn-Dixie Stores, Inc. since 1981, director of Enterprise
National Bank since March 1989, director of Associated Industries of Florida
Property and Casualty Trust since 1986, Vice Chairman of the Board of Riverside
Golf Investments since September 1990 and Chairman of the Board of General
Parcel Service, Inc. since February 1989.
William H. Dukelow, age 52, director since March 1991. Financial advisor
with Prudential Securities Incorporated since December 1993. Investment
executive with PaineWebber Inc. from August 1991 until December 1993. Previously
associated with Prudential Securities Incorporated or its predecessor from 1987
until August 1991. Previously, Executive Vice President of Alliance Mortgage Co.
(formerly named Charter Mortgage Co.).
Nimrod T. Frazer, age 65, director since May 1993 and from May 1992 until
December 1992. Chairman of the Board, Acting President and Chief Executive
Officer, since October 1990, President, since May 1992, and director, since
August 1990, of Enstar. Chairman of the Board, since 1976, and Co-Founder of The
Frazer Lanier Company, a regional investment banking firm. Director of Rockdale
Industries, a Pattillo Company, Stone Mountain, Georgia. An executive officer of
Enstar Financial and Christa Oil Company, subsidiaries of Enstar, both of which,
as well as Enstar, filed for protection under Chapter 11 of the United States
Bankruptcy Code in 1991. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT -- Potential Change in Control".
Barbara W. Gothard, age 57, director since July 1993. Since 1989, President
of The Gothard Group, Inc., Miami, Florida, a full-service communications agency
serving private and non-profit organizations regarding advertising, marketing
and public/community relations programs. Previously, Director of Corporate
Affairs of Burger King Corporation, which operates, develops and franchises a
system of quick-service restaurants.
Charles Daniel Kimbrel, age 45, director and Chairman of the Board since
March 1991. President and Chief Executive Officer, since 1985, of Thomson Oak
Flooring Company, a wood flooring products manufacturer. Previously, President
of several units of Ellis Banking Corporation, Sarasota, Florida, and Vice
President and regional executive for its successor, NCNB of Florida. Director of
Rockdale Industries, a Pattillo Company, Stone Mountain, Georgia. Director of
Palmetto Companies and Manatee Fruit Company, both of Bradenton, Florida.
Deirdre Y. Russell, age 32, director since March 1993. Assistant Director
of Fixed Income-Private Placements, The Retirement Systems of Alabama, since
March 1991. Vice President Finance and Treasurer of Enstar from November 1990
until February 1991. Assistant Treasurer of Enstar from June 1988 until November
1990.
Donald T. Senterfitt, age 75, director since November 1994. President and
Chief Executive Officer of The Pilot Group, L.C., consultants to financial
institutions, since July 1990. Vice Chairman and a member of the board of
directors of SunTrust Banks, Inc. or its affiliates from 1964 to 1989. Engaged
in the practice of law from 1948 to 1980. Trustee of Colonial Properties Trust
since September 1993. Director of Colonial Properties Holding Co., Inc.
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Stephen D. Taylor, age 49, director, President and Chief Executive Officer
of ASF since September 1991. Chief Credit Officer for U.S. non-credit card
consumer portfolios at Citicorp, parent of Citibank, N.A., New York from October
1988 until September 1991.
The ASF Bylaws provide that the ASF Board shall consist of nine members.
The ASF Board has nominated nine persons for election as directors of ASF.
Therefore, proxies may not be voted for more than nine nominees.
The persons named in the enclosed form of proxy intend to vote all proxies
in favor of all nine nominees, unless a proxy is marked to indicate that such
authorization is expressly withheld. The ASF Board has no reason to believe that
any of these nominees will not serve if elected. If any of these nominees is
unable to stand for election at the time of the Meeting, the persons named in
the enclosed form of proxy intend to nominate and vote for the replacement
nominee or nominees recommended by a majority of the ASF Board.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ASF has not received any Schedules 13D or 13G notifying it of beneficial
ownership by any person of more than five percent of ASF Common Stock as of
February 28, 1995, other than a Schedule 13D, dated December 4, 1994 from FUNC,
and a Schedule 13G, dated May 3, 1991, as amended through December 12, 1994,
from Enstar. The information in the following table and related notes is based
upon statements in the Schedule 13D and the Schedule 13G, as amended:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)
<S> <C> <C>
The Enstar Group, Inc. (2) 5,689,391 48.5
172 Commerce Street
Montgomery, Alabama
First Union Corporation (3) 2,288,786 19.5
One First Union Center
Charlotte, North Carolina
</TABLE>
(1) Based upon 11,724,610 shares of ASF Common Stock outstanding as of the close
of business on February 28, 1995.
(2) Enstar Group has sole voting and investment power with respect to the shares
stated. As directors of Enstar, Messrs. T. Wayne Davis and Nimrod T. Frazer,
directors of ASF, each states that he shares voting and investment power.
Messrs. Davis and Frazer disclaim beneficial ownership of those shares. See
" -- Security Ownership of Management". For a discussion of the ownership of
Old Enstar Common Stock, see " -- Potential Change in Control", "BOARD OF
DIRECTORS AND COMMITTEES -- Compensation Committee Interlocks and Insider
Participation", and "THE MERGER -- Interests of Certain Persons".
(3) 2,288,700 of the shares of ASF Common Stock deemed beneficially owned by
FUNC are purchasable by FUNC upon exercise of the Option, and 86 of such
shares are held by a subsidiary bank of FUNC in a fiduciary capacity with
sole voting power. The Option may be exercised only upon the happening of
certain events, none of which has occurred as of the date of this Proxy
Statement/Prospectus. Prior to the exercise of the Option, FUNC is not
entitled to any rights as a stockholder of ASF as to the shares covered by
the Option. See "THE MERGER -- Stock Option Agreement".
POTENTIAL CHANGE IN CONTROL
For a discussion of the change in control which would result from the
consummation of the Merger, see "THE MERGER". For a discussion of the potential
change in control which may result under the Voting Agreement and the Escrow
Agreement, see "THE MERGER -- Voting Agreement; Escrow Agreement". The Capital
Maintenance Agreement provides that Enstar and Enstar Financial Services, Inc.
("Enstar Financial," and collectively with Enstar, "Enstar Group") is obligated
to maintain ASF's regulatory capital at required levels. It also provides that
if ASF does not meet a capital ratio test stated in the agreement and Enstar
Group fails to infuse sufficient additional equity to restore ASF's capital
ratio to the required level, OTS has the right, among other things, to vote the
ASF Common Stock held by Enstar, to remove the ASF Board or to dispose of any or
all of the ASF Common Stock held by Enstar. For a discussion of certain
restrictions under the Capital Maintenance Agreement, see "CERTAIN DIFFERENCES
IN THE RIGHTS OF ASF AND FUNC STOCKHOLDERS -- Dividends and Other
Distributions". Although ASF has continuously met its current capital
requirements since March 31, 1992 and its fully phased-in capital requirements
since September 30, 1992, at December 31, 1990, ASF did not meet the regulatory
capital requirements of OTS. On May 30, 1991, OTS delivered to Enstar formal
notice of default under the Capital Maintenance Agreement and
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demanded that Enstar immediately infuse into ASF sufficient equity capital to
cause ASF to comply with its regulatory capital requirements. Enstar Group did
not infuse the requisite additional capital.
As described above, on May 31, 1991, Enstar filed for protection under
Chapter 11 of the United States Bankruptcy Code. See "THE MERGER -- Background
and Reasons; ASF" and "BOARD OF DIRECTORS AND COMMITTEES -- Compensation
Committee Interlocks and Insider Participation". Under the Bankruptcy Plan, all
of the Old Enstar Common Stock was cancelled, and new common stock of Enstar was
issued to a trustee. In addition, under the modified Bankruptcy Plan, Enstar is
obligated to sell or distribute the ASF Common Stock it owns before June 1,
1995, unless otherwise agreed by certain classes of creditors whose claims have
not been satisfied. See "THE MERGER -- Background and Reasons" for a discussion
of the events leading to the execution of the Merger Agreement. The Bankruptcy
Plan, as modified, also provides that prior to the date of any sale, Enstar has
the right to vote its ASF Common Stock.
On December 2, 1994 and again on January 26, 1995, in response to requests
for confirmation that Enstar is able to vote its shares of ASF Common Stock at
the Meeting, OTS notified ASF that OTS would continue to waive the limitations
applicable to Enstar's exercise of its voting rights under the Capital
Maintenance Agreement. Therefore, Enstar will be permitted to vote its shares of
ASF Common Stock at the Meeting. As is discussed above, Enstar has entered into
the Voting Agreement pursuant to which it has agreed to vote its shares of ASF
Common Stock in favor of approval of the Merger Agreement. See "THE
MERGER -- Voting Agreement; Escrow Agreement". In the event that the Merger
Agreement is terminated or the Merger is not otherwise consummated, a change in
control of ASF could occur if OTS exercised its rights under the Capital
Maintenance Agreement, or upon a sale or other disposition by Enstar of its ASF
Common Stock under the modified Bankruptcy Plan.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of February 28, 1995, information
regarding beneficial ownership of ASF Common Stock by each director and nominee
for election as a director of ASF, ASF's Chief Executive Officer, its four other
most highly compensated (for services during 1994) executive officers (all of
whom were serving as executive officers on December 31, 1994), and all current
directors and executive officers as a group:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
NAMES OF DIRECTORS, NOMINEES, (1)
EXECUTIVE OFFICERS AND GROUP OF NUMBER OF PERCENT
DIRECTORS AND EXECUTIVE OFFICERS SHARES OF CLASS
<S> <C> <C>
Erwin Allen............................................................................................. 100 *
T. Wayne Davis (2)...................................................................................... 5,744,872 49.0
William H. Dukelow (3).................................................................................. 17,500 *
Nimrod T. Frazer (2).................................................................................... 5,747,022 49.0
Barbara W. Gothard...................................................................................... 1,000 *
Charles Daniel Kimbrel (4).............................................................................. 52,000 *
Deirdre Y. Russell...................................................................................... 100 *
Donald T. Senterfitt.................................................................................... 100 *
Stephen D. Taylor (5)................................................................................... 230,000 1.9
Alan B. Goldstein (6)................................................................................... 66,000 *
Linda M. Haskins (7).................................................................................... 47,500 *
Charles H. Holland, Jr.................................................................................. 46,920 *
Barbara E. Mahoney...................................................................................... 50,000 *
All current directors and executive officers as a group (35 persons) (8)................................ 6,626,134 54.6
</TABLE>
(1) Unless otherwise stated, has sole voting and investment power. The number of
shares beneficially owned by each director or executive officer is
determined under rules of the Commission applied by OTS, and is not
necessarily indicative of beneficial ownership for any other purpose. Under
those rules, beneficial ownership includes shares of ASF Common Stock
issuable upon exercise of options within 60 days after February 28, 1995.
According to the transfer agent for ASF Common Stock, The First National
Bank of Boston, 11,724,610 shares of ASF Common Stock were outstanding as of
the close of business on February 28, 1995. All numbers of shares reflect
adjustment for the one-for-five reverse common stock split effective at the
close of business on April 27, 1993.
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(2) The shares stated in the above table include 5,689,391 shares of ASF Common
Stock beneficially owned by Enstar. As directors of Enstar, Messrs. Davis
and Frazer each states that he shares voting and investment power with
respect to those shares. Messrs. Davis and Frazer disclaim beneficial
ownership of those shares.
(3) Includes options to acquire 12,500 shares of ASF Common Stock.
(4) Includes options to acquire 50,000 shares of ASF Common Stock.
(5) Both the number of shares beneficially owned and, for purposes of
calculating the percent of class, the total number of shares of the class
include options to acquire 199,800 shares of ASF Common Stock.
(6) Includes options to acquire 33,500 shares of ASF Common Stock.
(7) Includes options to acquire 25,000 shares of ASF Common Stock.
(8) Both the number of shares beneficially owned and, for purposes of
calculating the percent of class, the total number of shares of the class
include options to acquire 418,383 shares of ASF Common Stock.
* Less than one percent
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BOARD OF DIRECTORS AND COMMITTEES
GENERAL INFORMATION
Of the nine directors of ASF currently serving, all but Mr. Senterfitt were
directors throughout 1994. The ASF Board, as then constituted, held 14 meetings
during the fiscal year ended December 31, 1994. All current directors attended
more than 80 percent of the meetings of the ASF Board and committees of the ASF
Board on which he or she served during the period they served.
Under the ASF Bylaws, the ASF Board constitutes the nominating committee
for the election of directors. It has not actively solicited recommendations
from holders of ASF Common Stock for nominees for director nor has it
established any procedures for this purpose, but has in the past accepted
proposed nominees from Enstar. The ASF Board generally must nominate proposed
directors in writing at least 20 days before the stockholders' meeting, and
under ASF's bylaws shareholders may submit in writing to the Secretary of ASF
additional nominees for director, if any, at least five days before that
meeting.
COMMITTEES
The ASF Board has standing Executive, Audit, Special Advisory,
Compensation, Stock Option and Senior Executive Employee Severance Pay Plan
Committees.
EXECUTIVE COMMITTEE
The Executive Committee currently consists of William H. Dukelow, Nimrod T.
Frazer, Charles Daniel Kimbrel and Stephen D. Taylor. The Executive Committee
meets on call and has authority to act on most matters during the intervals
between ASF Board meetings. The Executive Committee did not meet during 1994.
AUDIT COMMITTEE
The Audit Committee currently consists of Erwin Allen, William H. Dukelow,
Charles Daniel Kimbrel and Deirdre Y. Russell, all of whom are non-employee
directors. The Audit Committee meets on call and reviews the internal controls
of ASF and the objectivity of its financial reporting. It meets with appropriate
ASF financial personnel, internal auditors and independent certified public
accountants in connection with these reviews. The Audit Committee recommends to
the ASF Board the appointment of the independent certified public accountants to
serve as ASF's auditors. Both the internal auditors and the independent
certified public accountants meet alone with, and have free access to, the Audit
Committee at any time. The Audit Committee met eight times during 1994.
INDEPENDENT COMMITTEE
The Independent Committee currently consists of Erwin Allen, William H.
Dukelow and Barbara W. Gothard, all of whom are non-employee directors who are
believed to be independent of any relationships with Enstar, Nimrod T. Frazer
and any other party interested in any acquisition of ASF or ASF Common Stock.
Stephen D. Taylor is an ex officio non-voting member of the Independent
Committee. The Independent Committee meets on call and was established by the
ASF Board to make recommendations to the ASF Board with respect to strategic
alternatives for enhancing stockholder value, including a potential sale or
other transaction involving a change in control of ASF. The Independent
Committee investigated, analyzed, conferred and generally dealt with all issues
and parties arising out of the Merger and the Merger Agreement. The Independent
Committee reported its findings and made recommendations to the ASF Board in
connection with these matters. See "THE MERGER -- Background and Reasons; ASF".
The Independent Committee met 18 times during 1994.
COMPENSATION COMMITTEE
The Compensation Committee currently consists of T. Wayne Davis, William H.
Dukelow, Nimrod T. Frazer, Barbara W. Gothard, Charles Daniel Kimbrel and
Deirdre Y. Russell, all of whom are non-employee directors. The Compensation
Committee meets on call and administers the compensation of the officers of ASF.
Its activities include setting compensation levels and performance objectives
for the Chief Executive Officer, establishing the compensation policy and the
amounts of performance bonus and salary increase pools for other officers and
employees, assessing executive performance and reviewing and approving
management's recommendations for salaries and bonuses to executive officers
within established parameters. The Compensation Committee also oversees the
operations of the employee benefit and retirement plans (other than the
Severance Plan) and has the authority to act on matters of individual retirement
and, subject to a quarterly or, at the direction of the ASF Board, a more
frequent review, also has the authority to assume each of the ASF Board's
administrative and
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<PAGE>
operational powers and responsibilities under the employee benefit plans. The
Compensation Committee met three times during 1994. See "EXECUTIVE
COMPENSATION -- Report of the Compensation and Stock Option Committees on
Executive Compensation", "THE MERGER -- Interests of Certain Persons" and
" -- Effect on ASF Employee Benefit Programs".
STOCK OPTION COMMITTEE
The Stock Option Committee currently consists of T. Wayne Davis, William H.
Dukelow, Nimrod T. Frazer, Charles Daniel Kimbrel and Deirdre Y. Russell. The
Stock Option Committee, which meets on call, administers the 1990 Employee Stock
Incentive Plan and the 1992 Employee Stock Incentive Plan. The Stock Option
Committee did not meet during 1994. See "EXECUTIVE COMPENSATION -- Report of the
Compensation and Stock Option Committees on Executive Compensation," and "THE
MERGER -- Interests of Certain Persons".
SENIOR EXECUTIVE EMPLOYEE SEVERANCE PAY PLAN COMMITTEE
The Senior Executive Employee Severance Pay Plan Committee currently
consists of Erwin Allen, William H. Dukelow, Barbara W. Gothard and Donald T.
Senterfitt, all of whom are non-employee directors. This Committee administers
the Severance Plan, and is authorized to construe and interpret the provisions
of the Severance Plan. Charles H. Holland, Jr., Executive Vice President and
Chief Operating Officer, is an ex officio non-voting member of this Committee,
which did not meet during 1994. See "EXECUTIVE COMPENSATION -- Termination of
Employment, Change-in-Control Arrangements and Employment Contracts; SEVERANCE
PLAN", and "THE MERGER -- Interests of Certain Persons".
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of T. Wayne Davis, William H.
Dukelow, Nimrod T. Frazer, Barbara W. Gothard, Charles Daniel Kimbrel and
Deirdre Y. Russell, all of whom are non-employee directors. ASF is not aware of
any interlocking relationships among the executive officers, members of the
Compensation Committee or the ASF Board and those of any other entity, except
that certain directors of ASF are also executive officers or directors of other
entities, as described under "ELECTION OF DIRECTORS -- Nominees for Director".
As described above, Messrs. T. Wayne Davis and Nimrod T. Frazer are
directors of Enstar. Mr. Frazer is also Chairman of the Board, President and
Chief Executive Officer of Enstar. As such, Messrs. Davis and Frazer may be
deemed to have an interest in the transactions and relationships described
below.
ENSTAR CHAPTER 11 PROCEEDINGS
As described above, on May 31, 1991, Enstar filed for protection under
Chapter 11 of the United States Bankruptcy Code. See "THE MERGER -- Background
and Reasons; ASF", for a general discussion of the Enstar bankruptcy, including,
among other matters, ASF's claim against Enstar's estate, the modified
Bankruptcy Plan, and Enstar's obligation under the modified Bankruptcy Plan to
sell or distribute its shares of ASF Common Stock by June 1, 1995, and the
potential conflict of interest between the interests of Enstar and the interests
of ASF's other stockholders.
Generally, under the modified Bankruptcy Plan, ASF is entitled to receive
66.66 percent of all distributions from the bankruptcy estate until ASF's
allowed claim is paid in full, but may not participate in the proceeds from the
sale of Enstar's ASF Common Stock, until certain other classes of creditors have
been paid in full. Thereafter, ASF would be entitled to receive all
distributions of remaining property, if any, from the estate, including proceeds
from the sale of ASF Common Stock, until its allowed claim is paid in full.
ASF's allowed claim at , 1995 was $ .
The modified Bankruptcy Plan, among other things, also provides for (i) the
payment of interest at the annual rate of 4.26 percent on unpaid claims of
certain classes of creditors, including ASF, from June 1, 1992, but only after
ASF's allowed claim is paid in full, (ii) a class of creditors consisting of
foreign bearer bond holders who surrendered their bonds after applicable
deadlines under Enstar's original Bankruptcy Plan, which class will be entitled
to distributions only after ASF's Bankruptcy Claim is paid in full with
interest, (iii) the establishment of a tax reserve to be funded from property of
Enstar to provide for any state or federal tax obligations, and (iv) a
restriction, generally, on the transfer of claims after August 25, 1993.
The modified Bankruptcy Plan provides that if all other creditors are paid
in full, with interest, the former Enstar stockholders would be entitled to
receive a distribution of the remaining property of the bankruptcy estate, if
any, pro rata, or, at the option of Enstar, shares of new common stock of
Enstar. The new common stock of Enstar continues to be held for the benefit of
certain unsecured creditors of Enstar, including ASF, but only until their
claims are paid in full. See "THE MERGER -- Interests of Certain Persons"
regarding the interests of Messrs. Frazer and Davis in shares of the Old Enstar
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Common Stock, Mr. Davis' interest, if any, in the Enstar Incentive Bonus Pool,
Enstar's engagement of Mr. Frazer on an exclusive basis to market and sell
Enstar's shares of ASF Common Stock and the corresponding effects of the
consummation of the Merger on such interests. For a discussion of ASF's interest
in the proceeds of any sale of ASF Common Stock owned by Enstar and the effect
of the consummation of the Merger on such interest, See "THE
MERGER -- Background and Reasons; ASF" and "THE MERGER -- Voting Agreement;
Escrow Agreement".
TRANSACTION WITH ENSTAR
In 1992, in connection with OTS' settlement of its enforcement action and
ASF's lawsuit against Richard J. Grassgreen, a former director of ASF, and
others, OTS directed Grassgreen to deliver to ASF a $1,500,000 promissory note
payable in annual installments of $300,000 each, commencing November 1992. In
1993, Grassgreen filed for protection under Chapter 11 of the United States
Bankruptcy Code and objected to ASF's status in that proceeding as a secured
creditor. As part of a settlement agreement among ASF, Grassgreen, Enstar and
certain other parties involved as defendants in an adversary proceeding in the
Grassgreen Chapter 11 proceedings and Grassgreen's proposed plan of
reorganization, ASF has received, from Grassgreen's bankruptcy estate, in
satisfaction of the $1,200,000 balance of the note, $576,000 in cash and an
assignment of Grassgreen's rights represented by his ownership of 772,131 shares
of Old Enstar Common Stock. Pursuant to the settlement agreement, Enstar agreed
to acquire these rights for $300,000 plus interest on or before June 1, 1995.
Payment of $305,958.90 to acquire these rights was made to ASF in February 1995,
pursuant to the settlement agreement. In December 1994, Enstar acquired from
another party 175,000 additional shares of ASF Common Stock in settlement of
claims that Enstar had or may have had against that party.
OTHER TRANSACTIONS WITH ENSTAR AFFILIATES
Certain of the claims asserted as part of the suit by ASF against Michael
R. Milken, Lowell Milken ET AL. (which were included in a global settlement of
claims previously pending in the United States District Court for the Southern
District of New York) were assigned to ASF by Enstar as part of the ongoing
restructuring of the commercial relationships between Enstar and ASF begun in
1990. The assignment agreement provides that any amounts payable by the
defendants as a result of a final judgment or settlement of the action, after
deduction and reimbursement of costs and expenses paid by ASF and Enstar, and
after deduction of contingent fees (including attorneys' fees), will be
allocated 20 percent to ASF and 80 percent to Enstar. Enstar's share of any
proceeds from the suit will be distributed to its creditors, including ASF,
pursuant to the modified Bankruptcy Plan. The assignment of Enstar's claims to
ASF was approved by OTS, subject to certain conditions, and by the United States
Bankruptcy Court in Enstar's Chapter 11 proceedings. Mr. Frazer represented ASF
on the steering committee that formulated a plan to allocate the proceeds of the
global settlement.
In February, 1995, ASF recorded a pre-tax recovery of $3,300,000, net of
certain estimated fees and expenses (including attorneys' fees), from amounts
received from the fund established to pay certain claims against the Milken
parties. This amount represents payment of a substantial portion of the
settlement of ASF's direct claims against the Milken parties. ASF's receipt in
the future of any additional monies from the fund is wholly dependent upon the
fund's receipt of anticipated payments from third parties, which payments cannot
be assured. ASF has been informed by Enstar that Enstar expects to distribute to
ASF between $4,000,000 and $4,500,000, during the second quarter of 1995, under
the Bankruptcy Plan, as modified, which will reduce the amount of the Bankruptcy
Claim.
DIRECTOR COMPENSATION
Non-employee directors of ASF receive a fee of $600 for each month of
service and an additional $800 for each ASF Board meeting attended plus
reimbursement of travel and other expenses attributed to each meeting attended.
Each non-employee director serving on ASF's Audit, Independent, Compensation,
Stock Option or Senior Executive Employee Severance Pay Plan Committee receives
an additional fee of $400 for each committee meeting attended that was not held
on the same day as an ASF Board meeting. Fees are not paid in connection with
attendance at Executive Committee meetings or at meetings conducted
telephonically. Directors who are full-time employees of ASF or any of its
subsidiaries are not eligible to receive additional compensation for service on
the ASF Board or committees of the ASF Board, other than reimbursement of travel
and other expenses, if any, attributed to each meeting attended.
The ASF 1991 Non-Employee Directors' Stock Option Plan, as amended (the
"1991 Directors' Plan"), provides for a grant to each director elected by
holders of ASF Common Stock, who is not then, and has not been at any time
during the previous year, an employee of ASF or any subsidiary of ASF, of an
option to purchase 50,000 shares of ASF Common Stock, having an exercise price
equal to 100 percent of the fair market value of ASF Common Stock on the date of
grant. All options are immediately exercisable but shares acquired upon exercise
of an option may not be transferred within six months after the
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<PAGE>
grant of the option. Options expire at the earlier of ten years after the date
of grant or three months after the optionee ceases to serve as a director of
ASF, unless he or she continues as an employee of ASF or any subsidiary, which
employment would be deemed to be continued service as a director. Options are
not transferable by the optionee except by will or by the laws of descent and
distribution. A maximum of 250,000 shares of ASF Common Stock may be issued
under the 1991 Directors' Plan. As of January 31, 1995, no shares are available
for issuance under the 1991 Directors' Plan. Subject to limitations contained in
the 1991 Directors' Plan and Rule 16b-3 ("Rule 16b-3") promulgated under the
Exchange Act if any optioned shares cease to be subject to an option prior to
issuance of those shares, they will again become available for issuance under
the 1991 Directors' Plan.
During 1991, each of the four non-employee directors then serving,
including Messrs. Dukelow and Kimbrel, was granted options to purchase 50,000
shares under the 1991 Directors' Plan, with an exercise price per share of
approximately $1.00. Upon his election as a director at the Annual Meeting of
Stockholders held on May 27, 1992, Nimrod T. Frazer was granted an option to
purchase 50,000 shares under the 1991 Directors' Plan, with an exercise price
per share of $3.75. No options have been granted under the 1991 Directors' Plan
since that date. For a discussion of the effects of the consummation of the
Merger on options granted to directors under the 1991 Directors' Plan, see "THE
MERGER -- Interests of Certain Persons; TREATMENT OF STOCK OPTIONS AND SENIOR
EXECUTIVE SEVERANCE PLAN".
All numbers of shares and exercise prices stated above under "Director
Compensation" reflect adjustment for the one-for-five reverse common stock split
effective at the close of business on April 27, 1993.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows information concerning the compensation paid or
awarded through January 31, 1995 to ASF's Chief Executive Officer and four other
most highly compensated (for services during 1994) executive officers, for their
services rendered in all capacities during 1992, 1993 and 1994 to ASF and its
subsidiaries, for each year during any portion of which each of them was an
executive officer of ASF:
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
SECURITIES
UNDERLYING
ANNUAL COMPENSATION OPTIONS
OTHER ANNUAL (#
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($)(3) COMPENSATION ($) SHARES)(9)
<S> <C> <C> <C> <C> <C>
Stephen D. Taylor 1994 340,000 135,000(4) -- --
President, Chief Executive 1993 315,000 157,500(4) 26,681(6) --
Officer, director since 1992 292,231 145,000(4) 95,658(7) --
September 1991
Alan B. Goldstein 1994 182,125 65,000 -- --
Executive Vice President -- 1993 166,990 65,000 -- --
General Counsel and 1992 165,241 41,000 -- 36,500
Secretary; Treasurer from
July 1991 until May 1992
Charles H. Holland, Jr. 1994 180,000 65,000 -- --
Executive Vice President and 1993 166,000 65,000 -- --
Chief Operating Officer since February 1992 160,219(2) 48,000(5) 1,750(8) 60,000
1995; Executive Vice
President -- Corporate Support Group
from March 1992 to February 1995;
previously a consultant to ASF
Barbara E. Mahoney 1994 176,125 65,000 -- --
Executive Vice President -- 1993 170,000 50,000 -- --
Retail Banking Group 1992 165,241 50,000 -- 25,000
since December 1991;
previously, Executive Vice
President, Administration and
Operations
Linda M. Haskins 1994 176,000 65,000 -- --
Executive Vice President -- 1993 166,000 50,000 -- --
Chief Financial Officer since 1992 139,456 50,000 -- 25,000
August 1994; Executive Vice
President -- Finance Group from
April 1993 until August 1994;
Executive Vice President,
Finance and Controller from
February 1992
until April 1993;
previously, Senior Vice
President and Controller
<CAPTION>
ALL OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION ($)(10)(11)
<S> <C>
Stephen D. Taylor 19,299
President, Chief Executive 17,484
Officer, director since 9,262
September 1991
Alan B. Goldstein 15,111
Executive Vice President -- 10,056
General Counsel and 5,949
Secretary; Treasurer from
July 1991 until May 1992
Charles H. Holland, Jr. 15,927
Executive Vice President and 12,806
Chief Operating Officer since February 705
1995; Executive Vice
President -- Corporate Support Group
from March 1992 to February 1995;
previously a consultant to ASF
Barbara E. Mahoney 17,802
Executive Vice President -- 11,436
Retail Banking Group 6,934
since December 1991;
previously, Executive Vice
President, Administration and
Operations
Linda M. Haskins 13,567
Executive Vice President -- 9,751
Chief Financial Officer since 4,789
August 1994; Executive Vice
President -- Finance Group from
April 1993 until August 1994;
Executive Vice President,
Finance and Controller from
February 1992
until April 1993;
previously, Senior Vice
President and Controller
</TABLE>
(1) Includes amounts deferred at the election of the named executive officer
under a 401(k) Plan, a tax qualified defined contribution plan (the "401(k)
Plan"). Upon consummation of the Merger, all accounts in the 401(k) Plan
become fully vested.
(2) Includes fee in the amount of $25,450 for services as a consultant to ASF
during 1992 before Mr. Holland became an executive officer.
(3) Because no recurring arrangement exists for the payment of bonuses after
1992, no bonuses were considered in determining the most highly compensated
executive officers. See " -- Report of the Compensation and Stock Option
Committees on Executive Compensation" and " -- Termination of Employment,
Change-in-Control Arrangements and Employment Contracts".
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<PAGE>
(4) Bonuses awarded during 1994, 1993 and 1992 pursuant to a letter agreement
with Mr. Taylor, dated September 18, 1991, and the attainment of
performance goals established by the Compensation Committee. See
" -- Termination of Employment, Change-in-Control Arrangements and
Employment Contracts".
(5) A portion of the bonus awarded during 1992, in the amount of $33,846, was
pursuant to a letter agreement with Mr. Holland, dated February 25, 1992.
See " -- Termination of Employment, Change-in-Control Arrangements and
Employment Contracts".
(6) Consists of $26,681 reimbursed for the payment of taxes on reimbursement
for relocation expenses.
(7) Includes reimbursement for relocation expenses in the amount of $88,479
plus $7,179 reimbursed for the payment of taxes on that amount.
(8) Consists of $1,750 reimbursed for the payment of taxes on reimbursement for
relocation expenses. Perquisites and other personal benefits, securities or
property are in an aggregate amount less than 10 percent of the total
annual salary and bonus reported for the named executive officer.
(9) ASF has granted no restricted stock awards or stock appreciation rights
("SARs"). Indicates number of shares of ASF Common Stock issuable upon
exercise of stock options granted to the named officers under the 1990
Employee Stock Incentive Plan and the 1992 Employee Stock Incentive Plan.
All numbers of shares reflect adjustment for the one-for-five reverse
common stock split effective at the close of business on April 27, 1993.
(10) Amounts stated include:
(a) Amounts paid for 1994 as premiums for group term life insurance
coverage over $50,000, as follows: Mr. Taylor, $7,617; Mr. Goldstein,
$3,429; Mr. Holland, $4,245; Ms. Mahoney, $6,120; and Ms. Haskins,
$1,885.
(b) Amounts contributed by ASF for 1994 as a Discretionary Contribution
under the 401(k) Plan, as follows: Mr. Taylor, $7,182; Mr.
Goldstein, $7,182; Mr. Holland, $7,182; Ms. Mahoney, $7,182; and
Ms. Haskins, $7,182. Mr. Goldstein and Mmes. Mahoney and Haskins
are fully vested in the 401(k) Plan. In the event the Merger is
consummated, Messrs. Taylor and Holland will also become fully
vested in the 401(k) Plan.
(c) Amounts contributed by ASF for 1994 as a "matching"
contribution for each of the named persons for 1994 under the
401(k) Plan, as follows: Mr. Taylor, $4,500; Mr. Goldstein,
$4,500; Mr. Holland, $4,500; Ms. Mahoney, $4,500; and Ms.
Haskins, $4,500. Mr. Goldstein and Mmes. Mahoney and Haskins
are fully vested in the 401(k) Plan. In the event the Merger is
consummated, Messrs. Taylor and Holland will also become fully
vested in the 401(k) Plan.
(11) Mr. Holland's employment as an executive officer of ASF commenced in March
1992. See " -- Termination of Employment, Change-in-Control Arrangements
and Employment Contracts".
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table shows information concerning exercises of stock options
during 1994 by each of the executive officers named in the Summary Compensation
Table and the value of their unexercised options at December 31, 1994:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT FISCAL
SHARES ACQUIRED ON YEAR-END (#)
NAME EXERCISE (#) VALUE REALIZED ($)(1) EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C>
Stephen D. Taylor............... 40,000 688,750 139,800/60,000(3)
Alan B. Goldstein............... 26,500 388,782 33,500/--
Charles H. Holland, Jr.......... 43,980 706,037 --/--
Barbara E. Mahoney.............. -- -- 50,000/--
Linda M. Haskins................ -- -- 43,500/--
<CAPTION>
VALUE OF UNEXERCISED
IN-THE- MONEY OPTIONS AT
FISCAL YEAR-END
EXERCISABLE/
NAME UNEXERCISABLE ($)(2)
<S> <C>
Stephen D. Taylor............... $2,590,669/1,111,875(3)
Alan B. Goldstein............... 448,063/--
Charles H. Holland, Jr.......... --/--
Barbara E. Mahoney.............. 773,438/--
Linda M. Haskins................ 651,970/--
</TABLE>
(1) Amount stated represents the sum, for all option exercises during 1994, of
the following for each such option exercise: the difference between (a) the
aggregate of the average of the high and low sales price per share of ASF
Common Stock on the Nasdaq National Market for the date of exercise and (b)
the aggregate exercise prices of the respective options.
(2) Amounts stated represent the difference between the aggregate of the closing
sales price per share of ASF Common Stock on the Nasdaq National Market for
December 31, 1994 ($19.625) and the aggregate exercise prices of the
respective options.
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<PAGE>
(3) All stock options granted under the 1992 Employee Stock Incentive Plan,
including those of Mr. Taylor, which were not otherwise exercisable as of
January 31, 1995, were accelerated by the Stock Option Committee and became
fully exercisable as of that date.
For a discussion of the effects of the consummation of the Merger on
unexercised options granted to officers under the 1990 Employee Stock Incentive
Plan and the 1992 Employee Stock Incentive Plan, see "THE MERGER -- Interests of
Certain Persons; TREATMENT OF STOCK OPTIONS AND SENIOR EXECUTIVE SEVERANCE
PLAN".
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES ON EXECUTIVE COMPENSATION
The report of the Compensation and Stock Option Committees shall not be
deemed incorporated by reference by any general statement incorporating by
reference this Proxy Statement/Prospectus into any filing under the Securities
Act or under the Exchange Act, except to the extent ASF specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
ASF links executive compensation to performance. Key components are the
following:
(Bullet) The members of the Compensation and Stock Option Committees of the
ASF Board are non-employee directors of ASF. In matters of
individual compensation levels and option grants, the decisions of
these committees are final, and are not reviewed by the ASF Board.
COMPENSATION COMMITTEE -- POLICY AND PROCEDURAL FRAMEWORK
(Bullet) ASF uses an independent executive compensation consulting firm to
advise ASF regarding the relationships between compensation paid
to its executives and compensation paid to executives for
comparable services to comparable financial institutions according
to commercially conducted surveys.
(Bullet) Increases in the base salary of all officers and supervisors of
ASF are reviewed annually and are based upon the following
criteria ("Criteria"):
a. demonstrated performance based upon internally published
company objectives and written job description objectives, and
more specifically upon a written annual business plan agreement
between each officer and his or her superior officer (or, in
the case of the Chief Executive Officer ("CEO"), the ASF
Board), and the degree to which the benchmarks of that business
plan were met by the officer under a program of Management by
Objectives ("MBO"); and
b. an assessment of the officer's current salary against
salaries paid for similar jobs performed at other similar
sized financial institutions, as compiled by ASF's
independent consulting firm; the objective being to keep the
officer's compensation within approximately 20 percent of
the median compensation of similar competing jobs.
(Bullet) In addition to base salary, each officer in ASF has had and will
continue to have an opportunity to earn an annual performance
bonus based upon (i) ASF's overall financial performance, and (ii)
the demonstrated performance of that officer against his or her
MBO plan. The quantum of that opportunity increases with the level
and scope of the officer's responsibility and authority, generally
in the range of approximately 5-15 percent of base salary for
superior-performance junior officers, 10-40 percent of base salary
for executive officers other than the CEO, and a maximum of 50
percent of base salary for the CEO.
(Bullet) Because of the substantial increase in market value of ASF's
shares during the three years preceding this report, and the
"recovery" nature of ASF's financial status during that period,
there has been no attempt to link base salary or bonus
compensation decisions to the market value performance of ASF's
stock.
COMPENSATION COMMITTEE -- CEO COMPENSATION
(Bullet) The contractual base salary and bonus of ASF's CEO, as contained
in the letter agreement, dated September 18, 1991, relating to his
employment, were established by the ASF Board's CEO search
committee based upon consideration of compensation levels at other
financial institutions of similar size and complexity. A
validation of that compensation level was performed by the
Compensation Committee in November 1993 and, based on the report
of ASF's independent executive compensation consulting firm and an
analysis by ASF's staff of compensation as reported in proxy
material of public institutions, the CEO's total cash compensation
was found to be within 10 percent of the median compensation paid
to chief executive officers by other banks and thrifts generally
with assets greater than $1.0 billion as reported by an aggregate
of ten commercially conducted surveys and ten other corporations'
proxy statements.
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<PAGE>
Based upon this information, and the successful completion of the
1993 ASF business plan, including such areas (on an unranked
basis) as earnings growth, capital growth, and loan portfolio
performance improvement, the Compensation Committee increased the
CEO's 1993 base salary by $25,000 (7.9 percent) for 1994, the same
dollar amount increase granted the prior year.
(Bullet) The amount of bonus awarded to the CEO for 1994 was based upon the
CEO Performance Bonus Compensation Plan for 1994 previously
adopted by the Compensation Committee. Based upon successfully
meeting individual factors in that plan, he was awarded (a) a 9.7
percent bonus according to a formula involving the level of growth
in corporate core earnings over the level earned in 1993, (b) a 10
percent bonus for completing two of three goals relating to (i)
achieving specified levels of core and tangible capital ratios,
(ii) reducing non-performing assets below a specified level, and
(iii) achieving a regulatory status improvement, and (c) a 20
percent bonus pursuant to the Committee's overall assessment of
ASF's continued growth and product innovation. The total bonus of
39.7 percent produced a total salary plus bonus in 1994 that
substantially matched the total of salary plus bonus in 1993, a
result consistent with ASF continuing to meet long-term growth
plans previously established by the ASF Board.
COMPENSATION COMMITTEE -- OTHER EXECUTIVE OFFICER COMPENSATION
(Bullet) In November 1993 and in November 1994, the Compensation Committee
reviewed the compensation of all executive officers then employed,
including the four named executive officers other than the CEO
(detailed above):
a. In each instance, the Committee authorized: (i) a salary
increase pool for executive officers for the following calendar
year, stated as a percentage of aggregate base salaries of the
group of executive officers, that percentage being the
mid-range of percentage salary increases available to all
above-average-performance employees of ASF; and (ii) a
performance bonus pool for all officers for the year being
completed, stated in dollars as approximately five percent of
total ASF base salaries.
b. In each year the CEO assessed the performance of each
executive officer using the Criteria listed above, both
directly and in consultation with that executive officer's
superior officer (where applicable), and, based upon those
assessments, recommended a performance-linked equitable
allocation of the salary increase pool among the executive
officers, and the performance bonus pool among both the
superior-performance junior officers and the executive
officers.
c. The CEO's recommendations were reviewed by the
Compensation Committee of the ASF Board and confirmed.
STOCK OPTION COMMITTEE
(Bullet) Incentive stock options link the compensation of executives to the
financial interests of ASF's stockholders. Options serve as an
incentive to attract and retain executive talent and to build
loyalty to the institution in times of uncertainty as well as in
times of success. The number of shares granted to any executive on
an initial grant is determined by the scope of responsibility of
that individual, and for additional grants is determined by
relative responsibility level, by demonstrated performance, and by
the quantity of options already held by that individual. Every
grant is made with an exercise price equal to the fair market
value on the date of grant, as defined in the plan under which the
grant is made.
ASF did not grant any stock options during 1994.
ASF BOARD'S REVIEW
(Bullet) The goals, objectives, and financial impact of all compensation
and benefit plans are reviewed and confirmed by the ASF Board
annually in conjunction with its approval of ASF's strategic goals
and operating business plan. No actions of the Compensation
Committee or the Stock Option Committee were challenged or revised
by the ASF Board.
<TABLE>
<S> <C>
COMPENSATION COMMITTEE STOCK OPTION COMMITTEE
Charles Daniel Kimbrel, Chairman William H. Dukelow, Chairman
T. Wayne Davis T. Wayne Davis
William H. Dukelow Nimrod T. Frazer
Nimrod T. Frazer Charles Daniel Kimbrel
Barbara W. Gothard Deirdre Y. Russell
Deirdre Y. Russell
</TABLE>
75
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The graph below shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement/Prospectus
into any filing under the Securities Act, or under the Exchange Act, except to
the extent ASF specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such Acts.
The graph compares the cumulative total stockholder return1 on ASF Common
Stock with the CRSP Total Return Index for the Nasdaq Stock Market (US
Companies) (the "NASDAQ Index"), and the CRSP Total Return Index for the Nasdaq
Bank Stocks (the "NASDAQ Bank Index") as of the last trading day of each fiscal
quarter from July 3, 1990 (the date on which ASF Common Stock was first publicly
traded after ASF's acquisition by Enstar in 1988) through December 31, 1994.2
Cumulative Total Return Among ASF
Common Stock, NASDAQ Index and NASDAQ Bank Index
(Performance Graph appears here. Plot points appear below.)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <S> <S> <S>
ASF 100 50 25 38 25 44 50 175 118 288 413 488 460 735 765 850 870 735 785
NASDAQ Index 100 75 83 107 106 188 133 137 127 133 154 160 174 176 169 169 161 175 172
NASDAQ Bank Index 100 77 83 102 112 126 136 152 166 171 198 219 211 231 225 222 240 243 225
</TABLE>
1 Assumes the investment of $100 on July 3, 1990 in each of ASF Common Stock,
the NASDAQ Index and the NASDAQ Bank Index, and reinvestment of dividends,
although dividends were not declared on ASF Common Stock during the period.
Prices stated reflect adjustment for the one-for-five reverse common stock
split effective at the close of business on April 27, 1993.
2 Both indices were compiled by the Center for Research in Security Prices of
The University of Chicago Graduate School of Business. The NASDAQ Index
comprises all domestic common shares traded on the Nasdaq National Market and
the Nasdaq SmallCap Market, including ASF Common Stock. The NASDAQ Bank Index
comprises all domestic common shares of commercial or stock banks, thrift
institutions and their holding companies included in the NASDAQ Index,
including ASF Common Stock.
TERMINATION OF EMPLOYMENT, CHANGE-IN-CONTROL ARRANGEMENTS AND EMPLOYMENT
CONTRACTS
STEPHEN D. TAYLOR
A letter agreement, dated September 18, 1991, between ASF and Mr. Taylor
provides for his employment as President and Chief Executive Officer of ASF, and
sets forth the terms and conditions of his employment as follows: (a) an annual
base salary of not less than $290,000, (b) a bonus of approximately $34,000
during 1991 (which Mr. Taylor waived), a fixed bonus
76
<PAGE>
in the amount of 25 percent of his base salary actually earned during 1992, and
an additional bonus in the amount of up to 25 percent of his base salary during
1992, and up to 50 percent of his base salary during subsequent years, based
upon his accomplishment of goals and objectives to be agreed upon with the ASF
Board, (c) a grant of ISOs to purchase 240,000 shares of ASF Common Stock
(granted in 1991 under the 1990 Employee Stock Incentive Plan but modified in
1992 without a change in exercise price, number of shares or term to provide
that the options would be treated as options granted under the 1992 Employee
Stock Incentive Plan reflecting adjustment for the one-for-five reverse common
stock split effective at the close of business on April 27, 1993), (d)
reimbursement of relocation and other expenses, and (e) a severance benefit of
12 months' salary upon involuntary termination of his employment. Amounts paid
to Mr. Taylor under his agreement after 1991 contemplated by that agreement are
included in the Summary Compensation Table.
CHARLES H. HOLLAND, JR.
A letter agreement, dated February 25, 1992, between ASF and Mr. Holland
provides for his employment as Executive Vice President -- Corporate Strategy
and Support of ASF, sets forth the terms and conditions of his employment as
follows: (a) an annual base salary of not less than $160,000, (b) a fixed bonus
in the amount of 25 percent of his base salary actually earned during 1992, (c)
a $10,000 relocation allowance, (d) reimbursement of expenses, and (e) a
severance benefit of six months' salary upon involuntary termination of his
employment. Amounts paid to Mr. Holland under his agreement, and options granted
to him during 1992 under the 1992 Employee Plan, are included in the Summary
Compensation Table.
SEVERANCE PLAN
ASF adopted a plan, effective as of the close of business on May 16, 1994,
for certain management employees, including the officers named in the Summary
Compensation Table. The plan, which replaced ASF's previous termination and
severance pay policy, provides benefits, payable in a lump sum out of the
general funds of ASF, if the officer's employment is terminated either (i) by
ASF, for reasons other than just cause (as defined in the plan), death or
disability, whether or not in connection with a change in control, or (ii) by
the officer after an adverse change in position, responsibilities or status, a
reduction in compensation or benefits, a relocation or a burdensome change in
business travel, in connection with a change in control. Benefits will be paid
in connection with a change in control if the termination occurs within two
years after, or (if in anticipation of the change in control) one year before, a
change in control. For this purpose, a "change in control" means any of the
following not resulting from actions by regulatory authorities: (a) acquisition
of 40 percent of ASF's voting securities, other than by ASF or any of its
subsidiaries or employee benefit plans, and other than in a "non-control
transaction" (involving continuity of share ownership and ASF Board membership);
(b) failure of three or more individuals recommended by the ASF Board to be
elected as directors; or (c) approval by ASF's stockholders of its merger,
consolidation or reorganization (except in a non-control transaction), its
complete liquidation or dissolution, or an agreement for the sale or other
disposition of all or substantially all of its assets. Severance benefits for
involuntary termination not in connection with a change in control consist of 52
weeks' salary for the CEO and 26 weeks' salary for the other named officers.
Severance benefits for termination in connection with a change in control
consist of 52 weeks' salary for the CEO and 40 weeks' salary for the other named
officers, plus the greater of (a) the officer's bonus for the year prior to the
year of termination, or (b) the anticipated bonus for the year of termination
multiplied by a fraction, the numerator of which is the sum of the number of
complete months worked in that year plus a factor (12 for the CEO and 9 for the
other named officers), and the denominator of which is 12. For this purpose, a
number of "weeks' salary" means the product of the number times 1/52nd of the
officer's highest annual gross salary rate during the two-year period preceding
the termination. Insurance benefits will continue during the severance period
and additional benefits may be awarded by the CEO, in his discretion. In the
case of termination in connection with a change in control, benefits under the
401(k) Plan will vest and ASF's "matching" contributions will continue during
the severance period. Severance benefits will not constitute "excess parachute
payments" for federal income tax purposes.
As described above, FUNC has agreed in the Merger Agreement that it and the
Subsidiary will honor the Severance Plan unless the affected executive employee
would receive better benefits under FUNC's severance plan and such employee
accepts FUNC's severance plan in lieu of the Severance Plan. See "THE
MERGER -- Interests of Certain Persons; TREATMENT OF STOCK OPTIONS AND SENIOR
EXECUTIVE SEVERANCE PLAN".
77
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a discussion of certain transactions and matters relating to Enstar,
see "BOARD OF DIRECTORS AND COMMITTEES -- Compensation Committee Interlocks and
Insider Participation", and "THE MERGER -- Interests of Certain Persons".
ASF makes loans in the ordinary course of business to its directors,
executive officers, members of their respective immediate families, and related
entities, on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons. ASF's management believes that none of these loans involve more
than the normal risk of collectibility or repayment or present other unfavorable
features.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Federal securities laws require ASF's directors, certain of its officers,
and persons owning beneficially more than 10 percent of ASF Common Stock to file
reports of initial ownership and reports of subsequent changes in ownership with
OTS. ASF is required to disclose in this Proxy Statement/Prospectus any failure
of persons who, at any time during 1994, were directors, officers required to
report, or more than 10 percent beneficial owners, to file timely those reports
during 1994 or prior years. To the best of ASF's knowledge, based solely upon a
review of copies of reports furnished to it, written representations that no
Form 5 was required for 1994 and other written representations maintained in
ASF's records, except as previously disclosed, all of ASF's directors, officers
required to report, and greater than 10 percent beneficial owners made all such
filings timely, except that Thomas A. Dorsey, an officer of ASF, in one timely
report, incorrectly stated the amount of securities beneficially owned at the
end of ASF's fiscal year, which was subsequently corrected by amendment filed
after the deadline for the original report; and Nimrod T. Frazer, a director of
ASF, filed one late report of an indirect transaction. See "SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Security Ownership of Certain
Beneficial Owners".
VOTE REQUIRED AND RECOMMENDATION
The affirmative vote of a majority of the votes cast, in person or by
proxy, by persons entitled to vote at the Meeting is required to elect
directors.
THE ASF BOARD RECOMMENDS THAT HOLDERS OF ASF COMMON STOCK VOTE FOR THE
ELECTION OF ALL NOMINEES AS DIRECTORS UNDER PROPOSAL 3.
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<PAGE>
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The ASF Board, upon the recommendation of the Audit Committee, has
appointed the firm of KPMG Peat Marwick LLP to continue as independent auditors
to audit the books and records of ASF for the year ending December 31, 1995,
subject to ratification by the stockholders of ASF at the Meeting. As of the
Effective Date, KPMG Peat Marwick LLP's term as independent auditors of ASF will
terminate as ASF will cease to exist as an independent entity. KPMG Peat Marwick
LLP has been acting as independent auditors of ASF since 1985. No determination
has been made as to what action the ASF Board would take if the stockholders of
ASF did not ratify the appointment.
Representatives of KPMG Peat Marwick LLP, independent auditors of the
consolidated financial statements of ASF, are expected to be present at the
Annual Meeting, will be given an opportunity to make a statement if they desire
to do so, and are expected to be available to respond to appropriate questions
from stockholders.
THE ASF BOARD RECOMMENDS THAT HOLDERS OF ASF COMMON STOCK VOTE FOR PROPOSAL
4.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the ASF Board knows of
no matters which will be presented for consideration at the Meeting other than
as set forth in the Notice of Annual Meeting accompanying this Proxy
Statement/Prospectus. However, if any other matters are properly presented, the
persons named in the proxies solicited by the ASF Board will vote as determined
by the ASF Board and, in the absence of Board action, have discretion to vote in
accordance with their own judgment on such matters.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT
1996 ANNUAL MEETING OF ASF STOCKHOLDERS
In the event that the Merger is not approved or has not been consummated,
any proposal intended to be presented by a stockholder at the 1996 Annual
Meeting of ASF stockholders must be received by ASF not later than December 8,
1995, to be considered for inclusion in the proxy statement for that meeting.
Any such proposal should be mailed to the Secretary of ASF, 17801 N.W. 2nd
Avenue, Miami, Florida 33169-5089 by certified mail, return receipt requested.
Inclusion of a stockholder's proposal in that proxy statement is subject to the
stockholder's eligibility and compliance with other requirements under the
Commission's proxy rules applied by OTS.
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ANNEX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 4th day of December, 1994 and
amended as of the 27th day of March, 1995 (this "Agreement"), by and between
American Savings of Florida, F.S.B., a federally chartered stock savings bank
("Bank"), and First Union Corporation, a North Carolina corporation
("Acquiror").
PRELIMINARY STATEMENT
WHEREAS, the respective Boards of Directors of Bank and Acquiror deem it to
be in the best interests of Bank and Acquiror and in the best interests of their
respective shareholders that Bank merge (the "Merger"), pursuant and subject to
the terms and conditions of this Agreement (including Section 1.8), and in
accordance with all applicable laws, rules and regulations, with and into a
national banking association to be formed as a direct subsidiary of Acquiror on
or prior to the Merger Effective Date (as defined herein) ("Subsidiary");
WHEREAS, the respective Boards of Directors of Bank and Acquiror have
approved this Agreement and the Stock Option Agreement at meetings of each of
such Boards of Directors, and have authorized the execution hereof;
WHEREAS, the parties hereto desire to enter into this Agreement for the
purpose of setting forth certain representations, warranties and covenants made
by each to the other as an inducement to the execution and delivery of this
Agreement and the conditions precedent to the consummation of the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
United States Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the representations and warranties and
mutual promises and obligations contained herein, the parties hereto adopt and
make this Agreement and prescribe the terms and conditions thereof and the
manner and basis of carrying it into effect, which shall be as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER; THE SURVIVING ENTITY. Subject to the terms and conditions
of this Agreement, on the Merger Effective Date, Bank shall merge with and into
Subsidiary in accordance with the applicable provisions of the Home Owners' Loan
Act, as amended, the National Bank Act, as amended, and the rules and
regulations thereunder, the separate existence of Bank shall cease, and
Subsidiary (the "Surviving Entity" wherever reference is made to it as of the
Merger Effective Date upon the consummation of the Merger, or thereafter) shall
survive.
1.2 ASSETS. Upon consummation of the Merger, the Surviving Entity shall
thereupon and thereafter be deemed to be a continuation of each merging entity
and possess all of the rights, privileges, immunities and franchises, of a
public as well as of a private nature, of each of the merging entities; and all
assets and property, real, personal and mixed, tangible and intangible, and all
debts due on whatever account, and all other choses in action, and all and every
other interest, including, without limitation, appointments, designations,
nominations, and all other rights and interests as trustee, executor,
administrator, transfer agent, registrar, guardian of estates, assignee,
receiver, custodian and any other fiduciary position or agency capacity, of or
belonging to or due to each of the entities so merged, shall be deemed to be
vested in the Surviving Entity immediately by operation of law and without
further action; and the title to any personalty or real estate, or any interest
therein, vested in any of such entities, shall not revert or be in any way
impaired by reason of the Merger.
1.3 LIABILITIES. Upon consummation of the Merger, the Surviving Entity
shall thenceforth be responsible and liable for all the liabilities, obligations
and penalties of each of the entities so merged; all deposits, debts,
liabilities, obligations and contracts of each of Bank and Subsidiary, matured
or unmatured, including all liabilities of each of Bank and Subsidiary for
taxes, whether existing immediately before the Merger Effective Date or arising
as a result of or pursuant to the Merger, shall be those of the Surviving Entity
and shall not be released or impaired by the Merger; and all rights of creditors
and other obligees and all liens on property of each of Bank and Subsidiary
shall be preserved unimpaired.
1.4 CHARTER; BYLAWS; DIRECTORS; OFFICERS; OFFICES. The charter and bylaws
of the Surviving Entity shall be those of Subsidiary, as in effect immediately
prior to the Merger becoming effective. The directors and officers of Subsidiary
in office immediately prior to the Merger becoming effective shall be the
directors and officers of the Surviving Entity, together with
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such additional directors and officers as may thereafter be elected, who shall
hold office until such time as their successors are elected and qualified. The
home office of Bank and the branch offices of Bank existing immediately prior to
the Merger Effective Date shall become branch offices of the Surviving Entity on
the Merger Effective Date.
1.5 MERGER CLOSING; MERGER EFFECTIVE DATE. Subject to the terms and
conditions of this Agreement, on the first business day of the month following
the month in which the last of the conditions set forth in Article VII (other
than the delivery of certificates, opinions, comfort letters and the like) is
satisfied or waived, or such other date as shall be mutually agreed between
Acquiror and Bank, the parties hereto shall exchange all documents and
instruments required by the terms of this Agreement to be delivered at or prior
to consummation of the Merger at such location as may be mutually agreed upon by
the parties (the "Merger Closing"). The Merger shall become effective at the
close of business on the date of the Merger Closing (the "Merger Effective
Date").
1.6 HOLDING COMPANY VOTING AGREEMENT. Immediately following the execution
and delivery of this Agreement, as an inducement to and condition of Acquiror's
willingness to enter into this Agreement, The Enstar Group, Inc., a unitary
savings and loan holding company ("Holding Company"), the holder of
approximately 48% of the outstanding common stock of Bank, $.01 par value per
share ("Bank Common Stock"), shall enter into a Shareholder Voting Agreement,
pursuant to which Holding Company shall agree, among other things, to vote such
Bank Common Stock in favor of the Merger (the "Holding Company Voting
Agreement").
1.7 STOCK OPTION AGREEMENT. Immediately following the execution and
delivery of this Agreement, as an inducement to and condition of Acquiror's
willingness to enter into this Agreement, Bank agrees to enter into a Stock
Option Agreement (the "Stock Option Agreement") in the form attached hereto as
EXHIBIT C, pursuant to which Bank will grant to Acquiror an option to purchase,
under certain circumstances, shares of Bank Common Stock.
1.8 RESERVATION OF RIGHT TO REVISE TRANSACTION. Acquiror may substitute for
Subsidiary any bank as the entity into which Bank shall merge, PROVIDED that, at
the time of the Merger, Acquiror shall be in control of such bank within the
meaning of Section 368(c) of the Code. If such substitution is made, for
purposes of this Agreement, each reference to Subsidiary herein shall be deemed
to refer to such bank. In addition to the foregoing substitution, Acquiror may
also at any time change the method of effecting the acquisition of Bank,
PROVIDED that no such change or substitution shall (i) alter or change the
amount or kind of consideration to be issued to holders of Bank Common Stock,
(ii) adversely affect the tax treatment of holders of Bank Common Stock as a
result of such change or substitution, or (iii) impede or delay receipt of any
approval referred to in Section 7.1(b) or the consummation of the transactions
contemplated by this Agreement.
1.9 SUBSIDIARY. Subject to Section 1.8 and subject to receipt of the
regulatory approvals referred to in Section 7.1(b), Acquiror (a) will cause
Subsidiary to be organized and to execute a supplement to this Agreement, in
substantially the form of EXHIBIT D (the "Supplement"), pursuant to which
Subsidiary shall become a party hereto and (b) will cause Subsidiary to take any
action necessary to effect the Merger in accordance with the terms of this
Agreement.
ARTICLE II
CONVERSION OF SECURITIES; MERGER CONSIDERATION
2.1 OUTSTANDING STOCK OF ACQUIROR. On and after the Merger Effective Date,
all of the shares of Acquiror Common Stock (as hereinafter defined), issued and
outstanding immediately prior to the Merger Effective Date, shall remain issued
and outstanding shares of Acquiror Common Stock.
2.2 OUTSTANDING BANK COMMON STOCK.
(a) On the Merger Effective Date, by virtue of the Merger and without any
further action on the part of Subsidiary, Bank or Surviving Entity, each share
of Bank Common Stock issued and outstanding immediately prior to the Merger
Effective Date (other than any shares of Bank Common Stock to be cancelled
pursuant to Section 2.8), shall become and be converted into the right to
receive the Merger Consideration (as defined below) in accordance with Section
2.3.
(b) For purposes of this Agreement:
(i) "Average Market Price" shall mean the average of the closing prices of
Acquiror Common Stock as reported on the Composite Transactions Tape of the New
York Stock Exchange, Inc. ("NYSE") for each of the ten (10) consecutive trading
days ending on and including the trading day immediately preceding the Merger
Effective Date (such period being referred to as the "Price Measurement
Period").
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(ii) "Merger Consideration" shall mean the number of shares of Acquiror
Common Stock (together with the rights ("Acquiror Rights"), issued pursuant to a
Shareholder Protection Rights Agreement, dated December 18, 1990, as amended
(the "Acquiror Rights Agreement")), equal to the quotient of $21.00 and the
Average Market Price.
2.3 EXCHANGE PROCEDURE.
(a) First Union National Bank of North Carolina shall act as exchange agent
(the "Exchange Agent") for purposes of conducting the exchange procedure as
described in this Section 2.3. As soon as practicable after the Merger Effective
Date, Acquiror shall cause the Exchange Agent (with the reasonable assistance of
Bank and Bank's transfer agent) to mail to each holder of record of Bank Common
Stock as of the Merger Effective Date a letter of transmittal ("L/T") (which
shall specify that delivery shall be effected and risk of loss and title to the
certificates theretofore representing shares of Bank Common Stock ("Old
Certificates") shall pass only upon proper delivery of such Old Certificates to
the Exchange Agent) advising such holder of the effectiveness of the Merger and
the procedure for surrendering to the Exchange Agent such Old Certificates in
exchange for the certificates representing the Merger Consideration deliverable
in respect thereof pursuant to this Article II.
(b) Each holder of shares of Bank Common Stock that have been converted
into a right to receive the Merger Consideration set forth in Section 2.2 shall
be entitled to receive certificates representing the Merger Consideration in
respect of such shares of Bank Common Stock, as provided in this Section 2.3.
(c) Until so surrendered, each Old Certificate shall, after the Merger
Effective Date, represent for all purposes only the right to receive the Merger
Consideration, without any interest thereon, as provided in this Section 2.3.
(d) If any Merger Consideration is to be issued to a person other than the
registered holder of the Bank Common Stock represented by the Old Certificates
surrendered with respect thereto, it shall be a condition to such issuance that
the Old Certificates so surrendered shall be properly endorsed or otherwise be
in proper form for transfer and that the person requesting such issuance shall
pay to the Exchange Agent any transfer or other taxes required as a result of
such issuance to a person other than the registered holder of such Bank Common
Stock or establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not payable.
(e) As of the Merger Effective Date, there shall be no further registration
of transfers of shares of Bank Common Stock that were outstanding prior to the
Merger, and the stock ledger of the Bank with respect to the issuance of Bank
Common Stock shall be closed. After the Merger Effective Date, all Old
Certificates presented to the Surviving Entity for transfer shall be converted
into and cancelled in exchange for the right to receive the Merger Consideration
provided for, and in accordance with the procedures set forth, in this Article
II.
(f) None of Acquiror, Holding Company or the Surviving Entity shall be
liable to any holder of Bank Common Stock formerly outstanding for any
securities delivered or any amount paid to a public official pursuant to
applicable abandoned property laws. Any cash and/or shares of Acquiror Common
Stock remaining unclaimed by holders of shares of Bank Common Stock prior to
such time as such cash or securities are escheated to any governmental agency or
authority shall to the extent provided by applicable law be free and clear of
any claims or interest of any person previously entitled thereto.
(g) No Merger Consideration, or any dividends or other distributions with
respect to Merger Consideration, shall be paid to the holder of any
unsurrendered Old Certificates until all of the Old Certificates owned by such
holder are surrendered as provided in this Section 2.3. Upon such surrender,
there shall be paid to such holder the Merger Consideration to which such holder
is entitled, including any dividend or other distribution payable in respect of
such Merger Consideration which was paid on a date subsequent to, and in respect
of a record date after, the Merger Effective Date, in each case without any
interest thereon.
(h) Old Certificates surrendered in exchange for Merger Consideration by
any person constituting an "affiliate" of Bank for purposes of Rule 145 of the
Securities Act (as hereinafter defined) shall not be exchanged for such Merger
Consideration until Acquiror has received a written agreement from such person
as contemplated by Section 5.10.
2.4 [RESERVED]
2.5 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, neither certificates nor scrip for fractional shares of Acquiror
Common Stock shall be issued in the Merger. Each holder who otherwise would have
been entitled to a fraction of a share of Acquiror Common Stock shall receive in
lieu thereof cash (without any interest thereon) in an amount determined by
multiplying the fractional interest to which such holder would otherwise be
entitled by the Average
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Market Price. No such holder shall be entitled to dividends, voting rights or
any other rights in respect of any fractional share of Acquiror Common Stock.
2.6 ADJUSTMENTS. If, between the date of this Agreement and the Merger
Effective Date, the outstanding shares of Acquiror Common Stock shall have been
changed into a different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares or
readjustment, or a stock dividend thereon shall be declared with a record date
within said period, the Merger Consideration shall be correspondingly adjusted.
2.7 TREATMENT OF STOCK OPTIONS. The Bank agrees that, at the Merger
Effective Date, all options (other than the Option (as defined in the Stock
Option Agreement) granted to Acquiror pursuant to the Stock Option Agreement) to
purchase shares of Bank Common Stock which are outstanding immediately prior to
the Merger Effective Date, whether or not vested or exercisable (each, a "Stock
Option"), shall be cancelled and of no force or effect. With respect to those
Stock Options with an exercise price per share that is less than $21.00, each
holder thereof will be entitled to receive immediately prior to the Merger
Effective Date, in settlement thereof, solely a cash payment from the Bank in an
amount equal to the excess of $21.00 over the exercise price per share of Bank
Common Stock covered by the Stock Option, multiplied by the total number of
shares of Bank Common Stock covered by the Stock Option. The number of
outstanding Stock Options as of the date hereof and the exercise prices therefor
are Previously Disclosed (as hereinafter defined) by Bank on SCHEDULE 3.2.
2.8 SHARES HELD BY BANK OR ACQUIROR. Each of the shares of Bank Common
Stock held by Bank or by Acquiror or by any direct or indirect wholly-owned
subsidiary of Bank or of Acquiror in each case other than in a fiduciary
capacity or as a result of debts previously contracted, shall be canceled and
retired on the Merger Effective Date and no consideration shall be issued in
exchange therefor.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BANK
Bank hereby represents and warrants to Acquiror and Subsidiary as follows:
3.1 CORPORATE STANDING. Bank is a federal stock savings bank chartered and
duly organized and validly existing under the laws of the United States of
America, with its principal executive offices located in Miami, Florida, except
as Previously Disclosed in SCHEDULE 3.1 is duly qualified to do business in each
jurisdiction in which the nature of its business or the properties or assets
owned or leased by it makes such qualification necessary, and no governmental
authority or agency of any other jurisdiction has advised Bank in writing that
Bank is required to be authorized to transact business as a foreign corporation
in such jurisdiction. Bank has the corporate power to carry on its business as
and where conducted, to own, lease and operate its properties, to execute and
deliver this Agreement and the Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby, subject (as to this Agreement
only) to having obtained all requisite shareholder and regulatory approvals
contemplated by this Agreement. The deposits of Bank are insured by the Savings
Association Insurance Fund ("SAIF") administered by the Federal Deposit
Insurance Corporation ("FDIC"). Bank is a member in good standing of the Federal
Home Loan Bank of Atlanta, and has purchased all stock and paid all membership
and other fees required in connection therewith.
3.2 CAPITAL. The authorized capital stock of Bank consists of (i)
24,000,000 shares of Bank Common Stock, of which, as of the date of this
Agreement 11,530,576 shares of Bank Common Stock are issued and outstanding,
fully paid and nonassessable, and subject to no preemptive rights, and (ii)
10,000,000 shares of Preferred Stock, $.01 par value, of which no shares are
issued or outstanding (no other class of capital stock being authorized). Except
as Previously Disclosed in SCHEDULE 3.2 hereto, there are no treasury shares and
no outstanding subscriptions, conversion privileges, options, warrants,
agreements, understandings or arrangements to which Bank is a party or by which
it is bound pursuant to which Bank may be obligated to issue shares of capital
stock and Bank is not a party to, or otherwise has knowledge of, any contracts,
commitments, understandings or arrangements relating to the voting or
disposition of Bank Common Stock. As of September 30, 1994, Bank had capital of
$212,605,570, divided into common stock of $115,016, surplus of $288,522,202,
retained earnings (deficit) of $(72,584,418), and net unrealized holding gains
(losses) on available-for-sale securities of $(3,447,230).
3.3 SUBSIDIARIES. A true and correct list of all entities (including,
without limitation, corporations, partnerships, joint ventures, limited
liability companies, firms or other entities) in which Bank has greater than a
5% direct or indirect equity or other ownership interest (each such entity in
which Bank has a 25% or greater direct or indirect equity or other ownership
interest is referred to herein individually as a "Bank Subsidiary" and
collectively as the "Bank Subsidiaries"), other than stock in the Federal Home
Loan Bank of Atlanta, is Previously Disclosed in SCHEDULE 3.3. SCHEDULE 3.3
shows for each of the
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Bank Subsidiaries the following: its date and jurisdiction of organization; each
other jurisdiction in which it is authorized to transact business; its
authorized, issued and outstanding capital stock, other equity securities and
other ownership interests; and the percentage ownership interest of Bank or any
Bank Subsidiary therein. Each of the Bank Subsidiaries is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and has all necessary corporate or other power to own its
properties and assets and to carry on its business as now conducted. Each of the
Bank Subsidiaries is duly authorized to conduct its business and is in good
standing in each jurisdiction Previously Disclosed in SCHEDULE 3.3 and no
governmental authority or agency of any other jurisdiction has advised Bank or
any Bank Subsidiary in writing that such Bank Subsidiary is required to be
authorized to transact business as a foreign corporation in such jurisdiction.
Except as Previously Disclosed in SCHEDULE 3.3 the shares of capital stock and
other equity securities of the Bank Subsidiaries are duly authorized, validly
issued and outstanding, fully paid and nonassessable, and subject to no
preemptive rights and are owned directly or indirectly by Bank, free and clear
of all liens, claims, agreements or encumbrances. Except as Previously Disclosed
in SCHEDULE 3.3, there are no shares of any other class of capital stock, other
equity securities or other ownership interests of any of the Bank Subsidiaries
outstanding and there are no treasury shares and no outstanding subscriptions,
conversion privileges, options, warrants, agreements, understandings or
arrangements to which Bank or any of the Bank Subsidiaries is a party or by
which Bank or any Bank Subsidiary is bound relating to its authorized or issued
capital stock, or pursuant to which such Bank Subsidiary may be obligated to
issue shares of capital stock, and there are no contracts, commitments,
understandings or arrangements relating to the rights of Bank to vote or to
dispose of such shares.
3.4 AUTHORIZATION. Each of this Agreement and the Stock Option Agreement,
subject (as to this Agreement only) to receipt of the necessary stockholder
approvals referred to in Section 7.1(a), has been duly authorized by all
necessary corporate action of Bank and, assuming the due authorization,
execution and delivery hereof and thereof by Acquiror, this Agreement and the
Stock Option Agreement each is a valid and binding agreement of Bank enforceable
against Bank in accordance with its terms, subject to the conservatorship and
receivership provisions of the Federal Deposit Insurance Act and the Federal
Home Loan Bank Act and to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting creditors' rights
generally and to general equity principles and except that the availability of
equitable remedies, including specific performance and injunctive relief, is
subject to the discretion of the court before which any proceedings may be
brought. The execution and delivery of this Agreement by Bank do not, and the
consummation of the transactions contemplated hereby by Bank will not,
constitute (a) except as Previously Disclosed in SCHEDULE 3.4(A) a breach or
violation of, or a default under, any judgment, decree, order, governmental
permit or license applicable to Bank or any of the Bank Subsidiaries or to which
Bank or any of the Bank Subsidiaries is subject or bound, which breach,
violation or default would have a Material Adverse Effect (as hereinafter
defined) on Bank, or (b) a breach or violation of, or a default under, its
charter or bylaws, or, except as Previously Disclosed in SCHEDULE 3.4(A) under
any agreement, indenture or instrument of Bank or any of the Bank Subsidiaries
or to which Bank or any of the Bank Subsidiaries is subject or bound, which
breach, violation or default under any such agreement, indenture, or instrument
would have a Material Adverse Effect on Bank. The consummation of the
transactions contemplated by this Agreement will not require any consent,
waiver, non-objection or approval under any such judgment, decree, order,
governmental permit or license, or the consent, waiver, non-objection or
approval of any other party to any such agreement, indenture or instrument,
other than (i) as Previously Disclosed in SCHEDULE 3.4(B), (ii) the approvals of
Bank shareholders and applicable regulatory authorities referred to in Section
7.1(b) and (iii) any other consents, waivers, non-objections or approvals the
absence of which would not have a Material Adverse Effect on Bank. The execution
and delivery of the Stock Option Agreement by Bank do not, and the consummation
of the transactions contemplated thereby by Bank will not, constitute (a) a
breach or violation of, or a default under, any judgment, decree, order,
governmental permit or license applicable to Bank or any of the Bank
Subsidiaries or to which Bank or any of the Bank Subsidiaries is subject or
bound, or (b) a breach or violation of, or a default under, its charter or
bylaws, or under any agreement, indenture or instrument of Bank or any of the
Bank Subsidiaries or to which Bank or any of the Bank Subsidiaries is subject or
bound. The consummation of the transactions contemplated by the Stock Option
Agreement will not require any consent, waiver, non-objection or approval under
any such judgment, decree, order, governmental permit or license, or the
consent, waiver, non-objection or approval of any other party to any such
agreement, indenture or instrument. Previously Disclosed in SCHEDULE 3.4(B) is a
full and complete list of all consents, waivers, non-objections or approvals
from third parties other than regulatory approvals contemplated in Section
7.1(b) that are required to be obtained by Bank in connection with the execution
and delivery of this Agreement by Bank and the performance of Bank's obligations
hereunder, other than those consents, waivers, non-objections or approvals the
failure of which to be obtained would not have a Material Adverse Effect on Bank
(such consents, waivers, nonobjections and approvals, other than those the
failure of which to obtain would not have a Material Adverse Effect on Bank,
being referred to as the "Bank Consents").
3.5 FILINGS; FINANCIAL STATEMENTS. Bank has delivered and will promptly
deliver, as applicable, to Acquiror, Bank's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, and all other documents filed or to be
filed by
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Bank subsequent to December 31, 1993 under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (together with the rules and
regulations thereunder, the "Exchange Act"), and 12 C.F.R. (section mark)
563d.1, in the form filed with the OTS, (such reports being referred to herein
as the "Bank Financial Reports") and which Bank Financial Reports conformed and
will conform in all material respects to applicable legal requirements. As of
their respective dates, the Bank Financial Reports did not and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading; and
each of the consolidated balance sheets contained in or incorporated by
reference into the Bank Financial Reports (including the related notes and
schedules thereto) presents and will present fairly the consolidated financial
position of Bank and its consolidated Bank Subsidiaries as of its date, and each
of the statements of consolidated earnings, consolidated shareholders' equity
and consolidated cash flows or equivalent statements in the Bank Financial
Reports (including any related notes and schedules thereto) presents and will
present fairly the results of operations, shareholders' equity and cash flows,
as the case may be, of Bank and its consolidated Bank Subsidiaries for the
periods set forth therein, in each case in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as may be noted therein, subject to normal year-end audit adjustments in
the case of unaudited statements. Except as Previously Disclosed in SCHEDULE
3.5, as of June 30, 1994, Bank had no material liabilities or obligations,
contingent or otherwise, other than as and to the extent disclosed or reserved
against in the Bank Financial Reports as of June 30, 1994, and those which would
not have a Material Adverse Effect on Bank.
3.6 ABSENCE OF MATERIAL ADVERSE EFFECT. Except as Previously Disclosed in
Schedule 3.6, since June 30, 1994, there has not occurred a Material Adverse
Effect on Bank.
3.7 CONDUCT OF BUSINESS; COMPLIANCE WITH LAWS.
(a) Except as Previously Disclosed in SCHEDULE 3.7(A), to the knowledge of
Bank, Bank and the Bank Subsidiaries have conducted their business in compliance
with all applicable federal, state, and local laws, ordinances and regulations,
including applicable banking laws, federal and state securities laws, and laws
and regulations concerning discrimination, truth-in-lending, usury, fair credit
reporting, fair lending, consumer protection, occupational safety, fair
employment practices and fair labor standards, including, without limitation,
the Equal Credit Opportunity Act, the Fair Housing Act, and the Community
Reinvestment Act, except where the failure to so comply would not have a
Material Adverse Effect on Bank. Except as Previously Disclosed in SCHEDULE
3.7(A), neither Bank nor any of the Bank Subsidiaries has received any
notification or communication from any agency or department of any federal,
state or local government or regulatory authority or the staffs thereof,
asserting that either Bank or any of the Bank Subsidiaries is not in compliance
with any of the statutes, regulations or ordinances that such agency, department
or regulatory authority enforces, which noncompliance would have a Material
Adverse Effect on the Bank, or threatening to revoke any license, franchise,
permit or governmental authorization the revocation of which would have a
Material Adverse Effect on Bank.
(b) Except as Previously Disclosed in SCHEDULE 3.7(B), each of Bank and the
Bank Subsidiaries:
(i) has all permits, licenses, authorizations, orders and approvals of, and
has made all filings, applications and registrations with, all regulatory
authorities that are required in order to permit it to own its businesses as
presently conducted and that are material to the business of Bank and the Bank
Subsidiaries, taken as a whole; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect and, to the
knowledge of Bank, no suspension or cancellation of any of them is threatened;
and all such filings, applications and registrations are current;
(ii) has received no notification or communication from any regulatory
authority or the staff thereof (A) threatening to revoke any license, franchise,
permit or governmental authorization, which revocation would have a Material
Adverse Effect on the Bank, or (B) requiring or suggesting that any of Bank or
the Bank Subsidiaries (or any of its officers, directors, trustees or
controlling persons) enter into a cease and desist order, agreement or
memorandum of understanding (or requiring the board of directors or board of
trustees thereof to adopt any resolution or policy) which has not been
terminated);
(iii) is not required to give prior notice to any federal banking or thrift
agency of the proposed addition of an individual to its board of directors or
the employment of an individual as a senior executive; and
(iv) does not accept brokered deposits.
3.8 LITIGATION; REGULATORY MATTERS. Except as Previously Disclosed in
SCHEDULE 3.8, and except for matters which would not have a Material Adverse
Effect on Bank, neither Bank nor any of the Bank Subsidiaries is a party to any,
and there are no pending or, to Bank's knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature against Bank or any of the Bank
Subsidiaries (including without limitation
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any such proceeding, claim, action or investigation which alleges claims under
fair lending laws or other laws relating to discrimination, including, without
limitation, the Equal Credit Opportunity Act, the Fair Housing Act, the
Community Reinvestment Act, and the Home Mortgage Disclosure Act or under any
similar disclosure law or regulation), or challenging the validity or propriety
of the transactions contemplated by this Agreement; neither Bank nor any of the
Bank Subsidiaries is a party to or is subject to any order, decree, agreement,
memorandum of understanding or similar arrangement with, or a commitment letter
or similar submission to, any federal or state governmental agency or authority
charged with the supervision or regulation of depository institutions or engaged
in the insurance of deposits which restricts or purports to restrict the conduct
of the business of Bank or any of the Bank Subsidiaries, or the capital,
liquidity, credit policies or management of Bank or any of the Bank
Subsidiaries, which restrictions would have a Material Adverse Effect on Bank;
and, to Bank's knowledge, neither Bank nor any of the Bank Subsidiaries has been
advised by any such regulatory authority that such authority is contemplating
issuing or requesting any such order, decree, agreement, memorandum of
understanding, commitment letter or similar arrangement or submission, or
requiring Bank or any Bank Subsidiary to adopt any resolution or similar board
action with respect thereto.
3.9 MATERIAL CONTRACTS; EMPLOYMENT OBLIGATIONS.
(a) Except as Previously Disclosed in SCHEDULE 3.9 and except for this
Agreement, the Stock Option Agreement, and arrangements made in the ordinary
course of business consistent with prior practice, neither Bank nor any of the
Bank Subsidiaries is bound by any contracts, understandings or arrangements to
be performed after the date hereof involving payments by Bank or any of the Bank
Subsidiaries in excess of $100,000 for any 12 month period or pursuant to which
Bank or any of the Bank Subsidiaries may incur liability in excess of $100,000
for termination or breach thereof. True and complete copies of such contracts,
understandings or arrangements have been provided to Acquiror or will be
provided to Acquiror upon request. Except as Previously Disclosed in SCHEDULE
3.9, 3.10(A), 5.9(B) or 5.9(C), (i) there are no contracts, understandings or
arrangements between Bank or any of the Bank Subsidiaries and the Holding
Company, or between Bank or any Bank Subsidiary and any director, officer or
employee of Bank, any Bank Subsidiary or the Holding Company and (ii) neither
Bank nor any of the Bank Subsidiaries has any written or oral bonus, pension,
profit sharing, retirement, deferred compensation, savings, stock purchase,
stock option, severance, hospitalization, insurance or other plan providing
employee benefits or any employment, agency, consulting or similar contract.
(b) Each of the contracts, understandings and arrangements Previously
Disclosed in SCHEDULE 3.9 is in full force and effect and, except as Previously
Disclosed in SCHEDULE 3.9, neither Bank or any Bank Subsidiary nor to Bank's
knowledge any other party to such a contract, understanding or arrangement is in
default thereunder or has breached any terms or provisions thereof which default
or breach would have a Material Adverse Effect on Bank.
(c) Except for those matters which would not have a Material Adverse Effect
on Bank, no third party has raised with Bank or any Bank Subsidiary any claim,
dispute or controversy with respect to any of the contracts, understandings and
arrangements Previously Disclosed in SCHEDULE 3.9, nor has Bank or any Bank
Subsidiary received notice or warning of alleged nonperformance, delay in
delivery or noncompliance by Bank or any Bank Subsidiary with respect to its
obligations under any of such contracts, understandings or arrangements.
3.10 EMPLOYEE BENEFIT PLANS.
(a) Previously Disclosed in SCHEDULE 3.10(A) is a complete list of all
bonus, deferred compensation, pension retirement, profit-sharing, thrift,
savings, employee stock ownership, stock bonus, stock purchase, restricted stock
and stock option plans, all employment or severance plans and contracts, all
medical, dental, health and life insurance plans, all other employee benefit
plans, contracts or arrangements and any applicable "change of control" or
similar provisions in any plan, contract or arrangement maintained or
contributed to by Bank or any of the Bank Subsidiaries for the benefit of
employees, former employees, directors, former directors or their beneficiaries
(the "Compensation and Benefit Plans"). True and complete copies of all
Compensation and Benefit Plans, including, but not limited to, any trust
instruments and/or insurance contracts, if any, forming a part thereof, and all
amendments thereto have been, or will be upon request, supplied to Acquiror.
(b) All "employee benefit plans", within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), other
than "multiemployer plans" within the meaning of Section 3(37) of ERISA
("Multiemployer Plans"), covering employees or former employees of Bank and the
Bank Subsidiaries (the "ERISA Plans"), to the extent subject to ERISA, are in
substantial compliance with ERISA. Except as Previously Disclosed in SCHEDULE
3.10(B), each ERISA Plan which is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA ("Pension Plan") and which is intended to be
qualified under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service, and Bank is not aware of
any circumstances reasonably likely to result in the revocation
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or denial of any such favorable determination letter or the inability to receive
such a favorable determination letter. There is no material pending or, to
Bank's knowledge, threatened litigation relating to the ERISA Plans. Neither
Bank nor any of the Bank Subsidiaries has engaged in a transaction with respect
to any ERISA Plan that could subject it or any of the Bank Subsidiaries to a tax
or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA
in an amount which would be material.
(c) No liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by Bank or any of the Bank Subsidiaries with respect to
any ongoing, frozen or terminated "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them,
or the single-employer plan of any entity which is considered one employer with
it under Section 4001(a)(15) of ERISA or Section 414 of the Code (an "ERISA
Affiliate"). Neither Bank nor any of the Bank Subsidiaries presently contributes
to a Multiemployer Plan, nor have they contributed to such a plan within the
past five calendar years. No notice of a "reportable event", within the meaning
of Section 4043 of ERISA for which the 30-day reporting requirement has not been
waived, has been required to be filed for any Pension Plan or by any ERISA
Affiliate within the past 12-month period.
(d) All contributions required to be made under the terms of any ERISA Plan
have been timely made. Neither any Pension Plan nor any single-employer plan of
an ERISA Affiliate has an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of ERISA.
Neither Bank nor any of the Bank Subsidiaries has provided, or is required to
provide, security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(e) Under each Pension Plan which is a single-employer plan, as of the last
day of the most recent plan year, the actuarially determined present value of
all "benefit liabilities", within the meaning of Section 4001(a)(16) of ERISA
(as determined on the basis of the actuarial assumptions contained in the plan's
most recent actuarial valuation) did not exceed the then current value of the
assets of such plan, and there has been no material change in the financial
condition of such plan since the last day of the most recent plan year.
(f) Neither Bank nor any of the Bank Subsidiaries has any obligations for
retiree health and life benefits under any plan, except as Previously Disclosed
in SCHEDULE 3.10(F). There are no restrictions on the rights of Bank or any of
the Bank Subsidiaries to amend or terminate any such plan without incurring any
liability thereunder.
(g) Except as Previously Disclosed in SCHEDULE 3.10(G), 5.9(B), or 5.9(C),
neither the execution and delivery of this Agreement or the Stock Option
Agreement nor the consummation of the transactions contemplated hereby or
thereby will (i) result in any payment (including, without limitation,
severance, unemployment compensation, golden parachute or otherwise) becoming
due to any director or any employee of Bank or any of the Bank Subsidiaries
under any Compensation and Benefit Plan or otherwise from Bank or any of the
Bank Subsidiaries, (ii) increase any benefits otherwise payable under any
Compensation and Benefit Plan, or (iii) result in any acceleration of the time
of payment or vesting of any such benefit.
3.11 LABOR MATTERS. Neither Bank nor any of the Bank Subsidiaries is a
party to, or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is Bank
or any of the Bank Subsidiaries the subject of a proceeding asserting that it or
any such Bank Subsidiary has committed an unfair labor practice (within the
meaning of the National Labor Relations Act) or seeking to compel it or such
Bank Subsidiary to bargain with any labor organization as to wages and
conditions of employment, nor is there any strike or other labor dispute
involving Bank or any of the Bank Subsidiaries pending or, to Bank's knowledge,
threatened, nor is Bank aware of any activity involving Bank or any of the Bank
Subsidiaries' employees seeking to certify a collective bargaining unit or
engaging in any other labor organization activity.
3.12 CLASSIFIED ASSETS. Bank has Previously Disclosed in SCHEDULE 3.12 a
list of the aggregate amounts of loans, extensions of credit or other assets of
Bank and the Bank Subsidiaries that have been classified as of June 30, 1994 by
Bank (the "Asset Classification") as "Other Loans Specially Mentioned",
"Substandard", "Doubtful" or "Loss"; and except as Previously Disclosed in
SCHEDULE 3.12 no amounts of loans, extensions of credit or other assets that
have been classified as of June 30, 1994 by any regulatory examiner as "Other
Loans Specially Mentioned", "Substandard", "Doubtful", or "Loss" are excluded
from the amounts disclosed in the Asset Classification, other than amounts of
loans, extensions of credit or other assets that were charged off by Bank or a
Bank Subsidiary prior to June 30, 1994.
3.13 TITLE TO PROPERTIES. To Bank's knowledge, except as Previously
Disclosed in SCHEDULE 3.13(A), Bank and the Bank Subsidiaries have good, and in
the case of real property, marketable, title to all their properties and assets
and interests therein, real and personal, reflected in the latest audited
balance sheet included in the Bank Financial Reports prior to the date of this
Agreement or acquired after the date thereof (except as since sold or otherwise
disposed of in the ordinary course of
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business), free and clear of all liens and encumbrances, except for liens for
current taxes not yet due and payable, and liens which are not, in the
aggregate, material in relation to the assets of Bank and except also for such
imperfections of title, easements and encumbrances, if any, as do not materially
interfere with the present use of the properties subject thereto or affected
thereby, or otherwise materially impair business operations or the marketability
or value of the properties subject thereto. Except as Previously Disclosed in
SCHEDULE 3.13(B), all material leases pursuant to which Bank or the Bank
Subsidiaries, as lessee, leases real or personal property are in full force and
effect, and there is not, under any of such leases, any material existing
default by Bank or any of the Bank Subsidiaries or any event which with notice
or lapse of time or both would constitute such a default, and except as
Previously Disclosed in SCHEDULE 3.4(B), none of such leases contains a
prohibition against assignment by Bank or the Bank Subsidiaries or any other
provision which would preclude the Surviving Entity or any of its subsidiaries
from occupying and using the leased premises for the same purposes and upon the
same rental and other terms as are applicable to the occupation and use by Bank
or the Bank Subsidiaries.
3.14 TAXES. Except as Previously Disclosed in SCHEDULE 3.14, (a) all
reports and returns with respect to Taxes (as defined below) and tax related
information reporting requirements that are required to be filed by or with
respect to Bank or the Bank Subsidiaries, including, without limitation,
consolidated federal income tax returns of Bank and the Bank Subsidiaries,
(collectively, the "Bank Tax Returns") have been duly filed, or requests for
extensions have been timely filed and have not expired, except to the extent all
such failures to file, taken together, would not have a Material Adverse Effect
on Bank, and such Bank Tax Returns were true, complete and accurate in all
material respects; (b) all Taxes shown to be due on the Bank Tax Returns have
been paid in full; (c) the Bank Tax Returns have been examined by the Internal
Revenue Service or the appropriate state, local or foreign taxing authority or
the period for assessment of the Taxes in respect of which such Bank Tax Returns
were required to be filed has expired, (d) all Taxes due with respect to
completed and settled examinations have been paid in full, (e) no issues have
been raised by the relevant taxing authority in connection with the examination
of any of the Bank Tax Returns which would have a Material Adverse Effect on
Bank, except as specifically reserved against in the Bank Financial Reports for
periods ended prior to the date of this Agreement, and (f) no waivers of
statutes of limitations have been given by or requested with respect to any
Taxes of Bank or the Bank Subsidiaries.
For purposes of this Agreement, the term "Tax" shall mean all federal,
state, local or foreign income, gross receipts, windfall profits, severance,
property, production, sales, use, license, excise, franchise, employment,
premium, recording, documentary, transfer, back-up withholding or similar taxes,
together with any interest, additions, or penalties with respect thereto and any
interest in respect of such additions or penalties (collectively, "Taxes").
3.15 [RESERVED]
3.16 RULE 145 AFFILIATES. Except as Previously Disclosed in SCHEDULE 3.16,
to Bank's knowledge, there is no person who, as of the date of this Agreement,
may be deemed to be an "affiliate" of Bank as that term is used in Rule 145
under the Securities Act of 1933, as amended (together with the rules and
regulations thereunder, the "Securities Act").
3.17 BROKERS' AND FINDERS' FEES. Neither Bank nor any of the Bank
Subsidiaries has taken any action that would give rise to any valid claim
against any party hereto for a brokerage commission, finder's fee or other like
payment, other than fees to be paid by Bank to Goldman, Sachs & Co., who have
acted as financial advisors to Bank, and to Bear Stearns & Co. Inc., who have
acted as financial advisors to the Special Advisory Committee of Bank's Board of
Directors, which fees have been Previously Disclosed to Acquiror.
3.18 REPORTS. Since January 1, 1991, each of Bank and the Bank Subsidiaries
has filed all reports and statements, together with any amendments required to
be made with respect thereto, required to be filed with (i) the FDIC, (ii) the
OTS, the Federal Home Loan Bank and the Federal Home Loan Bank System, and (iii)
any other applicable regulatory authorities. As of their respective dates (and
without giving effect to any amendments or modifications filed after the date of
this Agreement with respect to reports and documents filed before the date of
this Agreement), each of such reports and documents, including the financial
statements, exhibits and schedules thereto, complied in all material respects
with all of the statutes, rules and regulations enforced or promulgated by the
regulatory authority with which they were filed and did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
3.19 ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses shown on the
consolidated balance sheets of Bank included in the June 30, 1994 Bank Financial
Reports was, and the allowance for loan losses to be shown on subsequent Bank
Financial Reports, will be, adequate, as determined in accordance with generally
accepted accounting principles, to provide for losses, net of recoveries
relating to loans previously charged off, on loans outstanding as of the date
thereof.
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3.20 INSURANCE. Each of Bank and the Bank Subsidiaries has taken all
requisite action (including, without limitation, the making of claims and the
giving of notices) pursuant to its directors' and officers' liability insurance
policy or policies in order to preserve all rights thereunder with respect to
all matters (other than matters arising in connection with this Agreement and
the transactions contemplated hereby) that are known to Bank, except for such
matters which would not have a Material Adverse Effect on Bank. Previously
Disclosed in SCHEDULE 3.20 is a list of all insurance policies maintained by or
for the benefit of Bank or the Bank Subsidiaries or their directors, officers,
employees or agents.
3.21 STATE TAKEOVER LAWS; CHARTER. Bank has taken all action so that the
shareholder voting requirements of Fla. Stat. (section mark) 607.0901 and
Section 5 of Bank's Federal Stock Charter (the "Charter") will not apply to the
Agreement, the Stock Option Agreement or to the transactions contemplated hereby
or thereby, and no other state takeover law imposes requirements on such
agreements or transactions which have not been satisfied.
3.22 NO FURTHER ACTION. Bank has taken all action so that the entry into
this Agreement or the Stock Option Agreement and the consummation of the
transactions contemplated hereby or thereby (including, without limitation the
Merger), or any other action or combination of actions, or any other
transactions contemplated hereby or thereby do not and will not (i) require a
vote of stockholders (other than as set forth in Section 7.1(a) in the case of
this Agreement only) or (ii) except (as to this Agreement only) as Previously
Disclosed in SCHEDULES 3.9, 3.10(A), 3.10(G) or 5.9(C), result in the grant of
any rights to any person (other than Acquiror and Subsidiary) under the Charter
or Bylaws of Bank or any Bank Subsidiary or under any agreement to which Bank or
any of the Bank Subsidiaries is a party.
3.23 ENVIRONMENTAL MATTERS.
(a) To Bank's knowledge, Bank and each of the Bank Subsidiaries, the
Participation Facilities and the Loan/Fiduciary Properties (each as defined
below) are, and have been, in compliance with all Environmental Laws (as defined
below), except for instances of noncompliance which would not have a Material
Adverse Effect on Bank.
(b) Except as Previously Disclosed in SCHEDULE 3.23(B), and except for
matters that would not have a Material Adverse Effect on Bank, there is no
proceeding pending or, to Bank's knowledge, threatened before any court,
governmental agency or board or the forum in which it or any of the Bank
Subsidiaries or any Participation Facility has been, or with respect to
threatened proceedings, reasonably would be expected to be, named as a defendant
or potentially responsible party (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law, or (ii) relating to the release or
threatened release into the environment of any Hazardous Material (as defined
below), whether or not occurring at or on a site owned, leased or operated by it
or any of the Bank Subsidiaries or any Participation Facility.
(c) Except as Previously Disclosed in SCHEDULE 3.23(C), and except for
matters that would not have a Material Adverse Effect on Bank, there is no
proceeding pending, or to Bank's knowledge, threatened before any court,
governmental agency or board or other forum in which any Loan/Fiduciary Property
(or Bank or any of the Bank Subsidiaries in respect of any Loan/Fiduciary
Property) has been, or with respect to threatened proceedings, reasonably would
be expected to be, named as a defendant or potentially responsible party (i) for
alleged noncompliance (including by any predecessor) with any Environmental Law,
or (ii) relating to the release or threatened release into the environment of
any Hazardous Material, whether or not occurring at or on a Loan/Fiduciary
Property.
(d) To Bank's knowledge, there is no reasonable basis for any proceeding of
a type described in subparagraphs (b) or (c) above, except as has been
Previously Disclosed in SCHEDULE 3.23(D).
(e) To Bank's knowledge, during the period of (i) its or any of the Bank
Subsidiaries' ownership or operation of any of their respective current
properties, (ii) its or any of the Bank Subsidiaries' participation in the
management of any Participation Facility, or (iii) its or any of the Bank
Subsidiaries' holding of a security or other interest in a Loan/Fiduciary
Property, there have been no releases of Hazardous Material in, on, under or
affecting any such property, Participation Facility or Loan/Fiduciary Property,
except for such releases that would not have a Material Adverse Effect on Bank
or have been Previously Disclosed in SCHEDULE 3.23(E).
(f) To Bank's knowledge, prior to the period of (i) its or any of the Bank
Subsidiaries' ownership or operation of any of their respective current
properties, (ii) its or any of the Bank Subsidiaries' participation in the
management of any Participation Facility, or (iii) its or any of the Bank
Subsidiaries' holding of a security or other interest in a Loan/Fiduciary
Property, there were no releases of Hazardous Material in, on, under or
affecting any such property, Participation Facility or Loan/Fiduciary Property,
except for such releases that would not have a Material Adverse Effect on it or
have been Previously Disclosed in SCHEDULE 3.23(F).
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(g) The following definitions apply for purposes of this Section 3.23:
"Loan/Fiduciary Property" means any non-residential property owned or controlled
by it or any of the Bank Subsidiaries or in which it or any of the Bank
Subsidiaries holds a security, fiduciary, or other interest, and, where required
by the context, includes any such property where Bank or any of the Bank
Subsidiaries constitutes the owner or operator of such property, but only with
respect to such property; "Participation Facility" means any facility in which
it or any of the Bank Subsidiaries participates in the management of such
property, but only with respect to such property; "Environmental Law" means (i)
any federal, state and local law, statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, legal doctrine, order,
judgment, decree, injunction, requirement or agreement with any governmental
entity, relating to (a) the protection, preservation or restoration of the
environment, (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface land, subsurface land, Agreement and
animal life or any other natural resource), or to human health or safety, or (b)
the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of Hazardous Material, in each case as amended and as now in effect and
includes, without limitation, the federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
federal Clean Air Act, the Federal Clean Water Act, the federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Disposal and the federal Toxic Substances Control Act, and the Federal
Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and
Health Act of 1970, each as amended and as now in effect, and (ii) any common
law or equitable doctrine (including, without limitation, injunctive relieve and
tort doctrines such as negligence, nuisance, trespass and strict liability) that
may impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of or exposure to any Hazardous
Material; "Hazardous Material" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or quantity,
and includes, without limitation, any oil or other petroleum product, toxic
waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous
waste, special waste or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos, asbestos containing material, urea
formaldehyde foam insulation, leas and polyclorinated biphenyl.
3.24 OPTION SHARES. The Option Shares (as defined in the Stock Option
Agreement), if and when issued upon exercise of the Option, will be duly
authorized, validly issued, fully paid and nonassessable and subject to no
preemptive rights.
3.25 DERIVATIVES CONTRACTS. None of Bank or the Bank Subsidiaries is a
party to or has agreed to enter into an exchange-traded or over-the-counter
swap, forward, future, option, cap, floor or collar financial contract, or any
other contract not included on its balance sheet which is a financial derivative
contract (including various combinations thereof) (each a "Derivatives
Contract") except for those Derivatives Contracts Previously Disclosed in
SCHEDULE 3.25, which includes a complete list, as applicable, of Bank assets
pledged as security for each Derivatives Contract.
3.26 CAPITAL MAINTENANCE AGREEMENT. To Bank's knowledge, except for the
declaration by the OTS that the Holding Company was in default on May 30, 1991,
the OTS has not taken any steps or expressed any intentions to Bank to exercise
its rights under the Regulatory Capital Maintenance/Dividend Agreement, dated as
of April 29, 1988 (as such may be amended or modified), among Holding Company,
one of its subsidiaries and a predecessor of OTS, to vote the Bank Common Stock
held by Holding Company, or to prevent Holding Company from exercising its right
to vote such shares.
3.27 ACCOUNTING CONTROLS. Each of Bank and the Bank Subsidiaries has
devised and maintained systems of internal accounting controls sufficient to
provide reasonable assurances that (i) all material transactions are executed in
accordance with management's general or specific authorization; (ii) all
material transactions are recorded as necessary to permit the preparation of
financial statements in conformity with generally accepted accounting principles
consistently applied with respect to savings associations or any other criteria
applicable to such statements, and to maintain proper accountability for items;
(iii) access to the material property and assets of Bank and the Bank
Subsidiaries is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for items is
compared with the actual levels at reasonable intervals and appropriate action
is taken with respect to any differences.
3.28 NO KNOWLEDGE. As of the date of this Agreement, Bank knows of no
reason why the regulatory approvals referred to in Section 7.1(b) should not be
obtained.
3.29 ACCURACY OF INFORMATION. The statements with respect to Bank and the
Bank Subsidiaries contained in this Agreement, the Schedules, the Stock Option
Agreement and any other written documents executed and delivered by or on behalf
of Bank or the Bank Subsidiaries in connection with this Agreement are true and
correct in all material respects, and such statements and documents do not omit
any material fact necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
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3.30 NO DISSENTERS' RIGHTS. Assuming that the Acquiror Common Stock is
listed on the NYSE on the Merger Effective Date and that the Bank Common Stock
is quoted on the National Association of Securities Dealers Automated Quotation
System on the date of the Meeting, holders of shares of Bank Common Stock have,
and will have, no dissenters' or appraisal rights with respect to their shares
as a result of or relating to the Merger in accordance with the regulations of
the Office of Thrift Supervision of the Department of the Treasury ("OTS") set
forth in 12 CFR (section mark) 552.14.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
ACQUIROR
Acquiror hereby represents and warrants to Bank as follows:
4.1 CORPORATE STANDING OF ACQUIROR. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the State of
North Carolina, is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or the properties or assets
owned or leased by it makes such qualification necessary, and has the corporate
power to carry on its business as and where conducted, to own, lease and operate
its properties, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, subject to having obtained all requisite
regulatory approvals contemplated by this Agreement.
4.2 CAPITAL STOCK OF ACQUIROR. As of the date hereof, the authorized
capital stock of Acquiror consists of (i) 750,000,000 authorized shares of
common stock, each of $3.33 1/3 par value ("Acquiror Common Stock"), (ii)
40,000,000 authorized shares of Class A Preferred Stock, no-par value ("Acquiror
Class A Preferred Stock"), and (iii) 10,000,000 authorized shares of Preferred
Stock, no-par value ("Acquiror Preferred Stock") (no other class of capital
stock being authorized), of which 175,784,527 shares of Acquiror Common Stock,
no shares of Acquiror Class A Preferred Stock and 6,318,350 shares of Series
1990 Cumulative Perpetual Adjustable Rate Preferred Stock, constituting a single
series of Acquiror Preferred Stock, were issued and outstanding as of September
30, 1994.
4.3 AUTHORIZATION. This Agreement has been duly authorized by all necessary
corporate action of Acquiror and, assuming the due authorization, execution and
delivery hereof by Bank, is a valid and binding agreement of Acquiror
enforceable against Acquiror in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and other laws of general
applicability relating to or affecting creditors' rights generally and to
general equity principles and except that the availability of equitable
remedies, including specific performance and injunctive relief, is subject to
the discretion of the court before which any proceedings may be brought. Except
as Previously Disclosed in SCHEDULE 4.3(A), the execution and delivery of this
Agreement by Acquiror and Subsidiary do not and the consummation of the
transactions contemplated hereby by Acquiror and Subsidiary will not, constitute
(a) except as Previously Disclosed in SCHEDULE 4.3(A), a breach or violation of,
or a default under any judgment, decree, order, governmental permit or license
applicable to Acquiror or Subsidiary or any of the entities (including, without
limitation, corporations, partnerships, joint ventures, limited liability
companies, firms or other entities) in which Acquiror has a 25% or greater
direct or indirect equity or other ownership interest and specifically including
Subsidiary (an "Acquiror Sub" and collectively, the "Acquiror Subs") or to which
Acquiror or any of the Acquiror Subs is subject or bound, which breach,
violation or default under any such agreement, indenture or instrument would
have a Material Adverse Effect on Acquiror or (b) a breach or violation of, or a
default under, Acquiror's or Subsidiary's organizational documents or bylaws,
or, except as Previously Disclosed in SCHEDULE 4.3(A) under any agreement,
indenture or instrument of Acquiror or any of the Acquiror Subs or to which
Acquiror or any of the Acquiror Subs is subject or bound, which breach,
violation or default under any such agreement, indenture or instrument would
have a Material Adverse Effect on Acquiror. The consummation of the transactions
contemplated by this Agreement will not require any consent, waiver, non-
objection or approval under any such judgment, decree, order, governmental
permit or license, or the consent, waiver, non-objection or approval of any
other party to any such agreement, indenture or instrument, other than (i) as
Previously Disclosed in SCHEDULE 4.3(B), (ii) the approvals of Bank shareholders
and applicable regulatory authorities referred to in Article VII and (iii) any
other consents, waivers, non-objections or approvals the absence of which would
not have a Material Adverse Effect on Acquiror. Previously Disclosed in SCHEDULE
4.3(B) is a full and complete list of all consents, waivers, non-objections and
approvals from third parties other than regulatory approvals contemplated in
Section 7.1(b) (the "Acquiror Consents") that are required to be obtained by
Acquiror or Subsidiary in connection with the execution and delivery of this
Agreement by Acquiror or Subsidiary and the performance of Acquiror or
Subsidiary's obligations hereunder or thereunder, other than those consents,
waivers, non-objections and approvals the failure of which to be obtained would
not have a Material Adverse Effect on Acquiror.
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4.4 FILINGS; FINANCIAL STATEMENTS. Acquiror has delivered and will promptly
deliver, as applicable, to Bank, Acquiror's Annual Report on Form 10-K, for the
fiscal year ended December 31, 1993, and all other documents filed or to be
filed by Acquiror subsequent to December 31, 1993 under Section 13(a), 13(c), 14
or 15(d) of the Exchange Act, in the form filed with the Securities and Exchange
Commission ("SEC") (the "Acquiror Financial Reports"), which Acquiror Financial
Reports conformed in all material respects to applicable legal requirements. As
of their respective dates, the Acquiror Financial Reports did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading; and each of the
consolidated balance sheets contained in or incorporated by reference into the
Acquiror Financial Reports (including the related notes and schedules thereto)
presents and will present fairly the consolidated financial position of Acquiror
and its consolidated Acquiror Subs as of its date, and each of the statements of
consolidated earnings, consolidated shareholders' equity and consolidated cash
flows or equivalent statements in the Acquiror Financial Reports (including any
related notes and schedules thereto) presents and will present fairly the
consolidated results of operations, shareholders' equity and cash flows, as the
case may be, of Acquiror and the consolidated Acquiror Subs for the periods set
forth therein, in each case in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except as may
be noted therein, subject to normal year-end audit adjustments in the case of
unaudited statements. Except as Previously Disclosed in SCHEDULE 4.4, as of June
30, 1994, Acquiror and the consolidated Acquiror Subs had no consolidated
liabilities or obligations, contingent or otherwise, other than as disclosed or
reserved against in the Acquiror Financial Reports as of June 30, 1994, and
those which would not have a Material Adverse Effect on Acquiror.
4.5 ABSENCE OF MATERIAL ADVERSE EFFECT. Except as Previously Disclosed in
SCHEDULE 4.5, since June 30, 1994, there has occurred no Material Adverse Effect
on Acquiror.
4.6 CONDUCT OF BUSINESS; COMPLIANCE WITH LAWS. Except as Previously
Disclosed in SCHEDULE 4.6, to the knowledge of Acquiror, Acquiror and the
Acquiror Subs have conducted their business in compliance with all federal,
state, and local laws, ordinances and regulations, including applicable banking
laws, federal and state securities laws, and laws and regulations concerning
truth-in-lending, usury, fair credit reporting, fair lending, the Community
Reinvestment Act, consumer protection, occupational safety, fair employment
practices and fair labor standards, except where the failure to so comply would
not have a Material Adverse Effect on Acquiror. Neither Acquiror nor any of the
Acquiror Subs has received any notification or communication from any agency or
department of any federal, state or local government or regulatory authority or
the staffs thereof, asserting that either Acquiror or any of the Acquiror Subs
are not currently in compliance with any of the statutes, regulations or
ordinances that such agency, department or regulatory authority enforces, which
noncompliance would have a Material Adverse Effect on Acquiror, or threatening
to revoke any license, franchise, permit or governmental authorization the
revocation of which would have a Material Adverse Effect on Acquiror.
4.7 LITIGATION; REGULATORY MATTERS. Except as Previously Disclosed in
SCHEDULE 4.7 and except for matters which would not have a Material Adverse
Effect on Acquiror, neither Acquiror nor any of the Acquiror Subs is a party to
any, and there are no pending or, to Acquiror's knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature against Acquiror or any of the
Acquiror Subs (including without limitation any such proceeding, claim, action
or investigation which alleges claims under fair lending laws or other laws
relating to discrimination, including, without limitation, the Equal Credit
Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, and the
Home Mortgage Disclosure Act or under any similar disclosure law or regulation),
or challenging the validity or propriety of the transactions contemplated by
this Agreement; neither Acquiror nor any of the Acquiror Subs is a party to or
is subject to any order, decree, agreement, memorandum of understanding or
similar arrangement with, or a commitment letter or similar submission to, any
federal or state governmental agency or authority charged with the supervision
or regulation of depository institutions or engaged in the insurance of deposits
which restricts or purports to restrict the conduct of the business of Acquiror
or any of the Acquiror Subs, or the capital, liquidity, credit policies or
management of Acquiror or any of the Acquiror Subs, which restrictions would
have a Material Adverse Effect on Acquiror; and, to Acquiror's knowledge,
neither Acquiror nor any of the Acquiror Subs has been advised by any such
regulatory authority that such authority is contemplating issuing or requesting
any such order, decree, agreement, memorandum of understanding, commitment
letter or similar arrangement or submission, or requiring Acquiror or any
Acquiror Sub to adopt any resolution or take similar board action with respect
thereto.
4.8 EMPLOYEE BENEFIT PLANS. All employee benefit plans (within the meaning
of Section 3(3) of ERISA) established by Acquiror are in substantial compliance
with all federal and state laws and regulations thereunder in effect at the date
hereof covering employee benefit plans and there are no unfunded liabilities
relating to any of such plans.
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4.9 FINANCIAL CAPACITY. Acquiror has sufficient financial resources to
consummate the Merger and fulfill its obligations under this Agreement.
4.10 [RESERVED]
4.11 BROKERS' AND FINDER'S FEES. Neither Acquiror nor any of the Acquiror
Subs has taken any action that would give rise to any valid claim against any
party hereto for a brokerage commission, finder's fee or other like payment.
4.12. HOLDING COMPANY AFFILIATE. None of Acquiror or the Acquiror Subs is
an "affiliate" or "associate" of Holding Company as these terms are defined in
Fla. Stat. (section mark) 607.0901.
4.13 NO KNOWLEDGE. As of the date of this Agreement, Acquiror knows of no
reason why the regulatory approvals referred to in Section 7.1(b) should not be
obtained.
4.14 ACCURACY OF INFORMATION. The statements with respect to Acquiror and
the Acquiror Subs contained in this Agreement, the Stock Option Agreement, the
Schedules and any other written documents executed and delivered by or on behalf
of Acquiror or the Acquiror Subs in connection with this Agreement are true and
correct in all material respects, and such statements and documents do not omit
any material fact necessary to make the statements contained therein, in light
of the circumstances under which they made, not misleading.
4.15 REPRESENTATIONS REGARDING SUBSIDIARY. At the time of execution by
Subsidiary of the Supplement, Acquiror shall be deemed to make the following
additional representations and warranties:
(A) CORPORATE STANDING OF SUBSIDIARY. Subsidiary is a national banking
association duly organized, validly existing and chartered under the laws of the
United States of America, is duly qualified to do business and is in good
standing in each jurisdiction in which the nature of its business or the
properties or assets owned or leased by it makes such qualification necessary,
and no governmental authority or agency of any other jurisdiction has advised
Subsidiary in writing that Subsidiary is required to be authorized to transact
business as a foreign corporation in such jurisdiction. Subsidiary has the
corporate power to carry on its business as and where conducted, to own, lease
and operate its properties, to execute and deliver this Agreement and to
consummate the transactions contemplated hereby, subject to having obtained all
requisite shareholder and regulatory approvals contemplated by this Agreement.
The deposits of Subsidiary are insured by the Bank Insurance Fund, administered
by the FDIC.
(B) AUTHORIZATION. This Agreement has been duly authorized by all necessary
corporate action of Subsidiary and, assuming the due authorization, execution
and delivery hereof by Bank, is a valid and binding agreement of Subsidiary
enforceable against Subsidiary in accordance with its terms, subject to the
conservatorship and receivership provisions of the Federal Deposit Insurance Act
and the National Bank Act, bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting creditors' rights
generally and to general equity principles and except that the availability of
equitable remedies, including specific performance and injunctive relief, is
subject to the discretion of the court before which any proceedings may be
brought.
4.16 ACQUIROR COMMON STOCK. The Acquiror Common Stock to be issued in the
Merger shall have been duly authorized and when issued in accordance with this
Agreement shall be validly issued, fully paid and nonassessable, and not subject
to preemptive rights.
ARTICLE V
COVENANTS OF BANK
Bank hereby covenants to Acquiror and Subsidiary that:
5.1 CONDITIONS TO THE MERGER. Subject to the terms and conditions of this
Agreement, Bank shall use its reasonable best efforts in good faith to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or desirable, or advisable under applicable laws, as promptly
as practicable so as to permit consummation of the Merger at the earliest
reasonably practicable date and to otherwise enable consummation of the
transactions contemplated hereby and shall cooperate fully with the other
parties hereto to that end, including using its reasonable best efforts to lift
or rescind any order, decree or injunction adversely affecting its ability to
consummate the transactions contemplated herein or as described in Section
7.1(c) and to cause to be satisfied the conditions referred to in Article VII,
and Bank shall use, and shall cause each of the Bank Subsidiaries to use, its
reasonable best efforts to obtain the Bank Consents and all other consents
(governmental or otherwise) necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
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<PAGE>
5.2 BANK SHAREHOLDERS' APPROVAL. Bank shall, as promptly as reasonably
practicable following the date of this Agreement, prepare a proxy statement (the
"Proxy Statement") to be mailed to the holders of Bank Common Stock in
connection with the Merger and to be filed by Acquiror in the Registration
Statement (as defined in Section 6.2) with the SEC, which shall conform in all
material respects to applicable legal requirements, and Bank shall call a
special meeting (the "Meeting") of the holders of Bank Common Stock to be held
as soon as reasonably practicable for purposes of voting upon this Agreement and
the Merger contemplated hereby. Bank shall provide Acquiror and its counsel a
reasonable opportunity to comment on the Proxy Statement and any amendments or
supplements thereto), and shall give due consideration to any comments of
Acquiror and its counsel. Subject to the fiduciary duties of Bank's Board of
Directors to stockholders under applicable law, as determined by the Board in
good faith after considering the advice of outside counsel, Bank's Board of
Directors shall recommend approval of this Agreement and the Merger by the
holders of Bank Common Stock and Bank shall solicit and use reasonable best
efforts to obtain votes of the holders of Bank Common Stock in favor of this
Agreement and the Merger. As a condition to the mailing of the Proxy Statement
to Bank's shareholders, Acquiror shall have received from OTS a letter
confirming Holding Company's right to vote the shares of Bank Common Stock in
connection with this Agreement and the Merger.
5.3 INFORMATION SUPPLIED. When (a) the Registration Statement or any
post-effective amendment or supplement thereto shall become effective, and at
all times subsequent to such effectiveness, up to and including the date of the
Meeting; (b) the Proxy Statement and/or any amendments or supplements thereto
shall be mailed, and at all times subsequent to such mailing and up to and
including the date of the Meeting; and (c) any other document to be filed with
the SEC, OTS or any other regulatory agency in connection with the transactions
contemplated hereby shall be filed, and at all times subsequent to such filings,
such Registration Statement, Proxy Statement, regulatory filings, and all
amendments or supplements thereto, with respect to all information set forth
therein furnished or to be furnished by Bank relating to Bank or the Bank
Subsidiaries: (i) will comply in all material respects with the provisions of
the Securities Act and the Exchange Act and/or any other applicable statutory or
regulatory requirements, and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER, in
no event shall Bank or any of the Bank Subsidiaries be liable for any untrue
statement of a material fact or omission to state a material fact in the
Registration Statement, Proxy Statement, or regulatory filing, or any amendment
or supplement thereto, made in reliance upon, and in conformity with, written
information concerning another party furnished by such other party specifically
for use in the Registration Statement, Proxy Statement, or regulatory filing,
respectively.
5.4 COMMUNICATIONS. Unless approved by the Acquiror in advance (which
approval shall not be unreasonably withheld), Bank will not issue any press
release or written statement for general circulation relating to the
transactions contemplated hereby, except as otherwise required by law or
regulation or the rules of the NASD.
5.5 ACCESS TO INFORMATION; CONFIDENTIALITY. Subject to the confidentiality
agreement entered into by Bank and Acquiror dated June 27, 1994 concerning
Bank's confidential information (the "Bank Confidentiality Agreement"), upon
reasonable notice Bank shall (and shall cause the Bank Subsidiaries to) afford
to Acquiror and its officers, employees, accountants, consultants, legal counsel
and other representatives reasonable access during normal business hours to all
information concerning the business, properties, contracts, records and
personnel of Bank or the Bank Subsidiaries as Acquiror may reasonably request;
PROVIDED that no investigation pursuant to this Section 5.5 shall affect or be
deemed to modify or waive any representation or warranty made by Bank or the
conditions of the obligation of Acquiror or Subsidiary to consummate the
transactions contemplated by this Agreement. All information disclosed pursuant
to this Section 5.5 shall be deemed to be "Evaluation Material" as defined in
and for the purposes of the Bank Confidentiality Agreement. Bank shall, and
shall cause its officers, employees, accountants, consultants, legal counsel and
other representatives to, comply with all of its obligations under the
confidentiality agreement entered into by Bank and Acquiror on October 11, 1994
concerning Acquiror's confidential information (the "Acquiror Confidentiality
Agreement"; the Acquiror Confidentiality Agreement and the Bank Confidentiality
Agreement are sometimes collectively referred to herein as the "Confidentiality
Agreements").
5.6 NO SOLICITATIONS.
(a) Bank shall not initiate, solicit or encourage (including by way of
furnishing nonpublic information or assistance) any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to, any
Competing Transaction (as such term is defined below), enter into discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize any of the officers or directors of Bank or any of the
Bank Subsidiaries to take any such action, and Bank shall instruct and use its
reasonable best efforts to cause the directors, officers (vice president and
above), agents and representatives of Bank and the
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<PAGE>
Bank Subsidiaries (including, without limitation, any investment banker,
financial advisor, attorney or accountant retained by Bank) not to take any such
action.
(b) Nothing contained in this Agreement shall prohibit Bank, subject to
authorization by its Board of Directors, from (I) furnishing information to, or
entering into discussions or negotiations with, any person or entity that, after
the date hereof, makes a bona fide proposal to enter into a Competing
Transaction, that after the date hereof had not been initiated, solicited or
encouraged by Bank or any affiliate of Bank, or (II) recommending or endorsing
any, or entering into any definitive agreement with respect to any, such
Competing Transaction if (i) the Board of Directors of Bank determines in good
faith (after considering the advice of outside counsel) that such action is
required for the Board of Directors of Bank to comply with its fiduciary duties
to Bank's shareholders under applicable law, (ii) the Board of Directors of Bank
reasonably believes that the proposal is made in good faith, (iii) prior to
furnishing such information to such person or entity, Bank receives from such
person or entity an executed confidentiality agreement, with terms reasonably
satisfactory to Bank, and (iv) Bank provides prior notice to Acquiror.
(c) For purposes of this Agreement, "Competing Transaction" shall mean any
of the following involving Bank or any of the Bank Subsidiaries (other than the
transactions contemplated by this Agreement): (i) any merger, consolidation,
share exchange, business combination, or other similar transaction; (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of twenty
percent (20%) or more of the assets or deposits of Bank and the Bank
Subsidiaries, taken as a whole, in a single transaction or a series of related
transactions; or (iii) any tender offer or exchange offer for twenty percent
(20%) or more of the outstanding shares of Bank Common Stock or the filing of a
registration statement under the Securities Act in connection therewith.
5.7 REGULATORY APPROVALS. As promptly as practicable after the date hereof:
(a) Bank shall cooperate with Acquiror and Subsidiary in the preparation
and submission of applications to the appropriate regulatory agencies for
approval of the Merger, including but not limited to the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board"), the Office of the
Comptroller of the Currency (the "OCC"), the OTS, the FDIC and such other
agencies, the approval of which may be required for the Merger, and shall
deliver to the other parties hereto copies of all such filings and applications
promptly after they are filed; and provided that no such approval or consent
shall have imposed any condition or requirement which, in the good faith
reasonable opinion of Acquiror, would so materially adversely impact the
economic or business benefits to Acquiror of the transactions contemplated by
this Agreement so as to render inadvisable the consummation of the Merger, Bank
shall use reasonable best efforts to (i) resolve promptly all objections to the
Merger by any agency the consent, approval or non-objection of which is required
by law as a condition to the Merger, the U.S. Department of Justice or any other
governmental entity with jurisdiction and (ii) comply with all applicable
conditions and requirements imposed by any such agency or other governmental
entity in connection with the granting of any such consent, approval or
nonobjection; and
(b) All other appropriate action shall be duly taken by Bank to secure all
other approvals, consents and rulings, governmental or otherwise, which are
necessary to be obtained by Bank for the consummation of the transactions
contemplated hereby.
5.8. QUALIFICATION FOR TAX FREE REORGANIZATION. Bank undertakes and agrees
to use its reasonable best efforts to cause the Merger to qualify and to take no
action which would cause the Merger to fail to qualify as a reorganization
within the meaning of Section 368 of the Code. Bank agrees to notify Acquiror
promptly of any action of which it has knowledge which will cause the Merger to
fail to qualify as a reorganization.
5.9 ORDINARY COURSE. During the period from the date of this Agreement and
continuing until the earlier of the Merger Effective Date or the time that this
Agreement is terminated, except as expressly permitted by this Agreement, or
with the prior written consent of Acquiror:
(a) DIVIDENDS; CHANGES IN STOCK; ISSUANCE OF SECURITIES. Neither Bank nor
any Bank Subsidiary shall make, declare or pay any dividend (other than
dividends from Bank Subsidiaries to Bank) or declare or make any distribution
on, or combine, redeem, reclassify, purchase or otherwise acquire, any shares of
its capital stock (other than in a fiduciary capacity in the ordinary course of
its business or in connection with stock received on a debt previously
contracted ("dpc") basis), or authorize the creation or issuance of, or issue,
any additional shares of its capital stock, or any options, calls or commitments
relating to its capital stock or any securities or obligations convertible into
or exchangeable for, or giving any person any right to subscribe for or acquire
from it shares of its capital stock or any securities or obligations convertible
into or exchangeable for shares of its capital stock; PROVIDED, HOWEVER, that
Bank may issue shares of Bank Common Stock in accordance with the agreements,
programs, arrangements, rights and contracts Previously Disclosed in SCHEDULE
3.2.
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(b) COMPENSATION. Neither Bank nor any of the Bank Subsidiaries shall enter
into any employment contracts with, increase the rate of compensation of, or pay
or agree to pay any bonus to any of its directors, officers or employees, except
as Previously Disclosed in SCHEDULE 5.9(B).
(c) BENEFIT PLANS. Except (i) as Previously Disclosed in SCHEDULES 3.2, 3.9
or 5.9(C) or (ii) as required by applicable law, neither Bank nor any of the
Bank Subsidiaries shall enter into or modify any pension, retirement, severance,
stock option, stock purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement or other benefit agreement or contract, or
any trust agreement related thereto, in respect of any of its directors,
officers or other employees, including, without limitation, taking any action
that accelerates (i) the vesting or exercise of any benefits payable thereunder,
or (ii) the right to exercise any employee stock options or stock appreciation
rights outstanding thereunder.
(d) NO DISPOSITIONS OR ACQUISITIONS. Except as Previously Disclosed in
SCHEDULE 5.9(D) and except as permitted by Section 5.6(b), neither Bank nor any
of the Bank Subsidiaries shall dispose of or discontinue any portion of its
assets, business or properties, which is material to Bank and the Bank
Subsidiaries taken as a whole, or merge or consolidate with, or acquire all or
any substantial portion of, the business or property of any other entity which
is material to Bank and the Bank Subsidiaries taken as a whole (except
foreclosures, acquisitions of control, or securitization transactions, in each
case in the ordinary course of business consistent with past practice), or
pursuant to paragraph (e) of this Section 5.9.
(e) LINE OF BUSINESS; OPERATING PROCEDURES; ETC. Except as may be directed
by any regulatory agency or required by law or regulation or regulatory
pronouncements, neither Bank nor any of the Bank Subsidiaries shall (i) change
its lending, investment, liability management, accounting procedure, or other
material banking policies in any material respect, except as such changes as are
in accordance and in an effort to comply with Section 5.11 or, in the case of
accounting practices, are required under generally accepted accounting
principles or regulatory accounting principles, or (ii) commit to incur any
further capital expenditures beyond those Previously Disclosed in SCHEDULE
5.9(E) other than in the ordinary course of business and not exceeding $100,000
individually or $500,000 in the aggregate, and except for an unexpected business
emergency in order to continue operating Bank in the ordinary course, in which
case Acquiror's consent shall not be unreasonably withheld.
(f) INDEBTEDNESS; LIABILITIES; ETC. Other than in the ordinary course of
business consistent with past practice, neither Bank nor any of the Bank
Subsidiaries shall incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible or liable for the
obligations of any other individual, corporation or other entity.
(g) HOLDING COMPANY BANKRUPTCY. Neither Bank nor any of the Bank
Subsidiaries shall take any action that would impair Bank's allowed claim in the
bankruptcy proceedings of Holding Company under Chapter 11 of the Federal
Bankruptcy Code.
(h) LIENS AND ENCUMBRANCES. Bank shall not impose, or suffer the
imposition, on any shares of stock of any of the Bank Subsidiaries, any lien,
charge or encumbrance, or permit any such lien, charge or encumbrance to exist.
(i) GOVERNING DOCUMENTS. Neither Bank nor any of the Bank Subsidiaries
shall amend its charter or bylaws.
(j) CONTRACTS. Except as Previously Disclosed in SCHEDULE 5.9(J), neither
Bank nor any of the Bank Subsidiaries shall enter into, terminate or make any
change in any material contract, agreement or lease, except in the ordinary
course of business consistent with past practice with respect to contracts,
agreements and leases that are terminable by it without penalty in excess of
$100,000 upon prior written notice of not more than 60 days'.
(k) CLAIMS. Neither Bank nor any of the Bank Subsidiaries shall settle any
claim, action or proceeding involving any liability for money damages in excess
of $250,000 or restrictions upon the operations of Bank or any of the Bank
Subsidiaries.
(l) MBS SECURITIES. Bank shall not acquire any private label
mortgage-backed securities other than those Previously Disclosed in SCHEDULE
5.9(L) (the "MBS Securities").
(m) OTHER ACTION. Neither Bank nor any of the Bank Subsidiaries shall agree
or commit to do any of the foregoing or take any other action not in the
ordinary course of business consistent with prior practice.
5.10. AFFILIATE AGREEMENTS. Bank will use its reasonable best efforts to
cause each person who may be deemed to be an "affiliate" of Bank for purposes of
Rule 145 under the Securities Act to execute and deliver to Acquiror on or
before the Merger Effective Date an agreement in the form attached hereto as
EXHIBIT E restricting the disposition of such affiliate's
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<PAGE>
shares of Acquiror Common Stock to be received by such person in exchange for
such person's shares of Bank Common Stock.
5.11. CERTAIN POLICIES OF BANK. Bank shall, consistent with generally
accepted accounting principles and regulatory accounting principles, use its
best efforts to record any accounting adjustments required to conform its and
the Bank Subsidiaries' loan, litigation and other reserve and real estate
valuation policies and practices (including loan classifications and levels of
reserves) so as to reflect consistently on a mutually satisfactory basis the
policies and practices of Acquiror, PROVIDED, HOWEVER, that Bank shall not be
obligated to record any such accounting adjustments pursuant to this Section
5.11 (i) unless and until Bank shall be satisfied that the conditions to the
obligation of the parties to consummate the Merger will be satisfied or waived
on or before the Merger Effective Date, and (ii) in no event, until the day
prior to the Merger Effective Date.
5.12. STATE TAKEOVER LAW. Neither Bank nor any Bank Subsidiary shall take
any action that would cause the transactions contemplated by this Agreement or
the Stock Option Agreement to become subject to any applicable state takeover
statute or Section 5 of Bank's Charter.
5.13. NO RIGHTS TRIGGERED. Bank shall use its best efforts to ensure that
the entry into this Agreement and the Stock Option Agreement and the
consummation of the transactions contemplated hereby or thereby (including,
without limitation, the Merger) and any other action or combination of actions,
or any other transactions contemplated hereby or thereby do not and will not,
except (as to this Agreement only) as Previously Disclosed in SCHEDULES 3.9,
3.10(A) or 3.10(G), result in the grant of any rights to any person (other than
Acquiror and Subsidiary) under the Charter or Bylaws of Bank or under any
agreement to which Bank or any of the Bank Subsidiaries is a party.
5.14 DIVESTITURES. Effective on the Merger Effective Date, Bank and any
Bank Subsidiary shall cease engaging in such activities as Acquiror shall advise
Bank in writing are not permitted to be engaged in by Acquiror under applicable
law following the Merger Effective Date and, to the extent required by any
regulatory authority as a condition of approval of the transactions contemplated
by this Agreement, Bank shall divest any Bank Subsidiary engaged in activities
or holding assets that are impermissible for a national bank or a bank holding
company, on terms and conditions agreed to by Acquiror.
5.15 [RESERVED].
5.16 OTS ACTION.
(a) Bank shall promptly deliver to Acquiror copies of all written material
filed or supplementally furnished to the OTS or the OTS staff with, or in
connection with, the Proxy Statement (and any amendments thereto), and copies of
all written material and other information received from the OTS and the OTS
staff in connection with the Proxy Statement (and any amendments thereto)
including any comments (verbal or written) received from the OTS with respect to
the Proxy Statement. Bank shall consult with Acquiror regarding, and provide
Acquiror and its counsel a reasonable opportunity to comment on, any such
material received from the OTS or the OTS staff, and Bank shall give due
consideration to any comments of Acquiror and its counsel before Bank formally
or informally responds to the OTS or the OTS staff.
(b) Bank will advise Acquiror, promptly after Bank receives notice thereof,
of the time when the OTS has completed its review of the Proxy Statement, of the
time when OTS has no further comment thereon, and of the time when the OTS
approves the mailing of the Proxy Statement, or of any request by the OTS for
the amendment or supplement of the Proxy Statement or for additional
information.
5.17 RESTRICTIONS ON PURCHASES OF BANK COMMON STOCK. Bank shall use its
reasonable efforts to cause each of the individuals and entities Previously
Disclosed in SCHEDULE 3.16, as well as each of the officers of Holding Company,
to execute and deliver an agreement prohibiting such parties from purchasing any
Bank Common Stock (specifically excluding any shares of Bank Common Stock
obtained through the exercise of Stock Options) from and after the date hereof
to and including the earlier of (i) the record date for the Meeting or (ii) the
date of termination of this Agreement.
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ARTICLE VI
COVENANTS OF ACQUIROR AND SUBSIDIARY
Each of Acquiror and Subsidiary hereby covenants to Bank that:
6.1 CONDITIONS TO THE MERGER. Subject to the terms and conditions of this
Agreement, each of Acquiror and Subsidiary shall use its reasonable best efforts
in good faith to take, or cause to be taken, all actions, and to do, or cause to
be done, all things necessary, proper or desirable, or advisable under
applicable laws, as promptly as reasonably practicable so as to permit
consummation of the Merger at the earliest reasonably practicable date and to
otherwise enable consummation of the transactions contemplated hereby and shall
cooperate fully with the other parties hereto to that end, including using its
reasonable best efforts to lift or rescind any order, decree or injunction
adversely affecting its ability to consummate the transactions contemplated
herein or as described in Section 7.1(c) and to cause to be satisfied the
conditions referred to in Article VII, and each of Acquiror and Subsidiary shall
use, and shall cause each of the Acquiror Subs to use, its reasonable best
efforts to obtain the Acquiror Consents and all other consents (governmental or
otherwise) necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
6.2 REGISTRATION STATEMENT. Acquiror shall, as promptly as reasonably
practicable following the date of this Agreement, prepare and file a
Registration Statement on Form S-4 with the SEC (the "Registration Statement")
in connection with the issuance of the Acquiror Common Stock pursuant to the
Merger, and Acquiror shall use its reasonable best efforts to cause the
Registration Statement to be declared effective as soon as practicable after the
filing thereof. Acquiror shall provide Bank and its counsel a reasonable
opportunity to comment on the Registration Statement (and any amendments
thereto), and shall give due consideration to any comments of Bank and its
counsel before filing the Registration Statement (and any amendments thereto).
6.3 INFORMATION SUPPLIED. When (a) the Registration Statement or any
post-effective amendment or supplement thereto shall become effective, and at
all times subsequent to such effectiveness, up to and including the date of the
Meeting; (b) the Proxy Statement and/or any amendments or supplements thereto
shall be mailed, and at all times subsequent to such mailing and up to and
including the date of the Meeting; and (c) any other document to be filed with
the SEC, OTS or any other regulatory agency in connection with the transactions
contemplated hereby shall be filed, and at all times subsequent to such filings,
such Registration Statement, Proxy Statement and regulatory filings and all
amendments or supplements thereto, with respect to all information set forth
therein furnished or to be furnished by Acquiror relating to Acquiror or the
Acquiror Subs: (i) will comply in all material respects with the provisions of
the Securities Act, the Exchange Act and/or any other applicable statutory or
regulatory requirements, and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER, in
no event shall Acquiror or Subsidiary be liable for any untrue statement of a
material fact or omission to state a material fact in the Registration
Statement, Proxy Statement or regulatory filing, or any amendment or supplement
thereto, made in reliance upon, and in conformity with, written information
concerning another party furnished by such other party specifically for use in
the Registration Statement, Proxy Statement, or regulatory filing, respectively.
6.4 SEC ACTION.
(a) Acquiror shall promptly deliver to Bank copies of all written material
filed or supplementally furnished to the SEC or the SEC staff with, or in
connection with, the Registration Statement (and any amendments thereto), and
copies of all written and electronically transcribed material and other
information received from the SEC and the SEC staff in connection with the
Registration Statement (and any amendments thereto) including any comments
(verbal or written) received from the SEC with respect to the Registration
Statement. Acquiror shall consult with Bank regarding, and provide Bank and its
counsel a reasonable opportunity to comment on, any such material received from
the SEC or the SEC staff, and Acquiror shall give due consideration to any
comments of Bank and its counsel before Acquiror formally or informally responds
to the SEC or the SEC staff.
(b) Acquiror will advise Bank, promptly after Acquiror receives notice
thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, of the issuance of any stop order or the
suspension of the qualification of the Acquiror Common Stock for offering or
sale in any jurisdiction, of the initiation or threat of any proceeding for any
such purpose, or of any request by the SEC for the amendment or supplement of
the Registration Statement or for additional information. In the event that a
stop order has been issued or threatened by the SEC that suspends or would
suspend the effectiveness of the Registration Statement, Acquiror shall use its
reasonable best efforts to promptly remove or cause not to be issued any such
stop order.
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6.5 COMMUNICATIONS. Unless approved by Bank in advance (which approval
shall not be unreasonably withheld), neither Acquiror nor Subsidiary will issue
any press release or written statement for general circulation relating to the
transactions contemplated hereby, except as otherwise required by law or
regulation or by the NYSE.
6.6 ACCESS TO INFORMATION; CONFIDENTIALITY. Subject to the Acquiror
Confidentiality Agreement, upon reasonable notice Acquiror shall (and shall
cause the Acquiror Subs to) afford to Bank and its officers, employees,
accountants, consultants, legal counsel and other representatives reasonable
access to all information concerning the business, properties, contracts,
records and personnel of Acquiror or the Acquiror Subs as Bank may reasonably
request; PROVIDED that no investigation pursuant to this Section 6.6 shall
affect or be deemed to modify or waive any representation or warranty made by
Acquiror or Subsidiary or the conditions of the obligation of Acquiror or
Subsidiary or Bank to consummate the transactions contemplated by this
Agreement. All information disclosed pursuant to this Section 6.6 shall be
deemed to be "Evaluation Material" as defined in and for the purposes of the
Acquiror Confidentiality Agreement. Acquiror and Subsidiary shall, and shall
cause their respective officers, employees, accountants, consultants, legal
counsel and other representatives to, comply with all of their respective
obligations under the Bank Confidentiality Agreement.
6.7 BLUE SKY LAWS. Acquiror shall use its best efforts to cause the
offering of Acquiror Common Stock hereunder to comply with the securities laws
and "blue sky" laws of all jurisdictions which are applicable in connection with
the Merger, and Acquiror shall use its reasonable best efforts to obtain, prior
to the effective date of the Registration Statement, all state securities laws
or blue sky permits and other authorizations necessary to consummate the Merger;
PROVIDED, HOWEVER, that Acquiror shall not be required to consent to general
jurisdiction or qualify to do business in any state where it is not otherwise
required to so consent to such jurisdiction or to so qualify to do business.
6.8 LISTING ON NYSE. Acquiror shall use its reasonable best efforts to
list, prior to the Merger Effective Date, on the NYSE, upon official notice of
issuance, the shares of Acquiror Common Stock to be issued to the holders of
Bank Common Stock pursuant to the Merger.
6.9 REGULATORY APPROVALS. As promptly as practicable after the date hereof:
(a) Acquiror and Subsidiary shall cooperate with Bank in the preparation
and submission of applications to the appropriate regulatory agencies for
approval of the Merger, including but not limited to the Federal Reserve Board,
the OCC, the OTS, the FDIC and such other agencies, approval of which may be
required for the Merger and shall deliver to the other parties hereto copies of
all such filings and applications promptly after they are filed; and provided
that no such approval or consent shall have imposed any condition or requirement
which, in the good faith reasonable opinion of Acquiror, would so materially
adversely impact the economic or business benefits to Acquiror of the
transactions contemplated by this Agreement so as to render inadvisable the
consummation of the Merger, Acquiror shall use its reasonable best efforts to
resolve promptly all objections to the Merger by any agency the consent,
approval or non-objection of which is required by law as a condition to the
Merger, the U.S. Department of Justice or any other governmental entity with
jurisdiction; and
(b) All other appropriate action shall be duly taken by Acquiror to secure
all other approvals, consents and rulings, governmental or otherwise, which are
necessary to be obtained by Acquiror for the consummation of the transactions
contemplated hereby.
6.10 QUALIFICATION FOR TAX FREE REORGANIZATION. Each of Acquiror and
Subsidiary undertakes and agrees to use its reasonable best efforts to cause the
Merger to qualify and to take no action which would cause the Merger to fail to
qualify as a reorganization within the meaning of Section 368 of the Code.
Acquiror agrees to notify Bank promptly of any action of which it has knowledge
which will cause the Merger to fail to qualify as a reorganization.
6.11 ADEQUATE CURRENT PUBLIC INFORMATION. For not less than the three year
period immediately following the Merger Effective Date, Acquiror shall use its
best efforts to make available adequate current public information about itself,
as that terminology is used in and as required by Rules 144(c) and 145 of the
SEC under the Securities Act.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.1 MUTUAL CONDITIONS. The respective obligations of Acquiror and
Subsidiary, on the one hand, and Bank, on the other hand, to effect the Merger
shall be subject to the satisfaction of the following conditions, or waiver
thereof (to the extent permitted by applicable law) by Acquiror and Bank:
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(a) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have been
approved by the affirmative vote of the holders of at least (i) two-thirds of
the issued and outstanding shares of Bank Common Stock and (ii) a majority of
the Public Shares (as hereinafter defined) represented and voted at the Meeting.
For purposes of this Section 7.1(a), "Public Shares" shall mean all of the
outstanding shares of Bank Common Stock, other than those shares beneficially
owned (as such term is defined in Rule 13d-3 of the Exchange Act) by Holding
Company, the officers and directors of Holding Company, the officers of Bank
Previously Disclosed in SCHEDULE 3.16 and the directors of Bank.
(b) REGULATORY APPROVALS. All authorizations, consents, orders or approvals
of, or declarations or filings with, or expiration of waiting periods imposed
by, any governmental authority necessary for the consummation of the
transactions contemplated by this Agreement including, but not limited to,
approval of the OCC, the OTS, the Federal Reserve Board and the FDIC, shall have
been filed, occurred or been obtained; PROVIDED, HOWEVER, that no such approval
or consent shall have imposed any condition or requirement which, in the good
faith reasonable opinion of Acquiror, would so materially adversely impact the
economic or business benefits to Acquiror of the transactions contemplated by
this Agreement so as to render inadvisable the consummation of the Merger.
(c) LEGAL ACTION. There shall not be in effect any temporary restraining
order, preliminary injunction or permanent injunction, or other decree or
injunction of any court or agency of competent jurisdiction that enjoins or
prohibits consummation of the Merger or the transactions contemplated hereby,
and there shall be pending no litigation instituted by any governmental agency
seeking the issuance of such an order, decree or injunction.
(d) REGISTRATION STATEMENT. The Registration Statement shall have become
effective and no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been initiated or threatened by the SEC or any other regulatory authority.
(e) BLUE SKY LAWS. Acquiror shall have received all state securities laws
and blue sky permits and other authorizations necessary to consummate the
Merger.
(f) TAX OPINION. Acquiror and Bank shall have received an opinion from
Sullivan & Cromwell addressed to Bank and its shareholders to the effect that
(i) the Merger constitutes a "reorganization" under Section 368(a) of the Code
and (ii) no gain or loss will be recognized by shareholders of Bank who receive,
in exchange for their shares of Bank Common Stock (other than in respect of
fractional share interests) only shares of Acquiror Common Stock, except that
gain or loss may be recognized as to cash received in lieu of fractional share
interests. In rendering their opinion, Sullivan & Cromwell may require and rely
upon (i) representations contained in certificates of officers of Bank,
Subsidiary, Acquiror, Holding Company and others and (ii) representations and
agreements contained in the Holding Company Voting Agreement.
(g) LISTING ON NYSE. The shares of Acquiror Common Stock issuable in the
Merger shall have been approved for listing on the NYSE subject to official
notice of issuance.
(h) NO ILLEGALITY. No action shall have been taken, and no statute, rule,
regulation or order shall have been enacted, promulgated, or issued or been
deemed applicable to the Merger by any governmental authority, which would make
the consummation of the Merger illegal.
7.2 CONDITIONS TO ACQUIROR'S AND SUBSIDIARY'S OBLIGATIONS. The obligations
of Acquiror and Subsidiary to effect the Merger shall be subject to the
satisfaction of the following additional conditions, or waiver thereof by
Acquiror:
(a) THIRD PARTY APPROVALS. All Bank Consents Previously Disclosed in
SCHEDULE 3.4(B) shall have been obtained and shall be in effect.
(b) OPINION OF BANK'S COUNSEL. Acquiror shall have received one or more
opinions, dated the Merger Effective Date, from counsel to Bank, in form and
substance reasonably satisfactory to Acquiror, which shall cover the matters
contained in EXHIBIT F hereto.
(c) REPRESENTATIONS, WARRANTIES, AGREEMENTS AND COVENANTS OF BANK. (i) Each
of the representations and warranties contained herein of Bank shall be true and
correct as of the date of this Agreement and upon the Merger Effective Date with
the same effect as though all such representations and warranties had been made
on the Merger Effective Date, except for any such representations and warranties
made as of a specified date, which shall be true and correct as of such date,
PROVIDED, HOWEVER, that for purposes of this clause (i), no effect shall be
given to any exception in such representations and warranties relating to
materiality or a Material Adverse Effect, PROVIDED FURTHER, HOWEVER, that
notwithstanding anything to the contrary contained in this clause (i), the
condition contained in this clause (i) shall be deemed to have been satisfied
even if such representations and warranties are not true and correct unless the
failure of any of the representations and warranties to be so
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true and correct, individually or in the aggregate, would represent a Material
Adverse Effect on Bank; (ii) each and all of the agreements and covenants of
Bank to be performed and complied with pursuant to this Agreement and the other
agreements contemplated hereby prior to the Merger Effective Date shall have
been duly performed and complied with in all material respects; and (iii)
Acquiror shall have received a certificate signed by the Chief Executive Officer
and the Chief Financial Officer of Bank, dated the Merger Effective Date, to
such effect.
(d) KPMG PEAT MARWICK LETTERS. Acquiror shall have received from KPMG Peat
Marwick letters, dated the date of or shortly prior to (i) the mailing of the
Proxy Statement, and (ii) the Merger Effective Date, in form and substance
satisfactory to Acquiror, with respect to Bank's consolidated financial position
and results of operations, which letters shall be based upon "agreed upon
procedures" customarily undertaken by such firm.
(e) STOCK OPTIONS. All Stock Options shall have been cancelled and payment
therefor shall have been received by the holders thereof on or prior to the
Merger Effective Date in accordance with Section 2.7 and evidence thereof
reasonably satisfactory to Acquiror shall be delivered by Bank to Acquiror on or
prior to the Merger Effective Date.
7.3 CONDITIONS TO BANK'S OBLIGATIONS. The obligations of Bank to effect the
Merger shall be subject to the satisfaction of the following additional
conditions, or waiver thereof by Bank:
(a) THIRD PARTY APPROVALS. All Acquiror Consents Previously Disclosed in
SCHEDULE 4.5(B) shall have been obtained and be in effect.
(b) OPINION OF ACQUIROR'S AND SUBSIDIARY'S COUNSEL. Bank shall have
received an opinion, dated the Merger Effective Date, of Marion A. Cowell, Jr.,
counsel for Acquiror and the Subsidiary, in form and substance reasonably
satisfactory to Bank, which shall cover the matters contained in EXHIBIT G
hereto.
(c) REPRESENTATIONS, WARRANTIES, AGREEMENTS AND COVENANTS OF ACQUIROR AND
SUBSIDIARY. (i) Each of the representations and warranties contained herein of
Acquiror and the Subsidiary shall be true and correct as of the date of this
Agreement and upon the Merger Effective Date with the same effect as though all
such representations and warranties had been made on the Merger Effective Date,
except for any such representations and warranties made as of a specified date,
which shall be true and correct as of such date, PROVIDED, HOWEVER, that for
purposes of this clause (i), no effect shall be given to any exception in such
representations and warranties relating to materiality or a Material Adverse
Effect, PROVIDED FURTHER, HOWEVER, that notwithstanding anything to the contrary
contained in this clause (i), the condition contained in this clause (i) shall
be deemed to have been satisfied even if such representations and warranties are
not true and correct unless the failure of any of the representations and
warranties to be so true and correct, individually or in the aggregate, would
represent a Material Adverse Effect on Acquiror; (ii) each and all of the
agreements and covenants of Acquiror and Subsidiary to be performed and complied
with pursuant to this Agreement and the other agreements contemplated hereby
prior to the Merger Effective Date shall have been duly performed and complied
with in all material respects; and (iii) Bank shall have received a certificate
or certificates signed by two executive officers of each of Acquiror and
Subsidiary, dated the Merger Effective Date, to such effect.
ARTICLE VIII
TERMINATION
This Agreement may be terminated as set forth in Sections 8.1 through 8.9
prior to the Merger Effective Date, at any time either before or after receipt
of required shareholder and other approvals:
8.1 MUTUAL CONSENT. By the mutual consent of Acquiror and Bank;
8.2 MATERIAL BREACH. By either Acquiror or Bank, in the event of (a) a
breach by the other party (or in the case of Bank, by either Acquiror or
Subsidiary) of any representation or warranty contained herein, which breach
cannot be or has not been cured within thirty (30) days after the giving of
written notice to the breaching party of such breach and which breach or
breaches would result in a failure to satisfy any condition set forth in Article
VII hereof or (b) a material breach by the other party of any of the covenants
or agreements contained herein, which breach cannot be or has not been cured
within thirty (30) days after the giving of written notice to the breaching
party of such breach; PROVIDED that the non-breaching party provides the
breaching party with a written notice of termination within ten days after the
earlier of the expiration of such 30-day period or the date it receives a
written notice from the breaching party stating that it is unable or unwilling
to cure such breach;
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8.3 REGULATORY APPROVALS. By either Acquiror or Bank, if any approval or
authorization of any governmental authority, the lack of which would result in
the failure to satisfy the closing condition set forth in Section 7.1(b), (i)
shall have been denied by such governmental authority, (ii) such governmental
authority shall have requested the withdrawal of any application therefor or
(iii) such governmental authority shall have indicated an intention to deny, or
impose a condition or requirement of the type referred to in the proviso to
Section 7.1(b); PROVIDED that in connection with any termination pursuant to
this Section 8.3, the party terminating this Agreement shall have provided
evidence reasonably satisfactory to the other party that such event has
occurred;
8.4 TERMINATION DATE. By either Acquiror or Bank in the event that the
Merger Effective Date is not on or prior to August 25, 1995 (the "Termination
Date"), PROVIDED that the party seeking to terminate this Agreement shall not be
in breach of any of its covenants or agreements contained herein;
8.5 SHAREHOLDER APPROVAL. By either Acquiror or Bank, in the event that any
shareholder approval contemplated by Section 7.1(a) is not obtained at a meeting
or meetings or any adjournment thereof called for the purpose of obtaining such
approval;
8.6 FIDUCIARY DUTIES. By Bank if, in the exercise of its good faith
judgment as to its fiduciary duties to its shareholders under applicable law,
Bank's Board of Directors (after considering the advice of its outside counsel)
determines that such termination is required; PROVIDED, HOWEVER, that the right
of termination by the Bank contemplated by this Section 8.6 may only be
exercised if, prior to or contemporaneously with the determination by the Bank's
Board of Directors to terminate this Agreement, Bank shall have entered into a
binding agreement with respect to a Competing Transaction;
8.7 [RESERVED]
8.8 LEGAL ACTION. By either Acquiror or Bank, if (a) there shall be a final
nonappealable order of federal or state court restraining or prohibiting the
consummation of the Merger, or (b) there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any governmental authority, which would make the
consummation of the Merger illegal;
8.9 LACK OF RECOMMENDATION. By Acquiror, if the Board of Directors of Bank
fails to recommend the Merger to its shareholders or withdraws, modifies or
changes its recommendation of this Agreement or the Merger in a manner adverse
to Acquiror;
8.10 APPROVAL BY BOARD OF DIRECTORS. Any termination of this Agreement as
provided in Sections 8.1 through 8.9 shall be approved by the Board of Directors
of the party seeking termination; and
8.11 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Sections 8.1 through 8.9, this Agreement shall forthwith become
null and void and there shall be no liability or obligation on the part of
Acquiror, Subsidiary or Bank or their respective officers or directors, except
that nothing herein shall relieve any party hereto from any liability for
willful breach of this Agreement, and except for (a) the agreements and
representations of the parties contained in this Section 8.11 and Sections 9.3,
9.4, 9.7 and 9.9, (b) the obligations of confidentiality contained in Sections
5.5, 6.6, and 9.6, and (c) the obligations of the parties and liabilities
contained in Section 9.5, all of which agreements, representations, obligations
and liabilities shall survive any such termination.
ARTICLE IX
OTHER MATTERS
9.1 SURVIVAL. If the Merger Effective Date occurs, the agreements of the
parties contained in Sections 9.4 and 9.11 shall survive the Merger Effective
Date; all other representations, warranties, agreements and covenants contained
in this Agreement shall not survive the Merger Effective Date.
9.2 WAIVER; AMENDMENT. Prior to the Merger Effective Date, any provision of
this Agreement may be (i) waived by the party benefitted by the provision, or
(ii) amended or modified at any time (including the structure of the
transaction), by an agreement in writing among the parties hereto providing for
such amendment or modification approved by their respective Boards of Directors
and executed in the same manner as this Agreement, except that, after the vote
by the shareholders of Bank, the consideration to be received by the
shareholders of Bank for each share of Bank Common Stock shall not thereby be
decreased.
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9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original. This
Agreement shall become effective when one counterpart has been signed by each
party hereto.
9.4 GOVERNING LAW. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of Florida, determined without regard to
principles of conflicts of laws, except as federal law may be applicable.
9.5 EXPENSES. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby
(including legal, accounting, investment banking, and travel expenses),
PROVIDED, HOWEVER, that (i) the fees and expenses of Sullivan & Cromwell in
rendering the tax opinion required under Section 7.1(f) hereof shall be paid by
Acquiror; and (ii) in the event of termination of this Agreement, which
termination shall be judicially determined to have been caused by willful breach
of this Agreement, then, in addition to other remedies at law or equity for
breach of this Agreement, the party so found to have willfully breached this
Agreement shall indemnify the other parties for their respective costs, fees and
expenses of their counsel.
9.6 CONFIDENTIALITY. Except as permitted in the Confidentiality Agreements,
each of the parties hereto and their respective agents, attorneys and
accountants will maintain the confidentiality of all information provided in
connection herewith which has not been publicly disclosed.
9.7 NOTICES. All notices, requests and other communications hereunder shall
be in writing and may be made by (i) certified or registered mail, return
receipt requested; (ii) hand delivery; (iii) telefax transmittal; or (iv) by
courier service, and shall be deemed to have been duly given (a) when delivered
by hand, (b) three days after mailing, in the case of certified or registered
mail; (c) when electronic confirmation is received and recorded, in the case of
telefax, and (d) one business day after being forwarded to a nationally
recognized overnight courier service for overnight delivery; in each case
correctly addressed to such party at its address set forth below or such other
address as such party may specify by notice to the parties hereto:
<TABLE>
<S> <C>
If to Acquiror or First Union Corporation
Subsidiary, to: One First Union Center
Charlotte, North Carolina 28288-0013
Attn: Chief Executive Officer
Telephone No. (704) 374-6828
Telefax No. (704) 374-3425
Copy to: Marion A. Cowell, Jr., Esq.
First Union Corporation
One First Union Center
Charlotte, North Carolina 28288-0013
Telephone No. (704) 374-6828
Telefax No. (704) 374-3425
If to Bank to: American Savings of Florida, F.S.B.
17801 Northwest 2nd Avenue
Miami, Florida 33169-5089
Telephone No. (305) 653-5353
Telefax No. (305) 770-2155
Copy to: Alan B. Goldstein, Exec. V.P. and General Counsel
American Savings of Florida, F.S.B.
17801 N.W. Second Avenue
Miami, Florida 33169-5089
Telephone No. (305) 770-2093
Telefax No. (305) 770-2155
</TABLE>
9.8 DEFINITIONS. Any term defined anywhere in this Agreement shall have the
meaning ascribed to it for all purposes of this Agreement (unless expressly
noted to the contrary). In addition:
(a) the term "knowledge" when used with respect to a party shall mean the
knowledge, after reasonable inquiry, of any "executive officer" of such party,
as such term is defined in Regulation O of the Federal Reserve Board.
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(b) the term "Material Adverse Effect", when applied to a party, shall
mean, taken individually or in the aggregate with all other events,
circumstances, occurrences and conditions, an event, occurrence, circumstance or
condition (including without limitation (i) the making of any provisions for
loan and lease losses, write-downs of other real estate owned, and (ii) any
breach of a representation or warranty by such party) which (A) has or is
reasonably likely to have a material adverse effect on the financial condition,
results of operations, business or prospects of the party and its subsidiaries,
taken as a whole, or (B) would materially impair the party's ability to perform
its obligations under this Agreement; PROVIDED, that material adverse effect and
material impairment shall not be deemed to include the impact of (x) changes in
banking and similar laws of general applicability or interpretations thereof by
courts or governmental authorities, or (y) changes in generally accepted
accounting principles, regulatory accounting requirements and market conditions
applicable to stock savings banks, savings and loan holding companies, banks and
bank holding companies generally, and (z) the effects of (i) changes in the
market value of the MBS Securities, (ii) Section 5.11 and (iii) the fees and
expenses of all counsel, accountants and financial advisors relating to the
transactions contemplated by this Agreement and the costs and expenses incurred
in connection with the Meeting.
(c) the term "Previously Disclosed" by a party shall mean information set
forth in a written disclosure schedule that is delivered by that party to the
other party prior to the execution of this Agreement which identify exceptions
to the representations, warranties and covenants delivered by that party;
PROVIDED that any information so disclosed shall apply only to the provisions of
this Agreement pursuant to which such information is identified as being
disclosed.
9.9 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement, the
Stock Option Agreement, the written disclosure Schedules which have been
Previously Disclosed, and the Confidentiality Agreements dated June 27, 1994 and
October 11, 1994, between Bank and Acquiror represent the entire understanding
of the parties hereto and thereto with reference to the transactions
contemplated hereby and thereby and supersede any and all other oral or written
agreements heretofore made. Nothing in this Agreement expressed or implied, is
intended to confer upon any person, other than the parties hereto or their
respective successors, any rights, remedies, obligations or liabilities under or
by reason of this Agreement, other than as provided in Section 9.11 below.
9.10 BENEFIT PLANS.
(a) As soon as administratively practicable after consummation of the
Merger, employees of Bank and the Bank Subsidiaries shall be generally entitled
to participate in Acquiror's pension, severance, employee benefit health,
welfare and similar plans on substantially the same terms and conditions as
employees of Acquiror and the Acquiror Subs, giving effect (except for the
accrual of benefits under such plans) to years of service with Bank and the Bank
Subsidiaries as if such service were with Acquiror; PROVIDED THAT, no employee
of Bank or the Bank Subsidiaries presently participating in Bank's or Bank's
Subsidiaries' medical plan shall be precluded from participating in medical
plans of Acquiror on account of a pre-existing medical condition, and shall
receive credit toward any deductible and co-payments under any welfare benefit
plans sponsored by Acquiror or the Acquiror Subs to the extent such deductibles
and co-payments have been satisfied under the respective Bank welfare benefit
plans. Acquiror and Surviving Entity shall honor (x) Bank's Senior Executive
Employee Severance Pay Plan and (y) Bank's Termination and Salary Continuation
Program, as applicable (copies of both of which have been delivered to
Acquiror), in accordance with their terms as in effect on the date hereof (or as
amended after the date hereof and prior to the Merger Effective Date with the
prior written consent of Acquiror), unless an affected employee of Bank or a
Bank Subsidiary would receive benefits more advantageous to such employee under
Acquiror's severance plan for its employees than under Bank's plans described in
clauses (x) and (y) above, and unless, in the case of clause (x) above, the
affected employee of Bank or a Bank Subsidiary agrees to accept Acquiror's
severance plan in lieu of Bank's plan. Acquiror and Surviving Entity also shall
honor all understandings Previously Disclosed in SCHEDULE 9.10(A).
(b) Upon consummation of the Merger or as soon thereafter as practicable,
all participants in Bank's 401(k) Plan shall be automatically and fully vested
in all amounts contained in or allocable to their accounts in accordance with
the terms of such Plan, Bank's 401(k) Plan shall be merged into the Acquiror's
401(k) Plan and (i) Bank employees who remain employees of Acquiror or any of
the Acquiror Subs shall have the right to participate therein on the same terms
and conditions as other participating employees, but shall in all events be
fully vested in their accounts transferred from Bank's 401(k) Plan in accordance
with the terms of such Plan; and (ii) all other Bank employees shall be entitled
to roll their respective accounts into an individual retirement account and to
all other rights to which they would have been entitled had they been fully
vested and terminated their employment with Bank immediately preceding the
Merger Effective Date, in accordance with the terms of the Plan and applicable
law.
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<PAGE>
9.11 INDEMNIFICATION.
(a) For six years after the Merger Effective Date, Acquiror shall, and
shall cause the Surviving Entity to, indemnify, defend and hold harmless each
person who is now, or has been at any time prior to the date hereof, or who
becomes prior to the Merger Effective Date, a director or officer of Bank or any
of the Bank Subsidiaries (for purposes of this Section 9.11 except for paragraph
(b), each an "Indemnified Party"; collectively, the "Indemnified Parties")
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses (including reasonable attorneys' fees
and expenses (whether suit is instituted or not, and if instituted, at all trial
and appellate levels)), and (subject to paragraph (c) of this Section 9.11)
amounts paid in settlement (collectively, "Liabilities") in connection with any
threatened or actual claim, action, suit, proceeding or investigation, whether
formal or informal, civil, administrative or criminal, and whether asserted
before or after the Merger Effective Date (a "Proceeding"), arising out of
actions or omissions or alleged actions or omissions of the Indemnified Party
occurring at or prior to the Merger Effective Date to the maximum extent that
Bank would be permitted to indemnify such Indemnified Parties under OTS
regulations contained in 12 CFR (section mark) 545.121 (but specifically
excluding any requirement for OTS approval) as in effect on the date hereof,
including provisions relating to advances of expenses incurred in the defense of
any litigation. Without limiting the foregoing, in any case in which approval by
the Surviving Entity, its Board of Directors or the disinterested members
thereof is required to effectuate any indemnification, Acquiror shall cause the
Surviving Entity to direct, at the election of the Indemnified Party, that the
determination of any such approval shall be made by independent Florida counsel
mutually agreed upon between Acquiror and the Indemnified Party.
(b) In addition to the foregoing, for six (6) years from and after the
Merger Effective Date, Acquiror shall indemnify, defend and hold harmless, as
and to the fullest extent permitted by Florida law (including all
indemnification permitted under Section 607.0850(7) of the Florida Business
Corporation Act) for indemnification by a Florida corporation of its directors
and officers, including provisions relating to advances of expenses incurred in
the defense of any Proceeding, each person who is now, or becomes prior to the
Merger Effective Date, a director or officer of Bank (for purposes of this
Section 9.11, each an "Indemnified Party"; collectively, the "Indemnified
Parties") against all Liabilities in connection with any Proceeding arising out
of actions or omissions or alleged actions or omissions of the Indemnified Party
occurring at or prior to the Merger Effective Date, in whole or in part, in
connection with the Merger and the other transactions contemplated by this
Agreement and the Stock Option Agreement.
(c) Any Indemnified Party wishing to claim indemnification under paragraph
(a) or (b) of this Section 9.11, upon learning of such claim, action, suit,
proceeding or investigation, shall promptly notify Acquiror thereof; provided,
that the failure so to notify shall not affect the obligations of Acquiror and
the Surviving Entity under paragraphs (a) and (b) of this Section 9.11 (unless
such failure materially and adversely increases Acquiror's liability under such
paragraphs). In the event of any such threatened or actual claim, action, suit,
proceeding or investigation (whether arising before or after the Merger
Effective Date), (i) Acquiror or the Surviving Entity shall have the right to
assume the defense thereof and Acquiror or the Surviving Entity shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, however, that Acquiror
shall be obligated pursuant to this paragraph (c) to pay for only one firm of
counsel for all Indemnified Parties in any jurisdiction for any single
Proceeding, unless such counsel shall determine that a conflict exists among the
Indemnified Parties, in which case Acquiror shall pay for as many firms of
counsel as are necessary to avoid such a conflict, (ii) the Indemnified Parties
will cooperate in the defense of any such matter, and (iii) Acquiror shall not
be liable for any settlement effected without its prior written consent which
consent shall not be unreasonably withheld. In the event that Acquiror shall
fail to respond within ten (10) days after receipt of notice of the Proceeding,
the Indemnified Party may retain counsel and conduct the defense of such
Proceeding, as it may in its reasonable discretion deem proper, at the sole cost
and expense of Acquiror.
(d) If Acquiror or the Surviving Entity or any of its successors or assigns
shall consolidate with or merge into any other entity and shall not be the
continuing or surviving entity of such consolidation or merger or shall transfer
all or substantially all of its assets to any entity, then and in each case,
proper provision shall be made so that the successors and assigns of Acquiror or
the Surviving Entity shall assume the obligations set forth in this Section
9.11.
(e) Acquiror shall pay, or cause the Surviving Entity to pay in advance of
the final disposition of any Proceeding to the fullest extent permitted by
applicable law as in effect on the date hereof, all expenses, including
attorneys' fees and expenses (whether suit is instituted or not, and if
instituted, at all trial and appellate levels), that may reasonably be incurred
by any Indemnified Party in enforcing the indemnity and all other obligations
provided for in this Section 9.11.
(f) The rights of each Indemnified Party hereunder shall be in addition to
all other rights such Indemnified Party may have under the Charter of Bank,
resolutions of its Board of Directors, under the OTS regulations or otherwise.
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<PAGE>
(g) The obligations of Acquiror and the Surviving Entity provided under
this Section 9.11 are intended to benefit, and be enforceable against Acquiror
and the Surviving Entity directly by the Indemnified Parties and their
respective heirs and personal representatives, and shall be binding on all
respective successors and permitted assigns of Acquiror and the Surviving
Entity.
(h) Acquiror shall use its reasonable best efforts to maintain Bank's
existing directors' and officers' liability insurance policies as Previously
Disclosed in SCHEDULE 3.20, including excess coverage (and all comparable
replacement and renewal policies obtained prior to the Merger Closing) or a
policy (including Acquiror's existing policy) covering persons who are currently
covered by such insurance on terms and with coverage no less favorable to the
insured directors and officers than those in effect on the date hereof, for a
period of three years after the Merger Effective Date; provided, that Acquiror's
obligation shall be limited to payment of annual premiums in respect of such
policy for the portion related to Bank's directors and officers, of $1,000,000
(the "Maximum Amount"); and provided further, that Acquiror shall also use its
reasonable best efforts to obtain coverage under such policies for (i) claims
brought by any person or entity arising out of, based upon, related to or
attributable to the Merger, this Agreement and the Stock Option Agreement that
otherwise would have been covered by Bank's existing policies except for the
fact that such claims arise out of, are based upon, relate to or are
attributable to the Merger, this Agreement or the Stock Option Agreement and
(ii) claims brought by any 10% or greater shareholder that otherwise would have
been covered by Bank's existing policies except for the fact that such claims
are brought by any 10% or greater shareholder. If the amount of the annual
premiums necessary to procure such insurance coverage exceeds the Maximum
Amount, Acquiror shall procure such coverage as shall be reasonably obtainable
for an annual premium equal to the Maximum Amount.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in counterparts by their duly authorized officers, all as of the date
and year first above written.
AMERICAN SAVINGS OF FLORIDA, F.S.B.
By: /s/ STEPHEN D. TAYLOR
NAME: STEPHEN D. TAYLOR
TITLE: PRESIDENT AND C.E.O.
FIRST UNION CORPORATION
By: /s/ KENNETH R. STANCLIFF
NAME: KENNETH R. STANCLIFF
TITLE: SENIOR VICE PRESIDENT
A-27
<PAGE>
BOARD OF DIRECTORS
AMERICAN SAVINGS OF FLORIDA, F.S.B.
[CAPTION]
<TABLE>
<S>
/s/ ERWIN ALLEN
ERWIN ALLEN
<S>
/s/
<CAPTION>
T. WAYNE DAVIS
<S>
/s/ WILLIAM H. DUKELOW
<CAPTION>
WILLIAM H. DUKELOW
<S>
/s/
<CAPTION>
NIMROD T. FRAZER
<S>
/s/ DR. BARBARA W. GOTHARD
<CAPTION>
DR. BARBARA W. GOTHARD
<S>
/s/ CHARLES D. KIMBREL
<CAPTION>
CHARLES D. KIMBREL
<S>
/s/ DEIRDRE Y. RUSSELL
<CAPTION>
DEIRDRE Y. RUSSELL
<S>
/s/ DONALD T. SENTERFITT
<CAPTION>
DONALD T. SENTERFITT
<S>
/s/
<CAPTION>
STEPHEN D. TAYLOR
</TABLE>
A-28
<PAGE>
EXHIBIT C
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of December 4, 1994 (the "Agreement"), by
and between AMERICAN SAVINGS OF FLORIDA, F.S.B., a federally chartered stock
savings bank ("Issuer"), and FIRST UNION CORPORATION, a North Carolina
corporation ("Grantee").
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger dated as of December 4, 1994 (the "Plan"), providing for, among other
things, the merger of Issuer with and into a direct subsidiary of Grantee
("Subsidiary"), with Subsidiary as the surviving corporation; and
WHEREAS, as a condition and inducement to Grantee's execution of the Plan,
Grantee has required that Issuer agree, and Issuer has agreed, to grant Grantee
the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Plan, and intending to be legally bound hereby, Issuer and Grantee agree as
follows:
1. DEFINED TERMS. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Plan.
2. GRANT OF OPTION. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase
up to 2,288,700 shares (as adjusted as set forth herein, the "Option Shares,"
which shall include the Option Shares before and after any transfer of such
Option Shares) of common stock, par value $0.01 per share ("Issuer Common
Stock"), of Issuer at a purchase price per Option Share (the "Purchase Price")
equal to the greater of (i) the closing price per share of Issuer Common Stock
on December 6, 1994 as reported on the Nasdaq National Market and (ii) $19.00;
PROVIDED, HOWEVER, that in no event shall the number of shares for which the
Option is exercisable exceed 19.9% of the Issuer Common Stock issued and
outstanding at the time of exercise, without giving effect to the shares issued
or issuable under the Option.
3. EXERCISE OF OPTION.
(a) Provided that (i) Grantee, or any of its subsidiaries who is a party to
the Plan, or Holder (as defined below), as applicable, shall not be in material
breach of the agreements or covenants contained in this Agreement or the Plan,
and (ii) no preliminary or permanent injunction or other order against the
delivery of shares covered by the Option issued by any court of competent
jurisdiction in the United States shall be in effect, the Holder may exercise
the Option, in whole or in part, at any time and from time to time following the
occurrence of a Purchase Event; PROVIDED that the Option shall terminate and be
of no further force and effect upon the earliest to occur of (A) the Merger
Effective Date, (B) termination of the Plan in accordance with the terms thereof
prior to the occurrence of a Purchase Event or a Preliminary Purchase Event
unless the Issuer has, after the date hereof and before such termination,
engaged in discussions with any third party regarding an Acquisition Transaction
(as hereinafter defined), and (C) 18 months after any other termination of the
Plan in accordance with the terms thereof; PROVIDED, HOWEVER, that any purchase
of shares upon exercise of the Option shall be subject to compliance with
applicable law, including, without limitation, the Bank Holding Company Act of
1956, as amended (the "BHC Act"), and the Home Owners' Loan Act (the "HOLA").
The term "Holder" shall mean the holder or holders of the Option from time to
time, and which initially is Grantee.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) without Grantee's prior written consent, Issuer shall have
authorized, recommended, publicly proposed or publicly announced an
intention to authorize, recommend or propose, or entered into an agreement
with any person (other than Grantee or any affiliate of Grantee) to effect
an Acquisition Transaction. As used herein, the term "Acquisition
Transaction" shall mean (A) a merger, consolidation or similar transaction
involving Issuer or any of its significant subsidiaries (other than
transactions solely between Issuer s subsidiaries), (B) the disposition, by
sale, lease, exchange or otherwise, of assets or deposits of Issuer or any
of its significant subsidiaries representing in either case 20% or more of
the consolidated assets or deposits of Issuer and its subsidiaries, or (C)
the issuance, sale or other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing 20% or more of the voting power of Issuer or any of its
significant subsidiaries other than the issuance of Issuer Common Stock
upon the exercise of outstanding options or the conversion of outstanding
convertible securities of Issuer; or
(ii) without Grantee s prior written consent, any person (other than
Grantee or any affiliate of Grantee) shall have acquired beneficial
ownership (as such term is defined in Rule 13d-3 promulgated under the
Exchange Act) of, or the
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<PAGE>
right to acquire beneficial ownership of, or any "group" (as such term is
defined under the Exchange Act) shall have been formed which beneficially
owns or has the right to acquire beneficial ownership of, 20% or more (or
if such person or group is the beneficial owner of 20% or more on the date
hereof such person or group acquires an additional 5% or more) of the
voting power of Issuer or any of its significant subsidiaries.
(c) As used herein, a "Preliminary Purchase Event" means any of the
following events:
(i) any person (other than Grantee or any affiliate of Grantee) shall
have commenced (as such term is defined in Rule 14d-2 under the Exchange
Act), or shall have filed a registration statement under the Securities Act
with respect to, a tender offer or exchange offer to purchase any shares of
Issuer Common Stock such that, upon consummation of such offer, such person
would own or control 20% or more of the then outstanding shares of Issuer
Common Stock (such an offer being referred to herein as "Tender Offer" or
an "Exchange Offer," respectively); or
(ii) the holders of Issuer Common Stock shall not have approved the
Plan at the Meeting, the Meeting shall not have been held or shall have
been canceled prior to termination of the Plan, or Issuer's Board of
Directors shall have withdrawn or modified in a manner adverse to Grantee
the recommendation of Issuer's Board of Directors with respect to the Plan,
in each case after it shall have been publicly announced that any person
(other than Grantee or any affiliate of Grantee) shall have (A) made a
proposal to engage in an Acquisition Transaction, (B) commenced a Tender
Offer or filed a registration statement under the Securities Act with
respect to an Exchange Offer or (C) filed an application (or given a
notice), whether in draft or final form, under the BHC Act, the HOLA, the
Bank Merger Act or the Change in Bank Control Act of 1978, for approval to
engage in an Acquisition Transaction; or
(iii) any person, other than Grantee or any affiliate of Grantee,
shall have made a bona fide proposal to Issuer or its stockholders by
public announcement, or written communication that is or becomes the
subject of public disclosure, to engage in an Acquisition Transaction; or
(iv) Issuer furnishes information or enters into discussions or
negotiations pursuant to Section 5.6(b) of the Plan with any person or
entity that makes an unsolicited, bona fide expression of interest in
acquiring Issuer; or
(v) after a bona fide proposal is made by a third party to Issuer or
its stockholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Plan and such breach
would entitle Grantee to terminate the Plan under Section 8.2 thereof
(unless cured within the cure period specified therein without jeopardizing
consummation of the Merger pursuant to the terms of the Plan); or
(vi) any person, other than Grantee or any affiliate of Grantee, other
than in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with the OCC,
the OTS, the Federal Reserve Board, the FDIC, or other federal or state
regulatory authority (each a "Regulatory Authority"), for approval to
engage in an Acquisition Transaction.
As used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Preliminary Purchase Event or Purchase Event (in either case, a "Triggering
Event"), after becoming aware of such Triggering Event, it being understood that
the giving of such notice by Issuer shall not be a condition to the right of
Holder to exercise the Option.
(e) In the event Holder wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) a place and date not earlier than
three business days nor later than 15 business days from the Notice Date for the
closing (the "Closing") of such purchase (the "Closing Date"). If prior
notification to or approval of any Regulatory Authority is required in
connection with such purchase, Issuer shall cooperate with the Holder in the
filing of the required notice or application for approval and the obtaining of
such approval, and the Closing shall occur immediately following such regulatory
approvals (and any mandatory waiting periods). Any exercise of the Option shall
be deemed to occur on the Notice Date relating thereto.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) On each Closing Date, Holder shall (i) pay to Issuer, in immediately
available funds by wire transfer to a bank account designated by Issuer, an
amount equal to the Purchase Price multiplied by the number of Option Shares to
be purchased on such Closing Date, and (ii) present and surrender this Agreement
to the Issuer at the address of the Issuer specified in Section 12(f) hereof.
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<PAGE>
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in subsection (a) of
this Section 4, (i) Issuer shall deliver to Holder (A) a certificate or
certificates representing the Option Shares to be purchased at such Closing,
which Option Shares shall be free and clear of all liens, claims, charges and
encumbrances of any kind whatsoever and subject to no preemptive rights, and (B)
if the Option is exercised in part only, an executed new agreement with the same
terms as this Agreement evidencing the right to purchase the balance of the
shares of Issuer Common Stock purchasable hereunder, and (ii) Holder shall
deliver to Issuer a letter agreeing that Holder shall not offer to sell or
otherwise dispose of such Option Shares in violation of applicable federal and
state law or of the provisions of this Agreement.
(c) In addition to any other legend that is required by applicable law,
certificates for the Option Shares delivered at each Closing shall be endorsed
with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER APPLICABLE FEDERAL LAW AND CERTAIN VOTING AND OTHER
RESTRICTIONS PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF
DECEMBER 4, 1994. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if Holder shall have delivered
to Issuer a copy of a letter from the staff of the OTS or other applicable
federal agency, or an opinion of counsel in form and substance reasonably
satisfactory to Issuer and its counsel, to the effect that such legend is not
required for purposes of applicable federal law.
(d) Upon the giving by Holder to Issuer of the written notice of exercise
of the Option provided for under Section 3(e) hereof, the tender of the
applicable purchase price in immediately available funds and the tender of this
Agreement to Issuer, Holder shall be deemed to be the holder of record of the
shares of Issuer Common Stock issuable upon such exercise, notwithstanding that
the stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Issuer Common Stock shall not then be actually
delivered to Holder. Issuer shall pay all expenses, and any and all United
States federal, state, and local taxes and other charges that may be payable in
connection with the preparation, issuance and delivery of stock certificates
under this Section in the name of Holder or its assignee, transferee, or
designee.
(e) Issuer agrees (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Issuer Common Stock so that the Option may be exercised without additional
authorization of Issuer Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Issuer Common
Stock, (ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer, (iii) promptly to take all action as may from time to time be required
(including (A) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. (section mark)18a and regulations
promulgated thereunder and (B) in the event, under the BHC Act, the HOLA, the
Bank Merger Act, or the Change in Bank Control Act of 1978, as amended, or a
state banking law, prior approval of or notice to a Regulatory Authority is
necessary before the Option may be exercised, cooperating fully with Holder in
preparing such applications or notices and providing such information to such
Regulatory Authorities as they may require) in order to permit Holder to
exercise the Option and Issuer duly and effectively to issue shares of the
Issuer Common Stock pursuant hereto, and (iv) promptly to take all action
provided herein to protect the rights of Holder against dilution.
5. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and
warrants to Grantee (and Holder, if different than Grantee) as follows:
(a) DUE AUTHORIZATION. Issuer has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Issuer. This Agreement has been duly executed
and delivered by Issuer.
(b) AUTHORIZED STOCK. Issuer has taken all necessary corporate and other
action to authorize and reserve and to permit it to issue, and, at all times
from the date hereof until the obligation to deliver Issuer Common Stock upon
the exercise of the Option terminates, will have reserved for issuance, upon
exercise of the Option, the number of shares of Issuer Common Stock necessary
for Holder to exercise the Option, and Issuer will take all necessary corporate
action to authorize and reserve for issuance all additional shares of Issuer
Common Stock or other securities which may be issued pursuant to Section 7
hereof upon exercise of the Option. The shares of Issuer Common Stock to be
issued upon due exercise of the Option,
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<PAGE>
including all additional shares of Issuer Common Stock or other securities which
may be issuable pursuant to Section 7 hereof, upon issuance pursuant hereto,
shall be duly and validly issued, fully paid and nonassessable, and shall be
delivered free and clear of all liens, claims, charges and encumbrances of any
kind or nature whatsoever, including any preemptive rights of any stockholder of
Issuer.
6. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby represents and
warrants to Issuer that:
(a) DUE AUTHORIZATION. Grantee has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly executed
and delivered by Grantee.
(b) PURCHASE NOT FOR DISTRIBUTION. This Option is not being, and any Option
Shares or other securities acquired by Grantee upon exercise of the Option will
not be, acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction complying with or
exempt from applicable federal law.
7. ADJUSTMENT UPON CHANGES IN ISSUER CAPITALIZATION, ETC.
(a) In the event of any change in Issuer Common Stock by reason of a stock
dividend, stock split, split-up, recapitalization, combination, exchange of
shares or similar transaction, the type and number of shares or securities
subject to the Option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction so that Holder shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Holder would
have received in respect of Issuer Common Stock if the Option had been exercised
immediately prior to such event, or the record date therefor, as applicable. If
any additional shares of Issuer Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first sentence of
this subsection (a), upon exercise of any option to purchase Issuer Common Stock
outstanding on the date hereof or upon conversion into Issuer Common Stock of
any convertible security of Issuer outstanding on the date hereof), the number
of shares of Issuer Common Stock subject to the Option shall be adjusted so
that, after such issuance, it, together with any shares of Issuer Common Stock
previously issued pursuant hereto, equals 19.9% of the number of shares of
Issuer Common Stock then issued and outstanding, without giving effect to any
shares subject to or issued pursuant to the Option. No provision of this Section
7 shall be deemed to affect or change, or constitute authorization for any
violation of, any of the covenants or representations in the Plan.
(b) In the event that Issuer shall enter in an agreement (i) to consolidate
with or merge into any person, other than Grantee or one of its affiliates, and
shall not be the continuing or surviving corporation of such consolidation or
merger, (ii) to permit any person, other than Grantee or one of its affiliates,
to merge into Issuer and Issuer shall be the continuing or surviving
corporation, but, in connection with such merger, the then outstanding shares of
Issuer Common Stock shall be changed into or exchanged for stock or other
securities of Issuer or any other person or cash or any other property or the
outstanding shares of Issuer Common Stock immediately prior to such merger shall
after such merger represent less than 50% of the outstanding shares and share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
affiliates, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of Holder, of either (x) the Acquiring Corporation (as
hereinafter defined), (y) any person that controls the Acquiring Corporation, or
(z) in the case of a merger described in clause (ii), Issuer (such person being
referred to as "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option, PROVIDED
that, if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to Holder. Substitute Option Issuer shall also enter into an
agreement with Holder in substantially the same form as this Agreement, which
shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of Issuer
Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of Substitute Option
per share of Substitute Common Stock (the "Substitute Option Price") shall then
be equal to the Purchase Price multiplied by a fraction in which the numerator
is the number of shares of Issuer Common Stock for which the Option was
theretofore exercisable and the denominator is the number of shares of the
Substitute Common Stock for which the Substitute Option is exercisable.
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(e) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (A) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (B) Issuer in a merger in which Issuer is the continuing or
surviving person, or (C) the transferee of all or substantially all of
Issuer's assets (or a substantial part of the assets of its subsidiaries
taken as a whole).
(ii) "Substitute Common Stock" shall mean the common stock issued by
Substitute Option Issuer upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the highest of (x) the price per
share of Issuer Common Stock at which a tender offer or an exchange offer
or proposal therefor has been made, and (y) the price per share of Issuer
Common Stock to be paid by any third party pursuant to an agreement with
Issuer. In the event that a tender offer or an exchange offer is made for
Issuer Common Stock or an agreement is entered into for a merger or
consolidation involving consideration other than cash, the value of the
securities or other property issuable or deliverable in exchange for Issuer
Common Stock shall be determined by a nationally recognized investment
banking firm selected by Holder or the owner of Option Shares issued upon
exercise of the Option ("Owner"), as the case may be (and, if there are
both a Holder and an Owner, the Holder).
(iv) "Average Price" shall mean the average closing price of a share
of Substitute Common Stock for the 10 consecutive trading days ending on
the trading day immediately preceding the consolidation, merger or sale in
question; PROVIDED that, if Issuer is the issuer of the Substitute Option,
the Average Price shall be computed with respect to a share of common stock
issued by Issuer, the person merging into Issuer or by any company which
controls such person, as Holder may elect.
(f) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of Substitute Common Stock
but for the limitation in the first sentence of this subsection (f), Substitute
Option Issuer shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in the
first sentence of this subsection (f) over (ii) the value of the Substitute
Option after giving effect to the limitation in the first sentence of this
subsection (f). This difference in value shall be determined by a
nationally-recognized investment banking firm selected by Holder with the
consent of Issuer, which consent shall not be unreasonably withheld.
(g) Issuer shall not enter into any transaction described in subsection (b)
of this Section 7 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder and take all other actions that may be necessary so that the
provisions of this Section 7 are given full force and effect (including, without
limitation, any action that may be necessary so that the holders of the other
shares of common stock issued by Substitute Option Issuer are not entitled to
exercise any rights by reason of the issuance or exercise of the Substitute
Option and the shares of Substitute Common Stock are otherwise in no way
distinguishable from or have lesser economic value than other shares of common
stock issued by Substitute Option Issuer.
8. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS. Issuer shall, subject to the conditions of
subsection (c) below, if requested by any Holder or Owner, as applicable,
including Grantee and any permitted transferee ("Selling Shareholder"), as
expeditiously as possible prepare and file an offering circular, a registration
statement or other document (a "registration statement") under applicable
federal law if such filing is necessary in order to permit the sale or other
disposition of any or all shares of Issuer Common Stock or other securities that
have been acquired by or are issuable to the Selling Shareholder upon exercise
of the Option in accordance with the intended method of sale or other
disposition stated by the Selling Shareholder in such request, including,
without limitation to the extent applicable, a "shelf registration statement"
under Rule 415 under the Securities Act or any successor provision, and Issuer
shall use its best efforts to qualify such shares or other securities for sale
under any applicable state securities laws.
(b) ADDITIONAL REGISTRATION RIGHTS. If Issuer at any time after the
exercise of the Option proposes to offer for sale any shares of Issuer Common
Stock under applicable federal law in connection with an underwritten public
offering of such Issuer Common Stock, Issuer will promptly give written notice
to the Selling Shareholders of its intention to do so and, upon the written
request of any Selling Shareholder given within 30 days after receipt of any
such notice (which request shall specify the number of shares of Issuer Common
Stock intended to be included in such underwritten public offering by the
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Selling Shareholder), Issuer will cause all such shares for which a Selling
Shareholder requests participation in such offering, to be so included in such
underwritten public offering; PROVIDED, HOWEVER, that Issuer may elect to not
cause any such shares to be so registered (i) if the underwriters in good faith
object for valid business reasons, or (ii) in the case of an offering solely to
implement an employee benefit plan or a merger transaction; PROVIDED, FURTHER,
HOWEVER,that such election pursuant to (i) may only be made one time. If some
but not all the shares of Issuer Common Stock, with respect to which Issuer
shall have received requests for inclusion in an offering pursuant to this
subsection (b), shall be excluded from such offering, Issuer shall make
appropriate allocation of shares to be offered among the Selling Shareholders
desiring to include their shares pro rata in the proportion that the number of
shares requested to be included by each such Selling Shareholder bears to the
total number of shares requested to be included by all such Selling Shareholders
then desiring to have Issuer Common Stock included.
(c) CONDITIONS TO REQUIRED REGISTRATION. Issuer shall use all reasonable
efforts to cause each registration statement referred to in subparagraph (a)
above to become effective and to obtain all consents or waivers of other parties
which are required therefor and to keep such registration statement effective;
PROVIDED, HOWEVER, that Issuer may delay any filing of Option Shares required
pursuant to subparagraph (a) above for a period not exceeding 120 days (or 180
days in any calendar year in the aggregate) provided Issuer shall in good faith
determine that any such filing would adversely affect an offering or
contemplated offering of other securities by Issuer, and Issuer shall not be
required to effect any filing pursuant to subsection (a) above:
(i) prior to the earliest of (a) termination of the Plan pursuant to
Article VIII thereof, (b) failure to obtain the requisite stockholder
approval pursuant to Section 7.1(a) of the Plan, and (c) a Purchase Event
or a Preliminary Purchase Event;
(ii) on more than one occasion;
(iii) within 90 days after the effective date of an offering referred
to in subsection (b) above pursuant to which the Selling Shareholder or
Selling Shareholders concerned were afforded the opportunity to include
such shares in such offering and such shares were included as requested;
and
(iv) unless a request therefor is made to Issuer by Selling
Shareholders that hold at least 50% or more of the aggregate number of
Option Shares (including shares of Issuer Common Stock issuable upon
exercise of the Option) then outstanding.
In addition to the foregoing, Issuer shall not be required to maintain the
effectiveness of any registration statement after the expiration of nine months
from the effective date of such registration statement. Issuer shall use all
reasonable efforts to make any filings, and take all steps, under all applicable
state securities laws to the extent necessary to permit the sale or other
disposition of the Option Shares included in such filing in accordance with the
intended method of distribution for such shares; PROVIDED, HOWEVER, that Issuer
shall not be required to consent to general jurisdiction or qualify to do
business in any state where it is not otherwise required to so consent to such
jurisdiction or to so qualify to do business.
(d) EXPENSES. Except where applicable state law prohibits such payments and
except for any underwriting or selling discounts or commissions relating to the
Option Shares, Issuer will pay all expenses (including, without limitation,
registration fees, qualification fees, blue sky fees and expenses (including the
fees and expenses of counsel), legal expenses, including the reasonable fees and
expenses of one counsel to the holders whose Option Shares are being included in
a registration statement, printing expenses and the costs of special audits or
"cold comfort" letters, and the reasonable fees and expenses of any necessary
special experts) in connection with each offering pursuant to subsection (a) or
(b) above (including the related offerings and sales by holders of Option
Shares) and all other qualifications, notifications or exemptions pursuant to
subsection (a) or (b) above.
(e) INDEMNIFICATION. In connection with any offering under subparagraph (a)
or (b) above, Issuer hereby indemnifies the Selling Shareholders, and each
underwriter thereof, including each person, if any, who controls such holder or
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, losses, claims, damages and liabilities caused by any untrue, or
alleged untrue, statement of a material fact contained in any registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) or any preliminary prospectus, or caused by
any omission, or alleged omission, to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such expenses, losses, claims, damages or liabilities of such
indemnified party are caused by any untrue statement or alleged untrue statement
that was included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon and in conformity with, information furnished in
writing to Issuer by such indemnified party expressly for use therein, and
Issuer
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and each officer, director and controlling person of Issuer shall be indemnified
by such Selling Shareholders, or by such underwriter, as the case may be, for
all such expenses, losses, claims, damages and liabilities caused by any untrue,
or alleged untrue, statement, that was included by Issuer in any such
registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon, and in
conformity with, information furnished in writing to Issuer by such holder or
such underwriter, as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this subsection (e) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this subsection (e), such indemnified party shall
promptly notify the indemnifying party in writing of the commencement of such
action, but the failure so to notify the indemnifying party shall not relieve it
of any liability which it may otherwise have to any indemnified party under this
subsection (e) unless, and only to the extent, such failure results in the
indemnifying party s forfeiture of substantive rights or defenses. In case
notice of commencement of any such action shall be given to the indemnifying
party as above provided, the indemnifying party shall be entitled to participate
in and, to the extent it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense of such action at its own expense,
with counsel chosen by it and reasonably satisfactory to such indemnified party.
The indemnified party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel (other than reasonable costs of investigation) shall be paid by the
indemnified party unless (i) the indemnifying party either agrees to pay the
same, (ii) the indemnifying party fails to assume the defense of such action
with counsel reasonably satisfactory to the indemnified party, or (iii) the
indemnified party has been advised by counsel that one or more legal defenses
may be available to the indemnifying party that may be contrary to the interest
of the indemnified party, in which case the indemnifying party shall be entitled
to assume the defense of such action notwithstanding its obligation to bear fees
and expenses of such counsel. No indemnifying party shall be liable for any
settlement entered into without its consent, which consent may not be
unreasonably withheld.
If the indemnification provided for in this subsection (e) is unavailable
to a party otherwise entitled to be indemnified in respect of any expenses,
losses, claims, damages or liabilities referred to herein, then the indemnifying
party, in lieu of indemnifying such party otherwise entitled to be indemnified,
shall contribute to the amount paid or payable by such party to be indemnified
as a result of such expenses, losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative benefits received by
Issuer, the Selling Shareholders and the underwriters from the offering of the
securities and also the relative fault of Issuer, the Selling Shareholders and
the underwriters in connection with the statements or omissions which resulted
in such expenses, losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The amount paid or payable by a party as a
result of the expenses, losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim; PROVIDED, HOWEVER, that in no case shall any Selling Shareholder be
responsible, in the aggregate, for any amount in excess of the net offering
proceeds attributable to its Option Shares included in the offering. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. Any obligation by any holder to
indemnify shall be several and not joint with other holders.
In connection with any registration pursuant to subsection (a) or (b)
above, Issuer and each Selling Shareholder (other than Grantee) shall enter into
an agreement containing the indemnification provisions of this subsection (e).
(f) MISCELLANEOUS REPORTING. Issuer shall comply with all reporting
requirements and will do all such other things as may be necessary to permit the
expeditious sale at any time of any Option Shares by the Selling Shareholders
thereof in accordance with and to the extent permitted by any rule or regulation
promulgated by the OTS or other applicable federal agency from time to time.
Issuer shall at its expense provide the Selling Shareholders with any
information necessary in connection with the completion and filing of any
reports or forms required to be filed by them under applicable federal law, or
required pursuant to any state securities laws or the rules of any stock
exchange.
(g) ISSUER TAXES. Issuer will pay all stamp taxes in connection with the
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will save the Selling Shareholders harmless, without
limitation as to time, against any and all liabilities, with respect to all such
taxes.
9. QUOTATION; LISTING. If Issuer Common Stock or any other securities to be
acquired in connection with the exercise of the Option are then authorized for
quotation or trading or listing on the NASDAQ/NMS or any securities exchange,
Issuer, upon the request of Holder, will promptly file an application, if
required, to authorize for quotation or trading or listing the shares of Issuer
Common Stock or other securities to be acquired upon exercise of the Option on
the NASDAQ/NMS or such
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other securities exchange and will use its best efforts to obtain approval, if
required, of such quotation or listing as soon as practicable.
10. DIVISION OF OPTION. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Holder, upon presentation and
surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date.
11. [Reserved]
12. MISCELLANEOUS.
(a) EXPENSES. Each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
(b) WAIVER AND AMENDMENT. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties hereto.
(c) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARY; SEVERABILITY. This
Agreement, together with the Plan and the other documents and instruments
referred to herein and therein, between Grantee and Issuer (i) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (ii) is not intended to confer upon any person other than the parties hereto
(other than any transferees of the Option Shares or any permitted transferee of
this Agreement pursuant to subsection (h) of this Section 12) any rights or
remedies hereunder. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or a federal or state
regulatory agency to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
If for any reason such court or regulatory agency determines that the Option
does not permit Holder or Owner to acquire the full number of shares of Issuer
Common Stock as provided in Section 3 (as adjusted pursuant to Section 7), it is
the express intention of Issuer to allow Holder or Owner to acquire such lesser
number of shares as may be permissible without any amendment or modification
hereof.
(d) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Florida without regard to any
applicable conflicts of law rules.
(e) DESCRIPTIVE HEADINGS. The descriptive headings contained herein are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
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(f) NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
<TABLE>
<S> <C>
If to Grantee: First Union Corporation
One First Union Center
Charlotte, North Carolina 28288-0013
Attn: Chief Executive Officer
Telephone No. (704) 374-6828
Telefax No. (704) 374-3425
Copy to: Marion A. Cowell, Jr., Esq.
First Union Corporation
One First Union Center
Charlotte, North Carolina 28288-0013
Telephone No. (704) 374-6828
Telefax No. (704) 374-3425
If to Issuer: American Savings of Florida, F.S.B.
17801 Northwest 2nd Avenue
Miami, Florida 33169-5089
Telephone No. (305) 653-5353
Telefax No. (305) 770-2155
Copy to: Alan B. Goldstein, Exec. V.P. and
General Counsel
American Savings of Florida, F.S.B.
17801 N.W. Second Avenue
Miami, Florida 33169-5089
Telephone No. (305) 770-2093
Telefax No. (305) 770-2155
</TABLE>
(g) COUNTERPARTS. This Agreement and any amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Grantee may assign this
Agreement to a wholly-owned subsidiary of Grantee. Subject to the preceding
sentence, this Agreement (including, without limitation, the voting restrictions
set forth in Section 12(k) hereof) shall be binding upon, inure to the benefit
of and be enforceable by the parties and their respective successors and
assigns.
(i) FURTHER ASSURANCES. In the event of any exercise of the Option by the
Holder, Issuer and the Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) SPECIFIC PERFORMANCE. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
(k) CERTAIN VOTING OBLIGATIONS. In the event that (x) Issuer shall call an
annual or special meeting of its shareholders at which such shareholders will be
asked to vote upon the approval of an Acquisition Transaction (an "Alternative
Acquisition Transaction") with any person (other than Grantee or any affiliate
of Grantee) and/or any agreement relating thereto, and (y) the average value per
share of Issuer Common Stock of the consideration to be received by Issuer's
shareholders upon consummation of such Alternative Acquisition Transaction shall
be equal to or greater than 105% of the average value per share of Issuer Common
Stock of the consideration which would be received by Issuer's shareholders upon
consummation of any Acquisition Transaction which Grantee shall have proposed in
writing to the Board of Directors of Issuer prior to the time which such Board
shall have approved the Alternative Acquisition Transaction, Grantee will (i) be
present, in person or
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represented by proxy, at such meeting of shareholders so that all Option Shares
then beneficially owned by Grantee and entitled to vote may be counted for the
purpose of determining the presence of a quorum at such meeting and (ii) with
respect to any proposal to be voted on by shareholders relating to such
Acquisition Transaction and/or agreement, vote all Option Shares which it is
then entitled to vote in accordance with the recommendation of the Board of
Directors of Issuer in the same proportion as all other shares of Issuer Common
Stock present at such meeting and voting thereon shall have voted. For purposes
of this Section 12(k), the value of any consideration to be received in any
Alternative Acquisition Transaction or in any Acquisition Transaction proposed
by Grantee shall be (i) determined as of the date on which the Board of
Directors of Issuer shall have approved the Alternative Acquisition Transaction
and (ii) determined by a nationally recognized investment banking firm mutually
selected by Grantee and Issuer, if any non-cash consideration is to be included
in the consideration to be received in such transaction by Issuer's
shareholders.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
AMERICAN SAVINGS OF FLORIDA, F.S.B.
By: /s/ STEPHEN D. TAYLOR
NAME: STEPHEN D. TAYLOR
TITLE: PRESIDENT AND C.E.O.
FIRST UNION CORPORATION
By: /s/ KENNETH R. STANCLIFF
NAME: KENNETH R. STANCLIFF
TITLE: SENIOR VICE PRESIDENT
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<PAGE>
EXHIBIT D
[FORM OF SUPPLEMENT]
SUPPLEMENT, dated as of the [ ] day of [ ], 199[ ] (this
"Supplement"), to the Agreement and Plan of Merger, dated as of the 4th day of
December, 1994 (the "Merger Agreement"), by and between American Savings of
Florida, F.S.B. ("Bank") and First Union Corporation ("Acquiror").
WHEREAS, pursuant to Section 1.9 of the Merger Agreement, Bank and Acquiror
have agreed to consummate the Merger (as defined in the Merger Agreement) by way
of the merger of Bank and Subsidiary.
NOW, THEREFORE, by its execution of this Supplement, as of the date hereof
the undersigned (i) adopts and becomes a party to the Merger Agreement, (ii)
confirms the representations and warranties in Section 4.15 thereof and (iii)
represents and warrants to Bank that the authorized capital stock of Subsidiary
consists of [ ] shares of Subsidiary Common Stock, all of which are
issued and outstanding, fully paid and nonassessable (except as provided in 12
U.S.C. (section mark) 55), and subject to no preemptive rights, and owned by
Acquiror free and clear of all liens, claims, agreements, or encumbrances. There
are no treasury shares and no outstanding subscriptions, conversion privileges,
options, warrants, agreements, understandings or arrangements to which Acquiror
or Subsidiary is a party or by which either of them is bound relating to
Subsidiary's authorized or issued capital stock, or pursuant to which Subsidiary
may be obligated to issue shares of capital stock. As of , 199 ,
Subsidiary has capital of $ , divided into common stock of
$ , surplus of $ , undivided profits, including capital
reserves, of $ , and net unrealized holding gains (losses) on
available-for-sale securities of $ .
IN WITNESS WHEREOF, this Supplement has been duly executed and delivered by
the undersigned officer duly authorized thereunto as of the date first
hereinabove written.
[INSERT NAME OF SUBSIDIARY]
By:
NAME:
TITLE:
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<PAGE>
BOARD OF DIRECTORS
(Subsidiary)*
*To be completed upon organization of Subsidiary or upon substitution of
another bank therefor pursuant to Section 1.8.
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<PAGE>
ANNEX B
SHAREHOLDER VOTING AGREEMENT
THIS SHAREHOLDER VOTING AGREEMENT (the "Agreement") is made and entered
into as of December 4, 1994 by and between THE ENSTAR GROUP, INC. ("Holding
Company"), a unitary savings and loan holding company of AMERICAN SAVINGS OF
FLORIDA, F.S.B., a federally chartered stock savings bank (including its
successors after consummation of the Merger (as hereinafter defined), the
"Bank"), and FIRST UNION CORPORATION, a North Carolina corporation ("Acquiror").
PRELIMINARY STATEMENT
WHEREAS, Acquiror and Bank are contemporaneously herewith entering into
that certain Agreement and Plan of Merger of even date herewith (the "Merger
Agreement") pursuant to which a subsidiary of Acquiror will merge with Bank in
accordance with the terms and conditions of the Merger Agreement (the "Merger");
WHEREAS, Holding Company is the beneficial and record owner of 5,514,391
shares (the "Shares") of Common Stock, par value $.01 per share, of Bank ("Bank
Common Stock") and desires to enter into this Agreement to induce Acquiror to
enter into the Merger Agreement;
WHEREAS, Holding Company, Acquiror and First Union National Bank of North
Carolina, as escrow agent (the "Escrow Agent"), are contemporaneously herewith
entering into that certain Escrow Agreement of even date herewith in the form
attached hereto as Exhibit A (the "Escrow Agreement"), and Holding Company has
forwarded to The First National Bank of Boston, in its capacity as transfer
agent for the Bank Common Stock (the "Transfer Agent"), a Certificate
representing 5,514,391 Shares together with an irrevocable instructions letter
in the form attached hereto as Exhibit B instructing the Transfer Agent to,
among other things, issue a Certificate for 3,926,422 Shares (the "Escrowed
Shares") and to deliver the Certificate representing the Escrowed Shares to the
Escrow Agent to be held and distributed in accordance with the terms and
conditions of the Escrow Agreement and this Agreement; and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Acquiror has requested Holding Company to vote all of the Shares in
accordance with the terms and conditions of this Agreement and to take certain
other actions as contemplated by this Agreement and the Escrow Agreement, and
Holding Company hereby agrees to vote such Shares in accordance with the terms
and conditions hereof and to take such other actions.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, intending to be legally bound hereby, the
parties hereto agree as follows:
1. AGREEMENT TO VOTE. At such time as Bank conducts a meeting of, solicits
written consents from or otherwise seeks a vote of, its shareholders for the
purpose of adopting and approving the Merger Agreement, the Merger and the
transactions contemplated thereby, Holding Company agrees to duly vote all of
the Shares in favor of adopting and approving the Merger Agreement, the Merger
and the transactions contemplated thereby.
2. LIMITATION. Notwithstanding Section 1 hereof, Holding Company will have
at all times the right to vote the Shares, in its sole discretion, with respect
to all matters other than those set forth in Section 1 hereof submitted to a
vote of the shareholders of the Bank.
3. TERMINATION OF VOTING AGREEMENT. This Agreement shall terminate if and
when the Merger Agreement is terminated in accordance with its terms. In the
event of termination of this Agreement as provided in this Section 3, this
Agreement shall forthwith become null and void and there shall be no liability
or obligation on the part of Acquiror, Holding Company or their respective
officers or directors, except that nothing in this Section 3 shall relieve any
party hereto from any liability for breach of this Agreement.
4. EXCEPTIONS TO OBLIGATIONS. Except for the agreement of Holding Company
to vote the Shares in accordance with Section 1 hereof, nothing in this
Agreement shall: (a) require Holding Company to acquire additional shares of
Bank Common Stock; (b) require a director of Bank who is an officer, director,
trustee, nominee or other representative of Holding Company, in his or her
capacity as a director of Bank, to vote or take or refrain from taking any
action that would cause such director to violate his or her fiduciary duties to
Bank's shareholders under applicable law; or (c) require Holding Company to take
any action that would prevent or impede Bank's ability to exercise its rights or
fulfill its obligations under Section 5.6 of the Merger Agreement.
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5. COVENANTS OF HOLDING COMPANY. Except in accordance with the provisions
of this Agreement or the Escrow Agreement, Holding Company agrees, until this
Agreement has been terminated in accordance with Section 3 hereof, not to:
(a) directly or indirectly, sell, transfer, pledge, assign or otherwise
dispose of, or enter into any contract, option, commitment or other arrangement
or understanding with respect to the sale, transfer, pledge, assignment or other
disposition of any of the Shares;
(b) except as may be required to vote the Shares in accordance with Section
1 hereof, grant any proxies, deposit any Shares into a voting trust or enter
into a voting agreement with respect to any Shares;
(c) take any action or omit to take any action which would prohibit,
prevent or preclude Holding Company from performing its obligations under this
Agreement or the Escrow Agreement; or
(d) without the prior written approval of Acquiror, initiate, solicit or
encourage (including by way of furnishing non-public information or assistance)
any inquiries or the making of any proposal that constitutes, or may be
reasonably expected to lead to, any Competing Transaction (as hereinafter
defined), enter into discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain a Competing Transaction, or agree to
or endorse any Competing Transaction, or authorize any of the officers or
directors of Holding Company to take any such action, and Holding Company shall
use its reasonable efforts to cause the directors, officers, employees, agents
and representatives of Holding Company (including, without limitation, any
investment bank or financial advisor, attorney or accountant retained by Holding
Company) not to take any such action.
Notwithstanding Section 5(d) and except for the agreement of Holding
Company to vote the Shares in accordance with Section 1 hereof, nothing
contained in this Agreement shall prohibit the Board of Directors of Holding
Company from furnishing information to any person or entity that, after the date
hereof, makes a bona fide proposal to enter into a Competing Transaction, that
after the date hereof had not been initiated, solicited or encouraged by Bank or
Holding Company, if: (A) the Board of Directors of Bank shall have determined to
take certain actions pursuant to Section 5.6(b)(i) of the Merger Agreement; (B)
the Board of Directors of Holding Company shall have determined in good faith
(after considering the advice of outside counsel) that such action is required
for the Board of Directors of Holding Company to comply with its duties to
Holding Company's creditors and former stockholders under applicable law; (C)
the Board of Directors of Holding Company shall have reasonably concluded that
the proposal was made in good faith; (D) prior to furnishing such information to
such person or entity, Holding Company shall have received from such person or
entity an executed confidentiality agreement, with terms reasonably satisfactory
to Holding Company; and (E) Holding Company shall have so notified Acquiror.
For purposes of this Agreement, "Competing Transaction" shall mean any of
the following involving Bank or any of the subsidiaries of Bank (other than the
transactions contemplated by the Merger Agreement): (A) any merger,
consolidation, share exchange, business combination, or other similar
transaction; (B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of twenty percent (20%) or more of the assets or deposits of Bank
and the subsidiaries of the Bank, taken as a whole, in a single transaction or a
series of related transactions; or (C) any tender offer or exchange offer for
twenty percent (20%) or more of the outstanding shares of Bank Common Stock or
the filing of a registration statement under the Securities Act in connection
therewith.
6. REPRESENTATIONS AND WARRANTIES OF HOLDING COMPANY. Except as set forth
in Exhibit C hereto, Holding Company hereby represents and warrants to Acquiror
as follows:
(a) The Shares are the only shares of Bank Common Stock that Holding
Company has the right, power or authority to vote, and Holding Company does not
own or have any right to acquire any other shares of Bank Common Stock.
(b) Holding Company has the corporate power and authority to execute and
deliver this Agreement and the Escrow Agreement and to vote the Shares in
accordance with Section 1 hereof and otherwise perform its obligations hereunder
or thereunder; such execution, delivery, vote and performance have been duly
authorized by all necessary corporate action on the part of Holding Company; and
each of this Agreement and the Escrow Agreement has been duly executed and
delivered by Holding Company and constitutes the valid and binding agreement of
Holding Company, enforceable against Holding Company in accordance with its
terms, subject to general equitable principles and the discretion of courts in
granting equitable remedies.
(c) The execution and delivery of each of this Agreement and the Escrow
Agreement by Holding Company does not, and the consummation of the transactions
contemplated hereby and thereby by Holding Company, including, without
limitation, the agreement of Holding Company to vote the Shares in accordance
with Section 1 hereof, will not, constitute (i) a breach or violation of, or a
default under, the Holding Company Bankruptcy Plan (as hereinafter defined) or
any judgment,
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decree, order, governmental permit or license applicable to Holding Company or
any subsidiary of Holding Company or any of their respective properties, or to
which Holding Company or any subsidiary of Holding Company or any of their
respective properties is subject or bound, which breach, violation or default
could reasonably be expected to have a material adverse effect on the
transactions contemplated by this Agreement or the Escrow Agreement or any
adverse effect upon Holding Company's ability to perform its obligations
hereunder or thereunder, including, without limitation, the agreement of Holding
Company to vote the Shares in accordance with Section 1 hereof, or (ii) a breach
or violation of, or a default under, Holding Company's Certificate of
Incorporation or Bylaws, or under any material agreement, indenture or
instrument to which Holding Company or any subsidiary of Holding Company is a
party or by which Holding Company or any subsidiary of Holding Company or any of
their respective properties is subject or bound, which breach, violation or
default could reasonably be expected to have a material adverse effect on the
transactions contemplated by this Agreement or any adverse effect on Holding
Company's ability to perform its obligations hereunder or thereunder, including,
without limitation, the agreement of Holding Company to vote the Shares in
accordance with Section 1 hereof.
(d) The consummation of the transactions contemplated by this Agreement and
the Escrow Agreement, including, without limitation, the agreement of Holding
Company to vote the Shares in accordance with Section 1 hereof, will not require
any consent, waiver or approval under any such judgment, decree, order,
governmental permit or license, or material agreement, indenture or instrument
referred to in Section 6(c) hereof, other than any consents, waivers or
approvals contemplated by the Merger Agreement and the schedules thereto or such
consents, waivers or approvals the absence of which would not have a material
adverse effect on the transactions contemplated by this Agreement or the Escrow
Agreement or any adverse effect on Holding Company's ability to perform its
obligations hereunder or thereunder, including, without limitation, the
agreement of Holding Company to vote the Shares in accordance with Section 1
hereof.
(e) The Shares are now and will at all times during the term of this
Agreement be beneficially owned and held of record by Holding Company, free and
clear of all liens, claims, security interests or any other encumbrances
whatsoever, other than restrictions upon resale which may be imposed by Federal
or state securities laws and the obligations imposed on Holding Company under
the Holding Company Bankruptcy Plan (as hereinafter defined) relating to the
Shares ("Encumbrances") with respect to the ownership or voting of the Shares or
otherwise, other than encumbrances and restrictions created pursuant to this
Agreement and/or the Escrow Agreement. No such Encumbrances prevent or
materially impair Holding Company's performance of its obligations under this
Agreement or the Escrow Agreement.
(f) Holding Company has previously delivered to Acquiror a letter from the
Office of Thrift Supervision confirming the ability of Holding Company to vote
the Shares in connection with the Merger.
(g) The aggregate consideration to be received by Holding Company under the
Merger Agreement together with all other assets of Holding Company will be
sufficient to permit Holding Company to satisfy in full the Senior Claims (as
hereinafter defined) and at least THIRTY MILLION DOLLARS ($30,000,000) of the
Obligation (as hereinafter defined) on the Merger Effective Date (as defined in
the Merger Agreement) in accordance with the terms and conditions of this
Agreement and the Escrow Agreement.
(h) Exhibit D hereto sets forth a true and complete list of all Allowed
Claims in Classes 6, 7, 8 and 10 of the Holding Company Bankruptcy Plan (the
"Senior Claims") and the principal amount of such claims.
7. REPRESENTATIONS AND WARRANTIES OF ACQUIROR. Acquiror hereby represents
and warrants to Holding Company that Acquiror has the corporate power and
authority to execute, deliver and perform this Agreement; such execution,
delivery and performance have been duly authorized by all necessary corporate
action on the part of Acquiror; and this Agreement has been duly executed and
delivered by Acquiror and constitutes the valid and binding agreement of
Acquiror, enforceable against Acquiror in accordance with its terms, subject to
applicable bankruptcy, insolvency and other similar laws affecting the
enforceability of creditors' rights generally, general equitable principles and
the discretion of courts in granting equitable remedies.
8. ALLOWED CLAIM.
(a) Holding Company hereby represents and warrants to Acquiror that Holding
Company's obligation to Bank in the amount of THIRTY ONE MILLION NINE HUNDRED
NINETY-THREE THOUSAND TWO HUNDRED SIX DOLLARS ($31,993,206) (the "Obligation")
is an "Allowed Claim" pursuant to the terms of the Second Amended Plan of
Reorganization of The Enstar Group, Inc., as modified (the "Holding Company
Bankruptcy Plan") and will remain an Allowed Claim of the Surviving Entity (as
defined in the Merger Agreement) after giving effect to the Merger. Holding
Company further represents and warrants to Acquiror that the Obligation,
together with simple interest accrued thereon from June 1, 1992 at the rate of
4.26 percent per annum (the "Interest Component"), is a valid obligation of
Holding Company payable to Bank
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pursuant to the terms of the Holding Company Bankruptcy Plan, this Agreement and
the Escrow Agreement after payment of the Senior Claims. Holding Company further
represents and warrants that any principal balance of the Obligation which is
not paid on the Merger Effective Date in accordance with the terms of the Escrow
Agreement shall remain an Allowed Claim under the Holding Company Bankruptcy
Plan and shall be paid in full prior to any other payment to any other creditor
of Holding Company under the Holding Company Bankruptcy Plan other than the
holders of Senior Claims. Holding Company further represents and warrants that
the Interest Component shall be paid to Bank under the Holding Company
Bankruptcy Plan on a pro-rata basis at the same time that any interest payments
are made on the Senior Claims.
(b) Holding Company hereby represents and warrants to Acquiror that the
Merger will not constitute a transfer or trade of the Obligation within the
meaning of Section 11.8 of the Holding Company Bankruptcy Plan. Notwithstanding
the foregoing, Holding Company hereby authorizes any transfer or trade of the
Obligation that may be deemed to occur as a consequence of the Merger.
9. ESCROW AGREEMENT; ACQUIROR SHARES; HOLDING COMPANY BANKRUPTCY PLAN.
(a) Unless there shall exist a breach by Holding Company of any material
representation, warranty or covenant contained herein which has not been waived
in writing by Acquiror, on the Merger Effective Date, Acquiror shall instruct
the Escrow Agent to exchange the Escrowed Shares for shares of Acquiror Common
Stock in accordance with the terms of the Merger Agreement, and Acquiror shall
immediately thereafter purchase from Holding Company and Holding Company shall
sell to Acquiror such shares of Acquiror Common Stock for an aggregate purchase
price of EIGHTY TWO MILLION FOUR HUNDRED FIFTY FOUR THOUSAND EIGHT HUNDRED SIXTY
FIVE DOLLARS AND EIGHTY CENTS ($82,454,865.80) (the "Purchase Price"). Such
purchase and sale shall be effected in accordance with the terms of the Escrow
Agreement through the delivery by Acquiror to the Escrow Agent of immediately
available funds in an amount equal to the Purchase Price and the release by the
Escrow Agent of the shares of Acquiror Common Stock to Acquiror in accordance
with the terms of this Agreement and the Escrow Agreement.
(b) No later than ten (10) days prior to the Merger Effective Date, Holding
Company shall provide Acquiror with written notification (the "Principal Pay-Off
Notification") of:
(i) The names and addresses of the holders of the Senior Claims under
the Holding Company Bankruptcy Plan, the outstanding principal amount of
such Senior Claims as of the Merger Effective Date (the "Senior Claims
Amount"), which amount Holding Company represents and warrants shall not be
greater than $52,454,865.80 in the aggregate, and the method or manner of
payment to be used by the Escrow Agent to pay such Senior Claims on the
Merger Effective Date; and
(ii) The outstanding principal amount of the Obligation.
(c) Unless there shall exist a breach by Holding Company of any material
representation, warranty or covenant contained herein which has not been waived
in writing by Acquiror, upon receipt of the Principal Pay-Off Notification,
Acquiror shall promptly forward to the Escrow Agent a copy of such Principal
Pay-Off Notification together with written instructions for the Escrow Agent to
pay on behalf of Holding Company the Senior Claims Amount to the holders of the
Senior Claims on the Merger Effective Date and to pay on behalf of Holding
Company the lesser of $30,000,000 or the then outstanding principal amount of
the Obligation to the Bank on the Merger Effective Date, all in accordance with
the terms and conditions of such instructions letter and Principal Pay-Off
Notification. Holding Company agrees that the Principal Pay-Off Notification
shall contain appropriate instructions with respect to compliance with
applicable federal withholding tax obligations, if any, arising in connection
with such payments. Unless there shall exist a breach by Holding Company of any
material representation, warranty or covenant contained herein which has not
been waived in writing by Acquiror, if the Principal Pay-Off Notification is not
received by Acquiror on or before the date provided in Section 9(b) above,
Acquiror shall instruct the Escrow Agent to pay on the Merger Effective Date:
(i) the Senior Claims Amount by issuing and delivering to the holders of such
Senior Claims identified on Exhibit D hereto certified checks in the amounts set
forth opposite their names on such Exhibit D, which Exhibit D may be hereinafter
amended by Holding Company from time-to-time, but not later than ten (10) days
prior to the Merger Effective Date; and (ii) the lesser of $30,000,000 or the
then outstanding principal amount of the Obligation (the "Bank Obligation") to
Bank by issuing and delivering to Bank a certified check made payable to Bank in
the amount of the Bank Obligation.
(d) Holding Company and Acquiror agree that Holding Company shall exchange
all Shares held by it on the Merger Effective Date into Shares of Acquiror
Common Stock on the Merger Effective Date in accordance with the terms and
provisions of the Merger Agreement. Upon receipt of such shares of Acquiror
Common Stock on the Merger Effective Date
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under the Merger Agreement, Holding Company shall deliver to the Escrow Agent
such number of shares of Acquiror Common Stock as is equal to the quotient
obtained by dividing: (A) the sum of (x) the outstanding principal amount of the
Obligation following the payment actually being made to Bank pursuant to Section
9(c) hereof (the "Remaining Balance"), (y) an amount equal to the interest that
would accrue on the Remaining Balance for a period of twenty-four (24) months
following the Merger Effective Date at a 4.26% annualized simple interest rate,
and (z) an amount equal to the interest due Bank on the Obligation under the
Holding Company Bankruptcy Plan as of the Merger Effective Date, less the amount
of any cash remaining under the Escrow Agreement following the payment of the
Senior Claims Amount and the payment on the Obligation pursuant to Section 9(c)
hereof; by (B) the Average Market Price (as defined in the Merger Agreement).
Notwithstanding anything to the contrary set forth in this Agreement, Acquiror
shall not be required to make the payments contemplated by Section 9(a) or to
instruct the Escrow Agent to make any payments required by Section 9(c) unless
and until the Escrow Agent shall have certified to Acquiror that it has
contemporaneously received the Shares to be delivered to the Escrow Agent
pursuant to this Section 9(d).
(e) Notwithstanding anything to the contrary set forth in this Agreement,
Holding Company agrees that if the Acquiror Common Stock, cash and/or other
securities held under the Escrow Agreement are not sufficient to satisfy in full
the Obligation and the Interest Component (together, the "Bank Obligations"),
then any unpaid balance of the Bank Obligations shall remain a valid obligation
of Holding Company payable in accordance with the terms of the Holding Company
Bankruptcy Plan.
(f) Acquiror and Holding Company agree that Holding Company, at its option,
shall be permitted to pay and satisfy any portion of the Obligation to be paid
after the Merger Effective Date and any portion of the Interest Component to be
paid after the Merger Effective Date through the transfer to Bank or, if
authorized by Bank, to Acquiror of Acquiror Common Stock or by delivery of cash,
or a combination of both, with any such Acquiror Common Stock being valued for
such purposes at the average of the closing prices of Acquiror Common Stock on
the New York Stock Exchange for the ten (10) consecutive trading days ending on
the last trading day immediately prior to the date of delivery of such Acquiror
Common Stock.
(g) Holding Company and Acquiror agree that the shares of Acquiror Common
Stock and any cash or other securities held by the Escrow Agent following the
Merger Effective Date shall be held under the Escrow Agreement and shall be paid
to the Bank or distributed to Holding Company or others in accordance with the
terms of the Holding Company Bankruptcy Plan, this Agreement and the Escrow
Agreement. At such time or times as Holding Company shall be permitted under the
Holding Company Bankruptcy Plan and this Agreement to pay all or part of the
Interest Component and/or the Remaining Balance, Holding Company shall promptly
provide written notification (the "Interest Pay-Off Notification") to Acquiror
of the amount of such Interest Component and/or Remaining Balance which may then
be paid to Bank on behalf of Holding Company. Upon receipt of an Interest
Pay-Off Notification, Acquiror shall forward to the Escrow Agent a copy of such
Interest Pay-Off Notification together with written instructions for the Escrow
Agent to pay on behalf of Holding Company to Bank the obligation(s) reflected on
such Interest Pay-Off Notification. Holding Company and Acquiror agree that the
Interest Component shall be payable pro-rata with the interest due on the Senior
Claims in accordance with the terms and provisions of the Holding Company
Bankruptcy Plan and this Agreement.
(h) Notwithstanding anything to the contrary set forth herein or in the
Escrow Agreement, Holding Company and Acquiror agree that in the event that
Holding Company shall not have sufficient assets available to pay in full the
interest payable with respect to the Senior Claims under the Holding Company
Bankruptcy Plan, or to pay in full any principal and interest with respect to
any "Disputed Claim" under the Holding Company Bankruptcy Plan which hereinafter
is determined to be an "Allowed Claim" in Classes 6, 7, 8 or 10 of the Holding
Company Bankruptcy Plan and/or to satisfy in full any tax obligations of Holding
Company (collectively, the "Enstar Bankruptcy Obligations"), then, unless there
shall exist a breach by Holding Company of any material representation, warranty
or covenant contained herein which has not been waived in writing by Acquiror,
Holding Company shall have the right to receive any shares of Acquiror Common
Stock, cash or other securities then held under the Escrow Agreement and shall
be obligated to use such shares, cash or other securities to pay or satisfy such
Enstar Bankruptcy Obligations in accordance with the terms and conditions of the
Holding Company Bankruptcy Plan and this Agreement; PROVIDED, HOWEVER, that only
such cash, shares or other securities held under the Escrow Agreement in respect
of any portion of the Remaining Balance following payment of the amounts
required to be paid under Section 9(c) and the Interest Component may be so
returned to Holding Company pursuant to this Section 9(h). At such time or times
as Holding Company shall conclude in good faith that the conditions to the
release from escrow of such shares of Acquiror Common Stock, cash or other
securities specified in this Section 9(h) have been satisfied, Holding Company
shall provide written notification (the "Deficiency Notification") to Acquiror
of such deficiency and the amount thereof and an explanation therefor and the
party or parties entitled to such funds or securities under the Holding Company
Bankruptcy Plan and this
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Agreement. Upon receipt of a Deficiency Notification, Acquiror shall promptly
forward to the Escrow Agent a copy of such Deficiency Notification together with
written instructions for the Escrow Agent to distribute such securities or funds
pursuant to such Deficiency Notification. Holding Company and Acquiror agree
that any such securities or funds released from escrow pursuant to the
provisions of this Section 9(h) shall be paid to the parties identified in the
Deficiency Notification in accordance with the terms and conditions of the
Holding Company Bankruptcy Plan and this Agreement.
(i) Holding Company and Acquiror agree to promptly notify the Escrow Agent
in the event the Merger Agreement shall be terminated prior to the Merger
Effective Date.
(j) Holding Company and Acquiror agree that in the event the fair market
value of the shares of Acquiror Common Stock held under the Escrow Agreement,
together with any cash or other securities held thereunder, shall exceed the
unpaid balance of the Obligation and the Interest Component for a period of
ninety (90) consecutive days, then Holding Company and Acquiror shall jointly
instruct the Escrow Agent to release to Holding Company such excess securities
or cash. For purposes of this Section 9(j), the "fair market value" of Acquiror
Common Stock shall be determined by reference to the average closing prices of
Acquiror Common Stock on the New York Stock Exchange for the ten (10)
consecutive trading days ending with the first day of the ninety (90) day period
referred to above in this Section 9(j). Holding Company and Acquiror further
agree to instruct the Escrow Agent to distribute to Holding Company any Shares
of Acquiror Common Stock, cash or other securities remaining in escrow promptly
following payment in full of the Obligation and the Interest Component.
10. INDEMNIFICATION BY ACQUIROR. For a period to commence upon consummation
of the Merger and to terminate upon the sixth anniversary thereof, Acquiror
shall indemnify, defend and hold harmless, as and to the fullest extent
permitted by Delaware law as of the date hereof for indemnification by a
Delaware corporation of its directors, the directors of Holding Company, acting
solely in their capacity as directors of Holding Company, against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including reasonable attorneys' fees and expenses) arising in
connection with or relating to the transactions contemplated by this Agreement
and the Merger Agreement.
11. INDEMNIFICATION BY HOLDING COMPANY. For a period to commence upon
consummation of the Merger and to terminate upon the third anniversary thereof,
Holding Company shall indemnify, defend and hold harmless Acquiror and the
Surviving Entity against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, expenses (including reasonable attorneys'
fees and expenses) and costs (collectively, "Indemnifiable Losses") arising out
of or relating to: (a) any breach by Holding Company of any of its
representations, warranties, covenants or agreements set forth herein or in the
Escrow Agreement; (b) the Holding Company Bankruptcy Plan; or (c) the
satisfaction of, or the failure to satisfy, the various claims thereunder in
accordance with the terms and conditions of this Agreement and the Escrow
Agreement; PROVIDED, HOWEVER, that Holding Company shall have no obligations
whatsoever under this Section 11 with respect to any Indemnifiable Loss which
arises out of or relates to: (a) any willful and intentional breach by Acquiror
or Escrow Agent of their respective representations, warranties, covenants or
agreements set forth herein or in the Escrow Agreement; or (b) the gross
negligence or willful misconduct of Acquiror or Escrow Agent.
12. LITIGATION MATTERS. Acquiror and Holding Company agree that following
consummation of the Merger, Nimrod T. Frazer, the designated representative of
Holding Company and Bank as a member of the Steering Committee relating to the
Schedule 8 Claims established in connection with the case styled IN RE MICHAEL
MILKEN AND ASSOCIATES SECURITIES LITIGATION, MDL 924 (MP) (S.D.N.Y.) (the
"Milken Litigation"), may continue as such representative unless Holding Company
or Acquiror shall have determined in good faith, after consultation with counsel
representing Holding Company and Acquiror in the Milken Litigation, that such
representation is no longer in the best interests of Holding Company and
Acquiror. Acquiror and Holding Company also agree that if all claims of Bank and
Holding Company in the Milken Litigation have not been resolved, settled or
otherwise compromised prior to the Merger Effective Date, such claims shall not
thereafter be resolved, settled or compromised without the prior written consent
of Holding Company, which consent shall not be unreasonably withheld. Acquiror
and Holding Company agree to enter into a mutually acceptable indemnification
agreement, apportioned according to their respective shares of any recovery in
the Milken Litigation, with such representative covering actions taken or
omitted to be taken by such representative in representing the interests of Bank
and Acquiror in connection with the Milken Litigation, which indemnification
agreement shall have a term which shall run until the third anniversary of the
date such representative shall cease to serve as such representative and shall
contain indemnification provisions comparable to those currently in effect for
directors of Bank; PROVIDED, HOWEVER, that Acquiror's indemnification
obligations under such agreement shall not exceed in the aggregate the gross
amount received by Acquiror and/or Bank in connection with the Milken
Litigation.
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13. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement or the
Escrow Agreement, including, without limitation, the agreement of Holding
Company to vote the Shares in accordance with Section 1 hereof, were not
performed by the applicable party hereto or thereto in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that each of
the parties hereto or thereto shall be entitled to an injunction or injunctions
to prevent breaches of this Agreement and the Escrow Agreement by the other and
to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which it is entitled at law or in equity.
14. FURTHER ASSURANCES. Holding Company and Acquiror agree to execute and
deliver all such further documents and instruments and take all such further
action as may be necessary or appropriate, including cooperation in obtaining
any and all required regulatory approvals, in order to consummate the
transactions contemplated hereby, including, without limitation, the agreement
of Holding Company to vote the Shares in accordance with Section 1 hereof.
Holding Company further agrees to use its best efforts to obtain any and all
required regulatory approvals in order to consummate the transactions
contemplated hereby.
15. EXPENSES. Except as may otherwise be provided herein, no party hereto
shall be responsible for the payment of any other parties' expenses incurred in
connection with this Agreement.
16. THIRD PARTY BENEFICIARIES. The terms and provisions of this Agreement
are intended solely for the benefit of each party hereto and its respective
successors and permitted assigns, and it is not the intention of the parties to
confer third party beneficiary rights upon any other person or entity other than
the rights accorded the directors of Holding Company pursuant to Section 10
hereof or the Surviving Entity pursuant to Section 11 hereof.
17. AMENDMENTS. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by all of the parties hereto.
18. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and delivered personally or by telecopy
transmission or sent by registered or certified mail or by any express mail
service, postage or fees prepaid, addressed as follows:
(a) if to Acquiror:
First Union Corporation
One First Union Center
Charlotte, North Carolina 28288-0013
Attention: Chief Executive Officer
with a copy to:
First Union Corporation
One First Union Center
Charlotte, North Carolina 28288-0013
Attention: General Counsel
(b) if to Holding Company:
The Enstar Group, Inc.
172 Commerce Street, Third Floor
Montgomery, Alabama 36104
Attention: Nimrod T. Frazer
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with copies to:
Parker, Hudson, Rainer & Dobbs
1500 Marquis Two Tower
285 Peachtree Center Avenue, N.E.
Atlanta, Georgia 30303
Attention: J. Marbury Rainer, Esq.
and
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: William R. Spalding, Esq.
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of law.
20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together, shall constitute but one agreement.
21. EFFECT OF HEADINGS. The descriptive headings contained herein are for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
22. SEVERABILITY. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broadly as is enforceable.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date first written above.
ACQUIROR:
FIRST UNION CORPORATION
By: /s/ KENNETH R. STANCLIFF
NAME: KENNETH R. STANCLIFF
TITLE: SENIOR VICE PRESIDENT
HOLDING COMPANY:
THE ENSTAR GROUP, INC.
By: /s/ CHERYL D. DAVIS
NAME: CHERYL D. DAVIS
TITLE: CHIEF FINANCIAL OFFICER
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EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement (the "Agreement"), dated as of December 4, 1994, is
made by and among The Enstar Group, Inc. ("Enstar"), First Union Corporation
("First Union") and First Union National Bank of North Carolina, as Escrow Agent
hereunder (the "Escrow Agent").
BACKGROUND
A. Enstar and First Union have entered into that certain Shareholder Voting
Agreement (the "Voting Agreement"), a copy of which is attached hereto as Annex
A, pursuant to which Enstar has agreed to vote all shares of Common Stock, par
value $.01 per share ("Bank Common Stock"), of American Savings of Florida,
F.S.B. (the "Bank") in favor of adopting and approving that certain Agreement
and Plan of Merger (the "Merger Agreement"), dated as of December 4, 1994, by
and between Bank and First Union, a copy of which is attached hereto as Annex B.
The Voting Agreement provides that Enstar will cause to be delivered to the
Escrow Agent a stock certificate in definitive form evidencing an aggregate of
3,926,422 shares of Bank Common Stock (together with any additions,
substitutions or other property for which the same may be exchanged as provided
herein, the "Escrowed Shares") to be held by the Escrow Agent in accordance with
the terms and conditions hereof. Enstar has further caused to be delivered to
the Escrow Agent hereunder stock powers duly endorsed in blank relating to the
Escrowed Shares.
B. The Escrow Agent has agreed to accept, hold and disburse the Escrowed
Shares and any additional cash, securities or other property deposited with it
and the earnings thereon in accordance with the terms of this Escrow Agreement.
C. Enstar has appointed Nimrod T. Frazer (the "Enstar Representative") and
First Union has appointed Kent Hathaway (the "First Union Representative") (the
Enstar Representative and the First Union Representative are herein referred to
collectively as the "Representatives") to represent them for all purposes in
connection with the Escrowed Shares and any other property or funds to be
deposited with the Escrow Agent under this Agreement.
D. In order to establish the escrow of the Escrowed Shares and any other
funds or property to be deposited with the Escrow Agent pursuant to this
Agreement or the Voting Agreement and to effect the provisions of the Voting
Agreement, the parties hereto have entered into this Agreement.
STATEMENT OF AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, for
themselves, their successors and assigns, hereby agree as follows:
1. Enstar, First Union and the Representatives hereby appoint Escrow Agent
to serve as Escrow Agent hereunder. Escrow Agent hereby accepts such appointment
and, upon receipt of the Escrowed Shares and shares of Common Stock, par value
$3.33 1/3 per share, of First Union ("First Union Common Stock") delivered to
Escrow Agent in accordance with Section 2 below, agrees to hold, invest and
disburse the Escrowed Shares, the First Union Shares (as defined below) and any
other cash or securities held hereunder in accordance with this Escrow
Agreement. Any and all notices or instructions of either First Union or Enstar
shall not be effective unless delivered in writing and signed by the First Union
Representative or the Enstar Representative, respectively.
2. On the date hereof, Enstar has delivered to The First National Bank of
Boston (the "Transfer Agent") an Irrevocable Letter of Instructions dated
December 4, 1994, a copy of which is attached hereto as Annex C, instructing the
Transfer Agent to deliver to the First Union Representative a stock certificate
evidencing the Escrowed Shares (the "Escrowed Shares Certificate"). Upon receipt
of said Escrowed Shares Certificate, the First Union Representative shall
deliver the Escrowed Shares Certificate to the Escrow Agent, to be held in
escrow pursuant to the terms of this Agreement. On the Merger Effective Date (as
defined in the Merger Agreement), Enstar shall deliver to the Escrow Agent, to
be held in escrow pursuant to the terms of this Agreement, a stock certificate
or certificates in definitive form evidencing shares of First Union Common Stock
required to be delivered by Enstar under Section 9(d) of the Voting Agreement
(the "First Union Shares").
3. On the Merger Effective Date and upon receipt by the Escrow Agent of
instructions from First Union pursuant to Section 9(a) of the Voting Agreement,
the Escrow Agent shall tender for exchange the shares of Bank Common Stock
delivered upon the execution of this Agreement for shares of First Union Common
Stock on the Merger Effective Date in accordance with the terms of the Merger
Agreement. On the Merger Effective Date and upon receipt from First Union of
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immediately available funds in an amount equal to EIGHTY TWO MILLION FOUR
HUNDRED FIFTY FOUR THOUSAND EIGHT HUNDRED SIXTY FIVE DOLLARS AND EIGHTY CENTS
($82,454,865.80) (the "Share Consideration") pursuant to Section 9(a) of the
Voting Agreement, Escrow Agent shall deliver to First Union such shares of First
Union Common Stock in accordance with written instructions provided to the
Escrow Agent from First Union at least five (5) days prior to the Merger
Effective Date.
4. On the Merger Effective Date and upon receipt of the letter of
instructions from First Union contemplated by Sections 9(c) of the Voting
Agreement, Escrow Agent shall make the various payments specified in such letter
of instructions in accordance with the directions set forth therein.
5. Upon receipt of an Interest Pay-Off Notification (as defined in the
Voting Agreement) and letter of instructions from First Union contemplated by
Section 9(g) of the Voting Agreement, Escrow Agent shall make the various
payments specified in such Interest Pay-Off Notification and letter of
instructions in accordance with the directions set forth therein.
6. Upon receipt of a Deficiency Notification (as defined in the Voting
Agreement) and letter of instructions from First Union contemplated by Section
9(h) of the Voting Agreement, Escrow Agent shall distribute the shares, cash or
other securities specified in such Deficiency Notification and letter of
instructions in accordance with the directions set forth therein.
7. Upon receipt of a joint instructions certificate duly executed by Enstar
and First Union under Section 9(i) of the Voting Agreement to the effect that
the Merger Agreement has been terminated in accordance with its terms prior to
consummation of the Merger, Escrow Agent shall deliver to Enstar all shares,
cash or other securities held hereunder, which delivery shall be made in
accordance with written instructions to be provided to Escrow Agent by Enstar in
such joint instructions certificate.
8. Upon receipt of a joint instructions certificate duly executed by Enstar
and First Union under Section 9(j) of the Voting Agreement to the effect that
excess shares, cash or securities remain in escrow hereunder and/or to the
effect that the Obligation (as defined in the Voting Agreement) or the Interest
Component (as defined in the Voting Agreement) has been satisfied in full,
Escrow Agent shall deliver such shares, cash or other securities in accordance
with the directions set forth in such joint instructions certificate.
9. Any cash or stock dividends or interest payable with respect to Bank
Common Stock, First Union Common Stock or other securities held hereunder shall
be delivered to Escrow Agent and shall be held and distributed in accordance
with the terms hereof. Subject to the terms of the Voting Agreement, Enstar
shall be entitled to vote all Escrowed Shares, First Union Shares and other
securities held hereunder in all matters submitted to a vote of holders of Bank
Common Stock, First Union Common Stock or otherwise. Enstar shall have the right
to direct the Escrow Agent to sell shares of First Union Common Stock held
hereunder, which may be sold to First Union in the sole discretion of the Escrow
Agent, and the proceeds of any such sale shall be deposited hereunder and shall
be held and distributed in accordance with the terms hereof and the Voting
Agreement.
10. Any cash held hereunder shall be invested by the Escrow Agent in
accordance with written instructions to be provided by the Enstar
Representative.
11. Enstar hereby acknowledges that income, gain or loss incurred with
respect to any property held by the Escrow Agent pursuant to this Agreement
shall be for the account of Enstar, and Enstar hereby agrees to indemnify and
hold harmless each of the Escrow Agent, First Union and Bank for the taxes
payable in respect of such items of income, gain or loss.
12. This Agreement may be changed, waived discharged or terminated only by
a writing signed by the Representatives and the Escrow Agent. No delay or
omission by any parties on exercising any right with respect hereto shall
operate as a waiver. A waiver on any one occasion shall not be construed as a
bar to, or waiver of, any right or remedy on any future occasion.
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13. Any notice required to be given under this Agreement shall be effective
when delivered by messenger, or dispatched by registered mail, cable or telex,
to the respective party at its address specified below, namely:
<TABLE>
<S> <C>
If to Enstar, to: The Enstar Group, Inc.
172 Commerce Street
Third Floor
Montgomery, Alabama 36104
Attention: Nimrod T. Frazer
with copies to:
Parker, Hudson, Rainer & Dobbs
1500 Marquis Two Tower
285 Peachtree Center Avenue
Atlanta, Georgia 30303
Attention: J. Marbury Rainer, Esq.
and
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Attention: William R. Spalding, Esq.
If to First Union, to: First Union Corporation
One First Union Center
Charlotte, North Carolina 28288-0013
Attention: Chief Executive Officer
with a copy to:
First Union Corporation
One First Union Center
Charlotte, North Carolina 28288-0013
Attention: Kent Hathaway, Esq.
If to Escrow Agent: First Union National Bank of North Carolina
Bond Administration
230 S. Tryon Street
8th Floor
Charlotte, North Carolina 28288-1179
Attention: Dan Ober
with a copy to:
First Union Corporation
One First Union Center
Charlotte, North Carolina 28288-0013
Attention: Kent Hathaway, Esq.
</TABLE>
14. Enstar and First Union shall each pay one-half of the fees and expenses
of the Escrow Agent, as set forth on Annex D hereto. Each of Enstar and First
Union shall reimburse the Escrow Agent for one-half of the reasonable expenses
incurred by Escrow Agent in connection with this Agreement, including but not
limited to, the reasonable cost of legal services should the Escrow Agent deem
it necessary to retain counsel.
15. The Escrow Agent shall not be liable for any action taken or omitted to
be taken by it in good faith in accordance with the advice of counsel. In no
event shall the Escrow Agent be liable or responsible except for its own gross
negligence or willful misconduct.
16. Enstar agrees to indemnify the Escrow Agent against all costs,
expenses, damages or losses (including reasonable attorneys' fees) incurred by
it in connection with or as a result of the performance of its duties under this
Agreement, to the extent that such costs, expenses, damages or losses arise out
of or are based on an action involving such performance of its
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duties under this Agreement and to the extent that such duties are not found to
have been performed (i) with gross negligence or willful misconduct on the part
of the Escrow Agent or (ii) as a result of a breach of this Agreement by First
Union.
17. Each of the parties hereto agrees to take or cause to be taken such
further actions, to execute, deliver and file or cause to be executed, delivered
and filed such further documents and instruments and to obtain such consents as
may be necessary or as may be reasonably required in order to fully effectuate
the purposes, terms and conditions of this Agreement.
18. This Agreement shall be governed by and construed in accordance with
the law of the State of Delaware and shall be binding upon the Escrow Agent,
First Union and Enstar and its and their respective successors and assigns;
PROVIDED that any assignment or transfer by Enstar or First Union of its rights
under this Agreement or with respect to the Escrowed Shares or the First Union
Shares shall be void as against the Escrow Agent unless (i) written notice
thereof shall be given to the Escrow Agent, (ii) the assignee or transferee
shall agree in writing to be bound by the provisions of this Agreement, and
(iii) all of the parties hereto shall have consented in writing to such
assignment or transfer.
19. This Agreement is not intended to, and shall not give rise to any
rights, or be enforceable by, any person other than Enstar, First Union and the
Escrow Agent or their respective successors and assigns.
20. To the extent any provision of this Agreement is prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
21. This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matters hereof; PROVIDED that this provision
is not intended to abrogate any other written agreement between the parties
executed contemporaneously herewith or after this Agreement.
22. All of the terms of this Agreement, as amended from time to time, shall
be binding upon, inure to the benefit of and be enforceable by the respective
successors and assigns of Enstar, First Union, the Representatives and the
Escrow Agent.
23. The Escrow Agent and any stockholder, director, officer or employee of
the Escrow Agent may buy, sell and deal in any of the securities of Bank, Enstar
or First Union and become pecuniarily interested in any transaction in which
Bank, Enstar or First Union may be interested, and contract and lend money to
Bank, Enstar or First Union and otherwise act as fully and freely as though it
were not Escrow Agent under this Agreement. Nothing herein shall preclude the
Escrow Agent from acting in any other capacity for Bank, Enstar or First Union
or for any other entity.
24. This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which taken together shall constitute a
single instrument.
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If the foregoing Agreement is satisfactory, please so indicate by signing
at the place provided below.
Very truly yours,
THE ENSTAR GROUP, INC.
By: /s/ CHERYL D. DAVIS
NAME: CHERYL D. DAVIS
TITLE: CHIEF FINANCIAL OFFICER
FIRST UNION CORPORATION
By: /s/ KENNETH R. STANCLIFF
NAME: KENNETH R. STANCLIFF
TITLE: SENIOR VICE PRESIDENT
We accept the appointment as Escrow Agent.
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ DANIEL J. OBER
NAME: DANIEL J. OBER
TITLE: VICE PRESIDENT
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EXHIBIT C
1. Under that certain Settlement Agreement entered on March 18, 1994, by
and among Richard J. Grassgreen, TPR Investment Associates, Inc., Holding
Company, Bank, and certain other parties, which Settlement Agreement was
approved by order dated April 12, 1994, by the United States Bankruptcy Court
for the Middle District of Florida, Jacksonville Division, in that certain
bankruptcy case styled, IN RE RICHARD J. GRASSGREEN, Chapter 11 Case No.
93-0640-BKC-3P-1, Holding Company will receive, upon the effective date of the
Second Amended Plan of Reorganization of Richard J. Grassgreen, 175,000 shares
of Bank Common Stock from TPR Investment Associates, Inc. To the extent any such
shares are received by Holding Company, such shares will become subject to the
Agreement and shall be deemed "Shares" for purposes thereof; PROVIDED, HOWEVER,
that 55,000 of such shares will be subject to certain escrow arrangements
relating to a settlement agreement with the Grassgreen estate and the agreement
of Holding Company to repurchase rights represented by certain cancelled Holding
Company capital stock from Bank.
2. In connection with the disposition of the Shares, Holding Company will
need to: (a) file a Form DV with the Office of Thrift Supervision (the "OTS");
and (b) obtain the consent of the OTS pursuant to 12 C.F.R. (section mark)
567.13.
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ANNEX C
[DATE]
Board of Directors
American Savings of Florida, F.S.B.
17801 Northwest Second Avenue
Miami, Florida 33169
Gentlemen and Mesdames:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $0.01 per share (the "Shares"), of
American Savings of Florida, F.S.B. (the "Company") of the Consideration (as
defined below) to be received for the Shares pursuant to the Agreement and Plan
of Merger dated as of December 4, 1994 as amended as of March 27, 1995 between
First Union Corporation ("First Union") and the Company (the "Agreement").
Pursuant to the Agreement, the Company will be merged with Subsidiary (the
"Merger") and each outstanding share will be converted into that number of
shares (or fraction thereof) of Common Stock, par value $3.33 1/3 per share, of
First Union (the "First Union Shares") equal to $21.00 based upon the average of
the closing price per First Union Share on the New York Stock Exchange, Inc.
Composite Tape as more fully set forth in the Agreement (the "Consideration").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
Agreement. We also have provided, and may provide in the future, certain
investment banking services to First Union, for which we receive customary
compensation. Recent investment banking services provided to First Union include
a $300,000,000 debt offering and derivative swap in February 1995, a
$150,000,000 debt offering and derivative swap in August 1994 and a stock
repurchase program in April 1994. Goldman, Sachs & Co. has also managed
offerings of debt and common stock for First Union prior to 1994. In the course
of the trading activities of Goldman, Sachs & Co., we have accumulated a net
[ ] position of [ ] First Union Shares and a net [ ] position of [ ]
in various debentures of First Union.
In connection with this opinion, we have reviewed, among other things, a
draft of the Registration Statement on Form S-4 of First Union dated [ ]; the
Agreement; The Enstar Group, Inc.'s voting agreement with First Union (the
"Holding Company Voting Agreement"); Annual Reports to Stockholders and Annual
Reports on Form 10-K since December 31, 1990 for the Company and since December
31, 1989 for First Union; certain interim reports to stockholders and Quarterly
Reports on Form 10-Q; certain other communications from the Company and First
Union to their stockholders; and certain internal financial analyses and
forecasts for the Company prepared by its management. We also have held
discussions with members of the senior management of the Company and First Union
regarding the past and current business operations, financial condition and
future prospects of their respective companies. In addition, we have reviewed
the reported price and trading activity for the Shares and the First Union
Shares, compared certain financial and stock market information for the Company
and First Union with similar information for certain other companies, the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the commercial banking and savings and loan
industries and performed such other studies and analyses as we considered
appropriate.
Our opinion is directed solely to the Company's Board of Directors and does
not constitute a recommendation to any shareholder as to how to vote with
respect to the Merger. We have relied, without assuming responsibility for the
independent verification of such information, upon the accuracy and completeness
of all of the financial and other information reviewed by us for purposes of
this opinion. We are not experts in the evaluation of loan and lease portfolios
for purposes of assessing the adequacy of the allowances for losses with respect
thereto and have assumed, with your consent, that such allowances for each of
the Company and First Union are in the aggregate adequate to cover all such
losses. In addition, we have not reviewed individual credit files nor have we
made an independent evaluation or appraisal of the assets and liabilities of the
Company or First Union or any of their respective subsidiaries and we have not
been furnished with any such evaluation or appraisal. We also have assumed that
First Union will receive all necessary regulatory approvals without undue delay.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Consideration to be received by the holders of Shares pursuant to the Agreement
is fair to such holders.
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ANNEX D
, 1995
The Board of Directors
American Savings of Florida, F.S.B.
17801 Northwest 2nd Avenue
Miami, Florida 33169
Gentlemen:
We understand that American Savings of Florida, F.S.B. ("American") has
entered into an Agreement and Plan of Merger dated as of December 4, 1994 as
amended as of March 27, 1995 (the "Agreement") with First Union Corporation
("First Union"), whereby American will be acquired by First Union (the
"Transaction"). Pursuant to the Agreement, upon consummation of the Transaction,
each share of American common stock will be converted into the right to receive
$21.00 of First Union common stock on the terms described in the Agreement,
based on the average of the closing prices of First Union common stock for the
ten trading days ending on the day prior to the closing of the Transaction. You
have provided us with a copy of the proxy statement/prospectus in substantially
the form to be sent to the shareholders of American (the "Proxy
Statement/Prospectus"), which includes the Agreement.
We understand that The Enstar Group, Inc. ("Enstar"), the holder of
approximately 48% of American's common stock, has reached a separate agreement
to sell to First Union immediately after closing of the Transaction the shares
of First Union common stock received by Enstar for 3,926,422 shares of American
common stock. The purchase price for such First Union shares shall be $21.00 in
cash for that number of First Union shares received in exchange for each
American common share. The purchase will assure the substantial payment of the
allowed claims of certain creditors of Enstar, including American, under
Enstar's Second Amended Plan of Reorganization, as Modified.
You have asked us to render our opinion as to whether the Transaction is
fair, from a financial point of view, to the shareholders of American.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Proxy Statement/Prospectus;
2. reviewed American's annual reports to shareholders and its annual
reports on Form 10-K for the fiscal years ended December 31, 1990
through 1994;
3. reviewed First Union's annual reports to shareholders and annual
reports on Form 10-K for the fiscal years ended December 31, 1991
through 1994;
4. met with certain members of American's senior management and its legal
and financial advisors to review and discuss American's financial and
operating position, competition, management, employees, status with the
Office of Thrift Supervision and the Federal Deposit Insurance
Corporation, lending procedures, loan portfolio, deposits and branch
network;
5. met with certain members of American's senior management and its
financial advisors to review and discuss certain operating and
financial information including management's revised business plan,
provided to us by the management of American relating to its business
and prospects ("Management's Business Plan");
6. met with the Chairman of Enstar and Enstar's financial and legal
advisors to discuss the status of legal proceedings and other matters
related to the bankruptcy administration of Enstar;
7. reviewed Management's Business Plan, the likelihood of American
achieving the projected results contained therein, and the possible
trading and acquisition valuations for the common shares of American
which could result;
8. reviewed the process used by American's senior management and its
financial advisors to solicit acquisition proposals for American, and
the proposals which were received;
9. met with certain members of First Union's senior management to review
and discuss First Union's financial and operating position and business
prospects;
10. reviewed the historical stock prices and trading volumes of the common
shares of American and First Union;
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11. reviewed publicly available financial data and stock market performance
data of publicly traded financial institutions which we deemed
generally comparable to American;
12. reviewed the terms of recent acquisitions of publicly traded
institutions which we deemed generally comparable to the Transaction;
13. reviewed the terms and structure of the Transaction, including the
anticipated tax treatment of the First Union common stock to be
received by American shareholders; and
14. conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy
and completeness of the financial and other information provided to us by
management, including Management's Business Plan. With respect to Management's
Business Plan, we have assumed the projected financial results contained therein
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of American's management as to American's expected
future performance. We have not assumed any responsibility for independent
verification of the information or projections provided to us and we have
further relied upon the assurances of American's management that it is unaware
of any facts that would make the information or projections provided to us
incomplete or misleading. We have considered a variety of factors that could
affect the achievability of the projections contained in Management's Business
Plan and have considered such alternative scenarios as we deemed appropriate. In
arriving at our opinion, we have not performed or obtained any independent
appraisal of the assets of American or First Union. Our opinion is necessarily
based on economic, market and other conditions, and the information made
available to us, as of the date hereof.
Based on the foregoing, it is our opinion that the Transaction is fair,
from a financial point of view, to the shareholders of American.
Very truly yours,
BEAR, STEARNS & CO. INC
By:
MANAGING DIRECTOR
D-2
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 55-8-50 through 55-8-58 of the NCBCA contain specific provisions
relating to indemnification of directors and officers of North Carolina
corporations. In general, the statute provides that (i) a corporation must
indemnify a director or officer who is wholly successful in his defense of a
proceeding to which he is a party because of his status as such, unless limited
by the articles of incorporation, and (ii) a corporation may indemnify a
director or officer if he is not wholly successful in such defense, if it is
determined as provided in the statue that the director or officer meets a
certain standard of conduct, provided when a director or officer is liable to
the corporation, the corporation may not indemnify him. The statute also permits
a director or officer of a corporation who is a party to a proceeding to apply
to the courts for indemnification, unless the articles of incorporation provide
otherwise, and the court may order indemnification under certain circumstances
set forth in the statute. The statute further provides that a corporation may in
its articles of incorporation or bylaws or by contract or resolution provide
indemnification in addition to that provided by the statute, subject to certain
conditions set forth in the statute.
FUNC's Bylaws provide for the indemnification of FUNC's directors and
executive officers by FUNC against liabilities arising out of his status as
such, excluding any liability relating to activities which were at the time
taken known or believed by such person to be clearly in conflict with the best
interests of FUNC.
FUNC's Articles provide for the elimination of the personal liability of
each director of FUNC to the fullest extent permitted by the provisions of the
NCBCA, as the same may from time to time be in effect.
FUNC maintains directors and officers liability insurance, which provides
coverage of up to $80,000,000, subject to certain deductible amounts. In
general, the policy insures (i) FUNC's directors and officers against loss by
reason of any of their wrongful acts, and/or (ii) FUNC against loss arising from
claims against the directors and officers by reason of their wrongful acts, all
subject to the terms and conditions contained in the policy.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
(2) The Merger Agreement, including the related Stock Option Agreement. (Incorporated by reference to ANNEX A to the
Prospectus/Proxy Statement included in this Registration Statement.)*
(3)(i) Articles of Incorporation of FUNC, as amended. (Incorporated by reference to Exhibit (4) to FUNC's 1990 First
Quarter Report on Form 10-Q and to Exhibit (99)(a) to FUNC's 1993 First Quarter Report on Form 10-Q.)
(3)(ii) By-laws of FUNC, as amended. (Incorporated by reference to Exhibit (4)(b) to FUNC's Form 8-K dated September 20,
1991.)
(4)(a) Statement of Classification of Shares creating the FUNC Series 1990 Preferred Stock. (Incorporated by reference
to Exhibit (3)(c) to FUNC's Registration Statement No. 33-42865.)
(4)(b) Shareholder Protection Rights Agreement, as amended. (Incorporated by reference to Exhibits (4)(b) to FUNC's
Forms 8-K dated December 18, 1990 and October 20, 1992.)
(4)(c) All instruments defining the rights of holders of long-term debt of FUNC and its subsidiaries. (Not filed
pursuant to (4)(iii) of Item 601(b) of Regulation S-K; to be furnished upon request of the Commission.)
(5) Opinion of Marion A. Cowell, Jr., Esq.
(8) Tax opinion of Sullivan & Cromwell. (To be filed by Amendment.)
(12) Computation of Ratio of Earnings to Fixed Charges. (Incorporated by reference to Exhibit (12)(a) to FUNC's 1994
Annual Report on Form 10-K.)
(23)(a) Consent of KPMG Peat Marwick LLP.
(23)(b) Consent of KPMG Peat Marwick LLP.
(23)(c) Consent of Marion A. Cowell, Jr., Esq. (Included in Exhibit (5).)
(23)(d) Consent of Sullivan & Cromwell. (Included in Exhibit (8).)
(23)(e) Consent of Goldman Sachs & Co. (To be filed by Amendment.)
(23)(f) Consent of Bear, Stearns & Co. Inc. (To be filed by Amendment.)
(24) Power of Attorney.
(27) FUNC's Financial Data Schedule. (Incorporated by reference to Exhibit (27) to FUNC's 1994 Annual Report on Form
10-K.)
(99)(a) Form of proxy for the Special Meeting of Stockholders of ASF.
(99)(b) Certain information from ASF's 1994 Annual Report on Form 10-K.
</TABLE>
* Omitted exhibits to be furnished upon request of the Commission.
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ITEM 22. UNDERTAKINGS.
(a)(1) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (as amended and the
rules and regulations thereunder, the "Securities Act"), each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (as amended and the rules and regulations
thereunder, the "Exchange Act") (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(2) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c)
promulgated pursuant to the Securities Act, the issuer undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(3) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415 promulgated
pursuant to the Securities Act, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(4) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions of this Item 22, or otherwise
(other than insurance), the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto, duly authorized, in the City of Charlotte, State of
North Carolina, on March 27, 1995.
FIRST UNION CORPORATION
By: MARION A. COWELL, JR.
MARION A. COWELL, JR.
EXECUTIVE VICE PRESIDENT,
SECRETARY AND GENERAL COUNSEL
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<S> <C>
EDWARD E. CRUTCHFIELD Chairman, and Chief Executive Officer and Director
EDWARD E. CRUTCHFIELD
ROBERT T. ATWOOD Executive Vice President and Chief Financial Officer
ROBERT T. ATWOOD
JAMES H. HATCH Senior Vice President and Corporate Controller (Principal
Accounting Officer)
JAMES H. HATCH
G. ALEX BERNHARDT Director
G. ALEX BERNHARDT
W. WALDO BRADLEY Director
W. WALDO BRADLEY
ROBERT J. BROWN Director
ROBERT J. BROWN
ROBERT D. DAVIS Director
ROBERT D. DAVIS
R. STUART DICKSON Director
R. STUART DICKSON
B.F. DOLAN Director
B.F. DOLAN
RODDEY DOWD, SR. Director
RODDEY DOWD, SR.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<S> <C>
JOHN R. GEORGIUS Director
JOHN R. GEORGIUS
WILLIAM N. GOODWIN, JR. Director
WILLIAM N. GOODWIN, JR.
BRENTON S. HALSEY Director
BRENTON S. HALSEY
HOWARD H. HAWORTH Director
HOWARD H. HAWORTH
TORRENCE E. HEMBY, JR. Director
TORRENCE E. HEMBY, JR.
Director
LEONARD G. HERRING
JACK A. LAUGHERY Director
JACK A. LAUGHERY
MAX LENNON Director
MAX LENNON
RADFORD D. LOVETT Director
RADFORD D. LOVETT
HENRY D. PERRY, JR. Director
HENRY D. PERRY, JR.
RANDOLPH N. REYNOLDS Director
RANDOLPH N. REYNOLDS
RUTH G. SHAW Director
RUTH G. SHAW
LANTY L. SMITH Director
LANTY L. SMITH
Director
DEWEY L. TROGDON
Director
JOHN D. UIBLE
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<S> <C>
B. J. WALKER Director
B. J. WALKER
KENNETH G. YOUNGER Director
KENNETH G. YOUNGER
*By Marion A. Cowell, Jr., Attorney-in-Fact
MARION A. COWELL, JR.
MARION A. COWELL, JR.
</TABLE>
Date: March 27, 1995
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
<S> <C> <C>
(2) The Merger Agreement, including the related Stock Incorporated by reference to ANNEX A to the
Option Agreement. Prospectus/Proxy Statement included in this
Registration Statement.*
(3)(i) Articles of Incorporation of FUNC, as amended. Incorporated by reference to Exhibit (4) to FUNC's
1990 First Quarter Report on Form 10-Q and to Exhibit
(99)(a) to FUNC's 1993 First Quarter Report on Form
10-Q.
(3)(ii) By-laws of FUNC, as amended. Incorporated by reference to Exhibit (4)(b) to FUNC's
Form 8-K dated September 20, 1991.
(4)(a) Statement of Classification of Shares creating the Incorporated by reference to Exhibit (3)(c) to FUNC's
FUNC Series 1990 Preferred Stock. Registration Statement No. 33-42865.
(4)(b) Shareholder Protection Rights Agreement, as amended. Incorporated by reference to Exhibits (4)(b) to FUNC's
Forms 8-K dated December 18, 1990 and October 20,
1992.
(4)(c) All instruments defining the rights of holders of Not filed pursuant to (4)(iii) of Item 601(b) of
long-term debt of FUNC and its subsidiaries. Regulation S-K; to be furnished upon request of the
Commission.
(5) Opinion of Marion A. Cowell, Jr., Esq. Filed herewith.
(8) Tax opinion of Sullivan & Cromwell. To be filed by amendment.
(12) Computation of Ratio of Earnings to Fixed Shares. Incorporated by reference to Exhibit (12)(a) to FUNC's
1994 Annual Report on Form 10-K.
(23)(a) Consent of KPMG Peat Marwick LLP. Filed herewith.
(23)(b) Consent of KPMG Peat Marwick LLP. Filed herewith.
(23)(c) Consent of Marion A. Cowell, Jr., Esq. Included in Exhibit (5).
(23)(d) Consent of Sullivan & Cromwell. Included in Exhibit (8).
(23)(e) Consent of Goldman, Sachs & Co. To be filed by amendment.
(23)(f) Consent of Bears, Stearns & Co. Inc. To be filed by amendment.
(24) Power of Attorney. Filed herewith.
(27) FUNC's Financial Data Schedule. Incorporated by reference to Exhibit (27) to FUNC's
1994 Annual Report on Form 10-K.
(99)(a) Form of proxy for the Special Meeting of Stockholders Filed herewith.
of ASF.
(99)(b) Certain information from ASF's 1994 Annual Report on Filed herewith.
Form 10-K.
</TABLE>
* Omitted exhibits to be furnished upon request of the Commission.
<PAGE>
EXHIBIT (5)
<TABLE>
<S> <C> <C> <C>
FIRST UNION CORPORATION One First Union Center (0013) 225 Water Street (0585)
LEGAL DIVISION Charlotte, North Carolina 28288 Jacksonville, Florida 32202
704 374-6828 904 361-3518
FAX: 704 374-3425 FAX: 904 361-3144
(First MARION A. COWELL, JR.
Union logo Executive Vice President
appears here) General Counsel and
Secretary
Reply to Charlotte Office
</TABLE>
March 27, 1995
Board of Directors
First Union Corporation
Charlotte, North Carolina 28288
Gentlemen:
I have acted as counsel for First Union Corporation (the "Corporation") in
connection with the registration on Form S-4 (the "Registration Statement") of
6,000,000 shares of the Corporation's Common Stock, $3.33 1/3 par value per
share (together with the rights attached thereto, the "First Union Common
Shares"), which are issuable under the terms of an Agreement and Plan of Merger,
(the "Plan"), dated as of December 4, 1994, as amended as of March 27, 1995,
between the Corporation and American Savings of Florida, F.S.B.
On the basis of such investigation as I deemed necessary, I am of the
opinion that:
(1) the Corporation has been duly incorporated and is validly existing
under the laws of the State of North Carolina; and
(2) the First Union Common Shares have been duly authorized and, when
issued in accordance with the terms and conditions set forth in the Plan, will
be validly issued, fully paid and nonassessable.
I hereby consent to the use of my name under the heading "Opinions" in the
Prospectus/Proxy Statement included in the Registration Statement and to the
filing of this opinion as an Exhibit to the Registration Statement.
Very truly yours,
MARION A. COWELL, JR.
The First Union National Banks in North
Carolina (Bullet) Florida (Bullet) Georgia (Bullet) South
Carolina (Bullet) Tennessee (Bullet) Virginia (Bullet) Maryland (Bullet)
District of Columbia
First Union Mortgage Corporation (Bullet) First Union Home Equity Corporation
First Union Brokerage Services, Inc. (Bullet) General Financial Life Insurance
Co. (Bullet) First Union Securities, Inc.
<PAGE>
<PAGE>
EXHIBIT (23)(A)
CONSENT OF KPMG PEAT MARWICK LLP
BOARD OF DIRECTORS
FIRST UNION CORPORATION
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of First Union Corporation of our report on the consolidated
financial statements included in the 1994 Annual Report to Stockholders which is
incorporated by reference in the 1994 Form 10-K of First Union Corporation and
to the reference to our firm under the heading "Experts" in the Proxy
Statement/Prospectus. Our report refers to a change in the method of accounting
for investments in 1994.
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
March 27, 1995
<PAGE>
EXHIBIT (23)(B)
CONSENT OF KPMG PEAT MARWICK LLP
THE BOARD OF DIRECTORS
AMERICAN SAVINGS OF FLORIDA, F.S.B.
We consent to the use of our report included in the Annual Report on Form
10-K of American Savings of Florida, F.S.B. and incorporated herein by reference
and to the reference to our firm under the heading "Experts" in the Proxy
Statement/Prospectus. Our report refers to changes in the methods of accounting
for investments and income taxes in 1993.
KPMG PEAT MARWICK LLP
Miami, Florida
March 27, 1995
<PAGE>
EXHIBIT (24)
FIRST UNION CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers
of FIRST UNION CORPORATION (the "Corporation") hereby constitute and appoint
Marion A. Cowell, Jr. and Kent S. Hathaway, and each of them severally, the true
and lawful agents and attorneys-in-fact of the undersigned with full power and
authority in said agents and attorneys-in-fact, and in any of them, to sign for
the undersigned and in their respective names as directors and officers of the
Corporation, a Registration Statement on Form S-4 to be filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
including any and all amendments to such Registration Statement, relating to the
shares of the Corporation's Common Stock (including the rights attached thereto)
issuable in connection with the acquisition of American Savings of Florida,
F.S.B. by the Corporation.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<S> <C>
EDWARD E. CRUTCHFIELD Chairman, and Chief Executive Officer and Director
EDWARD E. CRUTCHFIELD
ROBERT T. ATWOOD Executive Vice President and Chief Financial Officer
ROBERT T. ATWOOD
JAMES H. HATCH Senior Vice President and Corporate Controller (Principal
Accounting Officer)
JAMES H. HATCH
G. ALEX BERNHARDT Director
G. ALEX BERNHARDT
W. WALDO BRADLEY Director
W. WALDO BRADLEY
ROBERT J. BROWN Director
ROBERT J. BROWN
ROBERT D. DAVIS Director
ROBERT D. DAVIS
R. STUART DICKSON Director
R. STUART DICKSON
B.F. DOLAN Director
B.F. DOLAN
RODDEY DOWD, SR. Director
RODDEY DOWD, SR.
JOHN R. GEORGIUS Director
JOHN R. GEORGIUS
WILLIAM N. GOODWIN, JR. Director
WILLIAM N. GOODWIN, JR.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
BRENTON S. HALSEY Director
BRENTON S. HALSEY
HOWARD H. HAWORTH Director
HOWARD H. HAWORTH
TORRENCE E. HEMBY, JR. Director
TORRENCE E. HEMBY, JR.
Director
LEONARD G. HERRING
JACK A. LAUGHERY Director
JACK A. LAUGHERY
MAX LENNON Director
MAX LENNON
RADFORD D. LOVETT Director
RADFORD D. LOVETT
HENRY D. PERRY, JR. Director
HENRY D. PERRY, JR.
RANDOLPH N. REYNOLDS Director
RANDOLPH N. REYNOLDS
RUTH G. SHAW Director
RUTH G. SHAW
LANTY L. SMITH Director
LANTY L. SMITH
Director
DEWEY L. TROGDON
Director
JOHN D. UIBLE
B. J. WALKER Director
B. J. WALKER
KENNETH G. YOUNGER Director
KENNETH G. YOUNGER
</TABLE>
February 21, 1995
Charlotte, NC
<PAGE>
EXHIBIT 99(A)
FORM OF PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS OF ASF
<PAGE>
EXHIBIT 99(A)
FORM OF PROXY
REVOCABLE PROXY
AMERICAN SAVINGS OF FLORIDA, F.S.B.
ANNUAL MEETING OF STOCKHOLDERS
MAY 23, 1995
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
The undersigned hereby appoints Steven D. Taylor and Alan B. Goldstein, or
either of them, as proxies, each with full power of substitution, to act as
attorneys and proxies for the undersigned, to vote all shares of Common Stock of
American Savings of Florida, F.S.B. which the undersigned is entitled to vote at
the Annual Meeting of Stockholders, to be held at its Executive Offices, 17801
N.W. Second Avenue, Miami, Florida on Tuesday, May 23, 1995 at 10:00 a.m., Miami
time, and at any and all adjournments thereof, as stated on the reverse side.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR ITEMS 1, 2 AND 4 AND FOR ALL NOMINEES LISTED IN
ITEM 3. PURSUANT TO AMERICAN SAVINGS' BYLAWS, IF ANY OTHER BUSINESS IS PRESENTED
AT THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF, THIS PROXY
WILL BE VOTED BY THE ABOVE-NAMED PROXIES AS DETERMINED BY A MAJORITY OF THE
BOARD OF DIRECTORS. IF NO DETERMINATION IS MADE, THIS PROXY WILL BE VOTED BY THE
PROXIES IN THEIR OWN JUDGMENT. THE FOUR PROPOSALS SET FORTH ON THE REVERSE SIDE
OF THIS PROXY HAVE BEEN PROPOSED FOR CONSIDERATION BY AMERICAN SAVINGS. THE
BOARD OF DIRECTORS CURRENTLY KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE
ANNUAL MEETING. IF THE MERGER AGREEMENT BETWEEN AMERICAN SAVINGS AND FIRST UNION
CORPORATION IS TERMINATED PRIOR TO THE ANNUAL MEETING, THIS PROXY WILL BE VOTED
FOR ITEM 4 AND FOR ALL NOMINEES LISTED IN ITEM 3.
A stockholder may revoke a proxy before it is exercised at the Annual Meeting
by notifying the Secretary of American Savings in writing of the revocation, by
completing, signing and delivering to the Secretary a later-dated proxy or by
attending the Annual Meeting and voting in person, with respect to the same
proposal(s) as referenced in the proxy to be revoked. Attendance at the Annual
Meeting without further action will not automatically revoke a proxy.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
[] Please mark votes as in this example.
1. To approve the proposed Agreement and Plan of Merger entered into between
American Savings and First Union Corporation, dated as of December 4, 1994,
as amended as of March 27, 1995, and the proposed merger of American Savings
into a subsidiary national bank of First Union Corporation.
[] FOR [] AGAINST [] ABSTAIN
2. To adjourn the Annual Meeting to another time and/or place in the event that
there are not sufficient votes at the time of the Annual Meeting to approve
the merger and the merger agreement for the purpose of soliciting additional
votes in favor of the merger and the merger agreement, the election of each
of the nine nominees for director and the ratification of KPMG Peat Marwick
LLP as independent auditors. [] FOR [] AGAINST [] ABSTAIN
3. To elect as directors of American Savings each of the following nominees:
Erwin Allen, T. Wayne Davis, William H. Dukelow, Nimrod T. Frazer, Barbara W.
Gothard, Charles Daniel Kimbrel, Deirdre Y. Russell, Donald T. Senterfitt,
and Stephen D. Taylor (except as written contrary below). [] FOR [] WITHHELD
For, except vote withheld from the following nominee(s):
4. To ratify the appointment of KPMG Peat Marwick LLP as independent auditors
for the fiscal year ending December 31, 1995.
FOR AGAINST ABSTAIN
OTHER BUSINESS
The proxies are authorized to vote, in the manner described on the front of this
Proxy, upon such other business as may properly come before the Annual Meeting
and any adjournment or postponement thereof.
Mark Here For Address Change Note Below []
Please sign exactly as your name appears on this card. When signing as
attorney-in-fact, personal or legal representative, executor, administrator,
trustee or guardian, please give your full title. If more than one trustee or
joint owner, all should sign. If a corporation, partnership or other entity,
please sign in full company name by an authorized person.
Dated:
Signature
Signature
PLEASE COMPLETE, DATE, SIGN, AND MAIL
THIS PROXY PROMPTLY IN THE ENCLOSED
ADDRESSED ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
EXHIBIT 99(B)
CERTAIN INFORMATION FROM ASF'S 1994 ANNUAL REPORT ON FORM 10-K
<PAGE>
FORM 10-K
OFFICE OF THRIFT SUPERVISION
WASHINGTON, D.C. 20552
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from..........to..........
Office of Thrift Supervision Docket Number: 5405
AMERICAN SAVINGS
OF FLORIDA, F.S.B.
(Exact name of registrant as specified in its charter)
U.S.A. 59-0618272
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
17801 Northwest 2nd Avenue
Miami, Florida 33169-5089
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 653-5353
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the shares of Common Stock, $.01 par value,
held by non-affiliates of the registrant at the closing sales price on
February 28, 1995 of $20 1/8: $102,470,583.
Number of shares of Common Stock, $.01 par value, outstanding at the
close of business on February 28, 1995: 11,724,610.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for its 1995 Annual Meeting
of Shareholders are incorporated by reference into Part III.
<PAGE>
TABLE OF CONTENTS
GLOSSARY iii
PART I
Item 1. BUSINESS 1
Background 1
Business of American Savings 3
Yields Earned and Rates Paid 4
Sources of Funds 5
Other Retail Activities 5
Lending Activities 6
Loan Servicing Rights 12
Mortgage-Backed Securities and Investment Securities 13
Employees 13
Competition 13
Regulation 14
EXECUTIVE OFFICERS OF THE REGISTRANT 26
Current Executive Officers of American Savings 26
Former Executive Officers of American Savings Who Served
During the Fiscal Year Ended December 31, 1994 28
Item 2. PROPERTIES 29
Retail Branch Offices 29
Mortgage Offices 30
Consumer Lending Office 31
Developed Land - Former Retail Branches Not Currently Used 31
Data Processing Equipment 31
Item 3. LEGAL PROCEEDINGS 31
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 34
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 34
Common Stock 34
Item 6. SELECTED FINANCIAL DATA 35
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 37
Recent Developments 37
Financial Condition 37
Results of Operations 44
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 52
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 52
i
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 52
Item 11. EXECUTIVE COMPENSATION 52
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 52
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 52
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K52
ii
<PAGE>
GLOSSARY
401(k) Plan A tax-qualified defined contribution benefit
plan, under Section 401(k) of the Code
Alabama Bankruptcy Court The United States Bankruptcy Court for the
Middle District of Alabama
ALCO Asset/Liability Management Committee
American Savings American Savings of Florida, F.S.B.
American Savings Common Stock Common Stock, $.01 par value, of American
Savings
American Savings Distribution The distribution on March 6, 1990 by Enstar
Group of 50% of the issued and outstanding
shares of American Savings Common Stock to a
trust established for the benefit of Enstar
Group's shareholders of record on March 6, 1990
American Securities American Securities Investment Corp., a wholly-
owned subsidiary of American Savings
AMTI Alternative minimum taxable income, as
described in Part I, Item 1. Business -
"Regulation - Taxation" of this Form 10-K
ARM Adjustable rate mortgage
Bank Group General Homes' secured lenders, including
American Savings, under a revolving credit
agreement named in the General Homes Amended
Complaint
Bankruptcy Code The federal Bankruptcy Code
Bankruptcy Plan Enstar Group's Second Amended Plan of
Reorganization, as modified
BHCA Bank Holding Company Act of 1956, as amended
BIF Bank Insurance Fund, Administered by FDIC
Board The Board of Directors of American Savings
Capital Directive The capital directive entered by OTS, with the
consent of American Savings, on January 17,
1992, pursuant to Resolution No. ATL 92-3,
rescinded on March 1, 1994
Capital Maintenance Agreement The Regulatory Capital Maintenance/Dividend
Agreement among Enstar Group, a subsidiary of
Enstar Group and the Federal Savings and Loan
Insurance Corporation, which was a condition to
and became effective upon the acquisition by
Enstar Group of American Savings in April 1988
Claim American Savings' allowed claim under the
Bankruptcy Plan
CMOs Collateralized mortgage obligations
iii
<PAGE>
Code Internal Revenue Code of 1986, as amended
CRA Community Reinvestment Act
Enstar Consolidated Group The consolidated group of which Enstar Group
was the common parent for federal income tax
reporting purposes for the period from April 1,
1988 through March 6, 1990
Enstar Group The Enstar Group, Inc., formerly having the
name Kinder-Care, Inc.
FDIA Federal Deposit Insurance Act, as amended
FDIC Federal Deposit Insurance Corporation
FHA Federal Housing Administration
FHFB Federal Housing Finance Board
FHLB Federal Home Loan Bank
FHLBA Federal Home Loan Bank Act, as amended
FHLB Advances Borrowings from the FHLB of Atlanta
FHLB System Federal Home Loan Bank System
FHLBB Federal Home Loan Bank Board, a predecessor of
OTS
FHLMC Federal Home Loan Mortgage Corporation
FICO Financing Corporation, a corporation owned by
the FHLBs established to issue bonds to
partially fund the Federal Savings and Loan
Insurance Corporation and, since enactment of
FIRREA, issues bonds to partially fund the FRF
FIRREA Financial Institutions Reform, Recovery, and
Enforcement Act of 1989
First Union First Union Corporation
First Union Common Stock Common Stock, $3.33 1/3 par value per share, of
First Union
First Union Subsidiary A subsidiary of First Union with and into which
American Savings would merge under the Merger
Agreement, subject to satisfaction of certain
conditions, upon consummation of the Merger
Florida Department Florida Department of Banking and Finance
FNMA Federal National Mortgage Association
Form 10-K American Savings' Annual Report on Form 10-K
for the fiscal year ended December 31, 1994
FRB Board of Governors of the Federal Reserve
System
gap Asset/liability maturity gap
iv
<PAGE>
GAAP Generally accepted accounting principles
General Homes General Homes Corporation
General Homes Amended Complaint
The pending amended complaint filed by the
General Homes Creditors' Committee on August
16, 1991, described in Part I, Item 3. Legal
Proceedings of this Form 10-K
General Homes Creditors' Committee
The Unsecured Creditors' Committee designated
in General Homes' bankruptcy proceedings
described in Part I, Item 3. Legal Proceedings
of this Form 10-K
General Homes Plan Plan of reorganization of General Homes and
FGMC, its wholly-owned subsidiary
GNMA Government National Mortgage Association
HOLA Home Owners' Loan Act of 1933, as amended
interest rate swap Agreement to assume fixed interest payments in
exchange for variable market-indexed interest
payments
IRR Interest rate risk
LPO Loan production office
MBSs Mortgage-backed securities
Management's Discussion Part II, Item 7. Management's Discussion and
Analysis of Financial Condition and Results of
Operations of this Form 10-K
Merger Proposed merger of American Savings with and
into the First Union Subsidiary contemplated by
the Merger Agreement
Merger Agreement Agreement and Plan of Merger, dated as of
December 4, 1994, between American Savings and
First Union
Merger Effective Date The effective date of the Merger, as defined in
the Merger Agreement
NASDAQ National Association of Securities Dealers
Automated Quotations System
Note(s) Note(s) to the Consolidated Financial
Statements of American Savings and its
subsidiaries contained in this Form 10-K
NPV Net portfolio value
OTS Office of Thrift Supervision of the U.S.
Department of the Treasury
PCCRs Purchased credit card relationships
PMSRs Purchased mortgage servicing rights
QTL Qualified thrift lender
V
<PAGE>
Refcorp A corporation, owned by the FHLBs, to issue
bonds to partially fund the RTC
Riegle Act The Riegle Community Development and Regulatory
Improvement Act of 1994
RNA The Riegle-Neal Interstate Banking and
Branching Efficiency Act
REO Real estate owned
repos Purchases of securities with simultaneous
agreements to resell the securities at a
designated price and date
reverse interest rate swaps Agreements to assume variable market - indexed
interest payments in exchange for fixed
interest payments
reverse repos Sales of securities with simultaneous
agreements to repurchase the securities at a
designated price and date
SAIF Savings Association Insurance Fund,
administered by the FDIC
Sallie Mae Student Loan Marketing Association
SCLs Syndicated corporate loans
SFAS Statement of Financial Accounting Standards
TDR Troubled debt restructuring
Texas Bankruptcy Court The United States Bankruptcy Court for the
Southern District of Texas
UCUS Unimpaired capital and unimpaired surplus
USAF United Student Aid Funds
VA Veterans Administration
Voting Agreement Shareholder Voting Agreement, dated as of
December 4, 1994, between Enstar Group and
First Union pursuant to which among other
things, Enstar Group agreed to vote all of its
shares of American Savings Common Stock in
favor of the Merger and the Merger Agreement
vi
<PAGE>
PART I
Item 1. BUSINESS
Defined terms used in this Form 10-K have the meanings ascribed to them in the
Glossary.
Background
General
American Savings, headquartered in Miami, Florida, was originally chartered in
1950 by the Florida Department as a mutual savings and loan association and
was converted into a Florida capital stock savings and loan association in
1976. On May 14, 1991, American Savings converted into a federally-chartered
stock savings bank. American Savings is one of the largest thrift
institutions headquartered in Florida based on total assets. At December 31,
1994 American Savings had assets of $3.6 billion and operated a network of 29
retail offices in Dade, Broward and Palm Beach counties, eight LPOs in Florida
and two LPOs in Chicago. American Savings is a member of the FHLB System and
its deposits are federally insured.
As of January 31, 1995, Enstar Group owned approximately 48.5% of the
outstanding shares of American Savings Common Stock. The remaining shares are
publicly held and trade on The Nasdaq Stock Market under the symbol "ASFL".
Enstar Group is a unitary savings and loan holding company of American
Savings.
For further information about the organizational history of American Savings,
see Note 1.
Recent Developments
On December 4, 1994, American Savings and First Union entered into the Merger
Agreement. Pursuant to the terms of the Merger Agreement, American Savings
will merge with and into the First Union Subsidiary. Upon consummation of the
Merger, each share of American Savings Common Stock outstanding immediately
prior to the Merger Effective Date (expected to be in mid-1995) will be
converted into the right to receive that number of shares of First Union
Common Stock, equal to the quotient of $21.00 divided by the average of the
closing prices of First Union Common Stock as reported on the Composite
Transactions Tape of the New York Stock Exchange, Inc. for each of the ten
consecutive trading days ending on and including the trading day immediately
preceding the Merger Effective Date, with cash in lieu of the issuance of any
fractional share interest. Each share of First Union Common Stock issued in
the Merger will be accompanied by one right to purchase certain securities
under certain circumstances in accordance with First Union's Shareholder
Protection Rights Agreement, dated December 18, 1990, as amended. The Merger
is intended to constitute a tax free reorganization under the Code.
Immediately following execution of the Merger Agreement, American Savings
granted to First Union an option to purchase up to 2,288,700 shares of newly
issued American Savings Common Stock (which have been reserved for issuance),
for a purchase price per share of $19 9/16; provided that the number of shares
for which the option is exercisable shall not exceed 19.9% of American Savings
Common Stock outstanding at the time of exercise, without giving effect to the
shares issued or issuable under the option. First Union may exercise the
option, in whole or in part, at any time following the happening of certain
events, including, among others (i) American Savings taking certain actions,
without First Union's prior written consent, including, among others,
authorizing, recommending or entering into an agreement with any third party
to effect (a) a merger, consolidation or similar transaction involving
American Savings, (b) any disposition of 20% or more of the consolidated
assets or deposits of American Savings, or (c) the issuance, sale or other
disposition of 20% or more of the voting power of American Savings; or (ii)
the acquisition by any third party of the beneficial ownership, or the right
to acquire beneficial ownership, of 20% or more (or if such party is the
beneficial owner of 20% or more on December 4, 1994, such party acquires an
additional 5% or more) of the voting power of American Savings, without First
Union's prior written consent.
In addition, Enstar Group entered into the Voting Agreement pursuant to which,
among other things, Enstar Group agreed to vote all of its shares of American
Savings Common Stock in favor of the Merger and the Merger Agreement. The
Voting Agreement also sets forth certain matters relating to payment of the
Claim and certain other allowed claims under the Bankruptcy Plan. The Voting
Agreement provides that pursuant to an
<PAGE>
escrow agreement (the "Escrow
Agreement"), Enstar Group will place in escrow with First Union National Bank
of North Carolina, as escrow agent, 3,926,422 shares of American Savings
Common Stock held by it (the "Escrowed Shares") pending consummation of the
Merger. First Union has agreed to repurchase the shares of First Union Common
Stock into which the Escrowed Shares are to be converted on the Merger
Effective Date for an aggregate purchase price of $82,454,865.80 to facilitate
the payment of the allowed claims of certain creditors of Enstar Group under
the Bankruptcy Plan, including payment to the First Union Subsidiary, as
successor to American Savings, of all or substantially all of the Claim.
The Merger Agreement also provides that, in connection with the Merger, each
holder of a stock option issued pursuant to American Savings' director and
employee stock option and incentive plans which is outstanding immediately
prior to the Merger Effective Date will receive a cash payment in an amount
equal to the excess of $21.00 over the exercise price of the option, and the
option will be cancelled.
Consummation of the Merger is subject to certain conditions, including without
limitation: (i) receipt of all required regulatory approvals; and (ii)
receipt of the affirmative vote of the holders of at least: (a) two-thirds of
the issued and outstanding shares of American Savings Common Stock; and (b) a
majority of the Public Shares (as defined hereinafter) represented and voted
at the meeting of shareholders of American Savings to be held to approve the
Merger Agreement and the Merger. "Public Shares" means all of the issued and
outstanding shares of American Savings Common Stock other than those
beneficially owned (as defined in Rule 13d-3 of the Securities Exchange Act of
1934, as amended) by Enstar Group, its officers and directors, and the
directors and certain officers of American Savings.
The Merger Agreement may be terminated, and the Merger abandoned, at any time
prior to the Merger Effective Date (i) by mutual consent of First Union and
American Savings; (ii) by either First Union or American Savings (a) if the
stockholders of American Savings fail to approve the Merger and the Merger
Agreement as described in the preceding paragraph, (b) in the event of a
breach by the other party of any representation or warranty contained in the
Merger Agreement, which breach is not cured after 30 days' written notice
thereof is given to the party committing such breach and which breach would
result in a failure to satisfy any of the conditions to the consummation of
the Merger Agreement, (c) in the event of a material breach by the other party
of any of the covenants or agreements contained in the Merger Agreement, which
breach is not cured after 30 days' written notice thereof is given to the
party committing such breach; (d) if any required governmental approval has
been denied or required to be withdrawn, or the applicable governmental
authority has indicated an intention to deny or impose a condition or
requirement which generally would materially adversely impact the economic or
business benefits to First Union of the Merger; (e) if a court order restrains
or prohibits the Merger or any action is taken by any governmental authority
which would make the Merger illegal; or (f) if the Merger is not consummated
on or before August 25, 1995, provided that the party seeking to terminate the
Merger is not in breach of any of the covenants or agreements of the Merger
Agreement; (iii) by First Union if the Board fails to recommend the Merger to
its stockholders or withdraws, modifies or changes its recommendation of the
Merger or the Merger Agreement to the stockholders of American Savings in a
manner adverse to First Union; or (iv) by American Savings, if in the exercise
of its good faith judgment as to its fiduciary duties to its stockholders the
Board determines that such termination is required, and American Savings shall
have agreed to a competing transaction.
Enstar Group Chapter 11 Proceedings
On May 31, 1991, Enstar Group filed in the Bankruptcy Court (Case No. 91-
02618) for protection under Chapter 11 of the Bankruptcy Code. Enstar Group's
plan of reorganization became effective on June 1, 1992. On August 25, 1993,
the Bankruptcy Court confirmed the Bankruptcy Plan in accordance with proposed
modifications filed by Enstar Group in May 1993.
The Capital Maintenance Agreement provides that Enstar Group is obligated to
maintain American Savings' regulatory capital at required levels. The Capital
Maintenance Agreement also provides that if American Savings does not meet a
capital ratio test stated in the agreement and Enstar Group fails to infuse
sufficient additional equity to restore American Savings' capital ratio to the
required level, OTS has the right, among other things, to vote the American
Savings Common Stock held by Enstar Group, to remove the Board, or to dispose
of any or all of the American Savings Common Stock held by Enstar Group. At
December 31, 1990, American Savings
2
<PAGE>
did not meet the regulatory capital requirements of OTS. On May 30, 1991,
OTS delivered to Enstar Group formal notice of default under the Capital
Maintenance Agreement and demanded that Enstar Group immediately infuse into
American Savings sufficient equity capital to cause American Savings to comply
with its regulatory capital requirements. Enstar Group did not infuse the
requisite additional capital.
OTS confirmed, on December 2, 1994, that, to the extent that any transactions
contemplated under the Voting Agreement and the Escrow Agreement would require
that a conveyance of Escrowed Shares be recorded on American Savings' transfer
records, OTS waives the prohibition under the Capital Maintenance Agreement
with respect to that recording.
On December 2, 1994 and again on January 26, 1995, OTS agreed to allow Enstar
Group to vote the shares of American Savings which it owns.
Generally, under the Bankruptcy Plan, American Savings is entitled to receive
66.66% of all distributions from the bankruptcy estate until American Savings'
allowed claim is paid in full, but may not participate in the proceeds from
the sale of Enstar Group's American Savings Common Stock, until certain other
classes of creditors have been paid in full. Thereafter, American Savings
would be entitled to receive all distributions of remaining property, if any,
from the estate, including proceeds from the sale of American Savings Common
Stock, until its allowed claim is paid in full. In June 1992, Enstar Group's
bankruptcy estate distributed $4,006,000 to American Savings, reducing
American Savings' allowed claim from $36,000,000 to $31,994,000. American
Savings included this distribution in income in 1992. For a discussion of an
anticipated distribution in satisfaction of a portion of American Savings'
Claim, see Part I, Item 3. Legal Proceedings and Note 25(B).
Under the Bankruptcy Plan, Enstar Group is obligated to sell or distribute the
American Savings Common Stock it owns before June 1, 1995, unless otherwise
agreed by certain classes of creditors whose claims have not been satisfied.
Upon the demand of certain classes of creditors, other than American Savings,
for a sale or distribution of a portion of the American Savings Common Stock,
Enstar Group would be required within 180 days to either: (i) sell the lesser
of the American Savings Common Stock necessary to pay the creditors' claims in
full or the class's pro rata share of the American Savings Common Stock, (ii)
borrow funds to pay the claims using no more than the creditors' portion of
the American Savings Common Stock and certain potential recoveries from
litigation as collateral, or (iii) distribute in kind to the creditors,
subject to regulatory approval, the lesser of their pro rata share of the
American Savings Common Stock or the number of shares necessary to pay their
claims in full.
The Bankruptcy Plan, among other things, also provides for (i) the payment of
interest at the annual rate of 4.26% on unpaid claims of certain classes of
creditors, including American Savings, from June 1, 1992, but only after
American Savings' allowed claim is paid in full, (ii) a class of creditors
consisting of foreign bearer bond holders who surrendered their bonds after
applicable deadlines under Enstar Group's original plan of reorganization,
which class will be entitled to distributions only after the Claim is paid in
full with interest, (iii) the establishment of a tax reserve to be funded from
property of Enstar Group to provide for any state or federal tax obligations,
and (iv) a restriction, generally, on the transfer of claims after August 25,
1993. In addition, the Bankruptcy Plan provides that if all other creditors
are paid in full, the former Enstar Group shareholders would be entitled to
receive a distribution of the remaining property of the estate, if any, pro
rata, or, at the option of Enstar Group, shares of new common stock of Enstar
Group. Under Enstar Group's plan of reorganization, all of the outstanding
shares of Enstar Group common stock were cancelled and new common stock was
issued to a trustee. Under the Bankruptcy Plan, the new common stock of
Enstar Group held by the estate's trustee continues to be held for the benefit
of certain unsecured creditors, including American Savings, but only until
their claims are paid in full.
For a discussion of provisions of the Voting Agreement and the related Escrow
Agreement addressing the payment of American Savings' Claim, see "Recent
Developments."
Business of American Savings
American Savings' principal business is attracting deposits from the public
and originating and investing in residential real estate mortgage and consumer
loans and investing in MBSs such as those issued or guaranteed
3
<PAGE>
by FNMA, FHLMC or GNMA, and has included privately issued MBSs. American
Savings' primary sources of revenues are interest earned on mortgage loans
and MBSs, fees earned in connection with loans and deposits and income earned
on its portfolio of loans serviced for others. Its principal expense is
interest incurred on interest bearing liabilities, including deposits and
borrowings.
Pursuant to the Merger Agreement, until the consummation of the Merger,
American Savings has agreed to operate its business only in the ordinary and
usual course, consistent with past practice, subject to restrictions contained
in the Merger Agreement. For further information regarding American Savings'
conduct of its business operations prior to the Merger, see Management's
Discussion - "Recent Developments." American Savings' operating strategy has
emphasized traditional thrift activities uniquely suited to community needs
through the expansion of its retail banking activities and loan originations.
In particular, efforts to achieve continuing core earnings focus primarily on
strengthening (1) originations of residential first and second mortgage loans
and multifamily first mortgage loans on existing properties, (2) the indirect
automobile lending business, (3) residential land and construction lending and
(4) student lending. In 1994, American Savings continued its efforts to
become a super community bank and to broaden and deepen banking relationships,
through service, product diversification, sales energy and a concern for its
customers' needs, while continuing to follow solid credit principles and
seeking to manage its costs and interest rate risk effectively. American
Savings expects to continue this operating strategy as permitted under the
Merger Agreement.
American Savings' operations are influenced by general economic conditions,
policies of the federal government and regulatory policies of governmental
authorities. Deposit flows and interest costs to American Savings are
influenced by interest rates on competing investments and market interest
rates. Additionally, American Savings' loan originations and yields thereon,
and the level of prepayments on such loans are affected by market interest
rates on loans and additional factors affecting the supply and demand for
housing and other major consumer purchases.
Yields Earned and Rates Paid
American Savings' operating results depend to a significant degree on the
spread between the interest income it receives from loans and investments and
the interest cost of deposits and borrowings. Certain statistical data
regarding the yield on interest-earning assets and the cost of interest-
bearing liabilities is set forth below:
<TABLE>
<CAPTION>
At
December 31, Years Ended December 31,
1994 1994 1993 1992
<S> <C> <C> <C> <C>
Average yield on MBSs 5.72 % 5.38 % 5.59 % 7.31 %
Average yield on loans 7.16 % 6.76 % 6.92 % 8.47 %
Average yield on assets
available for sale 5.56 % 5.20 % - -
Average yield on assets held
for sale 7.78 % 7.15 % 6.64 % 6.44 %
Average yield on investments 7.17 % 6.40 % 5.35 % 4.35 %
Average yield on all
interest-earning assets 6.67 % 6.24 % 6.28 % 7.39 %
Average rate paid on deposits 3.99 % 3.51 % 3.55 % 4.81 %
Average rate paid on borrowed
funds 5.79 % 4.65 % 5.18 % 6.04 %
Average rate on all
interest-bearing liabilities 4.49 % 3.80 % 3.89 % 5.03 %
Interest rate spread 2.18 % 2.44 % 2.39 % 2.36 %
Net interest margin 2.26 % 2.50 % 2.43 % 2.30 %
Return on average total assets N/A 0.58 % 0.93 % 1.40 %
Return on average common equity N/A 9.16 % 15.14 % 29.17 %
Average common equity to average
total assets N/A 6.29 % 6.12 % 4.80 %
Dividends declared per share
to net income per share N/A N/A N/A N/A
N/A = not applicable
</TABLE>
See Management's Discussion - "Results of Operations."
4
<PAGE>
Sources of Funds
General
The largest source of funds for American Savings is deposits. However,
currently, American Savings' sources of new funds are primarily MBSs, CMOs and
loan repayments and reverse repos and borrowings from the FHLB of Atlanta.
Scheduled MBS, CMO and loan repayments are a relatively stable source of
funds, while MBS, CMO and loan prepayments and deposit flows may vary widely.
See Management's Discussion - "Financial Condition -Changes in Consolidated
Financial Condition," "Asset/Liability Management" and " - Results of
Operations - Net Interest Income."
Deposits
Deposits have traditionally been American Savings' primary source of funds for
lending, investing and other general business purposes. In 1994, American
Savings continued to pursue its goal of developing its retail customer base in
southeast Florida through a network of retail branch offices in Dade, Broward
and Palm Beach Counties. American Savings has implemented innovative programs
and products to attract additional customers and to maintain its relationships
with existing customers by developing community oriented banking initiatives
that specifically address the needs of its customers. These actions are
designed to improve overall profitability of the retail banking franchise by
increasing market penetration and enhancing household relationships.
Regulatory authorities do not prescribe a maximum rate of interest that
American Savings may pay on deposits other than demand deposits, on which the
payment of interest is prohibited. American Savings does not have and does
not intend to acquire deposits through brokers. See Note 14 for the
composition of scheduled maturities and interest expense by type of American
Savings' deposits.
If American Savings were completely liquidated, accountholders' claims for the
amounts of their deposit accounts would have priority over payments to
shareholders and would receive the protection of insurance by the FDIC up to
applicable limits. Other than these claims and this protection,
accountholders would have no other interest in the value of American Savings.
Borrowings
American Savings borrows funds from the FHLB of Atlanta on the security of the
FHLB capital stock owned by it and certain of its MBSs and first mortgage
loans pledged as collateral. For further information regarding FHLB Advances
see "Regulation - Federal Law - Federal Home Loan Banks" and Note 16.
American Savings also obtains funds from short-term borrowings, which are
principally composed of reverse repos. For further information regarding
short-term borrowings, see Note 15. Reverse repos are deemed to be secured
borrowings and are normally executed for short terms, typically less than 90
days. The proceeds are generally used to fund loan originations, purchase
loans and securities or compensate for deposit fluctuations. American Savings
limits excess collateralization of reverse repos to amounts allowed under
FHLBB Memorandum R6-2.
On February 1, 1989, American Savings issued $150,000,000 aggregate principal
amount of fixed-rate, 9.75% Mortgage-Backed Notes, Series C due February 1,
1994. American Savings replaced these borrowings with reverse repos in 1994.
See Notes 15, 16, 17 and 19 for further information regarding borrowed funds
of American Savings and related collateral and interest rate exchange
agreements.
Other Retail Activities
American Savings leases office space in its retail facilities to American
Securities, which contracts with an unaffiliated company (licensed as a
securities broker/dealer) for the distribution of securities to the public,
including American Savings' customers. American Securities also subleases
space to a corporate affiliate of the third party to distribute insurance
products, such as annuities. The U.S. Supreme Court has upheld rulings of the
Comptroller of the Currency authorizing national banks to sell annuities. The
impact of this decision on the
5
<PAGE>
ability of financial institutions in Florida to offer insurance products
directly or through third party providers is under review by a Florida
appellate court. Pretax income from these retail activities amounted to
$1,674,000 and $1,240,000 for the years ended December 31, 1994 and 1993,
respectively. The income expected to be derived from these activities in
1995 is not expected to remain at 1994 levels.
Lending Activities
General
American Savings' lending operations currently are divided into the following
primary lending functions: permanent residential real estate lending,
residential land and construction lending, commercial real estate lending and
consumer lending (including automobile loans, guaranteed student loans and
home equity lines of credit). See "Regulation - Federal Law - Loans to One
Borrower" and " - Qualified Thrift Lender" regarding restrictions on American
Savings' lending activities. See "Regulation - Florida Law" for a discussion
of the maximum interest rates American Savings may charge on loans.
The following table sets forth a summary of American Savings' loan portfolio
and the percentage of each category to total loans for the dates presented.
<TABLE>
<CAPTION>
Loan Portfolio
(dollars in thousands)
December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Permanent Residential
Mortgages
First mortgage loans
Fixed rate $ 386,775 19% $ 415,646 26% $ 353,571 29% $ 375,503 36% $374,881 31%
Variable rate 1,001,435 50 824,040 51 597,494 48 268,596 26 288,119 23
Second mortgage loans 256,380 13 115,389 7 24,016 2 - - - -
Residential Construction
and Land Loans 78,523 4 35,915 2 9,371 1 28,516 3 66,715 5
Commercial Real Estate
Construction 2,633 - 1,602 - 1,150 - 8,070 1 16,600 1
Permanent 105,422 5 77,017 5 86,948 7 90,936 9 106,161 9
Other 1,555 - 2,717 - 14,663 1 7,030 1 11,511 1
Corporate 13,191 1 22,168 1 53,046 4 120,585 11 195,289 16
Consumer 168,395 8 123,360 8 97,213 8 141,192 13 169,371 14
2,014,309 100% 1,617,854 100% 1,237,472 100% $1,040,428 100% $1,228,647 100%
Less
Unearned fees and net
(premiums) discounts (1,135) 1,219 5,625 6,703 7,682
Net purchased
(premiums) discounts (13,131) (18,025) (8,934) 252 105
Purchase valuation
discounts 3,582 5,989 7,153 9,881 12,571
Undisbursed commitments 57,782 30,708 22,246 48,339 77,695
Allowance for losses 19,087 20,452 35,435 29,933 45,330
$1,948,124 $1,577,511 $1,175,947 $ 945,320 $1,085,264
</TABLE>
6
<PAGE>
The following table sets forth information at December 31, 1994 regarding
amounts of loans maturing in American Savings' portfolio based on contractual
terms to maturity. Loans having no stated schedule of repayments or stated
maturity are reported as due in one year or less.
<TABLE>
<CAPTION>
Maturity Table
(in thousands)
Residential
Due in the Permanent Construction Commercial
Years Ending Residential and Land Real Estate Corporate Consumer Total
December 31, Loans Loans Loans Loans Loans Loans
<S> <C> <C> <C> <C> <C> <C>
1995 $ 471 $ 25,893 $ 25,074 $ 494 $ 24,587 $ 76,519
1996 3,224 26,811 945 3,128 8,277 42,385
1997 8,523 25,819 11,687 6,666 10,750 63,445
1998-99 22,724 - 16,890 980 122,287 162,881
2000-2004 298,687 - 36,253 1,923 2,310 339,173
2005-2009 290,028 - 15,640 - 144 305,812
2010-thereafter 1,020,933 - 3,121 - 40 1,024,094
$1,644,590 $ 78,523 $ 109,610 $ 13,191 $ 168,395 2,014,309
Less:
Undisbursed portion of loans in process 57,782
Unearned fees, premiums and discounts (10,684)
Allowance for loan losses 19,087
Total loans, net $1,948,124
Total fixed rate loans due after one year $ 845,401
Total variable rate loans due after one year 1,092,389
Total loans due after December 31, 1995 $1,937,790
</TABLE>
Further information concerning the composition of American Savings' loan
portfolio is set forth in Note 9.
Real property securing American Savings' loans is required to be appraised by
qualified independent appraisers selected and approved by (or, in the case of
purchased loans, acceptable to) American Savings in conformity with the rules
and regulations of applicable governmental authorities. Title, fire and
hazard insurance is required on property securing real estate loans.
Additionally, builders' risk and liability insurance is required on
residential land and construction loans and liability insurance is required on
commercial real estate loans. Depending on the location of the property,
flood insurance may also be required. Under American Savings' policy,
multifamily residential loans greater than $1,000,000, permanent residential
real estate loans and residential land and construction loans greater than
$500,000, all construction revolving lines of credit, affordable multifamily
loans and residential acquisition and development loans must be approved by
American Savings' Credit Committee. Any extension of credit to one borrower
greater than 8% of tangible capital ($12,272,000 at December 31, 1994) must be
approved by the Board.
Permanent Residential Lending
First Mortgage Loans. American Savings originates first mortgage loans on
existing residential property primarily through commissioned loan officers
working out of eight LPOs located in Florida. During the years ended December
31, 1994 and 1993, American Savings originated $70,369,000 and $94,007,000,
respectively, through its LPOs. Additionally, during the second quarter of
1993, American Savings capitalized on new regulations which allow controlled
business arrangements by entering into a marketing arrangement with south
Florida's largest independent real estate brokerage firm, The Keyes Company,
to provide mortgages and related settlement services to the buyers of Keyes
homes through a separate sales and processing staff dedicated to the realty
sales associates in the 26 Keyes offices in south and central Florida. In
1994 and 1993, American Savings originated $29,147,000 and $10,966,000,
respectively, of residential mortgage loans under this arrangement. American
Savings has established a wholesale residential loan program to originate
loans through a network of independent mortgage brokers, mortgage bankers and
financial institutions throughout Florida. In 1994 and 1993, American Savings
originated $180,964,000 and $27,887,000, respectively, of residential mortgage
loans through its wholesale lending program.
7
<PAGE>
American Savings originates fixed and variable interest rate first mortgage
loans having terms to maturity of not more than 30 years, including, among
others, balloon loans having terms to maturity of not more than seven years
and ten year fully amortizing fixed-rate loans. Due to the interest rate risk
associated with the holding of fixed-rate first mortgage loans combined with
short-term sources of funding, American Savings has elected to sell all
originations of fixed-rate first mortgage residential loans having a maturity
of greater than ten years, the majority of which are sold with servicing
retained. While this strategy eliminates the interest rate exposure on these
loans from a portfolio investor standpoint, there remains the risk associated
with adverse movements in interest rates from the date an interest rate
commitment is issued to the final sale and delivery of the loans. American
Savings actively addresses this loan pipeline interest rate risk through
forward committed loan sales. American Savings currently intends to retain in
its portfolio variable-rate first mortgage loans bearing interest at a rate
adjusted within seven years from the origination date, balloon loans having
terms to maturity of not more than seven years and ten year fully amortizing
fixed-rate loans. See Management's Discussion - "Financial Condition -
Asset/Liability Management."
Eligible FHA and VA loans generally are securitized by American Savings as
MBSs guaranteed by GNMA. Eligible fixed-rate conventional mortgage loans from
time to time are securitized primarily through FNMA. American Savings also
originates loans over agency size limits (jumbos), generally using agency
underwriting standards, retaining variable rate jumbos bearing interest at a
rate adjusted within seven years from the origination date and loans having an
original term of ten years or less, selling other jumbos through private
parties, and retaining loan servicing rights whenever possible. See "Loan
Servicing Rights."
Generally, American Savings' residential first mortgage loans are secured by
single family detached dwellings and one-to-four family townhomes and certain
condominiums. These loans are generally long-term (15 to 30 years) and
amortize on a monthly basis with principal and interest due each month.
American Savings permits loan-to-value ratios of up to 90% generally, and up
to 95% occasionally, on conventional loans. Such loans exceeding an 80% loan-
to-value ratio require placement of private mortgage insurance. Loan-to-value
ratios on FHA and VA loans, up to the maximum loan amounts permitted by FHA
and VA, may be higher than 95%. In its expanding commitment to affordable
housing and its CRA responsibilities, American Savings offers several loan
programs involving loan-to-value ratios of up to 97% and more flexible
underwriting standards. Because of refinancings and prepayments, residential
first mortgage loans generally remain outstanding for shorter periods than
stated. Whether residential mortgage loans bear interest at a fixed or an
adjustable rate depends upon consumer demand, which is influenced by market
conditions. During 1994, the majority of residential mortgage loans
originated by American Savings were variable rate loans.
American Savings also purchased in the secondary market five-and seven-year
balloon and variable-rate residential first mortgage loans, MBSs and, in the
past, CMOs. Although loan origination volumes were sufficient to cover loan
repayments and pay-offs in 1994, these purchases were required as originations
were not sufficient to cover reinvestment and asset growth needs in 1994. See
Management's Discussion - "Financial Condition - Changes in Consolidated
Financial Condition," "Results of Operations" and "Asset/Liability
Management."
Second Mortgage Loans. In 1992, American Savings commenced originating
traditional residential second mortgage loans through commissioned employees
based in the LPOs, receiving referrals from mortgage brokers, financial
advisers and home improvement dealers, as well as retail branches. In order
to increase the volume and expand the geographical diversification of this
activity, during 1994, American Savings opened two LPO offices in Chicago,
Illinois. Second mortgage loans are in fixed principal amounts, for fixed
terms of up to 20 years, amortizing on a monthly basis over a period of 15 to
30 years, with a balloon payment of any unpaid principal remaining at
maturity, with principal and interest due each month, and bearing interest at
fixed rates. They are secured by single and one-to-four family homes,
townhomes and certain condominiums. American Savings permits loan-to-value
ratios of up to 85% generally. Because of refinancings and prepayments,
second mortgage loans generally remain outstanding from 3-1/2 to five years.
Because of the junior lien on the property, these loans inherently involve
greater credit risk than residential first mortgage loans. However, American
Savings is in a first lien position for approximately 70% of the loans
originated through December 31, 1994 under this program. American Savings
believes its credit risk on second mortgage loans is managed through prudent
underwriting standards and rigorous monitoring of the quality of loans
submitted by each broker. Second mortgage originations amounted to
$158,229,000 and $98,660,000 in 1994 and 1993, respectively.
8
<PAGE>
Residential Land and Construction Lending
American Savings' real estate lending also encompasses builder products for
single family residential properties, which include construction loans
converting to permanent loans upon sale of the dwelling
(construction/permanent loans), custom construction/permanent loans to owners,
loans on model and unsold inventory units, improved lot acquisition loans or
refinancings and construction revolving lines of credit. For this purpose, an
"improved lot" is defined as a residential plot of land (i) which has had
appropriate water and sewer mains installed to the site, (ii) roadways
completed, (iii) telephone and electric utility service made available, (iv)
which is located in a subdivision or area which a plat has been recorded, and
(v) for which all appropriate governmental approvals have been obtained,
including zoning to allow for the construction of a residential dwelling.
During 1994, American Savings reinstituted its program to provide financing
for the acquisition and development of unimproved residential property.
Residential acquisition and development loans are designed to provide
financing to developers to purchase and subsequently develop raw land into
improved residential lots. American Savings has no plans to finance land held
for speculative purposes.
Originations of residential land and construction loans are primarily from
builders, developers, real estate brokers and other businesses which have
previously borrowed from American Savings and new customers that approached or
were solicited by American Savings. American Savings actively solicits loans
to finance the acquisition of, and construction upon, improved residential
lots. The builders currently targeted as potential borrowers are located in
Dade, Broward and Palm Beach Counties, Florida and build moderately priced
homes; however, further geographic expansion may be considered.
Residential land and construction loans generally involve larger exposures to
single borrowers than permanent residential first mortgage loans. The
projects themselves are subject to adverse conditions in the real estate
market and the general economy. Performance of those loans depends in part on
the timing of sales of finished houses. Construction loans on presold units
are normally made for terms of up to 12 months and are limited to a maximum
80% loan-to-value ratio. Other maximum terms for residential land and
construction loans are 24 months for models, 12 months for unsold homes, nine
months for improved lots acquired by individuals, and 36 months for improved
lots acquired by builders, and the maximum loan-to-value ratio for these loans
generally is 75%. Loans to finance construction on or acquisition of improved
lots generally bear floating interest rates. These loans also generally
provide for interest-only payments until construction is completed.
Residential acquisition and development loans are made for terms not to exceed
36 months, the maximum loan-to-value ratio for these loans generally is 75%
and the borrower is generally required to have minimum cash equity of 20% of
total acquisition and development costs.
Multifamily Loans. American Savings has a program to finance acquisition of
and refinance existing multifamily rental housing. Originations of these
loans are primarily from brokers and new customers that approach or are
solicited by American Savings. American Savings originates these loans
through non-commissioned loan officers.
Multifamily loans generally involve larger exposures to single borrowers than
permanent residential first mortgage loans. The projects themselves are
subject to adverse conditions in the real estate market and the general
economy. Performance substantially depends on the leasing of the projects.
American Savings' underwriting standards include, among other criteria, the
borrower's creditworthiness and experience, the loan-to-value ratio based upon
appraisal and the ability of a project to produce a positive cash flow after
payment of debt service. Loans originated for acquisition or refinancing of
existing multifamily rental housing generally bear fixed interest rates, do
not provide for interest-only payments or interest reserves, have maturities
of up to seven years with 30-year amortization (although they may be repaid
earlier), and are generally limited by loan-to-value ratios of up to 75% (or
equivalent exposure with additional collateral).
During 1994, American Savings participated in the financing for the
construction of two high rise condominium projects located in the south
Florida area and anticipates expanding its real estate lending business during
1995 to include construction and permanent financing for various types of
commercial real estate projects, including multifamily rental projects,
condominiums, office buildings, retail centers and industrial/warehouse
properties. These loans require a minimum 15% cash equity of the borrower,
are generally limited by loan-to-value ratios of up to 75% and require
completion guarantees.
9
<PAGE>
Consumer Lending
Over 80% of the consumer loans in American Savings' portfolio are fixed
interest rate automobile loans, substantially all of which were purchased
(non-recourse) from automobile dealers located in Florida. Through
August 1992, American Savings purchased automobile finance contracts from
automobile dealers on a limited basis, compensating dealers with a flat fee
for each contract purchased. American Savings determined in September 1992 to
revitalize its indirect automobile lending program. Since then, American
Savings has purchased automobile finance contracts from dealers and has
commenced paying dealers a fee, as stated in a published rate and term
schedule in effect at the time of purchase, based upon the spread between
American Savings' retention rate (i.e., the minimum rate acceptable to
American Savings for these contracts) and the annual percentage rate of
interest stated in the contracts. During 1994, American Savings opened an LPO
in Maitland, Florida to serve the central Florida market. American Savings
continues to originate direct automobile loans to individuals from its
branches. Terms are generally 60 months and may be as long as 66 months. The
credit decision is based primarily on the credit of individuals rather than on
the value of collateral. Physical damage insurance is required. The amount
loaned covers the purchase price of the vehicle, taxes and related insurance
premiums, less required borrower equity. Prior to purchase, American Savings'
credit personnel review the loan application, consumer credit reports,
description of the collateral and terms of the purchase contract.
American Savings also originates guaranteed, unsecured loans to finance the
education of students attending two-and four-year colleges and selected
vocational schools located in Florida. In 1994, American Savings expanded its
markets to Alabama, Georgia and Texas. Student loans carry fixed or
adjustable interest rates, depending upon the applicable loan program. Loans
are underwritten and serviced by agents of Sallie Mae or USAF. Management
intends to sell these loans to Sallie Mae or USAF when the first installment
payment becomes due, generally six months after termination of education or,
on the average, three years after origination, under arrangements by which
USAF and Sallie Mae have guaranteed to purchase them for prices not less than
their outstanding principal amounts. Accordingly, American Savings classifies
these loans as held for sale. Congress has enacted a law modifying and
expanding the federal direct lending pilot program, with the goal of replacing
guaranteed lending now provided by financial institutions under a federal
program with direct government loans in 1997. Federal capital and schools
would largely replace private capital and financial institutions, including
American Savings, as loan originators. Because of the current modest size of
American Savings' student loan portfolio and minimal capital investment,
American Savings' management currently believes that American Savings will not
experience any material adverse effect from this law.
American Savings offers through its retail branches revolving home equity
lines of credit at variable interest rates, secured by second mortgages on
residences in southeast Florida, and loans secured by American Savings
certificates of deposit. The combined maximum principal amount of the home
equity line of credit and any more senior mortgage on the property generally
may not exceed an 80% loan-to-value ratio. Loan applications are reviewed by
American Savings' lending personnel. Appraisals are required for home equity
lines of credit in excess of $50,000 and, depending on the borrower's equity,
for some lines under $50,000. Hazard insurance and, where applicable, flood
insurance are required.
Corporate Loans
American Savings' corporate loan portfolio, which consists primarily of SCLs,
has been significantly reduced since 1990. SCLs are considered by management
to involve higher risk because of the size of such loans and the uncertain
cash flows of the borrowers. American Savings will continue to take advantage
of all opportunities to further reduce its SCLs portfolio and has no current
plans to invest in further SCLs. See Note 9.
Asset Quality
American Savings' Credit Committee provides senior management oversight and
ongoing review of American Savings' asset portfolios. Under the regulations
administered by OTS, American Savings, like all savings institutions, is
required to classify problem assets as "substandard," "doubtful" and "loss."
American Savings classifies its loans based upon, among other factors,
collateral values and a borrower's ability to meet its loan payment
obligations. Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that some loss will be sustained if
the deficiencies are not corrected. Doubtful assets have the
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<PAGE>
same weaknesses with the additional characteristic that the weaknesses make
collection or liquidation in full (on the basis of currently existing facts,
conditions and values) highly questionable and improbable. Assets classified
as loss are considered uncollectible and of such little value that their
continuance as assets without a specific valuation allowance is not warranted.
Assets designated as "special mention" do not require specific valuation
allowances, nor adverse classification, but nonetheless possess credit
deficiencies or potential weaknesses deserving management's close attention.
American Savings reviews the adequacy of the allowances for loan and real
estate losses on a periodic basis and charges the related provisions for such
losses to operations during the related period. Allowances for losses on
loans and real estate are based on a review of loss experience, loan balances,
delinquent loans, real estate acquired and other factors beyond American
Savings' control which may affect the ultimate collectibility of loans and
realization from real estate acquired.
Management believes that allowances for losses on loans and real estate are
adequate at December 31, 1994. However, while management uses currently
available information to recognize losses on these assets, future additions to
the allowances may be necessary based on changes in economic conditions,
deterioration of the creditworthiness of borrowers, the value of the
underlying collateral or other factors. American Savings' determination as to
the classification of its assets and the amount of its valuation allowances is
subject to review, as an integral part of the periodic examination process by
OTS and the FDIC, each of which can, among other things, modify any asset
classification or order the establishment of additional general or specific
valuation allowances. Such agencies may require American Savings to recognize
additions to the allowances based on their judgments of information available
to them at the time of their examination. American Savings' last examination
was completed on August 26, 1994. For a discussion of loan and real estate
loss reserves, see Note 11 and Management's Discussion - "Financial
Condition - Changes in Consolidated Financial Condition - Asset Quality."
The following table indicates the dollar amounts (in thousands) and the ratio
to American Savings' consolidated total assets of American Savings' loans in
each of the following categories as of each of the following dates:
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, December 31,
Category 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Past due loans $ 471 0.01% $ 382 0.01% - - $ 1,413 0.04% $ 149 -
Nonaccrual loans,
including
nonaccrual TDRs(1) 17,313 0.49% 19,042 0.61% $34,629 1.17% 71,381 2.12% $ 75,455 1.71%
Amounts due from
Enstar Group, net - - - - - - - - 160,736 3.65%
TDRs, excluding
nonaccrual TDRs(1) 17,410 0.49% 17,583 0.56% 18,353 0.62% 1,061 0.03% 17,561 0.40%
Other potential
problem loans(2) 11,127 0.31% 18,673 0.60% 15,730 0.53% 28,206 0.84% 12,833 0.29%
(1) At December 31, 1994, 1993, 1992, 1991 and 1990, nonaccrual loans include nonaccrual TDRs amounting to
$8,161,000, $11,635,000, $21,346,000, $50,228,000 and $29,556,000, respectively.
(2) At December 31, 1994, other potential problem loans are comprised of commercial real estate loans.
</TABLE>
A "past due" loan is an accruing loan which is contractually past due 90 days
or more as to principal or interest payments. A "nonaccrual loan" is a loan
accounted for on a nonaccrual basis. American Savings' policy is to exclude
from income interest on loans which are ninety days or more delinquent and for
which the ultimate collectibility of the interest is doubtful. Additionally,
a loan may be placed on nonaccrual status if, in management's opinion,
conditions warrant. Interest payments on nonaccrual loans are recognized as
income only to the extent of cash payments received; or, if there is doubt as
to ultimate collectibility of the loan, such payments are applied as a
reduction of the loan carrying amount. A TDR is a loan as to which American
Savings, for economic or legal reasons related to the debtor's financial
difficulties, grants a concession to the debtor that American Savings would
not otherwise consider, which concession either stems from an agreement
between American Savings and the debtor or is imposed by law or a court. As
an alternative to American Savings' acquiring the collateral in settlement of
the loan, a TDR may include changing or extending repayment terms or reducing
the stated interest rate or amounts of principal and interest due, in order to
recover as much
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<PAGE>
of American Savings' investment as possible, at the highest yield. An "other
potential problem loan" is a loan which, pursuant to the evaluation by
American Savings' Credit Committee, demonstrates characteristics which may
result in such loan becoming past due, nonaccrual or a TDR in the foreseeable
future. See Note 9.
If a borrower fails to remit a required payment on a loan within the customary
grace period, American Savings takes steps to determine the reason for and to
correct the delinquency, and initiates remedial action. American Savings'
collection and foreclosure practices for residential real estate loans follow
those outlined by regulatory authorities and adopted by FNMA, FHLMC, VA, FHA,
the U.S. Department of Housing and Urban Development and private mortgage
insurance companies, as applicable. American Savings' policy is to exclude
from income interest on loans which are 90 days or more delinquent and for
which the ultimate collectibility of the interest is doubtful. A loan may
also be placed on a nonaccrual status if, in management's opinion, conditions
warrant.
The gross interest income that would have been recorded for the fiscal year
ended December 31, 1994 if the loans had been current in accordance with their
original terms and had been outstanding throughout the period or since
origination, if held for part of the period, and the amount of interest income
on those loans that was included in consolidated net income for that period,
were $3,093,000 and $248,000, respectively, for nonaccrual loans (including
nonaccrual TDRs) and $1,924,000 and $1,080,000, respectively, for TDRs
(excluding nonaccrual TDRs).
At December 31, 1994, REO includes $7,616,000 carrying value of real estate
acquired in settlement of loans, consisting of $2,175,000 carrying value of
commercial real estate acquired, $4,864,000 carrying value of residential real
estate acquired, and $577,000 carrying value of loans accounted for as in-
substance foreclosures, all of which are commercial loans. These carrying
values, net of reserves, are equal to the lower of cost or fair market values
of the respective properties at year-end. Fair market value is based on
current appraisals reduced by an estimate of net holding costs, including
interest and selling expenses, for the period the property is expected to be
held prior to sale. Management believes that reserves relating to real estate
acquired in settlement of loans are adequate at December 31, 1994. Although
management uses currently available information to recognize losses on sales
of these assets, future additions to the reserves may be necessary based upon
changes in economic conditions and in the values of these properties and
increases in expenses of preparing these properties for sale.
Loan Servicing Rights
Generally, American Savings retains servicing rights on loans it originates
and sells, purchases loans together with the related servicing rights and
purchases servicing rights without the related loans through flow agreements
and bulk purchases. American Savings derives fees, including, among others,
late charges and assumption fees, for providing the servicing of mortgages.
From September 1990 through September 1993, American Savings also derived fees
from the servicing of automobile loans for others. American Savings has no
current plans to service automobile loans for others in the future. For a
discussion of loan servicing fees, see Management's Discussion -"Results of
Operations - Core Income Included in Operating Income - Loan Servicing Fees,
Net" and Part II, Item 6. Selected Financial Data.
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<PAGE>
Mortgage-Backed Securities and Investment Securities
The following table presents the maturity distribution and weighted average
yield of securities and MBSs owned by American Savings as of December 31,
1994. Amounts presented represent the carrying values of such securities.
<TABLE>
<CAPTION>
Securities and MBSs Yield by Maturity
(dollars in thousands)
After 1 But After 5 But
Within 1 Year Within 5 Years Within 10 Years After 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale
Common stock of FNMA $ - -% $ - -% $ - -% $ 93 -% $ 93 -%
Agency MBSs - - 90,955 5.9 - - 68,234 5.1 159,189 5.6
$ - -% $ 90,955 5.9% $ - -% $ 68,327 5.1% $ 159,282 5.6%
Held to Maturity
U.S. Government and
Agency obligations $ 2,983 5.5 $114,049 6.8% $ - -% $ - -% $ 117,032 6.8%
Corporate debt
obligations - - - - 2,987 10.2 - - 2,987 10.2
Other debt securities - - 250 7.5 1,055 7.3 - - 1,305 7.3
Agency MBSs - - - - 136,524 5.6 325,636 5.3 462,160 5.4
Private pass-through
MBSs - - 101,001 5.8 - - 383,060 5.8 484,061 5.8
CMOs - - - - - - 14,009 9.0 14,009 9.0
$ 2,983 5.5% $215,300 6.4% $140,566 5.8% $722,705 5.6% $1,081,554 5.8%
</TABLE>
For a further description of American Savings' investments in repos,
securities and MBSs, see Notes 4, 5, 6 and 8.
Employees
As of December 31, 1994, American Savings employed 725 full-time employees.
Employees of American Savings are not represented by any union or other
collective bargaining agreement. Management considers relations with its
employees to be satisfactory. For a discussion of certain employee benefit
plans of American Savings, see Note 21.
Competition
American Savings' retail branch offices serve three counties, Dade, Broward
and Palm Beach, in southeast Florida. The entry into Florida of additional
full-service financial institutions headquartered outside of the state has
slowed and the number of American Savings' competitors has continued to
decline as a result of acquisitions and consolidations of failed institutions.
However, the strength and national reputation of American Savings' remaining
competitors, coupled with their marketing efforts, has continued to intensify
competition. Competition for deposits from investments other than financial
institution deposits also has increased. Additionally, there continues to be
increased competition for loan originations as mortgage bankers and financial
institutions expand retail and wholesale lending activities into and
throughout Florida. For a discussion of interstate banking which may impact
competition, see "Regulation - New Legislation - Interstate Banking."
Deposits
As a result of increases in interest rates in the nation's money markets
during 1994 and the decrease in returns from the equity and bond markets,
consumers have begun to reevaluate traditional banking products as investment
vehicles. In American Savings' primary market area, southeast Florida,
American Savings experiences strong competition for deposits from other
savings institutions and commercial banks, brokerage firms and insurance
companies, many of which have nationwide retail networks. As interest rates
increase, additional competition for deposits comes from money market funds
and corporate and government debt securities. In addition to offering
competitive rates, American Savings attracts deposit customers through its
experience and
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responsiveness to the needs of its customers (primarily middle
income, retired persons), a variety of innovative services and programs
offered, the convenience of office locations relative to its customer base
and, to a lesser extent, advertising.
According to the Florida Bankers Association: (1) At June 30, 1994, American
Savings' statewide deposits represented 1.32% of total deposits of commercial
banks and thrift institutions and 4.62% of total thrift institutions'
deposits, as compared to 1.26% and 4.02%, respectively, as of June 30, 1993;
and (2) American Savings' deposit market shares, against total deposits of
commercial banks and thrift institutions and against total thrift
institutions' deposits, and American Savings' rank against all commercial
banks and thrift institutions, by county in which American Savings' retail
branch offices are currently located, are as follows:
<TABLE>
<CAPTION>
Market Share by County
Rank Against
Commercial Banks Commercial Banks
And Thrifts Thrifts Only and Thrifts
<S> <C> <C> <C> <C> <C> <C>
County 1994 1993 1994 1993 1994 1993
Dade 2.47% 2.31% 7.77% 7.20% 9 9
Broward 4.45% 4.21% 7.87% 7.42% 8 9
Palm Beach 2.93% 2.69% 5.84% 5.29% 9 12
</TABLE>
Lending
American Savings' primary market area for loan originations is Florida.
However in 1994, second mortgage loan origination activities were expanded to
Chicago, Illinois, and the surrounding areas and student loan originations
were expanded to Alabama, Georgia and Texas. Competition in lending
activities remains strong and comes primarily from commercial banks, mortgage
bankers, mortgage brokers and, to a lesser degree, other savings institutions,
insurance companies, finance companies, and direct financing programs by
builders and real estate firms. The primary factors in competing for loans
are interest rates, loan fees and charges, types and variety of loan products
offered and the quality of service to borrowers. According to TRW Market
Data, American Savings' conventional mortgage market share in south Florida
(Dade, Broward and Palm Beach Counties) has increased from 1.06% in 1993 to
2.29% in 1994.
Regulation
General
As a member of the FHLB System with deposits insured through FDIC by SAIF,
American Savings is subject to supervision, examination and regulation by OTS
and FDIC, and also is subject to the regulations of the FRB and the FHFB.
Generally, to the extent that state and federal law or regulations address the
same subject matter and are applicable to American Savings, American Savings
is subject to the more restrictive requirement, except to the extent that a
less restrictive federal law expressly preempts the more restrictive state
law, such as usury law.
In addition to law and regulation, American Savings is subject to the terms of
the Capital Maintenance Agreement.
New Legislation
The Riegle Act, passed in September 1994, rolled several proposals into a
single bill for funding for community development, reduction of regulatory
paperwork burdens of banks, small business securitization, consumer
protection, currency transaction reporting reforms and reforms to the National
Flood Insurance programs. Currently, management is evaluating the impact of
this legislation.
Interstate Banking. The RNA, passed in September 1994, removes state law
barriers to acquisitions in all states, and allows multi-state banking
operations to merge into a single bank with interstate branches. Interstate
banking and branching authority will be subject to certain conditions and
restrictions, such as capital management and CRA compliance. Interstate
banking and branching will be effective September 1995 and June 1997,
respectively. This legislation reversed prior laws which prohibited a bank
holding company from acquiring
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<PAGE>
control of a bank or a bank holding company located outside the state in
which the operations of its banking subsidiaries were principally conducted,
unless such acquisition was specifically authorized by the laws of the state
in which the bank or bank holding company to be acquired was located.
Federal Law
Regulatory Capital. Both OTS and FDIC have promulgated regulations setting
forth capital requirements applicable to savings institutions. The effect and
interrelationship of these regulations are discussed below.
OTS
Savings institutions must meet specific OTS capital standards. Capital
calculated pursuant to OTS regulations varies substantially from capital
calculated pursuant to GAAP. The capital requirements consist of three
standards -- a leverage limit (core capital requirement), a tangible capital
requirement and a risk-based capital requirement.
Leverage Limit. The leverage limit requires savings institutions to maintain
core capital of at least 3% of adjusted total assets. Core capital consists
of common stockholders' equity, including retained earnings, noncumulative
perpetual preferred stock and related surplus, and minority interests in the
equity accounts of consolidated subsidiaries, less intangible assets not
considered qualifying intangible assets (subject to limitations discussed
below) and investments in and advances to subsidiaries engaged in activities
that are impermissible for a national bank (subject to the phase-out period
discussed below). On November 28, 1994, the acting director of OTS announced
that OTS will no longer require savings institutions to include unrealized
gains and losses on available for sale debt securities in regulatory capital.
Under the revised OTS policy, institutions must value available for sale debt
securities at amortized cost for regulatory capital purposes. At December 31,
1994, American Savings excluded unrealized losses on securities available for
sale, net of deferred tax benefits, of $5,967,000 from core capital. Adjusted
total assets are calculated as total assets as reported in accordance with
GAAP, minus intangible assets (except those included in core capital).
"Qualifying intangible assets" means PMSRs and PCCRs. The lower of 90 percent
of fair market value or 100 percent of remaining unamortized book value of
PMSRs and PCCRs may be included in core, tangible and total capital, up to 50
percent of core capital (provided that PCCRs may not exceed a sublimit of 25
percent of core capital). An independent market valuation of qualifying
intangible assets must be performed on an annual basis and (i) shall include
adjustments for any significant changes in original valuation assumptions,
including changes in prepayment estimates or attrition rates and (ii) shall be
determined based on applying an appropriate market discount rate to the net
cash flows expected to be generated from the intangibles. At December 31,
1994, American Savings included PMSRs of $11,896,000 in core capital.
Although core deposit intangibles are excluded from capital, core deposit
intangibles resulting from transactions consummated prior to March 4, 1994,
are grandfathered and recognized for capital purposes, to the extent permitted
by OTS, provided that they are valued in accordance with GAAP supported by
credible assumptions and their amortization is adjusted at least annually to
reflect decay rates (past and projected) in the acquired customer base. At
December 31, 1994, American Savings included core deposit intangibles of
$6,157,000 in core and total capital. American Savings believes that its core
deposit intangibles will continue to be permitted to be included in its
capital calculations.
OTS regulations also permit supervisory goodwill existing as of April 12, 1989
to count toward the minimum core capital requirement in an amount not to
exceed .375% of adjusted total assets at December 31, 1994. American Savings
has been advised by OTS that it may treat its goodwill as qualifying
supervisory goodwill unless it is notified to the contrary by the Director of
OTS. At December 31, 1994, American Savings' supervisory goodwill amounted to
$56,982,000, or 1.6% of adjusted total assets; the amount of goodwill included
in American Savings' core capital was $13,138,000, or 0.375% of adjusted total
assets. After December 31, 1994, no supervisory goodwill may be included in
calculating core capital.
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<PAGE>
As of December 31, 1994, American Savings' core capital requirement was
$105,288,000 (3.00% of adjusted total assets) and American Savings had a core
capital of $178,657,000 (5.09% of adjusted total assets), representing an
excess in the amount of $73,369,000 (2.09% of adjusted total assets). See
Note 22(D).
Tangible Capital Requirement. Under the tangible capital requirement, savings
institutions must maintain tangible capital in an amount not less than 1.5% of
adjusted total assets. For the purpose of this requirement, adjusted total
assets are generally calculated on the same basis as for the leverage limit.
Tangible capital is defined in the same manner as core capital, except that
all intangible assets (such as goodwill and core deposit intangibles) must be
deducted. As with the core capital requirement, only a part of PMSRs may be
included in tangible capital. The percentage of PMSRs which may be included
in tangible capital is equal to the lesser of (i) 100% of the amount of
tangible capital that exists before the deduction of any disallowed PMSRs or
(ii) the amount of PMSRs allowed to be included in core capital (see
discussion above).
As of December 31, 1994, American Savings was required to have tangible
capital in the amount of $52,552,000 (1.50% of adjusted total assets). On
that date, American Savings' tangible capital was $159,362,000 (4.55% of
adjusted total assets), representing an excess in the amount of $106,810,000
(3.05% of adjusted total assets). See Note 22(D).
Risk-Based Capital Requirement. The risk-based standards of OTS require, as
of December 31, 1994, core capital equal to at least 4% of risk-weighted
assets, and total capital equal to at least 8% of risk-weighted assets. Total
capital includes core capital plus supplementary capital, minus the IRR
component. Supplementary capital that may be included in computing total
capital for this purpose may not exceed core capital. Supplementary capital
includes cumulative perpetual preferred stock, mutual capital, income capital
and net worth certificates, perpetual and mandatory convertible subordinated
debt and maturing capital instruments meeting specified requirements, and
general loan and lease loss allowances. General loss reserves, however, may
not exceed 1.25% of risk-weighted assets as of December 31, 1994.
In determining the amount of risk-weighted assets, all assets (including
certain off-balance sheet assets) will be multiplied by a risk factor ranging
from 0% to 100%, as prescribed by OTS regulations. Generally, zero weight is
assigned to risk-free assets, such as cash and unconditionally guaranteed
United States government securities such as MBSs issued or guaranteed by GNMA.
Weight of 20% is assigned to, among other things, certain obligations of
United States government-sponsored agencies (such as FNMA and FHLMC), stock of
a FHLB and high quality mortgage-related securities. Weight of 50% is
assigned to qualifying mortgage loans and certain residential mortgage-related
securities. Weight of 100% is assigned to all assets not assigned another
weight. Comparable weights are assigned to off-balance sheet activities.
Effective January 1, 1994 with implementation originally scheduled to begin
September 30, 1994, institutions deemed to have an "above normal" level of IRR
would have been required to deduct a portion of that risk from total risk-
based capital. However, the acting director of OTS postponed implementation
of the IRR capital deduction until OTS publishes the process under which
institutions may appeal the capital deduction. Until such appeals process is
finalized, which could occur in time for the capital deduction to go into
effect on March 31, 1995, the IRR capital deduction has been waived.
A normal level of exposure, under the rule, is considered to exist if an
immediate 200 basis point increase or decrease in market interest rates
(whichever produces a greater decline) results in a decline in NPV amounting
to no more than 2% of the estimated present value of assets. NPV represents
the net discounted cash flows stemming from an institutions' assets,
liabilities and off-balance sheet items. The IRR component, which is deducted
from total risk-based capital, is equal to 50% of the amount by which an
institution's measured IRR exceeds normal IRR (2% multiplied by the estimated
present value of total assets). The IRR component must be calculated on a
quarterly basis, but is implemented for capital purposes after a three-quarter
lag. As such, the amount of capital that an institution must hold as of a
given quarter is based upon the IRR component computed for the quarter ended
nine months earlier. However, if an institution demonstrates to the OTS that
it has reduced its IRR after the calculation date, a lower IRR component may
be utilized. Although American Savings' most recent computation of IRR
(September 30, 1994) reflects an IRR component of approximately $2,740,000,
OTS' calculations as of September 30, 1994, which are based upon certain
different assumptions, reflect an IRR component for American Savings of
approximately $20,371,000. If the OTS' IRR component had
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been imposed on American Savings at December 31, 1994, American Savings'
total risk-based capital under both the current and fully phased-in capital
requirements would have been reduced by $10,117,000, the OTS' IRR component
for American Savings at March 31, 1994. At December 31, 1994, American
Savings' total capital was sufficient to accommodate such IRR component and
meet its current and fully phased-in capital requirements.
As of December 31, 1994, American Savings' risk-based capital requirement
amounted to $141,356,000 (8% of risk-weighted assets). On that date, American
Savings' total capital was $195,350,000 (11.06% of risk-weighted assets),
representing an excess in the amount of $53,994,000 (3.06% of risk-weighted
assets). See Note 22(D).
In addition to the three capital requirements set forth in OTS regulations,
OTS has delegated to its Regional Directors the authority to establish higher
individual minimum capital requirements for savings institutions based upon a
determination that the institution's capital is or may become inadequate in
view of its circumstances. An individual minimum capital requirement has not
been established for American Savings.
OTS has directed American Savings to submit a plan to reduce interest rate
risk and to increase capital levels in order to provide a sufficient cushion
against interest rate risk. In light of the Merger Agreement, American
Savings has no current plans to raise external capital. Additionally,
American Savings believes interest rate risk reduction will be achieved
through the projected decrease in the balance sheet pending consummation of
the Merger as short-term borrowings will be repaid with net asset cash flows.
See Management's Discussion - Financial Condition - "Changes in Consolidated
Financial Condition" and "Asset/Liability Management."
FDIC
The FDIC capital regulation defining capital for leverage purposes and
establishing minimum leverage capital ratios provides that any insured
depository institution with a "Tier 1" (core) capital to total assets ratio of
less than 2% will be deemed to be in an "unsafe and unsound condition" and is
subject to termination of its deposit insurance by FDIC. At December 31,
1994, American Savings' core capital ratio was 10.11%.
Prompt Regulatory Action
OTS is required to take prompt corrective regulatory action to resolve the
problems of undercapitalized savings institutions. OTS has promulgated rules
establishing five capital categories of institutions: (i) well capitalized -
the institution significantly exceeds the required minimum level for each
relevant capital measure; (ii) adequately capitalized - the institution meets
the required minimum level for each relevant capital measure; (iii)
undercapitalized - the institution fails to meet the required minimum level
for any relevant capital measure; (iv) significantly undercapitalized - the
institution is significantly below the required minimum level for any relevant
capital measure; and (v) critically undercapitalized - the institution fails
to meet the required minimum level for any measure of critical
undercapitalization provided by regulation. Capital levels are to be
determined in accordance with the capital regulations in effect as of the
computation date. As of December 31, 1994, American Savings' risk-based, core
to risk-weighted assets and leverage (core) ratios, under current capital
computations, were 11.06%, 10.11% and 5.09%, respectively. See Note 22(D).
Results of Failure to Meet Capital Requirements
Any savings institution that fails to meet its regulatory capital requirements
is subject to enforcement action by OTS or FDIC.
Savings institutions which fail to meet their minimum OTS capital requirements
are required to submit capital plans for approval. OTS is required to
prohibit the asset growth of any institution that does not meet its capital
requirements and must issue a capital directive against the institution which
may require the following corrective actions: (i) increase its regulatory
capital or its liquid assets, or both, to a specified level or levels; (ii)
reduce interest rates paid on deposits; (iii) limit its receipt of deposits to
those made to existing accounts or prohibit or limit the issuance of new
accounts, except in exchange for existing accounts; (iv) prohibit or limit
lending or the making or purchase of specified classes of loans or
investments; (v) limit operational expenditures to specified levels; or (vi)
take such other action as OTS deems necessary or appropriate.
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If an institution is not in compliance with its capital requirements, it
cannot pay dividends on capital stock, the amount the institution can invest
in service corporations is decreased and the institution must file with OTS
applications to approve new directors and executive officers of the
institution.
Savings institutions that fail to meet the minimum FDIC capital requirements
may not be able to receive the required FDIC approval for applications such as
the right to exercise additional powers and applications for merger,
acquisitions or business combinations. An institution having substantially
insufficient capital is subject to the suspension of deposit insurance by FDIC
or the appointment of a receiver or conservator by FDIC or OTS.
OTS regulations prohibit any savings institution that does not maintain
capital at least equal to its fully phased-in capital requirement from
increasing its liabilities during any two consecutive calendar quarters at a
rate in excess of 12.5%, unless prior approval from OTS is obtained.
Capital Distributions. Savings institution subsidiaries of holding companies
are required to notify their OTS Regional Director not less than thirty days
in advance of each proposed declaration of a dividend on the institution's
stock. Any dividend declared within the notice period, or without giving the
prescribed notice, is invalid.
Under OTS regulations, limitations are imposed upon "capital distributions" by
savings institutions, including cash dividends; payments to repurchase or
otherwise acquire the institution's shares; payments to shareholders of
another institution in a cash-out merger; and other distributions charged
against capital, including direct and indirect distributions to affiliates.
The limitations vary depending upon the capital levels of the institution. In
addition, OTS may prohibit a proposed capital distribution by an institution,
which would otherwise be permitted by the regulation, if OTS determines that
the distribution would constitute an unsafe and unsound practice.
During any period an institution does not meet its minimum regulatory capital
requirement immediately prior to, or (on a pro forma basis) after giving
effect to, any potential capital distribution, it is not authorized to make
any capital distributions unless it receives prior written approval from OTS
or is in accordance with the express terms of an approved capital plan.
American Savings is currently operating under the Capital Maintenance
Agreement which prohibits it from making any distributions unless specified
net worth requirements are met. See "Capital Maintenance Agreement" and Note
22(C). See Part II, Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
Insurance of Deposits. Federally chartered savings institutions, such as
American Savings, are required to pay premiums to FDIC for insurance of their
deposits. The premium payments are deposited into the SAIF.
As required by federal law, FDIC has established risk-based assessments for
all insured depository institutions. The regulations promulgated by FDIC
establish a system for calculating a semi-annual (quarterly beginning July 1,
1995) insurance premium assessment based upon: (i) the probability that the
SAIF will incur a loss with respect to the institution; (ii) the likely amount
of the loss; and (iii) the revenue needs of the SAIF. Deposit insurance
premiums for the years ended December 31, 1994 and 1993 amounted to $6,194,000
and $6,595,000, respectively.
FHLBA provides that FICO can obtain funds for interest payments on its
obligations and Refcorp can raise funds, if other sources are insufficient,
through assessments on SAIF members, including American Savings.
Additionally, FDIA required that both SAIF and BIF achieve mandated reserve
ratios within a specified period of time.
A significant portion of SAIF premiums paid by its members has been and
continues to be allocated to FICO and Refcorp. As a result, SAIF-insured
institutions, such as American Savings, will continue to pay insurance of
deposit premiums at current, or higher, rates until SAIF meets its mandated
reserve ratios, which from published reports, the FDIC currently projects to
be until at least 2002; however, BIF-insured institutions will meet the
legislated reserve requirement and are projected to achieve a rate reduction
as early as mid-1995.
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OTS Fees and Assessments. OTS has adopted regulations to assess fees on
savings institutions to fund the operations of OTS. The regulations provide
for OTS assessments to be made based on the total consolidated assets of a
savings institution as shown on its most recent report to the agency. For the
years ended December 31, 1994 and 1993, American Savings paid $482,000 and
$587,000, respectively, in OTS fees.
Investment Activities. As a federally-chartered savings bank, American
Savings is subject to various restrictions and prohibitions in respect of its
investment activities. These restrictions and prohibitions are set forth in
HOLA and in the rules of OTS and include dollar amount limitations and
procedural limitations.
Under the FDIA, a savings institution is required to provide 30 days' prior
notice to FDIC and OTS of its desire to establish or acquire a new subsidiary
or conduct any new activity through a subsidiary. The institution is also
required to conduct the activities of the subsidiary in accordance with OTS
orders and regulations. The Director of OTS has the power to force
divestiture of any subsidiary or the termination of any activity it determines
is a serious threat to the safety, soundness, or stability of the savings
institution or is otherwise inconsistent with sound banking principles.
Additionally, FDIC is authorized to determine whether any specific activity
poses a threat to the SAIF and to prohibit any SAIF member from engaging
directly in the activity, even if it is an activity that is permissible for a
federally-chartered savings institution or for a subsidiary of a state-
chartered savings institution.
Safety and Soundness. The FDIA authorizes the appropriate federal agency (in
the case of American Savings, OTS) to prescribe, for all federally insured
depository institutions, operational, managerial and compensation standards
for internal controls, information systems, loan documentation, credit
underwriting, interest rate exposure, asset growth and compensation and
benefits for bank officers, employees, directors and principal shareholders.
The statute further empowers OTS to set standards for any other facet of
institution operations not specifically covered in this list.
An institution failing to meet OTS standards may be required to file a plan to
bring the institution into compliance and have the plan approved by OTS.
Continued non-compliance allows OTS to prohibit growth, require higher
capital, restrict interest rates paid on deposits or take any other
appropriate action.
In November 1993, OTS released for public comment a proposed rule to implement
the FDIA Safety and Soundness Standards which will require savings
institutions to adopt policies and procedures which address safety and
soundness concerns in the foregoing categories. American Savings cannot
predict when the proposed rule will become effective or the form that the
final rule will take. If the proposed rule is adopted as promulgated,
American Savings does not believe it will be necessary to make any material
amendments to its operations or policies.
The Riegle Act amended the FDIA to allow the federal agencies to implement the
standards as guidelines rather than regulations. By allowing the agencies to
implement the standards as guidelines, the agencies are given flexibility to
decide whether to compel an institution that fails to meet a standard to
submit a compliance plan. At this time, it is not known whether the OTS will
implement the standards as regulations or guidelines or a combination of both.
Loans to One Borrower. Generally, a savings institution's total loans and
extensions of credit to one borrower or related group of borrowers,
outstanding at one time and not fully secured by readily marketable
collateral, may not exceed the greater of $500,000 or 15% of the institutions'
UCUS. Except as set forth below for certain highly rated securities, an
institution's investment in commercial paper and corporate debt securities of
any one issuer or related entity must be aggregated with outstanding loans for
purposes of compliance with the limitation. The regulations exclude from the
definition of "loans" for purposes of the immediately preceding sentence the
institution's taking of a purchase money mortgage note from the purchaser if:
(i) the institution does not advance new funds to the borrower (purchaser) and
(ii) the institution is not placed in a worse position as a result of the
sale.
Savings institutions may invest, in addition to the 15% general limitation, up
to 10% of UCUS in commercial paper of one issuer rated by two nationally
recognized rating services in the highest category, or in corporate debt
securities rated in one of the two highest categories by at least one such
service. A savings institution may also
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lend up to 10% of UCUS, if the loan is fully secured by readily marketable
collateral (defined as certain securities and bullion, but generally not
real estate).
A savings institution which meets its fully phased-in capital requirements may
make loans to one borrower to develop domestic residential housing units, up
to the lesser of $30,000,000 or 30% of the savings institution's UCUS, if
certain other conditions are satisfied. These loans are an alternative to the
15% limitation and not in addition to that limitation.
Under the regulations described above, as of December 31, 1994, American
Savings could lend to a single borrower and its related entities on an
unsecured basis an amount not to exceed $25,527,000 based upon its UCUS.
Also, as of that date, it could make an additional $17,019,000 in aggregate
principal amount of loans secured by readily marketable collateral. As of
December 31, 1994, no loan by American Savings exceeded these limits.
Qualified Thrift Lender. American Savings, like all other savings
institutions, is required to meet the QTL Test for, among other things, future
eligibility for FHLB Advances. The QTL Test requires that a savings
institution's qualified thrift investments equal or exceed 65% of the savings
institution's portfolio assets calculated on a monthly average basis in nine
out of every 12 months. For purposes of the QTL Test, portfolio assets are
total assets less intangibles, properties used to conduct business and liquid
assets (up to 20% of total assets). The following assets are included as
qualified thrift investments without limit: domestic residential housing or
manufactured housing loans; home equity loans and MBSs secured by residential
housing or manufactured housing loans; and certain obligations of FDIC and
other related entities. Other qualifying assets which may be included up to
an aggregate of 20% of portfolio assets are: (i) 50% of originated residential
mortgage loans sold within 90 days of origination; (ii) investments in debt or
equity securities of service corporations that derive at least 80% of their
gross revenues from housing-related activities; (iii) 200% of certain loans to
and investments in low cost one-to-four family housing; (iv) 200% of loans for
residential real property, churches, nursing homes, schools and small
businesses in areas where credit needs of low-to-moderate income families are
not met; (v) other loans for churches, schools, nursing homes and hospitals;
and (vi) consumer and education loans up to 10% of total portfolio assets. As
of December 31, 1994, American Savings was in compliance with the QTL Test.
Community Reinvestment Act. Under the CRA, as implemented by OTS regulations,
a savings institution has a continuing and affirmative obligation consistent
with its safe and sound operation to help meet the credit needs of its entire
community, including low- and moderate-income neighborhoods. CRA does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with CRA. CRA requires OTS, in connection with its examination of
a savings institution, to assess the institution's record of meeting the
credit needs of its community and to take such record into account in its
evaluation of certain applications by such institution. The CRA requires
public disclosure of an institution's CRA rating and requires that OTS provide
a written evaluation of an institution's CRA performance utilizing a four-
tiered descriptive rating system in lieu of the previously existing five-
tiered numerical rating system. As of April 19, 1993, American Savings' CRA
performance was rated satisfactory. An institution's CRA rating is taken into
account in determining whether to grant charters, branches and other deposit
facilities, relocations, mergers, consolidations and acquisitions. Poor CRA
performance may be the basis for denying an application.
In December 1993, as revised in September 1994, the federal banking agencies,
including OTS, proposed new, uniform CRA regulations. The proposed
regulations establish three tests: (i) a lending test which would evaluate
direct lending in low-income areas and indirect lending to groups that
specialize in community lending; (ii) a service test which would evaluate an
institution's delivery of services to such areas; and, (iii) an investment
test which would evaluate an institution's investment in programs beneficial
to such areas. American Savings cannot predict when the proposed regulations
will become effective or the form that the final regulations will take.
American Savings believes its current operations and policies substantially
comply with the proposed regulations; therefore, if they are adopted as
promulgated, no material changes to operations or policies are expected.
Other Significant Limitations. Federal laws and regulations contain other
provisions affecting the operations of a savings institution, including the
grant of significant authority to the federal regulators to bring enforcement
actions and to appoint a conservator or receiver for a savings institution.
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OTS has extensive enforcement authority over all savings institutions and
their holding companies, including American Savings and Enstar Group. This
enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease and desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or failures to act, including misleading or untimely
reports filed with OTS, provide a basis for enforcement action.
Holding Company Regulation. Enstar Group is a non-diversified unitary savings
institution holding company subject to the regulatory oversight of OTS. As
such, Enstar Group is required to register and file reports with OTS and is
subject to regulation and examination by OTS. In addition, OTS has
enforcement authority over Enstar Group and its non-savings institution
subsidiaries. Among other things, this authority permits OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings institution. American Savings must notify OTS before declaring any
dividend to Enstar Group.
Pursuant to an OTS regulation, persons or companies, like Enstar Group, that
control a savings institution and are subject to a capital maintenance
obligation towards the institution must provide OTS with notice prior to
divesting control of the savings institution. The regulation allows acquirors
to complete a proposed divestiture upon paying, or guaranteeing to pay,
amounts then due under a capital maintenance obligation. See "Capital
Maintenance Agreement," and "Background - Enstar Group Chapter 11
Proceedings."
Enstar Group has advised OTS, by filing Form DV, of its intent to divest
holdings in American Savings Common Stock.
Transactions with Affiliates. As a federally chartered savings institution,
American Savings is subject to OTS regulations relating to transactions with
affiliates, including officers and directors. American Savings is subject to
substantially similar restrictions regarding affiliate transactions as those
imposed on member banks under Sections 22(g), 22(h), 23A, and 23B of the
Federal Reserve Act.
Sections 22(g) and 22(h) establish restrictions on loans to directors,
controlling shareholders and their related companies and certain officers.
Section 22(g) provides that no institution may extend credit to an executive
officer unless (i) the bank would be authorized to make such extension of
credit to borrowers other than its officers, (ii) the extension of credit is
on terms not more favorable than those afforded to other borrowers, (iii) the
officer has submitted a detailed current financial statement, and (iv) the
extension of credit is on condition that it shall become due and payable on
demand at any time that the officer is indebted to any other bank or banks on
account of extensions of credit in any one of the following three categories
respectively in an aggregate amount greater than the amount of credit of the
same category that could be extended to the officer by the institution: (a) an
extension of credit secured by a first lien on a dwelling which is expected to
be owned by the officer and used by the officer as his or her residence, (b)
an extension of credit to finance the education of the children of the
officer, or (c) for any other purposed prescribed by OTS. Section 22(g) also
imposes reporting requirements on both the officers to whom it applies and on
the institution. Section 22(h) requires that loans to directors, controlling
shareholders and their related companies and certain officers be made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons
and that those loans do not involve more than the normal risk of repayment or
present other unfavorable features. Such loans are limited in amount (based
in part on the capital position of the financial institution) and may be
subject to prior approval of a majority of the financial institution's board
of directors, with the interested director not participating, directly or
indirectly, in the vote.
Section 23A limits transactions with any one affiliate to 10% of the
institution's capital and surplus (including supervisory goodwill to the
extent that it may be included in core capital through July 1, 1995) and
limits aggregate affiliate transactions to 20% of such capital and surplus.
Sections 23A and 23B provide that a loan transaction with an affiliate
generally must be collateralized (other than by a low-quality asset or by
securities issued by an affiliate) and that all covered transactions as well
as the sale of assets, the payment of money, or the providing of services by a
savings institution to an affiliate must be on terms and conditions that are
substantially the same, or at least as favorable to the savings institution,
as those prevailing for comparable nonaffiliated transactions. A covered
transaction is defined as a loan to an affiliate, the purchase of securities
issued by an affiliate, the purchase of assets from an affiliate (with some
exceptions), the acceptance of securities
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issued by an affiliate as collateral for a loan, or the issuance of a
guarantee, acceptance or letter of credit on behalf of an affiliate. OTS
regulations clarify that transactions between either a thrift or a thrift
subsidiary and an unaffiliated person that benefit an affiliate are considered
covered transactions. A savings institution may make loans to or otherwise
extend credit to an affiliate only if the affiliate is engaged solely in
activities permissible for bank holding companies. In addition, no savings
institution may purchase the securities of any affiliate other than the shares
of a subsidiary. For purposes of Section 23A, the term affiliate does not
include individuals. The Director of OTS may further restrict these
transactions in the interest of safety and soundness.
Restrictions on Acquisitions. Under the BHCA, the approval of the FRB would
be required before any company that controlled a "bank" as defined in BHCA
(e.g., a commercial bank) could acquire and operate a savings institution such
as American Savings.
The Change in Bank Control Act and the savings institution holding company
provisions of HOLA, together with the regulations of OTS under those acts,
require that OTS consent before any person or company acquires "control" of a
savings institution or a savings institution holding company. Control is
conclusively presumed to exist if an individual or company acquires more than
25% of any class of voting stock of the institution. Control is rebuttably
presumed to exist if a person acquires more than 10% of any class of voting
stock (or more than 25% of any class of non-voting stock) and is subject to
any of several "control factors." The control factors relate, among other
matters, to the relative ownership position of a person, the percentage of
debt and/or equity of the institution controlled by the person, agreements
giving the person influence over a material aspect of the operations of the
institution and the number of seats on the board of directors of the
institution held by the person or person's designees. The regulations provide
a procedure for challenge of the rebuttable control presumption. OTS may also
prohibit an acquisition of control if it finds, among other things, that the
acquisition would result in a monopoly or substantially lessen competition.
Federal Home Loan Banks. The FHLB System (consisting of 12 regional FHLBs
subject to FHFB supervision and regulation) provides a central credit facility
for member savings institutions. As a member of the FHLB System, American
Savings is entitled to borrow funds from FHLB of Atlanta and is required to
own stock of FHLB of Atlanta in an amount at least equal to the greater of 1%
of the outstanding balance of its residential mortgage loans at the beginning
of each year, or 5% of its outstanding advances from FHLB of Atlanta. At
December 31, 1994, American Savings held stock of FHLB of Atlanta having a
carrying value of approximately $25,181,000. American Savings purchased
$2,993,000 of additional stock of FHLB of Atlanta in March 1995 to comply with
this ownership requirement. For the fiscal year ended December 31, 1994,
dividends on American Savings' FHLB of Atlanta stock were $1,510,000.
Each FHLB makes loans (advances) to members in accordance with policies and
procedures established by the board of directors of the FHLB. These policies
and procedures are subject to the regulation and oversight of the FHFB. The
FHLBA establishes collateral requirements for FHLB Advances. First, all FHLB
Advances must be fully secured by sufficient collateral as determined by the
FHLB of Atlanta. FHLBA prescribes eligible collateral as first mortgage loans
less than 90 days delinquent or securities evidencing interests therein,
securities (including MBSs) issued, insured or guaranteed by the federal
government or any agency thereof, FHLB deposits and, to a limited extent, real
estate with readily ascertainable value in which a perfected security interest
may be obtained. All long-term advances are required to provide funds for
residential home financing. The FHLB of Atlanta has established standards of
community service that members must meet to maintain access to long-term
advances.
Certain provisions of FIRREA require all 12 FHLBs to contribute funds to the
Resolution Funding Corporation. In addition, pursuant to FIRREA, each FHLB is
required to establish programs for affordable housing that provide interest
subsidies from the FHLBs on advances to members engaged in lending at
subsidized interest rates for low- and moderate-income, owner-occupied
housing, affordable rental housing, and for other community purposes. These
contributions are expected to affect adversely the level of FHLB dividends
paid and the value of FHLB stock, as well as interest rates payable on, and
availability of, advances from the FHLB of Atlanta in the future.
OTS Liquidity Requirements. All savings institutions are required to maintain
an average daily balance of liquid assets (cash, certain time deposits,
bankers' acceptances, specified United States government, state or federal
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agency obligations, and other corporate debt obligations and commercial paper)
equal to 5% of the sum of the average daily balance during the preceding
calendar month of net withdrawable accounts and short-term borrowings payable
in one year or less. The liquidity requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of
all savings institutions. All savings institutions are also required to
maintain an average daily balance of short-term liquid assets (generally
having maturities of 12 months or less) equal to at least 1% of average daily
balance of net withdrawable accounts and current borrowings. Penalties may be
imposed by OTS for violations of liquidity requirements. At December 31,
1994, American Savings' liquidity and short-term liquidity percentages as
calculated for these purposes were 7.7% and 1.3%, respectively, in conformity
with these requirements.
Federal Reserve System. The FRB regulations require savings institutions to
maintain non-interest bearing reserves against their transaction accounts
(which include deposit accounts that may be accessed by writing checks) and
non-personal time deposits. The FRB has authority to adjust reserve
percentages and to impose in specified circumstances emergency and
supplemental reserves in excess of the percentage limitations otherwise
prescribed. The balances maintained to meet the reserve requirements imposed
by the FRB may be used to satisfy liquidity requirements which may be imposed
by OTS. At December 31, 1994, American Savings complied with the reserve
requirement.
Under FRB regulations, funds from checks drawn on local depository
institutions generally must be available to the customer after one intervening
business day following deposit, and generally funds from other items must be
available after four intervening business days. American Savings must also
disclose its check-hold policy to its customers.
Savings institutions are authorized to borrow from the FRB "discount window,"
but FRB regulations require institutions to exhaust other reasonable
alternative sources of funds, including FHLB Advances, before borrowing from
the Federal Reserve Bank.
Capital Maintenance Agreement
Under the terms of the Capital Maintenance Agreement, discussed under
"Background - Enstar Group Chapter 11 Proceedings," Enstar Group is required
to maintain American Savings' capital at regulatory required levels, and to
infuse capital if necessary. The Capital Maintenance Agreement also provides
that American Savings may not pay dividends or repurchase stock unless the
payment of dividends or repurchase of stock would not reduce the regulatory
capital of American Savings below its regulatory capital requirement. See
Note 22(C). If that condition is met, the Capital Maintenance Agreement
provides that American Savings (i) may pay dividends in an aggregate amount of
not more than 50% of American Savings' net income for its fiscal year as
reflected in American Savings' audited financial reports, (ii) may pay
dividends in an aggregate amount of not more than 75% of American Savings' net
income for its fiscal year as reflected in American Savings' audited financial
reports if American Savings' regulatory capital is equal to or greater than
its fully phased-in regulatory capital requirement, and (iii) may pay
dividends in an aggregate amount of not more than 90% of American Savings' net
income for its fiscal year as reflected in American Savings' audited financial
reports if American Savings' regulatory capital is equal to or greater than
(a) its fully phased-in regulatory capital requirements plus (b) 2% of
American Savings' liabilities. The calendar year constitutes the fiscal year
for net income availability computations pursuant to the Capital Maintenance
Agreement. See Notes 22(C) and 22(D).
For a discussion of the possible consequences of Enstar Group's default under
the Capital Maintenance Agreement and Enstar Group's Chapter 11 proceedings,
see "Background - Enstar Group Chapter 11 Proceedings."
Florida Law
Under Florida law, American Savings is not subject to any usury ceiling on
loans secured by a first lien on real estate and certain other secured loans.
Other types of loans are generally subject to Florida's statutory usury
ceiling which is currently 18% per annum. Additionally, certain types of
loans in excess of $500,000 may legally carry an interest rate of up to 25%
per annum.
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Taxation
With certain exceptions, including the special bad debt reserve rules
discussed below, savings institutions are subject to federal income tax under
the rules of the Code, in the same general manner as other corporations. For
federal income tax purposes, American Savings reports its income and expenses
on the accrual method of accounting.
Savings institutions that meet certain definitional tests and other conditions
prescribed by the Code, relating primarily to the composition of their assets
and the nature of their business activities are, within certain limitations,
permitted to establish, and deduct additions to, reserves for bad debts in
amounts in excess of those which would otherwise be allowable on the basis of
actual loss experience. A qualifying savings institution may elect annually,
and is not bound by such election in any subsequent year, one of the following
two methods for computing additions to its bad debt reserves for losses on
"qualifying real property loans" (generally, loans secured by interests in
improved real property): (i) the experience method or (ii) the percentage of
taxable income method. American Savings has utilized both the percentage of
taxable income method and the experience method in computing the tax-
deductible addition to its bad debt reserves. Additions to the reserve for
losses on non-qualifying loans, however, must be computed under the experience
method and reduce the current year's addition to the reserve for losses on
qualifying real property loans, unless that addition also is determined under
the experience method. The sum of the addition to each reserve for each year
is American Savings' annual bad debt deduction. If the percentage of American
Savings' specified qualifying assets (generally, loans secured by residential
real estate or deposits, educational loans, cash, government obligations and
certain certificates of deposit) were to fall below 60% of its total assets,
American Savings would not be eligible to claim further bad debt reserve
deductions, and would recapture into income all of its previously accumulated
bad debt reserves. On December 31, 1994, specified qualifying assets of
American Savings were in excess of 60% of its total assets.
The experience method allows a savings institution to deduct the greater of an
amount based upon a six-year moving average of loan losses or an amount
determined with respect to its bad debt reserve for the "base year." The
"base year" is, for these purposes, the last taxable year beginning before
1988. For the past three taxable years, American Savings has utilized the
experience method for computing additions to its tax bad debt reserves on
qualifying and nonqualifying loans. As of December 31, 1994, American Savings
had base year bad debt reserves for federal income tax purposes of $59,600,000
for which no deferred taxes have been provided.
Under the percentage of taxable income method, the bad debt deduction equals
8% of taxable income determined without regard to that deduction and with
certain adjustments. The percentage bad debt deduction thus computed is
reduced by the amount permitted as a deduction for the addition to the reserve
for losses on non-qualifying loans, which must be computed under the
experience method. The availability of the percentage of taxable income
method permits qualifying savings institutions to be taxed at a lower maximum
effective federal income tax rate than that applicable to corporations
generally. The effective maximum marginal federal income tax rate applicable
to a qualifying savings institution (exclusive of the alternative minimum
tax), assuming the maximum percentage bad debt deduction, is approximately
32.2%.
A qualifying savings institution, such as American Savings, that is a member
of a group of affiliated corporations that files consolidated income tax
returns for federal income tax purposes is required under current Treasury
Department regulations to reduce its taxable income for purposes of
calculating its bad debt deduction under the percentage of taxable income
method for losses that are attributable to other savings institution members
of the consolidated group and to "functionally-related" activities of the non-
savings institution members of the group. There presently are no other
savings institution members of American Savings' consolidated group, and
American Savings has not been required to reduce its taxable income for such
purposes, on account of functionally-related activities of non-savings
institution members of the group, as a result of the Treasury Department
regulations. Because the effect of these regulations depends on the results
of operations, no prediction can be made as to the extent to which these
regulations may reduce the amount of the bad debt deduction available to
American Savings in the future.
The percentage of taxable income method is available only to the extent that
amounts accumulated in reserves for losses on qualifying real property loans
do not exceed 6% of such loans at year-end. Use of this method is
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further limited to the greater of (i) the amount which, when added to the amount
computed for the addition to the reserve for losses on non-qualifying loans,
equals the amount by which 12% of savings deposits or withdrawable accounts of
depositors at year-end exceeds the sum of surplus, undivided profits and
reserves at the beginning of the year or (ii) the amount determined under the
experience method. On December 31, 1994, none of these limitations would have
restricted the deduction for the addition to the reserve for bad debts
available to American Savings under the percentage of taxable income method.
To the extent that (i) a savings institution's reserve for losses on
qualifying real property loans exceeds the amount that would have been allowed
under the experience method and (ii) it makes distributions to stockholders
that are considered to result in withdrawals from that excess bad debt
reserve, then the amounts withdrawn will be included in its taxable income.
The amount considered to be withdrawn by a distribution will be the amount of
the distribution plus the amount necessary to pay the tax with respect to the
withdrawal. Dividends paid out of the savings institution's current or
accumulated earnings and profits, as calculated for federal income tax
purposes, will not be considered to result in withdrawals from its bad debt
reserves. Currently, American Savings' reserve for losses on qualifying real
property loans does not exceed the amount that would have been allowed under
the experience method.
Corporations, including savings institutions, such as American Savings,
generally are subject to the alternative minimum tax, to the extent that the
amount of such tax exceeds the amount of the corporation's regular income tax.
The Code imposes this tax at the rate of 20% on a corporation's AMTI, that is,
regular taxable income with certain adjustments plus tax preference items,
less any available exemption. Tax preference items for these purposes
include, among other items, (i) the excess of a savings institution's
deduction for an addition to its reserve for bad debts over the amount that
would have been allowable if such deduction had been computed under the
experience method, and (ii) interest on certain tax-exempt bonds issued after
August 7, 1986. In addition, for each taxable year beginning after 1989, a
corporation's AMTI is increased by three-quarters of the excess of adjusted
current earnings over AMTI without this addition. For any taxable year
beginning after 1986, no more than 90% of the AMTI may be offset by net
operating losses (as modified for AMTI purposes). In addition, for taxable
years beginning after December 31, 1986, and before January 1, 1996, an
environmental tax of 0.12% of the excess of AMTI (with certain modifications)
over $2,000,000 is imposed on corporations, including American Savings,
whether or not an alternative minimum tax is paid. Payments of alternative
minimum tax attributable to certain adjustments and preferences may be used as
credits against a portion of the regular tax liabilities in future years.
On March 6, 1990, Enstar Group effected the American Savings Distribution.
For taxable years commencing after April 30, 1988 and prior to March 6, 1990,
American Savings and its subsidiaries were included in the Enstar Consolidated
Group for income tax purposes. As a result of the American Savings
Distribution, the tax year of American Savings and its subsidiaries ended on
that date. The income or loss of American Savings and its subsidiaries for
the tax year ending on the date of the American Savings Distribution was
included in the consolidated return of the Enstar Consolidated Group. For
taxable years commencing after March 6, 1990, American Savings and its
subsidiaries file a separate consolidated return with American Savings as the
common parent.
The Code imposes limitations on the use of net operating loss carryforwards
(and, in certain cases, deductions attributable to prior periods and net
recognized built-in losses, as defined in the Code) following an "ownership
change" of a corporation for federal income tax purposes. Generally, an
ownership change occurs if ownership of more than 50% of the stock (by value)
of the corporation changes during any three year period. For "testing dates"
(the date on which ownership is tested to determine if an ownership change has
occurred), prior to November 5, 1992, options to acquire stock were treated as
exercised. For testing dates on or after November 5, 1992, options to acquire
stock are generally treated as not exercised unless the issuance or transfer
of the option was for an abusive principal purpose, as defined in the Treasury
Regulations. Entity ownership of stock is attributed to the entity's owners
(for a corporation, its shareholders). The limitation generally equals a
percentage prescribed by the Internal Revenue Service times the value of the
stock of the corporation immediately before the ownership change. If the
taxable income for a year is less than the annual Section 382 limitation for
the year, the excess is added to the Section 382 limitation for the next year.
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The limitation period for assessment of American Savings' federal, state and
local income taxes has not expired for tax years commencing on or after
September 1, 1990. Additionally, the Enstar Group federal consolidated tax
return for the tax year ended August 31, 1990 may be open for assessment with
respect to American Savings as a result of the bankruptcy of Enstar Group.
Further, the limitation period for assessment of New York City General
Corporation Taxes for Kaufmann, Alsberg & Co., Inc., a former subsidiary of
American Savings, has not expired for tax years ending September 30, 1987 and
thereafter.
The Internal Revenue Service has examined the consolidated federal income tax
returns of American Savings through fiscal year 1978 and has accepted without
examination the consolidated federal income tax returns of American Savings
through fiscal year 1982.
Under the laws of the State of Florida, American Savings and its subsidiaries
are subject to a corporate franchise tax of 5.5% of taxable income. The tax
may be reduced by a credit of up to 65% (40% prior to July 1, 1990) of the tax
due as a result of certain intangible taxes paid. The tax is deductible by
American Savings in determining its federal income tax liability.
For further information regarding taxation of American Savings, see Note 18.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table gives information concerning each executive officer of
American Savings as of February 28, 1995, and each other person who served as
an executive officer of American Savings during the fiscal year ended December
31, 1994:
Current Executive Officers of American Savings
Stephen D. Taylor, age 49, director, President and Chief Executive Officer of
American Savings since September 1991. Chief Credit Officer for U.S. non-
credit card consumer portfolios at Citicorp, parent of Citibank, N.A., New
York from October 1988 until September 1991.
Robert Arena, age 46, Executive Vice President - Commercial/Consumer Lending
Group of American Savings since August 1994. Senior Vice President -
Commercial/Consumer Lending Group of American Savings from April 1993 until
August 1994. Senior Vice President, Commercial Real Estate of American
Savings from April 1992 until April 1993. Previously, Vice President,
Commercial Real Estate and director of Citibank (Florida), National
Association.
Alan B. Goldstein, age 43, Executive Vice President of American Savings since
November 1985. Since July 1984, General Counsel and Secretary of American
Savings, and Secretary and, from time to time, holder of other offices, of its
principal subsidiaries. Treasurer of American Savings from July 1991 until
May 1992. Director of American Savings from December 1990 until May 1991.
Linda M. Haskins, C.P.A., age 41, Executive Vice President - Chief Financial
Officer of American Savings since August 1994. Executive Vice President -
Finance Group of American Savings from April 1993 until August 1994.
Executive Vice President, Finance and Controller of American Savings from
February 1992 until April 1993. Previously, Senior Vice President and
Controller of American Savings.
Charles H. Holland, Jr., age 51, Executive Vice President - Corporate Support
Group and Chief Operating Officer of American Savings since February 1995.
Executive Vice President - Corporate Support Group of American Savings from
March 1992 until February 1995. Consultant to American Savings from November
1991 until March 1992. Previously, Vice President, Corporate Technology
Office of Citicorp. Since 1992, President of American Savings Trust, Inc., a
subsidiary of American Savings.
Barbara E. Mahoney, age 47, Executive Vice President - Retail Banking Group of
American Savings since December 1991. Executive Vice President,
Administration and Operations of American Savings from December 1989 until
December 1991.
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Charles H. Williams, age 47, Executive Vice President - Mortgage Lending Group
of American Savings since November 1993. Senior Vice President - Mortgage
Lending Group of American Savings from December 1991 until November 1993.
Previously, Senior Vice President, Mortgage Lending Director and a director of
Citibank, F.S.B. and Citibank (Florida), National Association, both indirect
subsidiaries of Citicorp and headquartered in Miami, Florida.
Carlos R. Fernandez-Guzman, age 38, Senior Vice President - Market Development
of American Savings since July 1992. From December 1989 until July 1992,
President, Chief Executive Officer, Riverdale Investments, Inc., Miami,
Florida, importer of fresh cut flowers from Latin America and the Caribbean.
Previously, Senior Vice President, Retail Banking Division, Consolidated Bank,
N.A., Hialeah, Florida.
William J. Brodie, age 42, Senior Vice President - Consumer Lending of
American Savings since August 1986.
Thomas T. Chen, age 45, Senior Vice President - Retail Banking Development of
American Savings since December 1991. Previously, Vice President of Citicorp
and holder of various management positions, relating to financial planning and
analysis and retail banking activities, with Citibank, F.S.B. and Citibank
(Florida), National Association.
Steven W. Christopher, age 39, Senior Vice President - Retail Banking
Operations of American Savings since December 1991. Senior Vice President,
Retail Operations Administration of American Savings from January 1990 until
December 1991.
Thomas A. Dorsey, M.A.I., age 43, Senior Vice President - Corporate Services
of American Savings since June 1992. Senior Vice President, Corporate Real
Estate of American Savings from November 1991 until June 1992. Previously,
Senior Vice President, Administrative Services for American Savings.
T. Glynn Gilbert, age 52, Senior Vice President - Community Assets/Commercial
Portfolio Management of American Savings since November 1993. Senior Vice
President - Commercial Real Estate Lending of American Savings from November
1990 until November 1993. Previously, Senior Vice President, West Coast
Regional Director of American Savings.
John G. Hansen, age 44, Senior Vice President - Mortgage Lending Operations of
American Savings since November 1993. Vice President - Mortgage Lending
Operations of American Savings from March 1993 until November 1993. Vice
President - Residential Mortgage Operations of American Savings from February
1992 until March 1993. Previously, Vice President, Asset Management Director,
Service Quality Director and Area Operations Director of Citibank, F.S.B.
George W. Jennings, age 51, Senior Vice President - Commercial Real Estate
Lending of American Savings since February 1994. Vice President - Commercial
Real Estate Lending of American Savings from December 1993 until February
1994. Vice President - Manager, Real Estate Banking, Nationsbank of Florida,
N.A., Fort Lauderdale, Florida from April 1991 until November 1993.
Previously, Senior Vice President - Division Manager, Commercial Real Estate
Lending of Barnett Bank of South Florida, N.A., Miami, Florida.
Clotilde C. Keller, age 43, Controller of American Savings since April 1993.
Senior Vice President of American Savings since February 1992. Associate
Controller of American Savings from February 1992 until April 1993.
Previously, Vice President and Assistant Controller of American Savings.
Gary J. Laurash, age 39, Senior Vice President and Treasurer of American
Savings since April 1993. Vice President, Finance and Treasury of American
Savings from January 1992, and Acting Treasurer of American Savings from
January 1993, until April 1993. From June 1991 until December 1991, Vice
President, MBNA America. Vice President, Treasury, Citibank, N.A. from
October 1989 until June 1991.
M. Ellis McKay, Jr., age 54, Senior Vice President - Mortgage Loan Servicing
of American Savings since October 1989.
Stephanie E. Mintz, age 42, Senior Vice President - Human Resources of
American Savings since December 1990. Previously, Vice President and Director
of Human Resources of American Savings.
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Gerald W. Oliver, age 47, Senior Vice President - Regulatory Compliance of
American Savings since November 1993. CRA Officer of American Savings since
March 1990. Vice President, Regulatory Compliance of American Savings from
March 1990 until November 1993. From June 1988 until March 1990, Vice
President, Corporate Compliance/CRA Officer of American Savings.
Karen J. Orlin, age 46, Senior Vice President - Associate Counsel and
Assistant Secretary of American Savings since October 1988.
Edwin J. Summers, age 58, Senior Vice President - Information Systems and
Central Operations of American Savings since May 1994, joined American Savings
as Vice President - Operations Development in March 1994. From December 1991
until January 1994, consultant on process re-engineering for Aurora National
Life Assurance Co., Los Angeles, California. Previously, Vice President,
Corporate Technology of Citicorp, Santa Monica, California.
Logos T. Yeh, age 44, Senior Vice President and Chief Auditor of American
Savings since May 1992. Principal and Senior Vice President of Special
Services Financial Consulting, Inc. from July 1988 until April 1992.
Gregory Paul Beam, age 44, Vice President - Wholesale Mortgage Lending of
American Savings since October 1993. President, First Fidelity Funding Corp.,
a mortgage banking business from December 1992 until October 1993. President
and shareholder of Priority Credit Service Inc. from June 1991 until December
1992. Previously, Senior Vice President Suncoast Savings and Loan.
John R. Glade, age 32, Vice President - Second Mortgage Lending of American
Savings, since January 1992. Previously, manager in mortgage loan operations
of Citibank, F.S.B.
Judy Kaplan, C.P.A., age 38, Vice President - Finance Management Support of
American Savings since August 1994. Previously, Vice President and Assistant
Controller of American Savings.
John E. K. Holder, age 59, Vice President of Holder Management Services, Inc.,
a consultant to American Savings and other financial institutions since March
1992, with particular emphasis on matters relating to commercial and consumer
lending. Previously, held various senior credit positions with Citicorp.
Certified Financial Planner since 1990.
Former Executive Officers of American Savings Who Served During the Fiscal
Year Ended December 31, 1994
John A. Camino, age 47, Senior Vice President and Chief Information Officer of
American Savings from June 1993 until May 1994. Since January 1991, President
and Chief Executive Officer of Mid-America Training, Cincinnati, Ohio.
Previously, Vice President, Systems and Technology Division, Citibank, F.S.B.
George R. Curtis, age 54, Senior Vice President - Retail Branch Management of
American Savings from February 1994 until June 1994. Vice President - Retail
Business Unit of American Savings from November 1993 until February 1994.
Senior Vice President and branch administrator of Citizens Federal Bank, Fort
Lauderdale, Florida, from September 1991 until November 1993. Previously,
Executive Vice President responsible for retail operations, human resources
and marketing of Hollywood Federal Savings Bank or its predecessor, Hollywood,
Florida.
Rex A. Hoffacker, age 51, joined American Savings as Vice President -
Information Systems Development in August 1993, continues to serve in that
office and ceased to be a member of Senior Management in May 1994. Senior
Vice President, Director of Data Services of Hollywood Federal Savings Bank or
its predecessor from February 1989 until August 1993.
Executive officers are elected annually by the Board to serve for the ensuing
year, or until their respective successors have been elected and qualified,
and serve at the pleasure of the Board. It is anticipated that executive
officers elected in 1995 will serve until the earlier of the Merger Effective
Date or the end of their respective terms.
There are no family relationships among the present or former executive
officers or directors of American Savings listed above.
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Item 2. PROPERTIES
At December 31, 1994, American Savings had 29 retail branches, 10 mortgage
origination offices and one consumer lending office (in addition to its
headquarters) in Florida, of which three were located in retail branches. The
principal executive office and certain other locations operate under leases
that expire at various dates through the year 2010 (excluding optional renewal
terms). At December 31, 1994, the properties owned or leased by American
Savings and used as office facilities had a net book value of $27,287,000,
including leasehold improvements. The properties are more particularly
described in the following table:
Retail Branch Offices
Ownership/Lease
Location Expiration Date
American Savings Corporate Headquarters September 30, 1999 with 3 ten-year
and Retail Branch options (American Savings also
17801 N.W. 2nd Ave., Miami, FL owns adjacent land and portion
of parking lot, included in net
book value above)
Other Retail Branch Offices
1200 Lincoln Rd., Miami Beach, FL Facility owned
12155 Biscayne Blvd., North Miami, FL December 31, 1996
12855 N. Kendall Dr., Miami, FL April 4, 1997
2401 Ponce de Leon Blvd., Coral Gables, FL Facility owned
333 Arthur Godfrey Rd., Miami Beach, FL February 28, 2002 with 2 five-
year options
2925 Aventura Blvd., N. Miami Beach, FL (1) Facility owned
17066 Collins Ave., Miami Beach, FL (2) August 31, 1995 with 2 thirty-
month options
1802 N.E. Miami Gardens Dr., September 30, 1999
North Miami Beach, FL with 1 five-year option
5581 W. Oakland Park Blvd., Lauderhill, FL December 31, 1997 with 6 ten-year
options
1800 E. Hallandale Beach Blvd., December 31, 2003 with 5
Hallandale, FL ten-year options and
1 nine-year option
1950 W. Hillsboro Blvd., December 31, 2009 with 3
Deerfield Beach, FL (1) ten-year options
10480 Taft St., Pembroke Pines, FL March 17, 2002 with 4 five-year
options
3001 N. University Dr., Sunrise, FL (1) October 11, 2000 with 7 ten-year
options and 1 nine-year option
5361 Sheridan St., Hollywood, FL October 31, 2001 with 4 five-year
options
7220 W. Atlantic Blvd., Margate, FL April 30, 2000
10077 W. Oakland Park Blvd., Sunrise, FL August 10, 2002 with 5 ten-year
options
8237 N.W. 88th Ave., Tamarac, FL November 30, 1997 with 2 five-
year options
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Ownership/Lease
Location Expiration Date
4901 Coconut Creek Pkwy., Coconut Creek, FL July 31, 2003 with 4 five-year
options
294 S. Flamingo Rd., Pembroke Pines, FL September 30, 1998 with 1 five-
year option
8890 State Rd. 84, Davie, FL November 30, 2003, with 4 five-
year options
10385 Royal Palm Blvd., Coral Springs, FL March 31, 1998, with 3 five-year
options
1377 W. Palmetto Park Rd., Boca Raton, FL June 30, 1996 with 1 five-year
option
6646 W. Atlantic Ave., Delray Beach, FL Facility owned
9020 Kimberly Blvd., Boca Raton, FL December 31, 2009 with 3 ten-year
options
5849 Okeechobee Blvd., West Palm Facility owned
Beach, FL
6350 Lake Worth Rd., Lake Worth, FL Facility owned
7385 W. Atlantic Ave., Delray, FL June 30, 2010 with 3 ten-year
options, and option to purchase
in 1999
9535 Harding Ave., Surfside, FL February 28, 1999 with 3 five-
year options
Mortgage Offices
220-222 Andalusia Ave., Coral Gables, FL December 31, 1996 with 1 two-year
option
2925 Aventura Blvd., N. Miami Beach, FL Facility owned (also retail
branch)
3001 N. University Dr., Sunrise, FL October 11, 2000 with 7 ten-year
options
and 1 nine-year option (also
retail branch)
1950 W. Hillsboro Blvd., Deerfield Beach, FL December 31, 2009 with 3
ten-year options (also
retail branch)
9951 Atlantic Blvd., Jacksonville, FL July 31, 1995
300 N. County Road 427, Longwood, FL December 31, 1995
2002 N. Lois Avenue, Tampa, FL August 31, 1996
12730 New Brittany Blvd., Ft Myers, FL April 30, 1995
1020 W. 31 St., Downers Grove, IL February 28, 1997, with 1 three-
year option
1111 Plaza Drive, Schaumberg, IL May 15, 1997 with 1 three-year
option
______________________________________
(1) Also mortgage office.
(2) Temporarily relocated to 18090 Collins Avenue, Miami Beach, FL
under month-to-month lease pending repairs due to fire damage.
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Ownership/Lease
Location Expiration Date
Consumer Lending Office
2600 Maitland Center Parkway, Maitland, FL January 31, 1997 with 1 three-
year option
Developed Land - Former Retail Branches Not Currently Used
2500 E. Hallandale Beach Blvd., Hallandale, FL October 31, 1995 with 8
five-year options
200 71st St., Miami Beach, FL June 30, 1995
Data Processing Equipment
American Savings (including its consolidated subsidiaries) owns computers,
peripheral equipment and terminals used for the purpose of providing in-house
data processing services. Equipment owned by American Savings has a net book
value at December 31, 1994 of $1,091,000.
Item 3. LEGAL PROCEEDINGS
The Unsecured Creditors' Committee of General Homes Corporation v. American
Savings & Loan Association of Florida, et al. On August 16, 1991, the General
Homes Creditors' Committee filed the General Homes Amended Complaint, naming
American Savings as a defendant in an adversary proceeding within General
Homes' Bankruptcy Case No. 90-04810-H3-11 pending in the Texas Bankruptcy
Court. On that date, a complaint that the General Homes Creditors' Committee
had filed on June 19, 1991 was voluntarily dismissed. The General Homes
Amended Complaint also names as defendants the Bank Group as well as its
investment advisers.
The General Homes Amended Complaint alleges, among other things, that American
Savings, individually and together with other members of the Bank Group, were
insiders of and controlled General Homes, received fraudulent conveyances and
preferences from General Homes under the Bankruptcy Code and have failed to
repay to General Homes' estate the amounts received. The General Homes
Amended Complaint also alleges that the Bank Group participated (primarily
through the banks' alleged control of General Homes) in an alleged fraud by
General Homes in connection with sales of subordinated debt to the public by
means of fraudulent accounting practices and other manipulations that inflated
the value of General Homes' assets. The General Homes Creditors' Committee
seeks to have all claims of American Savings and the Bank Group against
General Homes' estate disallowed or subordinated to other claims against the
estate, and reclassified as equity, as well as costs and expenses of
plaintiff, including reasonable attorneys' fees and such other and further
relief as the Texas Bankruptcy Court deems just and appropriate. Counsel for
all defendants have moved for dismissal of the case. The Bank Group and
American Savings also have moved for summary judgment as to them.
The General Homes Plan was confirmed by the Texas Bankruptcy Court on
October 30, 1991. Under the General Homes Plan, the Bank Group is entitled to
receive a combination of cash, a note, the right to proceeds in a liquidating
trust and stock of the reorganized debtor. Additionally, under the General
Homes Plan, claims of General Homes' estate against the Bank Group, including
American Savings, are released. The General Homes Creditors' Committee
appealed from the judgment confirming the General Homes Plan, but its motion
to stay the judgment pending appeal was denied, and substantially all
distributions have been made on the Bank Group's claims.
Should the General Homes Creditors' Committee's efforts to subordinate the
Bank Group's debt be successful, the members of the Bank Group would be
required to return to the estate all distributions of cash and their interests
in the other assets in General Homes' estate. American Savings has a 5.34%
interest in the Bank Group's claims, as to which it has received, as of
January 31, 1995, distributions of $5,142,000 in cash, and has recorded
$524,000, net of $486,000 reserve, on its books as its pro rata share of the
additional assets to be
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distributed. Additionally, should the judgment
confirming the General Homes Plan be reversed, the General Homes Creditors'
Committee may seek to have claims asserted against American Savings and the
Bank Group for recovery of various transfers, originally alleged to be in
excess of $200,000,000 in the aggregate, as preferences or fraudulent
conveyances.
American Savings believes the amended complaint described above to be without
merit. Moreover, the General Homes Creditors' Committee and the Bank Group
have approved the terms of a settlement agreement, which would dismiss the
litigation that the General Homes Creditors' Committee filed against the Bank
Group and which contemplates dismissal of the General Homes Creditors'
Committee's appeal of the judgment confirming the General Homes Plan. The
settlement agreement, however, is dependent upon bankruptcy court approval,
and there is no assurance that it will become final.
In the event that the settlement agreement is not approved by the bankruptcy
court, American Savings intends to defend the proceeding vigorously. See Note
25(C).
American Savings of Florida, F.S.B. v. Michael Milken, Lowell Milken et al.
On November 14, 1991, American Savings filed suit in the United States
District Court for the Southern District of Florida (Case No. 91-2611) against
Michael Milken, Lowell Milken and numerous other persons and entities related
to the Milkens or to Drexel Burnham Lambert Incorporated. The suit alleged,
among other things, that the defendants, through the use of false and
misleading statements concerning the nature, value, risks and liquidity of
junk bonds and through control and manipulation of the junk bond market,
corruptly obtained influence and control over American Savings, Enstar Group
and their affiliates and used the control to cause these entities to make
investments in junk bonds that were unsuitable or overpriced. The suit
asserted, among other things, that these actions violated federal and state
securities, antitrust and federal racketeering (RICO) laws and constituted
common law fraud, breach of fiduciary duty, unfair competition and violations
of other statutory and common law rules.
In the action, American Savings sought, on behalf of itself and Enstar Group,
among other things, compensatory, consequential, punitive, rescissionary and
treble damages and costs of the suit, including attorneys' fees. Damages
before trebling were estimated to be an amount in excess of $370,000,000.
The action was dismissed when American Savings agreed to participate in a
global settlement of claims then pending in the United States District Court
for the Southern District of New York, including the claims of American
Savings and Enstar Group, against the Milken parties. The global settlement
was finalized by court order on September 29, 1993. American Savings was
represented on the committee that formulated the plan to allocate the proceeds
of the settlement. Claims will be paid from a fund of approximately
$250,000,000 (the "Fund"), consisting of monies obtained from Michael Milken,
certain of his affiliates and the Securities and Exchange Commission Fund. In
excess of $200,000,000 of this amount has been collected to date and the
balance is scheduled to be paid into the Fund by the end of 1995. In February
1995, American Savings recorded a pretax recovery of $3,300,000, net of
certain estimated fees and expenses, including attorneys' fees, from amounts
received from the Fund. This amount represents payment of a substantial
portion of the settlement of American Savings' direct claims against the
Milken parties. American Savings' receipt in the future of any additional
monies from the Fund is wholly dependent upon the Fund's receipt of
anticipated payments from third parties, which payments cannot be assured.
Certain of the claims asserted as part of the suit were assigned to American
Savings by Enstar Group as part of the ongoing restructuring of the commercial
relationships between Enstar Group and American Savings begun in 1990. The
assignment agreement provides that any amounts payable by the defendants as a
result of a final judgment or settlement of the action, after deduction and
reimbursement of costs and expenses paid by American Savings and Enstar Group,
and after deduction of attorneys' fees and expenses, will be allocated 20% to
American Savings and 80% to Enstar Group. Enstar Group's share of any
proceeds from the suit will be distributed to its creditors, including
American Savings, pursuant to the Bankruptcy Plan. The assignment of Enstar
Group's claims to American Savings was approved by OTS, subject to certain
conditions, and by the Alabama Bankruptcy Court in Enstar Group's Chapter 11
proceedings. Under the Bankruptcy Plan, two-thirds of Enstar Group's
distribution would be made to American Savings and one-third to other
creditors. Enstar Group has informed American Savings that it intends to
provide a tax reserve and an expense reserve prior to distribution. American
Savings has also been informed by Enstar Group that Enstar Group expects to
distribute to American
32
<PAGE>
Savings between $4,000,000 and $4,500,000, during the
second quarter of 1995. The assignment of Enstar Group's claims to American
Savings was approved by OTS, subject to certain conditions, and by the Alabama
Bankruptcy Court in Enstar Group's Chapter 11 proceedings. See Part I,
Item 1. Business -"Background - Enstar Group Chapter 11 Proceedings" and
Note 1.
American Savings of Florida, F.S.B. v. Kirkpatrick and Lockhart, et. al. In
October 1992, OTS advised American Savings that it had effected, through OTS
cease and desist orders, a settlement, for $11,200,000, of its enforcement
action and American Savings' private lawsuit against American Savings' former
law firm, Kirkpatrick & Lockhart; Alan J. Berkeley, a senior partner of that
firm; Harris C. Friedman, former Chairman of the Board, President and Chief
Executive Officer of American Savings; and Richard J. Grassgreen, a former
director of American Savings. Of the $11,200,000, Kirkpatrick & Lockhart
agreed to pay $9,000,000 to OTS for the benefit of American Savings. In
addition, Harris Friedman agreed to pay $700,000 and Richard Grassgreen agreed
to deliver a $1,500,000 promissory note payable in five annual installments of
$300,000, beginning in November 1992. During February 1993, Mr. Grassgreen
filed for protection under Chapter 11 of the Bankruptcy Code. During 1994,
American Savings received $576,000 directly from the Grassgreen bankruptcy
estate in settlement of its claim and in February 1995, American Savings
received an additional $300,000 indirectly related to the Grassgreen
settlement.
The OTS settlement documents provide that 10% of the settlement amounts was
allocated to the settlement of American Savings' private lawsuit and the
remaining 90% was allocated to the OTS enforcement action. Further, pursuant
to the cease and desist orders and by the Supervisory Directive dated October
21, 1992, OTS directed American Savings to pay its litigation attorneys in the
private lawsuit no more than a total of 33-1/3% of 10% of the settlement
amounts, as and when collected, or $373,333, if all settlement amounts are
collected. On October 9, 1992, American Savings was served with a charging
lien, filed in the Circuit Court of the 11th Judicial Circuit in and for Dade
County, Florida (Case No. 91-50064 CA 28), for attorneys fees and costs by its
attorneys in its private lawsuit, asserting a claim in the amount of 33-1/3%
of all amounts to be paid to or for the benefit of American Savings in
settlement of both OTS's enforcement action and American Savings' private
lawsuit, which would equal $3,733,333.
Pursuant to the OTS Supervisory Directive of October 21, 1992, OTS elected to
recover from American Savings $350,000 for its costs of investigation and
settlement proceedings.
In February 1995 and during 1994, 1993 and 1992, American Savings received
cash payments of $300,000, $576,000, $500,000 and $9,500,000, respectively.
These amounts are included in American Savings' results of operations for each
of those periods after deducting legal fees aggregating approximately
$362,000, representing the amount due to American Savings' litigation
attorneys under the OTS directive, and $350,000 paid to OTS. Attorneys' fees
related to amounts recovered through February 1995, according to the charging
lien, could range from $362,000 to $3,620,000 in principal amount. American
Savings accrued, against the amounts it had received ($10,876,000), and paid,
pursuant to the OTS Supervisory Directive entered on October 21, 1992,
attorneys' fees of $362,000.
On June 29, 1994, the OTS entered an Order to Cease and Desist ("C & D")
against American Savings (to which American Savings consented), reaffirming
its Supervisory Directive of October 21, 1992 directing and ordering American
Savings not to make any payment to the charging lien claimants without prior
written approval of OTS in excess of $373,333 (1/3 of 10% of the settlement
amounts, if fully collected), less amounts previously paid, for attorneys'
fees, in satisfaction of the charging lien or any judgment that may be entered
in the related litigation.
On July 26, 1994, the Circuit Court of the 11th Judicial Circuit in and for
Dade County, Florida (the "Circuit Court") issued a final order determining
entitlement to and awarding attorneys' fees in connection with the charging
lien. The order awarded to the charging lien claimants the sum of
approximately $3,000,000, plus prejudgment interest, less amounts previously
paid or credited to them as fees. The Circuit Court retained jurisdiction to
award attorneys' fees and costs. An amended final judgment in the amount of
approximately $3,624,000, including prejudgment interest, was entered on
August 1, 1994, as a result of certain errors of calculation in the original
judgment. The Circuit Court's order is in conflict with the C & D and the
Supervisory Directive.
33
<PAGE>
After consultation with counsel, American Savings believes that the Circuit
Court award is in error, particularly in light of the prior, contrary, OTS
mandates, and intends to vigorously pursue the appeal of the court order,
which was initiated by trial counsel for American Savings on August 23, 1994,
in the Third District Court of Appeals of the State of Florida (Case No. 94-
02051), as well as other potential available remedies. In view of the
foregoing, American Savings has not accrued additional fees awarded to the
charging lien claimants as a result of the court order. Additional amounts,
if any, will be charged against future results of operations.
On July 27, 1994, the charging lien claimants filed a Petition for Review
against OTS in the United States Court of Appeals for the Eleventh Circuit,
seeking that the C & D be enjoined, suspended, terminated or otherwise
modified. American Savings was not named as a party to the action and cannot
predict its outcome or the extent to which it may affect the charging lien
litigation.
American Savings cannot predict the effect of the Merger, if any, upon this
litigation.
In re The Enstar Group, Inc. For a discussion of Enstar Group's Chapter 11
proceedings, see Part I, Item 1. Business - "Background - Enstar Group Chapter
11 Proceedings" and Note 1.
American Savings is named as a defendant in various other lawsuits filed from
time to time involving claims arising in the ordinary course of American
Savings' business and, in American Savings' belief, such claims and lawsuits
as have arisen in the ordinary course and are pending will not have a material
adverse effect on the consolidated financial condition of American Savings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of American Savings
during the three months ended December 31, 1994.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common Stock
The shares of American Savings Common Stock are registered pursuant to Section
12(g) of the 1934 Act. Until June 30, 1992, the shares were included for
quotation on NASDAQ and from that date until June 15, 1993, they were traded
on The Nasdaq Small-Cap Market. Since June 15, 1993 they have traded on The
Nasdaq Stock Market, under the symbol "ASFL."
As of February 28, 1995, Enstar Group owned 48.5% of the outstanding shares of
American Savings Common Stock. On February 28, 1995, the number of holders of
record of American Savings Common Stock was 8,429. For a discussion of the
right of Enstar Group to vote its shares of American Savings Common Stock, see
Part I, Item 1. Business - "Background - Enstar Group Chapter 11
Proceedings."
The prices set forth in the following table have been adjusted to reflect a
one-for-five reverse split of all issued and outstanding shares of American
Savings Common Stock which became effective at the close of business on April
27, 1993. The following table sets forth the high and low sales prices
reflecting sales and price information available for shares traded on The
Nasdaq Small-Cap Market or The Nasdaq Stock Market, as applicable.
High Sales Low Sales
January 1, 1993 to March 31, 1993 13 1/8 10 5/16
April 1, 1993 to June 30, 1993 13 1/8 9 3/4
July 1, 1993 to September 30, 1993 18 3/4 11 3/8
October 1, 1993 to December 31, 1993 20 3/8 17 1/2
January 1, 1994 to March 31, 1994 22 1/4 17 1/2
April 1, 1994 to June 30, 1994 23 1/4 20 5/8
July 1, 1994 to September 30, 1994 23 3/8 17 7/8
October 1, 1994 to December 31, 1994 21 3/4 15 1/8
34
<PAGE>
The payment of cash dividends by American Savings is subject to various
federal regulations. See Part I, Item 1. Business - "Regulation - Federal Law
- Capital Distributions," "- Capital Maintenance Agreement," and "-
Restrictions on Payment of Dividends," and Note 22(C). No cash dividends have
been paid on American Savings Common Stock since such stock became publicly
traded in 1990.
Item 6. SELECTED FINANCIAL DATA
The following selected financial data (dollar amounts in thousands) under the
captions "Summary of Operations Data" and "Financial Condition Data" have been
derived from the consolidated financial statements of American Savings and its
subsidiaries, which financial statements at and for the years ended
December 31, 1994, 1993, 1992, 1991 and 1990 have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. The consolidated
financial statements at and for the years ended December 31, 1994, 1993 and
1992 and the report thereon are included elsewhere herein. This data should
be read in conjunction with, and is qualified by reference to, the
consolidated financial statements of American Savings and its subsidiaries,
the related Notes and the audit report, which refers to a change in the method
of accounting for investments and a change in the method of accounting for
income taxes in 1993.
[Balance of page intentionally left blank]
35
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
Summary of Operations Data 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Interest income $ 195,534 $ 179,395 $ 210,399 $ 304,531 $ 431,115
Interest expense 117,095 110,141 144,912 240,950 365,103
Net interest income 78,439 69,254 65,487 63,581 66,012
Provision for losses 600 650 6,600 11,151 72,922
Net interest income (loss) after provision for losses 77,839 68,604 58,887 52,430 (6,910)
Operating income (1) 11,333 11,259 42,798 32,781 17,833
Operating expenses (67,074) (60,565) (57,901) (64,804) (81,657)
Income (loss) from continuing operations before
income tax expense (benefit) and items shown below 22,098 19,298 43,784 20,407 (70,734)
Income tax expense (benefit) 2,871 (11,200) 17,526 9,666 -
Income (loss) from continuing operations before
discontinued operations and items shown below 19,227 30,498 26,258 10,741 (70,734)
Net loss from discontinued operations - - - - (11,094)
Income (loss) before extraordinary items and cumulative
effect of change in accounting for income taxes 19,227 30,498 26,258 10,741 (81,828)
Extraordinary items, net of related income taxes - (4,300) 17,400 8,966 9,100
Cumulative effect of change in acccounting for income taxes - 2,141 - - -
Net income (loss) $ 19,227 $ 28,339 $ 43,658 $ 19,707 $ (72,728)
Net income (loss) per share, primary (2) $ 1.60 $ 2.38 $ 3.75 $ 1.75 $ (6.63)
Net income (loss) per share, fully diluted (2) $ 1.60 $ 2.38 $ 3.71 $ 1.75 $ (6.63)
Servicing fees, net, as a percentage of net interest income 3.81% 4.80% 4.11% 7.09% 7.04%
At December 31,
Financial Condition Data 1994 1993 1992 1991 1990
Total assets $3,560,612 $3,117,032 $ 2,955,099 $ 3,373,330 $ 4,400,121
Mortgage-backed securities held to maturity, net 960,230 547,548 1,438,797 1,215,574 2,371,840
Loans receivable, net 1,948,124 1,577,511 1,175,947 945,320 1,085,264
Amounts due from Enstar, net - - - - 160,736
Assets held for sale 63,758 113,228 91,885 309,331 25,317
Securities available for sale 159,282 615,473 - - -
U.S. Government and agency obligations 117,032 3,152 3,152 54,335 23,129
Other marketable securities 4,292 6,304 6,323 6,333 232,806
Other investments (3) 95,418 70,340 28,241 560,667 168,246
Savings deposits 2,335,627 2,228,090 2,261,667 2,467,529 3,266,132
Borrowed funds 955,863 617,832 476,899 741,853 966,301
Stockholders' equity $ 216,534 $ 207,867 $ 173,855 $ 132,576 $ 113,479
Other Financial Data
Regulatory capital
Core capital $178,657 $68,970 $136,125 $ 108,673 $ 88,004
Core capital excess (deficiency) 73,369 77,312 49,468 9,652 (41,346)
Tangible capital 159,362 38,755 98,668 48,995 11,050
Tangible capital excess (deficiency) 106,810 93,036 55,469 (361) (53,438)
Risk-based capital 195,350 86,828 151,716 124,415 106,722
Risk-based capital excess (deficiency) 53,994 68,990 51,880 19,799 (44,174)
Number of offices, including loan offices 37 32 32 35 58
</TABLE>
N/A = Not Applicable
(1) The years ended December 31, 1992 and 1990 include
$8,881,000 and $3,247,000, respectively, of litigation
recoveries. Additionally, the year ended December 31, 1992
includes $4,006,000 distribution from Enstar Group
bankruptcy estate.
(2) Adjusted for a one-for-five reverse split effected at the
close of business April 27, 1993.
(3) Consists of interest bearing deposits, Federal funds sold,
securities purchased under resale agreements, other short
term investments and Federal Home Loan Bank stock, at cost.
36
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Recent Developments
For a discussion of the Merger Agreement entered into on December 4, 1994 with
First Union, see Note 1 and Part I, Item 1. Business - "Recent Developments."
The Merger Agreement provides that, without the prior written consent of First
Union, American Savings will conduct its business only in the ordinary and
usual course consistent with past practice, and not take certain actions
relating to the operation of American Savings pending consummation of the
Merger (expected to be in mid-1995). These actions include, among others: (i)
disposing of any material portion of its assets or acquiring any substantial
portion of the business or property of any other entity, (ii) changing its
lending, investment, liability management, accounting procedures, or other
material banking policies in any material respect and (iii) acquiring private
issue MBSs.
Financial Condition
Changes in Consolidated Financial Condition
Stockholders' equity increased by $8,667,000, to $216,534,000 at December 31,
1994 compared with $207,867,000 at December 31, 1993. The increase in
stockholders' equity was attributable to $19,227,000 from net income and
$879,000 from the exercise of stock options, partially offset by the change in
unrealized losses, net of deferred taxes, of $11,439,000 on American Savings'
portfolio of securities available for sale. The change in unrealized losses
resulted from sales of $445,409,000 of MBSs available for sale and declines in
the market value of MBSs available for sale resulting from increases, during
1994, in market interest rates.
Consolidated assets and liabilities amounted to $3,560,612,000 and
$3,344,078,000, respectively, at December 31, 1994, compared with
$3,117,032,000 and $2,909,165,000, respectively, at December 31, 1993. The
increases in consolidated assets and liabilities of $443,580,000 and
$434,913,000, respectively, occurred pursuant to the 1994 operating plan of
American Savings. American Savings expects that, pending consummation of the
Merger, American Savings' balance sheet will decrease, as short-term
borrowings will be repaid with net asset cash flows.
Securities available for sale, which consist primarily of MBSs, decreased
$456,191,000, to $159,282,000 at December 31, 1994, from $615,473,000 at
December 31, 1993 and MBSs held to maturity increased $412,682,000, to
$960,230,000 at December 31, 1994, from $547,548,000 at December 31, 1993. In
response to market conditions and in order to reduce the exposure to charges
to stockholders' equity resulting from the impact of rising market interest
rates on the fair value of its portfolio of MBSs available for sale, during
1994, American Savings sold MBSs having an aggregate carrying value of
$445,409,000 and realized gains of $2,957,000 on the sales. See "Results of
Operations - Operating Income" below. American Savings reinvested proceeds
from these sales in MBSs held to maturity.
Securities held to maturity increased $111,868,000, to $121,324,000 at
December 31, 1994, as a result of purchases of U.S. Government agency
debentures, which are callable at repricing dates.
Loans receivable, net, increased $370,613,000 to $1,948,124,000 at December
31, 1994 from $1,577,511,000 at December 31, 1993. This increase is primarily
attributable to the origination and purchase of variable-rate loans and loans
having an average life of less than 5 years. The loan originations retained
and the loans purchased by American Savings have repricing characteristics
which reduce exposure to interest rate risk.
Savings deposits increased $107,537,000 to $2,335,627,000 at December 31, 1994
and other borrowed funds increased $338,031,000 to $955,863,000 at December
31, 1994. Savings deposits increased primarily as a result of increases in
certificates of deposit as American Savings competitively priced these
deposits. The increase in other borrowed funds, primarily securities sold
under agreements to repurchase, resulted from the planned increase in total
liabilities to fund increased levels of interest earning assets.
Asset Quality. Nonperforming assets, excluding TDRs amounted to $24,939,000
at December 31, 1994, reflecting a decrease of $3,783,000 during the year as a
result of a decrease in nonaccrual loans and sales of REO.
37
<PAGE>
Nonperforming assets are composed of nonaccrual loans, problem investments in
real estate and REO. Restructured loans are loans for which the terms have
been modified due to difficulties experienced by the borrower. Other
potential problem loans are loans which demonstrate characteristics which may
result in such loans becoming past due, nonaccrual and/or TDR in the
foreseeable future.
American Savings' Credit Committee is responsible for providing senior
management oversight and ongoing review of American Savings' asset portfolios.
As part of this responsibility, the Credit Committee monitors problem loans
and REO, including related allowances for losses. In order to reduce the
level of nonperforming assets, American Savings continues to initiate
foreclosure proceedings, as appropriate, relating to defaulted real estate
loans and dispose of real estate owned as quickly as is prudently possible.
The following table sets forth American Savings' nonperforming assets,
restructured loans and other potential problem loans at the dates indicated.
<TABLE>
<CAPTION>
December 31,
(in thousands) 1994 1993 1992
<S> <C> <C> <C>
Nonaccrual loans, including nonaccrual TDRs (1)
Residential $ 6,903 $ 5,744 $ 8,537
Residential construction and land - - 313
Commercial real estate 7,935 10,026 22,395
Corporate 1,923 2,912 3,079
Consumer 552 360 305
Total nonaccrual loans 17,313 19,042 34,629
Real estate owned, net, including
undisbursed commitments 7,626 9,680 28,953
Total nonperforming assets 24,939 28,722 63,582
TDRs, excluding nonaccrual TDRs
Permanent commercial real estate 17,299 17,471 18,353
Other 111 112 -
17,410 17,583 18,353
Total nonperforming assets and TDRs $ 42,349 $ 46,305 $ 81,935
Other potential problem loans $ 11,127 $ 18,673 $ 15,730
Loans receivable (2) $2,024,993 $1,628,671 $1,233,628
Total assets $3,560,612 $3,117,032 $2,955,099
As a percentage of loans receivable:
Nonaccrual loans (3) .85% 1.17% 2.51%
Nonaccrual loans and TDRs (3) 1.71% 2.25% 4.00%
As a percentage of total assets:
Nonperforming assets (3) .70% 0.92% 2.03%
Nonperforming assets and TDRs (3) 1.19% 1.49% 2.65%
(1) Includes $8,161,000, $11,635,000 and $21,346,000 of nonaccrual loans which have been restructured as of
December 31, 1994, 1993 and 1992, respectively.
(2) For purposes of this table, loans receivable include undisbursed portions of loans in process, unearned
fees and discounts, net premiums on purchased loans and discounts from purchase valuation.
(3) For purposes of this calculation, nonaccrual loans are net of deferred gross profit of $3,649,000 at
December 31, 1992 on a commercial real estate loan.
</TABLE>
The provision for losses totalled $600,000 for the year ended December 31,
1994. American Savings' loan loss reserves amounted to $19,087,000 at
December 31, 1994. Of this amount, $16,787,000 represented general loan loss
reserves, all of which qualified as supplementary capital for risk-based
capital purposes. For further information on American Savings' allowances for
losses see Note 2 - "Allowances for Losses on Loans and Real Estate" and Note
11, which are incorporated herein by reference.
38
<PAGE>
The following is a summary of allowances for losses on loans, net:
<TABLE>
<CAPTION>
Years Ended December 31,
(in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Beginning balance
Residential $ 1,208 $ 643 $ 480 $ 484 $ 472
Residential construction and land 1,257 999 1,609 8,499 2,890
Commercial real estate 13,704 27,885 18,048 22,726 4,175
Corporate 2,257 3,648 8,040 11,382 2,624
Consumer 2,026 2,260 1,756 2,239 4,415
20,452 35,435 29,933 45,330 14,576
Deduct charge-offs
Residential 420 557 541 232 255
Residential construction and land - - 136 7,658 7,628
Commercial real estate 280 12,353 1,282 8,039 2,741
Corporate 989 5,891 22 4,755 79
Consumer 1,859 1,364 2,801 3,986 5,590
3,548 20,165 4,782 24,670 16,293
Add recoveries
Residential 29 70 49 44 67
Residential construction and land - 6 243 55 25
Commercial real estate 48 5 170 1,312 97
Corporate 3 3 8 19 201
Consumer 687 541 800 482 226
767 625 1,270 1,912 616
Add provision for losses
Residential 600 650 655 184 200
Residential construction and land - - 453 3,764 13,212
Commercial real estate - - 4,697 2,788 21,225
Corporate - - - 1,394 8,606
Consumer - - 795 3,021 3,188
600 650 6,600 11,151 46,431
Add (deduct) transfers and other changes(1)
Residential 1,168 402 - - -
Residential construction and land 1,492 252 (1,170) (3,051) -
Commercial real estate (3,675) (1,833) 6,252 (739) (30)
Corporate 729 4,497 (4,378) - 30
Consumer 1,102 589 1,710 - -
816 3,907 2,414 (3,790) -
Ending balance
Residential 2,585 1,208 643 480 484
Residential construction and land 2,749 1,257 999 1,609 8,499
Commercial real estate 9,797 13,704 27,885 18,048 22,726
Corporate 2,000 2,257 3,648 8,040 11,382
Consumer 1,956 2,026 2,260 1,756 2,239
$ 19,087 $ 20,452 $ 35,435 $ 29,933 $ 45,330
Allowance for losses on loans:
As a percentage of nonaccrual loans(2) 110.25% 107.40% 114.38% 44.19% 27.61%
As a percentage of nonaccrual loans and TDRs(2) 54.97% 55.84% 71.83% 43.51% 25.87%
Ratio of net charge-offs to average loans 0.15% 1.37% 0.35% 2.03% 1.06%
(1) Consists primarily of interest payments and capitalized interest.
(2) For purposes of this calculation, nonaccrual loans are net of deferred gross profit of $3,649,000 at
December 31, 1992 and 1991 and $2,594,000 at December 31, 1990 on a commercial real estate loan.
Additionally, allowances for losses on loans at December 31, 1990 includes specific loss reserves of
$26,491,000 related to amounts due from Enstar Group.
</TABLE>
Accounting by Creditors for Impairment of a Loan. SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by SFAS 118, is effective for
financial statements issued for fiscal years beginning after December 15,
1994, and defines the criteria for loan impairment and the measurement methods
for certain impaired loans and loans whose terms are modified in TDRs. Under
SFAS 114, the measurement of loan impairment is based upon the present value
of expected future cash flows, discounted at the loan's effective interest
rate, the loan's observable market price or the fair value of the collateral
if the loan is collateral dependent. If foreclosure is probable, impairment
must be based upon the fair value of the collateral. Effective
39
<PAGE>
January 1, 1995, American Savings prospectively adopted SFAS 114. American
Savings believes that the implementation of this statement will not have a
material effect on its financial condition.
Liquidity, Capital Resources and Other Matters
Liquidity. Liquidity is the ability to satisfy all financial commitments
through the acquisition of additional liabilities or through the sale or
maturity of assets. Currently, American Savings expects it will be able to
satisfy its financial commitments through its sources of funds which are,
primarily, MBSs and loan repayments and, secondarily, reverse repos and other
borrowings from time to time, including borrowings from FHLB of Atlanta.
All savings institutions, including American Savings, are required to maintain
an average daily balance of liquid assets (cash, certain time deposits,
bankers' acceptances, specified United States government, state or federal
agency obligations, and other corporate debt obligations and commercial paper)
equal to 5% of the sum of the average daily balance during the preceding
calendar month of net withdrawable accounts and short-term borrowings payable
in one year or less. The liquidity requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of
all savings institutions. All savings institutions, including American
Savings are also required to maintain an average daily balance of short-term
liquid assets (generally having maturities of 12 months or less) equal to at
least 1% of average daily balance of net withdrawable accounts and current
borrowings. Penalties may be imposed by OTS for violations of liquidity
requirements. At December 31, 1994, the average daily balance of short-term
liquid assets amounted to $41,446,000, or 1.30% of the liquidity base and
total liquid assets were $244,615,000, or 7.67% of the liquidity base. See
Part I, Item 1. Business - "Regulation - Federal Law - OTS Liquidity
Requirements."
Enstar Group Matters. See Note 1 and Part I, Item 1. Business - "Background -
Recent Developments" and "- Enstar Group Chapter 11 Proceedings," which are
incorporated herein by reference, for a discussion of Enstar Group's ownership
of approximately 48.5% of American Savings Common Stock and Enstar Group's
bankruptcy plan.
Contingencies and Legal Recoveries. For a discussion of contingencies and
other legal matters, including a $3,300,000 recovery in February 1995 and an
anticipated distribution of between $4,000,000 and $4,500,000 from the Enstar
Group bankruptcy estate see Part I, Item 3. Legal Proceedings and Notes 24 and
25.
Regulatory Capital. At December 31, 1994, American Savings was in compliance
with its three current and fully phased-in capital requirements and had
achieved a 4.55% tangible capital level, a 5.09% core capital level (4.72% on
a fully phased-in basis) and a 11.06% risk-based capital level (10.39% on a
fully phased-in basis). See Note 22(D) for a calculation of American Savings'
requirements, American Savings' capital under each of these three requirements
and enacted changes to the requirements.
Committed Resources. For a discussion of committed resources, see Note 24.
Commitments will be funded primarily with repayments of loans and MBSs.
Asset/Liability Management
As a financial institution, much of the profitability of American Savings is
derived from the size of its net interest margin. Net interest margin is
affected by the relative and absolute amounts of interest earning assets and
interest bearing liabilities, and the amounts of credit and interest rate risk
assumed. Monitoring and reporting of net interest margin, as well as
developing strategies to adjust net interest margin are the primary concerns
of asset/liability management.
Management believes that American Savings' proper role as a financial
institution implicitly embodies the assumption of acceptable amounts of credit
and interest rate risk with the goal of reasonable returns on investments
relative to the risks assumed. In balancing these variables, American
Savings' objectives are to minimize credit risk, while assuming moderate
interest rate risk. American Savings attempts to limit its credit risk
through its underwriting standards and policies.
40
<PAGE>
American Savings' Board has established interest rate risk policies and
procedures which delegate to ALCO the responsibility to monitor and report on
interest rate risk, devise strategies to adjust interest rate risk, monitor
loan originations, approve and monitor the use of hedging instruments, price
all loan and deposit products and monitor the performance of securities
available for sale. Further, ALCO approves asset purchases and, when
necessary to supplement deposit levels, will choose among alternative funding
sources.
A key to developing an acceptable level of interest rate risk is the
management of assets originated for portfolio and asset purchase decisions.
ALCO has designed an asset strategy for American Savings which generally
allows interest income to adjust favorably to long-term interest rate trends
through either interest rate adjustments or the reinvestment of principal cash
flows.
Originated loans retained in the loan portfolio and purchased loans and
securities either have interest rates which adjust in one year or less or have
a rate term or maturity of no more than ten years. Originated loans are
priced to meet corporate objectives for return on equity on a match-funded
basis. Investment decisions are made based on the investment's credit-
worthiness, yield and earnings volatility. Credit insurance policies are
generally acquired from high-quality mortgage insurers for purchased pools of
first mortgage loans as a means to reduce the credit risk of these loans.
Purchased securities are either U.S. Government Agency-backed or are rated AA
or better by a nationally recognized credit rating organization.
The return on equity from originated loans is generally greater than that
which can be derived from purchased loans, which generally have a greater
return on equity than purchased securities. As such, during 1994, American
Savings continued to build its lending capabilities to reduce reliance on
wholesale asset acquisitions. Although loan origination volumes, amounting to
$571,995,000 in 1994, were sufficient to cover loan repayments and payoffs,
they continued to fall short of American Savings' reinvestment and asset
growth needs in 1994.
During 1994, American Savings purchased current-index six-month and one-year
variable-rate mortgage loans and MBSs of $195,406,000 and $475,019,000,
respectively. These purchases were funded with borrowings under reverse repos
and proceeds from sales of securities available for sale. As a result of
rapidly rising interest rates during 1994, American Savings reduced its
interest rate sensitivity through the sale of securities available for sale
including $119,310,000 of lagging-index ARM securities and $179,436,000 of
seven-year balloon MBSs.
During 1994, American Savings also sold $34,978,000 of fixed-rate first
mortgage loans, the proceeds from which were used to repay short-term
borrowings.
As of December 31, 1994 securities available for sale aggregated $159,282,000.
The Board has set limits as to the aggregate amount and market value
volatility of this portfolio. Securities were designated as available for
sale to provide greater flexibility in managing the future asset composition
of American Savings. Securities held in the available for sale portfolio
provide a high degree of liquidity and overall low price volatility. From
time to time certain securities from this portfolio may be sold in conjunction
with asset/liability management strategies.
Interest rate risk is also impacted by the composition of American Savings'
interest-bearing liabilities, which primarily consist of deposits gathered
from its retail branch network, reverse repos and FHLB Advances.
Deposit liabilities are priced to maintain competitiveness in the local
marketplace. Although the primary deposit vehicle used by American Savings'
customer base is certificates of deposit, American Savings has emphasized the
generation of transaction accounts as a means of increasing net interest
income.
To the extent deposits are insufficient to fund the interest earning assets,
FHLB Advances and reverse repos are utilized. While certificates of deposit
terms are dictated by consumer preferences, American Savings selects the term
of FHLB Advances based upon the maturity and repricing characteristics of its
interest earning assets and other interest-bearing liabilities. Although
fixed-rate terms of up to 10 years are available through the FHLB, FHLB
Advances obtained by American Savings in 1994 generally have adjustable
interest rates indexed to the three-month LIBOR. Fixed-rate advances from the
FHLB have been utilized from time to time as part of the overall
asset/liability strategy for American Savings. During January 1994, American
Savings prepaid $64,000,000 of high rate FHLB Advances which were scheduled to
mature in 1994 and 1996. See Note 16.
41
<PAGE>
American Savings has also used interest rate swap and cap agreements to adjust
interest rate risk. During 1994, as a result of rapidly rising interest
rates, American Savings purchased $250,000,000 of three-month LIBOR interest
rate caps, expiring March of 1996 through September of 1997. American Savings
also has a $70,000,000 three-month LIBOR reverse interest rate swap, which
expires in December of 1997. The Merger Agreement restricts American Savings
from entering into additional off-balance sheet financial derivative contracts
during the pendency of the Merger, without the prior consent of First Union.
ALCO monitors the volatility of net interest income under varying interest
rate scenarios and the repricing characteristics of interest earning assets
and interest bearing liabilities. Prepayment assumptions are based upon
national broker/dealer projections, adjusted, to the extent considered
necessary, for actual prepayment levels experienced by American Savings.
Decisions to change the asset and liability mix of American Savings are
typically based on these analyses.
Although the interest rate risk position of American Savings is monitored
primarily through simulations of net interest income under different interest
rate scenarios, ALCO also uses a "gap" analysis. The one-year gap is the
difference between the dollar amount of assets and the dollar amount of
liabilities maturing or repricing within the next twelve months. Generally,
if the one-year gap is negative, the institution's net interest margin should
increase for the year after a general drop in rates and, conversely, the net
interest margin should decrease for the year after a general rise in rates.
If the one-year gap is positive, the institution's net interest margin should
decrease for the year after a general drop in rates and, conversely, the net
interest margin should increase for the year after a general rise in rates.
As of December 31, 1994, American Savings had a positive one-year gap equal to
0.66% of assets, compared with a one-year negative gap of 2.10% at December
31, 1993. The change in the one-year gap resulted primarily from purchases of
current-index adjustable-rate securities, an increase in longer-term
liabilities and cap agreements entered into in 1994. Although at December 31,
1994 American Savings had a slightly positive gap, net interest margin and
interest rate spread compressed in the fourth quarter of 1994, and may
compress further, if short-term variable-rate liabilities reprice more quickly
than variable-rate assets, a large portion of which are subject to periodic
caps. See "Results of Operations - Net Interest Income - 1994 Compared with
1993."
OTS has directed American Savings to submit a plan to reduce interest rate
risk and to increase capital levels in order to provide a sufficient cushion
against interest rate risk. In light of the Merger Agreement, American
Savings has no current plans to raise external capital. Additionally,
American Savings believes interest rate risk reduction will be achieved
through the projected decrease in the balance sheet pending consummation of
the Merger as short-term borrowings will be repaid with net asset cash flows.
See Part I, Item 1. Business - "Regulation - Federal Law - Regulatory
Capital" and Note 22(D).
The table below sets forth the projected maturities, and/or repricing terms of
American Savings' assets and liabilities at December 31, 1994. Balances are
derived using actual remaining terms, actual repricing dates, estimated
prepayment rates and estimated runoff percentages. Assumptions used for
prepayments and runoff are developed by American Savings based on the
financial characteristics of the individual types of assets and liabilities
relative to the general level of market interest rates. Fixed-rate
residential first mortgage loans are assumed to repay based on the underlying
coupon of the loans relative to current and projected market rates for like
loans. Adjustable-rate first mortgage loans are assumed to repay based on
their historical performance relative to national broker/dealer's projections.
Consumer loans are assumed to repay based on historical data from American
Savings' portfolio. Passbook savings accounts and NOW accounts are assumed to
run off at a rate of 17.00% per year, which reflects American Savings'
expectations and historical experience. Money market accounts are assumed to
run off at a rate of 40.00% per year. Other assets and liabilities reflect
their contractual repricing and/or maturity terms. While this report is
calculated to approximate the sensitivity of these balances, there is no
assurance that American Savings' actual experience will match the assumptions
used.
42
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS - DECEMBER 1994
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Less than 1 to 3 3 to 5 5 Years Non-Rate
1 Year Years Years and Thereafter Sensitive Total
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans receivable $ 1,076,925 $ 500,317 $ 256,122 $ 105,850 $ - $ 1,939,214
Mortgage-backed securities held to maturity 640,913 165,891 117,899 35,527 - 960,230
Securities available for sale 84,105 27,723 47,454 - - 159,282
Investment securities and FHLB stock 162,903 24,773 25,763 3,303 - 216,742
Unamortized permiums and other deductions (4,945) (1,907) (1,075) (476) - (8,403)
Nonperforming loans - - - - 17,313 17,313
Noninterest-earning assets - - - - 212,476 212,476
Assets held for sale 63,758 - - - - 63,758
TOTAL ASSETS $ 2,023,659 $ 716,797 $ 446,163 $ 144,204 $ 229,789 $ 3,560,612
LIABILITIES AND STOCKHOLDERS' EQUITY
Certificate accounts with fixed maturities $ 1,024,793 $ 578,273 $ 79,966 $ 12 $ - $ 1,683,044
Checking accounts including NOW, Super NOW and
other transaction accounts 32,540 49,425 34,049 75,399 12,851 204,264
Money market savings accounts 160,858 153,424 55,592 32,272 - 402,146
Passbook accounts 7,042 10,696 7,369 16,318 - 41,425
FHLB advances 450,000 - - 4,205 - 454,205
Securities sold under agreements to repurchase 487,534 - - - - 487,534
Other borrowings 869 265 300 12,690 - 14,124
Advance payments by borrowers for taxes and
insurance $15,170 - - - - 15,170
Effect of hedging (180,000) 180,000 - - - -
Optional or firm commitments to buy or sell 1,485 - (7,709) 6,224 - -
Noninterest-bearing liabilities and
stockholders' equity - - - - 258,700 258,700
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 2,000,291 $ 972,083 $ 169,567 $ 147,120 $ 271,551 $ 3,560,612
DIFFERENCE BETWEEN ASSETS AND
LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,368 $(255,286) $ 276,596 $ (2,916) $ (41,762)
DIFFERENCE AS A PERCENTAGE OF TOTAL ASSETS 0.66% -7.17% 7.77% -0.08% -1.17%
CUMULATIVE DIFFERENCE BETWEEN ASSETS AND
LIABILITIES AND STOCKHOLDERS' EQUITY $ 68 $ (231,918) 44,678 $ 41,762 $ -
CUMULATIVE DIFFERENCE AS A PERCENTAGE OF
TOTAL ASSETS AS OF DECEMBER 31, 1994 0.66% -6.51% 1.25% 1.17% 0.00%
</TABLE>
43
<PAGE>
Impact of Inflation
The consolidated financial statements and related consolidated data presented
herein have been prepared in accordance with GAAP, which requires the
measurement of financial position and operating results in terms of historical
dollars without considering the changes in the relative purchasing power of
dollars over time due to inflation. The primary impact of inflation on the
operations of American Savings is reflected in increased operating costs.
Unlike most commercial enterprises, virtually all the assets and liabilities
of a financial institution are monetary in nature. As a result, interest
rates have a more significant impact on a financial institution's performance
than the effects of general levels of inflation. Over any given period,
interest rates do not necessarily move in the same direction or in the same
magnitude as the price of goods and services.
Results of Operations
Net Income and Pretax Earnings from Core Operations
American Savings reported net income of $19,227,000 for the year ended
December 31, 1994, compared with $28,339,000 for the year ended December 31,
1993. Net income for the year ended December 31, 1994 was reduced by noncore
net expenses of $1,753,000 and income tax expense totaling $2,871,000. This
compares with net income for the year ended December 31, 1993 which benefited
from $646,000 of noncore income, an $11,200,000 income tax benefit resulting
from a reduction in the valuation allowance for deferred tax assets and
$2,141,000 of income resulting from the cumulative effect of the adoption in
1993 of SFAS No. 109, Accounting for Income Taxes (see Note 18), partially
offset by an extraordinary charge in 1993 of $4,300,000 resulting from the
early extinguishment of high-rate FHLB Advances.
American Savings reported net income of $28,339,000 for the year ended
December 31, 1993, compared with $43,658,000 for 1992. The decrease in net
income resulted primarily from a $30,590,000 decrease in nonrecurring, noncore
earnings from $31,236,000 in 1992 and the extraordinary charge in 1993 of
$4,300,000 discussed above. These decreases were partially offset by an
increase of $6,104,000 in pretax core earnings, the $11,200,000 income tax
benefit and the $2,141,000 of income resulting from the cumulative effect of
the change in accounting principle discussed above.
Pretax core earnings amounted to $23,851,000 for the year ended December 31,
1994, compared with $18,652,000 in 1993 and $12,548,000 in 1992. Pretax core
earnings are defined as earnings from operations before: income taxes,
certain nonrecurring gains on sales of assets, net litigation recoveries and
settlements, extraordinary items and accounting changes. The improvement in
core earnings from 1993 to 1994 resulted from increased net interest income,
reflecting increases in average balances of interest-earning assets and
increased net interest margin. Partially offsetting these increases in core
earnings were increases in core expenses, primarily compensation and benefits,
as American Savings built the staff in its business units, particularly its
lending divisions. The improvement in 1993 core earnings compared with 1992
resulted from decreased provision for losses and increased net interest
income. For further information regarding these core income components, see
"Net Interest Income," "Operating Income" and "Operating Expenses" below. The
following table presents the components of pretax earnings from core
operations for the periods presented.
<TABLE>
<CAPTION>
Years Ended December 31,
(in thousands) 1994 1993 1992
<S> <C> <C> <C>
Net interest income, before provision for losses $ 78,439 $ 69,254 $ 65,487
Provision for losses (600) (650) (6,600)
Net interest income, after provision for losses 77,839 68,604 58,887
Gains (losses) on sales of assets held for sale (3,231) 1,042 1,540
Gains on sales of securities available for sale 3,672 - -
Gains on sales of loans held for investment 984 - -
Nonrecurring gains on sales of other assets held for sale - - 1,428
Loan servicing fees, net 2,986 3,327 2,693
Other core income 6,075 5,247 5,901
Core expenses (64,474) (59,568) (57,901)
Pretax core earnings $ 23,851 $ 18,652 $ 12,548
</TABLE>
44
<PAGE>
Net Interest Income
Net interest income is the largest component of American Savings' core
earnings. The difference between the combined yields earned on MBSs, loans
and investments and the combined rates paid on deposits and borrowings is
referred to as the interest rate spread. The net interest margin represents
net interest income divided by average interest-earning assets. As discussed
in "Financial Condition - Asset/Liability Management" above, interest income
may vary from time to time due to the asset/liability gap.
1994 Compared With 1993
For the year ended December 31, 1994, net interest income amounted to
$78,439,000, before the provision for losses, compared with $69,254,000, for
the year ended December 31, 1993. American Savings' interest rate spread
increased 5 basis points in 1994 and net interest margin increased 7 basis
points compared with 1993. The increase in net interest margin resulted from
a larger excess of interest earning assets over interest bearing liabilities
in 1994 compared with 1993 and the increase in interest rate spread. However,
as a result of the rapid increase in interest rates in 1994, net interest
margin and interest rate spread compressed in the fourth quarter of 1994 from
257 basis points and 250 basis points, respectively, in the third quarter of
1994 to 239 basis points and 231 basis points, respectively, as short-term,
variable-rate liabilities repriced at higher rates and more quickly than
variable-rate assets. At December 31, 1994, American Savings' variable-rate
first mortgage loans and MBSs included approximately $681,000,000 and
$597,000,000, respectively, which are subject to periodic caps. The periodic
caps allow for the assets to adjust no more than 1% in a six month period or
2% in a 12 month period. As a result of market interest rates increasing more
than these caps during 1994, net interest income was adversely affected as
these assets did not reprice to their fully indexed rates.
The following table summarizes the average yields earned on interest earning
assets and the average rates paid on interest bearing liabilities for the
periods presented (dollar amounts in thousands).
<TABLE>
<CAPTION>
Year Ended December 31, 1994 Year Ended December 31, 1993
Average Average Average Average
Summary of Average Rates Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets
MBSs $ 854,907 $ 45,989 5.38% $1,286,345 $ 71,895 5.59%
Loans (1) 1,797,987 121,618 6.76 1,429,141 98,887 6.92
Securities available for sale 298,817 15,536 5.20 - - -
Assets held for sale 81,989 5,865 7.15 90,489 6,012 6.64
Other interest earning assets 101,957 6,526 6.40 48,648 2,601 5.35
Total interest earning assets $3,135,657 $195,534 6.24% $2,854,623 $179,395 6.28%
Interest bearing liabilities
Deposits $2,305,926 $ 81,031 3.51% $2,240,995 $ 79,510 3.55%
Reverse repos 407,147 18,383 4.52 175,165 5,652 3.23
FHLB advances and other borrowings 367,652 17,681 4.81 415,768 24,979 6.01
Total interest bearing liabilities $3,080,725 $117,095 3.80% $2,831,928 $110,141 3.89%
Net interest income $ 78,439 $ 69,254
Interest rate spread 2.44% 2.39%
Net interest margin (2) 2.50% 2.43%
(continued)
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Increase (Decrease) Due to Change in
Summary of Change in Net Interest Income Rate Volume (3) Total
<S> <C> <C> <C>
Interest income
MBSs $ (2,701) $(23,205) $ (25,906)
Loans (2,287) 25,018 22,731
Securities available for sale - 15,536 15,536
Assets held for sale 461 (608) (147)
Other interest earning assets 511 3,414 3,925
Total interest income (4,016) 20,155 16,139
Interest expense
Deposits (896) 2,417 1,521
Reverse repos 2,260 10,471 12,731
FHLB advances and other borrowings (4,989) (2,309) (7,298)
Total interest expense (3,625) 10,579 6,954
Change in net interest income $ (391) $ 9,576 $ 9,185
(1) Average balance includes nonaccrual loans.
(2) Net interest income divided by average interest earning assets.
(3) Income and expense changes resulting from change in rate multiplied by change in volume have been
allocated solely to change in volume.
</TABLE>
Interest income amounted to $195,534,000 for the year ended December 31,
1994 compared with $179,395,000 for the year ended December 31, 1993, an
increase of $16,139,000. The increase in interest income resulted primarily
from an increase in the average balance of interest-earning assets of
$281,034,000, from $2,854,623,000 for the year ended December 31, 1993 to
$3,135,657,000 for the year ended December 31, 1994, partially offset by a 4
basis point decrease in the yield on interest earning assets, from 6.28% in
1993 to 6.24% in 1994.
The decrease in average yield on interest-earning assets in 1994 compared with
1993 reflected accelerated prepayments in 1993 continuing into the beginning
of 1994 of higher yielding mortgage loans, MBSs and CMOs. Additionally, as a
result of the repricing lag on variable-rate loans and MBSs, the average yield
for the year ended December 31, 1994 on these assets does not fully reflect
the benefit of the rise in general market interest rates.
Interest expense increased $6,954,000 to $117,095,000 for the year ended
December 31, 1994 from $110,141,000 in 1993. The increase in interest expense
resulted primarily from the $248,797,000 increase in the average balance of
interest bearing liabilities to $3,080,725,000, from $2,831,928,000 for 1993,
partially offset by a 9 basis point decrease in the average rate paid on
interest bearing liabilities to 3.80%. The decrease in average rates paid on
interest-bearing liabilities in 1994 was due to (i) a decrease in the cost of
deposits as a result of the impact of the decline in interest rates in 1993
and the ability to maintain those lower rates despite increases, in 1994, in
interest rates in the nation's money markets, (ii) the impact of repaying, on
February 1, 1994, $150,000,000 Mortgage-Backed Notes, Series C, which carried
a cost to American Savings of 7.69%, net of amortization of related deferred
issuance costs and reverse interest rate swap gains and (iii) the prepayment,
in January 1994, of $64,000,000 of FHLB advances which had a weighted average
cost of 9.39%.
1993 Compared With 1992
For the year ended December 31, 1993, net interest income amounted to
$69,254,000, before the provision for losses, compared with $65,487,000, for
the year ended December 31, 1992. Net interest margin increased to 243 basis
points in 1993 from 230 basis points in 1992 due to an excess of interest
earning assets over interest bearing liabilities in 1993 (compared with an
excess of interest bearing liabilities over interest earning assets in 1992)
and a 3 basis point increase in interest rate spread.
46
<PAGE>
The following table summarizes the average yields earned on interest earning
assets and the average rates paid on interest bearing liabilities for the
periods presented (dollar amounts in thousands).
<TABLE>
<CAPTION>
Year Ended December 31, 1993 Year Ended December 31, 1992
Average Average Average Average
Summary of Average Rates Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets
MBSs $1,286,345 $ 71,895 5.59% $1,417,309 $103,645 7.31%
Loans (1) 1,429,141 98,887 6.92 1,017,038 86,116 8.47
Assets held and available for sale 90,489 6,012 6.64 126,067 8,124 6.44
Other interest earning assets 48,648 2,601 5.35 287,509 12,514 4.35
Total interest earning assets $2,854,623 $179,395 6.28% $2,847,923 $210,399 7.39%
Interest bearing liabilities
Deposits $2,240,995 $ 79,510 3.55% $2,349,010 $112,928 4.81%
Reverse repos 175,165 5,652 3.23 175,807 6,934 3.94
FHLB advances and other borrowings 415,768 24,979 6.01 353,889 25,050 7.08
Total interest bearing liabilities $2,831,928 $110,141 3.89% $2,878,706 $144,912 5.03%
Net interest income $ 69,254 $ 65,487
Interest rate spread 2.39% 2.36%
Net interest margin (2) 2.43% 2.30%
</TABLE>
<TABLE>
<CAPTION>
Increase (Decrease) Due to Change in
Summary of Change in Net Interest Income Rate Volume (3) Total
<S> <C> <C> <C>
Interest income
MBSs $(24,378) $ (7,372) $ (31,750)
Loans (15,764) 28,535 12,771
Assets held for sale 252 (2,364) (2,112)
Other interest earning assets 2,875 (12,788) (9,913)
Total interest income (37,015) 6,011 (31,004)
Interest expense
Deposits (29,598) (3,820) (33,418)
Reverse repos (1,248) (34) (1,282)
FHLB advances and other borrowings (3,787) 3,716 (71)
Total interest expense (34,633) (138) (34,771)
Change in net interest income $ (2,382) $ 6,149 $ 3,767
(1) Average balance includes nonaccrual loans.
(2) Net interest income divided by average interest earning assets.
(3) Income and expense changes resulting from change in rate multiplied
by change in volume have been allocated solely to change in volume.
</TABLE>
Interest income amounted to $179,395,000 for the year ended December 31, 1993
compared with $210,399,000 for the year ended December 31, 1992, a decrease of
$31,004,000. The decrease in interest income was primarily due to a decrease
in the average yield on interest-earning assets. For the year ended December
31, 1993, the average yield decreased 111 basis points, from 7.39% in 1992 to
6.28% in 1993. The decreases in average yield reflected (i) the impact of
lower rates in 1993 in the nation's money markets, (ii) the impact of the sale
of higher yielding assets in 1992, including higher-yielding fixed-rate MBSs,
and the reinvestment in variable-rate and shorter duration assets, (iii) the
repricing of variable-rate loans and MBSs to lower rates and (iv) the
accelerated prepayments in 1992 and continuing in 1993, of higher-yielding
mortgage loans, MBSs and CMOs, with reinvestment in lower yielding assets.
Net interest margin was also adversely affected in 1993 as a result of
increased premium amortization resulting from accelerated prepayments of MBSs,
CMOs and loans.
Interest expense decreased $34,771,000 to $110,141,000 for the year ended
December 31, 1993 from $144,912,000 in 1992. This decrease resulted primarily
from a decrease of 114 basis points in the average rate paid during 1993, from
5.03% in 1992 to 3.89% in 1993. This decrease in rates was primarily
attributable to decreases in the interest rate environment since 1991 and an
increase in the level of transaction accounts compared to higher rate
certificate of deposit accounts.
Provision for Losses
The provision for losses totalled $600,000 and $650,000 for the years ended
December 31, 1994 and 1993, respectively, and $6,600,000 for the year ended
December 31, 1992. The reductions in provision for loan losses
47
<PAGE>
resulted from the significant decrease in nonperforming assets since 1990.
American Savings' loan loss reserves amounted to $19,087,000, or 110.25% of
nonaccrual loans, at December 31, 1994. See "Financial Condition - Changes in
Consolidated Financial Condition - Asset Quality" above.
Operating Income
Operating income amounted to $11,333,000, $11,259,000 and $42,798,000 for the
years ended December 31, 1994, 1993 and 1992, respectively. The following
table compares operating income for each of the three years (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31, Increase (Decrease)
1993 to 1992 to
1994 1993 1992 1994 1993
<S> <C> <C> <C> <C> <C>
Core Income Included in Operating Income
Loan servicing fees, net $ 2,986 $ 3,327 $ 2,693 $ (341) $ 634
Realized and unrealized gains (losses) on
loans held for sale and other assets (3,231) 1,042 1,540 (4,273) (498)
Gains on sales of securities available
for sale 3,672 - - 3,672 -
Gains on sales of loans held for investment 984 - - 984 -
Nonrecurring gains on sales of
other assets held for sale - - 1,428 - (1,428)
Other core income 6,075 5,247 5,901 828 (654)
Total core income included in
operating income 10,486 9,616 11,562 870 (1,946)
Noncore Income Included in Operating Income
Gains on MBSs held for sale - 373 14,542 (373) (14,169)
Gains on sales of MBSs held for investment - - 3,312 - (3,312)
Gains on sales of other assets - - 130 - (130)
Recovery from Enstar Group bankruptcy estate - - 4,006 - (4,006)
Recovery from litigation 847 651 8,881 196 (8,230)
Other noncore income - 619 365 (619) 254
Total noncore income included
in operating income 847 1,643 31,236 (796) (29,593)
Total Operating Income $ 11,333 $ 11,259 $ 42,798 $ 74 $(31,539)
</TABLE>
Core Income Included in Operating Income
Loan Servicing Fees, Net. Loan servicing fees are generated primarily through
the servicing of mortgage loans. Through September of 1993 American Savings
also serviced automobile loans. Amortization of purchased mortgage servicing
rights of $3,040,000, $1,852,000 and $2,280,000 in 1994, 1993 and 1992,
respectively, was charged against loan servicing fees, net.
Loan servicing fees, net, included $2,404,000, $1,953,000 and $850,000 from
mortgage loan servicing in 1994, 1993 and 1992, respectively. The changes in
mortgage loan servicing fees, net, were attributable to increases in American
Savings' portfolio of loans serviced for others, which amounted to
$1,280,748,000, $888,479,000 and $689,977,000 at December 31, 1994, 1993 and
1992, respectively, and amortization of purchased mortgage servicing rights.
The portfolio of mortgage loans serviced for others increased in 1994 and 1993
as a result of the purchase of loan servicing rights during those years and
through the origination and sale of mortgage loans with retention of servicing
rights. During 1994 and 1993, American Savings purchased the servicing rights
for mortgage loans having a principal balance of $540,449,000 and
$382,072,000, respectively.
Until September 1993, automobile loan servicing fees were generated from
receivables secured by automobiles sold in September 1990 on which American
Savings retained the loan servicing. Automobile loan servicing fees amounted
to $884,000 and $1,236,000 in 1993 and 1992, respectively, reflecting
reductions in the principal balance of loans serviced. In September 1993,
American Savings exercised its right to purchase the serviced automobile
loans, as the remaining principal balance had amortized to less than ten
percent of the principal balance sold, and terminated the related servicing
agreement.
48
<PAGE>
Realized and Unrealized Gains (Losses) on Assets Held for Sale, Net. Although
it is American Savings' policy to sell all fixed-rate residential first
mortgage loans originated having a maturity of greater than 10 years, in
September 1993, ALCO approved holding a portion of these mortgages loans in
the held for sale portfolio. In March 1994, American Savings reinstituted its
policy of selling all such fixed-rate loans as they are originated. Due to
rising interest rates in 1994, the market value of American Savings' held for
sale portfolio was negatively impacted. During the year ended December 31,
1994, American Savings recorded realized losses of $3,231,000, net of hedging
gains of $1,005,000, on loans held for sale, principally fixed-rate first
mortgage loans, having a carrying value of $130,223,000.
Gains on sales of fixed-rate first mortgage loans amounted to $1,042,000 and
$1,540,000, respectively, for the years ended December 31, 1993 and 1992.
American Savings sold fixed-rate first mortgage loans having a principal
balance of $64,736,000 and $83,127,000 in 1993 and 1992, respectively.
Realized Gains on Securities Available for Sale. In response to market
conditions and in order to reduce the exposure to charges to stockholders'
equity resulting from the impact of rising market interest rates on the fair
value of its portfolio of MBSs available for sale, during the year ended
December 31, 1994, American Savings sold MBSs having an aggregate carrying
value of $445,409,000 and realized gains of $2,957,000 on the sales. See
"Financial Condition - Changes in Consolidated Financial Condition" above.
Additionally, during the year ended December 31, 1994, American Savings sold
warrants received as part of a consent to restructure a loan and realized a
gain of $715,000 on the sale.
Gains on Sales of Loans Held for Investment. During 1994, American Savings
sold fixed-rate first mortgage loans having an aggregate carrying value of
$34,978,000 and realized a gain of $984,000 on the sale. These loans were
sold in order to reduce American Savings' interest rate risk by using the
proceeds from the sale to repay short-term borrowings.
Nonrecurring Gains on Sales of Other Assets Held for Sale. In 1992, American
Savings recognized nonrecurring gains amounting to $1,426,000 on sales of
assets received from Enstar Group in settlement of its obligations to American
Savings.
Other Core Income. The $828,000 increase in other core income in 1994
compared with 1993 resulted from increases in lease income related to American
Securities' activities which are described in Part I, Item 1. Business -
"Other Retail Activities." Additionally, other core income for the year ended
December 31, 1994 included $340,000 relating to a settlement of American
Savings' claim for appraisal of preferred stock owned as a result of a debt
restructuring.
The decrease of $654,000 in other core income in 1993 compared with 1992
resulted principally from a decline in lease income on a property that
American Savings decided to utilize as a disaster contingency site and a
decrease in lease income related to American Securities' activities.
Noncore Income Included in Operating Income
Realized Gains on MBSs Held for Sale and Held for Investment and Gains
(Losses) on Sales of Other Assets. During 1993, American Savings sold MBSs
held for sale of $12,600,000, which had previously been classified as held for
investment due to deterioration of the credit quality of the servicer, and
recognized a gain of $373,000 on the sale.
In 1992, as a result of a decision to invest in variable-rate or shorter-term
assets, American Savings decided to sell all of its fixed-rate MBSs which had
original terms of 15 to 30 years, and accordingly, such MBS portfolio was
reclassified to assets held for sale. American Savings sold those MBSs, which
had a book value of $194,197,000, and recorded a gain of $14,646,000 on the
sale in 1992. In addition to this sale, in response to the Capital Directive,
in 1992 American Savings sold MBSs and CMOs held for investment having
aggregate book values of $53,719,000 and $2,729,000, respectively, and
recognized aggregate gains of $3,312,000 on the sales.
Recovery from Enstar Group Bankruptcy Estate. American Savings received a
$4,006,000 distribution from the Enstar Group bankruptcy estate during the
year ended December 31, 1992. See Note 1.
49
<PAGE>
Recovery from Litigation. In the year ended December 31, 1992 American
Savings recognized an $8,881,000 recovery from litigation. See Note 25(A).
Operating Expenses
Operating expenses amounted to $67,074,000, $60,565,000 and $57,901,000 for
the years ended December 31, 1994, 1993 and 1992, respectively. The following
table compares operating expenses for each of the three years (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31, Increase (Decrease)
1993 to 1992 to
1994 1993 1992 1994 1993
<S> <C> <C> <C> <C> <C>
Core Expenses Included in Operating Expenses
Compensation and benefits $ 31,268 $ 27,630 $ 23,460 $ 3,638 $ 4,170
Occupancy and equipment, net 7,986 7,884 9,580 102 (1,696)
Advertising and promotion 1,331 1,263 433 68 830
Deposit insurance premiums 6,194 6,595 5,582 (401) 1,013
Professional fees 2,309 3,047 3,040 (738) 7
Amortization of goodwill and
core deposit intangible 5,973 6,075 6,438 (102) (363)
Operations of real estate acquired in
settlement of loans (670) (1,436) 1,821 766 (3,257)
Other operating expenses 10,083 8,510 7,547 1,573 963
Total core expenses included in
operating expenses 64,474 59,568 57,901 4,906 1,667
Noncore Expenses Included in Operating Expenses 2,600 997 - 1,603 997
Total operating expenses $67,074 $ 60,565 $ 57,901 $ 6,509 $ 2,664
</TABLE>
Core Expenses Included in Operating Expenses
Compensation and Benefits. Compensation and benefits increased to $31,268,000
for the year ended December 31, 1994, reflecting an increase of $3,638,000
over 1993. The increase in compensation and benefits was due to an increase
in the number of employees, from 731 at December 31, 1993 to 740 at December
31, 1994 but to as many as 772 during 1994, reflecting the expansion of
American Savings' lending operations. Additionally in 1994, American Savings
(i) increased its contributions to the 401(k) Plan to match employee
contributions at the rate of 100% of up to 3.0% of earnings deferred by an
employee, compared to 2.5% in 1993, (ii) replaced the contribution to a
defined contribution pension plan of 2% of annual base salary plus 2% of base
compensation in excess of the Social Security Wage Base with a discretionary
contribution to the 401(k) Plan of 3% of annual base salary plus 3% of base
compensation in excess of the Social Security Wage Base and (iii) further
contributed 1% of annual base compensation for every 20% by which pretax core
earnings for fiscal 1994 exceeded pretax core earnings for fiscal 1993.
Partially offsetting the increase in 1994 was a rebate of 1993 health
insurance premiums of $561,000 and a $500,000 reduction in 1994 health
insurance premiums. See Note 21.
The increase in compensation and benefits of $4,170,000 for the year ended
December 31, 1993 compared with 1992 reflected the reinstitution of annual
salary increases in the second half of 1992, expansion of American Savings'
lending functions and higher costs of health benefits. The number of
employees increased from 671 at December 31, 1992 to 731 at December 31, 1993.
Additionally, in 1993, American Savings began to match employee contributions
to the 401(k) Plan at a rate of 100% of up to 2.5% of earnings deferred by the
employee.
Occupancy and Equipment. Occupancy and equipment decreased $1,696,000 to
$7,884,000 for the year ended December 31, 1993 compared with $9,580,000 in
1992 due to fewer branch locations and a reduction in depreciation expense
relating to computer hardware and software, as certain assets had become fully
depreciated.
Deposit Insurance Premiums. The decrease in deposit insurance premiums from
1993 to 1994 resulted from a 3 basis point decline in American Savings' risk-
based premium. Deposit insurance premiums increased $1,013,000 for the year
ended December 31, 1993 compared with 1992 as a result of the implementation
of risk-based premiums by the FDIC in 1993.
50
<PAGE>
Professional Fees. The $738,000 decrease in professional fees from 1993 to
1994 was primarily due to a decrease legal fees related to litigation which
was settled in 1993 and a decrease in legal fees related to nonperforming
assets, which declined in 1994 compared with 1993.
Operations of Real Estate Acquired in Settlement of Loans. Income from
operations of real estate acquired in settlement of loans decreased to
$670,000 in 1994 primarily as a result of a decrease in gains on sales of real
estate owned, as American Savings' portfolio of nonperforming assets has
declined. See "Financial Condition -Changes in Consolidated Financial
Condition - Asset Quality" above.
Operations of REO improved $3,257,000 in 1993, to income of $1,436,000,
compared with expense of $1,821,000 for 1992, primarily due to the reduction
in levels of nonperforming assets. These reductions resulted in a decrease in
expenses relating to REOs amounting to $2,626,000 for the year ended December
31, 1993 and a reduction in the provision for loss on REO of $1,196,000.
Additionally, American Savings recorded gains on sales of REOs of $1,801,000
in 1993 compared with gains of $2,223,000 in 1992.
Other Core Operating Expense. The increase in other core operating expenses
of $1,573,000 for the year ended December 31, 1994, compared with 1993,
resulted from expenses associated with the expansion of lending activities.
Additionally, the 1994 period included a charge of $404,000 related to the
Higher Educational Technical Amendments of 1993 which requires, among other
things, that certain fixed-rate student loans originated after July 22, 1992,
be retroactively converted to variable-rate loans as of the date of
origination.
The increase in other core operating expenses of $963,000 from 1992 to 1993
resulted from expenses associated with expanded lending activities.
Noncore Expenses Included in Operating Expenses
For the year ended December 31, 1994, American Savings incurred nonrecurring
corporate expenses totaling $2,600,000. Of this amount, $2,086,000 related to
professional fees in connection with the exploration of strategic alternatives
and the Merger Agreement more fully discussed in Part I, Item 1. Business -
"Background - Recent Developments" and Note 1.
In 1993, American Savings recorded expenses of $997,000 resulting from
payments, net of receipts, in settlement of certain legal matters.
Income Taxes and Cumulative Effect of Change in Accounting for Income Taxes
See Note 18, which is incorporated herein by reference.
Extraordinary Items
For a discussion of American Savings' extraordinary items, see Notes 16 and
18, which are incorporated herein by reference.
[Balance of page intentionally left blank]
51
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from pages F-1 through F-35 of this Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated by reference from American
Savings' definitive Proxy Statement for its 1995 Annual Meeting of
Shareholders to be filed with OTS not later than April 30, 1995.
Information concerning executive officers may be found under Part I, Executive
Officers of the Registrant.
Item 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from American
Savings' definitive Proxy Statement for its 1995 Annual Meeting of
Shareholders to be filed with OTS not later than April 30, 1995.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from American
Savings' definitive Proxy Statement for its 1995 Annual Meeting of
Shareholders to be filed with OTS not later than April 30, 1995.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from American
Savings' definitive Proxy Statement for its 1995 Annual Meeting of
Shareholders to be filed with OTS not later than April 30, 1995.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1 Financial Statements
Financial Statements of American Savings of Florida, F.S.B.:
Independent Auditors' Report;
Statements of Consolidated Financial Condition at December 31, 1994
and 1993;
Statements of Consolidated Earnings for the years ended December 31,
1994, 1993 and 1992;
Statements of Consolidated Stockholders' Equity for the years ended
December 31, 1994, 1993 and 1992;
Statements of Consolidated Cash Flows for the years ended December
31, 1994, 1993 and 1992;
Notes to Consolidated Financial Statements;
Supplementary Note to Consolidated Financial Statements:
Statements of Financial Condition at December 31, 1994 and
Statements of Operations for the year then ended of wholly-owned
subsidiaries.
52
<PAGE>
2 Financial Statement Schedules
Schedules are omitted because of the absence of the conditions under
which they are required or because the required information is
included in the financial statements or related notes.
53
<PAGE>
(KPMG PEAT MARWICK LLP logo)
One Biscayne Tower Telephone 305 358 2300 Telefax 305 577 0544
Suite 2900
2 South Biscayne Boulevard
Miami, FL 33131
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Savings of Florida, F.S.B.:
We have audited the accompanying statements of consolidated financial condition
of American Savings of Florida, F.S.B. (the "Bank") and subsidiaries as of
December 31, 1994 and 1993, and the related statements of consolidated
earnings, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1994. These consolidated financial
statements are the responsibility of the Banks' management. Our responsibility
is to express an opinion on the consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Savings
of Florida, F.S.B. and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in note 2, the Bank changed its method of accounting for
investments to adopt the provisions of the Financial Accounting Standards
Board's SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," at December 31, 1993. As discussed in notes 2 and 18,
the Bank changed its method of accounting for income taxes in 1993 to
adopt the provisions of the Financial Accounting Standards Board's SFAS No.
109, "Accounting for Income Taxes."
(KPMG Peat Marwick LLP signature)
March 9, 1995
F-1
<PAGE>
AMERICAN SAVINGS OF FLORIDA, F.S.B.
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1994 1993
<S> <C> <C>
Cash $ 35,414 $ 30,095
Interest bearing deposits 237 165
Federal funds sold 70,000 50,000
Securities available for sale 159,282 615,473
Securities held to maturity, net
(market value of $115,617 and $9,457) 121,324 9,456
Assets held for sale 63,758 113,228
Federal Home Loan Bank stock, at cost 25,181 20,175
Mortgage-backed securities held to maturity, net
(market value of $904,996 and $549,644) 960,230 547,548
Loans receivable, net 1,948,124 1,577,511
Accrued interest and dividends receivable 22,436 16,197
Real estate, net 7,616 9,494
Office properties and equipment, net 33,303 32,738
Purchased mortgage servicing rights 11,896 7,328
Goodwill and other intangible assets 63,139 69,112
Other assets 38,672 18,512
$ 3,560,612 $ 3,117,032
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings deposits $ 2,335,627 $ 2,228,090
Borrowed funds
Securities sold under agreements to repurchase 487,534 98,338
Advances from Federal Home Loan Bank 454,205 358,550
Other borrowed funds 14,124 160,944
Total borrowed funds 955,863 617,832
Taxes and insurance escrow deposits 15,170 14,325
Accrued expenses and other liabilities 37,418 48,918
Total liabilities 3,344,078 2,909,165
Stockholders' equity
Common stock, $.01 par value; 24,000,000 shares
authorized; 11,543,276 and 11,286,992 shares issued
and outstanding 115 113
Paid-in capital 288,624 287,747
Retained earnings (deficit) (66,238) (85,465)
222,501 202,395
Unrealized gains (losses) on securities available for sale, net (5,967) 5,472
Total stockholders' equity 216,534 207,867
$ 3,560,612 $ 3,117,032
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE>
AMERICAN SAVINGS OF FLORIDA, F.S.B.
STATEMENTS OF CONSOLIDATED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Interest and Dividend Income
Mortgage-backed securities $ 45,989 $ 71,895 $ 103,645
Loans 121,618 98,887 86,116
Securities available for sale 15,536 - -
Securities held to maturity 4,872 715 1,778
Assets held for sale 5,865 6,012 8,124
Other interest-earning assets 1,654 1,886 10,736
Total interest and dividend income 195,534 179,395 210,399
Interest Expense
Deposits 81,031 79,510 112,928
Securities sold under agreements to repurchase 18,383 5,652 6,934
FHLB advances and other borrowed funds 17,681 24,979 25,050
Total interest expense 117,095 110,141 144,912
Net interest income 78,439 69,254 65,487
Provision for losses 600 650 6,600
Net interest income after provision for losses 77,839 68,604 58,887
Operating Income
Loan servicing fees, net 2,986 3,327 2,693
Unrealized gains on assets held for sale - 39 1,153
Realized gains (losses) on assets held for sale (3,231) 1,376 15,959
Gains on sales of mortgage-backed securities, net - - 3,312
Gains of sales of securities available for sale 3,672 - -
Gains on sales of loans and other assets, net 984 - 528
Recovery from Enstar Group bankruptcy estate - - 4,006
Recovery from litigation - - 8,881
Other 6,922 6,517 6,266
Total operating income 11,333 11,259 42,798
Operating Expenses
Compensation and benefits 31,268 27,630 23,460
Occupancy and equipment, net 7,986 7,884 9,580
Deposit insurance premiums 6,194 6,595 5,582
Professional fees 4,909 3,047 3,040
Amortization of goodwill and other intangibles 5,973 6,075 6,438
Operations of real estate acquired in settlement of loans, net (670) (1,436) 1,821
Net settlements of legal matters - 997 -
Other 11,414 9,773 7,980
Total operating expenses 67,074 60,565 5,7901
Income before income tax expense (benefit), extraordinary items and
cumulative effect of change in accounting for income taxes 22,098 19,298 43,784
Income tax expense (benefit) 2,871 (11,200) 17,526
Income before extraordinary items and cumulative effect of
change in accounting for income taxes 19,227 30,498 26,258
Extraordinary items - (4,300) 17,400
Cumulative effect of change in accounting for income taxes - 2,141 -
Net income $ 19,227 28,339 $ 43,658
Net income per share, primary:
Income before extraordinary items and cumulative effect of
change in accounting for income taxes $ 1.60 2.56 $ 2.25
Extraordinary items - (0.36) 1.50
Cumulative effect of change in accounting for income taxes - 0.18 -
Net income $ 1.60 2.38 $ 3.75
Net income per share, fully diluted:
Income before extraordinary items and cumulative effect of
change in accounting for income taxes $ 1.60 2.56 $ 2.23
Extraordinary items - (0.36) 1.48
Cumulative effect of change in accounting for income taxes - 0.18 -
Net income $ 1.60 2.38 $ 3.71
Average number of shares of common stock and common stock equivalents
Primary 12,010,949 1,1898,475 11,605,658
Fully-diluted 12,016,919 11,910,143 11,724,576
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
AMERICAN SAVINGS OF FLORIDA, F.S.B.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Unrealized
Preferred Retained Gains
Stock Common Paid-In Earnings (Losses) on
Series A Stock Capital (Deficit) Securities Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 * $ 1 $ 5,527 $ 282,758 $ (155,710) $ - $ 132,576
Net income - - - 43,658 - 43,658
Conversion of Series A Preferred Stock to cash
(8,275 shares) - - (136) - - (136)
Exercise of Common Stock options (153,785 shares) * - 1 293 - - 294
Change in par value of Common Stock - (5,416) 5,416 - - -
Redemption of Series A Preferred Stock (42,424 shares) (1) - (784) (284) - (1,069)
Series A Preferred Stock dividends paid - - - (1,468) - (1,468)
Balance, December 31, 1992* - 112 28,7547 (113,804) - 173,855
Net income - - - 28,339 28,339
Exercise of Common Stock options (82,006 shares) - 1 225 - - 226
Unrealized gains on securities available for sale, net - - - - 5,472 5,472
Payment of cash in lieu of fractional shares associated
with one-for-five reverse split of common stock - - (25) - - (25)
Balance, December 31, 1993 - 113 287,747 (85,465) 5472 207,867
Net income - - - 19,227 - 19,227
Exercise of Common Stock options (256,284 shares) - 2 877 - - 879
Unrealized losses on securities available for sale, net - - - - (11,439) (11,439)
Balance, December 31, 1994 $ - $ 115 $ 288,624 $ (66,238) $ (5,967) $216,534
</TABLE>
* Number of common shares and dollar amounts have been adjusted for
one-for-five reverse split effective at the close of business on
April 27, 1993.
See Notes to Consolidated Financial Statements
F-4
<PAGE>
AMERICAN SAVINGS OF FLORIDA, F.S.B.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 19,227 $ 28,339 $ 43,658
Adjustments to reconcile net income to cash provided by operating
activities
Provision for (benefit) from deferred income taxes 2,871 (11,200) 17,526
Extraordinary items - 4,300 (17,400)
Cumulative effect of change in accounting for income taxes - (2,141) -
Provisions for losses 600 799 7,945
Unrealized gains on assets held for sale - (39) (1,153)
Realized (gains) losses on assets held for sale 3,231 (1,376) (15,959)
Realized gains on securities available for sale (3,672) - -
Gains on sales of MBSs, loans, securities and other assets (1,620) (1,801) (5,965)
Depreciation and amortization 11,718 10,945 13,136
Amortization of premiums and discounts on loans, MBSs and 4,469 4,113 (4,435)
investments
Held for sale securities purchased - (42,022) (21,165)
Proceeds from sales of securities acquired for the held for sale portfolio - 7,815 5,929
Proceeds from maturities of held for sale securities - 35,740 281,965
Principal collected on MBSs acquired for the held for sale portfolio - 2,503 -
Held for sale loans purchased (417) (913) -
Proceeds from sales of loans held for sale 154,401 73,280 40,703
Held for sale loan originations, net of repayments (121,249) (123,089) (72,942)
Proceeds from sales of other assets held for sale - - 5,892
(Increase) decrease in accrued interest receivable (5,777) 1,119 6,212
(Increase) decrease in other assets (10,756) 14,978 18,569
Increase (decrease) in accrued expenses and other liabilities (11,500) 16,377 4,412
Other, net (4,982) 8,272 (689)
Net cash provided by operating activities 36,544 25,999 306,239
Cash Flows From Investing Activities
Purchase of available for sale securities (106,339) - -
Proceeds from sales of securities available for sale 449,081 - -
Proceeds from maturities and repayments of securities available for sale 13,415 - -
Principal collected on MBSs available for sale 83,939 - -
Principal collected on MBSs and other securities held for sale - - 10,663
Proceeds from sales of MBSs held for sale - 12,982 212,510
Purchase of securities held to maturity (126,570) (12,010) (15,000)
Proceeds from maturities and repayments of securities held to maturity 15,262 12,111 67,134
Purchase of MBSs held to maturity (635,583) (317,935) (1,182,422)
Principal collected on MBSs held to maturity 221,139 605,502 688,460
Proceeds from sales of MBSs held to maturity - - 59,761
Loans purchased (407,640) (693,076) (550,562)
Proceeds from sales of loans 35,962 - 21,413
Loan repayments, net of originations 1,502 285,004 234,014
Proceeds from sales of loans held for sale - 8,385 32,900
Proceeds from sales of real estate 6,642 12,316 30,574
Purchase of mortgage servicing rights (7,608) (5,962) (459)
Other, net 1,850 1,081 300
Net cash used by investing activities (454,948) (91,602) (390,714)
Cash Flows From Financing Activities
Increase (decrease) in deposits, excluding interest credited 35,176 (106,540) (309,266)
Interest credited to deposits 72,382 73,002 103,618
Net increase (decrease) in short-term borrowings 709,196 18,324 (371,722)
Proceeds from long-term borrowings - 134,550 160,000
Repayments of long-term borrowings (374,683) (7,279) (54,153)
Increase in taxes and insurance escrow deposits 845 1,230 8,007
Conversion of Series A Preferred Stock - - (136)
Redemption of Series A Preferred Stock - - (1,069)
Series A Preferred Stock dividends paid - - (1,468)
Exercise of Common Stock options 879 226 294
Cash in lieu of fractional shares on reverse stock split - (25) -
Net cash used (provided) by financing activities 443,795 113,488 (465,895)
Net increase (decrease) in cash and cash equivalents 25,391 47,885 (550,370)
Cash and cash equivalents at beginning of period 80,260 32,375 58,2745
Cash and cash equivalents at end of period $ 105,651 $ 80,260 $ 32,375
</TABLE>
(Continued)
See Notes to Consolidated Financial Statements
F-5
<PAGE>
AMERICAN SAVINGS OF FLORIDA, F.S.B.
STATEMENTS OF CONSOLIDATED CASH FLOWS (continued)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Supplemental disclosures of cash flow information
Cash paid during the year
Interest paid $ 120,376 $ 110,525 $ 149,500
Noncash investing and financing activities
Securities and MBSs designated available for sale under SFAS 115 $ - $ 606,564 -
Transfers from investment securities and MBSs to assets held for sale $ - $ 12,643 $ 212,539
Transfers from loans receivable to assets held for sale $ 2,559 $ 6,888 $ 47,291
Additions to real estate acquired in settlement of loans $ 5,416 $ 1,623 $ 2,196
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
AMERICAN SAVINGS OF FLORIDA, F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER
31, 1994, 1993 AND 1992
Note 1: ORGANIZATION, ENSTAR GROUP MATTERS AND MERGER AGREEMENT
On April 29, 1988, American Savings of Florida, F.S.B. ("American
Savings") consummated its merger with an indirect wholly-owned
subsidiary of The Enstar Group, Inc. ("Enstar Group"), with American
Savings surviving the merger (the "Enstar Merger"). From April
29, 1988 until February 1, 1990, all of American Savings' outstanding
common stock, $.01 par value ("American Savings Common Stock"), was
owned by Enstar Group. On March 6, 1990, with the consent of the
Office of Thrift Supervision ("OTS"), Enstar Group transferred 50% of
the then outstanding shares of American Savings Common Stock to a
trust for the benefit of stockholders of Enstar Group. The trust
distributed the shares it held on July 2, 1990 to the stockholders of
Enstar Group. As of December 31, 1994, Enstar Group owned approximately
49.3% of the outstanding shares of American Savings Common Stock. The
remaining outstanding shares of American Savings Common Stock are
publicly held. American Savings Common Stock trades on The Nasdaq Stock
Market under the symbol "ASFL".
On May 31, 1991, Enstar Group filed in the United States Bankruptcy
Court for the Middle District of Alabama ("Bankruptcy Court") (Case
No. 91-02618) for protection under Chapter 11 of the Bankruptcy Code.
Enstar Group's plan of reorganization became effective on June 1,
1992. On August 25, 1993, the Bankruptcy Court confirmed Enstar
Group's Bankruptcy Plan in accordance with proposed modifications filed
by Enstar Group in May 1993 (the "Bankruptcy Plan").
Generally, under the Bankruptcy Plan, American Savings is entitled
to receive 66.66% of all distributions from the bankruptcy estate
until American Savings' allowed claim (the "Claim") is paid in full, but
may not participate in the proceeds from the sale of Enstar
Group's American Savings Common Stock, until certain other classes of
creditors have been paid in full. Thereafter, American Savings would be
entitled to receive all distributions of remaining property, if
any, from the estate, including proceeds from the sale of American
Savings Common Stock, until the Claim is paid in full. In June
1992, Enstar Group's bankruptcy estate distributed $4,006,000 to
American Savings, reducing the Claim from $36,000,000 to
$31,994,000. American Savings included this distribution in income
in June 1992. At December 31, 1994 and 1993, the carrying value of
the Claim is $0. For a discussion of an anticipated distribution
from Enstar Group's bankruptcy estate, see Note 25(B).
Under the Bankruptcy Plan, Enstar Group is obligated to sell or
distribute the American Savings Common Stock it owns before June 1,
1995, unless otherwise agreed by certain classes of creditors whose
claims have not been satisfied. Upon the demand of certain classes of
creditors, other than American Savings, for a sale or distribution of
a portion of the American Savings Common Stock, Enstar Group would be
required within 180 days to either: (i) sell the lesser of the
American Savings Common Stock necessary to pay the creditors' claims in
full or the class's pro rata share of the American Savings Common
Stock, (ii) borrow funds to pay the claims using no more than the
creditors' portion of the American Savings Common Stock and certain
potential recoveries from litigation as collateral, or (iii)
distribute in kind to the creditors, subject to regulatory approval,
the lesser of their pro rata share of the American Savings Common Stock
or the number of shares necessary to pay their claims in full.
The Bankruptcy Plan, among other things, also provides for (i) the
payment of interest at the annual rate of 4.26% on unpaid claims of
certain classes of creditors, including American Savings, from June 1,
1992, but only after the Claim is paid in full, (ii) a class of
creditors consisting of foreign bearer bond holders who surrendered
their bonds after applicable deadlines under Enstar Group's
original plan of reorganization, which claims will be entitled to
distributions only after the Claim is paid in full with interest, (iii)
the establishment of a tax reserve to be funded from property of Enstar
Group to provide for any state or federal tax obligations, and
(iv) a restriction, generally, on the transfer of claims after August
25, 1993. In addition, the Bankruptcy Plan provides that if all other
creditors are paid in full, the former Enstar Group shareholders would
be entitled to receive a distribution of the remaining property of the
estate, if any, pro rata, or, at the option of Enstar Group, shares of
new common stock of Enstar Group. Under Enstar Group's plan of
reorganization, all of the outstanding
F-7
<PAGE>
shares of Enstar Group common stock were cancelled and new common stock
was issued to a trustee. Under the Bankruptcy Plan, the new common
stock of Enstar Group held by the estate's trustee continues to be
held for the benefit of certain unsecured creditors, including American
Savings, but only until their claims are paid in full.
On December 4, 1994, American Savings entered into an Agreement and
Plan of Merger (the "Merger Agreement") with First Union Corporation
("First Union"). Pursuant to the terms of the Merger Agreement,
American Savings will merge (the "Merger") with and into a subsidiary
of First Union (the "First Union Subsidiary"). Upon consummation of the
Merger, each share of American Savings Common Stock outstanding
immediately prior to the Merger Effective Date, as defined below,
(expected to be in mid-1995) will be converted into the right to receive
that number of shares of First Union common stock, $3.33 1/3 par value
per share ("First Union Common Stock"), equal to the quotient of
$21.00 divided by the average of the closing prices of First Union
Common Stock as reported on the Composite Transactions Tape of the New
York Stock Exchange, Inc. for each of the ten consecutive trading days
ending on and including the trading day immediately preceding the
effective date of the Merger (the "Merger Effective Date"), with cash
in lieu of the issuance of any fractional share interest. Each share
of First Union Common Stock issued in the Merger will be accompanied
by one right to purchase certain securities under certain circumstances
in accordance with First Union's Shareholder Protection Rights
Agreement, dated December 18, 1990, as amended. The Merger is
intended to constitute a tax free reorganization under the Internal
Revenue Code of 1986, as amended.
The Merger Agreement provides that, without the prior written consent
of First Union, American Savings will conduct its business only in
the ordinary and usual course consistent with past practice, and not
take certain actions relating to the operation of American Savings
pending consummation of the Merger. These actions include, among
others: (i) disposing of any material portion of its assets or
acquiring any substantial portion of the business or property of any
other entity, (ii) changing its lending, investment, liability
management, accounting procedures, or other material banking policies
in any material respect and (iii) acquiring private issue
mortgage-backed securities ("MBSs").
Immediately following execution of the Merger Agreement, American
Savings granted to First Union an option to purchase up to 2,288,700
shares of newly issued American Savings Common Stock (which have been
reserved for issuance), for a purchase price per share of $19
9/16; provided that the number of shares for which the option is
exercisable shall not exceed 19.9% of American Savings Common Stock
outstanding at the time of exercise, without giving effect to the
shares issued or issuable under the option. First Union may exercise
the option, in whole or in part, at any time following the
happening of certain events, including, among others (i) American
Savings taking certain actions, without First Union's prior written
consent, including, among others, authorizing, recommending or
entering into an agreement with any third party to effect (a) a merger,
consolidation or similar transaction involving American Savings, (b)
any disposition of 20% or more of the consolidated assets or deposits
of American Savings, or (c) the issuance, sale or other disposition of
20% or more of the voting power of American Savings; or (ii) the
acquisition by any third party of the beneficial ownership, or the
right to acquire beneficial ownership, of 20% or more (or if such party
is the beneficial owner of 20% or more on December 4, 1994, such
party acquires an additional 5% or more) of the voting power of American
Savings, without First Union's prior written consent.
In addition, Enstar Group entered into a shareholder voting
agreement (the "Voting Agreement") pursuant to which, among other
things, Enstar Group agreed to vote all of its shares of American
Savings Common Stock in favor of the Merger and the Merger Agreement.
The Voting Agreement also sets forth certain matters relating to
payment of the Claim and certain other allowed claims under the
Bankruptcy Plan. The Voting Agreement provides that pursuant to an
escrow agreement (the "Escrow Agreement"), Enstar Group will place in
escrow with First Union National Bank of North Carolina, as escrow
agent, 3,926,422 shares of American Savings Common Stock held by it
(the "Escrowed Shares") pending consummation of the Merger. First Union
has agreed to repurchase the shares of First Union Common Stock into
which the Escrowed Shares are to be converted on the Merger Effective
Date for an aggregate purchase price of $82,454,865.80 to facilitate the
payment of the allowed claims of certain creditors of Enstar Group
under the Bankruptcy Plan, including payment to the First Union
Subsidiary, as successor to American Savings, of all or substantially
all of the Claim.
F-8
<PAGE>
OTS confirmed, on December 2, 1994, that, to the extent that any
transactions contemplated under the Voting Agreement and the Escrow
Agreement would require that a conveyance of Escrowed Shares be recorded
on American Savings' transfer records, OTS waives the prohibition
under the Regulatory Capital Maintenance/Dividend Agreement ("Capital
Maintenance Agreement") with respect to that recording. On December 2,
1994 and again on January 26, 1995, OTS agreed to allow Enstar Group to
vote the shares of American Savings which it owns.
Consummation of the Merger is subject to certain conditions,
including without limitation: (i) receipt of all required regulatory
approvals; and (ii) receipt of the affirmative vote of the holders of at
least: (a) two-thirds of the issued and outstanding shares of
American Savings Common Stock; and (b) a majority of the Public Shares
(as defined hereinafter) represented and voted at the meeting of
shareholders of American Savings to be held to approve the Merger
Agreement and the Merger. "Public Shares" means all of the issued and
outstanding shares of American Savings Common Stock other than those
beneficially owned (as defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) by Enstar Group, its officers and
directors, and the directors and certain officers of American Savings.
The Merger Agreement may be terminated, and the Merger abandoned, at
any time prior to the Merger Effective Date (i) by mutual consent
of First Union and American Savings; (ii) by either First Union or
American Savings (a) if the stockholders of American Savings fail to
approve the Merger and the Merger Agreement, (b) in the event of a
breach by the other party of any representation or warranty
contained in the Merger Agreement as described in the preceding
paragraph, which breach is not cured after 30 days' written notice
thereof is given to the party committing such breach and which
breach would result in a failure to satisfy any of the conditions to
the consummation of the Merger Agreement, (c) in the event of a material
breach by the other party of any of the covenants or agreements
contained in the Merger Agreement, which breach is not cured after 30
days' written notice thereof is given to the party committing such
breach; (d) if any required governmental approval has been denied or
required to be withdrawn, or the applicable governmental authority has
indicated an intention to deny or impose a condition or requirement
which generally would materially adversely impact the economic or
business benefits to First Union of the Merger; (e) if a court order
restrains or prohibits the Merger or any action is taken by any
governmental authority which would make the Merger illegal; or (f) if
the Merger is not consummated on or before August 25, 1995, provided
that the party seeking to terminate the Merger is not in breach
of any of the covenants or agreements of the Merger Agreement; (iii)
by First Union if the Board fails to recommend the Merger to its
stockholders, withdraws, modifies or changes its recommendation of the
Merger or the Merger Agreement to the stockholders of American Savings
in a manner adverse to First Union; or (iv) by American Savings, if in
the exercise of its good faith judgment as to its fiduciary duties
to its stockholders the Board determines that such termination is
required, and American Savings shall have agreed to a competing
transaction.
Note 2: STATEMENT OF ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of American Savings and all wholly-owned
subsidiaries. The equity method of accounting is used to account for
American Savings' investments in 20% to 50% owned companies. All
significant intercompany transactions have been eliminated.
Classification of Debt and Equity Securities - Gains and
losses on all securities transactions are determined using the specific
identification method.
Securities and Mortgage-Backed Securities Held to Maturity. American
Savings classifies as held to maturity those investments in debt and
equity securities as to which it has a positive intent and ability to
hold to maturity. In accordance with Statement of Financial
Accounting Standards 115, Accounting for Certain Investments in Debt
and Equity Securities, ("SFAS 115"), adopted effective December 31,
1993, a security cannot be classified as held to maturity if it might
be sold in response to changes in market interest rates, related
changes in the security's prepayment risk, liquidity needs, changes
in the availability of and the yield on alternate investments and
changes in funding sources and terms.
Securities having fixed payments of principal and interest which are
held to maturity are carried at cost and are adjusted for premium
amortization or discount accretion. Discounts are accreted to maturity
and premiums are
F-9
<PAGE>
amortized to call price at call date using the interest method of
amortization. MBSs held to maturity are carried at current unpaid
principal balances, adjusted for unamortized premiums and
unearned discounts. Premiums are amortized and discounts are
accreted to income using the interest method based upon the
estimated lives of the respective instruments.
Securities Available for Sale. Debt and equity securities not
classified as held-to-maturity or trading securities are classified
as available-for sale. Debt and equity securities available for sale
are carried at fair value, with the related unrealized gains or
losses, net of deferred income taxes, reported as a separate component
of stockholders' equity.
Assets Held for Sale - Assets held for sale are carried at the lower of
cost or market. Unrealized losses and realized gains and losses on
assets held for sale are included in operating income. Gains and
losses realized from the sale of assets held for sale are determined
using specific identification.
Real Estate - Real estate acquired in settlement of loans is recorded
at the carrying amount of the loan or estimated fair market value at
the date acquired, whichever is less, plus capital improvements
made thereafter to facilitate sale. Fair market value is based on
current appraisals reduced by estimated net holding and disposition
costs. Costs relating to the development and improvement of
property are capitalized, whereas those relating to holding the
property are charged to operations as incurred. Losses are charged to
operations when it is determined that the investment in real estate
owned is greater than its estimated fair market value.
In-substance foreclosures consist of loans considered repossessed
in-substance and are included in real estate, net, at the lower of the
carrying amount of the loan or estimated fair market value. The
collateral underlying these loans has not been repossessed.
American Savings considers a loan to be an in-substance foreclosure
when the borrower has little or no equity in the collateral at its
current estimated fair market value, proceeds from repayment are
expected to come only from the operation or sale of the collateral and
the borrower has either abandoned control of the project or it is
doubtful the borrower will rebuild equity in the collateral or repay the
loan by other means in the foreseeable future.
Gains on sales of real estate are recognized based on the buyer's
initial and continuing investment in the property.
Allowances for Losses on Loans and Real Estate - Allowances for
losses on loans and real estate are based upon a review of loss
experience, loan balances, delinquent loans, real estate acquired and
other factors which may affect the ultimate collectibility of loans and
realization from real estate acquired.
Management believes that allowances for losses on loans and real
estate are adequate at December 31, 1994. However, while management
uses currently available information to recognize losses on these
assets, future additions to the allowances may be necessary based
on changes in economic conditions, deterioration of creditworthiness of
the borrower, the value of the underlying collateral or other
factors. Additionally, various regulatory agencies, as an integral
part of their regular examination process, periodically review American
Savings' allowances for losses on loans and real estate. Such agencies
may require American Savings to recognize additions to the
allowances based on their judgments of information available to them at
the time of their examination. American Savings' last examination was
completed as of August 26, 1994.
Nonaccrual Loans - American Savings' policy is to exclude from income
interest on loans which are ninety days or more delinquent and for
which the ultimate collectibility of the interest is doubtful.
Additionally, a loan may be placed on nonaccrual status if, in
management's opinion, conditions warrant. Interest payments
on nonaccrual loans are recognized as income only to the extent of
cash payments received; or, if there is doubt as to ultimate
collectibility of the loan, such payments are applied as a
reduction of the loan carrying amount.
Loan Servicing Fees and Purchased Mortgage Servicing Rights -
American Savings services mortgage loans for others. Until September
1993, American Savings also serviced consumer loans for others. These
loans are not included in the accompanying consolidated financial
statements. Loan servicing fees are based on a stipulated
percentage of the outstanding loan principal balances being serviced and
are included in income as the related loan payments are collected. Loan
servicing costs are charged to expense as incurred.
F-10
<PAGE>
American Savings capitalizes the cost of acquiring mortgage loan
servicing rights. The cost of the purchased servicing rights is
amortized, as a charge against loan servicing fee income, in proportion
to, and over the period of estimated net servicing income based
on the interest method. Quarterly impairment tests are performed on
a discounted, disaggregated basis. Any resulting adjustments are
recorded as additional amortization. Amortization of purchased
mortgage servicing rights amounted to $3,040,000, $1,852,000 and
$2,280,000 for the years ended December 31, 1994, 1993 and 1992,
respectively.
Intangible Assets - Goodwill is amortized using the straight-line
method over its remaining life, 143 months as of December 31, 1994.
Other intangible assets consist of core deposit intangibles, which are
amortized over the estimated life of the core deposits.
Financial Instruments - Off-Balance Sheet - American Savings uses
interest rate exchange agreements ("swaps") and interest rate caps
("caps") in the management of its interest rate risk. Swaps are used to
more closely match the repricing characteristics of certain assets
and liabilities. Swaps are agreements in which American Savings and
another party agree to exchange interest payments on a notional
principal amount. The net settlements on interest rate swaps are
recognized over the lives of the agreements as adjustments of interest
expense. Gains or losses on sales (terminations) of swaps entered
into as hedges are deferred and amortized to income or expense over
the shorter of the original maturity of the swap or the maturity period
of the hedged asset or liability.
American Savings uses caps to limit the exposure to rising
interest rates on short-term variable rate borrowings. Premiums paid
for caps are amortized as an adjustment to interest expense over the
term of the agreements. Interest expense is reduced on a
current basis when the index rate exceeds the rate cap specified under
the agreement.
Loan Fees, Premiums and Discounts - American Savings defers
certain nonrefundable fees associated with lending activities, such as
origination fees and amortizes such fees into interest income over the
estimated lives of the loans using the interest method. Certain
direct costs associated with the origination of loans are also
deferred and amortized over the estimated lives of the loans.
Deferred net fees or costs are not amortized during periods in which
interest income on a loan is not being recognized because of concerns
about the realization of loan principal or interest.
Office Properties and Equipment - Office properties and
equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. Maintenance and repairs
are charged to expense as incurred. Expenditures for major renewals and
betterments are capitalized. Gains and losses on dispositions are
reflected in current operations.
Income Taxes - American Savings and its wholly-owned subsidiaries file
a consolidated tax return. Effective January 1, 1993, American Savings
adopted Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes ("SFAS 109") and has reported the cumulative effect
of that change in the method of accounting for income taxes in the 1993
Statements of Consolidated Earnings. Prior to the adoption of SFAS 109
American Savings accounted for income taxes under Accounting
Principles Board Opinion 11, Accounting for Income Taxes ("APB 11").
SFAS 109 requires an asset and liability approach for accounting for
income taxes. Tax assets and liabilities are measured based upon
enacted tax laws and rates. A reserve is recorded as a reduction of
deferred tax assets in the amount of such benefits that, based upon
available evidence, are not expected to be realized. Under APB 11,
which required an income statement approach for accounting for deferred
taxes, taxes were provided, using the tax rate applicable in the
year of calculation, on all income and expense items included in
earnings, regardless of the period in which such items were recognized
for tax purposes, except for permanent difference between accounting
income and taxable income. Under APB 11, deferred taxes were not
adjusted for subsequent changes in enacted tax rates.
In computing federal and state income taxes, savings and loans which
meet certain conditions prescribed by
the Internal Revenue Code are allowed, with limitations, a bad
debt deduction based on a percentage of taxable income or experience.
To the extent that (i) a savings institution's reserve for losses
on qualifying real property loans exceeds the amount that would have
been allowed under the experience method and (ii) it makes
distributions to stockholders that are considered to result in
withdrawals from that excess bad debt reserve, then
F-11
<PAGE>
the amounts withdrawn will be included in its taxable income. The amount
considered to be withdrawn by a distribution will be the amount of the
distribution plus the amount necessary to pay the tax with respect to
the withdrawal. Dividends paid out of the savings institution's current
or accumulated earnings and profits, as calculated for federal
income tax purposes, will not be considered to result in withdrawals
from its bad debt reserves. Currently, American Savings' reserve for
losses on qualifying real property loans does not exceed the amount that
would have been allowed under the experience method.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash
and cash equivalents include cash and interest bearing deposits,
securities purchased under agreements to resell, federal funds sold
and other short term investments which had original terms of less than
ninety days.
Accounting by Creditors for Impairment of a Loan - Statement of
Financial Accounting Standards No. 114, Accounting by Creditors for
Impairment of a Loan ("SFAS 114"), as amended by Statement of
Financial Accounting Standards No. 118, is effective for financial
statements issued for fiscal years beginning after December 15, 1994,
and defines the criteria for loan impairment and the measurement
methods for certain impaired loans and loans whose terms are modified
in troubled debt restructurings ("TDRs"). Under SFAS 114, the
measurement of loan impairment is based upon the present value of
expected future cash flows, discounted at the loan's effective interest
rate, the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. If foreclosure is
probable, impairment must be based upon the fair value of the
collateral. American Savings believes that prospective implementation
of this statement, on January 1, 1995, will not have a material effect
on its financial condition.
Reclassifications - Certain amounts have been reclassified to conform
with current period presentation.
Note 3: ENSTAR MERGER
The Enstar Merger was accounted for using the purchase method of
accounting. For the years ended December 31, 1994, 1993 and 1992,
the amortization and accretion of discounts, premiums and goodwill
and other intangibles decreased American Savings' income from
continuing operations before income taxes by $4,894,000, $5,002,000 and
$231,000, respectively.
At December 31, 1994 and 1993, the remaining balances of discounts,
premiums, goodwill and other intangible assets related to the Enstar
Merger are summarized as follows:
<TABLE>
<CAPTION>
(in thousands) December 31, 1994 December 31, 1993
<S> <C> <C>
Loans receivable $ (3,582) $ (5,989)
Goodwill and other intangible assets $ 63,139 $ 69,112
Mortgage servicing rights $ 592 $ 986
Other assets $ 5,803 $ 7,147
Savings deposits $ - $ (21)
Other liabilities $ (1,115) $ (1,137)
</TABLE>
Note 4: SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Securities purchased under agreements to resell ("repos")
represent short-term loans and are recorded as receivables. The
securities underlying the agreements are book entry securities and MBSs
segregated and held by the selling securities dealer on behalf of
American Savings. Agreements relating to MBSs are agreements to resell
substantially identical securities. There were no repos outstanding at
December 31, 1994 or 1993.
Because purchased securities generally are not delivered to American
Savings or its agent, American Savings is subject to the risk that
its interest in the purchased securities may be inadequately protected
in the event the selling securities dealer fails to perform its
obligations. American Savings attempts to reduce the effects of such
risk by, among other things, entering into such agreements with
well-capitalized securities dealers who are primary dealers in
government securities and reviewing on a regular basis the published
financial condition of such securities dealers.
F-12
<PAGE>
During 1994, American Savings did not enter into any repos. Repos
averaged $6,129,000 and $76,511,000 during the years ended December
31, 1993 and 1992, respectively. The maximum amounts outstanding at any
month-end during those periods were $4,000,000 and $300,000,000,
respectively.
Note 5: SECURITIES AVAILABLE FOR SALE
As of December 31, 1994 and 1993, the following securities
were designated as available for sale (in thousands):
<TABLE>
<CAPTION>
Estimated
Amortized Unrealized Unrealized Fair
December 31, 1994 Cost Gains Losses Value
<S> <C> <C> <C> <C>
Equity securities - common stock of FNMA $ 10 $ 83 $ - $ 93
MBSs
MBSs due after one year but within five years
FHLMC 97,231 - (6,276) 90,955
MBSs due after ten years
FNMA and FHLMC 71,755 - (3,521) 68,234
Total MBSs 168,986 - (9,797) 159,189
Total available for sale securities $ 168,996 $ 83 $ (9,797) $ 159,282
December 31, 1993
U.S. Treasury securities, due within one year $ 13,293 $ 3 $ - $ 13,296
Equity securities - common stock of FNMA 10 90 - 100
MBSs
MBSs due after one year but within five years
FNMA and FHLMC 54,695 374 (78) 54,991
CMOs 32,014 62 (11) 32,065
86,709 436 (89) 87,056
MBSs due after five years but within ten years
FNMA and FHLMC 225,667 2,266 (247) 227,686
MBSs due after ten years
FNMA and FHLMC 280,885 6,902 (452) 287,335
Total MBSs 593,261 9,604 (788) 602,077
Total available for sale securities $ 606,564 $ 9,697 $ (788) $ 615,473
</TABLE>
Securities available for sale are carried at fair value, with the
related unrealized gains or losses, net of deferred income taxes,
reported as a separate component of stockholders' equity. At
December 31, 1994, stockholders' equity was reduced $5,967,000,
representing net unrealized losses of $9,714,000, less deferred tax
benefits of $3,747,000 and at December 31, 1993, stockholders'
equity was increased $5,472,000, representing unrealized gains, net of
deferred taxes of $3,437,000. During the year ended December 31, 1994,
American Savings sold MBSs available for sale with a carrying value
of $445,409,000 and realized gains of $2,957,000 on such sales.
Proceeds from sales of securities available for sale amounted to
$449,081,000 for the year ended December 31, 1994 and gross gains and
gross losses on these sales amounted to $7,447,000 and $3,775,000,
respectively.
Note 6: SECURITIES HELD TO MATURITY, NET
A summary of securities held to maturity as of December 31, 1994,
1993 and 1992 follows (in thousands):
<TABLE>
<CAPTION>
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
December 31, 1994
Debt securities
U.S. Government and Agency obligations
Due within one year $ 2,983 $ - $ - $ 2,983
Due after one year but within five years 114,049 - (5,707) 108,342
117,032 - (5,707) 111,325
Corporate debt obligations due after five
years but within ten years 2,987 - - 2,987
Other debt securities
Due after one year but within five years 250 - - 250
Due after five years but within ten years 1,055 - - 1,055
1,305 - - 1,305
$ 121,324 $ - $ (5,707) $ 115,617
F-13
<PAGE>
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
December 31, 1993
Debt securities
U.S. Government obligations due within one year $ 3,152 $ 1 $ - $ 3,153
Corporate debt obligations due after ten years 4,995 - - 4,995
Other debt securities
Due in one year 1,000 - - 1,000
Due after five years but within ten years 309 - - 309
1,309 - - 1,309
$ 9,456 $ 1 $ - $ 9,457
December 31, 1992
Debt securities
U.S. Government and Agency obligations
Due within one year $ 3,002 $ 1 $ - $ 3,003
Due after one year but within five years 150 5 - 155
3,152 6 - 3,158
Corporate debt obligations due after ten years 5,000 - - 5,000
Other debt securities
Due after one year but within five years 1,000 - - 1,000
Due after five years but within ten years 323 88 - 411
1,323 88 - 1,411
$ 9,475 $ 94 $ - $ 9,569
</TABLE>
Note 7: ASSETS HELD FOR SALE
A summary of the carrying value and estimated fair value of assets
classified as held for sale at December 31, 1994, 1993 and 1992 follows
(in thousands):
<TABLE>
<CAPTION>
Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
<S> <C> <C> <C> <C>
December 31, 1994
Student loans $ 56,676 $ - $ - $ 56,676
Residential mortgage loans 7,082 80 (33) 7,129
$ 63,758 $ 80 $ (33) $ 63,805
December 31, 1993
Student loans $ 49,039 $ - $ - $ 49,039
Residential mortgage loans 64,189 619 (293) 64,515
$ 113,228 $ 619 $ (293) $ 113,554
December 31, 1992
U.S. Treasury securities, due within one year $ 21,170 $ 6 $ (3) $ 21,173
Private pass-through MBSs
Amortized cost 7,818 - (121) 7,697
Lower of cost or market adjustment (121) - 121 -
7,697 - - 7,697
Loans
Student 34,746 - - 34,746
Residential mortgage loans (1) 28,272 564 - 28,836
63,018 564 - 63,582
$ 91,885 $ 570 $ (3) $ 92,452
</TABLE>
(1) Net unrealized gain is presented.
The following table summarizes proceeds from sales of assets held for
sale and gross gains and losses for the periods presented:
<TABLE>
<CAPTION>
Years Ended December 31,
(in thousands) 1994 1993 1992
<S> <C> <C> <C>
Proceeds from sales $ 154,401 $ 81,095 $ 52,524
Gross realized gains $ 2,392 $ 953 $ 1,394
Gross realized losses $ (5,623) $ (126) $ (710)
Unrealized gains (losses) $ - $ - $ 1,273
</TABLE>
F-14
<PAGE>
Note 8: MORTGAGE-BACKED SECURITIES HELD TO MATURITY, NET
A summary of the amortized cost and estimated fair value of
MBSs, net, which are classified as held to maturity follows (in
thousands):
<TABLE>
<CAPTION>
Estimated
Amortized Unrealized Unrealized Fair
December 31, 1994 Cost Gains Losses Value
<S> <C> <C> <C> <C>
FNMA and FHLMC
Fixed rate $ 153,236 $ - $ (12,672) $ 140,564
Variable rate 252,276 - (14,530) 237,746
15-year balloons 6,444 - (555) 5,889
GNMA
Variable rate 50,204 - (3,141) 47,063
Private pass-through and other
Fixed rate 104,234 - (8,631) 95,603
Variable rate 379,827 - (15,595) 364,232
CMOs 14,009 7 (117) 13,899
$ 960,230 $ 7 $ (55,241) $ 904,996
December 31, 1993
FNMA and FHLMC
Fixed rate $ 36,917 $ - $ (103) $ 36,814
Private pass-through and other
Fixed rate 26,287 299 (81) 26,505
Variable rate 428,057 3,150 (1,721) 429,486
CMOs 56,287 629 (77) 56,839
$ 547,548 $ 4,078 $ (1,982) $ 549,644
December 31, 1992
FNMA and FHLMC
Variable rate $ 334,484 $ 8,893 $ (179) $ 343,198
5- to 7- year balloons 148,408 - (2,124) 146,284
Private pass-through and other
Variable rate 487,066 5,556 (1,441) 491,181
CMOs 466,332 3,736 (1,509) 468,559
Other 2,507 34 - 2,541
$1,438,797 $ 18,219 $ (5,253) $1,451,763
</TABLE>
The following table summarizes proceeds from sales of MBSs and gross
gains and losses:
<TABLE>
<CAPTION>
Years Ended December 31,
(in thousands) 1994 1993 1992
<S> <S> <S> <S>
Proceeds from sales $ - $ 12,982 $ 272,271
Included in gains on sales of MBSs
Gross realized gains $ - $ - $ 3,313
Gross realized losses $ - $ - $ (1)
Included in gains on assets held for sale
Gross realized gains $ - $ 373 $ 14,661
Gross realized losses $ - $ - $ -
Unrealized gains (losses) $ - $ 39 $ (120)
</TABLE>
In August 1992, as a result of a decision to invest in variable-rate or
shorter-term assets, American Savings decided to sell all of its
fixed-rate MBSs which had original terms of fifteen to thirty
years, and accordingly, such MBS portfolio was reclassified to assets held
for sale. During the third quarter of 1992, American Savings sold those
MBSs, which had a book value of $194,197,000, and recorded a gain of
$14,646,000 on the sale. In addition to this sale, in response to
a capital directive, in 1992 American Savings sold MBSs and CMOs held
for investment having aggregate book values of $53,719,000 and
$2,729,000, respectively, and recognized aggregate gains of $3,312,000
on the sales.
F-15
<PAGE>
Note 9: LOANS RECEIVABLE, NET
Loans receivable, net, consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
(in thousands) 1994 1993
<S> <C> <C>
Permanent Residential Mortgages
First mortgage loans
Fixed rate $ 386,775 $ 415,646
Variable rate 1,001,435 824,040
Second mortgage loans 256,380 115,389
Residential Construction and Land Loans 78,523 35,915
Commercial Real Estate
Construction 2,633 1,602
Permanent 105,422 77,017
Other 1,555 2,717
Corporate 13,191 22,168
Consumer 168,395 123,360
2,014,309 1,617,854
Less
Unearned fees and net (premiums) discounts (1,135) 1,219
Net premiums on purchased loans (13,131) (18,025)
Discounts from purchase valuation 3,582 5,989
Undisbursed portion of loans in process 57,782 30,708
Allowance for loan losses 19,087 20,452
$1,948,124 $1,577,511
</TABLE>
The following table summarizes the aggregate outstanding balance of
American Savings' nonaccrual loans and TDRs at December 31, 1994 and
1993:
<TABLE>
<CAPTION>
December 31, December 31,
(in thousands) 1994 1993
<S> <C> <C>
Nonaccrual loans, including nonaccrual TDRs (1)
Permanent Residential Mortgages $ 6,903 $ 5,744
Commercial Real Estate - Permanent 7,706 9,779
Commercial Real Estate - Other 229 247
Corporate 1,923 2,912
Consumer 552 360
17,313 19,042
TDRs, excluding nonaccrual TDRs
Commercial real estate 17,410 17,583
$ 34,723 $ 36,625
Other potential problem loans (2) $ 11,127 $ 18,673
</TABLE>
(1) At December 31, 1994 and 1993, nonaccrual loans include TDRs
amounting to $8,161,000 and $11,635,000, respectively.
(2) At December 31, 1994, other potential problem loans are comprised of
commercial real estate loans.
The following summarizes foregone interest income due to nonaccrual
loans and TDRs in 1994:
<TABLE>
<CAPTION>
Nonaccrual
(in thousands) Loans TDRs
<S> <C> <C>
Interest income that would have been recorded had the loans
performed in accordance with their original terms $ 3,093 $ 1,924
Interest income included in results of operations 248 1,080
Total foregone interest $ 2,845 $ 844
</TABLE>
American Savings serviced loans for the benefit of others
aggregating approximately $1,280,748,000, $888,479,000 and $742,037,000
at December 31, 1994, 1993 and 1992, respectively.
F-16
<PAGE>
Note 10: REAL ESTATE, NET
Real estate, net, consists of the following:
<TABLE>
<CAPTION>
December 31, December 31,
(in thousands) 1994 1993
<S> <C> <C>
REO $ 7,937 $ 8,513
In-substance foreclosures 1,064 1,994
9,001 10,507
Less allowance for losses 1,385 1,013
$ 7,616 $ 9,494
</TABLE>
At December 31, 1994, 1993 and 1992, American Savings had no investments
in real estate joint ventures.
Note 11: ALLOWANCES FOR LOSSES
The following is a summary of the allowances for losses on loans and
real estate, net:
<TABLE>
<CAPTION>
Residential
Permanent Construction Commercial
Residential and Land Real Estate Corporate Consumer Real
(in thousands) Loans Loans Loans Loans Loans Estate Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $ 480 $ 1,609 $ 18,048 $ 8,040 $ 1,756 $ 15,147 $ 45,080
Other additions(1) - - 4,510 - - 585 5,095
Charge-offs, net (492) 107 (1,112) (14) (2,001) (11,077) (14,589)
Transfers - (1,170) 1,742 (4,378) 1,710 2,096 -
Provision for losses 655 453 4,697 - 795 1,345 7,945
Balance December 31, 1992 643 999 27,885 3,648 2,260 8,096 43,531
Other additions(1) - - 4,095 336 - - 4,431
Charge-offs, net (487) 6 (12,348) (5,888) (823) (7,756) (27,296)
Transfers 402 252 (5,928) 4,161 589 524 -
Provision for losses 650 - - - - 149 799
Balance December 31, 1993 1,208 1,257 13,704 2,257 2,026 1,013 21,465
Other additions(1) - - 857 363 - 45 1,265
Charge-offs, net (391) - (232) (986) (1,172) (77) (2,858)
Transfers 1,168 1,492 (4,532) 366 1,102 404 -
Provision for losses 600 - - - - - 600
Balance December 31, 1994 $ 2,585 $ 2,749 $ 9,797 $ 2,000 $ 1,956 $ 1,385 $20,472
</TABLE>
(1) Consists primarily of interest payments and capitalized interest.
Allowances for losses include $16,787,000 and $17,994,000 of general
loss reserves at December 31, 1994 and 1993, respectively.
Note 12: ACCRUED INTEREST AND DIVIDENDS RECEIVABLE
Accrued interest and dividends receivable is composed of the following:
December 31, December 31,
(in thousands) 1994 1993
Securities $ 3,086 $ 390
Mortgage-backed securities 6,668 5,809
Loans 12,682 9,998
$22,436 $16,197
F-17
<PAGE>
Note 13: OFFICE PROPERTIES AND EQUIPMENT, NET
Office properties and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated
December 31, December 31, Useful
(in thousands) 1994 1993 Lives
<S> <C> <C> <C>
Land $ 7,612 $ 8,690
Buildings 16,799 15,995 3 - 40 years
Furniture and equipment 21,044 18,461 3 - 8
Leasehold improvements 9,445 8,674 3 - 40
54,900 51,820
Less accumulated depreciation 21,597 19,082
$ 33,303 $ 32,738
</TABLE>
Depreciation expense amounted to $2,705,000, $3,017,000 and $4,300,000
for the years ended December 31, 1994, 1993 and 1992, respectively.
American Savings leases certain office premises and equipment under
noncancellable operating leases. Annual minimum rental payments
under operating leases having noncancellable lease terms in excess of
one year are $2,234,000, $2,215,000, $2,006,000, $1,803,000 and
$1,514,000 for each of the five years subsequent to December 31,
1994, respectively, and $3,400,000 thereafter. Rent expense for
operating leases, except those with terms of less than one month,
aggregated $2,505,000, $2,256,000 and $2,622,000 for the years ended
December 31, 1994, 1993 and 1992, respectively.
Note 14: SAVINGS DEPOSITS
Savings deposits at December 31, 1994 and 1993 and the weighted average
rates of savings deposits at December 31, 1994 follow:
<TABLE>
<CAPTION>
Weighted
Average December 31, December 31,
(in thousands) Rate 1994 1993
<S> <C> <C> <C>
Passbook accounts 0.99% $ 37,037 $ 45,762
Checking accounts 0.72 204,264 211,559
Money market accounts 2.42 402,146 441,775
Certificate accounts
1.00 - 3.00% - 12,087 94,824
3.01 - 5.00% - 959,092 1,100,148
5.01 - 7.00% - 653,855 243,088
7.01 - 9.00% - 62,398 82,382
9.01 - 11.00% - - 3,320
11.01 - 13.00% - - 1,041
Valuation adjustments on certificate accounts - - 21
Total certificate accounts 4.88 1,687,432 1,524,824
Accrued interest - 4,748 4,170
3.99% $2,335,627 $2,228,090
</TABLE>
At December 31, 1994, savings deposits had the following scheduled
maturities:
<TABLE>
<CAPTION>
Years Ending December 31,
(in thousands) 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Passbook accounts and accrued interest $ 41,785 $ - $ - $ - $ -
Checking accounts 204,264 - - - -
Money market accounts 402,146 - - - -
Certificate accounts
1.00 - 3.00% 12,087 - - - -
3.01 - 5.00% 731,492 208,821 1,651 11,814 5,314
5.01 - 7.00% 256,346 191,931 142,880 34,851 27,847
7.01 - 9.00% 29,245 31,235 1,755 153 10
$1,677,365 $431,987 $146,286 $ 46,818 $ 33,171
</TABLE>
F-18
<PAGE>
The following schedule sets forth interest expense by type of savings
deposit:
<TABLE>
<Cpation>
Years Ended December 31,
(in thousands) 1994 1993 1992
<S> <C> <C> <C>
Passbook accounts $ 445 $ 662 $ 1,427
Checking accounts 1,905 1,930 3,188
Money market accounts 10,490 10,340 13,126
Certificate accounts 68,191 66,578 95,187
$ 81,031 $ 79,510 $112,928
</TABLE>
The following schedule sets forth the average balances of and weighted
average interest rates paid on savings deposits:
<TABLE>
<CAPTION>
Years Ended December 31,
(in thousands) 1994 1993 1992
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts $ 41,997 1.06% $ 50,594 1.31% $ 55,035 2.59
Checking accounts 244,741 0.78 245,987 0.78 201,154 1.58
Money market accounts 441,063 2.38 428,565 2.41 387,364 3.39
Certificate accounts 1,578,125 4.32 1,515,849 4.39 1,705,457 5.58
$2,305,926 3.51% $2,240,995 3.55% $2,349,010 4.81%
</TABLE>
Checking accounts consist of NOW and tiered checking accounts.
Penalties charged for early withdrawal of savings, which were not
significant during the periods presented, reduced the respective
interest expense account.
Certificates of deposit having balances of $100,000 or greater
amounted to $168,207,000 at December 31, 1994 and mature as follows:
$31,377,000 in three months or less, $29,490,000 in over three through
six months, $32,678,000 in over six through twelve months and
$74,662,000 thereafter.
Public funds and Treasury Tax and Loan deposits of $749,000 were
secured by U.S. Treasury securities having an aggregate book value of
$1,331,000 at December 31, 1994.
Note 15: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
American Savings enters into sales of securities under agreements to
repurchase ("reverse repos"), which are treated as financings. The
obligations to repurchase securities sold are reflected as a liability
and the carrying amount of the securities underlying the agreements
is included in securities available for sale, securities or MBSs held
to maturity in the Statements of Consolidated Financial Condition.
Reverse repo liabilities amounted to $487,534,000, $98,338,000 and
$80,014,000 at December 31, 1994, 1993 and 1992, respectively, with
weighted average rates of 6.17%, 3.68% and 3.48%, respectively.
The securities underlying the agreements are book entry
securities. During the periods presented, the securities sold under
these agreements were delivered, by appropriate entry, to the
correspondent bank accounts of the purchasing securities dealers
used in the transactions. The purchasing securities dealers may have
sold, loaned, or otherwise disposed of such securities to other
parties in the normal course of their operations, and have agreed to
resell to American Savings the same securities at the maturities of the
agreements.
At December 31, 1994, borrowings under reverse repo agreements,
including $371,000 of accrued interest payable, were secured by MBSs
with a carrying value of $542,675,000, including $3,523,000 of accrued
interest receivable. At December 31, 1994, these borrowings had the
following scheduled maturities:
<TABLE>
<CAPTION>
Securities Sold
(dollar amounts in thousands) Repurchase Liability Under Agreements to Repurchase
Carrying Average Carrying Market Average
Maturity Amount Rate Amount Value Yield
<S> <C> <C> <C> <C> <C>
Overnight $ 142,799 6.40% $ 159,485 $ 148,030 5.58%
Up to 30 days 345,106 6.08 383,190 357,524 5.08
$ 487,905 6.17% $ 542,675 $ 505,554 5.22%
</TABLE>
The amount of risk under these borrowings, defined as the excess
of carrying value (or market value, if higher) of assets sold under
agreements to repurchase, including accrued interest, plus any cash or
other assets on deposit
F-19
<PAGE>
to secure the repurchase obligations over the amount borrowed
(adjusted for accrued interest), in the aggregate and with any one
dealer, was approximately $54,770,000 and $19,806,000, respectively,
at December 31, 1994. The average rate paid on reverse repos amounted
to 4.52%, 3.23% and 3.94% for the years ended December 31, 1994, 1993
and 1992, respectively, on average outstanding balances of $407,147,000,
$175,165,000 and $175,807,000, respectively. The maximum amount of reverse
repos outstanding at any month-end during the years ended December 31, 1994,
1993 and 1992 was $571,763,000, $276,991,000 and $383,971,000, respectively.
Note 16: ADVANCES FROM FEDERAL HOME LOAN BANK AND 1993 EXTRAORDINARY ITEM
FHLB advances are secured by first mortgage loans with a carrying
value of $582,288,000, private-issue MBSs with a carrying value of
$186,542,000 and the stock of the FHLB. American Savings has adopted
the policy of pledging excess collateral to facilitate future
advances. At December 31, 1994, the excess collateral pledged to
the FHLB amounted to $138,029,000. This excess collateral will support
additional borrowings of $99,847,000.
The following is a summary of FHLB advances at December 31, 1994 and
1993 (in thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Three-month LIBOR advances maturing in 1995 $ 450,000 $ -
Three-month LIBOR advances maturing in 1994 - 290,000
Fixed-rate advances maturing in 1994 with interest
rates ranging from 7.90% to 8.85% - 37,500
Fixed-rate advances maturing in 1996 with interest
rates ranging from 8.10% to 8.40% - 26,500
Fixed-rate advances maturing in 2003 with interest
rates ranging from 5.46% to 6.05% 4,205 4,550
$ 454,205 $ 358,550
</TABLE>
In 1993, American Savings decided to prepay its fixed rate advances
maturing in 1994 and 1996. As a result, an extraordinary charge of
$4,300,000 was accrued in 1993 from the early extinguishment of FHLB
advances.
Note 17: OTHER BORROWED FUNDS
Other borrowed funds consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
(in thousands) 1994 1993
<S> <C> <C>
Face amount of 9.75% Mortgage-Backed Notes, Series C,
due February 1, 1994, net of issue discount and expenses $ - $149,967
Bonds payable to housing finance authorities with an
interest rate of 6.10%, due in varying installments
through 2002 9,890 9,890
Obligations under capital leases 3,485 -
Other borrowings 749 1,087
$ 14,124 $160,944
</TABLE>
Bonds payable to housing finance authorities are collateralized by MBSs
having carrying and market values of $18,137,000 and $16,314,000,
respectively, at December 31, 1994.
Principal maturities of other borrowed funds for each of the five
years subsequent to December 31, 1994 amount to $968,000 in 1995,
$237,000 in 1996, $251,000 in 1997, $270,000 in 1998 and $291,000 in
1999.
Note 18: INCOME TAXES, ACCOUNTING CHANGE AND 1992 EXTRAORDINARY ITEMS
American Savings adopted SFAS 109 on January 1, 1993. Financial
statements for the year ended December 31, 1992, which reflect income
tax expense pursuant to APB 11, have not been restated to apply SFAS
109.
Under Accounting Principles Board Opinion No. 16, Business
Combinations ("APB 16"), which was applied in recording the push-down
accounting effects of Enstar Group's acquisition of American Savings
in 1988, the future tax effects of differences between the fair
values and tax bases of assets acquired and liabilities assumed in a
business combination were considered in assigning values of such
assets and liabilities (the net-of-tax approach).
F-20
<PAGE>
Deferred tax assets and liabilities were not recognized in business
combinations. SFAS 109 amended APB 16 to require that the tax effects of
differences between the tax bases and the fair values of assets
acquired and liabilities assumed in a business combination be
recognized by recording deferred tax assets and liabilities in the same
manner as other temporary differences.
The cumulative effect of implementing SFAS 109 resulted in income of
$2,141,000 in 1993 as the remaining tax effects of differences
between the tax bases and the fair values of assets and liabilities
resulting from recording the push-down accounting effects of Enstar
Group's acquisition of American Savings were eliminated. The
implementation of SFAS 109 resulted in the elimination of all
deferred taxes from American Savings' Statement of Consolidated
Financial Condition as of the date of implementation of SFAS 109.
Under SFAS 109, the tax effects of temporary differences between
amounts reported in the financial statements and the tax bases of
liabilities and assets result in deferred tax assets and liabilities.
The valuation allowance on deferred tax assets represents the amount
of such benefits that, based upon available evidence, are not expected
to be realized.
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and liabilities as of
December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
December 31, December 31,
(in thousands) 1994 1993
<S> <C> <C>
Deferred tax assets
Allowance for loan and real estate losses $ 7,781 $ 8,180
Deferred base year tax bad debt deduction 4,151 12,470
Tax net operating loss and credit carryforwards 7,862 7,745
Capital loss carryforwards - 1,785
Purchase accounting adjustments on loans 1,382 2,310
Unrealized losses on available for sale securities 3,747 -
Other 1,181 2,253
Gross deferred tax assets 26,104 34,743
Less valuation allowance 2,188 10,394
Deferred tax assets, net of valuation allowance 23,916 24,349
Deferred tax liabilities
Excess financial statement basis on FHLB stock 3,325 3,325
Core deposit intangible 2,375 2,838
Loan origination fees, discounts and premiums 4,054 3,963
Purchase accounting adjustments on fixed assets 2,239 2,757
Unrealized gains on available for sale securities - 3,437
Other 211 629
Gross deferred tax liabilities 12,204 16,949
Net deferred tax asset $ 11,712 $ 7,400
</TABLE>
During 1994 and 1993, American Savings reduced the valuation
allowance on deferred tax assets by $7,200,000 and $17,799,000,
respectively, as a result of a change in the expectation of
realization of deferred tax assets through future earnings and the
utilization of capital loss carryforwards for which a valuation
allowance was provided. Additionally, during 1994, American
Savings reduced the valuation allowance on deferred tax assets by
$1,006,000 as a result of the expiration of capital loss and general
business credit carryforwards for which valuation allowances were
provided.
American Savings will need to generate future taxable income,
exclusive of reversing temporary differences and carryforwards, of
$30,362,000 to fully realize the net deferred tax asset recorded at
December 31, 1994. The primary differences between income from
continuing operations and taxable income (loss) result from the
nondeductible amortization of goodwill and the utilization of net
operating loss carryforwards and tax bad debt deductions. Taxable
income, exclusive of reversing temporary differences and
carryforwards, was $26,109,000, $19,561,000 and $42,164,000 for the
years ended December 31, 1994, 1993 and 1992, respectively. Based on
American Savings' history of income from continuing operations for
each of the three years ended December 31, 1994 and after
considering the amounts received or to be received in 1995 pursuant
to the recovery as more fully described in Note 25(B),
management has determined that future taxable income, exclusive of
reversing temporary differences and net operating loss carryforwards,
will more likely than not be sufficient to fully realize
F-21
<PAGE>
the net deferred tax asset. However, there can be no assurance that American
Savings will generate specified levels of taxable income in future
years.
As of December 31, 1994, American Savings had base year bad debt
reserves for federal income tax purposes of $59,600,000 for which no
deferred taxes have been provided.
American Savings had no current income tax expense in 1994, 1993 or
1992. The provision for deferred income tax expense (benefit) consists
of the following for each of the years presented:
<TABLE>
<CAPTION>
SFAS 109 APB 11
(in thousands) 1994 1993 1992
<S> <C> <C> <C>
Deferred Tax Expense (Benefit)
Federal $ 2,462 $ (9,704) $ 14,964
State 409 (1,496) 2,562
$ 2,871 $(11,200) $ 17,526
</TABLE>
The 1994 and 1993 amounts above do not include deferred tax expense
(benefit) of ($3,747,000) and $3,437,000, respectively, related to
unrealized gains (losses) on available for sale securities which
were charged directly to stockholders' equity in accordance with SFAS
115 (see Note 5).
Income tax expense (benefit) attributable to income from continuing
operations has been provided at effective rates of 13.0%, (58.0%)
and 40.0% for the years ended December 31, 1994, 1993 and 1992,
respectively. The following reconciles "expected" corporate rates
computed by applying the statutory federal income tax rate for each year
to income before income taxes to actual income tax expense (benefit):
<TABLE>
<CAPTION>
SFAS 109 APB 11
(in thousands) 1994 1993 1992
<S> <C> <C> <C>
Statutory income tax expense 35.0 % 35.0 % 34.0 %
Reduction in beginning allowance for deferred tax assets (32.6) (93.0) N/A
Adjustments to beginning deferred tax assets and
liabilities due to enacted tax rate changes N/A (3.7) N/A
Amortization of non-taxable valuation adjustments N/A N/A 6.7
Amortization of goodwill 7.6 8.7 3.7
Non-taxable gain on sale of assets resulting from
push-down accounting N/A N/A (6.8)
State income tax, net of federal benefit 4.2 (5.0) 3.9
Other, net (1.2) - (1.5)
13.0 % (58.0)% 40.0 %
N/A - Not applicable under SFAS 109 or APB 11
</TABLE>
The significant components of deferred income tax expense (benefit) in
1994 and 1993, as computed pursuant to SFAS 109, follows:
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands) 1994 1993
<S> <C> <C>
Deferred tax expense (benefit), excluding items below $ (643) $ (1,988)
Reduction in beginning allowance for deferred tax assets (7,200) (17,799)
Bad debt deduction 8,799 8,699
Prepayment of FHLB advances 1,196 -
Utilization of capital loss carryforwards 719 -
Adjustments to beginning deferred tax assets and liabilities
due to enacted tax rate changes - (708)
FHLB stock dividends - 596
Total deferred tax expense (benefit) $ 2,871 $(11,200)
</TABLE>
F-22
<PAGE>
Under APB 11, deferred taxes arose from the recognition of
certain items of income and expense for tax purposes in years
different from those in which they are recognized on the financial
statements. Deferred tax expense for the year ended December 31,
1992 resulting from these timing differences consisted of the following
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Tax under book loan fee income and discounts on purchased loans $ 2,387
Utilization of deferred bad debt deduction 11,655
Allowance for loss on investment in real estate 2,247
FHLB stock dividend 583
Tax under book income on residuals -
Other items, net 654
$ 17,526
</TABLE>
As of December 31, 1994, American Savings' estimated net operating loss
carryforwards for federal income tax purposes amounted to $18,000,000
and expire as follows: $13,000,000 in 2001; $1,000,000 in 2006;
and $4,000,000 in 2007. Based on the Internal Revenue Code and
Temporary Treasury Regulations promulgated under Section 382, American
Savings may have experienced an ownership change as of June 1, 1992, the
effective date of the Enstar Group plan of reorganization
(discussed in Note 1). Accordingly, the use of the tax net operating
loss carryforwards of American Savings that arose prior to June 1,
1992 to offset taxable income may be limited for subsequent years.
Management believes that such limitation would not materially affect the
timing of the utilization of American Savings' net operating loss
carryforwards in comparison to the timing of the utilization of net
operating loss carryforwards if an ownership change has not occurred.
The limitation period for assessment of American Savings'
federal, state and local income taxes has not expired for tax years
commencing on or after September 1, 1990. Additionally, the Enstar
Group federal consolidated tax return for the tax year ended August
31, 1990 may be open for assessment with respect to American Savings
as a result of the bankruptcy of Enstar Group. American Savings was a
member of the Enstar Group consolidated federal income tax group
from April 29, 1988 through March 6, 1990. Further, the limitation
period for assessment of New York City General Corporation Taxes
for Kaufmann, Alsberg & Co., Inc., a former subsidiary of American
Savings, has not expired for tax years ended September 30, 1987 and
thereafter.
Utilization of net operating loss carryforwards for financial
statement purposes in 1992 were accounted for in accordance with APB 11,
accordingly an extraordinary credit of $17,400,000 is reflected in that
year.
Note 19: INTEREST RATE EXCHANGE AGREEMENTS, CAPS AND OPTIONS
American Savings has, from time to time, entered into agreements to
assume fixed rate interest payments in exchange for variable
market-indexed interest payments and to assume variable
market-indexed interest payments in exchange for fixed rate
interest payments ("reverse swaps"). Variable interest payments are
based on three-month LIBOR. Interest expense on borrowed funds
was reduced by $337,000, $3,195,000 and $3,344,000 for the years
ended December 31, 1994, 1993 and 1992, respectively, and interest
expense on deposits by $1,445,000 for the year ended December 31, 1994,
as a result of the use of interest rate exchange agreements.
The reverse swap was collateralized by MBSs having a carrying
value and market value of $2,967,000 and $2,712,000, respectively, at
December 31, 1994.
The following tables summarize interest rate exchange agreements
outstanding at December 31, 1994 and 1993 (dollar amounts in thousands):
<TABLE>
<CAPTION>
Weighted Average Original
Interest Rate at
Original
Notional Termination Term to December 31,
Principal Date Maturity Paid Received
<S> <C> <C> <C> <C> <C>
December 31, 1994
Reverse swap $ 70,000 1997 5.00 yrs. 6.38% 6.37%
December 31, 1993
Reverse swap $ 70,000 1997 5.00 yrs. 3.38% 6.37%
</TABLE>
F-23
<PAGE>
During 1994, American Savings purchased interest rate caps on
three-month LIBOR as a hedge against rising interest rates. At
December 31, 1994, the notional principal amount of caps was
$250,000,000, at rates ranging between 4.00% and 5.75%, expiring
from March of 1996 through September of 1997. At December 31, 1994,
unamortized cap premiums amounted to $6,405,000; there were no caps at
December 31, 1993. During the year ended December 31, 1994,
American Savings amortized $999,000 in cap premiums which increased
interest expense on borrowed funds and recorded $526,000 in cap
income which decreased interest expense on borrowed funds.
Additionally, during 1994, American Savings purchased options on MBSs
as a hedge of the market value of first mortgage loans held for sale.
This transaction resulted in hedging gains of $1,005,000, which reduced
losses on sales of assets held for sale. As of December 31,
1994, American Savings had no option positions outstanding.
Note 20: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosures about the estimated fair value of financial instruments as
of December 31, 1994 and 1993 is made in accordance with the
requirements of Statement of Financial Accounting Standards No. 119
Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments ("SFAS 119"). Estimated fair values a r e
determined by American Savings' using available market
information and appropriate valuation methodologies. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time American Savings' entire holdings of a
particular financial instrument. Because no quoted market prices
exist for a significant portion of American Savings' financial
instruments, fair value estimates were based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other
factors. Accordingly, the estimates presented below are not
indicative of the amounts American Savings could realize in a
current market exchange. The use of different market assumptions
and/or methodologies may have a material effect on the estimates of fair
value.
Fair value estimates are based upon existing on- and
off-balance sheet financial instruments without attempting to
estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments.
Other significant assets that are not considered financial assets
include office properties and equipment, goodwill and core deposit
intangibles.
A summary of the carrying values and estimated fair values of
financial assets at December 31, 1994 and 1993 follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
Cash $ 35,414 $ 35,414 $ 30,095 $ 30,095
Interest bearing deposits 237 237 165 165
Federal funds sold 70,000 70,000 50,000 50,000
Securities available for sale 159,282 159,282 615,473 615,473
Securities held to maturity, net 121,324 115,617 9,456 9,457
Assets held for sale 63,758 63,805 113,228 113,554
Federal Home Loan Bank stock 25,181 25,181 20,175 20,175
Mortgage-backed securities held to maturity, net 960,230 904,996 547,548 549,644
Loans receivable, net 1,948,124 1,902,031 1,577,511 1,612,140
Accrued interest and dividends receivable 22,436 22,436 16,197 16,197
</TABLE>
Cash, Interest Bearing Deposits and Federal Funds Sold. The
carrying amounts of cash and short-term investments, including
interest bearing deposits and Federal funds sold, approximate fair value
because they mature in six months or less and do not present
unanticipated credit concerns.
Securities Available for Sale. The fair value of U.S.
Treasury securities and equity securities was estimated based on bid
prices published in financial newspapers or bid quotations received from
securities dealers. See Mortgage-Backed Securities Held to Maturity,
Net for a description of the methodology used in the determination of
the estimated fair value of MBSs, including CMOs.
Securities Held to Maturity, Net. The fair value of securities held
to maturity was estimated based on bid prices published in financial
newspapers or bid quotations received from securities dealers.
F-24
<PAGE>
Assets Held for Sale. The fair value of student loans is assumed
to equal the carrying value because the interest rate on these loans
is adjustable and the servicers of these loans are contractually
obligated to buy these loans from American Savings at a price not
less than par at the time principal payments commence. See Loans
Receivable, Net for a description of the methodology used in the
determination of the estimated fair value of residential mortgages.
Federal Home Loan Bank Stock. The carrying amounts of Federal Home
Loan Bank stock equalled its fair value because it is nontransferable and as
such has no secondary market value other than its par redemption value.
Mortgage-backed Securities Held to Maturity, Net. Fair values of
MBSs were determined on a security by security basis within three
categories of securities - agency fixed-rate and 15-year balloons,
collateralized mortgage obligations ("CMOs") and agency and private
pass-through adjustable rate securities. Fair values of agency fixed
rate and 5- and 7-year balloon securities were based upon generic month
end quoted market prices by coupon. Fair values of CMOs were
estimated based upon discounting projected cash flows, taking into
consideration (i) expected prepayments based upon current market
conditions and historical performance and (ii) the current market
spreads to the corresponding treasury investments. Fair values of
agency and private pass-through adjustable rate securities were
estimated based upon the same methodology as CMOs with additional
consideration given to (i) the repricing characteristics of the
security, including caps, floors and margins and (ii) the index
associated with the individual security.
Loans Receivable, Net. Fair values were estimated for
portfolios of loans with similar financial characteristics. The
loans were segmented by type such as residential mortgages, commercial
real estate, corporate and consumer loans for the purposes of
determining value. Each loan category was further segmented as
described below. While management believes that the assumptions
used in estimating fair values are reasonable, because there is no
market for many commercial real estate, corporate and consumer
loans, management has no basis to determine whether the fair
values presented would be indicative of the value negotiated in an
actual sale.
Permanent Residential Mortgages. Fixed rate loans were sorted by
loan type and interest rate. Adjustable rate mortgage loans were
segregated into categories based on the underlying index of the loan.
Cash flows were projected for each of the categories, using an
average of published prepayment speeds for similar instruments and
discounted at rates based on current market required yields for similar
instruments, adjusted for servicing costs.
Commercial Real Estate and Corporate Loans. The estimated fair value
of commercial real estate loans, except for variable rate loans
which reprice in two months or less, was determined by projecting
principal and interest cash flows in the aggregate for loans
having similar risk and payment characteristics. The principal cash
flows were discounted at a rate reflecting the credit risk inherent
in the portfolio and servicing costs. The estimated fair value of
variable rate loans which reprice in two months or less was assumed to
equal carrying value. To incorporate the risk of not receiving
principal, the general loan loss reserve was subtracted from the
present value of the principal cash flows and carrying value for
variable rate loans repricing in two months or less.
Consumer Loans. Personal credit lines, home equity and share loans
were assumed to have a fair value equal to book value because of
their short maturity and variable pricing features. The fair value of
automobile loans was calculated by discounting cash flows, adjusted
for prepayments based on historical experience, and were discounted
using applicable interest rates.
Accrued Interest and Dividends Receivable. Carrying amount approximates
fair value.
F-25
<PAGE>
A summary of the carrying values and estimated fair values of
financial liabilities at December 31, 1994 and 1993 follows (in
thousands):
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
Passbook, checking and money market savings and
accrued interest $ 648,195 $ 648,195 $ 703,266 $ 703,266
Certificate accounts 1,687,432 1,682,834 1,524,824 1,543,364
Securities sold under agreements to repurchase 487,534 487,534 98,338 98,338
Advances from Federal Home Loan Bank 454,205 453,329 358,550 358,364
Other borrowed funds 14,124 12,178 160,944 161,826
</TABLE>
Passbook, Checking and Money Market Savings and Accrued Interest. The
fair value of deposits with no stated maturity, including passbook
accounts, checking accounts and money market accounts and accrued
interest payable, equals the amount payable on demand at December 31,
1994 and 1993, or carrying value. Accordingly, this valuation does
not include the benefit that results from the low-cost funding provided
by these deposit liabilities compared to the cost of borrowing funds in
the market.
Certificate Accounts. The estimated fair value of certificates of
deposit was based on the discounted value of contractual cash flows.
The discount rate was estimated using the rates offered by American
Savings on December 31, 1994 and 1993 for deposits of similar remaining
maturities.
Securities Sold Under Agreement to Repurchase. The carrying amounts
for reverse repos approximate fair value because they mature in six
months or less.
Advances from Federal Home Loan Bank. The estimated fair
value of FHLB advances was determined by discounting the contractual
principal and interest payments at rates offered at the respective dates
for FHLB advances with similar terms and remaining maturities.
Other Borrowed Funds. The estimated fair value of other borrowed funds
was determined by discounting the contractual principal and interest
payments at rates offered at the respective dates for borrowings with
similar terms and remaining maturities.
Reverse Swap. The estimated fair value of the reverse swap was a net
payable of $3,115,000 at December 31, 1994 and a net receivable of
$3,148,000 at December 31, 1993. The estimated fair values were
obtained from independent dealer quotes and represent the
estimated amount American Savings would receive or pay to terminate
the agreements, taking into account current interest rates.
Caps. The estimated fair value of caps was $11,841,000 at
December 31, 1994 and was obtained from independent dealer quotes.
Unamortized cap premiums amounted to $6,405,000. There were no cap
agreements outstanding at December 31, 1993.
Note 21: EMPLOYEE BENEFIT AND STOCK OPTION PLANS
American Savings sponsors a savings plan under Section 401(k) of
the Internal Revenue Code (the "401(k) Plan") which provides that
employees can defer a portion of their annual earnings on a pretax
basis. American Savings' provided a matching contribution of 50% of up
to 10% of earnings deferred by employees from January 1, 1991 through
March 31, 1991 and suspended the match from April 1, 1991 until December
31, 1992. On January 1, 1993, American Savings' began to match employee
contributions at the rate of 100% of up to 2.5%
of earnings deferred by an employee, and increased the match to 3% of
earnings deferred effective January 1, 1994.
Until March 31, 1993, American Savings sponsored a defined
contribution pension plan (the "Pension Plan"), funded each year in
amounts equal to a fixed contribution formula, covering substantially
all employees. Effective as of March 31, 1993, the Pension Plan merged
into the 401(k) Plan and all subsequent contributions were made to
the discretionary contribution portion of that plan. Contributions were
equal to 2% of annual base compensation plus 2% of base
compensation in excess of the Social Security Wage Base. In 1994, the
discretionary contribution increased to 3% of annual base compensation
plus 3% of base compensation in excess
F-26
<PAGE>
of the Social Security Wage Base and a further contribution of 1% of
annual base compensation for every 20% by which pretax core earnings for
fiscal 1994 exceeded pretax core earnings for fiscal 1993.
Aggregate expense under the 401(k) and Pension Plan amounted to
$1,372,000, $724,000 and $171,000, respectively, for the years ended
December 31, 1994, 1993 and 1992.
American Savings' three stock option plans include the 1990 Employee
Stock Incentive Plan (the "1990 Plan"), the 1991 Non-Employee
Directors' Stock Option Plan (the "1991 Plan") and the 1992 Employee
Stock Incentive Plan (the "1992 Plan").
The 1992 Plan provides for the grant, to eligible employees, of
stock options, stock appreciation rights, restricted stock, deferred
stock, performance awards, dividend equivalents and other stock-based
awards. The 1992 Plan provides that, in addition to 400,000 shares
of American Savings Common Stock initially reserved for distribution,
up to 500,000 shares authorized but not distributed under the 1990 Plan
may be distributed under the 1992 Plan. As of December 31, 1994, a
total of 595,417 shares of American Savings Common Stock, subject to
adjustment, were reserved for issuance under either the 1990 Plan
or the 1992 Plan, of which 544,884 are subject to grants which
have been issued and 50,533 are available for grant. The 1990 Plan
provides for the grant, to eligible employees, of stock options, stock
appreciation rights, restricted stock and deferred stock. As of
December 31, 1994, 73,084 shares of American Savings Common Stock were
reserved and available for distribution under the 1990 Plan, all of
which relate to grants which have been issued. The 1990 Plan and the
1992 Plan provide that stock options become exercisable as prescribed
by the Stock Option Committee at the date of grant at an exercise
price no less than the fair market value per share of American Savings
Common Stock on the date of grant.
The 1991 Plan, as amended, is intended to enable directors who
are not employees of American Savings to acquire a proprietary interest
in American Savings. Stock options under this plan are non-qualified
options, exercisable upon grant, having an exercise price equal to the
fair market value per share of American Savings Common Stock on the
date of grant. As of December 31, 1994, a total of 62,500 shares of
American Savings Common Stock were reserved for issuance, all of which
relate to grants which have been issued.
The following table presents information on stock options under these
plans:
<TABLE>
<CAPTION>
1990 Plan 1991 Plan 1992 Plan
Number of Option Number of Option Number of Option
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, December 31, 1992 145,834 $.47-2.50 100,000 $ 1.02 632,280 $ 1.09-7.19
Granted - - - - 90,700 11.13-11.56
Exercised (29,807) .47-2.50 (17,500) 1.02 (34,700) 4.53-5.00
Cancelled (2,339) .47-2.50 - - (20,600) 5.00-11.56
Outstanding, December 31, 1993 113,688 .47-2.50 82,500 1.02 667,680 1.09-11.56
Exercised (40,404) .47-2.50 (20,000) 1.02 (195,880) 1.09-11.56
Cancelled (200) 2.50 - - - -
Outstanding, December 31, 1994 73,084 $.47-2.50 62,500 $ 1.02 471,800 $ 1.09- 11.56
Exercisable, December 31, 1994 73,084 62,500 373,570
</TABLE>
As contemplated by the Merger Agreement, no additional options will be
granted under the 1990 Plan, 1991 Plan or 1992 Plan. The Merger
Agreement provides that, in connection with the Merger, each holder of a
stock option which is outstanding immediately prior to the Merger
Effective Date will receive a cash payment in an amount equal to the
excess of $21.00 per share covered by the option over the exercise price
of the option, and the option will be cancelled. Additionally, the
Stock Option Committee of the Board determined that all options granted
under the 1992 Plan and outstanding as of January 31, 1995 to
purchase shares of American Savings' Common Stock that had not
become vested and exercisable on or before January 31, 1995, be
accelerated, vested and exercisable as of that date.
Note 22: STOCKHOLDERS' EQUITY
(A) Common Stock - At the close of business on April 27, 1993, a
one-for-five reverse split of all issued and outstanding shares of
American Savings Common Stock became effective. American Savings paid
to shareholders of record at the close of business on April 27,
1993, an aggregate of $25,000 cash in lieu of 9,751 fractional shares
resulting from the reverse split. Additionally, the number of
authorized shares of American Savings Common
F-27
<PAGE>
Stock was reduced from 120,000,000 to 24,000,000 shares. All references
in the Consolidated Financial Statements and Notes to Consolidated Financial
Statements to the number of shares of American Savings Common Stock and
the per share amounts have been adjusted to reflect the reverse split.
(B) Series A Preferred Stock - On December 30, 1992, American
Savings redeemed all of its then outstanding $2.19 Cumulative
Convertible Preferred Stock, Series A ("Series A Preferred Stock") for
$25.21 per share plus $6.57 per share, representing previously
unpaid dividends to December 30, 1992. Additionally, American Savings
paid all dividends in arrears on Series A Preferred Stock surrendered
for conversion to cash after January 1, 1990, up to and including the
dividend payment date immediately preceding the date of conversion. The
total amount paid in connection with the redemption, conversion and
payment of dividends in arrears was $2,537,000.
(C) Regulatory Capital Maintenance/Dividend Agreement - As a
condition of the approval of the Enstar Merger by a predecessor to
the OTS (the Federal Home Loan Bank Board) and the Federal Savings and
Loan Insurance Corporation (the "FSLIC"), Enstar Group and Enstar
Financial entered into the Capital Maintenance Agreement with the
FSLIC pursuant to which Enstar agreed to maintain American Savings'
regulatory capital at or above required levels. On May 31, 1991,
Enstar Group and Enstar Financial filed for protection under Chapter 11
of the federal Bankruptcy Code (see Note 1).
American Savings, as a subsidiary of a savings and loan holding
company, is required to provide 30 days prior notice to the OTS of its
intention to declare any dividends. The Capital Maintenance Agreement
provides that American Savings may not pay dividends or repurchase
stock unless the payment of dividends or repurchase of stock would not
reduce the regulatory capital of American Savings below its regulatory
capital requirement. If that condition is met, the Capital
Maintenance Agreement provides that American Savings (1) may pay
dividends in an aggregate amount of not more than 50% of American
Savings' net income for its fiscal year as reflected in American
Savings' audited financial reports, (2) may pay dividends in an
aggregate amount of not more than 75% of American Savings' net income
for its fiscal year as reflected in American Savings' audited financial
reports if American Savings' regulatory capital is equal to or
greater than its fully phased-in
capital requirement and (3) may pay dividends in an aggregate
amount of not more than 90% of American Savings' net income for its
fiscal year as reflected in American Savings' audited financial
reports if American Savings' regulatory capital is equal to or
greater than (a) its fully phased-in regulatory capital requirement
plus (b) 2% of American Savings' liabilities. The calendar year
constitutes the fiscal year for net income availability computations
pursuant to the Capital Maintenance Agreement.
(D) Regulatory Capital - Under OTS regulations, American Savings is
required to meet three capital standards -- a leverage limit (core
capital requirement), a tangible capital requirement and a risk-based
capital requirement. At December 31, 1994, American Savings met all
three of its capital requirements.
The leverage limit requires savings institutions to maintain core
capital of at least 3% of adjusted total assets. Core capital, as
defined in the regulations, consists of common stockholder's equity
(including retained earnings), noncumulative perpetual preferred
stock and minority interests in subsidiaries, less intangible assets
not considered qualifying intangible assets (subject to limitation
discussed below) and investments in and advances to subsidiaries
engaged in activities which are not permissible for national banks
(subject to the phase-out period discussed below). On November 28,
1994, the acting director of OTS announced that OTS will no longer
require savings institutions to include unrealized gains and losses on
available for sale debt securities in regulatory capital. Under the
revised OTS policy, institutions must value available for sale debt
securities at amortized cost for regulatory capital purposes. At
December 31, 1994, American Savings excluded unrealized losses on
securities available for sale, net of deferred tax benefits of
$5,967,000 from core capital.
Purchased mortgage servicing rights may be included in core
capital, with certain limitations. The regulation also permits
supervisory goodwill existing as of April 12, 1989 to count toward the
minimum core capital requirement in an amount not to exceed
0.375% of adjusted total assets at December 31, 1994. American
Savings has been advised by OTS that it may treat its goodwill as
qualifying supervisory goodwill unless and until it is notified to
the contrary by the Director of OTS. At December 31, 1994, American
Savings' supervisory goodwill amounted to $56,982,000, or
approximately 1.6% of adjusted total assets; the amount of goodwill
included in American Savings' core capital was $13,138,000, or 0.375%
of adjusted total assets. After December 31, 1994, no supervisory
goodwill may be included in calculating core capital.
F-28
<PAGE>
Although core deposit intangibles are excluded from core capital,
core deposit intangibles resulting from transactions consummated prior
to March 4, 1994 were grandfathered and recognized for capital
purposes, to the extent permitted by OTS, provided that such
core deposit intangibles are valued in accordance with generally
accepted accounting principles ("GAAP") supported by credible
assumptions, and have their amortization adjusted at least annually
to reflect decay rates (past and projected) in the acquired customer
base. American Savings believes that its core deposit intangibles,
which amounted to $6,157,000 at December 31, 1994, will continue to be
permitted to be included in core and total capital.
Under the tangible capital requirement, savings institutions must
maintain tangible capital in an amount not less than 1.5% of
adjusted total assets. Tangible capital is defined as core capital
minus intangible assets, such as goodwill and core deposit
intangibles. However, purchased mortgage servicing rights may be
included in calculating tangible capital, with certain limitations.
The risk-based capital requirement requires an 8.0% ratio of total
core and supplementary capital to risk- weighted assets. One-half
of these requirements must be met with core capital. Supplementary
capital is defined to include, among other things, general loss
reserves; however, general loss reserves are limited to 1.25% of
risk-weighted assets. At December 31, 1994, American Savings' general
loan loss reserves totaled $16,787,000, all of which was included in
supplementary capital.
Effective January 1, 1994 with implementation originally scheduled to
begin September 30, 1994, institutions deemed to have an "above
normal" level of interest rate risk ("IRR") would have been required to
deduct a portion of that risk from total risk-based capital.
However, the acting director of OTS postponed implementation of the
IRR capital deduction until OTS publishes the process under which
institutions may appeal the capital deduction. Until such appeals
process is finalized, which could occur in time for the capital
deduction to go into effect on March 31, 1995, the IRR capital deduction
has been waived.
A normal level of exposure, under the rule, is considered to exist if
an immediate 200 basis point increase or decrease in market interest
rates (whichever produces a greater decline) results in a decline in
net portfolio value ("NPV") amounting to no more than 2% of
the estimated present value of assets. NPV represents the net
discounted cash flows stemming from an institutions' assets, liabilities
and off-balance sheet items. The IRR component, which is deducted
from total risk-based capital, is equal to 50% of the amount by which
an institution's measured IRR exceeds normal IRR (2% multiplied by
the estimated present value of total assets). The IRR component
must be calculated on a quarterly basis, but is implemented for capital
purposes after a three-quarter lag. As such, the amount of capital
that an institution must hold as of a given quarter is based upon
the IRR component computed for the quarter ended nine months earlier.
However, if an institution demonstrates to the OTS that it has reduced
its IRR after the calculation date, a lower IRR component may be
utilized. Although American Savings' most recent computation of IRR
(September 30, 1994) reflects an IRR component of approximately
$2,740,000, OTS' calculations as of September 30, 1994, which are
based upon certain different assumptions, reflect an IRR
component for American Savings of approximately $20,371,000. If the
OTS' IRR component had been imposed on American Savings at December 31,
1994, American Savings' total risk-based capital under both the
current and fully phased-in capital requirements would have been
reduced by $10,117,000, the OTS' IRR component for American Savings at
March 31, 1994. At December 31, 1994, American Savings' total capital
was sufficient to accommodate such IRR component and to meet its current
and fully phased-in capital requirements.
OTS has directed American Savings to submit a plan to reduce
interest rate risk and to increase capital levels in order to provide a
sufficient cushion against interest rate risk.
F-29
<PAGE>
The following table reconciles, as of December 31, 1994, capital
calculated under GAAP to capital calculated for each of the three
current and fully phased-in capital requirements and its ratio of core
capital to risk- weighted assets (unaudited):
<TABLE>
<CAPTION>
Current Fully Phased-In
(dollar amounts in thousands) Balance % Balance %
<S> <C> <C> <C> <C>
Core Capital
Capital calculated under GAAP $ 216,534 $ 216,534
Adjustment for unrealized losses on
securities available for sale 5,967 5,967
Less goodwill (43,844) (56,982)
Core capital 178,657 5.09% 165,519 4.72%
Required core capital 105,288 3.00 105,288 3.00
Capital excess $ 73,369 2.09% $ 60,231 1.72%
Adjusted total assets for core capital $3,509,597 $3,509,597
Risk-based Capital
Core capital calculated above $ 178,657 $ 165,519
Supplementary capital
General loan loss reserves 16,787 16,787
Assets required to be deducted (94) (94)
Risk-based capital 195,350 11.06% 182,212 10.39%
Required risk-based capital 141,356 8.00 140,305 8.00
Capital excess $ 53,994 3.06% $ 41,907 2.39%
Risk-weighted assets $1,766,950 $1,753,812
Ratio of core capital to risk-
weighted assets 10.11% 9.44%
Tangible Capital
Capital calculated under GAAP $ 216,534 $ 216,534
Adjustments
Unrealized losses on securities
available for sale 5,967 5,967
Intangible assets
Goodwill (56,982) (56,982)
Core deposit intangibles (6,157) (6,157)
Tangible capital 159,362 4.55% 159,362 4.55%
Required tangible capital 52,552 1.50 52,552 1.50
Capital excess $ 106,810 3.05% $ 106,810 3.05%
Adjusted total assets for tangible capital $3,503,440 $3,503,440
</TABLE>
Note 23: INCOME PER SHARE
Income per share is calculated by dividing net income applicable
to common stock by the weighted average number of common shares and
common stock equivalents outstanding during the relevant periods. Net
income applicable to common shares differs from net income as a
result of the Series A Preferred Stock dividend requirement which
amounted to $97,000 for the year ended December 31, 1992. Income per
share for all periods presented has been computed after giving effect
to a one-for-five reverse split of all issued and outstanding shares of
American Savings Common Stock effected April 27, 1993.
Note 24: COMMITMENTS AND CONTINGENCIES
(A) Commitments - In addition to loans in process (see Note 9) at
December 31, 1994, American Savings was committed to fund loans with
fixed interest rates of approximately $9,684,000 and with variable
interest rates of $35,136,000 and to sell $12,324,000 of
fixed-rate loans. Additionally, at December 31, 1994, American Savings
was committed to purchase servicing rights on approximately
$79,200,000 of residential mortgage loans for approximately $950,000.
Standby letters of credit amounted to $11,282,000 at December
31, 1994. Standby letters of credit are conditional commitments
issued by American Savings to guarantee the performance of
borrowers to a third party. American Savings' guarantees are primarily
to support public bond financing arrangements. The credit risk
involved in issuing these letters of credit is essentially the
same as that involved in extending commercial real estate loan
F-30
<PAGE>
facilities to borrowers. American Savings has pledged MBSs having a
carrying value at December 31, 1994 of $19,789,000 as collateral under
standby letters of credit.
(B) Contingencies - A recent federal appeals court decision held, in
part, that a lender improperly disclosed the collection of the Florida
state intangible tax, among other things, from the borrower, thereby
subjecting the loan to rescission under the Federal Truth-in-Lending
Act (the "TILA") by the borrower for three years after it was made.
Subsequent to the court's initial decision and prior to its refusal to
reconsider its decision, the Florida legislature amended the
language of the intangible tax to clarify the legislature's previous
intention that the intangible tax be disclosed for purposes of the
TILA in a manner that had been followed by most lenders in Florida,
including American Savings. Although the Florida legislature intended
this legislation to apply retroactively, no judicial determination
has yet been made as to the retroactive effect of this legislation
on loans originated prior to its effective date. This court decision
may also apply to a similar intangible tax imposed by other
states. Legislation has also been introduced in the United States
Congress to ameliorate the possible adverse impact of the court
decision. To its knowledge, no claims of a material amount have been
filed against American Savings under this recent court decision and no
notice of a breach of a representation has been received citing
American Savings' loan sale agreements requesting it to repurchase,
cure or substitute other loans for the loans sold. At this time it
is not possible to determine the impact of this ruling, if any, on
American Savings or the outcome of the proposed federal legislation.
Note 25: LEGAL MATTERS
(A) OTS Enforcement Action and Loss Contingency. In October 1992,
OTS advised American Savings that it had effected, through OTS cease
and desist orders, a settlement, for $11,200,000, of its enforcement
action and American Savings' private lawsuit against American Savings'
former law firm, Kirkpatrick & Lockhart; Alan J. Berkeley, a senior
partner of that firm; Harris C. Friedman, former Chairman of the
Board, President and Chief Executive Officer of American Savings;
and Richard J. Grassgreen, a former director of American Savings.
Of the $11,200,000, Kirkpatrick & Lockhart agreed to pay $9,000,000
to OTS for the benefit of American Savings. In addition, Harris
Friedman agreed to pay $700,000 and Richard Grassgreen agreed to
deliver a $1,500,000 promissory note payable in five annual
installments of $300,000, beginning in November 1992. During
February 1993, Mr. Grassgreen filed for protection under Chapter 11 of
the Bankruptcy Code. During 1994, American Savings received $576,000
directly from the Grassgreen bankruptcy estate in settlement
of its claim and in February 1995, American Savings received an
additional $300,000 indirectly related to the Grassgreen settlement.
The OTS settlement documents provide that 10% of the settlement
amounts was allocated to the settlement of American Savings' private
lawsuit and the remaining 90% was allocated to the OTS
enforcement action. Further, pursuant to the cease and desist orders
and by the Supervisory Directive dated October 21, 1992, OTS directed
American Savings to pay its litigation attorneys in the private lawsuit
no more than a total of 33- 1/3% of 10% of the settlement amounts,
as and when collected, or $373,333, if all settlement amounts are
collected. On October 9, 1992, American Savings was served with a
charging lien, filed in the Circuit Court of the 11th Judicial
Circuit in and for Dade County, Florida (Case No. 91-50064 CA 28), for
attorneys fees and costs by its attorneys in its private lawsuit,
asserting a claim in the amount of 33-1/3% of all amounts to be paid
to or for the benefit of American Savings in settlement of both
OTS's enforcement action and American Savings' private lawsuit, which
would equal $3,733,333.
Pursuant to the OTS Supervisory Directive of October 21, 1992, OTS
elected to recover from American Savings $350,000 for its costs of
investigation and settlement proceedings.
In February 1995 and during 1994, 1993 and 1992, American
Savings received cash payments of $300,000, $576,000, $500,000 and
$9,500,000, respectively. These amounts are included in American
Savings' results of operations for each of those periods after
deducting legal fees aggregating approximately $362,000,
representing the amount due to American Savings' litigation attorneys
under the OTS directive, and $350,000 paid to OTS. Attorneys' fees
related to amounts recovered through February 1995, according to the
charging lien, could range from $362,000 to $3,620,000 in principal
amount. American Savings accrued, against the amounts it had received
($10,876,000), and paid, pursuant to the OTS Supervisory Directive
entered on October 21, 1992, attorneys' fees of $362,000.
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<PAGE>
On June 29, 1994, the OTS entered an Order to Cease and Desist ("C &
D") against American Savings (to which American Savings consented),
reaffirming its Supervisory Directive of October 21, 1992 directing and
ordering American Savings not to make any payment to the charging lien
claimants without prior written approval of OTS in excess of $373,333
(1/3 of 10% of the settlement amounts, if fully collected), less
amounts previously paid, for attorneys' fees, in satisfaction of the
charging lien or any judgment that may be entered in the related
litigation.
On July 26, 1994, the Circuit Court of the 11th Judicial
Circuit in and for Dade County, Florida (the "Circuit Court") issued
a final order determining entitlement to and awarding attorneys' fees in
connection with the charging lien. The order awarded to the
charging lien claimants the sum of approximately $3,000,000, plus
prejudgment interest, less amounts previously paid or credited to them
as fees. The Circuit Court retained jurisdiction to award attorneys'
fees and costs. An amended final judgment in the amount of
approximately $3,624,000, including prejudgment interest, was
entered on August 1, 1994, as a result of certain errors of
calculation in the original judgment. The Circuit Court's order is in
conflict with the C & D and the Supervisory Directive.
After consultation with counsel, American Savings believes that
the Circuit Court award is in error, particularly in light of the
prior, contrary, OTS mandates, and intends to vigorously pursue the
appeal of the court order, which was initiated by trial counsel for
American Savings on August 23, 1994 in the Third District Court of
Appeals of the State of Florida (Case No. 94-02051), as well as other
potential available remedies. In view of the foregoing, American
Savings has not accrued additional fees awarded to the charging lien
claimants as a result of the court order. Additional amounts, if
any, will be charged against future results of operations.
On July 27, 1994, the charging lien claimants filed a Petition for
Review against OTS in the United States Court of Appeals for the
Eleventh Circuit, seeking that the C & D be enjoined, suspended,
terminated or
otherwise modified. American Savings was not named as a party to the
action and cannot predict its outcome or the extent to which it may
affect the charging lien litigation.
American Savings cannot predict the effect of the Merger, if any, upon
this litigation.
(B) American Savings and Michael Milken, Lowell Milken et al. On
November 14, 1991, American Savings filed suit in the United States
District Court for the Southern District of Florida (Case No. 91-2611)
against Michael Milken, Lowell Milken and numerous other persons
and entities related to the Milkens or to Drexel Burnham Lambert
Incorporated. The suit alleged, among other things, that the
defendants, through the use of false and misleading statements
concerning the nature, value, risks and liquidity of junk bonds and
through control and manipulation of the junk bond market,
corruptly obtained influence and control over American Savings, Enstar
Group and their affiliates and used the control to cause these entities
to make investments in junk bonds that were unsuitable or overpriced.
The suit asserted, among other things, that these actions violated
federal and state securities, antitrust and federal racketeering (RICO)
laws and constituted common law fraud, breach of fiduciary duty,
unfair competition and violations of other statutory and common law
rules.
In the action, American Savings sought, on behalf of itself
and Enstar Group, among other things, compensatory, consequential,
punitive, rescissionary and treble damages and costs of the suit,
including attorneys' fees. Damages before trebling were estimated to be
an amount in excess of $370,000,000.
The action was dismissed when American Savings agreed to participate
in a global settlement of claims then pending in the United States
District Court for the Southern District of New York, including the
claims of American Savings and Enstar Group, against the Milken
parties. The global settlement was finalized by court order on
September 29, 1993. American Savings was represented on the committee
that formulated the plan to allocate the proceeds of the settlement.
Claims will be paid from a fund of approximately $250,000,000 (the
"Fund"), consisting of monies obtained from Michael Milken, certain of
his affiliates and the Securities and Exchange Commission Fund. In
excess of $200,000,000 of this amount has been collected to date and
the balance is scheduled to be paid into the Fund by the end of
1995. In February 1995, American Savings recorded a pretax recovery
of $3,300,000, net of certain estimated fees and expenses, including
attorneys' fees, from amounts received from the Fund. This amount
represents payment of a substantial portion of the settlement of
American Savings' direct claims against the Milken parties. American
Savings' receipt in the future of any additional
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<PAGE>
monies from the Fund is wholly dependent upon the Fund's receipt of
anticipated payments from third parties, which payments cannot be assured.
Certain of the claims asserted as part of the suit were assigned to
American Savings by Enstar Group as part of the ongoing restructuring
of the commercial relationships between Enstar Group and American
Savings begun in 1990. The assignment agreement provides that any
amounts payable by the defendants as a result of a final judgment or
settlement of the action, after deduction and reimbursement of
costs and expenses paid by American Savings and Enstar Group, and after
deduction of attorneys' fees and expenses, will be allocated 20% to
American Savings and 80% to Enstar Group. Enstar Group's share of
any proceeds from the suit will be distributed to its creditors,
including American Savings, pursuant to the Bankruptcy Plan. Under
the Bankruptcy Plan, two-thirds of Enstar Group's distribution would be
made to American Savings and one-third to other creditors. Enstar
Group has informed American Savings that it intends to provide a tax
reserve and an expense reserve prior to distribution. American
Savings also has been informed by Enstar Group that Enstar Group
expects to distribute to American Savings between $4,000,000 and
$4,500,000, during the second quarter of 1995. The assignment of
Enstar Group's claims to American Savings was approved by OTS, subject
to certain conditions, and by the Alabama Bankruptcy Court in Enstar
Group's Chapter 11 proceedings.
(C) Litigation Regarding General Homes Corporation. On August 16,
1991, the Unsecured Creditors' Committee (the "Committee") of General
Homes Corporation, Houston, Texas, ("General Homes") filed an amended
complaint (the "General Homes Amended Complaint"), naming American
Savings as a defendant in an adversary proceeding within General Homes'
Bankruptcy Case No. 90-04810-H3-11 pending in the United States Bankruptcy
Court for the Southern District of Texas (the "Texas Bankruptcy Court").
On that date, a complaint that the Committee had filed on June 19, 1991
was voluntarily dismissed. The General Homes Amended Complaint also names
as defendants General Homes' other secured lenders under a revolving
credit agreement (collectively, with American Savings, the "Bank Group") as
well as its investment advisers.
The General Homes Amended Complaint alleges, among other things,
that American Savings, individually and together with other members
of the Bank Group, were insiders of and controlled General Homes,
received fraudulent conveyances and preferences from General Homes
under the Bankruptcy Code and have failed to repay to General Homes'
estate the amounts received. The General Homes Amended Complaint also
alleges that the Bank Group participated (primarily through the
banks' alleged control of General Homes) in an alleged fraud by General
Homes in connection with sales of subordinated debt to the
public by means of fraudulent accounting practices and other
manipulations that inflated the value of General Homes' assets. The
Committee seeks to have all claims of American Savings and the Bank
Group against General Homes' estate disallowed or subordinated to other
claims against the estate, and reclassified as equity, as well as costs
and expenses of plaintiff, including reasonable attorneys' fees and
such other and further relief as the Texas Bankruptcy Court deems just
and appropriate. Counsel for all defendants have moved for dismissal of
the case. The Bank Group and American Savings also have moved for
summary judgment as to them.
The plan of reorganization of General Homes and FGMC, Inc., its
related mortgage entity, (the "General Homes Plan") was confirmed by
the Texas Bankruptcy Court on October 30, 1991. Under the General Homes
Plan, the Bank Group is entitled to receive a combination of cash, a
note, the right to proceeds in a liquidating trust and stock of the
reorganized debtor. Additionally, under the General Homes Plan, claims
of General Homes' estate against the Bank Group, including American
Savings, are released. The Committee appealed from the judgment
confirming the General Homes Plan, but its motion to stay the
judgment pending appeal was denied, and substantially all distributions
have been made on the Bank Group's claims.
Should the Committee's efforts to subordinate the Bank Group's debt
be successful, the members of the Bank Group would be required to
return to the estate all distributions of cash and their interests in
the other assets in General Homes' estate. American Savings has a
5.34% interest in the Bank Group's claims, as to which it has
received, as of January 31, 1995, distributions of $5,142,000 in
cash, and has recorded $524,000, net of $486,000 reserve, on its
books as its pro rata share of the additional assets to be
distributed. Additionally, should the judgment confirming the General
Homes Plan be reversed, the Committee may seek to have claims
asserted against American Savings and the Bank Group for recovery
of various transfers, originally alleged to be in excess of
$200,000,000 in the aggregate, as preferences or fraudulent
conveyances.
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<PAGE>
American Savings believes the amended complaint described above to be
without merit. Moreover, the Committee and the Bank Group have
approved the terms of a settlement agreement, which would dismiss the
litigation that the Committee filed against the Bank Group and which
contemplates dismissal of the Committee's appeal of the judgment
confirming the General Homes Plan. The settlement agreement,
however, is dependent upon Texas Bankruptcy Court approval, and there is
no assurance that it will become final.
In the event that the settlement agreement is not approved by the
bankruptcy court, American Savings intends to defend the proceeding
vigorously.
(D) Other Litigation. American Savings is named a defendant in
various other lawsuits filed from time to time involving claims
arising in the ordinary course of American Savings' business and, in
American Savings' belief, such claims and lawsuits as have arisen
in the ordinary course and are pending will not have a material adverse
effect on the consolidated financial condition of American Savings.
NOTE 26: QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized unaudited quarterly financial
data for the years ended December 31, 1994 and 1993 (in thousands,
except per share data). The quarterly and annual computations of net
income per share are made independently. Therefore, the sum of net
income per share for the quarters may not equal net income per share for
the respective years.
<TABLE>
<CAPTION>
Three Months Ended
March 31, June 30, September 30, December 31,
1994 1994 1994 1994
<S> <C> <C> <C> <C>
Interest income $ 43,460 $ 46,394 $ 51,233 $ 54,447
Interest expense (25,139) (26,776) (30,530) (34,650)
Net interest income 18,321 19,618 20,703 19,797
Provision for losses (150) (150) (150) (150)
Other income 2,217 1,710 2,572 4,834
Other expenses (15,251) (16,798) (16,542) (18,483)
Income tax (expense) benefit (1,027) (877) (1,316) 349
Net income applicable to common shares $ 4,110 $ 3,503 $ 5,267 $ 6,347
Net income per share, primary and
fully diluted $ 0.34 $ 0.29 $ 0.44 $ 0.53
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, June 30, September 30, December 31,
1993 1993 1993 1993
<S> <C> <C> <C> <C>
Interest income $ 45,901 $ 45,802 $ 44,292 $ 43,400
Interest expense (27,873) (27,980) (27,424) ( 26,864)
Net interest income 18,028 17,822 16,868 16,536
Provision for losses (900) (600) 850 -
Other income 3,142 2,977 2,906 2,234
Other expenses (15,016) (14,763) (15,365) (15,421)
Income tax benefit - - - 11,200
Income from continuing operations 5,254 5,436 5,259 14,549
Extraordinary item - - - (4,300)
Cumulative effect of accounting change 2,141 - - -
Net income applicable to common shares $ 7,395 $ 5,436 $ 5,259 $ 10,249
Net income per share, primary and
fully diluted
Income from continuing operations $ 0.44 $ 0.46 $ 0.44 $ 1.22
Extraordinary item - - - (0.36)
Cumulative effect of accounting change 0.18 - - -
Net income $ 0.62 $ 0.46 $ 0.44 $ 0.86
</TABLE>
F-34
<PAGE>
SUPPLEMENTARY NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Statements of Financial Condition at December 31, 1994
and Statements of Operations for the year then ended for active
subsidiaries which are 100% owned by American Savings is presented
below. Certain 100% owned subsidiaries had no balances or financial
activity at December 31, 1994 and for the year then ended and,
accordingly, have been excluded from the summary.
<TABLE>
<CAPTION>
American American American American American American American Boca
Savings Securities Venture Venture Savings Securities Southern Tri County Hampton Deerfield
Trust, Financial, ASF, Capital, Enterprises, Financial Investment Mortgage Holdings, Partners, Partners,
Inc. Inc. Inc. Corp. Inc. Corp. Corp. Corp. Inc. Ltd. (1) Ltd. (1)
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash $ 812 $ - $ - $ - $ - $ - $1,945 $ - $ 11 $ - $ -
Investment securities 1,801 - - - - - - - - - -
Accrued interest
receivable 3 - - - - - - - - - -
Real estate, net - - - 1,357 1,192 818 - - - - -
Other assets - - - - - 1,041 9 69 - - -
$ 2,616 $ - $ - $ 1,357 $1,192 $1,859 $1,954 $ 69 $ 11 $ - $ -
LIABILITIES AND STOCKHOLDER'S
EQUITY
Due to (from) American
Savings $ 524 $ 114 $(207) $ 1,568 $1,618 $ - $1,588 $ - $ - $ - -
Stockholder's equity
Common stock and
paid-in capital 1,026 1 38 - - 2,609 - 151 10 - -
Retained earnings
(deficit) 1,066 (115) 169 (211) (426) (750) 366 (82) 1 - -
$ 2,616 $ - $ - $ 1,357 $1,192 $1,859 $1,954 $ 69 $ 11 $ - $ -
</TABLE>
STATEMENTS OF OPERATIONS
Your ended December 31, 1994
(in thousands)
<TABLE>
<CAPTION>
American American American American American American American Boca
Savings Securities Venture Venture Savings Securities Southern Tri County Hampton Deerfield
Trust, Financial, ASF, Capital, Enterprises, Financial Investment Mortgage Holdings, Partners, Partners,
Inc. Inc. Inc. Corp. Inc. Corp. Corp. Corp. Inc. Ltd. Ltd.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income $73 $ - $ - $ - $ - $ - $ - $ - $ - $ 26 $ 67
Interest expense - - - - - - - - - - -
Net Interest Income 73 - - - - - - - - 26 67
Other operating Income - - - - - - 2,039 (29) 1 20 -
Other operating Income 3 (365) 18 85 36 20 1,674 - - 1 1
Income (loss) before
Income tax expense 70 365 (18) (85) (36) (20) 365 (29) 1 45 66
Income tax expense (2) - - - - - - - - - - -
Net Income (loss) $70 $365 $(18) $(85) $ (36) $ (20) $ 365 $ (29) $ 1 $ 45 $ 66
(1) American Savings sold its interest in these subsidiaries during December 1994.
(2) American Savings and its subsidiaries file consolidated federal and state income tax returns.
</TABLE>
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<PAGE>
This report may be executed in two or more counterparts, each of which shall
be deemed to be an original and all of which, together, shall constitute the
same report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 16, 1995.
AMERICAN SAVINGS OF FLORIDA, F.S.B
By: /s/ Stephen D. Taylor
Stephen D. Taylor, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Date Title
/s/ Stephen D. Taylor 3/16/95 President, Chief Executive Officer,
Stephen D. Taylor and Director
/s/ Linda M. Haskins 3/16/95 Executive Vice President and Chief
Linda M. Haskins Financial Officer
/s/ Clotilde C. Keller 3/16/95 Senior Vice President and Controller
Clotilde C. Keller
/s/ Erwin Allen 3/16/95 Director
Erwin Allen
/s/ T. Wayne Davis 3/16/95 Director
T. Wayne Davis
/s/ William H. Dukelow 3/16/95 Director
William H. Dukelow
/s/ Nimrod T. Frazer 3/16/95 Director
Nimrod T. Frazer
/s/ Barbara W. Gothard 3/16/95 Director
Barbara W. Gothard
/s/ Charles Daniel Kimbrel 3/16/95 Director
Charles Daniel Kimbrel
/s/ Deirdre Y. Russell 3/16/95 Director
Deirdre Y. Russell
/s/ Donald T. Senterfitt 3/16/95 Director
Donald T. Senterfitt
