<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
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 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
page 13 of 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 9 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 10 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 page 13 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 21 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 17 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 Compensation" on page 18 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 Compensation" on page 18 and "Certain
Relationships and Related Transactions" on page 20 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 page 13 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 19, "Description of New Common
Stock -- General" on page 22 and "Description of New Common Stock -- Dividends
on New Common Stock" on page 25 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 22-25 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 page
24 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 -- Share Purchase Rights Plan.*
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.
10.3 -- 1997 CEO Stock Option Plan.*
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
10.4 -- 1997 Outside Directors' Stock Option Plan.*
10.5 -- 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>
- ---------------
* To be filed by amendment.
(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 22nd day of January, 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
THE ENSTAR GROUP, INC.
172 COMMERCE STREET - 3RD FLOOR
MONTGOMERY, ALABAMA 36104
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 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. The enclosed Information Statement fully
describes the Distribution and also sets forth information about the
Company, its recent history, organization, business and properties. The
Information Statement also contains audited financial statements and other
financial information regarding the Company.
2. Stock Certificate. The enclosed stock certificate represents the
number of shares of Common Stock that you are entitled to in the
Distribution.
3. 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.
4. 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 7, 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.
While I urge you to review carefully each of the enclosures noted above,
only the Proxy Statement requests any action on your part.
Sincerely,
NIMROD T. FRAZER
Chairman of the Board, President and
Chief Executive Officer
, 1997
<PAGE> 6
SUBJECT TO COMPLETION DATED JANUARY 22, 1997
INFORMATION STATEMENT
THE ENSTAR GROUP, INC.
COMMON STOCK
PAR VALUE $.01 PER SHARE
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 New Common Stock
will be issued and distributed in reliance on Section 1145 of the United States
Bankruptcy Code and is therefore exempt from 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.
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 January 22, 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.
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...................................... 7
CAPITALIZATION AND BOOK VALUE PER SHARE OF NEW COMMON STOCK........................... 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 10
Liquidity and Capital Resources..................................................... 10
Financial Condition................................................................. 10
Results of Operations............................................................... 10
Disclosure Regarding Forward-Looking Statements..................................... 12
New Accounting Pronouncements....................................................... 12
BUSINESS AND PROPERTIES OF THE COMPANY................................................ 13
General............................................................................. 13
Properties.......................................................................... 13
Employees........................................................................... 13
Legal Proceedings................................................................... 13
Competition......................................................................... 13
RISK FACTORS.......................................................................... 14
No Recent Operating History; Effectively Blind Pool................................. 14
Uncertainty of Acquisition Target................................................... 14
Substantial Change in the Nature of the Company's Business.......................... 14
Dependence on Nimrod T. Frazer and Other Key Personnel.............................. 14
Lack of Public Market; Possible Volatility of Stock Price........................... 14
Volatility of First Union Common Stock.............................................. 15
General Economic Risks and Business Cycles.......................................... 15
Risk of No Diversification.......................................................... 15
Financing Limitations............................................................... 15
Investment Company Act of 1940...................................................... 15
Antitakeover Provisions............................................................. 15
Tax Considerations.................................................................. 16
MANAGEMENT OF THE COMPANY............................................................. 17
Directors and Executive Officers.................................................... 17
Board of Directors; Committees...................................................... 17
Executive Officer Compensation...................................................... 18
Annual Incentive Plan............................................................... 19
Long-Term Incentive Program......................................................... 19
Employment and Confidentiality Agreements........................................... 19
Compensation of Directors........................................................... 20
</TABLE>
iii
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Relationships and Related Transactions...................................... 20
Compensation Committee Interlocks and Insider Participation......................... 20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 21
DESCRIPTION OF NEW COMMON STOCK....................................................... 22
General............................................................................. 22
New Common Stock.................................................................... 22
Share Purchase Rights Plan.......................................................... 22
Certain Provisions of Articles of Incorporation and Bylaws.......................... 23
Limitations on Liability and Indemnification of Officers and Directors.............. 24
Restrictions on Transfer of New Common Stock........................................ 25
Dividends on New Common Stock....................................................... 25
Transfer Agent and Registrar........................................................ 25
AVAILABLE INFORMATION................................................................. 26
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 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. 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.
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
7
<PAGE> 17
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.
8
<PAGE> 18
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).
9
<PAGE> 19
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.
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 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.
10
<PAGE> 20
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.
11
<PAGE> 21
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.
12
<PAGE> 22
BUSINESS AND PROPERTIES OF THE COMPANY
GENERAL
The Company is currently investigating potential acquisitions. 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. It 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 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 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.
COMPETITION
Due to its unique situation, the Company does not believe that it currently
has any competitors.
13
<PAGE> 23
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.
14
<PAGE> 24
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 proposals or director nominations. The Company has also elected
15
<PAGE> 25
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.
16
<PAGE> 26
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 was a General Partner in Goldman, Sachs & Co., New York, New York, from
December of 1988 to November of 1996 and has served as 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
17
<PAGE> 27
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.
18
<PAGE> 28
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 first 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 an Omnibus Incentive 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 an Omnibus Incentive Plan for the
benefit of key employees and directors, subject to shareholder approval. The
Omnibus Incentive 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
Incentive 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 Incentive Plan.
EMPLOYMENT AND CONFIDENTIALITY AGREEMENTS
None of the executive officers has executed any employment, confidentiality
or noncompetition agreements with the Company.
19
<PAGE> 29
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.
20
<PAGE> 30
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(3)
- ------------------------------------------------------------------- ----------- -------------------
<S> <C> <C>
Named Executive Officers
Nimrod T. Frazer................................................... 7,731 (4)
Cheryl D. Davis.................................................... 3 (4)
Amy M. Dunaway..................................................... 88 (4)
Directors of the Company
Nimrod T. Frazer................................................... 7,731 (4)
172 Commerce Street -- 3rd Floor
Montgomery, Alabama 36104
T. Whit Armstrong.................................................. 6,767(1) (4)
301 South Edwards Street
Enterprise, Alabama 36330
T. Wayne Davis..................................................... 65,036(2) 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(5)
941 Park Avenue
New York, New York 10028
All Named Executive Officers and directors of the Company as a
group (6 persons)................................................ 79,625 1.68%
</TABLE>
- ---------------
(1) 4,372 Shares are pledged to SouthTrust Bank of Birmingham, N.A. Includes
1,595 Shares owned by Mr. Armstrong's minor son.
(2) 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.
(3) Based on an aggregate of 4,750,534 Shares eligible to be issued and
outstanding after the Distribution.
(4) Less than 1%. All individuals who are Named Executive Officers beneficially
own, directly or indirectly, less than 1%.
(5) Includes 18,000 Shares for which Mr. Halis has sole voting power.
(6) 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.
21
<PAGE> 31
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
January 21, 1997, the Company estimates that approximately 4,200,000 Shares will
initially be issued and outstanding and held by approximately 3,300 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
22
<PAGE> 32
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.
23
<PAGE> 33
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
24
<PAGE> 34
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. At the Company's annual meeting following the Distribution, the Company
intends to seek the shareholders' ratification of the adoption of the provisions
in the Company's Bylaws relating to the indemnification of directors and
officers.
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 will be selected
prior to the Distribution.
25
<PAGE> 35
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.
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.
26
<PAGE> 36
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> 37
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 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 Notes 5 and 12)
F-2
<PAGE> 38
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> 39
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> 40
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> 41
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> 42
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> 43
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> 44
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: RESERVE FOR LITIGATION SETTLEMENTS
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.
F-9
<PAGE> 45
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-10
<PAGE> 46
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-11
<PAGE> 47
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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> 48
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> 49
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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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 UNDER AGREEMENTS TO
LIABILITY 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> 72
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> 73
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> 74
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> 75
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> 76
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
ORIGINAL AT 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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
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> 88
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> 89
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 AMERICAN AMERICAN
TRUST, SECURITIES VENTURE VENTURE SAVINGS
INC. FINANCIAL, INC. ASF, INC. CAPITAL, CORP. ENTERPRISES, INC. FINANCIAL CORP.
-------- --------------- --------- -------------- ----------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.............................. $ 812 $ -- $ -- $ -- $ -- $ --
Investment securities............. 1,801 -- -- -- -- --
Accrued interest receivable....... 3 -- -- -- -- --
Real estate, net.................. -- -- -- 1,357 1,192 818
Other assets...................... -- -- -- -- -- 1,041
------ ----- ----- ------ ------ ------
$2,616 $ -- $ -- $1,357 $ 1,192 $ 1,859
====== ===== ===== ====== ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Due to (from) American Savings.... $ 524 $ 114 $(207) $1,568 $ 1,618 $ --
Stockholder's equity
Common stock and paid-in
capital....................... 1,026 1 38 -- -- 2,609
Retained earnings (deficit)..... 1,066 (115) 169 (211) (426) (750)
------ ----- ----- ------ ------ ------
$2,616 $ -- $ -- $1,357 $ 1,192 $ 1,859
====== ===== ===== ====== ====== ======
<CAPTION>
AMERICAN AMERICAN BOCA
SECURITIES SOUTHERN TRI COUNTY HAMPTON DEERFIELD
INVESTMENT CORP. MORTGAGE CORP. HOLDINGS, INC. PARTNERS, LTD.(1) PARTNERS, LTD.(1)
---------------- -------------- -------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Cash.............................. $1,945 $ -- $ 11 $-- --
Investment securities............. -- -- -- -- --
Accrued interest receivable....... -- -- -- -- --
Real estate, net.................. -- -- -- -- --
Other assets...................... 9 69 -- -- --
------ ---- --- --- ---
$1,954 $ 69 $ 11 $-- --
====== ==== === === ===
Due to (from) American Savings.... $1,588 $ -- $ -- -- --
Stockholder's equity
Common stock and paid-in
capital....................... -- 151 10 -- --
Retained earnings (deficit)..... 366 (82) 1 -- --
------ ---- --- --- ---
$1,954 $ 69 $ 11 -- --
====== ==== === === ===
</TABLE>
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
AMERICAN
SAVINGS AMERICAN AMERICAN AMERICAN AMERICAN
TRUST, SECURITIES VENTURE VENTURE SAVINGS
INC. FINANCIAL, INC. ASF, INC. CAPITAL, CORP. ENTERPRISES, INC. FINANCIAL CORP.
-------- --------------- --------- -------------- ----------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income................... $ 73 $ -- $ -- $ -- $ -- $ --
Interest expense.................. -- -- -- -- -- --
------ ----- ----- ------ ------ ------
Net interest income....... 73 -- -- -- -- --
------ ----- ----- ------ ------ ------
Other operating income............ -- -- -- -- -- --
Other operating expense........... 3 (365) 18 85 36 20
------ ----- ----- ------ ------ ------
Income (loss) before income tax
expense......................... 70 365 (18) (85) (36) (20)
Income tax expense(2)............. -- -- -- -- -- --
------ ----- ----- ------ ------ ------
Net income (loss)......... $ 70 $ 365 $ (18) $ (85) $ (36) $ (20)
====== ===== ===== ====== ====== ======
<CAPTION>
AMERICAN AMERICAN BOCA
SECURITIES SOUTHERN TRI COUNTY HAMPTON DEERFIELD
INVESTMENT CORP. MORTGAGE CORP. HOLDINGS, INC. PARTNERS, LTD.(1) PARTNERS, LTD.(1)
---------------- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Interest income................... $ -- $ -- $ -- $26 67
Interest expense.................. -- -- -- -- --
------ ---- --- --- ---
Net interest income....... -- -- -- 26 67
------ ---- --- --- ---
Other operating income............ 2,039 (29) 1 20 --
Other operating expense........... 1,674 -- -- 1 1
------ ---- --- --- ---
Income (loss) before income tax
expense......................... 365 (29) 1 45 66
Income tax expense(2)............. -- -- -- -- --
------ ---- --- --- ---
Net income (loss)......... $ 365 $(29) $ 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
<PAGE> 90
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- ------------------------------------------------------------------------------------
<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 December 31, 1996
3.1 -- Articles of Incorporation of the Company
3.2 -- Bylaws of the Company
4.1 -- Share Purchase Rights Plan*
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
10.3 -- 1997 CEO Stock Option Plan*
10.4 -- 1997 Outside Directors' Stock Option Plan*
10.5 -- 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>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 2.1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
IN RE: )
)
THE ENSTAR GROUP, INC., a )
Delaware corporation, formerly )
known as Kindercare, Inc., formerly) CHAPTER 11
known as Kinder-Care Learning ) CASE NO. 91-02618
Centers, Inc., successor by merger )
to Max Ward Delmar Studios, Inc., )
)
Debtor. )
)
- -----------------------------------
SECOND AMENDED
PLAN OF REORGANIZATION OF THE ENSTAR GROUP, INC.
NO CREDITOR OR OTHER PARTY IN INTEREST SHOULD CONSIDER THIS PLAN
BINDING ON ANY PARTY IN THIS CASE UNTIL CONFIRMED, AS THIS PLAN IS
SUBJECT TO AMENDMENT, WHICH MAY INVOLVE SIGNIFICANT REVISIONS. NO
ASSURANCE CAN BE GIVEN THAT ANY DISTRIBUTION WILL BE ON THE TERMS SET
FORTH IN THIS PLAN. NO SOLICITATION OF ACCEPTANCES OF THIS PLAN IS
PERMITTED UNTIL A DISCLOSURE STATEMENT IS APPROVED BY THE BANKRUPTCY
COURT PURSUANT TO SECTION 1125 OF THE BANKRUPTCY CODE. REFERENCE IS
MADE TO THE SECOND AMENDED JOINT DISCLOSURE STATEMENT ACCOMPANYING
THIS PLAN, WHICH DISCUSSES THE DEBTOR AND ITS ASSETS AND LIABILITIES
AND WHICH CONTAINS A SUMMARY OF THIS PLAN.
<PAGE> 2
December 5, 1991
<PAGE> 3
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
IN RE: )
THE ENSTAR GROUP, INC., a )
Delaware corporation, formerly )
known as Kindercare, Inc., formerly) CHAPTER 11
known as Kinder-Care Learning ) CASE NO. 91-02618
Centers, Inc., successor by merger )
to Max Ward Delmar Studios, Inc., )
)
Debtor. )
)
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SECOND AMENDED
PLAN OF REORGANIZATION OF THE ENSTAR GROUP, INC.
The Enstar Group, Inc. hereby proposes the following Second Amended
Plan of Reorganization for the Debtor pursuant to Chapter 11 of the United
States Bankruptcy Code, 11 U.S.C. Section Section 101 et seq.
ARTICLE 1
DEFINITIONS
As used in this Plan and in the accompanying Second Amended Joint
Disclosure Statement, the following terms shall have the respective meanings
assigned to them. Unless otherwise defined herein, all terms used in the Plan
shall have the same meaning as those terms have in the Bankruptcy Code.
Administrative Claim shall mean a Claim against the Debtor for an
administrative expense of a kind specified in Section 503(b) of the
Bankruptcy Code (but excluding the Capital Maintenance Claim to the
extent it might otherwise be regarded as an Administrative Claim) and
any fees and charges assessed against the estate under Chapter 123 of
Title 28. For purposes hereof, Severance Payments at any time payable
to employees of the Debtor shall be deemed Administrative Claims.
<PAGE> 4
Affiliate shall have the meaning given to such term in Section 101(2)
of the Bankruptcy Code.
Allowed Claim shall mean:
(1) Claims to be identified which, by agreement between the Debtor
and the holder of the Claim in question, shall be deemed
finally allowed on the Effective Date, a list of which shall
be filed as a schedule to the Plan prior to the Confirmation
Date;
(2) Any Claim that is expressly allowed by the terms of this Plan,
to the extent of the amount so allowed by this Plan; or
(3) The amount of any Claim against the Debtor to the extent that:
(a) a proof of Claim has been (i) timely filed, (ii)
deemed filed pursuant to Section 1111(a) of the
Bankruptcy Code, or (iii) late filed with leave of
the Bankruptcy Court after notice and opportunity for
a hearing given to the Debtor, the Creditors'
Committee and to all parties entitled to receive
notice thereof; and
(b) (i) no objection to such Claim was filed within (A)
ninety (90) days after the Effective Date or such
later date as the Bankruptcy Court allows or (ii) if
an objection to the Claim has been filed, the Claim
is allowed (and only to the extent allowed) by a
Final Order.
No Claim shall be deemed to be an Allowed Claim for purposes of this
Plan unless and until one of the above conditions has been satisfied.
In no event shall an "Allowed Claim" include interest on the principal
amount of such Claim maturing or accruing after the Petition
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<PAGE> 5
Date, punitive or exemplary damages or any fine, penalty or forfeiture.
AMRET shall mean AMRET, Inc., an Alabama corporation and a
wholly-owned subsidiary of Retail.
ASF shall mean American Savings of Florida, F.S.B., a federal stock
savings bank formerly known as American Savings and Loan Association
of Florida.
ASF Bond Claim shall mean the Claim of ASF under or in any way
relating to $7,500,000 of the Industrial Development Board of
the City of Montgomery, Industrial Development Revenue Bonds (The
Enstar Group, Inc. Project) Series B, including, without limitation,
any Claims relating to the Lease Agreement between the Industrial
Development Board of the City of Montgomery and The Enstar Group,
Inc., dated as of October 1, 1990, the Mortgage and Trust Indenture
between the Industrial Board of the City of Montgomery and SouthTrust
Bank of Alabama, National Association dated as of October 1, 1990, the
Guaranty Agreement between The Enstar Group, Inc. and SouthTrust Bank
of Alabama, National Association dated as of October 1, 1990, and the
Subordination and Indemnity Agreement by and between The Enstar Group,
Inc. and Western Reserve Life Insurance Co. of Ohio.
ASF Guaranty Claim shall mean the Claim of ASF under that certain
guaranty executed by Debtor in favor of ASF with respect to a certain
lease between Retail, as lessee, and the Industrial Development Board
of the City of Montgomery, as lessor.
ASF Pledged Stock shall mean 50% of the issued and outstanding capital
stock of ASF, which is owned by the Debtor and pledged by it to ASF as
security for a portion of the Claim of ASF.
ASF Secured Claim shall mean the Claim of ASF to the extent that it is
secured by the ASF Pledged Stock, the
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<PAGE> 6
Retail Stock, the LPT Partnerships, or any other Property of the
Debtor.
Assignment shall mean the Agreement dated as of November 13, 1991,
among the Debtor, Enstar Financial and ASF and by which the Debtor and
Enstar Financial have assigned to ASF, with Bankruptcy Court approval,
the causes of action of the Debtor and Enstar Financial against
Michael R. Milken and others and pursuant to which ASF, the Debtor and
Enstar Financial have agreed to share any net recoveries from ASF's
settlement or successful prosecution of the Milken Suit.
AT&T shall mean American Telephone & Telegraph Company.
AT&T Secured Claim shall mean the Claim of AT&T to the extent of the
value of the Debtor's phone system securing such Claim.
Available Cash shall mean, at any time, the amount of cash held by the
Debtor (excluding cash on deposit in the Expense Reserve or the
Disputed Claims Reserve) and available to be distributed to the
holders of Allowed Claims in accordance with this Plan.
Avoidance Claim shall mean any claim, action or cause of action that
the Debtor or any Creditor Representative may have or be entitled to
assert against ASF under Sections 544, 546, 547, 548 or 550 of the
Bankruptcy Code.
Bankruptcy Code means Title 11 of the United Code, 11 U.S.C. Section
Section 101 et seq.
Bankruptcy Court means the United States Bankruptcy Court for the
Middle District of Alabama or, in the event that such Court ceases to
exercise jurisdiction over this reorganization case, the Court that
exercises jurisdiction over such claim in lieu of the United States
Bankruptcy Court for the Middle District of Alabama.
Bankruptcy Rules means the federal rules of bankruptcy procedure.
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<PAGE> 7
Buckmaster shall mean Buckmaster, Inc., an Alabama corporation and a
wholly-owned subsidiary of the Debtor.
Business Day shall mean a day of the year on which commercial banks in
Alabama are not required or authorized by law to close for business.
Capital Maintenance Agreement shall mean a regulatory capital
maintenance/dividend agreement dated April 29, 1988, as at any time
amended, between the Debtor and the Federal Savings and Loan Insurance
Corporation, predecessor to OTS.
Capital Maintenance Claim shall mean any Claim of OTS or ASF under the
Capital Maintenance Agreement, whether such Claim arises prior to or
after the Petition Date and whether or not entitled to any priority
under Section 507 of the Bankruptcy Code.
Care Investors shall mean Care Investors, Inc., a Delaware corporation
and a wholly-owned subsidiary of the Debtor.
Christa Oil shall mean Christa Oil Company, an Illinois corporation
and a wholly-owned subsidiary of Enstar Financial.
Christa Plan shall mean the Chapter 11 reorganization plan proposed by
Christa Oil Company in its Chapter 11 case, as the same may be
modified or amended from time to time.
Claim shall have the meaning ascribed to it in Section 101(5) of the
Bankruptcy Code.
Class shall mean a class of Claims or Shareholder Interests as defined
in Article 2 of the Plan.
Class Representative shall mean a representative from each of Classes
4, 5, 6, 7, 8 and 10; and, in the case of Classes 4, 5 and 7, the
representative for each such
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<PAGE> 8
Class shall be the sole member of such Class; and, in the case of
Classes 6, 8 and 10, the representative for each such Class shall be a
Person designated on or before the Effective Date by the holders of at
least 66.66% in amount of Claims (excluding Disputed Claims) in such
Class; and, in the event of any failure of the holders of Claims in
any such Class to designate such a representative on or before the
effective date, the Debtor or the Creditors' Committee shall
designate, within sixty days after the effective date, a member of the
Class as the Class Representative of the Class.
Common Stock shall mean the shares of the common stock of the Debtor.
Confirmation Date shall mean the date of entry of the Confirmation
Order.
Confirmation Order shall mean the order of the Bankruptcy Court
confirming this Plan pursuant to Section 1129 of the Bankruptcy Code.
Creditors' Committee shall mean the official unsecured creditors'
committee appointed to serve in this case pursuant to Section 1102(a)
of the Bankruptcy Code.
Debt Instruments shall mean all promissory notes, debentures, bonds,
and all negotiable documents evidencing a Claim, including, without
limitation, the Swiss Franc 5.75% Bonds and the Swiss Franc 6%
Subordinated Bonds.
Debtor shall mean the Enstar Group, Inc., as debtor and
debtor-in-possession in the reorganization case.
Debtor Subsidiary shall mean Enstar Financial, Retail, Christa Oil,
Shoe City and AMRET.
Disbursement Account shall mean the account established by the
Reorganized Debtor in accordance with Section 8.1 hereof.
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<PAGE> 9
Disclosure Statement shall mean the Second Amended Joint Disclosure
Statement Accompanying Second Amended Plans of Reorganization, filed
or to be filed with the Bankruptcy Court pursuant to Section 1125 of
the Bankruptcy Code, as approved by the Bankruptcy Court for
distribution pursuant to Section 1125 of the Bankruptcy Code and as at
any time amended.
Disputed Claim shall mean a Claim asserted against the Debtor that has
not been determined to be an Allowed Claim. A Claim that is the
subject of a timely filed application, motion, complaint or any other
legal proceeding seeking to disallow, subordinate or estimate such
Claim, or as to which an offset is asserted by the Debtor, shall be
deemed a Disputed Claim.
Disputed Claims Reserve shall mean a reserve into which the Disbursing
Agent shall deposit monies on account of Disputed Claims in accordance
with the provisions of Section 8.7 of this Plan.
Distribution shall mean any distribution of Property (other than any
of the ASF Pledged Stock or any proceeds thereof) pursuant to this
Plan.
Effective Date shall mean a date designated in writing by the Debtor
and filed with the Bankruptcy Court which date shall be the first
Business Day following the date on which all conditions to
effectiveness of the Plan set forth in Article 9 hereof have been
satisfied or, to the extent permitted under this Plan, waived.
Enstar Financial shall mean Enstar Financial Services, Inc., a Florida
corporation and a wholly-owned subsidiary of the Debtor.
Enstar Financial Plan shall mean the Chapter 11 reorganization plan
proposed by Enstar Financial in its Chapter 11 case, as the same may
be modified or amended from time to time.
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<PAGE> 10
Expense Reserve shall mean a reserve from Available Cash in an amount
equal to $2,000,000 during the first twelve-month period following the
Effective Date, $1,500,000 during the second twelve-month period
following the Effective Date and $750,000 after such second
twelve-month period, which amounts are to be reserved from
distribution to the holders of Claims pending full implementation of
the Plan to assure payment of the estimated professional fees,
expenses and costs that the Debtor or Reorganized Debtor anticipates
will be incurred in connection with the performance of its duties
under this Plan and applicable law and the pursuit of the
Mendel/Grassgreen Suit and the Milken Suit.
Final Order shall mean an order or judgment of a court as to which (i)
the time to appeal or to seek certiorari or review has expired and as
to which no appeal or petition for certiorari or review has been
timely filed, or (ii) any timely-filed appeal or petition for
certiorari or review has been finally determined or dismissed.
Grassgreen shall mean Richard J. Grassgreen.
Grassgreen Claim shall mean any Claim asserted against the Debtor by
Grassgreen, which Claim is and shall be deemed to be a Disputed Claim.
KCLC shall mean Kinder-Care Learning Centers, Inc., a Delaware
corporation.
KCLC Claims shall mean all Claims of KCLC against the Debtor,
including Claims for breach of contract, alleged breach of indemnity
agreements, failure to pay for equipment usage and other fees for
various services.
Lien shall mean any statutory, common law, or contractual lien,
security interest, charge or encumbrance upon any Property.
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<PAGE> 11
LPT Partnerships shall mean the leveraged partnership trust interests
described in Schedule B-2(u) of the Debtor's Schedule of Assets.
Med Central shall mean Med Central, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Debtor.
Mendel shall mean Perry Mendel.
Mendel/Grassgreen Suit shall mean the civil action styled "The Enstar
Group, Inc., Plaintiff v. Perry Mendel and Richard J. Grassgreen,"
pending in the United States District Court for the Middle District of
Alabama.
Milken Suit shall mean a civil action filed by ASF, for itself and
(pursuant to the Assignment) as assignee of Enstar Financial and of
the Debtor, against Michael R. Milken and numerous co-defendants in
the United States District Court for the Southern District of Florida,
Miami Division, being Civil Action No. 91-2611, to recover damages for
fraud, securities fraud, RICO violations and other civil wrongs, as
the complaint therein may be amended or supplemented from time to
time.
NCNB shall mean NCNB Texas National Bank, a national bank.
NCNB Bond Guaranty Claim shall mean the Claims of NCNB arising under
guaranties executed in favor of First RepublicBank Dallas, N.A.,
predecessors in interest to NCNB, in connection with the December 1984
issuance of industrial development bonds in five parishes in Louisiana
and in Allegheny and York Counties, Pennsylvania for financing the
construction and acquisition of approximately 11 learning centers.
NCNB Claims shall mean the NCNB Bond Guaranty Claim, the NCNB
Sale/Leaseback Claim and all other Claims held by NCNB.
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<PAGE> 12
NCNB Sale/Leaseback Claim shall mean the Claims of NCNB arising from
or related to the June 1986 sale/leaseback transactions pursuant to
which Child Care Leasing-A, Inc. and Child Care Leasing-B, Inc.
purchased 205 day care centers from Debtor, the Debtor leased back
those assets and sublet them in 1988 to its then wholly-owned
subsidiary, KCLC, and NCNB, through its predecessor in interest,
provided financing for the transaction.
New Common Stock shall mean the shares of the common stock, having a
par value of $.01 per share, to be issued by the Reorganized Debtor for
the benefit of the holders of Allowed Claims that are Unsecured
Claims.
OTS shall mean the Office of Thrift Supervision, Department of the
Treasury.
Penn Mutual Secured Claim shall mean the Claim of Penn Mutual to the
extent of the value of 35,000 shares of Commonwealth Edison 9-3/4%
preferred stock securing such Claim.
Person shall mean any individual, corporation, partnership, trust,
venture or governmental unit.
Petition Date shall mean May 31, 1991.
Plan means this Second Amended Plan of Reorganization of the Enstar
Group, Inc., together with any modifications hereto as may hereafter
be filed in accordance with the requirements of Section 1127 of the
Bankruptcy Code, which shall also constitute the Plan of
Reorganization within the meaning of Section 368(a)(1) of the Internal
Revenue Code.
Priority Claim shall mean an Unsecured Claim entitled to priority
under Section 507 of the Bankruptcy Code (excluding, however, the
Capital Maintenance Claim to the extent it may constitute a Priority
Claim).
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<PAGE> 13
Priority Tax Claim shall mean a Priority Claim that is entitled to
priority under Section 507(a)(7) of the Bankruptcy Code.
Pro Rata Share shall mean, with respect to the Distribution to any
holder of any Allowed Claim that is an Unsecured Claim in Classes 6,
7, 8 and 10, an amount determined by multiplying such Claim by a
fraction the numerator of which shall be the amount of such Allowed
Claim and the denominator of which shall be the aggregate amount on
such date of all Claims in such Classes, including, but not limited
to, all Disputed Claims in any of such Classes on such date.
Property shall mean any property of the Debtor or Reorganized Debtor,
including, without limitation, cash, securities or other real or
personal property.
Regulatory Capital Deficiency shall have the meaning ascribed to it in
the Capital Maintenance Agreement as in effect on the Petition Date.
Reorganized Debtor shall mean, upon the Effective Date, the Debtor as
reorganized pursuant to this Plan.
Retail shall mean Enstar Specialty Retail, Inc., a Delaware
corporation and a wholly owned subsidiary of the Debtor.
Retail Stock shall mean all of the issued and outstanding capital
stock of Retail.
Secured Claim shall mean a Claim against the Debtor that arose before
the Petition Date, to the extent of the value of any Lien on Property
of the Debtor which secures payment of such Claim.
Securities Violation Claims shall mean all Claims against the Debtor
arising from rescission of a purchase or sale of a security of the
Debtor or of an Affiliate of the Debtor, for damages arising from the
purchase or sale of
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<PAGE> 14
such a security or for reimbursement, contribution or indemnification
on account of such a Claim, including, without limitation, all Claims
asserted on or before the Petition Date by any shareholder of the
Debtor under the Securities Exchange Act of 1934, Section 10(b)
thereof or Rule 10(b)(5) promulgated thereunder.
Severance Payments shall mean the payments authorized by the Severance
Order to be paid to the remaining employees of the Debtor upon their
termination of employment with the Debtor.
Severance Order shall mean the Order of the Bankruptcy Court Granting
Authority to Honor Insurance Claims, Accrued Vacation, Sick Leave
Benefits, Severance Benefits and Other Employment and Personal
Policies for Current Employees dated July 10, 1991 and entered July
11, 1991.
Shareholder Interest shall mean the equity interest represented by the
Common Stock.
Shoe City shall mean Shoe City, Inc., an Alabama corporation and a
wholly owned subsidiary of Retail.
Swiss Franc 5.75% Bonds shall mean the 130,000,000 5.75% Swiss franc
bonds due July 1995.
Swiss Franc 6% Subordinated Bonds shall mean the 62,500,000 6% Swiss
franc subordinated bonds due April 1996.
Trustee shall mean any Person serving as chief executive officer of the
Debtor on the Effective Date (unless the Class Representatives, by
simple majority vote, shall designate another Person) any such
trustee's successor in office upon any such Person's resignation,
death or removal, who shall serve without necessity of posting any
bond as provided in Section 8.4 of the Plan.
Unsecured Claim shall mean a Claim against the Debtor that arose or is
deemed to have arisen before the Petition Date, to the extent the
amount of such Claim (a)
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is not secured by any property rights in any property of the Debtor or
(b) is greater than the value of any property rights in property of
the Debtor which secures such Claim.
ARTICLE 2
CLASSIFICATION OF CLAIMS AND INTEREST
All Claims and Interests, other than Administrative Claims and
Priority Tax Claims, are divided into the following classes, which shall be
mutually exclusive.
2.1. Class 1 -- Priority Claims. Class 1 includes all Priority
Claims other than Administrative Claims and Priority Tax Claims.
2.2. Class 2 -- Penn Mutual Secured Claim. Class 2 shall consist
solely of the Penn Mutual Secured Claim.
2.3. Class 3 -- AT&T Secured Claim. Class 3 shall consist solely
of the AT&T Secured Claim.
2.4. Class 4 -- ASF Claims. Class 4 shall consist solely of the
Claims of ASF against the Debtor, including, but not limited to, the ASF
Secured Claim, the ASF Guaranty Claim and the ASF Bond Claim, but excluding the
Claim of ASF (if any) under the Capital Maintenance Agreement.
2.5. Class 5 -- Capital Maintenance Claim. Class 5 shall consist
solely of the Capital Maintenance Claim, whether or not such Claim is entitled
to treatment as a Priority Claim, and any Claim held by OTS on the Petition
Date that is determined by Final Order to be subject to permissible offset by
OTS against sums owing on the Petition Date to the Debtor by the United States
of America.
2.6. Class 6 -- Claims of Holders of Swiss Franc 5.75% Bonds.
Class 6 shall consist solely of the Claims of the holders of the Swiss Franc
5.75% Bonds.
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<PAGE> 16
2.7. Class 7 -- NCNB Claims. Class 7 shall consist solely of the
NCNB Claims.
2.8. Class 8 -- General Unsecured Claims. Class 8 shall consist of
all Unsecured Claims (other than Priority Claims) that are not included in
Classes 5, 6, 7, 9, 10, 11 or 12, and shall include the KCLC Claim and the
Grassgreen Claim and also shall include any Claim of Penn Mutual or AT&T that
is not included as part of the Penn Mutual Secured Claim or the AT&T Secured
Claim, as the case may be.
2.9. Class 9 -- Convenience Class. Class 9 shall consist of all
Unsecured Claims (other than Priority Claims and Claims in either Class 6 or
Class 10) of $500 or less.
2.10. Class 10 -- Claims of Holders of Swiss Franc 6% Subordinated
Bonds. Class 10 shall consist solely of the Claims of the holders of the Swiss
Franc 6% Subordinated Bonds.
2.11. Class 11 -- Securities Violation Claims. Class 11 shall
consist solely of the Securities Violation Claims.
2.12. Class 12 -- Non-Compensatory Claims. Class 12 shall consist
of all Claims, whether Secured Claims or Unsecured Claims, for any fine,
penalty or forfeiture or for multiple, exemplary or punitive damages, to the
extent that such fine, penalty or forfeiture, or damages, are not compensation
for actual pecuniary loss suffered by the holder of such Claim.
2.13. Class 13 -- Shareholder Interests. Class 13 shall consist of
all equity interests represented by the Common Stock.
ARTICLE 3
TREATMENT OF ADMINISTRATIVE AND PRIORITY TAX CLAIMS
3.1. Non-Ordinary Course Administrative Claims. Any Person that
asserts an Administrative Claim that arises before the Effective Date,
including Claims under Section 503(b)(2)-(5) of the Bankruptcy Code, but not
Claims described in Sections 3.2 or 3.3
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<PAGE> 17
below, shall, on or before such date or dates as the Bankruptcy Court may
establish in the Confirmation Order or otherwise, file an application with the
Bankruptcy Court for allowance of such Claim as an Administrative Claim
specifying the amount of and basis for such Claim; provided, however, that
applicants who have filed an application with the Bankruptcy Court before the
Confirmation Date need not file a new application. Failure to file a timely
application for allowance pursuant to this section shall bar a claimant from
seeking recovery on such Claim. Members of the Creditors' Committee shall be
entitled, upon an application to the Bankruptcy Court pursuant to the
provisions hereof, to recover as Administrative Claims their actual
out-of-pocket expenses (but not legal or professional fees, unless otherwise
allowed by the Bankruptcy Court) incurred in the performance of their duties as
members of the Creditors' Committee. Administrative claimants allowed under
this section of the Plan shall be paid, in full, in single cash payments,
within ten (10) days following entry of a Final Order allowing the Claim,
unless the party entitled to payment thereon agrees in writing to a different
treatment of the Administrative Claim.
3.2. Ordinary Course Administrative Claims. Administrative
expenses arising from obligations of the Debtor incurred in the ordinary course
of business, shall be resolved by means of the Debtor's performance of the
obligations in accordance with the terms and conditions of the agreement or
applicable law giving rise thereto, and no proof of Claim shall be required to
be filed.
3.3. Severance Payments. Severance Payments shall be paid to each
employee of the Debtor entitled thereto in accordance with the Severance Order,
notwithstanding any law, rule or regulation that is hereafter enacted or
promulgated and that would otherwise restrict or prohibit such Severance
Payments from being made.
3.4. Priority Tax Claims. Except to the extent that the holder has
agreed or may agree to a different treatment, each holder of an Allowed
Priority Tax Claim shall receive from the Debtor, in full satisfaction of such
Claim, cash in the amount of such Claim on the Effective Date or, at the option
of the Reorganized Debtor, shall be paid deferred cash payments over a period
not exceeding six (6) years after the date of assessment of
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such Claim in accordance with the provisions of Section 1129(a)(9)(C) of the
Bankruptcy Code.
ARTICLE 4
TREATMENT OF UNIMPAIRED CLASSES
The following Classes are unimpaired under the Plan and shall be
treated as hereinafter set forth.
In the event a controversy arises as to whether any class of Claims is
impaired or unimpaired under the Plan, the Bankruptcy Court shall, after notice
and an opportunity of a hearing, resolve such controversy.
4.1. Treatment of Class 1 Claims. Each holder of an Allowed Claim
in Class 1 shall receive on account of such Claim, cash on the Effective Date
in the amount of such Claim unless the holder of such Claim consents to
different treatment.
4.2. Treatment of Class 2 (Penn Mutual) Secured Claim. Effective
upon the Effective Date of the Plan, the Penn Mutual Secured Claim shall be
satisfied in full by the Debtor's abandoning to Penn Mutual of all security for
such Claim, which consists of approximately 35,000 shares of Commonwealth
Edison 9-3/4% preferred stock.
4.3. Treatment of Class 3 (AT&T) Secured Claim. Effective upon the
Effective Date of the Plan, the AT&T Secured Claim shall be satisfied in full
by the Debtor's abandonment to AT&T of all security for such Claim, which
consists of the Debtor's phone system.
ARTICLE 5
TREATMENT OF IMPAIRED CLASSES
Except as otherwise provided in Article 4 of this Plan, all Classes of
Claims and Shareholder Interests are impaired under the
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Plan. In the event a controversy arises as to whether any class of Claims is
impaired under the Plan, the Bankruptcy Court shall, after notice and an
opportunity for a hearing, resolve such controversy. ALL IMPAIRED CLASSES
SHALL RECEIVE THE DISTRIBUTION SET FORTH IN THIS ARTICLE ON ACCOUNT OF AND IN
COMPLETE SATISFACTION OF ALL CLAIMS AGAINST THE DEBTOR, AND SHALL HAVE NO
RIGHTS OR REMEDIES AGAINST THE DEBTOR OR ANY OF ITS ASSETS OR PROPERTIES,
EXCEPT AS SPECIFICALLY SET FORTH IN THIS PLAN.
5.1. Treatment of Class 4 Claims. Effective upon the Effective
Date of the Plan, ASF shall be deemed to have authorized the Reorganized Debtor
to sell or otherwise dispose of (in accordance with the Plan) any or all of the
Property securing any or all of the ASF Secured Claim; shall be deemed to have
released ASF's Lien upon any proceeds realized by the Reorganized Debtor from
any such sale or other disposition of any such Property securing any or all of
the ASF Secured Claim and to have consented to a distribution of such proceeds
in accordance with this Plan; and shall promptly after the Effective Date
return to the Debtor any certificates and other instruments in ASF's possession
representing the Debtor's ownership of any of the ASF Pledged Stock, the Retail
Stock or any of the LPT Partnerships. ASF shall be deemed on the Effective
Date to be the holder of an Allowed Claim that is an Unsecured Claim in the
amount of $36,000,000, which Claim shall not be subject to reconsideration or
subordination. ASF shall receive, on account of such Claim, 66.66% of all
Distributions until all such Allowed Claim of ASF against the Debtor is paid in
full. In no event, however, shall ASF be entitled to receive any proceeds
derived from any sale or other disposition of any of the ASF Pledged Stock.
5.2. Treatment of Class 5 Claim. Effective upon the Effective Date
of the Plan, the Capital Maintenance Claim shall be deemed an Allowed Claim
that is an Unsecured Claim in an amount calculated pursuant to the Capital
Maintenance Agreement and thereafter such Claim shall increase or decrease, as
the case may be, by the amount of any increase or decrease in the Regulatory
Capital Deficiency. OTS and ASF shall be deemed to have waived and
relinquished any priority under Section 507(a) of the Bankruptcy Code to which
either OTS or ASF is or may be entitled, including, but not limited, any claim
that OTS or ASF may be authorized to assert
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under Section 507(a)(8) of the Bankruptcy Code based upon the Capital
Maintenance Agreement. OTS and ASF shall be barred from making any Claim under
the Capital Maintenance Agreement or any law, regulation or policy relating to
the capital of a federal savings bank to the extent that such claim is
inconsistent with the terms of this Plan. Until the ASF Claims in Class 4
hereof are paid in full in accordance with this Plan, no Distributions under
this Plan on account of the Capital Maintenance Claim shall be made. After
payment in full of the ASF Claims in Class 4 hereof in accordance with this
Plan, ASF shall be authorized to receive on account of the Capital Maintenance
Claim from any Distributions that are thereafter made to the holders of
Unsecured Claims an amount equal to 66.66% of such Distributions until the
Capital Maintenance Claim is paid in full; provided, however, that after
payment in full of the ASF Claims in Class 4 hereof, the Capital Maintenance
Claim shall not increase in amount regardless of any increase in the Regulatory
Capital Deficiency, but may decrease in amount as the result of any decrease in
the Regulatory Capital Deficiency. OTS and ASF acknowledge and agree that any
payment on the ASF Claims in Class 4 hereof (whether pursuant to this Plan or
the Enstar Financial Plan) will operate as a dollar for dollar reduction in the
amount of the Capital Maintenance Claim and further acknowledge and agree that
the amount of the Capital Maintenance Claim on the date of payment in full of
the ASF Claims in Class 4 shall be equal to the Regulatory Capital Deficiency
on such date (if any) minus $36,0000,000, provided, however, that the Capital
Maintenance Claim shall not be less than zero. In no event, however, shall any
proceeds derived from any sale or other disposition of any of the ASF Pledged
Stock be payable to the holder of the Capital Maintenance Claim. With respect
to any portion of the Capital Maintenance Claim that is determined by Final
Order to be subject to permissible offset by OTS against sums owing on the
Petition Date to the Debtor by the United States of America, OTS shall be
authorized to cause such offset to be made.
5.3. Treatment of Class 6 Claims. Effective upon the Effective
Date, each holder of a Class 6 Claim who, within ninety (90) days after the
Effective Date, surrenders for cancellation all Swiss Franc 5.75% Bonds held by
such holder shall be entitled to receive on account of such Claim such holder's
Pro Rata Share of (a) proceeds of the ASF Pledged Stock and (b) 33.34% of all
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Distributions, until such Claims are paid in full. For purposes of calculating
the amount of the Allowed Claims in this Class, such Claims shall be converted
to U.S. dollars as of the Petition Date at the conversion rate in effect on the
Petition Date.
5.4. Treatment of Class 7 Claims. Effective upon the Effective
Date, NCNB shall be entitled to receive on account of all Allowed Claims held
by it a Pro Rata Share of (a) proceeds of the ASF Pledged Stock and (b) 33.34%
of all Distributions, until such Claims are paid in full.
5.5. Treatment of Class 8 Claims. Effective upon the Effective
Date, each holder of an Unsecured Claim that is an Allowed Claim in Class 8
shall be entitled to receive on account of such Claim a Pro Rata Share of (a)
the proceeds of the ASF Pledged Stock and (b) 33.34% of all Distributions,
until such Claims are paid in full. With respect to any portion of any KCLC
Claims that are determined by Final Order to be subject to permissible offset
against any sums owing by KCLC to the Debtor, KCLC shall be authorized to
effectuate such offset.
5.6. Treatment of Class 9 Claims. Effective upon the Effective
Date, each holder of an Unsecured Claim that is an Allowed Claim in Class 9
shall receive, on account of such Claim, cash in the full amount of such Claim.
5.7. Treatment of Class 10 Claims. Effective upon the Effective
Date, each holder of a Class 10 Claim who, within ninety (90) days after the
Effective Date, surrenders for cancellation all Swiss Franc 6% Subordinated
Bonds held by such holder shall be entitled to receive on account of such Claim
such holder's Pro Rata Share of (a) proceeds of the ASF Pledged Stock and (b)
33.34% of all Distributions, until such Claim is paid in full; provided,
however, that pursuant to Section 510(a) of the Bankruptcy Code and the
subordination provisions contained in the Swiss Franc 6% Subordinated Bonds,
the Pro Rata Share to which such holder would otherwise be entitled to receive
shall be turned over to the holders of Allowed Claims included in Classes 6 and
7, to be shared by the holders of such Claims on a pro rata basis until their
Claims are paid in full; provided further, however, that from and after the
date on which the Allowed Claims in Classes 6 and 7 are
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paid in full, the holders of Allowed Claims in Class 10 shall be subrogated to
the rights of the holders of Claims in Class 6 and Class 7 to the extent of any
Distributions or proceeds turned over to holders of Allowed Claims in Class 6
and Class 7 that otherwise would have been remitted to the holders of Allowed
Claims in Class 10. For purposes of calculating the amount of Allowed Claims
in this Class, such Claims shall be converted to U.S. dollars as of the
Petition Date at the conversion rate in effect on the Petition Date.
5.8. Treatment of Class 11 Claims. In accordance with Section 510(b)
of the Bankruptcy Code, the holders of Class 11 Claims shall not be entitled to
receive any Property pursuant to the Plan until all other Allowed Claims are
paid in full.
5.9. Treatment of Class 12 Claims. The holders of Class 12 Claims
shall not be entitled to receive any Property pursuant to the Plan and all such
Claims shall be discharged.
5.10. Treatment of Class 13 Interests. Effective upon the Effective
Date, all Common Stock shall be cancelled and the holders of Shareholder
Interests shall receive nothing on account of such Shareholder Interests, which
shall be discharged.
ARTICLE 6
TREATMENT OF EXECUTORY CONTRACTS AND LEASES
All executory contracts and leases that have not been assumed or
rejected as of the Confirmation Date shall be deemed to be rejected by the
Debtor on the Confirmation Date, except (a) for those executory contracts as to
which the Debtor files motions to assume with the Bankruptcy Court no later
than thirty (30) days prior to the first date set for hearing on confirmation
of the Plan and (b) the Reorganized Debtor's performance under the Capital
Maintenance Agreement shall be governed exclusively by this Plan; provided,
however, that the Debtor reserves the right to change its election with respect
to the acceptance or rejection of any executory contract or lease at any time
prior to the Confirmation Date. Any party asserting a Claim pursuant to
Section 365 of the Bankruptcy Code arising from an executory contract or lease
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rejected pursuant to this Article who has timely filed a proof of Claim may
amend its proof of Claim within thirty (30) days after the Confirmation Date.
ARTICLE 7
BUSINESS AND OPERATIONS OF THE REORGANIZED DEBTOR
7.1. Title to Assets and Organizational Structure.
(a) Upon the Effective Date, title to all assets of the Debtor
shall be vested in the Reorganized Debtor free and clear of all Liens and
Claims whatsoever, other than as specifically set forth in this Plan.
(b) The Reorganized Debtor shall have the following direct wholly
owned subsidiaries, each of which shall continue to own and operate the assets
which it owned and operated as of the Effective Date, except as expressly noted
otherwise herein:
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(1) Med Central;
(2) Enstar Financial;
(3) Care Investors;
(4) Retail; and
(5) Buckmaster
(c) Med Central, Care Investors and Buckmaster, which are inactive
subsidiaries of the Debtor, may (but shall not be required to) be dissolved or
merged into the Reorganized Debtor on or within ninety (90) days after the
Effective Date.
(d) The Reorganized Debtor shall be authorized, consistent with
any plan of reorganization confirmed in any Chapter 11 case of a Debtor
Subsidiary, to sell or cause to be sold the stock or assets of such Debtor
Subsidiary or to merge such Debtor Subsidiary or any other Affiliate with and
into the Reorganized Debtor, but only to the extent that any such sale or
merger does not adversely affect the amount or timing of distributions to be
made pursuant to the Plan.
(e) The Reorganized Debtor shall include in its charter or by-laws
a provision prohibiting the issuance of nonvoting equity securities.
7.2. Authorized Activities. The Reorganized Debtor shall continue
to be incorporated under the laws of the State of Delaware and shall have full
corporate authority to engage in all lawful activities under the General
Corporation law of the State of Delaware and all activities necessary or
desirable to implement the provisions of the Plan. To that end, the
Reorganized Debtor may retain, or continue the retention of, professional
persons deemed necessary by it in connection with the discharge of its
obligations under the Plan. The Reorganized Debtor shall adopt as of the
Effective Date an amended and restated certificate of incorporation and by-laws
containing provisions not inconsistent with the terms of this Plan and such
other terms and conditions as proposed by the Debtor prior to the Effective
Date. The Certificate of Incorporation shall authorize the issuance of such
amount of the shares of the New Common Stock as the Reorganized Debtor shall
deem appropriate.
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7.3. Directors and Management.
(a) Directors. Upon the Effective Date, the Board of Directors of
the Reorganized Debtor shall consist of three members. The names of the
directors shall be identified in the Disclosure Statement.
(b) Management. The amended and restated by-laws of the
Reorganized Debtor to be adopted pursuant to Section 7.2 hereof shall designate
the officers of the Reorganized Debtor and specify their tenure. The persons
who will hold such offices as of the Effective Date will be identified in the
Disclosure Statement.
7.4. Qualification to Do Business. Neither the Debtor nor the
Reorganized Debtor shall be required to maintain its qualification to do
business in any State of the United States in which the Debtor or the
Reorganized Debtor, on the Confirmation Date, is not transacting business
within the meaning of the laws of such State, and in no event shall the Debtor
or the Reorganized Debtor be obliged to pay a privilege, franchise or other fee
or tax that became due or payable after the Petition Date to any State on
account of the Debtor's having qualified to do business in such State prior to
the Petition Date if the Debtor did not engage in any business activity in such
State after the Petition Date that would have required the Debtor to be
qualified to do business in such State under such State's laws.
ARTICLE 8
MEANS OF IMPLEMENTATION OF THE PLAN
8.1. Records; Bank Account. The Reorganized Debtor shall maintain
records of all Allowed Claims and all Disputed Claims, including, without
limitation, the amount and classification of each such Claim, the name and
address of the holder thereof, the number of shares (if any) of New Common
Stock issued to the holder of the Claim and the amount of each periodic
Distribution with respect to each Claim. The Reorganized Debtor shall update
these records as required to reflect changes in any of the information
maintained with respect to the Claims, including the change in the
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status of previously Disputed Claims that have become Allowed Claims.
Immediately after and to the extent that a Disputed Claim becomes an Allowed
Claim by virtue of a Final Order, the Reorganized Debtor shall amend the
records maintained in accordance with this Plan to delete such Disputed Claim
from the list of Disputed Claims and add it, in the amount Allowed, to the list
of Allowed Claims. On or before the Effective Date, the Reorganized Debtor
shall establish the Disbursement Account to be used for the purpose of making
all payments pursuant to the Plan. All Available Cash shall be deposited into
the Disbursement Account and shall be held in trust for the holders of Allowed
Claims. Cash in the Disbursement Account, the Expense Reserve and the Disputed
Claims Reserve may be invested in (a) interest bearing accounts, or
certificates of deposit in banks or trust companies having an aggregate capital
and surplus in excess of $70,000,000, (b) obligations of the United States
Treasury having maturities not exceeding 180 days or (c) such other investments
as shall be consistent with Section 345 of the Bankruptcy Code, giving due
regard to the Reorganized Debtor's need for such monies to insure availability
of sufficient funds to make all disbursements authorized or required by this
Plan on a timely basis.
8.2. Collection and Liquidation of Certain Assets. The Reorganized
Debtor shall continue to collect its assets and, with the exception of the ASF
Pledged Stock and the Retail Stock, shall promptly endeavor to convert such
assets to cash and shall deposit same in the Disbursement Account, the Expense
Reserve, or the Designated Claims Reserve (and the Reorganized Debtor may
transfer funds to and from any such accounts to the extent necessary to
implement the provisions of this Plan). The Debtor shall be authorized to vote
for the Christa Plan and the Enstar Financial Plan.
8.3. Litigation. The Reorganized Debtor may continue to pursue the
Mendel/Grassgreen Suit and may settle same on such terms and for such
consideration as the Reorganized Debtor deems reasonable in its sole discretion
but subject to Court approval after notice to Class Representatives and a
hearing. Any and all proceeds received in connection with the prosecution or
settlement of the Mendel/Grassgreen Suit shall be disbursed to the holders of
Allowed Claims that are Unsecured Claims in Classes 4, 5, 6, 7, 8 and 10, as
provided in Article 5 hereof. The Reorganized Debtor shall be authorized to
aid ASF in the prosecution of the Milken
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Suit and to pay its share of the expense thereof. Any and all proceeds
received by the Debtor pursuant to the Assignment as the result of ASF's
settlement or successful prosecution of the Milken Suit shall be disbursed to
the holders of the Allowed Claims that are Unsecured Claims in Class 4, 5, 6,
7, 8 and 10, as provided in Article 5 hereof.
8.4. Issuance and Disposition of New Common Stock. On the
Effective Date, the Reorganized Debtor shall issue the New Common Stock and
deliver the certificates evidencing same to the Trustee, who shall hold same in
trust for the benefit of the holders of all Allowed Claims that are Unsecured
Claims in Classes 4, 5, 6, 7, 8 and 10 in accordance with the treatment
provided such classes in Article 5, unless and until there is a merger by and
between the Reorganized Debtor and any one or more of Retail, AMRET or Shoe
City. Prior to any distribution of the New Common Stock in accordance with the
Plan, the Trustee shall be authorized to vote the shares of the New Common
Stock, in accordance with the directions given to him by the holders of at
least 51% in amount of Allowed Claims that are Unsecured Claims who vote, for
the purpose of electing the Board of Directors in accordance with the amended
and restated bylaws adopted as authorized by Section 7.2 hereof. The New
Common Stock will be held by the Trustee for distribution only in the event of
a merger with any of its direct or indirect subsidiaries.
8.5. Distributions. On the Effective Date, the Reorganized Debtor
shall pay all Administrative Claims and Allowed Priority Tax Claims in
accordance with the provisions of Article 3 of this Plan and shall make all
Severance Payments in accordance with the Severance Order. Thereafter, the
Debtor shall disburse to the holders of all Allowed Claims, in accordance with
the treatment accorded such Claims pursuant to Article 5 of this Plan and to
all professional persons retained by the Debtor or the Reorganized Debtor for
fees and expenses incurred after the Confirmation Date, Available Cash and all
other Property as follows: (a) within thirty (30) days after the Effective
Date all Available Cash then on hand (other than amounts to be transferred from
the Disbursement Account to the Expense Reserve); (b) within forty-five (45)
days following the Reorganized Debtor's receipt thereof, any monies received in
connection with the prosecution or settlement of the Mendel/Grassgreen Suit, to
the extent of such monies; (c) within forty-five (45) days following the
Reorganized Debtor's receipt thereof, any monies received in connection with
the prosecution or
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settlement of the Milken Suit, to the extent of such monies after first
deducting therefrom any contingency fee payable to legal counsel out of the
proceeds thereof; (d) within thirty (30) days following the Reorganized
Debtor's receipt thereof, any monies realized from any sale or other
disposition of the ASF Pledged Stock, to the extent of the net proceeds
realized from any such sale or other disposition; (d) within thirty (30) days
following the Reorganized Debtor's receipt thereof, any monies realized from
any sale or other disposition of any of the capital stock of any of the
Reorganized Debtor's direct or indirect subsidiaries (including any capital
stock of any of the Debtor Subsidiaries), to the extent of the net proceeds
realized from any such sale or other disposition; (f) within thirty (30) days
after the Reorganized Debtor's receipt thereof, any and all amounts earmarked
for the holders of Allowed Claims in connection with any merger transaction;
(g) within thirty (30) days following the entry of an order that becomes a
Final Order allowing, in whole or in part, a Disputed Claim, an amount of money
from the Disputed Claims Reserve that represents the pro rata share that the
holder of such Claim would have been entitled to receive pursuant to Article 5
hereof based upon the amount of the Disputed Claim that is allowed by such
Final Order; (h) within thirty (30) days after receipt of a billing from a
professional person retained by the Debtor or the Reorganized Debtor, an amount
from the Expense Reserve (or, if the Expense Reserve is without sufficient
funds to pay same, from Available Cash) necessary to pay such billing; and (i)
on the date that the Debtor determines that it has fully recovered and
liquidated all of its assets and all Disputed Claims have been resolved by
Final Order, all Available Cash and all amounts in the Expense Reserve that are
not required to pay accrued fees and expenses of the Reorganized Debtor. In
addition, the Reorganized Debtor shall distribute to the Trustee, the New
Common Stock, in accordance with Section 8.4 hereof.
8.6. Sale of the ASF Pledged Stock. The Reorganized Debtor shall
be authorized to sell the ASF Pledged Stock, subject to all requirements and
limitations of applicable law, in such quantities and amounts as the
Reorganized Debtor shall in its sole discretion believe to be in the best
interest of the holders of Allowed Claims that are Unsecured Claims in Classes
6, 7, 8 and 10 and to the end of maximizing the return thereon, but the
Reorganized Debtor shall in all events be required to sell the ASF Pledged
Stock within thirty-six (36) months following the Effective Date unless
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otherwise agreed in writing by each Class Representative; provided, however,
that if directed to do so after 180 days following the Effective Date by at
least 51% in number of holders of Allowed Claims in Class 6, 7 or 8 (or the
holders of Allowed Claims in Class 10 from and after the date on which all
Allowed Claims in Class 6 and Class 7 have been paid in full) who hold at least
66.66% in amount of the Allowed Claims in such Class, the Reorganized Debtor
shall be obligated to sell an amount of the ASF Pledged Stock that represents
the Pro Rata Share, determined in accordance with the Plan, of the ASF Pledged
Stock allocable to the aggregate Allowed Claims of such Class, within thirty
(30) days following the Reorganized Debtor's receipt from the Class
Representative of a written notice of the requisite vote requiring the
Reorganized Debtor to sell a portion of the ASF Pledged Stock. Prior to the
date of any sale of the ASF Pledged Stock, the Reorganized Debtor shall be
authorized to vote the ASF Pledged Stock owned by it in such a manner as it may
deem appropriate.
8.7. Disputed Claims Reserve. The Debtor or the Reorganized Debtor
shall be authorized to object to the allowance of Claims at any time prior to
the expiration of ninety (90) days after the Effective Date; but provided,
however, that the ASF Claims and Capital Maintenance Claim shall be deemed
Allowed for purposes of this Plan; but provided further, however, the Debtor
and the Reorganized Debtor shall have the right to challenge any right of
offset asserted by any holder of the Capital Maintenance Claim. On the
Effective Date and thereafter on the date of each Distribution to the holders
of Allowed Claims, the Reorganized Debtor shall deposit to the Disputed Claims
Reserve from any Distributions made in accordance with this Plan an amount
equal to the pro rata share that would have been distributed to the holder of
any Disputed Claim if such Disputed Claim had been an Allowed Claim on the date
of such Distribution. The Reorganized Debtor shall distribute to the holder of
any Disputed Claim that has been subsequently allowed by Final Order, but only
to the extent of the allowed amount of such Claim, all Property to which such
holder would have been entitled to receive on account of such holder's Claim if
such Claim had been an Allowed Claim on the Effective Date. If any Disputed
Claim is subsequently disallowed by Final Order, or is allowed in an amount
less than the amount claimed by the holder of such Disputed Claim, then any
funds that have been deposited in the Disputed Claims Reserve based upon the
disallowed portion of the amount claimed by the holder of the Disputed Claim
shall be
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deposited into the Disbursement Account and redistributed to the holders of
Allowed Claims on a pro rata basis in accordance with Section 8.5 of this Plan.
If a Claim is a Disputed Claim, in whole or in part, because the Debtor or the
Reorganized Debtor asserts a right of offset against such Disputed Claim or
recoupment against the holder of such Disputed Claim, then if and to the extent
the claim giving rise to such offset or recoupment is sustained by Final Order,
the Disputed Claim shall be reduced or eliminated and, to the extent such
offset or recoupment exceeds in amount the Disputed Claim, the holder of such
Claim shall be required to pay to the Reorganized Debtor the amount of such
offset or recoupment less the amount in which such Disputed Claim would
otherwise have been allowed absent such offset or recoupment.
8.8. Sale of or Merger with Debtor Subsidiaries. Consistent with
any confirmed plan of reorganization in any Chapter 11 case of any of the
Debtor Subsidiaries and Section 7.1(d) of this Plan, the Reorganized Debtor
shall be authorized to sell all or any portion of the assets or capital stock
of any such Debtor Subsidiary or, alternatively, to merge any such Debtor
Subsidiary or other Affiliate with and into the Reorganized Debtor or to merge
the Reorganized Debtor into any of the Debtor Subsidiaries. In connection with
any such merger or similar transaction, the Reorganized Debtor shall endeavor
to preserve and pass on to the holders of Allowed Claims the maximum benefits
allowable from any net operating tax loss carry forwards through the issuance
of stock in the Reorganized Debtor after the merger, and the distribution of
any portion of such stock pursuant to Article 5 of this Plan.
8.9. Discharge. Other than as provided elsewhere herein, as of the
Effective Date, the Debtor shall be discharged from any debt that arose before
the date of the Confirmation Order, and any Claim of the kind specified in
Bankruptcy Code Sections 502(g), 502(h), and 502(i) whether or not:
(a) a proof of Claim based upon such debt is filed or
deemed filed under Section 501 of the Bankruptcy Code;
(b) a Claim or Shareholder Interest based upon such debt
is allowed under Section 502 of the Bankruptcy Code; or
(c) the holder of a Claim or Shareholder Interest based
upon such debt has accepted the Plan.
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8.10. Cancellation of Debt Instruments. No holder of a Debt
Instrument shall be entitled to receive any Property pursuant to this Plan
unless and until such holder shall have either (a) surrendered or caused to be
surrendered to the Reorganized Debtor the original Debt Instrument held by such
holder or (b) if such holder is unable to surrender the original Debt
Instrument because same has been lost, destroyed, stolen or mutilated, (i)
furnished the Reorganized Debtor with an executed affidavit of loss and
indemnity with respect thereto in form customarily utilized for such purposes
that is reasonably satisfactory to the Reorganized Debtor and (ii) provided to
the Reorganized Debtor a bond in such amount and form as the Reorganized Debtor
shall reasonably require to indemnify the Reorganized Debtor against any claim
that may be made against it on account of the alleged loss, theft or
distribution of any such Debt Instrument. If the holder of a Debt Instrument
fails to surrender such holder's original Debt Instrument or to provide an
affidavit and adequate bond on or before the 180th day following the Effective
Date, such holder shall be conclusively deemed to have received all Property to
which it is entitled to have received under the Plan and all such Property
otherwise distributable to such holder at any time under the Plan (including,
but not limited to, any of the ASF Pledged Stock or any of the New Common
Stock, or the proceeds of either) shall instead be distributed to the holders
of Allowed Claims in accordance with the provisions of the Plan.
Notwithstanding anything to the contrary contained in this Section 8.10, the
surrender to the Reorganized Debtor of the Debt Instruments held by the holders
of Class 10 Claims shall not be required for the holders of Class 6 and Class 7
Allowed Claims to receive the benefit of the subordination provisions in such
Debt Instruments, but no holder of a Class 10 Claim shall receive anything
under the Plan after payment in full of all Allowed Claims in Class 6 and Class
7 unless and until such holder shall have duly and punctually complied with the
provisions of this Section 8.10.
8.11. Releases. Upon the Effective Date, the Debtor and the
Reorganized Debtor, will be deemed to have released, acquitted and forever
discharged ASF and OTS, their respective existing officers, directors and
agents and their respective successors and assigns (collectively, the "Released
Parties") from any and all claims, demands, liabilities, debts, reckonings,
actions, causes of actions and obligations of any kind, whether direct or
indirect, absolute or contingent, due or to become due, at law or in equity
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and known or unknown, that the Debtor or the Reorganized Debtor (or the Chapter
11 estate of the Debtor) then have or ever had against any one or more of the
Released Parties, including, without limitation, any Avoidance Claim that the
Debtor or the Reorganized Debtor (or the Chapter 11 estate of the Debtor) might
have against one or more of the Released Parties; provided, however, that the
foregoing release shall in no way operate to release either ASF or OTS, or any
of their respective successors or assigns, from any obligation imposed upon ASF
or OTS by this Plan; and provided, further, however, that the foregoing release
shall not be deemed to have released any defendant in the Mendel/Grassgreen
Suit, the Milken Suit and Harris C. Friedman.
8.12. Estimation of Claims. The following types of Claims shall be
resolved under Section 502(b) of the Bankruptcy Code or estimated for purposes
of voting under Bankruptcy Rule 3018 and may be estimated for purposes of
allowance pursuant to Section 502(c) of the Bankruptcy Code, other than those
Claims that have been previously allowed by a Final Order pursuant to the Plan:
the KCLC Claims, the NCNB Claims, the Grassgreen Claim and all other Claims
scheduled by the Debtor as contingent, disputed or unliquidated (if the
claimant has timely filed a proof of claim).
ARTICLE 9
CONDITIONS PRECEDENT TO EFFECTIVENESS OF PLAN
The Effective Date shall not occur until each of the following
conditions has been satisfied:
1. The entry of the Confirmation Order by the Bankruptcy Court
and expiration of the appeal period with respect to the Confirmation Order
without the filing of a notice of appeal of such order; provided, however,
that, if an appeal of the Confirmation Order is filed but no stay is granted in
connection with the appeal, the Debtor may elect to permit the Effective Date
to occur notwithstanding the pendency of the appeal;
2. The entry of a Final Order determining that the amount of all
Priority Tax Claims and Administrative Claims (exclusive of those paid or
payable to professionals retained by the Debtor and Severance Payments) does
not exceed $1,500,000.
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3. The granting of any tax rulings by the Internal Revenue
Service that may be required in any reorganization plan filed by Retail; and
4. Inclusion in the Confirmation Order of an injunctive provision
staying, restraining and enjoining all Persons, from commencing, enforcing,
perfecting or (except as permitted by Final Order) setting-off any claim,
judgment or interest against the Debtor or any Property of the Debtor, or any
of its transferees, or against the Reorganized Debtor, or the Disbursement
Account, for the purpose of, directly or indirectly, collecting, recovering, or
receiving payment of, on, or with respect to any Claim or Shareholder Interest;
5. Occurrence of the Effective Date of the Enstar Financial Plan.
The Debtor shall be authorized to waive the conditions set forth in
paragraphs 1, 3 and 4 of this Article 9, but the written consent of ASF and OTS
shall be required for the Debtor to waive the conditions set forth in
paragraphs 2 and 5. Upon the satisfaction or waiver of each of the foregoing
conditions, the Debtor shall so notify the Bankruptcy Court and upon filing of
such notice the Plan shall become effective without further order of the
Bankruptcy Court.
ARTICLE 10
RETENTION OF JURISDICTION
After the Effective Date, the Reorganized Debtor and the Trustee will
be free to perform all functions assigned to them under this Plan without
approval of the Bankruptcy Court, except as specifically provided herein;
provided, however, that the Bankruptcy Court will continue to retain
jurisdiction over this case with respect to the following matters and for the
following purposes:
1. To resolve and enforce any and all causes of action which may
exist on behalf of the Debtor;
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2. To resolve all of the Disputed Claims, including all
objections to the allowance of Claims, and the compromise and settlement of any
objection to any Claims;
3. To adjudicate all applications, adversary proceedings and
contested matters that may be pending on the Confirmation Date;
4. To determine applications for allowance of compensation and
reimbursement of out-of-pocket expenses of the Reorganized Debtor's bankruptcy
counsel (if any), and any professionals retained, to the extent that such
compensation and out-of-pocket expenses relate to services performed after the
Effective Date; provided, however, that pending a hearing thereon, eighty-five
percent (85%) of all such compensation and one hundred percent (100%) of all
expenses shall be paid by the Reorganized Debtor on a current basis;
5. To adjudicate controversies, suits and disputes arising under
or in connection with the Plan and to issue orders in aid of execution of the
Plan;
6. To adjudicate adversary proceedings pending at the
Confirmation Date or thereafter brought to recover or avoid preferences,
fraudulent conveyances and other avoidance claims;
7. To determine any applications or motions for the rejection,
assumption or assignment of executory contracts or unexpired leases;
8. To determine any application to modify the Plan in accordance
with Bankruptcy Code Section 1127, or to correct any defect, cure any omission
or reconcile any inconsistency in the Plan, the Disclosure Statement or the
Confirmation Order as may be necessary or desirable to carry out the purposes
and intent of the Plan;
9. To determine such other matters or proceedings as may be
provided for under Title 28, the Bankruptcy Code, the Bankruptcy Rules, this
Plan or the Confirmation Order.
ARTICLE 11
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MISCELLANEOUS
11.1. Limitation of Liability. The Debtor and the Creditors'
Committee and any of their respective members, directors, officers or agents,
including, without limitation, their legal counsel, accountants, consultants or
employees, shall not be liable to the Debtor, any holder of a Claim against or
Shareholder Interest in the Debtor or any other entity for any action taken or
omitted to be taken in connection with this Chapter 11 case or under the Plan,
except that such liability may be imposed for willful misconduct. The
Bankruptcy Court shall have exclusive jurisdiction to hear and determine any
questions concerning any such liability.
11.2. Amendments to the Plan. The Debtor reserves all rights to
amend, modify, alter or withdraw this Plan before the Confirmation Date and to
amend, modify, or alter this Plan after the Confirmation Date in accordance
with the Bankruptcy Code.
11.3. Headings. Article, section and subsection headings used
herein are for convenience only and shall not effect the interpretation or
construction of any provision of this Plan.
11.4. Time. Bankruptcy Rule 9006 shall be used to compute any
period of time prescribed or allowed by this Plan.
11.5. Cramdown. The Debtor reserves the right to seek confirmation
of the Plan under Section 1129(b) of the Bankruptcy Code, notwithstanding the
failure of any impaired class to accept this Plan.
11.6. OTS Regulation. Except as otherwise expressly provided
herein, nothing in this Plan or OTS's acceptance hereof is intended or should
be construed as a waiver by OTS of any enforcement power or authority which OTS
may exercise with respect to ASF or the Debtor.
11.7. No Admissions; Objections to Claims. Nothing in this Plan
shall be deemed to constitute an admission that any Person referred to herein
as being the holder of a Claim is the holder of an Allowed Claim, except as
expressly provided in this Plan. The failure of the Debtor to object to or
examine any Claim
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for purposes of voting shall not be deemed a waiver of the Debtor's rights to
object to or reexamine such Claim, in whole or in part.
11.8. No Bar to Suits. Neither this Plan nor confirmation hereof
shall operate to bar or estop the Reorganized Debtor from commencing any
action, suit or proceeding against any holder of a Claim or any other Person on
any cause of action (except as herein released), whether such cause of action
arose prior to or after the Confirmation Date and whether or not the existence
of such cause of action was disclosed in the Disclosure Statement.
11.9. Section 1146 Exemption. Pursuant to Section 1146(c) of the
Bankruptcy Code, the issuance, transfer or exchange of any security under this
Plan or the making or delivery of any instrument or transfer pursuant to, in
implementation of or as contemplated by this Plan or the transfer of any
property pursuant to this Plan shall not be taxed under any state or local law
imposing a stamp tax, transfer tax or similar tax or fee.
11.10. Successors and Assigns. The rights and obligations of any
Person named or referred to in this Plan shall be binding upon and inure to the
benefit of the successors and assigns of such Persons.
Respectfully submitted,
THE ENSTAR GROUP, INC.
By: /s/ Nimrod T. Frazer
-----------------------------------
Nimrod T. Frazer,
Chairman of the Board
PARKER, HUDSON, RAINER & DOBBS
Counsel for the Debtor
1200 Carnegie Building
133 Carnegie Way
Atlanta, Georgia 30303
(404) 523-5300
By: /s/ J. Marbury Rainer
-----------------------------------
J. Marbury Rainer
-34-
<PAGE> 37
By: /s/ C. Edward Dobbs
-----------------------------------
C. Edward Dobbs
-35-
<PAGE> 1
EXHIBIT 2.2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
IN RE: )
)
THE ENSTAR GROUP, INC., a )
Delaware corporation, formerly )
known as Kindercare, Inc., formerly ) CHAPTER 11
known as Kinder-Care Learning ) CASE NO. 91-02618
Centers, Inc., successor by merger )
to Max Ward Delmar Studios, Inc., )
)
Debtor. )
- ------------------------------------)
AMENDED MODIFICATION TO SECOND AMENDED
PLAN OF REORGANIZATION OF THE ENSTAR GROUP, INC.
The Enstar Group, Inc. hereby proposes the following Modification to
Second Amended Plan of Reorganization for the Debtor pursuant to Chapter 11 of
the United States Bankruptcy Code, 11 U.S.C. ss.ss. 101 et seq. This
Modification contains only the paragraphs of the Plan which are modified and
added by the Modification. Deletions are noted by brackets and line-outs.
Additional or new language is underlined.
ARTICLE 1
DEFINITIONS
Available Cash shall mean, at any time, the amount of cash held by the
Debtor (excluding cash on deposit in the Expense Reserve, the
Disputed Claims Reserve or the Tax Reserve) and available to be
distributed to the holders of Allowed Claims in accordance with this
Plan.
Class Representative shall mean a representative from each of Classes
4, 5, 6, 7, 8 and 10; and, in the case of Classes 4, 5 and 7, the
representative for each such Class shall be the sole member of such
Class; and, in the case of Classes 6, 8 and 10, the representative for
each such Class shall be a Person designated on or before the
Effective Date by the holders of at least 66.66% in amount of Claims
(excluding Disputed Claims) in such Class; and, in the event of any
failure of the holders of Claims in any such Class to designate such a
representative on or before the effective date, the Debtor or the
Creditors' Committee may, but
<PAGE> 2
shall not be required, to appoint a member of the Class as the Class
Representative of the Class.
Effective Date shall mean a date designated in writing by the Debtor
and filed with the Bankruptcy Court which date shall be the first
Business Day following the date on which all conditions to
effectiveness of the Plan set forth in Article 9 hereof have been
satisfied or, to the extent permitted under this Plan, waived. The
Effective Date was June 1, 1992. The confirmation of the Plan as
modified shall not cause a change in or otherwise affect the Effective
Date.
Expense Reserve shall mean a reserve from Available Cash in an amount
equal to $2,000,000 , which amount is to be reserved from distribution
to the holders of Claims pending full implementation of the Plan to
assure payment of the estimated professional fees, expenses and costs
that the Debtor or Reorganized Debtor anticipates will be incurred in
connection with the performance of its duties under this Plan and
applicable law and the pursuit of the Mendel/Grassgreen Suit and the
Milken Suit.
Legal Rate shall mean the legal rate of interest allowed under 28
U.S.C. ss. 1961 on June 1, 1992, the Effective Date, that being the
annual rate of 4.26%.
New Common Stock shall mean the shares of the common stock, having a
par value of $.01 per share, to be issued by the Reorganized Debtor .
Tax Reserve shall mean a reserve into which the Reorganized Debtor
shall deposit monies on account of potential tax obligations in
accordance with the provisions of Section 8.13 of the Plan as
modified.
ARTICLE 2
CLASSIFICATION OF CLAIMS AND INTEREST
2.10(a). Class 10(a) -- Claims of Certain Holders of Swiss Franc
5-3/4% Bonds and 6% Subordinated Bonds. Class 10(a) shall consist solely of the
Claims of holders of Swiss Franc 5-3/4% Bonds and Swiss Franc 6% Subordinated
Bonds who did not surrender such
- 2 -
<PAGE> 3
bonds for cancellation before the 180th day following the Effective Date but
who surrender for cancellation all such bonds before the 30th day following the
confirmation date of the Plan as modified and provide the Reorganized Debtor
with the following information in a sworn statement signed by each beneficial
owner of the bonds at or before the 60th day following the confirmation date of
the Plan as modified: The name of the beneficial owner of the bonds and a
statement regarding whether the beneficial owner owned Swiss Franc 5-3/4% Bonds
and Swiss Franc 6% Subordinated Bonds on June 1, 1992, with a total value of
more than Sfr. 6,675,750. If such beneficial owner owned bonds on such date
with a total value of more than Sfr. 6,675,750, the beneficial owner will be
required to provide such information regarding any trading of the bonds by such
beneficial owner as may be requested subsequently by the Debtor.
ARTICLE 5
TREATMENT OF IMPAIRED CLASSES
5.1. Treatment of Class 4 Claims. Effective upon the Effective Date of
the Plan, ASF shall be deemed to have authorized the Reorganized Debtor to sell
or otherwise dispose of (in accordance with the Plan) any or all of the
Property securing any or all of the ASF Secured Claim; shall be deemed to have
released ASF's Lien upon any proceeds realized by the Reorganized Debtor from
any such sale or other disposition of any such Property securing any or all of
the ASF Secured Claim and to have consented to a distribution of such proceeds
in accordance with this Plan; and shall promptly after the Effective Date
return to the Debtor any certificates and other instruments in ASF's possession
representing the Debtor's ownership of any of the ASF Pledged Stock, the Retail
Stock or any of the LPT Partnerships. ASF shall be deemed on the Effective Date
to be the holder of an Allowed Claim that is an Unsecured Claim in the amount
of $36,000,000, which Claim shall not be subject to reconsideration or
subordination. ASF shall receive, on account of such Claim, 66.66% of all
Distributions until all such Allowed Claim of ASF against the Debtor is paid in
full. In no event, however, shall ASF be entitled to receive any proceeds
derived from any sale or other disposition of any of the ASF Pledged Stock
until the Allowed Claims in Classes 6, 7, 8 and 10 are paid in full. If at such
time as the holders of Allowed Claims entitled to receive Property pursuant to
this Plan in Classes 6, 7, 8 and 10 are paid in full, the ASF Claim is not paid
in full, ASF shall be entitled to receive on account of such Claim proceeds of
the ASF Pledged Stock and Distributions in accordance with Section 5.11 of this
Plan as modified.
5.7(a). Treatment of Class 10(a) Claims. Each holder of a Class 6
Claim and a Class 10 Claim who did not surrender for
- 3 -
<PAGE> 4
cancellation the holder's Swiss Franc 5-3/4% Bonds and Swiss Franc 6%
Subordinated Bonds held by such holder before the 180th day following the
Effective Date but who surrenders such bonds for cancellation and provides the
information set out in Section 2.10(a) of the Plan as modified before the 30th
day following the date of confirmation of the Plan as modified shall be
entitled to receive payments on account of such Claim as provided in Section
5.11 of the Plan as modified.
5.8. Treatment of Class 11 Claims. In accordance with Section 510(b)
of the Bankruptcy Code, the holders of Class 11 Claims that are Allowed Claims
shall not be entitled to receive any Property pursuant to the Plan until the
holders of Allowed Claims in Classes 4, 5, 6, 7, 8, 10 and 10(a) that are
entitled to receive Property pursuant to the Plan have been paid in full and
have been paid all interest accrued on their Allowed Claims at the Legal Rate
in accordance with Section 5.11 of this Plan. At such time, holders of Class 11
Claims that are Allowed Claims who are also holders of Shareholder Interests on
the Effective Date shall be entitled to receive distributions as holders of
Class 13 Interests in accordance with Section 5.11(d) of this Plan as modified.
5.10. Treatment of Class 13 Interests. Effective upon the Effective
Date, all Common Stock shall be cancelled and the holders of Shareholder
Interests shall receive nothing on account of such Shareholder Interests until
such time as the holders of all Allowed Claims in Classes 4, 5, 6, 7, 8, 10 and
10(a) that are entitled to receive Property pursuant to this Plan, have been
paid in full and have been paid all interest accrued on their Allowed Claims at
the legal rate in accordance with Section 5.11 of this Plan.
5.11. In the event that the holders of Allowed Claims in Classes 6, 7,
8 and 10 entitled to receive Property pursuant to this Plan are paid in full,
any remaining proceeds of the ASF Pledged Stock and any other remaining
Property shall be distributed as follows:
(a) From such time as the holders of Allowed Claims in Classes 6, 7, 8
and 10 entitled to receive Property pursuant to this Plan are paid in full, the
holder of the Class 4 Claim shall be entitled to receive all Distributions and
all remaining proceeds of the ASF Pledged Stock until the Class 4 Claim is paid
in full.
(b) In the event that all holders of Allowed Claims in Classes 4, 5,
6, 7, 8 and 10 entitled to receive Property pursuant to this Plan are paid in
full, then any remaining Property available for distribution shall be
distributed to the holders of such Claims in payment of interest accrued on the
unpaid balance of their Allowed Claims at the Legal Rate from June 1, 1992.
Payment
- 4 -
<PAGE> 5
on such accrued interest shall be made to all such holders of Claims on
a pro rata basis.
(c) In the event that all Allowed Claims in Classes 4, 5, 6, 7, 8 and
10 entitled to receive Property pursuant to this Plan and all interest accrued
from June 1, 1992, on such Allowed Claims in Classes 4, 5, 6, 7, 8 and 10 are
paid in full, any remaining Property available for distribution shall be
distributed on a pro rata basis to holders of Class 10(a) Claims until the
Class 10(a) Claims are paid in full and all interest on the Class 10(a) Claims
accrued on their Allowed Claims at the Legal Rate from June 1, 1992, is paid in
full.
(d) In the event that all Allowed Claims in Classes 4, 5, 6, 7, 8, 10
and 10(a) entitled to receive Property pursuant to this Plan and all interest
accrued on Allowed Claims entitled to receive property in Classes 4, 5, 6, 7,
8, 10 and 10(a) are paid in full, holders of Class 13 Interests 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 holders of Class 13 Interests which held
such interests on the Effective Date; provided, however, that the Reorganized
Debtor may distribute to the holders of Class 13 Interests shares of New Common
Stock on a pro rata basis, in lieu of any distributions of remaining Property.
ARTICLE 8
MEANS OF IMPLEMENTATION OF THE PLAN
8.1. Records; Bank Account. The Reorganized Debtor shall maintain
records of all Allowed Claims and all Disputed Claims, including, without
limitation, the amount and classification of each such Claim, the name and
address of the holder thereof, the number of shares (if any) of New Common
Stock issued to the holder of the Claim and the amount of each periodic
Distribution with respect to each Claim. The Reorganized Debtor shall update
these records as required to reflect changes in any of the information
maintained with respect to the Claims, including the change in the status of
previously Disputed Claims that have become Allowed Claims. Immediately after
and to the extent that a Disputed Claim becomes an Allowed Claim by virtue of a
Final Order, the Reorganized Debtor shall amend the records maintained in
accordance with this Plan to delete such Disputed Claim from the list of
Disputed Claims and add it, in the amount Allowed, to the list of Allowed
Claims. On or before the Effective Date, the Reorganized Debtor shall establish
the Disbursement Account to be used for the purpose of making all payments
pursuant to the Plan. All Available Cash shall be deposited into the
Disbursement Account and shall be held in trust for the holders of Allowed
Claims. Cash in the
- 5 -
<PAGE> 6
Disbursement Account, the Expense Reserve, the Disputed Claims Reserve, and
the Tax Reserve may be invested in (a) interest bearing accounts, or
certificates of deposit in banks or trust companies having an aggregate capital
and surplus in excess of $70,000,000, (b) obligations of the United States
Treasury having maturities not exceeding 180 days or (c) such other investments
as shall be consistent with Section 345 of the Bankruptcy Code, giving due
regard to the Reorganized Debtor's need for such monies to insure availability
of sufficient funds to make all disbursements authorized or required by this
Plan on a timely basis.
8.2. Collection and Liquidation of Certain Assets. The Reorganized
Debtor shall continue to collect its assets and, with the exception of the ASF
Pledged Stock and the Retail Stock, shall promptly endeavor to convert such
assets to cash and shall deposit same in the Disbursement Account, the Expense
Reserve, the Disputed Claims Reserve or the Tax Reserve (and the Reorganized
Debtor may transfer funds to and from any such accounts to the extent necessary
to implement the provisions of this Plan). The Debtor shall be authorized to
vote for the Christa Plan and the Enstar Financial Plan.
8.4. Issuance and Disposition of New Common Stock. On the Effective
Date, the Reorganized Debtor shall issue the New Common Stock and deliver the
certificates evidencing same to the Trustee, who shall hold same in trust for
the benefit of the holders of all Allowed Claims that are Unsecured Claims in
Classes 4, 5, 6, 7, 8 and 10 in accordance with the treatment provided such
classes in Article 5, until the holders of such Allowed Claims entitled to
receive property pursuant to this Plan are paid in full. Prior to the payment
in full of said Allowed Claims, the Trustee shall be authorized to vote the
shares of the New Common Stock, in accordance with the directions given to him
by the holders of at least 51% in amount of Allowed Claims that are Unsecured
Claims who vote, for the purpose of electing the Board of Directors in
accordance with the amended and restated bylaws adopted as authorized by
Section 7.2 hereof. The New Common Stock will be held by the Trustee for
distribution only in the event of a direction to distribute said stock pursuant
to Section 5.11(d) of this Plan.
8.5. Distributions. On the Effective Date, the Reorganized Debtor
shall pay all Administrative Claims and Allowed Priority Tax Claims in
accordance with the provisions of Article 3 of this Plan and shall make all
Severance Payments in accordance with the Severance Order. Thereafter, the
Debtor shall disburse to the holders of all Allowed Claims, in accordance with
the treatment
- 6 -
<PAGE> 7
accorded such Claims pursuant to Article 5 of this Plan and to all professional
persons retained by the Debtor or the Reorganized Debtor for fees and expenses
incurred after the Confirmation Date, Available Cash and all other Property as
follows: (a) within thirty (30) days after the Effective Date all Available
Cash then on hand (other than amounts to be transferred from the Disbursement
Account to the Expense Reserve); (b) within forty-five (45) days following the
Reorganized Debtor's receipt thereof, any monies received in connection with
the prosecution or settlement of the Mendel/Grassgreen Suit, to the extent of
such monies less any monies or other property deposited into the Tax Reserve;
(c) within forty-five (45) days following the Reorganized Debtor's receipt
thereof, any monies received in connection with the prosecution or settlement
of the Milken Suit, to the extent of such monies after first deducting
therefrom any contingency fee payable to legal counsel out of the proceeds
thereof and less any monies or other property deposited into the Tax Reserve;
(d) within ninety (90) days following the Reorganized Debtor's receipt thereof,
any monies or other securities or property realized from any sale or other
disposition of the ASF Pledged Stock, to the extent of the net proceeds
realized from any such sale or other disposition less any monies or other
property deposited into the Tax Reserve; (e) within thirty (30) days following
the Reorganized Debtor's receipt thereof, any monies realized from any sale or
other disposition of any of the capital stock of any of the Reorganized
Debtor's direct or indirect subsidiaries (including any capital stock of any of
the Debtor Subsidiaries), to the extent of the net proceeds realized from any
such sale or other disposition; (f) within thirty (30) days after the
Reorganized Debtor's receipt thereof, any and all amounts earmarked for the
holders of Allowed Claims in connection with any merger transaction; (g) within
thirty (30) days following the entry of an order that becomes a Final Order
allowing, in whole or in part, a Disputed Claim, an amount of money from the
Disputed Claims Reserve that represents the pro rata share that the holder of
such Claim would have been entitled to receive pursuant to Article 5 hereof
based upon the amount of the Disputed Claim that is allowed by such Final
Order; (h) within thirty (30) days after receipt of a billing from a
professional person retained by the Debtor or the Reorganized Debtor, an amount
from the Expense Reserve (or, if the Expense Reserve is without sufficient
funds to pay same, from Available Cash) necessary to pay such billing; and (i)
on the date that the Debtor determines that it has fully recovered and
liquidated all of its assets , all Disputed Claims have been resolved by Final
Order, and all tax liabilities of the Reorganized Debtor have been determined
and paid in accordance with Section 8.13, all Available Cash and all amounts in
the Expense Reserve that are not required to pay accrued fees and expenses of
the Reorganized Debtor. In addition, the Reorganized Debtor shall distribute to
the Trustee, the New Common Stock, in accordance with Section 8.4 hereof.
8.6. Sale or Distribution of the ASF Pledged Stock. The Reorganized
Debtor shall be authorized to sell the ASF Pledged Stock, subject to all
requirements and limitations of applicable
- 7 -
<PAGE> 8
law, in such quantities and amounts as the Reorganized Debtor shall in its sole
discretion believe to be in the best interest of the holders of Allowed Claims
that are Unsecured Claims and to the end of maximizing the return thereon, but
the Reorganized Debtor shall in all events be required to sell or distribute
the ASF Pledged Stock within thirty-six (36) months following the Effective
Date unless otherwise agreed in writing by each Class Representative then
serving for a Class for which the Allowed Claims entitled to receive property
pursuant to the Plan have not been paid in full or which has not previously
directed the sale or distribution of its share of the ASF Pledged Stock
pursuant to this paragraph (or, in the case of Classes with no Class
Representative, by vote of at least 51% in number of the holders of Allowed
Claims in said Class who hold at least 66.66% in amount of the Allowed Claims);
provided, however, that if directed to do so after 180 days following the
Effective Date by at least 51% in number of holders of Allowed Claims in
Classes 6, 7 or 8 (or the holders of Allowed Claims in Class 10 from and after
the date on which all Allowed Claims in Class 6 and Class 7 have been paid in
full) who hold at least 66.66% in amount of the Allowed Claims in such Class,
the Reorganized Debtor shall be obligated, within one hundred eighty (180) days
following the Reorganized Debtor's receipt from the Class Representative (or in
the case of a Class with no Class Representative, from the members of the Class
voting for the sale or distribution of the stock) of a written notice of the
requisite vote requiring the Reorganized Debtor to sell or distribute a portion
of the ASF Pledged Stock or within sixty (60) days of OTS approval of the
proposed transaction, whichever is later, to: (a) sell the lesser of the amount
of the ASF Pledged Stock necessary to pay the Allowed Claims in such Class in
full or an amount of the ASF Pledged Stock that represents that Pro Rata Share,
determined in accordance with the Plan, of the ASF Pledged Stock allocable to
the aggregate Allowed Claims of such Class ; (b) pay the Allowed Claims in said
Class in full from funds borrowed by the Debtor on a nonrecourse basis using as
collateral for the borrowing no more than the Pro Rata Share of the ASF Pledged
Stock of said Class and the Class's share of the anticipated monies to be
received in connection with the Milken Suit; or (c) subject to any required
regulatory approval, distribute to the holders of Allowed Claims in said Class
the lesser of said Class's Pro Rata Share or the number of shares of ASF
Pledged Stock necessary to pay the Allowed Claims in full (for purposes of this
distribution the value of a share of ASF Pledged Stock shall be the average
share price for the last trade of the ASF Stock on the 30 business days
preceding the date of the receipt by the Reorganized Debtor of the written
direction to sell or distribute by said Class). Once a Class has directed the
sale or distribution of its share of the ASF Pledged Stock pursuant to this
paragraph, the holders of Allowed Claims in such Class shall be entitled to no
further distributions
- 8 -
<PAGE> 9
from the proceeds of the ASF Pledged Stock until the Allowed Claims in Classes
4, 5, 6, 7, 8 and 10 (other than the Class directing the sale) are paid in
full.
8.10. Cancellation of Debt Instruments. No holder of a Debt Instrument
shall be entitled to receive any Property pursuant to this Plan unless and
until such holder shall have either (a) surrendered or caused to be surrendered
to the Reorganized Debtor the original Debt Instrument held by such holder or
(b) if such holder is unable to surrender the original Debt Instrument because
same has been lost, destroyed, stolen or mutilated, (i) furnished the
Reorganized Debtor with an executed affidavit of loss and indemnity with
respect thereto in form customarily utilized for such purposes that is
reasonably satisfactory to the Reorganized Debtor and (ii) provided to the
Reorganized Debtor a bond in such amount and form as the Reorganized Debtor
shall reasonably require to indemnify the Reorganized Debtor against any claim
that may be made against it on account of the alleged loss, theft or
distribution of any such Debt Instrument. If the holder of a Debt Instrument
fails to surrender such holder's original Debt Instrument or to provide an
affidavit and adequate bond on or before the 180th day following the Effective
Date, such holder shall be conclusively deemed to have received all Property to
which it is entitled to have received under the Plan (except to the extent such
holder may be entitled to receive distributions of Property pursuant to Section
5.11(c) of this Plan) and all such Property otherwise distributable to such
holder at any time under the Plan (including, but not limited to, any of the
ASF Pledged Stock or any of the New Common Stock, or the proceeds of either)
shall instead be distributed to the holders of Allowed Claims in accordance
with the provisions of the Plan. Notwithstanding anything to the contrary
contained in this Section 8.10, the surrender to the Reorganized Debtor of the
Debt Instruments held by the holders of Class 10 Claims shall not be required
for the holders of Class 6 and Class 7 Allowed Claims to receive the benefit of
the subordination provisions in such Debt Instruments, but no holder of a Class
10 Claim shall receive anything under the Plan after payment in full of all
Allowed Claims in Class 6 and Class 7 unless and until such holder shall have
duly and punctually complied with the provisions of this Section 8.10.
8.13. Tax Reserve. The Reorganized Debtor shall deposit into the Tax
Reserve such monies received from the prosecution of the Mendel/Grassgreen Suit
and the Milken Suit, proceeds of the ASF Pledged Stock, or any other Property
as may be necessary to provide sufficient funds for any potential federal or
state tax liability. Within 60 days of a final determination of tax liability
for the Reorganized Debtor pursuant to 11 U.S.C. ss. 505 and the payment of any
taxes determined to be due, any monies remaining in the Tax Reserve shall be
deposited into the Disbursement Account and redistributed to the holders of
Allowed Claims or Shareholder Interests on a pro rata basis in accordance with
Section 8.5 of this Plan.
- 9 -
<PAGE> 10
ARTICLE 10
RETENTION OF JURISDICTION
4. To adjudicate controversies, suits and disputes arising under or
in connection with the Plan and to issue orders in aid of execution of the
Plan;
5. To adjudicate adversary proceedings pending at the Confirmation
Date or thereafter brought to recover or avoid preferences, fraudulent
conveyances and other avoidance claims;
6. To determine any applications or motions for the rejection,
assumption or assignment of executory contracts or unexpired leases;
7. To determine any application to modify the Plan in accordance
with Bankruptcy Code Section 1127, or to correct any defect, cure any
omission or reconcile any inconsistency in the Plan, the Disclosure Statement
or the Confirmation Order as may be necessary or desirable to carry out the
purposes and intent of the Plan;
ARTICLE 11
MISCELLANEOUS
11.8. Restrictions on Trading in Claims. From and after the
confirmation date of the Plan as modified pursuant to 11 U.S.C. ss. 1127, no
Claim will be transferrable unless and until the holder of such Claim receives
authorization from the Debtor or an Order from the Court that such Claim may be
traded. Unless the transfer of a Claim has been authorized pursuant to this
paragraph, no holder of a Claim, other than the holder of such Claim on said
confirmation date, shall be entitled to receive Distributions or proceeds of
the ASF Pledged Stock.
11.9. No Bar to Suits. Neither this Plan nor confirmation hereof
shall operate to bar or estop the Reorganized Debtor from commencing any
action, suit or proceeding against any holder of a Claim or any other Person
on any cause of action (except as herein released), whether such cause of
action arose
- 10 -
<PAGE> 11
prior to or after the Confirmation Date and whether or not the existence of
such cause of action was disclosed in the Disclosure Statement.
11.10. Section 1146 Exemption. Pursuant to Section 1146(c) of the
Bankruptcy Code, the issuance, transfer or exchange of any security under this
Plan or the making or delivery of any instrument or transfer pursuant to, in
implementation of or as contemplated by this Plan or the transfer of any
property pursuant to this Plan shall not be taxed under any state or local law
imposing a stamp tax, transfer tax or similar tax or fee.
11.11. Successors and Assigns. The rights and obligations of any
Person named or referred to in this Plan shall be binding upon and inure to the
benefit of the successors and assigns of such Persons.
Respectfully submitted, this 30th day of June, 1993.
THE ENSTAR GROUP, INC.
By:/s/ Nimrod T. Frazer
----------------------------
Nimrod T. Frazer,
Chairman of the Board
PARKER, HUDSON, RAINER & DOBBS
Counsel for the Debtor
1500 Marquis Tower
285 Peachtree Center Avenue, NE
Atlanta, Georgia 30303
(404) 523-5300
By:/s/ J. Marbury Rainer
----------------------------
J. Marbury Rainer
By:/s/ C. Edward Dobbs
----------------------------
C. Edward Dobbs
- 11 -
<PAGE> 1
EXHIBIT 2.3
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of this 30th day of December, 1996, by and between THE ENSTAR
GROUP, INC., a Delaware corporation ("Enstar-Delaware"), and THE ENSTAR GROUP,
INC., a Georgia corporation ("Enstar-Georgia")(Enstar-Delaware and
Enstar-Georgia being sometimes collectively referred to herein as the
"Constituent Corporations").
WITNESSETH:
WHEREAS, Enstar-Delaware is a corporation organized under the laws of
the State of Delaware;
WHEREAS, Enstar-Delaware has authorized capital stock consisting of
100 shares of common stock, having a $.01 par value, of which 100 shares are
issued and outstanding;
WHEREAS, Enstar-Georgia is a corporation organized under the laws of
the State of Georgia;
WHEREAS, Enstar-Georgia has authorized capital stock consisting of
55,000,000 shares of common stock, having a $.01 par value, of which 100 shares
are issued and outstanding;
WHEREAS, Enstar-Georgia is a newly formed and wholly-owned subsidiary
of Enstar-Delaware;
WHEREAS, the laws of the State of Georgia and the State of Delaware
permit a merger of the Constituent Corporations;
WHEREAS, the Boards of Directors of Enstar-Delaware and
Enstar-Georgia have determined that it is advisable and for the
<PAGE> 2
benefit of each of the Constituent Corporations and their respective
shareholders that Enstar-Delaware be merged with and into Enstar-Georgia on the
terms and conditions hereinafter set forth, and by resolutions duly adopted
have adopted the terms and conditions of this Agreement; and directed that the
proposed merger be submitted to the sole shareholder of Enstar-Delaware and the
sole shareholder of Enstar-Georgia; and recommended to such sole shareholders
the approval of the terms and conditions hereinafter set forth; and
WHEREAS, the Constituent Corporations intend for the proposed merger
to be treated as a reorganization under Section 368(a)(1)(F) of the Internal
Revenue Code;
NOW, THEREFORE, for and in consideration of the premises and of the
mutual agreements, promises and covenants contained herein, it is agreed by and
between the parties hereto, subject to the conditions hereinafter set forth and
in accordance with the Georgia Business Corporation Code and the Delaware
General Corporation Law, that Enstar-Delaware shall be and hereby is, at the
"Effective Time" (as hereinafter defined), merged with and into Enstar-Georgia
(with Enstar-Delaware subsequent to such merger being referred to in this
Agreement as the "Merged Corporation" and Enstar-Georgia being referred to as
the "Surviving Corporation") and that the terms and conditions of said merger
and mode of carrying the same into effect shall be as follows:
Section 1. Enstar-Delaware shall be merged with and into
Enstar-Georgia.
- 2 -
<PAGE> 3
Section 2. The Articles of Incorporation of Enstar-Georgia, as in
effect on the Effective Time of this Agreement, shall continue in full force
and effect as the Articles of Incorporation of the Surviving Corporation.
Section 3. The manner of converting the outstanding shares of the
capital stock of each of the Constituent Corporations into the shares or other
securities of the Surviving Corporation shall be as follows:
(a) All of the outstanding shares of common stock of the Merged
Corporation shall be converted into shares of common stock of the Surviving
Corporation to be held by the sole shareholder in trust for the former
shareholders of the Merged Corporation until distribution or other disposition
of the shares of common stock of the Surviving Corporation pursuant to the
terms of the Merged Corporation's Second Amended Plan of Reorganization dated
December 5, 1991, as modified (the "Plan").
(b) All of the outstanding shares of common stock of the Surviving
Corporation held by the Merged Corporation as sole shareholder shall be
cancelled.
(c) The merger of the Constituent Corporations is intended to be
treated as a reorganization pursuant to Section 368 (a)(1)(F) of the Internal
Revenue Code.
Section 4. The terms and conditions of the merger are as follows:
(a) The Bylaws of the Surviving Corporation as they shall exist on
the Effective Time of this Agreement shall be and remain
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<PAGE> 4
the Bylaws of the Surviving Corporation until the same shall be altered,
amended and repealed as therein provided.
(b) The directors and officers of the Surviving Corporation shall
continue in office until the next annual meeting of shareholders as provided in
the Bylaws of the Surviving Corporation.
(c) This Agreement shall be submitted for approval to the sole
shareholder of Enstar-Georgia and the sole shareholder of Enstar-Delaware as
provided in the Georgia Business Corporation Code and the Delaware General
Corporation Law. If this Agreement is duly authorized and adopted by the sole
shareholders and is not terminated and abandoned pursuant to the provisions of
Section 6 hereof, this Agreement shall be executed, and Certificates of Merger
incorporating the terms of this Agreement, shall be filed and recorded in
accordance with the laws of the State of Georgia and the State of Delaware as
soon as practicable after the approval of the sole shareholders. The Board of
Directors and the proper officers of the Constituent Corporations are
authorized, empowered and directed to do any and all acts and things, and to
make, execute, deliver, file, record any and all instruments, papers and
documents which shall be or become necessary, proper, or convenient to carry
out or put into effect any of the provisions of this Agreement or of the merger
provided for herein.
(d) This merger shall become effective as of 11:59 p.m. on
December 31, 1996 (the "Effective Time").
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<PAGE> 5
(e) Upon the Effective Time, all the property, rights, privileges,
franchises, patents, trademarks, licenses, registrations and other assets of
every kind and description of the Merged Corporation (including, without
limitation, the liabilities and obligations of the Merged Corporation pursuant
to the Plan) shall be transferred to, vested in and devolve upon the Surviving
Corporation without further act or deed and all property, rights, and every
other interest of the Surviving Corporation and the Merged Corporation shall be
as effectively the property of the Surviving Corporation as they were of the
Surviving Corporation and the Merged Corporation respectively. The Merged
Corporation hereby agrees from time to time, as and when requested by the
Surviving Corporation or by its successors or assigns, to execute and deliver
or cause to be executed and delivered all such deeds and instruments and to
take or cause to be taken such further or other action as the Surviving
Corporation may deem necessary or desirable in order to vest in and confirm to
the Surviving Corporation title to and possession of any property of the Merged
Corporation acquired or to be acquired by reason of or as a result of the
merger herein provided for and otherwise to carry out the intent and purposes
hereof and the proper officers and directors of the Merged Corporation and the
proper officers and directors of the Surviving Corporation are fully authorized
in the name of the Merged Corporation or otherwise to take any and all such
action.
Section 5. The Surviving Corporation may be served with process in the
State of Delaware in any proceeding for enforcement
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<PAGE> 6
of any obligation of Enstar-Delaware as well as for enforcement of any
obligation of the Surviving Corporation arising from the merger, including any
suit or other proceeding to enforce the right of any shareholder as determined
in appraisal proceedings pursuant to the provisions of Section 262 of the
Delaware General Corporation Law and the Surviving Corporation does hereby
irrevocably appoint the Secretary of State of Delaware as its agent to accept
service of process in any such suit or other proceeding. The address to which
a copy of such process shall be mailed by the Secretary of State of Delaware is
172 Commerce Street, 3rd Floor, Montgomery, Alabama 36104 until the Surviving
Corporation shall hereafter have designated in writing to the said Secretary of
State a different address for such purpose. Service of such process may be
made by personally delivering to and leaving with the Secretary of State of
Delaware duplicate copies of such process, one of which copies the Secretary of
State of Delaware shall forthwith send by registered mail to said
Enstar-Georgia at the above address.
Section 6. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and abandoned by mutual
consent of the Board of Directors of either of the Constituent Corporations at
any time prior to the date of filing a Certificate of Merger with the Secretary
of State of Delaware and a Certificate of Merger with the Secretary of State of
Georgia. This Agreement may be amended by the Board of Directors of its
Constituent Corporations at any time prior to the date of filing a Certificate
of Merger with the Secretary of State of Delaware and
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<PAGE> 7
a Certificate of Merger with the Secretary of State of Georgia, provided that
an amendment made subsequent to the adoption of this Agreement by the
shareholders of either of the Constituent Corporations shall not (1) alter or
change the amount or kind of shares, securities, cash, property and/or rights
to be received in exchange for or on conversion of all or any of the shares of
any class or series of shares thereof of such Constituent Corporation, (2)
alter or change any term of the Articles of Incorporation of the Surviving
Corporation to be effected by the merger, or (3) alter or change any of the
terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of any class or series thereof of either of the
Constituent Corporations.
IN WITNESS WHEREOF, the Constituent Corporations have each caused this
Agreement to be executed, their respective corporate seals to be affixed and
the foregoing attested, all by their respective duly authorized officers, as of
the 30th day of December, 1996.
THE ENSTAR GROUP, INC.,
ATTEST: a Delaware corporation
/s/ Cheryl D. Davis By: /s/ Nimrod T. Frazer
- --------------------------------- -----------------------------------
Cheryl D. Davis, Secretary Nimrod T. Frazer, President
[CORPORATE SEAL]
THE ENSTAR GROUP, INC.,
ATTEST: a Georgia corporation
/s/ Cheryl D. Davis By: /s/ Nimrod T. Frazer
- --------------------------------- -----------------------------------
Cheryl D. Davis, Secretary Nimrod T. Frazer, President
[CORPORATE SEAL]
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<PAGE> 1
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
THE ENSTAR GROUP, INC.
ARTICLE I
The name of the Corporation is The Enstar Group, Inc.
ARTICLE II
The Corporation has authority to issue an aggregate of Fifty-Five Million
(55,000,000) shares of $.01 par value stock that together have unlimited voting
rights and that together are entitled to receive the net assets of the
Corporation upon dissolution. Said shares of stock may be referred to as
"Common Stock".
ARTICLE III
No shareholder shall have the preemptive right to subscribe for or purchase
any shares or other securities issued by the Corporation.
ARTICLE IV
The Corporation is to have perpetual existence.
ARTICLE V
The initial Board of Directors of the Corporation shall consist of four
(4) members whose names and addresses are as follows:
Nimrod T. Frazer
172 Commerce Street, 3rd Floor
Montgomery, Alabama 36104
T. Whit Armstrong
Citizens Bank
301 S. Edwards
Enterprise, Alabama 36311
T. Wayne Davis
Davis Foundation
1910 San Marco Boulevard
Jacksonville, Florida 32207
<PAGE> 2
J. Christopher Flowers
Goldman Sachs
18th Floor
85 Broad Street
New York, New York 10004
ARTICLE VI
The terms of the directors of the Corporation shall be staggered by
dividing the total number of directors into three groups, with each group
containing one-third of the total number of directors, or as close to such
fraction as is possible. The shareholders may remove a director only with
cause.
ARTICLE VII
The name of the Incorporator is Jennifer M. Crane, and her address is 1500
Marquis Two Tower, 285 Peachtree Center Avenue, Atlanta, Georgia 30303.
ARTICLE VIII
The address of the initial registered office of the Corporation shall be,
1201 Peachtree Street, N.E., Atlanta, Fulton County, Georgia 30361. The initial
registered agent of the Corporation at such address shall be CT Corporation
System.
ARTICLE IX
The mailing address of the initial principal office of the Corporation is
172 Commerce Street, 3rd Floor, Montgomery, Alabama 36104.
ARTICLE X
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be now or hereafter organized under the Georgia
Business Corporation Code, or by any other law of Georgia and by these Articles
of Incorporation, together with any powers incidental thereto.
ARTICLE XI
Subject to the provisions of Section 14-2-704 of the Georgia Business
Corporation Code, any action required by the Georgia Business Corporation Code
to be taken at a meeting of the shareholders of the Corporation or any action
which may be taken at a meeting of the shareholders may be taken without a
meeting if written consent, setting forth the action so taken, shall be signed
by persons who would be entitled to vote at a meeting those shares having
voting power to cast not less than the
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<PAGE> 3
minimum number (or numbers in the case of voting by classes) of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote were present and voted.
ARTICLE XII
Special meetings of the shareholders of the Corporation for any purpose or
purposes may be called at any time by the Chairman, or by the written request
of a majority of the members of the Board of Directors, but such special
meetings may not be called by any other person or persons, except as may be
required by the Georgia Business Corporation Code.
ARTICLE XIII
No director of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages for breach of duty of care or other duty as a
director, other than liability (i) for any appropriation, in violation of his
duties, of any business opportunity of the Corporation, (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 Georgia
Business Corporation Code, or (iv) for any transaction from which the director
derived an improper personal benefit. If the Georgia Business Corporation Code
is hereafter amended to authorize the further limitation or elimination of the
liability of a director, then the liability of a director of the Corporation
shall be limited or eliminated to the fullest extent permitted by the amended
Georgia Business Corporation Code. Any repeal of modification of this Article
XIII shall be prospective only and shall not adversely affect any limitation or
elimination of the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
ARTICLE XIV
Any shareholder entitled to vote for the election of directors may submit
to the Board of Directors nominations for the election of directors only by
giving written notice (such written notice to include a statement of the
qualifications of the nominee) to the Secretary of the Corporation at least
sixty (60) days but not more than ninety (90) days prior to the annual meeting
of shareholders at which directors are to be elected, unless such requirement
is waived in advance of the meeting by the Board of Directors.
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<PAGE> 4
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Incorporation.
/s/ Jennifer M. Crane
------------------------------------
Jennifer M. Crane, Incorporator
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<PAGE> 1
EXHIBIT 3.2
THE ENSTAR GROUP, INC.
BYLAWS
ARTICLE I
SHAREHOLDERS
Section 1. ANNUAL MEETINGS. The annual meeting of the shareholders of this
Corporation for the election of directors, and for the transaction of such other
business as may properly come before the meeting, shall be held at the principal
business office of this Corporation, or at such other place within or without
the State of Georgia as may be designated from time to time, on the third
Thursday in May in each year, at 10:00 o'clock in the morning, or, in the event
that the same shall fall upon a legal holiday, then upon the next succeeding
business day. However, failure to hold the annual meeting at the designated time
or to elect a sufficient number of directors to conduct the business of the
Corporation shall not affect otherwise valid corporate acts or work a forfeiture
or dissolution of the Corporation except as may be otherwise specifically
provided by law. If the annual meeting for election of directors is not held on
the date designated therefor, the directors shall cause the meeting to be held
as soon thereafter as may be convenient. The annual meeting may be called prior
to the designated time, in which event each shareholder of record shall be
notified as provided in Article I, Section 3, of these Bylaws.
Section 2. NOTICE OF ANNUAL MEETING. Notice of any annual meeting of the
shareholders of this Corporation shall be given in writing, personally or by
mail, by the Secretary to each shareholder of record not less than ten (10) nor
more than sixty (60) days before such meeting. The notice shall state the place,
date and hour of such meeting and, if special action is to be taken, such notice
also shall state the special action which is proposed to be taken. If notice of
the annual meeting is mailed, it shall be deemed to have been given when
deposited in the United States mail, postage prepaid, directed to the
shareholder at his address as it appears on the records of the Corporation.
Section 3. SPECIAL MEETING. A special meeting of the shareholders of this
Corporation may be called at any time by the Chairman, or by the written request
of a majority of the Board of Directors; but such special meetings may not be
called by any other person or persons except as may be required by the Georgia
Business Corporation Code. Such meeting may be held at any time and at any place
within or without the State of Georgia, which
<PAGE> 2
time and place shall be specified in such request. No business other than that
specified in the notice of the meeting shall be transacted.
Section 4. NOTICE OF SPECIAL MEETING. Notice of any special meeting of the
shareholders of this Corporation shall be given in writing, personally or by
mail, by the Secretary to each shareholder or record not less than ten (10) nor
more than sixty (60) days before such meeting. The notice shall state the place,
date and hour of such meeting, and such notice also shall state the purpose or
purposes for which the meeting is called. If notice of a special meeting is
mailed, it shall be deemed to have been given when deposited in the United
States mail, postage prepaid, directed to the shareholder of record at his
address as it appears on the records of the Corporation.
Section 5. WAIVER OF NOTICE. Any shareholder entitled to notice pursuant to
these Bylaws may waive notice, either of the annual or any special meeting of
the shareholders, before or after the time stated in such notice. A waiver of
notice in writing signed by the shareholder entitled to such notice shall be
equivalent to the giving of such notice. Neither the business to be transacted
nor the purpose of any regular or special meeting of shareholders need be
specified in any such written waiver of notice. Attendance of a shareholder at a
shareholders' meeting shall constitute waiver of notice of such meeting except
when the shareholder attends the meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
Section 6. ACTION WITHOUT MEETING. Any action required to be, or which may
be, taken at a meeting of the shareholders, may be taken without a meeting if
written consent, setting forth the actions so taken, shall be signed by persons
who would be entitled to vote at a meeting those shares having voting power to
cast not less than the minimum number (or numbers, in the case of voting by
classes) of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote were present and voted; except
that, such written consent shall not be valid unless (i) the consenting
shareholders have been furnished the same materials, that pursuant to the
Georgia Business Corporation Code, would have been required to be sent to
shareholders in a notice of a meeting at which the proposed action would have
been submitted to the shareholders for action, including notice of any
applicable dissenters' rights as provided in Section 14-2-1320 of the Georgia
Business Corporation Code, or (ii) the written consent contains an express
waiver of the right to receive the material otherwise required to be furnished.
Pursuant to the Georgia Business Corporation Code, notice shall be given within
ten (10) days of the taking of corporate action
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<PAGE> 3
without a meeting by less than unanimous consent to those shareholders on the
record date whose shares were not represented on the written consent.
Section 7. QUORUM. A quorum for the transaction of business at any annual
or special meeting of shareholders shall exist when the holders of a majority of
the outstanding shares entitled to vote are represented either in person or by
proxy at such meeting. If a quorum is present, the affirmative vote of the
majority of the shares represented at the meeting and entitled to vote on the
subject matter shall be the act of the shareholders, unless a greater vote is
required by law, by the Articles of Incorporation or by these Bylaws. When a
quorum is once present to organize a meeting, the shareholders present may
continue to do business at the meeting or at any adjournment thereof
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum. The holders of a majority of the voting shares represented at a meeting,
whether or not a quorum is present, may adjourn such meeting from time to time.
Section 8. VOTING. Each shareholder of this Corporation shall be entitled
to one vote, in person or by proxy, for each share standing in the name of such
shareholder on the books of this Corporation. There shall be no voting of
treasury shares allowed. No shares shall be voted at any meeting of shareholders
or counted in determining the total number of outstanding shares at any given
time if the consideration for such shares has not been fully paid to the
Corporation.
Section 9. VOTING RIGHTS OF FIDUCIARIES, PLEDGORS AND JOINT OWNERS OF
STOCK.
(a) Persons holding stock in a fiduciary capacity shall be entitled to vote
the shares so held. Persons whose stock is pledged shall be entitled to vote,
unless in the transfer by the pledgor on the books of the Corporation he has
expressly empowered the pledgee to vote thereon, in which case only the pledgee
or his proxy may represent such stock and vote thereon.
(b) If shares or other securities having voting power stand of record in
the names of two or more persons, whether fiduciaries, members of a partnership,
joint tenants, tenants in common, tenants by the entirety or otherwise, or if
two or more persons have the same fiduciary relationship respecting the same
shares, unless the Secretary of the Corporation is given written notice to the
contrary and is furnished with a copy of the instrument or order appointing them
or creating the relationship wherein it is so provided, their acts with respect
to voting shall have the following effect:
(1) If only one vote, his act binds all;
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<PAGE> 4
(2) If more than one vote, the act of the majority so voting binds all;
(3) If more than one vote, but the vote is evenly split on any particular
matter, each faction may vote the securities in question proportionally, or any
person voting the shares, or a beneficiary, if any, may apply to such court as
may have jurisdiction to appoint an additional person to act with the persons so
voting the shares, which shall then be voted as determined by a majority of such
persons and the person appointed by the court. If the instrument so filed shows
that any such tenancy is held in unequal interests, a majority or even-split for
the purposes hereof shall be a majority or even-split in interest.
Section 10. PROXIES. A shareholder may vote either in person or by proxy
executed in writing by the shareholder or by his duly authorized
attorney-in-fact. No proxy shall be voted or acted upon after eleven (11) months
from its date, unless the proxy provides for a longer period.
Section 11. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATES. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any purpose, the Board of Directors of the Corporation may fix in advance a date
as the record date for any such determination, such date in any case to be not
more than seventy (70) days prior to the date on which the particular action,
requiring such determination of shareholders, is to be taken.
Section 12. LIST OF SHAREHOLDERS ENTITLED TO VOTE. After fixing a record
date for a meeting, the Secretary of the Corporation shall prepare and make, or
cause to be prepared and made, from the stock ledger of the Corporation, a
complete list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each shareholder and the number of
shares registered in the name of each shareholder. This list shall be produced
and kept open at the time and place of the meeting. In the absence of objection
by any shareholder, failure to comply with the requirements of this Section
shall not affect the validity of any action taken at the meeting. If the
Corporation refuses to allow a shareholder, his agent, or his attorney to
inspect the shareholders' list at the meeting, the superior court of the county
where the Corporation's registered office is located, on application of the
shareholder, may summarily order the inspection at the Corporation's expense and
may postpone the meeting for which the list was prepared until the inspection is
complete.
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<PAGE> 5
Section 13. ORDER OF BUSINESS MEETINGS. The order of business at annual
meetings and, so far as practicable, at all other meetings of shareholders
shall be as follows:
(a) DUE NOTICE. Proof of due notice of meeting or waiver thereof.
(b) ROLL CALL. Call of roll - examination of proxies.
(c) PRIOR MINUTES. Reading and disposal of any unapproved minutes.
(d) ANNUAL REPORTS. Annual reports of officers and committees.
(e) UNFINISHED BUSINESS. Completion of unfinished business.
(f) NEW BUSINESS. Consideration of new business.
(g) ELECTION. Election of directors.
(h) ADJOURNMENT. Adjournment of meeting.
ARTICLE II
DIRECTORS
Section 1. NUMBER, QUALIFICATION AND ELECTION. The business, affairs, and
property of this Corporation shall be managed by a board of directors. The
number of directors of the Corporation shall be no less than three (3) and no
more than fifteen (15). The number of directors serving on the Board shall be
decreased or increased only by a majority vote of the directors; provided,
however, that any increase or decrease in the number of directors shall be
apportioned among the classes provided for herein, so as to make all such
classes as nearly equal in number as possible. The Board of Directors shall be
divided into three classes, as nearly equal in number as the then total number
of directors constituting the whole Board, with the term of office of one class
expiring each year.
At the annual meeting of shareholders in 1997, directors in the first class
shall be elected to hold office for a term expiring at the next succeeding
annual meeting, directors of the second class shall be elected to hold office
for a term expiring at the second succeeding annual meeting, and directors of
the third class shall be elected to hold office for a term expiring at the third
succeeding annual meeting. Subject to the foregoing, at each annual meeting of
shareholders the successors to the class of directors whose term shall then
expire shall be
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<PAGE> 6
elected to hold office for a term expiring at the third succeeding annual
meeting.
The Board of Directors shall nominate candidates to serve as members of the
Board of Directors, and the shareholders shall elect directors at the annual
meeting of the shareholders by a majority of the votes cast at such election.
Any shareholder entitled to vote for the election of directors may submit to the
Board of Directors nominations for the election of directors only by giving
written notice (such notice to include a statement of the qualifications of the
nominee) to the Secretary of the Corporation at least sixty (60) days but not
more than ninety (90) days prior to the annual meeting of shareholders at which
directors are to be elected, unless such requirement is waived in advance of the
meeting by the Board of Directors.
Each director shall hold office until his or her successor shall have been
duly elected and qualified, or until the death, resignation or removal of such
director in the manner herein provided. Directors need not be shareholders. The
Board of Directors may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by the statute, the Articles of
Incorporation, or by these Bylaws, directed or required to be exercised or done
by the shareholders. The age limit for Directors who are not full-time employees
of the Corporation shall be seventy (70) years. Directors turning seventy (70)
years of age and who are not full-time employees of the Corporation may continue
to serve until the annual meeting of the shareholders next following their
seventieth (70th) birthday. No such Director who is not a full-time employee of
the Corporation shall be eligible for nomination and election to serve as a
Board member following his seventieth (70th) birthday.
Section 2. VACANCIES AND REMOVAL. If the office of any director shall
become vacant between annual meetings by reason of death, resignation or
disqualification, or by reason of an increase in the number of directors, the
remaining directors may, by a majority vote, though less than a quorum of the
Board of Directors, elect a director to fill such vacancy, and any director so
elected shall hold office until the next annual meeting of the shareholders, and
until his successor shall have been duly elected by the shareholders. Any
director may resign at any time upon written notice to the Corporation. The
shareholders may remove a director only with cause.
Section 3. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held immediately following the annual meeting of the shareholders,
provided that the failure to hold the annual meeting shall not work a forfeiture
or otherwise affect valid corporate acts. The Board of Directors may by
resolution provide for the time and place of such regular meetings and no notice
of such regular meetings need be given.
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<PAGE> 7
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called at any time by the President or by two (2) members of the Board of
Directors. Notice of any special meeting of the Board of Directors shall be
given in writing, personally or by mail, or by telephone or telegraph to each
director not less than two (2) days before such meeting. The notice shall state
the time, place and the purpose or purposes for which the meeting is called. If
notice of a special meeting is mailed, it shall be deemed to have been given
when deposited in the United States mail, addressed to the director at his last
known post office address.
Section 5. WAIVER OF NOTICE. Notice of any meeting of the Board of
Directors may be waived either before or after the time stated in such notice. A
waiver of notice in writing signed by the director entitled to such notice shall
be equivalent to the giving of such notice. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of directors
need be specified in any such written waiver of notice. Attendance of a director
at a meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 6. PLACE OF MEETINGS. All regular and special meetings of the Board
of Directors shall be held at the principal office of this Corporation, or at
such other place or places within or without the State of Georgia, as said Board
may designate. Members of the Board of Directors may participate in a meeting of
such Board by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation by such means shall constitute presence in person at a
meeting.
Section 7. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors, or any committee thereof, may be
taken without a meeting if a consent in writing, setting forth the actions so
taken, shall be signed by all directors entitled to vote with respect to the
subject matter thereof. Such consent shall have the same force and effect as a
unanimous vote of the directors, and may be stated as such in any writing or
document. Such written consent shall be filed with the minutes of proceedings of
the Board.
Section 8. QUORUM. A majority of the directors of this Corporation shall
constitute a quorum for the transaction of business at any regular or special
meeting of the Board of Directors. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the
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<PAGE> 8
Board of Directors, unless the act of a greater number is required by the
Georgia Business Corporation Code, the Articles of Incorporation or by these
Bylaws.
Section 9. VOTING. At all meetings of the Board of Directors each
director shall have one vote.
Section 10. COMPENSATION. Directors shall have authority to fix the
compensation to be paid for their services as directors. Nothing shall preclude
any director from serving the Corporation in any other capacity as an officer,
agent or otherwise, and receiving compensation therefor.
Section 11. TELEPHONE CONFERENCE MEETINGS. Unless the Articles of
Incorporation provide otherwise, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board or committee by means of telephone conference or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 11 shall constitute presence in person at such meeting.
ARTICLE III
COMMITTEES
Section 1. DESIGNATION OF COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. No member of any committee shall continue to be a
member of it after he ceases to be a director of the Corporation. The Board of
Directors shall have the power at any time to increase or decrease the number of
members of any committee, to fill vacancies on it, to remove any member of it
and to change its functions or terminate its existence.
Section 2. POWERS OF COMMITTEES. The Board of Directors, by resolution
adopted by majority of all the directors, may designate from among its members
an Executive Committee, and/or other committees, each composed of two or more
directors, which may exercise such authority as is delegated by the Board of
Directors, provided that no committee shall have the authority of the Board of
Directors to (i) approve or propose to shareholders any action that the Georgia
Business Corporation Code requires to be approved by the shareholders, (ii) fill
vacancies on the Board of Directors or on any of its committees, (iii) amend the
Articles of Incorporation of the Corporation pursuant to Section
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<PAGE> 9
14-2-1002 of the Georgia Business Corporation Code, (iv) adopt, amend, or repeal
the Bylaws of the Corporation, or (v) approve a plan of merger not requiring
shareholder approval.
Section 3. MEETINGS. Meetings of such committees, regular or special, may
be held either within or without the State of Georgia. Regular meetings may be
established by resolution of the Board of Directors, and no notice shall be
required thereof. Special meetings of the committees shall be called at the
request of any member of the committee and shall be held upon notice delivered
personally or by mail, telephone or telegraph, within two (2) days of the
meeting. Notice may be waived in writing either before or after the time of the
meeting. Attendance of any member of a committee shall constitute waiver of
notice of the meeting. Any committee designated by the Board may participate in
a meeting of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting.
Section 4. RECORD OF PROCEEDINGS. Any committee established by the
resolution of the Board of Directors shall keep minutes of its acts and
proceedings. These minutes shall be submitted to the next succeeding meeting of
the Board of Directors for approval, but failure to submit or to receive
approval of such minutes shall not invalidate any action taken upon
authorization contained in them.
Section 5. QUORUM. A majority of any committee established by the Board of
Directors shall be necessary to constitute a quorum for the transaction of any
business. The act of a majority of the members present at a meeting at which a
quorum is present shall be the act of such committee.
Section 6. COMPENSATION. The Board of Directors may vote to pay the
members of any committee established by it such compensation as it deems proper
for the performance of the duties required of such members of the committee.
ARTICLE IV
OFFICERS
Section 1. ELECTION AND APPOINTMENT. At the first meeting of the Board of
Directors after the annual meeting of the shareholders, the directors shall
choose a President, an Executive Vice President, a Secretary and a Treasurer,
and may choose a Chairman of the Board and such other officers and assistant
officers as the Corporation from time to time may need, none of whom need be
directors, except the Chairman of the Board. Any two offices or more may be held
by one person. All of said
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officers shall hold office until the first meeting of the Board of Directors
following the next annual meeting of the shareholders and until their respective
successors shall be duly elected and shall qualify; provided, however, that a
majority of the whole Board may authorize an employment contract with an
employee or an officer which may extend beyond the term of one year. If any
vacancy occurs among the above offices, such vacancy may be filled for the
remainder of the term by the Board of Directors at a regular or special meeting
thereof, and any officer so selected shall hold office until his successor shall
be duly elected and shall qualify.
Section 2. SUSPENSION AND REMOVAL. Any officer of the Corporation appointed
by the Board of Directors may be removed or suspended by a majority vote of the
Board of Directors at any time, with or without cause, or, if any employment
contract with the officer is in effect, in accordance with the terms of such
contract. Any agent or employee appointed or employed by the President may be
removed or discharged or suspended by him at any time, with or without cause.
Section 3. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The Chairman of
the Board of Directors shall give general supervision and direction to the
affairs of the Corporation, subject to the direction of the Board of Directors.
The Chairman shall have the authority to execute contracts, mortgages,
agreements or instruments under the seal of the Corporation. He shall preside at
all meetings of the shareholders.
Section 4. POWERS AND DUTIES OF THE PRESIDENT. The President shall be in
charge of the day-to-day affairs of the Corporation, subject to the direction of
the Board of Directors and the Chairman. The President shall have the authority
to execute contracts, mortgages, agreements or instruments under the seal of the
Corporation. The President shall preside at meetings of the shareholders in the
absence of the Chairman and shall act in the case of absence or disability of
the Chairman
Section 5. POWERS AND DUTIES OF THE VICE PRESIDENTS. The Executive Vice
President of this Corporation and, if there shall be any, any additional Vice
President or Vice Presidents of this Corporation shall generally assist the
President and shall perform such duties as may be assigned by the Board of
Directors. In the event of death, resignation, absence or inability to act of
the President, the Executive Vice President or, if there shall be any, any
additional Vice President or Vice Presidents, in the order determined by the
Board of Directors, shall assume and discharge pro tempore the powers and duties
of the President of this Corporation.
Section 6. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall be ex
officio secretary of the Board of
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Directors. He shall keep the minutes of all meetings of the Board of Directors
and shareholders. He shall have charge of the corporate books and records. He
shall keep in safe custody the seal of this Corporation and, when authorized by
the Board of Directors, shall affix the seal to any instrument requiring the
same. He shall be authorized to sign certificates of stock with other authorized
officers of the Corporation. He shall keep accounts of stock registered and
transferred in the manner prescribed by law. He shall give and serve all notices
to the shareholders and directors, except that notice for special meetings of
directors called at the request of two (2) directors, as provided in Section 4
of Article II of these Bylaws, may be issued by such directors. In general, he
shall perform all the duties incident to his office.
Section 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall have the
care and custody of and be responsible for all the funds, securities, evidences
of indebtedness and other valuable documents of the Corporation, and deposit all
such funds in the name of the Corporation in such banks or trust companies or
other depositories, or in such safe deposit vaults as the Board of Directors may
designate. The Treasurer shall render a statement of the condition of the
finances of the Corporation at each regular meeting of the Board of Directors
and at such other times as shall be required of him, and a full financial report
at the annual meeting of the shareholders. The Treasurer shall keep at the
office of the Corporation full and accurate books of account of all its business
and transactions and such other books of account as the Board of Directors may
require, and shall exhibit the same to any directors of the Corporation upon
application therefor. In general, he shall perform all the duties incident to
his office.
Section 8. ASSISTANT OFFICERS. The Board of Directors may elect one or more
assistants to any officer, and any such assistant shall exercise the duties of
his office in the absence of the officer whom he has been elected to assist.
Section 9. OTHER DUTIES AND AUTHORITY. Each officer, employee and agent of
the Corporation shall have such other duties and authority as may be conferred
upon him by the Board of Directors or delegated to him by the Chairman of the
Board of Directors.
Section 10. RETURNS AND STATEMENTS. It shall be the duty of each officer of
this Corporation to make and file any and all returns, reports, lists or
statements required by law to be made and filed by him, and to make full report
to the Board of Directors respecting the affairs of the Corporation in his
charge whenever he may be requested to do so.
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Section 11. COMPENSATION. The salaries of all officers shall be fixed by
the Board of Directors, and the fact that any officer is a director shall not
preclude him from receiving a salary or from voting upon the resolution
providing the same.
ARTICLE V
STOCK
Section 1. PREEMPTIVE RIGHTS. No shareholder shall have the preemptive
right to subscribe for or purchase any shares or other securities issued by the
Corporation.
Section 2. STOCK CERTIFICATES. The shares of stock of the Corporation
shall be represented by certificates in such form as shall be approved by the
Board of Directors. Certificates of stock shall be signed by the Chairman of
the Board, or by the President or a Vice President, and by the Secretary or
Treasurer, or Assistant Secretary or Assistant Treasurer, and shall be sealed
with the corporate seal (which may be a facsimile engraved or printed upon the
certificate). Unless the Board of Directors shall determine to the contrary,
any or all such signatures may be facsimile, even though the signature of a
transfer agent or registrar, if any, is also facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such an officer, transfer agent
or registrar at the date of its issue.
Section 3. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint
a transfer agent or agents and a registrar for the stock of the Corporation. The
transfer agent shall be in charge of the issue, transfer and cancellation of
shares of stock and shall countersign all stock certificates, which
countersignatures may be by facsimile unless the Board of Directors determines
to the contrary. The transfer agent shall maintain stock transfer books, which
shall include a record of the shareholders, with their names and addresses and
the number of shares held by each. The transfer agent shall prepare voting lists
for meetings of shareholders, produce and keep open these lists at meetings and
perform such other duties as may be delegated by the Board of Directors of the
Corporation. Shareholders shall give notice of changes of their addresses to the
transfer agent. The registrar shall be in charge of preventing the over issue of
shares, shall register all stock certificates and perform such other duties as
may be delegated by the Board of Directors. The transfer agent and registrar may
be one and the same person, corporation or other entity.
Section 4. TRANSFER OF STOCK. The Corporation shall register a stock
certificate presented to it for transfer if the
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certificate is properly endorsed by the holder of record or by his duly
authorized attorney, and the signature of such person or persons has been
guaranteed by a national banking association or by a member of the New York,
American or Midwest stock exchanges, and reasonable assurance is given that such
endorsements are effective. In order to register a stock certificate for
transfer, the Corporation shall have no notice of any adverse claims or shall
have discharged any duty to inquire into any such claims.
Section 5. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation shall
issue a new stock certificate in the place of any certificate previously issued
if the holder of record of the certificate (1) makes proof in affidavit form
that it has been lost, destroyed or wrongfully taken; (2) requests the issue of
a new certificate before the Corporation has notice that the old certificate has
been acquired by a purchaser for value in good faith and without notice of any
adverse claim; (3) gives bond in such form, and with surety or sureties, with
fixed or open penalty, as the Corporation may direct, to indemnify the
Corporation, the transfer agent and registrar against any claim that may be made
on account of the alleged loss, destruction or theft of a certificate; and (4)
satisfies any other reasonable requirements imposed by the Corporation. When a
certificate has been lost, apparently destroyed or wrongfully taken, and the
holder of record fails to notify the Corporation within a reasonable time after
he has notice of it, and the Corporation registers a transfer of the shares
represented by this certificate before receiving notification, the holder of
record is precluded from making any claim against the Corporation.
Section 6. RECORD HOLDERS. The Corporation shall be entitled to treat the
holder of record of any share or shares of its capital stock as the holder in
fact thereof and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, save as expressly provided by
the laws of Georgia.
ARTICLE VI
PERSONAL LIABILITY OF DIRECTORS; INDEMNIFICATION
Section 1. LIABILITY OF DIRECTORS. No director of the Corporation shall be
liable to the Corporation or its shareholders for monetary damages for breach of
duty of care or other duty as a director, other than liability (i) for any
appropriation, in violation of his duties, of any business opportunity of the
Corporation, (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 Georgia Business Corporation Code, or (iv) for any
transaction from which the director derived an improper personal
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benefit. If the Georgia Business Corporation Code is hereafter amended to
authorize the further limitation or elimination of the liability of a director,
then the liability of a director of the Corporation shall be limited or
eliminated to the fullest extent permitted by the amended Georgia Business
Corporation Code. Any repeal or modification of this Section 1 shall be
prospective only, and shall not adversely affect any limitation or elimination
of the personal liability of a director of the Corporation existing at the time
of such repeal or modification.
Section 2. AUTHORITY TO INDEMNIFY: THIRD PARTY ACTIONS. Every person now or
hereafter serving as a director or officer of the Corporation and any and all
former directors and officers shall be indemnified and held harmless by the
Corporation from and against any and all loss, cost, liability and expense that
may be imposed upon or incurred by him in connection with or resulting from any
threatened, pending, or completed claim, action, suit, or proceeding (other than
an action by or in the right of the Corporation), whether civil, criminal,
administrative, or investigative, whether formal or informal, in which he may
become involved, as a party or otherwise, by reason of his being or having been
a director or officer of the Corporation, or arising from his status as such, or
that he is or was serving at the request of the Corporation as a director,
officer, employee, partner, trustee or agent of another corporation, limited
liability company, partnership, limited partnership, limited liability
partnership, joint venture, trust, employee benefit plan, or other enterprise,
regardless of whether such person is acting in such capacity at the time such
loss, cost, liability or expense shall have been imposed or incurred. As used
herein, the term "loss, cost, liability and expense" shall include, but shall
not be limited to, any and all costs, expenses (including attorneys' fees and
disbursements), judgments, penalties, fines, and amounts paid in settlement
incurred in connection with any such claim, action, suit or proceeding if such
person acted in good faith and, while acting in an official capacity as a
director or officer, acted in a manner he reasonably believed to be in the best
interests of the Corporation, and, in all other cases, acted in a manner he
reasonably believed was not opposed to the best interests of the Corporation and
with respect to any criminal action or proceeding, if such person had no
reasonable cause to believe his conduct was unlawful. The termination of any
claim, action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in a manner which meets the standard
described in the immediately preceding sentence. If any such claim, action, suit
or proceeding is settled (whether by agreement, plea of nolo contendere, entry
of judgment or consent, or otherwise), the determination in good faith by the
Board of Directors of the Corporation that such person acted in a manner that
met the
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standards set forth in this Section 2, shall be necessary and sufficient to
justify indemnification. If the Georgia Business Corporation Code is hereafter
amended to expand the minimum statutory indemnification rights for directors and
officers, then the indemnification rights of directors and officers of the
Corporation granted pursuant to this Section 2 shall be construed to provide
such minimum indemnification rights to the fullest extent permitted by the
amended Georgia Business Corporation Code. Any repeal or modifications to this
Section 2 shall be prospective only, and shall not adversely affect any
indemnification rights of an officer or director of the Corporation existing at
the time of such repeal or modification.
Section 3. AUTHORITY TO INDEMNIFY: DERIVATIVE ACTIONS. The Corporation
shall indemnify and hold harmless any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact he is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
partner, employee, trustee or agent of another corporation, limited liability
company, partnership, limited partnership, limited liability partnership, joint
venture, trust, employee benefit plan, or other enterprise, against expenses
(including attorneys' fees and disbursements), judgments and any other amounts
now or hereafter permitted by applicable law actually and reasonably incurred by
him or in connection with the defense or settlement of such action or suit;
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless the director or officer has not been adjudged liable or
subject to injunctive relief in favor of the Corporation (i) for any
appropriation, in violation of his duties, of any business opportunity of the
Corporation; (ii) for acts or omissions which involve intentional misconduct or
a knowing violation of law; (iii) for the types of liability set forth in Code
Section 14-2-832; 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, such
person is fairly and reasonably entitled to indemnification for such expenses
which the court shall deem proper. Any repeal or modifications to this Section 3
shall be prospective only, and shall not adversely affect any indemnification
rights of an officer or director of the Corporation existing at the time of such
repeal or modification.
Section 4. ADVANCEMENT OF EXPENSES. Expenses incurred in any claim, action,
suit or proceeding may be paid or reimbursed
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by the Corporation in advance of the final disposition of such claim, action,
suit or proceeding as authorized by the Board of Directors in the specific case
upon receipt from the director or officer of (i) a written affirmation of his
good faith belief that he has met the relevant standard of conduct set forth
under Section 14-2-851 of the Georgia Business Corporation Code, or that the
proceeding involves conduct for which liability has been eliminated under a
provision of the Articles of Incorporation of the Corporation(as authorized by
Section 14-2-202(b)(4) of the Georgia Business Corporation Code),and (ii) his
undertaking to repay such amount if it ultimately shall be determined that such
director or officer is not entitled to be indemnified by the Corporation.
Section 5. DETERMINATION OF INDEMNIFICATION RIGHTS. Except as ordered by a
court, the Corporation may not indemnify a director or officer under this
Article unless authorized hereunder and a determination has been made in the
specific case that indemnification of the director or officer is permissible
under the circumstances because he has met the relevant standard of conduct set
forth in either Section 2 or Section 3 hereof. The determination shall be made
(i) if there are two or more disinterested directors, by the Board of Directors
by a majority vote of all the disinterested directors (a majority of whom shall
for such purposes constitute a quorum), or by a majority of the members of a
committee of two or more disinterested directors appointed by such a vote; (ii)
by special legal counsel: (a) selected in the manner prescribed in clause (i) of
this sentence; or (b) if there are fewer than two disinterested directors,
selected by the Board of Directors (in which selection directors who do not
qualify as disinterested directors may participate); or (iii) by the
shareholders, but shares owned by or voted under the control of a director who
at the time does not qualify as a disinterested director may not be voted on the
determination.
Section 6. NON-EXCLUSIVE RIGHT OF INDEMNIFICATION. The foregoing rights of
indemnification and advancement of expenses shall not be deemed exclusive of any
other rights to which those indemnified may be entitled, and the Corporation may
provide additional indemnity and rights to its directors, officers, employees or
agents.
Section 7. INSURANCE. The Corporation may purchase and maintain insurance,
at its expense, on behalf of an individual who is or was a director, officer,
employee or agent of the Corporation or who, while a director, officer, employee
or agent of the Corporation, is or was serving at the request of the
Corporation, as a director, officer, partner, trustee, employee, or agent of
another corporation, limited liability company, partnership, limited
partnership, limited liability partnership, joint venture, trust, employee
benefit plan, or other enterprise, against liability asserted against or
incurred by him in any such capacity or arising from his status as a director,
officer, employee or agent, whether or not the Corporation would have power to
indemnify him against the same liability under this Article.
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Section 8. MISCELLANEOUS. The provisions of this Article VI shall cover
claims, actions, suits and proceedings, civil or criminal, whether now pending
or hereafter commenced and shall be retroactive to cover acts or omissions or
alleged acts or omissions which heretofore have taken place. In the event of
death of any person having the right of indemnification or advancement of
expenses under the provisions of this Article, such rights shall inure to the
benefit of his heirs, executors, administrators and personal representatives. If
The Enstar Group, Inc., a Delaware corporation, is merged into the Corporation,
then the directors, officers, employees and agents thereof shall be entitled to
the same indemnification rights as directors, officers, employees and agents of
the Corporation are entitled under these Bylaws. If any part of this Article VI
should be found to be invalid or ineffective in any proceeding, the validity and
effect of the remaining provisions shall not be affected.
ARTICLE VII
BUSINESS COMBINATIONS
WITH INTERESTED SHAREHOLDERS
Pursuant to Section 14-2-1133 of the Georgia Business Corporation Code, the
Corporation hereby affirmatively elects that the provisions of Sections
14-2-1131 through 14-2-1133 of the Georgia Business Corporation Code
specifically shall apply to the Corporation. Nothing in this Article VII shall
be deemed as prohibiting or restricting a merger of the Corporation's present
parent company (The Enstar Group, Inc., a Delaware corporation) with and into
the Corporation.
ARTICLE VIII
MISCELLANEOUS
Section 1. CORPORATE SEAL. The directors shall provide a suitable
corporate seal, which seal may contain the following words:
THE ENSTAR GROUP, INC.
CORPORATE SEAL
GEORGIA
Section 2. CONTRACTS, ETC. The Board of Directors may authorize any officer
or officers, agent or agents, employee or employees to enter into any contract
or other instrument on behalf of this Corporation, and such authorization may be
general or confined to specific instances. Except as herein provided, or as
authorized by the Board of Directors, no officer, agent or employee, other than
the President, Vice President, Secretary or Treasurer, shall have any power or
authority to bind this Corporation by any contract or engagement, or to pledge
its credit or to render it liable, for any purpose or for any amount.
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<PAGE> 18
Section 3. DEPOSITS, CHECKS AND DRAFTS. All checks and drafts or funds of
this Corporation shall be deposited from time to time to the credit of this
Corporation in such banks or trust companies or to other depositories, as the
Board of Directors may from time to time designate. All checks shall be drawn
out of the regular checkbooks of this Corporation and upon the stub of each such
check, or upon the file copy of the check retained by the Corporation, the
purpose and amount for which the same is drawn shall be specified. All checks,
notes, drafts, bills of exchange, acceptances or other orders for the payment of
money or other evidences of the indebtedness of the Corporation shall be signed
as shall from time to time be designated by resolution of the Board of
Directors.
Section 4. DIVIDENDS. The directors may from time to time declare dividends
upon the outstanding shares of stock from any source permitted under the Georgia
Business Corporation Code as and when the Board of Directors deems expedient.
Before declaring any dividend, there may be reserved out of the accumulated
profits such sum or sums as the directors from time to time in their discretion
think proper for working capital, or as a reserve fund to meet contingencies, or
for equalizing dividends, or for such other purposes as, in the opinion of the
directors, are conducive to the interest of the Corporation.
ARTICLE IX
AMENDMENT OF BYLAWS
Except for the provisions of Article VII hereof which may only be amended
as provided in Part 3 of Article 11 of the Georgia Business Corporation Code,
the Board of Directors shall have the power to alter, amend or repeal the Bylaws
of the Corporation at any annual meeting, or at a special meeting called for
that purpose by the affirmative vote of a majority of all of the directors then
in office, or by action of the Board taken by unanimous written consent in lieu
of a meeting.
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<PAGE> 1
EXHIBIT 10.1
[FIRST UNION LOGO]
ATLANTA, GEORGIA
US $18,100,000.00
OCTOBER 24, 1996
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, THE ENSTAR GROUP, INC., a
Delaware corporation ("Borrower"), promises to pay to the order of FIRST UNION
NATIONAL BANK OF GEORGIA, a national banking association, its successors and
assigns (hereinafter, together with all subsequent holders of this Note, called
"Bank"), whose address is 999 Peachtree Street, Atlanta, Georgia 30309,
Attention: Portfolio Management, on or before the Maturity Date (hereinafter
defined), the principal sum of EIGHTEEN MILLION ONE HUNDRED THOUSAND AND NO/100
DOLLARS ($18,100,000), or so much thereof as may actually be advanced
hereunder, together with interest on the unpaid principal balance from time to
time outstanding at a rate per annum as set forth herein.
ARTICLE 1. DEFINED TERMS
For purposes hereof:
1.1 "ADJUSTED EURODOLLAR RATE" means shall mean, for any
particular Interest Period, the rate per annum (rounded upwards, if necessary,
to the next higher 1/100 of 1%) equal to the Eurodollar Rate for such Interest
Period divided by, for each day on which Bank is required to maintain reserves
in respect to Eurocurrency Liabilities, that percentage equal to 1 minus the
Eurodollar Reserve Percentage for such Interest Period.
1.2 "APPLICABLE RATE" means the interest rate in effect hereunder
from time to time. In the event that more than one interest rate is in effect
at any one time, each such rate shall be the Applicable Rate with respect to
the amount of this Note for which such rate is in effect.
1.3 "BUSINESS DAY" shall mean (a) a day on which banks are open
for the conduct of banking business in Atlanta, Georgia and (b) if such day
relates to a borrowing of, a payment or prepayment of principal or interest on,
a conversion of or into, or an Interest Period for, a Fixed Rate Portion, or a
notice by Borrower with respect to any such borrowing, payment, prepayment,
conversion or Interest Period, a day which is also a day on which dealings in
United States Dollars are carried out in the London interbank market.
<PAGE> 2
1.4 "DEFAULT" shall mean the occurrence of any event or condition
that with the passage of time or giving of notice, or both, would constitute an
Event of Default.
1.5 "EFFECTIVE DATE" shall mean, the date designated in any Fixed
Rate Request as the date that a Portion covered thereby shall begin to bear
interest at a rate set forth in Section 2.2(a)(i) hereof. The Effective Date
specified in such Fixed Rate Request shall be the first day of the Interest
Period applicable to the Fixed Rate Portion so requested.
1.6 "EVENT OF DEFAULT" shall have the meaning assigned to the term
in Section 4.1 hereof.
1.7 "EURODOLLAR RATE" shall mean, for any Interest Period for any
Fixed Rate Portion, the average rate per annum (determined solely by the Bank
and rounded upwards, if necessary, to the next higher 1/100 of 1%) at which
deposits in United States Dollars are offered to Bank by brokers in the London
interbank market at 11:00 a.m. (London time) two Business Days before the first
day of such Interest Period in an amount equal to the Fixed Rate Portion so
requested and for a period equal to such Interest Period.
1.8 "EURODOLLAR RESERVE PERCENTAGE" shall mean, for any Interest
Period, the maximum reserve requirement percentage (expressed as a decimal),
including any supplemental, marginal or emergency reserves as in effect from
time to time, imposed by the Board of Governors of the Federal Reserve System
(or any successor) on liabilities or assets consisting of or including
Eurocurrency Liabilities having a term equal to the Interest Period selected,
and in an amount at least equal to the outstanding loan balance accruing
interest at the "Adjusted Eurodollar Rate," but subject to any changes in such
reserve requirement becoming effective during the Interest Period.
1.9 "EUROCURRENCY LIABILITIES" shall have the meaning assigned to
that term in Regulation D of the Board of Governors of the Federal Reserve
System, as such regulation may be in effect from time to time.
1.10 "FIXED RATE" shall mean the rate of interest applicable to a
Fixed Rate Portion.
1.11 "FIXED RATE PORTION" shall mean all or any portion of the
Loan designated by Borrower to bear interest at the rate set forth in Section
2.2(a)(i) hereof.
1.12 "FIXED RATE REQUEST" shall mean the request of Borrower made
pursuant to Section 2.3 hereof to have all or any portion of the outstanding
Loan bear interest at the rate set forth in Section 2.2(a)(i) hereof.
1.13 "INTEREST PERIOD" means a period of seven, thirty, sixty or
ninety days as selected by Borrower; provided however, in no event shall any
Interest Period extend beyond the Maturity Date.
2
<PAGE> 3
1.14 "LOAN" means the loan advanced under this Note and evidenced
hereby and by the other Loan Documents (hereinafter defined).
1.15 "LOAN DOCUMENTS" means the Stock Pledge Agreement, this Note,
the Financing Agreements (as defined in the Stock Pledge Agreement), and all
other documents, agreements and instruments executed or delivered in connection
herewith or therewith.
1.16 "MATURITY DATE" means the October 1, 1997, or such earlier
date on which this Note shall become due by acceleration by Bank, by prepayment
notice from Borrower, or otherwise.
1.17 "OBLIGATIONS" shall mean the Loan and any and all other
indebtedness, liabilities and obligations of Borrower to Bank or its affiliates
of every kind and nature (including, without limitation, interest, charges,
expenses, attorneys' fees and other sums chargeable to Borrower by Bank or its
affiliates, all indemnification obligations and all future advances made to or
for the benefit of Borrower), whether arising under this Note, the other Loan
Documents, or under any other financing arrangement entered into by Borrower
and Bank or its affiliates prior to the date hereof or after the date hereof,
whether arising by reason of an extension of credit, opening of a letter of
credit, loan, lease, credit card arrangement, guaranty, indemnification or in
any other manner, direct or indirect, absolute or contingent, primary or
secondary, due or to become due, now existing or hereafter acquired.
1.18 "PERSON" shall mean and include any individual, sole
proprietorship, partnership, joint venture, trust, unincorporated organization,
association, corporation, body corporate and politic, institution, entity,
party or government (whether national, federal, state, county, city, municipal,
or otherwise, including, without limitation, any instrumentality, public
corporation, division, agency, body or department thereof).
1.19 "PORTION" shall mean either a Fixed Rate Portion or a Prime
Rate Portion, as the context may require.
1.20 "PRIME RATE PORTION" shall mean all or any portion of the
outstanding Loan, which Borrower has not designated to bear interest at the
rate set forth in Section 2.2(a)(i) hereof.
1.21 "PRIME RATE" shall mean the rate announced from time to time
by Bank as the prime rate of Bank. The Prime Rate is one of several interest
rate bases used by Bank, and Bank makes loans both above and below the Prime
Rate.
1.22 "REGULATORY CHANGE" shall mean the adoption on or after the
date hereof of any applicable federal, state, or foreign law, rule or
regulation or any change after such date in any such federal, state or foreign
law, rule or regulation (including, without limitation, Regulation D of the
Board of Governors of the Federal Reserve System), or any adoption or change in
the interpretation or
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administration thereof by any court, governmental authority, central bank or
comparable agency or monetary authority charged with the interpretation or
administration thereof, or compliance by Bank with any request or directive
made after such date (whether or not having the force of law) of any such
court, authority, central bank or comparable agency or monetary authority.
1.23 "STOCK PLEDGE AGREEMENT" means the Stock Pledge Agreement
dated even date herewith between Borrower and Bank, as amended, modified,
supplemented or restated from time to time.
ARTICLE 2. INTEREST
2.1 CALCULATION OF INTEREST. Interest based on a 360-day year
will be accrued on the number of days that funds are actually outstanding, and
shall be calculated on a daily basis.
2.2 INTEREST RATE. (a) The outstanding principal amount of the
Loan shall bear interest, calculated daily on the basis of the 360-day year and
actual days elapsed, from the date thereof until paid in full at the following
rates:
(i) the outstanding principal amount of each Fixed Rate
Portion shall bear interest at a fixed rate of interest equal
to the Adjusted Eurodollar Rate, plus six tenths of one
percentage point (.60%);
(ii) the outstanding principal amount of each Prime Rate
Portion shall bear interest at a fluctuating rate per annum
equal to the Prime Rate; and
(iii) the principal amount of any payment which is not made
when due (whether at its stated maturity or by reason of
acceleration) shall bear interest at the Default Rate.
The Loan shall initially bear interest as a Fixed Rate Loan for an Interest
Period of 90 days and Borrower shall not be required to submit a Fixed Rate
Request for such initial Interest Period. The interest rate in effect on the
date hereof is 6.13125% per annum.
(b) Accrued interest shall be payable: (i) in the case of
Prime Rate Portions, monthly on the first day of each month hereafter for the
previous month, commencing November 1, 1996; (ii) in the case of a Fixed Rate
Portion, on the last day of the Interest Period therefor (provided, however,
for any 60 day Interest Period, accrued and unpaid interest shall also be
payable in full on the 30th day of such Interest Period and, for any 90 day
Interest Period, accrued and unpaid interest shall also be payable in full on
the 30th and 60th days of such Interest Period); (iii) in the case of any
Portion, upon the payment or prepayment of all or any such Portion of the Loan
included therein or the conversion of such Portion to a Portion of another type
(but only on the principal amount so paid, prepaid or converted), and
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(iv) in the case of any Portion, interest payable at the Default Rate shall be
payable from time to time on demand.
2.3 FIXED RATE REQUESTS. Borrower may request that all or any
portion of the outstanding Loan bear interest at the rate set forth in Section
2.2(a)(i) for a specified Interest Period by delivering to the Bank a Fixed
Rate Request, not later than 10:00 a.m. Atlanta, Georgia time, at least three
(3) Business Days prior to the Effective Date of the change to such rate. Each
Fixed Rate Request shall either be oral, with prompt written confirmation, or
in writing, with such written confirmation or writing to be substantially in
the form of Exhibit A attached hereto; shall be irrevocable; shall be effective
upon receipt by Bank; and shall specify: (a) the amount of such Fixed Rate
Portion (which shall be not less than $1,000,000 and shall be an integral
multiple of $500,000); (b) whether such Fixed Rate Request will effect a
continuation of a Fixed Rate Portion currently outstanding; (c) the Effective
Date of the Interest Period with respect to such Fixed Rate Portion (which
shall be a Business Day and, if such Fixed Rate Portion is a continuation of a
Fixed Rate Portion then outstanding, shall not be prior to the last day of the
then-applicable Interest Period for such outstanding Fixed Rate Portion); and
(d) the length of the Interest Period.
2.4 INTEREST PERIOD. The Interest Period for any Fixed Rate
Portion shall commence on the Effective Date of such Fixed Rate Portion as
specified in the Fixed Rate Request applicable thereto and shall continue for
the applicable Interest Period specified in such Fixed Rate Request. If any
Interest Period would otherwise end on a day which is not a Business Day, such
Interest Period shall be extended to the next Business Day, unless the result
of such extension would be to extend such Interest Period into the calendar
month following the calendar month in which it would otherwise terminate, in
which event such Interest Period shall end on the immediately preceding
Business Day.
2.5 LIMITATION ON INTEREST PERIODS; PORTIONS. Borrower may not
select any Interest Period with respect to the Loan which begins before and
ends after Maturity Date. The Borrower shall not have outstanding at any one
time more than five (5) Fixed Rate Portions.
2.6 PREPAYMENT FEES. Borrower shall have the right to prepay any
Fixed Rate Portion or Prime Rate Portion at any time provided:
(i) Borrower has, at least 10 days prior to the date of
such prepayment, advised the Bank in writing of Borrower's intention to make
such prepayment. This advice of prepayment shall set forth the amount of the
prepayment and the date upon which such prepayment will be made; and
(ii) Borrower pays to Bank, at the time of such
prepayment, such amount as Bank has, prior to the prepayment date, advised
Borrower, in writing, is the amount of the "Bank's loss" due to such
prepayment.
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As used in this Section 2.6, the term "Bank's loss" shall mean Bank's
continued interest costs on the amount of principal prepaid until the
expiration of the term of such prepaid Fixed Rate Portion, plus the unamortized
portion of any fees paid by Bank for the funds used in said Interest Period for
such Fixed Rate Portion, less the amount Bank could earn if the prepaid amount
were to be invested by Bank in United States Treasury Bills for a comparable
period. The determination of ""Bank's loss" and such other costs, fees and
penalties due Bank hereunder shall be made by Bank in good faith using such
methodology as Bank deems appropriate and customary under the circumstances and
shall be conclusive absent manifest error. The provisions of this paragraph
shall apply with respect to any Fixed Rate Portion prepaid by Borrower prior to
the last day of the applicable Interest Period as a result of the acceleration
by Bank of the outstanding principal balance hereof.
2.7 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it shall become unlawful for Bank to obtain funds
in the London interbank market or for Bank to maintain a Fixed Rate Portion,
then Bank shall promptly notify Borrower whereupon (a) the right of Borrower to
request a Fixed Rate Portion shall thereupon terminate, and (b) any Fixed Rate
Portion then outstanding shall commence to bear interest at the rate applicable
to Prime Rate Portions or at such other rate as Bank and Borrower may agree
upon on the last day of the then-applicable Interest Period or at such earlier
time as may be required by law.
2.8 INDEMNITY. Borrower agrees to indemnify Bank and to hold it
harmless from any loss or expense which it may sustain or incur as a
consequence of failure by Borrower to consummate any Fixed Rate Request,
including, without limitation, any such loss or expense arising from interest
or fees payable by Bank to Banks of funds obtained by it in order to maintain
any Fixed Rate Portion. Bank shall promptly notify Borrower of any amount
payable by Borrower to Bank pursuant to this Section 2.8 hereof and a
certificate of Bank, setting forth in reasonable detail the computation of the
amounts specified, shall be conclusive, absent manifest error, as to the
amounts owed.
2.9 INABILITY TO DETERMINE FIXED RATE. In the event that Bank
determines (which determination shall be conclusive) that, by reason of
circumstances affecting the London interbank market, quotation of interest
rates for the relevant deposits referred to in the definitions of the
"Eurodollar Rate" herein are not being provided in the relevant amounts or for
the relevant maturities for the purpose of determining a rate of interest for
any Fixed Rate Portion, then Bank shall promptly notify Borrower whereupon the
right of Borrower to request a Fixed Rate Portion shall thereupon be suspended
until such time as Bank again can determine a rate of interest for Fixed Rate
Portions.
2.10 EXPIRATION OF INTEREST PERIOD. Upon the expiration of the
Interest Period for any Fixed Rate Portion, unless Bank has received from
Borrower a new Fixed Rate Request with respect thereto, such Fixed Rate Portion
shall be converted automatically to a Prime Rate Portion.
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2.11 INCREASED COSTS/CAPITAL ADEQUACY. The Borrower agrees that if:
(a) after the date hereof, Bank shall have determined that the adoption of any
applicable law, rule or reegulation or any change therein, or any change in the
interpretation or administration thereof by any court or any administrative or
governmental authority or central bank or comparable agency charged with
interpretation or administration thereof (or compliance by Bank with any
request or directive of any such court, authority or central bank (whether or
not having the force of law)), shall either impose, affect, modify or deem
applicable any reserve, special deposit, capital maintenance or similar
requirement against the Loan or the participation of Bank therein or impose on
Bank any other condition regarding the Loan, or (b) after the date, Bank shall
have determined that the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any court or any administrative or
governmental authority or central bank or comparable agency charged with the
interpretation or administration thereof (or compliance by Bank with any
request or directive regarding capital adequacy (whether or not having the
force of law)) of any such authority, central bank or comparable agency,
relating generically to loans of the category applicable to the Loan, or (c)
there shall occur any change after the date in the basis of taxation of
payments to Bank of any amount owing to the Bank hereunder (except for a change
in the rate of taxation on the overall net income of Bank), and the result of
any event referred to in subsection (a), (b) or (c) above shall be to increase
the cost to Bank of making or maintaining the Loan or to reduce the rate of
return on capital with respect to the Loan to a level below that which the Loan
could have achieved but for such adoption, change or compliance (and, with
respect to capital adequacy, taking into consideration Bank's internal policies
with respect thereto), then, within 30 days of demand by Bank (which shall be
made within 180 days of the occurrence of any such event referred to in clause
(a), (b) and (c) above), Borrower shall pay to Bank additional amounts which
shall be sufficient to compensate Bank for such increased cost, tax or reduced
rate of return, together with interest on such amount from the date fifteen
days after the date Borrower receives the statement(s) referred to in the next
sentence to the date Borrower pays such increased cost, tax or reduced rate of
return in full at the Prime Rate. At the request of Borrower, Bank shall
deliver to Borrower a statement setting forth the basis for requesting such
compensation and the method for determining the amount thereof. Any such
statement shall be conclusive as to the amounts of increased cost in funding or
maintaining the Loan absent manifest error.
2.12 LATE FEES.If any payment of principal or interest under the
Loan is made more than fifteen (15) days after the due date thereof, Borrower
shall pay to Bank a late payment fee of the lesser of (a) five percent (5%) of
the overdue amount or (b) $1,750; provided, however, that the acceptance of
such a fee by Bank shall not be construed as or deemed to be a waiver of any
Default or Event of Default under the Loan Agreement or any other Loan
Document.
ARTICLE 3. PAYMENT AND PREPAYMENT
3.1 PAYMENT.
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(a) Interest shall be payable in amounts and on the dates
set forth in Article 2 hereof.
(b) The outstanding principal balance hereunder and all
accrued and unpaid interest hereunder shall be due and payable in full
on the Maturity Date.
(c) Whenever any payment due hereunder shall be stated to
be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day (except as
otherwise provided in Section 2.4 hereof) and, with respect to
payments of principal, interest thereon shall continue to accrue and
shall be payable at the applicable rate during such extension.
3.2 PLACE OF PAYMENT. All payments hereunder shall be made to
Bank at Bank's address set forth in the first paragraph on page 1 of this Note,
or at such other address as Bank may from time to time designate in writing to
Borrower. All amounts payable hereunder are payable in lawful money of the
United States of America.
3.3 APPLICATION OF PAYMENTS. Prior to the occurrence of an Event
of Default, all payments on this Note shall be applied first to the payment of
accrued but unpaid interest, and any remainder shall be applied to reduction of
the principal balance hereof. Bank's books and records shall be presumed
correct as to the sums outstanding hereunder 45 days after Borrower has been
provided any statement of Loan balances and payments and has failed to object
to the same within such period, except in the case of manifest error. After
the occurrence of an Event of Default, payments on this Note shall be applied
to interest, principal, costs of collection and any other amounts payable
hereunder or under the Stock Pledge Agreement as Bank may in its sole and
absolute discretion direct.
3.4 COSTS OF COLLECTION. Borrower agrees to pay all costs of
collection hereof when incurred, including reasonable attorneys' fees actually
incurred, whether or not any legal action shall be instituted to enforce this
Note.
3.5 PREPAYMENT.
(a) Subject to Section 2.6 hereof, Borrower shall have
the right to prepay this Note in whole at any time or in part from
time to time without premium or penalty.
(b) If any such prepayment is only a partial payment of
the then outstanding principal balance hereof, such prepayment shall
be accompanied by the payment of all accrued but unpaid interest on
the portion of the outstanding principal balance of the Note being so
paid through the date the prepayment is made. For same day credit all
monies shall be received by Bank at Bank's address as set forth in
Section 3.2 hereof, at or before 2:00 p.m., Eastern Standard Time or
Eastern Daylight Time (as applicable); all monies received after such
time shall be deemed received on the following Business Day and the
outstanding principal shall continue to accrue interest at the
Applicable
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Rate to the date funds are deemed received. No partial prepayment
shall affect the obligation of Borrower to make any payment of
principal or interest due hereunder on the date set forth in this
Note, until this Note has been paid in full.
(c) Borrower shall have the right to prepay any Fixed
Rate Portion only upon payment to Bank, at the time of such
prepayment, of an amount equal to the "Bank's loss"(d) (as determined
pursuant to Section 2.6 hereof).
ARTICLE 4. DEFAULT AND REMEDIES
4.1 EVENTS OF DEFAULT. Each of the following events shall
constitute an "Event of Default":
(a) If Borrower shall fail, refuse or neglect to pay, in
full, any installment or portion of the indebtedness evidenced hereby
within 5 days of the date the same shall become due and payable,
whether at the due date thereof stipulated herein, or at a date fixed
for prepayment, or by acceleration or otherwise.
(b) The occurrence of any "default" or "event of default"
under (and as defined in) any other Loan Document.
(c) If Borrower should default in the payment or
performance of any other Obligation and fail to cure the same within
15 days after notice from Bank of such default.
(d) Borrower shall (i) make an assignment for the benefit
of its creditors; (ii) admit in writing its inability to pay its debts
when they become due; (iii) file or have filed against it a petition
or any other pleading instituting a case under any bankruptcy,
insolvency, reorganization, arrangement, or other debtor relief law,
and, in the case of any involuntary proceeding, the same is not
discharged or dismissed within 45 days of the filing thereof; (iv)
appoint or consent to the appointment of a receiver, conservator,
liquidating agent, or committee; or (v) take any action for the
purpose of effecting any of the foregoing.
(e) Borrower shall provide any representation, warranty
or information to Bank (i) that is materially false when made or
provided or (ii) that becomes materially false as a continuing
representation or warranty or as continuing information.
(f) Borrower shall fail to comply with or perform any
covenant, provision, term or condition of any Loan Document and shall
fail to cure the same within any applicable cure period provided for
therein (or if no such cure period is so provided, within 15 days of
the occurrence thereof).
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(g) Any judgment, writ of execution, attachment or
garnishment or any judgment lien, or any other legal process, be
issued for an amount in excess of $500,000 against Borrower or any of
its property, unless the same shall have been dismissed, bonded over
or stayed within 30 days of the issuance of the same.
(h) Borrower shall (i) default (as principal of or
guarantor or other surety) in the payment of any principal of, or
premium, if any, or interest on, or other payment with respect to any
indebtedness or (ii) default with respect to any of the terms of any
of such indebtedness or of any agreement relating thereto, and such
default or event of default gives the holder of the obligation (x) the
right to accelerate such indebtedness (whether or not such holder has,
in fact, accelerated such indebtedness), or (y) the right to take
action with respect to any collateral therefor.
(i) A notice of lien, levy or assessment is filed of
record with respect to all or any of any Borrower's assets by the
United States, or any department, agency or instrumentality thereof,
or by any state, county, municipal or other governmental agency which
adversely affects the priority of the liens and security interests
granted to Bank under the Loan Documents.
(j) (i) If any Person (or two or more Persons acting in
concert), other than Nimrod T. Frazer, shall acquire "beneficial
ownership" within the meaning of Rule 13d-3 of the Securities and
Exchange Act of 1934, as amended, directly or indirectly, capital
stock or securities of Borrower representing 25% or more of the
aggregate voting power of all classes of capital stock and securities
of Borrower entitled to vote for the election of directors or (ii)
during any twelve-month period (commencing both before and after the
date hereof), individuals who at the beginning of such period were
directors of Borrower shall cease for any reason (other than death or
mental or physical disability) to constitute a majority of the board
of directors of Borrower.
4.2 DEFAULT RATE. Upon the occurrence and during the continuance
of an Event of Default, at Bank's option after written notice to Borrower, the
Applicable Rate shall become the Prime Rate plus two percent (2%) per annum
(the "Default Rate"). This Section shall not be deemed to be a waiver of Bank's
right to accelerate payment of this Note under the terms hereof.
4.3 ACCELERATION; OTHER REMEDIES. Upon the occurrence or existence
of any Event of Default, and during the continuation thereof, without prejudice
to the rights of Bank to enforce its claims against Borrower for damages for
failure by Borrower to fulfill any of the obligations hereunder, Bank shall
have the following rights and remedies, in addition to any other rights and
remedies available to Bank at law, in equity or otherwise:
(a) In the event of the occurrence of (i) an Event of Default
set forth in Section 4.1(d) hereof, the Loan shall automatically and
immediately terminate and the Obligations shall automatically and immediately
become due and payable; and (ii) any other Event of Default,
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Bank, at its option, may terminate the Loan and declare all of the Obligations
to be immediately due and payable, whereupon all of the Obligations shall
become immediately due and payable, in either case without presentment, demand,
protest, notice of non-payment or any other notice required by law relative
thereto, all of which are hereby expressly waived by Borrower, anything
contained herein to the contrary notwithstanding and, in connection therewith,
the Obligations shall, automatically and without notice to Borrower, commence
to bear interest, until paid in full, at the Default Rate.
(b) The right to set-off, without notice to Borrower, any
and all deposits at any time credited by or due from Bank to Borrower, whether
in a general or special, time or demand, final or provisional account or any
other account or represented by a certificate of deposit and whether or not
unmatured or contingent. Bank shall promptly give Borrower notice of any such
action.
(c) All of the rights and remedies of a secured party under
the Uniform Commercial Code as in effect in Georgia from time to time or under
other applicable law, all of which rights and remedies shall be cumulative, and
none of which shall be exclusive, to the extent permitted by law, in addition
to any other rights and remedies contained in this Note, and in any of the
other Loan Documents.
(d) The right to sell or to otherwise dispose of all or any
of the collateral for the Obligations in accordance with the Stock Pledge
Agreement and applicable law. The proceeds realized from the sale of any
collateral shall be applied first to the costs, expenses and attorneys' fees
and expenses incurred by Bank for collection and for acquisition, completion,
protection, removal, storage, sale and delivery of the collateral; second to
interest due upon any of the Obligations; and third to the principal of the
Obligations. Any surplus shall be paid to Borrower. If any deficiency shall
arise, Borrower shall remain liable to Bank there for.
(f) Any notice required to be given by Bank of a sale, lease,
other disposition of any collateral for the Obligations or any other intended
action by Bank, given to Borrower in the manner set forth in Section 5.4 below,
at least ten (10) days prior to such proposed action, shall constitute
commercially reasonable and fair notice thereof to Borrower.
4.4 No Waiver. Failure to exercise any of the foregoing options
shall not constitute a waiver of the right to exercise the same or any other
option at any subsequent time in respect to any other event. The acceptance by
Bank of any payment hereunder that is less than payment in full of all amounts
due and payable at the time of such payment shall not constitute a waiver of
the right to exercise any of the foregoing options at that time or at any
subsequent time or nullify any prior exercise of any such option without the
express written consent of Bank.
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ARTICLE 5. MISCELLANEOUS
5.1 WAIVERS.
(a) Except as otherwise specifically provided in the Loan
Documents, Borrower and any endorsers or guarantors hereof jointly and
severally waive presentment and demand for payment, notice of intent
to accelerate maturity, notice of acceleration of maturity, protest or
notice of protest and nonpayment, bringing of suit and diligence in
taking any action to collect any sums owing hereunder or in proceeding
against any of the rights and properties securing payment hereof.
Borrower and any endorsers or guarantors hereof agree that the time
for any payments hereunder may be extended from time to time without
notice and consent to the acceptance of further security or the
release of any existing security for this Note, all without in any
manner affecting their liability under or with respect to this Note.
No extension of time for the payment of this Note or any installment
hereof shall affect the liability of Borrower under this Note even
though Borrower is not a party to such agreement.
(b) Borrower hereby waives and renounces, to the extent
same may be waived and renounced, for itself, its legal
representatives, successors and assigns, all rights to the benefits of
any moratorium, reinstatement, marshaling, forbearance, valuation,
stay, extension, redemption, appraisement, exemption and homestead now
provided or which may hereafter be provided by the Constitution and
the laws of the United States and of any state, both as to itself and
in and to all of its property, real and personal, against the
enforcement and collection of the obligations evidenced by this Note.
5.2 LOAN DOCUMENTS. This Note is issued pursuant to the Loan
Documents and is secured, inter alia, by the Stock Pledge Agreement. All of
the agreements, conditions, covenants, warranties, representations, provisions
and stipulations made by or imposed upon Borrower under the other Loan
Documents are hereby made a part of this Note to the same extent and with the
same force and effect as if they were fully inserted herein, and Borrower
covenants and agrees to keep and perform the same, or cause them to be kept and
performed, strictly in accordance with their terms.
5.3 BORROWER. The term "Borrower" as used in this Note shall mean
and have reference to, collectively, all parties and each of them directly or
indirectly obligated for the indebtedness evidenced by this Note, whether as
principal, maker, endorser, guarantor, or otherwise, together with the
respective heirs, administrators, executors, legal representatives, successors
and assigns of each of the foregoing.
5.4 NOTICE. All notices or other communications required or
permitted to be given pursuant to this Note shall be in writing and shall be
considered properly given if mailed by first-class United States mail, postage
prepaid, registered or certified with return receipt requested, or by
delivering same in person to the intended addressee, or by prepaid telegram,
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telex or facsimile transmission. Notice so mailed shall be effective three (3)
days after its deposit. Notice may be given in any other manner, but such
notice shall be effective only if and when received by the addressee. For
purposes of notice, the address and facsimile number of Borrower shall be the
address and facsimile number listed on the final page of this Note, and Bank's
address shall be 999 Peachtree Street, Atlanta, Georgia 30309, Attention:
Portfolio Management (for notice delivered by personal delivery or telegram),
and P.O. Box 740074, Mail Code 9030, Atlanta, Georgia 30374 (for notice
delivered by registered or certified mail), and Bank's facsimile number shall
be (404) 827-7119; provided, however, that either party shall have the right
to change its address for notice hereunder to any other location within the
continental United States by the giving of written notice to the other party in
the manner set forth hereinabove.
5.5 GOVERNING LAW. This Note shall be governed by and construed
according to the laws of the State of Georgia, except that United States
federal law shall govern to the extent that it permits Bank to contract for,
charge or receive a greater amount of interest, and giving effect to all other
United States federal laws applicable to national banks. It is expressly
stipulated and agreed to be the intent of Borrower and Bank at all times to
comply with the applicable law now or hereafter governing the interest payable
on this Note or the Loan. If the applicable law is ever revised, repealed, or
judicially interpreted so as to render usurious any amount called for under
this Note, or under any of the other Loan Documents, or contracted for,
charged, taken, reserved or received with respect to the Loan, or if Bank's
exercise of the option herein contained to accelerate the maturity of this
Note, or if any prepayment by Borrower results in Borrower's having paid any
interest in excess of that permitted by applicable law, then it is Borrower's
and Bank's express intent that all excess amounts theretofore collected by Bank
be credited on the principal balance of this Note (or, if the Note has been
paid in full, refunded to Borrower), and the provisions of this Note and the
other Loan Documents immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, without the necessity of the
execution of any new documents, so as to comply with the then applicable law,
but so as to permit the recovery of the fullest amount otherwise called for
hereunder and thereunder. All sums paid or agreed to be paid to Bank for the
use, forbearance or detention of the indebtedness evidenced hereby and by the
other Loan Documents shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the rate or amount of interest on
account of such indebtedness does not exceed the usury ceiling from time to
time in effect and applicable to the Loan for so long as debt is outstanding
under the Loan.
5.6 SEVERABILITY. Whenever possible, each provision of this Note
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Note shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Note.
5.7 TIME OF THE ESSENCE. BORROWER AGREES THAT TIME IS OF THE
ESSENCE IN THE PERFORMANCE OF ALL OBLIGATIONS HEREUNDER.
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5.8 CONSENT TO JURISDICTION. BORROWER HEREBY IRREVOCABLY SUBMITS
TO THE NONEXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR GEORGIA STATE
COURT SITTING IN ATLANTA, GEORGIA OF ANY CLAIM, DEMAND, PROCEEDING, ACTION OR
CAUSE OF ACTION (A) ARISING UNDER THIS NOTE, ANY OTHER LOAN DOCUMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH OR THEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF BORROWER AND BANK WITH RESPECT TO THIS NOTE, ANY
OTHER LOAN DOCUMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR THE TRANSACTIONS RELATED
HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. BORROWER ACKNOWLEDGES AND
AGREES THAT THE WITHIN CONSENT AND WAIVER ARE MATERIAL INDUCEMENTS TO BANK TO
MAKE THE LOAN. BORROWER HEREBY AGREES THAT SERVICE OF THE SUMMONS AND
COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY COURT IN OR OF THE STATE OF GEORGIA MAY BE MADE BY
MAILING OR DELIVERING A COPY OF SUCH PROCESS TO BORROWER IN ACCORDANCE WITH
SECTION 5.4 HEREOF.
5.9 USE OF PROCEEDS. The Borrower shall use the proceeds of the
Loan solely to pay its outstanding obligations under Sections 5.7 and 5.7(a) of
the Plan (as defined in the Stock Pledge Agreement), plus Borrower's costs
incurred in connection with the transaction.
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IN WITNESS WHEREOF, this Note has been duly executed under seal in
Atlanta, Georgia on the date first above written.
BORROWER:
THE ENSTAR GROUP, INC.
By: /s/ Nimrod T. Frazer
---------------------------------
Title: /s/ President
------------------------------
[SEAL]
Borrower's Address:
172 Commerce Street - 3rd Floor
Montgomery, AL 36104
Borrower's Tax ID Number:
53-0590560
-------------------------------------
Borrower's facsimile number:
(334) 834-2530
-------------------------------------
15
<PAGE> 16
EXHIBIT A
Fixed Rate Request
First Union National Bank
of Georgia
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attn:__________________
Re: Promissory Note dated October __, 1996 (the "Note") from The
Enstar Group, Inc. (the "Borrower"), and First Union National
Bank of Georgia ("Bank")
Gentlemen:
This Fixed Rate Request is delivered in accordance with Section 2.3 of
the Note. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Note.
Borrower hereby [irrevocably requests] [confirms its irrevocable oral
request] for the following Fixed Rate Portion:
1. Amount of Fixed Rate Portion of Loan: $___________
[$1,000,000 MINIMUM; $500,000 MULTIPLES]
2. Effective Date: ______________, 19__
3. Such Portion [check one] ____is ____is not a continuation of a
previous Fixed Rate Portion.
4. The Interest Period is ___ [7, 30, 60 or 90] days.
The Borrower hereby confirms to the Bank that as of the date hereof, no Event
of Default has occurred and is continuing, nor has there occurred any event or
condition that with the passage of time or giving of notice, or both, would
constitute an Event of Default.
Very truly yours,
THE ENSTAR GROUP, INC.
By:
-------------------------------------
Title:
----------------------------------
16
<PAGE> 1
EXHIBIT 10.2
STOCK PLEDGE AGREEMENT
October 24, 1996
The Enstar Group, Inc. ("Pledgor") and First Union National Bank of
Georgia ("Bank"), agree as follows:
1. DEFINITIONS. Whenever the following terms are used herein,
they shall be defined as follows:
"Agreement" or "this Agreement" shall mean and include all
amendments, modifications and supplements hereto and shall refer to this
Agreement as the same may be in effect at the time such reference becomes
operative.
"Company" shall mean First Union Corporation, a North Carolina
corporation.
"Collateral" shall mean and include all of the Pledged
Securities, together with all proceeds thereof and all cash, additional
securities, and other property at any time and from time to time receivable or
otherwise distributed in respect of or in exchange for any or all of such
Pledged Securities.
"Collateral Value" shall mean, as of any date of
determination, the Per Share Price multiplied by the number of shares of
Pledged Securities in which Bank has a perfected first priority security
interest hereunder.
"Commission" shall mean the Securities and Exchange
Commission, or any other Federal agency then administering the Securities Act.
"Event of Default" shall mean any of the events listed in
Section 5(a) of this Agreement.
"Financing Agreements" shall mean this Agreement, the Note and
the other documents, agreements and certificates executed or delivered in
connection herewith.
"Note" shall mean the promissory note, dated of even date
herewith, from Pledgor to Bank in the original principal amount of $18,100,000,
as amended, modified, supplemented, restated or renewed from time to time.
"Per Share Price" shall mean as of any date of determination
(i) the per share closing price of the Company's common stock as of the close
of trading on the national stock exchange on which such stock is then traded on
the business day immediately preceding such
<PAGE> 2
determination date or (ii) if such stock is not so listed for trading on such a
national stock exchange, the per share price of the Company's common stock as
determined by Bank in its reasonable discretion.
"Permitted Liens" shall mean those liens and encumbrances (a)
for taxes not yet due or being properly contested; (b) resulting from deposits
made in the ordinary course of Pledgor's business in connection with workman's
compensation, unemployment insurance, social security and other like laws, but
only if the payment thereof is not at the time required or such claims are
being properly contested; and (c) from attachments, judgments and other similar
non-tax liens arising in connection with court proceedings, but only if and for
so long as the execution or other enforcement of such liens is and continues to
be effectively stayed and bonded on appeal in a manner satisfactory to Bank for
the full amount thereof and the validity and amount of the claims secured
thereby are being properly contested.
"Person" shall mean any individual, corporation, partnership,
limited liability company, association, trust or unincorporated organization,
or a government or any agency or political subdivision thereof.
"Plan" shall mean the Second Amended and Restated Plan of
Reorganization of The Enstar Group, Inc., filed December 5, 1991 and effective
as of June 1, 1992, as modified, filed with the U.S. Bankruptcy Court for the
Middle District of Alabama (In Re: The Enstar Group, Inc., Case No. 91-02618).
"Pledged Securities" shall mean and include (i)(a) the 353,602
shares of common stock of the Company now owned by Pledgor (as described in
Exhibit A hereto) as of the date hereof and (b) any shares of common stock of
the Company issued in exchange therefor or constituting dividends thereon, and
(ii) any and all of the issued and outstanding shares of common stock of the
Company (other than those shares described in clause (i)(b) of this definition)
hereafter pledged by the Pledgor to the Bank and in which the Bank obtains a
perfected first priority security interest, including, without limitation, all
shares of common stock of the Company pledged and delivered by Pledgor to the
Bank pursuant to Section 3(n) hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same may from time to time be in effect.
"Securities Laws" shall mean the Securities Act, the
Securities Exchange Act of 1934, as amended, or any similar Federal statute,
and the rules and regulations of the Commission thereunder, together with any
and all applicable state blue sky laws, all as the same may from time to time
be in effect.
"Solvent" shall mean, as to Pledgor, that Pledgor (a) has
capital sufficient to carry on its business and transactions and all business
and transactions in which it is about to
2
<PAGE> 3
engage, (b) is able to pay its debts as they mature and (c) owns property whose
fair saleable value is greater than the amount required to pay its indebtedness
and liabilities.
Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed thereto in the Note.
2. PLEDGE. To induce Bank to make the loan evidenced by the
Note, and in consideration thereof and of any loans, advances or financial
accommodations heretofore or hereafter granted by Bank to or for Pledgor's
account, whether pursuant to the Note or otherwise, all of which will inure to
Pledgor's direct benefit, Pledgor hereby pledges, conveys, hypothecates,
mortgages, assigns, sets over, delivers to Bank and grants to Bank a security
interest in all of the Collateral now or hereafter owned by Pledgor as security
for the payment and performance when due of the Obligations.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS REGARDING
COLLATERAL. Pledgor hereby represents, warrants and covenants to and with Bank
that:
(a) DUE AUTHORIZATION, ETC. The execution, delivery and
performance of this Agreement, the creation of the liens and security interests
and the delivery to Bank of the certificates evidencing the Pledged Securities
provided for hereunder are within Pledgor's corporate power, have been duly
authorized by all necessary corporate action, are not in contravention of any
provision of Pledgor's articles of incorporation or bylaws or of any law or of
any agreement or indenture by which Pledgor is bound, and do not require the
consent or approval of any government body, agency, authority or other Person,
which has not been obtained and a copy thereof furnished to Bank;
(b) VALID AND BINDING OBLIGATION. This Agreement
constitutes Pledgor's valid and legally binding obligation, enforceable in
accordance with its terms, as such enforceability may be limited by bankruptcy,
insolvency, moratorium and other similar laws affecting creditors' rights
generally and by general principles of equity (whether applied at law or in
equity);
(c) TITLE TO COLLATERAL. Pledgor is the legal and
equitable owner of, and has the complete and unconditional authority to pledge,
the Collateral, and holds the same free and clear of all liens, charges,
encumbrances and security interests except those in favor of Bank granted
hereunder and Permitted Liens, and will defend its title thereto against the
claims of all Persons whomsoever;
(d) COLLATERAL; RESTRICTIONS ON SALE. All of the issued
and outstanding shares of capital stock of the Company owned by Pledgor are
evidenced by the certificates described on Exhibit A attached hereto; except as
described in Exhibit A, none of the Pledged Securities are subject to any
restriction on trading or sale, whether pursuant to any agreement to which
Pledgor is a party, under Securities Laws or otherwise;
3
<PAGE> 4
(e) PLAN. Pledgor has not defaulted under any term,
condition or obligation to which it is subject under the Plan; without limiting
the generality of the foregoing, all payments and distributions required to be
made by Pledgor under the Plan have been when and as due;
(f) SOLVENCY. Giving effect to the execution and
delivery of the Loan Documents and the making of the Loan, Pledgor is Solvent;
(g) PLEDGE OF PLEDGED SECURITIES. Upon execution and
delivery of this Agreement, Pledgor shall deliver to Bank certificates
evidencing all Pledged Securities included in the Collateral, accompanied by
executed stock powers in blank and by irrevocable proxies with respect to the
Pledged Securities in favor of Bank, the rights of Bank under which shall be
exercisable only upon the occurrence of an Event of Default and in accordance
with the terms of this Agreement;
(h) PLEDGE OF ADDITIONAL SECURITIES AND PROPERTY. Except
as provided in Section 4(a) hereof, Pledgor will cause any additional Pledged
Securities or property issued to or received by it with respect to any of the
Collateral, and any certificates evidencing the Company's common stock issued
in exchange for such Pledged Securities, whether for value paid by it or
otherwise, to be forthwith deposited and pledged with Bank, in each case
accompanied by instruments of assignment duly executed in blank by Pledgor
substantially the same as those required by subsection (g);
(i) NO LIENS OR SECURITY INTERESTS. Pledgor will not
permit any lien, claim, charge, security interest or encumbrance to exist with
respect to the Collateral, other than those in favor of Bank with respect to
the Collateral and Permitted Liens;
(j) DISPOSITION OF COLLATERAL OR RETAINED SECURITIES.
Pledgor will not sell, exchange, hypothecate, pledge, assign, convey, mortgage
or abandon any Collateral;
(k) PAYMENT OF TAXES AND CHARGES. Pledgor will pay all
taxes, assessments and charges levied, assessed or imposed upon the Collateral
before the same become delinquent or become liens upon any of the Collateral
except where the same may be contested in good faith by appropriate proceedings
and as to which adequate reserves have been provided;
(l) BANK'S RIGHT TO TAKE ACTION. In the event that
Pledgor fails or refuses to perform any of its obligations set forth herein,
Bank shall have the right, without obligation, to discharge the same, and any
sums paid by Bank, or the cost thereof, including without limitation,
reasonable attorneys' fees actually incurred by Bank, shall constitute secured
Obligations and bear interest until paid;
4
<PAGE> 5
(m) NO OBLIGATION BY BANK. Pledgor acknowledges and
agrees that nothing contained herein shall obligate Bank or impose a duty upon
Bank to assume any duties or obligations of Pledgor with respect to any of the
Collateral;
(n) COLLATERAL VALUE; RELEASE OF PLEDGED STOCK. (i)
Pledgor covenants and agrees that on the date hereof the outstanding principal
amount of the Loan shall be no greater than 75% of the Collateral Value; (ii)
if at any time after the date hereof, and from time to time after the date
hereof, the outstanding principal amount of the Loan exceeds 80% of the
Collateral Value, the Pledgor shall, within five (5) days of such date, either
repay the principal of the Loan in such amount, or deliver to Bank additional
shares of common stock of the Company constituting Pledged Securities with such
Value, so that the outstanding principal balance of the Loan after such
repayment or delivery of Pledged Securities does not exceed 80% of the
Collateral Value; (iii) if at any time after the date hereof, and from time to
time after the date hereof, the outstanding principal amount of the Loan is
less than 60% of the Collateral Value, the Bank shall, within ten (10) days of
receipt of a written request from Pledgor, release to Pledgor such number of
the Pledged Securities such that immediately after such release the outstanding
principal amount of the Loan is at least 74%, but not in excess of 75%, of the
Collateral Value; and (iv) if at any time and from time to time after the Bank
shall have released any of the Pledged Securities pursuant to clause (iii)
above the outstanding principal amount of the Loan exceeds 80% of the
Collateral Value, Pledgor shall take the actions described in clause (ii) above
such that the outstanding principal balance of the Loan after such repayment
of the Loan or delivery of additional shares of common stock constituting
Pledged Securities as described in clause (ii) does not exceed 80% of the
Collateral Value;
(O) FINANCIAL STATEMENTS. Pledgor shall furnish or cause
to be furnished to Bank:
(i) As soon as available and in any event within 10 days
of the filing thereof, copies of any reports or filings (including Borrower's
Form 10-Q and Form 10-K) required to be made with the Commission;
(ii) Together with the Form 10-Q and Form 10-K referred to
in clause (i) above, a certificate of the chief executive officer and chief
financial officer of Pledgor certifying that, to the best of their knowledge,
no Event of Default has occurred and is continuing or, if an Event of Default
has occurred and is continuing, a statement as to the nature thereof and the
action which is proposed to be taken with respect thereto;
(iii) As soon as available and in any event within 10 days
of the filing thereof, copies of any material reports or filings made with the
United States Bankruptcy Court with jurisdiction over the Plan;
(iv) As soon as available and in any event within 10 days
of incurring the same, notice of any borrowing of $1,000,000 or more or any
guaranty of any Person's
5
<PAGE> 6
borrowing of $1,000,000 or more, and promptly upon request of the Bank for the
same, the loan documents evidencing any such loan (and guaranty, if
applicable);
(vii) Promptly upon the request of Bank, such other
information respecting the business, property, assets, operations or condition,
financial or otherwise, of Pledgor as Bank may from time to time reasonably
request.
4. DIVIDENDS; ETC.
(a) RIGHT TO RECEIVE DIVIDENDS, ETC. For so long as no
Event of Default exists hereunder, Pledgor shall have the right to receive cash
dividends declared and paid by the Company with respect to the Collateral. Any
and all stock or liquidating dividends, other distributions in property,
returns of capital or other distributions made on or in respect of Collateral,
whether resulting from a subdivision, combination or reclassification of the
outstanding capital stock of the Company, received in exchange for the
Collateral or any part thereof or received as a result of any merger,
consolidation, acquisition or other exchange of assets to which the Company may
be a party or otherwise, shall be and become part of the Collateral pledged
hereunder and, if received by Pledgor, shall forthwith be delivered to Bank, to
be held subject to the terms of this Agreement.
(b) POSSESSION OF THE COLLATERAL, ETC. Bank may hold any
of the Collateral, endorsed or assigned in blank, and may deliver any of the
Collateral to the Company or its stock transfer agent for the purpose of making
denominational exchanges or registrations or transfers in accordance with this
Agreement, including, without limitation, Section 3(n) hereof.
(c) TERMINATION OF RIGHT TO RECEIVE DIVIDENDS. Upon the
occurrence of any Event of Default, all of Pledgor's rights to receive any cash
dividends pursuant to Section 4(a) hereof shall cease, and all such rights
shall thereupon become vested in Bank, who shall have the sole and exclusive
right to receive and retain the dividends which Pledgor would otherwise be
authorized to receive and retain pursuant to Section 4(a) hereof. In such
event, Pledgor shall pay over to Bank any dividends received by Pledgor with
respect to the Collateral and any and all money and other property paid over to
or received by Bank, pursuant to the provisions of this Section 4(c) shall be
retained by Bank as Collateral hereunder and shall be applied in accordance
with the provisions hereof.
5. EVENTS OF DEFAULT; REMEDIES.
(a) DEFAULT. Each of the following shall constitute an
Event of Default hereunder:
(i) if there shall occur any "Event of
Default" under the Note, as such term is defined therein;
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<PAGE> 7
(ii) if any of the Collateral shall be
attached or levied upon or seized in any legal proceedings, or held by
virtue of any lien or distress (and notwithstanding anything in the
Note to the contrary, no cure period shall be applicable to such
default, but Permitted Liens that do not have priority over the Bank's
security interest in the Collateral shall not be deemed an Event of
Default hereunder);
(iii) if a final order or judgment is
entered by the United States Bankruptcy Court with jurisdiction over
the Plan that Pledgor shall have failed to comply with the Plan.
(b) BANK'S RIGHTS AND REMEDIES. Upon the occurrence of
an Event of Default and during the continuance thereof:
(i) Bank shall thereupon have, in
addition to all other rights provided herein and in the Note and the
other Financing Agreements, the rights and remedies of a secured party
under the Uniform Commercial Code of the State of Georgia or other
applicable law and further, Bank may, without demand and without
advertisement, notice or legal process of any kind (except as may be
required by law), all of which Pledgor waives, at any time or times
(A) apply any cash dividends received by Bank pursuant to Section 4(c)
hereof to the Obligations and (B) if following such application there
remains outstanding any of the Obligations, sell the remaining
Collateral, or any part thereof, at public or private sale or at any
broker's board or on any securities exchange, for cash, upon credit or
for future delivery as Bank shall deem appropriate. Bank shall be
authorized at any such sale (if, on the advice of counsel, it deems it
advisable to do so) to restrict the prospective bidders, or purchasers
to Persons who will represent and agree that they are purchasing the
Collateral for their own account for investment and not with a view to
the distribution or resale thereof, and upon consummation of any such
sale Bank shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such
purchaser at any such sale shall hold the property sold absolutely
free from any claim or right on Pledgor's part, and Pledgor hereby
waives (to the extent permitted by law) all rights of redemption, stay
and/or appraisal which Pledgor now has or may have at any time in the
future under any rule of law or statute now existing or hereafter
enacted. Further, Bank shall have the right to transfer the Pledged
Securities to itself and to exercise its rights to vote under the
irrevocable proxies granted to it pursuant to Section 3(g) hereof.
(ii) Bank agrees to give written notice to Pledgor
in the manner specified in Section 9(1) hereof not less than ten (10)
days prior to the date of the disposition of the Collateral subject to
the security interest created herein at any such public sale or sale
at any broker's board or on any such
7
<PAGE> 8
securities exchange, or prior to the date after which private sale or
any other disposition of said Collateral will be made, and Pledgor
agrees that (A) such notice, if given in such manner, shall constitute
reasonable notice, but notice given in any other reasonable manner or
at any other reasonable time shall be sufficient; and (B) the proceeds
of any such sale or disposition shall be applied first to the
satisfaction of Bank's reasonable attorneys' fees, legal expenses, and
other costs and expenses actually incurred in connection with the
taking, retaking, holding, preparing for sale, and selling of the
Collateral, and second to the payment (in whatever order Bank elects)
of the Obligations. After the application of all such proceeds, Bank
will return any excess to Pledgor and Pledgor shall remain liable for
any deficiency.
6. POWER OF ATTORNEY. Pledgor appoints Bank, or any other Person
whom Bank may designate, as Pledgor's attorney, with power to endorse Pledgor's
name on any checks, notes, acceptances, money orders, drafts or other form of
payment or security that may come into Bank's possession and to do all things
necessary to carry out this Agreement. Pledgor ratifies and approves all acts
of such attorney. Neither Bank nor any other Person designated by Bank as
attorney hereunder will be liable for any acts or omissions except in the case
of wilful misconduct or gross negligence on the part of Bank, nor for any
errors of judgment or mistakes of fact or law. This power, coupled with an
interest, is irrevocable until the payment in full of the Note pursuant to the
terms thereof and the satisfaction in full of the Obligations.
7. TERMINATION OF AGREEMENT. This Agreement shall continue in
full force and effect until the repayment in full of the Note pursuant to the
terms thereof and the satisfaction in full of the Obligations. Upon
termination of this Agreement, Bank shall surrender to Pledgor or other Person
legally entitled thereto, without recourse or warranty, all certificates
evidencing and stock powers in respect of the securities included in the
Collateral which are in the possession of Bank and have not been disposed of
pursuant to Section 5(b) hereof.
8. WAIVERS; AMENDMENTS; SUCCESSORS AND ASSIGNS.
(a) WAIVER OF PRESENTMENT AND NOTICE. Pledgor waives
presentment and protest of any instrument and notice thereof, notice of default
and all other notices to which Pledgor might otherwise be entitled, except as
otherwise specifically provided herein.
(b) WAIVER OF FAILURE OR DELAY. Failure by Bank to
exercise any right, remedy or option under this Agreement or in any other
agreement between the parties hereto, or delay by Bank in exercising the same,
will not operate as a waiver.
(c) WRITTEN WAIVERS, ETC. No waiver by Bank will be
effective unless it is in a writing signed by Bank, and then only to the extent
specifically stated, and no waiver by Bank on any occasion shall affect or
diminish Bank's right thereafter to require strict performance by Pledgor with
any provision of this Agreement.
8
<PAGE> 9
(d) REMEDIES CUMULATIVE. Bank's rights and remedies
under this Agreement will be cumulative and not exclusive of any other right or
remedy which Bank may have.
(e) NO ORAL AMENDMENTS. This Agreement cannot be changed
or terminated orally.
(f) RIGHT TO ASSIGN. Bank shall have the right to assign
this Agreement and to transfer, assign or sell participations in its interests
hereunder from time to time in connection with any sale, assignment, transfer
or other disposition of the Note or any portion thereof, but Pledgor shall not
be permitted to assign this Agreement or any interest herein.
(g) SUCCESSORS AND ASSIGNS. All of the rights,
privileges, remedies and options given to Bank hereunder shall inure to the
benefit of its successors and assigns; and all the terms, conditions, promises,
covenants, provisions and warranties of this Agreement shall inure to the
benefit of and shall bind the representatives, successors and assigns of Bank
and Pledgor.
9. GENERAL PROVISIONS.
(a) FURTHER ACTS, ETC. Pledgor agrees to do such further
acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as Bank may at any time request in
connection with the administration and enforcement of this Agreement or
relative to the Collateral or any part thereof or in order better to assure and
confirm unto Bank its rights and remedies hereunder, including, without
limitation, performing all acts and doing all things which Bank may request,
now or hereafter, to evidence, preserve or protect the creation, attachment or
perfection of the security interests herein granted to Bank.
(b) SECTION HEADINGS. Section headings used herein are
for convenience only and are not to affect the construction of or be taken into
consideration in interpreting this Agreement.
(c) SEVERABILITY. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
(d) REIMBURSEMENT OF EXPENSES. Pledgor shall reimburse
Bank for all of Bank's expenses (other than Bank's normal overhead) incurred in
connection with the development, preparation, execution, delivery,
modification, regular review and continuing administration of this Agreement,
including searches, filings, filing fees and taxes (other than taxes on the
Bank's income) and the fees and disbursements of Bank's attorneys (including,
9
<PAGE> 10
without limitation, counsel who are employees of Bank), and all costs and
expenses incurred by Bank (including reasonable attorney's fees and
disbursements actually incurred) to: (i) commence, defend or intervene in any
court proceeding relating to the Collateral or this Agreement; (ii) file a
petition, complaint, answer, motion or other pleadings, or to take any other
action in or with respect to any suit or proceeding (bankruptcy or otherwise)
relating to the Collateral or this Agreement; (iii) protect, collect, sell,
take possession of or liquidate any of the Collateral; (iv) attempt to enforce
any security interest in any of the Collateral or to seek any advice with
respect to such enforcement; and (v) enforce any of Bank's rights to collect
any of the Obligations.
(e) PAYMENT OF TAXES. If Pledgor fails to pay any taxes,
assessments or governmental charges levied or assessed or imposed upon or with
respect to the Collateral, or otherwise fails to pay any amount necessary for
the protection and preservation of the Collateral securing the Obligations,
Bank may (unless Pledgor is properly contesting the same) pay the same at
Bank's option, together with interest and penalty, and the amounts so paid
shall be added to the Obligations, bearing interest until paid at the highest
rate for the Obligations specified in the Note, and be secured by the
Collateral.
(f) CHOICE OF LAW. This Agreement shall be deemed to be
a contract made under the laws of the State of Georgia for all purposes, and
the validity of this Agreement and of all transactions provided for herein
shall be governed by, interpreted and construed under, and in accordance with,
the internal laws (and not the law of conflicts) of the State of Georgia.
(g) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Pledgor
covenants, warrants and represents to Bank that all of Pledgor's
representations and warranties contained in this Agreement shall be true at the
time of Pledgor's execution of this Agreement, shall survive the execution,
delivery and acceptance thereof by the parties hereto and the closing of the
transactions described herein or related hereto, and (except to the extent that
they shall be untrue solely as a result of transactions permitted by this
Agreement or the Note or otherwise consented to by Bank) shall be true from the
time of Pledgor's execution of this Agreement until the termination of this
Agreement as provided in Section 7 hereof.
(h) SURVIVAL OF RIGHTS, DUTIES, ETC. Pledgor's
representations and warranties and any indemnity, expense or fee reimbursement
obligations hereunder and under the other Loan Documents shall survive the
repayment of the Loan and the termination of this Agreement and the other Loan
Documents; provided, however, any claim by Bank for any breach of any such
representation or warranty or for payment under any such indemnity, expense or
fee reimbursement obligation must be brought within 180 days of the repayment
of the Loan and the termination of this Agreement and the other Loan Documents.
(i) BANK'S RIGHT TO TAKE ACTION WITH RESPECT TO
COLLATERAL. As between Bank and Pledgor, Bank may, in its sole discretion, (i)
exchange, enforce, waive or release any security or portion of the Collateral,
(ii) apply such Collateral or any proceeds of the Collateral and direct the
order or manner of sale thereof as Bank may, from time to time, determine, and
10
<PAGE> 11
(iii) settle, compromise, collect or otherwise liquidate any such Collateral
for the Obligations in any manner following the occurrence of an Event of
Default and during the continuance thereof without affecting or impairing
Bank's right to take any other further action with respect to any security for
the Obligations or any part thereof.
(j) PAYMENTS. Bank shall have the continuing and
exclusive right to apply or reverse and reapply any and all payments to any
portion of the Obligations as provided in the Note. To the extent that Pledgor
makes a payment or payments to Bank or Bank receives any payment or proceeds of
the Collateral for Pledgor's account, which payment or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party under any bankruptcy law, state or federal law, common law or
equitable cause, then, to the extent of such payment or proceeds received, the
Obligations or part thereof intended to be satisfied shall be revived and
continue in full force and effect, as if such payment or proceeds had not been
received by such Bank.
(k) LEGAL REMEDY INADEQUATE. Pledgor recognizes that, in
the event Pledgor fails to perform, observe or discharge any of its obligations
or liabilities under this Agreement, any remedy of law may prove to be
inadequate relief to Bank; therefore, Pledgor agrees that Bank, if Bank so
requests, shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages.
(l) NOTICES. All notices and other communications from
either party to the others hereunder shall be given in accordance with Section
5.4 of the Note.
(m) INDEMNITY. Pledgor agrees to indemnify Bank from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever (including, without limitation, reasonable fees and
disbursements of counsel actually incurred) which may be imposed on, incurred
by, or asserted against Bank in any litigation, proceeding or investigation,
including, without limitation, any of the foregoing brought under any federal
or state securities laws, which is threatened, instituted or conducted by any
government agency or instrumentality or any other Person with respect to any
aspect of, or any transaction contemplated by, or referred to in, or any matter
related to, this Agreement, whether or not Bank is a party thereto except to
the extent that any of the foregoing arises out of the wilful misconduct or
gross negligence of the Bank.
11
<PAGE> 12
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
THE ENSTAR GROUP, INC.
By: /s/ Nimrod T. Frazer
----------------------------------
Title: President
-------------------------------
Address: 172 Commerce Street
Montgomery, AL 36104
FIRST UNION NATIONAL BANK OF GEORGIA
By: /s/ Shelley N. Rogers
----------------------------------
Title: Assistant Secretary
-------------------------------
Address: 999 Peachtree Street, N.E.
Atlanta, Georgia 30309
12
<PAGE> 13
EXHIBIT A
TO STOCK PLEDGE AGREEMENT
CERTIFICATES EVIDENCING PLEDGED SECURITIES
<TABLE>
<CAPTION>
Number of Shares Certificate Number(s)
---------------- ---------------------
<S> <C>
71,000 FS 344496
-----------------------------------------------------------------------
282,602 FS 344497
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 11.1: Statement re: computation of per share earnings
Income per share calculations:
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Income (loss) from continuing operations $ 740 $ 14,122 $ (4,650)
Discontinued operations 54,482 9,477
---------- ----------- ----------
Net income $ 740 $ 68,604 $ 4,827
========== =========== ==========
Weighted average number of shares outstanding 100 100 100
========== =========== ==========
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
========== =========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
<TABLE>
<CAPTION>
Jurisdiction Other Name(s) Under
of Which Subsidiary
Name of Subsidiary Organization Does Business
- ------------------ ------------ -------------------
<S> <C> <C>
Enstar Financial Services, Inc. Florida N/A
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.1
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10
FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,095
<SECURITIES> 64,391
<RECEIVABLES> 55
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 78
<DEPRECIATION> 47
<TOTAL-ASSETS> 69,572
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 48,142
<TOTAL-LIABILITY-AND-EQUITY> 69,572
<SALES> 0
<TOTAL-REVENUES> 3,870
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 871
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 740
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 740
<EPS-PRIMARY> 7,400.00
<EPS-DILUTED> 7,400.00
</TABLE>
<PAGE> 1
EXHIBIT 99.1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
IN RE: THE ENSTAR GROUP, INC., ) CASE NO. 91-02618
)
Debtor. ) CHAPTER 11
)
NOTICE OF PENDING DISTRIBUTION OF
NEW COMMON STOCK IN THE ENSTAR GROUP, INC.
TO: ALL PERSONS WHO WERE OWNERS OF COMMON STOCK OF THE ENSTAR GROUP, INC. ON
JUNE 1, 1992
PLEASE READ THIS NOTICE CAREFULLY. OWNERS OF
THE COMMON STOCK OF THE ENSTAR GROUP, INC. ON
JUNE 1, 1992, ARE ENTITLED TO RECEIVE NEW COMMON
STOCK TO BE ISSUED BY THE ENSTAR GROUP, INC.
AND/OR CASH, BUT TO ESTABLISH YOUR RIGHT TO RECEIVE
SUCH NEW COMMON STOCK AND/OR CASH WHEN ISSUED, YOU
MUST COMPLETE AND RETURN THE ENCLOSED CERTIFICATION
OF OWNERSHIP FORM BY THE DATES SPECIFIED
YOU ARE HEREBY NOTIFIED that pursuant to the Second Amended Plan of
Reorganization, as Modified (the "Plan") of The Enstar Group, Inc. (the
"Company"), the Company will be issuing new common stock (the "New Common
Stock") and/or cash to shareholders as of June 1, 1992, the Effective Date of
the Plan. On the Effective Date, the old common stock of the Company (the
"Cancelled Stock") was cancelled. Such former shareholders are now entitled to
receive New Common Stock and/or cash under the Plan by virtue of their
interests as former shareholders of the Company.
I. SUMMARY OF ENSTAR'S BANKRUPTCY CASE
The Company filed for protection under Chapter 11 of the Bankruptcy
Code on May 31, 1991. 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. Prior to its bankruptcy
filing, the Company was a publicly traded holding company with subsidiaries
operating primarily in the specialty retail business and the financial services
business. The Company's financial situation had been deteriorating rapidly
prior to 1991, and reached crisis proportions when its 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 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, has directed and managed the Company's
affairs since the fall of 1990.
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 as a savings and loan holding company. Its only asset
with any substantial value was its ownership of approximately 50 percent of the
stock of American Savings of Florida, F.S.B. ("American"), a Florida savings
and loan.
As of May 31, 1991, the market value of the Company's American stock
was approximately $7,000,000. Shortly after the Company's bankruptcy filing,
the market value of the American stock fell to less than $3,000,000, 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 ("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 $100,000,000.
<PAGE> 2
At the time of the bankruptcy filing, substantial disputes arose among
the Company's major creditors, including 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 OTS. At the same time, OTS was demanding that the Company
immediately cure American's regulatory capital deficiency in the amount of
$28,900,000 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: (1) 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;
(2) the Company was in the best position to pursue litigation against Mendel,
Grassgreen and Milken; and (3) perhaps most importantly, the Company's new
management, which had gained the trust and confidence of OTS, would have the
chance under a Chapter 11 plan 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 among its
creditors which was incorporated into the Plan. The Plan was confirmed in
February, 1992, and became effective on June 1, 1992.
At the time the 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 Plan or that the Company's stock would ever
have any value. Liabilities exceeded assets by more than $100,000,000.
Accordingly, the Plan provided that creditors would receive all distributions
under the Plan until paid in full and that the Company's stock would be
cancelled on the Effective Date. The Plan provided that the stock would be
cancelled upon the Effective Date because: (1) it was not contemplated that
there would be property available for distribution to the equity ownership
interest; and (2) the cancellation of the stock was necessary to avoid the
administrative burden and substantial cost of complying with the SEC filing
requirements of a publicly held company. Under the 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
percent of the creditors holding certain allowed unsecured claims.
Following the confirmation of its 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 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 dramatically at that time to approximately $60,000,000 to
$70,000,000. Because the 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 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 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 Plan and all interest accrued on
Allowed Claims entitled to receive property . . . 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 Plan in
August, 1993.
On July 1, 1995, the Company's American stock was disposed of through
a merger with First Union Corporation. On the date of the merger, the Company
owned 5,689,391 shares of American, in exchange for which it received
$82,454,865.80 in cash to be used to pay certain creditor claims and 815,549
shares of First Union Corporation with a market value on the exchange date of
$45.25 per share. The First Union shares received pursuant to the merger, plus
additional shares acquired through settlements with parties in the Grassgreen
litigation and First Union's dividend reinvestment program, are being held by
the Company. The Company currently owns 853,423 shares of First Union stock.
In addition to the proceeds received from the disposition of the
American stock, the Company has received the bulk of
2
<PAGE> 3
anticipated recoveries from the Grassgreen litigation, the Mendel litigation
and the Milken litigation. The Company expects the total of these recoveries
to amount to approximately $25,000,000. By the time the New Common Stock is
issued, the Company will have paid a total of approximately $118,000,000 to pay
off the claims of creditors with interest.
The Company has resolved its tax issues and obtained a final
determination of its tax liability for its tax year ending August 31, 1995.
The Company is now prepared to close its bankruptcy case and make a
distribution to its former shareholders in accordance with the terms of its
Plan. After paying off the claims of creditors in full with interest and based
on the current market value of the Company's First Union stock, the Company
anticipates that it will have approximately $35,000,000 to $40,000,000 in net
worth, consisting primarily of First Union stock and cash. The Company files
monthly financial reports with the Bankruptcy Court styled "Report of the
Reorganized Debtor."
As explained above, under the Plan as modified, the Company has the
option of distributing its remaining assets to former shareholders or issuing
New Common Stock to the former shareholders. The Company has determined that
it will be in the best interest of its former shareholders to issue New Common
Stock to former shareholders. The Company believes that the issuance of New
Stock will be the most beneficial course for former shareholders because (1)
the Company will be able to continue to use its remaining tax loss carryovers
in the approximate amount of $95,000,000 for the benefit of its former
shareholders; and (2) the issuance of New Stock to a former shareholder should
not create a taxable event for that former shareholder.
II. RIGHTS OF FORMER SHAREHOLDERS
If you were a shareholder of the Company on June 1, 1992, you will be
eligible to receive New Common Stock and/or cash on a pro rata basis for such
shares of the Cancelled Stock owned by you on June 1, 1992. The number of
shares of New Common Stock you will receive will be determined after December
2, 1996, the initial deadline for submitting Certifications of Ownership as
described below.
No fractional shares of New Common Stock will be issued. You will
receive a cash distribution for such fractional shares based on the net book
value of the Company on December 31, 1996.(1)
The Company plans to make an initial distribution of New Common Stock
and/or cash to qualifying former shareholders on or before January 31, 1997,
and to hold the initial meeting of shareholders during March of 1997. To
receive a distribution of New Common Stock and/or cash during January, 1997, by
virtue of your ownership of Cancelled Stock and to be eligible to vote as a
shareholder and participate in the shareholder meeting anticipated to be held
during March, 1997, you must mail a Certification of Ownership to the Company
by December 2, 1996, as described below, certifying that you were an owner of
Cancelled Stock on June 1, 1992, and stating the amount of shares of the
Company's cancelled stock you owned on June 1, 1992.
After the distribution of New Common Stock and/or cash to shareholders
who submit a Certification of Ownership by December 2, 1996, the Company will
reserve an amount of New Common Stock sufficient to distribute New Stock to
former shareholders who do not submit a Certification of Ownership by December
2, 1996, but who subsequently file a Certification of Ownership prior to
December 31, 1997. Former shareholders who do not submit an adequate
Certification of Ownership by December 31, 1997, will not be entitled to
receive distributions of New Common Stock and/or cash by virtue of their
ownership of Cancelled Stock on June 1, 1992, and all rights represented by
their ownership will vest in the Company.
III. THE HEARING
A hearing (the "Hearing") will be held before the Honorable Pope
Gordon, United States Bankruptcy Judge, at the United States Bankruptcy Court
for the Middle District of Alabama, One Court Square, Montgomery, Alabama 36104
at 10:00 a.m. on November 5, 1996, for the purpose of determining whether there
are any valid objections to the proposed distribution. The Hearing may be
adjourned from time to time by the Court at the Hearing or any adjourned
session thereof without further notice.
Any former shareholder may appear at the Hearing to show cause why the
distribution should not occur as proposed; provided, however, that no such
person shall be heard unless his or her objection or opposition is made in
writing and is filed, together with copies of all other papers and briefs to be
submitted by him or her to the Court at the hearing, with the Court no later
than October
- -------------------------
(1) On the Effective Date when Enstar's old stock was cancelled, there were
52,417,474 shares outstanding. The rights represented by 4,912,131 shares of
the Cancelled Stock have been surrendered to Enstar by Grassgreen and another
party in connection with the settlement of the Grassgreen litigation. Thus,
the pro rata distribution of New Stock and cash will be calculated based on
total of 47,505,343 shares of Cancelled Stock eligible to participate.
3
<PAGE> 4
29, 1996, and showing due proof of service on the Company's counsel:
J. Marbury Rainer, Esq.
Parker, Hudson, Rainer & Dobbs
1500 Marquis Two Tower
285 Peachtree Center Avenue
Atlanta, Georgia 30303
and the Bankruptcy Administrator:
Dwight S. Williams, Jr., Esq.
U.S. Bankruptcy Administrator
United States Bankruptcy Court
Middle District of Alabama
One Court Square
Montgomery, Alabama 36104
Unless otherwise ordered by the Court, any former shareholder who does not make
his or her objection or opposition in the manner provided shall be deemed to
have waived all objections and opposition to the fairness, reasonableness and
adequacy of the proposed distribution.
IV. NOTICE TO BANKS, BROKERS, AND OTHER NOMINEES
Banks, brokerage firms, institutions, and other persons who are
nominees who held the Cancelled Stock of the Company for the beneficial
interest of other persons as of June 1, 1992, are requested within ten (10)
days of receipt of this Notice, to (1) provide the Company with the names and
addresses of such beneficial owners, or to (2) forward a copy of this Notice to
each such beneficial owner and provide counsel with written confirmation that
the notice has been so forwarded. Additional copies of the Notice may be
obtained from the Company for forwarding to such beneficial owners. All such
correspondence to the Company should be addressed as follows:
The Enstar Group,Inc.
c/o Gilardi & Co
P.O. Box 8040
San Rafael, California 94912-8040
1-800-372-2231
V. EXAMINATION OF PAPERS AND INQUIRIES
This Notice contains only a summary of certain terms of the Plan and
Enstar's bankruptcy proceeding. For a more detailed statement of the matters
involved in Enstar's bankruptcy, reference is made to the Plan and pleadings in
the bankruptcy case, which may be inspected at the Office of the Clerk, United
States Bankruptcy Court, Middle District of Alabama, One Court Square, Suite
127, Montgomery, Alabama 36104, during business hours of each day.
Inquiries regarding this Notice and the distribution should be
addressed as follows:
The Enstar Group, Inc.
c/o Gilardi & Co
P.O. Box 8040
San Rafael, California 94912-8040
1-800-372-2231
DO NOT CONTACT THE COURT REGARDING THIS NOTICE
DATED: September 17, 1996
BY ORDER OF THE COURT
UNITED STATES BANKRUPTCY COURT MIDDLE
DISTRICT OF ALABAMA
<PAGE> 1
EXHIBIT 99.2
UNITED STATES BANKRUPTCY COURT
MIDDLE DISTRICT OF ALABAMA
In re: :
: CASE NO. 91-02618-APG
THE ENSTAR GROUP, INC., : CHAPTER 11
:
Debtor. :
__________________________________:
MODIFIED ORDER ON PROPOSED
DISTRIBUTION TO EQUITY SECURITY HOLDERS
In accordance with this Court's Opinion entered on November 26, 1996
(the "Opinion"), it is hereby ORDERED that The Enstar Group, Inc. ("Enstar")
recognize the interests acquired by transferees of Shareholder Interests, as
defined in Enstar's Second Amended Plan of Reorganization as Modified (the
"Modified Plan"), for purposes of distribution of the New Common Stock of
Enstar, including specifically those transferees who acquired their Shareholder
Interests after June 1, 1992. Nothing in the Opinion or this Order should be
deemed as overruling any provision of the Modified Plan. Rather, by this
Order, the Court hereby authorizes all transfers of Stockholder Interests after
June 1, 1992, in accordance with Section 11.8 of the Modified Plan.
In order to effectuate Enstar's recognition of the Shareholder
Interests acquired by such transferees in "street name' transactions(1) since
June 1, 1992, the Court hereby orders Enstar to distribute New Common Stock for
the benefit of holders of Shareholder Interests, whenever
__________________________________
(1) For purposes of this Order, "street name" transactions involve
transfers of Shareholder Interests where the record holder or "street name"
owner of the canceled common stock was The Depository Trust Company ("DTC"),
which holds the stock for the benefit of its participants. DTC's participants
are brokerage companies and similar entities which in turn have clients or
customers who are the beneficial owners of the "street name" stock held of
record by DTC. In "street name" transactions, the Shareholder Interests of
beneficial owners were traded through brokerage companies, but there was no
charge in the record ownership of DTC.
<PAGE> 2
possible, to the record holder of the canceled stock for the benefit of the
actual beneficial owners of the canceled stock. Accordingly, Enstar shall
distribute a sufficient prorata amount of New Common Stock to the record holder
of stock held in "street name", The Depository Trust Company ("DTC"), in
exchange for 23,632,522 shares of Enstar's canceled common stock currently held
by DTC for the account of its participants or such other amount as is
determined by Enstar and DTC to be the appropriate amount. It is the
understanding and direction of the Court that DTC will allocate the New Common
Stock received from Enstar to the accounts of is participants, who in turn will
make appropriate allocations of the New Common Stock to their customers, the
beneficial owners of the stock.
In addition, Enstar has informed the Court that DTC's records show
that DTC holds approximately 12,000,000 additional shares of the canceled
Enstar Common Stock, previously surrendered to DTC by participants, in a
category described by DTC as "worthless". Enstar is directed to hold in
reserve an appropriate prorata amount of New Common Stock to distribute to DTC
as DTC's request, in exchange for the shares of canceled Enstar common stock
categorized as worthless. Enstar has informed the Court that DTC will notify
DTC's participants who have surrendered stock to DTC as worthless. Said
notification will instruct the participant to provide DTC with an appropriate
request that the participant's account with DTC be credited with New Common
Stock in exchange for the worthless stock previously surrendered by the
participant, for allocation to beneficial owners with accounts with the
participant. Upon receipt of such a request from a participant, DTC will
request a distribution of the appropriate amount of New Common Stock from
Enstar, and Enstar will distribute such New Common Stock to DTC. Enstar will
not
2
<PAGE> 3
be required to hold to reserve any such New Common Stock not requested by DTC
by December 31, 1997.
Enstar shall not issue certificates for New Common Stock to persons who
have submitted Certifications of Ownership of Canceled Enstar Common Stock
("Certifications") to Enstar, where the submitted Certification indicates that
the person was the beneficial owner of canceled common stock held in "street
name", Enstar will provide notice to such persons of this Order, informing such
persons that the New Common Stock is being distributed to DTC for allocation to
the person's broker/participant with DTC and stating that the allocation will
be based on current positions with their broker. The notice to such persons
will state that they should contact their broker to confirm that New Common
Stock has been received and credited to their account.
This Order supersedes this Court's Order on Proposed Distribution to
Equity Security Holders dated November 26, 1996. Except as modified herein,
Enstar shall proceed to make prorata distributions of Enstar's New Common Stock
and/or cash in accordance with the procedure established by this Court's Order
dated September 17, 1996. Pursuant thereto, Enstar will make distributions
directly to persons who timely submit Certifications to Enstar which indicate
that the persons held their canceled Enstar common stock in "certificate form."
Done this 30 day of December, 1996.
/s/ A. Pope Gordon
-------------------
A. Pope Gordon,
Judge United States
Bankruptcy Court
3
