<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1997
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
---------------------
THE ENSTAR GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 63-0590560
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
172 COMMERCE STREET-3RD FLOOR
MONTGOMERY, ALABAMA 36104
(Address of principal executive offices)
(334) 834-5483
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
Not applicable Not applicable
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF CLASS
Common Stock, $.01 par value
================================================================================
<PAGE> 2
THE ENSTAR GROUP, INC.
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ANNUAL REPORT TO
SHAREHOLDERS
AND ITEMS OF FORM 10
ITEM 1. BUSINESS.
The information required by this item is contained under the sections,
"Summary of Certain Information" on pages 1 and 2, "Introduction" on page 3,
"The Distribution" on pages 6-8, and "Business and Properties of the Company" on
pages 14 and 15 of the Information Statement and Annual Report to Shareholders
(the "Information Statement"), and such sections are deemed incorporated herein
by reference.
ITEM 2. FINANCIAL INFORMATION.
The information required by this item is contained under the sections,
"Summary of Certain Information -- Selected Consolidated Financial Data" on page
2, "Capitalization and Book Value Per Share of New Common Stock" on page 10 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 11-13 of the Information Statement, and such sections are
deemed incorporated herein by reference.
ITEM 3. PROPERTIES.
The information required by this item is contained under the section
"Business and Properties of the Company" on pages 14 and 15 of the Information
Statement, and such section is deemed incorporated herein by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is contained under the section,
"Security Ownership of Certain Beneficial Owners and Management" on page 23 of
the Information Statement, and such section is deemed incorporated herein by
reference.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The information required by this item is contained under the section,
"Management of the Company -- Directors and Executive Officers" on page 19 of
the Information Statement, and such section is deemed incorporated herein by
reference.
ITEM 6. EXECUTIVE COMPENSATION.
The information required by this item is contained under the section,
"Management of the Company -- Executive Officer Compensation" on page 20 of the
Information Statement, and such section is deemed incorporated herein by
reference.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is contained under the sections,
"Management of the Company -- Executive Officer Compensation" on page 20 and
"Certain Relationships and Related Transactions" on page 22 of the Information
Statement, and such sections are deemed incorporated herein by reference.
ITEM 8. LEGAL PROCEEDINGS.
The information required by this item is contained under the sections "The
Company -- History of the Company -- Summary of the Company's Bankruptcy Case"
on pages 3-6 and "Legal Proceedings" on pages 14 and 15 of the Information
Statement, and such sections are deemed incorporated herein by reference.
<PAGE> 3
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information required by this item is contained under the sections,
"Summary of Certain Information -- The Distribution -- Stock Trading" on page 1,
"The Distribution -- Stock Trading" on page 7, "Management of the
Company -- Long-Term Incentive Program" on page 21, "Description of New Common
Stock -- General" on page 24 and "Description of New Common Stock -- Dividends
on New Common Stock" on page 27 of the Information Statement, and such sections
are deemed incorporated herein by reference.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The information required by this item is contained under the section,
"Description of New Common Stock" on pages 24-27 of the Information Statement,
and such section is deemed incorporated herein by reference.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The information required by this item is contained under the section
"Limitations on Liability and Indemnification of Officers and Directors" on
pages 26 and 27 of the Information Statement, and such section is deemed
incorporated herein by reference.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this item are contained under either
the section, "Index to Financial Statements" on pages F-1 - F-54 of the
Information Statement (such section is deemed incorporated herein by reference),
or in Item 15 below.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements -- see Index to Financial Statements on page F-1
of the Information Statement.
(b) Exhibits --
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2.1* -- Second Amended Plan of Reorganization of the Company,
effective as of June 1, 1992.
2.2* -- Amended Modification to Second Amended Plan of
Reorganization of the Company, confirmed on August 24, 1993.
2.3* -- Agreement and Plan of Merger dated as of December 31, 1996.
3.1* -- Articles of Incorporation of the Company.
3.2* -- Bylaws of the Company.
4.1* -- Rights Agreement between the Company and American Stock
Transfer & Trust Company, as Rights Agent, dated as of
January 20, 1997.
10.1* -- Promissory Note dated as of October 24, 1996, made by the
Company in favor of First Union National Bank of Georgia.
10.2* -- Stock Pledge Agreement dated as of October 24, 1996, between
the Company and First Union National Bank of Georgia.
</TABLE>
<PAGE> 4
<TABLE>
<C> <C> <S>
10.3* -- 1997 CEO Stock Option Plan.
10.4* -- 1997 Outside Directors' Stock Option Plan.
10.5* -- 1997 Omnibus Incentive Plan.
11.1* -- Statement Regarding Computation of Per Share Earnings.
21.1* -- Subsidiaries.
27.1* -- Financial Data Schedule.
99.1* -- Notice of Pending Distribution of New Common Stock in The Enstar Group, Inc.
99.2* -- Modified Order on Proposed Distribution to Equity Security Holders by the United States Bankruptcy Court
for the Middle District of Alabama.
</TABLE>
- ---------------
* Previously filed.
(c) Schedules are omitted, because they are not applicable, not required,
or because required information is included in the consolidated financial
statements or notes thereto.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Form 10 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Montgomery, State
of Alabama on the 27th day of March, 1997.
THE ENSTAR GROUP, INC.
By: /s/ NIMROD T. FRAZER
------------------------------------
Nimrod T. Frazer
Chairman of the Board of Directors,
President and Chief Executive
Officer
<PAGE> 5
LOGO
March 27, 1997
To the Former Shareholders of Common Stock of The Enstar Group, Inc.:
It gives me great pleasure to welcome you back to The Enstar Group, Inc.
(the "Company"). After five and a half years, the Company has successfully
emerged from bankruptcy, and after paying off all of its former creditors in
full with interest, the Company had a net worth of approximately $48.1 million
on December 31, 1996. In accordance with its Second Amended Plan of
Reorganization, as Modified, the Company is now distributing shares of new
Common Stock to its former shareholders (the "Distribution").
This mailing includes the following:
1. Information Statement and Annual Report to Shareholders. The
enclosed Information Statement and Annual Report to Shareholders fully
describes the Distribution and also sets forth information about the
Company, its recent history, organization, business and properties. The
Information Statement and Annual Report to Shareholders also contains
audited financial statements and other financial information regarding the
Company.
2. Proxy Statement and Proxy Card. The enclosed Proxy Statement
invites you to attend the annual meeting of the shareholders of the Company
to be held on April 28, 1997, at 10:30 a.m., 300 Bibb Street, Montgomery,
Alabama 36104 and describes various matters to be considered by the
shareholders of the Company at such meeting. The Proxy Statement also
contains a proxy card which the Company requests that each holder of record
of Common Stock complete, sign and return.
A separate mailing is being sent simultaneously with this mailing that
includes one or both of the following:
1. Stock Certificate. The stock certificate will represent the number
of shares of Common Stock that you are entitled to in the Distribution.
2. Check. The Company is not issuing fractional shares in the
Distribution. To the extent applicable, former shareholders are receiving a
check representing cash payment for the fractional shares based on the net
book value of the Company on December 31, 1996.
While I urge you to review carefully each of the enclosures noted above,
only the Proxy Statement requests any action on your part.
Sincerely,
/s/ NIMROD T. FRAZER
NIMROD T. FRAZER
Chairman of the Board, President and
Chief Executive Officer
Address
<PAGE> 6
INFORMATION STATEMENT AND ANNUAL REPORT TO SHAREHOLDERS
THE ENSTAR GROUP, INC.
COMMON STOCK
PAR VALUE $.01 PER SHARE
This Information Statement and Annual Report to Shareholders (this
"Information Statement") is being furnished by The Enstar Group, Inc., a Georgia
corporation and successor by merger to a Delaware corporation of the same name
(the "Company"), in connection with its distribution (the "Distribution") of the
new common stock (the "New Common Stock" or the "Shares"), par value $.01 per
Share, of the Company, to holders of record of the Company's cancelled common
stock (the "Cancelled Stock") which was cancelled on June 1, 1992, the effective
date of the Company's Second Amended Plan of Reorganization, as Modified (the
"Effective Date"). See "History of the Company."
Each holder of record of Cancelled Stock on the Effective Date is eligible
to receive one Share of New Common Stock for every ten (10) shares of Cancelled
Stock held as of such date. No fractional Shares will be issued. The former
shareholders of record are receiving, or will receive upon submission to the
Company of a Certification of Ownership by December 31, 1997, a certificate for
their Shares and cash distributions for such fractional Shares based on the net
book value of the Company on December 31, 1996. Certificates representing the
Shares of each shareholder of record who submitted a Certification of Ownership
accompany this Information Statement. Former beneficial owners whose shares of
Cancelled Stock were held in "street name" brokerage accounts will not receive
certificates for the New Common Stock. The certificate for such Shares will be
distributed to the record holder, Depository Trust Company ("DTC"), for
allocation to DTC's broker members and then to the brokerage accounts of
beneficial owners. Assuming no cash payments for fractional Shares, 4,750,534
Shares are eligible to be distributed in the Distribution. As a result of the
Distribution, the Company will resume operation as a publicly-held company.
The New Common Stock is being issued and distributed pursuant to the
Company's Second Amended Plan of Reorganization effective as of June 1, 1992, as
modified on August 24, 1993 (the "Reorganization Plan"). The Distribution is not
subject to the registration requirements of the Securities Act of 1933, as
amended. The Company has registered the New Common Stock under Section 12 of the
Securities and Exchange Act of 1934, as amended.
The Company does not currently own an operating business. Following the
1997 Annual Meeting of the shareholders, the Company intends to acquire one or
more operating businesses. No specific target, industry or geographical market
has yet been identified by the Company for such acquisition. Thus, the Company
may be deemed a "shell" company whose sole purpose is to locate and consummate
one or more mergers or acquisitions. See "Operation of the Company After 1997
Annual Meeting" and "Risk Factors."
Following the Distribution, the Company expects that the New Common Stock
will be traded in the over-the-counter market on the OTC Bulletin Board(R)
maintained by the National Association of Securities Dealers, Inc. The Shares of
New Common Stock, however, may trade at a discount from their book value
depending upon the market for similar securities and other factors, including
general economic conditions and the financial condition and performance of the
Company. See "Risk Factors -- Lack of Public Market."
---------------------
NO VOTE OR OTHER ACTION OF SHAREHOLDERS IS REQUIRED IN CONNECTION WITH THIS
DISTRIBUTION. A SEPARATE PROXY STATEMENT ACCOMPANIES THIS INFORMATION STATEMENT
THAT REQUESTS A PROXY TO VOTE REGARDING CERTAIN MATTERS AFFECTING THE COMPANY AT
A SHAREHOLDERS MEETING TO BE HELD AFTER THE DISTRIBUTION.
---------------------
THIS REGISTRATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY NEW COMMON STOCK. THESE SECURITIES
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
INFORMATION STATEMENT.
The date of this Information Statement is March 27, 1997.
<PAGE> 7
EXPLANATORY NOTE
This Information Statement relates to the distribution of New Common Stock
in the Company to "Former Shareholders" of the Company in accordance with the
terms of the Reorganization Plan, and certain orders of the United States
Bankruptcy Court for the Middle District of Alabama.
As used throughout this Information Statement, the term "Former
Shareholders" means the owners of record of the Company's Cancelled Stock on
June 1, 1992, the effective date of the Reorganization Plan and the date on
which the Cancelled Stock was cancelled. The term "Former Shareholders" includes
DTC, the shareholder of record for stock held in "street name" for "Beneficial
Owners."
As used throughout this Information Statement, the term "Beneficial Owners"
means (i) those persons who owned the Cancelled Stock in "street-name" on June
1, 1992 and who did not subsequently transfer their rights represented by such
beneficial ownership after that date and (ii) those persons who currently hold
such "street-name" rights and who acquired their street-name rights after June
1, 1992.
ONLY FORMER SHAREHOLDERS WHO SUBMIT A CERTIFICATION OF OWNERSHIP TO THE
COMPANY BY DECEMBER 31, 1997 ARE ENTITLED TO RECEIVE SHARES OF NEW COMMON STOCK.
ii
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF CERTAIN INFORMATION.............................. 1
INTRODUCTION................................................ 3
THE COMPANY................................................. 3
Organizational Structure.................................. 3
Subsidiaries.............................................. 3
History of the Company.................................... 3
THE DISTRIBUTION............................................ 6
Reasons for the Distribution.............................. 7
Manner of Distribution.................................... 7
Stock Trading............................................. 7
Results of the Distribution............................... 7
Federal Income Tax Aspects of the Distribution............ 8
OPERATION OF THE COMPANY AFTER 1997 ANNUAL MEETING.......... 8
Strategy for Acquiring Business........................... 8
Nature of Acquisition..................................... 8
Related Party Transactions................................ 9
Financial Information..................................... 9
CAPITALIZATION AND BOOK VALUE PER SHARE OF NEW COMMON
STOCK..................................................... 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 11
Liquidity and Capital Resources........................... 11
Financial Condition....................................... 11
Results of Operations..................................... 11
Disclosure Regarding Forward-Looking Statements........... 13
New Accounting Pronouncements............................. 13
BUSINESS AND PROPERTIES OF THE COMPANY...................... 14
General................................................... 14
Properties................................................ 14
Employees................................................. 14
Legal Proceedings......................................... 14
Competition............................................... 15
RISK FACTORS................................................ 16
No Recent Operating History; Effectively Blind Pool....... 16
Uncertainty of Acquisition Target......................... 16
Substantial Change in the Nature of the Company's
Business............................................... 16
Dependence on Nimrod T. Frazer and Other Executive
Officers and Directors................................. 16
Lack of Public Market; Possible Volatility of Stock
Price.................................................. 16
Volatility of First Union Common Stock.................... 17
General Economic Risks and Business Cycles................ 17
Risk of No Diversification................................ 17
Financing Limitations..................................... 17
Investment Company Act of 1940............................ 17
Antitakeover Provisions................................... 17
Tax Considerations........................................ 18
MANAGEMENT OF THE COMPANY................................... 19
Directors and Executive Officers.......................... 19
Board of Directors; Committees............................ 19
</TABLE>
iii
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Executive Officer Compensation............................ 20
Annual Incentive Plan..................................... 21
Long-Term Incentive Program............................... 21
Employment and Confidentiality Agreements................. 21
Compensation of Directors................................. 22
Certain Relationships and Related Transactions............ 22
Compensation Committee Interlocks and Insider
Participation.......................................... 22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 23
DESCRIPTION OF NEW COMMON STOCK............................. 24
General................................................... 24
New Common Stock.......................................... 24
Share Purchase Rights Plan................................ 24
Certain Provisions of Articles of Incorporation and
Bylaws................................................. 25
Limitations on Liability and Indemnification of Officers
and Directors.......................................... 26
Restrictions on Transfer of New Common Stock.............. 27
Dividends on New Common Stock............................. 27
Transfer Agent and Registrar.............................. 27
AVAILABLE INFORMATION....................................... 28
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
iv
<PAGE> 10
SUMMARY OF CERTAIN INFORMATION
The following is a summary of certain information contained in this
Information Statement. This summary is included for convenience only and is
qualified in its entirety by the more detailed information and financial
statements contained elsewhere herein.
THE COMPANY
The Enstar Group, Inc. (the "Company") filed for bankruptcy under Chapter
11 of the United States Bankruptcy Code (the "Bankruptcy Code") on May 31, 1991
and has been operating as a reorganized debtor pursuant to its Second Amended
Plan of Reorganization, as Modified (the "Reorganization Plan"), since June 1,
1992 (the "Effective Date"). See "The Company -- History of the Company." The
Company's assets, aggregating approximately $69.6 million at December 31, 1996,
consist primarily of 853,423 shares of First Union Corporation common stock,
cash or cash-equivalent assets and certificates of deposit. Pursuant to the
Company's Reorganization Plan, the Company is issuing shares of new common stock
(the "New Common Stock" or the "Shares") and/or cash in lieu of fractional
Shares to shareholders who were the record holders of its common stock as of the
Effective Date of the Reorganization Plan (the "Distribution"). On the Effective
Date of the Reorganization Plan, all of the then issued and outstanding shares
of common stock of the Company were cancelled (the "Cancelled Stock"), and a new
certificate for 100 shares was issued to the Company's Chief Executive Officer,
as trustee and sole shareholder pursuant to the terms of the Reorganization
Plan. Former Shareholders are now entitled to receive Shares of New Common Stock
and cash for fractional interests under the Reorganization Plan by virtue of
their interests as Former Shareholders.
THE DISTRIBUTION
The Board of Directors of the Company has concluded that it is in the best
interests of the Company and its shareholders to distribute Shares of New Common
Stock to the Company's Former Shareholders.
REASONS FOR THE DISTRIBUTION
Under the Reorganization Plan, the Company had the option of liquidating
the Company and distributing its assets to the Former Shareholders or issuing
the New Common Stock to the Former Shareholders. In the opinion of the Board of
Directors, the Distribution is in the best interests of the Company and its
shareholders. The primary considerations that led the Company to conclude that
it should distribute Shares of New Common Stock to its Former Shareholders were
(i) to enhance long-term shareholder value by acquiring an operating business,
(ii) to avoid triggering a taxable event for the Company's Former Shareholders
and Beneficial Owners, and (iii) to continue to have the possibility of using
the Company's net operating loss carryforwards of approximately $96 million and
tax credit carryforwards of approximately $4.6 million, both of which would be
lost if the Company were liquidated. See "The Distribution -- Reasons for the
Distribution."
MANNER OF THE DISTRIBUTION
The Company is distributing to its Former Shareholders, without any
consideration being paid by such Former Shareholders, one Share of New Common
Stock for every ten (10) shares of Cancelled Stock held by such Former
Shareholders. Former Shareholders are receiving cash in lieu of any fractional
Shares of New Common Stock. See "The Distribution -- Manner of Distribution."
STOCK TRADING
Following the Distribution, the Company expects that the New Common Stock
will be traded in the over-the-counter market on the OTC Bulletin Board(R)
maintained by the National Association of Securities Dealers, Inc. See "The
Distribution -- Stock Trading." The Company intends to apply for listing of the
New Common Stock on a national securities exchange or the Nasdaq National
Market(R) in the future. There can be no assurance that such efforts will be
successful. See "Risk Factors -- Lack of Public Market."
RESULTS OF THE DISTRIBUTION
Following the Distribution, the Company will hold its annual shareholders
meeting to elect directors and conduct certain other business. Subsequently, the
Company will begin implementing its strategy of acquiring an operating business.
For a discussion of the risks pertaining to such strategy, see "Risk Factors."
<PAGE> 11
FEDERAL INCOME TAX ASPECTS OF THE DISTRIBUTION
The Company believes that no gain or loss will be recognized by (and no
amount will be included in the income of) the holders of New Common Stock upon
the Distribution, except with respect to cash received in lieu of fractional
Shares. See "The Distribution -- Federal Income Tax Aspects of the
Distribution".
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial information with respect
to the Company for each of the five years in the period ended December 31, 1996
and is derived in part from the audited Consolidated Financial Statements of the
Company. The data set forth below should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the historical consolidated financial statements and related
notes thereto, and other financial data included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
------- -------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations.......................... $ 740 $ 14,122 $ (4,650) $ (9,266) $ 3,694
Income from discontinued operations
(1)................................. 54,482 9,477 13,845 21,434
------- -------- -------- -------- ------------
Income before extraordinary item...... 740 68,604 4,827 4,579 25,128
Extraordinary item (2)................ 4,368
------- -------- -------- -------- ------------
Net income............................ $ 740 $ 68,604 $ 4,827 $ 8,947 $ 25,128
======= ======== ======== ======== ============
Income (loss) per common share:
Continuing operations............... $ 7,400 $141,220 $(46,500) $(92,660) $ 0.17
Discontinued operations............. 544,820 94,770 138,450 0.98
Extraordinary item.................. 43,680
------- -------- -------- -------- ------------
Net income.......................... $ 7,400 $686,040 $ 48,270 $ 89,470 $ 1.15
======= ======== ======== ======== ============
Weighted average shares outstanding
(3)................................. 100 100 100 100 21,828,705
======= ======== ======== ======== ============
Pro forma income (loss) per common
share (4):
Continuing operations............... $ 0.16 $ 2.97 $ (0.98) $ (1.95) $ 0.78
Discontinued operations............. 11.47 2.00 2.91 4.51
Extraordinary item.................. .92
------- -------- -------- -------- ------------
Net income.......................... $ 0.16 $ 14.44 $ 1.02 $ 1.88 $ 5.29
======= ======== ======== ======== ============
Balance Sheet data:
Total assets........................ $69,572 $ 59,602 $ 64,787 $ 54,211 $ 42,633
Note payable........................ 18,100
Liabilities subject to compromise... 588 26,540 108,238 104,159 101,110
Shareholder's equity (deficit)...... 48,142 31,900 (45,528) (49,979) (58,926)
</TABLE>
- ---------------
(1) Represents the equity in earnings of American Savings of Florida, F.S.B.
("American"), accounted for under the equity method of accounting, through
July 1, 1995. On July 1, 1995, the Company sold its investment in American
to First Union Corporation and recognized a gain of approximately $52.7
million. As a result of the disposition, the Company ceased to have banking
operations and, accordingly, has accounted for its investment in American
as a discontinued operation.
(2) Extraordinary gain resulting from the disallowance of certain liabilities
subject to compromise.
(3) Prior to June 1, 1992, the Company had approximately 52,400,000 common
shares outstanding. On June 1, 1992, these shares were cancelled and 100
shares of new common stock were issued to the Company's Chief Executive
Officer as trustee.
(4) Pro forma amounts per common share assuming that all shares eligible
(4,750,534) to be issued in connection with the Distribution had been
outstanding for all years presented.
2
<PAGE> 12
INTRODUCTION
The Enstar Group, Inc. (the "Company") is a Georgia corporation and
successor by merger to a Delaware corporation of the same name whose assets,
aggregating approximately $69.6 million at December 31, 1996, consist primarily
of 853,423 shares of First Union Corporation common stock, cash or cash
equivalent assets and certificates of deposit. Pursuant to the Second Amended
Plan of Reorganization, as Modified (the "Reorganization Plan"), the Company is
issuing shares of new common stock (the "New Common Stock" or the "Shares")
and/or cash in lieu of fractional Shares to Former Shareholders (the
"Distribution"). On June 1, 1992 (the "Effective Date"), all of the then issued
and outstanding shares of the Company's common stock were cancelled (the
"Cancelled Stock"), and a new certificate for 100 shares was issued to the
Company's Chief Executive Officer, as trustee and sole shareholder pursuant to
the terms of the Reorganization Plan. The Former Shareholders are now entitled
to receive Shares of New Common Stock and cash for fractional interests in
accordance with the Reorganization Plan.
THE COMPANY
ORGANIZATIONAL STRUCTURE
The Company's executive offices are located at 172 Commerce Street -- 3rd
Floor, Montgomery, Alabama 36104, and its telephone number is (334) 834-5483.
The Company has five full-time employees, whose principal duties currently
include administering the issuance of the Shares to the Former Shareholders and
other matters related to the execution of the Company's Reorganization Plan,
managing the assets of the Company and preparing for the Company's existence as
a public entity after the Distribution.
SUBSIDIARIES
The Company has one wholly owned subsidiary, Enstar Financial Services,
Inc., which is currently inactive.
HISTORY OF THE COMPANY
Summary of the Company's Bankruptcy Case
The Company filed for protection under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") on May 31, 1991 in the United States
Bankruptcy Court for the Middle District of Alabama (the "Bankruptcy Court").
Prior to its bankruptcy filing on May 31, 1991, the Company was a publicly
traded holding company with subsidiaries operating primarily in the specialty
retail business and the financial services business. Prior to November 16, 1989,
when its name was changed, the Company's name was Kinder-Care, Inc., and prior
to January 1987, the Company's name was Kinder-Care Learning Centers, Inc. The
Company originally was incorporated on October 26, 1970 in the State of
Delaware.
Prior to its bankruptcy filing, the Company's financial situation had been
deteriorating rapidly and reached crisis proportions when its then Chairman and
Chief Executive Officer, Richard Grassgreen, was indicted in the Fall of 1990,
in connection with his activities and dealings with Michael Milken. In the wake
of his indictment, Mr. Grassgreen resigned from all of his positions with the
Company, and Nimrod T. Frazer was elected acting Chairman of the Board. Soon
thereafter most of the Company's Board of Directors resigned. The remaining
Board members, T. Wayne Davis, T. Whit Armstrong and Mr. Frazer affirmed Mr.
Frazer as Chairman of the Board. This three-member Board, with Mr. Frazer
serving as Chairman and Chief Executive Officer, directed and managed the
Company's affairs from the fall of 1990 until October of 1996, when a fourth
director, J. Christopher Flowers, was elected as a director of the Company.
The Company's retail services subsidiaries filed for bankruptcy prior to
May 31, 1991. At the time of its bankruptcy filing, the Company's principal
remaining business was a savings and loan holding company. Its only asset with
any substantial value was its ownership of approximately 49% of the outstanding
common stock of American Savings of Florida, F.S.B. ("American"), a Florida
savings bank.
3
<PAGE> 13
As of May 31, 1991, the market value of the Company's American stock was
approximately $7 million. Shortly after the Company's bankruptcy filing, the
market value of the American stock fell to less than $3 million and American,
whose capital had fallen far below required levels, was facing the prospect of a
collapse or takeover by the United States Office of Thrift Supervision (the
"OTS"). Other than its stock in American, the Company's only significant assets
were contingent claims in the form of lawsuits against former officers and
directors, Richard Grassgreen and Perry Mendel, and a suit to be filed against
Michael Milken and others. The Company's non-contingent liabilities exceeded its
assets by more than $100 million.
At the time of the bankruptcy filing, substantial disputes arose among the
Company's major creditors, including the OTS, American, NationsBank of Texas,
and KinderCare Learning Centers, Inc. The disputes involved substantial
pre-bankruptcy transfers of assets from the Company to American which had been
mandated by the OTS. At the same time, the OTS was demanding that the Company
immediately cure American's regulatory capital deficiency in the amount of $28.9
million or face the prospect of immediate conversion of the Chapter 11 case to a
liquidation under Chapter 7 of the Bankruptcy Code.
The Company believed, and all creditors agreed, that a Chapter 11
proceeding would be preferable to a Chapter 7 proceeding because: (i) a Chapter
11 plan of reorganization could resolve the disputes between the creditors,
which if not resolved would have resulted in costly litigation over the priority
and enforceability of claims and the propriety of pre-petition transfers, and
likely would have depleted any remaining assets of the Company; (ii) the Company
was in the best position to pursue litigation against Mendel, Grassgreen and
Milken; and (iii) perhaps most importantly, the Company's new management, which
had gained the trust and confidence of the OTS, would have the chance under
Chapter 11 to salvage the situation at American, thereby enhancing the value of
the American stock for the benefit of the Company's creditors and interest
holders.
The Company was successful in negotiating a settlement with its creditors
which was incorporated into the Reorganization Plan. The Reorganization Plan was
confirmed in February, 1992, and became effective on June 1, 1992.
At the time the Reorganization Plan was proposed by the Company, in the
fall of 1991, there appeared to be no prospect that the shareholders of the
Company would receive any distribution under the Reorganization Plan or that the
Company's stock would ever have any value. Liabilities exceeded assets by more
than $100 million. Accordingly, the Reorganization Plan provided that creditors
would receive all distributions under the Reorganization Plan until paid in full
and that the Company's stock would be cancelled on the Effective Date. The
Reorganization Plan provided that the stock would be cancelled upon the
Effective Date because: (i) it was not contemplated that there would be property
available for distribution to the equity ownership interest; and (ii) the
cancellation of the stock was necessary to avoid the administrative burden and
substantial cost of complying with the filing requirements of the Securities
Exchange Act of 1934, as amended. Under the Reorganization Plan, new common
stock was issued on the Effective Date to the Company's Chief Executive Officer,
as a trustee, who was directed to vote the shares annually for purposes of
electing the Board of Directors of the Company based on directions given by at
least 51% of the creditors holding certain allowed unsecured claims.
Following the confirmation of its Reorganization Plan, the Company pursued
the liquidation of its assets, including the pursuit of its lawsuits against
Grassgreen, Mendel and Milken. More importantly, the Company continued as the
holding company of American. The Company was instrumental in and substantially
responsible for American's survival and return to capital compliance and
profitability.
By 1993, the success of the Reorganization Plan was exceeding all
expectations, and it appeared that there was at least a chance that the Company
might be able to pay all of its creditors in full. The market value of the
Company's American stock had increased at that time to approximately $60 million
to $70 million. Because the Reorganization Plan had not anticipated or
specifically provided for the distribution of the estate proceeds after
creditors were paid in full, the Company filed a motion to modify the
Reorganization Plan to clarify the distributions and make clear that once all
creditors were paid in full with interest, any remaining
4
<PAGE> 14
property would be held or distributed for the benefit of the Company's Former
Shareholders. The Reorganization Plan as modified provides in Section 5.11(d) as
follows:
In the event that all Allowed Claims [of creditors] entitled to
receive Property pursuant to this [Reorganization] Plan and all
interest accrued on the Allowed Claims entitled to receive . . . are
paid in full, [Former Shareholders] who held such interests on the
Effective Date shall be entitled to receive any remaining Property
available for distribution. Such remaining Property shall be
distributed on a pro rata basis to [Former Shareholders] which held
such interests on the Effective Date provided, however, that the
[Company] may distribute to the [Former Shareholders] shares of New
Common Stock on a pro rata basis, in lieu of any distributions of
remaining Property.
The Bankruptcy Court authorized the modification of the Company's
Reorganization Plan in August of 1993.
On July 1, 1995, the Company disposed of its stock in American through a
merger with a wholly owned subsidiary of First Union Corporation ("First
Union"). On the date of the merger, the Company owned 5,689,391 shares of
American, in exchange for which it received $82,454,865 in cash to be used to
pay certain creditor claims and 815,549 shares of First Union common stock (the
"First Union Common Stock") with a market value on the exchange date of $45.25
per share. The shares of First Union Common Stock received pursuant to the
merger, plus 16,191 additional shares acquired through settlements with parties
in the Grassgreen litigation and 21,683 shares purchased through First Union's
dividend reinvestment program, are being held by the Company. At December 31,
1996, the Company owned a total of 853,423 shares of First Union Common Stock.
In addition to the proceeds received from the disposition of the American
stock, the Company has received the bulk of anticipated recoveries from the
Grassgreen litigation through a settlement and confirmed plan of reorganization
in Grassgreen's Chapter 11 bankruptcy case (the "Grassgreen Bankruptcy Estate
Settlement"), the Mendel litigation and the Milken litigation. The total amount
of these recoveries, net of expenses, was approximately $22 million.
On October 24, 1996, the Company borrowed $18.1 million from First Union
National Bank of Georgia and used the proceeds from such loan to pay off the
remaining allowed claims of creditors under the Reorganization Plan. The
principal amount of the loan bears interest at either (i) a fixed rate of
interest equal to the Adjusted Eurodollar Rate plus six tenths of one percent
point (.60%) or (ii) a fluctuating rate per annum equal to the Prime Rate. The
Company has the option of allocating which portion of the principal is subject
to which rate. To secure the loan, the Company pledged 353,602 shares of First
Union Common Stock.
In total, the Company has paid approximately $118 million to satisfy the
allowed claims of creditors, including interest. The Company is now prepared to
complete its reorganization by making a distribution to its Former Shareholders
in accordance with the terms of its Reorganization Plan. Based on the market
value of the Company's First Union Common Stock as of December 31, 1996 ($74 per
share), the Company had a net worth of approximately $48.1 million as of
December 31, 1996.
Under the Reorganization Plan, the Company had the option of distributing
its remaining assets to Former Shareholders or issuing the New Common Stock to
the Former Shareholders. The Company believes that the issuance of the Shares is
the most beneficial course for the Former Shareholders for the following
reasons: (i) the Company anticipates that it will be able to acquire an
operating business and enhance long-term shareholder value, (ii) the issuance of
the Shares to a Former Shareholder should not create a taxable event for that
Former Shareholder, and (iii) the Company will preserve the possibility of using
its net operating loss carryforwards of approximately $96 million (the "NOLs")
and tax credit carryforwards of approximately $4.6 million for the benefit of
its Former Shareholders. See "The Distribution -- Reasons for the Distribution."
5
<PAGE> 15
Rights of Former Shareholders
Former Shareholders are eligible to receive Shares of New Common Stock on a
pro rata basis for shares of Cancelled Stock owned by such Former Shareholders.
No fractional Shares of New Common Stock will be issued. Former Shareholders
will receive upon submission to the Company of a Certification of Ownership, one
Share of New Common Stock for every ten (10) Shares of Cancelled Stock and cash
distributions for fractional Shares based on the net book value of the Company
on December 31, 1996. By order of the Bankruptcy Court, in situations where the
Cancelled Stock was held in "street name," New Common Stock will be distributed
to Depository Trust Company ("DTC"), the record holder of the Cancelled Stock
held in "street name," for ultimate allocation to the brokerage accounts of
Beneficial Owners of such Cancelled Stock.
In order to receive Shares, a Former Shareholder is required to mail a
Certification of Ownership to the Company prior to December 31, 1997, as
described below, certifying that the Former Shareholder was an owner of
Cancelled Stock on the Effective Date, and stating the number of shares of the
Company's Cancelled Stock the Former Shareholder owned on the Effective Date.
After the distribution of the Shares and/or cash to DTC and Former
Shareholders who have submitted a Certification of Ownership, the Company will
reserve an amount of Shares sufficient to distribute Shares to Former
Shareholders who have not submitted a Certification of Ownership, but who
subsequently file a Certification of Ownership prior to December 31, 1997.
Former Shareholders who have not submitted a complete Certification of Ownership
by December 31, 1997, will not be entitled to receive distributions of the
Shares and/or cash by virtue of their ownership of Cancelled Stock on the
Effective Date, and all rights represented by their ownership will vest in the
Company. Similarly, Shares of New Common Stock held for distribution to DTC that
are not allocated to Beneficial Owners by December 31, 1997 will be cancelled,
and all rights to such Shares will vest in the Company.
Reorganization as Georgia Corporation
The Board of Directors of The Enstar Group, Inc., a Delaware corporation
("Enstar-Delaware"), after careful study, concluded that it was in the best
interests of Enstar-Delaware and its shareholders to reorganize Enstar-Delaware
as a Georgia corporation. As a result, the Board of Directors of Enstar-Delaware
and Enstar-Delaware's sole shareholder approved a change of Enstar-Delaware's
state of incorporation from Delaware to Georgia. The change in the state of
incorporation was accomplished through a merger of Enstar-Delaware with and into
the Company, a wholly owned subsidiary of Enstar-Delaware which was incorporated
on December 23, 1996 (the "Merger"). The Company and Enstar-Delaware entered
into an Agreement and Plan of Merger (the "Plan of Merger") pursuant to which
Enstar-Delaware merged with and into the Company. Pursuant to the Plan of
Merger, the sole shareholder of Enstar-Delaware prior to the Merger became the
sole shareholder of the Company after the Merger. The Company and
Enstar-Delaware filed Certificates of Merger with the Delaware Secretary of
State and the Georgia Secretary of State which were effective as of December 31,
1996.
It is intended that the Merger be treated as a reorganization under Section
368(a)(1)(F) of the United States Internal Revenue Code of 1986, as amended (the
"Tax Code"). While the Merger effects a change in the legal domicile of the
Company, the Merger will not result in any change in the name, business,
management, location of the Company's principal executive offices or other
facilities, assets, liabilities, net worth or accounting practices. In addition,
all of the directors, officers and employees of Enstar-Delaware upon
consummation of the Merger became officers, directors, and employees of the
Company.
THE DISTRIBUTION
The Board of Directors of the Company, after careful study, has concluded
that it is in the best interests of the Company and its shareholders to
distribute Shares of New Common Stock to its Former Shareholders.
6
<PAGE> 16
REASONS FOR THE DISTRIBUTION
There were a number of considerations that led the Company to conclude that
it should distribute Shares of New Common Stock to its Former Shareholders in
lieu of liquidating the Company. First, the Company believes that long-term
shareholder value will be enhanced by acquiring an operating business. The
Company's Board of Directors believes that it and the executive officers are
qualified to identify and consummate such an acquisition. Secondly, the
Distribution of the New Common Stock to the Former Shareholders should not
constitute a taxable event for the Former Shareholders, whereas a distribution
of property or cash would be a taxable event for such Former Shareholders.
Finally, if the Company were to liquidate, the Company's Former Shareholders
would lose any benefit that the Company might obtain from the Company's NOLs and
tax credit carryforwards, which otherwise might be available to reduce or
eliminate the Company's income tax in the future.
MANNER OF DISTRIBUTION
The Company is distributing to Former Shareholders, without any
consideration being paid by such holders, one Share of New Common Stock for
every ten (10) shares of Cancelled Stock formerly held on the Effective Date.
Former Shareholders will receive cash in lieu of any fractional Shares of New
Common Stock.
Certificates representing Shares of New Common Stock are being mailed,
along with this Information Statement, to Former Shareholders who have submitted
Certifications of Ownership to the Company. The Former Shareholders are
receiving, or will receive upon submission to the Company of a Certification of
Ownership by December 31, 1997, a certificate for their Shares and cash
distributions for such fractional Shares based on the net book value of the
Company on December 31, 1996. No fractional Shares will be issued. All expenses
associated with the Distribution will be paid by the Company. See "The
Distribution -- Manner of Distribution." Beneficial Owners will not receive
certificates for the New Common Stock. The certificate for such Shares will be
distributed to DTC for allocation to DTC's broker members and then to the
brokerage accounts of Beneficial Owners.
STOCK TRADING
Prior to May 8, 1991, the Company's Cancelled Stock was traded on the
Nasdaq National Market(R). Between May 8, 1991 and the Effective Date of the
Reorganization Plan, shares of the Company's Cancelled Stock were traded in the
over-the-counter market. The Company is aware that there was trading of rights
or claims of former shareholders after the cancellation of the Cancelled Stock
on the Effective Date. The Company has no specific knowledge regarding the
volume of such post-Effective Date trading or the prices at which such trades
occurred.
Subsequent to the Distribution, the New Common Stock will be traded in the
over-the-counter market on the OTC Bulletin Board(R) maintained by the National
Association of Securities Dealers, Inc. There can be no assurance as to the
price at which trading in the New Common Stock will occur. Two broker-dealers,
Sterne, Agee & Leach, Inc. and Robotti & Company, Inc., both of whom actively
followed the Company's stock prior to the Company's bankruptcy, have informed
the Company that they will serve as market makers for the New Common Stock
following the Distribution. The Company's management has provided certain
information to these brokers-dealers to enable them to initiate quotations on
the OTC Bulletin Board(R). In the future, the Company intends to apply for
listing of the New Common Stock on a national securities exchange or the Nasdaq
National Market(R).
RESULTS OF THE DISTRIBUTION
Following the Distribution, the Company will hold its annual shareholders
meeting. At the annual shareholders meeting, the shareholders will elect
directors and consider other matters. Immediately thereafter, the Company will
begin pursuing a strategic acquisition. The Company has not yet focused on any
particular industry or market.
7
<PAGE> 17
FEDERAL INCOME TAX ASPECTS OF THE DISTRIBUTION
The Company believes that the Distribution is not a taxable event under the
Tax Code. As such, the Company believes (i) no gain or loss will be recognized
by the Former Shareholders and Beneficial Owners (collectively, the
"Distributees") upon the receipt of New Common Stock, (ii) the basis of the New
Common Stock (including any fractional share interest) will be the same as the
basis of the Cancelled Stock immediately before the Distribution, (iii) the
holding period of the New Common Stock received by the Distributees will include
the holding period of the Cancelled Stock with respect to which the Distribution
is made, provided that the Cancelled Stock is held as a capital asset on the
Distribution Date, and (iv) no gain or loss will be recognized by the Company
upon the Distribution. Each Distributee will recognize gain or loss measured by
the difference between the cash amount received for his fractional share
interest in New Common Stock and the portion of his basis in Cancelled Stock
allocable to such fractional share interest. To the extent that a Distributee
has claimed a loss deduction with respect to the Cancelled Stock on his prior
federal income tax return, the Distributee will have a zero basis in the New
Common Stock.
The above summary is included for general information purposes only and
should not be regarded as tax advice. Distributees are urged to consult their
personal tax advisors regarding the appropriate income tax treatment of their
receipt of New Common Stock.
OPERATION OF THE COMPANY AFTER 1997 ANNUAL MEETING
After the 1997 annual meeting of the shareholders the Company will seek to
consummate one or more acquisitions. The Company's officers and directors have
made some preliminary efforts to identify suitable acquisition targets. Such
efforts, however, have not resulted in any agreements or understandings, oral or
written, with representatives of any business or company.
STRATEGY FOR ACQUIRING BUSINESS
The Company's strategy for making a suitable acquisition is to utilize the
considerable experience, knowledge and business contacts of the Company's four
directors, including Nimrod Frazer, the Company's Chief Executive Officer. Each
of the Company's directors has been asked by management to assist the Company
actively in its pursuit of an acquisition. Management intends to follow up on
the leads and suggestions presented by directors and meet with various
prospective targets. The Company will conduct rigorous financial and legal due
diligence with respect to any entity about which it has a strong interest. The
Company does not intend to pay any director or any entity with which a director
is affiliated any finder's fees.
The Company has not hired, and does not presently intend to hire, any
consultants or advisers in connection with its pursuit of an acquisition. To the
extent, however, that investment banks, business brokers or other persons
introduce the Company to companies with whom the Company ultimately consummates
a transaction, the Company would be willing to pay fair compensation for such
services, either in the form of cash or securities of the Company, or both. In
addition, if in the course of its due diligence of a particular acquisition
target the Company determines that it would benefit from the advice of a
consultant or adviser, the Company would be willing to pay market-based fees for
such services. The Company has not set a maximum amount of finder's or advisory
fees that it would be willing to pay.
NATURE OF ACQUISITION
The Company does not presently intend to focus on any particular industry
or geographical market. While the Company does plan to focus its attention in
the United States, the Company will investigate acquisition opportunities
outside of the United States if management believes that such opportunities
might be attractive. Similarly, the Company does not yet know the structure of
any acquisition. The Company may pay consideration in the form of cash,
securities of the Company or some combination of both. The Company may also
borrow money in connection with the acquisition. In that event, the Company's
shareholders would be subject to the risks normally associated with leveraged
transactions. Depending upon the level of indebtedness, a leveraged transaction
could have important consequences to the Company, including the following: (i)
if the
8
<PAGE> 18
acquired business is unable to achieve satisfactory operating results, the
Company could prove unable to service such indebtedness; (ii) a substantial
portion of the Company's cash flow from operations may be dedicated to the
payment of principal or interest on its indebtedness and would not be available
for other purposes; (iii) the Company's ability to obtain additional financing
in the future for working capital, capital expenditures or other acquisitions
may be limited; and (iv) the Company's level of indebtedness could limit its
flexibility in planning for, or reacting to, changes in its industry. In order
to preserve the Company's possible use of the NOLs, the Company does not intend
to offer a controlling interest in the Company in connection with the
acquisition of one or more operating businesses.
RELATED PARTY TRANSACTIONS
The Company does not presently intend to consummate a transaction with any
entity of which any of the Company's officers or directors are affiliated.
Although nothing in the Company's Articles of Incorporation or Bylaws
specifically prohibits such transactions, any related party transaction would be
subject to the fiduciary standards governing such types of transactions that are
imposed by Georgia corporate law.
FINANCIAL INFORMATION
Following the Distribution, the Company will file periodic reports under
the Securities Exchange Act of 1934, as amended, some of which require audited
financial information. The business that the Company acquires may or may not
have audited financial information readily available. If audited financial
information is not available, the Company, or the owners of the acquired
business as a condition to sale, will have to incur the expense of conducting an
audit. The Company does not believe that such requirement will have a material
impact on the pool of potential acquisition candidates.
9
<PAGE> 19
CAPITALIZATION AND BOOK VALUE PER SHARE OF
NEW COMMON STOCK
The following table sets forth the capitalization and book value per share
of the Company as of December 31, 1996, and the pro forma capitalization and
book value per Share of New Common Stock after giving effect to the Distribution
assuming the Distribution occurred as of December 31, 1996. This data should be
read in conjunction with the financial statements and the related notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
--------------------------
ACTUAL PRO FORMA(1)
----------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Note payable................................................ $ 18,100 $ 18,100
----------- ---------
Shareholder's equity:
Common stock ($.01 par value; 55,000,000 shares
authorized, 100 shares issued and outstanding, and
4,750,534 (pro forma) shares issued and outstanding)... 47,505
Additional paid-in capital................................ 167,935 120,430
Unrealized gain on investment in First Union.............. 23,949 23,949
Accumulated deficit....................................... (143,742) (143,742)
----------- ---------
Total shareholder's equity........................ 48,142 48,142
----------- ---------
Total capitalization.............................. $ 66,242 $ 66,242
=========== =========
Book value per share........................................ $481,419.17 $ 10.13
=========== =========
</TABLE>
- ---------------
(1) Pro forma data assuming that all Shares eligible to be distributed in
connection with the Distribution were distributed as of December 31, 1996
(without regard to fractional Shares).
10
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Consolidated Financial Data and the Consolidated Financial Statements including
the footnotes and is qualified in its entirety by the foregoing and other more
detailed financial information appearing elsewhere herein. Historical results of
operations and the percentage relationships among any amounts included in the
Consolidated Statements of Operations, and any trends which might appear to be
inferable therefrom, should not be taken as being necessarily indicative of
trends in operations or the results of operations for any future period. See
"The Company -- History of the Company" and "Business and Properties of the
Company" for a description of the business of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company is emerging from bankruptcy. The Company's assets, aggregating
approximately $69.6 million at December 31, 1996, consist primarily of 853,423
shares of First Union Common Stock (with a market value of $63.2 million), cash,
cash equivalents and certificates of deposit. Based on the average daily trading
volume of shares of First Union Common Stock, the Company believes that its
investment in First Union is readily marketable.
The Company is seeking to acquire an operating business. Until such time as
the Company uses its assets for an acquisition, the Company's only liquidity
needs are to fund operating expenses and debt service. In October of 1996, the
Company borrowed approximately $18.1 million from a bank for the purpose of
repaying certain of the Company's liabilities subject to compromise. The loan
matures on October 1, 1997 and bears interest, at the Company's option, at
either a fixed rate equal to the Adjusted Eurodollar Rate, as defined, plus .6%,
or at a variable rate equal to Prime. The interest rate on the loan was 6.13% at
December 31, 1996.
FINANCIAL CONDITION
The Company had total assets of $69.6 million at December 31, 1996 compared
to $59.6 million at December 31, 1995. The change in total assets was primarily
due to the increase in market value of the Company's First Union Common Stock
and the increase in cash due to the receipt of approximately $2 million from the
Milken litigation, partially offset by the decrease in restricted cash and
certificates of deposit.
The Company's total liabilities at December 31, 1996 were $21.4 million
compared to $27.7 million at December 31, 1995. The decrease in liabilities is
primarily due to repaying liabilities subject to compromise partially offset by
the increase resulting from the $18.1 million note.
RESULTS OF OPERATIONS
1996 Compared to 1995
Litigation income was $2 million in 1996 compared to $15.3 million in 1995.
During 1995 the Company received the bulk of its litigation proceeds from the
legal action it brought against Michael Milken and others. The amount received
in 1995 from the Milken litigation was approximately $14 million compared to
approximately $2 million received in 1996.
Investment income was $1.9 million in 1996 compared to $1 million in 1995.
The increase in investment income in 1996 was due primarily to the dividends
received by the Company from its investment in First Union. The Company received
shares of First Union Common Stock in connection with the merger of American
with a wholly owned subsidiary of First Union in July of 1995. Therefore, the
Company received more dividend payments in 1996 than in 1995.
General and administrative expenses were $2.3 million in 1996 compared to
$606,000 in 1995. The increase in general and administrative expenses was
primarily due to the one time bonus payments made to
11
<PAGE> 21
certain directors and employees of $1.2 million in 1996. The increase in general
and administrative expenses in 1996 compared to 1995 was also due to the
expenses incurred in 1996 of locating shareholders, preparing to register the
New Common Stock and preparing to issue such Shares.
Interest expense was $871,000 in 1996 compared to $2.3 million in 1995.
Interest expense decreased in 1996 primarily because of the repayments of
allowed claims made to the Company's creditors in July of 1995 from the proceeds
of the sale of American.
Consolidated income from continuing operations was $740,000 in 1996
compared to $14.1 million in 1995. Consolidated income from continuing
operations decreased in 1996 compared to 1995 primarily because of the receipt
of $14 million in the Milken litigation proceeds that contributed to the
Company's income in 1995.
The Company's results of operation do not reflect any income tax expense in
1996 and 1995 because of the Company's utilization of tax loss carryforwards.
The Company recorded equity in earnings of $1.8 million from its
approximately 49% owned subsidiary American in 1995. The disposal of American in
July of 1995 resulted in a gain to the Company of approximately $52.7 million
after deducting expenses of approximately $2.1 million.
Consolidated net income was $740,000 in 1996 compared to $68.6 million in
1995. Consolidated net income decreased in 1996 compared to 1995 primarily
because of the gain on the sale of American and the receipt of the Milken
litigation proceeds that contributed to the Company's net income in 1995 that
did not occur in 1996.
1995 Compared to 1994
Litigation income was $15.3 million in 1995 compared to $619,000 in 1994.
The increase is primarily due to the receipt of the proceeds from the Milken
litigation of approximately $14 million in 1995.
Investment income was $1 million in 1995 compared to $2,000 in 1994. The
increase results from dividends on the Company's First Union Common Stock
beginning in July of 1995.
General and administrative expenses in 1995 were $606,000 compared to $1
million in 1994. The decrease in general and administrative expenses in 1995
from 1994 was largely due to a decrease in legal fees included in general and
administrative expenses.
Interest expense was $2.3 million in 1995 compared to $4.1 million in 1994.
The decrease in interest expense is due to repayments of allowed claims to the
Company's creditors in July of 1995 from the American proceeds.
Consolidated net income from continuing operations was $14.1 million in
1995 compared to a loss of $4.7 million in 1994. The increase in 1995 from 1994
is primarily explained by the receipt of the proceeds from the Milken
litigation, the increase in investment income due to the receipt of First Union
Common Stock dividends and the decrease in interest expense that resulted from
the repayment of allowed claims made to the Company's creditors in 1995.
The Company's results of operations do not reflect any income tax expense
in 1995 and 1994 because of the Company's utilization of tax loss carryforwards.
The equity in earnings of American was $1.8 million in 1995 compared to
$9.5 million in 1994. This difference is primarily due to the fact that American
was sold in July of 1995 and therefore, the 1994 earnings reflect a full year
and 1995 only reflects a partial year of earnings. The Company realized a gain
on the merger of American with a wholly owned subsidiary of First Union of
approximately $52.7 million net of expenses of approximately $2.1 million in
1995.
Consolidated net income was $68.6 million in 1995 compared to $4.8 million
in 1994. The increase in 1995 from 1994 is primarily explained by the gain on
the sale of American in 1995 and the receipt of $14 million in proceeds from the
Milken litigation in 1995.
12
<PAGE> 22
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Portions of this Information Statement include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although the
Company believes that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be achieved.
NEW ACCOUNTING PRONOUNCEMENTS
For information on new accounting pronouncements, see Note 1 of Notes to
Consolidated Financial Statements.
13
<PAGE> 23
BUSINESS AND PROPERTIES OF THE COMPANY
GENERAL
The Company is currently investigating potential acquisitions. Until such
time as the Company consummates an acquisition, the Company may be deemed a
"shell" company. The Securities and Exchange Commission has previously
designated entities similar to the Company's current form as "blind pools" or
"blank check" entities. In anticipation of consummating an acquisition, the
Company held assets of approximately $69.6 million at December 31, 1996, which
consisted of 853,423 shares of First Union Common Stock, cash, cash equivalents
and certificates of deposit. See "History of the Company -- Summary of the
Company's Bankruptcy Case."
PROPERTIES
The Company does not currently own any real property. Pursuant to oral
agreements, the Company leases a suite of offices at 172 Commerce Street -- 3rd
Floor, Montgomery, Alabama on a month-to-month basis and space in a warehouse at
703 Howe Street, Montgomery, Alabama. The Company leases the suite of offices
from an unaffiliated third party for $2,185 per month. The Company believes that
this rental amount is competitive with market rates. The cancellation or
termination of either of these leases would not have a material adverse effect
on the Company's results of operations.
EMPLOYEES
At December 31, 1996, the Company had five full-time, salaried employees.
Employees of the Company are not covered by any collective bargaining
agreements, and the Company has never experienced a strike or work stoppage. The
Company considers its employee relations to be satisfactory.
LEGAL PROCEEDINGS
Since May 31, 1991, the Company has been involved in extensive litigation.
See "History of the Company -- Summary of the Company's Bankruptcy Case." Except
as described below, the Company is not aware of any pending litigation matters
that could have a material adverse effect on the Company.
In connection with the Grassgreen Bankruptcy Estate Settlement, the United
States Internal Revenue Service (the "IRS") has asserted a liability of the
Company for taxes allegedly owed by the Grassgreen Bankruptcy Estate. In 1996,
the IRS appealed a determination by the United States Bankruptcy Court for the
Middle District of Florida that the IRS cannot seek payment of the taxes. The
alleged tax liability, for calendar year 1994, is for sums paid to the Company
in connection with the Grassgreen Bankruptcy Estate Settlement by third parties
to resolve the Company's claims against those parties. In United States of
America v. Richard J. Grassgreen and The Enstar Group, Inc., Case No.
96-1099-CIV-J-10 (U.S.D.C. M.D. Fla.), the IRS claims that it should be entitled
to assess additional taxes in the approximate amount of $1.6 million against the
Grassgreen Bankruptcy Estate for 1994 and that the IRS should be able to seek
payment of those taxes from the Company by virtue of the Company's agreement to
pay certain taxes of the Grassgreen Bankruptcy Estate. Although the Company has
accrued a liability for the potential tax, the Company intends to contest
vigorously that any taxes are owed by the Grassgreen Bankruptcy Estate. In the
event a court determines that additional taxes are owed, the Company will
vigorously contest it has any obligation to pay such taxes.
On February 11, 1997, fifteen former shareholders of the Company filed a
lawsuit against the Company in the Circuit Court of Montgomery County, Alabama
styled Peter N. Zachary, et al. v. The Enstar Group, Inc., Case No.
CV-97-257-Gr. The complaint, which deals with actions occurring prior to the
Company's filing for bankruptcy in 1991, alleges that the Company along with its
then principal officers and others defrauded the plaintiffs in violation of the
Alabama Securities Act and other Alabama statutory provisions. The plaintiffs
seek compensatory damages in the amount of their alleged losses of approximately
$2 million and unspecified punitive damages. The complaint is virtually
identical to a complaint brought by these plaintiffs against the Company's
former chairman, former president and others in December 1991, during the
pendency of the
14
<PAGE> 24
Company's bankruptcy case and prior to the confirmation of the Reorganization
Plan. The plaintiffs allege that the Bankruptcy Court issued an order on January
15, 1997, allowing them to litigate their claims against the Company. The
Bankruptcy Court's order actually held that the plaintiffs could not bring a
late claim against the Company in its bankruptcy case and then went on to state
that because of facts relating to these particular plaintiffs, they were not
bound by the provisions of the Reorganization Plan and their claims were not
subject to discharge under the Bankruptcy Code. The Company is filing a motion
to dismiss and/or for summary judgment in response to the complaint on the basis
that the claims asserted are barred by the applicable statute of limitations. In
the event the plaintiffs' claims are not dismissed pursuant to the Company's
motion, the Company intends to contest the plaintiffs' claims vigorously.
COMPETITION
Due to its unique situation, the Company does not believe that it currently
has any competitors.
15
<PAGE> 25
RISK FACTORS
Shareholders of the Company should carefully consider, along with the other
matters referred to in this Information Statement, the following:
NO RECENT OPERATING HISTORY; EFFECTIVELY BLIND POOL
The Company has been in bankruptcy proceedings or operating as a
reorganized debtor pursuant to the Reorganization Plan since May 31, 1991.
Accordingly, the Company does not have any recent operating history upon which
an evaluation of the Company or its prospects can be based. At present, the
Company is a "blind pool;" no acquisitions have as yet been identified by the
Company. The acquisitions to be made by the Company after the Distribution will
be selected by the executive officers and Board of Directors of the Company and
may in certain circumstances be made without shareholder approval. Thus, the
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their beginning stages of
development.
UNCERTAINTY OF ACQUISITION TARGET
The Company has not yet identified an acquisition target or focused on a
particular industry or geographical market for such acquisition. Accordingly,
there can be no assurance that the Company will be successful in acquiring an
operating business that will bring value to the Company's shareholders.
Moreover, the business of the acquisition target may be subject to numerous
risks that are impossible to predict in this Information Statement. By way of
example only, the acquisition target may be subject to government regulation, or
dependent upon new technology or new product development. In sum, there can be
no assurance that the Company will make an acquisition that will prove
financially advantageous to the Company's shareholders.
SUBSTANTIAL CHANGE IN THE NATURE OF THE COMPANY'S BUSINESS
The business of the Company will be substantially different in both size
and scope from that of the Company prior to the Effective Date of the
Reorganization Plan. The Company's long term viability, profitability and growth
will depend on its ability to successfully realize the plans of the Company's
management and Board of Directors. The magnitude of the changes in the Company
that will occur as it emerges from bankruptcy make it difficult to evaluate its
future prospects on the basis of historical information relating to the Company.
In addition, significant challenges are often encountered in attempting to build
a business upon emerging from bankruptcy.
DEPENDENCE ON NIMROD T. FRAZER AND OTHER EXECUTIVE OFFICERS AND DIRECTORS
The success of the Company is highly dependent on the ability of Nimrod T.
Frazer, the Company's Chairman, President and Chief Executive Officer, and the
other executive officers and directors of the Company to identify a financially
advantageous acquisition target and to consummate a transaction for the purchase
of such target on favorable terms. The identification of attractive business
opportunities is difficult and involves a high degree of uncertainty. There can
be no assurance that the Company's Board of Directors and management will be
successful in identifying an attractive business opportunity or consummating a
successful transaction.
LACK OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
The Shares are securities for which there is currently no established
trading market. If any of the Shares are traded after the Distribution, they may
trade at a discount from their net book value depending upon the market for
similar securities and other factors, including general economic conditions and
the financial condition and performance of the Company. While the Company
intends to attempt to list the New Common Stock on a national securities
exchange or the Nasdaq National Market(R) in the future, there can be no
assurance that such efforts will be successful.
16
<PAGE> 26
From time to time after the Distribution, there may be significant
volatility in the market price for the New Common Stock. Quarterly operating
results of the Company, changes in general conditions in the economy, the
financial markets, or the technology industry, adverse press or news
announcements, or other developments affecting the Company, could cause the
market price of the New Common Stock to fluctuate substantially. In addition, in
recent years, the stock market has experienced significant price and volume
fluctuations. This volatility has affected the market prices of securities
issued by many companies for reasons unrelated to their operating performance.
VOLATILITY OF FIRST UNION COMMON STOCK
Substantially all of the Company's assets currently are comprised of shares
of First Union Common Stock. The market price for such stock will fluctuate, and
there can be no assurance that such fluctuations will not be severe. To the
extent that First Union Common Stock were to decline in value, the Company's
financial ability to make an acquisition would be diminished. The Company does
not have any representatives on First Union's board of directors and does not
have any knowledge concerning the business of First Union that is not publicly
available.
GENERAL ECONOMIC RISKS AND BUSINESS CYCLES
The climate for making a suitable acquisition is affected generally by the
prevailing economic conditions and the business cycle. There can be no assurance
that the economic conditions or status of the business cycle will be favorable
following the Distribution.
RISK OF NO DIVERSIFICATION
The Company does not plan to acquire operating businesses in a sufficient
number of industries such that the Company's holdings will be diversified across
several industries. In fact, the Company may decide to acquire only one business
operating in one industry.
FINANCING LIMITATIONS
The Company may be outbid by another company with respect to any given
acquisition that management of the Company identifies as in the best interests
of the Company. Moreover, there may be certain financing contingencies that will
restrict the ability of the Company to make a given acquisition.
INVESTMENT COMPANY ACT OF 1940
If the Company were to continue to hold the shares of First Union Common
Stock as its primary asset for a period of time longer than twelve months from
the date of the Distribution, the Company may be required to register as an
investment company under the Investment Company Act of 1940 (the "1940 Act").
Registration under the 1940 Act would subject the Company to many constraints
not incurred by most operating companies. The Company anticipates that
registration will not be necessary, because the Company plans to acquire an
operating business in the near future. If the Company were required to register
as an investment company under the 1940 Act, registration could have material
adverse consequences on the Company's operations. In order to provide the
management of the Company with the optimal amount of time to evaluate potential
acquisitions, the Company is considering seeking an extension of the one-year
exemption from registration from the Securities and Exchange Commission. There
can be no assurance that such efforts will be successful. The 1940 Act imposes,
among other things, significant restrictions on an investment company's capital
structure, the composition and duties of its board of directors, the custody of
its assets, the declaration of dividends, and transactions with its affiliated
persons.
ANTITAKEOVER PROVISIONS
The Company's Articles of Incorporation and Bylaws contain provisions that
may discourage other persons from attempting to acquire control of the Company,
including, without limitation, procedural requirements in connection with
shareholder nominations for election of directors. The Company has also
17
<PAGE> 27
elected to be subject to certain provisions of the Georgia Business Corporation
Code and has adopted a share purchase rights plan. See "Description of New
Common Stock -- Certain Provisions of Articles of Incorporation and Bylaws" and
"Description of New Common Stock -- Share Purchase Rights Plan." In certain
circumstances, the fact that provisions and agreements are in place which
inhibit or discourage takeover attempts may affect the market price of the New
Common Stock. See "Description of New Common Stock."
TAX CONSIDERATIONS
In September 1996, pursuant to the expedited procedures of Section 505 of
the Bankruptcy Code, the IRS entered a consent order with the Bankruptcy Court
waiving its right to challenge the Company's federal income tax return for the
taxable year ended August 31, 1995. The consent order effectively confirmed the
validity of the Company's use of its NOLs to offset its taxable income for the
taxable year ended August 31, 1995. However, because there are possible
applications of certain provisions of the Tax Code that may limit the Company's
use of the NOLs in future tax returns, there can be no assurance that the
Company will be able to utilize its NOLs fully in subsequent taxable years.
18
<PAGE> 28
MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
Certain information concerning the executive officers and directors of the
Company is set forth below:
<TABLE>
<CAPTION>
DIRECTOR OR
EXECUTIVE
NAME AGE POSITION OFFICER SINCE
---- --- -------- -------------
<S> <C> <C> <C>
Nimrod T. Frazer........................... 67 Director, Chairman of the 1990
Board, President and
Chief Executive Officer
Cheryl D. Davis............................ 37 Chief Financial Officer, 1991
Vice-President of
Corporate Taxes,
Secretary
Amy M. Dunaway............................. 40 Treasurer and Controller 1991
T. Whit Armstrong.......................... 49 Director 1990
T. Wayne Davis............................. 50 Director 1990
J. Christopher Flowers..................... 39 Director 1996
</TABLE>
MR. FRAZER was elected to the Board of Directors in August of 1990. Mr.
Frazer was named Chairman of the Board, Acting President and Chief Executive
Officer on October 26, 1990. Mr. Frazer was Chairman of the Board of the Frazer
Lanier Company, a regional investment banking firm, from 1976 to 1996 and was a
Co-Founder. Mr. Frazer is past Chairman of the Water Works and Sanitary Sewer
Board of Montgomery, Alabama and a past director of Columbus Mills of Columbus,
Georgia, Rockdale Industries of Decatur, Georgia, and Sterling Bank, of
Montgomery, Alabama. Sterling Bank is a wholly owned subsidiary of Synovus
Financial Corp. of Columbus, Georgia.
MR. ARMSTRONG was elected to the position of director in June of 1990. Mr.
Armstrong has been President and Chief Executive Officer of the Citizens Bank,
Enterprise, Alabama, and its holding company, Enterprise Capital Corporation,
Inc. in excess of five years. Mr. Armstrong is also a director of Alabama Power
Company of Birmingham, Alabama.
MR. DAVIS was elected to the position of director in June of 1990. Mr.
Davis has been Chairman of the Board of Directors of General Parcel Service,
Inc., a parcel delivery service, since January of 1989. He was a private
investor from June of 1987 until becoming Chairman of General Parcel Service,
Inc., and from January of 1981 to June of 1987, he was Vice President of
Winn-Dixie Stores, Inc., food supermarkets. He is a director of Winn-Dixie
Stores, Inc. of Jacksonville, Florida, and Accustaff, Inc. of Jacksonville,
Florida.
MR. FLOWERS was elected to the position of director in October of 1996. Mr.
Flowers is a General Partner and Managing Director of Goldman, Sachs & Co., New
York, New York. Mr. Flowers has been a General Partner of Goldman, Sachs & Co.
since December of 1988 and a Managing Director of Goldman, Sachs & Co. since
December of 1996. Goldman, Sachs & Co. served as financial advisor to American
in connection with the sale of American to First Union in 1995.
MS. DAVIS was named Chief Financial Officer and Secretary in April of 1991
and Vice President of Corporate Taxes in 1989. Ms. Davis has been employed with
the Company since April of 1988.
MS. DUNAWAY was named Treasurer and Controller in April of 1991. Ms.
Dunaway has been employed with the Company since September of 1990.
BOARD OF DIRECTORS; COMMITTEES
The members of the Board of Directors are divided into three classes of
directors and serve for staggered three-year terms until reelected or replaced
or until their earlier resignation or removal. See "Certain
19
<PAGE> 29
Provisions of Articles of Incorporation and Bylaws." Executive officers of the
Company are elected annually by and serve at the discretion of the Board of
Directors.
The Company has a Compensation Committee, consisting of T. Whit Armstrong,
T. Wayne Davis and J. Christopher Flowers. The Compensation Committee is
responsible for reviewing, determining and establishing the salaries, bonuses
and other compensation of the executive officers of the Company.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth certain information concerning the
compensation paid to the Company's Chief Executive Officer and each of the other
executive officers of the Company (collectively, the "Named Executive Officers")
whose salary and bonus compensation for the years ended December 31, 1994, 1995
and 1996 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------
OTHER
NAME AND ANNUAL
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) COMPENSATION(2)
------------------ ---- ---------- ------------ ---------------
<S> <C> <C> <C> <C>
Nimrod T. Frazer................................... 1996 250,000 0 0
Chairman of the Board 1995 250,000 0 1,193,585
of Directors, President and 1994 250,000 0 0
Chief Executive Officer
Cheryl D. Davis.................................... 1996 116,405 121,060 693
Chief Financial Officer, 1995 106,213 0 540
Vice-President of Corporate 1994 100,050 0 420
Taxes, Secretary
Amy M. Dunaway..................................... 1996 80,327 80,327 482
Treasurer and Controller 1995 77,524 0 460
1994 73,025 0 399
All Named Executive Officers....................... 1996 446,732 201,387 1,175
(3 persons) as a group 1995 433,737 0 1,194,585
1994 423,075 0 819
</TABLE>
- ---------------
(1) Amounts shown for Ms. Davis and Ms. Dunaway are for one-time bonuses paid
pursuant to a directors and employees incentive bonus program adopted by
the Board of Directors on June 14, 1994 (the "Bonus Program"). The purpose
of the Bonus Program was to provide the members of the Board of Directors
and certain employees with an incentive to continue to increase the value
of the Company for the benefit of the Company's Former Shareholders. The
Bonus Program also provided directors with an incentive to continue to
serve on the Board of Directors. The Bonus Program, which was adopted at a
time when there were not sufficient assets to pay creditors in full with
interest, provided for a bonus pool equal to three percent (3%) of the
total assets of the Company available for distribution after all creditors
were paid in full. The bonus pool could not exceed $1.2 million. All
bonuses were paid in 1996, as determined by the Board of Directors, to
certain employees and current directors of the Company other than Mr.
Frazer and Mr. Flowers.
(2) Amounts shown for Ms. Davis and Ms. Dunaway are for premiums paid by the
Company for term life insurance. The amount shown for Mr. Frazer represents
a 1% commission paid on the gross sales price of American in accordance
with a Commission Agreement dated March 4, 1993 between Mr. Frazer and the
Company. The Company also makes available group medical insurance plans to
all of its executive officers and employees.
20
<PAGE> 30
ANNUAL INCENTIVE PLAN
On January 20, 1997, based on the recommendation of an outside consulting
firm, the Board of Directors adopted an annual incentive plan. Annual incentive
payments are intended to reward executive officers for significant contributions
to the Company's annual financial and strategic non-financial performance. The
Compensation Committee will set the amount of potential annual incentive
payments and performance criteria for the Company's President and Chief
Executive Officer, and the Company's President and Chief Executive Officer will
in turn set the amounts of potential annual incentive payments and performance
criteria for the other executive officers. Performance will be measured at both
the corporate and individual levels.
LONG-TERM INCENTIVE PROGRAM
On January 20, 1997, the Board of Directors of the Company adopted a
long-term incentive program made up of three stock option/incentive plans which
will be submitted to the shareholders for approval at the Company's 1997 annual
meeting. The objectives of the long-term incentive program are to promote the
success and enhance the value of the Company by providing flexibility in the
Company's ability to motivate, attract and retain the services of key employees
and directors. A total of 522,500 Shares of New Common Stock have been reserved
for issuance under the program. Under the program, the Company has established,
subject to ratification by the shareholders, the 1997 CEO Stock Option Plan (the
"CEO Plan"), the 1997 Outside Directors' Stock Option Plan (the "Directors'
Plan"), and the 1997 Omnibus Incentive Plan (the "Omnibus Plan") for other key
employees and directors.
The CEO Plan is administered by the compensation committee of the Board of
Directors (the "Committee"). Under the CEO Plan, the CEO was granted options for
200,000 Shares of New Common Stock with an exercise price of the fair market
value of the New Common Stock on the first day of trading after the
Distribution. The options granted under the CEO Plan will vest in four equal
installments of 50,000 Shares each, beginning on the date of the first annual
meeting of the Company after Distribution, and thereafter vesting on January 1,
1998, January 1, 1999 and January 1, 2000. The options granted under the CEO
Plan must be exercised prior to January 1, 2007, or 60 days after the CEO ceases
to be an employee of the Company other than by reason of death, mandatory
retirement or disability. All options granted and vested must be exercised
within 12 months of the CEO's death and within 36 months after mandatory
retirement or disability.
Under the Directors' Plan 70,000 stock options were granted to each of the
three outside directors of the Company. The exercise price for the stock options
issued under the Directors' Plan will be the fair market value of the New Common
Stock on the first day of trading after the Distribution. The options granted
under the Directors' Plan will vest in four equal installments with the first
17,500 Shares vesting upon their election as Directors on the date of the first
annual meeting after the Distribution, and the remaining Shares vesting in equal
17,500 Share installments on January 1, 1998, January 1, 1999 and January 1,
2000; provided, however, that each installment will vest only so long as the
director is a director of the Company at the applicable vesting date. No option
granted under the Directors' Plan may be exercised later than January 1, 2007,
or 60 days after the director ceases to be a director of the Company other than
by reason of death, mandatory retirement or disability. All options granted and
vested must be exercised within 12 months of the death of a director and within
36 months after mandatory retirement or disability.
In addition, the Company has established the Omnibus Plan for the benefit
of key employees and directors, subject to shareholder approval. The Omnibus
Plan will be administered by the Committee. A total of 112,500 Shares of New
Common Stock has been reserved for issuance under the Omnibus Plan which
provides generally for stock appreciation awards, incentive stock options,
nonqualified stock options and restricted stock awards. As of this date no
awards have been created and no options have been granted under the Omnibus
Plan.
EMPLOYMENT AND CONFIDENTIALITY AGREEMENTS
None of the executive officers has executed any employment, confidentiality
or noncompetition agreements with the Company.
21
<PAGE> 31
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees are paid a quarterly fee of
$2,500 and a fee of $1,000 per meeting attended. No additional compensation is
paid to directors for serving on committees. All directors receive reimbursement
of travel expenses incurred in attending meetings of the Board of Directors and
committees. In 1996, Messrs. Armstrong and Davis each received one-time bonus
payments equal to $469,645 in accordance with the Bonus Program. See "Management
of the Company -- Executive Compensation." Directors are eligible to receive
stock options under the Directors' Plan. See "Management of the Company --
Long-Term Incentive Program."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In conjunction with the July 1, 1995 sale of the Company's ownership
interest in American to First Union, the Company paid a $1.2 million commission
to Nimrod T. Frazer, the Company's Chairman, President and Chief Executive
Officer. The amount of the commission represented 1% of the gross sales price of
American. The sales price for American was the result of an auction process,
whereby American's financial advisor, Goldman, Sachs & Co. ("Goldman Sachs")
solicited and evaluated bids.
At the time of the sale of American, J. Christopher Flowers, a current
director of the Company, was a General Partner of Goldman Sachs. As the
financial adviser to American in the transaction, a customary financial advisory
fee was paid by American to Goldman Sachs. The Company retained its own
financial advisor, Dillon, Read & Co. Inc., in connection with the transaction.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company formed a Compensation Committee in
October, 1996. The current members of the Compensation Committee are Messrs.
Armstrong, Davis and Flowers. Mr. Davis is the Chairman of the Compensation
Committee.
22
<PAGE> 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Shares eligible
to be issued as of the Distribution for Named Executive Officers, (ii) directors
of the Company, (iii) each person who is a shareholder of the Company holding
more than a 5% interest in the Company, and (iv) the directors and executive
officers of the Company as a group. Unless otherwise indicated in the footnotes,
all of such Shares will be owned directly, and the indicated person or entity
will have sole voting and disposition power.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PERCENT OF CLASS(1)
------------------------------------ ------------ -------------------
<S> <C> <C>
Named Executive Officers
Nimrod T. Frazer............................................ 7,731 *
Cheryl D. Davis............................................. 3 *
Amy M. Dunaway.............................................. 87 *
Directors of the Company
Nimrod T. Frazer............................................ 7,731 *
172 Commerce Street -- 3rd Floor
Montgomery, Alabama 36104
T. Whit Armstrong........................................... 6,767(2) *
301 South Edwards Street
Enterprise, Alabama 36330
T. Wayne Davis.............................................. 65,036(3) 1.37%
1910 San Marco Blvd.
Jacksonville, Florida 32207
J. Christopher Flowers...................................... 0 0
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Other 5% Shareholders....................................... 274,845 5.79%
Jeffrey S. Halis and Nancy Lippman Halis as Joint Tenants(4)
941 Park Avenue
New York, New York 10028
All Named Executive Officers and directors of the Company as
a group (6 persons)....................................... 79,624(5) 1.68%
</TABLE>
- ---------------
* Less than 1%. All individuals who are Named Executive Officers beneficially
own, directly or indirectly, less than 1%.
(1) Based on an aggregate of 4,750,534 Shares eligible to be issued and
outstanding after the Distribution.
(2) 4,372 Shares are pledged to SouthTrust Bank of Birmingham, N.A. Includes
1,595 Shares owned by Mr. Armstrong's minor son.
(3) Includes 116 Shares held by Mr. Davis' minor child, 2,352 Shares held by Mr.
Davis' mother, 133 Shares held by Mr. Davis' wife, 13,410 Shares held in
two trusts and 49,025 Shares held in a private foundation for which Mr.
Davis has voting and investment power but is not a beneficiary.
(4) Includes 18,000 Shares for which Mr. Halis has sole voting power.
(5) Does not include options to purchase 102,500 Shares that were granted on
January 20, 1997 and are expected to vest in April 1997. See "Management of
the Company -- Long-Term Incentive Program."
Certain directors of the Company have advised the Company that such
directors may acquire additional Shares of New Common Stock from time to time in
the open market at prices prevailing at the time of such purchases.
23
<PAGE> 33
DESCRIPTION OF NEW COMMON STOCK
GENERAL
The Company's Articles of Incorporation provide that the Company may issue
up to 55 million shares of New Common Stock, $.01 par value, per Share. As of
the date hereof, 100 Shares of New Common Stock are issued and outstanding, held
by one shareholder pursuant to the terms of the Reorganization Plan. On the date
of the Distribution, 4,750,534 Shares will be available for Distribution to
eligible Former Shareholders. Based on Certifications of Ownership received by
March 17, 1997, the Company estimates that approximately 4,344,000 Shares will
initially be issued and outstanding and held by approximately 3,600 shareholders
of record.
NEW COMMON STOCK
Holders of New Common Stock will be entitled to one vote per Share on all
matters submitted to any vote of shareholders. Cumulative voting for the
election of directors is not permitted and therefore the holders of a majority
of the Shares of New Common Stock will be able to elect all of the directors.
The New Common Stock does not have preemptive rights and is not convertible,
redeemable or assessable. The holders of New Common Stock are entitled to
receive dividends as may be declared by the Board of Directors out of legally
available funds. See "Dividends on New Common Stock" below. Upon liquidation or
dissolution, holders of New Common Stock are entitled to share ratably in all
net assets available for distribution to shareholders. The Company's Articles of
Incorporation provide the Board of Directors with the ability to issue
additional Shares of New Common Stock, to the extent there remains a sufficient
number of authorized Shares.
SHARE PURCHASE RIGHTS PLAN
On January 20, 1997, the Board of Directors of the Company adopted a share
purchase rights plan (the "Rights Plan") as described herein. The Rights Plan
gives the Company's shareholders a right to purchase one Share of New Common
Stock (a "Right") for each Share of New Common Stock of the Company currently
outstanding.
The Board of Directors adopted the Rights Plan in order to maximize
shareholder value in the event of a potential takeover of the Company by
encouraging potential acquirors to negotiate with the Company's Board of
Directors. In addition, under certain sections of the Tax Code, a change in
control could jeopardize the Company's potential use of the NOLs, a result that
the Board of Directors wanted to deter unless in the best interest of the
Company's shareholders.
The Company's Articles of Incorporation authorize the issuance of up to 55
million Shares of New Common Stock, a number which the Company believes is
sufficient to cover the issuance of additional Shares of New Common Stock under
the Rights Plan. The Rights Plan also contains a provision that would permit the
Company's Board of Directors under certain circumstances to delay the exercise
of the Rights in order to convene a shareholders' meeting that would authorize
sufficient additional Shares of New Common Stock in order to permit such
exercise.
The terms of the New Common Stock issuable upon exercise of the Rights will
be identical to the Company's currently issued and outstanding New Common Stock.
Until the occurrence of a "Distribution Triggering Event" as described below,
all future issuances of New Common Stock by the Company (e.g., exercise of
employee stock options and outside director stock options) will also carry the
Rights. The Rights will have no dividend or voting rights and will expire on the
tenth anniversary of their issuance unless exercised or redeemed prior to that
time.
Exercise. Rights may not be exercised and are not detached from the New
Common Stock until ten days after the occurrence of a Distribution Triggering
Event. The exercise price of the Rights is fixed at $40, an amount per Share of
New Common Stock that approximates the Board's estimate of the long-term value
of the Company's New Common Stock at the time that the Rights Plan is ratified
by the shareholders, subject to certain anti-dilution adjustments. Because the
Rights are substantially "out of the money" when initially
24
<PAGE> 34
issued and probably will remain so even after a Distribution Triggering Event,
there is a strong disincentive to exercising them prior to the occurrence of a
Flip-in Triggering Event or Flip-over Triggering Event described below.
Redemption. So as not to interfere with the Company's ability to enter
into a negotiated merger, the Rights generally are redeemable by the Board of
Directors of the Company at a nominal price of $.01 per Right at any time prior
to the time that they are detached from the New Common Stock and separate
certificates evidencing the Rights are delivered. The Rights Plan also provides
for the optional payment of the redemption price in Shares of the Company's New
Common Stock at management's discretion, but in any event, the redemption is
treated as a dividend to the Company's shareholders.
Distribution Triggering Events. Shortly after a person or group acquires
beneficial ownership of a fifteen percent (15%) interest or announces its
intention to commence a tender or exchange offer the consummation of which would
result in beneficial ownership of fifteen percent (15%) of the Company's New
Common Stock (a "Distribution Triggering Event"), the Rights will separate from
the New Common Stock. Upon distribution of the Rights, they become exercisable
and are transferable separately from the Company's New Common Stock. As soon as
practicable thereafter, separate Rights certificates will be issued.
Flip-In Triggering Event. If an acquiror purchases an equity position in
the Company equal to or greater than a fifteen percent (15%) interest or engages
in certain other types of transactions with the Company (a "Flip-In Triggering
Event"), each Right (other than Rights beneficially owned by the acquiror) is
converted into the right to buy that number of Shares of New Common Stock of the
Company which has a market value shortly after the Flip-In Triggering Event of
two times the exercise price of the Right. Valuation of the Flip-In conversion
right is based on the average trading price of the Company's New Common Stock
during the ten trading days preceding the occurrence of a Flip-In Triggering
Event. Thus, if the Company's New Common Stock traded at $30 per Share
immediately after the occurrence of the Flip-In Triggering Event and the
exercise price of a Right was $75, each Right thereafter would be exercisable at
the exercise price of $75 for five Shares of the Company's New Common Stock.
This feature of the Rights Plan gives the shareholders the power to
substantially dilute an unwanted bidder's equity ownership in the Company and
thereby substantially increase the cost of a takeover.
Flip-Over Triggering Events. After the Distribution Triggering Event has
occurred, if the acquiring company were to merge or otherwise combine with the
Company, or the Company were to sell or transfer fifty percent (50%) of its
assets or earning power ("Flip-Over Triggering Event"), each Right is converted
into the Right to buy that number of shares of common stock of the acquiring
company which has a market value of two times the exercise price of the Right.
This right provides the target's shareholders with a dilutive fifty percent
(50%) discount on purchases of the acquiror's equity. The "flip-over" feature is
implemented by a provision in the Rights Plan prohibiting a business combination
transaction unless the Rights are assumed by the acquiring company.
CERTAIN PROVISIONS OF ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation and Bylaws of the Company are modeled after
the Articles of Incorporation and Bylaws of Enstar-Delaware with some changes
based solely on differences between the requirements of the Georgia Business
Corporation Code (the "GBCC") and the Delaware General Corporation Law (the
"DGCL"). In addition, the Board of Directors and sole shareholder of the Company
approved other changes to the Bylaws of the Company which the Board of Directors
determined were in the best interests of the Company. See "The
Company -- Reorganization as Georgia Corporation."
Business Combinations Act. In Article VII of the Bylaws, the Company
affirmatively adopted the provisions of Sections 14-2-1131 through 14-2-1133 of
the GBCC (the "Business Combinations Act"), which is designed to inhibit hostile
takeovers. Article VII of the Bylaws of the Company specifically states that
such Article shall not be deemed as prohibiting or restricting the Merger which
became effective December 31, 1996.
25
<PAGE> 35
The Business Combinations Act is designed to encourage any person, before
acquiring ten percent (10%) of the outstanding voting stock of a Georgia
corporation, to seek approval of the Georgia corporation's board of directors
for the terms of any contemplated business combination. The Business
Combinations Act prohibits any person who acquires ten percent (10%) or more of
the voting stock (an "Interested Shareholder") of a Georgia corporation that has
elected coverage under the Business Combinations Act from engaging in any
business combination with the Georgia corporation for a period of five years
from the date that person became an Interested Shareholder, unless that person
obtains approval of the transaction in one of the three ways described in the
Business Combinations Act.
The Business Combinations Act only will apply to the Company at such time
as the Company has at least 100 shareholders residing in Georgia and meets other
requirements set forth in the Business Combinations Act. The Business
Combinations Act is modeled on Section 203 of the DGCL which applied to the
Company when it was organized as a Delaware corporation.
Classified Board of Directors. Article II of the Bylaws of the Company
states that the number of members of the Board of Directors shall be no less
than three and no more than fifteen, with the number of directors serving on the
Board to be increased or decreased only by a majority vote of the directors. The
members of the Board of Directors will be divided into three classes of
directors serving with staggered terms, with each class to consist as nearly as
practicable of one-third of the members of the Board of Directors. The Board of
Directors of the Company determined that the inclusion of staggered terms was in
the best interests of the Company as staggered terms should provide continuity
for the Board as well as provide some protection against hostile takeovers.
Advance Notice Provisions. Article II of the Company's Bylaws establishes
an advance notice procedure for shareholders to make nominations of candidates
for election as directors. The Bylaws provide that only persons who are
nominated by the Board of Directors, or by a shareholder who has given timely
written notice to the Secretary of the Company prior to the meeting at which
directors are to be elected, will be eligible for election as directors of the
Company. Under the Bylaws, for notice of shareholder nominations to be made at
an annual meeting to be timely, such notice must be received by the Company not
less than 60 days nor more than 90 days prior to the meeting, unless such
requirement is waived in advance of the meeting.
The overall effect of the provisions of the Articles of Incorporation and
Bylaws described above may be to render more difficult or to discourage a
merger, tender offer, proxy contest, the assumption of control of the Company by
a holder of a large block of the Company's capital stock or other person, or the
removal of incumbent management, even if such actions may be beneficial to the
Company's shareholders generally. See "Risk Factors -- Antitakeover Provisions."
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 14-2-851 of the GBCC provides that any director or officer of a
Georgia corporation may be indemnified against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by him in connection with
or in defending any action, suit or proceeding in which he is a party by reason
of his position, so long as it shall be determined that he conducted himself in
good faith and that he reasonably believed that his conduct was in the
corporation's best interests. If a director or officer is wholly successful, on
the merits or otherwise in connection with such a proceeding, such
indemnification is mandatory.
The Company's Bylaws contain provisions which provide, among other things,
that the Company shall indemnify certain persons, including officers and
directors, against expenses (including attorneys' fees and disbursements),
judgments and any other amounts now or hereafter permitted by applicable law
actually and reasonably incurred by such person in connection with the defense
or settlement or any action, suit or proceeding if he acted in good faith and,
while acting in an official capacity as an officer or director, acted in a
manner he reasonably believed to be in the best interests of the Company, and in
all other cases, acted in a manner he reasonably believes was not opposed to the
best interests of the Company and with respect to any criminal action or
proceeding, if such person had no reasonable cause to believe his conduct was
unlawful. As to any action brought by or in the right of the Company, no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the Company unless the
26
<PAGE> 36
director or officer has not been adjudged liable or subject to injunctive relief
in favor of the Company (i) for any appropriation in violation of his duties, of
any business opportunity of the Company; (ii) for acts or omissions which
involve intentional misconduct or a knowing violation of law; (iii) for the
types of liability set forth in Section 14-2-832 of the GBCC (e.g., liability
for unlawful distributions); or (iv) for any transaction from which he received
an improper benefit and in the event the foregoing conditions are not met, then
only to the extent that the court in which such action or suit was brought or
another court of competent jurisdiction shall determine upon application, that
despite the adjudication of liability but in view of all the circumstances of
the case, the person is fairly and reasonably entitled to indemnification for
such expenses which the court shall deem proper.
The Bylaws of the Company provide more than the statutory minimum
indemnification rights for directors and officers of the Company allowed under
the GBCC. Section 14-2-856 of the GBCC provides that a corporation may indemnify
or obligate itself to indemnify an officer or a director beyond the minimum
statutory indemnification rights afforded by the GBCC, if such additional
indemnification is approved by the shareholders of the corporation. By virtue of
the approval of the Bylaws of the Company by the sole shareholder, the
additional indemnification rights afforded by the Bylaws have been approved by
the sole shareholder of the Company in accordance with the requirements of the
GBCC.
Under Georgia law, the Company may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, against any liability asserted against him and incurred by him in
any such capacity or arising out of his status as such, whether or not the
Company is required or permitted to indemnify him against such liability under
the Articles of Incorporation or any statute. In accordance with the foregoing,
the Company has purchased liability insurance in the aggregate amount of $5
million on behalf of its executive officers and directors.
RESTRICTIONS ON TRANSFER OF NEW COMMON STOCK
The Shares distributed to the Company's Former Shareholders will be freely
transferable, except for Shares received by persons who may be deemed to be
"affiliates" of the Company under the Securities Act of 1933, as amended (the
"Securities Act"). Persons who may be deemed to be affiliates of the Company
after the Distribution generally include individuals or entities that control,
are controlled by, or are under common control with the Company and may include
certain officers and directors of the Company as well as principal shareholders
of the Company. Persons who are affiliates of the Company will be permitted to
sell their Shares of the New Common Stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act.
DIVIDENDS ON NEW COMMON STOCK
The Company has not declared or paid a cash dividend on any of its
securities since 1989. In 1990, the Company distributed shares of stock in
American to its shareholders. The Company intends to retain its earnings to
finance the growth and development of its future business and does not
anticipate paying cash dividends in the foreseeable future. The payment of cash
dividends in the future will depend upon such factors as the Company's earnings,
capital requirements, financial condition, contractual restrictions and other
factors deemed relevant by the Board of Directors. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation -- Liquidity and
Capital Resources."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the New Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
27
<PAGE> 37
AVAILABLE INFORMATION
The Company intends to furnish holders of Shares of New Common Stock with
annual reports containing financial statements audited by an independent public
accounting firm and to make available quarterly reports for the first three
quarters of each fiscal year containing unaudited interim financial information
prepared in accordance with accounting principles generally accepted in the
United States.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form 10 (as amended, the "Registration
Statement") under the Securities Exchange Act of 1934, as amended, covering the
New Common Stock. As a result of such filing, the Company will be required to
file periodic reports with the Commission. In the event its obligation to file
such reports is suspended under the Securities Exchange Act of 1934, as amended,
the Company does not intend to file voluntarily such periodic reports.
This Information Statement does not contain all the information in the
Registration Statement or in the Company's other filings with the Commission and
the related exhibits. Statements in this Information Statement as to the
contents of any contract, agreement or other documents are necessarily summaries
of such documents, and each such statement is qualified in its entirety by
reference to the text of such contract, agreement or other document. For
complete information as to these matters, refer to the applicable exhibit to the
Registration Statement. The Registration Statement may be inspected at the
public reference facilities of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, as well as at the Regional
Offices of the Commission at 500 West Madison Street, Chicago, IL and Seven
World Trade Center, 13th Floor, New York, NY 10048.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREOF OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
28
<PAGE> 38
THE ENSTAR GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
DESCRIPTION NUMBER
----------- ------
<S> <C>
THE ENSTAR GROUP, INC.
- -------------------------
Consolidated Financial Statements:
Independent Auditors' Report........................... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1995.................................................. F-3
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1996..... F-4
Consolidated Statements of Changes in Shareholder's
Equity for each of the three years in the period ended
December 31, 1996..................................... F-5
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1996..... F-6
Notes to the Consolidated Financial Statements......... F-7
AMERICAN SAVINGS OF FLORIDA, F.S.B.
- --------------------------------------
Financial Statements of American Savings of Florida,
F.S.B.:
Independent Auditors' Report........................... F-13
Statements of Consolidated Financial Condition at
December 31, 1994 and 1993............................ F-14
Statements of Consolidated Earnings for the years ended
December 31, 1994, 1993 and 1992...................... F-15
Statements of Consolidated Stockholders' Equity for the
years ended December 31, 1994, 1993 and 1992.......... F-17
Statements of Consolidated Cash Flows for the years
ended December 31, 1994, 1993 and 1992................ F-18
Notes to Consolidated Financial Statements............. F-20
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.................. F-54
</TABLE>
F-1
<PAGE> 39
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder
of The Enstar Group, Inc.
We have audited the accompanying consolidated balance sheets of The Enstar
Group, Inc. and Subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholder's equity and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the 1994 financial
statements of American Savings of Florida, F.S.B. ("American Savings"), the
Company's investment in which is accounted for by use of the equity method. The
Company's equity of $9,477,000 in the earnings of American Savings for the year
ended December 31, 1994 is included in the accompanying financial statements.
The 1994 financial statements of American Savings were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for such company, is based solely on the report of such
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company at December 31, 1996
and 1995, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Atlanta, Georgia
January 3, 1997
(January 20, 1997 as to Note 12)
(March 19, 1997 as to Note 5)
F-2
<PAGE> 40
THE ENSTAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 4,749 $ 1,814
Restricted cash............................................. 346 4,203
Certificates of deposit ($0 and $5,600 restricted in 1996
and 1995, respectively)................................... 1,238 6,800
Other....................................................... 55 966
Investment in First Union................................... 63,153 45,779
Property and equipment, net................................. 31 40
--------- ---------
Total assets...................................... $ 69,572 $ 59,602
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities Not Subject to Compromise
Note payable.............................................. $ 18,100 $ --
Reserve for litigation settlements........................ 1,861 1,111
Accounts payable and accrued liabilities.................. 881 51
Liabilities Subject to Compromise:
Class 10A claims.......................................... 203 13,462
Accrued interest on all classes........................... 39 13,078
Other..................................................... 346 --
--------- ---------
Total liabilities................................. 21,430 27,702
--------- ---------
Shareholder's equity:
Common stock ($.01 par value; 55,000,000 shares
authorized, 100 shares issued and outstanding)
Additional paid-in capital................................ 167,935 167,935
Unrealized gain on investment in First Union.............. 23,949 8,447
Accumulated deficit....................................... (143,742) (144,482)
--------- ---------
Total shareholder's equity........................ 48,142 31,900
--------- ---------
Total liabilities and shareholder's equity........ $ 69,572 $ 59,602
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 41
THE ENSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Litigation income, net...................................... $ 1,999 $ 15,341 $ 619
Investment income........................................... 1,871 1,010 2
General and administrative expenses......................... (2,338) (606) (1,045)
Reorganization items, net................................... 79 665 (109)
Interest expense............................................ (871) (2,288) (4,117)
------- -------- --------
Income (loss) from continuing operations.................... 740 14,122 (4,650)
Discontinued operations:
Equity in earnings of American Savings.................... -- 1,765 9,477
Gain on disposal of American Savings, net of expenses of
$2,070................................................. -- 52,717 --
------- -------- --------
Income from discontinued operations....................... -- 54,482 9,477
------- -------- --------
Net income.................................................. $ 740 $ 68,604 $ 4,827
======= ======== ========
Income (loss) per common share:
Continuing operations..................................... $ 7,400 $141,220 $(46,500)
Discontinued operations................................... -- 544,820 94,770
------- -------- --------
Net income................................................ $ 7,400 $686,040 $ 48,270
======= ======== ========
Weighted average shares outstanding......................... 100 100 100
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 42
THE ENSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID IN UNREALIZED ACCUMULATED
STOCK CAPITAL GAIN DEFICIT
------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993......................... $ -- $167,935 $ -- $(217,913)
Net income......................................... 4,827
------- -------- ------- ---------
Balance at December 31, 1994......................... -- 167,935 -- (213,086)
Net income......................................... 68,604
Unrealized gain on investment in First Union....... 8,447
------- -------- ------- ---------
Balance at December 31, 1995......................... -- 167,935 8,447 (144,482)
Net income......................................... 740
Unrealized gain on investment in First Union....... 15,502
------- -------- ------- ---------
Balance at December 31, 1996......................... $ -- $167,935 $23,949 $(143,742)
======= ======== ======= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 43
THE ENSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 740 $ 68,604 $ 4,827
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation........................................... 9 16 19
Equity in earnings of American Savings................. -- (1,765) (9,477)
Gain on sale of American Savings....................... -- (54,788) --
Litigation income...................................... (1,004) -- (2,778)
Changes in assets and liabilities:
Change in restricted cash.............................. 3,857 (3,630) 18
Accounts payable and accrued expenses.................. 2,119 2,044 5,784
Payment of liabilities subject to compromise........... (26,421) (83,967) (38)
Other.................................................. 841 (1,276) 14
-------- -------- -------
Net cash used in operating activities............. (19,859) (74,762) (1,631)
-------- -------- -------
Cash flows from investing activities:
Proceeds from sale of American Savings.................... -- 82,455 --
Reinvestment of First Union dividends..................... (868) (428) --
Purchase of certificates of deposit....................... (9,228) (6,800) --
Maturities of certificates of deposit..................... 14,790 --
Other, net................................................ -- 11 9
-------- -------- -------
Net cash provided by investing activities......... 4,694 75,238 9
-------- -------- -------
Cash flows from financing activities:
Proceeds from note payable................................ 18,100 -- --
-------- -------- -------
Increase (decrease) in cash and cash equivalents............ 2,935 476 (1,622)
Cash and cash equivalents at the beginning of the year...... 1,814 1,338 2,960
-------- -------- -------
Cash and cash equivalents at the end of the year............ $ 4,749 $ 1,814 $ 1,338
======== ======== =======
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 14,474 $ 2,140 $ --
======== ======== =======
Income taxes paid (refunded).............................. $ (500) $ 544 $ (35)
======== ======== =======
Supplemental disclosures of noncash investing and financing activities:
During 1995 the Company sold its ownership interest in American Savings to First Union
Corporation for approximately $82,455,000 in cash and 815,549 shares of First Union
common stock valued at approximately $36,904,000.
During 1996 the Company received 16,191 shares of First Union common stock valued at
approximately $1,004,000 in connection with a litigation settlement. During 1994 the
Company received 175,000 shares of American Savings common stock valued at
approximately $2,778,000 in connection with a litigation settlement.
Supplemental disclosure of cash receipts (payments) resulting from the reorganization:
Liabilities subject to compromise......................... $(27,009) $(83,967) $ (38)
======== ======== =======
Interest income........................................... $ 990 $ 240 $ 87
======== ======== =======
Professional fees......................................... $ (245) $ -- $ (166)
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 44
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business -- The Enstar Group, Inc. (the "Company") filed for
protection under Chapter 11 of the United States Bankruptcy Code on May 31, 1991
in the United States Bankruptcy Court for the Middle District of Alabama (the
"Bankruptcy Court"). At the time of its bankruptcy filing, the Company's
principal remaining business was as a savings and loan holding company. Its only
asset with any substantial value was its approximately 49% ownership interest in
American Savings of Florida, F.S.B. ("American Savings"), a Florida savings
bank.
The Company's retail subsidiaries filed for Chapter 11 bankruptcy
protection on January 4, 1991. After unsuccessful attempts at reorganization,
those subsidiaries liquidated their assets. Because the liabilities of those
subsidiaries exceeded their assets, the Company received no proceeds from their
liquidations and on November 20, 1992 abandoned its ownership interests in those
subsidiaries.
As of May 31, 1991, the market value of the Company's American Savings
stock was approximately $7,000,000. Shortly after the Company's bankruptcy
filing, the market value of the American Savings stock fell to less than
$3,000,000, and American Savings, whose capital had fallen significantly below
the minimum regulatory requirements, was facing the prospect of a collapse or
takeover by the United States Office of Thrift Supervision (the "OTS"). Other
than its ownership interest in American Savings, the Company's only significant
assets were contingent claims in the form of lawsuits against former officers
and directors Richard Grassgreen and Perry Mendel, and a suit to be filed
against Michael Milken and others. The Company's non-contingent liabilities
exceeded its assets by more than $100,000,000.
At the time of the Company's bankruptcy filing, substantial disputes arose
among the Company's major creditors, including the OTS, American Savings,
NationsBank of Texas, and KinderCare Learning Centers, Inc. The Company was
successful in negotiating a settlement among its creditors which was
incorporated into the Company's Second Amended Plan of Reorganization (the
"Reorganization Plan"). The Reorganization Plan was confirmed in February 1992,
and became effective on June 1, 1992 (the "Effective Date").
At the time the Reorganization Plan was proposed by the Company, there
appeared to be no prospect that the shareholders of the Company would receive
any distribution under the Reorganization Plan. Accordingly, the Reorganization
Plan provided that creditors would receive all distributions until paid in full
and the Company's then existing common stock would be cancelled on the Effective
Date. New common stock was issued to the Company's Chief Executive Officer, as
trustee, who was directed to vote the shares annually for purposes of electing
the Company's board of directors based on directions given by at least 51
percent of the creditors holding certain allowed unsecured claims.
Following the confirmation of its Reorganization Plan, the Company pursued
the liquidation of its assets and its lawsuits against Grassgreen, Mendel and
Milken. The Company also continued as the holding company of American Savings.
By 1993, the Company determined that it might be able to pay all of its
creditors in full. Because the Reorganization Plan had not anticipated or
specifically provided for the distribution of the estate proceeds after
creditors were paid in full, the Company filed a motion to modify its
Reorganization Plan to clarify the distributions and make clear that once all
creditors were paid in full with interest, any remaining property would be held
or distributed for the benefit of the Company's former shareholders. The
Bankruptcy Court authorized the modification of the Company's Reorganization
Plan in August 1993.
On July 1, 1995, the Company sold its ownership interest in American
Savings to First Union Corporation ("First Union") for approximately $82,455,000
in cash and 815,549 shares of First Union common stock valued at $36,904,000,
representing less than 0.5% ownership interest in First Union at that date. As a
result of this transaction, the Company realized a gain of approximately
$52,717,000, net of expenses of $2,070,000. The cash proceeds from this
transaction were used to pay the claims of certain
F-7
<PAGE> 45
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
creditors of the Company in accordance with the Reorganization Plan. As a result
of the Company's investment in First Union, the Company receives quarterly
dividends and has reinvested a portion of those dividends in additional First
Union shares.
In addition to the proceeds received from the disposition of American
Savings, the Company has received approximately $22,000,000 in recoveries, net
of expenses, from the Grassgreen litigation, the Mendel litigation and the
Milken litigation.
The Company is now prepared to complete its reorganization by making a
distribution to its former shareholders in accordance with its Reorganization
Plan. Pursuant to the Reorganization Plan and orders of the Bankruptcy Court the
Company is distributing to holders of cancelled stock of the Company, without
any consideration being paid by such holders, one share of new common stock for
every ten (10) shares of its cancelled stock held by former shareholders. Former
shareholders will receive cash in lieu of any fractional shares of new common
stock.
(b) Principles of Consolidation -- The financial statements include the
accounts of the Company and its wholly owned subsidiary, Enstar Financial
Services, Inc. All significant intercompany balances and transactions have been
eliminated in consolidation.
(c) Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(d) Cash Equivalents -- Cash equivalents consist of short term, highly
liquid investments with original purchased maturities of three months or less.
(e) Investments -- The Company has classified its investment in First Union
as available-for-sale, in accordance with Statement of Financial Accounting
Standard ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Accordingly, unrealized gains and losses associated with
this investment are excluded from current earnings and reported as a separate
component of shareholder's equity .
Prior to the July 1, 1995 sale of the Company's ownership interest in
American Savings to First Union, the Company accounted for its investment in
American Savings using the equity method, as its ownership interest was
approximately 49%. See Note 10 below.
(f) Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation and is depreciated using the straight line method over
the estimated useful lives of the related assets.
(g) Liabilities Subject to Compromise -- Liabilities subject to compromise
have been recorded at the amounts expected to be allowed, including interest at
4.26% from the Effective Date, in accordance with the Reorganization Plan.
(h) Reorganization Items -- Reorganization items consist of interest income
on cash and cash equivalents and certificates of deposit, professional fees, and
other expenses that relate directly to the Company's bankruptcy.
(i) Income Taxes -- Effective January 1, 1993, the Company adopted SFAS No.
109, "Accounting for Income Taxes." Under this statement, deferred tax assets
and liabilities are determined based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the years in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
F-8
<PAGE> 46
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) Income per Common Share -- Income per common share is computed using
the weighted average number of common shares outstanding during the respective
periods.
(k) Newly Issued Accounting Standards. -- In October 1995, SFAS No. 123,
"Accounting for Stock-Based Compensation" was issued. The adoption of the new
recognition provisions for stock-based compensation expense included in SFAS No.
123 is optional; however, the pro forma effects on net income had the new
recognition provisions been elected is required if the expense is not recognized
in financial statements. The Company adopted certain stock-based compensation
arrangements in 1997. See Note 12. However, the Company has not yet determined
whether to follow the provisions of SFAS No. 123 or APB No. 25, "Accounting for
Stock Issued to Employees" in its accounting for employee stock options if and
when such arrangements are adopted; therefore, the impact on the Company's
financial position and results of operations has not currently been determined.
NOTE 2: RESTRICTED CASH AND CERTIFICATES OF DEPOSIT
Restricted cash and certificates of deposit represent amounts reserved for
the payment of certain liabilities subject to compromise pursuant to the
Reorganization Plan.
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996 and
1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Furniture and fixtures...................................... $ 78 $ 84
Accumulated depreciation.................................... (47) (44)
---- ----
$ 31 $ 40
==== ====
</TABLE>
NOTE 4: NOTE PAYABLE
On October 24, 1996, the Company borrowed $18,100,000 from a bank to repay
substantially all remaining liabilities subject to compromise. The loan matures
on October 1, 1997 and bears interest, at the Company's option, at either a
fixed rate equal to the Adjusted Eurodollar Rate, as defined, plus .6%, or at a
variable rate equal to Prime. The interest rate on the loan was 6.13% at
December 31, 1996.
The note payable is collateralized by 353,602 shares of First Union common
stock owned by the Company.
At December 31, 1996, the carrying value of the note payable approximates
fair value based on interest rates that are believed to be available to the
Company for debt with provisions similar to those in the existing note payable
agreement.
NOTE 5: LITIGATION CONTINGENCIES
In February 1993, the Company obtained a $15 million judgement against
Richard Grassgreen, one of the Company's former officers, who subsequently filed
for bankruptcy. In connection with the settlement of the Company's claims
against the Grassgreen bankruptcy estate (the "Estate") and others the Company
agreed to pay certain taxes of the Estate in the event the Estate did not have
sufficient funds. The IRS has appealed a recent determination by the bankruptcy
court that the IRS cannot seek payment of the taxes from the Estate. The Company
has accrued a liability of approximately $1,700,000 for the potential tax.
On February 11, 1997, fifteen former shareholders of the Company filed a
lawsuit against the Company. The complaint, which deals with actions occurring
prior to the Company's filing for bankruptcy in 1991, alleges that the Company
along with its then principal officers and others defrauded the plaintiffs in
violation
F-9
<PAGE> 47
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the Alabama Securities Act and other Alabama statutory provisions. The
plaintiffs seek compensatory damages in the amount of their alleged losses of
approximately $2 million and unspecified punitive damages. The Company intends
to vigorously defend this lawsuit and believes that it has numerous substantial
defenses against the claims. The Company cannot, however, reasonably predict the
outcome of this lawsuit.
NOTE 6: LIABILITIES SUBJECT TO COMPROMISE
In November 1996, substantially all of the Company's liabilities subject to
compromise were repaid. At December 31, 1996, the remaining liabilities subject
to compromise consist principally of a disputed claim and a claim allowed by the
Bankruptcy Court in December 1996.
NOTE 7: LEASES
The Company leases its corporate office, warehouse space, and office
equipment on a month-to-month basis. Rent expense was approximately $34,000,
$33,000, and $33,000 in 1996, 1995, and 1994, respectively.
NOTE 8: INCOME TAXES (IN THOUSANDS)
The reconciliation of income taxes computed at statutory rates to the
actual tax provision is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- -------- ------
<S> <C> <C> <C>
Federal income taxes at statutory rate................ $ 259 $ 24,012 $1,689
State income taxes, net of federal benefit............ 24 2,230 157
Dividends received deduction.......................... (499) (235) (7)
Other................................................. 16 118 --
Change in valuation allowance......................... 200 (26,125) (1,839)
----- -------- ------
$ -- $ -- $ --
===== ======== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts reported for income tax purposes.
The following items comprise the Company's deferred taxes at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred income tax assets:
Operating loss carryforwards.............................. $ 36,642 $ 36,701
Tax credit carryforwards.................................. 4,591 4,669
Reserve for litigation settlements........................ 712 425
Other..................................................... 129 (4)
-------- --------
Deferred tax assets....................................... 42,074 41,791
Valuation allowance....................................... (32,914) (38,559)
-------- --------
9,160 3,232
Deferred income tax liabilities:
Unrealized appreciation in investment in First Union...... (9,160) (3,232)
-------- --------
Net deferred taxes................................ $ -- $ --
======== ========
</TABLE>
The Company has established a valuation allowance equal to deferred tax
assets in excess of deferred tax liabilities as realization of such deferred tax
assets is dependent on future taxable income of sufficient amounts to utilize
the net operating loss carryforwards, tax credit carryforwards and other
deferred tax assets. In addition, because there are possible applications of
certain provisions of the Tax Code that may limit the
F-10
<PAGE> 48
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's use of the NOLs in future tax returns, there can be no assurance that
the Company will be able to utilize its NOLs fully.
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $96,000,000, which, if not utilized, expire in various years from
2000 through 2011. The Company also had tax credit carryforwards of
approximately $4,600,000 at December 31, 1996. If not utilized, these credit
carryforwards expire in various years from 1997 through 2001.
NOTE 9: SHAREHOLDER'S EQUITY AND PRO FORMA EARNINGS PER SHARE
The Company cancelled its then issued and outstanding common stock on the
Effective Date. The Company intends to distribute to the Company's former
shareholders one share of new common stock for every 10 shares of cancelled
common stock formerly held. There are approximately 4.75 million shares eligible
to be issued in this distribution. The pro forma impact on earnings per share of
this distribution, assuming such shares were outstanding for all of 1996, 1995,
and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ------ ------
<S> <C> <C> <C>
Pro forma income (loss) per common share from:
Continuing operations..................................... $0.16 $ 2.97 $(0.98)
Discontinued operations................................... 11.47 2.00
----- ------ ------
Net income................................................ $0.16 $14.44 $ 1.02
===== ====== ======
</TABLE>
NOTE 10: DISCONTINUED OPERATIONS
Subsequent to the July 1, 1995 sale of the Company's investment in American
Savings to First Union (see Note 1) the Company ceased to have banking
operations and, accordingly, has accounted for its investment in American
Savings as a discontinued operation in the accompanying financial statements.
Summarized financial information of American Savings for the year ended
December 31, 1994 is as follows (in thousands):
<TABLE>
<S> <C>
Net interest income......................................... $78,439
Provision for losses........................................ (600)
Other operating income...................................... 11,333
Other operating expense..................................... (67,074)
-------
Income before income taxes.................................. 22,098
Income tax expense.......................................... 2,871
-------
Net income.................................................. $19,227
=======
</TABLE>
NOTE 11: RELATED PARTY TRANSACTIONS
In conjunction with the July 1, 1995 sale of the Company's ownership
interest in American Savings to First Union, the Company paid a $1,200,000
commission to its Chairman pursuant to a brokerage agreement between the Company
and its Chairman. This commission is a component of the $2,070,000 in expenses
recorded by the Company relative to the sale.
NOTE 12: SUBSEQUENT EVENT
Adoption of Long-Term Incentive Program
On January 20, 1997, the Company adopted a long-term incentive program made
up of three stock option/incentive plans. A total of 522,500 shares of new
common stock have been reserved for issuance under
F-11
<PAGE> 49
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the program. Under the program, the Company has established the 1997 CEO Stock
Option Plan (the "CEO Plan"), the 1997 Outside Directors' Stock Option Plan (the
"Directors' Plan"), and an Omnibus Incentive Plan for other key employees and
directors.
Under the CEO Plan and the Directors' Plan, the CEO and Directors were
granted options for 200,000 shares and 210,000 shares respectively, of new
common stock with an exercise price of the fair market value of the new common
stock on the first day of trading after the distribution. The options to
purchase the shares granted under both Plans will vest in four equal
installments beginning on the date of the first annual meeting of the Company
after distribution, and thereafter on January 1, 1998, January 1, 1999 and
January 1, 2000. The options granted under these plans must be exercised prior
to January 1, 2007.
In addition, the Company has established an Omnibus Incentive Plan for the
benefit of key employees and directors, subject to shareholder approval. A total
of 112,500 shares of new common stock has been reserved for issuance under the
Omnibus Incentive Plan which provides generally for stock appreciation awards,
incentive stock options and nonqualified stock options. As of this date no
awards have been created and no options have been granted under the Omnibus
Incentive Plan.
Adoption of Share Purchase Rights Plan
On January 20, 1997, the Board of Directors of the Company adopted a Share
Purchase Rights Plan (the "Rights Plan"). The Rights Plan entitles shareholders
to a right (a "Right") to purchase one share of new common stock for each
outstanding share of new common stock of the Company.
Until the occurrence of a "Distribution Triggering Event" as described
below, all future issuances of new common stock by the Company will also carry
the Rights. The Rights will have no dividend or voting rights and will expire on
the tenth anniversary of their issuance unless exercised or redeemed prior to
that time.
Rights may not be exercised and are not detached from the new common stock
until ten days after the occurrence of a Distribution Triggering Event. The
exercise price of the Rights is fixed at $40. The Rights generally are
redeemable by the Board of Directors of the Company at a nominal price of $.01
per Right at any time prior to the time that they are detached from the new
common stock and separate certificates evidencing the Rights are delivered.
Distribution Triggering Events. Shortly after a person or group acquires
beneficial ownership of a fifteen percent (15%) interest or announces its
intention to commence a tender or exchange offer the consummation of which would
result in beneficial ownership of fifteen percent (15%) of the Company's new
common stock (a "Distribution Triggering Event"), the Rights will separate from
the new common stock. Upon distribution of the Rights, they become exercisable
and are transferable separately from the Company's new common stock. Each Right
(other than Rights beneficially owned by the acquiror) is then immediately
converted into the right to buy that number of shares of new common stock of the
Company (or in certain circumstances, shares of stock of the acquiring company)
that has a market value of two times the exercise price of the Right.
F-12
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Savings of Florida, F.S.B.:
We have audited the accompanying statements of consolidated earnings,
stockholders' equity and cash flows of American Savings of Florida, F.S.B. (the
"Bank") and subsidiaries for the year ended December 31, 1994. These
consolidated financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of their operations and
their cash flows of American Savings of Florida, F.S.B. and subsidiaries for the
year ended December 31, 1994, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Miami, Florida
March 9, 1995
F-13
<PAGE> 51
AMERICAN SAVINGS OF FLORIDA, F.S.B.
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
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-14
<PAGE> 52
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 57,901
---------- ---------- ----------
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
</TABLE>
F-15
<PAGE> 53
AMERICAN SAVINGS OF FLORIDA, F.S.B.
STATEMENTS OF CONSOLIDATED EARNINGS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
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 11,898,475 11,605,658
========== ========== ==========
Fully-diluted........................................ 12,016,919 11,910,143 11,724,576
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-16
<PAGE> 54
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*........ -- 112 287,547 (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) 5,472 207,867
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-17
<PAGE> 55
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 investments..................................... 4,469 4,113 (4,435)
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
</TABLE>
F-18
<PAGE> 56
AMERICAN SAVINGS OF FLORIDA, F.S.B.
STATEMENTS OF CONSOLIDATED CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
--------- --------- -----------
<S> <C> <C> <C>
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 32,375 582,745
--------- --------- -----------
Cash and cash equivalents at end of period................. $ 105,651 $ 80,260 $ 32,375
========= ========= ===========
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-19
<PAGE> 57
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
F-20
<PAGE> 58
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-21
<PAGE> 59
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-22
<PAGE> 60
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CLASSIFICATION OF DEBT AND EGUITY 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
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
F-23
<PAGE> 61
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-24
<PAGE> 62
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Tares ("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
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.
F-25
<PAGE> 63
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<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.
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>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1994
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
======== ====== ======= ========
</TABLE>
F-26
<PAGE> 64
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR 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
</TABLE>
F-27
<PAGE> 65
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
======== ====== ======== ========
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>
F-28
<PAGE> 66
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
----------------------------
1994 1993 1992
-------- ------- -------
(IN THOUSANDS)
<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-29
<PAGE> 67
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1994
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>
F-30
<PAGE> 68
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes proceeds from sales of MBSs and gross gains
and losses:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
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.
NOTE 9: LOANS RECEIVABLE, NET
Loans receivable, net, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<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>
F-31
<PAGE> 69
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
1994 1993
------------ ------------
(IN THOUSANDS)
<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
LOANS TDRS
---------- ------
(IN THOUSANDS)
<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.
NOTE 10: REAL ESTATE, NET
Real estate, net, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<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.
F-32
<PAGE> 70
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
LOANS LOANS LOANS LOANS LOANS ESTATE TOTAL
----------- ------------ ----------- --------- -------- -------- --------
(IN THOUSANDS)
<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(l)...................... -- -- 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(l)...................... -- -- 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:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Securities.................................................. $ 3,086 $ 390
Mortgage-backed securities.................................. 6,668 5,809
Loans....................................................... 12,682 9,998
------- -------
$22,436 $16,197
======= =======
</TABLE>
F-33
<PAGE> 71
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13: OFFICE PROPERTIES AND EQUIPMENT, NET
Office properties and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
DECEMBER 31, DECEMBER 31, USEFUL
1994 1993 LIVES
------------ ------------ ------------
(IN THOUSANDS)
<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,
RATE 1994 1993
-------- ------------ ------------
(IN THOUSANDS)
<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>
F-34
<PAGE> 72
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1994, savings deposits had the following scheduled
maturities:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
---------- -------- -------- ------- -------
(IN THOUSANDS)
<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>
The following schedule sets forth interest expense by type of savings
deposit:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1993 1992
------- ------- --------
(IN THOUSANDS)
<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,
---------------------------------------------------------
1994 1993 1992
----------------- ----------------- -----------------
BALANCE RATE BALANCE RATE BALANCE RATE
---------- ---- ---------- ---- ---------- ----
(IN THOUSANDS)
<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.
F-35
<PAGE> 73
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
REPURCHASE LIABILITY UNDER AGREEMENTS TO REPURCHASE
-------------------- --------------------------------
CARRYING AVERAGE CARRYING MARKET AVERAGE
MATURITY AMOUNT RATE AMOUNT VALUE YIELD
-------- --------- -------- --------- --------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<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
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.
F-36
<PAGE> 74
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
1994 1993
------------ ------------
(IN THOUSANDS)
<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).
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.
F-37
<PAGE> 75
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
1994 1993
------------ ------------
(IN THOUSANDS)
<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 an 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
F-38
<PAGE> 76
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
----------------- -------
1994 1993 1992
------ -------- -------
(IN THOUSANDS)
<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>
APB
SFAS 109 11
-------------- -----
1994 1993 1992
----- ----- -----
(IN THOUSANDS)
<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>
F-39
<PAGE> 77
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
------------------
1994 1993
------- --------
(IN THOUSANDS)
<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>
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>
<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.
F-40
<PAGE> 78
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 INTEREST
RATE AT
ORIGINAL DECEMBER 31,
NOTIONAL TERMINATION TERM TO -----------------
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>
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 are 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
F-41
<PAGE> 79
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-42
<PAGE> 80
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 portfolio's 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.
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
F-43
<PAGE> 81
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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").
F-44
<PAGE> 82
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Stock
was reduced from 120,000,000 to 24,000,000 shares. All references in the
Consoli-
F-45
<PAGE> 83
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dated 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.
F-46
<PAGE> 84
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-47
<PAGE> 85
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
------------------ ------------------
BALANCE % BALANCE %
---------- ----- ---------- -----
(DOLLAR AMOUNTS IN THOUSANDS)
<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
F-48
<PAGE> 86
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-49
<PAGE> 87
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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)
F-50
<PAGE> 88
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. 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
F-51
<PAGE> 89
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-52
<PAGE> 90
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-53
<PAGE> 91
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 of financial activity at December 31, 1994 and for
the year then ended and, accordingly, have been excluded from the summary.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1994
<TABLE>
<CAPTION>
AMERICAN
SAVINGS AMERICAN AMERICAN
TRUST, SECURITIES VENTURE
INC. FINANCIAL, INC. ASF, INC. CAPITAL, CORP.
-------- --------------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash.............................. $ 812 $ -- $ -- $ --
Investment securities............. 1,801 -- -- --
Accrued interest receivable....... 3 -- -- --
Real estate, net.................. -- -- -- 1,357
Other assets...................... -- -- -- --
------ ----- ----- ------
$2,616 $ -- $ -- $1,357
====== ===== ===== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Due to (from) American Savings.... $ 524 $ 114 $(207) $1,568
Stockholder's equity
Common stock and paid-in
capital....................... 1,026 1 38 --
Retained earnings (deficit)..... 1,066 (115) 169 (211)
------ ----- ----- ------
$2,616 $ -- $ -- $1,357
====== ===== ===== ======
<CAPTION>
AMERICAN AMERICAN AMERICAN AMERICAN
VENTURE SAVINGS SECURITIES SOUTHERN
ENTERPRISES, INC. FINANCIAL CORP. INVESTMENT CORP. MORTGAGE CORP.
----------------- --------------- ---------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash.............................. $ -- $ -- $1,945 $ --
Investment securities............. -- -- -- --
Accrued interest receivable....... -- -- -- --
Real estate, net.................. 1,192 818 -- --
Other assets...................... -- 1,041 9 69
------ ------ ------ ----
$1,192 $1,859 $1,954 $ 69
====== ====== ====== ====
LIABILITIES AND STOCKHOLDER'S EQUITY
Due to (from) American Savings.... $1,618 $ -- $1,588 $ --
Stockholder's equity
Common stock and paid-in
capital....................... -- 2,609 -- 151
Retained earnings (deficit)..... (426) (750) 366 (82)
------ ------ ------ ----
$1,192 $1,859 $1,954 $ 69
====== ====== ====== ====
<CAPTION>
BOCA
TRI COUNTY HAMPTON DEERFIELD
HOLDINGS, INC. PARTNERS, LTD.(1) PARTNERS, LTD.(1)
-------------- ----------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash.............................. $11 $-- --
Investment securities............. -- -- --
Accrued interest receivable....... -- -- --
Real estate, net.................. -- -- --
Other assets...................... -- -- --
--- --- ---
$11 $-- --
=== === ===
LIABILITIES AND STOCKHOLDER'S EQUITY
Due to (from) American Savings.... $-- -- --
Stockholder's equity
Common stock and paid-in
capital....................... 10 -- --
Retained earnings (deficit)..... 1 -- --
--- --- ---
$11 -- --
=== === ===
</TABLE>
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
AMERICAN
SAVINGS AMERICAN AMERICAN
TRUST, SECURITIES VENTURE
INC. FINANCIAL, INC. ASF, INC. CAPITAL, CORP.
-------- --------------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................... $ 73 $ -- $ -- $ --
Interest expense.................. -- -- -- --
------ ----- ----- ------
Net interest income....... 73 -- -- --
------ ----- ----- ------
Other operating income............ -- -- -- --
Other operating expense........... 3 (365) 18 85
------ ----- ----- ------
Income (loss) before income tax
expense......................... 70 365 (18) (85)
Income tax expense(2)............. -- -- -- --
------ ----- ----- ------
Net income (loss)......... $ 70 $ 365 $ (18) $ (85)
====== ===== ===== ======
<CAPTION>
AMERICAN AMERICAN AMERICAN AMERICAN
VENTURE SAVINGS SECURITIES SOUTHERN
ENTERPRISES, INC. FINANCIAL CORP. INVESTMENT CORP. MORTGAGE CORP.
----------------- --------------- ---------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................... $ -- $ -- $ -- $ --
Interest expense.................. -- -- -- --
------ ------ ------ ----
Net interest income....... -- -- -- --
------ ------ ------ ----
Other operating income............ -- -- 2,039 (29)
Other operating expense........... 36 20 1,674 --
------ ------ ------ ----
Income (loss) before income tax
expense......................... (36) (20) 365 (29)
Income tax expense(2)............. -- -- -- --
------ ------ ------ ----
Net income (loss)......... $ (36) $ (20) $ 365 $(29)
====== ====== ====== ====
<CAPTION>
BOCA
TRI COUNTY HAMPTON DEERFIELD
HOLDINGS, INC. PARTNERS, LTD.(1) PARTNERS, LTD.(1)
-------------- ----------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income................... $-- $26 67
Interest expense.................. -- -- --
--- --- ---
Net interest income....... -- 26 67
--- --- ---
Other operating income............ 1 20 --
Other operating expense........... -- 1 1
--- --- ---
Income (loss) before income tax
expense......................... 1 45 66
Income tax expense(2)............. -- -- --
--- --- ---
Net income (loss)......... $ 1 $45 66
=== === ===
</TABLE>
- ---------------
(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.
F-54
