<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1997
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
---------------------
THE ENSTAR GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 63-0590560
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
172 COMMERCE STREET-3RD FLOOR
MONTGOMERY, ALABAMA 36104
(Address of principal executive offices)
(334) 834-5483
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
Not applicable Not applicable
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF CLASS
Common Stock, $.01 par value
================================================================================
<PAGE> 2
THE ENSTAR GROUP, INC.
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
ITEM 1. BUSINESS.
The information required by this item is contained under the sections,
"Summary of Certain Information" on pages 1 and 2, "Introduction" on page 3,
"The Distribution" on pages 6-8, and "Business and Properties of the Company" on
pages 14 and 15 of the Information Statement, and such sections are deemed
incorporated herein by reference.
ITEM 2. FINANCIAL INFORMATION.
The information required by this item is contained under the sections,
"Summary of Certain Information -- Selected Consolidated Financial Data" on page
2, "Capitalization and Book Value Per Share of New Common Stock" on page 10 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 11-13 of the Information Statement, and such sections are
deemed incorporated herein by reference.
ITEM 3. PROPERTIES.
The information required by this item is contained under the section
"Business and Properties of the Company" on pages 14 and 15 of the Information
Statement, and such section is deemed incorporated herein by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is contained under the section,
"Security Ownership of Certain Beneficial Owners and Management" on page 23 of
the Information Statement, and such section is deemed incorporated herein by
reference.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The information required by this item is contained under the section,
"Management of the Company -- Directors and Executive Officers" on page 19 of
the Information Statement, and such section is deemed incorporated herein by
reference.
ITEM 6. EXECUTIVE COMPENSATION.
The information required by this item is contained under the section,
"Management of the Company -- Executive Officer Compensation" on page 20 of the
Information Statement, and such section is deemed incorporated herein by
reference.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is contained under the sections,
"Management of the Company -- Executive Officer Compensation" on page 20 and
"Certain Relationships and Related Transactions" on page 22 of the Information
Statement, and such sections are deemed incorporated herein by reference.
ITEM 8. LEGAL PROCEEDINGS.
The information required by this item is contained under the sections "The
Company -- History of the Company -- Summary of the Company's Bankruptcy Case"
on pages 3-6 and "Legal Proceedings" on pages 14 and 15 of the Information
Statement, and such sections are deemed incorporated herein by reference.
<PAGE> 3
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information required by this item is contained under the sections,
"Summary of Certain Information -- The Distribution -- Stock Trading" on page 1,
"The Distribution -- Stock Trading" on page 7, "Management of the
Company -- Long-Term Incentive Program" on page 21, "Description of New Common
Stock -- General" on page 24 and "Description of New Common Stock -- Dividends
on New Common Stock" on page 27 of the Information Statement, and such sections
are deemed incorporated herein by reference.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The information required by this item is contained under the section,
"Description of New Common Stock" on pages 24-27 of the Information Statement,
and such section is deemed incorporated herein by reference.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The information required by this item is contained under the section
"Limitations on Liability and Indemnification of Officers and Directors" on
pages 26 and 27 of the Information Statement, and such section is deemed
incorporated herein by reference.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this item are contained under either
the section, "Index to Financial Statements" on pages F-1 - F-54 of the
Information Statement (such section is deemed incorporated herein by reference),
or in Item 15 below.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements -- see Index to Financial Statements on page F-1
of the Information Statement.
(b) Exhibits --
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2.1 -- Second Amended Plan of Reorganization of the Company,
effective as of June 1, 1992.
2.2 -- Amended Modification to Second Amended Plan of
Reorganization of the Company, confirmed on August 24, 1993.
2.3 -- Agreement and Plan of Merger dated as of December 31, 1996.
3.1 -- Articles of Incorporation of the Company.
3.2 -- Bylaws of the Company.
4.1 -- Rights Agreement between the Company and American Stock
Transfer & Trust Company, as Rights Agent, dated as of
January 20, 1997.
10.1 -- Promissory Note dated as of October 24, 1996, made by the
Company in favor of First Union National Bank of Georgia.
10.2 -- Stock Pledge Agreement dated as of October 24, 1996, between
the Company and First Union National Bank of Georgia.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.3 -- 1997 CEO Stock Option Plan.
10.4 -- 1997 Outside Directors' Stock Option Plan.
10.5 -- 1997 Omnibus Incentive Plan.
11.1 -- Statement Regarding Computation of Per Share Earnings.
21.1 -- Subsidiaries.
27.1 -- Financial Data Schedule.
99.1 -- Notice of Pending Distribution of New Common Stock in The
Enstar Group, Inc.
99.2 -- Modified Order on Proposed Distribution to Equity Security
Holders by the United States Bankruptcy Court for the Middle
District of Alabama.
</TABLE>
(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 20th day of March, 1997.
THE ENSTAR GROUP, INC.
By: /s/ NIMROD T. FRAZER
------------------------------------
Nimrod T. Frazer
Chairman of the Board of Directors,
President and Chief Executive
Officer
<PAGE> 5
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. Proxy Statement and Proxy Card. The enclosed Proxy Statement
invites you to attend the annual meeting of the shareholders of the Company
to be held on April 28, 1997, at 10:30 a.m., 300 Bibb Street, Montgomery,
Alabama 36104 and describes various matters to be considered by the
shareholders of the Company at such meeting. The Proxy Statement also
contains a proxy card which the Company requests that each holder of record
of Common Stock complete, sign and return.
A separate mailing is being sent simultaneously with this mailing that
includes one or both of the following:
1. Stock Certificate. The stock certificate will represent the number
of shares of Common Stock that you are entitled to in the Distribution.
2. Check. The Company is not issuing fractional shares in the
Distribution. To the extent applicable, former shareholders are receiving a
check representing cash payment for the fractional shares based on the net
book value of the Company on December 31, 1996.
While I urge you to review carefully each of the enclosures noted above,
only the Proxy Statement requests any action on your part.
Sincerely,
NIMROD T. FRAZER
Chairman of the Board, President and
Chief Executive Officer
March , 1997
<PAGE> 6
SUBJECT TO COMPLETION DATED MARCH 20, 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 Distribution is not
subject to the registration requirements of the Securities Act of 1933, as
amended. The Company has registered the New Common Stock under Section 12 of the
Securities and Exchange Act of 1934, as amended.
The Company does not currently own an operating business. Following the
1997 Annual Meeting of the shareholders, the Company intends to acquire one or
more operating businesses. No specific target, industry or geographical market
has yet been identified by the Company for such acquisition. See "Operation of
the Company After 1997 Annual Meeting" and "Risk Factors."
Following the Distribution, the Company expects that the New Common Stock
will be traded in the over-the-counter market on the OTC Bulletin Board(R)
maintained by the National Association of Securities Dealers, Inc. The Shares of
New Common Stock, however, may trade at a discount from their book value
depending upon the market for similar securities and other factors, including
general economic conditions and the financial condition and performance of the
Company. See "Risk Factors -- Lack of Public Market."
---------------------
NO VOTE OR OTHER ACTION OF SHAREHOLDERS IS REQUIRED IN CONNECTION WITH THIS
DISTRIBUTION. A SEPARATE PROXY STATEMENT ACCOMPANIES THIS INFORMATION STATEMENT
THAT REQUESTS A PROXY TO VOTE REGARDING CERTAIN MATTERS AFFECTING THE COMPANY AT
A SHAREHOLDERS MEETING TO BE HELD AFTER THE DISTRIBUTION.
---------------------
THIS REGISTRATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY NEW COMMON STOCK. THESE SECURITIES
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
INFORMATION STATEMENT.
The date of this Information Statement is March 20, 1997.
<PAGE> 7
EXPLANATORY NOTE
This Information Statement relates to the distribution of New Common Stock
in the Company to "Former Shareholders" of the Company in accordance with the
terms of the Reorganization Plan, and certain orders of the United States
Bankruptcy Court for the Middle District of Alabama.
As used throughout this Information Statement, the term "Former
Shareholders" means the owners of record of the Company's Cancelled Stock on
June 1, 1992, the effective date of the Reorganization Plan and the date on
which the Cancelled Stock was cancelled. The term "Former Shareholders" includes
DTC, the shareholder of record for stock held in "street name" for "Beneficial
Owners."
As used throughout this Information Statement, the term "Beneficial Owners"
means (i) those persons who owned the Cancelled Stock in "street-name" on June
1, 1992 and who did not subsequently transfer their rights represented by such
beneficial ownership after that date and (ii) those persons who currently hold
such "street-name" rights and who acquired their street-name rights after June
1, 1992.
ONLY FORMER SHAREHOLDERS WHO SUBMIT A CERTIFICATION OF OWNERSHIP TO THE
COMPANY BY DECEMBER 31, 1997 ARE ENTITLED TO RECEIVE SHARES OF NEW COMMON STOCK.
ii
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF CERTAIN INFORMATION.............................. 1
INTRODUCTION................................................ 3
THE COMPANY................................................. 3
Organizational Structure.................................. 3
Subsidiaries.............................................. 3
History of the Company.................................... 3
THE DISTRIBUTION............................................ 6
Reasons for the Distribution.............................. 7
Manner of Distribution.................................... 7
Stock Trading............................................. 7
Results of the Distribution............................... 7
Federal Income Tax Aspects of the Distribution............ 8
OPERATION OF THE COMPANY AFTER 1997 ANNUAL MEETING.......... 8
Strategy for Acquiring Business........................... 8
Nature of Acquisition..................................... 8
Related Party Transactions................................ 9
Financial Information..................................... 9
CAPITALIZATION AND BOOK VALUE PER SHARE OF NEW COMMON
STOCK..................................................... 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 11
Liquidity and Capital Resources........................... 11
Financial Condition....................................... 11
Results of Operations..................................... 11
Disclosure Regarding Forward-Looking Statements........... 13
New Accounting Pronouncements............................. 13
BUSINESS AND PROPERTIES OF THE COMPANY...................... 14
General................................................... 14
Properties................................................ 14
Employees................................................. 14
Legal Proceedings......................................... 14
Competition............................................... 15
RISK FACTORS................................................ 16
No Recent Operating History; Effectively Blind Pool....... 16
Uncertainty of Acquisition Target......................... 16
Substantial Change in the Nature of the Company's
Business............................................... 16
Dependence on Nimrod T. Frazer and Other Executive
Officers and Directors................................. 16
Lack of Public Market; Possible Volatility of Stock
Price.................................................. 16
Volatility of First Union Common Stock.................... 17
General Economic Risks and Business Cycles................ 17
Risk of No Diversification................................ 17
Financing Limitations..................................... 17
Investment Company Act of 1940............................ 17
Antitakeover Provisions................................... 17
Tax Considerations........................................ 18
MANAGEMENT OF THE COMPANY................................... 19
Directors and Executive Officers.......................... 19
Board of Directors; Committees............................ 19
</TABLE>
iii
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Executive Officer Compensation............................ 20
Annual Incentive Plan..................................... 21
Long-Term Incentive Program............................... 21
Employment and Confidentiality Agreements................. 21
Compensation of Directors................................. 22
Certain Relationships and Related Transactions............ 22
Compensation Committee Interlocks and Insider
Participation.......................................... 22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 23
DESCRIPTION OF NEW COMMON STOCK............................. 24
General................................................... 24
New Common Stock.......................................... 24
Share Purchase Rights Plan................................ 24
Certain Provisions of Articles of Incorporation and
Bylaws................................................. 25
Limitations on Liability and Indemnification of Officers
and Directors.......................................... 26
Restrictions on Transfer of New Common Stock.............. 27
Dividends on New Common Stock............................. 27
Transfer Agent and Registrar.............................. 27
AVAILABLE INFORMATION....................................... 28
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
iv
<PAGE> 10
SUMMARY OF CERTAIN INFORMATION
The following is a summary of certain information contained in this
Information Statement. This summary is included for convenience only and is
qualified in its entirety by the more detailed information and financial
statements contained elsewhere herein.
THE COMPANY
The Enstar Group, Inc. (the "Company") filed for bankruptcy under Chapter
11 of the United States Bankruptcy Code (the "Bankruptcy Code") on May 31, 1991
and has been operating as a reorganized debtor pursuant to its Second Amended
Plan of Reorganization, as Modified (the "Reorganization Plan"), since June 1,
1992 (the "Effective Date"). See "The Company -- History of the Company." The
Company's assets, aggregating approximately $69.6 million at December 31, 1996,
consist primarily of 853,423 shares of First Union Corporation common stock,
cash or cash-equivalent assets and certificates of deposit. Pursuant to the
Company's Reorganization Plan, the Company is issuing shares of new common stock
(the "New Common Stock" or the "Shares") and/or cash in lieu of fractional
Shares to shareholders who were the record holders of its common stock as of the
Effective Date of the Reorganization Plan (the "Distribution"). On the Effective
Date of the Reorganization Plan, all of the then issued and outstanding shares
of common stock of the Company were cancelled (the "Cancelled Stock"), and a new
certificate for 100 shares was issued to the Company's Chief Executive Officer,
as trustee and sole shareholder pursuant to the terms of the Reorganization
Plan. Former Shareholders are now entitled to receive Shares of New Common Stock
and cash for fractional interests under the Reorganization Plan by virtue of
their interests as Former Shareholders.
THE DISTRIBUTION
The Board of Directors of the Company has concluded that it is in the best
interests of the Company and its shareholders to distribute Shares of New Common
Stock to the Company's Former Shareholders.
REASONS FOR THE DISTRIBUTION
Under the Reorganization Plan, the Company had the option of liquidating
the Company and distributing its assets to the Former Shareholders or issuing
the New Common Stock to the Former Shareholders. In the opinion of the Board of
Directors, the Distribution is in the best interests of the Company and its
shareholders. The primary considerations that led the Company to conclude that
it should distribute Shares of New Common Stock to its Former Shareholders were
(i) to enhance long-term shareholder value by acquiring an operating business,
(ii) to avoid triggering a taxable event for the Company's Former Shareholders
and Beneficial Owners, and (iii) to continue to have the possibility of using
the Company's net operating loss carryforwards of approximately $96 million and
tax credit carryforwards of approximately $4.6 million, both of which would be
lost if the Company were liquidated. See "The Distribution -- Reasons for the
Distribution."
MANNER OF THE DISTRIBUTION
The Company is distributing to its Former Shareholders, without any
consideration being paid by such Former Shareholders, one Share of New Common
Stock for every ten (10) shares of Cancelled Stock held by such Former
Shareholders. Former Shareholders are receiving cash in lieu of any fractional
Shares of New Common Stock. See "The Distribution -- Manner of Distribution."
STOCK TRADING
Following the Distribution, the Company expects that the New Common Stock
will be traded in the over-the-counter market on the OTC Bulletin Board(R)
maintained by the National Association of Securities Dealers, Inc. See "The
Distribution -- Stock Trading." The Company intends to apply for listing of the
New Common Stock on a national securities exchange or the Nasdaq National
Market(R) in the future. There can be no assurance that such efforts will be
successful. See "Risk Factors -- Lack of Public Market."
RESULTS OF THE DISTRIBUTION
Following the Distribution, the Company will hold its annual shareholders
meeting to elect directors and conduct certain other business. Subsequently, the
Company will begin implementing its strategy of acquiring an operating business.
For a discussion of the risks pertaining to such strategy, see "Risk Factors."
<PAGE> 11
FEDERAL INCOME TAX ASPECTS OF THE DISTRIBUTION
The Company believes that no gain or loss will be recognized by (and no
amount will be included in the income of) the holders of New Common Stock upon
the Distribution, except with respect to cash received in lieu of fractional
Shares. See "The Distribution -- Federal Income Tax Aspects of the
Distribution".
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial information with respect
to the Company for each of the five years in the period ended December 31, 1996
and is derived in part from the audited Consolidated Financial Statements of the
Company. The data set forth below should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the historical consolidated financial statements and related
notes thereto, and other financial data included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
------- -------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations.......................... $ 740 $ 14,122 $ (4,650) $ (9,266) $ 3,694
Income from discontinued operations
(1)................................. 54,482 9,477 13,845 21,434
------- -------- -------- -------- ------------
Income before extraordinary item...... 740 68,604 4,827 4,579 25,128
Extraordinary item (2)................ 4,368
------- -------- -------- -------- ------------
Net income............................ $ 740 $ 68,604 $ 4,827 $ 8,947 $ 25,128
======= ======== ======== ======== ============
Income (loss) per common share:
Continuing operations............... $ 7,400 $141,220 $(46,500) $(92,660) $ 0.17
Discontinued operations............. 544,820 94,770 138,450 0.98
Extraordinary item.................. 43,680
------- -------- -------- -------- ------------
Net income.......................... $ 7,400 $686,040 $ 48,270 $ 89,470 $ 1.15
======= ======== ======== ======== ============
Weighted average shares outstanding
(3)................................. 100 100 100 100 21,828,705
======= ======== ======== ======== ============
Pro forma income (loss) per common
share (4):
Continuing operations............... $ 0.16 $ 2.97 $ (0.98) $ (1.95) $ 0.78
Discontinued operations............. 11.47 2.00 2.91 4.51
Extraordinary item.................. .92
------- -------- -------- -------- ------------
Net income.......................... $ 0.16 $ 14.44 $ 1.02 $ 1.88 $ 5.29
======= ======== ======== ======== ============
Balance Sheet data:
Total assets........................ $69,572 $ 59,602 $ 64,787 $ 54,211 $ 42,633
Note payable........................ 18,100
Liabilities subject to compromise... 588 26,540 108,238 104,159 101,110
Shareholder's equity (deficit)...... 48,142 31,900 (45,528) (49,979) (58,926)
</TABLE>
- ---------------
(1) Represents the equity in earnings of American Savings of Florida, F.S.B.
("American"), accounted for under the equity method of accounting, through
July 1, 1995. On July 1, 1995, the Company sold its investment in American
to First Union Corporation and recognized a gain of approximately $52.7
million. As a result of the disposition, the Company ceased to have banking
operations and, accordingly, has accounted for its investment in American
as a discontinued operation.
(2) Extraordinary gain resulting from the disallowance of certain liabilities
subject to compromise.
(3) Prior to June 1, 1992, the Company had approximately 52,400,000 common
shares outstanding. On June 1, 1992, these shares were cancelled and 100
shares of new common stock were issued to the Company's Chief Executive
Officer as trustee.
(4) Pro forma amounts per common share assuming that all shares eligible
(4,750,534) to be issued in connection with the Distribution had been
outstanding for all years presented.
2
<PAGE> 12
INTRODUCTION
The Enstar Group, Inc. (the "Company") is a Georgia corporation and
successor by merger to a Delaware corporation of the same name whose assets,
aggregating approximately $69.6 million at December 31, 1996, consist primarily
of 853,423 shares of First Union Corporation common stock, cash or cash
equivalent assets and certificates of deposit. Pursuant to the Second Amended
Plan of Reorganization, as Modified (the "Reorganization Plan"), the Company is
issuing shares of new common stock (the "New Common Stock" or the "Shares")
and/or cash in lieu of fractional Shares to Former Shareholders (the
"Distribution"). On June 1, 1992 (the "Effective Date"), all of the then issued
and outstanding shares of the Company's common stock were cancelled (the
"Cancelled Stock"), and a new certificate for 100 shares was issued to the
Company's Chief Executive Officer, as trustee and sole shareholder pursuant to
the terms of the Reorganization Plan. The Former Shareholders are now entitled
to receive Shares of New Common Stock and cash for fractional interests in
accordance with the Reorganization Plan.
THE COMPANY
ORGANIZATIONAL STRUCTURE
The Company's executive offices are located at 172 Commerce Street -- 3rd
Floor, Montgomery, Alabama 36104, and its telephone number is (334) 834-5483.
The Company has five full-time employees, whose principal duties currently
include administering the issuance of the Shares to the Former Shareholders and
other matters related to the execution of the Company's Reorganization Plan,
managing the assets of the Company and preparing for the Company's existence as
a public entity after the Distribution.
SUBSIDIARIES
The Company has one wholly owned subsidiary, Enstar Financial Services,
Inc., which is currently inactive.
HISTORY OF THE COMPANY
Summary of the Company's Bankruptcy Case
The Company filed for protection under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") on May 31, 1991 in the United States
Bankruptcy Court for the Middle District of Alabama (the "Bankruptcy Court").
Prior to its bankruptcy filing on May 31, 1991, the Company was a publicly
traded holding company with subsidiaries operating primarily in the specialty
retail business and the financial services business. Prior to November 16, 1989,
when its name was changed, the Company's name was Kinder-Care, Inc., and prior
to January 1987, the Company's name was Kinder-Care Learning Centers, Inc. The
Company originally was incorporated on October 26, 1970 in the State of
Delaware.
Prior to its bankruptcy filing, the Company's financial situation had been
deteriorating rapidly and reached crisis proportions when its then Chairman and
Chief Executive Officer, Richard Grassgreen, was indicted in the Fall of 1990,
in connection with his activities and dealings with Michael Milken. In the wake
of his indictment, Mr. Grassgreen resigned from all of his positions with the
Company, and Nimrod T. Frazer was elected acting Chairman of the Board. Soon
thereafter most of the Company's Board of Directors resigned. The remaining
Board members, T. Wayne Davis, T. Whit Armstrong and Mr. Frazer affirmed Mr.
Frazer as Chairman of the Board. This three-member Board, with Mr. Frazer
serving as Chairman and Chief Executive Officer, directed and managed the
Company's affairs from the fall of 1990 until October of 1996, when a fourth
director, J. Christopher Flowers, was elected as a director of the Company.
The Company's retail services subsidiaries filed for bankruptcy prior to
May 31, 1991. At the time of its bankruptcy filing, the Company's principal
remaining business was a savings and loan holding company. Its only asset with
any substantial value was its ownership of approximately 49% of the outstanding
common stock of American Savings of Florida, F.S.B. ("American"), a Florida
savings bank.
3
<PAGE> 13
As of May 31, 1991, the market value of the Company's American stock was
approximately $7 million. Shortly after the Company's bankruptcy filing, the
market value of the American stock fell to less than $3 million and American,
whose capital had fallen far below required levels, was facing the prospect of a
collapse or takeover by the United States Office of Thrift Supervision (the
"OTS"). Other than its stock in American, the Company's only significant assets
were contingent claims in the form of lawsuits against former officers and
directors, Richard Grassgreen and Perry Mendel, and a suit to be filed against
Michael Milken and others. The Company's non-contingent liabilities exceeded its
assets by more than $100 million.
At the time of the bankruptcy filing, substantial disputes arose among the
Company's major creditors, including the OTS, American, NationsBank of Texas,
and KinderCare Learning Centers, Inc. The disputes involved substantial
pre-bankruptcy transfers of assets from the Company to American which had been
mandated by the OTS. At the same time, the OTS was demanding that the Company
immediately cure American's regulatory capital deficiency in the amount of $28.9
million or face the prospect of immediate conversion of the Chapter 11 case to a
liquidation under Chapter 7 of the Bankruptcy Code.
The Company believed, and all creditors agreed, that a Chapter 11
proceeding would be preferable to a Chapter 7 proceeding because: (i) a Chapter
11 plan of reorganization could resolve the disputes between the creditors,
which if not resolved would have resulted in costly litigation over the priority
and enforceability of claims and the propriety of pre-petition transfers, and
likely would have depleted any remaining assets of the Company; (ii) the Company
was in the best position to pursue litigation against Mendel, Grassgreen and
Milken; and (iii) perhaps most importantly, the Company's new management, which
had gained the trust and confidence of the OTS, would have the chance under
Chapter 11 to salvage the situation at American, thereby enhancing the value of
the American stock for the benefit of the Company's creditors and interest
holders.
The Company was successful in negotiating a settlement with its creditors
which was incorporated into the Reorganization Plan. The Reorganization Plan was
confirmed in February, 1992, and became effective on June 1, 1992.
At the time the Reorganization Plan was proposed by the Company, in the
fall of 1991, there appeared to be no prospect that the shareholders of the
Company would receive any distribution under the Reorganization Plan or that the
Company's stock would ever have any value. Liabilities exceeded assets by more
than $100 million. Accordingly, the Reorganization Plan provided that creditors
would receive all distributions under the Reorganization Plan until paid in full
and that the Company's stock would be cancelled on the Effective Date. The
Reorganization Plan provided that the stock would be cancelled upon the
Effective Date because: (i) it was not contemplated that there would be property
available for distribution to the equity ownership interest; and (ii) the
cancellation of the stock was necessary to avoid the administrative burden and
substantial cost of complying with the filing requirements of the Securities
Exchange Act of 1934, as amended. Under the Reorganization Plan, new common
stock was issued on the Effective Date to the Company's Chief Executive Officer,
as a trustee, who was directed to vote the shares annually for purposes of
electing the Board of Directors of the Company based on directions given by at
least 51% of the creditors holding certain allowed unsecured claims.
Following the confirmation of its Reorganization Plan, the Company pursued
the liquidation of its assets, including the pursuit of its lawsuits against
Grassgreen, Mendel and Milken. More importantly, the Company continued as the
holding company of American. The Company was instrumental in and substantially
responsible for American's survival and return to capital compliance and
profitability.
By 1993, the success of the Reorganization Plan was exceeding all
expectations, and it appeared that there was at least a chance that the Company
might be able to pay all of its creditors in full. The market value of the
Company's American stock had increased at that time to approximately $60 million
to $70 million. Because the Reorganization Plan had not anticipated or
specifically provided for the distribution of the estate proceeds after
creditors were paid in full, the Company filed a motion to modify the
Reorganization Plan to clarify the distributions and make clear that once all
creditors were paid in full with interest, any remaining
4
<PAGE> 14
property would be held or distributed for the benefit of the Company's Former
Shareholders. The Reorganization Plan as modified provides in Section 5.11(d) as
follows:
In the event that all Allowed Claims [of creditors] entitled to
receive Property pursuant to this [Reorganization] Plan and all
interest accrued on the Allowed Claims entitled to receive . . . are
paid in full, [Former Shareholders] who held such interests on the
Effective Date shall be entitled to receive any remaining Property
available for distribution. Such remaining Property shall be
distributed on a pro rata basis to [Former Shareholders] which held
such interests on the Effective Date provided, however, that the
[Company] may distribute to the [Former Shareholders] shares of New
Common Stock on a pro rata basis, in lieu of any distributions of
remaining Property.
The Bankruptcy Court authorized the modification of the Company's
Reorganization Plan in August of 1993.
On July 1, 1995, the Company disposed of its stock in American through a
merger with a wholly owned subsidiary of First Union Corporation ("First
Union"). On the date of the merger, the Company owned 5,689,391 shares of
American, in exchange for which it received $82,454,865 in cash to be used to
pay certain creditor claims and 815,549 shares of First Union common stock (the
"First Union Common Stock") with a market value on the exchange date of $45.25
per share. The shares of First Union Common Stock received pursuant to the
merger, plus 16,191 additional shares acquired through settlements with parties
in the Grassgreen litigation and 21,683 shares purchased through First Union's
dividend reinvestment program, are being held by the Company. At December 31,
1996, the Company owned a total of 853,423 shares of First Union Common Stock.
In addition to the proceeds received from the disposition of the American
stock, the Company has received the bulk of anticipated recoveries from the
Grassgreen litigation through a settlement and confirmed plan of reorganization
in Grassgreen's Chapter 11 bankruptcy case (the "Grassgreen Bankruptcy Estate
Settlement"), the Mendel litigation and the Milken litigation. The total amount
of these recoveries, net of expenses, was approximately $22 million.
On October 24, 1996, the Company borrowed $18.1 million from First Union
National Bank of Georgia and used the proceeds from such loan to pay off the
remaining allowed claims of creditors under the Reorganization Plan. The
principal amount of the loan bears interest at either (i) a fixed rate of
interest equal to the Adjusted Eurodollar Rate plus six tenths of one percent
point (.60%) or (ii) a fluctuating rate per annum equal to the Prime Rate. The
Company has the option of allocating which portion of the principal is subject
to which rate. To secure the loan, the Company pledged 353,602 shares of First
Union Common Stock.
In total, the Company has paid approximately $118 million to satisfy the
allowed claims of creditors, including interest. The Company is now prepared to
complete its reorganization by making a distribution to its Former Shareholders
in accordance with the terms of its Reorganization Plan. Based on the market
value of the Company's First Union Common Stock as of December 31, 1996 ($74 per
share), the Company had a net worth of approximately $48.1 million as of
December 31, 1996.
Under the Reorganization Plan, the Company had the option of distributing
its remaining assets to Former Shareholders or issuing the New Common Stock to
the Former Shareholders. The Company believes that the issuance of the Shares is
the most beneficial course for the Former Shareholders for the following
reasons: (i) the Company anticipates that it will be able to acquire an
operating business and enhance long-term shareholder value, (ii) the issuance of
the Shares to a Former Shareholder should not create a taxable event for that
Former Shareholder, and (iii) the Company will preserve the possibility of using
its net operating loss carryforwards of approximately $96 million (the "NOLs")
and tax credit carryforwards of approximately $4.6 million for the benefit of
its Former Shareholders. See "The Distribution -- Reasons for the Distribution."
5
<PAGE> 15
Rights of Former Shareholders
Former Shareholders are eligible to receive Shares of New Common Stock on a
pro rata basis for shares of Cancelled Stock owned by such Former Shareholders.
No fractional Shares of New Common Stock will be issued. Former Shareholders
will receive upon submission to the Company of a Certification of Ownership, one
Share of New Common Stock for every ten (10) Shares of Cancelled Stock and cash
distributions for fractional Shares based on the net book value of the Company
on December 31, 1996. By order of the Bankruptcy Court, in situations where the
Cancelled Stock was held in "street name," New Common Stock will be distributed
to Depository Trust Company ("DTC"), the record holder of the Cancelled Stock
held in "street name," for ultimate allocation to the brokerage accounts of
Beneficial Owners of such Cancelled Stock.
In order to receive Shares, a Former Shareholder is required to mail a
Certification of Ownership to the Company prior to December 31, 1997, as
described below, certifying that the Former Shareholder was an owner of
Cancelled Stock on the Effective Date, and stating the number of shares of the
Company's Cancelled Stock the Former Shareholder owned on the Effective Date.
After the distribution of the Shares and/or cash to DTC and Former
Shareholders who have submitted a Certification of Ownership, the Company will
reserve an amount of Shares sufficient to distribute Shares to Former
Shareholders who have not submitted a Certification of Ownership, but who
subsequently file a Certification of Ownership prior to December 31, 1997.
Former Shareholders who have not submitted a complete Certification of Ownership
by December 31, 1997, will not be entitled to receive distributions of the
Shares and/or cash by virtue of their ownership of Cancelled Stock on the
Effective Date, and all rights represented by their ownership will vest in the
Company. Similarly, Shares of New Common Stock held for distribution to DTC that
are not allocated to Beneficial Owners by December 31, 1997 will be cancelled,
and all rights to such Shares will vest in the Company.
Reorganization as Georgia Corporation
The Board of Directors of The Enstar Group, Inc., a Delaware corporation
("Enstar-Delaware"), after careful study, concluded that it was in the best
interests of Enstar-Delaware and its shareholders to reorganize Enstar-Delaware
as a Georgia corporation. As a result, the Board of Directors of Enstar-Delaware
and Enstar-Delaware's sole shareholder approved a change of Enstar-Delaware's
state of incorporation from Delaware to Georgia. The change in the state of
incorporation was accomplished through a merger of Enstar-Delaware with and into
the Company, a wholly owned subsidiary of Enstar-Delaware which was incorporated
on December 23, 1996 (the "Merger"). The Company and Enstar-Delaware entered
into an Agreement and Plan of Merger (the "Plan of Merger") pursuant to which
Enstar-Delaware merged with and into the Company. Pursuant to the Plan of
Merger, the sole shareholder of Enstar-Delaware prior to the Merger became the
sole shareholder of the Company after the Merger. The Company and
Enstar-Delaware filed Certificates of Merger with the Delaware Secretary of
State and the Georgia Secretary of State which were effective as of December 31,
1996.
It is intended that the Merger be treated as a reorganization under Section
368(a)(1)(F) of the United States Internal Revenue Code of 1986, as amended (the
"Tax Code"). While the Merger effects a change in the legal domicile of the
Company, the Merger will not result in any change in the name, business,
management, location of the Company's principal executive offices or other
facilities, assets, liabilities, net worth or accounting practices. In addition,
all of the directors, officers and employees of Enstar-Delaware upon
consummation of the Merger became officers, directors, and employees of the
Company.
THE DISTRIBUTION
The Board of Directors of the Company, after careful study, has concluded
that it is in the best interests of the Company and its shareholders to
distribute Shares of New Common Stock to its Former Shareholders.
6
<PAGE> 16
REASONS FOR THE DISTRIBUTION
There were a number of considerations that led the Company to conclude that
it should distribute Shares of New Common Stock to its Former Shareholders in
lieu of liquidating the Company. First, the Company believes that long-term
shareholder value will be enhanced by acquiring an operating business. The
Company's Board of Directors believes that it and the executive officers are
qualified to identify and consummate such an acquisition. Secondly, the
Distribution of the New Common Stock to the Former Shareholders should not
constitute a taxable event for the Former Shareholders, whereas a distribution
of property or cash would be a taxable event for such Former Shareholders.
Finally, if the Company were to liquidate, the Company's Former Shareholders
would lose any benefit that the Company might obtain from the Company's NOLs and
tax credit carryforwards, which otherwise might be available to reduce or
eliminate the Company's income tax in the future.
MANNER OF DISTRIBUTION
The Company is distributing to Former Shareholders, without any
consideration being paid by such holders, one Share of New Common Stock for
every ten (10) shares of Cancelled Stock formerly held on the Effective Date.
Former Shareholders will receive cash in lieu of any fractional Shares of New
Common Stock.
Certificates representing Shares of New Common Stock are being mailed,
along with this Information Statement, to Former Shareholders who have submitted
Certifications of Ownership to the Company. The Former Shareholders are
receiving, or will receive upon submission to the Company of a Certification of
Ownership by December 31, 1997, a certificate for their Shares and cash
distributions for such fractional Shares based on the net book value of the
Company on December 31, 1996. No fractional Shares will be issued. All expenses
associated with the Distribution will be paid by the Company. See "The
Distribution -- Manner of Distribution." Beneficial Owners will not receive
certificates for the New Common Stock. The certificate for such Shares will be
distributed to DTC for allocation to DTC's broker members and then to the
brokerage accounts of Beneficial Owners.
STOCK TRADING
Prior to May 8, 1991, the Company's Cancelled Stock was traded on the
Nasdaq National Market(R). Between May 8, 1991 and the Effective Date of the
Reorganization Plan, shares of the Company's Cancelled Stock were traded in the
over-the-counter market. The Company is aware that there was trading of rights
or claims of former shareholders after the cancellation of the Cancelled Stock
on the Effective Date. The Company has no specific knowledge regarding the
volume of such post-Effective Date trading or the prices at which such trades
occurred.
Subsequent to the Distribution, the New Common Stock will be traded in the
over-the-counter market on the OTC Bulletin Board(R) maintained by the National
Association of Securities Dealers, Inc. There can be no assurance as to the
price at which trading in the New Common Stock will occur. Two broker-dealers,
Sterne, Agee & Leach, Inc. and Robotti & Company, Inc., both of whom actively
followed the Company's stock prior to the Company's bankruptcy, have informed
the Company that they will serve as market makers for the New Common Stock
following the Distribution. The Company's management has provided certain
information to these brokers-dealers to enable them to initiate quotations on
the OTC Bulletin Board(R). In the future, the Company intends to apply for
listing of the New Common Stock on a national securities exchange or the Nasdaq
National Market(R).
RESULTS OF THE DISTRIBUTION
Following the Distribution, the Company will hold its annual shareholders
meeting. At the annual shareholders meeting, the shareholders will elect
directors and consider other matters. Immediately thereafter, the Company will
begin pursuing a strategic acquisition. The Company has not yet focused on any
particular industry or market.
7
<PAGE> 17
FEDERAL INCOME TAX ASPECTS OF THE DISTRIBUTION
The Company believes that the Distribution is not a taxable event under the
Tax Code. As such, the Company believes (i) no gain or loss will be recognized
by the Former Shareholders and Beneficial Owners (collectively, the
"Distributees") upon the receipt of New Common Stock, (ii) the basis of the New
Common Stock (including any fractional share interest) will be the same as the
basis of the Cancelled Stock immediately before the Distribution, (iii) the
holding period of the New Common Stock received by the Distributees will include
the holding period of the Cancelled Stock with respect to which the Distribution
is made, provided that the Cancelled Stock is held as a capital asset on the
Distribution Date, and (iv) no gain or loss will be recognized by the Company
upon the Distribution. Each Distributee will recognize gain or loss measured by
the difference between the cash amount received for his fractional share
interest in New Common Stock and the portion of his basis in Cancelled Stock
allocable to such fractional share interest. To the extent that a Distributee
has claimed a loss deduction with respect to the Cancelled Stock on his prior
federal income tax return, the Distributee will have a zero basis in the New
Common Stock.
The above summary is included for general information purposes only and
should not be regarded as tax advice. Distributees are urged to consult their
personal tax advisors regarding the appropriate income tax treatment of their
receipt of New Common Stock.
OPERATION OF THE COMPANY AFTER 1997 ANNUAL MEETING
After the 1997 annual meeting of the shareholders the Company will seek to
consummate one or more acquisitions. The Company's officers and directors have
made some preliminary efforts to identify suitable acquisition targets. Such
efforts, however, have not resulted in any agreements or understandings, oral or
written, with representatives of any business or company.
STRATEGY FOR ACQUIRING BUSINESS
The Company's strategy for making a suitable acquisition is to utilize the
considerable experience, knowledge and business contacts of the Company's four
directors, including Nimrod Frazer, the Company's Chief Executive Officer. Each
of the Company's directors has been asked by management to assist the Company
actively in its pursuit of an acquisition. Management intends to follow up on
the leads and suggestions presented by directors and meet with various
prospective targets. The Company will conduct rigorous financial and legal due
diligence with respect to any entity about which it has a strong interest. The
Company does not intend to pay any director or any entity with which a director
is affiliated any finder's fees.
The Company has not hired, and does not presently intend to hire, any
consultants or advisers in connection with its pursuit of an acquisition. To the
extent, however, that investment banks, business brokers or other persons
introduce the Company to companies with whom the Company ultimately consummates
a transaction, the Company would be willing to pay fair compensation for such
services, either in the form of cash or securities of the Company, or both. In
addition, if in the course of its due diligence of a particular acquisition
target the Company determines that it would benefit from the advice of a
consultant or adviser, the Company would be willing to pay market-based fees for
such services. The Company has not set a maximum amount of finder's or advisory
fees that it would be willing to pay.
NATURE OF ACQUISITION
The Company does not presently intend to focus on any particular industry
or geographical market. While the Company does plan to focus its attention in
the United States, the Company will investigate acquisition opportunities
outside of the United States if management believes that such opportunities
might be attractive. Similarly, the Company does not yet know the structure of
any acquisition. The Company may pay consideration in the form of cash,
securities of the Company or some combination of both. The Company may also
borrow money in connection with the acquisition. In that event, the Company's
shareholders would be subject to the risks normally associated with leveraged
transactions. Depending upon the level of indebtedness, a leveraged transaction
could have important consequences to the Company, including the following: (i)
if the
8
<PAGE> 18
acquired business is unable to achieve satisfactory operating results, the
Company could prove unable to service such indebtedness; (ii) a substantial
portion of the Company's cash flow from operations may be dedicated to the
payment of principal or interest on its indebtedness and would not be available
for other purposes; (iii) the Company's ability to obtain additional financing
in the future for working capital, capital expenditures or other acquisitions
may be limited; and (iv) the Company's level of indebtedness could limit its
flexibility in planning for, or reacting to, changes in its industry. In order
to preserve the Company's possible use of the NOLs, the Company does not intend
to offer a controlling interest in the Company in connection with the
acquisition of one or more operating businesses.
RELATED PARTY TRANSACTIONS
The Company does not presently intend to consummate a transaction with any
entity of which any of the Company's officers or directors are affiliated.
Although nothing in the Company's Articles of Incorporation or Bylaws
specifically prohibits such transactions, any related party transaction would be
subject to the fiduciary standards governing such types of transactions that are
imposed by Georgia corporate law.
FINANCIAL INFORMATION
Following the Distribution, the Company will file periodic reports under
the Securities Exchange Act of 1934, as amended, some of which require audited
financial information. The business that the Company acquires may or may not
have audited financial information readily available. If audited financial
information is not available, the Company, or the owners of the acquired
business as a condition to sale, will have to incur the expense of conducting an
audit. The Company does not believe that such requirement will have a material
impact on the pool of potential acquisition candidates.
9
<PAGE> 19
CAPITALIZATION AND BOOK VALUE PER SHARE OF
NEW COMMON STOCK
The following table sets forth the capitalization and book value per share
of the Company as of December 31, 1996, and the pro forma capitalization and
book value per Share of New Common Stock after giving effect to the Distribution
assuming the Distribution occurred as of December 31, 1996. This data should be
read in conjunction with the financial statements and the related notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
--------------------------
ACTUAL PRO FORMA(1)
----------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Note payable................................................ $ 18,100 $ 18,100
----------- ---------
Shareholder's equity:
Common stock ($.01 par value; 55,000,000 shares
authorized, 100 shares issued and outstanding, and
4,750,534 (pro forma) shares issued and outstanding)... 47,505
Additional paid-in capital................................ 167,935 120,430
Unrealized gain on investment in First Union.............. 23,949 23,949
Accumulated deficit....................................... (143,742) (143,742)
----------- ---------
Total shareholder's equity........................ 48,142 48,142
----------- ---------
Total capitalization.............................. $ 66,242 $ 66,242
=========== =========
Book value per share........................................ $481,419.17 $ 10.13
=========== =========
</TABLE>
- ---------------
(1) Pro forma data assuming that all Shares eligible to be distributed in
connection with the Distribution were distributed as of December 31, 1996
(without regard to fractional Shares).
10
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Consolidated Financial Data and the Consolidated Financial Statements including
the footnotes and is qualified in its entirety by the foregoing and other more
detailed financial information appearing elsewhere herein. Historical results of
operations and the percentage relationships among any amounts included in the
Consolidated Statements of Operations, and any trends which might appear to be
inferable therefrom, should not be taken as being necessarily indicative of
trends in operations or the results of operations for any future period. See
"The Company -- History of the Company" and "Business and Properties of the
Company" for a description of the business of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company is emerging from bankruptcy. The Company's assets, aggregating
approximately $69.6 million at December 31, 1996, consist primarily of 853,423
shares of First Union Common Stock (with a market value of $63.2 million), cash,
cash equivalents and certificates of deposit. Based on the average daily trading
volume of shares of First Union Common Stock, the Company believes that its
investment in First Union is readily marketable.
The Company is seeking to acquire an operating business. Until such time as
the Company uses its assets for an acquisition, the Company's only liquidity
needs are to fund operating expenses and debt service. In October of 1996, the
Company borrowed approximately $18.1 million from a bank for the purpose of
repaying certain of the Company's liabilities subject to compromise. The loan
matures on October 1, 1997 and bears interest, at the Company's option, at
either a fixed rate equal to the Adjusted Eurodollar Rate, as defined, plus .6%,
or at a variable rate equal to Prime. The interest rate on the loan was 6.13% at
December 31, 1996.
FINANCIAL CONDITION
The Company had total assets of $69.6 million at December 31, 1996 compared
to $59.6 million at December 31, 1995. The change in total assets was primarily
due to the increase in market value of the Company's First Union Common Stock
and the increase in cash due to the receipt of approximately $2 million from the
Milken litigation, partially offset by the decrease in restricted cash and
certificates of deposit.
The Company's total liabilities at December 31, 1996 were $21.4 million
compared to $27.7 million at December 31, 1995. The decrease in liabilities is
primarily due to repaying liabilities subject to compromise partially offset by
the increase resulting from the $18.1 million note.
RESULTS OF OPERATIONS
1996 Compared to 1995
Litigation income was $2 million in 1996 compared to $15.3 million in 1995.
During 1995 the Company received the bulk of its litigation proceeds from the
legal action it brought against Michael Milken and others. The amount received
in 1995 from the Milken litigation was approximately $14 million compared to
approximately $2 million received in 1996.
Investment income was $1.9 million in 1996 compared to $1 million in 1995.
The increase in investment income in 1996 was due primarily to the dividends
received by the Company from its investment in First Union. The Company received
shares of First Union Common Stock in connection with the merger of American
with a wholly owned subsidiary of First Union in July of 1995. Therefore, the
Company received more dividend payments in 1996 than in 1995.
General and administrative expenses were $2.3 million in 1996 compared to
$606,000 in 1995. The increase in general and administrative expenses was
primarily due to the one time bonus payments made to
11
<PAGE> 21
certain directors and employees of $1.2 million in 1996. The increase in general
and administrative expenses in 1996 compared to 1995 was also due to the
expenses incurred in 1996 of locating shareholders, preparing to register the
New Common Stock and preparing to issue such Shares.
Interest expense was $871,000 in 1996 compared to $2.3 million in 1995.
Interest expense decreased in 1996 primarily because of the repayments of
allowed claims made to the Company's creditors in July of 1995 from the proceeds
of the sale of American.
Consolidated income from continuing operations was $740,000 in 1996
compared to $14.1 million in 1995. Consolidated income from continuing
operations decreased in 1996 compared to 1995 primarily because of the receipt
of $14 million in the Milken litigation proceeds that contributed to the
Company's income in 1995.
The Company's results of operation do not reflect any income tax expense in
1996 and 1995 because of the Company's utilization of tax loss carryforwards.
The Company recorded equity in earnings of $1.8 million from its
approximately 49% owned subsidiary American in 1995. The disposal of American in
July of 1995 resulted in a gain to the Company of approximately $52.7 million
after deducting expenses of approximately $2.1 million.
Consolidated net income was $740,000 in 1996 compared to $68.6 million in
1995. Consolidated net income decreased in 1996 compared to 1995 primarily
because of the gain on the sale of American and the receipt of the Milken
litigation proceeds that contributed to the Company's net income in 1995 that
did not occur in 1996.
1995 Compared to 1994
Litigation income was $15.3 million in 1995 compared to $619,000 in 1994.
The increase is primarily due to the receipt of the proceeds from the Milken
litigation of approximately $14 million in 1995.
Investment income was $1 million in 1995 compared to $2,000 in 1994. The
increase results from dividends on the Company's First Union Common Stock
beginning in July of 1995.
General and administrative expenses in 1995 were $606,000 compared to $1
million in 1994. The decrease in general and administrative expenses in 1995
from 1994 was largely due to a decrease in legal fees included in general and
administrative expenses.
Interest expense was $2.3 million in 1995 compared to $4.1 million in 1994.
The decrease in interest expense is due to repayments of allowed claims to the
Company's creditors in July of 1995 from the American proceeds.
Consolidated net income from continuing operations was $14.1 million in
1995 compared to a loss of $4.7 million in 1994. The increase in 1995 from 1994
is primarily explained by the receipt of the proceeds from the Milken
litigation, the increase in investment income due to the receipt of First Union
Common Stock dividends and the decrease in interest expense that resulted from
the repayment of allowed claims made to the Company's creditors in 1995.
The Company's results of operations do not reflect any income tax expense
in 1995 and 1994 because of the Company's utilization of tax loss carryforwards.
The equity in earnings of American was $1.8 million in 1995 compared to
$9.5 million in 1994. This difference is primarily due to the fact that American
was sold in July of 1995 and therefore, the 1994 earnings reflect a full year
and 1995 only reflects a partial year of earnings. The Company realized a gain
on the merger of American with a wholly owned subsidiary of First Union of
approximately $52.7 million net of expenses of approximately $2.1 million in
1995.
Consolidated net income was $68.6 million in 1995 compared to $4.8 million
in 1994. The increase in 1995 from 1994 is primarily explained by the gain on
the sale of American in 1995 and the receipt of $14 million in proceeds from the
Milken litigation in 1995.
12
<PAGE> 22
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Portions of this Information Statement include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although the
Company believes that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be achieved.
NEW ACCOUNTING PRONOUNCEMENTS
For information on new accounting pronouncements, see Note 1 of Notes to
Consolidated Financial Statements.
13
<PAGE> 23
BUSINESS AND PROPERTIES OF THE COMPANY
GENERAL
The Company is currently investigating potential acquisitions. 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 full-time, salaried employees.
Employees of the Company are not covered by any collective bargaining
agreements, and the Company has never experienced a strike or work stoppage. The
Company considers its employee relations to be satisfactory.
LEGAL PROCEEDINGS
Since May 31, 1991, the Company has been involved in extensive litigation.
See "History of the Company -- Summary of the Company's Bankruptcy Case." Except
as described below, the Company is not aware of any pending litigation matters
that could have a material adverse effect on the Company.
In connection with the Grassgreen Bankruptcy Estate Settlement, the United
States Internal Revenue Service (the "IRS") has asserted a liability of the
Company for taxes allegedly owed by the Grassgreen Bankruptcy Estate. In 1996,
the IRS appealed a determination by the United States Bankruptcy Court for the
Middle District of Florida that the IRS cannot seek payment of the taxes. The
alleged tax liability, for calendar year 1994, is for sums paid to the Company
in connection with the Grassgreen Bankruptcy Estate Settlement by third parties
to resolve the Company's claims against those parties. In United States of
America v. Richard J. Grassgreen and The Enstar Group, Inc., Case No.
96-1099-CIV-J-10 (U.S.D.C. M.D. Fla.), the IRS claims that it should be entitled
to assess additional taxes in the approximate amount of $1.6 million against the
Grassgreen Bankruptcy Estate for 1994 and that the IRS should be able to seek
payment of those taxes from the Company by virtue of the Company's agreement to
pay certain taxes of the Grassgreen Bankruptcy Estate. Although the Company has
accrued a liability for the potential tax, the Company intends to contest
vigorously that any taxes are owed by the Grassgreen Bankruptcy Estate. In the
event a court determines that additional taxes are owed, the Company will
vigorously contest it has any obligation to pay such taxes.
On February 11, 1997, fifteen former shareholders of the Company filed a
lawsuit against the Company in the Circuit Court of Montgomery County, Alabama
styled Peter N. Zachary, et al. v. The Enstar Group, Inc., Case No.
CV-97-257-Gr. The complaint, which deals with actions occurring prior to the
Company's filing for bankruptcy in 1991, alleges that the Company along with its
then principal officers and others defrauded the plaintiffs in violation of the
Alabama Securities Act and other Alabama statutory provisions. The plaintiffs
seek compensatory damages in the amount of their alleged losses of approximately
$2 million and unspecified punitive damages. The complaint is virtually
identical to a complaint brought by these plaintiffs against the Company's
former chairman, former president and others in December 1991, during the
pendency of the Company's bankruptcy case and prior to the confirmation of the
Reorganization Plan. The plaintiffs allege that the Bankruptcy Court issued an
order on January 15, 1997, allowing them to litigate their claims against the
Company. The Bankruptcy Court's order actually held that the plaintiffs could
not bring a late claim against the Company in its bankruptcy case and then went
on to state that because of facts relating to these particular plaintiffs, they
were not bound by the provisions of the Reorganization Plan and their claims
were not subject
14
<PAGE> 24
to discharge under the Bankruptcy Code. The Company is filing a motion to
dismiss and/or for summary judgment in response to the complaint on the basis
that the claims asserted are barred by the applicable statute of limitations. In
the event the plaintiffs' claims are not dismissed pursuant to the Company's
motion, the Company intends to contest the plaintiffs' claims vigorously.
COMPETITION
Due to its unique situation, the Company does not believe that it currently
has any competitors.
15
<PAGE> 25
RISK FACTORS
Shareholders of the Company should carefully consider, along with the other
matters referred to in this Information Statement, the following:
NO RECENT OPERATING HISTORY; EFFECTIVELY BLIND POOL
The Company has been in bankruptcy proceedings or operating as a
reorganized debtor pursuant to the Reorganization Plan since May 31, 1991.
Accordingly, the Company does not have any recent operating history upon which
an evaluation of the Company or its prospects can be based. At present, the
Company is a "blind pool;" no acquisitions have as yet been identified by the
Company. The acquisitions to be made by the Company after the Distribution will
be selected by the executive officers and Board of Directors of the Company and
may in certain circumstances be made without shareholder approval. Thus, the
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their beginning stages of
development.
UNCERTAINTY OF ACQUISITION TARGET
The Company has not yet identified an acquisition target or focused on a
particular industry or geographical market for such acquisition. Accordingly,
there can be no assurance that the Company will be successful in acquiring an
operating business that will bring value to the Company's shareholders.
Moreover, the business of the acquisition target may be subject to numerous
risks that are impossible to predict in this Information Statement. By way of
example only, the acquisition target may be subject to government regulation, or
dependent upon new technology or new product development. In sum, there can be
no assurance that the Company will make an acquisition that will prove
financially advantageous to the Company's shareholders.
SUBSTANTIAL CHANGE IN THE NATURE OF THE COMPANY'S BUSINESS
The business of the Company will be substantially different in both size
and scope from that of the Company prior to the Effective Date of the
Reorganization Plan. The Company's long term viability, profitability and growth
will depend on its ability to successfully realize the plans of the Company's
management and Board of Directors. The magnitude of the changes in the Company
that will occur as it emerges from bankruptcy make it difficult to evaluate its
future prospects on the basis of historical information relating to the Company.
In addition, significant challenges are often encountered in attempting to build
a business upon emerging from bankruptcy.
DEPENDENCE ON NIMROD T. FRAZER AND OTHER EXECUTIVE OFFICERS AND DIRECTORS
The success of the Company is highly dependent on the ability of Nimrod T.
Frazer, the Company's Chairman, President and Chief Executive Officer, and the
other executive officers and directors of the Company to identify a financially
advantageous acquisition target and to consummate a transaction for the purchase
of such target on favorable terms. The identification of attractive business
opportunities is difficult and involves a high degree of uncertainty. There can
be no assurance that the Company's Board of Directors and management will be
successful in identifying an attractive business opportunity or consummating a
successful transaction.
LACK OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
The Shares are securities for which there is currently no established
trading market. If any of the Shares are traded after the Distribution, they may
trade at a discount from their net book value depending upon the market for
similar securities and other factors, including general economic conditions and
the financial condition and performance of the Company. While the Company
intends to attempt to list the New Common Stock on a national securities
exchange or the Nasdaq National Market(R) in the future, there can be no
assurance that such efforts will be successful.
16
<PAGE> 26
From time to time after the Distribution, there may be significant
volatility in the market price for the New Common Stock. Quarterly operating
results of the Company, changes in general conditions in the economy, the
financial markets, or the technology industry, adverse press or news
announcements, or other developments affecting the Company, could cause the
market price of the New Common Stock to fluctuate substantially. In addition, in
recent years, the stock market has experienced significant price and volume
fluctuations. This volatility has affected the market prices of securities
issued by many companies for reasons unrelated to their operating performance.
VOLATILITY OF FIRST UNION COMMON STOCK
Substantially all of the Company's assets currently are comprised of shares
of First Union Common Stock. The market price for such stock will fluctuate, and
there can be no assurance that such fluctuations will not be severe. To the
extent that First Union Common Stock were to decline in value, the Company's
financial ability to make an acquisition would be diminished. The Company does
not have any representatives on First Union's board of directors and does not
have any knowledge concerning the business of First Union that is not publicly
available.
GENERAL ECONOMIC RISKS AND BUSINESS CYCLES
The climate for making a suitable acquisition is affected generally by the
prevailing economic conditions and the business cycle. There can be no assurance
that the economic conditions or status of the business cycle will be favorable
following the Distribution.
RISK OF NO DIVERSIFICATION
The Company does not plan to acquire operating businesses in a sufficient
number of industries such that the Company's holdings will be diversified across
several industries. In fact, the Company may decide to acquire only one business
operating in one industry.
FINANCING LIMITATIONS
The Company may be outbid by another company with respect to any given
acquisition that management of the Company identifies as in the best interests
of the Company. Moreover, there may be certain financing contingencies that will
restrict the ability of the Company to make a given acquisition.
INVESTMENT COMPANY ACT OF 1940
If the Company were to continue to hold the shares of First Union Common
Stock as its primary asset for a period of time longer than twelve months from
the date of the Distribution, the Company may be required to register as an
investment company under the Investment Company Act of 1940 (the "1940 Act").
Registration under the 1940 Act would subject the Company to many constraints
not incurred by most operating companies. The Company anticipates that
registration will not be necessary, because the Company plans to acquire an
operating business in the near future. If the Company were required to register
as an investment company under the 1940 Act, registration could have material
adverse consequences on the Company's operations. In order to provide the
management of the Company with the optimal amount of time to evaluate potential
acquisitions, the Company is considering seeking an extension of the one-year
exemption from registration from the Securities and Exchange Commission. There
can be no assurance that such efforts will be successful. The 1940 Act imposes,
among other things, significant restrictions on an investment company's capital
structure, the composition and duties of its board of directors, the custody of
its assets, the declaration of dividends, and transactions with its affiliated
persons.
ANTITAKEOVER PROVISIONS
The Company's Articles of Incorporation and Bylaws contain provisions that
may discourage other persons from attempting to acquire control of the Company,
including, without limitation, procedural requirements in connection with
shareholder nominations for election of directors. The Company has also
17
<PAGE> 27
elected to be subject to certain provisions of the Georgia Business Corporation
Code and has adopted a share purchase rights plan. See "Description of New
Common Stock -- Certain Provisions of Articles of Incorporation and Bylaws" and
"Description of New Common Stock -- Share Purchase Rights Plan." In certain
circumstances, the fact that provisions and agreements are in place which
inhibit or discourage takeover attempts may affect the market price of the New
Common Stock. See "Description of New Common Stock."
TAX CONSIDERATIONS
In September 1996, pursuant to the expedited procedures of Section 505 of
the Bankruptcy Code, the IRS entered a consent order with the Bankruptcy Court
waiving its right to challenge the Company's federal income tax return for the
taxable year ended August 31, 1995. The consent order effectively confirmed the
validity of the Company's use of its NOLs to offset its taxable income for the
taxable year ended August 31, 1995. However, because there are possible
applications of certain provisions of the Tax Code that may limit the Company's
use of the NOLs in future tax returns, there can be no assurance that the
Company will be able to utilize its NOLs fully in subsequent taxable years.
18
<PAGE> 28
MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
Certain information concerning the executive officers and directors of the
Company is set forth below:
<TABLE>
<CAPTION>
DIRECTOR OR
EXECUTIVE
NAME AGE POSITION OFFICER SINCE
---- --- -------- -------------
<S> <C> <C> <C>
Nimrod T. Frazer........................... 67 Director, Chairman of the 1990
Board, President and
Chief Executive Officer
Cheryl D. Davis............................ 37 Chief Financial Officer, 1991
Vice-President of
Corporate Taxes,
Secretary
Amy M. Dunaway............................. 40 Treasurer and Controller 1991
T. Whit Armstrong.......................... 49 Director 1990
T. Wayne Davis............................. 50 Director 1990
J. Christopher Flowers..................... 39 Director 1996
</TABLE>
MR. FRAZER was elected to the Board of Directors in August of 1990. Mr.
Frazer was named Chairman of the Board, Acting President and Chief Executive
Officer on October 26, 1990. Mr. Frazer was Chairman of the Board of the Frazer
Lanier Company, a regional investment banking firm, from 1976 to 1996 and was a
Co-Founder. Mr. Frazer is past Chairman of the Water Works and Sanitary Sewer
Board of Montgomery, Alabama and a past director of Columbus Mills of Columbus,
Georgia, Rockdale Industries of Decatur, Georgia, and Sterling Bank, of
Montgomery, Alabama. Sterling Bank is a wholly owned subsidiary of Synovus
Financial Corp. of Columbus, Georgia.
MR. ARMSTRONG was elected to the position of director in June of 1990. Mr.
Armstrong has been President and Chief Executive Officer of the Citizens Bank,
Enterprise, Alabama, and its holding company, Enterprise Capital Corporation,
Inc. in excess of five years. Mr. Armstrong is also a director of Alabama Power
Company of Birmingham, Alabama.
MR. DAVIS was elected to the position of director in June of 1990. Mr.
Davis has been Chairman of the Board of Directors of General Parcel Service,
Inc., a parcel delivery service, since January of 1989. He was a private
investor from June of 1987 until becoming Chairman of General Parcel Service,
Inc., and from January of 1981 to June of 1987, he was Vice President of
Winn-Dixie Stores, Inc., food supermarkets. He is a director of Winn-Dixie
Stores, Inc. of Jacksonville, Florida, and Accustaff, Inc. of Jacksonville,
Florida.
MR. FLOWERS was elected to the position of director in October of 1996. Mr.
Flowers is a General Partner and Managing Director of Goldman, Sachs & Co., New
York, New York. Mr. Flowers has been a General Partner of Goldman, Sachs & Co.
since December of 1988 and a Managing Director of Goldman, Sachs & Co. since
December of 1996. Goldman, Sachs & Co. served as financial advisor to American
in connection with the sale of American to First Union in 1995.
MS. DAVIS was named Chief Financial Officer and Secretary in April of 1991
and Vice President of Corporate Taxes in 1989. Ms. Davis has been employed with
the Company since April of 1988.
MS. DUNAWAY was named Treasurer and Controller in April of 1991. Ms.
Dunaway has been employed with the Company since September of 1990.
BOARD OF DIRECTORS; COMMITTEES
The members of the Board of Directors are divided into three classes of
directors and serve for staggered three-year terms until reelected or replaced
or until their earlier resignation or removal. See "Certain
19
<PAGE> 29
Provisions of Articles of Incorporation and Bylaws." Executive officers of the
Company are elected annually by and serve at the discretion of the Board of
Directors.
The Company has a Compensation Committee, consisting of T. Whit Armstrong,
T. Wayne Davis and J. Christopher Flowers. The Compensation Committee is
responsible for reviewing, determining and establishing the salaries, bonuses
and other compensation of the executive officers of the Company.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth certain information concerning the
compensation paid to the Company's Chief Executive Officer and each of the other
executive officers of the Company (collectively, the "Named Executive Officers")
whose salary and bonus compensation for the years ended December 31, 1994, 1995
and 1996 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------
OTHER
NAME AND ANNUAL
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) COMPENSATION(2)
------------------ ---- ---------- ------------ ---------------
<S> <C> <C> <C> <C>
Nimrod T. Frazer................................... 1996 250,000 0 0
Chairman of the Board 1995 250,000 0 1,193,585
of Directors, President and 1994 250,000 0 0
Chief Executive Officer
Cheryl D. Davis.................................... 1996 116,405 121,060 693
Chief Financial Officer, 1995 106,213 0 540
Vice-President of Corporate 1994 100,050 0 420
Taxes, Secretary
Amy M. Dunaway..................................... 1996 80,327 80,327 482
Treasurer and Controller 1995 77,524 0 460
1994 73,025 0 399
All Named Executive Officers....................... 1996 446,732 201,387 1,175
(3 persons) as a group 1995 433,737 0 1,194,585
1994 423,075 0 819
</TABLE>
- ---------------
(1) Amounts shown for Ms. Davis and Ms. Dunaway are for one-time bonuses paid
pursuant to a directors and employees incentive bonus program adopted by
the Board of Directors on June 14, 1994 (the "Bonus Program"). The purpose
of the Bonus Program was to provide the members of the Board of Directors
and certain employees with an incentive to continue to increase the value
of the Company for the benefit of the Company's Former Shareholders. The
Bonus Program also provided directors with an incentive to continue to
serve on the Board of Directors. The Bonus Program, which was adopted at a
time when there were not sufficient assets to pay creditors in full with
interest, provided for a bonus pool equal to three percent (3%) of the
total assets of the Company available for distribution after all creditors
were paid in full. The bonus pool could not exceed $1.2 million. All
bonuses were paid in 1996, as determined by the Board of Directors, to
certain employees and current directors of the Company other than Mr.
Frazer and Mr. Flowers.
(2) Amounts shown for Ms. Davis and Ms. Dunaway are for premiums paid by the
Company for term life insurance. The amount shown for Mr. Frazer represents
a 1% commission paid on the gross sales price of American in accordance
with a Commission Agreement dated March 4, 1993 between Mr. Frazer and the
Company. The Company also makes available group medical insurance plans to
all of its executive officers and employees.
20
<PAGE> 30
ANNUAL INCENTIVE PLAN
On January 20, 1997, based on the recommendation of an outside consulting
firm, the Board of Directors adopted an annual incentive plan. Annual incentive
payments are intended to reward executive officers for significant contributions
to the Company's annual financial and strategic non-financial performance. The
Compensation Committee will set the amount of potential annual incentive
payments and performance criteria for the Company's President and Chief
Executive Officer, and the Company's President and Chief Executive Officer will
in turn set the amounts of potential annual incentive payments and performance
criteria for the other executive officers. Performance will be measured at both
the corporate and individual levels.
LONG-TERM INCENTIVE PROGRAM
On January 20, 1997, the Board of Directors of the Company adopted a
long-term incentive program made up of three stock option/incentive plans which
will be submitted to the shareholders for approval at the Company's 1997 annual
meeting. The objectives of the long-term incentive program are to promote the
success and enhance the value of the Company by providing flexibility in the
Company's ability to motivate, attract and retain the services of key employees
and directors. A total of 522,500 Shares of New Common Stock have been reserved
for issuance under the program. Under the program, the Company has established,
subject to ratification by the shareholders, the 1997 CEO Stock Option Plan (the
"CEO Plan"), the 1997 Outside Directors' Stock Option Plan (the "Directors'
Plan"), and the 1997 Omnibus Incentive Plan (the "Omnibus Plan") for other key
employees and directors.
The CEO Plan is administered by the compensation committee of the Board of
Directors (the "Committee"). Under the CEO Plan, the CEO was granted options for
200,000 Shares of New Common Stock with an exercise price of the fair market
value of the New Common Stock on the first day of trading after the
Distribution. The options granted under the CEO Plan will vest in four equal
installments of 50,000 Shares each, beginning on the date of the first annual
meeting of the Company after Distribution, and thereafter vesting on January 1,
1998, January 1, 1999 and January 1, 2000. The options granted under the CEO
Plan must be exercised prior to January 1, 2007, or 60 days after the CEO ceases
to be an employee of the Company other than by reason of death, mandatory
retirement or disability. All options granted and vested must be exercised
within 12 months of the CEO's death and within 36 months after mandatory
retirement or disability.
Under the Directors' Plan 70,000 stock options were granted to each of the
three outside directors of the Company. The exercise price for the stock options
issued under the Directors' Plan will be the fair market value of the New Common
Stock on the first day of trading after the Distribution. The options granted
under the Directors' Plan will vest in four equal installments with the first
17,500 Shares vesting upon their election as Directors on the date of the first
annual meeting after the Distribution, and the remaining Shares vesting in equal
17,500 Share installments on January 1, 1998, January 1, 1999 and January 1,
2000; provided, however, that each installment will vest only so long as the
director is a director of the Company at the applicable vesting date. No option
granted under the Directors' Plan may be exercised later than January 1, 2007,
or 60 days after the director ceases to be a director of the Company other than
by reason of death, mandatory retirement or disability. All options granted and
vested must be exercised within 12 months of the death of a director and within
36 months after mandatory retirement or disability.
In addition, the Company has established the Omnibus Plan for the benefit
of key employees and directors, subject to shareholder approval. The Omnibus
Plan will be administered by the Committee. A total of 112,500 Shares of New
Common Stock has been reserved for issuance under the Omnibus Plan which
provides generally for stock appreciation awards, incentive stock options,
nonqualified stock options and restricted stock awards. As of this date no
awards have been created and no options have been granted under the Omnibus
Plan.
EMPLOYMENT AND CONFIDENTIALITY AGREEMENTS
None of the executive officers has executed any employment, confidentiality
or noncompetition agreements with the Company.
21
<PAGE> 31
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees are paid a quarterly fee of
$2,500 and a fee of $1,000 per meeting attended. No additional compensation is
paid to directors for serving on committees. All directors receive reimbursement
of travel expenses incurred in attending meetings of the Board of Directors and
committees. In 1996, Messrs. Armstrong and Davis each received one-time bonus
payments equal to $469,645 in accordance with the Bonus Program. See "Management
of the Company -- Executive Compensation." Directors are eligible to receive
stock options under the Directors' Plan. See "Management of the Company --
Long-Term Incentive Program."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In conjunction with the July 1, 1995 sale of the Company's ownership
interest in American to First Union, the Company paid a $1.2 million commission
to Nimrod T. Frazer, the Company's Chairman, President and Chief Executive
Officer. The amount of the commission represented 1% of the gross sales price of
American. The sales price for American was the result of an auction process,
whereby American's financial advisor, Goldman, Sachs & Co. ("Goldman Sachs")
solicited and evaluated bids.
At the time of the sale of American, J. Christopher Flowers, a current
director of the Company, was a General Partner of Goldman Sachs. As the
financial adviser to American in the transaction, a customary financial advisory
fee was paid by American to Goldman Sachs. The Company retained its own
financial advisor, Dillon, Read & Co. Inc., in connection with the transaction.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company formed a Compensation Committee in
October, 1996. The current members of the Compensation Committee are Messrs.
Armstrong, Davis and Flowers. Mr. Davis is the Chairman of the Compensation
Committee.
22
<PAGE> 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Shares eligible
to be issued as of the Distribution for Named Executive Officers, (ii) directors
of the Company, (iii) each person who is a shareholder of the Company holding
more than a 5% interest in the Company, and (iv) the directors and executive
officers of the Company as a group. Unless otherwise indicated in the footnotes,
all of such Shares will be owned directly, and the indicated person or entity
will have sole voting and disposition power.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PERCENT OF CLASS(1)
------------------------------------ ------------ -------------------
<S> <C> <C>
Named Executive Officers
Nimrod T. Frazer............................................ 7,731 *
Cheryl D. Davis............................................. 3 *
Amy M. Dunaway.............................................. 88 *
Directors of the Company
Nimrod T. Frazer............................................ 7,731 *
172 Commerce Street -- 3rd Floor
Montgomery, Alabama 36104
T. Whit Armstrong........................................... 6,767(2) *
301 South Edwards Street
Enterprise, Alabama 36330
T. Wayne Davis.............................................. 65,036(3) 1.37%
1910 San Marco Blvd.
Jacksonville, Florida 32207
J. Christopher Flowers...................................... 0 0
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Other 5% Shareholders....................................... 274,845 5.79%
Jeffrey S. Halis and Nancy Lippman Halis as Joint Tenants(4)
941 Park Avenue
New York, New York 10028
All Named Executive Officers and directors of the Company as
a group (6 persons)....................................... 79,625(5) 1.68%
</TABLE>
- ---------------
* Less than 1%. All individuals who are Named Executive Officers beneficially
own, directly or indirectly, less than 1%.
(1) Based on an aggregate of 4,750,534 Shares eligible to be issued and
outstanding after the Distribution.
(2) 4,372 Shares are pledged to SouthTrust Bank of Birmingham, N.A. Includes
1,595 Shares owned by Mr. Armstrong's minor son.
(3) Includes 116 Shares held by Mr. Davis' minor child, 2,352 Shares held by Mr.
Davis' mother, 133 Shares held by Mr. Davis' wife, 13,410 Shares held in
two trusts and 49,025 Shares held in a private foundation for which Mr.
Davis has voting and investment power but is not a beneficiary.
(4) Includes 18,000 Shares for which Mr. Halis has sole voting power.
(5) Does not include options to purchase 102,500 Shares that were granted on
January 20, 1997 and are expected to vest in April 1997. See "Management of
the Company -- Long-Term Incentive Program."
Certain directors of the Company have advised the Company that such
directors may acquire additional Shares of New Common Stock from time to time in
the open market at prices prevailing at the time of such purchases.
23
<PAGE> 33
DESCRIPTION OF NEW COMMON STOCK
GENERAL
The Company's Articles of Incorporation provide that the Company may issue
up to 55 million shares of New Common Stock, $.01 par value, per Share. As of
the date hereof, 100 Shares of New Common Stock are issued and outstanding, held
by one shareholder pursuant to the terms of the Reorganization Plan. On the date
of the Distribution, 4,750,534 Shares will be available for Distribution to
eligible Former Shareholders. Based on Certifications of Ownership received by
March 17, 1997, the Company estimates that approximately 4,344,000 Shares will
initially be issued and outstanding and held by approximately 3,600 shareholders
of record.
NEW COMMON STOCK
Holders of New Common Stock will be entitled to one vote per Share on all
matters submitted to any vote of shareholders. Cumulative voting for the
election of directors is not permitted and therefore the holders of a majority
of the Shares of New Common Stock will be able to elect all of the directors.
The New Common Stock does not have preemptive rights and is not convertible,
redeemable or assessable. The holders of New Common Stock are entitled to
receive dividends as may be declared by the Board of Directors out of legally
available funds. See "Dividends on New Common Stock" below. Upon liquidation or
dissolution, holders of New Common Stock are entitled to share ratably in all
net assets available for distribution to shareholders. The Company's Articles of
Incorporation provide the Board of Directors with the ability to issue
additional Shares of New Common Stock, to the extent there remains a sufficient
number of authorized Shares.
SHARE PURCHASE RIGHTS PLAN
On January 20, 1997, the Board of Directors of the Company adopted a share
purchase rights plan (the "Rights Plan") as described herein. The Rights Plan
gives the Company's shareholders a right to purchase one Share of New Common
Stock (a "Right") for each Share of New Common Stock of the Company currently
outstanding.
The Board of Directors adopted the Rights Plan in order to maximize
shareholder value in the event of a potential takeover of the Company by
encouraging potential acquirors to negotiate with the Company's Board of
Directors. In addition, under certain sections of the Tax Code, a change in
control could jeopardize the Company's potential use of the NOLs, a result that
the Board of Directors wanted to deter unless in the best interest of the
Company's shareholders.
The Company's Articles of Incorporation authorize the issuance of up to 55
million Shares of New Common Stock, a number which the Company believes is
sufficient to cover the issuance of additional Shares of New Common Stock under
the Rights Plan. The Rights Plan also contains a provision that would permit the
Company's Board of Directors under certain circumstances to delay the exercise
of the Rights in order to convene a shareholders' meeting that would authorize
sufficient additional Shares of New Common Stock in order to permit such
exercise.
The terms of the New Common Stock issuable upon exercise of the Rights will
be identical to the Company's currently issued and outstanding New Common Stock.
Until the occurrence of a "Distribution Triggering Event" as described below,
all future issuances of New Common Stock by the Company (e.g., exercise of
employee stock options and outside director stock options) will also carry the
Rights. The Rights will have no dividend or voting rights and will expire on the
tenth anniversary of their issuance unless exercised or redeemed prior to that
time.
Exercise. Rights may not be exercised and are not detached from the New
Common Stock until ten days after the occurrence of a Distribution Triggering
Event. The exercise price of the Rights is fixed at $40, an amount per Share of
New Common Stock that approximates the Board's estimate of the long-term value
of the Company's New Common Stock at the time that the Rights Plan is ratified
by the shareholders, subject to certain anti-dilution adjustments. Because the
Rights are substantially "out of the money" when initially
24
<PAGE> 34
issued and probably will remain so even after a Distribution Triggering Event,
there is a strong disincentive to exercising them prior to the occurrence of a
Flip-in Triggering Event or Flip-over Triggering Event described below.
Redemption. So as not to interfere with the Company's ability to enter
into a negotiated merger, the Rights generally are redeemable by the Board of
Directors of the Company at a nominal price of $.01 per Right at any time prior
to the time that they are detached from the New Common Stock and separate
certificates evidencing the Rights are delivered. The Rights Plan also provides
for the optional payment of the redemption price in Shares of the Company's New
Common Stock at management's discretion, but in any event, the redemption is
treated as a dividend to the Company's shareholders.
Distribution Triggering Events. Shortly after a person or group acquires
beneficial ownership of a fifteen percent (15%) interest or announces its
intention to commence a tender or exchange offer the consummation of which would
result in beneficial ownership of fifteen percent (15%) of the Company's New
Common Stock (a "Distribution Triggering Event"), the Rights will separate from
the New Common Stock. Upon distribution of the Rights, they become exercisable
and are transferable separately from the Company's New Common Stock. As soon as
practicable thereafter, separate Rights certificates will be issued.
Flip-In Triggering Event. If an acquiror purchases an equity position in
the Company equal to or greater than a fifteen percent (15%) interest or engages
in certain other types of transactions with the Company (a "Flip-In Triggering
Event"), each Right (other than Rights beneficially owned by the acquiror) is
converted into the right to buy that number of Shares of New Common Stock of the
Company which has a market value shortly after the Flip-In Triggering Event of
two times the exercise price of the Right. Valuation of the Flip-In conversion
right is based on the average trading price of the Company's New Common Stock
during the ten trading days preceding the occurrence of a Flip-In Triggering
Event. Thus, if the Company's New Common Stock traded at $30 per Share
immediately after the occurrence of the Flip-In Triggering Event and the
exercise price of a Right was $75, each Right thereafter would be exercisable at
the exercise price of $75 for five Shares of the Company's New Common Stock.
This feature of the Rights Plan gives the shareholders the power to
substantially dilute an unwanted bidder's equity ownership in the Company and
thereby substantially increase the cost of a takeover.
Flip-Over Triggering Events. After the Distribution Triggering Event has
occurred, if the acquiring company were to merge or otherwise combine with the
Company, or the Company were to sell or transfer fifty percent (50%) of its
assets or earning power ("Flip-Over Triggering Event"), each Right is converted
into the Right to buy that number of shares of common stock of the acquiring
company which has a market value of two times the exercise price of the Right.
This right provides the target's shareholders with a dilutive fifty percent
(50%) discount on purchases of the acquiror's equity. The "flip-over" feature is
implemented by a provision in the Rights Plan prohibiting a business combination
transaction unless the Rights are assumed by the acquiring company.
CERTAIN PROVISIONS OF ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation and Bylaws of the Company are modeled after
the Articles of Incorporation and Bylaws of Enstar-Delaware with some changes
based solely on differences between the requirements of the Georgia Business
Corporation Code (the "GBCC") and the Delaware General Corporation Law (the
"DGCL"). In addition, the Board of Directors and sole shareholder of the Company
approved other changes to the Bylaws of the Company which the Board of Directors
determined were in the best interests of the Company. See "The
Company -- Reorganization as Georgia Corporation."
Business Combinations Act. In Article VII of the Bylaws, the Company
affirmatively adopted the provisions of Sections 14-2-1131 through 14-2-1133 of
the GBCC (the "Business Combinations Act"), which is designed to inhibit hostile
takeovers. Article VII of the Bylaws of the Company specifically states that
such Article shall not be deemed as prohibiting or restricting the Merger which
became effective December 31, 1996.
25
<PAGE> 35
The Business Combinations Act is designed to encourage any person, before
acquiring ten percent (10%) of the outstanding voting stock of a Georgia
corporation, to seek approval of the Georgia corporation's board of directors
for the terms of any contemplated business combination. The Business
Combinations Act prohibits any person who acquires ten percent (10%) or more of
the voting stock (an "Interested Shareholder") of a Georgia corporation that has
elected coverage under the Business Combinations Act from engaging in any
business combination with the Georgia corporation for a period of five years
from the date that person became an Interested Shareholder, unless that person
obtains approval of the transaction in one of the three ways described in the
Business Combinations Act.
The Business Combinations Act only will apply to the Company at such time
as the Company has at least 100 shareholders residing in Georgia and meets other
requirements set forth in the Business Combinations Act. The Business
Combinations Act is modeled on Section 203 of the DGCL which applied to the
Company when it was organized as a Delaware corporation.
Classified Board of Directors. Article II of the Bylaws of the Company
states that the number of members of the Board of Directors shall be no less
than three and no more than fifteen, with the number of directors serving on the
Board to be increased or decreased only by a majority vote of the directors. The
members of the Board of Directors will be divided into three classes of
directors serving with staggered terms, with each class to consist as nearly as
practicable of one-third of the members of the Board of Directors. The Board of
Directors of the Company determined that the inclusion of staggered terms was in
the best interests of the Company as staggered terms should provide continuity
for the Board as well as provide some protection against hostile takeovers.
Advance Notice Provisions. Article II of the Company's Bylaws establishes
an advance notice procedure for shareholders to make nominations of candidates
for election as directors. The Bylaws provide that only persons who are
nominated by the Board of Directors, or by a shareholder who has given timely
written notice to the Secretary of the Company prior to the meeting at which
directors are to be elected, will be eligible for election as directors of the
Company. Under the Bylaws, for notice of shareholder nominations to be made at
an annual meeting to be timely, such notice must be received by the Company not
less than 60 days nor more than 90 days prior to the meeting, unless such
requirement is waived in advance of the meeting.
The overall effect of the provisions of the Articles of Incorporation and
Bylaws described above may be to render more difficult or to discourage a
merger, tender offer, proxy contest, the assumption of control of the Company by
a holder of a large block of the Company's capital stock or other person, or the
removal of incumbent management, even if such actions may be beneficial to the
Company's shareholders generally. See "Risk Factors -- Antitakeover Provisions."
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 14-2-851 of the GBCC provides that any director or officer of a
Georgia corporation may be indemnified against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by him in connection with
or in defending any action, suit or proceeding in which he is a party by reason
of his position, so long as it shall be determined that he conducted himself in
good faith and that he reasonably believed that his conduct was in the
corporation's best interests. If a director or officer is wholly successful, on
the merits or otherwise in connection with such a proceeding, such
indemnification is mandatory.
The Company's Bylaws contain provisions which provide, among other things,
that the Company shall indemnify certain persons, including officers and
directors, against expenses (including attorneys' fees and disbursements),
judgments and any other amounts now or hereafter permitted by applicable law
actually and reasonably incurred by such person in connection with the defense
or settlement or any action, suit or proceeding if he acted in good faith and,
while acting in an official capacity as an officer or director, acted in a
manner he reasonably believed to be in the best interests of the Company, and in
all other cases, acted in a manner he reasonably believes was not opposed to the
best interests of the Company and with respect to any criminal action or
proceeding, if such person had no reasonable cause to believe his conduct was
unlawful. As to any action brought by or in the right of the Company, no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the Company unless the
26
<PAGE> 36
director or officer has not been adjudged liable or subject to injunctive relief
in favor of the Company (i) for any appropriation in violation of his duties, of
any business opportunity of the Company; (ii) for acts or omissions which
involve intentional misconduct or a knowing violation of law; (iii) for the
types of liability set forth in Section 14-2-832 of the GBCC (e.g., liability
for unlawful distributions); or (iv) for any transaction from which he received
an improper benefit and in the event the foregoing conditions are not met, then
only to the extent that the court in which such action or suit was brought or
another court of competent jurisdiction shall determine upon application, that
despite the adjudication of liability but in view of all the circumstances of
the case, the person is fairly and reasonably entitled to indemnification for
such expenses which the court shall deem proper.
The Bylaws of the Company provide more than the statutory minimum
indemnification rights for directors and officers of the Company allowed under
the GBCC. Section 14-2-856 of the GBCC provides that a corporation may indemnify
or obligate itself to indemnify an officer or a director beyond the minimum
statutory indemnification rights afforded by the GBCC, if such additional
indemnification is approved by the shareholders of the corporation. By virtue of
the approval of the Bylaws of the Company by the sole shareholder, the
additional indemnification rights afforded by the Bylaws have been approved by
the sole shareholder of the Company in accordance with the requirements of the
GBCC.
Under Georgia law, the Company may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, against any liability asserted against him and incurred by him in
any such capacity or arising out of his status as such, whether or not the
Company is required or permitted to indemnify him against such liability under
the Articles of Incorporation or any statute. In accordance with the foregoing,
the Company has purchased liability insurance in the aggregate amount of $5
million on behalf of its executive officers and directors.
RESTRICTIONS ON TRANSFER OF NEW COMMON STOCK
The Shares distributed to the Company's Former Shareholders will be freely
transferable, except for Shares received by persons who may be deemed to be
"affiliates" of the Company under the Securities Act of 1933, as amended (the
"Securities Act"). Persons who may be deemed to be affiliates of the Company
after the Distribution generally include individuals or entities that control,
are controlled by, or are under common control with the Company and may include
certain officers and directors of the Company as well as principal shareholders
of the Company. Persons who are affiliates of the Company will be permitted to
sell their Shares of the New Common Stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act.
DIVIDENDS ON NEW COMMON STOCK
The Company has not declared or paid a cash dividend on any of its
securities since 1989. In 1990, the Company distributed shares of stock in
American to its shareholders. The Company intends to retain its earnings to
finance the growth and development of its future business and does not
anticipate paying cash dividends in the foreseeable future. The payment of cash
dividends in the future will depend upon such factors as the Company's earnings,
capital requirements, financial condition, contractual restrictions and other
factors deemed relevant by the Board of Directors. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation -- Liquidity and
Capital Resources."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the New Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
27
<PAGE> 37
AVAILABLE INFORMATION
The Company intends to furnish holders of Shares of New Common Stock with
annual reports containing financial statements audited by an independent public
accounting firm and to make available quarterly reports for the first three
quarters of each fiscal year containing unaudited interim financial information
prepared in accordance with accounting principles generally accepted in the
United States.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form 10 (as amended, the "Registration
Statement") under the Securities Exchange Act of 1934, as amended, covering the
New Common Stock. As a result of such filing, the Company will be required to
file periodic reports with the Commission. In the event its obligation to file
such reports is suspended under the Securities Exchange Act of 1934, as amended,
the Company does not intend to file voluntarily such periodic reports.
This Information Statement does not contain all the information in the
Registration Statement or in the Company's other filings with the Commission and
the related exhibits. Statements in this Information Statement as to the
contents of any contract, agreement or other documents are necessarily summaries
of such documents, and each such statement is qualified in its entirety by
reference to the text of such contract, agreement or other document. For
complete information as to these matters, refer to the applicable exhibit to the
Registration Statement. The Registration Statement may be inspected at the
public reference facilities of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, as well as at the Regional
Offices of the Commission at 500 West Madison Street, Chicago, IL and Seven
World Trade Center, 13th Floor, New York, NY 10048.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREOF OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
28
<PAGE> 38
THE ENSTAR GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
DESCRIPTION NUMBER
----------- ------
<S> <C>
THE ENSTAR GROUP, INC.
- -------------------------
Consolidated Financial Statements:
Independent Auditors' Report........................... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1995.................................................. F-3
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1996..... F-4
Consolidated Statements of Changes in Shareholder's
Equity for each of the three years in the period ended
December 31, 1996..................................... F-5
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1996..... F-6
Notes to the Consolidated Financial Statements......... F-7
AMERICAN SAVINGS OF FLORIDA, F.S.B.
- --------------------------------------
Financial Statements of American Savings of Florida,
F.S.B.:
Independent Auditors' Report........................... F-13
Statements of Consolidated Financial Condition at
December 31, 1994 and 1993............................ F-14
Statements of Consolidated Earnings for the years ended
December 31, 1994, 1993 and 1992...................... F-15
Statements of Consolidated Stockholders' Equity for the
years ended December 31, 1994, 1993 and 1992.......... F-17
Statements of Consolidated Cash Flows for the years
ended December 31, 1994, 1993 and 1992................ F-18
Notes to Consolidated Financial Statements............. F-20
Supplementary Note to Consolidated Financial
Statements:
Statements of Financial Condition at December 31,
1994 and Statements of Operations for the year then
ended of wholly-owned subsidiaries.................. F-54
</TABLE>
F-1
<PAGE> 39
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder
of The Enstar Group, Inc.
We have audited the accompanying consolidated balance sheets of The Enstar
Group, Inc. and Subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholder's equity and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the 1994 financial
statements of American Savings of Florida, F.S.B. ("American Savings"), the
Company's investment in which is accounted for by use of the equity method. The
Company's equity of $9,477,000 in the earnings of American Savings for the year
ended December 31, 1994 is included in the accompanying financial statements.
The 1994 financial statements of American Savings were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for such company, is based solely on the report of such
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company at December 31, 1996
and 1995, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Atlanta, Georgia
January 3, 1997
(January 20, 1997 as to Note 12)
(March 19, 1997 as to Note 5)
F-2
<PAGE> 40
THE ENSTAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 4,749 $ 1,814
Restricted cash............................................. 346 4,203
Certificates of deposit ($0 and $5,600 restricted in 1996
and 1995, respectively)................................... 1,238 6,800
Other....................................................... 55 966
Investment in First Union................................... 63,153 45,779
Property and equipment, net................................. 31 40
--------- ---------
Total assets...................................... $ 69,572 $ 59,602
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities Not Subject to Compromise
Note payable.............................................. $ 18,100 $ --
Reserve for litigation settlements........................ 1,861 1,111
Accounts payable and accrued liabilities.................. 881 51
Liabilities Subject to Compromise:
Class 10A claims.......................................... 203 13,462
Accrued interest on all classes........................... 39 13,078
Other..................................................... 346 --
--------- ---------
Total liabilities................................. 21,430 27,702
--------- ---------
Shareholder's equity:
Common stock ($.01 par value; 55,000,000 shares
authorized, 100 shares issued and outstanding)
Additional paid-in capital................................ 167,935 167,935
Unrealized gain on investment in First Union.............. 23,949 8,447
Accumulated deficit....................................... (143,742) (144,482)
--------- ---------
Total shareholder's equity........................ 48,142 31,900
--------- ---------
Total liabilities and shareholder's equity........ $ 69,572 $ 59,602
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 41
THE ENSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Litigation income, net...................................... $ 1,999 $ 15,341 $ 619
Investment income........................................... 1,871 1,010 2
General and administrative expenses......................... (2,338) (606) (1,045)
Reorganization items, net................................... 79 665 (109)
Interest expense............................................ (871) (2,288) (4,117)
------- -------- --------
Income (loss) from continuing operations.................... 740 14,122 (4,650)
Discontinued operations:
Equity in earnings of American Savings.................... -- 1,765 9,477
Gain on disposal of American Savings, net of expenses of
$2,070................................................. -- 52,717 --
------- -------- --------
Income from discontinued operations....................... -- 54,482 9,477
------- -------- --------
Net income.................................................. $ 740 $ 68,604 $ 4,827
======= ======== ========
Income (loss) per common share:
Continuing operations..................................... $ 7,400 $141,220 $(46,500)
Discontinued operations................................... -- 544,820 94,770
------- -------- --------
Net income................................................ $ 7,400 $686,040 $ 48,270
======= ======== ========
Weighted average shares outstanding......................... 100 100 100
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 42
THE ENSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID IN UNREALIZED ACCUMULATED
STOCK CAPITAL GAIN DEFICIT
------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993......................... $ -- $167,935 $ -- $(217,913)
Net income......................................... 4,827
------- -------- ------- ---------
Balance at December 31, 1994......................... -- 167,935 -- (213,086)
Net income......................................... 68,604
Unrealized gain on investment in First Union....... 8,447
------- -------- ------- ---------
Balance at December 31, 1995......................... -- 167,935 8,447 (144,482)
Net income......................................... 740
Unrealized gain on investment in First Union....... 15,502
------- -------- ------- ---------
Balance at December 31, 1996......................... $ -- $167,935 $23,949 $(143,742)
======= ======== ======= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 43
THE ENSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 740 $ 68,604 $ 4,827
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation........................................... 9 16 19
Equity in earnings of American Savings................. -- (1,765) (9,477)
Gain on sale of American Savings....................... -- (54,788) --
Litigation income...................................... (1,004) -- (2,778)
Changes in assets and liabilities:
Change in restricted cash.............................. 3,857 (3,630) 18
Accounts payable and accrued expenses.................. 2,119 2,044 5,784
Payment of liabilities subject to compromise........... (26,421) (83,967) (38)
Other.................................................. 841 (1,276) 14
-------- -------- -------
Net cash used in operating activities............. (19,859) (74,762) (1,631)
-------- -------- -------
Cash flows from investing activities:
Proceeds from sale of American Savings.................... -- 82,455 --
Reinvestment of First Union dividends..................... (868) (428) --
Purchase of certificates of deposit....................... (9,228) (6,800) --
Maturities of certificates of deposit..................... 14,790 --
Other, net................................................ -- 11 9
-------- -------- -------
Net cash provided by investing activities......... 4,694 75,238 9
-------- -------- -------
Cash flows from financing activities:
Proceeds from note payable................................ 18,100 -- --
-------- -------- -------
Increase (decrease) in cash and cash equivalents............ 2,935 476 (1,622)
Cash and cash equivalents at the beginning of the year...... 1,814 1,338 2,960
-------- -------- -------
Cash and cash equivalents at the end of the year............ $ 4,749 $ 1,814 $ 1,338
======== ======== =======
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 14,474 $ 2,140 $ --
======== ======== =======
Income taxes paid (refunded).............................. $ (500) $ 544 $ (35)
======== ======== =======
Supplemental disclosures of noncash investing and financing activities:
During 1995 the Company sold its ownership interest in American Savings to First Union
Corporation for approximately $82,455,000 in cash and 815,549 shares of First Union
common stock valued at approximately $36,904,000.
During 1996 the Company received 16,191 shares of First Union common stock valued at
approximately $1,004,000 in connection with a litigation settlement. During 1994 the
Company received 175,000 shares of American Savings common stock valued at
approximately $2,778,000 in connection with a litigation settlement.
Supplemental disclosure of cash receipts (payments) resulting from the reorganization:
Liabilities subject to compromise......................... $(27,009) $(83,967) $ (38)
======== ======== =======
Interest income........................................... $ 990 $ 240 $ 87
======== ======== =======
Professional fees......................................... $ (245) $ -- $ (166)
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 44
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business -- The Enstar Group, Inc. (the "Company") filed for
protection under Chapter 11 of the United States Bankruptcy Code on May 31, 1991
in the United States Bankruptcy Court for the Middle District of Alabama (the
"Bankruptcy Court"). At the time of its bankruptcy filing, the Company's
principal remaining business was as a savings and loan holding company. Its only
asset with any substantial value was its approximately 49% ownership interest in
American Savings of Florida, F.S.B. ("American Savings"), a Florida savings
bank.
The Company's retail subsidiaries filed for Chapter 11 bankruptcy
protection on January 4, 1991. After unsuccessful attempts at reorganization,
those subsidiaries liquidated their assets. Because the liabilities of those
subsidiaries exceeded their assets, the Company received no proceeds from their
liquidations and on November 20, 1992 abandoned its ownership interests in those
subsidiaries.
As of May 31, 1991, the market value of the Company's American Savings
stock was approximately $7,000,000. Shortly after the Company's bankruptcy
filing, the market value of the American Savings stock fell to less than
$3,000,000, and American Savings, whose capital had fallen significantly below
the minimum regulatory requirements, was facing the prospect of a collapse or
takeover by the United States Office of Thrift Supervision (the "OTS"). Other
than its ownership interest in American Savings, the Company's only significant
assets were contingent claims in the form of lawsuits against former officers
and directors Richard Grassgreen and Perry Mendel, and a suit to be filed
against Michael Milken and others. The Company's non-contingent liabilities
exceeded its assets by more than $100,000,000.
At the time of the Company's bankruptcy filing, substantial disputes arose
among the Company's major creditors, including the OTS, American Savings,
NationsBank of Texas, and KinderCare Learning Centers, Inc. The Company was
successful in negotiating a settlement among its creditors which was
incorporated into the Company's Second Amended Plan of Reorganization (the
"Reorganization Plan"). The Reorganization Plan was confirmed in February 1992,
and became effective on June 1, 1992 (the "Effective Date").
At the time the Reorganization Plan was proposed by the Company, there
appeared to be no prospect that the shareholders of the Company would receive
any distribution under the Reorganization Plan. Accordingly, the Reorganization
Plan provided that creditors would receive all distributions until paid in full
and the Company's then existing common stock would be cancelled on the Effective
Date. New common stock was issued to the Company's Chief Executive Officer, as
trustee, who was directed to vote the shares annually for purposes of electing
the Company's board of directors based on directions given by at least 51
percent of the creditors holding certain allowed unsecured claims.
Following the confirmation of its Reorganization Plan, the Company pursued
the liquidation of its assets and its lawsuits against Grassgreen, Mendel and
Milken. The Company also continued as the holding company of American Savings.
By 1993, the Company determined that it might be able to pay all of its
creditors in full. Because the Reorganization Plan had not anticipated or
specifically provided for the distribution of the estate proceeds after
creditors were paid in full, the Company filed a motion to modify its
Reorganization Plan to clarify the distributions and make clear that once all
creditors were paid in full with interest, any remaining property would be held
or distributed for the benefit of the Company's former shareholders. The
Bankruptcy Court authorized the modification of the Company's Reorganization
Plan in August 1993.
On July 1, 1995, the Company sold its ownership interest in American
Savings to First Union Corporation ("First Union") for approximately $82,455,000
in cash and 815,549 shares of First Union common stock valued at $36,904,000,
representing less than 0.5% ownership interest in First Union at that date. As a
result of this transaction, the Company realized a gain of approximately
$52,717,000, net of expenses of $2,070,000. The cash proceeds from this
transaction were used to pay the claims of certain
F-7
<PAGE> 45
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
creditors of the Company in accordance with the Reorganization Plan. As a result
of the Company's investment in First Union, the Company receives quarterly
dividends and has reinvested a portion of those dividends in additional First
Union shares.
In addition to the proceeds received from the disposition of American
Savings, the Company has received approximately $22,000,000 in recoveries, net
of expenses, from the Grassgreen litigation, the Mendel litigation and the
Milken litigation.
The Company is now prepared to complete its reorganization by making a
distribution to its former shareholders in accordance with its Reorganization
Plan. Pursuant to the Reorganization Plan and orders of the Bankruptcy Court the
Company is distributing to holders of cancelled stock of the Company, without
any consideration being paid by such holders, one share of new common stock for
every ten (10) shares of its cancelled stock held by former shareholders. Former
shareholders will receive cash in lieu of any fractional shares of new common
stock.
(b) Principles of Consolidation -- The financial statements include the
accounts of the Company and its wholly owned subsidiary, Enstar Financial
Services, Inc. All significant intercompany balances and transactions have been
eliminated in consolidation.
(c) Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(d) Cash Equivalents -- Cash equivalents consist of short term, highly
liquid investments with original purchased maturities of three months or less.
(e) Investments -- The Company has classified its investment in First Union
as available-for-sale, in accordance with Statement of Financial Accounting
Standard ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Accordingly, unrealized gains and losses associated with
this investment are excluded from current earnings and reported as a separate
component of shareholder's equity .
Prior to the July 1, 1995 sale of the Company's ownership interest in
American Savings to First Union, the Company accounted for its investment in
American Savings using the equity method, as its ownership interest was
approximately 49%. See Note 10 below.
(f) Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation and is depreciated using the straight line method over
the estimated useful lives of the related assets.
(g) Liabilities Subject to Compromise -- Liabilities subject to compromise
have been recorded at the amounts expected to be allowed, including interest at
4.26% from the Effective Date, in accordance with the Reorganization Plan.
(h) Reorganization Items -- Reorganization items consist of interest income
on cash and cash equivalents and certificates of deposit, professional fees, and
other expenses that relate directly to the Company's bankruptcy.
(i) Income Taxes -- Effective January 1, 1993, the Company adopted SFAS No.
109, "Accounting for Income Taxes." Under this statement, deferred tax assets
and liabilities are determined based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the years in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
F-8
<PAGE> 46
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) Income per Common Share -- Income per common share is computed using
the weighted average number of common shares outstanding during the respective
periods.
(k) Newly Issued Accounting Standards. -- In October 1995, SFAS No. 123,
"Accounting for Stock-Based Compensation" was issued. The adoption of the new
recognition provisions for stock-based compensation expense included in SFAS No.
123 is optional; however, the pro forma effects on net income had the new
recognition provisions been elected is required if the expense is not recognized
in financial statements. The Company adopted certain stock-based compensation
arrangements in 1997. See Note 12. However, the Company has not yet determined
whether to follow the provisions of SFAS No. 123 or APB No. 25, "Accounting for
Stock Issued to Employees" in its accounting for employee stock options if and
when such arrangements are adopted; therefore, the impact on the Company's
financial position and results of operations has not currently been determined.
NOTE 2: RESTRICTED CASH AND CERTIFICATES OF DEPOSIT
Restricted cash and certificates of deposit represent amounts reserved for
the payment of certain liabilities subject to compromise pursuant to the
Reorganization Plan.
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996 and
1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Furniture and fixtures...................................... $ 78 $ 84
Accumulated depreciation.................................... (47) (44)
---- ----
$ 31 $ 40
==== ====
</TABLE>
NOTE 4: NOTE PAYABLE
On October 24, 1996, the Company borrowed $18,100,000 from a bank to repay
substantially all remaining liabilities subject to compromise. The loan matures
on October 1, 1997 and bears interest, at the Company's option, at either a
fixed rate equal to the Adjusted Eurodollar Rate, as defined, plus .6%, or at a
variable rate equal to Prime. The interest rate on the loan was 6.13% at
December 31, 1996.
The note payable is collateralized by 353,602 shares of First Union common
stock owned by the Company.
At December 31, 1996, the carrying value of the note payable approximates
fair value based on interest rates that are believed to be available to the
Company for debt with provisions similar to those in the existing note payable
agreement.
NOTE 5: LITIGATION CONTINGENCIES
In February 1993, the Company obtained a $15 million judgement against
Richard Grassgreen, one of the Company's former officers, who subsequently filed
for bankruptcy. In connection with the settlement of the Company's claims
against the Grassgreen bankruptcy estate (the "Estate") and others the Company
agreed to pay certain taxes of the Estate in the event the Estate did not have
sufficient funds. The IRS has appealed a recent determination by the bankruptcy
court that the IRS cannot seek payment of the taxes from the Estate. The Company
has accrued a liability of approximately $1,700,000 for the potential tax.
On February 11, 1997, fifteen former shareholders of the Company filed a
lawsuit against the Company. The complaint, which deals with actions occurring
prior to the Company's filing for bankruptcy in 1991, alleges that the Company
along with its then principal officers and others defrauded the plaintiffs in
violation
F-9
<PAGE> 47
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the Alabama Securities Act and other Alabama statutory provisions. The
plaintiffs seek compensatory damages in the amount of their alleged losses of
approximately $2 million and unspecified punitive damages. The Company intends
to vigorously defend this lawsuit and believes that it has numerous substantial
defenses against the claims. The Company cannot, however, reasonably predict the
outcome of this lawsuit.
NOTE 6: LIABILITIES SUBJECT TO COMPROMISE
In November 1996, substantially all of the Company's liabilities subject to
compromise were repaid. At December 31, 1996, the remaining liabilities subject
to compromise consist principally of a disputed claim and a claim allowed by the
Bankruptcy Court in December 1996.
NOTE 7: LEASES
The Company leases its corporate office, warehouse space, and office
equipment on a month-to-month basis. Rent expense was approximately $34,000,
$33,000, and $33,000 in 1996, 1995, and 1994, respectively.
NOTE 8: INCOME TAXES (IN THOUSANDS)
The reconciliation of income taxes computed at statutory rates to the
actual tax provision is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- -------- ------
<S> <C> <C> <C>
Federal income taxes at statutory rate................ $ 259 $ 24,012 $1,689
State income taxes, net of federal benefit............ 24 2,230 157
Dividends received deduction.......................... (499) (235) (7)
Other................................................. 16 118 --
Change in valuation allowance......................... 200 (26,125) (1,839)
----- -------- ------
$ -- $ -- $ --
===== ======== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts reported for income tax purposes.
The following items comprise the Company's deferred taxes at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred income tax assets:
Operating loss carryforwards.............................. $ 36,642 $ 36,701
Tax credit carryforwards.................................. 4,591 4,669
Reserve for litigation settlements........................ 712 425
Other..................................................... 129 (4)
-------- --------
Deferred tax assets....................................... 42,074 41,791
Valuation allowance....................................... (32,914) (38,559)
-------- --------
9,160 3,232
Deferred income tax liabilities:
Unrealized appreciation in investment in First Union...... (9,160) (3,232)
-------- --------
Net deferred taxes................................ $ -- $ --
======== ========
</TABLE>
The Company has established a valuation allowance equal to deferred tax
assets in excess of deferred tax liabilities as realization of such deferred tax
assets is dependent on future taxable income of sufficient amounts to utilize
the net operating loss carryforwards, tax credit carryforwards and other
deferred tax assets. In addition, because there are possible applications of
certain provisions of the Tax Code that may limit the
F-10
<PAGE> 48
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's use of the NOLs in future tax returns, there can be no assurance that
the Company will be able to utilize its NOLs fully.
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $96,000,000, which, if not utilized, expire in various years from
2000 through 2011. The Company also had tax credit carryforwards of
approximately $4,600,000 at December 31, 1996. If not utilized, these credit
carryforwards expire in various years from 1997 through 2001.
NOTE 9: SHAREHOLDER'S EQUITY AND PRO FORMA EARNINGS PER SHARE
The Company cancelled its then issued and outstanding common stock on the
Effective Date. The Company intends to distribute to the Company's former
shareholders one share of new common stock for every 10 shares of cancelled
common stock formerly held. There are approximately 4.75 million shares eligible
to be issued in this distribution. The pro forma impact on earnings per share of
this distribution, assuming such shares were outstanding for all of 1996, 1995,
and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ------ ------
<S> <C> <C> <C>
Pro forma income (loss) per common share from:
Continuing operations..................................... $0.16 $ 2.97 $(0.98)
Discontinued operations................................... 11.47 2.00
----- ------ ------
Net income................................................ $0.16 $14.44 $ 1.02
===== ====== ======
</TABLE>
NOTE 10: DISCONTINUED OPERATIONS
Subsequent to the July 1, 1995 sale of the Company's investment in American
Savings to First Union (see Note 1) the Company ceased to have banking
operations and, accordingly, has accounted for its investment in American
Savings as a discontinued operation in the accompanying financial statements.
Summarized financial information of American Savings for the year ended
December 31, 1994 is as follows (in thousands):
<TABLE>
<S> <C>
Net interest income......................................... $78,439
Provision for losses........................................ (600)
Other operating income...................................... 11,333
Other operating expense..................................... (67,074)
-------
Income before income taxes.................................. 22,098
Income tax expense.......................................... 2,871
-------
Net income.................................................. $19,227
=======
</TABLE>
NOTE 11: RELATED PARTY TRANSACTIONS
In conjunction with the July 1, 1995 sale of the Company's ownership
interest in American Savings to First Union, the Company paid a $1,200,000
commission to its Chairman pursuant to a brokerage agreement between the Company
and its Chairman. This commission is a component of the $2,070,000 in expenses
recorded by the Company relative to the sale.
NOTE 12: SUBSEQUENT EVENT
Adoption of Long-Term Incentive Program
On January 20, 1997, the Company adopted a long-term incentive program made
up of three stock option/incentive plans. A total of 522,500 shares of new
common stock have been reserved for issuance under
F-11
<PAGE> 49
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the program. Under the program, the Company has established the 1997 CEO Stock
Option Plan (the "CEO Plan"), the 1997 Outside Directors' Stock Option Plan (the
"Directors' Plan"), and an Omnibus Incentive Plan for other key employees and
directors.
Under the CEO Plan and the Directors' Plan, the CEO and Directors were
granted options for 200,000 shares and 210,000 shares respectively, of new
common stock with an exercise price of the fair market value of the new common
stock on the first day of trading after the distribution. The options to
purchase the shares granted under both Plans will vest in four equal
installments beginning on the date of the first annual meeting of the Company
after distribution, and thereafter on January 1, 1998, January 1, 1999 and
January 1, 2000. The options granted under these plans must be exercised prior
to January 1, 2007.
In addition, the Company has established an Omnibus Incentive Plan for the
benefit of key employees and directors, subject to shareholder approval. A total
of 112,500 shares of new common stock has been reserved for issuance under the
Omnibus Incentive Plan which provides generally for stock appreciation awards,
incentive stock options and nonqualified stock options. As of this date no
awards have been created and no options have been granted under the Omnibus
Incentive Plan.
Adoption of Share Purchase Rights Plan
On January 20, 1997, the Board of Directors of the Company adopted a Share
Purchase Rights Plan (the "Rights Plan"). The Rights Plan entitles shareholders
to a right (a "Right") to purchase one share of new common stock for each
outstanding share of new common stock of the Company.
Until the occurrence of a "Distribution Triggering Event" as described
below, all future issuances of new common stock by the Company will also carry
the Rights. The Rights will have no dividend or voting rights and will expire on
the tenth anniversary of their issuance unless exercised or redeemed prior to
that time.
Rights may not be exercised and are not detached from the new common stock
until ten days after the occurrence of a Distribution Triggering Event. The
exercise price of the Rights is fixed at $40. The Rights generally are
redeemable by the Board of Directors of the Company at a nominal price of $.01
per Right at any time prior to the time that they are detached from the new
common stock and separate certificates evidencing the Rights are delivered.
Distribution Triggering Events. Shortly after a person or group acquires
beneficial ownership of a fifteen percent (15%) interest or announces its
intention to commence a tender or exchange offer the consummation of which would
result in beneficial ownership of fifteen percent (15%) of the Company's new
common stock (a "Distribution Triggering Event"), the Rights will separate from
the new common stock. Upon distribution of the Rights, they become exercisable
and are transferable separately from the Company's new common stock. Each Right
(other than Rights beneficially owned by the acquiror) is then immediately
converted into the right to buy that number of shares of new common stock of the
Company (or in certain circumstances, shares of stock of the acquiring company)
that has a market value of two times the exercise price of the Right.
F-12
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Savings of Florida, F.S.B.:
We have audited the accompanying statements of consolidated earnings,
stockholders' equity and cash flows of American Savings of Florida, F.S.B. (the
"Bank") and subsidiaries for the year ended December 31, 1994. These
consolidated financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of their operations and
their cash flows of American Savings of Florida, F.S.B. and subsidiaries for the
year ended December 31, 1994, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Miami, Florida
March 9, 1995
F-13
<PAGE> 51
AMERICAN SAVINGS OF FLORIDA, F.S.B.
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Cash........................................................ $ 35,414 $ 30,095
Interest bearing deposits................................... 237 165
Federal funds sold.......................................... 70,000 50,000
Securities available for sale............................... 159,282 615,473
Securities held to maturity, net (market value of $115,617
and $9,457)............................................... 121,324 9,456
Assets held for sale........................................ 63,758 113,228
Federal Home Loan Bank stock, at cost....................... 25,181 20,175
Mortgage-backed securities held to maturity, net (market
value of $904,996 and $549,644)........................... 960,230 547,548
Loans receivable, net....................................... 1,948,124 1,577,511
Accrued interest and dividends receivable................... 22,436 16,197
Real estate, net............................................ 7,616 9,494
Office properties and equipment, net........................ 33,303 32,738
Purchased mortgage servicing rights......................... 11,896 7,328
Goodwill and other intangible assets........................ 63,139 69,112
Other assets................................................ 38,672 18,512
---------- ----------
$3,560,612 $3,117,032
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings deposits............................................ 2,335,627 $2,228,090
Borrowed funds
Securities sold under agreements to repurchase............ 487,534 98,338
Advances from Federal Home Loan Bank...................... 454,205 358,550
Other borrowed funds...................................... 14,124 160,944
---------- ----------
Total borrowed funds.............................. 955,863 617,832
---------- ----------
Taxes and insurance escrow deposits......................... 15,170 14,325
Accrued expenses and other liabilities...................... 37,418 48,918
---------- ----------
Total liabilities................................. 3,344,078 2,909,165
---------- ----------
Stockholders' equity
Common stock, $.01 par value; 24,000,000 shares
authorized; 11,543,276 and 11,286,992 shares issued and
outstanding............................................ 115 113
Paid-in capital........................................... 288,624 287,747
Retained earnings (deficit)............................... (66,238) (85,465)
---------- ----------
222,501 202,395
Unrealized gains (losses) on securities available for
sale, net.............................................. (5,967) 5,472
---------- ----------
Total stockholders' equity........................ 216,534 207,867
---------- ----------
$3,560,612 $3,117,032
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-14
<PAGE> 52
AMERICAN SAVINGS OF FLORIDA, F.S.B.
STATEMENTS OF CONSOLIDATED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Interest and Dividend Income
Mortgage-backed securities........................... $ 45,989 $ 71,895 $ 103,645
Loans................................................ 121,618 98,887 86,116
Securities available for sale........................ 15,536 -- --
Securities held to maturity.......................... 4,872 715 1,778
Assets held for sale................................. 5,865 6,012 8,124
Other interest-earning assets........................ 1,654 1,886 10,736
---------- ---------- ----------
Total interest and dividend income........... 195,534 179,395 210,399
---------- ---------- ----------
Interest Expense
Deposits............................................. 81,031 79,510 112,928
Securities sold under agreements to repurchase....... 18,383 5,652 6,934
FHLB advances and other borrowed funds............... 17,681 24,979 25,050
---------- ---------- ----------
Total interest expense....................... 117,095 110,141 144,912
---------- ---------- ----------
Net interest income.................................... 78,439 69,254 65,487
Provision for losses................................... 600 650 6,600
---------- ---------- ----------
Net interest income after provision for losses......... 77,839 68,604 58,887
---------- ---------- ----------
Operating Income
Loan servicing fees, net............................. 2,986 3,327 2,693
Unrealized gains on assets held for sale............. -- 39 1,153
Realized gains (losses) on assets held for sale...... (3,231) 1,376 15,959
Gains on sales of mortgage-backed securities, net.... -- -- 3,312
Gains of sales of securities available for sale...... 3,672 -- --
Gains on sales of loans and other assets, net........ 984 -- 528
Recovery from Enstar Group bankruptcy estate......... -- -- 4,006
Recovery from litigation............................. -- -- 8,881
Other................................................ 6,922 6,517 6,266
---------- ---------- ----------
Total operating income....................... 11,333 11,259 42,798
---------- ---------- ----------
Operating Expenses
Compensation and benefits............................ 31,268 27,630 23,460
Occupancy and equipment, net......................... 7,986 7,884 9,580
Deposit insurance premiums........................... 6,194 6,595 5,582
Professional fees.................................... 4,909 3,047 3,040
Amortization of goodwill and other intangibles....... 5,973 6,075 6,438
Operations of real estate acquired in settlement of
loans, net........................................ (670) (1,436) 1,821
Net settlements of legal matters..................... -- 997 --
Other................................................ 11,414 9,773 7,980
---------- ---------- ----------
Total operating expenses..................... 67,074 60,565 57,901
---------- ---------- ----------
Income before income tax expense (benefit),
extraordinary items and cumulative effect of change
in accounting for income taxes....................... 22,098 19,298 43,784
Income tax expense (benefit)........................... 2,871 (11,200) 17,526
---------- ---------- ----------
Income before extraordinary items and cumulative effect
of change in accounting for income taxes............. 19,227 30,498 26,258
</TABLE>
F-15
<PAGE> 53
AMERICAN SAVINGS OF FLORIDA, F.S.B.
STATEMENTS OF CONSOLIDATED EARNINGS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Extraordinary items.................................... -- (4,300) 17,400
Cumulative effect of change in accounting for income
taxes................................................ -- 2,141 --
---------- ---------- ----------
Net income............................................. $ 19,227 $ 28,339 $ 43,658
========== ========== ==========
Net income per share, primary:
Income before extraordinary items and cumulative
effect of change in accounting for income taxes... $ 1.60 $ 2.56 $ 2.25
Extraordinary items.................................. -- (0.36) 1.50
Cumulative effect of change in accounting for income
taxes............................................. -- 0.18 --
---------- ---------- ----------
Net income................................... $ 1.60 $ 2.38 $ 3.75
========== ========== ==========
Net income per share, fully diluted:
Income before extraordinary items and cumulative
effect of change in accounting for income taxes... $ 1.60 $ 2.56 $ 2.23
Extraordinary items.................................. -- (0.36) 1.48
Cumulative effect of change in accounting for income
taxes............................................. -- 0.18 --
---------- ---------- ----------
Net income............................................. $ 1.60 $ 2.38 $ 3.71
========== ========== ==========
Average number of shares of common stock and common
stock equivalents
Primary.............................................. 12,010,949 11,898,475 11,605,658
========== ========== ==========
Fully-diluted........................................ 12,016,919 11,910,143 11,724,576
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-16
<PAGE> 54
AMERICAN SAVINGS OF FLORIDA, F.S.B.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
PREFERRED RETAINED GAINS
STOCK COMMON PAID-IN EARNINGS (LOSSES) ON
SERIES A STOCK CAPITAL (DEFICIT) SECURITIES TOTAL
--------- ------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991*........ $ 1 $ 5,527 282,758 $(155,710) $ -- $132,576
Net income....................... -- -- -- 43,658 -- 43,658
Conversion of Series A Preferred
Stock to cash (8,275
shares)....................... -- -- (136) -- -- (136)
Exercise of Common Stock options
(153,785 shares) *............ -- 1 293 -- -- 294
Change in par value of Common
Stock......................... -- (5,416) 5,416 -- -- --
Redemption of Series A Preferred
Stock (42,424 shares)......... (1) -- (784) (284) -- (1,069)
Series A Preferred Stock
dividends paid................ -- -- -- (1,468) -- (1,468)
--- ------- -------- --------- -------- --------
Balance, December 31, 1992*........ -- 112 287,547 (113,804) -- 173,855
Net income....................... -- -- -- 28,339 -- 28,339
Exercise of Common Stock options
(82,006 shares)............... -- 1 225 -- -- 226
Unrealized gains on securities
available for sale, net....... -- -- -- -- 5,472 5,472
Payment of cash in lieu of
fractional shares associated
with one-for-five reverse
split of common stock......... -- -- (25) -- -- (25)
--- ------- -------- --------- -------- --------
Balance, December 31, 1993......... -- 113 287,747 (85,465) 5,472 207,867
Net income....................... -- -- -- 19,227 -- 19,227
Exercise of Common Stock options
(256,284 shares).............. -- 2 877 -- -- 879
Unrealized losses on securities
available for sale, net....... -- -- -- -- (11,439) (11,439)
--- ------- -------- --------- -------- --------
Balance, December 31, 1994......... $-- $ 115 $288,624 $ (66,238) $ (5,967) $216,534
=== ======= ======== ========= ======== ========
</TABLE>
- ---------------
* Number of common shares and dollar amounts have been adjusted for one-for-five
reverse split effective at the close of business on April 27, 1993.
See Notes to Consolidated Financial Statements
F-17
<PAGE> 55
AMERICAN SAVINGS OF FLORIDA, F.S.B.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
--------- --------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income............................................... $ 19,227 $ 28,339 $ 43,658
Adjustments to reconcile net income to cash provided by
operating activities
Provision for (benefit) from deferred income taxes.... 2,871 (11,200) 17,526
Extraordinary items................................... -- 4,300 (17,400)
Cumulative effect of change in accounting for income
taxes............................................... -- (2,141) --
Provisions for losses................................. 600 799 7,945
Unrealized gains on assets held for sale.............. -- (39) (1,153)
Realized (gains) losses on assets held for sale....... 3,231 (1,376) (15,959)
Realized gains on securities available for sale....... (3,672) -- --
Gains on sales of MBSs, loans, securities and other
assets.............................................. (1,620) (1,801) (5,965)
Depreciation and amortization......................... 11,718 10,945 13,136
Amortization of premiums and discounts on loans, MBSs
and investments..................................... 4,469 4,113 (4,435)
Held for sale securities purchased.................... -- (42,022) (21,165)
Proceeds from sales of securities acquired for the
held for sale portfolio............................. -- 7,815 5,929
Proceeds from maturities of held for sale
securities.......................................... -- 35,740 281,965
Principal collected on MBSs acquired for the held for
sale portfolio...................................... -- 2,503 --
Held for sale loans purchased......................... (417) (913) --
Proceeds from sales of loans held for sale............ 154,401 73,280 40,703
Held for sale loan originations, net of repayments.... (121,249) (123,089) (72,942)
Proceeds from sales of other assets held for sale..... -- -- 5,892
(Increase) decrease in accrued interest receivable.... (5,777) 1,119 6,212
(Increase) decrease in other assets................... (10,756) 14,978 18,569
Increase (decrease) in accrued expenses and other
liabilities......................................... (11,500) 16,377 4,412
Other, net............................................ (4,982) 8,272 (689)
--------- --------- -----------
Net cash provided by operating activities........ 36,544 25,999 306,239
--------- --------- -----------
Cash Flows From Investing Activities
Purchase of available for sale securities................ (106,339) -- --
Proceeds from sales of securities available for sale..... 449,081 -- --
Proceeds from maturities and repayments of securities
available for sale.................................... 13,415 -- --
Principal collected on MBSs available for sale........... 83,939 -- --
Principal collected on MBSs and other securities held for
sale.................................................. -- -- 10,663
Proceeds from sales of MBSs held for sale................ -- 12,982 212,510
Purchase of securities held to maturity.................. (126,570) (12,010) (15,000)
Proceeds from maturities and repayments of securities
held to maturity...................................... 15,262 12,111 67,134
</TABLE>
F-18
<PAGE> 56
AMERICAN SAVINGS OF FLORIDA, F.S.B.
STATEMENTS OF CONSOLIDATED CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
--------- --------- -----------
<S> <C> <C> <C>
Purchase of MBSs held to maturity........................ (635,583) (317,935) (1,182,422)
Principal collected on MBSs held to maturity............. 221,139 605,502 688,460
Proceeds from sales of MBSs held to maturity............. -- -- 59,761
Loans purchased.......................................... (407,640) (693,076) (550,562)
Proceeds from sales of loans............................. 35,962 -- 21,413
Loan repayments, net of originations..................... 1,502 285,004 234,014
Proceeds from sales of loans held for sale............... -- 8,385 32,900
Proceeds from sales of real estate....................... 6,642 12,316 30,574
Purchase of mortgage servicing rights.................... (7,608) (5,962) (459)
Other, net............................................... 1,850 1,081 300
--------- --------- -----------
Net cash used by investing activities............ (454,948) (91,602) (390,714)
--------- --------- -----------
Cash Flows From Financing Activities
Increase (decrease) in deposits, excluding interest
credited.............................................. 35,176 (106,540) (309,266)
Interest credited to deposits............................ 72,382 73,002 103,618
Net increase (decrease) in short-term borrowings......... 709,196 18,324 (371,722)
Proceeds from long-term borrowings....................... -- 134,550 160,000
Repayments of long-term borrowings....................... (374,683) (7,279) (54,153)
Increase in taxes and insurance escrow deposits.......... 845 1,230 8,007
Conversion of Series A Preferred Stock................... -- -- (136)
Redemption of Series A Preferred Stock................... -- -- (1,069)
Series A Preferred Stock dividends paid.................. -- -- (1,468)
Exercise of Common Stock options......................... 879 226 294
Cash in lieu of fractional shares on reverse stock
split................................................. -- (25) --
--------- --------- -----------
Net cash used (provided) by financing
activities..................................... 443,795 113,488 (465,895)
--------- --------- -----------
Net increase (decrease) in cash and cash equivalents....... 25,391 47,885 (550,370)
Cash and cash equivalents at beginning of period........... 80,260 32,375 582,745
--------- --------- -----------
Cash and cash equivalents at end of period................. $ 105,651 $ 80,260 $ 32,375
========= ========= ===========
Supplemental disclosures of cash flow information
Cash paid during the year
Interest paid......................................... $ 120,376 $ 110,525 $ 149,500
Noncash investing and financing activities
Securities and MBSs designated available for sale
under SFAS 115...................................... -- $ 606,564 --
Transfers from investment securities and MBSs to
assets held for sale................................ -- $ $12,643 $ 212,539
Transfers from loans receivable to assets held for
sale................................................ $ 2,559 $ 6,888 $ 47,291
Additions to real estate acquired in settlement of
loans............................................... $ 5,416 $ 1,623 $ 2,196
</TABLE>
See Notes to Consolidated Financial Statements
F-19
<PAGE> 57
AMERICAN SAVINGS OF FLORIDA, F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
NOTE 1: ORGANIZATION, ENSTAR GROUP MATTERS AND MERGER AGREEMENT
On April 29, 1988, American Savings of Florida, F.S.B. ("American Savings")
consummated its merger with an indirect wholly-owned subsidiary of The Enstar
Group, Inc. ("Enstar Group"), with American Savings surviving the merger (the
"Enstar Merger"). From April 29, 1988 until February 1, 1990, all of American
Savings' outstanding common stock, $.01 par value ("American Savings Common
Stock"), was owned by Enstar Group. On March 6, 1990, with the consent of the
Office of Thrift Supervision ("OTS"), Enstar Group transferred 50% of the then
outstanding shares of American Savings Common Stock to a trust for the benefit
of stockholders of Enstar Group. The trust distributed the shares it held on
July 2, 1990 to the stockholders of Enstar Group. As of December 31, 1994,
Enstar Group owned approximately 49.3% of the outstanding shares of American
Savings Common Stock. The remaining outstanding shares of American Savings
Common Stock are publicly held. American Savings Common Stock trades on The
Nasdaq Stock Market under the symbol "ASFL."
On May 31, 1991, Enstar Group filed in the United States Bankruptcy Court
for the Middle District of Alabama ("Bankruptcy Court") (Case No. 91-02618) for
protection under Chapter 11 of the Bankruptcy Code. Enstar Group's plan of
reorganization became effective on June 1, 1992. On August 25, 1993, the
Bankruptcy Court confirmed Enstar Group's Bankruptcy Plan in accordance with
proposed modifications filed by Enstar Group in May 1993 (the "Bankruptcy
Plan").
Generally, under the Bankruptcy Plan, American Savings is entitled to
receive 66.66% of all distributions from the bankruptcy estate until American
Savings' allowed claim (the "Claim") is paid in full, but may not participate in
the proceeds from the sale of Enstar Group's American Savings Common Stock,
until certain other classes of creditors have been paid in full. Thereafter,
American Savings would be entitled to receive all distributions of remaining
property, if any, from the estate, including proceeds from the sale of American
Savings Common Stock, until the Claim is paid in full. In June 1992, Enstar
Group's bankruptcy estate distributed $4,006,000 to American Savings, reducing
the Claim from $36,000,000 to $31,994,000. American Savings included this
distribution in income in June 1992. At December 31, 1994 and 1993, the carrying
value of the Claim is $0. For a discussion of an anticipated distribution from
Enstar Group's bankruptcy estate, see Note 25(B).
Under the Bankruptcy Plan, Enstar Group is obligated to sell or distribute
the American Savings Common Stock it owns before June 1, 1995, unless otherwise
agreed by certain classes of creditors whose claims have not been satisfied.
Upon the demand of certain classes of creditors, other than American Savings,
for a sale or distribution of a portion of the American Savings Common Stock,
Enstar Group would be required within 180 days to either: (i) sell the lesser of
the American Savings Common Stock necessary to pay the creditors' claims in full
or the class's pro rata share of the American Savings Common Stock, (ii) borrow
funds to pay the claims using no more than the creditors' portion of the
American Savings Common Stock and certain potential recoveries from litigation
as collateral, or (iii) distribute in kind to the creditors, subject to
regulatory approval, the lesser of their pro rata share of the American Savings
Common Stock or the number of shares necessary to pay their claims in full.
The Bankruptcy Plan, among other things, also provides for (i) the payment
of interest at the annual rate of 4.26% on unpaid claims of certain classes of
creditors, including American Savings, from June 1, 1992, but only after the
Claim is paid in full, (ii) a class of creditors consisting of foreign bearer
bond holders who surrendered their bonds after applicable deadlines under Enstar
Group's original plan of reorganization, which claims will be entitled to
distributions only after the Claim is paid in full with interest, (iii) the
establishment of a tax reserve to be funded from property of Enstar Group to
provide for any state or federal tax obligations, and (iv) a restriction,
generally, on the transfer of claims after August 25, 1993. In addition, the
Bankruptcy Plan provides that if all other creditors are paid in full, the
former Enstar Group shareholders would be entitled to receive a distribution of
the remaining property of the estate, if any, pro rata, or, at the option of
F-20
<PAGE> 58
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Enstar Group, shares of new common stock of Enstar Group. Under Enstar Group's
plan of reorganization, all of the outstanding shares of Enstar Group common
stock were cancelled and new common stock was issued to a trustee. Under the
Bankruptcy Plan, the new common stock of Enstar Group held by the estate's
trustee continues to be held for the benefit of certain unsecured creditors,
including American Savings, but only until their claims are paid in full.
On December 4, 1994, American Savings entered into an Agreement and Plan of
Merger (the "Merger Agreement") with First Union Corporation ("First Union").
Pursuant to the terms of the Merger Agreement, American Savings will merge (the
Merger") with and into a subsidiary of First Union (the "First Union
Subsidiary"). Upon consummation of the Merger, each share of American Savings
Common Stock outstanding immediately prior to the Merger Effective Date, as
defined below, (expected to be in mid-1995) will be converted into the right to
receive that number of shares of First Union common stock, $3.33 1/3 par value
per share ("First Union Common Stock"), equal to the quotient of $21.00 divided
by the average of the closing prices of First Union Common Stock as reported on
the Composite Transactions Tape of the New York Stock Exchange, Inc. for each of
the ten consecutive trading days ending on and including the trading day
immediately preceding the effective date of the Merger (the "Merger Effective
Date"), with cash in lieu of the issuance of any fractional share interest. Each
share of First Union Common Stock issued in the Merger will be accompanied by
one right to purchase certain securities under certain circumstances in
accordance with First Union's Shareholder Protection Rights Agreement, dated
December 18, 1990, as amended. The Merger is intended to constitute a tax free
reorganization under the Internal Revenue Code of 1986, as amended.
The Merger Agreement provides that, without the prior written consent of
First Union, American Savings will conduct its business only in the ordinary and
usual course consistent with past practice, and not take certain actions
relating to the operation of American Savings pending consummation of the
Merger. These actions include, among others: (i) disposing of any material
portion of its assets or acquiring any substantial portion of the business or
property of any other entity, (ii) changing its lending, investment, liability
management, accounting procedures, or other material banking policies in any
material respect and (iii) acquiring private issue mortgage-backed securities
("MBSs").
Immediately following execution of the Merger Agreement, American Savings
granted to First Union an option, to purchase up to 2,288,700 shares of newly
issued American Savings Common Stock (which have been reserved for issuance),
for a purchase price per share of $19 9/16; provided that the number of shares
for which the option is exercisable shall not exceed 19.9% of American Savings
Common Stock outstanding at the time of exercise, without giving effect to the
shares issued or issuable under the option. First Union may exercise the option,
in whole or in part, at any time following the happening of certain events,
including, among others (i) American Savings taking certain actions, without
First Union's prior written consent, including, among others, authorizing,
recommending or entering into an agreement with any third party to effect (a) a
merger, consolidation or similar transaction involving American Savings, (b) any
disposition of 20% or more of the consolidated assets or deposits of American
Savings, or (c) the issuance, sale or other disposition of 20% or more of the
voting power of American Savings; or (ii) the acquisition by any third party of
the beneficial ownership, or the right to acquire beneficial ownership, of 20%
or more (or if such party is the beneficial owner of 20% or more on December 4,
1994, such party acquires an additional 5% or more) of the voting power of
American Savings, without First Union's prior written consent.
In addition, Enstar Group entered into a shareholder voting agreement (the
"Voting Agreement") pursuant to which, among other things, Enstar Group agreed
to vote all of its shares of American Savings Common Stock in favor of the
Merger and the Merger Agreement. The Voting Agreement also sets forth certain
matters relating to payment of the Claim and certain other allowed claims under
the Bankruptcy Plan. The Voting Agreement provides that pursuant to an escrow
agreement (the "Escrow Agreement"), Enstar Group will place in escrow with First
Union National Bank of North Carolina, as escrow agent, 3,926,422
F-21
<PAGE> 59
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares of American Savings Common Stock held by it (the "Escrowed Shares")
pending consummation of the Merger. First Union has agreed to repurchase the
shares of First Union Common Stock into which the Escrowed Shares are to be
converted on the Merger Effective Date for an aggregate purchase price of
$82,454,865.80 to facilitate the payment of the allowed claims of certain
creditors of Enstar Group under the Bankruptcy Plan, including payment to the
First Union Subsidiary, as successor to American Savings, of all or
substantially all of the Claim.
OTS confirmed, on December 2, 1994, that, to the extent that any
transactions contemplated under the Voting Agreement and the Escrow Agreement
would require that a conveyance of Escrowed Shares be recorded on American
Savings' transfer records, OTS waives the prohibition under the Regulatory
Capital Maintenance/Dividend Agreement ("Capital Maintenance Agreement") with
respect to that recording. On December 2, 1994 and again on January 26, 1995,
OTS agreed to allow Enstar Group to vote the shares of American Savings which it
owns.
Consummation of the Merger is subject to certain conditions, including
without limitation: (i) receipt of all required regulatory approvals; and (ii)
receipt of the affirmative vote of the holders of at least: (a) two-thirds of
the issued and outstanding shares of American Savings Common Stock; and (b) a
majority of the Public Shares (as defined hereinafter) represented and voted at
the meeting of shareholders of American Savings to be held to approve the Merger
Agreement and the Merger. "Public Shares" means all of the issued and
outstanding shares of American Savings Common Stock other than those
beneficially owned (as defined in Rule 13d-3 of the Securities Exchange Act of
1934, as amended) by Enstar Group, its officers and directors, and the directors
and certain officers of American Savings.
The Merger Agreement may be terminated, and the Merger abandoned, at any
time prior to the Merger Effective Date (i) by mutual consent of First Union and
American Savings; (ii) by either First Union or American Savings (a) if the
stockholders of American Savings fail to approve the Merger and the Merger
Agreement, (b) in the event of a breach by the other party of any representation
or warranty contained in the Merger Agreement as described in the preceding
paragraph, which breach is not cured after 30 days' written notice thereof is
given to the party committing such breach and which breach would result in a
failure to satisfy any of the conditions to the consummation of the Merger
Agreement, (c) in the event of a material breach by the other party of any of
the covenants or agreements contained in the Merger Agreement, which breach is
not cured after 30 days' written notice thereof is given to the party committing
such breach; (d) if any required governmental approval has been denied or
required to be withdrawn, or the applicable governmental authority has indicated
an intention to deny or impose a condition or requirement which generally would
materially adversely impact the economic or business benefits to First Union of
the Merger; (e) if a court order restrains or prohibits the Merger or any action
is taken by any governmental authority which would make the Merger illegal; or
(f) if the Merger is not consummated on or before August 25, 1995, provided that
the party seeking to terminate the Merger is not in breach of any of the
covenants or agreements of the Merger Agreement; (iii) by First Union if the
Board fails to recommend the Merger to its stockholders, withdraws, modifies or
changes its recommendation of the Merger or the Merger Agreement to the
stockholders of American Savings in a manner adverse to First Union; or (iv) by
American Savings, if in the exercise of its good faith judgment as to its
fiduciary duties to its stockholders the Board determines that such termination
is required, and American Savings shall have agreed to a competing transaction.
NOTE 2: STATEMENT OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of American Savings and all wholly-owned subsidiaries. The
equity method of accounting is used to account for American Savings' investments
in 20% to 50% owned companies. All significant intercompany transactions have
been eliminated.
F-22
<PAGE> 60
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CLASSIFICATION OF DEBT AND EGUITY SECURITIES -- Gains and losses on all
securities transactions are determined using the specific identification method.
Securities and Mortgage-Backed Securities Held to Maturity. American
Savings classifies as held to maturity those investments in debt and equity
securities as to which it has a positive intent and ability to hold to maturity.
In accordance with Statement of Financial Accounting Standards 115, Accounting
for Certain Investments in Debt and Equity Securities, ("SFAS 115"), adopted
effective December 31, 1993, a security cannot be classified as held to maturity
if it might be sold in response to changes in market interest rates, related
changes in the security's prepayment risk, liquidity needs, changes in the
availability of and the yield on alternate investments and changes in funding
sources and terms.
Securities having fixed payments of principal and interest which are held
to maturity are carried at cost and are adjusted for premium amortization or
discount accretion. Discounts are accreted to maturity and premiums are
amortized to call price at call date using the interest method of amortization.
MBSs held to maturity are carried at current unpaid principal balances, adjusted
for unamortized premiums and unearned discounts. Premiums are amortized and
discounts are accreted to income using the interest method based upon the
estimated lives of the respective instruments.
Securities Available for Sale. Debt and equity securities not classified
as held-to-maturity or trading securities are classified as available-for sale.
Debt and equity securities available for sale are carried at fair value, with
the related unrealized gains or losses, net of deferred income taxes, reported
as a separate component of stockholders' equity.
ASSETS HELD FOR SALE -- Assets held for sale are carried at the lower of
cost or market. Unrealized losses and realized gains and losses on assets held
for sale are included in operating income. Gains and losses realized from the
sale of assets held for sale are determined using specific identification.
REAL ESTATE -- Real estate acquired in settlement of loans is recorded at
the carrying amount of the loan or estimated fair market value at the date
acquired, whichever is less, plus capital improvements made thereafter to
facilitate sale. Fair market value is based on current appraisals reduced by
estimated net holding and disposition costs. Costs relating to the development
and improvement of property are capitalized, whereas those relating to holding
the property are charged to operations as incurred. Losses are charged to
operations when it is determined that the investment in real estate owned is
greater than its estimated fair market value.
In-substance foreclosures consist of loans considered repossessed
in-substance and are included in real estate, net, at the lower of the carrying
amount of the loan or estimated fair market value. The collateral underlying
these loans has not been repossessed. American Savings considers a loan to be an
in-substance foreclosure when the borrower has little or no equity in the
collateral at its current estimated fair market value, proceeds from repayment
are expected to come only from the operation or sale of the collateral and the
borrower has either abandoned control of the project or it is doubtful the
borrower will rebuild equity in the collateral or repay the loan by other means
in the foreseeable future.
Gains on sales of real estate are recognized based on the buyer's initial
and continuing investment in the property.
ALLOWANCES FOR LOSSES ON LOANS AND REAL ESTATE -- Allowances for losses on
loans and real estate are based upon a review of loss experience, loan balances,
delinquent loans, real estate acquired and other factors which may affect the
ultimate collectibility of loans and realization from real estate acquired.
Management believes that allowances for losses on loans and real estate are
adequate at December 31, 1994. However, while management uses currently
available information to recognize losses on these assets, future additions to
the allowances may be necessary based on changes in economic conditions,
deterioration of creditworthiness of the borrower, the value of the underlying
collateral or other factors. Additionally, various regulatory agencies, as an
integral part of their regular examination process, periodically review American
F-23
<PAGE> 61
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Savings' allowances for losses on loans and real estate. Such agencies may
require American Savings to recognize additions to the allowances based on their
judgments of information available to them at the time of their examination.
American Savings' last examination was completed as of August 26, 1994.
NONACCRUAL LOANS -- American Savings' policy is to exclude from income
interest on loans which are ninety days or more delinquent and for which the
ultimate collectibility of the interest is doubtful. Additionally, a loan may be
placed on nonaccrual status if, in management's opinion, conditions warrant.
Interest payments on nonaccrual loans are recognized as income only to the
extent of cash payments received; or, if there is doubt as to ultimate
collectibility of the loan, such payments are applied as a reduction of the loan
carrying amount.
LOAN SERVICING FEES AND PURCHASED MORTGAGE SERVICING RIGHTS -- American
Savings services mortgage loans for others. Until September 1993, American
Savings also serviced consumer loans for others. These loans are not included in
the accompanying consolidated financial statements. Loan servicing fees are
based on a stipulated percentage of the outstanding loan principal balances
being serviced and are included in income as the related loan payments are
collected. Loan servicing costs are charged to expense as incurred.
American Savings capitalizes the cost of acquiring mortgage loan servicing
rights. The cost of the purchased servicing rights is amortized, as a charge
against loan servicing fee income, in proportion to, and over the period of
estimated net servicing income based on the interest method. Quarterly
impairment tests are performed on a discounted, disaggregated basis. Any
resulting adjustments are recorded as additional amortization. Amortization of
purchased mortgage servicing rights amounted to $3,040,000, $1,852,000 and
$2,280,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
INTANGIBLE ASSETS -- Goodwill is amortized using the straight-line method
over its remaining life, 143 months as of December 31, 1994. Other intangible
assets consist of core deposit intangibles, which are amortized over the
estimated life of the core deposits.
FINANCIAL INSTRUMENTS -- OFF-BALANCE SHEET -- American Savings uses
interest rate exchange agreements ("swaps") and interest rate caps ("caps") in
the management of its interest rate risk. Swaps are used to more closely match
the repricing characteristics of certain assets and liabilities. Swaps are
agreements in which American Savings and another party agree to exchange
interest payments on a notional principal amount. The net settlements on
interest rate swaps are recognized over the lives of the agreements as
adjustments of interest expense. Gains or losses on sales (terminations) of
swaps entered into as hedges are deferred and amortized to income or expense
over the shorter of the original maturity of the swap or the maturity period of
the hedged asset or liability.
American Savings uses caps to limit the exposure to rising interest rates
on short-term variable rate borrowings. Premiums paid for caps are amortized as
an adjustment to interest expense over the term of the agreements. Interest
expense is reduced on a current basis when the index rate exceeds the rate cap
specified under the agreement.
LOAN FEES, PREMIUMS AND DISCOUNTS -- American Savings defers certain
nonrefundable fees associated with lending activities, such as origination fees
and amortizes such fees into interest income over the estimated lives of the
loans using the interest method. Certain direct costs associated with the
origination of loans are also deferred and amortized over the estimated lives of
the loans. Deferred net fees or costs are not amortized during periods in which
interest income on a loan is not being recognized because of concerns about the
realization of loan principal or interest.
OFFICE PROPERTIES AND EQUIPMENT -- Office properties and equipment are
stated at cost less accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets.
Maintenance and repairs are charged to expense as incurred. Expenditures for
major renewals and betterments are capitalized. Gains and losses on dispositions
are reflected in current operations.
F-24
<PAGE> 62
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES -- American Savings and its wholly-owned subsidiaries file a
consolidated tax return. Effective January 1, 1993, American Savings adopted
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
("SFAS 109") and has reported the cumulative effect of that change in the method
of accounting for income taxes in the 1993 Statements of Consolidated Earnings.
Prior to the adoption of SFAS 109 American Savings accounted for income taxes
under Accounting Principles Board Opinion 11, Accounting for Income Tares ("APB
11"). SFAS 109 requires an asset and liability approach for accounting for
income taxes. Tax assets and liabilities are measured based upon enacted tax
laws and rates. A reserve is recorded as a reduction of deferred tax assets in
the amount of such benefits that, based upon available evidence, are not
expected to be realized. Under APB 11, which required an income statement
approach for accounting for deferred taxes, taxes were provided, using the tax
rate applicable in the year of calculation, on all income and expense items
included in earnings, regardless of the period in which such items were
recognized for tax purposes, except for permanent difference between accounting
income and taxable income. Under APB 11, deferred taxes were not adjusted for
subsequent changes in enacted tax rates.
In computing federal and state income taxes, savings and loans which meet
certain conditions prescribed by the Internal Revenue Code are allowed, with
limitations, a bad debt deduction based on a percentage of taxable income or
experience. To the extent that (i) a savings institution's reserve for losses on
qualifying real property loans exceeds the amount that would have been allowed
under the experience method and (ii) it makes distributions to stockholders that
are considered to result in withdrawals from that excess bad debt reserve, then
the amounts withdrawn will be included in its taxable income. The amount
considered to be withdrawn by a distribution will be the amount of the
distribution plus the amount necessary to pay the tax with respect to the
withdrawal. Dividends paid out of the savings institution's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in withdrawals from its bad debt reserves.
Currently, American Savings' reserve for losses on qualifying real property
loans does not exceed the amount that would have been allowed under the
experience method.
CASH AND CASH EQUIVALENTS -- For purposes of reporting cash flows, cash and
cash equivalents include cash and interest bearing deposits, securities
purchased under agreements to resell, federal funds sold and other short term
investments which had original terms of less than ninety days.
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN -- Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan
("SFAS 114"), as amended by Statement of Financial Accounting Standards No. 118,
is effective for financial statements issued for fiscal years beginning after
December 15, 1994, and defines the criteria for loan impairment and the
measurement methods for certain impaired loans and loans whose terms are
modified in troubled debt restructurings ("TDRs"). Under SFAS 114, the
measurement of loan impairment is based upon the present value of expected
future cash flows, discounted at the loan's effective interest rate, the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. If foreclosure is probable, impairment must be based upon
the fair value of the collateral. American Savings believes that prospective
implementation of this statement, on January 1, 1995, will not have a material
effect on its financial condition.
RECLASSIFICATIONS -- Certain amounts have been reclassified to conform with
current period presentation.
NOTE 3: ENSTAR MERGER
The Enstar Merger was accounted for using the purchase method of
accounting. For the years ended December 31, 1994, 1993 and 1992, the
amortization and accretion of discounts, premiums and goodwill and other
intangibles decreased American Savings' income from continuing operations before
income taxes by $4,894,000, $5,002,000 and $231,000, respectively.
F-25
<PAGE> 63
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1994 and 1993, the remaining balances of discounts,
premiums, goodwill and other intangible assets related to the Enstar Merger are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Loans receivable........................................... $(3,582) $(5,989)
Goodwill and other intangible assets....................... $63,139 $69,112
Mortgage servicing rights.................................. $ 592 $ 986
Other assets............................................... $ 5,803 $ 7,147
Savings deposits........................................... $ -- $ (21)
Other liabilities.......................................... $(1,115) $(1,137)
</TABLE>
NOTE 4: SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Securities purchased under agreements to resell ("repos") represent
short-term loans and are recorded as receivables. The securities underlying the
agreements are book entry securities and MBSs segregated and held by the selling
securities dealer on behalf of American Savings. Agreements relating to MBSs are
agreements to resell substantially identical securities. There were no repos
outstanding at December 31, 1994 or 1993.
Because purchased securities generally are not delivered to American
Savings or its agent, American Savings is subject to the risk that its interest
in the purchased securities may be inadequately protected in the event the
selling securities dealer fails to perform its obligations. American Savings
attempts to reduce the effects of such risk by, among other things, entering
into such agreements with well-capitalized securities dealers who are primary
dealers in government securities and reviewing on a regular basis the published
financial condition of such securities dealers.
During 1994, American Savings did not enter into any repos. Repos averaged
$6,129,000 and $76,511,000 during the years ended December 31, 1993 and 1992,
respectively. The maximum amounts outstanding at any month-end during those
periods were $4,000,000 and $300,000,000, respectively.
NOTE 5: SECURITIES AVAILABLE FOR SALE
As of December 31, 1994 and 1993, the following securities were designated
as available for sale (in thousands):
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1994
Equity securities -- common stock of
FNMA............................... $ 10 $ 83 $ -- $ 93
MBSs
MBSs due after one year but within
five years
FHLMC............................ 97,231 -- (6,276) 90,955
MBSs due after ten years
FNMA and FHLMC................... 71,755 -- (3,521) 68,234
-------- ------ ------- --------
Total MBSs.................... 168,986 -- (9,797) 159,189
-------- ------ ------- --------
Total available for sale
securities.................. $168,996 $ 83 $(9,797) $159,282
======== ====== ======= ========
</TABLE>
F-26
<PAGE> 64
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1993
U.S. Treasury securities, due within
one year........................... $ 13,293 $ 3 $ -- $ 13,296
Equity securities -- common stock of
FNMA............................... 10 90 -- 100
MBSs
MBSs due after one year but within
five years
FNMA and FHLMC................... 54,695 374 (78) 54,991
CMOs............................. 32,014 62 (11) 32,065
-------- ------ ------- --------
86,709 436 (89) 87,056
MBSs due after five years but
within ten years
FNMA and FHLMC................... 225,667 2,266 (247) 227,686
MBSs due after ten years
FNMA and FHLMC................... 280,885 6,902 (452) 287,335
-------- ------ ------- --------
Total MBSs.................... 593,261 9,604 (788) 602,077
-------- ------ ------- --------
Total available for sale
securities.................. $606,564 $9,697 (788) $615,473
======== ====== ======= ========
</TABLE>
Securities available for sale are carried at fair value, with the related
unrealized gains or losses, net of deferred income taxes, reported as a separate
component of stockholders' equity. At December 31, 1994, stockholders' equity
was reduced $5,967,000, representing net unrealized losses of $9,714,000, less
deferred tax benefits of $3,747,000 and at December 31, 1993, stockholders'
equity was increased $5,472,000, representing unrealized gains, net of deferred
taxes of $3,437,000. During the year ended December 31, 1994, American Savings
sold MBSs available for sale with a carrying value of $445,409,000 and realized
gains of $2,957,000 on such sales.
Proceeds from sales of securities available for sale amounted to
$449,081,000 for the year ended December 31, 1994 and gross gains and gross
losses on these sales amounted to $7,447,000 and $3,775,000, respectively.
NOTE 6: SECURITIES HELD TO MATURITY, NET
A summary of securities held to maturity as of December 31, 1994, 1993 and
1992 follows (in thousands):
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1994
Debt securities
U.S. Government and Agency
obligations
Due within one year.............. $ 2,983 $ -- $ -- $ 2,983
Due after one year but within
five years.................... 114,049 -- (5,707) 108,342
-------- ------ -------- --------
117,032 -- (5,707) 111,325
-------- ------ -------- --------
Corporate debt obligations due
after five years but within ten
years............................ 2,987 -- -- 2,987
</TABLE>
F-27
<PAGE> 65
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Other debt securities
Due after one year but within
five years.................... 250 -- -- 250
Due after five years but within
ten years..................... 1,055 -- -- 1,055
-------- ------ -------- --------
1,305 -- -- 1,305
-------- ------ -------- --------
$121,324 $ -- $ (5,707) $115,617
======== ====== ======== ========
December 31, 1993
Debt securities
U.S. Government obligations due
within one year.................. $ 3,152 $ 1 $ -- $ 3,153
Corporate debt obligations due
after ten years.................. 4,995 -- -- 4,995
Other debt securities
Due in one year.................. 1,000 -- -- 1,000
Due after five years but within
ten years..................... 309 -- -- 309
-------- ------ -------- --------
1,309 -- -- 1,309
-------- ------ -------- --------
$ 9,456 $ 1 $ -- $ 9,457
======== ====== ======== ========
December 31, 1992
Debt securities
U.S. Government and Agency
obligations
Due within one year.............. $ 3,002 $ 1 $ -- $ 3,003
Due after one year but within
five years.................... 150 5 -- 155
-------- ------ -------- --------
3,152 6 -- 3,158
-------- ------ -------- --------
Corporate debt obligations due
after ten years.................. 5,000 -- -- 5,000
Other debt securities
Due after one year but within
five years.................... 1,000 -- -- 1,000
Due after five years but within
ten years..................... 323 88 -- 411
-------- ------ -------- --------
1,323 88 -- 1,411
-------- ------ -------- --------
$ 9,475 $ 94 $ -- $ 9,569
======== ====== ======== ========
</TABLE>
F-28
<PAGE> 66
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7: ASSETS HELD FOR SALE
A summary of the carrying value and estimated fair value of assets
classified as held for sale at December 31, 1994, 1993 and 1992 follows (in
thousands):
<TABLE>
<CAPTION>
ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1994
Student loans............................... $ 56,676 $ -- $ -- $ 56,676
Residential mortgage loans.................. 7,082 80 (33) 7,129
-------- ---- ----- --------
$ 63,758 $ 80 $ (33) $ 63,805
======== ==== ===== ========
December 31, 1993
Student loans............................... $ 49,039 $ -- $ -- $ 49,039
Residential mortgage loans.................. 64,189 619 (293) 64,515
-------- ---- ----- --------
$113,228 $619 $(293) $113,554
======== ==== ===== ========
December 31, 1992
U.S. Treasury securities, due within one
year..................................... $ 21,170 $ 6 $ (3) $ 21,173
Private pass-through MBSs
Amortized cost........................... 7,818 -- (121) 7,697
Lower of cost or market adjustment....... (121) -- 121 --
-------- ---- ----- --------
7,697 -- -- 7,697
-------- ---- ----- --------
Loans
Student..................................... 34,746 -- -- 34,746
Residential mortgage loans(1)............... 28,272 564 -- 28,836
-------- ---- ----- --------
63,018 564 -- 63,582
-------- ---- ----- --------
$ 91,885 $570 $ (3) $ 92,452
======== ==== ===== ========
</TABLE>
- ---------------
(1) Net unrealized gain is presented.
The following table summarizes proceeds from sales of assets held for sale
and gross gains and losses for the periods presented:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales...................................... $154,401 $81,095 $52,524
Gross realized gains..................................... 2,392 953 1,394
Gross realized losses.................................... (5,623) (126) (710)
Unrealized gains (losses)................................ -- -- 1,273
</TABLE>
F-29
<PAGE> 67
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8: MORTGAGE-BACKED SECURITIES HELD TO MATURITY, NET
A summary of the amortized cost and estimated fair value of MBSs, net,
which are classified as held to maturity follows (in thousands):
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1994
FNMA and FHLMC
Fixed rate............................ $ 153,236 $ -- $(12,672) $ 140,564
Variable rate......................... 252,276 -- (14,530) 237,746
15-year balloons...................... 6,444 -- (555) 5,889
GNMA
Variable rate......................... 50,204 -- (3,141) 47,063
Private pass-through and other
Fixed rate............................ 104,234 -- (8,631) 95,603
Variable rate......................... 379,827 -- (15,595) 364,232
CMOs..................................... 14,009 7 (117) 13,899
---------- ------- -------- ----------
$ 960,230 $ 7 $(55,241) 904,996
========== ======= ======== ==========
December 31, 1993
FNMA and FHLMC
Fixed rate............................ $ 36,917 $ -- $ (103) $ 36,814
Private pass-through and other
Fixed rate............................ 26,287 299 (81) 26,505
Variable rate......................... 428,057 3,150 (1,721) 429,486
CMOs..................................... 56,287 629 (77) 56,839
---------- ------- -------- ----------
$ 547,548 $ 4,078 $ (1,982) $ 549,644
========== ======= ======== ==========
December 31, 1992
FNMA and FHLMC
Variable rate......................... $ 334,484 $ 8,893 $ (179) $ 343,198
5- to 7-year balloons................. 148,408 -- (2,124) 146,284
Private pass-through and other
Variable rate......................... 487,066 5,556 (1,441) 491,181
CMOs..................................... 466,332 3,736 (1,509) 468,559
Other.................................... 2,507 34 -- 2,541
---------- ------- -------- ----------
$1,438,797 $18,219 $ (5,253) $1,451,763
========== ======= ======== ==========
</TABLE>
F-30
<PAGE> 68
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes proceeds from sales of MBSs and gross gains
and losses:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales.................................... $ -- $ 12,982 $272,271
Included in gains on sales of MBSs.....................
Gross realized gains................................. -- -- 3,313
Gross realized losses................................ -- -- (1)
Included in gains on assets held for sale..............
Gross realized gains................................. -- 373 14,661
Gross realized losses................................ -- -- --
Unrealized gains (losses).............................. -- 39 (120)
</TABLE>
In August 1992, as a result of a decision to invest in variable-rate or
shorter-term assets, American Savings decided to sell all of its fixed-rate MBSs
which had original terms of fifteen to thirty years, and accordingly, such MBS
portfolio was reclassified to assets held for sale. During the third quarter of
1992, American Savings sold those MBSs, which had a book value of $194,197,000,
and recorded a gain of $14,646,000 on the sale. In addition to this sale, in
response to a capital directive, in 1992 American Savings sold MBSs and CMOs
held for investment having aggregate book values of $53,719,000 and $2,729,000,
respectively, and recognized aggregate gains of $3,312,000 on the sales.
NOTE 9: LOANS RECEIVABLE, NET
Loans receivable, net, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Permanent Residential Mortgages
First mortgage loans
Fixed rate............................................. $ 386,775 $ 415,646
Variable rate.......................................... 1,001,435 824,040
Second mortgage loans..................................... 256,380 115,389
Residential Construction and Land Loans..................... 78,523 35,915
Commercial Real Estate
Construction.............................................. 2,633 1,602
Permanent................................................. 105,422 77,017
Other..................................................... 1,555 2,717
Corporate................................................... 13,191 22,168
Consumer.................................................... 168,395 123,360
---------- ----------
2,014,309 1,617,854
Less Unearned fees and net (premiums) discounts............. (1,135) 1,219
Net premiums on purchased loans........................... (13,131) (18,025)
Discounts from purchase valuation......................... 3,582 5,989
Undisbursed portion of loans in process................... 57,782 30,708
Allowance for loan losses................................. 19,087 20,452
---------- ----------
$1,948,124 $1,577,511
========== ==========
</TABLE>
F-31
<PAGE> 69
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the aggregate outstanding balance of
American Savings' nonaccrual loans and TDRs at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans, including nonaccrual TDRs(1)
Permanent Residential Mortgages........................... $ 6,903 $ 5,744
Commercial Real Estate -- Permanent....................... 7,706 9,779
Commercial Real Estate -- Other........................... 229 247
Corporate................................................. 1,923 2,912
Consumer.................................................. 552 360
------- -------
17,313 19,042
TDRs, excluding nonaccrual TDRs
Commercial real estate.................................... 17,410 17,583
------- -------
$34,723 $36,625
======= =======
Other potential problem loans(2)............................ $11,127 $18,673
======= =======
</TABLE>
- ---------------
(1) At December 31, 1994 and 1993, nonaccrual loans include TDRs amounting to
$8,161,000 and $11,635,000, respectively.
(2) At December 31, 1994, other potential problem loans are comprised of
commercial real estate loans.
The following summarizes foregone interest income due to nonaccrual loans
and TDRs in 1994:
<TABLE>
<CAPTION>
NONACCRUAL
LOANS TDRS
---------- ------
(IN THOUSANDS)
<S> <C> <C>
Interest income that would have been recorded had the loans
performed in accordance with their original terms......... $3,093 $1,924
Interest income included in results of operations........... 248 1,080
------ ------
Total foregone interest........................... $2,845 $ 844
====== ======
</TABLE>
American Savings serviced loans for the benefit of others aggregating
approximately $1,280,748,000, $888,479,000 and $742,037,000 at December 31,
1994, 1993 and 1992, respectively.
NOTE 10: REAL ESTATE, NET
Real estate, net, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
REO......................................................... 7,937 8,513
In-substance foreclosures................................... 1,064 1,994
------ -------
9,001 10,507
Less allowance for losses................................... 1,385 1,013
------ -------
$7,616 $ 9,494
====== =======
</TABLE>
At December 31, 1994, 1993 and 1992, American Savings had no investments in
real estate joint ventures.
F-32
<PAGE> 70
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11: ALLOWANCES FOR LOSSES
The following is a summary of the allowances for losses on loans and real
estate, net:
<TABLE>
<CAPTION>
RESIDENTIAL
PERMANENT CONSTRUCTION COMMERCIAL
RESIDENTIAL AND LAND REAL ESTATE CORPORATE CONSUMER REAL
LOANS LOANS LOANS LOANS LOANS ESTATE TOTAL
----------- ------------ ----------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991................ $ 480 $ 1,609 $ 18,048 $ 8,040 $ 1,756 $ 15,147 $ 45,080
Other additions(1)...................... -- -- 4,510 -- -- 585 5,095
Charge-offs, net........................ (492) 107 (1,112) (14) (2,001) (11,077) (14,589)
Transfers............................... -- (1,170) 1,742 (4,378) 1,710 2,096 --
Provision for losses.................... 655 453 4,697 -- 795 1,345 7,945
------ ------- -------- ------- ------- -------- --------
Balance December 31, 1992................. 643 999 27,885 3,648 2,260 8,096 43,531
Other additions(l)...................... -- -- 4,095 336 -- -- 4,431
Charge-offs, net........................ (487) 6 (12,348) (5,888) (823) (7,756) (27,296)
Transfers............................... 402 252 (5,928) 4,161 589 524 --
Provision for losses.................... 650 -- -- -- -- 149 799
------ ------- -------- ------- ------- -------- --------
Balance December 31, 1993................. 1,208 1,257 13,704 2,257 2,026 1,013 21,465
Other additions(l)...................... -- -- 857 363 -- 45 1,265
Charge-offs, net........................ (391) -- (232) (986) (1,172) (77) (2,858)
Transfers............................... 1,168 1,492 (4,532) 366 1,102 404 --
Provision for losses.................... 600 -- -- -- -- -- 600
------ ------- -------- ------- ------- -------- --------
Balance December 31, 1994................. $2,585 $ 2,749 $ 9,797 $ 2,000 $ 1,956 $ 1,385 $ 20,472
====== ======= ======== ======= ======= ======== ========
</TABLE>
- ---------------
(1) Consists primarily of interest payments and capitalized interest.
Allowances for losses include $16,787,000 and $17,994,000 of general loss
reserves at December 31, 1994 and 1993, respectively.
NOTE 12: ACCRUED INTEREST AND DIVIDENDS RECEIVABLE
Accrued interest and dividends receivable is composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Securities.................................................. $ 3,086 $ 390
Mortgage-backed securities.................................. 6,668 5,809
Loans....................................................... 12,682 9,998
------- -------
$22,436 $16,197
======= =======
</TABLE>
F-33
<PAGE> 71
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13: OFFICE PROPERTIES AND EQUIPMENT, NET
Office properties and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
DECEMBER 31, DECEMBER 31, USEFUL
1994 1993 LIVES
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land............................................ $ 7,612 8,690
Buildings....................................... 16,799 15,995 3 - 40 years
Furniture and equipment......................... 21,044 18,461 3 - 8
Leasehold improvements.......................... 9,445 8,674 3 - 40
------- -------
54,900 51,820
Less accumulated depreciation................... 21,597 19,082
------- -------
$33,303 $32,738
======= =======
</TABLE>
Depreciation expense amounted to $2,705,000, $3,017,000 and $4,300,000 for
the years ended December 31, 1994, 1993 and 1992, respectively.
American Savings leases certain office premises and equipment under
noncancellable operating leases. Annual minimum rental payments under operating
leases having noncancellable lease terms in excess of one year are $2,234,000,
$2,215,000, $2,006,000, $1,803,000 and $1,514,000 for each of the five years
subsequent to December 31, 1994, respectively, and $3,400,000 thereafter. Rent
expense for operating leases, except those with terms of less than one month,
aggregated $2,505,000, $2,256,000 and $2,622,000 for the years ended December
31, 1994, 1993 and 1992, respectively.
NOTE 14: SAVINGS DEPOSITS
Savings deposits at December 31, 1994 and 1993 and the weighted average
rates of savings deposits at December 31, 1994 follow:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE DECEMBER 31, DECEMBER 31,
RATE 1994 1993
-------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Passbook accounts................................... 0.99% $ 37,037 45,762
Checking accounts................................... 0.72 204,264 211,559
Money market accounts............................... 2.42 402,146 441,775
Certificate accounts
1.00 - 3.00%.................................... -- 12,087 94,824
3.01 - 5.00%.................................... -- 959,092 1,100,148
5.01 - 7.00%.................................... -- 653,855 243,088
7.01 - 9.00%.................................... -- 62,398 82,382
9.01 - 11.00%.................................... -- -- 3,320
11.01 - 13.00%.................................... -- -- 1,041
Valuation adjustments on certificate accounts....... -- -- 21
---- ---------- ----------
Total certificate accounts........................ 4.88 1,687,432 1,524,824
---- ---------- ----------
Accrued interest.................................... -- 4,748 4,170
---- ---------- ----------
3.99% $2,335,627 $2,228,090
==== ========== ==========
</TABLE>
F-34
<PAGE> 72
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1994, savings deposits had the following scheduled
maturities:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
---------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Passbook accounts and accrued interest....... $ 41,785 $ -- $ -- $ -- $ --
Checking accounts............................ 204,264 -- -- -- --
Money market accounts........................ 402,146 -- -- -- --
Certificate accounts
1.00 - 3.00%............................... 12,087 -- -- -- --
3.01 - 5.00%............................... 731,492 208,821 1,651 11,814 5,314
5.01 - 7.00%............................... 256,346 191,931 142,880 34,851 27,847
7.01 - 9.00%............................... 29,245 31,235 1,755 153 10
---------- -------- -------- ------- -------
$1,677,365 $431,987 $146,286 $46,818 $33,171
========== ======== ======== ======= =======
</TABLE>
The following schedule sets forth interest expense by type of savings
deposit:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1993 1992
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Passbook accounts........................................ $ 445 $ 662 $ 1,427
Checking accounts........................................ 1,905 1,930 3,188
Money market accounts.................................... 10,490 10,340 13,126
Certificate accounts..................................... 68,191 66,578 95,187
------- ------- --------
$81,031 $79,510 $112,928
======= ======= ========
</TABLE>
The following schedule sets forth the average balances of and weighted
average interest rates paid on savings deposits:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1994 1993 1992
----------------- ----------------- -----------------
BALANCE RATE BALANCE RATE BALANCE RATE
---------- ---- ---------- ---- ---------- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts................. $ 41,997 1.06% $ 50,594 1.31% $ 55,035 2.59
Checking accounts................. 244,741 0.78 245,987 0.78 201,154 1.58
Money market accounts............. 441,063 2.38 428,565 2.41 387,364 3.39
Certificate accounts.............. 1,578,125 4.32 1,515,849 4.39 1,705,457 5.58
---------- ---- ---------- ---- ---------- ----
$2,305,926 3.51% $2,240,995 3.55% $2,349,010 4.81%
========== ==== ========== ==== ========== ====
</TABLE>
Checking accounts consist of NOW and tiered checking accounts. Penalties
charged for early withdrawal of savings, which were not significant during the
periods presented, reduced the respective interest expense account.
Certificates of deposit having balances of $100,000 or greater amounted to
$168,207,000 at December 31, 1994 and mature as follows: $31,377,000 in three
months or less, $29,490,000 in over three through six months, $32,678,000 in
over six through twelve months and $74,662,000 thereafter.
Public funds and Treasury Tax and Loan deposits of $749,000 were secured by
U.S. Treasury securities having an aggregate book value of $1,331,000 at
December 31, 1994.
F-35
<PAGE> 73
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
American Savings enters into sales of securities under agreements to
repurchase ("reverse repos"), which are treated as financings. The obligations
to repurchase securities sold are reflected as a liability and the carrying
amount of the securities underlying the agreements is included in securities
available for sale, securities or MBSs held to maturity in the Statements of
Consolidated Financial Condition. Reverse repo liabilities amounted to
$487,534,000, $98,338,000 and $80,014,000 at December 31, 1994, 1993 and 1992,
respectively, with weighted average rates of 6.17%, 3.68% and 3.48%,
respectively.
The securities underlying the agreements are book entry securities. During
the periods presented, the securities sold under these agreements were
delivered, by appropriate entry, to the correspondent bank accounts of the
purchasing securities dealers used in the transactions. The purchasing
securities dealers may have sold, loaned, or otherwise disposed of such
securities to other parties in the normal course of their operations, and have
agreed to resell to American Savings the same securities at the maturities of
the agreements.
At December 31, 1994, borrowings under reverse repo agreements, including
$371,000 of accrued interest payable, were secured by MBSs with a carrying value
of $542,675,000, including $3,523,000 of accrued interest receivable. At
December 31, 1994, these borrowings had the following scheduled maturities:
<TABLE>
<CAPTION>
SECURITIES SOLD
REPURCHASE LIABILITY UNDER AGREEMENTS TO REPURCHASE
-------------------- --------------------------------
CARRYING AVERAGE CARRYING MARKET AVERAGE
MATURITY AMOUNT RATE AMOUNT VALUE YIELD
-------- --------- -------- --------- --------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Overnight................................ $142,799 6.40% $159,485 $148,030 5.58%
Up to 30 days............................ 345,106 6.08 383,190 357,524 5.08
-------- ---- -------- -------- ----
$487,905 6.17% $542,675 $505,554 5.22%
======== ==== ======== ======== ====
</TABLE>
The amount of risk under these borrowings, defined as the excess of
carrying value (or market value, if higher) of assets sold under agreements to
repurchase, including accrued interest, plus any cash or other assets on deposit
to secure the repurchase obligations over the amount borrowed (adjusted for
accrued interest), in the aggregate and with any one dealer was approximately
$54,770,000 and $19,806,000, respectively, at December 31, 1994. The average
rate paid on reverse repos amounted to 4.52%, 3.23% and 3.94% for the years
ended December 31, 1994, 1993 and 1992, respectively, on average outstanding
balances of $407,147,000, $175,165,000 and $175,807,000, respectively. The
maximum amount of reverse repos outstanding at any month-end during the years
ended December 31, 1994, 1993 and 1992 was $571,763,000, $276,991,000 and
$383,971,000, respectively.
NOTE 16: ADVANCES FROM FEDERAL HOME LOAN BANK AND 1993 EXTRAORDINARY ITEM
FHLB advances are secured by first mortgage loans with a carrying value of
$582,288,000, private-issue MBSs with a carrying value of $186,542,000 and the
stock of the FHLB. American Savings has adopted the policy of pledging excess
collateral to facilitate future advances. At December 31, 1994, the excess
collateral pledged to the FHLB amounted to $138,029,000. This excess collateral
will support additional borrowings of $99,847,000.
F-36
<PAGE> 74
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of FHLB advances at December 31, 1994 and 1993
(in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Three-month LIBOR advances maturing in 1995................. $450,000 $ --
Three-month LIBOR advances maturing in 1994................. -- 290,000
Fixed-rate advances maturing in 1994 with interest rates
ranging from 7.90% to 8.85%............................... -- 37,500
Fixed-rate advances maturing in 1996 with interest rates
ranging from 8.10% to 8.40%............................... -- 26,500
Fixed-rate advances maturing in 2003 with interest rates
ranging from 5.46% to 6.05%............................... 4,205 4,550
-------- --------
$454,205 $358,550
======== ========
</TABLE>
In 1993, American Savings decided to prepay its fixed rate advances
maturing in 1994 and 1996. As a result, an extraordinary charge of $4,300,000
was accrued in 1993 from the early extinguishment of FHLB advances.
NOTE 17: OTHER BORROWED FUNDS
Other borrowed funds consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Face amount of 9.75% Mortgage-Backed Notes, Series C, due
February 1, 1994, net of issue discount and expenses...... $ -- $149,967
Bonds payable to housing finance authorities with an
interest rate of 6.10%, due in varying installments
through 2002.............................................. 9,890 9,890
Obligations under capital leases............................ 3,485 --
Other borrowings............................................ 749 1,087
------- --------
$14,124 $160,944
======= ========
</TABLE>
Bonds payable to housing finance authorities are collateralized by MBSs
having carrying and market values of $18,137,000 and $16,314,000, respectively,
at December 31, 1994.
Principal maturities of other borrowed funds for each of the five years
subsequent to December 31, 1994 amount to $968,000 in 1995, $237,000 in 1996,
$251,000 in 1997, $270,000 in 1998 and $291,000 in 1999.
NOTE 18: INCOME TAXES, ACCOUNTING CHANGE AND 1992 EXTRAORDINARY ITEMS
American Savings adopted SFAS 109 on January 1, 1993. Financial statements
for the year ended December 31, 1992, which reflect income tax expense pursuant
to APB 11, have not been restated to apply SFAS 109.
Under Accounting Principles Board Opinion No. 16, Business Combinations
("APB 16"), which was applied in recording the push-down accounting effects of
Enstar Group's acquisition of American Savings in 1988, the future tax effects
of differences between the fair values and tax bases of assets acquired and
liabilities assumed in a business combination were considered in assigning
values of such assets and liabilities (the net-of-tax approach).
Deferred tax assets and liabilities were not recognized in business
combinations. SFAS 109 amended APB 16 to require that the tax effects of
differences between the tax bases and the fair values of assets acquired and
liabilities assumed in a business combination be recognized by recording
deferred tax assets and liabilities in the same manner as other temporary
differences.
F-37
<PAGE> 75
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The cumulative effect of implementing SFAS 109 resulted in income of
$2,141,000 in 1993 as the remaining tax effects of differences between the tax
bases and the fair values of assets and liabilities resulting from recording the
push-down accounting effects of Enstar Group's acquisition of American Savings
were eliminated. The implementation of SFAS 109 resulted in the elimination of
all deferred taxes from American Savings' Statement of Consolidated Financial
Condition as of the date of implementation of SFAS 109.
Under SFAS 109, the tax effects of temporary differences between amounts
reported in the financial statements and the tax bases of liabilities and assets
result in deferred tax assets and liabilities. The valuation allowance on
deferred tax assets represents the amount of such benefits that, based upon
available evidence, are not expected to be realized.
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of December 31, 1994 and 1993
follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Allowance for loan and real estate losses................. $ 7,781 $ 8,180
Deferred base year tax bad debt deduction................. 4,151 12,470
Tax net operating loss and credit carryforwards........... 7,862 7,745
Capital loss carryforwards................................ -- 1,785
Purchase accounting adjustments on loans.................. 1,382 2,310
Unrealized losses on available for sale securities........ 3,747 --
Other..................................................... 1,181 2,253
------- -------
Gross deferred tax assets................................. 26,104 34,743
Less valuation allowance.................................. 2,188 10,394
------- -------
Deferred tax assets, net of valuation allowance........... 23,916 24,349
------- -------
Deferred tax liabilities
Excess financial statement basis an FHLB stock............ 3,325 3,325
Core deposit intangible................................... 2,375 2,838
Loan origination fees, discounts and premiums............. 4,054 3,963
Purchase accounting adjustments on fixed assets........... 2,239 2,757
Unrealized gains on available for sale securities......... -- 3,437
Other..................................................... 211 629
------- -------
Gross deferred tax liabilities............................ 12,204 16,949
------- -------
Net deferred tax asset............................ $11,712 7,400
======= =======
</TABLE>
During 1994 and 1993, American Savings reduced the valuation allowance on
deferred tax assets by $7,200,000 and $17,799,000, respectively, as a result of
a change in the expectation of realization of deferred tax assets through future
earnings and the utilization of capital loss carryforwards for which a valuation
allowance was provided. Additionally, during 1994, American Savings reduced the
valuation allowance on deferred tax assets by $1,006,000 as a result of the
expiration of capital loss and general business credit carryforwards, for which
valuation allowances were provided.
American Savings will need to generate future taxable income, exclusive of
reversing temporary differences and carryforwards, of $30,362,000 to fully
realize the net deferred tax asset recorded at December 31, 1994. The primary
differences between income from continuing operations and taxable income (loss)
result from the nondeductible amortization of goodwill and the utilization of
net operating loss carryforwards and tax bad debt deductions. Taxable income,
exclusive of reversing temporary differences and
F-38
<PAGE> 76
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carryforwards, was $26,109,000, $19,561,000 and $42,164,000 for the years ended
December 31, 1994, 1993 and 1992, respectively. Based on American Savings'
history of income from continuing operations for each of the three years ended
December 31, 1994 and after considering the amounts received or to be received
in 1995 pursuant to the recovery as more fully described in Note 25(B),
management has determined that future taxable income, exclusive of reversing
temporary differences and net operating loss carryforwards, will more likely
than not be sufficient to fully realize the net deferred tax asset. However,
there can be no assurance that American Savings will generate specified levels
of taxable income in future years.
As of December 31, 1994, American Savings had base year bad debt reserves
for federal income tax purposes of $59,600,000 for which no deferred taxes have
been provided.
American Savings had no current income tax expense in 1994, 1993 or 1992.
The provision for deferred income tax expense (benefit) consists of the
following for each of the years presented:
<TABLE>
<CAPTION>
SFAS 109 APB 11
----------------- -------
1994 1993 1992
------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred Tax Expense (Benefit)
Federal................................................. 2,462 $ (9,704) 14,964
State................................................... 409 (1,496) 2,562
------ -------- -------
2,871 $(11,200) $17,526
====== ======== =======
</TABLE>
The 1994 and 1993 amounts above do not include deferred tax expense
(benefit) of ($3,747,000) and $3,437,000, respectively, related to unrealized
gains (losses) on available for sale securities which were charged directly to
stockholders' equity in accordance with SFAS 115 (see Note 5).
Income tax expense (benefit) attributable to income from continuing
operations has been provided at effective rates of 13.0%, (58.0%) and 40.0% for
the years ended December 31, 1994, 1993 and 1992, respectively. The following
reconciles 'expected' corporate rates computed by applying the statutory federal
income tax rate for each year to income before income taxes to actual income tax
expense (benefit):
<TABLE>
<CAPTION>
APB
SFAS 109 11
-------------- -----
1994 1993 1992
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory income tax expense................................ 35.0% 35.0% 34.0%
Reduction in beginning allowance for deferred tax assets.... (32.6) (93.0) N/A
Adjustments to beginning deferred tax assets and liabilities
due to enacted tax rate changes........................... N/A (3.7) N/A
Amortization of non-taxable valuation adjustments........... N/A N/A 6.7
Amortization of goodwill.................................... 7.6 8.7 3.7
Non-taxable gain on sale of assets resulting from push-down
accounting................................................ N/A N/A (6.8)
State income tax, net of federal benefit.................... 4.2 (5.0) 3.9
Other, net.................................................. (1.2) -- (1.5)
----- ----- -----
13.0% (58.0)% 40.0%
===== ===== =====
N/A -- Not applicable under SFAS 109 or APB 11
</TABLE>
F-39
<PAGE> 77
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of deferred income tax expense (benefit) in 1994
and 1993, as computed pursuant to SFAS 109, follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1994 1993
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax expense (benefit), excluding items below....... $ (643) $ (1,988)
Reduction in beginning allowance for deferred tax assets.... (7,200) (17,799)
Bad debt deduction.......................................... 8,799 8,699
Prepayment of FHLB advances................................. 1,196 --
Utilization of capital loss carryforwards................... 719 --
Adjustments to beginning deferred tax assets and liabilities
due to enacted tax rate changes........................... -- (708)
FHLB stock dividends........................................ -- 596
------- --------
Total deferred tax expense (benefit)........................ $ 2,871 $(11,200)
======= ========
</TABLE>
Under APB 11, deferred taxes arose from the recognition of certain items of
income and expense for tax purposes in years different from those in which they
are recognized on the financial statements. Deferred tax expense for the year
ended December 31, 1992 resulting from these timing differences consisted of the
following (in thousands):
<TABLE>
<S> <C>
Tax under book loan fee income and discounts on purchased
loans..................................................... $ 2,387
Utilization of deferred bad debt deduction.................. 11,655
Allowance for loss on investment in real estate............. 2,247
FHLB stock dividend......................................... 583
Tax under book income on residuals.......................... --
Other items, net............................................ 654
-------
$17,526
=======
</TABLE>
As of December 31, 1994, American Savings' estimated net operating loss
carryforwards for federal income tax purposes amounted to $18,000,000 and expire
as follows: $13,000,000 in 2001; $1,000,000 in 2006; and $4,000,000 in 2007.
Based on the Internal Revenue Code and Temporary Treasury Regulations
promulgated under Section 382, American Savings may have experienced an
ownership change as of June 1, 1992, the effective date of the Enstar Group plan
of reorganization (discussed in Note 1). Accordingly, the use of the tax net
operating loss carryforwards of American Savings that arose prior to June 1,
1992 to offset taxable income may be limited for subsequent years. Management
believes that such limitation would not materially affect the timing of the
utilization of American Savings' net operating loss carryforwards in comparison
to the timing of the utilization of net operating loss carryforwards if an
ownership change has not occurred.
The limitation period for assessment of American Savings' federal, state
and local income taxes has not expired for tax years commencing on or after
September 1, 1990. Additionally, the Enstar Group federal consolidated tax
return for the tax year ended August 31, 1990 may be open for assessment with
respect to American Savings as a result of the bankruptcy of Enstar Group.
American Savings was a member of the Enstar Group consolidated federal income
tax group from April 29, 1988 through March 6, 1990. Further, the limitation
period for assessment of New York City General Corporation Taxes for Kaufmann,
Alsberg & Co., Inc., a former subsidiary of American Savings, has not expired
for tax years ended September 30, 1987 and thereafter.
F-40
<PAGE> 78
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Utilization of net operating loss carryforwards for financial statement
purposes in 1992 were accounted for in accordance with APB 11, accordingly an
extraordinary credit of $17,400,000 is reflected in that year.
NOTE 19: INTEREST RATE EXCHANGE AGREEMENTS, CAPS AND OPTIONS
American Savings has, from time to time, entered into agreements to assume
fixed rate interest payments in exchange for variable market-indexed interest
payments and to assume variable market-indexed interest payments in exchange for
fixed rate interest payments ("reverse swaps"). Variable interest payments are
based on three-month LIBOR. Interest expense on borrowed funds was reduced by
$337,000, $3,195,000 and $3,344,000 for the years ended December 31, 1994, 1993
and 1992, respectively, and interest expense on deposits by $1,445,000 for the
year ended December 31, 1994, as a result of the use of interest rate exchange
agreements.
The reverse swap was collateralized by MBSs having a carrying value and
market value of $2,967,000 and $2,712,000, respectively, at December 31, 1994.
The following tables summarize interest rate exchange agreements
outstanding at December 31, 1994 and 1993 (dollar amounts in thousands):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE INTEREST
RATE AT
ORIGINAL DECEMBER 31,
NOTIONAL TERMINATION TERM TO -----------------
PRINCIPAL DATE MATURITY PAID RECEIVED
--------- ----------- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1994
Reverse swap............................ $70,000 1997 5.00 yrs. 6.38% 6.37%
December 31, 1993
Reverse swap............................ $70,000 1997 5.00 yrs. 3.38% 6.37%
</TABLE>
During 1994, American Savings purchased interest rate caps on three-month
LIBOR as a hedge against rising interest rates. At December 31, 1994, the
notional principal amount of caps was $250,000,000, at rates ranging between
4.00% and 5.75%, expiring from March of 1996 through September of 1997. At
December 31, 1994, unamortized cap premiums amounted to $6,405,000; there were
no caps at December 31, 1993. During the year ended December 31, 1994, American
Savings amortized $999,000 in cap premiums which increased interest expense on
borrowed funds and recorded $526,000 in cap income which decreased interest
expense on borrowed funds.
Additionally, during 1994, American Savings purchased options on MBSs as a
hedge of the market value of first mortgage loans held for sale. This
transaction resulted in hedging gains of $1,005,000, which reduced losses on
sales of assets held for sale. As of December 31, 1994, American Savings had no
option positions outstanding.
NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosures about the estimated fair value of financial instruments as of
December 31, 1994 and 1993 is made in accordance with the requirements of
Statement of Financial Accounting Standards No. 119 Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments ("SFAS 119").
Estimated fair values are determined by American Savings' using available market
information and appropriate valuation methodologies. These estimates do not
reflect any premium or discount that could result from offering for sale at one
time American Savings' entire holdings of a particular financial instrument.
Because no quoted market prices exist for a significant portion of American
Savings' financial instruments, fair value estimates were based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors.
Accordingly, the estimates
F-41
<PAGE> 79
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
presented below are not indicative of the amounts American Savings could realize
in a current market exchange. The use of different market assumptions and/or
methodologies may have a material effect on the estimates of fair value.
Fair value estimates are based upon existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets that are not considered
financial assets include office properties and equipment, goodwill and core
deposit intangibles.
A summary of the carrying values and estimated fair values of financial
assets at December 31, 1994 and 1993 follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash.............................. $ 35,414 $ 35,414 $ 30,095 $ 30,095
Interest bearing deposits......... 237 237 165 165
Federal funds sold................ 70,000 70,000 50,000 50,000
Securities available for sale..... 159,282 159,282 615,473 615,473
Securities held to maturity,
net............................. 121,324 115,617 9,456 9,457
Assets held for sale.............. 63,758 63,805 113,228 113,554
Federal Home Loan Bank stock...... 25,181 25,181 20,175 20,175
Mortgage-backed securities held to
maturity, net................... 960,230 904,996 547,548 549,644
Loans receivable, net............. 1,948,124 1,902,031 1,577,511 1,612,140
Accrued interest and dividends
receivable...................... 22,436 22,436 16,197 16,197
</TABLE>
Cash, Interest Bearing Deposits and Federal Funds Sold. The carrying
amounts of cash and short-term investments, including interest bearing deposits
and Federal funds sold, approximate fair value because they mature in six months
or less and do not present unanticipated credit concerns.
Securities Available for Sale. The fair value of U.S. Treasury securities
and equity securities was estimated based on bid prices published in financial
newspapers or bid quotations received from securities dealers. See
Mortgage-Backed Securities Held to Maturity, Net for a description of the
methodology used in the determination of the estimated fair value of MBSs,
including CMOs.
Securities Held to Maturity, Net. The fair value of securities held to
maturity was estimated based on bid prices published in financial newspapers or
bid quotations received from securities dealers.
Assets Held for Sale. The fair value of student loans is assumed to equal
the carrying value because the interest rate on these loans is adjustable and
the servicers of these loans are contractually obligated to buy these loans from
American Savings at a price not less than par at the time principal payments
commence. See Loans Receivable, Net for a description of the methodology used in
the determination of the estimated fair value of residential mortgages.
Federal Home Loan Bank Stock. The carrying amounts of Federal Home Loan
Bank stock equalled its fair value because it is nontransferable and as such has
no secondary market value other than its par redemption value.
Mortgage-backed Securities Held to Maturity, Net. Fair values of MBSs were
determined on a security by security basis within three categories of
securities -- agency fixed-rate and 15-year balloons, collateralized mortgage
obligations ('CMOs') and agency and private pass-through adjustable rate
securities. Fair values of agency fixed rate and 5- and 7-year balloon
securities were based upon generic month end quoted market
F-42
<PAGE> 80
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prices by coupon. Fair values of CMOs were estimated based upon discounting
projected cash flows, taking into consideration (i) expected prepayments based
upon current market conditions and historical performance and (ii) the current
market spreads to the corresponding treasury investments. Fair values of agency
and private pass-through adjustable rate securities were estimated based upon
the same methodology as CMOs with additional consideration given to (i) the
repricing characteristics of the security, including caps, floors and margins
and (ii) the index associated with the individual security.
Loans Receivable, Net. Fair values were estimated for portfolio's of loans
with similar financial characteristics. The loans were segmented by type such as
residential mortgages, commercial real estate, corporate and consumer loans for
the purposes of determining value. Each loan category was further segmented as
described below. While management believes that the assumptions used in
estimating fair values are reasonable, because there is no market for many
commercial real estate, corporate and consumer loans, management has no basis to
determine whether the fair values presented would be indicative of the value
negotiated in an actual sale.
Permanent Residential Mortgages. Fixed rate loans were sorted by loan type
and interest rate. Adjustable rate mortgage loans were segregated into
categories based on the underlying index of the loan. Cash flows were projected
for each of the categories, using an average of published prepayment speeds for
similar instruments and discounted at rates based on current market required
yields for similar instruments, adjusted for servicing costs.
Commercial Real Estate and Corporate Loans. The estimated fair value of
commercial real estate loans, except for variable rate loans which reprice in
two months or less, was determined by projecting principal and interest cash
flows in the aggregate for loans having similar risk and payment
characteristics. The principal cash flows were discounted at a rate reflecting
the credit risk inherent in the portfolio and servicing costs. The estimated
fair value of variable rate loans which reprice in two months or less was
assumed to equal carrying value. To incorporate the risk of not receiving
principal, the general loan loss reserve was subtracted from the present value
of the principal cash flows and carrying value for variable rate loans repricing
in two months or less.
Consumer Loans. Personal credit lines, home equity and share loans were
assumed to have a fair value equal to book value because of their short maturity
and variable pricing features. The fair value of automobile loans was calculated
by discounting cash flows, adjusted for prepayments based on historical
experience, and were discounted using applicable interest rates.
Accrued Interest and Dividends Receivable. Carrying amount approximates
fair value.
A summary of the carrying values and estimated fair values of financial
liabilities at December 31, 1994 and 1993 follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Passbook, checking and money market
savings and accrued interest.......... $ 648,195 $ 648,195 $ 703,266 $ 703,266
Certificate accounts.................... 1,687,432 1,682,834 1,524,824 1,543,364
Securities sold under agreements to
repurchase............................ 487,534 487,534 98,338 98,338
Advances from Federal Home Loan Bank.... 454,205 453,329 358,550 358,364
Other borrowed funds.................... 14,124 12,178 160,944 161,826
</TABLE>
Passbook, Checking and Money Market Savings and Accrued Interest. The fair
value of deposits with no stated maturity, including passbook accounts, checking
accounts and money market accounts and accrued
F-43
<PAGE> 81
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest payable, equals the amount payable on demand at December 31, 1994 and
1993, or carrying value. Accordingly, this valuation does not include the
benefit that results from the low-cost funding provided by these deposit
liabilities compared to the cost of borrowing funds in the market.
Certificate Accounts. The estimated fair value of certificates of deposit
was based on the discounted value of contractual cash flows. The discount rate
was estimated using the rates offered by American Savings on December 31, 1994
and 1993 for deposits of similar remaining maturities.
Securities Sold Under Agreement to Repurchase. The carrying amounts for
reverse repos approximate fair value because they mature in six months or less.
Advances from Federal Home Loan Bank. The estimated fair value of FHLB
advances was determined by discounting the contractual principal and interest
payments at rates offered at the respective dates for FHLB advances with similar
terms and remaining maturities.
Other Borrowed Funds. The estimated fair value of other borrowed funds was
determined by discounting the contractual principal and interest payments at
rates offered at the respective dates for borrowings with similar terms and
remaining maturities.
Reverse Swap. The estimated fair value of the reverse swap was a net
payable of $3,115,000 at December 31, 1994 and a net receivable of $3,148,000 at
December 31, 1993. The estimated fair values were obtained from independent
dealer quotes and represent the estimated amount American Savings would receive
or pay to terminate the agreements, taking into account current interest rates.
Caps. The estimated fair value of caps was $11,841,000 at December 31,
1994 and was obtained from independent dealer quotes. Unamortized cap premiums
amounted to $6,405,000. There were no cap agreements outstanding at December 31,
1993.
NOTE 21: EMPLOYEE BENEFIT AND STOCK OPTION PLANS
American Savings sponsors a savings plan under Section 401(k) of the
Internal Revenue Code (the "401(k) Plan") which provides that employees can
defer a portion of their annual earnings on a pretax basis. American Savings'
provided a matching contribution of 50% of up to 10% of earnings deferred by
employees from January 1, 1991 through March 31, 1991 and suspended the match
from April 1, 1991 until December 31, 1992. On January 1, 1993, American
Savings' began to match employee contributions at the rate of 100% of up to 2.5%
of earnings deferred by an employee, and increased the match to 3% of earnings
deferred effective January 1, 1994.
Until March 31, 1993, American Savings sponsored a defined contribution
pension plan (the "Pension Plan"), funded each year in amounts equal to a fixed
contribution formula, covering substantially all employees. Effective as of
March 31, 1993, the Pension Plan merged into the 401(k) Plan and all subsequent
contributions were made to the discretionary contribution portion of that plan.
Contributions were equal to 2% of annual base compensation plus 2% of base
compensation in excess of the Social Security Wage Base. In 1994, the
discretionary contribution increased to 3% of annual base compensation plus 3%
of base compensation in excess of the Social Security Wage Base and a further
contribution of 1% of annual base compensation for every 20% by which pretax
core earnings for fiscal 1994 exceeded pretax core earnings for fiscal 1993.
Aggregate expense under the 401(k) and Pension Plan amounted to $1,372,000,
$724,000 and $171,000, respectively, for the years ended December 31, 1994, 1993
and 1992.
American Savings' three stock option plans include the 1990 Employee Stock
Incentive Plan (the "1990 Plan"), the 1991 Non-Employee Directors' Stock Option
Plan (the "1991 Plan") and the 1992 Employee Stock Incentive Plan (the "1992
Plan").
F-44
<PAGE> 82
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1992 Plan provides for the grant, to eligible employees, of stock
options, stock appreciation rights, restricted stock, deferred stock,
performance awards, dividend equivalents and other stock-based awards. The 1992
Plan provides that, in addition to 400,000 shares of American Savings Common
Stock initially reserved for distribution, up to 500,000 shares authorized but
not distributed under the 1990 Plan may be distributed under the 1992 Plan. As
of December 31, 1994, a total of 595,417 shares of American Savings Common
Stock, subject to adjustment, were reserved for issuance under either the 1990
Plan or the 1992 Plan, of which 544,884 are subject to grants which have been
issued and 50,533 are available for grant. The 1990 Plan provides for the grant,
to eligible employees, of stock options, stock appreciation rights, restricted
stock and deferred stock. As of December 31, 1994, 73,084 shares of American
Savings Common Stock were reserved and available for distribution under the 1990
Plan, all of which relate to grants which have been issued. The 1990 Plan and
the 1992 Plan provide that stock options become exercisable as prescribed by the
Stock Option Committee at the date of grant at an exercise price no less than
the fair market value per share of American Savings Common Stock on the date of
grant.
The 1991 Plan, as amended, is intended to enable directors who are not
employees of American Savings to acquire a proprietary interest in American
Savings. Stock options under this plan are non-qualified options, exercisable
upon grant, having an exercise price equal to the fair market value per share of
American Savings Common Stock on the date of grant. As of December 31, 1994, a
total of 62,500 shares of American Savings Common Stock were reserved for
issuance, all of which relate to grants which have been issued.
The following table presents information on stock options under these
plans:
<TABLE>
<CAPTION>
1990 PLAN 1991 PLAN 1992 PLAN
--------------------- ------------------ ------------------------
NUMBER OF OPTION NUMBER OF OPTION NUMBER OF OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, December 31, 1992................. 145,834 $.47-2.50 100,000 $1.02 632,280 $ 1.09- 7.19
Granted...................................... -- -- -- -- 90,700 11.13-11.56
Exercised.................................... (29,807) .47-2.50 (17,500) 1.02 (34,700) 4.53- 5.00
Cancelled.................................... (2,339) .47-2.50 -- -- (20,600) 5.00-11.56
------- --------- ------- ----- -------- ------------
Outstanding, December 31, 1993................. 113,688 .47-2.50 82,500 1.02 667,680 1.09-11.56
Exercised.................................... (40,404) .47-2.50 (20,000) 1.02 (195,880) 1.09-11.56
Cancelled.................................... (200) 2.50 -- -- -- --
------- --------- ------- ----- -------- ------------
Outstanding, December 31, 1994................. 73,084 $.47-2.50 62,500 $1.02 471,800 $ 1.09-11.56
======= ========= ======= ===== ======== ============
Exercisable, December 31, 1994................. 73,084 62,500 373,570
======= ======= ========
</TABLE>
As contemplated by the Merger Agreement, no additional options will be
granted under the 1990 Plan, 1991 Plan or 1992 Plan. The Merger Agreement
provides that, in connection with the Merger, each holder of a stock option
which is outstanding immediately prior to the Merger Effective Date will receive
a cash payment in an amount equal to the excess of $21.00 per share covered by
the option over the exercise price of the option, and the option will be
cancelled. Additionally, the Stock Option Committee of the Board determined that
all options granted under the 1992 Plan and outstanding as of January 31, 1995
to purchase shares of American Savings' Common Stock that had not become vested
and exercisable on or before January 31, 1995, be accelerated, vested and
exercisable as of that date.
NOTE 22: STOCKHOLDERS' EQUITY
(A) COMMON STOCK -- At the close of business on April 27, 1993, a
one-for-five reverse split of all issued and outstanding shares of American
Savings Common Stock became effective. American Savings paid to shareholders of
record at the close of business on April 27, 1993, an aggregate of $25,000 cash
in lieu of 9,751 fractional shares resulting from the reverse split.
Additionally, the number of authorized shares of American Savings Common Stock
was reduced from 120,000,000 to 24,000,000 shares. All references in the
Consoli-
F-45
<PAGE> 83
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dated Financial Statements and Notes to Consolidated Financial Statements to the
number of shares of American Savings Common Stock and the per share amounts have
been adjusted to reflect the reverse split.
(B) SERIES A PREFERRED STOCK -- On December 30, 1992, American Savings
redeemed all of its then outstanding $2.19 Cumulative Convertible Preferred
Stock, Series A ("Series A Preferred Stock") for $25.21 per share plus $6.57 per
share, representing previously unpaid dividends to December 30, 1992.
Additionally American Savings paid all dividends in arrears on Series A
Preferred Stock surrendered for conversion to cash after January 1, 1990, up to
and including the dividend payment date immediately preceding the date of
conversion. The total amount paid in connection with the redemption, conversion
and payment of dividends in arrears was $2,537,000.
(C) REGULATORY CAPITAL MAINTENANCE/DIVIDEND AGREEMENT -- As a condition of
the approval of the Enstar Merger by a predecessor to the OTS (the Federal Home
Loan Bank Board) and the Federal Savings and Loan Insurance Corporation (the
"FSLIC"), Enstar Group and Enstar Financial entered into the Capital Maintenance
Agreement with the FSLIC pursuant to which Enstar agreed to maintain American
Savings' regulatory capital at or above required levels. On May 31, 1991, Enstar
Group and Enstar Financial filed for protection under Chapter 11 of the federal
Bankruptcy Code (see Note 1).
American Savings, as a subsidiary of a savings and loan holding company, is
required to provide 30 days prior notice to the OTS of its intention to declare
any dividends. The Capital Maintenance Agreement provides that American Savings
may not pay dividends or repurchase stock unless the payment of dividends or
repurchase of stock would not reduce the regulatory capital of American Savings
below its regulatory capital requirement. If that condition is met, the Capital
Maintenance Agreement provides that American Savings (1) may pay dividends in an
aggregate amount of not more than 50% of American Savings' net income for its
fiscal year as reflected in American Savings' audited financial reports, (2) may
pay dividends in an aggregate amount of not more than 75% of American Savings'
net income for its fiscal year as reflected in American Savings' audited
financial reports if American Savings' regulatory capital is equal to or greater
than its fully phased-in capital requirement and (3) may pay dividends in an
aggregate amount of not more than 90% of American Savings' net income for its
fiscal year as reflected in American Savings' audited financial reports if
American Savings' regulatory capital is equal to or greater than (a) its fully
phased-in regulatory capital requirement plus (b) 2% of American Savings'
liabilities. The calendar year constitutes the fiscal year for net income
availability computations pursuant to the Capital Maintenance Agreement.
(D) REGULATORY CAPITAL -- Under OTS regulations, American Savings is
required to meet three capital standards -- a leverage limit (core capital
requirement), a tangible capital requirement and a risk-based capital
requirement. At December 31, 1994, American Savings met all three of its capital
requirements.
The leverage limit requires savings institutions to maintain core capital
of at least 3% of adjusted total assets. Core capital, as defined in the
regulations, consists of common stockholder's equity (including retained
earnings), noncumulative perpetual preferred stock and minority interests in
subsidiaries, less intangible assets not considered qualifying intangible assets
(subject to limitation discussed below) and investments in and advances to
subsidiaries engaged in activities which are not permissible for national banks
(subject to the phase-out period discussed below). On November 28, 1994, the
acting director of OTS announced that OTS will no longer require savings
institutions to include unrealized gains and losses on available for sale debt
securities in regulatory capital. Under the revised OTS policy, institutions
must value available for sale debt securities at amortized cost for regulatory
capital purposes. At December 31, 1994, American Savings excluded unrealized
losses on securities available for sale, net of deferred tax benefits of
$5,967,000 from core capital.
Purchased mortgage servicing rights may be included in core capital, with
certain limitations. The regulation also permits supervisory goodwill existing
as of April 12, 1989 to count toward the minimum core capital requirement in an
amount not to exceed 0.375% of adjusted total assets at December 31, 1994.
F-46
<PAGE> 84
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
American Savings has been advised by OTS that it may treat its goodwill as
qualifying supervisory goodwill unless and until it is notified to the contrary
by the Director of OTS. At December 31, 1994, American Savings' supervisory
goodwill amounted to $56,982,000, or approximately 1.6% of adjusted total
assets; the amount of goodwill included in American Savings' core capital was
$13,138,000, or 0.375% of adjusted total assets. After December 31, 1994, no
supervisory goodwill may be included in calculating core capital.
Although core deposit intangibles are excluded from core capital, core
deposit intangibles resulting from transactions consummated prior to March 4,
1994 were grandfathered and recognized for capital purposes, to the extent
permitted by OTS, provided that such core deposit intangibles are valued in
accordance with generally accepted accounting principles ("GAAP") supported by
credible assumptions, and have their amortization adjusted at least annually to
reflect decay rates (past and projected) in the acquired customer base. American
Savings believes that its core deposit intangibles, which amounted to $6,157,000
at December 31, 1994, will continue to be permitted to be included in core and
total capital.
Under the tangible capital requirement, savings institutions must maintain
tangible capital in an amount not less than 1.5% of adjusted total assets.
Tangible capital is defined as core capital minus intangible assets, such as
goodwill and core deposit intangibles. However, purchased mortgage servicing
rights may be included in calculating tangible capital, with certain
limitations.
The risk-based capital requirement requires an 8.0% ratio of total core and
supplementary capital to risk-weighted assets. One-half of these requirements
must be met with core capital. Supplementary capital is defined to include,
among other things, general loss reserves; however, general loss reserves are
limited to 1.25% of risk-weighted assets. At December 31, 1994, American
Savings' general loan loss reserves totaled $16,787,000, all of which was
included in supplementary capital.
Effective January 1, 1994 with implementation originally scheduled to begin
September 30, 1994, institutions deemed to have an "above normal" level of
interest rate risk ("IRR") would have been required to deduct a portion of that
risk from total risk-based capital. However, the acting director of OTS
postponed implementation of the IRR capital deduction until OTS publishes the
process under which institutions may appeal the capital deduction. Until such
appeals process is finalized, which could occur in time for the capital
deduction to go into effect on March 31, 1995, the IRR capital deduction has
been waived.
A normal level of exposure, under the rule, is considered to exist if an
immediate 200 basis point increase or decrease in market interest rates
(whichever produces a greater decline) results in a decline in net portfolio
value ("NPV") amounting to no more than 2% of the estimated present value of
assets. NPV represents the net discounted cash flows stemming from an
institutions' assets, liabilities and off-balance sheet items. The IRR
component, which is deducted from total risk-based capital, is equal to 50% of
the amount by which an institution's measured IRR exceeds normal IRR (2%
multiplied by the estimated present value of total assets). The IRR component
must be calculated on a quarterly basis, but is implemented for capital purposes
after a three-quarter lag. As such, the amount of capital that an institution
must hold as of a given quarter is based upon the IRR component computed for the
quarter ended nine months earlier. However, if an institution demonstrates to
the OTS that it has reduced its IRR after the calculation date, a lower IRR
component may be utilized. Although American Savings' most recent computation of
IRR (September 30, 1994) reflects an IRR component of approximately $2,740,000,
OTS' calculations as of September 30, 1994, which are based upon certain
different assumptions, reflect an IRR component for American Savings of
approximately $20,371,000. If the OTS' IRR component had been imposed on
American Savings at December 31, 1994, American Savings' total risk-based
capital under both the current and fully phased-in capital requirements would
have been reduced by $10,117,000, the OTS' IRR component for American Savings at
March 31, 1994. At December 31, 1994, American Savings' total capital was
sufficient to accommodate such IRR component and to meet its current and fully
phased-in capital requirements.
F-47
<PAGE> 85
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTS has directed American Savings to submit a plan to reduce interest rate
risk and to increase capital levels in order to provide a sufficient cushion
against interest rate risk.
The following table reconciles, as of December 31, 1994, capital calculated
under GAAP to capital calculated for each of the three current and fully
phased-in capital requirements and its ratio of core capital to risk-weighted
assets (unaudited):
<TABLE>
<CAPTION>
CURRENT FULLY PHASED-IN
------------------ ------------------
BALANCE % BALANCE %
---------- ----- ---------- -----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Core Capital
Capital calculated under GAAP.................. $ 216,534 $ 216,534
Adjustment for unrealized losses on securities
available for sale.......................... 5,967 5,967
Less goodwill.................................. (43,844) (56,982)
---------- ----------
Core capital................................... 178,657 5.09% 165,519 4.72%
Required core capital.......................... 105,288 3.00 105,288 3.00
---------- ----- ---------- -----
Capital excess................................. $ 73,369 2.09% $ 60,231 1.72%
========== ===== ========== =====
Adjusted total assets for core capital......... $3,509,597 $3,509,597
========== ==========
Risk-based Capital
Core capital calculated above.................. $ 178,657 $ 165,519
Supplementary capital
General loan loss reserves.................. 16,787 16,787
Assets required to be deducted................. (94) (94)
---------- ----------
Risk-based capital............................. 195,350 11.06% 182,212 10.39%
Required risk-based capital.................... 141,356 8.00 140,305 8.00
---------- ----- ---------- -----
Capital excess................................. $ 53,994 3.06% $ 41,907 2.39%
========== ===== ========== =====
Risk-weighted assets........................... $1,766,950 $1,753,812
========== ==========
Ratio of core capital to risk-weighted assets.... 10.11% 9.44%
===== =====
Tangible Capital
Capital calculated under GAAP $ 216,534 $ 216,534
Adjustments
Unrealized losses on securities available
for sale.................................. 5,967 5,967
Intangible assets
Goodwill.................................. (56,982) (56,982)
Core deposit intangibles.................. (6,157) (6,157)
---------- ----------
Tangible capital............................... 159,362 4.55% 159,362 4.55%
Required tangible capital...................... 52,552 1.50 52,552 1.50
---------- ----- ---------- -----
Capital excess................................. $ 106,810 3.05% $ 106,810 3.05%
========== ===== ========== =====
Adjusted total assets for tangible capital..... $3,503,440 $3,503,440
========== ==========
</TABLE>
NOTE 23: INCOME PER SHARE
Income per share is calculated by dividing net income applicable to common
stock by the weighted average number of common shares and common stock
equivalents outstanding during the relevant periods. Net income applicable to
common shares differs from net income as a result of the Series A Preferred
Stock
F-48
<PAGE> 86
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dividend requirement which amounted to $97,000 for the year ended December 31,
1992. Income per share for all periods presented has been computed after giving
effect to a one-for-five reverse split of all issued and outstanding shares of
American Savings Common Stock effected April 27, 1993.
NOTE 24: COMMITMENTS AND CONTINGENCIES
(A) COMMITMENTS -- In addition to loans in process (see Note 9) at December
31, 1994, American Savings was committed to fund loans with fixed interest rates
of approximately $9,684,000 and with variable interest rates of $35,136,000 and
to sell $12,324,000 of fixed-rate loans. Additionally, at December 31, 1994,
American Savings was committed to purchase servicing rights on approximately
$79,200,000 of residential mortgage loans for approximately $950,000.
Standby letters of credit amounted to $11,282,000 at December 31, 1994.
Standby letters of credit are conditional commitments issued by American Savings
to guarantee the performance of borrowers to a third party. American Savings'
guarantees are primarily to support public bond financing arrangements. The
credit risk involved in issuing these letters of credit is essentially the same
as that involved in extending commercial real estate loan facilities to
borrowers. American Savings has pledged MBSs having a carrying value at December
31, 1994 of $19,789,000 as collateral under standby letters of credit.
(B) CONTINGENCIES -- A recent federal appeals court decision held, in part,
that a lender improperly disclosed the collection of the Florida state
intangible tax, among other things, from the borrower, thereby subjecting the
loan to rescission under the Federal Truth-in-Lending Act (the "TILA") by the
borrower for three years after it was made. Subsequent to the court's initial
decision and prior to its refusal to reconsider its decision, the Florida
legislature amended the language of the intangible tax to clarify the
legislature's previous intention that the intangible tax be disclosed for
purposes of the TILA in a manner that had been followed by most lenders in
Florida, including American Savings. Although the Florida legislature intended
this legislation to apply retroactively, no judicial determination has yet been
made as to the retroactive effect of this legislation on loans originated prior
to its effective date. This court decision may also apply to a similar
intangible tax imposed by other states. Legislation has also been introduced in
the United States Congress to ameliorate the possible adverse impact of the
court decision. To its knowledge, no claims of a material amount have been filed
against American Savings under this recent court decision and no notice of a
breach of a representation has been received citing American Savings' loan sale
agreements requesting it to repurchase, cure or substitute other loans for the
loans sold. At this time it is not possible to determine the impact of this
ruling, if any, on American Savings or the outcome of the proposed federal
legislation.
NOTE 25: LEGAL MATTERS
(A) OTS ENFORCEMENT ACTION AND LOSS CONTINGENCY. In October 1992, OTS
advised American Savings that it had effected, through OTS cease and desist
orders, a settlement, for $11,200,000, of its enforcement action and American
Savings' private lawsuit against American Savings' former law firm, Kirkpatrick
& Lockhart; Alan J. Berkeley, a senior partner of that firm; Harris C. Friedman,
former Chairman of the Board, President and Chief Executive Officer of American
Savings; and Richard J. Grassgreen, a former director of American Savings. Of
the $11,200,000, Kirkpatrick & Lockhart agreed to pay $9,000,000 to OTS for the
benefit of American Savings. In addition, Harris Friedman agreed to pay $700,000
and Richard Grassgreen agreed to deliver a $1,500,000 promissory note payable in
five annual installments of $300,000, beginning in November 1992. During
February 1993, Mr. Grassgreen filed for protection under Chapter 11 of the
Bankruptcy Code. During 1994, American Savings received $576,000 directly from
the Grassgreen bankruptcy estate in settlement of its claim and in February
1995, American Savings received an additional $300,000 indirectly related to the
Grassgreen settlement.
The OTS settlement documents provide that 10% of the settlement amounts was
allocated to the settlement of American Savings' private lawsuit and the
remaining 90% was allocated to the OTS enforcement
F-49
<PAGE> 87
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
action. Further, pursuant to the cease and desist orders and by the Supervisory
Directive dated October 21, 1992, OTS directed American Savings to pay its
litigation attorneys in the private lawsuit no more than a total of 33 1/3% of
10% of the settlement amounts, as and when collected, or $373,333, if all
settlement amounts are collected. On October 9, 1992, American Savings was
served with a charging lien, filed in the Circuit Court of the 11th Judicial
Circuit in and for Dade County, Florida (Case No. 91-50064 CA 28), for attorneys
fees and costs by its attorneys in its private lawsuit, asserting a claim in the
amount of 33 1/3% of all amounts to be paid to or for the benefit of American
Savings in settlement of both OTS's enforcement action and American Savings'
private lawsuit, which would equal $3,733,333.
Pursuant to the OTS Supervisory Directive of October 21, 1992, OTS elected
to recover from American Savings $350,000 for its costs of investigation and
settlement proceedings.
In February 1995 and during 1994, 1993 and 1992, American Savings received
cash payments of $300,000, $576,000, $500,000 and $9,500,000, respectively.
These amounts are included in American Savings' results of operations for each
of those periods after deducting legal fees aggregating approximately $362,000,
representing the amount due to American Savings' litigation attorneys under the
OTS directive, and $350,000 paid to OTS. Attorneys' fees related to amounts
recovered through February 1995, according to the charging lien, could range
from $362,000 to $3,620,000 in principal amount. American Savings accrued,
against the amounts it had received ($10,876,000), and paid, pursuant to the OTS
Supervisory Directive entered on October 21, 1992, attorneys' fees of $362,000.
On June 29, 1994, the OTS entered an Order to Cease and Desist ("C & D")
against American Savings (to which American Savings consented), reaffirming its
Supervisory Directive of October 21, 1992 directing and ordering American
Savings not to make any payment to the charging lien claimants without prior
written approval of OTS in excess of $373,333 (1/3 of 10% of the settlement
amounts, if fully collected), less amounts previously paid, for attorneys' fees,
in satisfaction of the charging lien or any judgment that may be entered in the
related litigation.
On July 26, 1994, the Circuit Court of the 11th Judicial Circuit in and for
Dade County, Florida (the "Circuit Court") issued a final order determining
entitlement to and awarding attorneys' fees in connection with the charging
lien. The order awarded to the charging lien claimants the sum of approximately
$3,000,000, plus prejudgment interest, less amounts previously paid or credited
to them as fees. The Circuit Court retained jurisdiction to award attorneys'
fees and costs. An amended final judgment in the amount of approximately
$3,624,000, including prejudgment interest, was entered on August 1, 1994, as a
result of certain errors of calculation in the original judgment. The Circuit
Court's order is in conflict with the C & D and the Supervisory Directive.
After consultation with counsel, American Savings believes that the Circuit
Court award is in error, particularly in light of the prior, contrary, OTS
mandates, and intends to vigorously pursue the appeal of the court order, which
was initiated by trial counsel for American Savings on August 23, 1994 in the
Third District Court of Appeals of the State of Florida (Case No. 94-02051), as
well as other potential available remedies. In view of the foregoing, American
Savings has not accrued additional fees awarded to the charging lien claimants
as a result of the court order. Additional amounts, if any, will be charged
against future results of operations.
On July 27, 1994, the charging lien claimants filed a Petition for Review
against OTS in the United States Court of Appeals for the Eleventh Circuit,
seeking that the C & D be enjoined, suspended, terminated or otherwise modified.
American Savings was not named as a party to the action and cannot predict its
outcome or the extent to which it may affect the charging lien litigation.
American Savings cannot predict the effect of the Merger, if any, upon this
litigation.
(B) AMERICAN SAVINGS AND MICHAEL MILKEN, LOWELL MILKEN ET AL. On November
14, 1991, American Savings filed suit in the United States District Court for
the Southern District of Florida (Case No. 91-2611)
F-50
<PAGE> 88
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
against Michael Milken, Lowell Milken and numerous other persons and entities
related to the Milkens or to Drexel Burnham Lambert Incorporated. The suit
alleged, among other things, that the defendants, through the use of false and
misleading statements concerning the nature, value, risks and liquidity of junk
bonds and through control and manipulation of the junk bond market, corruptly
obtained influence and control over American Savings, Enstar Group and their
affiliates and used the control to cause these entities to make investments in
junk bonds that were unsuitable or overpriced. The suit asserted, among other
things, that these actions violated federal and state securities, antitrust and
federal racketeering (RICO) laws and constituted common law fraud, breach of
fiduciary duty, unfair competition and violations of other statutory and common
law rules.
In the action, American Savings sought, on behalf of itself and Enstar
Group, among other things, compensatory, consequential, punitive, rescissionary
and treble damages and costs of the suit, including attorneys' fees. Damages
before trebling were estimated to be an amount in excess of $370,000,000.
The action was dismissed when American Savings agreed to participate in a
global settlement of claims then pending in the United States District Court for
the Southern District of New York, including the claims of American Savings and
Enstar Group, against the Milken parties. The global settlement was finalized by
court order on September 29, 1993. American Savings was represented on the
committee that formulated the plan to allocate the proceeds of the settlement.
Claims will be paid from a fund of approximately $250,000,000 (the "Fund"),
consisting of monies obtained from Michael Milken, certain of his affiliates and
the Securities and Exchange Commission Fund. In excess of $200,000,000 of this
amount has been collected to date and the balance is scheduled to be paid into
the Fund by the end of 1995. In February 1995, American Savings recorded a
pretax recovery of $3,300,000, net of certain estimated fees and expenses,
including attorneys' fees, from amounts received from the Fund. This amount
represents payment of a substantial portion of the settlement of American
Savings' direct claims against the Milken parties. American Savings' receipt in
the future of any additional monies from the Fund is wholly dependent upon the
Fund's receipt of anticipated payments from third parties, which payments cannot
be assured.
Certain of the claims asserted as part of the suit were assigned to
American Savings by Enstar Group as part of the ongoing restructuring of the
commercial relationships between Enstar Group and American Savings begun in
1990. The assignment agreement provides that any amounts payable by the
defendants as a result of a final judgment or settlement of the action, after
deduction and reimbursement of costs and expenses paid by American Savings and
Enstar Group, and after deduction of attorneys' fees and expenses, will be
allocated 20% to American Savings and 80% to Enstar Group. Enstar Group's share
of any proceeds from the suit will be distributed to its creditors, including
American Savings, pursuant to the Bankruptcy Plan. Under the Bankruptcy Plan,
two-thirds of Enstar Group's distribution would be made to American Savings and
one-third to other creditors. Enstar Group has informed American Savings that it
intends to provide a tax reserve and an expense reserve prior to distribution.
American Savings also has been informed by Enstar Group that Enstar Group
expects to distribute to American Savings between $4,000,000 and $4,500,000,
during the second quarter of 1995. The assignment of Enstar Group's claims to
American Savings was approved by OTS, subject to certain conditions, and by the
Alabama Bankruptcy Court in Enstar Group's Chapter 11 proceedings.
(C) LITIGATION REGARDING GENERAL HOMES CORPORATION. On August 16, 1991,
the Unsecured Creditors' Committee (the "Committee") of General Homes
Corporation, Houston, Texas, ("General Homes") filed an amended complaint (the
"General Homes Amended Complaint"), naming American Savings as a defendant in an
adversary proceeding within General Homes' Bankruptcy Case No. 90-04810-H3-11
pending in the United States Bankruptcy Court for the Southern District of Texas
(the "Texas Bankruptcy Court"). On that date, a complaint that the Committee had
filed on June 19, 1991 was voluntarily dismissed. The General Homes Amended
Complaint also names as defendants General Homes' other secured lenders under a
F-51
<PAGE> 89
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
revolving credit agreement (collectively, with American Savings, the "Bank
Group") as well as its investment advisers.
The General Homes Amended Complaint alleges, among other things, that
American Savings, individually and together with other members of the Bank
Group, were insiders of and controlled General Homes, received fraudulent
conveyances and preferences from General Homes under the Bankruptcy Code and
have failed to repay to General Homes' estate the amounts received. The General
Homes Amended Complaint also alleges that the Bank Group participated (primarily
through the banks' alleged control of General Homes) in an alleged fraud by
General Homes in connection with sales of subordinated debt to the public by
means of fraudulent accounting practices and other manipulations that inflated
the value of General Homes' assets. The Committee seeks to have all claims of
American Savings and the Bank Group against General Homes' estate disallowed or
subordinated to other claims against the estate, and reclassified as equity, as
well as costs and expenses of plaintiff, including reasonable attorneys' fees
and such other and further relief as the Texas Bankruptcy Court deems just and
appropriate. Counsel for all defendants have moved for dismissal of the case.
The Bank Group and American Savings also have moved for summary judgment as to
them.
The plan of reorganization of General Homes and FGMC, Inc., its related
mortgage entity, (the "General Homes Plan") was confirmed by the Texas
Bankruptcy Court on October 30, 1991. Under the General Homes Plan, the Bank
Group is entitled to receive a combination of cash, a note, the right to
proceeds in a liquidating trust and stock of the reorganized debtor.
Additionally, under the General Homes Plan, claims of General Homes' estate
against the Bank Group, including American Savings, are released. The Committee
appealed from the judgment confirming the General Homes Plan, but its motion to
stay the judgment pending appeal was denied, and substantially all distributions
have been made on the Bank Group's claims.
Should the Committee's efforts to subordinate the Bank Group's debt be
successful, the members of the Bank Group would be required to return to the
estate all distributions of cash and their interests in the other assets in
General Homes' estate. American Savings has a 5.34% interest in the Bank Group's
claims, as to which it has received, as of January 31, 1995, distributions of
$5,142,000 in cash, and has recorded $524,000, net of $486,000 reserve, on its
books as its pro rata share of the additional assets to be distributed.
Additionally, should the judgment confirming the General Homes Plan be reversed,
the Committee may seek to have claims asserted against American Savings and the
Bank Group for recovery of various transfers, originally alleged to be in excess
of $200,000,000 in the aggregate, as preferences or fraudulent conveyances.
American Savings believes the amended complaint described above to be
without merit. Moreover, the Committee and the Bank Group have approved the
terms of a settlement agreement, which would dismiss the litigation that the
Committee filed against the Bank Group and which contemplates dismissal of the
Committee's appeal of the judgment confirming the General Homes Plan. The
settlement agreement, however, is dependent upon Texas Bankruptcy Court
approval, and there is no assurance that it will become final.
In the event that the settlement agreement is not approved by the
bankruptcy court, American Savings intends to defend the proceeding vigorously.
(D) OTHER LITIGATION. American Savings is named a defendant in various
other lawsuits filed from time to time involving claims arising in the ordinary
course of American Savings' business and, in American Savings' belief, such
claims and lawsuits as have arisen in the ordinary course and are pending will
not have a material adverse effect on the consolidated financial condition of
American Savings.
F-52
<PAGE> 90
AMERICAN SAVINGS OF FLORIDA. F.S.B.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 26: QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized unaudited quarterly financial data
for the years ended December 31, 1994 and 1993 (in thousands, except per share
data). The quarterly and annual computations of net income per share are made
independently. Therefore, the sum of net income per share for the quarters may
not equal net income per share for the respective years.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1994 1994 1994 1994
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income................................... $ 43,460 $ 46,394 $ 51,233 $ 54,447
Interest expense.................................. (25,139) (26,776) (30,530) (34,650)
-------- -------- -------- --------
Net interest income..................... 18,321 19,618 20,703 19,797
Provision for losses.............................. (150) (150) (150) (150)
Other income...................................... 2,217 1,710 2,572 4,834
Other expenses.................................... (15,251) (16,798) (16,542) (18,483)
Income tax (expense) benefit...................... (1,027) (877) (1,316) 349
-------- -------- -------- --------
Net income applicable to common
shares................................ $ 4,110 $ 3,503 $ 5,267 $ 6,347
======== ======== ======== ========
Net income per share, primary and fully
diluted............................... $ 0.34 $ 0.29 $ 0.44 $ 0.53
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1993 1993 1993 1993
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income................................... $ 45,901 $ 45,802 $ 44,292 $ 43,400
Interest expense.................................. (27,873) (27,980) (27,424) (26,864)
-------- -------- -------- --------
Net interest income..................... 18,028 17,822 16,868 16,536
Provision for losses.............................. (900) (600) 850 --
Other income...................................... 3,142 2,977 2,906 2,234
Other expenses.................................... (15,016) (14,763) (15,365) (15,421)
Income tax benefit................................ -- -- -- 11,200
-------- -------- -------- --------
Income from continuing operations....... 5,254 5,436 5,259 14,549
Extraordinary item................................ -- -- -- (4,300)
Cumulative effect of accounting change............ 2,141 -- -- --
-------- -------- -------- --------
Net income applicable to common shares............ $ 7,395 $ 5,436 $ 5,259 $ 10,249
======== ======== ======== ========
Net income per share, primary and fully diluted
Income from continuing operations............... $ 0.44 $ 0.46 $ 0.44 $ 1.22
Extraordinary item.............................. -- -- -- (0.36)
Cumulative effect of accounting change.......... 0.18 -- -- --
-------- -------- -------- --------
Net income.............................. $ 0.62 $ 0.46 $ 0.44 $ 0.86
======== ======== ======== ========
</TABLE>
F-53
<PAGE> 91
SUPPLEMENTARY NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Statements of Financial Condition at December 31, 1994 and
Statements of Operations for the year then ended for active subsidiaries which
are 100% owned by American Savings is presented below. Certain 100% owned
subsidiaries had no balances of financial activity at December 31, 1994 and for
the year then ended and, accordingly, have been excluded from the summary.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1994
<TABLE>
<CAPTION>
AMERICAN
SAVINGS AMERICAN AMERICAN
TRUST, SECURITIES VENTURE
INC. FINANCIAL, INC. ASF, INC. CAPITAL, CORP.
-------- --------------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash.............................. $ 812 $ -- $ -- $ --
Investment securities............. 1,801 -- -- --
Accrued interest receivable....... 3 -- -- --
Real estate, net.................. -- -- -- 1,357
Other assets...................... -- -- -- --
------ ----- ----- ------
$2,616 $ -- $ -- $1,357
====== ===== ===== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Due to (from) American Savings.... $ 524 $ 114 $(207) $1,568
Stockholder's equity
Common stock and paid-in
capital....................... 1,026 1 38 --
Retained earnings (deficit)..... 1,066 (115) 169 (211)
------ ----- ----- ------
$2,616 $ -- $ -- $1,357
====== ===== ===== ======
<CAPTION>
AMERICAN AMERICAN AMERICAN AMERICAN
VENTURE SAVINGS SECURITIES SOUTHERN
ENTERPRISES, INC. FINANCIAL CORP. INVESTMENT CORP. MORTGAGE CORP.
----------------- --------------- ---------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash.............................. $ -- $ -- $1,945 $ --
Investment securities............. -- -- -- --
Accrued interest receivable....... -- -- -- --
Real estate, net.................. 1,192 818 -- --
Other assets...................... -- 1,041 9 69
------ ------ ------ ----
$1,192 $1,859 $1,954 $ 69
====== ====== ====== ====
LIABILITIES AND STOCKHOLDER'S EQUITY
Due to (from) American Savings.... $1,618 $ -- $1,588 $ --
Stockholder's equity
Common stock and paid-in
capital....................... -- 2,609 -- 151
Retained earnings (deficit)..... (426) (750) 366 (82)
------ ------ ------ ----
$1,192 $1,859 $1,954 $ 69
====== ====== ====== ====
<CAPTION>
BOCA
TRI COUNTY HAMPTON DEERFIELD
HOLDINGS, INC. PARTNERS, LTD.(1) PARTNERS, LTD.(1)
-------------- ----------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash.............................. $11 $-- --
Investment securities............. -- -- --
Accrued interest receivable....... -- -- --
Real estate, net.................. -- -- --
Other assets...................... -- -- --
--- --- ---
$11 $-- --
=== === ===
LIABILITIES AND STOCKHOLDER'S EQUITY
Due to (from) American Savings.... $-- -- --
Stockholder's equity
Common stock and paid-in
capital....................... 10 -- --
Retained earnings (deficit)..... 1 -- --
--- --- ---
$11 -- --
=== === ===
</TABLE>
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
AMERICAN
SAVINGS AMERICAN AMERICAN
TRUST, SECURITIES VENTURE
INC. FINANCIAL, INC. ASF, INC. CAPITAL, CORP.
-------- --------------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................... $ 73 $ -- $ -- $ --
Interest expense.................. -- -- -- --
------ ----- ----- ------
Net interest income....... 73 -- -- --
------ ----- ----- ------
Other operating income............ -- -- -- --
Other operating expense........... 3 (365) 18 85
------ ----- ----- ------
Income (loss) before income tax
expense......................... 70 365 (18) (85)
Income tax expense(2)............. -- -- -- --
------ ----- ----- ------
Net income (loss)......... $ 70 $ 365 $ (18) $ (85)
====== ===== ===== ======
<CAPTION>
AMERICAN AMERICAN AMERICAN AMERICAN
VENTURE SAVINGS SECURITIES SOUTHERN
ENTERPRISES, INC. FINANCIAL CORP. INVESTMENT CORP. MORTGAGE CORP.
----------------- --------------- ---------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................... $ -- $ -- $ -- $ --
Interest expense.................. -- -- -- --
------ ------ ------ ----
Net interest income....... -- -- -- --
------ ------ ------ ----
Other operating income............ -- -- 2,039 (29)
Other operating expense........... 36 20 1,674 --
------ ------ ------ ----
Income (loss) before income tax
expense......................... (36) (20) 365 (29)
Income tax expense(2)............. -- -- -- --
------ ------ ------ ----
Net income (loss)......... $ (36) $ (20) $ 365 $(29)
====== ====== ====== ====
<CAPTION>
BOCA
TRI COUNTY HAMPTON DEERFIELD
HOLDINGS, INC. PARTNERS, LTD.(1) PARTNERS, LTD.(1)
-------------- ----------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income................... $-- $26 67
Interest expense.................. -- -- --
--- --- ---
Net interest income....... -- 26 67
--- --- ---
Other operating income............ 1 20 --
Other operating expense........... -- 1 1
--- --- ---
Income (loss) before income tax
expense......................... 1 45 66
Income tax expense(2)............. -- -- --
--- --- ---
Net income (loss)......... $ 1 $45 66
=== === ===
</TABLE>
- ---------------
(1) American Savings sold its interest in these subsidiaries during December
1994.
(2) American Savings and its subsidiaries file consolidated federal and state
income tax returns.
F-54
<PAGE> 92
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 -- Rights Agreement between the Company and American Stock
Transfer & Trust Company, as Rights Agent, dated as of
January 20, 1997.
10.1 -- Promissory Note dated as of October 24, 1996, made by the
Company in favor of First Union National Bank of Georgia
10.2 -- Stock Pledge Agreement dated as of October 24, 1996, between
the Company and First Union National Bank of Georgia
10.3 -- 1997 CEO Stock Option Plan
10.4 -- 1997 Outside Directors' Stock Option Plan
10.5 -- 1997 Omnibus Incentive Plan
11.1 -- Statement Regarding Computation of Per Share Earnings
21.1 -- Subsidiaries
27.1 -- Financial Data Schedule
99.1 -- Notice of Pending Distribution of New Common Stock in The
Enstar Group, Inc.
99.2 -- Modified Order on Proposed Distribution to Equity Security
Holders by the United States Bankruptcy Court for the Middle
District of Alabama
</TABLE>
<PAGE> 93
REGISTRATION NO.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
EXHIBITS TO
FORM 10
REGISTRATION STATEMENT
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
---------------------
THE ENSTAR GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
================================================================================
<PAGE> 1
EXHIBIT 4.1
------------------------------------------
RIGHTS AGREEMENT
BETWEEN
THE ENSTAR GROUP, INC.
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY,
AS RIGHTS AGENT
DATED AS OF JANUARY 20, 1997
------------------------------------------
<PAGE> 2
Table of Contents
-----------------
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
Section 1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Appointment of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3. Issuance of Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4. Form of Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5. Countersignature and Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6. Transfer, Split-Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost
or Stolen Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights . . . . . . . . . . . . . . . . . 9
Section 8. Cancellation and Destruction of Right Certificates . . . . . . . . . . . . . . . . . . . . . . 10
Section 9. Reservation and Availability of Shares of Common Stock . . . . . . . . . . . . . . . . . . . . 11
Section 10. Common Stock Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 11. Adjustments to Number and Kind of Shares; Number of Rights or Purchase Price . . . . . . . . . 12
Section 12. Certification of Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 13. Consolidation; Merger or Sale or Transfer of Assets or Earning Power . . . . . . . . . . . . . 22
Section 14. Fractional Rights and Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 15. Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 16. Agreement of Right Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 17. Right Certificate Holder Not Deemed a Shareholder . . . . . . . . . . . . . . . . . . . . . . 26
Section 18. Concerning the Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 19. Merger or Consolidation or Change of Name of Rights Agent . . . . . . . . . . . . . . . . . . 27
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
Section 20. Duties of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 21. Change of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 22. Issuance of New Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 23. Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 24. Notice of Proposed Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 25. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 26. Supplements and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 27. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 28. Benefits of this Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 29. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 30. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 31. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 32. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
EXHIBIT A Form of Right Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
<PAGE> 4
RIGHTS AGREEMENT
This Agreement ("Rights Agreement"), dated as of January 20,
1997, between THE ENSTAR GROUP, INC., a Georgia corporation (the "Company"),
and AMERICAN STOCK TRANSFER & TRUST COMPANY, a New York corporation (the
"Rights Agent").
WITNESSETH:
WHEREAS, the Board of Directors of the Company on January 20,
1997 (i) authorized the issuance and declared a dividend of one right (a
"Right") for each share of the voting common stock, par value $.01 per share
("Common Stock"), of the Company outstanding as of the Close of Business (as
defined herein) on January 20, 1997, each Right representing the right to
purchase one share of Common Stock of the Company upon the terms and subject to
the conditions hereafter set forth, and (ii) further authorized the issuance of
one Right with respect to each share of Common Stock of the Company that shall
become outstanding between January 20, 1997, and the earlier of the
Distribution Date, the Expiration Date or the Final Expiration Date (each such
term as defined herein).
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such
term is hereinafter defined) who or which, together with all Affiliates (as
such term is hereinafter defined) and Associates (as such term is hereinafter
defined) of such Person, shall be the Beneficial Owner (as such term is
hereinafter defined) of 15% or more of the outstanding Common Stock; provided,
however, that the term "Acquiring Person" shall not include an Exempt Person
(as such term is hereinafter defined).
(b) "Adjustment Shares" shall have the meaning set forth
in Section 11(a)(ii) hereof.
(c) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), as in effect on the date hereof.
(d) A Person shall be deemed the "Beneficial Owner" of
any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or
indirectly;
<PAGE> 5
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether
such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights,
exchange rights, rights (other than these Rights), warrants or
options, or otherwise; provided, however, that a Person shall
not be deemed the "Beneficial Owner" of, or to "beneficially
own", securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such
Person's Affiliates or Associates until such tendered
securities are accepted for payment; or (B) the right to vote
pursuant to any agreement, arrangement or understanding
(whether or not in writing); provided, however, that a Person
shall not be deemed the "Beneficial Owner" of, or to
"beneficially own", any securities if the agreement,
arrangement or understanding to vote such security (1) arises
solely from a revocable proxy or consent given to such Person
in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and
regulations of the Exchange Act and (2) is not also then
reportable by such Person on Schedule 13D under the Exchange
Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person or any
of such Person's Affiliates or Associates has any agreement,
arrangement or understanding (whether or not in writing) for
the purpose of acquiring, holding, voting (except as described
in clause (B) of subparagraph (ii) of this paragraph (d)) or
disposing of any securities of the Company;
provided, however, that nothing in this paragraph (d) shall
cause a Person engaged in business as an underwriter of
securities to be the Beneficial Owner of, or to beneficially
own, any securities acquired through such Person's
participation in good faith in a firm commitment underwriting
until the expiration of forty days after the date of such
acquisition.
(e) "Business Day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.
(f) "Close of Business" on any given date shall mean 5:00
P.M., Montgomery, Alabama time, on such date; provided, however, that if such
date is not a Business Day it shall mean 5:00 P.M., Montgomery, Alabama time,
on the next succeeding Business Day.
(g) "Common Stock" when used with reference to the
Company shall mean the voting common stock (presently $.01 par value per share)
of the Company. "Common stock" when used with reference to any Person other
than the Company which shall be organized in corporate form shall mean the
capital stock or other equity security with the greatest per share voting power
-2-
<PAGE> 6
of such Person or, if such Person is a Subsidiary of or is controlled by
another Person, the Person which ultimately controls such first-mentioned
Person. "Common stock" when used with reference to any Person other than the
Company which shall not be organized in corporate form shall mean units of
beneficial interest which shall represent the right to participate in profits,
losses, deductions and credits of such Person and which shall be entitled to
exercise the greatest voting power per unit of such Person.
(h) "Common Stock Equivalents" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(i) "Continuing Director" shall mean:
(i) any member of the Board of Directors of the
Company who was a member of the Board immediately prior to the
time that any Person shall become an Acquiring Person, and who
is not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a representative of an Acquiring Person
or of any such Affiliate or Associate, or
(ii) any member of the Board of Directors who
becomes a member of the Board subsequent to the time that a
Person shall become an Acquiring Person, and who is not an
Acquiring Person, or an Affiliate or Associate of an Acquiring
Person, or a representative of an Acquiring Person or of any
such Affiliate or Associate, if such Person is recommended or
nominated to election on the Board by a majority, and in no
event less than two, of the Continuing Directors then on the
Board.
(j) "Current Market Price" shall have the meaning set
forth in Section 11(d) hereof.
(k) "Current Value" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(l) "Distribution Date" shall have the meaning set forth
in Section 3(a) hereof.
(m) "Equivalent Common Stock" shall have the meaning set
forth in Section 11(b) hereof.
(n) "Exchange Act" shall have the meaning set forth in
Section 1(c) hereof.
(o) "Exempt Person" shall mean:
(i) the Company, any Subsidiary of the Company,
any employee benefit plan or employee stock plan of the
Company or of any Subsidiary of the Company,
-3-
<PAGE> 7
or any person or entity organized, appointed, established or
holding Common Stock for or pursuant to the terms of any such
plan;
(ii) any Person who would otherwise become an
Acquiring Person solely by virtue of a reduction in the number
of outstanding shares of Common Stock; provided, however, that
such Person shall not be an Exempt Person if, subsequent to
such reduction, such Person shall become the Beneficial Owner
of any additional shares of Common Stock; and
(iii) any Person who as of the date on which shares
of Common Stock are distributed to the Company's shareholders
pursuant to the Company's Second Amended Plan of
Reorganization, as Modified, is the Beneficial Owner of 5% or
more of the outstanding Common Stock; provided, however, that
such Person shall not be an Exempt Person if, subsequent to
such date, such Person shall become the Beneficial Owner of
any additional shares of Common Stock.
(p) "Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
(q) "Final Expiration Date" shall have the meaning set
forth in Section 7(a) hereof.
(r) "NASDAQ" shall have the meaning set forth in Section
9(b) hereof.
(s) "Person" shall mean any individual, firm,
corporation, partnership or other entity.
(t) "Principal Party" shall have the meaning set forth in
Section 13(b) hereof.
(u) "Purchase Price" shall have the meaning set forth in
Section 4(a) hereof.
(v) "Redemption Price" shall have the meaning set forth
in Section 23(a) hereof.
(w) "Right Certificate" shall have the meaning set forth
in Section 3(a) hereof.
(x) "Section 11(a)(ii) Event" shall mean an event
described in Section 11(a)(ii)(A), (B) or (C) hereof.
(y) "Section 11(a)(ii) Trigger Date" shall have the
meaning set forth in Section 11(a)(iii) hereof.
(z) "Section 13 Event" shall mean any event described in
clause (x), (y) or (z) of Section 13(a) hereof.
-4-
<PAGE> 8
(aa) "Securities Act" shall mean the Securities Act of
1933, as amended.
(bb) "Stock Acquisition Date" shall mean the first date of
a public announcement by the Company or an Acquiring Person that an Acquiring
Person has become such; provided, however, that a Stock Acquisition Date shall
not be deemed to have occurred if any Person shall have inadvertently become an
Acquiring Person and within ten days after the date upon which the Company
shall first become aware of the occurrence of such an event, the Board of
Directors in its sole discretion (1) approves the Beneficial Ownership interest
then held by such Person or (2) provides such Person a thirty day period to
divest a sufficient number of shares of Common Stock so as to decrease the
Beneficial Ownership of such Person to less than 15% of the shares of Common
Stock then outstanding and such Person has so divested at the end of any such
thirty day period.
(cc) "Substitution Period" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(dd) "Subsidiary" of a Person shall mean any corporation
or other entity of which securities or other ownership interests having
ordinary voting power sufficient to elect a majority of the board of directors
or other persons performing similar functions are beneficially owned, directly
or indirectly, by such Person.
(ee) "Trading Day" shall have the meaning set forth in
Section 11(d) hereof.
(ff) "Triggering Event" shall mean any event described in
Section 11(a)(ii)(A), (B) or (C) or Section 13 hereof. Any determination
required by the definitions contained in this Section 1 shall be made by the
Board of Directors of the Company in its good faith judgment, which
determination shall be binding on the Rights Agent and the holders of the
Rights.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment.
The Company may from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable. If the Company appoints one or more Co-Rights Agents,
the respective duties of the Rights Agent and any Co-Rights Agents shall be as
the Company shall determine.
Section 3. Issuance of Right Certificates.
(a) Until the earlier of the Close of Business on the
tenth day (the "Distribution Date") after (i) the Stock Acquisition Date or
(ii) the date of the commencement by any Person (other than an Exempt Person)
of, or the first public announcement of the intent of any Person (other than an
Exempt Person) to commence, a tender or exchange offer upon the successful
consummation of which such Person, together with its Affiliates and Associates,
would be the Beneficial Owner of 15% or more of the outstanding Common Stock
(irrespective of whether any
-5-
<PAGE> 9
shares are actually purchased pursuant to such offer), (x) the Rights will be
evidenced (subject to the provisions of Section 3(c) hereof) by the
certificates for the Common Stock registered in the names of the holders of the
Common Stock and not by separate Right certificates, and (y) each Right will be
transferable only in connection with the transfer of a share (subject to
adjustment as hereinafter provided) of Common Stock. As soon as practicable
after the Distribution Date, the Rights Agent will send, by first class,
postage prepaid mail, to each record holder of the Common Stock as of the Close
of Business on the Distribution Date, as shown by the records of the Company,
at the address of such holder shown on such records, a Right certificate in
substantially the form of Exhibit A hereto ("Right Certificate") evidencing one
Right for each share of Common Stock so held. As of and after the Distribution
Date, the Rights will be evidenced solely by such Right Certificates.
(b) On March 1, 1997 or as soon as practicable
thereafter, the Company will send a copy of an information statement that
includes a summary of this Rights Agreement by first-class, postage prepaid
mail, to each person entitled to receive shares of Common Stock under the
Company's Second Amended Plan of Reorganization, as Modified.
(c) With respect to certificates for Common Stock
outstanding as of January 20, 1997, until the Distribution Date (or, if
earlier, the Expiration Date or the Final Expiration Date), the Rights will be
evidenced by certificates for Common Stock registered in the names of the
holders thereof. Until the Distribution Date (or, if earlier, the Expiration
Date or Final Expiration Date), the surrender for transfer of any certificate
for Common Stock outstanding on January 20, 1997, shall also constitute the
surrender for transfer of the Rights associated with the Common Stock
represented thereby.
(d) Certificates issued for Common Stock (including,
without limitation, certificates issued upon transfer or exchange of Common
Stock) after January 20, 1997, but prior to the earlier of the Distribution
Date, the Expiration Date or the Final Expiration Date, shall have impressed
on, printed on, written on or otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder
hereof to certain Rights as set forth in a Rights Agreement
between The Enstar Group, Inc. and American Stock Transfer &
Trust Company as Rights Agent, dated as of January 20, 1997
(the "Rights Agreement"), the terms of which are incorporated
herein by reference and a copy of which is on file at the
principal executive office of The Enstar Group, Inc. Under
certain circumstances, as set forth in the Rights Agreement,
such Rights will be evidenced by separate certificates and will
no longer be evidenced by this certificate. The Enstar Group,
Inc. will mail to the holder of this certificate a copy of the
Rights Agreement without charge within five days after receipt
by it of a written request therefor. Under certain
circumstances as provided in the Rights Agreement, Rights
-6-
<PAGE> 10
issued to or beneficially owned by Acquiring Persons or
their Associates or Affiliates (as defined in the Rights
Agreement) or any subsequent holder of such Rights may become
null and void.
With respect to such certificates containing the foregoing legend, the Rights
associated with the Common Stock represented by such certificates shall, until
the Distribution Date, be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
surrender for transfer of the Rights associated with the Common Stock
represented thereby.
Section 4. Form of Right Certificates.
(a) The Right Certificates (and the forms of election
to purchase shares and of assignment to be printed on the reverse thereof),
when, as and if issued, shall be substantially in the form set forth in Exhibit
A hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Rights
Agreement, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Sections 11 and 22 hereof, the Right
Certificates evidencing the Rights issued on January 20, 1997, whenever issued,
shall be dated as of January 20, 1997 and the Right Certificates evidencing
Rights to holders of record of Common Stock issued after January 20, 1997 shall
be dated as of January 20, 1997 but also shall be dated to reflect the date of
issuance of such Right Certificate, and on their face Right Certificates shall
entitle the holders thereof to purchase one share of Common Stock, or other
securities or property as provided herein, as the same may from time to time be
adjusted as provided herein, at the price of Forty Dollars ($40.00), as the
same may from time to time be adjusted as provided herein (the "Purchase
Price").
(b) Notwithstanding any other provision of this Rights
Agreement, any Right Certificate that represents Rights that are or were at any
time on or after the Distribution Date beneficially owned by an Acquiring
Person or any Affiliate or Associate thereof (or any transferee of such Rights)
shall have impressed on, printed on, written on or otherwise affixed to it (if
the Company or the Rights Agent has knowledge that such Person is an Acquiring
Person or an Associate or Affiliate thereof or transferee of such Persons or a
nominee of any of the foregoing) the following legend:
The beneficial owner of the Rights represented by this
Right Certificate is an Acquiring Person or an Affiliate or
Associate (as defined in the Rights Agreement) of an Acquiring
Person or a subsequent holder of such Right Certificate
beneficially owned by such Persons. Accordingly, under
certain circumstances as provided in the Rights Agreement,
this Right Certificate and the Rights represented hereby may
become null and void.
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<PAGE> 11
Section 5. Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf
of the Company by its Chairman, Chief Executive Officer, President or any Vice
President, either manually or by facsimile signature, and shall have affixed
thereto the Company's seal or a facsimile thereof which shall be attested by
the Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights
Agent, issued and delivered with the same force and effect as though the person
who signed such Right Certificates had not ceased to be such officer of the
Company; and any Right Certificate may be signed on behalf of the Company by
any person who, at the actual date of the execution of such Right Certificate,
shall be a proper officer of the Company to sign such Right Certificate,
although at the date of the execution of this Rights Agreement any such person
was not such an officer.
(b) Following the Distribution Date, the Rights Agent
will keep or cause to be kept, at its offices at 40 Wall Street, New York, New
York 10005, books for registration and transfer of the Right Certificates
issued hereunder. Such books shall show the names and addresses of the
respective holders of the Right Certificates, the number of Rights evidenced on
its face by each of the Right Certificates, the date of each of the Right
Certificates, and the certificate numbers for each of the Right Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
(a) Subject to the provisions of Section 14(b) hereof,
at any time after the Close of Business on the Distribution Date and at or
prior to the Close of Business on the earlier of the Expiration Date or the
Final Expiration Date, any Right Certificate or Certificates may be (a)
transferred or (b) split up, combined or exchanged for another Right
Certificate or Right Certificates, entitling the registered holder to purchase
a like number of shares of Common Stock as the Right Certificate or Right
Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer any Right Certificate shall surrender
the Right Certificate at the shareholder services office of the Rights Agent
with the form of assignment on the reverse side thereof duly endorsed (or
enclose with such Right Certificate a written instrument of transfer in a form
satisfactory to the Company and the Rights Agent), duly executed by the
registered holder thereof or his attorney duly authorized in writing, and with
such signature duly guaranteed. Any registered holder desiring to split up,
combine or exchange any Right Certificate shall make such request in writing
delivered to the Rights Agent, and shall surrender the Right Certificate or
Right Certificates to be split up, combined or exchanged at the shareholder
services office of the Rights Agent. Thereupon the Rights Agent shall
countersign (by manual signature) and deliver to the person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as so requested.
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<PAGE> 12
The Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent
of evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Right Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and, if requested by
the Company, reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender to the Rights Agent and cancellation of the Right
Certificate if mutilated, the Company will execute and deliver a new Right
Certificate of like tenor to the Rights Agent for delivery to the registered
owner in lieu of the Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) The Rights shall become exercisable, and may be
exercised to purchase Common Stock, except as otherwise provided herein, in
whole or in part at any time after the Distribution Date upon surrender of the
Right Certificate, with the form of election to purchase on the reverse side
thereof duly executed (with such signature duly guaranteed), to the Rights
Agent at the shareholder services office of the Rights Agent in 40 Wall Street,
New York, New York 10005 together with payment of the Purchase Price with
respect to each Right exercised, subject to adjustment as hereinafter provided,
at or prior to the close of business on the earlier of (i) January 20, 2007
("Final Expiration Date"), or (ii) the time at which the Rights are redeemed as
provided in Section 23 hereof (such date being herein referred to as the
"Expiration Date").
(b) The Purchase Price shall initially be $40.00 for
each share of Common Stock issued pursuant to the exercise of a Right. The
Purchase Price and the number of shares of Common Stock or other securities or
consideration to be acquired upon exercise of a Right shall be subject to
adjustment from time to time as provided in Sections 11 and 13 hereof. The
Purchase Price shall be payable in lawful money of the United States of
America, in accordance with Section 7(c) hereof.
(c) Except as provided in Section 7(d) hereof, upon
receipt of a Right Certificate with the form of election to purchase duly
executed, accompanied by payment of the Purchase Price or so much thereof as is
necessary for the shares to be purchased and an amount equal to any applicable
transfer tax, by cash, certified check or official bank check payable to the
order of the Company or the Rights Agent, the Rights Agent shall thereupon
promptly (i) requisition from any transfer agent of the Common Stock
certificates for the number of shares of Common Stock so elected to be
purchased and the Company will comply and hereby authorizes and directs such
transfer agent to comply with all such requests, (ii) requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14(b) hereof, and (iii) promptly after receipt of
such Common Stock certificates cause the same to be delivered to or upon the
order of the registered holder of such Right Certificate,
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<PAGE> 13
registered in such name or names as may be designated by such holder, and, when
appropriate, after receipt promptly deliver such cash to or upon the order of
the registered holder of such Right Certificate; provided, however, that in the
case of a purchase of securities, other than Common Stock, pursuant to Section
13 hereof, the Rights Agent shall promptly take the appropriate actions
corresponding to the foregoing clauses (i) through (iii). In the event that
the Company is obligated to issue other securities of the Company, pay cash
and/or distribute other property pursuant to Section 11(a) hereof, the Company
will make all arrangements necessary so that such other securities, cash
and/or other property are available for distribution by the Rights Agent, if
and when appropriate.
(d) In case the registered holder of any Right
Certificate shall exercise less than all the Rights evidenced thereby, a new
Right Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent to the registered holder of
such Right Certificate or to his duly authorized assigns, subject to the
provisions of Section 14 hereof.
(e) Notwithstanding anything in this Rights Agreement
to the contrary, any Rights that are at any time beneficially owned by an
Acquiring Person or any Affiliate or Associate of an Acquiring Person shall be
null and void and nontransferable, and any holder of any such Right (including
any purported transferee or subsequent holder) shall not have any right to
exercise or transfer any such Right.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the
form of election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner)
or Affiliates or Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of
exercise, transfer, split up, combination or exchange shall, if surrendered to
the Company or to any of its agents, be delivered to the Rights Agent for
cancellation or in cancelled form, or, if surrendered to the Rights Agent,
shall be cancelled by it, and no Right Certificates shall be issued in lieu
thereof except as expressly permitted by any of the provisions of this Rights
Agreement. The Company shall deliver to the Rights Agent for cancellation and
retirement, and the Rights Agent shall so cancel and retire, any Right
Certificate purchased or acquired by the Company otherwise than upon the
exercise thereof. The Rights Agent shall deliver all cancelled Right
Certificates to the Company, or shall, at the written request of the Company,
destroy such cancelled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
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<PAGE> 14
Section 9. Reservation and Availability of Shares of Common Stock.
(a) The Company covenants and agrees that at all times
it will cause to be reserved and kept available, out of and to the extent of
its authorized and unissued shares of Common Stock not reserved for another
purpose (and, following the occurrence of a Triggering Event, other securities)
or shares of Common Stock not reserved for another purpose (and, following the
occurrence of a Triggering Event, other securities) held in its treasury, the
number of shares of Common Stock (and, following the occurrence of a Triggering
Event, other securities) that, as provided in this Agreement, including Section
11(a)(iii) hereof, will be sufficient to permit the exercise in full of all
outstanding Rights; provided, however, that the Company shall not be required
to reserve and keep available shares of Common Stock or other securities
sufficient to permit the exercise in full of all outstanding Rights pursuant to
the adjustments set forth in Section 11(a)(ii), Section 11(a)(iii) or Section
13 hereof unless, and only to the extent that, the Rights become exercisable
pursuant to such adjustments.
(b) The Company shall (i) use its best efforts to
cause, from and after such time as the Rights become exercisable, the Rights
and all shares of Common Stock (and following the occurrence of a Triggering
Event, other securities) issued or reserved for issuance upon exercise thereof
to be listed by the NASDAQ National Market ("NASDAQ") or any national
securities exchange upon notice of issuance upon such exercise and (ii) if then
necessary to permit the offer and issuance of such shares of Common Stock (and,
following the occurrence of a Triggering Event, other securities), register and
qualify such shares of Common Stock (and, following the occurrence of a
Triggering Event, other securities) under the Securities Act and any applicable
state securities or "blue sky" laws (to the extent exemptions therefrom are not
available), cause such registration statement and qualifications to become
effective as soon as possible after such filing and keep such registration and
qualifications effective until the earlier of the Expiration Date or the Final
Expiration Date of the Rights. The Company may temporarily suspend, for a
period of time not to exceed ninety (90) days, the exercisability of the Rights
in order to prepare and file a registration statement under the Securities Act
and permit it to become effective. Upon any such suspension, the Company shall
issue a public announcement stating that the exercisability of the Rights has
been temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction unless the requisite qualification in such jurisdiction shall have
been obtained and until a registration statement under the Securities Act (if
required) shall have been declared effective.
(c) The Company covenants and agrees that it will take
all such action as may be necessary to insure that all shares of Common Stock
(and following the occurrence of a Triggering Event, other securities)
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such shares (subject to payment of the Purchase Price in
respect thereof), be duly and validly authorized and issued and fully paid and
nonassessable shares in accordance with applicable law.
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<PAGE> 15
(d) The Company further covenants and agrees that it
will pay when due and payable any and all federal and state transfer taxes and
charges which may be payable in respect of the issuance or delivery of the
Right Certificates or of any shares of Common Stock (or other securities, as
the case may be) upon the exercise of Rights. The Company shall not, however,
be required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Right Certificates to a Person other than, or the
issuance or delivery of certificates for Common Stock (or other securities, as
the case may be) upon exercise of Rights in a name other than that of, the
registered holder of the Right Certificate, and the Company shall not be
required to issue or deliver a Right Certificate or certificate for Common
Stock (or other securities, as the case may be) to a person other than such
registered holder until any such tax shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's satisfaction that no such tax is
due.
Section 10. Common Stock Record Date. Each Person in whose name any
certificate for shares of Common Stock (or other securities, as the case may
be) is issued upon the exercise of Rights shall for all purposes be deemed to
have become the holder of record of the Common Stock (or other securities, as
the case may be) represented thereby on, and such certificate shall be dated,
the date upon which the Right Certificate evidencing such rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Common Stock (and/or other shares of capital
stock or securities) transfer books of the Company are closed, such Person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
Common Stock (and/or other shares of capital stock or securities) transfer
books of the Company are open.
Section 11. Adjustments to Number and Kind of Shares; Number of
Rights or Purchase Price.
The number and kind of shares subject to purchase upon the exercise of
each Right, the number of Rights outstanding and the Purchase Price are subject
to adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any
time after the date of this Rights Agreement (A) declare or pay any dividend on
Common Stock payable in shares of Common Stock, (B) subdivide or split the
outstanding shares of Common Stock into a greater number of shares, (C) combine
or consolidate the outstanding shares of Common Stock into a smaller number of
shares or effect a reverse split of the outstanding shares of Common Stock or
(D) issue any shares of its capital stock in a reclassification of the Common
Stock (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in
effect at the time of the record date for such dividend or of the effective
date of such subdivision, combination or reclassification, and the number and
kind of shares of Common Stock or capital stock, as the case may be, issuable
on such date, shall be proportionately adjusted
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<PAGE> 16
so that the holder of any Right exercised after such time shall be entitled to
receive, upon payment of the Purchase Price then in effect, the aggregate
number and kind of shares of Common Stock or capital stock, as the case may be,
which, if such Right had been exercised immediately prior to such date, the
holder thereof would have owned upon such exercise and been entitled to receive
by virtue of such dividend, subdivision, combination or reclassification. If
an event occurs which would require an adjustment under both this Section
11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this
Section 11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii).
(ii) In the event
(A) any Acquiring Person or any
Associate or Affiliate of any Acquiring Person, at
any time after the date of this Agreement,
directly or indirectly, (1) shall consolidate with
or merge with and into the Company or any of its
Subsidiaries or otherwise combine with the Company
or any of its Subsidiaries and the Company or such
Subsidiary shall be the continuing or surviving
corporation of such consolidation, merger or
combination and the Common Stock of the Company
shall remain outstanding and no shares thereof
shall be changed into or exchanged for stock or
other securities of the Company or of any other
Person or cash or any other property, or (2)
shall, in one or more transactions, other than in
connection with the exercise or conversion of
securities exercisable for or convertible into
securities of the Company or of any Subsidiary of
the Company, transfer any assets or property to
the Company or any of its Subsidiaries in exchange
(in whole or in part) for any shares of any class
of capital stock of the Company or any of its
Subsidiaries or any securities exercisable for or
convertible into shares of any class of capital
stock of the Company or any of its Subsidiaries,
or otherwise obtain from the Company or any of its
Subsidiaries, with or without consideration, any
additional shares of any class of capital stock of
the Company or any of its Subsidiaries or any
securities exercisable for or convertible into
shares of any class of capital stock of the
Company or any of its Subsidiaries (other than as
part of a pro rata offer or distribution by the
Company or such Subsidiary to all holders of such
shares), or (3) shall sell, purchase, lease,
exchange, mortgage, pledge, transfer or otherwise
acquire (other than as a pro rata dividend) or
dispose, to, from or with, as the case may be, in
one transaction or a series of transactions, the
Company or any of its Subsidiaries, assets
(including securities) on terms and conditions
less favorable to the Company or such Subsidiary
than the Company or such Subsidiary would be able
to obtain in arm's-length negotiation with an
unaffiliated third party, or (4) shall receive
any compensation from the Company or any of its
Subsidiaries for services other than compensation
for
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<PAGE> 17
employment as a regular or part time employee, or
fees for serving as a director, at rates in
accordance with the Company's (or its
Subsidiary's) past practices, or (5) shall receive
the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans,
advances, guarantees, pledges or other financial
assistance or any tax credits or tax advantage
provided by the Company or any of its Subsidiaries
or (6) shall engage in any transaction with the
Company (or any of its Subsidiaries) involving the
sale, license, transfer or grant of any right in
or disclosure of, any patents, copyrights, mask
works, trade secrets, trademarks or knowhow (or
other intellectual or industrial property rights
recognized under any state's or country's
intellectual property laws) which the Company
(including its Subsidiaries) owns or has the right
to use, on terms and conditions not approved by a
majority of the Board, which shall include the
affirmative vote of a majority, and in no event
less than two, of the Continuing Directors;
(B) except to the extent set forth
in Section 11(a)(iv) below, any Person (other than
an Exempt Person), alone or together with its
Affiliates and Associates, shall, at any time
after January 20, 1997, become the Beneficial
Owner of 15% or more of the shares of Common Stock
then outstanding, other than pursuant to any
transaction set forth in Section 13(a) hereof, or
any Exempt Person who is the Beneficial Owner of
15% or more of the outstanding Common Stock shall
fail to continue to qualify as an Exempt Person;
or
(C) during such time as there is
an Acquiring Person, there shall be any
reclassification of securities (including any
reverse stock split), or any recapitalization of
the Company, or any merger or consolidation of the
Company with any of its Subsidiaries or any other
transaction or series of transactions involving
the Company or any of its Subsidiaries (whether or
not with or into or otherwise involving an
Acquiring Person or any Affiliate or Associate of
such Acquiring Person) which has the effect,
directly or indirectly, of increasing by more than
1% the proportionate share of the outstanding
shares of any class of equity securities of the
Company or any of its Subsidiaries, or securities
exercisable for or convertible into equity
securities of the Company or any of its
Subsidiaries, directly or indirectly owned by any
Acquiring Person or any Affiliate or Associate of
any Acquiring Person,
then, subject to the last sentence of Section 23(a) hereof,
and except as otherwise provided in this Section 11, each
holder of a Right shall thereafter have a right to receive
for each Right, upon exercise thereof in accordance with the
terms of this Rights Agreement and payment of the Purchase
Price, such number of shares of
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<PAGE> 18
Common Stock as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the then
number of shares of Common Stock for which a Right was
exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event, and (y) dividing that product (such
product, following such first occurrence, shall be referred
to as the "Purchase Price" with respect to each Right for
all purposes of this Agreement) by 50% of the Current Market
Price per share of Common Stock on the date of such first
occurrence (such number of shares is herein called the
"Adjustment Shares"); provided that the Purchase Price and
the number of Adjustment Shares shall be further adjusted as
provided in this Agreement to reflect any events occurring
after the date of such first occurrence; and provided,
further, that if the transaction that would otherwise give
rise to the foregoing adjustment is also subject to the
provisions of Section 13 hereof, then only the provisions of
Section 13 hereof shall apply and no adjustment shall be
made pursuant to this Section 11(a)(ii). Notwithstanding
the foregoing, upon the occurrence of a Section 11(a)(ii)
Event, any Rights that are or were at any time on or after
the earlier of the Stock Acquisition Date or the
Distribution Date beneficially owned by the Acquiring Person
or any Associate or Affiliate of the Acquiring Person shall
become void and any holder of such Rights shall thereafter
have no right to exercise such Rights under any provision of
this Rights Agreement.
(iii) In the event that the number of shares
of Common Stock which are authorized by the Company's
certificate of incorporation but not outstanding or reserved
for issuance for purposes other than upon exercise of the
Rights is not sufficient to permit the exercise in full of
the Rights in accordance with Section 11(a)(ii) and the
Rights shall become so exercisable, to the extent permitted
by applicable law and any agreements in effect on the date
hereof to which the Company is a party, the Company shall:
(A) determine the value of the Adjustment Shares issuable
upon the exercise of a Right (the "Current Value") and (B)
with respect to each Right, upon exercise of such Right,
issue shares of Common Stock to the extent available for the
exercise in full of such Right and, to the extent shares of
Common Stock are not so available, make adequate provision
to substitute for the Adjustment Shares not received upon
exercise of such Right (1) cash, (2) other equity securities
of the Company (including, without limitation, shares, or
units of shares, of preferred stock which, by virtue of
having dividend, voting and liquidation rights substantially
comparable to those of the Common Stock, are deemed in good
faith by the Board of Directors of the Company to have
substantially the same value as shares of Common Stock (such
shares or units of shares of preferred stock are herein
called "Common Stock Equivalents")), (3) debt securities of
the Company, (4) other assets, or (5) any combination of the
foregoing, having a value which, when added to the value of
the shares of Common Stock actually issued upon exercise of
such Right, shall have an aggregate value equal to the
Current Value, where such aggregate value
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<PAGE> 19
has been determined in good faith by the Board of Directors
of the Company based upon the advice of a nationally
recognized independent investment banking firm selected in
good faith by the Board of Directors of the Company;
provided, however, if the Company shall not have made
adequate provision to deliver value pursuant to clause (B)
above within thirty days following the later of (x) the
first occurrence of a Section 11(a)(ii) Event and (y) the
date on which the Company's right of redemption pursuant to
Section 23(a) expires (the later of (x) and (y) being
referred to herein as the "Section 11(a)(ii) Trigger Date"),
then the Company shall be obligated to deliver, upon the
surrender for exercise of a Right and without requiring
payment of the Purchase Price, shares of Common Stock (to
the extent available) and then, if necessary, cash, which
shares and/or cash have an aggregate value equal to the
excess of the Current Value over the Purchase Price;
provided further that, notwithstanding anything contained
herein to the contrary, in no event shall the aggregate
value of any cash, equity securities other than Common
Stock, debt securities and other assets issued by the
Company upon exercise of the Rights exceed the amount of
cash that the Company would be entitled to receive in
payment of the Purchase Price upon exercise in full of the
then exercisable Rights; and provided further that the
Company shall have the option, but not the obligation, to
require actual payment of the Purchase Price upon exercise
of a Right only to the extent that the Purchase Price
exceeds the amount of cash that the holder of such Right
would be entitled to receive from the Company pursuant to
this Section 11(a)(iii). If the Board of Directors of the
Company shall determine in good faith that it is likely
that sufficient additional shares of Common Stock could be
authorized for issuance upon exercise in full of the Rights,
the thirty day period set forth above may be extended to the
extent necessary, but not more than one hundred twenty days
after the Section 11(a)(ii) Trigger Date, in order that the
Company may seek shareholder approval for the authorization
of such additional shares (such thirty day period, as it may
be extended, is herein called the "Substitution Period").
To the extent that the Company determines that some action
need be taken pursuant to the first and/or second sentence
of this Section 11(a)(iii), the Company (x) shall provide,
subject to the last sentence of Section 11(a)(ii) hereof,
that such action shall apply uniformly to all outstanding
Rights, and (y) may suspend the exercisability of the Rights
until the expiration of the Substitution Period in order to
seek any authorization of additional shares and/or to decide
the appropriate form of distribution to be made pursuant to
such first sentence and to determine the value thereof. In
the event of any such suspension, the Company shall issue a
public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in
effect. For purposes of this Section 11(a)(iii), the value
of the Common Stock shall be the Current Market Price per
share of the Common Stock on Section 11(a)(ii) Trigger Date
and the per share or per unit value of any "Common Stock
Equivalent" shall be deemed to equal the Current Market
Price per share of
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<PAGE> 20
the Common Stock on such date. The Board of Directors may,
but shall not be required to, establish procedures to
allocate the right to receive Common Stock upon the exercise
of the Rights among holders of Rights pursuant to this
Section 11(a)(iii).
(iv) Notwithstanding anything in Section
11(a)(ii) to the contrary, there shall not be deemed to have
occurred a Section 11(a)(ii) Event if (A) any Person shall
have inadvertently become the Beneficial Owner of 15% of
more of the shares of Common Stock then outstanding or (B)
any Exempt Person shall have inadvertently failed to
continue to qualify as an Exempt Person, and, in either
case, within ten days after the date upon which the Company
shall first become aware of the occurrence of such an event,
the Board of Directors in its sole discretion (1) approves
the Beneficial Ownership interest then held by such Person
or (2) provides such Person a thirty day period to divest a
sufficient number of shares of Common Stock so as to
decrease the beneficial ownership of such Person to less
than 15% of the shares of Common Stock then outstanding or
to requalify as an Exempt Person, and such Person has so
divested at the end of any such thirty day period.
(b) In case the Company shall fix a record date for
the issuance of rights (other than the Rights), options or warrants to all
holders of Common Stock entitling them to subscribe for or purchase (for a
period expiring within forty-five calendar days after such record date) Common
Stock, shares having the same rights, privileges and preferences as the Common
Stock ("Equivalent Common Stock") or securities convertible into Common Stock
or Equivalent Common Stock at a price per share of Common Stock or Equivalent
Common Stock (or having a conversion price per share, if a security convertible
into Common Stock or Equivalent Common Stock) less than the Current Market
Price per share of Common Stock on such record date, the Purchase Price to be
in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the number of shares of Common Stock
outstanding on such record date, plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common
Stock and/or Equivalent Common Stock (and/or the aggregate initial conversion
price of the convertible securities so to be offered) would purchase at such
current market price, and the denominator of which shall be the number of
shares of Common Stock outstanding on such record date, plus the number of
additional shares of Common Stock and/or Equivalent Common Stock to be offered
for subscription or purchase (or into which the convertible securities so to
be offered are initially convertible). In case such subscription price may be
paid by delivery of consideration part or all of which may be in a form other
than cash, the value of such non-cash consideration shall be as determined in
good faith by the Board of Directors of the Company, whose determination shall
be described in a statement filed with the Rights Agent. Shares of Common Stock
owned by or held for the account of the Company shall not be deemed outstanding
for the purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed, and in the event that such
rights or warrants are not so issued, the Purchase Price shall be
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adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash, assets (other than
a dividend payable in Common Stock, but including any dividend payable in stock
other than Common Stock) or subscription rights or warrants (excluding those
referred to in Section 11(b) hereof), the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the Current Market Price per share of Common Stock on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the cash, assets or
evidences of indebtedness so to be distributed or of such subscription rights
or warrants applicable to a share of Common Stock and the denominator of which
shall be such Current Market Price per share of Common Stock. Such adjustments
shall be made successively whenever such a record date is fixed; and in the
event that such distribution is not so made, the Purchase Price shall be
adjusted to be the Purchase Price which would have been in effect if such
record date had not been fixed.
(d) For the purpose of any computation hereunder,
other than computations made pursuant to Section 11(a)(iii) hereof, the
"Current Market Price" per share of Common Stock on any date shall be deemed to
be the average of the daily closing prices per share of the Common Stock for
the thirty consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date, and for purpose of computations made pursuant
to Section 11(a)(iii) hereof, the "Current Market Price" per share of the
Common Stock on any date shall be deemed to be the average of the daily closing
prices per share of the Common Stock for the ten consecutive Trading Days
immediately following such date; provided, however, that in the event that the
Current Market Price per share of the Common Stock is determined during a
period following the announcement by the issuer of the Common Stock of (i) any
dividend or distribution on the Common Stock (other than a regular quarterly
cash dividend and other than the Rights), (ii) any subdivision, combination or
reclassification of the Common Stock, and prior to the expiration of the
requisite thirty Trading Day or ten Trading Day period, as set forth above, the
ex-dividend date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification occurs, then, and in each such
case, the Current Market Price shall be properly adjusted to take into account
ex-dividend trading. The closing price for each day shall be the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the NASDAQ or, if the
shares of Common Stock are not listed or admitted to trading on the NASDAQ, as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to trading or, if the
shares of Common Stock are not listed or admitted to trading on any national
securities exchange, the last quoted sale
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<PAGE> 22
price or, if not so quoted, the average of the high bid and low asked prices in
the over-the-counter market, as reported by the NASDAQ or such other system
then in use, or, if on any such date the shares of Common Stock are not quoted
by any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors of the Company. If on any such date no
market maker is making a market in the Common Stock, the fair value of such
shares on such date as determined in good faith by the Board of Directors of
the Company shall be used. The term "Trading Day" shall mean a day on which
the principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading is open for the transaction of business or,
if the shares of Common Stock are not listed or admitted to trading on any
national securities exchange, a Business Day. If the Common Stock is not
publicly held or not so listed or traded, "Current Market Price" per share
shall mean the fair value per share as determined in good faith by the Board of
Directors of the Company whose determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding,
no adjustment in the Purchase Price shall be required unless such adjustment
would require an increase or decrease of at least one percent in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest ten-thousandth of a share,
as the case may be. Notwithstanding the first sentence of this Section 11(e),
any adjustment required by this Section 11 shall be made no later than the
earlier of (i) three years from the date of the transaction which mandates such
adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to
Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter
exercised shall become entitled to receive any shares of capital stock other
than Common Stock, thereafter the number of such other shares so receivable
upon exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the shares of Common Stock
contained in Section 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m)
hereof, and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect
to the Common Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder shall
evidence the right to purchase, at the adjusted Purchase Price, the number of
shares of Common Stock purchasable from time to time hereunder upon exercise of
the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its
election as provided in Section 11(i), upon each adjustment of the Purchase
Price as a result of the calculations made in Sections 11(b) and (c), each
Right outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Purchase Price, that
number of shares
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<PAGE> 23
of Common Stock (calculated to the nearest ten-thousandth) obtained by (i)
multiplying (x) the number of shares covered by a Right immediately prior to
this adjustment, by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price, and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price or any adjustment to the number of shares of
Common Stock for which a Right may be exercised, to adjust the number of
Rights, in lieu of any adjustment in the number of shares of Common Stock
purchasable upon the exercise of a Right. Each of the Rights outstanding after
the adjustment in the number of Rights shall be exercisable for the number of
shares of Common Stock for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the nearest
ten-thousandth) obtained by dividing the Purchase Price in effect immediately
prior to adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of
the adjustment to be made. This record date may be the date on which the
Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least ten days later than the date
of the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates evidencing,
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date
of adjustment, and upon surrender thereof, if required by the Company, new
Right Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Right Certificates so to be distributed shall
be issued, executed and countersigned in the manner provided for herein (and
may bear, at the option of the Company, the adjusted Purchase Price) and shall
be registered in the names of the holders of record of Right Certificates on
the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of shares of Common Stock issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter
issued may continue to express the Purchase Price per share and the number of
shares which were expressed in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then par value of the shares
of Common Stock issuable upon exercise of the Rights, the Company shall take
any corporate action, including using its best efforts to obtain any required
shareholder approvals, which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted Purchase Price.
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<PAGE> 24
(l) In any case in which this Section 11 shall require
that an adjustment in the Purchase Price be made effective as of a record date
for a specified event, the Company may elect to defer until the occurrence of
such event the issuance to the holder of any Right exercised after such record
date the shares of Common Stock and other capital stock or securities of the
Company, if any, issuable upon such exercise over and above the shares of
Common Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise on the basis of the Purchase Price in effect prior
to such adjustment; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares of Common Stock and other capital stock
or securities upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in their good faith judgment the Board of
Directors of the Company shall determine to be advisable in order that any (i)
consolidation or subdivision of the Common Stock, (ii) issuance for cash of any
shares of Common Stock at less than the current market price, (iii) issuance
for cash of shares of Common Stock or securities which by their terms are
convertible into or exchangeable for shares of Common Stock, (iv) stock
dividends or (v) issuance of rights, options or warrants referred to in this
Section 11, hereafter made by the Company to holders of its Common Stock shall
not be taxable to such shareholders.
(n) The Company covenants and agrees that it shall
not, at any time after the Distribution Date, (i) consolidate with any other
Person (other than a Subsidiary of the Company), (ii) merge with or into any
other Person (other than a Subsidiary of the Company), or (iii) sell or
transfer (or permit any Subsidiary to sell or transfer), in one transaction or
a series of related transactions, assets or earning power aggregating more than
50% of the assets or earning power of the Company and its Subsidiaries (taken
as a whole) to, any other Person or Persons (other than the Company and/or any
of its Subsidiaries), if (x) at the time of or immediately after such
consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately
after such consolidation, merger or sale, the shareholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 26
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or eliminate the benefits intended to be afforded by the Rights.
Section 12. Certification of Adjustments. Whenever an adjustment is
made as provided in Sections 11 and 13 hereof, the Company shall (a) promptly
prepare a certificate setting forth such
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<PAGE> 25
adjustment and a brief statement of the facts giving rise to such adjustment,
(b) promptly file with the Rights Agent and with each transfer agent for the
Common Stock a copy of such certificate and (c) mail a brief summary thereof to
each holder of a Right Certificate (or, if prior to the Distribution Date, to
each holder of a certificate representing shares of Common Stock) in accordance
with Section 25 hereof. Notwithstanding the foregoing sentence, the failure of
the Company to give such notice shall not affect the validity of or the force
or effect of or the requirement for such adjustment. The Rights Agent shall be
fully protected in relying on any certificate prepared by the Company pursuant
to Sections 11 and 13 and on any adjustment therein contained. Any adjustment
to be made pursuant to Sections 11 and 13 of this Rights Agreement shall be
effective as of the date of the event giving rise to such adjustment.
Section 13. Consolidation; Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, at any time on or after the
Distribution Date, directly or indirectly, (x) the Company shall consolidate
with, or merge with and into, any other Person or Persons and the Company shall
not be the surviving or continuing corporation of such consolidation or
merger, or (y) any Person or Persons shall consolidate with, or merge with and
into, the Company, and the Company shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with such
consolidation or merger, all or part of the outstanding shares of Common Stock
shall be changed into or exchanged for stock or other securities of any other
Person or of the Company or cash or any other property, or (z) the Company or
one or more of its Subsidiaries shall sell or otherwise transfer to any other
Person or any Affiliate or Associate of such Person, in one or more
transactions, or the Company or one or more of its Subsidiaries shall sell or
otherwise transfer to any Person in one or a series of related transactions,
assets or earning power aggregating more than 50% of the assets or earning
power of the Company and its Subsidiaries (taken as a whole), then, on the
first occurrence of any such event, proper provision shall be made so that (i)
each holder of record of a Right shall thereafter have the right to receive,
upon the exercise thereof and payment of the Purchase Price in accordance with
the terms of this Rights Agreement, such number of shares of validly issued,
fully paid and nonassessable and freely tradeable common stock of the Principal
Party (as defined herein) not subject to any liens, encumbrances, rights of
first refusal or other adverse claims, as shall be equal to the result obtained
by (1) multiplying the then current Purchase Price by the number of shares of
Common Stock for which a Right was exercisable immediately prior to the first
occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event hereof has
occurred prior to the first occurrence of a Section 13 Event, multiplying the
Purchase Price in effect immediately prior to the first occurrence of a Section
11(a)(ii) Event by the number of shares of Common Stock for which a Right was
exercisable immediately prior to such first occurrence of a Section 11(a)(ii)
Event) and (2) dividing that product (such product, following the first
occurrence of a Section 13 Event, shall be referred to as the "Purchase Price"
for all purposes of this Agreement) by 50% of the current market price
(determined as provided in Section 11(d) hereof with respect to the Common
Stock) per share of the common stock of such Principal Party on the date of
consummation of such Section 13 Event (or the fair market value on such date of
other securities or property of the Principal Party, as provided for herein);
provided that the Purchase Price and the number of shares
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<PAGE> 26
of common stock of such Principal Party issuable upon exercise of each Right
shall be further adjusted as provided in this Agreement to reflect any events
occurring after the date of the first occurrence of a Section 13 Event; (ii)
such Principal Party shall thereafter be liable for, and shall assume, by
virtue of such Section 13 Event, all the obligations and duties of the Company
pursuant to this Rights Agreement; (iii) the term "Company" for all purposes of
this Rights Agreement shall thereafter be deemed to refer to such Principal
Party, it being specifically intended that the provisions of Section 11 hereof
shall only apply to such Principal Party following the first occurrence of a
Section 13 Event; and (iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of
shares of its common stock in accordance with Section 9 hereof) in connection
with the consummation of any such transaction as may be necessary to assure
that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to its shares of common stock thereafter
deliverable upon the exercise of the Rights; provided, however, that, upon the
subsequent occurrence of any merger, consolidation, sale of all or
substantially all assets, recapitalization, reclassification of shares,
reorganization or other extraordinary transaction in respect of such Principal
Party, each holder of a Right shall thereupon be entitled to receive, upon
exercise of a Right and payment of the Purchase Price, such cash, shares,
rights, warrants and other property which such holder would have been entitled
to receive had he, at the time of such transaction, owned the shares of common
stock of the Principal Party purchasable upon the exercise of a Right, and such
Principal Party shall take such steps (including, but not limited to,
reservation of shares of stock) as may be necessary to permit the subsequent
exercise of the Rights in accordance with the terms hereof for such cash,
shares, rights, warrants and other property.
(b) "Principal Party" shall mean
(i) in the case of any transaction described
in (x) or (y) of the first sentence of Section 13(a) hereof:
(A) the Person that is the issuer of the securities into
which shares of Common Stock of the Company are converted in
such merger or consolidation, or, if there is more than one
such issuer, the issuer the common stock of which has the
greatest market value or (B) if no securities are so issued,
(x) the Person that is the other party to the merger or
consolidation and that survives said merger or
consolidation, or, if there is more than one such Person,
the Person the common stock of which has the greatest market
value or (y) if the Person that is the other party to the
merger or consolidation does not survive the merger or
consolidation, the Person that does survive the merger or
consolidation (including the Company if it survives); and
(ii) in the case of any transaction described
in (z) of the first sentence in Section 13(a) hereof, the
Person that is the party receiving the greatest portion of
the assets or earning power transferred pursuant to such
transaction or transactions, or, if each Person that is a
party to such transaction or transactions receives the same
portion of the assets or earning power so transferred or if
the Person receiving the greatest portion of the assets or
earning power cannot be
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<PAGE> 27
determined, whichever of such Persons as is the issuer of
common stock having the greatest market value of shares
outstanding;
provided, however, that in any such case described in the foregoing (b)(i) or
(b)(ii), if the common stock of such Person is not at such time and has not
been continuously over the preceding 12-month period registered under Section
12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of
another Person the Common Stock of which is and has been so registered, the
term "Principal Party" shall refer to such other Person, or if such Person is a
Subsidiary, directly or indirectly, of more than one Person, the common stock
of all of which are and have been so registered, the term "Principal Party"
shall refer to whichever of such Persons is the issuer of the common stock
having the greatest market value of shares outstanding.
(c) The Company shall not consummate any
consolidation, merger, sale or transfer referred to in Section 13(a) unless
prior thereto the Company and the Principal Party involved therein shall have
executed and delivered to the Rights Agent an agreement confirming that the
requirements of Sections 13(a) and (b) hereof shall promptly be performed in
accordance with their terms and that such consolidation, merger, sale or
transfer of assets shall not result in a default by the Principal Party under
this Rights Agreement as the same shall have been assumed by the Principal
Party pursuant to Sections 13(a) and (b) hereof and further providing that, as
soon as practicable after executing such agreement pursuant to this Section 13,
the Principal Party will:
(i) prepare and file a registration
statement under the Securities Act, if necessary, with
respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, use its best
efforts to cause such registration statement to become
effective as soon as practicable after such filing and use
its best efforts to cause such registration statement to
remain effective (with a prospectus at all times meeting the
requirements of the Act) until the date of expiration of the
Rights, and similarly comply with applicable state
securities laws;
(ii) use its best efforts, if the common
stock of the Principal Party shall become listed on a
national securities exchange, to list (or continue the
listing of) the Rights and the securities purchasable upon
exercise of the Rights on such securities exchange and, if
the common stock of the Principal Party shall not be listed
on a national securities exchange, to cause the Rights and
the securities purchasable upon exercise of the Rights to be
listed by the NASDAQ or another national securities
exchange;
(iii) deliver to holders of the Rights
historical financial statements for the Principal Party
which comply in all respects with the requirements for
registration on Form 10 (or any successor form) under the
Exchange Act; and
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<PAGE> 28
(iv) obtain waivers of any rights of first
refusal or preemptive rights in respect of the shares of
common stock of the Principal Party subject to purchase upon
exercise of outstanding Rights.
In the event that any of the transactions described in Section 13(a) hereof
shall occur at any time after the occurrence of a transaction described in
Section 11(a)(ii) hereof, the Rights which have not theretofore been exercised
shall thereafter be exercisable in the manner described in Section 13(a). The
provisions of this Section 13 shall similarly apply to all successive Section
13 Events.
(d) Furthermore, in case the Principal Party which is to be a
party to a transaction referred to in this Section 13 has a provision in any of
its authorized securities or in its Certificate of Incorporation or Bylaws or
other instrument governing its corporate affairs, which provision would have
the effect of (i) causing such Principal Party to issue, in connection with, or
as a consequence of, the consummation of a transaction referred to in this
Section 13, shares of common stock of such Principal Party at less than the
then current market price per share (determined pursuant to Section 11(b)
hereof) or securities exercisable for, or convertible into, common stock of
such Principal Party at less than such then current market price (other than to
holders of Rights pursuant to this Section 13) or (ii) providing for any
special payment, tax or similar provisions in connection with the issuance of
the Common Stock of such Principal Party pursuant to the provisions of Section
13; then, in such event, the Company hereby agrees with each holder of Rights
that it shall not consummate any such transaction unless prior thereto the
Company and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing that the provision in question
of such Principal Party shall have been cancelled, waived or amended, or that
the authorized securities shall be redeemed, so that the applicable provision
will have no effect in connection with, or as a consequence of, the
consummation of the proposed transaction.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue
fractions of Rights or to distribute Right Certificates which evidence
fractional Rights. In lieu of such fractional Rights, there shall be paid to
the holders of record of the Right Certificates with regard to which such
fractional Rights would otherwise be issuable, an amount in cash equal to the
same fraction of the then current market value of a whole Right. For the
purposes of this Section 14(a), the then current market value of a Right shall
be determined in the same manner as the Current Market Price of a share of
Common Stock shall be determined pursuant to Section 11(d) hereof.
(b) The Company shall not be required to issue
fractions of shares of Common Stock upon exercise of the Rights or to
distribute certificates which evidence fractional shares. In lieu of issuing
fractions of shares of Common Stock, there shall be paid to the holders of
record of Right Certificates at the time such Right Certificates are exercised
as herein provided an amount in cash equal to the same fraction of the then
current market value of a share of
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<PAGE> 29
Common Stock. For purposes of this Section 14(b), the then current market
value of a share of Common Stock shall be the Current Market Price thereof as
determined pursuant to Section 11(d) hereof.
(c) The holder of a Right by the acceptance of a Right
expressly waives his right to receive any fractional Right or any fractional
shares upon exercise of a Right.
Section 15. Rights of Action. All rights of action in respect of
this Rights Agreement are vested in the respective holders of record of the
Right Certificates (and, prior to the Distribution Date, the holders of record
of the Common Stock); and any holder of record of any Right Certificate (or,
prior to the Distribution Date, of the Common Stock), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Stock), may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company or any other Person to enforce, or otherwise act
in respect of, his right to exercise the Rights evidenced by such Right
Certificate in the manner provided in such Right Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and,
accordingly, that they will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened
violations of, the obligations of any Person subject to this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will
not be evidenced by a Right Certificate and will be transferable only in
connection with the transfer of Common Stock;
(b) after the Distribution Date, the Right
Certificates will be transferable only on the registry books of the Rights
Agent if surrendered at the shareholder services office of the Rights Agent,
duly endorsed or accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and
treat the person in whose name the Right Certificate (or, prior to the
Distribution Date, the associated Common Stock certificate) is registered as
the absolute owner thereof and of the Rights evidenced thereby (notwithstanding
any notations of ownership or writing on the Right Certificate or the
associated Common Stock certificate made by anyone other than the Company or
the Rights Agent or the transfer agent of the Common Stock) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be affected by
any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Shareholder.
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<PAGE> 30
No holder of a Right, as such, shall be entitled to vote,
receive dividends in respect of or be deemed for any purpose to be the holder
of Common Stock or any other securities of the Company which may at any time be
issuable upon the exercise of the Rights, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as set forth in Section 24 hereof), or to receive
dividends or subscription rights in respect of any such stock or securities, or
otherwise, until the Right or Rights evidenced by such Right Certificate shall
have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder and, from
time to time, on demand of the Rights Agent, its reasonable expenses and
counsel fees and other disbursements incurred in the administration and
execution of this Rights Agreement and the exercise and performance of its
duties hereunder. The Company also agrees to indemnify the Rights Agent for,
and to hold it harmless against, any loss, liability or expense incurred
without negligence, bad faith or willful misconduct on the part of the Rights
Agent for anything done or omitted to be done by the Rights Agent in connection
with the acceptance and administration of this Rights Agreement, including the
cost and expenses of defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall
incur no liability for or in respect of any action taken, suffered or omitted
by it in connection with its administration of this Rights Agreement in
reliance upon any Right Certificate, certificate for Common Stock or other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, guaranteed, verified or
acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or stock transfer business of the Rights
Agent or any successor Rights Agent, shall be the successor to the Rights Agent
under this Rights Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Rights Agreement, any of the
Right Certificates
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<PAGE> 31
shall have been countersigned but not delivered, any such successor Rights
Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in
the Right Certificates and in this Rights Agreement.
(b) In case at any time the name of the Rights Agent
shall be changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver such Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall not
have been countersigned, the Rights Agent may countersign such Right
Certificates either in its prior name or in its changed name; and in all such
cases such Right Certificates shall have the full force provided in the Right
Certificates and in this Rights Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Rights Agreement upon the following
terms and conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel
(who may be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent as
to any action taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under
this Rights Agreement the Rights Agent shall deem it necessary or desirable
that any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed to
be conclusively proved and established by a certificate signed by the Chairman,
Chief Executive Officer, President or any Vice President and by the Treasurer
or any Assistant Treasurer or the Secretary or any Assistant Secretary of the
Company and delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good
faith by it under the provisions of this Rights Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only
for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by
reason of any of the statements of fact or recitals contained in this Rights
Agreement or in the Right Certificates (except its countersignature thereof) or
be required to verify the same, but all such statements and recitals are and
shall be deemed to have been made by the Company only.
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<PAGE> 32
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Rights Agreement or the
execution and delivery hereof (except the due execution hereof by the Rights
Agent) or in respect of the validity or execution of any Right Certificate
(except its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this Rights
Agreement or in any Right Certificate; nor shall it be responsible for any
adjustment required under the provisions of Section 11 or 13 hereof or
responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Right Certificates
after actual notice of any such adjustment); nor shall it by any act hereunder
be deemed to make any representation or warranty as to the authorization or
reservation of any shares of Common Stock or other securities to be issued
pursuant to this Rights Agreement or any Right Certificate or as to whether any
shares of Common Stock or other securities will, when issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing
by the Rights Agent of the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed
to accept instructions with respect to the performance of its duties hereunder
from the Chairman, the Chief Executive Officer, the President or any Vice
President or the Secretary or any Assistant Secretary or the Treasurer or any
Assistant Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer.
(h) The Rights Agent and any shareholder, director,
officer or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not the Rights Agent under this Rights Agreement. Nothing herein shall
preclude the Rights Agent from acting in any other capacity for the Company or
for any other entity.
(i) The Rights Agent may execute and exercise any of
the rights or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys or agents, and the Rights Agent shall not
be answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
(j) If, with respect to any Rights Certificate
surrendered to the Rights Agent for exercise or transfer, the certificate
contained in the form of assignment or the form of election to purchase set
forth on the reverse thereof, as the case may be, has either not been completed
or
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<PAGE> 33
indicates an affirmative response to clause 1 and/or 2 thereof, the Rights
Agent shall not take any further action with respect to such requested exercise
of transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Rights Agreement upon 30 days' notice in writing mailed to the Company and to
each transfer agent of the Common Stock by registered or certified mail, and to
the holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent (with or without cause)
upon 30 days' notice in writing, mailed to the Rights Agent or any successor
Rights Agent, as the case may be, and to each transfer agent of the Common
Stock by registered or certified mail, and to the holders of the Right
Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. Notwithstanding the foregoing
provisions of this Section 21, in no event shall the resignation or removal of
a Rights Agent be effective until a successor Rights Agent shall have been
appointed and have accepted such appointment. If the Company shall fail to
make such appointment within a period of 30 days after such removal or after it
has been notified in writing of such resignation or incapacity by the resigning
or incapacitated Rights Agent or by the holder of a Right Certificate (who
shall, with such notice, submit his Right Certificate for inspection by the
Company), then the incumbent Rights Agent or the holder of record of any Right
Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be a corporation organized
and doing business under the laws of the United States or any State thereof, in
good standing, which is authorized under such laws to exercise corporate trust
or stock transfer powers and is subject to supervision or examination by
federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $50,000,000. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as
Rights Agent without further act or deed; but the predecessor Rights Agent
shall deliver and transfer to the successor Rights Agent any property at the
time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Stock,
and mail a notice thereof in writing to the registered holders of the Right
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Expiration Date, the Purchase Price per share and
the number or kind of class of shares of stock or other securities or property
purchasable under the Right Certificates made in accordance with the provisions
of this Agreement.
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<PAGE> 34
Section 23. Redemption.
(a) The Board of Directors of the Company may, at its
option, at any time prior to the earlier of (i) the Close of Business on the
Distribution Date, or (ii) the Close of Business on the Final Expiration Date,
redeem all but not less than all the then outstanding Rights at a redemption
price of $.01 per Right, as such amount may be appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such redemption price being hereinafter referred to as the
"Redemption Price").
(b) Immediately upon the action of the Board of
Directors of the Company ordering the redemption of the Rights, and without any
further action and without any notice, the right to exercise the Rights will
terminate and the only right thereafter of the holders of Rights shall be to
receive the Redemption Price, without any interest thereon. Within 10 days
after the action of the Board of Directors ordering the redemption of the
Rights, the Company shall give notice of such redemption to the holders of the
then outstanding Rights by mailing such notice to all such holders at their
last addresses as they appear upon the registry books of the Rights Agent or,
prior to the Distribution Date, on the registry books of the transfer agent of
the Common Stock. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice. Each
such notice of redemption will state the method by which the payment of the
Redemption Price will be made. The failure to give notice required by this
Section 23(b) or any defect therein shall not affect the legality or validity
of the action taken by the Company.
Section 24. Notice of Proposed Actions.
(a) In case the Company, after the Distribution Date,
shall propose (i) hereof to effect any of the transactions referred to in
Section 11(a)(i) hereof or to pay any dividend to the holders of record of its
Common Stock payable in stock of any class or to make any other distribution to
the holders of record of its Common Stock (other than a regular periodic cash
dividend at a rate not in excess of 125% of the rate of the last cash dividend
theretofore paid), or (ii) to offer to the holders of record of its Common
Stock options, warrants, or other rights to subscribe for or to purchase shares
of Common Stock (including any security convertible into or exchangeable for
Common Stock) or shares of stock of any class or any other securities, options,
warrants, convertible or exchangeable securities or other rights, or (iii) to
effect any reclassification of its Common Stock or any recapitalization or
reorganization of the Company, or (iv) to effect any consolidation or merger
with or into, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of more than 50% of the assets or earning power of the Company
and its Subsidiaries (taken as a whole) to, any other Person or Persons, or (v)
to effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to each holder of record of a Right
Certificate, in accordance with Section 25 hereof, notice of such proposed
action, which shall specify the record date for the purposes of such
transaction referred to in Section 11(a)(i), or such dividend or distribution,
or the date on which such reclassification, recapitalization, reorganization,
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<PAGE> 35
consolidation, merger, sale or transfer of assets, liquidation, dissolution, or
winding up is to take place and the record date for determining participation
therein by the holders of record of Common Stock, if any such date is to be
fixed, and such notice shall be so given in the case of any action covered by
clause (i) or (ii) above at least 10 days prior to the record date for
determining holders of record of the Common Stock for purposes of such action,
and in the case of any such other action, at least 10 days prior to the date of
the taking of such proposed action or the date of participation therein by the
holders of record of Common Stock, whichever shall be the earlier. The failure
to give notice required by this Section 24 or any defect therein shall not
affect the legality or validity of the action taken by the Company or the vote
upon any such action.
(b) In case any of the transactions referred to in
Section 11(a)(ii) or Section 13 of this Rights Agreement are proposed, then, in
any such case, the Company shall give to each holder of Rights, in accordance
with Section 25 hereof, notice of the proposal of such transaction at least 10
days prior to consummating such transaction, which notice shall specify the
proposed event and the consequences of the event to holders of Rights under
Section 11(a)(ii) or Section 13 hereof, as the case may be, and, upon
consummating such transaction, shall similarly give notice thereof to each
holder of Rights.
Section 25. Notices. Notices or demands authorized by this Rights
Agreement to be given or made by the Rights Agent or by the holder of record of
any Right Certificate or Right to or on the Company shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Rights Agent) as follows:
The Enstar Group, Inc.
172 Commerce Street - 3rd Floor
Montgomery, Alabama 36104
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Rights Agreement to be given or made by the Company or by the holder of
record of any Right Certificate or Right to or on the Rights Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Company) as
follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to the holder of record of any Right
Certificate or Right shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed to such holder at the address of such holder
as it appears upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the Transfer Agent.
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<PAGE> 36
Section 26. Supplements and Amendments. Prior to the Close of
Business on the Distribution Date and subject to extension by the Board of
Directors by amendment hereof, and except as provided in the penultimate
sentence of this Section 26, the Company may in its sole and absolute
discretion and the Rights Agent shall, if the Company so directs, supplement or
amend any provision of this Rights Agreement (including an amendment that
provides that the Rights shall become exercisable, in lieu of a share or shares
of Common Stock, for Common Stock Equivalents) without the approval of any
holders of the Rights or the Common Stock. From and after the close of
business on the Distribution Date and subject to extension by the Board of
Directors by amendment hereof, and except as provided in the penultimate
sentence of this Section 26, the Company may and the Rights Agent shall, if the
Company so directs, supplement or amend this Agreement without the approval of
any holders of Right Certificates in order (i) to cure any ambiguity, (ii) to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, or (iii) to change or supplement
the provisions hereunder in any manner which the Company may deem necessary or
desirable; provided, that no such supplement or amendment shall adversely
affect the interests of the holders of Right Certificates (other than any
interest an Acquiring Person or an Affiliate or Associate of an Acquiring
Person has other than as a holder of Rights). Upon the delivery of a
certificate from an appropriate officer of the Company which states that the
proposed supplement or amendment is in compliance with the terms of this
Section 26, the Rights Agent shall execute such supplement or amendment.
Notwithstanding anything contained in this Rights Agreement to the contrary,
(i) no supplement or amendment shall be made which changes the Redemption Price
or the Final Expiration Date, and (ii) during the 120-day period after any date
of a change (resulting from a proxy or consent solicitation) in a majority of
the Board of Directors of the Company in office at the commencement of such
solicitation, this Rights Agreement may be supplemented or amended only if (A)
there are directors then in office who were in office at the commencement of
such solicitation and (B) the Board of Directors of the Company, with the
concurrence of a majority of such directors then in office, determines that
such supplement or amendment is, in their judgment, in the best interests of
the Company and its shareholders and, after the Distribution Date, the holders
of the Right Certificates. Prior to the Distribution Date, the interests of
the holders of Rights shall be deemed coincident with the interests of the
holders of Common Stock.
Section 27. Successors. All of the covenants and provisions of this
Rights Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 28. Benefits of this Rights Agreement. Nothing in this
Rights Agreement shall be construed to give to any person or corporation other
than the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Stock) any legal
or equitable right, remedy or claim under this Rights Agreement; but this
Rights Agreement shall be for the sole and exclusive benefit of the Company,
the Rights Agent and the holders of record of the Right Certificates (and,
prior to the Distribution Date, the Common Stock).
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<PAGE> 37
Section 29. Governing Law. This Rights Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State; provided, however, that the
rights and obligations of the Rights Agent shall be governed by the laws of the
State of New York (or state of incorporation of any successor Rights Agent).
Section 30. Counterparts. This Rights Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
Section 31. Descriptive Headings. Descriptive headings of the
several sections of this Rights Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the
provisions hereof.
Section 32. Severability. If any term, provision, covenant or
restriction of this Rights Agreement is held by a court of competent
jurisdiction or other authority to be invalid, illegal, or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Rights
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
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<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed, all as of the day and year first above written.
THE ENSTAR GROUP, INC.
By: /s/ Cheryl D. Davis
----------------------------------------
Name: Cheryl D. Davis
Title: Chief Financial Officer,
Vice-President of Corporate
Taxes, Secretary
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By: /s/ George Karfunkel
----------------------------------------
Name: George Karfunkel
Title: Executive Vice President
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<PAGE> 39
EXHIBIT A
[Form of Right Certificate]
Certificate No.R- Rights
-------
NOT EXERCISABLE AFTER JANUARY 20, 2007 OR EARLIER IF
REDEEMED. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT
THE OPTION OF THE COMPANY, AT $.01 PER RIGHT ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. IN THE EVENT
THAT THE RIGHTS REPRESENTED BY THIS CERTIFICATE ARE
ISSUED TO A PERSON WHO IS AN ACQUIRING PERSON OR AN
ASSOCIATE OR AFFILIATE OF AN ACQUIRING PERSON OR A
TRANSFEREE OF THE RIGHTS PREVIOUSLY OWNED BY SUCH
PERSONS, THIS RIGHT CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID.
Right Certificate
The Enstar Group, Inc.
This certifies that _________________ or registered assigns, is the
registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement dated as of January 20, 1997 ("Rights Agreement") between
The Enstar Group, Inc., a Delaware corporation ("Company"), and American Stock
Transfer & Trust Company ("Rights Agent"), to purchase from the Company at any
time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M. (Montgomery, Alabama time) on January 20,
2007 at the shareholder services office of the Rights Agent, or its successors
as Rights Agent, in New York, New York, one fully paid and nonassessable share
of voting common stock, par value $.01 per share ("Common Stock"), of the
Company at a purchase price of $40.00 as the same may from time to time be
adjusted in accordance with the Rights Agreement ("Purchase Price"), upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase duly executed.
As provided in the Rights Agreement, the Purchase Price and the number
of shares of Common Stock which may be purchased upon the exercise of the
Rights evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events and, upon the happening of
certain events, securities other than shares of Common Stock, or other
<PAGE> 40
property, may be acquired upon exercise of the Rights evidenced by this Right
Certificate, as provided by the Rights Agreement.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
incorporated herein by reference and made a part hereof and to which Rights
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities of the Rights Agent,
the Company and the holders of record of the Right Certificates. Copies of the
Rights Agreement are on file at the principal executive office of the Company.
This Right Certificate, with or without other Right Certificates, upon
surrender at the shareholder services office of the Rights Agent, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder of record to purchase a like
aggregate number of shares of Common Stock as the Rights evidenced by the Right
Certificate or Right Certificates surrendered shall have entitled such holder
to purchase. If this Right Certificate shall be exercised in part, the holder
shall be entitled to receive upon surrender hereof, another Right Certificate
or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $.01 per Right at any time prior to the earlier of the
close of business on (i) the Distribution Date, and (ii) the Final Expiration
Date.
No fractional shares of Common Stock shall be issued upon the exercise
of any Right or Rights evidenced hereby, and in lieu thereof, as provided in
the Rights Agreement, fractions of shares of Common Stock shall receive an
amount in cash equal to the same fraction of the then current market value of a
share of Common Stock.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Common Stock or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
shareholder of the Company or any right to vote for the election of directors;
or upon any matter submitted to shareholders at any meeting thereof, or to give
or withhold consent to any corporate action or to receive notice of meetings or
other actions affecting shareholders or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
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<PAGE> 41
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal, dated as of ______________ 19__.
ATTEST: THE ENSTAR GROUP, INC.
By:
- ------------------------- -----------------------------
Secretary Name:
Title:
Countersigned:
By:
----------------------
Authorized signature
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<PAGE> 42
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Right Certificate.)
FOR VALUE RECEIVED _______________________ hereby sells, assigns and
transfers unto ________________________________________________________________
(Please print name and address of transferee)
_______ Rights evidenced by this Right Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
________ Attorney to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
Dated: ___________ , 19__.
__________________________________
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate [ ] are
[ ] are not being sold, assigned and transferred by or on behalf of a Person
who is or was an Acquiring Person or an Affiliate or Associate of any such
Acquiring Person (as such terms are defined pursuant to the Rights Agreement);
and
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this
Right Certificate from any Person who is or was an Acquiring Person or an
Affiliate or Associate of an Acquiring Person or any transferee of such
Persons.
Dated: ____________, 19__
__________________________________
Signature
Signature Guaranteed:
<PAGE> 43
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of this Right Certificate in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE> 44
FORM OF ELECTION TO PURCHASE
(To be executed if registered holder desires to
exercise the Right Certificate.)
To: The Enstar Group, Inc.
The undersigned hereby irrevocably elects to exercise _________________
Rights represented by this Right Certificate to purchase the shares of Common
Stock issuable upon the exercise of such Rights and requests that certificates
for such share(s) be issued in the name:
___________________________________________________________
(Please print name and address)
___________________________________________________________
(Please insert social security or other identifying number)
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
____________________________________________
(Please print name and address)
____________________________________________
Dated: ______________, 19__
____________________________________________
Signature
(Signature must conform in all respects to
name of holder as specified on the face of
this Right Certificate)
Signature Guaranteed:
<PAGE> 45
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate [ ] are
[ ] are not being exercised by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as
such terms are defined pursuant to the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this
Right Certificate from any Person who is or was an Acquiring Person or an
Affiliate or Associate of an Acquiring Person or any transferee of such
Persons.
Dated: ______________, 19___
__________________________________
Signature
Signature Guaranteed:
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<PAGE> 1
EXHIBIT 10.3
THE ENSTAR GROUP, INC.
1997 CEO STOCK OPTION PLAN
This is the 1997 CEO Stock Option Plan of The Enstar Group, Inc., a
Georgia corporation (the "Company").
Section 1. Purpose. The Company is adopting The Enstar Group, Inc.
1997 CEO Stock Option Plan (the "Plan") to secure and retain the services of
the chief executive officer ("CEO") of the Company by giving him an opportunity
to invest in the future success of the Company. The Board of Directors of the
Company (the "Board of Directors") believes the Plan will promote personal
interest in the welfare of the Company by, and provide an incentive to, the
current CEO of the Company, thus facilitating the continued growth and
financial success of the Company.
Section 2. Administration. The Plan shall be interpreted and
administered by the compensation committee of the Board of Directors (the
"Committee"). The Committee shall have the exclusive authority to interpret
the Plan. The decision of the Committee with respect to matters concerning the
Plan shall be final, conclusive, and binding on both the Company and the
Participants.
Section 3. Participant. The only Participant (the "Participant")
in the Plan shall be Nimrod T. Frazer.
Section 4. Grant of Options. Subject to approval by the shareholders
of the Corporation, the Corporation hereby grants Participant an option
("Option") to acquire 200,000 shares of the Common Stock of the Corporation.
The Option is a nonqualified option and is not an incentive stock option within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").
Section 5. Stock Subject to Options. The Company has authorized and
reserved for issuance upon the exercise of Options pursuant to the Plan an
aggregate of two hundred thousand (200,000) shares of $.01 par value Common
Stock of the Company (the "Shares"). If the Option is cancelled, expires or
terminates without the Participant exercising it in full, it shall be
cancelled.
The Company shall adjust the total number of Shares and any
outstanding Options, both as to the number of Shares and the option price, for
any increase or decrease in the number of outstanding Shares resulting from a
stock split or a payment of a stock dividend on the Shares, a subdivision or
combination of the Shares, a reclassification of the Shares in accordance with
the provisions of the next paragraph, a merger or consolidation of the Shares
or any other like changes in the Shares or in their value. The Company shall
not issue fractional shares as a result of any of these changes, and shall
eliminate from the outstanding Options any fractional shares that result from a
change. The Company shall not adjust outstanding Options for cash dividends or
the issuance to optionees of rights to subscribe for additional stock or
securities of the Company.
After any merger of one or more corporations into the Company, any
merger of the Company into another corporation, any consolidation of the
Company and one or more other corporations, or any other corporate
reorganization to which the Company is a party that involves any exchange,
conversion, adjustment or other modification of the outstanding Options, the
CEO shall receive at no additional cost upon the exercise of his Option,
subject to any required action by shareholders and in lieu of the number of
Shares as to which he would otherwise exercise the Option, the number and class
of shares of stock or other securities or any other property to which the terms
of the agreement of merger, consolidation, or other reorganization would
entitle the Participant to receive, if, at the time of the merger,
consolidation, or other reorganization, the Participant had been a holder of
record of the number of Shares as to which he could exercise the Option.
Comparable rights shall accrue to the Participant in the event of successive
mergers, consolidations or other reorganizations.
The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Company in its sole discretion.
Any adjustments may provide for the elimination of any fractional Share which
might otherwise become subject to an Option.
<PAGE> 2
Section 6. Terms and Conditions of Option. The Option granted
pursuant to the Plan shall be evidenced by an agreement in the form and
containing the terms and conditions as the Committee or the Board of Directors
of the Company from time to time may determine, provided that such agreement
shall:
(a) state the number of Shares to which it pertains (200,000);
(b) state the option exercise price, which shall be the fair
market value thereof on the initial trading day after the
Company's Common Stock is registered;
(c) state the terms and conditions for payment;
(d) provide that such Option shall vest as follows:
(i) The right to purchase 50,000 shares (25% of the
shares available under such Option) shall vest on the
date of the Company's first annual meeting after the
distribution of the Company's Common Stock (subject
to approval of the Plan by the shareholders of the
Company);
(ii) The right to purchase an additional 50,000 shares
(25% of the shares available under the Option) shall
vest on January 1, 1998; provided the Participant is
the CEO of the Company as of such date;
(iii) The right to purchase an additional 50,000 shares
(25% of the shares available under the Option) shall
vest on January 1, 1999; provided the Participant is
the CEO of the Company as of such date;
(iv) The right to purchase an additional 50,000 shares
(25% of the shares available under the Option) shall
vest on January 1, 2000; provided the Participant is
the CEO of the Company as of such date;
(e) provide that the Option is not transferable by the Participant
other than pursuant to (1) the will of the Participant, or (2) the applicable
laws of descent and distribution, and is exercisable during the Participant's
lifetime only by the Participant (except as set forth in Subsection (g) of this
Section) provided, however, the Committee may allow transferability in
appropriate circumstances;
(f) provide that the Option shall terminate no later than the
earlier of (a) January 1, 2007, or (b) sixty (60) days after the date the
Participant ceases to be a CEO of the Company other than by reason of death,
mandatory retirement or disability (as defined in Code Section 22(e)(3));
(g) provide that if a Participant dies while a CEO of the Company,
the Option may be exercised (to the extent the Participant would have been
entitled to do so) by a legatee or legatees of the Participant under his last
will, or by his personal representative or representatives, at any time within
one (1) year (or within such lesser period as may be specified in the
applicable option agreement) after the Participant's death but in no event may
the Option be exercised later than January 1, 2007; and
(h) provide that the Option may be exercised at any time within
three (3) years after the mandatory retirement or disability (within the
meaning of Code Section 22(e)(3)) of the Participant, but in no event may the
Option be exercised later than January 1, 2007.
The Company may require the Participant, as a condition of exercising
such Option, to give written assurances in substance and form satisfactory to
the Company to the effect that such person is acquiring the Shares subject to
the Option for his own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply
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<PAGE> 3
with federal and applicable state securities laws, or with covenants or
representations made by the Company in connection with any public offering of
its Common Stock.
Such Option shall be subject to the requirement that if, at any time,
counsel to the Company shall determine that the listing, registration or
qualification of the Shares subject to such Option upon any securities exchange
or under any state or federal law, or the consent or approval of any
governmental or regulatory body, or that the disclosure of non-public
information or the satisfaction of any other condition is necessary as a
condition of, or in connection with the issuance or purchase of Shares
thereunder, such Option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors. Nothing herein shall be deemed to require the Company
to apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
Section 7. Acceleration, Extension. The Committee may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan vest and may be exercised or (ii)
extend the dates during which all, or any particular, option or options granted
under the Plan may be exercised.
Section 8. Term of Plan. The effective date of the Plan shall be
January 20, 1997, subject to subsequent shareholder approval of the Plan.
Section 9. Exercise of Option by Participant. The Participant
shall pay the Company the purchase price of the Shares as set forth in the
Agreement, which may provide that payment will be made (a) in cash, (b) by
delivery to the Company of Shares that have been owned by the holder for at
least six (6) months prior to the date of exercise, such Shares being credited
at their fair market value, as determined by the Committee in its sole
discretion, (c) by receipt of the exercise price in cash from a broker, dealer,
or other "creditor" as defined in Regulation T issued by the Board of Governors
of the Federal Reserve System following delivery by the Participant to the
Committee of instructions in a form acceptable to the Committee regarding
delivery to such broker, dealer, or other creditor of that number of Shares
with respect to which the Option is exercised, or (d) in any other form or
manner as is acceptable to the Company.
Until the Participant receives stock certificates from the Company
that reflect the Shares accruing to the Participant upon the exercise of the
Option, the Participant shall have no rights as a shareholder with respect to
the Shares the Option covers. The Company shall make no adjustment to the
Shares for any dividends or distributions or other rights for which the record
date is prior to the date of that stock certificate, except as the Plan
otherwise provides.
Section 10. Withholding Taxes. Whenever the Company proposes or is
required to issue Shares to an optionee who is or was an employee of the
Company, or his legatee or legal representative under the Plan, the Company
shall have the right to require the recipient to remit in cash to the Company
an amount sufficient to satisfy any federal, state, and local withholding tax
requirements prior to the delivery of any certificate or certificates for such
Shares.
Section 11. Assignability. Except as Section 5(e) of the Plan
permits, no Option or any of the rights and privileges thereof accruing to
Participant shall be transferred, assigned, pledged or hypothecated in any way
whether by operation of law or otherwise, and no Option, right or privilege
shall be subject to execution, attachment or similar process.
Section 12. No Right to Continue as a CEO. No provision in the
Plan or any Option shall confer upon Participant any right to continue as a
CEO of the Company.
Section 13. Amendment and Termination. The Board of Directors (or
the Committee) at any time may amend or terminate the Plan, provided, however,
that any material amendment hereto shall be subject to shareholder approval.
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<PAGE> 4
Section 14. Choice of Law. The laws of the State of Georgia shall
govern the Plan.
Section 15. Approval of Stockholders. The Company shall submit the
Plan to its shareholders for approval within twelve (12) months of the adoption
of the Plan by the Board of Directors; failure to receive their approval shall
render all outstanding Options under the Plan immediately void and of no
effect.
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<PAGE> 1
EXIBIT 10.4
THE ENSTAR GROUP, INC.
1997 OUTSIDE DIRECTORS' STOCK OPTION PLAN
This is the 1997 Outside Directors' Stock Option Plan of The Enstar
Group, Inc., a Georgia corporation (the "Company").
Section 1. Purpose. The Company is adopting The Enstar Group, Inc.
1997 Outside Directors' Stock Option Plan (the "Plan") to secure and retain the
services of directors of the Company (who are not also employees of the
Company) (the "Outside Directors") by giving them an opportunity to invest in
the future success of the Company. The Board of Directors of the Company (the
"Board of Directors") believes the Plan will promote personal interest in the
welfare of the Company by, and provide an incentive to, the current Outside
Directors of the Company, thus facilitating the continued growth and financial
success of the Company. The Plan will be administered by the Chief Executive
Officer of the Company (the "CEO").
Section 2. Participants. The only participants (the
"Participants") in the Plan shall be the current Outside Directors of the
Company, namely T. Wayne Davis, T. Whit Armstrong and J. Christopher Flowers.
Section 3. Grant of Options. Subject to approval by the shareholders
of the Corporation, the Corporation hereby grants each Participant an option
("Option") to acquire 70,000 shares of the Common Stock of the Corporation.
Each Option is a nonqualified option and is not an incentive stock option
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
Section 4. Stock Subject to Options. The Company has authorized
and reserved for issuance upon the exercise of Options pursuant to the Plan an
aggregate of two hundred ten thousand (210,000) shares of $.01 par value Common
Stock of the Company (the "Shares"). If any Option is canceled, expires or
terminates without the respective Participant exercising it in full, it shall
be canceled and shall not be reissued to another Participant.
The Company shall adjust the total number of Shares and any
outstanding Options, both as to the number of Shares and the option price, for
any increase or decrease in the number of outstanding Shares resulting from a
stock split or a payment of a stock dividend on the Shares, a subdivision or
combination of the Shares, a reclassification of the Shares in accordance with
the provisions of the next paragraph, a merger or consolidation of the Shares
or any other like changes in the Shares or in their value. The Company shall
not issue fractional shares as a result of any of these changes, and shall
eliminate from the outstanding Options any fractional shares that result from a
change. The Company shall not adjust outstanding Options for cash dividends or
the issuance to Participants of rights to subscribe for additional stock or
securities of the Company.
After any merger of one or more corporations into the Company, any
merger of the Company into another corporation, any consolidation of the
Company and one or more other corporations, or any other corporate
reorganization to which the Company is a party that involves any exchange,
conversion, adjustment or other modification of the outstanding Options, each
Participant shall receive at no additional cost upon the exercise of his
Option, subject to any required action by shareholders and in lieu of the
number of Shares as to which he would otherwise exercise the Option, the number
and class of shares of stock or other securities or any other property to which
the terms of the agreement of merger, consolidation, or other reorganization
would entitle the Participant to receive, if, at the time of the merger,
consolidation, or other reorganization, the Participant had been a holder of
record of the number of Shares as to which he could exercise the Option.
Comparable rights shall accrue to each Participant in the event of successive
mergers, consolidations or other reorganizations.
The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Company in its sole discretion.
Any adjustments may provide for the elimination of any fractional Share which
might otherwise become subject to an Option.
Section 5. Terms and Conditions of All Options. Each Option granted
pursuant to the Plan is subject to the
<PAGE> 2
following terms and conditions:
(a) the option pertains to 70,000 shares;
(b) the option exercise price shall be the fair market value
thereof as of the initial trading day after the Company's
Common Stock is registered;
(c) each Option shall vest as follows:
(i) The right to purchase 17,500 shares (25% of the
shares available under each Option) shall vest on the
date of the Company's first annual meeting after the
distribution of the Company's Common Stock; provided
the Participant is elected as a Director of the
Company by the shareholders at such meeting;
(ii) The right to purchase an additional 17,500 shares
(25% of the shares available under the Option) shall
vest on January 1, 1998; provided the Participant is
a Director of the Company as of such date;
(iii) The right to purchase an additional 17,500 shares
(25% of the shares available under the Option) shall
vest on January 1, 1999; provided the Participant is
a Director of the Company as of such date;
(iv) The right to purchase an additional 17,500 shares
(25% of the shares available under the Option) shall
vest on January 1, 2000; provided the Participant is
a Director of the Company as of such date;
(d) the Option is not transferable by the Participant other than
pursuant to (1) the will of the Participant, or (2) the applicable laws of
descent and distribution, and is exercisable during the Participant's lifetime
only by the Participant (except as set forth in Subsection (g) of this Section;
(e) the Option shall terminate no later than the earlier of (a)
January 1, 2007, or (b) sixty (60) days after the date the Participant ceases
to be a Director of the Company other than by reason of death, mandatory
retirement or disability (as defined in Code Section 22(e)(3));
(f) if a Participant dies while a Director of the Company, the
Option may be exercised (to the extent the Participant would have been entitled
to do so) by a legatee or legatees of the Participant under his last will, or
by his personal representative or representatives, at any time within one (1)
year after the Participant's death but in no event may the Option be exercised
later than January 1, 2007; and
(g) the Option may be exercised at any time within three (3)
years after the mandatory retirement or disability (within the meaning of Code
Section 22(e)(3)) of the Participant but in no event may the Option be
exercised later than January 1, 2007.
The Company may require any person to whom an Option is granted, as a
condition of exercising such Option, to give written assurances in substance
and form satisfactory to the Company to the effect that such person is
acquiring the Shares subject to the Option for his or her own account for
investment and not with any present intention of selling or otherwise
distributing the same, and to such other effects as the Company deems necessary
or appropriate in order to comply with federal and applicable state securities
laws, or with covenants or representations made by the Company in connection
with any public offering of its Common Stock.
Each Option shall be subject to the requirement that if, at any time,
counsel to the Company shall determine that the listing, registration or
qualification of the Shares subject to such Option upon any securities exchange
or under any state or federal law, or the consent or approval of any
governmental or regulatory body, or that the
2
<PAGE> 3
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with the issuance or purchase
of Shares thereunder, such Option may not be exercised, in whole or in part,
unless such listing, registration, qualification, consent or approval, or
satisfaction of such condition shall have been effected or obtained on
conditions acceptable to the Board of Directors. Nothing herein shall be
deemed to require the Company to apply for or to obtain such listing,
registration or qualification, or to satisfy such condition.
Section 6. Term of Plan. The effective date of the Plan shall be
January 20, 1997, subject to subsequent shareholder approval of the Plan.
Section 7. Exercise of Option by Participant. The Participant
shall pay the Company the purchase price of the Shares (a) in cash, (b) by
delivery to the Company of Shares that have been owned by the holder for at
least six (6) months prior to the date of exercise, such Shares being credited
at their fair market value, as determined by the CEO in his or her sole
discretion, (c) by receipt of the exercise price in cash from a broker, dealer,
or other "creditor" as defined in Regulation T issued by the Board of Governors
of the Federal Reserve System following delivery by the Participant to the
Committee of instructions in a form acceptable to the Committee regarding
delivery to such broker, dealer, or other creditor of that number of Shares
with respect to which the Option is exercised, or (d) in any other form or
manner as is acceptable to the Committee.
Until the Participant receives stock certificates from the Company
that reflect the Shares accruing to the Participant upon the exercise of the
Option, the Participant shall have no rights as a shareholder with respect to
the Shares the Option covers. The Company shall make no adjustment to the
Shares for any dividends or distributions or other rights for which the record
date is prior to the date of that stock certificate, except as the Plan
otherwise provides.
Section 8. Withholding Taxes. Whenever the Company proposes or
is required to issue Shares to a Participant who is or was an employee of the
Company, or his legatee or legal representative under the Plan, the Company
shall have the right to require the recipient to remit in cash to the Company
an amount sufficient to satisfy any federal, state, and local withholding tax
requirements prior to the delivery of any certificate or certificates for such
Shares.
Section 9. Assignability. Except as Section 5(e) of the Plan
permits, no Option or any of the rights and privileges thereof accruing to a
Participant shall be transferred, assigned, pledged or hypothecated in any way
whether by operation of law or otherwise, and no Option, right or privilege
shall be subject to execution, attachment or similar process.
Section 10. No Right to Continue as a Director. No provision in the
Plan or any Option shall confer upon any Participant any right to continue as a
Director of the Company.
Section 11. Amendment and Termination. The Board of Directors at
any time may amend or terminate the Plan, provided, however, that any material
amendment hereto shall be subject to shareholder approval.
Section 12. Choice of Law. The laws of the State of Georgia shall
govern the Plan.
Section 13. Approval of Stockholders. The Company shall submit the
Plan to its shareholders for approval within twelve (12) months of the adoption
of the Plan by the Board of Directors; failure to receive their approval shall
render all outstanding Options immediately void and of no effect.
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<PAGE> 1
EXHIBIT 10.5
THE ENSTAR GROUP, INC.
1997 OMNIBUS INCENTIVE PLAN
This 1997 Omnibus Incentive Plan is adopted as of the 20th day of
January, 1997, by THE ENSTAR GROUP, INC., a corporation organized under the
laws of the State of Georgia (the "Company").
Section 1. Name, Purpose and Definitions.
1.1 Name and Purpose. The Company is adopting The Enstar Group,
Inc. 1997 Omnibus Incentive Plan (the "Plan") to secure and retain the
services of officers, key employees, and directors of the Company by giving
them an opportunity to invest in the future success of the Company. The Board
of Directors of the Company (the "Board of Directors") believes the Plan will
promote personal interest in the welfare of the Company by, and provide an
incentive to, the individuals who are primarily responsible for the regular
operations of the Company and for shaping and carrying out the long term plans
of the Company, thus facilitating the continued growth and financial success of
the Company.
1.2 Definition. Whenever used in the Plan, the following terms
shall have the meaning set forth below:
(a) "Affiliate" shall mean any affiliate or subsidiary (direct or
indirect) of the Company, which the Board of Directors may from time to time
determine to bring under the Plan and which shall adopt the Plan, and any
successor of any of them.
(b) "Award" shall mean, individually and collectively, any Option,
Stock Appreciation Rights, or Restricted Stock granted under the Plan.
(c) "Base Value" shall mean the Fair Market Value of a Stock
Appreciation Right on the date of its grant.
(d) "Board of Directors" shall mean the Board of Directors of the
Company.
(e) "Committee" shall mean a committee composed of not fewer than
two (2) members of the Board of Directors, all of which shall be
"disinterested" persons as defined in Section 2 hereof.
(f) "Common Stock" shall mean the Common Stock of The Enstar
Group, Inc.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(h) "Company" shall mean The Enstar Group, Inc.
(i) "Disability" shall have the meaning set forth in Section
22(e)(3) of the Code.
(j) "Employee" shall mean any person who is currently employed by
the Company or an Affiliate.
(k) "Effective Date" shall mean January 20, 1997, provided,
however, that the Plan's adoption is subject to approval by the shareholders
of the Company at the Company's first annual meeting after the Company's Common
Stock is distributed to its former shareholders.
(l) "Fair Market Value" shall mean the fair market value of Common
Stock on the date of a grant or exercise of an Award, as the case may be, as
determined by a methodology adopted by the Board of Directors or the Committee.
<PAGE> 2
(m) "Incentive Stock Option" shall mean a stock option within the
meaning of Section 422 of the Code granted pursuant to Section 4.1(a).
(n) "Nonqualified Stock Option" shall mean an Option, other than
an Incentive Stock Option, granted pursuant to Section 4.1(b).
(o) "Option" shall mean, individually and collectively, an
Incentive Stock Option and a Nonqualified Stock Option to purchase Common
Stock.
(p) "Option Price" shall mean the price per share of Common Stock
set by the grant of an Option, but in no event less than the Fair Market Value
of the Option.
(q) "Participant" shall mean those officers, key employees and
directors of the Company, and its Affiliates to whom Awards may be granted.
(r) "Restricted Stock" shall mean an Award granted pursuant to
Section 4.1(d).
(s) "Separation Date" shall mean, as determined by the Committee,
the date on which a Participant's employment with the Company or an Affiliate
terminates for reasons other than his transfer of employment to another
Employing Company; and in the case of a Participant who is solely a director
shall mean the date of such Participant is no longer a director of the Company.
Whether any leave of absence shall constitute termination of employment for the
purposes of the Plan shall be determined in each case by the Committee at its
sole discretion.
(t) "Stock Appreciation Rights" or "SAR's" shall mean a right to
any appreciation in shares of Common Stock granted pursuant to Section 4.1(c).
Section 2. Administration. The Board of Directors shall appoint at
least two of its members to a committee (the "Committee") that will administer
the Plan on behalf of the Company. Except as may otherwise be provided in Rule
16b-3 of the Securities Exchange Act of 1934 (if applicable), no person shall
be appointed as a member of the Committee who is, or within one year prior to
his becoming a member of the Committee was, granted or awarded equity
securities pursuant to the Plan or any other plan of the Company or an
affiliate, if such grant or award would cause that person not to be
"disinterested" for purposes of Rule 16b-3 as promulgated pursuant to the
Securities Exchange Act of 1934.
Each member of the Committee shall serve at the pleasure of the Board
of Directors, which may fill any vacancy, however caused, in the Committee.
The Committee shall select one of its members as a chairman and shall hold
meetings at the times and in the places as it shall deem advisable. All
actions the Committee takes shall be made by majority decision. Any action
evidenced by a written instrument signed by all of the members of the Committee
shall be as fully effective as if the Committee had taken the action by
majority vote at a meeting duly called and held.
The Committee shall also have complete and conclusive authority to (1)
interpret the Plan, (2) prescribe, amend, and rescind rules and regulations
relating to it, (3) determine the terms and provisions of the agreements the
Company makes with Participants (the "Agreement"), the terms of which need not
be identical, and (4) make all other determinations necessary or advisable for
the administration of the Plan. With respect to each Award granted hereunder,
the Agreement evidencing the grant shall specifically state whether the Option
is an Incentive Stock Option, a Non- Qualified Stock Option, an Award of
Restricted Stock or an Award of SAR's.
In addition to any other rights of indemnification that they may have
as directors of the Company or as members of the Committee, the directors of
the Company and members of the Committee shall be indemnified by the Company
against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of action taken or failure to act under or in
connection with the Plan or any Award
2
<PAGE> 3
granted thereunder, and against all amounts paid by them in settlement thereof
(provided the settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any action, suit
or proceeding, except in relation to matters as to which it shall be adjudged
in the action, suit or proceeding that the Committee member is liable for
negligence or misconduct in the performance of his duties; provided that within
sixty (60) days after institution of any action, suit or proceeding, a
Committee member shall in writing offer the Company the opportunity, at its
own expense, to handle and defend the same.
Section 3. Eligibility. The Committee shall grant Awards only to
officers, key employees, and directors of the Company or its Affiliates;
provided, however, that an Incentive Stock Option may only be granted if such
individual is an employee of the Company or an Affiliate. Subject to the
limits set forth in this Plan, the Committee at any time may grant additional
Awards to directors, officers or key employees to whom the Committee had
previously granted Awards, so that a Participant may hold more than one Award
at the same time.
Section 4.
4.1 Awards. The Committee shall determine the forms and amounts
of Awards for Participants; provided that in no event shall any Award be
effective until the shareholders of the Company have approved the Plan. All
Awards shall be subject to the terms and conditions of the Plan and to such
other terms and conditions consistent with the Plan as the Committee deems
appropriate. Awards under the Plan need not be uniform and Awards under two
(2) or more paragraphs may be combined in one agreement. Any combination of
Awards may be granted at one time and on more than one occasion to the same
Participant. Such Awards may take the following forms, in the Committee's sole
discretion:
(a) Incentive Stock Options - These shall be stock options within
the meaning of Section 422 of the Code to purchase Common Stock. In addition
to other restrictions contained in the Plan, an Incentive Stock Option (1)
shall not be exercised more than ten (10) years after the date it is granted,
(2) shall not have an Option Price less than the Fair Market Value of Common
Stock on the date the Incentive Stock Option is granted, (3) shall otherwise
comply with Section 422 of the Code, and (4) shall be designated as an
"Incentive Stock Option" by the Committee. The aggregate Fair Market Value of
Common Stock determined at the time of each grant for which any Participant may
exercise Incentive Stock Options under this Plan for any calendar year shall
not exceed $100,000. Subject to the provisions of Section 5.1 hereof, no
Incentive Stock Option may be exercised during the first twelve (12) months
following its grant.
(b) Nonqualified Stock Options - These shall be stock options to
purchase Common Stock which are not designated by the Committee as "Incentive
Stock Options." At the time of the grant, the Committee shall determine the
Option exercise period, the Option Price, and such other conditions or
restrictions on the exercise of the Nonqualified Stock Option as the Committee
deems appropriate. In addition to other restrictions contained in the Plan, a
Nonqualified Stock Option (1) shall not be exercised more than ten (10) years
after the date it is granted, and (2) shall not have an Option Price less than
100% of the Fair Market Value of Common Stock on the date the Nonqualified
Stock Option is granted. Subject to the provisions of Section 5.1 hereof, no
Nonqualified Stock Options granted under this Plan may be exercised during the
first twelve (12) months following its grant.
(c) Stock Appreciation Rights - These shall be rights that on
exercise entitle the holder to receive the excess of (1) the Fair Market Value
of Common Stock on the date of exercise over (2) its Base Value multiplied by
(3) the number of SAR's exercised. Such rights shall be satisfied in cash,
stock, or a combination thereof, as determined by the Committee. Stock
Appreciation Rights granted under the Plan may be granted in the sole
discretion of the Committee in conjunction with an Incentive Stock Option or
Nonqualified Stock Option under the Plan. The Committee may impose such
conditions or restrictions on the exercise of SAR's as it deems appropriate and
may terminate, amend, or suspend such SAR's at any time. Subject to the
provisions of Section 5.1 hereof, no SAR's granted under this Plan shall be
exercised less than one (1) year or more than ten (10) years after the date it
is granted.
(d) Restricted Stock - Restricted Stock shall be shares of Common
Stock held by the Company for the
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benefit of a Participant without payment of consideration, with restrictions or
conditions upon the Participant's right to transfer or sell such shares. The
following provisions shall be applicable to Restricted Stock Awards:
(1) Each certificate for Restricted Stock shall be
registered in the name of the Participant and shall be deposited by
him with the Company, together with a stock power endorsed in blank.
(2) At the time of making a Restricted Stock Award, the
Committee shall establish the "Restriction Period" applicable thereto.
Such Restriction Period shall range from three (3) to ten (10) years
as determined by the Committee. The Committee may provide for the
annual lapse of restrictions with respect to a specified percentage of
the Restricted Stock, provided the Participant satisfies all
eligibility requirements at such time.
(3) The Participant shall be entitled to receive
dividends during the Restriction Period and shall have the right to
vote such Common Stock and exercise all other shareholder's rights
except the following:
(i) the Participant shall not be entitled to
delivery of the stock certificate during the Restriction
Period,
(ii) the Company shall retain custody of the
Restricted Stock during the Restriction Period, and
(iii) a breach of a restriction or a breach of the
terms and conditions established by the Committee with respect
to the Restricted Stock shall cause a forfeiture of the
Restricted Stock.
(4) The Committee may, in its sole discretion, prescribe
such additional restrictions, terms, or conditions upon or to the
Restricted Stock Awards as it may deem necessary or appropriate.
4.2 Individual Agreements After the Committee determines a form
and amount of a Participant's Award, it shall cause the Company to enter into
such written agreement or agreements with the Participant setting forth the
form and amount of the Award and any conditions and restrictions on the Award
imposed by the Plan and the Committee.
4.3 Exercise and Payment. Options may be exercised from time to
time by giving notice to the Committee, specifying the number of shares to be
purchased. Notice of exercise shall be accompanied by payment in full of the
Option Price in cash. The Committee, in its discretion, may permit the Option
Price to be paid in whole or in part through the transfer to the Company of
shares of Common Stock previously acquired by the Participant; provided,
however, that the shares so transferred shall have been held by the Participant
for a period of more than six (6) months and no Restricted Stock may be
transferred as payment of the Option Price. In the event the Option Price is
paid, in whole or in part, with shares of Common Stock, such shares shall be
valued at their Fair Market Value, as of the date of exercise of the Option.
Such shares shall be delivered, along with any portion to be paid in cash,
within five (5) days after the date of exercise. If the Participant fails to
pay the Option Price within such five (5) day period, the Committee shall have
the right to take whatever action it deems appropriate, including voiding the
exercise of the Option. The Company shall not issue or transfer Common Stock
upon the exercise of an Option until the Option Price is fully paid.
Section 5.
5.1 Termination of Employment. A Participant whose employment
terminates for reasons other than retirement, Disability, or death shall, in
the discretion of the Committee, have no right to receive any benefit or
payment for existing Awards under the Plan. Any outstanding Award shall
terminate on the Participant's Separation Date; provided, however, that the
Committee, in its sole discretion, may permit the exercise of any outstanding
Award after the Participant's Separation Date, but in no event beyond the
earlier of (a) three (3) months from the
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Participant's Separation Date or (b) the expiration date of the Award, to the
extent exercisable on such Participant's Separation Date.
5.2 Death of a Participant. In the event of the death of a
Participant prior to the exercise of all Incentive Stock Options, Nonqualified
Stock Options, and Stock Appreciation Rights granted to such Participant, the
administrator of the deceased Participant's estate, the executor under his
will, or the person or persons to whom the Options or SAR's shall have been
validly transferred by such executor or administrator pursuant to the will or
laws of interstate succession shall have the right, within one year from the
date of such Participant's death, but not beyond the expiration date of the
Options or SAR's, to exercise such Options or SAR's to the extent exercisable
on such Participant's Separation Date.
5.3 Retirement. (a) In the event of the termination of a
Participant's employment due to his retirement prior to the exercise of all
Incentive Stock Options granted to the Participant, such Participant shall have
the right, within three (3) months of his Separation Date, but not beyond the
expiration of such Options, to exercise such Incentive Stock Options to the
extent exercisable on his Separation Date.
(b) In the event of the termination of a Participant's employment
due to his retirement prior to the exercise of all Nonqualified Stock Options
or Stock Appreciation Rights granted to the Participant, such Participant shall
have the right, within thirty-six (36) months of his Separation Date, but not
beyond the expiration date of such Nonqualified Stock Options or SAR's, to
exercise such Nonqualified Stock Options or SAR's to the extent exercisable on
his Separation Date.
5.4 Disability. (a) In the event of the termination of a
Participant's employment due to Disability prior to the exercise of all
Incentive Stock Options granted to the Participant, such Participant or his
legal representative shall have the right, within twelve (12) months of his
Separation Date, but not beyond the expiration date of such Incentive Stock
Options, to exercise such Incentive Stock Options to the extent exercisable on
his Separation Date.
(b) In the event of the termination of a Participant's employment
due to Disability prior to the exercise of all Nonqualified Stock Options and
Stock Appreciation Rights granted to the Participant, such Participant or his
legal representative shall have the right, within thirty-six (36) months of his
Separation Date, but not beyond the expiration date of such Nonqualified Stock
Options or SAR's, to exercise such Nonqualified Stock Options or SAR's to the
extent exercisable on his Separation Date.
Section 6.
6.1 Limitation of Shares of Common Stock Available Under the Plan.
(a) The total number of shares of Common Stock available to be granted by the
Committee as Awards to the Participants under the Plan shall not exceed 112,500
shares.
(b) The total number of shares available under Section 6.1(a)
shall be reduced from time to time in the manner specified:
(1) Incentive Stock Options and Nonqualified Stock
Options - The grant of an Incentive Stock Option and Nonqualified
Stock Option shall reduce the available shares by the number of shares
subject to such Option.
(2) Stock Appreciation Rights - The grant of Stock
Appreciation Rights shall reduce the available shares by the number of
SAR's granted; provided, however, if SAR's are granted in conjunction
with an Option and the exercise of such Option would cancel the SAR's
and vice versa, then the grant of the SAR's will only reduce the
amount available by the excess, if any, of the number of SAR's granted
over the number of shares subjected to the related Option.
(3) Restricted Stock - The grant of Restricted Stock
shall reduce the available shares by the
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number of shares of Restricted Stock granted.
(c) The total number of shares available under Section 6.1(a)
shall be increased from time to time in the manner specified:
(1) Incentive Stock Options and Nonqualified Stock
Options - The lapse or cancellation of an Incentive Stock Option or
Nonqualified Stock Option shall increase the available shares by the
number of shares released from such Option; provided, however, in the
event the cancellation of an Option is due to the exercise of SAR's
related to such Option, the cancellation of such Option shall only
increase the amount available by the excess, if any, of the number of
shares released from such Option over the number of SAR's exercised.
(2) Stock Appreciation Rights - The lapse or cancellation
of Stock Appreciation Rights shall increase the available shares by
the number of SAR's which lapse or are cancelled; provided, however,
in the event the cancellation of such SAR's is due to the exercise of
an Option related to such SAR's, the cancellation of such SAR's shall
only increase the available shares by the excess, if any, of the
number of SAR's cancelled over the number of shares delivered on the
exercise of such Option.
(3) Restricted Shares - The reversion of Restricted Stock
to the Company due to the breach or occurrence of a restriction or
condition on such shares shall increase the available shares by the
number of shares of Restricted Stock reverted.
Section 7. Adjustment Upon Changes in Capitalization. The total
number of shares of Common Stock available for Awards under the Plan or
allocable to any individual Participant, the number of shares of Common Stock
subject to outstanding Options, the exercise price for such Options, the number
of outstanding SAR's, and the Base Value of such SAR's shall be appropriately
adjusted by the Committee for any increase or decrease in the number of
outstanding shares of Common Stock resulting from a stock dividend, subdivision
or combination of shares, or reclassification. In the event of a merger or
consolidation of the Company or a tender offer for shares of Common Stock, the
Committee may make such adjustments with respect to Awards under the Plan and
take such other action as it deems necessary or appropriate to reflect, or in
anticipation of, such merger, consolidation, or tender offer, including without
limitation the substitution of new Awards, the termination or adjustment of
outstanding Awards, the acceleration of Awards, or the removal of limitations
or restrictions on outstanding Awards.
Section 8. Terms and Conditions of All Awards. The Committee may
include in any Award it grants a condition that the Participant shall agree to
remain an employee of and/or to render services to the Company or any of its
Affiliates for a specified period of time following the date it grants the
Award. This condition shall not impose on the Company or any Affiliate any
obligation to employ the Participant or retain the Participant as a director
for any period of time.
The Committee may require any person to whom an Award is granted, as a
condition of exercising such Award, to give written assurances in substance and
form satisfactory to the Company to the effect that such person is acquiring
the Common Stock subject to the Award for his or her own account for investment
and not with any present intention of selling or otherwise distributing the
same, and to such other effects as the Company deems necessary or appropriate
in order to comply with federal and applicable state securities laws, or with
covenants or representations made by the Company in connection with any public
offering of its Common Stock.
Each Award shall be subject to the requirement that if, at any time,
counsel to the Company shall determine that the listing, registration or
qualification of the Common Stock subject to such Award upon any securities
exchange or under any state or federal law, or the consent or approval of any
governmental or regulatory body, or that the disclosure of non-public
information or the satisfaction of any other condition is necessary as a
condition of, or in connection with the issuance or purchase of Common Stock
thereunder, such Award may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors. Nothing herein shall be
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deemed to require the Company to apply for or to obtain such listing,
registration or qualification, or to satisfy such condition.
Section 9. Compliance with Code for Incentive Stock Options. All
Incentive Stock Options are intended to comply with Code Section 422, and all
provisions of the Plan and all Incentive Stock Options granted hereunder shall
be construed in such manner as to effectuate that intent.
Section 10. Term of Plan. The effective date of the Plan shall be
January 20, 1997. The Plan shall terminate ten (10) years after that date.
The Committee may grant Awards pursuant to the Plan at any time on or between
that effective date and that termination date.
Section 11. Withholding Taxes. Whenever the Company proposes or is
required to issue Common Stock to an Participant who is or was an employee of
the Company or an Affiliate, or his legatee or legal representative under the
Plan, the Company shall have the right to require the recipient to remit in
cash to the Company an amount sufficient to satisfy any federal, state, and
local withholding tax requirements prior to the delivery of any certificate or
certificates for such Common Stock.
Section 12. Assignability. Except as Section 5.2 of the Plan
permits, no Award or any of the rights and privileges thereof accruing to a
Participant shall be transferred, assigned, pledged or hypothecated in any way
whether by operation of law or otherwise, and no Award, right or privilege
shall be subject to execution, attachment or similar process. No election as
to benefits or exercise of Options, SAR's, or other rights, may be made during a
Participant's lifetime by anyone other than the Participant.
Section 13. The Right of the Company to Terminate Employment. No
provision in the Plan or any Award shall confer upon any Participant any right
to continue in the employment of the Company or any subsidiary of the Company
or to continue performing services for or to interfere in any way with the
right of the Company or any subsidiary of the Company to terminate his
employment or discontinue his directorship at any time for any reason.
Section 14. Amendment and Termination. The Board of Directors at
any time may amend or terminate the Plan without shareholder approval;
provided, however, that the Board of Directors may condition any amendment on
the approval of the shareholders of the Company if such approval is necessary
or advisable with respect to tax, securities (which require such approval for
a material increase of the number of shares of Common Stock subject to the
Plan, and for material modifications to the eligibility requirements of the
Plan, among others) or other applicable laws to which the Company, the Plan,
optionees or eligible employees are subject. No amendment or termination of the
Plan shall affect the rights of a Participant with regard to his Awards without
his consent.
Section 15. Choice of Law. The laws of the State of Georgia shall
govern the Plan.
Section 16. Approval of Shareholders. The Company shall submit the
Plan to its shareholders for approval within twelve (12) months of the
adoption of the Plan by the Board of Directors; failure to receive their
approval shall render all outstanding Awards immediately void and of no effect.
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